Case ID: ny-super-ct_29/html/0502-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court, Robertson, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Samuel McBurney, plaintiff and respondent, vs. Isaac K. Martin, defendant and appellant.
    1. An action for the conversion of money, and one for its receipt in a fiduciary capacity, must necessarily proceed upon entirely different and inconsistent grounds. The latter renders the liability to pay such money a mere debt, although a ground for arrest; the former constitutes a tort. Per Robertson, Oh. J.
    2. The second subdivision of section 179 of the Code was not intended to include, in the class of persons mentioned secondly therein as liable to be arrested, any one except those who received moneys purely in a fiduciary capacity as simple agents to apply it as directed or agreed.
    
      3. It therefore excludes all thosé who have a'personal interest in such money or its use, and a right to control it, independently of any appropriation of it according to instructions of the owner, or where the liability for repaying such moneys grows out of a transaction in which credit is given to the pecuniary responsibility of the recipient, and not merely confidence placed in his personal character.
    
      4. Where an assignor of the plaintiff, having employed the defendant as his broker, to sell for him a certain number (2500) of shares of stock (Erie Railway Company) not then owned by him, and placed in the hands of the defendant a certain sum ($8500) as security against loss by any temporary rise in the market value of such stock, in order to perform such contract, instructed the defendant to borrow, and the latter did borrow, the proper number of shares of the stock of said company, for delivery, and sold the same and delivered to the purchaser the shares so borrowed, and received from him the purchase money; Held that the moneys so received by the defendant were not received by him exclusively in a, fiduciary capacity.
    (Before Robertson, Ch. J., and Monell, J.)
    Heard October 6, 1866;
    decided November 15, 1866.
    Appeal from an order made at a special term, denying a motion to discharge an order of arrest.
    The. plaintiff alleged, in his complaint, as follows: On the 1st day of April, 1866, the defendant was, and at all times since had been, and then was engaged in business in the city of Hew York, as a broker, in the buying and selling of stocks upon commission. At different times and on divers days between the 16th day and 27th day of that month of April, (1866,) inclusive, one Alfred M. Parker duly retained said defendant as his broker and agent, for a certain commission, then and there agreed to be paid by Parker to him, to sell for him (Parker) twenty-five hundred shares of the common capital stock of the Erie Railway Company; and that in pursuance of such retainer the defendant did, at such times, in the city of Hew York, sell and deliver for Parker’s account, as his broker, twenty-five hundred shares of stock of the Erie Railway Company, on the days and in the quantities, and at the price set forth in a schedule annexed to the complaint. At the time of such retainer, and on divers days until and including the 10th day of May, 1866, Parker, at the request of the defendant, deposited with and left in the hands of the latter various sums of money, amounting in the aggregate to the . sum of $8500, to be held by him as collateral security, or by way of indemnity to the defendant, against any loss to him by reason of any appreciation or fluctuation in the price or market value of said stock so sold and delivered. Upon such sale, and in pursuance thereof, the defendant, as the agent-of Parker, in order to make a delivery of the shares so sold, at Parker’s request and upon his order, (he not having said shares at the time in his possession wherewith to make such delivery,) borrowed from some third person or persons, twenty-five hundred shares of the said common capital stock of the Erie Railway Company, and duly delivered the shares of stock so borrowed to the persons who had purchased the stock from the defendant as the broker of Parker. Upon such delivery the defendant, as such' agent and broker of Parker, received from such purchasers a certain sum ($181,675) in payment for the stock so sold and delivered, which said last mentioned sum was the property of Parker, and was received for him by said defendant in a fiduciary capacity; and the said Parker agreed that the defendant, as his said agent and broker, might keep the said sum in his (the defendant’s) hands, as collateral security to him (the defendant) against appreciation in the market price or value of the shares so borrowed, until such time as he, Parker, might order and direct him (the defendant) to purchase said shares of stock and return the same to the person or persons from whom the defendant had borrowed the same for him (Parker) and on his account. In consideration of such retainer and employment of the defendant by Parker, and of the commissions- so agreed to be paid by Parker to the defendant, and of the deposit of such sum of $8500 with the defendant by Parker, as margin, and of the said Parker permitting the defendant to retain the purchase money received by him for the .stock so sold and delivered by him, as collateral security against appreciation in the market value of such shares, as before set forth, the defendant promised and agreed with Parker to keep the shares of stock so sold and delivered as aforesaid, borrowed, and not to purchase the same on Parker’s account, or close the transaction until specially • instructed by Parker to buy in such stock, and close the transaction by returning the same to the person or persons to whom they should be coming at the time of such instructions. On or about the 15th day of May, 1866, the defendant, in violation of his duty as the broker of Parker, and of the rights of Parker in the premises, and of his express instructions theretofore given, and of his (the defendant’s) express agreement with and promise to Parker, and without any notice to Parker or calling on him for any further or other deposit or margin, bought in the said twenty-five hundred shares of stock, and delivered the same to the person or persons from whom he had so borrowed the same, and closed up that transaction. On making such unlawful and unauthorized purchase, the defendant used the moneys in his hands as the agent of said Parker as aforesaid, to wit, such sums of $181,675 and $8500, and misapplied the same, and wrongfully converted all of such money to his own (defendant’s) use. Parker, immediately upon being notified of such unlawful and unauthorized acts of said defendant, wholly repudiated the same, and notified the defendant .thereof. Afterwards, and on the 24th day of May, 1866, the shares of stock of the said Erie Railway Company had greatly declined in their market value, (to wit, tq_the market price of $66 a share,) and said shares have since greatly further declined in such market price; and on said 24th day of May, 1866, Parker duly requested and ordered the defendant to buy in said shares of stock at the then market price, and to return the stock so bought to the parties who had lent the same, and then and in that manner to close up the said transaction. The defendant wholly failed and refused to comply with Parker’s orders, and to buy in such shares of stock when thereto requested, to the great damage of Parker. That thereupon Parker demanded from the defendant all the moneys so received from him on the original sale of said shares of' stock, to wit, the sum of §181,675, and also his margins, amounting to the sum of §8500, as aforesaid, which said defendant refused. Parker offered to allow said defendant, out of said sum of §181,675, the sum which it would then be necessary to pay for twenty-five hundred shares of the common capital stock of the Erie Railway Company, and demanded of the defendant the balance, which the latter also refused, to pay. Subsequently, on the 5th of June, 1866, and after the execution and deliveiy of the assignment hereinafter mentioned, the plaintiff, in his own behalf, in like manner demanded payment of such sums of money, which the defendant refused to pay. By reason of the facts so set forth, Parker suffered damages to §30,000. ,
    And the plaintiff alleged and averred that Parker, for a valuable consideration, by deed of assignment duly executed and under seal, before the commencement of the action, duly transferred to the plaintiff all and every claim and demand which he then held against the defendant, including the claims and- demands arising out of the facts set forth, and that the plaintiff was then the lawful owner of the same. Wherefore the plaintiff demanded judgment against the defendant for the sum of §30,000, together with costs.
    The principal facts set forth in the complaint were repeated in an affidavit made by Parker, and were denied in an affidavit of the deféndant. An* order for arrest having been granted, the defendant on- his own affidavit moved to vacate the same; which motion, was denied; and he appealed to the general term.
    
      R. H. Huntley, for the defendant, appellant.
    
      G. C. Barrett, for the plaintiff, respondent.
   By the Court, Robertson, Ch. J.

The complaint not only sets up. a refusal by the defendant to pay money claimed to have been received by him in a fiduciary capacity for the plaintiff’s assignor, (Parker,) hut also his conversion of the same money. The relief demanded by it is the payment of a certain sum ($30,000) which it claims to have been the damages sustained by Parker by reason of the refusal of the defendant to pay over the proceeds of certain stock (Erie Railroad Co.) sold on behalf of the former, less the cost of a like number of shares, on a certain day, (May 24th, 1866,) when he required the defendant to buy them, and offered to allow him to deduct sufficient out of such proceeds for the purpose of paying the price thereof. Of course, if this were a mere action for damages for not buying stock according to instructions on a particular day, after an agreement to do so, the defendant could not be held to bail. Bor is there any thing before us to fix on the defendant a charge of having converted money not belonging ■ to him. The money received by him had no earmark. It was not a special deposit, nor does the complaint undertake to describe the kind or character of such money. It evidently became a mere debt, or chose in action, although if the defendant had received the money in a fiduciary capacity, he may be bound, under penalty of being arrested and held to bail therefor, to be able at all times to respond to a demand for it. A conversion of money, and its receipt in a fiduciary capacity, must necessarily be entirely different and inconsistent. The latter renders the liability to pay. such money a mere debt; the former constitutes a tort.

Most probably the defendant would be liable to be arrested in an action for the money received by him, if it had simply been deposited in his hands by the plaintiff’s assignor, as his money, free of all claims, in order to buy certain stock therewith, and he had refused so to apply it or pay it back. But in this case the prior part of the transactions between the parties left this money in his hands, as stated in the affidavit of Parker, as security against loss in case of a rise in the value of the stock. How he could sustain such loss if, according to the terms of his understanding with Parker, he was bound continually to borrow shares of stock to replace previous loans in succession, and wait the pleasure of his employer to relieve him from responsibility by buying the stock, is not -explained. It is sufficient, however, that he was entitled to retain it to protect some interest of his own, which may have been, as he had made himself personally liable to restore the stock, to buy it in, in case he was unable to borrow it, particularly as it is admitted he was entitled to use, upon the same contingency, or hold the additional sum, ($8500,) which had been placed in his hands for a like purpose.

I do not understand the second subdivisión of the 179th section of the Code to have intended to include in the class of persons secondly m entioned therein as liable to be arrested, any one except those tyho received moneys purely in a fiduciary capacity as simple agents, to apply it as directed or agreed. If so, it excludes all those who may have a personal interest in such money or its use, and a right to control it, independently of any appropriation of it according to instructions of the owner, or where the liability for'repaying such moneys grows out of a transaction in which credit appears to have been given to the pecuniary responsibility of the recipient, rather than confidence placed in his personal character. The duty imposed upon a consignee of a vessel, in the payment of her expenses, has been considered to be sufficient to relieve him from liability to arrest for the price of such vessel subsequently received by him on a sale thereof, out of which he was entitled to reimburse himself for such payments. (Goodrioh v. Dunbar, 17 Barb. 664.) A personal guaranty to a consignor of goods for sale, of the fidelity and responsibility of consignees, given by their agent, in consideration of an undertaking by such consignor to make good any deficiency in the proceeds of the sales of such goods below advances on them by such consignees or agent, was held to take away from the receipt by such agent, from such consignor, of the amount of such deficiency, all fiduciary character, as regarded such consignees, so as to exempt ■ him from arrest. (Angus v. Dunscomb, 8 How. Pr. 14.) The right of an agent to use moneys collected by him on drafts remitted for the purpose until drafts were drawn on him for them by the remitter, where he undertook to pay interest thereon, was also held to exempt him from arrest for the proceeds of a draft collected by him, even after he knew he was insolvent. (Bassing v. Thompson, 15 How. 97.) In this case the personal liability of the defendant to replace the borrowed stock, and his right to use the funds in his hands to protect himself from loss, took away from the act of trusting him with such proceeds, any purely confidential character, in the authority to receive them. To permit him to retain, and mingle with his own, the original funds, and become liable for them simply as a debt, in case he did not apply them to the purchase of stock, was rather a credit than a confidence. If such moneys were also to be used or employed in assisting the defendant in any way to carry out any agreement for keeping up always a loan of the stock, his right to retain them until relieved from such liability still farther destroyed any confidential character of the original receipt of them.

Although the fiduciary character of a receipt of money be part of the essence of the cause of action when a defendant is arrested in consequence thereof, and where rights and relations of the parties, growing out of complicated arrangements and conditions accompanying such receipt of moneys, require to be investigated to ascertain whether any of the money so received be due by reason of the performance or discharge of all such conditions, the investigation by affidavits of the whole case may become often very uncertain, unsatisfactory and embarassing, while the simple question whether a defendant 'has received moneys to dispose of in a certain way may be easily determined; yet when such agent is admitted to have a lien upon the moneys received by him by reason of having incurred liabilities for the plaintiff for which he is entitled to retain such moneys, until satisfied, in such a case as the present, the court cannot take an account in advance, to ascertain what the balance due the plaintiff may be, so as to hold the defendant to bail for such balance, particularly where it does not clearly appear by the affidavits on behalf of the plaintiff, but is the subj ect of unliquidated damages in the complaint.

If the testimony of the defendant and that of Parker are to be weighed against each other, it seems very difficult to reconcile both statements of the latter, that the former was expected and agreed to continue borrowing the stock until required by him to buy it, and yet that same contingency might arise, in which, by reason of a fall in the stock, he was entitled to use the" deposit originally made, as well as the purchase moneys, to provide against such loss. There are two other statements in the same affidavit, which still further obscures the nature of the arrangement. One is that, “Even if the. defendant had been obliged to buy in such stock, he * * should have deferred the purchase until the following morningand again, “ That on the following day the defendant could have made a resale of said stock, and it ivas his duty under the aforesaid agreement to mahe a resale of the same and reinstate the transaction.” It is difficult to discover how it became such duty from a contract perpetually to borrow. If the defendant was vested with a discretion to buy or borrow in the alternative, as he might think proper, then there is nothing, to show that his purchase of the stock, at the time he made it, was not discreet. He was not bound to foreknow the future fall, and some evidence of bad faith is necessary to charge him with the consequences. But I think it is not necessary to pass upon the conflicting evidence of the parties in this case. I am satisfied, upon the allegations contained ill the statement of Parker, that the moneys received by the defendant were not so received by him in an exclusively fiduciary capacity as to warrant his arrest.

The order appealed from, refusing to discharge the order of arrest, should therefore be reversed, and the motion to discharge granted, without costs to either party.