Case ID: ny-super-ct_50/html/0001-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Sedgwick, Ch.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THE SECOND AVENUE R. R. Co., Appellant, v. SOLOMON MEHRBACH, Impleaded, et al., Respondent.
    
      Conversion elements, of—unauthorized disposition of property by agent, when constitutes. —Damages.
    
    If an agent entrusted with property of a principal, parts with it, in a way, or for a purpose not authorized, he is liable for a conversion ; this, though the act, taken by itself, corresponds to what was authorized, and the fact t'hat the original taking by the agent was not tortious, does not alter the character of the subsequent acts constituting a conversion.
    That the wrong-doer should receive some benefit from his act, is not an element of conversion.
    Accordingly, where defendant, the president of a corporation, is authorized to raise money for it, by way of loan on his personal note secured by bonds belonging to "the company, and he gives his note for a certain sum, secured by said bonds and by other securities owned by a third party, and pays over to the company a portion of the moneys so raised, and the balance to said third party ; such act constitutes a conversion.
    Though the amount so paid to the company be equal to the sum which coulcl have been raised had its said bonds been pledged alone, yet, it cannot be held that the company is not harmed.
    
      
      Decided January 7, 1884.
    The additional amount beyond that received, which the company is obliged to pay, on a settlement, to regain the bonds, is an element of damage.
    Before Sedgwick, Ch. J., and O’Gorman, J.
    Appeal by plaintiff, from judgment dismissing the complaint at the close of plaintiff’s case.
    The action was for an alleged conversion of bonds made by plaintiff. The first cause of action which is the one considered in the opinion, was for the conversion of thirty-two bonds made by plaintiff, and its property, which defendant Mehrbach, then the president of the company, pledged, together with certain bonds of the Houston Street, &c. Ferry Co., the property of his brother, to secure said Mehrbach’s personal note for $50,000 ; a portion of the money raised by said transaction, viz., $20,000, he paid to plaintiff, and the balance, $30,000, to his brother. The evidence tended to show that defendant Mehrbach had authority to raise money for the company’s sole benefit, by his personal note secured by bonds belonging to said company. There was no evidence that at the time of the receipt of said $20,000, there was knowledge on the part of the company qf the nature of the transaction by which the loan was effected. There was evidence tending to show that when the bonds were redeemed, the company was obliged to pay a greater sum to recover them, than the amount of the loan thereon and interest. Further facts appear in the opinion.
    
      Hutchins & Platt and Austin G. Fox, for appellant.
    I. This use of the plaintiff’s property was wrongful, and was a conversion of the property for which the defendant is liable. The only authority that Mehrbach had was to pledge the bonds as security for a loan to the plaintiff, and in pledging them as security for a loan to himself or his brother, he was guilty of a conversion of the bonds. The court below seemed to think an action upon the case might lie, but not an action for conversion. But upon the case at bar, the Importers’ and Traders’ Bank held each bond for the whole loan. If the bonds of the Houston Street and West Pavonia Ferry Company had became worthless, the bank would have held the plaintiff’s bonds for the whole loan and any unauthorized use of another’s property amounts to a conversion (Kennedy v. Strong, 14 Johns. 128 ; Dickinson v. Dudley, 17 Hun, 569 ; Laverty v. Sneihen, 68 N. Y. 522; Syeds v. Hay, 4 T. R. 260 ; Thrall v. Lathrop, 30 Vt. 307 ; Wheelock v. Wheelwright, 5 Mass. 103).
    II. The defendant, Mehrbach, is liable although he did not take the bonds to the bank himself. He took them from the plaintiffs, and gave them to the defendant Fellows, to pledge as security for the loan of $50,000 (Hynes v. Patterson, 28 Hun, 528; Laverty v. Snethen, 68 N. Y. 522).
    III. The plaintiff, by receiving the sum of $20,000, “retaining it and entering the loan upon the books of the corporation,” did not waive its right “ to treat the bonds as a conversion by the defendant.” The conversion was complete the moment that the bonds were subjected to a lien for the $30,000 advanced for the brother of the defendant, Mehrbach. There is no evidence whatever that any of the plain tiff’s officers, except the two defendants, knew of this, or had any reason to suspect it, until several months afterwards. But the court below said that the plaintiffs ought to have found it out. The defendant, Mehrbach, was the plaintiff’s agent for the purposes of this transaction, and it would seem a little odd that he is to escape liability because he did not tell some one. A right of action being once complete can be discharged by the plaintiff only by a release, or accord and satisfaction (Bosanquet, J., in Baylis v. Usher; Connah v. Hale, 23 Wend. 462, 470).
    IV. The form of action was proper. The court, in dismissing the complaint, said: “ The most that can be said is, that if, from the manner in which the pledge was made and loan obtained, the plaintiff’s corporation sustained any special damage, that then, upon pleading all these facts, the plaintiff might maintain an action upon the case.” (a) But, under the Code, if on the facts proved the plaintiff is entitled to relief, he has the right, at least, to have them submitted to a jury. (5) But even at common law the form of action was proper (McMorris v. Simpson, 21 Wend. 610; Laverty v. Snethen, 68 N. Y. 522; Murray v. Burling, 10 Johns. 172).
    V. If the plaintiffs had a cause of action, it was error to dismiss the complaint, whether they proved special damage or not. They were entitled, at least, to nominal damages. But they proved special damages to the extent of $12,783.53.
    VI. This action lies, notwithstanding that the plaintiffs have recovered possession of the bonds. The action is not to recover the bonds, but damages for their conversion, and the measure of damages is the amount which the plaintiffs had to pay in order to regain possession of the bonds (Murray v. Johnson, 10 Johns. 172).
    VII. It was not necessary/to prove that the defendant, Mehrbach, received any benefit from the transaction (Bristol v. Burt, 7 Johns. 254; Connah v. Hale, 23 Wend. 462).
    VIII. It was not necessary to show a wrongful intent on the part of the defendant, Mehrbach, for it is not an essential element of the conversion (Boyce v. Brockway, 31 N. Y. 490, 493; Poucher v. Blanchard, 86 N. Y. 256 ; Robinson v. Chemical National Bank, Id. 404).
    
      Smith, Allan & Smith, for respondent.
    I. The facts show authorization for the defendant’s acts; ratification of them after they were done ; and the receipt of the avails of his. efforts in their behalf ; therefore, conversion will pot lie.
    II. The acts of the defendant came under the authority imposed upon him by the by-laws. He had “ chief management, control, and supervision of the affairs of the company.”
    III. The evidence shows that the plaintiffs are estopped from claiming that’ defendant’s acts were done without authority. The legal effect is the same, where acquiescence is proved, and where ratification is proved, as if the party doing the acts had been expressly directed to do them (Story Agency, § 87, 9th Ed.; 1 Domat. Civ. Law, tit. 16, § 3, art. 1; 2 Kent Comm. §§ 41, 622-623 ; Story's Agency, § 92; Johnson v. Jones. 4 Barb. 369). It is now well settled in America that the employment and authority of an agent may be inferred and implied from the adoption and recognition of the acts of the agent by such corporation (Story's Agency, § 52; Bank of U. S. v. Dandridge, 12 Wheat. 64 ; Darst v. Gale, 83 Ill. 136; Kelsey v. National Bank, 2 2 Penn. St. 426-429 ; Marsh v. Fulton, 10 Wall. 676-684). In Ninen v. Belknap (2 Johns. 589), Thompson, J., says : “ In equity, therefore, where a man has been silent when in conscience he ought to have spoken, he shall be debarred from speaking when conscience requires, him to be silent.” See also, 2 Parsons on Contracts, n. 2 ; 794 n. 9.
   By the Court.—Sedgwick, Ch.

It will be assumed that the pláintiff had authorized the defendant to pledge its bonds for the purpose of borrowing money for the corporation. Vet if the evidence did not conclusively show, it would have sustained a finding by the jury, that the authority was confined to a pledging of the bonds for the sole benefit of the corporation, and did not extend to pledg- . ing the bonds for the benefit of any other than the corporation, or for the benefit of the corporation in part and of another in part.

It may be assumed also, that one authorized mode of borrowing money for the corporation, was upon the note of the defendant secured by the bonds of the corporation. The defendant made his note for $50,000, and obtained upon it a loan of like amount, giving as security for its repayment 32 bonds made by the plaintiff and 50 bonds of the Houston Street Ferry Company. Of the loan obtained by the defendant, he handed over to his brother $30,000 and to the. plaintiff $20,000. The pledging of the bonds of the plaintiff was as much for the benefit of the defendant or his brother, as of the plaintiff. This had not been authorized by the plaintiff, and was a conversion. The decision in Laverty v. Snethen (68 N. Y. 522), supports this conclusion and it cites cases enough to make all the distinctions that it would be expedient to examine. The rule is, that when the disposition itself of property by an agent has been made in accordance with authority given, it is not conversion, and any cause of action, if one exist, must be based upon some other act of the agent which is wrongful, if such were done. If the disposition is unauthorized, it is a conversion.

The act will be a conversion, although taken by itself, it corresponds to what was authorized, if it be done by the agent in derogation of the claims or rights of the principal.

In Covell v. Hill (6 N. Y. 374), the plaintiff had made a conditional sale of lumber. The conditional purchaser shipped the lumber and received a bill of lading in the name of the plaintiff, the owner. He substituted for this, a paper signed by himself, which stated a shipment in his own name-as consignor and delivered it with the lumber to the defendants as :consignees, and received advances from them. The owner plaintiff, notified the consignees defendant, that he owned the lumber and insisted that the defendants should sell it for him. They in fact sold the lumber, to protect their advances to the conditional purchaser. The opinion says, “ the judge submitted the question to the jury to decide whether the defendants sold the lumber for themselves, claiming the right to do so, after notice that it belonged to the plaintiff, and instructed them that if they did, such act would be evidence of a conversion. In this we think there was no error. The sale was not by consent of the plaintiff. The plaintiff never authorized a sale of the lumber by the defendants under an adverse and hostile claim of title, and in assuming to make the sale in subversion of the plaintiff’s rights, instead of making it in subordination to them, and in pursuance of his request, was a conversion, according to all the authorities.” This case is cited that it may be applied to the fact that the form of the loan procured, was in some respects, like that which it is assumed had been authorized by the plaintiff; for instance, upon the note of the defendant. Yet there was an essential difference, for there is no evidence to show that the defendant was authorized to make his note for an amount larger than the amount he borrowed for the corporation.

Some arguments were made on the appeal, that seem to be determined by the facts. It was argued that the defendant received no personal benefit from the transaction of pledging the bonds. This is not an element of conversion. That consists in a tortious exercise of dominion over another’s property. The degree of material benefit received by the wrongdoer does not make the act tortious, nor does an absence of interest tend to show that the owner was not deprived of his dominion over his property. The testimony here shows that either for his own benefit or his brothers, which is immaterial, he received part of the loan made upon the plaintiff’s bonds.

It was also argued that the original taking by the defendant of the bonds was not tortious, and therefore the subsequent acts did not constitute a conversion. In fact, the jury might have' found, that the defendant from the first procured the bonds for the tortious purpose of disposing of the bonds in a way that has been held to be a conversion. Suppose it otherwise, and that the defendant had been entrusted with the bonds for ‘ the purpose of making the authorized loan before he thought of making the unauthorized loan, there was nothing in the previous custody that altered the character of the subsequent conversion.

There was an argument that all the money raised on the bonds for the company went into their treasury and was used for their'benefit. This is true in this way only, that if the defendant had in fact procured a loan upon the bonds for the plaintiff only, it could not, as the defendant assumes the evidence was, have been greater than the amount that was actually paid over to'the plaintiff. This does not avail tó show, that the plaintiff was not harmed, because as might have been found oh the settlement, they were obliged to pay more than the $20,000 they received, to regain their bonds, as a consequence of the loan in its actual shape.

This opinion has given the defendant the benefit of all the testimony that tends to show any authority in the defendant from the plaintiff to raise money upon its bonds. There is none that tends to show that there was any authority to use the bonds to any extent for a loan to the defendant or to his brother. There was no evidence of any ratification of the loan as actually made.

This opinion has regarded only the loan made upon the security as part of the 32 bonds, named in the first cause of action.' The testimony as to the 22 bonds in the second cause of action, is so meagre that I do not think any opinion can be given as to the rights of the parties in respect of them. Indeed on another trial, it will be well to make the facts of the whole case clearer and more definite than they appeared on the trial had.. On the conclusions reached as to the first cause of action, a new trial should be ordered.

Judgment reversed and a new trial ordered, with costs of the appeal to abide the event.

O’Gorman, J., concurs.