Court Opinion

ID: 3576697
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:28:38.739951+00
Date Added: 2024-06-11T07:41:09.546559
License: Public Domain

Plaintiff brought this action to recover $65,000 upon the ground that it had been converted by defendants. The conversion, the complaint alleges, was committed on the very day that defendants received the moneys in question "as security" for a lease, by their act of causing them "to be mingled". The lease itself recited that it was "understood that the Landlord shall have the right to use said moneys toward the purchase of the Leased Premises", and, upon the oral argument before us, it was acknowledged that the moneys were so used.
To recover in the action, it was incumbent upon plaintiff to establish, first, that section 233 of the Real Property Law of this state was applicable and operative where the lease covered land in jurisdictions other than New York and, second, that the $65,000 which plaintiff paid to defendants was a trust fund which was to be held separate and apart from the landlord's funds and not mingled with them. The court at Special Term dismissed the complaint for insufficiency, and the Appellate Division unanimously affirmed its order.
I agree with the determination that has been made. In the first place, the lease between the parties unequivocally demonstrates that the fund was not to be held in trust, and, in the second place, it is manifest that section 233 of the Real Property Law operates only upon moneys deposited as security under leases for land located in New York.
We may start with the proposition that the legislature of this state, in enacting the Real Property Law and in adding provisions to it, was only interested in, and concerned with, property located within this jurisdiction. The court at Special Term analyzed the situation that prompted the legislature to enact section 233 and came to the conclusion — properly, I venture — that the legislature gave thought solely to deposits of security under leases relating to real estate in New York.
If the legislature had intended to deal with real property situated outside of New York, it could easily have done so. *Page 304 
An examination of the other provisions in the Real Property Law discloses that, on those few occasions, when the legislature purposed to deal with such property, it said so explicitly. In section 536, for instance, express and plain is the reference to real estate "situate without the state". (Emphasis supplied.)
I suggest, therefore, that, on the basis of need, of reason and of language, the legislature, in enacting section 233, did not intend to protect security deposits under leases relating to real property in other states. And we cannot expand the scope of the statute beyond that contemplated by the legislature by characterizing the security provision in a lease as a "personal covenant."
In any event, even if section 233 were to be held applicable to leases relating to land outside of New York, the agreement itself establishes that that section is not applicable. Neither plaintiff nor defendant ever expected that the $65,000 was to be held intact as security or inviolate as a trust. As noted above, after reciting that the tenant deposited the $65,000 "as security", the parties expressly stated that it was "understood that the Landlord shall have the right to use said moneys toward the purchase of the Leased Premises". In the light of such a provision, it is difficult, nay impossible, to see how the landlord was under the duty of treating and holding those moneys as a trust fund. Permission to use the funds to purchase the very property which is the subject of the leasehold decisively proves that it was not intended that the landlord hold the fund as a trust throughout the leasehold period. Certainly, where the tenant depositor expressly sanctions a use of the moneys "deposited" for the purchase of the subject property, it is highly unreasonable to say that the landlord is guilty either of a conversion or — by reason of section 1302-a of the Penal Law — of a larceny if he does not hold them intact throughout the entire period of the lease, but, as is here the case, uses them to purchase the leased premises.
It is true that section 233 forbids a lease "provision" that "waives" any of the statute's provisions relating to the inviolability of a fund deposited as security. But the provision in this lease which expressly authorizes the landlord to use the amount deposited for the very purpose of buying the property to be leased cannot be said to be a waiver within the meaning of the *Page 305 
statute. The legislature merely wanted to prevent a landlord from insisting that he should be able to deal with a fund given to him as security for rent in any way he chose. Here, the situation is entirely different from that envisaged by the legislature. The lease indicates that there would never have been a leasehold of this Virginia property, that there would never have been a landlord-tenant relationship, had the tenant not empowered the landlord to employ the money to buy the premises. That authorization in the lease makes it clear that the deposit was not to be held intact and inviolate — as deposits for security would be — throughout the term of the lease and then returned. In short, the "deposit" was not of the type which the legislature intended to come within the ambit or compass of section 233. The paragraph of the lease in question must be read as a whole; we may not emphasize or isolate a particular phrase or clause, particularly when, in doing so, we effect an unreasonable result.
I do not mean to suggest that section 233 may be avoided by subterfuge; if some device is attempted simply to circumvent the nonwaiver provision of the statute, the courts will quickly strike it down. Where the so-called "deposit" is given to the landlord, however, for the very purpose of enabling him to bring the leasehold into existence, it cannot be said that resort was had to a subterfuge.
In my view, the courts below were correct in ruling that the complaint does not state a cause of action; the judgment should be affirmed, with costs.
LOUGHRAN, Ch. J., LEWIS and DYE, JJ., concur with CONWAY, J.; FULD, J., dissents in opinion in which DESMOND and BROMLEY, JJ., concur.
Judgments reversed, etc. [See 300 N.Y. 680.] *Page 306