Court Opinion

ID: 5250691
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:12:36.045485+00
Date Added: 2024-06-11T08:27:56.495807
License: Public Domain

Smith, J. (dissenting):
This is an appeal from an order of the Special Term which denied the defendant’s motion upon the ground that the complaint stated a cause of action. The Midtown Contracting Company had a contract with the city. The plaintiff furnished some material for the performance of that contract and took an assignment of $4,500 from the eighth payment to become due from the city to the Midtown Contracting Company. That assignment was not recorded at the request of the defendant, who was the president of the Midtown Contracting Company and who, with his wife, owned 99 out of 100 shares of the stock of that company. The defendant, however, agreed that when the eighth payment was received $4,500 should be taken therefrom and paid to the plaintiff. The moneys were received by the defendant in behalf of the Midtown Contracting Company and $2,500 was thereafter paid to the plaintiff, leaving $2,000 remaining due. The defendant then misappropriated the other $2,000 and applied the same to the debts of the Midtown Contracting Company, which afterwards went into bankruptcy. This action is brought against the defendant upon the ground that he received this $4,000 of this eighth payment as trustee for the plaintiff, and when he diverted the funds to the debts of *185the Midtown Contracting Company he was guilty of misappropriation and is personally liable therefor.
That this agreement vested the title of $4,500 of that eighth payment in the plaintiff would seem to be undoubted. The test seems to be whether the debtor would have been authorized to pay that money to the assignee. In this case there is no question that the payment to the assignee of $4,500 by the city would be a payment pro tanto of the city’s debt to the Midtown Contracting Company. In fact, if the plaintiff had filed this assignment, the city would have been compelled to pay the moneys to the plaintiff. At the request, however, of this defendant and to relieve the Midtown Contracting Company of embarrassment from possible demands of other creditors for like security, this assignment was not filed and the plaintiff consented that the defendant might collect the full amount of the payment, holding the $4,500 for the plaintiff upon promise to deliver the same to the plaintiff when received. In Britton v. Ferrin (171 N. Y. 235) it is held that the relation between a commission agent or factor for the sale of goods and his principal is fiduciary, and that the funds received by the commission agent for the sale of goods belong to the principal, subject only to the lien of the agent for commissions and other advances and charges, and that for misappropriation of the same, or for failure to deliver the same upon demand, the principal might bring an action in tort against the agent. In the opinion it is said: “ Where one intrusts his property to another for a particular purpose, it is recéived in a fiduciary capacity, and when turned into money that is also received in the same capacity. It does not belong to the agent, and he can lawfully exercise no power or authority over it except for the benefit of his principal, and only as authorized by him. If the agent uses it for his own purposes, or fails to pay it over upon a seasonable demand, it is a conversion of that which does not belong to him.” (Baker v. New York National Ex. Bank, 100 N. Y. 31; Commercial Nat. Bank of Penn. v. Heilbronner, 108 id. 439, 444; Moffatt v. Fulton, 132 id. 507, 515.)
The agent was there held liable for conversion, notwithstanding he had a lien upon the goods and might deduct from the amount received such an amount as represented his *186commissions or the advances he had made. In Jackson v. Moore (72 App. Div. 217) an attorney received moneys for three clients which was to be divided equally between them. Upon failure to deliver to one client her proportion of the funds, an action was brought by her in conversion. The Third Department held, following the case of Walter v. Bennett, (16 N. Y. 250), that an action in conversion would not lie, and that the attorney became a simple contract debtor to the client. Two of the judges concurred in the result. The case then went back for another trial at which trial the law as laid down by the Appellate Division was followed and the complaint was dismissed. Upon the second appeal to the Appellate Division of the Third Department the judgment for the defendant was reversed (94 App. Div. 504). It was stated in the opinion of Mr. Justice Chase that the evidence was materially different from that upon the first trial, but it appears in the opinion that it only differed in that the third of the collection due to the plaintiff had been definitely ascertained and at the end of the opinion Mr. Justice Chase says: “ There was a difference of opinion in this court on the former appeal as to whether the plaintiff in any event could recover of the defendant in an action for conversion. Since the decision on the last appeal the Court of Appeals in Britton v. Ferrin (171 N. Y. 235) have held that, after a demand and refusal to pay, an action for conversion will lie against a person who has received money in a fiduciary capacity.” The case went back for the third trial and judgment in conversion was recovered in favor for the plaintiff. That judgment was affirmed, without opinion (118 App. Div. 912), and was further affirmed in the Court of Appeals without opinion (193 N. Y. 667).
These authorities are, I think, conclusive upon this question. There can be no doubt that these moneys were received by the defendant in trust for the plaintiff. Misappropriation of the funds by the trustee renders him liable in conversion. There can be no question about the identification of the fund, as in the case of Jackson v. Moore the fund was received by the attorney for three clients and one of the clients was allowed to recover in conversion for misappropriation of her third. There is no rule of law or reason which would *187make this defendant liable in conversion if the plaintiff had been the assignee of the full eighth payment and not liable where the plaintiff is the assignee of a definite part thereof. The breach of trust is the same and the remedies must be the same.
I recommend that the order be affirmed, with ten dollars costs and disbursements, with leave to the defendant to withdraw the demurrer and to answer the amended complaint on payment of costs in this court and at Special Term.
Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs, with leave to plaintiff to amend complaint on payment of said costs.