Court Opinion

ID: 5498449
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:55:53.890265+00
Date Added: 2024-06-11T08:33:52.329351
License: Public Domain

Brady, J.,
(dissenting.) The provisions of the Code with reference to the plaintiff’s remedy for money received or property collected by a factor, agent, broker, or other person, in a fiduciary capacity, are entirely different from those which existed in 1884, at the time when the decision of Segelken v. Meyer, 94 N. Y. 473, was made; and the discussion there indulged in as to the provisions of the Code as it stood in 1877 is not controlling in this action. Besides, it was held in that case that a person acting in a fiduciary capacity was not subject to an action of tort for mere acts of omission, as for not paying over money due, but only for costs of misfeasance. Here the gravamen of the action is misfeasance. There, it was not. By the amendment of 1886 the provisions of sections 549, 550, were materially, if not radically, changed, as may be seen upon an inspection of the different sections. By subdivision 2 of section 549, as thus amended, it was provided that a defendant might be arrested in an action to recover for money received or property, or damages for the conversion or misapplication of property, where it was alleged in the complaint that the money was received, or the property embezzled or fraudulently misapplied, by a public officer, or by an attorney, solicitor, or counsel, or by an officer or agent of a corporation or banking association, in the course of his employment, or by a factor, agent, broker, or other person in a fiduciary capacity. It is provided, however, in that subdivision, that where such an allegation is made the plaintiff cannot recover unless he proves the same on the trial of the action. The question really seems to be whether there is an allegation such as as contemplated and required by the section mentioned. There is no such allegation in the precise language required by the section; but the facts alleged are sufficient to show the receipt of the money on the discount of the notes, and the improper application of it, and therefore its conversion to the use of the defendants. It is alleged, for example, after stating the facts with regard to the execution and delivery of the notes: “But, contrary to said agreement, and wrongfully, said defendants allowed said note to remain in the hands of the broker, and on the 19th of February, 1887,
*774the same was discounted so that it came into the hands of the East River Bank, an innocent holder for value, who now holds the same, and that on the 21st of February, 1887, the said broker paid to said defendants the proceeds of said note, less commission and discount, which were received by them in trust to pay the same to the plaintiff forthwith.” And, again, that the defendants mingled said proceeds of said note with the partnership property, and they were used and applied by the defendants in their partnership business, and that they had utterly failed and neglected to pay the same, or any part thereof, by which failure and neglect the plaintiff has been damaged in the sum of $887.60. These are the allegations in reference to the first note. In regard to the second, which was delivered to the defendants on the 17th of February, 1887, it is alleged that, relying upon the agreement in trust to indorse and discount or sell the same for cash, and forthwith to pay the proceeds to the plaintiff, less the discount and commission as aforesaid, and for no other purpose whatsoever, the plaintiff delivered the note to the defendants; that the note was discounted by the bank to whom it was given for that purpose, and the proceeds thereof, less the discount, were paid to and received by the defendants, who thereupon used and applied the same in their partnership business. The complaint then alleges a demand of said proceeds, the neglect and refusal of the defendants to pay, and claims damages in the amount of the discount. These allegations undoubtedly brought the case within the provisions of the section mentioned, and authorized the action in reference to both notes; and such was the decision at the special term upon the demurrer, as we have seen. It may be well to bear in mind that the word “property, ” as used in the Code, includes both real and personal property. The defendants were intrusted with the two notes, the proceeds of which they appropriated, for express alternative purposes,—either to procure a discount and remit the proceeds at once to the plaintiff, or to return the notes. There was no authority, express or implied, to use them for any other purpose or in any other way, and whatever process was employed to accomplish the object could in no way change the obligation imposed. The mere deposit of the sums received upon the discount of the notes in a bank for the purpose of immediate transmission should not be permitted to change the relative position of the parties, or lessen the obligation of the defendants. Such an act would be a mere incident in the mode of transmission, and would in no way indicate an intention to extend the credit of the defendants for the sums thus received. Besides that, the discount of both notes was not contemplated, and was therefore not authorized by the understanding between the parties, either directly or inferentially. It is quite clear that if the first note was discounted the second was not to be, and vice versa. The contention, therefore, that the deposit in the bank changed the relations of the parties, cannot be sustained. It was doubtless for the reasons assigned here that, when the counter-claim was interposed, resting on contract alone, the court held upon demurrer that it could not avail the defendants in this, action for the reason that the action was one in tort; and such is the view, also, of the learned justice presiding in the court below, who said, in answer to a question put to him whether the verdict was directed upon the theory of tort or contract: “I think the position the plaintiff has taken here is that the money was received in a fiduciary capacity. I think the allegations of the complaint are sufficient to establish that right, and that the plaintiff’s proof is ample to sustain it.” The defendants’ counsel had insisted that the complaint should be dismissed upon the ground that the facts proved did not constitute a tort, an action for conversion, nor the existence of the fiduciary relation in respect to either cause of action. The term “fiduciary” involves the idea of trust and confidence. It refers to the integrity and fidelity of the party trusted, rather than to his credit. It contemplates good faith, rather than legal obligation, as the basis of a transaction. 1 Wait, Pr. 619; Stoll v *775King, 8 How. Pr. 298. Where a factor receives money to be invested in a specific thing, and the direction is added that he should not appropriate it to any other purpose, the factor acts in a fiduciary capacity, and is liable to be arrested for misappropriating the funds. Noble v. Prescott, 4 E. D. Smith, 131. The same rule applies to an agent employed to collect money. Schudder v. Shiells, 17 How. Pr. 420; Burhans v. Casey, 4 Sandf. 707.
It may be said that the views expressed are in conflict with Hillis v. Bleckert, 6 N. Y. Supp. 405, in which it was held that, inasmuch as there was no allegation in the complaint that the money mentioned was received by the defendant in a fiduciary capacity, it was deficient in an essential element, having in view the provisions of section 549 of the Code of Civil Procedure. That case differs from this in that it is an action to recover from an agent moneys received by him, and not paid over, and,in which the only suggestion of wrong done is contained in the words in reference to the sums received, “but has converted the same to his own use,” which was not sufficient to bring the case within the spirit of the section; and in this case, as we have seen, though there is no allegation in the precise language of the section, there is a charge of wrong-doing with regard to the property intrusted to the defendants which presents in substance the element required.
The struggle in this case was evidently to relieve the defendants from personal arrest; and the efforts of the learned counsel were ceaseless and ingenious, but, unfortunately for his clients, must be held to have been unavailing.
The judgment must be affirmed.