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Edwards v. Horsemen's Sales

Supreme Court, New York County
Nov 9, 1989
148 Misc. 2d 212 (N.Y. Sup. Ct. 1989)

Summary

holding that auctioneer, as agent of seller, holds proceeds from auctioned goods in trust and has a fiduciary duty "to turn over the proceeds of the auction sale in full" to seller

Summary of this case from United Feature Syndicate, Inc. v. Miller Features Synd.

Opinion

November 9, 1989

McKenzie, Meaders Ives for plaintiff.

Robert F. Green for defendants.


Plaintiff moves for an order pursuant to CPLR 3212 (a) and (c) granting summary judgment on the third cause of action in the amended complaint alleging that Steve M. Ostrer and Benjamin Ostrer (collectively the Ostrer brothers), as directors and officers of Horsemen's Sales Co., Inc. misappropriated and converted $49,002 to their own use.

Plaintiff had consigned five horses to Horsemen's Sales to be sold at auction at the August 1985 yearling sales at Saratoga Springs. The sale, after deduction of commissions and expenses, netted $49,002. The proceeds of the sale were never remitted to plaintiff.

On October 7, 1986, plaintiff was awarded summary judgment against Horsemen's Sales and a judgment in the amount of $54,514.73 was entered against that corporation. To date plaintiff has not been paid.

Plaintiff now seeks an order holding the individual Ostrer brothers liable on the ground that they "fraudulently, wrongfully and unlawfully and in violation of their trust and fiduciary responsibilities * * * misappropriated and converted the net proceeds of sale of $49,002 for uses other than payment, as legally required to plaintiff."

The individual defendants contend they cannot be held personally responsible for the defaults of the corporation. While that is the general rule, a corporate officer or director may be held personally liable for conversion or misappropriation of trust funds. (Hinkle Iron Co. v Kohn, 229 N.Y. 179; Admiral Corp. v Cohen, 68 Misc.2d 687.) This is true whether or not the individual officer or director was acting for the corporation, so long as he participated in the act. (Ingram v Machel Jr. Auto Repair, 148 A.D.2d 324; Fleck v Perla, 40 A.D.2d 1069, 1070.) There need be no showing of tortious intent or bad faith. (Passaic Falls Throwing Co. v Villeneuve-Pohl Corp., 169 App. Div. 727. )

The question, then, is whether the auction proceeds are to be treated as tantamount to trust funds. Under the consignor's contract, the net proceeds of the auction received were to be remitted within 45 days. While there was no requirement that the proceeds be segregated in a separate account, and cash is fungible, the proceeds were not to be used for general corporate purposes, but to be turned over to plaintiff, as consignor. According to the contract, the auctioneer was to receive the proceeds of the sale for the consignor's account. The requirement to "remit" was something more than an obligation to pay a debt owed. "Where money or property is entrusted to such an agent for a particular purpose, it is impressed by law with a trust in favor of the principal until it has been devoted to such purpose". (Air Traffic Conference v Air Transp. Assn., 87 Misc.2d 151, 154.) The auctioneer held the proceeds as a bailee. It was a mere conduit for transmission. Instead, the individual defendants caused the proceeds from the sale of plaintiff's horses to be used to pay bills, salaries and general obligations of the corporation, including their own personal out-of-pocket expenses, rather than turning the funds over to plaintiff.

It appears that the corporation was financially troubled and defendants decided to divert moneys earned from the sale of plaintiff's horses to satisfy outstanding corporate obligations, in an effort to keep the corporation afloat. The brothers' reliance on "the [accepted] general practice" of auctioneers not to segregate the funds they take in from the sale of property does not excuse the Ostrer brothers from failing to account for moneys received at auction sales. The auctioneer is not in an ordinary debtor-creditor relationship such as exists in the ordinary course of business between a buyer and a seller. An auctioneer, as an agent of the seller (Cristallina S.A. v Christie, Manson Woods Intl., 117 A.D.2d 284, 292; City of New York v Union News Co., 169 App. Div. 278; Matter of Premier Container Corp. [Leinwand], 95 Misc.2d 859, 866) is in a fiduciary position, and has a duty to turn over the proceeds of the auction sale in full. (Matter of Creveling Son Corp., 259 App. Div. 351, 352-353, affd 283 N.Y. 760.) Even if there had been no written agreement, the relationship of principal and agent would call for the impressing of a constructive trust upon funds received by the agent from sale of the property entrusted to him. (Elliott v Bumb, 356 F.2d 749, 754, cert denied sub nom. Schutzbank v Elliott, 385 U.S. 829.)

As reiterated in Fuller v Fasig-Tipton Co. ( 587 F.2d 103, 107), which also involved claims against an auctioneer arising out of the sale of horses at the Saratoga yearling sales, upon sale of the horses, the proceeds belong to the owner, and the auctioneer is obligated to pay to the owner the net proceeds for their account. Only the owner-principal can authorize any other application of the proceeds. It is of no moment that defendants did not personally benefit from the diversion. They directed the conversion of the funds.

Accordingly, the court finds as a matter of law that the individual defendants are liable to plaintiff for the conversion of the proceeds from the sale of plaintiff's horses, together with interest.

Plaintiff's motion for summary judgment on the third cause of action of the amended complaint is granted.


Summaries of

Edwards v. Horsemen's Sales

Supreme Court, New York County
Nov 9, 1989
148 Misc. 2d 212 (N.Y. Sup. Ct. 1989)

holding that auctioneer, as agent of seller, holds proceeds from auctioned goods in trust and has a fiduciary duty "to turn over the proceeds of the auction sale in full" to seller

Summary of this case from United Feature Syndicate, Inc. v. Miller Features Synd.

finding as a matter of law that officers and directors of the consignee were liable to the plaintiff for conversion, together with interest

Summary of this case from Messer ex rel. Fine Diamonds, LLC v. Peykar International Co. (In re Fine Diamonds, LLC)
Case details for

Edwards v. Horsemen's Sales

Case Details

Full title:JAMES F. EDWARDS, Plaintiff, v. HORSEMEN'S SALES CO., INC., et al.…

Court:Supreme Court, New York County

Date published: Nov 9, 1989

Citations

148 Misc. 2d 212 (N.Y. Sup. Ct. 1989)
560 N.Y.S.2d 165

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