McCullough's Lead Co. v. Strong — 35 N.Y. Super. Ct. 21

Majority

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McCULLOUGH’S LEAD COMPANY, Plaintiff and Appellant, v. JOSEPH M. STRONG, Defendant and Respondent.

Headnote

1. Bailee.—Trustee.—Depositary.—Custodian.

1. Duty of. One who is made the custodian of money or securities, under an agreement entered into by several parties ; under which the several parties are to place in the hands of the 'custodian an equal sum of money, or securities amounting in value to the sum to be deposited, to be held by the custodian for the purposes of the agreement; and under which agreement the custodian is required to deposit the money and securities received by them, in certain companies, and to keep them so deposited until the happening of certain events; is bound to comply with said requirement as to deposit.

2. Remedy against, for a failure to comply. If he fail to deposit and keep deposited the money or securities received from any one of the parties, such party, after a demand on the custodian for, and a refusal by him to deliver, such money or securities, may bring an action against him to recover damages for a conversion of the property; or, at his election, if the property consist of securities, an action of claim and delivery.

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And this, although none of the events have happened which, under the agreement, authorized the custodian to part with the possession of the property.

II. Agreement between several.—Provision for Termination of, by Notice.

1. Notice by one. Bffect of.

a. It determines the agreement as to all.

2. Construction.

a. Notice, determination by.

Peculiar clauses under which it was held, that an agreement was terminated by notice.

Before Monell, Curtis, and Sedgwick, JJ.

Decided June 29, 1872.

Appeal from judgment.

The action was to recover the possession of a one thousand dollar U. S. "bond, alleged to have "been wrongfully detained from the plaintiff "by the defendant.

The plaintiff and several others, dealers in lead, agreed, for their mutual protection, to certain terms in respect to the sale, etc., of articles manufactured of lead; and for the purpose of providing a fund to pay damages for a "breach of the agreement "by either party, they each deposited with the defendant the sum of $1,000, either in money or a TJ. S. "bond of that amount.

The agreement concerning the deposit was as follows :—“ To deposit the said sum of one thousand dollars (either in money or in a United States bond or Treasury note, payable to bearer) with Joseph M. Strong, custodian, who shall retain and dispose of the same as follows : All money so received by him he shall deposit in the United States Trust Company, and all securities in the Safe Deposit Company, and keep them so deposited as long as this agreement shall be faithfully observed and kept by the parties thereto, and shall remain in force, and shall not withdraw the same from such places of deposit during the continuance of this agreement, except as herein provided.”

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It was further provided that the agreement should be binding for five years, or until ten days’ notice in writing shall be given by any party, of his or their desire to withdraw from the same. But the money or security which such party may have deposited with Joseph M. Strong, custodian, shall remain in his possession, or continue until the expiration of this agreement, in order to give full opportunity for the inquiry as to the faithful observance of the provisions of this agreement, or otherwise by the party thus withdrawing, prior to the expiration of the notice which he or they may give, according to the provisions of this agreement.

At the trial, the plaintiff, having given evidence tending to show a termination of the agreement by a notice from one of the parties to the defendant, offered, among other things, to prove that the defendant had not, as required by the agreement, deposited the bond in question in the Safe Deposit Company. The evidence was excluded, and the plaintiff excepted.

The complaint was dismissed.

The plaintiff appealed.

Mr. J. K. Porter, for appellant.

Mr. Philo Chase, for respondent.

It is not necessary to determine whether the defendant’s relation to the deposit made by the parties, was that of trustee or bailee. In either mase, it was his duty to place the securities as required by the agreement. His omission to ! do so was a breach of duty for which he became responsible to the cestui qui trusts or bailors.

He was the “ custodian” of the fund which gave to him the attributes, and imposed upon him the duties of either trustee or bailee.

The defendant, having failed to deposit the bond in the Safe Deposit Company, as required by the trust or

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bailment, became immediately liable to the several parties for his breach of duty ; and if such breach, coupled with a demand and refusal, was a conversion by the defendant of the security, so as to lay a foundation for this action, 'then it was error to exclude the evidence offered by the plaintiff.

It is a general rule, that a violation by one party to an agreement, authorizes the other party to rescind, and to claim to be restored to all his rights of property under the contract. So if a bailee of property neglects or omits to preserve or 'dispose of it, in accordance with his duty, it would be a conversion of the property (Bristol v. Bent, 7 J. R. 258 ; King v. Geib, 4 N. Y. Leg. Ob. 343). And if a trustee of an express trust fail to execute the trust, it is such a violation of duty as renders him responsible to the cestui gui trust; and, therefore, where, as in this case, the custodian of the securities refuses or neglects to deposit them as required by the agreement, he loses all right to retain them, and his refusal to deliver them to the depositors was a conversion, and sufficiently laid the foundation for a recovery of the possession of the security.

I am also of the opinion that the agreement under - which the defendant held the securities was terminated, as to all the parties, prior to the demand for the return of the bond in suit. Any one party could terminate the agreement as to all, by giving ten days’ notice ; and the provision that the money or securities should remain in the possession of the defendant, until the expiration of the agreement, had reference to its termination by the ten days’ notice, and not to the period of five years limited for its continuance, if not sooner terminated by the parties.

Upon the termination of the agreement by the notice of Leroy & Co., it was the duty of the defendant to return the bond to the plaintiff, and his refusal to do so made him liable in this action.

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For these reasons the judgment should he reversed, and a new trial granted, with costs to the appellants, to abide the event.