O'Connor v. Jones

O’Brien, J. The ground of arrest was the wrongful conversion by the defendant of personal property consisting of three promissory notes. The motion to vacate was made upon the papers on which the order of arrest was granted. It therefore becomes necessary to refer soniewhat at length to plaintiff’s affidavit which was used in procuring the arrest of the defendant. It therein appears that on the 28th of August, 1890, plaintiff made his three promissory notes, amounting in the aggregate to $2,000, payable to his own order, which he indorsed and delivered to defendant under an agreement in writing, as follows: “New York, August 28th, 1890. “Received from Geo. A. Leavitt & Co., their notes, August 15th, $692.20, at 4 months; August 21st, $714.71, at 4 months; and August 25th, $593.09, at 4 months,—to their order, and payable at 787 Broadway, which notes I am to have discounted, and pay over to Geo. A. Leavitt & Co. one half of the proceeds; and when said notes mature I agree to pay one half the amount of said notes, and Geo. A. Leavitt & Co. are to pay the other half. I also agree to deposit with them one thousand dollars, par value, of the certificates of indebtedness of the West Florida & Alabama R. R. Co., to secure the payment of my half of said proceeds. In case of failure on my part to pay my half of said notes when they mature, the certificates are to be sold, and the proceeds applied to the payment thereof, and 1 agree to make good the difference. Should I not be able to use these notes, I agree to return them on September 15th to Geo. A. Leavitt & Co. Wm. C. Jones. “Neil McCallum, Witness.” The affidavit then avers that the notes were not sold to the defendant or delivered to him for any other purpose than that expressed in the receipt or agreement referred to; that the defendant paid to plaintiff the sum of $400, [726] and no more, on account of the notes; that, although a demand was made for the return of the notes, such demand was refused, coupled with a like refusal to-inform plaintiff what had been done with them; that defendant “wrongfully converted and disposed of them to his own use;” that plaintiff was unable to-ascertain who held the notes until they became due, when one was presented to plaintiff for payment by one Bridgman, and' the other two notes by one Aschoff, both of whom commenced suit in the city court against plaintiff, alleging that the notes had been delivered to them, respectively, for value, before maturity; and that such actions are still pending. With the exception of a statement as to the certificates of indebtedness mentioned in the receipt being worthless, we have given all the material statements contained in the affidavit upon which the order to arrest the defendant was granted. The question is thus presented whether these facts are sufficient to justify a conclusion that the defendant wrongfully converted and disposed of the notes. It is undoubted law that a person who diverts an accommodation note from the purpose for which it was intended is guilty of a conversion of the note. It will not, however, be presumed that one who lawfully obtains possession of promissory notes has converted the same; and to justify an arrest the facts-stated must warrant a conclusion, in order to constitute a conversion,1 that the notes were wrongfully or unlawfully diverted. The receipt given by the defendant shows under what agreement he took the notes. He was to have-them discounted, pay over one half the proceeds to, plaintiff, and pay one half of the notes when they became due; and as security for the payment of his half of the proceeds, the defendant deposited with plaintiff $1,000, par valúe,, of the certificates of indebtedness of the West Florida & Alabama liailroad Company. This receipt further provided that, upon the failure of the defendant to pay his half, these certificates were to be sold, and the proceeds applied to the payment, and the defendant was to pay the difference. A further* provision was that-, unless the defendant was able to use the notes, he was to return them on September 15th to the plaintiff. It will be noticed that there is no statement that the notes were not used before the 15th of September, or that after that time, while the notes were still in defendant’s-possession, a demand for their return was made. • Under the rule which requires us to assume the innocence, rather than the guilt, of a party, and an-honest, rather than a frau’dulent, intent, we must assume, in the absence of a statement to the contrary, that the disposition of the notes was made some time prior to September 15th. Assuming, therefore, that some disposition was made of them by the defendant prior to the 15th, the other question remains,—whether the notes were diverted by the defendant from the purpose for which they were given. Plaintiff does not state that they were not discounted. The statement is that third parties, claiming to be the holders of the notes for value before maturity, had commenced suit thereon. This again is entirely consistent with the view that they may have discounted these notes for the defendant. The conversion, therefore, in this case, if conversion it can be called, must be predicated upon the fact of the failure, after-having the notes discounted, to return one half of the proceeds to the plaintiff. Such failure may be a breach of trust .or some other wrongful act on, the part of the defendant, but we fail to see how, from that circumstance, the conclusion can be deduced that there was a wrongful conversion of the promissory notes themselves. The plaintiff received, presumably from the use made of the notes, $400; and the difference between that amount and the one half of what would have been realized by discounting the notes correctly "represents the interest the plaintiff would have had in the proceeds, and for which undoubtedly an action'in some other form than one for conversion of the notes would lie in plaintiff's favor. Having regard, however, to the interest which defendant obtained in these notes under the agreement by undertaking to procure their discount for the mutual benefit of both, his giving [727] what was thought to be good security for the repayment of his half when the notes matured, and the intention of both parties that plaintiff should pay the notes at maturity, it would be going further than any of, the reported cases to hold that the facts stated in the affidavit here made out a case of conversion. Where a note is placed in another’s possession for a definite and specific purpose, and any other use of it is made, it is a violation of trust, and it is this abuse of trust or breach of such lawful possession which constitutes a conversion. Where, however, one intrusts promissory notes to another, permitting him to negotiate or use the same for the purpose of raising money thereon for the joint benefit of both, the parties have a joint interest in the results or proceeds of the notes, and the arrangement between the parties contemplates that the maker of the notes is to look for the whole or a portion of the proceeds to the one to whom the notes were delivered. As was said in Decker v. Matthews, 12 N. Y. 317, quoting from the charge of Judge 1)uer upon the trial: “Although these facts might entitle the plaintiff to recover the proceeds in a different form of action, they amounted to a waiver of the alleged fraud upon which the suit for conversion was founded.” The case relied upon by plaintiff, Hynes v. Patterson, 95 N.Y.1, is not point. There the notes for the conversion of which the action was brought were made by the plaintiff, and were delivered by him to the defendant’s testator under an agreement that they were to be discounted for the benefit of defendant’s testator, and the proceeds, after deducting the per cent, which was to be paid to plaintiff, were to be invested in certain real estate, which was to be conveyed to the defendant’s testator. The defendant's testator, instead of having the notes discounted and investing the proceeds in real » -tote, disposed of them in the purchase of personal property; and it was held that he was guilty of a conversion of the notes. The principle of this case follows the rule laid down in many others, that a diversion of a note from the purpose for which it was given will constitute a conversion. Here, if the defendant converted the notes, he did so at the time he parted with their possession; and it is nowhere stated in the affidavit that he ever parted with them unlawfully. As already shown, it does not even appear at what date he parted with them. Under the agreement, what plaintiff was really entitled to was one half of the proceeds to be realized upon discounting the notes, and there is no statement in the affidavit that he ever demanded the half of such proceeds. Upon the facts appearing, we do not think a case of conversion is made out, but that the most that can be claimed is that the defendant failed to pay to plaintiff something less than $600, which he was entitled to receive according to the agreement made respecting the use of the notes. If paid at maturity, he would have had a right against the defendant for contribution, which he could enforce by resort to the collateral, or by a proper action, or both, if necessary, to obtain the one half of the notes which the defendant agreed to pay. The statement in the affidavit that the defendant “refused to inform this deponent what he had done with them, and wrongfully converted and disposed of them to his own use,” is the only statement that in any way charges or connects the defendant with the illegal or unlawful conversion of the notes; and the latter is a mere statement of a conclusion. Apart, however, from the foregoing reasons, there is another which presents an insurmountable obstacle to maintaining the arrest. The plaintiff received from the defendant $400, and when he made a demand, as stated by him, for the return of the notes, there was no offer on his part to return the $400. It is clear that he could not obtain a return of the notes and hold the $400. We are of opinion, therefore, that the affidavit was entirely insufficient, and that the order appealed from should be reversed, with $10 costs and disbursements, and the motion to vacate the order of arrest should be granted.