On February 13, 1975, appellant Doris Filner entered into a letter agreement with Samuel Shapiro, president of Southwestern Alloys Corporation (Southwestern). The letter, dated February 9, 1975, was preparеd on Shapiro’s stationery and read as follows:
Dear Doris,
In accordance with our understanding, upon your wiring me funds in the amount of $200,000.00, I will act as your agent to purchase in your name a time certificate оf deposit from the Southern Arizona Bank and Trust Company. This TCD *141 shall thereafter be pledged to collateralize either a loan or letter of credit from the Southern Arizona Bank to Southwestern Alloys Corporation.
If the above is in keeping with your understanding, would you please signify by signing in the appropriate place below and transferring the $200,000.00 to my account number 328-4678 at the West Van Burén Branch of the Valley National Bank of Arizona in Phoenix.
Sincerely,
/s/ S. Shapiro
By February 13, appellant had transferred $200,000 to Shapiro’s account.
On February 14, a Southwestern employee, under Shapiro’s direction, used appеllant’s money to purchase a ninety-day time certificate of deposit from the Southern Arizona Bank and Trust Company (the Bank). However, on Shapiro’s instructions the certificate was issued in Southwеstern’s name instead of Doris Filner’s.
Southwestern borrowed $1,000,000 from the Bank and gave in return four promissory notes, three for $200,000 and one for $400,000. It pledged the certificate of deposit as collaterаl for note number 1196 which was for $200,000. Two of the other notes were secured by Southwestern’s own money. The fourth was unsecured but guaranteed by Southwestern’s chief operating officer, Ben Klimist.
On February 18, 1975, Southwestеrn loaned $1,000,000 to HRP Hotel Company (HRP), a limited partnership formed for the purpose of constructing a Hyatt Regency Hotel in Phoenix, Arizona. On May 13, 1975, when Southwestern’s notes from the Bank became due, HRP was unable to repay its loan from Southwestern. Southwestern renewed its Bank notes until August 13, 1975, but found HRP in equally straitened circumstances on that day. Without waiting for the Bank to declare its notes in default, Southwestеrn paid them, using the proceeds of the certificate of deposit, which also had been renewed for ninety days, to pay note 1196. HRP never repaid Southwestern. 1
Appellant demanded thе return of her money. When it was not forthcoming, she commenced this action, alleging conversion, breach of contract, unjust enrichment, and fraud. After a two-day trial, the district court, sitting without a jury, held that appellant had failed to prove that the loss of her money had resulted from appellees’ wrongful use of it and that therefore appellant could not recover in either tort or contract. The court also held that appellees had substantially performed their contractual obligations. Finally, the district court held that appellant had abandoned the causes of action for fraud and unjust enrichment. It dismissed the complaint. We reverse.
Under the law of New York, which all parties cite as controlling, an agent who intermeddles with the property of his principal beyond the extent of his authority, with the intent to use or dispose of it so as to alter its condition or interfere with the owner’s dominion, is guilty of conversion.
Kittredge v. Grannis,
The district judge concluded that the loss of appellant’s money was caused by HRP’s collapse rather than by appellees’ conduct, and he therefore deemed it unnecessary to decide whether appellees had exercised such unauthоrized dominion over appellant’s property as to be guilty of conversion. This reasoning, we believe, puts the cart before the horse. The logical process would have been to decide first whether there had been a conversion and then whether damage had resulted. Analyzing the record in this manner, we are led inexorably to the conclusion that appellees сonverted appellant’s property and caused the loss for which she sued.
The language of the parties’ written contract is crystal clear. It provided:
(1) Shapiro, acting as appellant’s agent, would purchase a $200,000 certificate of deposit in appellant’s name.
(2) The certificate of deposit would be pledged to collateralize a loan from Sоuthern Arizona Bank to Southwestern.
Had Shapiro performed this contract as agreed, appellant would have become a surety for payment of Southwestern’s note number 1196 to the extеnt of her collateral, with all the legal and equitable rights inherent in such status.
Rutherford National Bank v. Manniello,
The existence of the principal’s duty to pay gives a surety the equitable right to call upon the principal to exonerate him from liability by discharging the debt when it becomes due.
Chicago Title & Trust Co. v. Fox Theatres Corp.,
The relationship bеtween Samuel Shapiro and Doris Filner was not that of debtor and creditor. Shapiro was in possession of money that belonged to appellant Filner and was charged with the fiduciary and contractual duty of purchasing a certificate of deposit in her name. Instead, he purchased a certificate in Southwestern’s name. This unauthorized exercise of dominion over apрellant’s funds was a conversion of property that did not belong to him.
Britton v. Ferrin,
Arguably, the purchase in the wrong name was only a technical conversion that gave appellant no right of action, because, standing alone, it caused her no real detriment.
See Tow
v.
Maidman,
Southwestern owed appellant, its surety on note 1196, the duty of paying the notе with its own funds. It' had no right to cash the unlawfully purchased certificate of deposit and use the proceeds to satisfy its debt. This was an actionable conversion which entitled appellant to rеcover in full the value of her certificate.
MacDonnell v. Buffalo Loan, Trust & Safe Deposit Co.,
The facts which support appellant’s recovery for conversion would support a like recovery for breach of contraсt. A contract is deemed to incorporate all the rights conferred upon the parties by the laws of the state in which the contract was executed.
N.C. Freed Co. v. Board of Governors оf Federal Reserve System,
In every contract there is an implied covenant of good faith and fair dealing which precludes each party from engaging in conduct that will deprive the other рarty of the benefits of their agreement.
Kirke LaShelle Co. v. Paul Armstrong Co.,
We disagree with the district court’s holding that appellees had substantially performed the contract with appellant. The doctrine of substantiаl performance is available only to “the transgressor whose default is unintentional and trivial.”
Jacob & Youngs, Inc. v. Kent,
Because we hold that appellant is entitled to recover the full amount of her certificate of deposit with accrued interest, we need not resolve thе parties’ differences concerning appellant’s claimed right of recovery as a subrogated surety.
Judgment reversed with instructions to enter judgment in favor of appellant Doris Filner and agаinst appellees Samuel Shapiro and Southwestern Alloys Corporation in the sum of $200,000, the amount of appellant’s certificate of deposit, with interest, if any, that had accrued thereоn prior to August 13, 1975, plus interest on the total of those two amounts from August 13,1975 to the date of judgment.
Notes
. Appellant knew that the money borrowed by Southwestern was going to be used for the hotel project, because her husband was a partner in HRP and was instrumental in securing the use of her $200,000. However, the record does not support the district court’s conclusion that appellees had the right to use appellant’s certificate of deposit to pay Southwestern’s note to the Bank if HRP defaulted in its obligation to Southwestern. Appellant agreed to put up collateral for the Southwestern loan and thereby took the risk that Southwestern might not be able to repay the Bank. Appellant did not take the risk that HRP would not repay its debt to Southwestern. Under the guise of interpreting a contract, a court should not rewrite it.
Morlee Sales Corp. v. Manufacturers Trust Co.,