148 Misc. 2d 212 | N.Y. Sup. Ct. | 1989
OPINION OF THE COURT
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.
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 NY 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 AD2d 324; Fleck v Perla, 40 AD2d 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 consign- or’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.
As reiterated in Fuller v Fasig-Tipton Co. (587 F2d 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.