73 Misc. 2d 194 | N.Y. City Civ. Ct. | 1973
Pursuant to an agreement dated April 1, 1969, prepared by defendant Repetti, plaintiffs leased certain premises consisting of a restaurant, bar and grill from Repetti for a term of 10 years commencing April 1, 1969. The agreed rental was $575 per month for the first year, $650 per month for the second year, and $750 per month for the remaining years. Paragraph Fourth of this lease provided as follows:
" The Tenant shall have the right to assign this lease without obtaining the Landlord’s permission providing he shall comply with the following:
“ (1) He shall guarantee the Landlord 10 day notice in writing of the name and the address of the assignee, and
“ (2) He shall deliver to the Landlord and [sic] assumption agreement executed by the assignee.
“ (3) That the Tenant herein shall continue liable under the terms of this lease.
“ (4) That the Landlord shall receive an additional six (6) months rent of $4,500.00 as security which said sum shall be applied on account of rent due on each 12th month, ensuing assignment of said lease until said additional six (6) month security shall have been liquidated.
“ The Landlord agrees to deposit all securities paid under the terms of this lease in a savings account and the interest therefrom shall accrue to the Tenant and shall be paid upon the termination of this lease, together with any security due. ”
Paragraph Twenty-Ninth of this lease provided as follows: “ The Tenant has this day deposited with the Landlord the sum of One Thousand Five Hundred ($1,500.00) Dollars as security for the faithful performance of the obligations of this lease which said sum shall be returned to the Tenant upon the expiration of the term of this lease, providing he shall not then be in default, the said security shall be returned with the payment of interest thereon. ”
By assignment dated October 16,1969, this lease was assigned by plaintiffs to defendant Kathrane for $15,000, payable $2,000
The first part of this action involves the claim by plaintiffs that they are entitled to recover the deposits made pursuant to paragraphs Fourth and Twenty-Ninth of the lease, or at least that part of the $4,500 deposit which was to be applied in accordance with subdivision (4) of paragraph Fourth. With respect to this claim, they are suing Kathrane, Repetti an4 Sarflo.
BEAL PABTT IN" INTEBEST
Before considering the position of each of these defendants, the court will first examine the defense, although not pleaded affirmatively, that plaintiffs cannot recover in any event because they are not the real parties in interest. This defense is based" upon a document dated January 9, 1971 whereby plaintiffs assigned “ all of our right, title and interest, in and. to the security and prepaid rent ” set forth in the lease involved herein and directed that payment of any such funds be made to Bennett Oppenheimer, Esq. A copy of this assignment was sent by Oppenheimer to the attorney for Sarflo by letter dated January 28,1971. In this letter, Oppenheimer stated that the * ‘ security ’ ’ of $1,500 and the “ additional security and pre-paid rent” of $4,500 had been assigned to him and demanded payment.
This assignment, of itself, would ordinarily defeat plaintiffs’ causes of action to recover the security deposits, since it placets in Oppenheimer legal title to the claim being asserted. (See Spencer v. Standard Chem. <& Metal Corp., 237 N. Y. 479.) However, Oppenheimer is plaintiffs’ attorney. He is not only plaintiffs’ attorney of record in this action but he tried this case for plaintiffs and stated on the record that he was merely plaintiffs’ agent to collect the sums claimed. Under the circumstances, it is clear that plaintiffs are in fact the real parties in interest. The test to be used in applying this rule is whether payment to “ plaintiff will protect the defendant from the claims of third parties. ” (General Inv. Co. v. Interborough R. T. Co., 200 App. Div. 794, 802, affd. 235 N. Y. 133). As stated in Matter
CLAIM AGAINST KaTHBANE
While there is apparently some litigation pending by plaintiffs against Kathrane for the unpaid purchase price of the lease, it is difficult to see how the tenant Kathrane could possibly be liable for deposits made by plaintiffs with the landlord which Kathrane never received. Kathrane was a party in the ‘ ‘ tenant chain ”, not in the “ landlord chain. ” The court finds no liability on the part of Kathrane.
The deposits in question were paid by plaintiffs to Repetti in accordance with the provisions of the lease. Repetti, upon conveying the premises to Sarflo, delivered these deposits to Sarflo which still hold them. Plaintiffs seek to recover these deposits by reason of violation of the provisions of section 7-103 of the General Obligations Law (the successor to former Real Property Law, § 233) and section 7-105. Alternatively, plaintiffs seek to recover, under the terms of the lease, at least that part of the $4,500 deposit claimed to be due pursuant to subdivision (4) of paragraph Fourth.
Subdivisions 1 and 2 of section 7-103 of the General Obligations Law state, in part, as follows:
“1. Whenever money shall be deposited or advanced on a contract or license agreement for the use or rental of real property as security for performance of the contract or agreement or to be applied to payments upon such contract or agreemenirwben due, such money, with interest accruing thereon, if any, until repaid or so applied, shall continue to be the money of the person making such deposit or advance and shall be held in trust by the person with whom such deposit or advance shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same, but may be disposed of as provided in section 7-105 of this chapter.
“2. Whenever the person receiving money so deposited or advanced shall deposit such money in a banking organization, such person shall thereupon notify in writing each of the persons making such security deposit or advance, giving the name and address of the banking organization in which the deposit of security money is made, and the amount of such deposit. ”
Apparently, it is conceded that this statute is applicable to the $1,500 deposit, but some question is raised as to whether it is applicable to the $4,500 deposit. An examination of the words of the statute makes it clear that it is applicable whether the deposit was made ‘ * as security for performance of the contract or agreement or to be applied to payments upon such contract or agreement when due ” (§ 7-103, subd. 1). Thus, whether called security or prepaid rent, the statute is applicable to these deposits. See Matter of Perfection Tech. Serv. Press (Cherno-Dalecar Realty Corp.) (22 A D 2d 352, app. dsmd. 16 N Y 2d 958, affd. 18 N Y 2d 644), where the court applied the statute in a situation involving prepaid rent. It is also noted that in the instant case subdivision (4) of paragraph Fourth of the
While the $1,500 deposit was put into a rent security account in accordance with subdivision 1 of section 7-103, Repetti violated this statute with respect to the $4,500 deposit by commingling it in a bank account with his own funds and drawing checks on that account for his own purpose. While disputed by Repetti, the court further finds that he violated subdivision 2 of section 7-103 and section 7-105 (subd. 1, par. A) with respect to both deposits by failing to give the notices required by those sections. Upon Repetti conveying the premises to Sarflo on May 1, 1970, he delivered to Sarflo a check in the amount of $1,562.78, which represented the $1,500 deposit plus interest accrued thereon, and another check in the amount of $4,500 representing the $4,500 deposit. The question to be decided is whether these violations entitle plaintiffs to a recovery of one or both of the deposits made with Repetti, keeping in mind the fact that on October 16, 1969, plaintiffs assigned the lease to Kathrane and were no longer in possession of the premises after that date.
As far as the $4,500 deposit is concerned, it is necessary to consider whether Repetti’s commingling of this deposit with his own funds constituted a conversion of money which the statute declares is to be held in trust. Where at the time of trial the deposit was intact and the person making the deposit was in possession, it has been decided that, despite such commingling, there is no conversion and, consequently, there can be no recovery of the deposit. (160 Realty Corp. v. 162 Realty Corp., 113 N. Y. S. 2d 618, affd. 280 App. Div. 762: Bridge Hardware Co. v. Mayer, 131 N. Y. S. 2d 823; 19 North Vil. Realty Corp. v. Kominos, 3 Misc 2d 768, affd. 3 A D 2d 754; Tow v. Maidman, 56 Misc 2d 468.) However, in the absence of these conditions, the commingling constitutes a conversion entitling “ the person making the deposit ” (§ 7-103, subd. 1) to the recovery of the deposit. (Matter of Perfection Tech. Servs. Press [Cherno-Dalecar Realty Corp.], 22 A D 2d 352, app. dsmd. 16 N Y 2d 958, affd. 18 N Y 2d 644, supra; Matter of Holst Co. [Arutt], 213 N. Y. S. 2d 952; see Matter of Izrue Corp. [Carr], 58 Misc 2d 343; cf. 2710 8th Ave. v. Forman Pharmacy, 180 Misc. 376.) As stated by the Appellate Division, Second Department (Matter of Perfection Tech. Servs. Press [Cherno-Dalecar Realty Corp.], 22 A D 2d 352, 354, supra), in refusing to allow a landlord to set off a security deposit against a landlord’s claim for rent and directing the landlord to pay the balance of the security deposit to the assignee for the benefit of creditors of the person making the deppsit,
It is recognized that in cases such as Matter of Perfection Tech. Servs. Press (Cherno-Dalecar Realty Corp.) (22 A D 2d 352, supra), involving assignments for the benefit of creditors, the commingled trust funds became payable to the assignees rather than “ the person making the deposit.” This, however, arises from the fact that the assignor, which had made the deposit, assigned all of its assets to the assignee. (Debtor and Creditor Law, § 3; Matter of Forty Wall St. Corp. [Eberstadt], 258 App. Div. 108.) An assignment of a lease alone, without specifically referring to a security deposit, and including a security deposit for unpaid rent, would not pass title to the security deposit. (Shattuck v. Buek, 158 App. Div. 709; Nemtzoff v. Vagnier, 163 N. Y. S. 1075; cf. Matter of Izrue Corp. [Carr], 58 Misc 2d 343, supra.) Moreover, in this case, when plaintiffs assigned the lease to Kathrane, it was specifically agreed that all interest in the $4,500 deposit “ shall remain vested in the Assignors * * * with final payment to include accrued interest, shall be received by Assignors.” Thus, plaintiffs, as “ the person making the deposit,” are entitled to recover from Eepetti the sum of $4,500, with interest therein from April 3,, 1969.
Any liability of Sarflo with respect to the $4,500 received from Repetti is limited to that which may arise from its position as landlord holding the security deposit pursuant to the lease. (See General Obligations Law, § 7-105, subd. 2.) The court interprets subdivision (4) of paragraph Fourth of the lease to mean that, on the dates stated therein, upon the landlord being paid the required rent from a tenant in possession, the landlord is bound to return the deposit to the extent that the rent for any such date is paid. (Even if this provision is regarded as ambiguous, the lease, having been drawn by the landlord, is to be construed strictly against the landlord. Evelyn Bldg. Corp. v. City of New York, 257 N. Y. 501, 513.) The court finds that all rents due at the time of trial have been paid. Accordingly, since the assignment of the lease was made on October 16, 1969, the deposit is to be returned to the extent that rent was paid 12 months later, that is, on November 1, 1970 (amounting to $650) and again on November 1, 1971 (amounting to $750). Sarflo’s argument that it cannot pay over such sums without permission of the tenant in possession is untenable. The first assignee of the lease, Kathrane, never had an interest in the security deposit and subsequent assignees have no greater rights. As pointed out above, all'interest in this deposit remained in plaintiffs so that they are entitled to recover these sums from Sarflo.
The court recognizes that, while plaintiffs are entitled to a judgment against both Repetti and Sarflo in the amounts indicated, they may not recover a total sum greater than $4,500
As far as the $1,500 deposit is concerned, there was no commingling shown. However, the notice provisions of subdivision 2 of section 7-103 of the General Obligations Law and section 7-105 were violated. The question presented is whether violations of such provisions entitle “ the person making the deposit ” to a return of the deposit. Actually, the statutes themselves do not state that a violation of any of their provisions entitles such person to a return of his deposit. Where there has been commingling, such person may be entitled to the return of his deposit only because the statute declares that a trust has been created, and, under the law of trusts, a commingling constitutes a conversion entitling the cestui que trust to recover the trust funds. (Matter of Perfection Tech. Servs. Press [Cherno-Dalecar Realty Corp.], 22 A D 2d 352, supra; Bonham v. Coe, 249 App. Div. 428, affd. 276 N. Y. 540, supra.) Presumably, if it were intended that any violation of the statute, should, of itself, require a return of the deposit, the statute would have said so. (160 Realty Corp. v. 162 Realty Corp., 113 N. Y. S. 2d 618, affd. 280 App. Div. 762, supra.) In the absence of such a statement, the court concludes that the loss of the deposit was not the intended penalty. The court observes that when it was intended to fix a specific penalty for a violation, specific provision was made. See subdivision 3 of section 7-105 of the General Obligations Law, declaring that any failure to comply with that section is a misdemeanor. Accordingly, the court finds that violations of the notice provisions do not entitle plaintiffs to a return of a deposit. (See Tow v. Maidman, 56 Misc 2d 468, supra.)
. Plaintiffs also seek to recover $10,000 damages against defendants Haugh and Mullins, the attorneys who represented them in their dealings with Kathrane and Bepetti, for negligence and malpractice. These attorneys have interposed a counterclaim for legal services rendered in the amount of $1,500. Plaintiffs argue that they put up $6,000 without getting adequate protection for this sum when they assigned the lease, and also that these attorneys “ allowed and permitted the plaintiffs to accept” Kathrane’s unsecured notes of $13,000 when they assigned the lease. The court finds that the arrangements made were not negotiated by these attorneys and that' plaintiffs, who were experienced businessmen, either negotiated the deals themselves or, in connection with the Kathrane deal, negotiated through a broker. The general measure of liability is that the attorneys perform their services with due care and average skill. (Matter of Weinberg v. Needleman, 226 App. Div. 3, affd. 252 N. Y. 622.) Plaintiffs have failed to show that these attorneys failed to perform their services in this manner and, accordingly, their cause of action, against defenants Haugh and Mullins is dismissed. The latter did not introduce evidence in support of their counterclaim and the counterclaim is also dismissed.
CONCLUSION
It is directed that judgment be entered as follows: In favor of defendant Kathrane asrainst plaintiffs; in favor of plaintiffs against defendant Bepetti in the sum of $4,500 with interest thereon from April 1, Í969: in favor of plaintiffs against defendant Sarflo in the sum of $1,400, with interest on $650 thereof from November 1, 1970, and with interest on $750 thereof from November 1, 1971; in favor of defendants Haugh and Mullins against plaintiffs on the latter’s complaint and in favor of plaintiffs against these defendants on their counterclaim.