Asher v. Herman

• Decision Date: 08 March 1966
• Citation: 49 Misc.2d 475,267 N.Y.S.2d 932
• Parties: Melvin J. ASHER and Charles K. Tannenbaum v. Robert HERMAN, Antoinette Herman, Angelina Gianatiempo and Irving E. Dickman.
• Court: New York Supreme Court

Page 932

267 N.Y.S.2d 932

49 Misc.2d 475

Melvin J. ASHER and Charles K. Tannenbaum v. Robert HERMAN, Antoinette Herman, Angelina Gianatiempo and Irving E. Dickman.

Supreme Court, Trial Term, Queens County, Part I.

March 8, 1966.

Melvin J. Asher, Jackson Heights, for plaintiffs (Martin R. Weinberg, of counsel).

Albert Buchter, Merrick, for defendants.

J. IRWIN SHAPIRO, Justice.

The question posed for decision in this case is who, as between the plaiantiffs (vendees) and the defendants (vendors) must suffer the loss of moneys deposited by the vendees under a real estate contract with an escrowee who has converted the funds to his own use.

Pursuant to the terms of the contract a deposit on account of the purchase price was left with one Irving E. Dickman, the vendors' attorney, who unquestionably embezzled the funds. In addition to the vendors he is named as a defendant in this action. Although he interposed an answer to the complaint, he did not appear on the trial either in person or by counsel.

The contract of purchase and sale provided that 'The seller shall give and the purchaser shall accept a title such as the Security Title and Guaranty Company will approve and insure'.

It is undisputed that at the time of the closing the vendors were unable to deliver to the plaintiffs a good and marketable title by reason of the fact that a New York Estate Tax against a party in the chain of title had not been fixed and paid nor had an order of exemption been obtained.

The Security Title and Guaranty Company refused to approve and insure the title to the premises by reason of the outstanding estate tax except that it would insure against collection out of the premises up to a sum not exceeding $797. This was unacceptable to the vendees. An offer by the vendors to deposit a specified sum of money as security for the payment of the estate tax was likewise rejected by the vendees. In refusing to accept such an arrangement, the vendees were within their rights, since no one could foretell whether the deposit would be ample. In any event, the vendors could not deliver a title which the Security Title and Guaranty Company would 'approve and insure' and, since no request was made by the vendors for an adjournment to perfect their title, the plaintiffs were entitled to receive back the moneys deposited by them under the contract.

The vendees contend that since the escrowee was the attorney for the vendors, it is they, the vendors, who must suffer the loss. Strange as it may seem, there is no case in point in this State. In Mechanics' National Bank v. Jones, 76 App.Div. 534, 545, 78 N.Y.S. 800, 808, an agreement between debtors and their creditors was involved and the court there laid down the principles generally applicable to escrow arrangements that 'From the time the deposit is made the escrow agent becomes the trustee of both the party making the same and of the one for whose benefit it is made'. And in Farago v. Burke, 262 N.Y. 229, 233, 186 N.E. 683, 684, the court said that the law imposes upon the escrowee 'a duty not to deliver the escrow to anyone except upon strict compliance with the conditions imposed * * *' because in accepting the escrow arrangement he became a 'fiduciary' as to both parties to the arrangement. (Bardach v. Chain Bakers, 265 App.Div. 24, 27, 37 N.Y.S.2d 584, 587.)

Where, in light of the general principles above set forth, should the result of the escrowee's dereliction fall? That question seems to have first arisen and been answered in 1925 in Hildebrand v. Beck, 196 Cal. 141, 236 P. 301, 39 A.L.R. 1076. In that case there was a deposit of money by a purchaser of real estate with an escrow agent which was to be paid to the vendor if and when a title guarantee was secured. The escrowee embezzled the moneys deposited before the guarantee was secured. In holding that the loss must fall upon the vendee because, at the time of the embezzlement, the vendor had not yet acquired a right to receive the funds--a rule which has been uniformly followed in all subsequent cases--the court, sitting en banc, unanimously held:

'It is at once apparent that the money deposited by the vendee with the escrow company was not deposited with the company for the account of the vendor at the time the deposit was made, but that it was to be so applied when the Eshleman Realty Company could secure for the vendee 'a title guaranty.' Pending the procurement of the title guaranty the Eshleman Realty Company held the money in trust for the vendee and the vendor had no claim to it. In other words, the Eshleman Realth Company never had any money paid to it for the account of the vendor until the very instant that the company procured for the vendee 'a title guaranty.' If, in the interim between the deposit of the money with the company and the securing of the 'title guaranty' by the company, the money was embezzled, then it was the money of the vendee that was embezzled, and the Eshleman Realty Company would have no authority to deliver to the vendee the title guaranty for the reason that at the instant of time when the title guaranty had been secured no money had been paid to the company for the account of the vendor.

As before indicated, the finding of the trial court was that the money deposited by the vendee was embezzled shortly after its deposit. If this finding is supported by the...