Buckthorn, Ltd. v. Rollins Burdick Hunter of New York, Inc.

• Decision Date: 30 May 1985
• Parties: , 115 A.D.2d 364 BUCKTHORN, LTD., Plaintiff-Appellant-Respondent, v. ROLLINS BURDICK HUNTER OF NEW YORK, INC., Defendant and Interpleading Plaintiff-Respondent-Appellant, v. EQUITY STEAMSHIP AGENCIES, LTD., Interpleaded Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 729

489 N.Y.S.2d 729

109 A.D.2d 8, 115 A.D.2d 364

BUCKTHORN, LTD., Plaintiff-Appellant-Respondent, v. ROLLINS BURDICK HUNTER OF NEW YORK, INC., Defendant and Interpleading Plaintiff-Respondent-Appellant, v. EQUITY STEAMSHIP AGENCIES, LTD., Interpleaded Defendant-Respondent.

Supreme Court, Appellate Division,

First Department.

May 30, 1985.

As Amended Dec. 3, 1985.

George L. Graff, New York City, of counsel (Emily A. Tabin, New York City, with him on the brief; Milgram Thomajan Jacobs & Lee, New York City, attorneys), for plaintiff-appellant-respondent.

W. Donald Nyland, New York City, of counsel (C. Peter Lambos, New York City, with him on the brief; Lambos, Flynn, Nyland & Giardino, attorneys), for interpleading-plaintiff-respondent-appellant.

Robert W. Mullen, New York City, of counsel (Dickerson, Reilly & Mullen, New York City, attorneys), for interpleaded defendant-respondent.

Before SANDLER, J.P., and ASCH, FEIN and KASSAL, JJ.

FEIN, Justice.

Plaintiff, a creditor's assignee, sues defendant, the broker for the interpleaded defendant Equity Steamship Agencies, for alleged conversion of insurance proceeds which defendant had received on behalf of Equity, to which plaintiff had claimed entitlement under various written agreements between plaintiff's assignor and Equity.

Plaintiff's president, Felzenberg, was a shipper who had done business with Equity. In 1981, as a result of Felzenberg's introduction and personal guaranty, Equity was able to obtain a $250,000 loan from Citibank, for which Equity's president, Emmans, gave a demand promissory note for the amount of the loan, as well as a lien on property and proceeds then or subsequently in Citibank's control on Equity's behalf. The note pledged to Citibank "any and all property and the proceeds thereof now or at any time(s) hereafter" held by Citibank for account of Equity, as collateral security for Equity's "payment of (i) the indebtedness evidenced hereby or by any note(s) which may be given in renewal or extension of all or any part of that indebtedness, and (ii) any and all other obligations and/or liabilities, direct or contingent, of the undersigned to the Bank, due or to become due, whether now existing or hereafter arising".

Eight months later, in February 1982, Citibank loaned Equity an additional $200,000, again at Felzenberg's behest, with Emmans delivering an identical note. Along with this second note Citibank obtained a general hypothecation agreement signed by Emmans, amplifying Citibank's right to apply any pledged collateral toward the satisfaction of the debt, if necessary.

Shortly thereafter, Equity was in need of additional financial backing in the form of a $250,000 letter of credit, to secure issuance of a bond for the release of a damaged vessel in Alabama. Inasmuch as this would raise Equity's total indebtedness to Citibank to $700,000, Citibank asked for additional security. Equity, through its broker (defendant), agreed to assign the proceeds of a pending insurance claim on this vessel (an anticipated $354,047.20) to Citibank. A $250,000 one-year letter of credit was thereupon issued.

The entire loan structure was thus built upon a personal relationship between the presidents of Equity and plaintiff, with Citibank extending credit to Equity based in part upon plaintiff's president's personal guaranty. However, Equity made no interest or principal payments on either loan, despite Citibank's demands on the notes, and the letter of credit remained outstanding, with $36,000 having been drawn against it by the bonding company's beneficiary.

In March 1983 Citibank learned that defendant was in receipt of the insurance proceeds Equity had assigned to Citibank as collateral in consideration for issuance of the letter of credit. Defendant refused to turn these proceeds over to Citibank, even after Citibank promised to indemnify defendant against any claim by Equity. In August 1984 Citibank assigned its rights to these insurance proceeds to plaintiff, in exchange for payment of all of Equity's obligations. Plaintiff then commenced this action against defendant for the proceeds. Defendant interpleaded Equity as an adverse claimant. Equity's own claims to these proceeds, plus a variety of claims against plaintiff and its president, were severed as unrelated to the funds in issue here.

Defendant's opposition to plaintiff's summary judgment motion is based primarily on the statement by Equity's president that the hypothecation agreement was not intended to extend...