People v. Ryan

• Decision Date: 07 April 1977
• Citation: 394 N.Y.S.2d 609,363 N.E.2d 334,41 N.Y.2d 634
• Parties: , 363 N.E.2d 334 The PEOPLE of the State of New York, Respondent, v. Jack F. RYAN, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 609

394 N.Y.S.2d 609

41 N.Y.2d 634, 363 N.E.2d 334

The PEOPLE of the State of New York, Respondent, v. Jack F. RYAN, Appellant.

Court of Appeals of New York.

April 7, 1977.

Leslie A. Bradshaw and Laura Jane Poyzer, Rochester, for appellant.

Thomas D. Saunders, Dist. Atty. (Raymond W. Bulson, Cuba, and Alan D. Marrus, New York City, of counsel), for respondent.

GABRIELLI, Judge.

A jury found the defendant, John F. Ryan, guilty of having committed the crime of grand larceny (two counts) by false promise under section 155.05 (subds. 1, 2, par. (d)) of the Penal Law. He was sentenced to serve two concurrent indeterminate terms with a maximum of four and one-half years. The issue presented is whether the prosecution has met its burden of proving the elements of this crime and, more especially, the requirement of the specifically defined intent as limited and mandated by the Penal Law ( § 155.05, subd. 2, par. (d)).

The defendant was a partner in Ryan & Boyce, Inc., a bond brokerage business. He maintained an approved line of credit with Marine Midland Bank on which he would borrow money for his continuing business purposes. Among other transactions, Ryan was engaged in the business of purchasing retainage bonds to be held in custodial bank accounts for the benefit of contractors performing work under agreements with political subdivisions. Generally the program operated in the following manner. The contractor would enter into an agreement with a school district (or other political subdivision) to perform certain construction work and, to assure completion of the construction, the school district retains the first 10% of the contract price. This retainer could be used to purchase municipal bonds which would earn interest for the benefit of the contractor (see General Municipal Law, § 106), and this is where Ryan would enter the picture. Ryan, using his line of credit with Marine Midland, borrows the funds necessary to purchase the municipal bonds, the purchase being made by Marine Midland at the direction of Ryan, with the bonds to be held by the bank as collateral for the loan. The school district is notified that the bonds were ordered, and is directed to remit the requisite amount to cover the purchase of the bonds. The school district forwards a check payable to the contractor and Ryan, and the contractor endorses the check and sends it to Ryan, who deposits it and repays the loan. When the loan is repaid the bank transfers the bonds from the loan account in which they serve as collateral to a custodial account in the trust department, which custodial account is payable to the contractor upon consent of the school district. In this way the school district maintains control over the retainer and the contractor has the benefit of interest-bearing municipal bonds.

During the course of his business, Ryan had a variety of dealings with the bank. As a result, he had a number of outstanding loans based on unsecured notes as well as loans secured by bonds. This case involves only one of several transactions.

In the instant case Ryan served as the agent for the L. C. Whitford Company, a construction firm which was under contract with the Wellsville Central School District to perform work in connection with a swimming pool project and an elementary school. In the summer of 1972 the contractor arranged with Ryan to buy bonds for the two contracts, approximately $15,000 being required for each contract. Ryan ordered the bonds using his line of credit to borrow the necessary funds under the usual arrangement that the bonds would serve as collateral. The total amount of the loan secured by these bonds was $26,500. In June, the bank notified the school district that Ryan had ordered the bonds and set up the custodial account, and that the school district should forward the appropriate checks. The school district issued a check for $14,917.50 payable jointly to the contractor and Ryan, which was endorsed by the contractor and forwarded to Ryan. On July 10 Ryan deposited it in his checking account, noting on the deposit slip the word "Whitford", the name of the construction company. On that same day he wrote a check to the bank for $22,000. On July 11, the bank's trust officer directed the establishment of the custodial account for the Ryan-Whitford transaction. Sometime between July 11 and July 21 the bank manager telephoned the school district to inform it that only one check had been received and two were expected since there were two contracts involved. After further clarification, the district forwarded the second check in the same manner as the first and it was deposited by Ryan on August 1, noting on the deposit slip the words "Wellsville School & Whitford". On the same day he wrote a check for $5,000 to the bank. Thus, as noted, after depositing each school district check, Ryan had made a payment to the bank, such payments totaling $27,000 or some $500 in excess of the loan secured by the bonds.

In mid-July the bank received $90,000 of municipal bonds which were taken as collateral for an $88,170 loan to Ryan, the loan being used to pay for the purchase of the bonds. Of these bonds, $30,000 worth were part of the Whitford-Ryan transaction, and correspondingly, $26,500 of the loan itself involved this transaction. The collateral loan ledger of the bank indicated that all the bonds were received by the bank and placed in various collateral loan accounts. But there were August 2 notations on the ledger showing that at least $20,000 of municipal bonds were released from collateral and sent to the trust department, and perhaps another $5,000 to $10,000 were also forwarded to the trust department. The defendant argues, and successfully we think, that the only available custodial account into which these bonds could have been placed was the Whitford-Wellsville account.

On August 3, 1972 Ryan notified Whitford by letter that $30,000 of securities had been paid for and delivered to the Wellsville School District. Between August 4 and August 25 the $88,170 note was reduced by payments totaling $61,902.49. In all, from July 10 to August 25 Ryan paid to the bank $101,369.85 of which only $1,900 was applied by the bank to the loan secured by the school district's bonds. The rest of the payments were applied against another bond loan and a separate note. On October 16, at the request of the school district, the bank's trust officer wrote to Whitford's accounting firm verifying that the bank was holding the bonds for the contractor and school district. In addition the internal bank memo establishing the custodial account contained a notation dated October 19 that "(b)onds not to be released". Such a notation, of course, implies that the bonds were in the account. Later in October the bank manager telephoned the school district to advise it that the bonds were not in the account as indicated and that the prior letter had been a mistake.

During the fall of 1972 Ryan had suffered some business difficulties, leaving his financial status less than secure. The bank was aware of his problems and apparently desired to protect its interests. The bank manager stated that he telephoned Ryan's office several times but his calls were not returned. Finally, on November 17 the bank terminated his credit and demanded the balance due on the loan secured by the bonds within 10 days. Ryan was unable to make payment and the Whitford bonds serving as security for Ryan's loan were sold with the proceeds applied to that loan. Eventually Ryan filed in bankruptcy and Whitford filed a complaint with the District Attorney.

The crime of larceny by false promise is defined in section 155.05 of the Penal Law as follows:

"1. A person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.

"2. Larceny includes a wrongful taking, obtaining or withholding of another's property with the intent prescribed in subdivision one of this section, committed in any of the following ways: * * *

"(d) By false promise.

"A person obtains property by false promise when, pursuant to a scheme to defraud, he obtains property of another by means of a representation, express or implied, that he or a third person will in the future engage in particular conduct, and when he does not intend to engage in such conduct or, as the case may be, does not believe that the third person intends to engage in such conduct.

"In any prosecution for larceny based upon a false promise, the defendant's intention or belief that the promise would not be performed may not be established by or inferred from the fact alone that such promise was not performed. Such a finding may be based only upon evidence establishing that the facts and circumstances of the case are wholly consistent with guilty intent or belief and wholly inconsistent with innocent intent or belief, and excluding to a moral certainty every hypothesis except that of the defendant's intention or belief that the promise would not be performed".

The charge against Ryan of committing larceny by false promise is based on the August 3 letters notifying Whitford that the bonds were in the custodial account. The prosecution contends that at the time the letters were sent, the payment for the bonds had been received, but that the bonds had not been transferred to the custodial account, that the collateral loans had not been paid and that the defendant had no intention of ever completing the deal. The crucial question is whether the facts support a jury finding that on August 3 Ryan never intended to pay the loans and never intended to have the bonds transferred to the collateral account. This issue necessarily involves the question whether the bonds were in...