Ehag Eisenbahnwerte Holding Arktiengeselkschaft v. Banca Nationala A Romaniei, 306 N. Y. 242, 117 N. E. 2d 346 (1954)

Dombrowski, Frank, Jr.

English

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Contracts—Constructive Trusts

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Buffalo Law Review Volume 4 Number 1 Article 31 10-1-1954 Contracts—Constructive Trusts Frank Dombrowski Jr. Follow this and additional works at: https://digitalcommons.law.buffalo.edu/buffalolawreview  Part of the Contracts Commons Recommended Citation Frank Dombrowski Jr., Contracts—Constructive Trusts, 4 Buff. L. Rev. 61 (1954). Available at: https://digitalcommons.law.buffalo.edu/buffalolawreview/vol4/iss1/31 This The Court of Appeals Term is brought to you for free and open access by the Law Journals at Digital Commons @ University at Buffalo School of Law. It has been accepted for inclusion in Buffalo Law Review by an authorized editor of Digital Commons @ University at Buffalo School of Law. For more information, please contact lawscholar@buffalo.edu. THE COURT OF APPEALS, 1953 TERMwhere termination is specified in a certain manner, it could notimply a condition that the principal has a right to terminate theagreement by selling the building. The result reached by thecourt, which perhaps can be justified by the ambiguity of theagreement, 45 seems to argue from the fact of the stipulation ofan express termination agreement to the finding of a contract ofemployment. The case principally relied on by the court did notinvolve such a situation,4 since it dealt with the breach of adefinitely established employer-employee relationship negotiatedbetween the employer and a trade union, providing employmentfor a definite period at a guaranteed weekly wage. Here the verypoint in issue is whether any employer-employee relationship wasever contemplated.The dissenters, led by Judge Dye, feel that when the contractis read in the light of its avowed purpose, it is, in form and tenure,the usual real estate management agreement, which could be con-verted into an employment contract only by lifting the word "em-ploy" and "employment" out of context. Further provisions inthe agreement indicated a marked similarity to the usual provi-sions in a management agreement which is terminated when thesubject matter is extinguished by a bona fide sale after notice.Constructive TrustsA person who delivers monies to another with instructionsto pay them to a third person may intend either to make the re-ceiver an agent for himself or to constitute him a trustee for athird person.47 If the former intention is found, the third personwill have no right of action to recover the monies ;48 if the latterbe the intention, a cause of action for money had and receivedwill arise in favor of the third person.4 9 It is the intention of theowner, and not that of the receiver which is determinative of therelationship formed.5045. After stating that defendants were employed, the parties thereafter wereexclusively referred to as principal and agent.46. Hudak v. Hornell Industries, 304 N. Y. 207, 106 N. E. 2d 609 (1952) notedin 4 Sm. L. Rxv. 146 (1952).47. 2 WLLISTON, CONTACTS, § 351 (Rev. ed. 1936).48. Erb v. Banco di Napoli, 243 N. Y. 45, 152 N. E. 460 (1926) ; Noyes v. FirstNat. Bank, 180 App. Div. 162, 167 N. Y. Supp. 288 (1st Dep't 1917), aff'd 224 N. Y.542, 120 N. E. 870 (1918).49. 2 WrmusToN, op: cit. § 353.50. Sayer v. Wynkoop, 248 N. Y. 54, 59, 161 N. E. 417, 418 (1928). While an ex-plicit declaration of trust may be involved, Rogers Locomotive & Machine Works v. Kelly,88 N. Y. 235 (1882), circumstances which show beyond reasonable doubt that a trustwas intended to be created is sufficient. Beaver v. Beaver, 117 N. Y. 421 (1889). Thelatter situation presents a question of fact for the jury. Read v. Morford, 203 App. Div.166, 196 N. Y. Supp. 433 (1st Dep't 1922).BUFFALO LAW REVIEWThe Court of Appeals, in a unanimous decision, held that notrust relationship was established where the defendant, a Rouman-ian corporation agreed to aid in the servicing of a governmentbond issue, known as the "Roumanian Four Percent ConsolidatedLoan of 1922.'*1 ' The General Bond named the British OverseasBank, Ltd. as "the financial agents of the government for theservice of said Bonds" and designated it as "Trustee for theBondholders." Defendant's duties were set out in an agreementwith the Ministry of Finance. 2 In 1933, the Roumanian govern-ment forbade further export of currency, but provided for con-tinued deposits with the defendant bank. It appeared that alldeposits ceased after 1937.Plaintiff bondholder, a Swiss Corporation, alleged that theRoumanian government continued payments up to October 1, 1941but presented no proof to substantiate its claim. Roumanian law,which governed the contract, was not pleaded or proved, but thecourt held that plaintiff's proof of such law, would not, in anyevent, establish a cause of action under New York Law5 3 sufficientto justify the issuing of a warrant of attachment. 4The claim that bondholders are third party beneficiaries ofdefendant's agreement with the government is clearly contraryto well settled New York Law."5 The court then proceeded to an-alyze the claimed trust relationship. "The facts are, first, therewas no promise on the part of defendant to pay bondholders, andsecond, there was no breach by defendant of the agreement whichit actually did make." Control of the funds was at all timesretained by the government. The obligation to procure and trans-mit the funds were made subject to the directions of the govern-ment.51. Ehag Eisenbahnwerte Holding Aktiengeselkschaft v. Banca Natlonala 4 Roma-niel, 306 N. Y. 242, 117 N. E. 2d 346 (1954).52. Art. 4-The bank "obligates itself to make all payments out of above men-tioned transfers to it and to procure necessary foreign exchange." Art. 6-The bankwould "assume the task of conveying the various remittances . . .follow4ng the instruc-tions given by the Minister of Finance." Deposits were made "at the Bank of Englandwherefrom, in accordance with directions given by the Ministry of Finance . . . therequired remittances would be made to the British Overseas Bank and its subagents,"53. See 3 BEALE, CONFLICT oF LAws, § 622 A. 2.54. C. P. A. § 903.55. Reliance on Lawrence v. Fox, 20 N. Y. 268 (1859) was specifically rejected inStaten Island Cricket & Baseball Club v. Farmer'i Loan & Trust Co., 41 App. Div.321, 58 N. Y. Supp. 460 (2d Dep't 1899) ; Noyes v. First National Bank, supra note 48.If bondholders are to be regarded as mere incidental beneficiaries, they have no causeof action. 4 CoaniN, CoNtmAcrs, § 779 D (1951); Matter of Connecticut Co., 95 F. 2d311 (2d Cir. 1938).THE COURT OF APPEALS, 1953 TERMThe court correctly found plaintiff's complaint failed to statea cause of action. The bank was a mere agent of the governmentand could only pay subject to the direction of its principal. 6Negotiable Instruments LawA couple approached a bank to obtain a loan for the purchaseof a car. After requiring them as payees to endorse a cashier'scheck for $1,000 to a specific car agency, the bank issued the checkin return for a note for the same amount. Upon tender, a partnerof the agency noticed a further recital on the reverse side of thecheck stating it was in full payment of a car. He declined to acceptthe check, since he knew that the payees had already purchased acar on which they owed a balance of only $200. The payees endors-ed the check with the name of the agency and the purported signa-tures of two agency officials and, a few days later, approached agrocery store owner, with whom they had dealt previously. Afterexamining the endorsements, and requiring an endorsement inblank from one of the payees, the storekeeper cashed the check.Subsequently, the bank refused to honor the check.The Court of Appeals held, in Hall v. Bank of Blasdel,"7 thatthe plaintiff storeowner was a holder in due course, rejecting theclaim of the bank that under the facts plaintiff could not even bea holder.The defendant's argument was threefold:1. since the check was not accepted by the agency, it wasnever negotiated,582. the unauthorized signing of the agency's name as in-dorsee was a forgery, 9 and3. even if the payees had the power to endorse and de-liver, they had not in fact done so.60In rejecting the defendant's first assertion, the court pointedout that this would necessitate a finding that the defendant re-garded the payees as mere messengers, and intended to make theagency the true party in interest." Since there was no indebted-56. See In re Interborough Consol. Corp., 288 F. 334, (2d Cir. 1923) for comparisonwith situation where a fund is set aside to meet declared dividend payments.57. 306 N. Y. 336, 118 N. E., 2d 464 (1954).58. Negotiable Instruments Law § 35.59. Id. § 42.60. Id. § 60.61. The court distinguished Wolfin v. Security Bank of New York, 170 App. Div.519, 156 N. Y. Supp. 474 (1st Dep't 1915), aff'd 218 N. Y. 709, 113 N. E. 1068 (1916).There, the maker required the payee to endorse the instrument to the plaintiff, and in-structed him to deliver the note to the plaintiff. It was held constructive delivery waseffected so as to vest the plaintiff with legal title to the instrument.63

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Contracts—Constructive Trusts

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