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Purfield v. Kathrane - 73 Misc. 2d 194, 341 N.Y.S.2d 376 (Civ. Ct. 1973)

Rule:

Where at the time of trial the deposit is intact and the person making the deposit is in possession, despite commingling, there is no conversion and, consequently, there can be no recovery of the deposit. However, in the absence of these conditions, the commingling constitutes a conversion entitling the person making the deposit to the recovery of the deposit. N.Y. Gen. Oblig. Law § 7-103(1). 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 deposit, the statute expressly constitutes the landlord a trustee and forbids him to mingle the deposit with his personal funds. Consequently, any such commingling is now deemed to be a conversion which entitles the tenant to immediate recovery of the deposit intact.

Facts:

Plaintiff Norman Purfield and others entered into a lease for a bar and grill for 10 years, commencing April 1, 1969; the lease provided for a six-month rent deposit of $ 4,500, and a $ 1,500 security deposit. On Oct. 16, 1969, Purfield sold and assigned the lease to defendant Kathrane, and paid the required additional security to the landlord, defendant Repetti. This assignment stated that Purfield retained title to the security deposits. Subsequently, Kathrane assigned the lease to another. On May 1, 1970, Repetti conveyed the premises to defendant Sarflo Realty Co. and delivered to it the security deposits of $ 4,500, and $ 1,500. Sarflo Realty Co. has purchased the premises in good faith and apparently has not commingled these security deposits with its own moneys. Purfield filed an action in New York state court against Repetti, Kathrane, and Sarflo, alleging that he was entitled to recover deposits made pursuant to the lease.

Issue:

Was Purfield entitled to the deposits?

Answer:

Yes.

Conclusion:

The court held that Purfield was entitled to judgment against Repetti for the six-month rent deposit and against Sarflo, limited to its liability under the lease. N.Y. Gen. Oblig. Law §§ 7-103(1)(2) provided that such deposits were required to be held in trust for the benefit of tenants, such as Purfield. Repetti violated those laws by commingling funds and by failing to comply with the notice provisions. Even though Purfield was no longer in possession, he was entitled to recover as the person who made the deposits and as provided in the assignment contract. There was no liability for conversion as against Sarflo because the deposit was intact and there was no showing that it had commingled the deposits. The court entered judgment in favor of Kathrane because there was no basis for its liability. As to the $ 1,500 security deposit, Repetti's failure to notify Purfield that he had turned their money over to Sarflo was a misdemeanor (General Obligations Law, § 7-105subd. 3), but it was not a conversion. The lease still had seven years to run, and, as yet, Purfield had no cause of action for the return of this $ 1,500.

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