Conford, Freund and Kilkenny. The opinion of the court was delivered by Freund, J.A.D.
Plaintiff, the duly authorized trustee in bankruptcy of B & R Decorators, Inc., a New Jersey corporation, instituted the present suit in the Bergen County District Court against Carmine Grimaldi, an attorney of this State, for alleged improper diversion of $750, representing funds of the bankrupt corporation. Trial by jury resulted in a verdict in plaintiff's favor, from which defendant takes this appeal. As no stenographic record was made of the trial proceedings, we consider this appeal on a settled state of case. R.R. 1:6-3.
The late Lawrence Bertola was president and sole stockholder of B & R. The corporation desiring to file a voluntary petition in bankruptcy, Bertola, on March 28, 1958, retained defendant Grimaldi for that purpose, visiting the latter at his office. A corporate check in the amount of $750 was given to Grimaldi as a retainer.
On April 15, 1958 Bertola appeared at Grimaldi's office, stated that the corporation did not wish to go into bankruptcy, and asked for the return of the retainer. Bertola further told defendant that he needed the money immediately in order to meet his weekly payroll, and requested that he be paid in the form of a check drawn to his individual order. Grimaldi, not having commenced any legal work on behalf of the corporation, complied with Bertola's request and drew a check to the latter's order in the sum of $750. About a week thereafter, Bertola took his own life. The corporation subsequently went into bankruptcy, and upon discovery by the trustee that the alleged check from Grimaldi to Bertola had never been deposited to the corporation's bank account,
the present suit for improper diversion was commenced. Defendant filed a third-party complaint against William S. Grimaldi, executor of Bertola's insolvent estate; the executor defaulted and is not a party to this appeal.
Defendant did not deny either the existence of the $750 retainer from Bertola or his obligation to return the money when informed that his services in the matter were no longer needed. His primary defense was that he had effectively discharged his debt to the corporation by writing the check to Bertola's order. The canceled check was introduced into evidence and, with the exception of B & R's bookkeeper, who was hesitant on the matter, the identifying witnesses agreed that the endorsement on the check was that of the late Lawrence Bertola.
Plaintiff maintains, in support of his jury verdict, that the evidence upholds the conclusion that defendant breached his fiduciary duty to his corporate client by negligently drawing his check to Bertola's individual order rather than to the order of B & R, thereby permitting a diversion of the corporate funds to Bertola's individual purposes; further, that the question of defendant's reasonableness in making the payment in that manner and the issue of whether the money was ever used for corporate purposes were properly left for the jury's determination.
We are of the opinion that the judgment of the trial court must be reversed because of the misleading and incomplete nature of the judge's charge to the jury. The crucial issue at the trial was whether defendant had violated the duty owed to his client, B & R, when he drew his check to the order of Lawrence Bertola, individually. Yet the only instruction remotely bearing on this issue consisted of the trial judge's adoption of plaintiff's request No. 3, reading as follows:
"A person dealing with an agent must act with ordinary prudence and reasonable diligence and if the character assumed by the agent is of a suspicious or unreasonable nature or if the authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real state of the case, but should either refuse to deal with him at all, or should ascertain from the principal the true intention of affairs."
In addition to the general nature of the quoted charge, lacking specific adaptation to the factual circumstances of the case, although admittedly that would not in itself be sufficient grounds for reversal, Nass v. Harris , 117 N.J.L. 427, 429 (E. & A. 1937), we consider that the instruction inadequately guided the jury in its deliberations. Having received the retainer from Bertola on behalf of the corporation, Grimaldi's relationship with B & R was that of attorney and client. Upon notification to defendant that the corporation no longer desired to go into bankruptcy, the client concededly became entitled, under their arrangement, to return of the retainer fee. But cf. Conover v. West Jersey Mortgage Co. , 96 N.J. Eq. 441, 451 (Ch. 1924). There is some doubt whether at this point Grimaldi held his client's money as a fiduciary, cf. In re Boyle , 18 N.J. 415 (1955); In re Banner , 31 N.J. 24 (1959); Canons of Professional Ethics of American Bar Association, Canon 11, with the attendant degree of responsibility, or whether the relationship between them was simply that of debtor/creditor. ...