Birnbaum v. Birnbaum, 21 N.Y.2d 201 (1967)

A party who accepts and cashes checks tendered under a specific condition, such as depositing a portion of the funds in a custodial account for children, is bound by that condition, creating an enforceable trust relationship, even if they express disagreement with the condition.

Summary

In a dispute arising from a separation agreement, a husband alleged his former wife diverted funds meant for their children’s support. He subsequently offered to continue monthly payments only if a portion was deposited into custodial accounts for the children. The wife cashed checks reflecting this condition but failed to deposit the funds as agreed. The court held that by cashing the checks with the explicit custodial condition, the wife created an enforceable trust, and both she and her subsequent husband, who knowingly benefited from the diverted funds, could be held accountable as trustees.

Facts

A separation agreement required the plaintiff to pay his former wife, Freda Birnbaum, $1,000 monthly for their children’s support. Freda remarried Martin Birnbaum. The plaintiff alleged that Freda diverted a substantial portion of these funds for her and Martin’s benefit. To resolve this dispute, the plaintiff offered to allocate $300 of each monthly payment for savings accounts for the children, to be held by Freda as custodian. The plaintiff then sent 13 checks, totaling $2,250, payable to “Freda Birnbaum as Custodian of” each child. Freda endorsed and cashed these checks but did not deposit the funds into custodial accounts.

Procedural History

The plaintiff sued Freda and Martin Birnbaum, seeking to have Freda declared a trustee of the diverted funds. The defendants moved to dismiss the complaint for legal insufficiency. The Appellate Division denied the motion to dismiss. This appeal followed to the New York Court of Appeals.

Issue(s)

Whether a party who cashes checks tendered with a specific condition, such as creating a custodial account, is bound by that condition, thus creating an enforceable trust relationship.

Holding

Yes, because by endorsing and cashing the checks, the defendant assented to the condition that the funds be held in a custodial account, creating an enforceable trust relationship, even if she expressed disagreement with the condition.

Court’s Reasoning

The court reasoned that Freda’s act of endorsing and cashing the checks payable to her as custodian constituted acceptance of the condition upon which the checks were offered. The court cited the principle that “what is said is overridden by what is done, and assent is imputed as an inference of law” (quoting Hudson v. Yonkers Fruit Co., 258 N.Y. 168, 171). The court emphasized that the plaintiff was in a position to declare the separation agreement broken due to the alleged diversion of funds. By agreeing to the custodial arrangement, the plaintiff modified the original agreement, supported by the consideration of resolving the dispute over the diverted funds. Even though Freda purported to repudiate the arrangement, her actions of cashing the checks committed her to the custodial condition. Therefore, she could be held accountable as a trustee for the $2,250. Furthermore, since Martin Birnbaum had knowledge of the trust purposes and participated in the diversion, he was also accountable as a constructive trustee. The court did not address whether a wife is generally accountable in equity as a trustee for funds paid under a separation agreement for the exclusive use of children, limiting its holding to the specific facts of the custodial arrangement evidenced by the checks. The court stated, “Even though defendant Freda Birnbaum purported to repudiate the $300 per month custodial arrangement by a letter from her lawyer…her indorsement and cashing of these checks committed her to the custodial condition on which they were delivered. ‘What is said is overridden by what is done, and assent is imputed as an inference of law.’”