that his statements were true and, as he intended, plaintiff relied on his advice. Therefore, defendant is liable to plaintiff for negligent misrepresentation if the relationship between the parties was such that a duty of care existed.
There are few New York cases addressing the types of relationships which create a duty to speak with care. However, the focus of this inquiry has shifted away from the parties' formal legal relationship towards the reasonable expectations of the parties. The Second Circuit predicts that the New York courts are most likely to follow this majority rule. Id.; MEI Int'l v. Schenkers Int'l Forwarders, Inc., 807 F. Supp. 979, 985 (S.D.N.Y. 1992). The relationship between defendant and plaintiff is a bit mysterious. Although plaintiff viewed defendant as her investment advisor, defendant claims that he never represented himself as anything other than a friend. T. 35, 118, 133-34. Plaintiff never explained, nor did defendant ask, what her overall financial status or objectives were, T. 121, and there is no evidence of any arrangement to compensate defendant for his services. T. 36, 135. On the other hand, defendant did provide plaintiff with specific investment advice upon which he intended her to act, and he executed the art purchase as agent for plaintiff. Plaintiff gave defendant $ 10,000 without getting a receipt; defendant was given complete control over plaintiff's money and the property acquired therewith for the duration of the transaction. This relationship demonstrates a high degree of trust between the parties from which a duty may arise. Furthermore, plaintiff viewed defendant as her investment advisor, and defendant admits that he expected plaintiff to rely on his investment advice. Given that the duty to speak with care is created by the reasonable expectations of the parties and reliance was anticipated by both parties, we find that the relationship between the parties was sufficient to create a duty to speak with care. This duty having been breached, we find for the plaintiff on the negligent misrepresentation claim.
III. Negligent Execution of the Transaction
Since defendant's implementation of the transaction was as inept as his investment advice, plaintiff may also recover for defendant's negligent behavior. Once plaintiff decided to buy the mask, defendant offered to execute the transaction on plaintiff's behalf. Having made such a proposal, defendant undertook the duty to act with due care. Nallan v. Helmsley-Spear, Inc., 50 N.Y.2d 507, 522, 429 N.Y.S.2d 606, 615, 407 N.E.2d 451 (1980) (when one assumes a duty to act, even gratuitously, he thereby becomes subject to a duty of care).
To determine whether defendant has assumed a duty of care the question is whether defendant's actions have advanced to the point where they have "launched a force or instrument of harm, or [they have] stopped where inaction is at most a refusal to become an instrument of good." Id. (citing Moch Co. v. Rensselaer Water Co., 247 N.Y. 160, 167-68, 159 N.E. 896, 898 (1928) (J. Cardozo)). Defendant agreed to take plaintiff's money, buy an African mask, and hold it until a buyer could be found. When it came time to sell the mask, defendant exclusively handled that transaction as well. Plaintiff never met the art dealer and could not have made the deal absent defendant's agreement to act on her behalf. Thus, defendant's participation in the transaction was a sufficient undertaking to create a duty to execute the transaction with care. See College Auxiliary Services of State University College at Plattsburgh, Inc. Slater Corp., 90 A.D.2d 893, 456 N.Y.S.2d 512, 513 (3d Dept. 1982) (if one acts in a professional capacity, even if gratuitously, he is duty bound to act with reasonable care).
Defendant breached this duty by executing the transaction in a negligent fashion. Defendant took $ 10,000 from plaintiff, bought a mask whose retail value could not have exceeded $ 6,000 and took no invoice or receipt to memorialize the transaction at the time of the sale. Once Zango purported to have an unnamed buyer somewhere in Europe, defendant returned the mask to the art dealer, taking only a backdated invoice of his original purchase as a receipt. Despite the fact that defendant knew that the art dealer was planning to take the mask out of the country, defendant made no contract or consignment agreement with Zango to secure plaintiff's interest in the mask. Thus, defendant breached his duty and is liable for the negligent, indeed reckless, execution of this transaction.
Even if this were not a sufficient undertaking to support an ordinary duty of care, defendant would be liable as plaintiff's gratuitous bailee for handling the transaction in a grossly negligent manner. An implied bailment arises when one comes into lawful possession of the personal property of another. Mack v. Davidson, 55 A.D.2d 1027, 391 N.Y.S.2d 497, 499 (4th Dept. 1977); Tremaroli v. Delta Airlines, 117 Misc. 2d 484, 458 N.Y.S.2d 159, 160 (Civ. Ct. 1983). Defendant agreed to purchase the mask with plaintiff's funds and hold it for plaintiff until a buyer could be found. Thus, defendant was plaintiff's bailee. However, because plaintiff did not establish that defendant received any benefit from the transaction, defendant can only be considered a gratuitous bailee, who can only be held liable for acts of gross negligence. Jays Creations, Inc. v. Hertz Corp., 42 A.D.2d 534, 344 N.Y.S.2d 784, 785-86 (1st Dept. 1973); Linares v. Edison Parking, Inc., 97 Misc. 2d 831, 414 N.Y.S.2d 661, 662 (Civ. Ct. 1979); Rosen v. Village Chevrolet, Inc., 63 Misc. 2d 174, 311 N.Y.S.2d 230, 233 (Civ. Ct. 1970). Nonetheless, defendant's behavior was so careless that it constitutes gross negligence. Stinson allowed Zango to take plaintiff's mask out of the country without making any formal agreement to secure plaintiff's interest; indeed he did not even take a receipt from Zango. We find defendant's execution of the transaction was grossly negligent and a breach of the duty to plaintiff as her gratuitous bailee.
Plaintiff claims not only her $ 10,000 investment but also the $ 9,000 return promised by defendant. However, the proper measure of damages for fraud under New York law is plaintiff's out-of-pocket loss. Ostano Commerzanstalt v. Telewide Sys., Inc., 794 F.2d 763, 766 (2d Cir. 1986). Thus, plaintiff is only due the $ 10,000 she entrusted to defendant. In addition New York CPLR §§ 5001(a) and 5004 require that pre-judgment interest be applied at a rate of 9% per annum. Mallis v. Bankers Trust Co., 717 F.2d 683, 694 (2d Cir. 1983) (pre-judgment interest appropriate for common law fraud). Plaintiff does not request pre-judgment interest in her post trial papers, but this does not prohibit its award. Id.; Newburger, Loeb & Co., Inc. v. Gross, 611 F.2d 423, 433 (2d Cir. 1979) (pre-judgment interest granted despite plaintiff's failure to request it). The checks given by plaintiff to defendant were dated late September and early October of 1980. T. 50. Therefore, we calculate 13 years and 7 months of interest at a rate of 9% per annum on a simple interest basis which amounts to an interest award of $ 12,225. Judgment for plaintiff will be entered in the amount of $ 22,225, plus taxable costs.
Dated: New York, New York
May 22, 1993
William C. Conner
United States District Judge