text:
    Josephine Annino, Appellant, v. City of Utica, Respondent, Impleaded with Another.
    Argued October 6, 1937;
    decided November 23, 1937.

      Salvador J. Capecelatro for appellant.
    The metal tripod and flare maintained as a warning signal by the city of Utica constituted an insuflicient and dangerous appliance, as well as a hazard to the traveling public. (Johnson v. State, 186 App. Div. 389; City of Buffalo v. Halloway, 7 N. Y. 493; Storrs v. City of Utica, 17 N. Y. 104; Wilson v. City of Troy, 135 N. Y. 96; Gastel v. City of New York, 194 N. Y. 18; Burrows v. Livingston-Niagara Power Co., 244 N. Y. 548; O'Neill v. City of Port Jervis, 253 N. Y. 423; Parnell v. Holland Furnace Co., 260 N. Y. 604; Kalinowski v. Truck Equipment Co., 237 App. Div. 472.) The evidence to establish negligence on the part of the city of Utica presented a question of fact for the determination of the jury. (Terry, v. Village of Perry, 199 N. Y. 79; Fordham v. Gouverneur Village, 160 N. Y. 541; Butler v. Village of Oxford, 186 N. Y. 444; Walsh v. Central New York Tel. & Tel. Co., 75 App. Div. 1; Donnelly v. City of Rochester, 166 N. Y. 315; Snowden v. Town of Somerset, 171 N. Y. 99; McGettigan v. N. Y. C. R. R. Co., 268 N. Y. 66; Corcoran v. City of New York, 188 N. Y. 131.)

      Bartle Gorman, Corporation Counsel (M. Francis Malone of counsel), for respondent.
    The city of Utica was not guilty of negligence and the Appellate Division properly reversed the judgment. (Carlson v. City of New York, 150 App. Div. 264; Parlcer v. City of Cohoes, 10 Hun, 531; 74 N. Y. 610; McFeeters v. City of New York, 102 App. Div. 32; Gedroice v. City of New York, 109 App. Div. 176; McDonald v. Degnon-McLean Contracting Co., 124 App. Div. 824; Gastel v. City of New York, 194 N. Y. 15; Johnson v. City, 208 N. Y. 77.)
   Rippey, J.

Plaintiff recovered a verdict for personal injuries received through the negligence of the city of Utica in the erection and maintenance of an obstruetian in one of the city streets. Judgment entered upon the verdict was reversed by the Appellate Division on questions of law only and the complaint dismissed, with costs. It was held as matter of law that there was no evidence upon which a charge of negligence against the city could be sustained. In so deciding, the Appellate Division was, we think, in error.

The accident happened at about 7:05 o’clock on the evening of September 16, 1934. Defendant George Comstock was driving his automobile easterly along the southerly side of Whitesboro street in the city of Utica at about twenty miles per hour during a heavy downpour of rain when his car collided with a metal tripod erected by the city over a manhole which was under repair. Plaintiff was his guest and was sitting on his right on the front seat. When the collision occurred, a burning flare, resting unattached on the top of the tripod, was thrown over the hood of the automobile and through the windshield and struck plaintiff in the face. Neither Comstock, plaintiff, nor others in the automobile saw the tripod or the flare before the collision. The legs of the tripod were black. The ball of the flare was eight inches in diameter and was also black. The wick of the flare gave off a dim, flickering, yellowish, smoking flame about one inch long, blown by a strong wind in the direction in which the car was moving.

Whitesboro street was one of the main thoroughfares of the city over which traffic was heavy. Automobiles, with headlights burning, were passing along the street from the east. At least one car was parked along the southerly curb near the manhole. The street was thirty-four feet wide between curbs with a surface of dark material, and the center of the manhole was twelve and three-tenths feet north from the south curb directly in the path of east-bound traffic. The iron cover of the manhole was two and three-tenths feet in diameter. For two or more days before the accident the city had been engaged in repairing broken pavement around the manhole. It had placed the tripod over the manhole and broken pavement and had maintained and kept it there later to keep traffic from passing over the repaired pavement until the cement might dry. The bottom of each leg of the metal tripod resting on the pavement extended twenty-eight inches from a point directly underneath the center of the flare, and extended over and beyond the repaired pavement. Thus there was twelve feet of space between the burning flare and the curb, but if one of the legs protruded to the south of the flare the space in which to pass without striking the tripod was reduced to nine and one-half feet. With an automobile parked on the south curb near the tripod an operator would experience difficulty in safely passing around the tripod on the right even in daylight and under the best of weather conditions. Safe passage around the obstruction would be extremely hazardous in a severe rainstorm and at night, especially where adequate and proper guarding and lighting of the obstruction were lacking. There was no guard rail around the obstruction. The tripod was equipped with a hook directly underneath the center of the flare. It was so designed and placed that a red lantern might be hung between the legs of the tripod. The hook was there for the express purpose of holding such a light. There was testimony of the watchman who was charged with the duty of setting up the tripod and of seeing that it was properly lighted to the effect that he had hung a red lantern on the hook some four days before the accident. Evidence was given by him, although contradictory and uncertain, from which an inference might be drawn that the lantern was left by him hanging on the hook and lighted at four o’clock on the afternoon preceding the accident. Against this was the testimony of a number of witnesses to the effect that no such lantern was there immediately preceding or at the time of the accident. The jury were authorized to find, and on this appeal we must assume that they did find, that there was no such light. Even had there been such a light, it still would have been a question of fact for the jury as to whether, under all the circumstances of the case, the defendant exercised that care required of it in lighting and guarding the tripod.

Evidence was admitted to show that the tripod was struck twice by passing automobiles shortly before the accident. While testimony of prior accidents, without other “ evidence of such a fundamental condition of the thing under scrutiny as will at least permit the inference that the party complained of has failed to discharge the duties reasonably and fairly imposed on him by law,” would be insufficient to charge the city with negligence in the erection and maintenance of the obstruction, it was properly received and might be utilized for the purpose of showing that tested by actual experience it has proved dangerous and naturally calculated to cause accidents.” (Gastel v. City of New York, 194 N. Y. 15, 18.)

The city owed to the public the absolute duty of keeping its streets in a reasonably safe condition for travel (Storrs v. City of Utica, 17 N. Y. 104), and was bound to exercise reasonable care to accomplish that end (Brusso v. City of Buffalo, 90 N. Y. 679). That principle of law is applicable whether the danger arises from an unguarded excavation made by the municipality (Brusso v. City of Buffalo, supra; Wilson v. City of Troy, 135 N. Y. 96) or from an obstruction placed by the corporation upon the street (Whitney v. Town of Ticonderoga, 127 N. Y. 40). The obstruction constituted a defect in the street. No question of notice of the dangerous situation is in the case, for the city itself erected and maintained the obstruction. The fact that it was not a permanent obstruction is of no consequence. The jury have found that the obstruction as erected and maintained, though temporary, was inherently dangerous and that an accident, such as occurred in the case at bar, might occur and was reasonably foreseeable in the exercise of ordinary care. The law imposes upon municipal corporations the duty of guarding against such dangers as can or ought to be anticipated or foreseen in the exercise of reasonable prudence and care.” (Belts v. City of Yonkers, 148 N. Y. 67, 71.)

This court said in Durr v. N. Y. C. & H. R. R. R. Co. (184 N. Y. 320, 324): “ It is only when the defect is so slight that no careful or prudent man would reasonably anticipate any danger from its existence, and when it could only have been guarded against by the exercise of extraordinary care and foresight, that the question of responsibility therefor is one of law.” The defect, in the case at bar, was not slight nor was extraordinary care required to prevent accidents. Upon the evidence in this case, it became a question of fact for the jury as to whether the defendant was negligent and as to whether its negligence was the proximate cause of the accident. No other question is open for our consideration.

The judgment of the Appellate Division should be reversed and that of the Trial Term affirmed, with costs in this court and in the Appellate Division.

Crane, Ch. J., Lehman, O’Brien, Hubbs, Loughran and Finch, JJ., concur.

Judgment accordingly.


source: Caselaw Access Project

author: Hubbs, J.

license: Public Domain

text:
    Dun & Bradstreet, Inc., Appellant, v. City of New York et al., Respondents.

      Argued October 13, 1937;
    decided November 23, 1937.

      Nathan L. Miller, William Greenough, Peter R. Gatens and Norman E. Gatens for appellant.
    Appellant’s receipts from subscribers to its service are not taxable under the local laws pursuant to the authority conferred by chapter 873 of the Laws of 1934. (Eaton, Cole & Burnham Co. v. Avery, 83 N. Y. 31; Bradley Supply Co. v. Ames, 359 Ill. 162; Burgess Co. v. Ames, 359 Ill. 427; State v. Morgan, 48 N. W. Rep. 314; U. S. Fidelity & Guaranty Co. v. Commonwealth, 139 Ky. 27; U. S. Fidelity & Guaranty Co. v. Kentucky, 231 U. S. 394.) The Local Sales Tax Laws do not impose a tax upon receipts from services rendered by the appellant and cannot be extended to do so by regulation of the Comptroller. (Burgess Co. v. Ames, 359 Ill. 427; Iselin v. United States, 270 U. S. 245; Matter of McLean v. Jephson, 123 N. Y. 142; Matter of Swift, 137 N. Y. 77; Matter of Cooley, 186 N. Y. 220; People ex rel. Fifth Ave. Building Co. v. Williams, 198 N. Y. 238; Miller v. Standard Nut Margarine Co., 284 U. S. 498; McFeely v. Commissioner of Internal Revenue, 296 U. S. 102.) Apart from the remedial statutory provisions for declaratory judgments, equity has jurisdiction to restrain the unlawful seizure of the citizen’s property by the government. (National Bank of Chemung v. City of Elmira, 53 N. Y. 49; Matter of New York Catholic Protectory, 77 N. Y. 342; Bowns v. May, 120 N. Y. 357; People ex rel. Commonwealth Ins. Co. v. Coleman, 121 N. Y. 542; Matter of McLean v. Jephson, 123 N. Y 142;
      Ætna Ins. Co. v. Mayor, 153 N. Y. 331; Mercantile Nat. Bank v. Mayor, 172 N. Y. 35; Matter of Donner-Hanna Coke Corp., 212 App. Div. 338; 241 N. Y. 530; Sikora Realty Corp. v. City of New York, 262 N. Y. 312; Matter of Atlas Television Co., 273 N. Y. 51; Educational Films Corp. v. Ward, 282 U. S. 379; Hopkins v. Southern California Tel. Co., 275 U. S. 393; Procter & Gamble Distributing Co. v. Sherman, 2 Fed. Rep. [2d] 165; Stewart Dry Goods Co. v. Lewis, 287 U. S. 9; Union Pacific R. R. Co. v. Weld County, 247 U. S. 282; Cummings v. National Bank, 101 U. S. 153.) Apart from the right to injunctive relief, the appellant is entitled to maintain an action for a declaratory judgment under section 473 of the Civil Practice Act. (Socony-Vacuum Oil Co. v. City of New York, 247 App. Div. 163; 272 N. Y. 668; James v. Alderton Dock Yards, 256 N. Y. 298; Brownell v. Board of Education, 239 N. Y. 369.)

      Paul Windels, Coryoration Counsel (Oscar S. Cox, Edmund B. Hennefeld and Sol Charles Levine of counsel), for respondents.
    Plaintiff’s receipts from the licensing of the use of reference books and from the furnishing of individual reports, are taxable, and the complaint was, therefore, properly dismissed for insufficiency. (Matter of United Artists Corp. v. Taylor, 273 N. Y. 334; People ex rel. Walker Engraving Corp. v. Graves, 243 App. Div. 652; 268 N. Y. 648; People ex rel. Foremost Studio, Inc., v. Graves, 246 App. Div. 130; Howitt v. Street & Smith Publications, Inc., 251 App. Div. 461; Matter of Mendoza Fur Dyeing Works v. Taylor, 272 N. Y. 275.) The Appellate Division properly denied a declaratory judgment because the remedy of certiorari specifically prescribed by the local laws is generally exclusive, is plainly adequate to plaintiff’s needs and is to be preferred. (Peoyle ex rel. Staten Island R. T. Ry. Co. v. Taylor, 247 App. Div. 405; New York R. T. Corp. v. City of New York, 275 N. Y. 258; U. S. Trust Co, v. Mayor, 144 N. Y. 488; First Nat. Bank v. Weld County, 264 U. S. 450;
      Gorham Manufacturing Co. v. State Tax Comm., 266 U. S. 265; Providence Engineering Corp. v. Downey Shipbuilding Corp., 8 Fed. Rep. [2d] 304; Westchester Mortgage Co. v. Grand Rapids & Ionia R. R. Co., 246 N. Y. 194; Reed v. Littleton, 275 N. Y. 150; Bradley Lumber Co. v. National Labor Relations Board, 84 Fed. Rep. [2d] 97; 299 U. S. 559; Matter of United Artists Corp. v. Taylor, 273 N. Y. 334; Matter of Mendoza Fur Dyeing Works, v. Taylor, 272 N. Y. 275; Matter of Merchants Refrigerating Co. v. Taylor, 275 N. Y. 113.)
   Hubbs, J.

This is an action by appellant for an injunction and declaratory judgment to determine whether it is taxable under the local law of the city imposing a sales tax on services. The respondents moved to dismiss the complaint on the ground that it shows that the receipts of appellant were taxable and also that the appellant was not entitled to relief by declaratory judgment or injunction. The Special Term denied the motion on the ground that the type of services rendered by appellant was not included in the local law and could not be included by regulations issued by the Comptroller. The Appellate Division reversed upon the ground that no facts were shown warranting either a declaratory judgment or injunctive relief. This being a motion to dismiss the complaint under rule 106 of the Rules of Civil Practice, the allegations of the complaint are to be taken as true. The allegation of the complaint is that the business of appellant is that of rendering services in furnishing information as to the financial standing of persons engaged in business.

The complaint sets forth a copy of the contract entered into between appellant and its subscribers, which provides that the subscriber employs the appellant to investigate and furnish reports up to a certain number for a certain sum, and one dollar and twenty-five cents for a report on each name over and above the number specified. It also provides that the information furnished shall be held in strict confidence,” and that appellant reserves the right to terminate the subscription at any time and to recall the printed volumes loaned to the subscriber. The complaint alleges that the appellant is a mercantile agency which furnishes to its subscribers information respecting the financial standing of persons engaged in business; that each subscriber is entitled to reference books published by the company, the title to which remains in appellant; that no charge is made for the use of such reference books separate and apart from the service charge and that such reference books cannot be obtained separate and apart from the services furnished to subscribers; also that the subscriber is warned by a printed notice contained in each reference book not to rely upon the ratings contained in the book as changes in ratings vary at an average of over 5,000 each day and, therefore, that in cases involving credit, the subscriber should consult the detailed reports in the possession of appellant.

Briefly stated, the complaint alleges that the company is engaged in furnishing confidential information to its subscribers as to the financial standing and credit of persons with whom the subscribers may intend to transact business or furnish credit. In the case of Eaton, Cole & Burnham, Co. v. Avery (83 N. Y. 31) this court stated that the business of the petitioner was so well known that it would take judicial notice of it. The court then described its business substantially as it is described in the complaint in this action.

An interesting discussion of the history and development of appellant’s business is contained in the case of State v. Morgan (2 S. D. 32, at p. 52). The questions presented for determination briefly stated are, first, do the local laws here involved require the payment of a tax upon the amount paid by subscribers for the services rendered to them by appellant? Second, if not, has the appellant sought a proper remedy?

The local laws in question were enacted under authority granted by chapter 873 of the Laws of 1934. Local Law No. 20 (published as No. 21), adopted in 1934 (Local Laws, 1934, p. 143), and amended by Local Law No. 24 (published as No. 25), adopted in 1934 (Local Laws, 1934, p. 164), imposed a tax of two per cent upon receipts from sales of certain tangible personal property and upon receipts from the services furnished by certain enumerated public utility companies. Section 1 of the local law, as amended, provides that when used in this local law,

(d) The word receipt ’ means the amount of the sale price of any property or the charge for any service specified in section two of this local law * * *;

(e) The word 1 sale ’ or ‘ selling ’ means any transfer of title or possession or both, exchange or barter, license to use or consume, conditional or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement therefor, and may include the rendering of any service specified in section two of this local law.”

The only service specified in section 2 is the service rendered by public utility companies therein specified. Section 11 grants to the Comptroller power to adopt rules and regulations for carrying out the local law.

Assuming to act under the authority vested in him by the local law, the Comptroller adopted and issued article 95 of the Rules and Regulations, which reads in part: Included in the receipts upon which the tax is imposed are * * * receipts by persons engaged in the business of selling a personal service, such as a tax service, financial news service and trade service and other similar service supplemented by printed matter title to which remains in the vendor.”

It is contended by respondents that appellant is liable for the tax under that rule. Prior to the adoption of article 95 of the Rules, the Comptroller had adopted and issued articles 45 and 51 of the Rules and Regulations which by their express language exclude appellant from the payment of the tax. The rules are in direct conflict. It thus appears that respondents have been in doubt as to whether appellant and others similarly situated are subject to the tax under the local law.

It is elementary that taxing statutes when of doubtful validity or effect must be construed in favor of the taxpayers. If the local law does not by its terms impose a tax upon appellant, the Comptroller cannot by the adoptipn of a rule or regulation impose such a tax. Under the authority granted him by section 11, he can only enact rules and regulations “ appropriate to the carrying out of this local law and the purposes thereof ” (subd. a). He cannot extend the local law to cover and include those not intended to be covered by its terms. (Bradley Supply Co. v. Ames, 359 Ill. 162; McLean v. Jephson, 123 N. Y. 142, at p. 146.)

Section 2 imposes a tax on the sale of tangible personal property and upon services rendered by certain public utility companies. Section 1 defines the word “ receipt ” in part as “the charge for any service specified in section two.” It also defines the words “ sale ” and “ selling ” and then reads, “ and may include the rendering of any service specified in section two.”

It is quite apparent that the local law was not intended to impose a tax on income from services rendered except by the public utility companies named. We conclude that the appellant is not liable for a tax upon the amount received for the services which it renders to its subscribers in New York city.

We are also of the opinion that it is not liable for a tax upon the sale price of tangible personal property under section 2. It is true that in rendering services to its subscribers, it delivers to them reference books, the title of which remains in appellant, but the subscribers are expressly forbidden to let any one else see or use such books and they are notified not to rely upon the ratings given in the books but in all cases when extending credit to consult the detailed reports in the possession of appellant. No charge is made to the subscribers for the use of the reference books separate and apart from the charge for services rendered and the books cannot be obtained in any other way. The information furnished to subscribers orally, in typewriting and in the reference books is confidential and personal in character. It is not and cannot be, under the subscription contracts, disclosed to the public. The information collected by appellant at great expense is secured to enable it to furnish to its subscribers detail information to guide them in making sales and in extending credit. The information furnished is of value to the subscribers and for it they pay but not for the paper upon which the information is conveyed or for the reference books which are only guides to assist in the rendition of appellant’s service. One does not think of a telephone company as a seller of books to its subscribers. It renders a service. To make that service efficient, it furnishes its subscribers with books containing a list of its subscribers with their call numbers. The paper is a mere incident; the skilled service is that which is required.” (Burgess Co. v. Ames, 359 Ill. 427, 429; Adair Printing Co. v. Ames, 364 Ill. 342; State v. Morgan, supra.)

Certainly it cannot be successfully contended that the local law clearly and undoubtedly makes appellant subject to a tax. This court, referring to a tax law in McLean v. Jephson (supra), said: It would be contrary to the traditions of our people, as well as to principles of justice and law, to permit the liberty of the citizen to be jeopardized by a strained and doubtful construction of the statute ” (p. 147).

The following cases are relied upon by respondents: Matter of United Artists Corp. v. Taylor (273 N. Y. 334); People ex rel. Walker Engraving Corp. v. Graves (243 App. Div. 652; affd., 268 N. Y. 648); People ex rel. Foremost Studio, Inc., v. Graves (246 App. Div. 130). In those cases it was decided that certain articles came within the act and were taxable. Those cases are clearly distinguishable upon the ground that in each the articles sold were finished products, having a market value. That type of case is distinguished in Matter of Mendoza Fur Dyeing Works, Inc., v. Taylor (272 N. Y. 275).

As we have reached the conclusion that appellant is not taxable under the local law, it remains to determine whether an action for a declaratory judgment under section 473 of the Civil Practice Act constitutes a proper remedy. 0

It is undoubtedly the general rule that in cases where taxing officers have jurisdiction, their acts are not void for mere error and cannot be collaterally attacked but can only be reviewed in the manner provided by statute. It is equally well settled that if they act entirely without jurisdiction in making an assessment their act may be enjoined by a court of equity. In such a case, the rule against collateral attack does not apply. (Matter of Donner-Hanna Coke Corp., 212 App. Div. 338; affd., 241 N. Y. 530; Elmhurst Fire Co. v. City of New York, 213 N. Y. 87; National Bank of Chemung v. City of Elmira, 53 N. Y. 49.)

If taxing officers act without jurisdiction, their acts are illegal and void. In such a case, certiorari is not an adequate remedy even if a proper one. (National Bank of Chemung v. City of Elmira, supra; Buder v. First Nat. Bank, 16 Fed. Rep. [2d] 990.)

The undisputed facts in this case make it peculiarly one where the remedy of a declaratory judgment should be granted. That remedy is applicable in cases where a constitutional question is involved or the legality or meaning of a statute is in question and no question of fact is involved. In such cases, pure questions of law are presented. It would be difficult to imagine a case where that remedy would be more applicable. In Socony Vacuum Oil Co. v. City of New York (247 App. Div. 163; affd., 272 N. Y. 668) we affirmed a judgment where a declaratory judgment had been granted which declared a tax under the local law here in question to be illegal. In that case the declaratory judgment was granted by the Appellate Division. In the case at bar a declaratory judgment has been denied.

Section 473 of the Civil Practice Act and rule 212 of the Rules of Civil Practice vest in the Supreme Court a certain discretion as to the allowance of a declaratory judgment. Such discretion is, however, a legal discretion, and under rule 212 the court in declining to pronounce a declaratory judgment must state the grounds upon which its discretion is exercised. Here the Special Term denied the motion to dismiss the complaint and held that a declaratory judgment was a proper remedy. The Appellate Division in reversing stated that the special procedure for the assessment and review of the taxes imposed is the exclusive procedure to be followed. We reach a contrary conclusion under the special circumstances involved in the case.

The ground stated by the Appellate Division does not justify its conclusion and it was in error in reversing the order of the Special Term.

The judgment of the Appellate Division should be reversed and that of the Special Term affirmed, with costs in this court and in the Appellate Division.

Crane, Ch. J., Lehman, O’Brien, Loughran, Finch and Rippey, JJ., concur.

Judgment accordingly.


author: Lehman, J.

text:
    In the Matter of National Cash Register Company, Respondent, against Frank J. Taylor, as Comptroller of the City of New York, Appellant.
    Argued October 12, 1937;
    decided November 23, 1937.

      Paul Windels, Corporation Counsel (Oscar S. Cox, Edmund B. Hennefeld, Meyer Bernstein and Frank J. Derrick of counsel), for appellant.
    Chapter 873 of the Laws of 1934 does not invalidate the tax. (Matter of McLean, 138 N. Y. 158; Hilton v. Fonda, 86 N. Y. 339; People ex rel. Brisbane v. Zoll, 97 N. Y. 203; People ex rel. McCollum v. Scannell, 56 App. Div. 51; People ex rel. Knoblauch v. Warden, 216 N. Y. 154; Matter of Holzworth, 166 App. Div. 150; 215 N. Y. 700; Matter of United Artists Corp. v. Taylor, 273 N. Y. 334; Matter of American League Baseball Club v. Taylor, 248 App. Div. 873; 274 N. Y. 475.) The commerce clause does not invalidate the tax. (Wiloil Corp. v. Pennsylvania, 294 U. S. 169; Woodruff v. Parham, 8 Wall. [U. S.] 123; Monamotor Oil Co. v. Johnson, 292 U. S. 86; Eastern Air Transport v. Tax Comm., 285 U. S. 147; Henneford v. Mason Co., 300 U. S. 577; Welton v. Missouri, 91 U. S. 275; Robbins v. Shelby Taxing District, 120 U. S. 489; Brennan v. Titusville, 153 U. S. 289; Crenshaw v. Arkansas, 227 U. S. 389; Western Oil Refg. Co. v. Lipscomb, 244 U. S. 346; Cheney Bros. v. Massachusetts, 246 U. S. 147; Ozark Pipe Line v. Monier, 266 U. S. 555; Bingaman v. Golden Eagle Western Lines, 297 U. S. 626; Southern Natural Gas Corp. v. Alabama, 301 U. S. 148; Anglo-Chilean Corp. v. Alabama, 288 U. S. 218; United States Glue Co. v. Town of Oak Creek, 247 U. S. 321.) The sales in question originated in New York city and were taxable under the Enabling Act. (Grant v. Griffith, 39 App. Div. 107; 165 N. Y. 636; International Text Book Co. v. Connelly, 206 N. Y. 188; Wilson v. Lewiston Mill Co., 150 N. Y. 314; Jones v. Metropolitan Life Ins. Co., 158 Misc. Rep. 466; Matter of American League Baseball Club v. Taylor, 274 N. Y. 475; Matter of United Artists Corp. v. Taylor, 273 N. Y. 334.) The transactions taxed are not in interstate commerce. (Wiloil Corp. v. Pennsylvania, 294 U. S. 169.) The tax should be sustained. (Superior Oil Co. v. Mississippi, 280 U. S. 390; Edelman v. Boeing Air Transport, 289 U. S. 249; Minnesota v. Blasius, 290 U. S. 1; Johnson Oil Co. v. Oklahoma, 290 U. S. 158; Hicklin v. Coney, 290 U. S. 169; Wiloil Corp. v. Pennsylvania, 294 U. S. 169.)

      Chauncey B. Garver and Arnold E. Monetti for respondent.
    The imposition by New York city of a tax on the receipts from sales resulting from contracts made outside the territorial limits of the city is not authorized by chapter 873 of the Laws of 1934 under which the local law imposing the sales tax was enacted. (Matter of United Artists Corp. v. Taylor, 273 N. Y. 334.) The receipts on which the additional tax was assessed were from transactions in interstate commerce and a tax on them would be a direct burden on interstate commerce. (Robbins v. Shelby County Taxing District, 120 U. S. 489; Anglo-Chilean Corp. v. Alabama, 288 U. S. 218; The State Freight Tax, 82 U. S. 232; Stewart Dry Goods Co. v. Lewis, 294 U. S. 550; Stewart v. Michigan, 232 U. S. 665; Dozier v. Alabama, 218 U. S. 124; Bingaman v. Golden Eagle Lines, Inc., 297 U. S. 626; Cheney Brothers Co. v. Massachusetts, 246 U. S. 147; Crenshaw v. Arkansas, 227 U. S. 389; Caldwell v. North Carolina, 187 U. S. 622; Western Union Tel. Co. v. Texas, 105 U. S. 460; Brennan v. Titusville, 153 U. S. 289; Hovey v. DeLong Hook & Eye Co., 211 N. Y. 420; People ex rel. Smith Co. v. Roberts, 27 App. Div. 455.) A tax which is a direct burden on interstate commerce is invalid, even though not discriminatory. (Robbins v. Shelby, 120 U. S. 489; Ratter-man v. Western Union Tel. Co., 127 U. S. 411; Brennan v. Titusville, 153 U. S. 289; Ficklen v. Shelby, 145 U. S. 1.)
   Lehman, J.

The petitioner is a foreign corporation. It manufactures cash registers and similar machines in Dayton, Ohio. It is authorized to do business in the State of New York, and it maintains an office for the sale of its products in New York city. By Local Law No. 24 of 1934 (published as Local Law No. 25, Local Laws 1934, p. 164) the city of New York has imposed a tax of two per centum upon the amount of the receipts from every sale in the city of New York of: (a) Tangible personal property sold at retail,” etc. (§ 2.) The tax must be paid by the purchaser to the vendor. Each vendor is required to keep records, and to make a return to the Comptroller of his receipts and of the tax payable thereon and must pay to the Comptroller the tax imposed “ upon the receipts required to be included in such return.” (§ 6.) The petitioner keeps in the city of New York a stock of “ standard ” machines manufactured by it in Ohio, and it has included in its return receipts from sales where delivery is made from its stock of standard machines, and it has paid the tax upon those receipts. It has, however, excluded from its return receipts from sales on what it denominates as “ special orders ” which are sent by it to its place of business in Ohio. The Comptroller has decided that a tax must be paid upon these receipts also. By certiorari proceedings the petitioner has challenged this determination.

An order for a machine which deviates in any way from the standard machines held in stock in New York city by the petitioner is classed by the petitioner as a “ special order.” Such orders are signed by the purchaser in the city of New York. A cash payment is received when an order is signed. Each order is expressly made “ subject to acceptance by the Company at Dayton, Ohio.” It is forwarded from New York to Dayton. The machines are manufactured and assembled there in accordance with such orders. Machines are occasionally shipped from Dayton, Ohio, directly to the customer, but usually the machines are placed in packages each addressed to the customer who ordered it, and are then shipped in carload lots to the petitioner’s office in New York city, where they are unpacked and then sent to the customer to whom they are addressed. Because the receipts from such orders are derived from transactions in interstate commerce, the petitioner claims that neither the State of New York nor the city of New York has any power to impose a tax upon them.

The power of the State of New York to tax receipts derived from transactions in interstate commerce is limited by the provisions of the Constitution of the United States. The power of the city of New York to tax receipts from sales is conferred upon it by statute (Laws of 1934, ch. 873). The power so conferred cannot transcend the limitations imposed upon the power of the State by the Constitution of the United States, and it is restricted further by limitations imposed by the State in the enabling act. That act provides expressly that it does not “ authorize the imposition of a tax on any transaction originating and/or consummated outside of the territorial limits of any such city, notwithstanding that some act be necessarily performed with respect to such transaction within such limits.” (§ 1.) The Appellate Division has held that the limitation in the enabling act has the effect of excluding from the field of taxation, opened to the city, the transactions involved in the “ special orders ” of the petitioner.

The interpretation placed by the Appellate Division upon the statute removes from the city’s power of taxation many transactions which have no connection with interstate commerce and, we are told, many transactions on which taxes have been collected, without challenge or protest from any taxpayer. Arguments, not without weight, have been presented that, when the enabling statute is read as a whole, it appears that the field of taxation which the Legislature intended to open to the city is not so narrow. We confine our determination to the question presented in this proceeding, viz.: Has the city power to impose a tax upon the proceeds of special orders ” obtained in New York for goods manufactured in Ohio and shipped from there in packages designated for a particular customer? The scope of the powers of taxation which the Legislature intended to confer upon the city in the enabling act becomes material only if the State itself had such power and could confer it upon the city.

The special orders required delivery of goods manufactured by the petitioner, and the petitioner had no factory within the State. “ Where property has come to rest within a State, being held there at the pleasure of the owner, for disposal or use, so that he may dispose of it either within the State, or for shipment elsewhere, as his interest dictates, it is deemed to be a part of the general mass of property within the State and is thus subject to its taxing power.” {Minnesota v. Blasius, 290 U. S. 1, 11.) The commerce clause does not prevent taxation of goods by the state in which they are found merely because brought from another state, for that would unduly trammel state power of taxation and produce gross inequality and injustice.” (Wiloil Gorp. v.Pennsylvania, 294 TJ. S. 169, 174.) The rule formulated and applied in these cases brings within the taxing power of the State the products of the petitioner held in stock in New York for sale. A tax imposed by the State on the sale of goods produced here and goods imported from other States is valid. However, the goods delivered under a special order ” were not within the State when the order was given. The contract of sale did not become effective until the order given in New York was accepted in Ohio; the goods sold were manufactured in Ohio; they were appropriated to the contract of manufacture or sale in Ohio; they were never held here at the pleasure of the seller for disposal or use; they were sent to the office here of the seller only for delivery to the buyer and as a convenient step in the transportation from the factory of the seller outside the State to the buyer here. Nevertheless, it is argued by the city that the principle underlying the rule applied in Minnesota v. Blasius (supra) and in Wiloil Carp. v. Pennsylvania (supra) justifies taxation by the State of the proceeds of this transaction.

It is true that in the latter case a tax by the State of Pennsylvania upon the sale of goods shipped to the buyer from outside the State was upheld. In that case the contract, which was made in Pennsylvania, called for delivery in Pennsylvania of unascertained goods, viz., fuel oil. To carry out the contract the seller could have delivered oil held by it or purchased from another in Pennsylvania. It preferred to obtain the oil in Delaware. Interstate transportation was made necessary by reason of the seller’s choice; it was not required or contemplated by the contract, and, since the contract of sale did not require or contemplate interstate transportation, the court held that a tax on the sale is not a tax on interstate commerce. Here, on the contrary, the contract made outside of the State called for the delivery of goods which were manufactured outside of the State and which could not be procured within the State. Interstate commerce was contemplated and required by the contract of sale. The State has no power to impose a tax upon that kind of transaction. (Cf. Cheney Bros. Co. v. Massachusetts, 246 U. S. 147.) We do not determine the scope of the power delegated by the Legislature to the city under the enabling act. We hold only that the Legislature could not by any statute confer upon the city a power to tax proceeds of such transactions in interstate commerce.

The order should be affirmed, with costs.

Crane, Ch. J., O’Brien, Hubbs, Loughran, Finch and Rippey, JJ., concur.

Order affirmed.


text:
    Alexander Koral, Appellant, v. Savory, Inc., et al., Respondents, Impleaded with Others.
    Argued October 18, 1937;
    decided November 23, 1937.

      Mortimer Hays and Abraham Marcus for appellant.
    Plaintiff, as a stockholder of the corporation, could maintain the action, although the corporation is in receivership; especially since leave of court has been obtained. (Brinckerhoff v. Bostwick, 88 N. Y. 52; Pollitz v. Wabash R. R. Co., 207 N. Y. 113; Isaac v. Marcus, 258 N. Y. 257.) The stockholder’s right of action is not affected by the fact that the suit is against parties unconnected with the corporation. (Dodge v. Woolsey, 18 How. [U. S.] 331; Memphis v. Dean, 8 Wall. [U. S.] 64; Hawes v. Oakland, 104 U. S. 450; Greenwood v. Union Freight R. R. Co., 105 U. S. 13; Detroit v. Dean, 106 U. S. 537; Pollock v. Farmers’ Loan & Trust Co., 158 U. S. 601; Ashwander v. Tennessee Valley Authority, 297 U. S. 288; Carter v. Carter Coal Co., 298 U. S. 238; United Copper Securities Co. v. Amal. Copper Co., 244 U. S. 261; Pollitz v. Wabash R. R. Co., 207 N. Y. 113.)

      H. Preston Coursen and Joseph W. Gottlieb for respondents.
    The action is brought not against the officers and directors of the corporation for fraud or misconduct, but solely against strangers and third parties. The plaintiff does not claim personal damage, but merely damage to the corporation. It is thus an attempt on the part of a single stockholder to enforce in his own right an alleged cause of action in tort owned by the corporation. A stockholder cannot thus take the law into his own hands, and the directors of the corporation are vested with the right to decide whether or not the corporation should prosecute such a cause. (Watson v. Consolidated Laundries Corp., 235 App. Div. 234; United Copper Securities Co. v. Amalgamated Copper Co., 244 U. S. 261; Converse v. United Shoe Machinery Co., 185 Mass. 422.)
   Lehman, J.

The plaintiff herein is a stockholder of Elkay Reflector Corporation. A temporary receiver of the estate and property has been appointed and has been made a party defendant with the permission of the court. In his complaint the plaintiff has sought to allege facts sufficient to constitute a cause of action for damages caused to the corporation by the defendants, named in the complaint, other than the receiver. The plaintiff does not allege in his complaint that the defendants have invaded his personal rights of property or caused any damage to him individually. He complains of alleged wrongs done to the corporation and he asks that the damages for such wrongs be paid to the corporation or its receiver.

A cause of action for wrong done to the corporation belongs to the corporation. If no receiver had been appointed, the corporation could have brought an action to enforce it, and the question whether the corporation should seek to enforce in the courts a cause of action for damages is, like other business questions, ordinarily a matter of internal management and is left to the discretion of the directors, in the absence of instruction by vote of the stockholders. Courts interfere seldom to control such discretion intra vires the corporation, except where the directors are guilty of misconduct equivalent to a breach of trust, or where they stand in a dual relation which prevents an unprejudiced exercise of judgment.” (United Copper Securities Co. v. Amalgamated Copper Co., 244 U. S. 261, 263.) After a corporate receiver has been appointed, he could bring suit upon any cause of action which belonged to the corporation. In deciding whether such a suit should be brought, the discretion previously vested in the directors would be vested in him, though in the exercise of such discretion as in all other matters, he might be subject to the supervision and direction of the court. The defendants have moved to dismiss the complaint under rule 112 of the Buies of Civil Practice, on the ground that it does not state facts sufficient to constitute a cause of action. They do not contend that the complaint fails to state all the elements of a corporate cause of action at law for damages. Their contention is only that the plaintiff cannot as stockholder bring a derivative action for such damages. The Appellate Division has sustained that contention, and judgment has been entered dismissing the complaint. r~ The right of a stockholder of a corporation to bring suit to enforce, for the benefit of the corporation, a cause of action, which belongs to the corporation, is purely equitable. The equity suit, when permitted, is in effect a combination of two causes of action which the stockholder asserts: “ namely, one against his own company, of which he is a corporator, for refusing to do what he has requested them to do; and the other against the party which contests the matter in controversy with that corporation.” (Hawes v. Oakland, 104 U. S. 450, 452.) In that case the court pointed out that “ In addition to the existence of grievances which call for this kind of relief ” a stockholder “ should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, wdthin the corporation itself, the redress of his grievances, or action in conformity to his wishes.” (p. 460.) The problem in this case is whether the plaintiff has alleged facts sufficient to show prima facie, first, that the corporation has a cause of action against the defendants named in the complaint, and second, that the refusal of the corporation or its receiver is not based upon the exercise of a reasonable discretion vested in the corporation or its receiver, but is itself a wrong to the stockholder; and, finally, that the plaintiff has exhausted all the means within his reach to compel action by the receiver in conformity with his wishes.

“ Courts of equity will, at the suit of a stockholder, interpose their powers to remedy or prevent a wrong to a corporation by its officers or directors when the corporation, because it is controlled by the wrongdoers or for other reason, fails and refuses to take appropriate action for its own protection.” (Isaac v. Marcus, 258 N. Y. 257, 264.) Suits against, directors for. breach of trqst oi; other similar wrong constitute a well-recognized category of cases in which the extraordinary powers of a court of equity are properly invoked because the corporation is controlled by the alleged wrongdoers. (Cf. United Copper Securities Co. v. Amalgamated Copper Co., supra.) The powers of the court of equity to provide an appropriate remedy for failure of those in control of a corporation to take appropriate action for the protection of the corporation ” are not limited to rigid categories. Classification into such categories of the cases in which courts of equity have exercised such powers is often helpful in arriving at general principles which may guide courts in determining whether the grievance “ calls for this kind of relief.” Such classification was made in Hawes v. Oakland (supra) and the classification made in that case has exercised a potent and salutary influence upon subsequent decisions of American courts, both State and Federal; but it is to be noted that in that case the court took pains to point out that possibly other cases may arise in which, to prevent irremediable injury, or a total failure of justice, the court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the principles which govern this class of cases ” (p. 460).

Since in this case the alleged wrongdoers are not in control of the corporation, the plaintiff must in his complaint allege other facts which justify the intervention of a court of equity in the administration of corporate officers where in the first instance, at least, discretion is vested in the receiver. We have held that where the receiver is himself one of the alleged wrongdoers a stockholder may bring an action in equity to remedy the wrong. (Brinckerhoff v. Bostwick, 88 N. Y. 52.) That is not the case here. The complaint in this case alleges that the plaintiff has requested the receiver to maintain an action to redress the injuries alleged in the complaint; but the receiver has declined to institute such an action. The plaintiff bases his claim to equitable relief upon that refusal and he must show that the refusal constitutes a wrong to the stockholders causing “ irremediable injury ” to them.

Failure by a corporation or its receiver to bring suit against persons who have wrongfully caused damage to the corporation will, it is plain, injure the corporation and its stockholders, to the extent that by such suit damages might have been collected from the wrongdoers. Even so, a refusal to bring such a suit constitutes no wrong to the stockholders of the corporation if the refusal is based upon the honest exercise of a discretion, vested in those who control the corporation. A court of equity may interfere, however, in cases where there is no “ unprejudiced exercise of judgment.” (United Copper Securities Co. v. Amalgamated Copper Co., supra) Here the complaint alleges facts which if true show that the refusal is not due to an “ unprejudiced exercise of judgment,” but on the contrary that the receiver is a clerk in the office of the attorneys for the defendants and that his primary interest is to prevent the corporation from redressing the wrongs committed by the clients of his employer.

It is plain that a refusal to bring suit in such circumstances would constitute a wrong to the corporation and its stockholders which calls for action by a court of equity if redress cannot be had through an action at law. The Appellate Division has pointed out that if these allegations are true the court which appointed the receiver should remove him and appoint a new receiver who would bring an action at law. We may assume that the court could remove the receiver or, perhaps, direct the present receiver to bring an action at law if his judgment, though exercised honestly, is improvident. These are matters which concern the administration of the corporate affairs under the supervision and direction of the court, and the court which exercises the powers of supervision might determine that it would be for the best interests of the corporation that the receiver should not be removed or directed to bring suit, but rather that it should permit a stockholder to maintain the action in behalf of the corporation making the receiver a party defendant. (Cf. Isaac v. Marcus, supra.)

The court has given such permission here. The plaintiff in the complaint, served pursuant to that permission, alleges facts which show, prima facie, a wrong against the corporation committed by the persons named as defendants; that the affairs of the corporation are now in the control of the court acting through the receiver; that the receiver has refused to bring an action to redress such wrong, and that the refusal of the receiver is not based upon an unprejudiced exercise of judgment. These allegations bring this case within the principles upon which a stockholder’s derivative equitable action is based. The effect of these allegations is not weakened or destroyed because another branch of the court might, if it saw fit, assert powers of control over the affairs of the corporation and overrule the refusal of the receiver to bring suit, but instead has given permission to a stockholder to bring the suit in behalf of the corporation. Choice there lies with the cotut. The alleged wrongdoers may not dictate how the choice should be exercised.

The judgment of the Appellate Division should be reversed and the order of the Special Term affirmed, with costs in this court and in the Appellate Division.

Crane, Ch. J., O’Brien, Hubbs, Loughran and Finch, JJ., concur; Rippey, J., taking no part.

Judgment accordingly.


text:
    Calvin D. Palmer, Appellant, v. Board of Education of Union Free School District No. 2, Town of Geddes, Respondent.
    Argued October 18, 1937;
    decided November 23, 1937.

      Gustav P. Blaustein for appellant.
    The decision of the Appellate Division is erroneous. (Lorenz v. Board of Education, 264 N. Y. 591.) The civil service regulations have never been extended to any school district outside of a city. (Chittenden v. Wurster, 152 N. Y. 345; Matter of Carow v. Board of Education, 272 N. Y. 341; People ex rel. Burlingame v. Hayward, 19 App. Div. 46; People ex rel. McAvoy v. School Board, 43 App. Div. 613; Matter of Halligan v. Runkle, 174 App. Div. 497; Matter of Sugden v. Partridge, 174 N. Y. 87.) Plaintiff’s contract was valid and enforcible. (Lorenz v. Board of Education, 264 N. Y. 591; McBride v. City of New York, 56 App. Div. 520; Purcell v. Long Island City, 91 Hun, 271; Bell v. City of New York, 46 App. Div. 195; People ex rel. McCullough v. Snyder, 106 App. Div. 28.) The question of civil service was improperly raised by the Appellate Division. (Phelps-Stokes Estates v. Nixon, 222 N. Y. 93; Brearton v. De Witt, 252 N. Y. 495; Matter of Neubeck v. Bard, 275 N. Y. 43; Milbank v. Jones, 127 N. Y. 370; Ramme v. Long Island R. R. Co., 226 N. Y. 327; Adams v. Irving Nat. Bank, 116 N. Y. 606; Beck v. Bauman, 187 App. Div. 774; City of New York v. Consolidated Tel. & El. Subway Co., 196 App. Div. 689; Matter of Yeannakopoulos, 195 App. Div. 261; Village of Bolivar v. Bolivar Water Co., 62 App. Div. 484.)

      Ambrose D. Ginnelly for respondent.
    The defendant union free school district is a civil division of the State within the meaning of section 6 of article 5 of the Constitution and the Civil Service Law (Cons. Laws, ch. 7). (Herman v. Board of Education, 234 N. Y. 196; Smith v. Donahue, 202 App. Div. 656; Matter of Fink v. Finegan,
      270 N. Y. 356; Scahill v. Drzewucki, 269 N. Y. 343.) The alleged contract of employment never came into existence. (Donovan v. Mayor, 33 N. Y. 291; Dickinson v. City of Poughkeepsie, 75 N. Y. 65; Wittmer v. City of New York, 50 App. Div. 482; McDonald v. Mayor, 68 N. Y. 23; People v. Hicks, 173 App. Div. 338; 221 N. Y. 503; Matter of Scahill v. Drzewucki, 269 N. Y. 343; Matter of Keymer, 148 N. Y. 219; Chittenden v. Wurster, 152 N. Y. 345; People ex rel. Schau v. McWilliams, 185 N. Y. 92; People ex rel. McClelland v. Roberts, 148 N. Y. 360.) The Appellate Division properly raised the question of civil service. (Barry v. Mulhall, 162 App. Div. 749; Dunham v. Hastings Pavement Co., 56 App. Div. 244; Sprague v. Webb, 168 App. Div. 292; Drake v. Lauer, 93 App. Div. 86; 182 N. Y. 533; Doucet v. Massachusetts Bonding & Ins. Co., 180 App. Div. 599; Barlow v. Berry, 245 N. Y. 500; Matter of Sanger v. Greene, 269 N. Y. 33; Matter of Barthelmess v. Cukor, 231 N. Y. 435; Matter of Ottinger v. Civil Service Comm., 240 N. Y. 435.)

      Alexander J. Brown, amicus curiæ.

    The Appellate Division properly raised the question of civil service. (Scahill v. Drzewucki, 269 N. Y. 343.) A school district is a civil division of the State. (Herman v. Board of Education, 234 N. Y. 196; People ex rel. Burlingame v. Hayward, 19 App. Div. 46.)
   Lehman, J.

The plaintiff performed work for the defendant as a carpenter from about July 1, 1926, to August 13, 1932. Then he was discharged. While working for the defendant he received wages or salary, at first, at the rate of $200 per month, and, since August 1, 1928, at the rate of $2,500 per year. He was paid for the month of August, 1932. Alleging in his complaint that he was employed under a contract for the term of one year from July 1, 1926, and that each succeeding year his contract was renewed for another annual term, he has brought this action to recover the salary he would have earned until July 1, 1933, if he had not been discharged. The defendant denied that the plaintiff was employed for an annual term, and at the trial the defendant was permitted to amend its answer by pleading affirmatively that the discharge was justified. The jury decided all disputed questions of fact in favor of the plaintiff, and judgment as demanded in the complaint was entered upon the verdict of the jury.

The plaintiff has at no time taken any examination, either competitive or qualifying, to show his fitness for appointment to a position as carpenter in the employ of the defendant Union Free School District. The Constitution of the State of New York provides that appointments * * * in the civil service of the State, and of all the civil divisions thereof, including cities and villages, shall be made according to merit and fitness to be ascertained, so far as practicable, by examinations, which, so far as practicable, shall be competitive.” (Art. Y, § 6.) The Appellate Division has held that the contract of employment upon which this action is based would, if made as alleged, violate the mandate of the Constitution, and on that ground has reversed the judgment and has dismissed the complaint.

The defendant did not in its answer plead that the alleged contract was illegal nor did it ask the Appellate Division to reverse the judgment against it on that ground. The court itself raised that question, but rendered its decision only after both parties had been afforded opportunity to present argument upon it. Though there is no affirmative evidence in the record that the plaintiff did not take any examination or that the position of carpenter was not placed in the exempt class by the Civil Service Commission, the complaint is based upon the assumption that the constitutional provision does not apply to the position which the plaintiff held; the trial was conducted upon the same assumption and upon the appeals to the Appellate Division and to this court it was not disputed that there has been no compliance with that provision. By placing this provision in the Constitution the People of the State have declared in unmistakable terms that merit, ascertained as therein provided, shall govern appointments and promotions in the public service, and have thus formulated and announced the public policy of the State. No administrative officer may violate the provisions of the Constitution, and no court may sanction a violation. Administrative officers may at times through inadvertence disregard a mandate of a statute or even of the Constitution. When redress is sought in the courts for an alleged wrongful discharge or removal of an employee of the State or one of its civil divisions, the court, too, may fail to note that the employment was illegal from its inception, unless the legality of the employment is challenged by the defendant. An employment which in its inception violates the provisions of the Constitution is illegal and against public policy, regardless of the good faith of the parties. It is the duty of the appropriate administrative officers of the State or its civil divisions to discontinue an illegal employment when they note its illegality, and if rights based .upon such employment are asserted in the courts, the legality of the appointment should not go unchallenged by public officers; but regardless of whether the legality is challenged or not, a court must refuse to sanction such an employment which violates the mandate of the Constitution whenever the illegality becomes apparent to it. In such case the defense cannot be waived by the defendant. “ The defence is allowed, not for the sake of the defendant, but of the law itself. * * * It will not enforce what it has forbidden and denounced.” (Coppell v. Hull, 74 U. S. 542, 558; Oscanyan v. Arms Co., 103 U. S. 261; Drake v. Lauer, 93 App. Div. 86; 182 N. Y. 533.)

The primary question, then, in this case is whether the employment of the plaintiff is an “ appointment in the civil service ” of one of the civil divisions ” of the State, within the meaning of article V, section 6, of the Constitution. In Herman v. Board of Education (234 N. Y. 196, 202, opinion by Pound, J.) this court said: “ The school district is a civil division of the State. It may act only through its officers and agents.” In that case the court was considering the responsibility of the agents and officers of the “ civil division; ” what it said had reference to that question only; it was not considering whether employment by the officers or agents of the civil division ” was an appointment ” included in the scope of the civil service provisions of the Constitution. In Matter of Scahill v. Drzewucki (269 N. Y. 343, 346, opinion by Crouch, J.) that question was more directly presented, and this court there said that administrative employees of a board of education must be appointed “ in accordance with the provisions of the Constitution and the Civil Service Law and regulations. Having no legal rights, the petitioners were subject to removal at will.” The respondents upon this appeal lean heavily upon that case.

The defendant in that case was the Board of Education of Union Free School District No. 6 of the City of Lackawanna. The Education Law (Cons. Laws, ch. 16), article 33-A, regulates the organization and proceedings of Boards of Education in cities of the State, and section 872 (subd. 2-a) of that article provides, in part, that administrative employees of a board of education, unless otherwise provided in this chapter, shall be appointed for a probationary period provided in the civil service law and regulations based thereon.” In this case the defendant is the board of education of a Union Free School District of a town, not a city. The Legislature in the Education Law makes such distinctions as it deems appropriate between the boards of education in a city and boards of education in a rural district. The appellant argues that neither the Education Law nor the Civil Service Law provides for examinations for appointment to administrative positions in rural school districts and that the decision in Matter of Scahill v. Drzewucki (supra) should be distinguished on that ground and is inapplicable here.

We have pointed out often that the mandate of the Constitution applies to every position in the civil service of the State and that the Legislature may not disregard, evade or weaken the force of that mandate.” (Matter of Carow v. Board of Education, 272 N. Y. 341, 344.) In that case we said that by the Constitution “ a duty was placed upon the Legislature to provide the machinery required to carry out the mandate. * * * The constitutional command remains in force, though the Legislature may choose the time and form for carrying out that command ” (p. 346). We must apply here what we said in that case. Since a rural school district is a local civil division of the State in which the State through local agencies provides for the education of its inhabitants, appointments in its civil service must be made according to merit and fitness.” The Legislature could not change that, and since it does not appear that merit and fitness could not be ascertained by examination, it follows that it was the duty of the Legislature or the Civil Service Commission to provide for such examination. Failure of the Legislature and the Civil Service Commission to make such provision might render compliance with the constitutional mandate difficult; such failure could not render lawful a contract of employment which violates that mandate.

We may properly assume that both parties acted in good faith in making the contract. The failure of the Legislature, the Civil Service Commission and the Department of Education to provide for ascertainment of merit by examination has led local bodies to assume that appointments might be made without such examinations. Indeed, in Lorenz v. Board of Education (264 N. Y. 591) this court sustained an award of damages for breach of a contract of employment like that which forms the subject of this action; overlooking, because the question was not raised, that like this contract it violated the constitutional mandate.

We do not even now decide whether in a case where no provision has been made for examination, a board of education might not make a temporary appointment without examination. (Cf. rule XXIV of the Rules of the State Civil Service Commission for the Classified Civil Service.) We decide only that a person holding an administrative position by appointment or contract of employment without compliance with the provisions of the Constitution, has no legal right which is violated by a discharge. If there is any right to make a temporary appointment, and we repeat that we are not now deciding whether such a right exists, it can arise only from the necessities of the situation. There can be no right to make an appointment or contract which would create a legal right of tenure where the Constitution forbids the creation of such a right.

The judgment should be affirmed, without costs. (See 276 N. Y. 682.)

Crane, Ch. J., O’Brien, Hubbs, Loughran, Finch and Rippey, JJ., concur.

Judgment affirmed.


text:
    George Brenner et al., for Themselves and Others, Respondents, v. Title Guarantee and Trust Company, Appellant.

      Argued October 4, 1937;
    decided November 23, 1937.
    The following questions were certified:
    “ 1. Does the third amended complaint state facts sufficient to constitute a cause of action? ' '

    “2. If the answer to No. 1 is Yes, then should the complaint be so amended as to separately state and number a cause of action as to each plaintiff? ' '
    “3. Was the motion of defendant to strike out those portions of the third amended complaint relating to the purported representative character of this action properly denied? ”

      Richard S. Holmes, Timothy N. Pfeiffer and Harold P. Winans for appellant.
    There is no community of interest between plaintiffs and the other certificate holders, whom they purport to represent. (Bouton v. Van Buren, 229 N. Y. 17; Brown v. Werblin, 138 Misc. Rep. 29; Warnock Uniform Co. v. Garifalos, 224 N. Y. 522; Cherry v. Howell, 4 Fed. Supp. 597; Adelson v. Sacred Associates Realty Corp., 192 App. Div. 601.) The mere fact that there are numerous certificate holders is not sufficient if there is no community of interest. (Dyckman v. Keeney, 154 N. Y. 483; Bouton v. Van Buren, 229 N. Y. 17; Marsh v. Kaye, 168 N. Y. 196;
      Warnock Uniform Co. v. Garifalos, 224 N. Y. 522; Hetner v. President & Directors of Manhattan Co., 251 App. Div. 718; Garfein v. Stiglitz, 260 Ky. 430.) An action based upon the rescission of a purchase is essentially personal to each purchaser. It depends upon facts peculiar to each transaction and is, therefore, not the proper subject of a representative action. (Gould v. Cayuga County Nat. Bank, 86 N. Y. 75; E. T. C. Corp. v. Title Guarantee & Trust Co., 271 N. Y. 124; Canadian Agency, Ltd., v. Assets Realization Co., 165 App. Div. 96; Brennan v. National Equitable Investment Co., 247 N. Y. 486; Davis v. Title Guarantee & Trust Co., 246 App. Div. 754; 272 N. Y. 440.)

      Walter S. Seidman for respondents.
    Section 195 of the Civil Practice Act authorizes the maintenance of a representative action if either of two conditions exist, namely, a question of common or general interest of many persons or one where the persons who might be made parties are very numerous and it may be impracticable to bring them all before the court. (Farnum v. Barnum, 2 How. Pr. [N. S.] 396; Hilton Bridge Constr. Co. v. Foster, 26 Misc. Rep. 338; 42 App. Div. 630; George v. Benjamin, 100 Wis. 622; Bickford’s, Inc., v. Federal Reserve Bank, 5 Fed. Supp. 875; Cobb v. Monjo, 90 App. Div. 85.) The present action is authorized. (Matter of Bond v. Mortgage Guarantee Co., 157 Misc. Rep. 240; Tilford v. Metropolitan Life Ins. Co., 223 App. Div. 175; Harper, Inc., v. City of Newburgh, 159 App. Div. 695; Tyndall v. Pinelawn Cemetery, 198 N. Y. 217.) The complaint in its present form is proper. (Atkins v. Trowbridge, 162 App. Div. 629; Farnum v. Barnum, 2 How. Pr. [N. S.] 396; George v. Benjamin, 100 Wis. 622; Bunin v. Title Guarantee & Trust Co., 244 App. Div. 746; Anderson v. Title Guarantee & Trust Co., 246 App. Div. 631; Sondheim v. Title Guarantee & Trust Co., 250 App. Div. 753; National Park Bank v. Goddard, 131 N. Y. 494.)
   Lehman, J.

The plaintiffs, alleging in their complaint that they purchased from the defendant Title Guarantee and Trust Company certificates of undivided shares in a bond, secured by a mortgage on real property in the borough of Brooklyn and guaranteed by the Bond and Mortgage Guarantee Company, have brought an action to recover the amounts paid by them, respectively, for the purchase of their certificates. They allege in the complaint that, when the defendant sold the certificates and for the purpose of inducing such sale, the defendant made fraudulent misrepresentations to each plaintiff and that each plaintiff relied upon the representations of the defendant and did not discover that they were false until August 1, 1934. The complaint further alleges that the plaintiffs upon discovery of the falsity of the representations have elected to rescind the transaction and have offered to return and surrender the certificates.

The law offers a choice of remedies to a person who has been induced to act in reliance upon false representations. Each buyer of a certificate of an undivided share in a mortgage acquires by his purchase an individual right; and where such purchase is induced by fraud, the wrong done is a wrong to the buyer individually; the choice of remedy for such wrong rests with each buyer and the cause of action is separate and individual. No buyer has an interest in the cause of action of another buyer, and, therefore, no buyer is a necessary or, indeed, even a proper party to an action at law brought by another buyer to recover the damages which he has suffered or the consideration he was induced by fraudulent misrepresentations to pay.

Though each person induced by fraudulent misrepresentation to buy an undivided share in a mortgage suffers a separate wrong and has a separate cause of action, the complaint of these plaintiffs seeks redress not only for the wrong which it is alleged each of them has suffered, but also for the wrong which other purchasers may have suffered from similar misrepresentation. The complaint alleges that the action is brought by the plaintiffs “ for themselves and on behalf of all other holders of guaranteed mortgage certificates issued and executed by the defendant, purporting to assign undivided shares and interest in the bonds and mortgages hereinafter mentioned, held by said defendant, who are similarly situated and who shall come in and contribute to the expense of this action.” The prayer of the complaint is that plaintiffs demand judgment that the defendant pay to them and to each of the holders of certificates issued by said defendant who may join in this action respectively, the face amount of each of said certificates held by the respective plaintiffs together with interest,” etc. The defendant does not contend that the complaint fails to allege facts which might be sufficient to constitute three separate causes of action in favor of the named plaintiff. It does contend, however, that the complaint does not allege facts sufficient to constitute a single, representative cause of action in favor of the plaintiffs and all other holders of certificates in the same mortgage who are similarly situated.

To test the sufficiency of the complaint and to compel the plaintiffs to plead separately any individual cause of action which each plaintiff may have, the defendant has moved (1) to dismiss the complaint under rule 106 of the Rules of Civil Practice on the ground that the complaint fails to state facts sufficient to constitute a repre- . sentative cause of action for money had and received, based upon an alleged rescission; or, in the alternative, (2) to require plaintiffs to separately state and number each separate cause of action, pursuant to rule 90; or in the alternative (3) to strike from the complaint, pursuant to rule 103, all allegations and descriptive portions relating to the representative character of the action. The motion was denied at Special Term, and the order denying the motion has been affirmed by the Appellate Division, two of the justices dissenting, and leave has been given to appeal upon certified questions.

Ordinarily all persons who are united in interest must be joined as parties to an action either as plaintiffs or defendants. Some exceptions were permitted, even in early times, by courts of equity. In the Code of Procedure, as amended in 1849 (L. 1849, ch. 438), the Legislature provided that “ Of the parties to the action, those who are united in interest must be joined as plaintiffs or defendants; but if the consent of any one, who should have been joined as plaintiff, cannot be obtained, he may be made a defendant, the reason thereof being stated in the complaint, and when the question is one of a common or general interest of many persons; or when the parties are very numerous and it may be impracticable to bring them all before the court, one or more may sue or defend for the benefit of the whole.” (§ 119.)

The Code section was intended to embody without change both the general rule and the exception to that rule in accordance with the then existing practice of courts of equity.” Its purpose was not to provide for the joinder in one action of separate causes of action owned by different plaintiffs. Its purpose was rather to retain “ in the new practice the same rules by which to determine whether the proper parties were before the court, which then prevailed in the court of chancery.” (McKenzie v. L’Amoureux, 11 Barb. 516, 518 [1851].) In those cases where it applied, one person may prosecute a cause of action or interpose a defense for the benefit of others, who are not parties to the action, but, only, where they might properly be joined as parties because they have a common or general interest or are united in interest.

Without substantial change, section 119 of the Code of Procedure survived as section 448 of the Code of Civil Procedure, and that section was divided, and, without other changes, inserted in the Civil Practice Act as sections 194 and 195. In unambiguous terms section 195 of the Civil Practice Act provides, just as section 119 of the Code of Procedure provided, that one person may sue or defend for others who are not parties to the action only where “ the question is one of a common or general interest of many persons or [where the persons who might be made] parties are very numerous and it may be impracticable to bring them all before the court.” Just as the language has remained unchanged with the immaterial exception of the addition of the words in brackets, so too its construction has remained unchanged. In McKenzie v. L’Amoureux (supra) the court pointed out in 1851 that the section applied only where the parties are “ united in interest ” or where they have a common or general interest ” in the litigation; and in Bouton v. Van Buren (229 N. Y. 17, 22) this court said in 1920: a representative action cannot be maintained unless it appears from proper allegations in the complaint that the plaintiff not only has a cause of action, but that he is representative of a common or general interest of others.”

In this case the complaint shows beyond peradventure that the three plaintiffs are not representatives of others who have a common or general interest ” or who are united in interest.” The holders of certificates of /participation in a mortgage may have a common or /general interest in the mortgage and in the property I subject to the mortgage; but this action is not brought to protect or enforce such interest. On the contrary, no recovery can be had in this action unless the plaintiffs are permitted to repudiate and rescind the only tie or interest which theyhave in common with other purchasers of certificates of shares in the same mortgage. The cause -of action for the recovery of money paid is based upon the assertion of a right which is inconsistent with the existence of any common interest. No right or interest in the bond and mortgage of any purchaser of a certificate can be affected by the success or failure of any other purchaser in an action to rescind the purchase.

Though the wrong done to each plaintiff as alleged in the complaint is an individual wrong and the right to relief of each plaintiff is several, yet they have the right to , join as plaintiffs in one action and there assert their several rights to relief. So, too, other purchasers in similar situation might join with them in that action. The reason is that their right to relief arises out of the same transaction or series of transactions ” and if they brought separate actions, common questions of law or fact ” would probably arise. The Legislature has recognized that in such circumstances separate actions and separate trials might occasion needless delay and expense which in aggravated cases might result in a denial of justice, and, while leaving unchanged the provisions for suing for benefit of others ” (Civ. Prac. Act, § 195), it has adopted a new and very broad provision for the “ joinder of plaintiffs generally ” in whom any right to relief is alleged to exist, “ whether jointly, severally or in the alternative.” (§ 209.)

The plaintiffs urge that, because the Legislature has adopted these new and broad provisions for the joinder of plaintiffs in one action, the courts should, by changed construction of the old provisions for representative actions, permit the bringing, of a representative action in behalf of all persons who might under section 209 be joined as parties plaintiff. The courts may not disregard a limitation which the Legislature has not destroyed even if there were no sound basis for retaining in the statute the old distinction. In truth, however, it may, with perhaps more reason, be argued that the old limitations on suing for [the] benefit of others ” which existed before the statute and which have been preserved in the statute still serve a useful purpose.

The purpose, of a representative action is to permit an adjudication of a question in which others who are not parties to the action, though they might be made so, are interested. (Pomeroy on Code Remedies, § 289; Clark on Code Pleading, p. 280. Cf. Kerr v. Blodgett, 48 N. Y. 62; Schuehle v. Reiman, 86 N. Y: 270, 273; Brinckerhoff v. Bostwick, 99 N. Y. 185, 194.) "In cases properly falling within this principle, wherein members of a class sue or are sued on behalf of other members of a class who have a common or general interest or are too numerous to be made actual parties, the judgment or decree is conclusive for and against those members of the class who are thus represented, in the absence of fraud or collusion.” (1 Freeman on The Law of Judgments, § 436. Cf. rule 8 of the Rules of Civil Practice.) That result could not be extended to entirely separate causes of action, such as the plaintiffs have pleaded in this action. There would be no basis then for determination of what parties are “ similarly situated.”

The complaint, as we have said, alleges facts which are, perhaps, sufficient to constitute separate causes of action in favor of each of them, though these causes of action are not separately stated or numbered. Though the action is brought in behalf of others similarly situated, the complaint contains no allegations which the defendant could controvert which even purport to establish a cause of action for rescission in favor of any such persons. It alleges not a single transaction but that the sales were made “ between the 24th day of April, 1930, and the 10th day of October, 1932.” Upon such sales the representations, if any, made by the seller and relied on by the buyer may have been different in each case. It does not show even that any buyers other than the plaintiffs have attempted to rescind a purchase of certificates or demanded the return of the price paid.

The defendant’s motion is not for mere technical advantage. It is entitled to know what causes of action it must answer and prepare to meet.

The orders should be reversed, with costs in all courts, and the defendant’s motion to separately state and number the separate causes of action of the three plaintiffs, and to strike out from the complaint portions of the complaint not relevant to such separate causes of action granted. The first and second certified questions should be answered in the affirmative and the third question in the negative.

Crane, Ch. J., O’Brien, Hubbs, Loughran, Finch and Rippey, JJ., concur. z

Ordered accordingly.


text:
    Edwin M. Slote et al., as Trustees in Bankruptcy of Peter Barmann Brewing Company, Inc., Appellants, v. Cascade Holding Corporation, Respondent, Impleaded with Others.
    Submitted October 6, 1937;
    decided November 23, 1937.

      Louis Winer and Seymour J. Shapiro for appellants.
    Since the issues involved in the present action were not raised or necessarily involved in the foreclosure suit, the doctrine of res adjudicata has no application. (Cheney Hammer Co. v. Collins, 196 N. Y. Supp. 25; Newgent v. Alsberg, 173 App. Div. 878; Lee v. Schmeltzer, 229 App. Div. 206; Karp v. Harlem Business Protective Corp., 145 Misc. Rep. 280; Robinson v. Whitaker, 205 App. Div. 286; Jasper v. Rozinski, 228 N. Y. 349; Raymond v. Richmond, 78 N. Y. 351; Small v. Gilbert, 56 Fed. Rep. [2d] 616; Matter of Baumgartner, 55 Fed. Rep. [2d] 1041; Barber v. Kendall, 1 App. Div. 247; Brooks v. Wilson, 125 N. Y. 256.) Since no answer was interposed in the foreclosure action and the complaint requested no affirmative relief as against the plaintiffs-appellants, the issues presented by the amended complaint were not tendered or determined in the foreclosure action. (Peck v. N. Y. & N. J. Ry. Co., 85 N. Y. 246; Clapp v. McCabe, 155 N. Y. 525; MacAffer v. Boston & Maine R. R., 268 N. Y. 400; Boston & Maine R. R. v. D. & H. Co., 268 N. Y. 388.) The plaintiffs are not bound by the judgment of foreclosure in another action wherein they were not parties and did not submit to the jurisdiction of the court. (Shaul v. Fidelity & Deposit Co., 131 Misc. Rep. 401; Universal Credit Co. v. Blinderman, 159 Misc. Rep. 802; Harlem Business Center v. Rothenberg, 123 Misc. Rep. 381; Buffalo Fire Appliance Corp. v. City of Norwich, 156 Misc. Rep. 486; Peck v. N. Y. & N. J. Ry. Co., 85 N. Y. 246; Clapp v. McCabe, 155 N. Y. 525.)

      Max L. Rothenberg for respondent.
    The plaintiffs having voluntarily intervened in the foreclosure suit, they became parties thereto and are bound by the judgment therein. (Fish v. Vanderlip, 218 N. Y. 29; Matter of Di Donato v. Rosenberg, 230 App. Div. 538; 256 N. Y. 412; Matter of Trowbridge, 266 N. Y. 283; Chambers v. Bacon, 153 App. Div. 194; Dunlap v. Sweet Brothers Paper Mfg. Co., 211 App. Div. 363; Weed v. First National Bank, 117 App. Div. 340; Smith v. Pure Strain Farms Co., 167 N. Y. Supp. 877; Leighton v. New York Rys. Co., 169 App. Div. 553.) The trustees’ motion to interpose an answer also constituted a general appearance in the action. (Keating v. Equitable Surety Co., 235 N. Y. Supp. 281; Crystal & Son v. Ohmer, 79 Misc. Rep. 227; Goldstein v. Goldsmith, 28 Misc. Rep. 569; Wichert v. Gallagher, 201 N. Y. Supp. 186; 206 App. Div. 756; Tierney v. Helvetia Swiss Fire Ins. Co., 138 App. Div. 469.) The amended complaint being substantially identical with the proposed answer in the foreclosure suit, the judgment in that action is res adjudicata. (Schuylkill Fuel Corp. v. Nieberg Realty Corp., 250 N. Y. 304; Wille v. Maier, 256 N. Y. 465; Sielcken-Schwarz v. American Factors, 265 N. Y. 239; Fairview-Chase Corp. v. Scharf, 225 App. Div. 232; 254 N. Y. 564; Werring v. Selig, 241 App. Div. 67; 266 N. Y. 566; Butterly v. Maribert, 234 App. Div. 424; 260 N. Y. 554; Elna Realty Co., Inc., v. Mamaquarro Apartments Corp., 234 App. Div. 105.) The estoppel of a former judgment extends to judgments by default as well as to those rendered after a determination on the merits. (Stewart v. Stewart, 198 App. Div. 337; Matter of Stillwell, 139 N. Y. 337; Goldsmith v. Engs, 169 N. Y. Supp. 828; Brown v. Epstein, 151 N. Y. Supp. 527; Kohly v. Fernandez, 133 App. Div. 723; Lawton v. Hudson, 19 App. Div. 522.)
   Lehman, J.

In August, 1928, the Peter Barmann Brewing Company executed and delivered to the Kingston Trust Company, for a valuable consideration, its bond in the sum of $25,000, secured by a mortgage on premises owned by the brewing company. On October 14, 1932, the Kingston Trust Company assigned the bond and mortgage to one Morris A. Bdehnan, and on October 26, 1932, Bdehnan assigned the bond and mortgage to the defendant Cascade Holding Corporation. In October, 1934, the brewing company was adjudicated a bankrupt, and the plaintiffs were appointed trustees in bankruptcy. In September, 1934, the Cascade Holding Corporation, as holder of the bond • and mortgage executed and delivered by the brewing company, brought an action to foreclose the mortgage. Judgment of foreclosure was entered in July, 1935, and, upon the sale held pursuant to the judgment, the Cascade Holding Corporation purchased and now holds the mortgaged premises.

The trustees in bankruptcy of the brewing company have brought an action for the purpose of challenging the good faith and validity of the assignment made in 1932 to Cascade Holding Corporation of the mortgage executed by the brewing company in 1928. They allege in their complaint that the holding corporation was “ organized by and composed of ” the three individual defendants, Handel, Sheehan and Andretta, who also were “ the owners and in control of the brewing company. That the holding corporation was a mere dummy and subterfuge for them and was “ created solely and exclusively for the purpose of defrauding creditors of the brewing company. The gist of the complaint is that the consideration for the said assignment of the bond and mortgage, from the Kingston Trust Company to Edelman and from Bdehnan to Cascade Holding Corporation, was paid with moneys belonging to the brewing company and that such payments, were made and the assignments were executed for the purpose of hindering and delaying and defrauding the creditors of the brewing company and of secreting and disposing of the assets of the brewing company to prevent its creditors from recovering the indebtedness due to them.

The mortgagor brewing company could properly pay its moneys to the mortgagee in satisfaction of the mortgage; so, too, in some circumstances it might properly pay its moneys to the mortgagee as the consideration for an assignment of the mortgage to a person who would hold it for the benefit of the corporation. Payment, however, of moneys of the mortgagor as consideration for an assignment of the mortgage to a dummy corporation for the purpose of concealing the assets of the mortgagor and defrauding the creditors of the mortgagor would be a wrong to them. The plaintiffs, alleging that such a wrong has been done to the creditors, seek in this action a remedy in their behalf. They ask that the court declare that by payment of the mortgagor’s moneys to the mortgagee the mortgage was discharged, and that upon the sale of the mortgaged property under the judgment of foreclosure the assignee could acquire no rights to the property except as trustee for the mortgagor; and, to give effect to that declaration, they ask that the court should direct that the mortgaged property be conveyed to the trustees in bankruptcy of the mortgagor.

The defendants do not attack the sufficiency of the allegations of the complaint to constitute a cause of action nor do they deny these allegations. The motion which has been granted is based upon the assertion that the judgment in the foreclosure action is a conclusive adjudication on the merits in favor of these defendants upon the cause of action as alleged. The complaint in the foreclosure action demanded no relief against the trustees in bankruptcy. Indeed, when the action was begun the mortgagor had not been adjudicated a bankrupt. The plaintiffs do not even now claim that the mortgage was invalid; the alleged assignment to the plaintiff in that action was, it is claimed, a wrong by the mortgagor and those in control of the mortgagor to the creditors of the mortgagor. In litigation between the wrongdoers to which the creditors were not parties or otherwise represented, the rights of the creditors could not be litigated.

While the foreclosure action was pending the plaintiffs were appointed trustees in bankruptcy and upon their motion or request an order was entered permitting them to intervene in the foreclosure action. Then the plaintiffs did have opportunity to litigate in that action the claim to relief for the alleged wrong done to the creditors of the mortgagor, which forms the basis of the complaint in the action which they now are bringing. If they had done so an adjudication upon the merits would have been conclusive. They failed, however, to serve an answer when they had the right to do so. They waited until after entry of judgment in the foreclosure action and until after notice of sale had been served upon them. Then they asked permission to interpose an answer which they annexed to the motion papers, but the court refused to grant to the plaintiffs, after entry of judgment, permission to litigate issues, in the action, which they had failed to raise earlier when they had received right to do so.

The plaintiffs by these motions and proceedings made themselves parties to the foreclosure action and are bound by the judgment therein, to the same extent as if they had been named in the original summons, but not to any greater extent. The judgment is conclusive upon them upon all matters embraced within the issues in the action which were or might have been litigated therein.” (Jasper v. Rozinski, 228 N. Y. 349, 357.) The complaint asks no relief against the creditors of the corporation or the trustees in bankruptcy acting in their behalf, and contains no allegations upon which any relief might be granted. It tendered no issue which the trustees in bankruptcy, even if made parties, were called upon to litigate. True, the trustees had the right to raise such an issue by answer and preferred not to do so. They can gain nothing by their default. A judgment against them for the relief demanded in the complaint would be binding upon them though they might have successfully interposed a defense to that claim. The merits of a controversy may not be litigated twice and where the causes of action are the same the judgment is conclusive as to every matter of law or fact involved in the claim, whether urged or not.” (2 Freeman on The Law of Judgments [5th ed.], § 708.) On the other hand, though it is true that a judgment in favor of the plaintiff in the foreclosure action for the relief demanded in the complaint is as conclusive upon parties to the action, though they failed to interpose a defense, as the judgment would have been if the defense had been litigated, yet it is also true that the failure to interpose an answer cannot enlarge the scope of the issues tendered by the complaint or permit a judgment more favorable to the plaintiff than that demanded in the complaint.” (Civ. Prac. Act, § 479.)

In Schuylkill Fuel Corp. v. Nieberg Realty Corp. (250 N. Y. 304) this court, in an opinion by Caudozo, Ch. J., stated the rules which determine the scope of a prior adjudication. We need not pause to restate them now. In the original foreclosure action no cause of action was asserted against the creditors of the mortgagor or the trustees in bankruptcy of the mortgagor, and no relief was demanded against them. The trustees are now asserting against the Cascade Holding Corporation, which was the plaintiff in the foreclosure action, a cause of action for affirmative relief based upon allegations of wrong done to creditors of the mortgagor by the mortgagor and Cascade Holding Corporation. In the foreclosure action the cause of action against both wrongdoers could not be asserted by one against the other. It would not, as we have said, constitute a defense to the foreclosure action available to the defendant mortgagor. The trustees in bankruptcy became parties to the foreclosure action though no claim was asserted there against them because they wished to assert in that action a claim to the mortgaged premises superior to the claim of the plaintiff in the foreclosure action. That claim has never been litigated; the judgment in the foreclosure action established no rights inconsistent with the assertion now of that claim, and is not an adjudication of that claim. (Schuylkill Fuel Corp. v. Nieberg Realty Corp., supra.) Jasper v. Rozinski (supra) presented the same problem that is here presented, and our decision there is controlling. The claim may be entirely without substance but that cannot be determined upon this motion.

The judgment of the Appellate Division should be reversed and the order of the Special Term affirmed, with costs in this court and in the Appellate Division.

Crane, Ch. J., O’Brien, Htjbbs, Lotjghran, Finch and Rippey, JJ., concur.

Judgment accordingly.


author: Rippey, J.

text:
    In the Matter of William F. Sausbier et al., Respondents, against Fred Wheeler, as Mayor of the City of Hudson, Appellant.

      Argued November 15, 1937;
    decided November 30, 1937.

      R. Monell Herzberg, Corporation Counsel (R. Waldron Herzberg of counsel) for appellant.
    The right of public criticism and public censure by a subordinate of a superior is not unlimited. (People ex rel. Van Tine v. Purdy, 221 N. Y. 396.)

      Samuel B. Coffin for respondents.
    The Mayor was without power under the charter to countermand the orders of the Commissioners to the police department. (Laws of 1921, ch. 669, §§ 50, 52, 262, 267, 269.) The law relating to removals from office is drastic and highly penal, and must be given a strict construction. (State v. Roth, 162 Iowa, 638.) The act charged did not constitute malconduct. (Carlisle v. Burke, 82 Misc. Rep. 282; People ex rel. Burby v. Common Council, 85 Hun, 601.)
   Rippey, J.

Under the terms of the charter of the city of Hudson (Laws of 1921, ch. 669), the Public Safety Commission consists of three members, each appointed by the Mayor for a term of three years. Any such officer is removable by the Mayor under section 30 of the charter within the term for which he shall have been appointed for incompetency or malconduct in office after he is given a copy of charges against him and an opportunity to be heard in his defense in person or by counsel. The powers of the Commission are so limited by the provisions of the charter that they may not conflict with the duties of the Mayor who, under the provisions of section 50, is the chief executive officer of the city and is charged with the duty to see that the laws of the State affecting the city or the inhabitants thereof and the ordinances, by-laws, regulations and rules of the Common Council and of the Boards and Commissions are faithfully executed.

During the early part of 1937 there were serious labor troubles between the Mohawk Novelty Company, Inc., of Hudson, and its employees, and finally a strike was called by the International Handbag, Pocketbook and Novelty Workers’ Union. An arrangement was made with the knowledge of the Mayor between the Commissioners of Public Safety and the officials of the union whereby the Mohawk plant might be picketed and the numbers of the pickets were not to be limited provided peaceful picketing was carried on. Under such conditions the strike continued for a period of some two weeks when, on the afternoon of March 31, 1937, the Commission of Public Safety made and passed a resolution, without the knowledge of or previous consultation with the Mayor, reducing the number of pickets to three at each of the two entrances to the plant, effective immediately. Under section 264 of the charter, the Commission had power to make rules and regulations, not inconsistent with this act or with law, for the government and discipline of the police and fire departments,” and it is under those provisions of the charter that it is claimed the Commission had the power, independent of the Mayor, to pass the resolution in question. But what the resolution in question had to do with the government and discipline of the police and fire departments ” we are unable to see. Perhaps the Common Council might have passed such a resolution under section 131 of the charter. Upon the question of their power we are not called upon to pass. We do not find any power in the Commission of Public Safety to pass such a resolution under the provisions of section 264 or elsewhere in the charter.

Learning of that action by the Commission and anticipating further trouble and possible riot or serious disorder if enforcement of the resolution were attempted, the Mayor called the Chief of Police on the telephone and told him to suspend the operation of the order until he, the Mayor, could give further consideration to the situation. The affidavits of police officers indicate that the fears of the Mayor were well grounded.

On the same evening the Commission made and unanimously passed a resolution censuring the Mayor for his action. In the resolution they stated that they felt it to be their duty to give the city of Hudson protection of persons and property. To get such publicity as they thought the occasion demanded, they caused the resolution to be published on the following morning in a local paper. So it is asserted in the record before us. It is clear beyond question that no authority is found in the charter to take any such action, or any action at all, against the Mayor. The Mayor promptly formulated charges under the provisions of section 30 of the charter, served them upon the members of the Commission, gave them a hearing, at which time they were represented by counsel, and at the close of the hearing made an order removing them from office on the ground that the mailing and issuance of the statement at the time it was issued constituted malconduct in office in that it purported to censure him for an act which he was legally entitled to do and in the doing of which he was within his legal rights. He found that in the crisis existing in the city such action by the Commissioners tended to and did destroy their effectiveness in office and made it impossible for co-operation along the line of law enforcement between the Commissioners and himself. Thereupon the Commissioners brought this proceeding in certiorari for reinstatement on the ground that the Mayor acted beyond the scope of his authority in ordering their removal. The Appellate Division has decided that the determination of the Mayor should be annulled and that Commissioners Hudson and Connelly should be reinstated. The term of office of Commissioner Sausbier had ended prior to the time of the determination by the Appellate Division.

Under the provisions of the charter the Mayor had the power to countermand the resolution of the Commission and direct the Chief of Police to take the action indicated. It is likewise clear that the Mayor had authority and power to remove the members of the Commission under the conditions existing in this case. To give a narrow construction to the provisions of section 30 and to deny him the power of removal under the circumstances existing in this case would practically destroy or, at least, seriously impair his effectiveness as chief executive officer of the city in the performance of his duty to enforce the law. Such a condition would be intolerable. There could be no division of authority in the matter of law enforcement, nor was any such provided for or contemnlated by the provisions of the charter.

It is said that the term “ malconduct ” does not embrace a case such as here exists and that its meaning should be limited to a case which relates to the character, neglect of duty, or fitness of the person properly to perform the duties of his position. (People ex rel. Van Tine v. Purdy, 221 N. Y. 396, 399.) We think the action of the Commissioners under the circumstances in this case did show specifically their unfitness properly to perform the duties of their office. It constituted the doing of an act which ought not to be done, was without authority and tended to hinder, hamper and render ineffective law enforcement by duly constituted authority. The word “ malconduct,” as used in section 30 of the charter, was never intended to be restricted exclusively to malfeasance or nonfeasance or corruption in office. It constituted gross impropriety for officers holding an appointment under the Mayor publicly to criticize and to censure him while he was still in office, and such gross impropriety under the conditions here would be included, within the meaning of the charter, in the term malconduct.”

We hold that such conduct as is shown here constitutes malconduct within the meaning of the charter of the city of Hudson, and that the Mayor was justified and acted within the specific authority conferred upon him in removing the respondents from office. Only a question of law is involved here. There is no dispute upon the material and controlling facts.

The order of the Appellate Division should be reversed and the determination of the Mayor confirmed, with costs in this court and in the Appellate Division.

Crane, Ch. J., O’Brien, Hubbs, Loughran and Finch, JJ., concur; Lehman, J., concurs in result.

Ordered accordingly.