text:
    In the Matter of the Accounting of Hyman Mates et al., as Executors and Trustees under the Will of David L. Horowitz, Deceased. Hyman Mates, as Executor and Trustee under the Will of David L. Horowitz, Deceased, Respondent. Morris Cohen et al., Appellants. (Two Proceedings.)
    Argued January 14, 1948;
    decided March 18, 1948.

      Nathan Frankel and Cornelius G. De Loca for appellants.
    The surcharge by the Surrogate was proper. (Matter of Auditore, 249 N. Y. 335, 278 N. Y. 234; Meinhard v. Salmon, 249 N. Y. 458; Matter of Rosenberg, 251 N. Y. 115; Godley v. Crandall & Godley Co., 212 N. Y. 121.)

      Abraham Wilson, Lawrence T. Gresser, Jr., and Emil Morosini, Jr., for respondent.
    I. A corporate director is liable only for his own wrong. The affairs of the corporation were managed and conducted by the two employee-directors who had long been associated in the enterprise with the testator' and who constituted the majority of the board of directors; respondent was merely the legal advisor; his judgment on business matters was neither sought nor accepted by the two businessmen who, as president and treasurer, were actually in charge of the company’s affairs. Eespondent may be surcharged as one of the estate’s fiduciaries only if he would have been liable to the corporation in an action brought by it or in its behalf. (Godley v. Crandall & Godley Co., 212 N. Y. 121; Carr v. Kimball, 153 App. Div. 825, 215 N. Y. 634; Bloom v. National Sav. & Loan Co., 81 Hun 120, 152 N. Y. 114; Cassidy v. Uhlmann, 170 N. Y. 505; Twin-Lick Oil Co. v. Marbury, 91 U. S. 587; Fort Payne

      Rolling Mill v. Hill, 174 Mass. 224; Cornell v. McMillin, 177 F. 25; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97, 293 N. Y. 281; Diamond v. Davis, 38 N. Y. S. 2d 103, 265 App. Div. 919, 292 N. Y. 552.) II. The extra compensation which is the subject matter of the surcharge was awarded to respondent’s cotrustee and several other employees of the corporation by the votes of two of the three members of its board of directors; although respondent did not initially approve such action, it represented the judgment and discretion of the two businessmen who were engaged in the conduct of a successful enterprise. (Matter of Auditore, 249 N. Y. 335, 278 N. Y. 234; Matter of Browning, 258 App. Div. 621; Everett v. Phillips, 288 N. Y. 227; Kalmanash v. Smith, 291 N. Y. 142; Hornstein v. Paramount Pictures, 37 N. Y. S. 2d 404, 266 App. Div. 659, 292 N. Y. 468; Chelrob, Inc., v. Barrett, 293 N. Y. 442; Bagley v. Carthage, W. & S. H. R. R. Co., 165 N. Y. 179; Gaul v. Kiel & Arthe Co., 199 N. Y. 472; Murray v. Smith, 224 N. Y. 40; Atwater v. Elkhorn Valley Coal-Land Co., 184 App. Div. 253; Tilton v. Gans, 90 Misc. 84; Robbins, Inc., v. Hill, 81 Misc. 441; Bull & Co. v. Morris, 132 Misc. 509, 226 App. Div. 868; Church v. Harnit, 35 F. 2d 499; Seitz v. Union Brass & Metal Mfg. Co., 152 Minn. 460.) III. Respondent did not violate any legal direction in the testator’s will; he was not guilty of fraud, embezzlement, misappropriation or bad faith. He never received any part of the extra compensation in question and did not benefit in any way from the action of the board of directors. (Croft v. Williams, 88 N. Y. 384; Holmes v. Saint Joseph Lead Co., 84 Misc. 278, 163 App. Div. 885; Matter of Rosenberg, 213 App. Div. 167; Matter of Berri, 130 Misc. 527; Matter of Gerbereux, 148 Misc. 461; Hirsch v. Jones, 191 N. Y. 195; Bagley v. Carthage, W. & S. H. R. R. Co., 25 App. Div. 475, 165 N. Y. 179; Matter of Ximinez, 107 Misc. 460; Matter of Pulitzer, 139 Misc. 575; Matter of Adler, 164 Misc. 544; Lent v. Howard, 89 N. Y. 169; Wilmerding v. McKesson, 103 N. Y. 329; Bruen v. Gillet, 115 N. Y. 10; Matter of Wagner, 132 App. Div. 306.) IY. The fiduciaries were expressly authorized by the testator to liquidate, dissolve or discontinue his business enterprise in their discretion. The remaindermen and their attorneys requested liquidation of the business; liquidatian was had at their instance and for their benefit. (Benton v. Safe Deposit Bank, 255 N. Y. 260; Crabb v. Young, 92 N. Y. 56; Matter of Knower, 121 Misc. 208; Matter of Kramer, 172 Misc. 598; Warren v. Pazolt, 203 Mass. 328; Little v. Garabrant, 90 Hun 404, 153 N. Y. 661; Continental Securities Co. v. Belmont, 206 N. Y. 7.) V. There was no evidence sufficient in law to warrant the surcharge, particularly as against the respondent. (Presidio Mining Co. v. Overton, 261 F. 933; Chabot & Richard Co. v. Chabot, 109 Me. 403; Ransome Concrete Machinery Co. v. Moody, 282 F. 29; Church v. Harnit, 35 F. 2d 499; Godley v. Crandall & Godley Co., 212 N. Y. 121; Murray v. Smith, 224 N. Y. 40; Queeney v. Willi, 225 N. Y. 374; Von Reitzenstein v. Tomlinson, 249 N. Y. 60; Matter of Stern, 137 Misc. 668, 235 App. Div. 60, 261 N. Y. 617; Matter of Clark, 257 N. Y. 132; Matter of De Beixedon, 262 N. Y. 168; Matter of Doelger, 254 App. Div. 178, 279 N. Y. 646.)
   Desmond, J.

Testator Horowitz owned at his death about 85% of the stock of D. L. Horowitz, Inc., which corporation he had formed, a little before his death, to take over the wholesale housewares business he had individually operated for many years. Horowitz’s will set up certain legacies and trusts and named as executors and trustees, Charles J. Fishman and Hyman Mates. Fishman was testator’s half brother and had been, during Horowitz’s life, a salesman for the corporation, earning about $5,200 a year. Mates had been the attorney for Horowitz and for the corporation. The will stated the testator’s intention ” that the business of the corporation should be carried on by the executors and trustees “ for the purpose of better carrying out and enforcing the aims, objects and intentions ” of the will. The same paragraph of the will gave the executors-trustees full authority to operate the business, including the right to elect themselves officers and directors of the corporation, with or without salaries, in their discretion, such salaries to be in addition to their commissions as executors and trustees. Further on in the same paragraph, the testator exonerated his executors-trustees from liability for carrying on the business instead of confining themselves to investments legal for trust funds, and exonerated them from liability for “ errors or mistakes of judgment.”

Executor Fishman became treasurer, and later president, of the corporation, and executor Mates was elected its secretary. Fishman, Mates and an employee were the directors. The period here being accounted for by the executors ran seven and a half years till the business of the corporation was liquidated on November 30, 1943. During that time Fishman received frdm the corporation annual salaries ranging from $5,200 to $6,600, and Mates received no salary. Fishman and Mates each received an annual director’s fee of from $1,000 to $2,000. After a trial of numerous objections to the executors’ accounting, the Surrogate" held that those payments of salaries and directors’ fees were valid and allowable. However, he surcharged both executors, jointly and severally, because of the payment to Fishman alone, in addition to his officer’s salary and director’s fees, of “ bonuses ” in the total amount of $16,650, which the corporation paid him during the last two and one-half fiscal years of the corporation’s business life. An additional joint and several surcharge was ordered by the Surrogate against both executors because, when the corporation liquidated its business, there was paid to Fishman, extra or ‘ severance ” salary for six months beyond the winding-up date. All these payments to Fishman had been authorized by the votes of the three directors, including Mates.

Both directors appealed to the Appellate Division but Fish-man meanwhile settled his debt by paying a compromised amount to the estate, whereupon he was released with a reservation of right as against Mates, thus leaving Mates alone liable for payment of the balance of the surcharges ordered by the Surrogate (Debtor and Creditor Law, § 234). The Appellate .Division modified the Surrogate’s final decree on the law, and struck out the whole of the surcharges as against executor Mates, citing Carr v. Kimball (153 App. Div. 825, 842, affd. 215 N. Y. 634) and holding that a director, though he votes for excessive compensation to his fellow director, may not be directed to return to the corporation any part of the excess remuneration paid to his codirector. From that it followed, said the Appellate Division, that Mates need not pay back Fishman’s illegal takings.

We hold, first, that on this whole record, including the fact that for about half the period here accounted for this corporatian operated at a loss, the Surrogate was warranted in finding as. a fact that Fishman’s compensation, to the éxtent of his bonuses and unearned half-year salary, was excessive.

That tabes us to the question of Mates’ liability therefor. We will assume that (under Carr v. Kimball, supra) Mates, had he been a director only and not an executor also, could not have been-held liable to the corporation, whose moneys were withdrawn, with Mates’ acquiescence, to overpay Fishman. But Mates was executor of a will, as well as director of a corporation. This court has plainly said in Matter of Auditore (249 N. Y. 335) that those two positions carry separate obligations, one superimposed on the other, and that an executor or administrator who, by reason of his executorship or letters of administration, becomes a director of his decedent’s corporation, is liable as executor or administrator, to the estate for its losses suffered through his fault. Judge Crane’s opinion, in the first Auditore case (249 N. Y. at p. 343) answers in the negative the question he posed: “ Can it be that the only breach of duty was that which he owed the corporation as an officer and that this absorbs and swallows up the duty which he owed the estate? ” (See 2 Scott on Trusts, § 170.22.) Since Mates, whatever his liability might have been had he been sued by D. L. Horowitz, Inc., on these facts, has his separate obligation to the Horowitz estate, we must look to the law of executors’ liability to determine the correctness, or incorrectness, of these surcharges, ordered against Mates because of Fishman’s excessive compensation.

Ordinarily one of several executors “ is responsible for his own acts, and not for those of his associates ” (Croft v. Williams, 88 N. Y. 384, 388), but if he knows of, and consents to, his coexecu- ■ tor’s misapplication of the estate’s funds, he becomes responsible for what the other has received (Adair v. Brimmer, 74 N. Y. 539, 561, 562; Ormiston v. Olcott, 84 N. Y. 339, 345, 346; Croft v. Williams, supra; Wilmerding v. McKesson, 103 N. Y. 329, 339, 340; Bruen v. Gillet, 115 N. Y. 10, 14, 15; Nanz v. Oakley, 120 N. Y. 84, 88, 89; 2 Scott on Trusts, § 224.1). An executor who, to carry out his trust, becomes a director of a e'orpóration in which the estate’s moneys are invested, remains an executor and is held to the full duty of an executor (see Matter of Doelger, 254 App. Div. 178, affd. 279 N. Y. 646 and second Auditore opinion, 278 N. Y. 234, 244). On the Surrogate’s findings that executor-director Fishman, with executor-director Mates’ assent, took from this corporation moneys Fish-man was not entitled to, Mates is liable to the estate for its loss thereby. Fishman’s wrongful acts, which Mates voted for, lessened the value of the estate’s stock. For the loss from that joint violation of duty, both executors must answer.

The Surrogate, before making his final decree, had entered an intermediate decree fixing the amount of Mates’ allowance for legal services to the estate, and directing that such allowance be not paid to Mates but credited against any surcharges. That provision was recited in the final decree later entered. Mates appealed to the Appellate Division from both decrees, and that court, while modifying the final decree on the law by striking out the surcharges and certain other directions, modified the intermediate decree on the facts and the law by striking therefrom the direction that Mates’ legal fee be credited against the surcharges. We accordingly treat the Appellate Division’s order as a modification, on the law, of all the Surrogate’s directions as to surcharging Mates and as to the crediting of his allowances against the surcharges. Since this Appellate Division determination was on the law, we must send the proceeding back to the Appellate Division for a determination on the facts.

The Appellate Division order of modification was “ with costs [to Mates], payable out of the estate ”. Thereupon the Surrogate entered another decree awarding costs and allowances to Mates, etc., from which decree, as well as from the Appellate Division order, these appellants appealed to this court. The costs and allowances awarded to Mates by the Surrogate’s Court after the Appellate Division modification necessarily go down with a reversal of that Appellate Division order.

The Surrogate’s intermediate decree of May 28,1945, and the order of the Appellate Division should be reversed, without costs, and the proceeding remitted to the Appellate Division for a determination on the facts.

Loughran, Ch. J., Lewis, Conway, Teacher, Dye and Fulo, JJ., concur.

Order reversed, etc.


source: Caselaw Access Project

author:
      Per Curiam.
     Dye, J.

license: Public Domain

text:
    In the Matter of Annie Fiore et al., Appellants, against John F. O ’Connell et al., Constituting the State Liquor Authority, Respondents.
    Argued January 12, 1948;
    decided March 19, 1948.

      Michael 8. Meyerowits and Alexander Bel Giorno for appellants.
    I. The refusal of the authority to grant a license to the petitioners herein, was 1 £ arbitrary ’ ’, and apparently based on nothing else but mere capriciousness, without justification in fact or in law. (Matter of Restaurants & Patisseries Longchamps, Inc., v. O’Connell, 296 N. Y. 239.) II. Since the facts submitted by the petitioners conclusively establish that the denial of a license to them was without legal support, Special Term did not substitute its judgment for that of the authority in granting the petitioners’ application directing the authority to issue a license to them, but rather corrected an abuse and injustice practiced by the authority against a veteran just as entitled to his license as the other veteran. (Matter of Carroll v. Knickerbocker Ice Co., 218 N. Y. 435; Interstate Commerce Comm. v. Louisville & N. R. R. Co., 227 U. S. 88.)

      Alvin McKinley Sylvester for respondents.
    The authority refused to issue a license to George Fiore because he had had no business experience whatsoever, and had never saved a penny of his own. In the reasonable exercise of its discretion, and in the light of its duty to the public, it concluded that the issuance of a license under such circumstances would create a high degree of risk in the administration of the Alcoholic Beverage Control Law. (Matter of Glintenkamp v. O’Connell, 271 App. Div. 795, 296 N. Y. 806; Matter of Roccaforte v. O’Connell, 271 App. Div. 831, 296 N. Y. 938; Matter of Watinsky v. O’Connell, 271 App. Div. 973, 297 N. Y. 552; Matter of Finn v. O’Connell, 271 App. Div. 896, 297 N. Y. 607; Matter of Restaurants & Patisseries Longchamps, Inc., v. O’Connell, 271 App. Div. 684, 296 N. Y. 888; Federal Communications Comm. v. WOKO, 329 U. S. 223; Matter of Snetlage v. O’Connell, 271 App. Div. 1015, 297 N. Y. 707; Matter of College Point Wines & Liquors v. O’Connell, 271 App. Div. 278, 296 N. Y. 752; Matter of Pruzan v. Valentine, 282 N. Y. 498; Matter of Dusinberre v. Noyes, 284 N. Y. 304.)
   Per Curiam.

It is settled that the courts will not disturb the exercise of administrative discretion vested in the State Liquor Authority by the Alcoholic Beverage Control Law unless the action complained of be deemed arbitrary or capricious. (See Matter of Glintenkamp v. O’Connell, 296 N. Y. 806, affg. 271 App. Div. 795; Matter of Roccaforte v. O’Connell, 296 N. Y. 938, affg. 271 App. Div. 831; Matter of Watinsky v. O’Connell, 297 N. Y. 552, affg. 271 App. Div. 973; Matter of Finn v. O’Connell, 297 N. Y. 607, affg. 271 App. Div. 896.)' In this case, a license was issued to the veteran King after appellants’ application had been disapproved, but consideration of the record before us quickly discloses differences — slight though they may seem — between the situations. The successful applicant King is several years older than George Fiore. Having worked for a living, he has enjoyed a certain business experience not possessed by Fiore, and he has revealed a measure of thrift and frugality not found in the other. The choice to be made may have been a narrow one; the determination at which the authority arrived may have been close — perhaps borderline, .However, room for choice — basis for exercise of judgment — there was, and we may not say that analogy is so complete ” between the two cases “ that inference arises that the refusal [in appellants’ case] is the result of unfair discrimination and oppression.” (See Matter of Larkin Co. v. Schwab, 242 N. Y. 330, 336.)

The order of the Appellate Division should be affirmed, with costs.

Dye, J.

(dissenting). I dissent. On this record the disapproval of the petitioners’ application under the Alcoholic Beverage Control Law for a package store permit was so lacking in support as to be arbitrary and capricious as a matter of law. In reaching this conclusion, I am mindful of the fact that the act creating the State Liquor Authority clothes it with wide discretion unhampered by restrictive definitions or by prescribed standards of conduct in its control of the liquor traffic. It is subject only to judicial review and that for the purpose of preserving due process. While we make it a rule of thumb not to interfere in the field of administrative discretion and refrain from substituting our judgment for that of the authority in cases where there is room for a difference of opinion on conflicting testimony, it does not follow that all determinations should be stamped with approval simply because the authority predicates its action on the statutory phrase public convenience and advantage ” in explanation of its disapproval. Even such a determination must be supported by the record as a reasonable exercise of discretion. A standard of reasonableness, of-course, is not elusive and uncertain, but, like the prudence of the ordinary person in a given circumstance to determine negligence or freedom therefrom, such standard may be measured by the observations and experience of everyday life by the persons familiar with the subject matter as fair and equitable. I take it that in the absence of other criteria the adoption of the standards used by the board itself in a similar situation would indicate a standard of reasonableness applicable here.

It appears that the petitioners are mother and son; on February 25, 1946, they filed an application with the city board for an off-premise license at 44-12 31st Avenue, Long Island City, Queens, New York. This was approved on March 20, 1946, and forwarded to the State Liquor Authority who disapproved same on April 25,1946, for “ Public convenience and advantage will not be served The petitioners thereupon made application to have the matter reopened which the board denied by letter dated June 4, 1946. The application shows that Annie Fiore is a housewife and, prior to her marriage, had worked for eight years selling hats at retail. There is nothing in the record showing any character disqualifications. She was putting up all the cash capital, amounting to $7,900, and also furnishing the store, located on a main business thoroughfare and which was a part of the premises owned by her and required no rental, the upper floor being occupied by the family for living quarters. The petitioner George Fiore is her youngest son, twenty-one years of age. When he finished high school at the age of eighteen, he was inducted into the armed service where he served honorably and was wounded in action in France. He had no previous business experience. The plan was that the mother was to act as his partner until such time as he was able to carry on the business alone.

The matter might have ended at this point were it not for the fact that while the petitioners’ application for a rehearing was pending, one Robert W. King, under date of May 14, 1946, applied for an off-premise license at 31-07 44th Street, Queens, New York, around the corner and but 125 feet distant from petitioners’ premises. (Location, however, is not at issue here.) This was approved by the board by letter dated June 13, 1946, the day following a letter written to the petitioners by the Liquor Authority explaining ho the petitioners that the denial could not be reopened. The petitioners then initiated the within proceeding.

Ordinarily, we would not be concerned with the approval of the King application but, having been granted ■ almost simultaneously with the denial of the petitioners application for rehearing, the circumstances leading to its approval by the board may be taken as an indication of the standard of reasonableness adopted by the board. - The applicant, King, was twenty-five years of age. Prior to his entry into the armed service he had worked three and one-half years as a guard on a Wells-Fargo truck and, after his honorable discharge from the service, he returned to the same job as guard. His war record is good. He proposed to finance the business with $2,920.22 in cash representing savings over a period of twelve years and the additional sum of $5,666.67 contributed by members of his family but who were not to take any part in the business.

Commissioner O’Connell, in his affidavit, found a substantial difference between the qualifications of King and the petitioners and that King was a person of “ thrift and frugality ” and then resorts to the expression of a series of vague generalities respecting the commission’s responsibility under the statute, requiring them to issue a license only when public convenience and advantage will be served, which are not met by the petitioners’ application, and leading to the conclusion that the “ investment and savings might well be lost ”, and that denial was based solely upon the personal qualifications, experience and background of the petitioners.”

In approving the King application no such test was applied for the obvious reason that working as a guard on a truck would hardly satisfy it so his ‘ ‘ thrift and frugality ’ ’ is emphasized. Such habits are, of course, commendable but, by the same token, so is the industry and thrift of the petitioner Annie Fiore in acquiring a store block and her willingness to risk her savings to get her war-injured son started in business. It was not the fault of the petitioner George Fiore that his induction in the armed service at eighteen years of age, as soon as he finished high school, prevented him from entering a gainful employment, nor can he be too severely criticized for not making a reputation for thrift and frugality while recovering from battle wounds.

This is not a situation where two or more competing applicants have applied simultaneously for a permit in the same locality and the board has chosen between them. Not at all — these petitioners filed their application February 25,1946, which was approved by the city board on March 20th, but thereafter, on April 25th, disapproved by the authority and rehearing denied June 13th, the day following approval of the King application which had only been pending since May 10th, and pre-. sumably met a standard of business experience, financial responsibility and potential success which distinguished it from the petitioners ’ application. I am at a loss to find any such distinction.. The patent inconsistency of the Liquor Authority in dealing with these almost identical situations leads to the inevitable conclusion that the denial of the petitioners’ application was so lacking in support — according to its own standards— as to be unreasonable and as such to amouñt to an arbitrary and capricious act as a matter of law.

The order of the Appellate Division should he reversed and the order of the Special Term affirmed, with costs.

Loughban, Ch. J., Lewis, Thacheb and Fund, JJ., concur in Per Curiam opinion; Dye, J., dissents in opinion in which Desmond, J., concurs; Conway, J., taking no part.

Order affirmed.


author: Loughran, Ch. J. Thacher, J.

text:
    Louis Cohen, as Administrator of the Estate of Ray Cohen, Deceased, Appellant, v. Manufacturers Safe Deposit Company, Respondent.
    Argued November 13, 1947;
    decided March 19, 1948.

      Thomas J. Williams for appellant.
    I. Property is deemed lost when one casually and involuntarily parts with it. (Sovern v. Yoran, 16 Ore. 269; Loucks v. Gallogly, 1 Misc. 22; Foulke v. New York Consolidated R. R. Co., 228 N. Y. 269; Foster v. Safe Deposit Co., 264 Mo. 89.) II. The owners or proprietors of a private or public place are not the agents, fiduciaries or bailees of the owner of lost property. (Osborn v. Cline, 263 N. Y. 434; Reisinger v. Pullman Co., 252 App. Div. 87; Cornelius v. Berinstein, 183 Misc. 685; Carples v. Cumberland Coal & Iron Co., 240 N. Y. 172.) III. The place where lost property is found creates no exception to the rule. (Sovern v. Yoran, 16 Ore. 269; Durfee v. Jones, 11 R. I. 588; Matter of Savarino, 1 P. Supp. 331; Hamaker v. Blanchard, 90 Pa. 377.) W. The finder of a lost article is entitled to it as against all the world.
      (Garramone v. Simmons, 177 Misc. 330.) V. A safe deposit vault is semipublic. (Toledo Trust Co. v. Simmons, 52 Ohio App. 373.)

      Henry Landau and Leonard G. Bisco for respondent.
    I. When the package was discovered on the floor of the booth located within the vault, it was not lost property. (Foulke v. New York Consolidated R. R. Co., 228 N. Y. 269; Loucks v. Gallogly, 1 Misc. 22; Flax v. Monticello Realty Co., 185 Va. 474; Foster v. Safe Deposit Co., 264 Mo. 89; Silcott v. Louisville Trust Co., 205 Ky. 234; Pyle v. Springfield Marine Bank, 330 Ill. App. .1.) II. The nature of the place where, and the circumstances under which, the property was found, do not lead to the inference that the package was lost rather than mislaid.
   Loughran, Ch. J.

In this controversy, which was submitted to the Appellate Division upon an agreed statement of facts, pursuant to sections 546-548 of the Civil Practice Act, the court directed judgment for the defendant and gave the plaintiff leave to bring the case here.

The agreed facts are stated in the following terms: The defendant maintained and operated in the city of New York a safe deposit vault equipped with metal boxes and with small booths; each booth was furnished with a desk or counter and a chair; access to the vault was controlled and limited to employees of the defendant and to lessees of the safe deposit boxes; upon the floor near the desk in one of the booths the intestate of the plaintiff — a lessee of one of the boxes — came upon a package containing United States currency; neither party has any proof as to how that package found its way to the floor of the booth.

The question in difference is stated by the parties in these words: “Plaintiff claims and demands that upon the foregoing facts judgment should be rendered decreeing that plaintiff is entitled to possession of the package containing the currency as against defendant on the ground that plaintiff [through his intestate] is the finder of the lost property which defendant denies, contending that said package was not lost and that it was always in the custody of defendant as agent of the true owner thereof.’*

The first thing to be noticed is the scope of the present proceeding. Such a submission of controversy calls upon the courts merely to define -the effect of the agreed facts as matter of law and excludes power to find any additional fact — even if the submitted facts logically and reasonably admit of further important inferences which a trier of the fact might very well draw. (See Feist v. Fifth Avenue Bank, 280 N. Y. 189; Manhattan Storage & Warehouse Co. v. Movers Assn., 289 N. Y. 82, 86.)

The statement of agreed facts is silent in respect of the functions of the defendant as a safe deposit company. Even so, we feel safe enough in declaring the company to be in some degree a bailee of property deposited in its rented boxes. (See Banking Law, § 317, subds. 1, 2, and § 331, subd. 4; Roberts v. Stuyvesant Safe Deposit Co., 123 N. Y. 57; Carples v. Cumberland Coal & Iron Co., 240 N. Y. 187.) The company, in consequence, would possibly have the sounder claim upon custody of the currency in question, if a customer had dropped it upon the floor of the booth,— at least if the customer had first removed the currency from his safe deposit box. But that hypothesis has no warrant in the submission. Indeed, the statement of agreed facts proclaims a complete lack of proof as to where the currency came from and it may conceivably have been the property of a stranger who entered the vault under court order (see Tax Law, § 228; Mental Hygiene Law, § 51-a).

Again the defendant company would even more surely be in the better position if in fact the currency had not been lost ”, but had merely been mislaid ”, e.g., if the owner had not involuntarily let the package slip to the floor of the booth, but had purposely placed it upon the nearby table and had then forgotten it. (See Foulke v. N. Y. Consolidated R. R. Co., 228 N. Y. 269; Loucks v. Gallogly, 1 Misc. 22.) But that hypothesis, too, has no warrant in the submission.

In granting judgment for the defendant, the Appellate Division said: “ Cases relating to the loss of property in a public place such as a street or roadway or the floor of premises open generally to the public are not here controlling. This package of currency was not found in a public place but in a booth or compartment located within a safe deposit vault, access to which was denied to the public generally and limited to customers of the safe deposit company and its employees. The package remained in the custody of the deposit company as representative or agent of the owner, and such company owed a duty to the true owner and is the lawful custodian of the package for his benefit. ” (271 App. Div. 428, 430.) These words, as we read them, imply acceptance of a positive rule of law to this effect: custody of a lost chattel belongs to the finder when the finding occurs in a place open to the public, whereas if the finding occur in a private place, the owner of that place and not the finder is entitled to such custody.

To what extent and on what legal theory such a distinction may be supportable is a question that has provoked a large variety of opinion and the pertinent case law appears to be equally incbnclusive (cf. Bridges v. Hawkesworth, 21 L. J. [Q. B.] 75 [1851]; South Staffordshire Water Co. v. Sharman, [1896] 2 Q. B. 44, 47; Hannah v. Peel, [1945] 1 K. B. 509; Holmes, The Common Law, p. 222; Pollock and Wright, Possession in the Common Law, pp. 39-41; Salmond on Jurisprudence [9th ed.], pp. 382-384; Gfoodhart, Three Cases on Possession, 3 Cambridge L. J. 195; Riesman, Possession and the Law of Finders, 52 Harv. L. Rev. 1105; 1 Halsbury’s Laws of England [2d ed.], pp. 731-733). But we do not reach that dispute in this proceeding. Although access to the safe deposit vault of the defendant company was limited to its customers and employees, yet that agreed fact does not without, more conclusively establish the character of the vault as being a private rather than a public or quasi-public place. On the contrary, admission to many places of public or quasi-public resort or accommodation is similarly restricted, as everybody knows. (Cf. Aaron v. Ward, 203 N. Y. 351, 356-357.) Moreover, any difference between the premises of the average shopkeeper (cf. Bridges v. Hawkesworth, supra), and other commercial establishments, based on whether service is held out to a larger or smaller group of customers, would seem to be one of degree only, which would ordinarily give rise to a question of fact, and nothing in the statement of agreed facts tells us how many people the defendant company had for its patrons. The extent of actual control exercised over particular commercial premises by the occupier may possibly be a sounder test of his right to custody of a chattel found therein by an invitee (see Pollock and Wright, op. cit. supra, at pp. 39-41). But that test likewise cannot here be applied. Indeed, nowhere in the statement of agreed facts is it said that the defendant company ever supervised the presence of any persons within its safe deposit vault or made any record of their entrances and their exits. (Cf. Silcott v. Louisville Trust Co., 205 Ky. 234, 235-236.) Accordingly we can here neither affirm nor deny as matter of law the validity of the principle enunciated by the Appellate Division.

Nor has any. case come to our attention where custody of property lost in a safe deposit vault has been committed to the safe deposit company as against the finder, on the basis of the nature of the premises alone and in the absence of other significant factors. In Silcott v. Louisville Trust Co. (supra) on which the Appellate Division here relied, the Kentucky court acted on an assumption that ‘ ‘ any chattel found in one of these private rooms, access to which was had only by persons renting the boxes, must have been the property of one of the trust company’s customers ” (p. 237). As we have already observed, we are not free to make any such assumption in this case. Like assumptions of fact appear also to underlie the decisions in Pyle v. Springfield Marine Bank (330 Ill. App. 1, 5) and Foster v. Fidelity Safe Deposit Co. (264 Mo. 89,103) and the Foster case is further distinguishable as involving “ mislaid ” rather than “ lost ” property.

In brief, we have no alternative but to dismiss this submission for its failure at every point to pose any determinative issue of law.

Counsel have made no reference to section 435-4.1 of the Administrative Code of the City of New York. It is thereby provided: “ Reporting and depositing lost money or property. — a. Any person who finds any lost money or property of or exceeding the value of ten dollars shall report such finding to and deposit such money or property in a police station house within ten days after the finding thereof. .Such money or property shall thereupon be transmitted to the property clerk who shall make entry of such deposit in his records^ Such money or property as shall remain in the custody of the property clerk for a period of three months without a lawful claimant entitled thereto shall be turned over to the person who found and deposited the same. * * * b. Any person who shall violate, or refuse, or neglect to comply with any provision of this section, upon conviction thereof, shall be punished by a fine of not more than one thousand dollars or imprisonment not exceeding one year, or both.” (Local Law, 1943, No. 47, in effect Dec. 30,1943.) This legislation apparently was enacted in response to observations made by Mr. Justice Eder in Garramone v. Simmons (177 Misc. 330, 334). Whether its provisions have application to the case in hand is, we think, a question upon which the City of New York should have an opportunity to be heard. (Cf. Manhattan Storage & Warehouse Co. v. Movers Assn., 289 N. Y. 82, 89-90, supra; Costello v. Simmons, 269 App. Div. 823, affd. 295 N. Y. 801.).

Perhaps we should add that no question is here presented respecting the ultimate rights of the present parties in the event that the owner of the currency in question continues to remain unidentified. (Cf. Silcott v. Louisville Trust Co., supra, at p. 238; Riesman, Possession and the Law of Finders, 52 Harv. L. Rev., at pp. 1125-1126.)

The judgment should be reversed, without costs, and the submission dismissed; without prejudice to a new submission or the" commencement. of an action.

Thacher, J.

(dissenting). The majority of the court is about to hold that, if the facts upon which the parties have agreed were proved upon a contested trial of the issues, judgment might very well go for the defendant, if inferences should be drawn in support of the judgment, but that, in the consideration of a controversy submitted upon an agreed statement of facts, pursuant to sections 546-548 of the Civil Practice Act, factual inference can have no part, and that we must therefore dismiss this proceeding. We believe that no inferences of- fact in addition to the facts agreed upon are necessary to a decision in this case, and that neither Feist v. Fifth Avenue Bank (280 N. Y. 189) nor Manhattan Storage & Warehouse Co. v. Movers Assn. (289 N. Y. 82, 86) require the dismissal of this proceeding.

In the Feist case (supra) the ultimate question of fact presented was whether an investment made by a trustee was a prudent one, and there was no agreement upon this question. Similarly in the Manhattan Storage & Warehouse Co. case (supra), the ultimate question of fact sought to be determined was the validity of a provision in an agreement between an employer and a labor union challenged as an unreasonable restraint of competition. In neither case could the controversy be determined upon the facts agreed upon. Each was a submission of conflicting facts and circumstances upon which the court was asked to found an ultimate conclusion of fact upon which the parties had not and could not agree. This is quite a different case, one in which the Appellate Division has not found it necessary to draw any inferences of fact additional to those agreed upon but has decided a question of law presented solely upon the facts agreed upon, and that is the determination of law we are now required to review without drawing factual inferences of our own.

Lawful possession of the currency found within the safe deposit vault turns upon de facto control of the premises possessed and purposefully exercised by the safe deposit company to exclude strangers from the place where the currency was found. This control is not left to inference; it is stipulated as a fact and reinforced by legal duty imposed upon the safe deposit company as a custodian and a bailee of the property (Roberts v. Stuyvesant Safe Deposit Co., 123 N. Y. 57; Carples v. Cumberland Coal & Iron Co., 240 N. Y. 187). The package of currency was found in a small booth located within the defendant’s safe deposit vault, access to which was limited to its own employees and its customers, for whose exclusive use the booth was furnished. These facts establish not only the intention and the right, but the duty, to retain custody, predicated upon its control and exclusive possession of the vault and the booth where the currency was found. This right and this duty can neither be impaired nor enhanced by proof of other facts suggested as necessary in the opinion of the court. The statement of agreed facts tells us that none but customers and employees of the company were admitted. So far as the employees are concerned, their access is the access of the company and their possession is the possession of the company.

At common law possession of chattels primarily depends upon the will and intention of the occupier of premises to exclude strangers and upon de facto control. In other words de facto control is possession in law. (Pollock and Wright, Possession in the Common Law, pp. 11-16, 37-42.) Sir Frederick Pollock states (p. 40): “ The finder’s right starts from the absence of any de facto control at the moment of finding ” and that de facto control is constituted by the occupier’s general power and intent to exclude unauthorized interference.

Comparing views of Mr. Justice Holmes and Sir Frederick Pollock, Mr. Justice Birkett, in Hannah v. Peel ([1945] 1K. B., 509), said, in discussing this subject (pp. 520-521): “ A difficulty, however, arises, because the rule which governs things an occupier possesses as against those which he does not, has never been very clearly formulated in our law. He may possess everything on the land from which he intends to exclude others, if Mr. Justice Holmes* is right; or he may possess those things of which he has a de facto control, if Sir Frederick Pollock is right.” (*Holmes, Common Law, p. 221.) There could be no better illustration of both of these propositions than the de facto control and exclusion of strangers from the premises which the parties have agreed was exercised by the safe deposit company in this case.

We are confirmed in our conclusion that the judgment below was correct and should be affirmed by the fact that wherever the question has arisen in an American court the right of the safe deposit company.to the possession and custody of currency and securities lost or mislaid in a safe deposit vault, as against all but the true owner, has been sustained. As we read these decisions they turn, not upon inferences of fact, but upon legal conclusions predicated upon facts no stronger than those agreed upon in this case. (Silcott v. Louisville Trust Co., 205 Ky. 234; Foster v. Fidelity Safe Deposit Co., 264 Mo. 89; Pyle v. Springfield Marine Bank, 330 Ill. App. 1.)

Lewis, Conway and Fuld, JJ., concur with Loughran, Ch. J.; Thacher, J., dissents in opinion in which Desmond and Dye, JJ., concur.

Judgment reversed, eta.


author: Per Curiam-.

text:
    Henry J. Becker et al., Appellants, v. George W. Wells, Doing Business as William Wells & Son, Respondents.
    Argued March 2, 1948;
    decided March 19, 1948.

      Arthur M. Heeg and Warren J. Heeg for appellants.
    The agreement was one between principal and agent, whereby the principal gave money to the agent with specific instructions to pay out the money under certain terms and conditions. The cause of action pleaded is not for the breach of a contract by defendant to procure a particular type of mortgage for plaintiff, or to convey or cause to be conveyed any interest in real property, but is for the breach of an agreement by defendant “ not to disburse plaintiffs’ money ”, entrusted to him, except on certain specified conditions, among which was the execution by defendant’s client of building loan mortgages. The contract, as pleaded, does not fall within the provisions of the Statute of Frauds. (Altman v. Brown, Wheelock, Harris & Co., 280 N. Y. 535.)

      Melvin J. Espach and Carl A. Espach for respondent.
    I. The Statute of Frauds is a complete bar to plaintiffs ’ cause of action. (Sleeth v. Sampson, 237 N. Y. 69; Straus & Co. v. Felson, 216 App. Div. 431; Weed New York Real Property, p. 847; 2 Williston on Contracts [Rev. ed.], § 491; 300 West End Ave. Corp. v. Warner, 250 N. Y. 221; Hagedorn v. Lang, 34 App. Div. 117; Wolf v. Niemeyer, 163 Misc. 367; Williston on Contracts, § 448.) II. An appeal to the Court of Appeals does not lie from the order of the Appellate Division, but only from the judgment entered thereon. (Morgan v. Sanborn, 225 N. Y. 454; Carmody’s New York Practice, § 627.)
   Per Curiam-.

According to the agreement, as alleged in the complaint, the transaction involved the holding of moneys delivered to defendant by plaintiffs as their agent subject to designated conditions and the disbursement of such moneys in accordance with explicit directions. It is for defendant’s violation of that agreement and for his disobedience of their instructions that plaintiffs seek damages. (See Heinemann v. Heard, 50 N. Y. 27, 35; Gravenhorst v. Turner, 215 App. Div. 617.) Defendant’s promise — being collateral to and independent of any agreement involving the sale or transfer of an interest in land — is beyond the reach of the Statute of Frauds pleaded by defendant (Real Property Law, §§ 242, 259) and may be established and enforced even though oral. (Cf. Altman v. Brown, Wheelock, Harris & Co., 280 N. Y. 535; Reeve v. Cromwell, 227 App. Div. 32; Conklin v. Kruger, 79 N. J. L. 326; Restatement, Contracts, § 194, subd. [2]; 2 Williston on Contracts [Rev. ed.], § 489, p. 1407; 2 Page, Law of Contracts [2d ed.], § 1277 et seq.; § 1287.)

The misstatement in the notice of appeal that the appeal is taken from the order rather than the judgment of the Appellate Division affects no substantial right and is disregarded as immaterial ”. (See Rosenberg v. General Realty Service, Inc., 259 N. Y. 123, 125; Matter of Westberg, 279 N. Y. 316, 321-322.)

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

Loughban, Ch. J., Lewis, Desmond, Thachbb, Dye and Fuld, JJ., concur in Per Curiam opinion; Conway, J., dissents upon the ground that the agreement alleged involved the sale of an interest in real property and thus was required to be in writing. (Real Property Law, §§ 242, 259; Sleeth v. Sampson, 237 N. Y. 69, 72.)

Judgment accordingly.


author: Fuld, J.

text:
    In the Matter of Fifth Avenue Building Company, Appellant, against Lazarus Joseph, as Comptroller of the City of New York, Respondent.
    Argued January 14, 1948;
    decided April 22, 1948

      Ezra P. Prentice and William H. Crawford for appellant.
    I. The delivery of the coal was made and the transaction was consummated in West Virginia. (Matter of Sears, Roebuck & Co. v. McGoldrick, 279 N. Y. 184; Amtorg Trading Corp. v. Higgins, 150 F. 2d 536.) II. No sales tax is due for the period from April 1,1937, to December 31,1942. (Matter of Gunther’s Sons v. McGoldrick, 279 N. Y. 148; Adams Mfg. Co. v. Storen, 304 U. S. 307; American Mfg. Co. v. St. Louis, 250 U. S. 459; Matter of United Artists Corp. v. Taylor, 273 N. Y. 334; Cheney Bros. Co. v. State of Massachusetts, 246 U. S. 147; Matter of Nat.

      Cash Register Co. v. Taylor, 276 N. Y. 208; Matter of West Pub. Co. v. Taylor, 276 N. Y. 535; McGoldrick v. Berwind-White Co., 309 U. S. 33; McLeod v. Dilworth Co., 322 U. S. 327.) III. The sales taxes from December 10, 1934, to June 30, 1940, have been paid and cannot be collected again.

      John P. McGrath, Corporation Counsel (Solomon Portnow, Isaac C. Dormer and Harry Katz of counsel), for respondent.
    I. Transfer of possession of the coal purchased by petitioner took place wholly within the city of New York, and the agreements for the purchase of the coal were made and wholly executed within the city. Hence, the transactions here involved are taxable sales under the city sales tax law. The tax is valid under the commerce clause of the Federal Constitution and under the enabling act since it is based upon wholly local taxable incidents. (Matter of United Autographic Register Co. v. McGoldrick, 260 App. Div. 157, 285 N. Y. 531; Wiloil Corp. v. State of Pennsylvania, 294 U. S. 169; Banker Bros. v. State of Pennsylvania, 222 U. S. 210; Matter of Sears, Roebuck & Co. v. McGoldrick, 279 N. Y. 184; Matter of Gunther’s Sons v. McGoldrick, 279 N. Y. 148; Matter of United Artists Corp. v. Taylor, 273 N. Y. 334; McGoldrick v. Berwind-White Coal Mining Co., 309 U. S. 33; McGoldrick v. Felt & Tarrant Mfg. Co., 309 U. S. 70; Jagels, “ A Fuel Corporation ” v. Taylor, 309 U. S. 619.) II. Under any circumstances, petitioner’s purchases of coal for the period January 1, 1935, to June 30, 1940, would be taxable under the city personal property tax law, since coal falls within the taxable category, “ oil, gas, gasoline and other combustibles ”, specifically subject to tax under that law. (Matter of Bush Term. Co., 93 F. 2d 659.) III. In arriving at the final determination of the tax under review, the comptroller gave petitioner full credit for the tax payments made by petitioner to its vendor in the sum of $1,431.40. TV. Since it appears that petitioner paid neither city sales tax nor city personal property tax on its taxable purchases for the period April 1,1937, to June 30, 1940, it is liable for the tax assessed. (Matter of Merchants Refrigerating Co. v. Taylor, 275 N. Y. 113; Matter of Kesbec, Inc., v. McGoldrick, 278 N. Y. 293; McGoldrick v. Berwind-White Coal Mining Co., 309 U. S. 33; Henneford v. Silas Mason Co., 300 U. S. 577.)
   Fuld, J.

In this proceeding brought under article 78 of the Civil Practice Act, petitioner disputes the determination of the comptroller of the City of New York that it is liable for sales taxes on its purchases of coal from Consolidation Coal Company between December 10, 1934, and December 31, 1942. Petitioner contends (1) that the transactions were not subject to the New York City sales tax laws and (2) that, in any event, if they were, the city may not collect taxes on the sales up to June 30, 1940, for the reason that they have already been paid to the city by the vendor.

Petitioner, a New York corporation, purchased coal over a period of years from Consolidation, a Delaware corporation, through the latter’s New York City sales office for use in its building on Fifth Avenue. The purchases were made pursuant to several contracts, all negotiated and executed in New York City, and each explicitly providing that it was subject to acceptance by the seller “ in New York, New York.” The city addresses of both parties were specified in the agreements as the places to which written notices were to be sent, and no modification, it was recited, was to be effected unless approved by the seller at its local office. The vendor in the first instance paid all shipping charges and received all shipping documents from the carriers. Those documents called for shipment, under the vendor’s direction, by rail and by barge from its mines in West Virginia to petitioner at a pier in New York City. It was at that point that petitioner, through its truckmen, first came into contact with the merchandise. Invoices were rendered by the vendor’s New York City office, and it was to that place that petitioner, at the other’s request,- made payments as it received the coal.

A provision added to the contracts in effect after April 1, 1937, called for shipment f.o.b. the vendor’s mines in West Virginia, but that insertion occasioned no change whatsoever in the course of dealings between the parties or in the mechanics of shipment or delivery. Throughout the entire period, after that date just as before, the purchases were completed and consummated by the delivery of the coal in New York City to a city purchaser for use in its city building on orders previously taken in the city. In an unbroken chain, every step of the dealings between petitioner and its vendor — from inception of negotiations to the final act of payment — was had and taken within New York. It follows, therefore, that taxable transactions were consummated in that city (Administrative Code of City of New York, § N41-1.0), and neither the limitations of the State Enabling Act (Matter of United Autographic Register Co. v. McGoldrick, 285 N. Y. 531, affg. 260 App. Div. 157) nor the provisions of the commerce clause of the Federal Constitution (McGoldrick v. Felt & Tarrant Mfg. Co., 309 U. S. 70; McGoldrick v. DuGrenier, Inc., 309 U. S. 70, 77, decided with the Felt & Tarrant case; see, also, McGoldrick v. Berwind-White Co., 309 U. S. 33; McLeod v. Dilworth Co., 322 U. S. 327) forbid or prevent imposition of the local sales tax.

We turn, then, to petitioner’s liability for such taxes.

Petitioner paid the taxes on sales between December 10,1934, and March 31, 1937, to its vendor, but paid none after that time upon the ground that the f.o.b. provision, then newly inserted in the contracts, rendered the transactions nontaxable. The vendor did not turn over to the city the taxes which it had collected from petitioner and did not itself pay the city the taxes which accrued thereafter. However, in 1943, following an audit of the coal company’s books, the city required that the vendor pay to it all taxes — with interest and penalties — on all sales made for the period from December 10, 1934, to June 30, 1940. Some time later, the comptroller, crediting petitioner only with payments which it had made to its vendor, assessed petitioner for the entire period from December 10, 1934, to December 31, 1942, in spite of the fact that the city had already collected a large part of those taxes from the vendor. Petitioner deposited the amount assessed against it — the sum of $2,051.57 — with the city treasurer.

Since the city received no sales taxes on sales made between July 1,1940, and December 31,1942, petitioner must pay the tax deficiency for that period. Not so, however, those taxes which the vendor has already paid to the city for sales made between 1934 and June 30,1940.

The local laws here involved, designed to assure the municipality additional revenue, empowered the city to tax receipts from the sale of tangible personal property within its jurisdiction. However, once the tax on a particular sale has been paid to the city, the city’s interest and authority — insofar as the collection of such a tax is concerned — are at an end; once the city has collected a tax, it has received all of the revenue to which it is entitled on that transaction. Nothing in the statute, either explicitly or impliedly, authorizes collection of the tax from the purchaser after the vendor has paid it.

Certainly, nothing contained in subdivision f of section N41-2.0 of the Administrative Code — to the effect that ‘ Where the purchaser has failed to pay and a vendor has failed to collect a tax upon a sale * * * such tax shall be payable by the purchaser directly to the treasurer ” — justifies double payment or collection. As we read that paragraph, it merely calls upon the purchaser to pay the city in a case where the city has not previously been paid and the vendor has not previously collected from the purchaser. Statements that the city may collect from a purchaser if he has not paid the tax to the vendor (see, e.g., City of New York v. Feiring, 313 U. S. 283, 287) manifestly envisage only a case where the city was not already paid by the vendor. A contrary construction — that the purchaser must pay the city even though it has already been paid by the vendor — would, indeed, take from the latter the right to sue his purchaser, a right expressly given by subdivision e, for it is inconceivable that the purchaser, after having been compelled to pay the city, would be subject to further suit by the vendor.

Analysis of subdivision g fortifies our conclusion that the city is given a right to collect but a single tax on a single sale, from either vendor or purchaser. That paragraph provides that the comptroller may require the purchaser to pay the tax directly to the city instead of to the vendor, and, significantly, at the very time when the vendor would ordinarily pay. This alternative collection procedure stems from the alternative nature of the liability, for vendors (see Matter of Atlas Television Co., 273 N. Y. 51; City of New York v. Feiring, supra) as well as purchasers (Matter of Merchants Refrigerating Co. v. Taylor, 275 N. Y. 113; Matter of Kesbec, Inc., v. McGoldrick, 278 N. Y. 293) are to be deemed taxpayers under this legislation, and the duty to pay is “ in the alternative (See City of New York v. Feiring, supra, p. 287; United States v. State of New York, 315 U. S. 510, 514.)

Granting the city a double tax recovery on a single sale — 1 unless and until the vendor actually recoups its payment by suit — will not, in our view, effectuate any suppose^ policy against allowing the vendor to absorb the sales tax. The incidence of the tax was designed to fall upon the purchaser (see Matter of Atlas Television Co., supra, p. 58), and it was probably desired that the purchaser be made aware of that fact. Those ends were sought to be assured, however, by provisions which subject a vendor to prosecution for a misdemeanor and to imposition of other penalties (1) if he willfully fails or refuses to collect the tax from the purchaser or (2) if he willfully fails to charge separately from the sales price the tax imposed or (3) if he willfully fails to state such tax separately from the selling price or service charge (Administrative Code, § N41-17.0, subd. b; § N41-2.0, subd. j); and by the further provision that, if no tax has been paid — as was true in the present case for part of the period involved — the city may proceed directly against the purchaser (Administrative Code, § 1741-2.0, subd. f).

Thus, the provisions of the sales tax law as well as its design and scheme are clear and efficacious. The statute gives the city the right to collect a tax on local sales, and, to facilitate administration, authorizes the vendor to collect that tax from the purchaser in the first instance and turn it over to the city. If the vendor does not collect from the purchaser, the city may proceed against either purchaser or vendor. If the vendor has paid, it may recoup from its purchaser. If the vendor has paid but — intending to violate the law’s provisions — has willfully failed to collect it from the purchaser, the vendor is subject to criminal or other penal consequences. Compliance with the procedure thus provided — rather than double collection of the tax by the city — will best effectuate the nonabsorption policy, or any other policy, assertedly underlying the statute.

In conclusion, then, petitioner should have been credited with the amount of the taxes paid the city by its vendor. Since the latter paid all taxes due for the period ending June 30, 1940, the comptroller’s determination of a tax deficiency for that period, in the principal amount of $609.22, with interest and penalties of $557.20, totaling $1,166.42, should be annulled. The determination of a tax deficiency for the period from July 1, 1940, to December 31, 1942, of $885.15, was correct.

The order of the Appellate Division should be modified by annulling so much of the comptroller’s determination as assesses a tax deficiency totaling $1,166.42 for the period ending June 30, 1940, and by directing the comptroller to refund said amount to petitioner, and, as so modified, affirmed, without costs.

Loughran, Ch. J., Lewis, Conway, Desmond, Thaoher and Dye, JJ., concur.

Ordered accordingly.


text:
    International Aircraft Trading Co., Inc., Appellant, v. Manufacturers Trust Company, Appellant and Respondent, and Irving Trust Company, Respondent.
    Argued January 8, 1948;
    decided April 22, 1948.

      Louis Olein for plaintiff-appellant.
    I. There is no basis for even an inference that plaintiff intended any person or ‘ ‘ entity ’ ’ other than the named payee to receive the proceeds of the check. (Lowendahl v. Baltimore & Ohio R. R. Co., 247 App. Div. 144, 272 N. Y. 360; Riley v. Agwilines, Inc., 296 N. Y. 402; Moers v. Moers, 229 N. Y. 294; Wenig v. Glens Falls Ind.

      Co., 294 N. Y. 195; Kerfoot v. Kelley, 294 N. Y. 288.) II. The corporation had neither de facto nor de jure existence on December 17 and December 18, 1941, when the check was issued and paid; it had not been organized and was nonexistent. (Thompson, Law of Corporations, Vol. 1, §§ 249, 259; Baton’s Digest [Banking], Vol. 2, p. 1395; Fletcher, Cyclopedia Corporations, Vol. 8, § 3820; Whiting & Sons Co. v. Barton, 204 Mass. 169; Falls Rubber Co. of Akron, Inc., v. Applebaum, 286 Mass. 18; Von Lengerke v. City of New York, 150 App. Div. 98, 211 N. Y. 558; Perrine v. Levin, 68 Misc. 327; Stevens v. Episcopal Church History Co., 140 App. Div. 570.) III. The payment by the drawee of the check made payable to a fictitious and nonexistent corporation was improper; the drawee could not charge such improper payment against plaintiff’s account. (Shipman v. Bank of State of N. Y., 126 N. Y. 318; Baldwin’s Bank v. Smith, 215 N. Y. 76; Sundial Constr. Co. v. Liberty Bank, 277 N. Y. 137; Cohen v. Lincoln Sav. Bank, 275 N. Y. 399; Swift & Co. v. Bankers Trust Co., 280 N. Y. 135; American Express Co. v. Peoples Sav. Bank, 192 Iowa 366; United Cigar Stores Co. v. American Raw Silk Co., 184 App. Div. 217, 229 N. Y. 532.) IV. The burden of ascertaining the identity and existence of the payee .has been erroneously shifted from the ultimate indorser to the maker. (Cohen v. Lincoln Sav. Bank, 275 N. Y. 399; Franklin Square Nat. Bank v. Great Atlantic Bldg. Material Supply Corp., 186 Misc. 524, 270 App. Div. 930, 296 N. Y. 644.) V. The drawee’s first affirmative defense of ratification and confirmation of the payment of the check by the corporation, and use of the proceeds of the check V for and on behalf of ” the corporation is legally insufficient; there is no proof to support this alleged defense. (Mount Vernon Trust Co. v. Federal Reserve Bank of N. Y., 267 App. Div. 882, 293 N. Y. 654; Leather Manufacturers Bank v. Merchants Bank, 128 U. S. 26; United States v. National Exch. Bank, 214 U. S. 302; Fourth Nat. Bank v. Gainesville Nat. Bank, 80 F. 2d 490.) VI. The drawee’s second affirmative defense that the plaintiff ratified and confirmed the payment of the check is legally insufficient; it was not established on the trial. (Falls Rubber Co. of Akron, Inc., v. Applebaum, 286 Mass. 18; Puro Filter Corp. v. Trembly, 266 App. Div. 750; Antun v. Masholie-

      Salvator Co., 180 Misc. 106, 266 App. Div. 852.) VII. Furthermore, it is uncontradicted that plaintiff never received any of the cartridges which it was supposed to get, and has never received any part of the $5,000 represented by the check. (City of New York v. Bronx County Trust Co., 261 N. Y. 64; Davies v. Stumpf, 179 Misc. 401, 266 App. Div. 732.) VIII. The mere fact that plaintiff knew and dealt with only three individuals as representing the purported corporation does not furnish a basis for even an inference that plaintiff intended these three individuals to be the payees and receive the proceeds of a check made to the order of that corporation. (Hull v. Littauer, 162 N. Y. 569; Colby v. Wildenstein, 258 App. Div. 628; Chapin-Owen Co. v. Yeoman, 233 App. Div. 492; Stearns v. Schenectady Day Nursery, 262 App. Div. 638, 288 N. Y. 574.)

      David S. Konheim, Nathan Waxman and John J. O’Connor for Manufacturers Trust Company, appellant and respondent, and for Irving Trust Company, respondent.
    I. Plaintiff’s check was paid to the intended payee thereof. (Hartford Accident & Ind. Co. v. Bank of New York, 261 App. Div. 278; Cohen v. Lincoln Sav. Bank, 275 N. Y. 399; Halsey v. Bank of New York & Trust Co., 270 N. Y. 134; First Nat. Bank v. American Exch. Nat. Bank, 170 N. Y. 88; Sherman v. Corn Exch. Bank, 91 App. Div. 84; American Surety Co. of N. Y. v. Empire Trust Co., 262 N. Y. 140, 237 App. Div. 522; Powell v. Powell, 71 N. Y. 71; Tousey v. Hastings, 194 N. Y. 79; Ramsay v. Miller, 202 N. Y. 72; Morgan v. Bon Bon Co., 222 N. Y. 22.) II. Plaintiff has ratified the payment of the • check. (Schenck v. State Line Tel. Co., 238 N. Y. 308; Pollitz v. Wabash R. R. Co., 207 N. Y. 113; Rothschild v. Title Guar. & Trust Co., 204 N. Y. 458.)
   Fuld, J.

International Aircraft Trading Co., Inc., sued Manufacturers Trust Company for $5,000, the amount of a check, drawn on that bank, which plaintiff claimed was improperly honored and charged against its account. Manufacturers impleaded Irving Trust Company which had presented the check for payment. After trial without a jury, the complaint and the cross complaint were both dismissed on the merits; that judgment has been unanimously affirmed, and the appeal is here by our permission.

Early in December, 1941, plaintiff was in the market to purchase cartridges for export to Ecuador, and, through its president, negotiated for them with three men named Hidden, Bonan and Zelkin who represented themselves as officers of a Massachusetts corporation, the Lowell Cartridge Corporation. During the dealings, plaintiff received correspondence bearing the letterhead “ Lowell Cartridge Corp., 95 Bridge Street, Lowell, Mass.”, signed by Hidden as president, and was given a performance bond executed in the name of Lowell, described as “ a Corporation of the State of Massachusetts * * * as principal ”. The negotiations ripened into a contract, dated December 17,1941; plaintiff was to purchase 500,000 cartridges from Lowell for $22,500, of which $5,000 was to be paid on the signing of the agreement. Plaintiff thereupon issued the check in question for $5,000, with the “ Lowell Cartridge Corporation ” named as payee. On the same day — December 17 — an account was opened with Irving Trust Company in the name of Lowell, by deposit of the check without any indorsement. On the following day, the unindorsed check — bearing a notation by Irving that it had been credited to the named payee and that “endorsements” were guaranteed — was presented to Manufacturers, which paid it and charged plaintiff’s account with $5,000.

In reality, there was no “ Lowell Cartridge Corporation ’* in existence while the negotiations were being carried on or when the check was presented or paid. It was not until December 23 — several days after the check had been paid — that incorporators met to organize Lowell. Several more days elapsed before they filed articles of incorporation, and it was not until January G, 1942, that a certificate of incorporation was issued and made retroactively effective as of December 26. 1941. Lowell, however, never issued any stock or conducted any business.

Irving had neither requested nor received any corporate resolution or other authorization for the creation of the account in Lowell’s name. In spite of this, it permitted money to be withdrawn from Lowell’s account — in which the check in question was the sole deposit — even before the check had cleared. By December 31, the account.was exhausted. No exact record was kept of the persons who made withdrawals from the account, but some appear to have been made by “ Eonan ” and “ Eonan Associates

No cartridges were ever delivered, and, in April, 1945, plaintiff obtained a default judgment against Lowell and its officers in an action against them for breach of contract, fraud, conspiracy, and for the $5,000 realized from its check. Nothing having been collected on the judgment, plaintiff brought the present action.

On these facts, the complaint charges Manufacturers with liability for deducting the amount of the check from plaintiff’s deposits with the bank. There is no challenge to the rule that Manufacturers could charge plaintiff’s account only in accordance with plaintiff’s instructions. (See Strang v. Westchester Co. Nat. Bank, 235 N. Y. 68; Seaboard Nat. Bank v. Bank of America, 193 N. Y. 26, 30; Shipman v. Bank of State of N. Y., 126 N. Y. 318.) The issue, briefly stated, is whether there was compliance with that rule, considering the circumstances that, both when the check was drawn and when it was paid, the designated payee was — unbeknown to the plaintiff drawer — not in existence.

The check with the nonexistent payee is no stranger to the law. In Swift & Co. v. Bankers Trust Co. (280 N. Y. 135, 145), this court said of such a check: “ If construed in accordance with the law of New York where it was. made payable, it constituted an order to pay to a non-existent person; in other words, it was a check without a payee to whom it could be delivered, who could transfer it or who could demand or receive payment. Such a check is a mere scrap of paper creating neither right nor obligation ”. On that reasoning, it follows that the check in issue was a legal nullity, not entitled to be honored, and that Manufacturers is liable for charging it against plaintiff’s account.

It is evident from the trial court’s opinion that a contrary conclusion was believed dictated by the so-called impostor rule,” under which a bank is protected even though an impostor cashes a check, if it was that impostor who, the drawer — deceived “ through fraudulent misrepresentation as to his responsibility, character or name ” — intended should be “ the real payee ” and should receive the proceeds of the check. (See Cohen v. Lincoln Sav. Bank, 275 N. Y. 399, 403-404, 406.)

It is not every imposture, however, that serves as a shield to the bank. It is only where the impostor, dealing face to face with the drawer, succeeds in having himself intended as payee, albeit under an alias, that the bank is warranted in paying bim. (See Halsey v. Bank of New York & Trust Co., 270 N. Y. 134, 139; First Nat. Bank v. American Exch. Nat. Bank, 170 N. Y. 88; Sherman v. Corn Exch. Bank, 91 App. Div. 84; see, also, 6 Zollman, Banks and Banking [Perm, ed.], § 3756.) In this type of case, it has been noted, the drawer’s intent is dual; he intends (1) that the person before him shall be the recipient of the proceeds of his check and (2) that the person he names as payee will be paid. (See Brannan’s Negotiable Instruments Law [5th ed.], p. 331; see, also, Cohen v. Lincoln Sav. Bank, supra, p. 407.) Since in such a situation the drawer intended that the person with whom he actually dealt be paid the money represented by the check, the courts honor that aspect of his intention and permit the bank to pay the impostor without incurring liability. Where, however, another person, real or fictitious, is intended as the payee, the bank is held liable when it pays the impostor. (See Strang v. Westchester Co. Nat. Bank, supra, Mercantile Nat. Bank v. Silverman, 148 App. Div. 1, affd. 210 N. Y. 567; United Cigar Stores Co. v. American Raw Silk Co., 229 N. Y. 532; American Express Co. v. Peoples Sav. Bank, 192 Iowa 366; cf. Price v. Oswego & Syracuse Ry. Co., 50 N. Y. 213.) The Strang case (supra) is illustrative. An attorney, posing as the agent of one Bemsen, a nonexistent client, induced plaintiff to make a loan on the strength of a bond and mortgage covering property allegedly owned by Bemsen. The instruments were forgeries; the property actually belonged to the attorney. Plaintiff, deceived, drew a draft to her own order and indorsed it over to Bemsen. The impostor then indorsed Bemsen’s name on the draft and the bank paid him the proceeds. In holding the bank liable to the drawer for the amount of the draft, the court noted that it was not the attorney who was intended to be the payee of the check, but Bemsen, the nonexistent client, and pointed out that the bank was responsible in spite of the fact that the attorney actually owned the property in question. In the course of the opinion, it was said: “ A different case would be here if the plaintiff had dealt with Bushnell [the attorney] in the belief that he was Remsen, intending to make payment to the person then before her, though lured into that intention by his assumption of a fictitious name. * * * The plaintiff did not loan her money to Bushnell, content to accept him as a borrower * * *. Undoubtedly, she believed, when she drew her check upon the bank, that Remsen was an owner of the property, and that the mortgage was a valid lien. This belief did not mean that some one else * * * had the. right, because he was the owner, to step into the borrower’s shoes ” (pp. 70-72).

Decision as to whether or not a nonexistent corporate payee has a place within the ambit of the impostor rule, whether that rule can ever be applied where a corporation is named as payee, need not here detain us, for it is clear that plaintiff intended to, and did, contract only with the corporation: in carrying on negotiations with the three individuals, Hidden, Ronan and Zelkin, plaintiff did so solely in their asserted capacity as agents. (See Strang v. Westchester. Co. Nat. Bank, supra.) The circumstance that plaintiff’s president dealt with, and knew, only the persons before him fails to impress us. All transactions with a corporation must of necessity be with natural persons, either face to face or otherwise, on behalf of the corporation. More is required on which to base a finding that there was here an intention in fact to treat the individual negotiators as principals, especially since Lowell was named consistently and repeatedly as principal throughout all of the negotiations — in correspondence, in performance bond, in contract and in check. The record before us admits of no other inference than that plaintiff dealt only with the corporation as such and contracted with it alone as principal.

Nor is there here any warrant for disregarding the plaintiff’s intent to deal with the corporation on any theory of piercing the veil of the corporate entity. Broadly speaking, that doctrine is invoked to prevent fraud or to achieve equity. (See, e.g., Halsted v. Globe Indemnity Co., 258 N. Y. 176, 179; Jenkins v. Moyse, 254 N. Y. 319, 324; see, also, 1 Fletcher’s Óyelopedia Corporations [Perm, ed.], § 41.) It would prevent no fraud and serve no equity in this case to visit the loss upon plaintiff rather than upon the hank. Indeed, the opposite is true, for elementary precautions on the part of Irving would have prevented the consummation of the wrong; the result could not have been accomplished except for its intervening and facilitating conduct.

In short, since Manufacturers paid the proceeds of the check to some one other than the designated and intended payee, that bank is accountable to the drawer for the unauthorized disposition of its funds.

Two further defenses are asserted. It is claimed (1) that withdrawals from the Irving account after Lowell had been incorporated constituted a ratification by Lowell and (2) that suit by plaintiff against Lowell for the proceeds of the check constituted an election of remedies, estopping plaintiff from maintaining the present action. As to the first, it is enough to note that — quite apart from other considerations — there is no evidence that any withdrawal was made either by persons authorized by Lowell or for its corporate purposes. As to the second, we need but observe that there was no inconsistency on plaintiff’s part in proceeding first against the corporation in an endeavor to collect from all who might be liable to it. (See City of New York v. Bronx County Trust Co., 261 N. Y. 64, 73-74; see, also, Civ. Prac. Act, § 112-a.)

Manufacturers’ liability to plaintiff being established, it follows that Irving — as that defendant acknowledges — is answerable to Manufacturers on its cross complaint. (Cf. Negotiable Instruments Law, § 350-c.)

The judgments of the courts below should be reversed and judgment directed in favor of plaintiff upon its complaint against Manufacturers Trust Company in the sum of $5,000, with interest and costs in all courts, and in favor of Manufacturers Trust Company, in like amount, on its cross complaint against the impleaded defendant, Irving Trust Company, with interest and costs in all courts.

Loughran, Ch. J., Lewis, Conway, Desmond, Thacheb and Dye, JJ., concur.

Judgments reversed, etc. '•


author: Conway, J.

text:
    Maryland Casualty Company, Appellant, v. Central Trust Company, Respondent. United States of America on Relation of Maryland Casualty Company, Appellant, v. Central Trust Company, Respondent.
    Argued January 9, 1948;
    decided April 22, 1948.

      Ruben A. Dankoff for appellants.
    I. Section 326 of the Negotiable Instruments Law is not applicable to the facts of the instant case. (Shattuck v. Guardian Trust Co., 204 N. Y. 200; Matteawan Mfg. Co. v. Chemical Bank & Trust Co., 244 App. Div. 404; Kleinman v. Chase Nat. Bank, 124 Misc. 173.) II. The alleged negligence of the “ depositor ” in failing to obtain and examine the cancelled vouchers is no defense in these actions. III. Estoppel by carelessness, as a defense, is inapplicable to these actions. (National Surety Co. v. Manhattan Co., 252 N. Y. 247; Critten v. Chemical Nat. Bank, 171 N. Y. 219; Gutfreund v. East River Nat. Bank, 251 N. Y. 58; American Surety Co. v. Empire Trust Co., 262 N. Y. 181.) IV. The defense of “ account stated ” is inapplicable. (National Surety Co. v. Manhattan Co., 252 N. Y. 247.) V. The alleged negligence of the referee in bankruptcy is in no way binding upon the plaintiffs. (Morgan v. United States Mtge. & Trust Co., 208 N. Y. 218.) VI. None of the alleged defenses are applicable in an action for breach of the depository’s bond to the United States of America. VII. Defendant’s obligation to the creditors of the bankrupt cannot be avoided by the assertion of any of the defenses. (Fidelity & Cas. Co. v. Farmers Nat. Bank, 275 N. Y. 194; Bischoff v. Yorkville Bank, 218 N. Y. 106; American Nat. Bank v. Fidelity & Deposit Co., 129 Ga. 126.) VIII. Under any circumstances, plaintiff must recover judgment for the proceeds of the first four forged checks.

      J. Paul Brennan for respondent.
    I. The trial court erroneously concluded that the trustee in bankruptcy was the depositor within the meaning of section 326 of the Negotiable Instruments Law, and, based upon that error, denied to the defendant bank the protection of section 326, to which the bank was entitled. (Gardner v. Chicago Tit. Co., 261 U. S. 453; Shattuck v. Guardian Trust Co., 145 App. Div. 734, 204 N. Y. 200; American Surety Co. v. Cortland Sav. & Banking Co., 143 Ohio St. 353; Florida Bank & Trust Co. v. Union Ind.

      Co., 55 F. 2d 640; Phoenix Bank v. Risley, 111 U. S. 125; Baldwin’s Bank v. Smith, 215 N. Y. 76.) II. The depositor through its representative, the referee in bankruptcy, was negligent in failing promptly to obtain vouchers, keep records, require reports from the trustee, examine vouchers after return and in his complete failure to supervise the actions of the trustee. (Leather Manufacturers Bank v. Morgan, 117 U. S. 96; Critten v. Chemical Nat. Bank, 171 N. Y. 219.) III. The remaining defenses, viz., failure to depositor to make timely discovery of the first forgery and account stated and estoppel were established by the evidence. (Potts & Co. v. Lafayette Nat. Bank, 269 N. Y. 181; Hammerschlag Mfg. Co. v. Importers’ & Traders Nat. Bank, 262 F. 266; National Surety Co. v. Manhattan Co., 252 N. Y. 247.)
   Conway, J.

In 1937, there was ■ referred to one Sanford, Referee in Bankruptcy for Monroe and Wayne Counties, New York, the Matter of Van Vechten Milling Co., Inc., an adjudicated bankrupt. Thereafter one Haidt was appointed trustee. He qualified and filed a bond of the plaintiff company conditioned upon his accounting for all moneys and assets of the estate and the faithful performance of his official duties. He opened an account in the Central Trust Company, the defendant herein, selecting it from the four designated depositories for bankruptcy estate funds in Rochester. Through sales of the bankrupt’s property he deposited upwards of $16,000 in that account. It was specifically conceded during the trial that such deposit could be lawfully withdrawn only by check or draft signed by the clerk of the District Court or by Haidt as trustee and countersigned by a judge of said court, or by a referee designated by the court or by the clerk or his assistant when properly authorized. That was by reason of number 29 of the General Orders in Bankruptcy (298 U. S. 695, 697, and the amendments in 305 U. S. 681, 695). The consent of the defendant to become one of the designated depositories, the acceptance of the account of Haidt as trustee and the applicable provisions of General Order No. 29 constituted the contract between the defendant and its depositor. (Fidelity & Cas. Co. v. Farmers Nat. Bank, 275 N. Y. 194.) The defendant kept on file a sample original signature of Sanford as referee for the purpose of comparing it with his countersignature on all checks drawn upon bankruptcy estate funds on deposit with it. It is conceded that the defendant knew that the deposit was an asset of the estate of Van Vechten Milling Co., Inc., bankrupt, and was made with it by Haidt in his ' capacity as duly appointed trustee of the bankruptcy estate.

In 1938 and 1939, Haidt as trustee forged the countersignature of Sanford, as referee upon eight checks made payable to his own individual order and illegally appropriated the money when the defendant paid the checks. After such payments, the defendant never returned the vouchers to Haidt. That was due to the fact that Referee Sanford had instructed' all the depositories for bankruptcy funds not to release the cheeks to * * * trustees but to deliver them only to my [his] office.” Some of the cancelled vouchers were delivered by the defendant on September 16, 1938, to a clerk of the Bankruptcy Court, who worked under the supervision of Sanford. The others were delivered to Referee Sanford on September 26, 1940. The dates are important since notice of the forgeries was given within one year of the lattel date. The vouchers and bank statements after such delivery were put in an unlocked file in the referee’s office to which Haidt had access. The statement of account delivered to the clerk with the first group of checks referred to above was later found to have been mutilated so that it did not disclose the payment of the first four forged checks. Those four checks had been abstracted from the file. The second group of checks, which had been delivered to Referee Sanford, was obtained by him because he had become suspicious of the conduct of Haidt. They were available on the trial.

Haidt was removed from the office of trustee by Referee Sanford who appointed one Herney as substituted trustee. The amount of the forgeries of Haidt was then determined and demand made upon the defendant bank for payment of the unauthorized and forged checks. That sum was paid by the plaintiff, on its bond, to Herney as trustee, who, with the authorization of Sanford, as referee, executed and delivered to plaintiff an assignment of his rights as trustee against the defendant bank. Upon the refusal of the defendant to make good the amount of the forged checks, the plaintiff brought two actions, since consolidated, against the defendant. The first was based upon its rights as subrogee and assignee by reason of its payment to the substituted trustee Herney under its bond. The second action, entitled United States of America on the relation of the Maryland Casualty Company against the defendant, was brought upon the bond which the defendant, as an official depository, was required to give to United States of America conditioned upon the faithful discharge of its duties under the Bankruptcy Act, the full and faithful accounting for all moneys deposited in it as such depository and obedience to all orders of the court. Defendant does not contend in its brief that plaintiff has not established a prima facie case as to either action. Instead, it contends that recovery is barred, in whole or in part, by one or more of the five defenses pleaded in each action. Neither of the courts below passed upon the second action and we shall not discuss it further.

In the first action, we need only refer to the first two causes of action pleaded. The first was in tort and it was therein alleged that payment by the bank upon checks which it knew or should have known to be unauthorized, enabled the trustee to commit a breach of trust and to convert bankruptcy funds to his own use. In the second cause of action —■ in contract ■— it was alleged that defendant had failed to transfer and credit to the account of Herney, as trustee, the moneys which it had wrongfully paid to Haidt, although due demand had been made, therefor, and that defendant was therefore indebted to plaintiff as assignee for such moneys.

A consideration of the first of the five partial defenses interposed in the first action will necessitate the discussion of certain applicable rules of law which will be determinative of all but the fifth partial defense. That defense — the negligence of the referee — was necessarily rejected, as we shall see, since the two parties concerned were the defendant bank and the trustee, debtor and creditor respectively. Even were we to assume that the defense was that the failure of the referee, a judicial officer, to supervise closely the trustee’s activities constituted the proximate cause of the loss, it must fail. The proximate cause was the payments of the bank upon forged countersignatures.

The first partial defense, pleaded as applicable only to the first four of the forged checks, is based upon the time limitation embodied in section 326 of the Negotiable Instruments Law, which reads as follows: “ No bank shall be liable to a depositor for the payment by it of a forged or raised check, unless within one year after the return to the depositor of the voucher of such payment, such depositor shall notify the bank that the check so paid was forged or raised.”

The primary question for our determination is the identity of the “ depositor ” referred to in section 326, at least so far as to decide whether it is the judicial officer, the referee in bankruptcy. The Trial Justice, who sat without a jury and who gave judgment to the plaintiff under a stipulation that he could direct a verdict with the same force and effect as though a jury were present, found that Haidt as trustee was the depositor and that the vouchers showing payment of the forged checks had never been returned to him. See Shattuck v. Guardian Trust Co. (204 N. Y. 200, 210), where we said: “ If the vouchers are never returned to him [the depositor] the statute [Negotiable Instruments Law, § 326] has no application, for he is only compelled to serve the notice within one year after the return to Him of the voucher of each payment upon which the bank relies.”

The Appellate Division specifically reversed that finding being of the opinion that the depositor in this instance was the “ estate of the bankrupt ”. It said: “Asa depositor, of course, the estate of the bankrupt must work through the representatives of the Bankruptcy Court. A return of the vouchers to any officer of that court, whether he be the referee or the trustee, should make no difference in the application of the section.” (271 App. Div. 651, 655-856.) We take the other view.

A depositor is one “ who makes a deposit ”, especially of money in a bank. (Bouvier’s Law Dictionary [Rawle’s 3d Revision].) The evidence discloses that Haidt personally brought che money to the bank, that he chose the depository from the four designated ones without direction, that he signed the signature card, that he was the “ maker ” of the checks drawn on the account, that the referee never handled money himself and that the referee did not authorize anyone to make deposits on his behalf as a representative of the court. .

That Haidt was the depositor ” is confirmed by reference to the scheme of the United States Bankruptcy Act. Separate duties are delegated to the trustee and to the referee. Clause (2) of subdivision (a) of section 47 (U. S. Code, tit. 11, § 75) provides that Trustees shall * * * (2) deposit all money received by them in designated depositories * ® The trustee is granted the power to make withdrawal by check or draft by clause (4) of subdivision (a) of section 47 and General Order No. 29. It has been written that the proper form for deposits by a trustee is “ John Doe, as Trustee of Bichard Boe, in Bankruptcy No. 000.” (3 Collier on Bankruptcy, § 61.04.) In Lamb v. Townshend (71 F. 2d 590, 592, certiorari denied 293 U. S. 602) the court said: “ The deposit of bankruptcy funds in an authorized depository ordinarily vests the ownership of the funds in the bank and creates a mere indebtedness on the part of the bank to the trustee making the deposit.” (Emphasis supplied.)

A trustee in bankruptcy is a statutory one in that his duties are prescribed in the Bankruptcy Act (see § 47 [U. S. Code, tit. 11, § 75]) but he is an active and not a passive trustee. In general his duty is summed up in clause (1) of subdivision (a) of section 47 of the act as follows: “ * * * [to] collect and reduce to money the property of the estates * * * under the direction of the court, and close up the estates as expeditiously as is compatible with the best interests of the parties in interest; * * * ”. Under subdivision (a) of section 70 (U. S. Code, tit. 11, § 110, subd. [a]) the trustee of the estate is specifically ‘ vested by operation of law with the title of the bankrupt ” as of the day he was adjudged a bankrupt, to all nonexempt property.

To hold here that the “ estate of the bankrupt ” is the depositor it would be necessary to consider Haidt and Sanford not only as trustee and referee respectively but also as agents whose principal was the “ estate of the bankrupt ”. It is true that a trustee may, under certain circumstances, also be an agent of his cestui que trust. (See, e.g., the comment in the Bestatement, Agency, § 14, Comment c.) In a situation such as that presented here, however, the trustee in bankruptcy is clearly not an agent. His primary duty is to collect and distribute the property of the bankrupt. He is vested with wide discretion. He is not required to follow the wishes of the creditors in the administration of the estate and he must assume responsibility for his acts (2 Collier on Bankruptcy, § 47.03; 2 Remington on Bankruptcy, § 1119). The following, quoted from Whiting v. Hudson Trust Co. (234 N. Y. 394, 407), is applicable here although the words used referred to a testamentary trustee: “ Bckerson, trustee under the Snyder will, was not an agent identified with some one else, a principal, as the result of legal fiction. He was the principal himself. It is only a form of words when we speak of him as the representative of an ‘ estate.’ The 1 estate ’ had no separate existence. It was not a legal person. The only person was the trustee.” We, therefore, conclude that the trustee in bankruptcy is the depositor ” of the funds of the bankrupt estate rather than the referee, in bankruptcy or the “ estate of the bankrupt ”. -

In that situation the defendant is not absolved, as held below, from its absolute liability as a drawee bank for paying out moneys of a depositor upon his forged signature (Frank v. Chemical Nat. Bank, 84 N. Y. 209; Crawford v. West Side Bank, 100 N. Y. 50; Shipman v. Bank of State of N. Y., 126 N. Y. 318) by reason of the common-law rule that the depositor was required to exercise diligence in examining his returned cancelled vouchers and in notifying the bank within a reasonable time of the fact of the forgery. (Critten v. Chemical Nat. Bank, 171 N. Y. 219; Morgan v. United States Mtge. & Trust Co., 208 N. Y. 218; Potts & Co. v. Lafayette Nat. Bank, 269 N. Y. 181; Thomson v. New York Trust Co., 293 N. Y. 58, 68; Leather Manufacturers’ Bank v. Morgan, 117 U. S. 96; Prudential Ins. Co. v. National Bank of Commerce, 227 N. Y. 510; North British & Mercantile Ins. Co. v. Merchants’ Nat. Bank, 161 App. Div. 341.) The basis for the common-law rule was, of course, that either the drawee bank or the depositor, depending upon the varying circumstances of the individual case, although innocent of affirmative wrongdoing, might nevertheless suffer a loss since the forger was a third person and prompt action by the depositor would tend to promote justice. It would afford the bank the opportunity of proceeding promptly against the forger and also enable it to correct at once any irregularity both for the protection of the bank and of the banldng community in general. Here, however, the depositor was a trustee — a fiduciary holding legal title to assets of a bankrupt, estate which were equitably owned by its creditors. The defendant understood that. Moreover, it knew that the Supreme Court had found it necessary to require that trustees such as Haidt should not have unlimited control over the moneys in their possession and that, therefore, Haidt’s checks had to be countersigned by a representative of the district court. No common-law rule has been called to our attention which absolves the drawee bank from liability when such a fiduciary depositor forges a countersignature necessary to properly authorize the bank to pay a draft or check and then fails to notify the bank of his act of forgery within a reasonable time. Such failure to give notification would not be negligence ” on the part of the depositor but a failure to confess criminal guilt which he could not be reasonably expected to make. Since section 326 was but a statutory modification and embodiment of an existing common-law rule, it has no application here. (Shattuck v. Guardian Trust Co., supra, at p. 210.) That section was to cover the forging of the maker’s signature or the raising of his check. It was not meant to include all forms of forgery nor all alterations (Matteawan Mfg. Co. v. Chemical Bank & Trust Co., 244 App. Div. 404, 414, mod. on other grounds, 272 N. Y. 411; see, also, discussion in North British & Mercantile Ins. Co. v. Merchants’ Nat. Bank, 161 App. Div. 341, 355, supra) nor the forgery of a countersignature of an official of the District Court required by a court rule (General Orders in Bankruptcy, No. 29) before the defendant was authorized to honor its depositor’s checks.

Moreover, here the defendant bank assisted Haidt in converting the money of the bankrupt and in breaching his trust by honoring improperly drawn and unauthorized .checks. It had agreed to pay out moneys of the depositor upon properly countersigned checks. Instead it paid them out through error upon checks bearing forged countersignatures. Those were no countersignatures at all. A recognition of the forgeries by the defendant, as it was obligated at its peril to do, would have put it upon inquiry and inquiry would have led to actual knowledge of the conversion. (Fidelity & Deposit Co. v. Queens Co. Trust Co., 226 N. Y. 225, 231, 233; Fidelity & Cas. Co. v. Farmers Nat. Bank, 275 N. Y. 194, supra; Matteawan Mfg. Co. v. Chemical Bank & Trust Co., supra.) It may have been what was termed in the Matteawan Mfg. Co. case (supra, at p. 414) a “ plain though innocent conversion ” as far as defendant was concerned, but it is assuredly a situation where one who, by his own mistake and neglect, is responsible for.or the cause of a loss, is required to bear it instead of innocent parties, in this instaiice the bankrupt’s creditors, in whose shoes the plaintiff happens to stand. (North British & Mercantile Ins. Co. v. Merchants’ Nat. Bank, supra; First Nat. Bank v. American Exch. Nat. Bank, 49 App. Div. 349, affd. 170 N. Y. 88; McWilliams v. Mason, 31 N. Y. 294; Hurd v. Kelly, 78 N. Y. 588, 597; Timpson v. Allen, 149 N. Y. 513, 520.)

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.

Loughran, Gh. J., Lewis, Desmond, Thacher, Dye and Fuld, JJ., concur.

Judgment accordingly.