author: Crane, J.

text:
    Samuel Goldberg et al., Respondents, v. Charles A. McCord et al., Appellants.
    (Argued April 22, 1929;
    decided May 29, 1929.)

      Charles I. Wood, Wilmot Y. Hallock and Harry W. Moore for appellants.
    The record of the incompeteney proceeding in the year 1924 raises no presumption that William Taylor was incompetent in 1906. (Civil Practice Act, § 1371; Boschen v. Stockwell, 224 N. Y. 366; Van

      Deusen v. Sweet, 51 N. Y. 378; Swanstrom v. Day, 46 App. Div. 311; 101 App. Div. 609; Martello v. Cagliostro, 122 Misc. Rep. 306.) The defendants and their predecessors in title were bona fide purchasers for an adequate consideration without notice of the alleged incapacity of William Taylor, and, therefore, obtained a marketable title which they can convey to the plaintiffs. (Jay v. Wilson, 91 Hun, 391; 158 N. Y. 693; Clark v. Mc Neal, 114 N. Y. 287; Baecht v. Hevesy, 115 App. Div. 509; Abraham v. Meyer, 7 Misc. Rep. 250; Valentine v. Lunt, 51 Hun, 544; 115 N. Y. 496.)

      Joseph B. Mitchell for respondents.
    The title of the defendants to the premises in question was unmarketable on May 17, 1926, the date on which title was to be closed, since a prudent man, knowing the facts, would hesitate to take it. (Van Deusen v. Sweet, 51 N. Y. 379; Bennett v. Vonder Busch, 26 App. Div. 313; Booth v. Fuller, 35 App. Div. 119; Mutual Life Insurance Company v. Hunt, 79 N. Y. 541; Riggs v. American Tract Society, 84 N. Y. 336; Goodyear v. Adam, 5 N. Y. 275; Brokaw v. Duffy, 165 N. Y. 391; Fleming v. Burnham, 100 N. Y. 1; Greenblaut v. Herman, 144 N. Y. 13; Abbot v. James, 111 N. Y. 676; Moore v. Williams, 115 N. Y. 586; Vaught v. Williams, 120 N. Y. 253; Irving v. Campbell, 121 N. Y. 354.)
   Crane, J.

Under the will of Isabella Taylor in 1894, William Taylor, Mary Ann Taylor and Elizabeth Taylor became owners as tenants in common of real property at Westbury, Nassau county, New York, of which the premises involved in this litigation formed a part. The property was known as the “ Taylor Farm,” and was conveyed thereafter by these three owners in common in various tracts and parcels. Between January 1, 1899, and June 30, 1923, the conveyances or deeds made by William Taylor numbered about twenty-five. One of these deeds was dated May 31, 1906, executed by William Taylor and his two sisters to Frank Powers and Thomas J. McCord for an adequate consideration, was acknowledged before a notary public and duly recorded. Thereafter Thomas J. McCord conveyed his interest in the premises for an adequate consideration to the defendant Charles A. McCord, by deed duly executed, acknowledged and recorded. Frank Powers having died, his interest in the premises passed to the Nassau Trust Company as devisee-trustee. These last two owners being, or representing, purchasers in good faith and for value, contracted to sell the premises to the plaintiffs for the sum of $40,000.

Title was rejected by the plaintiffs for the reason that William Taylor, one of the grantors in the chain of title, had been adjudged incompetent, and a committee appointed for him in 1924; and that the evidence on the incompetency proceedings indicated that his mental incapacity may have existed in 1906 when he and his sisters conveyed the premises to Powers and McCord. Thereupon the plaintiffs brought this action to recover the amount paid upon the contract, which the Appellate Division has awarded them. The judgment cannot be sustained.

The Civil Practice Act (Section 1371), states the subject of inquiry in cases of lunacy for the appointment of a committee. The inquiry with respect to incompetency must be confined to the question whether the person is so incompetent at the time of the inquiry; and testimony respecting any thing said or done by him, or his demeanor or state of mind, more than two years before the hearing or trial, shall not be received as proof of lunacy, unless the court otherwise specially directs in the order granting the commission or directing the trial by jury.

In Boschen v. Stockwell (224 N. Y. 356) we held, following the words of this statute, that the question of incompetency is limited and confined to the time of the inquiry, and that even if a jury should find that lunacy existed prior to that time, its verdict would be of no effect and without authority. The order of the County Court in the matter of William Taylor, the alleged incompetent person, dated June 30, 1924, ordered that a commission in the nature of a writ de lunático inquirendo be issued to inquire by jury whether the said William Taylor is an incompetent person, incapable of managing his property.” No other or further order was made or directed. The jury, however, went beyond their authority, found William Taylor to be a mental defective, and that such infirmity had existed and manifested itself over two years since childhood.” The Appellate Division recognized that under the provision of the Civil Practice Act, above referred to, and the Boschen case, this finding of the jury in itself had no effect upon any acts of the alleged incompetent prior to the date of the proceedings; the statement by the jury that the mental affliction had endured since childhood would not affect a title passing by deed in 1906. That court, however, was of the opinion that as one of the doctors on the hearing in the lunacy proceedings had stated as his opinion that William Taylor was incapacitated for transacting business affairs during his lifetime, this information thus imparted through a search of the records put purchasers upon their guard, or gave them notice that there was a possibility of setting aside the conveyances theretofore made by the alleged incompetent.

Such a holding would be most disastrous to real estate titles and make the sale of real property extremely difficult and uncertain. The doctor’s sworn statement, so far as giving notice is concerned, would be no different than knowledge acquired in any other way. The fact might appear from a statement by the doctor in ordinary conversation; it might creep out in affidavits filed on motions of various nature. In family disputes over property, or in divorce proceedings, the statement might appear of record that a prior grantor of property had been mentally defective all his life. That a proposed purchaser may have knowledge that someone, be he doctor or layman, claims such a fact, cannot justify the rejection of a title coming through such a grantor. To arrive at such a conclusion it is necessary to assume that the incompetent, or someone in his behalf, may set aside any conveyance which may have been made by him during a period of mental incompetency, or brain affliction. Such is not the law. An insane person, before office found, may convey a good title; his deed is not void, but voidable (Finch v. Goldstein, 245 N. Y. 300); and it is not even voidable as against bona fide purchasers for value without notice of the incompetency. (Mutual Life Ins. Co. v. Hunt, 79 N. Y. 541; Clark v. Mc Neal, 114 N. Y. 287; Jay v. Wilson, 91 Hun, 391; affd., 158 N. Y. 693; Sparrowhawk v. Erwin, 46 A. L. R. 413; 30 Ariz. 238; Edwards v. Miller, 102 Okla. 189; Ashcraft v. De Armond, 44 Iowa, 229; Odom v. Riddick, 104 N. C. 515.)

In this case the plaintiffs made no attempt to prove that the grantees of William A. Taylor in 1906 were not bona fide purchasers for value. They rested their case entirely upon the incompetency proceedings. In fact, the record shows, and the fair inferences to be drawn from it are, that both Powers and McCord had purchased the property in question for a fair price, and had no notice of any defective mental condition upon the part of William Taylor. His deed was duly executed, acknowledged and recorded. Although the result would in no way change a well-established principle of law, yet the consequences may be considered in our search for the law and in our efforts to determine what it is and has been. To hold that a mere doctor’s statement on incompetency proceedings renders unmarketable all titles passing through the alleged insane person as far back as the doctor, in his opinion, states the affliction to have existed, would unsettle the other twenty-five titles which have come down through William Taylor, and we know not how far such a ruling would cut into real estate ownership in this State.

Some emphasis has been placed by the respondents upon Brokaw v. Duffy (165 N. Y. 391). The facts not only evidenced some knowledge upon the part of the grantee of the weak-mindedness of the grantor, but this court specifically stated, that it was not dealing with the marketability of a title passing to a bona fide purchaser for value.

For the reasons here stated the judgment of the Appellate Division should be reversed, and the judgment entered upon the report of the official referee affirmed, with costs in the Appellate Division and in this court.

Caedozo, Ch. J., Pound, Lehman, Kellogg, O’Beien and Hubbs, JJ., concur.

Judgment accordingly.


source: Caselaw Access Project

author: Pound, J.

license: Public Domain

text:
    The People of the State of New York ex rel. Stanley Gellis, Appellant, v. The Sheriff of the County of Westchester et al., Respondents.

      (Argued April 19, 1929;
    decided May 28, 1929.)

      Louis Marshall and Walter E. Godfrey for appellant.
    The relator having been arrested in rendition proceedings which are based not on an indictment but upon affidavits, it was necessary that the latter should properly charge him with the commission of a crime in order to justify his arrest and rendition. (People ex rel. Lawrence v. Brady, 56 N. Y. 182; People ex rel. Corkran v. Hyatt, 172 N. Y. 176; 188 U. S. 691; People ex rel. De Martini v. McLaughlin, 243 N. Y. 417; People ex rel. Hayes v. McLaughlin, 247 N. Y. 238; People ex rel. Himmelstein v. Baker, 137 App. Div. 824; People ex rel. McSherry v. Enright, 112 Misc. Rep. 568; 196 App. Div. 964; Tanzer v. Breen, 139 App. Div. 10.) The rendition papers show on their face that no crime has been committed. The false pretense alleged to have been made consisted of the representation that the tobacco company shares were of the value of fifteen dollars per share. That was not a statement of fact, but one of opinion. Crime cannot be predicated thereon. (Van Slochem v. Villard, 207 N. Y. 587; Titus v. Poole, 145 N. Y. 425; Southern Development Co. v. Silva, 125 U. S. 256; Reid v. Schaffer, 249 Fed. Rep. 558; People v. King, 15 App. Div. 84; People v. Majorana,
      155 App. Div. 431; State v. Baker, 206 Mo. 643; Regina v. Levine, 10 Cox C. C. 374; People v. Cerrato, 99 Misc. Rep. 256; People v. Hart, 35 Misc. Rep. 185.)

      Frank H. Coyne, District Attorney (Harold Harper, H. Snowden Marshall and Murray F. Johnson of counsel), for respondents.
    The affidavit does not show that no crime has been committed. (People ex rel. Hayes v. McLaughlin, 247 N. Y. 238.) The law does not require that a statement of value must always be treated as an innocuous expression of opinion. (Titus v. Poole, 145 N. Y. 414; People v. Peckens, 153 N. Y. 576; Williams v. State, 77 Ohio St. 468; State v. Nash, 110 Kans. 550; Commonwealth v. Blood, 141 Mass. 571; People v. Jordan, 66 Cal. 10; State v. Grady, 147 Miss. 446; Sleeper v. Smith, 77 N. H. 337; State v. Knowlton, 11 Wash. 512; State v. Hooker, 99 Wash. 661; Smith v. Low, 18 Fed. Rep. [2d] 817; Southern Trust Co. v. Lucas, 245 Fed. Rep. 286; Garr v. Alden, 139 Mich. 440; Reg. v. Evans, 8 Cox C. C. 257; Smith v. Land & House Property Corporation, L. R. [28 Ch. Div.] 7.)
   Pound, J.

Relator is in custody under a warrant directing his surrender to the State of South Carolina in interstate rendition proceedings. (U. S. Const, art. IV, sec. 2, par. 2.) He has sued out a writ of habeas corpus, challenging the sufficiency of the complaining affidavit as a charge of crime.

The affidavit reads: That Stanley Gellis, on or about the 20th day of - January, 1928, by false pretense and false representations obtained from her, the said J. Louise Hill, certain property, consisting of valuable securities [reciting them], which were at said time of the value, in the aggregate, of not less than Forty-two thousand ($42,000.00) Dollars, with intent to cheat and defraud her, * * * contrary to the provisions of section 564 Criminal Code of South Carolina (1922), by representing to her that certain stock in a company known as the National Associated Tobacco Company * * * was worth the sum of Fifteeen ($15.00) Dollars a share at said time, when the same was actually worth not more than Five ($5.00) dollars a share at said time, which said representations were false and fraudulent, and known to the said Stanley Gellis to be false and fraudulent, and made with the intent to defraud her of her property and securities aforesaid.”

The defect relied on is that the affidavit of J. Louise Hill, the complaining witness, charges an expression of opinion only as to the value of the stock and so fails to state facts constituting a crime.

The question is whether the extradition papers required by the statute are in the proper form.” (Biddinger v. Commissioner of Police, 245 U. S. 128, 135.) The reasonable possibility that the act alleged to be a crime may be such in the demanding state must appear. Nothing more is required. (People ex rel. Hayes v. McLaughlin, 247 N. Y. 238; Drew v. Thaw, 235 U. S. 432, 440.) While it has been said that a complaining affidavit requires a higher degree of certainty and calls for closer scrutiny than an indictment for the same offense (People ex rel. Lawrence v. Brady, 56 N. Y. 182; People ex rel. de Martini v. McLaughlin, 243 N. Y. 417), an affidavit which appears to be full, definite and specific, and is made on knowledge, and not on information and belief, should be held sufficient as a charge of crime.

Criminal and civil liability for what may be regarded as fraudulent expressions of opinion is by no means well-defined. (3 Williston on Contracts, §§ 1491-1494.) In this State the rule has been stated generally that false representations of the seller as to value are no more than expressions of opinion and that the purchaser must rely on his own judgment in acting thereon. A false statement of the value of property made by the vendor for the purpose of obtaining a higher price will not sustain an action for fraud.” (Van Slochem v. Villard, 207 N. Y. 587; Ellis v. Andrews, 56 N. Y. 83.) At the same time, it has been said in People v. Peckens (153 N. Y. 576, 591) that a statement of value by the seller may, even in a criminal case, be an affirmation of a fact when the value is peculiarly within the knowledge of the person making it, is known to be untrue and is intended to induce the purchaser to forbear from making inquiries which he otherwise would make. Similarly it has been held that mere promissory statements as to what will be done in the future, not in themselves actionable, may be deemed to be false statements of material existing facts if such statements falsely represent the promisor’s state of mind. The state of a man’s mind is a fact which may be the subject of a false representation. (Deyo v. Hudson, 225 N. Y. 602, 612, 613.)

It is thus conceivable that even in New York a false statement of value may be held to be a false statement of an existing fact and not mere opinion or seller’s talk, the distinction resting on the mental state of the one who makes the false statements and the effect thereof on the conduct of him to whom they are made. The distinction, if it exists, is somewhat technical but it may be sufficient to present a question for the jury..

The question is not, however, as to the law of New York but of the law of the demanding State on the subject. The statute of South Carolina is not a part of the record. The test has recently been stated with care and precision by this court, writing through Cardozo, Ch. J. If by any standard of criminal justice that can rationally be supposed to prevail in the demanding jurisdiction the facts set forth state the substance of a charge of crime, the relator must be surrendered. (People ex rel. Hayes v. McLaughlin, supra.) Applying this test, we must ask ourselves whether a sister State may reasonably be assumed to have enacted a statute which punishes as criminal a false representation as to value made with " intent to cheat and defraud ” another. If it would be so unreasonable as to border on the ridiculous to assume, in the absence of proof, that a sister State has departed widely from the general principles of criminal law, we may not be called upon to draw such an inference from the mere fact of a requisition. Here, however, the act charged is morally reprehensible, even though no criminal or civil liability attaches to it at common law. The criminality of an act is, to some extent, a matter of time and place. Obtaining goods by false pretenses was first made a misdemeanor by act of Parliament in 1757. The courts soon limited the application of the statute to false pretenses as to some existing fact, and excluded mere promises and opinions from its scope on the theory that it was complainant’s folly to give credit to such assertions. (3 Stephen’s History of the Criminal Law of England, 160.) As Parliament extended the common law of larceny to cover false pretenses as an independent crime, so it is quite possible that the demanding State has extended it so as to cover false pretenses as to values by the seller when made with, intent to cheat and defraud the purchaser. It is not for this State to apply its own rules of criminal law and procedure to the case nor to make a critical examination of the law of the demanding State to solve the problem. It cannot be said that a reasonable basis is altogether lacking for the assertion of the demanding Governor that the acts charged are made criminal in his State by statute, nor can it be said that such acts carry a universal implication of innocence, or even of no legal liability, rather than crime.

The order appealed from should be affirmed.

Cardozo, Ch. J., Crane. Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Order affirmed.


author: O’Brien, J.

text:
    In the Matter of the Accounting of William F. Clare, as Surviving Trustee, under the Will of William Brennan, Deceased, Appellant. Margaret Brennan, Respondent.
    (Argued April 17, 1929;
    decided May 28, 1929.)

      Frederick A. Gill for appellant.
    The surrogate had not power to modify the decree on any of the grounds stated in the motion papers. (Matter of Starbuck, 221 App. Div. 702 ; 248 N. Y. 555; Matter of Monteith, 27 Misc. Rep. 163; Matter of Walrath, 37 Misc. Rep. 696; Matter of Humfreyville, 8 App. Div. 312; Matter of Soule, 72 Hun, 594; Matter of Starbuck, 221 App. Div. 702; 248 N. Y. 555; Brick’s Estate, 15 Abb. Pr. 12; Matter of Hawley, 100 N. Y. 206; Matter of Dey Ermand, 24 Hun, 1; Matter of O’ Neil, 46 Hun, 500; Thomas L. & T. Co. v. Hill, 4 Dem. 250.) The trustee was entitled, under section 285 of the Surrogate’s Court Act, as an item of his commissions, to five per centum on the rents collected for the premises on West Sixty-third street. (Matter of Rutledge, 162 N. Y. 31; Matter of Dutcher, 102 App. Div. 410; Stevens v. Melcher, 152 N. Y. 551; Cook v. Lowry, 95 N. Y. 103; Wheelwright v. Rhoades, 28 Hun, 57; Matter of Curtis, 9 App. Div. 285; Matter of Ingersoll, 95 App. Div. 211; Matter of Welling, 51 App. Div. 355; Matter of Mathewson, 8 App. Div. 8; Collier v. Mum, 41 N. Y. 143.)

      Joseph H. Kohan for respondent.
    The surrogate had power to resettle the decree. (Matter of Shouts, 229 N. Y. 374; Matter of Henderson, 157 N. Y. 423; Matter of Connor’s Estate, 119 Misc. Rep. 630; Matter of Klugh, 176 App. Div. 187; Matter of Starbuck, 221 App. Div. 702; 248 N. Y. 555.) The trustee was not entitled to the additional five per cent commission provided for by section 285 of the Surrogate’s Court Act. (Matter of Knight, 124 Misc. Rep. 430; City of Newburgh v. Dickey, 164 App. Div. 791.)
   O’Brien, J.

Appellant is the surviving trustee of three separate trusts created by the will of William Brennan, and respondent is the beneficiary under one of them. Included in the principal of each trust fund is an interest in the real property situated at 22 West Sixty-third street in the borough of Manhattan. The surrogate’s decree on the judicial settlement of the trustee’s account for the year 1924 allowed him as commission on respondent’s income a sum including five per cent on an item of $3,000, representing her share of the rent for the Sixty-third street property. Pursuant to section 285 of the Surrogate’s Court Act, it was allowed on the theory that, in addition to collecting rent, the trustee was required to manage the property. Respondent’s motion for an order modifying the decree was granted to the extent of disallowing the additional five per cent for managing. This modification is based upon the conclusion that the terms of the lease for those premises, which was not before the surrogate on the original settlement, relieve the trustee from management. Appellant urges that the surrogate was without power to modify and that, in any event, the original decree was correct.

Section 20, subdivision 6, of the Surrogate’s Court Act confers power upon a surrogate to modify a decree for fraud, newly-discovered evidence, clerical error or other sufficient cause, but limits the exercise of such power to that of a court of general jurisdiction in a like case. No fraud or clerical error is here charged and the presentation of a lease with which the parties were acquainted at the time of the original decree does not constitute newly-discovered evidence.

The inquiry must, therefore, b'e directed to the question whether; upon the introduction of such a document as was at all times available but theretofore withheld, a court of general jurisdiction may consider such evidence " sufficient cause ” to warrant a modification or vacatur of its own judgment or order and is empowered to recon-

sider, set aside and reverse iti. We think that no court has such power. None of the reported cases recognize it and, on principle, it cannot be held to exist. In Matter of Flynn (136 N. Y. 287) the order opening the decree was made on the ground of fraud. The opinion in Matter of Henderson (157 N. Y. 423) shows that the decision is restricted to a state of facts where an executor committed a manifest clerical or arithmetical error in calculation and it holds that the Surrogate’s Court, like every other court, has inherent power to correct its own records when they are affected by some clerical error. In Matter of Shonts (229 N. Y. 374) an order was granted ex parte under such conditions as to lead the surrogate to vacate it two days later upon the allegation that it had been obtained through the practice of gross deception and misrepresentation ” and upon proof that it had been mistakenly made by reason of a lack of candor on the part of the moving party and by reason of such a misapprehension on the part of the court as cannot be said to be inexcusable. A new order was granted upon the production of a document which either must have been newly-discovered evidence as far as the party who had previously moved ex parte was concerned, or the knowledge or belief in the existence of which must have been suppressed by her under such disingenious circumstances as perilously to approach the point of fraud. In the case before us the original decree was entered after service of citation upon respondent, as in Matter of Tilden (98 N. Y. 434), upon facts known to all the parties and without the practice of any deception or misrepresentation due to lack of candor or other omission. A very recent case (Matter of Starbuck, 248 N. Y. 555) deals with the same principle as the one now before us. There we held that a surrogate may not reconsider and modify his decree by the reduction of an allowance previously made to counsel. If the surrogate committed any error in this proceeding, it was an error of law and could be corrected only on appeal. Section 20 vests him with jurisdiction to modify or vacate only in respect to the things specified in that statute and for causes of a like nature. (Matter of Hawley, 100 N. Y. 206, 211; Matter of Henderson, supra.)

As we interpret the word manage ” as used in section 285 of the Surrogate’s Court Act, the original decree is correct. The statute provides: "Where a trustee or executor is, by the terms of the instrument, required to collect the rents and manage real property, he shall be allowed and may retain, five per centum of the rents collected therefrom, in addition to the commissions herein provided.” William Brennan’s will does not appear in the record, but the surrogate in the modified decree has disallowed the five per cent on the ground that by the terms of the lease the trustee was relieved from management of the West Sixty-third street property and merely collected the rents. Respondent’s argument in support of the contention that the original decree was erroneous rests wholly upon the covenants in the lease. By that lease, the primary obligation is imposed upon the tenant to make repairs, take out insurance, pay taxes and comply with all laws, orders and ordinances of the Federal, State and municipal governments, but the ultimate responsibility for such administration remains with the trustee. In the event of failure by the tenant to perform the duties which it has assumed by the lease, other covenants of that instrument empower the trustee to discharge them. He may enter upon the premises and do any work or thing necessary to comply with the law; he is authorized to pay taxes and to take out insurance at the tenant’s expense; he may make repairs; he is per- • mitted at all times during usual business hours to inspect the premises; he is empowered to grant or refuse his written consent to an assignment or mortgage of the lease; he may re-enter and take possession and institute summary proceedings or other suitable action, discharge liens and, in short, upon default in performance of any covenant by the tenant, perform without notice for the account of the tenant. The entire responsibility for directing, supervising, overseeing, administering and controlling the property belongs to the trustee. He cannot lawfully evade such responsibility, and its exercise constitutes management within the intent of the statute.

The order of the Appellate Division and the decree of the Surrogate’s Court should be reversed, and the original decree reinstated, with costs in the Appellate Division and in this court.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and Hubbs, JJ., concur.

Ordered accordingly.


author: Cardozo, Ch. J.

text:
    Catherine Killian et al., Respondents, v. Metropolitan Life Insurance Company, Appellant.

      (Argued April 22, 1929;
    decided May 28, 1929.)

      Richard C. S. Drummond and Martin T. Nachtmann for appellant.
    The acts which the defendant did in the premises were sufficient to constitute a “ contest ” as matter of law. (Mutual Life Ins. Co. v. Hurni Packing Co., 280 Fed. Rep. 18; 263 U. S. 167; McCormack v. Security Mut. Life Ins. Co., 220 N. Y. 447; Piasecki v. Met. Life Ins. Co., 214 App. Div. 852; 243 N. Y. 637.) There is no sound basis for a rule that a contest can be made only by suit to cancel, or by defense interposed, during the contestable period. (Globe Mutual Life Ins. Co. v. Reals, 79 N. Y. 202.)

      John J. Finn for respondents.
    The incontestability clause survived the death of the insured herein on October 20, 1924, and continued thereafter in effect for the benefit of the beneficiaries. (Mutual Life Ins. Co. v. Hurni

      Packing Co., 263 U. S. 167; Piasecki v. Metropolitan Life Ins. Co., 214 App. Div. 852; 243 N. Y. 637; Krauza v. Golden Seal Society, 221 App. Div. 380; 247 N. Y. 536; Dee v. Metropolitan Life Ins. Co., 219 App. Div. 790; Parton v. Metropolitan Life Ins. Co., 129 Misc. Rep. 493; 224 App. Div. 672; Sexton v. Equitable Life Assur. Society, 130 Misc. Rep. 362; 223 App. Div. 738; Wolpin v. Prudential Ins. Co., 223 App. Div. 339; Travelers Ins. Co. v. Snydecker, 127 Misc. Rep. 66; Lunger v. N. Y. Life Ins. Co., 131 Mise. Rep. 42.) The contest contemplated by the incontestability clause of a life insurance policy is a law suit. (Wolpin v. Prudential Ins. Co., 223 App. Div. 339; Travelers Ins. Co. v. Gottlieb, N. Y. L. J. Dec. 29, 1920; Travelers Ins. Co. v. Snydecker, 127 Misc. Rep. 66; Dee v. Metropolitan Life Ins. Co., 219 App. Div. 790; Parton v. Metropolitan Life Ins. Co., 129 Misc. Rep. 493; 224 App. Div. 672; Telford v. Metropolitan Life Ins. Co., 223 App. Div. 175; Wright v. Mutual Benefit Life Assn., 43 Hun, 61; 118 N. Y. 237; Krauza v. Golden Seal Society, 221 App. Div. 380.)
   Cardozo, Ch. J.

The defendant issued to George Killian its policy of insurance upon his life, dated November 28, 1923, payable to Victoria Killian, his wife, the insured being at liberty to change the beneficiaries. He did change them thereafter by indorsement on the policy. The insurance thus became payable to his wife and his four children, or the survivors, in equal shares. One of the clauses of the policy was the following: “ Incontestability — This policy (and the application therefor) constitutes the entire contract between the parties and, except for non-payment of premiums, shall be incontestable after two years from the date of its issue,” i. e., after November 28, 1925.

The insured died October 20, 1924, survived by his wife and his four children. Proof of claim was filed by the wife. Promptly, in November, 1924, the defendant gave notice that it denied liability on the ground of breach of warranty and fraud. Thereafter in March, 1925, the defendant received from the wife a general release and paid her in return $107, the premiums collected during the life of the insured.. No money was paid to the children, who were minors, ranging in age from ten to eighteen years. No release or other document was signed by the children or by any one in their behalf. The accord and satisfaction, even if binding on the wife, was ineffective as to them (Foley v. Mut. Life Ins. Co., 138 N. Y. 333).

This action was begun on February 23, 1928. The plaintiffs were the wife, the three children then surviving, and the administratrix of a child who had died in 1926. Judgment was demanded for the amount of the policy with interest. The defendant answered with defenses of fraud, breach of warranty, and accord and satisfaction. Thereupon the surviving children and the administratrix of the deceased child moved to sever their cause of action from the cause of action, if any, belonging to the wife, and for judgment in their favor to the extent of their proportion of the policy. The motion was denied at the Special Term, but granted at the Appellate Division, which rendered judgment accordingly. An appeal followed to this court.

The rule is now settled that under a policy in this form a contest by the insurer is too late if begun after two years from the date of issue, though within the time allowed for contest the insured has died (Piasecki v. Met. Life Ins. Co., 243 N. Y. 637; Mut. Life Ins. Co. of N. Y. v. Hurni Packing Co., 263 U. S. 167). In reaching that conclusion, there has been adherence to the rule that “ in case of ambiguity that construction of the policy will be adopted which is most favorable to the insured ” (Mut. Life Ins. Co. of N. Y. v. Hurni Packing Co., supra). The question is still open how a contest may begin. For the defendant, the contention is that a definitive notice of rejection without more will make out a contest within the meaning of the policy. Support for that view will be found in some decisions (N. Y. Life Ins. Co. v. Weight, 29 Fed. Rep. [2d] 318; Great Southern Life Ins. Co. v. Buss, 14 Fed. Rep. [2d] 27; Feierman v. Eureka Life Ins. Co., 279 Penn. St. 507). For the plaintiffs, the contention is that notice of rejection is unavailing unless followed within the prescribed time by contest in a court. This view is upheld by most of the decisions in which the point has been considered ( Northwestern Mut. Life Ins. Co. v. Pickering, 293 Fed. Rep. 496; cert, denied,. 263 U. S. 720; Rose v. Mut. Life Ins. Co. of N. Y., 19 Fed. Rep. [2d] 280; Powell v. Mut. Life Ins. Co. of N. Y., 313 Ill. 161; Thistle v. Eg. Life Assur. Soc., 149 Tenn. 667, 670; Am. Trust Co. v. Life Ins. Co. of Va., 173 N. C. 558, 568; Wolpin v. Prudential Ins. Co. of America, 223 App. Div. 339; Travelers Ins. Co. v. Snydecker, 127 Misc. Rep. 66; Lee v. Metropolitan Life Ins. Co., 219 App. Div. 790; Telford v. Metropolitan Life Ins. Co., 223 App. Div. 175, dictum; Wright v. Mut. Benefit Life Assn., 43 Hun, 61; 118 N. Y. 237, dictum). Choice must now be made between the one view and the other.

We think a notice of rejection without more is not the beginning of a contest within the meaning of the contract. Much can be said in favor of a different holding. In the presence of ambiguity we adhere to the construction adverse to the insurer. Repudiation of a policy is notice that a contest will ensue if insured or beneficiary shall make attempt thereafter to enforce a claim of right. It is not a contest of itself. Repudiation before maturity (the subject of the contract being a policy of insurance) is not even such a breach as will sustain a remedy at law for the recovery of damages (Kelly v. Security Mut. Life Ins. Co., 186 N. Y. 16), though it may be the occasion for a declaratory judgment or other remedy in equity. Repudiation after maturity is a step closer to resistance, but it is not resistance by course of law. From the viewpoint of .the law, a contest in its proper meaning is still the contestatio of the Romans, or something close thereto. The word is redolent of association with witnesses and writs (cf. Buckland, Text of Roman Law, s.v. litis contestatio; Oxford Dictionary, s.v. litis-contestation; 3 Blackstone, Comm. 296).

Repudiation is, indeed, an act too uncertain, one resting too often in biased recollection, to be accepted as the equivalent of ordered battle in the courts. The value of a clause declaring a policy incontestable lies to no slight degree in the definiteness of the protection accorded to the holder. The good that it promises is in part a state of mind. After the lapse of two years the insured is no longer to be harassed by the fear that the policy will be avoided by interested witnesses asserting in later days that there was a disclaimer long ago. After a like lapse the beneficiaries are no longer to be subjected to the risk of forfeiture through notices or warnings that may be hard to disprove when the insured is in his grave. Alike for insured and for beneficiaries, there is to be the peace of mind that is born of definiteness and certainty. The clause, in effect, if not in form, is a statute of limitations, established by convention, and like the statute is directed to remedies in court (Wright v. Mut. Benefit Life Assn., supra).

A contest, then, begins when the insurer avoids, or seeks to avoid, the obligation of the contract by action or defense. If the insured or the beneficiary is plaintiff, suing to declare the policy in force or to recover money due, the contest takes its start when the insurer serves an answer disclaiming liability. If insured and beneficiary hold back, preferring to wait till the time for contest has expired, the point of beginning is the time when the insurer sues in equity to declare the policy annulled (Cohen v. N. Y. Mut. Life Ins. Co., 50 N. Y. 610, 625). There are said to be practical difficulties in apply-

ing such a formula. The 'policy may be payable to the estate of the insured, and the personal representatives may not be named till the expiration of the time permissible for contest. These and like complications will be unraveled when they develop. There is support for the conclusion that by fair implication the non-existence of parties amenable to suit will extend the limit of time within which suit may be begun (Northwestern Mut. Life Ins. Co. v. Pickering, supra; cert, denied, 263 U. S. 720; cf. Crapo v. City of Syracuse, 183 N. Y. 395; Oswego, etc., R. R. Co. v. State, 226 N. Y. 351, 360). For present purposes it is enough to say that a contest begins when the contestants, satisfied no longer with minatory gestures, are at grips with each other in the arena of the fight. When the fight is a civil controversy, the arena is the court.

Nothing now decided is to be read as affecting the validity of an accord and satisfaction between parties capable of contracting, or of a release or surrender as part of an agreement of rescission (Sexton v. Equitable Life Assur. Soc., 248 N. Y. 646). Here there was neither capacity on the part of the infants to release their cause of action, nor tender of value to them or to any guardian of their property. The wife took the premiums for herself and no one else. She was not even the administratrix of the estate of the insured. Release or rescission, however effective as to her, was void as to the plaintiffs.

The judgment should be affirmed with costs.

Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ.,' concur.

Judgment affirmed.


author: Hubbs, J.

text:
    Herman Gerka, Appellant, v. The Fidelity and Casualty Company of New York, Respondent.

      (Argued April 30, 1929;
    decided May 28, 1929.)

      William F. McNulty, Harold R. Medina, Jacquin Frank and David M. Fink for appellant.
    A fair and reasonable interpretation of the conditions of the policy requires a holding that the defendant was not relieved of liability under the circumstances here presented. (Bushey & Sons v. American Insurance Co., 237 N. Y. 24; Silverstein v. Commercial Casualty Insurance Co., 237 N. Y. 391; Paskusz v. Phila. Casualty Co., 213 N. Y. 22; Michael v. Prussian Nat. Insurance Co., 171 N. Y. 25; Janneck v. Metropolitan Life Ins. Co., 162 N. Y. 574; Zivitz v. Maryland Casualty Co., 192 App. Div. 83; Finucane v. Standard Accident Ins. Co., 184 App. Div. 280; Marshall v. Commercial Travelers Acc. Assn., 170 N. Y. 437; Paul v. Travelers Ins. Co., 112 N. Y. 477; Byrd v. St. Paul Fire & Marine Ins. Co., 224 N. Y. 407.) By its acts and conduct in defending the personal injury action the defendant must be deemed to have waived the provisions of the condition in its policy. In any event the issue of waiver raised a question of fact for the jury. The Appellate Division, therefore, erred in dismissing the complaint. (Miller v. Union Indemnity Co., 209 App. Div. 455; Farrell v. Merchants M. A. L. Ins. Co., 203 App. Div. 118; Utterback-Gleason Co. v. Standard Acc. & Ins. Co., 193 App. Div. 646; 233 N. Y. 549; Sachs v. Indemnity Casualty Co., 170 App. Div. 494; Rosenblum v. Indemnity Casualty Co., 153 App. Div. 23.)

      Edward P. Mowton for respondent.
    The judgment in the damage action having been based upon the theory that plaintiff’s injuries were due to the negligence of an employee of the insured while driving a horse attached to a wagon, and the age of that employee having been found to be under sixteen years, the condition of the policy was breached and the insurance company released from liability. (Richard v. Credit Suisse, 242 N. Y. 346; Gordon v. Mass. Bonding & Insurance Co., 229 N. Y. 424; Grant v. Knepper, 245 N. Y. 158.)
   Hubbs, J.

The plaintiff recovered a judgment against the Eagle Wet Wash Laundry Company, a corporation, in an action for personal injuries caused by one of its vehicles. The laundry company was insolvent and an execution issued against it was returned unsatisfied. The defendant insurance company had issued a teams' liability policy to the laundry company, insuring it against loss and damage growing out of injury to third persons by its horse-drawn vehicles. The policy contained a provision that, in case of the insolvency of the laundry company, a judgment creditor, in an action against it, who had recovered a judgment against it for a loss covered by the policy, might maintain an action against the insurance company to recover such loss, subject, however, to all the terms and conditions of the policy.

The policy in question contains a clause, referred to as Clause B,” which reads:

B — This policy does not cover loss from liability for, or any suit based on, injuries or death caused by any draught animal, driving animal, or vehicle while being driven by or while in charge of any person who is either under the age fixed by law for drivers, or who is in any event under the age of sixteen years.”

This action is defended upon the ground that the vehicle which injured the plaintiff was, at the time, in charge of and the horse was being driven by a boy under sixteen years of age.

The defendant is entitled to avail itself of any defense, in this action brought against it by a judgment creditor, which it could have urged in defense of an action against it brought by the insured. (Coleman v. New Amsterdam Casualty Co., 247 N. Y. 271; Weatherwax v. Royal Indemnity Co., 250 N. Y. 281.)

Shortly before the accident a driver named Selesnik left the insured’s place of business with a horse and wagon for the purpose of picking up laundry. His helper, a boy named Pagano, under sixteen years of age, was with him. The driver drove in front of a house, got off the wagon and went into the house to get some laundry. The boy, Pagano, was left on the wagon. The driver left the reins fastened to the dashboard. The wagon stood out about seven or eight feet from the curb. Ths boy took hold of the reins to drive the rig nearer the curb and while the rig was moving the plaintiff was injured.. He recovered a judgment against the insured for such injuries. Upon the trial of this action against the insurance company the learned trial justice left it to the jury to determine as a question of fact whether plaintiff’s injuries were caused by a “ vehicle while being driven by or while in charge of any person * * * under the age of sixteen years ” within the meaning of the policy. The jury found in favor of the plaintiff. The Appellate Division has decided to the contrary, holding as a matter of law that liability for the injuries in question was not covered by the policy. As the judgment was reversed by the Appellate Division upon the law and the facts and the complaint dismissed, it is necessary for this court to determine whether a question of fact is presented by the evidence.

The jury might have found from the evidence that the president of the insured was familiar with the clause of the policy in question and that he had given strict instructions that no helper was to be allowed to drive. He had never seen the boy, Pagano, on a wagon without a driver being present and had never seen him drive. Every wagon had a driver and a helper, whose business it was to remain with the wagon and watch the wagon when the driver was absent gathering up packages of laundry and to see that the bundles in the wagon were not stolen. There was a rule in the plant that no driver is to allow his helper at any time to touch the reins to drive.” Drivers were employed for that purpose. The driver, Selesnik, and the boy, Pagano, each testified that at the time of the accident the driver was in charge of the wagon, and that the boy was left, when the driver went for laundry, to watch the wagon and the laundry in it. As the verdict of the jury was in favor of the plaintiff it must be assumed that the facts were found as stated:

The policy was prepared by the defendant and, in case of ambiguity, must be construed against it. (Marshall v. Commercial Travelers Mut. Accident Assn., 170 N. Y. 434; Michael v. Prussian National Insurance Co., 171 N. Y. 25; Bushey & Sons v. American Insurance Co., 237 N. Y. 24.)

The defendant contends that it is not fiable because a boy under sixteen years of age had hold of the reins and was guiding the horse at the time of the accident. Under that construction of the policy the defendant would not be liable if a boy on the street under sixteen years of age had jumped on the wagon, started the horse and injured someone. We think that construction is not justifiable. The policy is intended to indemnify the assured against a loss suffered because of an injury to a third person by one of its vehicles. If such a loss is caused by a boy under sixteen years of age over whom the insured has no control, by starting a horse, the policy covers the loss. If the insured permits a boy under that age to drive a vehicle and have charge of it, and an injury results to a third person, the policy does not cover.

The insured furnished a proper driver, placed him in charge of the rig, gave strict instructions that the helper was not to be allowed to drive, and had a rule “ that no driver is to allow his helper at any time to touch the reins to drive.” The boy did touch the reins in violation of instructions without the knowledge or consent of the insured or the driver. He was a volunteer acting on his own initiative, and his act was no more binding upon the insured, within the meaning of the policy, than would have been the same act if performed by a boy on the street.

The clause in question was undoubtedly placed in the policy to protect the insurer from the extraordinary hazard caused by placing young boys in charge of horses. The average person in reading the policy would so understand it.

No question of waiver is involved in this case, as clause B of the policy excepts the risk therein referred to from coverage by the policy. It provides that the policy does not cover in case of an injury to a person by a vehicle while being driven by or in charge of a person under sixteen years of age. (Draper v. Oswego County Fire Relief Association, 190 N. Y. 12.)

In any event there was a question of fact which should have been submitted to the jury to determine. That is, whether the defendant had estopped itself from relying on the provision of the policy in question by defending the negligence action with knowledge that the boy Pagano was under sixteen years of age at the time of the accident. A month before the trial of the negligence action, Pagano told the attorney for the defendant his age. The attorney then wrote a letter to the insured, stating that he had just learned that Pagano, at the time of the accident, was under sixteen years of age. He then stated: “ Under the circumstances, we are hereby advising you that further handling of this case on our part in behalf of The Fidelity & Casualty Company of New York, is being done under a full reservation of all policy rights, pending a complete and thorough investigation of all the facts connected with the matter.”

The jury might have found that thereafter the president of the insured called upon the attorney for.the defendant and said: “I told Mr. Diggins that on the advice of my counsel we could not accept their reservation: that we paid for a policy and did not intentionally breach that policy, and we would hold them to it and that they would either protect us' under the policy or we would take our own lawyer and hold them liable for whatever we might lose thereby.”

The defendant did not at any time offer to turn over the papers in the action to the insured. It continued with the defense of the action, paid the witness fees, conducted the trial, appealed to the Appellate Division, and offered to pay the plaintiff a sum of money to settle the action. Its conduct was inconsistent with its later claim of non-liability under the policy. When it proceeded with the defense of the negligence action, with knowledge of its claimed defense under the policy, it made its election and estopped itself from now urging that defense. (Utterback-Gleason Co. v. Standard Accident Ins. Co., 193 App. Div. 646; affd., 233 N. Y. 549; Miller v. Union Indemnity Co., 209 App. Div. 455.)

The decision of this court in Mason-Henry Press v. Æna Life Ins. Co. (211 N. Y. 489), relied upon by the learned trial justice, is not in conflict. In that case the insurer was not informed that the boy whose negligence caused the injury was under sixteen years of age until the trial of the case. To the same effect is the case of Gordon v. Massachusetts Bonding & Insurance Co. (229 N. Y. 424).

The judgment of the Appellate Division in so far as it dismisses the complaint should be reversed and a new trial granted, with costs to abide the event.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and O'Brien, JJ., concur.

Judgment accordingly.


text:
    Sigmund Gutfreund et al., Copartners under the Firm Name of Gutfreund's Olympia Market, Respondents, v. The East River National Bank, Appellant, Impleaded with Others.

      (Argued April 22, 1929;
    decided May 28, 1929.)

      John J. Curtin and Wesley S. Sawyer for appellant.
    Plaintiffs signed and delivered to an employee to be issued by him the checks with blank spaces thereon for the payee’s name, and left to him, and tacitly authorized him, to fill In the blank spaces and issue the checks in course of business; and plaintiffs are bound by the acts of its employee in filling in the blank spaces. (Trust Co. of America v. Conklin, 65 Misc. Rep. 1; Linick v. Nutting & Co., 140 App. Div. 265; Timbel v. Garfield Bank, 121 App. Div. 870; Macmillan v. London Bank, L. R. [A. C. 1918] 777; Young v. Grote, 4 Bing. 253; Critten v. Chemical Nat. Bank, 171 N. Y. 219; Gallo v. Brooklyn Bank, 199 N. Y. 222; Nat. Surety Co. v. Bank of Manhattan Co., 133 Misc. Rep. 48; Nat. Exchange Bank v. Lester, 194 N. Y. 461; Ehrich v. Guaranty Trust Co., 194 App. Div. 658; Tri-Bullion Co. v. Corliss, 186 App. Div. 613.) Plaintiffs were charged each month with notice that their checks were being filled in with a fictitious name as payee. (Critten v. Bank, 171 N. Y. 219; Myers v. Bank, 193 Penn. St. 1; Stumpp v. Bank, 212 App. Div. 608; Morgan v. U. S. Mortgage Co., 125 App. Div. 22; North British Ins. Co. v. Bank, 161 App. Div. 341.)

      William F. Unger and David J. Colton for respondents.
    The plaintiffs were not negligent in signing the checks. (Shepard & Morse Lumber Co. v. Eldridge, 171 Mass. 516; People’s Trust Co. v. Smith, 215 N. Y. 488; Nat. Exchange Bank v. Lester, 194 N. Y. 461.) The plaintiffs were not negligent in failing to discover the forgeries from an inspection of the other returned canceled checks. (Critten v. Chemical Nat. Bank, 171 N. Y. 219; Am. Ex. Nat. Bank v. Yorkville Bank, 122 Mise. Rep. 616; 21Ó App. Div. 885; Spiegel Realty Corp. v. Gotham Nat. Bank, 121 Mise. Rep. 547; Welsh v. German-American Bank, 73 N. Y. 424; Shipman v. Bank of State of N. Y., 126 N. Y. 318; Leff v. Security Bank, 93 Mise. Rep. 139; Kleinman v. Chase Nat. Bank, 124 Mise. Rep. 173; People’s Trust Co. v. Smith, 215 N. Y. 488.) Even if we were to assume that the plaintiffs were negligent, they are, nevertheless, entitled to recover because the appellant itself was negligent in cashing the checks. (Critten v. Chemical National Bank, 171 N. Y. 221; Ward v. City Trust Co., 192 N. Y. 61; Hanover Bank v. American Dock & T. Co., 148 N. Y. 612; Park Hotel Co. v. St. Louis Fourth National Bank, 86 Fed. Rep. 742; Farmers’ Bank v. Germania Life Ins. Co., 150 N. C. 770; Claflin v. Farmers’ & Citizens’ Bank, 25 N. Y. 293; Interboro Brewing Co. v. Doyle, 165 App. Div. 646.)
   Pound, J.

The case comes before us on an action to recover damages for the payment of nine fotged and altered checks, out of thirty-nine of like purport originally sued on. These nine are the later checks of a series covering a period of about one year and three months. The earliest is dated September 11, 1923; the latest January 22, 1924. Plaintiffs have had judgment thereon with interest for $2,183.48.

The facts out of which the litigation arises are as follows: Plaintiffs conducted a wholesale and retail meat market as partners under the firm name and style of Gutfreund’s Olympia Market. They bought provisions from various well-known wholesale dealers, including Swift & Co., E. C. Swift & Co., Cudahy Packing Co., and Morris & Co. They had a business checking account with the Commercial Trust Co., now merged with the defendant East River National Bank. They had a bookkeeper, John Hunold, whose duty it was to receive the bills for meat from the dealers, make out checks for their payment drawn on the Commercial Trust Co., enter the names of the dealers and the amounts of the checks on the check stubs, attach each bill to the check in payment therefor and present them to Sigmund Gutfreund, one of the members of the firm, for signature. Hunold would present from eight to twelve checks with the accompanying bills for signature at one time. Gutfreund would sign the checks and Hunold would mail them to the proper parties. Hunold was dishonest. In a bunch of checks payable to dealers he would present one check drawn to the order of “ Swift ” instead of Swift <fc Co.” or “ Cudahy ” instead of “ Cudahy Packing Co.” attached to a regular bill which had been paid, the amount of which was the same as that of the fraudulent check. The check stub would bear the name of the firm in the proper form. Gutfreund would sign these checks in the belief that they were intended for the dealer whose name they bore. He did not intend them as checks payable to a fictitious person and thus to bearer. (Negotiable Instruments Law [Cons. Laws, ch. 38], § 28, ^[ 3.) A sufficient space was left on the check before the name Swift ” or Cudahy ” to enable Hunold to insert an initial. Hunold then wrote an initial before the name, so it would appear as C. Swift ” or C. Cudahy ” or the like, indorsed the fictitious name and his own name on the back of the checks and presented them to the paying teller of the bank who cashed the checks for him. He converted the money to his own use. Hunold kept the firm’s books and looked after the returned vouchers and thus concealed his criminal acts from his employers.

No claim is made that the bank is not liable under section 326 of the Negotiable Instruments Law, for the bank was notified of the forgery of the checks in suit within one year after the return of the vouchers of such payments.

The first question is whether plaintiffs were at fault ■ in signing the checks. As the bank and the depositor are under a contractual relation in this matter (Gallo v. Brooklyn Savings Bank, 199 N. Y. 222) the depositor in drawing checks is bound to take usual and reasonable precautions to prevent forgery, although he is not required so to prepare the check that no one can successfully tamper with it. “ The drawer of a check may be liable where he draws the instrument in such an incomplete state as to facilitate or invite fraudulent alterations.” (Critten v. Chemical Nat. Bank, 171 N. Y. 219, 224.)

The question as to what is negligence facilitating alterations has given rise to much discussion. In the leading case of Young v. Grote ([1827] 4 Bing. 253) a ' depositor in a bank signed a blank check and left it with his wife to be filled up as required. ’ The wife directed a clerk to fill it up for £52 2s. He did so and showed it to her. She then instructed him to get it cashed. He increased the amount of the check by £400, inserting the necessary figure and words in spaces which he had left for that purpose and drew the larger sum from the bank. It was held that the customer and not the bank should suffer the loss. Reasonable care must be used to prevent forgery and lack of reasonable care was shown. Although the application of the rule of care to the facts in Young v. Grote has been limited, as casting too great a burden on the depositor by requiring him to close up all spaces which might be utilized by a forger for the purpose of alterations (Colonial Bank v. Marshall, [1906] A. C. 559, 568), and the case has been characterized by Esher, M. R., in Scholfield v. Londesborough ([1895] 1 Q. B. 536, 543) as the fount of bad argument,” it still states the principle to be applied to blanks left unfilled in checks either as to names, figures or words. (London Joint Stock Bank v. MacMillan, [1918] A. C. 777, 821.) The rule as to other negotiable paper and other relations may be less strict. (National Exchange Bank v. Lester, 194 N. Y. 461, 473; Scholfieldv. Londesborough, supra.)

The grounds for the decision in Young v. Grote have been variously stated but they resolve themselves into the principle that if the negligence of the depositor is the cause of the payment by the bank of a forged check he may not set up the invalidity of the paper which he has induced the bank to act on as genuine. This principle rests primarily on the doctrine of estoppel. If the negligence of the depositor enables the clerk to alter the check and so causes the bank to make payment on a forged order, the depositor is estopped from disputing the authority of the banker to pay. “ Preclusion from assertion of rights is estoppel.” (Ewart on Estoppel, 45.)

The checks have been produced before us. They were, when signed, complete in form except for the use of the single name of the payee and the blank preceding such name. The spaces left in the check facilitated the forgery by Hunold. They were left by him for the purpose of enabling him to accomplish the fraud. “ The mere fact that the cheque is drawn with spaces such that a forger can utilize them for the purpose of forgery is not by itself any violation of [the depositor’s] obligation.” (Colonial Bank v. Marshall, supra.) But when the name of the payee is left blank, or partly blank, forgery is not a remote but a natural consequence. (London Joint Stock Bank v. Macmillan, supra.) The checks were drawn in a negligent and unbusinesslike manner. At least it might have been so found as a question of fact.

But more must be shown to defeat recovery in this case. Mere negligence on the part of the depositor ought not to relieve the bank unless the bank has been misled by the negligent act.

It follows that the ultimate question is: Did the bank rely on the form of the checks and was it misled by the fact that they were altered through plaintiffs’ negligence? If it did not rely on the form of the checks and was not misled by plaintiffs into the belief that the payees were genuine persons who had genuinely indorsed the checks, no estoppel arising out of the negligence of the plaintiffs can be asserted by the bank. It was not the negligence of the plaintiffs but the negligence of defendant which was the proximate cause of the loss in this case.

A bank is bound by contractual obligation to the exercise of due care in the payment of checks bearing the genuine signatures of its depositors. Its negligence defeats the defense of negligence on the part of the depositor. (Critten v. Chemical Nat. Bank, supra, p. 232.) If it had a right to assume that the checks were the genuine checks of its depositors because the signatures were genuine and no alterations appeared to excite suspicion, it owed a duty to them to make payment only to the payees therein named or to their order. It made no inquiry as to the identity of the payees or as to the genuineness of their purported indorsements. Plaintiffs did not relieve it from that duty. It paid the checks to the makers’ employee, Hunold, without inquiry because it had misplaced com fidence in him. If a stranger representing himself as C. Swift,” for example, had presented the check, the bank would have been bound at its peril to see that he was, in truth, the payee entitled to receive payment thereon. (Bank of British North America v. Merchants Nat. Bank, 91 N. Y. 106, 111.) The depositor has a right to rely on the bank to be careful not to pay out money to the wrong person. Nothing in the form of the altered checks estopped the plaintiffs from insisting on that right. If by their negligence the checks had been made payable to genuine payees who received the amounts thereof, or if the amount of the checks had been raised through their carelessness, the case would have been different. The bank might then rely on the form of the checks and charge the plaintiffs with an estoppel. If we assume that the bank might rely on the checks as being genuine in form, still it did not exercise any care to identify the payees.

The bank knew Hunold as the employee of plaintiffs. It failed to observe the suspicious circumstances that the checks he was cashing were payable to “ Cudahy ” and “ Swift,” names of firms with which plaintiffs transacted business through the bank; that the indorsements of the payees and Hunold bore a striking resemblance and that these Cudahy ” and “ Swift ” checks were being presented by Hunold for payment with some regularity. The jury might have found negligence from these facts alone.

We reach the conclusion that the plaintiffs may have been negligent in drawing the checks but that their negligence was not the cause of the failure of duty on the part of the bank in paying the money to Hunold without proper identification of the payees and of their purported signatures. It follows also that their negligence in failing to discover the forgeries does not prevent a recovery from the negligent bank. (Critten v. Chemical Nat. Bank, supra.) The loss by the bank was induced by its trust in the unworthy Hunold rather than the negligence of its depositors.

The judgment should be affirmed, with costs.

Cardozo, Ch. J., Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment affirmed.


text:
    The People of the State of New York, Appellant, v. Nellie Pacelli, Respondent.
    (Argued April 23, 1929;
    decided May 28, 1929.)

      Elmer H. Lemon, District Attorney, for appellant.

      Henry Hirschberg for respondent.
   O’Brien, J.

Defendant was convicted of the crime of keeping a disorderly house and the judgment has been reversed as matter of law. The proof of guilt is complete and we are of the opinion that the point upon which the judgment was reversed is not present.

The chief of police testified that defendant had admitted to him and to the district attorney that she had been previously convicted of maintaining a disorderly house on the same premises. Objection was made to the question asked of this witness but the answer was given before the objection could be completed and defendant’s counsel asked to have the answer stricken out. The motion was denied and exception duly noted. The district attorney in his summation twice referred to defendant’s admission, but the trial judge in his charge admonished the jury that the admission should be disregarded “ as no evidence in the case.” If the testimony had been stricken out when the motion was made, no error could be alleged. The admonition to disregard that statement as no evidence in the case is the exact equivalent of the granting of a motion to strike out. It could not have any greater or less effect.

The judgment of the Appellate Division should be reversed and that of the County Court affirmed.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and Hubbs, JJ., concur.

Judgment accordingly.


text:
    In the Matter of the Claim of Berl Wagner, Respondent, against Wilson & Company, Appellant. State Industrial Board, Respondent.
    (Argued April 15, 1929;
    decided May 28, 1929.)

      William Warren Dimmick and Samuel Israel for appellant.
    The award in this case is irregular and not within the meaning of section 17 of the Workmen’s Compensation Law of New York State. (Perino v. Lackawanna Steel Co., 241 N. Y. 317; Bailey v. Columbian Rope Co., 184 App. Div. 718; Sullivan v. Hudson Navigation Co., 182 App. Div. 158; O'Donahue v. Boies, 159 N. Y. 87.)

      Hamilton Ward, Attorney-General (E. C. Aiken of counsel), for respondent.
    A commutation of the award to an alien dependent is mandatory under section 17 of the Workmen’s Compensation Law. (Perino v. Lackawanna Steel Co., 241 N. Y. 312.)
   Cardozo, Ch. J.

An award has been made to the dependent father of a workman killed in the course of his employment, and the award has been commuted in respect of future installments by requiring the payment of a gross sum. The father is an alien, not a resident of the United States or Canada. The question is whether the computation of the gross payment is in accordance with the statute.

Section 16 of the Workmen’s Compensation Law (Cons. Law;s, ch. 67) prescribes the award of death benefits for citizens of the United States and for aliens residing in the United States or in Canada.

If there be a surviving wife and a child or children under the age of eighteen years, the benefits go in prescribed proportions to the wife during widowhood (with two years’ compensation in one sum upon remarriage) and to the child or children until the age of eighteen years (§ 16, subd. 2). In such circumstances there is no need for proof of dependency, which follows as a legal inference from the nature of the relation. A husband, however, receives benefits only if proved to be dependent.

If there be no surviving wife or dependent husband or child under eighteen, the benefits are paid in prescribed proportions to grandchildren or brothers and sisters under eighteen, if dependent upon the deceased at the time of the accident, until they become eighteen, and to each parent or grandparent, if dependent, “ during such dependency ” (.§ 16, subd. 4).

Section 27 of the statute clothes the Board with discretionary power to compute the present value of all unpaid death benefits and to require the employer or insurance carrier to pay the commuted value in discharge of further liability. “All computations made by the board shall be upon the basis of the survivorship annuitants table of mortality, the remarriage tables of the Dutch Royal Insurance Institution and interest at three and one-half per centum per annum.”

A decision of this court in Adams v. N. Y., O. & W. Ry. Co. (220 N. Y. 579, affg. 175 App. Div. 714) is to the effect that in the absence of any tables fixing the date of probable remarriage, commutation is not permitted in respect of an award to a widow during the term of her widowhood. Amendments of the statute have made it possible in such circumstances to have recourse to the Dutch tables. A decision of the Appellate Division in the third department, made in 1918, is to the effect that there can be no commutation of an award to a dependent mother payable during her dependency, since there are no tables in existence by which the term of dependency can be measured (Bailey v. Columbian Rope Co., 184 App. Div. 718). The ruling then made, though not brought to this court for review, follows, it would seem, as a reasonable deduction from the ruling in the Adams case. It has been accepted by the Board and by claimants for upwards of ten years, and has been left untouched through all the many revisions of the act that have been adopted in the interval. We think it has wrought itself by construction into the body of the statute.

The commutation of this award would, therefore, have been unauthorized if the dependent father had resided in the United States or Canada. The question is whether a different rule is to be applied by reason of the fact that he is an alien residing in Rumania.

Section 17 of the Workmen’s Compensation Law provides as follows:

“Aliens: — Compensation under this chapter to aliens not residents (or about to become nonresidents) of the United States or Canada, shall be the same in amount as provided for residents, except that dependents in any foreign country shall be limited to surviving wife and child or children, or, if there be no surviving wife or child or children, to surviving father or mother whom the employee has supported, either wholly or in part, for the period of one year prior to the date of the accident, and except that the commission may, at its option, or upon the application of the insurance carrier, shall, commute all future installments of compensation to be paid to such aliens, by paying or causing to be paid to them one-half of the commuted amount of such future installments of compensation as determined by the commission.”

This section does not enlarge, but on the contrary restricts, the benefits that are payable to alien nonresidents, as contrasted with those that under section 16 of the statute are payable to others. In the case of aliens not residents of the United States or Canada, there is no provision for dependent husbands or for grandchildren, brothers and sisters, or grandparents. Benefits are confined to wife, child and parent. The compensation due to these, however, is to be “ the same in amount as provided for residents,” i. e., the wife is to take during widowhood with two years’ compensation in one sum upon remarriage, the child or children until attaining the age of eighteen years, and the father or mother during dependency. We find no basis for a reading of the statute that would limit the resident father or mother to compensation during dependency, and enlarge the compensation of alien non-residents to compensation during life.

The benefits payable to the father in Rumania being thus confined in point of duration to the term of his dependency, the commutation, if any, is to be made in submission to the same restraints. The sum to be paid by the employer or the carrier in discharge of liability is to be “ one-half of the commuted amount of such future installments of compensation as determined by the commission ” (§ 17). But the Commission has not determined such amount nor attempted to determine it. What the Commission has done is to determine the commuted amount of the future installments of compensation during the term of probable survivorship. There has been no attempt to determine the period of probable dependency. Dependency has not been ascertained by recourse to any law of averages. No such tables are available. It has not been ascertained through a forecast of the future in the light of particular disabilities or individual conditions. If such a forecast were permissible in the face of section 27, which assumes a computation on the basis of a law of averages (cf. Ithaca Trust Co. v. U. S., 279 U. S. 151), the facts essential to its making are not embodied in the record. The gross award must fail for lack of data to sustain it.

In thus holding, we do not ignore the provision of the statute (§ 17) that commutation shall be mandatory whenever requested by the carrier. Obedience to the mandate is not difficult when the claimant is a wife or child, for the remarriage tables and the tables of mortality supply the data essential to a computation of the probable term of survivorship or widowhood. Only when the payments are for the benefit of a dependent parent during the term of dependency do the essential data fail. Lex non cogit ad impossibilia. If a carrier were to insist upon a commutation of payments to a dependent father or mother, the demand, to be effective, would have to be coupled with a consent that dependency be measured by the tables of mortality. Here commutation has been ordered, not at the carrier’s request, but in the face of its resistance.

We conclude that until the statute is amended by applying some appropriate table of averages to the ascertainment of probable dependency, there can be no commutation of future payments for the support of dependent parents, whether non-resident or resident.

The order of the Appellate Division should be reversed, and the award annulled, with costs in the Appellate Division and in this court, and the proceeding remitted to the State Industrial Board for the making of an award in accordance with this opinion.

Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Order reversed, etc.


text:
    Albert Suetterlein, Appellant, v. Northern Insurance Company of New York, Respondent.

      (Argued April 24, 1929;
    decided May 28, 1929.)

      Israel T. Deyo for appellant.
    The trial court erred in its conclusion of law that the Baltimore American policy was not void when issued and constituted other insurance covering the loss sustained by plaintiff under the defendant’s policy, which other insurance would have attached if the insurance in question had not been effected, and that such additional insurance had attached. (Murdoch v. Chenango Mutual Ins. Co., 2 N. Y. 210; Fowler v.
      N. Y. Indemnity Ins. Co., 26 N. Y. 422; Howard v. Albany Ins. Co., 3 Denio, 301; Ruse v. Mutual Ins. Co., 23 N. Y. 516; Steinback v. Diepenrock, 158 N. Y. 24; Shearman v. Niagara Fire Ins. Co., 46 N. Y. 526; Hand v. Williamsburgh Ins. Co., 57 N. Y. 41; Woodward v. Republic Fire Ins. Co., 32 Hun, 365; Acer v. Merchants Ins. Co., 57 Barb. 68; Mead v. American Fire Ins. Co., 13 App. Div. 476.) The conclusion of the trial court that the policy in suit became void because of the false swearing by the plaintiff touching matters relating to such insurance and the subject thereof is not sustained by the findings. (Inderlied v. Honeywell, 88 App. Div. 144; Hubbell v. Meigs, 50 N. Y. 480; Schuster v. Dutchess County Ins. Co., 102 N. Y. 260; Rohrbach v. JEtna Ins. Co., 62 N. Y. 613; Stokes v. Stokes, 198 N. Y. 301.)

      Thomas B. Kattell for respondent.
    The trial court did not err in its conclusion of law that the Baltimore-American policy was not void when issued and constituted other insurance which would have attached if the insurance in question had not been effected. (New Brunswick Fire Ins. Co. v. Morris Plan Bank, 136 Va. 402; Landers v. Watertown F. I. Co., 86 N. Y. 414; Lipedes v. L. & L. & G. Ins. Co., 229 N. Y. 201; Bigler v. N. Y. C. Ins. Co., 22 N. Y. 402; Sanders v. Cooper, 115 N. Y. 279.)
   Cardozo, Ch. J.

Plaintiff bought a motor car under a contract of conditional sale, a term of the contract being that insurance for his protection would be taken out by the seller. Thereafter the defendant issued its policy of insurance against fire in the name of the plaintiff as assured, loss payable to the plaintiff and the seller’s assignee as their interests might appear. The policy was delivered to the assignee, at whose request it had been issued. It contains conditions against the transfer or change by the assured of his insurable interest; against false swearing by the assured in relation to the loss; and against other insurance. “No recovery shall be had under this policy, if at the time a loss occurs there be any other insurance covering such loss, which would attach if this insurance had not been effected.”

After the delivery of the policy in suit, plaintiff made application to another insurance company for a policy of insurance covering' the same car to be issued to his wife. He says he did not know when applying for that policy that the one in suit had been delivered. The wife, according to his testimony and hers, had in fact no interest in the car, but in requesting the new policy he said that she was owner. The policy was taken in her name because that had been the practice in the insurance of the household furniture. Husband and wife believed, or so at least they testify, that insurance of the car, though taken in the name of one, would be equally effective to protect the interest of the other.

A few weeks later the car was destroyed by fire. The plaintiff filed with the defendant a proof of loss as owner under the policy in suit; his wife filed a proof of loss as owner under the policy made out to her. He gave the answer “ no ” when the adjuster of the loss inquired whether there was other insurance covering the loss, and verified the proofs accordingly. At the same time he was pressing the other company to make payment to his wife.

The trial court found that the wife had in truth no interest in the car; that plaintiff was the sole.owner; and that the second policy of insurance “ did not cover and did not purport to cover the same interest in the same property ” as that covered by the policy issued by the defendant. The court found, none the less, that the new policy was “ other insurance ” within the meaning of the contract, and that in the failure to declare it there had been falsehood or deceit. Judgment was directed for the defendant dismissing the complaint.

A condition that a policy of insurance shall become void if there is other insurance covering the loss, is broken as soon as a, new policy is issued protecting the same interest, and this whether the later insurance is valid or invalid (Lipedes v. Liverpool & L. & G. Ins. Co., 229 N. Y. 201; Bigler v. N. Y. Central Ins. Co., 22 N. Y. 402). The law does not ask whether a claim founded on the later policy will be subject to defenses. It halts . the inquiry when it finds that a policy, purporting to give insurance, exists in point of fact ” (Story, J., in Carpenter v. Providence Washington Ins. Co., 16 Pet. [U. S.] 495; Lipedes v. Liverpool & L. & G. Ins. Co., supra). The aim of the condition is to minimize temptation (Mussey v. Atlas Mut. Ins. Co., 14 N. Y. 79, 83). When temptation is invited, the penalty is earned.

The mischief to be repressed being the enhancement of the moral hazard, the absence of the mischief is as competent to narrow the meaning of the condition as the presence of the mischief is competent to extend it. What is presupposed throughout is identity of interests.

If the coverage of one policy is an interest wholly separate, in substance as well as in form, from the coverage of the second, there is no other insurance ” within the scope of the condition. The limitation is as settled as the rule itself. Á mortgagor’s policy will hold though a new policy is issued at the request of a mortgagee; a landlord’s insurance is unaffected by the fact that other insurance is procured for the protection of the tenant. “ Neither the policy of the law nor the contracts of insurance forbid, but on the contrary permit as many several insurances upon the same property as there are separate interests ” (Dewitt v. Agricultural Ins. Co., 157 N. Y. 353, 360; Carpenter v. Prov. Wash. Ins. Co., supra, at p. 503; Mut. Safety Ins. Co. v. Hone, 2 N. Y. 235; 4 Joyce on Ins. § 2467).

The question is whether this case is within the territory • subject to the operation of the rule or within the territory excluded.

If the wife had been in fact the owner of an interest in the ear, or had been believed in good faith to be the owner of such an interest, the plaintiff would not have broken the condition against other insurance by co-operating with her in the procurement of a policy whereby her interest or supposed interest would be protected in the event of fire. What happened was very different. The wife was not in fact the owner of any interest in- the property insured. Neither she nor the plaintiff supposed she had an interest. What the plaintiff arranged was to have her masquerade as the owner if a fire should occur, and hold in trust for him the moneys in her hands. This was other insurance ” of the same interest within the meaning of the contract. Unquestionably there would have been a breach of the condition if the trust with all its incidents had been declared in writing in the policy. If the same man really, and for his own proper account, insures the same goods doubly, though both insurances be not made in his own name, but one or both of them in the name of another person, yet that is just the same thing: for the same person is to have the benefit of both policies (Lord Mansfield in Godin v. London Assur. Co., 1 Burr. 489; cf. Wells v. Phila. Ins. Co., 9 Serg. & R. [Penn.] 103; 4 Joyce on Insurance, § 2455). The result, we think, must be the same in cases where the trust is secret. Other insurance is prohibited, as we have seen, because the moral hazard is increased with the increase of temptation. Temptation and hazard are the same whether the policy be taken in the name of the real owner or in the name of a dummy ” acting at his bidding (cf. Mussey v. Atlas Ins. Co., supra). The second insurer might indeed defend if luckily it should learn that the wife, masquerading as owner, was a disguise for the husband, a trustee for his account. On the other hand, it might pay, and then the trust would be effective according to its terms. One person, and one only, was to profit from the two policies in the event of loss by fire. A different situation would be here if tho wife had been expected in proving under the second policy to make disclosure of the truth. The actual arrangement was that without interest or color of interest she should make pretense of ownership, but subject to a hidden trust.

We think these covinous devices are unavailing to avert a forfeiture. The plaintiff chose his wife as his representative or instrument. He will not now be heard to say that she was acting as a stranger. What she did was done for him just as much as it would have been if she had acted in his name. Her concealment may have had the effect to make the later insurance void. It does not avail for that reason to keep the first insurance valid. There has been connivance in the procurement of a policy to be issued for the benefit of the real owner in the name of another whose ownership is fictitious and pretended. There has been connivance in a proof of loss, maintaining the pretense, to the enrichment of the owner through the fraud of the pretender. Everything that agreement is capable of doing to make the later policy available as indemnity to the holder of the first, owner and pretender have done between themselves. We stick in the bark when we say that such conduct may be reconciled with the condition of the policy whereby other insurance is forbidden under penalty of forfeiture.

If there was other insurance at the time of the loss, there was also deceit and false swearing in denying its existence, or so the trier of the facts might not unreasonably find.

The judgment should be affirmed with costs.

Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment affirmed.


text:
    Benjamin A. Abrams, Appellant, v. Wilmot P. Thompson et al., Respondents, and Anna Abrams, Appellant.

      (Submitted April 17, 1929;
    decided May 28, 1929.)

      Henry Hirschberg for appellants.
    The contract conferred an option or right as matter of law upon plaintiff to elect a rescission • of the • real estate sale if defendants Thompson did not procure and file the releases of the liens or apparent hens of the railroad mortgages within the year specified. (Hartigan v. Casualty Co., 227 N. Y. 175; Poel v. Brunswick-Balke-Collender Co., 216 N. Y. 310.) Plaintiff having duly elected his option of rescission and instituted this action at a time when the defendants had defaulted in procuring the releases of the railroad mortgages, such right of rescission cannot be defeated by the subsequent. procurement of such releases and this is true even if time was not of the1 essence of the contract. Therefore, it was reversible error to permit the subsequently acquired releases of the railroad mortgages to defeat plaintiff’s action. (Callarian v. K., A. C. & L. R. R. Co., 199 N. Y. 268; McNaughton v. Eq. Life Assur. Soc., 136 App. Div. 774; Harper v. Newburgh, 159 App. Div. 695; Bispham on Eq. [8th ed.] § 472; Oakes v. Turquand, L. R. 2 H. L. 325; Reese River Mining Co. v. Smith, 4 H. L. 64; Pollock on Contracts, 508; Stevenson v. Marble, 84 Fed. Rep. 23; Matter of Dames v. Wood, L. R. [29 Ch. Div.] 626; Spears v. Mayor, 87 N. Y. 359; Thomas v. Coultas, 76 Ill. 493.) Plaintiff made sufficient tender of reconveyance of the property and duly offered to restore the status quo ante the agreement for rescission and it was not necessary upon defendants’ refusal to comply with the contract for plaintiff to abandon the real property to the elements or thieves. Repetition of the tender in the complaint was all that was necessary. (Springport v. Teutonia Sav. Bank, 75 N. Y. 397; Callanan v. K., A. C. & L. R. R. Co., 199 N. Y. 268; Vail v. Reynolds, 118 N. Y. 297; Gould v. Cayuga Nat. Bank, 86 N. Y. 75; Allerton v. Allerton, 50 N. Y. 670; Beecher v. Ackerman, 1 Abb. Pr. [N. S.] 141; Hay v. Hay, 13 Hun, 315; Zebley v. F. L. & T. Co., 139 N. Y. 461.)

      Abram F. Servin and Frank H. Finn for respondents.
    The contract did not give plaintiff a right to enforce his demand for rescission save by insisting upon a forfeiture in case defendants failed to comply with his demand; the decision of the trial court in relieving them from this forfeiture for delay in performance of a condition subsequent was just and equitable. (Kann v. King, 204 U. S. 43; Wheeling R. Co. v. Triadelphia, 52 S. E. Rep. 499; Noyes v. Anderson, 124 N. Y. 175.) There was no sufficient tender made by plaintiff and the rulings of the court upon that question are free from error. (Francis v.
      Railroad Co., 108 N. Y. 93; Jewell v. McIntyre, 62 App. Div. 396; 172 N. Y. 638; Douglass v. Scott, 130 App. Div. 322; Mincho v. Bankers Life Ins. Co., 124 App. Div. 678.)
   Crane, J.

As the written agreement between the parties is the basis of this litigation, and as the construction of that agreement given by the courts below does not meet with our approval, it is necessary to set forth the instrument in full:

This Agreement, made this 25th day of January, 1924, between Wilmot P. Thompson and Mary Frances Thompson, his wife, of the Village of Goshen, N. Y., parties of the first part and Benjamin A. Abrams of Monticello, N. Y., party of the second part “ Witnesseth:
Whereas, the said parties of the first part are the owners of a coal and feed store property at Campbell Hall, N. Y., which they have this day sold and conveyed to the party of the second part for the agreed consideration of 135,000 upon which said second party is to make a purchase money mortgage of $20,000; and
“ Whereas, the said property seems to be subject to the lien of two certain mortgages made by the New York, Ontario <fc Western Railway Company, of record in the Orange County Clerk’s office; and
“ Whereas, the first parties as a part of the consideration of the conveyance this day made by them agree and undertake to procure a release and discharge-of the said premises from the hen of the said mortgages;
“ Now, therefore, this agreement witnesseth; that the said parties hereto have mutually covenanted and agreed as follows: The said parties of the first part agree to procure a release of said premises this day conveyed by first parties to second party, from the lien of the said mortgages made by said New York, Ontario & Western Railroad Company, within a reasonable time, and in the
event that the said parties of the first part shall fail to procure and file instruments releasing and discharging the property above described from the hen of said mortgages, within one year from this date, then it is understood and agreed that the mortgage above described for $20,000 made by second party to first parties, shall, at the election of the second party be and become null and void, and shall be canceled and discharged by second party, and that the said second party shall be entitled to a return of the purchase price paid by him over and above the said mortgage and second party shall reconvey the said premises unto the said first parties; and in the event that the first parties shall fail to cancel and discharge the said mortgage and to deliver the purchase moneys so paid to second party, then the said second party may be entitled to hold the said real property, and the said mortgage for $20,000 given by second party to first parties for a part of the purchase price shall be null and vtiid.
“It is hereby understood and agreed that the first parties may have until one year from this date to procure the release and discharge above provided for.
“In Witness Whereof, the parties have hereunto set their hands and seals the day and year first above written.
“ WILMOT P. THOMPSON [l. s.]
“ MARY FRANCES THOMPSON [l. s.]
“ BENJAMIN A. ABRAMS [l. s.]
“ In Presence of
“ Words ‘ at the election of second party ’ on 1st page between 5th and 6th lines from the bottom, interlined before execution.
“ Henry B. Merritt.”

The defendants Thompson claimed to own certain real estate adjacent to the fine of the New York, Ontario and Western Railroad Company at Campbell Hall, Orange county, N. Y., and contracted to sell the same to the plaintiff Abrams. ' Before the closing of title, plaintiff’s attorney discovered that two large blanket trustee mortgages theretofore given by the railway company were liens on the property. At the time of the sale by the defendants to the plaintiff, these railroad mortgages were in full force and effect and of record in the Orange county clerk’s office, and the first mortgage was an actual lien on the property. This was a finding of the trial court. The above agreement was made in reference to these two mortgages. After the execution of the contract and in-reliance thereon, the plaintiff accepted a deed to the property and executed a purchase-money mortgage for $20,000 which contained a recital that it was subject to the conditions of the contract for rescission. The mortgage was subsequently assigned to the defendant, the Merchants National Bank, which took it, charged with notice of this agreement. In addition to giving this purchase-money mortgage, the plaintiff paid $15,000 — $10,000 in cash and the balance in notes.

The Thompsons did not procure the release of the property in question from the lien of the railroad mortgages within the year provided by the contract, and thereupon Abrams, the plaintiff, notified them that he elected to exercise his option for rescission under the contract, as above set forth. The notice was given in writing on the last day of the year within which releases were to be obtained, and again shortly after the expiration of the year. If the plaintiff, under this agreement, was able to rescind, he expressed his choice to the defendants clearly and within proper time.

The defendants, refusing to recognize the plaintiff’s right to rescission, the return of his purchase price and the cancellation of the mortgage, thé plaintiff promptly brought this action asking for such a rescission, and the restoration of all parties to the status quo ante in accordance with equitable principles. The trial judge found the facts above stated. He determined, however, that the contract above mentioned provided another remedy besides rescission, viz., that the $20,000 mortgage was to become null and void and forfeited — was to be canceled, the plaintiff keeping the property. “ Equity,” said the learned justice, does not favor forfeitures.” He, therefore, refused relief and dismissed the complaint. Certain personal property had been purchased by the plaintiff in connection with the feed and coal business conducted on the property, and as this had been used by the plaintiff in the operation of the business during the year, the justice also said that the parties could not be restored to their original status. He overlooked the fact that in the adjustment of the equities as prayed for in the complaint, proper deductions could be made for the use of the personal property from the purchase price to be returned.

We read this contract as giving the plaintiff an absolute right to rescission. This was the thing contracted and stipulated for; the title was closed with this inducement and understanding. The mortgages, or one of them, were, found to be a lien upon the property. A written formal agreement was entered into whereby the defendants undertook to procure releases within the year. This contract states that if the Thompsons failed to procure the releases of the mortgage lien, the mortgage of $20,000 at the election of Abrams, is to become null and void and shall be canceled, and he shall be entitled to the return of the purchase price. In case the Thompsons fail to discharge the mortgage and deliver the purchase moneys, then Abrams may hold the real property, and the mortgage shall be null and void. This does not give the purchaser the right to hold the property in fee free of the mortgage. His election to rescind cancels the entire transaction, not only avoids the mortgage, but entitles him to the return of his purchase money. Of course he is to deed back the property and give up the lease on the adjoining property, which he likewise received. The Thompsons refused to pay back the purchase money or to cancel the mortgage. The agreement gave Abrams the right to hold the property until he got back his money, to hold it as security for his money. Continuing in possession after bringing suit was according to his contract and not an election to affirm his bargain. (Weigel v. Cook, 237 N. Y. 136.)

A contract made with this definiteness for the very purpose of giving the plaintiff the right to rescind at a specified time upon the failure of performance is not to be redrafted or reformed by the courts; rather, it is a contract to be carried out. The defendants refused to accept the plaintiff’s construction of the contract or to consider taking his deed. He, therefore, brought this action for rescission, tendering back a deed of the property, a reassignment of the lease and asking for an adjustment of the equities, which means that the courts are to determine how much of his purchase money is to be returned after proper deductions, if any, for the use during occupancy of the property purchased.

The trial justice received in evidence releases obtained from the railroad company prior to the trial of the action. The plaintiff having made his election pursuant to contract, the deal was off; he was then entitled to his money, and he brought this action to obtain it. Under this form of agreement, and in view of all the circumstances, his rights could not be affected by the procurement of the release in August of 1925, a year and seven months after the execution of the contract and after his suit in and for rescission. (Callanan v. K. A. C. & L. C. R. R. Co., 199 N. Y. 268, 287; Mc Naught v. Equitable Life Assur. Soc., 136 App. Div. 774; Harper, Inc., v. City of Newburgh, 159 App. Div. 695, 697; Stevenson v. Marble, 84 Fed. Rep. 23; Bispham Eq. [8th ed.] § 472; Pollock on Contracts, p. 608; Thomas v. Coultas, 76 Ill. 493.)

As to tender by the plaintiff of a deed reconveying the property to the defendants, it is sufficient to say that the trial justice found that there had been a sufficient tender, but the attitude of the defendants, the repudiation of the contract and the refusal to accept the deed or cancel the mortgage made the tender alleged in the plaintiff’s complaint sufficient to maintain this action. (Vail v. Reynolds, 118 N. Y. 297.)

A judgment was recovered by default against this plaintiff on the notes above referred to. This judgment would have been a lien upon the property in question if the default had not been opened and the judgment set aside. However, the notes formed part of this transaction; they were part of the consideration price for the property. They can be and should be dealt with on the new trial which must be had in this case.

For the reasons here stated, the judgment of the Appellate Division and that of the Special Term should be reversed and a new trial granted, with costs to abide the event.

Cardozo, Ch. J., Pound, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgments reversed, etc.


author: Per Curiam.

text:
    In the Matter of Robins Silk Manufacturing Co., Inc., Appellant, against Consolidated Piece Dye Works, Respondent.
    (Submitted April 26, 1929,
    decided May 28, 1929.)

      S. John Block for appellant.
    The award was properly vacated by the Special Term because of the misconduct of the arbitrator Flower who made an independent, original investigation of the plant, machinery and invoices of the Consolidated Company without the consent of all of the arbitrators and not in their presence or in the presence of all of the parties, which investigation influenced and controlled his judgment and was a determining factor in his decision. In addition, the arbitrator Patterson was manifestly partial to the Consolidated Company and while the arbitration was pending was negotiating for employment by the Consolidated Company and entered its employ a few days after the award was made. (Berizzi Co., Inc., v. Krausz, 239 N. Y. 315; Matter of Friedman, 215 App. Div. 130; Matter of American Eagle Fire Ins. Co. v. New Jersey Ins. Co., 240 N. Y. 398.)

      Robert E. Mebel for respondent.
    An independent inspection or investigation by an arbitrator is not unlawful when made with the consent of all, or knowledge without protest; and where the proof is substantial that the arbitrators acted in good faith and that the independent inspection is valid, the award of the arbitrators is binding. (Berizzi Co., Inc., v. Krausz, 239 N. Y. 315; Horowitz v. Kaplan, 224 N. Y. Supp. 498; Berkowitz v. Arbib, 230 N. Y. 261.)
   Per Curiam.

The appellant, Robins Silk Manufacturing Co., Inc., delivered silks to the respondent, Consolidated Piece Dye Works, to be dyed. A controversy as to the manner in which the work had been done was submitted to arbitration. A motion was made by the appellant to vacate the award on two grounds: First, that one of the three arbitrators had been guilty of misbehavior in inspecting the respondent’s machinery in the absence of the parties, and second, that another arbitrator had been guilty of misbehavior in bargaining with the respondent for employment while the arbitration was pending. The Supreme Court at Special Term upheld the first of these charges, though refusing to sustain the second. The Appellate Division reversed and confirmed the award.

As to the first of the two charges, the evidence sustains a finding that the arbitrator who inspected the machinery was acting with the knowledge and consent of both the parties to the proceeding. In such circumstances there can be no basis for a holding that the inspection was misconduct within the rule of Berizzi Co., Inc., v. Krausz (239 N. Y. 315). Whether misconduct might have been found in the absence of consent, there is no occasion to consider.

As to the second of the two charges, the evidence sustains a finding that the treaty for employment did not begin till the award had been made, at a time, therefore, when the arbitrator was functus officio. If he had bargained for employment while the arbitration was pending, his act would have been misbehavior so flagrant and offensive as to vitiate the award, though the closing of the contract was postponed till later. The courts below have found, however, that he is not subject to that reproach. The proposal did not come from him, but came from the new employer, and came for the first time when he had ceased to be an arbitrator. What he did in bargaining so soon thereafter might better not have been done since it has exposed him to suspicion. We cannot say that it was misbehavior as matter of law.

The judgment should be affirmed with costs.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment affirmed.