author: Hxjbbs, J.

text:
    The People of the State of New York, Respondent, v. Maurice E. Connolly and Frederick Seely, Appellants.

      (Argued March 31, 1930;
    decided May 6, 1930.)

      Max D. Steuer and Ben Herzberg for Maurice E. Connolly, appellant.
    Error was committed in admitting against Connolly evidence of Moore’s cash deposits. (United States v. Kissel, 218 U. S. 601; Cuyler v. McCartney, 40 N. Y. 221; Rutherford v. Schattman, 119 N. Y. 604; Flynn v. Crimmins, 17 N. Y. S. R. 987; Stephen’s Digest of the Law of Evidence [2d ed.], art. 4, p. 15; Danville Bank v. Waddell, 31 Gratt. [Va.] 469; United States v. McKee, 3 Dill. 546; State v. Robinson, 97 W. Va. 691; People v. MacPhee, 26 Cal. App. 218; People v. McQuade, 110 N. Y. 284; Garnsey v. Rhodes, 138 N. Y. 461; New York G. & I. Co. v. Gleason, 78 N. Y. 503.) Error was committed in admitting evidence of the defendant Connolly’s cash payments. (People v. Gaffey, 182 N. Y. 257; Williams v. United States, 168 U. S. 382; People v. Bissert, 71 App. Div. 118; Heaton v. United States, 280 Fed. Rep. 697; People v. Schooley, 149 N. Y. 99.) The evidence of Moore’s bank deposits was inadmissible. (People v. Sharp, 107 N. Y. 427; People v. Stetz, 206 App. Div. 223; Williams v. United States, 168 U. S. 382; People v. McQuade, 110 N. Y. 284; Garnsey v. Rhodes, 138 N. Y. 461; New York G. & I. Co. v. Gleason, 78 N. Y. 503; Samples v. People, 121 Ill. 547; State v. McGee, 81 Iowa, 17; Hughes v. State, 19 Oh. Cir. Dec. 237; 77 Oh. St. 640.) The theory that the evidence of Moore’s bank deposits was admissible as proof of Phillips’ acts cannot be upheld. (People v. Bissert, 71 App. Div. 118; 172 N. Y. 643; Heaton v. United States, 280 Fed. Rep. 697.)

      John J. Curtin, Wesley S. Sawyer and Joseph R. Jackson for Frederick Seely, appellant.
    The verdict of the jury as to the guilt of the defendant Seely is without evidence to support it. (People v. Razezicz, 206 N. Y. 249; People v. Gluck, 188 N. Y. 167; Lamb v. Union R. Co., 195 N. Y. 260; People v. Kennedy, 32 N. Y. 141; People v. Harris, 136 N. Y. 423; People v. Fitzgerald, 156 N. Y. 253; Manning v. John Hancock Mutual Life Ins. Co., 100 U. S. 693; U. S. v. Ross, 92 U. S. 281; Lamb v. Union Ry. Co., 195 N. Y. 260; O’Gara v. Eisenlohr, 38 N. Y. 296; Rupert v. Brooklyn H. R. R. Co., 154 N. Y. 90.) Reversible error was committed in admitting as against the defendant Seely evidence of cash deposits made by Moore. (Cuyler v. McCarthy, 40 N. Y. 221; Williams v. U. S., 168 U. S. 382.) The admissions of evidence as to private real estate transactions carried on by defendant Connolly and his wife were substantial error. (Williams v. United States, 168 U. S. 396; People v. Razezicz, 206 N. Y. 249; People v. Kennedy, 32 N. Y. 146.)

      Hamilton Ward, Attorney-General {Emory R. Buckner, John M. Harlan and Herman T. Stichman of counsel), for respondent.
    The evidence that Moore, consulting engineer, made deposits in his bank account, principally in cash, and largely in excess of his salary, was properly admitted. (People v. Mather, 4 Wend. 229; Leverkuhn v. United States, 297 Fed. Rep. 590; 266 U. S. 603; Clune v. United States, 159 U. S. 590; Pierson v. People, 79 N. Y. 424; People v. Gaffey, 182 N. Y. 257; Commonwealth v. Mulrey, 170 Mass. 103; Commonwealth v. Coyne, 228 Mass. 269; Weisenbach v. State, 138 Wis. 152; People v. Miles, 123 App. Div. 862; 192 N. Y. 541; Reg. v. Parnell, 14 Cox Cr. Cas. 508; People v. Van Tassel, 156 N. Y. 561; People v. Dunbar Contracting Co., 165 App. Div. 59; 215 N. Y. 416.) It is not necessary that each conspirator should be familiar with the overt act of another providing the case when taken as a whole discloses a common purpose and design. (People v. Miles, 123 App. Div. 862; 192 N. Y. 541; People v. Van Tassel, 156 N. Y. 561; People v. Micelli, 156 App. Div. 756; 216 N. Y. 727; People v. Peckens, 153 N. Y. 576; Kelley v. People, 55 N. Y. 565; Danzer v. Nathan, 145 App. Div. 448.) The evidence of Connolly’s cash transactions was properly admitted. Evidence that a defendant during or shortly after the time of the crime charged against him, was in possession of moneys in excess of his usual means or sources of income, frequently .referred to as evidence of sudden enrichment, is admissible. (Gordon v. People, 33 N. Y. 501; People v. Gaffey, 182 N. Y. 257; Commonwealth v. Coyne, 228 Mass, 269; Commonwealth v. Mulrey, 170 Mass. 103.) Evidence tending to show consciousness of guilt is admissible as a circumstance which the jury may take into consideration with the other evidence in the case. (Greenfield v. People, 85 N. Y. 75; People v. Place, 157 N. Y. 584; Lindsay v. People, 63 N. Y. 143; People v. Schooley, 149 N. Y. 99; Stover v. People, 56 N. Y. 315; People v. Dyle, 21 N. Y. 578; People v. Johnson, 140 N. Y. 350.)
   Hxjbbs, J.

The defendants, Connolly and Seely, have been convicted of the crime of conspiracy, in violation of subdivision 4 of section 580 of the Penal Law, which makes it a misdemeanor for two or more persons to conspire to cheat and defraud another out of property, by any means which are in themselves criminal, or which, if executed, would amount to a cheat, or to obtain money or any other property by false pretenses.” At the time of the alleged conspiracy, Connolly was Borough President of the borough of Queens, city of New York. Seely was an assistant engineer of the borough of Queens. Clifford B. Moore was a consulting engineer in the engineering department of the borough and John M. Phillips was a dealer in sewer pipe, engaged in selling precast lock-joint sewer pipe. The People’s case was based upon the claim that the defendants, Connolly and Seely, conspired with Moore, who was not indicted, and Phillips, who was indicted but died before trial, to so manipulate the advertisements for bids for contracts to construct sewers that thé bidders were compelled to use the particular kind of pipe sold by Phillips, and that, thereby Phillips was enabled to charge exorbitant prices for such pipe, and thus obtained a monopoly of the sale of pipe to contractors in the borough of Queens, the result being that the city let contracts for sewers at prices far in excess of the fair and reasonable cost of the same. It was charged that the defendant Seely so drafted the specifications for sewers that bidders for contracts were practically compelled to use the special kind of pipe sold by Phillips, and that Moore furnished to Connolly written advices which, upon the face of the writings, justified Connolly in sighing the contracts let at exorbitant prices. It was charged that as a result of such conspiracy, Phillips received over $3,000,000 for pipe in excess of an amount which would have been a fair and reasonable price for such pipe, and that the city paid to contractors for sewers that amount over which it would have been obliged to pay if it had not been for such conspiracy. It was also charged that in certain instances the lowest bidder for certain sewer contracts had put in a bid in opposition to the wishes of Phillips and with an intent not to use his pipe, and that in those instances, as a result of the conspiracy, the low bids were rejected by Connolly and thrown out. He, as Borough President, had authority to reject a bid and to readvertise for new bids. In all such instances where a low bid was rejected and the contract readvertised, one of Phillips’ friendly contractors was the lowest bidder and received the contract.

In all cases where a new sewer was to be constructed, and before advertisements for bids for contracts to construct were published, the engineering department made a carefully prepared estimate of its fair cost. The contracts in question were let at a very much higher cost to the city than the engineers’ estimates called for. In some instances contracts were let at twice the estimated cost. In certain cases the increased cost was measured approximately by the difference between the amount which the contractor was obliged to pay Phillips for the pipe used, and what would have been a fair price for it. In most cases the contractors were obliged to pay Phillips from five to ten times the fair value of the pipe used. As a result the city paid over $3,000,000 more for the construction of the sewers in question than it would have paid if the contractors could have purchased the pipe at a fair price or if the specifications for pipe had been fairly drawn so that the contractors could have used different kinds of pipe.

In our opinion there can be no reasonable question that the evidence established a prima fade case of the existence of the conspiracy charged.

Upon this appeal, no question is raised by the defendant Connolly that the evidence did not establish a prima fade case of the existence of a conspiracy between Phillips and himself. The defendant Seely does urge that a prima fade case was not established against him.

No useful purpose would be accomplished by a detailed recital of the evidence which leads us to the almost irresistible conclusion that the guilt of both defendants was established beyond a reasonable doubt. The prevailing opinions delivered in the Appellate Division discuss the evidence in detail. With the conclusion reached in that court as to the facts we are in full accord.

It is urged that the admission of certain evidence over the objection and exception of the defendants constituted error which requires the reversal of the judgment. Connolly’s bank account was received in evidence and testimony was also received tending to establish the fact that during the years 1925, 1926 and 1927 he was in possession of and used over $145,000 in currency in excess of the amount of his salary, and that none of that money passed through his bank accounts. It is argued that such evidence was erroneously received. In considering the question of the legality of the receipt of such evidence, it must be borne in mind that the defendant Connolly concedes that the People’s evidence established a prima fade case of conspiracy between him and Phillips. The evidence tended to establish that during a period of less than three years he used in currency over $145,000 in purchasing real estate, making loans, buying mortgages and paying his architects’ fees. Twenty-three transactions were involved with fourteen different persons. The different transactions each involved the use of currency in amounts varying from $2,000 to $19,000. Real property mortgages were purchased for which he paid in currency $5,800, $6,500, $11,000 and $15,500 each, and he loaned in currency $15,000 on one occasion and $19,000 on another. Those unusual and extraordinary transactions took place during the periods when Phillips, his co-conspirator, was defrauding the city of vast sums of money, by reason of contracts executed by Connolly as Borough President, signed in some instances upon the written advice of Moore, his consulting engineer, and based upon specifications prepared by the defendant Seely in such a manner as to prevent fair, competitive bidding.

It is abo contended that the evidence of Moore’s bank account was improperly received. Moore was a consulting engineer. He was appointed as assistant engineer in 1904 at a salary of $1,650 per annum. He remained in the engineering department until after the time in question. His salary had been increased to $8,000 per annum and he had been promoted to the position of consulting engineer. He made written recommendations to Connolly, in regard to the acceptance or rejection of bids for sewer contracts, and the signing of such contracts. Contracts in question were signed by Connolly upon Moore’s written recommendation, in cases where Phillips’ interest was involved, which contracts enabled Phillips to extort large sums from the contractors, thereby increasing the cost of the sewers to the city. He recommended the signing of contracts, the bids for which he must have known were much higher than the engineers' estimates, and grossly excessive in amount. The bids in question ran from approximately fifty per cent to one hundred per cent higher than the engineers’ estimates. He recommended the acceptance of bids put in by contractors favored by Phillips in cases where the bidders had never had any experience in sewer construction work, did not have any equipment to do the work and had no financial responsibility. When such bidders received contracts, they promptly assigned them to parties recommended by Phillips, and received large sums for the assignments, and Phillips also received large sums for bringing about the assignments.

The witness Paulsen had received a contract, after agreeing with Phillips to use his pipe at an exorbitant price named by Phillips. Trouble arose about the payment for the pipe. Paulsen desired to bid on another contract but was notified by Phillips not to bid and informed that he could not get another contract. He disregarded Phillips’ warning and put in a bid, figuring the pipe at a much lower figure than he had agreed to pay Phillips for pipe for his existing contract, hoping to be able to make the pipe himself. His bid was about $150,000 lower than the next lowest bid. Paulsen was notified to appear at the engineers’ office. He went and had a talk with Moore and the Commissioner of Public Works in regard to the time when he could commence work on the first contract which had been awarded to him under an agreement to use Phillips’ pipe. He testified that he told them that he would be ready to start work in July. That conversation was on May 27th. Moore wrote a letter to Connolly on June 22d, in which he referred to the conversation with Paulsen and wrote: He stated * * * at that time that he would have all of the material on the job the following Tuesday and would start work in earnest inside of a week after that.” In that letter he called attention to the fact that the second contract had not yet been let and suggested, in effect, that it should not be, because Paulsen had not shown good faith in commencing the other contract as he had promised to do. The jury might have found that the statement in the letter was intentionally false and written to give Connolly an excuse for rejecting the bid. Two days later Connolly rejected the bid.

We deem it unnecessary to state further details of Moore’s conduct in relation to the bids and contracts in question. We are satisfied that the evidence justified the trial court in reaching the conclusion that a prima fade case had been established, that Moore was a party to the conspiracy. He supplied the letters which furnished an excuse for Connolly to sign contracts on bids double the engineers’ estimates, although he was a consulting engineer himself. He wrote letters suggesting the rejection of the lowest bids, in cases where it was for Phillips’ interest to have the bids rejected. In at least one instance the jury might have found that the reason assigned for rejecting a bid was deliberately false. He apparently did everything a conspirator in his position would do to facilitate the conspiracy. Were the recommendations made by Moore honest? Were they made to furnish Connolly an excuse? Did he have a dishonest motive? Was he a co-conspirator with Phillips, Connolly and Seely? Under all the facts and circumstances in the case, those were questions of fact for the consideration of the jury.

In prosecutions for the crime of conspiracy the People’s case must usually rest upon circumstantial evidence. Defendants, with the education, training and experience of the defendants in this case, do not conduct criminal conspiracies by making written records of their acts. Standing alone, the evidence of various transactions introduced by the People has little or no probative force. It is only when the evidence is viewed as a whole, in the light of all the surrounding circumstances, that it points irresistibly to the conclusion that the defendants were engaged in an unlawful scheme to defraud the city.

Moore had not been indicted and was not on trial. Nevertheless, the People were entitled to prove that he was a member of the conspiracy and that his acts in writing Connolly, advising the signing of contracts and the rejection of bids, were in furtherance of the conspiracy. (Clune v. United States, 159 U. S. 590, 593.)

A prima fade case of conspiracy having been established, evidence of every act of the individual conspirators done in furtherance of the common purpose is admissible. (People v. Davis, 56 N. Y. 95; People v. Cassidy, 213 N. Y. 388.) The theory upon which such evidence is held to be admissible has been stated in various ways. The fact that it is admissible has not been questioned.

As a prima fade case was established that Phillips and Connolly were engaged in a conspiracy, it follows that evidence of the acts of each in furtherance of such conspiracy was properly received. While the conspiracy existed and Phillips and Connolly were actively engaged in it, and Phillips was receiving on the average over a minion dollars a year unlawfully as a result of the conspiracy, Connolly possessed over $145,000 in currency which he used in the irregular and extraordinary manner described.

The receipt of the evidence of Connolly’s financial transactions during the period was justified by elementary principles governing the admissibility of evidence under such circumstances. Phillips and Connolly were engaged in an unlawful scheme to create a fund by fraudulently inducing the city to let contracts at a dishonest and exorbitant price. The unlawful acquisition of money was the very purpose of the conspiracy. The fruits of the dishonesty were traced into the possession of Phillips, one of the co-conspirators.' Connolly’s unlawful acts helped create the fund. What was his motive? Why did he depart from the path of rectitude and become a party to such a corrupt scheme? The answer is found in the evidence of his possession of that large sum of money, which he tried to cover up so, that his possession of it could not be traced through his bank accounts. The evidence established his motive, evidence of which is always competent in a criminal case. (Pierson v. People, 79 N. Y. 424, 435.)

. It also tended to establish that the co-conspirators were dividing the spoils. The evidence was admissible for the purpose of establishing that Connolly, during the commission of the conspiracy, was in possession of currency in excess of his usual income. His bank accounts disclosed that his salary was deposited and checked out in the usual way and that the $145,000 did not pass through such accounts.

It was not necessary to offer further preliminary proof of his financial means, and by evidence exclude the possibility that he came by the money honestly. (Gordon v. People, 33 N. Y. 501; People v. Gaffey, 182 N. Y. 257; Commonwealth v. Mulrey, 170 Mass. 103; Commonwealth v. Coyne, 228 Mass. 269; Wigmore on Evidence [2d ed.], vol. 1, § 154.)

Connolly testified in his own behalf but failed to offer any explanation of his possession of such a large amount of currency or of his unusual manner of handling it. That was a circumstance which the jury was entitled to consider in determining his guilt or innocence of the crime charged. He was not obliged to become a witness, but having done so, his conduct as a witness must be measured by the same standards as apply to the conduct of other witnesses. (Stover v. People, 56 N. Y. 315, 320; People v. Dyle, 21 N. Y. 578; People v. Johnson, 140 N. Y. 350.)

During the period when Phillips was fraudulently extracting over $3,000,000 from the contractors which ultimately was paid by the city, and Connolly was in possession of over $145,000 more than his salary, Moore deposited in a bank over $60,000 more than his salary, over $52,000 of which sum was deposited in cash. It is urged that evidence of Moore’s bank account was improperly received. The same reasons that made evidence of Connolly’s financial transactions competent, made evidence of Moore’s bank account competent. It was competent upon the question of motive and to show sudden enrichment. It, in connection with the other evidence in the case, explained his acts in furnishing Connolly with plausible written excuses for signing fraudulent contracts and for rejecting the low bids for other contracts. The jury in considering Moore’s written recommendations to Connolly, was entitled to know Moore’s relationship to the conspiracy, which had been established prima facie as existing between Phillips and Connolly. If the jury found from all the evidence in the case that Moore was implicated in the conspiracy, the evidence of his acts in furthering the conspiracy was competent. It was not necessary that there be direct evidence that Moore had become a co-conspirator before his acts in furtherance of the conspiracy could be proved. It was sufficient to establish that fact prima facie by circumstantial evidence, and we are satisfied that it was established.

It was not necessary to prove a conspiracy before evidence of specific acts of the alleged conspirators could be received. The conspiracy itself could be established by evidence of particular acts, which, taken together, furnished a basis for a finding that a conspiracy existed. (People v. Miles, 123 App. Div. 862, 875; affd., 192 N. Y. 541.)

The evidence was relevant to the issue. It tended to establish a division of the spoils. (Tuckerman v. United States, 291 Fed. Rep. 958, 970; Campanelli v. United States, 13 Fed. Rep. [2d] 750; United States v. Jenks, 264 Fed. Rep. 697, 700.)

In Clune v. United States (supra) the government was endeavoring to establish a conspiracy by circumstantial evidence. Referring to certain evidence which had been received, the court said: It is familiar law that where a case rests upon that character of evidence much discretion is left to the trial court, and its ruling will be sustained if the testimony which is admitted tends even remotely to establish the ultimate fact.”

The evidence presented a question of fact as to whether the defendant Seely was a co-conspirator. As assistant engineer in the engineering department, he was in charge of preparing the specifications for sewers. Prior to the time when Phillips became interested in selling precast lock-joint sewer pipe, the specifications in the borough of Queens had called for monolithic constructed sewers. A short time before Phillips took over the agency for precast lock-joint pipe, the specifications had been changed so as to permit contractors to bid on both kinds of construction. Thereafter Patrick McGovern, Inc., bid for a contract for a sewer. Its bid was low and it was awarded the contract. It used the monolithic form of construction, and Phillips did not have the advantage of selling his pipe. Thereafter Seely changed the specifications for the construction of monolithic sewers by providing that sewers so constructed should have a waterproofing, both in the main part of the sewer and in the manholes, chambers and foundations thereof. The effect of such change was to require twenty-one days to do the work which had formerly been done in three and a half days. It had the effect of making the construction of monolithic sewers so expensive and difficult that during the period in question no other monolithic sewers were constructed in the borough. The witness Paulsen testified that after the change in the specifications had been made he met Seely in Phillips’ office and that Seely explained the change in the specifications to him and saidI have got this dolled up so that Pat McGovern wont come in and muss up any of this work again. If y°u can show me where you can build forty feet (of sewer) in shorter than twenty-one days you are a good one.” . Phillips said Seely was: The fellow that can doll them up for you; ” and toid- Paulsen that he wanted him to take care of Seely and give him $1,000. Paulsen testified that he and Seely then went to a drug store and Seely said: “ If you want to take care of me as you spoke of upstairs, you can leave it here.” Seely did not testify and the testimony of Paulsen was not directly disputed. Although Paulsen testified that he did not pay Seely any money, it is urged that he was an accomplice and that his testimony was not corroborated. An examination of the record discloses sufficient evidence of corroboration of Paulsen’s testimony. The most convincing is the conduct of Seely thereafter. When it was discovered that the change in the specifications required the manholes, chambers and foundations to be waterproofed as well when precast lock-joint pipe was used as when monolithic construction was used, Seely again changed the specifications by eliminating the waterproofing in the chambers, manholes and foundations, but retained the provision requiring waterproofing of the main part of the sewers where monolithic construction was used, which alone was in competition with Phillips’ precast lock-joint pipe.

We have examined all of the other alleged errors but do not deem it necessary to discuss them, as we are in accord with the disposition made of them by the Appellate Division.

The judgment should be affirmed.

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

Judgment affirmed.


source: Caselaw Access Project

author: Crane, J.

license: Public Domain

text:
    Transit Commission, Appellant, v. The Long Island Railroad Company, Appellant, and New York and Queens Gas Company, Respondent.
    (Argued March 18, 1930;
    decided May 6, 1930.)

      George H. Stover, Frank C. Bowers and Phillip Hodes for Transit Commission, appellant.
    The grant to utility companies to locate their structures on or under the streets is subject to such uncompensated changes or relocations as public convenience or security requires. (New Orleans Gas Light Co. v. Drainage Comm., 197 U. S. 453; C., B. & Q. Ry. Co. v. Drainage Commrs., 200 U. S. 561; Lake Shore & Mich. So. Ry. Co. v. Clough, 242 U. S. 375; Chicago, Burlington & Quincy R. R. Co. v. Chicago, 166 U. S. 226; Chicago, Milwaukee & St. Paul R. R. Co. v. Minneapolis, 232 U. S. 430; National Water-Works Co. v. City of Kansas, 28 Fed. Rep. 921; Matter of Deering, 93 N. Y. 361; Chase Trucking Co. v. Richmond L. & R. R. Co., 225 N. Y. 435; Brooklyn El. R. R. Co. v. City of Brooklyn, 2 App. Div. 98; M. F. C. & H. P. R. Co. v. Spuyten Duyvil Co., 65 Misc. Rep. 367; Dry Dock, E. B. & B. R. R. Co., v. Mayor, 55 Barb. 298.) The change of grade of a street to eliminate a railroad grade crossing is as much a public improvement as a change of grade for any other purpose. (New York & New England R. R. Co. v. Bristol, 151 U. S. 556; Erie R. R. Co. v. Public Utilities Commrs., 254 U. S. 394; Missouri, Kansas & Texas Ry. Co. v. Oklahoma, 271 U. S. 303; Matter of Boston & Albany R. R. Co., 64 App. Div. 257; 170 N. Y. 619; Matter of N. Y. C. & H. R. R. R. Co., 136 App. Div. 760; Long Island R. R. Co. v. Sherwood, 136 N. Y. Supp. 752; City of Los Angeles v. Los Angeles G. & E. Corp., 251 U. S. 32; New York & Queens El. L. & P. Co. v. City of New York, 221 App. Div. 544; City of New York v. Hudson & Manhattan R. R. Co., 229 N. Y. 141.) In construing the Grade Crossing Elimination Act to include the expense of relocating public utility structures in the cost of the elimination, the Appellate Division disregarded the applicable rules of statutory construction. (Bertles v. Nunan, 92 N. Y. 152; People v. Palmer, 109 N. Y. 110.)

      Arthur J. W. Hilly, Corporation Counsel (Vincent Victory of counsel), for City of New York, amicus curiae.

    The common law placed on the defendant-respondent a burden to remove and relocate its mains whenever so required in the interest of public health, safety or welfare. (New Orleans G. L. Co. v. Drainage Comm,., 197 U. S. 453; Stern v. International Ry. Co., 220 N. Y. 294.) The common law also placed on the defendant-respondent the duty of readjusting its mains to any new street grade fixed and constructed by public authority having jurisdiction in the premises. (People ex rel. City of New York v. Belt line Ry. Corp., 230 N. Y. 86; New York Central R. R. Co. v. Westchester Lighting Co., 226 App. Div. 826; Matter of Torge v. Village of Salamanca, 176 N. Y. 324; Smith v. B. & A. R. R. Co., 181 N. Y. 132; Matter of Malenbacker v. Village of Salamanca, 188 N. Y. 370; People ex rel. Dole v. Town of Hamburg, 58 Misc. Rep. 643; 127 App. Div. 948; 193 N. Y. 614: People ex rel. Mott Wheel Works v. Hayes, 178 App. Div. 301; People ex rel. Dawson v. Duffy, 177 App. Div. 949 ; 221 N. Y. 594; City of Corning v. O’Neil, 96 Misc. Rep. 571; City of Corning v. Holmes, 180 App. Div. 458.) The defendant-respondent is also under a statutory duty to adjust its mains to meet the regulations of public authority. (Code of Ordinances City of New York, chap. 23, § 94-j, subd. 2.)

      Chauncey B. Garver and P. F. W. Ruther for respondent.
    The expense of relocating gas mains is part of the cost of grade crossing elimination. (People ex rel. Long Island R. R. Co. v. Public Service Comm., 181 App. Div. 465; 224 N. Y. 565; Matter of Town Board of West Seneca, 244 N. Y. 509; Mayor v. Boston & Albany R. R. Co.,
      225 Mass. 548; Chicago, R. I. & P. Ry. Co. v. Public Service Comm., 287 S. W. Rep. 617.) The defendant respondent has no common-law duty to relocate mains at its own expense. (National Water Works Co. v. City of Kansas, 28 Fed. Rep. 921; Necaro Co., Inc., v. Eighth Ave. R. R. Co., 220 App. Div. 144; Brooklyn El. R. R. Co. v. City of Brooklyn, 2 App. Div. 98; People ex rel. N. Y. Elec. Lines Co. v. Squire, 107 N. Y. 593; Western Union Tel. Co. v. Syracuse L. & P. Co., 178 N. Y. 325; Michigan Tel. Co. v. City of Charlotte, 93 Fed. Rep. 11; Postal Telegraph-Cable Co. v. Depew & Lancaster L., P. & C. Co., 129 Misc. Rep. 591; 225 App. Div. 728; 251 N. Y. 562; New York & Queens Elec. L. & P. Co. v. City of New York, 221 App. Div. 544; Matter of Wilcox, 213 N. Y. 218; New York Tel. Co. v. State of New York, 169 App. Div. 310; 218 N. Y. 738; New York Steam Co. v. Foundation Co., 107 N. Y. 593; City of Los Angeles v. Los Angeles G. & E. Corp., 251 U. S. 32.)
   Crane, J.

The public policy of the State of New York, as expressed in the Constitution and in statutes, is to abolish the grade crossings of steam railroads. The enormous increase in the amount of traffic upon the highways, due to the advent of the automobile, calls for some action in behalf of the public welfare to reduce the peril and the danger occasioned by the meeting of the tracks and the street. While realizing the necessity for a change, the people of this State also recognize that it would be impossible and impracticable for the railroads to reconstruct these crossings so as to run over or underneath the highways at their own expense. The people have evidenced a willingness to share the burden, by adopting in 1925, amended in 1927, an amendment to the State Constitution, which became and now is article VII, section 14, of that instrument. This permits the Legislature to . authorize by law the creation of a State debt, not exceeding in the aggregate $300,000,000, to provide moneys for the elimination, under State supervision, of railroad crossings at grade within the State at the expense of the State and railroad companies, counties and cities. (Matter of Grade Crossings [City of Buffalo], 251 N. Y. 331.) Following this constitutional amendment, the Legislature passed chapter 510 of the Laws of 1926, superseded by chapter 677 of the Laws of 1928, amended by chapters 431 and 681 of the Laws of 1929, to be known as “ New York City Grade Crossing Elimination Act.” This provides that all existing highway railway crossings at grade in the city of New York shall be eliminated in the manner therein stated, the cost to be borne, forty per cent by the State, ten per cent by the city, and fifty per cent by the railroad corporation. All the crossings are not to be eliminated at once, but the work is to proceed -gradually by the selection of certain crossings, which may be changed during the calendar year, on application of the Board of Estimate of the city. Notice of the proposed action of the Transit Commission in ordering these changes is to be given under the terms of the act to the railroads affected and also to any person or persons deemed by the Commission to be interested in the proceeding. The Transit Commission shall direct how the elimination shall be made, and shall approve of the contracts for, as well as supervise the construction of, the work. If necessary, the State is authorized to advance the money to carry out the reconstruction, which is to be repaid in the manner designated. The payments to be made by the city are to be charged up to the taxpayers.

The act is quite full and complete in detailing the steps which are to be taken to bring about this change in transit conditions in the city of New York. These brief references, however, to some of its provisions indicate that the work of eliminating grade crossings under this act, is a public work authorized by specific provisions of the Constitution, to be paid for in a large measure out of public funds. The people of this State, in order to preserve and enhance the safety of the traveling public, and to guard the life, limb and welfare- of its citizens, have not only ordered and directed the railroads to eliminate grade crossings, but also, through the Constitution and the laws, agreed to share the expense. The whole matter is a public undertaking in behalf of the welfare of the people of this State, and in this instance, the people of the city of New York, in which the railroads are to pay a part of the cost.

On August 3, 1927, the Transit Commission, acting in accordance with the New York City Grade Crossing Elimination Act, above mentioned, made its final order directing the Long Island Railroad Company to eliminate two grade crossings at Cross Island boulevard, Auburn-dale, and Bell avenue, Bayside, New York city. The New York and Queens Gas Company has a franchise to run its gas main through Bell avenue at this point, and owns and maintains an eight-inch pipe in the bed of Bell avenue, Bayside, underneath and below the crossing at grade of the tracks of the Long Island Railroad Company. The plans prepared by the engineers to carry out the order of the Transit Commission propose to depress the tracks of the railroad at Bell avenue crossing about twenty feet below the present grade. This of course requires the removal and relocation of the gas main. The Gas Company received notice of the hearing before the Transit Commission upon the application of the Board of Estimate and Apportionment of the city of New York for the elimination of this grade crossing, and appeared on the hearings by its vice-president and its attorney and counsel. In other words, pursuant to the provisions of the Elimination Act, the Gas Company was deemed by the Commission to be a party interested in the proceeding and was thereupon given notice of the application and a full opportunity to be heard by its representatives and counsel. The final order of the Commission followed.

The Gas Company, realizing that it alone could remove or disconnect its gas main with safety, refused to obey the order of the Transit Commission, or to relocate its pipes, and refused to permit the contractor for the Long Island Railroad Company to interfere with its main, unless and until the cost of making the changes was either paid or guaranteed to it. The action in the field has brought into the court the question whether the cost of removing this gas main must be borne by the New York and Queens Gas Company, or whether it is part of the elimination cost to be borne by the taxpayers and the Railroad Company.

The Gas Company has received from the public authorities its franchise or privilege to lay and maintain its gas main under the surface of the public street. Without this grant from the people it has no rights in the highway. This privilege, or franchise, is at all times subject to the police power of the State; in other words, the company maintains its pipes subject to the obligation to remove them whenever the public health or safety require this to be done. Although authorized to lay its pipes in the public streets, the company takes the risk of their location and is bound to make such changes as the public convenience and security require, at its own cost and charge. (Chicago, Burlington & Quincy R. R. Co. v. Chicago, 166 U. S. 226; New Orleans Gas Light Co. v. Drainage Commission, 197 U. S. 453; Chicago, Burlington & Quincy R. R. Co. v. Drainage Commrs., 200 U. S. 561; Lake Shore & Michigan Southern R. Co. v. Clough, 242 U. S. 375; Chicago, Milwaukee & St. Paul Ry. Co. v. City of Minneapolis, 232 U. S. 430; National Water Works Co. v. City of Kansas, 28 Fed. Rep. 921; Matter of Petition of Deering, 93 N. Y. 361; Chace Trucking Co. v. Richmond Light & R. R. Co., 225 N. Y. 435.) All these cases are to the point, that these public service corporations maintain their rights in the streets, subject to reasonable regulation and control, and are bound to relocate their structures at their own expense whenever the public health, safety or convenience requires the change to be made. This common-law rule, however, does not go so far as to place the cost of removal and relocation upon the company, when the change is required in behalf of other public service corporations or in behalf of municipalities exercising a proprietary instead of a governmental function. The departure from the rule arises out of the distinction between public welfare and private enterprise of a quasi public nature. (City of Los Angeles v. Los Angeles Gas & Electric Corp., 251 U. S. 32; New York & Queens Elec.L. & P. Co. v. City of New York, 221 App. Div. 544, and City of New York v. Hudson & Manhattan R. R. Co., 229 N. Y. 141.)

The fact that the New Jersey statute (Act of March 12, 1913, ch. 57, N. J. P. L. 1913, p. 91) makes special provision for public service corporations and companies of like nature to make changes in or removals of their property at their own expense under grade crossing elimination plans, does not signify that the New Jersey courts take a different view of this common-law obligation. (Erie R. R. Co. v. Public Utility Commissioners, 254 U. S. 394.) Clarity is obtained by these specific provisions, and the Grade Crossing Ehmination Act of this State might well have contained similar words. The fixing of an obligation in statutes similar to these grade crossing acts dealing with many details and directions does not always indicate that the obligation would not have existed at common law, and is solely dependent upon the phraseology of the statute. In People ex rel. L. I. R. R. Co. v. Public Service Commission (181 App. Div. 465; affd., 224 N. Y. 565) the opinion expressly assumes that the several companies whose structures were interfered with could have been compelled by the exercise of proper authority to make the necessary shifting and relocation of those structures. The facts in Mayor, etc., v. Boston & Albany R. R. Co. (225 Mass. 548, 562) do not bring if within the point of our present discussion.

The case of New Orleans Gas Light Co. v. Drainage Commission (197 U. S. 453) embodies the law which has been consistently followed in this State and elsewhere, and from which I can find no departure. The opinion states: It would be unreasonable to suppose that in the grant to the gas company of the right to use the streets in the laying of its pipes it was ever intended to surrender or impair the public right to discharge the duty of conserving the public health. The gas company did not acquire any specific location in the streets; it was content with the general right to use them, and when.it located its pipes it was at the risk that they might be, at some future time, disturbed, when the State might require for a necessary public use that changes in location be made. * * * We see no reason why this same principle should not apply to the sub-surface of the streets, which, no less than the surface, is primarily under public control. The need of occupation of the soil beneath the streets in cities is constantly increasing, for the supply of water and light and the construction of systems of sewerage and drainage, and every reason of public policy requires that grants of rights in such sub-surface shall be held subject to such reasonable regulation as the public health and safety may require.”

As we are approaching this case from the fundamental common-law right applicable to franchises in streets as limited by the police power, we need only refer to the Transportation Corporations Law (Laws of 1926, ch. 762; Cons. Laws, ch. 63), under which gas and electric companies are incorporated. Subdivision 1 of section 11 gives these companies power to lay conductors for gas in streets with the consent of the municipal authorities and under such reasonable regulations as they may prescribe. The Code of Ordinances of the City of New York (Ch. 23, art. 9, § 94, subd. 2), among other things, provides: Public service corporations whose pipes, mains or conduits are about to be disturbed * * * by the regulating or grading of any street, shall, on the receipt of the notice provided for in the preceding subdivision, remove or otherwise protect and replace their pipes, mains and conduits, and all fixtures and appliances connected therewith or attached thereto, where necessary, under the direction of the borough president.” The city of New York, which has filed a brief in this case, presents the point that the grade at Bell avenue has been changed by the order of ;the Transit Commission, and the plans of the engineers, arid that this ordinance applies. The grade or level of Bell avenue is not to be changed; the grade of the railroad at this point drops to twenty feet beneath the avenue, so that it is the latter change which necessitates the removal of the gas main, and not any change in the grade of the highway. We doubt whether the ordinance has any application, and will not pause to discuss it.

Upon the refusal of the New York and Queens Gas Company to remove its gas main upon the request of the Long Island Railroad Company, the Transit Commission, pursuant to section 57 of the Public Service Commission Law (Cons. Laws, ch. 48], obtained an order of mandamus from the Special Term requiring the Gas Company to proceed forthwith to act in such a manner as to permit the work of elimination to proceed. The Appellate Division, by a divided court, has reversed the Special Term order, stating that while the State possesses the power to compel the New York and Queens Gas Company to relocate its structures to conform to the improvement in question, it had not exercised this power by any express language of the statute. In other words, as the New York City Grade Crossing Elimination Act made no provision for the expense of such changes, the cost was to be part of the general expense of the elimination to be borne by the State, city and railroad company.

We are of the opinion that the very reverse construction must be given to the law; that the common-law rule, as above stated, applies to the cost of all such changes, until the Legislature provides otherwise, and this it has failed to do. Chapter 677 of the Laws of 1928 must be read in connection with the common law existing at the time, with which the Legislature is presumed to have been acquainted. (Sutherland, Statutory Construction [2d ed.], vol. 2, § 499.) Rules of the common law are to be no further abrogated than the clear import of the language used in the statute absolutely requires. (Bertles v. Nunan, 92 N. Y. 152, 158.)

However, we may go further than rely solely upon a rule of construction applicable to an omission. The aim and object of the elimination act, and the methods used to accomplish its purpose, indicate that there was no intention to relieve public service corporations having franchises in the highways from their ordinary obligations. The general rule is and always has been, as we have above stated, that these corporations must relocate their properties in the highway when public necessity requires. The grade crossings of steam railroads have created an urgent necessity to do something for the safety of the traveling public. Not for the benefit of the railroads, but for the benefit of the people of the State, these grade crossings must go, and while the result may be slow in attainment, the work goes steadily on. Cost and engineering problems have to be faced; the former, the people have solved by assuming half the cost, and providing funds which may be borrowed for immediate use; the engineering problems are passed to public officials, known as the Transit Commission, under whose approval and supervision all plans are carried out. The reasonable construction of the elimination act under these circumstances is to assume that the people are not to be burdened with any heavier expense than necessity requires, and that to relieve the public service corporations having franchises in the streets of their common-law liabilities and to pass them over to the taxpayer can only be accomplished by the express direction of the Legislature.

In the absence of any such legislation, the New York and Queens Gas Company must at its own expense remove and relocate its gas main at Bell avenue, and permit the work of ehmination, as planned, to proceed.

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

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

Ordered accordingly.


author: Per Curiam.

text:
    Clara Gang, Respondent, v. Samuel Gang, Defendant, and I. Nick Gordon, Appellant.
    (Argued March 17, 1930;
    decided May 6, 1930.)

      Joshua Chinitz and I. Nick Gordon for appellant.
    The checks indorsed and delivered by plaintiff to defendant-appellant on account of his fee were not part of alimony funds and plaintiff was free to use it for payment of legal services. (Mercer v. Mercer, 73 Hun, 192; Reich v. Reich, 167 N. Y. Supp. 660; Culley v. Badgley, 196 Mich. 414; Wolcott v. Patterson, 100 Mich. 227; Matter of Hess, 133 App. Div. 654.) Defendant-appellant should not be compelled to return money voluntarily paid in consideration for professional services. (Civ. Prac. Act, § 1169; Romaine v. Chauncey, 129 N. Y. 566; Schouler on Domestic Relations [6th ed.], par. 1754; Jordan v. Westerman, 62 Mich, 170; Baskin & Co., Inc., v. Howe, 225 App. Div. 553; Turner v. Woolworth, 221 N. Y. 425; Matter of Bolles, 78 App. Div. 180; Matter of Brackett, 114 App. Div. 297; 189 N. Y. 502; Van Vleck v. Van Vleck, 21 App. Div. 272; Branth v. Branth, 57 Hun, 592; Naumer v. Gray, 28 App. Div. 529; Putnam v. Tennyson, 50 Ind. 456.)

      Murray Sanders and Alexander Rosenbaum for respondent.
    An appeal to the Court of Appeals may not be taken from the order of reversal of the Appellate Division as a matter of right. (Civ. Prac. Act, § 558; Schell v. Mayor, 128 N. Y. 67; New York Security & Trust Co. v. Saratoga Gas & Elec. Co., 156 N. Y. 647; Cataract Journal Co. v. Fuller, 220 N. Y. 766.) Alimony is intended for the support and maintenance of the wife and children and the courts will not permit its purpose to be diverted to the payment of the husband’s unpaid counsel fee awarded by the court. (Romaine v. Chauncey, 60 Hun, 477; 129 N. Y. 566; Turner v. Woolworth, 221 N. Y. 425; Matter of Bolles, 78 App. Div. 180; Matter of Dangler, 192 App. Div. 237.)
   Per Curiam.

Although this proceeding to compel the appellant to refund money received by him from his client is entitled in the action, it is in fact a special proceeding, and the order made at Special Term was a final order, and the order of the Appellate Division modifying that order is appealable to this court as a matter of right. It does not appear from the order of the Appellate Division that the modification was upon a question of fact. In the absence of such a provision in the order of the Appellate Division, this court will assume that the modification was upon an error of law. We apply to final orders the same presumption as to the grounds of a reversal by the Appellate Division that we are expressly commanded" to apply where there has been a reversal of a judgment (Civ. Prac. Act, §§ 602, 620; Matter of Flagler, 248 N. Y. 415, 420; Goodman v. Marx, 234 N. Y. 172, 174). This was the practice under the Code (Code Civ. Pro. § 1338; Moore v. Vulcanite Portland Cement Co., 220 N. Y. 320; People ex rel. Manhattan Ry. Co. v. Barker, 165 N. Y. 305; Matter of Shonts, 229 N. Y. 374; Schnibbe v. Glenz, 252 N. Y. 7). We have continued to apply it under the statute now in force.

In the case at hand the facts before the Special Term justified it in making the order which it made. We find' no error of law which required modification. The funds in the possession of the plaintiff could be lawfully used to pay her attorney for services rendered by him in the prosecution of the action.

The order of the Appellate Division in so far as it modifies the order of the Special Term should be reversed and the order,of the Special Term affirmed, with costs in the Appellate Division and in this court.

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

Ordered accordingly.


author: Pound, J.

text:
    Irving Trust Company, Respondent, v. Joseph Leff, Appellant.
    (Submitted March 19, 1930;
    decided May 6, 1930.)

      A. S. Cutler for appellant.
    The plaintiff’s duty was to pay only upon authorization of the defendant depositor and the plaintiff’s obligation was to make inquiry. (Critten v. Chem. Nat. Bank, 171 N. Y. 219; Crawford v. West Side Bank, 100 N. Y. 50; Bischoff v. Yorkville Bank, 218 N. Y. 106; First Nat. Bank v. National Bway. Bank, 156 N. Y. 459; Susquehanna Line, Inc., v. Auditore, 223 App. Div. 585; Baruch v. Buckley, 167 App. Div. 113; Farjeon v. Fulton Securities Co., 225 App. Div. 541; Fidelity & Deposit Co. v. Queens Co. Trust Co., 226 N. Y. 225.) The plaintiff cannot claim to be an innocent holder for value. The relation between the parties was that of debtor and creditor. (Critten v. Chem. Nat. Bank, 171 N. Y. 219; Neg. Inst. Law, §§ 20, 91; Old Colony Trust Co. v. Stumpel, 126 Misc. Rep. 375; 247 N. Y. 538; Tisdale Lumber Co. v. Piquet, 153 App. Div. 266; Ward v. City Trust Co., 192 N. Y. 61; Davis Sewing Machine Co. v. Best, 105 N. Y. 59; Carnright v. Gray, 57 Hun, 518; 127 N, Y. 92; Seacord v. Burling, 5 Den. 443.)

      William A. Onderdonk and Paul E. Mead for respondent.
    The defendant’s counterclaim is insufficient in law. (Clarke v. Dillon, 97 N. Y. 370; Busch v. Interborough R. T. Co., 187 N. Y. 388; Rich v. N. Y. C. & H. R. R. R. Co., 87 N. Y. 382.) The Appellate Division properly reversed the order of Special Term denying plaintiff’s motion for summary judgment. (Fidelity & Deposit Co. v. Queens County Trust Co., 226 N. Y. 225; Trust Co. v. Conklin, 65 Misc. Rep. 1; Little Falls Dairy Co. v Berghorn, 130 Misc. Rep. 454.)
   Pound, J.

The Appellate Division, reversing the Special Term, granted plaintiff’s motion to strike out the counterclaim set up in the answer and for summary judgment on the pleadings. The only question presented on this appeal is as to the sufficiency in law of the defendant’s counterclaim.

The complaint states a cause of action for a balance of $4,933, with interest thereon from March 18, 1929, due on a promissory note made by defendant for $10,000 payable to himself and indorsed to plaintiff.

The answer denies that no part of the note has been paid except $5,067, but it appears that the amount due on the note is correctly set forth in the complaint. It further alleges by way of counterclaim that at all the times thereinafter mentioned defendant was a depositor in the plaintiff’s bank and had a checking account with it; that on or about March 10, 1928, the defendant delivered to one Bragin a so-called check in the sum of $1,000, drawn on plaintiff and having on its face the following words: “ Void unless and until title to premises 502-14 Liberty Street, Camden, New Jersey is taken by Joe Leff ” (the defendant); that on or about March 16, 1928, Bragin surrendered this check to defendant’s attorney and received in exchange therefor defendant’s unconditional check for $1,000, drawn on plaintiff’s bank, which check was paid to Bragin by plaintiff; that Bragin stole the surrendered conditional check from the possession of defendant’s attorney and the plaintiff thereafter cashed the same without making any inquiry of the defendant as to whether the conditions on the face of the check had been met; wherefore defendant demands judgment for $1,000 against plaintiff. The counterclaim arises out of an alleged breach of contract between the bank and its depositor to pay on the depositor’s account only upon the actual direction of the depositor. The relation existing between a bank and a depositor being that of debtor and creditor, the bank can justify a payment on the depositor’s account only upon the actual direction of the depositor.” (Critten v. Chemical Nat. Bank, 171 N. Y. 219, 224.)

Affidavits were read in support of the motion for summary judgment and in opposition thereto. The plaintiff bank was not shown to be chargeable with actual knowledge of the transaction between defendant and Bragin. The defendant proceeded on the theory that the bank should not have paid the check to Bragin without inquiring of him as to whether title to premises 502-14 Liberty street had been taken by defendant and that if such inquiry had been made, although the bank would have learned that title had been taken it would also have learned that the check had been surrendered by Bragin to defendant and was no longer a valid obligation of the defendant.

A check, strictly speaking, is a negotiable instrument, i.e., a bill of exchange drawn on a bank payable on demand (Neg. Inst. Law [Cons. Laws, ch. 38] § 321, § 2), and it is a misnomer to speak of a non-negotiable check. This order on the bank was a non-negotiable instrument which we will for convenience continue to refer to as a check. It did not contain an unconditional promise or order to pay.” (Neg. Inst. Law, § 20, subd. 2.) The bank, of course, took the chance in paying that the condition expressed on its face had been performed. It might have obtained this knowledge from Bragin or from any other available source. No duty rests on a bank to call up its depositor when a genuine check comes in to inquire whether it should be paid. The defendant’s signature was genuine. The instrument was complete in form. The condition precedent to payment had been fulfilled. On defendant’s theory of a breach of duty of inquiry as to the fulfillment of this condition, he cannot prevail if the check was a valid instrument as between the maker and the bank.

On the pleadings, however, the further question arises as to whether the check when presented to the bank for payment was a valid instrument as between the maker and the bank. Although this question is not argued, it is considered in the opinion of the court below which disposed of it under the rule applicable to negotiable instruments.

To sustain plaintiff’s recovery herein, the non-negotiable check must have had a valid inception. A check has no vahd inception until dehvery. (Cowing v. Altman, 71 N. Y. 435, 441.) Dehvery means transfer of possession actual or constructive, from one person to another. (Neg. Inst. Law, § 2.) Dehvery is sometimes presumed, conclusively or subject to rebuttal, for the protection of negotiable paper. Negotiable Instruments Law (§ 35) provides: “Where the [negotiable] instrument is in the hands of a holder in due course, a vahd dehvery thereof by ah parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a vahd and intentional dehvery by him is presumed until the contrary is proved.”

But this provision is pecuhar to negotiable instruments. In the case of non-negotiable instruments, the thief has no title and can give none. He cannot obhgate a party or support a right. (Cf. Sabine v. Paine, 223 N. Y. 401.) Defendant may estabhsh that when the check was surrendered to him in exchange for his unconditional check, it ceased to be a legal order to pay money, conditional or otherwise; and that it was a nullity when it was presented to the bank for payment.

“Act and intention are the essential constituents of a dehvery which makes the instrument operative according to its terms.” (Grannis v. Stevens, 216 N. Y. 583, 587.) The question is, did the defendant do such an act in reference to the check as evidenced the intention to give it effect and operation? Had he authorized the bank to pay the check? A vahd and intentional dehvery must appear. Possession and production of a non-negotiable instrument are not enough as against the allegation that no valid delivery had been made. To steal means to take away from one in lawful possession without right with the intention to keep wrongfully. An allegation of theft puts in issue the delivery of the check. In cases where the law does not protect holders in due course, inquiry by the bank of the maker is a necessary precaution for protection against imposition by a thief.

The counterclaim states a cause of action which is not put in issue by the pleadings and which, in the absence of a reply, stands admitted. No question of defendant’s negligence is presented by the record.

Under the practice permitting a partial judgment, the court should have granted plaintiff’s judgment for $3,933, and interest thereon from March 18, 1929, being so much of plaintiff’s claim as defendant’s counterclaim does not seek to reduce; severed the action on the counterclaim from the cause of action set forth in the complaint and denied the motion to strike out the counterclaim. (Civil Practice Act, § 476; Civil Practice Rules, rule 114.)

The judgment should be reversed with costs in this court and in the Appellate Division; the motion for summary judgment for plaintiff granted for $3,933, with interest from March 18, 1929; the order of Special Term so far as it denies the motion to strike out counterclaim affirmed and plaintiff given twenty days to serve a reply.

Cardozo, Ch. J., Crane, Kellogg, O’Brien and Hubbs, JJ., concur; Lehman, J., not voting.

Judgment accordingly.


author: Cardozo, Ch. J.

text:
    In the Matter of the Application of The People of the State of New York, by James A. Beha, as Superintendent of Insurance, Appellant, for an Order to Take Possession of the Property of the First Russian Insurance Company, Respondent. Fred S. James and Company, Respondent.
    (Argued March 17, 1930;
    decided May 6, 1930.)

      James F. Donnelly, Alfred C. Bennett, John M. Downes and Clarence C. Fowler for appellant.
    No interest upon foreign claims should be allowed in the liquidation proceedings here. (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148; Matter of People [City Equitable Fire Ins. Co.], 238 N. Y. 147; Matter of People [Norske Lloyd Ins. Co.], 249 N. Y. 139.)

      Frederick B. Campbell and Paul C. Whipp for First Russian Insurance Company, respondent.
    Interest upon the claim as allowed should be computed only from December 31, 1928, and not from January 3, 1923. (Civ. Prac. Act, § 56; Minion v. Warner, 238 N. Y. 413.)

      Louis J. Wolff and David Rumsey for James & Company, respondent.
    Interest was properly allowed. (Civ. Prac. Act, § 480; American Iron Co. v. Seaboard Air Line Ry. Co., 233 U. S. 261; Prager v. N. J. Fidelity & Plate Glass Ins. Co., 245 N. Y. 1; Tuzzeo v. American Bonding Co., 226 N. Y. 171; Faber v. City of New York, 222 N. Y. 255; Matter of McAusland, 235 Fed. Rep. 173; Coder v. Arts, 213 U. S. 223; Collier on Bankruptcy [13th ed.], vol. 2, p. 1396; Frasse v. Hartford Automotive Parts Co., 300 Fed. Rep. 876; Remington on Bankruptcy [2d ed.], vol. 2, § 19974.)
   Cardozo, Ch. J.

By an order of the Supreme Court made in August, 1925, the Superintendent of Insurance was directed to take possession of .any property in this State belonging to the First Russian Insurance Company, a Russian corporation, in order to conserve and liquidate its assets as the nature of the case and the interests of its policyholders, creditors, stockholders or the public may require ” (Insurance Law, § 63, subd. 4; Cons. Laws, ch. 28).

Before the entry of that order the respondent Fred S. James & Co., as assignee of a foreign creditor, a British corporation, had procured a warrant of attachment against the property of the insurance company in an action growing out of business transacted in Great Britain, and had caused a levy to be made upon assets of the defendant company in the possession of a trust company.

The assets thus subjected to the lien of the attachment had been deposited with the trust company in trust for the benefit of domestic policyholders and creditors. The claims of such policyholders and creditors, in so far as they had their origin in business transacted in this.country, were a primary charge upon the fund, and attachment Hens and others were subordinate thereto (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148). Even so, there was. a reversionary interest in the surplus, if surplus there should prove to be, which, until an order had been made for the appointment of a Hquidator, was subject like other assets to attachment or sequestration in aid of claims arising from business done abroad (Murphy v. Second Russian Ins. Co., 240 N. Y. 554).

The Superintendent of Insurance has now completed the task of Hquidation in respect of domestic claims, and holds a surplus in his hands to be disposed of as if it had been committed to his custody as an ancillary receiver (Insurance Law, § 63, subd. 5; Matter of People [Second Russian Ins. Co.], 243 N. Y. 524). This surplus, which is part of the fund that was attached while in the possession of the trust company, is claimed by the attaching creditor to the extent that recourse thereto is necessary to satisfy its Hen. The debt having been proved, an order has been made that principal and interest be paid by the Hquidator out of the fund in his possession. The question to be determined is the propriety of the award of interest.

There is indeed a general rule in the distribution of estates that from the time when the assets have been subjected to the administration of the law, interest ceases to run in favor of any creditor who seeks a share of the assets as a beneficiary of the trust, if the result of the aHowance of such interest wiU be to prefer him over others (Matter of People [Norske Lloyd Ins. Co.], 249 N. Y. 139). In the case now before us, we know that after satisfying the local creditors, a surplus is available for the benefit of creditors whose claims have their origin in business in foreign lands. We do not know how many those creditors are, nor whether the surplus will be adequate to pay them all in full. That being so, the argument is pressed that the lien of an attachment, though charged upon the fund in advance of the date of liquidation, is ineffective as security for interest subsequently accruing.

We think the argument misconceives the scope and rationale of the rule that it invokes. The claimant, the attaching creditor, is not asserting a claim to participate in the fund as a beneficiary of a trust, a member of the class or group for whom administration was assumed. The claim which it asserts is not in subordination to the trust, but in priority and even, in a sense, in hostility thereto. The hen of its attachment has put it in the same position as if it were the holder of a mortgage or of an equitable hen, the product of agreement. A receiver or other officer taking such a fund into his custody, must take it as he finds it, with all its imperfections on its head. One of those imperfections for this receivership was a hen created as security, not for principal alone, but for principal and interest. The fund is not free until the hen has been discharged (Porter v. Beha, 8 Fed. Rep. [2d] 65, 76; Matter of Binghamton General Elec. Co., 143 N. Y. 261, 264; Bennett v. Complete Electric Const. Co., 8 App. Div. 301; Woerishoffer v. North River Const. Co., 99 N. Y. 398, 402; Matter of People [Norske Lloyd Ins. Co.], supra, at p. 167; Sedgwick, Collins & Co. v. Rossia Ins. Co. of Petrograd, [1926] 1 K. B. 1; 25 Lloyd List Law Reports, 453; High on Receivers [4th ed.], § 348, p. 435).

Other objections have been considered and have been found to be untenable.

The order should be affirmed with costs.

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

Order affirmed.


author: Kellogg, J.

text:
    John A. Doyle, Appellant, v. The Chatham and Phenix National Bank of the City of New York, Respondent.
    (Argued March 20, 1930;
    decided May 6, 1930.)

      Herbert C. Smyth and George P. Breckenridge for appellant.
    The defendant was negligent in accepting collateral which was worthless and not of the kind required by the trust indenture. In its dealings with investors it was required to act in good faith and was liable if it allowed itself to be used to lend weight to worthless bonds. (Rhinelander v. Farmers’ Loan & Trust Co., 172 N. Y. 519; Costello v. Costello, 209 N. Y. 252; Cunningham v. Cunningham, 81 S. Car. 506; American Bonding Co. v. Richardson, 214 Fed. Rep. 897; Merchants Loan Co. v. Trust Co., 250 Ill. 86; First Nat. Bank v. Ocean Nat. Bank, 60 N. Y. 278; Continental Ins. Co. v. Equitable Trust Co., 127 Misc. Rep. 45; 219 App. Div. 711; Hunsberger v. Guaranty Trust Co., 164 App. Div. 740; 218 N. Y. 742; Tschetinian v. City Trust Co., 186 N. Y. 432.)

      Benjamin M. Kaye for respondent.
    The certification of a bond by a trustee does not make the trustee a guarantor of the quality or extent of the security, or responsible for the accurancy of the statements indorsed upon the bond by the obligor. (Tschetinian v. City Trust Co., 186 N. Y. 432.) Where a bond contains reference to a trust indenture, such reference is sufficient to put the purchaser upon notice and charge him with knowledge of the contents, terms, conditions and limitations contained in the trust indenture. (National Salt Co. v. Ingraham, 122 Fed. Rep. 40; McClure v. Township of Oxford, 94 U. S. 429; Caylus v. New York, Kingston & Syracuse R. R. Co., 10 Hun, 295; 76 N. Y. 609; McClelland v. Norfolk Southern R. R. Co., 110 N. Y. 469; Babbitt v. Read, 236 Fed. Rep. 42.) Clauses in a trust indenture, defining the trustee’s duties and exempting the trustee from liability, are valid and binding upon the holders of bonds under such indenture. (Green v. Title Guarantee & Trust Co., 223 App. Div. 12; 248 N. Y. 627; Tuttle v. Gilmore, 36 N. J. Eq. 617; Black v. Wiedersheim, 143 Fed. Rep. 359; Browning v. Fidelity Trust Co., 250 Fed. Rep. 321; Bell v. Scranton Trust Co., 103 Atl. Rep. 1019; Newhall v. Norristown Trust Co., 124 Atl. Rep. 337; Ainsa v. Mer

      cantile Trust Co., 163 Pac. Rep. 898; Tschetinian v. City Trust Co., 97 App. Div. 389.)
   Kellogg, J.

The plaintiff is the owner of Collateral Trust Gold Bonds ” executed by the Motor Guaranty Corporation, a Delaware corporation. Certain bonds were issued directly to the plaintiff for value paid; others were issued for value to persons from whom the plaintiff purchased. The bonds are expressed to have been issued in pursuance of the provisions of a certain indenture of trust entered into between the Motor Guaranty Corporation and the defendant, the Chatham and Phenix National Bank of the City of New York, as trustee. Each of the bonds bears a certificate, signed by the defendant as trustee, which reads as follows: “ This bond is one of the series of bonds described in the Collateral Trust Indenture mentioned therein.” The securities pledged by the Motor Guaranty Corporation to protect its bond issue, which were deposited with the defendant as trustee, have proven worthless and the bonds are uncollectible. The plaintiff, as assignee of all causes of action accruing to the persons from whom he purchased, and in his own right, brings this action to recover from the defendant trustee the losses sustained, on the ground that its certificates were issued negligently and without authority, and that the plaintiff and his assignors were thereby induced to acquire worthless bonds and pay value therefor.

The collateral.trust indenture was executed on the 1st day of February, 1922. It recites that the Motor Guaranty Corporation proposes from time to time to .issue its collateral trust gold bonds, to draw interest at eight per cent, payable semi-annually; that each bond is to be written in accordance with a form of bond set up in the indenture. This form, with which the bonds of the plaintiff comply, contains the statement that the bond is secured by the trade acceptances or notes of dealers, guaranteed by the Motor Guaranty Corporation; cash or notes of purchasers in part payment for motor vehicles, or other first hen mortgages, such purchasers’ notes being endorsed by dealers and guaranteed by the Motor Guaranty Corporation.” It also contains the following: “ This bond is secured by said collateral of a face value of at least one hundred and ten percentum (110%) of the principal amount of the bond.” It also states: “This bond shall not be valid for any purpose until the Trustee’s certificate endorsed hereon shall have been duly executed.” The form of the prescribed certificate, to be signed by the defendant as trustee, is identical with each of the certificates attached to the plaintiff’s bonds, the reading of which has already been given.

The indenture provides that bonds shall from time to time be executed by the Motor Guaranty Corporation and delivered to the defendant as trustee for authentication by it; that the delivery shall be accompanied by a request, signed'by an appropriate officer of the corporation, stating the amount, date and denomination of bonds to be issued, and demanding authentication of the bonds requested to be issued. It further provides that the trustee shall thereupon, without further action by the corporation, authenticate the bonds and deliver them back to the corporation, “ provided, however, there shall be delivered to and pledged with the Trustee ” certain named collateral. The collateral to be pledged is as follows: “ (a) Cash or current funds, and/or (b) Trade acceptances or notes of dealers guaranteed by the Motor Guaranty Corporation, or notes of purchasers in part •payment for motor vehicles, or other first lien mortgages, .such purchasers’ notes being endorsed by dealers and guaranteed by the Motor Guaranty Corporation.” It also provides: “ The aggregate principal amount of cash and/or of securities delivered and pledged under subsection (b) shall always be at least equal to 110% of the amount of the Bonds to be issued hereunder in respect thereto.” It further provides: “Upon receipt of cash and /or notes, and /or first lien mortgages, all as provided and described in this article, the Trustee shall be fully protected and is authorized without further inquiry, to authenticate and deliver the Bonds specified in such requests and shall in no way be responsible to see to the application of the proceeds of any such Bond.”

The indenture further provides that the trustee may require from time to time that the corporation furnish a certificate or certificates of the president or a vice-president, attested by the secretary or assistant secretary, under the corporate seal, setting forth all or any information concerning names and addresses of makers, acceptors, and other pertinent data regarding such collateral and/or first lien mortgages, such lists, descriptions and tabulations of collateral delivered or to be delivered to the Trustee.” It contains this: Such certificate or certificates shall be conclusive evidence to the Trustee of all statements therein contained and full warrant and protection to it for any and all action taken on the faith thereof under the terms of this indenture.”

During the year 1922 the Motor Guaranty Corporation delivered to the defendant, for its certification as trustee, bonds of an aggregate par value in excess of $110,000. The defendant executed the requested certificates and returned the bonds to the corporation, which issued them to various persons upon payment of value therefor. Among these bonds were the bonds now owned by the plaintiff. In January, 1923, the corporation defaulted in the payment of interest and the • defendant resigned as trustee. The fact then appeared that the corporation had, during the course of the year 1922, deposited with the trustee, as collateral for the bonds certified by it, the notes of various persons or corporations expressing an aggregate par value in excess of $130,000, all of which, with the exception of one note for $300, were in fact utterly valueless. With the same exception, none of the notes given were for the purchase of an automobile; none were made by an automobile dealer, or, for that matter, by a dealer in goods, wares and merchandise of any description. The makers comprised a lawyer, a bond salesman, a ticket agent, a mining corporation, and a construction company. The maker of two notes, aggregating $75,000, had no occupation, business or other visible means of support, although judgments in excess of $900,000 were outstanding against him. None of the securities held by the trustee defendant, at the time the bonds now owned by the plaintiff were issued, with the exception noted, were the notes or acceptances of dealers or automobile purchasers. Subsequently to January, 1923, all the assets of the Motor Guaranty Corporation were sold for the sum of $143.30.

We agree that the defendant cannot be held as the guarantor of the sufficiency or legality of the securities pledged with it, or for negligence in not ascertaining that the securities were worthless. (Tschetinian v. City Trust Co., 186 N. Y. 432; Green v. Title Guarantee & Trust Co., 223 App. Div. 12; affd., 248 N. Y. 627; Byers v. Union Trust Co., 175 Penn. St. 318; Jones on Corporate Bonds & Mortgages, § 287a.) The purpose of the certification was not to insure the sufficiency of the security. It was to prevent an overissue.” (Ainsa v. Mercantile Trust Co., 174 Cal. 504, 512.) If the defendant, without investigation, chose to lend its name to the swindling operations of a bogus finance corporation, by acting as its trustee and certifying its bonds, provided it certified with authority and without actual knowledge of the fraud intended, it was well within its legal rights. The question before us for decision is this: May the defendant be held in damages if, without authority, it certified the bonds now owned by the plaintiff, thereby inducing the plaintiff and his assignors to advance moneys upon the faith of securities which were worthless?

It is clear that the defendant signed the certificates without authority. As we have seen, it was authorized to certify provided, however, there shall be delivered to and pledged with the Trustee certain securities. The securities enumerated were the acceptances or notes of dealers or automobile buyers. No such securities were ever delivered to the defendant. If the defendant had requested and obtained a statement from the appropriate officers of the corporation, certifying to the “ pertinent data regarding such collateral possessed by them, its authority, without further investigation, to execute the certificates could not have been questioned. However, it requested and received no such statement. Its authority, therefore, remained conditional upon the fact that the notes of déalers had been precedently deposited with it. No such securities having been deposited, it had no authority to execute the certificates.

In Conover v. Guarantee Trust Co. (88 N. J. Eq. 450; affd., 89 N. J. Eq. 584) the facts considered were these: A trust agreement provided that the mortgagor would assign to a trustee bonds and mortgages acquired by it, which had been appraised and guaranteed by á corporation associated in interest with the mortgagor; that, as the securities were deposited, the trustee would certify bonds of the mortgagor to an equal amount and deliver them to it for issuance to purchasers. The trustee accepted bonds secured by mortgages upon the lands of the mortgagor, rather than bonds and mortgages owned by the mortgagor and assigned to the trustee, and thereupon certified an equal amount of bonds which were sold subsequently by the mortgagor. It was held that the trustee was without authority to execute the certificates and was, therefore, liable to compensate the takers of the bonds for their money losses occasioned by the acquisition thereof. In Rhinelander v. Farmers Loan & Trust Co. (172 N. Y. 519) this court expressed the opinion that where a corporate mortgage provides for a certification of bonds, only upon the making by the directors of the mortgagor of a written instrument setting forth the purposes of the issue, the certification, without such a statement made, would afford to a taker of the bonds thus certified a cause of action against the certifying trustee for damages resulting from the investment. Such a recovery was there withheld, but only for the reason that the cause of action had been barred by the Statute of Limitations. In Mullen v. Banking Co. (108 Me. 498) the facts considered were these: All the bonds authorized by a trust indenture had been certified by the trustee and issued by the mortgagor. Nevertheless, on the request of a director of the mortgagor, the trustee certified two additional bonds, which were issued for value to the plaintiff. It was held that the plaintiff might recover from the trustee the difference between the value of an authorized bond and the value of the bond actually received, which was nil. The court said: “ Under these circumstances the responsibility rests upon the trustee to authenticate no bond that should not be authenticated.”

In Conover v. Guarantee Trust Co. (supra) the opinion was expressed that the right of the takers of the bonds to recover damages from the trustee, on account of its unauthorized certification, rested upon a breach of the duty owed by the trustee to the takers as cestui que trustent. A similar view was expressed in Rhinelander v. Farmers Loan & Trust Co. (supra), where the court said of the acceptance by the trustee of its trust position: “ In executing that acceptance the defendant created the relation of trustee and cestui que trust between it and the future bondholders.” Notwithstanding these expressions, it is obvious that a trustee, in wrongly certifying bonds to prospective takers, in order that they may become cestui que trust, cannot, at that moment and before the relationship is established, have violated a trust duty owed to them. Manifestly this is true: “ There is no trust or other relation between a trustee and a stranger about to deal with a cestui que trust.” (Lindley, L. J., in Low v. Bouverie, L. R. [1891] 3 Ch. 82.) In Mullen v. Banking Co. (supra) the court held that an unauthorized certificate executed by a trustee was a false representation that the bond was properly issued, rendering the trustee hable upon a cause of action in deceit. The fact that the representation was innocently made was not material, said the court, since the trustee, by its certificate, made an assertion of fact which, according to information which was or should have been within its own knowledge, was not true. In the case before us, however, it is clear that the plaintiff may not recover damages for a false representation, as in an action for deceit. In the first place, no such cause of action is alleged. In the second place, there is no proof that the trustee, in issuing its certificates, intended to" defraud the plaintiff or his assignors. Intentional fraud, as distinguished from a mere breach of duty or the omission to use due care, is an essential factor in an action for deceit.” (Kountze v. Kennedy, 147 N. Y. 124; Reno v. Bull, 226 N. Y. 546.)

That there may be liability for damages resulting from the negligent utterance of words is now the settled doctrine in this jurisdiction. (Glanzer v. Shepard, 233 N. Y. 236; International Products Co. v. Erie R. R. Co,, 244 N. Y. 331.) In the first of the cited cases a buyer of merchandise, in reliance upon an erroneous certificate of a public weigher employed by the seller, made an overpayment for the goods purchased, and was permitted to recover from the weigher the equivalent of the moneys overpaid. In the second, a consignee of merchandise, desiring to insure the same, inquired of a carrier, which was to warehouse them, where the goods would be stored. The carrier, although the goods had not yet been received, replied that they were stored upon a certain dock, and the consignee insured them at that place. They were subsequently received by the carrier and stored at another dock where they were destroyed by fire. In consequence the consignee lost its insurance. It was permitted a recovery from the carrier for the amount of its loss. No relationship had been established, between the plaintiff and the defendant, in either of these cases, when the careless statement was made. In the one, the plaintiff had no contract relationship with the weigher; in the other the relationship of bailor and bailee had not been initiated, for the goods had not been received. Nevertheless the negligent statements gave rise to causes of action.

In Glanzer v. Shepard (supra) Judge Cabdozo said: “ The defendants, acting, not casually nor as mere servants, but in the pursuit of an independent calling, weighed and certified at the order of one with the very end and aim of shaping the conduct of another. Diligence was owing, not only to him who ordered, but to him also who relied.” In International Products Co. v. Erie R. R. Co. (supra) Judge Andrews named certain elements which must be present, in order that a cause of action for negligent speaking might lie. The utterer of the statement must have knowledge that the statement is required for a serious purpose; that those for whom it is made intend to rely and act thereupon; that if it be false they may be damaged. Finally, the relationship of the parties, arising out of contract or otherwise, must be such that in morals and good conscience the one has the right to rely upon the other for information, and the other, giving the information, owes a duty to give it with care. "An inquiry made of a stranger is one thing; of a person with whom the inquirer has entered or is about to enter into a contract concerning the goods which are or are to be its subject is another. Even here the inquiry must be made as the basis of independent action. We do not touch the doctrine of caveat emptor.” The case of Derry v. Peek (L. R. 14 A. C. 337) was cited by Judge Andrews as establishing the principle, for application in the courts of England, that no action lies for a statement negligently but not fraudulently made. However, even in that case, Lord Herschell, in laying down the general rule, made this noteworthy exception: “ There is another class of actions which I must refer to also for the purpose of putting it aside. I mean those cases where a person within whose special province it lay to know a particular fact, has given an erroneous answer to an inquiry made with regard to it by a person desirous of ascertaining the fact for the purpose of determining his course accordingly, and has been held bound to make good the assurance he has given.”

The defendant here, like the defendant in Glanzer v. Shepard (supra), occupied an independent position, and issued its certificates at the behest of a third person. We may say with Judge Cardozo that the certificates were made with the very end and aim of shaping the conduct of another.” Like the utterer of the statement in the assumed case in Lord Herschell’s exception, it was the special province ” of the defendant “ to know a particular fact; ” it imparted information, by its certificates, to persons “ desirous of ascertaining the fact for the purpose of determining ” their course accordingly. Within the requirements laid down by Judge Andrews, the defendant knew that the certificates were desired for a serious purpose by persons who intended to rely and act thereupon. They were issued for the very purpose of establishing a relationship of trustee and cestui que trust between the defendant and the persons who might rely thereon. It must be remembered that this is not the case of a buyer and seller to whose transactions the principle of caveat emptor might apply. It is a case where the creator of a trust, accepted by the defendant, in a solemn instrument signed by both, named the defendant as trustee, for the special purpose, among others, that it might certify bonds to prospective investors, to the very end that the takers of the bonds might receive definite assurance that the bonds were issued pursuant to the terms of the indenture. It seems clear, therefore, that, within the authorities cited, the defendant, in so far as its certificates constituted misrepresentations of fact, innocently though negligently made, became liable to the takers of the bonds, who invested their moneys upon the faith of the certificates.

The certificates were not to be issued, as we have seen, unless acceptances and notes of dealers and automobile buyers, in excess of bonds to be issued, had been deposited with the defendant as security therefor. Necessarily, therefore, the certificates constituted representations that the deposits had been made. Clearly, if the defendant, as trustee, had issued the certificates when no securities whatever had been deposited with it, habihty for the damage done would have arisen. Equally must this follow where, as in this case, the securities deposited were not the securities specified in the trust indenture from which alone- the defendant derived its power to certify. In not ascertaining that the securities deposited were not securities of the character named in the indenture, the defendant was guilty of neghgence. In certifying the bonds, as issued pursuant to the terms of the indenture, it was guilty of neghgently making a misrepresentation of fact. The plaintiff and certain assignors were induced by the certificates to invest in the worthless bonds. If the certificates had not been executed the bonds could not have been issued and no loss would have accrued. Therefore, the false certificates were the proximate cause of the losses sustained. (Conover v. Guarantee Trust Co., supra; Mullen v. Banking Co., supra; Rhinelander v. Farmers Loan & Trust Co., supra.)

The provisions of the trust indenture in' certain instances exempting the defendant from habihty for its acts or omissions as trustee, do not, in this instance, apply. (Conover v. Guarantee Trust Co., supra; Mullen v. Banking Co., supra; Rhinelander v. Farmers Loan & Trust Co., supra.) In. Conover v. Guarantee Trust Co. (supra) the vice chancellor said: "It accordingly seems impossible to construe an immunity clause as intended to exempt a trustee from liability for transcending his powers as clearly defined by the trust agreement; his engagement is to exercise the powers, and only the powers conferred upon him, and the appropriate office and purpose of an immunity clause forming a part of a trust agreement which specifically and clearly defines the trustee’s powers appears to be to limit bis responsibility in matters of judgment and discretion committed to him in the execution of those defined powers.”

The record indicates that the plaintiff and many of his assignors took their bonds in reliance upon the certificates and in ignorance of the character of the securities deposited. The plaintiff is entitled to recover damages on account of the investments thus induced, on the basis of the consideration paid therefor plus interest, less the value of the bonds acquired, if any. (Reno v. Bull, supra.) The record leaves it in doubt whether certain other assignors were not fully aware of the character of the securities deposited and of the shady nature of the financial transactions in which the Motor Guaranty Corporation was engaged and, therefore, whether or not they in good faith relied upon the certificates in making their investments. For the determination of these questions a new trial is necessary.

The judgment of the Appellate Division and that of the Trial Term should be reversed and a new trial granted, with costs to abide the event.

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

Judgments reversed, etc.