text:
    Pennsylvania Oil Products Refining Company, Appelant, v. Willrock Producing Company, Inc., et al., Defendants, and First National Bank of Olean, New York, Respondent.

      (Argued April 22, 1935;
    decided May 21, 1935.)

      Austin W. Erwin for appellant.

      Earl C. Vedder for respondent.
   Finch, J.

The complaint is in the usual form to foreclose a real estate mortgage, given to plaintiff by defendant Willrock Producing Company, Inc., for $100,000. Defendant First National Bank of Olean was not named as a party but became such upon its own application. Defendant Willrock Producing Company defaulted in appearing and answering. Defendants Williams served answers alleging affirmative defenses, which were dismissed upon the trial, and no appeal was taken.

The defendant First National Bank of Olean, after denying any knowledge or information sufficient to form a belief as to various material allegations of the complaint, set up an affirmative defense and counterclaim alleging that the mortgage of plaintiff was made with the intention that it be subject to the right of the defendant bank to have run to its credit one-fourth of the oil produced on the premises described, and that through mutual mistake on the part of the defendants and the plaintiff, or mistake on the part of the defendants and fraud on the part of plaintiff, no provision was made in the mortgage in accordance with such intention. The relief asked for reformation of the mortgage by inserting therein the paragraph set forth in the answer. The trial of the cause in the County Court resulted in a judgment reforming the mortgage by inserting therein a new paragraph making the same subject and subordinate to the right of the defendant bank to receive one-fourth of the oil produced until the claim of the bank should be paid and satisfied.

Upon appeal by plaintiff to the Appellate Division the judgment was modified by denying reformation of the mortgage but adjudging an equitable lien superior to the mortgage in favor of the bank for the amount of the claim of the latter upon the oil in, under and upon the premises.

The facts, in brief, are as follows:

In 1926, defendants Walter E. Williams and his wife acquired certain oil lands in Cattaraugus county, giving back a purchase-money mortgage for $35,000 as part consideration for the property. They proceeded to develop the property for the production of oil. To obtain funds therefor they borrowed, from time to time, from the First National Bank of Olean an amount aggregating $24,000, giving in return their individual promissory notes, one of which pledged to the bank as collateral security one-fourth of the oil produced. It recited that the makers have pledged to the bank assignment oil runs (Vacuum No. 12) ” as security for the indebtedness. At the same time, Mr. and Mrs. Williams and the bank executed the ordinary form of what is known as a transfer or division order of the Tidewater Pipe Company, Ltd., which was the company which purchased the oil produced from the property. This order directed that the purchasers of the oil pay to the bank one-fourth of the sale price of the oil run from the property. In 1930 the purchase-money mortgage had been reduced by payments to about $20,000 and notes remained unpaid also in the sum of about $20,000. At that time oil production had fallen to less than two barrels a day. Williams then entered into negotiations with the plaintiff, Pennsylvania Oil Products Refining Company, and an agreement was arranged between them, under the terms of which the plaintiff subsequently advanced $100,000 for the development of the lands; title to the property was conveyed to a new corporation, the Willrock Producing Company, Inc., organized by the parties; and the plaintiff received a second mortgage for the $100,000 loaned. The mortgage provided that the property was free and clear of all incumbrances except the lien of the first mortgage and that it should be subsequent only to the lien of the first mortgage.

The defendant’s claim of the existence of an equitable mortgage or equitable lien in its favor to the extent of one-fourth of the oil is based upon conversations which occurred prior to the issuance of the mortgage to the plaintiff. The evidence as introduced by the defendant was that Williams during the course of negotiations had advised the plaintiff’s officers that he owed the bank a sum in excess of $20,000 and that the bank held as collateral security for such indebtedness an assignment of one-fourth of the oil produced from the property. Plaintiff’s officers requested Williams to make arrangements with the bank for the continuance of the loans which would be assumed by the new corporation. The testimony on this subject is as follows:

“ Q. Was there anything said at that time about the First National Bank of Olean? A. We discussed in a general way all the obligations at that time.
“ Q. Was there anything special? A. And Mr. Cowden asked me if I felt the First National Bank would transfer that loan to the new company, would go along with the new company and I told him that Mr. Dusenbury would have to be consulted about that and he said, Will you see him? ’
Q. Yes. A. He said, ' We don’t want to go down in our jeans for twenty-three thousand dollars.’ So I agreed to see him.
“ Q. He asked you at that time to see Mr. Dusenbury. Mr. Dusenbury is the president of the First National Bank? A. Yes, sir.
Q. And see what arrangement would be made by the bank? A. See what they would do.”

Shortly afterward, Williams saw the president of the bank and outlined to him the plaintiff’s proposal and asked the bank’s president if the bank would be willing to continue the Williams loan, held by it, and transfer the indebtedness to the new company when it should be formed. He testified that the president of the bank replied that “ We will be willing to go along if you run one-fourth of the oil to us until this obligation is cleaned up and let nothing get in ahead of it.” Williams’ testimony then goes on as follows:

“ Q. Then what did you do? A. I told him that was our intention, which I felt was, it was my intention.
" Q. Just what you told him is all. Later did you communicate that to Mr. Cowden? A. I did.
Q. That is, you told him what Mr. Dusenbury said? A. Exactly what Mr. Dusenbury said.”

The negotiations prior to the execution of the written agreement and the $100,000 loan extended over a period of several months and during this time Williams kept the president of the bank fully informed of the progress made. In one of his conferences with the bank president he had a copy of the agreement with him and the latter had an opportunity to examine it, but his testimony is that he did not read the instrument.

The new company was formed and the bank extended the loan to it. The new note contained a provision similar to the one in the Williams note. It pledged to the bank as security one-fourth of the oil run from the property until the note should be fully satisfied.

Although the Willrock Company, up to the time of the foreclosure proceedings, turned over the proceeds arising from the sale of one-fourth of the oil run to the bank, no payments were made upon the principal or interest of the first mortgage. Eventually this action of foreclosure was instituted. Thereupon the defendant applied to be joined as a party and when this was done asked to have the mortgage reformed by inserting the following paragraph:

“ It is understood and agreed that there is now existing and outstanding an instrument in writing, by the terms of which The First National Bank of Olean, N. Y., is entitled to receive and to have run to its credit with the pipe line company taking the oil from the premises above described one-fourth of said oil until there shall have been fully paid and satisfied a promissory note dated the 1st day of October, 1932, in the principal amount of $17,853.03, with interest thereon at six per cent per annum, made by the mortgagor Willrock Producing Company, Inc.; and that the above mortgage is taken by the mortgagee subject and subordinate to the right of The First National Bank of Olean, N. Y., to receive said one-fourth of said oil so produced on said premises until its said note has been fully paid and satisfied.”

This relief was granted by the lower court. The Appellate Division modified, refusing to grant reformation but holding that the bank was entitled to an equitable lien upon an undivided one-fourth of the oil in, under and upon the hereinafter described premises until the same shall be fully paid or satisfied, prior and superior to the lien of the mortgage from Willrock Producing Company, Inc., to Pennsylvania Oil Products Refining Company.”

A comparison of the relief awarded to the defendant on the theory of an equitable lien with the allegations of the affirmative defense set up in the answer of the defendant bank shows a recovery upon a cause of action not alleged in the pleadings. The relief asked in the pleadings was reformation of the plaintiff’s mortgage. Since, however, the defendant bank was not a party to the mortgage, obviously it could not obtain reformation of the mortgage on the ground of mutual mistake or mistake on one side and fraud on the other. Where it can be demonstrated that no injustice or damage resulted to the losing party through such a variance it may properly be disregarded. Here, however, the defendant bank relies upon oral conversations between the defendant Walter E. Williams and the president of the defendant bank. Assuming that such testimony was relevant, it did not relate to any issue in the pleadings nor was it material to the relief sought in the affirmative defense of the bank.' Hence, the plaintiff is justified in urging that such testimony was not of sufficient materiality to require the bringing forward of all the proof which may have been available to contradict the testimony. The plaintiff had a right to rest upon its justifiable conclusion that in no event could a valid judgment of reformation be made of a mortgage to which the defendant bank did not even purport to be a party.

It may be pointed out that to find an equitable lien it is necessary that an intention to create such a charge clearly appear from the language and the attendant circumstances. Strict proof of such intention is required. As was said in the case of DiNiscia v. Olsey (162 App. Div. 154, 155): “ The respondent would maintain this judgment on the theory of equitable lien. The difficulty in the way of affirmance is that proof of a breach of the contract only does not warrant this decree of the equity court. There should also appear proof that clearly established the intention that the premises would ' be held, given or transferred as security for the obligation ’ of the contract. (Pomeroy’s Equity Jurisprudence [3d ed.], p. 1235; 19 Am. & Eng. Ency. of Law [2d ed.], 15; Wright v. Ellison, 1 Wall. 16.) ”

To make such a lien binding upon a third party, it is necessary that its existence as a lien be fully proven. Whether the proof in the case at bar, in light of the surrounding circumstances, clearly shows an intent to create a charge or lien and that the plaintiff was aware of its existence as such at the time it took the mortgage are questions of fact to be determined by the trial court. We may add, however, that as the evidence appears on this record it is difficult to see how the defendant bank can establish an equitable lien in the oil to be run, which is personalty (as contrasted with oil under ground, which is realty) (1 Thornton on the Law of Oil and Gas [1932], § 50), so as to interfere with the rights of the plaintiff under the mortgage on the real estate. It is hard to spell out an agreement from the conversation between the defendant Williams and the president of the bank. The only part of the testimony which tends to support the claim that an equitable lien was created is Williams’ statement that President Dusenbury said that he was willing to extend the loan if the right to one-fourth of the oil was continued and they “ let nothing get in ahead of it ” and Williams’ testimony that he repeated this statement to the plaintiff. Meager as this evidence is, it will suffice if supported by the surrounding circumstances. The circumstances, however, seem to furnish little aid. There was the remainder of the purchase money mortgage, namely, $20,000, which still remained unpaid; there Was the $20,000 which Williams owed the bank on promissory notes secured by an assignment of one-fourth of the oil produced; the land was producing less than two barrels of oil a day. The defendants Williams were confronted with the imminent loss of their property and the defendant bank was faced with the probable loss of the money advanced for the development. It was then that the negotiations were commenced with the plaintiff, the plaintiff agreeing to expend $100,000 to assist in the rehabilitation of the oil wells. The arrangement described above was then made and the mortgage given to the plaintiff. Despite the fact that according to Williams’ testimony he had just agreed with the defendant bank that nothing was to be let in ahead of its right to one-fourth of the oil, the written agreement between Williams and the plaintiff specifically provided that it was free and clear of all encumbrances of every kind whatsoever, except the hen of said [first] mortgage.” The bank president claims that although he kept in touch with all negotiations and had an opportunity to see the mortgage he did not read it. In addition, the bank wrote a letter to the plaintiff stating that, “ We, of course, understand that we have no interest in the fee of the property and that our ownership is only % of the oil that is run.”

It follows that the judgment of the Appellate Division and that of the County Court should be reversed and a new trial granted, with costs to abide the event.

Crane, Ch. J., Lehman and Loughran, JJ., concur; O’Brien, Hubbs and Crouch, JJ., dissent.

Judgments reversed, etc.


source: Caselaw Access Project

author: Lehman, J. Hubbs, J.

license: Public Domain

text:
    Annie Axelroad, as Executrix of Charles Axelroad, Deceased, Appellant, v. Metropolitan Life Insurance Company, Respondent.

      (Argued April 29, 1935;
    decided May 21, 1935.)

      Stephen Callaghan, Ralph Stout, Virginius Victor Zipris and Saul Levine for appellant.

      Dean Potter for respondent.
   Lehman, J.

In January, 1924, the defendant issued a policy insuring the life of Charles Axelroad in the sum of $20,000. The insured failed to pay the premium which fell due in January, 1933, and the policy lapsed. The policy contained a provision that: “ If this policy shall lapse in consequence of non-payment of any premium when due, it may be reinstated at any time upon the production of evidence of insurability satisfactory to the Company, and the payment of all overdue premiums with interest at six per centum per annum.” The unpaid premium was $505.20. Before the policy lapsed the insured took the policy to a branch office of the defendant for the purpose of obtaining a loan to meet payment of the premium. The insured by previous loans had almost exhausted the loan value ” of the policy. He left the policy at the branch office and signed an instrument described as a loan certificate and assignment of policy ” for the purpose of obtaining a loan up to the full loan value ” of the policy. Even so, an additional sum of $223.82 was required for the payment of the premium. The insured paid $75 on February 27th at the branch office of the defendant and received a provisional receipt ” for this amount. He paid $85 on March 20th at the same office, and obtained a similar receipt. On March 23d at his home he paid the further sum of $83.82 to a representative of the defendant. With the amount which the insured could borrow upon the policy if reinstated, this sum constituted full payment of the unpaid premium. The money paid, the loan certificate and assignment ” and an application for reinstatement signed by the insured, were then sent to the home office of the defendant. The application was approved and on March 30th the policy was reinstated and returned with an appropriate indorsement to the insured. The insured died one month thereafter. The cause of the death, as stated in the death certificate submitted as part of the proof of death, was coronary occlusions.”

As a defense to this action brought upon the policy the defendant has pleaded that the answers to several questions in the application for reinstatement were false in material respects. The application was signed by the insured but the answers are in the handwriting of an employee or agent of the defendant. There can be no doubt that these answers are false. They are representations that the insured had not suffered from any illness or injury since January, 1924, and that he had not consulted any physician or physicians since that date. In truth the insured was even then suffering from the disease which caused his death a month later, and had consulted physicians for that disease. That the company relied upon these answers and was induced by these answers to reinstate the policy is obvious. Thus, there can be no doubt that if the insured gave these answers or is chargeable with their falsity the policy is unenforceable.

There is a sharp conflict of testimony as to whether the insured did in fact give these answers. There is evidence that on March 1, 1933, when the insured was about to drive off with a friend in an automobile after a visit to the defendant’s branch office, the assistant manager came out and said to the insured: I forgot, I would like this application for the reinstatement signed by you,” and that thereupon the insured while sitting in the automobile signed the application without reading it and that, at that time, there was nothing but printed matter upon the paper. Though that testimony was contradicted, the jury has resolved the controversy in favor of the plaintiff. In answer to questions submitted by the judge, it found that the insured did not state to defendant’s agent in words or effect that he had not suffered from any illness or injury, and had not consulted a physician. It also found that the insured signed the application in blank at the request of the defendant’s agent, relying upon that agent to fill out the document in a proper manner. The trial judge set aside these findings and dismissed the complaint. That he could not do, unless in spite of the facts found, the defendant as matter of law was not liable. The Appellate Division affirmed the judgment upon that theory. The question presented upon this appeal is whether the plaintiff is bound by the answers in an application for reinstatement of a policy signed by him in blank, though in fact such answers were never given by the insured, and the defendant’s agent thereafter, without the knowledge of the insured, inserted them in the application.

The printed part of the application for reinstatement of the policy recites that the “ foregoing statements and answers are correct and wholly true and have been made by me to induce the Metropolitan Life Insurance Company to reinstate the above policy, and I agree that if said company shall grant such reinstatement the same shall be deemed to be based exclusively upon the representations contained in this request and upon the express condition that if the foregoing statements be in any respect untrue said company shall, for a period of two years from the date of such reinstatement, be under no liability by reason of the attempted reinstatement of the policy, except that the company shall return to the insured or his personal representative all premiums paid since the date of said reinstatement.” Concededly unless the lapsed policy was reinstated by agreement of the insured and the insurance company, there can be no recovery in this action. Concededly the agreement of reinstatement was made when the insurance company acted upon and accepted the application for reinstatement. Concededly that application over the unquestioned signature of the insured contains an agreement that any purported reinstatement is made upon the express condition that for two years it shall create no liability upon the insurance company if the foregoing statements be in any respect untrue.” Concededly the statements in the application are untrue in very material respects. If we apply to contracts of life insurance the same rules applied to other contracts, then it seems evident that the plaintiff cannot recover here.

It must be conceded that the courts have sustained obligations assumed by insurance companies under conditions where the courts would have hesitated to sustain other kinds of obligations. At least where assurance has been given by an agent or employee of an insurance company that an applicant was protected by insurance, the courts have struggled to find some way to spell out a valid contract of insurance, and perhaps their decisions have, at times, marred the symmetry of the law. Indeed this court has been compelled by candor to recognize that it did not always apply to insurance contracts the same rules applied to other contracts. So we said in Miller v. Phœnix Mutual Life Ins. Co. (107 N. Y. 292, 296), that though it is the general rule that a party signing a written agreement may not vary or alter or contradict its terms, and that though it is generally not a defense to an action upon such agreement that the party did not read the contract, or was ignorant of its contents, or that it was prepared by the party claiming the benefit of it * * * yet in the case of life insurance policies “ it is the settled doctrine of the modern cases, that where the application for insurance is drawn up by the agent of the insurer, and the answers to the interrogatories contained therein, are inserted by him at his own suggestion, without fraud or collusion on the part of the assured, the insurer is estopped from controverting the truth of such statements or the interpretation which it has given to the answers actually made by the applicant, in an action upon the instrument between the parties thereto.” The appellant now claims the benefit of that doctrine.

Insurance companies have sought in vain to escape the effect of that doctrine, by inserting in the application or policy stipulations that the insured warranted the truth of all statements contained in the application or in sheets annexed thereto; that the recorded answers were in fact true; that the medical examiner or other person recording the answers acted as the agent of the insured and not of the insurance company; and that the policy should be void if the answers so recorded were untrue, even though true answers were made to the medical examiner. The court swept aside all such devices. In effect this court held that even though the insured could not vary or contradict his written contract, the company should be estopped on equitable grounds from asserting invalidity of a policy when its agent had knowledge, which should be imputed to the company, that the policy from the moment of its issue was tainted with infirmity and could be rescinded by the company. Public policy, so this court held, precluded the company from stipulating for immunity from the consequences of the wrong of its agent by the transparent device of an agreement that its own agent acting in its business and not the business of the insured, should become the agent of the insured. (Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 13.) Thus fife insurance companies, induced to issue policies upon the faith of written statements contained in applications submitted by the insured, could not by contract protect themselves against subsequent assertion by the insured that though the statements were untrue, the real truth was within the knowledge of the insurance company through knowledge of its agents imputed to it.

Then the Legislature interposed and decreed a form of policy which gave reasonable protection to an honest insured, even though he were held to his written agreement that the statements contained in a signed application were true, and authorized by the insured. In 1906 the Legislature enacted section 58 of the Insurance Law (Cons. Laws, ch. 28) and required that every policy of life insurance “ shall contain the entire contract between the parties and nothing shall be incorporated therein by reference to any * * * application or other writings unless the same are indorsed upon or attached to the policy when issued; and all statements purporting to be made by the insured shall in the absence of fraud be deemed representations and not warranties. Any waiver of the provisions of this section shall be void.”

That statute destroyed the foundation for the application of the doctrine of the Sternaman case to life insurance policies issued thereafter and the doctrine fell with the destruction of its foundation. (Bollard v. New York Life Ins. Co.) 98 Misc. Rep. 286; affd. on opinion below, 182 App. Div. 915; affd., 228 N. Y. 521.) There can be no doubt that if section 58 applied to applications for reinstatement of a lapsed policy as well as to applications for a new policy, the controversy in this case could not arise. Then where an application is not annexed to the policy it is excluded from the contract of insurance and proof that the answers or statements in such application were false constitutes no defense to the action. (Archer v. Equitable Life Assur. Co., 218 N. Y. 18.) Where on the other hand, the application is annexed to the policy the insured is bound by the answers and statements in the application, even though they were inserted by the agent of the company.

The difficulty in this case arises from the fact that here the controversy concerns the validity of the contract of reinstatement of the policy of insurance rather than the validity of the policy. The policy embodies the terms and conditions of the contract of insurance. Those terms and conditions cannot under the provision of the statute be enlarged by reference to documents not annexed thereto. The terms and conditions of the application for reinstatement are not thereby incorporated in the policy. They affect only the collateral contract by which the life of the policy was renewed. Nevertheless, falsity in the statements in the application which constitutes the basis of the contract of reinstatement might invalidate that contract, though such application does not change the terms and conditions of the contract of insurance. For that reason an insurance company may attack the validity of the contract of reinstatement on the ground that the reinstatement was based upon misrepresentation in regard to material matters contained in the application for reinstatement, though such application is not annexed to the reinstated policy. Section 58 of the Insurance Law has no application in such case. So we held in New York Life Ins. Co. v. Rosen (255 N. Y. 567).

The question remains whether the attack may be defeated by proof that the insured did not make the alleged representations, but signed the application for reinstatement at the request or even insistence of the company’s agent without reading it and before the answers to the questions were written in by the agent. Argument is made that since section 58 of the Insurance Law has, as we have held, no application to contracts of reinstatement, the doctrine of the Sternaman case and related cases applies, and precludes the company from asserting invalidity of that contract where the company’s agent had knowledge of the circumstances creating such invalidity at the time when the contract of reinstatement was made.

That argument is based upon false premises. The insured had no unconditional right to reinstatement. The policy itself gave notice to the insured that when the policy lapsed it could be reinstated only upon “ the production of evidence of insurability satisfactory to the Company.” He was further advised by the policy that no agent, medical examiner or any other person except officers of the company could bind the company by any promises or make, modify or discharge any contract of insurance. He further agreed in the policy and was bound by the agreement that " no statement made to or by, or any knowledge on the part of, any agent, medical examiner or any other' person as to any facts pertaining to the applicant shall be considered as having been made to or brought to the knowledge of the company unless stated in either part A or B of this application ” (i. e., the original application). It is upon the background of these conditions that we must view the transaction between the parties.

It was with knowledge or notice of these conditions that the insured signed a blank application for reinstatement of the policy. Intending that the insurance company should act upon that application he signed it without reading it. If he had read it he would have known that he certified to the correctness of the statements and answers contained in the application, and expressly agreed that if the foregoing statements be in any respect untrue, said company shall, for a period of two years from the date of such reinstatement, be under no liability.” It is almost inconceivable that the company would have reinstated the policy if the insured had made true answers to the questions in the application, yet now we are told that because the insured voluntarily chose not to read the application, his representatives are not bound by its terms and may claim the benefit of a contract, free from the terms and conditions to which the insured in writing agreed and which, quite evidently, the company would not have made, except for the representations, terms and conditions contained in the application. The facts here are different from those present in the Sternaman case; the reasons underlying the doctrine of the Sternaman case do not apply here, and that doctrine does not extend to a case where an insured asks reinstatement of a policy and with knowledge of limitation of the authority of the company, signs the application in blank, thus placing it within the power of the agent of the insurance company to procure from the company a contract of reinstatement which the company would not have made if the facts had been within its knowledge. In the Sternaman case this court held that the company was estopped from asserting the invalidity of the contract where such assertion would work a fraud upon the assured. Here the court is asked to find an equitable estoppel where assertion of the validity of the contract, in derogation of its express terms, would result in fraud on the company and unjust enrichment of the plaintiff at the expense of the company.

In truth the enactment of section 58 of the Insurance Law introduced a new public policy into this State in the law of life insurance. True, that section, as we have said, has no application to contracts of reinstatement, but the reason the Legislature did not include applications for reinstatement within the express terms of that section is that the evils which the Legislature sought to remedy were not as apparent in such case, for all the terms and conditions of the contract of reinstatement were already embodied in a single document, i. e., the application itself. An applicant for reinstatement, knowing from his policy the limitations upon the authority of the company’s agent, knowing too the result of a lapse of the policy and the conditions of reinstatement, can hardly complain that he has been misled by the insertion of any terms and conditions in an application for reinstatement which he has opportunity to read before signing. There the contract is simple, embodied in a single document which the company may reasonably expect the applicant to read before signing. At least he should not be permitted to gain an advantage by signing without reading.

“ A contract for insurance is no different than any other contract. The insurance company is entitled to have its contract enforced by the courts as written.” (Drilling v. New York Life Ins. Co., 234 N. Y. 234, 241.) We have held, it is true, that, in accordance with a rule peculiarly applicable in insurance cases, a public policy which forbids an insurance company from asserting that the knowledge or wrong of its agent should not be imputed to it, cannot be defeated by the simple device of obtaining through the inadvertence or even the carelessness of an applicant a contract which would exonerate the company from the consequences which would otherwise flow from the wrong of its agent. Even then, we limited the rule to cases where the insured had not previous notice of the limitations upon the agent’s authority, and was deluded by the agent. We have not applied the rule to misrepresentations in an application for reinstatement, though they were known by the company’s agent to be false, where the applicant had notice of limitations upon the agent’s authority and the company was deluded into approval of a reinstatement which otherwise would not have been granted. (Cf. McCormack v. Security Mutual Life Ins. Co., 220 N. Y. 447.) Then enforcement of the terms and conditions of the application to which the applicant agreed even by inadvertence, excusable neglect or reliance upon the agent’s good faith, causes no injury to the insured or his representatives, for except for the misrepresentation, no reinstatement of the lapsed policy would have been effected.

We find confirmation for this conclusion in the provisions of section 58 of the Insurance Law, even though that section does not apply to applications for reinstatement of lapsed policies. It creates a legislative rule of public policy in place of the judge-made rule previously applied to applications for life insurance policies. Where by annexation to the policy of the application upon which the policy is based, an assured obtains knowledge of and opportunity to examine the representations contained in the application, misrepresentation of material facts within the knowledge of the assured may avoid the policy, though the company’s agent had knowledge of the truth and the assured did not intend to deceive the company. In excluding from the contract of insurance the terms and conditions contained in an application or other document not annexed to the policy, the Legislature has differentiated between contracts of insurance embodied in a policy and contracts for reinstatement of lapsed policies. The same reasons which might reasonably lead to such differentiation dictate, however, the conclusion that where any representations contained in an application become part of the contract by annexation, in accordance with the statutory command, or without such annexation where the Legislature has not given such command, the representations should be given effect in so far, at least, as they do not violate the public policy of the State. Then no sound reason exists why the courts should apply a rule of public policy created by themselves to representations contained in applications for reinstatement though the Legislature has declared that representations contained in applications for a new policy should be given effect according to their terms.

When this court decided in New York Life Ins. Co. v. Rosen (supra) that section 58 of the Insurance Law does not exclude the representations contained in the application for reinstatement from the contract for reinstatement, though such application is not annexed to the policy, and that the insurance company may avoid the contract because of misrepresentations contained in the application, the question was not presented as to whether the insurance company might still in proper circumstances be estopped from asserting that the representations were untrue. Now that question is presented. We find in the circumstances here no ground for estoppel. The insurance company cannot be held for a contract with different terms from the contract it actually made. The applicant knew that the reinstatement would be made only upon his signed application. He chose to sign without reading the terms of the application. If he relied upon the agent to fill out blanks, he made the company’s agent his own agent for that purpose, for he had previously agreed in the policy that the authority vested by the company in its agent did not extend so far. We have decided in Bollard v. New York Life Ins. Co. (supra) that where an application for a policy becomes part of the contract of insurance by annexation, no earlier rule of public policy precludes the company from showing that the representations contained in the application were false even though inserted by the company’s agent. Unless we introduce into the law of insurance distinctions without substance and rules applicable to no other class of contract, we are constrained to hold that both insured and insurer are alike subject to the obligations and entitled to the benefit of all the terms of contracts of insurance entered into voluntarily and with knowledge that a particular instrument contains those terms. When that is shown, there can be no room for divergent rules of public policy applicable to contracts embodied in a policy and contracts for reinstatement of a lapsed policy.

The judgment should be affirmed, with costs.

Hubbs, J.

(dissenting). The underlying principle involved in Sternaman v. Metropolitan Life Ins. Co. (170 N. Y. 13) was that it constituted a fraud on the insured to permit the company to avail itself, as a defense, of false answers written in an application by a medical examiner for the company, when the insured was himself free from fraud.

It was common knowledge that agents of life insurance companies, for the purpose of securing the issuance of policies and thereby earning their commissions, prepared applications for policies in such a way that they would pass and receive the approval of the home office, regardless of the facts stated to them by applicants.

An insured paid bis premiums believing he had a valid policy and the beneficiary was often met by the defense of false statements in the application which avoided the policy. Such was the well-known situation when the Sternaman case was decided and the opinion was written with that knowledge in mind.

Exactly the same situation exists in this case in a lesser degree. Here the agent is anxious to retain the insured as a policyholder and possibly to receive renewal commissions. His volume of business depends to a certain extent upon doing so. The jury has found, and we are bound by the findings, that the insured was free from fraud, that he signed the blank form of application before it was filled out at the direction of the agent and that the agent filled in the answers now alleged to be false, without his knowledge or consent. That was the exact evil which existed before the Sternaman case. Concededly, section 58 of the Insurance Law does not apply. What law does apply? It seems to me that the law of the Sternaman case must apply. If that law applies, as I think it does, then the act of the agent was the act of the company and the defense is not established as a matter of law but a question of fact was presented. The provisions of the policy quoted by Judge Lehman contain nothing to the contrary. He states in his opinion that the applicant knew that the reinstatement would be made only upon his signed application.”

The policy contains no such provision. It does provide that the policy may be reinstated “ upon the production of evidence of insurability satisfactory to the company.”

What that should consist of is not stated. There is no claim here that the assured made any false statement and the proposed decision rests upon the assertion that in filling in the answers the company’s agent became the insured’s agent, which is contrary to our decisions; also that in signing the form in blank he relied upon the agent to fill it out properly.

What the agent did the company did. What the agent knew the company knew, and with that knowledge it issued the reinstatement agreement and is bound by it.

Unless we are prepared to overrule the Sternaman case and Miller v. Phœnix Mut. Life Ins. Co. (107 N. Y. 292), and adopt the United States rule, the judgment of the Appellate Division should be reversed.

Crane, Ch. J., O’Brien and Loughran, JJ., concur with Lehman, J.; Hubbs, J., dissents in opinion, in which Crouch and Finch, JJ., concur.

Judgment affirmed.


author: Per Curiam.

text:
    Myra Owen, as Administratrix of the Estate of Paul Owen, Respondent, v. Benjamin Straight, Doing Business under the Name of Thirteenth Lake Lodge, Appellant. Peter Owen, Respondent, v. Benjamin Straight, Doing Business under the Name of Thirteenth Lake Lodge, Appellant.
    (Argued March 18, 1935;
    decided May 21, 1935.)

      J. Stanley Carter for appellant.

      James A. Leary and Walter A. Fullerton for respondents.
   Per Curiam.

We agree with the Appellate Division that, Under the evidence, irrespective of the origin of the fire, it was a question of fact whether the defendant had used reasonable care to safeguard his guests.” (242 App. Div. 892, 893.) There was, however, no evidence of negligence in respect of the origin of the fire. The refusal so to charge the jury was error for which a new trial should be had.

In each case 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.

Crane, Ch. J., Lehman, O’Brien, Crouch and Loughran, JJ., concur; Hubbs and Finch, JJ., dissent and vote to reverse and dismiss the complaint.

Judgments reversed, etc.


author: Finch, J. Crane, Ch. J. Lehman, J.

text:
    In the Matter of the Estate of Katharyn O. Cornell, Deceased. Herman D. Cornell, Appellant; William T. Alford, as Administrator of the Estate of Katharyn O. Cornell, Deceased, et al., Respondents.

      (Argued April 30, 1935;
    decided May 21, 1935.)

      Frederick C. Bangs for appellant.

      W. Morton Carden for respondents.
   Finch, J.

William T. Alford, as domiciliary administrator of the estate of Katharyn Oglesby Cornell by appointment of the Probate Court of Jackson county, Missouri, was denied a motion by a decree of the Surrogate’s Court of New York county, in which motion the State of Missouri intervened “ for the purpose of protecting the inheritance tax due the state,” to have set down for trial in New York the issue of whether decedent died domiciled in the State of Missouri (on the ground that the decedent died intestate a resident of that State), or in the State of California (where the will of decedent was probated, and letters testamentary issued to appellant Cornell, on the ground that decedent died a resident of that State leaving a valid will). There is no contention that the decedent ever resided within the State of New York, and New York State is making no claim to prior right of administration or to taxes. Decedent left about $65,000 in the State of New York.

The Appellate Division, two justices dissenting, reversed this decree and remitted the matter for a hearing by the Surrogate so that recognition must be accorded to whichever decree is entitled to be recognized, as disclosed by the facts on which its validity depends.” (242 App. Div. 562, 565.)

Decedent died June 4, 1933, in Kansas City, Missouri. She had been judicially separated from her husband, who continued to reside in California. Decedent left a will. This will was executed in the State of Oklahoma. Immediately following her death the Public Administrator, acting for the State of Missouri in the territory comprising Kansas City, procured letters of administration to be issued to him and shortly thereafter presented an application to the Surrogate’s Court, New York county, upon which ancillary letters of administration were issued to him. He thereupon demanded possession of such property of decedent as was in the custody of a banking institution in New York county. Upon being advised of this demand, the executor named in the will of decedent, who had in the meantime initiated probate proceedings in the State of California, applied to the Surrogate’s Court of New York county for an order suspending the powers of the ancillary administrator. This suspension was granted, pending completion of the probate proceedings in the State of California. These proceedings resulted in the due probate of the will. Following such probate, the executor filed in the Surrogate’s Court an authenticated copy of the will, the decree admitting it to probate and letters testamentary. He thereupon procured a decree which terminated the powers of the ancillary administrator and directed the issuance of ancillary letters testamentary to him as executor. The ancillary administrator then applied to the Surrogate’s Court to vacate the decree granting ancillary letters testamentary. Upon that application the State of Missouri, through the Attorney-General of the State, procured leave to intervene and joined in the application. The sole issue raised by the papers in the Surrogate’s Court was oné of actual domicile or residence of decedent at the time of her death. There is no attack made upon the will of decedent as an effective will. The Surrogate’s Court held that, in view of the lack of denial that decedent left a will appointing an executor, the Public Administrator acting for the State of Missouri was no longer an interested party in this jurisdiction and that, so far as the State of Missouri was concerned, though the Surrogate’s Court had the power to make the inquiry, nevertheless, in the interest of comity between States and of the proper administration of the assets ■under the circumstances disclosed in this record, the State of New York should remain indifferent and decline to exercise jurisdiction. As already noted, the Appellate Division, with two dissents, reversed that decision and directed the trial of the issue.

Upon this record, the State of New York may, in its discretion, decline to make the inquiry and remit the local assets to the foreign executor, to be dealt with by him as the courts of his jurisdiction decide. The party seeking the inquiry may apply in the State in which the original probate was granted and there obtain if warranted the relief which is sought here. New York State has no interest in the issue, either because of a claim for taxes or to prior right of administration or otherwise, no contention being made that the decedent died domiciled or was ever domiciled in this State.

That the Surrogate’s Court of New York county has jurisdiction over the New York estate of this non-resident decedent admits of no doubt. The issue is whether the Surrogate’s Court in the case of a decedent who concededly is not a resident of this State, must conduct an inquiry into the actual residence of decedent, to determine whether or not a court of another State had jurisdiction to admit the will to probate. Although the decree of the State of original probate is not conclusive on the question of domicile or residence (Taylor v. Syme, 162 N. Y. 513; Baldwin v. Rice, 183 N. Y. 55; Matter of Connell, 221 N. Y. 190), the Surrogate’s Court of New York county, in issuing ancillary letters testamentary (Surr. Ct. Act, § 159) may rely on the decree of another State as presumptively establishing residence there. Moreover, in the case at bar we have an additional fact, negativing the exercise of jurisdiction, in that the request is made by a domiciliary administrator who has no interest in the estate if, in fact, the decedent disposed of her property by will.

Every person interested in the property of decedent in this State, except a legatee who was given $1,000 under the will, is a non-resident of the State of New York. All witnesses who can testify on the issue of domicile apparently are non-residents of this State. There are no creditors here. The executor does not reside here, nor does the alleged administrator. No reason appears why the trial should be here, except that the non-resident respondents for some reason not made known prefer not to try out the issue in another jurisdiction.

It appears that this decedent maintained with her husband a residence in California and only left that State after the judicial separation. Hence, the California domicile would continue unless decedent had acquired a new domicile in the State of Missouri.

The trial of the issue of domicile in New York will be binding only in the State of New York. (Overby v. Gordon, 177 U. S. 214; Thormann v. Frame, 176 U. S. 350.) (See Wedemann v. U. S. Trust Co., 258 N. Y. 315, at p. 320; Helme v. Buckelew, 229 N. Y. 363.)

Moreover, the determination of this issue of domicile will leave untouched the question whether or not this non-resident decedent disposed of her property by will. Respondent does not contest the validity of this will. In consequence, respondent has no interest whatever in the property, because the title vested in the executor named in the will as of the instant of death. He derived his title and his rights from the will itself, not from the decree of any court. (Matter of Shonts, 109 Misc. Rep. 276; affd., 229 N. Y. 374.) In fact, it appears that the domiciliary administrator has called on this executor to offer for probate this will in the Probate Court of Jackson county, Missouri.

Whether the New York assets of this non-resident estate are administered by the executor under the ancillary letters testamentary, which are at present issued and outstanding, or under original letters testamentary, which this executor will be entitled to in case decedent left a valid will not probated elsewhere (Surr. Ct. Act, § 45; Matter of Connell, 221 N. Y. 190), is not very important to this estate or to those interested in it. What is of great importance, however, both to this estate and to its beneficiaries, is to avoid having the assets in New York dissipated by the expense of futile investigations and trials and by the payment of commissions and fees incurred therein.

Furthermore, if the Surrogate’s Court of New York county does not rely on the decree of another State as presumptively establishing the residence there, or at least establishing the fact that decedent left a valid will, why could not every other State likewise disregard comity and compel those interested in an estate where the will has been validly probated here to journey to a foreign State and there defend a contest of the validity of the probate here, with no certain result except the dissipation of assets in fees and commissions?

Respondent urges that the provisions of the Surrogate’s Court Act (§§ 159 and 160) make it mandatory upon the Surrogate’s Court here to have a trial of this issue. These sections, however, only make it mandatory upon the Surrogate’s Court to issue ancillary letters in due course, and do not touch the question as to whether the Surrogate’s Court should be required to have a trial or, in its discretion, refuse such inquiry in the circumstances set forth in this record.

It follows, therefore, that in the estate of a deceased person who concededly was not a resident of this State and concerning whose estate this State makes no claim of prior right of administration, our courts are not required to conduct an inquiry into the question of domicile of decedent and establish whether or not a sister State had jurisdiction to admit the will to probate. Especially is this so when the Surrogate’s Court of New York county is requested to make the inquiry solely by a foreign administrator who has no interest which the courts of this State are required to recognize. In such case, the courts of New York State have the discretion to decline to make the inquiry.

It follows that the order of the Appellate Division should be reversed and the decree of the Surrogate’s Court affirmed, with costs to the appellant in all courts.

The second and third questions certified should be answered in the negative. We deem it unnecessary to answer the first question.

Crane, Ch. J.

(concurring). Surrogate’s Court Act, section 159, provides for ancillary letters upon foreign probate. Where a will of personal property made by a person who resided without the State at the time of the execution thereof, or at the time of his death, has been admitted to probate within the State where it was executed, or where the testator resided at the time of his death, the Surrogate’s Court having jurisdiction of the estate must, upon an application, accompanied by a copy of the will, and of the foreign letters, issue thereupon ancillary letters testamentary.

The petition must set forth the names and residences of the creditors within the State and, upon the return of the citation, the Surrogate must ascertain, as nearly as he can do so, the amount of the debts due from the decedent to the residents of the State. Before ancillary letters are issued, the person to whom they are awarded must qualify, as prescribed for the qualification of an administrator, except that the penalty of the bond need not exceed twice the amount which appears to be due to residents of the State. The Surrogate, by section 164, may give full directions regarding money or other personal property received by the person appointed; and, by section 165, he may even require the person to whom ancillary letters are issued to pay the creditors here in full or pro rata. In other words, the only interest which the State of New York has in issuing ancillary letters testamentary is to protect our own creditors or the State tax. Beyond this, the executor will account for the assets in the place of his domicile.

Katharyn Oglesby Cornell died in Kansas City, Missouri, on June 4, 1933, leaving personal property in New York county consisting of stocks, bonds and cash in bank, having the approximate value of $65,000. She left a will appointing her former husband,, from whom she had been divorced, Herman D. Cornell, executor. This will has been probated in the county of Los Angeles, California, and letters testamentary have been issued to the executor named. He has applied here, pursuant to the above sections of the Surrogate’s Court Act, for ancillary letters testamentary, and they were issued to him by the Surrogate of New York county on July 31, 1933.

As Mrs. Cornell died in Kansas City, and was a resident there for a time, the Public Administrator of that place, William T. Alford, obtained letters of administration of her estate, although it does not appear that she had property there of any particular value. He has applied here for ancillary letters of administration so that the assets may be turned over to him as Public Administrator, out of which inheritance taxes may be paid to the State of Missouri. His immediate application, and the one before us, is to revoke the letters granted to Cornell, executor, and to require the Surrogate of New York county to try the issue presented by the affidavits regarding the domicile or residence of the testatrix at the time of her death. The Surrogate denied the application; the Appellate Division has reversed, not as a matter of discretion, but on the theory that the Surrogate had no discretion, but was required by the statute to conduct such a hearing and determine jurisdiction of the respective States.

We do not think any such duty rested upon the courts of this State. That Mrs. Cornell left a will, in which Mr. Cornell was made executor, is not denied; the fact appears to be admitted. Under no circumstances, therefore, is there an occasion for the Public Administrator of the State of Missouri to function. He has no interest so long as the will exists and has been duly probated. It may be that Mrs. Cornell was domiciled in Missouri, and that California had no jurisdiction to admit her will to probate. This is a matter to be settled between the courts of these two States, in which the State of New York is not at all interested.

Any decision made by the Surrogate of New York county regarding the domicile would not be binding upon any of the parties interested in this estate or upon Missouri or California. So far as we here are concerned, it is a useless proceeding, taking money out of the assets here which might better go to the creditors or beneficiaries. It leads nowhere except as it may possibly satisfy the feelings of a conscientious Surrogate in ordering a disposition. As before stated, this is now entirely in his hands. He can control the assets here and protect them in any way he sees fit and as he has done, by requiring a bond more than sufficient to protect their proper disposition. (Aspden v. Nixon, 4 How. [U. S.] 467; Wilkins v. Ellett, 9 Wall. [U. S.] 740; 108 U. S. 256-259; Iowa v. Slimmer, 248 U. S. 115; Harvard Law Review, vol. XLVIII, No. 6, p. 911, The Administration of Intangibles.”)

This is discretionary with the Surrogate whether he shall entertain any such proceeding. The Appellate Division has not reversed this discretion, but has held that he had no discretion, and in this we think it was wrong.

In actions between non-residents founded on tort, where the cause of action arose outside this State, our courts may refuse to assume jurisdiction. (Gregonis v. Philadelphia & Reading Coal & Iron Co., 235 N. Y. 152, 160; Murnan v. Wabash Ry. Co., 246 N. Y. 244.) In Wedemann v. United States Trust Co. (258 N. Y. 315, 319) this court said: An important function of ancillary administration is the application of decedent’s local property to the payment of his debts but no less important, under some circumstances, is the duty to transmit assets to the domicile. There is a strong implication in section 165 of the statute that priority in the discharge of debts which are due to residents of this State is intended. We have held that the Surrogate possesses a discretionary right under that section to refuse to pass upon all claims whether of residents or non-residents. (Matter of Meyer, 244 N. Y. 598.) That is the law when an ancillary executor has been named in this State. In the case of an ancillary administrator, certainly the Surrogate’s power to refuse would not be diminished.”

The Surrogate of New York county was, therefore, not obliged as matter of law, on the application of the Public Administrator of Jackson county, Missouri, to hold a hearing and determine after a trial whether the will of Katharyn Oglesby Cornell was properly admitted to probate in the State of California, or, in other words, determine whether she was domiciled in Missouri or California.

The order of the Appellate Division, as before stated, reversed the Surrogate as matter of law. For the reasons which we have stated we are of the opinion that the Surrogate was justified in exercising his discretion in this matter. The order of the Appellate Division should be reversed, and that of the Surrogate affirmed. The second and third questions certified should be answered in the negative, making it unnecessary to answer the first question.

Lehman, J.

(dissenting). The Surrogate’s Court has granted ancillary letters upon a will made without the State by a person who resided without the State. Such letters may be granted where the will has been admitted to probate within the State or the territory of the United States, where it was executed, or where the testator resided at the time of [her] death.” (Surr. Ct. Act, § 159.) The will in this case was executed in Oklahoma and admitted to probate in the State of California upon a finding made ex parte that the testatrix resided there. In the State of Missouri, where the testatrix died and where she had lived after a judicial separation from her husband, letters of administration were issued ex parte to a Public Administrator. There may be a controversy between the State of California and the State of Missouri as to where the testatrix resided and as to which State will be entitled to tax the estate. The State of New York is not interested in that controversy. Perhaps our courts might refuse to take jurisdiction of that controversy. No such question is here presented. Here the Surrogate’s Court has assumed jurisdiction to issue ancillary letters testamentary upon proof that the will was admitted to probate in California. The decree is challenged on the ground that the Surrogate’s Court could not grant such ancillary letters upon a will probated in California without proof that the testatrix resided there. The statute provides in unmistakable terms that this must appear before such letters may be granted. That question has been decided by the Surrogate’s Court without a trial. The question before us is not whether the Surrogate’s Court could refuse to take jurisdiction of a controversy, but whether it could take jurisdiction of an application for ancillary letters testamentary and, without a trial, decide a question of fact which forms the statutory foundation of such jurisdiction.

We have held that the grant of ancillary letters may be attacked collaterally unless the Surrogate acted within his statutory jurisdiction. Such jurisdiction is lacking where there is no proof that the foreign will was probated in the court of a State or country where the will was executed, or the testator resided. (Taylor v. Syme, 162 N. Y. 513) Baldwin v. Rice, 183 N. Y. 55; Matter of Connell, 221 N. Y. 190.) If a decree of the Surrogate’s Court is subject to collateral attack on such grounds, then certainly the jurisdictional question may be contested in orderly fashion in the same court. It is conceded in the prevailing opinion that the decree of the State of original probate is not conclusive on the question of domicile or residence. Indeed, the court in Missouri has made other finding. Then it follows that the court assuming jurisdiction to issue ancillary letters testamentary must grant a hearing upon the contested question without which it has no jurisdiction. The order of the Appellate Division should be affirmed and the second certified question answered in the affirmative.

O’Brien, Hubbs and Loughran, JJ., concur with Finch, J.; Crane, Ch. J., concurs in opinion, in which O’Brien, Hubbs, Loughran and Finch, JJ., also concur; Lehman, J., dissents in opinion, in which Crouch, J., concurs.

Ordered accordingly.


author: Crouch, J.

text:
    Charles F. Ball et al., Appellants, v. Peter J. Grady, as Administrator of the Estate of Joseph P. Grady, Deceased, Respondent.
    (Argued April 23, 1935;
    decided May 21, 1935.)

      Charles F. Hulseman and Julius Irving Krefetz for appellants.

      Frederick W. Tuck, Jr., for respondent.
   Crouch, J.

On July 31, 1925, Mr. Ball, one of the plaintiffs, and Mr. Grady, the defendant’s intestate, entered into a written contract for the purchase and sale of certain premises. The title was closed by the delivery of a deed on August 27, 1925.

There is evidence that on July 15, 1925, while the parties were in treaty on the premises, a wet patch was found on the cellar floor. The following conversation then took place: " Mr. Ball says, ' where did the water come from? ’ and Mr. Grady said, it must have blown in when it was raining, when the man was working there, he must have left the windows open.’ Q. What did Mr. Ball say to Mr. Grady, if anything? A. He says, ' no matter where the water comes from, if I buy this place, I want the cellar dry and water proof.’ Q. What did Mr. Grady say, if anything? A. He says, if it isn’t water-tight, we will make it water-tight.’ ”

It subsequently turned out that under certain conditions water seeped through the cellar walls. Mr. Ball expended $1,311 in waterproofing the walls outside. This action was brought to recover the sum so expended as for breach of an oral agreement collateral to the written contract. At the close of the trial the defendant moved to dismiss the complaint upon the ground that all negotiations regarding any warranties or agreements were merged in the contract and in the deed which followed it.

We assume the agreement as testified to was made. The single question is whether it was affected by the paroi evidence rule. Citation or discussion of authorities is not likely to be helpful. However certain and assured the language of judgment in reported cases may be, the question was seldom anything but troublesome. The general test was formulated in the recent opinion of this court by Judge Andrews in Mitchill v. Lath (247 N. Y. 377, 381). A reading of the prevailing and dissenting opinions discloses the difficulties of applying it. In the end, the court must find the limits of the integration as best it may by reading the writing in the light of surrounding circumstances, and by determining whether or not the agreement was one which the parties would ordinarily be expected to embody in the writing.

We, therefore, turn to the circumstances and to the content of the contract. The premises were located at Bayport, Long Island, near the waters of Great South Bay. Plaintiff intended to use them for a summer home. He first inspected the house on July 5, 1925. At that time the cellar was dry. On July 15 he made further personal examination. It was then that the wet place on the cellar floor above referred to was discovered. He also went to the premises on two subsequent occasions before the contract was signed. A witness for plaintiff testified that water seeped through the cellar walls whenever there was a heavy rain or an extra high tide. During the summer water was pumped out of the cellar a couple of times.” An examination of the written contract discloses the care and caution exercised by the purchaser, for in addition to the usual provisions of a land contract there was inserted an agreement by the seller to do and complete at his own cost work and repairs which included cracks in the foundations, installing door-bells, screening windows, the repair of a hole in the closet floor, cleaning out the brook, building a rustic bridge, installing various lights, fixing up grounds where pumping has affected them,” installing electric fixtures, putting a door at entrance to cellar, connecting water from house to garage, various items of painting, installing a range and certain items of hardware in the kitchen, etc. The occasion of the oral agreement was the proposed sale. The written contract of sale included other undertakings of like character, so that under the circumstances the agreement must be regarded as one that would ordinarily be embodied in the contract of sale and hence so far integrated as to fall within the paroi evidence rule.

The judgment should be affirmed, with costs.

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

Judgment affirmed.


text:
    In the Matter of Joseph F. Haher, Respondent, against Walter G. Hamilton, Individually and as Treasurer of the County of Rockland, Appellant.

      (Submitted April 17, 1935;
    decided May 21, 1935.)

      E. W. Hofstatter and Walter A. McDermott for appellant.

      Harry H. Hoffnagle for respondent.
   Crouch, J.

On June 7, 1933, the County Judge of Rockland county appointed Joseph F. Haher as referee pursuant to the provisions of section 1379 of the Civil Practice Act and subdivisions 2 and 3 of section 1384-i of the Civil Practice Act, to examine the inventories and accounts filed or required to be filed in accordance with section 1378 of the Civil Practice Act by the committees of incompetent persons (1) since February 1, 1932; and (2) for each year subsequent to 1900 not previously examined or judicially settled. By the terms of the order all committees who had failed to file their accounts and inventories were required to present the same to the referee, together with vouchers for all expenditures set forth in said accounts; and the referee was directed to examine said vouchers as well as the assets in connection with his examination of the inventories and accounts; he was further authorized to hold hearings in each committeeship, with power to take the oral testimony of any person and to issue subpoenas; finally he was directed to report in writing to the court his findings with his opinion in each case.

Under date of August 31,1933, the referee submitted to the County Judge of Rockland county a general report stating the principles of law upon which he had acted, and the scope and character of the examination made by him. In connection with that general report there was submitted a separate report covering each individual case examined.

Among others was the case of Matilda Carpenter, as committee of Idel Carpenter, an incompetent. The individual report in that case shows that the referee was attended by the agent of the committee; that he took the testimony of the agent under oath in regard to many matters; and that he stated the account and submitted a summary thereof running back to and including the calendar year of 1927. The proceeding was in substance the same as if the committee had been called upon to render an intermediate accounting.

Upon the report an order of confirmation was made and the referee was granted an allowance of $100 as compensation for services, together with the further sum of $15.75 for necessary disbursements. Since the amount of the estate was less than $5,000, the order of confirmation provided that it should be a warrant to the Treasurer of Rockland county to make payment of the above amounts in accordance with section 1379 of the Civil Practice Act. The County Treasurer refused to honor the order, whereupon this mandamus proceeding was brought to compel payment. The proceeding took the form of a submission of controversy to the Appellate Division.

It appears from the facts submitted that the inventories and accounts in the Carpenter committeeship for the calendar years of 1927 and 1928 had been examined by a previous referee whose report had been confirmed, and who had been paid for his services and disbursements. It also appears that the inventories and accounts of the committee for the succeeding calendar years of 1929 to 1932, inclusive, had not been previously examined.

The submission suggested four questions arising upon the facts stated. They were in substance as follows: (1) Was the County Judge empowered to appoint a referee to examine accounts filed prior to February of the preceding year? (2) Was he empowered to authorize the referee to take testimony or merely to make examination of the accounts without the power to take testimony? (3) Was he empowered to authorize the referee to examine accounts for years which had been previously examined to the extent set forth in the submission? (4) Is the relator entitled to an order of mandamus directing the County Treasurer to pay the sums allowed for services and expenses?

The Appellate Division without opinion sustained the order of the County Judge in all particulars, and as matter of law, and not in the exercise of discretion, directed the County Treasurer to pay the referee.

There can be no doubt that the work of the referee was thorough, conscientious and workmanlike. The allowance was moderate for the services rendered. The difficulty, however, is that the examination actually made exceeded the scope of the examination contemplated by the statute.

The County Court has jurisdiction over the persons and property of resident incompetent persons. (Civ. Prac. Act, § 67, subd. 4.) It is, therefore, its duty to preserve such property from waste or destruction and out of the proceeds thereof to provide for the payment of debts and for the safe-keeping, maintenance and education, when required, of the incompetent person and his family. (Civ. Prac. Act, § 1357.) That jurisdiction is exercised by means of a committee (Civ. Prac. Act, § 1358) who acts as a bailiff under the direction of the court. (Matter of Otis, 101 N. Y. 580.) To the end that the court may know what the bailiff is doing with the property intrusted to him, the statute (Civ. Prac. Act, § 1378) requires him to file in the month of January in each year an inventory, account and affidavit in the form and manner required of the general guardian of an infant’s property in the Surrogate’s Court. A reference to section 190 of the Surrogate’s Court Act will show that the data demanded by the statute is full and complete, including, if so required, production of vouchers and securities or evidence of deposit or investment. Having been furnished this information, it is made the duty of the specified judge to examine it or cause it to be examined under his direction. It is not the intent of the statute that the examination be in the nature of an accounting. In form it is ex parte and binding upon nobody. In purpose it is merely exploratory and precautionary. (Matter of Hawley, 104 N. Y. 250; Matter of Arnold, 76 App. Div. 126.) If the inventory and account in form and contents comply with the provisions of law, they will be sufficiently full to enable the judge or a competent referee to know the condition of the estate with certainty. Beyond the examination of the inventory and account and the property or securities, the referee, we think, may not go. We find no authority for an examination of the committee under oath by the referee. If the examination by the referee reveals the necessity or desirability of a more full or satisfactory inventory or account, his duty is to embody that view in a report to the judge, and the judge may thereupon make an order requiring the committee to supply the deficiency. Or if the examination of the committee or any other person under oath is deemed necessary by the judge in a particular case, there is ample power (Civ. Prac. Act, § 1377) in the court to require it. To issue a blanket order directing a referee to hold hearings and to examine witnesses in his discretion in connection with the annual examination of each inventory and account filed is, we think, beyond the power of the judge. It would put a heavy and unjustifiable burden of expense upon estates of incompetents and, in the case of estates under $5,000, upon the public purse.

In the actual course of administration it may very well happen that a committee has been delinquent in filing the annual inventory and account. It may even happen that the judge has inadvertently omitted to examine or cause to be examined an inventory and account actually filed. It is the duty of the referee to ascertain whether a committee has been delinquent and to report that fact, if found, to the judge, who in turn may order the deficiency supplied. Where there has been an omission to examine an inventory and account actually filed, it is clear that the ■judge may direct the referee to examine such unexamined inventory and account. The statute contemplates an examination in every case. The direction for an annual filing and examination does not constitute a statute of limitation.

Ordinarily it is no part of the duty either of the judge or of the referee to examine inventories and accounts once they have been examined and passed. Since, however, the examination of inventories and accounts is ex parte and binding upon nobody, there seems to be no reason why the judge himself or the referee, if occasion arises, should not resort for information to inventories and accounts which have been examined and passed. Any defect or deficiency therein will necessarily be reflected in the inventory and account under investigation.

This interpretation of the statute in respect to the powers of the referee and the nature and scope of his examination is necessarily generalized. We must deal with specific instances when they arise.

The essential point, however, is that the function of the referee is to ascertain in the manner above stated whether or not the court’s bailiff is living up to his duties and to report accordingly to the judge. What happens thereafter may be left to the court.

The specific questions may be answered as follows: (1) The County Judge was empowered to appoint a referee to examine accounts filed prior to February of the preceding year, provided they had not already been examined. (2) He was not empowered to authorize the referee to take testimony. (3) He was not empowered to authorize the referee generally to examine accounts for years that had been previously examined; but in any specific instance for good cause shown he was empowered so to authorize the referee. (4) The relator is not entitled on this record to an order of mandamus, since the allowance in part covered services rendered beyond the scope authorized by law.

The order of the Appellate Division should be reversed and the proceeding dismissed, without costs.

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

Order reversed, etc.


text:
    Wellington Kenwell, Appellant, v. Clarence F. Lee, as Supervisor of the Town of Inlet, et al., Respondents.

      (Argued April 24, 1935;
    decided May 21, 1935.)

      David E. Snyder and Charles E. Snyder for appellant.

      James C. Tormey and Alton C. O’Hara for Charles A. O’Hara et al., respondents.

      Frederick Kronmiller for Frank E. Breen, respondent.
   Per Curiam.

The judgment of the Appellate Division striking from the judgment entered on the remittitur paragraph numbered eighth is reversed and that paragraph is reinstated. It was pointed out in Kenwell v. Lee (261 N. Y. 113, 116) that there was a fundamental difficulty with the entire proceeding in that a water district was not a municipality within the meaning of section 7 of article VII of the Constitution. Every step taken for the establishment of the Inlet Water District from and including the original petition and map, contemplated the use of Bug lake as a reservoir. Since Bug lake and the incidental lands were owned by the State and were a part of the Forest Preserve, they could not be used for tire proposed purpose. The entire proceeding was, therefore, abortive and of no avail.

' Paragraphs fifth, sixth and ninth were properly enough disposed of, In the sense that some or all of the money. expended and indebtedness incurred, if any, has proved of no immediate benefit, there may be said to have been waste. But what was done was done in good faith and neither the plaintiff nor any other taxpayer made objection until the time arrived for authorizing the bond issue. If claims for any of the matters referred to in those paragraphs are filed for audit, the plaintiff, if he so elects, will have opportunity to litigate. There seems to be no good reason for prolonging the present action.

The disposition made of paragraphs tenth, eleventh, twelfth and thirteenth, together with the new paragraph relating to costs added by the Appellate Division, may stand, but only upon the following interpretation: That the defendant officials be answerable individually in the first instance for the judgment, with the right to each of them to reimbursement from the town under the provisions of (old) Town Law, section 170, subdivision 7 (Cons. Laws, ch. 62). If they defended under authority of law or resolution, what they may pay is a town charge; if they acted otherwise, they acted in fact as individuals, though purporting to act as officials. (Cf. Flynn v. Hurd, 118 N. Y. 19.) The plaintiff has a valid judgment for costs to the payment of which he is entitled. The burden should not be upon him to determine a possible controversy between the defendants and the town as to the scope of authority.

The judgments should be modified in accordance with this opinion and as so modified affirmed, without costs.

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

Judgment accordingly.


author: Loughran, J.

text:
    Manufacturers Trust Company, Appellant, v. Richard E. Weldon, Respondent.
    (Argued May 3, 1935;
    decided May 22, 1935.)

      William J. Granger and Leonard G. Bisco for appellant.

      Richard E. Weldon, in person, and George Kent Weldon for respondent.
   Loughran, J.

A court having jurisdiction has confirmed a composition made by defendant, a bankrupt, with plaintiff and other creditors, whereby he proposed to pay them in cash twenty per cent of their respective claims. This is an action to recover, with interest, defendant’s indebtedness to plaintiff so fixed.

. The sole defense is predicated upon two writings filed by plaintiff with the court- prior to confirmation of the composition. One of these instruments is a waiver of the deposit by defendant of the consideration proposed to be paid to plaintiff. (Bankruptcy Act, § 12 [b]; U. S. Code, tit. 11, § 30; Kinkead v. Bacon & Sons, 230 Fed. Rep. 362, 366.) * The other writing is an affidavit of an officer of plaintiff drafted by defendant and submitted to satisfy the court of the good faith of the parties. The body of the affidavit reads as follows: “ That the said Trust Company [plaintiff] is one of the creditors of Richard E. Weldon [defendant], the above-named bankrupt, in the sum of $22,426.06. That * * * said Trust Company expects to receive payment in full of said 20% at some later time as if and when said bankrupt may be able to make such payment. That - said Trust Company has waived the 20% composition payment, and in addition has made a new advance of eleven thousand dollars ($11,000) to said bankrupt upon the security of a first mortgage on the bankrupt’s residence at Flushing, New York, for the purpose of assisting said bankrupt in rehabilitating his financial condition because of cordial business relations extending over a long period of time, and because of the feeling of friendship of several officers of the Trust Company for the said bankrupt and their confidence in his integrity and ability.”

This action was commenced more than three years after confirmation of the composition. The Trial Term dismissed the complaint, without prejudice, on the ground that “ the evidence conclusively shows that the defendant is not yet able to make the payment provided for in said waiver and affidavit.” Plaintiff appeals from an affirmance of that ruling by the Appellate Division.

The parties are agreed that the waiver of benefit of the deposit exacted by section 12 (b) of the Bankruptcy Act is not a Waiver of payment of the amount to be received by plaintiff by Virtue of the composition. (Kinkead v. Bacon & Sons, supra.) As we understand defendant’s position, it is that the. representation to the court that plaintiff expected to be paid “as if and when said bankrupt may be able to make such payment ’* imports a legally binding agreement that defendant is to pay only when his pecuniary ability can be proved by plaintiff.

We can discover no such contract. The purpose of the writings relied on by defendant was to obtain judicial approval of his arrangement for a composition payment to plaintiff. It would be an extraordinary result if the same papers should be held to rescind that arrangement, and to substitute an agreement postponing plaintiff’s right to the payment until defendant had satisfied his unconditional obligations to other creditors. The parties have not expressed that purpose. " Men can justly rely on one another’s intentions, and courts of justice hold them bound to their fulfilment, only when they have been expressed in a manner that would convey to an indifferent person, reasonable and reasonably competent in the matter in hand, the sense in which the expression is relied on by the party claiming satisfaction,” (Pollock on Principles of Contract [9th ed.], p. 2.) Testing the transaction in question by such a standard, we find no obstacle to this action.

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.

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

Judgments reversed, etc.