author: Lehman, Ch. J.

text:
    In the Matter of Bank of The Manhattan Company, Appellant and Respondent. Michael J. Murphy, as Acting Industrial Commissioner, Respondent and Appellant.
    Argued October 16, 1944;
    decided November 30, 1944.

      George E. Cleary for petitioner-appellant and respondent.
    I. The constitutional provision in question, in clear and unambiguous language, prohibits the imposition of a greater tax burden on State banks than on national banks in the State. An interpretation which limits the scope and application of the prohibition to the discriminatory imposition of a specific tax imposable on both classes of corporations cannot be supported by the language of the provision. (State Const., art. XVI, § 4; McCulloch v. Maryland, 4 Wheat. 316; First Nat. Bank v. Anderson, 269 U. S. 341; Des Moines Bank v. Fairweather, 263 U. S. 103.) II. Proceedings of the constitutional convention of 1938 clearly demonstrate that section 4 of article XVI was primarily intended to assure State banks tax equality with national banks. (People ex rel. Sweet v. Lyman, 157 N. Y. 368; Reed v. McCord, 160 N. Y. 330; Matter of Goedel v. Palmer, 15 App. Div. 86; Western New York Water Co. v. Brandt, 259 App. Div. 11; Matter of Burns, 155 N. Y. 23; Matter of Bowling, 219 N. Y. 44.) III. The unemployment insurance tax imposed on the employer for the period August 10 to December 31, 1939, was invalid because for that period Xew York State had power to impose this specific tax on national banks and discriminated against State banks by choosing not to exercise that power. (Matter of Cassaretakis, 289 N. Y. 119.) IV. Section 4 of article XVI of the Constitution prohibited for the entire year 1939 the imposition of greater tax burdens on State banks than were imposed on competing national banks. (People ex rel. Sweeley v. Wilson, 12 Misc. 174, 146 N. Y. 401; Livoti v. Fitzgerald, 255 App. Div. 711, 279 N. Y. 696; People ex rel. Clark v. Adel, 129 Misc. 82; Franklin Society v. Bennett, 282 N. Y. 79.)

      Nathaniel L. Goldstein, Attorney-General (Orrin G. Judd and Francis R. Curran of counsel), for Acting Industrial Commissioner, respondent-appellant.
    Section ,4 of article XVI of the State Constitution did not forbid the assessment and collection of unemployment insurance contributions from State banks in 1939. The- State had no “ power to tax ” national banks for unemployment insurance purposes until after Congress granted permission. The Xew York Unemployment Insurance Law did not become unconstitutional with respect to taxation of State banks upon enactment by Congress- of the Act of August 10, 1939. (1936 Rep. Atty. Gen. 271; McCulloch v. Maryland, 4 Wheat. [U. S.] 316; First Nat. Bank v. Anderson, 269 U. S. 341; Des Moines Bank v. Fairweather, 263 U. S. 103; Peoples N. Bank & T. Co. v. Co. of Westchester, 261 N. Y. 342; Matter of Liquidation of State Bank of Binghamton, 152 Misc. 579; Barrencotto v. Cocker Saw Co., 266 N. Y. 139; Matter of Burns v. Flynn, 268 N. Y. 601; People ex rel. Clark v. Gilchrist, 243 N. Y. 173; Matter of Fay, 291 N. Y. 198; Matter of Murray v. LaGuardia, 291 N. Y. 320.)
   Lehman, Ch. J.

Bank of the Manhattan Company was incorporated by a special act of the Legislature of the State of New York on April 2, 1799. It conducts a general banking business as authorized by the laws of the State. The parties have stipulated that throughout the year 1939 it “ exercised substantially similar functions and engaged in substantially similar business as national banks in State of New York incorporated under the laws of the United States.” Article 18 of the Labor Law entitled “ Unemployment Insurance Fund” was added to the Labor Law by chapter 468 of the Laws of 1935. It provided that “ on and after the first day of January, nineteen hundred thirty-six, contributions shall be payable by each employer then subject to this article ” (§ 515, see present § 560). Bank of the Manhattan Company was an “ employer then subject to this article ” and it paid the contributions for which it was liable under the provisions of the Act. ■ National bánks doing similar business in this State could be taxed by the State or compelled to pay “ contributions,” prescribed by State law, though not denominated a tax, only as permitted by Congress and in conformity with the conditions annexed to such permission. (First Nat. Bank v. Anderson, 269 U. S. 341.) When the Unemployment Insurance Fund statute was enacted, the tax or enforced contribution imposed by the statute on “ employers ” did not fall within the limited scope of the permission to tax national banks previously given by Congress to the State. National banks were in consequence exempt from the burden to which not only State banks but all other employers as defined in the Unemployment Insurance Fund statute were subject.

The Constitution of the State as revised, with amendments adopted by the Constitutional Convention of 1938 and approved by vote of the People on November 8, 1938, has been “ in force from and including the first day of January one thousand nine hundred thirty-nine.” (Art. XX, § 1.) Among the amendments adopted by the Convention and approved by the People is the provision that: “ Where the state- has power to tax corporations incorporated under the laws of the United States there shall be no discrimination in the rates and method of taxation between such corporations and other corporations exercising substantially similar functions and engaged in substantially similar business within the state.” (Art. XVI, § 4.) On August 10, 1939, section 1606 of the Internal Revenue Code was amended by the Congress ' of the United States. The pertinent provisions of the amending Act are (a) no person required under a State law to make payments to an unemployment fund shall be relieved from compliance therewith on the ground that he is engaged in interstate or foreign commerce * * *. (b) The legislature of any State may require any instrumentality of the United "States * * * to make contributions to an employment fund under a State unemployment compensation law * * * and * * * to comply otherwise with such law. * * * ” (Social Security Act Amendments of 1939, 53 U. S. Stat., ch. 666, § 613, pp. 1391, 1392). Concededly, the exceptions and conditions annexed to the permission given bv Congress are not pertinent upon this appeal.

The Legislature of the State of New York at its next succeeding session availed itself of the permission granted by Congress and added a new section to the Unemployment Insurance Fund statute. It provides that any Federal instrumentality not excepted from the permission given by Congress “ shall, beginning with January first, nineteen hundred forty be subject * * * to all the provisions of this article ” and that “ this section applies to national banking associations and any other federal instrumentalities which would be immune from contributions required under this article without the authorization conferred by subsection b of section sixteen hundred and six of the federal unemployment tax act. ” (§ 502-a now § 560, subd. 6.) The statute conforms to the conditions annexed by Congress to its permission, and beginning January 1, 1940, national banks as well as State banks and other employers have been required to pay into the unemployment insurance fund the same “ contributions ” as required by the statute of 1940.

Bank of the Manhattan Company paid contributions into the unemployment insurance fund based upon its payrolls for the entire year 1939, but thereafter applied for a refund of these contributions in accordance with section 516-a of the statute (now § 570, subd. 6), The referee to whom the application for a refund was referred denied the application. The Appeal Board adopted his findings and conclusions and affirmed his decision. The Appellate Division held that the bank was entitled to a refund of its contributions from August 10, 1939, the date when Congress authorized the Legislature to require national banks to make, contributions, to January 1, 1940, the date from which national banks were subject to the provisions of the unemployment law under the statute enacted by the Legislature pursuant to the permission of Congress. Leave to appeal was granted to both parties, the Appellate Division certifying to us the questions: (1) Is the Appellant, Bank of the Manhattan Company, entitled to a refund of contributions under the Unemployment Insurance Law, paid with respect to the wages of its employees for the period January 1, 1939, to August 9, 1939, inclusive? (2) Is the Appellant, Bank of the Manhattan Company, entitled to a refund of contributions under the Unemployment Insurance Law, paid with respect to the wages of its employees for the period August 10,1939, to December 31, 1939, inclusive? ” We treat the order as final and do not answer the questions.

The members of the Constitutional Convention of 1938 knew, of course, that Congress had long before that time granted to the States permission to impose a tax on the shares of national banking associations or on the national banking associations in any one of “ four forms of taxation ” (U. S. Code, tit. 12, § 548, Revised Statutes, § 5219, as amended). Under the terms of the Congressional statute, the imposition by any State of any one of the four forms of taxation shall be in lieu of the others * * * ” and Congress annexed to its permission to tax national banks granted to the States, a restriction which prevents a State from discriminating in the exercise of the taxing power in favor of State banks or individuals competing with national banks. Without such a restriction a State, by imposing upon national banks an onerous tax without subjecting State banks or their shareholders to a similar tax, could effectively prevent national banks from carrying on business within the State in competition with State banks. “ The purpose of the restriction is to render it impossible for any State * * * to create and foster an unequal and unfriendly competition with national banks, by favoring shareholders in state banks or individuals interested in private banking or engaged in operations and investments normally common to the business of banking.” (First Nat. Bank v. Anderson, 269 U. S. 341, p. 347, supra.)

Until January 1, 1939, the Legislature was under no positive restriction precluding it from discriminating in the exercise of the tax powers in favor of national banks competing with State banks. By such discrimination the Legislature might put an end to the dual system of banldng, in equal and friendly competition by corporations created by the State as well as by corporations created by the United States and might perhaps effectively vest in national banks control of all banldng. That the Legislature of a State would discriminate against corporations created by the State, or against residents of the State, may be improbable, but the members of the Constitutional Convention of 1938 nevertheless decided that the power to impose a discriminatory tax should be expressly withheld “ where the state has power to tax ” national banks; and the people have approved the provisions in the Constitution which withholds from the Legislature power to impose in such circumstances a discriminatory tax upon State banks.

On the first of January 1939 the Constitution so approved was in force. At that time the Legislature had, as we have pointed out, u power to tax ” national banks but only by the imposition of one of “ four forms of taxation ”. The restrictions upon the legislative power to tax State banks in the State Constitution would be without any substantial effect if the words “ where the state has power to tax corporations incorporated under the laws of the United States ” were construed so narrowly that the Legislature would still remain free to impose upon State banks any other form of taxation, however onerous, which it saw fit to impose. Such construction would, it is clear, be contrary to the intent of the constitutional provision. It would afford the State banks no protection against destructive discrimination in tax burdens.

On the other hand, it is equally clear both from the language of the Constitution and from the debates in the Constitutional Convention that the restriction was not intended to exempt State banks from the imposition of an excise tax, or enforced contribution to which corporations and persons falling within a general class of employers including banks and bankers as well as other corporations are subject, even though Congress had not- given to the States power to include national banks within that class. Certainly the framers of the restrictive provisions had no intention to confer upon State banks immunity from the existing statutory obligation to contribute like other employers to the unemployment insurance fund, merely because in a completely different field the State was empowered to impose a tax on national banks in one of four permitted forms. Indeed in the debates of the Constitutional Convention the proponents of the restrictive provision willingly conceded that there was no existing discrimination in taxation of banks of a kind which the proposed provision was intended to prohibit in the future.

“ A consideration of the course of judicial decision on R. S. 5219 and its predecessors can leave no doubt that the various restrictions it places on the permitted methods of taxation are designed to prohibit only those systems of state taxation which discriminate in practical operation against national banking associations or their shareholders as a class.” (Italics are ours.) (Tradesmens Bank v. Tax Comm’n, 309 U. S. 580, 567.) Similarly the restrictions placed by the State Constitution on the legislative power of taxation are designed to prohibit only those systems of State taxation which discriminate in practical operation in favor of national bank associations or their shareholders as a class and apply only within a field where the State has power to tax corporations incorporated under the laws of the United States which exercise substantially similar functions. The letter and spirit of the restriction is violated by a State law which imposes upon State bánks or their shareholders as a class a higher tax than it imposes upon national banks or their shareholders as a class, where the State would have power to impose a tax without discrimination upon national banks and their shareholders as a class. Neither the spirit nor the letter is violated by a statute, general in terms and effect, which imposes a tax or enforced contributions, without discrimination, upon a broad class in which banks are included, not-because they are engaged in banking, but because they are employers; though so long as Congress withholds permission to States to impose such a tax on national banks in accordance with any rate or method, national banks are exempt from the burden to which other employers are subjected. Until August, 1939, when Congress did grant to the States permission to impose such a burden on national banks, the constitutional restriction had no application and the State banks remained subject to the Unemployment Insurance Law.

When Congress granted to the States permission to require national banks to contribute to such a fund, the constitutional restriction did, however, apply. The State had power then to tax national banks, though it could exercise that power only through legislative action, and the Legislature was not then in session. At its next session the Legislature chose to impose the same burden on national banks as on State banks, beginning January 1, 1940. From that time there was no discrimination in favor of national banks. From August, 1939, until that time, the State could not impose upon State banks a tax to which national banks were not subjected in accordance with the power to tax which had been conferred upon the State.

The order should be affirmed, with costs. The questions certified are not answered.

Loughbae, Rippey, Coeway, Desmoeu and Thacheb, JJ., concur; Lewis, J., taking no part.

Order affirmed, etc.


source: Caselaw Access Project

author: Thacher, J. Desmond, J.

license: Public Domain

text:
    Berger Bros. Electric Motors, Inc., Respondent, v. New Amsterdam Casualty Company, Appellant.
    Argued November 13, 1944;
    decided November 30, 1944.

      Carroll M. Roberts for appellant.
    Even though it be held that the damages suffered resulted from an accident, such accident arose by reason of defective workmanship and occurred after the assured’s work and' operations had been completed and, hence, is expressly excluded from coverage under both policies. (Hutchinson Gas Co. v. Phoenix Indemnity Co., 208 Minn. 257; Crouch et al. v. Gutmann, 134 N. Y. 45; Spence v. Ham, 163 N. Y. 220.)

      Leonard II. Amdursky and Samuel Berger for respondent.
    The plaintiff’s work was not complete at the time of the accident. It was not completed until May 3,1941, when it correctly installed the motors. (In Re Abbott Gamble Co., 195 F. 465; Pike v. Naylon Securities Co., Inc., 140 Misc. 734; Boyle v. Paolini Cafeteria & Restaurant, Inc., 220 App. Div. 482; Thurston v. Blount, 216 Mass. 264; Carter v. Commonwealth, 194 N. E. 915; Winer v. Rosen, 231 Mass. 418; Phillip v. Gallant, 62 N. Y. 256; Spence v. Ham, 163 N. Y. 220.)
   Thacher, J.

This is a suit upon two insurance policies pursuant to which the defendant casualty company agreed’- to indemnify the plaintiff against loss by reason of liability imposed by law for damages caused by accident and arising out of the operations specifically set forth and at the locations stated in the policies.

During the year 1940, the Central New York Power Company, which furnished electric current to consumers in Oswego County, determined to change the frequency of its current from twenty-five to sixty cycles. This change necessitated the substitution of sixty-cycle equipment for twenty-five-cycle equipment theretofore used by its customers. For this purpose the power company employed the services of the plaintiff under a written agreement pursuant to which plaintiff undertook to furnish the labor and equipment to replace the old equipment with the new. The work was to commence as soon as practicable after September 30, 1940, the date of the agreement, and was to be completed within four weeks after commencement. The agreement required the contractor on completion of the work to return to the power company a form signed by the person performing the work, by the consumer and by the Contractor ” evidencing that the work had been satisfactorily completed. The power company was then to inspect the work, the plaintiff was to remove his equipment, tools and materials, and payment was to be made twenty days after completion.

Pursuant to this contract plaintiff performed certain work at the turkey farm of George F. Chillson, one of the power company’s customers in the town of Hannibal, Oswego County, and among other things installed three new motors in three incubators used for hatching turkey eggs. The work of installing and connecting the new sixty-cycle motors with fan blades in place was completed on December 23,1940, and final payment for the work was made January 2, 1941. Between December 23,1940, when plaintiff, completed its work at the Chillson farm, and May 3,1941, no agent or employee of the plaintiff and none of its tools, equipment or materials were at the farm.

No use was made of incubators until the commencement of the incubating season on February 20, 1941. Between that day and May 3, 1941, fourteen separate hatches, aggregating 17,000 eggs, were set in the three incubators, with disastrous results. Many of the eggs were not hatched at all and the poults which were hatched either died in infancy or survived as puny creatures. It is stipulated that the damages thus suffered were caused by the negligence of plaintiff’s employees in connecting the wiring so that the motors and fans operated in the wrong direction.

Liability for the farmer’s damage, predicated on plaintiff’s fault, was imposed by law ”, and we must decide whether loss resulting to the plaintiff from this liability is within the coverage of the policies in suit.

The first policy, the term of which was from March 6, 1940, to March 6,1941, carried a property damage indorsement which extended the coverage of the policy to “ loss from the liability imposed by law upon the Assured for damages on account of injury to or destruction of property ” (with exceptions not pertinent in this case) “ resulting solely and directly from any accident due to or caused by the operations specifically set forth in the Schedule of this Endorsement and at the places mentioned therein, provided such damage or destruction is caused as a result of accidents occurring while this Endorsement is in force ”. The scheduled operations included the installation of electrical apparatus and the location specified is “ 395-405 State Street, Rochester, N. Y. and elsewhere.” Thus the wiring and installation of the motors and fans on the Chills on farm was an operation out of which > a liability within the coverage of the policy would arise unless excluded by some express provision of the policy. The property damage indorsement expressly excluded “ damage to or destruction of property ” as a result of accidents excluded from the coverage under condition A of the policy and this condition contains the following: “ Condition A: This “Policy does not cover any accident * * * (8) resulting from defective workmanship or material in connection with contracting operations after the Assured’s work is completed ”.

The second policy,' the term of which was from March 6, 1941, to March 6,1942, also carried a property damage indorsement covering loss by reason of liability imposed upon the insured by law for damages because of injury to or destruction of property caused by accident and arising out of operations including the installation of electrical apparatus. This indorsement also excluded all accidents excluded under the provisions of the policy, which contained the following clause: “ This policy does not apply: * * * (d) to accidents occurring after operations have been completed or abandoned at the place of occurrence thereof and away from the premises owned, rented or controlled by the insured, other than accidents caused by the existence of tools, uninstalled equipment and abandoned or unused materials

When the plaintiff completed its work and removed all of its tools, equipment and materials from the Chillson farm on December 23,1940, no accident had occurred. Nothing had happened. There was no mishap whatever. Not until the eggs were placed in the incubators did any accident occur, and if we assume, as the plaintiff contends, that the accident did occur on February 20, 1941, when the cause and effect merged into a consummated accident ’ ’, this accident resulted from defective workmanship after the work of installation was completed. This must be so unless we yield to the plaintiff’s contention and hold that the work was not completed at that time because the wiring was defective; but so to construe the language of the excluding clauses would deprive them of all meaning and purpose. By these clauses the parties intended to limit the casualty company’s liability to accidents occurring during the progress of the. work and to exclude liability for accidents occurring-, after the work was completed, as the result of defective workmanship. If that be not the meaning of the plain language used, the insurer would remain liable indefinitely for defective workmanship upon the theory that defective work is never complete until the defect is discovered and corrected. But this is a risk which the parties intended to exclude from the coverage of the policy, and we cannot read these policies as intended to cover such risks, for the language is plain and unambiguous.

There were contentions here and in the courts below predicated upon decisions in which the courts have considered what is and what is not an accident in various legal and factual settings. We need not pause to consider these contentions in this case for, conceding that the mishap to the turkey eggs was an accident, we are constrained to conclude that it did not occur before the work was completed in December of 1940.

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

Desmond, J.

(dissenting). When plaintiff’s employees left the Chillson farm they thought they had done a proper job of hooking up the motors to the incubator fans. Some months later the farmer, sharing that mistaken belief, turned on the fans, only to find out, after great damage had been done, that the motors had been so connected up that the fans ran the wrong way, with the result that the turkey eggs could not be hatched out. Surely there was then an accident and resulting accidental damage to the eggs. We are now told, however, that defendant’s policy excludes coverage for liability for that particular accident. The policy is being construed by the majority of this court as if it covered only accidents occurring while plaintiff’s workmen were still actually at work. If such a meaning had been intended, it would have been easy to say so. What the policy actually says is that it excludes accidents occurring after plaintiff’s work has been “ completed.” In no real or reasonable sense can it be said that the work of connecting up the fans was completed ” when it was so done that the fans would not perform their allotted function at all, but would damage the eggs, instead of hatching them. Such a job is no more completed ” than would be the repair of an electric clock with its hands left running backwards, or of an electric refrigerator so hooked up that it would not lower the temperature, or of an electric lamp that would not light. The Appellate Division, we think, was correct when it said here that the mistake of plaintiff’s workmen so pervaded the whole job that it could not be considered completed ” when they left the Chills on farm on December 23d. Actually they did return and complete it some months later, after the damage to the eggs had been discovered. The application we make of the word “ completed ” to the facts of this case does not deprive the policy exception of all force. The work, we suppose, might be considered “ completed ” if the appliances had been left in usable condition even though the materials or workmanship were so defective that later use might some day cause an accident. We hold only that when the workmen left the farm on December 23d, the work of -rewiring the fans had not been “ completed,” as that word is ordinarily used in common speech.

The judgment below should be affirmed, with costs.

Lehman, Oh. J., Loughran, Rippey and Lewis, JJ., concur with Thacher, J.; Desmond, J., dissents in opinion in which Conway, J., concurs.

Judgment accordingly.


author: Conway, J. Desmond, J. Lehman, Ch. J.

text:
    Charles Chaplin, Suing on Behalf of Himself and All Other Stockholders of United Artists Corporation Similarly Situated, Respondent, v. David O. Selznick et al., Defendants, and David O. Selznick Productions, Inc., et al., Defendants-Appellants.
    Argued October 2, 1944;
    decided November 30, 1944.

      Lowell Wadmond and Chester Bordean for defendants-appellants appearing specially.
    I. Service of process on Productions should be vacated. Productions was completely liquidated and dissolved long prior to service of process. (Yeckes-Eichenboum, Inc., v. McCarthy, 290 N. Y. 437; Gaboury v. Central Vermont Ry. Co., 250 N. Y. 233; Western Hair Goods Co. v. Haberkorn Co., Inc., 131 Misc. 930; People’s Tobacco Co. v. Am. Tobacco Co., 246 U. S. 79; Chipman, Ltd., v. Jeffery Co., 251 U. S. 373; Boyle v. Lakeview Creamery Co., 9 Cal. 2d 16; Sinnott v. Hanan, 214 N. Y. 454; White Mountain Paper Co. v. Morse & Co., 127 F. 643; Smith v. Compania Litografica De La Habana, 121 Misc. 368; Acton v. Washington Times Co., 12 F. Supp. 257.) II. Service of process on Vanguard should be vacated. The activities carried on by Vanguard in New York are no part of its main business of producing motion pictures. (Holzer v. Dodge Brothers, 233 N. Y. 216; Yeckes-Eichenbaum, Inc., v. McCarthy, 290 N. Y. 437; Tauza v. Susquehanna Coal Co., 220 N. Y. 259; People’s Tobacco Co. v. Am. Tobacco Co., 246 U. S. 79; Hunau v. Northern Region Supply Corporation, 262 F. 181; Lillibridge, Incorporated v. Johnson Bronze Co., 220 App. Div. 573, 247 N. Y. 548; Henry M. Day & Co. v. Schiff, Lang & Co., 278 F. 533; Dollar Co. v. Canadian C. & F. Co., 220 N. Y. 270; Bagdon v. Phil. & Reading C. & I. Co., 217 N. Y. 432.) III. The activities carried on by Vanguard’s New York office amount to no more than a preliminary solicitation of literary properties and services to be used by Vanguard in its business in Culver City, California. (Green v. Chicago, Burlington & Quincy Ry., 205 U. S. 530; Davega, Inc., v. Lincoln Furniture Mfg. Co., 29 F. 2d 164; Pennrich & Co., Inc., v. Juniata Hosiery Mills, Inc., 247 N. Y. 592; Yeckes-Eichenbaum, Inc., v. McCarthy, 290 N. Y. 437.) IV. The amount of solicitation activity in New York is insubstantial in .comparison with the total amount of such activity carried on by Vanguard in Culver City, California. (Yeckes-Eichenbaum, Inc., v. McCarthy, 290 N. Y. 437; Wolitz v. India Tire Co., 10 F. Supp. 53.) V. Miss Flagg, in Vanguard’s New York office, is not invested with general powers involving judgment and discretion. (Yeckes-Eichenbaum, Inc., v. McCarthy, 290 N. Y. 437.)

      Louis D. Frohlich and Herbert P. Jacoby for respondent.
    I. Defendants are doing business in New York and the courts of this State have jurisdiction over them. (Tauza v. Susquehanna Coal Co., 220 N. Y. 259; Meinhard, Greeff & Co. v. Higginbotham-B.-L. Co., 262 App. Div. 122; Cochran Box & Mfg. Co. v. Monroe Binder Board Co., 197 App. Div. 221, 232 N. Y. 503; Interocean Forwarding Co. v. McCormick & Co., 168 N. Y. S. 177, 183 App. Div. 883; Brown v. United States Daily Publishing Corp., 146 Misc. 539, 239 App. Div. 777; Halpin v. North American Refractories Co., 151 Misc. 764; Madison Distributing Co., Inc., v. Phoenix P. D. Works, Inc., 135 Misc. 543; National Furniture Co. v. Spiegelman & Co., Inc., 198 App. Div. 672; Fleischmann Construction Co. v. Blauner’s, 190 App. Div. 95.) II. The institution of proceedings in California to dissolve David O. Selznick Productions, Inc., is no bar to the jurisdiction of the courts of this State. (17 Fletcher on Corporations, § 8583; Civil Code of California, § 399; Boyle v. Lakeview Creamery Co., 9 Cal. 2d 16; Sinnott v. Hanan, 214 N. Y. 454; White Mountain Paper Co. v. Morse & Co., 127 F. 643; Smith v. Compania Litografica De La Habana, 121 Misc. 368; Holmes v. Camp, 180 App. Div. 409; Acton v. Washington Times Co., 12 F. Supp. 257; Floerchinger v. Sioux Falls Gas Co., 68 So. Dak. 543.)
   Conway, J.

This is a stockholders’ derivative action brought on behalf of United Artists Corporation (hereinafter referred to as “ United ”) against David 0. Selznick Productions, Inc. (hereinafter referred to as “ Productions ”), Vanguard Filins, Inc. (hereinafter referred to as “ Vanguard ”), David 0. Selznick, Twentieth Century-Fox Film Corporation (hereinafter referred to as Twentieth Century ”) and United Artists Corporation.

As to the defendant corporations, the complaint alleges that United is a Delaware corporation having its principal place of business in the city and State of New York, and that Twentieth Century is a corporation organized and existing under the laws of the State of New York. As to Productions and Vanguard, the complaint alleges that each was organized under the laws of the State of California, and has an office fa,r the transaction of business at 515 Madison Avenue in the City and State of New York “ and has been transacting and does transact business in said State of New York.” The residence of the nominal plaintiff is unimportant, since he is but the “ instigator ” of the action on behalf of United.

Productions and Vanguard appeared specially and moved to • vacate service of the summons and complaint upon the ground, as to each, that it was not subject to the jurisdiction of our State courts because it was not transacting business here.

Upon the denial of that motion and its affirmance by the Appellate Division, two questions were certified to us as follows:

“ 1. Was the defendant, David 0. Selznick Productions, Inc., doing business within the State of New York to such an extent as to subject it to the service of process in New York?
“ 2. Was the defendant, Vanguard Films, Inc., doing business within the State of New York to such an extent as to subject it to the service of process in New York? ”

'While neither Special Terra nor the Appellate Division made express findings of fact, the Appellate Division certified that the findings of fact made by the court at Special Term were affirmed. (See Civ. Prac. Act, § 603.) We must assume, therefore, that all controverted questions of fact in the record have been determined in favor of plaintiff.

The question presented, then, is whether, on those facts, Productions and Vanguard have been or are transacting business in this State. When a corporation created in one State goes into another, it must be there by its agents authorized to transact its business in that State ” in order to be regarded as within the latter State. Each case, of necessity, must depend upon its own facts, but those facts must show that the corporation is actually doing business within the State in which the action is brought. (International Harvester v. Kentucky, 234 U. S. 579, 583.) We pointed that out in Tauza v. Susquehanna Coal Co. (220 N. Y. 259, 265, 266, 268, 269), which counsel for appellants now seeks to distinguish, if not indeed to have formally overruled. There we said: “ The plaintiff, a resident of this state, has brought suit against the Susquehanna Coal Company, a Pennsylvania corporation. The defendant’s principal office is in Philadelphia; but it has a branch office in New York, which is in charge of one Peterson. Peterson’s duties are described by the defendant as those of a sales agent. He has eight salesmen under him, who are subject to his orders. A suite of offices is maintained in the Equitable Building in the city of New York, and there the sales agent and his subordinates make their headquarters. The sign on the door is ‘ Susquehanna Coal Company, Walter Peterson, sales agent.’ The offices contain eleven desks and other suitable equipment. In addition to the salesmen there are other employees, presumably stenographers and clerks. The salesmen meet daily and receive instructions from their superior. All sales in New York are subject, however, to confirmation by the home office in Philadelphia. The duty of Peterson and his subordinates is to procure orders which are not binding until approved. All payments are made by customers to the treasurer in Philadelphia; the salesmen are without authority to receive or indorse checks. A bank account in the name of the company is kept in New York, and is subject to Peterson’s control, but the payments made from it are for the salaries of employees, and for petty cash disbursements incidental to the maintenance of the office. The defendant’s coal yards are in Pennsylvania, and from there its shipments are made. They are made in response to orders transmitted from customers in New York. They are made, not on isolated occasions, but as part of an established course of business. In brief, the defendant maintains an office in this state under the direction of a sales agent, with eight salesmen, and with clerical assistants, and through these agencies systematically and regularly solicits and obtains orders which result in' continuous shipments from Pennsylvania to New York.

“To do these things is. to do business within this state in such a sense and in such a degree as to subject the corporation doing them to the jurisdiction of our courts.”

We also said: “ Unless a foreign corporation is‘engaged in business within the state, it is not brought within the state by the presence of its agents. But there is no precise test of the nature or extent of the business that must be done. All that is requisite is that enough be done to enable us to say that the corporation is here (citing cases). If it is here it may be served (citing case). * * * The essential thing is that the

corporation shall have come into the state. When once it is here, it may be served; and the validity of the service is independent of the origin of the cause of action.”

Having that test before us, which the courts of this State have followed since, although the facts involved and the language employed in subsequent cases have necessarily varied (e. g., Holzer v. Bodge Brothers, 233 N. Y. 216; Lillibridge, Inc., v. Johnson Bronze Co., 247 N. Y. 548; Gaboury v. Central Vermont Ry. Co., 250 N. Y. 233; Yeckes-Eichenbaum, Inc., v. McCarthy, 290 N. Y. 437), we turn to the theory of plaintiff’s cause of action.

In July, 1935, Selznick International Pictures, Inc. (hereinafter referred to as “ International ”), a corporation in which the defendant Selznick and another owned the controlling stock interest, entered into a contract with United which provided that International should produce and deliver at least four pictures for distribution through United, which as we have seen had its principal place of business in this State. International delivered two pictures. It then produced and distributed, through a corporation other than United, a picture called “ Gone With the Wind,” which resulted in very large profits for International. Thereafter, the defendant Selznick caused International to be dissolved, in order to effect a favorable solution of certain tax problems. The dissolution had to be accomplished within a definite period and it was necessary, within such period, to obtain a release from United of the obligation of International to produce the two other motion picture photoplays. Thereupon, Productions was organized in August, 1940, assumed the obligation of International for the two pictures and United executed the desired release of International. The defendant Selznick, at that time, entered into a separate agreement with United under which he personally agreed that until such two additional motion pictures had been delivered, he would not, directly or indirectly, engage in the production or distribution of other photoplays. Neither picture, however, was produced under that contract by Productions. Subsequently, more than a year later, negotiations were entered into which resulted in the making of new agreements on October 4, 1941, as follows: (a) An agreement between United and Productions whereby Productions and the defendant Selznick were released from the aforesaid assumed International agreement; (b) A distribution agreement between United, Productions and defendant Selznick whereby Productions agreed to produce a number of motion pictures and United to distribute them; (c) A stock purchase agreement between United and Productions, providing for the purchase of a 25 % stock interest in United by Productions and defendant Selznick and for the manner of payment for such stock; and (d) A loan agreement between United and Productions with respect to each picture to be produced. Under that loan agreement, $300,000 was advanced by United to Productions to be used by the latter to complete the purchase of three literary properties, “ Keys to the Kingdom,” “ Claudia,” and “ Jane Eyre,” and for the preparation of motion picture stories and scripts therefor and the payment of salaries to artists, directors and cameramen, with whom exclusive contracts had already been made, in connection with the productions thereof.

The complaint recites that it was represented by Productions and defendant Selznick that they would use the aforesaid literary properties and personal services in the production of motion picture photoplays. No pictures were produced or delivered by Productions under those agreements. On the contrary, Pro-¿¡.notions assigned to Twentieth Century those personal service contracts and literary properties, upon which three photoplays were later based, for a substantial sum. After profiting by those transactions with Twentieth Century and again in order to reduce tax liability, as had been done for International, the defendant Selznick, on October 22, 1942, caused Productions (the name of which had been changed in May of 1942 to D. O. S. Productions, Inc.) to file with the Secretary of State of California a Certificate of Notice of Election to Wind Up and Dissolve. Four days later, Productions distributed all of its assets to its sole stockholder, the defendant Selznick. Thereafter, on November 14, 1942, Productions filed a Certificate of Dissolution with the Secretary of State of California. Prior to such claimed dissolution, defendant Selznick organized Vanguard on or about August 1,1942, under the laws of California, and caused Productions to assign to it the contracts with United. Vanguard accepted the assignment and assumed those obligations. Down to the time of the commencement of the action by the service of the summons and complaint in July, 1943, Vanguard had not actually commenced the principal production of any motion picture.

The complaint alleging those facts, which for the purpose of this motion are taken to be true, seeks an accounting from the defendants Selznick, Productions and Vanguard as to the transactions with Twentieth Century, and a money judgment against the last mentioned company.

It is the theory of the plaintiff that Productions and Vanguard, during the period covered by the complaint, engaged solely in the business of dealing in rights to literary properties and entering into agreements for the personal services of actors, actresses, technicians and other personalities and the hiring of them out to others, and that a substantial part, if not all, of those activities were necessarily pursued in New York State. Thus, in November, 1941, Productions, this time using United as agent, purchased the motion picture rights to a novel called The G-String Murders.” All phases of that contract transaction were consummated in the State of New York through United which had its principal place of business here. In August, 1942, Productions sold and assigned those motion picture rights to a non-connected and stranger corporation at a profit. The plaintiff points out that the defendant Selzniok had nothing to do with the production of a motion picture photo-play for four years prior to the service of the complaint in July, 1943, and that Vanguard neither produced nor even commenced the principal production of any motion picture photo-play prior to that time. In reply, Vanguard admits that the “ volume of work that Miss Flagg [to whom reference will later be made] does with respect to negotiations under instruction, with authors, artists, directors, agents, and publishers is very, very small in relation to all such work that Vanguard Films, Inc., does and does not comprise more than 5% of all such work.” If all that was ever done by Productions and Vanguard, up to the commencement of this action, was work similar to that done by Miss Flagg, her work was substantial and would more than meet the test formulated in the Tanza case (supra). The purchase in Mew York City of literary products and scripts and the obtaining of contracts with actors and actresses for actively producing motion picture companies would appear to be necessary for their existence, whether in California or elsewhere. It would appear to be as important to them as would the purchase of coal for a manufacturing plant. Much more was it a necessity in this case where no production was attempted. That brings us to Miss Flagg.

She was an employee in charge of the office in Mew York City for Productions for a brief period and then for Vanguard. Those offices were originally at 630 Fifth Avenue, Mew York City, and were later moved to 515 Madison Avenue, Mew York City. There were two other employees in the Vanguard office with her and the salaries of the three aggregated $10,000 per year. Productions and Vanguard each in turn leased the office space at an annual rental of $2,600, and each paid an occupancy tax to the City of Mew York. Occupancy taxes are paid by those who occupy premises in the City of Mew York for any gainful purpose.” (Administrative Code, ch. 17, tit. C, § C 17-4.0, subd. a, formerly ch. 44, tit. B, § 1012-1.0, subd. [a].) Its payment is consistent only with the doing of business here. The office was listed in the Motion Picture Almanac and in the Manhattan telephone directory. Each corporation had a bank account in a Mew York City bank. Various Selznick enterprises had, from time to time, obtained financing through the Bankers Trust Company and in September, 1943, the vice-president and treasurer of Vanguard, who had also been a director and treasurer of Productions, discussed, at least in a limited way, in New York, a loan agreement .for the financing of a picture to be produced by Vanguard and the increasing of a loan, which was already under consideration, from $980,000 to approximately $2,000,000. The trust company, under Banking Law, section 105, could transact no part of its banking-business at any place other than in the State of New York, and the negotiations for the loan must be found to have been transacted in this State. Apart from that, however, Vanguard had clearly been actively soliciting business here as a continuous and systematic course of conduct. In May, 1943, the following letter was sent to a number of literary agents and other persons interested in disposing of literary properties:

Vanguard Films, Inc.
515 Madison Avenue New York, N. Y.
May 28, 1943
Coincident with David 0. Selznick’s re-entry into active production early this summer on a soon-to-be-published book which he has recently purchased, his New York office is interested in securing important literary material for subsequent production.
Miss Elizabeth Carver will be associated with this office in an editorial capacity, beginning June 1st, and all submissions should be directed to her attention.
Please note also that the name of Mr. Selznick’s new company is Vanguard Films, Inc.
Harriett Flagg
Eastern Representative ”
It will be noted that there was no California address mentioned in the letter. The activity of Miss Carver in the Vanguard office may be guaged by her own reported statement , that she would not have any time to read the complaint in this action since she was kept extremely busy reading scripts for Mr. Selznick, and that as a matter of fact she read about twenty plays and boobs a week.”

There can be no question but that Productions, prior to its claimed dissolution in November, 1942, was actively engaged in a substantial part of its business in New York. When Productions purchased the motion picture rights to the play ‘ ‘ Claudia,” one of the clauses in the contract read as follows: ‘1 Twenty-second: This Agreement is to be construed and is to take effect as a contract made and performed or to be performed in the State of New York and shall be governed in all respects by the laws of the State of New York.” (Underscoring supplied.) It was “ Claudia ” which was thereafter paid for with moneys advanced by United, which was to be the distributor, but nevertheless sold, together with other literary properties, by Productions to Twentieth Century, a New York corporation, at a substantial profit. In the case of Productions, the buying of literary properties was as important as the selling.

It is true that Vanguard did eventually release one picture for United but under circumstances which further tend to establish the fact that neither Productions nor Vanguard was engaged in doing anything except purchasing and selling literary properties until after the service of the summons and complaint. .Two months thereafter, in September, 1943, the production of Vanguard’s first picture was commenced but was not released until July 20, 1944, one year after the service of the summons.

Having reached the conclusion that Productions and Vanguard were “ here ” within the meaning of the Tatiza case (supra), there remains the question whether Productions has withdrawn from New York so that it may not be sued in this State. As we have seen, Productions was dissolved in order to terminate tax liability as of a definite taxable period. It is the contention of plaintiff that no attention was paid to the dissolution for any purpose other than the termination of tax liability, and he points out that long after November 14, 1942, Productions continued its tenant’s listing at 515 Madison Avenue and in the telephone directories, and that there was a mere transference of Miss Flagg from Productions to Vanguard with continuity of a course of business conduct. As a matter of fact, Productions continued its office-building listing until after the summons and complaint were served, which was more than eight months after the claimed dissolution. We do not think that those items, however, are determinative. It is urged by Productions that after the distribution of all its assets to its sole stockholder, the defendant Selznick, there was complete liquidation and there was no business to be wound up. The difficulty with that is that there is no affidavit presented to us by the defendant Selznick, who was the sole stockholder, upon that point. The important consideration, it seems to us, is that the State of California has provided in its Civil Code, section 399, in part, as follows: “ Continuation of corporation after dissolution: A corporation which is dissolved by the expiration of its term of existence, by forfeiture of existence by order of court, or otherwise, nevertheless shall continue to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it, and enabling it to collect and discharge obligations, dispose of and convey its property, and collect and divide its assets, but not for the purpose of continuing business except in so far as necessary for the winding up thereof. No action or proceeding to which a corporation is a party shall abate by the dissolution of such corporation or by reason of proceedings for dissolution and winding up thereof.”

That section is entitled to recognition and enforcement by the courts of this State. (Sinnott v. Hanan, 214 N. Y. 454, 459.) We have a similar statute in this State (Stock Corporation Law, § 105, subd. 8). Under the California statute, the existence of the corporation is continued for the purpose of prosecuting and defending actions by or against it, with reference to controversies which arise by reason of acts done in this State while it was here transacting business. In other words, a California corporation may not transact business in this State and, after committing wrongful acts which require in justice an accounting by it, escape by dissolving in California. California has in effect forbidden that by statutory provision. (See, also, Fletcher Cyclopedia Corporations [Permanent Edition] Vol. 17, §§ 8580, 8583.)

The first and second questions should be answered in the affirmative, Avith costs.

Desmond, J.

As to defendant Vanguard Fihns, Inc., I agree with Judge Conway’s opinion for affirmance. I think, however, that there should be a negative answer to the other certified question: <v Was the defendant, David 0. Selznick Productions, Inc., doing business within the State of New York to such a,n extent as to subject it to the service of process in New York? ” That corporate defendant (herein called “ Productions ”) was formally dissolved in California, and all its assets disposed of on or before November 16, 1942. Eight months later, on July 20, 1943, service on it of process in this suit was attempted to be made in this State. The findings of the courts below that Productions was still doing business in New York on July 20, 1943, were, necessarily, based on the showing that its name continued to be listed, until after that date, in the New York City telephone directory and in the directory of tenants in the lobby of the building at 515 Madison Avenue, New York City, where it had formerly had an office under lease. Such a showing is not enough.

The California statute (California Civil Code, § 399) referred to in Judge Conway’s opinion, like our Stock Corporation Law, section 105, declares that a dissolved corporation continues to exist, after dissolution, for -the purpose of defending suits. Thus its formal declaration of dissolution did not, in and of itself, operate to prevent the maintenance of suits against it. It was still alive for such purposes, but its continued existence as a corporation is not the question here. Our inquiry is solely as to whether or not it was still doing business in New York State in July, 1943. On the record before us, the answer must be “ no.”

The orders should be reversed and the motion to vacate service of process as to David 0. Selznick Productions, Inc., granted, with costs in all courts; otherwise the order should be affirmed with costs.' The first question certified should be answered in the negative and the second question certified in the affirmative.

Lehman, Ch. J.

(dissenting in part). I agree with the majority of the court that David 0. Selznick Productions, Inc., is not doing business in this State. I do not agree with the conclusion that Vanguard Films, Inc., is doing business here. Miss Flagg, in charge of its office in New York, was employed as literary agent,” but she and her assistant had authority only to receive “ literary material for subsequent production ” which might be submitted, and to maintain contact, “ in accord - once with instructions from the principal office of the corporation in California, with such artists, directors, agénts and-publishers as may be actually located in New York City.” She and her assistant read manuscripts and reported to the staff of the corporation in California. They have no power to enter into any contract in behalf of the corporation, or even to negotiate, except “ under instructions ” sent from the California office. When the corporation decides to purchase literary material, a form of contract is prepared in California and sent to the New York office. It may be signed in New York by the seller of such material, but it is signed in behalf of the corporation by officers or executives in California. The bank account in New York has never had a balance of over $1,600 and has been used only for the expenses of the office. No other business transactions in behalf of the corporation have been regularly carried on in New York and, concededly, no officer or executive of the corporation resides, or has been there on business of the corporation except on isolated occasions where discussion on important matters with New York residents was desirable. This proof, in my opinion, does not meet the test formulated in Tauza v. Susquehanna Coal Co. (220 N. Y. 259). The orders should be reversed and the motion to vacate the service of process in New York should be granted.

Thacher, J., concurs in opinion by Conwat, J., in which Loughran, Lewis and Desmond, JJ., concur upon the appeal of the defendant Vanguard Films, Inc.; Lehman, Ch. J., Loughran, Rippey and Lewis, JJ., concur in opinion by Desmond, J., upon the appeal of David 0. Selznick Productions, Inc.; Lehman, Ch. J., dissents in opinion upon appeal of Vanguard Films, Inc., in which opinion Rippey, J., concurs.

Ordered accordingly. (See 294 N. Y. 662.)


author: Lewis, J.

text:
    Eugene T. Singer, Appellant, v. The Yokohama Specie Bank, Limited, Defendant, and Elliott V. Bell, as Superintendent of Banks of the State of New York, Respondent.
    Argued October 20, 1944;
    decided November 30, 1944.

      Wm. Dwight Whitney, Geo. M. Billings and Jack W. Bobbins for appellant.
    I. The New York transaction constituted a promise to pay. A promise to pay may be verbal. (Baldwin’s Bank v. Smith, 215 N. Y. 76; Hillas & Co., Ltd., v. Arcos, Ltd., 147 L. T. 514.) II. Assuming that the verbal promise requires written confirmation, this is provided by the letter. (Outlet Embroidery Co., Inc., v. Derwent Mills, 254 N. Y. 179; Stulsaft v. Mercer Tube & Mfg. Co., 288 N. Y. 255.) III. The promise by the New York agency constituted the transaction contemplated by the statute. (Restatement of Contracts, § 75, subd. 2; Civ. Prac. Act, § 209; Salimoff & Co. v. Standard Oil Co., 259 N. Y. 219.) IV. This was not a transaction prohibited by the Federal freezing regulations. Adjudication and the entry of judgment are expressly authorized by Treasury Ruling 12. (Bollack v. Societe Generale etc., en France, 263 App. Div. 601; Polish Relief Comm. v. Banca Nationala a Rumaniei, 288 N. Y. 332.) V. There is no requirement of law that consideration shall have passed from Standard-Vacuum to the New York agency. The operative fact is the promise (or assent) to make the payment. (White v. Rintoul, 108 N. Y. 222; F. N. Bank v. Chalmers et al., 144 N. Y. 432; Goodwin v. Bowden, 54 Me. 424.) VI. The condition of obtaining the Federal license was understood between the parties (Standard and the New York Agency) to be a condition to payment, not a condition to the creation of the debt. (Polish Belief Comm. v. Banca Nationala a Rumaniei, 288 N. Y. 332.)

      Donald Marks for Orvis Brothers & Company, amicus curia .in support of appellant’s position.
    I. The statutory class of “ transaction ” claims should not be limited to claims arising out of contracts. (Ter Kuile v. Marsland, 81 Hun 420; Bank v. Lee, 7. Abb. Pr. 372; Deagen v. Weeks, 67 App. Div. 410; International Shoe Co. v. Hawkinson, 72 N. D. 622.) H. The statute (Banking Law, § 606, subd. 4) does not preclude the allowance of plaintiff’s claim as that of a nonpreferred creditor. (Matter of Union Bank, 204 N. Y. 313; Garlick et al. v. Prudence Co., Inc., et al., 79 F. 2d 77, 296 U. S. 646.)

      Edward Feldman and Isadore B. Cohen for respondent.
    I. Appellant’s claim is not provable in the New York liquidation. The communications from Yokohama to the Agency, and from the Agency to Standard, did not give rise to a cause of action against the Agency in favor of Standard. Only preferred claims may participate in the liquidation. (Matter of People [Norskeo Lloyd Ins. Co.], 242 N. Y. 148; Matter of People [City Eq. Fire Ins. Co.], 238 N. Y. 147; Moscow Fire Ins. Co. v. Bank of New York, 280 N. Y. 286; Matter of Beha [Second Russian Insurance Co.], 224 App. Div. 105; Matter of Second Russian Ins. Co. [Hamburg Ins. Co.], 219 App. Div. 46; McGhee v. Casualty Ins. Co. of America, 15 Ohio App. 457; Middleby’s Estate, 249 Pa. 203; Hall v. Holland House Co., 12 Misc. 55; Osgood v. Ogden, 4 Keyes 70; United States v. Pink, 315 U. S. 203.) II. Appellant must have a cause of action arising out of a transaction with the agency. (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148; Matter of People [City Eq. Fire Ins. Co.], 238 N. Y. 147; Matter of People [Norske Lloyd Ins. Co.], 249 N. Y. 139; Matter of People [First Russian Ins. Co.], 255 N. Y. 428; Moscow Fire Ins. Co. v. Bank of New York, 280 N. Y. 286; Aetna National Bank v. Fourth National Bank, 46 N. Y. 82.) III. The agency never made an independent promise to pay, and at best, what it said was conditioned upon an event which never occurred. (Pink v. American Surety Co., 283 N. Y. 290; Home Insurance Co. v. Continental Ins. Co., 180 N. Y. 389; Hopper v. Sage, 112 N. Y. 530; Stulsaft v. Mercer Tube & Mfg. Co., 288 N. Y. 255; Ford v. Snook, 205 App. Div. 194, 240 N. Y. 624; Bradley v. Wheeler, 44 N. Y. 495; Green v. Wachs, 254 N. Y. 437.) IV. No cause of action would arise even if the language used were unconditional. (Carpenter v. Sparta Savings Bank, 182 N. Y. S. 172; Morgan v. Lariviere, L. R 7 H. L. 423.) V. Assuming an otherwise unconditional promise, it would be unenforcible for lack of consideration. (Fairchild v. Feltman, 32 Hun 398.) VI. The communications could not have created any enforcible rights in Standard because the Agency was prohibited by the freezing regulations from complying with the instructions from Yokohama. (Philipp v. Chase National Bank of the City of New York, 34 N. Y. S. 2d 465; Segal v. Chemical Importing and Manufacturing Co., 205 App. Div. 220; Schneider v. National City Bank of New York, 107 N. Y. L. J. 1824.)

      Herbert Wechsler, Assistant Attorney-General; James B. McNally, United States Attorney; Harry Le Boy Jones and Irving J. Levy, Special Assistants to Attorney-General; William L. Lynch, Assistant United States Attorney; Ansel F. Luxford, Assistant General Counsel; Lawrence S. Lesser, Special Assistant to General Counsel; and Irving Moskovitz, Head Attorney, United Slates Treasury Department, for United States of America, amicus curies.

    I. The transaction upon which plaintiff predicates his claim is a transfer of credits and foreign exchange transaction within the meaning of and prohibited by Executive Order No. 8389, as amended. II. The prohibitions of the order render the transaction void. (United States v. Von Clemm, 136 F. 2d 968; United States v. Pink, 315 U. S. 203; United States v. Belmont, 301 U. S. 324; Hirabayashi v. United States, 320 U. S. 81; Martin v. Mott, 12 Wheat. 19; Grogan v. Walker & Sons, 259 U. S. 80; Polish Relief Comm. v. Banca Nationala a Rumaniei, 288 N. Y. 332; Norman v. B. & O. R. Co., 294 U. S. 240; Holyoke Power Co. v. Paper Co., 300 U. S. 324; Kennett v. Chambers, 14 How. 42; Hanger v. Abbott [1867], 6 Wall 532; Straus & Co. v. Canadian Pacific Ry. Co., 254 N. Y. 407; Morgan Munitions Co. v. Studebaker Corp., 226 N. Y. 94.) III. The transaction upon which plaintiff predicates his claim has not been authorized by the Secretary of the Treasury. General Billing 12 does not authorize a transfer of credit by litigation. (Matter of Richardson, 247 N. Y. 401; Matter of State Industrial Comm., 224 N. Y. 13; U. S. v. Ferreira, 13 How. 40; Baltimore & Ohio R. R. Co. v. Pitcairn Coal Co., 215 U. S. 481.)
   Lewis, J.

The Yokohama Specie Bank, Ltd., to which it will be convenient to refer as Yokohama Specie ”, is a banking corporation incorporated under the laws of the. Empire of Japan and was formerly licensed' by the respondent Superintendent of Banks to transact a limited banking business in the State of New York. Under that license Yokohama Specie was permitted to maintain in this State an agency for the trans: action of such a banking business. On December 8, 1941, after a state of war had been declared to exist between the United States and Japan, the Superintendent of Banks, acting pursuant to section 606 of the Banking Law, took possession for the purpose of liquidation of the business, property and affairs of Yokohama Specie within the State of New York and suspended the operation of its New York Agency. While such liquidation was in process the plaintiff asserted his right as a creditor of the New York Agency under an assignment from Standard Vacuum Oil Company — to which reference will be made as ‘ Standard ’ ’— and filed with the Superintendent of Banks on November 21, 1942, a claim for $557,561.25 against funds of the New York Agency in the possession of the Superintendent. That claim, based upon facts which are not here in dispute and are presently to be considered, was rejected by the Superintendent of Banks upon the ground that applicable law afforded no basis for its payment.

As a means to enforce his claim, the plaintiff instituted the present suit, wherein, upon motion by the defendant at Special Term, the action was severed to permit its continuance against Yokohama Specie and the complaint was dismissed against the Superintendent of Banks. The Appellate Division has granted to the plaintiff leave to appeal from its order unanimously affirming the judgment entered at Special Term and has certified that a question of law is involved which should be reviewed by this court. That question of law arises from the following facts:

On August 27, 1941, Standard, through its Yokohama office delivered to Yokohama Specie in Japan the yen equivalent to $557,561.25 with instructions to pay that' dollar amount to Standard in New York. Two days later, on August 29, 1941, the assistant-treasurer of Standard in New York was advised by telephone by the cashier of the New York Agency of Yokohama Specie that the New York Agency had received from Yokohama Specie the telegraphic transfer of $557,561.25 which amount was available for payment to Standard. In response to this advice the assistant-treasurer of Standard stated to the cashier of the New York Agency that Standard was making the necessary application to the United States Treasury Department for a license which would permit the payment by the New York Agency to Standard. On September 2, 1941, Standard received at its New York office the following confirmatory letter:

“ The Yokohama Specie Bank, Limited
New York Agency
Equitable Building
New York, August 29th, 1941.
Standard Vacuum Oil Company
10 Broadway
New York City
New York.
Gentlemen : Att. Mr. Mitho:
Referring to our telephone conversation of today, we wish to advise you that we have received telegraphic instructions from our Yokohama Office to pay you the sum of $557,561.25. We understand that you are filing an application with The Treasury Department of the U. S. A. for a License in order to permit us to make this payment to you.
Awaiting your reply regarding this matter, we remain
Yours very truly,
The Yokohama Specie Bank, Ltd.
(signature illegible)
p. p.. Agent ”

During the preparation by Standard of the application to the Treasury Department a representative of Standard was advised by telephone by a representative of the New York Agency that the payment would be made to Standard from funds of the New York Agency on deposit with Guaranty Trust Company of New York.

Before any payment was made by the New York Agency to Standard there occurred the attack by Japan at Pearl Harbor. Then followed the declaration of war and promptly thereafter the Superintendent of Banks took possession of the funds of the New York Agency and proceeded to liquidate the same pursuant to section 606 of the Banking Law. That statute, after Specifying grounds upon which the Superintendent may take possession of the business and property in this State of a foreign banking corporation, provides in part: “ 4 (a) * * * the claims of creditors of such corporation arising oiit of transactions had by them with its Neiv York agency or agencies or whose names appear as creditors on the books of such agency or agencies shall be preferred against the assets of such corporatian in this state without prejudice to their right to share in the other assets of such corporation.” (Italics supplied.)

Our problem is concerned chiefly with the interpretation and application of the italicized portion of the statute quoted above.

The plaintiff concedes that neither his name nor the name of his assignor, Standard, appears as a creditor on the books of the New York Agency of Yokohama Specie. However, the plaintiff asserts that, within the provisions of section 606, subdivision 4, paragraph (a), its assignor, Standard, had a transaction with the New York Agency the details of which, when considered together, were sufficient in law to qualify for payment the claim in suit.

The Superintendent of Banks has thus far successfully maintained that the deposit by Standard with Yokohama Specie in Japan and the subsequent telegraphic instructions by Yokoiiama Specie to its New York Agency, followed by the communications, mentioned above, from that Agency to Standard in New York, did not create enforcible rights in favor of Standard arising out of a transaction by Standard with such Agency within the terms of section 606, subdivision 4, paragraph (a) of the Banldng Law.

Prior to December 8, 1941, the date when the declaration of war caused the Superintendent of Banks to take possession of the business and property of Yokohama Specie in New York, the Superintendent had issued to that foreign corporation a statutory license under which it was permitted “ * * * to maintain an agency [in the City of New York] for the purpose of transacting the business of * * * receiving money for transmission or transmitting the same by * * * cable or otherwise * * * ”. When on August 27, 1941, Yokohama Specie at its home office in Japan accepted funds from Standard it thereby became indebted to Standard in the amount then deposited. When on August 29, 1941, following instructions from Standard, and acting under its New York license, Yokohama Specie transmitted those funds by cable from Japan to its New York Agency, we think the consequent oral and written communications, to which reference has been made — by which the New York Agency advised Standard that it was in funds from its Yokohama home office which it was instructed to pay to Standard — served to create an enforcible legal obligation by the New York Agency to make such payment. (See Sayer v. Wynkoop, 248 N. Y. 54, 58-60; Goodwin v. Bowden, 54 Me. 424, 425; Griffin v. Weatherly [1868] L. B. 3 Q. B. 753, 758-9; 2 Williston on Contracts [Rev. ed.], § 349, p. 1035; Mechem on Agency [2d ed.], p. 1072; Tiffany on Agency [2d .ed.], p. 355.)

The fact that Federal regulations governing transactions in foreign exchange prevent the payment to Standard until a license under Executive Order No. 8389, as amended, is procured does not make conditional the obligation of the New York Agency to pay. (See United States Treasury Department, General Buling No. 12 (4) under Executive Order No. 8389 as amended; also Feuchtwanger v. Central Hanover Bank, 288 N. Y. 342.)

Our conclusion is that the course of dealing which culminated in the advice to Standard by Yokohama Specie’s New York Agency, given in accord with instructions from its home office in Japan, was a transaction had by a creditor (Standard) of a foreign corporation (Yokohama Specie) with its New York agency,” within the provisions of section 606, subdivision 4, paragraph (a) of the Banking Law. Any payment of funds by Yokohama Specie’s New York Agency to Standard as an incident of such transaction is subject to the provisions of Executive Order No. 8389, as amended.

The judgments should be reversed and the motion by the Superintendent of Banks denied, with costs in all courts.

Lehman, Oh. J., Lottghban, Bippey, Conway, Desmond and Thacher, JJ., concur.

Judgments reversed, etc.


author: Thacher, J.

text:
    Mario De Nardo, by Joseph De Nardo et al., His Next of Kin, Respondents, v. Stephania De Nardo, Appellant.
    Argued November 27, 1944;
    decided December 30, 1944.

      Forrest 8. Chilton for appellant.
    I. The Legislature did not intend that all marriages of lunatics as so defined are ipso facto
      voidable without regard to whether they were mentally capable of understanding, or did, in fact, understand the nature, effect and consequences of their marriages. (Meekins v. Kinsella, 152 App. Div. 32; Weinberg v. Weinberg, 255 App. Div. 366.) II. A finding that the decedent was, at the time of the marriage, mentally incapable of 'understanding the nature, effect and consequences, of the marriage may not he implied from the finding by the jury that, at that time, he was a lunatic.

      Edgar B. Bronson, Warren C. Fielding, Alfred Sobol and Edward A. Mclnnes for respondents.
    I. The verdict and finding of lunacy at the time of the marriage, imported mental incapacity to assent thereto; on this appeal without the record of the evidence and other proceedings before him, the Trial Justice’s charge to the jury is not open to review and may not be considered to qualify the verdict, and even if considered, the charge would not deprive the verdict of its force as a finding of mental incapacity. (General Construction Law, § 28; Matter of Clark, 175 N. Y. 139; Weinberg v. Weinberg, 255 App. Div. 366; Matter of Wells, 177 App. Div. 100; Civ. Prac. Act, § 1137.) II. This appeal should be dismissed for lack of jurisdiction because it is not from a final judgment, but from a judgment affirming an interlocutory judgment. The judgment of Special Term was entered on May 1, 1944, and provided that it should be interlocutory only but should become final three months thereafter unless the Court should otherwise order. The judgment here sought to be appealed from, was entered July 7, 1944, upon an order dated June 16, 1944, affirming the Special Term judgment which did not become final until August 1, 1944. (King v. King, 224 N. Y. 669; Civ. Prac. Act, § 590; Gambold v. MacLean, 254 N. Y. 357; Matter of Crandall, 196 N. Y. 127; Matter of Foster v. American Radiator Co., 249 App. Div. 460.) Dean v. Dean, 241 N. Y. 240, is distinguishable.
   Thacher, J.

We are concerned, in this case for annulment of a marriage, with the meaning of the words lunatic ” and 11 lunacy ’ ’. Formerly insane persons were divided into two categories: lunatics who, having been of sound mind, have lost their reason and were supposed to enjoy lucid periods, and idiots, who were without understanding from birth (1 Blackstone’s Comm., 302-304). In the trial of this case-the Trial Justice used and defined “ lunatic ” as a person of unsound mind who is mentally deranged but may have intermittent lucid intervals. But in this lawsuit the term has a meaning defined by statute and includes every kind of unsoundness of mind except idiocy. (General Construction Law, § 28.) The term is used in that sense in section 1137 of the Civil Practice Act, which deals with the procedural phases of an action to annul a marriage on the ground that one of the parties thereto was a lunatic. Section 1136 provides for annulment in cases of idiocy. These terms are not used in section 7 of the Domestic Relations Law, which specifies those marriages which are voidable and may be annulled in actions brought as provided in the Civil Practice Act. Under this section a marriage may be annulled because either party “ is incapable of consenting to a marriage for want of understanding ”, and such unsoundness of mind includes both lunacy and idiocy. Without such mental incapacity at the time of the marriage there can be no annulment in such a case as this. (Weinberg v. Weinberg, 255 App. Div. 366; Meekins v. Kinsella, 152 App. Div. 32.)

The complaint alleged that at the time of the marriage and at the time of the commencement of the action plaintiffs’ intestate was a lunatic, and a question framed for submission to the jury, pursuant to section 1142 of the Civil Practice Act, was phrased: “Was Mario De Nardo a lunatic at the time of his marriage to the defendant Stephania De Nardo on December 22, 1942? ” After an extended trial this question was answered by the jury in the affirmative.

Thereafter the plaintiffs moved for judgment before a Justice other than the Trial Justice, and the defendant moved to set aside the verdict. Upon these motions defendant’s counsel submitted a stenographic transcript of the court’s charge and of all proceedings thereafter. The plaintiffs’ motion for judgment upon the verdict was granted. This judgment was unanimously affirmed in the Appellate Division and appeal to this court was allowed because of confusion resulting from instructions of the court to the jury as to the meaning-of the word “ lunacy ”.

None of the proceedings upon the trial prior to the charge are presented here and it is contended by the plaintiffs that we may not consider on this appeal the charge of the Trial Justice. We must of course consider what was before the Justice who directed the judgment, always having in mind, however, that . the record may not be sufficient to present the questions urged by the appellant. The judgment rests upon the verdict of the jury, and if the record before us discloses prejudicial error affecting the verdict, we must reverse.

The Trial Justice, having in his main charge instructed the jury that a lunatic is a person of unsound mind who is mentally deranged but may have intermittent lucid intervals, departed from the statutory definition of lunatic and failed to instruct the jury that if the plaintiffs’ intestate was of sound mind at the time of his marriage he could not be regarded as a lunatic for the purpose of answering the framed question. Accordingly defendant’s counsel at the close of the charge requested the further charge “ that if the jury finds that Mario De Nardo had a lucid day on December 22, 1942, their answer to the question must be ‘ No ’ ”— to which the court responded: No, I will not charge further than I have on that subject.” No exception was taken. After the jury had retired, the jury returned to the courtroom and the following occurred: “ The Court: I am in receipt of the following communication from the jury: ‘ Is the Judge’s description of lunacy to be taken as the legal description of lunacy. The Judge stated -in his description that even though lucid moments occur, it is still lunacy.’ I have given you the legal definition of the word ‘ lunatic,’ and 1 will repeat it to you now: ‘ A lunatic is a person of unsound mind. He is mentally deranged, but may have intermittent lucid intervals. ’ I will read again the only question that you twelve jurors are called upon to answer: * Was .Mario De Nardo a lunatic at the time of his- marriage to the defendant, Stephania De Nardo, on December 22,1942? ’ ” Defendant’s counsel then requested: Will your Ilonor charge the jury that the word ‘ lunatic ’ as the Court has defined it means that Mario De Nardo on December 22, 1942, was incapable of consenting to the marriage for want of understanding, that being the phraseology used in subdivision 2 of Section 7 of the Domestic Relations Law? ” “ The Court: I will not charge the jury further than I have. You may retire.” Defendant’s counsel: “ I respectfully except.” The jury then retired and rendered its verdict, answering the question in the affirmative.

In view of the jury’s request with reference to the Court’s •charge that a lunatic may have lucid intervals, the jury should have been instructed that the question was. to be answered' in the negative unless they found that the plaintiffs’ intestate was incapable of consenting to a marriage for want of understanding. Presumably the doubt in the minds of the jury was whether they could find the husband to have been a lunatic although he had no want of understanding at the time of his marriage.' In the statutory sense the term meant unsoundness of mind, and the' court’s response to the jury’s inquiry was inadequate and erroneous. The defendant’s request to charge was pertinent to the confusion thus produced, and we think it was prejudicial error, which may have been determinative of the issue, to deny this request and to refuse to instruct the jury further.

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

Lehman, Ch. J., Loughran, Rippey, Lewis, Conway and Desmond, JJ., concur.

Judgments reversed, etc.


author:
      Per Curiam.
     Desmond, J.

text:
    In the Matter of the Will of George T. Brokaw, Deceased. United States Trust Company of New York et al., as Executors of George T. Brokaw, Deceased, Appellants. Guaranty Trust Company of New York et al., as Trustees under a Deed of Trust dated June 12, 1929, Respondents.
    Argued November 20, 1944;
    decided December 30, 1944.

      Harry J. Ahlheim for appellants.
    I. Section 124 of the Decedent Estate Law is a mandatory and administrative provision of the Tax Law; in the absence of a contrary direction in the decedent’s will, each tax asset must bear its proportionate share of estate taxes. (Matter of Walbridge, 170 Misc. 127; Matter of Kaufman, 170 Misc. 436; Matter of McManamy, 172 Misc. 392; Matter of Klein, 175 Misc. 961; Matter of Mollenhauer, 257 App. Div. 286; Matter of Ryan, 178 Misc. 1007, 265 App. Div. 1051, 290 N. Y. 933; Matter of Kalik, 179 Misc. 872; Matter of Corlies, 174 Misc. 459; Matter of Pennock, 172 Misc. 10; Chase National Bank v. Tomagno, 172 Misc. 63; Matter of Bull, 175 Misc. 197.) II. There was no obligation on the decedent or his executors to assume the burden of the estate tax, allocable to the trust fund. (Matter of Kaufman, 170 Misc. 436; Matter of Meynen, 173 Misc. 19; Matter of Dettmer, 179 Misc. 844.) . III. The issue as to the construction of the tax clause was decided in favor of the appellants. IV. The trustees have failed to prove any intent'to exonerate them from tax allocation.

      Laurence D. Kieran and Otis T. Bradley for Guaranty Trust Company of New York, as trustee, respondent.
    I. The Surrogate made no determination as to the issue raised by respondent that the language of the will and the facts and circumstances surrounding its execution indicated an intention by the testator that no part of the estate taxes should be apportioned against the trust for his former wife and daughter. (Matter of Smith, 254 N. Y. 283; Matter of Bloomingdale, 278 N. Y. 435; Matter of Aldrich, 259 App. Div. 162; Matter of Golding, 127 Misc. 821; Matter of Meynen, 173 Misc. 19.) II. The will should be construed in the light of all of the facts and circumstances surrounding its execution as indicating the intention of the testator that no part of the estate taxes should be apportioned against the trust he created for his former wife and child.

      James J. Mennis for Clare Luce, as trustee, respondent.
    The provisions of the entire will, when considered in the light of the circumstances surrounding the execution thereof, constitute a direction on the part of the testator that there should be no apportionment of taxes against the trust fund. (Matter of Bloomingdale, 278 N. Y. 435; Matter of Aldrich, 259 App. Div. 162; Matter of James, 180 Misc. 441, 267 App. Div. 761; Matter of Strong, 171 Misc. 445.)
   Per Curiam.

In the light of circumstances of record surrounding the execution of the decedent’s will we read the ** First ”, “ Fourth ” and “ Fifth ” paragraphs thereof as declaratory of his intention that no part of any death taxes which might be levied against his estate should be apportioned, under section 124 of the Decedent Estate Law, against funds of the inter vivas trust created by a deed of trust, dated June 12, 1929, executed by the decedent, as settlor, and by Guaranty Trust Company of New York and Ann Clare Brokaw; as trustees.

The order should be affirmed, with costs payable out of the estate.

Desmond, J.

(dissenting). The issue here is as to whether or not there should be an apportionment, as against the trustees of an inter vivas trust created by George Tuttle Brokaw, now deceased, of the Federal and State estate taxes levied against Brokaw’s estate and paid by his executors. The executors in their petition herein, prayed also, in this connection, for a construction of the will. The only reference in the will to estate taxes is in this language: “ * * * I do further direct that all inheritance, transfer, estate and similar taxes, Federal and State, be paid out of the residuum of my estate and be not charged against any legatee, devisee, heir or next-of-kin.” The Surrogate’s written decision did not, at least in form, construe that language, but the Surrogate made it plain that he did not consider that the language above quoted amounted to a direction by the testator that the estate taxes be not apportioned against the trust estate. If the issue presented ” wrote the Surrogate were dependent solely upon the interpretation to be given to the foregoing clause, an apportionment against the inter vivas trust, pursuant to section 124 of the Decedent Estate Law, would be directed.” (180 Misc. 490, 492.) We'agree with the Surrogate that the tax clause in this will does not establish any intention by the testator to exempt the trust estate from its share of the taxes. By the enactment of section 124 the Legislature changed the policy of this State so as to favor apportionment, It mandated apportionment of death, taxes, unless the testator “ otherwise directed by the will ’ ’. To put the final burden of such taxes on the estate itself, rather than on “ the persons-interested ”, there must now b,e found in the.will “ a clearly expressed intention ” o relieve the beneficiaries from liability for their proportionate •hares of the taxes. (Matter of Duryea, 277 N. Y. 310, 316.) This will does contain a positive direction that there be no proating of taxes against any legatee, devisee, heir or next-of-in.” But no word is said forbidding the charging of part of hose taxes against the inter vivas trust res, which for tax mrposes, was drawn into and became part of, the Brokaw estate ”. The Surrogate cited Matter of Ryan (178 Misc. 1007, affd. 265 App. Div. 1051, leave to appeal denied 290 N. Y. 933), where a practically identical tax clause in a will was held insufficient to exempt from tax certain annuity contracts made by the decedent during her life but included in the tax estate. Similarly, apportionment against the trust estate has been decreed in other cases, such as Matter of Clark (169 Misc. 202) and Matter of Pennock (172 Misc. 10, reversed on other grounds, 285 N. Y. 475), despite the testators’ directions that estate taxes be paid out of the residuum and not charged against any legacies herein contained ”, or language of similar import. All this is, we think, in accord with the reasoning of Farmers L. & T. Co. v. Winthrop (238 N. Y. 488, 493), decided before section 124 was enacted, that if testator had intended to make a specific direction to her executor to pay out of her general estate taxes on the transfer of property which did not pass under her will and which was hot subject to distribution as part of her estate she would have used language which would have expressed her intention more aptly.”

Words like legatee ”, 11 legacy ”, “ devisee ”, and “ devise ”, when used in wills to control the incidence of death taxes, have always been strictly construed and held not to refer to benefits passing under extratestamentary dispositions. (See Isham v. N. Y. Assn. for Poor, 177 N. Y. 218, 223.) Nor is there in the will we are here examining any other language showing an intent by this testator to excuse the inter vivas trust from liability for its share of the death levies. Article fourth of the will, pointed to by respondents, is merely an announcement by the testator of his reason for including in the will no provision, bequest or devise ” for his former wife, the stated reason being that she had accepted the trust above referred to in full release and discharge of her claims against testator and his estate. Being simply an explanation of Mr. Brokaw’s failure to make. his first wife a legatee, article fourth can hardly be regarded as evidence that the testator desired that the first Mrs. Brokaw, though left no legacy, was somehow to be considered ~ legatee so as to give her or her trust the benefit of the will’s tax clause forbidding apportionment against “ any legatee ”. Article fifth makes similar explanation of testator’s reasons for bequeathing nothing to his daughter. We agree with the Surrogate that there is nothing anywhere in this will justifying a finding that the testator had charged against his true estate the estate taxes on the previously-created trust res.

The Surrogate, nonetheless, denied the executors’ petition for apportionment against the trust. He pointed out that the trust for the first wife had been created by Mr. Brokaw solely by reason of his obligation to support her, as stipulated in a previously executed separation agreement between them. All that, said the Surrogate, put the first wife into the position of a paid creditor of decedent. Citing Matter of Oppenheimer (166 Misc. 522), the Surrogate ruled that there could be no apportionment of death taxes against such paid creditor or against a trust fund set up to discharge the claim of such a creditor. The separation agreement had been signed in January, 1929, about three-years before the execution of the will. By it Mr. Brokaw had agreed to pay $2,500 per month during the wife’s life for the maintenance of the wife and of the only child of the marriage. There was in it, also, a provision whereby the husband reserved the right to terminate his obligation as to the monthly payments, by setting up a trust in the principal sum of $425,000, the income to go to the wife for her life. In June, 1929. such a trust was so set up in that amount and is the trust against which apportionment of estate taxes is sought herein. The trustor (decedent) reserved a right of revocation but did not exercise such right-during his life, with the result that there was, at his death, a transfer of the trust fund within the meaning of the tax laws.

After testator’s death a controversy arose between the executors and the Federal taxing officers as to whether or not the trust fund, or any of it, should be included in the ‘1 tax estate ’ for estate tax purposes. The controversy reached the United States Circuit Court of Appeals. (Helvering v. United States Trust Co., 111 F. 2d 576, certiorari denied 311 U. S. 678.) The Circuit Court held that so much of the trust fund as was applicable to the support of the wife (as distinguished from a part that benefited the daughter) was required by the Federal Revenue Act to be included in the gross estate for tax purposes. Judge Learned Hand, for a unanimous court, wrote that testator, by creating the trust, had commuted the annuity stipulated for in the settlement agreement. The wife’s acceptance of the trust was, therefore, he pointed out, a “ relinquishment of marital rights in the decedent’s property ”. Such a relinquishment was, under the applicable Federal Statute (U. S. Code, tit. 26, §§ 302, 804) not such a consideration in “ money or money’s worth ” as would exempt the trust from estate tax. As a result of this decision of the Federal courts, some $245,000 of the corpus of the trust was held to be taxable as part of decedent’s estate. The whole total of the Brokaw estate was about $1,000,000. Federal and State estate taxes on that total estate were paid by the executors in the amount of about $164,000. If prorating is here ordered, the trustees of the inter vivas trust will have to pay about one-fourth of those taxes, or about $40,000.

Thus we have the Federal courts authoritatively determining that these executors had to pay Federal estate taxes on this very trust fund, the executors paying Federal and State estate taxes in accordance with that determination, and no one now denying the propriety of such payment. The will contains no direction against apportionment. It seems to us that there was left to the Surrogate no choice between apportionment and non-apportionment. The statute (Decedent Estate Law, § 124) contains precise directions. Where it "appears that the taxes have been paid and there is no clearly expressed testamentary provision contra, the statute says that the taxes “ shall be equitably • prorated among the persons interested in the estate to whom such property is or may be transferred or to whom any benefit accrues.” Compliance with that statute requires a spreading of these taxes- against the beneficial -interests, including the trust estate. That the trust was established to discharge an obligation is immaterial. All of that was settled in the tax litigation and no one now disputes taxability. Apportionment against the benefited persons follows as a direct and necessary consequence of the inclusion of the transferred property in the gross tax estate, and payment of the tax. If, at this decedent’s death, his wife had actually been his creditor in the sense that he owed her a debt, then that debt would not have been added into the gross tax estate, but would have been a deduction therefrom. Such was the situation in Matter of Oppenheimer (166 Misc. 522, supra), cited by the Surrogate in his opinion herein. Oppenheimer died insolvent, but inclusion of certain ante-mortem insurance transfers resulted in a tax estate. The executors paid the taxes, then tried to have them apportioned against actual creditors whose claims had been deducted in arriving at the taxable net estate. Since those creditors were not “ persons interested in the estate ” to whom property was transferred at decedent Oppenheimer’s death, and since the benefits received by those creditors from the estate had not been taxed, there could of course be no prorating in that case. In the present case, despite the status of the first wife as a sort of paid-up creditor, nonetheless the conditions stated in section 124 as requiring prorating, are all present, and so prorating there must be.

We mention in passing that we have examined the directions in the trust indenture itself as to payment of certain taxes by the trustees, and find therein nothing which has a bearing on the question under discussion herein.

The orders below should be reversed, with costs to all parties payable out of the estate, and the matter remitted to the Surrogate ’s Court for the entry of an order apportioning the Federal and New York estate taxes as prayed for in the,petition.

Rippey, Lewis, Conway and Thacheb, JJ., concur in Per Curiam opinion; Desmond, J., dissents in opinion in which Lehman, Ch. J., and Lottghban, J., concur.

Order affirmed, etc.