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    Ultramares Corporation, Appellant and Respondent, v. George A. Touche et al., Copartners under the Firm Name of Touche, Niven & Company, Respondents and Appellants.

      (Argued December 3, 1930;
    decided January 6, 1931.)

      Herbert R. Limburg, Martin Conboy, David L. Podell, Joseph L. Weiner and Lionel S. Popkin for plaintiffs, appellants and respondents.
    Defendants are liable to plaintiff for the loss occasioned by defendants’ negligence. (Glanzer v. Shepard, 233 N. Y. 236; International Products Co. v. Erie R. R. Co., 244 N. Y. 331; Doyle v. Chatham & Phenix Nat. Bank, 253 N. Y. 369; Cole v. Vincent, 229 App. Div. 520; Eaton, Cole & Burnham Co. v. Avery, 83 N. Y. 31; Bank of Batavia v. N. Y., Lake Erie & Western R. R. Co., 106 N. Y. 195; Carpenter v. Blake, 75 N. Y. 12; MacPherson v. Buick Motor Co., 217 N. Y. 382; Junkermann v. Tilyou Realty Co., 213 N. Y. 404; Statler v. Ray Mfg. Co., 195 N. Y. 478.) The identity of the borrower need not be known in advance. (Eaton v. Avery, 83 N. Y. 31; Ottinger v. Bennett, 144 App. Div. 525; 203 N. Y. 554; Bystrom v. Villard, 175 App. Div. 433; 188 App. Div. 964; 230 N. Y. 588; Downey v. Finucane, 205 N. Y. 251; Brackett v. Griswold, 112 N. Y. 454; Kujek v. Goldman, 150 N. Y. 176.) The court erred in dismissing the fraud cause of action. (Matter of City of

      New York, 224 N. Y. 454; Fifth Avenue Bank v. 42d St. & Grand St. Ferry, 137 N. Y. 231; Gleason v. Seaboard Airline Ry. Co., 278 U. S. 349; Lloyd v. Grace, [1912] A. C. 716; Hanover Bank v. American Dock & Trust Co., 148 N. Y. 612; Jarvis v. Manhattan Beach Co., 148 N. Y. 652; Nowack v. Metropolitan St. Ry. Co., 166 N. Y. 433.) The assertion that defendants had made a reasonably careful audit was an assertion of fact for which the defendants are liable even if defendants believed that such audit had been reasonably carefully made. (Ottinger v. Bennett, 144 App. Div. 525; 203 Ñ. Y. 554; Bystrom v. Villard, 175 App. Div. 433; 188 App. Div. 964; 230 N. Y. 588; Hadcock v. Osmer, 153 N. Y. 604; Churchill v. St. George Development Co., 174 App. Div. 1; Kuelling v. Lean Mfg. Co., 183 N. Y. 78; Downey v. Finucane, 205 N. Y. 251.)

      Samuel Untermyer, John W. Davis and James Marshall for defendants, respondents and appellants.
    The defendants were under no duty to the plaintiff to use care in the preparation of the balance sheet, and their negligence, if any, gives rise to no cause of action in favor of the plaintiff. (Palsgraf v. Long Island R. R. Co., 248 N. Y. 339; Landell v. Lybrand, 264 Penn. St. 406; Jaillet v. Cashman, 115 Misc. Rep. 383; 202 App. Div. 805; 239 N. Y. 511; Seneca Wire, etc., Co. v. Leach, 247 N. Y. 1; Weld-Blundell v. Stevens, [1920] A. C. 956; Derry v. Peek, [1889] 14 A. C. 337; Glanzer v. Shepard, 233 N. Y. 236; MacPherson v. Buick Motor Co., 217 N. Y. 382; Savings Bank v. Ward, 100 U. S. 195; Matter of Cushman, 95 Misc. Rep. 9; Thomas v. Guarantee Title & Trust Co., 81 Ohio St. 432; Day v. Reynolds, 23 Hun, 131; Glawatz v. People’s Guarantee Search Co., 49 App. Div. 465; National Iron & Steel Co. v. Hunt, 312 Ill. 245; Le Lievre 7. Gould, [1893] 1. Q. B. 491; Heaven v. Pender, [1883] L. R. 11 Q. B. D. 503; Kahl v. Love, 37 N. J. L. 5; Moch Co. v. Bensselaer Water Co., 247 N. Y. 160; Robins Dry Dock & Repair Co. v. Flint, 275 U. S. 303.) The fraud cause of action was properly dismissed. (Deyo v. Hudson, 225 N. Y. 602; Henry v. Allen, 151 N. Y. 1; Credit Alliance Corp. v. Sheridan Theatre Co., 241 N. Y. 216; Martin v. Gotham, Nat. Bank, 248 N. Y. 313; Reno v. Bull, 226 N. Y. 546; Kountze v. Kennedy, 147 N. Y. 124; Ellis v. Andrews, 56 N. Y. 83; Van Slochem v. Villard, 207 N. Y. 587; Mecum v. Mooyer, 166 App. Div. 793; Barr v. Sofranski, 130 App. Div. 783; Morris v. Talcott, 96 N. Y. 100.)

      Roger S. Baldwin, J. Harry Covington and Kenneth McEwen for American Institute of Accountants, amicus curia;.

    There is no liability without either privity of contract or direct relationship. (MacPherson v. Buick Motor Co., 217 N. Y. 382; P. G. Poultry Farm v. Newtown B.-P. Mfg. Co., 248 N. Y. 293; Glanzer v. Shepard, 233 N. Y. 236; International Products Co. v. Erie R. R. Co., 244 N. Y. 331; Doyle v. Chatham & Phenix Nat. Bank, 253 N. Y. 369.)
   Cardozo, Ch. J.

The action is in tort for damages suffered through the misrepresentations of accountants, the first cause of action being for misrepresentations that were merely negligent and the second for misrepresentations charged to have been fraudulent.

In January, 1924, the defendants, a firm of public accountants, were employed by Fred Stern & Co., Inc., to prepare and certify a balance sheet exhibiting the condition of its business as of December 31, 1923. They had been employed at the end of each of the three years preceding to render a like service. Fred Stern & Co., Inc., which was in substance Stern himself, was engaged in the importation and sale of rubber. To finance its operations, it required extensive credit and borrowed large sums of money from banks and other lenders. All this was known to the defendants. The defendants knew also that in the usual course of business the balance sheet when certified would be exhibited by the Stern - company to'banks, creditors, stockholders, purchasers or sellers, according to the needs of the occasion, as the basis of financial dealings. Accordingly, when the' balance sheet was made up, the defendants supplied the Stern company with thirty-two copies certified with serial numbers as counterpart originals. Nothing was said as to the persons to whom these counterparts would be shown or the extent or number of the transactions in which they would be used. In particular there was no mention of the plaintiff, a corporation doing business chiefly as a factor, which till then had never made advances to the Stern company, though it had sold merchandise in small amounts. The range of the transactions in which a certificate of audit might be expected to play a part was as indefinite and wide as the possibilities of the business that was mirrored in the summary.

By February 26, 1924, the audit was finished and the balance sheet made up. It stated assets in the sum of $2,550,671.88 and liabilities other than capital and surplus, in the sum of $1,479,956.62, thus showing a net worth of $1,070,715.26. Attached to the balance sheet was a certificate as follows:

Touche, Niven & Co.
Public Accountants
Eighty Maiden Lane
“ New York
February 26, 1924.
Certificate of Auditors
We have examined the accounts of Fred Stern & Co., Inc., for the year ending December 31, 1923, and hereby certify that the annexed balance sheet is in accordance therewith and with the information and explanations given us. We further certify that, subject to provision for federal taxes on income, the said statement, in our opinion, presents a true and correct view of the financial condition of Fred Stern & Co., Inc., as at December 31, 1923.
“ TOUCHE, NIVEN & CO.
Public Accountants.”

Capital and surplus were intact if the balance sheet Was accurate. In reality both had been wiped out, and the corporation was insolvent. The books had been falsified by those in charge of the business so as to set forth accounts receivable and other assets which turned out to be fictitious. The plaintiff maintains that the certificate of audit was erroneous in both its branches. The first branch, the asserted correspondence between the accounts and the balance sheet, is one purporting to be made as of the knowledge of the auditors. The second branch, which certifies to a belief that the condition reflected in the balance sheet presents a true and correct picture of the resources of the business, is stated as a matter of opinion. In the view of the plaintiff, both branches of the certificate are either fraudulent or negligent. As to one class of assets, the item of accounts receivable, if not also as to others, there was no real correspondence, we are told, between balance sheet and books, or so the triers of the facts might find. If correspondence, however, be assumed, a closer examination of supporting invoices and records, or a fuller inquiry directed to the persons appearing on the books as creditors or debtors, would have exhibited the truth.

The plaintiff, a corporation engaged in business as a factor, was approached by Stem in March, 1924, with a request for loans of money to finance the sales of rubber. Up to that time the dealings between the two houses were on a cash basis and trifling in amount. As a condition of any loans the plaintiff insisted that it receive a balance sheet certified by public accountants, and in response to that demand it was given one of the certificates signed by the defendants and then in Stern’s possession. On the faith of that certificate the plaintiff made a loan which was followed by many others. The course of business was for Stern to deliver to the plaintiff documents described as trust receipts which in effect were executory assignments of the moneys payable by purchasers for goods thereafter to be sold. When the purchase price was due, the plaintiff received the payment, reimbursing itself therefrom for its advances and commissions. Some of these transactions were effected without loss. Nearly a year later, in December, 1924, the house of cards collapsed. In that month, plaintiff made three loans to the Stern company, one of $100,000, a second of $25,000, and a third of $40,000. For some of these loans no security was received. For some of the earlier loans the security was inadequate. On January 2, 1925, the Stern company was declared a bankrupt.

This action, brought against the accountants in November, 1926, to recover the loss suffered by the plaintiff in reliance upon the audit, was in its inception one for negligence. On the trial there was added a second cause of action asserting fraud also. The trial judge dismissed the second cause of action without submitting it to the jury. As to the first cause of action, he reserved his decision on the defendants’ motion to dismiss, and took the jury’s verdict. They were told that the defendants might be held liable if with knowledge that the results of the audit would be communicated to creditors they did the work negligently, and that negligence was the omission to use reasonable and ordinary care. The verdict was in favor of the plaintiff for $187,576.32. On the coming in of the verdict, the judge granted the reserved motion. The Appellate Division affirmed the dismissal of the cause of action for fraud, but reversed the dismissal of the cause of action for negligence, and reinstated the verdict. The case is here on cross-appeals.

The two causes of action will be considered in succession, first the one for negligence and second that for fraud.

(1) We think the evidence supports a finding that the audit was negligently made, though in so saying we put aside for the moment the question whether negligence, even if it existed, was a wrong to the plaintiff. To explain fully or adequately how the defendants were at fault would carry this opinion beyond reasonable bounds. A sketch, however, there must be, at least in respect of some features of the audit, for the nature of the fault, when understood, is helpful in defining the ambit of the duty.

We begin with the item of accounts receivable. At the start of the defendant’s audit, there had been no posting of, the general ledger since April, 1923. Siess, a junior accountant, was assigned by the defendants to the performance of that work. On Sunday, February 3, 1924, he had finished the task of posting, and was ready the next day to begin with his associates the preparation of the balance sheet and the audit of its items. The total of the accounts receivable for December, 1923, as thus posted by Siess from the entries in the journal, was $644,758.17. At some time on February 3, Romberg, an employee of the Stern company, who had general charge of its accounts, placed below that total another item to represent additional accounts receivable growing out of the transactions of the month. This new item, $706,843.07, Romberg entered in his own handwriting. The sales that it represented were, each and all, fictitious. Opposite the entry were placed other figures (12-29), indicating or supposed to indicate a reference to the journal. Siess when he resumed his work saw the entries thus added, and included the new item in making up his footings, with the result of an apparent increase of over $700,000 in the assets of the business. He says that in doing this he supposed the entries to be correct, and that his task at the moment being merely to post the books, he thought the work of audit or verification might come later, and put it off accordingly. The time sheets, which are in evidence, show very clearly that this was the order of time in which the parts of the work were done. Verification, however, there never was either by. Siess or by his superiors, or so the triers of the facts might say. If any had been attempted, or any that was adequate, an examiner would have found that the entry, in the ledger was not supported by any entry in the journal. If from the journal he had gone to the book from which the journal was made up, described as “ the debit memo book,” support would still have failed. Going farther, he would have found invoices, seventeen in number, which amounted in the aggregate to the interpolated item, but scrutiny of these invoices would have disclosed suspicious features in that they had no shipping number nor a customer’s order number and varied in terms of credit and in other respects from those usual in the business. A mere glance reveals the difference.

The December entry of accounts receivable was not the only item that a careful and skillful auditor would have desired to investigate. There was ground for suspicion as to an item of $113,199.60, included in the accounts payable as due from the Baltic Corporation. As to this the defendants received an explanation, not very convincing, from Stern and Romberg. A cautious auditor might have been dissatisfied and have uncovered what was wrong. There was ground for suspicion also because of the inflation of the inventory. The inventory as it was given to the auditors, was totaled at $347,219.08. The defendants discovered errors in the sum of $303,863.20, and adjusted the balance sheet accordingly. Both the extent of the discrepancy and its causes might have been found to cast discredit upon the business and the books. There was ground for suspicion again in the record of assigned accounts. Inquiry of the creditors gave notice to the defendants that the same accounts had been pledged to two, three and four banks at the same time. The pledges did not diminish the value of the assets, but made in such circumstances they might well evoke a doubt as to the solvency of a business where such conduct was permitted. There was an explanation by Romberg which the defendants accepted as sufficient. Caution and diligence might have pressed investigation farther.

If the defendants owed a duty to the plaintiff to act with the same care that would have been due under a contract of employment, a jury was at liberty to find a verdict of negligence upon a showing of a scrutiny so imperfect and perfunctory. No doubt the extent to which inquiry must be pressed beyond appearances is a question of judgment, as to which opinions will often differ. No doubt the wisdom that is born after the event will engender suspicion and distrust when old acquaintance and good repute may have silenced doubt at the beginning. All this is to be weighed by a jury in applying its standard of behavior, the state of mind and conduct of the reasonable man. Even so, the adverse verdict, when rendered, imports an alignment of the weights in their proper places in the balance and a reckoning thereafter. The reckoning was not wrong upon the evidence before us, if duty be assumed.

We are brought to the question of duty, its origin and measure.

The defendants owed to their employer a duty imposed by law to make their certificate without fraud, and a duty growing out of contract to make it with the care and caution proper to their calling. Fraud includes the pretense of knowledge when knowledge there is none. To creditors and investors to whom the employer exhibited the certificate, the defendants owed a like duty to make it without fraud, since there was notice in the circumstances of its making that the employer did not intend to keep it to himself (Eaton, Cole & Burnham Co. v. Avery, 83 N. Y. 31; Tindle v. Birkett, 171 N. Y. 520). A different question develops when we ask whether they owed a duty to these to make it without negligence. If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class. The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw may not exist in the implication of a duty that exposes to these consequences. We put aside for the moment any statement in the certificate which involves the representation of a fact as true to the knowledge of the auditors. If such a statement was made, whether believed to be-true or not, the defendants are liable for deceit in the event that it was false. The plaintiff does not need the invention of novel doctrine to help it out in such conditions. The case was submitted to the jury and the verdict was returned upon the theory that even in the absence of a misstatement of a fact there is a liability also for erroneous opinion. The expression of an opinion is to be subject to a warranty implied by law. What, then, is the warranty, as yet unformulated, to be? Is it merely that the opinion is honestly conceived and that the preliminary inquiry has been honestly pursued, that a halt has not been made without a genuine belief that the search has been reasonably adequate to bring disclosure of the truth? Or does it go farther and involve the assumption of a liability for any blunder or inattention that could fairly be spoken of as negligence if the controversy were one between accountant and employer for breach of a contract to render services for pay?

The assault upon the citadel of privity is proceeding in these days apace. How far the inroads shall extend is now a favorite subject of juridical discussion (Williston, Liability for Honest Misrepresentation, 24 Harv. L. Rev. 415, 433; Bohlen, Studies in the Law of Torts, pp. 150, 151; Bohlen, Misrepresentation as Deceit, Negligence or Warranty, 42 Harv. L. Rev. 733; Smith, Liability for Negligent Language, 14 Harv. L. Rev. 184; Green, Judge and Jury, chapter Deceit, p. 280; 16 Va. Law Rev. 749). In the field of the law of contract there has been a gradual widening of the doctrine of Lawrence v. Fox (20 N. Y. 268), until today the beneficiary of a promise, clearly designated as such, is seldom left without a remedy (Seaver v. Ransom, 224 N. Y. 233, 238). Even in that field, however, the remedy is narrower where the beneficiaries of the promise are indeterminate or general. Something more must then appear than an intention that the promise shall redound to the benefit of the public or to that of a class of indefinite extension. The promise must be such as to bespeak the assumption of a duty to make reparation directly to the individual members of the public if the benefit is lost ” (Moch Co. v. Rensselaer Water Co., 247 N. Y. 160, 164; American Law Institute, Restatement of the Law of Contracts, § 145). In the field of the law of torts a manufacturer who is negligent in the manufacture of a chattel in circumstances pointing to an unreasonable risk of serious bodily harm to those using it thereafter may be liable for negligence though privity is lacking between manufacturer and user (MacPherson v. Buick Motor Co., 217 N. Y. 382; American Law Institute, Restatement of the Law of Torts, § 262). A force or instrument of harm having been launched with potentialities of danger manifest to the eye of prudence, the one who launches it is under a duty to keep it within bounds (Moch Co. v. Rensselaer Water Co., supra, at p. 168). Even so, the question is still open whether the potentialities of danger that will charge with liability are confined to harm to the person, or include injury to property (Pine Grove Poultry Farm v. Newton B.-P. Mfg. Co., 248 N. Y. 293, 296; Robins Dry Dock & Repair Co. v. Flint, 275 U. S. 303; American Law Institute, Restatement of the Law of Torts, supra). In either view, however, what is released or set in motion is a physical force. We are now asked to say that a like liability attaches to the circulation of a thought or a release of the explosive power resident in words.

Three cases in this court are said by the plaintiff to have c®nemitted us to the doctrine that words, written , or oral, if negligently published with the expectation that the reader or hstener will transmit them to another, will lay a basis for liability though privity be lacking. These are Glanzer v. Shepard (233 N. Y. 236); International Products Co. v. Erie R. R. Co. (244 N. Y. 331), and Doyle v. Chatham & Phenix Nat. Bank (253 N. Y. 369).

In Glanzer v. Shepard the seller of beans requested the defendants, public weighers, to make return of the weight and furnish the buyer with a copy. This the defendants did. Their return, which was made out in duplicate, one copy to the seller and the other to the buyer, recites that it was made by order of the former for the use of the latter. The buyer paid the seller on the faith of the certificate which turned out to be erroneous. We held that the weighers were hable at the suit of the buyer for the moneys overpaid. Here was something more than the rendition of a service in the expectation that the one who ordered the certificate, would use it thereafter in the operations of his business as occasion might require. Here was a case where the transmission of the certificate to another was not merely one possibility among many, but the “ end and aim of the transaction,” as certain and immediate and deliberately willed as if a husband were to order a gown to be delivered to his wife, or a telegraph company, contracting with the sender of a message, were to telegraph it wrongly to the damage of the person expected to receive it (Wolfskehl v. Western Union Tel. Co., 46 Hun, 542; DeRuth v. New York, etc., Tel. Co., 1 Daly, 547; Milliken v. Western Union Tel. Co., 110 N. Y. 403, 410). The intimacy of the resulting nexus is attested by the fact that after stating the case in terms of legal duty, we went on to point out that viewing it as a phase or extension of Lawrence v. Fox (supra), or Seaver v. Ransom (supra), we could reach the same result by stating it in terms of contract (cf. Economy Building & Loan Assn. v. West Jersey Title Co., 64 N. J. L. 27; Young v. Lohr, 118 Iowa, 624; Murphy v. Fidelity, Abstract & Title Co., 114 Wash. 77). The bond was so close as to approach that of privity, if not completely one with it. Not so in the case at hand. No one would be likely to urge that there was a contractual relation, or even one approaching it, at the root of any duty that was owing from the defendants now before us to the indeterminate class of persons who, presently or in the future, might deal with the Stern company in reliance on the audit. In a word, the service rendered by the defendant in Glanzer v. Shepard was primarily for the information of a third person, in effect, if not in name, a party to the contract, and only incidentally for that of the formal promisee. In the case at hand, the service was primarily for the benefit of the Stern company, a convenient instrumentality for use in the development of the business, and only incidentally or collaterally for the use of those to whom Stern and his associates might exhibit it thereafter. Foresight of these possibilities may charge with liability for fraud. The conclusion does not follow that it will charge with liability for negligence.

In the next of the three cases (International Products Co. v. Erie R. R. Co., supra) the plaintiff, an importer, had an agreement with the defendant, a railroad company, that the latter would act as bailee of goods arriving from abroad. The importer, to protect the goods by suitable insurance, made inquiry of the bailee as to the location of the storage. The warehouse was incorrectly named, and the policy did not attach. Here was a determinate relation, that of bailor and bailee, either present or prospective, with peculiar opportunity for knowledge on the part of the bailee as to the subject-matter of the statement and with a continuing duty to correct it if erroneous. Even the narrowest holdings as to liability for unintentional misstatement concede that a representation in such circumstances may be equivalent to a warranty. There is a class of cases where a person within whose, special province it lay to know a particular fact, has given an erroneous answer to an inquiry made with regard to it by a person desirous of ascertaining the fact for the purpose of determining his course accordingly, and has been held bound to make good the assurance he has given ” (Herschell, L. C., in Derry v. Peek, [L. R.] 14 A. C. 337, 360). So in Burrowes v. Lock (10 Ves. 470), a trustee was asked by one who expected to make a loan upon the security of a trust fund whether notice of any prior incumbrance upon the fund had been given to him. An action for damages was upheld though the false answer was made honestly in the belief that it was true (cf. Brownlie v. Campbell, [L. R.] 5 A. C. 925, 935; Doyle v. Chatham & Phenix Nat. Bank, supra, at p. 379).

In one respect the decision in International Products Co. v. Erie R. R. Co. is in advance of anything decided in Clanzer v. Shepard. The latter case suggests that the liability there enforced was not one for the mere utterance of words without due consideration, but for a negligent service, the act of weighing, which happened to find in the words of the certificate its culmination and its summary. This was said in the endeavor to emphasize the character of the certificate as a business transaction, an act in the law, and not a mere casual response to a request for information. The ruling in the case of the Erie Railroad shows that the rendition of a service is at most a mere circumstance and not-an indispensable condition. The Erie was not held /for negligence in the rendition of a service. It was held for words and nothing more. So in the case at hand. If liability for the consequences of a negligent certificate may be enforced by any. member of an indeterminate class of creditors, present and prospective, known and -unknown, the existence or non-existence of a preliminary act of service will not affect the cause of action. The service may have been rendered as carefully as you please, and its quality will count for nothing if there was negligence thereafter in distributing the summary.

Doyle v. Chatham & Phenix Nat. Bank (supra), the third of the cases cited, is even more plainly indecisive. A trust company was a trustee under a deed of trust to secure an issue of bonds. It was held liable to a subscriber for the bonds when it certified them falsely. A representation by a trustee intended to sway action had been addressed to a person who by the act of subscription was to become a party to the deed and a cestui que trust.

The antidote to these decisions and to the over-use of the doctrine of liability for negligent misstatement may be found in Jaillet v. Cashman (235 N. Y. 511) and Courteen Seed Co. v. Hong Kong & Shanghai Banking P. Corp. (245 N. Y. 377). In the first of these cases the defendant supplying ticker service to brokers was held - not liable in damages to one of the broker’s customers for the consequences of reliance upon a report negligently published on the ticker. If liability had been upheld, the step would have been a short one to the declaration of a like liability on the part of proprietors of newspapers. In the second the principle was clearly stated by Pound, J., that negligent words are not actionable unless they are - uttered directly, with knowledge or notice that they will be acted on, to one to whom the speaker is bound by some relation of duty, arising out of public calling, contract or otherwise, to act with care if he acts at all.”

From the foregoing analysis the conclusion is, we think, inevitable that nothing in our previous decisions commits us to a holding of liability for negligence in the circumstances of the case at hand, and that such liability, if recognized, will be an extension of the principle of those decisions to different conditions, even if more or less analogous. The question then is whether such an extension shall be made.

The extension, if made, will so expand the field of liability for negligent speech as to make it nearly, if not quite, coterminous with that of liability for fraud. Again and again, in decisions of this court, the bounds of this latter liability have been set up, with futility the fate of every endeavor to dislodge them. Scienter has been declared to be an indispensable element except where the representation has been put forward as true of one’s own knowledge (Hadcock v. Osmer, 153 N. Y. 604), or in circumstances where the expression of opinion was a dishonorable pretense (3 Williston, Contracts, § 1494; Smith v. Land & House Prop. Corp., [L. R.] 28 Ch. Div. 7, 15; Sleeper v. Smith, 77 N. H. 337; Andrews v. Jackson, 168 Mass. 266; People ex rel. Gellis v. Sheriff, 251 N. Y. 33, 37; Hickey v. Morrell, 102 N. Y. 454, 463; Merry Realty Co. v. Martin, 103 Misc. Rep. 9, 14; 186 App. Div. 538). Even an opinion, especially an opinion by an expert, may be found to be fraudulent if the grounds supporting it are so flimsy as to lead to the conclusion that there was no genuine belief back of it. Further than that this court has never gone. Directors of corporations have been acquitted of liability for deceit though they have been lax in investigation and negligent in speech (Reno v. Bull, 226 N. Y. 546, and cases there cited; Kountze v. Kennedy, 147 N. Y. 124). This has not meant, to be sure, that negligence may not be evidence from which a trier of the facts may draw an inference of fraud (Derry v. Peek, [L. R.] 14 A. C. 337, 369, 375, 376), but merely that if that inference is rejected, or, in the light of all the circumstances, is found to be unreasonable, negligence alone is not a substitute for fraud. Many also are the cases that have distinguished between the willful or reckless representation essential to the maintenance at law of an action for deceit, and the misrepresentation, negligent or innocent, that will lay a sufficient basis for rescission in equity (Bloomquist v. Farson, 222 N. Y. 375; Seneca Wire & Mfg. Co. v. Leach & Co., 247 N. Y. 1). If this action is well conceived, all these principles and distinctions, so nicely wrought and formulated, have been a waste of time and effort. They have even been a snare, entrapping litigants and lawyers into an abandonment of the true remedy lying ready to the call. The suitors thrown out of court because they proved negligence, and nothing else, in an action for deceit, might have ridden to triumphant victory if they had proved the self-same facts, but had given the wrong another label, and all this in a State where forms of action have been abolished. So to hold is near to saying that we have been paltering with justice. A word of caution or suggestion would have set the erring suitor right. Many pages of opinion were written by judges the most eminent, yet the word was never spoken. We may not speak it now. A change so revolutionary, if expedient, must be wrought by legislation (Landell v. Lybrand, 264 Penn. St. 406).

We have said that the duty to refrain from negligent representation would become coincident or nearly so with the duty to refrain from fraud if this action could be maintained. A representation even though knowingly false does not constitute ground for an action of deceit unless made with the intent to be communicated to the persons or class of persons who act upon it to their prejudice (Eaton, Cole & Burnham Co. v. Avery, supra). Affirmance of this judgment would require us to hold that all or nearly all the persons so situated would suffer an impairment of an interest legally protected if the representation had been negligent. We speak of all “ or nearly all,” for cases can be imagined where a casual response, made in circumstances insufficient to indicate that care should be expected, would permit recovery for fraud if willfully deceitful. Cases of fraud between persons so circumstanced are, however, too infrequent and exceptional to make the radii greatly different if the fields of liability for negligence and deceit be figured as concentric circles. The like may be said of the possibility that the negligence of the injured party, contributing to the result, may avail to overcome the one remedy, though unavailing to defeat the other.

Neither of these possibilities is noted by the plaintiff in its answer to the suggestion that the two fields would be coincident. Its answer has been merely this, first, that the duty to speak with care does not arise unless the words are the culmination of a service, and second, that it does not arise unless the service is rendered in the pursuit of an independent calling, characterized as public. As to the first of these suggestions, we have already had occasion to observe that given a relation making diligence a duty, speech as well as conduct must conform to that exacting standard (International Products Co. v. Erie R. R. Co., supra). As to the second of the two suggestions, public accountants are public only in the sense that their services are offered to any one who chooses to employ them. This is far from saying that those who do not employ them are in the same position as those who do.

Liability for negligence if adjudged in this case will extend to many callings other than an auditor’s. Lawyers who certify their opinion as to the validity of municipal or corporate bonds with knowledge that the opinion will be brought to the notice of the public, will become hable to the investors, if they have overlooked a statute or a decision, to the same extent as if the controversy were one between client and adviser. Title companies insuring titles to a tract of land, with knowledge that • at- an approaching auction the fact that they have insured will be stated to the bidders, will become liable to purchasers who may wish the benefit of a policy without payment of a premium. These illustrations may seem to be extreme, but they go little, if any, farther than we are invited to go now. Negligence, moreover, will have one standard when viewed in relation to the employer, and another and at times a stricter standard when viewed in relation to the public. Explanations that might seem plausible, omissions that might be reasonable, if the duty is confined to the employer, conducting a business that presumably at least is not a fraud upon his creditors, might wear another aspect if an independent duty to be suspicious even of one’s principal is owing to investors. “ Every one making a promise having the quality of a contract will be under a duty to the promisee by virtue of the promise, but under another duty, apart from contract, to an indefinite number of potential beneficiaries when performance has begun. The assumption of one relation will mean the involuntary assumption of a series of new relations, inescapably hooked together ” (Moch Co. v. Rensselaer Water Co., supra, at p. 168). The law does not spread its protection so far ” (Robins Dry Dock & Repair Co. v. Flint, supra, at p. 309).

Our holding does not emancipate accountants from the consequences of fraud. It does not relieve them if their - audit has been so negligent as to justify a finding that they had no genuine belief in its adequacy, for this again is fraud. It does no more than say that if less than this is proved, if there has been neither reckless misstatement nor insincere profession of an opinion, but only honest - blunder, the ensuing liability for negligence is one that is bounded by the contract, and is to be enforced between the parties by whom the contract has been made. We doubt whether the average business man receiving a certificate without paying for it and receiving it merely as one among a multitude of possible investors, would look for anything more.

12) The second cause of action is yet to be considered.

The defendants certified as a fact, true to their own knowledge, that the balance sheet was in accordance with the books of account. If their statement was false, they are not to be exonerated because they believed it to be true (Hadcock v. Osmer, supra; Lehigh Zinc & Iron Co. v. Bamford, 150 U. S. 665, 673; Chatham Furnace Co. v. Moffatt, 147 Mass. 403; Arnold v. Richardson, 74 App. Div. 581). We think the triers of the facts might hold it to be false.

Correspondence between the balance sheet and the books imports something more, or so the triers of the facts might say, than correspondence between the balance sheet and the general ledger, unsupported or even contradicted by every other record. The correspondence to be of any moment may not unreasonably be held to signify a correspondence between the statement and the books of original entry, the books taken as a whole. If that is what the certificate means, a jury could find that the correspondence did not exist and that the defendants signed the certificates without knowing it to exist and even without reasonable grounds for belief in its existence. The item of $706,000, representing fictitious accounts receivable, was entered in the ledger after defendant’s employee Siess had posted the December sales. He knew of the interpolation, and knew that there was need to verify the entry by reference to books other than the ledger before the books could be found to be in agreement with the balance sheet. The evidence would sustain a finding that this was never done. By concession the interpolated item had no support in the journal, or in any journal voucher, or in the debit memo book, which was a summary of the invoices, or in any thing except the invoices themselves. The defendants do not say that they ever looked at the invoices, seventeen in number, representing these accounts. They profess to be unable to recall whether they did so or not. They admit, however, that if they had looked, they would have found omissions and irregularities so many and unusual as to have called for further investigation. When we couple the refusal to say that they did look with the admission that if they had looked, they would or could have seen, the situation is revealed as one in which a jury might reasonably find that in truth they did not look, but certified the correspondence without testing its existence.

In this connection we are to bear in mind the principle already stated in the course of this opinion that negligence or blindness, even when not equivalent to fraud, is none the less evidence to sustain an inference of fraud. At least this is so if the negligence is gross. Not a little confusion has at times resulted from an undiscriminating quotation of statements in Kountze v. Kennedy (supra), statements proper enough in their setting, but capable of misleading when extracted and considered by themselves. “ Misjudgment, however gross,” it was there observed, “ or want of caution, however marked, is not fraud.” This was said in a case where the trier of the facts had held the defendants guiltless. The judgment in this court amounted merely to a holding that a finding of fraud did not follow as an inference of law. There was no holding that the evidence would have required a reversal of the judgment if the finding as to guilt had been the other way. Even Derry v. Peek, as we have seen, asserts the probative effect of negligence as an evidentiary fact. We had no thought in Kountze v. Kennedy of upholding a doctrine more favorable to wrongdoers, though there was a reservation suggesting the approval of a rule more rigorous. The opinion of this court cites Derry v. Peek, and states the holding there made that an action would not lie if the defendant believed the representation made by him to be true, although without reasonable cause for such belief. It is not necessary,” we said, “to go to this extent to uphold the present judgment, for the referee, as has been stated, found that the belief of Kennedy * * * was based upon reasonable grounds.” The setting of the occasion justified the inference that the representations did not involve a profession of knowledge as distinguished from belief (147 N. Y. at p. 133). No such charity of construction exonerates accountants, who by the very nature ■ of their calling profess to speak with knowledge when certifying to an agreement between the audit and the entries.

The defendants attempt to excuse the omission of an inspection of the invoices proved to be fictitious by invoking a practice known as that of testing and sampling. A random choice of accounts is made from the total number on the books, and these, if found to be regular when inspected and investigated, are taken as a fair indication of the quality of the mass. The defendants say that about 200 invoices were examined in accordance with this practice, but they do not assert that any of the seventeen invoices supporting the fictitious sales were among the number so selected. Verification by test and sample was very likely a sufficient audit as to accounts regularly entered upon the books in the usual course of business. It was plainly insufficient, however, as to accounts not entered upon the books where inspection of the invoices was necessary, not as a check upon accounts fair upon their face, but in order to .ascertain whether there were any accounts at all. If the only invoices inspected were invoices unrelated to the interpolated entry, the result was to certify a correspondence between the books and the balance sheet without any effort by the auditors, as to $706,000 of accounts, to ascertain whether the certified agreement was in accordance with the truth. How far books of account fair upon their face are to be probed by accountants in an effort to ascertain whether the transactions back of them are in accordance with the entries, involves to some extent the exercise of judgment and discretion. Not so, however, the inquiry whether the entries certified as there, are there in very truth, there in the form and in the places where men of business training would expect them to be. The defendants were put on their guard by the circumstances touching the December accounts' receivable to scrutinize with special care. A jury might find that with suspicions thus awakened, they closed their eyes to the obvious, and blindly gave assent.

We conclude, to sum up the situation, that in.certifying to the correspondence between balance sheet and accounts the defendants made a statement as true to their own knowledge, when they had, as a jury might find, no knowledge on the subject. If that is so, they may also be found to have acted without information leading to a sincere or genuine belief when they certified to an opinion that the balance sheet faithfully reflected the condition of the business.

Whatever wrong was committed by the defendants was not their personal act or omission, but that of their subordinates. This does not relieve them, however, of liability to answer in damages for the consequences of the wrong, if wrong there shall be found to be. It is not a question of constructive notice, as where facts are brought home to the knowledge of subordinates whose interests are adverse to those of the employer (Henry v. Allen, 151 N. Y. 1; see, however, American Law Institute, Restatement of the Law of Agency, § 506, subd. 2-a). These subordinates, so far as the record shows, had no interests adverse to the defendants’, nor any thought in what they did to be unfaithful to their trust. The question is merely this, whether the defendants, having delegated the performance of this work to agents of their own selection, are responsible for the manner in which the business of the agency was done. As to that the answer is not doubtful (Fifth Ave. Bank v. 42d St., etc., R. R. Co., 137 N. Y. 231; Gleason v. Seaboard Air Line Ry. Co., 278 U. S. 349, 356; American Law Institute, Restatement of the Law of Agency, § 481).

Upon the defendants’ appeal as to the first cause of action, the judgment of the Appellate Division should be reversed, and that of the Trial Term affirmed, with costs in the Appellate Division and in this court.

Upon the plaintiff’s appeal as to the second cause of action, the judgment of the Appellate Division and that of the Trial Term should be reversed, and a new trial granted, with costs to abide the event.

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

Judgment accordingly.


source: Caselaw Access Project

author: Hubbs, J.

license: Public Domain

text:
    Edgar B. Mabie et al., Respondents, v. William W. Fuller, Appellant.
    (Argued November 19, 1930;
    decided January 6, 1931.)

      Oliver D. Burden and Herman V. S. Groesbeck for appellant.
    The plaintiff has mistaken her remedy which is bestowed by section 137 of the Tax Law, and she is now barred from, any relief. (People v. Schmer, 206 N. Y. 45; Ostrander v. Reis, 206 N. Y. 448; People v. Ladew, 190 N. Y. 543; 189 N. Y. 355; Sheldon v. Russell, 91 Misc. Rep. 278; Hennepin Improvement Co. v. Schuster, 66 Misc. Rep. 634; Baer v. McCullough, 176 N. Y. 97; People v. Turner, 117 N. Y. 227.) The tax deed was valid and defeats any title of the plaintiff. (Tax Law, §§ 131, 137, 158.)

      Donald M. Mawhinney for respondent.
    Defendant’s tax deed is invalid because no notice was ever served upon the owner of the premises or upon the occupants. (Tax Law, § 134; People v. Ladew, 237 N. Y. 413; Russell v. Doty, 234 N. Y. 559; Cary v. Given, 144 App. Div. 221 ; Trenton Trust Co. v. Hudson Mechanical Rubber Co., 212 App. Div. 375; Dunkum v. Macock Building Corp., 227 App. Div. 230.)
   Hubbs, J.

This is an action in ejectment brought by the record owner of a life estate in a farm to regain possession thereof. The answer alleges that the defendant is the owner thereof and entitled to possession by virtue of a tax deed.

The taxes on the farm for the year 1922 were regularly assessed. They were not paid and were so returned to the County Treasurer in April, 1923. On October 17th, 1923, the County Treasurer duly sold the farm .for. the unpaid taxes, and on October 24th, 1924, delivered a deed thereof to the defendant who recorded it in May, 1925, without recording therewith proof of the service of a notice to redeem, as required by section 134 of the Tax Law (Laws of 1909, ch. 62; Cons. Laws, ch. 60). During all of the time in question the farm was occupied by tenants of the appellant and in possession, of. an occupant ” within the meaning of said section 134.

The position of the plaintiff-respondent is that the defendant-appellant .did not acquire a valid title to the premises by virtue of the tax sale and the deed executed and delivered by the County Treasurer because.he failed to serve upon the occupant a notice to redeem, as required by said section 134. The appellant insists that his title has become absolute, within the meaning of section 137 of the Tax Law, without serving upon the occupant a notice to redeem, as more than three years had expired after the last day of the tax sale before the trial of the action and the respondent had failed to pay the taxes and expenses and redeem the premises from the tax sale.

The question for determination is whether the title of a purchaser of premises at a tax sale, who has failed to serve a notice to redeem upon the occupant, becomes absolute upon the expiration of three years “ after the last day of the sale (Tax Law, § 127) so that the record owner is barred from recovering possession of the premises so sold.

The proceedings for the assessment and collection of the tax and for advertisement and sale of the premises were conducted substantially in accordance with the provisions of the Tax Law. All proceedings up to and including the delivery of the tax deed to the appellant were valid. The delivery to and possession of the deed by the appellant did not, however, make his title absolute and conclusive. The owner still had a right to redeem the premises by paying the taxes, with certain penalties and expenses added, as provided in sections 127, 134 and 137 of the Tax Law, and the appellant, the grantee named in the deed, had a right to limit the time within which the owner could redeem by serving a notice to redeem upon the occupant as provided in section 134.

The right of a purchaser of land at a tax sale to acquire a valid title thereto is a statutory right, in derogation of the common law. The proceeding deprives the record owner of his title and vests it in another and the statute must be substantially complied with in order to constitute a valid transfer of title. (Clason v. Baldwin, 152 N. Y. 204.) The owner’s right to redeem also depends upon the statute and if he seeks to redeem he must proceed in accordance with the provisions of the statute giving him the right. (People ex rel. Quaranto v. Moynahan, 148 App. Div. 744; affd., 205 N. Y. 590.)

Prior to the enactment of chapter 711, section 17, of the Laws of 1893, it was clearly settled under the statutes in force that the right of an owner or occupant of land which was occupied at the expiration of two years after the last day of the tax sale to redeem the land from a tax sale could not be cut off unless a notice to redeem was served upon the occupant as required by statute. (Laws of 1855, ch. 427, §§50 and 68; Ostrander v. Reis, 206 N. Y. 448; People v. Ladew, 189 N. Y. 355; 190 N. Y. 543.)

The statute under which those cases were decided (Laws of 1855, ch. 427), which was a codification of the tax laws of the State, provided, by section 50 thereof, that the owner or occupant of lands sold for taxes might redeem at any time within two years from the last day of the sale. Section 68 provided that where the land sold for taxes was in the actual occupation of any person at the expiration of the two years given for redemption the grantee in a tax deed or the person claiming under him should serve a written notice on the person so occupying the land to the effect that the tax deed would become absolute unless the occupant or owner should redeem the said - land within six months after the filing in the office of the Comptroller evidence of the serving of such notice. Under the statute the owner or occupant could redeem at any time within two years without the service of a notice to redeem from the grantee named in the tax deed. If at the expiration of two years from the last day of the sale, the land was occupied the grantee was required within two years from that time (the expiration of two years from the last day of the sale) to serve a written notice on the occupant to redeem. The occupant had six months after the time of filing in the Comptroller’s office of the evidence of the service of the said notice ” within which to redeem. If he did not redeem within that time the grantee’s title became absolute. If the land was so occupied at the expiration of two years from the last day of the sale, and the grantee failed to serve a notice to redeem his title did not become absolute and the owner of the premises could establish his title and right to possession in an appropriate action. If at the expiration of two years from the last day of the sale the land was not occupied the title of the grantee in the tax deed became absolute without the service by the grantee of any notice to redeem.

The state of the law as expressed in the statute and construed in judicial opinions resulted in chaotic conditions in relation to tax titles. The grantee in every tax deed was obliged to determine for himself whether the land described in his deed was occupied within the meaning of the statutory definition. The question often presented intricate and difficult questions the solution of which depended upon the situation of the premises and the facts and circumstances surrounding each case. If the grantee failed to serve a notice to redeem and the courts later decided that the premises were occupied at the time the notice should have been served, his tax deed became worthless. If he served upon the wrong person or failed to serve a legal notice the same effect followed. Often the owner would not assert his right to the premises for years after the tax deed was delivered. The effect was to cast suspicion on all tax titles and lead to protracted litigation. The case of People v. Ladew, which was three times before this court (189 N. Y. 355; 190 N. Y. 543; 237 N. Y. 413) forcibly illustrates the conditions then existing.

Prior to the year 1893, in all cases where the land was occupied at the expiration of the occupant’s or owner’s time to redeem without notice, it was necessary for the grantee in a tax deed to serve a notice to redeem before Ms title became absolute. Where the land was so occupied the statute provided only that one method under wMch the grantee’s tax deed could become absolute.

Various statutes were enacted by the Legislature for the purpose of perfecting titles in cases where the grantees in tax deeds had failed to serve a notice to redeem upon the occupant as required by statute. This court decided that the service of the notice to redeem upon the occupant “ was a condition precedent, to be performed before the comptroller’s deed could operate to transfer the title to the purchaser at the tax sale” (Ostrander v. Reis, supra, at p. 454), and that the recording of the tax deed without recording with it evidence of the service of notice to redeem as required by section 68, chapter 427, Laws of 1855, was ineffectual, that the recording of such deed was absolutely void, and that the Legislature could not by statute make a conveyance absolute where a notice to redeem had not been served upon the occupant. (People v. Ladew, supra; Ostrander v. Reis, supra.)

With knowledge of the state of the law, and the then existing conditions, the Legislature enacted chapter 711 of the Laws of 1893. Section 17 thereof contained a new provision to the effect that the occupant of land sold for taxes might redeem the same within three years from the last day of the sale and “ not thereafter ” and In case of failure to redeem within the time herein specified, the sale and conveyance thereof shall become absolute and the occupant and all other persons barred forever.”

So far as material to the case at bar that section has been embodied in section 137 of the Tax Law. That section provides a second method by wMch a grantee’s deed at a tax sale may become absolute. The first method is contained in section 134 wMch continues the principle embodied in sections 68 and 69 of chapter 427 of the Laws of 1855 with certain immaterial modifications and amendments and requires the service of a written notice to redeem upon any person in the actual occupancy of the land sold at the expiration of one year given for the redemption thereof by section 127. The notice is to be served by the grantee or a person claiming under him and must be served within one year from the expiration of the year given for redemption by section 127, that is, within two years of the last day of the sale. If the sums specified in the notice are not paid into the State treasury within six months after the time of filing the evidence of the service of the written notice, the conveyance to the grantee in the tax deed becomes absolute. Under section 134 if notice to redeem is served on the first day permitted, and the land is not redeemed, the grantee’s deed becomes absolute in one year six months and a day after the last day of the sale.

The second method by which the grantee’s deed may become absolute is contained in section 137. Under that section, if the grantee fails to serve a notice to redeem, such occupant or owner has three years within which to redeem and not thereafter.” It is further provided: “ In case of failure to redeem within the time herein specified, the sale and conveyance thereof shall become absolute and the occupant and all other persons barred forever.” If for any reason a grantee wishes to record his deed at the earliest possible moment, or if he desires to have his title become absolute as soon as possible after receiving his deed, he may proceed under section 134 and, at the expiration of the year given to the occupant to redeem by section 127, serve notice to redeem. He may then upon filing the evidence of the service of such notice in the County Treasurer’s office at the expiration of six months after the service thereof record the deed. If he serves the notice to redeem at the earliest possible moment, he can limit the occupant’s time to redeem to one year, six months and a day after the last day of the sale.

If, however, the grantee fails for any reason to serve the notice to redeem, he cannot legally record his deed until after three years from the last day of the sale and not then unless the occupant, owner or person interested has failed to redeem within that time. If a notice to redeem is served upon the occupant under section 134, the occupant or owner must redeem if at all within six months after the service of such notice. If no notice to redeem is served the occupant or owner has three years from the last day of the sale within which to redeem. If the land is not redeemed within that time the statute makes the grantee’s title absolute.

The provision embodied in the Tax Law for the first time by chapter 711, section 17, Laws of 1893, and carried into section 137, creates an absolute bar to the occupant’s right to redeem, and makes the grantee’s title absolute at the expiration of three years from the last day of the sale without the service by the grantee of any notice to redeem upon the occupant. Unless the section was enacted for the purpose stated it is utterly useless and serves no purpose whatever. We must assume that the Legislature in enacting the section intended that it should effect some change in the existing law and accomplish some useful purpose.

There is nothing unreasonable or harsh about that result. The statute provides that all land is subject to taxation except as expressly exempted by statute. (Tax Law, § 3.)

Everyone is presumed to know the Tax Law and to know that his land is being assessed and can be sold for non-payment of taxes and it is the duty of a landowner to see to it that the taxes upon his land are paid within the statutory time. If he fails for any reason the law still gives him in the case of occupied land three years from the last day of the sale within which to redeem. That is a reasonable time and if he fails to redeem within that time public policy requires that the grantee’s title become absolute.

The County Treasurer under section 158 is required to perform the same functions as are required of the State Comptroller and the Department of Taxation and Finance under article 6 which includes sections 134 and 137. (Cone v. Lauer, 131 App. Div. 193, 198; Dinning v. Brown, 148 App. Div. 671.) The fact that the deed from the County Treasurer was recorded in violation of section 134 does not affect its validity as a deed.

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

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

Judgment accordingly.


author: Crane, J.

text:
    Fred A. Gambold, as Executor of Charles S. Lamphear, Deceased, Respondent, v. George W. MacLean et al., as Executors and Trustees under the Will of Katherine L. MacLean, Deceased, Appellants.
    (Argued November 20, 1930;
    decided January 6, 1931.)

      Herman A. Gray, William B. Willcox and Jay Noble Emley for appellants.
    Plaintiff proved no express trust and no trust can be inferred. (Lopez v. Campbell, 163 N. Y. 340; Wadd v. Hazelton, 137 N. Y. 215.) Plaintiff is estopped by the conduct of his testator from claiming a trust. (Board of Education v. Day, 128 Ga. 156; Sargent v. Salmond, 27 Me. 539; Fay v. Lambourne, 124 App. Div. 245.) Plaintiff’s claim was released. (1 Williston on Contracts, § 322; 1 Parsons on Contracts [9th ed.], 11; U. S. Printing & Lithograph Co. v. Powers, 233 N. Y. 143; Whittemore v. J. L. & S. O. Co., 124 N. Y. 565.)

      John A. V. Murphy and Herbert P. Queal for respondent.
    There is ample evidence to warrant the finding that there was a trust. (Wood v. Rabe, 96 N. Y. 414; Bitter v. Jones, 28 Hun, 492; Goldsmith v. Goldsmith, 145 N. Y. 313; Lamb v. Lamb, 18 App. Div. 250; Jeremiah v. Pitcher, 26 App. Div. 402; Harrington v. Schiller, 231 N. Y. 278; Sinclair v. Purdy, 235 N. Y. 245; Percy v. Huyck, 252 N. Y. 168; Matter of Brown, 252 N. Y. 366.) The plaintiff is not estopped to bring this action. (Stanton v. Hawley, 193 App. Div. 559.) Plaintiff’s claim was never released or satisfied. (Whittemore v. Judd Linseed Co., 124 N. Y. 565.)
   Crane, J.

In February of 1866, John Healy died in Kings county, 1ST. Y., leaving a last will and testament, in which he left two pieces of property in Brooklyn to his daughter, Mary Ann Lamphear, for life, and the remainder to his grandchildren, Charles S. Lamphear, Amos S. Lamphear, Ella L. F. Nicholson and Katherine L. MacLean. The property consisted of 25 and 27 Nevins street, and 514 Fulton street.

Mary Ann Lamphear, the life tenant, died on December 7, 1912, at which time the grandchildren were entitled to the property. On September 17, 1912, Charles S. Lamphear transferred by deed his entire remaining interest in his share to his brother Amos and his sister Katherine. At that time his mother, living at 35 Cambridge place in Brooklyn, was old, blind, sick and was expected to die within a short time. In fact, she did die, as above stated, a little over two months thereafter on the seventh day of the following December.

Charles S. Lamphear was a miner and prospector residing at Patagonia, Santa Cruz, Ariz. He talked in millions and was always hard up; in need of money. His correspondence indicates that he was a hard man, lacking in those customary feelings which most people have for the immediate family, and especially the mother — the mother could not die soon enough for him, and he complains of her living as long as she did. So badly did he need money that, prior to his transfer, above mentioned, he had mortgaged his interest for $25,000 to the Real Estate Title and Trust Co. in Philadelphia. This money was gone, and he needed more. He came to his brother Amos and in his own words asked: Will you and Kate rustle me up a couple of thousand dollars? ” Amos and Katherine, through a note discounted at the Peoples Trust Company advanced the $2,000 to Charles, the transaction being closed by Mr. Ellett Hodgskin, in the office of Wingate & Cullen, of which firm he was a member. The deed on its face was absolute. Mr. Hodgskin testifies that he called Charles’ attention to the state of his mother’s health and asked him to consider the wisdom of his acts. Charles wanted the money at once; he could not wait. He needed it, so he said, for his speculations, which would result in millions. He would have riches when the others were still waiting for their money. According to the competent evidence, the sale by Charles to his brother and sister was absolute and unconditional. There was no promise to hold his interest or any part of it in trust, nor did Charles rely or act upon any such promise or understanding.

Katherine L. MacLean, the sister, died the following year, in June of 1913, and in 1914 Charles made a claim that the transfer to his brother Amos and to his sister was merely as security for the $2,000 advanced. He thereupon brought a partition suit, in which he alleged that his interest had not been transferred, but was merely subject to this mortgage lien. The action appears to have been tried, resulting in a disagreement. Thereafter, as to Amos and Katherine’s estate, the action was severed. In March, 1921, Amos settled with his brother Charles for $8,000, and after Charles’ death the action against Katherine’s estate was discontinued.

Charles made no other claim, and died on the first day of February, 1922.

Charles’ executor, the above plaintiff — neither heir nor next of kin — has brought this action upon an entirely different theory than that maintained by Charles in his lifetime. He alleges that the transfer made by Charles to Amos and Katherine was in the nature of a trust; that they later declared a trust in the property, and he has brought this action to enforce it.

The complaint alleges that Charles executed and delivered to Amos and Katherine a deed of all his right, title and interest to his one-quarter undivided part of the estate of his grandfather John Healy in trust upon' an agreement for his benefit, made by Amos and Katherine, share and share alike, to pay him $2,000 in cash and, in addition thereto, to take care of him during his lifetime by creating a trust for his benefit to pay or secure to him the equivalent of at least four per cent per annum on the value of said one-quarter share or interest or the invested equivalent thereof.

To sustain the judgment which has been given in favor of the plaintiff, it must appear that such a trust was declared in writing. In the absence of any agreement or inducement amounting to a promise, express or implied, intention is insufficient unless carried out. (Percy v. Huyck, 252 N. Y. 168.) This is not a case of unjust enrichment under cover of the relation of confidence. (Sinclair v. Purdy, 235 N. Y. 245.) The action is in form to enforce a specific agreement resulting in a sale and is based upon written instruments alleged to create dr declare a trust.

' ‘In a letter dated September 16, 1912, the day before Charles transferred his property, Amos wrote to Katherine a letter in which he said that Charles had been in town for 'two months looldng for some money to put in his mine. “ I simply did what I could among different mining people here in town to try and interest them, but it was utterly impossible.” He then writes that Charles had said: “ If we would give him $2,000 in cash he would sell the interest to us in the balance of the estate belonging to him, and if at mother’s death we wanted to do anything'for him, that would be up to us.” And continuing, he said: “ I believe I can borrow $2,000 from the Peoples Trust Co. to pay Charlie off. Take over his interest in our name and then Mr. Hodgskin says after this is done, we can write a letter to Charlie stating that we have purchased his interest without any comeback as value in full, but feel that after mother’s death occurring that we do not wish to take it entirely away from him.. That after her death whatever is to be paid off and which he is liable for, shall be done, and the balance placed out for him, through the Trust Co. on a 4% basis, during the term of his life, and payable to him quarterly or semiannually by them.”

The next day, the 17th of September, these parties appeared in the office of Mr. Hodgskin, and Charles executed a deed of transfer, absolute on its face. No trust agreement was signed and no such letter as above suggested was ever written to Charles. There was introduced in evidence in this case a blank trust agreement, dated in October, 1912, a month after the sale, running to the Peoples Trust Company, never signed nor executed. It is simply a blank form of a trust which is somewhat different in its terms from that suggested in Amos’ letter, as quoted above.

Katherine wrote certain letters, and it is said that these amount to a declaration of trust. In a letter not dated, written to her sister, Mrs. Nicholson, Katherine says: “ Have just returned from a seance with my attorney. The matter of signing note is all right, but other papers NO. * * * I really feel so sorry for Charlie — poor boy — he is our brother — has been up against. life’s problem ■—• but to think he is selling out for $2,000. He declares he will come out on top, and I hope so, he is so bright and clever.”

On the 18th of September, 1912, or the day after the transfer from Charles, Katherine telegraphed her sister Mrs. Nicholson, who was in Rome, N. Y. “After consulting attorney have arranged and signed note and taking over Charles’s interest.” Amos telegraphed about the same time to Mrs. Nicholson: “Arrangements made with Trust Co. to buy Charles’s interest * * * under no promises to pay anything after Mother’s death leaves it to us.” In a letter dated Thursday, the 18th, Mrs. Mac-Lean writes to Mrs. Nicholson, “ Charlie had threatened to sell out his remaining interest — to, as Amos says, Professional Crooks —* * * Now as Amos’s lawyer Mr. Hodgskin explained — that we three buy out. for the $2,000 sign note, etc.” Again, Katherine writes to Mrs. Nicholson the one letter about which this case has. hinged. It reads.: “ Have .just returned from down town. Went over to Amos office first ■— as he said the agreement would be ready — altho I will not sign it until Mr. G. returns, as he will hand it to my lawyer. Now Ella that note part is all right. It gives us an equity in what will be left of C’s part of the estate after his death. That is he will have it placed at 4% interest, then divided between us or our heirs. * * * ”

This letter is clearly explained by an affidavit made by Amos, November 1,1912, in a suit brought by Ella Nicholson, his sister, against him and his mother. This was before the life estate had fallen in. He there stated: “Although my sister and I have purchased the interest of my brother Charles in said premises, it is our intention to create a trust fund from the amount of his share, the income of which up to four per cent per annum, shall be applicable to him during his lifetime.” The last letter to be referred to is dated Sunday, November 10, 1912, and was written by Katherine to her brother Charles, and refers no doubt to this transfer of his interest and the intention of the parties. She writes: “ Now about the papers relative to you — and the sale — I have not signed — Mr. G. took the paper Amos sent me — he found that it was not the same form of agreement that he had seen in Amos’s office —■ so forbade my signing until it was rectified or righted. Then too it was sent thro the mail — and I have not seen your part of the agreement or any papers but the one sent me bearing on the case.” Evidently Charles was to make some agreement upon his part; was it to remain away from New York and stop, bothering his relatives; was it something to do about his mother, or his habits — who can tell? The years are silent.

What is the significance of these communications and what story can we weave out of the past, now that Charles and Katherine are dead? Charles apparently was a spendthrift, a speculator in mining properties, with ideas of quick wealth on small investments. After borrowing on Ms remainder interest, he sought a second loan. He needed money badly and needed it qMckly. His brother Amos and his sister Katherine took over his contingent interest, such as it was, and paid him $2,003 for it. Accordmg to the oral testimony of Mr. Hodgskin and Miss Woolfson, the transfer was complete and absolute without condition. The brother and sister, however, while not bound to do anything more for Charles, did intend to create a trust for him out of such part of his remainder as might be left. What the conditions and circumstances were under wMch such a trust would be created, we do not know. Such an agreement some months afterwards was prepared, but never executed. Katherine writes to her sister that such is the intention, but she also states that the papers which had been prepared are not satisfactory to her lawyer, and she also, as well as her brother, states at the time that the sale is unconditional, without any obligation upon their part to create a trust, and that if it be done, it will be entirely voluntary upon their part.

This conclusion is further fortified by the fact that Charles never understood or claimed that there had been a trust created for him or that there was to be one created. He claimed and testified m the partition suit that his deed was a mortgage; that he was to have his remainder interest back when he had paid the amount of the loan. Not until his death, ten years after his deed, was there claim made that it was given m trust, and this claim is advanced by the executor, who knows nothing' about it, except as he spells it out of the letters. There can be no doubt that it was the intention of Amos and Katherme to do something for Charles after his mother’s death, provided there was anything left of his remainder, but the evidence falls far short of proving any binding agreement made at the time of the transfer to create a trust, or of proving the declaration of a trust. There was the intention to create a trust for Charles, but. there is no proof that his transfer of his property was made in consideration of or in expectation of any such trust. The intention was to do something voluntarily for Charles, but the intention was never carried out, the trust was never created. What happened between these estranged brothers and sisters to cause Amos and Katherine to change their minds we do not know. Litigation between them started soon after the mother passed away. Charles for ten years never thought of a trust nor stated that his deed was given upon any such promise or consideration. The letters referring to what was to be done do not in this instance and under these circumstances constitute the accomplished fact — the setting up of the trust alleged.

In reviewing the facts, reference has been made to an affidavit made by Amos in another action, to letters and telegrams written by him, to the testimony of Charles regarding transactions with his sister, given against her estate in the partition action brought after her death, and also to transactions with Mr. Hodgskin, the lawyer, in the absence of Katherine, in negotiating for the sale of his (Charles) interest. Some of this evidence was incompetent,but we need not pass upon the objections and exceptions taken to it, as we hold even under the very liberal rulings made by the able trial judge, that the plaintiff has failed to make out a case. In equity upon an examination of remote events for the discovery of any unfairness, overreaching or betrayal of trust much liberality is often permitted in the introduction of evidence. However, with all the evidence in the case — relevant and irrelevant — we cannot find that declaration of trust made by Katherine and Amos sufficient to sustain the judgment.

■ The interlocutory and the final judgments appealed from should be reversed, and the complaint dismissed, with costs in all courts.

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

Judgments reversed,, etc.


author: O’Brien, J.

text:
    In the Matter of the Estate of Hampton Howell, Deceased. John H. Morgan et al., as Executors, Respondents; State Tax Commission, Appellant.
    (Argued November 24, 1930;
    decided January 6, 1931.)

      Seth T. Cole, Percy D. Stoddard and Harry M. Peyser for appellant.
    The assessment of a transfer tax on the life estate of the widow was proper. (Matter of Kidd, 188 N. Y. 274; Matter of Dows, 167 N. Y. 227; Orr v. Gilman, 183 U. S. 278; Matter of Delano, 176 N. Y. 486; Astor v. Kelsey, 205 U. S. 466; Matter of Smith, 150 App. Div. 805; Matter of Baker, 178 N. Y. 575.) All transfers for a valuable consideration are not exempt from transfer tax. (Matter of Gould, 156 N. Y. 423; Matter of Orvis, 223 N. Y. 1; Matter of Barbey, 114 N. Y. Supp. 725; Matter of Vivanti, 63 Misc. Rep. 618; 146 App. Div. 942; 206 N. Y. 656; Matter of Riemann, 42 Misc. Rep. 648; Matter of Gale, 83 Misc. Rep. 686; Matter of Taylor, 121 Misc. Rep. 7; 209 App. Div. 299; Matter of Dunn, 236 N. Y. 461; Matter of Bolton, 121 Misc. Rep. 51.) The transfer to the adopted son is taxable. (Matter of Stephen, 121 Misc. Rep. 596.)

      Richmond L. Brown and William K. Allison for respondents.
    The assessment of a transfer tax on the life interest to the widow was erroneous since the transfer to her was in discharge of an existing obligation of the testator based upon a valuable consideration. (Matter of Cory, 177 App. Div. 871; 221 N. Y. 612; Matter of Orvis, 223 N. Y. 1; Matter of Western, 152 N. Y. 93; Matter of Baker, 83 App. Div. 530; 178 N. Y. 575; Matter of Vanderbilt, 184 App. Div. 661; 226 N. Y. 638; Winter v. Winter, 191 N. Y. 462.) The assessment of a transfer tax on the remainder interest to the adopted son was erroneous since the transfer to him was in discharge of an existing obligation of the testator based upon a valuable consideration. (Matter of Schmoll, 191 App. Div. 435; 230 N. Y. 559; Matter of Peabody, 124 Misc. Rep. 338; Matter of Roeck, 111 Misc. Rep. 509; Seaver v. Ransom, 224 N. Y. 233; Todd v. Weber, 95 N. Y. 181.)
   O’Brien, J.

Several years before his death Hampton Howell, a resident of Suffolk county, entered into a separation agreement with his wife. The tenth paragraph of this document provides: “ The said husband hereby agrees to provide by last will and testament that should he depart this life previous to the decease of the wife, the said wife shall receive an amount equal to one third of his net income arising from his estate after the payment of all debts, inheritance or succession taxes, legal fees, administration expenses, etc., for the balance of her natural life and at her death the principal of said fund shall go to the adopted child of the parties hereto, said Gilbert Howell, and in consideration whereof the said wife hereby agrees that should the said husband predecease her all rights under this agreement except as to the provision to be made by his last will and testament, shall cease and determine; and should the said wife predecease the husband then and in that event the said wife, for herself, her heirs, executors, administrators and assigns, hereby agrees that all rights under this agreement or under said will shall cease and determine.” Mr. Howell after-wards executed a will by the seventh clause of which he directed his residuary estate to be divided into three equal parts, one of which he directed his trustee to invest and to pay the income to his widow during her life. The trustee was directed, at her death, to pay the income from this third over to the adopted son, Gilbert, in accordance with the terms of a trust created for his benefit. The husband predeceased the wife, and the issue of law is whether her life interest and the son’s remainder in the one-third of the residuary is taxable.

At the date of Mr. Howell’s death, January 5, 1926,-section 220 of the Tax Law (Cons. Laws ch. 60), as amended by chapter 143, Laws of 1925, was in effect. By this statute a tax, subject to certain exemptions and limitations not applicable to the facts in this case, is imposed upon the transfer of any interest in real or personal property or income therefrom in trust or otherwise: “1. When the transfer is by will or by the intestate laws of this State from any person dying seized or possessed thereof while a resident of the State. 2. When the transfer is made by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor or intended to take effect in possession or enjoyment at or after such death * * *. If any one of the transfers mentioned in this subdivision is made for a valuable consideration, the portion of the transfer for which the grantor or vendor receives equivalent monetary value is not taxable, but the remaining portion thereof is taxable.” Let it be noted that, by the terms of this statute, valuable consideration and equivalent monetary value have no application to transfers by will or intestacy. They relate solely to such transfers as are effected in the manner described in subdivision 2.

Prior to the amendment of section 220 of the Tax Law by chapter 430 of the Laws of 1922, no statute dealt with transfers for a consideration adequate or inadequate. Even under the terms of this section, as amended by chapter 143 of the Laws of 1925, transfer by will or intestacy is left unaffected by consideration. In the absence of enactment bearing upon such a question this court, during a long term of years, had passed upon the effect of transfers by will wherein definite contractual obligations based upon consideration and enforceable against the estate were recognized and expressly found. Matter of Gould (156 N. Y. 423), in which such a transfer was involved, required the interpretation of that part of the Tax Law existing by chapter 399, Laws of 1892, which then simply provided: A tax shall be and is hereby imposed upon the transfer of any property * * * when the transfer is by will. ” We held that the imposition of the tax was not limited to property gratuitously given by will but was extended to all property so transferred even to a testamentary transfer in payment of a debt. Matter of Baker (83 App. Div. 530; affd. on opinion below, 178 N. Y. 575) construed another subdivision of section 220 as amended by chapter 284, Laws of 1897, in reference to transfers by deed, grant, bargain, sale or gift. The courts held that the widow’s claim did not depend for its validity upon a deed or grant, was not testamentary in its character but was the outgrowth of a contract founded upon a valuable consideration, was enforceable like any other debt against the estate and, therefore, was not subject to tax. Matter of Kidd (188 N. Y. 274, 279) interpreted the taxing statute effective in 1901 and distinguished the Baker case. Kidd and claimant’s mother, for a monetary consideration passing from her in addition to the consideration of marriage, executed an antenuptial contract whereby the prospective husband agreed to bequeath and devise to his stepdaughter by will either the whole property which he might leave or, in the event of the birth and survival of other children, a portion of it. This court decided that it was not a contract to convey but was a contract to make a will in her favor. He left a will but he neither bequeathed nor devised any property to claimant. In a suit in equity the Supreme Court converted the devisees under the testator’s will into trustees for the claimant as a beneficiary under the ante nuptial agreement. She took under the will as enforced in equity and took subject to the transfer tax. Matter of Cory (221 N. Y. 612, decided in 1917 and affg. 177 App. Div. 871) is a case where shares of stock were transferred pursuant to an agreement supported by consideration. The transfer was held to fall exactly within the terms of the statute relating to deed, grant, bargain and salo and, notwithstanding the existence of consideration, was properly taxable. Matter of Orvis (223 N. Y. 1), decided in 1918, is not a will case. That décision like Matter of Cory rests upon the construction, of the. statute which related at that time to transfers by deed, grant, bargain, sale or gift. It construed an agreement for a consideration between partners establishing a fund and providing that upon the death of either it should pass to the survivor. The share of the deceased partner transferred, under, the agreement, by death to the survivor was held to be taxable. This point was the only one necessary for decision but a broad discussion occurs in the opinion which, if applied to transfers by will, may be interpreted as somewhat inharmonious, with the. actual decisions in the Could and Kidd cases. The opinion holds that the language of the statute, literally adopted and applied, would manifestly subject the transfer to a tax, but states that the Legislature did not intend that those resting upon a valuable and adequate consideration should be taxable. It intended, so the opinion states, to tax only such transfers as are in their nature and character instruments or sources of bounty or benefaction. Within the same year, the Appellate Division in Matter of Vanderbilt (184 App. Div. 661) applied the doctrine as expressed in the Orvis case and this court affirmed, without opinion (226 N. Y. 638). In Matter of Schmoll (230 N. Y. 559, decided in 1920 and affg. 191 App. Div. 435) the widow and children took not under a testamentary disposition but in conformity with an ante-nuptial agreement executed pursuant to a statute of one of the Swiss cantons of which they were citizens at the time of the execution of the agreement and at the time of the husband’s death in 1917. The Swiss law prohibited, during the existence of the marriage, the cancellation or alteration of such contracts by any act of the parties either testamentary or otherwise.

Not until the insertion in subdivision 4 of section 220 by chapter 430, Laws of 1922, of the provisions relating to “a valuable consideration ” and to equivalent monetary value ” for property transferred by deed, grant, bargain, sale or gift, did the Legislature, in any respect, adopt the judicial thought as expressed in Matter of Orvis. Even then, the transfer by will was left untouched. Section 220, as amended by that act, consisted of eight subdivisions. Transfers by deed, grant, bargain, sale or gift were then included within subdivision 4 and provided for the transfer of many different items, under many different conditions. Subdivision 4 ended with the clause: If any one of the foregoing transfers is made for a valuable consideration, the portion of the transfer for which the grantor or vendor receives equivalent monetary value is not taxable, but the remaining portion thereof is taxable.” The term any one of the foregoing transfers ” is ambiguous and might be deemed to include all transfers which were described not only in subdivision 4 but in each of the preceding subdivisions. If such a construction were to be given it, transfers by will or intestacy would be included, for subdivisions 1, 2 and 3 of section 220, as amended by that act, dealt with such transfers. The later amendment of section 220 by chapter 143, Laws of 1925, removed all doubt. Subdivision 4 no longer related to transfers by deed, grant, bargain, sale or gift but the provisions controlling them were inserted in subdivision 2. The last clause in subdivision 2 is the same as in old subdivision 4 with one exception of vital importance. The expression, “ any one of the foregoing transfers,” is changed to “ any one of the transfers mentioned in this subdivision,” thus, without possibility of ambiguity, limiting the class to transfers by deed, grant, bargain, sale or gift and excluding transfers by will or intestacy. The taxing power includes the right of selection and this right is unrestrained provided all persons in the same situation are treated alike and the tax is imposed equally upon all property of the class to which it belongs. (People ex rel. Hatch v. Reardon, 184 N. Y. 431, 445.) Transfer by will, therefore, remains subject to the rule formulated in cases like Gould’s and Kidd’s wherein a will rather than a deed, grant, bargain, sale or gift was necessarily involved. Transfer by will or intestacy likewise is controlled by the legislative direction as expressed in subdivision 1 of the present statute. Whatever confusion may have existed among the decisions rendered prior to the enactment of chapter 143, Laws of 1925, has been cleared by the explicit rule created by this statute. It must now constitute our sole guide.

Did the interests of Mr. Howell’s widow and of the adopted son result from a contract or from an instrument testamentary in character? If they accrued under a deed, grant, bargain or sale to take effect after the death of the grantor or vendor and if equivalent monetary value were given therefor, the transfer is free from the imposition of a tax. If, on the other hand, they passed by will, the tax was properly imposed. This would be true even on the assumption that the separation agreement is supported by adequate consideration. We cannot doubt that the transfer was by will. In its essence, this case does not differ from the principle in Matter of Kidd. It is true that this testator, unlike Kidd, discharged the obligations of his agreement, but, if he had refused or neglected to observe them, equity would have enforced them. Like Kidd, he did not contract to convey; he contracted to make a will in favor of his wife and adopted son. These two cases are similar in the element of uncertainty. Neither recognized the existence of any specific debt. Each agreed to devise or bequeath by will a proportion of his estate, provided he possessed one. Each was free, in the absence of fraud, to consume his entire substance in living expenses or by speculation. Howell’s contract to make a will transferring his property by such an instrument has been faithfully kept. The transfer was by the method defined in subdivision 1 of section 220 and is subject to taxation in pursuance of its provisions.

The order of the Appellate Division should be reversed and that of the Surrogate’s Court affirmed, with costs to the appellant in the Appellate Division and in this court payable out of the estate.

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

Ordered accordingly.


author: Cardozo, Ch. J.

text:
    Pearl H. Marrow, Respondent, v. Esther Moskowitz et al., as Executors of Fannie Manheimer, Deceased, Appellants.
    (Submitted November 18, 1930;
    decided January 6, 1931.)

      Edward C. Weinrib and Benjamin Seligman for appellants.
    Plaintiff cannot invoke subdivision 3 of section 249 of the Banking Law providing that the form of a joint account is conclusive evidence on the death of one of the depositors, when the account is not in statutory joint form but is in the sole name of the deceased depositor. The plaintiff’s evidence does not make out a cause of action. (Moskowitz v. Marrow, 251 N. Y. 380; Newhouse v. Harrinck, 229 App. Div. 392.) The defendants were entitled to show that defendant’s testatrix was old, blind and ill, and intended only to create a joint account for her convenience. The court erred in excluding all of defendants’ evidence. (Kelly v. Beers, 194 N. Y. 49; Moskowitz v. Marrow, 251 N. Y. 380; O’Connor v. Dunnigan, 158 App. Div. 334; 213 N. Y. 676.) The evidence excluded was competent and wholly destroyed the presumption, if any, in favor of the plaintiff. (Anson v. Savings Bank, 140 N. Y. Supp. 1017; Moskowitz v. Marrow, 251 N. Y. 380.)

      Henry C. Burnstine for respondent.
    The evidence by which defendants attempted to rebut the presumption as 1o the intent of defendants’ testatrix in creating the joint account on October 3, 1923, by showing what she said, did and wrote in and after October, 1924, was properly excluded. (Kelly v. Home Sav. Bank, 103 App. Div. 141; Scheps v. Bowery Sav. Bank, 97 App. Div. 434; Tierney v. Fitzpatrick, 195 N. Y. 433; Moore v. Fingar, 131 App. Div. 399; Mabie v. Bailey, 95 N. Y. 206; Gick v. Stumpf, 204 N. Y. 413; Gorton v. Lane, 208 App. Div. 833; Matter of Humphrey, 183 N. Y. Supp. 133.) Defendants’ testatrix could not deprive plaintiff of her right and title to the fund as surviving joint tenant by changing the account to her individual name and thus taking the fund into her possession. (Matter of Klenk, 165 App. Div. 917; 214 N. Y. 715; Bruff v. Rochester Trust & Safe Deposit Co., 125 Misc. Rep. 579; 218 App. Div. 67; O’Connor v. Dunnigan, 158 App. Div. 334; 213 N. Y. 676.)
   Cardozo, Ch. J.

Defendants’ testatrix, Fannie Manheimer, opened an account in the Yorkville Bank of New York city on October 3, 1923, in the name of “ Pearl Harris or Fannie Manheimer, payable to either or survivor ” (Banking Law; Cons. Laws, ch. 2, § 249, subd. 3).

On January 19, 1925, she closed the account by withdrawing the entire fund and depositing it in a new account opened in her own name.

This action is brought by Pearl Harris, now Pearl Harris Marrow, against the executors of Mrs. Manheimer to establish as to the joint account a title by survivor-ship, and to recover to her own use the moneys withdrawn therefrom.

This court in Moskowitz v. Marrow (251 N. Y. 380) determined the interests of the same parties in other bank accounts opened in a like form. The opinions at the Appellate Division suggest some confusion of thought as to the effect of our ruling, and hence for greater certainty we state it again.

When a bank account is opened in the form prescribed by statute (Banking Law, § 249, subd. 3), a presumption at once arises that the interest of the depositors is that of joint tenants. Upon the death of one of the depositors, this presumption becomes conclusive in favor of the survivor in respect of any moneys then left in the account. It continues to be a mere presumption in respect of any moneys previously withdrawn.

The moneys now in controversy were no longer in the account at the death of Mrs. Manheimer. They had been taken out during her life. The withdrawal did not destroy the joint tenancy or the title of the survivor, if a joint tenancy had been created. It did, however, open the door to competent evidence, if any was available, that the tenancy created at the opening of the account was in truth something different from the tenancy defined by the presumption. It had no other force.

The defendants offered evidence in an attempt to neutralize the presumption, but what was offered was properly rejected as being incompetent against the plaintiff. The evidence consisted of statements made by Mrs. Manheimer to nurses and others in the absence of the plaintiff after the account had been established. Such hearsay declarations were unavailing to divest a title, or to shatter the presumption that a title was intended (Moskowitz v. Marrow, supra, at p. 400; Tierney v. Fitzpatrick, 195 N. Y. 433, 434, 435; Mabie v. Bailey, 95 N. Y. 206, 211).

The fact that Mrs. Manheimer was blind and helpless would indeed have been a corroborating circumstance if evidence had been offered that by the agreement of the depositors the tenancy in its inception did not accord with the presumption. In the absence of other evidence, her disabilities were without significance. A corroborating circumstance is worthless when there is nothing to corroborate.

The judgment should be affirmed with costs.

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

Judgment affirmed.