text:
    In the Matter of the Transit Commission, Respondent, and City of New York, Intervener, Respondent, against Long Island Rail Road Company et al., Appellants.
    Argued January 19, 1943;
    decided October 14, 1943.

      Martin Conboy, Jacob Aronson and Jesse G. Millard for appellants.
    The 1920 order (1) was mandatory; (2) fixed minimum fares to be charged; (3) was based upon findings which are still effective; (4) continued in force until modified; and (5) was subject to modification, was modified and, as modified, was outstanding on January 21,1942, when it was again modified by the order in Ex Parte 148. (U. S. Code, tit. 49, § 13, subd. [4] ; New York v. United States, 257 U. S. 591; U. S. Code, tit. 49, § 15, subd. [2], § 16, subd. [6]; Transit Comm. v. Long Island R. R. Co., 272 N. Y. 27; Transit Comm. v. Long Island R. R. Co., 250 App. Div. 448, 274 N. Y. 582.) When appellants availed themselves of the 1942 order to increase interstate fares, they were compelled to make corresponding increases in New York intrastate fares. (U. S. Code, tit. 49, § 16, subd. [6].) The 1942 order in Ex Parte 148 represents a legitimate exercise by the Interstate Commerce Commission of its power to modify outstanding orders, and was intended by the Commission to modify its 1920 order so as to prescribe increased intrastate fares in the State of New York. (Arizona Grocery Co. v. A. T. & S. F. Ry. Co., 284 U. S. 370; Prentis v. Atlantic Coast Line Co., 211 U. S. 210; Algoma Coal & Coke Co. v. United States, 11 F. Supp. 487; Illinois Commerce Comm. v. Thomson, 63 S. Ct. 41.) The recitals in the preamble or opening paragraph of the order in Ex Parte 148 create no ambiguity calling for construction of the order in favor of the Transit Commission and against the appellant railroads.

      Daniel W. Knowlton and J. Stanley Payne for Interstate Commerce Commission, amicus curiae.

    The order of January 21, 1942, in Ex Parte 148, in connection with an outstanding and effective section thirteen order, required an increase of ten per cent in the intrastate standard fares in New York. (United States v. Louisiana, 290 U. S. 70; Rates, Fares and Charges of N. Y. C. R. R. Co., 59 I. C. C. 290; New York v. United States, 257 U. S. 591; Railroad Comm. of Wisconsin v. C., B. & Q. R. R. Co., 257 U. S. 563; Wisconsin Passenger Fares, 59 I. C. C. 391; Illinois Commerce Comm. v. Thomson, 318 U. S. 675; Louisiana Pub. Serv. Comm. v. Texas & N. O. R. R. Co., 284 U. S. 125; United States v. Louisiana, 290 U. S. 70; Intrastate Rates within Illinois, 59 I. C. C. 350; Passenger Fares of Hudson & Manhattan R. R. Co., 227 I. C. C. 741.)

      George E. Stover, Philip Hodes and Harry Scheiner for Transit Commission, respondent.
    The claim that the intrastate rates in question have been increased by the Interstate Commerce Commission is unsubstantiated. (Railroad Comm. of Wisconsin v. C., B. & Q. R. R. Co., 257 U. S. 563; New York v. United States, 257 U. S. 591; Transit Comm. v. Long Island R. R. Co., 248 App. Div. 749, 272 N. Y. 27; American Express Co. v. South Dakota, 244 U. S. 617; U. S. Code, tit. 49, § 13, subds. [3], [4]; Illinois Cent. R. R. Co. v. Public Utilities Comm., 245 U. S. 493; Arkansas Railroad Comm. v. Chicago, R. I. & Pac. R. R. Co., 274 U. S. 597.) The Court of Appeals has jurisdiction of this proceeding and full power to decide all questions arising in it, including the question raised as a defense. (Oklahoma v. Ray, 7 F. Supp. 417; Louisville & Nashville R. R. Co. v. Mottley, 211 U. S. 149; Lambert Run Coal Co. v. Baltimore & Ohio R. R. Co., 258 U. S. 377; Venner v. Michigan Cent. R. R. Co., 271 U. S. 127; Southern Pac. Co. v. City of Willow Glen, 49 F. 2d 1005; Village of Mantorville v. Chicago, Great Western R. R. Co., 8 F. Supp. 791; People v. Long Island R. R. Co., 113 Misc. 700, 195 App, Div. 897.) The order in Ex Parte 148 is impossible of being construed to require increases in New York State rates. (Railroad Comm. of Wisconsin v. C., B. & Q. R. R. Co., 257 U. S. 563; Brimstone R. R. & Canal Co. v. United States, 276 U. S. 104; Texas v. Eastern Texas R. R. Co., 258 U. S. 204; Louisville & Nashville R. R. Co. v. Sloss-Sheffield Co., 269 U. S. 217; Arkansas R. R. Comm. v. Chicago, R. I. & P. R. R. Co., 274 U. S. 597; Georgia Pub. Serv. Comm. v. United States, 283 U. S. 765.)

      William C. Chanler, Corporation Counsel, and Ignatius M. Wilkinson, successor Corporation Counsel (Herman Horowitz and Murray Sendler of counsel), for City of New York, intervener, respondent.
    The courts below correctly construed the Interstate Commerce Commission’s passenger fare order of January 21,1942, in Ex Parte 148, as inoperative upon intrastate fares, and correctly rejected a construction of it in derogation of the authority of the State of New York. (Florida v. United States, 282 U. S. 194; United States v. Louisiana, 290 U. S. 70; Columbia Broadcasting System, Inc. v. United States, 316 U. S. 407; United States v. Los Angeles & S. L. R. R. Co., 273 U. S. 299; Transit Comm. v. Long Island R. R. Co., 248 App. Div. 749, 272 N. Y. 27; Matter of Public Nat. Bank of New York, 278 U. S. 101.) Appellants’ construction of the passenger fare order of January-21,1942, as one directly requiring change of intrastate fares, imputes unconstitutional and void action to the Interstate Commerce Commission, and is therefore to be rejected. (Federal Power Comm. v. Natural Gas Pipeline Co., 315 U. S. 575; Railroad Comm. of Wisconsin v. C., B. & Q. R. R. Co., 257 U. S. 563; Arkansas Railroad Comm. v. Chicago, R. I. & Pac. R. R. Co., 274 U. S. 597; Georgia Pub. Serv. Comm. v. United States, 283 U. S. 765; Board of Railroad Commrs. v. Great Northern Ry. Co., 281 U. S. 412; Atchison, T. & S. F. Ry. Co. v. United States, 284 U. S. 248; Minnesota Rate Cases, 230 U. S. 352; Houston, E. & W. T. Ry. Co. v. United States, 234 U. S. 342.) The order of January 21, 1942, is obscure and inapplicable to intrastate fares. (Illinois Commerce Comm. v. Thomson, 318 U. S. 675.) Eesulting from Ex parte 148, a proceeding which the Interstate Commerce Commission “ limited because of our jurisdiction ” to interstate commerce, the order of January 21, 1942, could not have required a change of intrastate fares. The 1920 order was not supported by findings of discrimination between persons or places. (New York v. United States, 257 U. S. 591.)
   Per Curiam.

This case presents questions as to the construction of an order of the Interstate Commerce Commission entered January 21,1942, in a proceeding entitled Ex Parte 148.

In 1920, the Commission authorized a general increase of twenty percent in passenger fares with the result that the standard interstate fare became three and six-tenths cents a mile. A number of carriers thereupon brought proceedings. before the Commission under section 13, subdivision (4), of the Interstate Commerce Act (U. S. Code, tit. 49, ch. 1) for orders requiring a twenty percent increase in intrastate rates and such ■ increase was ordered and sustained. (See Railroad Commission of Wisconsin v. C. B. & Q. R. R. Co., 257 U. S. 563, and New York v. United States, 257 U. S. 591.)

In 1936, the Commission reduced standard pullman fares to three cents a mile and coach fares to two cents a mile. This 1936 order of the Commission modified provisions of outstanding section 13 orders to the extent necessary to nerm.it the reduced fares to become effective.

The order made in Ex Parte 148, on January 21,1942, authorized a general ten percent increase in passenger fares. It pro-' vides that “ all outstanding orders, as amended, of the Commission, authorizing or prescribing interstate and intrastate fares * * * are hereby, modified, effective concurrently with the establishment of the increased fares herein approved, only to the extent necessary to permit the increase herein authorized to be added to the interstate and intrastate fares approved or prescribed in * * * said outstanding orders. ”

The scope and meaning of these provisions of the 1942 order are obscure (Illinois Commerce Comm. v. Thomson, 318 U. S. 675). In view of this difficulty, the Commission at our request ‘ has favored us with a statement of its views upon the issue here presented, viz.: Is the 1942 increase mandatory in respect of New York intrastate fares that are covered by prior outstanding section 13 orders 1 Through its brief amicus curiae the Commission says: “It is hardly open to dispute that an increase of 10% in the interstate fares without a corresponding increase intrastate in New York would disrupt the parity which had existed since 1920 and engender discrimination of the precise nature which the 1920 order forbids. So far as interstate fares were concerned, the Ex Parte 148 order was not mandatory. The carriers themselves had applied for authority to increase their fares, and it was not necessary for the Commission to order them to do so. But if they availed themselves of the authority granted by the order to increase their interstate fares, they were bound, in order to avoid the discrimination against interstate commerce forbidden in the outstanding section 13 orders, to make a like increase in their intrastate fares. It follows that when the carriers increased their interstate fares 10%, effective February 10, 1942, under the Ex Parte 148 authorization, they were required to make a like increase in their New York intrastate fares. ”

In the face of this expression by the Commission, we see no room for doubting that its 1942 order was intended to be an exercise of its constitutional power to prescribe intrastate rates.

The orders should be reversed and the petition dismissed, without costs.

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

Orders reversed, etc.


source: Caselaw Access Project

author: Lehman, Ch. J. Lewis, J.

license: Public Domain

text:
    In the Matter of Noah Rotwein, Appellant; Abram Goodman, as a Justice of the Municipal Court of the City of New York, Respondent.
    Argued April 6, 1943;
    decided October 14, 1943.

      Robert H. Elder for appellant.
    Nobody can commit criminal contempt of court by accident, but only when he intends to do so. (Judiciary Law, § 750, subd. 1; People ex rel. Munsell v. Court of Oyer & Terminer, 101 N. Y. 245; People ex rel. Supreme Court v. Albertson, 242 App. Div. 450; People ex rel. Bernstein v. LaFetra, 171 App. Div. 269; People v. Freer, 1 Caines, 485, 518; People v. Few, 2 Johns. 290; Matter of Yates, 4 Johns. 317; Yates v. People, 6 Johns. 337; Matter of Rudd [Hazard], 266 N. Y. 302; People ex rel. Chanler v. Newburger, 98 App. Div. 92.) There is no due process of law unless the judge be free from all bias and partiality. (People v. Naimark, 154 App. Div. 760; Inland Steel Co. v. National Labor Rel. Board, 109 F. 2d 9; U. S. Constitution, Amdt. XIV, § 1; Tumey v. Ohio, 273 U. S. 510; Jordan v. Massachusetts, 225 U. S., 167; Oakley v. Aspinwall, 3 N. Y. 547; Goldman Plumbing & Heating Corp. v. Nesbit, 244 App. Div. 311.) The facts set forth in the mandate are not sufficient in law to constitute contempt under subdivision 1 of section 750 of the Judiciary Law. (Penal Law, § 600, subd. 1; People ex rel. Barnes v. Court of Sessions, 147 N. Y. 290; Briddon v. Briddon, 229 N. Y. 452; Matter of Waldman v. Churchill, 262 N. Y. 247; Matter of Clay, 282 N. Y. 140.) It is not contempt of court to urge disqualification of a judge because of bias, although such bias, if it exists, reflects upon the integrity of the judge. A motion to disqualify on the ground of bias is contemptuous only when made in a manner otherwise contemptuous. (Tjosevig v. United States, 255 F. 5; Webb v. Superior Court, 28 Cal. App. 391; Thomas v. People, 14 Col. 254; Matter of Cottingham, 88 Col. 335; State v. Simone, 154 La. 73; Matter of Curtis, 3 Minn. 274; Le Have v. State, 48 Neb. 105; People ex rel. Bernstein v. La Fetra, 171 App. Div. 269.)

      Nathaniel L. Goldstein, Attorney-General (Orrin G. Judd and George B. Rice of counsel), for respondent.
    The court had the power to punish petitioner summarily for criminal contempt of court. (Matter of Douglas v. Adel, 269 N. Y. 144.) The behavior of petitioner was contemptuous and insolent and tended to impair the respect due to the authority of the court. (Matter of Douglas v. Adel, 269 N. Y. 144; United States v. Landes, 97 F. 2d 378; Goldman Plumbing & Heating Corp. v. Nesbit, 244 App. Div. 311; Fleming v. United States, 279 P. 613; Francis v. People of Virgin Islands, 11 F. 2d 860; United States v. Landes, 97 P. 2d 378.) The statements of petitioner were irrelevant, immaterial and improper upon a motion for a new trial. (Matter of Dodge & Stevenson Mfg. Co., 77 N. Y. 101; M’Dowell v. Van Deusen, 12 Johns, 356; Truesdell v. Winne, 44 Misc. 451; People ex rel. Devery v. Jerome, 36 Misc. 256; Matter of Connolly v. Scudder, 222 App. Div. 591; Matter of Richardson, 247 N. Y. 401; American Brake Shoe & Foundry Co. v. I. R. T. Co., 6 F. Supp. 215.) The proper procedure was followed in enforcing the contempt. In a summary proceeding to punish for criminal contempt, no proof of the truth or falsity of the charges may be offered. (Judiciary Law, §§ 750, 751; Matter of Douglas v. Adel, 269 N. Y. 144; Matter of Barnes, 204 N. Y. 108; Fleming v. United States, 279 P. 613; Truesdell v. Winne, 44 Misc. 451; Matter of Dodge & Stevenson Mfg. Co., 77 N. Y. 101; People ex rel. Barnes v. Court of Sessions, 147 N. Y. 290.) The order or mandate was in proper form. (People ex rel. Barnes v. Court of Sessions, 147 N. Y. 290.)
   Lehman, Ch. J.

The appellant appeared in the Municipal Court of the City of New York as attorney for the defendant in an action entitled Family Finance Corporation against Vincent J. McHugh. After the conclusion of the trial, the trial court directed the appellant to appear in court with counsel at a hearing at a specified time a few days later to show cause why he should not be punished as and for a criminal contempt ” of court. At the close of the hearing the trial court adjudged that statements made by the appellant in the “• immediate view, presence and hearing of this court tended to impair the respect due to its authority and constituted a criminal contempt of this court, and that said Noah Rotwein pay a fine of $250.00 within five days after service upon him of a copy of this order, certified, with notice of entry, and in default of the payment of said sum as a fine, said Noah Botwein be committed to the common jail of the County of New York and there be imprisoned until the same be paid or until the period of ten days from the beginning of said confinement shall have expired; and that a commitment issue accordingly.”

The Judiciary Law 61 enumerates the acts which constitute criminal contempt and prescribes the procedure for punishing and the nature and extent of the punishment.” (Matter of Douglas v. Adel, 269 N. Y. 144, 146.) It provides that a court of record has power to punish for a criminal contempt, a person guilty of any of the following acts, and no others: 1. Disorderly, contemptuous, or insolent behavior, committed during its sitting, in its immediate view and presence, directly tending to interrupt its proceedings, or to impair the respect due to its authority. 2. * * *.” (§ 750.) “ Such a contempt, committed in the immediate view and presence of the court, may be punished summarily * * *.” (§ 751.) Where a person is committed for contempt as prescribed in section 751, “ the particular circumstances of his offense must be set forth in the mandate of commitment.” (§ 752.)

We have said that if the acts constituting a criminal contempt in the immediate view and presence of the court are seen or heard by the presiding judge so that he can assert of his own knowledge the facts constituting the contempt in the mandate of commitment * * * no proof need be given. The knowledge of the judge takes the place of proof and his recital in the mandate of commitment of the facts upon which the adjudication of contempt is based is sufficient.” (Matter of Douglas v. Adel, supra, at pp. 146, 147.) Since in the case now under review the statements of counsel which it is said constitute a criminal contempt were addressed to the judge presiding in a judicial proceeding, and Avere heard by him, he refused to take any proof but asserted‘‘ of his own knoAvledge the facts constituting the contempt in the mandate of commitment.” The fact that the appellant made the statements as asserted in the mandate is not challenged by the appellant and we assume is not open to challenge. His challenge is directed to the sufficiency of the asserted facts to constitute a criminal contempt. His petition for a review of the mandate of commitment in accordance with the procedure approved by this court in Matter of Douglas v. Adel (supra) has been dismissed on the merits by the court at Special Term and the order of Special Term has been affirmed by the Appellate Division, one justice dissenting.

The “ particular circumstances of his offense ” as set forth in the mandate are that: “ On April 30, 1942, at about 11 a. m., at Trial Term, Part 17, of this Court, in the trial of an action then pending in the Municipal Court of the City of New York, Borough of Manhattan, Second District, entitled Family Finance Corporation, plaintiff, against Vincent J. McHugh, defendant, Noah Rotwein, attorney for the defendant in said action, at the conclusion of the trial of said action, and after the rendition of the decision by the Court sitting without a jury, made a motion to set aside the verdict as ¡against the weight of evidence and moved for a new trial, in the course of which said Nóah Rotwein stated in the immediate view, presence and hearing of the Court and all attorneys, litigants and other persons then present in said courtroom, as reasons for said motion: * Reason No. 1. I tried one case before your Honor several months ago involving a finance company. I don’t remember the name of the case. My adversary, however, was a Mr. Melvin Howard Osterman. During the course of the trial your Honor made certain off the record remarks which indicated your Honor knew about the case before it came on before him. Your Honor at that time was sitting in Central Non-jury, in calendar part, and your Honor selected that case out of order and had the case tried before him, whereas ypur Honor sent other cases out to other parts, and made certain off the record remarks about me which indicated your Honor knew the case was coming up before him.’ Said Noah Rotwein further stated in the immediate view, presence and hearing of the Court, the following: I think perhaps unwittingly the Court, possibly by virtue of a prior connection as attorney for a finance company, perhaps unwittingly the Court tends to discount all defenses raised by borrowers from finance companies. I think, in view of the fact, I think it was improper for the Court to hear this case, and I move for a new trial on the basis of those statements, with all due respect to the Court.’ ”

It cannot be doubted that a mandate of commitment for the smnmary punishment of a person charged with having committed an act constituting a criminal contempt is insufficient unless it contains a statement of ‘ ‘ the particular circumstances of his offense,” based upon proof or upon knowledge of the presiding judge, and unless such offense constitutes a contempt within the definition of the Judiciary Law. “ If the particular circumstances of the offense were not required to be set forth, there would be nothing that the accused could have reviewed, or that he could interpose as a defense to a subsequent conviction for the same act. If the court saw fit to call his act, no matter what it might be, a criminal contempt, that determination would of necessity be final, even though the act of the accused consisted in the putting on of his hat as he was going out of the courtroom door, and failed to come within any of the provisions of the Code constituting a contempt of the court.” (People ex rel. Barnes v. Court of Sessions, 147 N. Y. 290, 297.) Here an attorney has been committed for statements made by him in court which may be construed as a charge that the Trial Judge is so biased in favor of finance companies and against borrowers from such companies that he cannot render an impartial decision, and should not sit as a judge, in an action brought by a ■finance company where a borrower interposed a defense. The statements were made in connection with a motion to set aside a decision of the Trial Judge. The mandate does not specify that the statement was made in an insolent tone or in disrespectful manner and there is neither proof nor assertion that the attorney did not make the statements in good faith for the honest purpose of protecting what he deemed the interests of his client.

It is shown by the stenographer’s minutes, and is not disputed, that the Trial Judge refused to take proof intended to establish justification for the statement of counsel, or in regard to any other matter. The proceedings to review the commitment were dismissed at Special Term on the ground that “ the court correctly refused to permit petitioner an opportunity to prove the truth of the charges made by him, since, even if they were true, that would not excuse petitioner’s utterance of them in open court in connection with a motion for a new trial in the case which petitioner had tried before respondent. If the latter was guilty of the charge that he had acted improperly in connection with a previous case tried by petitioner before him several months earlier, petitioner’s proper remedy was to make complaints to the proper officers, so that proceedings for respondent’s removal might be instituted (see People ex rel. Barnes v. Court of Sessions, 147 N. Y. 290, 294).” Doubtless a judge conscious of his rectitude and convinced of his judicial fairness would deeply resent such statements of counsel, and such statements tend to diminish respect for the court, even though those who know the judge might' harbor no doubt that they were made falsely and without possible justification. An attorney who makes such statements falsely and without sufficient justification or for any purpose other than the protection of the interests of his client, is undoubtedly guilty of unprofessional conduct, and we assume is guilty of a criminal contempt. Here the mandate does not conclusively show such facts. However sure we may be of the complete integrity of the trial judge, the question still remains whether the ££ particular circumstances of his [the attorney’s] offense * * *' set forth in the mandate of commitment ” constitute ££ disorderly, contemptuous or insolent behavior ” within the statutory definition of a criminal contempt, though there is neither proof nor finding that the statements were untrue or were made in disrespectful or insolent manner or in bad faith.

" Punishment for a criminal contempt is a drastic remedy for willful wrong.” (Matter of Spector v. Allen, 281 N. Y. 251, at page 259.) "Intent to defy the dignity and authority of the court * * * is a necessary element of a criminal contempt. ” (People ex rel. Bernstein v. La Fetra, 171 App. Div. 269, 275, affd. 219 N. Y. 591.) If the statements by the attorney which reflected upon the Trial Judge constitute sufficient ground for an application to the Judge to set aside his decision, then certainly the appellant would have been in duty bound for the protection of the interests of his client to state those reasons upon the record, unless the attorney knew that the statements were false or, at least, unless he made the statements recklessly without reasonable ground to believe that they were true. The respondent makes no contention that if the statements were relevant, the denial of the trial court of opportunity to present proof of justification for the statements would not constitute error requiring the court to annul and set aside the mandate of commitment. Coneededly the mandate can he sustained, if at all, only upon the ground that even if the statements were true they would furnish no legal ground for an application made to the Judge to set aside and vacate his decision.

Actual bias of a judge is not a ground for disqualification under section 15 of the Judiciary Law. We assume that the statement of counsel to the Trial Judge would not constitute a sufficient ground to disqualify the Trial Judge as matter of law and that the facts alleged even if true would not invalidate as matter of law the decision of the Judge. (See Wilcox v. Supreme Council of Royal Arcanum, 210 N. Y. 370, 380; Matter of Dodge and Stevenson Mfg. Co., 77 N. Y. 101, 112, 113.) Doubtless an inference of willful intent to defy the dignity and authority of the court is at times justified where irrelevant statements are made by counsel which tend to cast doubt upon the integrity and fairness of the trial judge.' (Matter of Bowles, 164 Md. 318; Fleming v. United States, 279 F. 613.) The irrelevance of the statement is not, however, conclusive proof of an intent to reflect upon the honor and integrity of the judge. (Tjosevig v. United States, 255 F. 5.) Even if the statement is irrelevant, the question whether the attorney has been guilty of reckless disregard of truth or has made the statements complained of with intent to reflect upon the honor and integrity of the judge, is ordinarily one of fact. A statement which might impair respect for the judge can hardly constitute “ disorderly, contemptuous or insolent behavior ” within the meaning of the statute, if it is made by the attorney in good faith to protect the interests of his client, and in the honest belief that it is relevant, and without reckless disregard of the truth or intent “ to impair the respect due to ” the court. In this case actual bias of the Trial Judge may not be legal ground for his disqualification; nevertheless perhaps it might be ground for setting aside his decision if the record of the trial indicates that the decision of the Trial Judge is based upon bias, rather than upon an impartial consideration of the evidence. (See Sherk v. Catena, 235 App. Div. 686.) An application to remove the Judge for misconduct would be of little if any benefit to a litigant, even assuming that the attorney intended to charge that the Trial Judge not only was biased but was guilty of conscious wrong. Before the Trial Judge could punish the attorney for contempt of court, he was bound to afford an opportunity to the attorney to present evidence which might indicate the attorney’s good faith or which might furnish justification for his statements. Then the facts constituting the necessary elements of the offense as found by the Trial Judge upon such evidence or as asserted by the Trial Judge of his own knowledge, must be set forth in the mandate. Without that there is “ nothing which the accused could have reviewed.”

The order of the Special Term and that of the Appellate Division should be reversed, without costs, and the mandate annulled, but without prejudice to any proceeding that may hereafter be initiated and prosecuted in accordance with this opinion.

Lewis, J.

(dissenting). My dissent from the decision about to be made rests upon remarks, recited in the mandate of commitment, made by the appellant when, at the close of all the evidence and in support of a renewal of his prior motion requesting the Trial Justice to disqualify himself, the appellant charged the Trial Justice with misconduct, not in connection with the case then on trial but in a different case tried “ several months ” previously, the title of which he did not recall. As I view the record in the present proceeding it appears that the appellant, in the presence of the court, made insolent statements which were irrelevant to the issues then being tried and which tended to cast doubt upon the integrity and fairness of the' Trial Justice. Those statements were of such a character as to dictate the inference of an intent by the appellant to impair the respect due to the authority of the court.

Lotjghran, Rippey and Desmond, JJ., concur with Lehman, Ch. J.; Lewis, J., dissents, in opinion in which Conway, J., concurs.

Orders reversed, etc.

       The official report erroneously states that the order affirmed is reported at 172 App. Div. 954.


author: Thacher, J.

text:
    City Bank Farmers Trust Company et al., as Trustees, Respondents, v. Eugene T. Cannon et al., Defendants, and William B. Levet, as Successor Guardian ad Litem, for Charles A. Cannon, Jr., et al., Infants, Defendants-Appellants.
    Argued June 7, 1943;
    decided October 21, 1943.

      William B. Level, guardian ad litem, and S. James Robbins for appellants.
    There was no such acquiescence, consent or ratification by the donor and life beneficiary of the trust, as to constitute a waiver of the trustee’s divided loyalty and breach of duty. (Wendt v. Fischer, 243 N. Y. 439; Adair v. Brimmer, 74 N. Y. 539; Matter of Madura v. City of New York, 238 N. Y. 214.) The Appellate Division was correct in holding that the circumstances of the affiliation were such that it placed the trustee in a position of divided loyalty as a matter of law. (Meinhard v. Salmon, 249 N. Y. 458; Matter of Stone, 138 Ohio St. 293; Matter of Junkersfeld, 244 App. Div. 260; Munson v. Syracuse, Geneva & Corning R. R. Co., 103 N. Y. 58; Cox v. Stokes, 156 N. Y. 491; Matter of Lagemann, 178 Misc. 352.) There was error of law in disregarding the trustee’s duty of full disclosure and other requisites of estoppel and overlooking the absence of proof of compliance therewith by the trustee. (Adair v. Brimmer, 74 N. Y. 539; Wendt v. Fischer, 243 N. Y. 439; Matter of Junkersfeld, 244 App. Div. 260.) In holding that in this case it was not incumbent upon the trustee to advise the cestui que trust how a court of equity would treat the facts of divided loyalty, the Appellate Division committed error of law. (Adair v. Brimmer, 74 N. Y. 539; Matter of Frame, 245 App. Div. 675; Matter of Young, 249 App. Div. 495, 274 N. Y. 543; Pyle v. Pyle, 137 App. Div. 568, 199 N. Y. 538.) The courts below committed error of law in finding that the donor had full knowledge of the facts and of her legal rights because there was no evidence to support such findings. (Matter of Long Island Loan & Trust Co., 92 App. Div. 1, 179 N. Y. 520; Smith v. Howlett, 29 App. Div. 182; Matter of Young, 249 App. Div. 495, 274 N. Y. 543; Matter of Stone, 138 Ohio St. 293.) In holding that the trustee acceded to the wishes of the donor in retaining the bank stock, the court overlooked the total absence of evidence sustaining such contention by the trustee. (Newman v. Dore, 275 N. Y. 371; Lawrence v. First Nat. Bank, 266 Mich. 199.) The courts below improperly held that the donor had ratified the breach of trust merely by executing the amendment to the trust. (Adair v. Brimmer, 74 N. Y. 539.)

      C. Alexander Capron, Charles Angulo, Bichard J. Turk, Jr.,' and William A. Green for respondents.
    The court below correctly held that in retaining the trust’s shares of the National ■ City Bank, the trust company did not commit a breach of trust, because such retention was with the approval and in accordance , with the wishes of the settlor, who had full knowledge of the , facts and full control of the trust. (Central Hanover Bank & Trust Co. v. Russell, 290 N. Y. 593; Lawrence v. First Nat. Bank & Trust Co., 266 Mich. 199; Van Cott v. Prentice, 104 N. Y. 45; Merts v. Guaranty Trust Co., 247 N. Y. 137; Giles D. M. Co. v.
      Klauder-Weldon D. M. Co., 233 N. Y. 470; Ungrich v. Ungrich, 131 App. Div. 24.) Although control may still be lodged in the donor of a trust, the trust agreement is valid so long as it is not revoked and is effectual to transfer the trust property. (Van Cott v. Prentice, 104 N. Y. 45; Robb v. Washington & Jefferson College, 185 N. Y. 485; Von Hesse v. MacKaye, 136 N. Y. 114; Schenectady Trust Co. v. Emmons, 261 App. Div. 154, 286 N. Y. 626.) It is unsound to say that, if a trust acquires an interest in stock of the corporate trustee, such trustee is, as a matter of law and without proof of other facts, placed in a position of divided loyalty, and commits a breach of trust if it continues to hold such shares. (Beach v. Cooke, 28 N. Y. 508; Reich v. Cochran, 196 App. Div. 248, 236 N. Y. 576, 265 U. S. 574; Schintzuis v. Lackawanna Steel Co., 224 N. Y. 226; People ex rel. Sweet v. Lyman, 157 N. Y 368; Ward v. Hasbrouck, 169 N. Y. 407; Hirsch v. New England Navigation Co., 200 N. Y. 263; Wendt v. Fischer, 243 N. Y. 439; Matter of Riker, 124 N. J. Eq. 228, 125 N. J. Eq. 349; Matter of Paterson Nat. Bank, 125 N. J. Eq. 73, 127 N. J. Eq. 362; Matter of Greenawalt, 343 Penn. St. 413; Matter of O’Brien, 18 D. & C. [Penn.] 501; Young v. Hood, 209 N. C. 801; Harris v. Citizens Bank, 172 Va. 111; Ellinger v. Brooklyn Trust Co., 248 App. Div. 897.)
   Thacher, J.

The action was brought by City Bank Farmers Trust Company and two individuals, as trustees, under a deed of trust for the judicial approval and settlement of their accounts. The only questions presented on this appeal were raised by the guardian ad litem of the infant defendants inter- • ested in the trust who sought to surcharge the corporate trustee for loss on investments in National City Bank stock incurred after the Bank’s affiliation with the trustee. None of the other defendants has objected to the accounts.

On August 5*, 1926, Mary E. Cannon as donor executed and delivered to City Bank Farmers Trust Company, then known as Farmers’ Loan and Trust Company, as trustee, a deed of trust and transferred to it cash and securities to be held upon the trusts set forth in the deed. Mrs. Cannon was to receive the income during her life and upon her death the trust estate was to be divided into five equal shares and each share was to be held in trust for one of five children. The donor reserved the right to deliver to the trustee additional property to be held in trust under the indenture and expressly reserved the right to amend or revoke the trust in whole or in part, at any time, from time to time and as frequently as she desired. Such amendment or revocation was required to be in writing, executed and acknowledged by the donor as a deed to real estate for record in the State of New York, and delivered to the trustee.

The trustee was expressly authorized to retain securities so long as it may seem proper ” and also to sell the same from time to time in its discretion and to invest and reinvest the proceeds thereof and any other cash at any time in its hands as trustee in such securities as to it may seem wise without being limited to investments legally authorized for trust investments.

Included in the securities delivered to the trustee under the deed of trust were 300 shares of National City Bank stock of the par value of $100. During the years 1926, 1927 and 1928 the donor requested the trustee to increase this holding of National City Bank stock through the exercise of subscription rights and to this end made additions of cash and securities to the trust to be used in partial payment for the additional shares. The result of these transactions was that prior to the affiliation of the National City Bank with the trustee there were held in the trust 3,000 shares of the Bank stock having a par value of twenty dollars a share. There is no suggestion that these investments were improper when made and both courts below have found that they were made in good faith, upon careful consideration and in the exercise of sound business judgment. It is, however, contended that by the affiliation of the Bank and the Trust Company the latter as trustee became the beneficial owner of its own stock, was thus placed in a position of divided loyalty and should be surcharged for retaining the Bank shares which were inseparable from beneficial ownership of its own shares. The affiliation was accomplished by increasing the capital stock of the Bank and exchanging the new shares for all of the shares of the Trust Company on a basis of five Bank shares for one Trust Company share. The Trust Company shares were placed in trust for all the shareholders of the Bank each of whom acquired a pro rata beneficial interest in all the shares of the Trust Company. Upon affiliation the trustee retired from the commercial banking field and this part of its business was taken over by the Bank. Reciprocally the Bank, so far as praeticable, turned over its trust business to the trustee. After affiliation the two companies had several common officers and directors. Earnings distributed as dividends by the trustee were paid to the shareholders of the Bank. This was required because under the trust in which the trustee’s shares were held, the shareholders of the Bank were the beneficial owners of the trustee’s stock. Thus there was one group of shareholders who together owned the entire beneficial interest in both companies. Grains and losses of each company affected them all alike, proportionately with the number of Bank shares each of them held. Ownership of these shares was inseparable from pro rata beneficial ownership of the trustee’s shares and no one could acquire or dispose of this beneficial interest except by acquiring or disposing of Bank shares. The trustee with the donor’s approval and active participation turned in the old certificates of stock of National City Bank held in the trust and received for them new certificates exactly like the old ones except for an additional indorsement showing that ownership of the stock carried with it a proportionate beneficial interest in the stock of the trustee. Thus the trustee acquired as an asset of the trust a substantial beneficial interest in its own stock which could only be sold by selling its shares in the National City Bank with which it was so closely affiliated. The fact is established that Mrs. Cannon not only approved the investment but insisted that the shares be retained by the trustee and as long as she lived was opposed to a sale of these shares. In this opposition she was supported by the honest judgment of the trustee. Nor is there any doubt that the donor was fully cognizant of her full powers of revocation and modification.

The standard of loyalty in trust relations does not permit a trustee to create or to occupy a position in which he has interests to serve other than the interest of the trust estate. Undivided loyalty is the supreme test, unlimited and unconfined by the bounds of classified transactions. (Meinhard v. Salmon, 249 N. Y. 458, 464.) Undivided loyalty did not exist after affiliation of the trustee and the Bank because of the ownership by the trust of the shares of the Bank. The officers of the trustee responsible for the administration of the trust were under a duty with unremitting loyalty to serve both the interest of the Trust Company and the interest of the trust estate. These were conflicting interests insofar as the trust investment in the National City Bank shares required decision whether to hold or to sell the shares in a falling market. The sale of this large number of shares might have seriously affected the interests of the Trust Company by depressing the value of these shares in a rapidly deteriorating market. Consequently the trustee had conflicting interests to serve in deciding to sell or not to sell. We do not for a moment suggest that the trustee did not act in the utmost good faith. Both courts below so found. But that is not enough for when the trustee has a selfish interest which may be served, the law does not stop to inquire whether the trustee’s action or failure to act has been unfairly influenced. It stops the inquiry when the relation is disclosed and sets aside the transaction or refuses to enforce it, and in a proper case, surcharges the trustee as for an unauthorized investment. It is only by rigid adherence to these principles that all temptation can be removed from one acting as a fiduciary to serve his own interest when in conflict with the obligations of his trust. (Dutton v. Willner, 52 N. Y. 312, 318; Munson v. Syracuse G. & C. R. R. Co., 103 N. Y. 58, 74; Meinhard v. Salmon, supra; Wendt v. Fischer, 243 N. Y. 439, 144.) The rule is designed to obliterate all divided loyalties which may creep into a fiduciary relationship and utterly to destroy their effect by making voidable any transactions in which they appear.

In continuing to act as trustee and retaining the shares, the respondent Trust Company violated the rule of undivided loyalty and is accountable for the loss on the shares unless the donor by approving the investment and its retention has estopped the guardian ad litem and the infant remaindermen he represents from objecting to the investment. A similar problem was presented in Central Hanover Bank & Trust Co. v. Russell (290 N. Y. 593 [1943]). There we held that a settlor of a trust, who retained a testamentary power of appointment over the remainder limited upon life estates of the settlor and of her sister, by joining with her sister in approving investments of funds of the trust in the stock of the corporate trustee precluded the appointees named in her will from objecting to the investments thus approved. In the Russell case, the power retained was a power to appoint by will. Here we are concerned with powers to change and to revoke the trust.

A settlor who reserves absolute power of modification and revocation possesses all the powers of ownership and for many purposes is treated as the absolute owner of the property held in trust. Thus section 145 of article 5 of the Beal Property Law provides: ‘ ‘ Where the grantor in a conveyance reserves to himself for his own benefit, an absolute power of revocation, he is to be still deemed the absolute owner of the estate conveyed, so far as the rights of creditors and purchasers are concerned.” This section of the Beal Property Law is applicable to personalty as well as realty. (Matter of Moehring, 154 N. Y. 423; Matter of Cooksey, 182 N. Y. 92.)

Similarly, the courts of this State have held that where a general power of appointment or a power to revoke the trust has been reserved by the settlor, the period of suspension of the power of alienation commences upon the expiration of the power, usually the death of the settlor, and not upon the creation of the trust. (Schenectady Trust Co. v. Emmons, 261 App. Div. 154, 160; 3rd Dept. [1941], affd. 286 N. Y. 626. See, also, Equitable Trust Co. v. Pratt, 117 Misc. 708, 714, 715 [1922], affd., on opinion below, 206 App. Div. 689.) In such cases remainder-men have no vested interests until the retained powers of the settlor are terminated, usually by death. (Bullen v. Wisconsin, 240 U. S. 625 [1916]; Saltonstall v. Treasurer & Receiver General, 256 Mass. 519 [1926]; Corliss v. Bowers, 281 U. S. 376 [1930].)

Since the settlor reserved the right to exercise all the powers of ownership insofar as the trust was concerned, we hold that her action in approving the exchange of National City Bank shares for shares carrying a beneficial interest in the shares of the corporate trustee and in opposing any sale of the new shares was an effective estoppel not only against her own objections but also against an objection by the recipients of her bounty to the acts of the trustee which she approved. The donor approved the investments and their retention in advance with full knowledge of the resulting divided loyalty and of her own power to remove the trustee or otherwise to revoke or amend the trust and do as she pleased with these shares. She was fully apprised of her legal rights and the decision in Adair v. Brimmer (74 N. Y. 539) can have no application here. In this case we are not confronted with any failure to exercise good faith and sound business judgment in retaining the investments and express no opinion upon the question of estoppel in such a case.

The judgment should be affirmed, without costs.

Lehman, Oh. J., Lohghban, Rippey, Lewis, Conway and Desmond, JJ., concur.

Judgment affirmed.


author: Desmowd, J.

text:
    John A. Blake, as Trustee in Bankruptcy of R. Weiden & Sons, Inc., Appellant, v. Frank Weiden, Respondent. (By Original Summons.) Frank Weiden, Plaintiff, v. John A. Blake, as Trustee in Bankruptcy of R. Weiden & Sons, Inc., Appellant, et al., Defendants. (By Counterclaim.)
    Argued June 8, 1943;
    decided October 21, 1943.

      Thomas L. J, Corcoran, Keith Lorens and John F. X. Finn for appellant.
    As a matter of law, a bankrupt’s debtor who is sued on his individual debt to the bankrupt cannot offset an admittedly “ undivided ” interest that said defendant has in a debt of the bankrupt to various creditors who together own the entire “ undivided ” debt,— unless either (a) all such creditors of the bankrupt consent to such offset or (b) proof is adduced of “ peculiar equities ” which warrant a departure from the general rule. (Gray v. Rollo, 18 Wall. 629; Hopkins v. Lane, 87 N. Y. 501; Burns v. Lopez, 256 N. Y. 123; Lowden v. Northwestern Nat. Bank & Trust Co., 298 U. S. 160; Frank v. Mercantile Nat. Bank, 182 N. Y. 264; Siegel v. State, 262 App. Div. 388; Hulse v. Knapp, 20 F. Supp. 137; Houghton v. Thomas,
      220 App. Div. 415, 246 N. Y. 535, 248 N. Y. 523.) Respondent’s differentiation between joint tenancies and tenancies in common is irrelevant. An undivided portion of a claim cannot be set off against an entirely different individual claim, whether the undivided portion of the one claim be a joint tenancy or a tenancy in common. It is the fact that the claim is undivided that is significant. (Gray v. Rollo, 18 Wall. 629.) Respondent’s offsets are pleaded as “ undivided ” interests, not as portions of partitioned claims. Besides, partition after bankruptcy is impossible. (Taylor v. Millard, 118 N. Y. 244; Hulse v. Knapp, 20 F. Supp. 137; Scott v. Armstrong, 146 U. S. 499; Yardley v. Philler, 167 U.S. 344.)

      Ralph Stout and Harold A. Gates for respondent.
    Defendant’s counterclaims were properly interposed; and upon the undisputed facts defendant was entitled to judgment thereon. (Barber v. Rowe, 200 App. Div. 290, 235 N. Y. 549; Gray v. Rollo, 18 Wall. 629; Jackson v. Moore, 94 App. Div. 504; Soule v. Mogg, 35 Hun, 79; American Guild v. Damon, 186 N. Y. 360; Parsons v. Nash, 8 How. Pr. 454.)
   Desmowd, J.

In 1939, R. Weiden & Sons, Inc., became a voluntary bankrupt and plaintiff qualified as its trustee. From the books of the bankrupt corporation it appeared that there was a balance of $8,103.68 owing to it on open account from defendant who was one of its stockholders and had been one of its officers from 1930 to 1938. The trustee sued defendant. The latter’s answer contained a number of counterclaims. Five of the counterclaims involved five negotiable promissory notes, each for $5,000 and each given by the corporation in 1930 to Robert Weiden, defendant’s father who died in 1937. All of the notes remain unpaid. At some time between the father’s death and the bankruptcy, defendant’s two brothers, Charles R. Weiden and Hermann J. Weiden, who were the executors of the father’s will, put on the back of each of the notes a form of indorsement, signed by the estate, by themselves as executors, and worded thus: “ Pay to the order of Charles R. Weiden, Hermann J. Weiden and Frank J. Weiden, share and share alike, as tenants in common.” Defendant is the third named indorsee. The brothers Charles and Hermann Weiden filed in the bankruptcy proceedings proofs of claim on their purported individual shares of the five notes, as indorsees. The record does not show whether those claims in bankruptcy have been allowed, or whether they were contested by the trustee. Defendant attempted in his five counterclaims to use his purported share of the five notes as a set-off against the debt for which the trustee is suing, defendant’s share of the notes, including interest, being larger in amount than the debt in suit. Whether defendant has an interest, available for such use, in the five notes, is the only question before us. The facts are undisputed. At the close of plaintiff’s case, which developed the facts as above recited, plaintiff moved to dismiss the counterclaims and each side moved for a directed verdict. Plaintiff’s motion was granted and the counterclaims dismissed. The Appellate Division modified (in effect it reversed) by denying plaintiff’s motion to dismiss the counterclaims and by directing judgment for defendant in amount sufficient to offset plaintiff’s claim.

An analysis of section 62 of the Negotiable Instruments Law will, we think, lead us to the answer to the question we have before us. That section, which is identical with section 31 of the “ Uniform Negotiable Instruments Law ” and is found on the statute books of many of our states and of England, is as follows: ‘1 The indorsement must be an indorsement of the entire instrument. An indorsement, which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.”

The indorsement, or attempted indorsement, of the five notes described in the counterclaims, did not, of course, offend against the first sentence of section 62, since the form of indorsement used applies to the whole of each note. The third sentence of the section has no relevancy to this case. The second sentence, however, does deal with indorsements like those here under scrutiny and provides that such a writing on the back of a note does not operate as a negotiation of the instrument.” The meaning of that phrase has been examined in many opinions and texts. Some of those authorities (see Martin v. Hayes, 44 N. C. 423; Conover v. Earl, 26 Iowa 167; Byles on Bills [20th ed.] p. 161; Brannan on Negotiable Instruments Law [5th ed.], pp. 426,427) say, or seem to say, that such a purported indorsement transfers to the indorsees no title at all, or at least no title on which they can sue at law. Other writers give section 62 a narrower meaning and hold that, while such an indorsement does not operate as a negotiation,” it does nevertheless convey to the indorsee not the rights of a holder in due course but a title of some kind to his share of the note or, more precisely, to a non-negotiable chose in action, on which he may sue. (Flint v. Flint, 6 Allen [88 Mass.] 34; Edgar v. Haines, 109 Ohio St. 159.) There seem to be no New York cases directly in point. Two decisions in this State (King v. King, 37 Misc. 63, affd. 73 App. Div. 547, appeal dismissed 172 N. Y. 604, and Barkley v. Muller, 164 App. Div. 351, 168 App. Div. 110) have a bearing. In the King case one of the beneficiaries of an estate took from the executor a written assignment of a one-fifth part of a note belonging to the estate. In the Barclay case there had been an indorsement to plaintiff of one half of a note. In both cases it was held that there could be no recovery, but it is to be noted that in each of those cases the transfer (indorsement or assignment) covered only a part of the note and did not, as in the present case, involve a transfer of the whole instrument in parts.

In our view, the better rule is that when there has been a purported indorsement of the whole instrument, in separate parts to two or more transferees, the purported indorsees take legal title to their several shares and may sue together, or any one or more may sue, provided all the other indorsees are brought in as parties. (In the case before us defendant did bring in the other two indorsees, alleging without contradiction that they had refused to join with him.)

We reject the view that section 62 makes such an indorsement a nullity. The language of that and other sections of the Act compel a narrower meaning. The statement in section 62 that the indorsement does not ‘ ‘ operate as a negotiation ’ ’ suggests that it is not entirely inoperative. “ An instrument is negotiated ” says section 60, “ when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof.” Beading those two sections with the references to the word “ holder ” in other parts of the Act (see §§ 2, 52, 91) makes it clear that the intent of section 62, so far as applicable here, is only to deprive the several indorsees of the special rights which the Act gives to ” holders ” of properly negotiated instruments. Section 62 does not, we decide, deprive such indorsees of the rights of ordinary assignees and the irregular indorsement may be treated as an assignment. (Kenny v. Hinds, 44 How. Pr. 7; Merchants’ Nat. Bank v. Gregg, 107 Mich. 146.) No reason appears why the misguided use of an indorsement form should put the purported indorsees entirely outside the protection of the courts. Surely there was in this case at least a constructive delivery of the note to the three beneficiaries of the estate and, that being so, the transferees would have taken title to the instrument or to the chose in action without any written words of transfer at all. (Negotiable Instruments Law, § 79; Goshen Nat. Bank v. Bingham, 118 N. Y. 349, 355; Hooker v. Eagle Bank of Rochester, 30 N. Y. 83.) The use of an unrecognized form of indorsement should leave them in no worse position.

A study of the history of, and reason for, section 62 leads to the same answer. The common law looked with disfavor upon any indorsement that did not transfer the whole instrument at one time and to one person. (Douglass v. Wilkeson, 6 Wend. 637.) Thus did the law conform to the " custom of merchants ” which was that a holder of a note could not " apportion such personal contract, for he cannot make a man liable to two actions, where by the contract he is liable but to one.” (Hawkins v. Cardy [1698], 1 Lord Raymond’s Reports 360.) The last sentence in the quoted excerpt from the Hawkins case gives us a valuable clue to such mystery as there is in section 62. The whole purpose of the restrictions there embodied was to prevent a multiplicity of suits. (See Larson v. Lybyer, 312 Ill. App. 188.) So in earlier days in New York it was the rule at law that the assignee of part of a chose in action could bring no separate action to collect his part. (King v. King, supra.) Equity, as usual, was not so circumscribed and found a way to give the assignee relief, by devising a practise of bringing in, as added parties, the co-owners of the claim. (Risley v. Phenix Bank of City of New York, 83 N. Y. 318, 329; Dickinson v. Tysen, 125 App. Div. 735.) Successive revisions of our practice statutes achieved an assimilation of the practice in suits at law to the procedures invented by equity. The result is that under our present practice a suit for money only by a partial assignee of a claim may be brought at law, provided the plaintiff bring in his co-assignees. (Porter v. Lane Construction Corp., 212 App. Div. 528, affd. 244 N. Y. 523; Grosner v. Abramson, 162 Misc. 731, 733, affd. 248 App. Div. 575; Civ. Prac. Act, § 194.) “We think * * * that the question is one of parties, and not one of jurisdictional facts.” (Crouch, J., in Porter v. Lane Construction Corp., supra, 212 App. Div. at p. 531.) This interpretation of defendant’s rights leaves undisturbed the rule of section 62 that the several indorsees do not have the rights of “ holders ” of negotiable instruments, the rule of section 79 that delivery of a negotiable instrument ■ transfers title with or without indorsement, and the rule against splitting causes of action. Defendant as co-assignee of a non-. negotiable chose in action had the right to maintain his counter-. claims so long as he brought his co-assignees into the action.

Even if the enforcement of these counterclaims did involve a ' splitting of each of the five causes of action on the separate notes, such splitting could be justified in two ways. First, the record here at least suggests that the splitting was really done by the other two purported assignees who filed separate proofs of claim in bankruptcy before this suit was brought (Gock v. Keneda, 29 Barb. 120; Jackson v. Moore, 94 App. Div. 504), and that plaintiff trustee, by acquiescence, probably waived the benefits of the rule against splitting. (See Carrington v. Crocker, 37 F. Y. 336.) Second, the rule against splitting does not forbid' the use of part of a claim as a set-off, retaining the rest for' later use. (Gordon v. Van Cott, 38 App. Div. 564; Sett v. Lange, 139 App. Div. 743.) A fair application of that exception permits defendant to use as a set-off an amount which was. equal to the claim in suit but less than his one third of the whole amount due on the notes.

Having held that defendant had legal title to, and causes of action at law on his share of the notes, we necessarily conclude. that he brings himself well within the Bankruptcy Act requirements as to set-offs, found in section 68 of that Act (IT. S. Code,, tit. 11, § 108): “ (a) In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account. shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid, (b) A set-off or. counterclaim shall not be allowed in favor of any debtor of the bankrupt which [1] is not provable against the estate and allowable under subdivision g of section 93 of this title; or [2] was purchased by or transferred to him after the filing of the petition or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent or had committed an act of bankruptcy.” Plaintiff’s and defendant’s claims are mutual and defendant’s claim is by its nature one provable in bankruptcy.

Appellant urges as an authority against this set-off, Gray v. Rollo (85 U. S. 629). In Gray v. Rollo a bankrupt insurance company held two promissory notes made jointly by Gray and another man, and was indebted on policy claims to a partnership of which Gray was a member. Gray’s partner was not a party to the notes held by the bankrupt. The opinion says that the joint ” claim of the partnership could not be set off against Gray’s individual liability to the bankrupt estate. In Gray v. Rollo (as it was in Hopkins v. Lane, 87 N. Y. 501) the word joint ” seems not to be used in the technical sense but as describing a claim against the bankrupt held by several persons who under local law were tenants in common. (See Kiersted v. West, [N. Y.] 13 Weekly Digest 106.) Gray v. Bollo, nonetheless, does not go so far as to hold that such a tenant in common may not use as a set-off his share of the claim against the bankrupt but only that he may not “ appropriate ” to himself the claim that belongs to his partners as well as to himself: “ equity will not allow him to pay his separate debt out of the joint fund. ’ ’ (Opinion, at p. 635.) No such misappropriation has been attempted by defendant here, since his separate, fractionally determined, share of the five notes was assigned to him before bankruptcy, and in his counterclaims he is alleging, and using as set-offs, only his own share, not the whole of the notes. (See discussion in Taylor v. Boot, 4 Abb. N. Y. App. 382.)

The judgment should be affirmed, with costs.

Lehman, Ch. J., Loughran, Bippey, Lewis, Conway and Thachér, JJ., concur.

Judgment affirmed.


author: Lewis, J.

text:
    Joseph Kalmanash, Respondent, v. Rosser J. Smith et al., Appellants, et al., Defendants.
    Argued May 24, 1943;
    decided October 21, 1943.

      Jackson A. Dykman, Guy G. Gabrielson, Sigourney B. Olney and Jules Eaberman for Bror Dahlberg et al., appellants.
    The fifth cause of action does not state facts sufficient to constitute a cause of action. (Gerdes v. Reynolds, 281 N. Y. 180; Lifshutz v. Adams, 285 N. Y. 180; Weinberger v. Quinn, 264 App. Div. 405; Rous v. Carlisle, 261 App. Div. 432; Oshrin v. Celanese Corp. of America, 37 N. Y. S. 2d 548, 265 App. Div. 923; Jacobson v. Brooklyn Lumber Co., 184 N. Y. 152; Walsh v. Van Ameringen-Haebler, Inc., 257 N. Y. 478; Davis v. Cohn, 260 App. Div. 624.) The allegation of “ domination and control ” incorporated by reference from paragraph 34 of the complaint is insufficient. (Oshrin v. Celanese Cory., 37 N. Y. S. 2d 548, 265 App. Div. 923; Weinberger v. Quinn, 264 App. Div. 405; O’Connor v. Virginia Passenger & Power Co., 184 N. Y. 46; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97; Venner v. N. Y. C. & H. R. R. R. Co., 160 App. Div. 127, 217 N. Y. 615; Green v. People’s Gas, Light & Coke Co., 118 Misc. 1, 206 App. Div. 647; Davis v. Cohn, 260 App. Div. 624.) The court will not pass on matters of business judgment such as compensation to be paid to officers of a corporation in the absence of facts showing bad faith, fraud, or other breach of duty. (Gamble v. Queens County Water Co., 123 N. Y. 91; Rous v. Carlisle, 261 App. Div. 432; Smith v. Baillie, N. Y. L. J., Aug. 15, 1942, p. 355.) The certification of the question “ Was the order of Special Term, in so far as it denied the motion to strike out paragraph 27 of the amended complaint, properly made? ’’means that the Appellate Division has affirmed the order of the Special Term as a matter of law and not in the exercise of discretion and presents it to the Court of Appeals. (Civ. Frac. Act, § 589, subd. 1 [a]; Cohen, Powers of the Court of Appeals, 83; Drake v. Herrman, 261 N. Y. 414; Matter of Davies, 168 N. Y. 89; Moot v. Moot, 214 N. Y. 204; Matter of People [City Eq. Fire Ins. Co.], 238 N. Y. 147.) A stockholders’ derivative action does not lie for violation of the Clayton Act either at law or in equity. (IT. S. Code, tit. 15, §§ 12-27.) A stockholder’s derivative action for treble damages does not lie either at law or in equity for violation of the Clayton Act, the remedy given under the Act having been held to be exclusive. (Meyer v. Kansas City Southern Ry. Co., 84 F. 2d 411, 299 U. S. 607; Gerli v. Silk Assn. of America, 36 F. 2d 959.) The mere acquisition by one corporation of the stock of another, even though it result in some lessening of competition, is not forbidden by the Clayton Act. (Pennsylvania R. R. Co. v. Interstate Commerce Comm., 66 F. 2d 37, 291 U. S. 651; International Shoe Co. v. Federal Trade Comm., 280 U. S. 291.) Standing alone paragraph 27 would be dismissed for insufficiency. (Diamond v. Davis, 263 App. Div. 68.)

      Fred L. Gross for The Celotex Corporation, appellant.
    The fifth cause of action does not state facts sufficient to constitute a cause of action (Weinberger v. Quinn, 264 App. Div. 405; Davis v. Cohn, 260 App. Div. 624; Oshrin v. Celanese Corp., 37 N. Y. S. 2d 548, 265 App. Div. 923; O’Connor v. Virginia Passenger & Power Co., 184 N. Y. 46; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97; Thompson v. Read, 63 Misc. 235; Petty v. Emery, 96 App. Div. 35; Booz v. Cleveland School Furniture Co., 45 App. Div. 593; Taylor v. Astor Nat. Bank, 105 Misc. 386; Wembach Corp. v. Emigrant Industrial Sav. Bank, 264 App. Div. 161.) The order of Special Term, insofar as it denied the motion to strike out paragraph 27 of the amended complaint was improper. (Society Milion Athena v. National Bank of Greece, 281 N. Y. 282; Meyer v. Kansas City Southern Ry. Co., 84 F. 2d 411, 299 U. S. 607; Gerli v. Silk Assn. of America, 36 F. 2d 959; Kolb v. Mortimer, 135 App. Div. 542.)

      Albert B. Connelly and Abraham N. Getter for Phoenix Securities Corporation et al., appellants.
    No facts are set forth in the alleged fifth cause of action sufficient to sustain a cause of action against appellants Phoenix, Mack or Groves. (Melniker v. American Title & Guaranty Co., 253 App. Div. 570; Taylor v. Astor Nat. Bank, 105 Misc. 386; Gerdes v. Reynolds, 281 N. Y. 180; Lifshutz v. Adams, 285 N. Y. 180; Weinberger v. Quinn, 264 App. Div. 405; Oshrin v. Celanese Corp., 37 N. Y. S. 2d 548, 265 App. Div. 923; Davis v. Cohn, 260 App. Div. 624; Booz v. Cleveland School Furniture Co., 45 App. Div. 593; Rous v. Carlisle, 261 App. Div. 432.)

      Guy G. Gabrielson and Albert L. Wolfe for Walter G. Baumhogger et al., appellants.
    The alleged first and fourth causes of action as against Baumhogger, Dugan and Norris are actions for damages for injuries to corporate property based on alleged breaches of fiduciary duty. (Potter v. Walker, 276 N. Y. 15; Cwerdinski v. Bent, 256 App. Div. 612, 281 N. Y. 782; Chance v. Guaranty Trust Co., 173 Misc. 754, 257 App. Div. 1006, 282 N. Y. 656; Singer v. Carlisle, 26 N. Y. S. 2d 172, affd. 261 App. Div. 897, 285 N. Y. 863; Lever v. Guaranty Trust Co., 262 App. Div. 1044, 289 N. Y. 615; Gobel, Inc. v. Hammerslough, 263 App. Div. 1, 288 N. Y. 177; Corash v. Texas Co., 264 App. Div. 292; Scott v. Allen, 264 App. Div. 424.) The amended complaint does not charge Baumhogger, Dugan and Norris, or any of them, with liability for the alleged acts of other defendants. (Lifshutz v. Adams, 285 N. Y. 180; Gerdes v. Reynolds, 281 N. Y. 180; Davis v. Cohn, 260 App. Div. 624; Coane v. American Distilling Co., N. Y. L. J. Oct. 16, 1942, p. 1048.) The amended complaint does not allege any acts of Baumhogger, Dugan and Norris within the three-year period of limitation.

      Frank Weinstein and Samuel J. Levinson for respondent.
    The fifth cause of action is legally sufficient. (Wainright & Page, Inc., v. Burr & McAuley, 272 N. Y. 130; Locke v. Pembroke, 280 N. Y. 430; Walsh v. Van Ameringen-Haebler, Inc., 257 N. Y. 478; Gerdes v. Reynolds, 281 N. Y. 180; Rogers v. Hill, 289 U. S. 582; Diamond v. Davis, 263 App. Div. 68; Gallin v. National City Bank of New York, 152 Misc. 679, 155 Misc. 880; Lonsdale v. Speyer, 249 App. Div. 133; National Citizens’ Bank v. Toplitz, 178 N. Y. 464; Bosworth v. Allen, 168 N. Y. 157; Sage v. Culver, 147 N. Y. 241.) The fifth cause of action states sufficient facts to constitute a cause of action against the Celotex Corporation. (Greene v. Wheeler, 29 F. 2d 468; City of Newburgh v. Dickey, 164 App. Div. 791; Davis v. Cohn, 260 App. Div. 624.) The allegations of domination and control are sufficiently alleged. (Frank v. Carlisle, 282 N. Y. 507; Lonsdale v. Speyer, 249 App. Div. 133; Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185.) The order of Special Term denying the motion to strike out paragraph 27 of the amended complaint was properly made. (International Shoe Co. v. Federal Trade Comm., 280 U. S. 291; Boyd v. N. Y. & H. R. R. R. Co., 220 F. 174; Hand v. Kansas City Southern Ry. Co., 55 F. 2d 712; Remington Rand, Inc., v. International Business Mach. Corp., 167 Misc. 108; Harding v. American Glucose Co., 182 Ill. 551; Dyer v. Broadway Central Bank, 130 Misc. 842; Gerseta Corp. v. Silk Assn. of America, 220 App. Div. 302; Nasmie Constr. Co. v. Quasman, 215 App. Div. 724; Gnecco v. Village of Great Neck Plaza, 263 App. Div. 828; People ex rel. Advertiser Assn. v. Gorman, 222 N. Y. 712; Matter of Davies, 168 N. Y. 89.) The causes of action alleged in the amended complaint against the appellants Baumhogger, Norris and Dugan, are not barred by the Statute of Limitations. (Salpeter v. Baur, 262 App. Div. 1035; Von Au v. Magenheimer, 126 App. Div. 257; Keller v. Levy, 40 N. Y. S. 2d 580; Hitchman Coal & Coke Co. v. Mitchell, 245 U. S. 229; Lonsdale v. Speyer, 249 App. Div. 133; Werbelovsky v. Rosen, 260 App. Div. 222; Burgess Bros Co. v. Stewart, 112 Misc. 347; Brackett v. Griswold, 112 N. Y. 454.)
   Lewis, J.

In this derivative action the plaintiff sues in behalf of himself, and others similarly situated, as a stockholder of the defendant Certain-teed Products Corporation, to which reference will be made as Certain-teed.”

It is alleged that plaintiff is the owner and holder of one hundred of the common shares of Certain-teed, the outstanding stock of which comprises 625,340 shares of common and 73,069 shares of preferred stock. The defendants include individuals who are presently, or were formerly, officers or directors of Certain-teed; an individual, Rahr, to whom an honorarium ” is alleged to have been paid by Certain-teed from its corporate funds; and two corporate defendants, Phoenix Securities Corporation and The Celotex Corporation, to which reference will be made as ‘ ‘ Phoenix ’ ’' and 6 ‘ Celotex ’ ’ respectively.

Six alleged causes of action are pleaded by the plaintiff. In the fifth cause of action, with which we are chiefly concerned upon this appeal, the corporate defendants Phoenix and Celotex, with certain individual defendants, are alleged to have caused Certain-teed to enter into improvident employment contracts with two of its officers and to make gratuitous payments to indivdual defendants from the funds of Certain-teed, which contracts and payments form the principal bases of the plaintiff’s grievance.

Our problem is one of pleading, presented by rulings upon three motions made by different groups of defendants who challenge the sufficiency of portions of the amended complaint. It will be convenient to treat the three motions in sequence and to number them accordingly.

Motion No. 1. The defendants Dahlberg, Groves, Mack, Jr., Rahr, Hartley, Hudgins, Smith, Kent, Whittemore, Phoenix and Celotex moved at Special Term under rule 106 of the Rules of Civil Practice for judgment dismissing the fifth cause of action (which, by reference, incorporates a number of paragraphs from the first cause of action) upon the ground that it does not state facts sufficient to constitute a cause of action.

Motion No. 2. The defendants Smith, Baumhogger, Dugan, Norris, Von Egloffstein, Dahlberg, Groves, Hartley, Hudgins, Kent, Winger, Whittemore, Mack, Jr., Leroy, Colpitts, Phoenix and Celotex moved under rule 103 of the Rules of Civil Practice for an order striking out paragraph 27 of the first cause of action upon the ground that the matter therein contained is irrelevant, unnecessary and impertinent and may tend to prejudice, embarrass and delay a fair trial herein.

Motion No. 3. The defendants Baumhogger, Dugan and Norris, who were designated as defendants in only the first and fourth causes of action, moved under rule 107 of the Rules of Civil Practice for judgment dismissing the amended complaint as to them, upon the ground that the causes of action therein set forth are barred by the three-year Statute of Limitations. (Civ. Prac. Act, § 49.)

Each of the three motions was denied at Special Term by orders which were affirmed at the Appellate Division, two justices dissenting in part. The appeals are here by permission of the Appellate Division upon two separate sets of certified questions.

By Motion No. 1 the movants-appellants challenge the sufficiency of the fifth cause of action which incorporates by reference certain allegations contained in the first cause of action designated in the complaint as paragraphs 1 to 13 inclusive. The incorporated paragraphs allege in substance that Certain-teed, a Maryland corporation qualified to do business in New York, is engaged in manufacturing and selling a wide variety of materials used in building construction; that the individual defendants — who are, or formerly were officers or directors, or both, of Certain-teed — are fiduciaries in their relations to Certain-teed and as such owed to the corporation and to its stockholders the duty faithfully and honestly to conduct the business of the corporation and to conserve its assets; that prior to 1937 Celotex, a Delaware corporation qualified to do business in New York, was engaged in the manufacture of building materials in competition with the products of Certain-teed; that on April 15, 1936, and until the commencement of this action the defendants Phoenix, Groves, Mack and Dahlberg either directly or through their nominees, owned substantial amounts of the stock of Celotex, and had “ working-voting control ” of that corporation and dominated the election of its board of directors, its officers and its business policy; that the defendants Groves and Mack also owned substantial amounts of the outstanding stock of Phoenix and dominated its board of directors, its officers and its management and business policy; that on May 27,1938, Celotex acquired from Phoenix or its nominees 9,946 of the preferred shares and 109,360 of the common shares of Certain-teed; that on March 1, 1939, Celotex acquired 40,000 additional common shares of Certain-teed; that prior to and on April 15, 1936, Celotex manufactured essentially one product, viz., insulation board; that its board of directors and Phoenix determined that the business of Celotex could be continued in competition with its competitors upon a profitable basis only in the event the business of Celotex was not confined to the sale of one product; that it should add to its business the sale and distribution of other building materials similar*to those manufactured and dealt in by Certain-teed; that the defendants Celotex, Phoenix, Groves, Mack and Dahlberg determined that Celotex could not expand its line of products without the construction of additional plant facilities which would involve an expenditure in excess of $9,000,000 which Celotex was not then in a position to invest; that at that time Celotex was also hindered from manufacturing and selling gypsum products by not being able to procure the raw material, viz., gypsum deposits, because all the known gypsum deposits in the United States were then owned and controlled by Certain-teed and two other companies which were competitors of Celotex ; that the prior efforts by Celotex to procure sufficient raw material necessary for the manufacture of the gypsum products required to expand its business in the gypsum field had proved unsuccessful.

The foregoing allegations are in substance those set forth in paragraphs 1 to 13 of the first cause of action which the plaintiff incorporates by reference in the fifth cause of action. The plaintiff does not, however, incorporate by reference into the fifth cause of action those succeeding paragraphs of the first cause of action, viz., paragraphs 14 et seq., which allege in substance that Celotex, a minority stockholder of Certain-teed, conspired with other defendants to cause Certain-teed to enter into certain contracts with Celotex by which Certain-teed made excess manufacturing facilities available to Celotex upon payment of agreed proportions of operating expenses; that the arrangement, which operated to the advantage of Celotex and against Certain-teed, was fraudulent because Certain-teed had no excess manufacturing facilities; that the true intent and purpose of the arrangement was to prevent Certain-teed, from competing with Celotex. It is important to note that in the fifth cause of action there is no allegation of conspiracy by any defendant designated as such therein.

In substance the fifth cause of action alleges that on May 13,1939, the corporate defendants Celotex and Phoenix and the fourteen individual defendants — all but one of whom are or formerly were directors or officers of Certain-teed —“ caused ” Certain-teed to enter into contracts .of employment with the. defendants Dahlberg and Hartley; that the contract with Dahl- ■ berg provided that he act as general advisor to Certain-teed with the right to engage in other business and that his compensation was to be separate from compensation paid to him as chairman of the board of directors or a director of Certain-teed; that under his contract of employment and its renewal Dahlberg was to receive an annual salary of $20,000, plus a sum equal to two per cent of the amount by which consolidated net earnings of Certain-teed for each fiscal year exceeded $1,000,000 (the percentage was increased from two per cent to three per cent under a renewal agreement); that during 1939 and 1940 Dahlberg was chairman of the board of directors of Certain-. teed; chairman of the board of directors of Sloane Blabon Corporation of which Certain-teed owned a majority of the stock, and president of the defendant Celotex which was a competitor of Certain-teed; that from these three corporations Dahlberg received in 1939, total compensation of $169,493.57, in 1940, $178,187.10 and in 1941, $387,387.14; that the employment contract of May 13,1939, and its renewal were not bona fide agreements but were entered into to enable Dahlberg unlawfully to procure a gift of property belonging to Certain-teed, with full knowledge, approval, connivance and consent of those defendants, other than Certain-teed named in the fifth cause of action; that the contract of May 13, 1939 and its renewal amounted to waste and spoliation of the assets of Certain-teed and should be rescinded, and that the defendants named in the fifth cause of action should be held accountable for all moneys paid to Dahlberg thereunder. As to the contract of employment entered into by Certain-teed with the defendant Hartley on May 13,1939, and renewed in May, 1941, the plaintiff alleges that under its provisions Hartley was to discharge the duties of president of Certain-teed from June 1, 1939, to May 31,1941, at an annual salary of $30,000 plus a sum equal to two per cent of the amount by which the consolidated net earnings of the corporation exceeded $1,000,000; that for the fiscal year ending December 31, 1941, Hartley received from Certain-teed under his employment contract $130,000. The plaintiff alleges that under the employment contracts entered into by Certain-teed with Dahlberg and Hartley there were paid to each of those defendants excessive bonuses which were not based upon the actual consolidated net earnings of Certain-teed but upon purported consolidated net earnings which were not in accord with sound accountancy practice; that such excessive bonuses were paid with the full knowledge and approval of the individual defendants. It is also alleged in substance that in 1939 Certain-teed, “ at the direction of Celotex, and with the approval of the individual defendants herein,” paid the defendant Whittemore, who resigned in 1939 as vice-president of Certain-teed, the sum of $55,000 as salary due him, which salary, it is alleged, 11 included ” a gift in a substantial sum and did not represent the true and actual salary earned by the defendant Whittemore. The plaintiff alleges further that on December 31, 1936, Certain-teed, “ under the direction of Phoenix, Groves, Mack and Dahlberg, and by and with the approval of the individual defendants designated in this [fifth] cause of action ” paid to the defendant Rahr $7,085 as an “ 1 honorarium for the year 1937,’ ” and to an attorney and employee of Certain-teed for 1937 an “ ‘ honorarium ’ ” of $12,500, which payments were in fact “ gifts of corporate funds and amounted to waste and spoliation, for which the defendants herein are accountable to said Certain-teed.” There are allegations that the compensation agréed by Certain-teed to be paid to the defendants Dahlberg, Hartley and Whittemore for services was not bona fide and was grossly excessive; that it had no relation to the actual value of the services rendered and amounted to spoliation or waste of the property of Certain-teed; that said defendants, under the guise of receiving compensation, were in reality depleting the assets of Certain-teed for their own personal gain. Alleging further that the employment contracts of May 13, 1939, with Dahlberg and Hartley and the payments made by Certain-teed thereunder, and to Whittemore, are excessive, illegal and void, the plaintiff alleges that the exact amounts of such excessive payments to Dahlberg, Hartley and Whittemore are unknown at present and can only be ascertained by an accounting. The relief demanded by the plaintiff is that “ by reason of the premises ” the individual and corporate defendants named in the fifth cause of action be required to account to Certain-teed for damages occasioned thereby.

Construing the amended complaint liberally, as we are required to do, our problem is to find within the fifth cause of action 9,s thus pleaded, allegations of fact which either expressly or by fair and reasonable intendment state a cause of action against any of the defendants designated therein.

Direction for such inquiry is given by the statutory requirement that — “ Every pleading shall contain a plain and concise statement of the material facts * * * on which the party pleading relies * * (Civ. Prac. Act, § 241.) That requirement is not satisfied, however, by conclusory statements. General allegations of misconduct will not do in the absence of statements of those facts upon which are based the pleader’s conclusions that the acts of which complaint is made are wrongful, lacking in good faith, or unlawful, as the case may be. “A pleading which, fairly construed, fails to allege any facts which constitute a wrong but only general conclusions, is entirely insufficient and may be dismissed on that ground.” (Gerdes v. Reynolds, 281 N. Y. 180, 183, 184.) These rules grew out of an apparent purpose, in the interest of fairness and dispatch, to establish a system of pleading within our jurisdiction which would require of a party that he state his case in such a manner that vagueness is avoided; that an opponent may be informed of the facts to which he must plead and which he must be prepared to meet upon a trial, without the risk of surprise by some unforeseen construction of an obscure pleading. These and related rules will guide us as we determine whether in the fifth cause of action plaintiff alleges actionable wrong against the various classes of defendants.

We do not find allegations which by direct statement or by fair implication assert a fiduciary relation to Certain-teed or to its stockholders by which the corporate defendant Celotex — a minority stockholder — is made legally responsible for acts of the officers and directors of Certain-teed. Nor is actionable wrong pleaded against the defendant Phoenix, which corporation is not alleged to have been a stockholder of Certain-teed when any corporate action was taken of which the plaintiff complains in the fifth cause of action.

Nor is a cause of action stated against the corporate defendants Celotex, Phoenix or any of the individual defendants by allegations that they “ caused ” Certain-teed to enter into employment contracts with Dahlberg and Hartley; that the payment by Certain-teed to Whittemore for salary due him was made “ at the direction of ” Celotex, and “ with the approval of” the individual defendants; or that the Dahlberg employment agreements “ were not bona fide contracts ” but were “ subterfuge to enable the defendant Dahlberg to unlawfully procure a gratuitous gift of corporate property with the full knowledge, approval, connivance and consent ” of the defendants and “ amounted to waste and spoliation of the assets of Certain-teed ”. Such allegations are conclusory and are legally ineffective, unsupported, as they are in the pleading before us, by facts from which the plaintiff drew those conclusions. (Gerdes v. Reynolds, supra, pp. 183-185; Lifshutz v. Adams, 285 N. Y. 180, 185; Weinberger v. Quinn, 264 App. Div. 405, 408-410; affd. 290 N. Y. 635, and see Taylor v. Astor Nat. Bank, 105 Misc. 386, 389, 391 [Lehmah, J.].)

Referring to the further allegations that the payments made by Certain-teed to Dahlberg and Hartley under employment contracts amounted to “ excessive bonuses ”; that such payments and the payment to Whittemore “ were not bona fide ” but “ were grossly excessive ” and “ entirely out of proportion to the net earnings of [Certain-teed] and had no relation to the actual value of the services rendered ”; that such payments in effect “ amounted to spoliation or waste of the property of ” Certain-teed; that such defendants “ under the guise of receiving compensation, were in reality depleting the assets of the defendant corporation for their own personal gain ”— we note that those allegations are followed by the plaintiff’s affirmative statement that “ * * * the exact amount of such excessive payment [is] unknown at present to the plaintiff herein and * * * can only be ascertained by an accounting.” We think such allegations are nothing more than conclusions which lack statements of factual bases — the conclusory character of which allegations is emphasized, and in effect admitted, by the affirmative allegations of plaintiff’s ignorance of the exact amount of such excessive payments

The charter of a corporation and the conduct of its affairs are subject to statutory regulation. To that end the Legislature has directed that “ The business of a corporation shall be managed by its board of directors * * (General Corporation Law, § 27, and see Everett v. Phillips, 288 N. Y. 227, 233, 234). In the exercise of statutory authority thus placed in a board of directors — “A contract made by a corporation within the scope of its chartered powers may not be set aside merely because some stockholders believe it to be unwise. There must be either fraud or conduct so manifestly oppressive as to be equivalent to fraud.” (Cabdozo,,J., writing in Holmes v. Saint Joseph Lead Co., 84 Misc. 278, 283, affd. on opinion below, 163 App. Div. 885; see, also, Burden v. Burden, 159 N. Y. 287, 307, 308; Leslie v. Lorillard, 110 N. Y. 519, 532, 536; Pollits v. Wabash R. R. Co., 207 N. Y. 113,124). The statements of conclusions which express no more than a difference of opinion between a stockholder and directors as to the value of an employee’s services or the expediency of his employment — whether it will advance the corporation’s interests — will not serve in a complaint as sufficient in law to put a director oh the defensive. Nor may judicial process be invoked to challenge the judgment of directors except when fraud is alleged or conduct so oppressive as to be its equivalent, and facts are pleaded which afford a basis for such allegations. (Weinberger v. Quinn, supra, pp. 408, 409.)

In the case at bar no facts are alleged in the fifth cause of action which, assuming their truth, would establish that it was an action in self-interest taken by Dahlberg and Hartley or either of them, or by Whittemore, as members of the board of directors of Certain-teed, which made effective the employment contracts of May 13,1939, and their renewals, or authorized the payment to Whittemore of salary due him. This is not a case — insofar as Dahlberg, Hartley and Whittemore are concerned — where, as in Walsh v. Van Ameringen-Haebler, Inc. (257 N. Y. 478, 480) and Jacobson v. Brooklyn Lumber Co. (184 N. Y. 152) it was alleged that the defendants “ voted themselves excessive salaries.” (Of. Gerdes v. Reynolds, supra, p. 185; Lifshutz v. Adams, supra.) There are no allegations of fact that in any meeting of the board of directors of Certain-teed — the membership of which was at least nine in number — or in any meeting of that corporation’s stockholders, the defendants Dahlberg, Hartley or Whittemore, or any one of them, by majority stock-ownership, or otherwise, exerted such a measure of control that, by their several votes or by the cumulative strength of their votes, they brought about corporate action which related to matters referred to in the fifth cause of action. In the absence of allegations of fact which show that the amounts paid to Dahlberg, Hartley and Whittemore for services — including payments to Dahlberg and Hartley of percentages of the net profits of Certain-teed as incentive compensation — were the result of bad faith practiced upon the corporation or its stockholders by the individual defendants, the allegations that such payments “ amounted to spoliation or waste ” of the corporation’s assets and like conclusions, do not plead actionable wrong. The value to the corporation of an employee’s past services for which some payment is due, as in the alleged case of Whittemore, and the question whether the corporation’s interests will be advanced by employment contracts, such as those of Dahlberg and Hartley which were based in part on incentive compensation, are matters for the judgment of the directors with which the courts will not interfere in the absence of a factual showing of misconduct amounting to bad faith.

Our conclusion as to the legal insufficiency of allegations referred to above would lead to a dismissal of the fifth cause of action were it not for allegations set forth in paragraph 63 which charge as acts of wrongdoing a payment by Certain-teed of $7,085 in 1936 to the defendant Chester E. Rahr and a payment by Certain-teed “ for the year 1937 ” of $12,500 to an attorney and employee whose name is unknown to the plaintiff. Those allegations are supported by statements of ultimate fact designating such payments as gifts of the corporate funds of Certain-teed. They call for an answer by the defendant Rahr and by those individual defendants who were directors or officers of Certain-teed when such alleged payments were made.

Passing to those portions of the appeal which relate to Motion No. 2, we think it was legal error to deny the application made by all the appellants who are designated as defendants in the first cause of action, for an order strildng from the amended complaint paragraph 27. That paragraph is a part of the first cause of action which in general alleges a conspiracy between Celotex (a minority stockholder of Certain-teed) and a number of the defendants, to cause Certain-teed to agree to make its excess manufacturing facilities available to Celotex. The allegations of paragraph 27 are in substance that the acquisition by Celotex of stock of Certain-teed violated the Federal statute known as the Clayton Act (U. S. Code, tit. 15, §§ 12-27). The effect of such stock acquisition is alleged to have been to lessen competition between the two corporations in interstate commerce and tended to create in Celotex a monopoly in the. sale and distribution of certain materials to the exclusive benefit of Celotex and to the damage of Certain-teed. Damage to Certain-teed is thus charged as a result of the alleged violation of the Clayton Act. The Clayton Act gives to the Federal courts exclusive jurisdiction not only in actions brought to enforce the statute but also in those cases which involve damage alleged to have occurred by reason of acts forbidden by that law. (§§ 15, 21, 26 id.) It has also been held consistently that a stockholder’s derivative action does not lie for violation of the Clayton Act. (Meyer v. Kansas City Southern Ry. Co., 84 F. 2d 411, cert. denied, 299 U. S. 607; Decorative Stone Co. v. Building Trades Council of Westchester County, 23 F. 2d 426; and see Venner v. N. Y. C. & H. R. R. R. Co., 177 App. Div. 296, 326-329, affd. 226 N. Y. 583.) It is our conclusion that the allegations of paragraph 27 were irrelevant to the first cause of action of this derivative suit and, accordingly, that the motion to strike out the paragraph should have been granted.

Finally we reach a consideration of Motion No. 3 — being applications by the defendants Baumhogger, Dugan and Norris for dismissal of the amended complaint upon the ground that as to them the alleged causes of action pleaded are barred by the three-year Statute of Limitations. These three individuals were designated as defendants in only the first and fourth causes of action. We have already referred to the first cause and to the conspiracy charged therein which involved Celotex and certain defendants who are alleged to have caused Certain-teed to make available to Celotex its excess manufacturing facilities. The fourth cause of action incorporates by reference the first cause and those portions of the third cause which allege in substance that certain defendants, not including Baum-hogger, Dugan and Norris," ‘ negligently, improvidently, imprudently and fraudulently caused ” Certain-teed to enter into a contract on August 1, 1939, by which it employed Celotex as its “non-exclusive agent,” for compensation — alleged to be excessive — to sell a number of products manufactured by Certain-teed; that the arrangement thus made “ was part of the fraudulent scheme and course of conduct of Celotex and Phoenix and of the individual defendants * * * to take the high position that Certain-teed enjoyed in the industry out of direct contact with the distributing agencies of Certain-teed’s products and to substitute the name of Celotex therein instead. ’ ’ In addition to those incorporated paragraphs the fourth cause of action alleges in substance that Celotex, Phoenix and certain defendants, including Baumhogger, Norris and Dugan, fraudulently conspired to cause Certain-teed to enter into the contract dated June 10, 1938, which was modified April 25, 1941, and the contract dated August 1,1939, by which contracts the excess manufacturing facilities and certain other services owned and maintained by Certain-teed were made available to Celotex; that the purposes of such conspiracy and the contracts involved therein were “ to siphon the funds, property and assets of Certain-teed into the treasury of Celotex, ’ ’ and ‘ ‘ to use the favorable business position of Certain-teed ’ ’ to the profit of Celotex and the detriment of Certain-teed. Alleging further that items charged by Certain-teed to Celotex under such contracts were knowingly and deliberately miscalculated by Certain-teed ” and that false book-entries were made and acts were committed which imposed unfair and burdensome obligations upon Certain-teed, the plaintiff demands the rescission of the contracts involved in the alleged conspiracy and an accounting by the defendants to Certain-teed for all damages caused to it and for “ the profits made by [the defendants] directly or indirectly as a result of the matters aforesaid.” In the absence of any allegations which by fair intendment plead that Baumhogger, Dugan or Norris profited by the matters set forth in the first and fourth causes of action, we disregard the plaintiff’s demand for an accounting for alleged profits. In that connection the plaintiff alleges that the defendants designated in the first cause of action were enabled, by means of the conspiracy therein alleged, to profit as stockholders of Phoenix and Celotex.” It appears, however, by the uncontroverted affidavits filed in support of the motion that Baumhogger and Dugan never owned stock in either Celotex or Phoenix and that Norris never owned stock in Celotex and has owned no stock in Phoenix since December 31,1935. We think that in essence the first and fourth causes of action are for damages for injuries to the property of Certain-teed, which the plaintiff seeks to enforce on behalf of the corporation, based on alleged breaches of fiduciary duty by the designated defendants. It follows that the three-year Statute of Limitations is applicable. (Civ. Prac. 'Act, § 49, subds. 6 and 7, as amd. by L. 1936, ch. 558 [effective Sept. 1, 1936] ; Potter v. Walker, 276 N. Y. 15, 25-27; Cwerdinski v. Bent, 256 App. Div. 612, 614— 616, affd. 281 N. Y. 782.) The present action was instituted by the service of process upon Baumhogger on February 24, 1942; upon Dugan, March 19,1942, and upon Norris, March 25, 1942. Accordingly liability for wrongful acts, if any, may not be predicated upon misconduct which occurred prior to the three-year period preceding those dates which fix the commencement of this action. As affecting the three defendants concerned in Motion No. 3, the amended complaint alleges that their terms as directors and officers of Certain-teed were — Baumhogger, 1936-1937; Dugan, 1937-1938; Norris, 1936-1937. It follows that, although Dugan was a director when the contract of June 10, 1938, was made between Certain-teed and Celotex, the three defendants last mentioned owed no fiduciary duty to Certain-teed and its stockholders within three years prior to the present suit. There are no allegations of fact in either the first or fourth cause of action that Baumhogger, Dugan or Norris committed, or aided in committing, any act as non-fiduciaries. As to the conduct by Dugan as a director and officer of Certain-teed in 1938 or at any other time, and, indeed, as to acts at any time hy any one of the three defendants concerned in Motion No. 3, the allegations in the first and fourth causes of action are conclusory in character, unsupported by essential statements of fact as bases for the conclusions draivn by the plaintiff. Accordingly, upon legal principles and authorities to which reference has been made we conclude that the application, to which we have referred as Motion No. 3, should have been granted.

The order of the Appellate Division should be modified in conformity with this opinion, as follows: insofar as it affirms the order of Special Term denying the application of certain defendants, to which application we have referred as Motion No. 1, the fifth cause of action should be dismissed against all the defendants therein named except the defendant Rahr and those individual defendants who were directors or officers of Certain-teed when the payments by that corporation were made, as alleged in paragraph 63 of the amended complaint; the applications to which we have referred as Motion No. 2 and Motion No. 3 should be granted; and as so modified the order should be affirmed, without costs. The certified question — ‘ ‘ Does the fifth cause of action alleged in the amended complaint state facts sufficient to constitute a cause of action,” is answered in the affirmative. The remaining certified questions are answered in the negative.

Lehman, Ch. J., Lottghban, Rippby, Conway and Thachee, JJ., concur; Desmond, J., concurs in the result only, on the ground that the whole of the fifth cause of action is well pleaded as against the individual defendants who received the payments complained of and as against those individual defendants who as directors or officers voted for or approved those payments, or any of them.

Ordered accordingly.