text:
    Weinberg & Holman, Inc., Respondent, v. Providence Washington Insurance Company, Appellant.
    (Argued October 8, 1930;
    decided November 18, 1930.)

      Arthur W. Clement and Henry J. Bogatko for appellant.
    The shipment was never insured by the defendant. (Bank of Ballston Spa v. Ins. Co., 50 N. Y. 45; Ripley v. Ætna Ins. Co., 30 N. Y. 136; Cushman v. U. S. Life Ins. Co., 63 N. Y. 404; Simon, Israel & Co. v. Sedgwick, [1893] 1 Q. B. 303.) The transportation of the shipment from Southampton to Havre and return voided the contract of insurance. [Richards on Insurance [3d ed.], p. 231.)

      George X. Levine, Alfred B. Nathan and S. Howard Imbrey for respondent.
    The shipment was at all times fully covered against the risks of theft, pilferage and nondelivery from the time of leaving the shipper’s warehouse in London to the time of the delivery thereof at the plaintiff’s warehouse in New York. The shipment was properly declared. (Hillman v. Ins. Co., 258 Penn. St. 547; Snow v. Ins. Co., 48 N. Y. 624; Cleveland v. Union Ins. Co., 8 Mass. 308; Audenreid v. Ins. Co., 60 N. Y. 482; Bearns v. Ins. Co., 48 Barb. 445; Simon v. Sedgwick, [1893] 1 Q. B. 303; Solomon v. Ins. Co., 160 N. Y. 595; Greenwich Bank v. Ins. Co., 222 App. Div. 219; Skinner v. Norman, 165 N. Y. 565; Reynolds v. Ins. Co., 47 N. Y. 597; Janneck v. Ins. Co., 162 N. Y. 574; Zivitz v. Ins. Co., 192 App. Div. 83; Paskusz v. Ins. Co., 213 N. Y. 22; Mulvihill v. Ins. Co., 221 App. Div. 494; 248 N. Y. 524; Lewis v. Ins. Co., 224 N. Y. 18.)
   Pound, J.

This is an action on an open cargo policy of insurance to recover for the loss sustained by reason of the theft, pilferage or non-delivery of a part of a shipment of raw fur sldns from London to New York. The policy covers all goods shipped by or consigned to plaintiff at and from ports or interior places throughout the world to ports or interior places in the United States, by land and water, direct or otherwise, including the risks of trans-shipment and lighterage and with all liberties as per contract of affreightment ” and including theft, pilferage or non-delivery.

Furs were shipped to plaintiff from London to New York. At some time and place between the time when the shipment left the warehouse and the time when it arrived in New York a portion of the furs was stolen. Before any particular risk was covered by the policy the shipper was required to send a declaration of the shipment to the insurance company. In this case the declaration stated that the shipment was made per steamer Homeric from London to New York. The goods were in fact shipped from London ria Southampton to Havre, France, and reshipped from Havre to New York via Southampton. They thus crossed and recrossed the English Channel on transport steamers before proceeding on the steamer Homeric from Southampton, although the direct and usual voyage did not require such transshipment. The insurance company received no notice of the routing ria Havre until after the loss was discovered. The shipment was made in this way to obtain the advantage of lower freight rates from the French port to New York, it being cheaper by reason of a rate war to ship from a French port. Payment of the loss was refused on the ground that the shipment was not made from London to a port in the United States but from London to the French port and from the French port to Southampton where they were loaded on the Homeric and shipped to New York.

The question of deviation or change of voyage does not arise in the case. Lower rates were obtained by making the shipment to Havre and then by an independent shipment from France to New York. No voluntary and unnecessary departure of the ship Homeric from the regular and usual course of the specified voyage insured was shown. The goods were not shipped in accordance with the declaration of the shipment but were deliberately shipped from another port by another route which was not deviated from.

The plain purpose of the clause requiring the shipper to declare each and every shipment under the policy is to give definite advice of the shipment insured and to fix the premium. The plaintiff contends that upon the true construction of the policy the shipment was from London to New York via Havre. If so, the defendant is liable. But this is not a policy covering a voyage from London to a port not in the United States and thence to New York. The goods could not be so shipped to obtain the advantage of the lower freight on shipments from a French port. The shipper deliberately exposed the shipment to the unnecessary hazards of the channel voyage in order to obtain a lower freight rate. You cannot extend the policy to cover the risks not included in the voyage for which these goods were insured.” (Bindley, J., in Simon, Israel & Co. v. Sedgwick, [1893] 1 Q. B. 303.)

The policy contains a “ held covered ” clause which provides that the goods are held covered at premiums to be arranged in case * * * of any omission or error in the description of the * * * voyage provided notice be given to assurers as soon as known to assured.” But here there was no omission or error in the description of the voyage, i. e., the voyage from London to New York. The description was entirely accurate, but the voyage described was from London to New York and not a roundabout voyage from London to Havre to New York. The voyage actually embarked upon was not the one insured. The ordinary course of transit was departed from to save freight rates by shipping from a French port. No error or omission in the description of the voyage covered by the policy is shown.

A plain contract, clear and explicit in its terms, is to be construed by the court. Equitable considerations will not allow an extension of the coverage beyond its fair intent and meaning in order to do raw equity and to obviate objections which might have been foreseen and guarded against, even though the contract to be construed is a policy of insurance. (Janneck v. Metropolitan Life Ins. Co., 162 N. Y. 574; Rosenthal v. American Bonding Co., 207 N. Y. 162; Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125; Marcus v. United States Casualty Co., 249 N. Y. 21.)

The judgment of the Appellate Division and that of Trial Term should be reversed and the complaint dismissed, with costs in all courts.

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

Judgments reversed, etc.


source: Caselaw Access Project

author: Crane, J.

license: Public Domain

text:
    Lee G. Laidlaw, Respondent, v. Hartford Accident and Indemnity Company, Appellant.
    (Argued October 15, 1930;
    decided November 18, 1930.)

      John P. Carson and William A. Earl for appellant.
    The expenses contemplated under the policy are limited to first aid treatment. (Ayles v. Hartford Acc. & Ind. Co., 227 N. Y. Supp. 618; Employers’ Liability Corp. v. Light, etc., Co., 28 Ind. App. 437.) No actual authority was established on the part of the defendant’s adjuster to make any promises and a recovery on the basis of the alleged statements attributed to him is error. (Chisholm v. Royal Ins. Co., 225 Mass. 428; Du Cotey v. Realty Co., 100 Conn. 255; Hanna v. Florence Iron Works, 222 N. Y. 290; Cohen v. Employers Liability Co., 208 N. Y. Supp. 452.)

      Ellsworth Baker for respondent.
    The obligations incurred by plaintiff came within the provision of the policy permitting such immediate medical or surgical aid as was imperative at the time of the accident, and in any event the acts of plaintiff were ratified and authorized by the representative of the defendant. (Ayles v. Hartford Accident & Indemnity Co., 227 N. Y. Supp. 618.)
   Crane, J.

With so much of the judgment appealed from as reforms the policy of insurance upon the ground that it was issued through mutual mistake by the parties to this action, we agree with the Appellate Division that it should be affirmed. That court made a slight deduction in the amount of the recovery and we have determined that it must be still further reduced.

The policy, known as an automobile policy, as thus reformed, insured Lee G. Laidlaw against any loss through liability imposed by law upon the insured for bodily injuries or death in the maintenance and use of the automobiles described therein.

On the 9th day of May, 1929, about three o’clock in the' afternoon, the plaintiff, while driving an automobile on upper Main street in Hurleyville, ran into and injured a little child, four and one-half years of age. The accident apparently happened without any fault upon the part of the plaintiff', the child having run immediately in front of his car from the side of the street. No claim for damages has been made against the plaintiff, and the defendant has not been called upon to pay any damage by reason of the plaintiff’s liability for negligence.

A clause in the policy, however, gives to the insured the right to incur certain expenses for immediate necessary medical and surgical aid, for which the insurance company will indemnify him. This is not dependent upon negligence, but may be incurred by the insured, who was in no way at fault for the accident. The plaintiff in this case incurred these expenses, and has brought this action in which he has been allowed a recovery for items aggregating $1,118.55. We think this must be reduced to $606.50 for the following reasons:

By the terms of the policy the defendant agreed “ to pay for such immediate medical or surgical aid as was imperative at the time of the accident.” In another place the policy provides: The assured shall not in any way acknowledge or admit any liability on account of any accident, nor settle any claim or suit resulting therefrom, nor, without the consent of the company, incur any expense other than for such immediate medical or surgical aid as was imperative at the time of the accident.”

The little boy, whose name was Bowers, had suffered a fracture of the skull in many directions. The insured picked him up and put him and his mother in the car and took them to Dr. Jacobs’ office and from there to the Montieello Hospital, where he Was confined for two Weeks. That night, which was Thursday night, the boy was operated on and a piece of his skull taken out. He was unconscious until the following Monday afternoon. He could not be moved from the hospital until the twenty-third of May, when he was taken to the plaintiff’s home and nursed for another three weeks. This medical and surgical aid rendered the Bowers boy was immediate and imperative within this clause of the defendant’s policy. Dr. Burke performed the operation, which also was necessary. Confinement in the hospital was surely necessary, immediate and imperative while the child was unconscious and until within the judgment of the attending physicians and the hospital authorities it was safe to remove him. The charges incurred by the plaintiff for these imperative services should be paid by the company under the terms of the policy, and include $25 cash payment, made by the plaintiff as an immediate deposit, $181.80 to the Monticello Hospital for the first week, $179.70 for the second week. Dr. Victor Burke’s bill of $200 for the operation and attendance, which covers the period from May ninth, the date of the operation, to Monday, the thirteenth, when the child regained consciousness, should also be paid. As to the item of $20 to Dr. Jacobs for X-ray photographs, there is no question or dispute. The total of these items is $606.50.

When the boy left the hospital, he was taken by the plaintiff to his home, and there cared for during the following three weeks. At the end of that time the young Bowers boy was taken to his parents. Through the generosity and kindness of Mr. Laidlaw, the child was provided with nurses and attendants and his parents afforded the opportunity of visiting him, Mr. Laidlaw providing means of transportation. Although the tender care provided for this child must be recognized and fully appreciated, yet these considerations must not move us from a fair and impartial consideration of the defendant’s contract. It agreed to pay for the immediate medical and surgical aid, which did not include the continuing services at Mr. Laidlaw’s home, after it was safe to remove the child from the hospital. These may have been necessary for the proper treatment of the ease, but they do not come within the category of the “ immediate and the imperative.” (Chisholm v. Royal Ins. Co., 225 Mass. 428; also Employers Liability Assurance Corp. v. Light, Heat & Power Co., 28 Ind. App. 437.) The Appellate Division, Second Department (March 21, 1928) in Ayles v. Hartford Accident & Indemnity Co. (223 App. Div. 780), intimated that this clause meant first aid treatment, but its intent and scope must depend upon the nature and circumstances of the accident, in the absence of more definite terminology.

This eliminates the expenses of the driver, Palmer Cole, $25, the nursing of Ester Anderson at the house, $210, the drug bill of $8.80, the maid Lulu Coonvely, and the board of her husband, $30 and $36, respectively, the item of $36 for the board of Ester Anderson, and the small items of $1.75 druggist and $4.50 for automobile gasoline. As to the item of Dr. Jacobs, of $150, we have this to say. Unless the plaintiff is willing to eliminate this item, we will be obliged to order a new trial. It may be that Dr. Jacobs performed some necessary services at the hospital. The evidence does not show it. His item is for $150 for five weeks, which includes the three weeks at Mr. Laidlaw’s home. We have, therefore, eliminated this item from the charge against the defendant under its policy. If the plaintiff desires a new trial in order to recover for some of Dr. Jacobs’ services, we must grant a new trial of the entire case. However, if this item is eliminated, we will affirm the judgment as reduced to the sum of $606.50, without costs to either party.

Plaintiff claims to have incurred some of this expense in reliance upon the statements of Clifford S. Kingsland, an adjuster for the company. Six days after the accident, on May fifteenth, Kingsland took a statement from the plaintiff regarding the nature of the accident and the treatment being given the Bowers boy. Plaintiff testifies that Kingsland said: “ Do all you can for the boy and we will stand behind you.” Kingsland was an adjuster with authority to settle claims up to $250, but without any authority to adjust claims in behalf of infants. This authority could not be given, as no one could settle an infant’s claim without authority from the court. However that may be, even if Kingsland had such authority, it was necessarily limited to cases which came within the terms of the company’s policy. He had no authority to settle claims for losses not covered by the policy. For instance, he might have settled the bills for immediate medical and surgical aid, as such items are covered by the insurance, but he would have no authority to adjust items not coming under this clause of the policy, or to bind the insurance company to pay for any and all kind of medical services or surgical operations. The company gave him no authority, nor did it hold him out as having any authority to provide such medical treatment as might be advisable, although not immediately imperative. Plaintiff cannot recover upon any promise made by Kingsland. The company’s representative in the neighborhood was Knapp, with whom the plaintiff transacted all his insurance business. It does not appear that Knapp undertook to advise the plaintiff regarding any of these matters, or as to the authority of Kingsland.

Our judgment will take this form: The judgment of the Appellate Division and that of the Trial Term should be reversed and a new trial granted, with costs to abide the event, unless plaintiff stipulates within ten days from the date of the filing of the remittitur to reduce the judgment of the Trial Term to the sum of $606.50 and costs, in which event the judgment as so modified is affirmed, without costs in this court or in the Appellate Division.

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

Judgment accordingly.


author: O’Brien, J.

text:
    In the Matter of Frank McMahon, Respondent, against Frank B. Devlin, as Commissioner of Public Safety of the City of Yonkers, Appellant.
    (Argued September 29, 1930;
    decided November 18, 1930.)

      Harry J. Laragh, Corporation Counsel (Vincent C. DeCarlo of counsel), for appellant.
    Relator was duly tried by the deputy commissioner who had power and authority to try a patrolman, upon the oral or other direction of his superior. (Abrams v. Ervin, 9 Iowa, 87; Lewis v. Lewis, 8 Mo. 183; Confiscation Cases, 20 Wall. [U. S.] 111; Tillotson v. Cheetham, 2 Johns. 63; People ex rel. Flanagan v. Bd. of Police Commrs., 93 N. Y. 97; People ex rel. Garvey v. Partridge, 180 N. Y. 237; People ex rel. Voss v. Greene, 183 N. Y. 483; People ex rel. Reagan v. Partridge, 184 N. Y. 566; Matter of Ostrander, 12 Misc. Rep. 476; 146 N. Y. 404; People ex rel. Conway v. Barker, 14 Misc. Rep. 360; Williams v. Darling, 67 Misc. Rep. 205; Matter of Tilyou, 57 App. Div. 101; Matter of Moore, 108 N. Y. 280; 666 West End Ave. Corp. v. Deutsch, 135 Misc. Rep. 707; Curtin v. Barton, 139 N. Y. 505; City of New York v. Streeter, 180 N. Y. 507; Swarthout v. Ranier, 143 N. Y. 499.)

      PaulL. Bleakley and Thomas J. O'Grady for respondent.
    The deputy commissioner acted without jurisdiction and authority and his decision was a nullity and void. (Second Class Cities Law, §§ 130, 133, 137; O’Mara v. Herring, 225 App. Div. 816; People ex rel. Garvey v. Partridge, 180 N. Y. 237; People ex rel. Syperrek v. McAdoo, 125 App. Div. 673; Birdsall v. Clark, 73 N. Y. 73; Bandler v. Hill, 84 Misc. Rep. 359; 163 App. Div. 970; 220 N. Y. 736; Ontario Knitting Company v. State of New York, 205 N. Y. 409; People v. Green, 96 App. Div. 249; Martin v. O’Keefe, 195 App. Div. 814; 33 C. J. 1070; People v. Bork, 96 N. Y. 188; Jones v. Jones, 108 N. Y. 415; Davidson v. Ream, 178 App. Div. 362; People v. Sturtevant, 9 N. Y. 263; Hastings v. Farmer, 4 N. Y. 293; Kamp v. Kamp, 59 N. Y. 212; Matter of Walker, 136 N. Y. 20; Matter of Grossman, 134 Misc. Rep. 724.)
   O’Brien, J.

Respondent, a patrolman on the police force of the city of Yonkers, pleaded guilty to charges of misconduct preferred against him by bis captain, withdrew his plea, stood trial and was removed. After a delay of two years and a half, he instituted this mandamus proceeding for reinstatement. He was defeated at Special Term but the Appellate Division by a divided court reversed and directed a peremptory mandamus order. The petition alleges and the opposing affidavit admits that the hearing on the charges was conducted by the deputy commissioner of public safety, that the decision was rendered by him and that the removal was made by him. Petitioner’s supporting affidavit alleges also that the commissioner was present at the hearing and this allegation is not denied.

The only question is one of law and in it is involved the authority of the deputy to act. That question must be answered by our interpretation of the provisions of the Second Class Cities Law (Laws of 1909, ch. 55, as amd. by Laws of 1910, ch. 266; Cons. Laws, ch. 53) which applies to the city of Yonkers. The powers and duties of the commissioner of public safety and those of his deputy are defined in this statute. By sections 133 and 137 the responsibility for trying and determining charges against accused officers of the department and removing them rests upon the commissioner. By section 130, the deputy in the absence or disability of his superior or during a vacancy in his office shall discharge all the duties of that officer. Section 132 describes the general powers of the deputy at all times and it provides that he shall have authority to administer oaths and take evidence in all matters and proceedings pertaining to the department and “ shall perform such other duties as may be prescribed by the commissioner or by law or by ordinance of the common council.” In so far, therefore, as the deputy administered oaths and took evidence on the hearing of the charges, his conduct is sanctioned by the particular language of the statute. His authority to exercise these powers is not dependent upon his superior’s absence or disability or upon a vacancy in the office of commissioner. The statute does not specially declare his power to make a determination or to remove during the presence of the commissioner but he must, however, perform those duties if, in the absence of some other statute or of an ordinance, they shall have been prescribed by his principal. Within the intent of this statute, what is the meaning of the word “ prescribe? ” It has been held to signify to lay down authoritatively as a guide, direction, or rule; to impose as a peremptory order; to dictate; to point; to direct; to give as a guide, direction, or rule of action; to give law.” (Loewy v. Gordon, 129 App. Div. 459; Heiferman v. Scholder, 134 App. Div. 579; People ex rel. McDermott v. Board of Estimate, 146 App. Div. 515; Travelers Ins. Co. v. Industrial Commission, 71 Colo. 495; Philips v. Guy Drilling Co., 143 La. 951; State v. Truax, 130 Wash. 69.) As employed in section 132, therefore, the commissioner who is an administrative officer with merely quasi judicial functions is empowered to direct and peremptorily to order his deputy to relieve him, even during his presence, of his primary obligation to determine the sufficiency of evidence on charges and to exercise discretion respecting discipline. Pursuant to this statute, the principal may confer upon his alter ego every incident of his own power. The process by which he shall exert this right is not defined. He is not required to publish an official order nor even to reduce his command to writing. Oral direction is sufficient. (People ex rel. Voss v. Greene, 183 N. Y. 483.)

In the record is embraced no direct evidence that the head of the department did, in fact, delegate to his deputy the power which the statute authorizes him to confer. The inference that the inferior did not usurp official functions is, however, irresistible. Respondent informs us that the commissioner was present in the trial room on both days of the hearing, and that after determination and removal by the deputy, the commissioner refused reinstatement. By these facts the presumption of regularity of official performance is reinforced. (People ex rel. Voss v. Greene, supra.)

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

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

Ordered accordingly.


text:
    The People of the State of New York ex rel. Terminals and Transportation Corporation of America, Respondent, v. The State Tax Commission, Appellant. (Proceedings Nos. 1 and 2.)
    (Argued October 1, 1930;
    decided November 18, 1930.)

      Hamilton Ward, Attorney-General (Henry S. Manley of counsel), for appellant.
    The stocks and bonds covered by the mortgages were intangible property. (Blodgett v. Silberman, 277 U. S. 1; Frick v. Pennsylvania, 268 U. S. 473; Farmers Loan Co. v. Minnesota, 280 U. S. 204; Baldwin v. Missouri, 281 U. S. 586; People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48; People ex rel. American Ice Co. v. Tax Comm., 153 App. Div. 532; 207 N. Y. 766.) The Tax Commission has no authority to remit the penalties in excess of one-half of one per centum per month on the unpaid tax. (Tax Law, §§ 255, 256, 258.)

      Walter C. Lindsay and Ansley W. Sawyer for respondent.
    The stocks and bonds covered by the mortgages are tangible property and are to be considered in making the apportionment. (Tax Law, § 260; People ex rel. DuPont de Nemours Powder Co. v. Bd. of Tax Commrs., 140 App. Div. 783; Matter of Whiting, 150 N. Y. 27; People ex rel. Jefferson v. Smith, 88 N. Y. 576; People ex rel. Astor Trust Co. v. Tax Comm., 174 App. Div. 320; Louisville & Nashville Ry. Co. v. Coulter, 131 Fed. Rep. 282; New Orleans v. Stempel, 175 U. S. 309; DeGanay v. Lederer, 250 U. S. 376; Ware v. Schintz, 190 Ill. 189; Williams v. Williams, 270 Ill. 552; Rohrer v. Deatherage, 336 Ill. 450; Utica Trust & Deposit Co. v. Decker, 244 N. Y. 340; Fletcher v. Neudeck, 30 Minn. 125; Kellogg v. Olson, 34 Minn. 103; Tiedt v. Boyce, 122 Minn. 283.) The Tax Commission has authority to remit penalties in excess of one-half of one per cent per month on a corporate trust mortgage recorded in good faith, where it later appears that an additional mortgage tax is due. (Tax Law, § 258.)
   Crane, J.

The respondent on or about June 2, 1927, executed a corporate trust mortgage to the Guardian Trust Company of Detroit and Lewis K. Walker, trustees, to secure bonds in an unlimited amount. There was advanced on such mortgage the sum of $3,500,000.

On the same date the respondent also executed a corporate trust mortgage to the Manufacturers and Traders Peoples Trust Company and Thomas Cantwell, trustees, to secure bonds in the amount of $1,500,000, all of which had been advanced.

Both mortgages covered the identical property consisting of real property situated at Buffalo, New York, and stocks and bonds of subsidiary corporations. At all the times herein mentioned, the stocks and bonds were physically without the State of New York. At the time of presenting the mortgages to be recorded in the Erie county clerk's office, the relator presented a statement, pursuant to section 260 of the Tax Law (Cons. Laws, ch. 60) in which it specified that the net value of the property (real property) within the State of New York covered by the mortgages was $21,000, and the net value of the property without the State of New York was $4,807,000. Upon these figures the tax was apportioned at $76.12 on the one, and $32.62 on the other mortgage as a recording tax. Thereafter, the State Tax Commission ruled that the relator was not entitled to the apportionment provided in section 260 of the Tax Law, and fixed the tax on the full amount advanced under the mortgages which, at the rate prescribed under section 253, amounted to $25,000. The Commission determined that the mortgages covered no tangible real or personal property situated without the State of New York. Upon review under an order of certiorari the Appellate Division, by a divided court, annulled this determination of the State Tax Commission, and thereafter certified to this court two questions: One, was the recording tax of this mortgage and the penalty correctly determined by the Tax Commission? Two, does the prevailing opinion in the Appellate Division indicate the correct method of determination?

The Commission had held that it had no authority to remit the penalty in excess of one and one-half per cent per month, as provided in section 258 of the Tax^Law. The relator in obtaining from the county clerk and from the Appellate Division the apportionment of the recording tax, provided for in section 260, did so upon the claim and the determination that stocks and bonds without the State of New York were tangible property within the meaning of that section. Article 11 of the Tax Law provides for a tax on mortgages which impose a lien on real property under the laws of this State. The two mortgages in question were a lien upon the relator’s real estate in Buffalo. Section 253 of the act fixes the tax at fifty cents for each one hundred dollars of the principal debt or obligation which is secured by such mortgage. The amount advanced under these mortgages and thus secured by them, pursuant to section 259 of this law, was a total of $5,000,000. The tax was, therefore, $25,000, unless the apportionment provided in section 260 Was applicable. We must take the Tax Law as we find it, and not attempt to adjust it to conditions which may not have been foreseen. When real property is partly within the State and partly without the State, it shall be the duty of the Tax Commission 'to determine what portion of the mortgage or advancements thereon shall be taxable. The section provides that the Commission shall determine the respective values of the property within and without the State and find the ratio that the net value of the mortgaged property within the State bears to the net value of the entire mortgaged property. It shall apply the ratio thus found to the amount of the mortgage to determine the tax. In determining,” reads the section, the separate values of the property within and without the state the tax commission shall consider only the tangible property, real and personal, except that leases of real property shall be deemed tangible property.”

The relator had no real property without the State; therefore, this apportionment provision did not apply to it.

Moreover, the personal property of the relator without the State consisted entirely of stocks and bonds; these are, not tangible property. (Blodgett v. Silberman, 277 U. S. 1; Farmers Loan & Trust Co. v. Minnesota, 280 U. S. 204; Baldwin v. Missouri, 281 U. S. 586; Frick v. Pennsylvania, 268 U. S. 473; People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48.) There is no reason to suppose that the Legislature used the words “ tangible property, real and personal ” with any other meaning than that given to such words by court decisions. The statement that leases of real property shall be deemed tangible property was an indication that the Legislature did not intend to include within that definition other intangibles. This is not the case where a State Legislature specifically provides for a tax, measured by intangible property within its jurisdiction owned by a non-resident. (New Orleans v. Stempel, 175 U. S. 309; DeGanay v. Lederer, 250 U. S. 376; People ex rel. Jefferson v. Smith, 88 N. Y. 576.)

The penalty for the non-payment of taxes provided in section 258 in part reads as follows: In any case where a mortgage of real property subject to the tax imposed by this article has heretofore been recorded or is hereafter recorded in good faith, and the county clerk or register has held such mortgage non-taxable or taxable at one amount, and it shall later appear that it was taxable or taxable at a greater amount, the state tax commission may remit the penalties in excess of one-half of one per centum per month.”

At the time of presenting the mortgage for record, the relator, pursuant to section 256 of the Tax Law, filed a sworn statement of the amount secured by the mortgage, and the nature of its property without the State. It specified the stock in its various subsidiary companies which it held and entitled them tangible personal property without the State.” The recording officer, therefore, knew the nature of the property which the relator sought to use for apportionment purposes, and accordingly fixed the ratio of taxation, pursuant to section 260. The good faith of the relator and of the recording officer has not been questioned. Both were mistaken in considering the stocks tangible personal property. From the various decisions in the State and Federal courts, the question was none too easy of solution, as a reference to the above authorities will indicate. Argument could well be, and has been, made to sustain the claim that for taxation purposes stocks have been considered at times in the nature of tangible property, so that the recording officer and the relator may well be pardoned for considering them such in this case.

Under such circumstances we think that the recording officer’s act comes within both the letter and the spirit of section 258 which says that in a case where the mortgage has been recorded in good faith and the county clerk or register has held it taxable in one amount, and it shall later appear that it was taxable at a greater amount, the State Tax Commission may remit the penalties in excess of one-half of one per cent per month. We hold that this power to remit the penalty may be exercised by the Commission under the peculiar facts of this case. We may note that the Commission expressed a desire to exercise their discretion in favor of the relator if they had the power, but they decided that authority was lacking.

We, therefore, determine that the tax as fixed by the Commission was correct, but that they had the power under section 258 of the Tax Law to remit the penalties in excess of one-half of one per cent per month.

The order of the Appellate Division in each proceeding should be reversed and the proceedings remitted to the State Tax Commission for the consideration of the application to remit the penalty, without costs, and the questions certified answered in the negative.

Pound, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur; Cardozo, Ch. J., dissents as to the ruling that there is jurisdiction to remit the penalty.

Ordered accordingly.


author: Hubbs, J.

text:
    F. A. Straus and Co., Inc., Appellant and Respondent, v. Canadian Pacific Railway Company, Respondent and Appellant.

      (Argued October 1, 1930;
    decided November 18, 1930.)

      Neil P. Cullorn and James E. Freehill for plaintiff, appellant and respondent.
    The theft having been committed by one of defendant’s employees, the limitation of liability contained in the bill of lading is void. (Fein v. Weir, 129 App. Div. 299; 199 N. Y. 540; Schouler Bailments & Carriers, § 429; Nowack v. Metropolitan St. Ry. Co., 166 N. Y. 433; Wamsley v. Atlas S. S. Co., 168 N. Y. 533; Magnin v. Dinsmore, 62 N. Y. 35; Honig v. Riley, 244 N. Y. 105; Gillespie v. Platt, 19 Misc. Rep. 43; Heuman v. Powers, 226 N. Y. 205.) Clause EW-21 is void as against public policy, it being a purely arbitrary limitation of liability as distinguished from an agreed valuation, and supported by no valuable consideration to the shipper. (St. John v. Companhia, 263 U. S. 119; Mynard v. Syracuse R. R. Co., 71 N. Y. 180; Kilthau v. International Mercantile Marine, 245 N. Y. 361.) Clauses EW-2 and EW-23 in the bill of lading exempting defendant from liability for negligence and for loss arising out of theft by its employees are void because contrary to public policy and will not be enforced, even though valid under the law of England. (The Kensington, 183 U. S. 263; Carver on Carriers, § 103-a; Claffin v. Meyer, 75 N. Y. 260; The Seneca, 163 Fed. Rep. 591; The Ghazee, 172 Fed. Rep. 368; Wheeler v. Oceanic Steam Nav. Co., 125 N. Y. 155; Gerli v. Compagnie, 230 N. Y. Supp. 282; Moore v. Duncan, 237 Fed. Rep. 780; Matter of Snyder, 190 N. Y. 166; Single v. Snyder, 160 Fed. Rep. 627; Gulf v. Hume, 27 S. W. Rep. 110.)

      Harold B. Elgar and Frank Rashap for defendant, respondent and appellant.
    Under the contract of affreightment the carrier was exempted from any liability for loss. (Smith v. N. Y. C. R. R. Co., 24 N. Y. 222; Kenny v. N. Y. C. R. R. Co., 125 N. Y. 422; Wheeler v. Oceanic Steam Nav. Co., 125 N. Y. 155; Guillaume v. Hamburg Packet Co., 42 N. Y. 212; Wilson v. N. Y. C. R. R. Co., 97 N. Y. 87; Gerli & Co. v. Compagnie Generale Transatlantique, 132 Misc. Rep. 752; Heuman v. Powers Co., 226 N. Y. 205; Moore v. Duncan, 237 Fed. Rep. 780; Wupperman v. The Carat Prints, 63 Fed. Rep. 266; The Titania, 19 Fed. Rep. 101; The Oranmore, 92 Fed. Rep. 396; Forder v. Great Western R. R. Co., [1905] 2 K. B. 532; Beal v. South Devon R. R. Co., 3 H. & C. 337; Great Western R. R. Co. v. Genister, 29 L. T. Rep. [N. S.] 422.) The hmitation of liability contained in clause EW-21 of the contract of affreightment was properly enforced. (D’Utassy v. Barrett, 219 N. Y. 420; Mariani Bros. v. Wilson Sons & Co., 188 App. Div. 617; Starace & Co. v. Raporel S. S. Line, 114 Misc. Rep. 111; Glanzer v. Cunard S. S. Co., 214 App. Div. 473; Millhiser v. Beau Site Co., 251 N. Y. 90; Union Pacific Ry. Co. v. Burke, 225 U. S. 317; Hart v. Pennsylvania R. R. Co., 112 U. S. 331; Kuhnhold v. Compagnie Generale Transatlantique, 251 Fed. Rep. 387; Tewes v. North German Lloyd S. S. Co., 186 N. Y. 151; American Ry. Express Co. v. Linden-

      burg, 260 U. S. 584; American Ry. Express Co. v. Levee, 263 U. S. 19; Clay v. N. Y. C. R. R. Co., 224 App. Div. 508.)
   Hubbs, J.

The defendant, a common carrier, undertook to carry, under a through bill of lading, a quantity of silk from Shanghai, China, via Vancouver, to New York city, consigned to order, notify F. A. Straus & Co., Inc. When the boat upon which the silk was shipped reached Vancouver, it was discovered that three bales of silk had been stolen from the silk room in which it had been placed at Shanghai. This is an action in conversion to recover the value of the silk stolen. The trial court submitted to the jury, without objection on the part of the defendant, the following issues:

First. Did the theft of the silk occur because of the defendant’s negligence?

Second. Was the theft committed by the defendant’s servants?

The jury found that the theft occurred because of the defendant’s negligence and that the theft was committed by its servants.

The evidence presented a question of fact and the verdict of the jury was justified, provided the defendant is not exempt from liability under a provision of the bill of lading. (United States ex rel. Matthews v. Massachusetts Bonding & Ins. Co., 238 N. Y. 334; Hasbrouck v. N. Y. C. & H. R. R. R. Co., 202 N. Y. 363; The Ghazee, 172 Fed. Rep. 368.)

The defendant contends that it is exempt from liability for theft by its servants or others or for negligence of persons in its employ, by reason of the provisions of clause EW-2 contained in the bill of lading, which reads: “ The carrier shall not be responsible to any extent for any loss, damage or delay arising from or consequent upon * * * robbers, thieves of whatever kind, whether in the service of the carriers or not, pilferage * * * any act or omission, negligence, default or error in judgment of the carriers’ pilot, master, officers, marines, engineers, crew, stevedores, lightermen, ware-housemen, agents or other persons whomsoever in the service of the carriers or their agents, or for whom the carriers would otherwise have been responsible, whether on board the said ship,” etc.

It has long been the rule in the Federal courts that an agreement between a shipper and carrier which purports to absolutely exempt the carrier from liability for its negligence is void. The reasons for the rule have been stated to be that the effect of an exemption from liability for negligence is to encourage a lack of care on the part of the carrier; that the shipper and carrier are not upon equal terms and the shipper is at the mercy of the carrier unless protected by the law, and that considerations of public policy require that the shipper be so protected. (N. Y. C. R. R. Co. v. Lockwood, 17 Wall. [U. S.] 357; The Kensington, 183 U. S. 263.)

Early in the jurisprudence of this State it was decided that an agreement between a shipper and a common carrier exempting the carrier from liability for negligence was void as against public policy. (Cole v. Goodwin & Story, 19 Wend. 251, 281; Gould v. Hill, 2 Hill, 623.) Later the courts changed their position and held that an agreement between a shipper and common carrier exempting the carrier from liability constituted a valid, enforcible contract. The contract was conceived to be a purely private one, in which the public had no concern and it was presumed that the carrier parted with a sufficient consideration for the exemption, and that any other rule would constitute an unwarrantable restriction upon * * * commerce.” (Door v. New Jersey Steam Navigation Co., 11 N. Y. 485; Nelson v. H. R. R. R. Co., 48 N. Y. 498; Cragin v. N. Y. C. R. R. Co., 51 N. Y. 61.)

Although the United States-'courts and the courts of most of the States adhered to the Federal rule (See 10 C. J. 155, where the decisions in other jurisdictions are collated), the courts of this State continued to follow their early decisions, and enforced agreements exempting common carriers from liability for negligence. (Kenney v. N. Y. C. & H. R. R. R. Co., 125 N. Y. 422.) There it is said: “The rule is firmly established in this State that a common carrier may contract for immunity from its negligence, or that of its agents.”

While the early decisions in this State expressed the public policy of the State at the time, changed conditions have resulted in a change of the public policy of the State. The rule of freedom of contract, which reflected the public policy of the State in the days of the canal boat and stage coach, has ceased to be applicable under modern conditions. That fact has been recognized by the Legislature in various enactments. In 1911 the Legislature added to the Personal Property Law section 189 (Laws of 1911, ch. 248; Cons. Laws, ch. 41) which reads: “A carrier may insert in a bill, issued by him, any other terms and conditions, provided that such terms and conditions shall not:

“ (a) Be contrary to law or public policy, or “ (b) In any wise impair his obligation to exercise at least that degree of care in the transportation and safekeeping of the goods entrusted to him which a reasonably careful man would exercise in regard to similar goods of his own.”

The section reads the same as section 3 of the Uniform Bills of Lading Act (4 U. L. A. p. 8).

The effect of that section is to prevent a common carrier from inserting in a bill of lading for an intrastate shipment a provision totally exempting it from liability for its negligence.

The Public Service Commission Law, section 38 (Laws of 1913, ch. 344; Cons. Laws, ch. 48), provides that “ No contract, stipulation or clause in any receipt or bill of lading shall exempt or be held to exempt any common carrier * * * from any liability for loss,” etc.

The General Business Law, section 91, subdivision (i) (Laws of 1909, ch. 25; Cons. Laws, ch. 20) provides: ‘‘ A warehouseman may insert in a receipt, issued by him, any other terms and conditions, provided that such terms and conditions shall not: * * *

(b) In any wise impair his obligation to exercise that degree of care in the safekeeping of the goods entrusted to him which a reasonably careful man would exercise in regard to similar goods of his own.”

Section 331 of the Banking Law (Laws of 1914, ch. 369; Cons. Laws, ch. 2) makes all provisions of law affecting warehousemen applicable to safe deposit companies.

By those various statutes the will of the Legislature has been clearly expressed to the effect that contracts which purport to totally exempt in the cases named from liability for negligence are against the public policy of the State and the early decisions, which expressed a different view and represented the public policy of the State when made, have been superseded. Public policy is necessarily variable. It changes with changing conditions. It is evidenced by the expression of the will of the Legislature contained in statutory enactments. Whatever the term may imply in other jurisdictions, in this State The courts have often found it necessary to define its juridical meaning, and have held that a state can have no public policy except what is to be found in its Constitution and laws. * * * Therefore, when we speak of the public policy of the state, we mean the law of the state, whether found in the Constitution, the statutes or judicial records.” (People v. Hawkins, 157 N. Y. 1, at p. 12.)

The power to determine what the policy of the law shall be rests with the Legislature within constitutional limitations, and when it has expressed its will and established a new policy, courts are required to give effect to such policy. (South & Central American Commercial Co., Inc., v. Panama Railroad Co., 237 N. Y. 287, 291.)

It is contended by the defendant that even though the law of this State prevents a common carrier from contracting for exemption from liability for negligence on an intrastate shipment, such law has no application to this case, as the shipment was a shipment from a British port to a British port, under the British flag, and, therefore, the laws of Great Britain govern.

It was also stated in the bill of lading that the contract should be construed according to the law of Great Britain, and it was stipulated at the trial that the exemption clause, EW-2, was valid under those laws.

The bill of lading was a through bill of lading, the goods to be carried by the defendant’s boat from Shanghai to Vancouver, and from there, by its railroad, to New York city.

As a general rule, the validity of a contract is determined by the law of the jurisdiction where made, and if legal there is generally enforcible anywhere. There is, however, a well-established exception to the rule to the effect that a court will* not enforce a contract though valid where made if its enforcement is contrary to the policy of the forum. (People v. Martin, 175 N. Y. 315; Williston on Contracts, vol. 3, § 1792.)

The progressive enactments of the Legislature in this State during comparatively recent years have been so pronounced and fundamental that there can be no doubt that it has deliberately reached the conclusion, contrary to the early decisions, that to allow public service corporations by contract to absolutely exempt themselves from liability for negligence is opposed to the best interest of the citizens of the State. It follows that the courts of the State should not enforce such an exemption clause contained in a bill of lading issued by a common carrier at a foreign port for the delivery of goods to a citizen within this State, even though the contract of carriage provides that it shall be governed by the law of a foreign jurisdiction under which the exemption clause would be valid. .The conclusion which we reach is in harmony with the decisions of the Federal courts. In the case of The Kensington (183 U. S. 263) it was said: The contention amounts to this: Where a contract is made in a foreign country, to be executed at least in part in the United States, the law of the foreign country, either by its own force or in virtue of the agreement of the contracting parties, must be enforced by the courts of the United States, even although to do so requires the violation of the public policy of the United States. To state the proposition is, we think, to answer it. It is true, as a general rule, that the lex loci governs, and it is also true that the intention of the parties to a contract will be sought out and enforced. But both these elementary principles are subordinate to and qualified by the doctrine that neither by comity nor by the will of contracting parties can the public policy of a country be set at naught.”

The same principle has often been announced by this court. (Lemmon v. People, 20 N. Y. 562, at p. 602; People v. Martin, supra; Russian Reinsurance Co. v. Stoddard, 240 N. Y. 149, at p. 163.) The principle is not applicable, however, in cases where acts of Congress have taken the question out of the domain of the State law. (Adams Express Co. v. Croninger, 226 U. S. 491; United Lead Co. v. Lehigh Valley R. R. Co., 156 App. Div. 525, 527; affd., 215 N. Y. 751.)

The bill of lading contained a provision known as clause EW-21 which reads: “ All claims for loss of or damage or injury to any goods or property for which the carriers are liable under the terms hereof shall be adjusted upon the basis of the market value of the said goods or property or of goods or property of the same nature and quality at the place and time of original shipment unless the invoice or declared -value of the said goods or property shall be less than such market value, in which case such invoice or declared value (whichever shall be the less) shall be the maximum, provided, however, that in no case shall the carriers be liable for or in respect of the said goods or property beyond the sum of $10.00 per cubic foot nor in any case exceeding $100.00 for any one package, or any article not enclosed in a package unless a higher value shall have been declared in writing at the time of shipment and ad valorem freight paid thereon.”

• The general rule is that for damage resulting irom. the negligent loss of goods, a carrier is liable for their value at the destination to which it undertakes to carry them. (St. Johns N. F. Shipping Corp. v. S. A. Companhia Geral Commercial Do Rio De Janeiro, 263 U. S. 119.)

A provision of a contract of shipment which purports to arbitrarily limit a carrier’s liability, without consideration therefor, and without choice of rates, is void. (Union Pacific R. R. Co. v. Burke, 255 U. S. 317.)

The bill of lading does not state the value of the silk. The attempt to arbitrarily limit liability — to the value of the silk at the time and place of shipment in the event that the value was declared and an ad valorem rate paid, and otherwise to $100 per package — was without consideration. Under the wording of the bill of lading, the shipper could not, in any event, recover more than the value of the goods at the time and place of shipment, even though it placed a higher valuation thereon and paid an ad valorem rate. Such attempted absolute limitation, of liability, regardless of the rate paid, makes the clause void. (Kilthau v. International Mercantile Marine Co., 245 N. Y. 361.)

We cannot agree with the conclusion reached by the Appellate Division that clause EW-2 is void under the provisions of the Harter Act (U. S. Comp. Stat. § 8029; U. S. Code, tit. 46, § 190). That act by its express terms deals only with shipments by vessels between ports of this country and the ports of foreign countries. It does not purport to regulate shipments by vessels between ports of a foreign country or between ports of different foreign countries even though the goods shipped are intended ultimately to reach this country by shipment over a railroad from a foreign country.

The judgment of the Appellate Division in so far as it limits the recovery to $100 a package should be reversed and the judgment of the Trial Term affirmed, with costs to the plaintiff-appellant in the Appellate'Division and in this court.

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

Judgment accordingly.


text:
    Sarah A. McKnight, Respondent, v. Bank of New York and Trust Company et al., Appellants.

      (Argued October 7, 1930;
    decided November 18, 1930.)

      Langdon P. Marvin, Richard S. Emmet and Edwin M. Bohm for appellants.
    The determination that the trust has been revoked is erroneous. (Pers. Prop. Law, § 23; Whittemore v. Equitable Trust Co., 162 App. Div. 607; 250 N. Y. 298.) The remaindermen are beneficially interested. (Whittemore v. Equitable Trust Co., 250 N. Y. 298; Court v. Bankers Trust Co., 172 App. Div. 955; 221 N. Y. 608.) There is a defect of necessary parties defendants. (Cazzani v. Title Guarantee & Trust Co., 220 N. Y. 683; Delcambre v. Delcambre, 210 N. Y. 460; Landon v. Townshend, 112 N. Y. 93; Jackson v. Tallmadge, 246 N. Y. 133; Williston Cont. §§ 396. 400; Ducas v. Ducas, 150 App. Div. 397.)

      Harold C. Finn and John J. McGann for respondent.
    The only person beneficially interested in the trust is the settlor. (Whittemore v. Equitable Trust Co., 162 App. Div. 607; Gage v. Irving Bank & Trust Co., 222 App. Div. 92; 248 N. Y. 554; Cram v. Walker, 173 App. Div. 805; Stella v. New York Trust Co., 224 App. Div. 50; Holbert v. Jackson, 235 N. Y. Supp. 642; Robertson v. New York Life Ins. & Trust Co., 133 N. Y. Supp. 257; Crackanthorpe v. Sickles, 156 App. Div. 753; Court v. Bankers Trust Co., 221 N. Y. 608; Corbett v. Bank of

      New York & Trust Co., 229 App. Div. 570.) The trustee alone is the proper party defendant in suits to set aside a deed of trust on the ground of fraud. (Rogers v. Rogers, 3 Paige Ch. 379; Landon v. Townshend, 112 N. Y. 93; Jackson v. Tallmadge, 246 N. Y. 133; Wakeman v. Grover, 4 Paige Ch. 23; 11 Wend. 188; Loomis v. Cline, 4 Barb. 453; Russell v. Lasher, 4 Barb. 233; Brach v. Moen, 4 Fed. Rep. [2d] 786; New York Life Ins. Co. v. O'Brien, 27 Fed. Rep. [2d] 773.)
   Crane, J.

On the 1st day of November, 1928, Sarah A. McKnight made and executed a deed of trust wherein and whereby she constituted the defendants trustees to pay the income from a trust property, all of which was personalty, to herself for life, and upon her death to pay the balance to certain named beneficiaries. The following year she attempted to revoke this trust, and the courts below have held that she had accomplished this purpose. The trust instrument gave to her no specific power of revocation. It recited that whereas the settlor desired to relieve herself of the care of her estate and to establish a trust, she agrees to transfer to the Bank of New York and Trust Company and William G. Pilgram, trustees, here mentioned, to have and to hold in trust:

“First. To invest and reinvest the same and from time to time to change the investments of said principal sum and then receive the rents, issues, profits and income therefrom derived and to pay therefrom the expenses of investments, taxes, assessments, insurance and all other necessary and proper charges and expenses incurred, and to pay over the net balance of said income in monthly installments to said Settlor so long as she shall five, provided nevertheless that if said net income should prove insufficient for the maintenance and care of the health and comfort of the said Settlor, it shall be proper for the Trustees or Trustee or their successor or successors to use as much of the principal as may be necessary for the physical well being of the Settlor.”,'

Upon the death of Sarah A. McKnight the trust deed directs the trustees to pay out the balance after paying the debts and the funeral expenses, to twenty-one or more named beneficiaries, stating the amount to go to each, with the residue, if any, to one Mrs. Natalie Garvey.

We do not read this agreement as giving to Mrs. McKnight the full control and disposition over the principal of the trust. The trustees were given a certain amount of discretion in applying the principal to the settlor's needs. She was not the sole person to decide what would be sufficient for her maintenance, health and comfort. It may be that a court would grant some relief as against recalcitrant trustees who refuse to meet the situation, but the underlying fact justifying the use of the principal was the insufficiency of the income for the maintenance and the care of the health and comfort of the settlor. " Probably the trustees and the settlor would always be in agreement upon this point. Yet, if it appeared to the trustees that the settlor desired the principal, not for support, but for some other purpose, or in an attempt to revoke or cripple the trust, their judgment would have to be considered. Whichever way we look at it, we do not think these words amounted to a reservation of a power of revocation, or gave to the settlor absolute power of disposition of the principal. The case of Whittemore v. Equitable Trust Co. (162 App. Div. 607), relied upon by the Appellate Division, is inapplicable. The rule as laid down in Whittemore v. Equitable Trust Co. (250 N. Y. 298) is rather to be chosen.

We conclude, therefore, that this trust agreement was irrevocable within section 23 of the Personal Property Law (Cons. Laws, ch. 41).

If this were all of the case we would not be obliged to determine the sufficiency of the parties. In Cazzani v. Title Guarantee & Trust Co. (175 App. Div. 369; affd., 220 N. Y. 683) it was determined that the living beneficiaries under such a trust agreement were necessary parties to the action to revoke it. They were not made parties in this case, and the objection to the defect would be good were the trust revocable. As we determine that the trust is irrevocable without the consent of these beneficiaries, the point would be immaterial, were it not for the other cause of action set forth in the complaint.

This alleges that the agreement was procured from the plaintiff by fraud and duress and false representations of the defendants. While there is only one cause of action set forth in the complaint— and that to procure a revocation of the trust upon the ground of fraud — yet the Appellate Division has ruled that the trust was revocable at will, which resulted in the Special Term subsequently granting judgment on the pleadings for the plaintiff. As the trust was not revocable by the plaintiff without the consent of the beneficiaries, the issue of fraud remains to be tried, and the question also remains whether or not in such an action the beneficiaries should be made parties. The general rule is that in an action to revoke or cancel a deed of an endowment or settlement of property, or creating a trust, all the designated beneficiaries as well as the trustees are necessary parties. (Black on Rescission and Cancellation [2d ed.], vol. 3, § 662; Hess v. Hess, 233 N. Y. 164; Ducas v. Ducas, 150 App. Div. 397; McDonald v. Frazier, 49 How. Pr. 320; Conkling v. Davies, 53 How. Pr. 409; Moore v. Hegeman, 6 Hun, 290.)

Not always is it easy to determine in an action of this kind who should be made parties or who are beneficially interested, but the prevailing equitable rule appears to be that all those who are living and are beneficially interested should be made the parties in an action to set aside or revoke an instrument or deed of trust. The exception to the rule which permits the trustee to represent as sole party the beneficiaries is said in Vetterlein v. Barnes (124 U. S. 169) to be the case where a stranger to the transaction seeks to set aside the trust agreement as a fraud upon him, generally, a creditor. The rights of such third parties most always exist anterior to the making of the trust deed. (Sears v. Hardy, 120 Mass. 524, 529, cited in the Vetterlein case; see, also, a statement of the exceptions in Jackson v. Tallmadge, 246 N. Y. 133.) Plaintiff in this case created a trust requiring the defendants to pay her the income of property for Efe, and at her death directing them to pay it to the beneficiaries, as above stated. The persons most deeply interested in the maintenance of this trust agreement are these beneficiaries. While the trustees are interested to the extent at least of refuting the charges of wrongdoing, the financial interest rests with the remaindermen. They are entitled to their day in court to be heard upon the vaEdity of the instrument and the legality of the acts of the trustees. In this day when delays and circuity of action are to be avoided and the rights of aU parties are sought to be settled in one action, this case should not proceed against the trustees alone — the beneficiaries are necessary as weU as proper parties.

The judgment dismissing the complaint is, therefore, reversed and the matter remitted to the trial court for disposition upon the issues of fraud. A defect of parties is not a ground for the dismissal of the complaint. (Spaulding v. First National Bank, 210 App. Div. 216; New Amsterdam Casualty Co. v. Mobinco Brokerage Co., 219 App. Div. 486; Rules Civ. Prac. rules 102 and 106.) The parties, therefore, may apply to the Special Term for the appropriate reEef to amend the summons and complaint so as to bring in these necessary parties.

The judgment of the AppeHate Division and that of the Special Term should be reversed and the motion for judgment on the pleadings denied, with costs in all courts.

Pound, Kellogg, O’Brien and Hubbs, JJ., concur; Cardozo, Ch. J., and Lehman, J., concur on the^ first ground stated in the opinion.

Judgments reversed, etc.


text:
    Beekwill Realty Corporation, Appellant, v. The City of New York, Respondent.
    (Argued October 6, 1930;
    decided November 18, 1930.)

      Morris J. Bricker and Leonard Levinsohn for appellant.
    On October 1, 1926, the property was held by the defendant for a public use and a tax imposed for the year 1927 is, therefore, void. (Tax Law, § 2, subd. 6; Mott v. Palmer, 1 N. Y. 564; People ex rel. New York & H. R. R. Co. v. Commrs. of Taxes, 101 N. Y. 322; People ex rel. Dunkirk

      & Fredonia R. R. Co. v. Cassity, 46 N. Y. 46; People ex rel. N. Y. & H. R. R. Co. v. Comm. of Taxes, 23 Hun, 687; Lampman v. Milks, 21 N. Y. 505; Root v. Conkling, 199 App. Div. 90; Heyman v. Biggs, 223 N. Y. 118; People ex rel. Hollock v. Purdy, 72 Misc. Rep. 122; People ex rel. Mayor of N. Y. v. Assessors, 111 N. Y. 505; Trustees, etc., v. Smith, 118 N. Y. 634; Matter of Frankel, 157 N. Y. 603; Phillips v. West Rockaway Land Co., 226 N. Y. 507; Nield v. Jupiter, 175 App. Div. 732; 226 N. Y. 594; Sisters of St. Francis v. Mayor, 51 Hun, 355; 112 N. Y. 677; Clark v. Norton, 49 N. Y. 243.)

      David I. Silverman and Charles Jaffa for Thesium Amusement Corporation et al., amici curice.

    On October 1, 1926, the property was held by defendant for a public use and a tax imposed for said year is, therefore, void. (People ex rel. Hollock v. Purdy, 72 Misc. Rep. 122; Brooklyn Park Commrs. v. Armstrong, 45 N. Y. 234; People ex rel. Mayor v. Assessors, 47 Hun, 390; 111 N. Y. 509; Dillon Mun. Corp. § 773; Root v. Conkling, 199 App. Div. 90; Lampman v. Milks, 21 N. Y. 505; Trustees of Brookhaven v. Smith, 118 N. Y. 634; Matter of Frankel, 157 N. Y. 603; Phillip v. West Rockaway Land Co., 226 N. Y. 507; People ex rel. M. D. G. Land Co. v. Cantor, 223 App. Div. 471; 249 N. Y. 604; People ex rel. Schaeffer v. Barker, 87 Hun, 194; Elmhurst Fire Co. v. City of New York, 213 N. Y. 87; McLean v. Jephson, 123 N. Y. 142; Dale v. City of New York, 71 App. Div. 227.

      Lynn G. Goodnough and Anson W. Van Ness for DeKalb-Hudson Corporation, amicus curice.

    On October 1, 1926, the taxed property was owned by the city of New York and used for a public purpose; hence the assessment complained of is illegal and void and should be canceled of record as a cloud on title. (Tax Law, § 2, subd. 6; Real Prop. Law, § 2; Condemnation Law, § 2; Mott v. Palmer, 1 N. Y. 564; Canfield v. Ford, 28 Barb. 336; Baker v. Johnson, 2 Hill, 342; People ex rel.

      M. D. G. Land Co. v. Cantor, 223 App. Div. 771; 249 N. Y. 604; People ex rel. Hollock v. Purdy, 72 Misc. Rep. 122; Brooklyn Park Commrs. v. Armstrong, 45 N. Y. 234; Matter of Hamilton, 148 N. Y. 310; Trustees of Public Schools v. City of Trenton, 30 N. J. Eq. 667; People ex rel. International Navigation Co. v. Barker, 153 N. Y. 98; Matter of Rapid Transit R. R. Commrs., 197 N. Y. 81; Waterloo Woolen Co. v. Shanahan, 128 N. Y. 345; Matter of Niagara Falls & Whirlpool R. Co., 108 N. Y. 375; Matter of Deansville Cemetery Assn., 66 N. Y. 569; Matter of City of Brooklyn, 143 N. Y. 596; 166 U. S. 685; Matter of Mayor of N. Y., 135 N. Y. 253; Pontico Water Works Co. v. Bird, 130 N. Y. 249; Bradley v. Degnon Contracting Co., 224 N. Y. 60.)

      Arthur J. Hilly, Corporation Counsel (William H. King and Isaac Phillips of counsel), for respondent.
    The taxes for the year 1927 are valid as on October 1, 1926, the property, although owned by the city, was not held or used for a public purpose, and hence was- taxable. (Tax Law, § 3; L. 1901, ch. 466, § 892; People ex rel. Barnard College v. Wells, 89 N. Y. Supp. 847; 92 App. Div. 622; 179 N. Y. 529; Whitehead v. Cape Henry Syndicate, 105 Va. 436; Sumpter v. Duffie, 80 Ark. 369; State v. Martin, 60 Ark. 343.)
   O’Brien, J.

The fee of the real property of which plaintiff is now the owner was acquired by the city of New York for rapid transit purposes and thereafter it was declared exempt from taxation. In the year 1920 the Transit Construction Commission certified that, except for a particularly described easement and right of way to be reserved by the city, it was no longer needed for transit purposes and the Commissioners of the Sinking Fund authorized its sale subject to that described easement. On October 28, 1926, it was bid in at auction by plaintiff’s assignor and was afterward conveyed to plaintiff subject to retention by the city of that easement and right of way which is described in the deed by metes and bounds. October 1, 1926, was the date which fixed the taxable status for the year 1927 and the property was assessed as of that date. This action is brought to cancel the tax.

Section 4, subdivision 3, of the Tax Law (Cons. Laws, eh. 60) declares property of a municipal corporation held for public use to be. exempt from taxation and accordingly the question is whether on October 1,1926, this property was held for public use.” Prior to the conveyance by deed to plaintiff the interest which the city now holds did not exist. The Transit Construction Commission had merely certified that, except such portion of the land as is now described as within the right of way, the property was no longer required for transit purposes. The Sinking Fund Commission had authorized the sale of the whole property subject to the proposed right of way and such a sale had been effected. The municipality still owned the fee of the entire parcel. It could not create an easement in its own favor to exist during the time that it was vested with the fee. The resolution of the Transit Commission has no greater effect than a declaration that after' an easement should in the future be carved out by the operation of diverse interests in the title, the remainder of the physical property would no longer be needed for transit purposes. . Until such a time as the right of way might be brought into being, the city’s title in fee attached to all this parcel and the land in its entirety must be deemed to be used for a subway. It is true that the surface and the space above and the space for a distance of nine feet below the surface was not physically occupied by transit structures. The land was all one property. This condition may be compared to the partial use of a building such as the cellar of a schoolhouse or any other separate space. A tract of land, for example three acres in area, all in the city’s single ownership, may be physically occupied only to the extent of a single acre. In such instances the better view to take seems to be that the property must be viewed as a whole. The division or separation of the title to this rapid transit property had not occurred on October 1, 1926, and no part of the land was devoted to any purpose except that of a subway. Until the title was separated or the land divided and part of it used for some private purpose, we think the premises must be regarded in their entirety and as such all of it held for public use.

The judgment of the Appellate Division and that of the Special Term should be reversed and judgment directed in favor of the appellant canceling the tax, with costs in all courts.

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

Judgment accordingly.


author: Cardozo, Ch. J.

text:
    The People of the State of New York ex rel. Nathan A. Smyth, Respondent, v. Thomas M. Lynch et al., Constituting the State Tax Commission, Appellants.

      (Argued October 8, 1930;
    decided November 18, 1930.)

      Hamilton Ward, Attorney-General (W. Earl Smith of counsel), for appellants.
    The sums which were received by the relator were not dividends but were compensation for personal services rendered in the State of New York and, therefore, constituted income taxable under the laws of New York. (Mobile, etc., R. R. Co. v. Tennessee, 153 U. S. 486; Hyatt v. Allen, 56 N. Y. 553; People ex rel. Pullman Co. v. Glynn, 130 App. Div. 332; Jones v. Terre Haute, etc., R. R. Co., 57 N. Y. 196; Williams v. Western Union Telegraph Co., 93 N. Y. 162; Hughes v. Vermont Copper Min. Co., 72 N. Y. 207; Warren v. King, 108 U. S. 389.) The sum of $20,000 was received by relator from the corporation and not from the United States government. The corporate entity cannot be disregarded. (Oregon Ry. & Navigation Co. v. Oregonian Ry. Co., 130 U. S. 1; Donoghue v. I. & L. M. Ry. Co., 87 Mich. 13; England v. Dearborn, 141 Mass. 590; United States v. Milwaukee Ref. Trans. Co., 142 Fed. Rep. 247; Farmers Loan & Trust Co. v. Pierson, 222 N. Y. Supp. 532; Ross v. Jacobowitz, 216 App. Div. 184; Buffalo Loan Co. v. Medina Gas Co., 162 N. Y. 67; Palmer v. Ring, 113 App. Div. 643; Coal Belt Co. v. Peabody Coal Co., 230 Ill. 164; Ulmer v. Lime Rock R. R. Co., 98 Me. 579; Old Dominion Copper Co. v. Bigelow, 203 Mass. 159.)

      Bruce R. Tuttle for respondent.
   Cardozo, Ch. J.

The controversy is one as to the amount due from the relator for a tax upon income, and the determination hinges upon the answer to the question whether the income was received as dividends or as salary.

On December 14,1922, an agreement was made between the United States Shipping Board, described as owner, and United States P. & I. Agency, Inc., a Delaware corporation, described as agent, whereby the latter corporation was appointed the agent of the owner to investigate claims against the owner or its vessels, to negotiate settlements, to assist in preparations for trial, to keep suitable statistics, to maintain an office and an adequate staff in the city of New York for the conduct of its business, and to employ and direct the activities of such field agents in this country and abroad as the owner might direct or authorize.

The agent, in accepting the appointment, agreed to furnish at its own cost the services of its president, its vice-president, a manager of the cargo claims department, a manager of the personal injury claims department, a manager of the investigation department, and its secretary and treasurer.

The owner agreed to pay to the agent a fixed fee of $65,000 a year for which the agent was to furnish without further cost to the owner the services of the officers above enumerated. The owner was also to pay such additional amount as might be necessary to meet the expenses incurred by the agent in the performance of its services other than the expenses specifically assumed. If at the end of any calendar year there was any unexpended balance of the fixed fee, such balance was to be accounted for and paid back by the agent to the owner.

The agent was to deposit with the treasurer of the United States Shipping Board Emergency Fleet Corporation certificates for all its authorized capital stock, duly indorsed in blank, such stock to be delivered to and become the property of the owner in the event of service of notice by the owner of termination of the agency or upon the resignation, withdrawal or other separation from the agency of the president then in office.

Accompanying the agreement and forming part of it was a letter from the agent’s president, the relator in this proceeding, expressing his understanding that his personal compensation to be received through the corporation directly or indirectly was to be an amount not to exceed $20,000 a year.

The corporation was formed with an authorized capital stock of a hundred shares of no par value. These shares were issued by the corporation to the relator in consideration of his services in procuring the agency contract. Forty of the hundred shares were transferred by the relator to his wife, but he admits that the beneficial ownership is his. The board of directors, composed of the relator and his secretary, voted salaries for the services of all the officers and managers to be employed under the contract except only the president. For him they provided that there should be a drawing account payable to the stockholders (i. e., to himself and his wife, who held her shares for his use) in the sum of $20,000. If dividends were thereafter declared, the moneys drawn from this account were to be charged against the dividends.

The surplus for the year 1923 out of the fixed fee of $65,000, after deducting the expenses other than the petitioner’s compensation, was $26,000. From this the petitioner received $20,000. The balance, after deducting the Federal income tax, was paid to the owner. The surplus for 1924 was about $23,000, which, after the payment of the Federal tax, left a little less than $20,000 for the services of the president.

The relator, who is a non-resident, made his return to the State Tax Commission for income during the years 1923 and 1924 upon the basis of a right to exclude therefrom the moneys received from the agent corporation. The services rendered by the relator were rendered in this State. If what was paid to him was salary, it is income subject to a tax. If what was paid was dividends, the income is exempt (Tax Law; Cons. Laws, ch. 60, § 359, subd. 3).

The State Tax Commission held that the payments, though characterized as income, were in truth compensation or salary for personal services. The Appellate Division reversed by a divided court, annulled the determination of the Commission and remitted the tax. Upon appeal by the Commission, the case is now here.

We think the payment in its substance was not a dividend, but a salary.

The relator was the organizer of the corporation and except in name its only stockholder. Whatever agreement he made as to the form of his compensation was made in substance with himself. The entire income of the corporation, so far as the record shows, was the fixed fee of $65,000 payable by the Shipping Board. By his agreement with the Board no part of this fee in excess of $20,000 was to be used directly or indirectly as compensation for his personal services, and any part remaining after paying for those services and the other expenses of the agency was to be paid back to the Board at the end of the calendar year. Very plainly, therefore, the relator understood that what he was to get out of the fee was not a dividend upon his shares, but a payment for his work. To have kept it for any other purpose would have been a breach of his own engagement as well as that of his employer. Board and agent had agreed that what was left after expenses was to be returned to its source, and not distributed as dividends.

Everything that followed confirms this understanding. The relator, in full control of the corporation, established for himself a drawing account whereby he drew upon the corporate treasury at the rate of $20,000 a year, whether dividends were declared or not. If in any calendar year the form of a declared dividend had been omitted, the relator would still have kept this money, and kept it in payment of his services, for under his contract with the Board he could not have it for anything else. We think the Tax Commission did not err in going behind names to realities and testing the transaction by its substance rather than by its form.

The relator makes the point that if the form of a dividend be rejected, the compensation is to be viewed as salary paid by the Shipping Board, an agency of the Federal government, and so exempt upon that ground. We think the claimed exemption must be held to be unreal. The relator was not employed by the Board. He was employed by the agency, an independent corporation, which the Board carefully interposed between itself and the human agents by whom the work was to be done. The corporation undertook to furnish at its own expense the services of enumerated officers and managers in addition to the president. If the services of those officers and managers had used up the fixed fee of $65.000, and left nothing for the president, he would have had no claim against the Board for the payment of a dollar. He would have had to look to the corporation for compensation or indemnity. His relation to the Board in that regard was not different from that of any other agent employed by the corporation in the business of the agency. For one and all, the employer was the corporation, created for the very purpose of supplying an insulating medium that would break the line of contact between the agents and the government. The fee contributed by the government was, when received by the corporation, a fund available for salaries and for the expenses of the business generally. It did not turn the officers and managers in the service of the corporation into officers and managers in the service of the government.

The order of the Appellate Division should be reversed, and the determination of the State Tax Commission confirmed, with costs in the Appellate Division and in this court.

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

Ordered accordingly.

ft


author: O’Bbien, J.

text:
    Jessie Adler, Appellant, v. Emil Berkowitz et al., Defendants, and Rose Gast, Respondent.

      (Argued October 8, 1930;
    decided November 18, 1930.)

      Jacob A. Freedman and Irving C. Maltz for appellant.
    It was optional with the mortgagee to declare the entire principal sum due and payable because of a default in the payment of an installment of principal or interest. (Real Prop. Law, § 254; Walsh v. Henel, 226 App. Div. 198; Cresco Realty Co. v. Clark, 128 App. Div. 144; Matusak v. Bakiorzynski, 128 Misc. Rep. 375.) The bond is the principal obligation. The mortgage is merely collateral to it and is executed to secure the performance of that obligation. The bond and mortgage are to be construed together as forming one contract. Where the bond and mortgage contain inconsistent provisions then those contained in the bond must prevail. (Jones on Mortgages [5th ed.], vol. 2, p. 126; 41 C. J. § 340; Rothschild v. Rio Grande Western R. R. Co., 84 Hun, 103; 164 N. Y. 594; Railway Co. v. Sprague, 103 U. S. 756; Hoffman Co. v. Rochester Consolidated & Milling Co., 53 N. Y. Supp. 1106; Beach v. Supreme Tent K. of M., 177 N. Y. 100; Imperial Shale Brick Co. v. Jewett, 169 N. Y. 143;
      Goodjon v. United Bond & Building Corp., 226 App. Div. 137; Enoch v. Brandon, 128 Misc. Rep. 695; Biedka v. Ashenas, 119 Misc. Rep. 647; Osborne v. Missouri, K. & T. Ry. Co., 92 Misc. Rep. 166; Berman v. Consolidated, Nevada-Utah Corp., 132 Misc. Rep. 462; Lumberman’s Trust Co. v. Title Ins. & Investment Co., 248 Fed. Rep. 212.)

      Louis Joffe and Hyman Finkelson for respondent.
    Section 254 of the Real Property Law does not add the words “ at the option of the mortgagee ” to the acceleration clause of the mortgage. (Manson v. Curtis, 223 N. Y. 320; 2 Williston on Contracts, § 601; Williams v. Wisner Building Co., 121 Misc. Rep. 32.) On matters pertaining to the mortgage, the terms of the mortgage control when different from terms of the bond. (Feigenbaum v. Hiznay, 187 App. Div. 126; Stoddard v. Hart, 23 N. Y. 556; Gen. Inv. Co. v. I. R. T., 200 App. Div. 794; 235 N. Y. 133; Murray v. Marshall, 94 N. Y. 611.) The bond or note cannot be declared due in an action thereon, prior to its expressed maturity, even though the security may' be foreclosed. (Wiltsie on Mortgage Foreclosure [4th ed.], § 56; Mallory v. West Shore R. R. Co., 3 J. & S. 174; White v. Miller, 52 Minn. 367; McClelland v. Bishop, 42 Ohio St. 113; Alwood v. Harrison, 66 Okla. 203; American Nat. Bank v. Am. Wood P. Co., 19 R. I. 149; Morton v. Rock B. C. Co., 91 W. Va. 169; Morgan v. Martien, 32 Mo. 438; Batchelor v. Council G. W. Co., 131 N. Y. 42.)
   O’Bbien, J.

Defendant Rose Gast and her husband executed a bond to plaintiff’s assignor for a sum of money and at the same time she alone gave a mortgage on premises owned by her to the same person in the same amount. The acceleration clause in the bond provides that at the option of the obligee after default for thirty days in the payment of interest or of any installment of principal the whole of the principal sum shall become due. The mortgage embraces a similar clause except the time is stated to be twenty instead of thirty days, and the provision relative to an option by the obligee is omitted. Rose Gast conveyed the mortgaged premises to defendant Berkowitz who took them subject to the mortgage but did not agree to pay the debt. On a certain date when the premises were worth enough to pay all incumbrances, an installment of principal and the quarterly interest became due. Berkowitz paid the amount after the expiration of twenty days but within the thirty days. Without Rose Gast’s knowledge, plaintiff accepted payment. Nine months later a second default occurred. In this action of foreclosure plaintiff recovered a deficiency judgment against Rose Gast at a time when the value of the premises had depreciated. It has been reversed as to her by a divided court.

The bond is the evidence of the original indebtedness. The mortgage is to secure the debt and by its terms the installments of principal and the interest are made payable according to a certain bond or, obligation bearing even date herewith.” That bond does not require the obligee to declare the principal due at the expiration of twenty days; it may become due at the expiration of thirty days and then only at the option of said obligee.” The parties to the bond put into exact words the meaning which section 254 of the Real Property Law (Cons. Laws, ch. 50) requires to be inferred from language in mortgages in statutory form. Ordinarily, when provisions in a bond and a mortgage are inconsistent, the terms of the bond are held to control. (Rothschild v. Rio Grande Western Ry. Co., 84 Hun, 103; affd., 164 N. Y. 594.) On the facts before us the usual rule should apply. Rose Gast absolutely promised to pay plaintiff’s assignor certain definite sums on specific dates and gave him the option in the event of default to declare the whole principal due. He was under no obligation to exert this discretionary power. As between her and the holder of the bond, the terms of the bond rather than the mortgage must be held controlling.

The judgment of the Appellate Division in so far as it strikes out the provisions for a deficiency judgment against the defendant Rose Gast should be reversed and the judgment of the Special Term affirmed, with costs to the appellant in the Appellate Division and in this court.

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

Judgment accordingly.


text:
    Henry Green, Appellant, v. Louis L. Wachs et al., Respondents, Impleaded with Another.

      (Argued October 9, 1930;
    decided November 18, 1930.)

      Walter Underhill, Maurice Rubinger and Robert Jacobs for appellant.
    Evidence of custom and prior dealings was properly rejected. (Bigelow v. Legg, 102 N. Y. 652; Hayward v. Wemple, 152 App. Div. 195; 206 N. Y. 692; Hopper v. Sage, 112 N. Y. 530; Hart v. Cort, 165 App. Div. 583.)

      Harold R. Medina, William Solomon and William Gilbert for respondents.
    The trial court erred in excluding testimony as to custom and past transactions. (Barro v. Saitta, 145 N. Y. Supp. 849; Folinsbee v. Sawyer, 158 N. Y. 196; Robert v. U. S. S. B. Emergency Fleet Corp., 240 N. Y. 474; Hankinson v. Vantyne, 152 N. Y. 20.)
   Crane, J.

Henry Green, of 527 Fifth avenue, New York city, had been in the jewelry trade for over twenty-nine years, selling precious stones. He was the owner of an emerald cut diamond weighing 13.40 carats. For some years he had been doing business with Felix B. Vollman, in the same line of business, and had on many occasions sold to or through him, jewelry. In the fall of 1925, Vollman took from Green the emerald cut diamond, worth, it is said, about $18,000, to show to his customers and to make a sale, pursuant to arrangements which were embodied in the following writing:

' Memorandum

“No. 16968

“ Henry Green

“ 527 Fifth Avenue

“ New York

“ Telephone Murray Hill 9795

“ Importer op Precious Stones

" To Felix B. Tollman " New Tobk- Sepl' 3- 1626

“ City.

“ These goods are sent for your inspection and remain • the property of Henry Green and are to be returned on demand. Sale takes effect only from date of approval of your selection, and a bill of sale rendered.

“ 1 Em. Cut Dia. in ring 13.40 $12,500 — Stone

“ Net

“ (Signed) FELIX B. VOLLMAN ”

On the third of October Green demanded the return of this gem, which resulted in the following letter:

Oct. 3rd, 1925

“ Henry Green,

“ 527 Fifth Avenue,

“ New York, N. Y.

“ My dear Mr. Green:

In response to your letter of today’s date, We wish to advise you that we have gotten in touch with the party who had your goods on memorandum from us and we herewith enclose his reply to us.

“ Please be patient as we assure you we are endeavoring to the utmost to[have the goods returned to you on Monday, October the fifth. Yours very truly,

“ FELIX B. VOLLMAN & Co.

“ Signed Felix B. Vollman.”

Vollman had passed the diamond on to another dealer, named Harry Cohn, who wrote to him that on account of the demand made by Henry Green for the emerald cut diamond, he would return it not later than October seventh. “ This,” he wrote, “ no doubt will satisfy your request for the return of this merchandise and should in turn satisfy Mr. Green.”

It appears that Cohn had passed the diamond on to another dealer named Harry C. Arnow, who in turn had sold it to Louis L. Wachs and Morris H. Mann, the respondents. The money paid for the stone was returned neither to Vollman nor to Green. The latter thereupon brought this action against Wachs and Mann to recover the stone or its value.

The issue at the trial was the authority of Vollman to sell the stone. The defendants offered to supplement or explain the written memorandum of September third, above quoted, by showing a custom in the trade that brokers or dealers, such as Vollman, under similar circumstances, had authority and were expected to sell jewelry consigned to them, and remit after receiving the price from their customers. The trial justice excluded such evidence and also struck out all the evidence bearing upon the previous dealings of Vollman and Green in so far as it attempted to show the nature of their previous transactions. The court ruled that the memorandum of September third was not ambiguous, was clear in its meaning and could not be varied by parol evidence of trade custom or by the previous acts of the parties.

The judgment directed for the plaintiff was reversed by the Appellate Division on the authority of Smith v. Clews (105 N. Y. 283), two of the justices dissenting.

The jeweler, Henry Green, did not part with title merely because he parted with possession. Vollman, in taking the diamond, held it subject to the agreement which he had made with Green. Anybody taking it from Vollman, even an innocent purchaser for value, such as these defendants, had no better right to the stone than did Vollman. (Smith v. Clews, 114 N. Y. 190, on the second appeal.) The right to this diamond, therefore, depends upon Vollman’s right to sell, and this in turn depends upon the meaning of the memorandum which he signed when he took the stone. If there be any doubt about the meaning of the words or phrases used in this paper, the trial justice was in error in ruling out the proposed evidence. If the meaning is clear, then his rulings were correct. Whatever may have been the previous dealings between Green and Vollman, Green had the right to part with this diamond on such terms as he desired, and if his intention was made clear, it could not be modified or changed by anything he had done before.

We are of the opinion that the memorandum agreement of September third is clear on its face. The diamond is sent to Vollman for his inspection, and is to remain the property of Henry Green, to be returned on demand. Vollman, of course, took the diamond to sell. He and Green were in that business. The memorandum, however, states that a sale, that is, a sale by Green to Vollman, passing title is to take effect only from the date of the approval (Green’s approval) of his (Vollman’s) selection, and a bill of sale rendered. Title never passed to Vollman, according to this agreement, as a sale to him never took effect. There is no evidence of an approval of his selection, or attempted sale; and no bill of sale was ever rendered. The correspondence in the case indicates that more than one piece of jewelry or one gem was taken at a time, and such, no doubt, is the practice with these jewelry brokers. The memorandum, therefore, as will be noted, is in the plural, and reads: “ These goods are sent for your inspection,” etc. This explains more fully the meaning of the words: Sale takes effect only from date of approval of your selection.” The selection evidently refers to Vollman’s selection among the pieces taken for inspection or on consignment. Whatever meaning, however, we may give to these words, it is clear that at the time Vollman took the diamond and signed the memorandum, no title passed to him, and no title passed out of Green to anybody thereafter until Green had acted on Vollman’s selection, and given a bill of sale. Parol evidence, therefore, offered on behalf of the defendants in this case was properly excluded. (Hopper v. Sage, 112 N. Y. 530; Hayward v. Wemple, 152 App. Div. 195; 206 N. Y. 692; Bigelow v. Legg, 102 N. Y. 652.)

Smith v. Clews (as reported in 105 N. Y. 283 and 114 N. Y. 190) is very similar to the present case. Diamonds were the subject of the sale on memorandum, which stated that they were given to the broker or middleman “ on approval ” to show his customers. They were to be returned on demand. On the second trial the complaint was dismissed following this court’s decision on the first appeal. When the case reached this court it was again reversed for error in excluding evidence offered by the plaintiff. Effort was made to show that the words “ on approval ” had a well-recognized meaning in the trade and were understood to confer no power of sale, but merely authority to show diamonds to a customer and report to the owner. This court said, in holding such evidence to be competent, that if the words on approval ” were stricken from the memorandum, the duty to return was absolute; that the authority would be merely tó show or exhibit to prospective customers. The memorandum being ambiguous by the use of these words on approval,” the offered testimony was considered competent, and the case was sent back for a new trial. Vollman’s agreement is much plainer and simpler than the memorandum in Smith v. Clews (supra). The goods are to remain the property of Henry Green; no sale is to take effect until a bill of sale is rendered; and the approval is to be the approval by Green of Vollman’s selection.

It is unnecessary to invoke that rule, for the result would be the same though an agreement equally definite had been made by word of mouth. The agreement, even if oral, would not have been disproved by the evidence offered as to the earlier transactions, nor would custom have been available to override its plain significance.

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

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

Judgment accordingly.