text:
    Michael Digelormo, as Administrator of the Estate of Gelardo Digelormo, Deceased, Respondent, v. Benjamin J. Weil et al., Appellants, Impleaded with Another.

      (Argued October 19,1932;
    decided November 22, 1932.)

      George J. Stacy and James J. Mahoney for Benjamin J. Weil, appellant.
    There was nothing wrong with the elevator or its machinery and the defendant owner was not negligent. (Hart v. Naumberg, 123 N. Y. 641; Paul v. Consolidated Fireworks, 212 N. Y. 120; Ryan v. Cortland, Carriage Goods Co., 133 App. Div. 467; Lafflin v. Buffalo & S. W. R. R. Co., 106 N. Y. 136; McKenzie v. Waddell Coal Co., 89 App. Div. 415; Glasier v. Town of Hebron, 131 N. Y. 447; Loftus v. Union Ferry Co., 84 N. Y. 455; Dongan v. Champlain Transp. Co., 56 N. Y. 1; Montgomery v. Bloomingdale, 34 App. Div. 375.) No one knows how the accident occurred and the verdict is the result of surmise, speculation and conjecture. (Ruppert v. Brooklyn Heights R. R. Co., 154 N. Y. 90; People v. Razezicz, 206 N. Y. 249; Dobbins v. Brown, 119 N. Y. 188; Corbett v. Brooklyn, Bath & W. E. R. R. Co., 74 Hun, 375; 154 N. Y. 772; Brianzi v. Crane, 196 App. Div. 58; Dudley v. Raymond, 148 App. Div. 886; United States v.
      Ross, 92 U. S. 281.) The trial court committed error in refusing to charge that if there are two or more reasons which in themselves are consistent to the happening of the accident, one of which would predicate liability, the other or others would predicate no liability, then the plaintiff has failed to meet the burden which the law requires and the verdict must be for the defendant. (Yaggle v. Allen, 24 App. Div. 594.)

      Walter G. Evans, Thomas F. Keane and John P. Smith for Watson Elevator Company, appellant.
    There is no proof showing how the accident occurred, or that the existence of the space between the shaft door and the elevator gate was the proximate cause of the accident or in any way connected therewith. (Lopez v. Campbell, 163 N. Y. 340; Specht v. Waterbury Co., 208 N. Y. 374; Lasie v. D. & H. R. R. Co., 142 App. Div. 214; Ruback v. McCleary, Wallin & Crouse, 220 N. Y. 188; Ruppert v. B. H. R. R. Co., 154 N. Y. 90; People v. Razezicz, 206 N. Y. 249; Francey v. Rutland R. R. Co., 222 N. Y. 482; Karr v. Inecto, 247 N. Y. 360; Matter of Case, 214 N. Y. 199; White v. Lehigh Valley R. R. Co., 220 N. Y. 131; Scharff v. Jackson, 216 N. Y. 598; Huff v. American Fire Engine Co., 88 App. Div. 324.) The trial court erred in declining to charge that, if the jury could find that there are two or more reasons which in themselves are consistent to the happening of the accident, one of which would predicate liability and the other or others would predicate no liability, then the plaintiff failed to meet the burden which the law requires and the verdict must be for the defendant. (Hardie v. Boland, 205 N. Y. 336.)

      Joseph Sussman for respondent.
    It is for the jury to say whether the open and unguarded space between the elevator mesh gate and the hallway door, in connection with the automatic elevator, was a dangerous condition sufficient to constitute negligence (Lyon v. Queensborough Corp., 248 N. Y. Supp. 353; Kern v. Great Atlantic

      & Pacific Tea Co., 241 N. Y. 600; Clark v. New York Hotel Statler Co., 227 N. Y. Supp. 671; Hanley v. Butler, Inc., 153 N. Y. Supp. 39; Gray v. Siegel-Cooper Co., 187 N. Y. 376; Auld v. Manhattan Life Ins. Co., 54 N. Y. Supp. 222; 165 N. Y. 610; Stringham v. Stewart, 100 N. Y. 516.) There is adequate proof to show that the proximate cause of the accident was the existence of the dangerous space condition between the door and the elevator mesh gate. (Fagan v. Atlantic Coast Line R. R. Co., 220 N. Y. 301; Stump v. Burns, 219 N. Y. 306; Stubbs v. City of Rochester, 226 N. Y. 516; Warner v. New York, O. & W. Ry. Co., 204 N. Y. Supp. 607; Galvin v. Mayor, 112 N. Y. 223; Hart v. Hudson River Bridge Co., 80 N. Y. 622.) The negligence of the defendant owner arises out of the maintenance, operation and control of the automatic elevator by him while the dangerous space condition existed. (Employers’ Liability Assur. Corp. v. Wagner, 214 N. Y. Supp. 313; Griffen v. Manice, 166 N. Y. 188; Munsey v. Webb, 231 U. S. 150; Condran v. Park & Tilford, 213 N. Y. 341.) The automatic elevator negligently designed and installed in conjunction with the dangerous space condition, was an inherently and imminently dangerous instrumentality for which the defendant elevator company is answerable to all persons lawfully using the same, who are injured thereby. (MacPherson v. Buick Motor Co., 217 N. Y. 382; Rosebrock v. General Electric Co., 236 N. Y. 227; Kahner v. Otis Elevator Co., 89 N. Y. Supp. 185; 183 N. Y. 512; Smith v. Peerless Glass Co., 259 N. Y. 292.) No error was committed by the trial court in its charge or in its refusals to charge as requested. (Hardie v. Boland Co., 205 N. Y. 336; [Stubbs v. City of Rochester, 226 N. Y. 516.)
   Crane, J.

Judgment has been recovered in negligence against the owner of an apartment house and the constructor of an elevator therein, for the death of Gelardo Digelormo, a boy six years of age. The accident happened July 27, 1927. The large apartment building of two sections, known as No. 1975 Walton avenue, New York city, was owned and maintained by the defendant Benjamin J. Weil. In it for the use of tenants was an electric push-button passenger elevator built and constructed by the defendant Watson Elevator Company, Inc. The elevator was the work of the company; the shaft in which it ran and the doors and space leading to the elevator were the work of the architect and builder. The measurements of the shafts were taken wholly from the architect’s plan. The elevator equipment included rails, car, motor, machinery and safety interlocks, excluding safety doors, saddles, jambs, etc.

The safety interlock was installed on the shaftway door to prevent the operation of the elevator unless the shaftway door was closed and locked. The Watson Elevator Company, Inc., did not construct nor install the shaftway door. On the elevator itself was .a mesh gate kept closed by a pneumatic plunger. This was separate and distinct from the shaftway door. Between the two was a floor space of about eight inches. The measurement from the inside of the gate track of the elevator to the inside of the shaftway door was, to be exact, eight and eleven-sixteenths inches. This space is the essential feature of this case; upon its existence rests whatever case the plaintiff has established.

The elevator was installed in accordance with all the requirements of the Bureau of Buildings and was approved by that department of the city government in a final certificate. The general contractor, not the elevator company, constructed the space between the shaftway door and the elevator gate. The flooring of the space was part of the building. The Watson Elevator Company, Inc., cannot, therefore, be charged with any negligence in creating this space or in permitting it to exist. No complaint is made by the plaintiff of any other defect than this space; the elevator and the equipment installed by the company were in good working condition.

To complete the description it remains to be said that the elevator operated mechanically by push buttons; a button touched inside the elevator sent it to the required floor or a button worked on any floor would bring up the elevator, provided that in both instances both the elevator gate and the shaft door were closed.

The cause of the accident is extremely vague and uncertain; in fact the plaintiff has failed to show how it happened or that anybody’s negligence is responsible for it.

On the day mentioned Michael Digelormo was delivering ice to the apartments and had with him his helper, Johnny Savino, and the boy Gelardo, the deceased. The time was between eight and nine o’clock in the morning. The father left the two boys and went to deliver ice. Savino and Gelardo took the automatic elevator to the second floor, where they both left it. To do so they had to open and shut the shaft door and elevator gate before the elevator would move, and of course they had to open both to get out on the second floor. After they got out both doors and gate were closed. Savino left Gelardo in the hallway near the elevator to go into apartment 2E to take ice off the dumb waiter. He was gone two or three minutes and when he came back he found Gelardo in the elevator at the third floor, dead; his head and body were crushed between the elevator and the floor of the building. No one saw the accident or knows how it happened. Gelardo had no business on the elevator and no occasion to go up to the next floor; he was to wait in the hall for Savino. To get into the elevator the boy had to open the shaft door and the elevator gate, close both and push a button. The theory of the plaintiff is that the boy opened the shaft door, stepped into the space between it and the gate, the shaft door must then have swung to and inclosed him in the space, and then somebody on some other floor must at just that moment have pushed a button and caused the elevator to rise, carrying the boy up with it. This is altogether too highly speculative to be the basis for a recovery in negligence.

No evidence is produced to show that any person was on any of the floors at that time. If Gelardo had curiosity and capacity sufficient to leave Savino and open the shaft door, which operated on springs,- he could easily have gone further and opened the mesh gate — but a step. Once inside the elevator, both doors would have automatically closed. If he or any one else had pushed a button the elevator would have gone up. Frightened or curious, he may then have opened the gate, which would stop the car. While attempting to get out, the gate -may have sprung shut and the elevator started by some intending passenger, catching the boy between the car and the third floor. This might just as well have happened as the plaintiff’s surmise. One hypothesis is as good as another. Nobody knows. Had he been hurt, somehow after being in the elevator, the space between the shaft door and the gate would in no way have occasioned the accident. The plaintiff’s case rests entirely on the assumption that the boy opened the door and stepped between it and the closed gate. We can just as well assume that he also opened the gate and stepped in. The elevator, not the shaft door, was apparently the attraction.

The record of this case is also bare of any evidence that this elevator passage as planned and constructed by the architect and builder from approved plans was inherently dangerous so as to make the owner liable, without some notice that in operation it was defective. No evidence shows that such a space between shaft door and elevator gate was an unusual and improper construction. Possibly this was the customary way of construction. The burden was on the plaintiff to prove that from improper construction or some other warning, the owner had reason to anticipate that some one might get hurt thereby. Accidents frequently suggest remedies which would not be foreseen even in exercising the utmost care.

This judgment cannot stand as against the Watson Elevator Company, Inc., because it is in no way responsible for the space between the shaft door and the elevator gate. No duty rested upon it to tell the owner to recondition his premises, which was the reason given by the trial court for holding it hable. You are to decide whether or not the elevator company was negligent in fixing that space and in adjusting the elevator to that space in connection with all its appliances,” he told the jury. After the shaft and the shaft door had been built by the builder, the elevator company attached its electrical appliances so that the car would not move with the door open. The consequences stated, however, do not follow from such attachment. The company did not adopt the door or the space as part of its work, for such was no part of its contract. As to this defendant the complaint must be dismissed.

The owner likewise is not liable on the evidence submitted. The cause of the accident is unexplained, and no facts appear from which inferences can properly be drawn as to the way in which it did happen; that is, the inference that the door closed and shut the boy in the space between it and the gate is no more reasonable than that he opened both doors and both closed. A cause of action must be something more than a guess. Even if the former were the warranted inference, there is still lacking any proof to show that the space was a negligent and careless construction which the owner should not have maintained.

The court refused to charge the following request: If the jury finds there are two or more reasons which in themselves are consistent to the happening of the accident, one of which would predicate liability and the other or others would predicate no liability, then the plaintiff has failed to meet the burden which the law requires and the verdict must be for the defendant.” The law is that where the evidence is capable of an interpretation which makes it equally consistent with the absence as with the presence of a wrongful act, that meaning must be ascribed which accords with its absence. In other words, it can only be established by proof of such circumstances as are irreconcilable with any other theory than that the act was done. (Lopez v. Campbell, 163 N. Y. 340; Specht v. Waterbury Co., 208 N. Y. 374; Ruppert v. Brooklyn Heights R. R. Co., 154 N. Y. 90.) The rule is well settled that where there are several possible causes of injury, for one or more of which defendant is not responsible, plaintiff cannot recover without proving the injury was sustained wholly or in part by a cause for which the defendant was responsible. (Ruback V. McCleary, Wallin & Crouse, 220 N. Y. 188.)

The denial of this request was an error which in itself might require a reversal and a new trial, but for all the reasons given bearing upon the merits of the case, the complaint as to the owner Benjamin J. Weil should also be dismissed. We have recently had before us the case of Lyon v. Queensboro Corp. (260 N. Y. 612). There was ample proof of the manner of the accident and some evidence of faulty construction, as against the owner.

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

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

Judgments reversed, etc.


source: Caselaw Access Project

author: Crouch, J.

license: Public Domain

text:
    Bertram F. Stern, Respondent, v. Premier Shirt Corporation et al., Appellants.
    (Argued October 20, 1932;
    decided November 22, 1932.)

      Jacob S. Demov and Lazarus Joseph for appellants.
    The portion of the contract upon which the first cause of action against the individual defendants is based, is too indefinite to permit any recovery of damages thereunder by the plaintiff. (United Press v. New York Press, 164 N. Y. 406; Flaherty v. Carey, 62 App. Div. 116; 174 N. Y. 550; Hart v. Tompson, 39 App. Div. 668; Royal Bank v. Williams, 220 App. Div. 603; Petze v. Morse Dry Dock, 125 App. Div. 267; Garcin v. Grandville Iron Co., 137 Misc. Rep. 648.) The complaint fails to state facts and the plaintiff failed to prove upon the trial sufficient facts to constitute any cause of action as against the individual defendants. (Abbott v. Harbeson Textile Co., 162 App. Div. 403; Hart v. Tompson, 39 App. Div. 668.) There was a failure of proof of damages. (Janvier v. Baker, 229 App. Div. 679; Bernstein v. Meech, 130 N. Y. 354; Dodds v. Hawks, 114 N. Y. 261.)

      Gabriel Rubino, Samuel L. Sargent and Harry Kutscher for respondent.
    The agreement under the terms of which the defendant corporation was organized was not indefinite. (Roberge v. Winne, 144 N. Y. 709; Weintraub v. Kruse, 234 N. Y. 575; Wertheimer v. Boehm, 241 N. Y. 575; Ehrenworth v. Stuhmer & Co., 229 N. Y. 210; Wells v. Alexandre, 130 N. Y. 642; Edison El. Ill. Co. v. Thacher, 229 N. Y. 172; Schlegel v. Cooper’s Glue Factory, 231 N. Y. 459; Phillip-Jones Co. v. Reiling & Schoen, 193 App. Div. 716; New York Central Iron Works Co. v. U. S. Radiaton Co., 174 N. Y. 331; Cohen & Sons v. Lurie Wooler Co., 232 N. Y. 112; Smith v. United Traction & Electric Co., 49 App. Div. 641; 168 N. Y. 597; Nassau Supply Co. v. Ice Service Co., 252 N. Y. 277.) To determine plaintiff’s damages, past earnings are to be considered as a measure of prospective earnings. (Wakeman v. Wheeler & Wilson Mfg. Co., 101 N. Y. 205; Bagley v. Smith, 10 N. Y. 489; Humphrey v. Trustees of Columbia University, 228 App. Div. 168; Hiltop Sand Corp. v. Simpson, 225 App. Div. 467; Janvier v. Baker, 229 App. Div. 679; Palmer v. New York Herald Co., 228 App. Div. 176; 255 N. Y. 572.)
   Crouch, J.

In July, 1927, the plaintiff was employed by the individual defendants as a shirt salesman under a contract running to December, 1928. In January, 1928, a second contract was entered into providing for the formation of the defendant corporation, the stock in which should be held one-half by the plaintiff and one-half by the individual defendants. The proposed corporation was mentioned therein as party of the third part. After incorporation, it ratified the contract as written. The contract provided, among other things, that plaintiff was to have a drawing account of $150 per week up to $1,000, and the individual defendants engaged to furnish as loans the money necessary to carry on the business.

The business of the corporation, thus organized, was carried on only for two months. Plaintiff was advanced $150 a week for four weeks, and on February 28, 1928, he was told that no further money would be furnished for the business and that he should get out. He did so and obtained employment elsewhere. Thereafter this action was brought against the corporation and the individual defendants. The cause of action against the corporation was the failure to advance $400, the balance of the $1,000 drawing account. That against the individuals was to recover damages for the breach of their agreement to finance the corporation. One answer was served on behalf of all the defendants and the case proceeded to trial. Plaintiff had a verdict for $400 against the corporation and for $2,100 against the individual defendants. One judgment was entered on the verdict. There was a unanimous affirmance in the Appellate Division. No substantial objection is made to the judgment against the corporation, and it may be affirmed without discussion.

As to the judgment against the individuals, two contentions are made. The first is that the agreement to finance the business of the corporation is too indefinite for enforcement. The agreement provided for quarterly accountings and payment of loans before any division of profits; also, the plaintiff’s stock was to be held by the individual defendants as security for the loans. The only substantial point of uncertainty was the amount to be loaned. That was measured by what would be “ sufficient * * * to carry on the business.” Similar engagements are common enough among business men. Agreements to sell or to buy what will be needed ” or required ” have been enforced by the courts with little difficulty, where the surrounding circumstances indicate the approximate scope of the promise. (Wells v. Alexandre, 130 N. Y. 642; N. Y. C. Iron Works Co. v. U. S. Radiator Co., 174 N. Y. 331; Ehrenworth v. Stuhmer & Co., 229 N. Y. 210.)

The evidence here is that the individual defendants were manufacturers of shirts. For six months before this contract was made, plaintiff was in their employ and was in full charge of a department of their business which sold shirts to jobbers, chain stores and mail order houses. The formation of a corporation to take over and carry on that department of the business, thereby in effect making plaintiff a principal instead of a mere employee, was under consideration during that period. This contract made in January, 1928, was the outcome. It recites that the parties desired to combine their efforts in the manufacture and sale of shirts to jobbers, chain stores, mail order houses and large department stores. Incorporation was the means adopted to bring about that result. Neither party paid anything to the corporation for the stock. Both plaintiff and defendants were to continue doing what they had been doing, the defendants manufacturing and the plaintiff selling. It is clear that all parties — and particularly the defendants — were familiar with the financial requirements of the business and knew well what would be sufficient to carry it on. That required amount is susceptible of proof and hence the agreement may not be said to have been indefinite.

The second contention relates to the measure of damages. Plaintiff’s theory was that he might recover what he had lost by giving up his original contract of employment. But that contract, so far as executory, was discharged by the new contract, and no rights thereunder were reserved. (McCreery v. Day, 119 N. Y. 1.)

There is no claim of fraud. The action is at law for damages caused by defendants’ breach of their agreement to loan money. Under the facts of this case, the damages should be measured by the profits which plaintiff may be able to show with reasonable certainty were lost to him by the breach. (Bagley v. Smith, 10 N. Y. 489; Dart v. Laimbeer, 107 N. Y. 664; Doushkess v. Burger Brewing Co., 20 App. Div. 375.)

The judgment against defendant Premier Shirt Corporation should be affirmed, with costs, and the judgment against the defendants Jacob Freezer and Irving Freezer should be reversed and a new trial granted, with costs to abide the event.

Pound, Ch. J., Lehman, Kellogg, O’Brien and Hubbs, JJ., concur; Crane, J., dissents and votes to dismiss the complaint as against all defendants on the ground that the contract sued upon is too vague and uncertain to be enforced at law.

Judgment accordingly.


author: Lehman, J.

text:
    The Prudence Company, Inc., Plaintiff, v. 160 West Seventy-third Street Corporation et al., Respondents; Arthur W. Smith, as Receiver, Appellant.

      (Argued October 5, 1932;
    decided November 22, 1932.)

      Henry Hetkin, Alexander Rubin, Alfred H. Hetkin and Lynn G. Goodnough for appellant.
    Courts of equity in the exercise of their judicial discretion, in a mortgage foreclosure action, may appoint a receiver to preserve the mortgage security and require the owner and persons in possession holding subordinate interests .to pay the fair and reasonable rental value for the use of the premises. (Howell v. Ripley, 10 Paige Ch. 43; Syracuse City Bank v. Tallman, 31 Barb. 201; Sullivan v. Rosson, 223 N. Y. 217; Berney v. Sewell, 1 J. & W. 647; Hollenbeck v. Donnell, 94 N. Y. 342; Ranney v. Peyser, 83 N. Y. 1; Reed v. Middleton, 1 Turn. & Russ. 455; Randfield v. Randfield, 7 Weekly Rep. 651; Astor v. Turner, 2 Barb. 444; Mutual Life Ins. Co. v. Spicer, 12 Hun, 117; Fletcher v. McKeon, 71 App. Div. 278; Derby v. Brandt, 99 App. Div. 257; Home Life Ins. Co. v. O’Sullivan, 151 App. Div. 535; Olive v. Levy, 201 App. Div. 262; Public Bank of New York v. London, 159 App. Div. 484.; Sager v. Rebdor Realty Corp., 230 App. Div. 106; Monro-King & Gremmels Realty Corp. v. 9 Avenue-31 Street Corp., 233 App. Div. 401.) The power of the court to fix fair and reasonable rental values where a lease is subordinate to the mortgage should not be circumscribed or conditioned upon proof of fraud. (Derby v. Brandt, 99 App. Div. 257; Monro-King & Gremmels Realty Corp. v. 9 Avenue-31 Street Cory., 233 App. Div. 401; Fletcher v. McKeon, 71 App. Div. 278.)
    1 Henry M. Bellinger for New York Title and Mortgage Comyany, amicus curies.

    Occupants of apartments in mortgaged premises may not occupy the whole, or a portion, of the mortgaged premises, after the appointment of a receiver of the rents, issues and profits thereof, without being required to pay a reasonable sum for use and occupation. (Public Bank of New York v. London, 159 App. Div. 484; Gunning v. Bowers, 1 Law Bull. 19; Astor v. Turner, 2 Barb. 444; Mutual Life Ins. Co. v. Spicer, 12 Hun, 117; Fletcher v. McKeon, 71 App. Djv. 278; Derby v. Brandt, 99 App. Div. 257; Olive v. Levy, 201 App. Div. 262; Monro-King & Gremmels Realty Corp. v. 9 Avenue-31 Street Corp., 233 App. Div. 401; Hollenback v. Donnell, 94 N. Y. 342.)
    1 Yorke Allen for respondents.
    A written lease, not tainted by fraud, may not, yendente lite, be repudiated at will, by a receiver in foreclosure, and the court will not call into being and impose on the tenant a so-called occupational rental in its place. (Klasko Finance Corp. v. Belleaire Hotel Corp., 257 N. Y. 1; Metropolitan Life Ins. Co. v. Childs Co., 230 N. Y. 285.) There is no power in any court to compel a tenant, against whom no fraud is urged, to remain in occupancy at raised rates not consented to by him and which he objects to paying. (Sager v. Rebdor Realty Corp., 230 App. Div. 106.)
   Lehman, J.

In an action to foreclose a mortgage, a receiver of the rents and profits of the mortgaged premises has been appointed. The mortgaged premises are known as the Sherman Square Studios. An apartment house containing 146 apartments, has been erected upon them and twenty-three of said apartments were sold to various" persons under what is known as the co-operative ownersMp_plan.” In accordance with the agreement under which these apartments were sold, such persons were required to pay each month certain fixed charges or rent, known as maintenance charges.”.

The complaint asserts that the rights of the holders of these apartments are subordinate to the hen of the mortgage. They have been made parties to the foreclosure of the mortgage and any rights which they may have will be terminated by a judgment of foreclosure and a sale held pursuant to such judgment. “ On general principles of equity, the court may make the decree, when obtained, relate back to the time of the commencement of the action, and where necessary for the security of the mortgage debt, may appoint a receiver of the rents and profits accruing in the meantime, thus anticipating the decree and sale.” (Hollenbeck v. Donnell, 94 N. Y. 342, 347.) That has been done here, and no party now contests the validity of the order appointing the receiver. He is concededly entitled to the rents and profits of the premises. Whatever rents or profits would have accrued to the legal owner of the premises must now be paid to the receiver. Those rents and profits would have included only the rental or maintenance charges which the owner would have received in accordance with leases or agreements made for the occupancy of the apartments. Here the receiver claims more. Upon notice to the persons occupying apartments under the so-called co-operative ownership plan ” he obtained an order fixing the fair and reasonable monthly value for the use and occupation ” of such apartments at a sum larger than that which the occupants agreed to pay and directing each of such persons to attorn to the receiver and to pay to him the amount fixed by the court as the reasonable rental value of the apartment each occupies.

A multitude of cases in intermediate appellate courts in this State have sustained the right of a receiver to demand and receive from an occupant of premises the reasonable value of their use and occupation, though by agreement with the owner of the equity the occupant is required to pay only a lesser sum. The last of such cases is Monro-King & Gremmels Realty Corp. v. 9 Avenue-31 Street Corp. (233 App. Div. 401), citing as authority some of the earlier decisions of the Appellate Division. Those decisions have not been approved by this court, and in the recent case of Klasko Finance Corp. v. Belleaire Hotel Corp. (257 N. Y. 1, 4) this court in dismissing an appeal said: “ Nothing that we have said is to be taken as indicating our assent to the contention of the receiver that, * * * in the absence of fraud, the lease may be disregarded until terminated by a sale under a judgment of foreclosure. (Metropolitan Life Ins. Co. v. Childs Co., 230 N. Y. 285, 289.) ” The Appellate Division construing that statement as an indication of disapproval of the receiver’s contention here reversed the order of Special Term in this case and granted leave to appeal upon certified questions.

In Metropolitan Life Ins. Co. v. Childs Co. (230 N. Y. 285, 289) we said: “As a general rule a tenant is liable under his contract of lease until he is evicted. Neither the beginning of an action to foreclose a mortgage superior to his lease in which he is made a defendant, nor the entry of a judgment of foreclosure and sale constitute such' an eviction. The sale may never occur. The amount due may be paid by the obligors. The plaintiff may repent. Until the sale actually takes place the tenant remains hable to his landlord on his contract.” In that case a tenant was made a party to a foreclosure sale. A judgment of foreclosure was served upon the tenant. It vacated the premises. Then the plaintiff in the action, over the opposition of the tenant, was permitted to discontinue the action against -the tenant. The plaintiff purchased the premises at the foreclosure sale. At that time the tenant was not a party to the action and upon the sale the mortgaged property was transferred subject to the lease, even though the lease was originally subject to the lien of the mortgage. For that reason the obligations of the tenant under his agreement were not terminated by the sale. The tenant still remained Hable for rent and we held that the purchaser could maintain an action for such rent against the tenant.

In that case the tenant asserted that its obligations under the lease were terminated by service of the judgment of foreclosure. In this case, persons occupying parts of the mortgaged premises under agreements with the owner assert that their rights under their agreements survive until a sale under a judgment of foreclosure. The problems presented are superficially different, but essentially the same. The rule that until a sale under) a judgment of foreclosure, the obhgations of an agree- L ment for the occupancy of the premises survive, though J the agreement is subordinate to the Hen of the mortgage, f dictates the solution in both cases.

A mortgage is only a Hen on the mortgaged real prop- , " erty. Title remains in the mortgagor and those claiming under or through the mortgagor until the Hen is foreclosed. Foreclosure of the Hen does not take place upon the commencement of a foreclosure action, but upon a sale under a judgment of foreclosure. Though, during the pendency of the action, a court of equity has power to issue interlocutory orders for the protection of an asserted Hen, such orders must be auxiHary to the right to foreclose the Hen, and cannot deprive any party of a title or a right, which though subordinate to the Hen of the mortgage, survive and are vaHd until the Hen is foreclosed by a sale under a judgment of foreclosure.

Right to the rents and profits is merely an incident of ownership of the property which has been pledged as security for the mortgage debt. The receiver holds the rents and profits in trust to apply upon a judgment for a deficiency. Any surplus must be returned to the owner. If there is no sale under a judgment of foreclosure, which I relates back to the commencement of the action, then all the rents and profits must be returned. Thus both adjudication of the rights of the parties and a sale thereunder precedes the divesting of any rights incident to ownership or the vesting of such rights in the mortgagee. In no event is the owner deprived of any rights or the mortgagee accorded rights beyond the stipulations of the mortgage.

Here before the foreclosure action was commenced, agreements were made by some of the defendants whereby they obtained from the owner the right to occupy apartments in the mortgaged premises in return for a stipulated payment. It is immaterial whether we call these agreements leases, or apply to them some other term. So long as the mortgaged premises have not been sold under a judgment of foreclosure, the agreements are valid and subsisting. The occupants are required to pay the stipulated sum to the owner and the owner may not disturb the possession of the tenants. Until the lien of the mortgage is foreclosed the mortgagee has no paramount title which would justify eviction of the occupants or abrogation of the agreements. The order of the court directing the occupants to vacate the premises or pay to the receiver the reasonable value of the use and occupancy deprives the occupants of a right which they have obtained by agreement. It does more than protect the security of the mortgage debt. It gives to the mortgagee a security beyond the stipulations of the mortgage and deprives the occupants of their enjoyment of rights secured by contract. It leaves the occupants in the unfortunate situation that if they vacate they not only lose the rights acquired under their agreements but remain subject to its obligations, at least until there is a sale under a judgment of foreclosure, and even after that date, if the plaintiff should decide to discontinue the action as to them; if they do not vacate they can be put out unless they pay more than they agreed to pay* No general principle of equity jurisdiction supports the assumption of power to make such an order. (See Smith v. Cushatt, 199 Iowa, 690; Ottman v. Tilbury, 204 Wis. 56.) In jurisdictions where a mortgagee obtains title upon default even without a judicial sale, the rule, of course, may be different. (Cf. Rohrer v. Datherage, 336 III. 450; Henshaw, Ward & Co. v. Wells, 9 Humph. [Tenn.] 568.)

What we have said must not be accepted as an indication that an order appointing a receiver of rents and profits may be frustrated by a collusive or fraudulent lease for an inadequate rental or advance payment of rent in anticipation of a foreclosure action. We are considering rights acquired under an agreement not attacked ..because of fraud. The first question certified to us is whether the court on application of the receiver has power to determine the fair and reasonable rental value of the use and occupation of the premises or part thereof occupied by a party defendant, where the subordinate rental provided in the subordinate lease or agreement under which such person holds possession is less than the reasonable value thereof. The court has no such power. We do not now define the broad power of the court to prevent frustration of an order impounding the rents and profits of the property.

The order should be affirmed, with costs; the first question answered in the negative and the other questions not answered.

Crane, Kellogg, O’Brien and Hubbs, JJ., concur; Pound, Ch. J., and Crouch, J., not sitting.

Order affirmed, etc.


author: Crane, J.

text:
    Arthur L. Peirson et al., as Trustees, Appellants, v. Lloyds First Mortgage Company, Respondent.
    (Argued October 20, 1932;
    decided November 22, 1932.)

      Samuel J. Levinson and Frank Weinstein for appellants.
    Defendant is estopped to deny that it holds the money as an indemnity fund deposited with it by plaintiffs to secure the performance by them of the obligations specified in the security agreement. (Bushnell v. Chautauqua County Nat. Bank, 74 N. Y. 290; Haas v. Altieri, 2 Misc. Rep. 252; Mercantile Trust Co. v. Atlantic Trust Co., 86 Hun, 213; People v. Brown, 55 N. Y. 180; Eytinge & Co. v. Atlantic Transport Co., 160 App. Div. 635; Mullins v. Chickering, 110 N. Y. 513; Western Transportation Co. v. Barber, 56 N. Y. 544; Pepper v. James, 7 Ga. App. 518; Hampton v. Swisher, 4 N. J. L. 74; Osgood v. Nichols, 5 Gray, 420.) All damages of the party intended to be secured having accrued and become complete prior to the commencement of the action, plaintiffs became entitled to the return of their security deposit less so much thereof, if any, as is applicable to compensate for such damages. (D’Appuzo v. Albright, 76 N. Y. Supp. 654; Degnario v. Sire, 34 Misc. Rep. 163; Matter of Interborough Consol. Corp., 288 Fed. Rep. 334; Michaels v. Fishel, 169 N. Y. 381; Scott v. Montells, 109 N. Y. 1; Seidlitz v. Auerbach, 230 N. Y. 167; Chaude v. Shepard, 122 N. Y. 397; Cannon v. Fifty-sixth Street Garage, 45 Fed. Rep. [2d] 110; Caesar v. Rubinson, 174 N. Y. 492; Sutton v. Goodman, 194 Mass. 389; Hall v. Middleby, 197 Mass. 485; Carson v. Arvantes, 27 Col. 77; Meagher v. Eilers Music House, 77 Ore. 70; Matter of Frey, 26 Fed. Rep. [2d] 472; Johnson v. Englestein, 236 III. App. 215; Hecklan v. Hauser, 71 N. J. L. 478; Cunningham v. Stockton, 81 Kan. 780; Rosenfeld v. Aaron, 248 N. Y. 437; Bushnell v. Chautauqua Co. Nat. Bank, 74 N. Y. 290.)

      Joseph A. Seidman for respondent.
    Upon the stipulation of the parties for a directed verdict, the Appellate Division had the power and it was its duty to reverse on the law and to direct judgment for defendant without new findings on the ground that the trial court’s direction for judgment was contrary to the law of the case as settled on defendant’s first appeal and plaintiffs are precluded from claiming error in the law of the case or to now urge a new theory. (Cluff v. Day, 141 N. Y. 580; Porter v. International Bridge Co., 79 App. Div. 358.; Silver v. Park Lex Holding Corp., 222 App. Div. 40; Phelps Stokes Estates v. Nixon, 222 N. Y. 93; Snider v. Snider, 160 N. Y. 151; People v. Dalton, 159 N. Y. 235; Racine v. Morris, 201 N. Y. 240; Porter v. Municipal Gas Co., 220 N. Y. 152; Lebright v. Gentzlinger, 232 App. Div. 274; Paine v. Geneva R. R. Co., 115 App. Div. 729; Van Alstine v. Standard Light Co., 116 App. Div. 100; Ford v. Wanamaker, 165 App. Div. 284; Trulock v. King, 216 App. Div. 439.) There is no evidence to support the conclusions of law or fact of the trial court and the findings so made being insufficient to sustain the judgment reversed, the judgment for defendant should be affirmed. (Jerome v. Queen City Cycle Co., 163 N. Y. 351; Gannon v. McGuire, 160 N. Y. 476; Canda v. Totten, 157 N. Y. 281; Fellows v. Northrop, 39 N. Y. 117; Matter of Case, 214 N. Y. 199; Pollock v. Pollock, 71 N. Y. 137; Dougherty v. Lion Fire Ins. Co., 183 N. Y. 302; Meriden Gravure Co. v. Bedell, 232 App. Div. 454; Dearstine v. Dunckel, 223 App. Div. 795; Spence v. Ham, 163 N. Y. 220; Cawley v. Weiner, 236 N. Y. 357; Kelso & Co. v. Ellis, 224 N. Y. 528; Avery v. Willson, 81 N. Y. 341; Van Clief v. Van Vechten, 130 N. Y. 571; Lewis v. Mott, 36 N. Y. 394; Thompson v. St. Nicholas Bank, 113 N. Y. 325; Jones v. Seaman, 133 App. Div. 127.) Plaintiffs, if they acquired any right to demand of defendant the performance of its agreement to loan whatever remained to be advanced under the building loan contract, acquired such right by virtue of the assignment of the mortgagor’s right under the contract and was subject to the terms and conditions therein contained. (Miller v. Schloss, 218 N. Y. 400; Dougan v. Champlain Transp. Co., 56 N. Y. 1; Brown v. N. Y. C. R. R. Co., 44 N. Y. 79; The Baron Innerdale, 93 Fed. Rep. 492; Spence v. Ham, 163 N. Y. 220; Chambers v. Lancaster, 3 App. Div. 215; 160 N. Y. 342.)
   Crane, J.

The Hurt jam Realty Corporation was the owner of real property in Jamacia, Queens county, N. Y., on which it erected a theatre and office building, procuring for this purpose a building loan of $500,000 from the defendant. The theatre as erected is known as the Shubert Theatre. The owner had entered into a building contract dated January 7, 1928, with a corporation known as Pérri Contracting Company, Inc., for the erection of this building and the installation and equipment of the theatre for a total contract price of $472,500. The loan made by the defendant to the owner was pursuant to a building loan agreement between the parties and secured by a mortgage on the property, both dated January 30, 1928. Before the completion of the theatre the general contractor became insolvent, defaulted in payment due the subcontractors, with the result that they quit work in October or November, 1928. Thereupon the owner, general contractor and nearly all the subcontractors entered into a trust agreement under which the plaintiffs were appointed trustees for the subcontractors. According to these arrangements the subcontractors agreed to complete so much of the said building contract as was left undone by the general contractor and the plaintiffs as trustees were to receive for them from the owner the balance of $167,000 that was still to be paid by the owner under said building contract.

At this time there was more than $67,000 to be advanced on the building loan to the owner, which presumably would go to these trustees for the workmen. The defendant mortgagee was not a party to the owner’s agreement with the subcontractors but knew about it. The $67,000 would not pay the $167,000 to become due so the arrangement was that the trustees would receive the $67,000 in cash from the defendant and take a second mortgage of $100,000 on the property executed by the owner and guaranteed by three responsible persons. Such mortgage was executed and the owner assigned to the plaintiffs his right to the first $67,000 to be received by him from the defendant on the building loan. Advances on the $67,000 were made subsequently to pay for the work and labor as it progressed until about December 27, 1928, when the subcontractors wanted more money and the defendant advanced the last payment under these circumstances. The owner was anxious to open the theatre for regular business on New Year’s Eve, December 31, 1928, and had advertised such date for the first performance. A meeting was arranged at the defendant’s office on the 28th of December between the owner, the defendant's representative, and the trustees, which resulted in the defendant advancing to the owner the entire balance of $23,733.36 that had not as yet been advanced on the $500,000 building loan. With this payment the entire amount secured by the mortgage had been loaned to the owner. This sum, represented by check, was immediately turned over by the owner to the trustees for the subcontractors, who in turn deposited with, or gave it to, the defendant to hold in accordance with a written agreement thereupon executed. This is the agreement:

This is to acknowledge the receipt from Arthur L. Peirson, Charles I. Frank and Jack Silvestri, Trustees, under an agreement dated the......day of December, 1928, made between Hurtjam Realty Company and said Trustees above named and Perri Contracting Company for the benefit of contractors on.the Shubert Theatre job on the Easterly side of 165th Street, south of Jamaica Avenue, Jamaica, Queens County, in the City and State of New York, the sum of Twenty-three Thousand Seven Hundred Thirty-three Dollars and Thirty-six Cents ($23,733.36) deposited by such three Trustees to secure the following:
“First. The completion of the building now being erected on said described premises in accordance with plans and specifications submitted to and approved by the undersigned and to the satisfaction of the engineers of the Lloyds First Mortgage Company and the installation of all equipment and chattels to be installed necessary for the conducting and maintaining of said premises as a theatre.
Second. To secure the payment of any taxes, water rates and/or assessments that may be levied against the said premises up to the time when the said Trustees shall become entitled to the said moneys under this escrow agreement.
Third. To secure the discharge from record of any Conditional Bills of Sale or Mechanic’s Liens that may be filed against the said described premises or any other encumbrances which shall fail to give the Lloyds First Mortgage Company a good and valid first mortgage in the sum of Five Hundred Thousand ($500,000) Dollars and interest against the said premises against which the said Lloyds First Mortgage Company now holds a first mortgage in the sum of Five Hundred Thousand ($500,000) Dollars, that may be filed up to the date when the said Trustees shall be entitled to receive such moneys hereunder left in escrow to secure the payment of principal and interest that may accrue on said mortgage held by Lloyds First Mortgage Company up to the time when the said Trustees shall be entitled to receive the same as aforedescribed.
“Fourth. That when the Trustees aforedescribed shall be entitled to receive such moneys so deposited or the balance thereof the Lloyds First Mortgage Company, the depository of this fund, may pay the same unto the said Trustees without regard to the conditions of the trust or the agreement under which they operate as such Trustees.
Dated, December 27th, 1928.
“ LLOYDS FIRST MORTGAGE COMPANY,
By M. N. Koven,
“ F.P.
Approved by:
“ Arthur L. Peirson.
“ Charles I. Frank.
“ Jack Silvestre”

That this sum of $23,733.36 was the final advance on the mortgage loan is conclusively evidenced by the foreclosure action subsequently brought by the defendant, to which the plaintiffs were made parties and wherein the defendant, then plaintiff, alleged the full advance of $500,000 to the owner and foreclosed by judgment of sale its lien for this amount. The last payment to the owner was turned over by check to these plaintiffs, or, what amounts to the same thing, the defendant’s check was made payable to the plaintiffs with the written approval of the owner. The money belonged to these plaintiffs, as trustees, for the benefit of the subcontractors, and when paid over to the defendant to hold, pursuant to the agreement above recited, the money remained the plaintiffs’ property in the hands of the defendant. The transaction was more than a mere empty gesture and we must take it at its face value and according to the representations of all the parties. When the defendant took back the check the money did not revert to its former ownership and become again the defendant’s money to be advanced under the terms and conditions of the building loan agreement and mortgage. It had already been advanced and paid to the plaintiffs, and when it came back to the defendant, it was the plaintiffs’ money held under the stipulations of the new agreement heretofore quoted in full.

Immediately upon the consummation of this new arrangement, the subcontractors proceeded to complete the building, putting on night and day shifts of one hundred men so that the theatre opened for its first performance on the evening of December 31, 1928, and has been open for regular business ever since. On December 26, 1928, the Building Department issued its certificate of occupancy to the owner and the theatre was opened with the full permission of the Fire Department. The plaintiffs had men at work finishing up, as late as January 14, 1929, but as the defendant refused to pay to the workmen the money in its hands for the work done, this action has been brought to recover it or such part thereof as is due, according to the agreement mentioned.

The money in the defendant’s possession belongs to the plaintiffs to be paid upon certain conditions being performed. The plaintiffs claim that those conditions have been substantially complied with, considering the nature of the work and the occupancy and acceptance of the building, but under any conditions the defendant cannot profit by the default of the plaintiffs and keep their money over and above that which is necessary to make good any omissions. The law, say the plaintiffs, will make these adjustments and not allow a forfeiture of money to the enrichment of the holder. Accordingly the learned trial justice after taking all the evidence upon these disputed points made his decision wherein he found as facts that on December 27, 1928, the defendant received from the plaintiffs $23,733.36 for the use and benefit of the plaintiffs, subject to the conditions specified in the first and second paragraphs of the receipt given (the exhibit above given in full); that up to the time that the plaintiffs were entitled to the moneys all taxes, water rates and assessments were paid and that the defendant is entitled to an allowance of $12,250 for uncompleted items provided for in subdivisions first and fourth, and a further sum of $1,500 paid to plaintiffs on January 4, 1929. Further, the judge found as a fact that the balance of $9,983.36 was the plaintiffs’ money which should be returned to them. He gave judgment for this amount. The Appellate Division affirmed these facts but reversed on the law.

Under well-settled principles the facts as found will not justify the defendant in keeping the plaintiffs’ money. As a sufficient amount will make the defendant or the owner whole; that is, will fully pay for the complete performance of all the conditions named in the receipt or agreement, equity will give the clear balance to the plaintiffs, for it is their money and will thus prevent a forfeiture or an unjust enrichment. This deposit with the defendant was not by way of a transfer of title; it was solely by way of security. Non-performance by the depositor, in the case of a security deposit, does not vest title in the secured party. It merely gives the secured party the right to resort to the security, but only to the extent of actual indemnification for his loss or damage. (City of New York v. Brooklyn & Manhattan Ferry Co., 238 N. Y. 52; Scott v. Montells, 109 N. Y. 1; Chaude v. Shepard, 122 N. Y. 397; Seidlitz v. Auerbach, 230 N. Y. 167; Schwartz & Co. v. Aimwell Co., 227 N. Y. 184.)

The defendant’s counsel, recognizing the justice of this rule, has attempted, in his very thorough brief and complete review of the evidence, to show that the money was not paid to the plaintiffs, that the arrangement of passing checks was a mere blind, that the last payment on the mortgage was never made and that the $23,733.36 was always the defendant’s money. This might be very persuasive if the findings of the trial judge, approved on appeal, were not to the contrary.

On the facts determined by the trial justice, the conclusion legally followed that the plaintiffs were entitled to judgment in the clear balance over and above the sum necessary to finish their work, and for this, reason the judgment of the Appellate Division should be reversed and that of the Trial Term affirmed, with costs in this court and in the Appellate Division.

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

Judgment accordingly.


text:
    Roland Hubbs, an Infant, by Robert K. Hubbs, His Guardian ad Litem, Appellant, v. Boston and Maine Railroad, Respondent. Robert K. Hubbs, Appellant, v. Boston and Maine Railroad, Respondent.
    (Argued October 24, 1922;
    decided November 22, 1932.)

      Lawrence B. McKelvey, Brenton T. Taylor and James J. McNaughton for appellants.
    The plaintiff was not guilty of contributory negligence as matter of law, and there was an issue of fact in that regard. (Horton v. N. Y. C. R. R. Co., 237 N. Y. 38; Massoth v. D. & H. Co., 64 N. Y. 524; Kellogg v. N. Y. C. R. R. Co., 79 N. Y. 72; Zwack v. N. Y. L. E. Co., 160 N. Y. 362; Hatch v. Terry, 153 App. Div. 230; Corbett v. Scott, 243 N. Y. 66; Martin v. Herzog, 228 N. Y. 164; Brown v. Shyne, 242 N. Y. 176; Carr v. Pennsylvania R. R. Co., 225 N. Y. 44; Koster v. C. I. & B. R. R. Co., 165 App. Div. 224; Smith v. N. Y. C. R. R. Co., 177 N. Y. 228; Hart v. Ruduk, 233 App. Div. 453; Morse v. N. Y. C. R. R. Co., 102 App. Div. 497; Kellogg v. N. Y. C. R. R. Co., 79 N. Y. 72; Nelson v. Nygren, 259 N. Y. 71.) The evidence of negligence was more than sufficient to demand that that issue also be submitted to and decided by the jury. (Sipowicz v. Lehigh Valley R. R. Co., 189 App. Div. 715; 231 N. Y. 534; Baker v. Lehigh Valley R. R. Co., 248 N. Y. 136; Cannarozzo v. N. Y. St. Rys., 216 App. Div. 243.)

      Jarvis P. O'Brien for respondent.
    The driver of the automobile was guilty of contributory negligence as a matter of law. (Grimshaw v. Rutland R. R. Co., 205 App. Div. 155; Fowler v. N. Y. C. & H. R. R. R. Co., 74 Hun, 144; Cullen v. D. & H. Canal Co., 113 N. Y. 667; Behrens v. N. Y. C. R. R. Co., 218 N. Y. Supp. 274; Davis v. Pere Marquette R. R. Co., 216 N. W. Rep. 424.)
   Crouch, J.

The plaintiffs are father and son. A north-bound automobile, owned by the father and driven by the son, was run down at a grade crossing by an eastbound freight train. Judgment for the plaintiffs entered upon verdicts by a jury were reversed and the complaints dismissed by the Appellate Division. Its decision rests “ on the ground that there is no proof of negligence on the part of the defendant which contributed in any way to the accident; and that on the evidence the plaintiff Roland Hubbs was guilty of contributory negligence in failing to have his car under the control which the conditions at the time required.” (236 App. Div. 750.)

On the issue of negligence, the language of the decision implies acceptance of the jury’s findings, amply supported by evidence, that the boy saw the train as soon as he could reasonably be expected to have seen it, and that his failure to hear it before he saw it was due entirely to lack of a timely signal or warning. It was held, however, that as matter of law there was no causal connection. That phase only of the negligence issue need be considered.

On December 30, 1930, at 1:30 in the afternoon, the boy, fifteen years of age, was driving north in a Pontiac car on a macadam road. There had been flurries of snow in the forenoon which had left the surface lightly covered. He had entered that road a quarter of a mile south of the crossing. There were patches of ice here and there on the macadam. He was driving from fifteen to twenty miles an hour. He was familiar with the locality and knew of the existence of the crossing. As he approached it he was both looking and listening. When he was sixty feet away, he saw the train coming at the rate of thirty-five or forty miles an hour. As soon as he saw the train he applied his brakes very lightly. Nevertheless, the car started to skid. At the left of the road was a line of concrete guard posts strung with wire cables. The car swung to the left and he steered it at one of the concrete posts located thirty-five feet from the nearest rail. The road from the point where the skid began to the railroad tracks was slippery with ice lightly covered with snow. The car hit the post and a telephone guy wire near it. Control of the car was then lost. It chipped a piece off the next post, was thrown back and went diagonally forward and across the highway, coming to a stop on the east-bound track, where the collision immediately followed.

The contention of the defendant, apparently adopted by the Appellate Division, is that the failure to give warning of the train’s approach may not be said to have contributed to the accident, since the boy, when he was sixty feet from the crossing, had all the notice which a warning signal would have given; and that a distance of sixty feet as matter of law affords reasonable opportunity for safety to any ordinarily prudent driver. Thus stated, the argument on causation seems to trench upon the field of contributory negligence, for the conclusion assumes that the boy was not • an ordinarily prudent driver. It is reasonably clear that whether the conduct of the boy in applying the brakes and in handling the car thereafter was negligent or not, was a question for the jury.

The language of the decision below relates only to his conduct preceding the application of the brakes. He was negligent, it is said, in failing to have his car under the control which the conditions at the time required. The conditions were those not unusual in this climate in mid-winter. A macadam highway in good repair had on its surface, not a continuous coating of ice, but icy patches here and there. With no other traffic in sight and with no warning of an oncoming train, a car is driven over this highway at a speed of between fifteen and twenty miles an hour to a point sixty feet from a known railroad crossing. The driver is alert to the possibility of danger. At its first sign, he acts as the jury has found an ordinarily prudent driver would have acted. That the road from that point on was coated with ice was a fortuitous circumstance. Under the road conditions as they existed for a quarter of a mile back, it is not unlikely that the car could readily have been stopped. If the conduct of the driver here was negligence as matter of law, then to the physical danger of winter driving is added a hazard not heretofore known. The question of contiibutory negligence was, we think, properly submitted to the jury. By its finding, the boy was driving with ordinary care. Hence the failure of defendant to give due warning of its oncoming train was a contributing cause, for had the warning been given when it should have been, the car prudently driven could have been stopped in time, or at least the jury could, as it did, so find.

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

Pound, Ch. J., Kellogg and Hubbs, JJ., concur; Crane, Lehman and O’Brien, JJ., dissent.

Judgment accordingly.


author: Pound, Ch. J.

text:
    Michael W. Crough, as Administrator of the Estate of Donald Crough, Deceased, Respondent, v. New York Central Railroad Company, Appellant. Daniel P. Crough, as Administrator of the Estate of D. Francis Crough, Deceased, Respondent, v. New York Central Railroad Company, Appellant. Alice R. Perry, as Administratrix of the Estate of Helen E. Perry, Deceased, Respondent, v. New York Central Railroad Company, Appellant.

      (Argued October 24, 1932;
    decided November 22, 1932.)

      Frank H. Hiscock and Daniel Scanlon for appellant.
    The decedents were each guilty of contributory negligence as a matter of law. (Schrader v. N. Y. C. & St. L. R. R. Co., 254 N. Y. 148; Allen v. Erie R. R. Co., 244 N. Y. 542; Brown v. D. & H. R. R. Co., 231 App. Div. 570; Miller v. N. Y. C. R. R. Co., 226 App. Div. 205; 252 N. Y. 546; LaGoy v. Director-General of Railroads, 231 N. Y. 191.)

      Richard P. Byrne for respondents.
    In view of the public nature and user of the crossing in question the defendant owed to decedents the duty of exercising reasonable care in the movement of its trains approaching and passing over the crossing. (Byrne v. N. Y. C. R. R. Co., 104 N. Y. 362; Barry v. N. Y. C. R. R. Co., 92 N. Y. 289; Nicholson v. Erie R. R. Co., 41 N. Y. 525; Sutton v. N. Y. C. R. R. Co., 66 N. Y. 243; Morris v. L. S. & M. S. R. R. Co., 24 Wkly. Dig. 160; Surfi v. S. I. R. T. R. Co., 123 N. Y. 645; Portage v. N. Y. C. R. R. Co., 134 App. Div. 827; Cranston v. N. Y. C. R. R. Co., 57 Hun, 590; 125 N. Y. 724; Lamphear v. N. Y. C. R. R. Co., 194 N. Y. 172; Constantino v. Natson, 219 N. Y. 443; Barrett v. Brooklyn Heights Ry. Co., 231 N. Y. 605; Lande v. L. & S. Const. Co., 181 N. Y. Supp. 493; Beck v. Carter, 68 N. Y. 283; Larmon v. Crown Point, 101 N. Y. 391; Morrison v. Hotel Rutledge, 193 N. Y. Supp. 428; Shepard. v. Lehigh Valley R. R. Co., 132 N. Y. Supp. 46.) The trial court properly submitted to the jury the question of the negligence of the defendant and the contributory negligence of the decedents. (Carr v. Pennsylvania R. R. Co., 225 N. Y. 44; Lambertson v. D. & H. R. R. Co., 250 N. Y. Supp. 340; Baker v. Lehigh R. R. Co., 248 N. Y. 131; LaGoy v. Director-General of Railroads, 231 N. Y. 191; Hoag v. N. Y. C. R. R. Co., 111 N. Y. 199; Schuck v. N. Y. C. R. R. Co., 251 N. Y. Supp. 564; Buffalo v. D., L. & W. R. R. Co., 190 N. Y. 84; Mt. Vernon v. N. Y. C. R. R. Co., 232 N. Y. 309; Bond v. Schenectady Ry. Co., 251 N. Y. 315; Elias v. Lehigh R. R. Co., 226 N. Y. 154; Salt City v. N. Y. C. R. R. Co., 213 App. Div. 371; Martin v. Erie R. R. Co., 238 N. Y. 627; Shapiro v. N. Y. C. R. R. Co., 239 N. Y. 577; Maroiano v. S. I. R. R. Co., 244 N. Y. 387; Payne v. Troy & Boston R. R. Co., 83 N. Y. 572; Spitzer v. N. Y. C. R. R. Co., 211 App. Div. 332; Massoth v. Pres. of D. & H. Canal Co., 64 N. Y. 524; Lane v. Atlantic R. R. Co., 111 Mass. 136; Weber v. N. Y. C. R. R. Co., 58 N. Y. 451; Davis v. N. Y. C. R. R. Co., 47 N. Y. 400; Hackford v. N. Y. C. R. R. Co., 53 N. Y. 654; Casey v. N.Y. C. R. R. Co., 78 N. Y. 518; Reynolds v. N. Y. C. R. R. Co., 58 N. Y. 248.)
   Pound, Ch. J.

This is a railroad crossing case in which four young people met their death while riding in a Ford roadster driven by Francis Crough. On Sunday afternoon, July 1, 1928, shortly after five o’clock, in broad daylight, the car was struck by a New York Central train at a crossing which was not a public highway crossing but which was a crossing over a road freely used by travelers to and from a group of summer cottages on Cayuga lake to connect with the State highway. The duty of care at such a crossing might be found to be the same as at a public highway crossing. (Byrne v. N. Y. C. & H. R. R. R. Co., 104 N. Y. 362.) The train was composed of an engine and sixteen empty Pullman cars going west on the Auburn branch of the New York Central. The highway crossed the tracks at right angles. Notwithstanding the evidence of surveyors and photographers to the contrary, the jury might have found that the view of the railroad at the crossing was obstructed by trees and underbrush until one gets right on the tracks. The train was going thirty to forty miles an hour, was coasting, and the jury might have inferred that it gave no signals to indicate its approach. (Foley v. N. Y. C. & H. R. R. R. Co., 197 N. Y. 430.) Several of plaintiffs’ witnesses testify that they heard the rumble of the train some distance away, but the jury was not bound to take the noise of the approaching train as an adequate warning to relieve the defendant from the charge of negligence. The car was struck near the middle, showing that the train and the car reached the crossing at about the same time. Francis and his passengers were guests at a summer cottage or camp on the lake. They were going to take a photograph of the old Cayuga station nearby. They knew of the existence of the railroad crossing as they had to go over it to reach the cottage where they were staying and Francis had driven over it before on the day of the accident. Gladys Tongan, one of the girls, is not represented in this case.

The only eye witness of the accident who watched the car as it approached the crossing was Paul Woods, the locomotive fireman. On the first trial he said nothing about the conduct of the occupants of the automobile. On this trial he testified that none of them looked toward the engine at any time. The jury was not bound to accept his evidence on this point.

On a former trial verdicts were directed against two of the plaintiffs in this case. The Appellate Division (229 App. Div. 340, 341) ordered a new trial on the ground that there was no testimony affirmatively showing contributory negligence and that there was at least, a “ possible hypothesis [of careful conduct] based on the evidence which would not permit a finding of contributory negligence as a matter of law. (Chamberlain v. Lehigh Valley R. R. Co., 238 N. Y. 233, 235.)

This was a bad crossing, a blind crossing, where the tracks could not be seen as one approached it except as one was crossing the Lehigh tracks, when they were visible for a moment. The driver of the car had to negotiate his car up over the Lehigh tracks, then down, then up over the Central tracks. The degree of rise before going on to the tracks made it necessary to approach with the car in low or second gear.

The driver had to give attention to his car but it is difficult to suggest a possible hypothesis based on the evidence ” which would exonerate him of the charge of contributory negligence. He was heedless of ordinary precaution in a place which he must have known to be dangerous or he would not have driven on the tracks immediately in front of the train. If he had checked the speed of his car and looked right and left before he went on the tracks, the conclusion is inevitable that he might have avoided the accident. If he had used his senses of hearing and sight and proceeded cautiously and carefully (Horton v. N. Y. C. R. R. Co., 237 N. Y. 38, 47) he would not have failed to sense the approach of the train. He could not, except at his own risk, drive on the railroad track, relying on not having seen a train or heard a signal and taking no further precaution. If the crossing is dangerous, the care should be commensurate with the obvious risk. Francis knew when he went on the tracks that if a train came along before he got across the car would be hit and that he and his companions might be killed. Could it be said that under any hypothesis arising from and based on the evidence he did all that he could do to avoid danger? The evidence in this case points to a total lack of care on the part of the driver. (Schrader v. N. Y., C. & St. L. R. R. Co., 254 N. Y. 148.)

In the case of the passengers, the evidence does not demonstrate that they were not in the exercise of ordinary care for their own safety; that they did not call the attention of the driver to the approaching train or otherwise clear themselves from fault. There is no evidence which speaks one way or the other with reference to their contributory negligence. They may have given warning and their warning may have been unheeded. They may have seen the danger and thought that interference would be dangerous. (Baker v. Lehigh Valley R. R. Co., 248 N. Y. 131, 136; Nelson v. Nygren, 259 N. Y. 71.) The judgments in their cases must stand. In death cases the burden of proof is on the defendant (Civ. Prac. Act, § 265) and the jury must decide when the evidence presents an issue of fact.

In the case of Francis Crough the judgment of the Appellate Division and that of the Trial Term should be reversed and the complaint dismissed, with costs in all courts. In the cases of Donald Crough and Helen Perry the judgments should be affirmed, with costs.

Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur; Crouch, J., not sitting.

Judgment accordingly.


text:
    Wolf Natelson, Appellant, v. A. B. L. Holding Co., Inc., et al., Respondents.

      (Argued October 25, 1932;
    decided November 22, 1932.)

      David M. Palley and Leon Sacks for appellant.
    The corporation cannot act as agent of or trustee for its stockholders where the agency and trust are co-extensive with its corporate functions and the interests of its stockholders are in proportion to their stockholdings. (Jackson v. Hooper, 76 N. J. Eq. 592; Brock v. Poor, 216 N. Y. 387; Boag v. Thompson, 208 App. Div. 132; Salomon v. Salomon & Co., 45 Week. Rep. 193; Donnell v. Herring-Hall-Marvin Safe Co., 208 U. S. 267; Manson v. Curtis, 223 N. Y. 313; Verplanck v. Mercantile Ins. Co., 1 Edw. Ch. 84; Berger v. Eichler, 211 App. Div. 479; Scheidell v. Llewellyn Realty Co., 177 N. Y. Supp. 529; Trotter v. Lisman, 209 N. Y. 174; Cole v. Millerton Iron Co., 133 N. Y. 164; Bartlett v. Drew, 57 N. Y. 587; Ward v. City Trust Co., 192 N. Y. 61; Flaum v. Kaiser Bros. Co., 66 Misc. Rep. 586; 144 App. Div. 897; City of Rochester v. Bloss, 185 N. Y. 42; Frank v. Linkop Realty Corp., 106 N. J. Eq. 567; Jackson v. Hooper, 76 N. J. Eq. 592; Einstein v. Rosenfeld, 38 N. J. Eq. 309.) Assuming that the consideration for the property purchased by the corporation was paid by the stockholders, nevertheless no trust would result in their behalf. (Leggett v. Dubois, 5 Paige, 114; Flaum v. Kaiser Bros. Co., 66 Misc. Rep. 586; 144 App. Div. 897; Sturtevant v. Sturtevant, 20 N. Y. 39; Hegstad v. Wysiecki, 178 App. Div. 733; Schierloh v. Schierloh, 148 N. Y. 103; Leary v. Corvin, 181 N. Y. 222; Siemon v. Schurck, 29 N. Y. 598; Briggs v. Partridge, 64 N. Y. 357; Whitaker v. Westberg, 124 Misc. Rep. 556; 215 App. Div. 785.)

      Eugene A. Sherpick, William Gilbert, James J. Regan and John W. Jordon for Fraw Realty Co., Inc., amicus curiae.

    Even if the individual defendants, as distinct from the corporation through which they were doing business and had been doing business for twelve years prior to the event, had advanced the consideration for the properties, the taking of title in the name of the corporation divested them of every interest in the property. (Real Prop. Law, § 94; Garfield v. Hatmaker, 15 N. Y. 475; Siemon v. Schurck, 29 N. Y. 598; Ocean Nat. Bank v. Alcott, 46 N. Y. 12; Woerz v. Rademacher, 120 N. Y. 62; Robertson v. Sayre, 134 N. Y. 97; Hegstad v. Wysiecki, 178 App. Div. 733; Flaum v. Kaiser Bros. Co., 66 Misc. Rep. 586; 144 App. Div. 897.) Assuming the corporation to have been a mere trustee and that the entire beneficial ownership of the properties conveyed was in the individual defendants, the plaintiff’s right to recovery is clear. The action being one in equity and it having been shown that the trustee is insolvent, the plaintiff, as a creditor of the trustee upon an obligation incurred by the latter in connection with the trust estate, is subrogated to the right of the trustee to charge the trust assets for the satisfaction of such obligation. (Matter of Johnson, 15 Ch. Div. 548; Jessup v. Smith, 223 N. Y. 203; Schoenherr v. Van Meter, 215 N. Y. 548; Collins v. McWilliams, 185 App. Div. 712; Strong v. Dutcher, 186 App. Div. 307; New v. Nichol, 73 N. Y. 127; Hegstad v. Wysiecki, 178 App. Div. 733; Willis v. Sharp, 113 N. Y. 586; O’Brienv. Jackson, 167 N. Y. 31; Miller v. Herzog, 148 N. Y. Supp. 945; Whiting v. Hudson Trust Co., 231 N. Y. 394.)

      Samuel Zinman for Lewis Rudick et al., amici curice.

    The corporation was the absolute owner of the properties which it conveyed to its stockholders without consideration when the entry of a judgment against it appeared imminent. (Woolley v. Stewart, 222 N. Y. 347.)

      I. Maurice Wormser, Solon B. Lilienstern and Edward Gettinger for respondents.
    Section 94 of the Real Property Law terminated the rule at common law that a grant to one for a consideration paid by another results always in a trust for the benefit of the one paying the consideration; the statute has no effect on trusts imposed as a consequence, not of payment alone, but in combination with other acts. (Bing v. People, 254 N. Y. 484; Woolley v. Stewart, 222 N. Y. 347; Whitaker v. Westberg, 124 Misc. Rep. 556; 215 App. Div. 785; Carr v. Carr, 52 N. Y. 251; Thomas v. Robbert, 123 Misc. Rep. 76; Holden v. Burnham, 2 Hun, 678; 63 N. Y. 74; Kingsbury v. Christy, 21 Ariz. 559; Foreman v. Foreman, 251 N. Y. 237; McKinley v. Hessen, 202 N. Y. 24; Fraw Realty Co. v. Natanson, 236 App. Div. 722.) The plaintiff did not rely in any way on the financial responsibility of the defendant corporation in accepting' its bond secured by a purchase-money mortgage; therefore, the transfer by the defendant corporation of property, the record title to which was in its name, but which was in fact owned by the individual defendants, was not fraudulent, as to the plaintiff. (Ochs v. Woods, 221 N. Y. 335; Thayer v. Schley, 121 N. Y. Supp. 1064; Montgomery v. DePicot, 153 Cal. 509.) The plaintiff’s judgment is founded on a sealed instrument made by the corporation; therefore, the property of the individual defendants cannot be charged with the payment of the judgment. (Briggs v. Partridge, 64 N. Y. 357; Crowley v. Lewis, 239 N. Y. 264; Case v. Case, 203 N. Y. 263.)

      Alexander Pfeiffer and Joseph Lotterman for Max N. Natanson et ah, amici enrice.

    As a consequence of the individual defendants’ payment of the consideration for all the properties involved herein a resulting trust was created in favor of the individual defendants, with an enforceable equitable obligation imposed upon the corporation to convey the properties to the individual defendants or their nominees at any time upon request. The resulting trust in favor of the individual defendants is superior to any claim of the plaintiff who did not rely in any manner upon the corporate nominee’s holdings of the record titles. (Foreman v. Foreman, 251 N. Y. 237; Carr v. Carr, 52 N. Y. 251; Whitaker v. Westberg, 124 Misc. Rep. 556; 215 App. Div. 785; Kingsbury v. Christy, 21 Ariz. 559.) Assuming that the individual defendants could not have compelled the corporation to transfer the properties, the voluntary conveyance by the corporation to the individual defendants was a fulfillment of the highest moral and equitable obligation, and does not constitute a fraud upon a creditor who did not rely in any manner whatsoever upon the record holdings of the corporation. (Holden v. Burnham, 2 Hun, 678; 63 N. Y. 74; Dunn v. Whalen, 21 N. Y. Supp. 869; Siemon v. Austin, 33 Barb. 9; 29 N. Y. 598; Ocean Nat. Bank v. Hodges, 9 Hun, 161; Davis v. Graves, 29 Barb. 480; Foote v. Bryant, 47 N. Y. 544; Norton v. Mallory, 63 N. Y. 434; Robbins v. Robbins, 89 N. Y. 251.)
   Crouch, J.

In 1926 the defendant A. B. L. Holding Co., Inc., hereinafter called the corporation, took a deed of certain real property and as part payment gave at the direction of the vendor a purchase-money bond and mortgage to the plaintiff. The bond and mortgage matured on September 3, 1928, and a default occurred. Foreclosure followed resulting in the entry of a deficiency judgment against the corporation. In July and August, 1928, the corporation stripped itself of all property, real and personal, of which it was the apparent owner, except the mortgaged parcel above mentioned, and the cash in its bank account. The latter item was transferred later but before the entry of the deficiency judgment. The transferees were the defendants Solon B. Liliénstern and Anna Beringer, who were the corporation’s only stockholders, and the defendant Ttae A. Lilienstern, who was the wife of Solon. In an attempt to set aside the transfers and to subject the transferred property to the payment of his judgment, plaintiff has thus far been unsuccessful. It has been found that the two stockholders were the actual owners of the transferred property and hence that no wrong was committed when the semblance of ownership was made to conform to actuality. The corporation, it is said, in all of its varied activities, was merely the agent — gratuitous and unrecompensed — of its two stockholders. Any benefit resulting from those activities, we are told, rightly flowed to the stockholders; liability, divorced from the means of meeting it, was the sole portion of the corporation.

This, we think, pushes the theory of dual personality too far. It is true that the law permits individuals to incorporate their business as a cover and for the very purpose of escaping personal liability; but the business so incorporated must be carried on by the corporation, not by individuals; and its profits must be available to meet liabilities, before the individuals may share. The corporation exists for the legitimate convenience of the stockholders, not as a mere mask for their personal acts and responsibilities.” (Halsted v. Globe Indemnity Co., 258 N. Y. 176, 179.) Tested by this broad rule alone, the judgment below, however ingeniously defended, is wrong. We proceed, however, to consider the defense.

In 1916 the corporation was organized, with an authorized and paid-in capital of $5,000. Solon B. Lilienstern and one Max Beringer were the sole stockholders with an equal number of shares. Lilienstern was president, a clerk in Lilienstern’s office was vice-president and Beringer was secretary and treasurer. Lilienstern, Beringer and, presumably, the clerk were directors. There is a finding that the corporation was organized by Lilienstern and Beringer for the purpose of holding as their agent the record title of real property purchased and paid for by them, and of executing and delivering bonds and mortgages in connection with such purchases, and of holding purchase-money bonds and mortgages given when any property was sold. That perhaps states the purpose of Lilienstern and Beringer. What the purposes and objects of the corporation were do not appear. The certificate of incorporation is not in evidence. The corporation did over a period of ten or twelve years take and hold the title to many properties; it gave deeds of those properties when sold; it executed and delivered bonds and mortgages; it took and held purchase-money mortgages. All those, transactions were in its own corporate name. It did not purport to act as agent. There is no evidence that it did act as agent beyond the insufficient fact that all the money used in its business over and above its capital of $5,000 was furnished by Lilienstern and Beringer in proportion to their stockholdings. All rents were collected and retained by Lilienstern and Beringer, who had periodical accountings between themselves. There is also a finding that there was an agreement between the corporation and its two stockholders that the corporation should hold all property as their agent and for their use and benefit, and should, upon demand, transfer such property to them, or their legal representatives or assigns. There was no written agreement and no evidence of an oral agreement unless it can be inferred from the facts above stated. Lilienstern and Beringer no doubt understood (and with some reason since they alone controlled the corporation) that the property could and would be transferred to themselves whenever exigency demanded it. That falls somewhat short of being an agreement with the corporation. Max Beringer died in May, 1928, and his interests passed to his wife, the defendant Anna Beringer. Until the spring of 1928 the corporation had no bank account. When the property was transferred from the corporation to the stockholders the corporation was paid no money or other thing of value.

The argument for respondents is two-fold: First, admitting that plaintiff could have the relief sought had he accepted the bond and mortgage of the corporation in justifiable reliance upon its apparent ownership, the evidence, it is said, shows conclusively that he did not do so. The evidence referred to is found in the short contract of sale and purchase pursuant to which the mortgage was given. The corporation was the vendee named therein and it was provided that $10,500 of the purchase price was to be paid “ by the vendee or assigns executing and delivering to the vendor its bond and purchase-money mortgage.” That plaintiff did not rely on the obligation of the bond, because it might have been executed by an assignee, does not follow. As originally drawn, the contract named Max Beringer as vendee. Before execution the name of the corporation was written in. The corporation in fact executed it and there is evidence that plaintiff was informed by Lilienstern and Beringer that the corporation had property of the value of at least $150,000.

The other phase of respondent’s argument is that the Real Property Law (Cons. Laws, ch. 50), section 94, has no application to the transactions between the corporation and the individual defendants. That statute was intended to prevent a person from concealing a real ownership under an assumed name, while reaping all the benefits of ownership. (Siemon v. Schurck, 29 N. Y. 598, 610.) Its effect is to cut off all interest in the person paying the consideration. (Garfield v. Hatmaker, 15 N. Y. 475; Siemon v. Schurck, supra; Ocean National Bank v. Olcott, 46 N. Y. 12; Hegstad v. Wysiecki, 178 App. Div. 733.) If there is an agreement in writing by the person taking title amounting to a declaration that he holds merely for the use of the person furnishing the consideration and will convey upon demand, the case falls under the Real Property Law, sections 92 and 93. The title automatically vests in the actual owner. (Cf. Bing v. People, 254 N. Y. 484.) Where the declaration is oral, enforcement as between the immediate parties meets not only the obstacle of the Real Property Law, section 94, but also of the Statute of Frauds, Real Property Law, section 242. The latter may be overcome where a confidential relation would be abused if there were repudiation, without redress ” (Foreman v. Foreman, 251 N. Y. 237, 240); or, what is perhaps the same thing, where there has been part performance by unequivocal acts clearly referable to the agreement. (McKinley v. Hessen, 202 N. Y. 24.) The barrier of section 94, as between the immediate parties, may be passed when substantially the same facts exist. The statute has no effect, however, on trusts constructively imposed as a consequence not of payment alone, but of payment in combination with other or extrinsic equities.5 ’ (Foreman v. Foreman, supra, p. 241, 242.) That is a “ field uncovered by the statute.” (Id.) In that field the respondents say they stand. We think not. The mere fact that the creature corporation transferred the property at the behest of its creators and masters does not, as against plaintiff, obviate the necessity of proving that the transfer was in fulfillment of an agreement to do so. The most important of those other or extrinsic equities ” upon which respondent’s case must rest are the words of promise. There is no evidence that such words were ever uttered. The acts of the respondents are not so clear, certain and definite in their object and design as to refer exclusively to a complete and perfect agreement, of which they are a part execution. (Wheeler y. Reynolds, 66 N. Y. 227, 231.) The acts here could and would have been exactly the same had there been no agreement. But even though the extrinsic equities which prevail between the immediate parties to such transactions were proved here, they would have to be weighed against the equities of plaintiff; and the result would be the same. (Cf. Hegstad v. Wysiecki, supra; Flaum v. Kaiser Bros. Co., 66 Misc. Rep. 586; affd., 144 App. Div. 897.)

It remains to deal briefly with the case of Bing v. People (254 N. Y. 484), upon the authority of which the decision in the Appellate Division herein is rested. The distinction is clear. The Glenbrook Company which there held the record title held it as a mere depositary. It was organized for that purpose. That was its authorized business. For doing that it was paid. Its function was passive, not active. It had none of its own funds invested in the property. The claim of no creditor arose by its act. The actual owners were not its stockholders, but third parties. The agreement under which it held was in writing. By reason of the nature of that agreement, it took no estate, legal or equitable, under the applicable statute. The facts in no respect brought it within the scope of the Real Property Law, section 94. The principle of that case has no relevancy directly or argumentatively under the facts here.

The judgments should be reversed and judgment directed for the plaintiff for the relief asked for in the complaint, with costs in all courts.

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

Judgment accordingly.


text:
    Schloss Bros. & Co., Incorporated, Respondent, v. Richard W. Bennett et al., Individually and as Copartners under the Firm Name of R. W. Bennett & Co., Appellants.

      (Argued October 26, 1932;
    decided November 22, 1932.)

      Benjamin C. Ritman for appellants.
    The course of dealings between the parties herein and the corporation effected a substitution and discharge of defendants’ liability to the plaintiff, which liability was assumed by the corporation. (Luddington v. Bell, 77 N. Y. 140; Filippini v. Stead, 4 Misc. Rep. 405; Bachus v. Fobes, 20 N. Y. 204; Union Trust Co. v. Owen, 77 App. Div. 60; Greene v. Greene, 125 N. Y. 506; Shaw v. McGregory, 105 Mass. 96; Tysen v. Somerville, 35 Fla. 219; Regester v. Dodge, 6 Fed. Rep. 6; Lane Co. v. United Oilcloth Co., 103 App. Div. 378; DeWitt v. Monjo, 46 App. Div. 543; Newburger v. Lubell, 257 N. Y. 383.) The composition agreement executed by the creditors’ committee with defendants, and the subsequent course of plaintiff’s conduct, were sufficient to discharge defendants of all obligations. (Beck v. Witteman Bros., 185 App. Div. 643; Blair v. Wait, 69 N. Y. 113; Matter of Abo

      Samra, 169 App. Div. 604; O’Brien v. Metropolitan St. Ry. Co., 27 App. Div. 1; Matter of Barrett’s Estate, 141 Misc. Rep. 637; Matter of Evans, 234 N. Y. 42; Shipley Construction & Supply Co. v. Mager, 165 App. Div. 866; Smith v. Farley, 155 App. Div. 813; Trustees of East Hampton v. Vail, 151 N. Y. 463; Williams v. Schreiber, 14 Hun, 38; Renard v. Fuller, 17 N. Y. Super. Ct. 107.) Defendants are entitled to judgment on the pleadings. (Civ. Prac. Act, § 476.)

      Harry Yarm, H. Lesser and J. J. Lesser for respondent.
    The plaintiff never consented to a substitution of the corporation as its debtor in place and instead of the partnership. Therefore, there is no novation. (Netterstrom v. Gollistel, 110 III. App. 352; Cutting v. Whitlemore, 72 N. H. 107; State Bank v. Domestic Sewing Machine Co., 99 Va. 411; Fidelity Loan Co. v. Engleby, 99 Va. 168; Gibbs v. Waring, 79 Misc. Rep. 218; McLaughlin v. Gillings, 28 Misc. Rep. 56; Donemore Clothing Co. v. Shapiro, 202 N. Y. Supp. 259; Union Bank v. Stafford, 12 How. [U. S.] 327; Hyde v. Booraen, 16 Pet. 169; City Nat. Bank v. Fuller, 52 Fed. Rep. [2d] 870; Leckie v. Bennet, 160 Mo. App. 145; Michelin Tire Co. v. Akers, 32 N. M. 234; Messner v. Mason’s Dairy, 4 Pac. Rep. [2d] 207; Clinchfield Fuel Co. v. Lundy & Sons, 139 Tenn. 135; Illinois Car & Equipment Co. v. Linstroth Wagon Co., 112 Fed. Rep. 737; Chapin v. Brown, 101 Cal. 500; Martin & Co. v. Brosman, 18 Cal. App. 477; Redwill v. Matzenauer, 32 Ariz. 13; Dean v. Collins, 15 N. D. 535; Harrington-Wiard Co. v. Blomstrom Mfg. Co., 166 Mich. 276; Tuscaloosa Lumber Co. v. Tropical Paint & Oil Co., 211 Ala. 258; Shaw v. Thronberry, 218 Ky. 140; Matter of Dahnke Walker Milling Co., 1 Fed. Rep. [2d] 404; Matter of Gibbs v. Waring, 79 Misc. Rep. 218; McLaughlin v. Gillings, 18 Misc. Rep. 56.) The defendants’ motion for judgment under section 476 of the Civil Practice Act was improper. (Kidder v. Hesselman, 119 Misc, Rep. 410; Lloyd v. R. S. M. Corp., 251 N. Y. 318.)
   Pound, Ch. J.

Plaintiff, a corporation, sues defendants, copartners, for a balance due on the purchase price of goods, wares and merchandise. The answer alleges a novation whereby the plaintiff accepted R. W. Bennett & Co., Inc., a New York corporation, as its debtor in place of the partnership and released defendants from any liability for the cause of action sued on. Plaintiff’s claim was originally against the partnership. Plaintiff continued for a time to do business with the corporation without discharging the partnership from its indebtedness.

The following facts appear: When the Bennett corporation was formed each of the defendants loaned it the sum of $20,000. After the Bennett corporation found itself in difficulties a creditors’ committee was appointed which took possession of all its assets; and at a meeting of the committee, the defendants Bennett and Rosenberg agreed to waive their $20,000 claims against the Bennett corporation on condition, among other things, that all checks to be sent to the creditors in payment of dividends were to bear the following indorsement: “ This check is accepted by the payee hereof in full payment, release and discharge of any and all claims of the payee against R. W. Bennett & Co., Inc., and also R. Walter Bennett and Samuel Rosenberg heretofore doing business under the firm name and style of R. W. Bennett & Co., Inc.”

The creditors’ committee sent plaintiff a check for $2,457.97, representing the dividend on the total of plaintiff’s claims which it was then asserting against the Bennett corporation as well as the copartnership, which check bore language releasing these defendants. Plaintiff returned this check to the committee with its letter, in which it stated: We are willing to accept check for the 28.65% of the claim, that is, in two checks; one covering the amount for which the individual partners are hable, namely, $1,343.22, and the other check for the remainder, $1,114.75, covering the claim against the corporation, and we are willing to release our claim against the corporation, * *

In response to this letter, the creditors’ committee sent plaintiff a letter, in which the committee said: “ Upon advice of counsel, we are forced to state that because of the agreement entered into between the Creditors’ Committee and R. W. Bennett and Samuel Rosenberg, all checks being sent to creditors must bear the endorsement that they are accepted in full settlement.

“ The consideration for this arrangement was the waiving by said R. W. Bennett and Samuel Rosenberg of their respective claims against the corporation in the amount of $20,000 each.

In view of this fact we are holding these checks here subject to your order.

“Awaiting your further advice, we remain. * * *.”

After the exchange of these two letters plaintiff actually did obtain two checks, one for $1,114.75 in payment of the dividend on the alleged claim against the corporation, which it evidently received direct from the creditors’ committee, and the other for $1,343.22, which it received as the result of a judgment it obtained by default in a City Court action against the Bennett corporation.

The plaintiff availed itself of the benefit of the composition and now takes the position that it is not bound by the composition.

It further appears that the sale of the assets of the Bennett corporation resulted in a payment of $31,625, which • became available for dividends. Bennett and Rosenberg could have shared in this to the extent of receiving a dividend on their claims for $20,000, which they waived.

The complaint in the action in the City Court sets forth that the goods were sold to the partnership and that plaintiff did not release its claim against the partnership therefor. It recites the liquidation proceedings and alleges that as a result thereof there became due and owing from the defendant in the City Court action to the plaintiff the sum of $2,457.97, being 28.65 per cent of their claim which was in the hands of the defendant available for payment to the plaintiff, wherefore they demanded judgment for the amount thereof less the amount of the dividend paid on the claim against the corporation. Plaintiff obtained judgment and applied the amount received on the partnership account leaving a balance of S3,345.15, the amount for which summary judgment has been granted to plaintiff.

The plaintiff-respondent contends that there has been no novation but that the corporation became the principal debtor and the partnership its surety. This is the rule where there has been no novation. (Millerd v. Thorn, 56 N. Y. 402; Colgrove v. Tallman, 67 N. Y. 95.)

It is elementary that a contract may be discharged by the introduction of new parties and a new contract entered into by novation. The creditor when advised, after he' has entered into a contract with two or more, that one of them has retired from the contract and the others have assumed the debt, may (1) insist upon the continued liability of the retiring debtor, or (2) by continuing so to deal with the new debtors as to evidence his intention, he may enter into a new contract to accept them as solely hable. If he does the latter, he cannot hold the retiring party on the original contract. The assent of the creditor to the substitution must be established (Ayer v. Kilner, 148 Mass. 468), but the consent to enter into the new contract may be implied by conduct. (1 Williston on Contracts, 681.)

A creditor may no doubt, without releasing his original debtor, take advantage of the agreement of a third party • to pay the debt in consideration óf a transfer of property to him by such original debtor. The original debtor, in such case, need not be discharged and may still beheld hable for the debt. (City National Bank v. Fuller, 52 Fed. Rep. [2d] 870; Harrington-Wiard Co. v. Blomstrom Mfg. Co., 166 Mich. 276.)

So here the question is whether the collection óf a dividend from the corporation on the partnership claim amounted in law to a consent by the creditor to take the new debtor as his sole security and to extinguish the claim against the former debtor. The corporation here offered to pay the partnership creditors a dividend if they would accept it in full discharge of any claim against the partnership. The plaintiff knew that the corporation raised and held the fund for the purpose of discharging the liabilities of the partnership as well as of the corporation. To be sure the plaintiff refused to take the money from the corporation when it was offered on the conditions on which it was offered, i. e., “ all checks * * * sent to creditors must bear the endorsement that they are accepted in full settlement.” It might have sued the corporation on the theory that it had assumed the debt. It might have sued the individual debtors on the theory that it had not released them, but it saw fit to sue the corporation for a fund held by it for the sole purpose of discharging the partnership debts together with those of the corporation. In collecting this money from the corporation, in which it was entitled to share only as it accepted the composition agreement, it cannot be said as matter of law that it did not discharge the partnership.

Where the creditor of a partnership after dissolution thereof, knowing that one or several of the partners have agreed with the others to assume and pay the debts of the firm, takes the negotiable notes of those who should pay, in payment of the debts of the firm, he thereby cancels the claim against the firm and discharges the other partners. (Millerd v. Thorn, supra.) This is contrary to the rule in some jurisdictions. (Cf. Tuscaloosa Lumber Co. v. Tropical Paint & Oil Co., 211 Ala. 258.)

WTen the creditor participates in a fund created by those who should pay and takes the money from such fund, he takes it subject to the conditions by which it was created and thus cancels his claim against the original debtor. Actions speak louder than words. He cannot protest that he has never released the original debtors while he at the same time participates in the benefits offered only to those who will release them. Hé may not resort to technical rules to limit the scope of a novation by assuming the verbal role of a non-assenting creditor. When by taking from such a fund in which he has no right otherwise to share he necessarily accepts his share on the conditions for which the fund came into being.

The judgment should be reversed and plaintiff’s motion for summary judgment should be denied, with costs in all courts. Defendants’ motion for summary judgment should be granted, with ten dollars costs.

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

Judgment accordingly.