text:
    The New York Trust Company, as Trustee under a Deed of Trust from George F. Underwood et al., Appellant, v. American Realty Company et al., Respondents.
    Contract — bills, notes and checks — corporations — directors —• counterclaim ■ — ■ corporation may not repudiate contract made with director and still retain its benefits — director may sell his property to corporation at profit without being obliged to account — action to recover upon promissory notes given by corporation as purchase price of land — counterclaim in so far as it alleges that land was sold to it by the trustee of one of its officers and directors who made an exorbitant profit from the sale does not state a cause of action in the absence of rescission — cause of action stated in so far as it alleges that part of land was purchased by its officer and director with knowledge that corporation intended to acquire it — corporation may require transfer of land to it at cost and an accounting for profits realized by sale — contention that cause of action does not arise out of transaction set forth as foundation of plaintiff’s claim and, therefore, may not be pleaded as a counterclaim cannot be sustained.
    1. A corporation may not repudiate the obligations of a contract made with a director and at the same time retain its benefits. If the contract was valid the corporation must pay the agreed price; if invalid the corporation must rescind or repudiate the contract in its entirety. A director who may sell or retain property at his will may also determine the price which will induce him to sell to the corporation. Profit made is the fruit of his ownership, not of his agency, and he may not be called upon to account for such profits. If the contract which fixed the amount of the seller’s profits is not rescinded or void, the fact that the profits are so large that they might be called “ exorbitant ” is ordinarily immaterial.
    2. In an action to recover upon promissory notes executed and delivered by defendant realty company and guaranteed by defendant paper company as the purchase price of lands which had been conveyed to the plaintiff under a deed of trust and by it sold to the realty company, a counterclaim, in so far as it is based upon the theory that at the time of the sale the maker of the trust deed, which was principally for the benefit of his family, stood in a highly fiduciary relation to the defendants and that in disregard of his duty of undivided loyalty and fidelity to them he took upon such sale an indirect and exorbitant profit, does not state a cause of action in the absence of rescission. If the defendants retain the land to which they have no right or title except by virtue of the contract with the plaintiff they must pay the agreed purchase price. If the contract of purchase is rescinded the principal has no title to the property or right to retain it. If the principal fails to return the property he may not claim that the contract was made without authority.
    3. The counterclaim, however, in so far as it alleges that the maker of the trust deed purchased part of the lands in question with knowledge that defendant paper company contemplated and was considering purchase thereof, states a cause of action. If that knowledge induced the purchase by its fiduciary of land; if he acquired it with intent to divert into his own coffers prospective benefit which the corporation expected to acquire; if he bought for himself when duty to the corporation required him to act only for it, then the corporation might insist that his title so acquired was held for its benefit and that he transfer the property to it at cost. He could not rid himself of this trust by transferring the property to the plaintiff, which took title subject to the same obligation. If the defendants can sustain these allegations by proof they may insist that the plaintiff account for profits realized by sale of that part of the property.
    4. A contention by plaintiff that the cause of action pleaded is not “ on contract ” and does not arise out of the “ contract or transaction set forth as the foundation of the plaintiff’s claim or connected with the subject of the action,” and, therefore, may not be pleaded as a counterclaim (Civ. Pr. Act, § 266), cannot be sustained. The action is founded upon notes given as the consideration for the purchase of land. If the allegations contained in the counterclaim can be established the plaintiff may be compelled to return part of the purchase price represented by the notes because of wrong committed in exacting them as stipulated price of the land. Under such circumstances a construction of the statute which would preclude the defendants from establishing their rights in an action upon the notes is too narrow.

      New York Trust Co. v. American Realty Co., 215 App. Div. 416, affirmed.
    (Argued November 15, 1926;
    decided December 31, 1926.)
    Appeal, by permission, from an order of the Appellate Division of the Supreme Court in the first judicial department, entered February 5, 1926, which reversed an order of Special Term granting a motion by plaintiff for judgment on the pleadings and denied said motion.
    The following questions were certified: “ 1. Does the first counterclaim state facts sufficient to constitute a cause of action? 2. Is the first counterclaim one which may be properly interposed in this action? 3. Does the second counterclaim state facts sufficient to constitute a cause of action? 4. Is the second counterclaim one which may be properly interposed in this action? ”

      Frank C. Laughlin and William E. Sims for appellant.
    The first counterclaim does not state a cause of action. (Gamble v. Queens County Water Co., 123 N. Y. 91; Billings v. Shaw, 209 N. Y. 265; Globe Woolen Co. v. Utica Gas & Elec. Co., 224 N. Y. 483; Barr v. New York, Lake Erie & Western R. R. Co., 125 N. Y. 263; Duncomb v. N. Y., etc., R. R. Co., 84 N. Y. 193; Seymour v. Spring Forest Cemetery Assn., 144 N. Y. 333; Parker v. Nickerson, 137 Mass. 487.) The first counterclaim is not one which can properly be interposed in this action. (Otis v. Shants, 128 N. Y. 45; Vassar v. Livingston, 13 N. Y. 248; Pease Oil Co. v. Monroe Oil Co., 78 Misc. Rep. 285; 158 App. Div. 951; Fulton Co. G. & E. Co. v. Hudson River T. Co., 200 N. Y. 287; Vulcan Metals Co. v. Simmons Mfg. Co., 248 Fed. Rep. 853; Adams v. Schwartz, 137 App. Div. 230; Stevenson v. Devins, 158 App. Div. 616.) The second counterclaim does not state facts sufficient to constitute a cause of action. (Kranz v. Lewis, 115 App. Div. 106; Van Slochem v. Villard, 207 N. Y. 587; Ellis v. Andrews, 56 N. Y. 83.)

      Theodore Kiendl and George A. Brownell for respondents.
    The first counterclaim contained in the defendants’ amended answer states facts sufficient to constitute a cause of action. (Douglass-Whisler Brick Co. v. Simpson, 233 Penn. St. 515; Parker v, Nickerson, 112 Mass. 195; Munson v. Syracuse, G. & C. R. Co., 103 N. Y. 58; Asphalt Construction Co. v. Boulser, 150 App. Div. 691; 210 N. Y. 643; Billings v. Shaw, 209 N. Y. 265; Woolson Spice Co. v. Columbia Trust Co., 110 Misc. Rep. 687; Fletcher on Corp. §§ 2340, 2359; Thompson on Corp. [2d ed.] §§ 1215, 1216, 1220; Redhead v. Parkway Driving Club, 148 N. Y. 471; Voorhees v. Nixon, 72 N. J. Eq. 791; Devone v. Tanning, 2 Johns. Ch. 252; Reed v. Aubrey, 91 Ga. 435.) Both the first and second counterclaims are properly interposed in this action. (New York Trust Co. v. American Realty Co., 215 App. Div. 416; Siebrecht v. Siegel-Cooper Co., 38 App. Div. 549; Laska v. Harris, 215 N. Y. 554; Kneeland v. Pennel, 96 N. Y. Supp. 403; Vandervort v. Mink, 113 App. Div. 601; Seidman v. McCahill, 182 N. Y. Supp. 800.)
   Lehman, J.

The coinplaint herein sets forth seven separate causes of action at law. The first cause of action is for the unpaid principal and interest of a note for $100,000 dated November 12th, 1920, and payable December 1st, 1924, executed and delivered by the American Realty Company to the plaintiff and guaranteed by the International Paper Company. The remaining causes of action are for unpaid interest on six other notes of identical form but maturing serially in successive years thereafter. The defendants have served an answer containing two counterclaims. The plaintiff has moved for judgment' dismissing the counterclaims. The order granting such motion has been unanimously reversed by the Appellate Division which has granted leave to appeal upon certified questions.

The defendants allege in the first counterclaim that the defendant American Realty Company purchased in November, 1920, from the plaintiff more than fifty-five thousand acres of timberland. The consideration agreed upon for the sale of this land was the sum of $1,364,895,-to- be paid to the plaintiff as trustee under a deed of trust from George F. Underwood and Jennie A., Ms wife, dated July 28th, 1920, and in addition the execution of a contract between the said George F. Underwood and the International Paper Company wMch owned all the capital stock of the American Realty Company. One million dollars of the said purchase price was paid in ten notes of American Realty Company guaranteed by International Paper Company, each in the principal amount of $100,000 and maturing serially one on December first of each year from 1921 to 1930, both inclusive. TMee of the said notes have been paid. The remaimng seven are those referred to in the complaint herein.

George F. Underwood, named with Ms wife as the grantor of the deed of trust to the New York Trust Company, was a director of the International Paper Company from August 28th, 1901, until Ms death on or about August 6th, 1923, and was from October 24th, 1906, until Ms death a member of the executive committee of said company. He was also from September 25, 1918, until Ms death the president and a director of the American. Realty Company. The conveyance of the timberlands to the plaintiff under the deed of trust of July, 1920, from George F. Underwood and Jenme A. Underwood, his wife, was gratuitous. The land was to be sold as soon as possible. The trust deed directed that certain small amounts of the purchase price be paid over to designated charitable and other institutions and that the great bulk be paid or applied either by outright gift or tMough the establishment of trust funds, to the benefit of the immediate family of George F. Underwood. The largest beneficiary under the said trust is Ms wife.

The counterclaim is based upon the theory that at the time of the sale of the timberlands, Underwood stood in a Mghly fiduciary relation to the defendants and that in disregard of Ms duty of undivided loyalty and fidelity to them he secretly took upon such sale an indirect profit which, in the counterclaim, is characterized as exorbitant,” and that breach of trust on the part of Underwood gives rise to an affirmative cause of action against the plaintiff who benefited from it. The allegations of wrongdoing contained in the counterclaim are somewhat vague and indefinite. The rule by which the defendants arrive at the amount of damages which they demand is not disclosed. General allegations are in some instances merely conclusions and in other instances limited by more specific allegations. Perhaps the counterclaim is vague and indefinite because the defendants are themselves in doubt as to where they can find basis for recovery herein; . yet some facts have been pleaded which if proven would sustain some recovery, though not for all the damages claimed by the defendants.

In spite of general allegations of concealment by Underwood of matters which should have been disclosed by him to the defendant corporations, of which he was a director, and in spite of claim that “ secret ” profits were made, it appears conclusively that when the defendants respectively made and guaranteed the notes in suit, Underwood did not hide from them his relation to the plaintiff and his indirect interest in the purchase price. The counterclaim alleges that “ it was by him that the offer of sale was made to the International Paper Company and its subsidiary, and throughout the negotiations he acted as sole agent for the New York Trust Company, Trustee.” The notes given show on their face that the trustee held title under a deed of trust from George F. Underwood and Jennie A., his wife, dated July 28th, 1920, and recorded. They even recite that the deed of trust is “ recorded in Somerset [Maine] Registry of Deeds, Yol. 363, Page 1.” Under such circumstances it may not be said that the defendants were fraudulently kept in ignorance of the fact that under the deed of trust, near relatives of Underwood were the principal beneficiaries. If his interest in effectuating a sale in behalf of the plaintiff might interfere with his obligations as officer and director of the defendants, it does not appear that the possible conflict was not disclosed. Though it is said that “ throughout the deal he was acting for both the selling and buying parties,” it does not appear that he even voted as director of the defendant corporations to purchase the land. It is alleged that the officers and directors of the corporations relied on his judgment, integrity and advice in matters pertaining to the purchase of and the general policy regarding timberlands and that he had general charge of such purchases, and exercised a dominant position in relation thereto.” It is further alleged that it was “largely through the representations and recommendations of the said Underwood, acting in his capacity of officer and director of the defendant companies with particular charge of their timberland purchases as aforesaid, that the purchase by International Paper Company and American Realty Company was effected.”

We assume that if the defendants, by reason of these circumstances, were induced to make a bargain which subsequently they discovered was not advantageous to them, they might rescind their contract of purchase. (Barr v. N. Y., L. E. & W. R. R. Co., 125 N. Y. 263; Munson v. Syracuse, G. & C. R. R. Co., 103 N. Y. 58; Wendt v. Fischer, 243 N. Y. 439.) The corporations have not chosen to rescind. Indeed they do not now urge that the contract of sale may not have been advantageous. ■ They do say that the agreed consideration paid for the timberlands “ was greatly in excess of the fair value of the said lands, and also greatly in excess of the amount paid by Underwood in acquiring them, resulting through the benefit to the wife and members of the immediate family of George F. Underwood and to the said Underwood himself in an exorbitant profit to the said Underwood. The amount of the said exorbitant profit was not disclosed to American Realty Company or International Paper Company,”' but it does not appear that the lands might not be of such use to the corporations in their business that the corporations would not be willing to pay even now more than the fair value of such land if such payment was required for its acquisition. Since the defendants retain the land to which they have no right or title except by virtue of the contract with the plaintiff they must pay the agreed purchase price.. The allegations of the counterclaim are insufficient as a defense to the action and are not pleaded as a defense. If they are sufficient to constitute a cause of action which may be pleaded as a counterclaim, it must be upon the theory that Underwood, because of his fiduciary relations to the corporation may be compelled to account for any profits he might make upon a sale of his property to the corporations or for excess of price received over the fair value of the property, and that the plaintiff, to whom the lands were conveyed, perhaps in contemplation of anticipated sale to the corporation, may not retain more than the price which Underwood could properly exact for the property.

Undoubtedly it has frequently been held that a director or officer of a corporation must account to the corporation for profits received in disregard of duty owed to the corporation. (McClure v. Law, 161 N. Y. 78; Jackson v. Ludeling, 21 Wall. [U. S.] 616.) The remedy has been granted at times even in cases where the corporation does not rescind the transaction through which such profits have been made by the delinquent trustee or agent. In such cases, however, affirmation of authority of director or agent to bind the corporation was not inconsistent with claim of wrong committed by him in the course of his representation of the corporation. Remedy there is granted for wrong committed by an unfaithful agent in accordance with general principles applicable to recognized agency. “ All profits made and advantage gained by the agent in the execution of the agency belong to the principal. And it matters not whether such profit or advantage be the result of the performance or of the violation of the duty of the agent if it be the fruit of the agency.” (Mechem, Law of Agency [2d edition], section 1225.) An agent for a buyer must account to his principal for the amount allowed by the seller to the agent for his services in making the sale. (McMillan v. Arthur, 98 N. Y. 167.) On analogous principles an agent or director may be compelled to account for profits made on the sale of property to his principal, though the principal retains the property sold where, even before such sale, the agent or director was holding the property as trustee for the principal. In such case, even though the corporation repudiates the act of the director as its agent upon the sale of the property at a profit, it would still be entitled to hold the property conveyed to it because in equity ownership by the agent was for the benefit of the corporation and the fruits of such ownership belong to it. (See Parker v. Nickerson, 112 Mass. 195; Watson v. Bayliss, 62 Wash. 329; Willink v. Vanderveer, 1 Barb. 599; Danville, H. & W. R. Co. v. Kase, 17 Phila. 332.)

Different question arises where the agent sells to his .principal at a profit property which the agent might have retained for himself or sold to a stranger. If the contract of purchase is rescinded the principal has no title to the property or right to retain it. If the principal fails to return the property he may not claim that the contract was made without authority. A corporation may not repudiate the obligations of a contract made with a director and at the same time retain its benefits. If contract with the director was valid the corporation must pay the agreed price; if invalid the corporation must rescind or repudiate the contract in its entirety. A director who may sell or retain the property at his will may also determine the price which will induce him to sell to the corporation. Profit made is the fruit of his ownership, and not of his agency. (Burland v. Earle, 1902 A. C. 83; Matter of Lady Forrest [Murchison] Gold Mine, Ltd., 1901, 1 Ch. 582.) The agent or director may, therefore, not be called upon to account for such profits. If the contract which fixed the amount of the seller’s profits is not rescinded or void, the fact that the profits are so large that they might be called “ exorbitant ” is ordinarily immaterial. In similar situation like result has generally been reached by the courts of this country. (See Kilbourn v. Sunderland, 130 U. S. 505, 517; Ely v. Hanford, 65 111. 267.) It is true that in some cases a corporation has been allowed to repudiate entirely the obligation of a contract made with or through a director, though restoration of the property received under the contract was not practicable, and it has been held in such cases that after such repudiation the seller might receive or retain only the reasonable value of the property transferred to the corporation. (Parker v. Nickerson, 137 Mass. 487; Voorhees v. Nixon, 72 N. J. Eq. 791; Oliver v. Rahway Ice Co., 64 N. J. Eq. 596.) We do not decide whether under similar circumstances we would hold that obligation of contract which was void or voidable might be repudiated without return of property received thereunder upon payment of the reasonable value of such property. Here no such circumstances are pleaded and no claim of right to repudiate or rescind the contract asserted. It might even be argued that the facts pleaded in the counterclaim show ratification of the contract. The defendants claim only damages for Underwood’s alleged breach of trust towards them, though validity of the contract which resulted therefrom is not attacked. For property which belonged wholly to Underwood, Underwood might lawfully exact from a purchaser any price he could obtain and retain any profits he could acquire. As to such property, legal wrong, if any, on the part of Underwood consisted only in his making a contract for the benefit of his family or himself with corporations to which he owed duty of undivided loyalty. So long as the defendants cling to the benefit of the contract so made and assert rights against the plaintiff which they derive only from such contract, they may not claim that their directors and agents acted wrongfully or caused them damage by imposing upon them corresponding contractual obligations.

Underwood had owned some of the land sold for some years. There is no claim that in buying these lands he acted as agent for the corporation or that the corporation had any interest therein, legal or equitable. Part of the land he purchased in the year 1919. The defendants allege that he purchased this part with knowledge that 11 International Paper Company contemplated and was considering the1 purchase of the tracts.” If that knowledge induced the purchase by Underwood of land; if he acquired it with intent to divert into his own coffers prospective benefit which the corporation expected to acquire; if he bought for himself when duty to the corporation required him to act only for it, then the corporation might insist that his title so acquired was held for its benefit. (Robinson v. Jewett, 116 N. Y. 40; Parker v. Nickerson, 112 Mass. 195.) Here the allegations of the counterclaim may be construed as stating that Underwood bought with intention to resell to the corporation. That he might not do. Having so bought, he was under duty, on request of the corporation, to transfer the property to the corporation at cost. He could not rid himself of this trust by transferring the property to the plaintiff. The plaintiff took title subject to the same obligation. If the defendants can sustain these allegations by proof they may insist that the plaintiff account to them for profits realized by sale of that part of the property which the plaintiff was under obligation to transfer at cost. To that extent the first counterclaim, therefore, states facts sufficient to constitute a cause of action.

All the allegations of the first counterclaim are realleged in the second counterclaim. Other allegations, presumably intended as a cause of action based on fraudulent representations, are also pleaded. On their face they are insufficient for such purpose. There is not even an allegation of what representations were actually made. The second counterclaim contains allegations constituting the same cause of action as the first but adds nothing thereto.

The plaintiff also urges that the cause of action pleaded is not “on contract ” and does not arise out of the contract or transaction set forth as the foundation of the plaintiff’s claim or connected with the subject of .the action,” and, therefore, may not be pleaded as a counterclaim. (Civil Practice Act, section 266.) That contention finds support in the decision in Vulcan Metals Co. v. Simmons Mfg. Co. (248 Fed. Rep. 853). We reach opposite conclusion. The action is founded upon notes given as the consideration for the purchase of land. If the allegations contained in the counterclaim can be established the plaintiff may be compelled to return part of the purchase price represented by the notes in suit because of wrong committed in exacting them as stipulated price of the land. Under such circumstances a construction of the statute which would preclude the defendants from establishing their rights in an action upon the notes seems to us too narrow.

The order of the Appellate Division should be affirmed, with costs, and the certified questions answered in the affirmative.

Hiscock, Ch. J., Cardozo, Pound, McLaughlin, Crane and Andrews, JJ., concur.

- Order affirmed, etc.


source: Caselaw Access Project

author: Lehman, J. Crane, J.

license: Public Domain

text:
    Sidney Mandell, Respondent, v. William H. Cole et al., Appellants, Impleaded with Others.
    Contract — associations — responsibility of members of farmers’ co-operative association formed under article 13-A of Membership Corporations Law — action to recover on contract between association and commission merchants for sale on commission of wool consigned by members to association — joint liability imposed upon members only if contract authorized by them was made by corporation as agent of its members and not as principal — liability of members beyond limits set by statute arises only if association made authorized contract in their behalf —- remedy limited to that afforded by statute where contract did not purport to impose obligation upon members as individuals.
    1. The words “ contracts, debts and engagements ” contained in the provision for responsibility of members of an association formed under article 13-A of the Membership Corporations Law (Cons. Laws, ch. 35, amd. L. 1918, eh. 655) seem clearly intended to cover any form of contractual obligation assumed by the association. For corporate debt no joint Lability rests upon the members of the association. (Mandell v. Moses, 239 N. Y. 555, distinguished.)
    2. In an action brought against members of a farmers’ co-operative association, organized under the Membership Corporations Law, to recover on a contract entered into between the association and plaintiff’s assignor, a firm of commission merchants, for the sale by that firm upon commission of all the wool which the members of the association consigned or delivered to the association for sale, a contention on the part of plaintiff that the association made the contract as agent for its members or such of them as sold their wool through the association, and that he might hold either the association, which made the contract in its own name, or its members, as undisclosed principals for whose collective benefit the contract was made, cannot be sustained. The contract was made by a corporate entity. The plaintiff’s assignor must be presumed to have entered into the contract with knowledge of the provision of the statute respecting the liability of the members of the corporation for obligations assumed by the corporation. Joint liability may be imposed upon the individual members of the corporation, only upon the ground that they authorized the corporation to enter into a joint contract in their behalf; that the contract was made within the scope of that authority; and that the parties intended and understood that the corporation was acting as agent for all its members jointly who might deliver wool to it for sale and not as principal.
    3. A contention that the contracts of a corporation formed for the “ purpose of acting as the agent for its members or any of them ” must be binding upon the members for whom the corporation is acting as agent and must create personal liability against them and that section 207 of the Membership Corporations Law, limiting responsibility of members, has no application to the obligation created against a member or members by contract made by the corporation acting as his or their agent, but refers only to obligations of the corporation assumed by it as principal, cannot be sustained. Even in its narrowest construction, the statute provided for a limitation of liability of individual members for any obligation of the corporation as such. The Legislature clearly contemplated that the corporation might create such obligation in its own behalf. Liability of the members or any of them beyond the limits set by statute and certificate of incorporation, could arise, if at all, only where the corporation made a contract in their behalf in accordance with authority given to the corporation by its principals.
    4. Analysis of this contract shows that it was not so made. It did not purport to impose obligation upon the members of the association as individuals to do anything; it left no room for individual obligation. The commission merchants contracted with the association. They accepted the obligation of the association in return for obligations they assumed towards the association. For reimbursement of moneys paid to the corporate association in accordance with their contract, they have only the remedy afforded to them under the statute, and subject to the limitations defined by the statute, of individual responsibility for corporate engagement.

      Mandell v. Cole, 217 App. Div. 800, reversed.
    (Argued December 1, 1926;
    decided December 31, 1926.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the third judicial department, entered July .14, 1926, affirming a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term.

      Seward A. Miller, Bradley Fuller and Andrew J. Nellis for appellants.
    The association was not an entity, and had no existence separate from its members, and its contracts were the contracts of its members. (American Tobacco Co. v. Federal Trade Com., 9 Fed. [2d] 570; Ostrom v. Greene, 161 N. Y. 353; McCabe v. Goodfellow,. 133 N. Y. 89; United Press v. Abel Co., 87 App. Div. 344.) The individual defendants in this case, with other members of the association, were doing business collectively as a corporate entity under specific authority of the Legislature. The contract at issue was the contract of the association as the real principal and, therefore, the defendants should not be held liable as principals. (Matter of Wyoming Valley Co-op. Assn., 198 Fed. Rep. 436; People v. Sisson, 222 N. Y. 387; Matter of Livingston, 121 N. Y. 94; People v. Fitzgerald, 180 N. Y. 269; Bank of Augusta v. Earle, 13 Pet. 587; Merrick v. Van Santvoord, 34 N. Y. 211; People v. Coleman, 133 N. Y. 279; Supervisors v. People, 7 Hill, 512; Dartmouth College v. Woodward, 4 Wheat. 518; Balt. & P. R. R. Co. v. Fifth Baptist Church, 108 U. S. 317; Hawthorne v. People, 109 Ill. 302.) Although the statute refers to the purpose of the association as acting as agent for the producer, nevertheless it was the intent of the Legislature that the agency should determine only the relationship between the corporation and its members, but as to third parties contracting with' the corporation, it in all respects should act as and be clothed with all the legal responsibilities of principal. (Texas Farm Bureau Cotton Assn. v. Stovall, 253 S. W. Rep. 1109; Producers Marketing Co. v. Bell, 234 Ill. App. 222; Saunders v. Adams Express, 78 N. J. L. 441; Ink Harv. Co. v. Commonwealth, 147 Ky. 655; St. Regis Paper Co. v. Hubbs-Hastings P. Co., 235 N. Y. 30; Johnson v. Dalgren, 48 App. Div. 537; Roosevelt v. Nusbaum, 75 App. Div. 117; Dr. Miles Med. Co. v. Park & Sons Co., 220 U. S. 373; Conn v. Chambers, 123 App. Div. 298; Standard Fashion Co. v. Mograne H. Co., 258 U. S. 346.) The court erred in its interpretation of the words and intent of the contract. (Moran v. Standard

      Oil Co., 211 N. Y. 187; Richardson Press v. Vandergrift, 165 App. Div. 180; Wiley v. Borough of Tonawanda, 26 Fed. Rep. 594.) Even though the member be considered the principal instead of the association, the Legislature has specifically provided the form and extent of recourse on account of marketing contracts made under and pursuant to article 13-A. These provisions are valid and the trial court erred in ignoring them. (Jemison v. C. S. Bank, 122 N. Y. 135; Fisher v. Motor Boat Club, 61 Misc. Rep. 66; Brissy v. Star Co., 13 Misc. Rep. 349; Livingston v. Roosevelt, 4 Johns. 251; Central Trust Co. v. West Indian Imp. Co., 169 N. Y. 314; Walton v. Coe, 110 N. Y. 109; Ripen v. U. S. Woven Label Co., 205 N. Y. 442; Hibbs v. Brown, 190 N. Y. 167; Matter of Wyoming Valley Co-op. Assn., 198 Fed. Rep. 436; Nat. Bank v. Dillingham, 147 N. Y. 603; Leighton v. Lea Assn., 146 App. Div. 255.) Even though the defendants be considered as principals under the contract, nevertheless the action of McMurtry & Co. in dealing with the association as the principal in all respects bars the plaintiff from recovering from the individual defendants as principals in this action. (Buck v. Amidon, 4 Daly, 126; Burdin v. Williamson, 5 Hun, 560; Argensinger v. Macnaughton, 114 N. Y. 535; Meyer v. Redmond, 205 N. Y. 478; McClure v. Central Trust Co., 165 N. Y. 108; Gordon Malting Co. v. Bartels Brewing Co., 206 N. Y. 528; Matter of Bateman, 7 Misc. Rep. 633; 145 N. Y. 623; King v. Minnerly, 156 App. Div. 918; Ranken v. DeForest, 18 Barb. 143; Hyde v. Paige, 9 Barb. 150; Weeks v. Goltra, 7 Fed. Rep. [2d] 838.) Even though the'defendants are principals, their action was as separate individuals and not jointly. Their liability, if any, is several, not joint. (Bangs v. Gray, 12 N. Y. 477; Pratt v. Dwelling House Mut. F. I. Co., 7 App. Div. 544; Butterfield v. Lathrop, 71 Penn. St. 225.) Assuming that there was joint action, it was confined to each pool of wool, there being a pool for each grade. Some of the defendants did not participate in the pool on which there was a loss. Settlement was made in full for the higher grade wool pools. Therefore, the action cannot be maintained against the defendants who were interested solely in the higher grade wools. (Fisher Textile Co. v. Perkins, 100 App. Div. 19; Spencer v. Wabash R. R. Co., 36 App. Div. 446; Coney v. Brennan, 167 N. Y. Supp. 903; Schouten v. Alpine, 215 N. Y. 225; People ex rel. Solomon v. Brotherhood of Painters, 218 N. Y. 115.)

      Frederick C. McLaughlin for respondent.
    The liability in this, case is upon a promise implied in law. (Gihon v. Stanton, 9 N. Y. 476; Hidden v. Waldo, 55 N. Y. 294; Blackmar v. Thomas, 28 N. Y. 67; Mandell v. Moses, 209 App. Div. 531; 239 N. Y. 555; Brown v. McGraw, 39 U. S. 479.) The defendant association contracted with plaintiff’s assignors as agent and not as principal. (Williston on Cont. §§ 307, 308; Rankin v. Probey, 131 App. Div. 328; Lombard v. Grant, 35 Misc. Rep. 140; 69 App. Div. 639; Rogers v. Decker, 131 N. Y. 492; Marsh v. Kaye, 168 N. Y. 196.)
   Lehman, J.

The defendant, Greene County Sheep Breeders Co-operative Association, Inc., is a membership corporation, organized under article 13-A of the Membership Corporations Law (Cons. Laws, ch. 35), as added by chapter 655 of the Laws of 1918. In May, 1919, the corporate association entered into a contract with the firm of John E. McMurtry & Co. for the sale by that firm, upon commission, of all the wool which the members of the association consigned or delivered to the association for sale. The individual defendants, named in the summons and complaint, are all the members of the corporation who delivered their wool to the association while this contract was in force. Each of these individual defendants delivered his clips of wool to the association at a receiving station. As the wool was unloaded, the agent of McMurtry & Co. graded the wool of each farmer. The contract made by the association with McMurtry & Co. required that firm to advance to the association specified sums of money on each pound of wool of specified grade “ provided said prices are not more than 80% of the value of the wools at the time of taking up.” Each of the individual defendants received from the association at the time of delivery a written slip, showing the amount of each of the various grades he had delivered and the amount of advances to be made thereon under the contract, and he was paid the amount of said advances by the association from funds paid to the association by McMurtry & Co. under the contract. All the stipulated advances have been made by McMurtry & Co. to the association, and in turn paid by the association to those of its members who were entitled thereto. The accounts of McMurtry & Co. show that the advances so made exceed the net price eventually received upon the sale, after deducting the commissions and expenses which the association had agreed to pay to them. They have assigned to the plaintiff the contract with the association and their claim for reimbursement or payment of the excess. The plaintiff brought this action against both the association and all its members whose wool was delivered to the association and sold by McMurtry & Co. He served only four of these members. He claims that the association made the contract as agent for its members or such of them as sold their wool through the association, and that he might hold either the association, which made the contract in its own name, or its members, as undisclosed principals for whose collective benefit the contract was made. At the trial he made election to proceed against the four members served, and he has recovered a personal judgment against them jointly for the whole amount of his claim.

This judgment for the entire amount of the deficiency arising upon the sale of the wool of all the members of the association may be collected out of the real and personal property of the four members who were served or any of them. (Civ. Prac. Act, section 1199.)

The statute under which the association was organized provided for responsibility of each member “ as his original liability, for his per capita share of all contracts, debts and engagements of the association existing at the time he becomes a member and created during his membership.” Even that limited responsibility for a per capita share of corporate indebtedness may be further restricted by certificate of incorporation. (Membership Corporations Law, sec. 207.) The words “ contracts, debts and engagements ” seem clearly intended to cover any form of contractual obligation assumed by the association. For corporate debt no joint liability rests upon the members of the association. In that respect the present case differs from the case of Mandell v. Moses (239 N. Y. 555), where the association which made the contract was an unincorporated association and all of its members were liable jointly upon its contractual obfigations.

When liability upon such contractual obligation was asserted in that case against the members of the association, no question could arise as to the intent of the parties to impose liability jointly upon the members of the association. The members of the association and not a corporate entity, claimed to be acting in their behalf, were a party to the contract in that case and as such by law bound jointly to carry out its obfigations. Here the contract was made by a corporate entity. The plaintiff’s assignor must be presumed to have entered into the contract with knowledge of the provisions of the statute respecting the liability of the members of the corporation for obfigations assumed by the corporation. If joint liability may be imposed in this case upon the individual members of the corporation, it must be upon the ground that they authorized the corporation to enter into a joint contract in their behalf; that the contract was made within the scope of that authority; and that the parties intended and understood that the corporation was acting as agent for all its members jointly, who might deliver wool to it for sale, and not as principal.

The accounts of McMurtry & Co. seem to show that the stipulated advance upon some grades of wool did not exceed the price received for wool of that grade after deducting the costs and expenses properly apportionable to such wool. The evidence seems to show that all the wool furnished by some of the appellants was of such grades. For their wool they have not been overpaid, yet they are required to respond for a deficiency arising upon the sale of other grades of wool in which they had no interest.

Section 199 of the Membership Corporations Law as it existed at the time that the association was incorporated (now section 30 of the Co-operative Corporations Law; Cons. Laws, ch. 77) provided that “a cooperative agricultural, dairy or horticultural association may be created under this article as a membership corporation for mutual help, * * * for the purpose of acting as the agent for its members or any of them, performing for them services connected with various stated activities. It is urged that the contracts of a corporation formed for the purpose of acting as the agent for its members or any of them ” must be binding upon the members for whom the corporation is acting as agent and must create personal liability against them. That section 207 of the Membership Corporations Law, limiting responsibility of members, has no application to the obligation created against a member or members by contract made by the corporation acting as his or their agent, but refers only to obligations of the corporation assumed by it as principal. After the decision in this case was rendered at Special Term, the Legislature by chapter 607 of the Laws of 1926 amended the statutory provisions of the section defining the purpose for which co-operative non-stock agricultural, dairy or horticultural corporations may be created, by substituting the word assisting ” in place of the words acting as agent for,” and also added a new subdivision to section 69 of the Co-operative Corporations Law, defining liability of members as follows: All contracts, made by the corporation with third parties, for the sale or other disposition of products which the corporation has contracted with members or non-members to market for them, shall in all respects be deemed to be the obligations of the corporation within the meaning of this section, whether made by the corporation as principal or as agent for such members or non-members.” Even though we should assume that by this new subdivision the Legislature intended to give a legislative interpretation of previous limitation of liability of members of co-operative associations rather than to create a new limitation, yet in determining the legal effect of the contract made by the association, we look to the words of the statute in the form in which it existed when the contract was made. Argument, not without force, may be made that even in that form the statute evinced the legislative intent, made clearer by subsequent amendment, that though the co-operative association was formed to act as agent of the members of the corporation or any of them, yet no contract made by' the corporation even in the course of its agency should create obligation against the principal or principals beyond the statutory limits of members’ liability for corporate obligation, as restricted by the certificate of incorporation. We need not now decide whether the statute should be given such construction. At least it is clear that the Legislature in limiting the liability of members for corporate liability did not intend to do an empty thing. Even in its narrowest construction, the statute did provide for a limitation of liability of individual members for any obligation of the corporation as such. The Legislature clearly contemplated that the corporation might create such obligation in its own behalf. Liability of the members or any of them beyond the limits set by statute and certificate of incorporation, could arise, if at all, only where the corporation made a contract in theirbehalf in accordance with authority given to the corporation by its principals. Analysis of the contract shows that this contract was not so made.

The contract recites that it is “ between Messrs. John E. McMurtry & Co. of the City and County of New York and the Greene Co. Sheep Breeders Co-operative Association, Inc.-, of the State of New York.” It obligates the association “ to consign their clips of wool which is delivered by members of their organization to Messrs. John E. McMurtry & Co. to be sold for their account at the best market price by Messrs. John E. McMurtry & Co.” The contract does not otherwise mention the members of the association. It does not expressly impose upon them, or any of them, any individual obligation. The court at Special Term found in the use of the words “ consign their clips of wool which is delivered by members of their organization to Messrs. John E. McMurtry & Co. to be sold for their account,” indication that the association was acting as agent for its members and not as principal. The only obligation, however, is to “ deliver ” to the commission merchants the clips so consigned. That obligation is one which the association as such agreed to carry out, and indeed only the association could carry it out. It does not appear that at the time when the contract was made the association had any contract with individual members to sell their wools through the association. Agreements were made thereafter by the association with individual members by which each of such members agreed to consign a specified quantity of wool to the association for sale in accordance with the plan outlined at the meeting of the Association in Cairo May 10th, and the provision of the by-laws of the Association governing the sale of products for members.” For what principals could the association then have been acting as agent in entering into an obligation to' deliver the wool which should be consigned to it by its members? If the association was acting for all the associated members and not merely for those who might thereafter use the association as agent for the sale of their wool, then the association was acting as a unit and in its corporate capacity. Not the individual members but the corporate entity would be bound by the contract. Indeed the complaint and proof would be insufficient to sustain a cause of action upon the theory that the association acted as agent for all its individual members for there is neither allegation nor proof that the individual defendants named in the summons and complaint constitute all the members of the association. They are only the members of the Association who delivered to the Association their clips of wool.” It is difficult to understand how the language of the contract requiring the “ Association ” to deliver the wool that would thereafter be consigned to it can be construed as creating an obligation on the part of each member who might thereafter consign his wool to the association to see that the association would then deliver not only the wool received from him but also the wool of all the other members of the association. Even though the use of the words “ they ” or “ their ” in referring to the association may be inartificial or even inaccurate, yet in the context in which they are used they can refer to nothing else. In addition, the Association ” as such agreed to pay commissions to McMurtry and McMttrtry & Co. agreed to make advances to the association. _ Here there is certainly nothing to show that the association intended to make a contract for its members as joint principals by which each would be bound to pay commissions on the sale of all the wool consigned by the members of the association and each bound to reimburse the commission merchants for excess of all advances paid such members, though he himself may not have received as an advance more than was due upon the sale of his own wool. When read in the light of surrounding circumstances the intent and effect of the contract seems plain. The association was formed for the purpose of acting as agent for its members or any of them in the sale of their wool. Its members might be required to consign their wool to the association for sale. The association to effectuate the purpose for which it was formed must create a machinery by which it could market advantageously the wool consigned to it. For that purpose, at least, it could contract as a corporation and for the obligation which it assumed for itself in its collective corporate capacity the statute provided a restricted responsibility on the part of its members. This contract merely created such a machinery. The association agreed to deliver to the plaintiff’s assignor the wool which it would receive thereafter for sale. It agreed to pay to the plaintiff’s assignor a commission of six per cent and to pay certain expenses. In consideration of these promises on the part of the association the plaintiff’s assignor agreed to sell the wool delivered to it at the best market price and to pay the association certain advances. The contract did not purport to impose obligation upon the members of the association as individuals to do anything; indeed it left no room for individual obligation. The commission merchants contracted with the association. They' accepted the obligation of the association in return for obligations they assumed towards the association. For reimbursement of moneys paid to the corporate association in accordance with their contract with the association, they have only the remedy afforded to them under the statute, and subject to the limitations defined by the statute, of individual responsibility for corporate engagement.

Nor would plaintiff’s position be better even if we should hold that the corporate association intended and was understood to contract as agent, with intent to bind its members who thereafter might consign their wool to it for sale. Obligation under the contract would even then be created against such members only if they empowered the corporate association to act as their agents in making the contract, or subsequently ratified a contract made in their behalf. Each member of the association undoubtedly constituted the association its agent to sell the wool he consigned to it. Such agency may have included by implication authority to bind the principal by the ordinary contract of sale or even of consignment on commission. We may not by implication read into the terms of the agency authority to bind the principal to joint liability with others who might also use the association as agent; especially not, where the statute which authorized the creation of the agent carefully limited its authority to create a collective obligation for which the members would be responsible. The action taken at the meeting of the association on May 10th was a corporate action. Through that action the officers of the corporation were authorized to bind the corporation by contract. Authorization to bind others as principals by contract could be conferred upon the corporation only by the principals themselves. The individual members who consigned their wool to the association did so under separate written contracts made between the association and each of them, which provided for the sale of a specific quantity of wool in accordance with the plan outlined at the meeting of the Association in Cairo May 10th and the provisions of the by-laws of the Association governing the sale of products for members.” Thereby each constituted the association his agent for the sale of his products. Doubtless the agent had authority to deliver the wool to the plaintiff’s assignor for sale. Perhaps there was implied in the agency authority to bind each member by contract in regard to obligation that might be incurred in the sale of his own wool. The agency did not by fair implication include authority to bind such members to pay commission or expenses on the sale of other wool, nor to repay advances received by other members. It may be that, upon some theory, obligation on the part of the individual members, making such separate contracts with the association, to respond ratably for loss incurred by the commission merchants, might be found to exist. We do not consider or pass upon that question. No such obligation has been asserted here. The judgment here is based upon joint liability for all loss under a contract made by and with the association, either for itself or for the members using it as agents. No authority, express or implied, was given to the association to create such joint liability by contract. No ratification of contract made by the agent for such joint liability has been shown, for it does not appear that the plan outlined at the meeting in Cairo May 10th could not have been carried out by consignment of the wool to McMurtry & Co. without the corporation as agent of the individual members creating a joint obligation. In the absence of proof it may not be inferred that the individual members knew that their agent would attempt to create by contract an obligation which might prove so disastrous. The statute which permits the creation of co-operative associations to act as agent for the sale of products of its members, and creates limited individual liability for collective obligation, should not be so construed that under its provisions the agent has implied or apparent authority to impose upon each member liability for the entire loss that might be sustained upon the sale of the products of the farmers of whole sections of the state. It may not be presumed that the Legislature intended that each farmer should be under such liability. It may not be presumed that each farmer conferred, upon the association authority to create such liability as his agent. It may not be presumed that the association intended to create such liability by this contract. It may not be presumed even that in this case McMurtry & Co. even understood that they received the obligation of each farmer to pay back to them advances paid to the association and distributed among a large number of its members.

For these reasons the judgment of the Appellate Division should be reversed and the complaint dismissed, with costs.

Crane, J.

(concurring). I concur in the result upon the ground that the Greene County Sheep Breeders Co-operative Association, Inc., having been incorporated under article 13-A of the Membership Corporations Law (Laws of 1918, chap. 655), the contract of the plaintiff’s assignor was made with it, and not with the individual members through the corporation as agent. The act not only provides for the incorporation, but also for the liability of the corporation and the limited liability of its members. The contract for the sale of the wool and all the circumstances of this case show that the dealings of the plaintiff’s assignor were with the corporation as principal, not as agent. The parties are presumed to have known this statute under which the corporation acted, its privileges, obligations and limits to liability. These facts materially differentiate this case from Mandell v. Moses (209 App. Div. 531; 239 N. Y. 555). The statute permitting incorporation and the action of the sheep breeders association under it, clearly indicate that the association was intended to act and did act as principal and not as agent. Upon this ground, and this only do I concur.

His cock, Ch. J., Cardozo and Andrews, JJ., concur with Lehman, J.; Pound and Crane, JJ., concur in memorandum by Crane, J.; McLaughlin J., votes for. affirmance on ground that this case cannot be distinguished from Mandell v. Moses (209 App. Div. 531; affd., 239 N. Y. 555).


author: Lehman, J. McLaughlin, J.

text:
    In the Matter of the Estate of Otto Kiekebusch, Deceased. Emil Kiekebusch, as Executor, Appellant; Ida Kiekebusch, Respondent.
    Will — decedent’s estate — bequest to widow in lieu of dower and every claim or demand against testator’s estate ■— notice on same day to insurance company to change beneficiary of policy payable to his widow so as to make same payable to his estate — failure to consummate change by delivery of policy — collection by widow of amount due thereon not a bar to her right to payment of bequest — legacy payable out of personal estate and not a charge against realty.
    1. Where a testator made his will bequeathing a sum of money to his widow “ in lieu and stead of any and all dower or claim of dower or any interest which she may have or claim to have in my estate and on condition that she accepts this bequest in full for every claim or demand against me or my estate, otherwise this bequest shall be void,” and on the same day delivered to an insurance company a signed request that the beneficiary of a policy of insurance on his life, payable to his widow for a like sum as the bequest, be changed and the insurance moneys paid to his estate, but the change was never consummated by delivery of the policy and on his death the amount due was paid to his widow, a contention, on the part of his executor, that she may not receive in addition the bequest under the will, cannot be sustained. The widow’s demand for the insurance money constituted a claim against the insurer, not against the testator or the estate. It cannot be inferred that the testator believed that without change of beneficiary the insurance moneys would ever become part of his estate and under such circumstances the court may not give the words “ claims against me or my estate ” significance wide enough to include a claim as beneficiary upon a policy issued on testator’s life.
    2. The bequest, however, is payable out of the personal property of testator and is not a charge against his realty. Payment of a legacy out of real property cannot be required unless it was the intention of the testator to make the legacy a charge upon the real estate and in the absence of an express statement in the will intention must be determined from the language of the will read in the light of extrinsic circumstances. Considering the circumstances surrounding the making of the will; the intention existing at that time to change the beneficiary of the policy and the intention that the bequest should mark the absolute limit of the amount which the widow should receive from the decedent’s estate, inference becomes inevitable that the testator had no intention to charge the legacy upon his real property in the event that intention to change the beneficiary of the policy should be frustrated.

      Matter of Kiekebusch, 216 App. Div. 781, modified.
    (Argued December 2, 1926;
    decided December 31, 1926.)
    Appeal from an order of the Appellate Division of the Supreme Court in the fourth judicial department, entered March 10, 1926, which affirmed a decree of the Erie County Surrogate’s Court granting a petition for payment of a legacy. Also appeal from two intermediate orders entered respectively June 30 and September 22, 1925.

      Adelbert Moot, Bertha J. Strootman and Henry J. Weisenheimer for appellant.
    The widow, Ida Kielcebusch, is not entitled to $5,000, interest and costs, because the bequest is “ on condition that she accepts this bequest in full for every claim or demand against me or my estate, otherwise this bequest shall be void.” (Matter of Fowler, 222 N. Y. 222.) The widow having elected to collect the very insurance claim testator had in mind to pay the legacy, when he made his will containing the conditional legacy to the widow “ in full for every claim or demand,” she cannot now also collect the legacy, contrary to such condition. (Beetson v. Stoops, 108 App. Div. 366; 186 N. Y. 463; Gibbons v. Campbell, 148 N. Y. 410; Nelson v. Brown, 144 N. Y. 384; Matter of Tailer, 147 App. Div. 741; 205 N. Y. 599.) It was error to direct the payment of the $5,000 legacy to Ida, and then to charge it upon the real property. (Lupton v. Lupton, 2 Johns. Ch. 614; Bevan v. Cooper, 72 N. Y. 317; Morris v. Sickly, 133 N. Y. 456; Fries v. Osborn, 190 N. Y. 35; Bauman v. Steingester, 213 N. Y. 328.)

      John F. Mueller for respondent.
    The acceptance by Ida Kielcebusch of the insurance moneys as beneficiary under the policy of Otto Kiekebusch did not deprive her of her right to the legacy or work any election of remedies. (Matter of Taylor, 174 N. Y. Supp. 764; Van Dermoor v. Van Dermoor, 30 N. Y. Supp. 19.) The court below did not hold the intention of the testator doubtful; and it was lawful to direct the payment of the $5,000 to Ida Kiekebusch, and then to charge it upon the real property. (Bevan v. Cooper, 72 N. Y. 317; Morris v. Sickly, 133 N. Y. 456; Fries v. Osborn, 190 N. Y. 35; Hoyt v. Hoyt, 85 N. Y. 142; McCorn v. McCorn, 100 N. Y. 511; Briggs v. Carroll, 117 N. Y. 288; Irwin v. Tyler, 188 N. Y. 25.)
   Lehman, J.

Otto Kiekebusch died in November, 1920, leaving a widow and three children, the issue of an earlier marriage. By his last will and testament he bequeathed the sum of $5,000 to his widow “in lieu and stead of any and all dower or claim of dower or any interest which she may have or claim to have in my estate and on condition that she accepts this bequest in full for every claim or demand against me or my estate, otherwise this bequest shall be void.” That bequest has not been paid. The widow has moved in the Surrogate’s Court for an order compelling the executor named in the will to account and to pay her the amount bequeathed to her in the will. The surrogate has made a decree which directs the executor to pay to the widow the bequest of $5,000 out of the personal estate of the decedent, and which directs that, if such personal estate is insufficient to pay the legacy, The same hereby is made a charge upon the real property of said decedent Otto Kiekebusch.”

The evidence shows that the testator promised the respondent before his marriage to leave her the sum of $5,000. He had a policy of life insurance for that amount. After his marriage he named the respondent as the beneficiary under the policy and delivered it to her. Shortly before his death he delivered to the insurer a signed request for change of beneficiary so that the insurance moneys should be paid to his estate. He was informed and understood that the change would not be made until he delivered the policy to the insurer. On the same day he made his will. Change of beneficiary under the policy was then inchoate. It was never consummated by delivery of the policy. There is some evidence that the testator thereafter even withdrew his application for such change. After his death there was litigation between the widow and the executor as to who was entitled to the moneys payable under the policy. The dispute was resolved in favor of the widow. She has received $5,000 under the policy. The executor now claims that she may not receive, in addition, the bequest under the will.

It is said that the testator did not intend that the widow should receive both the legacy and the amount payable under the policy. Perhaps that may be true, but unless such testamentary intent is expressed in the will of the testator, the courts may not give it effect. The will provides that the bequest is made to the widow in lieu of any interest that she may have or claim to have in my estate and on condition that she accepts this bequest in full for every claim or demand against me or my estate.” The widow’s demand for the insurance money constituted a claim against the insurer, not against the testator or the estate. True, the executor asserted claim for the same moneys against the insurer. If that claim had been sustained it would have defeated the claim of the widow; yet the claim of the widow against the insurer did not result in taking moneys or property from the estate, and was not asserted against it. The estate had no right or title to the moneys paid under the policy, and could have become entitled to receive them from the insurer only if it had been the beneficiary named in the policy, or if the rights of the beneficiary had been assigned or transferred to it. Doubtless when the testator made the will he intended to complete the proceedings for the change of beneficiary which he had initiated. He anticipated that his wife would be divested of any right she might have under the policy, but that was to be accomplished by his own act in changing the beneficiary named in the policy, not by her election to accept in lieu of moneys payable thereunder a bequest made in the will. The election offered by the will was between bequest and claims she might have which might result in diminution of the value of the estate which passed to other legatees. It cannot be inferred that the testator believed that without change of beneficiary the insurance moneys would ever become part of his estate; indeed if the parol evidence produced by the executor was admissible, it tends to show that the testator understood that change of beneficiary was necessary before the money payable under the policy could become part of the estate. Under such circumstances the court may not give the words claims against me or my estate ” significance wide enough to include a claim as beneficiary upon a policy issued on testator’s life. If the widow obtains more than the testator desired that she should have, it is not because the will is given construction not intended by the testator but because the testator failed to complete the inchoate change of beneficiary. Our function is to construe the language of the will. We may not speculate why intention to change the beneficiary of the policy was not carried out nor reframe the language of the will to effectuate a possible change of testamentary intent based on change of circumstances after the will was made. The widow at the hearing expressly abandoned right to admeasurement of dower and to payment of a note for $250 signed by the decedent. This constituted compliance with the condition annexed to the bequest. She had no other claim against the testator or his estate.

The bequest is payable out of the personal property of the testator. We cannot find that the testator intended that if the personal property should prove insufficient, payment of the bequest should become a charge against his realty. Payment of the legacy out of real property cannot be required unless it was the intention of the testator to make the legacy a charge upon the real estate. He might have stated such intention in the will. In the absence of such express statement we must determine the testator’s intention from the language of the will read in the light of extrinsic circumstances. We need not repeat the principles which, in numerous cases, we have held should be applied in determining that intent. (Carley v. Harper, 219 N. Y. 295.) The fact that the bequest is made in lieu of dower is a circumstance to be considered. (Briggs v. Carroll, 117 N. Y. 288.) It is not conclusive. All the circumstances must be considered together, each given its proper weight. Here the extrinsic evidence establishes, as we have already pointed out, that the testator when he made the will intended to change the beneficiary named in his life insurance policy. He expected that through such change of beneficiary the estate would at his death receive funds sufficient to pay the legacy even if otherwise his personal estate should be small. He did have some other personal property to meet debts or other payments which the executor might be called upon to make. When we consider the circumstances surrounding the making of the will; the intention existing at that time to change the beneficiary of the policy and the intention that the bequest should mark the absolute limit of the amount which the widow should receive from the decedent’s estate, then inference becomes inevitable that the testator had no intention to charge the legacy upon his real property in the event that intention to change the beneficiary of the policy should be frustrated.

The order of the Appellate Division and decree of the surrogate should be modified by striking out the provision making the legacy a charge upon the real estate, and as so modified affirmed, without costs to either party.

McLaughlin, J.

(dissenting). I concur in the opinion of Judge Lehman in so far as it holds that the legacy of $5,000 is not a charge upon, or payable out of, the real estate.

I dissent, however, from the conclusion that the widow is entitled to the $5,000 legacy given to her under the will of the testator. It is perfectly apparent that the testator never intended that his widow should have more than $5,000 in all. This intent is expressed in such a way that it cannot, it seems to me, be misunderstood. The bequest provided that she should have $5,000 and all household furnishings and equipment including clothing and jewelry ” but only conditionally and in lieu and stead of any and all dower or claim of dower or any interest which she may have or claim to have in my estate and on condition that she accepts this bequest in full for every claim or demand against me or my estate, otherwise this bequest shall be void.”

The executor of the testator’s estate made a claim to the proceeds of an insurance policy of $5,000. The widow also made a claim to the same proceeds. The insurance company recognized that the proceeds were payable to one or the other and it thereupon paid the necessary amount into court-. When, therefore, the widow undertook to litigate against the executor she was, in fact, making a claim against the testator’s estate. Had the insurance company paid the proceeds to the executor and had the widow thereafter claimed such proceeds, can it be seriously questioned but what this would have been a claim against the testator’s estate? Had the executor succeeded, after the money had been paid into court, no one, I take it, would then contend but what she had been making a claim against the estate. The litigation was not against the insurance company. The only issue was as to which one of the parties — the widow or the executor — was entitled to the proceeds of the policy. The insurance company recognized its liability and satisfied and discharged the same by paying the money into court. The litigation did involve a claim against the estate. If the widow had not insisted upon her claim to the proceeds, after the money had been paid into court, the proceeds would at once have been paid to the executor and would have become a part of the estate of the testator. She has, therefore, been paid all that the testator intended she should receive. To compel the estate to pay the bequest and to permit her to hold the proceeds of the insurance policy is to do precisely what the testator did not intend to do.

Entertaining these views, I am unable to concur to this extent in the opinion of Judge Lehman.

Hiscock, Ch. J., Cardozo, Pound and Andrews, JJ., concur with Lehman, J.; McLaughlin, J., dissents in memorandum in which Crane, J., concurs.

Ordered accordingly.


author: Lehman, J.

text:
    The People of the State of New York, Respondent, v. Walter Gutterson, Appellant.
    Crimes — larceny — indictment charging that in or about several specified months defendant fraudulently obtained securities — demurrer on ground that more than one crime was charged properly overruled — sentence — using mails in scheme to defraud not a crime under laws of this State — previous conviction of such crime in Federal court may not be considered by court of this State in fixing sentence upon conviction for felony.
    1. An allegation in an indictment .charging grand larceny, that “ in or about the months of December, 1924, and January, February, March, April and May, 1925,” the defendant obtained certain securities from the possession of the complaining witness by false and fraudulent representations, does not require inference that the securities were delivered at separate times or as the result of separate orders or directions of the complaining witness. It does not require inference that fraudulent representations made at one time did not of themselves and without renewal or addition induce delivery of all the securities. The allegation of the time when the crime was committed is indefinite; yet that allegation might be sustained without variance by evidence which would show only a single crime. A demurrer, therefore, on the ground that more than one crime was charged within the meanings of sections 278 and 279 of the Code of Criminal Procedure was properly disallowed.
    2. Using the mails in a scheme to defraud is an offense cognizable only by the Federal laws and is not punishable under the laws of this State. A prior conviction for such offense, therefore, may not be taken into consideration by the court, under section 2189 of the Penal Law, in imposing sentence upon one convicted of the crime of grand larceny. The provision in the statute for a longer sentence for a defendant previously “ convicted of a crime punishable by imprisonment in a state prison ” cannot reasonably be construed to include crime which is not so "punishable under the laws of this State. It follows that the defendant should have received an indeterminate sentence.

      People v. Gutterson, 217 App. Div. 778, reversed.
    (Argued November 24, 1926;
    decided December 31, 1926.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered. June 25, 1926, which affirmed a judgment rendered at a Trial Term for the county of Westchester upon a verdict convicting the defendant of the crime of grand larceny in the second degree.

      Robert S. Johnstone, Stanley L. Richter and John F. Couts for appellant.
    The case was put to the jury on theories that are untenable in law. The facts proved do not constitute the crime charged — or any crime. Consequently, the verdict and judgment cannot stand. (People ex rel. Perkins v. Moss, 187 N. Y. 410; People v. Baker, 96 N. Y. 340; 1 Wharton Crim. Pro. [10th ed.] §§ 196, 627; 2 Wharton Crim. Law [11th ed.] § 1491; 3 Bishop New Crim. Pro. [2d ed.] § 168; People v. Stone, 9 Wend. 182; People v. Winner, 80 Hun, 130; People v. King, 15 App. Div. 84; Loomis v. People, 67 N. Y. 322; People v. Miller, 169 N. Y. 339; People v. Geyer, 196 N. Y. 364; People v. Dumar, 106 N. Y. 502.) The first count of the indictment is bad for duplicity. (Code Crim. Pro. §§ 278, 279; People v. Klipfel, 160 N. Y. 369; People ex rel.. Tweed v. Liscomb, 60 N. Y. 559; Armour Packing Co, y. United States, 153 Fed. Rep. 1; 209 U. S. 56; United States v. Patty, 2 Fed. Rep. 664; Matter of Henry, 123 U. S. 372; State v. Jamison, 110 Iowa, 338; People v. O’Donnell, 46 Hun, 358; R. v. Birdseye, 4 C. & P. 386.) The first count of the indictment is bad in substance. (1 Wharton Grim. Pro. [10th ed.] § 196; People v. Stone, 9 Wend. 182; People v. Winner, 80 Hun, 130; United States v. Hess, 124 U. S. 483.) The sentence is erroneous. The defendant was entitled to receive an indeterminate sentence. (Sims v. Sims, 75 N. Y. 466; Matter of Ebbs, 150 N. C. 44; Hildreth v. Heath, 1 Ill. App. [1 Bradw.] 82; United States v. Barmabo, 14 Blatch. 74; Sias v. Hallock, 14 Nev. 332; Logan v. United States, 144 U. S. 263; People v. Zayas, 217 N. Y. 78; People v. Sturdevant, 23 Wend. 418; Comm. v. Dana, 2 Metc. [Mass.] 329; United States v. Guiteau, 1 Mack. [D. C.] 498; 47 Am. Rep. 247; People ex rel. Murray v. Becker, 78 Misc. Rep. 666; Code Crim. Pro. § 543; People v. Salter, 191 App. Div. 723; 192 App. Div. 435.)

      Arthur Rowland, District Attorney {John Caldwell Myers of counsel), for respondent.
    The first count in the indictment is not duplicitous. The demurrer was properly overrued. (Carl v. State, 125 Ala. 85; Woods v. People, 222 Ill. 293; State v. Hall, 111 Kan. 458; Matter of Jones, 46 Mont. 122; State v. Mandich, 24 Nev. 336; Flynn v. State, 47 Tex. Crim. Rep. 26; West v. Commonwealth, 125 Va. 747; Wood v. People, 222 Ill. 293; U.S. v. Carlos, 21 Philippine, 553; Reg. v. Firth, L. R. 1 C. C. 172; Reg. v. Shepard, L. R. 1 C. C. 118.) The court properly imposed a flat sentence upon the defendant. (People v. Rattigan, 172 App. Div. 957; People v. Sickles, 156 N. Y. 541; Matter of Walters, 128 Fed. Rep. 791; People ex rel. Murray v. Becker, 78 Misc. Rep. 666.)
   Lehman, J.

The defendant has been found guilty of grand larceny in the first degree and sentenced to imprisonment for ten years. The evidence clearly establishes, beyond reasonable doubt, that the defendant induced the, complaining witness, a widow seventy years of age, to deliver to him at various times between December, 1924, and May, 1925, possession of money and sound securities of the value of upwards of sixty thousand dollars, and in return the defendant delivered to the complaining witness some common stock of the Interstate Mortgage Corporation which she could have bought in the open market in New York city for a small fraction of the value at which the defendant sold it to her. Indeed, the proof shows that while the defendant was selling to this elderly widow stock at the price of seventy dollars per share, some of the very certificates of stock transferred to her were purchased by him in the open market at less than one-fifteenth of that price.

The indictment contains two counts. The first count charges larceny by false pretenses. The second count charges common-law larceny of the same property. The evidence fails to show guilt under the second count, and the trial judge at the request of defendant’s counsel and with the expressed concurrence of the district attorney submitted to the jury only the question of defendant’s guilt under the first count. Upon this appeal we need consider only the first count of the indictment and the evidence produced at the trial to prove its allegations.

The defendant demurred to the indictment on the ground 11 that it appears on the face thereof: (1) That more than one crime is charged in the first count of the said indictment within the meanings of sections 278 and 279 of the Code of Criminal Procedure; (2) That the facts stated in said first count do not constitute a crime.” The demurrer was disallowed and the case proceeded to trial. The appeal from the judgment brings up for review the order disallowing the demurrer.

The evidence produced at the trial shows that defendant started in December, 1924, to defraud the complaining witness of as much property as he could induce her to deliver to him, Representations made in December

resulted in delivery of some securities. When these representations no longer had force to induce delivery to the defendant of further securities, the defendant by repetition and renewed solicitation gave to these representations new force, which resulted in the delivery of further securities. The complaining witness made a number of separate deliveries of stock; the defendant received them at different times. Separate deliveries were the result of representations made at different times. The demurrer, however, serves only to raise objections which appear upon the face of the indictment. The court in disallowing it passed only upon the language of the indictment. The first count of the indictment charges that in or about the months of December, 1924, and January, February, March, April and May, 1925,” the defendant obtained certain securities from the possession of the complaining witness by false and fraudulent representations. Such allegation does not require inference that the securities were delivered at separate times or as the result of separate orders or directions of the complaining witness. It does not require inference that fraudulent representations made at one time did not of themselves and without renewal or addition induce delivery of all the securities. The allegation of the time when the crime was committed is indefinite; yet that allegation might be sustained without variance by evidence which would show only a single crime. The demurrer was, therefore, properly disallowed. (People v. Williams, 243 ,N. Y. 162.) Different question would arise if proper objection had been made at the trial that the evidence showed that the possession of the securities was obtained by the defendant at different times and could not represent the consummation of a single crime, and if proper exception had been taken to the charge of the trial justice. It may be that the evidence shows guilt of a number of separate but closely related crimes instead of one crime as pleaded; it may even be that the evidence is insufficient to show technical crime when the defendant obtained possession of some of the securities. No exception taken at the trial to ruling in regard to the admission or exclusion of evidence or to the charge raises such question of law. The defendant did not attempt to have the court draw such distinctions at the trial. Perhaps his counsel determined that such distinctions, even if drawn, would not benefit the defendant. The evidence of guilt would hardly be less convincing or conviction by the jury less certain if such distinctions were drawn. Other questions are raised as to the sufficiency of the indictment, and of the correctness of the rulings at the trial. We find no errors of any substance, and we conclude that the defendant is not entitled to a dismissal of the indictment or to a new trial.

The sentence, however, seems to us erroneous. It appears that in January, 1925, the defendant was sentenced in the United States District Court to imprisonment for thirty days upon a charge of using the mails in a scheme to defraud. There can be no question that except for the defendant’s conviction upon the charge of using the mails in a scheme to defraud, the defendant must be sentenced to a State prison under an indeterminate sentence. (Penal Law, section 2189.) Under the provision of that section the court, however, might impose a sentence for the longest period fixed by law for the crime of grand larceny if the defendant was previously convicted of a crime punishable by imprisonment in a state prison.” It has been held by the courts below that in this case the defendant has been convicted of such crime. We do not so construe the statute.

In the absence of express statute, conviction or sentence under the laws of another State, government or country can have no effect by way of penalty or of personal disability or disqualification, beyond the limits of the State in which the judgment is rendered. (Logan v. United States, 144 U. S. 263; Sims v. Sims, 75 N. Y. 466.) It is said that section 2189 does not provide additional punishment or disqualification, because of prior conviction, but merely adapts the details of punishment to the different characters and histories of the offenders for the purpose of accomplishing the best result by their punishment. (People v. Rosen, 208 N. Y. 169.) Such distinction cannot alone determine the proper construction of the statute. At least the statute gives to prior conviction new consequences. The result of the statute is to put a person before convicted of a crime punishable by imprisonment in a State prison ” in a different category from other persons. For the later offense of which such person has been convicted in this State, it imposes different penalty. We assume that the Legislature might base classification upon prior conviction for any crime in any jurisdiction. It has not done so. It has expressly based distinction upon conviction of a crime punishable by imprisonment in a State prison. We must determine, not by technical rules or canons of construction but in the light of the purpose and effect of the statute, the meaning which the Legislature intended that these words should bear.

The Legislature has determined that the previous history of a person convicted of crime is a factor which may determine the nature of the punishment which should be meted out to him. Persistence in a career of crime may evidence vicious character. Reform may be less probable after second conviction; protection to society may require unbending severity and untempered justice. The legislative purpose in enacting section 2189 of the Penal Law is to give effect to such considerations. Where guilt of another crime punishable by imprisonment in a State prison is evidenced by prior conviction, the court is not required to impose an indeterminate sentence. There may be doubt whether the Legislature intended that conviction only in the courts of this State, where trial is conducted in accordance with the standards and subject to the safeguards against error provided by our own law, should be given such effect, or whether conviction under the laws of any other State, government or country should be given like effect. (See Penal Law, sections 1020 and 1941.) There can be no doubt, however, that the Legislature could not reasonably have intended by the use of the words “ crime punishable by imprisonment in a State prison to include crime which is not so punishable under the laws of this State. Unless the Legislature had definite standard of crime in mind, its classification would be to that extent arbitrary. We may not assume in the absence of unambiguous language that the Legislature intended to give to a conviction for an offense which we may regard as innocent, legal consequences within this State; or to treat as a confirmed criminal here one who has previously dóne no act to which we have attached the penalty of imprisonment in a State prison.

Here the offense is one which is cognizable only by the laws of the United States. While the citizens and residents of this State are subject to those laws, the Legislature of this State has not defined the crime or fixed penalty for its commission. While sections 157 and 158 of the Prison Law (Cons. Laws, ch. 43) of this State provide that a defendant convicted in the United States courts in this State may be received into any of the State prisons of this State, those provisions concern merely the means through which punishment under the laws of the United States may be carried out. The crime itself is not punishable under the laws of the State of New York. It rests with the Legislature to fix a standard for the crimes to which upon proof of prior conviction section 2189 of the Penal Law has attached new consequences. The Legislature has fixed a standard which can reasonably include only crimes which are punishable under the law of this State. Doubtless other reasonable standards might be used which would include the crime of using the mails to defraud. The Legislature has not seen fit to apply such standards. It follows that the defendant should have received an indeterminate sentenced

We do not now decide whether the Legislature intended to confine consequence of any prior conviction to conviction in this State. That question is not entirely free from doubt. In view of the amendment of the Penal Law by the addition of section 1943, it may never arise in the future. The defendant must now be resentenced. Of course the new sentence will take into account the imprisonment under the erroneous sentence.

The judgment should be reversed and the case remitted to the Trial Term of the Supreme Court in Westchester county to pass sentence according to the statute.

Hiscock, Ch. J., Cardozo, Pound, McLaughlin, Crane and Andrews, JJ., concur.

Judgment reversed, etc.