author: Lehman, J. Kellogg, J. (dissenting).

text:
    Wen Kroy Realty Co., Inc., Respondent, v. The Public National Bank and Trust Company of New York, Appellant. .

      (Argued June 14, 1932;
    decided October 18, 1932.)

      Sam L. Cohen and Felix A. Fishman for appellant.
    The president of the plaintiff corporation had power to indorse the check in blank and thus pass title thereto to defendant regardless of whether the proceeds of the check were subsequently diverted from the corporate purposes of plaintiff. (Neg. Inst. Law, § 41; Salen v.
      Bank of State of New York, 110 App. Div. 636; Cluett v. Coture, 140 App. Div. 830; McCabe Hanger Mfg. Co. v. Chelsea Exchange Bank, 183 App. Div. 441; Standard Steam Specialty Co. v. Corn Exchange Bank, 220 N. Y. 478; Martin v. N. F. P. Mfg. Co., 122 N. Y. 165; First Nat. Bank v. Navassa Phosphate Co., 119 N. Y. 256; McComb v. Barcelona Assn., 134 N. Y. 598; Marine Bank v. Butler Colliery Co., 52 Hun, 612; 125 N. Y. 695; Grant v. Treadwell, 1 App. Div. 367; Bigelow Co. v. Automatic Gas Co., 56 Misc. Rep. 389; Wagner Trading Co. v. Battery Park Nat. Bank, 228 N. Y. 37; Chambers v. Lancaster, 160 N. Y. 342; Patterson v. Robinson, 116 N. Y. 193; Hastings v. Brooklyn Life Ins. Co., 138 N. Y. 473; Patteson v. Ongley Electric Co., 87 Hun, 462; 155 N. Y. 674; Conover v. Insurance Co., 1 N. Y. 290; Booth v. F. & M. N. Bank, 50 N. Y. 396; Holmes v. Willard, 125 N. Y. 75; Rathbun v. Snow, 123 N. Y. 343.) The form of the check in suit and the indorsements thereon and deposit thereof in the account of another corporation did not give defendant any notice of a contemplated diversion of the proceeds thereof and defendant in no way facilitated or participated in a diversion of the proceeds of the check. (Bischoff v. Yorkville Bank, 218 N. Y. 106; Whiting v. Hudson Trust Co., 234 N. Y. 394; Empire Trust Co. v. Cahan, 274 U. S. 473; Lasker v. Mutual Bank of Roseville, 194 N. Y. Supp. 379; 201 App. Div. 243; 234 N. Y. 550; Salen v. Bank of State of New York, 110 App. Div. 636; Cluett v. Coture, 140 App. Div. 830; Interboro Brewing Co. v. Doyle, 165 App. Div. 646; Oliner v. Goldberg, 168 App. Div. 874; Cole v. Harrison, 167 App. Div. 336; Cheever v. Pittsburgh R. R. Co., 150 N. Y. 59; American Exchange Nat. Bank v. N. Y. Belting Co., 148 N. Y. 698; Wagner Trading Co. v. Battery Park Nat. Bank, 228 N. Y. 37; Niagara Woolen Co. v. Pacific Bank, 141 App. Div. 265; Neg. Inst. Law, § 95; Miller v. Consolidation Bank, 48 Penn. St. 514; Walker v. Trenholm & McKee, 14 S. C. 142.)

      Abraham Lillienthal for respondent.
    It was correctly found that the president of the plaintiff corporation had no authority to indorse the check without restriction or limitation. (Hardin v. Morgan Lithograph Co., 247 N. Y. 332; Patterson v. Robinson, 116 N. Y. 193; Oakes v. C. W. Co., 143 N. Y. 430; Wagner v. Battery Park Nat. Bank, 228 N. Y. 37; Standard S. S. Co. v. Corn Exchange Bank, 220 N. Y. 478; Moch v. Security Bank, 176 App. Div. 842; 225 N. Y. 723; Weissman v. Bangue de Bruxelles, 254 N. Y. 488.) The form of the indorsement, its offer for deposit in the account of the corporation controlled by the person indorsing the check, was notice to defendant of a conversion and it should have inquired and is bound by what it would have ascertained. (Wagner Trading Co. v. Battery Park Nat. Bank, 228 N. Y. 37; Standard S. S. Co. v. Corn Exchange Bank, 220 N. Y. 478; Dennis Metal Mfg. Co. v. Fidelity Union Trust Co., 123 Atl. Rep. 614; McIntosh v. Detroit Sav. Bank, 247 Mich. 10; West St. L. Sav. Bank v. Shawnee Bank, 95 U. S. 557; Bank of Benson v. Gordon, 103 Neb. 508; Underwood v. Bank of Liverpool, [1924] 1 K. B. 775; Ansorge v. Kane, 244 N. Y. 395.) There was no ratification or estoppel and the conduct of the directors of the plaintiff in permitting the president to manage the corporation is not available as a defense to the action. (Glens Falls Indemnity Co. v. Chase Nat. Bank, 257 N. Y. 441; Shipman v. Bank, 126 N. Y. 318; Seaboard Nat. Bank v. Bank of America, 193 N. Y. 26; Jacobus v. Jamestown Mantel Co., 211 N. Y. 154; Wagner v. Battery Park Nat. Bank, 228 N. Y. 37; Shepard & Morse v. Eldridge, 171 Mass. 516; Wizard Oil Co. v. U. S. Express Co., 265 III. 156.)
   Lehman, J.

Moses Silverman, the president of the plaintiff corporation, was authorized by it to manage its business. He was also the president of Silfo Amusement Company, authorized by that corporation to manage its business and to draw checks upon its deposit account in the defendant bank. The plaintiff corporation was the owner of a check, payable to its order. Silverman deposited the check in the deposit account of Silfo Amusement Company. The defendant bank collected the check and permitted Silverman, as president of Silfo Amusement Company, to withdraw its proceeds. In that manner Silverman appropriated the check and its proceeds to his own use or the use of Silfo Amusement Company, and deprived the plaintiff corporation of its property. Concededly the defendant bank is hable for the conversion of the check and its proceeds unless the plaintiff corporation by an indorsement upon which the bank might rely transferred to Silfo Amusement Company title to the check.

Before depositing the check, Silverman, for the purpose of indorsing the check, placed upon its back the name of the plaintiff corporation and .signed his own name as president thereunder. Then he induced his son, David Silverman,.to sign his name as secretary, though in fact the son was not the secretary and had no authority from the plaintiff corporation, actual or apparent, to act as its agent. The problem presented is whether the genuine signature of the president of the corporation, under these circumstances, binds the corporation.

The plaintiff corporation did not by any by-law or resolution of its board expressly restrict the broad power, conferred upon its president, to manage its affairs. If, by fair implication, that power included authority to indorse and transfer negotiable instruments payable to it, then the co-operation of no other officer or agent would be necessary where the president assumed to exercise that power. The additional signature of an unauthorized person would not bind the corporation nor would it detract from the binding effect of the signature by an authorized agent. The difficulty in this case is that the president in signing the name of the corporation, was not acting in behalf of his principal, but was stealing its property. Here there was not merely disregard of instructions but an abandonment by the agent of his agency. The power of the agent results from the manifestation of the principal’s consent, and extends no further than such manifestation. We assume, without further consideration, that the corporation, by empowering its president to manage its affairs, has manifested its consent that he shall, as its agent, transact its ordinary business, including the transfer of negotiable instruments. It has not manifested any consent that he shall appropriate its property. “A power to act for another, however general its terms, or wide its scope, presupposes integrity and faithfulness in its exercise and cannot be enlarged by implication or construction to the justification of a diversion to the use of the agent of moneys or property subject to the agency.” (Porges v. United States Mortgage & Trust Co., 203 N. Y. 181, 190.) We do not say that in this case the facts would support an inference of an implied power to indorse and transfer negotiable instruments in the course of the transaction of corporate business. There is, indeed, a contrary finding, and the by-laws seem to show that only the treasurer had the right of custody of corporate funds and that without specific authority otherwise conferred, the president had no power to hold or transfer any negotiable instruments. We do say that even assuming that such power exists, it is limited to transfers made on behalf of the corporation in the course of its business.

The scope of an agent’s actual authority is determined by the intention of the principal or, at least, by the manifestation of that intention to the agent. However wide the authority vested in the president of the corporation may have been, it certainly did not extend beyond the corporate business. The general rule is that an agent employed to do an act is deemed authorized to do it in the manner in which the business entrusted to him is usually done.” (Argersinger v. Macnaughton, 114 N. Y. 535, 537.) Thus the fact that a corporate principal grants to its president unrestricted authority to manage its business may, in some circumstances, properly justify an inference that, in managing the business, the agent is authorized to transfer and indorse negotiable instruments payable to the order of the corporation. Certainly no inference can be drawn that the corporate principal in authorizing its president to manage its affairs intended to give the president authority to transfer and indorse its negotiable instruments when not managing the business of the corporation and when despoiling it of its property.

In a multitude of cases in all jurisdictions, a principal despoiled, in that way, by a general agent, to whom its property has been intrusted with power to transfer it in behalf of the principal, has been allowed to reclaim its property or to recover damages for its conversion, either from the agent or from any person claiming title through the agent with knowledge or notice that by the transfer the agent deprived his principal of its property. Such recovery has not been permitted upon any theory that a party having notice of the agent’s breach of trust takes subject to all equities in favor of the principal. In a long line of cases the courts of this State have consistently held that a general agent of a corporation intrusted by the corporation with the management of the corporate affairs, has no actual authority, though he may in some circumstances have apparent power, to appropriate the corporate property to his own use by transfer to himself directly or indirectly, and that is true as well of negotiable instruments as other property. Because the attempted transfer is made without actual authority, it constitutes a conversion, and passes no title to any one who is not entitled to rely on the apparent authority. So we said and decided in Wagner Trading Co. v. Battery Park Nat. Bank (228 N. Y. 37, opinion by Elkus, J.). That decision was founded on no novel doctrine, and in Whiting v. Hudson Trust Co. (234 N. Y. 394, 405, opinion by Cardozo, J.) this court so pointed out. We held that such an indorsement was not within the power of the agent (Cf. Bank of N. Y. N. B. Assn. v. Am. D. & T. Co., 143 N. Y. 559, 563; Manh. L. Insurance v. F. S. S. & G. S. F. R. R. Co., 139 N. Y. 146, 151; Ward v. City Trust Co. of N. Y., 192 N. Y. 61, 71; Porges v. U. S. Mortgage & Trust Co., 203 N. Y. 181, 190), and that the consequences were those that follow where an indorsement has been forged. (Standard S. S. Co. v. Corn Ex. Bank, 220 N. Y. 478, 481.) ” The rule everywhere applied, that such transfer constitutes a conversion of the corporate property, is the conclusion drawn from the premise that the transfer is made without actual authority. “It is an acknowledged principle of the law of agency that a general power or authority given to the agent to do an act in behalf of the principal, does not extend to a case where it appears that the agent himself is the person interested on the other side.” (Bank of New York Nat. Banking Assn. v. A. D. & T. Co., 143 N. Y. 559, 564.)

It is true that “ the principal is often bound by the act of his agent in excess or abuse of his actual authority, but this is only true between the principal and third persons, who believing and having a right to believe that the agent was acting within and not exceeding his authority, would sustain loss if the act was not considered that of the principal.” (Welsh v. Hartford Ins. Co., 73 N. Y. 5, 10.) Though actual authority is the result of the principal’s consent manifested to the agent, apparent authority is the result of consent manifested to the third party. In Whiting v. Hudson Trust Co. (supra) we indicated caution against a restriction of the rule of apparent authority beyond the point where a third party fails to make reasonable inquiry. We indicated no doubt that an action for conversion lies where there was no apparent authority. Whether apparent authority is based upon the principle of estoppel or not, it implies a transaction itself invalid, and a person who is forbidden for equitable reasons to set up that invalidity.” (Swan v. North British Australasian Co., 7 Hurls. & Norm. 603, 634, cited in N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30, at 53.) It has been defined as the authority which the principal holds the agent out as possessing or which he permits the agent to represent that he possesses and which the principal is estopped to deny.” (2 Corpus Juris, 570. Cf. Small v. Housman, 208 N. Y. 115, 123.)

Whether an indorsement of a check payable to a corporation is an act performed in the course of the corporate business or the conversion of the property of the corporation, is an extrinsic fact particularly within the knowledge of the person authorized to transact that business. In such circumstances an innocent third party may ordinarily rely upon the representations of the agent. (Farmers & Mechanics Bank v. Butchers & Drovers Bank, 16 N. Y. 125.) Even if we were to assume that the president of the corporation had actual or apparent authority to indorse checks in the course of the corporate business that rule would have no application here, for the president of the corporation authorized to transact its business did not represent that he, acting alone, had authority to indorse this check, nor did he assume to act as sole agent. The check purported to be indorsed by the corporation acting through its president and one who falsely represented that he was its secretary. If the corporation, though authorizing its president to transact its business, had restricted his authority by requiring the addition of the signature of another officer for the indorsement of any check, then a person receiving a check which purported to be indorsed by two officers would have notice of the limitation of the president’s authority, even if such notice were otherwise necessary, and the corporation would not.be bound by the signature of its president alone. So, here, the defendant bank receiving a check purporting to be indorsed by two officers could not rely upon an apparent power of the president which the president did not represent that he was exercising. The basis for a finding of apparent authority is completely lacking; for there was no assumption of apparent power by the president to bind the corporation by'his sole signature; no representation of any authority to so act and no reliance by the bank upon the existence of such power. The check in question having, therefore, been indorsed or transferred without authority, even colorable, the question of the defendant’s good faith or want of notice does not enter into the case, any more than it would if the check had been indorsed only by the secretary. Lacking authority at inception, the defendant acquired no title to the money and must pay it back to the plaintiff, the rightful owner. (Standard Steam Specialty Co. v. Corn Exchange Bank, 220 N. Y. 478.)

The judgment of the Appellate Division should be affirmed, with costs.

Kellogg, J. (dissenting).

Moses Silverman was the president of the plaintiff corporation and the active manager of its affairs. He negotiated a loan for the corporation from David Abrams, who delivered to him a check for $15,000, representing a part of the moneys advanced, which was made payable to the corporation. Silverman wrote the corporate name on the back of the check and signed his own name as president thereunder. He also procured his son, David Silverman, to sign his name as secretary beneath his own, although David held no such office. Silverman then indorsed the check Silfo Amusement Co.,” that being the name of a corporation of which he was likewise the president and active manager, and delivered the check to the defendant bank for deposit to the account of Silfo Amusement Company, which was a depositor therein. The defendant collected the check and placed the amount to the credit of such depositor, which disbursed the moneys for its own purposes by checks subsequently drawn. The plaintiff sues the bank to recover the sum represented by the check which the defendant collected. It has been held that Silverman, as president, had no power to indorse the check for other than corporate purposes; that no title to the check passed through the indorsement; that the defendant, therefore, converted the check and must make restoration to the plaintiff.

The by-laws of the plaintiff conferred upon Silverman, as president, the power to perform all duties incident to the office of president which are authorized and required by law.” They did not express in words the gift of a power to indorse negotiable instruments made payable to the corporation. On the other hand, they imposed no restrictions upon that power, if such existed. Indeed, upon the trial, counsel for the plaintiff remarked, Oh, yes, it is conceded there are no restrictions.” If Silver-man was possessed of the power to make the indorsement, that power existed by implication, as an attribute of the office of president which he held.

The president or other general officer of a corporation has power, prima facie, to do any act which the directors could authorize or ratify.” (Hastings v. Brooklyn Life Ins. Co., 138 N. Y. 473, 479.) The secretary of an insurance corporation, by virtue of his office and his permitted practice, has power to execute a written consent permitting a policyholder to mortgage the insured property, and to transfer the policy of insurance thereupon to the mortgagee. This is so, although the policy requires a written consent of the company to that end, and the by-laws of the corporation provide that insured property may not be mortgaged except by the consent of the board of directors. The company is not at liberty “ to dispute or deny the authority of their secretary to indorse the consent in question.” (Conover v. Mutual Ins. Co., 1 N. Y. 290, 293.) The president of a creditor bank, by virtue of his office, may satisfy a judgment in favor of his bank, although the judgment has been previously transferred, and this whether the satisfaction was with or without consideration paid to the bank. (Booth v. Farmers’ & Mechanics’ Nat. Bank, 50 N. Y. 396.) The president of a corporation, such as a bank, Has an implied power to indorse and transfer its negotiable paper.” (Daniel on Negotiable Instruments, § 394.)

Since by implication from the nature of the office which he holds, a corporate president has power to indorse checks payable to the corporation, the case must be the same as if the power of making a general indorsement were conferred upon him by express words. The well-known doctrine of the law of agency would, therefore, apply, that the act of a corporate officer, performed within the scope of his general authority, although a violation of his duty to his corporation, nevertheless, in respect to strangers dealing with the officer innocently for a consideration paid, is a valid corporate act. (Booth v. Farmers’ & Mechanics’ Nat. Bank, supra.) An agent in charge of a branch store, having been granted power to make a general indorsement of checks due the principal, although instructed to deposit all proceeds of the same in a particular bank, who indorses and transfers a check to an innocent purchaser and uses the proceeds of the check for his own purposes, nevertheless transfers good title to the check. Any departure by the agent from such authority and instructions was a mere diverting of a negotiable instrument from an authorized use, in which case it is not disputed the loss, if any, must fall on the principals of the agent guilty of the diversion rather than on a bona fide holder for value without notice.” (Cluett v. Couture, 140 App. Div. 830, 833; 206 N. Y. 668.) Where a clerk in the office of a corporation is expressly authorized to use a stamp expressing a transfer for deposit only and to indorse the corporate name thereunder, a general indorsement of a check, for the purpose of securing the proceeds for herself, will not carry title; on the other hand, if her authority is to indorse generally, title will pass. (Standard Steam Specialty Co. v. Corn Exchange Bank, 220 N. Y. 478, 481.) In that case Judge Pound said: One authorized to make a restrictive indorsement is not authorized to make a general indorsement.” Again, he said: Cohen [the clerk] had no authority to indorse checks in blank. If plaintiff had given such authority to her with the intention that the checks when so indorsed might be used for a specific purpose only, such as deposit in the Greenwich Bank, the indorsement would not be made without the authority of the person whose signature it purports to be.’ (Neg. Inst. Law, § 42.)”

The American Law Institute defines “Authority,” possessed by an agent, to be “ the ability of the agent, resulting from the manifestation by the principal to him of the principal’s consent that he shall act for the principal, to create rights in favor of, and impose liability upon, the principal, in accordance with such manifestation.” (Re-statement of the Law of Agency, § 9.) It defines apparent authority ” as the “ ability ” of a person, “ resulting from the manifestation by the purported principal to- a third person of consent ” that such first person shall “ act as his agent ” to create rights in favor of and impose liability upon such purported principal with respect to such third person in accordance with the manifestation, “ where such manifestation, at the time in question, differs from that then made to the purported agent.” (§ 10.) It states: “A manifestation of consent to third persons coinciding with the manifestation to the agent does not result in apparent authority. It is only where the manifestation to third persons differs from the manifestation to the agent, that there can be apparent authority.” (Id.) Obviously, where the sole manifestation by a corporation of its consent that the president should act for it, in the indorsement of its checks, consists in its appointment of the president to that office, or in express words to that very effect, the manifestation, at the time in question,” is the same whether to the president or to a third person. This being so, it would logically follow that the president would have ability ” or power, which was actual rather than apparent, to indorse and pass title to a check, for the purposes of self-enrichment, whether to an innocent or guilty third person. Of course, neither the president nor the third person could assume from the manifestation that the corporation would actually approve of a diversion of its funds. Yet the corporation having manifested the bestowal of a general power of indorsement, that power would actually exist to effectuate the passage of legal title to the third person, whether aware or innocent of the wrong. Of course, to the purchaser having notice it would pass subject to equities, while to the innocent purchaser it would be free therefrom. This would not derogate from the fact that an actual and legal transfer had been made in either case, and that neither a forgery nor a conversion had been committed. This view, however, does not appear to find sanction in our recent decisions.

In Wagner Trading Co. v. Battery Park Nat. Bank (228 N. Y. 37, 43) this court said through Elkus, J.: Assuming as we do that Wagner [the president] had general authority to indorse checks for the plaintiff’s corporate purposes, clearly this does not authorize him to indorse checks to his own order and appropriate the money to his own personal use, and the nature of this transaction was such as to warn defendant that the checks were being diverted from usual business channels.” This may not be taken to mean that a corporate president, deriving power to indorse by implication from the nature of his office, may not transfer title to an instrument, by an indorsement for purposes other than corporate. So to hold would violate well-established principles of law, and particularly the principle that an agent’s acts, performed within the general scope of his authority, although offending against his duty, may nevertheless constitute valid corporate action. That the court intended to express no such thought is shown by the concluding clause of the citation, which limits its application to cases where the nature of [the] transaction was such as to warn defendant that the checks were being diverted from usual business channels.” The principle announced is this: The indorsement of a negotiable instrument by the president of a corporation passes title to an innocent purchaser for value; it passes no title to a person having notice that the president thereby intends to accomplish a diversion of the corporate funds to his own use. Thus, there may be an apparent power to indorse, as well as an actual power, confided to a corporate president, through the same manifestation of corporate consent, having the identical meaning whether to the president or to a third person. This appears to be in conflict with the views of the Institute. Nevertheless, in this case, it does not militate against the validity of the transfer, if we consider that the transferee, the defendant, was an innocent third person.

It has been held that the face of a check, made payable to a corporation, showing an indorsement by the president to himself individually, sufficiently'warns an indorsee of an impending diversion to rob him of the character of an innocent purchaser. (Ward v. City Trust Co., 192 N. Y. 61; Wagner Trading Co. v. Battery Park Nat. Bank, supra.) We do not think that this principle has application to this case. Silverman, in placing the corporate indorsement upon the check, made the check payable, not to himself, as did the president in the Wagner case, but to Silfo Amusement Co.,” a corporation of which he was also president. In Cheever v. Pittsburg, S. & L. E. R. R. Co. (150 N. Y. 59) M. S. Frost, the president of a corporation, was authorized by resolution to execute a corporate note for $10,000, and obtain money thereon for the purpose of buying railroad cars for the corporation. He executed two notes for $5,000, and made them payable to his own clerk. The clerk indorsed the notes, making them payable to M. S. Frost & Son, a partnership of which M. S. Frost was senior member. Frost then negotiated a loan for M. S. Frost & Son, and indorsed the corporate note with the firm name, making it payable to the lender, in order to secure the loan. It was held that the form of the note was not sufficient to warn the lender that the note was being used to divert corporate funds to the uses of the president, and that the note was a binding obligation. We think that, in our case, the form of the check gave no notice to the defendant bank, which purchased the check indorsed by Silverman, that he intended personally to appropriate its proceeds, and that the defendant took title in good faith and for value.

Judge Lehman, in his opinion herein, seems to agree that Silverman was vested with apparent power, as president, to indorse and transfer good title to the defendant, but that he did not in fact exercise that power. His point seems to be that, as Silverman caused his son to indorse his name upon the check as secretary, therefore, he did not represent that he alone had power to indorse nor did the defendant place reliance upon such a representation. This is sufficiently answered by the following quotation from the Re-statement: “ If the facts justify the inference that the act was authorized, it is authorized. The person acting and now relying upon the inference, need not have known the facts at the time of acting. The result does not depend upon estoppel.” (§ 44.) It is a question of power, and power only. Silverman having the power to indorse for the corporation, indorsed its name to the check and signed his name thereunder. That was a sufficient execution of the power to pass title when delivery was made. It matters not what Silverman thought; it matters not what the defendant thought. The power existed and the power was executed. That another signed his name, who had no authority in the premises, did not derogate from the validity of a transfer made by one vested with full power to make it.

The judgment should be reversed and the complaint dismissed, with costs.

Pound, Ch. J., Crane, O’Brien and Crouch, JJ., concur with Lehman, J.; Kellogg, J., dissents in opinion in. which Hubbs, J., concurs.

Judgment affirmed.


source: Caselaw Access Project

author: Pound, Ch. J.

license: Public Domain

text:
    Elco Shoe Manufacturers, Inc., Appellant, v. William E. Sisk et al., as Executors of John P. Murphy, Deceased, et al., Respondents.

      (Argued October 12, 1932;
    decided November 22, 1932.)

      Israel H. Perskin and Wallace T. Stock for appellant.
    Defendant Murphy breached his contract in selling the Chandler shoe, which competed with plaintiff’s, within the true meaning of the contract. (Dwight v. Germania Life Ins. Co., 103 N. Y. 341; Crown Corset Co. v. Bauman & Co., 213 App. Div. 113; 241 N. Y. 606; Cohen v. Berlin & Jones Envelope Co., 166 N. Y. 292; Carthage Tissue Paper Mills v. Village of Carthage, 200 N. Y. 1; Continental Securities Co. v. Interborough R. T. Co., 207 Fed Rep. 467; Randall v. Peerless Motor Car Co., 212 Mass. 352; Poel v. Brunswick-Balke-Collender Co., 216 N. Y. 310; Matter of Thompson, 217 N. Y. 111; Matter of Glatzl v. Stumpp, 220 N. Y. 71; Hartley v. Eagle Ins. Co., 222 N. Y. 178; Alcock v. Davitt, 179 N. Y. 9.)

      Grant C. Fox for respondents.
    The Chandler shoes did not compete with the Elco line of shoes and, therefore, defendant Murphy had a perfect legal right to sell them. (Randall v. Peerless Motor Car Co., 212 Mass. 352.)
   Pound, Ch. J.

John P. Murphy had for some years, beginning July 1, 1921, been a salesman employed by plaintiff, a manufacturer of ladies’ shoes. He was discharged on January 18, 1929. Prior to July 1, 1926, his periodical contracts with the plaintiff had provided that he should be at liberty to sell other commodities and shoes which did not compete with lines manufactured by plaintiff. On May 1, 1926, he entered into a renewal agreement under which he was working at the time of his 'discharge, by which he agreed for a period of three years from July 1, 1926, to act as salesman and devote his time, attention and efforts to the business of plaintiff, as theretofore. Plaintiff agreed on its part that Murphy should be at liberty to sell other commodities and shoes which did not compete with the lines manufactured by plaintiff. Murphy first took out another line of shoes, known as the Chandler shoe, in June or July, 1928. He thereafter sold Chandler shoes and built up their sales $104,000 in a single year, during which time plaintiff’s sales by him fell off $150,000.

On January 18, 1929, Murphy was discharged and on the same day this action was brought against him and the other defendant alleging a conspiracy and asking for an accounting and damages. Murphy’s answer was a general denial and counterclaims covering unpaid commissions and damages for wrongful discharge. The trial resulted in a judgment for Murphy for $32,212.70 on such counterclaims.

Finding of Fact No. XXXIII is as follows: “ The shoes of the defendant G. W. Chandler Co., Inc. sold by defendant Murphy did not compete with the lines manufactured by the plaintiff.” Appellant alleges that this finding was really one of law, and that it was unsupported by the evidence.

There was also a finding that Murphy was wrongfully discharged. This likewise is claimed by appellant to be a conclusion of law.

If the Chandler shoes which Murphy sold were shoes competing with plaintiff’s line within the fair intent and meaning of the contract, then Murphy’s conduct in selling such shoes was a violation of his contract with plaintiff as matter of law. “ What a contract means is a question of law.” (Dwight v. Germania Life Ins. Co., 103 N. Y. 341, 352.) We are unable to see any ground on which these findings of the trial court can be supported. The finding that the two lines of shoes did not compete is a conclusion drawn from findings of inferior material, inferior design and style, inferior workmanship and lower prices of the Chandler shoes; a finding that they were not sold as a substitute to take the place of plaintiff’s shoes; that retail dealers handled the two makes as being on a distinctly different price range and sold the Chandler shoes to customers who would not pay the higher price at which plaintiff’s shoes had to be retailed. The trial court defined competing shoes as “ those so similar in price, design, style, material, workmanship and other characteristics as may fairly leave ordinary and reasonable retail dealers in such doubt in making a choice between them as to permit the skill of a salesman to become a determining factor,” and held in substance that there was no similarity in any of these respects, so that a choice would depend on the skill of the salesman. This definition is taken from Randall v. Peerless Motor Car Co. (212 Mass. 352). We do not adopt it for the purposes of this case. We have here an illustration of the fact that no man can serve two masters with equal fidelity when rival interests come into existence. Agents are bound at all times to exercise the utmost good faith toward their principals. They must act in accordance with the highest and truest principles of morality. The question here is not so much a technical definition of the word competition ” as used by shoe dealers as it is a question of loyalty and fair dealing. (Meinhard v. Salmon, 249 N. Y. 458, 464.) An agent is not loyal when he offers for sale a choice between a ladies’ high-class fine turned shoe and a cheaper shoe resembling the former and offered to the trade as such. The cheap article competes with the higher priced if the- two superficially resemble one another in appearance. It seems incredible that a ladies’ lower priced turned shoe as matter of law does not compete with a higher priced shoe of the same type when the same salesman offers both. Whether Murphy pushed the Chandler shoe or not, he offered a fine, high priced shoe and one not quite so expensive but practically the same in appearance, except to the trained observer. This seems to be a real and active competition. Is there no competition between a standard article and something equally as good ” which is sold at a lower price, when each sale of the latter is at the expense of the former? Persuasive salesmanship is not the only element of competition in determining a choice between two different articles. The articles may speak for themselves. The question here is whether the agent was fair to plaintiff when he sold the Chandler shoes. All makes and grades of ladies’ shoes are in potential competition with each other. We do not hold that permission to sell noncompeting shoes had no meaning. Murphy was clearly authorized to sell other lines of shoes distinct and separate in character but not ladies’ turned shoes of good quality. It was not loyal on his part to sell shoes that were almost if not quite copies of the Elco shoes at prices which might induce a buyer to put the cheaper shoe in stock as being a better bargain. He not only did this but in one instance at least he told the Chandler people how to disguise an Elco design so as to produce an imitation thereof and sold the product.

The entire record unmistakably suggests technical and arbitrary distinctions on the part of Murphy to evade his duty to his employer, to be disloyal to it and to promote the sale of the Chandler shoe where otherwise the Elco shoe might have been purchased, rather than that high degree of fidelity to plaintiff which was its due. Even if the two lines were technically non-competitive, Murphy was not loyal to plaintiff when he carried the Chandler shoes as a main line. He had agreed to devote his time, attention and efforts ” as an Elco salesman as heretofore,” when he carried no side line. While he might sell other commodities and shoes which do not compete,” his primary duty was to the Elco Company. The other shoes were to be a side line. He was disloyal to the Elco Company when he devoted his time, attention and efforts, not to plaintiff as theretofore, but also to a large extent to the Chandler Company. As matter of law it cannot be said that plaintiff was required to continue in its employ the services of such an employee. A mere permission to sell non-competing goods did not authorize him to relax his efforts to sell the Elco shoes. It follows that plaintiff was warranted in discharging Murphy.

The judgment of the Appellate Division and that of the Special Term should be reversed. The counterclaims should be dismissed and judgment granted in favor of plaintiff for an accounting in accordance with this opinion (which accounting will include all items for commissions earned and unpaid as set forth in the counterclaims), with costs in all courts to appellant.

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

Judgment accordingly.


author: Crane, J.

text:
    Briarcliff Lodge Hotel, Inc., Respondent, v. Citizen-Sentinel Publishers, Inc., et al., Appellants. Briarcliff Lodge Hotel, Inc., Respondent, v. Tarrytown Daily News, Inc., et al., Appellants. Briarcliff Lodge Hotel, Inc., et al., Respondents, v. Westchester Newspapers, Inc., et al., Appellants. Briarcliff Lodge Hotel, Inc., et al., Respondents, v. The Yonkers Statesman Corporation, Appellant.

      (Submitted October 3, 1932;
    decided November 22, 1932.)

      Joseph Reeback and Herbert C. Gerlach for appellants.
    Defendants have pleaded in justification facts as broad as the libelous charges made by the newspaper articles and the Appellate Division erred in striking out as insufficient in law the defenses of justification. (O’Connell v. Press Pub. Co., 214 N. Y. 352; Cafferty v. Southern Tier Pub. Co., 226 N. Y. 87; Hays v. American Defense Society, 252 N. Y. 266; Foley v. Press Pub. Co., 226 App. Div. 535; Naylor v. Variety, Inc., 180 App. Div. 763; More v. Bennett, 48 N. Y. 472; Sullivan v. Daily Mirror, Inc., 232 App. Div. 507; Kloot v. New York Herald Co., 200 App. Div. 90.) The liability of the hotel to the village municipal board and the latter’s actions in regard thereto under its ordinance were matters of public interest and concern and were properly the subject of fair comment. (Foley v. Press Pub. Co., 226 App. Div. 535; Hoeppner v. Dunkirk Printing Co., 254 N. Y. 95.) The charges contained in the newspaper articles fairly and truly report the public proceedings of the village of Briarcliff Manor and are, therefore, properly the subject of a defense of privilege. (Civ. Prac. Act, § 337.)

      Alexander U. Zinke, L. Zinke and Charles W. Silver for respondents.
    The complete defenses wholly fail' to justify the libelous charges. Indeed, they are inconsistent with any plea of justification. (Burnham v. Hornaday, 130 Misc. Rep. 207; 223 App. Div. 218.) Libelous charges, imputing that plaintiffs are deliberately delinquent and indifferent taxpayers, threatened with a discontinuance of water supply, reported as a news item without basis in fact, are not fair comment as matter of law. The publications are defendants’ own misstatements of fact to which the defense of fair comment does not apply. (Bingham v. Gaynor, 203 N. Y. 27; Triggs v. Sun Printing & Pub. Assn., 179 N. Y. 144; Burnham v. Hornaday, 130 Misc. Rep. 207.) The publications are essentially libelous charges composed by defendants and are not true and fair reports of public proceedings entitled to privilege under section 337 of the Civil Practice Act. (Vosbury v. Utica Daily Press Co., 105 Misc. Rep. 134;
      Smith v. Buffalo Times, Inc., 124 Misc. Rep. 495 ; 214 App. Div. 759; Schaffran v. Press Pub. Co., 258 N. Y. 207.)
   Crane, J.

As the first, second and third defenses set up in the answers to these libel actions have been stricken out, as insufficient at law, it is necessary for us to assume their allegations to be true, in considering whether or not they are the proper answers to the allegations in the complaint. The following, then, is the narration of facts according to which the defendants are to be adjudged in libel.

The plaintiff conducted in the village of Briarcliff Manor, Westchester county, a hotel known as Briarcliff Lodge. For more than a year prior to the publication alleged in the complaint it had purchased and used water 1 that it needed for its guests from the Municipal Board of the village of Briarcliff Manor. This Board operated the water supply system of the village and received and collected pay therefor. Bills for water consumed were sent in February, May, August and November for user during the previous three months. Shortly after May 31, 1930, the Municipal Board sent to the plaintiff a bill for $2,134.67 for water consumed by it during the three months ending May 31st, and another bill, August 31, 1930, in the sum of $3,118.22, for the three months ending August 31, 1930, and on November 30, 1930, another bill for $2,268.03 for water used during the three months ending November 30, 1930. At the time of the alleged publication there was due from the plaintiff the total sum of $7,520.92 for water used from March 1, 1930, to November 30, 1930, and the plaintiff still continued to purchase and use water up to the time of the publication. An ordinance of the village of Briarcliff Manor provided in part as follows: “If any charge for water supplied is allowed to remain unpaid for a period of six months from the date of said bill, then and in that event, the Superintendent is authorized to discontinue the use of water to said premises, within ten days after the mailing of notice to that effect to the water consumer of said premises.”

On January 10, 1931, the Municipal Board wrote to the plaintiff demanding payment. On January 12th the plaintiff wrote to Henry H. Law, the Mayor of the village, and asked him if it could not be arranged with the Municipal Board that said water bills be paid in installments. Law communicated by letter with the board, inclosing the plaintiff’s letter. Thereafter, and on February 10, 1931, the Municipal Board held a meeting, discussed the bills, and directed a notice to be sent to the plaintiff, stating that if that portion of said water bills which was more than six months past due was not paid in ten days, the water supply to the plaintiff’s premises would be discontinued, and also directed that the Mayor be advised accordingly.

On February 11th, the President of the Municipal Board sent a letter to Law informing him of this action taken by the Board at its meeting, and stated that if the plaintiff did not comply with the demand, its water supply would be discontinued. Law thereupon notified the plaintiff.

The Board of Trustees of the village at a meeting held on the evening of February 11, 1931 (which must have been after the publication'in the case of Citizen-Sentinel Publishers, Inc.), read and discussed the letter of the Municipal Board to the Mayor and referred the matter to him at his request.

This is the full recital of the facts which we must assume was in the possession of the defendant newspaper at the time of its publication. It thereupon printed the following, which is said to be false and libelous. It must here be written in full, as we are obliged to make comparison between the facts and what the defendant published as the facts, with its comments:

“ Lodge Facing Loss of Water. Owes Big Sum ” “ Bbiabcliff Board Delivers Ultimatum. $2100 Bill Must Be Paid ”
“ Briarcliff Lodge has been using Briarcliff water for six months and hasn’t paid a cent.
“ The Lodge, nationally known for various things, owes the Briarcliff Water Board just $2100, not a large sum of money for that lodge.
“And if the Lodge fails to pay its bill in 10 days the board will peremptorily turn the water off.
“And what will the Lodge do for its guests?
“ That is a thing that isn’t troubling the Municipal Board of Briarcliff at all. In fact, members of the Board aren’t interested in what the Lodge will do. All they want is the $2100.
“ But it may trouble officers of the hostelry when they receive the ultimatum of the Water Board, probably today.
“ The matter goes back to last Fall when the Lodge failed to pay the first bill rendered for the season. The officers ignored a'subsequent bill arid the Water Board ‘ held its peace.
“ But in these times of depression, $2100 is - a lot of money. If the Water Board permitted the Lodge to continue using the water without payment, it will have to collect $5200 by the end of the month, for- another bill will then be six months old. Which is also a lot of money.
“ So the Water Board is eagerly awaiting -a reply, preferably a check.
“ Board members are certain that the situation will be averted, and that the Lodge will pay its long past due bifi.”

Let us make the comparison between the article and. the -facts. The heading is. true. .The statement that. “ Briarcliff Lodge has been using Briarcliff water for six months and hasn’t paid a cent,” is also true. That the lodge is nationally known ” is a puff and not a libel; and the statement “ $2100, not a large sum for that lodge,” is a financial compliment. We then have this statement: “And if the Lodge fails to pay its bill in 10 days the board will peremptorily turn the water off.” This is not a statement of a fact so much as a prophecy of a future event; it is not a comment, but a statement of what the municipal authorities will do in ten days. Was it justified? We must assume that the newspaper had in its possession the ordinance giving the village the power to do this thing within ten days after mailing of notice. The newspaper also had before it the written notice sent the Mayor, and by him sent to the plaintiff. This notice from the Municipal Board to the plaintiff said that if the six months’ water bills, past due, were not paid within ten days, the water supply to the plaintiff’s premises would be discontinued. Here was the notice required by the ordinance and the newspaper was justified in printing what the notice said, or, in other words, to state, “ if the Lodge fails to pay its bills in 10 days the board will peremptorily turn the water off.” This is exactly what the Board did say it would do and the paper was merely publishing the Board’s declaration. Here was action taken by an official body given as news to the public.

Next — “And what will the Lodge do for its guests? ”— a most natural question and fair comment. Then we have this statement: “ That is a thing that isn’t troubling the Municipal Board of Briarcliff at all. In fact, members of the Board aren’t interested in what the Lodge will do. All they want is the $2100.” This is not a statement regarding the plaintiff, but relates to the attitude of the Board, and is a newspaper comment on their action. Continuing: “ But it may trouble officers of the hostelry when they receive the ultimatum of the Water Board, probably today.” Can we say as matter of law that such an aside in a newspaper article on official action of a public matter is not fair comment or just criticism on the action of a delinquent taxpayer? The comment does not impress us as being at all unreasonable or unfair, but, rather, the result to be expected from such a notice, in view of all the circumstances, and the delay in paying the water charges.

Then comes the following: The matter goes back to last Fall when the Lodge failed to pay the first bill rendered for the season. The officers ignored a subsequent bill and the Water Board held its peace.” The claim of the plaintiff is that this is libelous because the word “ ignored ” means something more than failed to pay.” The innuendo is that it casts aspersions upon the officers of the plaintiff, indicating that they refused and neglected to pay any attention to another bill rendered to it. To make this a libel by any such innuendo is refining libel law beyond all means of practical application. Whether or not the word ignored ” was used in any such sense was at least a question for the jury to pass upon, and cannot be taken as libelous as matter of law.

Again, as we approach the end, we find these words: But in these times of depression, $2100 is a lot of money.” Who will deny it? If the Water Board permitted the Lodge to continue using the water without payment, it will have to collect $5200 by the end of the month, for another bill will then be six months old. Which is also a lot of money.” All of this is true. “ So the Water Board is eagerly awaiting a reply, preferably a check.” Can this be doubted? Board members are certain that the situation will be averted, and that the Lodge will pay its long past due bill.” A generous hope, reflecting a belief in the plaintiff’s good, and not bad, intentions.

Thus analyzing the publication in the light of conceded facts, there is no libel in it, and, at most, the innuendo regarding the use of the word ignored ” creates a question of fact as to whether or not it casts any aspersion upon the honor or integrity of the plaintiff.

This answer, therefore, is good as a justification; it is good as fair comment, in the very meager instances where comment is made; and it is good as a fair and true report of official proceedings taken by the Municipal Water Board regarding the plaintiff’s over-due bills.

The first, second and third defenses in the answer in this case against the Citizen-Sentinel Publishers, Inc., should, not have been stricken out.

There are three publications and four libel actions coming up on this appeal. We have dealt here with the complaint in the action against the Citizen-Sentinel. Publishers, Inc., as being typical. Counsel have submitted the four cases as if they were one, and dealt with the points in only one brief. The other publications vary in literary style but not in substance. The Tarry-town editorial heads the article, Who Pays for Water? ” and follows it with a philosophical utterance regarding the attention which individuals give to human affairs. As to the plaintiff, it says: and still others, perhaps a larger class, reveal a remarkable listlessness to bills. According to dispatches Briarcliff Lodge is in the latter group in regard to the payment of water bills.. Advices from the Water Board of that Village disclose that the Lodge is in arrears to the extent of $2,100 for water furnished since last Fall. And the Board advises further that unless the Lodge pays and pays that the water will be turned off.”

The defendants in all these cases pleaded the same defenses. This latter publication is a true statement of facts with a brief comment on the failings of humanity generally. Nothing libelous here, which is not fully met by these answers.

The Yonkers Statesman and Daily Argus printed an article in which the heading is true, and facetiously stated in its news item “' Water, water, everywhere, but never a drop to drink ’ will be the cry at Briarcliff Lodge in a short while, according to the Briarcliff Manor Village Board, if Chauncey Depew Steele and his assodates at the exclusive and expensive hostelry do not pay their water bill.” The rest of the article contains a fair comment and statement of the action of the Municipal Board.

By this comparison of the answers with the alleged publications it must be quite evident that the matter set up in defense was sufficient at law and should not have been stricken out. The payment of taxes is a matter quite vital to all of us. Where all are expected to pay on the due date, it is a matter of public concern, and surely of public' interest, to know whether a large amount of taxes, especially in small communities, remains unpaid. To furnish the news upon these matters is the justification for the existence of a newspaper. These matters constitute news and may be printed, when accurately stated, with impunity. Village officers have a duty to perform which must be impartially administered. The fact that the press is ever ready to publish any irregularities or acts of favoritism has a tendency to keep officials up to the high mark of their calling. A water board, having the power to collect bills or turn off a supply of water, is a public official whose proceedings and action may not only be given as news, but, under section 337 of the Civil Practice Act, may be fairly and truly reported, without being libelous. And a fair and true report admits of some liberality; the exact words of every proceeding need not be given if the substance be substantially stated. True also is it that the action of such public officials, and the delay in the collection of taxes, are matters about which a paper, either in its news items or editorially, may make comments as long as they are fair and just. (Hoeppner v. Dunkirk Printing Co., 254 N. Y. 95.) A comment is fair when it is based on facts truly stated and free from imputations of corrupt or dishonorable motives on the part of the person whose conduct is criticized, and is an honest expression of the writer’s real opinion or belief. Mere exaggeration, slight irony or wit, or all those delightful touches of style which go to make an article readable, do not push beyond the limitations of fair comment. Facts do not cease to be facts because they are mixed with the fair and expectant comment of the story teller, who adds to the recital a little touch by his piquant pen.

These actions against the individual, J. Noel Macy, charged him also, as editor and publisher of these various papers, so that what is here stated regarding the corporations, applies also to him and to his individual answers.

The orders of the Appellate Division, striking out the first, second and third complete defenses in the answers, should be reversed, with costs in this court and in the Appellate Division, and the questions certified by the Appellate Division should all be answered in the affirmative.

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

Ordered accordingly.


text:
    Title Guarantee and Trust Company, Appellant, v. 457 Schenectady Avenue, Inc., et al., Defendants. In the Matter of New York Water Service Corporation, Respondent; Edward W. McMahon, as Receiver, Appellant.

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

      C. Elmer Spedick, John C. O’Malley and Harry L. Thompson for Title Guarantee and Trust Company, appellant.
    The water company’s rule of shut off is unreasonable when sought to be enforced under the circumstances herein. (Coe v. New Jersey Midland Ry.

      Co., 31 N. J. Eq. 105; Decker v. Gardner, 124 N. Y. 334; Millville Improvement Co. v. Millville Water Co., 92 N. J. Eq. 480; Turner v. Revere Water Co., 171 Mass. 329; City of Covington v. Ratterman, 128 Ky. 336; State ex rel. Scotillo v. Water Supply Co., 19 N. M. 27.) Appellant cannot pay the back water charges of respondent and add the same to its mortgage debt, said water charges not being liens upon the mortgaged premises. (Albertina Realty Co. v. Rosbro Realty Corp., 258 N. Y. 472; Ranney v. Peyser, 83 N. Y. 1.)

      Harold L. Turk and Murray Lehman for Edward W. McMahon, as receiver, appellant.
    A private water company has no right to shut off a supply of water to compel payment of a bill which it is not the duty of the consumer to pay. (Turner v. Revere Water Co., 171 Mass. 329; McEntee v. Kingston Water Co., 165 N. Y. 27; Canavan v. City of Mechanicville, 229 N. Y. 473; Silkman v. Board of Water Commrs., 152 N. Y. 327; Rankin v. City of New York, 145 App. Div. 838; 204 N. Y. 684; Keeney v. Home Ins. Co., 71 N. Y. 396; Herring v. N. Y. R. R. Co., 105 N. Y. 340; Walling v. Miller, 108 N. Y. 173; Finch v. Flanagan, 208 App. Div. 254; Lathers v. Hamlin, 102 Misc. Rep. 563; City of New York v. Jamaica Water Supply Co., 181 App. Div. 49; 226 N. Y. 572; Treadwell v. Van Schaick, 30 Barb. 444; Morey v. Metropolitan Gas Light Co., 38 N. Y. Super. Ct. 185; Brass v. Rathbone, 153 N. Y. 435; Vanderbilt v. Hackensack Water Co., 110 N. J. Eq. 636; Cox v. M. & M. Gas Light Co., 199 Mass. 324; City of Covington v. Ratterman, 128 Ky. 337; State ex rel. Scotillo v. Water Supply Co., 19 N. M. 27; Ranney v. Peyser, 83 N. Y. 1; Rider v. Bagley, 84 N. Y. 461.)

      Howard C. Tracy and George B. Davenport for New York Title and Mortgage Company, amicus curice.

    While the appointment of the receiver effected no change in the title to the mortgaged premises, it did terminate for the time being all possession and control of said premises by the fee owner thereof. (Sullivan v. Rosson, 223 N. Y. 217; Ranney v. Peyser, 83 N. Y. 1; Kroehle v. Ravitch, 148 App. Div. 54.) The petitioner’s right to shut off the water for default in payment of its charges is not absolute, but depends upon the circumstances in which it seeks to apply it. (McEntee v. Kingston Water Co., 165 N. Y. 27; Pond v. New Rochelle Water Co., 143 App. Div. 69; 206 N. Y. 719; Morey v. Metropolitan Gas Light Co., 38 N. Y. Super. Ct. 185; Turner v. Revere Water Co., 171 Mass. 329; Coe v. New Jersey Midland Ry. Co., 30 N. J. Eq. 440; State ex rel. Scotillo v. Water Supply Co., 19 N. M. 27.)

      Thomas W. Maires and Henry S. Ferriss for respondent.
    The appointment of the receiver of rents wrought no change in the title and interest of the parties to the foreclosure action. (Hollenbeck v. Donnell, 94 N. Y. 342; Keeney v. Home Ins. Co., 71 N. Y. 396; Herring v. N. Y., L. E. & W. R. R. Co., 105 N. Y. 340; Matter of Lewis & Fowler Mfg. Co., 89 Hun, 208; U. S. Trust Co. v. N. Y., W. S. & B. Ry. Co., 101 N. Y. 478; Decker v. Gardner, 124 N. Y. 334; Sigua Iron Co. v. Brown, 171 N. Y. 488; Stokes v. Hoffman House, 46 App. Div. 120; 167 N. Y. 554; Reddy v. Raymond, 194 Mass. 367; Nicoll v. Spowers, 105 N. Y. 1; Warner v. Jaffray, 96 N. Y. 248; McIlhargy v. Chambers, 117 N. Y. 532; Freeholders of Middlesex Co. v. State Bank, 29 N. J. Eq. 268; Decker v. Gardner, 124 N. Y. 334.) The rule of shut-off by a private water company for non-payment of its bills is reasonable and can be enforced against a delinquent owner who actually buys and consumes the water. (Millville Improvement Co. v. Millville Water Co., 92 N. J. Eq. 480; Harbison v. Knoxville Water Co., 53 S. W. Rep. 993; Pond v. New Rochelle Water Co., 143 App. Div. 69;. 206 N. Y. 719; Treadwell v. Van Schaick, 30 Barb. 444; Silkman v. Water Commrs., 152 N. Y. 327; Brass v. Rathbone, 8 App. Div. 78; 153 N. Y. 435; Krumenaker v. Dougherty, 74 App. Div. 452; People ex rel. O’Brien v. Keating, 55 App. Div. 555; 166 N. Y. 601; Frothingham v. Bensen, 20 Misc. Rep. 132; People ex rel. Kennedy v. Manhattan Gas Light Co., 45 Barb. 136.) The Appellate Division properly directed the receiver to pay the entire bill. (Howell v. Ripley, 10 Paige, 43; Matter of LeBlanc, 14 Hun, 8; 75 N. Y. 598; Attorney-General v. Continental Life Ins. Co., 71 N. Y. 325; Matter of Fischer, 168 App. Div. 326; Lathers v. Hamlin, 102 Misc. Rep. 563; Wyckoff v. Scofield, 103 N. Y. 630; Lichtenstein v. Belknap, 100 Misc. Rep. 468; Kronenthal v. Rosenthal, 144 N. Y. Supp. 830; Raht v. Attrill, 106 N. Y. 423; Dow v. Nealis, 47 Misc. Rep. 153; Farmers’ L. & T. Co. v. Staten Island Belt Line R. R. Co., 17 Misc. Rep. 168; 6 App. Div. 148; Vilas v. Page, 106 N. Y. 439; Frankenstein v. Hamburger, 73 App. Div. 352; 172 N. Y. 609; Sullivan v. Rosson, 223 N. Y. 217; Ranney v. Peyser, 83 N. Y. 1; Kroehle v. Ravitch, 148 App. Div. 54.)
   Crane, J.

“ Has a private water-company the right, under its Rules and Regulations, to shut off the supply of water into mortgaged premises for the failure of a Receiver of Rents in possession thereof, after demand, to pay the water charges which have accumulated against the fee owner thereof prior to such Receivers’ appointment?” This is the question certified to us by the Appellate Division arising out of the following facts:

This action has been brought to foreclose two mortgages consolidated into a single mortgage, held by the Title Guarantee and Trust Company, covering premises formerly in the town of Flatbush and now known as No. 457 and 459 Schenectady avenue. The apartments accommodate upwards of eighty-five families.

The mortgages were made in 1928 to secure the sum of $350,000, of which $335,000 remained unpaid at the commencement of the action.

After the recording of the mortgages, but before this foreclosure suit, the owner of the property, the defendant, known as 457 Schenectady Avenue, Inc., made application to the New York Water Service Corporation for the supply and service of water by meter to the apartments in the building, and since March 2, 1931, such supply has been furnished the tenants.

The Flatbush Water Works Company was chartered on June 14, 1881, under chapter 737 of the Laws of 1873 and its amendments, to supply water to public and private consumers and inhabitants in that part of Brooklyn then and now known as Flatbush.” Thereafter, in 1926, this water company was merged into the New York Water Service Corporation, pursuant to section 85 of the Stock Corporation Law (Cons. Laws, ch. 59), which latter company became vested with all the rights, privileges and franchises of the former.

Receiving a franchise to use the streets and highways for its water mains, this company was under a duty to furnish water as a public service to all those who required it and complied with the company’s reasonable rules and regulations. (City of New York v. Jamaica Water Supply Co., 181 App. Div. 49; affd., 226 N. Y. 572.) The water charge, however, did not become a lien upon real estate, as no lien is or has ever been given to a private water company in this State under the act for the incorporation of water companies, chapter 737 of the Laws of 1873, or by any subsequent act. Herein is a distinction between private and public water companies. Water charges are made a lien when furnished by the city of New York (Greater New York Charter [L. 1901, ch. 466, amd. L. 1916, ch. 602, § 2], § 473) or by a town (Town Law [Cons. Laws, ch. 62], § 293) or by a village (Village Law [Cons. Laws, ch. 64], § 229).

By December 18, 1931, 457 Schenectady Avenue, Inc., had run up a water bill of $677. On December 16, 1931, a receiver of the rents and profits was appointed in this foreclosure action and the water company sought to shut off the supply of water to the tenants in the apartments until and unless the receiver paid this past due bill of the owner. Under its rules and regulations this was a remedy against an owner in possession and would be good as against the receiver for charges accruing during his occupancy, that is, for water furnished to him. Must the receiver, however, pay all charges due at the time of his appointment before he can get water for the apartment? This is the question sent to us by the Appellate Division in an application in the action by the water company for an order permitting it to make this move against the court receiver and to shut off the water supply. Overruling the Special Term, the Appellate Division granted the permission by granting the motion and the Title Guarantee and Trust Company, the mortgagee for whose benefit the receiver was appointed, has, with leave of the Appellate Division, appealed to this court.

The mortgages under foreclosure secured the plaintiff’s loan not only by a lien upon the real estate but also by a right to take the rents during the time necessary to foreclose the lien. With large mortgage loans such as here upon the modern apartment house this is a very material and important part of the security, as the income is large and the legal proceedings often take considerable time before resulting in a sale of the property. Large apartment and office buildings have not the ready market of smaller buildings even in prosperous times. The plaintiff in applying for a receiver did so under this reserved right in its mortgages for the further security of its debt. The receiver on December 16, 1931, took possession as an officer of the court for the benefit of the mortgagee, plaintiff, and the order appointing him so stated. Whatever charges and expenses were to be necessarily incurred in running and keeping up the property during his possession were naturally to be deducted from the rents and income but he was under no duty or obligation to pay the debts of the owner which were not liens or charges upon the property. He was appointed to collect the'money due the plaintiff, not money due the water company. To force him to pay the latter’s claim by shutting off the water supply would in effect give a lien on the property for the amount due which it is conceded the water company does not have.

| The use of water is necessary to the discharge of the duty which the court has imposed upon the receiver. Of what value would the apartments be without water? They could not be rented, and rent because of removal would speedily diminish. The receiver would soon have nothing to collect and thus the security of the rents given to the mortgagee would be valueless unless it consented to and did pay the owner’s debt to the water company. This gives that company a grasp upon the realty which has been refused by statute. Thus by indirection is received that which cannot be openly claimed by a direct charge upon the property. The receivership clause in mortgages would be of little meaning were it subject to the claim here put forth by the water company and if the security of the rents could fluctuate with the profligacy of the owner and the indulgence of a public service company. A mortgagee could not control the growing indebtedness for water nor compel the company to press the owner for payment, so long as there was no default in the mortgage obligations. So, too, the mortgagee could not ascertain how much this indebtedness might be except by the voluntary statements of the water company. Unlike all other charges on realty there would be no official record. Taxes, assessments and water rates which are liens upon real property if paid by a mortgagee may be collected in the foreclosure proceedings. (Real Prop. Law [Cons. Laws, ch. 50], § 254, subd. 6; Civ. Prac. Act, § 1087.) Not so the past due water charges here, as they are not liens. If paid by the receiver, and so ultimately by the plaintiff, how are they to be recovered? As a debt due from the owner, which probably is financially irresponsible.

Although this question has not been before the courts of this State until raised in this case, other courts have been called upon to express their views on like or similar situations. As to a grantee of the property all agree, as do the able counsel in this case, that he takes free from any obligation to pay his grantor’s debt for water service and the water company cannot discontinue the supply of water so long as the present owner pays for his own user. (See on this point City of Covington v. Ratterman, 128 Ky. 336; State ex rel. Scotillo v. Water Supply Co., 19 N. M. 27.) The same result was reached in behalf of a tenant. (Turner v. Revere Water Co., 171 Mass. 329; Millville Improvement Co. v. Millville Water Co., 92 N. J. Eq. 480.) And the very question we are now considering has been decided in favor of the mortgagee in Coe v. New Jersey Midland Ry. Co. (30 N. J. Eq. 440; 31 N. J. Eq. 105); Vanderbilt v. Hackensack Water Co. (110 N. J. Eq. 636).

The answer to the question submitted is not dependent upon the passing of title; rather, it depends upon possession under a prior right reserved in the mortgage, giving the rents and income as security for the mortgage debt. To give effect and value to this security, the debt of the owner for past water service cannot be treated as a charge on the property or the water supply shut off until it be paid by the receiver appointed for the benefit of the mortgagee.

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

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

Ordered accordingly.


author: Hubbs, J.

text:
    In the Matter of the Accounting of Frank G. Wild et al., as Trustees under the Will of George H. Coutts, Deceased, Appellants. Donald B. Stewart, as General Guardian, et al., Respondents.
    (Argued October 3, 1932;
    decided November 22, 1932.)

      James M. Gray for appellants.
    The trust for the life of the widow was, and each of the three trusts for the respective lives of testator’s daughters after the death of the widow is, a separate and distinct trust. (Matter of Johnson, 170 N. Y. 139; Matter of Potter, 106 Misc. Rep. 113; Leach v. Godwin, 198 N. Y. 35; Matter of Hoffman,
      201 N. Y. 247; Matter of Colegrove, 221 N. Y. 455; Vanderpool v. Loew, 112 N. Y. 167.) As the trusts are separate trusts, and the one for the -widow has terminated, the half commissions to the trustees for paying out the same to themselves as trustees for the other trusts are now payable; and the half commissions for receiving them into the other three trusts are now receivable. (Matter of Johnson, 170 N. Y. 139; Clute v. Gould, 28 Hun, 348; Matter of Potter, 106 Misc. Rep. 113.)

      Hugh S. Williamson, Sumner Ford and Edward A. Craighill, Jr., for Donald B. Stewart, respondent.
    The continuation of a trust with new beneficiaries does not entitle executor-trustees to triple commissions. (Leask v. Beach, 173 App. Div. 873; Phoenix v. Phoenix, 28 Hun, 629; Matter of Baylis, 144 Misc. Rep. 260; Matter of Rappold, 138 Misc. Rep. 163.) The Surrogate was correct in refusing to allow triple commissions. (Matter of Ziegler, 218 N. Y. 544; Olcott v. Baldwin, 190 N. Y. 99; Matter of Abrahams, 136 Misc. Rep. 538; Bowditch v. Ayrault, 138 N. Y. 222.) The Surrogate was correct in denying the claim of the substituted trustee for double commissions. (Matter of Thomas, 254 N. Y. 292.)
   Hubbs, J.

This is an appeal by two testamentary trustees from so much of a decree of the Surrogate’s Court of Kings county as denies them certain commissions as trustees and which settles their accounts in a proceeding for that purpose.

The decedent died, leaving a will whereby he created a trust in his residuary estate to pay the income therefrom quarterly to his wife during her life. Then followed a clause which reads: Upon her death, I direct my said executors to divide the principal of the trust fund into three equal parts and one of said parts to hold and invest and keep invested and to pay the income therefrom quarterly to my daughter, Jean McPhail Coutts, during her life and upon her death to pay the principal thereof to her issue,” etc.

Similar directions were made as to the other two parts, the beneficiaries being other daughters. The executors were named trustees. There was a provision in the will for the appointment of a reliable trust company to act in the place of one should such one predecease the other as executor and trustee. One of the executors and trustees died and the appellant, Title Guarantee and Trust Company, was appointed. The executors accounted as such in 1915 and received full commissions.

The wife, Caroline S. Coutts, was one of the executors and trustees. Upon the accounting of their proceedings as executors, they were directed to turn over the residuary estate to themselves as trustees for the benefit of Caroline S. Coutts and it was adjudged that they were entitled to commissions as trustees. They were awarded at that time one-half commissions for receiving the funds as such trustees.

Caroline S. Coutts died November 27, 1929, and thereafter an application was made for the appointment of a successor trustee of the trust. The application was granted May 15, 1930. Wild presented his account as surviving trustee of the trust for the benefit of Caroline S. Coutts. The matter was progressing toward a final decree when the Court of Appeals decided Matter of Thomas (254 N. Y. 292). By virtue of that decision, it became necessary to appoint a successor trustee for the trust for Caroline S. Coutts.

Accordingly, the Title Guarantee and Trust Company was appointed as such successor trustee. It thereupon presented its account as such successor trustee and a decree was made whereby the Title Guarantee and Trust Company received its commissions for receiving the fund as trustee for Caroline S. Coutts, and the two trustees were directed to hold the fund in trust for the three children of testator, each share amounting to $323,000.

|.' The present trustees contend that they were entitled ' on the last accounting to one-half of their commissions for paying out the trust fund held for the benefit of Caroline S. Coutts and to one-half commissions for receiving the fund of the three separate shares for the benefit of the three children. The Surrogate has held that there is in effect but one trust, pursuant to which the trustees were to hold the trust fund for the benefit of Caroline S. Coutts during her lifetime, and to continue to hold it for the benefit of the three children during their respective lifetimes, paying out one-third to the heirs of each upon their respective deaths. The Surrogate points out in his opinion that if the contention of appellants that they are entitled to commissions on the fund held for the three children were to be adopted, the practical result would be that the several fiduciaries would receive an aggregate of seven full commissions on the principal of the estate in addition to commissions payable on the annual income.

It should be noted that the will directs the executors “ to divide the principal of the trust fund into three equal parts and one of said parts to hold and invest,” etc. There is no specific direction that they are to pay to themselves as trustees the parts. The intent indicated by the language is that they are to continue to hold the original fund, but divided into parts. The learned Surrogate in his opinion relied largely upon the case of Leask v. Beach (173 App. Div. 873), where executors and trustees, after having received full commissions both as executors and trustees, sought additional commissions by reason of the fact that they were directed to pay over to themselves one-half of the sum to be held for certain beneficiaries after the death of the life tenant. Even with the positive direction to pay over, the court held that the executors and trustees were not entitled to commissions on the last three shares held after division. The appellants seek to distinguish that case, but their arguments are not convincing. The question involved is the same as here presented.

Section 285 of the Surrogate’s Court Act, if not directly applicable to the situation here presented, at least demonstrates the intent of the Legislature that double commissions are not to be allowable, in a situation such as this. That section provides in part that where successive or different letters are issued to the same person on the estate of the same decedent, including a case where letters testamentary or letters of general administration are issued to a person who has previously been appointed a temporary administrator, he is entitled to compensation in one capacity only, at his election, except that where he has received compensation in one capacity, he is entitled to the excess, if any, of the compensation allowed by law above the sum which he has already received in the other capacity. That section and section 1548 of the Civil Practice Act must be read together. The latter section provides for the commissions of a trustee except as otherwise prescribed in regard to -a testamentary trustee.

It has been held that a testamentary trustee may, in a proper case, receive commissions where he is also executor. (Olcott v. Baldwin, 190 N. Y. 99.)

The only theory upon which the appellants may claim double commissions in this instance as trustees is upon the theory of successive trusts in the same estate and section 285 would prevent compensation in more than one capacity to these trustees even if there had been successive or different letters. Either there are successive trusts upon which successive letters might be issued, or there is but one trust. In either case, the trustees being the same persons, are entitled to compensation in but one capacity.

The appellants place their chief reliance upon Matter of Johnson (170 N. Y. 139) as authority for their contention that for purposes of commissions each division of a primary trust fund created by a will after the death of the first life beneficiary should be considered a separate trust.

The question in that case was entirely different from that presented in the instant case. In Matter of Johnson the first two trusts created were contained in specific bequests, and the third, fourth and fifth were created out of the residuum of the estate after payment of debts and specific legacies and included the remainder left upon the falling in of the lives upon which the first and second trusts were founded. There was no question presented as to the right of the trustees to commissions upon the separate trusts but the question was as to their right to commissions thereon computed upon the basis of the amount of the gross estate. The gross estate being over $100,000, the trustees claimed commissions upon the separate trusts at the rate allowed for trusts exceeding $100,000 in value. The court held that the separate trust estates, being each less than $100,000, each trustee was not entitled to full commissions, but only to one-third thereof.

It should be noted that in that case no question of successive trusts in the same fund was presented. That is made clear in the opinion of the Appellate Division, in which the five grounds for reversal urged by the appellants are stated (57 App. Div. 494). The case is not authority for appellant’s contention that where a will creates a trust fund, which the executors are directed to hold as trustees during the life of one beneficiary and upon her death to divide into three equal parts and hold the same and pay the income therefrom to other named beneficiaries during their lives, the trustees are entitled to full commissions upon the fund as trustees for the first life beneficiary and to full commissions as trustees for each of the beneficiaries of the separate parts into which the original fund is divided after the death of the first beneficiary.

This court in deciding cases where testators had willed property to trustees to pay over the income to one for life and thereafter to two or more beneficiaries for life, has referred to the secondary estates as separate trust estates, and to the trustees as trustees of separate trusts.

Those cases, invariably, involved the question of the legality of gifts over after the termination of life estates, and the statements that the provisions of the wills in question in those cases constituted separate trusts were made for the purposes of determining the legality of the provisions of the wills in question. The question of the right of trustees to commissions was not involved, and was not given consideration.

The order should be affirmed with costs payable out of the estate.

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

Order affirmed, etc.


text:
    The People of the State of New York, Respondent, v. Cornelius Jameison, Appellant.

      (Argued October 6, 1932;
    decided November 22, 1932.)

      Arthur F. Simonson, Edwin M. Stanton and Emil M. Haas for appellant.

      Thomas C. T. Crain, District Attorney (Robert C. Taylor of counsel),, for respondent.
   Hubbs, J.

An examination of the record in this case discloses that a fair question of fact existed, which was settled by the verdict of the jury. The record does not disclose any legal error which requires a reversal or discussion. We would be content to affirm the judgment of conviction, as the law requires us to do in the absence of legal error where the defendant has had a fair trial, without an opinion, were it not for a question of practice, which does not affect the defendant, but is of importance to the taxpayers of the State.

A great abuse has grown up in printing records on appeal in criminal cases, particularly in homicide cases. One hundred and eighty-five pages of the record in this case are taken up with the printing of the record of the examination of talesmen. In three other homicide cases pending in this court the records disclose even a larger waste of public funds for printing. In one, 244 pages are devoted to a record of the examination of talesmen; another 307 pages and the other 360 pages. In all four cases not a single question was raised in regard to the jury, the method of its selection or the qualification of the jurors selected. All of the expense of printing the record of the examination of talesmen in those cases was absolutely wasted, besides placing an unnecessary burden on the court.

Appeals in criminal cases must be heard on the judgment roll. Section 485 of the Code of Criminal Procedure provides just what shall be included in the judgment roll. Subdivision 3 is the only provision referring to the inclusion therein of the record of examination of a juror. It reads: 3. A copy of the minutes of a challenge, which may have been interposed to the panel of the trial jury, or to a juror who participated in the verdict, and the proceedings and decision thereon; ”

Authority for the clerk to include in the judgment roll the copy of the minutes of the examination of jurors exists only where there has been a challenge to the panel of trial jurors or to a juror who participated in the verdict. A clerk who causes to be printed in the judgment roll a detailed record of the examination of all talesmen does so in direct violation of law, and has no right to recover from the county the cost of printing the same. Neither has the printer the right to recover for such printing. A certificate of a County Clerk certifying the necessary expenses of preparing and printing a judgment roll which includes a charge for printing such unnecessary matter is made in violation of law and should not be approved by a County Judge or Justice of the Supreme Court under subdivision 8 of section 485 of the Code of Criminal Procedure.

Cases may arise where a defendant may desire to review the legality of a ruling as to the qualification of a juror or the right to additional challenges (People v. Doran, 246 N. Y. 409), or some other question affecting his rights where a more complete record may be required. In such cases an application may be made to the court for an order directing the County Clerk to print such additional parts of the record as may be necessary to present the question fairly to the appellate court. (People v. Priori, 163 N. Y. 99.)

The Appellate Divisions of the State have undertaken to reform the practice of printing unnecessary matter in records on appeal in civil cases. (Derby v. General Electric Co., 208 App. Div. 529; Martin v. Donnelly, 223 App. Div. 353; Moran v. Rainbow Appliance Corp., 225 App. Div. 587.)

Much has been accomplished in that respect. The records which reach this court disclose, however, that much more may be accomplished in that direction. It is high time that this abuse in criminal appeals should be stopped. Appellate courts are not entirely helpless to stop this unjustified waste of public money. They may refuse to hear an appeal if the record is not printed as required by the statute. In cases where records are presented containing printed matter not permitted by law, they may call the attention of the District Attorney to the case with instructions to present the matter to a grand jury if the County Clerk has presented a certificate for the expense of such printing.

The judgment of conviction should be affirmed.

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

Judgment of conviction affirmed.