author: Ripfey, J.

text:
    Louis Dorff, Respondent, v. Hyman Bornstein et al., Appellants.

      Argued January 21, 1938;
    decided March 8, 1938.

      Lester Grossman, Maurice Edelbaum and Henry B. Wilson for appellants.
    The hen of a second mortgage does not revive where the foreclosure is not the result of conspiracy or collusion, and the owner’s default has been forced upon him by the land’s inability to provide its carrying charges. (Kossoff v. Wald, 245 App. Div. 646; 272 N. Y. 480.) Since the mortgagor was not the purchaser at the foreclosure sale, the second mortgage is entirely non-existent and cannot reattach. (Otter v. Lord Vaux, 6 De Gex, M. & G. 642; Plum v. Studebaker Co., 89 Mo. 162; Huzzey v. Heffernan, 143 Mass. 232; Rauch v. Dech, 116 Penn St. 157.)

      Herman S. Bachrach and Charles J. Klyde for respondent.
    Where an owner of property on winch there are two mortgages, both created by himself and on which he is obligated on the bonds thereof, the second being a purchase money mortgage, subordinated by agreement to the first, willfully defaults to cause a foreclosure and repurchases the property from the foreclosing first mortgagee, through his son and daughter acting as his dummies, such purchase reinstates the second mortgage as a valid lien on the property. (Otter v. Lord Vaux, 6 De Gex, M. & G. 642; Duer v. Jaeger, 113 Misc. Rep. 743; Hilton v. Bissell, 1 Sandf. Ch. 407; Byrnes v. Owen, 243 N. Y. 211; Carpenter v. Carpenter, 131 N. Y. 101;
      Wheeler v. Handy, 123 Misc. Rep. 775; Seymour v. Seymour, 120 Misc. Rep. 525; Ayer v. Philadelphia Brick Co., 157 Mass. 57; Brownell v. Briggs, 173 Mass. 529; Gilson v. Hutchinson, 120 Mass. 27; Kerr v. Erickson, 24 S. W. Rep. [2d] 21; Merchant's Nat. Bank v. Miller, 229 N. W. Rep. 357; Stiger v. Mahone, 24 N. J. Eq. 426; Home Owners Loan Corp. v. Guaranty Title Trust Co., 76 S. W. Rep. [2d] 109; Garlasco v. Smith, 250 App. Div. 534; Tefft v. Munson, 57 N. Y. 97; Chamberlain v. Forbes, 126 Mich. 86; MacAlpine v. Zitzer, 119 Ill. 273; Tompkins v. Halsted, 21 Wis. 118.) The proof submitted on the trial amply sustains the findings of fact made by the court of Special Term which were unanimously affirmed by the Appellate Division. (Lefferts v. Lefferts, 263 N. Y. 131; Haber v. Paramount Ice Corp., 264 N. Y. 98; Matter of Stoddard, 238 N. Y. 147; Stiger v. Mahone, 24 N. J. Eq. 426; White v. Benjamin, 150 N. Y. 258.)
   Ripfey, J.

In February, 1926, the defendant Hyman Bornstein purchased from one Edna Hyde certain real property situate in Brooklyn for $60,000 and executed and delivered to the seller, as security for part of the purchase price, his bond in the penal sum of $36,000, with interest at six per cent per annum on the principal, of which $1,000 was payable on April 1, 1926 and $2,500 annually thereafter in quarterly installments until April 1, 1938, when the balance of unpaid principal and accrued interest was payable. He gave to the seller a mortgage on the premises as security for the payment of that sum upon the terms specified in the bond.

There was then outstanding a first mortgage lien for $16,000 on the premises, held by the Title Guarantee and Trust Company, which the purchaser assumed and agreed to pay. By the terms of the second mortgage it was expressly agreed that it should be a junior and subordinate lien to the mortgage held by the trust company and to any increase, provided such increase should be paid to the second mortgagee in reduction of the amount of the bond for which the second mortgage was given as security. Subsequently the trust company loaned Bornstein $4,000 on the security of the property, and that sum, according to the terms of the second mortgage, and with the consent of the holder thereof, became an additional first lien on the premises.

Payments of interest and principal installments required to be paid by the terms of the several bonds and of taxes and assessments were regularly made by Bornstein until April 1, 1932, by which date the principal amount due on the bond given to Klyde had been reduced to $21,875. After that date he failed to make any further payments. On March 14, 1933, the plaintiff became the owner of the bond and second mortgage on the property. On foreclosure of the first mortgage the holder thereof bid in the property on the sale, and the lien of plaintiff was thereby cut off. Some four months after title in the purchaser had been perfected the defendants Benjamin J. Bornstein and Rose Bornstein, son and daughter of Hyman Bornstein, bought the property for $19,000, paying $4,000 in cash and giving back a purchase-money mortgage for $15,000.

This action is brought to foreclose the second mortgage on the theory that the purchasers were dummies for the previous owner, that the previous owner forced the foreclosure of the first mortgage to cut off the hen of the second mortgage and to enable him to acquire the property free of any such hen and that the hen thereof revested upon the previous owner again acquiring title to the property. Plaintiff has so far succeeded, and the appeal is from the judgment of foreclosure and sale.

The property in question was a rooming house or summer hotel located at Coney Island, unsuitably equipped for winter occupancy, -with some forty rooms available for leasing during the summer season. By 1931 the economic depression had seriously impaired if not wholly destroyed the rental value and marketability of real estate. In better times and under more favorable conditions, if all the rooms were rented there might have been an expected gross annual income from the property of about $7,000 which, if received, would have been sufficient to provide for payment of amounts due annually on the two mortgages and insurance and taxes, without providing anything for repairs or maintenance or any return on the investment of the owner. Bornstein had no means with which to make such payments except from moneys derived from income from the property. He had only part-time employment for seven or eight months per year at an average of twenty-two to thirty dollars per week with a family to support. In 1932 he took in from the property from $1,500 to $1,800. After September, 1932, he had no income from the property, as the preceding owner of the second mortgage thereafter had a receiver appointed who took possession and collected rental therefrom.

The lower courts have found that Bornstein, in collusion with his son and daughter, willfully omitted to pay the carrying charges on the property during the years 1931-1933, although able to do so, in order to precipitate a foreclosure of the first mortgage and thereby cut off the hen of the junior mortgage. He was financially unable to meet the required payments, and there is no finding that the income from the property was sufficient to meet them. Whether the situation would be different, in equity, if the income from the property itself had been sufficient to satisfy the carrying charges had it been received by him, we are not called upon to decide. We think it immaterial whether he was otherwise financially able to keep the mortgages from default or whether he deliberately refrained from making any payments thereon.

In situations such as arose in this case there are fundamental principles which we are bound to recognize and which equity cannot set aside. A bona fide purchaser (other than the owner) on an unconditional sale of real property pursuant to a regular foreclosure acquires a clear and absolute title as against all parties to the suit and their privies which relates back to the date of the mortgage so as to cut off all intervening rights and equities (3 Jones on The Law of Mortgages of Real Property [8th ed.], §§ 2121, 2122; Chicago & Vincennes R. R. Co. v. Fosdick, 106 U. S. 47; Smith v. Gardner, 42 Barb. 356, 366; Pardee v. Steward, 37 Hun, 259, 262; Jaycox v. Smith, 17 App. Div. 146; Rector, etc., v. Mack, 93 N. Y. 488, 492; Sautter v. Frick, 229 App. Div. 345; affd., 256 N. Y. 535, 536; Civ. Prac. Act, § 1085). All parties to the foreclosure sale are estopped from disputing the title acquired by the purchaser on the sale (McGee v. Smith, 16 N. J. Ch. 462; White v. Evans, 47 Barb. 179; Holden v. Sockett, 12 Abb. Pr. 473). Such a title so acquired is beyond attack directly or collaterally. Thereby every interest of the owner has been divested, and his estate has been completely cut off with no outstanding right to redeem (Lansing v. Goelet, 9 Cow. 346, 391). All rights of subsequent mortgagees have been finally and conclusively cut off and a new estate in the new owner has been created (Hopkins v. Walley, 81 N. Y. 77, 84; Huzzey v. Heffernan, 143 Mass. 232; Plum v. Studebaker Bros. Mfg. Co., 89 Mo. 162). The holder of a junior mortgage who stands by while the sale is made and confirmed must be deemed to have waived any right thereafter to redeem (Simmons v. Burlington, C. R. & N. Ry. Co., 159 U. S. 278). As to those whose interests in the property are cut off by the foreclosure, such a purchaser has no further obligation or duty after the actual delivery of the referee’s deed. He may do with the property as he sees fit. He may convey it back to the original owner without thereby revesting liens which were cut off by the sale and conveyance in the foreclosure proceedings. If the foreclosure and sale were tainted with fraud as between the parties, the rule might be different, but, even then, account must be taken of intervening equities; as to any subsequent bona fide purchaser the title still would not be subject to attack. In the case at bar there was no fraud affecting the foreclosure proceedings or the sale or the transfer by the purchaser to the Bornsteins, the foreclosure proceedings were regularly conducted and the conveyance made upon the sale was unconditional The mere fact, if it be a fact, that the original owner acquired title subsequent to the purchaser on the sale did not reinstate the second mortgage lien.

In cases where either an unconditional warranty of title or a covenant to protect the title of the second mortgagee against all incumbrances and liens, or a covenant to defend the title against the claims of others or to pay all taxes was contained in the second mortgage indenture or in the conveyance in which such incumbrances or liens were assumed, it has been held that, even without the intervention of fraud, the second mortgage would reattach as a lien on the property upon the previous owner who was also the maker of the second mortgage, or his nominee, reacquiring the title upon the foreclosure sale, upon the theory that the maker of such a mortgage is estopped to dispute the lien of the second mortgage. (Otter v. Lord Vaux, 6 De Gex, M. & G. 642; Home Owners’ Loan Corp. v. Guaranty Title Trust Co., 168 Tenn. 118; Ayer v. Philadelphia & Boston Face Brick Co., 157 Mass. 57), or on the theory that the payment of the prior mortgage will be deemed a payment and extinguishment of the prior hen (Hilton v. Bissell, 1 Sandf. Ch. 407; Van Horne v. Everson, 13 Barb. 526), and to like effect where fraud tainting the foreclosure was involved (Merchants Nat. Bank v. Miller, 59 N. D. 273), even though such a covenant or warranty was not contained in the second mortgage (Stiger v. Mahone, 24 N. J. Eq. 426; Chamberlain v. Forbes, 126 Mich. 86; Mendenhall v. Hall, 134 U. S. 559; McAlpine, Polk & Co. v. Zitzer, 119 Ill. 273; Tompkins v. Halstead, 21 Wis. 118). The decisions in those cases are not controlling under the facts in this case. Where there was no such contractual obligation on the owner (Huzzey v. Heffernan, 143 Mass. 232), or duty to protect the second mortgage against sale under antecedent hens (Plum v. Studebaker Bros. Mfg. Co., 89 Mo. 162), the foreclosure of the first mortgage wiped out all claims on the second mortgage (Hopkins v. Wolley, 81 N. Y. 77, 84). There are other cases cited by appellant and otherwise found where a party will be estopped to deny his previous title if he had some duty to perform and fraudulently acts to cut off an existing right or interest of the one entitled to the recognition of such duty (illustrative of such cases is Byrnes v. Owen, 243 N. Y. 211), or seeks to cut off the rights of the holder of an unrecorded mortgage by a fraudulent discharge (Clark v. McNeal, 114 N. Y. 287).

In the instant case there was no duty arising under any contract, provision of law or consideration of equity which required the owner of the property to protect the second mortgage against foreclosure of the first mortgage. The second mortgage indenture, in express terms, made it subordinate to the lien of the first mortgage. The holder of the junior mortgage knew that it was, at all times, subject to the hazards of defaults of the mortgagor and of the foreclosure of the senior lien. His financial inability to meet those hazards placed no legal or equitable burden on the defendants requiring them to act differently than they did.

We conclude that title was finally free of the lien of the second mortgage upon the delivery to the purchaser of the referee’s deed and that the lien of the second mortgage was not revived by the transfer of the property by the purchaser to Benjamin Bornstein and Rose Born-stein four or more months after the foreclosure sale.

The judgments below should be reversed and the complaint dismissed, with costs in all courts.

Crane, Ch. J., O’Brien and Loughran, JJ., concur; Finch, J., concurs in result; Lehman and Hubbs, JJ., taking no part.

Judgments reversed, etc.


source: Caselaw Access Project

author: Lehman, J.

license: Public Domain

text:
    In the Matter of the Rehabilitation of Lawyers Mortgage Company. Fred M. Stein, as Trustee, Appellant; Mortgage Commission of the State of New York et al., Respondents.
    Argued January 24, 1938;
    decided March 8, 1938.

      George A. Spiegelberg and Harry W. Maclc for appellant.
    The only purpose of the reorganization was to vest title to the property in a trustee to be selected by the certificate holders. The manner of selection and the identity of the trustee was not only material but was the only material matter before the court. (Matter of New York Title & Mortgage Co., 154 Misc. Rep. 865; 155 Misc. Rep. 820; 154 Misc. Rep. 864; 156 Misc. Rep. 667.) The modification of the promulgated plan and the entry of a final order over the protests of seventy-five per cent of the certificate holders constitutes a taking of private property without due process of law and is unconstitutional. (Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69.)

      James F. Donlan, Louis Timberg, Benjamin Harwood, Jr., and Maurice Finkelstein for Mortgage Commission of the State of New York, respondent.
    The court has power to appoint trustees. (New York Security Co. v. Saratoga Gas Co., 88 Hun, 569; 157 N. Y. 689; People v. Norton, 9 N. Y. 176; Jones v. Jones, 8 Misc. Rep. 660; Wolff v. Mortgage Commission, 270 N. Y. 428; Matter of Runk v. Thomas, 200 N. Y. 447; Colson v. Pelgram, 235 App. Div. 137.) There was no abuse of judicial discretion. (Matter of Tempest, [1856] 1 Ch. 485; Wehe v. Wehe, 63 N. D. 176; Matter of Cronan, 31 Nova Scotia, 477; Matter of Welch, 20 App. Div. 412; 154 N. Y. 774; Matter of Pitney, 113 App. Diy. 845; Matter of Gunther, 197 App. Div. 28.)

      Stanley S. Hawkes and Ralph W. Crolly for Brooklyn Trust Company, respondent.
    The court had the power to appoint a trustee of its own selection. (Matter of Bruns, 156 Misc. Rep. 873; Matter of Steinway, 159 N. Y. 250; People ex rel. Swift v. Luce, 204 N. Y. 478; Matter of Stilwell, 139 N. Y. 337; People ex rel. Mayor v. Nichols, 79 N. Y. 582; New York Security & Tr. Co. v. Saratoga Gas Co., 88 Hun 569; 157 N. Y. 689; People ex rel. Mayor v. Norton, 9 N. Y. 176; Jones v. Jones, 8 Misc. Rep. 660; Matter of Runk v. Thomas, 200 N. Y. 459; Colson v. Pelgram, 235 App. Div. 137; Matter of Gunther, 197 App. Div. 28.)
   Lehman, J.

The appellant, as trustee of three estates, is the holder of certificates of participation in a mortgage on real property in the borough of Brooklyn. The mortgage was guaranteed by Lawyers Mortgage Company and the certificates were issued by it. The amount due on the mortgage is $115,000. Certificates in the amount of $92,265 are outstanding in the hands of the public, and the three estates represented by the appellant, as trustee, hold certificates in the amount of $70,000, constituting more than seventy-five per cent of all the outstanding certificates. As such trustée, the appellant promulgated and consented to a plan of reorganization of the rights of all the holders of the mortgage investment. A hearing was held upon that plan in the Supreme Court. The court modified the plan, approved it as amended, and declared it binding upon the holders of all the certificates. The appellant did not consent to the plan as modified. On the contrary, he attempted to withdraw his consent when the plan which he had promulgated was modified. Upon this appeal the question presented is whether a plan to which the holders of more than sixty-six and two-thirds per centum in principal amount of a mortgage investment have consented and which has been thereafter modified and approved as amended by the court may be declared binding upon all the holders of the certificates, though the holders who consented to the original plan are opposed to the plan as amended.

The plan as promulgated by the appellant provided that “ all rights and powers of a single absolute owner of the bond and mortgage and property seeming this issue are to be vested in one trustee.” It further provided that: “ One Trustee shall be elected by the certificate holders. No provision is made for the nomination and election of a trustee beyond the statement in this paragraph contained for the reason that this plan is being presented by the holders of over seventy (70%) per cent of the cértificates outstanding and entitled to vote.” The court amended the plan by striking out this provision and in its place making provision for the appointment of a trustee by the court.

To meet an extraordinary situation which constituted an imminent danger to the public welfare, the Legislature, in chapter 745 of the Laws of 1933, popularly known as the Schackno Act, provided an extraordinary remedy. It authorized the adoption of plans for the “ reorganization ” of the rights of holders of certificates of participation in a mortgage investment without the unanimous consent of the holders, even though such rights were created by a contract protected by the Constitution against impairment by a State, but at the same time it inserted in the statute provisions calculated to safeguard the rights of all holders of certificates against substantial injury which might be caused by the adoption of an unfair plan without unanimous consent.

These provisions are contained in sections 6 and 8 of the statute. The Superintendent of Insurance must mail a copy of the plan to every holder of a mortgage certificate and a copy or summary of the plan to each other person or corporation known to the Superintendent to have an interest which may be affected by the proposed plan or agreement. The court must hear the parties interested, and the Superintendent must mail notice of such hearing. “ The court shall thereupon approve, modify or disapprove such plan or agreement. No such plan or agreement shall become operative unless and until it shall have been approved, in its original or in a modified form by such court, and unless and until the holders of two-thirds in principal amount of such mortgage investments * * * shall have consented to such plan or agreement.” (§ 6, subd. 2.)

The statute further provides: § 8. Jurisdiction of supreme court. The supreme court of the county in which any such guaranty corporation has its principal office is hereby vested with jurisdiction and authority to determine the fairness of any plan or agreement whiph may be promulgated hereunder with respect to any mortgage investments sold or guaranteed by such guaranty corporation and to approve, modify or disapprove the same. Such court shall make an order approving, modifying or disapproving such plan or agreement. In the event that the court shall have approved or modified such plan or agreement; and if at the time of the entry of such order the court shall have been satisfied that sixty-six and two-thirds per centum of the holders in principal amount of such mortgage investment or their duly authorized agent have approved such plan or agreement, such order shall recite such fact, and shall thereupon be binding upon all the holders of such mortgage investments and the guaranty corporation which shall have sold or guaranteed them and all of the parties interested therein. If at the time of making such order such percentage of the holders of such mortgage investment shall not have approved the same, such order shall provide that upon satisfactory proof of the fact that sixty-six and two-thirds per centum of the holders in principal amount of such mortgage investments shall have approved the same, a further order may be entered ex parte approving such plan or agreement, which further order shall be binding upon all the holders of such mortgage investments and upon the guaranty corporation which shall have sold or guaranteed the same and upon all other parties interested therein.”

In sustaining the validity of the statute in spite of the fact that, both in purpose and in effect, it altered in some degree the contractual rights of holders of certificates, we said: The fairness of these provisions is evident. They do not give to a majority in interest, however large, the power to coerce another holder to accede to any plan of reorganization by the majority. They do not give the court power to coerce a single bolder to accede to any plan of which the court approves. They do give the court authority, after a hearing, to approve a reorganization plan which is consented to by two-thirds in amount of those interested and to declare such plan effective.” (Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69, at p. 93.)

The statute creating the Mortgage Commission (Laws of 1935, ch. 19) supplements and in some respects modifies the provisions of the Schackno Act, but it leaves in full force the requirement that no plan becomes operative “ unless and until it shall have been approved, in its original or in a modified form by such court, and unless and until the holders of two-thirds in principal amount of such mortgage investments * * * shall have consented to such plan or agreement.” A provision in a plan for the appointment or nomination of a trustee is an integral part of the plan. It may, indeed, as in this case, be the most important provision of a plan. There may be difference of opinion as to whether the rights of the holders of a minority interest would be better safeguarded by a trustee nominated by the holder or holders of a majority interest than by a trustee selected by the court. A provision that a trustee should be appointed by a person or group owning a majority interest might, in some cases, be unfair to those owning a minority interest, and after hearing the interested parties the court might in such cases refuse to approve the plan without modification. Even so, a majority in amount of the holders of certificates in the mortgage investment might reasonably consent to a plan where the interested owners nominate the trustee, and refuse consent to a plan where the court could nominate as trustee a person or corporation not approved by the owners of the investment. The court may appoint a trustee to act for the owners of a mortgage investment only where the statute gives the court that power. A plan for the reorganization of the rights of the holders of a mortgage investment may provide for the administration of the mortgage by a trustee. The statute does not expressly or by fair implication confer upon the court power to appoint a trustee in such case unless the plan so provides. The statute intends that the method of nomination should be an integral part of the plan and should be provided in the plan. In the Schackno Act that intention appears by fair implication; in section 10 of the Mortgage Commission Law (Laws of 1935, ch. 290; Laws of 1936, ch. 485; Laws of 1937, ch. 771) it is clearly expressed: Holders of mortgage investments * * * may at any time formulate a plan of reorganization contemplating the withdrawal of such bonds, notes or other evidences of indebtedness, mortgages and property from the commission [the Mortgage Commission] and the vesting of the same in a trustee or trustees nominated by them or by the court in the manner provided for in such plan * * (Italics are ours.)

The court’s power to modify the plan by changing the provision for the nomination of a trustee and to declare the plan as amended binding is subject to the same restrictions as in case of other modifications. The plan does not become operative until the holders of two-thirds in amount of the certificates outstanding in the hands of investors shall consent.

It is argued that a holder who consents to a plan before the hearing by the court must be deemed to consent to any modification made by the court after the hearing. The statute does not say so in express terms, and we do not read, by implication, into the statute a provision which might, as in this case, impose upon the holders of a majority in amount of the outstanding certificates a plan to which they strenuously object.

We have said that the Legislature has not * * * provided that any obligation of a contract shall be impaired without the consent of two-thirds in amount of the holders of an interest in such obligations. Performance by the debtor according to the letter of the bond- may be demanded unless holders in that amount consent to its postponement or alteration. The statute is directed solely towards facilitating agreement among such holders in a plan which will be fair to all and to prevent unreasonable insistence upon the letter of the obligation of contracts when, under changed conditions, such insistence might work injury both to individuals similarly situated and to the community. It gives, indeed, to the creditors as a group a remedy which they did not have before; it deprives no one of a remedy which he would use for his legitimate benefit or without injury to others.” (Matter of People [Title & Mortgage Guarantee Co.], supra, p. 94.) A modification of a plan may result in the elimination of those features of the plan which induced a majority in amount of the holders to consent to the original plan. Then, if the plan, as amended, binds those who consented to the original plan but who object to the amended plan, the contractual rights of these holders may be impaired without the consent of a majority of those interested. That is exactly what the Legislature did not intend to authorize and which, perhaps, it could not authorize.

True, the appellant could have promulgated-the plan as trustee of an estate holding a minority in amount of the mortgage investment and then as trustee of an estate holding a larger amount, could have refused to consent to the plan when approved by the court, with or without amendment, and thus could have blocked the plan. We are told that, consequently, the appellant’s contractual rights are sufficiently safeguarded. Protection which is dependent upon technicality is insufficient protection. The plan formulated by the appellant cannot become effective without concurrent approval of the appellant and of the court. When the plan formulated by the appellant was amended by the court over the objection of the appellant the appellant had the right to withhold consent to the amended plan, and without that consent it could not be made binding.

The orders should be reversed, with costs in all courts, and the matter remitted to the Special Term to proceed in accordance with this opinion.

Crane, Ch. J., O’Brien, Lotjghran, Finch and Rippey, JJ., concur; Hubbs, J., taking no part.

Ordered accordingly.


author:
Lehman, J.
      Crane, Ch. J. Loughran, J.

text:
    In the Matter of the Accounting of Chemical Bank and Trust Company, as Trustee under the Will of Morris Schinasi, Deceased, Appellant and Respondent. Laurette Schinasi et al., Respondents and Appellants; Raymond D. Sanders et al., Infants, by John G. Saxe, Their Special Guardian, Respondents.

      Argued January 19, 1938;
    decided March 8, 1938.

      Alfred McCormacH and George B. Turner for Chemical Bank and Trust Company, as trustee, appellant and respondent.
    Both the language of the statute (Surrogate’s Court Act, § 285, subd. 7) and its underlying theory require the computation of commissions on total income. (McCluskey v. Cromwell, 11 N. Y. 593; Lewis v. Ingram, 57 Fed. Rep. [2d] 463; 287 U. S. 614; Pinckney v. Pinckney, 1 Bradf. 269; Whitson v. Whitson, 53 N. Y. 479; Matter of Mason, 98 N. Y. 527; Farmers Loan & Trust Co. v. Turner, 242 N. Y. 240; Matter of Coutts, 260 N. Y. 128; Matter of Longo, 226 App. Div. 285; Matter of Roberts, 3 Johns. Ch. 43; McWhorter v. Benson, 1 Hopk. Ch. 28; Matter of Kellogg, 7 Paige Ch. 265; Matter of Prentice, 25 App. Div. 209; 160 N. Y. 568; Matter of Willets, 112 N. Y. 289; Matter of Smith, 86 Misc. Rep. 136.) The real estate expenses paid by the trustee were not disbursements arising out of the “ operation of a business.” (Beard v. Beard, 140 N. Y. 260; Matter of Byrnes, 159 Misc. Rep. 306; Matter of Kellogg, 7 Paige Ch. 265; Betts v. Betts, 4 Abb. N. C. 317; Matter of Hayden, 54 Hun, 197; Matter of Sidenberg, 204 App. Div. 255; Hancox v. Meeker, 95 N. Y. 528; Matter of Wendel, 273 N. Y. 532; Matter of Security Life Ins. Co., 31 Hun, 36.) Commissions have uniformly been allowed to fiduciaries upon total income received and 'disbursed. (Vanderheyden v. Vanderheyden, 2 Paige Ch. 287; Matter of Bank of Niagara, 6 Paige Ch. 213; Matter of Kellogg, 7 Paige Ch. 398; Meacham v. Sternes, 9 Paige Ch. 398; Valentine v. Valentine, 2 Barb. Ch. 430; Betts v. Betts, 4 Abb. N. C. 317; Fisher v. Fisher, 1 Bradf. 335; Meeker v. Crawford, 5 Redf. 450; Matter of Roosevelt, 5 Redf. 601; Morgan v. Hannas, 13 Abb. Pr. [N. S.] 361; Matter of Allen, 29 Hun, 7; 96 N. Y. 327; Matter of Meserole, 36 Hun, 298; Matter of Goodrich, 36 Hun, 643; Phillips v. Lockwood, 4 Dem. 299; Matter of Mahan, 98 N. Y. 372; McAlpine v. Potter, 126 N. Y. 285; Matter of Bearns, 188 App. Div. 215.) The allowance of commissions has been uniformly approved on total income, including total rentals of real estate. (Hancox v. Meeker, 95 N. Y. 528; Matter of Mason, 98 N. Y. 527; Matter of Selleck, 111 N. Y. 284; Matter of Willets, 112 N. Y. 289; Matter of

      Martin, 196 N. Y. 415; Matter of Wendel, 273 N. Y. 532; Matter of Brennan, 251 N. Y. 39; Matter of Knight, 124 Misc. Rep. 430; Matter of Byrnes, 160 Misc. Rep. 895; Matter of Rohr, 145 Misc. Rep. 382; Akers v. Fidelity & Col. Trust Co., 234 S. W. Rep. 725; Russell v. Hilton, 37 Misc. Rep. 642.) The word “ manage ” does not include “ leasing,” and “ management ” does not include the obtaining of tenants and negotiating leases. (People v. Ahearn, 196 N. Y. 221; Matter of Emerson v. Buck, 230 N. Y. 380; Gardiner v. Butler & Co., 245 U. S. 603; People v. Wainwright, 237 N. Y. 407; Wells v. Disbrow, 20 N. Y. Supp. 518; Matter of Byrnes, 159 Misc. Rep. 302; Matter of Knight, 124 Misc. Rep. 430; Matter of Brennan, 251 N. Y. 39.) Commissions to real estate brokers for obtaining tenants and negotiating leases constitute “ just, reasonable and necessary expenses ” for which the Surrogate must allow reimbursement to the trustee. (Matter of Wagner, 40 Misc. Rep. 490; Matter of Saunders, 77 Misc. Rep. 54; 156 App. Div. 891; 211 N. Y. 541; Wall v. Boston Safe Deposit Co., 150 N. E. Rep. 220; Matter of Bielby, 91 Misc. Rep. 353; Matter of Saunders, 77 Misc. Rep. 54; 156 App. Div. 891; 211 N. Y. 541; Hancox v. Meeker, 95 N. Y. 528; Downing v. Marshall, 37 N. Y. 380; Woodruff v. N. Y., L. E. & W. R. R. Co., 129 N. Y. 27; Matter of Maxwell, 218 N. Y. 88; Matter of Boulware, 144 Misc. Rep. 235.)

      Maxwell Brandwen, S. Sheldon Meyers and Ambrose Doskow for Laurette Schinasi et ah, respondents and appellants.
    The services for which a trustee is paid five per cent of gross rents under subdivision 9 of section 285 of the Surrogate’s Court Act include all services in connection with the leasing of property. (Matter of Arnolt, 127 Misc. Rep. 579; Matter of Knight, 124 Misc. Rep. 430; Matter of Althouse, 122 Misc. Rep. 279; Matter of Wendel, 159 Misc. Rep. 900; 248 App. Div. 713; 273 N. Y. 532; Collier v. Munn, 41 N. Y. 143; Matter of Hayden, 54 Hun, 197; 125 N. Y. 776; Matter of Froelich,
      122 App. Div. 440; 192 N. Y. 566; Matter of Harbeck, 81 Hun, 26; 145 N. Y. 648; Matter of Binghamton Trust Co., 87 App. Div. 26; Matter of Quinn, 16 Misc. Rep. 651; Wells v. Disbrow, 20 N. Y. Supp. 518; Matter of Nesmith, 140 N. Y. 609; Savage v. Sherman, 24 Hun, 307; Matter of Brennan, 251 N. Y. 39; Palmer v. Cheseboro, 55 Conn. 114; Watson v. Cleveland, 21 Conn. 538; Ure v. Ure, 185 Ill. 216.) The trustee of an estate which includes real property has a choice between managing that property itself and placing it in the hands of agents. When it elects to manage the property itself, it must do so for the rates allowed by statute; when it employs agents, they are to be paid from the five per cent of the gross rents which the trustee receives. (Matter of Byrnes, 159 Misc. Rep. 302; Beard v. Beard, 140 N. Y. 260; Matter of Froelich, 122 App. Div. 440; 192 N. Y. 566.) Payment for the performance of services for which the trustee is compensated does not constitute “ just, reasonable and necessary expenses,” which the trustee may charge to the estate. (Matter of Owen, 144 Misc. Rep. 688; Matter of Lester, 172 App. Div. 509; Matter of Hallock, 214 App. Div. 323; Matter of Van Nostrand, 3 Misc. Rep. 396; Matter of Arkenburgh, 13 Misc. Rep. 744; Matter of Larrabee, 98 N. J. Eq. 655; Matter of Quin, 1 Connoly, 381; Parker v. Leighton, 131 Md. 407; Jacobs v. Jacobs, 99 Mo. 427.) The words “ for receiving and paying out all sums ” have been interpreted to allow commissions only on the net sums available for the beneficiaries. (Green v. Winter, 1 Johns. Ch. 26; Matter of Kellogg, 7 Paige Ch. 265; Matter of Mercantile Trust Co., 210 N. Y. 83; Matter of Horner, 126 Misc. Rep. 772; Farmers’ Loan & Trust Co. v. Turner, 242 N. Y. 240; Matter of Dean, 86 N. Y. 398; Baucus v. Stover, 24 Hun, 109; 89 N. Y. 1; Matter of Farrington, 149 Misc. Rep. 691; Matter of Mills, 149 Misc. Rep. 389; 239 App. Div. 817; 263 N. Y. 574; Matter of Butterworth, 158 Misc. Rep. 477; Matter of Johnson, 156 Misc. Rep. 689; Matter of Hayden, 54 Hun, 197; 125 N. Y. 776; Beard v. Beard, 140 N. Y. 260.) Subdivision 7 of section 285 requires that commissions be based on net income. (Hancox v. Meeker, 95 N. Y. 528; Matter of Mason, 98 N. Y. 527; Matter of Selleck, 111 N. Y. 284; Matter of Martin, 196 N. Y. 415; Conger v. Conger, 105 App. Div. 589; 185 N. Y. 554; Matter of Norton, 58 Misc. Rep. 133; Behan v. People, 17 N. Y. 516.) Commissions are to be computed on net income. (Matter of Hayden, 54 Hun, 197; 125 N. Y. 776; Beard v. Beard, 140 N. Y. 260; Matter of Sidenberg, 204 App. Div. 255.)

      Thomas B. Fenlon, Herbert Carter, Albert B. Maginnes, John E. Lockwood, Edwin W. Cooney and H. Vincent Smart for Bank of New York and Trust Company et al., amici curise.

    Commissions must be computed upon gross rents. (Matter of Swartz, 162 Misc. Rep. 46; Matter of Lathers, 122 Misc. Rep. 543.)
   Lehman, J.

The testator, Morris Schinasi, died on September 10, 1928. By his last will and testament he devised all his residuary estate to Chemical National Bank of the City of New York in trust to pay the income to his wife and daughters. Three parcels of real property became part of the trust fund. The trustee managed the real property, collected the rentals and paid out the expense of carrying and maintaining it. In 1935 the trustee filed an intermediate account as trustee for the period from March 1, 1929, to July 31, 1935. A dispute has arisen concerning the amount of the commissions and allowance to which the trustee is entitled.

The account shows that, during the six years of its management, the trustee has collected rentals from the real property in the amount of $342,186.75. It has during the same period paid out for taxes, insurance, repairs and other expenses the sum of $231,503.43. The trustee claims commissions on the gross rentals received. The courts below have held that the trustee is entitled to commissions computed only upon net rentals.

The statute (Surrogate's Court Act, § 285) fixes the commissions and compensation to which a trustee is entitled. Until 1817 no statute or court rule provided for such compensation and a trustee could not demand compensation beyond what may be founded on the positive agreement of the party.” (Green v. Winter, 1 Johns. Ch. 26.) Then the Legislature provided by statute That it shall be lawful for the court of chancery, in the settlement of the accounts of guardians, executors and administrators, on petition or otherwise, to make a reasonable allowance to them for their services as such guardians, executors and administrators, over and above their expenses; and that when the rate of such allowance shall have been settled by the chancellor; it shall be conformed to in all cases of the settlement of such accounts.” (Laws of 1817, ch. 251.) Pursuant to the statute Chancellor Kent on October 16th, 1817, made an order “ That the allowance settled by the chancellor as a compensation for guardians, executors and administrators, in the settlement of their accounts under the act of the legislature, for receiving and paying money, shall be five per cent, on all sums not exceeding one thousand dollars, for receiving and paying out the same; two and a half per cent, on any excess between one and five thousand, and one per cent, for all above five thousand dollars (3 Johns. Ch. 630).” For more than a century the Chancery rule has been embodied in a statute. The statute, now in force in this State, provides somewhat different rates but in formulating the rates it uses substantially the same language. On the settlement of the account of any executor, administrator, guardian or testamentary trustee * * * the surrogate must allow to such executor, administrator, guardian or testamentary trustee for his services in such official capacity * * *. (1) For receiving and paying out all sums of money not exceeding two thousand dollars, at the rate of five per centum. (2) For receiving and paying out any additional sums not amounting to more than twenty thousand dollars, at the rate of two and one-half per centum. (3) For receiving and paying out any additional sums not exceeding twenty-eight thousand dollars at the rate of one and one-half per centum. (4) For all sums above fifty thousand dollars, at the rate of two per centum.” (Surrogate’s Court Act, § 285, subds. 1 to 4.)

In the statute above quoted the Legislature authorized an allowance to fiduciaries only at a rate settled ” by the Chancellor which shall be conformed to in all cases.” The rate was to be definitely fixed and no room left for variation in particular cases. The advantages of a fixed rate of allowance are obvious. Such a rate has the effect of law, it is known and uniform, it governs all classes, and it renders litigation unnecessary.” (McWhorter v. Benson, Hopkin’s Ch. Rep. 28, 38 [1823], 2d ed.) Time has mocked the conclusion of the learned Chancellor that a fixed rate of allowance “ renders litigation unnecessary.” After the lapse of more than a century there is still litigation and difference of opinion as to the basis upon which the rate shall he computed. The courts early perceived that the words receiving and paying out,” if literally construed, are comprehensive enough to include receipts and payments of every kind and description and that in some cases such a construction would produce a result which would be unreasonable and evidently unintended by the Chancellor or the Legislature. In such cases the courts have rejected a literal construction and have adopted a construction less unreasonable and more consonant with common sense. Even so, in each case the quest has been for the intention of the Legislature as formulated by it in the language of the statute and the courts may not reject a literal construction unless it is evident that a literal construction does not correctly reflect the legislative intent, as indicated by the general purpose and history of the statute and its language, read as a whole and not word by word.

Under a literal construction, a trustee would be entitled to commissions on moneys received by him upon every sale of a capital investment and upon moneys paid out by him when that money is reinvested. If the investments of a trust fund were changed every year a trustee would then be entitled to commissions every year. Such a construction might make a trustee the principal beneficiary of the trust. In Matter of Kellogg (7 Paige Ch. 265, 267 [1838]) Chancellor Walworth pointed out that this was not the intent of the statute, saying: The investment or reinvestment of the fund, from time to time, upon new securities for the purpose of producing an income therefrom, is not such a paying out of the trust monies as entitles the guardian or trustee to commissions for paying out the same, within the intent and meaning of the statute on this subject; unless such securities are finally turned over to the cestui que trust as money, or otherwise applied in payment on account of the estate. Neither is the guardian or trustee entitled to charge a new commission for the collecting or receiving back of the principal of the fund which he has so invested. But he will be entitled to commissions upon the interest or income of the fund produced by such investments, and received and paid over by him.”

The rule of that case has been followed in all subsequent cases. (Cf. Valentine v. Valentine, 2 Barb. Ch. 430.) The rule was expressly approved by this court in Drake v. Price (5 N. Y. 430) and has not been challenged since. It has been extended by analogy to cases where the fund includes property which is subject to a hen, e. g., stock bought by a decedent on margin, Matter of Mercantile Trust Co. (210 N. Y. 83); real property, subject to a mortgage, Farmers' Loan & Trust Co. v. Turner (242 N. Y. 240); securities pledged by a decedent as collateral for a loan, (Matter of Mills, 149 Misc. Rep. 389; affd., 239 App. Div. 817; affd., 263 N. Y. 574). In such cases the fiduciary receives commissions only upon the moneys realized for the property and received by the fiduciary after the hen has been satisfied. The rule of these cases was applied, however, only to moneys received for property which constitutes the corpus of a fund. Only by analogy can it be applied to income or profits of a fund. In three cases in the appellate courts of this State the courts have had occasion to consider the manner in which commissions should be computed upon income or profits; and it is upon the authority of these three cases that the courts below have determined in this case that commissions may be allowed only upon the net income of the estate.

In Matter of Hayden (54 Hun, 197; affd., 125 N. Y. 776) executors authorized by a testator to carry on his furniture business for a year claimed commissions on the amount received and disbursed in the business, though the business made no profit. In rejecting this claim the General Term said: “ The buying and selling incident to the conduct of a manufacture or other business is, at best, a species of reinvestment of the trust funds. If commissions were to be allowed each time a stock in trade were purchased or sold, it is quite probable, as well as possible, for a case to arise where the executor’s commissions would largely consume the body of the estate. Especially where the stock in trade is rapidly turned over, and no great profit is realized from the transactions. It is quite manifest that the claim for commissions on the $58,844.36 was properly disallowed ” (p. 205).

In Beard v. Beard (140 N. Y. 260) the court again was called upon to determine whether trustees are entitled to commissions on the amount “ received and disbursed ” in a warehouse business carried on by them on property owned by the testator, in accordance with the directions of their testator. In that case the gross receipts were $600,000 and the net profit was $300,000. Upon the authority of the Hayden case the executors were allowed commissions only on the net profits of the business. They sought to distinguish the Hayden case on the ground that the rule laid down there and in the Kellogg case (supra) “ applies only to the investment and re-investment of the capital of the estate ” and not to a business which does not manufacture or purchase and sell a stock in trade.

This court rejected that distinction, saying: The rule is not thus confined, and it was not so confined in the Hayden case, and the principle underlying the decision in those cases requires that it should be applied to such a case as this. * * * We think the true rule for allowance of statutory commissions is this: Trustees are entitled to commissions for receiving all moneys which constitute the corpus of the estate, and any additions thereto from increase of any kind, and thus the moneys upon which commissions are to be computed can never exceed the gross amount of the estate and its net income; and the moneys paid out upon which commissions may be computed are the moneys paid out of the estate for debts, expenses of administration and to legatees or other beneficiaries, moneys which operate to diminish the estate as it exists in the hands of the trustees and pass out of and away from the estate. This rule excludes commissions upon investments and re-investments and moneys disbursed and received in the conduct of a business carried on to produce net income. In the case of such business, the commissions are to be computed on the net income only which came to the corpus of the estate as an increase thereof” (p.264).

“ In the case of such business ” the courts have, since that decision, invariably computed commissions “ on the net income only which came to the corpus of the estate as an increase thereof,” even where such business has been conducted in connection with real property which formed part of the corpus of the estate. (Cf. Matter of Sidenberg, 204 App. Div. 255, where the fiduciaries maintained a hotel upon such property.) No case before the recent decision in Matter of Byrnes (159 Misc. Rep. 302) has been called to our attention where the rule has been applied to exclude commissions upon moneys received as rental from real property held in trust and upon moneys disbursed to carry and maintain the property. In Matter of Byrnes (supra) Surrogate Delehanty held that the rule formulated in Beard v. Beard (supra, p. 265) excludes commissions not only as there decided upon investments and reinvestments and moneys disbursed and received in the conduct of a business carried on to produce net income,” but also on moneys disbursed and received in the management of real property. In all cases, so the Surrogate held, commissions allowed under the first four subdivisions of section 285 of the Surrogate’s Court Act are related to and are payable only in respect of the corpus or capital of an estate ” and it is only an accretion to capital or a diminution of capital by way of capital payment which furnishes a basis for such commissions at all ” (p. 306). Surrogate Foley in Matter of Swartz (162 Misc. Rep. 46) took another view, and pointed out that the rule of the Byrnes case was opposed to the practice followed generally in this State for more than a century.

In considering the problem underlying this difference of opinion it must be remembered that it concerns only commissions authorized under the first four subdivisions of section 285. Subdivision 9 (added to section 285 by chapter 649 of the Laws of 1923 and amended by chapter 892 of the Laws of 1934) provides that where an executor, administrator, guardian or testamentary trustee is, for any reason or cause whatsoever, entitled or required to collect the rents of and manage the real property, he shall be allowed and may retain five per centum of the rents collected therefrom in addition to the commissions herein provided.” Under that subdivision the trustee is, concededly, entitled to and has been allowed compensation calculated upon rents collected. The words we have italicised leave no doubt as to the basis upon which that compensation is to be computed. . They leave no doubt also that this allowance or compensation is in addition to the commissions provided by the earlier subdivision and was not intended to change the rate or basis of those commissions. If before the additional compensation was provided trustees were entitled to commissions on gross rentals received and disbursed by them, then undoubtedly these commissions were not changed by the grant, in some cases, of additional compensation.

It may be conceded that there are expressions in the opinion in Beard v. Beard (supra) which lend some support to the decision of Surrogate Delehanty in this case, affirmed by the Appellate Division. Even so, indication may be found in the language of the opinion that the rule there formulated for computing commissions, though expressed in general terms, was intended to apply only to moneys received and disbursed in connection with investments and reinvestments of capital and in the conduct of a business, and that in other cases the statutory commissions must be allowed, in literal compliance with the language of the statute, for receiving and paying out all sums of money.”

The members of the bar and the judges of the courts have so construed the decision in Beard v. Beard. In many cases since that time commissions upon gross rentals received from real property have been allowed without objection or question. That has been the general practice in the Surrogates’ Courts (See Matter of Swartz, supra), and has been followed in many cases which have been reviewed in this court and other appellate courts. Indeed, even in the case of Beard v. Beard, though the referee decided that commissions might be computed only upon the net profits of the business conducted by the fiduciaries in connection with real estate of the decedent, yet, to arrive at the net profits, no deductions were made for expenses which would have been necessary even if the business had not been conducted; that is, for the actual carrying charges of the real property owned by the decedent and used in the business. (Cf. Matter of Martin, 196 N. Y. 415, and the recent case of Matter of Wendel, 273 N. Y. 532.)

It is true that in these cases and in the cases cited by counsel in the other courts of the State where, since the decision in Beard v. Beard, commissions were allowed on gross rentals from real property, the right to such commissions was not challenged or directly passed upon in the courts. This court had said before the decision in Beard v. Beard that the authorities hold that where the account is rendered yearly * * * such accounting party is entitled to full commissions on each year’s receipts and disbursements ” (Hancox v. Meeker, 95 N. Y. 528, 539), and, again, that “ We are of opinion that where a trustee is required to keep trust funds invested and to receive and pay out the income annually, and he receives the income and renders an account thereof to the beneficiary, and pays over the balance of the income, after deducting all expenses chargeable against the same, he has the right to deduct for his compensation full commissions "on the income annually received, before paying it over.” (Matter of Mason, 98 N. Y. 527, 535.) (Italics in both citations are new.) After the decision of Beard v. Beard the rule, as stated in these earlier cases, continued to be generally applied to income received from real property and disbursements for carrying charges and maintenance of such property. It is said that the practice was due to a general failure by members of the bar to recognize the scope of the decision in Beard v. Beard, and that no appellate court gave considered approval to the practice. That may be true, but it is significant that the court which decided Beard v. Beard never felt called upon to point out in any later opinion that the prevailing practice was contrary to the law it had enunciated.

The construction of a statute accepted for over a century without serious challenge should not be changed by the court without compelling reason. The argument that, since the adoption of subdivision 9 of section 285, this construction would in some instances result in an excessive allowance to fiduciaries, should be addressed to the Legislature rather than the courts, and there may be difference of opinion even there. Other arguments, not without force, have been advanced by the respondents and accepted by the Appellate Division. Such arguments must be weighed in the balance against the arguments advanced by the appellants. When so weighed they are insufficient, in our opinion, to constrain or justify the court in rejecting a literal construction of the language of the statute and the century-old practice based on such construction.

The trustee in his account asked credit for brokerage commissions amounting to $4,751.25 paid for brokerage commissions in obtaining lessees for some of the real property. A trustee is ordinarily not qualified to act as broker in obtaining tenants for real property. Like other persons who manage real property, he may at times obtain a tenant without the intervention of a broker, but ordinarily a trustee who manages vacant property will avail himself of the services of a broker. Indeed, a trustee might be charged-with failure to use proper care if he failed to do so. The Appellate Division has held that the brokerage commission paid constitutes a disbursement necessarily incurred by the trustee for specialized services which did not form part of the “ management ” of the property required of the trustee and for which the trustee receives, under the statute, compensation measured by five per centum of the rents collected. We agree with that conclusion.

The order of the Appellate Division should be modified as indicated in this opinion and the matter remitted to the Surrogate’s Court for the entry of an appropriate decree, with costs to all parties filing separate briefs payable out of the estate.

Crane, Ch. J.

(concurring). I concur in the prevailing opinion.

There is much force in the argument presented in Judge Loughran’s opinion and the view taken of this matter of commissions by the Surrogate in Matter of Byrnes (159 Misc. Rep. 302). It is somewhat difficult at times to draw the line between the management of a large apartment house, including the moneys expended for maintenance, upkeep and repairs, and the running of a business. However, the distinction seems to have been drawn, without much discussion, it is true, and the allowance of commissions on the basis stated in the opinion by Judge Lehman has at least found recognition by this court in Matter of Wendel (273 N. Y. 532). Not until recent years has this question of figuring commission on the maintenance and upkeep of large real estate properties been challenged, or the meaning of section 285 of the Surrogate’s Court Act doubted in its application to such a situation.

In view of what has now been said on both sides and the arguments now pressed forward, I am inclined to adhere to the practice as it has been, leaving it to the lawmakers to express more clearly their intent if our decision be not in harmony with it.

Loughran, J.

(dissenting in part). The principal question presented is whether so-called normal or regular commissions to be awarded to trustees for the management of real estate are to be computed on gross rents or net. (See Surr. Ct. Act, § 285, subds. 1-4.)

I agree with the courts below that the answer was given in Beard v. Beard (140 N. Y. 260). In that case Earl, J., said for the court: We think the true rule for allowance of statutory commissions is this: Trustees are entitled to commissions for receiving all moneys which constitute the corpus of the estate, and ■ any additions thereto from increase of any land, and thus the moneys upon which commissions are to be computed can never exceed the gross amount of the estate and its net income; and the moneys paid out upon which commissions may be computed are the moneys paid out of the estate for debts, expenses of administration and to legatees or other beneficiaries, moneys which operate to diminish the estate as it exists in the hands of the trustees and pass out of and away from the estate ” (p. 265). These are plain and emphatic words. The rule so stated cannot, in itself, be made to bear the meaning that gross rents are the base upon which commissions are to be allowed for real estate management.

Not less clear is the reason for the rule of the Beard case. Under another standard a trust estate might well be lost. We need not go outside this record for an illustration. In the management of real estate, each parcel is ordinarily handled as a separate unit. . (Matter of Chapal, 269 N. Y. 464.) The three parcels here involved are so treated in this account. One parcel (the residence property at Larchmont, N. Y.) was operated throughout the period accounted for at a continuing deficit. It is purely accidental that other estate assets produced enough income to absorb this loss. Had the Larchmont property been the sole estate asset, then the trust corpus and that alone could have been the source of commissions, if chargeable on gross rents.

The now accounting trustee nevertheless asserts that computation of commissions on a net rent base would be contrary to a practice generally followed in this State for more than a century. This is a strong thing to say. Not an item of proof of such a sweeping generality is to be found in the record. For all that there appears, any number of fiduciaries may have taken commissions on net rents during the last century.

But, however that may be, the fact is, as this court now says, that in cases in which commissions were taken on gross rents, the right to such commissions was not challenged or directly passed upon in the courts.” What then was so decided? The most that can be said is that the point was in the cases if anyone had seen fit to raise it. Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents.” (Webster v. Fall, 266 U. S. 507, 511.) Indeed, where a practice had been buttressed by a multitude of cases in intermediate appellate courts in this State,” the question in this court was not how long the practice had been going on. Even there the question in this court was whether the practice was right. (Prudence Co. v. 160 W. 73rd St. Corp., 260 N. Y. 205, 209.) In that case, We disapproved a long-continued practice in foreclosure proceedings, founded, as we believed, upon erroneous decisions of intermediate appellate courts.” (Sears, Roebuck Co. v. 9 Ave-31 St. Corp., 274 N. Y. 388, 401.) These citations seem to me to show that there is no force in the argumentation that a unilateral habit of trustees in taking their own commissions (not directly passed on by any court) must here be deemed to be the overriding ultimate authority.

Thus we are free, as I see it, to leave the uniform law as we find it limpidly stated in Beard v. Beard.

I am persuaded also that the Legislature has accepted the opinion of this court in the Beard case as declaratory of the rule governing the compensation of fiduciaries.

In case after case the courts have held that in respect of business management commissions were payable only on net return. So it was ruled in respect of a furniture business (Matter of Hayden, 54 Hun, 197; 125 N. Y. 776); in respect of a wharfage and warehouse rental business (Beard v. Beard, supra); and in respect of a hotel and store rental business (Matter of Sidenberg, 204 App. Div. 255). In the management of real estate there are no problems comparable in complexity to those that must have been solved by the trustees in the Beard case in successfully operating the Erie Basin enterprise, with a two-year gross income of over $600,000 from wharfage and warehouse rentals alone. Certainly any difficulties which confronted the now accounting trustee in the management of the three parcels here involved were negligible in comparison. The Larchmont residence property was let out for the summer seasons. The hotel property was rented for $25,000 per year plus fifty per cent of gross intake in excess of $115,000. The property in Greece was under lease to the American Tobacco Company.

When the Hayden and Beard cases had long been in the law the Legislature, in 1923, added to section 285 of the Surrogate’s Court Act what is now subdivision 9 thereof, as amended. It is thereby provided: WTiere an executor, administrator, guardian or testamentary trustee is, for any reason or cause whatsoever, entitled or required to collect the rents of and manage the real property, he shall be allowed and may retain five per centum of the rents collected therefrom in addition to the commissions herein provided.” By this enactment, fiduciaries who manage real estate are assured the receipt of a management fee greater than that currently paid (at least in some localities) to non-fiduciaries. It seems to me to be incredible that the Legislature could have supposed that to this presumably gainful five per cent management fee there would be added two, four and six per cent commissions on gross rents. (See Surr. Ct. Act, § 285, subd. 8.) Real property in general could hardly carry itself and pay so high a tariff for management. I believe it was never intended that a trust was to be so administered as thus to guarantee such a profit to the fiduciary, though as a result nothing should be left for beneficiaries.

For the foregoing reasons I vote to affirm the order of the Appellate Division.

Crane, Ch. J., concurs in opinion with Lehman, J.; O’Brien and Finch, JJ., concur in the opinions of Crane, Ch. J., and Lehman, J.; Loughran, J., dissents in opinion in which Rippey, J., concurs; Hubbs, J., taking no part.

Ordered accordingly.


author: Crane, Ch. J.

text:
    In the Matter of Hans Andresen, Jr., Appellant, against William G. Rice et al., as the Civil Service Commission of the State of New York et al., Respondents.

      Argued January 13, 1938; decided
    March 8, 1938.

      Joseph F. Ryan and Abraham Bernard King for appellant.
    The petitioner, as a person within the required age limits and as a citizen and resident, has a sufficient interest in the subject-matter of the proceeding and has a legal right to sue for the relief sought. (Matter of Blust v. Collier, 62 App. Div. 478; People ex rel. Frost v. N. Y. C. & H. R. R. R. Co., 168 N. Y. 187; Matter of People ex rel. Foot v. Gross, 137 App. Div. 77; People v. Halsey, 37 N. Y. 344; People ex rel. Daley v. Rice, 129 N. Y. 451; Baird v. Supervisors, 138 N. Y. 95; Matter of McCabe v. Voorhis, 243 N. Y. 401; People ex rel. O’Brien v. Van Wyck, 27 Misc. Rep. 439; People ex rel. Boltzer v. Daley, 37 Hun, 461; Matter of Friedman v. Finegan, 268 N. Y. 93; Chittenden v. Wurster, 152 N. Y. 345; Kornbluth v. Rice, 250 App. Div. 654; 275 N. Y. 597; Palmer v. Board of Education, 276 N. Y. 222; Matter of Carow v. Board of Education, 272 N. Y. 341; Matter of Scahill v. Drzewucki, 269 N. Y. 343.) The position of trooper in the Division of State Police is in the classified service of the State. (Friedman v. Finegan, 268 N. Y. 93; People ex rel. McClelland v. Roberts, 148 N. Y. 360.) The position of trooper is one for which competitive examination is practicable to test merit and fitness. (Matter of Hammond v. Ricker, 140 App. Div. 19; Chittenden v. Wurster, 152 N. Y. 345; Matter of Ottinger v. Civil Service Comm., 240 N. Y. 435; Matter of Simons v. McGuire, 204 N. Y. 253; Matter of Carow v. Board of Education, 272 N. Y. 341; Palmer v. Board of Education, 276 N. Y. 222; Matter of O’Keefe v.
      Clark, 238 App. Div. 175.) The Superintendent has no power to conduct the examination for troopers. Even if the power be conceded, the examination as conducted by him does not comply with the requirements of the Civil Service Law (Cons. Laws, ch. 7). (Matter of Ottinger v. Civil Service Comm., 240 N. Y. 435; Chittenden v. Wurster, 152 N. Y. 345.)

      John J. Bennett, Jr., Attorney-General (Patrick H. Clune and Henry Epstein of counsel), for respondents.
    The petitioner has no standing to warrant the relief sought. (Kornbluth v. Rice, 250 App. Div. 654; 275 N. Y. 597; People ex rel. McLaughlin v. Police Commrs., 174 N. Y. 450; Matter of Burr v. Voorhis, 229 N. Y. 382; Matter of Colonial Beacon Oil Co. v. Finn, 245 App. Div. 459; Matter of Stubbe v. Adamson, 173 App. Div. 305; 220 N. Y. 459.) Chapter 161 of the Laws of 1917, which added article 9-A to the Executive Law (Cons. Laws, ch. 18), is clearly constitutional. (Schieffelin v. Goldsmith, 253 N. Y. 243; Gardner v. Ginther, 232 App. Div. 296; Missouri Pacific R. R. Co. v. Norwood, 283 U. S. 249.) The position of State trooper is in the unclassified class of the civil service of the State. (Matter of Ottinger v. Civil Service Comm., 240 N. Y. 435.) The Division of State Police is not subject to the jurisdiction of the Civil Service Commission and is not subject to the Civil Service Law, rules and regulations. (LaRocco v. Flynn, 257 N. Y. 5; Smiley v. Holm, 285 U. S. 355.)
   Crane, Ch. J.

In every civil service case we must start with the provision of the State Constitution (Art. V, § 6), which cannot be repeated too often, as it is the groundwork upon which all legislation on the subject is built. It steers the course which the Legislature must follow: Appointments and promotions in the civil service of the State, and of all the civil divisions thereof, including cities and villages, shall be made according to merit and fitness to be ascertained, so far as practicable, by examinations, which, so far as practicable, shall be competitive. * * * Laws shall be made to provide for the enforcement of this section.” The Civil Service Law (Laws of 1909, ch. 15, Cons. Laws, ch. 7) was passed to carry out this provision of the Constitution of 1894, and which is now section 6 of article V of the Constitution.

The service of the State is classified by the Civil Service Law in section 9, which reads: The civil service of the state and of each of its civil divisions and cities shall be divided into the unclassified service and the classified service. The unclassified service shall comprise all elective officers, all offices filled by election or appointment by the legislature on joint ballot; all persons appointed by name in any statute; all legislative officers and employees, all offices filled by appointment by the governor, either upon or without confirmation by the senate, except officers and employees in the executive offices; all persons appointed by the secretary of state subject to the approval of the governor; all elections officers, the head or heads of any department of the governorment, all persons employed in or who seek to enter the public service as superintendents, principals or teachers in a public school or academy or in a state normal school or college * * *. The classified service shall comprise all positions not included in the unclassified service.”

The State police, provided for by article 9-A of the Executive Law (Cons. Laws, ch. 18), are not in the unclassified service, but are in the classified. The classified service is divided into four classes, the exempt class, the competitive class, the non-competitive class and, in cities, the labor class. The State police have not been put in the exempt class, nor are they in the labor class. They, therefore, fall within either the competitive class or the noncompetitive class, according to section 13 of the Civil Service Law. Subdivision 4 of that section enacts that there may be included in the exempt class all subordinate offices for the filling of which competitive or non-competitive examinations may be found to be not practicable, but that no office or position shall be deemed to be within the exempt class unless it is specifically named in such class in the rules, and the reasons for such exemption stated separately in the annual reports of the Commission. Appointments in the exempt class shall be made without examination. So much for the Constitution and the Civil Service Law passed in accordance with it.

The fundamental purpose running through our civil service provisions is that, so far as practicable, positions in the State service shall be filled by competitive examinations. Non-competitive appointments are the exception and not the rule. (Matter of Barthelmess v. Cukor, 231 N. Y. 435.) The Legislature, in the unclassified service, has placed those offices for which it is apparent that civil service examinations could not be held. Even here the Legislature has not unlimited power, and could not place in the unclassified service those positions for which it was quite apparent competitive examinations could be held. (Matter of Carow v. Board of Education, 272 N. Y. 341; Matter of Ottinger v. Civil Service Comm., 240 N. Y. 435; Hale v. Worstell, 185 N. Y. 247.) As stated in the Ottinger case, the Civil Service Law may not cover all positions which have been or are to be created; neither is the competitive examination which may be required by the Constitution limited solely to those of the Civil Service Commission provided by the Legislature. In other words, the latter body is always free so long as it carries out the spirit of the Constitution, to provide examinations or competitive examinations by others than the Civil Service Commission. Thus, in the case cited, we said, through Judge Cardozo: The Legislature in obedience to that command [Constitution] has enacted the Civil Service Law. We have no thought to suggest that with the enactment of that law its power was exhausted. It may adopt some other agency, and even classify for itself, if its classification can reasonably be regarded as a genuine endeavor to extend the constitutional test to the limit of the practicable (People ex rel. Schau v. McWilliams, 185 N. Y. 92, 99; Matter of Barthelmess v. Cukor, 231 N. Y. 435, 443). What that limit is, may not be determined as an abstraction, or irrespective of experience. The very fact that there exists and has long existed a commission dealing with exemptions in the setting of the concrete instance, is something not to be ignored when a whole bureau or department is declared exempt in gross. The Legislature retains the power of selection among means appropriate to the end, but choice must rest upon reason, and not upon caprice. To know the limit of the practicable, we must give heed to methods and institutions that are functioning in practice ” (p. 440).

In providing for the State police in article 9-A of the Executive Law the Legislature has in effect provided for the appointment of members of the force by the Superintendent without competitive examinations. The Superintendent is directed to make rules and regulations and the applicant must pass a physical and mental examination based upon standards provided by these rules and regulations. (§ 94, subd. 2.) It may be well to quote this provision: “No person shall be appointed to the state police force unless he shall be a citizen of the United States, between the ages of twenty-one and forty years, able to ride, of sound constitution and good moral character, nor until he shall have passed a physical and mental examination based upon standards provided by the rules and regulations of the superintendent. Appointment and reappointment to the force shall be for a term of two years.”

In the little pamphlet published by the Executive Department, and submitted on the argument, we find this to be stated as part of the regulations:

“ The physical examination is conducted by the division surgeon inspector, assisted by a necessary number of physicians. Successful applicants in the physical examination are required to take a written intelligence test.

“ An oral board consisting of the superintendent and certain of his staff officers then examine each candidate individually for the purpose of ascertaining ability to reason, judgment, quality of language, attention to detail,- self reliance, appearance and manner. Upon each of these points, he is marked on a comparative scale.

_' “ An eligible list of successful candidates is then established in order of individual rating.”

There is no claim that these examinations are competitive or that the examinations are reduced to writing where possible, so a check can be made upon the rating given. The Superintendent and his staff make the examinations and appoint from the list established according to their own good judgment. The respondent here does not claim that these examinations are competitive in the Sense that other police officers are given competitive examinations in the cities of our State. The appointing power holds the examination and makes the choice, which, of course, in good faith he thinks should be made. There is much to be said for this method of selection, and the results, as we know, have probably been good, but the question still remains: Is it in accordance with the Executive Law as passed by the Legislature, and if it is, is that law constitutional?

While the Executive Law from which I have quoted says that the Superintendent shall make rules and regulations according to which a physical and mental examination shall be conducted, it does not state that he shall conduct the examination. I am inclined to think, however, that this was intended. If this were not so something would have been said in this article about the Civil Service Commission or the Civil Service Law. In fact, the respondent here claims that no examinations are really required or necessary, as the Legislature, in passing article 9-A of the Executive Law, really intended to place the State police in the unclassified service.' Even if this were done it might not answer the requirements of the Constitution. (Matter of Carow v. Board of Education, 272 N. Y. 341.) The question would still remain whether the Legislature had determined that it was impracticable to hold competitive examinations for the State police and whether or not its determination was arbitrary.

This appeal, therefore, comes to us with these propositions : The Legislature, having provided for the appointment of State police by the Superintendent without competitive examinations, has it extended the unclassified service of section 9 of the Civil Service Law by including State police, and, if so, is this act constitutional?

The duties of the State police, as specified in this article of the Executive Law, are none other than those performed by the police in the city of New York and other large cities of the State. We are not referred to any particular duty which does not pertain to other large police forces. The State police covers a larger territory, and State property, but their duties are the same under our criminal and penal laws as are those of any other police officer, yet, as we know, competitive examinations are found practicable for the police force in every city within this State, including the city of New York. But we do not stop here. While we recognize that competitive examinations are thus practicable for local police forces, we find in section 99 of this Executive Law that the employment of State police may be extended to towns, villages and police districts of the State — small units of the State — where heretofore examinations of a competitive nature have been required for their police staffs. In other words, under this law, the larger part of the police force of the State, towns and villages, if not the whole force, in time could be placed under the State Superintendent of Police, and appointed by him in his discretion according to his own rules and standards. Such was not the purpose and intent of the Constitution, because experience has taught us, at least by the examples of the past, that for such positions competitive examinations are practicable. Within the ruling laid down in Matter of Ottinger v. Civil Service Commission, cited above, the Legislature has sought to place the whole State police force in the non-competitive or unclassified service, exempting them all from competitive examinations and leaving their selection to the Superintendent of Police according to such rules and regulations as he may adopt. This wholesale classification en masse of an entire force, in view of past experience with such offices and positions, is contrary to the Constitution.

In coming to this conclusion we wish to have it fully understood that there is no criticism whatever of this method as a method for the selection of fine State officers; neither any criticism of what the Superintendent has done, for he certainly has furnished the State with an efficient body of men. Neither is it any reflection upon the wisdom of the Legislature in trying to provide the best protection that the State can afford against wrongdoers. It is not for us, however, to pass upon the best methods of selection or the wisdom of legislation. We have a Constitution, which I have quoted, and we, like everybody else, are bound to follow it. In interpreting that Constitution in the light of the decisions, experience and the practices formed under it, we simply state our conclusion to be that the Legislature cannot pass to the Superintendent of Police the appointment of his entire force without some competitive examination open to all according to requirements provided in advance. As before stated, this does not mean that the examination must be conducted under the Civil Service Law or by the Civil Service Commission. It may be conducted by anybody — by the Superintendent or his staff — but the examination must include the competitive element as long as experience teaches us that it is practicable to get capable policemen by this method. Nothing has been given to us to show wherein such examinations are impracticable.

The fact of two years’ service instead of a longer term does not affect this result, for there is always the power of reappointment for an unlimited time by the ’ Superintendent.

The point has been raised that the petitioner here is not capable of presenting this matter to the court, as he has not applied for a position on the force. He is of age to make such application, but, more than that, he is a citizen and resident of the State of New York, and, being such, is capable of presenting to the courts his petition for the enforcement by officials of their mandatory duties. (Matter of Social I. E. Assn. v. Taylor, 268 N. Y. 233; Matter of Kornbluth v. Rice, 250 App. Div. 654; affd., 275 N. Y. 597; People ex rel. Schau v. McWilliams, 185 N. Y. 92; Matter of Baird v. Bd. of Supervisors, 138 N. Y. 95, 116; Matter of McCabe v. Voorhis, 243 N. Y. 401, 411; Matter of Friedman v. Finegan, 268 N. Y. 93, 97. See, also, our recent cases on the intent and purpose of the Constitution: Palmer v. Bd. of Education, 276 N. Y. 222; Matter of Carow v. Bd. of Education, 272 N. Y. 341; Matter of Scahill v. Drzewucki, 269 N. Y. 343, and also Chittenden v. Wurster, 152 N. Y. 345.)

Competitive examinations, we conclude, are, so far as this record shows, and in the light of experience, practicable for the appointment and promotion of the State police. As those examinations are conducted throughout the State for the city police officials under Civil Service rules and regulations, some such competitive examination may be given by the Superintendent of the State Police. The Legislature has clothed him with the authority of not only making the appointments, but we believe it was the intent also to clothe him with the power of conducting examinations. The competitive examination may be held by him or his staff, which shall be open to all meeting the required standards. As the result of these examinations, lists may be prepared from which appointments may be made. It is not necessary that all of the examination be in writing. As stated in Matter of Sloat v. Bd. of Examiners (274 N. Y. 367), there may be other examinations besides the written part, provided the results of the examinations are so stated that the applicant may be able to check up the conclusions by some objective comparison. (Matter of Fink v. Finegan, 270 N. Y. 356; 275 N. Y. 591.) In other words, the competitive, oral and physical examinations must be according to standards mailing the competition fair to all.

The petitioner has evidently been at a loss to know his remedy. He has asked for too much. Under the opinions of Attorney-Generals, the Superintendent has been appointing officers without competitive examination. We grant the relief prayed for to the extent of holding that the Superintendent must discontinue this practice and hereafter make his appointments from lists prepared after a competitive examination.

This decision does not affect or disturb the officers in the positions they are now holding, as time must be given to the Superintendent to carry out the purposes of the Civil Service Law, as we have expressed it, without disrupting and disorganizing his staff. At such time and under such rules and regulations as he may adopt pursuant to this Executive Law, he can and will provide for examinations, giving due regard to experience and service in his ratings. (See Matter of Kraus v. Singstad, 275 N. Y. 302, 310.) Mandamus is an extraordinary remedy, and its issuance is to a great extent discretionary. The courts will be chary to issue it so as to cause disorder and confusion in public affairs, even though there may be a strict legal right. (Duncan Townsite Co. v. Lane, 245 U. S. 308, 311; Matter of Warehousemen’s Association v. Cosgrove, 241 N. Y. 580; Matter of Smidt v. McKee, 262 N. Y. 373, 378.) Besides, we cannot tell from this record but that previous appointments may have been legally made, as the amendments to the Executive Law have in the process of time changed the facts and the law applicable thereto. (See Matter of Sandford v. Finegan, 276 N. Y. 70, 73.)

The orders below should be modified to conform with this opinion, and as so modified affirmed, without costs.

Loughran, Finch and Rippey, JJ., concur; Lehman and O’Brien, JJ., dissent; Hubbs, J., taking no part.

Ordered accordingly.


author: Bippey, J.

text:
    Manufacturers Trust Company, as Trustee, Respondent, v. Peck-Schwartz Realty Corporation et al., Defendants, and Piedmont Holding Corporation, Appellant.

      Argued January 12, 1938; decided
    March 8, 1938.

      Clarence G. Bachrach and Samuel S. Bisgyer for appellant.
    The clause in dispute is subject to construction in accordance with the actual intention of the parties. (Manchester Paper Co. v. Moore, 104 N. Y. 680; Gillet v. Bank of America, 160 N. Y. 549; Atwater & Co. v. Panama R. R. Co., 246 N. Y. 519; Becker v. Frasse & Co., 255 N. Y. 10; Mynard v. Syracuse, B. & N. Y. R. R. Co., 71 N. Y. 180; Nicholas v. N. Y. C. & H. R. R. R. Co., 89 N. Y. 370; Rickerson v. Hartford Fire Ins. Co.,
      149 N. Y. 307; Seymour v. Warren, 179 N. Y. 1; Nicol v. Sands, 131 N. Y. 19; Robertson v. Ongley Electric Co., 146 N. Y. 20.) The evidence establishes that the p'arties, mortgagor and mortgagee, never intended that the personal property clause should cover the chattels to which it has been applied. (Matter of Benevolent & Protective Order of Elks, 69 Fed. Rep. [2d] 816; Farmers’ L. & T. Co. v. Winthrop, 238 N. Y. 477; Vanderbilt v. Schreyer, 91 N. Y. 392; Ashton v. Baker Mfg. Corp., 206 App. Div. 343; Madfes v. Beverly Dev. Corp., 251 N. Y. 12; Cohen v. 1165 Fulton Ave. Corp., 251 N. Y. 24; Central Chandelier Co. v. Irving Trust Co., 259 N. Y. 343.)

      Leon London and Kate B. Willig for respondent-
    That the parties intended that the mortgage should cover the chattels is established by the evidence and has been found by the trial court. (Guaranty Trust Co. v. New York & Queens County Ry. Co., 253 N. Y. 190; Shelton Holding Corp. v. 150 East Forty-eighth St. Corp., 264 N. Y. 339; Amherst College v. Ritch, 151 N. Y. 282; People ex rel. Manhattan Ry. Co. v. Barker, 152 N. Y. 417; Sciolina v. Erie Preserving Co., 151 N. Y. 50; Palmer v. State, 217 N. Y. 601; Marden v. Dorthy, 160 N. Y. 39; Matter of Westerfield, 163 N. Y. 209; Herold v. Cohrone Boat Co., 249 App. Div. 318; Dunham v. Townshend, 118 N. Y. 281; Milliken v. Dotson, 117 App. Div. 527; Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125.)
   Bippey, J.

The question here presented is whether movables, either unattached to the realty or severable and removable without material injury to the building, passed to the purchaser upon foreclosure of a real estate mortgage which, after describing the real property in detail, contained the following clause of coverage: “ together with all fixtures and articles of personal property, now or hereafter attached to, or used in connection with the premises, all of which are covered by this mortgage.” That clause is the same as the statutory form of covenant (Beal Prop. Law, § 254, subd. 1; Cons. Laws, ch. 50), except that the words now or hereafter and all of which are covered by this mortgage ” are not included therein.

The words contained in the statutory form do not necessarily bring within the coverage of the mortgage movables which are not so attached to the realty as to become fixtures. The quoted expressions added to the statutory form do not in and of themselves extend the coverage (Cf. Central Chandelier Co. v. Irving Trust Co., 259 N. Y. 343). In the absence of intervening equities, the clause includes within its terms gas ranges which are attached to the buildings when the mortgage is made and recorded (Cohen v. 1165 Fulton Ave. Corp., 251 N. Y. 24), although under the common law the result would be different (Madfes v. Beverly Development Corp., 251 N. Y. 12). Such a clause will not include personal property not in existence at the time the mortgage is made and recorded (Prudential Ins. Co. v. Sanford Real Estate Corp., 157 Misc. Rep. 563, 566; Perfect Lighting Fixtures Co. v. Grubar Realty Corp., 228 App. Div. 141), unless (1) it later becomes a fixture as matter of law (Ford v. Cobb, 20 N. Y. 344), (2) it becomes a part of the realty so that it is essential to its support or cannot be removed without practically destroying that to which it is attached (Tifft v. Horton, 53 N. Y. 377), (3) there is an express agreement that the personalty, although not a fixture, shall become part and parcel of the mortgaged realty (Shelton Holding Corp. v. 150 E. 48th St. Corp., 264 N. Y. 339, 346), or (4) in the absence of such an agreement it shall clearly andunequivocably appear from all the facts and circumstances that the intent was to make them a part of the security for the loan (Alf Holding Corp. v. American Stove Co., 253 N. Y. 450, 452. Cf. Tifft v. Horton, supra; Shelton Holding Corp. v. 150 E. 48th St. Corp., supra; 1 Jones on the Law of Mortgages of Real Property [8th ed.], § 205), and then only, in cases (3) and (4) above, in the absence of superior enforceable rights of third parties thereto.

The movables with which we are here concerned do not fall into classes (1), (2) or (3) above mentioned. No finding of fact was made by the trial court or by the Appellate Division on the question of whether the mortgagee and the maker of the mortgage intended that the after-acquired personalty should be deemed within the coverage of the mortgage. We must, then, look to the record to see whether the facts and circumstances reasonably admit of a finding that the parties did intend such coverage. We are unable to arrive at any such conclusion.

The real property described in the mortgage consisted of a plot of land one hundred feet square located at the corner of Broadway and Lincoln boulevard, city of Long Beach. On December 19, 1927, the owner, the Peck-Schwartz Realty Corporation, made an application in writing to the Title Guarantee and Trust Company for a loan of $100,000, with the premises as security, to enable the owner to erect a four-story summer hotel thereon. The owner left with the trust company as a part of the application a lease which it had previously executed with the Frontenac Hotel Co., Inc., conditioned upon the construction and completion by the owner of the proposed building prior to the opening of the 1928 summer season. This lease provided that the owner should fit out and equip the building at its own expense and the tenant agreed to furnish the owner with a $20,000 policy of fire insurance “ covering furniture, furnishings, kitchen equipment and other contents of the said building, which said policy shall be payable to the landlord, and the tenant as their interests may appear.” The building loan was granted and the building loan agreement was executed and the mortgage subsequently given, No mention of the furnishings of the building is made in the application, the allowance of the application, the building loan agreement or the mortgage. The mortgage contains a clause “ that the mortgagor will keep the buildings on the premises insured against loss by fire for the benefit of the mortgagee.” There is no agreement that the mortgagor will insure furnishings and equipment for the benefit of the mortgagee nor was there ever any such insurance in effect. The building and loan agreement provided that the loan should be advanced in varying amounts from time to time as the building progressed upon inspection reports furnished to the mortgagee, dependent upon the property being unincumbered. The various inspection reports were made and delivered to the mortgagee and none of them contained any reference to furnishings and fittings or progress that was being made in connection therewith. The building was completed and all furnishings installed by June 7, 1928. At that time there was an outstanding conditional sale contract on file upon which there appears to have been due upwards of $15,000 in favor of the Simmons Company for metal furniture, embracing, it is claimed, furniture furnished by that company for the hotel in question. Notwithstanding all of this, the mortgagee made its final advance on account of the building loan contract on the mortgage on June 7, 1928. There jwas nothing in the written instruments or in any of the dealings between the parties to indicate that it was the intent of the parties to include the furnishings of the hotel or the movables in question within the coverage of the mortgage.

Subsequent to the making of the final payment by the trust company on the building loan agreement, a second mortgage upon the realty and a chattel mortgage upon the furnishings and movables in question were executed and delivered by the owner. Thereafter the owner went into bankruptcy, and the chattels were sold under the chattel mortgage and the defendant Piedmont Holding Corporation became and was at the time of the foreclosure of the mortgage in question the owner thereof. It does not appear at any time dining the proceedings which ended in the Piedmont Company acquiring title that the trust company or its successors asserted any title to or interest in the movables. It can hardly be presumed that the owner of the mortgage would have sat idly by while that property was being mortgaged and transferred to its prejudice if it had any interest therein.

We conclude that the personal property itemized in finding “ 8 ” and in the judgment was not included within the terms of the mortgage and that it should be released to appellant. If it has been sold and the parties cannot agree as to its value, the case should be remitted to Special Term to take evidence and fix the value and provide by suitable provision at the foot of the decree of foreclosure and sale for reimbursement of appellant for any loss that may have resulted from the sale.

The judgments should be modified in accordance with this opinion, and as so modified affirmed, with costs to the appellant in all courts.

Crane, Ch. J., O’Brien, Loughran and Finch, JJ., concur; Lehman and Hubbs, JJ., taking no part.

Judgment accordingly.


author: Per Curiam.

text:
    In the Matter of the Accounting of Katerina Vass, as Administratrix with the Will Annexed of Anna Kvetkoff, Deceased, Respondent. Morris Weiss, Appellant.

      Argued January 27, 1938;
    decided March 8, 1938.

      Samuel Weiss for appellant.
    The order of the Supreme Court did not oust the Surrogate of jurisdiction. (Matter of Regan, 167 N. Y. 338; Matter of Fitzsimons, 174 N. Y. 15; Bailey v. Murphy, 136 N. Y. 50; Matter of Wood, 170 App. Div. 533.)

      Emanuel Loebel for respondent.
    The Surrogate’s decision that he was ousted of his jurisdiction by the order obtained in the Supreme Court and the order dismissing the objections was proper. (Matter of Waverly, 141 N. Y. Supp. 1054; Lewis v. Maloney, 12 Hun, 207; Matter of De Pierris, 79 Hun, 279; Matter of Patterson, 63 Hun, 529.)
   Per Curiam.

Nothing in the order of the Supreme Court deprived the Surrogate’s Court of its jurisdiction to direct the respondent-administratrix to account to the appellant. While that order fixed the amount of the appellant’s lien and directed payment thereof out of the estate, the question remained whether and, if so, to what extent, the distributable estate was sufficient for that purpose after determination of the respective rights of the persons entitled to distribution. It was, therefore, error to dismiss the appellant’s objections on the ground that he had no interest in this proceeding.

The order of the Appellate Division and the decree of the Surrogate’s Court should be reversed, with costs in all courts to the appellant, payable out of the estate, and the matter remitted to the Surrogate’s Court for further proceedings in accordance with this opinion.

Crane, Ch. J., Lehman, O’Brien, Lotjghran, Finch and Rippey, JJ., concur; Hubbs, J., taking no part.

Ordered accordingly.