author: Rippey, J. Finch, J.

text:
    In the Matter of Murray Leitner, Respondent, against New York Telephone Company, Appellant.
    Argued January 5, 1938;
    decided March 8, 1938.

      Irving W. Young, Jr., N. H. Egleston, Hugh N. Wells and Charles T. Bussell for appellant.
    The petitioner failed to show any legal right to a peremptory order of mandamus. (Matter of Rexford Flats Bridge Co. v. Canal Board, 168 App. Div. 558; 217 N. Y. 687; Matter of Spanhake v. Teachers’ Retirement Fund, 224 App. Div. 75; 249 N. Y. 605; Matter of Smith v. Loughman, 132 Misc. Rep. 527; 226 App. Div. 395; Matter of McEneny v. McKee, 236 App. Div. 140; 262 N. Y. 494; Weld v. Postal Telegraph-Cable Co., 199 N. Y. 88; Primrose v. Western Union Tel. Co., 154 U. S. 1; Metzger v. New York State Railways, 168 App. Div. 187; Murray v. New York Tel. Co., 170 App. Div. 17; 226 N. Y. 590; City of New York v. New York Edison Co., 196 App. Div. 644.) The petitioner has no legal right to have the reasonableness of the telephone company’s rules and regulations on file with the Public Service Commission determined by an order of mandamus unless and until he has exhausted his remedies before the Public Service Commission vested with jurisdiction for that purpose. (Public Service Law [Cons. Laws, ch. 48], §§ 92, 97; Murray v. New York Tel. Co., 170 App. Div. 17; 226 N. Y. 590; Metzger v. New York State Railways, 168 App. Div. 187; City of New York v. New York Edison Co., 196 App. Div. 644; Fulton Light, Heat & Power Co. v. Seneca River Power Co., 205 N. Y. Supp. 821; Gilchrist v. Interborough R. T. Co., 279 U. S. 159; Matter of Carroll R. Corp. v. New York Edison Co., 141 Misc. Rep. 266.) The police department having objected to and disapproved the furnishing of telephone service to the petitioner, the telephone company had a legal right to refuse such service. (People ex rel. Restmeyer v. New York Tel. Co., 173 App. Div. 132; Matter of Montario v. New York Tel. Co., 224 N. Y. 571; Matter of Cullen v. New York Tel. Co., 106 App. Div. 250.)

      I. Lee Merin, Jacob Granat and Seymour Robinowitz for respondent.
    The respondent-appellant did not raise any objections in point of law to the alternative mandamus order, but waived its right thereto by electing to make and file its return to the order, thereby raising issues of fact only. (Matter of Isenbarth v. Bartnelt, 205 App. Div. 845.) Mandamus is the petitioner’s proper remedy. Petitioner had no adequate remedy before the Public Service Commission. (People ex rel. Weatherwax v. Watt, 115 Misc. Rep. 120; Goodell v. Woodbury, 71 N. H. 378; Pennsylvania R. R. Co. v. Puritan Coal Mining Co., 237 U. S. 121; Murray v. New York Tel. Co., 170 App. Div. 17; Tucker v. Western Union Tel. Co., 95 Misc. Rep. 287.) No legal right to refuse petitioner telephone service is given to the telephone company by the action of the police department in objecting to and disapproving the furnishing of such service, especially where the action of the police department is arbitrary, unreasonable, discriminatory, prejudicial and based on mere suspicion. (Matter of Housman, 224 N. Y. 525; Acme Realty Co. v. Schinasi, 215 N. Y. 495; People ex rel. Restmeyer v. New York Tel. Co., 173 App. Div. 132; Matter of Cullen v. New York Tel. Co., 106 App. Div. 250.)
   Rippey, J.

An application was made for a peremptory-order of mandamus to compel defendant to reinstate public coin box telephone service in two telephone booths located in a cigar store operated by petitioner at 70 Barclay street, New York city. The proceeding was commenced by service of a petition, affidavit and order to show cause why such an order should not issue. Upon the return date of the order to show cause the telephone company submitted affidavits in opposition to the motion and the court, deeming that there was a disputed question of fact involved, denied the motion for a peremptory order but granted an alternative order. On the trial of the issues of fact the jury found for petitioner. Thereupon the petitioner moved upon all proceedings previously had for a final peremptory order. The telephone company made a cross-motion for an order dismissing the alternative order. The motion of the petitioner was granted and the motion of the telephone company denied. Upon appeal to the Appellate Division the orders were affirmed.

In May, 1935, the owner of the cigar store in question was arrested and thereafter tried and convicted of violation of section 986 of the Penal Law, it being alleged that the public telephone service was being used in connection with bookmaking, bets and wagers. On November 27, 1935, another man was arrested for a similar crime. All told there were five arrests for the crime of gambling committed on the premises where the booths were located and it was established by the testimony of the police inspector that the telephones on the premises were used in connection with the commission of those crimes. Thereupon the police officers removed the telephones from the booths and caused notices to be placed upon the booths that the telephones were out of service. On April 4, 1936, the petitioner acquired the lease to the premises from the previous owner and went into possession. On April 6th, by letter, the petitioner made an application to the telephone company to reopen the public telephones. The request for restoral of service was referred to the police department of the city of New York for approval and on April 28th the telephone company was advised that the application was disapproved, and petitioner was so advised. On May 7th a request was made by the attorney for petitioner for reconsideration. The matter was again referred to the deputy commissioner of police in charge of the district and while the matter was still under investigation and before any determination had been made, this proceeding was commenced.

The service applied for was not for the private use of petitioner or family. Such service as he sought was installed by the telephone company at such places as it deemed would best serve the public interest and would produce satisfactory revenue for itself. The telephones were strictly public phones, not for the benefit of the owner of the premises any more than for the benefit of the public at large.' The owner of the premises was not liable to the telephone company for any service and handled no moneys in connection with the service, but received a consideration from the telephone company for the use of the premises based upon the income derived from the public use of the phones. Petitioner had no contractual relations whatsoever with the telephone company. The latter asserts that petitioner has failed to establish any clear legal right to the restoration of service in the booths in question, that service in the particular booths would be inimical to the public interest, that it cannot be compelled to perform an act which will work a public or private mischief and that it may as matter of law, in its discretion, refuse to reinstate or furnish service on the premises in question.

At the outset, the petitioner asserts that the appellant has waived all such questions and, in fact, all questions of substantive law, by failure to file written objections to the petition in point of law prior to the time that the return to the alternative order was made.

Sections 1313-1340 of the Civil Practice Act, in force prior to repeal on September 1, 1937 (Laws of 1937, ch. 526), related to mandamus proceedings. Section 1322 provided that the person, upon whom an alternative mandamus order is served, instead of making a return to the petition and order, may file in the office where the order is returnable written objections to the papers in point of law; or he may object to a state of facts constituting a separate grievance and make return to the petition and order as to matters not affected by the objections.” The provisions of that section related only to permissive procedure subsequent to the service of the alternative order. In the case at bar the application was made for a peremptory order, which could be granted only if no question of fact was involved. (Civ. Prac. Act, § 1319.) The court granted an alternative order. Proceedings under the alternative order were intermediate of application for the peremptory order in the first instance and the motion for the final peremptory order after disposition of the questions of fact raised by the petition and return to the alternative order. The right to the final peremptory order still depended exclusively, as in the first instance, upon questions of law. It is well settled that the defendant in a proceeding for peremptory mandamus may, at any time after the return to an intermediate order and before a peremptory mandamus is awarded, object to the issuance of the final order on questions of law (People ex rel. Post v. Ransom, 2 N. Y. 490; People ex rel. Ajas v. Department of Health, 138 App. Div. 559). That this court has adhered to the rule stated is indicated in the decision in Matter of Flaherty v. Craig (226 N. Y. 76). When that case was in the Appellate Division (184 App. Div. 428) it was held that questions of law raised upon the petition could not be considered because objections had not been filed preliminary to the alternative writ. On appeal to this court the question was specifically presented and argued in the briefs of counsel but the court decided the case upon the questions of law involved, in spite of the decision in the lower courts on the points of practice. Counsel for respondent rests heavily upon the decision in the case of Matter of Isenbarth v. Bartnett (205 App. Div. 845). An examination of the records and proceedings in that case indicates that nothing was decided by the Appellate Division contrary to the foregoing rule. This is particularly shown by the decision of the Appellate Division on a subsequent appeal (206 App. Div. 546) when that court affirmed the order of the lower court granting a peremptory order on the ground that the zoning ordinance involved was “ legally unreasonable and by the decision of this court affirming the order (237 N. Y. 617).

It is a fundamental rule in mandamus proceedings that a peremptory order may not issue unless the petitioner has a clear legal right to the relief which he seeks (People ex rel. Lunney v. Campbell, 72 N. Y. 496, 498; People ex rel. Corrigan v. Mayor, 149 N. Y. 219, 223). Upon the application for an order dismissing the alternative order and in opposition to the motion for the peremptory order of mandamus, the appellant filed an affidavit in which it specifically raised that question and also the question of its legal duty to install public telephone service upon the premises of the petitioner. To show that the appellant had a duty to install such service and that the petitioner had a clear legal right to compel its installation, respondent relies upon section 91, subdivisions 1 and 3, of the Public Service Law (Cons. Laws, ch. 48), which read as follows:

1. Every telegraph corporation and every telephone corporation shall furnish and provide with respect to its business such instrumentalities and facilities as shall be adequate and in all respects just and reasonable. All charges made or demanded by any telegraph corporation or telephone corporation for any service rendered or to be rendered in connection therewith shall be just and reasonable and not more than allowed by law or by order of the commission. Every unjust or unreasonable charge made or demanded for any such service or in connection therewith or in excess of that allowed by law or by order of the commission is prohibited and declared to be unlawful.”

3. No telegraph corporation or telephone corporation shall make or give any undue or unreasonable preference or advantage to any person, corporation or locality, or subject any particular person, corporation or locality to any undue or unreasonable prejudice or disadvantage in any respect whatsoever.”

There is no charge here that the telephone corporation failed to furnish and provide adequate, just and reasonable instrumentalities and facilities in connection with its business, unless its business compelled it to establish and maintain public telephone facilities in the premises in question, or that charges were unjust or unreasonable or more than allowed by law or by order of the Commission. No charges were or could be made under the provisions of its contract, its rules and regulations and the authority of the Commission to the owner of the premises for the public telephone service in question, nor did it have any duty, at the caprice or demand of any individual, to install this type of service, which was for its own benefit and the public welfare and only incidentally for the benefit of petitioner. The uncontradicted evidence establishes that similar service was provided for the public directly across the street from the premises in question and also nearby on the same side of the street. There was no claim here that the public needed additional service, nor could the petitioner represent in this proceeding the public generally to procure additional service if it were needed. The petitioner cannot complain under subdivision 3 of section 91. That provision of the Public Service Law is designed to prohibit undue and unreasonable preferences. There is no assertion here that others are being preferred to the petitioner, nor has he any legal right arbitrarily to insist upon the maintenance on his premises of public telephone service. The question would be different if he were seeking a private line. There is no claim that the service is refused because of the petitioner’s character, which is conceded to be good, but the fact that an applicant’s character is good is not decisive of the question as to whether he may arbitrarily require the installation and maintenance of public telephone service in his premises, regardless of the public interest.

The telephone company has a right to decide as to whom it shall constitute as its agent in connection with its general public phone booth service and to make and enforce reasonable rules and regulations which, when filed in compliance with the Public Service Law of the State of New York, are presumed to be reasonable. These rules are properly set up in the defendant’s affidavits and are open for consideration here in spite of the fact that the trial court erroneously excluded them on the trial of the issue of fact raised by the alternative order. Defendant asserts that such rules, when filed, could only be attacked, if attack is permissible in a mandamus proceeding, upon the ground that they were or are in fact unreasonable. Reading sections 92 and 97 of the Public Service Law it may fairly be said that the Legislature has sufficiently broadly provided for supervision over service of telephone companies to include supervision over and determination of places where and the conditions under which such service may be required. The appellant filed rules and regulations relating to public telephones on May 24, 1930, which became effective in New York city on June 1st of that year. One of those rules provides that the Company recognizes its responsibility for providing adequate telephone facilities to meet all reasonable public requirements, and in the discharge of this responsibility, the decision as to the extent, character and location of the public telephone facilities to be provided in any given locality rests with the Company.” It is thus provided that, having in view its general responsibility to the public for public telephone service, the location of facilities for that service must rest with the company. Of course, a rule not in accord with the Public Service Law or with any other applicable law would be invalid, but the question of the validity of the rule is not involved in this case. Petitioner seeks to maintain that defendant has applied those rules unreasonably, prejudicially and in a discriminatory manner. As to whether rules of a public utility duly promulgated were by it so applied is open for decision in the courts, but the question of the reasonableness of the rule can be attacked only before the Public Service Commission (Murray v. New York Telephone Co., 170 App. Div. 17; affd., 226 N. Y. 590). If the rule is valid defendant is the sole judge as to the location of public telephone service. If the rule is to be attacked such attack must be conducted before the Public Service Commission (Pennsylvania R. R. Co. v. Puritan Coal Mining Co., 237 U. S. 121, 131).

The orders should be reversed, with costs in all courts, and the petition dismissed, with costs.

Finch, J.

(dissenting). The petitioner owns a cigar store in a business district of lower Manhattan. The New York Telephone Company has refused to install public coin box service in his store. Formerly the telephone company had furnished such service in the store and found it profitable. While the former owner was still in possession of the store he was arrested and convicted for bookmaking, which involved the use of the public telephones. Subsequently another person was arrested and charged with bookmaking over these telephones, but the complaint was dismissed. On the occasion of the second arrest the police department dismantled the telephones in the booths in the premises.

In 1936 the petitioner, while negotiating to purchase this cigar store, learned that telephone service had been discontinued therein by order of the police department. Upon application to the telephone company he was advised that service would be restored as soon as the police department informed the telephone company that it had no objection to the restoration of such service. The police department informed the petitioner that it had no objection to telephone service on the premises, but objected only to the occupant, and that, upon due proof that a legitimate, bona fide new owner was in possession, it would withdraw its objection. Subsequently the petitioner completed the purchase of the store. After going into possession he made application to the telephone company for public coin box service, and was referred by them to the police department. The police department refused approval on the ground that it had no assurance that the telephone service, if restored, would not be used in connection with racetrack gambling. These proceedings were then instituted. An alternative order of mandamus against the telephone company was granted, and, upon a verdict by the jury in favor of the petitioner, a peremptory order was entered. The Appellate Division has affirmed.

The Legislature has provided that a telegraph or a telephone company must furnish reasonable facilities and may not give any undue preference or advantage to any person, corporation or locality, or subject any particular person, corporation or locality to any undue or unreasonable prejudice or disadvantage in any respect whatsoever. (Public Service Law, § 91.)

It is submitted that the telephone company does not possess an absolute right to refuse public coin box service. This right, which it is held to possess, may be exercised arbitrarily and without assigning a reason. To sustain this right reference is made to a rule which the telephone company has filed with the Public Service Commission. That rule provides that the Company recognizes its responsibility for providing adequate telephone facilities to meet all reasonable public requirements, and in the discharge of this responsibility, the decision as to the extent, character and location of the public telephone facilities to be provided in any given locality rests with the Company.”

Where a rule adopted or filed with the Public Service Commission is ambiguous and may be read so as to conflict with the State laws, or, in the alternative, may be read so as to conform with the governing statutes, it should be construed as complying with these statutory requirements. To read this rule as giving the telephone company an absolute and arbitrary right to deny public coin box service would render it inconsistent with the Public Service Law and, therefore, invalid. It is no answer to say that private telephone service may not be denied to the petitioner without reasonable basis. The statute is not limited in scope, and reasonable grounds must exist before any ldnd of service, public or private, may be denied. Naturally, the telephone company has broader scope in denying public coin box service than it has in reference to private service. Certainly such public service may be denied where it would not be profitable. When, as in the case at bar, the revenue is satisfactory, presumably there is a public demand for such service, and denial requires that a valid reason must be advanced. Only by blinking at the actualities can it be said that, since these are public telephones, the question is one solely between the public and the utility, and no attention need be paid to the desires of an individual store owner.

In large cities, especially in business sections, it is common knowledge that a substantial portion of the customers of cigar stores make their purchases incidental to the use of the telephone, and that the revenue from such customers may determine whether the business will or will not be profitable. The fact that owners of cigar stores in the neighborhood are supplied with public coin box service gives them an advantage over and results in unfair discrimination against the petitioner.

The effect of a contrary decision is to invest the telephone company with arbitrary discretion whether to grant public telephone service to one chain of cigar stores as against another competing chain. A public service corporation should not be accorded so wide a latitude of selection, and the Legislature by statute has attempted to limit the exercise of discretion of such corporations. Refusal to install public telephone service may reasonably be based upon considerations of income or risk to equipment. Reasonable basis may not be found in the unwillingness of the police department to approve. This would leave the petitioner without redress. He cannot bring action against the police to compel approval. The possibility exists that at times such refusal may be based upon ulterior considerations. On the other hand, if we permit a remedy against the telephone company, the latter is compelled to inquire of the police their ground of objection, and must render service unless this ground or some other furnishes a valid basis for refusal.

In the case at bar it is conceded that the refusal by the telephone company is based solely on the ground that the police had not given approval. This action on the part of the police department was not based upon the character or any act of the petitioner. The claim against the petitioner is limited to an attack on the character of his predecessor in ownership of the store, with which predecessor he is in no way connected. Under the circumstances the jury was justified in finding that there was no reasonable basis for the refusal to grant service to the petitioner.

The judgment appealed from should be affirmed, with costs.

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

Orders reversed, etc.


source: Caselaw Access Project

author: Rippey, J.

license: Public Domain

text:
    Board of Education of Union Free School District No. 6 of Town of Greenburgh, Respondent, v. Town of Greenburgh et al., Appellants.
    Argued January 6, 1938;
    decided March 8, 1938.

      Gerald Fitzgerald for appellants.
    The assessments against the plaintiff’s property are legal. (Hassan, v. City of Rochester, 67 N. Y. 528; Roosevelt Hospital v. Mayor, 84 N. Y. 108; Matter of Dinn v. Board of Education, 121 Misc. Rep. 633; Buffalo City Cemetery v. City of Buffalo, 46 N. Y. 506; Matter of St. Joseph’s Asylum, 69 N. Y. 353; Matter of Hun, 144 N. Y. 472; People ex rel. Bronx Parkway Comm. v. Common Council, 229 N. Y. 1; Matter of Van Antwerp, 56 N. Y. 261.)

      Cloyd Laporte and Emory T. Nunneley, Jr., for respondent.
    The statute under which the improvements were made specifically exempted the property of the school district from the assessments. (Laws of 1926, ch. 549; City of Buffalo v. LeCouteulx, 15 N. Y. 451.) The assessments upon the property of the school district and the resulting tax sales and transfers of tax hen are illegal and void, and should be canceled. (Whitney v. Thomas, 23 N. Y. 281; National Bank of Chemung v. City of Elmira, 53 N. Y. 49; Elmhurst Fire Co. v. City of New York, 213 N. Y. 87; People ex rel. Erie Railroad Co. v. State Tax Comm., 246 N. Y. 322.)
   Rippey, J.

Since prior to September, 1929, plaintiff has been the owner of certain real property situate in the town of Greenburgh, Westchester county, and abutting on Henry street and Ashland avenue which it occupied and used for public school purposes. Those streets were improved by the town under the authority of chapter 549 of the Laws of 1926, as amended, and as a result the plaintiff was assessed and taxed for its proportionate share of the cost. Upon failure of plaintiff to pay the taxes so levied, the town authorities advertised and sold the property and bid it in upon the sale. Thereupon this action was commenced in equity for a declaration that the assessments were illegal and void and for judgment that they should be set aside and canceled of record, that sales of any alleged tax liens be adjudged illegal and void and set aside, as well as transfers upon such sales, and that the defendants be restrained from talcing any action or proceedings for the collection of the taxes. Plaintiff was unsuccessful at the trial of the action. The Appellate Division reversed by a divided court. For the payment of any portion of the cost of the improvement in question, respondent claims that it is exempt.

Section 3 of the Tax Law (Cons. Laws, ch. 60) provides that all real property within this state is taxable unless exempt from taxation by law.” A “ law ” is a rule of civil conduct prescribed by the law-making power of the State (1 Kent Comm. p. 447). Expressions such as required by law,” regulated by law,” “ allowed by law,” “ made by law,” limited by law,” as prescribed by law,” “ created by law ” and a law of the state,” as used in the statutes refer exclusively to the statute law of the State (Brinckerhoff v. Bostwick, 99 N. Y. 185, 190) unless, by the purposes of the statute where the words are used, a broader signification is required (People v. Clark, 242 N. Y. 313, 327). Here no real property may be exempt from taxation by law ” unless so exempted by statutory law (City of Rochester v. Coe, 25 App. Div. 300). The Legislature has undertaken to provide for exemptions (not here applicable) in sections 4, 5 and 5-a of the Tax Law. By section 153 of the Education Law (Cons. Laws, ch. 16) it has provided that the grounds, buildings, furniture, books, apparatus and all other property of a school district shall not be subject to taxation for any purpose.” Such a general exemption does not relieve plaintiff’s property from taxation imposed for local improvements by which special benefits are received. It has been held in cases involving analogous situations that such an exemption applies only to taxation imposed by general tew and does not relieve real property from its just share of the burden imposed for local benefits (Hassan v. City of Rochester, 67 N. Y. 528; Buffalo City Cemetery v. City of Buffalo, 46 N. Y. 506; Matter of St. Joseph's Asylum, 69 N. Y. 353; Roosevelt Hospital v. Mayor, 84 N. Y. 108; Matter of Hun, 144 N. Y. 472; People ex rel. Bronx Parkway Comm. v. Common Council, 229 N. Y. 1). We understand that no serious contention is made by respondent that it is exempt under the provisions of the Education Law. It claims that it is specifically exempted from assessment and taxation for the street improvements on streets abutting on its property by the express terms of the acts authorizing the making of those improvements (Laws of 1926, ch. 549, as amd. by Laws of 1927, ch. 637) because, as it claims, under those acts the burden of the cost could be imposed only on abutting property subject to general taxation. An examination of those acts does not warrant such a claim.

The act is a general act, relating to the improvement of streets in towns throughout the State, in which detailed proceedings are specified by which the improvement may be made and paid for. Section 1 provides that the town may improve any street or streets therein upon the petition of the owners of taxable real property representing a majority of the linear feet of the taxable real property fronting or abutting upon the street or streets to be improved at the expense of the owners of the taxable real property fronting or abutting upon such street or streets as shown by the test preceding completed assessment roll of the town. Section 3 provides for the manner in which the petition must be executed and for its form and for a public hearing before the town board upon notice thereof to all persons owning or possessing any interest in real property fronting or abutting upon the street, streets, or portion thereof, proposed to be improved hereunder, as to all matters affecting their property, or the benefits thereto, resulting from such improvement.” Section 4 provides for the order authorizing the improvements which may be made by the town board upon a finding and determination that the petition was in fact executed by the owners of taxable real property fronting or abutting upon such street, streets, or portion thereof proposed to be improved, representing a majority of the linear feet of such property.” The section also provides that the determination may be made by the town board in its discretion as to the kind and character of the materials to be used, which determination shall be conclusive unless property owners representing at least a majority of the linear feet of the taxable real property ” fronting or abutting on the streets to be improved shall within ten days after the hearing file with the town clerk a written petition specifying some different kind or character of material to be used. Section 8 provides for the apportionment and assessment, and reads, so far as here material, as follows:

Apportionment and assessment. After the town board has ascertained the total cost of such improvements, it shall apportion and assess the expenses thereof upon the property fronting or abutting upon the street, streets, or portion thereof improved, in the manner herein specified; provided, however that in cases where two or more streets or portions of streets are improved at the same time upon petition of the owner or owners of a majority of the linear frontage upon such streets or parts of streets so improved, the total cost of such improvements on all such streets may be apportioned proportionately according to the total linear frontage of the streets of parts of streets so improved.”

Section 9 provides for notice to all of the owners of real property abutting on the streets to be improved of the apportionment and assessment, for review by the town board and hearing of objections, for the filing of the assessment roll and for the payment of the assessment. It is also provided in this section that “ no action or proceeding shall be maintained to set aside, vacate, cancel, annul, review, reduce or otherwise test or affect the legality or validity of any such assessment unless such action or proceeding shall be commenced within thirty days after the filing of said final assessment-roll with the town clerk.”

It will be seen from the above that only owners of taxable real property fronting or abutting upon the street to be improved were qualified to execute the petition and initiate the proceeding and that the expense of the improvement could be imposed only upon owners of such taxable real property and that the order for the improvement to be made under section 4 of the act must be based upon a finding that the petition was executed by that class. It is clear from a reading of other sections of the act that the Legislature did not intend to limit those who might sign the petition or those who would be hable to pay for the cost of the improvement to such persons only as were subject to general taxation for other than local benefits. The legislative intent not to exempt the property of any owner abutting upon the improved streets from its proportionate burden of the assessment is shown by the provisions of sections 3 and 8. Under section 3, notice of the proposal to improve the streets must be given to all persons owning or possessing any interest in real property fronting or abutting upon the streets to be improved and is not limited to any particular class, and section 8 provides for the apportionment and assessment of the cost upon the property fronting or abutting upon the improved streets. It is an established rule of construction that the different parts of the same act relating to the same subject, must, unless a different intent is so palpable as to admit of no question, be taken together and construed as if they were all in the same section (Corning v. McCullough, 1 N. Y. 47, 57, 58). Applying that principle, the statute as a whole must be so construed as to bring within the taxing power of the town all property receiving benefits from the local improvement which abutted on the streets improved.

The property of plaintiff was subject to assessment and taxation for the local improvements unless expressly exempted by the act under consideration. It is impossible to read the act as a whole and discover any specific exemption or intent on the part of the Legislature to exempt school property abutting upon the streets to be improved. The Legislature did not so express itself. It cannot be read into the act by implication. Taxation is the rule, not the exception. Conversely, exemption from taxation is the exception and not the rule, and the Legislature must specifically exempt or clearly demonstrate its intent to exempt real property from taxation before any exemption can be claimed or maintained. Especially must this be so where unjust and inequitable results would obtain from the exemption of property deriving special benefit from an improvement.

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

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

Judgment accordingly.


author: Crane, Ch. J.

text:
    Regina N. Bressler, Individually and as Administratrix of the Estate of Simon A. Bressler, Deceased, Appellant, v. New York Rapid Transit Corporation, Respondent.
    Argued January 26, 1938;
    decided March 8, 1938.

      Stephen Callaghan, Ralph Stout and Albert D. Schanzer for appellant.
    The trial court properly held that the doctrine of res ipso loquitur applied. (Witcher v. Board of Education, 233 App. Div. 184; 236 App. Div. 293; D’Arcy v. Westchester Electric Ry. Co., 82 App. Div. 263; DeRoire v. Lehigh Valley R. R. Co., 205 App. Div. 549; McDonough v. Boston Elevated Ry., 208 Mass. 436; McNamara v. Boston & Maine R. R. Co., 202 Mass. 491; Porter v. St. Joseph Ry. Co., 311 Mo. 66; Kleinman v.
      Banner Laundry Co., 150 Minn. 515; Rapp v. Butler-Newark Bus Lines, 103 N. J. L. 512; 104 N. J. L. 444; Williams v. N. Y. & Queens County Ry. Co., 97 App. Div. 133; Cassady v. Old Colony Street Ry. Co., 184 Mass. 156; Powell v. Hudson Valley Ry. Co., 88 App. Div. 133; Rosenbloom v. Brooklyn Heights R. R. Co., 153 App. Div. 304; Partin v. Black Mountain Corp., 248 Ky. 32.)

      Harold L. Warner and George D. Yeomans for respondent.
    The trial court erred in applying the doctrine of res ipso loquitur. (Bressler v. N. Y. R. T. Corp., 270 N. Y. 409; Whitcher v. Board of Education, 233 App. Div. 184.)
   Crane, Ch. J.

On April 2, 1930, the plaintiff, Regina N. Bressler, was a passenger upon the Brighton Beach line of the defendant’s subway system. During the running of the train, and while she was sitting quietly in her seat, a pane of glass broke or shattered, a piece piercing her eye, destroying her sight. For a violation of that duty of care and caution which the railroad owed to her as a passenger, she brought this suit against it for negligence and has recovered a verdict of $15,000.

These facts in themselves made out a prima facie case of negligence, which means that in the absence of explanation showing freedom from negligence the law would hold the railroad company liable. This is known as the law of res ipso loquitur, and was stated by us in Bressler v. New York Rapid Transit Corp. (270 N. Y. 409) to be applicable here. Upon this theory the plaintiff has retried this case and proved these facts.

The defense undertook to meet the presumption arising from the happening of the accident itself, and offered testimony that the glass was broken by boys on the outside throwing stones against it. The trial judge properly left the question of fact to the jury: Had the presumption of want of care and negligence arising from such an accident to a passenger been overcome by the explanation offered by the defendant? If the explanation were true there was no liability. If the jury did not believe it, the verdict would be for the plaintiff. The jury found for the plaintiff, as above stated.

The plaintiff, in her testimony, did not attempt to show how the accident was caused. The fact that the glass was broken did not show the cause of breaking, nor did she claim on this trial that the broken glass was due to the negligence of the defendant in not discovering it before the train left the yard. All she knows, and all she attempted to testify to, was that while a-passenger in the car the glass shattered and she was blinded. This called upon the company to furnish the explanation, which it attempted to do. The plaintiff on cross-examination simply stated the condition of the glass. This had nothing whatever to do with the cause of its flying in her face. The jury did not believe that this was caused by a stone being thrown against it.

The Appellate Division has reversed the plaintiff’s judgment and dismissed the complaint, mistaking, we think, the effect of our former decision in 270 N. Y. 409. That reversal was due to the confused charge wherein, as we stated, the jury might have found the defendant hable for the cracked glass or the jerking of a train, neither of which under the circumstances proved negligence. The plaintiff here rests entirely upon the presumption arising from the accident itself, without attempting to furnish any cause or prove the facts of negligence, leaving it to the defendant under the rule of res ipso loquitur to show by evidence the cause of the accident. If upon all the evidence, the presumption upon the one hand, and the evidence for the defendant upon the other, the plaintiff has failed to prove negligence by a fair preponderance of evidence, then she is not entitled to recover. The jury found the evidence preponderating in her favor, and there should have been no reversal. /

For these reasons the judgment of the Appellate Division must be reversed, and that of the Trial Term reinstated, with costs. What is here stated applies also to the recovery of $1,500 in behalf of the husband.

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

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

Judgment accordingly.


author: Lehman, J.

text:
    In the Matter of the Application of Arthur J. Morgan, Respondent. Louis H. Pink, Superintendent of Insurance of the State of New York, as Liquidator of New York Title and Mortgage Company, Appellant; Mortgage Commission of the State of New York et al., Respondents.

      Argued January 6, 1938;
    decided March 8, 1938.

      Harry Rodwin, Irving H. Jurow, Joseph Lapidus and William A. Shea for appellant.
    The right of the company and of the Superintendent of Insurance as its rehabilitator to retain the one-half of one per cent differential was a valuable contract right of which they could not be deprived in the absence of actual default. (Matter of Bond & Mortgage Guarantee Co. [Bloom], 243 App. Div. 368;
      Matter of New York Title & Mortgage Co., 157 Misc. Rep. 271; 248 App. Div. 715; 272 N. Y. 556; Matter of Lawyers Mortgage Co. [London], 153 Misc. Rep. 536; Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69; President of Manhattan Co. v. Prudence Co., 266 N. Y. 202; Matter of Nemerov, 149 Misc. Rep. 797; Matter of New York Title & Mortgage Co. [Mannix], 153 Misc. Rep. 537; Matter of People [Lawyers Title & Guaranty Co.], 265 N. Y. 20; Matter of Bond & Mortgage Guarantee Co., 271 N. Y. 452; Kline v. 275 Madison Ave. Corp., 149 Misc. Rep. 747; Matter of People [Lawyers Title & Guar. Co.], 265 N. Y. 20.)

      Abraham N. Geller, Bernard A. Saslow and Leonard B. Frutkin for petitioner, respondent.
    The disability of the guaranty company which rendered performance of its guaranty impossible constitutes a failure of consideration rendering inoperative the agreement between it and the certificate holders. In return for such guaranty and by way of premium payment therefor the guaranty company was originally given the right to retain the differential between interest guaranteed to certificate holders and interest receivable from the mortgagor, and the consideration therefor having failed, the guaranty company! is thereby disentitled to retention of the differential. (Title Guarantee & Trust Co. v. Mortgage Comm., 273 N. Y. 415; Bowers v. Lawyers Mortgage Co., 285 U. S. 182; People v. Empire Mut. Life Ins. Co., 92 N. Y. 106; Matter of People [New York Title & Mort. Co.], 149 Misc. Rep. 488; Matter of People [Lawyers Title & Guar. Co.], 265 N. Y. 20; President & Directors of Manhattan Co. v. Prudence Co., 266 N. Y. 202; Matter of People [Bond & Mortgage Guar. Co.], 267 N. Y. 419.) Chapter 745 of the Laws of 1933 and subsequently enacted statutes, as well as the order entered in the proceeding for the rehabilitation of the guaranty company, require the distribution of the excess differential to the certificate holders. (Home Bldg. & Loan Assn. v. Blaisdell, 290 U. S. 398.)

      Maurice Finkelstein, Michael F. Dee, Louis Glickhome and Arthur Rosenberg for Mortgage Commission of the State of New York, respondent.
    While the operation of the company’s guaranty was in abeyance the company had no right to the premium for such guaranty. (Title Guarantee & Trust Co. v. Mortgage Comm., 273 N. Y. 415; Matter of Westover, Inc., 82 Fed. Rep. [2d] 177; Matter of New York Title & Mortgage Co., 160 Misc. Rep. 67; Matter of Lawyers Title & Guaranty Co., 157 Misc. Rep. 516; Bowers v. Lawyers Mortgage Co., 285 U. S. 182; United States v. Home Title Ins. Co., 285 U. S. 191; Matter of People [N. Y. Title & Mtge. Co.], 265 N. Y. 30; People v. Empire Mut. Life Ins. Co., 92 N. Y. 105; Matter of People [Bond & Mortgage Guarantee Co.], 267 N. Y. 419; Matter of Title & Mortgage Guarantee Co., 243 App. Div. 227; 267 N. Y. 533; Matter of People [Lawyers Title & Guarantee Co.], 265 N. Y. 20; President & Directors of Manhattan Co. v. Prudence Co., 266 N. Y. 202; Dolan v. Rodgers, 149 N. Y. 489; Sokoloff v. National City Bank, 239 N. Y. 158; 250 N. Y. 69.)

      Sidney Kaminsky and Sidney Harris for Clarence Horwitz, as trustee, respondent.
    Since the mortgage company had ceased to furnish the protection for which the premium was payment, it may not retain the unearned premium. (Title Guarantee & Trust Co. v. Mortgage Comm., 273 N. Y. 415; Bowers v. Lawyers Mortgage Co., 285 U. S. 182; United States v. Home Title Ins. Co., 285 U. S. 191; Matter of Union Guarantee & Mortgage Co. v. Van Schaick, 75 Fed. Rep. [2d] 984; 296 U. S. 594; Matter of People [Bond & Mortgage Guarantee Co.], 267 N. Y. 419; Matter of New York Title & Mortgage Co., 157 Misc. Rep. 271; 248 App. Div. 715; 272 N. Y. 556; Matter of Title & Mortgage Guarantee Co., 152 Misc. Rep. 428; 243 App. Div. 227; 267 N. Y. 553.)
   Lehman, J.

The petitioner, Arthur J. Morgan, is the holder of participation certificates in a mortgage upon premises in the borough of Manhattan. The mortgage bears interest at the rate of six per cent and requires the mortgagor to pay installments of principal to amortize the mortgage indebtedness. The certificates were issued by New York Title and Mortgage Company. They define the contractual relations between the holders and the mortgage company. These certificates provide among other things that the company guarantees payment of interest at the rate of 5| per cent per annum, when the same shall have become due under the terms of said bond and mortgage.” The company also guarantees payment of the principal sum secured by said bond and mortgage as and when collected but “ in any event within eighteen months after payment shall be demanded by the assured.” By the terms of the certificate the company is appointed irrevocably by the assured as the agent of the assured to collect, sue for and receive the principal and interest secured to be paid by said bond and mortgage ” and “ any excess of interest collected by the Company on said bond and mortgage beyond the rate above mentioned in this certificate shall belong to the Company.” This differential of one-half of one per cent is the stipulated compensation or consideration which the company receives for the obligations it has assumed in the certificates issued by it.

On May 1, 1933, and on succeeding due dates, the mortgagor failed to pay amortization installments of principal due on that date. Interest and taxes have been paid. At that time the New York Title and Mortgage Company was doing business but, like other mortgage guaranty companies, under restrictions imposed by the Superintendent of Insurance pursuant to authority conferred upon him by chapter 40 of the Laws of 1933. The company was forbidden to make any payment of principal or interest, due to holders of certificates, except from net income that the guaranty company might receive from the mortgage in which such holders were interested. The company continued to collect interest at the rate of six per cent from the mortgagor and paid to each certificate holder interest at the rate of five and one-half per cent. It retained one-half of one per cent as provided in the mortgage.

On August 4, 1933, an order of rehabilitation of the company was made and entered pursuant to the provisions of sections 401 and 402 of the Insurance Law (Cons. Laws, ch. 28). The Superintendent of Insurance was directed to take possession of the property of the company and to conduct its business. Acting through an agent he continued to collect the interest on the mortgage and, after paying over to the certificate holders interest at the guaranteed rate of five and one-half per cent, he retained for the company, out of the money collected, the stipulated compensation of one-half of one per cent. In July, 1935, an order of liquidation was made and entered. The Superintendent of Insurance continued to collect the interest due upon the mortgage and, after paying to the holders of certificates interest as guaranteed, he continued to retain the balance collected, until the petitioner obtained an order to show cause why the Superintendent should not account to and pay over to the certificate holders the one-half of one per cent differential retained by him, after deducting the reasonable expenses or charges for servicing the mortgage.

[q There has been no default on the part of the mortgage company upon its guaranty. It guaranteed payment of interest when due and the mortgagor has paid the interest on the due date. It promised to see that taxes were paid and the taxes have been paid. It guaranteed payment of installments of principal but only when collected or within eighteen months after payment shall be demanded by the assured,” and it is undisputed that, with exception unimportant here, no such demand has been made. On the other hand, at all times since March, 1933, the company was acting under legal restrictions and in financial difficulties which would have prevented it from carrying out its guaranty if demand had been made. For that reason the courts below have held that the company and the Superintendent of Insurance may retain out of the differential in interest, allowed to it as consideration for its guaranty, only the reasonable cost and expense of collecting the interest and servicing the mortgage. For that conclusion the courts have found support in our recent decision in Matter of People (Bond & Mortgage Guarantee Co.) (267 N. Y. 419).

The analogy to that case is incomplete. There, an owner of an entire guaranteed mortgage claimed, on equitable grounds, the right to terminate the contract of guaranty and to release the guarantor from its guaranty when the value of the guaranty was impaired by the force of uncontrollable supervening events ” (p. 426). When the petitioner, seeking relief for the future, invoked the equitable powers of the court, we held that the substantial injustice of the present one-sided result dictates the answer that the bank [the holder of the mortgage] should be absolved when the guarantee company is released.” In the present case the petitioner has been awarded moneys which the Superintendent of Insurance claims constitute the agreed compensation for a contractual obligation assumed and fully performed by the mortgage company. If under the terms of the contract these moneys belong to the company or its liquidator, the moneys cannot be taken away on “ equitable ” grounds. We find, however, that even upon strict principles of law the order of rehabilitation terminated the right of the mortgage company to retain the one-half of one per cent differential in interest as compensation for its guaranty. By force of that order, the functions of the company were suspended except in so far as the Superintendent of Insurance might choose to act in its place and, in consequence, some of the contractual obligations of the company and its correlative contractual rights were terminated, or at least became dormant.

The order of rehabilitation must be read in connection with the provisions of the Schackno Act (Laws of 1933, ch. 745). We have, in other cases, pointed out that this act constitutes the exercise of extraordinary legislative powers to meet an extraordinary economic situation. The Superintendent of Insurance becomes in effect a statutory receiver of companies in rehabilitation or Kquidation. His powers and his rights with respect to mortgage investments are defined by the statute. These he may take over, administer, exercise, conduct, execute and manage " or he “ may restrict, limit, govern, control, direct and regulate, any or all of the functions of any guaranty corporation ” ,(§ 3) and specifically he may “ receive, collect and sue for the interest and principal of the bonds, mortgages and other security held by such guaranty corporation and he may “ deduct from any sum so obtained a reasonable amount to cover the costs and expenses of any such collection ” (§ 4).

We read in these provisions a legislative intent to limit the amount which the Superintendent may retain. Concededly, after a company has been placed in liquidation, it will be unable to carry out its guaranty and it should be entitled to no further compensation for an obligation it cannot perform. It is true that while the company is in rehabilitation, theoretically at least, further performance of the form of this policy is still possible ” (Matter of People [Bond & Mortgage Guarantee Co.], supra), and if hereafter any case should ever arise where rehabilitation of a mortgage guarantee company is successfully completed and the guaranty is continued by a solvent company, then, perhaps, the company, if it has not defaulted upon its guaranty, may be entitled to retain the stipulated consideration for its guaranty. That question is not here. The effect, however, of a rehabilitation order, followed by a liquidation order, is not merely to postpone payment due under a guaranty, but from the date of the rehabilitation order the guaranty has been in abeyance and has never been revived. In such case, the Superintendent of Insurance may retain only the reasonable cost and expense of collecting the interest. The Legislature has so provided.

The part of the order which provides that the holders of certificates are also entitled to part of the differential retained by the company before the order of rehabilitation was made is interlocutory only and is not subject to review upon this appeal. We should point out, however, that what we have said leads to the conclusion that the company has the right to retain this differential in full and that a final decree for its payment to the holders of certificates would inevitably be reversed on appeal. Therefore, no accounting to determine the reasonable cost and expense of services rendered would serve any purpose. The restrictions before the order of rehabilitation were imposed in accordance with the statutes, were general and were intended to be temporary. Payment under the guaranty might be postponed, but the obligation under the guaranty remained in full force.

The order should be affirmed, without costs.

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

Order affirmed.


author: O’Brien, J.

text:
    Addison C. Thorne et al., Respondents, v. H. Russell Brand et al., Defendants, and Brand’s Restaurant Control Corporation, Appellant.
    Argued January 20, 1938;
    decided March 8, 1938.

      Edmund M. McCarthy and John F. Faulkner for appellant.
    The service upon the Secretary of State was invalid and should be vacated. (Hexter v. Day-Elder Motors Corp., 192 App. Div. 394; Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493; Kavanaugh v. Commonwealth Trust Co., 181 N. Y. 121; Potter v. Walker, 276 N. Y. 15; People ex rel. Solomon v. Brotherhood of Painters, 218 N. Y. 115.)

      Meyer Kraushaar for respondents.
    The service on the Secretary of State was proper and gives the court jurisdiction of the appellant corporation. (Tauza v. Susquehanna Coal Co., 220 N. Y. 259; Irving Trust Co. v. Brogan, 247 App. Div. 275; People v. Bankers’ Capital Corp., 137 Misc. Rep. 293; Atlantic Greyhound Lines, Inc., v. Metz, 70 Fed. Rep. [2d] 166; United Fuel Gas Co. v. Railroad Comm., 13 Fed. Rep. [2d] 510; Kitty Kelly Stores, Inc., v. Edison New York Stores, Inc., 243 App. Div. 563; Markowitz v. Fox, 244 App. Div. 802; Evarts v. Killingworth Mfg. Co., 20 Conn. 447; Colorado Debenture Corp. v. Lombard Inv. Co., 66 Kan. 251; Timolat v. Held Co., 17 Misc. Rep. 556; Zeltner v. Zeltner Brewing Co., 174 N. Y. 247; Inventions Corp. v. Hobbs, 244 Fed. Rep. 430; Miller v. Quincy, 179 N. Y. 294; Ernst v. Rutherford & Boiling Springs Gas Co., 38 App. Div. 388.)
   O’Brien, J.

Plaintiffs, as stockholders in appellant Brand’s Restaurant Control Corporation, brought this action on behalf of themselves and other stockholders of appellant corporation similarly situated and also on behalf of appellant corporation against appellant corporation and several individuals and other corporations. The complaint demands judgment against all the defendants other than the defendant Brand’s Restaurant Control Corporation” (this appellant), and demands that those other defendants pay to appellant Brand’s Restaurant Control Corporation certain moneys wrongfully acquired by them, assign certain patents to this appellant, restore shares of stock to it and be enjoined from further interfering with appellant’s property.

The complaint further alleges that defendant H. Russell Brand, owner of fifty-one per cent of the stock in appellant, has utilized its funds for his own benefit and has converted its patents to his own use and other of appellant’s assets to the corporate defendants. It also alleges that the reason why appellant has not been requested to bring this action and has been made a party defendant is because its directors, these individual defendants, all have been engaged in the wrongful acts set forth in the complaint. This action is brought in the interest of appellant and for its benefit but, on the allegations of the complaint, it is also one which appellant itself should have brought against the individual defendants and the other corporate defendants.

This appellant is a Delaware corporation which formerly transacted business in this State. On June 16, 1923, it filed its certificate of surrender of authority to do business here. Pursuant to section 216 (subd. 1-e) of the General Corporation Law (Cons. Laws, ch. 23), the summons and complaint in this action were served upon the Secretary of State. Appellant, Brand’s Restaurant Control Corporation, moved to vacate the service of the summons, and its motion was denied. The Appellate Division affirmed the order of Special Term and certified the question whether the service upon the Secretary of State was authorized by section 216 (subd. 1-e) of the General Corporation Law.

Section 216 (subd. 1-e) provides in respect to the certificate of a foreign corporation surrendering its authority to do business in this State, That it consents that process against it in an action or proceeding upon any liability or obligation incurred within this state before the filing of the certificate of surrender of authority, after the filing thereof, may be served upon the secretary of state.” If this action against this appellant is “ upon any liability or obligation incurred ” by it within this State, then the service was properly made. Such a liability or obligation to plaintiffs was incurred by appellant within this State before the filing of the certificate of surrender of authority.

The effect of the allegations of the complaint is that the individual defendant H. Russell Brand, with the connivance of the other individual defendants, all of whom are directors in appellant corporation, wrongfully diverted the property of appellant to the use of H. Russell Brand and of the corporate defendants other than appellant. Under the circumstances alleged in the complaint a duty rested upon appellant corporation to institute an action against the other defendants to recover its property so wrongfully abstracted. (Koral v. Savory, Inc., 276 N. Y. 215, 220.) Such an action could have been begun in this State. All the individual defendants who are alleged to have participated in the spoliation of appellant are residents of this State and all the defendant corporations, except this appellant and one other, are incorporated under the laws of New York. This action is, therefore, one within the meaning of section 216 (subd. 1-e) of the General Corporation Law, upon an obligation incurred by this appellant within this State before the filing of its certificate of surrender of authority.

The order should be affirmed, with costs, and the certified question answered Yes.”

Crane, Ch. J., Lehman, Loughran, Finch and Rippey, JJ., concur; Htjbbs, J., taking no part.

Order affirmed, etc.


author: Finch, J.

text:
    Louis F. Licht et al., Appellants and Respondents, v. State of New York, Respondent and Appellant.
    (Claim No. 23336.)
    Argued January 25, 1938;
    decided March 8, 1938,

      Edwin G. Jenkins for claimants, appellants and respondents.
    The liability is that of the State of New York and not of the county of Nassau. (Van Winkle v. Van Winkle, 184 N. Y. 193; Ansorge v. Belfer, 248 N. Y. 145; Monogram Development Co. v. Nathen Const. Co., 253 N. Y. 320; People ex rel. Janes v. Dickey, 206 N. Y. 581; People ex rel. Brisbane v. Zoll, 97 N. Y. 203; People ex rel. Bennett v. Dickey, 148 App. Div. 663; Matter of Grade Crossing Commrs., 209 N. Y. 139.) There was an appropriation by the State of New York. (Village of St. Johnsville v. Smith, 184 N. Y. 343.) The principle of damnum absque injuria does not apply because there has been an actual taking. (Cons. Laws, ch. 65, §§ 777, 779; Sauer v. City of New York, 180 N. Y. 27; Galveston R. R. Co. v. Fuller, 63 Tex. 467; Mellor v. City of Philadelphia, 160 Penn. St. 614; Joslin Mfg. Co. v. City of Providence, 262 U. S. 668; Earle v. Commonwealth, 180 Mass. 579; People ex rel. Janes v. Stillings, 197 N. Y. 548; People ex rel. Purdy v. Fitch, 147 N. Y. 355; People ex rel. Brisbane v. Zoll, 97 N. Y. 203; Matter of Hoyt v. City of New York, 162 App. Div. 469; 213 N. Y. 651; Matter of Grade Crossing Commrs., 17 App. Div. 54; 154 N. Y. 550; Winthrop v. Delany, 120 App. Div. 801; 192 N. Y. 533; Stanwood v. City of Malden, 157 Mass. 17; Matter of Meyer v. Adam, 63 App. Div. 540; 169 N. Y. 605; Matter of Grade Crossing Commrs., 201 N. Y. 32.) Claimants have a private easement different from and in addition to the easements of the general public.
      (Eels v. American Tel. & Tel. Co., 143 N. Y. 133; Kane v. Elev. R. R. Co., 125 N. Y. 164; Bohm v. Metropolitan El. Ry. Co., 129 N. Y. 576; Maynell v. Saltmarsh, 1 Keb. 847; Fritz v. Hobson, 14 Ch. Div. 542; Pierce v. Dart, 7 Cow. 609; Hood v. Smith, 5 Wkly. Dig. 117.) The particular easement accruing to the claimants is an easement of access in both directions. (Taylor v. Hopper, 62 N. Y. 649; Buchholz v. N. Y., Lake Erie & W. R. R. Co., 148 N. Y. 640; Ackerman v. True, 56 App. Div. 54; Gillender v. New York, 127 App. Div. 612; Reis v. City of New York, 188 N. Y. 58; Matter of 29th St., 1 Hill, 189; Matter of Hoyt v. City of New York, 162 App. Div. 469; 213 N. Y. 651; Matter of Grade Crossing Commrs., 210 App. Div. 328; 240 N. Y. 612; Matter of City of New York [Sedgwick Ave.], 213 N. Y. 438; Matter of William St., 103 Misc. Rep. 313; 188 App. Div. 668; 228 N. Y. 523; O’Brien v. Central L. & S. Co., 158 Ind. 218; Park City Yacht Club v. Bridgeport, 85 Conn. 365; Vendenbergher v. Minn., 98 Minn. 329.) The easement which the plaintiff has is property which cannot be taken without due process of law and without compensation. (Forster v. Scott, 136 N. Y. 577; Matter of Commissioner of Public Works, 135 App. Div. 561; People ex rel. M. S. Inst. v. Otis, 90 N. Y. 48; Long Island R. R. Co. v. Garvey, 159 N. Y. 334.) The interference with the easements of an abutting owner is a taking of them pro tanto and entitles the owner to payment therefor, and in addition the damage done to his adjoining lands. (Bohm v. M. E. R. Co., 129 N. Y. 576; Flynn v. N. Y., W. & B. Ry. Co., 218 N. Y. 140; Matter of City of New York, 193 N. Y. 117; 227 N. Y. 119; Lahr v. Metropolitan El. Ry. Co., 104 N. Y. 268.)

      John J. Bennett, Jr., Attorney-General (Leon M. Layden and Henry Epstein of counsel) for defendant, respondent and appellant.
    The liability, if any, is that of the county of Nassau and not of the State of New York. (L. 1928, ch. 135; Walpole v. Massachusetts Chemical Co., 192 Mass. 66.) There was no appropriation by the State of New York. (Stewart v. Wallis, 30 Barb. 344; People ex rel. Johnson v. Whitney’s Point, 32 Hun, 508; Matter of Laidlaw, 153 App. Div. 343; Village of St. Johnsville v. Smith, 184 N. Y. 341; N. Y. C. & H. R. R. R. Co. v. State, 37 App. Div. 57; 166 N. Y. 286; Matter of St. Lawrence v. Adirondack R. R. Co., 133 N. Y. 270.) The common law provides no remedy to claimants for consequential damages resulting from the closing of the so-called “ Ancient Road.” (Smith v. Boston & Albany R. R. Co., 181 N. Y. 132; Uline v. N. Y. C. & H. R. R. R. Co., 101 N. Y. 98; Conklin v. N. Y., Ont. & West. Ry. Co., 102 N. Y. 107; Matter of Strauss, 231 N. Y. 620; Miller v. State, 229 App. Div. 423; Van Aken v. State, 261 N. Y. 360; West 158th St. Garage Corp. v. Fullen, 139 Misc. Rep. 245; Coster v. Mayor, 43 N. Y. 399; Matter of Grade Crossing Commrs., 201 N. Y. 32; McCabe v. City of New York, 213 N. Y. 468; Lange v. State, 133 Misc. Rep. 101; City of Corning v. O’Neill, 180 App. Div. 454; 227 N. Y. 625.)
   Finch, J.

The claimants own real property abutting on a public highway. This highway afforded them access in both directions to and from streets or roads. They also owned a permanent easement over the property adjoining theirs, for the installation and maintenance of water, gas, electric and telephone facilities to supply their premises. In 1928 the county of Nassau, by condemnation proceedings, acquired the adjoining property abutting on this highway, but did not acquire title to the road itself. In 1931 the county deeded title to this property to the State, and in the following year the Long Island Park Commission, as agent of the State, constructed thereon the Northern State parkway. In so doing, the highway, which passes in front of the claimants’ property, was closed by the construction of an embankment, and the claimants, therefore, lost all means of access in a westerly direction. The construction of the Northern State parkway also cut off the claimants’ easements over the adjoining property for the purpose of bringing gas, electric, water and telephone facilities from the nearest highway. The claimants now have access only from the east, and gas, electric and water and telephone facilities can now be brought to the claimants’ property only at greater expense from the road to the east of the property or, possibly, under the parkway, which method apparently, even if practicable, would be extremely expensive.

The Court of Claims rendered judgment in favor of claimants, awarding them damages for the loss of access and for the loss of easements for the bringing of public utility facilities to their property. The Appellate Division has modified and reduced the judgment to the amount awarded for the loss of the utility easements. Both parties appeal.

The State, and not the county of Nassau, is liable for the damages suffered by the claimants. The acquisition of the property by the county did not result in injury or detriment to the claimants. It was only when the Park Commission constructed the parkway, and cut off access that the harm was done. The damages were caused when the physical change was made. (People ex rel. Janes v. Dickey, 206 N. Y. 581. See Matter of Grade Crossing Commissioners of Buffalo, 209 N. Y. 139, 144.)

Consequential damages resulting from changes of grade or other changes in highways on the part of the State generally are damnum absque injuria unless the State, by legislative action, assumes liability. In the case at bar there is such statutory assumption of liability, and it is unnecessary to consider whether liability might exist on other grounds.

Sections 770-781 of the Conservation Law (Cons. Laws, ch. 65) deal with the Long Island State Park Commission. Section 777 (subd. 7) gives the Commission the power “ * * * to agree with the owners or persons interested in any real estate in which said commission is authorized to acquire the fee or any lesser interest, for the acquisition of said real estate, or any interest therein, and the compensation to be paid therefor; * * *.”

Subdivision 8 of that section provides that: “If the said commission shall be unable to agree with the owners of or other persons having an interest in said real estate, or if by reason of legal incapacity, or absence of such owners or persons interested as aforesaid, or if for any other reason, no agreement can be made for the purchase of said real estate, the same may be from time to time acquired by the commission by condemnation proceedings or by appropriation in the name of the state * * *. The commission, if it shall acquire lands by appropriation, shall acquire them in the manner provided by section fifty-nine of the conservation law for the appropriation of certain lands, and all the provisions of such section shall as far as practicable apply to the acquisition of such lands in the same manner and with the same effect as though the lands herein authorized to be acquired, were mentioned in such section.”

In section 779 it is provided that “ real estate,” as used in these sections, signifies, among other things, “ any and all easements and incorporeal hereditaments.” It further provides that “ The term real estate shall also be construed to include all real estate (as the term is above defined) heretofore * * * used for * * * highway, telephone, telegraph or other public purposes, providing the persons or corporations owning such real estate, or claiming interest therein, shall be allowed the perpetual use, for such purpose, of the same or of such other real estate to be acquired for the purposes of this part of this article as will afford, practicable route or location for such * * * highway, telephone, telegraph or other public purpose and commensurate with and adapted to its needs; and provided, also, that such persons or corporations shall not, directly or indirectly, be subject to expense, loss, or damage, by reason of changing such route or location, but that such expense, loss or damage shall be borne in like manner as the expenses incurred in carrying out the provisions of this part of this article.”

Under subdivision 7 of section 59 of the Conservation Law, the Court of Claims is given jurisdiction to hear and determine claims for legal damages caused by appropriation, when such claims are not adjusted by agreement.

It is true that there has been no formal appropriation, but without formal appropriation all access to claimants’ property from the west has been cut off physically by the fill placed upon the surface of the road to support the parkway. A cul-de-sac to the west replaces an exit to Marcus avenue, to the new parkway, and to any highway or street. This was not a change of grade. It was more. It comprised a wiping out of the interest of the claimants in this highway to the west. In such event section 779 imposes an obligation on the State to relocate for the interest ” of the claimants in the highway, which has been destroyed, a perpetual use either in this portion of the highway or of such other real estate to be acquired for the purposes of this article as will afford practicable route or location for such * * * highway * * *; ” and providing also that such person shall not, directly or indirectly, be subject to expense, loss or damage by reason of changing such route or location, but that such expense, loss or damage shall be borne in like manner as the expenses incurred in carrying out the provisions of this part of the article. This creates and reserves to the claimant the right to compensation if no relocation of a highway, destroyed, is provided.

The Appellate Division has reversed this portion of the judgment on the law and the facts. In consequence there must be a reversal and a new trial.

The claimants clearly are entitled to recover damages for the public utility easements which have been appropriated by the State. There is evidence to support the award made by the Court of Claims for these easements, and the Appellate Division having affirmed that portion of the judgment, there is nothing to be reviewed by this court.

It follows that on the appeal by the plaintiffs the judgments should be reversed and a new trial granted, with costs to abide the event. On the appeal by the defendant, the judgment should be affirmed, with costs.

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

Judgment accordingly.


text:
    Lena Soma, Appellant, v. George Handrulis, Defendant, and Sarah Alkoff et al., Respondents.

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

      Otho S. Bowling and Robert H. Elder for appellant.
    The check indorsed “ for deposit Lena Soma ” was non-negotiable. For that reason the thief could confer no title on the Federal Reserve Bank, directly or indirectly, and the bank’s act in collecting the check and forwarding the proceeds to those not entitled thereto was conversion. (Ballard v. Burgett, 40 N. Y. 314; Bassett v. Spofford, 45 N. Y. 387; Moore v. Metropolitan Nat. Bank, 55 N. Y. 41; Soltau v. Gerdau, 119 N. Y. 380.) Plaintiff is not estopped from denying ratification because she did not promptly notify the Federal Reserve Bank of the wrong perpetrated upon her. The doctrine of estoppel by silence is one which is implied when there is a duty to speak, and when the third party acts to his disadvantage relying upon that silence. (People’s Trust Co. v. Smith, 215 N. Y. 488; Stern v. President of Manhattan Co., 134 Misc. Rep. 351; 228 App. Div. 616; Hamlin v. Sears, 82 N. Y. 327.)

      Walter S. Logan and Robert H. Brome for Federal Reserve Bank of New York, respondent.
    The Globe Bank, as indorsee in possession of the check, indorsed “ For deposit Lena Soma,” was thereby empowered to collect the check as agent for plaintiff; defendant Federal Reserve Bank received and collected the check as subsequent agent collecting bank in reliance on the Globe Bank’s authority to collect; the acts of defendant Federal Reserve Bank were entirely consistent with plaintiff’s restrictive indorsement and with her ownership of the check as indicated by such indorsement, and it cannot be held liable for default of the Globe Bank. (Haskell v. Avery, 181 Mass. 106; Carson v. Federal Reserve Bank, 254 N. Y. 218; Doubleday v. Kress, 50 N. Y. 410; Baurhenn v. Fidelity & Deposit Co., 114 N. J. L. 99.) Defendant Federal Reserve Bank had no notice that proceeds would not be paid to plaintiff. (Cohn v. Trade Bank, 146 Misc. Rep. 771; 240 App. Div. 966; Coopersmith v. Maunz, 227 App. Div. 119.) Plaintiff is estopped to assert lack of authority in defendant Handrulis to deposit the check for collection, or in the Globe Bank to collect it. (Bassett v. Spofford, 45 N. Y. 387; Moore v. Metropolitan Nat. Bank, 55 N. Y. 41; Soltau v. Gerdau, 119 N. Y. 380; National Safe Deposit Co., v. Hibbs, 229 U. S. 391; Union Trust Co. v. Oliver, 214 N. Y. 517; MacAndrews & Forbes Co. v. United States, 23 Fed. Rep. [2d] 667; Loomis v. Downs, 26 Ill. App. 257; Baurhenn v. Fidelity & Deposit Co., 114 N. J. L. 99; Shapiro v. Capital Bakers, 17 Fed. Supp. 3; People v. Bank of North America, 75 N. Y. 547; Salen v. Bank of State of New York, 110 App. Div. 636.) Plaintiff’s subsequent action and silence, with full knowledge of all material facts, constitute ratification of the collection of the check, and also estop her from now asserting a claim against defendant Federal Reserve Bank. (Hughes v. Neal Loan & Banking Co., 97 Ga. 383; Roberts v. Bank of Eufaula, 20 Ga. App. 221; Wardrop v. Dunlap, 1 Hun, 325; 59 N. Y. 624; Goldstein v. Tank, 73 Misc. Rep. 300; 149 App. Div. 341; Fatta v. Edgerton, 137 N. Y. Supp. 226; 157 App. Div. 852; Leviten v. Bickley, Mandeville & Wimple, 35 Fed. Rep. [2d] 825; Kunglig Jarnvagsstyrelsen v. National City Bank, 20 Fed. Rep. [2d] 307; Wilkins v. Waldo Lumber Co., 130 Me. 5; Rothschild v. Title Guarantee & Trust Co., 204 N. Y. 458.)

      Irvin E. Klein for Sarah Alkoff, respondent.
    Assuming plaintiff’s testimony is credible, nevertheless, plaintiff, by her conduct, is .estopped from recovering as against the defendant Alkoff. (Matter of McArdle, 140 Misc. Rep. 257.)
   Rippey, J.

This is an action for conversion. The case was submitted to the jury as against the defendant Handrulis only. After the jury had returned a verdict in favor of the plaintiff as against Handrulis, the trial court set the verdict aside and granted a new trial as to him. The question of the correctness of that result is not before this court. The complaint was dismissed at the close of plaintiff’s case as against the defendant Federal Reserve Bank and at the close of all the testimony as against the defendant Sarah Alkoff. Judgments of dismissal as to those defendants were affirmed by the Appellate Division, but they have certified to us that a question of law is involved which ought to be reviewed by this court.

Except for admissions in the pleadings and stipulated facts, the only evidence produced by plaintiff was her own testimony. She lived in Yonkers, New York. She was an illiterate Galician — being able neither to read nor write — had only a slight understanding of the English language and was employed as a weaver in a Yonkers carpet factory. In July, 1931, she sold a piece of property which she owned and which was located in the city of Yonkers to one Martha Thomas, and the deal .was closed at the home of the purchaser at about three-thirty p. m. on the afternoon of Friday, July 31, 1931. Present at the closing were the purchaser and her mother, the plaintiff and one Dora Jungman, an attorney, the associate of the attorney who represented the purchaser ón the closing of the transaction. A check for $9,947.26, that being the net amount coming to plaintiff from the sale, was delivered to her by this attorney. It was dated August 1, 1931, payable to her order, signed by Martha Thomas and drawn on the Westchester Trust Company of Yonkers, New York. Plaintiff had a deposit account at the Yonkers Savings Bank and presumably intended to deposit the check in that account. But the check was delivered to her after banking hours, after the bank had closed for the day, and Miss Jungman wrote on the back of the check, in the presence of the plaintiff and with her authority, the words “for deposit Lena Soma ” and at the time stated to plaintiff that no one could cash the check except herself with such an indorsement. She, nevertheless, told plaintiff to deposit the check as soon as possible.

During the evening of July 31st George Handrulis, a real estate operator with whom plaintiff had become acquainted some fifteen days before, took her to Brooklyn, where he lived, and induced her to turn the check over to him, persuading her that she might lose it or that someone might steal it from her if she retained it. He agreed to put it in his safe for safe-keeping until the following (Saturday) morning, when he was to return the check to her. Instead of doing as he agreed, he caused the check to be indorsed by the defendant Sarah Alkoff and deposited by her on August 1, 1931, in her account in the Globe Bank and Trust Company, Brooklyn, New York. The Globe Bank was a member bank of the Federal Reserve System. It thereupon twice stamped its indorsement on the check below the signature of Sarah Alkoff and delivered it, at four-ten p. m., August 1, 1931, to the defendant Federal Reserve Bank of New York for collection for the account of the Globe Bank. The Federal Reserve Bank thereupon presented it to the Westchester Trust Company on August 4th, received payment from the payee bank and paid the proceeds of the collection over to the Globe Bank, which, in turn, credited the same to the account of the defendant Sarah Alkoff. On August 11th and subsequently, the defendant Alkoff gave Handrulis checks on her account on which he withdrew the proceeds of the misappropriated check. The plaintiff testified that she did not authorize Handrulis to deposit the check in the Globe Bank or to cash it. She was not a depositor in the Globe Bank and had no transactions with it. She had no transactions with Sarah Alkoff and did not know her. She had no transaction with the Federal Reserve Bank of New York. She made no demand on that bank to reimburse her for her loss before commencing this action.

Before the close of plaintiff’s case, the defendants attempted to show, upon the cross-examination of plaintiff, that she had voluntarily surrendered the check to Handrulis and had authorized him to collect and use the proceeds as a loan. It cannot be said, as matter of law, that they made any progress. Likewise, defendant barde asserts that her testimony indicates that she ratified the transactions of all parties dealing with the check. It was brought out during her examination that, on Tuesday, August 4, 1931, she demanded from Handrulis the return of her check. He then told her he had cashed it. She asked him what she could do then, whereupon he handed her a note signed by himself and told her that it was just as good as the money. She demurred and told him that she did not want it. She said that after an argument she finally took it, thinking that if she did not she would have nothing to show.” He told her that she should not worry and that he would return the money to her in six months. A day or so later she again demanded the check, and her testimony as to his reply was as follows: He says that he cashed it and he hasn’t got any check with him. The check is cashed, so he says, ‘ Don’t worry, I am honest man, and I will return every penny back to you, don’t be afraid.’ ” At the time, unknown to plaintiff, Handrulis was under indictment for grand larceny in the first degree for having stolen $3,955 from the Kensington Bank of Brooklyn. The indictment was found October 27, 1927. He was subsequently convicted on January 20, 1932, and sent to Sing Sing Prison. Since his release, plaintiff has been trying to secure money from him to reimburse her for her loss. She has received six hundred dollars but there is no evidence that the money was collected or applied on the note in question. The note, plaintiff says, was not accepted by her in excuse for or as satisfaction of the theft or as part of a loan transaction, but merely as evidence, for otherwise, she thought, she would have nothing to show.” A necessary element of ratification is intent (Glenn v. Garth, 133 N. Y. 18, 35; Merritt v. Bissell, 155 N. Y. 396, 400). If there was evidence of ratification in the above or other testimony produced while plaintiff had the case, it presented merely a question of fact. It did not form the basis for a nonsuit. Inasmuch as the nonsuit was granted on motion of the defendant Federal Reserve Bank at the close of plaintiff’s case, as to it the testimony of witnesses produced by defendants Handrulis and Alkoff cannot be considered. Nor is there any evidence upon which the nonsuit as to the bank may be sustained on the theory that plaintiff is estopped from denying ratification by her failure promptly to notify the defendant bank of her loss. Under the facts in this case, she had no duty to speak (Stern v. President, etc., of Manhattan Co., 134 Misc. Rep. 351; affd., 228 App. Div. 616), nor did the defendant bank act to its detriment, on the strength of her silence (Hamlin v. Sears, 82 N. Y. 327, 332).

From the testimony adduced by plaintiff before the nonsuit it thus appears that the check was delivered to Handrulis solely for the purpose of safe-keeping, that plaintiff did not authorize him to cash it, or to deposit it for collection, or to use it for any purpose. Handulis had mere naked possession of it for a special purpose. His conversion of the proceeds under the recited facts constituted larceny, and no question of negligence or estoppel by the owner can arise (Bassett v. Spofford, 45 N. Y. 387). The defendant Alkoff is in no better position than Handrulis. She took the check with definite notice that it still belonged to the plaintiff and was liable for conversion. She has pleaded neither waiver, estoppel nor ratification. She set up in her answer that the plaintiff loaned the money to Handrulis and that he had authority to collect the check. Both she and Handrulis were entitled to defend, of course, upon the ground alleged, but whether the evidence which was produced on the trial or may be produced might sufficiently establish that defense is solely a question of fact for the jury.

The Globe Bank and the defendant bank were likewise liable for the conversion of the check, subject to any appropriate defenses that may be interposed and established.

(1) The Globe Bank had no actual authority to receive or collect the check for plaintiff or any one else. The indorsement by the payee “ for deposit ” was not an indorsement in blank. The check was not thereby negotiable in the hands of any person to whom it might come (2 Bouvier’s Law Dictionary [Rawle’s Third Revision, 8th ed.], p. 1546). It was not payable to bearer, could not be negotiated by delivery, and no title was transferred to any one. It still remained, at least until it was paid, the property of the plaintiff (Bank of Clarke County v. Gilman, 81 Hun, 486; affd., 152 N. Y. 634). The indorsement was restrictive and prohibited further negotiation for any purpose except for collection for deposit in her account (Neg. Inst. Law, [Cons. Laws, ch. 38], §§ 66, 67, 350-c; Cohn v. Trade Bank, 146 Misc. Rep. 771; 240 App. Div. 966; Hermann v. Union Bank, 1 Rob. [La.] 222) in a bank which she herself selected. Plaintiff did not specify in the indorsement that it might be deposited with any bank nor with any bank with which she had not established the relation of depositor. She authorized no one to deposit the check for any purpose with the Globe Bank or with Alkoff or with the Federal Reserve Bank. This the Globe Bank, Alkoff and the Federal Reserve Bank knew when they severally received the check. The indorsement for deposit gave notice of its restrictive and non-negotiable character generally and of plaintiff’s continued title to all parties into whose hands the check might come (Bank of Clarke County v. Gilman, supra; Manufacturers Nat. Bank v. Continental Bank, 148 Mass. 553; Commercial Bank v. Armstrong, 148 U. S. 50, 56, 57).

(2) The Globe Bank acquired no title to the check. It did not pretend or assume to acquire any title directly from plaintiff. It did not deposit it in the name of plaintiff; neither did it receive the proceeds for plaintiff nor pretend to do so. It neither had nor pretended to have any relations with plaintiff whatsoever. It received the check from Alkoff, who was neither the owner of the check nor the agent of the owner, and deposited the check in Alkoff’s account and thereafter paid out the proceeds to her or on her order. It dealt with the check at its peril (Bank of Clarke County v. Gilman, supra; Soltau v. Gerdau, 119 N. Y. 380, 397) as did any one subsequently handling it with notice of its non-negotiable character.

(3) Nor did the indorsement confer upon the Globe Bank apparent authority to receive or collect the check; it was, therefore, necessary for defendants to show actual authority for the bank and Alkoff to so deal with it (Johnson v. Donnell, 90 N. Y. 1). This they did not do. On the contrary, it was established that the Globe Bank put the check through for collection' and collected the check, not for the owner or with her authority, but for Alkoff, who, by the very terms of the indorsement had no title to the check or right to name a collecting agent or receive any of the proceeds.

(4) The indorsement of Sarah Alkoff was neither special, restrictive nor conditional, but was rather an indorsement in blank without any indication by appropriate words that she indorsed in any other capacity and represented to those who thereafter came into possession of the instrument that she was the owner (White v. Continental Nat. Bank, 64 N. Y. 316, 320). The Federal Reserve Bank must rely on that rule and assert that Alkoff had title as a holder in due course for its authority to undertake to collect on the check and be relieved from liability for conversion. But the indorsement of the payee told that bank that Sarah Alkoff was not the owner. Her indorsement > destroyed its negotiability for any purpose. To constitute notice of defect in the title of one negotiating the instrument or of infirmity in the instrument, a person subsequently dealing with it must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.” (Neg. Inst. Law, § 95.) Here, actual knowledge of the non-negotiable character of the check was brought home to the collecting bank. It is said that negligence is not enough and that bad faith must exist (Coppersmith v. Maunz, 227 App. Div. 119). Even so, gross carelessness may constitute evidence of bad faith (Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191). Even if the actual good faith of the Federal Reserve Bank in dealing with the instrument is not questioned, if the facts shown by the instrument itself should have led it to inquire, and by inquiry it would have discovered the true situation, in a commercial sense it acted in bad faith and the law will withhold from it such protection as it would otherwise have been entitled to receive (Hoberg v. Sofranscy, 217 App. Div. 546; Ward v. City Trust Co., 192 N. Y. 61, 69, 70). We think the indorsement by the payee showing that she retained legal ownership of the check and its proceeds, coupled with the indorsement in blank of Sarah Alkoff importing ownership in her, put the bank on inquiry. Inquiry would have disclosed the irregular transaction and would have shown the theft of the check. Failure to make this inquiry establishes, in a legal and commercial sense, bad faith on the part of the bank and makes it hable to plaintiff for the diversion and loss of the check and its proceeds (Neg. Inst. Law, §§ 94, 95), even within the reservations of limited liability of a collecting bank under the Negotiable Instruments Law (§ 350-d) and section 5 of Regulation J of the Federal Reserve Board.

(5) Defendant bank asserts that no claim was made at the trial on behalf of plaintiff that Alkoff’s indorsement was any notice to defendant Federal Reserve Bank that the check had not been deposited by plaintiff.” The evidence on the subject tended to indicate the contrary. If counsel means that plaintiff’s counsel did not argue that point at the time the motion for a new trial was made, it is a sufficient answer, if the point is of any importance, to say that the trial court gave him little or no opportunity to argue anything.

The Federal Reserve Bank, in its answer, set up four separate affirmative defenses. The first defense was in substance that it took the check solely as collecting agent for the Globe Bank without knowledge, information or notice as to any wrongful taking or conversion of the check and that, upon performing its duty under the Federal Reserve Act as collecting agent of making the collection and turning the proceeds over to the Globe Bank, it had performed its full duty and had no further liability. In view of the definite affirmative notice of non-negotiability for any purpose furnished by the indorsement of plaintiff “ for deposit ” and by the indorsement of Sarah Alkoff in blank, that defense was not available. Its second defense was that the check had been turned over to Handrulis by plaintiff in pursuance of an agreement whereby she loaned the money to Handrulis and accepted his note for the amount of the loan, that he was rightfully in possession of the check, had authority to negotiate it, and that the Globe Bank came rightfully into its possession. Its third defense was that the plaintiff, with full knowledge or means of knowledge of all the relevant facts, ratified, confirmed and adopted the acts of the Federal Reserve Bank and is estopped from asserting any claim or cause of action against it. The fourth defense was to the effect that by virtue of the failure of plaintiff to give timely notice to it of the conversion, it had lost its right to reimbursement from the Globe Bank, whose affairs and business had in the interim been liquidated. We have already called attention to the subject-matter and standing of the first and third defenses. We are not here, of course, required to pass upon the validity of any of these defenses. The second defense raised questions of fact for the jury, even upon the state of the record at the close of the plaintiff’s case.

The judgments should be reversed as to the defendants Alkoff and the Federal Reserve Bank of New York and a new trial granted as against both defendants, with costs to abide the event.

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

Judgment accordingly.