text:
    (Argued June 3, 1935;
    decided July 11, 1935.)

      William, D. Mitchell, Clinton C. Swan and Frank S. Stevens, Jr., for appellants.
    The provisions of the will show clearly that the testator intended to give to his widow personal property (other than cash or evidences of indebtedness) located or ordinarily kept at Mount Kisco, and thereby to confirm to her the title to the dwelling’s contents. (Kinkele v. Wilson, 151 N. Y. 269; Matter of Reynolds, 124 N. Y. 388; Matter of Pulis, 220 N. Y. 196; Matter .of Martin, 255 N. Y. 248; Matter of Rooker, 248 N. Y. 361; Salter v. Drowne, 205 N. Y. 204; Matter of Bump, 234 N. Y. 60.)

      C. W. Ticknor for respondents.
    It is the duty of a
   Lehman, J.

The testator resided in Mount Kisco. After his marriage in 1907 he transferred his home there to his wife. By his last will and testament, executed in 1925, he provided: I give and bequeath to my wife, Etta E. Nelson, all personal property other than cash or evidences of indebtedness which I may have at my decease, located or ordinarily kept on the premises at Mount Y., where I now reside.” All the residue of his property, both real and personal,” the testator devised and bequeathed to his executors in trust to pay the rents, income and profits thereof to his wife so long as she lived and remained unmarried.

The testator’s will was probated after his death in 1933. The executors’ accounts show that the testator left no real property. The personal property which came the possession of the executors consists of stocks and bonds, kept by the testator in a safe deposit box in New York city, of the market value of over $400,000; a small amount of money and mortgages of the face value of $68,000 which the testator customarily kept at his home in Mount Kisco. The only tangible personal property of the testator kept at the home in Mount Kisco were five race horses, valued at $2,900.

The executors ask instruction as to whether the stocks, bonds and cash, not kept at Mount Kisco, pass to the testator’s wife under the bequest of all personal property other than cash or evidences of indebtedness which I may have at my decease, located or ordinarily kept on the premises at Mount Kisco, N. Y., where I now reside.” We are told that through that clause the testator intended to bequeath to his wife absolutely all his stock and bonds and other personal property, customarily kept in his safe deposit box or bank in the city of New York, and that he intended that the residue of his estate, to be held in trust, should include no personal property of any kind except the cash and evidences of indebtedness located or ordinarily kept ” at the testator’s residence in Mount Kisco. If that was the intention of the testator, he used language which was admirably calculated to veil his intention.

It seems evident that the testator intended to give to his wife the tangible personal property located at their common residence and the income of all other property. He used apt language to express that intention. He customarily kept at his residence some mortgages. The language of the will makes entirely clear that such mortgages, together with any cash that he might have there at his death, should not pass to the wife. The gift to her of personal property other than cash or evidences of indebtedness which I may have at my decease ” is followed by the limitation, “ located or ordinarily kept on the premises at Mount Kisco, N. Y., where T now reside.” The limitation is separated from the gift by a comma and qualifies the entire gift. The gift includes only personal property located at the residence in Mount Kisco.

The courts will read a will as a whole in order to discern the intention of a testator. When that intention is discovered, the courts will not thwart it by strict and grammatical construction of particular clauses. Punctuation may, it has been said, be disregarded and phrases transposed in order to give effect to the intention of the testator. None the less, the intention must be revealed by the language of the will. The words must be construed in order to find the sense in which they were used by the testator. They may not be perverted or disregarded in order to give effect to an intention which possibly the testator may have had but which is not revealed by the language used in the will.

Here we find language which, construed either grammatically or in natural sense, limits the gift to the wife to property located at the testator’s residence in Mount Kisco and excepts from the gift cash or evidences of indebtedness. Then we find a gift of the residue of the testator’s property in trust so that the wife may enjoy the income during her life, or so long as she remains a widow. Only by labored and unnatural construction of the language of the will, could it be found to mean that the testator intended an absolute gift of all his personal property, wherever situated, with the exception only of cash or evidences of indebtedness located at the residence in Mount Kisco, and thus excluded from the trust of the residue all securities not located there.

It is urged, however, that such an intention, implied though not expressed, may be read into the disposition made by the testator of the remainder of the trust fund after the death of the testator’s wife. The testator’s next of kin were two nephews. They were unmarried when the will was made. The testator apparently felt no intimate personal affection for his nephews but desired that one of them should name a son after him. He provided in his will that if at the time of death or remarriage of his wife, his older nephew, Harry Nelson, should have a son of lawful issue, named William H. Nelson ” then living, the remainder of the trust fund should go to the said William H. Nelson.” If Harry Nelson did not then have a son so named, but the younger nephew, George Nelson, did have a son named William H. Nelson, then the remainder should go to the said William H. Nelson.” If neither nephew had a son so named, the remainder was to be distributed amongst those who would at that time be the testator’s next of kin.

Perhaps the testator was not greatly interested in the disposition of the remainder of his property unless it could be taken by one of his own blood, bearing his name. Perhaps the testator could have exercised a stronger pressure upon his nephews to name a son after him by different provision in his will, or by offer made to either during his life. All that is conjecture. The will itself in unambiguous terms makes absolute gift to the wife only of personal property located at the testator’s home. The residue, including all personal property located or kept elsewhere, becomes part of the trust fund.

The order of the Appellate Division and the decree of the Surrogate’s Court should be reversed, without costs, and the matter remitted to Surrogate’s Court for a decree in accordance with this opinion. (See 268 N. Y. 636.)

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

Ordered accordingly.


source: Caselaw Access Project

author: Lehman, J.

license: Public Domain

text:
    (Argued June 6, 1935;
    decided July 11, 1935.)

      William, D. Whitney, Samuel B. Stewart, Jr., and Sidney Wedeen for appellants.
    The new company, having acquired its stock after the Superintendent took possession of the bank, is not liable to assessment. (Chase v. Lord, 77 N. Y. 1; Pollard v. Bailey, 87 IT. S. 520; City of New York v. New York City Ry. Co., 193 N. Y. 543; Broderick v. Britting, 147 Mise. Bep. 363; Skinner v. Home Bank of Brooklyn, 190 App. Div. 187; Broderick v. Aaron, 284 N. Y. 368; Attorney-General v. North America Life Ins. Co., 82 N. Y. 172; Matter of Equitable Reserve Fund Life Assn., 131 N. Y. 354; Matter of Union Bank, 204 N. Y. 313; Lafayette Trust Co. v. Beggs, 213 N. Y. 280.) •

      Harold N. Cohen, Edward Feldman, Warren C.’Fielding, Isadore H. Cohen and Carl J. Austrian for respondent.
    The new company became a stockholder and liable for the assessment under subdivision 2 of section 120 of the Banking Law (Cons. Laws, ch. 2). (Corning v. McCullough, 1 N. Y. 47; Cochran v. Wiechens, 119 N. Y. 399; Lowny v. Inman, 46 N. Y. 119; Wiles v. Suydam, 64 N. Y. 173; Bailey v. Hollister, 26 N. Y. 112; Van v. Schwab, 174 App. Div. 665; 220 N. Y. 661; Howarth v. Angle, 162 N. Y. 179; Broderick v. Normandie Nat. Securities Cory., 240 App. Div. 409; 265 N. Y. 540; Broderick v. Adamson [Dixon & Co.], 240 App. Div. 202; Persons v. Gardner, 113 App. Div. 597; 188 N. Y. 571; Lafayette Trust Co. v. Beggs, 213 N. Y. 280; Matter of Union Bank, 147 App. Div. 593; 204 N. Y. 313; Lafayette Trust Co. v. Higgenbotham, 136 App. Div. 747; Yokohama Specie Bank v. Chinese Merchants Bank, 219 App. Div. 256; People v. St. Nicholas Bank, 77 Hun, 159; Higgins v. Worthington, 90 Hun, 436; Van Tuyl v. Robin, 160 App. Div. 41; Mosler Safe Co. v. Guardian Trust Co,, 208 N. Y. 524; Wheeler v. Werner, 140 App. Div. 695; Richards v. Ackerman, 175 App. Div. 746.)
   Lehman, J.

The Superintendent of Banks took possession of the Bank of United States on December 11th, 1930. William Kornberg Co., Inc., was at that time the owner of ten shares of its capital stock. On December 26th Wileo-Kornberg Co., Inc., a domestic corporation, was organized and for a valuable consideration purchased and acquired all the assets of William Kornberg, Inc., including the ten shares of stock of Bank of United States, and has since continued to be the. legal and equitable owner of these shares. In ah action brought pursuant to the provisions of sections 80 and 120 of the Banking Law (Cons. Laws, ch. 2) against the stockholders of the bank, judgment has been rendered against the Wileo-Kornberg Co. as well as against other stockholders. The question presented upon this appeal is whether a person who acquires stock in a banking corporation after the Superintendent of Banks has taken possession of its business and assets is subject to the liability imposed by law upon stockholders of a bank.

The stockholders of every corporation and joint-stock association for banking purposes, shall be individually responsible to the amount of their respective share or shares of stock in any such corporation or association, for all its debts and liabilities of every kind.” (New York Const, art. VIII, § 7.) Even without such provision, those who own and conduct a banking business for profit would be hable for all its debts and liabilities, except where under sanction of law they conduct the business under a corporate form with consequent restriction or exemption from liability. The Legislature sanctions the conduct of banks by corporations or joint stock associations, but with the restrictions imposed by the Constitution, perhaps enlarged by statute, that the stockholders shall be individually responsible to the amount of their respective share or shares for all its debts and liabilities.

The Constitution permits no legislative limitation upon the individual responsibility of stockholders, and permits no exemption of particular classes of stockholders. The provisions of the Constitution are couched in general terms. They refer to the stockholders ” without defining whether those who are to be held responsible are the stockholders of record, the legal owners of the stock, or the equitable owners.

Within the corporate structure a stockholder’s status is, ordinarily, created only by transfer of stock upon the corporate books; and in relation to rights against the corporation and obligations owed to the corporation, a stockholder ” is, ordinarily, a person who appears to be the owner of the stock upon the books of the corporation. Perhaps in the Constitution the word “ stockholder ” is used in that sense; yet, by contract of sale or transfer of stock certificate, such a stockholder may, as between himself and another, have divested himself of all right to retain any benefit received as a “ stockholder,” and equitably the person entitled to receive from the “ stockholder of record the benefits of stock ownership, should also relieve the stockholder of record of the liabilities inherent in such ownership. Enforcement of such liabilities by the State then depends upon formulation of rules or tests to determine when liability arises, upon whom it falls, and how long it continues. The Constitution is silent upon these matters. It is silent, too, as to how the stockholder’s ” responsibility shall be enforced. The Legislature has power to supply these omissions for the purpose of carrying out the intent of the constitutional provision.

The Legislature has provided a form of action to enforce stockholders’ liability. It has provided the preliminary steps to be taken and the period within which the action must be brought. It has for such purpose defined as such persons as appear by the books of the bank to be stockholders; 2. every owner of stock, legal or equitable, although the same may be on such books in the name of another person * * Upon all such persons, responsibility is now imposed by statute and against all such persons an action to enforce liability may be maintained, regardless of whether all such persons are stockholders ” within the meaning of the Constitution. The Legislature had power to enact such provisions which, perhaps, extend, but certainly do not restrict, the class upon which liability is imposed by the Constitution. ' (Banking Law, § 120.)

The purpose of these provisions is clear. The charter or by-laws of a corporation or a general law may provide the manner in which a person acquires title to corporate stock or beneficial rights therein. Then there may be distinctions between stockholders of record and legal and equitable owners of stock. Such distinctions disappear under the statute in connection with the liability of •stockholders of banks. That liability is not to be confined to the persons who appear by the books of the bank to be stockholders,” even though, perhaps, no other persons would be in a position to claim against tbe bank the right of stockholders; for the legal or equitable owner of stock might otherwise evade liability by registering the stock in the name of an irresponsible dummy. The burden of liability is to be borne by any persons who are legal or equitable owners if they can be found; but the record owner of the stock remains liable even after he has parted with ownership of the stock, except that, as provided in the same section of the Banking Law, no person who has in good faith, and without any intent to evade his liability as a stockholder, caused his stock to be transferred on the books of the bank when such bank is solvent to any resident of this state of full age previous to any default in the payment of any debt or liability of the bank, shall be subject to any personal Lability for any contracts, debts or engagements of the bank.”

Thus the Legislature has provided a practical method of enforcement of the Lability of stockholders of a bank which cannot be evaded by failure of the real owner to register his stock or by transfer of stock on the books of the bank by a record owner which is not made in good faith while the bank is solvent, and before any default in the payment of any debt or Lability. The statute, like the Constitution, is, however, silent as to whether a person who has become a stockholder ” within the statutory definition after the bank has become insolvent or after default, and after it has ceased to do business, is subject to any LabiLty.

It does not appear that on December 11, 1930, when the Superintendent of Banks took possession of the business of the Bank of United States, or on December 26th, when the appeLant acquired its stock, the bank was actually insolvent. At that time negotiations were pending for the reorganization of the bank, and if those negotiations had been successful the bark would have reopened. There was possibihty, too, that even If the bank were liquidated, a substantial surplus over liabilities might be realized. The stock of the bank, even after it closed, still had a substantial market value. None the less the closing of the bank occasioned an automatic default in the payment of its debts and liabilities. (People v. Merchants’ Trust Co., 116 App. Div. 41; affd., 187 N. Y. 203.) It could not continue to conduct the business of a bank unless permission to reopen were thereafter given. A person who thereafter acquired stock in the bank might become the owner, legal or equitable, of stock in the corporation, and entitled to the benefits flowing from such ownership if the bank was permitted again to conduct its business or if upon liquidation a surplus remained for distribution among the stockholders. Nevertheless, such an owner of stock, so long as the bank remains closed, is not a stockholder of a corporation which conducts or has power to conduct a bank. Corporate power to conduct a bank has been terminated, or at least indefinitely suspended, and in this case has not been restored. Is a person who then acquires ownership of stock a stockholder of a “ bank or of a corporation and joint-stock association for banking purposes within the meaning of the Constitution or statute?

The question is narrow. We do not now determine whether a person who becomes a stockholder in a bank or corporation, which though insolvent or in default in payment of a debt or liability, yet continues to transact business, is subject to personal liability. We may now pass only upon the question of whether such liability is imposed upon the owner of stock in a corporation which did not and could not conduct a bank after the acquisition of the stock.

By express provision of the statute, a record owner of stock in the banking corporation could not after that time reheve himself of responsibility for the debts and liabilities of the bank by transfer, even in good faith, upon the books of the bank. By clear implication from the express language of the statute, an owner of stock other than an owner of record, could not after that time relieve himself of such responsibility by sale or transfer of the stock. On the date of the closing of the bank, the creditors had a right to look to the personal responsibility of those who were then its stockholders.” Those stockholders could thereafter transfer any rights as stockholders which they still possessed. Perhaps the persons who thus acquired these rights might as between themselves and their assignors become subject to some correlative burdens, which we do not now attempt to define. The stockholders oould not, however, shift or transfer their responsibilities or obligations to which they were then subject by law, for the law permits no such shift or transfer. It follows,' then, that if the new owners of the stock are to be held responsible for debts and liabilities of the closed bank, it must be because the Constitution or statute imposes such liability and not because it passed to them by transfer.

We fail to find in the law any indication of intent to hold responsible for the debts and liabilities of a bank, those who acquired stock in a banking corporation after it had ceased to do business as a bank under a mandate of the State. Until then, the responsibility could be shifted from one person to another by transfer of stock. Thereafter the responsibility became irrevocably affixed to those who were then “ stockholders.” Those who thereafter acquired the stock were at no time stockholders in a corporation which conducted, or which had power to conduct, a bank. They at no time as stockholders shared in the control of a banking corporation. They at no time shared in the profits derived from a banking business. None of the reasons which led the State to restrict exemption from personal responsibility of stockholders in banks apply to persons who acquired stock after the bank was closed. Nowhere in the statute or Constitution can be found any clear indication that not only those who were stockholders when the bank closed, are to be held responsible, but also those who acquired stock thereafter. On the contrary, it seems clear that the status of stockholders ” must, under the statute and for purposes of the statute, be fixed as of a particular date, and when that status is fixed the class of stockholders ” becomes unchangeable.

That date cannot be later than the date of the closing of the bank, when such closing is followed by liquidation. Earlier insolvency or default in payment of some obligation, may, as we have said, finally fasten liability for debts of the bank upon those who at that time were its stockholders, yet so long as the bank continues to do business, other persons may still become stockholders in the corporation conducting that business, and perhaps become responsible for the debts and liabilities of that business. The class of stockholders ” responsible for such debts may perhaps then still remain open to admit such new stockholders. Consideration of that problem may be postponed until directly presented. By the closing of the bank the right of the corporation to conduct a banking business is terminated, or at least suspended. Though even after such closing, stockholders may still transfer their stock, and the new owners thus obtain the status of stockholders, what passes to them by such transfer is only a stockholder’s rights in • a corporation which is temporarily or permanently without power to conduct a bank. If the bank fails to reopen, if its assets are insufficient to meet its liabilities, then these new stockholders of the corporation at no time become stockholders in a bank or in a “ corporation for banking purposes ” within the letter or spirit of the law, and they are not subject to personal responsibility for its debts or liabilities.

Construction placed by courts of other jurisdictions on statutes governing obligations of persons who become stockholders of corporations after a liquidator or receiver has taken possession, furnish no guide to us in this case. We are told by diligent counsel that only in Matter of National of Wales ([1897] 1 Ch. 298) has such question been decided in any jurisdiction. Even there the statute was couched in quite different language, and the factors which the court regarded as decisive are absent here.

The judgment of the Appellate Division should be reversed and that of the Special Term affirmed, without costs, upon the appeal of Wilco-Kornberg Co., Inc. The appeals of William Kornberg and William Kornberg Co., Inc., should be dismissed, without costs.

Crane, Ch. J., O’Brien, Hubbs, Crouch, Loughran and Finch, JJ., concur.

Judgment accordingly.


author: Loughran, J.

text:
    Joseph H. Reif, as Trustee in Bankruptcy of Shongood, Hart Co., Inc., Respondent, v. Equitable Life Assurance Society of the United States, Appellant.

      (Argued June 4, 1935;
    decided July 11, 1935.)

      James D. Ewing and Peter C. Mann for appellant.
    The facts and circumstances which would have been disclosed by reasonable inquiry at the times of receipt of the checks would have dispelled any presumption that there had been an unauthorized use of the funds of the corporation. (Martindale v. De Kay, 101 Mise. Rep. 728; 180 App. Div. 926; 224 N. Y. 585; Kepner Co. v. Hutton, 179 App. Div. 130; 226 N. Y. 674; Heig v. Caspary, 191 App. Div. 560.) As reasonable inquiry by the defendant would not have disclosed for the first time to the corporation the practices of its president and prevented their continuance, the defendant should not be held liable. v. M. E. B. Co., 120 N. Y. 145; Gerard v. McCormick, 130 N. Y. 261; Cheever v. Pittsburgh R. R. Co., 150 N. Y. 59; Rochester C. T. R. Co. v. Paviour, 164 N. Y. 281; Standard S. S. Co. v. Corn Exchange Bank, 220 N. Y. 478; Wagner Trading Co. v. B. P. Nat. Bank, 228 N. Y. 37; Ward v. Trust Co., 192 N. Y. 61; United States F. & G. Co. v. Barry, 236 App. Div. 464; Wen Kroy Realty Co. y. Public Nat. Bank & T. Co., 260 N. Y. 84.) The recipient of a corporate check, put on notice by the form thereof with respect to the possibility of an unauthorized use of the funds of the corporation, is not to be held hable to the corporation or its successor where it appears that the funds represented thereby were charged to the account of the officer of the corporation on its books, and that hence the corporation in making the payment was simply his agent and the funds represented not its funds but his. {Bressman, Inc., v. Mosson, 127 Mise. Rep. 282.)

      Roy Plant and Isaac M. Barnett for Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, amicus curice.

    Respondent, as successor of the rights of creditors, has no right of recovery against appellant. (Ward v. City Trust Co., 192 N. Y. 61; Bartlett v. Drew, 57 N. Y. 587; Darcy v. Brooklyn & N. Y. Ferry Co., 196 N. Y. 99; Hazard v. Wight, 201 N. Y. 399; Cole v. Millerton Iron Co., 133 N. Y. 164; Hospes y. Northwestern Mfg. & Car Co., 48 Minn. 174; Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371; Wabash, St. L. & P. Ry. Co. v. Ham, 114 U. S. 587; Sweet v. Lang, 14 Fed. Rep. [2d] 762; Temple Lumber Co. v. Pineland Naval Land Stores Co., 25 S. W. Rep. [2d] 675; Curtis, Jones & Co. v. Smelter Nat. Bank, 43 Col. 391; Wheeler y. Matthews, 70 Fla. 317; Davis v. Hemming, 101 Conn. 713; Burkholder v. Okmulgee Coal Co., 82 Okla. 80; Williams v. Commercial Nat. Bank,
      49 Ore. 492; Rivers- Yagers Co. v. Lincoln Bank & Trust Co., 231 Ky. 767.)

      Stanley T. La Cov for respondent.
    The recipient of corporate funds charged with notice of unlawful diversion is hable for the amount received. (Heig v. Caspary, 191 App. Div. 560; Ward v. City Trust Co., 192 N. Y. 61; Aneless Corp. v. Woodward, 262 N. Y. 326; United States Fidelity & Guaranty Co. v. Barry, 236 App. Div. 464; Kroy Realty Co. v. Public Nat. Bank & Trust Co., 260 N. Y. 84; Rocky River Development Co. v. German-American Brewing Co., 184 N. Y. Supp. 155; Banning v. Trust Co. of America, 137 App. Div. 722; Modi Co. v. Security Bank, 163 N. Y. Supp. 277; McCabe Hanger Mfg. Co. v. Chelsea Exchange Bank, 167 N. Y. Supp. 580; Irving Trust Co. v. Gunder, 234 App. Div. 252; Meyer, Connor & Co. v. United Founders’ Corp., 265 N. Y. Supp. 289.)
   Loughran, J.

Abraham Hart, as president of Shon-good, Hart Company, Inc., drew in its name twenty-two checks to the order of the defendant insurance company and transmitted them in payment of premiums upon policies of issued by defendant upon the life of Hart for the benefit of his wife. These checks were collected by defendant without inquiry respecting the powers of Hart as an officer of Shongood, Hart Company, Inc. That corporation thereafter became a bankrupt and plaintiff, as its trustee in bankruptcy, has recovered a judgment against defendant as a convertor of the moneys it so received within six years prior to commencement of this action. This is an appeal from an affirmance of that judgment by the Appellate Division.

The first check is dated November 5, 1926; the last one, September 5, 1931. In amount they range from $47.70 to $292.20. All were collected by defendant without protest by Shongood, Hart Company, Inc., the drawer. Even so, we shall assume that the form of the cheeks made it the duty of defendant in every instance to inquire as to whether acceptance of any of the instruments would facilitate a conversion of corporate funds. The utmost result of the acceptance of a corporate check is to put the payee upon inquiry to ascertain the truth. Inquiry may have been omitted. The payee has the benefit, none the less, of anything that inquiry would have developed, if pressed to a conclusion.” (Mutual Trust Co. v. Merchants Nat. Bank, 236 N. Y. 478, 487.) Thus the question is whether investigation would have revealed facts sufficient to have persuaded this defendant that it could collect the proceeds of these checks in good faith or without making itself a party to an unauthorized diversion of assets of the corporate drawer.

The drawee in each instance was the bank of deposit of the drawer, Shongood, Hart Company, Inc. Inquiry appropriately would first have been made there. From March 12, 1921, to March 13, 1931, there was on file with that bank a resolution of the directors of Shongood, Hart Company, Inc., that its account was subject to checks made in the corporate name, signed by its president [Hart] who is hereby authorized to make, collect, discount, negotiate, endorse, assign and deposit in the corporate name, all checks, drafts, notes and other negotiable paper; and all such checks, drafts, notes and other negotiable paper, payable to or by this corporation, signed as aforesaid (including checks drawn to Cash or Bearer or to the individual order of the officer signing said checks) shall be honored and paid by said bank, and charged to the corporation’s account, hereby ratifying and approving all that said bank may do or cause to be done by virtue hereof.” After March 13, 1931, this resolution was supplemented by authority to the drawee bank to honor all such commercial paper of Shongood, Hart Company, Inc., regardless of whether or not said checks or other negotiable instruments be deposited by such officer or agent in his individual account or otherwise used by said officer and/or agent for his personal account.”

Authority so extensive necessarily would have been significant to an honest man dealing with Hart as defendant dealt with him here. Whether the simple test of honesty and good faith ” would thereby have been satisfied is nevertheless a question of fact (Second Nat. Bank v. Weston, 161 N. Y. 520, 526) which has been decided defendant below. We cannot hold the contrary as matter of law. Doubtless the resolutions were required by the drawee bank to be filed with it for its own protection. They were not terms a license to Hart to make checks of Shongood, Hart Company, Inc., payable to the order of his own creditors.

The next inquiry would naturally have been whether Hart had implied authority, to be inferred from similar aets and past conduct known to the directors of the corporation and not objected to by them.” (Ward v. City Trust Co., 192 N. Y. 61, 71.) (So, Rochester & Charlotte Turnpike Road Co. v. Paviour, 164 N. Y. 281, 284.)

Shongood, Hart & Company, Inc., was organized in 1921. At all times Hart owned most of its stock and, as its president, was in complete control of its property and business. It paid him an annual salary of $10,000. Throughout its corporate existence he had year by year withdrawn its moneys in excess of that sum through payments of his individual obligations with its checks drawn by him as its president. When it went into bankruptcy, the total of those checks was $52,087.30. Concededly nobody but a bookkeeper had ever remonstrated against all this. The fact is that Shongood, Hart Company, Inc., had met all such withdrawals of its moneys by Hart in excess of his salary and that without exception it had carried his “ overdrafts ” upon its books as a debit against him individually.

This, then, is not a case of theft of corporate funds. Here the corporation had full knowledge that almost from the day it was organized its officer was consistently using its moneys for his individual purposes. With that knowledge, its directors continued their authority to its bank of deposit to accept as business paper checks drawn in its name by that officer to his own order. The officer was at all times largely indebted to the corporation for his personal use of its moneys, and that indebtedness was invariably entered correctly in the corporate books. We can conceive of no standard of commercial rectitude that in such a situation would excite any other than a scrupulous man to doubt the authority of the corporation’s officer to pay his personal debts with its corporate paper. Clearly, as we think, Shongood, Hart Company, Inc., if solvent, would not here be heard to assert that the use made by Hart of the checks in question was beyond his power as its president.

Nothing that we have said up to this point is necessarily opposed to the view of the case taken in the courts below. As there was no conflict in the evidence a formal decision was waived, but the trial judge in a careful opinion indicated the reason which he deemed to be controlling upon his judgment. He said: “ Investigation would have resulted in ascertainment of the fact that the corporation’s liabilities at all times exceeded its assets. * ⅜ *

Primarily, the capital of a corporation is held for the protection of its creditors and is impressed with a trust in their behalf, and the diversion of its funds, when such diversion affects the rights of such creditors, as it doubtless did here, is unlawful.” In other words, defendant, as payee of the corporate checks in question, has been held to answer for a conversion of their proceeds because inquiry would have shown that the corporate drawer (which owed defendant nothing) was always at least theoretically insolvent. Upon the undisputed facts, in our" opinion, this conclusion is inadmissible.

The concept of the assets of a corporation as a trust fund for the payment of its debts, upon which its creditors have an equitable lien except as against transferees in good faith and for value, has often been stated by this court. (Ward v. City Trust Co., supra, 74, and cases there cited.) First declared by Justice Story (Wood v. Dummer, [1824] 3 Mason, 308, 311), this “ trust fund doctrine ” has been the subject of much adverse commentary and has often been repudiated as a fiction unsound in principle and vexing in business practice. (See 5 Pomeroy’s Equity Jurisprudence [4th ed.], §§ 2319, 2320, collating the authorities.) We do not stop now to canvass the limits of such a theory. It is enough that the facts of the present case — so we hold — do not call for application of the doctrine.

The contrary ruling below was made upon the authority of Ward v. City Trust Co. (supra). In that case a corporate check was accepted in payment of the personal debt of corporate officers. Despite ownership by the officers ■ of all the corporate stock, it was held that the payee was under a duty of inquiry that went beyond the question of authority and included the rights of creditors ” (p. 74). In many aspects the facts of the case were exceptional. This court said: The form of the check and its amount [$125,000] when compared with that of the capital stock [$250,000] required investigation or inquiry as to the solvency of the company ” (p. 75). A single transaction there made the corporate drawer insolvent as reasonable inquiry would have disclosed, for the payee had representatives on the drawer’s board of directors. “No fact of any kind would have been discovered, because none existed, to show authority, express or implied ” (p. 72).

The conceded facts now before us are different in every way. Twenty-two corporate checks were accepted by this defendant as payee. Each was for less than $300. The aggregate of all was $3,854.64. This corporate drawer had an authorized capital of 450 shares of no par value and 275 preferred shares each of the par value of $100. These checks were delivered at intervals over a period of five years and all were collected without objection by any one. The corporate drawer remained a going concern during that time. Every fact that reasonable inquiry could have made known would have countenanced an honest belief that the checks were issued without abuse of authority.

The rule of responsibility of the payee of corporate paper is strict and sometimes harsh and is not to be extended. (Whiting v. Hudson Trust Co., 234 N. Y. 394, 406.) We think that rule should not be stretched so as to apply it to the facts of this case upon the basis of the figurative expression that the capital of a corporation is held in trust for its creditors.

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

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


author: Crane, Ch. J.

text:
    Bronx Gas and Electric Company, Respondent, v. Milo R. Maltbie et al., Constituting the Public Service Commission of the State of New York, et al., Appellants.

      (Argued June 10, 1935;
    decided July 11, 1935.)

      Charles G. Blakeslee, John J. Donohue and John T Ryan for appellants.
    The Public Service Commission in adopting its order charging costs to the respondent proceeded in the manner required by sections 18-a and 18-b of the Public Service Law (Cons. Laws, ch. -48) and according to due process of law. (New York, 0. & W. R. R. Co. v. Griffin, 235 N. Y. 174; Wisconsin Tel. Co. v. Public Service Comm., 206 Wis. 589; People 'ex rel: N. Y. Elec. Lines Co. v. Squire, 145 U. S. 175; Charlotte R. R. Co. v. Gibbes, 142 U. S. 386; St. Louis Coal Co. v. Illinois, 185 U. S. 203; Village of Saratoga Springs v. Saratoga G., Elec. L. & P. Co., 191 N. Y. 123.) Section 18-a of the Public Service Law charging utility companies with the cost of investigations by the Public Service Commission is constitutional. (N. Y. & Richmond Gas Co. v. Prendergast, 10 Fed. Rep. [2d] 167; N. Y. Tel. Co. v. Prendergast, 36 Fed. Rep. [2d] 54; Charlotte R. R.

      Co. v. Gibbes, 142 U. S. 386; People ex rel. N. Y. Elec. Lines Co. v. Squire, 107 N. Y. 593; 145 TJ. S. 175; Sage v. Brooklyn, 89 N. Y. 189; People v. N. Y. Carbonic Acid Co., 196 N. Y. 421; People ex rel. Darling v. Warden of City Prison, 154 App. Div. 413; People v. Beakes Dairy Co., 222 N. Y. 416; Jeffrey Mfg. Co. v. Blagg, 235 U. S. 571.) If section 18-b is unconstitutional in part, the doctrine of severance should be applied. {People ex rel. Alpha P. C. Co. v. Knapp, 230 N. Y. 48; People v. Mancuso, 255 N. Y. 463.) That public utilities must pay the costs of investigations, irrespective of their outcome, is not a denial of equal protection of law to utilities. (Gulf, Col. & Santa Fe By. v. Ellis, 165 IT. S. 150.)

      William L. Ransom, Richard Joyce Smith and Henry Jaffe for respondent.
    The Commission’s proceedings and orders, eventuating in the order charging costs, violated the constitutional guaranties of due process in the taking of property, and fail to comply with section 18-a of the Public Service Law, in that the company was given no opportunity be heard as to the matters on which it was entitled to be heard and no evidence was presented to sustain the order. (West Ohio Gas Co. v. Public Utilities Comm, of Ohio, 294 U. S. 63; Stuart v. Palmer, 74 N. Y. 183; Norwegian Nitrogen Products Co. v. United States, 288 U. S. 294; Interstate Commerce Comm. v. Louisville & Nashville R. R. Co., 227 U. S. 88; Interstate Commerce Comm. v. Illinois Central R. R. Co., 215 U. S. 452; Oregon R. R. & N. Co. v. State Railroad Commrs., 224 U. S. 510; Aultman v. Syme, 163 N. Y. 54; Matter of Hering, 133 App. Div. 293; 196 N. Y. 218; B. & 0. R. R. Co. v. United States, 264 U. S. 258; Atlantic Coast Line R. R. Co. v. North Carolina Comm., 206 U. S. 1.) If chapter 282 of the Laws of 1934 is construed as authorizing the Commission to issue orders assessing costs without any hearing, evidence or findings, and without judicial then the statute is unconstitutional under the Fourteenth Amendment of the Constitution of the United States and section 6 of article I of the Constitution of the State of New York. (Southern By. Co. v. Virginia, 290 U. S. 190; Interstate Commerce Comm. v. Louisville & Nashville B. B. Co., 227 U. S. 88; Stuart v. Palmer, 74 N. 183; Norwegian Nitrogen Co. v. United States, 288 U. S. 294.) The order directing the assessment of costs against the company is unconstitutional as a denial of due process because the Commission has failed to make basic findings of fact upon evidence. (.Interstate Commerce Comm. v. Baltimore & Ohio B. B. Co., 293 U. S. 454; Panama Befining Co. v. By an, 293 U. S. 388; Florida v. United States, 282 U. S. 194; Wichita B. B. Co. v. Public Utilities Comm., 260 U. S. 48.) Chapter 282 of the Laws of 1934 is unconstitutional in that it authorizes the chairman of the Commission to approve the payment of State funds to the temporary employees of the Commission without appropriation by the Legislature as required by section 21 of article III of the New York State Constitution. {Switzer v. Commissioners, 134 App. Div. 487; People v. Boberts, 30 App. Div. 69; 156 N. Y. 693; People ex rel. Hopkins v. Board of Supervisors, 52 N. Y. 556; v. Standard Oil Co., 278 U. S. 235; Barker v. Town of Oswegatchie, 10 N. Y. Supp. 834; State of Iowa v. Executive Council, 207 Iowa, 923; State v. St. Louis By. Co., 253 Mo. 642; State v. Olson, 173 Wash. 60; Parwal v. State, 71 Okla. 121; Edwards v. Davis, 146 Tenn. 615; Oliver v. Southern Trust Co., 138 Ark. 381.) Section 18-b cannot be saved by a claim that subsequent Legislatures, in the annual appropriation bill, may see fit to appropriate moneys in the revolving fund. {People ex rel. Hopkins v. Board of Supervisors, 52 N. Y. 556; Baltimore v. O’Conor, 147 Md. 639.)
   Crane, Ch. J.

The provisions of the Public Service Law (Cons. Laws, ch. 48) relating to gas and electrical corporations are to be found in article 4. Section 71, as amended, provides that, upon tbe complaint in writing of tbe mayor of a city, tbe trustees of a village or tbe town board of a town, or, upon tbe complaint in writing of not less than twenty-five customers, or, upon tbe complaint of the corporation supplying tbe gas or electricity, tbe rates charged shall be investigated by tbe Commission. When such complaint is made, tbe commission may, by its agents, examiners and inspectors, inspect tbe works, system, plant, devices, appliances and methods used by such person or corporation in manufacturing, transmitting and supplying such gas or electricity, and may examine or cause to be examined tbe books and papers of such person, or corporation pertaining to tbe manufacture, sale, transmitting and supplying of such gas or electricity. Tbe form and contents of complaints made as provided in this section shall be prescribed by the commission. Such complaints shall be signed by tbe officers, or by tbe customers, purchasers or subscribers making them, who must add to their signatures their places of residence, by street and number, if any.”

Section 72 provides for notice of bearing in respect to tbe matters complained of. It states further: An investigation may be instituted by tbe commission of its own motion as to any matter of which complaint may be made, as provided in section seventy-one of this chapter, or to enable it to ascertain tbe facts requisite to tbe exercise of any power conferred upon it.” After tbe bearing of such investigation tbe Commission may by order fix just and reasonable rates. Tbe power of tbe Public Service Commission to make investigation upon complaint or of its own motion into tbe affairs of public service corporations and to fix tbe rates to be charged is no longer open to question. (Village of Saratoga Springs v. Saratoga Gas, Electric Light & Power Co., 191 N. Y. 123.)

Heretofore, the costs and expenses of maintaining the Public Service Commission and its staff have been borne by the public at large through the process of general taxation. The public funds have been appropriated to meet the charges incidental to conducting investigations required by these sections 71 and 72 of the Public Service Law. As early as 1891, in Charlotte, Columbia & Augusta R. R. Co. v. (142 U. S. 386, 394), it was held to be consistent with the provisions of the Federal Constitution to charge the cost and expenses of these Commissions or regulatory bodies to the public service corporations, thus relieving the public of taxation for this purpose. In that case it was held that the statutes of South Carolina requiring the salaries and expenses of the State Railroad Commission to be borne by the several corporations owning or operating railroads within the State were not in conflict with the Fourteenth Amendment of the Constitution. Mr. Justice Field said, in writing the opinion: “ The mode or manner of regulation is a matter of legislative discretion. When exercised through commissioners, their services are for the benefit of the railroad corporations as well as of the public. Both are served by the required supervision over the roads and means of transportation, and there would seem to be no sound reason why the compensation of the commissioners in such case should not be met by the corporations, the operation of whose roads and the exercise of whose franchises are supervised. In exacting this there is no encroachment upon the Fourteenth Amendment. Requiring that the burden of a service deemed essential to the public, in consequence of the existence of the corporations and the exercise of privileges obtained at request, should be borne by the corporations in relation to whom the service is rendered, and to whom it is useful,- is neither denying to the corporations the equal protection of the laws or making any unjust discrimination against them.”

As late as 1934, by chapter 282 of the laws of that year, the Legislature of this State shifted the cost of investigation from the general public to the corporations. As the legality of these sections has been challenged, it is necessary to give them in full. They are now sections 18-a and 18-b of the Public Service Law.

§ 18-a. Costs and expenses of proceedings before the commission. Whenever the public service commission in a proceeding upon its own motion, upon complaint, or upon application to it, shall deem it necessary in order to carry out its statutory duties, to investigate the operations, service, practices, accounting records, rates, charges, rules and regulations, or to make valuations or revaluations of the property of any public utility, such public utility shall be charged with and pay such portion of the compensation and expenses of the commission, its officers, agents and employees, including employees temporarily employed, as is reasonably attributable to such investigation, valuation or revaluation, provided an opportunity to be heard thereon shall first have been granted to such public utility. The commission shall ascertain the costs, including the compensation and expenses of the commission, its officers, agents and employees, and shall determine the amount to be paid by the public utility and shall render a bill therefor by registered mail to the public utility. Such bill shall be rendered either at the conclusion of the investigation, valuation or revaluation, or from time to time during its progress, and the amount of such bill so rendered by the commission shall be paid by such public utility to the commission within thirty days from the date of its rendition. The total amount which may be charged by the commission to any public utility under authority of this section in any calendar year shall not exceed one-half of one per centum of such public utility’s gross operating revenues derived from intrastate utility operations in the last preceding calendar year. The amount assessed against a public utility, not paid thirty days after such determination, shall draw interest at the rate of six per centum per annum.

“ § 18-b. Establishment of revolving fund; appropriation. The sum of three hundred thousand dollars is hereby appropriated to the department of public service out of any moneys in the state treasury not otherwise appropriated, to establish and provide a revolving fund for the use of the public service commission in paying the compensation and expenses of employees temporarily employed in investigating the operations, service, practices, accounting records, rates, charges, rules and regulations, or in making valuations or revaluations of the property of any public utility. All moneys collected by the public service commission pursuant to section eighteen-a shall be paid monthly, accompanied by a detailed statement thereof, by the public service commission to the department of taxation and finance and all of said moneys so paid representing the compensation and expenses of temporary employees shall not be commingled with any other moneys but shall be deposited in a separate bank account or accounts and credited to said revolving fund; the balance of said moneys shall be paid into the state treasury and credited to the general fund. The said sum of three hundred thousand dollars herein appropriated and all subsequent credits to said revolving fund shall be paid on the audit and warrant of the comptroller upon vouchers approved by the chairman of the public service commission.”

A brief examination of these sections shows that nowhere do they modify the previous duty and power placed with the Public Service Commission. The full power of investigation to determine reasonable rates, either upon complaint or upon its own motion, rests with the Commission. The only subject dealt with by these additions of the Laws of 1934 relates to the costs and expenses of conducting such investigation. The Public Service Commission is not obliged to show in the first instance to any ; court the grounds or the reasons for its investigation. ! The duty rests upon it to make the investigation upon! complaint or upon its own motion when it, and not the; courts, deems it necessary; The purpose and the latory powers of the Commission would be nullified were ¡ it obliged in the first instance to show necessity examination or investigation. The Legislature has given ' to the Commission, and not to the courts, the right to determine these matters. ■

Neither is there any discretion given to the courts to determine when or how the expenses shall be charged to the investigated corporation. Section 18-a distinctly states that whenever the Public Service shall deem it necessary to investigate the rates of any public utility, such public utility shall be charged with and pay such portion of the compensation and expenses of the Commission as is reasonably attributable to such investigation. The respondents and the court below have read this section as though the expenses can only be charged to the utility when the investigation appears to be necessary, and that, to establish such necessity, the Commission, after a hearing, must make findings of fact based upon evidence showing such necessity. This statute will bear no such interpretation. The previous law has not been modified; the Commission may investigate whenever it shall deem necessary; the public utility shall be charged with the reasonable expenses. The hearing provided for in section 18-a is on the cost and expenses, not on the necessity for the examination. This is the way the section reads; this is the interpretation we must give it. To hold otherwise cripples the whole proceeding and renders the Commission almost powerless. The words, provided an opportunity to be heard thereon shall first have been granted to such public utility ” apply to the preceding clause, “ such portion of the compensation and expenses of the commission, its officers, agents and employees, including employees temporarily employed, as is. reasonably attributable to such investigation, valuation or revaluation.”

The respondent concedes, as it must, that it is legal to charge the cost and expenses of these investigations to all the like public utilities in the State ratably, but claims that it is unconstitutional to charge the cost to the individual corporation investigated. We cannot follow such reasoning. Why utilities, against whom no complaint has been made and who do not need investigating in the opinion of the Commission, should be charged with the expenses of investigating the utility whose rates have been questioned, is difficult to understand. Surely there is nothing unfair in limiting the assessment of costs upon the public utility examined. Suppose this petitioner had petitioned for an increase of rates. Is there any reason why the examination leading to an increase should result in expenses being charged to other like public utilities? We see nothing in this point.

We, therefore, hold that the ruling below is erroneous, and that the petitioner is to be charged with the costs and expenses reasonably attributable to this investigation without previous findings of necessity.

Other laws of a similar nature have long been on the statute books. (See Laws of 1885, ch. 499, creating the Board of Commissioners of Electrical Subways and charging its expenses to the companies operating electrical conductors in the city of New York.) (People ex rel. New York Electric Lines Co. v. Squire, 107 N. Y. 593; affd., 145 U. S. 175.) (See, also, Insurance Law [Cons. Laws, ch. 28], § 7; and the Banking Law [Cons. Laws, ch. 2], § 17.)

We do think, however, that the practice adopted by the appellants has been irregular. By order dated May 10, 1934, the Commission, deeming it necessary to investigate the operations, rates and charges of the Bronx Gas and Electric Company, notified the company that on May 23, 1934, a public hearing would be held in New York city to afford the company an opportunity to be heard as to the charging to it of such portion of the compensation and expenses of the Commission and its employees as was reasonably attributable to such investigation. On the hearing the company failed to present any facts in opposition to such charge and, accordingly, on September 12, 1934, the Commission adopted an order charging the Bronx Gas and Electric Company on or after September 15th such portion of the compensation and expenses of the Commission and its employees as was reasonably attributable to such investigation. It appears, however, that in the meantime the Commission, by order in July and in August of 1934, determined the amount of costs which should be paid by the company, and sent bills therefor. These orders have since been vacated, but they indicate a misunderstanding regarding the practice under section 18-a, as above quoted.

The petitioner, Bronx Gas and Electric Company, is entitled to be heard upon these expenses which have been charged to it, both as to their reasonableness and as to their being attributable to the investigation. The bills referred to in section 18-a can only be sent after this opportunity for a hearing has been granted. The Commission is not obliged to give any notice or hearing as to whether the costs and expenses shall be charged to the corporation. The statute distinctly states that they shall be charged to the corporation, and the orders made in May and September were, in our opinion, unnecessary but harmless. The company, however, is surely entitled to a hearing as to the of the costs and expenses, whether reasonable or extravagant, and whether they are properly attributable to the investigation. This hearing the Commission is bound to afford.

No orders fixing any amounts are before us. The appeal is taken from the order on certiorari, which reviewed the proceedings leading up to the orders of May and September, directing merely that the expenses of the investigation shall be charged to the company. While these orders were unnecessary, as we have stated, they are not in and of themselves improper. The Appellate Division, however, has reversed these orders of the Commission and held that no charges or expenses can be collected from the petitioner until the Public Service Commission finds upon evidence that the investigation as to rates is necessary. It must make this finding before any investigation is had, This, as we before stated, is erroneous, not in accordance with the statute, and such ruling must be reversed. We do hold, however, that these expenses and charges cannot be billed to the company, under section 18-a, until it has had an opportunity to be heard as to their reasonableness.

The expenses passed on to the utilities under these provisions of the Public Service Law will be, in all probability, in turn passed on to the consumers. They, not the general public, as heretofore, may share the cost of hearings and examinations. These utility companies have always been allowed to include their own expenses of conducting proceedings before the Commission in operating expenses. (New York & Richmond Gas Co. v. Prendergast, 10 Fed. Rep. [2d] 167, 181; New York Tel. Co. v. Prendergast, 36 Fed. Rep. [2d] 54.)

Many of the cases cited by the respondent have no application as they refer to orders changing grades of railroads or establishing reasonable rates. Of course np such orders can be made without affording the public utility a full and complete hearing. We have no such question here. The proceeding which is being conducted is to investigate or examine as to the rates charged by the Bronx Gas and Electric Company. The company not only has had notice but has appeared at the hearing and has been and will be given the rights of any litigant in such matters. This is conceded. The question which is here concerns the power of the Legislature to place the costs and expenses of such hearings and examinations upon the company. That this power exists there seems to be no doubt for the reasons stated in the decisions above cited. Whether the company must have an opportunity to be heard on the amount of the bill need not detain us as the statute affords such a hearing. Other cases cited turn upon the wording of the governing statutes which differ in nearly every instance.

Another objection which has been raised as to the constitutionality of sections 18-a and 18-b is due to the revolving fund provision contained in section 18-b. Article 3, section 21, of the State Constitution reads: No money shall ever be paid out of the treasury of this State or any of its funds, or any of the funds under its management, except in pursuance of an appropriation by law; nor unless such payment be made within two years next after the passage of such appropriation act; and every such law making a new appropriation or continuing or reviving an appropriation, shall distinctly specify the sum appropriated, and the object to which it is to be applied; and it shall not be sufficient for such law to refer to any other law to fix such sum.”

The Legislature, by section 18-b, appropriated $300,000 to the Department of Public Service for the use of that Department. This section, however, provides for other moneys, called a revolving fund. The act says that these moneys thus credited to the revolving fund, as well as the $300,000 appropriated, shall be paid on the audit and warrant of the Comptroller upon vouchers approved by the Chairman of the Public Service Commission.

With the $300,000 appropriation there is no objection. When it comes to the moneys collected from public utilities and paid into the Department’ of Taxation and Finance it is said that no such appropriation of them has been made as is required by the above provision of the Constitution. Whether this be so or not we need not determine. The question is not involved on this appeal. As before stated, the only orders before us are those directing that the expenses of the investigation be charged to the petitioner. No hearing has yet been had as to the amount of these expenses, and no order in the record has fixed their nature or extent.

Even if this part of section 18-b relating to the expenditure of the revolving fund be unconstitutional, and we do not intimate that it is, the provision can easily be severed from the other portions of section 18-b without in any way interfering with the collection from the petitioner of such charges as are attributable to the proceeding. (People ex rel. Alpha P. C. Co. v. Knapp, 230 N. Y. 48, 60; People v. Mancuso, 255 N. Y. 463, 473.)

The order of the Appellate Division should be reversed and the matter remitted to the Public Service Commission to proceed in accordance with this opinion, with costs in this court and in the Appellate Division. The first question certified should be answered in the affirmative and the second and third in the negative.

Lehman, O’Brien, Htjbbs, Lotjghran and Finch, JJ., concur; Crouch, J., not sitting.

Ordered accordingly.


author: Per Curiam.

text:
    Margaret Kaltner, Appellant, v. John F. Kaltner, Respondent.
    (Submitted June 11, 1935;
    decided July 11, 1935.)

      William T. Mulcahy, Arthur A. Fishzohn and Gabriel Wartels for appellant.
    Uncontroverted evidence not opposed to probabilities and not surprising or suspicious, is conclusive upon the trial court. v. Littauer, 162 N. Y. 569; Carióla v. Carióla, 131 Mise. Rep. 66; Gelbman v. Gelbman, 194 App. Div. 137.)
    No appearance for respondent.
   Per Curiam.

The record discloses that the plaintiff established her cause of action beyond any question and the action of the trial judge in refusing to grant judgment in favor of the plaintiff and in refusing to make findings of fact upon questions conclusively established constitutes reversible error.

The judgment of the Appellate Division and that of the Special Term should be reversed, with costs in this court and in the Appellate Division, and an interlocutory judgment of divorce directed in favor of the plaintiff awarding her custody of the children and twenty-five dollars per week alimony for the support of herself and children.

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

Judgment accordingly.


text:
    Dora Walker, an Infant, by Samuel Walker, Her Guardian ad Litem, Respondent, Impleaded with Another, v. Frances Bachman, Appellant.
    (Argued May 28, 1935;
    decided July 11, 1935.)

      George J. Stacy, James J. Mahoney and Ethel M. Smith for appellant.
    There was nothing defective or wrong about the driveway and wall in the rear of defendant’s premises. Defendant did not owe plaintiff any duty, did not violate any duty and is not fiable. (Mendelowitz v. Neisner, 258 N. Y. 181; Sterger v. Van Sicklen, 132 N. Y. 499; Polemenakos v. Cohn, 234 App. Div. 563; 260 N. Y. 524; Walsh v. Fitchburg R. R. Co., 145 N. Y. 301; Aubrey v. McCarthy, 217 App. Div. 492; Miller v. Woodhead, 104 N. Y. 471; McAlpin v. Power, 70 N. Y. 126; Powers v. Owego Bridge Co., 97 App. Div. 477; McNeven v. Arnott. 4 App. Div. 133; Tymon v. M. L. S. Construction Co., 262 N. Y. 161; Di Biase v. Ewart, 228 App. Div. 407; 255 N. Y. 620.)

      John J. McGinty, Joseph C. Thomson and Bernard Budnick for respondent.
    The evidence sufficiently established the cause of action of the infant plaintiff against the defendant. (Tannenbaum v. Lindenberg, 105 Mise. Rep. 307; Sweet v. Perkins, 196 N. Y. 482; Parnell v. Holland Furnace Co., 260 N. Y. 604; Murtha v. Ridley, 232 N. Y. 488; Sarapin v. S. & S. Corrugated Paper Co., 209 App. Div. 377; O’Connor v. Kulerban Holding Corp., 240 App. Div.' 957; 265 N. Y. 461.)
   Per Curiam.

The defendant owned a two-family house, in the rear of which, under the first floor, were two garages facing a cement space extending twenty-three feet eight inches out from the building, constituting the back yard. The outer margin of this cement space was inclosed by a masonry wall fourteen inches high and twenty inches wide across the top. Back of that parapet was a total drop of about eleven feet to the yard in the rear of houses below. The plaintiff Samuel Walker, father of the infant plaintiff, was the lessee of the upper floor of the defendant’s house. He did not rent or use either of the garages. There was no entrance to the back yard from the house. The only use of the back yard was for automobiles entering and leaving the garages. So far as the evidence discloses, the plaintiff Samuel Walker, as lessee, had no right to use the back yard as appurtenant to the apartment leased to him.

In the absence of her parents, the infant plaintiff and her brother were playing in the back yard. The day was hot and the children were squirting water from a hose on each other. While the hose was in the hands of the brother, he turned the water full force on the infant plaintiff. She became frightened, backed away, stumbled over the parapet at the back, and injured herself in the fall to the level below. There is evidence that the chi dren over a considerable period of time had, to the knowledge of defendant, played in the yard.

The trial court submitted to the jury the question of whether the infant plaintiff was an invitee or a mere licensee, charging that if she was found to be an invitee, the defendant owed her the duty of maintaining the back yard in a reasonably safe condition; but that if she was found to be a mere licensee, then the defendant owed her no duty of active vigilance. The defendant excepted to the submission of that question to the jury, and further requested the court to charge that the infant plaintiff took the yard as she found it. To the refusal to charge as requested defendant excepted. The infant plaintiff had a verdict and the judgment entered thereon was affirmed in the Appellate Division.

The record is without the slightest evidence to show that the infant plaintiff was other than a mere licensee. The child was in the back yard with the implied consent of the defendant; but she was there for her own purposes only, and defendant’s acquiescence did not become an invitation. (Vaughan v. Transit Development Co., 222 N. Y. 79, 82.) In Murtha v. Ridley (232 N. Y. 488) there was evidence which established the yard as an appurtenance to the apartment house used in common by the tenants and retained in the possession and control of the landlord. Nothing of the sort appears here. (Cf. American Law Institute, Restatement of the Law of Torts, § 360.)

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

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

Judgments reversed, etc.


author: Crouch, J.

text:
    City Bank Farmers Trust Company, as Trustee under a Deed of Trust Made by Mary G. Abbey, Appellant and Respondent, v. Susan M. Arnold et al., Defendants; Margery E. Arnold et al., Respondents and Appellants, and National Academy of Design et al., Respondents.

      (Argued April 29, 1935;
    decided July 11, 1935.)

      Charles Angulo and Benjamin Nassau for plaintiff, appellant and respondent.
    The gift to the American Academy in Rome was a gift to a charitable corporation for one of its corporate purposes and not an express trust of which the American Academy in Rome was merely trustee. (Williams v. Williams, 8 N. Y. 525; Wetmore v. Parker, 52 N. Y. 450; Matter of N. Y. 71; Bird v. Merklee, 144 N. Y. 544; Matter of Durand, 194 N. Y. 477; Corporation of Chamber of Commerce v^Bennett, 143 Mise. Rep. 513; Tucker v. St. Clemens' Church, 8 N. Y. 558; Holmes v. Mead, 52 N. Y. 332.) If there was a gift to the American Academy in Rome and not a trust, the cy pres doctrine is inapplicable. {Levy v. Levy, 33 N. Y. 97; Holmes v. Mead, 52 N. Y. 332; Tilden v. Green, 130 N. Y. 29; Allen v. Stevens, 161 N. Y. 122;
      Mount v. Tuttle, 183 N. Y. 358; Corporation of Chamber of Commerce v. Bennett, 143 Mise. Rep. 513; Sherman v. Richmond Hose Co., 230 N. Y. 462; Albany Hospital v. Albany Guardian Society, 214 N. Y. 435; Wright v. Wright, 225 N. Y. 329; Fralick v. Lyford, 107 App. Div. 543; 187 N. Y. 524; Matter of Compton, 72 Mise. Rep. 289; Matter of Rappolt, 140 Mise. Rep. 239; Matter of Harrington, 243 App. Div. 235.)

      Cornelius J. Smyth, as guardian ad litem for Margery E. Arnold et al, infants, defendants, respondents and appellants.
    The legacy to the American Academy in Rome was an absolute gift and not a trust. (.Fralick v. Liford, 107 App. Div. 543; 87 N. Y. 524; Wetmore v. Parker, 52 N. Y. 450; Matter of Griffin, 167 N. Y. 71.) The gift to the American Academy in Rome lapsed by virtue of the rejection thereof. (Mount v. Tuttle, 183 N. Y. 358; Salts-man v. Greene, 136 Mise. Rep. 497; Ely v. Megie, 219 N. Y. 112; Matter of Compton, 72 Mise. Rep. 289; Matter of Collier, 97 Mise. Rep. 543; 179 App. Div. 950; Manley v. Fiske, 139 App. Div. 665; 201 N. Y. 546; Fralick v. Lyford, 107 App. Div. 543; 87 N. Y. 524; Albany Hospital v. Albany Guardian Society, 214 N. Y. 435; Wright v. Wright, 225 N. Y. 329.) The cy pres doctrine is not applicable to the gift to the American Academy in Rome. (Matter of Rappolt, 140 Mise. Rep. 239; Catt v. Catt, 118 App. Div. 742; Sherman v. Richmond Hose Co., 230 N. Y. 462.)

      John S. Montgomery for Royal Academy of Arts, defendant, respondent and appellant.
    The court erred in holding that the gift to the American Academy in Rome did not lapse. (Matter of Rappolt, 140 Mise. Rep. 239; Ely v. Megie, 219 N. Y. 112; Fralick v. Lyford, 107 App. Div. 543; 87 N. Y. 524; Williams v. Williams, 8 N. Y. 525; Bird v. Merklee, 144 N. Y. 544; Matter of Griffin, 167 N. Y. 71; Sherman v. Richmond Hose Co., 230 N. Y. 462; Matter of Donchian, 120 Mise. Rep. 535.)

      E. Lacy Finnan and Joseph W. Drake for The Incorporated Edwin Austin Abbey Memorial Scholarships, defendant, respondent and appellant.
    The gift to the American Academy in Rome is absolute. (Catt v. Catt, 103 N. Y. Supp. 740; Matter of Kathan, 141 N. Y. Supp. 705; Williams v. Williams, 8 N. Y. 525; Wetmore v. Parker, 52 Y. 450; Bird v. Merklee, 144 N. Y. 544; Matter of Griffin, 167 N. Y. 71.) The gift lapsed upon the renunciation by the American Academy in Rome, (jBurritt y. Silliman, 13 N. Y. 93; Booth v. Baptist Church, 126 N. Y. 215; Albany Hospital v. Albany Guardian Society, 214 N. Y. 435; Fralick v. Lyford, 107 App. Div. 543; 187 N. Y. 524; Matter of O’Hanlon, 147 Mise. Rep. 546; Matter of Compton, 72 Mise. Rep. 289; Matter of Rappolt, 140 Mise. Rep. 239.)

      Louis Bevier for National Academy of Design, respondent.
    Substituted trustees should be appointed whether the gift be held to be absolute or in trust. (Cons. Laws, ch. 41, § 12;- Fralick v. Lyford, 107 App. Div. 543; 187 N. Y. 524; Wait v. Society for Political Study, 68 Mise. Rep. 245; Matter of Compton, 72 Mise. Rep. 289; Matter of Rappolt, 140 Mise. Rep. 239; Matter of Winburn, 139 Mise. Rep. 5; Matter of Fitzsimmons, 29 Mise. Rep. 731; Matter of Donchian, 120 Mise. Rep. 535; Matter of Mills, 121 Mise. Rep. 147; Matter of Patterson, 139 Mise. Rep. 872; Matter of Walter, 150 Mise. Rep. 512; Manley v. Fiske, 139 App. Div. 665; Ely v. Megie, 219 N. Y. 112; Matter of Shattuck, 193 N. Y. 446; Bowman v. Domestic & Foreign Missionary Society, 182 N. Y. 494.) The gift to the American Academy in Rome was in trust. {Matter of Miller, 149 App. Div. 113; Bowman v. Domestic & Foreign Missionary Society, 182 N. Y. 494.)

      John J. Bennett, Jr., Attorney-General {Robert P. Beyer and Henry Epstein of counsel) for State of New' York, respondent.
    The provisions of the deed of trust create a trust for educational purposes, valid and enforceable under the provisions of section 12 of the Personal Property Law. (Butterworth v. Keeler, 219 N. Y. 446; Hamburger v. Cornell University, 204 App. Div. 664; 240 N. Y. 328; Iseman v. Myres, 26 Hun, 651; Farmers Loan & Trust Co. v. Ferris, 67 App. Div. 1; Matter of Davidge, 200 App. Div. 437; Matter of Frasch, 245 N. Y. 174; Matter of Judd, 242 App. Div. 389; Matter of Shattuclc, 193 N. Y. 446; Matter of Robinson, 203 N. Y. 380; Matter of Cunningham, 206 N. Y. 601; Matter of MacDowell, 217 N. Y. 454; Edgar v. Waldo, 227 N. Y. 656; Manley v. Fiske, 139 App. Div. 665; 201 N. Y. 546.) On the refusal of the trustees of the American Academy in Rome to accept the trust fund, the court below was justified in the application of the cy pres doctrine in carrying the same into effect. (.Bowman v. Domestic & Foreign Missionary Society, 182 N. Y. 494; Matter of Cunningham, 76 Mise. Rep. 120; 151 App. Div. 940; 206 N. Y. 601; Matter of Frasch, 245 N. Y. 174; Matter of MacDowell, 217 N. Y. 454; Sherman v. Richmond Hose Co., 186 App. Div. 417; Camp v. Presbyterian Society, 105 Mise. Rep. 139.)
   Crouch, J.

In April, 1931, Mary Gertrude Abbey made and delivered to the plaintiff trustee a deed of trust and turned over to it cash and securities having an estimated market value of nearly $1,500,000. The settlor was the widow of Edwin Austin Abbey, an American artist of distinction, particularly in the field of mural painting. The entire income was payable to the settlor during her life, and upon her death by far the larger part of the principal was, in a manner intended to perpetuate the name and fame of her husband, devoted to purposes broadly educational and benevolent. Disregarding certain abortive contingent gifts, the dispositive provisions of the trust deed are by its terms grouped and classified as preferred and unpreferred.

The settlor died a few months after making the deed. At that time it was found that the fund was insufficient to permit any payments on the unpreferred donations, and that the preferred donations would have to abate forty per cent or more from their face amounts. Included in the preferred group was the following:

“ e. To pay over out of the principal of said trust fund to the Trustees in New York of the American Academy in Rome ’ (of which the Settlor’s husband was one of the original incorporators) the sum of One hundred and fifty thousand dollars ($150,000) (thus constituting him a Founder) to be held in Trust however as a memorial to Settlor’s husband and the capital shall be kept unimpaired. The capital- shall be invested and be kept perpetually invested in such securities as they shall deem proper and from time to time they may vary or transfer any such investments into or for such securities as they may think advisable and the income of said One hundred and fifty thousand dollars shall be used as follows: They, the said Trustees, shall form and incorporate an association entitled The Incorporated Edwin Austin Abbey Memorial Scholarships for Mural Painting in the United States of America ’ based on the form of incorporation carried out in London, England, on the 30th day of March, 1926, a copy of which will be provided by my Trustee or Executor, the City Bank Farmers Trust Company, or the incorporation may be carried out in some other way if thought advisable.”

Subsequent provisions of the paragraph, too extended for quotation, outline the purposes and scope of the association. In substance, the association, through a council composed of eight members whose qualifications are prescribed, was to establish and thereafter to award certain scholarships, the holders of which were to follow courses of study in mural painting formulated and supervised by the council in accordance with the known ideals of Edwin Austin Abbey for the training of a mural painter.

The American Academy in Rome (hereinafter called the Academy) is a corporation created by act of Congress, constituting the persons therein named (among whom is Edwin Austin Abbey), their associates and successors, a body politic in the District of Columbia, “ For the purpose of establishing and maintaining an institution to promote the study and practice of the fine arts and to aid and stimulate the education and training of architects, painters, sculptors, and other artists by enabling such citizens of the United States as shall be selected by competition from among those who have passed with honor through leading technical schools or have been equally qualified by private instruction or study to develop their powers and complete their training under the most favorable conditions of direction and surroundings.” The act authorizes the corporation to adopt a constitution, by-laws and regulations and to hold real estate in the United States and in Italy for its uses and purposes. The by-laws provide that persons named in the act of incorporation shall be charter members; and that persons donating not less than one hundred thousand dollars shall be founders.

The Academy, for reasons which do not appear, rejected the donation of $150,000. The principal question before us is the disposition to be made thereof. The answer rests largely upon the construction of the provisions of the paragraph quoted above which embody it. The contention of the plaintiff and others is that the donation to the Academy was an outright gift to a charitable corporation for one of its corporate purposes; that where such a gift is rejected, the cy pres doctrine is inapplicable; and, therefore, that the amount of the rejected gift maybe distributed proportionately among the other preferred donees, thereby decreasing the percentage of abatement.

The courts below, however, have construed the paragraph as creating a charitable trust and have held that the rejection of the donation does not result in a failure of the gift, but that under the cy pres doctrine new trustees should be appointed to carry out the purpose of the settlor in accordance with the general plan outlined in the deed of trust.

It is, of course, true that the use by the settlor of words of trust is not conclusive as to the character of the donar tion. (Wetmore v. Parker, 52 N. Y. 450, 458, 459; Bird v. Merklee, 144 N. Y. 544, 550.) It is also true that the parenthetical reference to the payment over to the Academy of $150,000 as thus constituting the settlor’s husband a founder, is .some indication of an intent to make an outright gift to the Academy for its own purposes; but that in turn is not conclusive. The settlor may very well have supposed that a gift in trust for the purposes outlined would be considered a founder’s donation. What seems conclusive to us is the fact that- the purposes for which the income of the fund was to be used were to be achieved under the direction and according to the views of a body of men over whom the Academy was to have no control whatever. Moreover, they were purposes which might conceivably conflict with those of the Academy itself. Under such circumstances, it is going too far to say that the gift was intended for one of its own corporate purposes. It is not clear on the record whether the council of the scholarship association was to function as a board of trustees, or as something like a faculty, or as, both. Its members were to be mostly artists and architects who were also trustees in New York of the Academy as well as members of the National Academy of Design in New York. In any event, once chosen, they were to act only in accordance with the scheme of the settlor outlined in the deed of trust and hence beyond any control by the Academy. The essential object of the scholarships seems to have been the training of mural painters according to the ideals of Edwin Austin Abbey. For aught that appears, those ideals may have been anathema to the Academy which was maintaining and operating its own school in Rome according no doubt to its own ideals of training. So far as we can see, the sole function of the Academy after it had set up the scholarship association was to hold and invest the fund and in some manner not clearly stated to pay out the income, not for its own purposes but for those of an entirely distinct and separate entity. That is the function of a mere trustee. Matter of Griffin (167 N. Y. 71) and Matter of Durand (194 N. Y. 477) largely relied upon by the plaintiff, afford it no comfort under the facts here.

There is no serious contention that the cy pres doctrine is inapplicable, as matter of law, if the gift was by way of trust. The essential and dominant purpose of the settlor can be fulfilled. The plaintiff, however, urges various reasons why the power of the court to deal with the case cy pres may not be appropriately exercised here. The point is probably one with which this court should not deal; it relates to a matter of discretion rather than to one of law.

The other matters raised by the appeals of the defendants-appellants were, we think, rightly disposed of below and require no discussion.

The judgment should be affirmed, with costs to all parties appearing by separate counsel and filing separate briefs payable out of the estate.

Crane, Ch. J., Lehman, O’Brien, Hubbs and Lough-ran, JJ., concur; Finch, J., not sitting.

Judgment affirmed, etc.


text:
    (Argued June 6, 1935;
    decided July 11, 1935.)

      William D. Whitney and Samuel B. Stewart, Jr., for appellants.
    Since appellants sold all their shares prior to the closing of the bank, they cannot be held liable as beneficial owners. (Broderick v. Aaron, 264 N. Y. 368;
      Richards v. Robin, 175 App. Div. 296; 225 N. Y. 719; Johnson v. Underhill, 52 N. Y. 203; Currie v.White, 45 N. Y. 822.) If appropriation were necessary to the passage of equitable title, appellants acquired no equitable title to the shares of stock involved until after the closing of the bank, and are, therefore, not liable to reimburse respondent. (Wills v. Investors Bankstocks Corp., 257 N. Y. 451; Proctor & Cambie Co. v. Peters, White & Co., 233 N. Y. 97.)

      Myron K. Wilson and David W. Kahn for respondent.
    At the time of the closing of the bank on December 10th, the appellants were the beneficial or equitable owners of the shares. The fact that appellants may have been short of the stock at the close of business on December 10th, does not relieve them from liability to the respondent. (Broderick v. Aaron, 152 Mise. Rep. 791; Wills v. Investors Bankstocks Corp., 257 N. Y. 451; Goodhue v. State St. Trust Co., 267 Mass. 28; Matter of Broomhall, Kil-lough & Co., 61 Fed. Rep. [2d] 760; Matter of Bankers’ Capital Corp., 51 Fed. Rep. [2d] 737; Agar v. Orda, 144 Mise. Rep. 149; 239 App. Div. 827; 264 N. Y. 248; Broderick v. Britting, 147 Mise. Rep. 363.) The sale from the respondent to the appellants was a sale in presentí which operated to pass at once the beneficial title to the respondent’s shares. (.Beardsley v. Beardsley, 138 U. S. 262; Brdreich v. Zimmermann, 190 App. Div. 443; Currie v. White, 45 N. Y. 822; Sexton v. Kessler, 225 U. S. 90.)
   Lehman, J.

In the morning of December 10,1930, Leta M. Kahn gave an order to her agent or broker to sell fifty shares of stock owned by her in the Bank of United States. The order was executed about noon. The firm of Hoit, Rose & Troster, who are dealers in bank stock, purchased the fifty shares offered by the broker or agent. In accordance with the usual custom among brokers or dealers in bank stock, the delivery of the certificate of the fifty shares sold on December 10th was made on the following day. In the interval the Superintendent of Banks had taken possession of the bank.

The fifty shares of stock delivered by Leta M. Kahn were registered in her name upon the books of the bank. She is subject to the liability imposed by the Constitution of the State (Art. VIII, § 7) and by the Banking Law (Cons. Laws, ch. 2; §§ 80 and 120) upon stockholders of the bank. She does not contest her liability. She claims, however, that Hoit, Rose & Troster, as purchasers of her stock, are bound to indemnify her against such liability accruing after the sale to them. They have been made parties to the action, and judgment has been entered against them upon Leta M. Kahn’s cross-claim.

We have said that the obligation of the buyer to indemnify the seller is implied by law. It rests not on actual agreement, but on equitable principles. Seller and buyer occupy a quasi-trust relationship as long as the seller remains the holder of record and the buyer remains the actual owner of the stock.” (Broderick v. Aaron [Rice], 264 N. Y. 368, 377.) Regardless of whether title to the stock of Leta M. Kahn passed from the seller of the stock prior to delivery of the certificate, or even prior to transfer upon the books of the corporation, the seller by contract of present sale was bound to transfer, and the buyer was bound to accept, fifty shares of stock, together with rights to any benefit accruing upon the stock from the time the contract of sale was made. (Currie v. White, 45 N. Y. 822.) The contract of sale may not call for immediate delivery of the stock — even appropriation of specific stock to the contract may be postponed, yet the purchaser acquired by a contract of present sale a right to the benefits which may accrue upon the stock bought, and that right is, for convenience, called the “ beneficial ownership ” of the stock.

The beneficial owner of the stock at the same time becomes subject to an obligation to indemnify the seller upon a liability which may flow from record ownership of the stock; for the “ duty to bear burdens is correlative to the right to take benefits.” (Johnson v. Underhill, 52 N. Y. 203, 214.) To obtain, tbe status of a stockholder with consequent benefits from the corporation and with correlative liabilities to the corporation, transfer of the stock upon the books of the corporation may be necessary. None the less the beneficial owner of the stock may require the holder of record of the stock to transfer to him benefits received, and the holder of record of the stock may, after sale of the stock, require the purchaser, so long as he remains beneficial owner, to indemnify him . for loss sustained by reason of liabilities incurred as holder of record.

These general rules are well established, and in reliance upon them, Leta M. Kahn has obtained judgment against Hoit, Rose & Troster to whom, through her agent or broker, she sold fifty shares of stock. The purchasers do not challenge these rules. They contend that they in turn sold the stock they bought from Leta M. Kahn and were no longer the beneficial owners of her stock when the Superintendent of Banks took possession of Bank of United States.

In Broderick v. Aaron (Rice) (supra) we held that where a purchaser, from a stockholder of record, of shares of stock in Bank of United States, resold the shares before the bank closed, he was not hable to such stockholder of record for the amount of the statutory assessment recovered by the Superintendent of Banks against the stockholder of record. Here the purchasers of the stock attempt to establish the resale by proof that on December 10th, the day before the Bank of United States closed, they bought many blocks of stock in that bank, including the stock of Leta M. Kahn, and that on the same day they made many sales of stock in the same bank, and at the close of business they had sold more shares than they had bought or than they owned; in other words, that they were actually short of the stock. That, on the following day, after the bank was closed, they received delivery of the stock they had bought the previous day, including the stock bought from Leta M. Kahn. As they received delivery of stock bought the previous day, they delivered the stock received to those to whom they had made sales on the previous day. The fifty shares of stock bought from Leta M. Kahn were then delivered upon a contract for the sale of the same number of shares of stock made by them three hours after they had bought the stock which" they delivered.

Thus, though at the time the Bank of United States was closed, the purchasers of the stock from Leta M. Kahn had not transferred to any other person the shares they had bought from her, yet they had, in fact, made contracts of sale of more shares than they had bought or owned. Their claim now is that they had in that manner ceased to be the beneficial owners of any stock in the Bank of United States and were, consequently, not subject to the burdens placed by law upon the stockholders of the bank.

They admit that at the time the bank closed they had not passed title to the stock they had bought to any purchaser, but they urge that they had not received title to the stock they had bought prior to that time. They admit that they had not even appropriated any stock bought prior to that time upon any contract for the sale of similar stock, but they urge that no appropriation of stock upon their contracts to buy had been made by the original seller with their consent. They argue that it follows that prior to the closing of the bank they did not, by their purchase, obtain a beneficial interest in any identified stock, and if by the purchase they acquired the beneficial ownership in unidentified stock, they parted with such beneficial ownership by sale of more unidentified stock than they had bought.

In some respects the factual situation is apparently analogous to that presented in Broderick v. Aaron (Rice) (supra). In both cases the contracts of sale and of resale were made on the day before the closing of the bank and delivery was made thereafter. In both cases no title to identified stock passed either upon the original sale or upon the resale prior to the closing of the bank. There analogy ceases. In the earlier case resale was made a fraction of a minute after the original purchase. It was not disputed that the resale was of the same stock which was bought a moment before, and was made with intention to defiver the same stock which they would obtain their contract of purchase. True, the intermediate purchasers could not have been compelled to deliver upon the resale the identical shares of stock which were delivered to them. They might have complied with the contract of resale by delivering the same number of shares procured elsewhere. They did not do so, and so far as appears they never intended to do so, and never acquired any other shares for that purpose. Therefore, the assumption that the purchaser of the stock from the stockholder of record resold the same stock as they had bought was not challenged in this court and rested upon a substantial foundation.

Here the situation is different. The purchaser from the stockholder of record dealt in numerous blocks of stock. At no time prior to the closing of the bank was there any identification of contract to buy with subsequent contract to sell. Difference in length of time elapsing between the contracts of purchase and resale may not create an arbitrary distinction; it may, nevertheless, be a logical factor in the determination of whether the contracts of purchase and resale concerned the same stock. In the earlier case there was no dispute as to that. Here it clearly appears that the original purchasers of stock from Leta M. Kahn used her stock in conjunction with other stock they bought on the same day to create a mass of stock out of which they might indiscriminately withdraw stock for delivery upon such contracts of sale as they might choose to make, and they resold no identifiable stock, delivered to them, until they withdrew such stock from the mass and used it for delivery upon a subsequent contract.

Though beneficial rights and obligations are attached to record ownership of identified shares of stock, yet as between the buyer and seller of a stipulated number of shares of corporate stock, beneficial rights attached to the stipulated number of shares may pass, though no particular shares are specified. Thus, when Leta M. Kahn made a present sale of fifty shares of stock, it was immaterial whether she owned exactly fifty shares, or more than that number, or no shares. In any case she was bound to deliver fifty shares of stock, and the right to any dividends or other benefit accruing to the record holder after the date of the contract of sale; and in any case upon such delivery the purchaser received the stock subject to the burdens or liabilities accruing to the record holder of the stock after the sale, until the resold the stock. To terminate such liability, actual transfer of the beneficial ownership, by resale of the specific stock to which the beneficial ownership attached, is necessary. There rights and obligations incident to beneficial ownership in specific stock are not divested until the beneficial ownership to that particular stock passes from the buyer.

It follows from these general rules that when Hoit, Rose & Troster bought fifty shares of bank stock, they acquired the right to the delivery of that number of shares together with all benefits accruing thereon from the date of this purchase, and they at the same time assumed towards the seller the burden of all obligations accruing upon the same number of shares. Leta M. Kahn, the seller, was the owner of record of fifty shares of stock. She could perform her contract of sale by delivery of those shares, or any other shares, to the purchasers. Regardless of whether she delivered her own stock or other stock to the purchasers, the purchasers were entitled to receive from her the intervening beneficial rights in the stock delivered, and were subject to the correlative burdens upon that stock which otherwise the seller might be compelled to bear. When the purchasers thereafter made contracts of sale of stock in the same bank, the buyers obtained similar rights from them and became subject to similar obligations. Upon one of these contracts of sale the sellers delivered the stock purchased from Beta M. Kahn. There was no resale of that stock until the time of its delivery. Until that time, Hoit, Rose & Troster remained entitled to receive, from the stockholders of record, benefits accruing upon the stock purchased from her by them, and were under an obligation to indemnify the seller against any liability arising from her record ownership of the stock delivered. They transferred that right and divested themselves of that obligation only when they parted with beneficial ownership to the specific stock they had agreed to buy from her. As between themselves and the purchaser from them, they may have a right to indemnity for loss occasioned by their beneficial ownership of stock which was thereafter appropriated to their contract of sale. That question is not before us. Their obligation to the record owner of the stock from whom they purchased the stock remains in force until they transferred the beneficial ownership in the same stock to another. They could not give that transfer a retroactive effect.

The judgment should be affirmed, with costs.

• Crane, Ch. J., O’Brien, Hubbs, Crouch, Loughran and Finch, JJ., concur.

Judgment affirmed.