text:
    Seamen’s Bank for Savings in the City of New York, Appellant, v. Arthur Smadbeck, as Sole Surviving Executor of August Heckscher, Deceased, Respondent.
    Argued April 19, 1944;
    decided June 8, 1944.

      John C. Crawley and Henry W. Proffitt for appellant.
    I. At the time of his death the testator was primarily liable for the payment of his overdue bond. (Kress v. Central Trust Co., 246 App. Div. 76, 272 N. Y. 629; Honeyman v. Hanan, 275 N. Y. 382; Dudley v. Congregation, etc. of St. Francis, 138 N. Y. 451; Gen. Investment Co. v. Interborough R. T. Co., 200 App. Div. 794, 235 N. Y. 133; Matter of Wilbur v. Warren, 104 N. Y. 192; Schenectady v. Ashton, 205 App. Div. 781; Calvo v. Davies et al., 73 N. Y. 211; Marshall et al. v. Davies, 78 N. Y. 415; First National Bank & Trust Co. of Walton v. Eisenrod, 263 App. Div. 227.) II. The liability is a debt which the executor is required by law to pay. (Surrogate’s Court Act, § 314, subd. 3; Matter of Gill, 199 N. Y. 155; Matter of Vanderbilt, 187 App. Div. 716, 228 N. Y. 517.) III. Section 250 of the Beal Property Law is applicable only to encumbrances on real estate which descends to a distributee, or passes to a devisee. (Lamport v. Beaman, 34 Barb. 239; Wright v. Holbrook et al., 32 N. Y. 587; Matter of Denton et al. v. Sanford et al., 103 N. Y. 607; Chamberlain v. Dunlop, 126 N. Y. 45; Johnson v. Corbett, 11 Paige 265; Moseley v. Marshall, 22 N. Y. 200; Matter of Burrows, 283 N. Y. 540.) IV. In the cases provided for by section 250-of the Beal Property Law, the statute itself makes the decedent’s mortgaged land the primary debtor. The considerations which led to that construction of the statute are applicable only to the cases provided for by the statute. The literal execution of the statute, as construed, is merely a matter of administration which involves no equitable principle whatsoever. (Matter of Vanderbilt, 187 App. Div. 716, 228 N. Y. 517; Matter of Burrows, 283 N. Y. 540; Erwin v. Loper, 43 N. Y. 521; Wood v. Wood, 26 Barb. 356; Hauselt et al. v. Patterson et al., 124 N. Y. 349; Matteson v. Palser, 173 N. Y. 404.) V. In the administratian of a decedent’s estate, sometimes referred to as marshaling the assets of a decedent’s estate, the equitable doctrine of marshaling assets may be invoked only in the presence of recognized equities. (Womans Hospital v. 67th St. Realty Co., 265 N. Y. 226; Duport v. First Nat. Bank of Glens Falls, 288 N. Y. 261; Farmers’ Loan & Trust Co. v. Kip, 192 N. Y. 266; Low v. Bankers Trust Co., 270 N. Y. 143; Hauselt et al. v. Patterson et al., 124 N. Y. 349; Rice v. Harbeson et al., 63 N. Y. 493; Klinke v. Samuels, 264 N. Y. 144.) VI. The decision below is not sanctioned by the equitable doctrine of marshaling assets. (Low v. Bankers Trust Co., 270 N. Y. 143; Womans Hospital v. 67th St. Realty Co., 265 N. Y. 226; Gelfert v. National City Bank, 313 U. S. 221.)

      Vincent Keane and Louis W. Dawson for Mutual Life Insurance Company of Few York, amicus curice, in support of appellant’s position.
    I. The complaint states a cause of action. (Marshall et al. v. Davies, 78 N. Y. 414; De Cordova v. Barnum, 130 N. Y. 615; Kress v. Central Trust Co., Rochester, N. Y., 246 App. Div. 76, 272 N. Y. 629; First National Bank & Trust Co. of Walton, v. Eisenrod, 263 App. Div. 227; National City Bank v. Gelfert, 284 N. Y. 13; Ivanhoe Bldg. Assn. v. Orr, 295 U. S. 243; Lacy v. Getman, 119 N. Y. 109; Matter of Suderov, 153 Misc. 214.) II. Fo principle of equity limits the rights of the holder of a bond of a solvent decedent. (Prudence Co. v. 160 W. 73d St. Corp., 260 N. Y. 205; Johnson v. Zink, 51 N. Y. 333; Pease v. Egan, 131 N. Y. 262; Lilianthal v. Lesser, 102 App. Div. 500; Mollan v. Griffith, 3 Paige 402; First National Bank & Trust Co. of Walton v. Eisenrod, 263 App. Div. 227.) III. Fo statute of this State precludes direct action on the bond of a solvent decedent. (Cochrane v. Hawver, 54 Hun 556; Buell v. Sullivan, 250 App. Div. 780; Krueger v. Ferry, 41 N. J. Eq. 432; Matter of Wilbur v. Warren, 104 N. Y. 192; Wright v. Holbrook et al., 32 N. Y. 587; Bankers Surety Co. v. Meyer, 205 N. Y. 219.)

      Julius Weiss and Roswell P. C. May for respondent.
    I. The doctrine of marshaling of assets has been uniformly applied to the factual situation presented in this case. (Farmers’ Loan & Trust Co. v. Kip, 192 N. Y. 266; Rice v. Harbeson, 63 N. Y. 493; Fargo v. Squiers, 154 N. Y. 250; Matter of Black, 178 Misc. 71; Matter of Burrows, 283 N. Y. 540; Matter of Gellis, 141 Misc. 432; Matter of Dell, 154 Misc. 216; Halsey v. Reed, 9 Paige 446; Hauselt et al v. Patterson et al., 124 N. Y. 349; Erwin v. Loper, 43 N. Y. 521; Johnson v. Corbett, 11 Paige 265; Matter of Dusenbery v. Bragg, 241 App. Div. 553; Olmstead v. Latimer, 9 App. Div. 163,158 N. Y. 313.) II. Statutory enactments manifest a legislative intent to make the mortgaged property the primary fund for the payment of the bond of a deceased. (Real Property Law, § 250; Hauselt et al. v. Patterson et al., 124 N. Y. 349; Matter of Burrows, 283 N. Y. 540; Matter of Rosenbaum, 157 Misc. 316; Matter of Weissman, 140 Misc. 360; Matter of Dusenbery v. Bragg, 241 App. Div. 553; Matter of Dell, 154 Misc. 216; Matter of Gellis, 141 Misc. 432; Matter of Collins, 158 Misc. 798; Matter of Black, 178 Misc. 71, 266 App. Div. 837; Civil Practice Act, § 1083; Gelfert v. National City Bank, 313 U. S, 221; Surrogate’s Court Act, § 207.)
   Thacher, J.

During his lifetime August Heckscñer, the respondent’s testator, borrowed from the plaintiff $100,000, for the repayment of which he gave his personal bond secured by a mortgage on real estate which he then owned. The debt fell due in November, 1937, and remains unpaid to the extex¿; of $80,000. On February 10, 1939, after the debt became due, Heckscher conveyed the property subject to the mortgage to the Heckscher Foundation for Children. He died on April 26, 1941. The plaintiff took no steps to foreclose the mortgage but presented its claim for $80,000, the balance of the debt, to the executors. The claim was rejected and the plaintiff instituted this action against the surviving executor to" recover on the bond. The foregoing facts are' set forth in the complaint and it is alleged that the Heckscher estate is solvent and able to meet all the testator’s obligations including the instant indebtedness; that no other action has been commenced for the recovery of the sum secured by the bond or any part thereof and that no action has been commenced for. the foreclosure of the mortgage. The defendant executor having moved for an order dismissing the complaint under rule 106 of the Rules of Civil Practice, an order was made at Special Term granting the motion and dismissing the complaint for failure to state facts sufficient to constitute a cause of action. The judgment of dismissal was unanimously affirmed by the Appellate Division and leave to appeal was granted by this court.

It was held in the courts below that a mortgagee may not proceed against the general assets of a decedent’s estate until he has sought satisfaction of his debt by foreclosure of the mortgage, and the complaint, which alleged that no foreclosure action had been commenced, was accordingly dismissed.

If the decedent had retained title to the land until his death then the question presented would be controlled by section 250 of the Real Property Law, which requires the heir or devisee who takes the title from the decedent to satisfy and discharge the mortgage out of his own property without resorting to the executor or administrator of Ms ancestor or testator, unless the will directs that the mortgage be otherwise paid. But that statute can have no application here because the real property, subject to the mortgage, neither descends to an heir nor passes to a devisee, having been conveyed by the decedent during his lifetime to the Heckscher Foundation for Children.

Mor are we concerned with the mortgage moratorium acts in this case because the mortgage is dated after July 1, 1932. (Civ. Prac. Act, § 1077-g, as amd. by L. 1934, ch. 278.) Accordingly the right to enforce decedent’s liability on the bond against his estate depends upon common law and equitable principles unaffected by statute, except, of course, by the statutory duty of executors with diligence to pay the debts of the deceased (Surrogates’ Court Act, § 212) and the right of creditors to sue the executor upon all contractual causes of action which might have been maintained against the decedent. (Decedent Estate Law, § 116.)

Had the decedent lived, the right of the plaintiff to maintain this action against him would have been clear. The holder of a bond and mortgage has two remedies: one at law to recover a judgment for the debt and- the other in equity to foreclose the mortgage. (Dudley v. Congregation, etc., of St. Francis, 138 N. Y. 451, 457.) As between the mortgagor and the mortgagee, the bond is the principal obligation and the mortgage is security for the personal indebtedness. (Matter of Wilbur v. Warren, 104 N. Y. 192, 197.) It is true that upon the conveyance of the land to the Heckscher Foundation the mortgaged premises became the primary fund for the payment of the mortgage as between Heckscher and the Foundation, but the right of the creditor to resort to the bond for the collection of its debt was not affected by the conveyance. Heckscher could not, by any dealing or contract with another, impair the right of Ms creditor to proceed on the bond for the recovery of the debt. On the other hand, his relation to the debt was not changed by the conveyance so as to prevent him from paying the debt and proceeding against the land for his indemnity. (Calvo v. Davies et al., 73 N. Y. 211, 215.) These relative rights and remedies persist as between the creditor and the mortgagor’s estate unless modified by statute or governed by equitable principles of marshaling applicable in the distribution of the estate.

We have seen that section 250 of the Real Property Law, relating to the payment of mortgages upon real estate which descends to an heir or passes to a. devisee, can have no application here because the real property in question was not owned by the testator at the time of his death and therefore did not descend to an heir or pass to a devisee. Until the enactment of this statute, mortgages upon land owned by decedents were chargeable against their personal estates (Matter of Burrows, 283 N. Y. 540, 544), and no principles of marshaling were applied to make such debts for which the land had been given as security a charge primarily against the land.

It is however argued here that since the mortgage is security for the debt there are two funds from which the plaintiff may seek satisfaction: the real estate subject to the mortgage and the personal estate of the decedent, and- that upon the principle of marshaling the plaintiff was properly required to seek satisfaction from the mortgaged premises before attempting to charge the executors. But upon payment of the mortgage indebtedness the estate will become subrogated to the security of the land and, to the extent of the indebtedness paid, this security will be available to the creditors and legatees of the estate. To enjoin the enforcement of the personal obligation in such a situation does not seem to be justified upon any equitable principle of marshaling. The creditor concededly is entitled to two remedies and should be permitted to enforce wMchever he believes to be most effective provided no inequity will result to .other creditors and legatees. Since the estate is solvent, obviously it will be to the creditor’s advantage, if only to avoid delay and a possible deficiency, to enforce the terms of the bond and surrender the mortgage to the executor. This will not forego the collection of the indebtedness from a fund available to the plaintiff but unavailable to the other creditors and legatees but, on the contrary, by subrogation there will be made available to the estate the right to enforce the mortgage immediately upon payment of the mortgage indebtedness.

Different questions would arise if this were a mortgage subject to the mortgage moratorium laws, and a clear distinction must be drawn between a case of this kind and one within the provisions of section 250 of the Beal Property Law. (See Matter of Burrows, supra.) The statement in that case that the mortgaged property is now the primary fund from which payment of the bond is to be sought had reference to the requirements of section 250 of the Beal Property Law.

The decisions of this court cited with reference to equitable principles of marshaling have no application here.

In Fargo v. Squiers (154 N. Y. 250) the testatrix by her will made specific bequests and also created a trust for the benefit of infant children. In addition to her own property she had a general and unlimited power of appointment for her father’s estate. The trust was perfectly valid if made up of her individual estate but invalid if made up of the appointed property. In this situation, for the purpose of carrying out her wishes and intentions, the court as a court of equity required the specific bequests to be paid out of the estate of which she had the power of appointment, thus saving her individual estate to constitute the trust created by her will. This was said to be analogous to marshaling an estate of a deceased person. There the equity was apparent, for the trust beneficiaries, by whatever was paid on account of bequests from the individual estate, would have been deprived of trust funds which the will intended f or them.

In Rice v. Harbeson et al. (63 N. Y. 493) an analogous situation was dealt with in like manner. There, as here, a claim was made against executors upon a bond secured by real estate, but in a foreign State. The will directed the division of testator’s property, after payment of debts and expenses, into seven shares to be distributed as directed. Under the laws of the State where the mortgaged premises were located, the will was invalid as a will disposing of real estate and therefore the real estate was intestate property. In order to effectuate the testator’s plan and accomplish his purpose as far as possible, the court required the creditor first to exhaust his remedy against the realty before resorting to the personalty, with leave, however, to have payment of any deficiency out of the personal estate. Here the unintended disposition of the real estate under the intestate laws of a foreign State was the inequity which moved the court to action.- The court expressly disclaimed the establishment of a rule of universal application and emphasized the fact that the case was an exceptional one. This shows that the decision went upon the unusual and special equity involved. The principles of marshaling are brought into play only by compelling equities which can be served without prejudice to legal rights. (Farmers’ Loan & Trust Co. v. Kip, 192 N. Y. 266, 282, 283; Low v. Bankers Trust Co., 270 N. Y. 143; Womans Hospital v. 67th St. Realty Co., 265 N. Y. 226, 235-237.)

Matter of Black (293 N. Y. 85), decided herewith, was a case in which the equities were of such a character as to justify the application of the equitable doctrine of marshaling. No such equities are presented here.

Accordingly, the judgments should be reversed, with costs in all courts, and the motion denied.

Lehman, Ch. J., Loughban, Lewis, Conway and Desmond- JJ., concur; Bippey, J., taking no part.

Judgments reversed, etc.


source: Caselaw Access Project

author: Lehman, Ch. J.

license: Public Domain

text:
    Eleanor Boden, Respondent, v. Leo Arnstein, as Commissioner of Welfare of the City of New York, Appellant, and Rose Shorinsky, as Administratrix of the Estate of Harry Shorinsky, Deceased, Impleaded Defendant.
    Argued March 8, 1944;
    decided June 8, 1944.

      Ignatius M. Wilkinson, Corporation Counsel {Murray Sendler and James Hall Prothero of counsel), for appellant.
    I. Upon the facts, fairness and equity require interpleader of the rival claimants, lest by meeting their contentions separately the defendant become liable to both. By the same token, the judgment for the plaintiff on the pleadings was inadvisedly granted. (Rosen v. Equitable Life Assurance Society, 263 App, Div. 1015, 289 N. Y. 333; Pouch v. Prudential Ins. Co., 204 N. Y. 281.) II. The present case is not a contest over insurance proceeds as such. These funds lost that character when they passed into the possession of the defendant and were applied in part to the extinguishment of a debt. But from the viewpoint of the administrator they are life insurance proceeds accruing to the estate, in default of a named beneficiary; or accruing to her as wife or as administratrix under such a statute as Insuranee Law, section 161. (Davis v. Modern Industrial Bank, 279 N. Y. 405; Lahey v. Lahey, 174 N. Y. 146; Schoenholz v. New York Life Ins. Co., 234 N. Y. 24; Hirsch v. Mayer, 165 N. Y. 236; Jackson v. Tallmadge, 246 N. Y. 133; King v. Van Vleck, 109 N. Y. 363; Sharp v. Rose, 49 N. Y. S. R. 420, 139 N. Y. 652.) III.. The claims of the impleaded defendant, whatever their merit, are difficult for the defendant to oppose, through ignorance of the facts. (Matter of O’Neill, 143 Misc. 69; Weisman v. Metropolitan Life Insurance Co., 7 N. Y. S. 2d 565, 256 App. Div. 914; Matter of Robus, 263 App. Div. 1053.)

      Simon A. Pode and Philip Weiss for respondent.
    I. The Appellate Division properly granted judgment on the pleadings against defendant-appellant because said defendant’s answer admitted all the material allegations of the complaint and did not show sufficient basis for interpleader. (Pouch v. Prudential Ins. Co., 204 N. Y. 281; Rosen v. Equitable Life Assurance Society, 289 N. Y. 333.) II. The hazard which the defendant-appellant is to be protected against is the hazard of double liability and not the hazard of the inconvenience and expense of defending a baseless law suit. (Koninklijke Lederfabriek v. Chase National Bank, 177 Misc. 186, 263 App. Div. 815.) III. The provisions of section 161 of Insurance Law are not applicable.
   Lehman, Ch. J.

In August, 1942, an application made to the Department of Welfare of the City of New York for home relief by the plaintiff and one Harry Miller was granted by the Commissioner of Welfare. At that time the plaintiff was the named beneficiary in a rider “to be attached to ” a certificate issued to Harry Miller by Equitable Life Assurance Society of the United States under a group policy on the life of a number of employees of Borden’s Farm Products Co., including Harry Miller and insuring the life of Harry Miller in the sum of Three Thousand Dollars. In accordance with the rules and regulations of the Department of Welfare, Harry Miller and the plaintiff were requested to effect a change of beneficiary of the policy of life insurance by designating the Department of Welfare as the beneficiary. The change was effected “ with the understanding that the Department of Welfare would retain out of the proceeds of the said insurance a sum sufficient to reimburse the said Department of Welfare for any and all indebtedness and obligations, due or becoming due from the plaintiff and Harry Miller, also known as Harry Boden, to the said Department of Welfare and that the said Department of Welfare would repay any balance remaining to Eleanor Boden the plaintiff herein.”

Harry Miller died on November 24, 1942. The Department of Welfare collected and received from the Equitable Life Assurance Co., the sum of $3,010.86 representing the proceeds of the insurance policy. In accordance with the “ understanding ” when the change of beneficiary was effected, the Department of Welfare has a right to retain the sum of $775.25. The plaintiff-in this action seeks to recover the balance of the proceeds of the policy after the Department has been reimbursed for the moneys expended by it for home relief for plaintiff and Harry Boden, otherwise known as Harry Miller.

These facts are not disputed. They are alleged' in the complaint. They are not denied by the defendant and they are affirmatively realleged in the answer by the defendant in what is denominated “ a first separate and distinct defense to the cause of action alleged in thé complaint ’ ’. The Department does not claim that it may retain as its own the balance of the proceeds of the policy after deducting the sum of $775.25, concededly due to it. The Department has refused to pay that balance to the plaintiff only because another claim has been made upon it for these proceeds by one Bose Shorinsky “ as the administratrix of the estate of said Harry Boden, also known as Harry Miller.” She claims, too, that she was the legal wife of the insured and originally named as the beneficiary in the certificate issued to Boden under the group policy of insurance. In his answer the defendant offers to deposit in court the balance of the proceeds he now holds for the benefit of the person entitled thereto so that the two claimants may “ litigate between themselves their respective rights or claims to the balance of the moneys due under the certificate of insurance

The defendant moved in the pending action for an order interpleading Bose Shorinsky individually and as administratrix in accordance with the provisions of article 28 of the Civil Practice Act. The plaintiff moved on the same day for judgment on the pleadings. At Special Term the defendant’s motion was granted and, in consequence, the plaintiff’s motion for judgment denied. The order denying the plaintiff’s motion for judgment on the pleadings was reversed by the Appellate Division and the motion was granted. The - defendant has appealed to this court from the judgment in favor of the plaintiff for the amount demanded in the complaint which was entered upon the order of the Appellate Division. The sole question presented in this case, both in the courts below and in this court, is whether the defendant has shown ‘1 not only that he is ‘ indifferent between the claimants ’ but also that he is 1 ignorant or in doubt which is the rightful one, and is in real danger or hazard by means of such doubt from their conflicting claims. ’ ” (Rosen v. Equitable Life Assurance Society, 289 N. Y. 333, citing Pouch v. Prudential Ins. Co., 204 N. Y. 281.)

The Department, as the named beneficiary of the policy insuring the life of Harry Miller, has legal title to the proceeds of the policy. Since, however, the Department was named as beneficiary upon the understanding that it would retain out of the proceeds only a sum sufficient to reimburse it for advances made to the plaintiff and to the insured it holds the balance for the benefit of the person entitled to it. The claims o'f the plaintiff and of the administratrix for the balance are based on equitable considerations. (See Hirsch v. Mayer, 165 N. Y. 236,) The claim of the plaintiff is that in accordance with the understanding of the parties when defendant was named as beneficiary, the defendant holds that balance in trust for-, her. The defendant does not contend that the plaintiff has no equitable right to that balance. The Commissioner contends only that the administratrix of the .decedent has a claim' based upon conflicting equitable considerations sufficiently persuasive that he cannot without hazard decide between the claimants and pay to either the money he holds. The plaintiff does not contend, and cannot contend, that the Department of Welfare may be liable to her upon any contractual obligation if the administratrix of the estate of the decedent can establish a superior equitable right to the fund held by the defendant. She does not, and cannot upon this appeal, contend that the administratrix is" not the legal wife of the insured, and is not entitled to administration of his estate. Judgment has been granted in plaintiff’s favor only because it is said that though that be true, the adverse claim of the administratrix is so patently without substance that the defendant can reject it without risk that in an independent action brought by the administratrix she may be able to establish a right to the fund.

We think that upon the pleadings in this case the plaintiff’s right is not so conclusively established. Section 161 of the Insurance Law which is applicable to group life insurance policies and certificates, provides in part that ‘ ‘ if there is no designated beneficiary as to all or any part of the insurance at the death of the insured, then the amount of insurance for which there is no designated beneficiary shall be payable to the estate of the insured If the Departmént of Welfare had been named as beneficiary in place of the plaintiff without any understanding that upon the death of the insured the balance of the proceeds, after the defendant was reimbursed, would-be paid to the plaintiff, then certainly the claim for the balance made by the estate of the insured could not have been rejected without evident hazard. The understanding ” that the proceeds should be "paid to the plaintiff does not wholly remove that hazard. Upon this appeal we must assume the truth of the allegation of the answer that the plaintiff represented that she and the said Harry Boden were husband and wife and that the two minor children were her children and the children of her said husband. If such representation was in fact made and was false, that falsehood in connection with other circumstances that might appear at a trial might weaken the equitable foundations of the plaintiff’s claims. The relative weight of the equitable claims of the plaintiff and of the administratrix of the estate of the deceased cannot be appraised by the defendant without hazard nor, in our opinion, can the courts determine the validity of these conflicting claims in the absence of the administratrix.

For these reasons the judgment of the Appellate Division should be reversed, without costs, and the order of Special Term denying the plaintiff’s motion for judgment should be affirmed.

Lotjghban, Lewis, Conway and Desmond, JJ., concurj Rippey and Thacheb, JJ.-, taking no part.

Judgment accordingly.


author: Lewis, J. Loughran, J.

text:
    Henry F. Gearns, Appellant, v. Commercial Cable Company, Respondent.
    Argued April 6, 1944;
    decided June 14, 1944.

      Beverly R. Myles and Michael J. Kiely, Jr., for appellant.
    I. Respondent was a trustee of “ commissions ” on endowment policies of its employees received and credited by it to its pension reserve. (People v. Formosa, 131 N. Y. 478.) II. Respondent was estopped to deny existence of its trust relationship with respect to fines and commissions on endowment insurance. (Wilson v. Rudolph Wurlitzer Co., 48 Ohio App. 450; Schofield v. Zion’s Co-op. Mercantile Institute, 85 Utah 281; George A. Fuller Co. v. Brown, 15 F. 2d 672; Rothschild v. Title Guarantee & Trust Co., 204 N. Y. 458; Pickard v. Sears, 6 A. & E. 469; Cornish v. Abington, 4 Hurl. & N. 549; Tyler v. Mass. Ins. Co., 108 Ill. 58; McLain v. School Directors, 51 Penn. St. 196.) III. Defendant had surplus profits above capital assets as well as current profits. Depreciation was not a proper charge in computing such profits and assets. (Eyster v. Centennial Board of Finance, 94 U. S. 500; Mayer v. Nethersole, 71 App. Div. 383; Purdue v. Ralph, 100 F. 2d 518; Miller v. Car Trust Investment Co., 120 App. Div. 442,193 N. Y. 617.) IV. The pension reserve of $1,637,416.41 on the books of respondent company constituted a legal obligation to its pensioners. (Willoughby Camera Stores v. Com’r. of Internal Rev., 125 F. 2d 607.) V. The pension reserve was used by respondent to eliminate its profits but recovery from such reserve has been denied to appellant by court below. VI. Manipulations of its corporate accounts by respondent should not create a bar to recovery by faithful employee. (Wilson v. Rudolph Wurlitzer Co., 48 Ohio App. 450; Sigman v. Rudolph Wurlitzer Co., 57 Ohio App. 4; Schofield v. Zion’s Co-op. Mercantile Institution, 85 Utah 281; George A. Fuller Co. v. Brown, 15 F. 2d 672; Miller v. Car Trust Investment Co., 120 App. Div. 442.) VII. The Trial Judge erred in making conflicting charges with reference to ambiguity in language in the pension plan. (Kieran v. Hunter College Retirement Board, 255 App. Div. 378; Western Union Telegraph Co. v. Hughes, 228 F. 885.)

      Theodore Kiendl, Ralph M. Carson, Frederick A. 0. Schwarz and William H. Timbers for respondent.
    I. Defendant, without profits, was under no duty to pay a pension to plaintiff. II, Defendant’s deduction of depreciation before determining profits was proper. (Jennery v. Olmstead, 36 Hun 536, 105 N. Y. 654; People ex rel. Jamaica W. S. Co. v. Tax Comrs., 196 N. Y. 39; People ex rel. B. L. H. & P. Co. v. Stevens, 203 N. Y. 7; People ex rel. N. Y. R. Co. v. Pub. Ser. Comm., 181 App. Div. 339; People ex rel. Third Avenue R. R. Co. v. Tax Commissioners, 136 App. Div. 155, 198 N. Y. 608; Knoxville v. Water Co., 212 U. S. 1; Federal Power Comm. v. Pipeline Co., 315 U. S. 575; Martin v. Di Marco & Reimann, Inc., 264 App. Div. 234, 289 N. Y. 841; Winkelman v. General Motors Corporation, 44 F. Supp. 960; Gallin v. National City Bank of New York, 155 Misc. 880.) Ill: The account “ Reserve For Pensions and Benefits ” on defendant’s books constitutes no legal obligation to plaintiff. The pension reserve represents, an estimate of contingent liability. IV. It represents no segregation of assets and therefore is not a trust fund. (Sokoloff v. National City Bank, 250 N. Y. 69; Hickok v. Bunting, 67 App. Div. 560; Matter of Pratt, 156 Misc. 328; McKee v. Paradise, 299 U. S. 119; Continental Casualty Co. v. Powell, 83 F. 2d 652; Leo v. Pearce Stores Co., 54 F. 2d 92; Marble v. Marble, 304 Ill. 229; Lucas v. American Code Co., 280 U. S. 445; David J. Joseph Co. v. Com'r. of Internal Revenue, 136 F. 2d 410; Spring Canyon Coal Co. v. Commissioner of Int. Rev., 43 F. 2d 78.) V. Plaintiff is not entitled to reach the commissions on endowment insurance credited by defendant to the pension reserve. (People v. Formosa, 131 N. Y. 478; Persky v. Bank of America Nat. Assn., 261 N. Y. 212.) VT. The trial court correctly reserved to itself the determination of the question of the existence of any ambiguity in the pension plan. (Haefeli v. Woodrich Engineering Co., 255 N. Y. 442; Rooney v. Brogan Construction Co., 194 N. Y. 32; Walsh v. Kelly, 40 N. Y. 556; Sperry v. Union Railway Co., 129 App. Div. 594; Braxton v. Mendelson, 233 N. Y. 122; Brady et al. v. Cassidy et al., 104 N. Y. 147.) VII. The charge of manipulation of the defendant’s corporate accounts to defeat the plaintiff is wholly unfounded.
   Lewis, J.

In 1905 the defendant made available to certain classes of its permanent employees a plan for pensioned retirement. That plan was subject to specific limitations, including the following: “ 17. No pension or gratuity shall be paid except out of the profits of the Company and no pension or gratuity or claim thereto shall b¿ a charge upon or against or payable out of any of the capital assets of the Company(Italics supplied.) Our present problem involves chiefly the interpretation of the word profits ” as used in the provision quoted above.

In accord with the provisions of the 1905 pension plan the plaintiff received regularly from the defendant a monthly pension from the date of his retirement in 1932 until April 30, 1941. On May 1, 1941, pension payments were terminated by the defendant upon the asserted ground that no profits had been realized from the Company’s operations for the preceding year 1940. Instead a substantial capital deficit had resulted. In a written communication delivered to the plaintiff prior to May 1, 1941, the defendant had called to his attention the provisions of paragraph “ 17 ” of the pension plan and had advised him that — no payments are due to be made with respect to pensions under the terms of the 1905 Plan ” for the month of May, 1941. At the trial in Municipal Court of the City of . New York a jury awarded a verdict in favor of the defendant. The judgment entered upon that verdict was reviewed and affirmed by the Appellate Term, first department, after which the judgment entered upon the order- of the latter court was affirmed at the Appellate Division, two Justices dissenting. The case comes- to us by permission of the Appellate Division.

Two issues were submitted to' the jury — (1) whether on May.'.l, 1941, when the defendant declined to-pay to plaintiff a monthly pension, there were pro-fits from which the payment claimed by the plaintiff to-be-due on -that date should have been paid; (2) whether the item appearing on the defendant’s books under the caption “ Reserve for Pensions and -Benefits ’’ represented a segregated fund from which! the pension was payable. Those issues were in essence questions of law for decision by the court. We think, however, that any error in such submission was inconsequential because, in our opinion, the jury’s finding in favor of the defendant upon each of the two questions submitted should in any event have been directed by the court as matter of law. The construction of a plain contract is for the court. The intention of the parties is found in the language used to express such intention. (Hartigan v. Casualty Co., 227 N. Y. 175.) If the court 'finds as matter of law that the contract is unambiguous, evidence of the intention and acts of the parties plays no part in the decision of the case. Plain and unambiguous words, undisputed facts, leave no question of construction except for the court. The conduct of the parties may fix a meaning to words of doubtful import. It may not change the terms of the contract.” (Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125, 133.)

We regard as untenable the plaintiff’s position that the word profits ” as used in the limitation set forth in paragraph 17 ” of the plan refers to net proceeds from defendant’s operations arrived at by deducting current expenses from receipts of the enterprise during a given period, without including as an item of expense an allowance to cover depreciation of operating facilities which were capital assets. Such interpretation of the word “ profits ”, we think, is not only opposed to sound business practice but it disregards the contextual limitation which is set forth in the same paragraph “ 17 ” of the plan — “* * * no pension * * * shall be a charge upon or against or payable out of any of the capital assets of the Company.”

“ Capital assets ” as that phrase is used in the provision last quoted above include cables and those other facilities by means of which the defendant’s business is conducted and which represent an expenditure of invested capital made at some time in the company’s history. The usable value of depreciable facilities owned by the defendant and essential to its operations, suffers normally a constant depreciation from use and obsolescence, with a corresponding loss of invested capital. That normal process of depreciation works a constant devaluation of the defendant’s “ capital assets ” which, if permitted to continue without restoration would ultimately exhaust the defendant’s power to function. Meantime, if the books of the defendant do not take into account the constant depreciation of the defendant’s operating facilities — some of which have been in use for many years — those depreciated assets, as a matter of corporate bookkeeping, would be valued as new. If the defendant is to continue to perform the functions for which it was organized a reserve representing an honest estimate of depreciation of capital assets must be set up. Upon that subject this court has had occasion to say — “ No corporation would be regarded as well conducted which did not make some provision for the necessity of ultimately replacing the property thus suffering deterioration ”. (People ex rel. Jamaica W. S. Co. v. Tax Comrs., 196 N. Y. 39, 57-58; see, also, People ex rel. B. L., H. & P. Co. v. Stevens, 203 N. Y. 7, 22, 23, 25; Knoxville v. Water Co., 212 U. S. 1, 13-14.)

We read the several specific limitations set forth in paragraph 17 ” of the plan as we believe they would be understood by the average employee of the defendant. In the context in which it is found we construe the word “ profits ” as referring to net income derived from the defendant’s operations over a given period and computed by including within items of expense properly to be deducted from current receipts, a fair allowance for depreciation of capital assets.

The record contains no evidence which supports the plaintiff’s further contention that in May, 1941, when the payment of a pension to the plaintiff was discontinued, the item11 Reserve for Pensions and Benefits ” appearing on the defendant’s books served as a basis for an obligation by the defendant to make the pension payment here in suit. The theory upon which this claim , is made is that the pension reserve account constitutes a trust fund from which the plaintiff’s pension was payable irrespective of whether the defendant’s operations in 1940 and 1941 produced profits.” The item “ Reserve for Pensions and Benefits ” was created in 1906 by a book transaction which involved transferring to that account the balance in an account styled “ Endowment Insurance Suspense ” which had existed under an endowment insurance pension plan which antedated and differed from the pension plan of 1905. The balance of $54,573.74 in that former account at the time of the transfer was composed chiefly of commissions received by the defendant on endowment policies issued on the lives of employees together with fines collected from employees for inaccurate messages and other minor offenses. Later, in 1922, when the “ Reserve for Pensions and Benefits ” had been depleted to a figure' insufficient to meet pension payments for that year, the defendant arbitrarily transferred from surplus to the pension reserve account, $1,529,335.05. Thereafter in 1923 and 1924 similar transfers, in the amount of $22,337 each were made. The evidence is undisputed, however, that these transactions involved no withdrawal from the defendant’s general funds, no segregation of its funds or assets. The general funds, out of which pension payments were made, were not disturbed. In the absence of proof that the account Reserve for Pensions and Benefits ” represented a segregation of funds or assets separate from the defendant’s general funds, thus creating a trust fund or res upon which a trust was impressed, no basis was established by the plaintiff for his claim that the pension reserve account constituted a trust fund from which his pension for 1941 was payable. (McKee v. Paradise, 299 U. S. 119, 123; Brown v. Spohr, 180 N. Y. 201, 209; Greene v. Greene et al., 125 N. Y. 506, 510.)

There remains for consideration the plaintiff’s assertion that the defendant is estopped from denying that its receipt and commingling with its own funds of various types of fines and the commissions on insurance policies issued to employees, constitutes a trust for its pensioners. An answer to that charge is found in the undisputed evidence that although, as we have seen, the defendant had accumulated in the Endowment Insurance Suspense ” account between 1893-1905 the sum of $54,573.74 and had received from 1906 to the date in May, 1941, when it refused to pay the plaintiff’s pension the sum of $35,541.69 — a total of $90,115.43 — it paid ■ out in pensions, benefits and gratuities under its pension plan from 1906 until May, 1941, the total sum of $2,738,425.83. It also appears that the plaintiff did not lose the benefit of insurance taken out by him under the defendant’s endowment insurance pension plan which antedated the pension plan of 1905. When, in the course of administering that plan the policy issued to the plaintiff by New York Life Insurance Company came due in 1920 in the sum of $1,252.72, he authorized the defendant to invest the proceeds in shares of The Mackay Companies to be held. by the defendant until he should be pensioned or should die, at which time théy were to be transferred to him or his estate. He also directed that a part of the shares so purchased corresponding to the defendant’s total contribution to premiums on his endowment policy and to the share of profits earned by such endowment policy, with dividends and interest on dividends received on such shares, were to be taken into account in computing his pension, and the amount of his pension was to be abated to that extent. He directed that dividends on his shares were to be mailed directly to him and subsequently, when The Mackay Companies’ shares were exchanged by the plaintiff for $1,600 of 5% bonds of Postal Telegraph and Cable Corporation, he acknowledged in writing that he had no further claim against the defendant in connection with that transaction.

The judgment should be affirmed, with costs.

Loughran, J.

(dissenting). The parties are agreed that sums properly payable under this pension plan are debts of the defendant and not mere donations. One of the terms of the defendant’s obligation is this: “No pension or gratuity shall be paid except out of the profits of the Company and no pension or gratuity or claim thereto shall be a charge upon or against or payable out of any of the capital assets of the Company.”

At the times in issue, the defendant carried on its balance sheet an entry of $19,591,678.45 under the heading “ Reserve for Depreciation.” The opinion of the court is that this item must be given effect in arriving at the amount of the “ profits ” in question. Such a construction, in our judgment, is not the true one.

The words of the defendant’s plan must be understood in their popular and ordinary sense, because common usage is the best judge of speech and the average man speaks quite simply. Moreover, these words are now to be read as they would have been so understood when the plan was set up in 1905 — long before income taxes had accentuated a scientific practice of allocating some portion of revenue to the renewal of assets. We cannot accept the presumption that the average employee of the defendant saw in this plan the technical “ depreciation ” procedures of the tax-assessment and rate-making cases, that are now cited against him. On the contrary, as we must suppose, he looked at the plan as a thing that was meant to urge him to work steadily, by holding out to him some hope of freedom from want in the not unlikely event of a wearing-out of his own vigor through his day by day part in the defendant’s business. (See Roddy v. Valentine, 268 N. Y. 228, 232.)

These considerations lead us to the conclusion that-the word “ profits ” should in this instance be taken to signify the receipts of the enterprise less current expenses, i. e., net receipts — a construction that seems to us to be likewise .quite in step with the popular and ordinary sense of the complementary provision against payment of a pension out of any “ capital ” asset. (See The People v. The Supervisors of Niagara, 4 Hill 20; Paine v. Howells, 90 N. Y. 660; Miller v. Car Trust Investment Co., 120 App. Div. 442,193 N. Y. 617; Eyster v. Centennial Board of Finance, 94 U. S. 500.)

A “ Reserve for Pensions and Benefits ” which the defendant carried on its hooks included fines collected by it from its employees and rebates on insurance premiums that were páid in part by them. Whether under these circumstances this entry was in some degree a warranty to the employees or worked an appreciable estoppel in their favor is a question that need not now be determined, if we are right in what we said above.

We vote to reverse the judgments and to grant a new trial, with costs in all courts to abide the event.

Lehman, Ch. J., Conway and Thacher, JJ., concur with Lewis, J.; Lottghran, J., dissents in opinion, in which Rippey and Desmond, JJ., concur.

Judgment affirmed. (See 293 N. Y. 755.)


author: Conway, J.

text:
    Lucia Di Bartolo et al., Respondents, v. City of New York, Appellant.
    Argued April 18, 1944;
    decided June 14, 1944.

      Ignatius M. Wilkinson, Corporation Counsel {Murray Sendler and James Hall Prothero of counsel), for appellant.
    I. By their own concession, the plaintiffs gave the Comptroller fewer than thirty days to settle or pay their claim, hence, their proof, that he refused or neglected to do so for thirty days, failed. (Moren v. City of New York, 163 App. Div. 561; Amex Asphalt Corp. v. City of New York, 263 App. Div. 968, 288 N. Y. 721; Tolchinsky v. City of New York, 164 App. Div. 636, 220 N. Y. 633; Collins v. City of New York, 257 App. Div. 988; Casey v. City of New York, 157 App. Div. 905, 217 N. Y. 192; Johannes v. City of New York, 257 App. Div. 197, 281 N. Y. 825; Kaplan v. City of Poughkeepsie, 279 N. Y. 153; Reining et al. v. City of Buffalo, etc., 102 N. Y. 308.) II. The defense here involved was available under a general denial, and need not have been affirmatively pleaded. (Rapp v. City of New York, 176 App. Div. 155; Purdy v. City of New York, 193 N. Y. 521; City of Champaign v. McMurray, 76 Ill. 353; Underwood v. Campbell, 13 Wend. 78; Collett v. Flinn, 5 Cow. 466.) ¡

      Harry Fieldsteel and Jacob Zelenko for respondents.
    I. This action was not prematurely brought, because there is no statutory or other provision that a claimant against the City may not sue upon his claim until after he has first submitted to oral examination by defendant’s Comptroller. (Moren v. City of New York, 163 App. Div. 561; Stubbmann v. City of New York, 176 App. Div. 937.) II. Inasmuch as the oral examination was adjourned, not because of any caprice on the part of plaintiff or of her attorney, but solely because plaintiff’s physical condition precluded submission to an oral examination at defendant’s Comptroller’s office, the Trial Justice’s ruling in plaintiff’s favor was correct. (Mirsky v. Mirsky, 35 N. Y. S. 2d 858.) III. The Appellate Division was correct in ruling that the defense herein should have been specially pleaded. (Monroe v. United States, 10 F. S. 412; Civ. Prac. Act, § 242.)
   Conway, J.

There is presented to us the question whether under the facts related below, the plaintiffs complied with the statutory conditions precedent to the bringing of an action against the City of New York. The applicable statutes are New York City Administrative Code, § 93d-1.0 (formerly Greater New York Charter, § 149) and Code, section 394a-1.0 (former Charter, § 261). The former section reads — Settlement of Claims — “ The comptroller may require any person presenting for settlement an account or claim for any cause against the city or the board of education to be sworn before him or either of the deputy comptrollers, touching such account or claim, and when so sworn, to answer orally as to any facts relative to the justness of such account or claim. * *

The latter section provides, in part: “ Actions against the city.— a. In every action or special proceeding, for any cause whatever, prosecuted or maintained against the city, the complaint or necessary moving papers shall contain an allegation that at least thirty days have elapsed since the demand, claim or claims, upon which such action or special proceeding is founded, were presented to the comptroller for adjustment, and that he has neglected or refused to make an adjustment or payment thereof for thirty days after such presentment. # # # >>

The injuries complained of were sustained on July 2, 1941. Notices of claim and of intention to sue were served upon the Comptroller and the Corporation Counsel on October 4, 1941. On October 22, 1941, the Comptroller notified the plaintiffs to appear on October 29th for examination. On October 28, 1941, the examination was adjourned by stipulation to January 7, 1942. The stipulation was sought by the plaintiffs because the plaintiff wife had been injured so seriously that it was impossible for her to appear. The stipulation provided: “ It is hereby stipulated that the examination of claimant herein be adjourned, at the request of claimant’s attorney, to the 7th day of January, 1942, at 10 o’clock a. m., with the distinct understanding that such adjournment is without prejudice to the Comptroller’s right to settle or adjust said claim within the same period of time after such examination is held, as the Comptroller had from the date set originally for such examination, and that no action be brought during such period of time.”

On December 13, 1941, the summons and complaint were served upon the City. The City answered on December 24,1941, and later served an amended answer verified January 8, 1942.

On January 7, 1942, one day before the verification of the amended answer, the City stipulated for the further adjournment of the examination to March 4,1942, by a stipulation which contained the same condition as in the original stipulation of October 28, 1941. On March 4, 1942, the examination of both plaintiffs was had.

In the complaint paragraphs “ Eighth ” and “ Fifteenth ” (one in each cause of action) were as follows: That the said Comptroller has wholly neglected and refused to make any adjustment or payment of said claim aforesaid.” In the amended answer those paragraphs were denied “ except that on or about the 4th day of October, 1941, prior to the commence-' ment of this action, and within six months after its alleged accrual, a paper writing purporting to be a notice of claim and of intention to sue was presented to the Comptroller of the City of New York, for adjustment and served upon the Corporation Counsel of the City of New York, for the plaintiff herein, a copy of which is attached to the complaint; and that no adjustment thereof has been made.”

It will be noted that had the examination been held on the date originally set for it, namely, October 29, 1941, the Comptroller would have had five days thereafter, of the statutory thirty days, within which to adjust the claims and that plaintiffs could not have commenced their action until those five days had elapsed. The City therefore argues that by the terms of the two stipulations the Comptroller had five days after January 7, 1942, and after March 4, 1942, respectively, within which to adjust- the claims and that the action has been prematurely brought, since it was commenced prior to March 9, 1942.

The manner in which the question arose is illuminating. The matter was certainly handled most informally by counsel for both parties. The case came on for trial on February 24, 1943, more than eleven months after the examination in fact had been held, and after the period had passed within which an action for negligence might be brought against the City. Neither, counsel had the point in mind. After the tiiorning session, before the plaintiffs had rested their case, it was called to the attention of the Assistant Corporation Counsel by an associate. A motion was thereafter made to dismiss the complaint for failure to comply with the portion of the Administrative Code, section 394a-1.0 quoted sufra. That motion was denied, the plaintiffs had verdicts and the judgment entered thereon has been- affirmed by the Appellate Division. We think that upon the pleadings and upon the conduct of the parties to the litigation, the decision below was correct.

True, at the time of the first stipulation, the City still had five days within which to adjust the claims before an action could be commenced. It is also true that on January 7, 1942, when the examination was further adjourned, the City still had five days from the date to which the examination was adjourned. But one day later, on January 8, 1942, when the City verified its amended answer, it admitted that notices of claim and of intention to sue had been presented to the Comptroller for adjustment “ and that no adjustment thereof has been made.”' That was in connection with its amended answer to paragraphs Eighth ” and “ Fifteenth ” of the complaint in which it was alleged that the Comptroller had neglected and refused to make adjustment or payment of the claims. It seems to us that that was a clear concession, for the purpose of pleading and trial, that the thirty-day period had expired and that the Comptroller had neglected and refused to make an adjustment or payment during that period. Thereafter an examination of the plaintiffs was conducted by the Comptroller on March 4, 1942, otally as to both plaintiffs and in addition by the Medical Examiner as to the plaintiff wife, more than eleven months before the trial, and no suggestion of adjustment or payment was subsequently made by the Comptroller. The plaintiffs were justified in assuming that the question now raised was out of the case. Had the City desired to rely on the stipulation of the parties to establish that the action was prematurely commenced, the special agreements so relied upon should have been pleaded as an affirmative defense. (Civ. Prac. Act, § 242.)

The fact that the plaintiffs were examined differentiates this case from others heretofore decided. In Tolchinsky v. City of New York (220 N. Y. 633) and in Casey v. City of New York (217 N. Y. 192) no examination of the plaintiff was ever had. Quite clearly in those cases it was not made to appear that the Comptroller had waived or otherwise lost his right to examine the claimant or had neglected or refused to make an adjustment or payment to one who had never presented himself for examination at any time although under stipulation so to do. Johannes v. City of New York (257 App. Div. 197, affd. 281 N. Y. 825) was decided in this court upon the ground that the omission from the notice of claim of the date upon which the accident occurred was fatal and that the stipulation into which the parties entered did not cure that defect.

The judgment should he affirmed, with costs. (See 293 N. Y. 756.)

Lehman, Ch. J., Loughran, Rippey, Lewis and Desmond, JJ., concur; Thacher, J., taking no part.

Judgment affirmed.


text:
    William M. Moore Construction Co., Inc., Appellant, v. United States Fidelity and Guarantee Company, Respondent.
    Argued April 17, 1944;
    decided June 14, 1944.

      Vernon Murphy for appellant.
    I. The complaint alleging that defendant assumed and conducted plaintiff’s defense, against the cross complaint with full knowledge of all the facts without disclaiming liability, and is therefore precluded from setting up the defense of non-coverage states a good cause of action. (Jones v. Zurich General Accident & Liability Ins. Co., 121 F. 2d 761; Gerka v. Fidelity & Casualty Co., 251 N. Y. 51; Rosenwasser v. Globe Indemnity Co., 224 N. Y. 561; Kearns Coal Corp. v. United States Fidelity & Guar. Co., 118 F. 2d 33; Gordon v. Mass. Bonding & Ins. Co., 229 N. Y. 424; Oehme v. Johnson, 181 Minn. 138; Boyle Mining Co. v. Fidelity & Casualty Co., 126 Mo. App. 104; Thompson-Starrett Co. v. Otis Elevator Co., 271 N. Y. 36; Cohen v. Dugan Brothers, Inc., 134 Misc. 155; Zazlow v. Hartford Accident Co., 11 N. Y. S. 2d 313.) II. The condition inserted by defendant in plaintiff’s policy limiting the time within which to bring this action to two years after, the recovery of the Mande! judgment is no bar, (a) to plaintiff’s first cause of action, on the policy, because this action was brought within two years, after plaintiff first knew of the Mandel judgment, (b) to the second cause of action, in quasi contract, and the third cause of action, for breach of warranty of authority, both of which exist independently of the policy and are governed by the six year statutory limitation. (Syracuse Lighting Co. v. Maryland Casualty Co., 226 N. Y. 25; Creem v. Fidelity & Casualty Company, 141 App. Div. 493, 206 N. Y. 733; Western Un. Tel. Co. v. Czizek, 264 U. S. 281; MacDonald v. Western Union Telegraph Co., 176 Misc. 422; Oehme v. Johnson, 181 Minn. 138.) III. Appellant’s damages are the amount of the Mandel judgment which remains unpaid and unsatisfied. (755 Seventh Ave. Corp. v. Carroll, 266 N. Y. 157; Rector, etc. of Trinity Church v. Higgins, 48 N. Y. 532; Saratoga Trap Rock Co. v. Standard Accident Ins. Co., 143 App. Div. 852; Cummings & Co. v. American Mutual Liability Ins. Co., 146 Misc. 621; Matter of National Surety Co., 29 N. Y. S. 2d 1011, 286 N. Y. 611; Seymour v. S. F. C. Assn. et al., 144 N. Y. 333; Hauben v. Morris, 5 N. Y. S. 2d 721; Inglehart v. Thousand Island Hotel Co., 32 Hun 377.)

      William B. Shelton and William J. McArthur for respondent.
    I. The defendant was not liable to the plaintiff for any loss sustained by the latter as a result of the judgment against it of the Mandel Building Company. (Zazlow v. Hartford Indemnity Insurance Company, 11 N. Y. S. 2d 313; Draper v. Oswego Co. Fire Relief Assn., 190 N. Y. 12; Ray v. Canton Co-operative Fire Ins. Co., 286 N. Y. 405; Morrison v. Royal Indemnity Co., 180 App. Div. 709; Morris & Co., Inc., v. Lumber Mut. Casualty Ins. Co., 163 Misc. 715.) II. The plaintiff was barred by the two year period of limitations contained in the insurance policy from asserting its claim against the defendant.
   Conway, J.

We have presented to us the question whether, when an insurance company has knowledge of a cross complaint against its assured involving a risk not covered by the policy and fails to notify the assured of the existence of the cross complaint and fails to disclaim liability, but on the contrary defends the action, and thereafter fails to notify the assured of the entry of a judgment based on the cross complaint, may the assured recover its damages despite the noncoverage of the policy and despite the fact that the two-year period of limitations contained in the policy has elapsed, when the assured had no knowledge of the entry of the judgment against it.

The plaintiff assured (hereinafter referred to as Moore) was a subcontractor on the construction of certain buildings in the city of New York back in 1929. The general contractor was Henry Mandel Building Company, Inc. (hereinafter referred to as Mandel). The defendant wrote for plaintiff a policy known as contractors’ public liability policy, insuring plaintiff against loss from liability imposed by law for damages on account of bodily injuries, including death, accidentally suffered by person, or persons other than employees of the assured.

While that policy was in force a member of the public, one Erleman, was injured near the premises under construction. He commenced an action naming Mandel and Moore as defendants. When the summons and complaint were served upon Moore, it forwarded those papers to the defendant. The defendant, through its attorneys, undertook the defense of the action. Thereafter Mandel served upon those attorneys an answer containing a cross complaint by which judgment was sought against Moore in the event that recovery was had against Mandel. That cross complaint was based upon provisions in the contract between Mandel and Moore, part of which read as follows:

‘ ‘ Sub-Contractor shall indemnify and save Owner, Architect and Contractor harmless against all claims for damages to persons growing out of the execution of the work.”

The defendant never notified Moore that the cross complaint had been interposed and did not disclaim liability thereon.

When the personal injury action came to trial the complaint against Moore was dismissed during the trial but the jury returned (1) a verdict against Mandel and (2) a verdict against Moore in favor of Mandel, for the same amount, on the cross' complaint. That judgment against Moore was entered on October 5, 1933.

The defendant’s policy excluded from coverage: Liability of others assumed by the Assured under any contract or agreement, oral or written.” It further provided: Condition H No action shall lie against the Company to recover for any loss under this policy unless brought within two years after the amount of such loss is made certain either by judgment against the Assured after the trial of the issue, or by agreement between the parties with the written consent of the Company.”

There was thus no coverage, under the terms of the policy, of the "subject matter of the cross complaint. The theory of Moore in the instant action is that the defendant waived and extended the provisions of its policy by reason of its failure to disclaim or deny liability and by undertaking to defend Moore against the cross complaint and that the defendant is now estopped by its conduct from asserting the exclusory provisions of the policy and the provisions limiting to two years the time for bringing an action on the policy. The court reserved decision on the question whether the policy of the defendant had been enlarged by waiver or by estoppel but submitted to the jury the question whether Moore learned of the judgment against it prior to April, 1937. -Witnesses for Moore had testified that the defendant had never given notice of the entry of a judgment against it in favor of Mandel and that Moore had no knowledge of the entry of the judgment from any other source prior to April, 1937. On that issue the jury found for Moore.

On the question of waiver and estoppel the trial court dismissed the complaint on the reserved motion upon the ground that there had been no waiver of the exclusory clauses and no estoppel because Moore had not been prejudiced by the failure to notify it of the cross complaint.

It seems to us quite clear that, in the language we used in Gerka v. Fidelity & Casualty Co. (Hubbs, J., 251 N. Y. 51), the conduct of the defendant here was inconsistent with its later claim of non-liability under the policy. When it proceeded with the defense of the negligence action, with knowledge of its claimed defense under the policy, it made its election and estopped itself from now urging that defense.” So, also, in Rosenwasser v. Globe Indemnity Co. (224 N. Y. 561) we held that where the insurer in an indemnity policy entered upon and exclusively conducted the defense of an action brought against the assured, with full knowledge of all the facts, it could not thereafter assert that the claim for damages was not covered by the policy. Treating the action of the defendant here as constituting an estoppel to now assert noncoverage, we think it was unnecessary, under the facts disclosed here, for the assured to show prejudice to it by the insurer’s conduct. '(Kearns Coal Corp. v. United States Fidelity & Guar. Co. (Clark, J.), 118 F. 2d 33, 36 [Circuit Court of Appeals, 2nd Cir.]; Royle Mining Co. v. Fidelity & Casualty Co., 126 Mo. App. 104.) In the Kearns’ case (p. 36) it was said: “ It is true that, where the insurer has retained control of the insured’s defense to final judgment or to a settlement, many authorities hold that prejudice is presumed or that the assumption of control is a waiver of rights or an election. Royle Min. Co. v. Fidelity & Casualty Co., 126 Mo. App. 104, 103 S. W. 1098; Malley v. American Indemnity Corp., 297 Pa. 216, 146 A. 571, 81 A. L. R. 1322; Humes Const. Co. v. Philadelphia Casualty Co., 32 R. I. 246, 79 A. 1, Ann. Cas 1912D, 906; see 81 A. L. R. 1357. While there are cases the other way, American Cereal Co. v. London Guarantee & Acc. Co., 7 Cir., 211 F. 96; Lunt v. Aetna Life Ins. Co., 261 Mass. 469, 159 N. E. 461, the New York decisions seem to tend that way without precise statement of the rule. Rosenwasser v. Globe Indemnity Co., 224 N. Y. 561, 120 N. E. 875; Gerka v. Fidelity & Casualty Co. of New York, 251 N. Y. 51, 167 N. E. 169; Rosenbloom v. Maryland Casualty Co., 153 App. Div. 23, 137 N. Y. S. 1064; Utterback-Gleason Co. v. Standard Accident Ins. Co., 193 App. Div. 646, 184 N. Y. S. 862, affirmed 233 N. Y. 549, 135 N. E. 913. # *

In the Royle Mining Company case (supra) the insurance company had taken control of the defense although its policy did not cover the risk and did not attempt to disclaim liability until after judgment had been entered. There it was said: “ * * * It is immaterial whether plaintiff could or would have compromised the action had it been left free to act, or whether it could have achieved any better results had it controlled the defense. The principle on which defendant should be held liable is that which estops a party from taking a position inconsistent with one previously assumed by him, and to the prejudice of a third. person. [Toser v. Insurance Co., 94 Minn. 478.] Defendant will not be permitted to serve one purpose by taking a position, as it did throughout the progress of the McDaniels suit, that the liability of plaintiff was one it would recognize as covered by the policy, and then after using that position to the detriment of plaintiff, change front by denying all liability. Plaintiff must be presumed to have been prejudiced by such conduct and need not be put to the proof that it could have achieved better results had defendant not interfered. * *

It is urged that it would have been impracticable to defend Moore against the complaint of Erleman without also defending it against the cross complaint of Mandel. That argument lacks merit. There were in reality two separate actions — one in tort, the other in contract. The plaintiff could have engaged other counsel to co-operate with the insurer’s attorneys, as was apparently done in Brassil v. Maryland Casualty Co. (147 App. Div. 815, affd. 210 N. Y. 235), or might have taken over the entire defense of the action and achieved for itself a better result. However, the question here is not whether the defenses could have been divided but whether the insurer shquld have notified Moore of the fact that there was a cross complaint. There would have been nothing impracticable about that.

Since plaintiff did not know of the cross complaint, as the jury found on conflicting evidence, the period of limitation for the bringing of an action contained in the insurance contract is not applicable. (Western Un. Tel. Co. v. Czizek, 264 U. S. 281; Syracuse Lighting Co. v. Maryland Casualty Co., 226 N. Y. 25.)

■The purchase of the judgment from Standard Surety and Casualty Company by an officer of Moore for less than its face amount and the collection of the full amount thereof is permissible. (Seymour v. S. F. C. Assn. et al., 144 N. Y. 333.)

The judgments should be reversed and a new trial granted, with costs to abide the event.

Loughban, Rippey, Lewis, Desmond and Thacheb, JJ., concur; Lehman, Ch. J., dissents on the ground that the evidence establishes notice to the plaintiff as matter of law.

Judgments reversed, etc.


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

text:
    Chris Pedersen, Individually and as Agent and Representative for and in Behalf of Himself and All Other Employees of the Defendant Similarly Situated, Respondent, v. J. F. Fitzgerald Construction Company, Appellant.
    Argued April 14, 1944;
    decided June 14, 1944.

      Charles E. Nichols and Henry E. Foley of the Massachusetts Bar, for appellant.
    I. Plaintiffs failed to comply with the requirements of Buie 113. (Curry v. Mackenzie, 239 N. Y. 267; State Bank v. Mackstein, 123 Misc. 416; First Trust & Deposit Co. v. Holt & Thomas, Inc., 236 App. Div. 714; Bergman v. Santamaria, 244 App. Div. 819.) II. Plaintiffs are not entitled to recover upon the record herein and their motion for summary judgment should therefore have been denied. No plaintiff is entitled to recover herein in the absence of an affirmative showing that such plaintiff was engaged in interstate commerce. (Kirschbaum Co. v. Walling, 316 U. S. 517; McLeod v. Threlkeld, 319 U. S. 491; Stoike v. First National Bank, 290 N. Y. 195; Warren-Bradshaw Co. v. Hall, 317 U. S. 88; Skidmore v. Swift & Co., 136 F. 2d 112.) III. No plaintiff was “ engaged in commerce ” within the meaning of that term in the Act, unless his individual activity was in or was so closely related to the movement of commerce as to be in practice and in legal contemplation a part of it. (Overstreet v. North Shore Corp., 318 U. S. 125; Stoike v. First National Bank, 290 N. Y. 195; Shanks v. Del., Lack. & West. R. R. Co., 239 U. S. 556; Chicago & N. W. Ry. Co. v. Bolle, 284 U. S. 74; N. Y., N. H. & H. R. R. Co. v. Bezue, 284 U. S. 415; Chicago & E. I. R. R. Co. v. Commission, 284 U. S. 296; McLeod v. Threlkeld, 319 U. S. 491.) IV. No plaintiff has shown that he was at any time engaged in commerce or in activity so closely related to the movement of commerce as to be in practice and in legal contemplation a part of it. V. The Special Term exceeded its authority in purporting to award costs to plaintiff in all courts. (Stevens v. Central Nat. Bank, 168 N. Y. 560; Green v. Supreme Council of Royal Arcanum, 91 Misc. 606.) VI. Interest may not properly be included in a judgment entered under the Fair Labor Standards Act. (Terner v. Glickstein & Terner, Inc., 283 N. Y. 299; Murmann v. N. Y., N. H. & H. R. R. Co., 258 N. Y. 447; Campbell v. Savelo, 243 Ala. 361.)

      William E. J. Connor for respondent.
    I. The order granting summary judgment is based on sound reasoning and was amply supported by the record. (Curry v. Mackenzie, 239 N. Y. 267; Tidewater Oil Sales Corp. v. Pierce, 213 App. Div. 796; Pedersen v. Del., Lack. & West. R. R., 229 U. S. 146; McLeod v. Threlkeld, 319 U. S. 491.) II. The reversal by the United States Supreme Court was with costs and the plaintiffs are entitled to costs in all courts. (Universal Credit Co. v. Uggla, 248 App. Div. 529; Donovan v. Vandemark, 22 Hun 307; Carpenter v. Manhattan Life Assurance Co., 25 Hun 194; Harrison v. Swart, 34 Hun 259; Matter of Hood, 30 Hun 472; Rust v. Hauselt, 14 Jones & Sp. 38.) III. The Trial Justice was correct in including interest in the recovery. (Civ. Prac. Act, § 480; Greater New York Coal & Oil Corp. v. Philadelphia & Reading Coal & Iron Co., 252 App. Div. 883; Morgan L. Co. v. N. Y., N. H. & H. R. R. Co., 262 N. Y. 234; Sweeney v. City of New York, 173 N. Y. 414; White et al. v. Miller, 78 N. Y. 393; Quinn v. Signetto, 229 App. Div. 727; Freedman v. Hart & Early Co., Inc., 162 Misc. 487; Maddox v. Jones, 42 F. Supp. 35; La Guardian v. Austin-Bliss General Tire Co., 41 F. Supp. 678; Sneider v. Sports Vogue, 35 N. Y. S. 2d 341; Funkhouser v. Preston Co., 290 U. S. 163; Preston Co. v. Funkhouser, 261 N. Y. 140; Schumacker v. Leterman, 14 F. Supp. 1015; Klausner v. Queens Fur Dressing Co., Inc., 130 Misc. 579.)
   Loughran, J.

This action was brought under section 16-b of the Fair Labor Standards Act (52 Stat. 1060; U. S. Code, tit. 29, § 201 et seq.) by employees against their employer to recover overtime compensation plus an equivalent amount as liquidated damages. The question was whether at the time in issue the plaintiffs were engaged in commerce ” in the sense of that phrase as used in sections 6 and 7 of the Act. (See Stoike v. First National Bank, 290 N. Y. 195.)

Special Term dismissed the complaint (173 Misc. 188) and its judgment was affirmed by the Appellate Division (262 App. Div. 665) and by this court (288 N. Y. 687). The Supreme Court of the United States reversed and by its mandate sent the case back to the Supreme Court of New York for further appropriate proceedings, but “ without prejudice to a determination of the nature of the employment of any members of the class on whose behalf this suit has been brought.” (318 U. S. 740, 742.) After that ultimate decree had in due course been made the judgment of the Supreme Court of New York, the plaintiffs moved, for a summary recovery under rule 113. Special Term granted that motion and denied a cross motion by the defendant for dismissal of the complaint. The Appellate Division , affirmed, one Justice dissenting, and the controversy is now before us a second time on an appeal by the defendant from that determination.

The case was originally submitted upon an agreed statement of facts which has never been altered in any way. It is thereby stipulated that the work on which the plaintiffs’ claims are based was done by them under a contract through which the defendant undertook with a railroad company to reconstruct two bridges that were instrumentalities of interstate commerce. (262 App. Div. 665, 667.) These conceded facts are now said by the defendant to be insufficient as a basis for disposition of the issue as to whether the plaintiffs were “ engaged in commerce ” at the time they were so employed.

We concur with the courts below in their rejection of that contention. The agreed statement of facts on the face of it was a case within the statute. (McLeod v. Threlkeld, 319 U. S. 491, 494.) No other or different showing was attempted by the defendant on the present motions, despite the proviso we have quoted from the mandate of the higher court. On the record as it stood, a summary judgment for the plaintiffs was inevitable.

The remaining questions have to do with costs and interest that were allowed to the plaintiffs.

The award to them of costs in all courts was not unauthorized. (Civ. Prac. Act, § 1470, subd. 11; Murtha v. Curley, 92 N. Y. 359, 361-362.) Stevens v. Central Nat. Bank (168 N. Y. 560) is not authority for a different view. In the Stevens case this court was reversed by the Supreme Court of the United States on one point, but the substance of our judgment in favor of the plaintiffs was left undisturbed and in that situation the defendants were not to be treated as parties who had ultimately prevailed.

As we read the Federal cases, the liability for liquidated damages under the Fair Labor Standards Act is contractual in character. (Overnight Motor Co. v. Missel, 316 U. S. 572, 583; Northwestern Yeast Co. v. Broutin, 133 F. 2d 628; see, too, Cox v. Lykes Brothers, 237 N. Y. 376; Wright v. State of New York, 223 N. Y. 44; Calvin v. Huntley, 17.8 Mass. 29.) In that view, the plaintiffs were entitled to interest on the whole of their recovery including the liquidated damages. (Civ. Prac. Act, § 480; see Klaxon Co. v. Stentor Co., 313 U. S. 487, 498.)

The judgment should be affirmed, with costs.

Lehman, Ch. J.

(dissenting in-part). I dissent only from so much of the decision as holds that the plaintiffs are entitled to interest on the “ liquidated damages ” which, under the statute, must be paid by any employer who violates the provisions of sections 6 and 7 of the Fair Labor Standards Act. The liability for such payment, though not a penalty, is imposed in the statute as liquidated damages for the “ retention of a workman’s pay ”. They are so denominated in the statute and they are intended to provide “ compensation ” for injury suffered by a wrongful act which “ may well result in damages too obscure and difficult of proof for estimate other than by liquidated damages.” (Overnight Motor Co. v. Missel, 316 U. S. 572.) Section 480 of the Civil Practice Act does not, I think, apply in such case. The question has not heretofore been raised in any case where this court has affirmed a judgment which included interest on liquidated damages.

RippEr, Lewis and Desmond, JJ., concur with Lotjghran, J.; Lehman, Ch. J., dissents in part in separate opinion in which Conway and Thacher, JJ., concur.

Judgment affirmed. (See 293 N. Y. 872.)


text:
    In the Matter of Vernon A. Morhous, as Warden of Great Meadow Prison, Appellant, against Supreme Court of the State of New York, Particularly Any Trial or Special Term in and for Washington County, et al., Respondents.
    Argued April 18, 1944;
    decided June 14, 1944.

      Nathaniel L. Goldstein, Attorney-General (Orrin G. Judd and Henry 8. Manley of counsel), for appellant.
    Habeas corpus is not the appropriate remedy for the alleged wrongs of the respondent Whitman. (Matter of Lyons v. Goldstein, 290 N. Y. 19; Landers v. Staten Island R. R. Co., 14 Abb. Pr. N. S. 346; People ex rel. Tweed v. Liscomb, 3 Hun 760, 60 N. Y. 559; Matter of Bates, 125 Pac. 2d 1017; Matter of Corrina v. De Barbieri, 247 N. Y. 357; People ex rel. Smith v. Morhous, 43 N. Y. S. 2d 229; People ex rel. Hubert v. Kaiser, 206 N. Y. 46; People ex rel. Carr v. Martin, 286 N. Y. 27.)

      Charles E. Hughes, Jr., Curtiss E. Frank and Barbara Goxe for B. Gordon Whitman, respondent.
    Habeas corpus is the proper remedy for the violations of constitutional right alleged in Whitman’s petition, and the Supreme Court, Washington County, has jurisdiction to make a determination on the merits. The procedure coram nobis, even if available here, is not the exclusive remedy. (Mooney v. Holohan, 294 U. S. 103; Pyle v. Kansas, 317 U. S. 213; Moore v. Dempsey, 261 U. S. 86; Smith v. O’Grady, 312 U. S. 329; Cochran v. Kansas, 316 U. S. 255; People ex rel. Shapiro v. Keeper of City Prison, 290 N. Y. 393; Hoff v. State of New York, 279 N. Y. 490; People ex rel. Tweed v. Liscomb, 60 N. Y. 559; People ex rel. Battista v. Christian, 249 N. Y. 314; People ex rel. Moore v. Hunt, 258 App. Div. 24; People ex rel. Meyer v. Warden, 269 N. Y. 426; Jacobowitz v. Herson, 268 N. Y. 130; Lisenba v. California, 314 U. S. 219; Chambers v. Florida, 309 U. S. 227.)
   Lehman, Ch. J.

The respondent B. Gordon Whitman is imprisoned in Great Meadow prison under a sentence imposed by the Court of General Sessions in New York County in 1931 after he had been convicted in that court of the crime of manslaughter in the first degree. In 1941 he applied for a writ'of habeas corpus, alleging in his petition that his conviction was obtained by perjured testimony knowingly used by the prosecution; that testimony in his favor was suppressed by the prosecution; and that newspaper articles containing the malicious falsehood that he had previously murdered an officer of the law in West Virginia were maliciously used at the trial. The judgment of conviction, alleged to have been obtained by such means, deprives the defendant, it is said, of his liberty without due process of law in violation of the Fourteenth Amendment to the Constitution of the United States.

At the hearing upon the writ, the court at Special Term dismissed the writ without giving the relator opportunity to prove the truth of his allegations. The Appellate Division unanimously affirmed the order dismissing the writ. (People ex rel. Whitman v. Wilson, 263 App. Div. 908.) The relator applied for permission to appeal to this court in accordance with the provisions of section 589 of the Civil Practice Act. Permission was denied. If the construction of the Constitution of the State or of the United States was directly involved, an appeal would lie as of right. (Civ. Prac. Act, § 588.) The denial by this court of permission to appeal was not “ upon the ground that the appeal would lie as of right ” as provided in section 592 of the Civil Practice Act. Thereafter the Supreme Court of the United States granted an application for certiorari (317 U. S. 615). When it appeared that the petitioner had filed a notice of appeal to this court as of right and that no order had been entered dismissing that appeal, counsel were advised by the Clerk of the Supreme Court of the United States that they 1 ‘ are requested to submit a memorandum with respect to the jurisdiction of this Court in the light of Hew York practice, and to state their views, on the questions (1) whether an appeal as of right was taken by the filing of the notice of appeal, (2) if so, whether this appeal as of right was abandoned, was disposed of by the order of the Court of Appeals, or is still pending. Compare Morris Plan Bank v. Graves, 314 U. S. 572.” To remove doubt whether there had been a final determination by this court that the relator could not by writ of habeas corpus challenge the validity of the sentence of imprisonment, this court on April 7, 1943, upon its own motion entered an order which provides in part as follows: “it appearing * * * that the case is one where appellant is not entitled to a writ of habeas corpus under section 1231 of the Civil Practice Act; and that an appeal from the order entered upon the decision of the Appellate Division taken by the appellant as of right must be dismissed; * * * Ordered, that said appeal be and the same hereby is dismissed.” (See 290 N. Y. 670.)

The requirement of due process of law guaranteed by the Constitution of the United States and by the Constitution of this State 11 cannot be deemed to be satisfied by mere notice and hearing if a State has contrived a conviction through the pretense of a trial which in truth is but used as a means of depriving a defendant of liberty through a deliberate deception of court and jury by the presentation of testimony known to be perjured.” A State may not deny “ to its court jurisdiction to redress the prohibited wrong upon a proper showing in an appropriate proceeding for that purpose.” (Mooney v. Holohan, 294 U. S. 103, 112, 113.) It is not now disputed that the allegations of the petition of the respondent Whitman upon his application for a writ of habeas corpus 11 sufficiently charge a deprivation of rights guaranteed by the Federal Constitution, and, if proven, would entitle petitioner to release from his present custody.” (Pyle v. Kansas, 317 U. S. 213, 216.) An appeal from the order dismissing the writ of habeas corpus presents primarily the question whether the writ of habeas corpus is available for the purpose of invoking the power of the court to inquire whether the petitioner is deprived of his liberty without due process of law under a judgment of conviction 11 contrived * * * through the pretense of a trial ”. The mandate of the Constitution of the United States that no State shall deprive a person of his liberty without due process of law is unheeded by a State only where it has denied to its courts ■ jurisdiction to inquire whether11 through its legislature, through its courts or through its executive * * * officers ” a person has been wrongfully deprived of his liberty, or where a court having/1 jurisdiction to redress the prohibited wrong ” fails to accord to the injured person the remedy to which he is entitled. An injured person must avail himself of other appropriate 11 corrective judicial process to remedy the alleged wrong ” if under the law of the State the writ of habeas corpus is not' available for that purpose. (Mooney v. Holohan, supra; Frank v. Mangum, 237 U. S. 309.)

The writ of habeas corpus is the traditional process devised centuries ago to safeguard the rights of persons, deprived of liberty, to challenge in the courts the legality of their detention. (Hoff v. State of New York, 279 N. Y. 490.) The Legislature has provided that a person is not entitled to a writ of habeas corpus where he * * * is detained by virtue of the final judgment or decree of a competent tribunal of civil or criminal jurisdiction ”. (Civ. Prac. Act, § 1231.) The express statutory limitation was not intended to abridge the privilege of the writ of habeas corpus. Indeed, the Legislature had, under the Constitution of the State, no power to do that. The statute merely formulates the limitation which had generally been applied by the court of Kings Bench in England and by the courts of America. ‘ Upon a return' to a habeas corpus that the prisoner is detained under a conviction and sentence by a court having jurisdiction of the cause, the general rule is, that he will be instantly remanded.” (Ex parte Siebold, 100 U. S. 371.)

The Court of General Sessions had, it is undisputed, jurisdiction of the person of the petitioner and jurisdiction of the offense with which he was charged. It was therefore a competent court to try the charge and to sentence the defendant if convicted. Imprisonment under a judgment rendered by a court which had jurisdiction to try the charge is not unlawful if measured solely by common-law rules and standards. An imprisonment under a judgment cannot be unlawful, unless that judgment be an absolute nullity; and it is not nullity if the Court has general jurisdiction of the subject, although it should be erroneous. ’ ’ (Ex Parte Tobias Watkins, 3 Pet. [U. S.] 193, 203.) Doubtless that common-law principle does not apply in full force where a court of competent jurisdiction has failed in the course of a trial to observe the requirements of due process. In such case imprisonment, though under a judgment of a court which has general jurisdiction of the subject, is unlawful, and the person imprisoned is deprived of his liberty by the State without due process if he cannot find a remedy in an appropriate proceeding in a court of competent jurisdiction.

Though “in no case has a writ of habeas corpus been sustained by this court where imprisonment is under a final judgment of imprisonment by a court having jurisdiction of the person of the accused and general jurisdiction of criminal offenses ” (People ex rel. Carr v. Martin, 286 N. Y. 27, 36), yet until our recent decision in Matter of Lyons v. Goldstein (290 N. Y. 19), this court had not been called upon to determine whether a person imprisoned under a judgment of a competent court obtained after a trial which does not satisfy the requirements of due process, can obtain his release upon a proper showing in some other appropriate proceeding. At common law a court of competent jurisdiction had power by writ of error coram nobis to set aside its own judgment where it appeared that the judgment complained of could not have been entered if the facts upon which the error is predicated had been presented in the trial court. (Robinson v. Johnston, 118 F. 2d 998.) Analogous jurisdiction to set aside upon motion a judgment obtained by fraud and misrepresentation iá undoubtedly inherent in the courts of general civil jurisdiction of this State. Question remained whether similar jurisdiction was limited or withheld by the Legislature from courts exercising criminal jurisdiction. In Matter of Lyons v. Goldstein (supra), that question was authoritatively decided by a closely divided court. We held that a court of criminal jurisdiction has inherent power to set aside upon motion its own judgment based upon fraud or misrepresentation of an officer of the State depriving a defendant of due process, even though no such power is expressly conferred by the Code of Criminal Procedure; and that limitations contained in the Code, relating to other motions affecting a judgment, do not apply in such case. (Cf. Robinson v. Johnson, supra.) It is hardly open to question that in accordance with the principles formulated in the opinion in Matter of Lyons v. Goldstein (supra), and authoritatively established by the decision in that case, a motion by the relator in the Court of General Sessions to vacate the judgment of conviction of that court would be an appropriate proceeding in which remedy for the alleged wrong could be obtained upon proof of the truth of the allegations of the petition.

The decision of this court in Matter of Lyons v. Goldstein was rendered after the Supreme Court of the United States had heard oral argument in N. Y. ex rel. Whitman v. Wilson. Our decision was brought to the attention of that court and is discussed in its opinion (318 U. S. 688). The Supreme Court expressed no doubt that under authority of Lyons v. Goldstein the petitioner could obtain a remedy for the alleged wrong, but it pointed out that this court did not in the opinion “ expressly consider * * * whether, under New York practice, habeas corpus may be used as either an alternative or a cumulative remedy in such case.” Of course if habeas corpus was under New York practice an available remedy, the State courts erred in People ex rel. Whitman v. Wilson in denying to the petitioner opportunity to show that he was entitled to release from unlawful imprisonment, even though an alternative remedy may also be available. For that reason the Supreme Court said that: “ In view of the changed situation resulting from the decision in Lyons v. Goldstein after we granted certiorari, we think it appropriate to vacate the judgment and to remand the cause to the state court for its determination in the light of that decision, and for such further or other proceedings as may be deemed advisable.”

After the habeas corpus proceeding was remanded to the Supreme Court of this State, Vernon A. Morhous was substituted for his predecessor warden, the original respondent, and a motion made in his behalf to dismiss the writ of habeas corpus was denied. Then he applied in the Appellate Division for an order prohibiting the Supreme Court of the State of New York “ from proceeding to trial or adjudication of issues of fact now arising or hereafter to arise upon the petition and return and other pleadings ” in the habeas corpus proceeding. The application presented the question whether the relator is entitled by a writ of habeas corpus to challenge the validity of the judgment of conviction under which he is confined. His application for an order of prohibition was denied “ as a matter of law and not in the exercise of discretion,” the court in a unanimous decision saying that: “We are convinced that coram nobis, even if available here, is not the exclusive remedy for imprisonment in violation of constitutional rights, and that the ancient right of habeas corpus is an appropriate remedy.” We cannot agree with the conclusion that under the law and practice of this State, a person imprisoned under a final judgment of a court which had jurisdiction of the person and general jurisdiction to try the charge and which had not exceeded its jurisdiction; has ever been entitled to a writ of habeas corpus, though the judgment was obtained by fraud or deception or the trial was conducted in manner which failed to satisfy the constitutional requirement of due process.

. Eeliance is placed by the relator Whitman on what was said and decided by this court in People ex rel. Tweed v. Liscomb (60 N. Y. 559). In that case the relator was imprisoned under a judgment of the Court of Oyer and Terminer held in and for the city and county of New York, rendered after a trial upon an indictment containing 220 separate and distinct counts, each charging a misdemeanor. He was sentenced upon twelve of the counts to twelve successive terms of imprisonment of one year each and to fines of $250 each, and upon other counts to additional fines amounting in all to $12,500. After the relator had served one year and had paid a fine of $250 he applied for a writ of habeas corpus. The writ was sustained and the relator was discharged on the ground that no statute conferred upon the court power to impose cumulative sentences upon the trial of a single indictment for separate misdemeanors.

That case has been recognized as a landmark in the history of the use of the writ of habeas corpus as appropriate process to inquire into the legality of a person’s imprisonment even where a person is imprisoned under a judgment of a court of general jurisdiction. It vindicated the right but limited the inquiry to a narrow field. To bar the applicant from a discharge from arrest by virtue of a judgment or decree, or an execution thereon, the court in which the judgment or decree is given must have had jurisdiction to render such judgment. The tribunal must be competent to render the judgment under some circumstances.” (Italics are new.) That is the test which this court has consistently applied. (See People ex rel. Carr v. Martin, supra.) It accords with the historic nature and object of the writ, yet does not exceed those limitations upon its use which have been observed for centuries. Upon the writ of habeas corpus, the court could not go behind the judgment, but upon the whole record, the question was whether the judgment was warranted by law, and within the jurisdiction of the court. ’ ’ That conclusion leaves untouched “ the potency and efficiency of the writ of habeas corpus to test the jurisdiction of every court in the land, assuming, by its judgments, decrees and process, to deprive the citizen of his liberty ”.

What we have said is, of course, intended to apply only to the scope of the inquiry upon a writ of habeas corpus at common law, and under the practice in this State. Its scope in the courts of the United States has been extended by the Constitution and statutes as authoritatively construed by the Supreme Court of the United States. In those courts the common-law limitation does not apply that “ where a prisoner is held under a judgment of conviction passed by a court having jurisdiction * * * habeas corpus is not an available remedy, save for want of jurisdiction appearing upon the face of the record of the court wherein he was convicted.” “ The rule at the common law, and under the act of 31 Car. II c. 2 * * * seems to have been that a showing in the return to a writ of habeas corpus * * * based upon a judgment or decree of a court of competent jurisdiction, closed the inquiry. So it was held, under the judiciary act of 1789 (ch. 20, § 14, 1 Stat. 73, 81), in Ex parte Watlcins, 3 Pet. 193, 202. * * * But when Congress in the act of February 5, 1867 (Ch. 28, 14 Stat. 385) extended the writ of habeas corpus to all cases of persons restrained of their liberty in violation of the Constitution or a law or treaty of the United States, procedural regulations were included, now found in Rev. Stat., §§ 754-761. * * * The effect is to substitute for the bare legal review that seems to have been the limit of judicial authority under the common-law practice, and under the act of 31 Car. II, c. 2, a more searching investigation, in which the applicant is put upon his oath to set forth the truth of the matter respecting the cause of his detention, and the court, upon determining the actual facts, is to * dispose of the party as law and justice require.’ ” (Frank v. Mangum, 237 U. S. 309, 329-331.) No such extension has been made by Constitution, statute or judicial decision in this State.

It may be that the courts of this State would be constrained to extend the scope of the writ beyond the limitations placed upon it by ancient practice and procedure, even though that practice and procedure has been crystallized by the statute, if a case should arise where a person restrained of his liberty under a judgment of a court of competent jurisdiction alleges in his petition facts sufficient, if established, to show that the judgment fails to satisfy the requirements of due process on grounds for which the State has provided no other corrective procedure. Denial of the writ in such case might not accord with its historic purpose and be contrary to the spirit if not the letter of the Constitution of the State as well as of the United States. That, as we have said, is not the case here, and in the history of this State no case has been presented where other corrective procedure properly applied has failed to provide a remedy.

Certainly .a general rule that the judgment of a court having jurisdiction to try an accused may be challenged by writ of habeas corpus in another court upon the ground that the requirements of due process were not satisfied in all respects at the trial, would produce a chaotic situation. Often the question whether there has been a violation of constitutional rights at the trial may involve close questions of fact and law, sometimes appearing in the record, sometimes only by proof dehors the record. An appeal to a higher court is ordinarily the appropriate corrective process for error at the trial and appearing in the record; a motion to vacate the judgment and for a new trial is ordinarily the appropriate corrective process for defect not appearing on the record or where for any other reason an appeal would not furnish a remedy. These proceedings are open to an accused in this State. For those reasons this court deified to relator permission to appeal from the order dismissing the writ and thereafter dismissed the appeal which the relator attempted to take without permission. The relator, as we pointed out, is not entitled to a writ of habeas corpus unde? the provisions of section 1231 of the Civil Practice Act. Controverted questions of fact whether the relator is deprived of his liberty without due process can be determined only by a motion to vacate the judgment made in the court which granted it. The Supreme Court of this State has not jurisdiction to determine that question upon a writ of habeas corpus.

■ Since the order denying the writ of .prohibition expressly provides that it is made upon the law and not in the exercise of discretion, the order should be reversed and the application granted.

Loughran, Lewis, Conway, Desmond and Thacher, JJ., concur; Rippey, J., taking no part.

Order reversed, etc.