author: Crouch, J. Lehman, J.

text:
    The People of the State of New York ex rel. International Salt Co., Inc., Appellant and Respondent, v. Mark Graves et al., Constituting the State Tax Commission, Respondents and Appellants.
    (Submitted February 25, 1935;
    decided April 16, 1935.)

      Henry B. Twombly for relator, appellant and respondent.

      John J. Bennett, Jr., Attorney-General (Wendell P. Brown of counsel) for defendants, respondents and appellants.
   Crouch, J.

From 1917 to 1928, inclusive, the relator, a domestic corporation, filed its annual franchise tax report under article 9-A of the Tax Law (Cons. Laws, ch. 60). Upon the data so supplied, assessments were made and the taxes paid. During all of those years section 218 of the Tax Law gave the relator an adequate remedy as against taxes unlawfully demanded, or payments illegally made or exacted, by providing for a revision proceeding within one year from the time of auditing and stating an account. No application for the revision of any of those assessments was ever made under that section.

On August 12, 1932, the relator filed with the State Tax Commission a sworn return showing corrections made by the United States Commissioner of Internal Revenue in the reported net income for each of the business years upon, which franchise tax assessments had been made for the tax years from November 1, 1917, to November 1, 1928, inclusive. The net corrections for all of the years was a substantial increase. That return was made pursuant to section 219-d of the Tax Law, which provided, in substance, that upon its filing, the Tax Commission should ascertain relator’s net income for each of the fiscal or calendar years for which a correction had been made; and should thereupon “ reaudit and restate the account of such corporation for taxes based upon the entire net income as changed or corrected for such fiscal or calendar year but without change of the segregation of assets upon which the original assessment was based, such reaudit to be according to the entire net income so ascertained by the tax commission.”

In its return, however, the relator did not confine itself to the item of corrections in the reported net income, but in addition requested that the segregation of assets for the tax years beginning November 1, 1918, and November 1, 1919, be opened for the purpose of removing the limitation held unconstitutional in People ex rel. Alpha Portland Cement Co. v. Knapp (230 N. Y. 48); and further requested that the segregation for all the years be opened for the purpose of changing the valuation of the stocks of other corporations which had been reported at cost rather than at actual value.

Upon that return the Tax Commission made the corrected and added assessments required by the correction in net income made by the Federal government. It declined, in accordance with the command of the statute, to make any change in the segregation of assets. The result of the changes in net income was net additional taxes of $11,305.29. Thereupon the relator applied for revision of said corrected and added assessments. A hearing was had and the final determination affirmed the corrected and added assessments without change. Upon certiorari to review the final determination, the Appellate Division held as to all the years except 1918 and 1919 that the failure of relator to seek revision of the segregation within the time limited by section 218, was a bar to the revision now demanded. As to the years 1918 and 1919, however, it held that the relator’s failure to seek revision within the statutory period did not constitute a bar because the original segregation in each of those years, made in accordance with an unconstitutional statute, was no segregation, and so left open the entire matter of assessment to be gone into de nova in this proceeding arising out of the corrections of net income under section 219-d.

As to the years other than 1918 and 1919, we all agree that the determination below was right. It is true that the express prohibition in section 219-d against change of the segregation of assets did not come into the statute until 1922 (Laws of 1922, ch. 507). But the matter is one of procedure and administration. Therefore, whatever may be drawn from other general language in the statutes, or from expressions with respect thereto in the Alpha Portland Cement case, the amendment of 1922, in force at the time the determination herein was made, is controlling. An adequate remedy always existed.

The ruling as to the years 1918 and 1919 is more doubtful. No controlling authority has come to our attention. But for the provision of section 219-d, an assessment once made would have had complete finality, subject only to the right of revision granted by section 218. With the expiration of the time limited by that section for beginning the revision proceeding, no defect either of law or fact could have afforded ground for attack. The determination by the Commission of the several factors entering into the statutory formula would have been final. Neither error nor invalidity, whether constitutional or otherwise, entering into such determination would have changed the rule of finality. (Matter of Hoople, 179 N. Y. 308; Second Nat. Bank v. City of New York, 213 N. Y. 457; Liberty Bank v. City of Buffalo, 241 App. Div. 323; affd., 265 N. Y. 543; Gorham Mfg. Co. v. State Tax Comm., 266 U. S. 265; Fourth Atlantic Nat. Bank v. City of Boston, 300 Fed. Rep. 29; Wheatland v. City of Boston, 202 Mass. 258.)

But section 219-d, at least to the extent and for the purpose therein expressly stated, did modify the rule of finality. We think it modified it no further. The argument to the contrary rests and can only rest upon the direction to “ reaudit and restate the account,” after having ascertained from such return and any other information in the possession of the commission, the entire net income of such corporation for the fiscal or calendar year for which such change or correction has been made by such commissioner of internal revenue.”

The argument, briefly, is that such reaudit and restatement necessarily involves a new segregation of assets since that which was originally made was wholly void because of the constitutional defect; and that being so, the Commission is bound to segregate in accordance with amended section 214 upon the basis of new data furnished by the relator.

That argument gives a meaning to the words reaudit and restate ” in section 219-d which certainly they have not had since the amendment of 1922, and which it is reasonably clear they were not intended to have before that amendment. For practical reasons the annual net income of any corporation as reported to the United States Treasury Department was under the statute to be accepted as presumptively correct. The essential purpose of section 219-d was to carry into the State’s computation any change or correction made by the Federal authorities in that item. When the section directed the Tax Commission, after making such change or correction, to reaudit and restate the account, the obvious meaning was to correct the assessment on the basis of a change in the only factor up for consideration. The amendment of 1922 served only to make explicit what was reasonably clear before.

Since the time for making corrections of net income depends wholly upon the time when the Commissioner of Internal Revenue may act, it is obvious that the limitation of time for revision as to all other factors would be of little avail, if those factors could under any circumstances be opened up for revision in connection with the reaudit under section 219-d. In view of the great public importance to the State of finality in the determination of revenue matters, we can see no substantial reason for differentiating between the finality of determinations involving error of fact and those involving error of law. When, with the expiration of the time limitation, the opportunity for revision is past and gone except for the purpose expressly covered by section 219-d, gone also for all practical purposes is the legal distinction between an erroneous determination and an invalid or void determination.

The order of the Appellate Division should be affirmed in so far as it confirmed the final determination of the State Tax Commission; and reversed in so far as it annulled said determination, and the determination of the Tax Commission should be confirmed.

The order of the Appellate Division should be modified in accordance with this opinion and as so modified affirmed, with costs.

Lehman, J.

(dissenting in part). I dissent from so much of the decision as reverses the order of the Appellate Division annulling the determination of the Tax Commission for the years 1918 and 1919. The Tax Law (§ 219-d) provides that if the amount of the net income of any corporation is changed or corrected by the United States Treasury Department, such corporation shall make a new return of such changed or corrected net income. The tax commission shall thereupon reaudit and restate the account of such corporation for taxes based upon the entire net income as changed or corrected for such fiscal or calendar year but without change of the segregation of assets upon which the original assessment was based.”

Here the corporation filed a new return as required by the statute and the Tax Commission has reaudited the return and restated the account of the corporation for taxes. It has refused upon such reaudit and restatement to correct alleged errors in the segregation of the assets upon which the original tax was based. The reason why it has refused such correction is that the Legislature has provided that it shall not change the segregation. The errors were in whole, or in large part, due to statements of the corporation in making its original return. These errors were reflected in the segregation of assets and resulted in the imposition originally of a larger tax than should have been imposed. An adequate remedy for the correction of errors in the original assessment was provided by other provisions of the Tax Law, and the time limited by the Legislature for the invocation of such remedy has expired. Under the authorities cited in the opinion of Judge Ceouch, the determination of the Tax Commission assessing the tax then became immune from attack because of errors made by the Commission, except in so far as the Legislature chose to provide other remedies for the correction of error.

There is, here, no dispute that the Tax Commission had jurisdiction to assess a tax in 1918 and 1919 against the relator. Errors, whether on constitutional points or otherwise, entering into its determination, which do not affect its jurisdiction, would, I agree, not affect the finality of the Commission’s determination. I agree, too, that under a reasonable construction of section 219-d of the Tax Law, it is plain that the Legislature did not intend to provide an additional remedy for the correction of errors in the original determination or modify the finality of such determination, except in so far as it related to, and was necessitated by, change or correction of net income by the United States Treasury Department. In express and unambiguous terms the Legislature decreed that the tax reassessed upon the corrected income should be based upon the segregation, without change of the segregation of assets upon which the original assessment was based.

The original tax assessments for the years 1918 and 1919 were based upon a segregation of assets in accordance with statutory rules which deprived the corporations of their constitutional rights and which transcended the limits of the legislative power of the State. (People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48.) Thus the original tax assessment was based upon a segregation of assets made in accordance with rules which the State had no power to make. The tax assessment was open to attack, not for error made by the Commission in the application of statutory rules in segregating the assets of the corporation, but because the assessment was based upon a segregation which the Legislature was without power to direct. The segregation was not merely erroneous but was invalid in its inception. The question is not here presented whether a tax assessment based upon a segregation invalid in its inception is subject to collateral attack or whether the Legislature may provide a single appropriate remedy for revision of errors and thus render the assessment immune from other attack. The question here presented is whether the Legislature may direct a new assessment to be based upon segregation which is not merely erroneous but has been made in accordance with the provisions of a statute which this court has declared void and of no effect.

It has been said that “ a taxpayer who does not exhaust the remedy provided before an administrative board to secure the correct assessment of a tax, cannot thereafter be heard by a judicial tribunal to assert its invalidity.” (Gorham Mfg. Co. v. State Tax Commission, 266 U. S. 265, 269, 270.) That was said in a case where a taxpayer sought the aid of a court of equity to set aside a tax assessment upon the ground that it included income which the State of New York could not tax, though the taxpayer had never applied for a revision of the tax and had submitted no evidence to the Commission as to any of the matters on which it now relies.” The other cases cited in the opinion of Judge Crouch all dealt with proceedings brought to recover tax payments previously made and the courts there merely applied the well-established rule that a State may impose reasonable limitations upon proceedings to recover moneys paid under a void statute and wrongfully retained. (Cf. Burrill v. Locomobile Co., 258 U. S. 34.)

All these cases are merely illustrations of the rule that though a tax assessment under a void statute may cause injury to a taxpayer, the State may provide an exclusive remedy for the injury sustained and may limit the time during which that remedy may be invoked. Here the taxpayer is not complaining against the original assessment. The time has expired during which the taxpayer could avail himself of the statutory remedy against errors there through application for a revision of the original tax account. A contingency has, however, occurred which requires the Tax Commission to reaudit and restate the taxpayer’s account and to make a reassessment of the tax. The taxpayer seeks review of that assessment by certiorari in the manner and within the time permitted by law. The reassessment must be based upon the segregation without change of assets upon which the original taxes were based. To the extent that the Legislature had power to provide for a new assessment based upon an old segregation, regardless of error contained therein, the statute must be enforced according to its terms. Its power to provide that the original segregation may not be revised now, merely for the correction of errors is not open to doubt; but that presupposes not only that the Legislature provided a reasonable remedy for revision of errors but also that the original segregation was authorized by a valid statute. Where there has been no segregation, obviously there can be no reassessment of tax based upon a non-existent segregation. Where there has been attempted segregation in accordance with rules heretofore declared void by this court, segregation is also void. The original command of the Legislature to base a tax upon a segregation which was inequitable and unreasonable was a mere empty gesture. Such segregation, though attempted, never had life or force. Assessment of a tax based upon such segregation was at its inception void and constituted a wrong to the taxpayer aggrieved thereby. The Legislature is without power to give any force or life to the original lifeless segregation, and no case has been cited which so holds. The most that the Legislature may do is to limit the aggrieved taxpayer to the remedy provided by the Legislature for the injury suffered.

Here, under the construction now placed upon the statute, the Legislature has attempted more. It has provided that there shall be a reassessment of the tax based upon segregation made in accordance with rules it had no right to promulgate. The reassessment based upon correction of income alone might result in a much larger tax than was originally assessed, a tax which we have said was inequitable and beyond the power of the State to impose. It has no more right to order a reassessment of an illegal tax than to order the original assessment. It has provided for a tax based upon a segregation of assets. In assessing or in reassessing the tax, the Commission must assess the tax upon a segregation of assets made in accordance with a valid statute. Any other tax would be illegal.

The order of the Appellate Division should be affirmed.

Crane, Ch. J., O’Brien, Hubbs, Loughran and Finch, JJ., concur with Crouch, J.; Lehman, J., dissents in opinion from modification.

Ordered accordingly.


source: Caselaw Access Project

author: Lehman, J.

license: Public Domain

text:
    Louise S. Lee, Respondent, v. William Bailey Corporation et al., Defendants; Vicinus & Co., Inc., et al., Appellants, and Pennsylyania-Dixie Cement Corporation et al., Respondents.
    (Argued March 13,1935;
    decided April 16, 1935.)

      Leonard Lee Bacon for Vicinus & Co., Inc., appellant.

      Walter J. Holloran for Genesee Valley Trust Company, appellant.

      Walter S. Forsyth for Robinson Clay Product Company of New York, appellant.

      George H. Rothlauf for Pennsylvania-Dixie Cement Corporation, respondent.
   Lehman, J.

In June, 1930, the State of New York awarded to William Bailey Corporation a contract for the construction of a section of a public highway. The work was completed and accepted on September 16, 1931. The plaintiff filed a notice of hen on October 16, 1931. No other notices of hen and no assignments of the contract or of moneys due thereunder were filed within thirty days after the completion of the work. At that time a balance of $8,838.16 was still due from the State on the contract. The priority of the plaintiff's hen over ah other claims upon this fund is -undisputed. The dispute concerns only the manner in which the balance of this fund must be distributed. The contractor William Bailey Corporation has made a series of written assignments of moneys earned under its contract with the State. These assignments were executed and filed after the time in which hens may be filed had expired. They were given for indebtedness which had accrued before the assignments were made. The judgment granted at Special Term provides for a proportionate distribution upon ah the assignments regardless of the time when the assignments were executed or filed. The Appellate Division modified the judgment and directed that the unpaid balance should be applied upon the assignments in the same order in which they were filed.

At common law a contractor could, by assignment of a contract or moneys earned thereunder, transfer to a third party a fund which was created through labor and materials furnished by subcontractors and from which such subcontractor expected to be paid. (Bates v. Salt Springs Nat. Bank, 157 N. Y. 322.) Claims upon the same fund derived from or through the contractor after such assignment could, of course, attach only to such interest in the fund as the contractor had retained. For the protection of those who might advance moneys or furnish labor and materials to a contractor upon the expectation or promise that payment would be made to them out of moneys earned by the contractor, the Lien Law (Cons. Laws, ch. 33) provides that an assignment of a contract for a public improvement must be “ filed within twenty days after the date of such assignment of contract * * * and such assignment * * * shall have effect and be enforceable from the time of such filing, and no such assignment * * * shall have any validity until the same shall have been so filed.” (§ 16.) The statute was not intended to confer upon an assignee rights which the assignee did not have at common law. Rather it was intended to impose new conditions and limitations upon the assertion of common law rights. Under the terms of the statute, no right or title to a contract for a public improvement, or to moneys earned thereunder, passes to' an assignee until the written assignment is filed, and then the assignee takes subject to any rights acquired by a lienor or other person before such filing, even though after the written assignment was made. In the absence of provision in the statute for some other order of distribution, the result, of course, is that the order of priority of rights of lienors and assignees is determined by the order of the filing of the hens and assignment.

By recent amendments to the Lien Law the Legislature has provided a more equable distribution of moneys earned upon a public contract. An assignee, by filing his assignment “prior to the filing of a notice of lien or assignment of every other party to the action ” obtains priority over liens or assignments filed thereafter only to the extent of advances made upon such assignment before the filing of the notice of lien or assignment next subsequent to his assignment, but as to advances made subsequent to a notice of lien or assignment filed and unsatisfied such assignee for the purpose of determining his proportionate share of moneys available for distribution as provided in subdivision four of this section shall be treated as a lienor having a lien to the extent of advances so made.” (§ 25, subd. 1.) In the same way an assignee “ whose assignment is duly filed subsequent to the filing of the notice of lien or assignment of any other party shall for the purpose of determining his proportionate share of moneys available for distribution, as provided in subdivision four of this section be treated as a lienor having a lien to the extent of advances actually made upon such assignment prior to the filing thereof.” (§ 25, subd. 2.) Moneys available for distribution among henors of any class shall be distributed pro rata in accordance with their respective valid liens.” (§ 25, subd. 4.)

In terms, section 25 of the Lien Law applies only to “ advances ” made upon an assignment. A prior indebtedness secured by an assignment is not an advance upon an assignment. Quite clearly the Legislature intended that assignees should be treated as lienors either in priority to or in parity with other lienors only to the extent of moneys advanced by the assignee upon the assignment in order to enable the contractor to carry out his contract. To make that intent more effective, each assignment must contain a covenant by the assignor that he will receive any moneys advanced thereunder by the assignee as a trust fund to be applied to such purpose. (§ 25, subd. 5.) None of the assignees here can be treated as lienors, for their claims are based upon indebtedness accruing before any assignment was made, and not upon advances made upon their assignments, and they have filed their assignments after the expiration of the time during which liens may be filed. Their rights are not created or defined by section 25, but are subordinate to the rights defined by that section.

For definition of the rights of these assignees to any balance remaining after liens and assignments under section 25 are satisfied, we must look to the other pro* visions of the statute or to the common law.

Concededly the contractor has no right to such balance after he has assigned all moneys due under his contract to these assignees. They or some of them must stand in his place, and they stand in his place in the order in which their assignments became valid, in accordance with section 16; that is, in the order in which they were filed, Assignments of moneys made after the assignor had already effectively assigned all the money earned under the contract, can pass nothing to the assignees.

The Appellate Division so held, and the judgment entered upon its decision so provides. Under that judgment the first two assignees receive payment of their claims in full instead of pro rata with the other assignees. Miller-Grey, Inc., the second assignee, failed, however, to appeal from the judgment of Special Term, and that judgment cannot be increased in its favor. It has not appeared upon this appeal to defend the increased judgment.

The judgment should be modified to the extent that the amount payable to Miller-Grey, Inc., is reduced to the amount in the original judgment, and as modified affirmed with costs to the respondent Pennsylvania-Dixie Cement Corporation.

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

Judgment accordingly.


author: Crouch, J. Crane, Ch. J.

text:
    Henry D. Brown, Respondent, v. Eugene L. Garey et al., as Executors of James M. Hoyt, Deceased, et al., Individually and as Copartners under the Firm Name of Prince & Whitely, Appellants, Impleaded with Others.
    (Argued March 11, 1935;
    decided April 16, 1935.)

      Emil Weitzner, Samuel H. Kaufman, Earl J. Garey and David G. Haskins for appellants.

      John F. Caskey and John R. McCullough for respondent.
   Crouch, J.

The defendants were stockbrokers doing business under the firm name of Prince & Whitely. On September 9, 1930, the plaintiff delivered to the firm a certificate for 65 shares of Pere Marquette Railway stock for the sole purpose of having it sold on the New York Stock Exchange. On September 30,1930, the firm, without plaintiff’s authority, knowledge or consent, pledged the certificate with other securities to secure a loan of $250,000. On October 9, 1930, a petition in bankruptcy was filed against the firm. On the same date the pledgee liquidated the loan by selling the certificate together with other securities. A demand upon the receiver in bankruptcy for the return of the certificate was refused. An offer of composition was subsequently made and confirmed by the bankruptcy court. Plaintiff received his distributive share with a reservation of any rights against the defendants individually. This action is for the conversion of plaintiff’s certificate of stock. The defense is the composition in bankruptcy. The single question is whether the conversion was a willful and malicious injury to property within the meaning of section 17 (2) of the Bankruptcy Act (Mason’s U. S. Code, tit. 11, ch. 3, § 35), which excludes liability for such injuries from discharge in bankruptcy.

“ There is no doubt that an act of conversion, if willful and malicious, is an injury to property within the scope of this exception. * * * But a willful and malicious injury does not follow as of course from every act of conversion, without reference to the circumstances.” (Davis v. Ætna Acceptance Co., 293 U. S. 328, 332.)

The court must examine the circumstances of each particular case and say whether it finds among them the elements which the law has come to accept as badges of willfulness and legal malice. It has been said that “ a willful disregard of what one knows to be his duty, an act which is against good morals, and wrongful in and of itself, and which necessarily causes injury and is done intentionally, may be said to be done willfully and maliciously, so as to come within the exception.” (Tinker v. Colwell, 193 U. S. 473, 487.) If the phraseology of that statement trenches unduly on the domain of morals (Cf. Holmes, Collected Legal Papers, p. 171), we may overlook it in part and still find a legal test. A wrongful act done intentionally which necessarily causes harm and is without just cause or excuse, constitutes a willful and malicious injury. (Kavanaugh v. McIntyre, 210 N. Y. 175, 182; affd., 242 U. S. 138; and cf. Matter of Levitan, 224 Fed. Rep. 241, 243.) The test may be exemplified. In the Kavanaugh case the defendant brokers undertook to hold as collateral security stock certificates worth six times the amount of the debt. The day after receipt of the certificates they began deliberately to sell them. By successive sales over a period of a few weeks all had been disposed of and the avails appropriated by defendants. The conversion was larcenous in its nature and the injury was held to be willful and malicious. So too, in Andrews v. Dresser (214 N. Y. 671), where plaintiff gave defendant a sum of money expressly to pay a certain draft and defendant, refusing so to apply it, used the money for his own purposes. On the other hand, in Wood v. Fisk (215 N. Y. 233),' defendant brokers, authorized by plaintiff to repledge bis collateral within a certain limit, exceeded that limit and the collateral was lost through sale by the subpledgee. So far as there was any willful conversion, it was held partial — since it left the general property in plaintiff — and technical rather than absolute and malicious. Since a wrongful intent is not an essential element of conversion (Boyce v. Brockway, 31 N. Y, 490, 493; Laverty v, Snethen, 68 N. Y. 522, 527), an act of dominion done under mistake or misapprehension, and without conscious intent to violate right' or authority, may yet be a conversion; but it is not a willful and malicious conversion. Even though the mistake or misapprehension is due to negligence, the rule can be no different."

” The circumstances under which the conversion occurred were these: In defendant’s New York office there were two hundred and fifty employees working under a systematized business organization, which was headed by an office manager. As part of the ordinary business of such a concern, the borrowing of money upon collateral which the firm had the right to pledge was a common occurrence. Under the system used in the office, securities not subject to hypothecation were marked definitely as to ownership and were placed for safe-keeping in a custodian account with the Irving Trust Company. The other securities were kept in large drawers. When a loan had been arranged for, the collateral for the loan was made up by the loan clerks Under the supervision of the chief loan clerk, The necessary securities needed for each loan were taken by the loan clerks from these drawers, under a general authority and without consulting any member of the firm in each particular instance. Securities so taken and used as collateral were not reported to any of the partners. The fist of collateral to secure the $250,000, which included plaintiff’s certificate, was made up and the securities taken from the drawer in the ordinary course of business. Neither the office manager nor the chief loan clerk could explain the inclusion of plaintiff’s certificate in that fist. So far as appears, that fist contained no other unauthorized pledge."

Giving the plaintiff the benefit of all inferences which may be drawn from the evidence, the most that can be said is that the conversion was the result of negligence. The burden which rested upon plaintiff (Kreitlein v. Ferger, 238 U. S. 21) to show that the defendants either directly or vicariously pledged plaintiff’s stock intentionally, without just cause or excuse and knowing that it would necessarily cause him harm, has not been met.

It remains to consider the case of Heaphy v. Kerr (190 App. Div. 810; affd., 232 N. Y. 526), upon which the plaintiff largely relies. 'There the defendants hypothecated a customer’s securities under circumstances which brought them within the terms of Penal Law, section 956, and made their act a felony. That seems reasonably clear, because their chief contention was that they were authorized by the customer to do what they did. It necessarily follows that they acted intentionally and with knowledge, and thus consented or assented to the hypothecation. (People v. Sugarman, 216 App. Div. 209; affd., 243 N. Y. 638; People v. Lowe, 209 App. Div. 498.) The relevant circumstances here include no such fact, and the finding of the Appellate Division to the contrary is without support in the evidence. That the defendants, under the office system adopted and used by them, did not in person select or supervise the selection of securities to be pledged, does not close the gap. There is no proof that the defendants personally knew of the acts of their employees prior to or at the time the unauthorized pledge was made; nor is there proof that their office system and organization differed from that in common use so as to render likely or reasonably to be expected by them the unauthorized acts of subordinates. The possibility of a criminal conviction of defendants under Penal Law, section 956, on the evidence here is out of the question.

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

Crane, Ch. J.

(dissenting). My view regarding this case differs from the opinion written by Judge Crouch.

The evidence presents a question of fact which the Appellate Division has decided in favor of the plaintiff. That court found that on September 30, 1930, the defendants wrongfully pledged sixty-five shares of Pere Marquette Railway Company common stock, registered in the name of the plaintiff with the First of Boston Corporation, to secure a loan made to the defendants; that this conversion constituted a willful and malicious injury to the property of another, within the meaning of section 17 of the Bankruptcy Act of 1898.

The only point for us to consider is whether there is evidence to sustain these findings of the Appellate Division, or whether they are against the weight of evidence. In my judgment these findings should be sustained.

The Bankruptcy Act, section 17, as amended in 1903, reads: “ A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as * * * (second) are liabilities for obtaining property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another,” etc.

The defendants concede that the plaintiff’s property was converted by them, and that they would be hable to damages for the value thereof, were it not for their discharge in bankruptcy. Therefore, we must determine whether there is evidence to prove that, within the meaning of this exception in the Bankruptcy Law, they were guilty of willful and malicious injury.

A conversion is an injury to property, but the exception requires the conversion to be willful. An intentional conversion is a willful conversion. The question squarely presented to the triers of fact in this case was whether the conversion was an accident or a mistake, or whether it was done with intention to appropriate the plaintiff’s property to the use of the defendants. On the trial of its case the defendants’ counsel argued that the sole point was one of intention. The exception covers liabilities for willful and malicious injury. These defendants clearly are hable for any willful and intentional act of conversion committed for their benefit by their employees. Could a liability, created by the defendants’ manager obtaining money for them by false pretenses, be discharged?

In McIntyre v. Kavanaugh (242 U. S. 138) it was held that partners are individually responsible for torts committed by their firm, while acting within the general scope of its business, whether they personally participated therein or not, and that an innocent partner would not be discharged in bankruptcy where another one had converted stock. Partners are agents one for the other. (Irwin v. Williar, 110 U. S. 499.) In the Same way these partners here are liable for the conversion by their employees, committed within the scope of their employment. Their conversion, if not accidental, constitutes a liability in these defendants which prevents discharge in bankruptcy.

The defendants exercised no supervision over their clerks in the selection of securities to be sold or pledged — virtually shut their eyes to their transactions — and now seek discharge in bankruptcy from a flagrant conversion of the plaintiff’s securities by their employees, in an attempt to Save the firm from bankruptcy. In fact the inference may be drawn that these defendants, or one or more of them, knew that the stocks were to be illegally taken for their benefit. Even as early as Wood v. Fisk (215 N. Y. 233, at p. 241) this court intimated that an out and out sale of the securities in that case, as distinguished from a repledge, would have been willful and malicious, within the Bankruptcy Act.

What are the facts here to justify my statement that there was evidence to sustain the findings of the Appellate Division, that the liability sought to be discharged was one for willful and malicious injury? The plaintiff owned sixty-five shares of common stock of the Pere Marquette Railway Company. He was not a customer of the defendants and had no previous dealings with them. At their Philadelphia office he gave to them his sixty-five shares to be sold. This was on the 9th day of September, 1930. On the 30th day of September, 1930, Prince & Wbitely were in financial difficulties. They were on the verge of bankruptcy. Their head bookkeeper was asked this question: Q. Mr. Palamara, this daily report, Defendants’ Exhibit D, shows that the firm of Prince & Whitely was solvent on September 30, doesn’t it? A. I would not say that.”

In order to obtain a loan of $250,000 to help them out they pledged, with other securities, on this 30th day of September, 1930, the plaintiff’s shares of stock, scheduled on their own sheets, making up the loan security, as stock belonging to Henry D. Brown. Nine days later a petition in bankruptcy was filed against them. The defendants failed to offer any explanation as to how property given to them for sale was converted to their own use and applied to their own financial benefit. None of the defendants testified. Two of their employees, the supervisor of the cashier’s cage, and the office manager, say that they cannot explain how such a thing happened. One was asked: Q. Do you know how it happened — yes or no? The Witness: No, I do not.” The other: “ Q. How did it come about that these securities were pledged? The Witness: There can be no explanation. Q. Do you know? A. No.”

These certificates of the plaintiff, we must remember, were not given as collateral or pledged with the defendants; they were handed to them for the sole purpose of sale, the proceeds to be turned over to the plaintiff. Who took them; what was done with them; where they were put, or how they were kept no one seems to know. Certificates for safe-keeping were maintained with the Irving Trust Company. Others were kept by the defendants in their, box or drawers. Whether they were commingled, or how they were kept, is not explained; nothing is told us about these sixty-five shares of Pere Marquette common — who received them or where they were placed. The defendants and their employees, as well as their records, show blank when an explanation is requested.

What, under all these circumstances, would any reasonable man infer? Prince & Whitely were on the verge of bankruptcy. They needed money badly. They had to have $250,000 from the First of Boston Corporation, and were obliged to give security, and, lacking any other explanation, the inference may be fairly drawn that these securities of the plaintiff were intentionally taken, together with others, irrespective of ownership.

There is nothing peculiar about a stockbroker which gives to him privileges other agents do not possess. If I take my furniture or my jewelry to an auctioneer or broker to sell for me, and I find after a few days that the property has been sold and the money used by the agent for his own purposes, what is the fair inference — that he made a mistake or that he stole it? When he tells me upon inquiry that he does not know how it happened, that he cannot explain it, the conclusion naturally is that his ignorance is a cloak for his wrong.

Our Penal Law, section 956, provides that any broker who, having stocks in his possession, without having any lien or special property therein, sells them without his customer’s consent, is guilty of a felony; and every member of a firm of brokers who assents to the doing of any such act is also guilty.

Larceny, under our law (section 1290 of the Penal Law), is committed, when a person, having possession of the property of another as agent, appropriates the same to his own use.

It is unnecessary to say whether or not the unexplained facts of this case make out prima facie the commission of a felony (People v. Friedman, 149 App. Div. 873; McDonald v. State, 56 Fla. 74, 78), because the willful and malicious injury to property referred to in the Bankruptcy Act is not confined to crimes committed by the bankrupt personally. (McIntyre v. Kavanaugh, 242 U. S. 138.) Neither is it sufficient to say that the mere ignorance upon the part of the two employees is an explanation or an exculpation. They were interested witnesses whose testimony could have been rejected by the triers of fact.

There was, therefore, ample evidence to sustain the finding of the Appellate Division, that this liability for the conversion of the plaintiff’s stock was not discharged in bankruptcy.- For this reason the judgment below should be affirmed.

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

Judgment accordingly.


author: Crouch, J.

text:
    Bertha Grady, Respondent, v. Concordia Fire Insurance Company of Milwaukee, Appellant.
    (Argued March 1, 1935;
    decided April 16, 1935.)

      Nelson R. Pirnie for appellant.

      Marry G. Coplon and Ernest A. R. Cohen for respondent.
   Crouch, J.

The fire insurance policy in suit insured the premises for $2,500 while occupied as a private family residence,” and household and personal property * * * such as is usual or incidental to a dwelling * * * while contained in the above described dwelling ” for $1,000. It contained an increase of hazard clause providing that the insurer be not liable for loss occurring while the hazard is increased by any means within the control or knowledge of the insured.”

The property was leased for the months of August and September, 1932, and on September 29, 1932, was destroyed by fire. There is uncontradicted testimony that during this period the premises were used as a speakeasy, and had been raided by prohibition agents shortly before the loss. The plaintiff’s testimony was directed solely to lack of knowledge of the use to which the premises were put. The trial judge charged that if the jury found the premises were used for a more hazardous purpose than a dwelling house and that the hazard was increased by means within the plaintiff’s control or knowledge, she might .not recover; but that if the hazard was not increased by means within the control or knowledge of plaintiff, she should have a verdict. Counsel for the defendant excepted to this and requested a charge, in substance, that if the use or occupation of the premises was not that of a private dwelling house, lack of control or knowledge on the part of the insured was immaterial, and no recovery could be had. The request was denied.

Under the language of the policy it was clearly error to qualify the clause while occupied as a private family residence ” with the proviso of the increased hazard clause, that it be within the control or knowledge of the insured. The clause with respect to use as a private family residence only was no doubt in a sense to guard against increase of hazard from other use; but the specific reference to this, without any such qualification as applied to increase of hazard generally, made this a limitation on the coverage of the policy. It may have been and probably was intended to define the particular hazard upon which the rate was based; but however this may be, the limit of insurance is plainly there — as plainly as the limit on the household goods to those contained in the described dwelling. (Langworthy v. Oswego & Onondaga Ins. Co., 85 N. Y. 632; Metzger v. Ætna Ins. Co., 227 N. Y. 411.) Where a risk is specifically and in terms excluded, knowledge or control is immaterial. (Miller v. American Eagle Fire Ins. Co., 253 N. Y. 64.) So, also, we think, where it is excluded by clear limitation of description. Such clauses are sometimes spoken of as promissory warranties (Graley v. American Eagle Fire Ins. Co., 235 App. Div. 490; 26 C. J. 203), but the use of the words “ while occupied ” in this connection would seem rather to be a limitation of the coverage of the policy for the purpose of withdrawing risks that the insurer was unwilling, for one reason' or another, to undertake. (Langworthy v. Oswego & Onondaga Ins. Co., supra; Shawmut Coal & Coke Co. v. American Credit-Indemnity Co., 232 App. Div. 29.) Such has been the treatment of similar phrases in connection with the use (Mawhinney v. Southern Ins. Co., 98 Cal. 184) or location of movable property (Acione v. Commercial Union Assur. Co., 182 App. Div. 822; Gertner v. Glens Falls Ins. Co., 193 App. Div. 836; affd., 233 N. Y. 568; Leavitt v. National Fire Ins. Co., 88 Misc. Rep. 563); and like limitations on attachment and duration of risk are a commonplace of marine and ocean freight policies. These are not within the usual definition of a promissory warranty, an undertaking that some particular thing be or be not done, or an assertion of the existence of some particular state of facts.

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

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

Judgments reversed, etc.


text:
    Robert Dravecka, Appellant, v. Walter L. Richard, Respondent.
    (Argued March 12, 1935;
    decided April 16, 1935.)

      William M. Chadbourne, Clinton DeWitt Van Siclen, Robert W. MacMillan and Gerald B. O’ Neill for appellant.

      Harold Shapero and Lloyd Paul Stryker for respondent.
   Crouch, J.

The plaintiff is the assignee of Chadbourne, Hunt, Jaeckel & Brown, attorneys at law, The action is for legal services rendered to the defendant’s wife at her request in litigation arising out of the marital relationship.

In 1932 the wife sued the defendant for a divorce. In that action, upon a motion for alimony and counsel fees pendente lite, an order Was made allowing $15,000 per year to the wife for alimony and for. the maintenance of two children, and $5,000 for counsel fee. The plaintiff’s assignors appeared for the wife.

Shortly thereafter the defendant applied for a writ of habeas corpus to secure the custody of the children. The plaintiff’s assignors again appeared for the wife. A long trial was had and the case submitted. The plaintiff’s assignors were thereafter superseded as attorneys of record by other counsel. The services sued for are those rendered in that proceeding.

So far as appears, both the divorce action and the custody proceedings are pending and undetermined. The defendant has complied with the order allowing alimony and counsel fees.

There can be no doubt that legal services rendered to a wife may, under various circumstances, be classified as necessaries for which a husband is hable. (Elder v. Rosenwasser, 238 N. Y. 427.) (Cf. same case below, 121 Misc. Rep. 181; Naumer v. Gray, 28 App. Div. 529.) It seems to be conceded by both parties that the services in question here fall into that category. The barrier to plaintiff’s recovery is not the nature of his claim, but the fact that the defendant’s marital liability was measured and fixed by the terms of the alimony order in the divorce action, and so remains. (People ex rel. Commissioners of Charities v. Cullen, 153 N. Y. 629, 635; Turner v. Woolworth, 221 N. Y. 425; Klein v. Dula, 217 App. Div. 473; McLaughlin v. McCanliss, 146 Misc. Rep. 518; affd., 240 App. Div. 964; leave to appeal denied by this court.)

Section 1169 of the Civil Practice Act provides that in a divorce or separation action, the court, in its discretion, during the pendency thereof, from time to time, may make and modify an order or orders requiring the husband to pay any sum or sums of money necessary for the support of the wife, having regard to the circumstances of the respective parties. The wife chose the remedy given by the statute. The amount fixed by the court became for the time being “ the measure of her rights and of her husband’s obligations.” (Turner v. Woolworth, supra, p. 428.) “ The wife was not obliged to resort to the court for support pending the action; to do so was discretionary with her. If she did not apply, the husband’s common-law liability to provide her with the necessaries of fife according to his station would still continue. * * * If the court had fixed the amount of alimony the husband’s liability for the support of his wife would then have been confined to the figures stated-” (Elder v. Rosenwasser, supra, pp. 431, 432.) The word “ support,” as used in the statute and as used in the last cited case, means the supply of necessaries. Necessaries are not limited to food, clothing and a habitation.

The judgment should be affirmed, with costs.

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

Judgment affirmed.


author: Crane, Ch. J. Crouch, J.

text:
    Grant M. Kress, Appellant, v. The Village of Watkins Glen et al., Respondents.
    (Argued March 12, 1935;
    decided April 16, 1935.)

      W. S. O’Brien and Seaman F. Northrup for appellant.

      Harold H. Cassidy and Olin T. Nye for Frank W. Severne et al., respondents.
   Crane, Ch. J.

The village of Watkins Glen was incorporated under a special charter (Chapter 125 of the Laws of 1861, and chapter 36 of the Laws of 1918). The charter provided the qualifications for voters at village elections. Section 12 of title 3 (L. 1918, ch. 36) reads as follows:

Legal voters. Every inhabitant actually residing in said village, who shall have been such actual resident of said village for thirty days next prior to the time of offering his vote and who shall at the time of offering his vote be qualified to vote for member of assembly, shall be entitled to vote for all officers to be elected by virtue of this act; and also every person residing in the towns of Dix and Reading, who owns real estate in the said village to the value of one hundred dollars and over and whose place for the transaction of his ordinary business is in said village if otherwise qualified as hereinbefore specified, shall in like manner be entitled to vote for said officers.”

This special charter also provided the qualifications of electors to vote on propositions. Section 75 of title 8 (L. 1918, ch. 36) of the special charter reads as follows:

“ Qualifications of electors for voting on certain propositions. No elector shall be entitled to vote upon any question, resolution or direction relating to the raising of money by tax or the disposition of any funds or property of the corporation unless at the time of offering to vote upon such question, resolution or direction he shall be liable to be assessed and taxed for personal estate possessed by him in said village or for real estate therein owned or occupied by him.”

The Village Law (Cons. Laws, ch. 64, § 41, subd. 2) is a general law governing by its provisions all those villages which are created under it or have been reincorporated according to article 13 of the law. The village of Watkins Glen, acting under its original charter, determined to reincorporate under the Village Law. The question arising in this case is whether it has succeeded in so doing by a compliance with the provisions of law providing for such reincorporation. The appellant claims that the village has failed in its purpose because the proposition to reincorporate was not carried by a sufficient number of legal voters; that there is no way in which the village can reincorporate under the Village Law except in the method provided by article 13 of that law, Section 300 of that article reads:

“ A village incorporated by special law and subject to its provisions may be reincorporated under this chapter by adopting a proposition therefor. Such a proposition may be submitted at an annual election or at a special election to be called for that purpose.
The board of trustees of such village may, upon its own motion, and shall, upon the petition of twenty-five electors assessed upon the last assessment-roll of the village, cause to be submitted at a village election a proposition for such reincorporation. * * *

Notice will be taken that the proposition is to be submitted at an annual election or at a special election, but nothing is said regarding the qualification of the voters upon such a proposition. This, however, is found in other portions of the Village Law, under the proper heading, Qualifications of voters,” being section 41 of article 3. It reads:

“ A voter at a village election, other than the first, must possess the following qualifications:
" 1. To entitle him or her to vote for an officer, he or she must be qualified to vote at a town meeting of the town in which he or she resides, and must have resided in the village thirty days next preceding such election.
“2. To entitle him or her to vote upon a proposition he or she must be entitled to vote for an officer, and he or she must also be the owner of property in the village assessed upon the last preceding assessment-roll thereof.”

The difference between the special charter and the Village Law regarding qualifications for voters when voting on propositions, as distinguished from voting for officers, is this: That under the former, the elector must be assessed and taxed for personal or real estate when the proposition relates to raising money by tax, or the disposition of any funds or property of the corporation; while under the latter he must be such a taxpayer to vote on any proposition.

A special election was held in the village of Watkins Glen on the 28th day of November, 1933, to vote upon the proposition, reading as follows:

Proposition No. 1.
“ Shall the Village of Watkins Glen, N. Y., be reincorporated under the Village Law of the State of New York, being Chapter 64 of the Laws of the State of New York for 1909, and the acts amendatory thereof? ”

The election was not confined to those who owned personal or real property within the village, but all those were permitted to vote who could vote for village officers under the special charter, to wit, those qualified to vote for members of the assembly. It is conceded, for the purpose of this motion, that if the property qualification was required, the proposition was lost.

We are of the opinion that the general Village Law applies, and that only those voters who were qualified, pursuant to section 41 of that act, could vote at this election. The special charter, as before stated, gives no power by reason of any of its provisions to reincorporate under the Village Law. The propositions to be submitted to the People under the special act are those to be voted for in accordance with the provisions of that act. Only by reason of the general Village Law, and not the special charter, can a proposition to reincorporate be submitted to the villagers. No such proposition could be submitted under the special charter. Therefore, it seems quite reasonable, when the proposition is one which could only be submitted under the general Village Law, that the voters should be those qualified under that law. This reasoning is further supported by the fact that only property owners can vote on the original incorporation of a village. (Village Law, art. 2, § 12.)

This being our decision, it perhaps is unnecessary to call attention to the fact that even under the special charter of the village of Watkins Glen, it is very doubtful whether non-property owners could vote to reincorporate. Passing the village from the control of the authorities known as the village of Watkins Glen, incorporated under a special charter, to a reincorporated village, a new village of Watkins Glen, incorporated under the Village Law, is in one sense the disposition of the funds and the property of the corporation by transferring it from the control of one corporate body to that of another. Even under the special charter it is doubtful whether any but voters assessed and taxed for personal estate or for real estate were qualified to vote.

Some objection has been raised to the form of this action, which is in the nature of a declaratory judgment establishing the rights of the parties and seeking to have the courts determine that the election was illegal or that the proposition to be voted upon was lost. We have had these questions before and determined that, when the question as to the validity of the incorporation of a village or the right of officers thereunder to act was raised as soon as possible, resort to quo warranta was unnecessary. Where, however, the long-established usage had developed into a government de facto, other forms of remedy could not be resorted to. (Jarl Co. v. Village of Croton-on-Hudson, 258 N. Y. 303; Gwynne v. Board of Education, 259 N. Y. 191.)

The complaint, with its exhibits, is the only pleading which can be considered in this case. A motion was made to dismiss it on the ground that it failed to state a cause of action, and on the further ground that the court had no power to determine the validity of the incorporation of the defendant under the general Village Law. The Special Term granted the motion, and dismissed the complaint, and the Appellate Division has affirmed the order. We reverse both these orders, and deny the motion, with costs in all courts.

The judgment and order should be reversed and the motion denied, with costs in all courts.

Crouch, J.

(dissenting). This decision overturns what has been the accepted law and practice since 1870.

The original provisions relating to reincorporation of villages will be found in section 30 of title 8 of chapter 291 of the Laws of 1870. That act appears to have been the first general act relating to the incorporation of villages. Section 30 of title 8 provided that, “All persons before qualified to vote at an election in such village may vote at such election,” that is, at an election upon a proposition to reincorporate. That was plain enough; and the statute continued in that form down to the enactment of the Village Law of 1897 (Laws of 1897, ch. 414). By that act the provisions in the older statute relating to reincorporation were cast into substantially their present form and constituted a separate article, as at present. The specific provision quoted above relating to the qualification of voters did not appear. It was, however, provided, as it now is, that if the proposition were submitted at a special election, that election should be conducted in the same manner as provided by law for an annual election in such village. The fair inference is that no change in what had been the qualifications of voters on the proposition to reincorpórate was intended to be made. That, indeed, seems to have been the view of the Commissioners of Statutory Revision who drafted the act of 1897. In their note they say:

“A special village is made subject to such of its provisions as do not conflict with its charter. A special village is authorized either to continue under its charter in connection with the proposed general law, or to abandon its charter and adopt the provisions of the new law by reincorporation thereunder.” (Report of Commissioners of Statutory Revision [1897], p. 86.)
“It is a rule of construction that a special statute providing for a particular case, or applicable to a particular locality, is not repealed by a statute general in its terms and application unless the intention of the legislature to repeal or alter the special law is manifest, although the terms of the general act would, taken strictly and but for the special law, include the case or cases provided for by it.” (Buffalo Cemetery Assn. v. City of Buffalo, 118 N. Y. 61, 66; Van Denburgh v. Village of Greenbush, 66 N. Y. 1.)
“ Laws, special and local in their application, are not deemed repealed by general legislation, except upon the clearest manifestation of an intent by the legislature to effect such repeal, and ordinarily an express repeal by some intelligible reference to the special act is necessary to accomplish that end.” (People v. Quigg, 59 N. Y. 83, 88; Jamestown v. Home Tel. Co., 125 App. Div. 6; Aldinger v. Pugh, 57 Hun, 188.)

Shortly after the revision of 1897 inquiry was made of the Attorney-General as to the qualifications of voters upon the question of reincorporation. The opinion rendered was to the effect that any person having the qualifications prescribed by a special village charter was entitled to vote upon the proposition to reincorpórate under the general Village Act. (Report of Atty.-Gen. 1897, p. 332.) The same conclusion was reached in the only adjudicated case on the question. (Matter of Sag Harbor, 32 Misc. Rep. 624 [1900].)

When the Special Term and the Appellate Division decided the present case, they applied what had always been understood to be settled law.

Apart from the desirability of uniformity, I can see no reason for the rule now announced. But that is a legislative and not a judicial consideration. Moreover, it seems clear that the Legislature considered the point and found it either impractical or undesirable upon other grounds. The undoubted rule of construction and. the clear intent of the draftsmen of the Village Law was known to the Legislature from the report of the Statutory Commissioners. As stated, the intent was that “ á special village is made subject to such of its [general Village Law] provisions as do not conflict with its charter.” Knowing that special village charters defined variously the qualifications of voters at village elections, the Legislature in article 13, relating to reincorporation, deliberately omitted any specific provision on the subject. On the other hand, in article 3, relating to original incorporation, where a prescribed area was to be taken from a town and made into a village, the qualifications of those who could vote on the proposition were clearly defined. There is good reason for the distinction. The change from town to village government ordinarily entails an increase in taxes. The increased burden falls on property owners. Their vote alone should control. Hence to the qualifications of a voter at a general town meeting was added the qualification that he should be a property owner. No such consideration is involved in a change from village government under a special charter to village government under general law. The differences are largely matters of form and detail.

Upon every principle of statutory construction, it seems to me that the Legislature intended the provisions of special charters defining the qualifications of voters to apply at an election for reincorporation.

The judgment should be affirmed, with costs.

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

Judgment and order reversed, etc.


author: Hubbs, J.

text:
    New York City Employees' Retirement System, Appellant and Respondent, v. Amory V. Eliot et al., as Executors of Walter G. Eliot, Deceased, Respondents and Appellants.

      (Argued March 19, 1935;
    decided April 17, 1935.)

      Paul Windels, Corporation Counsel (Paxton Blair and Ralph W. Thomas of counsel), for plaintiff, appellant and respondent.

      Charles L. Craig for defendants, respondents and appellants.
   Hubbs, J.

On May 27, 1921, Walter G. Eliot, then an assistant engineer in the office of the President of the borough of Queens, was appointed by the Board of Regents of the State of New York to membership on the State Board of Licensing for Professional Engineers and Land Surveyors. He took the oath of office on June 30, 1921. From September 14, 1921, to August 21, 1925, he attended sessions of the Board for which he was paid $10 per diem up to January, 1922, and thereafter $25 per diem. His aggregate compensation for the period amounted to approximately $8,000. He was about sixty-four years of age, and as an employee of the city, a member of the New York City Employees’ Retirement System. By reason of bis age and membership in that system, he became entitled -upon retirement from the service of the city, to make application for a retirement allowance to the Board of Estimate and Apportionment, which, under chapter XXVI of the Greater New York Charter (Laws 1901, ch. 466; amd. Laws 1920, ch. 427), is vested with the management of the funds of the system and for the purposes thereof is given the powers of a corporation. (Greater New York Charter,'§§ 1701, 1710 and 1711, as amd.)

On July 20, 1921, after he had taken the oath of office as a member of the State Board of Licensing' for Professional Engineers and Land Surveyors, he made application to the Board of Estimate and Apportionment for retirement from the city service. Subsequently, the latter Board, by resolution, granted to him an annual retirement allowance of SI,172.38 as of August 1, 1921. The annual retirement allowance was paid to him until August 31, 1925. Further payments were then refused and this action was instituted by the Board of Estimate and Apportionment under its corporate title, New York City Employees’ Retirement System, to recover the payments already made, upon the theory that payments had been made in violation of section 1560 of the Greater New York Charter (amd. L. 1923, ch. 266), which reads: If a person who may hereafter be awarded a pension from the city of New York or any of the departments thereof, or out of any fund under said city or any of its departments, shall hold any office, employment or position under the state or city of New York or any of the counties included within said city, except the offices of commissioner of deeds, notary public, or an elective public officer, the payment of said pension shall be suspended and forfeited during and for the time he shall hold such office, position, or employment; provided, however, that this section shall not apply where the pension and the salary or compensation of the office, employment or position amount in the aggregate to less than twelve hundred dollars annually.”

Eliot counterclaimed for the amount of retirement allowance for the period from September 1, 1925, to the commencement of the action. At the trial it was stipulated that findings of fact and conclusions of law be waived and that a verdict be directed with the same force and effect as if a jury were present. The trial court directed judgment for the plaintiff for $4,298.36 and dismissed the defendant’s counterclaim.

That court handed down an opinion to the effect that it was the determination of the court that section 1560 of the charter is to be considered as part and parcel of the Retirement Act, that defendant as a member of the State Licensing Board was a State officer, that he was paid for his services from State moneys, that the acceptance of such employment in the State service precluded the receipt of his pension so long as he received in the aggregate $1,200 or more per annum, that the payments were made under a mistake of fact, that the Board of Estimate and Apportionment had no power .to make the payments and no power to approve, ratify or adopt any action which it had no power in the first instance to take and that estoppel has no application.

The court said: The section [1560, supra] expressly provides that in the events specified ‘ the payment of the said pension shall be suspended and forfeited.’ The intent of the Legislature was to create a preference in favor of those eligible for State and city positions as against those retired by the city on a pension. This provision is self-operative.” From that judgment the defendant appealed.

The Appellate Division expressed its agreement with the conclusions of the trial court as to the applicability of section 1560 to allowances under the Retirement Act during the period of his employment by the State; that Eliot was not legally entitled to retirement allowances and that he was not entitled to recovery on his counterclaim. However, since plaintiff did not prove that the retirement allowances had been paid to the defendant without knowledge on the part of plaintiff as to his employment by the State and the record indicated that the plaintiff paid the allowances in good faith under the impression that Eliot was entitled thereto notwithstanding his position as a member of the licensing Board, it held that the payment was made under a mistake of law rather than of fact. It further held that a municipality is not exempt from the rule that money paid under a mistake of law cannot be recovered back, and, therefore, that the plaintiff was not entitled to judgment for recovery of sums already paid. The Appellate Division modified the judgment by dismissing the complaint,

Subsequent to the trial, Eliot died. His executors, having been substituted, appeal to this court from the judgment dismissing the counterclaim and from an order of the Appellate Division dismissing an appeal from an order for a new trial on the ground of newly-discovered evidence. The New York City Retirement System appeals from the dismissal of its complaint.

There can be no doubt as to the correctness of the determination of the courts below with respect to the applicability of section 1560 of the charter to retirement allowances made under the Retirement Act. The defendants contend that section 1724 (amd. L. 1923, ch. 142) of the latter act, which is a part of the charter, is an expression of unmistakable legislative intention that section 1560 has no application to the provisions of the Retirement Act. Section 1724 reads in part as follows: “ No other provision of law elsewhere in this act or in any other statute which provides wholly or partly at the expense of the city of New York for pensions or retirement benefits for employees in the city-service, shall apply to said employees who become members or beneficiaries of the retirement system established by this chapter, their widows or their other dependents.”

Section 1724 is, by its terms, a limitation only upon other enactments which provide for pensions or retirement benefits for employees in the city-service.” Section 1560 is not such an enactment and has neither been repealed by implication nor limited in its effect by anything contained in the Retirement Act.

It is clear that Eliot, as a member of the State Licensing Board, was a State officer. He was appointed by the Board of Regents, the appointees of which, authorized to exercise their functions throughout the State, are included in the term “ state officer.” (Public Officers Law, Cons. Laws, ch. 47, § 2.)

While it is true that it is the general rule that money paid under a mistake of law may not be recovered back, that rule, in certain instances at least, has been held not applicable to payments of public or trust funds by agents of municipalities. The Board of Estimate and Apportionment, although for the purposes of the Retirement Act possessing the powers and privileges of a private corporation, was nevertheless administering funds which were of a public nature. While certain contributions were made to the. funds by employees, the major portion thereof constituted public moneys. They were all deposited with the Comptroller in trust for the divers members of the Retirement System, and were disbursable only in strict accordance with law. The Board of Estimate and Apportiomnent, in accepting the duties and obligations placed upon it by the Retirement Act, did not lose its character as a municipal agency.

The general rule as to payments made by public officers under a mistake of law is stated by text writers as follows: Payments of public money made by officials under a mistake of law may be recovered.” . (3 Williston on Contracts, § 1590.)

" A payment of road and bridge taxes belonging to a township made to a city under-.the mistaken, view that under the law the taxes so paid belonged to The city is no bar to a recovery by the township of the money so paid.' The rule that payment made in mistake of. law cannot, be recovered was held not applicable to a municipality.” (6 McQuillin on The Law of Municipal Corporations [2d ed.], § 2671.)

Such rule was asserted in People v. Fields (58 N. Y. 491), where the Comptroller had paid to members of certain fire companies amounts in excess of a sum authorized in a tax levy. This court, while stating the rule, there reversed on the ground that title to the money was in the city rather than in the State. The court there said: “ The payment was made and received without any lawful power in the comptroller to make it. The defendant is chargeable with knowledge of this. It was a payment by an agent, who had no authority as such, to make it. It was, then, no payment by the principal in mistake of law or ignorance of facts. The principal, in legal view, had no part in the payment, and it was made against its will. It was equivalent to an appropriation by the appellant of the moneys to his own use,,with the acquiescence and help of the officer of the city,, who was authorized to pay them out not otherwise than in accordance with law. He having made the payment unlawfully, it was an act net within the scope of his agency and does not bind his principal * * *. There is, for these reasons, a right of action somewhere, against the appellant, to recover the whole or a part of these moneys ” (p. 505).

In Board of Supervisors v. Ellis (59 N. Y. 620), an action brought against a supervisor for recovery of moneys paid as a per diem, allowance and for mileage while serving on committees of the Board when it was not in session, it was said: It is claimed that this payment was voluntary, made with full knowledge of all the circumstances, and that it cannot now be overhauled. We are not called upon to overlook or stretch any of the rules which forbid a voluntary payment to be repented of and reviewed. The question is, whether the municipal corporation, the county of Richmond, is ,so far bound by the action of its board of supervisors as that it may not,- in this casé, be found outside of those rules” (p. 624).

. The court there held that in cases of public agents the principal is not bound by their actions unless they act within the scope of their authority, and permitted a recovery.

The same rule was applied in Village of Fort Edward v. Fish (156 N. Y. 363), an action to recover moneys paid by plaintiff’s board of water supply in settlement of a claim for damages for breach of a contract, which contract the court found to be illegal, and in People v. Sutherland (207 N. Y. 22) the court reversed a judgment denying recovery for moneys paid to a County Clerk for work performed for which no compensation was allowed by law.

We are not unmindful of the fact that this court, in Cox v. Mayor (103 N. Y. 519), affirmed a judgment dismissing a counterclaim to recover for moneys paid to a police justice in excess of his lawful salary. In that case it appeared that the excess salary was paid out of money lawfully raised by taxation for the purpose of paying the salary at the increased rates, and further that the claim would have been barred by the Statute of Limitations had that defense been set up in reply as a bar. The court stated that under the circumstances it would be a hard measure of justice to -.compel the defendant at that late date to restore the money. In affirming the General Term it did not discuss the principles of law involved. In so far as the decision is in conflict with our conclusions here we decline to follow it.

To the extent that these are trust funds, the rule that Whoever receives property knowing that it is the subject of a trust and has been transferred [by the trustee] in violation of the duty or power of the trustee, takes it subject to the right, not only of the cestui que trust, but also of the trustee to reclaim possession of the specific property, or to recover damages for its conversion * * * ” (Wetmore v. Porter, 92 N. Y. 76, 81) is applicable, (Cf. Moss v. Cohen, 158 N. Y. 240.)

For a general discussion of the rules applicable in actions for recovery of money paid by municipal officers under mistake of law to individuals and public officers, see 21 Ruling Case Law, pages 174 and 175.

The defendants contend that evidence offered and excluded as well as certain newly-discovered evidence tends to establish that before accepting the appointment to the Licensing Board, Eliot was advised by the secretary of the Retirement System and by the Corporation Counsel that his pension would be unaffected by such action. If such evidence had been received, it would not affect the result. Such advice was at most expressions of opinion on the part of municipal officials. It amounted only to an attempt to interpret the law. It could not amount to an estoppel, since no officer of a municipality has power to impose liability upon the city by estoppel.” (Lord & Burnham Co. v. City of New York, 251 N. Y. 198, 204.)

The defendants also contend that section 1560 of the charter is not self-executing, and' that the pension was not suspended or forfeited by resolution of the Board of Estimate and Apportionment. Section 1560 declares what shall effect suspension or forfeiture of a pension — namely, the holding of an office within one of the classes specified in the section. Eliot’s pension was suspended by operation of law during his incumbency of the State office. Payment thereof became, by reason of such suspension, an illegal act. No action by the Board of Estimate and Apportionment was required or could have -added anything to the effectiveness of Eliot’s act in serving and receiving compensation for service in the State office.

Since we reach the conclusion that the plaintiff is in nowise estopped from recovering back the moneys paid under a mistake of law, it follows that the judgment of the Appellate Division, in so far as it modifies the judgment of the Trial Term, should be reversed, and the judgment of the Trial Term affirmed, with costs* in all courts to the plaintiff. The appeal from the order dismissing the appeal from the order denying a new trial on the ground of newly-discovered evidence should be dismissed.

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

Ordered accordingly.


author: Loughran, J.

text:
    Marcelle Peterson, an Infant, by Sylvester Peterson, Her Guardian ad Litem, Respondent, v. The City of New York, Appellant.
    (Argued March 15, 1935;
    decided April 17, 1935.)

      Paul Windels, Corporation Counsel (Paxton Blair, Seymour B. Quel and Samuel A. Bloom of counsel), for appellant.

      I. Arnold Ross, Wm. Burdell Banister and Morton A. Shapiro for respondent.
   Loughran, J.

In one of its public playgrounds the defendant city of New York maintained a “ Lullaby swing, a bench suspended fifteen inches above the ground and divided into seven seats in a row. Plaintiff, a girl of eight, sat in a middle seat. An armrest or handbar separated her from a child on either side. A boy stood between a pair of uprights on either end of the bench. The boys, each holding to an upright, put the bench in motion by taking turns at pumping ” against it. The movement was, not forward and backward, but from side to side. Two directors of play, assigned by the municipal authority having jurisdiction, were on the playground. A director, teaching a May-pole dance to a group of children, was but a few feet away from the swing, having appointed four older children monitors of its operation.

After a moment or two of swinging, plaintiff, who had recently suffered an illness, became dizzy. Hearing her scream, one of the monitors directed the pumpers ” to stop. Before the movement of the bench was arrested, plaintiff fell from it. One of her arms was fractured and resulting infection necessitated its amputation. By the judgment appealed from, defendant is made answerable for her injuries.

In his charge to the jury the trial judge said: “ There is nothing in the evidence in this case to indicate that the swing was improperly constructed, at the start, or that it was improperly maintained, or that it was improperly operated at this particular time. So that it gets down to a question as to whether or not the city properly supervised it. Was it within reasonable requirements to have someone closer by and if they were closer by, could they, or might they have been able to prevent the accident or these injuries that happened at this particular time? That is the controlling question in this case.” The verdict determines that breach of the duty so defined caused the accident.

We think there is no foundation in principle or authority for such a theory of liability.

That it was the duty of defendant to provide an adequate degree of general superintendence of recreation at this playground is not denied. (See Augustine v. Town of Brant, 249 N. Y. 198, 203, 204; Van Dyke v. City of Utica, 203 App. Div. 26, 29.) Defendant in fact discharged that duty. There had been no similar accident. Plaintiff was sui juris. Concededly nothing in her physical appearance indicated unfitness to go upon the swing. Her mother accompanied her to the playground, To say, as in effect the jury were told, that direct management of the swing by an attendant would perhaps have prevented plaintiff’s injuries is to allow a verdict to be reached by a guess. But even if the jury were right in this instance, we think such a requirement of immediate official supervision would have been unreasonable in the circumstances, and that, therefore, there is no evidence of defendant’s negligence. (Kanofsky v. Brooklyn Jewish Center, Inc., 265 N. Y. 634; Purkis v. Walthamstow Borough Council, 151 L. T. [N. S.] 30 [C. A. 1934].)

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

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

Judgments reversed, etc.


text:
    Peter De Coss, Appellant, v. Turner & Blanchard, Inc., Respondent.
    (Argued March 20, 1935;
    decided April 17, 1935.)

      Vine H. Smith and George C. Wildermuth for appellant.

      Patrick J. McCann and James E. Turner for respondent.
   Lehman, J.

The complaint in a negligence action has been dismissed on the ground that a prior action in the Federal court to recover for the same injuries has been dismissed on the merits and constitutes res adjudicata. in this action.

The complaint sufficiently alleges a cause of action under, the Jones Act (38 U. S. Stat. 1185; 41 U. S. Stat. 1007) for injuries sustained by the plaintiff while acting-as a longshoreman loading a vessel. The defendant is the plaintiff’s employer. The negligence alleged is that fellow-workmen in the same employ negligently handled a metal hook, causing the said hook to strike the plaintiff in the right eye. The previous action was brought to recover for the loss of the same eye in the same accident, but there the plaintiff alleged that the injuries occurred through a splinter of wood striking the eye, and the negligence alleged consisted in the failure of the employer to furnish a safe place to work. In the earlier action there was a question of fact, resolved against the plaintiff, as to whether the splinter of wood struck the eye and caused the accident. Judgment was rendered in favor of the defendant upon that issue and was affirmed by the Federal Circuit Court of Appeals on the ground that the evidence did not preponderate in favor of the plaintiff. The opinion of Judge Mantón is reported in 15 Federal Reporter (2d), page 258.

The earlier action, like this action, was brought under the Jones Act, which requires the employer to provide a safe place to work, and which permits recovery in maritime actions for negligence of fellow-employees. The two actions are for the same physical injury, and both are for negligence in causing that injury. The plaintiff could have alleged in the same complaint both specifications of negligence, but even though both forms of negligence existed, the plaintiff would have had only one cause of action for the same physical injury. Two cases, one in this State and one in the United States Supreme Court, seem to determine decisively that the first judgment constitutes a complete adjudication of the controversy. In Luce v. New York, C. & St. L. R. R. Co. (213 App. Div. 374; affd., 242 N. Y. 519, without opinion) the Appellate Division of the Fourth Department by a vote of three to two decided that a judgment in favor of a railroad in an action by an administratrix to recover under the provisions of the Federal Boiler Inspection Act for the death of her intestate is res adjudicata in an action by the same admimstratrix against the same raihoad to recover under the Federal Employers’ Liability Act for the death of the same person. Hubbs, J., wrote the prevailing opinion. Crouch, J., concurred in the dissenting opinion. I think the opinion of Judge Hubbs accurately sets forth the principles determinative of the question before us when he stated that the plaintiff could allege as many grounds of liability as she claimed. When she elected to try the case upon one of those grounds and was defeated, she was barred from maintaining another action upon another alleged ground of liability ” (p. 378). The dissenting opinion in that case leans heavily upon an earlier decision of the Supreme Court of the United States in Troxell v. Delaware, L. & W. R. R. Co. (227 U. S. 434). In that case, however, the first action was brought in a State court to recover for violation of a common law right. The second action was brought under the Federal law to recover for a statutory right of action, and the Supreme Court held that the judgment in the first cause of action was not conclusive in the second action, because the first cause of action proceeded upon an election of a common law remedy, and in fact there was no right of election, for there was no right of action under the State law. As a second ground, the court pointed out that in any case there was no identity of parties to the two actions.

In the case of Baltimore S. S. Co. v. Phillips (274 U. S. 316) the situation presented was that the plaintiff, as in this case, asserted a right of action against the defendant under one provision of the same act after he had been defeated in an action brought under another provision of the same act. The Circuit Court of Appeals (9 Fed. Rep. [2d] 902) held that the second action was not barred by judgment in the first action, again relying heavily upon the Troxell case, as did the dissenting judges in the Luce case. The Circuit Court of Appeals construéd the Troxell case as holding that a right of action brought under one statute did not bar a right of action under another statute, and pointed out that, logically, there should be no distinction between causes of action brought under separate statutes, and causes of action under separate provisions embodied in the same statute. Whether that be true or not, the United States Supreme Court reversed the Circuit Court, pointing out that the Troxell case rested upon the narrow ground that The first case was tried and decided exclusively upon the State law, under which law, as this court said, there could be no recovery for the negligence of the fellow-servants of the deceased,’ and, consequently, that ground, it was said, was not and could not be involved in or concluded by the first action, in other words, as matter of law recovery upon that ground was not open to her in the first action” (p. 323). The appellant seeks to distinguish both the Luce case and the Baltimore S. S. Co. case on the ground that in both those cases the plaintiff complained of the same acts, while here he complains of different acts, and, therefore, sets forth a different violation of his rights. That contention is completely met by the opinion of the Supreme Court in the Baltimore S. 8. Co. case, in which it is stated: A cause of action does not consist of facts, but the unlawful violation of a right which the facts show. The number and variety of the facts alleged do not establish more than one cause of action so long as their result, though they be considered severally or in combination, is the violation of but one right by a single legal wrong.”

The judgment should be affirmed, with costs.

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

Judgment affirmed.