author: Desmond, J. Conway, J.

text:
    James Benintendi et al., Appellants and Respondents, v. Kenton Hotel, Inc., Defendant, and John B. Dondero et al., Respondents and Appellants.
    Submitted January 2, 1945;
    decided April 5, 1945.

      J. Leonard Stoll for plaintiffs-appellants and respondents.
    The requirement of unanimous vote of stockholders for the election of directors and the requirement of unanimous vote of stockholders for the enactment of stockholders’ resolutions are valid. (Clark v. Dodge, 269 N. Y. 410; Driscoll v. West

      Bradley & C. M. Co. et al., 59 N. Y. 96; Nat. League of Commission Merchants v. Hornung, 72 Misc. 181; Pearlman v. Aaronson-Caplin Co., N. Y. L. J., July 12, 1940, p. 91; Carney v. Penn Realty Co., 174 App. Div. 86; Cuppy v. Ward, 187 App. Div. 625 (dis. op.); Kassel v. Empire Tinware Co., 178 App. Div. 176; Peo. ex rel. McLaughlin v. Police Comrs., 174 N. Y. 450; Sentenis et al. v. Ladew et al., 140 N. Y. 463; Matter of Pet. of N. Y., L. & W. R. R. Co., 98 N. Y. 447; Matter of the Petition of Hughes, 93 N. Y. 507; The People v. Brooklyn, F. & C. I. R. Co., 89 N. Y. 76; People of the State of N. Y. v. Quigg, 59 N. Y. 83; Phyfe v, Eimer, 45 N. Y. 102; Isham v. Buckingham, 49 N. Y. 216; Hull v. Hull, 172 App. Div. 287.)

      Jacob A. Singer and Isidore Slute for defendants-respondents and appellants.
    I. From the facts found by the trial court, it does not legally follow that a special meeting of stockholders of Kenton Hotel, Inc., was held on March 11,1941, at which special meeting it is alleged the amendments to the by-laws of the said corporation were passed. II. The amended by-laws if they exist, are invalid as a matter of law. (Matter of the American Fibre Chair Seat Corp., 265 N. Y. 416; Harris v. Magrill, 131 Misc. 380; Matter of Boulevard Theatre & Realty Co., 195 App. Div. 518, 231 N. Y. 615; Matter of Keogh, Inc., 192 App. Div. 624; Matter of Rapid Transit Ferry Co., 15 App. Div. 530; Reiss v. Levy, 175 App. Div. 938; Field v. Field, 9 Wend. 394; General Corporation Law, §§ 22, 23.) III. Section 28 of the General Corporation Law clearly provides for a requirement for by-law, such as the by-law herein, that unanimous vote of directors be required. (Levin v. Meyer, 86 Misc. 116.) IV. There is no statute which attempts to regulate or limit the right of the stockholders to fix the percentage of vote required to amend their by-laws.
   Desmond, J.

Two men who owned, in inequal amounts, all the stock of a domestic business corporation, made an agreement to vote for, and later did vote for and adopt at a stockholders’ meeting, by-laws of the corporation, providing as follows: 1. That no action should be taken by the stockholders except by unanimous vote of all of them; if, however, thirty days ’ notice of the meeting had been given, unanimous vote of the stockholders present in person or by proxy should be sufficient; 2. That the directors of the corporation should be the three persons receiving, at the annual stockholders’ meeting, the unanimous vote of all the stockholders; 3. That no action should be taken by the directors except by unanimous vote of all of them; 4. That the by-laws should not be amended except by unanimous vote of all the stockholders. The minority stockholder brought this suit to have those by-laws adjudged valid and to enjoin the other stockholder from doing anything inconsistent therewith. Special Term and the Appellate Division held that the two by-laws first above described were invalid and the other two valid. Both sides have appealed to this Court.

In striking down the by-law (No, 2 above) which requires unanimous stock vote for election of directors, Special Term properly relied upon Matter of Boulevard Theatre & Realty Co. (195 App. Div. 518, affd. 231 N. Y. 615). This Court wrote no opinion in that case. The Appellate Division had ruled, however, that a provision in the Boulevard Theatre’s certificate of incorporation requiring unanimous vote of all stockholders to elect directors, violated section 55 of the Stock Corporation Law, which says that directors shall be chosen “by a plurality of the votes at such election ”. We think it unimportant that the condemned provision was found in the certificate of incorporation in the Boulevard Theatre case, and in a by-law in the present case, or that the attack on the provision is in this case made by a stockholder who agreed to vote for it and did vote for it. In 1897 a similar by-law was invalidated in Matter of Rapid Transit Ferry Co. (15 App. Div. 530). The device is intrinsically unlawful because it contravenes an essential part of the State policy, as expressed in the Stock Corporation Law. An agreement by a stockholder to vote for certain persons as directors is not unlawful (Clark v. Dodge, 269 N. Y. 410, 415) since the directors are still, under such an agreement, elected by a plurality of votes, as the statute mandates. But a requirement, wherever found, that there shall be no election of directors at all unless every single vote be cast for the same nominees, is in direct opposition to the statutory rule — that the receipt of a plurality of the votes entitles a nominee to election.

Although not covered by the Boulevard Theatre case, or any other decision we have found, the by-law (No. 1 above) which requires unanimous action of stockholders to pass any resolution or take any action of any kind, is equally obnoxious to the statutory scheme of stock corporation management. The State, granting to individuals the privilege of limiting their individual liabilities for business debts by forming themselves into an entity separate and distinct from the persons who own it, demands in turn that the entity take a prescribed form and conduct itself, procedurally, according to fixed rules. As Special Term pointed out in this case, the Legislature, for reasons thought by it to be sufficient, has specified the various percentages of stock vote necessary to pass different kinds of resolutions. For instance, sections 36 and 37 of the Stock Corporation Law require an affirmative two-thirds vote for changing the capitalization, while section 102 of the General Corporation Law empowers the holders of a majority of the stock to force the directors to dissolve the corporation, and section 103 of that law gives the same power to holders of half the stock, if there be a deadlock on the question of dissolution. Any corporation may arrive at a condition where dissolution is the right and necessary course. The Legislature has decided that a vote of a majority of the shares, or half of them in case of a deadlock, is sufficient to force a dissolution. Yet under the by-laws of this corporation, the minority stockholder could prevent dissolution until such time as he should decide to vote for it. Those who own all the stock of a corporation may, so long as they conduct the corporate affairs in accordance with the statutory rules, deal as they will with the corporation’s property (always assuming nothing is done prejudicial to creditors’ rights). They may, individually, bind themselves in advance to vote in a certain way or for certain persons. But this State has decreed that every stock corporation chartered by it must have a representative government, with voting conducted conformably to the statutes, and the power of decision lodged in certain fractions, always more than half, of the stock. That whole concept is destroyed when the stockholders, by agreement, by-law or certificate of incorporation provision as to unanimous action, give' the minority interest an absolute, permanent, all-inclusive power of veto. We do not hold that an arrangement would necessarily be invalid, which, for particular decisions, would require unanimous consent of all stockholders. (See for instance, Ripin v. U. S. Woven Label Co., 205 N. Y. 442; Tompkins v. Hale, 284 N. Y. 675.) In Tompkins v. Hale (supra) the stockholders of a “ cooperative apartment house ” had agreed in writing that such leases could be canceled and surrendered only if all the stockholder-tenants concurred^ That is a far cry from a by-law which prohibits any nonunanimous determination on any corporate question.

The by-law numbered 3 in our list above makes it impossible for the directors to act on any matter except by unanimous vote of all of them. Such a by-law, like the others already discussed herein, is, almost as a matter of law, unworkable and unenforcible for the reason given by the Court of King’s Bench in Dr. Hascard v. Dr. Somany, 1 Freeman 503, in 1693: “ prima facie in all acts done by a corporation, the major number must bind the lesser, or else differences could never be determined ”. The directors of a corporation are a select body, chosen by the stockholders. By section 27 of the General Corporation Law, the board as such, is given the power of management of the corporation. At common law only a majority thereof were needed for a quorum and a majority of that quorum could transact business. (Ex parte Willcocks, 7 Cow. 401.) Section 27 modifies that common-law rule only to the extent of permitting a corporation to enact a by-law fixing ‘ ‘ the number of directors necessary to constitute a quorum at a number less than a majority of the board, but not less than one-third of its number.” Every corporation is thus given the privilege of enacting a by-law fixing its own quorum requirement at any fraction not less than one-third, nor more than a majority, of its directors. But the very idea of a “ quorum ” is that, when that required number of persons goes into session as a body, the votes of a majority thereof are sufficient for binding action. (See for example, Harroun v. Brush Electric Light Co., 152 N. Y. 212, as to a quorum of the Appellate Division.) Thus, while bylaw No. 3 is not in explicit terms forbidden by section 27 (supra) it seems to flout the plain purpose of the Legislature in passing that statute. We have not overlooked section 28 of the General Corporation Law, the first sentence of which is as follows: “ Whenever, under the provisions of any corporate law a corporation is authorized to take any action by its directors, action may be taken by the directors, regularly convened as a board, and acting by a majority of a quorum, except when otherwise expressly required by law or the by-laws and any such action shall be executed in behalf of the corporation by such officers as shall be designated by the board.” Beading together sections 27 and 28 and examining their legislative history (see L. 1890, ch. 563; L. 1892, ch. 687; L. 1904, ch. 737), we conclude that there never was a legislative intent so to change the common-law rule as to quorums as to authorize a by-law like the one under scrutiny in this paragraph. A by-law requiring for every action of the board not only a unanimous vote of a quorum of the directors, but of all the directors, sets up a scheme of management utterly inconsistent with sections 27 and 28.

Before passing to a consideration of the fourth disputed by-law, we comment here on a view expressed in the dissenting opinion herein. The dissenting Judges conclude that, while the two by-laws first herein discussed are invalid as such because violative of statutes, the courts, should, nevertheless, enforce as against either, stockholder the agreement made by both of them and which finds expression in those by-laws. The substance of that stockholders’ agreement "was, as the dissenting opinion says, that neither stockholder would vote his stock in opposition to the stock of the other. Each stockholder thus agreed that he would conform his opinion to that of his associate on every occasion, or, absent such accord, that neither would vote at all on any occasion. We are at a loss to understand how any court could entertain a suit, or frame a judgment, to enforce such a compact (see St. Regis Paper Co. v. Hubbs & Hastings P. Co., 235 N. Y. 30, 36; Sun P. & P. Assn. v. Remington P. & P. Co., 235 N. Y. 338, 345, re “ agreements to agree ”).

The fourth by-law here in dispute, requiring unanimity of action of all stockholders to amend the by-laws, is not, so far as we can find, specifically or impliedly authorized or forbidden by any statute of this State. Nor do we think it involves any public policy or interest. Every corporation is empowered to make by-laws (General Corporation Law, § 14, subd. 5), and by-laws of some sort or other are usually considered to be essential to the organization of a corporation. But a corporation need not provide any machinery at all for amending its by-laws — and for such an omission it could not be accused of an attempt to escape from the regulatory framework set up by law. A corporation, to function as such, must have stockholders and directors, and action and decision by both are required for the conduct of corporate business. The State has an interest in seeing to it that suph “ private laws ” or by-láws as the corporation adopts are not inconsistent with the public law and not such as will turn the corporation into some other kind of entity. But, once proper by-laws have been adopted, the matter of amending them is, we think, no concern of the State. We, therefore, see no invalidity in by-law numbered 4 abové.

The judgment should be modified in accordance with this opinion, and, as so modified, affirmed without costs.

Conway, J.

(dissenting). Three men, in 1928, agreed to form a corporation, in place of a partnership theretofore existing, in order to operate a lodging-house on the Bowery in New York City under a leasehold. The corporation was to be known as Kenton Hotel, Inc. It was provided that if agreement could not be had among them as to the contents of the Certificate of Incorporation and as to the election of officers, a partnership agreement should be executed. The three men were the plaintiff, James Benintendi, the defendant, John Dondero, and one Schiffino. Twenty-five percent of the 100 shares of capital stock was allotted to Benintendi, while the balance was equally divided between the other two.

In 1935, difficulties arose among the three over the alleged purchase by Schiffino, in his wife’s name, of a further or other lease of the hotel premises. As a result, an agreement was entered into between Benintendi and Dondero, in August, 1935', providing that neither would sell any of his stock without the other’s consent in writing but that they would use their best endeavors and resources ” to purchase the outstanding 37%% of the stock and sell to each other, as necessary, sufficient of such outstanding stock at $100 a share as would equalize their holdings in the corporation. Later, in 1940, a special meeting of stockholders was held, and Schiffino was dropped as an officer. Subsequently there were negotiations looking toward the return of Schiffino as an officer and on January 24, 1941, the three again entered into an agreement. That agreement provided, at the suggestion of Schiffino’s lawyer, that the by-laws of the corporation be amended so as to provide for unanimous action on the part of the three in substantially the language which we shall quote from the minutes of the stockholders’ meeting of March 11, 1941. Under that agreement, each of - the three was to receive one-third of the distributed income. Schiffino, on the same day, offered his stock for sale to Benintendi and Dondero. The letter containing that offer stated that if the option were not exercised, he would transfer 4 1/6 shares to Benintendi and Dondero (thus reducing his stock ownership to 33% shares) and that, in that event, the agreement as to unanimity of action should become operative and a meeting of stockholders and directors should be held to adopt the amendments of the by-laws accordingly. In July of 1941, an attorney, who represented either the corporation or Dondero, but who was called as a witness by Benintendi, exercised the option to purchase Schiffino’s stock on behalf of Benintendi and Dondero. It seems clear that the agreement of January 24, 1941, was to become effective only if Schiffino remained a stockholder. The alternative was the purchase of his stock under the option. When the option was exercised, it was on the understanding that a relative of Benintendi was to become the purchaser. That fell through and Schiffino’s stock was subsequently transferred to Dondero. Prior to that, however, the idea as to unanimity of action having been evolved by Schiffino’s lawyer, Benintendi and Dondero adopted it and agreed to evidence it by amendments to the by-laws. That was done at the meeting of March 11, 1941. In substance their agreement was that neither would vote his stock in opposition to the stock of the other and thus cause corporate action contrary to the wishes of the other. The transfer from Schiffino to Dondero, together with other transfers which we need not detail, made Benintendi the owner of one-third of the stock and Dondero the owner of two-thirds of the stock, although the agreement of August, 1935, provided that Benintendi and Dondero were to endeavor to accomplish ” an equal ownership of stock between them in the event of their purchase of the outstanding stock. In view of that the two men agreed, in addition to the amendment of the by-laws,' that Dondero should receive twice as much in salary as Benintendi and should devote twice as much time to the business.

The sale of Schiffino’s stock was effected on March 11, 1941; Benintendi and Dondero were elected directors, salaries and working hours were fixed and the by-laws were amended' as agreed.

In that setting, we shall now examine the four amendments to the by-laws. They are as follows:

“Art I. Section 4. Voting: At all meetings of the stockholders whether regular or special and whether or not in any other manner or percentage as provided by law, or regulated by statute, in general or for any specific vote, or any specific question, no resolution shall be adopted except by a unanimous vote of the stock, of the Corporation issued and outstanding. Save', however, unless at least thirty days ’ notice of the meeting, has been given by registered mail, addressed to the stockholders of record, in which event the unanimous vote of the stock present in person or by proxy shall be sufficient.”
“Art. II. Section 2. How Elected: At the annual meeting of Stockholders, the three persons receiving a unanimous vote of all the stock of the Corporation issued and outstanding shall be directors.”
“ Art II. Section 10. Voting at Meetings of the Board of Directors: No resolution .of the Corporation at any meeting, whether regular or special, shall be adopted except by the unanimous vote of the three directors duly elected as provided herein. However, should any director become incapacitated or die or absent himself from such meeting, then the two remaining directors may adopt any resolutions necessary to the carrying on of the business of the Corporation at any meeting duly called, provided that at least thirty days’ notice by registered mail, directed to the last known address of the directors of such meeting and of the resolutions to be amended and to be voted upon is given to all directors.”
“ Art. VIII. Section 1. How Amended: These By-Laws may be altered, amended or repealed by the affirmative vote of the stockholders representing all of the issued capital stock at an annual or at a special meeting called for that purpose, but provided that a written notice shall have been sent to the stockholders of record by registered mail, at his last known post office address, at least ten days before the date of such annual or special meeting, which notice shall state the alterations, amendments or changes which are proposed to be made in such By-Laws. Only such changes as shall have been specified in the notice shall be made. If, however, all the stockholders shall be present at any regular or special meeting, either in person or by proxy, then these By-Laws may be amended by a unanimous vote, without any previous notice.”

Under those by-laws, the agreement, as evidenced by the business of the corporation continued from March 11, 1941, until the receipt of a notice by Benintendi of the calling of a special meeting of the stockholders to be held on June 4, 1942, for the purpose of “ annulling ” any record of the meeting of March 11,1941, upon the ground that the Honderos had received no notice of it and were not present thereat. Thereupon, this action in equity was instituted to have the by-laws as amended declared to be valid and to enjoin the defendants Dondero from conducting any election, adopting any resolution as stockholders or directors or repealing or amending the by-laws in any manner inconsistent with the amendments adopted on March 11, 1941. The trial court found the facts in favor of plaintiffs Benintendi (James Benintendi being the legal owner of stock standing in his own name and the beneficial owner of that in his mother’s name). The question presented to us is whether the two owners of the entire stock in Kenton Hotel, Inc. (Dondero being the beneficial owner of the stock standing in his wife’s name) had the power to amend the by-laws as they did.

The owners of 100% of the stock of a corporation may do with it as they will, even to giving it away, provided the rights of creditors are not involved and the public policy of the State is not offended. (Clark v. Dodge, 269 N. Y. 410; Matter of American Fibre Chair Seat Corp., 265 N. Y. 416; Ripin v. U. S. Woven Label Co., 205 N. Y. 442, 448; Little v. Garabrant, 90 Hun 404, affd. on opinions below, 153 N. Y. 661; H. & G. M. Co. v. H. & W. M. Co., 127 N. Y. 252, 258; Rafter v. Fox Publishing Co., 238 N. Y. 567; Drucklieb v. Harris, 209 N. Y. 211; Prindiville v. Johnson & Higgins, 93 N. J. Eq. 425; Breslin v. Fries-Breslin Co., 70 N. J. L. 274; New England Trust Co. v. Abbott [Mass.], 38 N. E. 432; Tompkins v. Hale, 172 Misc. 1071, affd. 259 App. Div. 860, affd. 284 N. Y. 675.)

The general rule could be no more succinctly stated than in Matter of American Fibre Chair Seat Corp. (Lehman, J., 265 N. Y. 416, 421) (where there was unanimous stock action) as follows: " Where no rights of third parties are involved and no public policy of the State violated, the courts will give effect to the agreement of the stockholders and the corporate resolution.”

In Ripin v. U. S. Woven Label Co. (supra), the charter of the corporation provided that the number of directors should not be changed except by unanimous consent of all the stockholders and that provision was held to be a valid and binding limitation on the power of the corporation, notwithstanding the provisions of the then section 21 of the Stock Corporation Law, which declared that the number of directors might be increased or reduced by holders of a majority of the stock. The decision rested upon the express provisions of section 10 of the General Corporation Law: “ The certificate of incorporation of any corporation may contain any provision for the regulation of the business and the conduct of the affairs of the corporation, and any limitation upon its powers, or upon the powers of its directors and stockholders, which does not exempt them from the performance of any obligation or the performance of any duty imposed by law.” This, despite the fact that it was not made to appear that all of the stockholders had agreed that the number of directors should not be changed except by their unanimous consent.

In Clark v. Dodge (supra) (Crouch, J.), we said, pp. 415-416: " If the enforcement of a particular contract damages nobody — not even, in any perceptible degree, the public — one sees no reason for holding it illegal, even though it impinges slightly upon the broad provision of section 27. Damage suffered or threatened is a logical and practical test, and has come to be the one generally adopted by the courts. (See 28 Columbia Law Review, 366, 372.) Where the directors are the sole stockholders, there seems to be no objection to enforcing an agreement among them to vote for certain people as officers. There is no direct decision to that effect in this court, yet there are strong indications that ,such a rule has long been recognized. The opinion in Manson v. Curtis (223 N. Y. 313, 325) closed its discussion by saying: The rule that all the stockholders by their universal consent may do as they choose with the corporate concerns and assets, provided the interests of creditors are not affected, because they are the complete owners of the corporation, cannot be invoked here.’ That was because all the stockholders were not parties to the agreement there in question. So, where the public was not affected, ‘ the parties in interest, might, by their original agreement of incorporation, limit their respective rights and powers,’ even where there was a conflicting statutory standard. (Ripin v. U. S. Woven Label Co., 205 N. Y. 442, 448.) ” (Emphasis supplied.)

In Little v. Garabrant (90 Hun 404, opinion by Parker, J., later Ch. J. of this court, affd. on opinions below in 153 1ST. Y. 661), it was held that with the consent of all the stockholders and with no rights of creditors involved, the corporate assets might be given away. The court there said, pages 407, 408, after stating the rule and the reason for it: “As one of the results of this rule Mr. Morawetz, in his work on Corporations (§ 625), asserts that ' if the directors of a corporation apply the funds of the company to their own use, or misapply them in any manner, the excess of authority, as between the directors and the corporation, may be cured by the unanimous consent or ratification of the stockholders. ’ ”

Clearly nothing could be more against public policy or the public interest than larceny or conversion and yet unanimous consent or ratification validates even such acts.

Despite that power of 100% of the stockholders, they may not write into a certificate of incorporation nor adopt in by-laws provisions contrary to applicable statutes. Since corporations are creatures of statute, their charters and by-laws must conform to the will of the creating power. (Ripin v. U. S. Woven Label Co., supra; Matter of Boulevard Theatre & Realty Co., 195 App. Div. 518, affd. 231 N. Y. 615; Lorillard v. Clyde et al, 86 N. Y. 384.) For that reason we think that the amendments to article I, section 4, and article II, section 2, were beyond the power of the stockholders since they contravene General Corporation Law, sections 102 and 103, and Stock Corporation Law, sections 35-c, 36, 55, 86-b, 105-c.

The amendment to article II, section 10, appears to be proper under General Corporation Law, sections 27 and 28. Those sections are in part as follows and show clearly by the portions we have italicized that the amendment was permissible:

“ 27. Directors ; qualifications ; powers of majority.
“ The business of a corporation shall be managed by its board of directors, all of whom shall be of full age and at least one of whom shall be a citizen of the United States and a resident of this state. Unless otherwise provided a majority of the board at a meeting duly assembled shall be necessary to constitute a quorum for the transaction of business and the act of a,majority of the directors present at such a meeting shall be the act of the board.' The by-laws may fix the number of directors necessary to constitute a quorum at a number less than a majority of the board, but not less than one-third of its number. * * * .” (Emphasis supplied.)
“ 28. Acts oe dieectoes.
“ Whenever, under the provisions of any corporate law a corporation is authorized to take any action by its directors, action may be taken by the directors, regularly convened as a board, and acting by a majority of a quorum, except when otherwise expressly required by law or the by-laws and any such action shall be executed in behalf of the corporation by such oEcers as shall be designated by the board. Any business may be transacted by the board at a meeting at which every member of the board is present, though held Avithout notice.” (Emphasis supplied.)

The amendment to article VIII, section 1, is not forbidden by any statute.

The question is then presented whether the agreement between the parties as to the manner in which they would vote their stock may be specifically enforced through the injunctive process of an equity court in forbidding a breach of it by Dondero even though validity may not be accorded to the first two attempted amendments. We think it may. Benintendi and Dondero agreed together as to the manner in which they would vote their respective stock interests. To implement their agreement they chose a method forbidden by statute. The agreement, however, was valid without the method chosen. Both of the parties have lived up to and under that agreement for more than a year. We granted specific performance of an agreement in Clark v. Dodge (supra), to vote for a single-named director — certainly a more drastic limitation upon the power of a stockholder than the limitation here.

^ In New England Trust Co. v. Abbott (supra), the court dealt with a by-law assented to by all of the stockholders. In upholding it as a binding Contract, the court said: “ The defendant . contends that these by-laws are void. We have not found it necessary to consider that question, and we express no opinion upon it. We think that the case may well stand on the ground that the defendant’s testator entered into an agreement with the plaintiff to do what the plaintiff now seeks to compel his executor to do. It is manifest that a stockholder may make a contract with a corporation to do or not to do certain things in regard to his stock, or to waive certain rights, or to submit to certain restrictions respecting which the stockholders might have no power of compulsion over him. In Adley v. Whitstable Co., 17 Ves. 315, 322, Lord Eldon says:‘ It has been frequently determined that what may well be made the subject of a contract between the different interests of a partnership would not be good as a by-law. For instance, an agreement among the citizens of London that they would not sell except in the markets of London would be good; yet it has been declared.by the legislature that a by-law to that effect is void.’ See also, Davis v. Proprietors, etc,, 8 Metc. (Mass.) 321; Bank of Attica v. Manufacturers’ & Traders’ Bank, 20 N. Y. 505; 6 Cook, Stocks & S. § 408.”

_ We think that the emphasis should be placed upon the fact that-this is an appeal to the equity power of the court. That power may be invoked in a proper case to ameliorate the rigors or rigidity of the law. Equity ofttimes alleviates hardship and prevents injustice in a specific case where the law is unable to do so since it' speaks in terms of general rules. The distinction was well pointed out in Breslin v. Fries Breslin Co. (supra), (a case involving 100% stock action), as follows: In the eye of the law corporations are entities separate and distinct from their constituent members and not bound by the individual acts of the latter. The law deals with the corporation as an artificial person. Equity realizes that this legal entity is but a legal fiction; looking through the form it discerns the substance. It finds that a stock corporation is in essence an aggregation of individuals, a statutory partnership with assignable membership and limited liability of the members, and so the doctrine of equitable estoppel applies fully to all the internal concerns of stock companies. Saving so far as public policy and the interests of creditors and other third parties are concerned (none of which is involved in the present case), 'the stockholders may bind themselves inter sese and in favor of the corporation by their own acts and agreements, and what will bind all the stockholders, with respect to an obligation from the company to one of its members, will bind the company as such.”

There are here no rights of creditors involved. A totality of stockholders may agree among themselves as to how they shall or shall not vote shares of stock owned by them. They may by agreement waive or relinquish as between themselves statutory rights where such waiver or abandonment is not contrary to the public interest. There is here no question of public policy. The State does not need the assistance or leadership of Dondero in vindicating its public policy. That statement is but a paraphrase of the words of Gummere, Ch. J., in Prindiville v. Johnson & Higgins (supra), although in a different situation as follows:

“ * * * Stated, shortly, his position is this: Having for some eight years participated in the carrying out of this fraudulent scheme and reaped the benefits thereof, he now seeks, either for his own personal benefit or as the self-constituted representative of the state, to have this fraudulent scheme ended and our state laws and policies vindicated.
“ So far as the vindication of our laws and policies is concerned, it is enough to say that the state does not need his aid for any such purpose, and that his assumed status as a representative of the state cannot be recognized..
“ If we consider him as a mere individual, seeking to repudiate for his own personal advantage a fraud upon the state in which he was so long a participant, it is entirely settled that the court of chancery is not open to him for any such purpose. * * * ”

The order should be modified in accordance herewith, with costs to the plaintiffs in the Appellate Division and in this court.

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

Judgment accordingly.


source: Caselaw Access Project

author: Lehman, Ch. J.

license: Public Domain

text:
    Aura Baldwin, as Administratrix of the Estate of Charles H. Wiltsie, Appellant, v. L. R. Powell, Jr., et al., as Receivers of Seaboard Air Line Railway, Respondents.
    Argued February 21, 1945;
    decided April 5, 1945.

      Benjamin Levin for appellant.
    I. A foreign administrator may sue in our courts' for the death of his intestate which occurred in another State. (Wikoff v. Hirschel, 258 N. Y. 28; Richards v. Wright, 139 Misc. 316; Matter of Peltier, 157 Misc. 97; Matter of von Kauffmann, 167 Misc. 83; Travelers Ins. Co. v. Padula Co., 224 N. Y. 397; Matter of Meng, 227 N. Y. 264; Neuberger v. Hart, 266 App. Div. 612; Jongebloed v. Erie R. R. Co., 180 Misc. 893, 266 App. Div. 960; Sutila v. New York Central R. R. Co., 180 Misc. 561; Florida East Coast Railroad Co. v. Hayes, 67 Fla. 101; Jacksonville Electric Co. v. Bowden, 54 Fla. 461; Cen. N. Y. Coach Lines v. Syracuse Herald Co., 277 N. Y. 110; Florida Gen. & P. R. Co. v. Sullivan, 120 F. 799; Reilly v. Antonio Pepe Co., 108 Conn. 436.) II. This action should be permitted under the doctrine of comity. (Hilton v. Guyot, 159 U. S. 113; Loucks v. Standard Oil Co., 224 N. Y. 99; Murray v. N. Y., O. & W. R. R. Co., 242 App. Div. 374; Dickinson v. Jones, 309 Pa. 256.)

      William R. McDermott for respondents.
    I. Plaintiff as foreign administratrix has no legal capacity to bring this action. (Petersen v. Chemical Bank, 32 N. Y. 21; Johnson v. Wallis et al., 112 N. Y. 230; Hopper v. Hopper, 125 N. Y. 400; McMaster v. Gould, 240 N. Y. 379; Helme v. Buckelew, 229 N. Y. 363; Wikoff v. Hirschel, 258 N. Y. 28; Kirkbride v. Van Note, 275 N. Y. 244; Matter of Killough, 148 Misc. 73.) II. Section 130 of the Decedent Estate Law does not confer upon this plaintiff, a foreign administratrix, the right to sue in the courts of this State for the alleged wrongful death of her intestate which occurred in the State of Florida. (Whitford v. The Panama Railroad Company, 23 N. Y. 465; Wooden v. W. N. Y. & P. R. R. Co., 126 N. Y. 10; Johnson v. Phœnix Bridge Co., 197 N. Y. 316; Matter of Meng, 227 N. Y. 264; Diatel v. Gleason, 22 F. Supp. 355; Rejsenhoff v. Colonial Nav. Co., 35 F. Supp. 577; Florida East Coast Railway Co. v. Hayes, 67 Fla. 101; Jacksonville Electric Co. v. Bowden, 54 Fla. 461.) III. Under the doctrine of comity, New York is not required to give plaintiff access to its courts. (McMaster v. Gould, 240 N. Y. 379; Pennoyer v. Neff, 95 U. S. 714.)
   Lehman, Ch. J.

The plaintiff, as administratrix of the estate of Charles H. Wiltsie, appointed by the Probate Court for the District of New Haven, State of Connecticut, where the deceased resided, has brought an action in the State of New York for damages to the estate of the deceased, resulting from his death ' in a collision within the State of Florida between a freight train and a passenger train, on which the deceased was employed as a conductor by the Pullman Company. The plaintiff alleges that the collision was caused solely by the negligence of the defendants who, as receivers of a railroad company, organized within the State of Florida, operated both trains. The defendants moved for judgment dismissing the complaint “ pursuant to Buie 106 of the Rules of Civil Practice, upon the ground that it appears on the face of the complaint that the plaintiff has not legal capacity to sue in that she is the administrator of a deceased appointed under and pursuant to the laws of the State of Connecticut ”.

The law of the place where the wrong causing death occurred “ governs the right of action for death.” (Restatement, Conflict of Laws, § 391.) The Decedent Estate Law provides in. broad terms that ‘ ‘ The executor or administrator duly appointed in this state, or in any other state * * * of a decedent who has left him or her surviving a husband, wife, or next of kin, may maintain an action to recover damages for a wrongful act, neglect or default, by which the decedent’s death was caused * * * ” (§ 130); but this statutory provision applies only to actions brought for damages for a wrong committed here causing the death of a person. (Whitford v. The Panama Railroad Company, 23 N. Y. 465; Johnson v. Phoenix Bridge Co., 197 N. Y. 316; Loucks v. Standard Oil Co., 224 N. Y. 99.) A right of action for the death of a person, which is created by another State where the wrong causing death was committed, may ordinarily be enforced in this forum even though the remedy provided in the statute creating the right of action may be different from the remedy provided in the death statute of New York. (Loucks v. Standard Oil Co. [supra]; Restatement, Conflict of Laws, § 392.) We have said that: “ When a statute creates a liability and prescribes the person who shall have the right to enforce it, the latter is as component a part of the statutory right of action as is the former. The right of the specified person to maintain the action and his existence is as integral in the right of action as the liability of the defendant.” (Matter of Meng, 227 N. Y. 264, 277.) An action for death caused by wrongful act in Florida may be enforced here by the person designated in the death statute of the State of wrong and a person so designated in the statute of the State of wrong may sue in any State, at least if the person so designated is qualified to sue under the law of the forum. We must, therefore, look to the Florida death statute to determine who is the person designated to enforce the cause of action and to the law of New York to determine whether such person is qualified to sue in the courts here.

The Florida statute provides that a death action “ shall be brought by and in the name of the widow or husband, as the case may be, and where there is neither widow nor husband surviving the deceased, then the minor child or children may maintain an action; and where there is neither widow nor husband, nor minor child or children, then the action may be maintained by any person or persons dependent on such person killed for a support; and where there is neither of the above classes of persons to sue, then the action may be maintained by the executor or administrator, as the case may be, of the person killed.” (Florida Statutes 1941, §§ 768.01, 768.02.) If the plaintiff’s intestate had left him surviving a wife, minor child or person dependent upon him, one of them would have been the person designated in the statute to sue upon the cause of action for his death and such person could have sued in any other State either personally, or if incompetent or a minor, by another person qualified by the law of the State to bring an action in his or her behalf. (Restatement, Conflict of Laws, § 394.) Since no person designated by the death statute of Florida survives, the right of action must be enforced by the representative of the person killed and the question presented upon this appeal is whether the representative of the person killed, appointed by the State in which the deceased resided, has legal capacity to sue here.

The general rule is that a foreign administrator is without standing in our courts (Helme v. Buckelew, 229 N. Y. 363, 365).” (Wikoff v. Hirschel, 258 N. Y. 28, 31.) It has been said that “ If the death statute of the state of wrong provides that suit for the death shall be brought by the personal representative of the deceased, recovery can be had only by a person qualified to sue at the forum as personal representative of the deceased.” (Restatement, Conflict of Laws, § 396.) The death statute of New York, like the death statutes of many other jurisdictions, follows the pattern set by Lord Campbell’s Act in England and, though designating the executor or administrator of the person killed as the one to sue upon the right of action for his death, provides that the action is brought for the benefit of the widow or next of kin. It has been held in some jurisdictions that because the executor or administrator does not in such case sue for the general estate he may be regarded as a statutory trustee for designated beneficiaries and as such is qualified to bring suit in other forums where a representative of the person killed suing for the benefit of his general estate would have no standing. (See Diatel v. Gleason, 22 F. Supp. 355, 356; Goodrich on Conflict of Laws, pp. 210, 211, and eases there cited.)

We have pointed out that under the death statute of New York “ the proceeds of a recovery are held, not as general assets of the estate, but subject to a special trust.” (Davis v. N. Y. C. & H. R. R. R. Co., 233 N. Y. 242, 246.) We have heretofore left open the question whether a foreign administrator suing for the benefit of a designated person or group of persons to recover damages for the death of a decedent .is- within the general rule “ that.a foreign administrator is without standing in our courts * * * or may be regarded, if so constituted by the law of the state of the injury, as a special statutory trustee, privileged to sue any where. (Am. L. Inst. Conflict of Laws, Restatement No. 4, § 432, and cases cited in the explanatory notes; Goodrich, Conflict of Laws, pp. 210, 211).” (Wikoff v. Hirschel, 258 N. Y. 28, 31, 32.) (Italics are new.) That question is not presented in this case. The proceeds of a recovery in this case would be held as general assets of the estate and would not be “ subject to a special trust.” (F. E. C. Ry. Co. v. Hayes, 67 Fla. 101; Jacksonville Electric Co. v. Bowden, 54 Fla. 461.)

The plaintiff in this case is a foreign administratrix suing for damages for the general estate of the deceased and has not been constituted by the law of the State of injury a special statutory trustee. She is for that reason without standing in the courts of this State in accordance with the general rule. We decide no other question. Decision of the question left open in Wikoff v. Hirschel (supra) must be postponed till a case is presented where the plaintiff is a foreign administrator suing for the benefit of specified persons.

The judgment should be affirmed, with costs. (See 294 N. Y. 840.)

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

Judgment affirmed.


text:
    Sigismond J. Stojowski et al., as Assignees of Bank Polski, Respondents, v. Banque de France, Defendant. John J. McCloskey, Jr., as Sheriff of the City of New York, Appellant. (Two Actions.)
    Argued February 26, 1945;
    decided April 5, 1945.

      Sidney Posner, A. G. Grayzel, Harry Katz and Jacob J. Sachs for appellant.
    I. Restoration of the gold sued for in consideration of discontinuance of the actions and dissolution of the attachments constituted a settlement under subdivision 2 of section 1558 of the Civil Practice Act and poundage is to be computed under such subdivision. (Pritchard v. The Bank of California, 51 Barb. 184; Bruskin v. Diamond Trading Co., 182 Misc. 444; Morowitz v. Dadourian Export Corp., 179 Misc. 373; Green River Distilling Co. v. Mass. B. & Ins. Co., 234 N. Y. 109; Esselstyn v. Union Surety & Guaranty Co., 82 App. Div. 474; Matter of Dempsey v. Lynch Co., Inc., 175 Misc. 710, 261 App. Div. 829; Lawlor v. Magnolia Metal Co., 2 App. Div. 552, 149 N. Y. 591; Watts, Watts & Co. v. Unione Austriaca etc., 248 U. S. 9; Riddell v. Fuhrman, 233 Mass. 69; The Pietro Campanella, 47 F. Supp. 374; The Santa Lucia, 44 F. Supp. 793; Buxbaum v. Assicurazioni Generali, 34 N. Y. S. 2d 480, 264 App. Div. 855.) II. The Sheriff earned his poundage upon making, the levies and thereby acquired a vested right to receive poundage computed under the statute in force at that time. (Buxbaum v. Assicurazioni Generali, 175 Misc. 785; Civ. Prac. Act, § 917, subd. 2; § 1558; Miller v. Miller, 108 App. Div. 310; Jones v. Gould, 114 App. Div. 120; Martin v. Berwick, 142 N. Y. S. 470; Prahl Construction Corporation v. Jeffs, 126 Misc. 802; Wilkinson v. Raymond, 80 App. Div. 378; In re Cowen Hosiery Co., 286 F. 351, 264 U. S. 426; Lawlor v. Magnolia Metal Co., 2 App. Div. 552, 149 N. Y. 591; Barron v. Tart, 18 Ala. 668; United States v. Heth, 3 Cranch 399; Matter of Miller, 231 App. Div. 684.) III. The 1943 amendment (L. 1943, ch. 523) to subdivision 2 of section 1558 of the Civil Practice Act does not in terms apply to antecedent levies, nor may it be construed to apply retroactively to such levies and thereby divest the Sheriff of poundage earned thereon. (Buxbaum v. Assicurazioni Generali, 175 Misc. 785; Addiss v. Selig, 264 N. Y. 274; People v. Cohen, 245 N. Y. 419; Matter of Berkovitz v. Arbib & Houlberg, 230 N. Y. 261; Cameron et al. v. N. Y. & M. V. W. Co. et al., 133 N. Y. 336; Village of Champlain v. McCrea, 165 N. Y. 264; People v. N. Y. C. & H. R. R. R. Co., 156 N. Y. 570; Close v. Noye, 147 N. Y. 597; Hastings v. Byllesby & Co. [Granberry], 293 N. Y. 413; United States v. Heth, 3 Cranch 399; N. Y. & Oswego M. R. R. Co. v. Van Horn, 57 N. Y. 473; People ex rel. Wood v. Denton, 41 App. Div. 386; People ex rel. Jackson v. Potter, 47 N. Y. 375.) IV. If applied retroactively, chapter 523 of the Laws of 1943 is special legislation, local in effect, which is invalid because not enacted in accordance with section 11 of article IX, and section 8 of article IX, of the State Constitution. (Matter of Mayor, etc., of New York [Elm St.], 246 N. Y. 72; Schieffelin v. McLaughlin, 127 Misc. 56; Schieffelin v. Kelliher, 125 Misc. 305, 215 App. Div. 770; People ex rel. Fallon v. Wright, 150 N. Y. 444; Matter of Winkler v. Sheriff of Queens County, 256 App. Div. 770.) V. If applied retroactively, the statute bestows a gift of the city’s money upon respondents in violation of the provisions of section 1 of article VIII, of the State Constitution. (People ex rel. Rodgers v. Coler, 166 N. Y. 1; Stemmler v. Mayor, etc., of New York, 179 N. Y. 473; Bush v. Board of Supervisors, 159 N. Y. 212; Matter of Green, 166 N. Y. 485; Matter of Ramon Giuteras, 122 Misc. 523, 214 App. Div. 722.) VI. If applied retroactively, the statute deprives the City of New York through its officer, -the Sheriff,' of a vested right to poundage in violation of section 6 of article T of the State Constitution. (Miller v. Miller, 108 App. Div. 310; Benson v. The Mayor, etc. of New York, 10 Barb. 223.)

      John Foster Dulles and Frank J. Berberich for respondents.
    I. The situation is squarely covered by subdivision 18 of section 1558 of the Civil Practice Act, pursuant to which poundage is $10,175. (Esselstyn v. Union Surety & Guaranty Co., 82 App. Div. 474; Matter of Dempsey v. Lynch Co., Inc., 175 Misc. 710, 261 App. Div. 829.) II. Subdivision 2 of section 1558 can in no event be applicable, because, on the facts there has been no “ settlement ”. (Barrett v. The Third Avenue R. R. Co., 45 N. Y. 628.) III. If there were a “ settlement ” and if subdivision 2 of section 1558 were applicable, then the poundage formula would be that prescribed by chapter 523 of the Laws of 1943, since (a) that is the clear intent of that law; (b) there is no constitutional obstacle to giving effect to that intent. (Murdoch v. Grifenhagen, 100 Misc. 252, 182 App. Div. 919, 229 N. Y. 528; Philippine Vegetable Oil Co. v. Pitou, 105 Misc. 634, 189 App. Div. 899; Campbell v. Cothran, 56 N. Y. 279; Flack et al. v. The State of New York, 95 N. Y. 461; Plummer v. International Power Co., 88 App. Div. 452; Matter of Barker, 230 N. Y. 364; Conner against The Mayor, &c. of New York, 5 N. Y. 285; McGrath v. Grout, 171 N. Y. 7; City of New York v. Village of Lawrence, 250 N. Y. 429; Finn v. City of New York, 282 N. Y. 153; Howard et al. v. Moot, 64 N. Y. 262.)
   Lehman, Ch. J.

The plaintiffs, as assignees of the Bank of Poland instituted in 1941 two identical actions to recover damages for the alleged conversion by the Bank of France of gold of the value of $64,000,000 which belonged to the Bank of Poland. In those actions the Sheriff of the City of New York levied warrants of attachment against the property of the defendant Bank of France. The Bank of France appeared in the actions and answered the complaints. On March 22, 1944, the actions were discontinued without costs and the warrants of attachment and - the levies thereunder were vacated by orders of the Supreme Court, entered upon the stipulation of the attorneys of the parties and the consent of the Sheriff. The orders provide “ that the poundage fee of- the Sheriff of the City of New York, in an amount to be hereafter judicially determined or to be hereafter agreed upon between the plaintiffs and the Sheriff, be paid by the plaintiffs herein.” Thereafter the plaintiffs moved in each action for an order “ fixing $10,175 as the amount of poundage fee due to be paid * * *- to the said Sheriff in respect of the attachments ” in the two actions, and the Sheriff moved in each action for an order fixing $640,681.41 as the amount of the poundage fee to be paid by the plaintiffs in respect to the attachments. The motions of the plaintiffs were granted and the motions of the. Sheriff were denied by separate orders which were unanimously affirmed by the Appellate Division. The Sheriff has appealed to this court by permission of the Appellate Division from the orders of affirmance.

The fees of a sheriff are regulated by, and must be fixed in accordance with, the provisions of section 1558 of the Civil Practice Act. At the time the actions were begun and at the time the levies were made that section provided in subdivision 2:

“ If the action is settled either before or after judgment, the sheriff is entitled to poundage upon the value of the property attached, not exceeding the sum at which the settlement is made ”.

Subdivision 18 of the same section, as amended by chapter 264 of the Laws of 1941, in effect when the actions were instituted, provides that: “ In all counties where a levy has been made under a warrant of attachment and the warrant of attachment is vacated or set aside by order of the court, the sheriff is entitled to poundage upon the value of the property attached not exceeding the amount specified in the warrant, and such additional compensation for his trouble and expense in taking possession and preserving the property as the judge issuing the warrant allows, and the judge or court may make an order requiring the party at whose instance the attachment is issued to pay the same to the sheriff; and when said attachment has been otherwise discharged by order of the court, he shall be entitled to the poundage aforesaid and to retain the property levied upon until his fees and poundage are paid by the party at whose instance the attachment is discharged; provided that if a warrant of attachment is vacated or set aside by order of the court, the maximum amount upon which poundage shall be computed shall be one million dollars even though the value of the property attached shall exceed such amount.”

Before the motions were made to fix the amount of the poundage fees payable to the Sheriff, subdivision 2 was amended to provide that the ‘1 maximum amount upon which such poundage shall be computed shall be one million dollars even though the value of the property attached shall exceed that amount.” (L. 1943, ch. 523.) The dffect of the amendment is to impose the same limitation upon the amount of the fees payable under subdivision 2 as the Legislature had previously imposed upon the amount of fees payable under subdivision 18 where the warrant is vacated or set aside.

The Sheriff contends that the actions were settled ” within the meaning of subdivision 2 of section 1558 and that under that settlement the Bank of Poland recovered the gold which the plaintiffs alleged in their complaints was converted by the Bank of France and that the poundage fees 'must therefore be computed on the value of that gold. The Sheriff contends, too, that the amendment made in 1943 to subdivision 2 was not intended to apply on the computation of the poundage fee payable upon a levy made before the amendment took effect and that if intended to apply to such a levy the amendatory statute would be unconstitutional. The plaintiffs on the other hand contend that since the warrants of attachment and the levies made thereunder were vacated and set aside by order of the court,” the poundage fees must be computed in accordance with the provisions of subdivision 18 upon the maximum amount of one million dollars ” as provided by that subdivision at the time the levies were made; but that even if the court should hold that subdivision 2 governs, the computation of fees must be made subject to the same limitation though that limitation was imposed by a statute enacted after the levies were made.

The circumstances are not in dispute which induced the attorneys for the parties to enter into a stipulation providing for the entry of orders discontinuing the actions and vacating the warrants of attachment and the levies made thereunder. Cases and bags containing 1,830,018.3 ounces of fine gold of the value of $64,050,641.30 belonging to the Bank of Poland were in France in May, 1940. The plaintiffs in their complaints in the actions begun in 1941 in behalf of the Bank Polski, hereinafter referred to as Bank of Poland, alleged that these cases and bags were delivered in May, 1940, to Banque de France, hereinafter referred to as Bank of France, for shipment to the United States or Canada and were converted by Bank of France. In its answers served in September, 1942, the Bank of France denied that the cases and bags containing gold were " ever at any time delivered to the defendant ” or that “ any agreement was ever concluded between Bank Polski and the defendant whereunder any such gold was to be delivered to the defendant.” In November, 1942, the Bank of France doing business in France, then under control of Germany, became an “ alien enemy ” of the United States. Because of its status as an “ alien enemy ” the New York attorneys for the defendant could not thereafter communicate with it. Though under the Trading with the Enemy Act (U. S. Code, tit. 50, Appendix) these attorneys could still defend the actions against the “ enemy alien,” their authority did not extend beyond such defense, nor could the alien enemy ’ ’ enter here into a binding agreement even if it had conferred upon its attorneys plenary power to represent it.

At the time the plaintiffs began these actions in behalf of the Bank of Poland, they had information that the cases and bags containing the gold belonging to that bank had been shipped from Paris to prevent its seizure by the Germans and had arrived at the sea coast of France on June 9, 1940, and were shipped on a French vessel from there to Dakar, in West Africa. The controversy was upon the question whether such shipment constituted a conversion of the gold by Bank of France. In the Spring of 1943, the French Committee of National Liberation, which then was the de facto governmental authority in French West Africa and was recognized as such authority by the United States, British and Polish governments and which collaborated with the United Nations, informed the Bank of Poland that cases and bags presumably containing the gold were still in French West Africa and were under the control of the Committee. The Committee recognized that the gold which had been sent to West Africa was the property of the Bank of Poland and was prepared “ in principle ” to permit the Bank of Poland to repossess itself of its own property. The Bank of Poland was willing to discontinue its actions against the Bank of France for conversion of its gold if it regained possession of the gold. The Bank of France had made no claim to the gold and indeed, as we have said, had denied that the gold had ever been delivered to it. It had no control of the gold found in French West Africa and its consent was not necessary to perfect the title of Bank of Poland to its gold or to give effect to any agreement which might be made between Bank of Poland and the French Committee of National Liberation for the delivery of the gold by the Committee to Bank of Poland. Its consent to a discontinuance of the actions would, however, be important if the rights of the parties were to be restored to the same position as before the actions . were brought; and the attorneys authorized to defend the actions were willing to consent to a discontinuance upon such terms and had the power to give such consent. The French Committee of National Liberation desired that the pending actions be thus discontinued when the Bank of Poland regained possession of its property and so did the Bank of Poland. Accordingly an agreement was made at Algiers in December, 1943, between the Bank of Poland and the French Committee of National Liberation which provided that the French Committee of National Liberation undertakes to deliver the cases of gold to the Bank of Poland and the Bank of Poland undertakes on its side “to bring about termination by discontinuance of the law suits which have been instituted in the United States against the Bank of France with reference to the cases in question. The conditions of this discontinuance are to be such that, on the one hand, it will take effect on delivery of the cases and, on the other hand, as a consequence of said delivery, all the Incidents of the lawsuits will disappear and in particular there will not survive for the Bank of France any blocking of its assets or any loss except the expenses of its lawyers.” The attorneys for the Bank of France then signed the stipulation that the actions be discontinued without costs to either party as against the other.

We find in these undisputed facts no basis for a conclusion that the actions between the assignees of Bank of Poland and the Bank of France have been “ settled ” and that the value of the gold delivered by the French Committee of National Liberation to the Bank of Poland is a “ sum at which the settlement is made.” The term sum at which the settlement is made ” can refer only to money or other benefit received as the result of an agreement of the parties determining the controversy between them. Here, the controversy between Bank of Poland and Bank of France was upon the question whether the Bank of France had wrongfully dealt with gold which belonged to Bank of Poland. There was, as we have said, no controversy about the ownership of the gold. The Bank of France made no claim to it. It denied only that it had wrongfully meddled with it and that it was responsible for its loss. The lost gold when found in French West Africa was delivered to Bank of Poland not because the Bank of France agreed to its delivery but because the French Committee of National Liberation, exercising authority in that territory and having control of the gold, recognized the title of the Bank of Poland and was willing to deliver the gold to its rightful owner. True, Bank of Poland agreed with the Committee that upon such delivery the pending actions should be discontinued, and the consent of the Bank of France to the discontinuance of the actions removed an obstacle which otherwise might have blocked the delivery of the gold to its owner by the French Committee; but Bank of France was not and could not be consulted as to whether the delivery should be made; did not and could not lawfully agree that the gold should be delivered and did not and could not lawfully agree to the settlement of the controversy between it and Bank of Poland. Since the actions though discontinued were not settled by agreement of the parties and since the gold was delivered to Bank of Poland by agreement with the Committee, acting as a governmental authority and not as agent of Bank of France, the gold received by Bank of Poland is not the sum at which the settlement is made ’’ within the meaning of subdivision 2 and the fee of the Sheriff cannot be computed under that subdivision.

Even if the poundage fees were computed as provided in that subdivision, the limitation imposed by chapter 523 of the Laws of 1943 would apply to the levies made herein. The statute in express terms provides that it “ shall be applicable to all actions and proceedings now pending as well as to all actions and proceedings hereafter commenced ” and the plain intent of the Legislature would be thwarted by a construction which would exclude from its scope levies previously made in pending actions. Nor do we find any restriction in the Constitution which would render the statute invalid when applied to levies previously made. The Sheriff in making a levy under a warrant of attachment exercises a governmental function conferred upon him by the State (Finn v. City of New York, 282 N. Y. 153) and the fees payable for the exercise of that function belong not to him, but to the city as a governmental agency. The amount of the fees to which the Sheriff might be entitled for the performance of his official duties could not be fixed while the actions were pending and undetermined by judgment, order, or agreement. The right of the State to relinquish or change an inchoate right to fees payable to a governmental officer or to a civil subdivision of the State cannot be challenged on the ground that it violates the mandate of the Constitution that the State may not deprive a person of property without due process or that it impairs the obligation of a contract. (Robertson v. Zimmermann, 268 N. Y. 52, and cases there cited.)

The Legislature in the amendatory statute has placed a limit upon the fees payable to a sheriff in circumstances,, where in its opinion, such fees would otherwise be unreasonably large. Even if it be true that in no county outside of the City of New York, and perhaps in no county except the County of New York, has a levy been made in a pending action for which the fees payable to the Sheriff exceed the permitted limit, yet the statute applies to the fees of every Sheriff and in every part of the State whenever the Sheriff would otherwise be entitled to fees which exceed that limit, and it is plain that such a statute is general both in terms and in effect.

The orders should be affirmed, with one bill of costs.

Loughran, Lewis, Conway, Desmond, Thacher and Dye, JJ., concur.

Orders affirmed, etc.


author: Loughran, J.

text:
    In the Matter of the Application of Frederick B. Huxley, Respondent, for a Stay of Arbitration Proceedings. Reiss & Bernhard, Inc., Appellant.
    Argued March 5, 1945;
    decided April 12, 1945.

      Joseph Joffe for appellant.
    I. The broker was authorized to make a contract providing for arbitration. II. Because of his conduct the seller is estopped from denying authority of the broker to execute “ bought ” and “ sold ” notes with the arbitration clause in them. (Matter of Tanenbaum Textile Co. v. Schlanger, 287 N. Y. 400; Murray v. Cunard Steamship Co., 235 N. Y. 162; Matter of Exeter Manufacturing Co. v. Marrus, 254 App. Div. 496; 1 Williston on Contracts [Rev. ed], §§ 90a, 90b; Restatement, Agency, §§ 35, 36, 43, 49.) III. The contract made by the broker is binding on the seller because of the custom and practice in the industry. (Krstovic v. Van Buren, 235 N. Y. 96; 3 Williston on Contracts [Rev. ed.], §§ 653, 661.) IV. The broker’s notes constituted the contract between the seller and the buyer. (Newberry et al. v. Wall, 84 N. Y. 576; Childs v. Riley Co., 186 App. Div. 775; Cohen-Hall-Marx Co. v. Psaki, 169 N. Y. S. 72; Salmon v. Berg, 37 N. Y. S. 2d 985, 266 App. Div. 951; Comptoir Commercial D’Importation v. Zabriskie, 127 Misc. 461; Gravenhorst v. Turner, 215 App. Div. 617; Bache v. Bankograph Co., Inc., 120 Misc. 44; Avondale Mills v. Benchley Bros., 244 Mass. 153; Bibb v. Allen, 149 U. S. 481; Wood v. Lovett, 313 U. S. 362; Colonial Operating Corp. v. Hannan Sales & Service, 265 App. Div. 411; Matter of Kramer & Uchitelle, Inc., 288 N. Y. 467; Matter of Kahn & Feldman, Inc. [Rothschild], 290 N. Y. 781; Matter of Tanenbaum Textile Co. v. Schlanger, 287 N. Y. 400.) V. The contracts of the parties required them to arbitrate. (Matter of Lipman [Haeuser Shellac Co.], 289 N. Y. 76; Matter of Kahn [National City Bank], 284 N. Y. 515.) V. The determination whether there was a modification of the contracts made by the broker is not for the court but is a matter which must be submitted to the arbitrators. (Matter of Lipman [Haeuser Shellac Co.], 289 N. Y. 76; In re Pahlberg Petition, 131 F. 2d 968; Goldhill Trading & Shipping Co., etc., v. Caribbean Ship Co., 56 F. Supp. 31.)

      W. Ray Converse for respondent.
    I. The broker was not authorized to make a contract providing for arbitration. II. The broker’s notes did not constitute a contract between buyer and seller. (Poel v. Brunswick-Balke-Collender Co., 216 N. Y. 310; Friedman & Co. v. Newman, 255 N. Y. 343; Matter of Tanenbaum Textile Co. v. Schlanger, 287 N. Y. 400; Metropolitan Life Ins. Co. v. Childs Co., 230 N. Y. 285; Payne v. Burnham et al., 62 N. Y. 69.) III. No one is under a duty to resort to arbitration unless by clear language he has so agreed. (Matter of Lehman v. Ostrovsky, 264 N. Y. 130.) IV. If the broker’s notes constituted a contract just as they stood it was an absolutely void contract. (Matter of Kramer v. Uchitelle, Inc., 288 N. Y. 467; Matter of Kahn & Feldman, Inc. [Rothschild], 290 N. Y. 781.)
   Loughran, J.

Transactions in respect of a sale of merchandise are the subject matter of the controversy. The parties are the seller and the buyer. The dispute concerns the quality of the goods. The present proceeding is one which the seller brought for a stay against a demand by the buyer for arbitration of their differences. Whether there exists a valid antecedent contract for arbitration thereof is the question for decision. After trial at an Equity Term, the court found that no such agreement was in force and thereupon the seller’s application for a stay was granted. In that disposition of the matter, the Equity Term was affirmed by a judgment of the Appellate Division from which the buyer has appealed to this Court.

This state of the record requires us first to notice a point in respect of our jurisdiction. Section 1467 of the Civil Practice Act says: “ An appeal may be taken from an order made in a proceeding under this article [Article 84 — the arbitration statute] or from a judgment entered upon an award." (The emphasis is ours.) In this instance no award was made. Hence the judgment of the Appellate Division had no warrant in the statute. There is in the record, however, a final order of that court in which the provisions of its judgment are duplicated. We treat this order as the paper appealed from and thereby bring ourselves.to the merits. (Cf. Matter of Bunting, 288 N. Y. 388.)

The affair in issue was negotiated by a corporate merchandise broker employed for the purpose by the seller. Over its signature, this broker supplied to the parties statements of its handling of the matter which they retained without comment. The material items of the statement received by the seller (which bore the label “ Sold Note ”) were these: “ Sold to Reiss & Bernhard, Inc. [the buyer] * * * For account of F. B. Huxley & Son [the seller] * * * Terms net cash payable on receipt of invoice. Swell guarantee %% ILNS * * * If incorrect please advise immediately * * * Quantity 1000 cs. Article 6/10 Fancy cut beets * * * Price 3.72 doz. * * * < Any controversy or claim arising out of or relating to this contract or the breach thereof, shall be settled by arbitration, in accordance with the rules then obtaining, of the Association of Food Distributors, Inc., New York, and judgment upon the award rendered may be entered in the highest court of the forum, state or federal, having jurisdiction.’ Seller to conform with National Pure Food Laws. This memorandum shall be subordinate to more formal contract when and if such contract is executed. In the absence of such contract this memorandum represents the contract of the parties,” The statement received from the broker by the buyer was a “ Bought Note ” wherein the same particulars were recited.

After the receipt by the parties of these statements of the broker, the seller transmitted to the buyer and to the broker other writings which in the material parts thereof are exemplified by the following specimen: “ Reiss & Bernhard [the buyer] * * * To B. F. Huxley & Son [the seller] Dr. * * * 1000 cases 6/10 Cut Beets 500 doz. 3.72 $1860. Less % of 1% swells 4.65. $1855.35 * * * Conditions of Sale * * * 1%% discount allowed if invoice is paid within ten days of date of invoice * * * Swells guaranteed only six months after delivery * * * Other claims of whatever kind must be made five days after receipt of goods * * * No allowance will be made for goods lost or damaged in transit * * *.” These writings from the seller were held by the buyer without dissent therefrom.

In that condition of things. the goods were delivered and paid for.

The foregoing, we believe, is an adequate statement of the fact situation. The main contest is upon this issue: Did the documents which the broker delivered to the parties (with the provision therein for arbitration) constitute the contract of sale, with the result that the buyer’s demand for arbitration was justified; or, did the writings which thereafter went forth from the seller to the buyer annul such earlier documents (arbitration clause and all), with the result that the buyer cannot prevail, since a contract for arbitration of a future dispute must be in writing? (See Civ. Prac. Act, § 1449).

The documents which the broker delivered to the parties were bought and sold notes — instruments which have long been used in the marketing of commodities through merchandise brokers. Pour forms of these notes have been recognized. (4 Amer. & Eng. Ency. of Law [2d ed.] 751.) The first (which was employed in the present case) is one in which the broker professes to act for both parties whose names are disclosed in the notes. An acceptance by the parties of bought and sold notes of that type makes a contract in the terms thereof, inasmuch as thereby each party admits that the broker was his agent in the transaction. (Benjamin on Sale [7th ed.], 293-294.) The bought and sold notes in question were still in the possession of the parties when the goods were delivered and paid for. Under such circumstances, these notes necessarily became a contract binding upon the buyer and seller respectively. (Newberry et al. v. Wall, 84 N. Y. 576; Childs v. Riley Co., 186 App. Div. 775. See Remick v. Sanford, 118 Mass. 102.)

We inquire, then, as to the effect of the writings from the seller which the buyer retained after the bought and sold notes had become operative. The Equity Term said that these later writings operated in law to nullify the arbitration clauses contained in the documents issued by the broker.” Upon that proposition, we are of the opposite opinion.

At the top of each of these later writings, the buyer is described by the seller as being indebted to him — the seller — and next comes a statement of the quantity and price of the merchandise. This much was no more than a bill rendered. The “ Conditions of Sale ” (which were printed on the reverse side) did indeed make reference to something which is not mentioned in the bought and sold notes, viz: 1 y2% discount allowed if invoice is paid within ten days of date of invoice. ” Even so, this new item is accounted for by uncontradicted expert testimony in this phrase: “ One and one-half percent is the customary canned goods discount.” But beyond all this, the seller was a business man who must be presumed to have known what was essential to a valid contract (Newberry et al. v. Wall, 84 N. Y. 576, 581); hence it is most significant that his so-called conditions of sale made neither provision nor place for any signature by the buyer — whose confirmation as the party to be charged was necessary to the validity of a contract of sale under the Statute of Frauds. (Personal Property Law, § 85.) Clearly, as we think, these later writings of the seller were at best mere invoices which did not affect the earlier bought and sold notes in any way. (See Matter of Tanenbaum Textile Co. v. Schlanger, 287 N. Y. 400.)

The orders should be reversed and the proceeding dismissed, with costs to the appellant in all courts.

Lehman, Ch. J., Lewis, Conway, Desmond, Thacher and Dye, JJ., concur.

Orders reversed, etc.


author: Thacher, J. Conway, J.

text:
    Milton J. Bach, as Ancillary Committee of the Estate of William Nagle, an Incompetent, Appellant, v. John Nagle, Respondent.
    Argued March 5, 1945;
    decided April 12, 1945.

      Selig Dresner and Milton J. Bach, in person, for appellant.
    I. An interpretation which sanctions retention by the beneficiary of disability payments for his own use and not for the benefit of the insured results in. an unfair advantage to the respondent, never intended by the insured or the insurance company. (Donahue v. New York Life Ins. Co., 259 N. Y. 98; Gray v. Prudential Insurance Co., 267 App. Div. 688, 268 App. Div. 755; Wokal v. Belsky, 53 App. Div. 167; Cohen v. Hancock Mutual Life Ins. Co., 135 App. Div. 776; Thompson v. Prudential Insurance Co., 119 App. Div. 666; Ruoff v. John Hancock Mut. Life Ins. Co., 86 App. Div. 447; Sinclair v. Purdy, 235 N. Y. 245.) II. A trust in favor of the incompetent insured results from receipt of disability payments by the beneficiary. (Wood v. Duff-Gordon, 222 N. Y. 88; Sinclair v. Purdy, 235 N. Y. 245; Restatement, Trusts, ch. 12, vol. 2, pp. 1244-45 ; 3 Story on Equity, § 1663; New York Trust Co. v. Black, 178 App. Div. 4, 223 N. Y. 703; Matter of Littman, 165 Misc. 285; Matter of Connolly, 71 Misc. 388.)

      Louis W. Osterweis for respondent.
    I. The construction given to the disability clause by the courts below, is proper and just, and carries out the obvious purpose which the insured intended to accomplish. (Dunn v. New Amsterdam Casualty Co., 141 App. Div. 478; McGrail v. Equitable Life Assurance Society of the U. S., 292 N. Y. 419; Hewit Pharmacies, Inc., v. Ætna

      Life Ins. Co., 148 Misc. 663, 241 App. Div. 781, 267 N. Y. 31; Houlihan v. Preferred Accident Ins. Co., 196 N. Y. 337; Foulds v. New York Life Insurance Co., 256 App. Div. 834; Tarasowski v. Prudential Insurance Co., 113 Misc. 248; Howell v. John Hancock Mut. Life Ins. Co., 286 N. Y. 179.) II. A trust in favor of the incompetent does not result from the receipt of the disability payments by the beneficiary.
   Thacher, J.

This action was brought by the committee of an incompetent person against the incompetent’s brother for a judgment declaring that disability benefits received and to be received by the brother, as the beneficiary named in a life and disability insurance policy issued to the incompetent, are for the use and benefit of the incompetent.

The policy in question was issued by the New York Life Insurance Company in 1923 for the face amount of five thousand dollars. The beneficiary designated at that time was Virginia K. Nagle, the wife of the insured, William Nagle. The policy provided that the insured might at any time and from time to time change the beneficiary and this he did on May 31, 1929, naming his brother, the defendant, -John Nagle, who is now the designated beneficiary. This change was the voluntary act of the insured.

The policy contained the following disability provisions: ‘ ‘ And the Company Agbees to Pay to the I'nsubbd One per cent of the face of this policy ($10 per $1,000) each month during the lifetime of the insured and also to waive the payment of premiums, if the insured becomes wholly and permanently disabled before age 60, subject to all the terms and conditions contained in Section 1 hereof. * * * 2. Income "Payments. The Company will pay the Insured, or if such disability results from insanity will pay the beneficiary in lieu of the insured, a monthly income of one per cent of the face of the Policy during the lifetime of the Insured and the continuance of such disability.”

After having designated his brother as the beneficiary, and before attaining the age of sixty, the insured became totally and permanently disabled by reason of insanity within the meaning of the policy, and in accordance with its terms the New York Life Insurance Company has paid to the defendant disability benefits of fifty dollars a month since May, 1938. It is alleged that the incompetent’s brother has used none of these payments for the benefit or in behalf of the insured except the sum of $270 and has retained the balance to his own use and benefit and intends to continue to use future monthly benefits to be received by him for his own use and benefit. The complaint contains the folloAving conclusory allegations relating to the plaintiff’s contention: “ Seventeenth: Disability benefits due under the terms of the policy of insurance are for the sole use and benefit of the insured, and for the benefit of no other person Eighteenth: The defendant, John Nagle, has no interest in and to the disability benefits due under the policy, except the right conferred upon him to receive payments of disability benefits ‘ in lieu of the insured ’.”

Upon these allegations plaintiff demands judgment declaring that the disability benefits were received by the defendant for the use and benefit of the incompetent; that the defendant, by retaining benefits received by him in accordance Avith the terms of the policy of insurance, has become unjustly enriched, and that the defendant account .for and pay over to the plaintiff benefits heretofore received or hereafter to be received.

There is nothing in the policy, or in any circumstances alleged, to support the conclusory allegations quoted above that the disability benefits due under the terms of the policy are for the sole use and benefit of the insured and that the defendant has no interest therein. There is no suggestion in the policy, nor any possible implication from any circumstances alleged, that these payments were intended for the use and benefit of the incompetent or that the defendant should be under any legal obligation so to use them. The payments directed in the policy are absolute and unqualified by any suggestion of a fiduciary relationship. Not even precatory words are used and the policy simply provides that such benefits, when disability arises from insanity, are to be paid to the beneficiary. Nor is any fiduciary relationship between the parties alleged in derogation of which it might be said that these benefits have been used. Indeed, if we assume — as we must — that the insured read the policy, it cannot be doubted that it was his purpose that the beneficiary should receive payment of the disability benefits -without direction as to their use. Aside from the conclusory allegations quoted above, there is not a word in the complaint even to suggest a basis for concluding that the insured did not intend to give his beneficiary full power to do as he pleased with the payments he has received and will receive.

We are constrained to conclude upon the bare allegations of this complaint that, although in some other setting circumstances might be imagined which could give rise to a trust affecting such payments, it is entirely clear that no such circumstances are here alleged and that the complaint was properly dismissed. The judgment should be affirmed, without costs.

Conway, J.

(dissenting). In 1923, William Nagle, then of sound mind, procured a policy of life insurance, with disability benefits, from the New York Life Insurance Company. At that time, he designated his wife as beneficiary. In 1929, he made his brother the beneficiary instead. In 1937, he was judicially declared to be mentally incompetent by a probate court in Ohio and a guardian of his property appointed.

The policy contained the following two provisions respecting disability benefits payable thereunder:

“ And the Company Agrees to Pay to the Insured One per cent of the face of this policy ($10 per $1,000) each month during the lifetime of the insured and also to waive the payment of premiums, if the insured becomes wholly and permanently disabled before age 60, subject to all the terms and conditions contained in Section 1 hereof ’ ’
2. Income Payments. The Company will pay the Insured, or if such disability results from insanity will pay the beneficiary- in lieu of the Insured, a monthly income of one per cent of the face of the Policy during the lifetime of the Insured and the continuance of such disability.”

The defendant brother of the incompetent has received, since May of 1938, the sum of $3,650 in monthly payments of $50 each from the insurance company, and will continue to receive those sums during the continuance of the existing disability of the insured. He has retained those sums for his own use and benefit, except for the sum of $270 expended for the incompetent, and purposes to continue to receive future monthly payments and to retain them for his own personal advantage. For that reason, upon the petition of the domiciliary guardian in Ohio, the plaintiff in this action has been appointed ancillary committee of the estate of the incompetent in New York, and has brought this action to have it determined whether the disability benefits received and to be received were for the use and benefit of the incompetent, whether the defendant, by retaining the disability benefits already received by him, has become unjustly enriched and, if that be found to be so, that he be called upon to account for them and to pay them over to the ancillary committee.

We think it quite clear that under the allegations of the complaint, and they must be taken as true for the purpose of our decision, that a'court of equity may impose either a resulting or a constructive trust upon the disability benefits received by the defendant.

The distinction between constructive and resulting trusts is well expressed in the Restatement of Restitution, section 160 b, as follows: “ b. Constructive trust and resulting trust. A constructive trust is also to be distinguished from a resulting trust. A resulting trust arises where a transfer of property is made under circumstances which raise an inference that the person making the transfer or causing it to be made did not intend the transferee to have the beneficial interest in the property transferred. A constructive trust is imposed not because of the intention of the parties but because the person holding the title to property would profit by a wrong or would be unjustly enriched if he were permitted to keep the property. ’ ’ (Emphasis supplied.) (For similar definitions see Pomeroy, Equity Jurisprudence, Vol. 1, § 155; Bogert, Trusts and Trustees, § 451.)

It would seem clear from the facts surrounding the transaction here that the incompetent intended at the time he took out the insurance that the disability payments should be used for his own benefit, even if by reason of insanity he were unable .to accept payments directly from the insurance company. The fact that there is no allegation of such intent in the complaint is not of moment. It may be presumed from the circumstances. The incompetent is now unable to tell what his intent was when he accepted the policy. The insurance company prepared the contract, and it seems fair to assume from the language of the policy, as we shall indicate presently, that it was to facilitate payment for the benefit of the one suffering the disability without the loss of time which might occur if payments had to wait upon an application, by someone of unknown identity at the time the policy was written, for the appointment of a com* mittee of the property of the incompetent. It was to enable the disabled one to have aid and care promptly. In any event, a court may readily determine the incompetent’s intention from the internal evidence disclosed in the contract of insurance. We must presume that when he accepted the policy he was of sound mind and that the contract into which he had entered was the result of the reasoning of a normal mind. He was protecting his beneficiary by life insurance for which he agreed to pay premiums, but was providing an income for himself in the event of total disability, and paying an extra premium for that. He agreed with the company that in the event of disability it would pay him a monthly income, but that, if the disability came about because ol insanity, it would pay the beneficiary “ in lieu of the insured ” the monthly income. Since the policyholder was then sane, a court should have no difficulty in determining that the insured intended that the money was to be used for his own care and protection. To determine otherwise would require a finding that the insured intended that it he were sane and disabled he should have an income, but that if he became insane he should be thrown upon the community without income while the payments by the insurance company, for which he had paid through the years, should go to support someone else. The very wording of the clause itself gives rise to the interpretation that a trust relationship was intended. It provided that: “ The Company will pay the Insured, or if such disability results from insanity will pay the beneficiary in lieu of the insured, a monthly income * * * ” (emphasis supplied). The words “ in lieu of ” mean “ in place of ” (lieu is derived from the latin, locus; 21 Words and Phrases, p. 473). While no cases have been found involving similar facts, reasonable interpretation here requires that we hold that someone standing “ in the place of ” the incompetent means someone taking his place for his benefit. Thus we give a meaning to all of the words in the sentence. The holding below it seems to us gives a construction which makes the applicable portion of the sentence read instead: “ * * * or if such disability results from insanity, will pay the beneficiary, a monthly income.”

' We think the circumstances of this case come well within the definition of resulting trust, again from the Restatement (Restatement of Trusts, Vol. 2, ch. 12, pp. 1244-5) as follows: “ A resulting trust arises where a person makes or causes to be made a disposition of property under circumstances which raise an inference that he does not intend that the person taking or holding the property should have the beneficial interest therein and where the inference is not rebutted and the beneficial interest is not otherwise effectively disposed of. Since the person who holds the property is not entitled to the beneficial interest, and since the beneficial interest is not otherwise disposed of, it springs back or results to the person who made the disposition or to his estate, and the person holding the property holds it upon a resulting trust for him or his estate.”

Even if it be thought that the inference discussed be not a permissible one, certainly equity may impose a constructive trust upon the moneys received by the defendant. The disabled incompetent and the benfieciary defendant are brothers. That without more, and there is no answer interposed, under the circumstances presented here, is sufficient to set a court of equity in motion ”. The general principle was well delineated in the dissenting opinion in Fraw Realty Co. v. Natanson (261 N. Y. 396, 412): “ Ordinarily men do not trust their property to strangers without at least requiring some evidence that the stranger is holding for them. Where there is blind trust there is usually a prior existing relationship which explains the confidence; but wherever under cover of á relationship of confidence, however created, there has been enrichment of one party, a court of equity should interpose its powers to remedy the wrong. Myriad are the circumstances which may give rise to such relationship. The parties may be united by blood, family affection, close friendship or business relations. Reputation and standing in the community may provide the element of confidence which might otherwise not be found in previous personal relations. However the relationship may have arisen, where a party accepts property knowing that it is intrusted to him because of the confidence which another places in him, there is a relationship of confidence, abuse of which should not be tolerated hy a court of equity.”

The defendant has been unjustly enriched and it is.unconscionable for him to retain the payments for his own use. In Beatty v. Guggenheim Exploration Co. (Cardozo, J., 225 N. Y. 380, 386) we saidA constructive trust is the formula through which the conscience of equity finds expression.” A similar statement, to be found in Story, Equity Jurisprudence, Volume 3, section 1663, is: “ One of the most common cases in which a Court of Equity acts upon the ground of implied trusts in invitum is where a party has received money which he cannot conscientiously withhold from another party.” We think this is clearly such a case.

The judgment should be reversed, with costs and the motion to dismiss the complaint denied,

Lehman, Ch. J., Loughran, Lewis and Desmond, JJ., concur with Thacher, J.; Conway, J., dissents in opinion in which Dye, J., concurs.

Judgment affirmed.


author: Dye, J.

text:
    Thaddeus Winnowski et al., Appellants, v. Joseph T. Polito, Respondent. Frank Witko et al., Appellants, v. Joseph T. Polito, Respondent.
    Argued January 11, 1945;
    decided April 12, 1945.

      John T. De Graff and William F. Conway for appellants.
    I. Whether the defendant’s son had permission to drive the defendant’s automobile presented only a question of fact which the trial court resolved in the plaintiff’s favor. It was, therefore, error for the court below to reverse the judgments on the law. (Zuckerman v. Parton, 260 N. Y. 446; Houlihan v. Selengut, 263 App. Div. 811.) II. Defendant was personally negligent in leaving his automobile in an unsafe, dangerous and illegal manner and this negligence was a proximate cause of the injuries to plaintiffs. (Tierney v. New York Dugan Bros., Inc., 288 N. Y. 16; Connell v. Berland, 223 App. Div. 234, 248 N. Y. 641.)

      Arthur B. Lanphier for respondent.
    I. Plaintiffs failed to prove negligence by a fair preponderance of the evidence. (Galbraith v. Busch, 267 N. Y. 230; Spreen v. McCann, 264 N. Y. 546.) II. Even assuming that the car was parked in violation of a statute, the violation of the statute was not the proximate producing or contributing cause of the accident and, therefore, no liability can be placed upon defendant, on account of the position in which the car was parked (Senchack v. Sterling, 252 App. Div. 894; Walter v. Bond, 45 N. Y. S. 2d 378, 267 App. Div. 779, 292 N. Y. 574.) III. The liability of the owner is dependent upon legal use or operation in business or otherwise with permission, or consent. (Fuegel v. Coudert, 244 N. Y. 393; Atwater v. Lober, 133 Misc. 652; Ferris v. Sterling, 214 N. Y. 249; Piwowarski v. Cornwell, 273 N. Y. 263; St. Andrassy v. Mooney, 262 N. Y. 368; Tierney v. New York Dugan Bros., Inc., 288 N. Y. 16.) IV. Defendant’s automobile was driven without his knowledge, consent or permission. (Yablonowitz v. Korn, 205 App. Div. 440; St. Andrassy v. Mooney, 262 N. Y. 368.) V. Nor were the bringing of the car to a stop, the leaving of the keys in the car and the fact that the car was in gear the proximate producing or contributing causes of the accident. (St. Andrassy v. Mooney, 262 N. Y. 368; Walter v. Bond, 45 N. Y. S. 2d 378, 267 App. Div. 779, 292 N. Y. 574.)
   Dye, J.

These companion actions which were tried together but never consolidated, arose simultaneously and are for the injuries sustained by the plaintiffs Harriet Winnowski and Nora Witko and the damages to their respective husbands for medical expenses and loss of services when the defendant’s automobile driven by his fourteen-year-old son ran on the sidewalk and struck them.

The plaintiffs had recovered judgments in the City Court of Albany which were affirmed upon appeal by the Albany County Court. Later, upon appeal to the Appellate Division, third department, the judgments were reversed and the complaints dismissed on the ground that the prima facie cases created by the presumption of authorized use with owner’s permission (Vehicle and Traffic Law, § 59) had been overcome, when the defendant, his wife and the infant driver each testified that no permission to drive on this or any other occasion had been given, but that, on the contrary, the boy had been expressly forbidden to drive the car at any time. (St. Andrassy v. Mooney, 262 N. Y, 368.) This testimony was not contradicted for the very good reason that the plaintiffs were not in a position to do so. The trial court, weighing this testimony of the vitally interested witnesses in the light of all the circumstances, came to the conclusion that the statutory presumption of implied permission was not overcome. In so doing he was well within his prerogative as the trier of the facts. (Piwowarski v. Cornwell, 273 N. Y. 226.)

Here, the defendant double parked his automobile on a busy thoroughfare in a shopping district in the city of Albany, opposite another car which was between it and the curb. At the same time, he left the key in the ignition switch, the gears enmeshed and the front wheel turned toward the curb. With him at the time was his wife and fourteen-year-old son. The defendant and his wife then got out of the car and went into a nearby store leaving the boy sitting in the rear seat. During their, absence the boy moved to the front seat taking a position behind the steering wheel. He testified that while thus sitting, a policeman directed him, notwithstanding his protest that he could not drive and did not have an operator’s license, to move the car to an open space at the curb. He thereupon released the brake, stepped on the starter, and the car, being in gear, ran over the curb, striking the plaintiffs, who, at that moment, were walking along the sidewalk. The policeman alleged to have given the directions to move the car was not called as a witness.

While it is not easy to formulate a universally applicable definition as to the meaning of implied permission mentioned in the statute, it must be recognized as a basic proposition that when one leaves his motor vehicle in a busy street in such a position that a reasonably prudent person should anticipate that in the event of an emergency or other necessity, it must be moved, it imposes upon the owner responsibility for the negligent acts of the person left in charge.

The judgments of the Appellate Division should be reversed and the actions remitted to the Appellate Division for determination upon the questions of fact raised in that court, with costs in this court and in the Appellate Division to abide the event.

■ Loughran, Lewis, Conway, Desmond and Thacher, JJ., concur; Lehman, Ch. J., dissents.

Judgment accordingly.