author: Kellogg, J.

text:
    The People of the State of New York ex rel. Levy Brothers Realty Company, Appellant, v. William E. Walsh et al., Constituting the Board of Standards and Appeals of the City of New York, Respondents.
    (Argued April 10, 1931;
    decided May 12, 1931.)

      Sidney A. Clarkson, Albert A. Hovell and H. W. McChesney for appellant.
    The action of the Board of Standards and Appeals in upholding without variation the order of the five commissioner was an abuse of the power of the Board and was unlawful and arbitrary. (Matter of Reed v. Board of Standards & Appeals, 255 N. Y. 126; People ex rel. Fordham M. R. Church v. Walsh, 244 N. Y. 280; Matter of Larkin v. Schwab, 242 N. Y. 330; People ex rel. Aeon Realty Co. v. Walsh, 229 App. Div. 774; People ex rel. Simlan Realty Corp. v. Walsh, 229 App. Div. 774; People v. Hewitt, 229 App. Div. 774.)

      Arthur J. W. Hilly, Corporation Counsel (Vine H. Smith and J. Joseph Lilly of counsel), for respondents.
    The cigar and candy stand and other articles referred to in the order of the fire department clearly constitute a fire hazard and a violation of rule 10 of the Board of Standards and Appeals. (People v. Hewitt, 229 App. Div. 774; People ex rel. Aeon Realty Co. v. Walsh, 229 App. Div. 774; People ex rel. Simlan Realty Corp. v. Walsh, 229 App. Div. 774.)
   Kellogg, J.

The plaintiff is the owner of a twelve-story building of fireproof construction, situate in New York city and extending through from West Thirty-eighth street on the south to West Thirty-ninth street on the north. A hallway, bounded on the east by the easterly wall of the building, and on the west by a partition wall, separating the hall from rooms to the west, runs directly through the building, and provides an entrance at each street. The framework of three elevator shafts projects from the easterly wall seven and one-half feet into the hallway; a telephone booth, and stairways, affording entrance to the upper floors, likewise project a similar distance. Immediately south of the elevator framework is a room occupied by a tenant who sells electric light bulbs; immediately south again is a room occupied as a cigar stand. These rooms project into the hallway an equal distance with the elevator shafts. All these projections, extending to the same line, narrow the hallway as it passes them, to a width of six feet and two inches. The upper stories of the building are occupied by factory workers at times numbering more than a thousand men and women. Entrance to their places of work, and exit therefrom, must be gained through the use of the hallway thus narrowed.

Rule 10 of the Board of Standards and Appeals, entitled “ Storage of Combustible Materials within Factory Stairway Enclosures,” provides as follows: “ In all factory buildings no articles or wares of any nature shall be kept or stored inside the limits of any stairway enclosure or unenclosed stairway, or on the landings, platforms or passageways connected therewith.” On June 3, 1927, the Fire Commissioner of the City of New York served a notice on the plaintiff which reads as follows: “Remove all articles and wares from stair-hall east side, 1st story (Cigar stand and electrician booth) as per Rule 10 of the Board of Standards and Appeals adopted February 23rd, 1927.” It will be seen that the order was not directed against the structures enclosing the cigar stand and the electric light shop, but against the contents of these enclosures, to cause their removal. The order was not within the rule unless the articles ordered removed were stored in a “ stairway enclosure or unenclosed stairway” or “on the landing, platforms or passageways connected therewith.” Certainly the places of storage were not a “ stairway,” a “ landing ” or a “ platform.” They were not “ passageways ” unless these rooms may be regarded as part and parcel of the hallway.

Neither the electrical room nor the room used as a cigar stand were temporary booths placed on the floor of the hallway. Each was a room with four sides; each had been built when the building was first erected; each formed an integral part of the permanent construction of the building. The electrical shop was entered from the front by a doorway equipped with a plate glass door to close it; light entered through three plate glass sashes on the hallway side, one of which might be opened and shut. The cigar stand room was entirely enclosed by partitions, except for a doorway, to which a door was fitted, and an opening over a counter, three feet high, which at night was covered with wooden shutters. We are of the opinion that these enclosures had the distinctive character of rooms; that they constituted no part of the hallway; that the articles contained therein were not stored in “ passageways ” to staircases; that the order of the Fire Commissioner was not within rule 10 and was unauthorized.

The order should be reversed and the determination of the Board of Standards and Appeals annulled, with costs in this court and in the Appellate Division.

Cardozo, Ch. J., Pound, Crane, Lehman, O’Brien and Hubbs, JJ., concur. '

Order reversed, etc.


source: Caselaw Access Project

author: Pound, J.

license: Public Domain

text:
    In the Matter of Frank C. Delaney, as Receiver of the S. D. Fruit & Produce Co., Inc., Respondent. The Bank of the United States, Appellant.

      (Argued April 8, 1931;
    decided May 12, 1931.)

      Joseph F. Hunter, Joseph R. Margulies, Warren C. Fielding, H. Louis Jacobson and Carl J. Austrian for appellant.
    Section 168 of the General Corporation Law may not be validly construed to vest title retroactively in the receiver, to property not in the possession of the bank nor owing by it to the debtor corporation, at the time either of commencement of the sequestration action or the appointment of the receiver. The receiver took only such title as the corporation had at the time of his appointment and qualification. (People v. Community

      Live Poultry Corp., 127 Misc. Rep. 396; Pittsburgh Carbon Co. v. McMillin, 119 N. Y. 46; Hubbard v. Lewis, 128 App. Div. 416; Wilcox v. National Shoe & Leather Bank, 67 App. Div. 466; Rump v. Van Rensselaer, 138 App. Div. 289; People v. U. S. Stationery Co., 24 Misc. Rep. 535; Matter of Chauncey, 191 App. Div. 389.) The Special Term was without constitutional power to summarily try and adjudicate the disputed indebtedness of the bank to the debtor. (Kenney v. South Shore Natural G. & F. Co., 201 N. Y. 89; Rump v. Van Rensselaer, 138 App. Div. 289; 1 White on Corporations, 525; High on Receivers, § 454; Hubbard v. Lewis, 128 App. Div. 416.) The order appealed from cannot be sustained under section 170 of the General Corporation Law. (People v. Community Live Poultry Corp., 127 Misc. Rep. 396; Kantor Brothers v. Wile, 93 Misc. Rep. 438; Rosenberg v. Gamma Chapter, 133 Misc. Rep. 624; 5 Remington [3d ed.], §§ 2170, 2350; Matter of Roman, 23 Fed. Rep. [2d] 556.)

      Frank C. Delaney and Abner M. Heggen for respondent.
    The bank balance of the judgment debtor was property and an asset of the corporation. (Attorney-General v. Atlantic Mut. Life Ins. Co., 100 N. Y. 279; Raymond v. Security Trust Co., 44 Misc. Rep. 31; 101 App. Div. 546; Matter of Woven Tape Skirt Co., 12 Hun, 111; Decker v. Gardner, 124 N. Y. 334.) The debtor’s chose in action, represented by its credit balance with the appellant, was preserved against extinction by the mutual agreement of appellant and its depositor by virtue of the injunction that the appellant should not make or suffer any other disposition of property belonging to the judgment debtor. (People v. Community Live Poultry Corp., 127 Misc. Rep. 396; Matter of Boucker Contracting Co. v. Callahan Contracting Co., 218 N. Y. 321; Gen. Corp. Law, § 150.) The court at Special Term was justified in directing that the bank balance be summarily turned over to the respondent. (Kenney v. South Shore Natural

      Gas & Fuel Co., 201 N. Y. 89; Rump v. Van Rensselaer, 138 App. Div. 189; Hubbard v. Lewis, 128 App. Div. 416.)
   Pound, J.

This is a proceeding under General Corporation Law (Cons. Laws, ch. 23), section 170, instituted by the receiver of the property of the S. D. Fruit & Produce Co., Inc., to recover assets of the corporation from The Bank of United States. The bank has been ordered to pay over to the receiver $2,243.33, which was the amount of á deposit account of the insolvent corporation on September 13, 1929, although on the date of the appointment of the receiver the corporation had no moneys on deposit in the bank.

The history of the case is as follows: Yanow Finance and Mortgage Company obtained a judgment against S. D. Fruit & Produce Co., Inc., for $201. Execution was issued thereon and proceedings supplementary to execution were instituted in September, 1929. A third party order was obtained for the examination of The Bank of United States which contained the usual injunction forbidding the bank to make any disposition of any property belonging to the judgment debtor “ until further order in the premises.” No examination was had under the order but an affidavit was made on behalf of the bank in lieu thereof to the effect that the bank was indebted to the judgment debtor “ in a sum sufficient to pay the judgment * * * and that such amount is being held until further order in the premises.”

The problem then arose as to the proper method of collecting this sum. A judgment creditor may maintain proceedings supplementary to execution against a corporate judgment debtor, but no receiver may be appointed in such proceedings for his benefit. It is contrary to the policy of our law to appoint a receiver of the property of a domestic corporation for the preferential advantage of a vigilant judgment creditor. A receiver should be appointed under the provisions of the General Corporatian Law in sequestration proceedings to act for the benefit of all creditors. (Matter of Boucker Co. v. Callahan Co., 218 N. Y. 321.)

Such being the case, the judgment creditor was compelled to look for other remedies than the appointment of a receiver in its proceedings supplementary to execution. What remedies are provided? We must first consider that the relation between a bank and its depositors is that of debtor and creditor. The money deposited with the bank belongs to the bank and is not the property of the depositor. The property of the depositor is the indebtedness of the bank to it. (Baldwin’s Bank v. Smith, 215 N. Y. 76.) The debt might have been satisfied under Civil Practice Act, section 792, before the appointment of a receiver under an order permitting the payment of the debt to the sheriff. No such order was obtained and no such payment could be compelled, although under Civil Practice Act, section 792, the delivery of tangible personal property may be compelled. (Kenney v. South Shore N. G. & F. Co., 201 N. Y. 89, 92; cf. Capitol City Surety Co. v. DeLuxe Sightseeing Co., 133 Misc. Rep. 750; Rosenberg v. Gamma Chapter, 133 Misc. Rep. 624.)

The judgment creditor then brought sequestration proceedings, under General Corporation Law, section 168, which resulted in the appointment of a receiver in March, 1930. Title to all the property of the corporation vested in the receiver, when he qualified, as of the date of his appointment. “Upontheir qualification * * * title * * * shall vest in them,” says the section. Title did not “ extend back by relation ” (Civ. Prac. Act, § 810) as in the case of receivers appointed in proceedings supplementary to execution. (Matter of Jensen Co., 128 N. Y. 550.)

The language of the two sections is in marked contrast. The purpose of the two proceedings differs. The proceedings supplementary to execution are “ for the benefit of the judgment creditor in whose behalf the special proceeding was instituted.” (Civ. Prac. Act, § 810.) Sequestration proceedings are for the benefit of all creditors alike. Preference is the aim of one; equality of the other.

The receiver then began a second proceeding against the bank under section 170, General Corporation Law, but the bank had then paid out the entire amount of the deposit on the checks of the depositor, including the $201 held by it subject to the order of the court in the proceedings supplementary to execution.

When title to the property of the corporation vested in the receiver in the sequestration proceedings, what property had the insolvent corporation in the bank deposit, the amount thereof having been entirely withdrawn? Property is anything that may be the subject of ownership. (General Const. Law; Cons. Laws, ch. 22, §§ 38, 39, 40.) The bank deposit of the judgment debtor had been its property, i. e.., a chose in action. The receiver took title thereto, if at all, subject to any defense which would be good against the insolvent corporation itself. (Pittsburg Carbon Co. v. McMillin, 119 N. Y. 46, 53.) If the judgment debtor had sued the bank to recover its deposit on the day before the receiver was appointed the bank’s defense would have been complete. A summary proceeding will not lie to compel payment of a deposit to the depositor, neither will it lie to compel payment to the receiver of the depositor. The court will not summarily order a bank to pay a depositor’s check nor will it order the payment of a debt to the receiver of an insolvent corporation in a proceeding under General Corporation Law, section 170, although a bank might, and ordinarily would, be permitted to pay the debt to the receiver and thus reheve itself of further liability.

Nevertheless, the bank on this showing has been ordered summarily to pay, not only the amount which it held for the benefit of the judgment creditor in the proceedings, supplementary to execution, but the whole amount of the deposit.

The order is erroneous. The bank was restrained only from paying out so much of the deposit as would pay the judgment in that action and it was not in contempt or in default when it paid out the remainder of the deposit to its depositor. (Cf. Hubbard v. Lewis Co., 128 App. Div. 416.) It could not in this proceeding be summarily brought to book for the payment to the judgment debtor, in disregard of the order in the proceedings supplementary to execution, of the amount which should have been held to pay the judgment against it. The amount so held did not, by reason of the injunction order, cease to be a debt and become tangible property like a roll of silver dollars held for the owner.

The proceedings below have gone on the erroneous theory that the entire indebtedness of the bank to its depositor is a tangible asset of the judgment debtor capable of delivery in specie to the receiver and subject to the provisions of the last sentence of General Corporation Law, section 170, which provides for the delivery of such property to the receiver. But the payment of debts must be kept distinct from the delivery of property (Civ. Prac. Act, §§ 792, 793) and it appears that the bank never held any tangible property of the insolvent corporation which was capable of physical delivery but was merely indebted to it, subject to the injunction order. Moreover, all rights of property, if their recognition is resisted on substantial grounds (Kenney v. South Shore N. G. & F. Co., supra), must be determined by action and may not be enforced summarily.

The order should be reversed and the proceeding dismissed, with costs in all courts.

Cardozo, Ch. J., Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Order reversed, etc.


text:
    Royal Indemnity Company, Appellant, v. Abraham Heller et al., Respondents.
    (Argued April 6, 1931;
    decided May 12, 1931.)

      William E. Lyons and Barnett Cohen for appellant.
    The Supreme Court in equity possessed exclusive jurisdiction to reform the policy. (McMahon v. Gretzula, 227 App. Div. 256; Allied Mut. Liability Ins. Co. v. Interstate Cork Co., 136 Misc. Rep. 504; Svolos v. Marsh & Co., 195 App. Div. 674; Hamburgh v. Wolf-Smith Co., 205 App. Div. 739; Royal Indemnity Co. v. Heller, 230 App. Div. 496.) The issues raised by the pleadings were not res adjudicata in the proceedings before the Industrial Board. (Patrone v. Howlett, Inc., 237 N. Y. 394; Newham v. Chile, 232 N. Y. 37; Skoczlois v. Vinocour, 221 N. Y. 276; Jaabeck v. Crane’s Sons Co., 238 N. Y. 314; Matter of Phillips v. Holmes Express Co., 229 N. Y. 527; Matter of Cheesman v. Cheesman, 236 N. Y. 47; Allied Mut. Liability Ins. Co. v. Interstate Cork Co., 134 Misc. Rep. 504; Aioss v. Sardo, 223 App. Div. 201; Whalen v. Stuart, 194 N. Y. 465; Schenck v. State Line Telephone Co., 273 N. Y. 308; Clark v. Kirby, 243 N. Y. 295; Schuylkill Fuel Corp. v. Nieberg Realty Corp., 250 N. Y. 304.) '

      Benjamin Davidson, David Stern and Nathan S. Zucker for Abraham Heller et al., respondents.
    The issues raised by the pleadings were res adjudicata in the proceedings before the Industrial Board. (Hollenbeck v. Ætna Casualty Surety Co., 215 App. Div. 609; Luce v. New York, Chicago & St. Louis R. R. Co., 213 App. Div. 374; Parkhurst v. Berdell, 110 N. Y. 386; McMahon v. Gretzula, 227 App. Div. 257.) There can be no reformation of a policy of insurance in the absence of mutual mistake. (Metzger v. Ætna Ins. Co., 227 N. Y. 411; Curtis v. Albee, 167 N. Y. 360; 5 Pomeroy Eq. Juris. [2d ed.] 4728; Diman v. Providence, W. & B. R. Co., 5 R. I. 130.)

      John J. Bennett, Jr., Attorney-General (,Joseph A. McLaughlin and Myles A. Paige of counsel), for Frances Perkins et al., respondents.
    The issue of coverage having been submitted by the parties to the Industrial Board, its jurisdiction was exclusive and its decision binding. (Skoczlois v. Vinocour, 221 N. Y. 276; Jaabeck v. Crane’s Sons Co., 238 N. Y. 314.) The plaintiff is estopped from obtaining reformation. (Williams v. Eldridge Refining Co., 130 App. Div. 721; Hunter v. Van Keuren, 130 App. Div. 599; People ex rel. Merchants Nat. Bank v. Purdy, 209 N. Y. 599; Schuylkill Fuel Corp. v. Nieberg Realty Corp., 250 N. Y. 304; Lewitt & Co., Inc., v. Jewelers Safety Fund Society, 221 App. Div. 727; Metzger v. Ætna Ins. Co., 227 N. Y. 417; Geiger Watch Case Corp. v. Fidelity & Deposit Co., 120 Misc. Rep. 441; New York v. Matthews, 156 App. Div. 490; 213 N. Y. 563; Aioss v. Sardo, 223 App. Div. 201; 249 N. Y. 270.)
   Pound, J.

The plaintiff, the Royal Indemnity Company, issued to Abraham Heller, an employer, a policy of insurance under the Workmen’s Compensation Law (Cons. Laws, ch. 67). The policy bore the date March 9, 1928, but on its face it purports to be in force from February 9, 1928, to February 9, 1929. Henry Schubert, an employee of Heller, was injured on March 7, 1928. He filed a claim for compensation with the State Industrial Board. The plaintiff insurer took the ground that the reference to February 9 in the body of the policy was due to a mistake of the typist in preparing the policy and that no policy was in force at the date of the accident nor prior to March 9, 1928. It fully presented evidence thereof as a defense before the Board which heard the proof on the question but finally held that the policy itself is the only evidence the Board can consider in determining the obligatians of the parties thereto ” and made an award accordingly in favor of the claimant. From such award an appeal was taken to the Appellate Division which is now pending.

Promptly after the award, on August 23, 1929, plaintiff brought this action in the Supreme Court for the reformation of the policy “ to cover said scrivener’s mistake.” The defendants, employer, employee and State Industrial Board, set up the adjudication of the Industrial Board as a defense and denied that the Supreme Court had jurisdiction to grant the relief prayed for. When the case came on for trial no evidence was presented to the court. The trial justice refused to hear the evidence of mistake, holding that the Supreme Court has no jurisdiction to determine the question as to the validity of the policy sought to be reformed herein” and that the issues raised by the pleadings are res adjudicata.” The Appellate Division affirmed the judgment dismissing the complaint on the ground that the uncontroverted facts show the plaintiff guilty of loches.” (231 App. Div. 812.)

The objection of loches will not avail the defendants in a case when the trial judge refuses to hear the testimony and thus takes from the plaintiff the opportunity of explaining its delay and showing that no one has been prejudiced thereby. A full examination of the facts is necessary (Zebley v. Farmers Loan & Trust Co., 139 N. Y. 461), and none was had.

As to the other defense, a novel question is presented. May the Industrial Board, having before it a policy upon its face covering the date of an accident, consider the defense of mistake and enforce the true agreement of the parties, when the issue is tendered by the insurer, or is it bound by the terms of the policy as written? The Industrial Board exists by virtue of article I, section 19, of the New York State Constitution, which gives the Legislature power, unlimited by other constitutional provisions, to enact laws for the payment of compensation for injuries to employees. The power thus conferred has been exercised by the adoption of the Workmen’s Compensation Law (L. 1922, ch. 615, as amended). This court has held, in considering the provisions of section 54, subdivisions 1, 2, of the law, that as the insurance company may be made a party to the original application to the Commission for compensation, “ all its rights m,av be there litigated and determined ” including the question “ whether there was then [at the time of the accident] a valid, outstanding policy issued by it.” (Matter of Skoczlois v. Vinocour, 221 N. Y. 276.) In the case cited, the policy of insurance had once covered the liability of the employer and the only question was whether it had been canceled before the accident, as provided in section 54 of the law. This was a legal defense, and while the court said: Unless this be the correct view of the statute [that the Industrial Board has jurisdiction to hear and determine the question] the scheme contemplated by it [the compensation law] fails, to a large extent at least, of its purpose,” the decision did not in terms apply to equitable defenses such as mutual mistake.

Where and how has the jurisdiction to consider equitable defenses been withheld from the Board? It is difficult to put one’s finger on any constitutional or statutory provision or judicial decision which thus limits its jurisdiction. The difference, once regarded as basic, between the method of trying legal defenses and equitable defenses, no longer exists. Independent suits are no longer necessary to establish equitable rights. The question was elaborately discussed by Cardozo, J., in Susquehanna S. S. Co. v. Andersen & Co. (239 N. Y. 285), and the conclusion was reached that equitable defenses are triable in the same way as defenses that are legal. The jurisdiction to hear and determine equitable defenses is incidental to the general jurisdiction of the Board to enforce policies under the Workmen’s Compensation Law. Without such jurisdiction the old rule is revived without reason.

The defense was tendered by the insurance carrier and the evidence was heard. As a practical proposition, the carrier should be bound by the determination of the Industrial Board, subject to judicial review, as provided in sections 20, 23 of the law. The award will be examined on the appeal in the Appellate Division. The decision of the Board is based on an erroneous theory, so far as it denies itself jurisdiction and holds itself bound by the letter of the policy, but the evidence will be before the court for review to determine whether the plaintiff herein has made out a case of non-liability under the policy. (Matter of Jaabeck v. Crane’s Sons Co., 238 N Y 314, 317, 318.) The Attorney-General, on behalf of the Industrial. Board, now argues that the judgment before us should be affirmed on the ground that the jurisdiction of the Board was exclusive and its award binding.

If the term of the coverage was mutually agreed on and there was a scrivener’s mistake as to the term of the policy, due to mutual inadvertence, such as the failure to read the policy and note the error after the minds of the parties had met, the equitable defense may be interposed by the insurance company. If no term was mutually agreed on and the insurance company made a unilateral mistake, it should have canceled its policy, as provided in section 54, when it discovered that fact. Otherwise, in the absence of fraud, the contract as written and delivered must be deemed to be the contract of the parties. (Metzger v. Ætna Ins. Co., 227 N. Y. 411; Lewitt & Co., Inc., v. Jewelers’ Safety F. Soc., 249 N. Y. 217, 223.) These are questions within the wide scope of the powers intrusted to the Industrial Board for its determination.

Such matters should be disposed of summarily before one tribunal so that prompt adjustment of liability for industrial accidents may be obtained without unnecessary litigation and expense. Here we have an accident which happened more than three years ago with the question of liability still unsettled. Such delays are inconsistent with the purpose of the remedies provided by the Compensation Law.

The judgment should be affirmed, with costs.

Cardozo, Ch. J., Crane and Hubbs, JJ., concur; Lehman, Kellogg and O’Brien, JJ., dissent.

Judgment affirmed.


author: Crane, J.

text:
    Mary Deuscher, Plaintiff, v. Charles J. Cammerano, Respondent, and Humphrey Division Ruud Manufacturing Company, Appellant, Impleaded with Another.
    (Argued April 3, 1931;
    decided May 12, 1931.)

      Robert H. Charlton for appellant.
    Section 211-a of the Civil Practice Act is a remedial statute and should be construed to apply to all cases wherein, after the statute took effect, a joint tort feasor has paid more than his pro rata share of a judgment for a personal injury or for property damage. (First Nat. Bank v. Steel, 136 Mich. 588; Civ. Prac. Act, §§ 2, 3; Kills v. Reading Iron Works, 134 Penn. St. 225; Kuca v. Lehigh Valley Coal Co., 268 Penn. St. 163.)

      John C. MacCarthy for respondent.
    In order for the right to contribution to accrue, there must be an antecedent equity or obligation springing up at the time of the original transaction that the joint obligors would bear the burden equally. (Hard v. Mingle, 141 App. Div. 170; 206 N. Y. 179; Johnson v. Harvey, 84 N. Y. 363; Aspinwall v. Sacchi, 57 N. Y. 331; Erving v. Earl of Winchelsea, 2 B. & P. 270; Wood v. Leland, 1 Metc. 387; Price v. Ryan, 255 N. Y. 16; Haines v. Bero Engineering Const. Corp., 230 App. Div. 332.) Section 211-a does not apply to a case where the accident happened prior to the enactment of the section; there is no additional obligation upon each of the tort feasors as a consequence of his negligent act. (O’Reilly v. Utah, N. & C. Stage Co., 87 Hun, 406; Isola v. Weber, 147 N. Y. 329.) The general rule is that statutes are to be construed as prospective only. It takes a clear expression of the legislative purpose to justify a retrospective application. (Jacobus v. Colgate, 217 N. Y. 235; Shreveport v. Cole, 129 U. S. 36; New York & Oswego M. R. R. Co. v. Van Horn, 57 N. Y. 473.) Section 211-a of the Civil Practice Act created a new right of action and is not remedial only. (Orinoco Realty Co. v. Bandler, 233 N. Y. 24; O’Reilly v. Utah, N. & C. Stage Co., 87 Hun, 406; Jacobus v. Colgate, 217 N. Y. 235; First Nat. Bank v. Steel, 136 Mich. 588; Bedier v. Fuller, 74 N. W. Rep. 506.)

      Arthur N. Seiff, amicus curice.

    Section 211-a applies solely to cases arising after its enactment, since it is substantive in nature and concerns the birth of a right of action that prior thereto was non-existent. (Jacobus v. Colgate, 217 N. Y. 235; O’Reilly v. Utah, N. & C. Stage Co., 87 Hun, 406; Tirpaeck v. Sweet, 231 App. Div. 353.)
   Crane, J.

On March 21, 1929, a judgment of $12,161.16 was recovered in a personal injury action against the Humphrey Division Ruud Manufacturing Company and Charles J. Cammerano. Later, after the judgment had been affirmed on appeal to the Appellate Division, the manufacturing company paid the judgment in full and then sought to recover its pro rata share from the defendant Cammerano, pursuant to section 211-a of the Civil Practice Act. The motion was denied upon the assumption that the section taking effect September 1, 1928, did not apply to a cause of action arising prior thereto, to wit, December 1,1925, although judgment was recovered in 1929.

The action for negligence could have been prosecuted against one of these defendants without joining the other. If the plaintiff in the negligence case had sued Cammerano alone he would have been hable for the full amount of the judgment thereafter recovered. The action having been brought against the two joint tort feasors, they were both hable for the full amount of the judgment and the plaintiff could have collected the full amount from either one. This was the state of the law prior to the adoption in 1928 of section 211-a. That section in no way increased the liability of any defendant; in fact, it lessened it. On execution Cammerano would have been obhged to pay the full amount, and this without recourse to the manufacturing company, except for this amendment to the law. By reason of this amendment he is now obhged to pay, if the plaintiff’s motion be granted, only half the amount. The effect of this amendment as to two joint tort feasors who are financially responsible is the same as if it changed the plaintiff’s remedy in the collection of a judgment by providing that each joint tort feasor was hable only for his pro rata share of the judgment. This would be a change in the remedy and affect no substantial rights, at least, create no new ones. The same result is accomplished by the provision that if the plaintiff collects ah the judgment out of one the other must pay his share to that one.

Turning to the section, we read that Where a money judgment has been recovered jointly against two or more defendants in an action for a personal injury or for property damage, and such judgment has been paid in part or in full by one or more of such defendants, each defendant who has paid more than his own pro rata share shah be entitled to contribution from the other defendants with respect to the excess so paid over and above the pro rata share of the defendant or defendants making such payment. * * * ”

After the enactment of this section in 1928 the judgment in this case was recovered against these two defendants and, therefore, comes within the very wording of the statute. The remedy or relief granted the joint judgment debtor applied to judgments thereafter recovered, of which this was one. The bringing of the action did not determine who was liable or the amount to be paid. By the judgment, responsibility was first determined. The Legislature, therefore, intended section 211-a to refer to judgments thereafter recovered. To hold with the Appellate Division that section 211-a only applied to torts committed after its passage would have left Cammerano hable for the full amount of the judgment without any recourse over to his co-defendant. The fact that the co-defendant paid the judgment in full is a mere incident. From the "egal viewpoint the defendant is benefited by reducing his liability to his pro rata share. When the cause of action arose in 1925 upon the tort claim there was no vested right in Cammerano that the manufacturing company should pay for his negligence contributing to the accident. The choice was given to the plaintiff, as heretofore stated, to collect the entire damage out of Cammerano. If he happened to profit by the plaintiff pursuing the other defendant it was his luck rather than any right which vested in him. The law has now remedied this inequality and lessened a liability depending upon the chance of the plaintiff’s choice. This equality, now established by the law, Cammerano is entitled to, as the judgment recovered against him was obtained after the passage of the amendment, but the equality is only established by his payment of his share of the judgment.

Jacobus v. Colgate (217 N. Y. 235) related to a statute establishing a right as distinguished from a mere remedy which did not theretofore exist. Here there was always a liability upon the part of Cammerano for the full amount of the tort judgment which the statute has reduced to a pro rata share with his co-defendants. He pays the co-defendant instead of paying the plaintiff. The change relates to the remedy- — to an unnecessary and unjust inequality in procedure. Laird v. Carton (196 N. Y. 169) is more in point, which authorized the issuance of execution against wages, although the judgment upon which the execution was to issue was rendered before the enactment subjecting such wages to the payment of debts.

The order of the Appellate Division and that of the Special Term should be reversed and the motion granted, with costs in all courts.

Gardozo, Ch. J., Pound, Lehman, Kellogg and Hubbs, JJ., concur; O’Brien, J., not sitting.

Orders reversed, etc.


text:
    Louis M. Kommel, Appellant, v. Herb-Gner Construction Co., Inc., et al., Defendants, and Central Chandelier Company, Respondent.
    (Argued April 1, 1931;
    decided May 12, 1931.)

      R. Robert Capian and Jacob Freeman for appellant.
    The mortgage while invalid in its inception became valid by virtue of the assignment for consideration and the plaintiff, therefore, when he took the assignment became a purchaser for value within the meaning of section 61 of the Personal Property Law. (Spicer v. First Nat. Bank, 55 App. Div. 172; 170 N. Y. 562; Schafer v. Reilly, 50 N. Y. 61; Verity v. Sternberger, 62 App. Div. 112; 172 N. Y. 633.) The failure of the defendant seller to comply with the requirements of sections 65 and 67 of the Personal Property Law renders the conditional sale contract void as to the plaintiff, a subsequent purchaser for value and without notice of the conditional seller’s title. (Cohen v. 1165 Fulton Ave. Corp., 251 N. Y. 24; Alf Holding Corp. v. American Steve Co., 253 N. Y. 450; Lloyds First Mortgage Corp. v. Lombardo, 227 App. Div. 400; Curry v. Geier, 225 App. Div. 498.) - The rule that the assignee of a mortgagee takes not only subject to the equities existing between the original parties, but also subject to the latent equities which exist in favor of third persons against the mortgagor, does not apply to the present situation. (Viele v. Judson, 82 N. Y. 32; Bush v. Lathrop, 22 N. Y. 535; Van Keuren v. Corkins, 66 N. Y. 77; Duffus v. Howard Furnace Co., 8 App. Div. 567.)

      David M. Palley and Robert Netter for respondent.
    An assignee of a mortgage is not a mortgagee, and the plaintiff, as assignee of the mortgage for the foreclosure of which the action was brought, acquired no greater rights than his assignors had. It was, therefore, incumbent upon him to prove that his assignors had no notice of the conditional seller’s title. (Viele v. Judson, 82 N. Y. 33; Crocker-Wheeler Co. v. Genesee Recreation Co., 160 App. Div. 373; Duffus v. Howard Furnace Co., 8 App. Div. 567.)
   Kellogg, J.

The defendant Central Chandelier Company, on April 26, 1928, sold and delivered to the defendant Herb-Gner Construction Co., Inc., certain electric hghting fixtures, under a conditional sale contract reserving title in the seller until payment had been made. The fixtures were designed for installation in an apartment house owned by the Herb-Gner corporation, and were so installed. Thereafter, on the 8th day of August, 1928, the Herb-Gner corporation executed and delivered to Samuel Langner and Irving Herbst a bond for the repayment to them of the sum of $30,000, together with a mortgage securing the bond. The mortgage described, as the property conveyed, not only the apartment house but “ all fixtures and articles of personal property, now or hereafter attached to, or used in connection with the premises, all of which are covered by this mortgage.” No moneys were advanced by Langner and Herbst in consideration of the execution and delivery of the bond and mortgage to them. On the same day, August 8th, 1928, Langner and Herbst, by assignment in writing, transferred the bond and mortgage to the plaintiff to secure to him the repayment of $20,000 which he simultaneously advanced to them. The plaintiff had no knowledge of the terms of the conditional sale contract. Immediately the moneys so advanced were paid over to the defendant Herb-Gner Construction Co., Inc. The mortgage and the assignment thereof were duly recorded on August 9th, 1928; the conditional sale contract was not filed until August 20, 1928.

The Personal Property Law (Cons. Laws, ch. 41), in article 4, section 65, provides as follows: Every provision in a conditional sale reserving property in the seller shall be void as to any purchaser from or creditor of the buyer, who, without notice of such provision, purchases the goods or acquires by attachment or levy a lien upon them, before the contract or a copy thereof shall be filed as hereinafter provided.” Definitions of terms employed in section 65 and other sections of article 4 are supplied by section 61. Among them are these: “ ' Purchase ’ includes mortgage and pledge. ' Purchaser ’ includes mortgagee and pledgee.” Concededly, if Langner and Herbst had themselves advanced the moneys, to secure the repayment of which the bond and mortgage were ostensibly executed, they would have been purchasers ” within the meaning of section 65. If they had then had no notice of the condition, relating to the retention of title, contained in the contract for the sale of the electric fixtures, that condition would have been void, and the lien of the mortgage would have attached to the fixtures. (Cohen v. 1166 Fulton Ave. Corp., 251 N. Y. 24.) However, they made no advances, nor were they, so far as the record discloses, ignorant of the terms of the contract. Consequently, they were not purchasers without notice within the meaning of section 65, and the conditional sale contract would have prevailed as against their subsequently executed mortgage. As the mortgage in the hands of Langner and Herbst would have constituted no incumbrance upon the fixtures, it is argued that it constituted none in the hands of their assignee, the plaintiff.

Undoubtedly, it is the general rule that the assignee of a mortgage takes it subject to any equities in favor of the mortgagor or of third persons, which would have prevailed against the assignor. (Bush v. Lathrop, 22 N. Y. 535; Schafer v. Reilly, 50 N. Y. 61; Trustees of Union College v. Wheeler, 61 N. Y. 88; Decker v. Boice, 83 N. Y. 215; Bennett v. Bates, 94 N. Y. 354; Owen v. Evans, 134 N. Y. 514; Stevenson Brewing Co. v. Iba, 155 N. Y. 224.) In Davies v. Austen (1 Vesey’s Ch. Rep. 247) Lord Thurlow made the often quoted statement': "A purchaser of a chose in action must always abide by the case of the person from whom he buys.” If this were literally true, then the transferee of a mortgage, although paying value therefor, might never enforce it, if the named mortgagee had paid no consideration, since, in the latter’s hands the instrument would have evidenced no enforcible debt. We take it that the statement of Lord Thurlow, as well as the general rule, that an assignee of a mortgage takes subject to the equities existing against the assignor, are postulated upon the prior existence of a mortgage or other chose in action then having legal vigor. An instrument purporting to secure the repayment of advances made according to the terms of a certain bond, in the hands of a mortgagee named, who has neither made advances nor caused them to be made, is not a legal instrument; it is not a mortgage; nor is its holder a mortgagee. (Schafer v. Reilly, supra; Spicer v. First National Bank, 55 App. Div. 172; 170 N. Y. 562; Verity v. Sternberger, 62 App. Div. 112; 172 N. Y. 633; Payne v. Burnham, 62 N. Y. 69; Eastman v. Shaw, 65 N. Y. 522; Claflin v. Boorum, 122 N. Y. 385.)

In Schafer v. Reilly (supra) the issue was one of priority between a mechanic’s lien perfected on the 7th of June, 1870, and a mortgage executed and delivered on March 29th, 1870, and assigned on August 27th, 1870. The first moneys advanced upon the mortgage were paid over by the assignee to her assignor at the time of the assignment. It was held that the mechanic’s lien had priority. The court said, concerning the mortgage at the time of the assignment: “As a security for any amount, or a lien for any. purpose, it only has life and validity from that time.” In Spicer v. First National Bank (supra) it was held that a mortgage given without consideration advanced by the mortgagee had no legal inception until its assignment to one paying value therefor; that such an assignee occupied the position of a purchaser in good faith for full value.” In Verity v. Sternberger (supra) it was held that a mortgage for $10,000, upon which the named mortgagee made no advances, but for which an assignee paid $4,000, had its inception when assigned; that in spite of the form of the transaction there had been no sale of the mortgage; that the transaction was a loan of meney at a usurious rate; that the mortgage was void for usury except as to the $4,000 advanced; that this sum was saved to the assignee by virtue of an estoppel arising through a certificate furnished the assignee by the mortgagor that the full amount had originally been advanced upon the mortgage by the assignee. In Eastman v. Shaw (supra) it was held that a note transferred by a payee who had paid no value therefor to a person who paid less than its face represented a usurious loan. Professor Parsons (Notes and Bills, p. 426) was quoted as saying that a transferee in such case, “ being the first owner, must be held to have loaned the money to the maker, through the prior parties, who were only agents of the maker.” Commissioner Dwight, writing for the court, said: These authorities serve to show that the rule that a note must have had an inception, to make it the subject of sale, is not confined to the case of accommodation paper, but extends to all cases where the paper, though in the similitude of a note, has no existence as between the immediate parties to it.” (p. 528.)

In the hands of Langner and Herbst the instrument now sued upon had had no legal inception; it was not then a mortgage; it was then incapable of sale; it became a mortgage when the plaintiff advanced $20,000 upon the faith of its assignment. Thus, the plaintiff, who owned the instrument from the moment of its inception as a mortgage, was to all intents and purposes the original mortgagee. It follows that the plaintiff, having no notice of the conditional sale contract, was a “ purchaser ” without notice within the meaning of section 65 of the Personal Property Law; that, as to him, the condition reserving title to the electric fixtures, contained in the contract of sale, which was not yet filed, was void, and the lien of the mortgage attached to the electric light fixtures. Authority, as well as reason, compels these conclusions. It may well be that in Viele v. Judson (82 N. Y. 32) expressions were used which, taken literally, might lead to a contrary result. It is enough to say that they were not requisite to the decision, nor were they addressed to such a situation as we have presented here.

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

Cardozo, Ch. J., Pound, Crane, Lehman, O’Brien and Hubbs, JJ., concur.

Judgment accordingly.


author: Per Curiam.

text:
    The Poughkeepsie Savings Bank, Appellant, v. Frances Herron et al., Defendants, and Wener Holding Co., Inc., Respondent. The Poughkeepsie Savings Bank, Appellant, v. George Cohen et al., Defendants, and Wener Holding Co., Inc., Respondent.
    (Argued March 31, 1931;
    decided May 12, 1931.)

      Joseph A. McCabe and Earl Hawley for appellant.
    The additional allowances of five per cent are proper, even though the cases were not difficult and extraordinary, since the actions were to foreclose real estate mortgages in which a defense had been interposed. (Civ. Prac. Act, § 1513, subd. 2; Dicianni v. Wrong, 224 App. Div. 621; Badger v. Johnston, 106 App. Div. 237.)

      Abraham A. Silberberg for respondent.
    The additional allowances to the plaintiff in these actions to foreclose mortgages are illegal and unwarranted because the actions are neither difficult nor extraordinary. (Waterbury v. Tucker & Carter Cordage Co., 152 N. Y. 610; Long Island L. & T. Co. v. Long Island City & N. R. R. Co., 85 App. Div. 36; 178 N. Y. 588; Swan v. Stiles, 94 App. Div. 117; Riesgo v. Glengariffe Realty Co., 114 App. Div. 172; Campbell v. Emslie, 188 N. Y. 509; Troughton v. Digmore, Holding Co., 105 Misc. Rep. 638; Realty Associates v. Packard Motor Car Co., 119 Misc. Rep. 292; Nassau Nat. Bank v. Paul, 223 App. Div. 733; 248 N. Y. 650; Kaplan v. Koenig, 225 App. Div. 675; Dicianni v. Wrong, 224 App. Div. 621.)
   Per Curiam.

In two actions by plaintiff to foreclose mortgages, defendant Wener Holding Co., Inc., interposed defenses but defaulted on the trial. After judgments, including awards of additional allowance for $961.75 in one action and $2,000 in the other, had been entered in favor of plaintiff, defendant moved at Special Term to vacate and set aside the judgments in so far as they award additional allowances. The motions were denied but the orders denying them were reversed on the law.

The Special Term was empowered in its discretion, pursuant to section 1513, subdivision 2, Civil Practice Act, to award additional allowances in these sums. An action to foreclose a mortgage is one specified in this section, defenses were interposed and the sums awarded do not exceed five per centum of the value of the subject-matter involved. When a defense has been interposed in this kind of action, subdivision 2 does not require that the case be difficult and extraordinary. It is only in cases where no defense has been interposed that the provisions of subdivision 1 are applicable. No error of law, therefore, was committed at Special Term.

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

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Ordered accordingly.


author: Lehman, J.

text:
    Sam Shapiro, Individually, and as Administrator of the Estate of Mary Shapiro, Deceased, Respondent, v. Equitable Casualty and Surety Company, Appellant.

      (Argued April 14, 1931;
    decided May 12, 1931.)

      Samuel I. Poskanzer and John J. O’Connor for appellant.
    The Special Term should not have ordered summary judgment in favor of the plaintiffs because the defendant has a meritorious defense to the action. (Sonnenborn v. Libbey, 102 N. Y. 539; Elmendorf v. Lansing, 5 Cow. 468; Ulster County Inst. v. Young, 161 N. Y. 23.)

      Arthur Hutter and David Bait for respondent.
    The court at Special Term properly ordered judgment on the pleadings. (Malloy v. Glen Cove & N. Y. Coach Corp., 236 N. Y. Supp. 845; Malloy v. U. S. Casualty Co., 241 N. Y. Supp. 805.)
   Lehman, J.

The defendant, Equitable Casualty and Surety Company, issued and filed with the Commissioner of Motor Vehicles, a surety bond, in accordance with the provisions of section 282-b of the Highway Law (Cons. Laws, ch. 25), conditioned for the payment of any judgment recovered against Barney’s Omnibus Corporation for injury to persons in the operation of a motor vehicle. Liability of the surety was limited to $2,500 for any one judgment and to $5,000 on all judgments recovered upon claims arising out of the same transaction or transactions connected with the same subject of action. Mary Shapiro and Sam Shapiro recovered judgments against Barney’s Omnibus Corporation in two actions, brought to recover for personal injuries arising from an accident caused by that corporation in the operation of the motor vehicle. Executions upon those judgments were returned unsatisfied. Within the limits of the liability fixed by the terms of the bond, the defendant surety company might be called upon to pay those judgments.

Appeals were taken to the Appellate Division from these judgments, but no security was filed to stay their execution. A motion was made to dismiss the appeals for failure to prosecute them diligently. The motion was denied upon condition that Barney’s Omnibus Corporation should “ file a surety company undertaking conditioned to secure payment of $2,500 upon judgments in the event of affirmance or modification thereof or dismissal of said appeals, and procure the record on appeal and appellant’s points to be filed so that appeal can be argued on the 2nd day of October, 1928.” (224 App. Div. 727.) Barney’s Omnibus Corporation, to comply with the condition imposed by the Appellate Division, filed a surety bond executed by this defendant, but did not comply with the other conditions of the order. Thereupon another motion was made to dismiss the appeal, and that motion again was denied upon condition that Barney’s Omnibus Corporation should file “ a surety company undertaking conditioned to secure payment of $2,500 in addition to the undertaking already filed, so that payment of each of said judgments will be secured in that amount,” etc. (224 App. Div. 829.) Barney’s Omnibus Corporation then filed an additional surety bond executed by this defendant. The judgments have been affirmed.

Upon the affirmance of those judgments the Equitable Casualty Company became liable, as surety for Barney’s Omnibus Corporation, upon the undertaking, filed pursuant to the' Highway Law, that judgments against its principal for personal injuries would be paid. Because its liability was limited to $2,500 upon each judgment, it could not be compelled to pay more, but it was compelled to pay to each plaintiff $2,500, with interest and costs. Then the plaintiffs brought this action upon the bonds given by the same surety, pursuant to the condition imposed by the Appellate Division upon the denial of motions to dismiss appeals from the judgments rendered in favor of these plaintiffs against the principal. A motion made by the plaintiffs for judgment on the pleadings and for summary judgment has been granted. The surety has appealed from the judgment entered on that motion.

The appeal bonds were given to secure the payment of $2,500 on each of the judgments from which an appeal had been taken. In fixing the amount of those bonds, the court may have taken into consideration that the principal was insolvent and that if the appeals from the judgments .against the principal were dismissed, payment of the judgments would, probably, be enforced only against the surety who had executed the bond, filed pursuant to the Highway Law, which secured payment of each of the judgments against the principal to the extent of $2,500. Nevertheless the court required new surety undertakings from the principal to secure the payment of $2,500 upon the judgments against the principal. Choice of the surety rested with the principal. The fact that the undertakings required by the court were executed by the . ame company which was the surety upon the bond which already secured payment of $2,500 upon the same judgments does not limit or affect the extent of the new obligation assumed by the surety. That must be determined by the terms of the undertaking.

By the terms of each of the appeal bonds, the surety does hereby undertake that the appellant will pay such judgments * * * not exceeding, however, the sum of Twenty-five Hundred Dollars * * * and does also undertake that if the judgments so appealed from or any parts thereof are affirmed or the appeal is dismissed or modified the appellant will pay the sum recovered * * * up to the amount mentioned "herein.” Already, payment of $2,500 upon each of the judgments has been compelled from the surety on the Highway Law bond. The problem now presented is whether such payments enure to the benefit of the surety on the appeal bonds and satisfy the obligation secured "by those bonds.

The problem might be different if the surety upon the appeal bonds had, like the surety upon the Highway Law bond, undertaken that the principal would pay the judgment but limited its liability to $2,500. Then it might be argued that the surety’s liability, though limited, remained in force until the judgment was paid. Here the surety undertook only that the principal would pay $2,500 upon the judgment, or that it would pay that amount itself. Payment by the principal of that amount would unquestionably discharge the surety’s obligation. No less did payment upon the principal’s obligation by the surety upon the undertaking given pursuant to the Highway Law bond. Certainly if the surety’s liability upon the Highway Law bond had been unlimited, no contention could have been made that payment by the surety on behalf of the principal would not have discharged pro tanto the liability of another surety for the same principal upon the same obligation. The case is ho different where the surety upon the first bond limited its liability, and the surety upon the subsequent bonds undertook only that the principal would pay the amount already secured. We cannot read into the subsequent bonds an undertaking not expressed therein. Payment by the surety upon the appeal bonds would have enured to the benefit of the surety upon the Highway Law bond to the extent, at least, that thereby it reduced the obligation of the principal which the latter surety had undertaken should be paid. Payment by the surety of the Highway Law bond entirely discharged the liability, of the surety on the appeal bonds, for that surety had not undertaken that any larger sum would be paid upon the judgments.

The judgment of the Appellate Division and that of the Special Term should be reversed and the motion denied, with costs in all courts.

Cardozo, Ch. J., Kellogg and O’Brien, JJ., concur; Pound, Crane and Hubbs, JJ., dissent.

Judgments reversed, etc.


author: O’Brien, J. Lehman, J.

text:
    Walter G. Filer, Respondent, v. Creole Syndicate, Appellant.

      (Argued April 8, 1931;

    decided May 12, 1931.)

      John W. Davis, Fulion J. Redman and George W. Van Slyck for appellant.
    There was no conversion or false representation on the part of the defendant corporation and if the plaintiff has any cause of action it is against the syndicate managers. (Industrial & General Trust, Ltd., v. Tod, 170 N. Y. 233; Ward v. Powers, 208 App. Div. 684; 239 N. Y. 565; Barrowcliffe v. Cummins, 66 Hun, 1.)

      Joseph, M. Proskauer, Arnold L. Davis and J. Alvin Van Bergh for respondent.
    There was conversion by reason of the receipt of the plaintiff’s stock by the corporation upon a definite condition that it was to be a part of a pool made up by similar contributions and its sale two years later in absolute disregard of that condition. (Kilmer v. Hutton, 131 App. Div. 626; Laverty v. Snethen, 68 N. Y. 522; Boyce v. Brockway, 31 N. Y. 490; MacDonnell v. Buffalo L., T. & S. D. Co., 193 N. Y. 92; Kittredge v. Grannis, 244 N. Y. 176; Industrial & General Trust, Ltd., v. Tod, 170 N. Y. 233; Ward v. Powers, 208 App. Div. 684; Cayuga Nat. Bank v. Daniels, 47 N. Y. 631; Bank of Rochester v. Jones, 4 N. Y. 497.) There was conversion by reason of the receipt of the plaintiff’s stock by the corporation with knowledge that it had been secured by trickery and false representation and its sale two years later with knowledge thereof. (Woodworth v. Kissam, 15 Johns. 172; Precker v. London, 36 Misc. Rep. 197; Ultramares Co. v. Touche, 255 N. Y. 170; Burrowes v. Lock, 10 Ves. 470; Doyle v. Chatham & Phenix Nat. Bank, 253 N. Y. 369; Bloomquist v. Farson, 222 N. Y. 381; Taylor v. Commercial Bank, 174 N. Y. 181.) There was conversion by retention and sale two years later with knowledge that the consideration for plaintiff’s transfer had wholly failed. (Dennerlein v. Martin, 247 N. Y. 145; Sokoloff v. National City Bank, 239 N. Y. 158; 250 N. Y. 69.)
   O’Brien, J.

Clarence K. McCornick, John A. Drake and three others, in addition to plaintiff Walter G. Filer, constituted a syndicate of promoters whose purpose was to acquire whatever interest a Mr. Roman held in certain oil lands in South America and, with that end in view, they organized defendant as a Delaware corporation. McCornick became its president and plaintiff one of its directors. Harold G. Cortis, who had represented these individuals, continued to act as their personal attorney and also was elected a vice-president and general counsel for defendant. Its capital structure consisted of a million shares at the par value of five dollars. In payment for Roman’s interest in these South American oil fields, which possessed slight if any value, 700,000 shares of defendant’s stock was issued with the agreement that Roman should return 200,000 shares to McCornick as trustee. Plaintiff was a member of the committee which negotiated this purchase and, as director, he voted for it. When he took such action he knew that he was to receive a one-sixth interest in the greater part of the 700,000 shares issued to Roman for his worthless property. Roman stood by his bargain. The 200,000 shares were returned by him for corporate purposes and the remaining 500,000 were divided among the members of the syndicate. Roman retained 75,000 shares and each of the promoters received a one-sixth interest in 425,000 or 70,833 shares. This stock, for which they paid nothing, was deposited in escrow with a partnership of stockbrokers of which McCornick was senior member. Before the expiration of the escrow agreement, McCornick and one or more of his associates contemplated the marketing of a large issue of treasury stock. Sale at par, without a bonus, was impossible and, accordingly, the plan was adopted to deliver to the purchaser as a bonus a sufficient number of shares from the 425,000 then held in escrow for the benefit of the six individuals comprising the syndicate. McCornick, who from the beginning had acted as promotion manager, stated to and promised Cortis, who recognized him as a personal client: I will take care of Whitney and Drake and you take care Of Filer.” The attorney wrote to plaintiff informing him of the desirability of securing enough shares as a bonus to render possible a sale of the treasury stock at par and stated that stock to be contributed by the various members of the syndicate was to go into the pool which had been set aside for the exclusive use of the corporation. He also communicated to plaintiff the fact that Clarence thinks that you should contribute twenty-five thousand shares.” Plaintiff replied: “ I am perfectly willing to do this, if it is in proportion to my share and on that basis I am enclosing you an assignment for that purpose.” This document reads: “ May 3, 1921. I hereby assign to C. K. McCornick twenty-five thousand (25,000) shares of my Creole Syndicate stock held in escrow by McCornick and Fagan. It being understood that this is my pro rata proportion of a contribution of two hundred and forty thousand (240,000) shares to be contributed by members of the Syndicate to the Treasurer of the Company as a bonus for the sale of the treasury stock. W. G. Filer.” Plaintiff’s shares thus assigned to McCornick eventually constituted, according to McCornick’s testimony, part of the bonus. McCornick never kept his promise to “ take care ” of Whitney and Drake nor did he make any contribution from his own holdings. Roman donated 34,000 and Thompson, another member of the syndicate, 30,000 shares. After the expiration of the escrow agreement, 45,833 shares were delivered to plaintiff. It does not appear that he parted with value for them or for the shares which he contributed as part of the bonus. The opposite inference is plain. Judgment in excess of $385,000 for conversion of his 25,000 shares has been entered against the corporation. The correctness of this judgment depends upon the answer to the question whether plaintiff’s assignment to McCornick was made upon the condition that the other promoters should also contribute stock or was made merely in reliance upon a collateral individual promise by McCornick.

Neither in his letter to Cortis nor in his assignment to McCornick nor elsewhere did plaintiff expressly impose any condition. He reminded his associates of his understanding of their promise. He never provided, even by implication, that his assignment should be ineffective until the others should have actually contributed their proportion. He did not qualify his act nor restrict its operation nor indicate that the passing of title should be dependent upon the happening of some event. He refrained from making a limited agreement to assign only in the event that circumstances should result as he hoped and probably believed; he actually did assign and then awaited the fulfillment of his hopes which arose from McCornick’s promise. His transfer was absolute and to the document passing title he merely attached the expression of his understanding that McCornick would abide by his pledge to procure delivery by the other members of the group. Even if plaintiff’s understanding that this agreement to contribute should not be regarded as extending beyond his proportionate share and that his contribution of stock should constitute part of the bonus could be regarded as implied conditions, then performance of both of them has been complete. Instead of parting with 240,000 shares as a bonus in accordance with the original scheme, the syndicate threw in only 150,000 shares. Plaintiff’s gift of 25,000 was, therefore, his exact one-sixth. Roman and Thompson each contributed at least as much as and possibly more than their proportion. The entire amount of plaintiff’s donation was used for the specific purpose for which he made his assignment. The allegation in the complaint that his stock was diverted from the express purpose for which it was contributed has not, therefore, been sustained.

We think McCornick’s promise was personal. What is the effect upon corporate liability of the collateral promise made by an individual who also was defendant’s president? This question is similar to the one settled by our decision in Rosenwasser v. Blyn Shoes, Inc. (246 N. Y. 340). That plaintiff entered into a contract with defendant corporation for the purchase of a block of its stock, he performed it and the stock was delivered to him. His purchase was induced by promises made to him by agents, officers and directors of defendant corporation that a corporation which plaintiff controlled would be favored by them and defendant corporation. In an action to rescind we held that the corporation was not liable for the failure of the individuals, who were also corporate officers, to comply with their promise which induced plaintiff to purchase its stock. The principle here is not different. McCornick’s promise clearly was made by him in his individual capacity. The attorney who acted for him in this transaction testified that McCornick was the moving spirit in the syndicate, was recognized as its manager, his word was law in every thing pertaining to the syndicate and that, as attorney, he recognized McCornick and Drake as his clients and managers of the syndicate. So far as the record shows, no minutes of this transaction were kept by the corporation, no resolution adopted, no formal corporate action ever taken. The affair was consummated by telephone conversations and personal letters passing from Harold to Walter and from Walter to Harold in respect to the things which Clarence thought should be done. Most, if not all, of the stock which had then been issued had been divided in the most informal manner and without consideration among the members of the syndicate of promoters and was in possession of the partnership which Clarence McCornick dominated. These individuals were acting in their own interest and apparently paid small, if any, heed to the corporation. At times they did use its form but merely that their own prosperity might be enhanced. In this transaction by McCornick, Cortis and Filer, even corporate form, was excluded. The personal and individual character of the negotiations and the consummation of the whole proceeding are too apparent to be transformed into a corporate affair. Plaintiff’s completed assignment which was induced by McCornick’s promise includes a condition to no greater extent than the completed purchase by Bosenwasser {supra) which was likewise induced by personal promises of corporate officers. Neither individual promise can be embraced within any part of a corporate function. Throughout, by the seizure of stock without payment by these promoters, they were acting contrary to the interests of the corporation. Under such circumstances, the corporation is not liable for their acts. If plaintiff possesses rights, let him, vindicate them against his personal associates who, he asserts, defrauded him. In no real sense can he be regarded as an investor. Innocent purchasers of stock who in good faith have invested in this corporation many years after plaintiff and his former allies withdrew, ought not to bear the burden of this large judgment which has resulted from dealings in relation to which defendant scarcely bore an existence, except as a legal fiction, and in the consummation of which it never participated.

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

Lehman, J.

Six men, including the plaintiff, joined together in a speculative venture. Clarence K. McCornick was the active leader of the group. Harold G. Cortis acted as their legal counsel and, to some extent, as expert adviser in regard to the value of oil properties which they contemplated buying. They decided to purchase from one Roman some oil properties or concessions, in Colombia, of somewhat doubtful value. The joint venturers or members of the syndicate had no intention of investing their own money in such properties. They intended to conduct their venture through the medium of a corporation in which they would acquire a stock interest without any payment by them to the corporation. For that purpose they organized the defendant corporation and called it Creole Syndicate.” The corporate “ Creole Syndicate ” was controlled and directed by the members of what I may call the syndicate group. McCornick became president of the corporation, Cortis its counsel and vice-president, and the plaintiff one of its directors. The syndicate group having decided to buy Roman’s oil concessions, the board of directors of the corporate Creole Syndicate ” gave practical effect to that decision by purchasing the oil concessions through the corporation, in consideration of the issue to Roman of 700,000 shares out of a total authorized issue of 1,000,000 shares of its corporate stock. The plaintiff, as a member of the board of directors, voted for that purchase. The remaining 300,000 shares were still unissued, and the corporation had no other property. In form, Roman merely transferred his property to a corporation in consideration of the transfer to him of all the issued stock of the corporation. In fact, the transaction was a step in carrying out the purposes of the syndicate group. Roman agreed with the syndicate members that he should return to the treasury of the corporation 200,000 shares of stock, and should transfer to the syndicate members 425,000 shares of the remaining 500,000 shares which he had received. As one of the group of six constituting the syndicate, the plaintiff became entitled to one-sixth of the stock transferred to the syndicate. Thus without paying one dollar in money or property for the oil concessions, the syndicate members obtained what was equivalent to a five-sixths interest in them. In return they agreed, expressly or impliedly, that they would finance ” the corporation so that it might be able to develop the oil concessions acquired by the corporation. Apparently this financing was to be accomplished by loans to the corporation until through the efforts of the syndicate members the corporation could sell the remainder of its stock.

Though the syndicate members by this juggling had obtained a five-sixths interest in oil property without, up till that point, paying anything for it, it turned out that what they obtained was worth little more than they paid. The oil concessions of Roman were worthless or almost so. Other concessions, in some way connected with those they had acquired from Roman, were investigated and the options were bought upon the advice of Cortis.

The corporation had no funds for the acquisition of these new concessions or for the development of the corporate property. Meanwhile some of the members of the syndicate had temporarily made loans to the corporation. The amount of these “ loans ” varied greatly. The loans from McCornick aggregated 190,000; the loans from plaintiff were only a fraction of this amount. Two of the members of the syndicate preferred to withdraw from the syndicate and to relinquish their interest in the syndicate stock, rather than to advance any moneys for the benefit of the joint venture. H. P. Whitney had acquired the interest of one of these withdrawing members, upon payment of the sum of $75,000. Apparently, though the record on this point is not entirely clear, the payment was made as an advance to the syndicate in the form of a loan to the corporation. The record also fails to make clear what became of the interest of the other withdrawing members in the syndicate stock, but apparently that reverted to the syndicate and could be used by it for advancing its interests. A third member of the syndicate had reduced his interest in the syndicate stock by 30,000 shares, and Roman at the request of the syndicate had returned 34,000 of the shares which he had received and retained upon the purchase of the oil concessions.

I have referred to the syndicate arrangement as a joint venture. It was in fact a joint venture only in a qualified sense. The parties had originally agreed to share profits equally, through equal interests in the syndicate stock. Probably they did not contemplate that any losses would fall upon them, for through the medium of a corporation they were trying to arrange that losses, if any, would fall upon those who might be induced to buy the corporate stock. To carry out the purposes of the syndicate, it was necessary to sell the corporate stock, and, expressly or impliedly, the members of the syndicate had obligated themselves to make such sales possible, and for that purpose to advance such funds as might be necessary, at least temporarily. Perhaps they had not agreed to make such advances equally or to share losses occasioned by these advances; perhaps each was to determine for himself what advances he might choose to make; but even this is doubtful, and other implication might be found in the plaintiff’s own testimony.

The transactions which give rise to this litigation arose in connection with the sale of corporate- stock intended to make the syndicate venture successful and to give value to the corporate stock owned by the syndicate members. The implications in what was said and done depend upon those circumstances. The stock of the corporation had a par value of five dollars and could not be issued for less than that amount. At that time the corporation owned only undeveloped property of dubious value. Its stock could not be sold at its par value. It had in its treasury what remained of the stock returned by Roman. In addition, either the syndicate or the corporation had about 70,000 shares originally allotted to the member who had withdrawn from the syndicate, and the 64,000 shares returned by another member and by Roman. This stock could be used as a “ bonus ” to induce subscriptions for the unissued stock at its par value, but it might not be sufficient for that purpose. Cortis was vice-president of the corporation; he was also counsel for members of the syndicate. He discussed the matter with Clarence McCornick, who was president of the corporation and who also had charge of the syndicate affairs. Probably neither party to that discussion differentiated in his own mind between his official corporate connection and his connection with the unofficial syndicate, but the only fair inference is that the discussion' concerned what the members of the syndicate could and should do to facilitate the sale of the corporate stock to carry out the syndicate purposes. After that conversation, Cortis wrote to the plaintiff a letter on the letterhead of the corporation, but again the entire tone of the letter shows that Cortis regarded the corporation and the syndicate as identical in interest, if not in form, and that he was writing, at least primarily, in behalf of the syndicate to the plaintiff as a member of the syndicate, requesting a contribution of corporate stock which was to go into a syndicate pool of 240,000 shares of stock which has been set aside for the exclusive use of the corporation.” The assignment by the plaintiff was made to the syndicate and not to the corporation. The stock so assigned then became part of the pool “ which has been set aside for the exclusive use of the corporation.” Until that time the members of the syndicate were the only stockholders of the corporation, with the exception of Roman, who owned 41,000 shares given as consideration for his almost worthless property. The syndicate which created the corporation as an instrument for carrying out the syndicate purposes had used the corporation as if it had no existence apart from the syndicate. The plaintiff as a director of the corporation had voted to issue 425,000 shares of corporate stock in part payment of the oil concessions, with knowledge that these shares were to become the property of the syndicate which did not own the concessions and which gave no value for them. His own shares in the corporation were obtained in disregard of his duties as a director of the corporation and in fraud of corporate rights, unless he regarded the Syndicate and the corporation as one in fact, if not in form. By the use of stock in the syndicate pool, together, perhaps, with some stock still in the treasury of the corporation, the corporation was enabled to obtain, from an investor, the sum of $750,000 for 150,000 shares of its unissued stock, together with 150,000 shares given as a bonus.” Then the corporation was no longer merely an instrument to carry out the syndicate purposes. These were complete. The corporate stock still owned by the members of the syndicate was delivered to them, and the syndicate was disbanded. Upon the division of the corporate stock the plaintiff received 45,000 shares.

Through the use of the moneys obtained upon the sale of its stock, the corporation was enabled to pay off the moneys loaned to it by the members of the syndicate, including moneys loaned by the plaintiff. It was enabled to develop its oil property and the stock still retained by members of the syndicate became valuable. After a time control passed from the syndicate members to purchasers of their stock. Then the plaintiff asserted the claim that the assignment of 25,000 shares of his stock to the syndicate pool was made upon the condition that four other members of the syndicate should each make the same contribution to a syndicate pool of 240,000 shares, and that since that condition was not complied with, the corporation had converted his stock. If there was fraud or wrong, it was practised by the members of the syndicate. If they or the corporation, then substantially owned and controlled by them, converted his stock, the stock at that time was of little value. Nevertheless, for the alleged conversion of that stock originally obtained by the plaintiff through his vote as a corporate director without payment of any consideration, a judgment for over $385,000 has been rendered in favor of the plaintiff against the corporation which is no longer owned by those who it is said defrauded him.

It would be strange, indeed, if our rulés of law produced a result so extraordinary; by which the plaintiff has been enriched, and the innocent stockholders have been proportionately impoverished, because of an alleged wrong done by the officers of the corporation for their own ends and which in fact caused the plaintiff little, if any, damage and from which, indeed, he derived some benefit. I do not think that we need now determine whether a correct rule of damages has been applied for that alleged wrong, for in my opinion no wrong has been committed by this defendant.

The assignment of the plaintiff was undoubtedly made to a syndicate pool created to advance the purposes of the syndicate. It could be used by the syndicate only to provide a “ bonus ” upon the sale of stock by the corporation. It could be used by the corporation only if delivered to the corporation by the syndicate. The assignment recites that “ it is understood that this is my pro rata proportion of a contribution of 240,000 shares to be contributed by members of the Syndicate to the Treasurer of the corporation as a bonus for the sale of the treasury stock.” Now we are asked to read into the assignment, by implication, a condition that the assignment should not be complete and effectivé unless or until the other members of the syndicate had also contributed their pro rata share to the syndicate pool. It seems to me that there is little, if any, basis for such an implication, and that the only reasonable inference to be drawn from the circumstances is that the plaintiff, in reliance upon an understanding that bis co-venturers would make proportionate contributions, made a present and unconditional assignment of his stock to a syndicate pool, to be used for the purpose of providing a bonus for the sale of the stock of the corporation. Perhaps that understanding ” was based on the contents of the letter from Cortis. Perhaps the assignment and the letter accomponying the assignment constituted an offer by the plaintiff to contribute that amount of stock to the syndicate pool if the other members of the syndicate would agree to contribute similar proportionate amounts of stock, and that the use of the stock thereafter by the syndicate constituted an acceptance of that offer. Perhaps if thereafter they repudiated the obligation created by the acceptance of the offer, the plaintiff might have rescinded the agreement and demanded back his stock. Nevertheless, the circumstances show that he intended to part with his whole property in the stock which he then and there contributed to the syndicate pool, and to put it within the power of the syndicate to use that stock as a bonus upon the sale of the corporate stock; and such use did not constitute a conversion of the stock. Certainly it would seem that at least a fair inference might be drawn that such was the plaintiff’s intention, and the finding of the trial iustice was not against the weight of evidence.

Even if, however, the assignment was subject to the implied condition that the other members of the syndicate would make a similar pro rata contribution of stock to the syndicate pool, and those who controlled the syndicate pool by their use of the plaintiff’s stock, without complying with that condition, converted his stock, it does not follow that the corporation is responsible for such conversion. The corporation was authorized by the members of the syndicate, including the plaintiff, to negotiate a sale of its corporate stock with a bonus of stock. The members of the syndicate had agreed to furnish to the corporation from a syndicate pool created for that very purpose sufficient stock to provide such a bonus. As I have said, the record does not clearly disclose what stock, aside from the stock of the plaintiff, was actually in the pool, was in the corporate treasury available for that purpose. The negotiations were consummated after Cortis, acting for the corporation, had been informed that there was enough stock in the syndicate pool to enable the corporation to make the sale. Doubtless those who gave that information, in behalf of the syndicate manager, included the plaintiff’s 25,000 shares in the pool stock. Thereafter the syndicate delivered to the corporation enough stock from the pool to provide the required bonus, but the record is too vague to require, or perhaps even to justify, a finding that the plaintiff’s stock was included in that delivery. If it was not included, then there is no evidence to sustain the plaintiff’s claim that the corporation converted the stock. Then it remained part of the syndicate pool not delivered to the corporation, and if there was any conversion, that occurred thereafter when the plaintiff made a futile demand for the return of the stock from the syndicate pool.

If, nevertheless, we should assume upon this record that the plaintiff’s stock was delivered to the corporation and used by it to provide a bonus for the sale of its stock, the plaintiff’s situation would not be improved. He knew that if the syndicate members made pro rata contribution to the syndicate pool in accordance with the understanding ” of the plaintiff, the pool would have 240,000 shares available for use as a bonus on the sale of stock by the corporation, and that only 150,000 shares had in fact been used as a bonus. Without inquiry on his part as to whether the full 240,000 shares had been contributed to the pool, and without demand for the return of any part contributed which had not been used as a “ bonus,” he accepted the benefit of that sale. He received, from the cash proceeds of the sale, about $23,000 in repayment of 11 loans ” previously made by him to the corporation, and the 45,000 shares of stock which he still retained after his assignment of 25,000 shares became very valuable because through that sale the corporation acquired adequate capital. He says that he was not required to make any inquiry because he had a right to assume that his stock had not been used by the syndicate pool until the condition upon which the assignment was made was complied with. It is difficult for me to see why any greater duty of inquiry rested upon the corporation or its officers, before they used the stock which the syndicate delivered to them. True McCornick, the president, even without inquiry knew all that had occurred, but throughout the transaction McCornick was acting rather as syndicate manager than as president of the corporation. . Any directions he gave in connection with this transaction were given as syndicate manager. If there was fraud, he defrauded the corporation as well as the plaintiff. Cortis, the vice-president, was the corporate officer who, as far as the record discloses, asked those in charge of the syndicate pool for stock to be used as a bonus in connection with the sale of corporate stock; received the stock from the pool and then directed its delivery to the purchaser. As a witness for the plaintiff, he testified that while he knew of the terms of the plaintiff’s assignment, he did not know that these terms had not been complied with. If the plaintiff was justified in accepting the benefits of the sale without inquiry as to whether the terms upon which he offered to assign his stock had been met, then the corporation was justified in using the stock delivered to it, in connection with that sale, without similar inquiry.

In truth, it seems to me that the judgment rests upon a misconception of the relations of the syndicate group and the corporation. The syndicate, to carry out its purposes, created the corporate entity. The officers of the corporation, in the performance of their official duties, acted as agents of the corporation, but at the same time both officers and directors in the exercise of their control of the corporation, in fact, acted as agents of the syndicate. In dealing with the public they were held out to be, and were in fact, corporate agents. In dealing with the syndicate and its members and in carrying out the syndicate purposes they were the masters of the corporation and the agents of the syndicate. The plaintiff, as a member of the syndicate group, joined in the creation of the corporate defendant to carry out the syndicate purposes. As a director he used his own official powers to further these purposes. He knew that the sale of the corporate stock was merely another step in carrying out these purposes. If the officers of the corporation, in the exercise of their official powers, have committed a wrong toward the plaintiff, it was with his consent and assistance, and for his purposes, that they were given these corporate powers. For wrong done to him through the exercise of their control of the corporation, which they were intended to exercise for his benefit rather than for the benefit of the corporation, the corporation cannot be held liable. He may not claim that these wrongs were committed by the corporation acting through its agents.

For these reasons I think the judgment should be reversed.

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

Pound, Crane, Kellogg and Hubbs, JJ., concur with O’Brien and Lehman, JJ.; Cardozo, Ch. J., concurs in result.

Judgment accordingly.


text:
    Clarence M. Saxton, Respondent, v. The Delaware and Hudson Company, Appellant.

      (Argued April 3, 1931;
    decided May 12, 1931.)

      Joseph Bosch, P. C. Dugan and J. L. FitzGerald for appellant.

      James A. Leary for respondent.
   Lehman, J.

The plaintiff, a trainman employed by the defendant, was injured through the parting of a coupler between two cars on a freight train. That was due to a defective drawbar which held the coupler in place. The jury found upon sufficient evidence that the accident was due to the negligence of the defendant, but the judgment must be reversed and a new trial ordered, because of error in the charge to the jury, if .a finding of negligence is necessary to sustain a recovery.

The complaint alleges that the train was operated in violation of the Safety Applicance Act of the United States. (Mason’s U. S. Code, title 45, ch. 1, § 2.) That act provides: “It shall be unlawful for any common carrier * * * to haul or permit to be hauled or used on its fine any car used in moving interstate traffic not equipped with couplers coupling automatically by impact.” The statutory duty imposed is absolute and unqualified, “ and if the railroad does, in point of fact, use cars which do not comply with the standard, it violates the plain prohibitions of the law, and there arises from that violation a liability to make compensation to one who is injured by it.” (St. Louis, I. M. & S. Ry. Co. v. Taylor, 210 U. S. 281, 295; Louis ville & Nashville R. R. Co. v. Layton, 243 U. S. 617.) “ Non-performance of that duty could not be evaded or excused by proof that the corporation had used ordinary care in the selection of proper couplers or reasonable diligence in using them and ascertaining their condition from time to time.” (Chicago, B. & Q. Ry. Co. v. United States, 220 U. S. 559, 574.) The statutory prohibition includes the use of cars equipped with a coupler which has become defective during such use. From the mere fact that a coupler faded to perform its function, an inference may be drawn that the carrier violated its absolute duty. (Minneapolis & St. Louis R. R. Co. v. Gotschall, 244 U. S. 66.) A coupler which cannot perform its function does not measure up to the statutory standard, and it is immaterial whether the defect is in the coupler itself or in adjuncts without which it cannot operate. (Keenan v. Director General of Railroads, 285 Fed. Rep. 286.) Though the plaintiff in this case was not engaged in the work of coupling cars, he was entitled to the protection of the statute, and the defendant’s violation of its statutory duty was the proximate cause of the injury.

Since the defendant is hable for the result of a violation of its statutory duty, even if it exercised reasonable care in inspecting the coupler and in operating the freight train, errors in the charge to the jury as to inferences of failure to use such care, which the jury might draw from the testimony, are not prejudicial.

The judgment should be affirmed, with costs.

Cardozo, Ch. J., Pound, Crane, Kellogg and Hubbs, JJ., concur; O’Brien, J., not sitting.

Judgment affirmed.


text:
    Lena Kaplan, by Sam Edelman, Her Guardian ad Litem, Respondent, v. Isidore Kaplan, Appellant.
    (Argued March 23, 1931;
    decided May 19, 1931.)

      Bernard Chambers for appellant.
    A person legally declared incompetent may not maintain an action for a separation through a duly authorized representative. (Mainzer v. Avril, 108 Misc. Rep. 230; Matter of Steinway, 159 N. Y. 250; Burtis v. Burtis, 1 Hopkins Ch. 557; Johnson v. Johnson, 206 N. Y. 561; Ackerman v. Ackerman, 200 N. Y. 76; Erkenbrach v. Erkenbrach, 96 N. Y. 459; Brinkley v. Brinkley, 50 N. Y. 187; Griffin v. Griffin, 47 N. Y. 138; Cheny v. Arnold, 15 N. Y. 348;
      Beery v. Beery, 130 App. Div. 53; Conrad v. Conrad, 124 App. Div. 782; Rice v. Andrews, 127 Misc. Rep. 827; Bailey v. Bailey, 119 Misc. Rep. 433; Pearson v. Pearson, 104 Misc. Rep. 677; Whitney v. Whitney, 121 Misc. Rep. 485; Walter v. Walter, 217 N. Y. 439; Birdzell v. Birdzell, 33 Kans. 433; Mohler v. Shank, 93 Iowa, 273; Dillon v. Dillon, 274 S. W. Rep. 217.) The complaint does not state facts sufficient to constitute a cause of action. (Otton v. Otton, 196 App. Div. 403.)

      Avel B. Silverman and G. A. Cymberg for respondent.
    An incompetent wife, through her representative appointed for that purpose, may bring an action for separation against her husband who has abandoned her. (Mainzer v. Avril, 108 Misc. Rep. 230; American Mortgage Co. v. Dewey, 106 App. Div. 392; Burtis v. Burtis, 1. Hopkins Ch. 557; Tiffany on Domestic Relations, 243; Walter v. Walter, 217 N. Y. 439.)
   Lehman, J.

By motion for judgment on the pleadings the defendant has raised the question whether an action for separation may be brought by an insane spouse through her guardian ad litem. The right to bring a matrimonial action in the civil courts is statutory. At common law only the ecclesiastical courts had jurisdiction.

The right to bring an action for separation is defined and regulated by article 69 of the Civil Practice Act and by some sections of article 70. These articles contain no express provision authorizing a guardian ad litem to bring such an action. The appellant argues that such authority may not be read into the statute by implication.

The statute does not expressly provide that an action for separation may be brought by an insane spouse through a guardian ad litem; neither does it expressly provide for an action by an infant through a guardian ad litem. Ordinarily, in the absence of some express hmitation, a cause of action in favor of an infant or incompetent, arising either under the common law or conferred by statute, may be prosecuted by a guardian ad litem, or special guardian. Neither infancy nor insanity deprives a person of the right to appeal to the courts for redress of wrongs or for vindication of asserted rights. It cannot be questioned that an infant may bring an action for a separation through a guardian ad litem. Unless from the nature of the cause of action or from other sections of the statute we can find an implication of a contrary legislative intent, then an incompetent spouse may also prosecute such an action through an appropriate officer appointed by the court. Without some basis for such an implication, we may not assume that the Legislature, though providing a remedy by action for the failure of a party to carry out matrimonial obligations, impliedly limited these remedies to a sane spouse.

Infancy or insanity may itself be a ground for annulment of a marriage, and in such cases the statute provides by whom such an action shall be brought, since those for whom the remedy is provided cannot protect their own rights. Then actions brought by others, not named in the statute, will not lie. (Walter v. Walter, 217 N. Y. 439.) No inference can be drawn from these provisions of the statute that other matrimonial actions may not be maintained in behalf of an infant or incompetent. Certainly the Legislature never intended to deny them access to the courts for the protection of rights which the law grants to all injured parties.

At common law the ecclesiastical courts had power to grant a decree of annulment of marriage or a divorce a mensa et thora. An action in the ecclesiastical courts for a limited divorce, analogous to an action for separation, might be maintained in behalf of a lunatic as well as actions for annulment of marriage. (Parnell v. Parnell, 2 Phillimore, 158.) It was pointed out in that case, brought in behalf of a lunatic, on the ground of the adultery of his wife, that unless such an action could be maintained a lunatic husband would be responsible for the support of a wife, entitled to no maintenance. Here the wife seeks maintenance to which she is entitled, if the allegations of the complaint are true, from a recalcitrant husband. Certainly, there is no presumption that the Legislature intended to deny remedy to a wife in such position.

In 1857 the English Matrimonial Causes Act (20 & 21 Viet. ch. 85) was enacted. A new court for divorce and matrimonial causes was established with jurisdiction of matrimonial actions and power to grant a divorce a vinculis. The statute does not expressly provide that an action for separation or divorce might be maintained by a lunatic, but the court did not question the right to maintain an action in behalf of a lunatic for separation. (Woodgate v. Taylor, 2 Swabey & Tristram Rep. 512.) The right to maintain an action for absolute divorce either in behalf or against a lunatic was indeed questioned, and in Mordaunt v. Mordaunt (L. R. 2 Probate & Divorce, 103) the court held that because of its nature and results an action for divorce might not be maintained against an insane wife. Even in that case the argument of counsel and the discussion of the judges show that they did not question that an action for annulment or limited divorce might be maintained either by or against an insane spouse. That case was reversed on appeal. (Mordaunt v. Moncrieffe, L. R. 2 Scotch & Divorce Appeals [House of Lords], 374); the court pointing out that since Parliament, by statute, provided an action for absolute divorce, without any limitation that it might not be maintained in behalf of or against a lunatic, courts may not insert such a limitation by implication. There, as we have said, the action was brought against an insane spouse. The same rule is applied where the action is brought in behalf of an insane spouse. (Baker v. Baker, L. R. 5 Prob. Div. 142; affd., 6 Prob. Div. 12.)

The same question has never been decided by this court. We are not called upon to decide it now. Though generally in America the right to maintain a suit for absolute divorce against an insane spouse has not been questioned, in many jurisdictions the courts have held that because of the nature of the relief sought, such an action may not be maintained in behalf of a spouse who, because of infirmity of mind, cannot exercise intelligently a choice whether or not to use the means afforded by the law for the dissolution of bonds which would otherwise be indissoluble. (Worthy v. Worthy, 36 Ga. 45; Birdzell v. Birdzell, 33 Kan. 433; 2 Bishop on Marriage & Divorce, § 306-A; Smoot on Law of Insanity, § 426. See, also, note in 34 L. R. A. p. 166.) In spite of the fact that in the ecclesiastical courts an action for annulment of marriage could be maintained, in behalf of an insane spouse, perhaps there may be ground for an inference that the Legislature did not intend that the statutory right to bring an action for the dissolution of a marriage, valid in its inception and resting upon free consent, should be brought in behalf of an incompetent who, if capable of exercising choice, might prefer to hold even an unfaithful spouse, or who might, indeed, in good conscience, regard the marriage bonds as indissoluble.

Until the question is directly presented we postpone decision whether such an inference should be drawn in regard to actions for divorce. The reasons which might apply in such a case have no application here. As we have shown, even before the statutory action for an absolute divorce was created, actions for separation or limited divorce might be maintained in behalf of an incompetent. In such actions the relief which may be granted is based upon the continued existence of the marriage tie. Sometimes the end sought is, as in this case, the enforcement of the marital obligation of support; sometimes it is protection against the assertion of a marital right which has been lost by misconduct. In either case the statutory remedy is one which an insane spouse may need, at least as much as a sane spouse, and which involves no change in matrimonial status. It cannot be presumed that the Legislature intended to leave an insane spouse completely at the mercy of the other party to the marriage contract, who might then with impunity disregard marital obligations or successfully assert marital rights lost by misconduct.

Even where the right to bring an action for a divorce in behalf of an incompetent spouse is denied, the courts have not denied the right to bring an action for separation in order to afford protection to an incompetent. (See 2 Bishop, Marriage & Divorce, § 307; 2 Nelson, Divorce & Separation, § 729; Wray v. Wray, 33 Ala. 187; Mims v. Mims, 33 Ala. 98.)

For these reasons the order should be affirmed, with costs, and the questions certified answered in the affirmative.

Cabdozo, Ch. J., Pound, Cbane, Kellogg, O’Bbien and Hubbs, JJ., concur.

Order affirmed, etc.