text:
    In the Matter of East River Savings Bank, Respondent. Morsyl Realty Corporation, Appellant.
    Argued April 12, 1945;
    decided July 19, 1945.

      William J. Kramer for appellant.
    I. Proceedings under section 1077-c of the Civil Practice Act will not lie against a “ last record owner ” for a period of time during which it was not the owner. (Chase Nat. Bank v. Guardian Realties, Inc., 283 N. Y. 350; Matter of Title Guar. & Tr. Co. [Devons Associates], 180 Misc. 575.) II. The Legislature never intended to burden the last record owner with an obligation, the benefits of which were enjoyed by a prior owner. (Chase National Bank v. Guardian Realties, Inc., 283 N. Y. 350.) III. The service of the order to show cause initiating the instant proceeding at Special Term was improperly made.

      Newton Millham and Robert Bernard for respondent.
    I. Special Term erred in refusing to grant an examination of the books and records relative to the mortgaged premises for the calendar year 1943, and in denying the application for surplus moneys; and the Appellate Division properly reversed. (Chase Nat. Bank v. Guardian Realties, Inc., 283 N. Y. 350; Matter of Title Guarantee and Trust Company [9220 Shore Road, Brooklyn], N. Y. L. J. Sept. 22, 1943, p. 641, col. 7; Matter of Shulman v. Silver, 257 App. Div. 391.) II. Appellant’s point that service of the order, to show cause by which the proceeding was commenced was faulty has long since been waived. (Henderson v. Henderson, 247 N. Y. 428.)
   Dye, J.

This proceeding is brought under section 1077-c of the Civil Practice Act to compel the appellant, as the last record owner of mortgaged premises, to produce all records and data available as to income and disbursements pertaining to the mortgaged property for the calendar year 1943 and to apply the surplus, if any, in such amount as the court may order, in reduction of the mortgaged indebtedness, or, in default of the production of all or of adequate records and data, or payment of such surplus as is ordered, to.obtain authorization for foreclosure.

It is undisputed that, while the then owner, the Dorom Realty-Corporation, was delinquent only in the payment of principal due on the mortgage, it having paid the taxes and interest when due, it transferred the premises by deed dated December 29, 1943, to the appellant herein. The deed was duly recorded December 30, 1943, and closing figures adjusted as of January 1, 1944. The within proceeding was commenced on February 21, 1944, thus presenting the question of whether a surplus money proceeding, as authorized by section 1077-e will lie against the last record owner to compel production of records and data showing income and disbursements for a period during which he was not the owner of the mortgaged premises.

The Special Term denied the relief demanded and was unanimously reversed, as a matter of law, by the Appellate Division which granted leave to appeal and certified the following question, viz., “Was the order of the Special Term properly made?”

There is nothing inimical to the present proceeding in the rule recently adopted in Chase Nat. Bank v. Guardian Realties, Inc. (283 N. Y. 350). A reading of the opinion in that case discloses that the question was whether or not section 1077-c imposed liability for payment of accrued surplus money upon a former owner and the last record owner who had not assumed the obligation of a mortgage, as distinguished from creating a right to foreclose: upon default. The court dismissed the proceeding as to the former owner because as to it there was no statutory liability and as to the last record owner because the statute created no personal liability where it did not theretofore exist by reason of an assumption of liability on the mortgage bond by the purchaser.

Here the examination is sought for a 12-month period based on the preceding calendar year, and demand is made that the last record owner, the appellant herein, produce “ all records and data available as to the income and disbursements of said mortgaged premises for the said calendar year.” This is well within the scope of the statute notwithstanding the transfer of the premises on the last day of the calendar year. In referring to the statute we note that it specifically designates the party to be examined as “ the last record owner ” and that “ the application shall be made on the basis of the preceding calendar year • * * except that for good cause shown the court may entertain an application made on the basis of a period of twelve months other than the calendar year If we limit the proceeding to the period of actual ownership of the mortgaged premises, repeated transfers on or about the last day of the mandatory period could have no other effect than to destroy an equitable remedy necessary for the fair administration of the moratory statute. Nor do we change our view because the appellant claims to be an innocent purchaser for value, as we feel it goes without saying that a purchaser of mortgaged premises is chargeable with knowledge of the moratory statutes and is equally chargeable with knowledge of the terms and conditions of the mortgage.

The proceeding is within the contemplation of the statute, and our remaining problem is whether the Appellate Division erred in directing the appellant-owner to produce records and data for a period in which it was not the owner of the mortgaged premises. We note that the mortgagee-petitioner, in the first instance, sought the production of the records and data available ”, and following the reversal of the Special Term, in submitting a proposed counter-order to the Appellate Division, it sought from the appellant-owner, the then respondent, “ all records and data in its possession or under its control * * * ”. It would, therefore, seem that the bank has been granted relief which it never sought. In the absence of any claim for such relief and in the absence of any statutory warrant, express or implied (Civ. Prac. Act, § 1077-c), binding the Appellate Division to so order, we see no reason for imposing this evidentiary burden upon the last record owner. The bank is not without a remedy as it has available to it the power to adduce such proof from the former, owner by means of subpoena. (Matter of Schulman v. Silver, 257 App Div, 391.)

In this review we should note that the instant proceeding was commenced by service upon the attorney for thé appellant corporation, who is neither an officer nor managing agent thereof and whose only connection therewith is that of attorney. While counsel indicated that he was appearing specially, claiming that the service was improper, we are not impressed with this pontention as he has participated throughout the proceeding on the merits, as well as having advised the bank that he had been authorized by the respondent therein “ to receive all communications * * * on its behalf ”, and did not raise such point in the Appellate Division. While, technically, service should have been made in accordance with the provisions of section 24 of the Stock Corporation Law, this may be waived. (Henderson v. Henderson, 247 N. Y. 428.)

The order appealed from should be modified to the extent that for the purpose of determining the amount of said surplus, the respondent herein produce and make available to the petitioner for inspection by it and the court, all records and data available as to income and disbursements of said mortgaged premises for the calendar year 1943.

The order of the Appellate Division should be modified in accordance with this opinion, and, as so modified, affirmed, without costs. The certified question should be answered in the negative.

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

Ordered accordingly.


source: Caselaw Access Project

author: Loughran, J.

license: Public Domain

text:
    Edgar Bernardine, Respondent, v. City of New York, Appellant, et al., Defendants.
    Argued April 18, 1945;
    decided July 19, 1945.

      Ignatius M. Wilkinson, Corporation Counsel (Murray Sendler of counsel), for appellant.
    I. On the evidence, the complaint should be dismissed. The fact that the horse ran at large was not due to any negligence on the part of defendants; and plaintiff assumed the risk of injury in tackling the horse. (Hackett v. Lenox Sand & Gravel Co., 187 App. Div. 211; Unger v. Forty-Second Street, etc., R. R. Co., 51 N. Y. 497; Delaney v. Philhern Realty Holding Corp., 280 N. Y. 461; McFarlane v. City of Niagara Falls, 247 N. Y. 340; Dreier v. McDermott, 157 Iowa 726.) II. The action does not lie because section 50-b of the General Municipal Law is not applicable. A horse is not a “ facility of transportation ” within the meaning of the General Municipal Law. (Douglass v. City of New York, 266 App. Div. 717.) III. If the Trial Term erred in holding that the action does not lie, its omission to pass upon any of the evidence required the Appellate Division to grant a new trial instead of directing final judgment. (Dack v. Dack, 84 N. Y. 663; Manufacturers’ Co. v. McKey, 294 U. S. 442; Sioux City Bridge v. Dakota County, 260 U. S. 441; Gerdes v. Lustgarten, 266 U. S. 321; Boyd v. Boyd, 252 N. Y. 422; Smith v. Smith, 273 N. Y. 380; York Mortgage Corp. v. Clotar Const. Corp., 254 N. Y. 128; People ex rel. MacCracken v. Miller, 291 N. Y. 55; Chamberlain v. Dempsey, 15 Abb. Prac. 1; Belmont v. Bouvert, 3 Robt. 693; Ciccolini v. Vocafilm Corp. of America, 253 N. Y. 588.) IV. The Appellate Division lacked power to direct final judgment on reversal in this case. “ New findings ” authorized by statute are those which supersede findings made by the trial court. (Heller v. Yaeger, 283 N. Y. 19; Imbrey v. Prudential Insurance Co., 286 N. Y. 434; Foreman v. Foreman, 251 N. Y. 237; York Mortgage Corp. v. Clotar Const. Corp., 254 N. Y. 128; Matter of Saxon v. Erie R. R. Co., 221 N. Y. 179; Middleton v. Whitridge, 213 N. Y. 499; Caldwell v. Nicolson, 235 N. Y. 209; City of New York v. Matthews, 213 N. Y. 563; Merry Realty Co. v. Shamokin & Hollis R. E. Co., 230 N. Y. 316.)

      James R. Lyttle for respondent.
    I. The cause of action comes within section 50-b of the General Municipal Law. II. Plaintiff should have judgment on the facts in the case. (Kelly v. Adelmann, 72 App. Div. 590; Hollaran v. City of New York, 168 App. Div. 469; Setzkorn v. City of Buffalo, 126 Misc. 585, 219 App. Div. 416; Hackett v. Lenox Sand & Gravel Co., 187 App. Div. 211.) III. The Appellate Division had power to grant judgment. (Civ. Prac. Act, § 584, subd. 2; Waddle v. Cabana, 220 N. Y. 18; Lamport v. Smedley, 213 N. Y. 82; Acme Realty Co. v. Schinasi, 215 N. Y. 495; Middleton v. Whitridge, 213 N. Y. 499; Leonard v. Frantz Co., 268 App. Div. 144; Clark v. Standard Rock Asphalt Corporation, 233 App. Div. 536.)
   Loughran, J.

In this negligence action against the- City of New York damages are demanded for personal injuries caused to the plaintiff by a runaway police horse. The parties waived a jury and the making of formal findings and introduced their respective proofs under a stipulation which empowered the trial court to grant such decision as may be warranted by the facts.”

Section 50-b of the General Municipal Law was invoked by the plaintiff. The substance thereof is, a declaration of municipal liability for negligence of employees ‘ ‘ in the operation of a municipally owned vehicle or other facility of transportation ’ ’. As the Trial Judge saw it, however, this word “ facility ” signifies inanimate means rather than human agencies ” and consequently the “ operation ” of a horse was to his mind a thing not contemplated by the Legislature. (182 Misc. 609, 611.) With the cited statute thus ruled out, the court was prevailed upon to dismiss the complaint on the single ground that recovery was barred by the City’s common-law immunity from liability for wrongful performance of governmental duties.

On appeal by the plaintiff, the Appellate Division expressed the view that a horse used, as this police horse concededly was, to facilitate transportation of a mounted policeman in the course of his duties, is ‘ a facility of transportation. ’ ” (268 App. Div. 444, 447.) Hence the City’s claim of governmental privilege was rejected on the strength of section 50-b of the General Municipal Law, and the dismissal of the complaint was accordingly declared to be erroneous. This reversal was on the law; because, as we have indicated, the decision of the trial court had left the issues of fact wholly undetermined. Nevertheless, the Appellate Division did not order a new trial, but in lieu thereof made its own first-hand findings of fact in favor of the plaintiff and thereupon awarded him damages of $12,500. The controversy is now before us on this appeal by the defendant City.

We believe the words of section 50-b of the General Municipal Law will safely bear the construction which the Appellate Division has here put upon them. After all, the horse did transport the police officer. In the face of that cogent fact, the average man — so we think — would scarcely resist the idea that the animal was a facility ” (i.e., an aid) in the passage of its rider,— a conclusion which we have the more readily reached by the light of the wholesome statutory purpose to do justice to persons who are damaged by the wrongs of public servants functioning as such (cf. Sheehan v. North Country Community Hosp., 273 N. Y. 163).

Even so, there was no compelling reason why this plaintiff should have taken his stand upon the above provision of the General Municipal Law. Section 8 of the Court of Claims Act says: “ The state hereby waives its immunity from liability and action and hereby assumes liability and consents to have the same determined in accordance with the same rules of law as applied to actions in the supreme court against individuals or corporations ’ ’. The gist of this waiver and consent of the State has been operative since 1929, and is limited only by the incidental procedure prescribed in article II of the same Act. None of the civil divisions of the State — its counties, cities, towns and villages — has any independent sovereignty (see N. Y. Const., art. IX, § 9; City of Chicago v. Sturges, 222 U. S. 313, 323; Keifer & Keifer v. R. F. C., 306 U. S. 381. Cf. Gaglio v. City of New York, 143 F. 2d 904). The legal irresponsibility heretofore enjoyed by these governmental units was nothing more than an extension of the exemption from liability which the State possessed. (Murtha v. N. Y. H. M. Col. & Flower Hospital, 228 N. Y. 183, 185.) On the waiver by the State of its own sovereign dispensation, that extension naturally Avas at an end and thus we were brought all the way round to a point where the civil divisions of the State are ansAverable equally with individuals and private corporations for wrongs of officers and employees,— even if no separate statute sanctions that enlarged liability in a given instance. (Holmes v. County of Erie, 291 N. Y. 798.) Of course, the plaintiff in such a case must satisfy all applicable general statutory or charter requirements in the way of presentation of claims, notice of injury, notice of intent to sue and the like.

The plea which was most often made for the immunity of the civil divisions of the State was an assertion that officers and employees thereof — when engaged in the discharge of so-called governmental functions — acted as delegates of the State and not in behalf of any municipal master (Murtha v. N. Y. H. M. Col. & Flower Hospital, 228 N. Y. 183, 185). On that former basis, it is possible to suggest that the State has now laid itself open to suit for wrongs of officers or employees of its civil divisions. But any viewpoint of that kind would be vain, since the argumentation that had been contrived as a front for the doctrine of governmental immunity did not survive the renouncement of that doctrine. (Cf. Miller v. City of New York, 292 N. Y. 571.)

As has already been observed, this case was validly tried by the court without a jury upon a stipulation for “ such decision as may be warranted by the facts.” All the propositions of fact that were in issue were fully litigated. Each party must be deemed to have moved for judgment in his favor. (Civ. Prac. Act, § 440.) In that state of the record, we see no reason to doubt the power of the Appellate Division to grant the final judgment which in its conception was dictated by the weight of the evidence (Civ. Prac. Act, § 584; Lamport v. Smedley, 213 N. Y. 82). The City points to the absence from the order of the Appellate Division of any statement as to “ whether or not the findings of fact below have been affirmed ”, as required by Civil Practice Act, section 602, subdivision 1. The reason for that omission is obvious: no findings of fact were made below in this instance. The power of the Appellate Division to render final judgment in a nonjury ease like this was sanctioned by an amendment of the State Constitution adopted in 1925. (York Mortgage Corp. v. Clotar Constr. Corp., 254 N. Y. 128.) The enactment of the present section 602 of the Civil Practice Act in 1942 certainly was not an attempt to neutralize that important jurisdiction. As we see it, then, section 602 has no application to the present case.

To be sure, the Appellate Division has often made findings of fact in substitution of contrary reversed findings of a court below. But the competence of the Appellate Division to direct final judgment on a fresh fact basis extends beyond that precise situation. (Bonnette v. Molloy, 209 N. Y. 167, 172.) Indeed, this Court of Appeals has in numerous cases dealt with new findings of the Appellate Division which did not touch the subject matter of the initial findings that were reversed. On the analogy of that practice, the original findings here made by the Appellate Division were, we think, quite in order and so we have reviewed the facts- thereby adjudged. (See N. Y. Const., art. VI, § 7; Civ. Prac. Act, § 605.) It is not important to give the particulars of the accident. In our estimation, the decision of the Appellate Division is clearly in conformity with the preponderance of the proof. (See 268 App. Div. 444, 448-450.)

/' The judgment should be affirmed, with costs.

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

y Judgment affirmed.


text:
    Bessie Feinman, Doing Business under the Name of Cadillac Maison Steel Co., Judgment-Creditor-Respondent, v. Irving Marks, Judgment-Debtor-Defendant, and Marlin-Rockwell Corporation, Third Party-Appellant.
    Argued May 14, 1945;
    decided July 19, 1945.

      Alfred E. Buck for appellant.
    I. Prior to the amendment
    of section 684 of the Civil Practice Act by chapter 651 of the Laws • of 1939 the rule was well settled in New York that the garnishment herein attempted would be vacated. (Commercial Credit Corp. v. Young, 258 App. Div. 323; Douglass v. P. Ins. Co., 138 N. Y. 209.) II. The amendment did not change the rule in New York. (Douglass v. P. Ins. Co., 138 N. Y. 209; U. S. Const., art. IV, § 1; Amendment XIV, § 1; N. Y. Const., art. I, §§ 6, 11.) III. New York has no jurisdiction over the garnishee herein. (Plimpton v. Bigelow, 93 N. Y. 592; National Broadway Bank v. Sampson, 179 N. Y. 213.) IV. The law of garnishment as applied in this case is unconstitutional. (U. S. Const., art. IV, § 1, amendment XIV, § 1; N. Y. Const., art. I, § 11.)

      Solomon Rothfeld for respondent.
    I. The garnishee order and the garnishee execution are a proper garnishee execution against appellant. (Brock v. Brock, 173 Misc. 172; Tishman Realty & Construction Co. v. Spencer, 24 N. Y. S. 2d 297; Christmas v. Buckley, 43 F. Supp. 673.) II. The State of New York has jurisdiction over the garnishee herein by virtue of section 684 of the Civil Practice Act as amended in 1939. (Harris v. Balk, 198 U. S. 215.)
   Loughran, J.

The question presented is one as to the validity of the levy of a garnishee execution against the wages of a judgment debtor. The garnishee, a Delaware corporation, had been duly authorized to do business in New York and in Connecticut. The debtor resided in Connecticut and was employed by the garnishee in that State and not elsewhere. The execution was issued by the Municipal Court of the City of New York upon a judgment which the creditor had recovered against the debtor in that court in June, 1940. Service of the execution and of the order therefor was made in February, 1944, by delivery of copies thereof to the managing agent of the garnishee at an office in which the garnishee was transacting business in the city of New York.

The garnishee thereupon moved for an order vacating the execution and the papers on which it was issued. Denial of this motion by the Municipal Court was affirmed by the Appellate Term and again by the Appellate Division where the garnishee was given leave to present to us for review these two questions certified: 1. Upon the record herein, should the Municipal Court of the City of New York, Borough of Manhattan, First District, have granted the motion of MarlinBockwell Corporation, Third Party herein, to vacate the garnishee execution and the order directing the issuance thereof ? 2. Were there any wages or debt due or to become due within the State of New York to which said garnishee execution and order could apply?”

In this State, the process of garnishee execution against wages, earnings or salary of a judgment debtor is regulated by Civil Practice Act, section 684. By chapter 651 of the Laws of 1939, that section was amended by the addition thereto of these words: “ The managing agent of a foreign corporation, authorized to do business in this state, shall be deemed to represent such corporation for the purposes of carrying out the provisions of this section.” This amendment obviously adopted the general principle which has long allowed “ the garnishment of a resident garnishee, though he was not domiciled in the state and the debt was not payable there ”,— a principle that has often been applied where the garnishee was a foreign corporation doing business within the state, and therefore, in a sense 'resident there, though not technically domiciled therein ”, (The quotations are from 1 Beale on The Conflict of Laws, § 108.3, p. 461.) In all probability, the above amendment altered the prior law of New York as theretofore declared by section 684, but the degree of the change is not a matter of present concern. (See Kennedy, Garnishment of Intangible Debts in New York, 35 Yale L. J. 689.)

The order should he affirmed, with costs. The first question certified should be answered in the negative. The second question certified should not be answered.

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

Order affirmed, etc.


text:
    The People of the State of New York ex rel. City of Buffalo, Respondent, against Isidore J. Mazurowski et al., as Assessors of the Town of Cheektowaga, Erie County, Appellants.
    Argued Hay 16, 1945;
    decided July 19, 1945.

      Kenneth W. Kitzinger for appellants.
    I. Under subdivision 16 of section 4 of the Tax Law, the exemption, where applicable, is limited to that portion of the premises constituting the aviation field. II. The Buffalo Municipal Airport was not used as a public aviation field on July 1, 1942. (Rivet v. Burdick, 255 App. Div. 131, 229 N. Y. 248; City of Mobile v. Lartigue, 23 Ala. App. 479; Olcott v. Supervisors, 16 Wall [U. S.] 678.) III. On July 1, 1942, there was no agreement in force, with reference to the Buffalo Municipal Airport, of the kind required by subdivision 16 of section 4 of the Tax Law. The Legislature in insisting on an agreement in order for an exemption to exist, meant an agreement with the tax district wherein the aviation field is located. (City of Buffalo v. County of Erie, 235 App. Div. 892; The People v. Zeyst, 23 N. Y. 140; White v. Kingston Motor Car Co., 69 Misc. 627; Stone v. Commonwealth Finance Corp., 243 N. Y. 528; Bell v. Metz, 224 App. Div. 377, 250 N. Y. 622; People ex rel. City of Watertown, N. Y., v. Gilmore, 166 Misc. 323.)

      Andrew P. Ronan, Corporation Counsel (Fred C. Maloney and Herbert A. Hickman of counsel), for respondent.
    I. The exemption of a “ public aviation field ” includes the buildings and other structures used in its operation. (Rivet v. Burdick, 255 App. Div. 131; Hesse v. Rath, 249 N. Y. 436; People v. Ryan, 274 N. Y. 149.) II. Within the statute, the Buffalo Municipal Airport was at all times here involved used as a public aviation field. (People ex rel. City of Watertown, N. Y., v. Gilmore. 166 Misc. 323; People v. N. Y. C. & H. R. R. R. Co., 28 Hun 543; People ex rel. N. Y. C. R. R. Co. v. Pub. Serv. Comm., 193 App. Div. 322; Saunders, et al., v. N. Y. C. & H. R. R. R. Co., 144 N. Y. 75; Elmhurst Fire Co. v. City of New York, 213 N. Y. 87; People ex. rel. Mayor, etc., of N. Y. v. Assessors, 111 N. Y. 505; Commissioner of Internal Revenue v. Ten Eyck, 76 F. 2d 515; N. Y. ex rel. Rogers v. Graves, 299 U. S. 401.) III. The receipt of rentals does not remove the airport from a public use. (Commissioner of Internal Revenue v. Ten Eyck, 76 F. 2d 515.) IV. The premises were on July 1, 1942, under agreement with the city, used for a public aviation field and were exempt from taxation. (Cooper-Snell Co. v. State of New York, 230 N. Y. 249; City of Buffalo v. County of Erie, 235 App. Div. 892; People ex rel. City of Watertown, N. Y., v. Gilmore, 166 Misc. 323; People ex rel. Met. St. Ry. Co. v. Tax

      Comrs., 174 N. Y. 417; Tootle Theatre Co. v. Shubert Theatrical Co., 175 App. Div. 530; Dollard v. Roberts, 130 N. Y. 269; Zolezzi v. Bruce-Brown, 243 N. Y. 490.)
   Loughran, J.

The City of Buffalo is the owner of 538 acres of land within the limits of the Town of Cheektowaga in Erie County. This property is used as an airport. Whether the town can levy taxes thereon is the issue to be determined. Everything turns on the following provision ©f the Tax Law: “ Beal property of a municipal corporation not within the corporation which under agreement with the corporation is used for a public park, public aviation field or highway shall be exempt from taxation while so used.” (§ 4, subd. 16.)

In that context, municipal corporation ” manifestly means a municipal corporate owner of real property located outside its own corporate boundaries. Our task is to ascertain the import of the requirement that in order to be exempt from taxation such property 'must be used for a public park, public aviation field or highway “ under agreement with the corporation ”,

Under various contracts with the City of Buffalo, parts of its airport have long been used for aeronautical purposes by a number of private corporations. In the courts below, each of these contracts was deemed to be an “ agreement ” within the sense of that word of the statute, and on that basis the property was declared to be tax free. We cannot agree to that disposition of the matter.

Though the text is pretty blind, we have no hesitation in saying that “ public ” is the key-word of the statute. From that viewpoint, the agreement spoken of therein does not mean a stipulation that would bind the municipal corporate owner to some individual contractor. For there was no reason why the concurrence of any private person should have been regarded by the Legislature as a necessary adjunct to the essentially municipal function of maintaining parks, highways and similar places.for use by the community at large. On the other hand, there is every reason why a public use of land should be subject to a fair degree of control by the civil authorities of the locality wherein the land is situate. An adjustment to that end is, we think, the “ agreement ” that is contemplated by the statute. No such understanding has been reached by the City of Buffalo and the Town of Cheektowaga in this instance. It follows that the City’s airport is not exempt from assessment by the town for the purposes of taxation.

The orders should be reversed, with costs in all courts, and the matter remitted to the Special Term for further proceedings not inconsistent with this opinion.

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

Orders reversed, etc.

       The original text of the statute was as follows: “Real property of a municipal corporation not within the corporation which under agreement with the corporation is used for a public park or highway shall be exempt from taxation while so used.” (L. 1924, ch. 595). The words “ public aviation field” were inserted by chapter 673 of the Laws of 1926.


author: Loughran, J. Conway, J.

text:
    In the Matter of the Accounting of Central Hanover Bank and Trust Company, as Trustee under the Will of Frederick A. Hoyt, Deceased. Central Hanover Bank and Trust Company, Individually and as Trustee, Appellant; Fredericka H. Haslup et al., Respondents.
    Argued Hay 15, 1945;
    decided July 19, 1945.

      J. Quincy Hunsicker, 3rd., Hersey Eggington and Albert B. Maginnes for appellant.
    I. The investments in mortgage participations, by appellant’s taking a whole bond and mortgage in its own name for allocating shares of the investment to separate trusts and making such allocation of shares of such investments to the trust now in question, were in full compliance with the provisions of the will, conferring power to invest in “ securities, expressly authorized ” for savings banks. (Matter of Union Trust Co. [Hoffman Estate], 219 N. Y. 514.) II. The statutory term “ bonds and mortgages ” (Banking Law, former § 239, subd. 6) includes parts or shares, as well as wholes, thereof. (Chesterman et al. v. Eyland, 81 N. Y. 398; Barry v. Lambert, 98 N. Y. 300; Matter of Union Trust Co. [Hoffman Estate], 219 N. Y. 514; Matter of Doblin, 152 Misc. 406; Matter of Ryan, 291 N. Y. 376; Matter of Flint, 240 App. Div. 217, 266 N. Y. 607; Matter of Smith, 279 N. Y. 479; Matter of Farina, 279 N. Y. 780; Matter of Weinroth, 254 App. Div. 733; Matter of Jones, 161 Misc. 795; Matter of Dalsimer, 160 Misc. 906, 251 App. Div. 385; Matter of Stupack, 274 N. Y. 198.) III. The will should be construed in the light of the widespread usage and common understanding of a provision authorizing investment in securities permitted for savings banks, as entitling the fiduciary to invest in mortgage participations. (Matter of Doblin, 152 Misc. 406; Matter of Stupack, 274 N. Y. 198; Matter

      of Smith, 279 N. Y. 479.) IV. Testator in confining his reference to the savings bank law to the “ securities ” authorized by such law, and in appointing appellant, a trust company, as his fiduciary, plainly intended that the manner and procedure for the exercise of appellant’s powers, including the manner of exercising the power to invest in “ bonds and mortgages should be governed by the statutes regulating the exercise of powers of trust companies and not by the statutes regulating the exercise of powers of savings banks, literal compliance by a trust company with the latter being impossible. (Matter of Doelger, 254 App. Div. 178, 279 N. Y. 646; Matter of Farina, 253 App. Div. 511, 279 N. Y. 780; Central Hanover Bank and Trust Company v. Brown, 30 N. Y. S. 2d 85; In re Gibson’s Will, 40 N. Y. S. 2d 727; Wilmerding v. McKesson et al., 103 N. Y. 329; Chesterman et al. v. Eyland, 81 N. Y. 398; Matter of McCafferty, 147 Misc. 179; Croft v. Williams et al., 88 N. Y. 384; Matter of Mann, 147 Misc. 873; Reid v. Sprague, 72 N. Y. 457; Matter of Garvin, 256 N. Y. 518.) V. The surcharge respecting the rubber company shares is predicated upon a plain mistake of fact and not upon unauthorized “ retention ”, the sole ground of objection. ‘ It violates both (a) the express and the effective testamentary exoneration of appellant from liability for loss, incurred in good faith, and (b) the adjudicated right of a fiduciary to participate in a consolidation, even if retention of the new securities would be unauthorized, as long as the new securities are sold within a reasonable time. (Matter of Garvin, 256 N. Y. 518; Matter of Clark, 136 Misc. 881, 232 App. Div. 781, 257 N. Y. 132; Matter of Cuddeback, 168 Misc. 698; In re See’s Estate, 38 N. Y. S. 2d 47; Crabb v. Young, 92 N. Y. 56; Matter of Clark, 257 N. Y. 132; Matter of Kramer, 172 Misc. 598; In Re Olney’s Estate, 20 N. Y. S. 2d 884; Chemical Bank & Trust Co. v. Ott, 274 N. Y. 572; In the Matter, etc., of Estate of Weston, 91 N. Y. 502; Matter of Clark, 257 N. Y. 132; Matter of Parsons, 143 Misc. 368, 238 App. Div. 883; Matter of Horton, 166 Misc. 768.)

      Jules G. Evens and Samuel Lawrence Brenglass for Fredericka H. Haslup and another, respondents.
    I. Investment in mortgage participations is not permitted under the provision of the will restricting investments “ only in securities, expressly authorized ”, for savings banks. (Matter of Reid, 170 App. Div. 631, 218 N. Y. 640; Matter of London, 104 Misc. 372, 187 App. Div. 952; Roseboom v. Roseboom et al., 81 N. Y. 356; Matter of Buechner, 226 N. Y. 440; Matter of Barrett, 141 Misc. 637; Matter of Riecke, 165 Misc. 566; Matter of Easton, 178 Misc. 611, 266 App. Div. 713; Matter of Ryan, 291 N. Y. 376; Matter of Dalsimer, 160 Misc. 906, 251 App. Div. 385, 277 N. Y. 717; Matter of Waxelbaum, 156 Misc. 45; Matter of Haydock, 158 Misc. 404; Matter of Goebel, 177 Misc. 553; Matter of Campbell, 38 N. Y. S. 2d 827, 267 App. Div. 783.) II. Respondents are not estopped by any acquiescence in, or ratification of, the unauthorized investments in the mortgage participations. (Adair et al. v. Brimmer et al., 74 N. Y. 539; Meinhard v. Salmon, 249 N. Y. 458; Matter of Long Island Loan & Trust Co., 92 App. Div. 1, 179 N. Y. 520; Matter of Young, 249 App. Div. 495, 274 N. Y. 543.) III. The retention by appellant trustee of the common stock of the rubber company after the receipt by it of notice that the company would reorganize and consolidate with another corporation, constituted an investment in a stock not authorized by the will. (Stark v. National City Bank, 278 N. Y. 388; Mertz v. Guaranty Trust Co., 247 N. Y. 137.)

      J. Hampden Dougherty, special guardian, for Mary Hoyt and others, infants, and for others, respondents.
    I. Each of the real estate mortgages objected to was an improper investment because the appraisal requirements imposed as to savings bank mortgages were never complied with. Personal inspection and appraisal by appellant’s trustees was requisite. (Matter of Easton, 178 Misc. 611, 266 App. Div. 713.) II. Valuation at the time of acquiring participations was essential. (Matter of Dimond, 163 Misc. 611; Matter of Dalsimer, 160 Misc. 906.) III. The wholly exceptional language of this will forbade investment of the trust fund in parts of any mortgages — even in parts of mortgages legal for savings banks. Participations were not expressly authorized by the Banking Law. IV. The Banking Law "forbade appellant’s procedure. V. As to alleged estoppel of beneficiaries, the law is contra. (Matter of Doelger, 254 App. Div. 178; Adair et al. v. Brimmer et al., 74 N. Y. 539; Matter of Haydock, 158 Misc. 404; Matter of Bannin, 142 App. Div. 436.) VI. The retention clause of the will was inapplicable to the rubber stock transaction.
   Loughran, J.

In this proceeding for settlement of an intermediate account of a testamentary trustee, the Surrogate sustained objections that were filed by beneficiaries and surcharged the account accordingly. The Appellate Division affirmed.

The first surcharge is for the amount of losses which resulted from investments of the trust principal that were made in parts of bonds and mortgages. On this branch of the case the question is one of testamentary construction.

The will of the testator was probated in 1929. By Item Seventh thereof, he left three quarters of his residuary estate to the trustee. Item Eighth directed payment of the whole of the net income to the testator’s only daughter during her life. Item Ninth gave a one-third remainder to the daughter’s heirs and a two-ninths remainder to each of the three sons of the testator. Item Eleventh directed the trustee to invest and re-invest any and all moneys placed in the trust created under Item Seventh hereof or which may be by it realized from any sale or sales of property or securities constituting a part of the trust created under Item Seventh hereof, only in such securities as savings banks under the Banking Laws of New York are expressly authorized to invest deposits.”

At the times in issue, investment of the funds of savings banks was regulated by former section 239 of the Banking law (see, now § 235). Nowhere in that section was there any direct reference to parts of bonds and mortgages. Moreover, the following provision in respect of bonds and mortgages was thereby made: A savings bank may invest the moneys deposited therein * * * in the following property and securities and no others * * *. Bonds and mortgages on unincumbered real property situated in this state ” (subd. 6). In the face of that statutory formula, the Surrogate felt impelled to find that the investments in parts of bonds and mortgages were a departure by the trustee from the duty imposed upon it by the above Item Eleventh of the testator’s will, — i.e., the duty to invest the trust funds “ only in such securities as savings banks under the Banking Laws of New York are expressly authorized to invest deposits.” A majority of the Appellate Division were of the same opinion.

The funds of the trust were to be laid out “ only ” in those forms of security which the New York statute “ expressly authorized ” as fit for the investment of savings bank deposits. The power thus carefully defined by the testator necessarily excluded other general or implied powers, since the meaning of the conditioning words was plain and did not beget any incongruity or unfairness. No explicit expression in the New York statutes empowered savings banks to invest deposits in parts of bonds and mortgages. Hence the investment of the trust funds in fractional assets of that character was without any warrant, as the courts below have held.

The same former section 239, subd. (6), of the Banking Law contained this restriction: “No investment in any bonds and mortgages shall be made by any savings bank except upon the report of a committee of its trustees charged with the duty of investigating the same, who shall certify to the value of the premises mortgaged or to be mortgaged, according to their judgment, and such report shall be filed and preserved among the records of the corporation.” No such investigation was ever made by the trustee in connection with any of the investments that are here in dispute. In the judgment of the courts below, this omission was a further reason for liability on the trustee’s part. Again we agree. The trustee is a bank of deposit and trust company. It had a real estate committee composed of a number of its directors and, that being so, its plea of structural inability to obey the last-stated requirement of the statute is not impressive.

Bach of the challenged investments was the result of an apportionment of a whole mortgage which had theretofore been held by the trustee in its personal name. In most instances, this period of antecedent individual ownership in the trustee had continued for a number of years before any part of the security was distributed to the present trust. Whether that line of action was in keeping with the strong fiduciary standard of undivided loyalty may be open to doubt; but this record, as it happens, does not call upon us to take account of that matter.

Appraisals were supplied to the trustee on its purchases of the whole mortgages. Those estimates, we think, had become worthless by reason of age. There is even less force in the trustee’s evidence that values were discussed in its mortgage department. The applicable statute, as we have noticed, required that valuations be authoritatively indorsed and kept on file.

The trustee says the beneficiaries acquiesced in its breaches of the trust. On this head, the Surrogate said: “ Since it appears to my satisfaction that neither the life beneficiary nor the remaindermen of this trust estate were fully apprised of the facts, and of-their rights under the law applicable, and how the acts sought to be confirmed or ratified would be dealt with by a court of equity they are not estopped from objecting to the account.” In its affirmance of that finding the Appellate Division was unanimous.

No charge is made of concurrence by any other party in the misconduct of the trustee. Nor is any claim made of actual knowledge by any other party of the failure of the trustee to certify the values of the mortgaged properties. Thus there was ample room for the finding of lack of such conscious assent as wifi debar a beneficiary from redress for a mishandling of his interests in the execution of a trust.

We pass now to another transaction for which an additional surcharge has been imposed. Among the assets of the estate of the testator were 200 shares of common stock of the American Hard Rubber Company. Conformably to his will these shares were retained in the trust. In 1941, steps were taken to consolidate the rubber company with another concern, through a plan whereby preferred shares of the consolidated company were to have new priorities over its common shares. For some reason, the trustee did hot carry out its election to take common stock of the consolidated company in exchange for the common shares of the rubber company that were in the trust. The consolidation was effectuated on December 26, 1941. On that date, the market value of 200 shares of common stock of the rubber company was $3,450. On February 28, 1942, the trustee sold its 200 shares thereof for $2,750.93. The amount of the surcharge is the difference of $699.07.

The trustee was not in duty bound to dispose of its .shares of the common stock of the rubber company as soon as the consolidation plan became effective on December 26,1941. Whether the subsequent period of retention exceeded a reasonable time was the true question on this branch of the case. The Surrogate should now pass upon that question.

The orders should he modified in accordance with this opinion, with costs to all parties appearing separately and filing briefs, and the matter remitted to the Surrogate’s Court for further proceedings.

Conway, J.

(dissenting). This is an appeal by an accounting testamentary corporate trustee from an order of the Appellate Division affirming, with two justices dissenting in part, a decree of the Surrogate’s Court surcharging the trustee for (a) investments in mortgage participations and (b) retaining stock after notice of a proposed consolidation of the issuing corporation with another corporation; except that no appeal is taken with respect to one mortgage participation covering property on Townsend Avenue, and nothing hereafter has reference to that participation unless it is expressly so stated.

The testator died in 1929, leaving a will which had been made in 1926. That will named as sole executor and trustee the accountant. The testator’s son, William, one of the objectants, became counsel for the accountant as executor, represented the accountant as its attorney on its accounting as executor, participated in the preparation of its account and was consulted as to some matters by it as trustee.

The investment provisions of the mil were as follows:

Item Tenth : Authority is hereby expressly conferred upon my Executor and Trustee to continue any and all investments placed in the trust created under Item Seventh hereof, in any corporation, partnership or joint ownership, so long as expedient, even though such securities may not be of the class authorized under Item Eleventh hereof, and to hold, sell, dispose of all or any part thereof as in its discretion may be for the best interest of my estate.
“ Item Eleventh : I direct by Executor and Trustee to invest- and re-invest any and all moneys placed in the trust created under Item Seventh hereof or which may be by it realized from any sale or sales of property or securities constituting a part of the trust created under Item Seventh hereof, only in such securities as savings banks under the Banking Laws of Hew York are expressly authorized to invest deposits.
“ Item Twelfth: It is my will that my Executor and Trustee, while acting in good faith, shall not be held liable or accountable to any beneficiary hereunder for any loss arising upon any sale through failure or omission to sell any of my property, real or personal, within what might be deemed a reasonable time. ’ ’

From the outset, the accountant allotted to itself, at first as executor and later as trustee, participations in whole mortgages acquired and held by it exclusively for trust investment under the formula approved by us in Union Trust Co. (Matter of Union Trust Co. [Hoffman], 219 N. Y. 514.) Each mortgage investment was a participation so allotted, and in each instance at issue the whole mortgage did not exceed 60% of the value of the mortgaged premises. That procedure was made clear in its account as executor which was made available to each of the objectants or his duly authorized representative on that accounting.

It was known to testator’s son William, who represented the accountant as attorney on the settlement of its accounts as executor. It was known to the special guardian on the executor’s accounting, who mentioned it specifically in his report to the Surrogate and who approved the account. The delivery, on March 20,1930, by accountant as executor to itself as trustee of mortgage participations as a corpus of the trust was approved by the Surrogate.

The good faith of the accountant is not questioned. In fact, as late as September, 1942, after 'she had regularly accepted the income from' the mortgage investments for some eleven years, the life beneficiary wrote the accountant: May I take this opportunity to compliment the Central Hanover Bank & Trust Co., through you, for its integral honesty & unfailing conscientious adherence to the very letter of my father’s will & wishes? ”

By Ms will, the testator left one quarter of his residuary estate to Ms three sons in equal • shares, and three quarters in trust for his daughter, Frederieka, for life, with a one-third remainder to the heirs of his daughter and a two-ninths remainder interest to each of his sons or their respective issue. The life beneficiary is still living and has one son. One of the three sons of testator has died, leaving one son as his sole living ’ issue, and he has consented to this accounting. .The two other sons of testator. William Henry Hoyt and Charles A. Hoyt, are living, and each has issue.

After objections had been filed, the parties entered into a stipulation modifying, combining and defining them. Objections were made to mortgage participations, in that stipulation, upon various grounds. The only objection to the participations which was sustained was the second one, reading 1. A. (b): 4 4 Mortgage participations were not 4 expressly ’ authorized as investments for savings banks and hence were not authorized as investments under article 4 11 ’ of the above decedent’s Will;” that was sustained by paragraph 4 of the decree: 44 The Will of the above-named decedent is hereby construed as prohibiting the investment of funds of said trust in the following participations in bonds and mortgages:”, listing them. By paragraph 6 of the decree, every other objection interposed to the account as to participations was 44 overruled and dismissed.” That was a finding that the investments in participations had been in all respects properly made, except that they were prohibited under the Surrogate’s construction of the will, and that finding has been affirmed. It is the law of the case, as far as the 'objectants are concerned, since they did not appeal. (Surrogate’s Court Act, § 71; Matter of Hearns, 214 N. Y. 426, 432; Wilson v. Mechanical Orguinette Co., 170 N. Y. 542, 553; Matter of Davis, 149 N. Y. 539, 548; Burns v. Burns, 109 App. Div. 98, affd. 190 N. Y. 211, 215; Matter of Hood, 104 N. Y. 103, 106; Kelsey v. Western, 2 N. Y. 500; Gen. Fireproofing Co. v. Keepsdry Const. Co., 225 N. Y. 180, 182, 189.) As we have seen, there is no claim of bad faith. There were three objections, A (a), (c) and (d) made upon the grounds that the accountant had had no appraisal of the type and made in the manner required by Banking Law, section 239, subdivision (6) and that the certificates and valuations obtained by accountant were insufficient to meet the requirements of due care and that accountant made no inspection of the premises. Those objections pleaded negligence and lack of due care. As we shall show, there was inspection of the premises here, but we point out that no inspection of premises was required even as to savings bank trustees until the passage of Laws of 1933, chapter 322. When those objections were overruled and dismissed, and this was done after the death of Surrogate Millard, by the new surrogate after full opportunity to be heard by everyone, that was a disposition of all objections involving negligence or lack of due care.

The Surrogate’s decision and opinion pointed out that inasmuch- as the acquisition of these mortgage participations by the trustee, * * ■ * was unauthorized, the trustee must bear the responsibility for any loss that may have resulted under the circumstances * * In other words, the loss to be borne by the trustee is not because of any allotment of participations in mortgages of improper value or because of failure to attempt to value mortgages, in letter or spirit, as a savings bank under Banking Law, section 239, would have valued them if the trustee here had been a savings bank. The surcharge was because the allotment of participations was unauthorized. Despite the fact that that was the basis for the decision of the Surrogate and despite the fact that no attempt was made to appeal by object ants from that portion of the decree which overruled and dismissed their objections, the appeal has been argued in this court on the theory, as phrased by counsel upon the argument, that Banking Law, section 239 (affecting savings banks only) has not been complied with in letter or spirit by the trust company trustee herein, although there is no finding in this record to support, that argument.

When the testator wrote into his will the three items quoted {supra), and during the period involved here, the applicáble provision of the Banking Law (§ 239, subd. 6) regulating investments of savings banks, read as follows, and, in effect, that provision was written into the will: “A savings bank may invest * * * in the following property and securities * * *: 6. Bonds and mortgages on unincumbered real property situated in this state, to the extent of sixty per centum of the appraised value thereof. * *

There -are three cases in this court where the fiduciary — a testamentary trustee or a committee — wás restricted, just as accountant here, to investments in “ securities authorized for savings banks.” Those three cases are Matter of Union Trust Co. (Hoffman), (219 N. Y. 514), (1916); Matter of Smith, 279 N. Y. 479 (1939); Matter of Farina, 279 N. Y. 780 (1939).

At the time of the decision in Matter of Union Trust Co., a trustee was limited in its investments by section 111 of the Decedent Estate Law. That section provided that a trustee might invest trust funds in the same kind of securities as those in which savings banks of this state are by law authorized to invest the money deposited therein, and the income derived therefrom, * * * and in bonds and mortgages on unencumbered real property in this state worth fifty per centum more than the amount loaned thereon ’ \ There was no reference made to parts ”, shares ” or apportionments. Amendments to the Banking Law, section 188, subdivision 7, Decedent Estate Law, section 111, and Personal Property Law, section 21, all occurred subsequently. (See Matter of Ryan, 291 N. Y. 376, 399-401.) We can point the situation no more clearly than by quoting the following language from Matter of Doblin (Foley, S.), 152 Misc. 406, at 408: “ At the time of this decision [Matter of Union Trust Co.], section 111 of the Decedent Estate Law fixed the classes of securities in which a trustee was authorized to invest as follows: (a) Those in which savings banks of this State were by law authorized to invest; and (b) bonds and mortgages on unencumbered real property in this State worth fifty percent more than the amount loaned thereon. The terms of the will here imposed no greater restrictions than did the first part of section 111 of the Decedent Estate Law, as it existed when construed in the Union Trust Co. case. We have almost an exact parallel between the facts in Matter of Union Trust Co. and the facts here. In the Union Trust Co. case the trustee under the law was limited to savings bank investments. The only modification permitted by the statute to trustees, but denied to savings banks, was the slightly higher amount of the mortgage with relation to the total value of the property. In the present case the will limited the trustee to investments in savings bank securities. Its directions in substance were the same as the limitations contained in section 111 of the Decedent Estate Law, as construed in Matter of Union Trust Co., except that it restricted the trustee to the percentages of mortgages of the total value applying to savings banks.

“ The practice of trust companies and banks in investing in participations was determined to be lawful in the Union Trust Co. case. If such investments were lawful in that case, they were lawful here. We are not concerned with the fact that savings banks by general custom have not invested in mortgage participations. The industry of counsel and the research of the surrogate have failed to disclose any reported judicial decisions construing directly the powers of a savings' bank to invest in participations. The various Superintendents of Banks, as a matter of regulation, have discouraged investments in parts of mortgages. Trustees of savings banks, it is conceded, have followed that policy. Time and experience have proven the wisdom of confining the investments by the Savings banks as a matter of policy to whole'mortgages. But, regardless of policy, the Court of Appeals has construed the authority of a trustee to invest in savings banks securities, to include the power to invest in participations.

At the time the will here was written, on February 18,1927, Matter of Union Trust Go. (decided in 1916) had laid down a general rule for the guidance of trustees. It would be inequitable in such a situation, where a practice sanctioned by the decision of the highest court of the State was adopted by the trustee, to surcharge the trustee for acts done in conformity with it.” (Emphasis supplied.)

Decedent Estate Law, section 111, and Personal Property Law, section 21, were amended in 1918 so as to authorize fiduciaries to invest in “ parts or shares ” of mortgages which were not held in the name of the fiduciary. Banking Law, section 188, subdivision 7, had been amended in 1917 to permit a trust company to apportion to a trust of which it was trustee ‘ ‘ a part interest in a bond and mortgage held * * * in the name of such corporation ”. (Matter of Ryan, supra, p. 401.)

In 1939, there came before us Matter of Smith (279 N. Y. 479). We there construed Civil Practice Act, section 1384-1, enacted in 1929, governing investments of committees. It required investment “ in the same kind of securities as those in which savings banks of this state are by law authorized to invest the money deposited therein, and the income derived therefrom, and in bonds and mortgages on unincumbered real property in fhis state worth fifty per centum more than the amount loaned thereon.” That section followed the provisions of the Decedent Estate Law and Personal Property Law, referred to {supra), as they were prior to the amendments of 1918, omitting any authorization for investment in “ parts ” or shares ” or apportionments. Thus there was no authorization, such as the accountant trust company has had, since the amendment to Banking Law, section 188, subdivision 7, in 1917, or the 1918 amendments just referred to. Nevertheless, in Matter of Smith, we went back to Matter of Union Trust Co. (Hoffman) and approved it. There was then urged the argument, even stronger than the contention of object ants here, that when the Legislature in 1929 wrote into the Civil Practice Act the language of sections 111 of the Decedent Estate Law and 21 of the Personal Property Law as they were prior to 1918, and left out words authorizing investment in “ parts ” or “ shares ”, the guardian who had invested in certificates of participation in a mortgage should be surcharged. Indeed he had been surcharged, and the surcharge had been affirmed in the Appellate Division. Nevertheless, we reversed, saying (Lehman, J.):

“ This court held in Matter of Union Trust Co., 219 N. Y. 514 (1916), that a trustee even before the amendment of the statute in 1918 had power to combine several trust funds in an investment in a single bond and mortgage, held by the trustee in its own name, provided that the transaction was carried out in manner there described, which would adequately protect the rights and interests of the beneficiary of the trust fund. We did not there hold that a trustee might purchase a certificate of participation in a bond and mortgage held and controlled by another person or trust company. Such an investment would have violated long-established rules governing the form of investments by trustees, and before the amendment of 1918 no trustee could safely disregard these rules. A court would not have been justified in reading into the statute by implication a power to invest trust funds in parts of (sic) shares of bonds and mortgages when such investment was not in accord with established practice or established rules.
“ The statute of 1918 changed not only the rule but the practice of investment by trustees. Guaranteed certificates of participation in bonds and mortgages became a very usual form of investment. Undoubtedly investments in such certificates were generally regarded as ‘ mortgage investments.’ The Legislature in statutory definitions of the words ‘ bonds and mortgages ’ or ‘ mortgage investments ’ has in unambiguous language indicated that at least for some purposes and in some statutes these 'terms are intended to include shares, parts or interests in bonds and mortgages. (Cf. General Construction Law [Cons. Laws, ch. 22] § 25-b [added by Laws of 1933, ch. 317] ; also an * Act to provide for the protection of holders of mortgage investments,’ popularly known as the Schackno Act [Laws of 1933, ch. 745, § 2] and the Mortgage Commission Act [Laws of 1935, ch. 19, art. 3, § 3]). The courts have recognized that in common speech investments in ‘ bonds and mortgages ’ would include investments in parts or shares of such bonds and mortgages evidenced by certificates of participation. So the courts have 'held that the authority given by a testator in his will to a trustee to invest in mortgages includes, by plain implication, authority to invest in guaranteed mortgage participation certificates. (Matter of Weinroth, 254 App. Div. 733.)
* * * ' * * * *
“ * * * a construction adopted consistently and not casually by the legal department of an official agency and by the courts, and which has been accepted without challenge over a period of years by the public, may not be lightly rejected as unreasonable. It indicates plainly what a fiduciary „ reading the statute with reasonable care would understand from its language, and that is the way in which the courts should construe a legislative definition intended to guide the conduct of fiduciaries. * * * ” (pp. 484, 488.)

We followed and extended that ruling in Matter of Farina (279 N. Y. 780, supra) where a group mortgage certificate was involved. In that case, the opinion in the Appellate Division (253 App. Div. 510), affirming the surcharge of the committee, had pointed out “ * * * savings banks are not authorized to invest in mortgage certificates, but only in whole mortgages * * * ”. We reversed, squarely upon the authority of Matter of Smith (279 N. Y. 479, supra).

In Matter of Stupack (274 N. Y. 198, Lehman, J.), we went further, in order to uphold a purchase by a general guardian of an infant of a ■“ group mortgage certificate ” which had been made pursuant to the general custom and usage of fiduciaries, than it is necessary to go in this case. There, we said that the term “ bond and mortgage ” included shares ” or parts ” of bonds and mortgages and even included group mortgage certificates ”, despite the fact that such certificates did not confer title to the underlying bonds and mortgages. (Matter of People [Tit. & Mtge. Guar. Co.], 264 N. Y. 69.) That was in good part because “ careful fiduciaries and their legal advisers ” (p. 213) were justified in relying upon a practical statutory construction of public officers and courts.

In the instant case, there was no purchase by the trustee of parts ” or shares or certificates as contemplated by the amendments of 1917 and 1918, but a purchase of an entire bond and mortgage and an allocation of it under the Matter of Union Trust Co. (Hoffman) formula approved by this court in that case and again as late as in Matter of Ryan (291 N. Y. 376, 401). Not only that, but the accountant trustee is the successor to Union Trust Co., and a comparison of the records in the two cases discloses that the same officer made the bond and mortgage purchases and allocations in both cases. The Ryan case was a case of self-dealing. Matter of Union Trust Co. [Hoffman] was not. The instant case is not. The Chief Judge disagreed in part in the Ryan case, but none of the three points upon which he disagreed (see bottom of page 418) had any relation to a case such as the Union Trust Company case or the instant case, where no self-dealing is present. We decided in the Ryan case that, because of the relationship between Title Guarantee & Trust Company and Bond & Mortgage Guaranty Company, there was self-dealing as to the trusts involved, and, second, that limited self-dealing was permitted by statute only on condition that a statutory notice of the apportionment to a trust of a part interest in a bond and mortgage owned by the trustee was given, and if not given, even that limited statutory right to self-dealing was not permitted. Here, since there is no self-dealing, the Union Trust Company case and not the Ryan case is the determining one.

The citation and consideration of the Smith, Farina, Stupack and Doblin cases (supra) and the memorandum opinion of the learned Appellate Division herein indicate clearly that the decision below was thecresult of a misapprehension. The Appellate Division affirmed upon the authority of Matter of Easton (178 Misc. 611, affd. 266 App. Div. 713, leave to appeal denied 291 N. Y. 828). The three justices who voted for affirmance said: •f< (a) The Easton case involved a testamentary trustee, as in the case at bar and testamentary provisions similar to those herein as to the character of investments to be made. When the Court of Appeals ruled, it had before it the contrary decision in Matter of Doblin (152 Misc. 406) upon whose doctrine the appellants necessarily rely. The Court rejected that doctrine by its action in the Easton case in 1943. It also had before it the earlier cases invoked by appellants, Matter of Smith (279 N. Y. 479; Jan. 10, 1939) and Matter of Farina (279 N. Y. 780; January 10, 1939). The Court must be deemed to have differentiated between a testamentary trustee, as in the Easton and instant cases, and a committee of an incompetent, as in the Smith and Farina cases, because of the difference in the statutes involved and the different factual situations.” (268 App. Div. 1002.)

As counsel were advised on the argument by the Chief Judge, we never reached, in the Easton case, the point upon which the Appellate Division thought we had denied leave to appeal. There was self-dealing in that case, and that was sufficient for the denial of the motion.

We have pointed out heretofore that under the stipulation of the parties herein and the decree, the only issue was as to whether the allotment of part interests in bonds and mortgages under the Union Trust Co. (Hoffman) formula was authorized by testator’s will. The learned Surrogate in his opinion and decision, although not in the decree from which the appeal is taken, said that although “ under a duty to comply substantially with the" statutory methods and procedure regulating the making of such investments ” by savings banks under Banking Law, section 239, subdivision 6, the trustee did not so comply with reference to the appraisal of mortgaged property. It is difficult to understand the relevancy of that statement since no “ appraisal ” in terms was required under Banking Law, section 239, subdivision 6, as applicable here. That read as follows: “Ho investment in any bonds and mortgages shall be made by any savings bank except upon the report of a committee of its trustees charged with the duty of investigating the same, who shall certify to the value of the premises mortgaged or to be mortgaged, according to their judgment, and such report shall be filed and preserved among the records of the corporation.”- The sentence begins “Ho investment . . . shall be made by any savings bank ” and the trustees referred to are the trustees of. a savings bank. There could, of course, be no literal compliance any more than if the testator had appointed an individual trustee. There could at most be a compliance in spirit by a trust company trustee. It is even more difficult to understand the Surrogate’s reference to an “ appraisal ” when *we find a separate “ appraisal ” obtained by the accountant for each piece of property, printed as an exhibit in this record (pp. 220 et seq.), and there is uncontradicted testimony that between the time of such “ appraisal and the allotments to the trust of parts of the mortgages there was a continuous check on value by at least three officers of the accountant.

We must remember that the mortgages were upon Manhattan real estate, which is limited in extent, and with which the officers of the trust company were thoroughly familiar. The officers knew the neighborhoods and if they had information relating to a neighborhood which might indicate a change we would go over the mortgages in the neighborhood. That is one reason we limited ourselves largely to Manhattan because the officers of the company particularly considered that they could keep in touch with them in our daily affairs ”. As a matter of fact, there was substantial conformity in methods between the trust company trustee and savings banks in selecting mortgages. Concededly there were appraisals by professionals who made their reports to the trust company. In the case of savings banks, the trustees themselves make the valuations. The officers and trustees of accountant thereafter usually acted as a committee, and exercised their own judgment as to value. Maintenance of value and desirability of investments was checked by continual supervision and by a review twice a year. In addition, an independent review was made by an officer of large real estate experience on each occasion when a participation was issued. A committee of the trustees of accountant passed upon every investment made in any trust and every apportionment, either in advance or during the week following the making of the investment or of the apportionment, and minutes were kept of the action taken. That action, of necessity, found the required margin of value present. The committee minutes constituted the preservation of the records of those findings on the books of the trust company. All this constituted substantial compliance, both in letter and spirit, with the procedures required under Banking Law, section 239, for savings "banks. The baselessness fundamentally of this overruled objection is shown by the fact that now, by Legislative act, a sayings bank may follow a method practically identical with that of the trustee here and may invest “ * * * upon the written and signed certificate of two or more persons appointed by the board of trustees * * * ” (Banking Law, § 235, subd. 6, par. [e].)

The complete and final answer, however, is found in the fact that the objectants objected on the ground of insufficiency of value as to only one mortgage, viz, the Townsend Avenue Mortgage which as we have seen (supra), is not before us on this appeal. Therefore, even if there had never been an appraisal at all, the objectants have not claimed insufficiency of value as to any mortgage herein involved and thus not even the objectants claim any loss by reason of the only failure, as found by the Surrogate, although non-existent, by the trustee to comply substantially with savings bank requirements as to an appraisal.

Suffice it to say, there is no finding or proof that in the case of any mortgage with which we are concerned, accountant’s methods of inspection, appraisal and the like failed to produce the result intended by the steps to be taken by savings banks under the provisions of the Banking Law applicable only to them. In view of the dismissal of the only objections to the contrary, there was clearly a finding by the Surrogate that the contrary was the fact. Moreover, it is and of necessity must be a complete answer to any claimed duty of complying with the procedure of savings banks in the. inspection and appraisal of the mortgaged premises, that there is no proof that the procedure taken by the accountant failed to produce the exact result called for under savings banks’ procedure or that the mortgage failed to comply with every requirement for investments by savings banks. It was only as to the Townsend Avenue participation that it was claimed that the requisite value was not present, and that participation is not involved on this appeal. In other words, insufficiency of value is not claimed as to any investment before this court. It would only be as to value that an appraisal would have relevancy.

Thus, in any event, objectants have not carried their burden of showing that the methods used were the proximate cause of any loss. The general rule was stated in Wilmerding v. McKesson et al. (103 N. Y. 329, 340), as follows: “ The failure of the defendants to make a separation of the securities, as contemplated by the will, did not induce or cause the spoilation of the estate by George G. Wilmerding," nor would it have been prevented if such separation had been made. There must be a conjunction of wrong and loss to sustain a liability upon any such ground (Croft v. Williams, 88 N. Y. 384), and as this does not appear, the appellant’s claim cannot be upheld.” Similarly, it was said by Surrogate Millard in In Re Gibson’s Will (40 N. Y. S. 2d 727, 733): “ * * * Objectants contend, in effect, that the failure to require an appraisal of the bond and mortgage in question is a jurisdictional defect and that the Court lacked power to direct distribution in kind in the absence of such appraisal. It should be here observed that there is no direct causal relation between the failure to obtain the appraisal prescribed, and any loss that may ultimately result from the allocation of the mortgage to these trusts.” (See, also, Chesterman et al. v. Eyland, 81 N. Y. 398, 404; Croft v. Williams et al., 88 N. Y. 384, 391.)

We think the testator intended that the trustee he selected should act in accordance with the statutes governing it, but that it should select for investment securities expressly authorized for savings banks, among them bonds and mortgages. Bonds and mortgages were expressly authorized for savings banks. We have said, in the cases discussed (supra) that bonds and mortgages mean participations in them. Certainly it cannot be said, as a matter of law, that when the testator selected a trust company trustee that he intended a savings bank trustee. He made but one restriction upon his trust company trustee, viz., as to the securities in which it might invest. The restriction was as to the character of security and not as to the internal activities of the type of banking corporation which he selected as his trustee. We think the following from Matter of Doelger (254 App. Div. 178, 184, affd. 279 N. Y. 646), is applicable: “In directing the creation of the statutory entity the testator must be deemed to have intended the normal consequences of his act, namely, the creation of a corporation with all the powers conferred upon it by the statute governing its existence except as expressly otherwise provided against in the will. This the testator herein apparently knew.”

Here, the accountant trust company trustee had express authority from the Legislature to invest in bonds and mortgages ” and Banking Law, section 188, subdivision 7, provided, insofar as applicable, “ Investments in bond and mortgage * * * may be made by apportioning * * * a part interest in a bond and mortgage held by or in the name of such corporation, individually or in any representative capacity * * That is precisely what the accountant did, and there never has been any claim that it failed to comply with that Banking Law section.

We now come to the matter of the retention ” of the 200 shares of American Hard Rubber Company (hereinafter called American) common stock, and it is only as to their “ retention ” that objection was made. The objection reads: Objection is made to the retention by petitioner of 200 shares of American Hard Rubber Company common stock after December 6, 1941, when notice was issued by said Company of a proposal for the consolidation of said Company with Pequanoc Rubber Company.” The will, as we have already seen, provided: Authority is hereby expressly conferred upon my Executor and Trustee to continue any and all investments placed in the trust * * * so long as expedient, * * * ”. Also “ It is my will that my Executor and Trustee, while acting in good faith, shall not be held liable or accountable to any beneficiary hereunder for any loss arising upon any sale through failure or omission to sell any of my property, real or personal, within what might be deemed a reasonable time.”

On December 10, 1941 (three days after Pearl Harbor) the accountant received notice of a proposed consolidation of American with Pequanoc Rubber Corporation, the latter formed to effect the consolidation of the former with Pequanoc Rubber Company of which American already owned 46% of the common stock. The merger was “ strongly recommended ” by the directors of American as ‘1 highly advantageous ” to the company’s stockholders. The accountant, after prompt review of the situation, thought the merger was advantageous and on December 15, 1941, asked its counsel, testator’s son William, “ whether, in your opinion, we should be authorized, if the plan becomes effective, to exchange the shares held for this trust for the new stock and to continue retention of the new stock under the terms of Paragraph Ten.” No prompt reply came from testator’s son. No one 1mew then, of course, what the effect of the declaration of war against Japan would have upon the rubber industry. While awaiting his reply, the accountant received notice from American dated December 31, 1941, stating that the consolidation had been- approved on December 26, 1941, by a vote of 75% of the outstanding stock and that the plan had been declared operative. Two months and twelve days after the accountant had asked for its counsel’s advice, the testator’s son (now an objeetant) replied under date of February 27,1942, expressing the opinion that it was “ doubtful ” whether receipt and retention of the new stock was authorized. The following day, February 28,1942, the accountant entered an order for the sale of the old shares without' exchange for the new. Between December 26, 1941, the day of the meeting of the stockholders to vote upon the proposed consolidation (and it is from that date that the accountant has been surcharged), and the date upon which the sale was completed, the stock depreciated in the sum of $699.07, and that is the amount of the surcharge.

We find at the very outset that the learned Surrogate labored under a misapprehension of fact in reaching his conclusion. He spoke of “ the acceptance and retention of the common stock of the consolidated company * * The accountant made no exchange but sold the old shares which it was expressly permitted to continue to hold and as to which it was not to be accountable for loss for failure to sell, within what might be deemed a reasonable time, so long as it was acting in good faith. Here, there was no finding as to what constituted a reasonable time within which to sell the shares. If the meeting on December 26, 1941, had not approved the proposed consolidation, there would have been no reason then for selling. The accountant has been surcharged as of the date of that meeting. It has not been given time even to be notified 'formally of the vote taken. It took its counsel, now an objeetant, nearly two and one half months, during this period of world cataclysm, to reach a conclusion only that it was “ doubtful ” whether accountant had the right to exchange the shares and to retain the new stock.

It must be conceded by objectants that the trustee. had a reasonable time within which to sell after it became its duty to sell. The objection was to the retention ” after December 6, 1941, when notice was issued by said Company [American] of a proposal for the consolidation.” Counsel at the trial spoke of improper retention of 200 shares of American Hard Rubber common after the notice of consolidation.” Did accountant become obligated to sell immediately upon notice of a proposal for consolidation? Clearly not. The surcharge here runs from the date of the meeting which approved consolidation. If that was the day, December 26, 1941, upon which the duty of sale arose, the accountant had a reasonable time thereafter to sell. (Matter of Garvin, 256 N. Y. 518; Matter of Clark, 257 N. Y. 132.) Here, not even twenty-four hours was permitted. There is no question of good faith involved. It was the business judgment of accountant to make the exchange, and it voted for the consolidation. Surely a “ reasonable ” time .included the period which it took its counsel, who was considered the family representative, to make up his mind that exchange and retention of the new shares was of “ doubtful ” legality. Again, here, there was no proof that the loss of less than two points was due to the consolidation of the two companies, rather than to the conditions affecting the rubber industry following Pearl Harbor. Under the terms of the will and the factual situation disclosed, the surcharge as of December 26,1941, with no allowance at all of time to sell, was error as a matter of law and requires the remission of this phase of the controversy to the Surrogate for appropriate findings and decision thereon.

No matter what the date be determined to be on which the duty to sell the American shares arose, the trustee was required to liquidate so as to protect the trust and is allowed a reasonable time within which so to do. (Chemical Bank & Trust Co. v. Ott, 274 N. Y. 572; In the Matter, etc., of Estate of Weston, 91 N. Y. 502; Matter of Clark, 257 N. Y. 132, 138-39.) A trustee has a right to participate in a consolidation, even though retention thereafter of the new securities would not be proper, if in the exercise of sound business judgment, it appears to the trustee that the consolidation would be advantageous to the trust and more might be obtained on the sale of the new securities. (See Stark v. National City Bank, 278 N. Y. 388, 402; 123 A. L. R. 99.) Here, it has been held that a trustee must sell securities on the very day that a consolidation is voted, without being able to tell up to that day whether the consolidation will be approved and without being able to wait even for formal notification of the vote taken and without regard for its own business judgment. No such rule has ever been laid down in this State before. It is not necessary here to discuss the merits of the consolidation. Suffice it to say that there was here no radically different ” investment and no change of identity ” in substance in the shares, as in the case of Mertz v. Guaranty Trust Co. (247 N. Y. 137, 141). There Avas no “ new ” or “ different ” venture proposed. There was, in substance, an adjustment of capital from an 8% noncallable preferred to a 7% callable preferred stock, with a small additional investment in a company in which there was already ownership of 46% of the common stock, and an increase in the preferred stock to the extent that there was an increase of dividend requirements for such preferred stock of $2,039 per annum.

The order appealed from should be reversed, the objections dismissed and petitioner’s account of proceedings settled and approved as filed, except as to the matter of the retention of the American Hard Rubber Company shares, as to which, the matter should be remitted to the Surrogate for action not inconsistent with this opinion.

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

Ordered accordingly. [See 294 N. Y. 979.]


author: Desmond, J.

text:
    James A. Taylor, Appellant, v. New York Central Railroad Company, Respondent.
    Argued May 17, 1945;
    decided July 19, 1945.

      Copal Mintz and James J. Healy for appellant.
    I. Plaintiff, at the time of’his injuries, was an employee engaged in interstate carriage and thus his rights are determinable solely by Federal law. (Federal Employers’ Liability Act, § 1; U. S. Code, tit. 45, § 51 et seq.; New York Central R. R. Co. v. Winfield, 244 U. S. 147; Reinhart v. Gerosa Crane Service Co., Inc., 263 App. Div. 28; Pennsylvania Co. v. Roy, 102 U. S. 451; Thorpe v. N. Y. C. and H. R. R. R. Co., 76 N. Y. 402; Dwinelle
      v. N. Y. C. & H. R. R. R. Co., 120 N. Y. 117; U. S. v. American Ry. Exp. Co., 265 U. S. 425.) II. Moreover, the Pullman cars on the defendant railroad are operated jointly by the railroad and The Pullman Company. Thus the plaintiff was as much an employee of the railroad as of The Pullman Company. The wages paid to the plaintiff, in effect, were charged to a joint account; the fact that the payment was by check of The Pullman Company cannot serve to remove him from the protection of the Federal Employers’ Liability Act. (Seybolt v. N. Y. L. E. & W. R. R. Co., 95 N. Y. 562; Brewer v. N. Y., L. E. & W. R. R. Co., 124 N. Y. 59; Oliver v. Northern Pac. Ry. Co., 196 F. 432.) III. The assignment provision in section 29 of the Workmen’s Compensation Law is inoperative when the compensation payer is disabled and barred from prosecuting the cause of action. (Grossman v. Consolidated Edison Co., Inc., 294 N. Y. 39.) IY. Equity protects one’s property right in a cause of action held by. another. Consequently, upon his showing that the legal owner of the cause of action refuses to sue or will dissipate it, he has the right to sue. There is no reason why that should not apply to assignments under section 29 of the Workmen’s Compensation Law. (Hubbell v. Medbury et al., 53 N. Y. 98; Lewis v. Home Insurance Co., 199 App. Div. 556; Hall v. Southern Pacific Co., 40 Cal. App. 39; Jolley v. United Power & Light Corp., 131 Kan. 102; O’Donnell v. Baker Ice Machine Co., 114 Neb. 9; Murphy Construction Co. v. Serch, 104 Neb. 398; Muncaster v. Graham Ice Cream Co., 103 Neb. 379; Keen v. Allison, 166 Tenn. 218; William Cameron & Co. v. Gamble, 216 S. W. 459 [Texas]; Lancaster v. Hunter, 217 S. W. 765 [Texas]; Galveston-Houston Electric Co. v. Reinle, 264 S. W. 783 [Texas]; Schnick v. Morris, 24 S. W. 2d 491 [Texas].)

      Edward D. Burns, John G. Saxe and Rogers H. Bacon for respondent.
    I. The Workmen’s Compensation Law expressly required a dismissal of the complaint. (McKuskie v. Hendrickson, 128 N. Y. 555; Matter of McNerney v. City of Geneva, 290 N. Y. 505; Hobbs v. McLean, 117 U. S. 567; Matter of Stoerzer v. City of New York, 267 N. Y. 339; Grossman v. Consolidated Edison Co., 294 N. Y. 39; Lunn v. Andrews, 152 Misc. 568, 243 App. Div. 654, 268 N. Y. 538; Calagna v. Sheppard

      Pollak, Inc., 264 App. Div. 589; Boyan v. General Time Instruments Corp., 267 App. Div. 908; Nelson v. Buffalo Niagara Electric Corp., 264 App. Div. 941, 292 N. Y. 600; Hunt v. Bank Line, 35 F. 2d 136; The Nako Maru, 101 F. 2d 716; Moore v. Hechinger, 127 F. 2d 746.) II. Plaintiff’s rights are governed solely by the Workmen’s Compensation Law. (Matter of Bryant v. Pullman Co., 19 State Dept. Rept. 456, 188 App. Div. 311, 228 N. Y. 579; Adams v. New Jersey Steamboat Co., 151 N. Y. 163; Wells Fargo & Co. v. Taylor, 254 U. S. 175; Chicago Refrigerator Co. v. I. C. C., 265 U. S. 292; Robinson v. Balt. & Ohio R. R., 237 U. S. 84.)
   Desmond, J.

The complaint alleges that plaintiff, while employed by The Pullman Company as a porter, was injured when the car in which he was riding was derailed and overturned. That accident, according to the complaint, was caused by the negligence of defendant New York Central Eailroad Company, whose locomotive was drawing the train which included the Pullman car in which plaintiff was working. The railroad company’s answer, besides denials, contains defenses which point out that after the accident plaintiff made claim for workmen’s compensation before the State Industrial Board, was awarded such compensation and accepted it, and that this action was not commenced until more than six months after such award and acceptance and until more than a year after the accrual of the cause of action alleged in the complaint. By reason of that lapse of time, says the answer, plaintiff’s alleged cause of action against defendant has, under section 29 of the Workmen’s Compensation Law, become the property of plaintiff’s employer, The Pullman Company. Plaintiff served a reply. In it he avers that he was in the employ of The Pullman Company and of the defendant jointly as a porter ”, that plaintiff The Pullman Company, and defendant railroad company were all, at the time of the accident engaged wholly in interstate commerce and that The Pullman Company and defendant were common carriers by railroad engaged in interstate commerce with plaintiff as their employee. Other allegations in the reply- are that, when this action was commenced, The Pullman Company had no intention of enforcing any liability of defendant for negligently injuring plaintiff, and was disabled from bringing any such suit by its prior agreement to save defendant harmless from any liability to The Pullman Company’s employees.

By consent, the issues raised by the defenses and the reply were separately tried by the court without a jury. On that trial it was conceded that plaintiff had been hired by and paid by The Pullman Company as a porter, and that he had been awarded workmen’s compensation, which had been paid to him by The Pullman Company. It appears without dispute that the present action was not started until more than six months after the compensation award and more than a year after the accident. Admitted in evidence at the trial was an agreement between The Pullman Company and defendant, which agreement, plaintiff argues, had the effect of making defendant railroad company an employer of plaintiff — either a special employer pro Jiao vice or an employer jointly with The Pullman Company. The Trial Justice, at the close of the trial, dismissed the complaint. In his oral opinion he held that by lapse of time plaintiff had been divested, under section 29 of the Workmen’s Compensation Law, of the right to bring this suit. The court ruled that the New York State Workmen’s Compensation Law was applicable and the Federal Employers Liability Act (U. S. Code, tit. 45, §§ 51 et seq.) inapplicable. The Appellate Division unanimously affirmed without opinion and we granted leave to appeal to this court.

There are two branches to plaintiff’s argument. First, he contends that section 29 of the Workmen’s Compensation Law, despite-its language, does not bar a suit like this, brought more than six months after the compensation award and more than a year after the accidental injury. His suit, he says, is saved from the bar set up by that section because, he says, the provision of that section assigning, after that lapse of time, the cause of action to the payer (The Pullman Company) of the compensation is inoperative when the compensation payer is disabled and barred from prosecuting the cause of action ”. We will first discuss that matter, turning later to his other point which is based on the theory of employment by an interstate carrier in interstate commerce.

Under section 29 of the Workmen’s Compensation Law it is unnecessary for an injured employee to choose in the first instance between taking compensation and pursuing by suit his cause of action against a third person alleged to have injured him. He may take the compensation from his employer or his employer’s insurer and nonetheless bring an action against the third person. But “ such action must be commenced not later than six months after the awarding of compensation and in any event before the expiration of one year from the date such action accrues.” If the injured workman fails to bring the action within the time so limited, “ such failure shall operate as an assignment of the cause of action against such other * * * to the person * * * liable for the payment of such compensation. ” That is plain language. The-cause of action, after the stated time has gone by, passes to the employer or insurer. No exception is supplied for a situation where the compensation payer has in advance disabled himself, by agreement or release, from taking advantage of the employee’s cause of action thus automatically assigned. Finding no such exception, we would be legislating if we read one in, and that we cannot do.

Plaintiff argues, however, that, whatever its meaning, section 29 has no effect on his rights because, he says, his accident and his injuries are not within the coverage of the Workmen’s Compensation Law at all. His employment, he argues, was by an interstate carrier in interstate commerce and so, he asserts, his rights are governed exclusively by the Federal Employers Liability Act. We hold, for the reasons now to be stated, that section 29 of the Workmen’s Compensation Law does bar this suit.

The Workmen’s Compensation Law in terms covers plaintiff’s work (§ 3, Group 14) and so that statute controls unless some applicable Act of Congress has validly “ covered the field ” (New York Central R. R. Co. v. Winfield, 244 U. S. 147). Congress has provided such exclusive coverage, says plaintiff, in the Federal Employers Liability Act (supra). That statute provides (§ 1; U. S. Code, tit. 45, § 51) that “ Every common carrier by railroad while engaging in commerce between any of the several States * * * shall be liable in damages to any person suffering injury while he is employed by such carrier in such commerce ”, for injury or death resulting from the carrier-employer’s negligence in certain respects.

Plaintiff would have us hold that he was, at least for present purposes, a sort of special employee of defendant railroad company, or that the railroad company, since it acted, as he says, jointly with The Pullman Company, was one of his employers. He conceded at the trial that he was hired and paid by The Pullman Company but points to an agreement between that Company and defendant, for the hauling of the Pullman cars, as showing an employer-employee relationship of some kind between him and defendant. We have examined that document with care and are satisfied that it establishes the contrary, that is, that plaintiff, although in his services to The Pullman Company he to some extent furthered defendant’s purposes and co-operated with its own employees, was the employee of The Pullman Company, and of no one else. Quite pertinent is Robinson v. Balt. & Ohio R. R. (237 U. S. 84). There a Pullman porter, suing an interstate carrier by railroad for negligently injuring him, was confronted with an agreement he had made releasing the carrier from such liabilities. Such attempted exemptions of a carrier from liability to its employees are void under the Federal Employers Liability Act. Accordingly Bobinson, to avoid the effect of the release he had given, contended that his employment as a Pullman porter on an interstate train was covered by the Federal Act only, just as the present plaintiff makes a similar contention to avoid the time limitation in section 29 of the Workmen’s Compension Law. Bobinson, like plaintiff here, asserted that he was so much an employee of the railroad company that the Federal Act came into play and governed the case. Justice Hughes pointed out (p. 91) that •“ the ‘ liability created ’ by the [Federal] Act is a liability to the 1 employes ’ of the carrier, and not to others; and the plaintiff was not entitled to the benefit of the provision unless he was ‘ employed ’ by the Bailroad Company within the meaning of the Act.” The whole question, he wrote, was whether “ within the sense of the Act the plaintiff was an employe of the Bailroad Company, or whether he is not to be regarded as outside that description being, in truth, on the train simply in the character of a servant of another master by whom he was hired, directed and paid, and at whose will he was to be continued in service or discharged.” (p. 92). The Supreme Court went on to examine, in the Robinson case, the contract between The Pullman Company and the railroad company which, in essentials, did not differ from the contract in evidence in this present record. The contract, the court ruled, did not make the railroad company Robinson’s employer. Concluding, the court stated its opinion (p. 94) that “ Congress used the words ‘ employe ’ and ‘ employed ’ in the statute in their natural sense, and intended to describe the conventional relation of employer and employe ” (see to the same effect, Hull v. Phila. & Reading Ry. Co., 252 U. S. 475, 479). The Supreme Court nóted, in the Bobmson case (p. 94), that Congress, although knowing that “ there were on interstate trains persons engaged in various services for other masters ”, failed to include those persons among those to whom the railroad company was to be liable under the act. Robinson v. Baltimore & Ohio thus holds that a Pullman porter like plaintiff Taylor is not, within the Federal Employers Liability Act, an employee of the railroad company of whose train his Pullman car is a part.

Nor does plaintiff, as an employee of The Pullman Company, come within the Federal' Act and escape the controls of the Workmen’s Compensation Law. We find no express holding in the cases as to whether or not an operator of parlor and sleeping cars is liable to its porters under the Federal Act, but the answer seems plain enough. In Wells Fargo & Co. v. Taylor (254 U. S. 175, 187) the Supreme Court, denying the applicability of the Federal Act to workers on the cars of a railway express company, said: “ In our opinion the words ‘ common carrier by railroad ’ as used in the act, mean one who operates a railroad as a means of carrying for the public, — that it to say, a railroad company acting as a common carrier.” In Chicago Refrigerator Co. v. I. C. C. (265 U. S. 292, 297) construing the Interstate Commerce Act, the court noted in passing that sleeping car companies and express companies ” are not common carriers by railroad under that act. There is a similar dictum of this court in Adams v. New Jersey Steamboat Co. (151 N. Y. 163, 168) where in 1896, Judge O’Brien wrote: Sleeping-car companies are neither innkeepers nor carriers.” In Matter of Bryant v. Pullman Co. (228 N. Y. 579) an award against The Pullman Company, of workmen’s compensation to a porter on an interstate train, was affirmed by this court. The alleged exclusive coverage of the Federal Employers Liability Act was not argued on the appeal but it had previously been asserted before the Industrial Commission and rejected by that body (see 19 State Dept. Rep., p. 456).

It follows that the courts below were right in holding that plaintiff, after the lapse of a year from the date of his injury, was, by section 29 of the Workmen’s Compensation Law, barred from bringing this action. The complaint was, therefore, properly dismissed.

The judgment should be affirmed, with costs. [See 294 N. Y. 977. J

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

Judgment affirmed.