text:
    The People of the State of New York, Respondent, v. Thomas Quinn, Appellant.
    Argued October 14, 1941;
    decided November 27, 1941.

      Henry A. Lowenberg for appellant.
    The Court of Appeals has the right to hear and determine this appeal from the order denying the motion for a reargument. (Code Crim. Proc. § 519; People ex rel. Duryee v. Duryee, 188 N. Y. 440; People v. Priori, 163 N. Y. 99; People v. Mayhew, 151 N. Y. 607.)

      William O’Dwyer, District Attorney (Henry J. Walsh of counsel), for respondent.
    No appeal lies from the order of the Appellate Division denying reargument. (Fleischmann v. Stern, 90 N. Y. 110; People ex rel. Urban W. S. Co. v. Connolly, 164 App. Div. 163; Petersen v. Felt, 61 App. Div. 176; Tucker v. Dudley, 104 App. Div. 191; Harding v. Conlon, 146 App. Div. 842; Young v. Corning, 183 App. Div. 923; Weiss v. Weiss, 225 App. Div. 700; Babho Realty Co. v. Feffer, 230 App. Div. 866; Kelmenson v. Boulevard Construction Corp., 232 App, Div. 847; People v. Speiser, 277 N. Y. 342; People v. Zerillo, 200 N. Y. 443; People v. Reed, 276 N. Y. 5.)
   Per Curiam.

The appeal must be dismissed because this court has no power to entertain an appeal from an order of the Appellate Division denying a motion for reargument. The fact that this appellant’s codefendant was granted a new trial by this court (see People v. Kress, 284 N. Y. 452), while this appellant failed to appeal, does not give this court any power which it would not otherwise possess. Appellant no longer has any remedy in the courts.

The appeal should be dismissed.

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

Appeal dismissed.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    Ida Werfel, Appellant, v. Zivnostenska Banka, Respondent.
    Argued May 23, 1941;
    decided November 27, 1941.

      Jacob Chaitkin, Bernard J. Gardener and Sidney Brodman for appellant.

      Lewis H. Saper for respondent.
    The affidavits for summary judgment must be based upon the facts pleaded in the complaint. (Curry v. Mackenzie, 239 N. Y. 267; Lonsky v. Bank of United States, 220 App. Div. 194; Tidewater Oil Sales Corp. v. Pierce, 213 App. Div. 796; Burns v. Lopez, 256 N. Y. 123; Levine v. Behn, 169 Misc. Rep. 601.)

      Francis M. Shea, Assistant Attorney-General, for United States of America, amicus curiae.

   Per Curiam.

The defendant is not entitled to summary judgment. Where on a motion for summary judgment the record as submitted by both parties reveals the existence of conflicting issues of fact which can only be resolved by a trial, summary judgment should not be granted. Upon such a motion the decisive consideration is the existence of conflicting issues of fact rather than the sufficiency of the pleadings considered without the supporting affidavits. (Curry v. Mackenzie, 239 N. Y. 267, 272.)

Among the issues to be tried are the terms of the contract; what is the foreign law which either party claims to be applicable and in what respect may such law have been rendered inoperative by reason of events happening subsequent to the making of the contract.

The judgments should be reversed and the motions denied, with costs in all courts to appellant to abide the event.

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

Judgments reversed, etc.


author: Lehman, Ch. J.

text:
    Mildred P. Grace et al., as Trustees under the Will of David Fox, Deceased, Appellants, v. Corn Exchange Bank Trust Company, Respondent.

      Argued March 10, 1941;
    decided November 27, 1941.

      Eugene A. Sherpick, Harold R. Medina, Amy Wren, William Gilbert, James J. Regan and John W. Jordan for appellants.
    Defendant’s participation in the trustee’s embezzlements through its repeated receipt and acceptance, without investigation or inquiry, of the proceeds of funds which it must be deemed to have known were of a fiduciary character rendered it liable, as matter of law, for the total embezzlements, and this apart from any question of its professed good faith in such transactions. (Bischoff v. Yorkville Bank, 218 N. Y. 106; Gilliland v. Lincoln-Alliance Bank & Trust Co., 239 App. Div. 68; 264 N. Y. 517; Newton v. Scott, 254 App. Div. 140; Fidelity & Casualty Co. v. Farmers Nat. Bank, 275 N. Y. 194; Pratt v. Commercial Trust Co., 105 Misc. Rep. 324; 188 App. Div. 881; Keller v. First Nat. Bank & Trust Co., 163 Misc. Rep. 925.) The form of each check which the trustee drew against the trust account in and of itself and as matter of law informed defendant that the trustee was depositing with it moneys of the trust. Defendant, therefore, cannot be heard to assert that it did not know the fiduciary character of these funds. (Fairchild v. Fairchild, 64 N. Y. 471; Hotopp v. Huber, 160 N. Y. 524; Flour City Nat. Bank v. Widener, 163 N. Y. 276; Riley v. Larocque, 163 Misc. Rep. 423; Squire v. Ordemann, 194 N. Y. 394; Ward v. City Trust Co., 192 N. Y. 61; Cohnfeld v. Tanenbaum, 176 N. Y. 126; Clarke v. Public Nat. Bank & Trust Co., 259 N. Y. 285; Gilliland v. Lincoln Alliance Bank & Trust Co., 239 App. Div. 68; 264 N. Y. 517; Employers’ L. A. Corp., Ltd., v. Hudson River Trust Co., 250 App. Div. 159.) The facts before defendant and actually in its possession conclusively charged it with notice of the trustee’s transfers. (Fidelity & Deposit Co. v. Queens Co. Trust Co., 226 N. Y. 225; Payne v. Freer, 91 N. Y. 43; Title Guarantee & Trust Co. v. Emadee Realty Corp., 136 Misc. Rep. 328; Becker v. Fuller, 99 Misc. Rep. 672; Newton v. Scott, 254 App. Div. 140.)

      Frank C. Laughlin, John J. Halpin, Arthur Butler Graham, Albert Falck and Joseph W. Kirkpatrick for respondent.
    Liability for participation with a trustee in his breach of trust must be based on actual conscious knowledge. (Stark v. National City Bank, 278 N. Y. 388; McArthur v. Gordon, 126 N. Y. 597; National Surety Co. v. Manhattan Mortgage Co., 185 App. Div. 733; 230 N. Y. 545; Jackson v. Smith, 254 U. S. 586; Gillies v. Gillies, 239 App. Div. 582; Lonsdale v. Speyer, 249 App. Div. 133; Eastern Mut. Ins. Co. v. Atlantic Nat. Bank, 260 Mass. 485; Anderson v. Foster, 112 Ga. 270; Fifth National Bank v. Village of Hyde Park, 101 Ill. 595; American Surety Co. v. Waggoner Nat. Bank, 83 Fed. Rep. [2d] 99; Bank of Vass v. Arkenburgh, 55 Fed. Rep. [2d] 130.) The bank should not be held liable on the ground of constructive knowledge or notice, either on the theory that it was put upon inquiry and did nothing or on the theory that there was imputed to it the aggregate or composite knowledge of all information that came to the attention of its employees in the performance of their routine ministerial duties. (Bischoff v. Yorkville Bank, 218 N. Y. 106; Manufacturers Trust Co. v. U. S. Mortgage & Trust Co., 244 N. Y. 550; Clarke v. Public Nat. Bank & Trust Co., 259 N. Y. 285; White-Dulany Co. v. Craigmont State Bank, 48 Ida. 100; Tattnall Bank v. Harvey, 185 Ga. 752.) The bank is not chargeable with composite knowledge of fragmentary information incidentally or casually received by its employees. (Stale v. Brown County Bank, 112 Neb. 642; Goodloe v. Godley, 21 Miss. 233; Farmers Bank v. United States Fidelity & Guaranty Co., 28 Fed. Rep. [2d] 676; Aneless Corp. v. Woodward, 262 N. Y. 326; Butler v. Mich. Mut. Life Ins. Co., 184 N. Y. 337; Corrigan v. Bobbs-Merrill Co., 228 N. Y. 58; Marsh, Merwin & Lemmon v. Wheeler, 77 Conn. 449; Willard v. Denise, 50 N. J. Eq. 482.) The bank owed no affirmative duty of vigilance to the beneficiaries, but merely owed them the negative duty of not knowingly and consciously participating in a misappropriation by the trustee, and the number of transactions did not give rise to any further duty. (Comstock v. Wilson, 257 N. Y. 231; Deyo v. Hudson, 225 N. Y. 602; Larmore v. Crown Point Iron Co., 101 N. Y. 391; Mahan v. Brown, 13 Wend. 261.) There was no causal connection between the trust moneys innocently received by the bank and the trustee’s other misappropriations. (Massachusetts B. & Ins. Co. v. Standard T. & Sav. Bank, 334 Ill. 494; Gray v. Johnston, L. R. 3 H. L. 1; New Amsterdam Casualty Co. v. First Nat. Bank, 144 Okla. 180; Bank of Commerce v. U. S. F. & G. Co., 54 Fed. Rep. [2d] 578; Wichita Royalty Co. v. City National Bank, 95 Fed. Rep. [2d] 671.) When trust funds have been deposited by a trustee in his personal account and the bank has a claim against the trustee personally, it is entitled to use the balance of his personal account in payment of his obligations due to the bank when the bank acts innocently and has no knowledge that fiduciary funds are being encroached upon. (Hatch v. Fourth Nat. Bank, 147 N. Y. 184; Barclay v. Corn Exchange Bank Trust Co., 155 Misc. Rep. 684; 243 App. Div. 692; 267 N. Y. 630; Updike v. Manufacturers Trust Co., 243 App. Div. 15; 267 N. Y. 528; Meyers v. N. Y. County Nat. Bank, 36 App. Div. 482; Marsh v. Oneida Central Bank, 34 Barb. 298; People v. St. Nicholas Bank, 44 App. Div. 314.)

      Frederick E. Crane and Paul G. Reilly for New York State Bankers Association, amicus curias.

    The bank is liable only where it has been clearly demonstrated that the bank has actual knowledge of the fiduciary’s diversion. (Bischoff v. Yorkville Bank, 218 N. Y. 106; Manufacturers Trust Co. v. U. S. Mortgage & Trust Co., 244 N. Y. 550; Whiting v. Hudson Trust Co., 234 N. Y. 394; Germantown National Bank v. Employers L. A. Corp., 238 App. Div. 31; 263 N. Y. 654; Clarke v. Pub. Nat. Bank & Trust Co., 259 N. Y. 285; Allan v. Puritan Trust Co., 211 Mass. 40; Gray v. Johnston, L. R. 3 H. L. 1; Maryland Casualty Co. v. City National Bank, 29 Fed. Rep. [2d] 662; U. S. Fidelity & Guaranty Co. v. Union Bank & Trust Co., 228 Fed. Rep. 448.) A rule requiring the bank to keep informed as to the composition of the fiduciary’s individual account wholly violates the ordinary standards of business expedition and economy and renders impossible of performance the ordinary current operations and business of the modern bank in its relations with its depositors. (Stark v. National City Bank, 278 N. Y. 388; Aneless Corp. v. Woodward, 262 N. Y. 326; State v. Brown County Bank, 112 Neb. 642; Willard v. Denise, 50 N. J. Eq. 482; Whiting v. Hudson Trust Co., 234 N. Y. 394; Cahan v. Empire Trust Co., 274 U. S. 473; Rodgers v. Bankers Nat. Bank, 179 Minn. 197; Goodwin v. American National Bank, 48 Conn. 550.)
   Lehman, Ch. J.

In June, 1930, Chessman Kittredge was appointed as successor trustee ” under the will of David Fox in place of George L. Fox, the trustee originally named in the will, who had been declared incompetent. Kittredge as trustee received assets of the estate valued at almost $450,000. From time to time he sold most of these assets and usually the proceeds were deposited in an account which he opened, as trustee, in the Eighty-sixth Street branch of the defendant bank. We shall hereafter, in this opinion, refer to that account as the “ trust account.” Kittredge died in May, 1936, a bankrupt and a suicide. There were few assets remaining in the estate. Kittredge had wasted or appropriated to his own use almost the entire trust fund.

In February, 1930, four months before Kittredge was appointed trustee, under the will of David Fox, deceased, and opened a trust account in the Eighty-sixth Street branch of the Corn Exchange Bank, he applied to Arthur L. Sherer, now deceased, a vice-president of the bank, for a loan of $100,000 to Tompkins & Severs, Inc., a corporation engaged in business in the village of Hastings as dealer in coal and building materials. The purpose of the loan was to obtain funds for the purchase of stock in another corporation engaged in a similar business. Kittredge was treasurer of the corporation and, with one Paul Randall, owned its stock and controlled its affairs. The loan was made in April, 1930, upon the note of the corporation endorsed by Kittredge and Randall and secured by the stock which was bought and paid for by the proceeds of the loan. Kittredge also borrowed $35,000 from the bank upon his personal note well secured by marketable collateral. That loan was granted almost as a routine matter. In February, 1930, when Kittredge applied for these loans, he opened a personal account in the Eighty-sixth Street branch of the bank and an account of the corporation of which he was treasurer.

Kittredge was at that time a man of good reputation. He was a college graduate and a member of the bar, though he was not engaged in active practice. He had business experience. He and his family had an accepted social position. His father-in-law was a wealthy man and a friend and neighbor of Sherer. Sherer had no reason to question the honesty of Kittredge and, so far as appears, Sherer arranged the loans to Kittredge and his corporation as a business transaction of advantage to the bank. The trust account, opened thereafter by Kittredge, doubtless seemed a very desirable account for the bank to obtain.

If a bank wrongfully appropriates to its own use moneys deposited with it, it is of course liable for the money it has converted, as any other wrongdoer would be liable for damages caused by his wrong. So, too, if a bank connives with a trustee and knowingly assists the trustee to embezzle funds he holds as fiduciary, the bank is hable for the moneys embezzled just as any other person, who knowingly assists-a wrongdoer, would be liable as a joint wrongdoer for a wrong so committed. The plaintiffs, who have been substituted as trustees in place of Kittredge, seek in this action to hold the bank liable for the damage caused to the estate by Kittredge’s wrongful conduct on the asserted ground that the bank joined with Kittredge in appropriating the assets of the estate. At Special Term the trial justice found that the plaintiffs have established that the bank was a guilty participant in the trustee’s embezzlement on and after November 14, 1930, in the amount of over $250,000 and must pay to the estate that sum with interest at six per cent, after certain minor adjustments have been made. The Appellate Division has reversed the findings of the trial justice and has found that the evidence does not establish guilty participation by the bank. Two of the justices dissented, holding that the evidence did establish guilty participation by the bank, but they did not agree with the trial justice or with each other upon the date when the guilty participation began.

There is no substantial conflict in the evidence. The questions which must be decided upon this appeal concern the inferences which should be drawn from the undisputed facts and the legal consequences that follow. At this point we state these facts only in broadest outline. On September 9, 1930, Kittredge as trustee drew a check for $5,000 to his own order upon his trust account and deposited the check to his credit in his personal account. From time to time thereafter he drew as trustee similar checks to his own order upon the trust account and deposited these checks' in his personal account. During the time that he acted as trustee, Kittredge drew one hundred and forty-six checks' upon the trust account and deposited them in his personal account, and it appears that more than three-quarters of the total deposits in Kittredge’s personal account were made through transfers from his trust account. It appears, too, that more than half of the moneys which were at one time or another deposited in the trust account was thereafter withdrawn from that account through checks drawn by the trustee to his own order. By that means the trustee appropriated the trust 'funds to his own use. Of the funds which he embezzled the bank received approximately $15,000, in payment of loans which the bank had previously made to the trustee personally and to the corporation of which he was treasurer and in payment of overdrafts upon the trustee’s personal account.

In considering the effect of this evidence we must constantly bear in mind that the bank was under no duty to exercise vigilance to protect the trust estate from possible embezzlement by the trustee. When it accepted the trust account in which the trust funds were deposited, it assumed the obligation to pay out the moneys deposited in accordance with the directions of the trustee. It assumed no other obligation. To establish joint liability of the bank for the derelictions of the trustee, the plaintiffs must prove that the bank gave to the wrongdoer such assistance as would make the bank a participant in the wrong. Proof that the bank failed in care is insufficient. There can be no doubt that most, if not all, of the transfers of trust funds by the trustee from the trust account to his personal account were directed by the trustee with intent to appropriate the funds. That was a step in the thefts thereafter consummated. There can be no doubt that when the bank, pursuant to the directions of the trustee, debited the trust account and credited the trustee’s personal account with the amount of the checks, which the trustee drew to his own order upon the trust account and then deposited in his personal account, and when the bank thereafter honored the personal checks of the trustee by means of which the theft was consummated, it, in fact, was assisting the trustee in stealing the trust moneys. Even so, unless in addition it appears that the bank knew that the trustee was engaged in embezzling trust funds by withdrawal of the trust money in the persona] account in order to apply them to his own use, the bank was justified in following the directions of the trustee. The bank cannot be heard to say that it did not know that the trustee was depositing in his personal account moneys which did not belong to him but belonged to the trust estate, for the checks of the trustee which the bank honored showed that undisputably. The trustee wrongfully appropriates the trust funds when thereafter he withdraws them and uses them as his own. (Bischoff v. Yorkville Bank, 218 N. Y. 106.) In final analysis the question upon this appeal is whether the bank may be heard to say that it did not know that the trustee was appropriating the money belonging to the trust estate when the trustee withdrew the trust moneys in the personal account.

The applicable rule has been stated in Bischoff v. Yorkville Bank (supra, p. 112): “ A bank does not become privy to a misappropriation by merely paying or honoring the checks of a depositor drawn upon his individual account in which there are, in the.knowledge of the bank, credits created by deposits of trust funds. The law does not require the bank, under such facts, to assume the hazard of correctly reading in each check the purpose of the drawer, or, being ignorant of the purpose, to dishonor the check. The presumption is, and after the deposits are made remains until annulled by adequate notice or knowledge, that the depositor would preserve or lawfully apply the trust funds. The contract, arising by implication of law, from a general deposit of moneys in a bank is, that the bank will, whenever required, pay the moneys in such sums and to such persons as the depositor shall direct and designate. Although the depositor is drawing checks which the bank may surmise or suspect are for his personal benefit, it is bound to presume, in the absence of adequate notice to the contrary, that they are properly and lawfully drawn. Adequate notice may come from circumstances which reasonably support the sole inference that a misappropriation is intended, as well as directly.”

A bank acts through its officers, agents and employees. Each day myriads of checks are drawn upon deposit accounts and myriads of other checks are deposited in the accounts of a large commercial bank. Loans are made and loans are paid,. Each transaction may involve many operations and one employee may verify the signature of the depositor on checks, a second employee may be charged with the duty of seeing that the amount of the check is debited against the proper account, and a machine may give notice when a debit would result in an overdraft. Other employees may be employed in crediting the amount of the checks in the accounts in which the checks have been deposited, or in other operations in the course of payment of checks. Often no single employee has notice of any fact which appears to have a significance, differentiating the particular transaction from other innocent transactions or which might call for investigation by the bank; yet if every fact or circumstance of which some employee had notice could be combined in the consciousness of a single officer of the bank, that officer might have such clear notice that a transaction apparently innocent was fraudulent that the officer could not ignore the notice without becoming a party to the fraud.

Where a depositor asserts that a bank is liable for dere- ■ fiction of a duty owing to the depositor, or where the bank seeks to retain a benefit it has innocently received from a wrongdoer at the expense of another innocent party, the bank may, perhaps, under some circumstances, be charged with constructive notice or knowledge of every fact of which any employee has received notice. We do not now consider such questions for they are not here presented, where there is no liability unless there has been guilty participation in the trustee’s theft.

In September, 1930, the records of the bank showed at least a temporary technical overdraft in the trustee’s personal account, which was promptly covered by the deposit of a check drawn on the trust account. If the bank had then caused an audit to be made of the personal account of the trustee and of the trust account, it would have discovered that the trustee had diverted trust moneys for the payment of an insignificant overdraft. An overdraft doubtless constitutes a debt to the bank but small overdrafts promptly covered by the depositor are, it appears, often disregarded by banks. The bank treated this overdraft, and later insignificent overdrafts which were promptly covered by new deposits, as routine matters. We think it was justified in so treating these matters and we agree with the courts below that the bank did not thereby become a guilty participant in the trustee’s diversion of trust funds. That, we think, follows from what the court said and decided in Bischoff v. Yorkville Bank (supra). We hold, too, that it was justified in deducting from the personal account interest on personal loans in accordance with its usual practice and was not called upon to investigate on each occasion whether or not the personal account contained at that time only trust funds.

None the less, where a bank accepts payment of any indebtedness with knowledge that the debtor is wrongfully using moneys which do not belong to him, the bank becomes a participant in the debtor’s wrongful act, and what the court said and decided in Bischoff v. Yorkville Bank (supra) leads to the inevitable conclusion that elemental principles of honesty and good faith are violated where a bank, with knowledge that a borrower is transferring to his personal account moneys which belong not to him but to a trust estate, accepts payment of the personal indebtedness of the trustee from the moneys in the personal account, though inquiry by the bank would show that the only moneys in the personal account were moneys which did not belong to the debtor. If .the bank chooses to ignore completely the facts which indicate that the debtor is using moneys which may not belong to him, and accepts payment careless whether or not the moneys paid belong to him, it becomes morally and legally a participant in the debtor’s wrong.

In fairness to the bank it should be said that it does not contend otherwise. It claims that it acted honestly and and properly because its officers did not have actual knowledge that the debtor had transferred trust funds to his personal account, and it maintains that such knowledge should not be imputed to its officers merely because a clerk may have had notice of that fact. Though of course the bank cannot fairly be charged with guilty participation in a crime upon the fiction of a constructive, composite knowledge of every fact of which any employee had notice, we think it plain that here it must be charged with notice that the trustee had placed in his personal account moneys belonging to the trust estate. We need not decide whether notice that the trustee had done so once would be sufficient. Here, there is more than that. Four such transfers had been made on or before November 13, 1930, and more than twenty, in addition, before September, 1931. Each such transfer was notice that the depositor, heavily indebted to the bank, was acting in a manner that is unwise and hazardous.” (Bischoff v. Yorkville Bank, supra, p. 110.) A requirement that a clerk, receiving such notice, should report it would not unduly hamper the transaction of the business of the bank. Concededly, where a corporate officer authorized to draw checks upon a corporate account draws a check to his own order, the clerk receiving such a check is required to report that fact. We cannot escape the conclusion that the bank is properly charged here with knowledge, at least, that the trustee was withdrawing from the trust account moneys belonging to the estate and was placing them in his own account. The bank becomes liable as a joint wrongdoer from the date when it knowingly assists the trustee in withdrawing the trust moneys from the personal account in order to pay a personal debt of the trustee to the bank.

The trial justice found that the bank had done so with guilty knowledge, in November, 1930, when Kittredge transferred trust funds to his personal account and then transferred the funds from his personal account to the account of Tompkins & Beaver, Inc., and used the funds so transferred to pay a corporate indebtedness. Under the circumstances here disclosed, we think that the bank may not be charged with knowledge that such funds were transferred in this roundabout way from the trust account to the corporate account. True, the bank has been enriched by this payment which, in fact, was made out of corporate funds and must account to the trust estate for all moneys belonging to the estate which it has received, even though innocently; for we do not find that it has any superior equity which gives it the right to retain what was wrongly diverted from the estate. It did not, however, at that time become a guilty participant in the wrong and hable as a joint tort wrongdoer for that diversion and all later diversions thereafter by the trustee.

In September, 1931, with notice that the trustee had transferred substantial sums from the trust account to his personal account, the bank accepted the trustee’s order to apply moneys in the personal account to the payment of a personal indebtedness. The most cursory examination of the accounts would have shown numerous overdrafts upon the personal account, covered by checks drawn upon the trust account, and a more careful examination would have disclosed that only moneys which had been withdrawn from the trust account then remained in the personal account. Neither a large bank nor a small bank may urge that it is ignorant of facts clearly disclosed in the transactions of its customers with the bank — disclosed, too, without the need of artificial synthesis of notice of-separated operations; nor may a bank close its eyes to the clear implications of such facts. By ignoring these facts and their necessary implications, the bank became a guilty participant in the trustee’s embezzlement of trust funds deposited in the trust account in the bank and from that date it became liable as a joint wrongdoer for all moneys which the trustee embezzled. So we held in Bischoff v. Yorkville Bank (supra) and again in Gilliland v. Lincoln-Alliance Bank & Trust Co. (264 N. Y. 517). That holding has been criticized at times because it is said that it places an undue burden upon the bank. Experience has failed to show that a bank is subjected to an undue burden by the ruling that it may not ignore clear indications that a debtor is paying a personal indebtedness out of funds which do not belong to him.

The judgment of the Appellate Division and that of the Special Term should be reversed, with costs in all courts to the appellant, and the case remitted to the Special Term to compute the amount withdrawn by the trustee from the trust account and appropriated by him after September 22, 1931, and in addition the amount paid out of moneys belonging to the estate before that date to the bank upon personal obligations due from the trustee and from the corporation of which he was treasurer. Judgment should be directed in favor of the plaintiffs for these amounts, with interest at the rate of six per cent. (See 287 N. Y. 746.)

Loughran, Finch, Rippey, Lewis, Conway and Desmond, JJ., concur.

Judgment accordingly.


author: Lehman, Ch. J. Lotjghran, J.

text:
    George Foltis, Inc., Respondent, v. City of New York, Appellant.

      Argued June 6, 1941;
    decided November 27, 1941.

      William C. Chanler, Corporation Counsel (Stanley Bucksbaum and Paxton Blair of counsel), for appellant.
    The doctrine of res ipsa loquitur should not be applied to the breaking of an underground water main. (Oakes Mfg. Co. v. City of New York, 206 N. Y. 221; Hunt v. Mayor, 109 N. Y. 134; Jenney v. City of Brooklyn, 120 N. Y. 164; Empire State Ice Co. v. Rochester & Lake Ontario Water Service Corp., 274 N. Y. 186; Simon v. City of New York, 82 Misc. Rep. 454; Terry v. Mayor, 8 Bosw. 504; Biancaniello v. Town of Colonie, 261 App. Div. 161; Higginson v. City of New York, 181 App. Div. 367; Gerard v. City of Boston, 299 Mass. 488; Brown & Sons v. Grand Rapids, 265 Mich. 465; Parks-Belk Co. v. City of Concord, 194 N. C. 134; Byrne v. Boadle, 2 H. L. Cas. 722; Hogan v. Manhattan Ry. Co., 149 N. Y. 23; Robinson v. Consolidated Gas Co., 194 N. Y. 37; Duhme v. Hamburg-American Packet Co., 184 N. Y. 404; Slater v. Barnes, 241 N. Y. 284; Griffen v. Manice, 166 N. Y. 188.) Even if the doctrine of res ipsa loquitur were applicable the question of negligence would still be one for the jury. It was error for the court below to direct a verdict for the plaintiff. (Loudoun v. Eighth Ave. R. R. Co., 162 N. Y. 380; Kay v. Metropolitan Street Ry. Co., 163 N. Y. 447; Breen v. N. Y. C. & H. R. R. R. Co., 109 N. Y. 297; Salomone v. Yellow Taxi Corp., 242 N. Y. 251; Maher v. Manhattan Ry. Co., 53 Hun, 506; Stallman v. New York Steam Co., 17 App. Div. 397; Schachter v. Interborough R. T. Co., 146 App. Div. 139; Baum v. New York & Queens County Ry. Co., 124 App. Div. 12; Sweeney v. Erving, 228 U. S. 233.)

      Frederick E. Klein and Joseph K. Reichbart for respondent.
    The doctrine of res ipsa loquitur is applicable to the breaking of an underground water main. (Ettlinger v. City of New York, 58 Misc. Rep. 229; Silverberg v. City of New York, 59 Misc. Rep. 492; Magee v. City of Brooklyn, 18 App. Div. 22; Gravey v. City of New York, 117 App. Div. 773; Talcott v. City of New York, 58 App. Div. 514; Buffums v. Long Beach, 111 Cal. App. 327; Loven v. Kansas City, 74 S. W. Rep. [2d] 815.)
   Lehman, Ch. J.

The premises occupied by the plaintiff as a restaurant were damaged by water from a broken water main installed in the street by the city of New York and maintained by it. The break in the water main was discovered in the evening of April 12, 1938. There was a longitudinal split in the “ flange part ” of the main. The plaintiff produced evidence intended to show that the city failed to shut off the water from the broken water main within a reasonable time after it received notice of the break. It produced no evidence to show the cause of the break and no evidence that the break was due to negligence of the city in the construction or maintenance of the water main unless from the nature of the break in a main constructed and maintained by the city, negligence may be inferred or presumed by application of the rule of res ipsa loquitur.

At the close of the plaintiff’s evidence, the defendant moved to dismiss the complaint on the ground that the plaintiff had failed to prove a prima facie case. After some discussion the trial judge stated that in view of conflict of judicial authority he felt that the question of whether the rule of res ipsa loquitur applies should receive more careful consideration than he could give to it at that time. For that reason, he suggested that he should reserve decision upon the defendant’s motion to dismiss and that, after hearing the evidence of the defendant he should also reserve decision upon the motions which both parties would make at the close of the whole case, until the jury had answered five questions which he proposed to submit. Both sides acquiesced in that suggestion.

The five questions which the trial judge stated he would submit to the jury are:

(1) Was the defendant negligent in failing to use reasonable care in the construction of the water main which broke?

“ (2) Was the defendant negligent in failing to use reasonable care in maintaining the water main in a reasonably proper state of repair?

(3) Was the defendant negligent in failing to be reasonably diligent in shutting off the water after receiving notice of the break?

(4) What is the total amount of damage which the plaintiff sustained in consequence of its property being subjected to contact with water, mud, sand and gravel?

“ (5) If your answer to question No. 3 is yes, what is the amount of damage which was caused to the plaintiff in consequence of the failure to shut off the water with reasonable diligence? ”

The defendant city then produced evidence sufficient, if credited, to show that it did not fail in any duty to exercise reasonable diligence in shutting off the water after it received notice of the break. Even if without fault there, the city would still be liable for damages caused by the break if the break was due to its negligence, either in the construction or maintenance of the water main. The city produced no evidence to show the cause of the break. It did attempt to prove that whatever may have been the cause of the break, no negligence by the city, either in the construction or maintenance of the pipe, caused or contributed to the injury. For that purpose it produced evidence which, if credited, was sufficient to show that the pipes were new when laid; that field inspectors of the city tested carefully all pipes before they were laid; and that it was their duty to see that the pipes were properly laid. It is undisputed that cast iron pipes do not wear out or become defective from ordinary use for many decades and, perhaps, for centuries; but the length of life of such pipes may be affected by chemicals in the ground as well as in the water.

At the close of the case the defendant made a motion to dismiss the complaint and also for the direction of a verdict. The trial judge reserved decision upon that motion. The plaintiff’s attorney then stated, I have no motions to make. I am not going to join in the motion for a directed verdict. I ask to go to the jury on all the grounds that I have set forth in the memorandum I gave your Honor * * Even without a motion by the plaintiff for the direction of a verdict the trial judge would be required to determine whether the rule of res ipsa loquitur could be applied in this case. Without application of that rule it is plain that the evidence is, as matter of law, insufficient to justify any inference that the defendant was negligent either in the construction or maintenance of the broken main and the trial judge would be bound to grant the defendant’s motion for the direction of a verdict. The trial judge could not, without a motion by the plaintiff, direct a verdict in favor of the plaintiff even if he should decide that by application of the rule of res ipsa loquitur the uncontradicted evidence dictated an inference or presumption of negligence on the part of the defendant which had not been refuted and. which as matter of law entitled the plaintiff to a verdict for the consequent damages. Failure by the plaintiff to move for the direction of a verdict and acquiescence by the plaintiff in the submission to the jury of the questions whether the defendant had failed to use reasonable care in the construction or maintenance of the water main would ‘have the effect of a concession that upon this record there are questions of fact. If the jury should thereafter decide the questions submitted to it in favor of the defendant the plaintiff would not be in h position to urge, either upon a motion to set aside the verdict or upon an appeal, that as matter of law it was entitled to the direction of a verdict.

In the following colloquy the trial judge pointed out to the plaintiff’s attorney that a motion for the direction of a verdict would not have the effect of a submission of questions of fact to the court but that the failure to make such a motion would have the effect' of a concession that a question of fact exists which must be submitted to the jury:

The Court: In order to relieve your mind of any possible difficulty you think you might be in by moving to direct a verdict, I will say now that if you do move to direct a verdict, I will not take that as joining in the motion. I do not think there is any such thing as joining in a motion for a directed verdict except it is done deliberately for the purpose of submitting the questions of factto the Court.
Suppose I should ultimately decide that the rule of res ipsa loquitur applies and the Jury has found a verdict for the defendant, should you not have your record in condition where any Appellate Court could decide either way without the necessity for a new trialf
Mr. Klein: I am very grateful to your Honor for the suggestion you have made and putting it in the proper light. Frankly, sir, I had not given that consideration, and with that in mind, then I also join for a directed verdict.
“ The Court: You do not join. You made a separate independent motion for a directed verdict. j
“ Mr. Klein: Yes, sir. I also move for a directed verdict on that issue. ' !
The Court: I will reserve decision on both.
“ Mr. Klein: Thank you for your Honor’s suggestion because that will preserve any rights the plaintiff may have.”

The plaintiff cannot now contend that the parties submitted to the court any question of fact if under the rule of res ipsa loquitur the evidence is sufficient to permit, but insufficient to dictate as matter of law, an inference of negligence.

The jury answered the first three questions in the negative, finding that the defendant had not failed to use reasonable care in the construction or maintenance of the water main, nor had it failed to use reasonable diligence in shutting off the water. In answer to the fourth question the jury found that the plaintiff had sustained damages of $2,500. The trial judge, disregarding the findings of the jury in favor of the defendant, held that the rule of res ipsa loquitur applied and, as matter of law, dictated an inference or presumption of negligence. He, therefore, granted the motion of the plaintiff, upon which decision had been reserved, for the direction of a verdict for the amount of damages suffered by the plaintiff, as found by the jury.

We have said that “ where the instrumentality which produced an injury is within the exclusive possession and control of the person charged with negligence, and such person has exclusive knowledge of the care exercised in .the control and management of that instrumentality, evidence of circumstances which show that the accident would not ordinarily have occurred without neglect of some duty owed to the plaintiff is sufficient to justify an inference of negligence, and to shift the burden of explanation to the defendant. (Slater v. Barnes, 241 N. Y. 284.) ” (Galbraith v. Busch, 287 N. Y. 230, at p. 234.) In such circumstances the doctrine of res ipsa loquitur relieves a plaintiff from the burden of producing direct evidence of negligence, but it does not relieve a plaintiff from the burden of proof that the person charged with negligence was at fault. So in the cited case we have also said on the same page: “ The doctrine of res ipsa loquitur is not an arbitrary rule. It is rather a common-sense appraisal of the probative value of circumstantial evidence. It requires evidence which shows at least probability that a particular accident could not have occurred without legal wrong by the defendant. To negative every possibility that the accident occurred in some extraordinary manner which would exculpate the defendant is often impossible. In the administration of the law we must be satisfied with proof which leads to a conclusion with probable certainty where absolute logical certainty is impossible. We may be constrained to act upon indecisive evidence where complete proof is impossible. Then the logical probative force of the evidence produced is measured, in part, by the test of whether it is the best evidence available.”

We must determine whether the rule of res ipsa loquitur may be applied, in accordance with those principles, to the proof tendered in this case; whether, upon a commonsense appraisal of the probative value ” of the circumstantial evidence, measured in part by the test of whether it is the best evidence available, inference of negligence is justified. Here the pipes were in position for almost nine years before any break occurred. In accordance with proper practice they had been laid four feet below the surface. There is no evidence or suggestion that from the time when the pipes were laid there was any warning that the pipes had shifted or deteriorated, and in the absence of such warning the city was certainly under no duty to examine the deeply-buried water mains. The lapse of time before the break occurred presents ground for argument that under the circumstances of this case the break was not due to an original defect, which careful inspection might have revealed, in the pipes or in the manner in which the pipes were laid.

In spite of such arguments the courts in some cases have applied' the rule of res ipsa loquitur where the injury occurred from a break in an underground water main and have held that under that rule proof of the break constitutes circumstantial evidence sufficient to establish prima facie that the injury was due to the negligence of the public authorities. (Higginson v. City of New York, 181 App. Div. 367; Buffums v. City of Long Beach, 111 Cal. App. 327; Esberg-Gunst Cigar Co. v. City of Portland, 34 Ore. 282.) In other cases courts have reached the opposite contention. (Terry v. Mayor, 8 Bosw. 504; Goldman v. City of Boston, 274 Mass. 329.)

A “ common-sense appraisal of the probative value of circumstantial evidence ” excludes the arbitrary use of any rule of thumb. In directing a verdict for the plaintiff in this case the trial judge, Mr. Justice Walter, wrote a notably careful opinion in which he points out that the doctrine of res ipsa loquitur does not mean that the plaintiff may recover without sustaining the burden of proving negligence by a fair preponderance of the credible evidence. (Goldstein v. Pullman Co., 220 N. Y. 549, 554.) The doctrine merely means that certain occurrences contain within themselves a sufficient basis for an inference of negligence, and it does not differ from ordinary cases of circumstantial evidence except in the respect that the facts and circumstances from which the inference of negligence is drawn are immediately attendant on the occurrence. (Griffen v. Manice, 166 N. Y. 188, 196; Robinson v. Consol. Gas Co., 194 N. Y. 37, 40, 41; Plumb v. Richmond L. & R. R. Co., 233 N. Y, 285, 288.) The doctrine is not confined to any particular class of cases (Goldstein v. Pullman Co., 220 N. Y. 549, 554), and the test of its application is whether or not the occurrence does in truth point to negligence of the defendant as the fair and reasonable inference from the occurrence. Where the agency which produces the injury is not within the control of the person charged with negligence, or where the occurrence. is one which naturally might occur from causes other than his negligence, the inference of his negligence is not fair and reasonable; but wherever there is a combination of those two conditions, ’ viz., control by the person charged with negligence and improbability of the occurrence having happened if he had been reasonably careful, the doctrine applies. (Bressler v. New York Rapid Transit Corp., 270 N. Y. 409, 413.) ” (174 Misc. Rep. 967, 969.)

The fact that the break occurred in a water main which ' had been buried in the ground for several years weakens . the probative value of the evidence but it does not completely destroy it. Slight differences in the evidence might change the inferences which may fairly be drawn, but we agree with the trial judge that in this case an inference of ; negligence might reasonably be drawn from the unexplained occurrence of the break. True, more than a remote possibility would still remain that the break may have been . the result of causes against which the city could not by' vigilance guard, and by stressing one circumstance rather , than another the inference that the injury was due to any dereliction of duty by the city may gain or lose in strength. 1 If the city has in its control evidence which would make ¡ clear the cause of the break or would show exactly what' care it has exercised in the construction and maintenance of the water main, a failure to produce such evidence might be a factor in weighing probabilities. Reasonable men might perhaps differ as to the inference that should be drawn from the occurrence of the break even though the city should offer no proof, but we think that both reason and the weight of authority support the ruling of the trial judge that the defendant’s motion at the close of the plaintiff’s case to dismiss the complaint should be denied. We agree that under the rule of res ipsa loquitur the plaintiff’s proof that its property was damaged by a break in a water main constructed and controlled by the city was sufficient to establish prima facie that the injury was due to negligence of the city.

Though the plaintiff’s proof, when it rested, may have been sufficient to establish prima facie the negligence of the defendant, it was certainly not conclusive proof. Even where the rule of res ipsa loquitur is applied, the burden of showing that the injury is due to the negligence of the defendant rests on the plaintiff. The burden never shifts to the defendant, and the plaintiff must sustain its claim by a preponderance of evidence. (Plumb v. Richmond Light & R. R. Co., 233 N. Y. 285.) Here the defendant produced evidence intended to meet the prima fade case established by the plaintiff. The jury is the trier of the facts. If conflicting inferences may be drawn, choice of inference must be made by the jury. Upon all the evidence in this case the jury refused to find that the plaintiff had proven negligence by a preponderance of evidence. Its verdict may not be disregarded unless at the close of the whole case the plaintiff’s prima facie proof had become conclusive.

The evidence produced by the defendant, as we have said, did not reveal the cause of the break. No burden rests upon the city to show that. Possible inference arising from the occurrence of the injury, that it was due to the negligence of the city would, of course, be completely rebutted by conclusive affirmative proof that the city had exercised all care reasonably possible in the manner in which it tested the pipes and supervised the laying of the main. Then it would be clear that whatever might have been the cause of the break, it was not due to any dereliction of the defendant. Here the defendant’s evidence, even if believed by the jury, might, we may assume, still leave open the possibility that the injury was due to fault in laying the pipe. To that extent the defendant’s testimony does not completely rebut the plaintiff’s prima facie case. For that reason the trial court has held that without complete rebuttal the inference of negligence becomes conclusive and has directed a verdict in favor of the plaintiff.

The direction of a verdict in favor of the plaintiff might be justified if the rule of res ipsa loquitur created a full presumption in favor of the plaintiff. It is without logical foundation if res ipsa loquitur is only a common-sense rule for the appraisal of the probative force of evidence which enables an injured person, in proper case, to establish prima facie that the injury was caused by the defendant’s negligence, though the injured person may be unable to produce direct evidence of want of care in any particular. (See Wigmore on Evidence [3d ed.], § 2509.) It has been said by the Supreme Court of the United States that “ Res ipsa loquitur means that the facts of the occurrence warrant the inference of negligence, not that they compel such an inference; that they furnish circumstantial evidence of negligence where direct evidence of it may be lacking, but it is evidence to be weighed, not necessarily to be accepted as sufficient; that they call for explanation or rebuttal, not necessarily that they require it; that they make a case to be decided by the jury, not that they forestall the verdict. Res ipsa loquitur, where it applies, does not convert the defendant’s general issue into an affirmative defense. When all the evidence is in, the question for the jury is, whether the preponderance is with the plaintiff.” (Sweeney v. Erving, 228 U. S. 233, 240.)

In other jurisdictions, too, the courts have held that even where a defendant does not produce evidence to rebut the plaintiff’s prima facie case established by application of the rule of res ipsa loquitur, it is for the jury to determine whether the inference of negligence should be drawn. (Hughes v. Atlantic City & Shore R. R. Co., 85 N. J. L. 212; Ross v. Cotton Mills, 140 N. C. 115; White v. Hines, 182 N. C. 275; Glowacki v. Northwestern Ohio Ry. & Power Co., 116 Ohio St. 451.) The analysis of the origin, nature and scope of the doctrine or rule of res ipsa loquitur contained in the opinion of Mr. Justice Walter seems to point to the inevitable conclusion that, in- accord with these cases, evidence which under the rule of res ipsa loquitur satisfies the plaintiff’s duty of producing evidence sufficient to go to the jury does not create a full presumption and is ordinarily not sufficient, even where the defendant produces no evidence in contradiction or rebuttal, to entitle the plaintiff to the direction of a verdict.

Relying upon the authority of Hogan v. Manhattan Ry. Co. (149 N. Y. 23), the trial judge felt constrained to reject this conclusion and to hold that the rule is different in this state. Disregarding the finding of the jury in favor of the defendant he directed a verdict in favor of the plaintiff because the defendant’s evidence, even if credited, fell short of rebutting, in all particulars, the inference that the defendant’s negligence caused the injury and because it still left open the possibility that the break may have been due to the negligence of the city in constructing the main. In the cited case the Court of Appeals affirmed a judgment in favor of the plaintiff, entered upon a verdict directed by the trial court, where the plaintiff relied upon the rule or doctrine of res ipsa loquitur to establish his cause of action. The defendant in that case offered no evidence and the court said in its opinion: We think the case was properly disposed of at the trial for the reason that the undisputed evidence raised a presumption of negligence against the defendant. A verdict for the defendant on the record as it stands would be set aside as contrary to the evidence. * * * The plaintiff sustained the burden of proof and it was incumbent upon the defendant to offer evidence, if any existed, to rebut the presumption of negligence” (p. 25).

Though in some other jurisdictions it has been held that where a defendant produces no evidence to rebut an inference or presumption of negligence, arising under the rule of res ipsa loquitur, the court may direct a verdict in plaintiff’s favor, in no case has it been held that a verdict may be directed where evidence is presented by the defendant which weakens such inference, even though it does not conclusively rebut it. Very little evidence might suffice to rebut a presumption. (Kearney v. London, Brighton & South Coast Ry. Co., 5 Q. B. 411 [1870].) There may be cases where the prima facie proof is so convincing that the inference of negligence arising therefrom is inescapable if not rebutted by other 'evidence. We need not now determine whether that was true in the Hogan case. In most cases it is not true and it is certainly,not true here where the plaintiff’s evidence, even while, unhebutted, left serious doubt whether the break in 1938 was due to conditions which might have been avoided by the exercise of care in 1929.

We should not, however, place our decision in this case upon any narrow ground. A study of the opinions of the appellate courts of this state reveals that judges have used the terms “ inference ” and “ presumption ” indiscriminately and without recognition that an inference ” and a presumption ” are not identical in scope or effect. Judicial failure to note the distinction has led to confusion of thought and often to inconsistencies in judicial opinions and decisions. (See Volkmar v. Manhattan Ry. Co., 134 N. Y. 418; Loudoun v. Eighth Avenue R. R. Co., 162 N. Y. 380; Cunningham v. Dady, 191 N. Y. 152; Plumb v. Richmond L. & R. R. Co., 233 N. Y. 285.) It is perhaps impossible for trial judges to deduce from the opinions or decisions of the appellate court the procedure they should follow when under the rule of res ipsa loquitur the plaintiff has established prima facie that injury was due to the negligence of the defendant and the defendant introduces no evidence in rebuttal. (See Rosenthal, “ Procedural Effect of Res Ipsa Loquitur,” 22 Cornell Law Quarterly [1936], p. 39.) The opinion of Mr. Justice Walter'has served to make manifest the fact that the fault for diversity of procedure in the trial courts does not lie there. The time has' come to attempt authoritative formulation of the procedural rule, confused in this state as in other jurisdictions by earlier failure to appreciate fully the implications latent in the rule of res ipsa loquitur. (Cf. Glowacki v. Northwestern Ohio R. & P. Co., supra.)

Where a plaintiff establishes prima facie by direct evidence that injury was caused by negligence of the defendant the court may seldom direct a verdict, though the plaintiff’s evidence is not contradicted or rebutted by the defendant. In such cases the question of whether the defendant was in fault in what he did or failed to do is ordinarily one of fact to be determined by the jury unless the jury is waived. The practice should be the same where under the rule of res ipsa loquitur the plaintiff establishes prima facie by circumstantial evidence a right to recover.

In cases later than Hogan v. Manhattan Ry. Co. this court has indicated the practice that should be followed, though even in those cases the terms “ presumption ” and inference ” are at times used indiscriminately. Thus in Salomone v. Yellow Taxi Corp. (242 N. Y. 251, at p. 259) this court has said: “ In cases of this kind dealing with inferences and presumptions, it is the jury and not the judge which is to draw the inference and determine the effect of presumptions. It is not the accident which alone and of itself may raise the presumption of negligence. It is the accident accompanied by all the surrounding circumstances. The circumstances and the events leading up to the accident may overcome any presumption of negligence which might otherwise arise. Even when there be a presumption of negligence arising from a failure upon the part of a common carrier to explain how an accident happened, it is for the jury to say whether the presumption, which is only prima facie evidence of negligence, entitles the plaintiff to a verdict. Upon a prima facie case, the jury may not find for the plaintiff; they are justified at law in so finding, but they are not compelled to award damages. The remoteness of the accident from the conclusion which a reasoning mind would draw from the defendant’s failure to explain, may always be taken into consideration. That is, a failure to explain does not necessarily indicate negligence.” (Italics are new.)

For these reasons we conclude that the trial court erred in granting the plaintiff’s motion for the direction of a verdict. When the court granted that motion upon which it had reserved decision, it was bound to ignore all that occurred at the trial thereafter. The findings of the jury in favor of the defendant were of no effect if, as the court held, the plaintiff was entitled as matter of law to the direction of a verdict. No rulings by the trial judge, no findings by the jury, after the motion for the direction of a verdict, could affect the judgment which followed upon the decision of the trial judge granting the motion and, therefore, none could be reviewed upon the appeal from that judgment; but after that judgment in favor of the plaintiff is reversed, the effect that should be given to the findings of the jury in favor of the defendant must still be determined.

■ The trial court has not yet passed upon the motion of the plaintiff to set aside these findings or the motion of the defendant for judgment upon these findings. Bach party is entitled to a decision of the motion it has made and either party mayjippeal from the order or judgment entered upon such decision. For these reasons the judgment must be reversed and the proceedings remitted to the trial court to decide the motions made by both parties after the jury reported to the court. In order to assist the trial judge in his consideration of these motions, we should point out some of the consequences of what we have said and decided in this case.

The trial judge has submitted to the jury as separate questions (1) whether the defendant was negligent in the construction of the water main, and (2) whether the defendant was negligent in maintaining the water main in a reasonably safe condition. The evidence, even by application of the rule or doctrine of res ipsa loquitur, is insufficient to sustain a finding of negligence in either particular considered separately; it is sufficient to sustain a finding that the break would not have occurred if the defendant had exercised due care in all particulars. The use of such words as “ res ipsa loquitur ” or an attempt to discuss with a jury whether by application of the rule a “ presumption ” or an inference ” arises from the evidence might confuse rather than enlighten a jury, but the jury cannot pass intelligently upon the question whether the inference of negligence should be drawn, unless, in language which it can understand, it receives an explanation of why the evidence would permit an inference of negligence, and why the jury may reject such inference if it sees fit.

The same logical difficulty in reconciling the decisions of this court, which inevitably caused confusion as to the procedural effect of the application of the rule or doctrine of res ipsa loquitur, resulted no less inevitably in failure to submit to the jury the decisive question in this case in a form which would enable the jury to exercise its functions in accordance with the principles outlined above. The fault, we have said, does not lie with the trial judge and for. the same reasons it does not lie with the parties if they failed by proper exceptions and requests to charge to ask for a more adequate submission of the decisive cuestión. The trial judge has power to grant the plaintiff’s ^motion to set aside the findings of the jury if he concludes that for such reasons there should be a new trial.

The judgments should be reversed and the case remitted to the Trial Term to proceed in accordance with this: opinion, with costs in all courts to appellant to abide the event.

Lotjghran, J.

(dissenting). This was a res ipsa case. (Bordon v. Central Hudson Gas & Electric Corp., 272 N. Y. 596.) Whether the unexplained break in the city’s pipe was sufficient warrant for a finding of negligence was thus primarily a question of fact. (Breen v. N. Y. C. & H. R. R. R. Co., 109 N. Y. 297.) After the jury had found the plaintiff’s damages to be $2,500, the parties stipulated that the trial judge should reserve decision on all motions and thereafter “ announce a decision and make the appropriate direction with the same force and effect as if the jury were present.”

The opinion of the trial judge has been reported (174 Misc. Rep. 967). He took the ground that the evidence offered by the city actualized the prima facie proof of its negligence. The words of the trial judge were these: Defendant’s evidence that it tested the pipes before laying them did not in any way tend to rebut the inference of negligence. On the contrary, by tending to exclude the possibility that the pipes themselves were defective, it tended to sustain the inference that they were negligently laid, for if the pipes themselves were good they certainly would not break in ten years unless they were either improperly laid or were subjected to some exceptional and untoward force or experience, and the latter alternative has not been so much as suggested” (p. 970). The trial judge also stressed the fact that no evidence whatsoever as to the cause of the break in its pipe was offered by the city, though there was every reason to suppose that it had accurate knowledge of that matter. I think this emphasis was as it ought to have been. When one party to an action, knowing the truth of a matter in controversy and having the evidence in his possession, omits to speak, every inference warranted by the evidence should be indulged against- him. (Wylde v. Northern R. R. Co. of N. J., 53 N. Y. 156.)

I do not believe the trial judge misconceived the authorities he so carefully collated. If he thought the parties meant to leave the decision of the present issue to him, I am not prepared to say he was wrong in that understanding of the theory of the trial. Even if he directed the verdict against the city in the belief that a verdict the other way would strike every fair mind as indefensible in point of sense, I am still not disposed to take the other side, (Cf. Hogan v. Manhattan Ry. Co., 149 N. Y. 23.)

. I vote to affirm the judgments of the courts below.

Finch, Rippey, Lewis, Conway and Desmond, JJ., concur with Lehman, Ch. J.; Loughran, J., dissents in opinion.

Judgment accordingly.


text:
    The People of the State of New York ex rel. Parklin Operating Corporation, Appellant, against William S. Miller et al., Constituting the Board of Taxes and Assessments of the City of New York, Respondents.
    Argued October 8, 1941;
    decided November 27, 1941.

      Israel Hoffman for appellant.
    Courts below failed to give effect to the rule. (People ex rel. Manhattan Square Beresford, Inc., v. Sexton, 284 N. Y. 145.)

      William C. Chanter,. Corporation Counsel (Alfred T. White and Arthur H. Goldberg of counsel), for respondents.

      The courts below properly refused to adopt the conclusion of relator’s witness _ as to the reconstruction cost, less depreciation, of the building and were warranted in finding a higher building value in view of the countervailing evidence. (Banner Milling Co. v. State, 240 N. Y. 533; Commercial Casualty Ins. Co. v. Roman, 269 N. Y. 451; People ex rel. Third Ave. R. R. Co. v. Tax Commissioners, 212 N. Y. 472; Dougherty v. Milliken, 163 N. Y. 527; Matter of City of New York [Jamaica Bay], 250 App. Div. 124; 275 N. Y. 458; Shabotzky v. Equitable Life Assur. Society, 257 App. Div. 257; Ensign v. Travelers Ins. Co., 193 App. Div. 369; 233 N. Y. 521; Ballin v. Apperson Realty Corp., 258 App. Div. 264; 283 N. Y. 754.)
   Lehman, Ch. J.

The relator is the owner of land in the city of New York, upon which a twenty-story building completed in January, 1925, has been erected. The land and building were assessed by the Board of Taxes and Assessments for the year 1934 at a value of $2,050,000, and for the years 1935 to 1939 at $2,000,000 or slightly less. By certiorari proceedings the relator challenged these assessments, claiming that the total value of the land and building was only $1,400,000. The court at Special Term found that in the year 1934 the value of the land was $715,000 and the value of the building was $1,250,000, and the total value of the land and building was $1,965,000 and that during each succeeding year the value of the land remained unchanged but the building depreciated slightly. The assessments were reduced to the values so determined. The Appellate Division affirmed the order of Special Term.

At the hearing in Special Term the relator produced in evidence the contracts made prior to 1925 for the erection of the building, and a builder of admitted experience gave testimony in regard to the reproduction cost and depreciation of the building. According to his testimony, supported by the original contracts, the original cost of erecting the building was $1,063,940. His testimony showed also that, after allowance for variations in building costs and deducting two per cent annually for depreciation, the reproduction cost of the building, less depreciation, was $883,000 for the year 1934, and varied slightly during the succeeding years. The Board of Taxes and Assessment produced no testimony in contradiction and did not attempt to show the reproduction cost of the building less depreciation; yet in fixing the total value of the land and building for the year 1934 and succeeding years, the justice at Special Term gave to the building a value far greater than the cost of reproduction less depreciation as shown by the relator’s evidence. This, the relator claims, constitutes error as matter of law.

A real estate expert, qualified by experience and by study ' of the sales of property, both improved and unimproved,' in the same neighborhood as relator’s property, but without experience as builder or contractor, gave testimony that the value of the relator’s land and building was greater than the sum at which they were assessed. It appears from his testimony that he arrived at the value of the building by capitalization of actual or potential income, but checked his conclusion, against his estimate of cost of the building on a “ cubic foot ” basis. In addition the defendants-respondents showed that the building was insured for $1,250,000. This evidence would doubtless sustain the finding of value of the justice at Special Term, if he was justified in disregarding the testimony of the relator’s building expert that the cost of reproduction less depreciation was much less than the value so fixed.

The Tax Law (Cons. Laws, ch. 60), section 8, provides that “ All real property subject to taxation Shall be assessed at the full value thereof.” The Administrative Code of the City of New York (L. 1937, ch. 929) provides that “ The assessed valuation of each such parcel shall be set down * * * in two columns. In the first column shall be stated, opposite each such parcel, the sum for which such parcel would sell under ordinary circumstances if wholly unimproved; and in the second column, the sum for which such parcel would sell under ordinary circumstances with the improvements, if any thereon.” (§ 158-1.0, subd. b.)

The two statutes must be read together. The statutory test of the full value of property is the price at which the property would sell under ordinary circumstances. Aside from the statutory provisions, that constitutes, indeed, the only practical test of full value where exactly similar property can be readily bought at a fair price in an open market from willing sellers, or can be readily sold at a fair price to ready buyers. Where real property is of such a nature that ready buyers for it could not be found even in ordinary circumstances in any market, it may be impossible to apply that test, and then other tests of full value must be used. (People ex rel. N. Y. Stock Exchange Building Co. v. Cantor, 221 App. Div. 193 [opinion by Finch, J.]; affd., 248 N. Y. 533.) That is not the case here.

Here the undisputed evidence establishes that the building upon the land was erected for use as a store, office and loft building and that the net income derived from rentals is substantial. It is also not disputed that unimproved land in the same neighborhood which could be appropriately improved for similar purpose, is under ordinary circumstances bought and sold in an open market. Sales of similar property, improved or unimproved, in the same neighborhood, can do no more than furnish the data upon which the tax assessors or the court can estimate the price the property would bring in ordinary circumstances. Such evidence is persuasive where the property previously sold and the property presently to be valued by the assessors are in all respects similar and the conditions which might reasonably affect the price which a ready buyer would be willing to pay for such property remain unchanged. From the nature of the problem, however, it is plain that evidence of sales made at one time can never constitute conclusive proof that similar price could be obtained at some other time. That can never be determined by mathematical computation or necessary inference from undisputed facts.

Evidence of income derived, or which can be derived, from real property may at times constitute more persuasive evidence of the price at which the income-producing property can be sold in ordinary circumstances than evidence of actual sales of more or less similar property under more or less similar conditions, for we know that in ordinary circumstances investors will pay for income-producing property a price measured in large part by the amount and certainty of the income which can be obtained from such property. On the other hand, we also know that an investor will not pay more for an income-producing property than the amount .for which he could acquire at less cost property which would with equal certainty produce an equal income, either by purchase in the open market or by purchasing unimproved property and erecting upon it a similar improvement.

For these reasons we have recently said in People ex rel. Manhattan Square Beresford, Inc., v. Sexton (284 N. Y. 145 [opinion by Conway, J.]): “ The value of the improvement arrived at by capitalization of potential or actual income may well be weighed and considered but if it be more than reconstruction cost less depreciation, at least in the absence of extraordinary circumstances not present here, the latter still remains the maximum value which may be assessed upon the property.” That case was decided after the order of Special Term in the proceedings we are now reviewing was entered. The rale stated in that case applies with equal force here.

It is true that there the court expressly found that the reproduction cost of the improvement less depreciation was less than its value as fixed by the court. Here there is no such finding, and the respondents seek to sustain the order of the courts below on the ground that the court at Special Term could properly reject the opinion evidence of the cost of reproduction produced by the relator, though such evidence has not been seriously contradicted, and could then basé determination of value on other evidence. Doubtless evidence of cost of reproduction may be rejected by the court at Special Term, even though it is not contradicted, where there is reasonable ground to question the truth or. accuracy of such testimony. Where capitalization of potential or actual income indicates a value much greater than the claimed cost of reproduction, a court would at times be justified in rejecting the evidence of such cost of reproduction, otherwise not impeached; for the income that can be obtained from rentals of space bears some relation to the supply of space available in similar buildings, and the supply of space in similar buildings will usually keep pace with the profit that can be derived. In this case, however, the record shows quite clearly that the proof of cost of reproduction was not rejected because in the opinion of the court' it was unreliable, but rather because the court regarded it as irrelevant even if true when capitalization of actual or potential income indicated a value higher than cost of reproduction. That, we have said in People ex rel. Manhattan Square Beresford, Inc., v. Sexton (supra), may not be done.

For these reasons the orders should be reversed and the matter remitted to the Special Term for a new hearing, with costs in all courts to the appellant to abide the event.

Loughran, Finch, Rippey, Lewis, Conway and Desmond, JJ., concur.

Orders reversed, etc.


text:
    The People of the State of New York ex rel. Martin Prisament, Respondent, against Joseph H. Brophy, as Warden of Auburn State Prison, Appellant.
    Argued October 16, 1941;
    decided November 27, 1941.

      John J. Bennett, Jr., Attorney-General (Henry Epstein, Edward T. Boyle and Patrick H. Clune of counsel), for appellant.
    The pardon granted by the President of the United States on the ground of innocence did not alter the status of the respondent as a second offender under section 1941 of the Penal Law. (People v. Price, 119 N. Y. 650; Roberts v. State, 160 N. Y. 217; People v. Carlesi, 154 App. Div. 481; 208 N. Y. 547; 233 U. S. 51; People ex rel. Geiselman v. Hunt, 275 N. Y. 612; People v. Fabian, 192 N. Y. 443; Shepherd v. People, 25 N. Y. 406; Matter of Garland, 4 Wall. 380; Matter of Spenser, 22 Fed. Cas. 921; People ex rel. Jobissy v. Murphy, 244 App. Div. 834; 268 N. Y. 695.) The executive authorities cannot perform judicial functions. (People ex rel. McDonald v. Keeler, 99 N. Y. 463; People v. Supervisors, 16 N. Y. 424; Roberts v. State, 30 App. Div. 106; 160 N. Y. 217; Knote v. United States, 95 U. S. 149; Matter of Davies, 168 N. Y. 89.)

      Thomas E. Dewey, District Attorney, New York County (Stanley H. Fuld of counsel), amicus curias.

    The relator was properly sentenced as a second felony offender since the pardon did not obliterate the record of his previous conviction. (Roberts v. State, 160 N. Y. 217; Burdick v. United States, 236 U. S. 79; People ex rel. Patrick v. Frost, 133 App. Div. 179; People v. Van Zile, 80 Misc. Rep. 329; Williston, “ Does a Pardon Blot Out Guilt,” 28 Harv. Law Rev. 647; People ex rel. Jobissy v. Murphy, 244 App. Div. 834; 268 N. Y. 695; People ex rel. Malstrom v. Kaiser, 135 Misc. Rep. 67; 228 App. Div. 743; People v. Carlesi, 154 App. Div. 481; 208 N. Y. 547; 233 U. S. 51; People v. Price, 53 Hun, 185; 119 N. Y. 650; People v. Van Zile, 80 Misc. Rep. 329; People v. McTigue, 99 Misc. Rep. 17; People ex rel. Geiselman v. Hunt, 275 N. Y. 612; People v. Isaacs, 258 App. Div. 871.)

      Martin Prisament, in person, respondent.
    The order of the Appellate Division should be affirmed. (Carlesi v. People, 208 N. Y. 547 ; 233 U. S. 51; Caujolle v. Ferrie, 23 N. Y. 90; Tracy v. Frey, 95 App. Div. 579; Pope v. Heckscher, 266 N. Y. 114; Mills Orchard Corp. v. Frank, 137 Misc. Rep. 407; Ferguson v. Crawford, 70 N. Y. 253.)
   Lehman, Ch. J.

The relator on March 11, 1940, was convicted, in the Court of General Sessions of the County of New York, upon his plea of guilty of attempted robbery in the third degree. The District Attorney of the county filed an information, pursuant to section 1943 of the Penal Law, accusing the relator of having been convicted on June 14, 1937, in the United States District Court for the Middle District of Georgia, of robbing a member bank of Federal Deposit Insurance Corporation. The relator, after being duly cautioned as to his rights, acknowledged that he is the same person mentioned in the several records set forth in said information.” He was thereupon sentenced as a second offender, in accordance with the provisions of section 1941 of the Penal Law, to imprisonment in a State prison for the term of not less than five years nor more than ten years.

Though official records establish incontrovertibly that the relator was convicted in the United States District Court of a bank robbery, it appears also from official records that, two years after his conviction, he received a full and unconditional pardon ” from the President of the United States and that the pardon contains the preamble or recital: “ Whereas it had been made to appear to me that the said Martin Prisament is innocent of the offense for which he is now being held.” The relator, by writ of habeas corpus, has challenged the power of the court to impose upon him a sentence as a second offender, since it appears that, after conviction of the first offense, he has received a complete and unconditional pardon upon a finding by the President that he is innocent of that offense. The Appellate Division has sustained that contention and has directed that the relator be remanded for resentenc'e as a first offender. In granting leave to appeal to this court the Appellate Division has certified the question: “ Was the relator legally sentenced as a second offender? ”

A pardon has been defined as an act of grace, proceeding from the power entrusted with the execution of the laws, which exempts the individual, on whom it is bestowed, from the punishment the law inflicts for a crime he has committed. It is the private, though official act of the executive ^ magistrate, delivered to the individual for whose benefit it is intended.” (United States v. Wilson, 7 Pet. [U. S.] 150, 159.) Undoubtedly, in accordance with that definition, a pardon exempts a person who has received and accepted it from further punishment for the crime of which he has been convicted, regardless of whether or not executive pardon— wiped out the judicial finding of guilt. Increased punishment decreed by the statute for any offender who commits a second error is not, however, further punishment for the prior offense. “ The punishment is for the new crime only, but is the heavier if he is an habitual criminal.” (McDonald v. Massachusetts, 180 U. S. 311, 312.) The fact of the former conviction is an element merely in determining the criminality of the second offense. * * * q^e Legislature of this State has said that one who commits a crime, after having been convicted of another crime, is a greater offender than as though he had not previously been convicted, and the punishment inflicted is solely for the second offense to which a greater degree of criminality is thus attached.” (People v. Carlesi, 154 App. Div. 481, 487, opinion by Miller, J.; affd., 208 N. Y. 547; affd., 233 U. S. 51.) The court, which pronounces sentence for the second offense, may not re-examine the question whether the offender was in fact guilty of the crime of which he has previously been convicted; for under the statute the conviction conclusively establishes guilt. The court may not consider whether the increased punishment is in the particular case deserved by the offender or whether lesser punishment would in the circumstances be more appropriate; for the statute provides an inexorable rule. It follows that the decision of the Appellate Division can be sustained only if the President’s pardon is more than an act of grace ” which exempts the offender from the punishment the law inflicts for a crime he has committed,” but is an official act which erases the judicial record of the offender’s guilt.

In old judicial decisions and in scholarly commentaries, which, in the passing centuries, have acquired a measure of authority as legal classics, expressions may be found which seem to indicate that an executive pardon of a convicted felon is more than an act of grace which grants exemption from the punishment deserved for the crime, but in truth wipes out guilt and erases the judicial record of guilt. (See Professor Williston’s article, Does a Pardon Blot out Guilt? ” 28 Harv. Law Rev. 647.) Courts in this country also have said at times that pardons have the effect of wiping out the guilt of a convicted felon. So the Supreme Court of the United States, which in United States v. Wilson (supra) defined an executive pardon as an executive act of grace exempting an individual from punishment for a crime he has committed,” has said later: A pardon reaches both the punishment prescribed for , the offence and the guilt of the offender; and when the pardon is full, it releases the punishment and blots out of existence the guilt, so that in the eye of the law the offender is as innocent as if he had never committed the offence.” (Matter of Garland, 4 Wall. [U. S.] 333, at p. 380.)

Literally, of course, an executive pardon cannot “ blot out of existence the guilt ” of one who committed a crime. At most it can wipe out the legal consequences which flow from an adjudication of guilt. In Matter of Garland (supra) the court gave to the presidential pardon no greater effect. The court decided only that “ the effect of this pardon is to relieve the petitioner from all penalties and disabilities attached to the offence of treason, committed by his participation in the Rebellion. So far as that offence is concerned, he is thus placed beyond the reach of punishment of any kind ” (p. 381). To illuminate a decision in which a bare majority of the court concurred and which was rendered while the passions roused by the rebellion still clouded the judgment of most citizens, the court used, appropriately enough, a metaphor; but metaphors cannot appropriately be used to justify a conclusion which would follow logically only if the metaphor were not a figure of speech but an accurate description. The logical difficulties which must follow if the metaphor used by the court in Matter of Garland were accepted as a premise from which legal consequences inexorably follow are made manifest by what was said and decided by the court in Matter of-, an Attorney (86 N. Y. 563, especially at p. 569).

The Supreme Court of the United States, indeed, has itself rejected the implications lurking in the' metaphor it used in Matter of Garland. In Burdick v. United States (236 U. S. 79, 90) the court pointed out that, far from wiping out guilt, the acceptance of an executive pardon may imply a confession of guilt. Escape by confession of guilt implied in the acceptance of a pardon may be rejected,— preferring to be the victim of the law rather than its acknowledged transgressor — preferring death even to such certain infamy.” The President is empowered “ to grant Reprieves' and Pardons for Offences against the United States, except in Cases of Impeachment.” (U. S. Const, art. II, § 2.) Neither Congress nor a State Legislature can limit the constitutional power of the President to exempt an offender from punishment for his offense (Matter of Garland, supra); but the state may still provide that in fixing the penalty for an offense against the sovereign state, the offender’s past conduct, including the commission of an offense against another sovereign, may be taken into account even though the offender has been pardoned by such other sovereign.' The Constitution, which confers upon the President the power to pardon, does not confer upon him power to wipe out guilt. In measuring the punishment of a person who is convicted of an offense against this state, after he has been convicted of an offense against the United States, the state may determine as it sees fit both the effect that shall be given to the previous conviction and the effect that shall be given to a presidential pardon for that offense.

In some states in which, by statute, additional punishment must be meted out to a person who is convicted of a felony after previous conviction of another crime, the courts have held that an executive pardon for the earlier offense exempts the offender not only from punishment for that offense but also from additional punishment for The second offense. (State v. Lee, 171 La. 744; Scrivnor v. State, 113 Tex. Cr. Rep. 194; Edwards v. Commonwealth, 78 Va. 39; Kelley v. State, 204 Ind. 612; State v. Martin, 59 Ohio St. 212.) In this state we have reached the opposite conclusion. We have held that an executive pardon does not obliterate the judicial finding of guilt of the offense which has been -pardoned. Absolution, by temporal authority, for an offense implies, perhaps, that there is reason to believe that rigid enforcement of the usual penalty for the offense would work injustice. It ordinarily implies nothing more and where the offender sins again he is properly subject to additional punishment. (People v. Carlesi, supra; People ex rel. Jobissy v. Murphy, 244 App. Div. 834; affd., 268 N. Y. 695. See, also, People v. Biggs, 9 Cal. [2d] 508; Mount v. Commonwealth, 2 Duv. [Ky.] 93; Herndon v. Commonwealth, 105 Ky. 197; State v. Edelstein, 146 Wash. 221; Commonwealth ex rel. v. Smith, 324 Penn. St. 73; State v. Webb, 36 N. D. 235, 243; Williston, Does a Pardon Blot Out Guilt?” 28 Harv. Law Rev. 647, 659; 1 Bishop on Criminal Law [9th ed. 1923], § 963; 2 Wharton on Criminal Procedure [10th ed.], § 1471.) It is said, however, that the rule is different where, as in this case, the pardon recites that it has been granted because the offender has established to the satisfaction of the executive that he is innocent of the offense of which he was convicted.

The conviction of an innocent man, even though he be a man of evil character and an associate of criminals, is a miscarriage of justice, and argument not without force is made that the state should not visit additional punishment upon him if after such wrongful conviction he commits a crime. The argument assumes that after an executive pardon has been granted because the convicted person has established his innocence to the satisfaction of the executive, the judgment of conviction which would otherwise be conclusive, no longer establishes guilt. We do not weigh the argument because we are constrained to reject its underlying assumption.

The judgment of guilt is, as matter of law, conclusive upon the executive as well as upon all others except where a statute provides otherwise. Nevertheless, a person convicted of crime may ask the chief executive to exercise his prerogative of mercy and certainly that plea is no less strong where the judicial finding of guilt is based on evidence which is far from conclusive and the convicted person is able to convince the executive that the judgment is erroneous. Then the executive has power to pardon because he is convinced that the conviction is unjust, though he has no power to set aside the judgment.

Under an ideal system of administration of justice a person convicted of a crime should, perhaps, be granted an opportunity to present to a court proof of his innocence whenever such proof becomes available and, then, to ask the court to vacate the erroneous judgment. In practice, inflexible rules of procedure may deny to a person wrongfully convicted any further access to the court. Then his only means of redress is appeal to the executive.

In the article by Professor Williston cited above he said: The fact that a pardon may not infrequently be the only redress which is open to an innocent man operates not only as an injustice to the innocent, but, as has been said, probably exerts a retroactive influence towards the continuance of the notion that a pardon makes a convict into a man of good character ” (p. 661). Perhaps the chief executive should have power to set aside a finding of guilt at least where the courts are powerless. (See article by Professor Henry Weihofen, The Effect of a Pardon,” 88 U. of Pa.' Law Rev. 177.) Perhaps, instead of conferring such power upon the executive the Legislature should confer upon the courts a larger power to revise judgments of conviction. Congress has seen fit to provide that, in an action which an innocent person may maintain for damages sustained by an erroneous conviction and imprisonment thereunder, a presidential pardon which contains a finding that the person convicted did not commit any of the acts with which he was charged ” shall have the same effect as a judicial finding, made on an appeal or upon a new trial or rehearing, that the convicted person is not guilty. (IT. S. Code, tit. 18, §§ 729, 730.) It has not seen fit to provide that for any other purposes a presidential pardon shall have the same effect. It is interesting to note here that the English statute expressly provides that a pardon granted to a person who has been convicted does not affect the punishment to which the offender might be liable on a subsequent conviction for a felony. Only by judicial decree can the judgment of earlier conviction be set aside or denied all effect. (Criminal Law Act of 1827 [7 & 8 Geo. IV, ch. 28, § 13; Chitty’s Statutes, 6th ed., vol. 3, p. 203]. See 4 Stephen, “ Commentaries on the Laws of England ” [18th ed. 1925], pp. 489, 490.)

We conclude that a presidential pardon, even if granted because the President is satisfied that the convicted person is innocent, is an act of grace which does not obliterate the finding of guilt. Any inflexible rule or standard of punishment prescribed by statute will inevitably work injustice in particular cases. The remedy in such cases lies- with the executive of the state, not the court.

The order of the Appellate Division should be reversed and that of the Special Term of County Court dismissing the writ of habeas corpus affirmed. The question certified should be answered in the affirmative.

Loughban, Finch, Rippey, Lewis, Conway and Desmond, JJ., concur.

Ordered accordingly.


text:
    In the Matter of White Plains Oil Corporation. United States of America, Appellant; State of New York et al., Respondents.

      Argued October 10, 1941;
    decided November 27, 1941.

      Mathias F. Correa, United States Attorney (Edward J. Ennis and John B. Creegan of counsel), for appellant.
    The claim for the entire amount of the federal unemployment insurance taxes should be given priority over the claim for state unemployment insurance taxes. (Stripe v. United States, 269 U. S. 503; Matter of Lincoln Chair & Novelty Co., 274 N. Y. 353; Spokane County v. United States, 279 U. S. 80; Matter of Simpson, Inc., 258 App. Div. 148; Matter of Kupshire Coats, Inc., 272 N. Y. 221; Matter of Independent Automobile Forwarding Corp., 118 Fed. Rep. [2d] 537; Morrissey v. Commissioner, 296 U. S. 344; Fawcus Machine Co. v. United States, 282 U. S. 375; National Lead Co. v. United States, 252 U. S. 140; Choteau v. Burnet, 283 U. S. 691; Heiner v. Colonial Trust Co., 275 U. S. 232.) The entire federal tax'is prior to the wage claim. (Matter of Kupshire Coats, Inc., 272 N. Y. 221.)

      John J. Bennett, Jr., Attorney-General (Francis R. Curran and Henry Epstein of counsel), for State of New York, respondent.
    The Special Term properly applied the funds remaining in the assignee’s hands to the payment of the outstanding priority claims. (Chamberlain v. Andrews, 271 N. Y. 1; 299 U. S. 515; Matter of 67 Wall St. Restaurant Corp., 23 Fed. Supp. 672; Carmichael v. Southern Coal & Coke Co., 301 U. S. 495.)
   Lehman, Ch. J.

White Plains Oil Company made a general assignment of its assets for the benefit of creditors in August, 1939. After payment of administration expenses the sum of $596.20 remained in the hands of the assignee for distribution to creditors. That sum is insufficient to pay in full the claim of the United States, for unpaid taxes, which is entitled to priority in payment in accordance with the provisions of statutes of the United States, and is insufficient, also, to pay a claim for unpaid wages due to an employee and a claim of the State of New York for unpaid taxes, entitled to priority, in accordance with the provisions of the Debtor and Creditor Law (Cons. Laws, ch. 12; L. 1909, ch. 17), over the claims of general creditors. Priority of all debts due to the United States, in accordance with the provisions of the statutes of the United States, before payment of any other debts which may be entitled to priority under the State law, has been authoritatively established by the decisión of this court in Matter of Kupshire Coats, Inc. (272 N. Y. 221). The right of the United States to full payment of debts due to it for unpaid income taxes amounting to $167.58 and unpaid social insurance taxes amounting to $40.71, under title VIII of the Social Security Act is not challenged. The United States claims in addition that $436.64 is due for taxes, including interest and penalty, under the provisions of title IX of the Social Security Act (see 49 U. S. Stat. 639; U. S. Code, tit. 42, § 1101 et seq.) for the year 1937. It has been allowed only ten per cent of that claim. The assignee has been directed to pay out of the remainder of the funds in his hands $130 to a claimant for wages and $214.25 to the State of New York. ^

The problem presented upon this appeal concerns the amount of the debt due to the United States rather than the right of the United States to priority in payment of the debt actually owing to it; for right of priority in payment, in accord with our earlier decisions, is conceded by the state. The tax imposed upon the assignor under the provisions of section 901 of title IX of the Social Security Act is based upon the wages paid to employees and its amount is easily determined by computation. It is not disputed that with interest and penalty it amounts to $463.66 as claimed by the United States. The dispute arises over the construction and application of section 902 of the Social Security Act which provides that a taxpayer shall be entitled to credit against the tax imposed under section 901, the amount of contributions paid into an unemployment fund under a state law not exceeding ninety per cent of the tax against which it is credited.

The parts of section 902 of the Social Security Act, as amended in 1939 (53 U. S. Stat.- 1399), which define the credit to which a taxpayer is entitled, read:

Against the tax imposed by section 901 of the Social Security Act for the calendar year 1936, 1937, or 1938, any taxpayer shall be allowed credit for the amount of contributions, with respect to employment during such year, paid by him into an unemployment fund under a State law —

“ (1) Before the sixtieth day after the date of the enactment of this Act;

(2) On or after such sixtieth day, with respect to wages paid after the fortieth day after such date of enactment;

(3) Without regard to the date of payment, if the assets of the taxpayer are, at any time during the fifty-nine-day period following such date of enactment, in the custody or control of a receiver, trustee, or other fiduciary appointed by, or under the control of, a court of competent jurisdiction.”

A taxpayer, it must be noted, is entitled to credit for the amount of contributions which have been “ paid by him,” within the specified period or, “ without regard to the date of payment,” where, as in this case, the assets of the taxpayer are, at any time during that period, in the custody of a fiduciary appointed by, or under the control of a court of competent jurisdiction. Insolvency confers upon a taxpayer no right to any credit except for contributions paid by him ” into a state fund; it merely sanctions in proper case postponement of such payment until final distribution of the assets of the taxpayer in the custody of the fiduciary.

When Congress provides, as it has done in the Bankruptcy Act (U. S. Code, tit. 11), that claims for wages shall have priority over claims for taxes and that claims of the United States and of the State shall have equal priority over the claims of general creditors (see Matter of Kupshire Coats, Inc., supra), the distribution of the bankrupt’s estate may present a difficult problem in cases where the assets are insufficient to pay in full either the federal tax imposed under the provisions of section 901 of title IX of the Social Security Act, or to pay in full the contributions to a state fund required by state law, which may be credited against the tax due to the United States in accordance with the provisions of section 902. In such case resort has been had to a quadratic equation ” to obtain a formula by which the assets may be divided between the contributions to the State fund and the tax due to the United States after credit has been allowed upon the amount of contributions actually paid out of these assets in manner which would give equal priority to the claims of the United States and of the State. (Matter of Independent Automobile Forwarding Corp. [State of New York v. United States], 118 Fed. Rep. [2d] 537; application for certiorari granted October 13,1941, 314 U. S. 592.)

Since here the claim of the United States has priority over the claims both of wage earners and of the State, no such problem arises. Out of assets insufficient to pay the tax due to the United States the courts have directed payment of only $43.66 to the United States and have directed payment of $130 to a wage earner and $214.25 to the State of New York. It is said that the statute shows a continued intent ” of Congress that not more than ten per cent of the tax under title IX of the Social Security Act should ever be collected by the United States from insolvent estates and that equitable principles should be applied in order to effectuate that intent. The words of the statute enacted by Congress do not show such intent and a court has no power to apply what it may deem “ equitable principles ” in the distribution of an insolvent estate when Congress has formulated the rule that must be applied. Under the plain language of the statute a debt which has priority over debts owing to others is owing to the United States for the amount of the federal tax remaining due after credit has been allowed for contributions paid into a state fund out of the assets of the taxpayer. By no mathematical computation can a formula be devised by which part of the assets of the insolvent taxpayer can be used for the payment of the claim of the wage earner or for the payment of the claim of the state for contributions to the state fund without leaving unpaid a very substantial part of the tax due to the United States after the amount so paid for contributions to the state fund has been credited in accordance with the act of Congress. Diversion of any part of the insolvent estate to the payment of any claim other than that of the United States is to that extent a denial of the priority of payment of its debts which the United States may demand.

The order of the Special Term and that of the Appellate Division, so far as appealed from, should be reversed, without costs, and the assignee directed to apply upon the claim of the United States all the assets remaining after administration expenses have been met.

Loughran, Finch, Rippey, Lewis, Conway and Desmond, JJ., concur.

Ordered accordingly.