author: Sears, J.

text:
    The People of the State of New York, Appellant, v. Brooklyn Garden Apartments, Inc., Respondent.

      Argued May 27, 1940;
    decided July 24, 1940.

      John J. Bennett, Jr., Attorney-General (Harold I. Cammer and Ira S. Robbins of counsel), for appellant.
    The Appellate Division erred in disregarding the legislative distinction between the charge here involved and the taxes and fees mentioned in section 39 of the State Housing Law (L. 1926, ch. 823) and in holding that the charge was within the purview of that section. Defendant’s second defense is insufficient. (People ex rel. New York Electric Lines v. Squire, 107 N. Y. 593; 145 U. S. 175; Morgan’s Steamship Co. v. Board of Health, 118 U. S. 455; Nicchia v. People, 254 U. S. 228; Mars Realty Corp. v. Sexton, 141 Misc. Rep. 622; New York City Housing Authority v. Muller, 270 N. Y. 333; Texas Co. v. Brown, 258 U. S. 466; Pure Oil Co. v. Minnesota, 248 U. S. 158.) The charge is not a fee because it is not made for services rendered to defendant at its request but is imposed for services rendered distinctly for and in the interest of the public. (Messenger v. Board of Commissioners, 17 Wyo. 309; People ex rel. N. Y. Electric Lines Co. v. Squire, 107 N. Y. 593; 145 U. S. 175; Morgan’s Steamship Co. v. Board of Health, 118 U. S. 455; Mayor v. Williams, 61 Fed. Rep. [2d] 374; New York Rapid Transit Corp. v. City of New York, 303 U. S. 573.) The imposition of the charge represents an exercise of the police power and not of the taxing power of the State. (Edye v. Robertson, 112 U. S. 580; Charlotte Railroad v. Gibbs, 142 U. S. 386; People ex rel. New York Electric Lines Co. v. Squire, 145 U. S. 175; First State Bank v. Kendall, 107 Ore. 1; Vanhorn v. People, 46 Mich. 183; Holst v. Roe, 39 Ohio St. 340; Milwaukee Fire Dept. v.
      Helfenstein, 16 Wis. 136.) The Appellate Division erred in holding that the statute as amended would be given a retroactive effect if applicable to the projects of the defendant. Defendant’s first defense is insufficient. (People ex rel. N. Y. Electric Lines Co. v. Squire, 107 N. Y. 593; 145 U. S. 173.) The charge does not represent an impairment of the obligation of contracts since defendant never received an exemption from the charge. (People v. Richards, 108 N. Y. 137; Wakefield v. Fargo, 90 N. Y. 213; McGaffin v. Cohoes, 74 N. Y. 387; Coffin v. Reynolds, 37 N. Y. 640; Aikin v. Wasson, 24 N. Y. 482; People ex rel. Mills v. Tax Commissioners, 23 N. Y. 242; Matter of Engel, 155 App. Div. 467; Illinois Central R. R. Co. v. City of Decatur, 147 U. S. 190; Hale v. State Board of Assessment, 302 U. S. 95; Davis v. Supreme Lodge, 165 N. Y. 159.) The charge is not within the purview of section 6 of article I of the State Constitution because it is not a tax and does not require notice and an opportunity to be heard. Defendant’s third defense is insufficient. (People ex rel. New York Electric Lines Co. v. Squire, 107 N. Y. 593; 145 U. S. 175; Bronx Gas & Electric Co. v. Maltbie, 268 N. Y. 278; First State Bank v. Kendall Lumber Co., 107 Ore. 1; Great Northern Ry. Co. v. Washington, 300 U. S. 154; Inter-Island Steam Navigation Co. v. Hawaii, 83 L. Ed. 198.) Defendant’s fourth defense is insufficient. The amendment does not constitute a delegation of legislative power. (St. Louis Consolidated Coal Co. v. Illinois, 185 U. S. 203; People v. Kaye, 160 App. Div. 644; 212 N. Y. 407; Bellows v. Raynor, 145 App. Div. 899; 207 N. Y. 389; People ex rel. Lieberman v. Vandecarr, 81 App. Div. 128; 175 N. Y. 440; People ex rel. C. P., N. & E. R. R. R. Co. v. Willcox, 194 N. Y. 383; Village of Saratoga Springs & Saratoga Gas Co., 191 N. Y. 123; Townsend v. New York, 16 Hun, 362; 77 N. Y. 542; People ex rel. New York Electric Lines Co. v. Squire, 107 N. Y. 593; 145 U. S. 175; People v. Harper, 91 Ill. 357.)

      Chauncey Belknap and Frank M. Darnall for respondent.
    The payment claimed is a tax or fee within the meaning of the tax exemption provisions of the Housing Law. (Great Northern Ry. Co. v. Washington, 300 U. S. 154; Foote & Co. v. Stanley, 232 U. S. 494; Inter-Island Steam Navigation Co. v. Hawaii, 305 U. S. 306; Washington Ry. & Electric Co. v. District of Columbia, 77 Fed. Rep. [2d] 366; Walla Walla City v. Walla Walla Water Co., 172 U. S. 1; New Orleans Gas Light Co. v. Louisiana Light Co., 115 U. S. 650.) The amendment of 1933 (L. 1933, ch. 802) should be interpreted as not applicable to housing projects completed prior to the adoption of the amendment. (Jacobus v. Colgate, 217 N. Y. 235; People v. Dilliard, 252 App. Div. 125; People ex rel. Griffith, Inc., v. Loughman, 249 N. Y. 369; Lewellyn v. Frick, 268 U. S. 238; Paterno Investing Corp. v. Katz, 112 Misc. Rep. 242; 193 App. Div. 897; Shwab v. Doyle, 258 U. S. 529; Hassett v. Welch, 303 U. S. 303.) If the amendment of 1933 is interpreted as applicable to the completed projects of existing corporations, it violates section 10 of article I of the Federal Constitution providing that no State shall pass any law impairing the obligation of contracts. (People ex rel. Troy Union R. R. Co. v. Mealey, 224 N. Y. 187; 254 U. S. 47.) The amendment of 1933 violates the Fourteenth Amendment of the Federal Constitution and section 6 of article I of the State Constitution in that it provides no opportunity for limited dividend housing companies to be heard as to the amount of the liability imposed upon them. (Stuart v. Palmer, 74 N. Y. 183; Matter of Trustees of Union College, 129 N. Y. 308; McLaughlin v. Miller, 124 N. Y. 510; Remsen v. Wheeler, 105 N. Y. 573; Bronx Gas & Electric Co. v. Maltbie, 268 N. Y. 278; Matter of Kings County Lighting Co. v. Maltbie, 244 App. Div. 475; First State Bank v. Kendall Lumber Co., 107 Ore. 1.) The amendment of 1933 involves an unconstitutional delegation of legislative and taxing power to the State Board of Housing. (Darweger v. Staats, 267 N. Y. 290; Panama Refining Co. v. Ryan, 293 U. S. 388; People ex rel. Hopkins v. Board of Supervisors of Kings County, 52 N. Y. 556; Ploner v. Standard Oil Co., 284 Fed. Rep. 34; State v. Northwestern

      Electric Co., 183 Wash. 184.) The amendment of 1933 fails to comply with the provisions of section 24 of article III of the State Constitution requiring that every law which imposes a tax shall distinctly state the tax. (People ex rel. Mutual Trust Co. v. Miller, 177 N. Y. 51; Matter of Clark v. Sheldon, 106 N. Y. 104; People ex rel. Hopkins v. Board of Supervisors, 52 N. Y. 556.)

      Robert Szold and Jess G. Schiffman for Amalgamated Housing Corporation et al., amicus curiæ.

    The State Housing Law neither imposed nor authorized the charge sought to be collected. (City of New York v. McLean, 170 N. Y. 374; Howitt v. Street & Smith Publications, 276 N. Y. 345; Dun & Bradstreet, Inc., v. City of New York, 276 N. Y. 198; People ex rel. Provident Sav. Life Assur. Society v. Miller, 180 N. Y. 525; People ex rel. Mutual Trust Co. v. Miller, 177 N. Y. 51; People ex rel. Fifth Ave. Bldg. Co. v. Williams, 198 N. Y. 238.)
   Sears, J.

In 1926, when the Legislature enacted the State Housing Law (Laws of 1926, ch. 823; since repealed L. 1939, ch. 808, now covered by Public Housing Law [Cons. Laws, ch. 44-a]), it declared the purpose of the act in its title to be To promote the public health and safety by providing for the elimination of unsanitary and dangerous housing conditions, to reheve congested areas, and the construction and supervision of dwellings and for the letting of apartments at reasonable rentals.” Within the declared purpose, the law authorized the organization of limited dividend companies to construct and maintain low cost housing projects. To encourage the formation of such companies and the investment of funds therein, special privileges were granted to such companies including the following: “ Any public limited dividend housing company formed hereunder shall be exempt from the payment of any and all franchise, organization, income, mortgage recording and other taxes to the state and all fees to the state or its officers.” (State Housing Law, § 39.) Private limited dividend housing companies were granted a similar exemption. (State Housing Law, § 51.) Provision was made in the act for a State Board of Housing upon which was imposed the obligation of supervising the construction and maintenance of housing projects by limited dividend companies, and the control of rentals and the auditing of then accounts. Until 1934, the expenses of the Board in performing these duties were not imposed upon the companies but were borne by the State. In 1933 (L. 1933, ch. 802) the Legislature amended section 16 of the State Housing Law relating to the accounting feature of housing companies by providing that among the expenses of construction and operation of such companies there should be included such an amount as the Board might fix to reimburse it in whole or in part for its expenses of inspection, supervision and auditing, and the companies were directed to pay such amount to the Department of State. The amending statute also provided that the amount so paid should be included as a factor in determining the maximum amount of rentals. The purpose of this last provision was to enable the companies to shift the burden of these payments to their tenants. Acting upon the provisions of this amendment the State Board of Housing, by resolution, fixed the charge for the expenses required to be paid by each limited dividend housing company for the year beginning July 1, 1934, at one-twentieth of one per cent of the original cost of each completed project.

Defendant is a private limited dividend company organized in 1928. The amount payable by the defendant as fixed by the Board for the Board’s services for the year beginning July 1, 1934, was $622.87. To recover this sum the State brought this action. The defendant’s answer consisted of four separate affirmative defenses, which, in substance, alleged the inapplicability of the amendment of the State Housing Law enacted in 1933 to the defendant and alleged, if otherwise applicable, the invalidity of the amendment on three different constitutional grounds. The sufficiency of each of these defenses is before us upon this appeal.

Defendant contends that the statute is not applicable to it because it was organized and had completed its buildings prior to 1933 when the statute was enacted. The law itself makes no such distinction. It relates to all limited dividend housing companies whenever organized. It merely amends provisions already applicable to the defendant by adding, for the future, a new item to its expenses. (Cf. People ex rel. New York Electric Lines Co. v. Squire, 107 N. Y. 593; affd., 145 U. S. 175.)

Passing then to the validity as distinguished from the applicability of the amendment, we reach the contentions of the defendant that the statute impairs the obligation of a contract, deprives the defendant of property without due process of law and illegally delegates legislative powers.

The defendant claims that the exemption from the payment of certain taxes and fees is violated by the amendment. Exemptions from taxation which have induced action in reliance thereon, as the defendant may well contend that the exemption here has done, may not be invalidated by subsequent legislation. (People ex rel. N. Y. C. & H. R. R. R. Co. v. Mealey, 224 N. Y. 187; affd., 254 U. S. 47.) Tax exemptions, however, are limitations of sovereignty and are strictly construed. (Hale v. State Board of Assessment, 302 U. S. 95; Perry Co. v. City of Norfolk, 220 U. S. 472.) If ambiguity or uncertainty occurs, all doubt must be resolved against the exemption. (People ex rel. Mizpah Lodge v. Burke, 228 N. Y. 245.) The exemption upon which defendant relies is not a general exemption from all exactions on the part of the State but only from certain types of taxes and fees; franchise, organization, income, mortgage recording, are the types specifically mentioned, and then follows, and other taxes to the state and all fees to the state of its officers.” The payment here required to be made by the defendant must fall, if within the statute at all, within the general exemption. It is to be noted that the sum is payable to the Department of State for a specific purpose. It does not naturally fall within the content of the word tax.” A tax in the strict sense is payable into the general fund of the government to defray customary governmental expenditures. (Morgan’s SS. Co. v. Louisiana Board of Health, 118 U. S. 455; United States v. Butler, 297 U. S. 1, 61.) The word “ fee ” is of more doubtful meaning. It is scarcely a word of art and must be interpreted as it is commonly understood. We are familiar with recording fees, with filing fees, with fees in judicial proceedings, such as “ term fees,” “ trial fees,” “Jury fees.” These are all of general application. Here the exaction does not occur in the ordinary course of relations between the government and its citizens. It is particularized in application; it is not general. We are wholly unfamiliar with such a payment being designated as a fee. It is to be noted that the payment for which provision is made in the amendment is called in the law neither a tax nor a fee, but a charge. A similar use of terms occurs in the Public Service Law in relation to the requirement for.payment of the expenses of the Public Service Commission. (Public Service Law [Cons. Laws, ch. 48], §§18 and 18-a. Cf. Banking Law [Cons. Laws, ch. 2], § 17; Insurance Law [Cons. Laws, ch. 28], § 32.) We recognize that in the discussion of governmental exactions imposed in other statutes the words “ tax ” and “ fee ” and “ charge ” are sometimes indiscriminately used. (Great Northern Ry. Co. v. Washington, 300 U. S. 154; Foote & Co. v. Stanley, 232 U. S. 494, 504.) Taking into consideration the kind of taxes which the statute specifies as indicating the kind of exactions from which the housing companies are to be exempt, we cannot say that the exemption in question is definite enough and sufficiently free from ambiguity to give protection against this direction for the payment of the Board’s expenses. As the exemption is not to be construed as excluding the requirement for this payment, the constitutional guaranty is not infringed.

The argument of the defendant that the amendment is invalid as a violation of the due process clause is based on the circumstance that no provision is made in the statute for a hearing in respect to the distribution of the Board’s expense and the amount to be allocated to any particular company. This argument was before the Supreme Court of the United States in People ex rel. New York Electric Lines Co. v. Squire (supra), where a public service corporation was required to pay a part of the expenses of a State Board for supervision and the ' claim' of invalidity on the ground mentioned was rejected.

-. The last contention of the defendant is that the amendment is invalid as an illegal delegation of taxing power. The requirement for payment is not imposed'by the State Board, but by the Legislature itself. The only power that is delegated is the power to allocate particular expense. This is a delegation clearly permissible. (Matter of Village of Saratoga Springs v. Saratoga Gas, Electric Light & Power Co., 191 N. Y. 123; Matter of Mt. Hope Development Corp. v. James, 258 N. Y. 510.)

For these reasons we conclude that none of the defenses is sufficient in law, and that the order of the Appellate Division should be reversed, and the judgment of the Special Term affirmed, with costs in this court and in the Appellate Division, and that each of the certified questions be answered in the negative.

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

Ordered accordingly.


source: Caselaw Access Project

author: Finch, J.

license: Public Domain

text:
    The People of the State of New York ex rel. Charles E. Nauss et al., Appellants, against Mark Graves et al., Constituting the State Tax Commission, Respondents.
    Argued May 27, 1940;
    decided July 24, 1940.

      Joseph H. Kohan for appellants.
    The relators were not engaged in a trade, business or occupation in 1935. (Metropolitan Opera Co. v. Hammerstein, 162 App. Div. 691; People v. Klaw, 55 Misc. Rep. 72; People v. Sheldon, 66 Hun, 590; 139 N. Y. 251; Humiston v. Universal Film Mfg. Co., 189 App. Div. 467; McCaffery v. State, 233 App. Div. 435; People ex rel. Whitney v. Loughman, 220 App. Div. 30; People v. Ryan, 274 N. Y. 149; Matter of Fayerweather, 143 N. Y. 114; Matter of Green, 109 Misc. Rep. 112; People ex rel. General Alliance Corp. v. State Tax Comm., 253 App. Div. 413; Stafford Owners, Inc., v. United States, 39 Fed. Rep. [2d] 743; Matter of 320 West 37th Street, Inc., v. McGoldrick, 281 N. Y. 132; Matter of Merchants Refrigerating Co. v. Taylor, 275 N. Y. 113; Higgins v. Smith, 308 U. S. 473.)

      John J. Bennett, Jr., Attorney-General (Joseph M. Mesnig of counsel), for respondents.
    Nauss Interests conducted an unincorporated business. (People ex rel. Tower v. State Tax Comm., 282 N. Y. 407; People ex rel. Parker Mills v. Commissioners of Taxes, 23 N. Y. 242; Flint v. Stone Tracy Co., 220 U. S. 107; Von Baumbach v. Sargent Land Co., 242 U. S. 503; People ex rel. Tobacco & Allied Stocks v. Graves, 250 App. Div. 149; 277 N. Y. 723; Washburn v. Commissioner, 51 Fed. Rep. [2d] 949; Foss v. Commissioner, 75 Fed. Rep. [2d] 326; Kales v. Commissioner, 101 Fed. Rep. [2d] 35; Miller v. Commissioner, 102 Fed. Rep. [2d] 476; Morrissey v. Commissioner, 296 U. S. 344; Swanson v. Commissioner, 296 U. S. 362; Helvering v. Coleman-Gilbert Associates, 296 U. S. 369; Sears v. Hassett, 31 Fed. Supp. 179; McKean v. Scofield, 108 Fed. Rep. [2d] 764; People ex rel. Mosbacher v. Graves, 254 App. Div. 438; 279 N. Y. 793.)
   Finch, J.

The question presented upon this appeal is whether appellants, as tenants in common of certain realty, are engaged in business within the meaning of the Tax Law (Cons. Laws, ch. 60), article 16-A, which imposes a “ Temporary emergency tax on net incomes of unincorporated businesses.” Section 386, entitled “ Definitions,” provides that For the purpose of this article * * * the definitions contained in section three hundred fifty of this chapter shall be applicable and, in addition, the words ‘ unincorporated business ’ mean any trade, business or occupation conducted or engaged in by an individual * * *,” or an entity other than a corporation. Section 350, subdivision 11, provides that “ The word ‘ partnership ’ includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on * * *.” Appellants have been assessed for the amount of the tax due under article 16-A, and bring this proceeding to review the determination of the State Tax Commission, which confirmed the assessment.

Appellants are owners in common of nine parcels of realty in the city of New York, which they acquired by inheritance from their mother, father and brother. The properties are not held for speculative but only for income purposes. Since 1918, at which time they acquired the first of the properties, appellants have employed a real estate agent at an annual compensation, whose business it is to operate the properties. The real estate agent keeps books of account, collects the rents, negotiates leases and makes minor repairs, but appellants themselves make disbursements, execute leases and pass upon maj or alterations. Appellants maintain no office or clerical staff of their own, and all matters in connection with the properties are transacted through the office of the realty agent. The oldest brother, a New Jersey resident, comes to New York city about once a week to consult with the real estate agent. A checking account is maintained in the name of Nauss Interests,” Nauss being the family name of appellants. They have filed a certificate pursuant to section 440 of the Penal Law for the use of the name Nauss Interests.” Distributions are made each month to the appellants in accordance with their respective interests. There is at all times maintained a reserve consisting of a cash balance in the bank account and of government bonds.

Upon this appeal, there is involved the liability of appellants to pay the tax only for the year 1935, since by the amendment of section 386 applicable to returns for the year 1936 and thereafter, it was provided that It is not intended that an owner * * * shall be deemed engaged in an unincorporated business solely by reason of the holding, leasing or managing of real property * * *.” (Laws of 1938, ch. 411.)

It is clear that appellants are not engaged in a trade or occupation, and respondents do not argue to the contrary. Appellants are subject to the tax, therefore, only if their activities as tenants in common constitute the doing of business. The term “ business” is of very broad significance and has a great variety of meanings. (Murray, English Dictionary on Historical Principles [1888], vol. 1, part 2, p. 1205; 3 Encycl. of the Social Sciences, pp. 80-86; 5 Words and Phrases [Perm, ed.], 970; 13 id. 126, 184.) The precise meaning depends upon the context. In the case at bar the word business ” must be construed as part of the phrase “ trade, business or occupation.” Although business is not thereby rendered the equivalent of trade or occupation, the several words of the series do establish the context; and the context determines which of the several meanings was intended by the Legislature. (People ex rel. Parker Mills v. Comrs. of Taxes, 23 N. Y. 242, 244.) When used in tax statutes similar to that involved in the case at bar, “ business ” or “ doing business ” connote something more than the ownership of property and the receipt of income derived from property. (Von Baumbach v. Sargent Land Co., 242 U. S. 503; McCoach v. Minehill & Schuylkill Haven R. R. Co., 228 U. S. 295; Flint v. Stone Tracy Co., 220 U. S. 107; United States v. Peabody Co., 104 Fed. Rep. [2d] 267; Foss v. Comr. of Internal Revenue, 75 Fed. Rep. [2d] 326; Washburn v. Comr. of Internal Revenue, 51 Fed. Rep. [2d] 949. Cf. People ex rel. Manila Elec. R. R. & L. Corp. v. Knapp, 229 N. Y. 502, 508-511.) Although the very nature of the case does not permit an exact formula by which to determine when the activities of a property owner amount to the doing of business, there has been evolved the principle which distinguishes between a passive and an active owner or investor. One who allocates the active administration of the properties to others and himself performs only such acts as are appropriate to safeguard his ownership, is to be distinguished from one who himself actively participates in administering the management of the properties. The question is one which depends upon the facts of the particular case. (Von Baumbach v. Sargent Land Co., supra, at p. 516.) Many factors are to be considered, but no one is of itself decisive. Thus, in the Foss case, the court considered whether the owner maintained his own office in connection with the properties, the amount of time which was devoted, whether he employed someone else or himself did the work which could be done by an employee, etc. In the case at bar, appellants maintained no office of their own. The oldest brother spent about one day a week in protecting the investment and an agent was employed who took active charge of caring for the properties, negotiating leases, etc. That a bank account was maintained in the name of “ Nauss Interests ” is far from controlling. Nauss is the family name of appellants, and maintaining the account in that form is obviously a matter of convenience. The position of appellants is that of several owners in common of certain property acquired by inheritance, who have employed an agent to look after their properties and have reserved to themselves only such functions as would be retained by a passive owner. If the several appellants had partitioned their inheritance and thereafter each conducted himself as they have acted together, the separate individuals would not have been engaged in doing business. The fact that they have chosen to remain tenants in common of all the properties does not transform their activities from mere ownership into the doing of business. If the activities of these appellants were deemed to be the doing of business, then the doing of business would comprise every instance where property is owned in common and the owners act but to safeguard their property. If there is to be maintained a distinction between ownership on the one hand and the doing of business on the other, a distinction established by the cases, and respondents do not suggest that the distinction be obliterated, then these appellants may not be regarded as having been engaged in the doing of business.

The order of the Appellate Division should be reversed and the determination of the State Tax Commission annulled, with costs to appellants in this court and in the Appellate Division.

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

Order reversed, etc.


text:
    In the Matter of Albert Ross, Appellant, against S. Howard Cohen et al., Constituting the Board of Elections of the City of New York, et al., Respondents, and Edward Vogel, Intervener, Appellant.
    Argued June 12, 1940;
    decided July 24, 1940.

      Reginald S. Hardy for petitioner, appellant.
    The term of office of the successor to the resigned member of the City Council will expire on December 31, 1940. (New York City Charter, § 24; N. Y. Const, art. 13, § 8; Matter of Burke v. Cohen, 265 N. Y. 210; Matter of Mott v. Krug, 278 N. Y. 457; People ex rel. Dietz v. Hogan, 214 N. Y. 216; Matter of Schwab v. Boyle, 174 App. Div. 442; 219 N. Y. 561; Needleman v. Voorhis, 254 N. Y. 339; Cons. Laws, ch. 47, § 38; Matter of MacAdams v. Cohen, 236 App. Div. 361; People ex rel. Weller v. Townsend, 102 N. Y. 430.) The election of a Councilman to fill the vacancy created by the resignation must be conducted pursuant to chapter 43 of the New York City Charter. (Johnson v. City of New York, 274 N. Y. 411; Charter, § 1002-a.)

      E. Ivan Rubenstein and George Rosling for intervener, appellant.

      William C. Chanler, Corporation Counsel (Edward J. McGratty, Jr., Russell Lord Tarbox and Oscar L. Tucker of counsel), for respondents.
    The Council had no power to designate the intervener to serve as the resigned member’s successor beyond December 31, 1940. (Matter of Burke v. Cohen, 265 N. Y. 210; People ex rel. Deitz v. Hogan, 214 N. Y. 216; People ex rel. Weller v. Townsend, 102 N. Y. 430; Matter of MacAdams v. Cohen, 236 App. Div. 361; 260 N. Y. 559; People ex rel. Eldred v. Palmer, 154 N. Y. 133.) Chapter 43 of the charter is inapplicable to the election of a successor to fill the vacancy created by the resignation. The vacancy must be filled in accordance with the provisions of the general laws relating to elections. (Johnson v. City of New York, 274 N. Y. 411.)
   Sears, J.

The Council of the City of New York, elected at the general election in 1939 by proportional representation as provided in chapter 43 of the charter of the city (effective January 1,1938), consisted of twenty-one members, seven of whom were elected from the borough of Brooklyn. The term of office of the members so elected was from January 1,1940, to December 31, 1941. On March 4,1940, John Cashmore, one of the members elected from Brooklyn, resigned as a Councilman and a vacancy was thus created. On March 12,1940, the members of the Council, acting under the provisions of section 24 of the charter, chose Edward Vogel to fill the vacancy, and the resolution adopted by the Council provided that he should serve for the unexpired term of Cashmore.

This proceeding was instituted by a resident and voter of the borough of Brooklyn, to require the City Clerk to certify that the vacancy in the Council caused by the resignation of John Cashmore must be filled at the general election to be held November 5, 1940, and to require the Board of Elections to conduct such election by the system of proportional representation as provided in chapter 43 of the charter. Edward Vogel has intervened herein. The proceeding calls for answers to two questions, one, must the vacancy caused by the resignation of John Cashmore in the Council be filled at the next general election, and, two, if it must be, how shall the election be conducted?

The first question is easy of answer. By section 8 of article XIII of the Constitution of the State it is provided: The legislature shall provide for filling vacancies in office, and in case of elective officers, no person appointed to fill a vacancy shall hold his office by virtue of such appointment longer than the commencement of the political year next succeeding the first annual election after the happening of the vacancy.” (See, also, Public Officers Law [Cons. Laws, ch. 47], § 38.) In Matter of Burke v. Cohen (265 N. Y. 210) we held that the language of the Constitution above quoted (then contained in article X, section 5, of the Constitution) applies to all elective city offices. It follows that despite the language of the resolution of the City Council fixing the term of office of their appointee, Edward Vogel, as the “ unexpired term,” his term of office expires on the 31st of December, 1940. He himself seems to admit this but submits that no machinery is provided by law applicable to filling the vacancy at the next general election and that he will, therefore, continue to hold over as an incumbent under the provisions of section 5 of the Public Officers Law. We reject this contention for we are of the opinion that elective machinery is provided by law for the filling of the vacancy.

The petitioner contends that the vacancy must be filled by an election conducted in accordance with the terms of chapter 43 of the city charter, that is, by the system of proportional representation. The respondents, however, submit that the vacancy is to be filled by an election conducted under the provisions of the Election Law (Cons. Laws, ch. 17). We had occasion to examine chapter 43 of the charter when its constitutionality was attacked in Johnson v. City of New York (274 N. Y. 411). In the course of the opinion, its general provisions are stated and analyzed. The underlying principle of the system is to secure minority representation in the city’s legislative body. It is not necessary to repeat the statements and analysis contained in the opinion in the Johnson case. It is self-evident that the machinery adapted for the election of a number of persons from a single district is wholly unfitted for the replacement of one of several. Let us consider a single feature. The number of Councilmen to be elected from any borough is fixed at one Councilman for every 75,000 votes cast, plus one for a remainder of 50,000 or more. In counting the ballots any candidate who receives 75,000 votes is at once declared elected. The affidavits in this proceeding show that it is probable that upwards of 950,000 votes will be cast in the borough of Brooklyn at the coming election. How then can a single vacancy be filled? To apply chapter 43 of the charter to the coming election would require many provisions to be disregarded and the adjustment of a system designed to secure minority representation to a case where minority representation is impossible. No such absurd result could have been within the contemplation of the draftsmen of the chapter or of the electors on whose votes the enactment of the chapter depended.

It is significant that the chapter contains no provision for the filling of vacancies. As we have indicated, the general provisions of the charter are inappropriate for that purpose. We conclude that the law of the State relating to elections continues applicable to such a case. Nothing in the Election Law inappropriate to such election has been pointed out and we have found nothing. Of course an election by a majority vote to fill this vacancy may result in unbalancing to some degree majority and minority representation, but that is inevitable if an election by the People to fill the single vacancy is required, and that it is required we have already shown by the quotation from the Constitution. »

We reach the conclusion, therefore, that the vacancy in the Council arising from the resignation of John Cash-more must be filled at the next annual election which occurs on November 5, 1940, and that the election is to be held pursuant to the provisions of the Election Law.

The order should be affirmed, without costs.

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

Order affirmed.


author: Rippey, J.

text:
    Bena Shea, Appellant, v. James E. Judson et al., Defendants, and Clark LaPoint et al., Respondents.
    Argued June 14, 1940;
    decided July 24, 1940.

      J. Clarence Herlihy for appellant.
    The plaintiff was entitled to the most favorable view of the evidence. (Woodruff v. Germansky, 233 N. Y. 365; Jerome v. Queens City Cycle Co., 163 N. Y. 351; Stevens v. O’Neill, 169 N. Y. 375; Hickok v. Auburn Light, H. & P. Co., 200 N. Y. 464; King v. Village of Fort Ann, 180 N. Y. 496; Heskell v. Auburn Light, H. & P. Co., 209 N. Y. 86; Bernstein v. Greenfield, 281 N. Y. 77; Cornbrooks v. Terminal Barber Shops, Inc., 282 N. Y. 217; Sharp v. Erie R. R. Co., 184 N. Y. 100; Layer v. City of Buffalo, 274 N. Y. 135.) The verdict against the defendants-respondents was proper and should not have been set aside. It was not contrary to the law and should be reinstated. (Horton v. N. Y. C. R. R. Co., 237 N. Y. 38; Brehm v. D. & H. R. R. Corp., 240 App. Div. 936; 265 N. Y. 451; Bernstein v. Greenfield, 281 N. Y. 77; Cornbrooks v. Terminal Barber Shops, Inc., 282 N. Y. 217; Waldron v. City of Utica, 228 App. Div. 37; Proietti v. Castanzo, 198 N. Y. Supp. 15; Dashnau v. City of Oswego,
      204 App. Div. 189; Lee v. City Brewing Corp., 279 N. Y. 380; Ingersoll v. Liberty Bank of Buffalo, 278 N. Y. 1.) The defendants-respondents were guilty of negligence. (Ward v. Clark, 232 N. Y. 195; Merkling v. Ford Motor Co., 251 App. Div. 89; Forte v. City of Albany, 279 N. Y. 416; Burd v. Bleischer, 208 App. Div. 499; Cornbrooks v. Terminal Barber Shops, Inc., 282 N. Y. 217.) The verdict of the jury should be reinstated. (Countryman v. Breen, 274 N. Y. 470; Ward v. Clark, 232 N. Y. 195; Ferraro v. Garden City Park Fire Commissioners, 259 App. Div. 121.)
    P. C. Dugan and Salvatore J. Leombruno for respondents.
    The nonsuit was properly granted because the evidence was insufficient to justify a finding of negligence against the respondents. (Crowley v. Fifth Ave. Coach Co., 249 App. Div. 408; 276 N. Y. 496; Merkling v. Ford Motor Co., 251 App. Div. 89.) There is no justification for a finding of negligence against respondents. (Garrett v. City of Schenectady, 268 N. Y. 219; Crowley v. Fifth Ave. Coach Co., 249 App. Div. 408.)
   Rippey, J.

At about 11:30 p. m. on the night of March 21, 1938, two taxicabs collided at the intersection of Bay and Sanford streets in the city of Glens Falls. The owner of one of the taxicabs was the defendant Judson and it was being operated with his permission and consent by the driver Evans. The other taxicab was owned by defendant LaPoint and his driver was the defendant Younger. The plaintiff was a passenger in the Judson car and brought this action against the owners and the drivers of both cars. Motions were made by all defendants for nonsuit and a dismissal of the complaint. At the close of the case the court denied the motions of defendants Judson and Evans but reserved decision on the motions of LaPoint and Younger. The case was submitted to the jury as to all defendants and a verdict was found against them all. Thereupon the defendants Judson and Evans moved to set aside the verdict under section 549 of the Civil Practice Act, which motion was denied. The defendants LaPoint and Younger made a similar motion. Later an order was made by the trial judge without opinion granting both motions of the defendants LaPoint and Younger and dismissing the complaint as to them. The trial judge failed to state, in the order, the grounds on which the motion was granted. We must assume here that the trial judge held that there was no substantial evidence to go to the jury on the question of their negligence (Rules Civ. Prac., rule 224; Clarke v. Acme Bldg. Co., 143 App. Div. 269). Without exception the court charged that all defendants admitted that the plaintiff did nothing which in any way brought about her injuries and admitted that she was free from negligence on her part. We need not consider, therefore, whether there was evidence to go to the jury on the question of her freedom from contributory negligence. The Appellate Division, by a divided court, affirmed the judgment entered upon the order setting aside the verdict and granting the motions of LaPoint and Younger for dismissal of the complaint and unanimously affirmed the order setting aside the judgment entered upon such verdict. The difference of opinion in the Appellate Division arises on the fact that a minority held that a new trial should have been granted by the trial judge. No permission was granted for leave to appeal from the unanimous order of the lower court affirming the order setting aside the judgment. It must be deemed that the appeal as taken brings up for review the question only as to whether the trial court was authorized to set aside the verdict of the jury as matter of law and dismiss the complaint. After examining the whole record we are satisfied that questions of fact were presented which required submission to the jury and that it was error to grant the motion for nonsuit and dismissal of the complaint.

The testimony as to the cause of the collision was conflicting and depended largely upon the testimony of interested witnesses — the two drivers of the taxicabs. The jury was entitled to accept the whole of the testimony of both drivers or such part of the testimony of either as they believed to be true if they discredited other parts and to discard such parts as they discredited. There were traffic signals at the corners of the two streets with changes from red to green or vice versa and no intermediate change to amber. The testimony of Evans was that he was driving west on Sanford street toward Bay at some 20 to 25 miles per hour and as he approached Bay street he took his foot off the accelerator allowing the car to slow up somewhat. The light was green as he approached the corner and when he was probably 5 feet from the corner he looked and saw no cars proceeding either way on Bay street and proceeded with his car, but when the front fender of the car reached the curb line the light changed from green to red. He put on his brakes and turned his car to the right but he drifted into the intersection and the collision occurred. The testimony of Younger was that he was driving in a northerly direction at about 20 or 25 miles an hour on Bay street and about 300 yards south of the Sanford intersection the traffic light at the corner of Bay and Sanford was red but he continued on and when he reached about a hundred feet from the intersection the light turned green; that he proceeded on into the green light and he noticed the flashing of a light out of the corner of his eye and the collision occurred. From his own testimony and the testimony of others it appears that two persons were crossing the north crosswalk of Sanford street, directly in front of the LaPoint car, and were about halfway across when the light changed, whereupon they started to run, and the jury might have concluded from their testimony that their effort to get across was due to the immediate approach of the LaPoint car. It does not appear that they had any occasion to run to avoid being struck by the Judson car. If Evans’ testimony was believed by the jury they must necessarily have discarded the testimony as to speed of the LaPoint car, for if Evans’ testimony was true, instead of operating at 20, to 25 miles an hour Younger must have been going greatly in excess of that speed. At any rate the jury were authorized to find his testimony unreliable as to the speed with which he was operating. Such an inference might be drawn from the condition of the cars after the collision. There is other direct testimony and there are inferences to be drawn from which the jury might have concluded that the cause of the accident was either wholly or in part the result of the negligence of Younger in the operation of his car. Even though Younger was authorized to proceed in the face of the green light, if he observed Evans in the intersection or so near as to render it likely that a collision would occur unless he reduced his speed or stopped his car or if the circumstances and conditions were such that, in the exercise of ordinary prudence, he ought to have made such an observation, he was not authorized to proceed blindly and wantonly without reference to the Evans car but was bound to use such care to avoid the collision as an ordinarily prudent man would have used under the circumstances. Under all the circumstances of the case it was for the jury to determine whether he exercised such care as was required of an ordinarily prudent man, though having in mind the fact that the lights gave him the right of way. Without detailing the evidence further, the question was correctly submitted to the jury as one of fact (Lee v. City Brewing Corp., 279 N. Y. 380). It was error to hold that there was no evidence for their consideration upon the question of the legal responsibility of LaPoint and Younger for the accident.

The judgments should be reversed and a new trial granted, with costs in all courts to abide the event.

Loughran, Finch, Sears, Lewis and Conway, JJ., concur; Lehman, Ch. J., dissents and votes to affirm.

Judgments reversed, etc.


text:
    In the Matter of the Will of Frank Gorham, Sr., Deceased. Margaret G. Olena, Appellant and Respondent; Bertha S. Gorham, Individually and as Executrix of Frank Gorham, Jr., Deceased, Respondent and Appellant.

      Argued June 14, 1940;
    decided July 24, 1940.

      Samuel D. Cooper for petitioner, appellant and respondent.
    Three separate and distinct primary trusts were created by subdivision IV of the third paragraph of the will. (Matter of Drake, 153 Misc. Rep. 691; 246 App. Div. 758.) The primary trusts being legal, the secondary trusts, in so far as they do not contravene the statutes against perpetuities, are likewise legal. (Matter of Drake, 153 Misc. Rep. 691; 246 App. Div. 758; Purdy v. Hayt, 92 N. Y. 446; Matter of Buttner, 243 N. Y. 1.) Where a part of the will is legal and part is illegal, the court will eliminate that which is illegal when it may be done without violation to the remainder of the will.
      (Matter of Burling, 148 Misc. Rep. 835; Purdy v. Hayt, 92 N. Y. 446; Matter of Drake, 153 Misc. Rep. 691; 246 App. Div. 758.) The appellant as the sole presumptive owner of the next eventual estate is entitled to the payment of the accumulated income on the valid portions of the trust. (Cons. Laws, ch. 50, § 63; Matter of Tuck, 165 Misc. Rep. 359; Dodge v. Pond, 23 N. Y. 69; Matter of Kohler, 96 Misc. Rep. 433; Matter of Graham, 145 Misc. Rep. 628.)

      Angeline Bennett and William Feinberg for Bertha S. Gorham, as executrix, respondent and appellant.
    The validity of a trust must be determined not by actualities since death but by eventualities after death. (Wilber v. Wilber, 165 N. Y. 451; Steinway v. Steinway, 163 N. Y. 183; Haynes v. Sherman, 117 N. Y. 436; Matter of Silsby, 229 N. Y. 396; Matter of Milhau, 151 Misc. Rep. 283.) The dominant purpose of testator in the erection of a trust structure is inevitably the final factor in the test for validity. (Central Trust Co. v. Egleston, 185 N. Y. 29; Whitefield v. Crissman, 123 App. Div. 233; Matter of Barnes, 155 Misc. Rep. 320; Matter of Moore, 120 Misc. Rep. 825; Matter of Colegrove, 221 N. Y. 460; Colton v. Fox, 67 N. Y. 348; Matter of Beale, 213 App. Div. 13; Matter of Perelman, 148 Misc. Rep. 906; Matter of Howells, 145 Misc. Rep. 557.) The trust structure erected by the testator violates the statutes against perpetuities and is, therefore, void. (Matter of Homer, 237 N. Y. 489; Matter of Perkins, 245 N. Y. 478; Matter of Bardol, 253 App. Div. 500; Knox v. Jones, 47 N. Y. 389; Dana v. Murray, 122 N. Y. 604; Matter of Wilcox, 194 N. Y. 288; Benedict v. Webb, 98 N. Y. 460; Brown v. Quintard, 177 N. Y. 75; Matter of Gallien, 247 N. Y. 195.) The estate of petitioner is not the next eventual estate and, petitioner, therefore, is not entitled to the accumulated income. (Matter of Nesmith, 140 N. Y. 609; Livingston v. Tucker, 107 N. Y. 549; St. John v. Andrews Inst. for Girls, 191 N. Y. 254; Vail v. Vail, 4 Paige, 317; Matter of Shupack, 158 Misc. Rep. 873; Manice v. Manice, 43 N. Y. 303; Matter of Hopner, 148 Misc. Rep. 748; 242 App. Div. 652.)
   Sears, J.

The testator, Frank Gorham, died March 17, 1918. He left three sons surviving him, George Arthur Gorham, Walter Durbrow Gorham and Frank Gorham, Jr. Frank Gorham, Jr., died August 27, 1937, leaving no children. George Arthur Gorham is still living. At the time of the death of the testator, George Arthur Gorham had two children, Frank M. Gorham and the petitioner, Margaret Gorham Olena. Frank M. Gorham died July 9, 1933. Walter Durbrow Gorham is living but has no children.

Margaret Gorham Olena has brought this proceeding, asking for such a determination of her interests in the estate of her grandfather as requires a construction of paragraph third, subdivision IV, of his will.

By the terms of the will testator’s wife is given a life estate in the entire residuary estate of the testator. She, however, predeceased the testator, and the provision for her benefit never became effective and may be disregarded. By the first three subdivisions of paragraph third, each of testator’s sons is given one-quarter of the residuary estate outright. The fourth subdivision is as follows: “ I give, devise and bequeath the other of such parts or fourths, to the executor hereof, in trust nevertheless to divide the same into three equal parts or shares and to set apart and hold during the life of my son George Arthur Gorham, upon a separate trust for the benefit of any child or children there may be of my said son, George Arthur Gorham, surviving his death, one of such equal thirds; to set apart and hold during the life of my son, Walter Durbrow Gorham, upon a separate trust for the benefit of any child or children there may be of my said son, Walter Durbrow Gorham, surviving his death, one of such equal thirds; and to set apart and hold during the life of my son, Frank Gorham, Jr., upon a separate trust for the benefit of any child or children there may be of my said son Frank Gorham Jr. surviving his death, the other of such equal thirds, the part or third (being a twelfth part of my entire estate) so held, in the event of any one or more of said sons not leaving children surviving him, to be forthwith added to and become proportionately a part of the share or shares, as the case may be, held in trust for the children of the other sons, the said executor and trustee to have full power, upon the request of any one of my said sons, to advance to said son so much of the part so held for his child or children, as such parent may deem fit and proper, and necessary to resort to, in or toward their education.”

Three separate trusts, as distinguished from a single trust, are created by the quoted language. (Looram v. Looram, 269 N. Y. 296.) As, in the case of each of these separate trusts, only the children of a son who survive their father are entitled to receive the principal, there is a suspension of the absolute power of alienation in the case of each trust for one life only so far as the provision relates to this primary disposition. It is only when the cross-remainders are considered that a suspension of the absolute power of alienation beyond the permissible period occurs. (Pers. Prop. Law [Cons. Laws, ch. 41], § 11; Real Prop. Law [Cons. Laws, ch. 50], § 42.) In this regard the will requires the trust principal in each of the three trusts, if the son of the testator dies childless, to become a part of the corpus of the other trusts or trust. The absolute power of alienation of all of the principal of each of the three trusts may thus under varying conditions be suspended for three lives. Invalidity results as to the provision for cross-remainders. (Matter of Colegrove, 221 N. Y. 455; Matter of Bardol, 278 N. Y. 543, affg. 253 App. Div. 498.)

The primary intention of the testator was that the children of each son surviving their father should receive the principal of one of the three trusts. The cross-remainders were subordinate to this thought. In somewhat similar cases the good has been separated from the bad and effect given to the good. This is to be done here, and only the cross-remainders held invalid. (Looram v. Looram, supra; Matter of Colegrove, supra; Matter of Bardol, supra.)

No provision is made for the payment of the income of these trusts during the life of the son on which the future estates are limited. In the case of the trust for the children of George Arthur Gorham, the income has been payable to his living children as presumptively entitled to the next eventual estate by reason of a valid limitation of an expectant estate. (Pers. Prop. Law, § 11; Real Prop. Law, § 63.) This right to income and the right to participate in the distribution of the principal of the trust for the benefit of the children of George Arthur Gorham, if the petitioner outlives her father, are the only interests which the petitioner has under her grandfather’s will. There has been a complete intestacy as to the trust for the benefit of the children of the deceased son Frank Gorham, Jr., and, unless and until a child of Walter Durbrow Gorham is born, there is an intestacy as to the income from the trust created for the benefit of his children, and as to the principal there will be an intestacy unless a child is born and survives his father.

For these reasons the order should be affirmed, without costs.

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

Order affirmed.


author: Lewis, J.

text:
    Waneta W. Strout, Appellant, v. Cross, Austin & Ireland Lumber Company, Respondent.

      Argued June 14, 1940;
    decided July 24, 1940.

      Horace R. Lamb and Craigh Leonard for appellant.
    Respondent’s action attempting to provide for the payment of the dividend of $22.75 per share declared on respondent’s first preferred stock is null and void in so far as it purports to require the holders of such stock to accept notes of respondent’s subsidiaries in payment, satisfaction and discharge of arrears of dividend. (Kent v. Quicksilver Mining Co., 78 N. Y. 159; Roberts v. Roberts-Wicks Co., 184 N. Y. 257; Ehle v. Chittenango Bank, 24 N. Y. 548; Breslav v. N. Y. & Queens Electric Light & Power Co., 249 App. Div. 181; 273 N. Y. 593; Keller v. Wilson, 190 Atl. Rep. 115; Patterson v. Durham Hosiery Mills, 200 S. E. Rep. 906; Harbine v. Dayton Malleable Iron Co., 22 N. E. Rep. [2d] 281; Lonsdale v. International Mercantile

      Marine Co., 101 N. J. Eq. 554; Kennedy v. Carolina Public Service Co., 262 Fed. Rep. 803; Hastings v. International Paper Co., 187 App. Div. 404; McQuillen v. National Cash Register Co., 27 Fed. Supp. 639.) Appellant is entitled to equitable relief. (Bosley v. National Machine Co., 123 N. Y. 550; City of Cincinnati v. Cincinnati & Hamilton Traction Co., 245 U. S. 446; Simpson v. Union Stock Yards Co., 110 Fed. Rep. 799; Pennsylvania v. West Virginia, 262 U. S. 553; Terrace v. Thompson, 263 U. S. 197.) Appellant is not attempting to interfere in the internal affairs of the corporation. (Breslav v. N. Y. & Queens Electric Light & Power Co., 249 App. Div. 181; 273 N. Y. 593; Roberts v. Roberts-Wicks Co., 184 N. Y. 257; Kent v. Quicksilver Mining Co., 78 N. Y. 159; Lonsdale v. International Mercantile Marine Co., 101 N. J. Eq. 554; Kennedy v. Carolina Public Service Co., 262 Fed. Rep. 803.)

      Charles A. Van Patten and Lowell M. Birrell for respondent.
    With full knowledge of the facts appellant has accepted a substantial benefit from the act of which she complains. Accordingly she may not now disavow such act. (N. Y., Lake Erie & W. R. R. v. Nichals, 119 U. S. 296; Wormser v. Metropolitan Street Railway Co., 184 N. Y. 83; Treadwell v. United Verde Copper Co., 134 App. Div. 394; Kent v. Quicksilver Mining Co., 78 N. Y. 159; Frank v. Wilson & Co., 9 Atl. Rep. [2d] 82; Bell v. Metz, 224 App. Div. 377; 250 N. Y. 622.) Appellant failed to prove a cause of action in equity in that she seeks an unjustifiable interference with respondent’s intercorporate affairs; she fails to show that any attempt at force or compulsion is being practiced upon her, and she fails to show irreparable injury and that there is no adequate remedy at law. (Hastings v. International Paper Co., 187 App. Div. 404; St. Lawrence Furniture Co. v. Binet, 25 Dom. L. Rep. 316; Terry v. Eagle Lock Co., 47 Conn. 141; Williams v. Western Union Telegraph Co., 93 N. Y. 162; Briggs v. Weaver Machinery Co., 14 B. T. A. 1351; Howley v. Francis Press, 127 App. Div. 646; Pennsylvania v. West Virginia, 262 U. S. 553.)
   Lewis, J.

The plaintiff is the owner of a substantial portion of the cumulative preferred stock issued by the defendant upon which, in 1937, there were unpaid accumulated dividends amounting to twenty-two and three-quarters per cent. The defendant then assumed to discharge in full its obligation for such arrearage when it paid a dividend declared to be “ in the amount of $22.75 per share ” of which the media of payment were two-fold — a small portion thereof was paid in cash, the balance was paid by distributing to preferred stockholders income notes issued by two of the defendant’s wholly owned subsidiaries. Having had no notice of the defendant’s plan thus to discharge its obligation to its preferred stockholders and never having consented thereto, the plaintiff retained that portion of the dividend paid in cash but rejected and returned to the defendant the income notes. It is the plaintiff’s claim that to the extent of the face value of the income notes the dividend was illegally declared and did not satisfy the defendant’s legal obligation to her as a preferred stockholder.

The Appellate Division has unanimously affirmed the judgment at Special Term dismissing the plaintiff’s complaint upon the merits. Upon the record, which is now before us by our leave, the plaintiff asks a diversity of relief — to a portion of which we believe she has established her right in equity.

The defendant is engaged in the lumber business in New York city. Its capital structure includes, in addition to other classes of junior stock, 7,500 shares of first preferred seven per cent cumulative stock of $100 par value. The first preferred stock is not widely distributed. Its entire amount is held by forty-one owners, one of whom is the plaintiff, who owns 515 shares. Between May 1, 1930, and April 30, 1935, the defendant suffered serious operating losses which impaired its working capital and caused the suspension of dividends on the first preferred stock from May 1, 1932, until July 31, 1935. In the fall of the latter year dividends on the first preferred stock were resumed and were paid for more than a year. Meantime, however, there remained unpaid the arrears in dividends on the first preferred stock for prior years.

In the latter part of 1936 the business of the company improved and was such that its directors apparently anticipated earnings in excess of regular dividend requirements on the first preferred stock for the fiscal year ending April 30, 1937. We are told they were also aware that unless such earnings were paid out as dividends the company would be subject to a high surtax under the Federal undistributed earnings tax. As there were then due and unpaid upon the preferred stock twenty-two and three-quarters per cent of accumulated dividends, any dividends declared were required to be paid upon that stock. It was also determined by the company’s executives that its liquid assets had been so impaired and its bank indebtedness was so great that cash dividends sufficient to satisfy the Federal tax law were inadvisable. It was in those circumstances and in an effort to pay the arrears of dividends on the first preferred stock without disturbing the company’s needed liquid capital that the defendant’s board of directors took the action which the plaintiff claims adversely affected her rights as a holder of first preferred stock and led to the present controversy.

On April 16, 1937, when the accumulated arrears of dividends' upon 515 shares of first preferred stock owned by the plaintiff was $22.75 per share, amounting in all to $11,716.25, the defendant’s board of directors adopted the following resolution: Resolved, that a dividend in the amount of $22.75 per share be and the same hereby is declared upon the first preferred stock of this corporation, distributable to the holders of record of such stock as of the 20th day of April, 1937.”

Thereafter, but at the same meeting, the board adopted another resolution which made provision for the payment of the dividend of “ $22.75 per share,” theretofore declared, by distributing to the prefered stockholders for each share owned, two dollars and seventy-five cents in cash and twenty dollars face amount of fifty-year income notes issued by the defendant’s subsidiaries. The resolution directing such payment was as follows:

.Resolved, that the dividend, in the amount of $22.75 per share declared upon the first preferred stock of the corporation and amounting to a total of $170,625.00 on the 7,500 shares of first preferred stock outstanding, be paid by the pro rata distribution to the holders of such stock of the following:
$100,000 principal amount of 5% 50 year income notes of Adams, Fowler & Hoffman, Inc.
“ $50,000 principal amount of 5% 50 year income notes of R. B. Everett Lumber Company, Inc.
$20,625 cash.”

In reference to the “ income notes ” of the defendant’s two subsidiaries, which were to be distributed by the defendant at their face value, it should be said that in each instance the note states that the interest thereupon of five per cent is payable semi-annually, if and only to the extent that the available net income, as that term is defined herein, of the [subsidiary] corporation shall suffice for such payment * *

The plaintiff, who resides in Denver, Col., had no notice of the dividend action by the defendant’s board of directors until she received from the defendant a circular letter dated April 21, 1937, addressed to all holders of its first preferred stock, and inclosing to her a check in the amount of $1,416.25 and two fifty-year income notes issued and registered in her name — one fifty-year note of Adams, Fowler & Hoffman, Inc., of the face amount of $6, 866.70, due April 30, 1987, and one fifty-year note of R. B. Everett Lumber Company, Inc., of the face amount of $3,433.30, due April 30, 1987. After advising her of the dividend action taken by defendant’s board of directors and having reviewed the business experience of the defendant company and its subsidiaries, the letter stated in part:

“ * * * The arrears in dividends on the First Preferred Stock of Cross, Austin & Ireland Lumber Company are 22%% which on an issue of $750,000 amounts to $170,625. The clearing up of these arrears is the subject of this letter.

“ It will be seen from the foregoing that the parent company in addition to owning all of the Common Stock of the two subsidiaries, has held their Fifty Year Income Notes in an aggregate amount of about $165,000. These notes are entitled to cumulative interest at 5%. There is good reason to believe that these companies, under the supervision and control of the parent company, will be profitable enterprises and under ordinary circumstances Cross, Austin & Ireland Lumber Company would continue to hold its entire investment in them.

“ The Board of Directors has given earnest consideration to the problem of disbursing the company’s earnings to avoid penalty taxation and at the same time conserve cash and has concluded that it is to the best interest of the company and the holders of First Preferred Stock alike, that the arrears on this stock be paid in full by the distribution of the major portion of the company’s holdings of the Income Notes of Adams, Fowler & Hoffman, Inc. and R. B. Everett Lumber Company and a lesser amount of cash. Accordingly, the Board has voted a dividend of 22%% on the First Preferred Stock payable to holders of record on April 20, 1937 in the following manner by check 2%%, in Income Notes of Adams, Fowler & Hoffman, Inc. 13%% and in Income Notes of R. B. Everett Lumber 6%%. Check and notes in the correct amount duly drawn to the order of and registered in the name of the respective stockholders are enclosed herewith.

“ Under the Federal Tax Law of 1936 dividends may be paid in money or property, payment in either form exempting the disbursing corporation from penalty taxation to the extent of such payments, provided distribution is made prior to the close of the fiscal year in which credit for payment is taken. Such dividends, whether in cash or property, must be fully reported as income by the recipient. You are, therefore, advised that the entire 22%% should be included in your 1937 Income Tax Return as Current Income. You are requested to deposit check promptly. * * * >>

Being thus advised by the defendant that the fifty-year notes and cash were distributed to her in full payment of arrears of twenty-two and three-quarters per cent in dividends accrued upon the amount of preferred stock which she owned, and that she should report as taxable income not only the cash so received but also the face value of the income notes, the plaintiff promptly wrote the defendant that she had not consented to the method adopted by the defendant in its plan thus to make full payment of the arrears of twenty-two and three-quarters per cent in dividends then due upon her holdings of first preferred stock and that she would return the income notes and the amount of the check which she had received. In reply the defendant’s president advised her by letter that “ There would be no point in mailing back the certificates. The Company could not accept them except to hold them in safe keeping for your account * * Thereafter the plaintiff returned to the defendant the two income notes which had been issued and registered in her name, having a total face value of $10,300 and which the defendant now holds for her for safe keeping.

Preferred stock issued by a stock corporation may grant to the stockholder a variety of rights depending largely upon the financial requirements of the corporation at the time the stock is issued. Whatever preferential rights and privileges may thus be granted to a stockholder, the law regards them as contractual. The certificate of stock is the muniment of the shareholder’s title, and evidence of his right. It expresses the contract between the corporation and his costockholders and himself; and that contract cannot, he being unwilling, be taken away from him or changed as to him without his prior dereliction, * * *." (Kent v. Quicksilver Mining Co., 78 N. Y. 159, 184; Roberts v. Roberts-Wicks Co., 184 N. Y. 257, 263.)

In the case at bar the certificates of first preferred stock issued by the defendant and owned by the plaintiff stated the preferential rights to which she was entitled, which recital is in part as follows: The First Preferred Stock, consisting of seventy-five hundred (7,500) shares of the par value of One Hundred Dollars ($100) each, shall be entitled to vote and to a seven per cent (7%) cumulative annual dividend * * Treating that statement as an expression by the defendant corporation of its contractual obligation to the plaintiff as an owner of its first preferred stock, we construe its language as the defendant’s agreement to pay the plaintiff in cash cumulative annual dividends of seven per cent of its par value. Undoubtedly, in the event a corporation has a surplus, it is within the fair and honest discretion of its board of directors, uncontrolled by the courts, to determine whether a dividend shall be declared and, if so, whether it shall be paid in cash or property. (Williams v. Western Union Telegraph Co., 93 N. Y. 162, 191, 192.) Where, however, as in the instant case, a corporation has, by the issuance of preferred stock in accord with its charter provisions and applicable law, granted preferential rights and privileges to stock issued by it and then outstanding, it cannot disregard what the law regards as contractual obligations which it has thus undertaken in connection with its stock.

We do not find in the record at hand evidence of an effort by the plaintiff to interfere with any matter which is lawfully within the control of the defendant’s board of directors. There is no charge by her of fraud or mismanagement; there is no effort on her part to compel the defendant to declare a cash dividend. Asserting only her contract rights as an owner of the defendant’s first preferred stock, she refuses to accept in payment of arrears in dividends upon her holdings the fifty-year income notes already described. We agree with the plaintiff’s position that the defendant’s obligation to her as an owner of its first preferred stock may not legally be thus satisfied in the absence of her consent to such action. She cannot be compelled to accept a property dividend. (Williams v. Western Union Telegraph Co., 93 N. Y. 162, 192. See Thompson on The Law of Corporations [3d ed.], vol. 7, § 5261.)

In reaching that conclusion we have not disregarded the rule in Hastings v. International Paper Co. (187 App. Div. 404), cited by Special Term and stressed by the respondent upon this appeal. But we note from the opinion in that case a statement which is significant to our present inquiry (p. 409): The board merely declared a plan to adjust and settle deferred dividends upon the corporation’s preferred stock, with such of the holders thereof as were willing to accept such settlement, by paying seven and one-half per cent of such accumulated dividends in cash, fourteen per cent thereof in preferred stock, and twelve per cent in the common stock of the corporation.” In that case the proposal of a plan for adjusting accrued dividends was sent by the corporation to its preferred stockholders which proposal stated that the board of directors had voted to offer to such Preferred Stockholders of the Company as shall accept the offer and deposit their stock as hereinafter provided, in full settlement of all unpaid dividends” (p. 407). The facts with which the court dealt in the Hastings case (supra) differ widely from those in the present case where, as we have seen, the defendant forwarded to the plaintiff without prior notice of the dividend action, the cash and the income notes already issued to her and registered in her name. The letter of transmittal and her subsequent correspondence with the defendant’s president not only gave her notice that the corporation offered her no choice whether as a first preferred stockholder she was willing to accept the income notes in part payment of arrears in dividends upon her stock but it notified her that the Federal Income Tax officials had been advised that she had been paid such arrears in dividends in full. By the action thus taken by the defendant, despite plaintiff’s refusal to consent thereto, the defendant’s corporate records show that she has been paid in full the amount of arrears of dividends accumulated as of April 20, 1937, upon her first preferred stock. So long as the fifty-year income notes of defendant’s subsidiaries remain issued and registered in her name she is the ostensible owner thereof. The defendant’s records will show payment of such arrears in accumulated dividends and her right in the future to receive such dividends in cash has been jeopardized and constitutes irreparable injury.

Likewise the information filed by the defendant with Federal Income Tax officials relating to the payment of the dividend declared on April 16, 1937, shows a payment of that dividend in full to the plaintiff who, in turn, has never reported the face value of the income notes among dividends received by her because she has refused to accept the same.

In these circumstances we believe Special Term erred in refusing to exercise its powers in equity in the plaintiff’s favor. Relief in equity is not to be withheld from the plaintiff because, as suggested by the defendant, she has retained that portion of the dividend declared by the defendant on April 16, 1937, which was paid in cash. She is under no duty to return that which she is entitled to receive in any event. Her duty is to return only that which she would not be entitled to keep if she is successful in this action. (Gould v. Cayuga County Nat. Bank, 86 N. Y. 75, 81; Kley v. Healy, 127 N. Y. 555, 561, 562; E. T. C. Corp. v. Title Guar. & Trust Co., 271 N. Y. 124, 128.) A judgment in her favor in the present suit will not determine that the action of the board of directors was invalid as to the consenting stockholders. By retaining the cash portion of the'dividend the plaintiff is not accepting a benefit under proceedings of the board of directors claimed to be wholly invalid. In the present action her single challenge goes to the power of the board of directors to force her to accept 50-year income notes as part payment of a dividend designed by the defendant as a means to discharge its obligation to pay arrears in dividends due upon first preferred stock. The payment made in cash she does not question. We do not decide whether the board of directors intended on April 16, 1937, to declare a dividend generally or one of cash and income notes. That question is presented in a pending action at law brought by the plaintiff to recover the amount represented by the income notes. If the action of the board of directors was a declaration of a dividend generally, the plaintiff is entitled to retain what she regards as part payment in cash. If it was a declaration of a cash and income note dividend, the cash dividend is severable from the dividend of income notes, and plaintiff may keep the cash.

Defendant, on April 16, 1937, and thereafter, as owner of these income notes, has carried through the formalities necessary to issue and register in plaintiff’s name the two notes forwarded to her in its letter of April 20, 1937. Upon this adjudication she has the right to require the defendant, as owner, to carry through formalities necessary to cancel the registration of such notes in her name and to annul its illegal action in relation to them. (Cf. Bosley v. National Machine Co., 123 N. Y. 550, 555.)

The judgments should be reversed, with costs to appellant, and the case remitted to the Special Term with directions to proceed in accord with this opinion.

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

Judgments reversed, etc.