author: LehmaN, Ch. J. Conway, J.

text:
    Kerr Steamship Company, Inc., Respondent, v. Chartered Bank of India, Australia and China, Appellant.
    Argued January 18, 1944;
    decided March 10, 1944.

      John W. Davis, William C. Gannon, Ewen G. MacVeagh and Harold W. Bissell for appellant.
    I. Delivery of the negotiable instrument to plaintiff, consummated an executed sale; and thenceforth plaintiff could not go behind the negotiable instrument to rescind the exécuted transaction by which plaintiff had purchased the instrument. (American Express Go. v. Cosmopolitan Trust Go., 239 Mass. 249; Gravenhorst v. Zimmerman, 236 N. Y. 22; Moe v. Bank of United States, 211 App. Div. 519; Auerbach v. Barrett, 214 App. Div. 279; Carmen v. Higginson, 245 Mass. 511; Samuels v. E. F. Drew Go.', 296 F. 882; 62 A. L. R. 509.) II. The character of the initial transaction as an executed sale is not affected by the fact that drawer and drawee are the same or by any resulting option to treat the instrument as a promissory note. (Ghrzanowska v. Corn Exchange Bank, 173 App. Div. 285, 225 N. Y. 728; Mazukiewicz v. Hanover Nat. Bank, 240 N. Y. 317; 241 N. Y. 504; 270 U. S. 643; People’s Savings Bank v. Bates, 120 U. S. 556; Gierke v. Martin, 2 Ld. Raym. 757; Buller v. Crips, 6 Mod. 29; Blackstone v. Miller, 188 U. S. 189; Gravenhorst v. Zimmerman, 236 N. Y. 22; Schweitzer v. Fargo, 255 N. Y. 60; Grannis v. Stevens, 216 N. Y. 583.) III. The character and inviolability of the initial transaction as an executed sale is not affected by the war with Japan or by the Japanese invasion and occupation of the Philippines. (Neumond v. Farmers Feed Go., 244 N. Y. 202; New York Life Ins. Go. v. Statham et al., 93 IT. S. 24; Strauss v. Schweizerische Kreditanstalt, 45 F. Supp. 449; Hopkirk v. Page, 2 Brock. 20, 12 Fed. Cas. 504; Harden v. Boyce, 59 Barb. 425; Bay v. Smith, 84 U. S. 411; Bond et al. v. Moore, 93 U. S. 593; Tardy v. Boyd, 67 Va. 631; Patience y. Toivnley, 2 Smith K. B. 223; Wolcott v. Van Santvoord, 17 Johns. 248; Chrzanowsha v. Corn Exchange Banh, 173 App. Div. 285, 225 N. T. 728; Soholoff v. National City Banh, 250 N. Y. 69; 50 A. L. B. 1348-1359, 136 A. L. E. 478-497.) IV. The character of the initial transaction as an executed sale is not affected by the fact that the plaintiff purchaser was not the payee of the instrument. (Lansing v. Caine, 2 Johns. 300; Grannis v. Stevens, 216 N. Y. 583; Moore, The Eight of the Eemitter of a Bill or Note, 20 Columbia Law Bev., 748; Beutel, Eights of Remitters, 12 Minn. Law Eev. 584; Schweitzer v. Fargo, 255 N. Y. 60.)

      Otey. McClellan for National City Bank of New York, amicus curiae, in support of position of appellant.
    Plaintiff has no right to recover the dollars paid for a foreign money negotiable instrument. (Schweitzer v. Fargo, 255 N. Y. 60; Mazu-hiewicz v. Hanover Nat. Banh, 240 N. Y. 317, 241 N. Y. 504, 270 U. S. 643; Goeshe v. Taylor, 205 App. Div. 429; Auerbach v. Barrett, 214 App. Div. 279; Moe v. Banh of United States, 211 App. Div. 519; American Express Co. v. Cosmopolitan Trust Co., 239 Mass. 249; Foreign Trade Banhing Corp. v. Cosmopolitan Trust Co., 240 Mass. 413; Carmen v. Higginson, 245 Mass. 511; Redo y Cia. v. First Nat. Banh of Los Angeles, 200 Cal. 161; Suse v. Pompe, 8 C. B. [N. S.] 538.)

      William M. Evarts for Chase National Bank of City of New York and another, amici curiae,, in support of position of ‘appellant.
    It should not he necessary for a seller (no more a bank which has sold a specialty payable in foreign currency than a shopkeeper who has sold an article of merchandise) in order successfully to defend against taking back the article sold, to prove that it had replenished its inventory after the sale or that after the sale it had been compelled to refuse another customer because of shortage of inventory occasioned by the previous sale. To compel the seller here to take back the specialty sold would be particularly unjust when there is now no current demand for the article at any price and the pride at which the article may be demanded in the future is speculative.
    To permit the purchaser of a negotiable instrument to rescind his purchase, undermines the fundamental principles of the law merchant. (Gravenhorst v. Zimmerman, 236 T. 22; Pan-American Bank & Trust Go. v. National City Bank, 6 F. 2d 762; Matter of Harris, 27 F. Supp. 480; Chrmnowska v. Corn Exchange Bank, 173 App. Div. 285, 225 N. Y. 728.)

      Elkan Turk, Herman M. Brauner, Raymond S. Baron, George Gaskill and Herman Goldman for respondent.
    I. Appellant’s undertaking, as evidenced by and integrated in the instrument which it delivered to respondent, was and remains purely promissory and executory in character. The instrument was a promissory note, not a bill of exchange. As it was never issued, it remained abortive. (Schweitzer v. Fargo, 255 N. Y. 60; Pavenstedt v. N. ¥. Life Insurance Go., 203 N. Y. 91; Fair-child v. Ogdensburgh Clayton & Borne R. R. Go., 15 N. Y. 337; Capital & Counties Bank, Ltd., v. Gordon [1903], A. C. 240; Gravenhorst v. Zimmermwi, 236 N. Y. 22; Wilcox v. Corwin et al., 117 N. Y. 500; Converse v. Cook, 31 Hun 417; Gomperts v. Bartlett, 2 El. & Bl. 849; Suse v. Pompe, 8 C. B. [N. S.] 538; Matter of Francke & Rasch [1918] 1 Ch. D. 470; Baker v. Fifth Avenue Bank of New York, 225 App. Div. 238; Good v. Martin, 95 U. S. 90.) II. Since appellant’s undertaking was and remains promissory and executory in character and its performance by appellant has been prevented by a supervening impossibility and since appellant has not changed its position, respondent has the right to rescind the transaction and to recover the moneys paid as upon a complete failure of consideration. (Gravenhorst v. Zimmerman, 236 T. 22; Safian v. Irving Nat. Bank, 202 App. Div. 459, 236 N. Y. 513; Atlantic Communication Co. v. Zimmermann, 182 App. Div. 862; Dolan v. Rodgers, 149 N. Y. 489; Sokoloff v. National City Bank, 239 N. Y. 158, 250 N. Y. 69.) III. Appellant has suffered no change of position. (Sokoloff v. National City Bank, 250 N. Y. 69; Gravenhorst v. Zimmerman, 236 N. Y. 22.) IV. The authorities relating to true hills of exchange have no application to the case at bar. (Pavenstedt v. N. Y. Life Insurance Co., 203 N. Y. 91; Suse v. Pompe, 8 C. B. [N. S.] 538; Amsinck v. Rogers, 189 N. Y. 252.) V. The war with Japan and the Japanese invasion of the Philippines and the effects of the war and of the invasion are at the root of respondent’s right to recover. (Gravenhorst v. Zimmerman, 236 N. Y. 22.) VI. Appellant did not sell the instrument to respondent. (Wylie v. Addoms, 268 N. Y. 160; Spencer & Co. v. Brown, 143 N. Y. S. 994.)
   LehmaN, Ch. J.

The plaintiff sues to recover the sum of $18,437.10 which it paid to the defendant hank on November 28, 1941, when it procured from the defendant bank two documents in the form of a draft “ in first and second exchange ” drawn by The Chartered Bank of India, Australia and China in New York upon The Chartered Bank of India, Australia and China in Manila and payable there on demand to the order of Roosevelt Steamship Agency, Inc. Claiming that war with Japan and the invasion of the Philippine Islands by Japan has made it impossible for the defendant bank to carry out its obligation in accordance with the intent of the parties, the plaintiff gave notice to the defendant that it elected to rescind the transaction and demanded the return of the moneys it paid to the bank. The bank refused to return the money, and the plaintiff then brought this action to rcover the money paid. After the defendant had interposed an answer, both parties moved for summary judgment. The court at Special Term granted the motion of the defendant to dismiss the complaint. The order was reversed by the Appellate Division and the motion of the plaintiff was granted.

The facts are not in dispute. Plaintiff’s treasurer alleges in his affidavit that on November 28, 1941, the plaintiff “ desired to make three remittances ’ ’ ■— one to its agent in Calcutta, another to its agent in Manila and the third to its agent in London. He asked the defendant bank for its “ rates for telegraphic transfers to Calcutta and for drafts on Manila and England.” He “ desired to make telegraphic transfer to Calcutta because at that time mail communication to India, it being a British possession, was greatly impeded * # #. On the other hand, mail communication with the Philippines was open and in regular operation by both air mail and ordinary mail and hence remittances through the transmittal of documents for the payment of money could be rapidly made by air mail.” Having received the defendant’s “ rates for Calcutta rupees, Philippine pesos and British sterling,” plaintiff’s, treasurer requested the defendant bank “ to issue drafts in first and second of exchange to Roosevelt Steamship Agency, Inc. for the Philippine pesos ⅜ ⅜ * ” and to another payee in London for British sterling. The defendant was informed that the plaintiff “ intended to send the first of exchange of the draft payable to Roosevelt Steamship Agency, Inc. by air mail and the second of exchange by ordinary mail.” Plaintiff paid the defendant its charges for the issuance of the drafts in pesos ” and in British sterling, and at the same time paid in addition the defendant’s usual charge of fifty cents for “ transmittal by of advices to its foreign agencies ” and the person procuring the draft for the plaintiff informed the defendant that he intended to transmit the draft by air mail. (Italics throughout this opinion are ours.)

The intention of the plaintiff to make “ remittances ” of pesos to Manila rapidly by air mail through “ transmittal of-documents for the payment of money-” has been frustrated. Though the documents were promptly mailed to Manila, the outbreak of war made delivery there impossible and they were returned to the sender. The defendant bank cannot do business in Manila so long as the Japanese are in possession of the islands. The Appellate Division has held that due to these conditions there has been a complete failure of consideration, entitling the plaintiff to rescind the transaction.

The plaintiff alleges in its complaint that the defendant in consideration of the moneys paid to it, “ promised and agreed to and with the plaintiff that the defendant wonld pay to Roosevelt Steamship Agency Inc. * ⅜ * the sum of 37,000 Philippine pesos. To evidence the defendant’s aforesaid agreement and to specify the manner of its performance and at its direction to its representatives in Manila to make payment as aforesaid, the defendant delivered to the plaintiff two documents ⅜ The defendant’s alleged promise that it wonld pay to the Roosevelt Steamship Company in Manila the sum of 37,000 pesos is a unilateral primary promise to pay a sum of money. The plaintiff has given to the defendant the full stipulated consideration for that alleged promise. “ The manner of its performance ” is formulated in the documents delivered to the plaintiff. Payment is to he made only in Manila upon demand there and presentation of one of the “ drafts ”, the other being unpaid. During the continuance of a state of war a presentment of the draft at a point across the line of hostilities is impossible, and delay in presentment is excused. (Negotiable Instruments Law, § 141.) Performance of the contract in Manila would indeed he illegal during the continuance of hostilities. (Restatement of the Law of Contracts, § 596.) There has been, it is claimed, “ supervening inpossibility ” in the performance of an executory contract made as alleged in the complaint between the plaintiff and the defendant for the payment of foreign money in a foreign country which entitles the plaintiff to restitution of the consideration paid in accordance with the rules formulated in the Restatement of the Law of Restitution, section 108.

We think that upon the undisputed facts — conceded or stipulated by the parties or established by the affidavits of both parties — it appears conclusively that the defendant did not, as alleged in the complaint, assume for a stipulated consideration a primary executory obligation to pay pesos in Manila in accordance with a contract “ evidenced ” by the documents delivered to plaintiff. The affidavit of plaintiff’s treasurer accurately describes the transaction. The plaintiff paid the defendant the agreed rate for “ drafts ” in Manila order to make a “ remittance ” to Manila through “ transmittal of documents for the payment of money ”. In return it received from the defendant documents executed by the plaintiff as the “ first and second of exchange ” of a draft drawn by the defendant on itself at Manila. Those documents did more than “ evidence ” the agreement. The agreement was integrated in the instruments. They were the documents “ for the payment of money ” which the plaintiff desired to procure and by which the remittance could be rapidly made. The question which we must decide is whether that exchange, in which the plaintiff paid its money and received in return an instrument in the form of a draft or foreign bill of exchange, may be rescinded by the plaintiff because payment in accordance with the terms of the instrument cannot be demanded or made ¿luring the continuance of a state of war. We do not decide whether war supervening after the creation of a simple contract for the payment of money in Manila or a contract for a credit in foreign exchange there would give rise to a right of rescission and restitution of the consideration paid or whether the war would merely suspend enforcement of the obligation. (See Neumond v. Farmers’ Feed Co., 244 N. Y. 202, 206; Restatement of the Law of Contracts, § 596; Trotter, Law of Contract During and After War, 4th ed., London, 1940, 55 and 56.)

The distinction is clearly drawn in the opinion of this court in Gravenhorst v. Zimmerman (236 N. Y. 22, 31): One who secures a draft obtains a written order by the drawer upon the drawee which by commercial usage and even by statutory enactment in some jurisdictions has come to be recognized as the symbol and equivalent of money and which enables the one who has obtained it without further action by the drawer to secure from the drawee the moneys which it represents. In consideration of the money paid by him he has actually obtained an instrument for the payment of money and which is regarded as its equivalent, and it is perfectly natural to speak of such a transaction as resulting in the executed purchase of a draft. A person who makes a contract for a credit in foreign exchange accomplishes no such result. He has secured nothing which will pass for money or which will enable him except through the action of the banker to obtain the exchange which he desires. It gives him no control whatever over the course of events which will lead to the establishment of the credit. The banker retains entire control of this and by his future actions causes to be set up the credit which will eventually enable the customer to obtain the exchange in money which he desires.”

The rule is authoritatively established and universally recognized that the transfer of a draft in exchange for moneys paid for the delivery of the draft is an executed transaction characterized generally as a “ purchase and sale ” of the draft. Snch a transaction may not he rescinded by the purchaser when “ supervening war ” delays indefinitely presentment and payment of the draft. (American Ex. Co. v. Cosmopolitan Trust Co., 239 Mass. 249; Gravenhorst v. Zimmerman, supra; Schweitzer v. Fargo, 255 N. Y. 60.) Upon such a “ purchase ” or exchange the purchaser obtains exactly what he a completed instrument for the transmission of foreign exchange. The price fixed for the transfer of such an instrument depends upon the demand for “ foreign exchange ”, and foreign exchange is treated as “ a commodity bought and sold in the market (Richard v. America Union Bank, 253 N. Y. 166, 174; see, also, Nussbaum, “ Money in the Law,” p. 113.) The “ seller ” of the draft enters into a binding engagement that “ on due presentment the instrument will be accepted and paid ⅜ * * according to its tenor, and that if it be dishonored # * # he will pay the amount thereof to the holder ”. (Negotiable Instruments Law, § 111.) The transfer or delivery of the instrument to “ the purchaser ” even though the purchaser is not the payee, completes the contract, integrated in the instrument and the contract is no longer revocable. (Meeker v. Shanks, 112 Ind. 207, 210.) The “ price ” paid to procure that engagement is the stipulated consideration both for the creation of the engagement and for its simultaneous transfer.

We are told that these rules do not apply where the bill of exchange is drawn by a bank upon its branch in a foreign country. 11 Where in a bill the drawer and drawee are the same person # * * the holder may treat the instrument, at his option, either as a bill of exchange or a promissory note.” (Negotiable Instruments Law, § 214.) The question whether that section applies where a bank, engaged in the business of selling foreign exchange, sells a bill of exchange drawn upon its branch in a foreign country is important and is not free from doubt. We do not decide that question here nor do we decide whether a “ purchaser ” of such a bill who is not the payee is a holder ” within the meaning of the statute, who may exercise such an option. We assume for the purposes of this appeal that he may treat the bill as a promissory note. It still remains true that he has received the instrument for which he bargained and for which he paid the stipulated price, and that instrument, like a draft drawn by a bank upon a correspondent bank not its own branch, is the chosen means for the transfer of a foreign credit. There has been no breach of the engagement integrated in the instrument whether treated as a draft or as a promissory note.

We have pointed out in a recent case that even upon the purchase of cashiers’ checks for remittances to payees where it is desirable to use the credit standing of the in making payment by check '* * ⅜ the remitter is a purchaser for value of the bank’s promise to pay ” (citing Armstrong v. American Exchange Bank, 133 U. S. 433, 453; Vander Ploeg v. Van Zuuk, 135 Iowa, 350, 355; Munn v. Boasberg, 292 N. Y. 5, 9, decided January 13, 1944). The documents delivered by the defendant constitute, in the aspect most favorable to the plaintiff, negotiable paper “ drawn ” by the bank upon itself and accepted by the bank when it delivered the instrument as its obligation to the remitter for an agreed price. The analogy to a cashier’s check is in all material respects complete. (See 6 Michie, Banks and Banking, 250.) The transfer of a cashier’s check for ‘ ‘ remittances ’ ’ to payees where it is desirable to use the credit of the maker in making payment is as truly a completed purchase and sale as the transfer similar use of a draft drawn by the maker upon a correspondent bank. (Montana-Wyoming Assn. v. Commercial Bk., 80 Montana 174, 177; Powell B. & L. Assn. v. Larabie Bros., 100 Montana 183, 194, 202.)

Until title to the instrument is transferred to the payee the “ remitter ” or “ purchaser ” remains its owner and in some circumstances may sue upon the instrument as if named as payee. No case has been found where such a person has been permitted to rescind the transaction and recover the purchase price on the ground of supervening impossibility in making presentment to the drawee in accordance with the terms of the instrument. (See Underhill Moore, The Bight of a Bemitter of a Bill or Note, 20 Columbia L. R., 749; Beutel, Bights of Bemitters and Other Owners not within the Tenor of Negotiable Instruments, 12 Minn. L. R. 584.) The plaintiff having paid to the defendant the stipulated consideration for an instrument through which it could use the credit standing of the defendant in Manila in making a payment there, received and accepted the instrument, delivered to it, and became its owner. It cannot rescind tbe transfer to it because it is impossible to use it now for tbe purpose for wbicb it was acquired.

Tbe judgment of. tbe Appellate Division should be reversed and that of tbe Special Term affirmed, with costs in this court and in tbe Appellate Division.

Conway, J.

(dissenting). On November 28, 1941, plaintiff desired to make a remittance in tbe sum of 37,000 Philippine pesos to Roosevelt Steamship Agency, Inc., at Manila. It asked for defendant’s rates for drafts on Manila, and after learning them, it requested defendant to issue drafts in first and second of exchange to Roosevelt Steamship Agency, Inc., for Philippine pesos. Plaintiff informed defendant that it intended to send tbe first of exchange by air mail and tbe second of exchange by ordinary mail. It paid defendant fifty cents for transmittal by air mail by defendant of an advice to its Manila agency of tbe draft. Plaintiff paid defendant $18,437.10 and received tbe following instrument:

28th November 1941

On Demand Pay this First of Exchange (Second being unpaid) to the order of # * # Roosevelt Steamship Agency, Inc. ⅜ * * the sum of Philippine Pesos Thirty seven thousand * * * . not over Thirty seven thousand Pesos Yalue received.

For The Chartered Bank oe India, Australia and China.

(Name illegible) Agent.

(Name illegible) Sub Account.

To

The instrument was mailed to Roosevelt Steamship Agency, Inc., in Manila. It was returned to the plaintiff because of the outbreak of hostilities between the United States and Japan and the seizure of the Philippine Islands by Japan. Likewise the advice which defendant had sent to its Manila agency was returned to it. Thereupon plaintiff returned the documents to defendant and demanded repayment of the $18,437.10. Defendant refused payment and this action was commenced.

The complaint alleges five causes of action. The first four are based upon an election by plaintiff to rescind the transaction. The fifth is for money had and received.

Defendant has based its refusal to pay on the ground that the transaction by which plaintiff obtained the documents is an executed transaction and plaintiff may not rescind it. On motion for summary judgment Special Term held that the contract was an executed one and could not be rescinded. The Appellate. Division reversed on the grounds that the instrument was not a bill of exchange but a promissory note, since the drawer and the drawee were the same person; that the defendant had not changed its position; that no third party had any claim against defendant; that war had made impossible the performance of defendant’s obligation; that there was a complete failure of consideration; that unless compelled to make restitution defendant would be unjustly enriched.

Defendant refused payment on the theory that the transaction was completely executed when plaintiff paid the money and defendant gave it the document; that the transaction may be likened to one wherein a person buys a bond or note or share of stock. The purchaser in such instance, however, has received an instrument or certificate which is the equivalent of money and which he can use to obtain money. That is the type of transaction referred to in Gravenhorst v. Zimmerman (236 N. Y. 22, 31) where this court said: One who secur.es a draft obtains a written order by the drawer upon the drawee which by commercial usage and even by statutory enactment in some jurisdictions has come to be recognized as the symbol and equivalent of money and which enables the one who has obtained it without further action by the drawer to secure from the drawee the moneys which it represents. In consideration of the money paid by him he has actually obtained an instrument for the payment of money and which is regarded as its equivalent, and it is perfectly natural to speak of such a transaction as resulting in the executed purchase of a draft.” (Emphasis supplied.)

The thing sold is the same in the case of the cable or wireless transaction as in the case of the draft or check. It is the credit of the bank or seller. The means of establishing or transmitting the credit is simply an incident of the transaction. In the one case, it is a formal paper drawn up and signed by the seller directing his foreign correspondent to make payment of the amount and to the person therein stated. In the other case, it is a similar direction transmitted by cable or wireless.”

If that be so, that which was sold was the credit of the defendant. It is to be noted that the draft here was drawn by defendant’s agent in charge of its New York agency npon its Manila agency. The draft was drawn by defendant npon itself and was at plaintiff’s option, (if we assnme it to he a negotiable instrument) nnder Negotiable Instruments Law, section 214, in reality a promissory note. What happened was that defendant delivered to plaintiff a written promise to pay pesos in Manila to a third person, a Philippine corporation. Defendant had something more to do after the delivery of the document to plaintiff: it still had to make payment in Manila to that third person.. Defendant had made a contract, promissory and execu-tory. The agent of defendant delineated it in his affidavit: *1 The defendant assumed no obligation except the obligation to honor the draft upon due presentation at its Manila office, in accordance with the usual principles governing negotiable instruments.”

However, even if we were to consider the instrument here a promissory note there is still the question whether the delivery of it to the plaintiff-pur chaser was to be considered a completed transaction in ordinary business transactions. When a formal note is delivered to a purchaser who is a payee, he may use the instrument as money. If the bank defaults, he may sue upon it for payment. Such a payee when he obtains the note has something which he can use as money or something which he can sue upon if payment is not made when due. Clearly there is there a completed transaction. That is "not the case with a purchaser of a note sold by a bank to one not the payee named therein. That is not a completed sale of negotiable paper as between such purchaser and the bank until it has been delivered to the payee in accordance with the expressed intention of the purchaser and the bank.

Whether we consider the instrument a non-negotiable instrument, a bill of exchange or a promissory note what are the rights of the plaintiff who is not the payee named in the instrument but who has possession of the instrument, has paid value for it but who is unable by reason of a state of war existing, to deliver it to the payee named, as intended by purchaser and seller, and which could not be presented, even if delivered, in accordance with its terms, for the same reason ? Add to that that there are no intervening rights of third parties, that there has been no change of position by defendant, as conceded by it, and that the drawer and drawee are one.

The plaintiff is a remitter. (See Beutel “ Bights of Bemit-ters and Other Owners not within the Tenor of Negotiable Instruments,” 12 Minn. L. R. 584.) The position of remitter existed in the law merchant and it was generally considered that the remitter had a remedy against the drawer when payment was not made as originally intended. The cases have given the remitter a remedy against the principal obligor, bnt the theory upon which that has been done is not entirely clear. In older cases, action was permitted in the name of the nominal payee for the benefit of the remitter. In Utica Bank, v. Ganson (10 Wend. 315, 316) an action was brought in assumpsit in the name of the bank for the benefit of one Chad Brown. Evidence was offered that a note had been made payable to the bank; that the bank had refused to discount it; that it was given to Brown in payment of a debt. It was held that the evidence was admissible, since the holder was entitled to show that the note came into his possession fairly and for a valuable consideration.

In Sutherland, State Bank v. Dial (103 Neb. 136) the bank loaned money to defendants. Defendants gave the bank a note payable to Welpton Investment Co., but the note was never delivered. It was held, in a suit in equity, that the petition set forth valid reasons why the suit was brought in the name of the plaintiff; that no one else had any real interest in the note; that plaintiff was entitled to recover. The lower court was directed to ascertain the amount due and render judgment accordingly. The action there would seem to have been one on the note for the amount due thereon.

In Garthwaite v. Bank of Tulare (134 Cal. 237) one Lovejoy» purchased from defendant a check upon a San Francisco bank payable to the order of one Smith. Smith did not receive the check, but some one else presented it and was'paid. Thereafter Lovejoy assigned his claim to plaintiff. It was held that the demand which had been made by Smith upon the San Francisco bank (after it had paid the fraudulent payee) was made as agent of the purchaser (Lovejoy) and the refusal to pay was dishonor. The liability of the defendant to Lovejoy was fixed in the amount originally paid by him for the check. The action there seems to have been for money had and received by defendant or for a rescission; it does not appear to be upon the note.

In Gellert v. Bank of California Nat. Assn. (107 Ore. 162) Jennie Posner, intending to make gifts to Flora Levor and E. W. Posner, bought from defendant two drafts drawn on a New York bank naming the donees as payees. The drafts were retained by Jennie Posner and were found in her possession upon her death eight days later. The action was brought by the executrix of Jennie Posner for the amount received by the bank from Jennie Posner. Plaintiff was permitted to recover. The court said (p. 171): “ The paper issued by the drawer bank is sometimes called a banker’s check; by business men it is usually termed a draft; but in the strict nomenclature of the negotiable instruments law it is a check, and considered as such is a species of the genus bill of exchange. * ⅝ ⅜ It' must be remembered that on the facts recited by the record the drafts have not yet been presented to the drawee and that they can never be presented to the drawee by the payee. And since the estate of the decedent is the owner of the drafts the plaintiff as the legal representative of the estate is assuredly entitled to receive the moneys represented by the drafts either from the .drawer or from the drawee.

purchaser had paid, since the transaction could not be completed because of a supervening impossibility. The only difference between that case and the instant one is that there the purpose could never be accomplished, while here it may be accomplished at some indefinite time after the war.

In Chafee, “ Progress of the Law — Bills and Notes,” (33 Harv. L. R. 255, 263-4) it is said: “ Yet a plaintiff who paid value for a negotiable note, payable to a third party, to whom the plaintiff expected to negotiate it but failed, was allowed to recover from the maker on the note. An action in money had and received was the only proper remedy.” (Emphasis supplied.)

In Beutel, “ Rights of Remitters and Other Owners not within the Tenor of Negotiable Instruments,” {supra) page 590, it was pointed out: “ These cases might be supported, on some ground of rights arising from the transactions between the parties. As has already been pointed out, the remitter is a party to the negotiations from which the instrument arises, he has furnished the consideration for the contract, and it was contemplated that the proceeds of the instrument when discounted by the payee would be used for his benefit. In the cases where the failure of the payee to accept the instrument is the cause of the remitter’s loss and creates the necessity of his action against the principal obligor, the situation is clearly analogous to failure of consideration found in ordinary contractual dealing; and one might expect the remedy to lie in quasi-contract under the category of failure of consideration. The recovery, on this theory, would be measured by the benefit received by the principal obligor and surety.”

Plaintiff having delivered money to defendant which could not be used as plaintiff and defendant intended, the former should be permitted to recover. If not so permitted to do, defendant has been unjustly enriched by what may be termed a windfall resulting from the war. The remedy is an action for money had and received in which equitable principles are applied. The plaintiff has brought such an action and has had judgment.

The judgment should be affirmed, with costs.

Lotjghran, Rippey, Lewis, DesmoNd and JJ., concur with Lehman, Ch. J.; Conway, J., dissents in opinion.

Judgment accordingly.


source: Caselaw Access Project

author: Conway, J.

license: Public Domain

text:
    Abraham B. Block et al., Appellants, v. Standard Insurance Company of New York, Respondent.
    Submitted January 5, 1944;
    decided April 6, 1944.

      Martin M, Kolbréner for appellants.
    I. Defendant’s policy specifically insured against larceny and the defendant is therefore hound to pay for a loss sustained as a result of a larceny. (.Edwards v. Maryland Motor Gar Insurance Go., 204 App. Div. 174; Bolling v. Northern Insurance Go. of N. App. Div. 693; Bose v. Balfe, 223 N. Y. 481; Van Vechten v. American E. F. Ins. Go., 239 N. Y. 303; People v. Seychew, 257 App. Div. 3033; Bose v. Bristol, 174 App. Div. 15; Nan v. Vulcan Bail & Construction Go., 286 N. Y. 188; Home Insurance v. Trammel, 160 S. W. 897; Marcus v. Fidelity & Deposit Go., 164 App. Div. 859; Matthews & Go., v. Employers’ Liability Assur. Gorp., Ltd., 127 App. Div. 195; Aldrich v. Neiu York Life Ins. Go., 235 N. Y. 214; Nellis v. Western Life Indemnity Go., 207 N. Y. 320; Strauss v. Ernstein, 232 N. Y. 187; Aschenbrenner v. U. S. F. & G. Go., 292 U. S. 80; Hoffman v. Mtna Ins. Go., 32 N. Y. 405.) II. The case of Van Vechten v. American E. F. Ins. Go. (239 N. Y. 303) is distinguishable in that in the Van Vechten case the insurance was against “ theft, robbery and pilferage.” In this case the insurance was specifically against loss by “ theft * * * larceny, robbery and pilferage.” (Nau v. Vulcan Bail & Construction Co., 286 N. Y. 188; Employers Fire Ins. Go. v. Bartee, 87 Col. 147; Home Ins. Go. v. Mathis, 32 N. E. 2d Fire Gorp. v. 117 F. 2d 774.) III. What was true of common thought and common speech in 1925 regarding theft or larceny of an automobile is not true today, and the Court of Appeals should re-examine the reasoning which formed the basis of opinion in Van Vechten v. American E. F. Ins. Go. (DeLong v. Massachusetts F. & M. Ins. Co., 142 Mise. 654.) IV. Defendant should not be permitted to say that the additional word 11 larceny,” inserted by it in its policy, has no meaning, or that it means “ theft,” as defined in the Van Vechten case. (Merl v. Standard Insurance Go. of New York, 173 Mise. 230; Allegheny Gol. v. Nat. Ghatauqua Go. Bank, 246 N. Y. 369; Bubin v. Dairymen’s League Go-op. Assn., 284 N. Y. 32; Underwood v. Globe Indemnity Go., 245 N. Y. Ill; Schweinburg v. Altman, 145 App. Div. 377; Nellis v. Western Life Indemnity Go., 207 N. Y. 320.)

      George I. Janow and Herman Young for respondent.
    I. The policy nnder consideration does not cover a loss of the character sustained by plaintiffs. (Callahtm v. London & Lancashire Fire Ins. Go., 98 Mise. 589; Bolling v. Northern Insurance Co. of N. Y., 253 App. Div. 693; Van Vechten v. American E. F. Ins. Co., 239 N. Y. 303; Glens Falls Insurance Co. v. Steto-art, 127 Mise. 353; Schenectady Varnish Co., Inc., v. Automobile Ins. Co., 127 Mise. 751; Bush v. Boston Insurance Co., 88 Mise. 48; 'Belafield v. London & Lancashire Fire Ins. Co., Ltd., 177 App. Div. 477; Merl v. Standard Insurance Co. of New York, 173 Mise. 230.) II. The coverage afforded by “ theft ” was not extended by the use of the term “ larceny ”, in its definition. (Matter of Hermanee et al., 71 N. Y. 481; Kover v. Hudson Ins. Co., 192 Minn. 10; Neither v. Penn Manufacturers Ass’n Cas. Ins. Co., 104 Pa. Super. 260; LaMotte v. Retail Hardware Mut. Fire Ins. Co., 203 Wis. 41; Fidelity & Guaranty Fire Corp. v. Batterman, 262 Ky. 350; Home Ins. Co. v. Tram-mell, 230 Ala. 278; Hartford Fire Ins. Co. v. Wimbish, 12 Gra. App. 712; Merl v. Standard Insurance Co. of New York, 173 Mise. 230; Sutherland v. St. Lawrence County, 101 App. Div. 299; People v. Kenney, 135 App. Div. 380; Marcus v. Fidelity & Deposit Co., 164 App. Div. 859; People ex rel. v. Donohue, 84' N. Y. 438; Kohler v. National Surety Corporation, 153 Mise. 429.) III. Contracts such as these are to he given such reasonable interpretation as the ordinary man would attribute to their provisions. (Assn. Protection Adirondacks v. MacDonald, 253 N. Y. 234.) IV. Recoveries have not been allowed on policies the same as the one in the instant case. (Shahin v. Niagara Fire Ins. Co., 265 App. Div. 397; Katsensteiñ v. Merrimack Mutual Fire Ins. Co., 266 App. Div. 860.)
   Conway, J.

The plaintiff owner obtained from the defendant what is known as a “ comprehensive ” contract of insurance covering loss or damage to an automobile, except by collision. The contract provided in part, ‘ ‘ VI. Insurance Coverages Deeined # * * A. Comprehensive — Loss op or Damage to the Automobile, Except by Collision : loss of or damage to the Automobile including damage by missiles or falling objects and glass breakage from any cause but excluding all other loss the primary and immediate cause of which is a collision of the Automobile and any other object, an npset of the Automobile or a collision of the Automobile and a vehicle to which it is coupled.

“ D-l. (Beoad Form) ; Loss of or damage to the Automobile caused by Larceny, Bobbery or Pilferage.”

The plaintiff owner and her husband were driven by their chauffeur to Asbury Park, N. J. They were to stay over night at a hotel there. At the end of the day, the chauffeur was told that the automobile would not be needed again that evening and to put it in a garage. The chauffeur then said that the room he had obtained was some two miles from the hotel and asked for permission to drive the automobile there, park it overnight in a parking lot which was in front of the house in which he had his room and that he would avail himself of the opportunity to wash the automobile in the lot. He was then given money for his room, meals, parking lot rental and for a brush and soap to wash the car. The chauffeur was told not to go joy-riding and promised that he would not. At about 9 o’clock on the following morning the plaintiffs were notified that there had been an accident. The chauffeur was found in a police station in Middletown and the automobile was found in a gully about twenty miles, toward New York City, from Asbury Park.

Upon that testimony the defendant rested and moved for a dismissal of the complaint upon the ground that the plaintiffs had failed to establish facts constituting a cause of action. That motion was granted.

The Legislature of this State has defined the conduct of the chauffeur here as larceny. Penal Law, section reads as follows: ‘ ‘ Any person who, under circumstances not constituting larceny as defined by any other section of this article shall, without the consent of the owner take, use or operate, or cause to be taken, used or operated an airplane or other aircraft or an automobile or other motor vehicle, for his own profit, use or purpose, steals the same, is guilty of larceny and shall be punishable accordingly. ’ ’

It is equally the settled law of this State that a policy of insurance covering “ theft, robbery or pilferage ” does not include within those terms a violation of section 1293-a (supra). (Van Vechten v. American E. F. Ins. Co. [1925], 239 N. Y. 303; cf. Pennsylvania Indemnity Fire Corp. v. Aldridge, 117 F. 2d 774.) The policy in the Van Vechten case was apparently not the present form of “ comprehensive ” policy. Here the insurance company has insured against theft in its “Broad Form” and has defined it, not as theft, robbery or .pilferage but as “ Larceny, Robbery or Pilferage.” The defendant wrote the policy and chose the words used. We must give effect to the word “ comprehensive ” and the definition of theft. To do so is to fasten liability upon the defendant. The average automobile owner knows that the taking of an automobile in manner such as was done here constitutes the crime of larceny. His legislative representatives voted for that enactment. The newspaper he reads contains reports of unauthorized temporary appropriations of automobiles and both he and the newspapers now use the word joy-ride as a definition of such an act. Such act is larceny and is so considered by the average man whether or not he is the owner of an automobile. Such is the ordinary meaning which “ the average policyholder of ordinary intelligence, as well as the insurer, would attach to it.” (Abrams v. Great American Ins. Co., 269 N. Y. 90, 92.)

Insurance companies properly seek, as a service to the public, to increase the risks insured against so long as the policy purchaser will pay the rate required by insurance experience for the increased coverage. Hence we find the use of the word comprehensive ”. The rate was fixed upon that basis and the insured paid it for the comprehensive coverage.

The judgments should he reversed and a new trial granted, with costs to the appellants to abide the event. (See 292 N. Y. 621.)

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

Judgments reversed, etc.


author: CoNway, J.

text:
    William E. Smith et al., as Executors of James W. Smith, Deceased, Appellants, v. Continental Bank and Trust Company of New York, Respondent.
    Argued February 25, 1944;
    decided April 6, 1944.

      William E. Smith for appellants.
    The failure of the complaint to allege that plaintiffs’ testator was the owner of the bonds at the time of the commencement of the action is not a fatal defect and it is sufficient that the plaintiff was the owner of the bonds at the time of the alleged acts of gross negligence by the defendant. The filing of the bonds with the receiver of the guarantor of said bonds with all unpaid coupons attached did not divest plaintiffs’ testator of the causes of action herein. (.Mittlemann v. President & Directors of Manhattan Go., 272 N. Y. 632; Weil v. President etc., of Manhattan Go., 275 N. Y. N. Y. 238; Rabmowitg v. President & Directors of Manhattan Go., 275 N. Y 453; Hendry v. Title Guarantee & Trust Company, 255 App. Div. 497, 280 N. Y. 740; Elkind v. Chase Nat. Bank, 259 App. Div. 661, 284 N. Y. 726; Emmerich v. Central Hanover Bank & Trust Go., 265 App. Div. 808, 291 N. Y. 570.)
   CoNway, J.

Appeal by permission of the” Appellate Division, Third Department, which affirmed an order of Special Term, granting defendant’s motion to dismiss the complaint on the ground that it did not state facts sufficient to constitute a cause of action. The following question has been certified: “ Does the complaint state facts sufficient to constitute a cause of action? ”

The complaint, originally of plaintiffs’ testator, alleges • causes of action. The first cause of action alleges that on or about January 1, 1921, the 565 Fifth Avenue Corporation secured a loan from S. W. Straus & Co., Inc., of $3,000,000; that the 565 Fifth Avenue Corporation executed coupon bonds as evidence of the indebtedness; that as security for the bonds the 565 Fifth Avenue Corporation mortgaged to Walter S.. Klee, as trustee, a leasehold estate for a term of years commencing September 1,1920, which leasehold was created by an indenture executed between 565 Fifth Avenue Corporation and the Fifth Avenue and 46th Street Company; that subsequently Straus National Bank and Trust Company served as trustee and thereafter defendant was substituted as trustee; that prior to January 1, 1933, plaintiff had purchased $6,000 worth of bonds; that all of the bonds have matured but plaintiff has received only $720 and has been informed that no further payments will be made.; that on April 17, 1938, plaintiff filed the bonds with the receiver for S. W. Straus & Co., Inc., pursuant to an order of the Supreme Court, Kings County; that on November 1, 1934, a order o.f dispossession was entered against 565 Fifth Avenue Corporation; that defendant did not appear or answer in the dispossess proceedings nor in any manner protect plaintiff from the consequences and financial loss of said proceedings; that by reason of that gross negligence plaintiff has suffered damages in the loss of principal and interest in the sum of $8,401.01. The second cause of action alleges that defendant was grossly negligent in failing to declare the principal of the bonds due and payable when 565 Fifth Avenue Corporation defaulted in payment of principal and interest and was grossly negligent in failing to have the property sold at auction and the proceeds distributed to the bondholders. The third cause of action alleges that the defendant was grossly negligent in failing to declare the principal of the bonds due and payable when 565 Fifth Avenue Corporation defaulted and in failing to enforce the rights of the bondholders by means of a-foreclosure action.

The only issue presented is whether the complaint states a cause of action since it is not alleged that plaintiff was the owner of the bonds at the time of the commencement of the action. The Appellate Division held that the failure to allege ownership of the bonds at the time of the commencement of the action was fatal to the complaint.

That is unquestionably the rule in stockholders’ derivative actions. Such an action may not be brought by one who has ceased to be a stockholder at the time of its commencement. Thus in Hanna v. Lyon (179 N. Y. 107, 110) it was said: But while the plaintiff Hanna was a stockholder at the time of the commission of the acts of - which he complained, he had ceased to be a stockholder at the time of the commencement of the action, and hence was without authority to maintain it. His rights as a stockholder had passed to the subsequent purchaser of the stock, and the Appellate Division was, therefore, right in reversing the judgment as to him and dismissing the complaint.”

Such an action is considered that of the corporation and “ no stockholder could [can] maintain an action for the loss he had [has] individually suffered in the depreciation of the value of the share stock held by him ” (Kavanaugh v. Commonwealth Trust Co., 181 Y. 121, 123). Such action is brought against directors for breach of duty to the corporation. The stockholder-plaintiff in effect represents the corporation and one who has severed his relation as stockholder may no longer represent it.

The action here is quite different in character. The plaintiffs are suing in their own behalf for a breach of duty owed by the trustee to their testator. The action is personal and not representative../ The only question is whether the right of aetion passed with the bonds and no longer remains with the plaina number of cases, this court has held the converse; that is, that where the breach was committed before the bondholder purchased the bond, he could not bring an action therefor. (Weil v. President, etc., of Manhattan Co., 275 N. Y. 238; Hendry v. Title Guarantee & Trust Co., 280 N. Y. Elkind v. Chase National Bank, 284 N. Y. 726; Emmerich v. Central Hanover Bank & Trust Co., 291 N. Y. 570.) Unless we are to hold that a plaintiff must have been a bondholder at the time of the breach and must still be a bondholder at the time of the suit, we must hold that the plaintiffs in this case have a cause of action. That the latter would be our holding was indicated, we think, by the language in Weil v. President, etc., of Manhattan Co. (275 N. Y. 238). That action was brought by Schaekno Act trustees against the defendant for causing the mortgage company to breach its with certificate holders and for gross negligence to the resultant damage of certificate holders. This court said (pp. 242-3): “ The alleged causes of aetion set out in the complaint are causes of action vested in the certificate holders and the acts alleged constitute breach of duty to them under their certificates. Such causes of action were not held by the certificate holders ‘ as a class J and they did not have equal and ratable interests therein. * * * The causes of action alleged in the complaint are not of that nature because the interest of each certificate holder depends upon the time and circumstances under which he became a certificate holder. Some have no possible cause of action and some of the causes of action alleged vested in previous certificate holders who have transferred their certificates.” (Emphasis supplied.)

In Hendry v. Title Guarantee & Trust Co. (255 App. Div. 497, affd. 280 N. Y. 740) certificate holders sued defendant for breach of duty in releasing a condemnation award to the mortgagor. The Appellate Division said (p. 500), “ The cause of action for that breach of trust did not pass from hand to hand with the certificate.”

In Emmerich v. Central Hanover Bank & Trust Co. (supra) we held that the rights of a bondholder in the case of a breach of a fiduciary duty not involving a surrender or release of the mortgaged property arise from the fiduciary relation, between the trustee and the beneficiary and are purely personal to each bondholder. They exist independently of and without regard to the mortgaged property and do not. pass with a transfer of the bonds.

It may be that the plaintiff’s cause of action was transferred to the receiver of S. W. Straus & Co., Inc., pursuant to the order of the Supreme Court. That order is not before us nor are its terms alleged in the complaint. We assume, therefore, that nothing more than the bonds was transferred. An assignment would be necessary to transfer the right of action.

The orders should be reversed, with costs to the appellants in all courts and the defendant’s motion denied. The certified question should be answered in the affirmative.

LehmaN, Ch. J., LoughraN, Sippet, Lewis, Desmoud and Thacher, JJ., concur.

Orders reversed, etc.


author: Desmoitd, J.

text:
    Argued February 21, 1944;
    decided April 13, 1944.

      Raymond M. White, Forrest M. Anderson and Kenneth R. Strickland for appellants.
    The will directs that all dividends he treated as income regardless of the effect thereof upon principal. (Matter of Osborne, 209 N. Y. 450; United States Trust Go. v. Eeye, 224 N. Y. 242; Equitable Trust Go. v. Prentice, 250 N. Y. 1; Baker v. Thompson, 181 App. Div. 469, 224 N. Y. 592; Lowry v. Farmers’ Loan & Trust Go., 172 N. Y. 137; Robertson v. de Brulatour, 188 N. Y. 301; Matter of Mart, 139 Mise. 558; Matter of Rowland, 273 N. Y. 100; Matter of Enz, 204 App. Div. 634, 237 N. Y. 577; McLouth v. Hunt, 154 N. Y. 179; Matter of Pennock, 285 N. Y. 475; Matter of Rogers, 22 App. Div. 428,161 N. Y. 108.)

      Horace N. Taylor, George Levitus and Eugene B. Thurston for Evelyn "W. Miller, as trustee, and another, amici curios, in support of position of appellant. ¡

      Thomas I. Sheridan, as special guardian for Joan H. Lloyd and others, infants, respondents.
    The payments of so-called
   Desmoitd, J.

By the decree appealed from, these accounting testamentary trustees have been held subject to surcharges because they allocated wholly to income certain 1932 and 1936 cash dividends on corporate stock held in two of the three trusts erected in obedience to the commands of the will. The will named the widow and appellant trust company as executors and trustees, bequeathed a sum of money to the widow, gave the widow the life use of two residences, devised a country estate to testator’s only daughter and then directed that the whole of the residue he divided into three separate trusts. Into the first trust went twelve sixteenths of the residue, with income to the widow for life and provisions for disposal of the principal and income after the widow’s death, for the benefit of the daughter, the daughter’s descendants and a grandson. The second trust is of three sixteenths of the residuary estate with income payable to the daughter and the remainder to pass to her children and grandchildren. The remaining one sixteenth, under the will, formed the corpus of a trust the income of which was to he used for the support and education of the grandson till he should reach the age of twenty-one years, the income thereafter to be paid to him until he should arrive at his thirtieth birthday, whereupon he was to have the principal. (The grandson has reached the age of thirty and has settled with the trustees, so his trust is not in litigation here.) -After ordering ,the setting up of those three trusts, the will made further directions as follows: u Tenth: Í hereby authorize my Executors and Trustees in their discretion to retain any investment which I may leave at the time of my death as a continuing investment, whether such investment be considered under the Laws of the State of New York a legal trust investment or not, and I further direct my Executors and Trustees to treat all dividends and all rights to subscribe for additional stock as entirely income, regardless of the fact that such dividends and rights may possibly encroach upon the principal of the trusts herein created, and I further direct that the shares of my estate, hereinbefore given to my Trustees, shall embrace income from the same date, viz., from the date of my death.” When testator wrote his will in 1918 and when he died in 1920 a large part (valued at several hundred thousand dollars) of his estate consisted of the preferred and common stocks of a corporation of which he had been president for many years. During his life and up to the time of his death that corporation enjoyed large profits and paid regular and substantial dividends. The above quoted language of article Tenth of the will is on its face a most emphatic and urgent command to the trustees that they pay out as income all dividends received by them, even though such payments result in an impairment of the principal values of the trusts. Beading that language, and keeping in mind while we read it the size of testator’s holdings in the corporation to which we have above referred, and the fact that the income beneficiaries were his widow, her daughter and his grandson and the further fact that all his productive property went into the trusts, we cannot possibly doubt that the testator intended by article Tenth to issue a mandatory direction that all dividends received by Ms trustees on the stock of that corporation be distributed by the trustees to the income beneficiaries, for their support. However, the courts below, sustaining objections filed by a special guardian for infant (contingent) remaindermen, have ruled that a part of the dividends paid on the preferred stock in 1932 should have been accounted for as principal, not income, and that the whole of the 1936 preferred dividends were, similarly, principal and not income, in the hands of the trustees. (No dividends on common stock are here in dispute.) The special guardian grounded Ms objections, fundamentally, on the fact that when the 1936 dividends were declared and, similarly, when some of the 1932 dividends were declared, the corporation had previously exhausted its surplus but had created, in each year, a new “ book surplus ” by reducing its capital.

On January 14, 1932, when the corporation’s fiscal year began, it had no surplus but had on hand undivided profits of about $150,000. During that fiscal year it suffered an operating loss of about $650,000 and paid out $157,500 in three regular quarterly preferred dividends. In April of that year, by appropriate corporate action, it reduced its capital by $750,000, so that, starting out with the undivided profit fund and then giving effect to the dividend payments and the cut in capital, the corporation ended its fiscal year of 1932 with a net balance of about $90,000 in its capital surplus account ”. No attack is here made on the legality of the reduction of capital or of the dividend distributions made possible by that reduction (see Jay Ronald Co. v. Marshall Mortgage Corp., 291 N. Y. 227). The Surrogate, however, attached great importance to the fact that the first two quarterly dividends of that year, added to the losses sustained up to the times of the declaration of those dividends, had more than used up the credit balance which had been in the undivided profits account at the year’s beginning. Ruling that any payments to stockholders out of the new surplus created by the reduction of capital belonged to the capital account of the trusts when received by them, the Surrogate made a calculation which worked out to the result that the second and third 1932 preferred dividends and a part (approximately two thirds) of the first such dividend of that year should have been assigned by the trustees to the capital account, not the income account, of the trusts. So much for 1932.

We consider now the 1936 dividends. No dividends were paid by the corporation during the fiscal years 1933, 1934 and 1935, so that at the beginning of 1936, the accumulated arrears on the preferred stock were over $800,000. Analyzing the corporation’s history for its fiscal year 1936, the Surrogate came to the conclusion that a dividend of $2.25 per (preferred) share, paid December 28, 1936, on account of arrears, should not have been turned over by the trustees to those entitled to the income of these trusts. As of the beginning of that year the corporation’s capital had been impaired to the extent of about $935,000. In December it reduced its capital by $1,500,000 and was thus able to show on its books a new surplus of $565,000. In 1936, unlike 1932, the business itself was carried on at a profit of $77,000, which operating profit exceeded by about $10,000 the 1936 dividend payment of $67,050. But this dividend, also, the Surrogate ordered treated as principal, not income. Pointing out that the New York statute (Stock Corp. Law, § 58) forbids the payment of dividends except from surplus and that a created ” surplus resulting from a reduction of capital does not change the fact of a prior capital deficit, the court reasoned that the placing in a trust’s income account of dividends paid to it after the corporation’s capital deficit has been eliminated, not by accumulation of earnings but by bookkeeping entries consequent on capital reduction, operates to reduce the “ intact value ” of the trust. In other words, according to the Surrogate, the 1936 dividend, so far as these trusts were concerned, should have been treated as capital, since it represented moneys which in the corporation’s own hands would necessarily have been used (had not its capital been reduced) to restore part of the prior capital shrinkage. The 1936 dividend, reasoned the Surrogate, was in cold fact a distribution to shareholders of part of the “ contributed capital ” of the corporation. When such a dividend came into these trusts, he held, it had to he put into the capital of the trusts, otherwise their original value, lessened by the corporation’s losses, would never be restored and income would flourish while capital disappeared. Confronted by the language of the will, the Surrogate wrote: “ The words ‘ all dividends ’ as used in this will are to be understood as meaning dividends earned and payable in the normal course of ordinary corporate management. In any case they do not apply to the distribution of the contributed capital of the corporation even though that distribution is denominated a dividend by the directors.” On the contrary, we think “ all dividends ” necessarily include the dividends here under scrutiny.

If ”, wrote the Surrogate, 11 a dividend arising from such procedure is not to be put into capital account of the Trust it is evident that the Trust principal can be appropriated to income completely.” But a testator may have it that way if he wishes it. A testamentary trust provision is not invalid, merely because it results in the payment to “ income beneficiaries ” of part of the corpus. (Matter of Osborne, 209 N. Y. 450, 474.) The freezing of trust principal, so as to keep its original or “ intact ” value undiminished, is a matter of choice for the trustor. His expressed choice settles the question. This testator did not leave it to the courts to look into the facts, circumstances and nature of the transaction and determine the nature of the dividend and the rights of the contending parties accoi'ding to justice and equity ” (Matter of Osborne, supra, at p. 475). He did all that for himself. He spared the courts and the Legislature the burden that might otherwise have been theirs (see Bourne v. Bourne, 240 N. Y. 172; Personal Property Law, § 17-a, Opperman’s Estate (No. 1), 319 Penn. St., 455), of equitably allocating as between his income beneficiaries and his remaindermen, dividends that for one reason or another might be held to trench on his capital funds. In clear language he instructed his trustees to “ treat all dividends ” as “ entirely income ”, regardless of encroachments on principal. That command of the testator is the law of these trusts, and the trustees obeyed that command when they turned over the dividends to the income beneficiaries.

The order of the Appellate Division and the decree of the Surrogates’ Court, so far as appealed from, should be reversed, and. the matter remitted to the Surrogates’ Court for entry of a decree in conformity with this opinion, with costs in all courts to the appellants and respondents, payable out of the estate.

Lehman, Ch. J., LohghRAN, Rippey, Lewis and CoNway, JJ., concur; Thaoher, J., taking no part.

Order reversed, etc.


author: Lewis, J.

text:
    Alexander MacMurray, as Receiver, Appellant, v. City of Long Beach, Respondent.
    Submitted February 25, 1944;
    decided April 13, 1944.

      Joseph Clifford for appellant.
    I. The motion to dismiss the complaint under subdivision 5 of rule 106 of the Buies of Civil Practice must be denied because the complaint states a good cause of action at law for money had and received. (Hall v. Prudential Insurance Co., 72 Mise. 525, 148 App. Div. 934; Port v. Holzinger, No. 1, 212 App. Div. 124; Columbian Laundry v. Hencken, 203 App. Div. 140; Parkway Laundry Service, Inc., v. Becker, 257 App. Div. 327; Cushman v. Martin, 6 Hun 245; Barragh v. Boss, 55 Hun 605, 130 N. Y. 641; Miller v. Harris, 102 N. Y. S. 604; Caesar v. Bubinson, 174 N. Y. 492; Seidlitz v. Auerbach, 230 N. Y. 167.) II. Under the agreement and the statutes authorizing it, plaintiff, even though in default, is to recover for the failure of defendant to apply the moneys deposited with it in reduction of its tax lien. (Kahn v. Tobias, 16 Mise. 83; Seidlitz v. Auerbach, 230 N. Y. 167; Caesar v. Bubinson, 174 N. Y. 492; Tipton v. Feitner, 20 N. Y. 423; Ming v. Corbin, 142 N. Y. 334; Bablyn Management Corp. v. Manufacturers Trust Co., N. Y. L. J., Dec. 2, 1939, p. 1924.) III. Plaintiff’s conduct in depositing for under the agreement with the defendant did not constitute voluntary payment of taxes. (Bruecher v. Village of Port Chester, 101 N. Y. 240; Effell Bealty Corp. v. City of Nexo York, 282 M. Y. 541; Goldberg v. City of New York, 260 App. Div. 61, 285 N. Y. 705; Moss Estate, Lie., v. Town of Ossining, 268 N. Y. 114; Adrico Bealty Corp. v. City of New York, 250 N. Y. 29; American Bistrict Telegraph Co. v. City of Nexo York, 213 App. Div. 578, 243 N. Y. 565; M. & T. Trust Co. v. City of Buffalo, 266 N. Y. 319; Wood v. Supervisors of Monroe Co., 50 Hun 1; Gubm v. City of New York, 150 Mise. 182; People ex rel. Atlaxitic Gulf & Pacific Co. v. Miller, 173 Mise. 397; Hathaway v. Payne, 34 N. Y. 92; Brehm v. New York, etc., of N. Y., 39 Hun 533,104 N. Y. 186.)

      Bernard H, Reich, Corporation Counsel, for respondent.
    I. The express provisions contained in the contract that on default all the rights and benefits accruing thereunder to the party of the first part shall be extinguished, bar recovery to the plaintiff. ’ (Stern v. Gepo Realty Corp., 289 N. T. 274; 'Title Guarantee & Trust Co. v. City of New York, 265 App. Div. 304; Sloane Estates, Inc., v. City of New York, 175 Mise. 674, 262 App. Div. 722, 287 N. Y. 818.) II. The complaint should have been dismissed by the Appellate Division upon the further and additional ground that the taxes sought to be recovered in this action were valid and legal taxes voluntarily paid to the city without protest. (Adrico Realty Corp. v. City of New York, 250 N. Y. 29; Title Guarantee & Trust Co. v. City of New York, 265 App. Div. 304; Sloane Estates, Inc., v. City of New York, 175 Mise. 674, 262 App. Div. 722, 287 N. Y. 818; N. Y. Rapid Transit Corp. v. City of N. Y., 275 N. Y. 258; Olive Coat Co. v. City of New York, 283 N. Y. 733; City of Utica v. Proite, 178 Mise. 925, 288 N. Y. 477; Girls’ Friendly Soc. of N. Y., Inc., v. City of Neto York, 144 Mise. 839; Matter of Morewood Realty Bolding Co., 241 App. Div. 841; Seif v. City of Long Beach, 286 N. Y. 382.)
   Lewis, J.

Our inquiry goes to the sufficiency of the complaint in this action.

From that pleading it appears that the plaintiff-appellant is the receiver of rents in an action to foreclose a certificated mortgage upon premises known as No. 405 East Broadway in the City of Long Beach. Against the mortgaged premises was an outstanding tax lien owned by the defendant City which lien, with accrued penalties, amounted to $3,347.60. In an effort to avoid the accrual of additional penalties the plaintiff arranged to take advantage of statutes which authorize the city, upon resolution of its council, to cancel penalties and interest on unpaid taxes levied on real property prior to April 1, 1940, provided such taxes are paid within one year. (L. 1934, ch. 917 as amd. by L. 1942, ch. 647, and L. 1935, ch. 725; see McKinney’s Unconsolidated Laws [Book 65], §§ 9671 and 9672.) Acting in accord with such statutory procedure the City Council of the defendant City adopted a resolution which permitted the plaintiff to pay the tax lien in installments without penalty but with interest on the face amount at the annual rate of six per cent. Thereupon the plaintiff entered into a written contract with the City whereby he agreed to pay in ten installments delinquent taxes then amounting to the sum of $3,273.95 with six per cent interest. The agreement provided in part:

Second. Should the party of the first part fail to pay any installment and/or interest upon the due date thereof, and if such default shall continue for a period of ten days, then and in that event, this agreement shall cease, terminate and come to an end without notice, and all the rights and benefits accruing hereunder to the party of the first part shall he extinguished, and all moneys paid under this agreement shall he applied on account of and in reduction of the aforesaid tax lien together with all interest, penalties and charges as hereinafter set forth.

In the event of the failure of the party of the first part to comply with the terms and conditions of this agreement, then and in that event the making of this agreement shall not he deemed to in any way impair any of the rights and powers of the City of Long Beach or the Treasurer thereof contained in any general or special act including the Charter or Local Laws; but such rights and powers shall remain in full force and effect and the City Treasurer of the City of Long Beach shall enforce the collection of such tax lien together with the full amount of interest, penalty and other lawful charges in accordance with the provisions of such laws, crediting to the party of the first part any and all sums paid hereunder, # s (Italics supplied.)

In accord with this agreement the plaintiff paid to the City eight installments aggregating $2,687.91. He failed to pay the last two installments. As a result of such default the City in August, 1938, sold the tax lien at its face value plus interest and advertising costs, amounting in all to $3,496.60. In making such sale the City did not credit the sum of $2,687.91, being the total amount of the eight installments previously the plaintiff in reduction of the tax lien. Subsequently, and after the City had refused the plaintiff’s demand that it return to him $2,687.91, the plaintiff instituted the present action for restitution of that sum. Thereafter the County Court of Nassau County denied a motion by the defendant to dismiss the complaint nnder rule 106, subdivision 5, of tbe Buies of Civil Practice. Appellate Division reversed on the law the order of the County Court, two justices dissenting, and directed that the complaint be dismissed.

The default by the plaintiff, after making eight installment payments, afforded the City a legal basis for a sale of the tax lien but only “ * * * for the unpaid balance of such taxes together with any interest or penalties thereon and any other charges allowed by law.5’ (L. 1935, ch. 725.)- In fulfillment of the express purpose of its contract with the plaintiff, the City was required to apply in reduction of the tax lien all moneys paid by the plaintiff. In the event of plaintiff’s failure to comply with the contract, the City had the right to enforce the collection of the tax lien with interest and penalties but only after crediting to the party of the first part [the plaintiff] any and all sums paid hereunder.”

If we accredit the allegations of the complaint, as we must do in our review of the order before us, we must treat as a fact the plaintiff’s allegation that the defendant City and its treasurer wrongfully failed to use the installment payments made by the plaintiff for the purpose of reducing the amount of the City’s lien. Indeed, the City in its brief filed as respondent upon this appeal concedes that — “ In making such 'sale ⅜ * * the treasurer inadvertently sold the property for the full amount of the taxes without crediting the installments paid thereon by the plaintiff.”

Our problem would be different if the installment payments made by the plaintiff had beén used by the City for the purpose contemplated by the contract and the statute — viz., the reduction of the City’s tax lien. In such a case restitution may be denied. (Redmond et al., v. Mayor, etc., of New York, 125 N. Y. 632, 636.) But where, as in the present case, the City accepted plaintiff’s • installment payments and thereafter, without giving heed to. the use to which it had agreed they should be put, not only failed to credit them against the tax lien but collected the entire amount of the lien from avails of a sale thereof to a third person, the plaintiff’s payments — even if originally voluntary in character — are not irretrievable. ‘ ‘ Independent of any statute, form of action or legal nomenclature, the obligation to do justice rests upon all persons, natural or artificial, and the law will compel restitution from a person who obtains money or property from another * * * unjustly, or without authority.” (Pink v. Title Guarantee & Trust Co., 274 N. Y. 167, 173.)

We are mindful of the rule that one who breaches an executory contract may not recover the amount paid thereunder. (Lawrence v. Miller, 86 N. Y. 131, 140.) But that is not the theory of the plaintiff’s cause of action as pleaded. We recognize in his complaint the essential allegations of a cause of action for money had and received — a remedy available to him upon the facts pleaded. There are allegations that the plaintiff paid money to the defendant for a specific purpose, viz., payment on account the tax lien, as provided in the contract made by him with the defendant City; that the defendant failed to apply to such purpose the payments made by the plaintiff; that having sold the tax lien and received from a third party on such sale.the face value of the lien with interest and advertising costs without crediting payments made by the plaintiff in reduction of the tax lien, the defendant will be unjustly enriched to the extent of the money received from the plaintiff. Finding in the complaint allegations which, if proved, would establish that the defendant has received from the plaintiff a sum of money which it could not in good conscience retain and that the defendant has refused to pay over the same after demand has been made therefor, a cause of action for money had and received is stated, (Schank v. Schuchman, 212 N. Y. 352, 357-360; Strough v. Board of Supervisors, 119 N. Y. 212, 219, 220; Newman v. Supervisors of Livingston Co., 45 N. Y. 676, 687, 688; and see Chapman v. County of Douglas, 107 U. S. 348, 356; Mayer v. Mayor, 63 N. Y. 455, 458-460.)

The judgment of the Appellate Division should be reversed and the order of the County Court affirmed, with costs in this court and in the Appellate Division.

LehmaN, Ch. J., LoughraN, Rippey, CoNway, DesmoNd and Thacher, JJ., concur.

Judgment accordingly.


author: Thacher, J.

text:
    Lillian Reese, Appellant, v. Floyd E. Reamore, Respondent, et al., Defendants.
    Argued January 6, 1944;
    decided April 13, 1944.

      Edwin J. Misen and James H. Koran for appellant.
    The trial court properly withheld from defendant-respondent tbe benefit of bis defense of ownership of tbe automobile by Peltier aid it was error for tbe Appellate Division to reverse tbe judgment of tbe trial court. (Ferris v. Sterling, 214 N. Y. 249; Buono v. Stewart Motor Trucks, Inc., 261 App. Div. 1095;
      Longley y. Goons, 244 App. Div. 391, 268 N. Y. 712; Noble v. City of Palo Alto, 89 Cal. App. 47; Allen y. Ennis, 253 App. Div. 769, 279 N. Y. 578; Shuba v. Greendonner, 271 N. Y. 189; Good-year v. Brown, 155 Penn. St. 514; Gumbel v. Pitkin, 124 S. 131; Seneca Go. Bank v. Lamb, 26 Barb. 595; Veazey v. Allen, 173 N. Y. 359; Attridge v. Pembroke, 235 App. Div. 101; Goverly v. Terminal Warehouse Go., 85 App. Div. 488; Sturm v. Truby, 245 App. Div. 358.)

      Leonard Pi. Amdursky, Edward A. Wolff and Robert G. lies for respondent.
    I. Tbe trial conrt correctly decided and found that Peltier, not tbe respondent, was tbe sole and actual owner of tbe car at tbe time of tbe accident. This bas been affirmed by tbe Appellate Division and there is overwhelming evidence to support tbe finding and its affirmance. (Ferris v. Sterling, 214 Y. 249; Potts v. Pardee, 220 N. Y. 431; St. Andrassy v. Mooney, 262 N. Y. 368; Rathf elder v. Flagg, 257 App. Div. 71, 282 N. Y. 563.) II. There was no evidence that defendant-respondent consented to tbe use of a set of his dealer’s plates on tbe Peltier car at tbe time of tbe accident. (Underhill v. Major, 220 App. Div. 173.) III. Even if respondent should have known that Peltier was using bis plates, or even if be did violate some rule or regulation in reference to tbe loaning of dealer’s plates, still, Ackley’s negligence could not be imputed to him as a matter of law. (Klinken-stein v. Third Avenue Ry. Go., 246 N. Y. 327; Corbett v. Scott, 243 N. Y. 63; Clark v. Doolittle, 205 App. Div. 697; Brown v. Shyne, 242-N. Y. 176; Audubon Transportation Go. v. Yonkers Railroad Go., 126 Mise. 180; Buono v, Stewart Motor Trucks, Inc., 261 App. Div. 1095, 263 App. Div. 969; Rathf elder v. Flagg, 257 App. Div. 71, 282 N. Y. 563; Worsham Buick Go. v. Isaacs, 51 S. W. 2d 277.)
   Thacher, J.

On June 30, 1939, in tbe village of Camden, New York, a collision occurred between a Chevrolet sedan owned by William J. Peltier, which was driven by tbe defendant John S. Ackley, and a Hudson automobile owned and driven by plaintiff’s husband in which plaintiff was a passenger.

Tbe defendant Reamore, an automobile dealer, bad sold tbe Chevrolet to Peltier some weeks before tbe accident and bad allowed him to use bis dealer’s plates over a period of more

The case was tried without a jury and findings of fact were made by the Trial Justice. The facts thus found were, among others, that the accident was caused by the negligence of Ackley and that the plaintiff was free from contributory negligence; that the Chevrolet automobile was taken in trade by defendant. Reamore in April, 1939, and sold to Peltier, a mechanic working in garage, who was the sole and actual owner of the Chevrolet at the time of the accident; that at the time of the accident this car was being driven by the defendant Ackley with the permission and consent of Peltier; that at all times between May 10,1939, and June 30,1939, the defendant Reamore knew that Peltier was driving the Chevrolet upon the public highways and making use of the defendant Reamore’s dealer’s plates for that purpose, and that Reamore consented to such usé of the car with his plates thereon. It was further found that the defendant Ackley was a stranger and unknown to the defendant Reamore and that he was driving the Chevrolet without the express knowledge or consent of the defendant Reamore ”. It was found that Ackley was driving the car with the express permission of Peltier. That he was driving with the implied permission of Reamore appears from the fact that Reamore permitted Peltier to do what he pleased with the car bearing his dealer’s plates. (Jackson v. Brown & Kleinhenz, Inc., 273 N. Y. 365.)

The Trial Justice found in favor of the plaintiff and rendered judgment in her favor for $3,300 against the defendants Rea-more and Ackley, holding that the accident and injuries to the plaintiff were caused by the negligence of the defendant Ackley; that by reason of his violation of the statute and regulations the defendant Reamore was estopped from denying ownership of the Chevrolet sedan operated by Ackley; that he, having transferred to Peltier all rights and privileges of ownership and control, gave him carte blanche to use the car in any manner, including loaning it to Ackley, and thereby, under section 59 of the Vehicle and Traffic Law, was responsible for the negligence of the latter and liable to plaintiff for the damages she sustained. The judgment for plaintiff was reversed in the Appellate Division, where it was held that an automobile dealer who permits nse of his dealer’s license plates without complying with the statute is not estopped from denying that he is the owner of the vehicle on which the plates are displayed. In reversing the judgment the Appellate Division examined and approved the findings of the Trial Justice.

In Shuba v. Greendonner (271 N. Y. 189) it was held that a defendant in a suit for personal injuries who had deliberately caused a motor vehicle to he registered in his name as owner would not he permitted to relieve himself of liability by proving that he was not in fact the owner of the automobile involved in the collision. That decision went upon the ground that it would be against public policy to permit one thus to assert his illegal and fraudulent act, which was directly in violation of the statute, in order to avoid the owner’s liability imposed by section 59. In principle we see no distinction between the false registration of a motor vehicle in the name of one who is not the owner and the illegal use of dealer’s plates with the approval and acquiescence of the dealer himself. Indeed, the care with which the statute limits the right to use such plates indicates that this case falls clearly within the principle of Shuba v. Greendonner (supra). It was said in that case (p. 193): ee The Legislature has been very specific in making rules for the purpose of facilitating identification of an owner by the police and the public, fastening responsibility for injuries and requiring evidence of ability to respond in damages to injured persons. The Vehicle and Traffic Law embodies most of these provisions. Under section 11, the owner must make application for registration. He must submit such evidence of ownership as the Commissioner requires. The certificate of registration must be carried in the car and when requested it must he shown to a police officer. The person must furnish any information necessary to identify the vehicle or its owner. The negligence of an operator other than the owner will in certain circumstances be attributable to the owner. (§ 59.) Strict regulations are enacted for the sale of an automobile and the registration thereof by the vendee and for the issuance and limited use of dealer’s plates. (§§ 61, 63.) Section 71 regulates the revocation of certificates of registration by a court in enumerated circumstances, such as certain violations of law, mental or physical disability, persistent violations of the law, gross negligence, etc. Article 6-A provides that certain classes of drivers must submit evidence of financial responsibility.”'

The limited rise of dealer’s plates authorized by section 63 is surrounded by safeguards which were ignored in this case. One of these safeguards is that a proper application for registration and number plates for a vehicle sold by the dealer shall be mailed or presented to the Commissioner or his agent, accompanied with the payment of the required fee, within twenty-four hours after the purchaser has possession of the car, and under rules .promulgated by the Commissioner the dealer himself is required to withhold permission to use his plates unless he has received from the purchaser an application for registration of the vehicle with the proper registration fee. In this case no application or accompanying fee was received by the dealer or by the Commissioner or his agent. The reason for loaning the plates was that Peltier, the purchaser, was financially unable to pay the fee and desired to postpone payment thereof until July 1st, when he would have to pay a fee for only half a year.

An express provision of the statute requires that a dealer who sells a motor vehicle shall not deliver or permit to be taken by the vendee any of his plates without first mailing to the Commissioner a verified statement on a blank to be furnished by him, in such form as he shall determine. The dealer in this case mailed no such statement to the Commissioner’until twelve days after the sale and even then failed to state that any plates had been loaned. The statute also requires that the dealer shall immediately notify the Commissioner if the number plates are not returned within the five days permitted for their use. There was no compliance with this provision of the statute.

The basis of decision in this case, as in Shuba v. Greendonner (supra) is that one who has deliberately violated the laws which require accurate identification of the owners of motor vehicles operating on the highways through the use of number plates and a system of registration may not avoid liability for the negligent operation of vehicles registered in their names or identified by their license plates by denying the truth of their false representations of ownership deliberately -made either by false registration or by illegal use of their plates. Where the dealer complies with the simple and explicit requirements of the statute authorizing the use of his plates by others, or where the plates are used by others without his permission, express or implied, this principle has no application. (Rathfelder v. Flag, 257 App. Div. 71, affd. 282 N. Y. 563; Wyka v. L. A. D. Motors Corp., 264. App. Div. 890, leave to appeal denied, 289 N. Y. 856; Le Roy v. Tremper, 267 App. Div. 387, leave to appeal denied, 292 N. Y. 646, decided herewith.) If, however, the dealer permits the use of his plates in deliberate violation of the statute, then the situation is precisely equivalent to the false registration involved in Simba v. Greendonner (supra) and he may not deny his ownership which he has falsely evidenced by permitting the unlawful use of his plates by another. Any other rule would be against public policy, would encourage fraudulent and illegal deceptions on those engaged in enforcing the traffic laws of the State and deprive the public of the protection which these laws are intended to extend to those using the public highways.

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

LehmaN, Ch. J., LoughbaN, Lewis, CoNway and DesmoND, JJ., concur.

Judgment accordingly.