author: Hubbs, J. Finch, J.

text:
    The People of the State of New York, Respondent, v. John A. Dilliard, Appellant.

      (Argued May 25, 1936;
    decided July 8, 1936.)

      I. Gainsburg and Joseph P. Segal for appellant.

      William Copeland Dodge, District Attorney {Lawrence S. Lesser, John P. Walsh and Robert S. Rubin of counsel), for respondent.
   Hubbs, J.

Appellant has been convicted of a misdemeanor for violating the following statutory provision, section 47 of the Insurance Law (Cons. Laws, ch. 28), which reads:

Deceptive Statements Prohibited. No insurance corporation doing business in this state, or agent thereof, shall state or represent by advertisement in any newspaper, periodical or magazine, or by any sign, circular, card, policy of insurance or certificate of renewal thereof or otherwise, that any funds or assets are in possession of any such corporation not actually possessed by it and available for the payment of losses and claims, and held for the protection of its policyholders or creditors.” and section 665, subdivision 3, of the Penal Law:
Misconduct of directors, officers, agents and employees of Corporations.
“A director, officer, agent or employee of any corporation or joint-stock association who: * * *
“ 3. Knowingly (a), concurs in making or publishing any written report, exhibit or statement of its affairs or pecuniary condition containing any material statement which is false, or (b), omits or concurs in omitting any statement required by law to be contained therein; * * *
“ Is guilty of a misdemeanor.”

The purpose of section 47 is clear. It was enacted for the protection of the public against being misled or deceived by false statements as to the financial condition of the corporations required to make annual reports to the Superintendent of Insurance. Appellant was the president of State Title and Mortgage Company, an insurance corporation required by law to make annual reports to the Superintendent of Insurance. Section 45 of the Insurance Law requires the Superintendent to cause to be prepared and furnished ” to companies required to report to him printed forms of the reports and statements required ” by him. About the first of the year 1933, the title company submitted to the Superintendent of Insurance a statement which purported to show the financial condition of the company as of December 31, 1932. The Insurance Department suggested changes and alterations. Those changes were made by the company and on January sixteenth, the examiner in charge advised that the statement be accepted and filed. Two days later it was officially acknowledged and placed on file. It was in the form required by section 48 of the Insurance Law and showed the company’s net surplus of assets over liabilities. The statement filed was in form and wording as follows:

State Title and Mortgage Company
Statement of Condition December 31, 1932
Our Clients Hold 7,684 Mortgages, Guaranteed or in Certificates, Amounting to $69,899,491.60.
Resources:
Cash on Hand and in Banks. $558,376 16
Accrued Interest. 1,616,520 74
Loans Receivable. 2,537,256 41
(Secured by collateral)
Bonds and First Mortgages. 4,091,698 54
Stock Investments. 1,274,000 00
Stock of State Banking Company. 2,562,303 08
(Wholly owned)
Company’s Office Buildings. 1,262,753 27
(Unencumbered)
Subsidiary Real Estate Company. 652,440 11
(Investment and advances)
Accounts Receivable. 2,426 76
$14,557,775 07
Liabilities:
Accounts Payable. $5,298 03
Agency Accounts. 117,513 63
Interest Received in Advance. 59,739 08
Interest Accrued. 1,062,560 59
Bills Payable (Secured). 4,143,890 93
Mortgages Sold, Undelivered. 55,650 00
Reserves for Taxes, etc. 445,917 09
Reserve for Contingencies. 2,500,000 00
Capital . $1,000,000 00
Surplus. 5,000,000 00
Undivided Profits . 167,205 72
6,167,205 72
Total $14,557,775 07

A copy of the statement was furnished to Dun and Bradstreet, also to Moody’s Investors Service.

The statement was filed in the form usually used by companies and approved by the Insurance Department. It correctly stated the assets and liabilities of the company and gave the correct net balance. Nevertheless, appellant has been convicted for issuing that statement. How has that happened? While the State admits that the statement correctly reflects the book entries of the company and that such entries are accurate and in a form approved by the Superintendent of Insurance, still it urges that the form of the statement was misleading, false and tended to deceive. That contention is based upon two grounds: First, it is claimed that the item of Cash on Hand and in Banks, $558,376.16,” was misleading, as $400,000 included therein was not cash on hand or in bank as it consisted of a loan from the Brooklyn Trust Company to the title company made on December 29 or 30, 1932, evidenced by a certificate of deposit and the money was not available for use by the title company on December 31, 1932. Second, that the items Bonds and First Mortgages, $4,091,698.54,” was misleading, as a large part thereof had been pledged to the Reconstruction Finance Corporation, hereafter referred to as the R. F. C., also that the item Stock of State Banking Company (wholly owned), $2,562,303.08,” was misleading as that stock had also been pledged to the R. F. C. to secure the payment of loans and it is asserted that as the statement did not disclose such facts it was misleading and in effect false, and gave the impression that such securities were in fact in possession of the title company available for the payment of claims against it when in fact they were not in the possession of the title company and were not available for the payment of claims against it. The law does not require that a balance sheet shall give such details.

The testimony of the State’s accountants indicates that at the time in question there was no uniform practice requiring the giving of such details. The statement was prepared by tbe assistant to tbe comptroller of the title company in the usual way. Appellant did. not participate in any way in its preparation. He did, however, verify the statement. The law required that the statement should show all of the assets of the title company and all of its liabilities. It does exactly that. It also shows the correct credit balance. True it is that it did not state that most of the credit items, excepting “ Cash on Hand and in Banks ” had been pledged to the R. F. C. to secure loans but the exact amount of such loans appeared on the debit side of the statement under the item Bills Payable (Seemed).” As the law required all assets of the title company to be stated on the credit side of the statement, it was perfectly apparent from the statement that the items “ Bills Payable (Seemed) ” could only mean that the bills payable were seemed by some of the assets listed on the credit side of the statement. In fact, there is testimony given by a witness called by the State, an accountant, that the word “ Secured ” placed after the item “ Bills Payable ” indicated that the bills payable 'were secured by the assets of the company at least to the full amount of tbe liability. It was perfectly lawful for the title company to borrow money from the R. F. C. and to seeme the loans with collateral. We are unable to understand how in the circumstances it can be held that appellant willfully issued a false statement in so far as the R. F. C. loans are concerned.

As to the item Cash on Hand and in Banks,” appearing on the credit side of the balance sheet, a more detailed statement is required. Just prior to the close of the year 1932 the appellant had a conversation with the president of the Brooklyn Trust Company in which he stated in substance that the title company desired a loan of $400,000. The president of the trust company agreed to make the loan and instructed another officer of the trust company “ to put the transaction through.” The loan was made upon a demand note of the title company and a credit of $400,000 entered upon the books of the bank in favor of the title company which delivered to the trust company 12,740 shares of 778 Park Avenue Construction Corporation stock as collateral security for the loan. The day the loan was made the trust company issued an advice of deposit, addressed to the title company as follows: “We have this day credited your account as follows: Demand loan $400,000.” The title company made a proper entry upon its records showing the deposit of $400,000 to its credit by the trust company. The trust company on the same day on its records made an entry showing a demand loan of $400,000 to the title company. The transaction and entry on the books of the title company was the basis for including the $400,000 as part of the item of $558,376.16, appearing on the balance sheet as Cash on Hand and in Banks.” If that were all there was to the transaction, it could not be seriously urged that there was anything wrong about the transaction or the including of that amount, $400,000, in the item of “ Cash on Hand and in Banks.”

It appears, however, that certain employees of the trust company issued a thirty-one-day certificate of deposit for $400,000 in the name of the title company and retained the certificate in the trust company as security for the $400,000 loan. The certificate provided for thirty-one days’ notice and had written on it the words “ in safekeeping.” •

From such fact, it is contended by the State that the $400,000 loan was a fictitious transaction and a sham; that the trust company did not have that $400,000 on hand in the bank; that it was not in its possession available for the business of the title company but was a mere fictitious book entry made for the purpose of enabling the title company to file a statement showing $400,000 more on hand or in bank than it actually possessed. It is also urged that the fact that the title company paid the loan and took up its note three days later tends to establish the fact that the loan was fictitious, made for the purpose of deceiving the Superintendent of Insurance and the public.

If in fact the appellant verified the statement knowing that the $400,000 was not available for use by the trust company but that it simply had a ficititious cash entry of $400,000 under an agreement that it could not be drawn upon for use, then the statement that the title company had $558,376.16 “ Cash on Hand and in Banks ” was a false statement and in violation of section 47 of the Insurance Law, as such fund would not be actually possessed by it and available for the payment of losses and claims. It would also be in violation of section 665, subdivision 3, of the Penal Law, as it would constitute a material statement which is false.”

The question for determination narrows down to this, has the State proved beyond a reasonable doubt that on December 31, 1932, the $400,000 was not cash in bank, available for the use of the trust company for the payment of losses and claims and held for the protection of its policyholders or creditors and was the statement a material statement which was false?

In order to accept the State’s contention, it is necessary to believe that appellant was engaged in a fraudulent transaction and that the officials of the trust company were parties to such fraudulent scheme. An apparently perfectly valid business transaction must because of certain collateral suspicious circumstances be branded as a fraud and a crime. And that in view of the fact that the burden was on the State to establish the fact beyond a reasonable doubt. We believe that the State has failed to sustain that burden. In appellant’s conversation with the president of the trust company, it does not appear that there was anything said about a certificate of deposit. The evidence discloses a request by appellant to the president of the trust company for a loan of $400,000 andjhis agreement to make the loan. Standing alone, that would exclude the idea that the loan was to be evidenced by a certificate of deposit bearing a thirty-one-day notice. The presumption would be that the amount of the loan would at once be available to the borrower. Borrowers do not ordinarily borrow money and secure the loan with collateral for the purpose of receiving a certificate of deposit with a thirty-one-day notice included and agree to pay a higher rate of interest than such certificate of deposit would bear. Not only did the conversation with the president of the trust company indicate a cash loan immediately available for use, but the records of the trust company and the title company including the loan book, the promissory note of the title company, the deposit entries and the loan card evidence a demand loan. That was the kind of loan negotiated by the appellant with the president of the trust company and that was the kind of a loan evidenced by the record entries and notice from the trust company to the title company.

Subordinate employees of the trust company prepared a certificate of deposit which did not reflect the agreement but was contrary to it. The appellant did not have knowledge of that fact. He had a right to rely on the agreement as made and as evidenced by the statement sent by the trust company to the title company. It cannot be reasonably contended that by relying on the facts disclosed to him and in verifying the statement prepared by the assistant to the comptroller of the title company he knowingly made a false statement or a statement intended to deceive the public. It is urged by the State that the fact that the loan was repaid on January 3, 1933, is evidence from which the jury might reasonably have inferred that the loan was not needed but was negotiated for some improper purpose. We believe that fact is insufficient to overcome the presumption of innocence and establish the defendant’s guilt beyond a reasonable doubt.

It appears that the title company was obligated to pay over $400,000 due its creditors for interest on January first; that its bank account was overdrawn and that it was in need of funds to pay the interest to become due on January first, and which it actually paid to the amount of $431,779.65. It was in the habit of borrowing money just before each interest due date and repaying it thereafter as it collected interest due it. There was nothing unusual or illegal about that.

It is also suggested that reason existed for the prompt payment of the loan because of the discovery of the fact that the certificate of deposit had been issued contrary to the agreement. Whatever the reason for paying the loan so promptly may be, the fact that it was paid does not establish the guilt of the defendant beyond a reasonable doubt.

As we have reached the conclusion upon the merits that the judgment of conviction must be reversed, it is unnecessary to discuss the various exceptions called to our attention by the appellant.

The judgment should be reversed and the indictment dismissed.

Finch, J.

(dissenting in part). John A. Dilliard, the appellant, president of the State Title and Mortgage Company, was convicted of violating section 47 of the Insurance Law and section 665, subdivision 3, of the Penal Law. In substance these sections make it a misdemeanor knowingly to make or publish a false statement as to the financial condition of a corporation (§ 665) or to represent that certain assets are in the possession of the corporation which are not actually possessed by it. As part of the indictment the appellant was charged with issuing a statement of condition, dated December 31, 1932, which showed the State Title and Mortgage Company to possess $400,000 in cash more than it actually had. The facts disclosed at the trial as to this item are as follows.

On December 30, 1932, the day before the date of the statement of condition, the State Title and Mortgage Company had $145,105 cash on hand and in banks, of which a considerable portion was held by it as agent and only $9,908.68 of which, was general funds. On that day the appellant telephoned the president of a trust company and arranged for a loan of $400,000. The exact terms of the loan are not directly available. The president could not, at the time of trial, recollect the conversation except that he had given instructions to one Barnewall about the loan. The appellant himself, although he had previously characterized the transaction as merely window dressing ” refused to take the stand and he was joined in this refusal by Mr. SldfSngton, the vice-president of the State Title and Mortgage Company, who signed the note. On the day of the loan a time certificate of deposit was issued providing that thirty-one days of notice had to be .given prior to the withdrawal of the money. This certificate of deposit was never delivered to the State Title Company but was retained by the trust company and had marked on it the words “ in safe keeping only.” The signature of Barnewall, to whom the president had given instructions, also appears on the face of the certificate of deposit. On January 3, 1933, the first business day after December 31, 1932, the loan of $400,000 was immediately repaid. Thereafter between January 10, 1933, and January 17, 1933, statements of condition of the State Title and Mortgage Company as of December SI, ]9S2, were made out and sent to the State Insurance Department. Annexed to the final statement of condition of January 16, 1933, is an affidavit of the appellant wherein he swears that he supervised the preparation of the statement. Over 3,000 copies of the statement were subsequently made and copies were sent to Moody’s Investors Service and to Dun and Bradstreet.

The contention of the State is that the alleged loan was a sham and colorable transaction, that it was made for the purpose of misleading the public and furnishing an entirely false picture of the financial condition of the State Title and Mortgage Company, and that the appellant Dilliard knowingly issued the false statement.

Two questions are presented: First, are the statutes, under which the appellant has been convicted, intended to . apply to such transactions as the one here alleged, where the statement of condition seemingly reflects a transaction that took place? Secondly, was the evidence submitted by the State such that a jury would not be-justified in finding the defendant guilty beyond a reasonable doubt?

As to the first question, the clear purpose of the statute is to compel a statement deliberately issued to the public to record the facts truthfully. It is not to be defeated by the juggling of figures or by bookkeeping legerdemain. If a transaction is created to inflate values falsely and so to mislead and defraud the public, the ostensible correctness ” of a bookkeeping entry, which records the transaction, does not serve to redeem the falsity of a statement of condition knowingly issued thereon. The pretense of truthful recordation cannot prevail over the basic falsity of the statement. So in the case at bar, if $400,000 were borrowed with the intent or under such, restrictions and an agreement that the money was not to be available or used, and the entry was for the purpose only of apparently inflating the cash resources of the corporation, then the transaction was a violation of both statutes under consideration.

We turn, therefore, to the second question —- has the State presented sufficient evidence to warrant the finding of the jury that the transaction was colorable and that Dilliard was implicated therein? The exact terms of the loan are not available from the testimony of either party. The president could not recollect; the appellant refused to testify save his characterization of the transaction before a Moreland Commissioner as for the purpose of window-dressing.” We must depend, therefore, on the other facts in the case plus appellant’s own admission. It is undeniable that the money was borrowed the day before the date of the statement of condition and repaid the day after. Not only was it untouched during that period, but it was not available for use if the State Title and Mortgage Company had desired to use it. The certificate of deposit provided that the money -could not be withdrawn without thirty days’ notice; it was never delivered to the corporation but was retained by the trust company; and indeed had marked on it for safe keeping.” From all this the jury could infer what had transpired, for “ there is no surer way to find out what the parties meant, than to see what they have done.” (Insurance Co. v. Dutcher, 95 U. S. 269, 273.) There are claims that the blame should be placed on the subordinate employees who, it is suggested, may have acted without authority, although there is nothing in the record to substantiate this. It was well within the province of the jury to determine whether a subordinate employee of a bank with no motive and without authority would proceed to tamper with a loan of nearly half a million dollars. In addition we have the added fact that the signature of the employee to whom the president gave instructions concerning the loan appears on the restricted certificate. Why was he not called to substantiate this defense if it in fact existed? It is asserted that the transaction was valid since the statement of condition was approved by the State Insurance Department. The Insurance Department, however, need not determine the validity of the report but need only make certain that such report is filed. Certainly the Legislature has not given to the Superintendent of Insurance the authority to grant a dispensation from the punishment for a breach of the statute.

All these facts present ample proof to bring the case well within the province of the jury and justify their inference of the nature of the transaction. But as if to fix the guilt beyond peradventure we have the testimony of the admission of appellant himself in this connection, as already pointed out. When interrogated before a Moreland Commissioner, he himself said that the transaction was for purposes of “ window-dressing,” that is for the purpose of representing the assets of the corporation to be other than they were.

Upon this record the guilt of appellant is clear. Practices such as here presented should not readily be condoned. The complexities of the operation must not be allowed to obscure its illegality. Large aggregations of capital have their great community benefits but great benefits carry equally great obligations, not the least of which is that they must be headed by executives who know and practice character and honesty. Otherwise the consequences often are disastrous and far reaching. I am unable to agree that it can be said that there was no evidence to justify the jury in finding the defendant guilty beyond a reasonable- doubt.

With regard to the items dealing with the fisting of the pledged securities I concur with the majority, but in relation to the fisting of the $400,000 as cash on hand or in banks, the judgment of conviction should be affirmed.

Crane, Ch. J., Lehman and Loughran, JJ., concur with Hubbs, J.; Finch, J., dissents in opinion, in which O’Brien and Crouch, JJ., concur.

Judgment reversed, etc.


source: Caselaw Access Project

author: Finch, J.

license: Public Domain

text:
    D. A. Schulte, Inc., Appellant, v. Loft, Inc., Respondent, Impleaded with Others.

      (Argued May 27, 1936;
    decided July 8, 1936.)

      Samuel Seabury and Jerome Eisner for appellant.

      David L. Podell, Herman Shulman, Benjamin Algase and Herbert Barnet for respondent.
   Finch, J.

This is a summary proceeding to recover possession of real property.

The Hart Estates owned certain property located at Forty-second street and Sixth avenue in New York city. They leased the property to David A. Schulte, Inc., for a term ending April 30, 1944. In 1924 D. A. Schulte, Inc., leased the same premises to the Forty-second Street and Sixth Avenue Corporation for a term ending April 29, 1944. In April, 1925, the Forty-second Street Corporation leased a portion of the premises to Loft, Inc., for a term ending April 30, 1944. In 1929 Loft subleased the premises to Blumcoha Restaurant, Inc.

Schulte dispossessed the Forty-second Street Corporation in 1931 under a summary proceeding to which Loft was not a party. Thereupon Schulte served notice on Loft advising it of the dispossess proceedings and asking it to pay all rents due and owing and all future rents to Schulte. Loft continued in possession through its sublessee and thereafter paid directly to Schulte the annual rent of $43,524 fixed under the Loft-Forty-second Street Corporation lease.

On December 1, 1932, following a request by Loft for a reduction in rental, Loft and Schulte entered into an agreement under seal whereby (1) Schulte reduced Loft’s rent for a period of one year; (2) the Loft-Forty-second Street Corporation lease was amended; ” (3) and in all other respects the Loft-Forty-second Street Corporation lease was “ ratified and confirmed.”

Loft paid Schulte the reduced rental for the year and then reverted to the rental fixed in the Loft-Forty-second Street Corporation lease, which it continued to pay until 1935, at which time it purported to assign its interest in the Loft-Forty-second Street Corporation lease to the 104 West Forty-second Street Restaurant Corporation. Upon Loft’s refusal to pay further rents, this summary proceeding was instituted by Schulte.

The Municipal Court granted a final order in favor of Schulte awarding it possession and a judgment in the sum of $3,625 against the defendant Loft. The Appellate Term reversed, one justice dissenting. The Appellate Division affirmed the Appellate Term.

The question raised is whether or not Loft became a tenant of Schulte for the balance of the term fixed in the Loft-Forty-second Street Corporation lease, that is, until 1944, by reason of the agreement entered into in 1932 when the rent was reduced for one year. Did the 1932 agreement alter the relationship between Schulte and Loft so that Loft became liable to pay the rent reserved in the Loft-Forty-second Street Corporation lease until May 1, 1944?

Prior to the agreement in 1932 the status -of Loft was that of an assignee pro tanto. (New Amsterdam Casualty Co. v. National Union Fire Ins. Co., 266 N. Y. 254; Gillette Bros., Inc., v. Aristocrat Restaurant, Inc., 239 N. Y. 87.) After the Forty-second Street Corporation had been dispossessed Loft attorned to the superior title of Schulte. This attornment created, however, nothing more than a tenancy at will or, at most, from year to year. (Matter of O’ Donnell, 240 N. Y. 99.) Loft was under an obligation to pay rent and to comply with all other covenants running with the land as long as it remained in possession, but it could leave at any time. (Walsh on the Law of Property [2d ed.], § 182.)

The parties continued in this relationship until 1932 when they entered into the agreement. Did the agreement change the relationship other than to reduce the rental for the period of a year? The respondent, Loft, maintains that it did not. Loft claims that the agreement was made to embody the provision for the reduction of rental, but that otherwise it was to maintain its status as assignee with the right to terminate its obligation to pay rent by merely moving out; that the terms of the agreement were intended only to insure that the covenants would continue to run with the land and to modify some of the covenants running with the land, and to provide that after the expiration of the year Loft would be obliged to renew payment of the original rental, if it continued in possession.

The agreement, upon examination, however, does not support this contention and clearly shows that the parties entered into a lease incorporating by reference the Loft-Forty-second Street Corporation lease under which lease the term was not to expire until 1944.

The first paragraph of the agreement contained the provision for a reduction of rent for a period of one year. The second paragraph provided that the third paragraph of the Loft-Forty-second Street Corporation lease was to be amended and contained a complete revision of that paragraph, making it a part of the agreement. The revised paragraph constantly refers to Lessor ” and Lessee.” This language can have no meaning unless it refers to Schulte and Loft. Certainly it did not refer to the Forty-second Street Corporation which had been dispossessed a year and a half earlier.

The paragraph also uses such phrases as the term hereby granted,” “ the term of this lease,” and this lease.” These terms can only refer to the new agreement and show that it was regarded as a lease. The paragraph also provides that Loft waives the right to redeem “ as provided by Sections 1437 to 1440 * * * of the Civil Practice Act * * *.” These sections of the Civil Practice Act apply only to the right to redeem where the unexpired term of the lease under which the property is held exceeds five years at the time the warrant is issued. If the agreement only covered one year of reduced rent, why this provision?

The following new language is also found in this paragraph: “ * * * it being agreed that this lease and the term herein granted shall terminate and come to an end on the date specified in such notice, with the same force and effect as if said day were the end of the term herein originally demised, * * *.”

This new language which was substituted for the language in the Loft-Forty-second Street' Corporation lease is entirely without meaning unless the parties intended to treat the agreement as creating a new lease between them.

The 1932 agreement also provides:

“ Third: The parties hereto agree that all of the other terms, covenants and conditions of the aforesaid lease last above mentioned, are hereby in each and every respect ratified and confirmed and are not to be deemed as impaired by any of the foregoing amendments.
“Fourth: This agreement shall be binding upon and enure to the benefit of the parties hereto, their respective successors and assigns.”

From all this it becomes obvious that the parties were adopting the provisions of the Loft-Forty-second Street Corporation lease as the provisions of a new lease between them incorporating the provisions by reference and adopting them except as specifically amended.

One of the provisions of the Loft-Forty-second Street Corporation lease incorporated by reference in this new lease, was a covenant against assignments without the written consent of the lessor. The lease provided: “ The covenants, provisions and agreements herein contained shall in every case apply to, be binding upon and enure to the benefit of the respective parties hereto and their respective successors and assigns with the same force and effect as if mentioned in each instance where a party hereto is named, but no assignment in violation of this lease shall vest in such assignee any right or title in or to the leasehold hereby created.” (Italics interpolated.)

These provisions against assignments, as noted, were incorporated in and became part of the lease between Schulte and Loft.

Loft now claims that the Municipal Court lacked jurisdiction to entertain the summary proceeding against it since it was not in possession, having assigned to 104 West Forty-second Street Corporation. Schulte never granted permission for such an assignment. Schulte never accepted rent from or recognized 104 West Forty-second Street Corporation as its tenant. Schulte, therefore, had a right to disaffirm the purported assignment to 104 West Forty-second Street Corporation, to continue to treat Loft as its tenant in possession and to institute a summary proceeding against it upon its failure to pay the rent in compliance with the lease.

The order appealed from should be reversed and the order of the Municipal Court affirmed, with costs in all courts.

Crane, Ch. J., Lehman, O’Brien, Hubbs and Lough-ran, JJ., concur; Crouch, J., dissents.

Ordered accordingly.


author: Crouch, J.

text:
    The People of the State of New York, Respondent, v. Dorothy Sherwood, Appellant.

      (Argued May 26, 1936;
    decided July 8, 1936.)

      Stanley B. Johnson and William L. Browning, Jr., for appellant.

      Henry Hirschberg, District Attorney, for respondent.
   Crouch, J.

The defendant stands convicted of murder in the first degree. On the date of the homicide she was twenty-seven years of age. The victim was her own infant son aged two years and three months. On August 20, 1935, under circumstances hereinafter to be stated, she put the child in his carriage, walked three and one-half miles from her lodging place to a secluded spot off the main highway, and, in a small pool of water eight inches deep, held his head under water until he was drowned.

The sole defense was that at the time of the crime she was laboring under such a defect of reason as not to know the nature and quality of the act or that the,act was wrong. It is now urged that the verdict was against the weight of the evidence, and that it was rendered under misapprehension of the applicable law because of erroneous instructions.

We cannot say that the verdict was against the weight of the evidence. The defense and the prosecution each swore two qualified psychiatrists who expressed contrary opinions as to the mental state of the defendant in answer to hypothetical questions which were not substantially different. Under such circumstances, argument based upon scattered gleanings from the cross-examination of the People’s experts, must fail in an appellate court to demonstrate that the weight of evidence on the issue of insanity was with the defense. The jury could accept or reject the opinion of any expert. (Dougherty v. Milliken, 163 N. Y. 527, 533.)

The serious question is whether the conclusion which was reached can or ought in justice to stand. Technical legal error there was in instructions to the jury, which may or may not have affected the result. Error also there was in an incident of the charge, which, whether it be called technical legal error or not, did almost beyond doubt affect the verdict. Under such circumstances we think the verdict should be set aside.

The claim of the defense was that the mother killed the child because she had become obsessed with a delusion that in death alone could there be safety and freedom from pain, suffering and misery for her son. The time has gone by when such a claim could seem fantastic, either to judge or juror. While we still — and rightly —1 accept the validity of such claims with the utmost caution, we nevertheless know now that they may be valid. The claim here rests upon evidence which, on the one hand, neither discloses nor even suggests any rational motive for the tragic act; and, on the other hand, does build up a personality which might well crack and crumble under the hard blows which fate, within a brief period, dealt it. Born of indifferent stock in a small western town, the defendant at nine years of age had lost her mother. For a time she was in an orphanage, and then for a period served her itinerant father and his successive wives as a household drudge. There followed a period of a few years when she lived at various places in the middle west with a succession of Salvation Army families, doing house* hold and other work, and getting some scattered and interrupted schooling. Following that insecure and sorry young girlhood, she commenced when about sixteen years old to earn her own independent way. Shortly she went on the stage as a chorus girl with traveling companies. When she' was nineteen years old she met and married her husband, a stage electrician, whose job, like her own, kept him moving from place to place. Within a year a baby girl was born. The couple finally came to rest in New-burgh on the Hudson, where the man secured a job with a moving picture house. After a period of comparative peace and security, what small prosperity had come to them was ended by the illness of the husband. Early in 1933 the boy baby was born. The evidence of the doctor who attended the defenant and of the nurse at a pre-natal clinic, shows clearly that the child was not an unwanted one. On the contrary it was desired, welcomed, and after birth was lovingly and carefully attended to and looked after. The husband’s illness developed into tuberculosis. The home, the only one the defendant had ever known, was broken up. He went to a sanitarium, the little daughter was taken by the mother-in-law, and the defendant with the infant son went to a lodging house, the landlady of which looked after the child while the defendant, as her sole means of support, worked as a waitress in a restaurant. In April, 1935, her husband died. Several months later the defendant met a man who, after a time, offered to provide a home for her and her son, to marry her and to educate the boy. On a day fixed they were to leave Newburgh for a new home in the west. She gave up her job. She made ready to go. The day came but not the man. She waited until she realized she had been deceived. She tried to get work and failed. Without a job, without means, she and her little son were evicted by the landlady • — ■ though the latter denied that — and thereupon was committed the act for which her life is forfeit. A laconic statement made to the police the same day tells the story: “ My husband, Fred Sherwood, died about four months ago, and since that time I have found it very difficult to make a living for myself and my two children, Dorothy, aged seven, and James, aged two. This afternoon, August 20th, 1935, shortly before twelve o’clock noon I took my younger child, James Sherwood, in a stroller down to Caesar’s Lane at New Windsor, New York. There is a very shallow brook there and I let him wade in the brook until he seemed to get tired of it, and then I picked him up in my arms and held him under water for about half an hour. During this period of time his head was completely covered with water. I picked him up then, put a clean suit on him and held him in my arms for some time. * * * Later I walked up to the state road and was given a ride to the Cityof Newburgh. After I got into the City I walked into Police headquarters and told the lieutenant at the desk what I had done.”

During the ride back to town she carried the dead child in her arms. In that fashion she entered police headquarters. The lieutenant of police in charge testifies: “In a low monotone voice she came up alongside of my desk and said to me, ‘ Here he is.’ * * * I said, ‘ You killed him? ’ She said, £ Yes, I drowned him.’ I said, £ Where did you drown him? ’ She said, In Caesar’s Lane.’ I said, What did you do that for? ’ She said, I couldn’t take care of him any longer and I thought he would be better off dead.’ ”

At no time was there the slightest evidence of emotion, except for a moment when, taken back to the scene of the crime, she was ££ teary-eyed ” at the sight of the wet, discarded baby clothes; nor was there ever the least sign of regret or of doubt that she had acted for the best, as she regarded it. That the defendant knew what she was doing — the nature and quality of the act — although perhaps a matter of small doubt to the lay mind, was still an issue because both experts called as witnesses by the defendant denied that she had such knowledge. That she knew it was wrong was, when the case went to the jury, open to serious and substantial doubt. (People v. Schmidt, 216 N. Y. 324, 338, 340.) It was of the utmost importance, therefore, that the law as respects criminal responsibility under section 1120 of the Penal Law, should have been made clear to the jury.

In the main charge it was not made clear that a defect of reason which inhibited a knowledge either of the nature and quality of the act or that the act was wrong, excused a person from criminal liability. At various points the two matters were referred to in the conjunctive, with the word “ and ” instead of the word “or.” The error was called to the attention of the court at the close of the main charge, and the court said merely: “ If I made that error, I so charge.” Left in that way, the distinction might doubtfully be considered as having been made clear. But thereafter — and it was the court’s last word before the jury retired — the court upon request charged that a mere false belief would not be sufficient to excuse her, “ unless it was the result of some mental disease which prevented her from knowing the nature and quality of the act and that it was wrongful.” Here was a repetition of the same error, complicated with a reference to “ some mental disease,” i. e., some pathological condition, instead of a defect of reason,” as the statute reads. No disease, no pathological condition, existed or was claimed to exist. It may be doubted whether the jury had a clear conception of when a person is or is not criminally liable under section 1120.

Now we come to another and even more serious error. After the jury had deliberated on its verdict for five hours, it came into court and the following incident occurred: “The Court: Gentlemen, I understand you want an answer to the question, ' Does the law permit a recommendation of mercy? ’ The Foreman: That’s right. The Court: Of course, the law does permit a recommendation of mercy; does that answer your question? The Foreman: Yes.”

■ The jury retired. Six minutes later it returned. The record then reads as follows: “The Clerk: Gentlemen of the jury, have you agreed upon a verdict? The Foreman: We have. The Clerk: How do you find? The Foreman: Guilty of murder in the first degree and recommend mercy. The Clerk: You say you find the defendant guilty of murder in the first degree and you recommend mercy? ”

In the practical administration of justice in civil cases, courts necessarily assume that jurors live up to their oaths and that they are capable of and do perform extraordinary intellectual feats. (Cf. Akely v. Kinnicutt, 238 N. Y. 466, 475; Crandall v. Leach & Co., Inc., 222 App. Div. 292.) Justice, rough perhaps but approximate, is wrought by the assumption; When, however, the stake is the life of a person conceivably innocent, courts may make that assumption only with a caution thrice guarded. We do not know how matters stood after five hours in the jury room. Where upon the evidence there may well have been doubt, we may assume that doubt, in some degree at least, existed. The jurors had been told by the district attorney in his summation that a grace of mercy by commutation rested in the Governor. That information, if it was to be given at all, should have been given by the court with appropriate explanation. It is difficult to conceive of any case, however, where it would be either necessary or proper to instruct a jury on the point. Coming as it did, it amounted to nothing less than an invitation to possible doubting minds and uneasy consciences, to solve their doubts against the defendant, and to salve their consciences with the thought that if they were wrong, executive grace might cure the error. When, after long hours, the jury came into court, it may be that there was a desire to be given assurance by the court of what the district attorney had said. Or it may be that assurance was desired of a common popular impression that a jury may recommend mercy and thereby perhaps minimize and soften the penalty which the judge would otherwise impose. The impression is a mistaken one. Under the law of this State the penalty for murder in the first degree is death. No power or discretion is vested in any judge or court to vary it. Whatever the motive of the jury’s request may have been, the answer of the court removed all doubt and hesitation. The answer was wrong. The “ law ” expresses neither permission nor denial. Probably the law would regard an uninvited or voluntary recommendation as surplusage. We need not say. Here the jury was in effect invited to go beyond its province and was erroneously told that the law permitted it to do so. The error almost certainly was prejudicial to the defendant. That being so, we need spend little time in an examination of cases in other jurisdictions which have dealt with more or less similar situations. In general agreement with the conclusion here reached are State v. Kernan (154 Iowa, 672); State v. Kiefer (16 S. D. 180); Hackett v. People (8 Col. 390). (Cf., also, People v. Santini, 221 App. Div. 139; affd., 246 N. Y. 612; contra, State v. Gill, 14 S. C. 410.)

The judgment of conviction should be reversed and a new trial ordered.

Crane, Ch. J., Lehman, Hubbs and Loughran, JJ., concur; O’Brien and Finch, JJ., dissent.

Judgment of conviction reversed, etc.


author: Crane, Ch. J.

text:
    The People of the State of New York, Respondent, v. Sam Faden, Appellant. (Seven Cases.)

      (Argued May 27, 1936;
    decided July 8, 1936.)

      Rudolph Stand for appellant.

      William Copeland Dodge, District Attorney (Jacob J. Bosenblum, Thomas E. Dewey and Stanley H. Fuld of counsel), for respondent.
   Crane, Ch. J.

Eight informations were filed in the Court of Special Sessions by the District Attorney of New York county against this defendant. There are seven judgments of conviction against him, one of the informations having been dismissed. The first information contained two counts, the first count charging the defendant with violation of section 340 of the Banking Law (Cons. Laws, ch. 2) and the second count with violation of section 357. On both of these counts he was convicted. In the other six informations he was charged with violating section 357 of the Banking Law, which appeared as the second count in these informations, the first count, charging the violation of section 340, having been dismissed.

These sections pertain to making usurious loans of money in less than three hundred dollar amounts. Section 340 covers the doing of business without a license, and has no relation to specific loans. It reads as follows:

“ § 340. Doing business without license prohibited. No person, co-partnership, association, or corporation shall engage in the business of making loans of money, credit, goods, or things in action in the amount or of the value of three hundred dollars or less and charge, contract for, or receive a greater rate of interest, discount, or consideration therefor than the lender would be permitted by law to charge if he were not a licensee hereunder except as authorized by this article and without first obtaining a license from the superintendent of banks.”

Section 357 relates to the individual transaction of loaning money at usurious rates of interest and reads in part as follows:

§ 357. Bestrictions on loans of three hundred dollars or less by non-licensees, interest; other charges; when unenforceable. No person, co-partnership, association, or corporation, except as authorized by this article, shall directly or indirectly charge, contract for, or receive any interest, discount, or consideration greater than the lender would be permitted by law to charge if he were not a licensee hereunder upon the loan, üse, or forbearance of money, goods, or things in action, or upon the loan, use, or sale of credit of the amount or value of three hundred dollars or less.”

The violation of these sections is made a misdemeanor by section 358.

In the first information the defendant was alleged to have loaned money to one Herman Alexander. His name alone appears in the first and second count, and the evidence to show other transactions brought in the names of borrowers Fisher and Zaslow. These names were not mentioned in the other informations, which alleged separate and distinct transactions. The second information named Ocea J. Coyle, the third Harold D. Holmes, the fourth Herman Weiner, the fifth Alexander Stein, the sixth Joseph Fund and the seventh Hyman ■ Eisenberg. These informations were tried one after the other. At the end of each case or trial the defendant was convicted but not sentenced. Each trial seems to have been completed as a separate, distinct trial, but judgment was not passed upon the defendant until the-end of the last case, when he was sentenced as follows: On information No. 13336 he was sentenced to a term of one year; on information No. 13431. he was sentenced for a term of one year, not to run concurrently with the other sentence, but consecutively; on information No. 13645 he was sentenced to one year in the penitentiary, not to run concurrently, but consecutively; and on the other four cases he was sentenced to one year each, the sentences to run concurrently with the sentence imposed on information No. 13645. Thus, the defendant was sentenced to three years in the penitentiary.

The Special Sessions is a court of limited jurisdiction within the city of New York, dealing solely with misdemeanors. The maximum punishment for a misdemeanor is one year in the penitentiary and five hundred dollars fine.

The defendant, on his appeal to this court, insists that, having been convicted of doing business in violation of section 340 of the Banking Law, he cannot be convicted of violating section 357 for having loaned money at usurious rates injndividual or specific cases. There is some force in his argument, especially when we consider that by multiplying the informations for individual loans the Special Sessions might have it in its power to imprison a man in the penitentiary for as long a term as a court in felony cases could sentence to a State prison. In this case the court sentenced the defendant to three years. Section 2190 of the Penal Law reads as follows: “ Where a person is convicted of two or more offenses, before sentence has been pronounced upon him for either offense, the imprisonment, to which he is sentenced upon the second or other subsequent conviction, must commence at the termination of the first or other prior term or terms of imprisonment, to which he is sentenced.” (See People v. Ingber, 248 N. Y. 302.) The Special Sessions judges did not follow this section for then the imprisonment would have been seven years, if they had determined to give one year for each offense. Permitting sentences to run concurrently did not come into the law until April 9, 1936. (L. 1936, ch. 328.) Of course the defendant is not complaining that he was not imprisoned for a long enough term, and the Special Sessions had the power on any one of these informations to suspend sentence or make it a day in jail. The fact, however, that the judges fixed a year for each offense and made the term concurrent with the previous sentence indicates at least that they desired to limit the continuity of such prosecutions. The sentences were imposed by the Special Sessions for innumerable offenses of like nature, all of which at least when lumped together constitute but one misdemeanor under section 340 of the Banking Law — the doing of such loan business without a license.

While we can find no legal error upon which to reverse these cases, yet we share the feeling of the dissenting judges in the Appellate Division to the extent of calling attention to the condition of our law and the abuse which may result from this practice of multiplying the trials of offenses of like nature. As early as People ex rel. Tweed v. Liscomb (60 N. Y. 559) this court held that where an indictment contained two hundred and twenty separate and distinct counts, each charging a misdemeanor, and the defendant was found guilty upon two hundred and four of them, there could be but one sentence for one misdemeanor, of a year’s imprisonment and a fine. Allen, J., in the opinion said, regarding 2 Revised Statutes, 700, section 11, the forerunner of our present section 2190: This statute has respect to separate convictions upon distinct trials, and neither affirms or disaffirms the practice pursued in this case, and does not sustain it by implication or otherwise. The legislature had in their minds, evidently, convictions at different times, and cases in which judgment might be pronounced upon one conviction, before others were had; that is, convictions upon independent trials, on distinct indictments at the same terms of the court, or before sentence should be pronounced upon either. It is to such cases, and such only, that the statute has hitherto been deemed applicable ” (p. 575).

And Judge Rapallo, in his concurring opinion, said: “ * * * I am of opinion that, upon any indictment for misdemeanor, no matter how many counts it may contain, or whatever may be the form of the verdict, the power of the court to sentence is restricted, as in cases of felony, to the maximum punishment allowed by statute for the highest offense charged in the indictment; and that separate and cumulative punishments can only be secured by separate indictments and trials for each offense” (p. 603).

In this case which we now have here on appeal there have been separate informations filed for each offense and there have been separate trials and separate judgments of convictions, together with separate sentences. The Tweed case is, therefore, not an authority for the appellant’s position, although the reasoning and the views expressed regarding these cumulative sentences for like acts constituting separate misdemeanors have incited us to give a word of warning where the same result is accomplished by separate informations, separate trials and separate judgments one right after the other, before the same triers of fact, as in this case. The practice is not to be encouraged.

However, we cannot find that under the present law there is legal error calling for reversal. ■ Section 340 consists in doing business of making usurious loans of $300 or under, without a license. The offense was proved against this defendant. It might have been proved in many ways, but in this case it was proved by showing transactions with one Alexander and also Fisher or his partner Zaslow. The other informations, as detailed above, relate to other individuals and other times and circumstances. None of the evidence related to the transactions referred to in the first information. That all these instances taken together would constitute a violation of section 340 is no reason why they should not be charged as violations of section 357 and prosecuted separately as such. For instance, if there had been no information under section 340 of the Banking Law and there had existed only these six informations for violations of section 357, no one would object to any or all of them being tried at separate tirp.es. How many should be tried would rest in the good judgment of the court or the prosecuting attorney. Therefore, the filing of an information under section 340 — the doing of business — would not wipe out these other informations under section 357 or prevent the trial thereof. Especially would this be so when the instances under section 357 were not used as evidence to prove the violation of section 340.

The cases support this conclusion. (People v. Dewey, 11 N. Y. Supp. 602; affd., 128 N. Y. 606.) Where the offenses are distinct crimes, though part of one transaction, a conviction or acquittal of one is not a bar to a prosecution on the other. (Commonwealth v. Rody, 12 Pick. 496; Burns & Cary v. People, 1 Park. Crim. Rep. 182; Burton v. United States, 202 U. S. 344.) In State v. Maher (35 Me. 225) the Supreme Court of that State said: “ The indictment and conviction of the defendant as a common seller [of liquor], embracing the time in which this offence is charged, are no objection to this prosecution, for they are different offences. The violation of the law in a single case is an offence; where there is evidence of several violations, they show another and more aggravated one of being a common seller, which implies a general and continued breach of the law.” To the same effect, see Hill v. State (79 Tex. Cr. Rep. 555). In Commonwealth v. Hogan (97 Mass. 122) the court said: “ The offence of maintaining a common nuisance by keeping a tenement used for the illegal sale of intoxicating liquor, is a wholly distinct offence from that of the sale of such liquors; and the conviction of one is no bar to a conviction of the other, although evidence of the same sales of liquor may be relied on to prove each. The seller of liquor is punishable. The keeper of the tenement used for the illegal sale is punishable. If the seller and the keeper is the same person, then that person commits both offences and incurs both penalties.” (Parshall v. State (62 Tex. Cr. Rep. 177) involved the specific act of gambling, which is a crime, and the crime of engaging in the occupation of a gambler.

We are of the opinion, for the reasons above stated, that a violation of either section 340 or of section 357 of the Banking Law constitutes a distinct crime, and that a conviction under section 340 does not bar prosecutions under the other informations. We need not take up the second count in the first information, which charged the violation of both sections 340 and 357 in separate counts, by doing business with, and making usurious loans to, the same person, because the conviction on the first count would be sufficient to sustain the judgment even if the second count were bad. (People v. Cummins, 209 N. Y. 283, 296; People v. Davis, 56 N. Y. 95, 100.)

In each action the judgment should be affirmed.

Lehman, Hubbs, Crouch and Loughran, JJ., concur; O’Brien and Finch, JJ., concur in result.

Judgments affirmed.


author: O’Brien, J. Lehman, J.

text:
    Marguerite Rohlfs et al., Respondents, v. Louis Weil, Defendant, and Strauss & Co., Inc., et al., Appellants.

      (Argued June 1, 1936;
    decided July 8, 1936.)

      John V. Downey, James B. M. McNally and Francis J. MacIntyre for Strauss & Co., Inc., appellant.

      Bertrand L. Pettigrew and William Felstiner for Gotham Silk Hosiery Co., Inc., appellant.

      Edward Ward McMahon and John F. Kiernan for respondents.
   O’Brien, J.

While plaintiff Marguerite Rohlfs was descending a stairway which connects the surface of the street with the subway railroad station at Broadway and Thirty-fourth street in New York, one end of a scaffold which was insecurely suspended from the adjoining building above the highway gave way and a painter at work on the scaffold fell and his body struck and seriously injured plaintiff. No barricades or danger signals were posted on the sidewalk or elsewhere to warn pedestrians of the presence of this scaffold suspended over them.

The entire building was leased from the owner by appellant Gotham Silk Hosiery Co., Inc. Five large signboards were affixed to the sides and on the roof. Two of them were leased from the Gotham Company to appellant Strauss & Co. which was engaged in the sign advertising business. The painter, who fell when the scaffold collapsed and whose body injured plaintiff, was employed by defendant Weil who had a contract with Strauss & Co. for painting advertisements on some of these signboards. At Trial Term the complaint was dismissed as against these two appellants but the case was sent to the jury as to defendant Weil. It found for plaintiff as against Weil and he has not appealed. The judgment in favor of appellants Strauss & Co. and Gotham Company has been reversed on the law and a new trial granted. These two appellants have stipulated for judgment absolute in the event of affirmance.

•The questions to be decided are whether the erection of the scaffold above the sidewalk without the presence of any warning may be held to be a nuisance in fact and in such an event whether either or both these appellants are liable as parties who suffered its creation.

Without going so far as to decide that this scaffold constituted a nuisance as matter of law, we hold that, in view of the conditions at this locality, at least an issue was presented to the jury whether it constituted a nuisance in fact. On the trial of this action as against defendant Weil the court correctly charged that the consequences were apparent if any portion of this scaffold should fall. The evidence is that the rope supporting the scaffold was not properly hitched and that “ a considerable number of the men don’t know how to make the proper hitch, sheer luck keeps them up.” Courts take judicial notice of the fact within common knowledge that work performed on scaffoldings on the outside of buildings abutting on highways is attended with danger to those using the sidewalk and that reasonable measures, such as barriers or warning notices, to prevent such danger must be employed. (Doll & Sons, Inc., v. Ribetti, 203 Fed. Rep. 593, 598, 599.) The same doctrine is strongly intimated in Hexamer v. Webb (101 N. Y. 377, 385, 386).

Assuming that Weil was an independent contractor rather than an employee of Strauss & Co., this appellant cannot escape liability. It set in operation a process fraught with potential danger as an obstruction to a highway. Even though it intrusted the work to an independent contractor, it committed a breach of duty to the public to keep the highway in a safe condition for travel while the work was in progress and this duty cannot be delegated. (Deming v. Terminal Ry., 169 N. Y. 1; Mullins v. Siegel-Cooper Co., 183 N. Y. 129; Boylhart v. DiMarco & Reimann, Inc., 270 N. Y. 217, 221.) Strauss & Co. is, therefore, liable.

Appellant Gotham Silk Hosiery Company, Inc., as lessee of the entire building, is in the position of an owner in possession. At least two of the signs on the roof, as well as two on the ground floor, bore advertisements of its merchandise. It had a contract with Strauss & Co. for painting three of the upper signs as advertisements for itself. Although the operation at the time of the collapse of the scaffold related to an advertisement for another merchant, the work of painting had been in progress for a week. The ropes by which the scaffold was suspended were secured to the roof of the building. The photographs in evidence show that it is scarcely possible that they could have been so fastened except by this appellant’s permission to entry into the building by the men who attached the hooks to the cornice or parapet. A jury could reasonably infer that this dangerous obstruction to street travel was erected with the consent of this appellant. There is evidence that this appellant did sublease a portion of the premises on the ground floor to one or two other tenants but there is no evidence that it alienated the entire property. Indeed, in the absence of some evidence to the contrary, an inference is permissible and nearly obligatory that the Gotham Company remained in possession and control of this building. Unless an owner has alienated the entire property, the duty is imposed upon him to maintain it in such a condition that it shall not become dangerous to the traveling public. (Appel v. Muller, 262 N. Y. 278, 280.) The same burden rests upon the lessee of the entire premises. This obligation is not limited to the actual structure of the building and its usual appurtenances but applies to temporary attachments and projections over a highway which are dangerous to travelers. The natural tendency of the presence of a scaffold above a street without barricades or warning signals is to create danger and to inflict injury and may be held to be a nuisance in fact. (Doll & Sons, Inc., v. Ribetti, supra; Melker v. City of New York, 190 N. Y. 481.)

The order should be affirmed and judgment absolute ordered against both appellants on the stipulation, with costs in all courts.

Lehman, J.

(dissenting in part). The cause of the plaintiff’s injury was the negligent use of a scaffold in painting a signboard upon a building controlled by the defendant Gotham Silk Hosiery Co., Inc. That company had leased the signboard to Strauss & Co., Inc. Strauss & Co. in turn contracted with the defendant Weil for the painting of the sign. His employee was negligent in the fastening of the scaffold. For such negligence neither of the other defendants is liable. They may be held only for some breach of duty of their own.

To paint the sign, a scaffold, suspended over the street, was necessary. The temporary suspension of a scaffold over a street to permit a reasonable use of the premises abutting on the street is not unlawful. Nevertheless such use becomes unlawful and a nuisance if it is conducted in a manner which causes unreasonable danger to those using the street. The evidence in this case presented an issue whether in view of all the circumstances the scaffold did constitute a nuisance. Even so, the question remains whether either or both of the defendants may be held responsible for its creation.

The scaffold was not an obstruction of the street. It could only become dangerous by being improperly constructed or by some wrongful and willful act.” (Hexamer v. Webb, 101 N. Y. 377, 386.) It has been said that there is some risk incident to the projection of any object over a highway, but the duty of the owner of abutting property does not require him to provide against all possible injury, and it is only such injury as may be reasonably anticipated that he is bound to take precautions to prevent.” (Weilbacher v. Putts Co., 123 Md. 249.) Accordingly it was held in that case that, under circumstances strikingly similar to those presented here, an abutting owner was not liable for injuries caused by defective fastening of a scaffold used by an employee of an independent contractor. (Cf. Davis v. Whiting & Son Co., 201 Mass. 91.)

In this jurisdiction we have held those who undertake work in a public highway to a strict duty of care to guard against risk inherent in the work. Difficulty at times arises in determining whether injury arises from a hazard' which is inherent in the work, or from collateral negligence in a detail of the work. The distinction has recently been pointed out in Boylhardt v. DiMarco & Reimann, Inc. (270 N. Y. 217, 220), and I agree with the opinion of Judge O’Brien in so far as it holds that the trier of the fact might find that the plaintiff’s injury here arose from a danger which was “ inherent in the work contracted to be done and might reasonably be expected.” Strauss & Co. initiated the work and may be held liable for its consequences.

The situation is different in regard to Gotham Hosiery Co., Inc. Though it had not parted with control of the whole building, it had parted with control of the signboard. It still remained under a duty to exercise care in the maintenance of the building in a safe condition but in this case the building was safe and the danger arose from the temporary use of the space above the street by the lessee of the signboard. It is not under any duty to supervise such use. It is not under any duty to guard against danger connected with such use. (Zolezzi v. Bruce-Brown, 243 N. Y. 490.)

It is true that when Gotham Hosiery Co., Inc., leased the signboard, it may have been charged with knowledge that the lessee would at times suspend a scaffold over the street which might become a nuisance if reasonable precautions were not used. None the less the defendant did not thereby become a party to the creation of the nuisance. It leased a signboard which was not dangerous and could not become dangerous unless used without reasonable precautions. It did not control that use, and I cannot see upon what theory it could be charged with a duty to take precautions so long as it did not control the use. (Cf. Kirby v. Newman, 239 N. Y. 470; Leonard v. City of Hornellsville, 41 App. Div. 106; appeal dismissed, 166 N. Y. 590; Schroeck v. Reiss, 46 App. Div. 502; Opper v. Hellinger, 116 App. Div. 261; 2 Wood on Landlord & Tenant [2d ed.], § 536; Joyce on Law of Nuisances, §§ 461, 466; 1 Tiffany on The Law of Landlord & Tenant, § 101.)

Judgment against Gotham Hosiery Co., Inc., should be reversed and complaint as to it dismissed.

Hubbs, Crouch and Loughran, JJ., concur with O’Brien, J.; Crane, Ch. J., concurs in the result on the ground that the Gotham Silk Hosiery Co. and Strauss & Co. were engaged in a joint enterprise; Lehman, J., dissents in opinion, in which Finch, J., concurs.

Order affirmed, etc.


text:
    In the Matter of the Rehabilitation of Bond and Mortgage Guarantee Company. City Bank Farmers Trust Company, Appellant and Respondent. George S. Van Schaick, Superintendent of Insurance of the State of New York, as Rehabilitator of Bond and Mortgage Guarantee Company et al., Respondents and Appellants. (Proceedings Nos. 1 and 2.)

      (Argued June 2, 1936;
    decided July 8, 1936.)

      Edwin W. Cooney and Edward L. Hunt, Jr., for City Bank Farmers Trust Company, appellant and respondent.

      John F. Caskey, John R. McCullough and James B. McDonough, Jr., for George S. Van Schaick, Superintendent of Insurance, as rehabilitator of Bond and Mortgage Guarantee Company et al., respondents and appellants.

      Harry Rodwin, Joseph Lapidus, Jess H. Rosenberg and William A. Shea for Louis H. Pink, Superintendent of Insurance, as liquidator of New York Title and Mortgage Company, amicus curix.

      Milton B. Ignatius, James M. Lown and Lauson H. Stone for Mortimer N. Buckner et ah, as a committee of creditors of Lawyers Mortgage Company, amid curix.

      Sherman S. Rogers and Joseph L. Callahan for trustees of series C-2, amici curise.

      William A. Barber and Joseph Diehl Fackenthal for William P. Clark et al., amici curise.

      Michael F. Dee, Morris Amchanitzky, Leonard B. Boudin and Benjamin J. Rabin for Mortgage Commission of the State of New York, amicus curise.

   Crane, Ch. J.

The questions which have been certified to us, in my judgment should not be answered, as the litigation is academic; in other words, there is no present issue to be decided. The Bond and Mortgage Guarantee Company at the time of these orders was in rehabilitation, not in liquidation- — -there is a marked distinction. In rehabilitation there are no claims to be presented and allowed; in liquidation, claims liquidated or contingent must be presented within a certain designated time. The. case Matter of New York Title & Mortgage Co. (decided at Special Term, New York county, June 18, 1936) was a matter in liquidation, and even if the court’s decision is correct, it has little or no application here. The order may come before us at a later day; until it does we should not pass upon the issues.

In this present case before us the City Bank Farmers Trust Company had a mortgage on the New York Polyclinic Medical School and Hospital, located at West Fiftieth street and Eighth and Ninth avenues, New York city. The bond which the mortgage secured was in the sum of $885,000. The Bond and Mortgage Guarantee Company had guaranteed the payment of interest, taxes and the payment of the principal “ as soon as collected, but in no event later than eighteen months after it shall have become due and payment thereof shall have been demanded in writing.”

The guarantee company failed to pay the trust company the semi-annual installment of interest of $23,437.50 when the same became due on August 20, 1933. On December 11, 1933, by petition and order to show cause, the trust company instituted this proceeding in the Additional Special Term of Kings county, requesting, among other things, that the court determine that petitioner had the right to terminate the contract for the exclusive agency embodied in the mortgage guaranteed policy, without prejudice to petitioner’s rights thereunder. This is all the court should have decided. The City Bank Farmers Trust Company was entitled to take over its mortgage papers, terminate the agency of the guarantee company, and thereafter service its own mortgage dealing directly with the mortgagor. The court could impose no terms or conditions upon this right of termination. We so held and decided in Matter of People (Lawyers Title & Guaranty Co.) (265 N. Y. 20).

Of course in ending the agency and taking over its mortgage, the City Bank Farmers Trust Company relinquished none of its rights against the guarantee company for breach of contract, if any damage had been or was subsequently sustained. Neither did the guarantee company release any possible claim which it might have, or the defense it might have against an action for damages for breach of contract. These matters cannot and could not be determined until it was ascertained whether the petitioner had sustained any damage.

The parties in this proceeding have sought to have these rights and liabilities determined before the event, or before any damage has been sustained by the mortgagee. This should not be done by any declaratory judgment or order or in the form of terms or conditions upon which the mortgagee may terminate the agency and take over its own papers. We should not cross any bridges until we come to them or determine rights and liabilities until we can have all the facts before us. It may be that the mortgagee will never suffer any damage or make any claim for breach of contract. The mortgage has not been foreclosed nor the property sold. The mortgagee still holds the security, and at present can make no claim against the guarantee company, as there has been no determination that the mortgage is not good for the amount of the bond. Until there has been a foreclosure and sale of this property and a determination of the deficiency there can be no claim made upon the guarantor as a going concern for damages. (Insurance Law [Cons. Laws, ch. 28], § 402.) Remember, this would not be so if the guarantor were in liquidation. Sections 424 and 425 of the Insurance Law apply to liquidation proceedings. Section 424 provides for the presentation of claims against the insolvent. Section 425 relates to the proof of claim, subdivision 5 of which reads as follows:

5. No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the security and the amount for which the claim is allowed, unless the claimant shall surrender his security to the superintendent in which event the claim shall be allowed in the full amount for which it is valued.”

There is nothing in article 11 of the Insurance Law which provides for such an order or orders as have been made in this case. The court could make an order directing the mortgage company to turn over the papers to the petitioner, but I do not see how or under what law it proceeds further. It could not grant such a right upon condition, as the petitioner was entitled to his papers as a matter of right without any conditions. Nowhere do I find any authorization in article 11 for the fixing of the damage or the elements of the damage or declaration of the rights before actual loss has been determined. As said before, no claims are to be presented in rehabilitation proceedings. An action may be brought or a claim made for actual loss on a liquidated claim when it becomes due. We have no such claims here. The utmost that the Superintendent of Insurance desires is some statement of the rights of the parties by the court in a general way so that the department can determine whether to continue rehabilitation. The courts have no such function to perform. The guarantor was not in liquidation. It was a going concern, limited only in its activities while under the control of the Superintendent of Insurance. It was not liable to the mortgagee until there had been a foreclosure and sale of the property, and the loss, if any, determined. Surely the mortgagee now has the right to foreclose its mortgage or to extend it indefinitely. Suppose it forecloses today and is paid the full amount due. What possible claim can it have against the guarantor or the Superintendent of Insurance? To state this proposition is to show that this part of the proceeding is academic and asks us to decide a question not yet at issue.

Therefore, the order should be reversed, with the exception of the direction to the respondents to turn over the mortgage ■ papers to the mortgagee, permitting the mortgagee to service its own mortgage, and this without any terms or conditions. Further than this the orders and the provisions thereof are reversed, and the second and third questions not answered. The first question is answered in the affirmative, with the added statement that the right of credit or set-off, if any, cannot be determined in a rehabilitation proceeding until the damage resulting from breach of contract, if any, has been determined.

The orders should be modified in accordance with this opinion and as so modified affirmed, without costs.

Lehman, O’Brien, Hubbs, Crouch, Loughran and Finch, JJ., concur.

Ordered accordingly.


author: Lehman, J.

text:
    Bond Electric Corporation, Respondent, v. Gold Seal Electrical Co., Inc., et al., Appellants.

      (Argued May 29, 1936;
    decided July 8, 1936.)

      Benjamin M. Alpert and Harry J. Gluskin for appellants.

      Herman Aaron and Charles Adkins Baker for respondent.
   Lehman, J.

The complaint sets forth a cause of action for breach of warranty. The allegations of damages are as follows:

XIII. That the plaintiff did pay to the defendants on account of the tubes delivered to it by the defendants as herein set forth and on the faith of the defendants supplying the plaintiff with tubes of the kind and quality called for by said contract the sum of Two hundred and ninety-eight thousand four hundred and thirty-five and 03 /100 Dollars ($298,435.03).
That the tubes which were in fact delivered by the defendants to the plaintiff as hereinabove set forth after deducting tubes returned by the plaintiff to the defendants as above set forth would have been at the time of the delivery thereof by the defendants to the plaintiff of the value of Three hundred eighty-four thousand nine hundred and eighty and 69 /100 Dollars ($384,980.69) if they had been of first class quality and material and equal to or better than similar types of tubes manufactured by Radio Corporation of America or Cunningham, as specified in Cunningham Tube Data Book above mentioned, and if the tubes so delivered which were not described in said data book, had been at least equal to the specifications for similar tubes manufactured by Radio Corporation of America or Cunningham, referred to in paragraph Six of said contract. On information and belief, that the tubes actually delivered by the defendants to the plaintiff as hereinabove set forth, after deducting said tubes returned, were at the time of the delivery thereof by defendants to the plaintiff of the value of less than Fifty thousand Dollars ($50,000).”

The measure of damages for breach of warranty is the difference between the value of the goods delivered and the value the goods would have had if they had conformed to the contract. If the plaintiff had paid the full purchase price it could recover these damages from the defendants. It is entitled to the damages even though it has not paid the full purchase price, though then the unpaid purchase price could be offset by the defendants against the damages which the plaintiff would otherwise recover. Damages and purchase price would, none the less, represent independent causes of action.

The answer controverted the allegations of the complaint. In addition the defendants pleaded a counterclaim for the purchase price. At the trial the plaintiff produced evidence to support the allegations of the complaint. The court charged the jury properly that the measure of damages is the difference between the value of the tubes at the time of delivery to the buyer and the value which the tubes would have had, if they had conformed to the warranty. In other words, if your verdict is in favor of the plaintiff, you will award him such an amount as represents the difference between the value of the tubes at the time they were delivered and the value which the tubes would have had if they had been of the quality described in the warranty.” The jury found for the plaintiff in the sum of $10,500. The trial judge thereafter set aside the verdict in favor of the plaintiff, dismissed the complaint and directed a verdict in favor of the defendants for the conceded amount of the unpaid purchase price. The Appellate Division reversed the judgment, entered upon the directed verdict in favor of the defendants, and reinstated the verdict of the jury in favor of the plaintiff.

We agree with the Appellate Division in so far as it held that the plaintiff by competent evidence established the breach of warranty as alleged in the complaint, and that it suffered damages. The trial judge, therefore,, erred in dismissing the complaint and directing a verdict in favor of the defendants for the full amount of their counterclaim. The question remains whether the plaintiff was entitled to a judgment for the damages awarded to it by the jury. Undoubtedly it is entitled-to such a judgment only if the damages awarded by the jury represent the excess of the plaintiff’s damages over the amount of the unpaid purchase price. If the damages awarded were measured in accordance with the charge, i. e., “ the difference between the value of the tubes at the time of delivery to the buyer and the value which the tubes would have had, if they had conformed to the warranty ” without deduction or offset of the amount of the purchase price, then it is clear that the defendants are entitled to judgment upon their counterclaim for the excess of the unpaid purchase price over damages awarded to the plaintiff upon its cause of action. (Civ. Prac. Act, § 477.)

The trial judge charged that “As to the first counterclaim, if you find a verdict in favor of the plaintiff in the case brought by the plaintiff, then your verdict in the counterclaim should be in favor of the plaintiff.” The Appellate Division held that this charge is correct because the plaintiff is “ not suing to recover damages generally for breach of warranty but for damages in excess of the value of all the tubes delivered.” (244 App. Div. 206, 208.) That statement is not entirely accurate. The complaint inferentially admits that against any damages plaintiff may prove the defendants are entitled to offset the amount of the unpaid purchase price; none the less the complaint set forth a cause of action for damages generally for breach of warranty and the defendants properly pleaded a counterclaim for the unpaid purchase price admittedly due. Under these pleadings the plaintiff was entitled to an award of any damages caused to it by the defendants’ breach of warranty though if such damages were less than the conceded counterclaim, the defendants would be entitled to recover judgment for the excess. If the trial judge had charged that the plaintiff was entitled to no award of damages unless such damages exceeded the unpaid purchase price, and that otherwise the defendants were entitled to a judgment for the full price of the goods, only the plaintiff could have complained. The judge did not so charge. On the contrary, he told the jury that if they found that the defendants had breached their warranty the plaintiff was entitled to the consequent damages and that then the jury must also find for the plaintiff upon the counterclaim. Perhaps the jury, without instructions from the judge, did in fact deduct from the damages which it found the plaintiff suffered the amount of the unpaid purchase price for which the defendants counterclaimed and which the plaintiff admitted is due. We may not indulge in such conjectures at the possible expense of the defendants. We must assume that the jury followed the instructions as given by the judge rather than their own notion of what is right.

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

Crane, Ch. J., Loughran and Finch, JJ., concur; O’Brien, Hubbs and Crouch, JJ., dissent..

Judgments reversed, etc.