author: Andrews, J.

text:
    Clarence I. Hamilton, Appellant, v. William A. Drogo, Montague, Duke of Manchester, Defendant. United States Trust Company of New York, as Trustee, Respondent.
    Execution — garnishment — income from trust funds — execution may issue against income that will or may come due in future — trust directing that income be applied to support of judgment debtor, his wife or children or any one or more of them in discretion of trustee — error on return of execution unsatisfied to deny motion for order directing issuance of execution against income, if any, allotted to judg- ■ ment debtor — lien of execution will attach during instant between award and delivery.
    1. By the enactment of section 684 of the Civil Practice Act, pro viding that an execution may issue against a certain proportion of income from trust funds due and owing, or thereafter to become due and owing to a judgment debtor, it was the intention of the Legislature to extend the scope and effect of an execution as it had theretofore existed. There is no requirement that the income be due at the time the order is made and the execution served. It is enough either that it will become due in the future from the trustee to the cestui que trust, or that it may become so due. If ever the day of payment arrives the lien of the execution attaches.
    2. It was, therefore, error to deny a motion for an order directing that an execution issue against income from funds bequeathed to trustees, in trust, to apply the annual income to the maintenance and support of the judgment debtor, his wife or children or any one or more of them in the discretion of the trustee, an execution having been issued and returned unsatisfied. The judgment debtor having a wife and children living, the courts may not interfere with the discretion vested in the trustee, but if such discretion is ever exercised in favor of the judgment debtor during the time, however brief, the award precedes the delivery of the income he is to receive, the lien of the execution attaches.

      Hamilton v. Drogo, 214 App. Div. 819, reversed.
    (Argued November 23, 1925;
    decided January 12, 1926.)

      Appeal from an order of the Appellate Division of the Supreme Court in the first judicial department, entered July 13, 1925, which affirmed an order of Special Term denying a motion for an order directing that an execution issue against the income derived from a trust fund.
    The following question was certified: “ Can the trust fund created by will of defendant’s mother in his favor, held by and in the possession of the United States Trust Company of New York, be reached on execution of a judgment in favor of the plaintiff against the defendant under section 684 of the Civil Practice Act? ”

      Louis Marshall, Charles E. Thorn and James Marshall for appellant.
    The will of defendant’s mother created a spendthrift trust in his favor which can be reached on execution under section 684 of the Civil Practice Act. (Bramhall v. Ferris, 14 N. Y. 41; Williams v. Thorn, 70 N. Y. 270; Dittmar v. Gould, 60 App. Div. 94; Brearley School v. Ward, 201 N. Y. 358; Matter of Ungrich, 201 N. Y. 415; Heppenstall v. Baudouine, 73 Misc. Rep. 118; Jenks v. Title G. & T. Co., 170 App. Div. 830; Howard v. Leonard, 3 App. Div. 277; Keeney v. Morse, 71 App. Div. 104; 2 Wharton on Conflict of Laws [3d ed.], § 599-c; Matter of Reynolds, 243 Fed. Rep. 268.)

      Henry W. Taft, Thomas B. Gilchrist and Catherine C. Noyes for respondent.
    No part of the income of the residuary trust under the will of Consuelo, Dowager Duchess of Manchester, is subject to garnishment by a creditor of the Duke of Manchester under section 684 of the Civil Practice Act. (Ellis v. Chapman, 165 App. Div. 79; Raymond v. Tiffany, 59 Misc. Rep. 283; 140 App. Div. 909; Myers v. Russell, 60 Misc. Rep. 617; Nichols v. Eaton, 91 U. S. 716; Brooks v. Raynolds, 59 Fed. Rep. 923; 154 U. S. 495; Davidson v. Kempner, 79 Ky. 5; Holmes v. Penney, 3 K. & J. 90; Hall v. Williams, 120 Mass. 344; Phillips v. Phillips, 112 N. Y. 197; Matter of

      Keleman, 126 N. Y. 73; Lawrence v. Cooke, 104 N. Y. 632.)
   Andrews, J.

By her will the dowager Duchess of Manchester bequeathed to trustees (now represented by the respondent) over one million dollars in trust, during the life of her son, to apply the annual income for the maintenance and support or otherwise, for the benefit of all or any one or more exclusively of the other or others of him my said son his wife and children or other issue as my * * * trustees in their sole and uncontrolled discretion without being liable for the exercise of such discretion think fit.” There was no attempt to provide for any accumulation of this income. Therefore, as the son in question, the present duke, has both a living wife and living children it became the duty of the trustee, annually or oftener, to exercise the discretion so confided to it, and to distribute the income among some or all of the persons mentioned as possible beneficiaries. Precisely how or when this discretion should be exercised is not material, but having been exercised those or the one to share in the income then to be distributed were or was entitled to receive the allotment made to them or him.

The appellant obtained a judgment in the Supreme Court against the Duke of Manchester. An execution was issued and returned unsatisfied. Thereupon the judgment creditor applied to a justice at Special Term for an order that an execution issue against the income from the trust funds of the defendant in the possession of the respondent as trustee to the amount of ten per cent thereof pursuant to Civil Practice Act, section 684. This section provides that after the entry of judgment and the return of an execution unsatisfied where any * * * income from trust funds * * * are due and owing to the judgment debtor or shall thereafter become due and owing to him to the amount of twelve dollars or more per week ” upon application of the creditor the justice must grant “ an order directing that an execution issue against the * * * income from the trust funds * * * of said judgment debtor, and on presentation of such execution * * * to the person or persons * * * from whom such * * * income from trust funds * * * are due and owing or may thereafter become due and owing to the judgment debtor, said execution shall become a lien and a continuing levy upon the * * * income from trust funds * * * ■ due or to become due to said judgment debtor for a certain percentage thereof. There is no requirement that the income be due at the time the order is made and the execution served. It is enough either that it will become due in the future from the trustee to the cestui que trust, or that it may become so due. If ever the day of payment arrives the lien of the execution attaches. The intention of the Legislature was to extend the scope and effect of an execution as it had theretofore existed.

In the present case no income may ever become due to the judgment debtor. We may not interfere with the discretion which the testatrix has vested in the trustee any more than her son may do so. Its judgment is final. But at least annually this judgment must be exercised. And if it is exercised in favor of the duke then there is due him the whole or such part of the income as the trustee may allot to him. After such allotment he may compel its payment. At least for some appreciable time, however brief, the award must precede the delivery of the income'he is to receive and during that time the lien of the execution attaches.

The orders appealed from should be reversed, with costs in all courts. An order should be granted directing the issuance of an execution in the form prescribed by Civil Practice Act, section 684. with ten dollars costs; We. consume .me question certified to mean: May the income of the trust fund held by the respondent, after the. whole or any part-thereof exceeding twelve dollars per week has been allotted to the Duke of Manchester, be reached on execution; and as so construed we answer it in the affirmative.

Hiscock, Ch. J., Cardozo, Pound, McLaughlin, Crane and Lehman, JJ., concur.

Orders reversed, etc.


source: Caselaw Access Project

author: Pound, J.

license: Public Domain

text:
    The People of the State of New York ex rel. George W. Bryant, Appellant, v. Charles F. Zimmerman, Chief of Police of the City of Buffalo, et al., Respondents.
    Constitutional law — habeas corpus — civil rights — secret societies — Legislature may prescribe reasonable regulations — classification which excepts some groups of oath-bound secret societies may be reasonable — statute not objectionable on ground that it applies only to societies requiring oath as prerequisite of membership — article 5-A of Civil Rights Law requiring some but not all secret societies to file certain information with Secretary of State, and making violation thereof a misdemeanor, not objectionable as class legislation or as unreasonable or arbitrary — writ of habeas corpus to release from custody one charged with violation of such statute, on ground that statute deprives him of liberty without due process of law and denies him equal protection of law, properly dismissed.
    1. The Legislature may take notice of the potentialities of evil in secret societies, and. may regulate them reasonably without depriving the members thereof of their liberty without due process of law. It must, however, adopt a reasonable ground of classification in such regulation and cannot legitimately vent its permanent or passing wrath on a single society unless such society is known or shown to be in a class by itself. A classification, nevertheless, which excepts some groups of oath-bound secret societies may be reasonable.
    2. Such a regulatory statute is not objectionable on the ground that it aims only at societies which require an oath as a prerequisite or condition of membership. A classification is not held to be bad because it is not comprehensive. As an oath is recognized by many as the highest form of obligation, a distinction may reasonably be made between oath-bound secret societies and societies which bind their members by pledges of less time-honored solemnity and between accepted oath-bound societies and oath-bound societies in general.
    3. Article 5-A of the Civil Rights Law (Cons. Laws, eh. 6), which requires all membership corporations and unincorporated associations of more than twenty members, requiring an oath as a prerequisite of membership, other than a labor union or a benevolent order mentioned in the Benevolent Orders Law, to file a sworn copy of its constitution, by-laws, rules, regulations, oath of and roster of membership and list of current officers with the Secretary of State and provides, amongst other penalties, that any person who becomes or remains a member of such a corporation or association or attends a meeting thereof with knowledge that it had failed to comply with the provisions of the statute, shall be guilty of a misdemeanor, may be upheld as not actually and palpably unreasonable and arbitrary.
    4. A writ of habeas corpus, therefore, to review the cause of detention of one held in custody on a charge that he had attended a meeting and remained a member of an association, which came within the terms of, but had failed to comply with the provisions of said statute, sought to be sustained on the ground that the statute is void for unconstitutionality in that it deprives him of his liberty without due process of law and denies him the equal protection of the law for the reason that it is arbitrary and discriminatory class legislation, is properly dismissed.

      People ex rel. Bryant v. Zimmerman, 213 App. Div. 414, affirmed.
    (Argued November 24, 1925;
    decided January 12, 1926.)
    Appeal from an order of the Appellate Division of the Supreme Court in the fourth judicial department, entered May 22, 1925, which affirmed an order of Special Term dismissing a writ of habeas corpus.

      John H. Gonnaughton, W. F. Zumbrunn and John K. Gerken for appellant.
    The statute in question is clearly unconstitutional, for the reason that it is distinctly class legislation, and wrongfully restricts the personal liberty of certain citizens. (People v. Williams, 189 N. Y. 131; People v. Bellet, 99 Mich. 151; Hawkins v. Roberts, 122 Ala. 130; French v. Davidson, 143 Cal. 658; State v. Hanlon, 77 Ohio St. 19; State v. Swagerty, 203 Mo. 517; Hathorn v. Nat. Gas Co., 194 N. Y. 326; Gulf Col., etc., Ry. v.
      Ellis, 165 U. S. 150; Vanzant v. Waddel, 2 Yerg. 260; Dibrell v. Morris’ Heirs, 15 S. W. Rep. 87; Bell’s Gap Ry. v. Pennsylvania, 134 U. S. 232.) This is unconstitutional, as being in contravention of the Fourteenth Amendment to the Constitution of the United States. (Virginia v. River, 100 U. S. 318; Hodges v. U. S., 203 U. S. 1; U. S. v. Billings, 190 Fed. Rep. 359; Risley v. City of Utica, 173 Fed. Rep. 502; North Carolina v. Vanderford, 35 Fed. Rep. 282; Douglas Park Jockey Club v. Grainger, 146 Fed. Rep. 414; Sunday Lake Iron Co. v. Wakefield, 247 U. S. 350; Jones v. Buffalo Creek C. & C. Co., 245 U. S. 328; Truax v. Corrigan, 257 U. S. 312; Covington, etc., Co. v. Sandford, 174 U. S. 578; Cumberland Gas Light Co. v. West Virginia, etc., Gas Co., 188 Fed. Rep. 585 ;Leecraft v. Texas Co., 281 Fed. Rep. 918.) A police regulation is like other law subject to the equal protection of the laws clause of the Fourteenth Amendment to the Federal Constitution. (Atchison, T. & S. F. R. Co. v. Vosburg, 238 U. S. 56; Connolly v. Union Sewer Pipe Co., 184 U. S. 540; Gibbons v. Ogden, 9 Wheat. 1, 210; Sinnot v. Davenport, 22 How. [U. S.] 227; Missouri etc., v. Haber, 169 U. S. 613.)

      Guy B. Moore, District .Attorney, for respondents.
    The statute in question is a valid exercise of the police power of the State, and is, therefore, constitutional. (People v. Beakes, etc., 222 N. Y. 416; Radice v. New York, 246 U. S. 292; Miller v. Wilson, 236 U. S. 382; Lawton v. Steele, 152 U. S. 135; People ex rel. Met. St. Ry. Co. v. Tax Comrs., 174 N. Y. 417; People ex rel. Simon v. Bradley, 207 N. Y. 592; People v. Schweinler Press, 214 N. Y. 395; Matter of Viemeister, 179 N. Y. 235.)

      Albert Ottinger, Attorney-General {John H. Clogston of counsel), for State of New York.
    The exceptions in the act do not make it unconstitutional. (Miller v. Wilson, 236 U. S. 373; People v. Hanover, 149 N. Y. 195; People v.
      Klinck Packing Co., 214 N. Y. 121; Kockee Coke Co. v. Taylor, 234 U. S. 227.)
   Pound, J.

Relator is held in custody under the provisions of section 56 of the Civil Rights Law (L. 1923, ch. 664; Cons. Laws ch. 6), article 5-A of which law is quoted in full in the foot note.

The charge against him is that he attended a meeting of and remained a member of Buffalo Provisional Klan of the Knights of the Ku Klux Klan with knowledge that said association, which has more than twenty members, requires an oath as a prerequisite or condition of membership, and is not a labor union or a benevolent order mentioned in the Benevolent Orders Law (Cons. Laws, ch. 3), had not complied with the provisions of the statute by filing with the Secretary of State a sworn copy of its constitution, by-laws, rules, regulations and oath of membership, together with a roster of its membership and a list of its officers for the current year. His contention is that the statute is void for unconstitutionality in that it deprives him of his liberty without due process of law and denies him the equal protection of the law for the reason that it is arbitrary and discriminatory class legislation.

Secret societies have, in the past, been recognized as meeting a desire of many of our citizens to band themselves together by oaths more horrific than harmful. Thus in Purple v. Horton (13 Wend. 2) the court had before it the oath of a master mason and found nothing therein to disqualify a freemason as a juror in an action where one of the parties to a suit at law was a freemason and the other was not. The act before us places its approval on numerous well-known lodges, chapters, commanderies, consistories, councils, temples, grottos, posts, tribes, aeries, camps, tents, nests, encampments and cantons wherein brothers, sisters, sons or daughters are united in mystic ties. (Ben. Orders Law, § 2.) Labor unions and, more recently, college fraternities and sororities (L. 1925, ch. 521) whose name is legion, have also received legislative approval. They have a good reputation, at least the Legislature has recognized the innocuous, if not excellent, character which they claim for themselves.

But the Legislature may take notice of the potentialities of evil in secret societies, and may regulate them reasonably without depriving the members thereof of their liberty without due process of law. Indeed, the danger of certain organizations has "been judicially demonstrated. The manifesto of the political party known as the Left Wing of the Socialist Party, or Communists, has been said openly to advocate criminal anarchy in violation of the provisions of the Penal Law. (People v. Gitlow, 234 N. Y. 132; affirmed, 268 U. S. 652.) Secret societies may be formed for the same purposes. The Legislature must, however, adopt a reasonable ground of classification in regulating such secret societies and organizations. (Lawton v. Steele, 152 U. S. 133; People v. Klinck Packing Co., 214 N. Y. 121; People v. Beakes Dairy Co., 222 N. Y. 416, 429.) It cannot legitimately vent its permanent or passing wrath on a single society unless such society is known or shown to be in a class by itself. The present statute addresses itself to very general characteristics which admittedly may include the most laudable as well as the vicious. It seems reasonable to separate the known from the unknown, the presumptively good from the possibly evil, the sheep from the goats. Benevolent orders, labor unions and college fraternities have existed for many years and while not immune from hostile criticism, have on the whole justified their existence. Conceivably those that remain, or some of them, might win equal favor on better acquaintance. With the wisdom of the legislation in question we have not to do. The Legislature may doubtless strike at a fancied evil, believed by many to exist, without balancing with accuracy the actual danger to the State against the beneficent purposes publicly avowed by the members of such societies. (Otis v. Parker, 187 U. S. 606, 609.) It follows that a classification which does not include all oath-bound secret societies may be reasonable.

Another objection to the statute requires consideration. The act in question aims only at societies which require an oath as a prerequisite or condition of membership. Similar organizations which are not oath bound are entirely outside of its provisions. Any organization under the ban might take itself out of the regulations by adopting a solemn pledge or affirmation rather than an oath.

A promissory oath is defined by Webster’s New International Dictionary as “ a solemn appeal to God, or in a wider sense, to some superior sanction or a sacred or revered person (as the temple, the altar, the blood of Abel, the Koran, a tribal superior, etc.) * * * in witness of the inviolability of a promise or undertaking.”

The State in dealing with judicial oaths, which are taken as a sanction for the truth of an affirmation or declaration in legal or quasi-legal matters, like the oath of a witness or an affiant, defines oath ” (Gen. Const. Law, § 36; Cons. Laws, ch. 22) to include every mode authorized by law of attesting the truth of that which is stated,” and punishes for perjury both one who swears and one who affirms that any material matter is true which is known to be false. (Penal Law, §§ 1620,1621; Cons. Laws, ch. 40.)

The policy of the State is, therefore, to disregard the form of the sanction on any occasion in which an oath is required by law, or is necessary for the prosecution or defense of a private right, or for the ends of public justice, or may lawfully be administered.”

Public policy thus makes no distinction between oaths and affirmations so far as the pains and penalties of perjury are concerned. But promissory oaths are not included in the definitions quoted. They may not be the basis of a criminal prosecution for perjury. The faithless public official who violates his oath of office is punishable but not for perjury.

Can it be said that a solemn promise or obligation, not in the form of an oath or appeal to Almighty God, is not as binding on the conscience of the ordinary member of a secret organization as the oath would be? Is such a distinction a sound basis for classification? Does it arbitrarily discriminate against those who believe in a Supreme Being or higher power? Is the line drawn with any well-defined moral admeasurement between potential good and bad? These considerations address themselves to the law-making power if not to the courts.

Assuming that all might be included, on judicial review, a classification is not held to be bad because it is not comprehensive. The Legislature need not attack the whole evil at once. (Keokee Coke Co. v. Taylor, 234 U. S. 224, 227.) Certain oath-bound societies have in the past, as matter of common knowledge, been revolutionary and a menace to established government. For the purpose of regulating Sunday labor one rule has been made for barbers in New York and Saratoga, while another rule is applied to the rest of the State. (People v. Havnor, 149 N. Y. 195.) As an oath is recognized by many as the highest form of obligation, a distinction may reasonably be made between oath-bound secret societies and societies which bind their members by pledges of less time-honored solemnity and between accepted oath-bound societies and oath-bound societies in general. The classification we have to consider is réal and readily made as matter of form. It may not rest on a very substantial basis in the opinion of many, but the power to declare a law unconstitutional is always exercised with reluctance.” (Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, 554.) The enactment before us may be upheld as not “ actually and palpably unreasonable and arbitrary on the authority of precedents which have gone far to uphold legislative power in matters of classification. (Radice v. New York, 264 U. S. 292, 296, 297.) It rests on an opinion reasonably permissible for its validity.

The order should be affirmed.

Hiscock, Ch. J., Cardozo, McLaughlin, Andrews and Lehman, JJ., concur with Pound, J.; Crane, J., concurs in result.

Order affirmed.

      Civil Rights Law, article 5-A (L. 1923, ch. 664):
      § 53. Copies of Documents and Statements to be Piled. Every existing membership corporation, and every existing unincorporated association having a membership of twenty or more persons, which corporation or association requires an oath as a prerequisite or condition of membership, other than a labor union or a benevolent order mentioned in the benevolent orders law, within thirty days after this article takes effect, and every such corporation or association hereafter organized, within ten days after the adoption thereof, shall file with the Secretary of State a sworn copy of its constitution, by-laws, rules, regulations and oath of membership, together with a roster of its membership and a list of its officers for the current year. Every such corporation and association shall, in ease its constitution, by-laws, rules, regulations or oath of membership or any part thereof, be revised, changed or amended, within ten days after such revision or amendment file with the Secretary of State a sworn copy of such revised, changed or amended constitution, by-law, rule, regulation or oath of membership. Every such corporation or association shall' within thirty days after a change has been made in its officers file with the Secretary of State a sworn statement showing such change. Every such corporation or association shall at intervals of six months file with the Secretary of State a sworn statement showing the names and addresses of such additional members as have been received in such corporation or association during such interval.

        § 54. Resolutions Concerning Political Matters. Every such, corporation or association shall, within ten days after the adoption thereof, file in the office of the Secretary of State every resolution, or the minutes of any action of such corporation or association, providing for concerted action of its members or of a part thereof to promote or defeat legislation, federal, state or municipal, or to support or to defeat any candidate for political office.
      § 55. Anonymous Communications Prohibited. It shall be unlawful for any such corporation or association to send, deliver, mail or transmit to any person in this state who is not a member of such corporation or association any anonymous letter, document, leaflet or other written or printed matter, and all such letters, documents, leaflets or other written or printed matter, intended for a person not a member of such corporation or association, shall bear on the same the name of such corporation or association and the names of the officers thereof together with the addresses of the latter.
      § 56. Offences; Penalties. Any corporation or association violating any provision of this article shall be guilty of a misdemeanor punishable by a fine of not less than one thousand dollars nor more than ten thousand dollars. Amy officer of such corporation or association and every member of the board of directors, trustees or other similar body, who violates any provision of this article or permits or acquiesces in the violation of any provision of this article by any such corporation shall be guilty of a misdemeanor. Any person who becomes a member of any such corporation or association, or remains a member thereof, or attends a meeting thereof, with knowledge that such corporation or association has failed to comply with any provision of this article, shall be guilty of misdemeanor.


author: McLaughlin, J.

text:
    Gerhard & Hey, Inc., Appellant, v. Cattaraugus Tanning Company, Respondent.
    Carriers — common carrier liable for value of goods lost or stolen in transit—■ private carrier liable only where loss is due to his negligence — counterclaim, in action to recover for services in transporting goods, for value of goods stolen in transit — where it appears plaintiff was a private carrier no recovery may be had on counterclaim in absence of allegation and proof of negligence.
    1. A common carrier of personal property is one who agrees for a specified compensation to transport such property from one place to another for all persons who may see fit to employ him and is liable for the value of merchandise stolen or lost in transit, but a private carrier is a mere bailee for hire and is liable only if such loss was occasioned through his negligence.
    2. Where, in an action to recover the value of work performed in the transportation of merchandise, upon trial of the issues raised by a counterclaim for the value of goods stolen in transit, and the reply thereto, it appears that both parties understood that the plaintiff in accepting the merchandise acted as the agent of defendant in arranging for its transportation and there is no evidence to show that plaintiff held itself out as a common carrier or that defendant when it delivered its merchandise for transport believed the plaintiff was acting as a common carrier and there is neither allegation nor proof that plaintiff was negligent in employing the truckman engaged in moving the merchandise when the loss occurred, the defendant cannot recover upon its counterclaim.

      Gerhard & Hey, Inc., v. Cattaraugus Tanning Co., 212 App. Div. 812, modified.
    (Argued December 7, 1925;
    decided January 12, 1926.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered April 20, 1925, unanimously affirming a judgment in favor of defendant entered upon a verdict directed by the court.

      Charles E. Thorn for appellant.
    The appellant was not, nor did it hold itself out to be, a common carrier. (Reilly v. Troy Brick Co., 184 N. Y. 399; Wagner v. N. Y. C. & St. L. R. R. Co., 183 N. Y. 523; Bank of Monongahela Valley v. Weston, 159 N. Y. 201; Anderson v. Fidelity & Casualty Co., 228 N. Y. 475; Jackson Architectural Iron Works v. Hurlbut, 158 N. Y. 34; Allen v. Sackrider, 37 N. Y. 341; Lough v. Outerbridge, 143 N. Y. 271; Hollitser v. Nowlen, 19 Wend. 234; Fish v. Clark, 2 Lans. 176; 49 N. Y. 122; Moore on Carriers [2d ed.], 23; Tracy v. Grand Concourse Service Co., 199 App. Div. 348; 234 N. Y. 649; Sanie Fe, P. & B. Ry. Co. v. Grant Bros. Const. Co., 13 Ariz. 186; Fish v. Chapman & Ross, 2 Ga. 349; Bassett & Stone v. Aberdeen C. & M. Co., 120 Ky. 728; Varble v. Bigley, 77 Ky. 698; Johnson v. Midland Ry. Co., 4 Exch. 367; Addison on Cont. [6th ed.] 468.) If appellant were a carrier at all, it was merely a private carrier. (Hutchinson on Carriers [3d ed.], § 35; Hersfield v. Adams, 19 Barb. 577; Roberts v. Turner, 12 Johns. 231; Brown v. Adams Express, 15 W. Va. 812; State ex rel. Winnett v. Union Stock Yards Co., 81 Neb. 67; Story on Bailments [9th ed.], §§ 370, 421, 422; Schouler on Bailm. & Car. [3d ed.] 330, 331; Pike v. Nash, 1 Keyes, 335.) Appellant in this case was a forwarder only and liable only for its negligence. (Elliott on Railroads [3d ed.], § 2107; Brown
      v. Dennison, 2 Wend. 593; Johnson v. N. Y. C. R. R. Co., 31 Barb. 196; Moore on Carriers [2d ed.], 80; Schloss v. Wood, 17 Pac. Rep. 910; Angell on Carriers, § 75.)

      Frederick W. Kruse for respondent.
    Defendant was not required to establish that the plaintiff was actually a common carrier, but only that it had held itself out to be such, and the evidence is amply sufficient to sustain the verdict upon either ground. (Slutzkin v. Gerhard & Hey, Inc., 199 App. Div. 5; Jackson Architectural Iron Works v. Hurlburt, 158 N. Y. 34; Stevenson v. Hartman, 231 N. Y. 378; Anderson v. Fidelity & Casualty Co., 228 N. Y. 475; Ingram v. American Forwarding Co., 162 Ill. App. 476; Teall v. Sears, 9 Barb. 317; Kettenhofen v. Globe Transfer & Storage Co., 70 Wash. 645; Ladue v. Griffith, 25 N. Y. 364.)
   McLaughlin, J.

This is an appeal by permission of this court from a judgment of the Appellate Division, first department, unanimously affirming a verdict directed in favor of the defendant.

The action was brought to recover the value of work, labor and services alleged to have been performed by the plaintiff in connection with the transportation of certain leather from Brooklyn to a steamship lying alongside a pier in New York, consigned to J. Anderson & Co., Inc., at Copenhagen, Denmark. The leather consisted of 360 bales. While the same was being transferred from Brooldyn to New York 38 of the bales were lost or stolen. The defendant in its answer set up a counterclaim for the value of these bales. At the conclusion of the evidence there was no dispute as to the value of the plaintiff’s claim, nor was there any dispute as to the value of the 38 bales lost or stolen. Each party moved for the direction of a verdict in its favor. The trial judge directed a verdict in favor of the defendant for the difference between the two claims.

The only question presented by the appeal is as to the validity of defendant’s counterclaim. The solution of that question necessarily depends upon whether the plaintiff, in making the transfer, acted in the capacity of a common or a private carrier. If the former, then it is liable for the value of the leather stolen or lost; if the latter, then it is not liable since it was a mere bailee for hire.

There is no allegation in the counterclaim nor was any proof offered at the trial, that the loss of the leather was due to the negligence of the plaintiff.

The appellant is a domestic corporation engaged in business in the city of New York. Its business consists in obtaining such contracts for the transfer of goods from one place to another as it may see fit to make, and upon such terms as it may name. It does not hold itself out to the public as a general transfer agent, or to accept all business in its line which may be intrusted to it. It engages space in cars and steamers for goods intrusted to it for shipment if it sees fit to accept such goods upon the terms specified by it. It owns no trucks, lighters, railroad cars or any means of transportation of any kind. When it accepts a contract it engages others to make the transfer, and receives a compensation in excess of what it has to pay for such transportation.

The correspondence between the parties clearly indicates that both the plaintiff and the defendant understood that the appellant, in accepting the leather, acted as the agent for the respondent in arranging for the transportation of the goods from Brooklyn to New York. There is no evidence to show that the plaintiff held itself out as a common carrier, or that the defendant, when it delivered the leather to the plaintiff to transport the same to the pier in New York, believed the plaintiff was acting in the capacity of a common carrier. The plaintiff, when it agreed with the defendant to make the transfer, engaged one Haring, a truckman,, to move the leather. While he was doing so, the loss occurred.

There being no allegation in the counterclaim and no proof that the plaintiff was negligent in employing Haring, the plaintiff is not liable for the loss. In the reply to the counterclaim, the plaintiff put in issue the allegation of the answer that it was a common carrier or that in transporting the leather it acted in that capacity. On the contrary, it alleged affirmatively that it did not act in that capacity but only as a private carrier.

The difference between a common and a private carrier is well understood. A common carrier of personal property is one who agrees for a specified compensation to transport such property from one place to another for all persons that may see fit to employ him. (Jackson Architectural Iron Works v. Hurlbut, 158 N. Y. 34; Stevenson & Co. v. Hartman, 231 N. Y. 378, p. 381.) One is not a common carrier unless he indicates to the public that he is ready and willing to do business for all that may see fit to employ him up to the capacity of his facilities.” (Michigan Commission v. Duke, 266 U. S. 570, p. 577; 2 Parsons on Contracts [9th ed.], 166.) In order to constitute one a common carrier he must be engaged in a business which necessarily involves a public interest. A careful examination of this record fails to disclose this or that the plaintiff did anything which would lead the public to believe that the character of its business was that of a common carrier. (Hutchinson on Carriers [3d ed.], sec. 35.) The defendant, therefore, coul'd not recover upon its counterclaim without alleging and proving that the loss of the leather was due to the plaintiff’s neglect. This the defendant did not do.

As there is no dispute concerning the plaintiff’s claim, the judgment appealed from should be modified, and judgment directed in its favor for that amount, with interest from August 4, 1919, with costs in all courts.

Hiscock, Ch. J., Cardozo, Crane, Andrews and Lehman, JJ., concur; Pound, J., not voting.

Judgment modified, etc.


text:
    Gerseta Corporation, Appellant, v. The Equitable Trust Company of New York, Defendant, and The Raw Silk Trading Company, Respondent, Impleaded with Others.
    Equity ■—■ debtor and creditor — insolvency — set-off — subrogation— sale of goods — equity will allow set-off in insolvency where claim of party asserting it has matured — not material that claim against it has not matured — mere insolvency insufficient — business must be in liquidation otherwise rule of legal set-off applies — purchaser may set off price of merchandise against amount owing to it by seller although seller is insolvent, where there has been no judicial recognition of that fact •—■ seller primarily liable to purchaser on balance of account — payment by purchaser to bank, which financed transaction for seller, of sum in satisfaction of judgment recovered by it in action against purchaser for price of goods — purchaser may be subrogated to claim of bank against seller to extent of payment.
    1. Equity will allow a set-off in insolvency, providing the claim of the party asserting the right of set-off has matured. It is immaterial that the claim against the party asserting the set-off has not matured. {Appleton v. Nat. Park Bank, 122 Mise. Rep. 248; 211 App. Div. 708; 241 N. Y. 561, explained.)
    2. In applying the rule, the date of insolvency in fact does not determine whether the right of set-off exists. Mere insolvency is no adequate basis for invoking the rule. While the business is a going business, not in the course of liquidation, the rule of legal set-off applies.
    3. A purchaser of merchandise, therefore, may set off the price thereof against an amount owing to it but not yet due from the seller, though the latter is insolvent in fact, where there has been no judicial recognition of the fact, no passing of an estate to an assignee or receiver or otherwise for the purpose of liquidation. Only after the estate has passed upon a trust to hold for and distribute among creditors, does the former and natural equity disappear in superior equities vesting in the general body of creditors.
    4. Where, on balance of accounts, the seller is primarily hable to the purchaser, and the bank which financed the transaction for the seller and which has held the merchandise by security title and is also protected by securities deposited with it, has, after delivery of the merchandise to the purchaser under trust receipts, sued said purchaser for its price and recovered judgment, which the purchaser has satisfied by payment in part, the purchaser may be subrogated to the claim of the bank against the seller to the extent of its payment on the judgment. The equitable doctrine of subrogation is broad enough to include every instance in which one party pays a debt for which another is primarily answerable and which in equity and good conscience should have been discharged by the latter, so long as the payment was made either under compulsion or for the protection of some interest of the party making the payment, and in discharge of an existing liability. The payment by the purchaser on the judgment reduced by that ambunt the balance due from the seller to the bank and as a result thereof the seller collected from one of its creditors an amount to be applied on its indebtedness to another. Equity will restore the balance between the parties which the law has temporarily upset.

      Gerseta Corporation v. Equitable Trust Co., 212 App. Div. 12, reversed.
    (Argued December 7, 1925;
    decided January 12, 1926.)
    Appeal from a judgment, entered March 6,1925, upon an order of the Appellate Division of the Supreme Court in the first judicial department, reversing a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term and directing a dismissal of the complaint.

      David Sleekier and Emil Weitzner for appellant.
    The insolvency of the trading company gave rise to the right on the part of the plaintiff to set off against the trading company’s claim of $93,553.98 its claim of $96,146.89 against the trading company. (Fera v. Wickham, 135 N. Y. 223; Lindsay v. Jackson, 2 Paige, 581; Bathgate v. Haskin, 59 N. Y. 533; Smith v. Felton, 43 N. Y. 419; Coffin v. McLean, 80 N. Y. 560; Rothschild v. Mack, 115 N. Y. 1; Hughitt v. Hayes, 136 N. Y. 163; Carr v. Hamilton, 129 U. S. 252; Chance v. Isaacs, 5 Paige, 592; Richards v. LaTourette, 119 N. Y. 54; Matter of Hatch, 155 N. Y. 401.) Upon the payment by the plaintiff to the bank of $36,000, thereby reducing to that extent the debt of the trading company to the bank, the plaintiff became entitled in justice and in equity to be subrogated to the rights of the bank in the collateral which had theretofore been deposited with the bank by the trading company. (Pittsburgh-Westmoreland Coal Co. v. Kerr, 220 N. Y. 137; Pease v. Eagan, 131 N. Y. 262; Dunlop v. James, 174 N. Y. 411; Conn. Mutual L. Ins. Co. v. Cornwell, 72 Hun, 199; Koehler v. Farmers & Drovers’ Nat. Bank, 5 N. Y. Supp. 745; Riverside Bank v. Totten, 58 Hun, 603.) Equity will consider that in satisfying the judgment which the bank obtained against the plaintiff the plaintiff paid the debt of the trading company to the bank. (Foreign Trade Co. v. Gerseta, 237 N. Y. 265; Drexel v. Pease, 133 N. Y. 129; Moors v. Kidder, 106 N. Y. 32; Farmers Bank v. Logan, 74 N. Y. 568.)

      Joseph II. Choate, Jr., for respondent.
    The Appellate Division did not err in holding that equity required the denial of the plaintiff’s prayer for subrogation. (Fera v. Wickham, 135 N. Y. 223; De Camps v. Thomson, 159 N. Y. 444; Green v. Disbrow, 79 N. Y. 9.) The Appellate Division did not err in denying subrogation on the ground that in satisfying the bank’s judgment the plaintiff was paying its own debt. (People ex rel. McMillan v. Supervisors, 136 N. Y. 281; Title Guarantee & Trust Co. v. Haven, 196 N. Y. 487; Breedin v. Smith, 120 S. E. Rep. 64; St. Louis & S. F. Ry. Co. v. Excello, 215 S. W. Rep. 755; Brown v. Sheldon State Bank, 139 Ia. 83.) No righl to subrogation can be predicated on the theory that the Equitable Trust Company, instead of suing the plaintiff on the trust receipts and enforcing the judgment obtained in that suit, could have resorted to the trading company’s collateral. (Pom. Eq. Juris. [3d ed.] § 1414; Dolphin v. Aylward, L. R. 4 H. L. 486.)
   Pound, J.

Plaintiff Gerseta Corporation brought suit against The Equitable Trust Company of New York, The Raw Silk Trading Co. and others seeking among other things a judgment subrogating plaintiff to the rights of the trust company in shares of stock in its possession to the amount of $36,000 and interest. The Special Term gave judgment in favor of the plaintiff. The trust company has dropped out of the litigation. Trading Company appealed to the Appellate Division which denied the right of subrogation and dismissed the complaint. For convenience, plaintiff will be referred to as Gerseta, defendant Trust Company as the Bank and defendant Raw Silk Trading Company as Trading Co.

The material facts are briefly stated as follows: Both corporations were engaged in the silk business in the city of New York. The Trading Co. was an importer. Each at various times bought silk of the other. Although each delivery was regarded as a separate sale, the actual credit extended was, by the course of dealing, for the balance on the mutual account and not for the full amount owing by one to the other. From about July 15, 1920, Trading Co. was in financial embarrassment. On August 31, 1920, it was in fact insolvent. A committee of creditors took charge of its business, to continue or liquidate as it might seem most desirable. Gerseta then owed Trading Co. about $93,000 but Trading Co. owed Gerseta about $96,000. The balance on mutual accounts was at least $3,000 in favor of Gerseta but the entire indebtedness of Trading Co. to Gerseta had not matured prior to August 31, 1920.

In October, 1919; Gerseta had bought 100 bales of silk of Trading Co. on contract for future delivery. Under the contract settlement was to be made within thirty days by cash or trade acceptance. Deliveries of silk were made in July-August, 1920, amounting to $93,553.98. The Bank had financed the transaction for Trading Co. by issuing letters of credit and held the silk by security title. Trading Co. had also deposited as security various shares of stock including the stock in question, so that the Bank was amply protected. Trading Co. made the deliveries, having received the silk under trust receipts from the Bank. Gerseta had notice of the Bank’s claim of ownership at least as to certain deliveries. The Bank demanded trade acceptances which Gerseta refused to give because Trading Co. was indebted to it.

On October 20, 1920, the indebtedness of Trading Co. to Gerseta had fully matured. The Bank sued Gerseta to recover the amount of $93,553.98 above mentioned and obtained judgment for $74,953.75. On June 15, 1923, Gerseta satisfied the judgment by paying $36,000. The Bank assigned the judgment to a designee of Gerseta. Certain shares of stock were set apart subject to the decision of the court. The payment of $36,000 reduced by that amount the balance due from Trading Co. to the Bank.

The Appellate Division held without discussion that Gerseta had no right of set off, citing Fera v. Wickham, (135 N. Y. 223), however, as authority for the proposition that set off against an insolvent estate will not be allowed unless the claim was due when insolvency first existed; that Trading Co. was insolvent in fact before its indebtedness to Gerseta had matured and Gerseta, therefore, could not claim an offset to the indebtedness of Trading Co. to it but must pay its claim in full and then receive a dividend in common with other creditors. The conclusion followed that Gerseta did nothing more than pay its own valid obligation when it paid the Bank $36,000 under the settlement.

The first question to be considered is whether on October 20, 1920, when the Bank sued Gerseta for the purchase price of the trust receipt silk, Gerseta was entitled to a set off against Trading Co. of the amount due to it. At that timé Trading Co. was insolvent and its affairs were in the hands of liquidating trustees but there had been no judicial recognition of the fact, no passing of an estate as to an assignee or receiver or otherwise for the purpose of liquidation. Equity will allow a set off in insolvency, providing the claim of the party asserting the right of set off has matured. It is immaterial that the claim against the party asserting the set off has not matured. (Bradley v. Angel, 3 N. Y. 475; Fera v. Wickham, supra; Matter of Hatch, 155 N. Y. 401.) In Frank v. Mercantile Nat. Bank (182 N. Y. 264) the difference between the rule in the United States Supreme Court that unmatured claims against the bankrupt are the subject of set off, and the rule in this State was pointed out. Cullen, Ch. J., in allowing set off under the Bankruptcy Law, said: If the defendant’s rights depended on the equitable rule of set-off as it obtains in .this state, it is clear that the notes held by it which had not matured at the time of the transfer of the title from the bankrupt to his assignee could not be set off against the plaintiff’s claim.” In Appleton v. National Park Bank (122 Misc. Rep. 248; 211 App. Div. 708; 241 N. Y. 561) where the attachment of an insolvent depositor’s account was upheld against the claim of the bank against the insolvent on notes not matured, at the time of the attachment the debtor was insolvent but no receiver then had been appointed. All that was necessary to the decision was the holding that a bank had no legal right to offset against a depositor a note not yet matured. (See Proskauer, J.’s first opinion.) But the rule that there could be set off in equity if the claim to be set off was presently due was recognized. It was also held that the Debtor and Creditor Law (Cons. Laws, ch. 12), which provides for setting off mutual debts and credits when an assignment for the benefit of creditors had been made, applied only to a distribution of assets under a general assignment or an analogous proceeding.

The law of this State, when unmodified by statute, is that in insolvency a distinction exists between a debt due to the one who claims the set off and a debt due from him. If the debt is due to the one who claims the set off and it has not matured, he is not at liberty to offset it against the debt which he owes. If, on the other hand, the debt due to him has matured and the question is whether he is to be allowed to claim a dividend, not only on the debt due to him, but to increase the dividend by offsetting the debt which is due from him, the fact that the debt due from him is not yet due will not defeat the set off but he may prove the credit.

The principle upon which the rule rests is that in case of mutual debts it is only the balance which is the real or just sum owing by or to the insolvent. If the claim against the insolvent has matured at the time of an assignment for the benefit of creditors, the assignee gets no greater right than the assignor had. The assignee takes the balance subsequently accruing after deducting the matured claim. ' But if the debt due from the insolvent subsequently matures, the equities of other creditors will intervene to prevent the depletion of the assets in the hands of the trustee by' extinguishing a good debt due to the estate by a bad one due to the creditor from the estate. “ In all cases of mutual debts, it is the insolvency of one of the debtors and the rights of the other creditors in the assigned estate that equity takes notice of, and modifies the legal right of set-off accordingly in order to promote equality and justice.” (Matter of Hatch, supra, p. 406.) The same rule is applied to insolvent decedents’ estates. (Bradley v. Angel, supra.)

In applying the rule the date of insolvency in fact is not the proper date to consider in determining whether the right of set off exists. The date which calls the rule into existence must be fixed in relation to something more definite than the time when the debtor is first unable to meet his obligations as they mature. A debtor might be insolvent for many months or years. He might, as Trading Co. has done, seek to reorganize his business with the forbearance of his creditors and struggle on without being forced into bankruptcy. A long series of mutual credits and debts might cause a fluctuating balance of matured and unmatured demands varying from day to day. Mere insolvency would be no adequate basis for invoking the rule. While the business is a going business, not in the course of liquidation, the rule of legal set off would be applied. (Foreign Trade Banking Corp. v. Gerseta Corp., 237 N. Y. 265.) On the 20th of October, 1920, when the Bank asserted its claim against Gerseta as derived from Trading Co., the latter was a going concern. Its affairs had hot passed out of its hands. It still had title to the claims which had not matured when it became insolvent. Its property was not held in trust for the benefit of creditors generally. It defends this action in its own right. The principle of equality of distribution as laid down in Fera v. Wickham (supra) could not be invoked for the benefit of its creditors. An artificial person, it was in the same position that a natural person would have been in before proceedings looking definitely to the winding up of his affairs had been instituted. Only after the estate has passed upon a trust to hold for and distribute among creditors, does the former and natural equity disappear in superior equities vesting in the general body of creditors. (Fera v. Wickham, supra, p. 230.) The rule in insolvency should not be applied where it would result in a preference or direct advantage to the debtor rather than equality among creditors. The right of set off existed and was not defeated by the fact that Trading Co. was insolvent in fact before the claim of Gerseta against it had matured. . (See “ Set-off in Immature Claims in Insolvency,” by R. E. Clark, 24 Harvard Law Rev. 178.)

The next question is whether Gerseta may be subrogated to the claim of the Bank against Trading Co. to the extent of its payment thereon.

Subrogation, an equitable doctrine taken from the civil law, is broad enough to include every instance in which one party pays a debt for which another is primarily answerable and which in equity and good conscience should have been discharged by the latter, so long as the payment was made either under compulsion or for the protection of some interest of the party making the payment, and in discharge of an existing liability. (Seldon on Subrogation [2d ed.], pp. 2, 4.) Earl, J., in Cole v. Malcomb (66 N. Y. 363, 366) said that it is applicable to cases where a party is compelled to pay the debt of a third person to protect his own' rights, or to save his own property.” Peckham, J., in Pease v. Egan (131 N. Y. 262, 272) said — or repeated what had been said before — that it was founded upon principles of benevolence. In Pittsburgh-Westmoreland Coal Co. v. Kerr (220 N. Y. 137, 144) Chase, J., said, it “ includes so wide a range of subjects that it has been called ‘ the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity, and good conscience ought to pay it.’ ”

Gerseta paid its debt to the Bank. It did more. By paying the Bank, under compulsion and to protect itself, it reduced Trading Co.’s indebtedness to the Bank by $36,000. It thereby increased Trading Co.’s assets by the same amount. It was under no obligation to pay Trading Co. anything because Trading Co. was primarily liable to it on balance of accounts. It, therefore, discharged pro tanto the legal liability of Trading Co. to it and furnished the money which Trading Co. owed to it. The rights of th'e Bank are no longer to be considered. The question arises only between the two companies.

Casting aside the question of Gerseta’s legal liability to the Bank, Trading Co. by its transactions with the Bank has accomplished the inequitable result of collecting $36,000 from its own creditor to be applied on its indebtedness. A benevolent equity is powerful enough to restore the balance between the parties which the law has temporarily upset.

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

Hjscock, Ch. J., Cardozo, McLaughlin, Crane, Andrews and Lehman, JJ., concur.

Judgment accordingly.


text:
    Charles J. Liebman et al., Individually and as Stockholders of Auto Strop Company, Appellants, v. Auto Strop Company et al., Respondents.
    Corporations — dividends — stocks and stockholders ■—■ directors may, in their discretion, determine when and to what extent dividends shall be declared out of surplus — courts will not interfere unless bad faith is shown •— stock of another corporation, held as surplus, legally distributable as a dividend — action by minority stockholders to have declared void declaration of dividend of stock of subsidiary corporation — Court of Appeals must affirm judgment affirming dismissal of complaint, where it is conclusively established by findings unanimously affirmed that dividend was declared in good faith and in the interest of the corporation arid its stockholders.
    1. It is within the discretion of directors of a corporation to determine when and to what extent a dividend shall be made, subject to the qualification that the same shall not encroach on the capital. Courts will not interfere with such discretion unless it be first made to appear that the directors have acted or are about to act in bad faith and for a dishonest purpose. Dividends, when declared, must be out of surplus or undivided profits, and if stock of another corporation be held which constitutes a part of the surplus or undivided profits, it is legally distributable among the stockholders as a dividend precisely the same as if it were cash.
    2. Where, in an action to procure a judgment declaring void and enjoining the carrying out of a resolution, adopted by the board of directors of a corporation, to distribute as a dividend to its stockholders all of the stock of a subsidiary corporation held by it, the same being simply a surplus, findings of fact, unanimously affirmed by the Appellate Division, conclusively establish that the purpose of the declaration of the dividend was not to accomplish an ulterior object in the interest of a particular stockholder but that the same was in the interest of the corporation and all of its stockholders, the judgment of the Appellate Division affirming a dismissal of the complaint must be affirmed.

      Liebman v. Auto Strop Co., 212 App. Div. 308, affirmed.
    (Argued December 3, 1925;
    decided January 12, 1926.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered April 2, 1925, unanimously affirming a judgment in favor of defendants entered upon the report of a referee.

      Nathan L. Miller, Alfred A. Cook, Harold Nathan and H. Bartow Farr for appellants.
    The findings made by the referee are not inconsistent with the findings requested by the plaintiffs as to the defendants’ purpose in declaring, the dividend. (Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; Berizzi Co. v. Krausz, 239 N. Y. 315; Tenth National Bank v. Smith Construction Co., 242 Penn. St. 269.; Matter of Madura v. City of New York, 238 N. Y. 214; Brown v. Robinson, 224 N. Y. 301; Eaton v. Standard Oil Co., 100 Conn. 443; Rockwell v. New Departure Mfg. Co., 128 Atl. Rep. 302; McKay v. Gesford, 124 Pac. Rep. 1016; Field v. Copping, 118 Pac. Rep. 329; Lockwood, Jr., Inc., v. Gross & Co., 99 Conn. 296; Lucas v. Crofoot, 95 Conn. 619; McGuffey v. PierceFordyce Oil Assn., 211 S. W. Rep. 335.) The judgment is not supported by the facts found. (Geddes v. Anaconda Mining Co., 254 U. S. 590; Billings v. Shaw, 209 N. Y. 265; Sage v. Culver, 147 N. Y. 241; Globe Woolen Co. v. Utica Gas & Electric Co., 224 N. Y. 483; Davids v. Davids, 135 App. Div. 206.)

      Frederick Collin, Thomas L. Hughes, Robert S. John-stone and J. Arthur Leve for respondents.
    The power and authority of the directors over the undivided profits, or surplus is absolute so long as they act in the exercise of an honest judgment. (Schwab v. Potter Co., 194 N. Y. 409; Williams v. W. U. Tel. Co., 93 N. Y. 162; Blancard v. Blancard, 125 Atl. Rep. 337; Hastings v. International Paper Co., 187 App. Div. 404; Nauss v. Nauss Brothers Co., 195 App. Div. 318; Dejonge v. Zentgraf, 182 App. Div. 43; Mitchell v. Des Moines & F. D. R. Co., 270 Fed. Rep. 465; McNab v. McNab & Harlin Mfg. Co., 62 Hun, 18; 133 N. Y. 687; Bickel v. Bickel Co., 184 Ky. 582;
      Thomas v. Laconia Car Co., 146 N. E. Rep. 775; Goetz’s Estate, 236 Penn. St. 630.) The requested findings conflict with actual findings. (Olbermann v. N. Y. & Northern Ry. Co., 77 Hun, 332; Hart v. Ogdensburg, etc., R. R. Co., 89 Hun, 316; Larsner v. Adair Machine Co., 137 N. Y. Supp. 565; Allen v. Francisco Sugar Co., 193 Fed. Rep. 825; Trask v. Chase, 107 Me. 137.) Plaintiffs, in attacking the action of a board of directors, are bound to affirmatively prove that the directors acted dishonestly and fraudulently. Integrity is always presumed and it is assumed, until plaintiffs make the contrary to appear, that the directors acted honestly towards their corporation. (Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; Polhemus v. Polhemus, 114 App. Div. 781, 786; Walsh v. Goulden, 130 Mich. 531.)
   McLaughlin, J.

This action was brought to procure a judgment declaring a resolution adopted by the board of directors of the Auto Strop Company on the 16th of May, 1923, void and of no effect, and enjoining the defendants and each of them from carrying out such resolution in any respect. The answers of the defendants put in issue the material allegations of the complaint.

Upon the issue thus joined, the matter was sent to a referee to hear and determine. He reported in favor of the defendants and upon his report a judgment was entered dismissing the complaint. An appeal was taken to the Appellate Division by the plaintiffs where the judgment was unanimously affirmed and leave to appeal denied. Such leave was thereafter granted by this court. In order to appreciate the legal questions presented by the appeal, it is necessary to briefly state the material facts involved.

Sometime prior to 1906 the defendant Gaisman had obtained certain patents on the auto strop safety razor and for the purpose of exploiting such patents he, during the year named, associated with himself one O’Rourke. They, for that purpose, organized the Auto Strop Company, with a capital stock of $200,000 consisting of 2,000 shares of the par value of $100, which was divided equally between Gaisman and O’Rourke. After the corporation had been organized they discovered that the corporation did not have sufficient working capital to successfully bring out and put upon the market what they deemed the pecuniary value of such patents and the products to be manufactured thereunder. In order to accomplish such result Gaisman and O’Rourke organized the Auto Strop Safety Razor Company, with a capital stock of $500,000 of which $400,000 was common and $100,000 preferred. All of the common stock was issued to the Auto Strop Company for an exclusive license to manufacture and sell, under the patents, auto strop safety razors and blades. The Auto Strop Company returned 498' shares of the razor company’s stock to the treasury of the razor company in order to enable it to offer a bonus of the common stock to purchasers. of its preferred stock. This left 3,502 shares of the common stock in the treasury of the Auto Strop Company. Out of the 3,502 shares, the Auto Strop Company distributed 1,000 shares as a dividend to its stockholders and after such distribution there remained in the treasury of the Auto Strop Company 2,502 shares.

In 1908 O’Rourke sold his 1,000 shares of the Auto Strop Company stock to Liebman, Klein, Lasher and Taussig; Liebman and Klein each becoming the owner of 333% . shares, and Lasher, representing Taussig and himself, becoming the owner of 333% shares, the other 1,000 shares being held by Gaisman. After the purchase of the Auto Strop stock Liebman, who had been a director of the razor company, also became a director of the Auto - Strop Company and secretary and treasurer of both companies. Klein also became a director of both companies.

Sometime in 1912 Liebman and Klein purchased the interest of Lasher and Taussig in the stock held by them. Subsequently, Gaisman offered to accept less than one-third of such stock to which he deemed himself legally entitled. His offer, for one reason or another, was not accepted. It is apparent that he was anxious to obtain sufficient of the stock to give him control, and he ultimately did obtain two additional shares of this stock which gave him a majority.

At the time Gaisman obtained these two additional shares it is claimed, and the record seems to bear out such claim, that there was an agreement between him and Liebman and Klein to the effect that the minority stockholders should have a representative on the board of directors of both corporations, and that there should be unanimous consent of the directors as to certain matters including loans, salaries, etc. Gaisman claimed that the agreement was to the effect that the restrictive clauses referred to were to be kept in force only so long as Liebman and Klein were creditors of the razor company. This claim on the part of Gaisman as to the effect of the agreement was disputed by Liebman. The conclusion at which I have arrived, however, renders such dispute quite unimportant.

In December, 1913, the charter of the Auto Strop Company was amended so as to provide, in addition to cumulative voting in the election of its own directors, that stock in any other corporation should be voted at all elections of directors of such other corporations for the persons nominated for directors by the stockholders of the Auto Strop Company by cumulative voting. This amendment enabled Liebman and Klein each to name one director of the razor company by voting at a stockholders’ meeting of the Auto Strop Company.

In February, 1914, Gaisman, Liebman and Klein signed a memorandum to the effect that Gaisman wished to acquire additional shares which would enable him to elect the entire board of the Auto Strop Company and of the razor company, and that the Auto Strop Company was to have five directors of whom one was to be named by Klein, one by Liebman, and the remainder by Gaisman; that the razor company was to have seven directors of whom Klein and Liebman were to name one each and Gaisman the rest. On the day following this arrangement, the charter of the Auto Strop Company was amended so as to permit amendments to its charter only on a vote of four-fifths of its stockholders, and also to provide that no stock of the Auto Strop Company should be voted to authorize any alteration or amendment of the certificate of any other company unless authorized by unanimous" vote or consent of all the directors of the Auto Strop Company. This amendment also contained other provisions; among them, one requiring the unanimous vote of all directors present in order to authorize the making of any contract of employment in excess of $3,000 per annum, or the making of any agreement relating to patents, trade marks, licenses, and loans, and the engaging in any manufacturing business. On the same day, in accordance with this amendment, the certificate of incorporation of the razor company was also amended. After such amendments to the charter and by-laws of the Auto Strop Company, unanimous consent of the directors was no longer necessary to any matter pertaining to the election of directors or the management of the corporation.

On the 16th of May, 1923, the directors of the Auto Strop Company voted to distribute as a dividend to its stockholders all of the stock of the razor company held by it. This resolution was opposed by Liebman and Klein. The purpose of this action is to prevent the carrying out of such resolution, the appellants claiming that the resolution was passed in bad faith; that to put the same into effect will be inequitable and detrimental not only to the rights of the plaintiffs but to the corporation.

After a careful consideration of this record I have no doubt as to the power of the majority of the directors of the Auto Strop Company to declare, by way of dividend, the stock of the razor company. This stock was simply a surplus. It was so regarded in 1906 when the 1,000 shares were distributed and it has remained so since. It is profit derived from the granting of the license under its patents. If the same were in money instead of stock, can there be the slightest doubt that the same might be distributed among its stockholders? It is a fundamental rule relating to the management of corporations that it is within the discretion of the directors to determine when and to what extent a dividend shall be made, subject of course to the qualification that the same shall not encroach on the capital. Courts will not interfere with such discretion unless it be first made to appear that the directors have acted or are about to act in bad faith and for a dishonest purpose. It is for the directors to say, acting in good faith of course, when and to what extent dividends shall be declared. Dividends, when declared, must be out of surplus or undivided profits. If stock of another corporation be held which constitutes a part of the surplus or undivided profits, it is legally distributable among the stockholders as a dividend precisely the same as if it Were cash. (Matter of Rogers, 22 App. Div. 428; affd., 161 N. Y. 108; People ex rel. Queens Co. Water Co. v. Travis, 171 App. Div. 521; 219 N. Y. 571.) The statute confers upon the directors this power, and the minority stockholders are not in a position to question this right, so long as the directors are acting in good faith. That is the test and the fixed standard. (Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185.) This fact is well known to minority stockholders when they acquire stock in a corporation. The action of the majority directors must not amount to a fraudulent destruction or impairment of the rights of minority directors or non-assenting stockholders. (Godley v. Crandall & Godley Co., 212 N. Y. 121.) The declaration of a dividend must be for the benefit of all. If it is done solely for the purpose of benefiting the majority to the detriment of the minority, then a court of equity will, never hesitate to exercise its equitable powers to prevent the perpetration of the wrong by which the majority are seeking to impose upon the minority. But before a court of equity will interfere with the action of a majority of the directors, facts must be presented from which the court can find that such action has underlying it a fraudulent purpose and corrupt intent. Obviously, if such action is for the benefit of the corporation, which includes all of the stockholders, bad faith or a fraudulent and corrupt intent cannot arise or be inferred.

Applying what has been said to the facts' as found by the referee, which findings have been unanimously affirmed by the Appellate Division, it necessarily follows, as - it seems to me, that the judgment appealed from must be affirmed. The referee found that the resolution declaring the dividend was not dishonest or designed by the defendants Gaisman, Maas and Coleman, or any of them, to be against the best interests of the Auto Strop Company or any of its stockholders; that the distribution, directed by the resolution, of the shares of stock of the razor company was not and is not injurious or detrimental to the plaintiffs or any of them or to the Auto Strop Company; that the declaration of such dividend was the corporate act of the defendant Auto Strop Company and was for the best interests of both companies; that the majority of the directors of the Auto Strop Company passed said resolution in the exercise of their best and honest judgment; that in doing so they acted in good faith and in an honest belief that their action was for the best interest of the Auto Strop Company and of its stockholders; that in passing said resolutions the defendants Gaisman, Maas and Coleman did not, nor did any of them, intend to further any personal or selfish interest of themselves, or any other defendant; that they acted honestly and in good faith.

These findings, having been unanimously affirmed, conclusively establish that the purpose of the declaration of the dividend was not to accomplish an ulterior object in the interest of a particular stockholder,” but, on the contrary, that the same was in the interest of the corporation and, if so, necessarily in the interest of all the stockholders.

Having reached this conclusion, it is unnecessary to consider or pass upon the other questions presented by the briefs and on the oral argument, however interesting they-may be.

The judgment appealed from should be affirmed, with costs.

Cardozo, Pound, Crane and Andrews, JJ., concur with McLaughlin, J.; Hiscock, Ch. J., concurs in result; Lehman, J., not voting.

Judgment affirmed.


text:
    Jesse D. Brigham et al., Copartners under the Firm Name of J. G. Brigham & Co., Respondents, v. Reuben W. Duany et al., Appellants, and Port Chester Lumber Company, Respondent, Impleaded with Another.
    Liens •— foreclosure of mechanic’s lien — landlord and tenant — contract — materials furnished on credit of tenant — recovery against landlords as on contract not supported by mere findings of consent and benefit on their part — futile attempt to file notice of lien creates no contractual liability — no recovery warranted under sections 64 or 64 of the Lien Law •—• unanimous affirmance of finding of consent — assumed that consent was such as law requires.
    1. Consent and benefit do not in themselves create an agency or import contractual liability as between the landlord and those who furnish materials on the tenant’s credit.

      2. A recovery, in an action to foreclose a mechanic’s lien, as of an amount due on a contract to pay for the materials, made by the owners with the plaintiffs, is not supported by findings that the owners consented to the improvements by. the plaintiffs under the agreement between them and the tenant and derived pecuniary benefit from such improvements. No contract to pay for the materials furnished may be implied from such findings and the tenant is not, as such, the agent of the landlords who may charge him with personal liability for materials ordered for the improvement of the real estate. A futile attempt to file a notice of lien in itself creates no contractual liability which does not otherwise exist. No recovery may be had, therefore, under the provisions of section 54 of the Lien Law and section 64 merely makes clear that a personal judgment may be granted if the lienor fails to establish his lien but does establish a contractual liability.
    3. A lien in favor of one of defendants resting on a finding of the consent of the owners to the improvements, being unanimously affirmed, it must be assumed that the finding implies the ultimate fact of the consent which the law requires.

      Brigham v. Duany, 211 App. Div. 869, modified.
    (Argued December 8, 1925;
    decided January 12, 1926.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered May 8, 1925, modifying and affirming as modified a judgment in favor of plaintiffs entered upon a decision of the court on trial at Special Term.

      William A. Davidson for appellants.
    The plaintiffs are not entitled to a personal judgment against the owners. (Gilmour v. Colcord, 183 N. Y. 342; Zimmerman v. Loft, 125 App. Div. 725; Kane v. Hatkoff, 81 App. Div. 105; Siegel v. Ershowsky, 46 Misc. Rep. 605.) There was no consent, request or action by or on behalf of the owners, or either of them, by reason of which their lands could be charged with the hens in question, and there is no evidence in the record to sustain the findings to the effect that there was such a consent. (De Klyn v. Gould, 165 N. Y. 282; Rice v. Culver, 172 N. Y. 60; Garber v. Spivah, 65 Misc. Rep. 37; Sager v. Renwick Park & Traffic Assn.,
      172 App. Div. 359; Beck v. Catholic University, 172 N. Y. 387; Petrillo v. Pelham Bay Park Land Co., 119 Misc. Rep. 154.)

      William C. Young, for plaintiffs, respondents.
    The defendants Reuben* W. Duany and Helen L. Duany consented to the improvements and a personal judgment against them is proper. (Butler v. Flynn, 51 App. Div. 225; National Wall Paper Co. v. Sire, 163 N. Y. 122; Anderson v. Falkenmayer, 148 N. Y. Supp. 746; Prime v. Hughes, 159 N. Y. Supp. 1041; Ball v. Doherty, 144 App. Div. 277; New Chester Theatre Co. v. Bischoff, 205 N. Y. Supp. 641; Mitchell v. Dunmore Realty Co., 135 App. Div. 583; 199 N. Y. 529; Gilmour v. Colcord, 96 App. Div. 358; 183 N. Y. 342.)

      John M. Holzworth for defendant, respondent.
   Pound, J.

Plaintiffs brought this action to foreclose a mechanic’s lien filed by them against premises owned by defendants Duany as tenants by the entirety and occupied by a tenant, defendant Cudia. Defendant Port Chester Lumber Company also sought to enforce its lien. The materials were furnished to the defendant tenant while he occupied the premises under a ten-year lease dated January 2, 1922. The lease was canceled by consent of parties on November 18, 1922, within a year from its date. Judgment of foreclosure was granted in favor of plaintiffs and defendant lumber company. The Appellate Division reversed the plaintiffs’ judgment of foreclosure, holding that their notice of lien was defective. It gave plaintiffs personal judgment against the defendant owners for $989.45 and affirmed the judgment in favor of the defendant lumber company. From the judgment entered upon the order of the Appellate Division defendant owners appeal.

The judgment herein depends on sections 3,54 and 64 of the Lien Law (Cons. Laws, ch. 33) which read as follows:

■“ § 3. Mechanic’s lien on real property. A contractor, sub-contractor, laborer, or material man, who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof, or of his agent, contractor or sub-contractor, shall have a lien for the principal and interest of the value, or the agreed price, of such labor or materials upon the real property improved or to be improved and upon such improvement, from the time of filing a notice of such hen as prescribed in this article.”

“ § 54. Judgment in case of failure to establish lien. If the lienor shall fail, for any reason, to establish a valid lien in an action under the provisions of this article, he may recover judgment therein for such sums as are due him, or which he might recover in an action on a contract, against any party to the action.”

§ 64. Award of personal judgment by court or referee. A court or referee in any action heretofore or hereafter brought may at any time award a money judgment in favor of any party. This shall not preclude the rendition of other judgments in the action. Any payment made on account of either judgment in favor of a party shall be credited on the other judgment.”

A recovery has been ahowed as of the amount due on a contract to pay for the materials, made by the owners with the plaintiffs. This the findings do not support. A finding appears that defendants Duany consented to the improvements of the premises by the plaintiffs under the agreement between them and the tenants and derived pecuniary benefit from such improvements. No finding appears that the sum for which the lien was claimed was due to plaintiffs from defendants Duany and no finding from which it might be implied that plaintiffs could recover in an action on contract against such defendants. The facts and circumstances of the case as found do not imply a contract to pay for the materials furnished. The tenant is not, as such, the agent of the landlord who may charge him with personal liability for materials ordered for the improvement of the real estate. If the liens are confined to work and materials called for by the lease towards which the landlord is obligated to contribute, the landlord may be said to have made the tenant his agent for the purpose of subjecting the land to the lien of the improvement. (McNulty Bros. v. Offerman, 221 N. Y. 98.) But consent and benefit do not in themselves create an agency or import contractual liability as between the landlord and those who furnish materials on the tenant’s credit. (Gilmour v. Colcord, 183 N. Y. 342, 345; Cummings v. Broadway-94th St. Realty Co., 233 N. Y. 407, 412, and cases cited.)

A mechanic’s lien is the basis for the equitable remedy of foreclosure and sale. The statute provides that the consent of the owner to the improvement of his real property is a proper basis for a lien. No fundamental principle of the law of contracts is thereby affected. The futile attempt to file a notice of lien in itself creates no contractual liability which does not otherwise exist. No recovery may be had herein on contract against the owners under the provisions of section 54 above quoted. Section 64 merely makes clear that a personal judgment may be granted if the lienor fails to establish his hen but does establish a contractual liability.

The judgment in favor of plaintiffs should, therefore, be reversed and the complaint dismissed, with costs in all courts in favor of defendant owners.

The Port Chester Lumber Company’s hen rests on a finding of the consent of the owners to the improvement of their building. This finding is unanimously affirmed. It must be assumed that the finding implies the ultimate fact of the consent which the law requires. (Gates & Co. v. Nat. Fair & Exp. Assn., 225 N. Y. 142.) “ Mere acquiescence * * * with knowledge, is not sufficient evidence of the consent which the statute requires. There must be something more. Consent is not a vacant or neutral attitude in respect of a question of such material interest to the property owner. It is affirmative in its nature. It should not be implied contrary to the obvious truth, unless upon equitable principles the owner should be estopped from asserting the truth.” (De Klyn v. Gould, 165 N. Y. 282, 287.) The judgment, however, provides that the lien is valid only as to the interest of the defendant Reuben Duany (tenant by the entirety) in the premises (it having been filed against his interest only) and that the payment of its claim is to be made only out of that proportion of the proceeds of the sale of the premises represented by his interest therein. As the plaintiffs’ judgment of foreclosure and sale has been reversed, this provision of the judgment should be modified so as to provide for the sale only of the interest of Reuben Duany as tenant by the entirety, and as so modified affirmed, with costs to lienor.

His cock, Ch. J., Cardozo, McLaughlin, Crane, Andrews and Lehman, JJ., concur.

Judgment accordingly.


text:
    Percy Kent Company, Respondent, v. Meyer Silberstein, as Surviving Partner of the Firm of S. Silberstein & Son, Appellant.
    Contract — sale — delivery — words “ shipping instructions later ” put obligation on buyer to send instructions before seller is obliged to deliver — seller under no obligation to notify buyer that goods were ready — in absence of shipping instructions attempted cancellation of contract on ground of failure to deliver void — seller may recover for breach of contract to receive and pay for goods.
    Contracts for the sale of goods providing “ shipment, delivery at mill * * * shipping instructions later ” clearly show that the shipments were to be made at the mill and only when shipping instructions ■ were received. The purpose of the words “ shipping instructions later ” was to put the obligation on the buyer to send instructions before the seller was under any obligation to make deliveries and the latter was under no obligation to notify the buyer that the goods were ready for shipment. An attempted cancellation of the contract, therefore, on the ground that deliveries were not made within the time specified, fails where it appears that shipping instructions were never given, and in an action by the seller the buyer may properly be held for damages in not receiving and paying for the goods in accordance with the contracts.

      Kent Co. v. Silberstein, 213 App. Div. 855, affirmed.
    (Argued December 10, 1925;
    decided January 12, 1926.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered April 8, 1925, unanimously affirming a judgment in favor of plaintiff entered upon a verdict directed by the court.

      Henry C. Burnstine for appellant.
    In no event could plaintiff recover because it failed to perform. (Personal Property Law, § 124, subd. 3.) Defendant did not breach the contracts. (Rubber Trading Co. v. Manhattan R. Mfg. Co., 221 N. Y. 120; Blumenthal v. Gallert, 240 N. Y. 217.)

      Edwa/rd M.- Grout for respondent.
    In a sales contract which reads “ delivery at mill,” “ shipping instructions later,” the first obligation is upon the buyer to give the shipping instructions, and the seller is not obliged to deliver until such instructions are given. (Frackville Mfg. Co., Inc., v. Barish, 204 App. Div. 871; 237 N. Y. 582; Del Castillo v. Silberstein, 198 App. Div. 921.) The Appellate Division properly construed the contracts here as requiring the buyer to send his shipping instructions before the end of each month to enable the seller to ship the goods in accordance with such instructions. (Gordon Malting Co. v. Bartels Brewing Co., 206 N. Y. 541; British Aluminum Co., Ltd. v. Trefts, 163 App. Div. 184; Fuller

      & Co., Inc., v. Jordan, Jr., Inc., 196 App. Div. 114; Kingman & Co. v. Hanna Wagon Co., 176 Ill. 545; Weill v. American Metal Co., 182 Ill. 128; Krauter v. Simonin, 274 Fed. Rep. 791; Atkinson v. Truesdell, 127 N. Y. 230; Mersereau v. Hirsch Co., 136 App. Div. 271.)
   McLaughlin, J.

This action was brought to recover damages for the alleged breach of two contracts, the terms of which are similar. Under each contract the plaintiff agreed to sell and deliver and the defendant agreed to accept and pay for 200,000 yards of sheeting to be manufactured by William Iselin & Co. The purchase price was 22 cents per yard, delivery to be made at the mill of Iselin & Co., 50,000 yards each in September, October, November and December, 1918. Each contract contained the words shipping instructions later.” The alleged breach of contract set forth in the first cause of action is as follows:

VI. Thereafter the plaintiff procured said goods to be manufactured pursuant to the said contract by the firm of William Iselin and Company, and had the same ready at the mill for delivery at the rate of approximately 50,000 yards each in September, October, November, and December, 1918, according to the said contract and to the custom in the cotton goods trade, and notified the defendant that the same were ready for shipment and. delivery, and offered to deliver the same pursuant to said contract, but the defendant failed and refused to give shipping instructions for said goods and failed and refused to receive the same and pay therefor, and notified the plaintiff that he would not receive the same, and the plaintiff thereafter, and upon notice to the defendant, sold the said goods in open market for and on account of the defendant and at the best prices obtainable therefor. Thereby the defendant broke the said contract, to the damage of the plaintiff in the sum of $'12,765.77, payment of which the plaintiff demanded of the defendant on or about the 10th day of January 1919, and which the defendant refused to pay.”

The alleged breach in the second cause of action is substantially the same.

There have been two trials. On the first, the court dismissed the complaint but, on appeal, the judgment was reversed and a new trial ordered (200 App. Div. 52). On the second trial, at the close of the evidence, each party moved for the direction of a verdict in its favor. The court denied defendant’s motion and granted the plaintiff’s. The jury, in accordance with the court’s direction, rendered a verdict in favor of the plaintiff for a substantial amount. On appeal, the judgment entered on such verdict was unanimously affirmed and leave to appeal denied. This court, however, granted such leave.

On October 5, 1918, the defendant, the buyer, wrote to the plaintiff, the seller, saying, “ Owing to your lateness in delivery on the above contracts we will ask you to kindly cancel these as we will accept no further deliveries. Kindly acknowledge receipt and oblige.” The plaintiff, prior to the receipt of this letter, wrote the defendant as follows: “ We enclose invoice covering 4 yd. sheetings held at mill against your contracts * * *. Will you kindly give us shipping instructions for this lot and also for the October and November and December portions if possible? If you can not give us shipping directions now for the November and December portions, please let us have instructions on the October portion, and oblige.” The plaintiff replied to this letter, as follows: “ Replying to your valued favor of the 5th, beg to say that we are unable to follow your request to cancel as the September portion of goods, namely, 100,000 yards' are all ready at the Mill, and were all ready before Sept. 30th, and we have been awaiting your shipping instructions. We have received the invoice from Wm. Iselin & Co. who sold us these goods, under date of September 30, for the entire lot, and we now await your instructions, having in turn sent you invoice which you have just requested over the ’phone.” In answer to this letter, the defendant wrote the plaintiff on October 9 as follows: We are in receipt of your letter of October 8th regarding the 4.00 Sheetings, and wish to say, that due to the fact that you have been late on delivery on this contract we cancelled same on the date of October 5th, and we can not at this time accept these goods. We also wish to say that we have never requested you over the phone or any other way to send us these invoices.”

The question presented by the appeal turns upon the interpretation of the contracts and the effect of these letters. Each contract expressly provided “ shipment, delivery at mill. * * * shipping instructions later.” The defendant took the position, as indicated by the correspondence referred to, that the sheeting not being delivered in September as required by the contract, gave him the right to cancel the contract which he claims he did by the letter of October 5. The plaintiff, on the other hand, took the position and now urges that the defendant having failed to send shipping instructions as required by the contracts, it was unable to make shipments during September.

The contracts clearly show that the shipments were to be made at the mill and only when shipping instructions were received. It is obvious that the purpose of the words “ shipping instructions later ” was to put the obligation on the buyer to send instructions before the seller was under any obligation to make deliveries. The seller could not make the shipments until such instructions were received. The plaintiff was under no obligation to notify the defendant that the goods were ready for shipment. The defendant knew, because the contracts expressly provided when the shipments were to be made and that they were to be made only after shipping instructions had been furnished. Defendant having failed to give such instructions, he could not cancel the contracts because the deliveries were not made. That they were not made was due to his own fault.

The sheeting was to be manufactured by Iselin & Co. The contracts show this. Each contains a provision that If the production of mills be curtailed during the time above named by strikes or lockouts, to counteract strikes or any unavoidable casualty, shipments will be made proportionate to the production.”

The price of sheeting had materially declined after the contract was made. It is quite evident that the defendant did not want the sheeting for that reason; hence no shipping instructions were given. He knew or should have known that a delivery could not be made until such instructions were given. It is urged that the plaintiff could have stored the sheeting at the mill. Whether this is so or not, I do not know. I do know that this was not the contract. Each contract provided that 50,000 yards of sheeting were to be delivered during each of the months of September, October, November and December. The plaintiff was ready to make such deliveries but it could not do so until shipping instructions were given. Such instructions never were given, and defendant was properly held for damages in not receiving the sheeting and paying for the same as he had contracted to do.

I am of the opinion that this judgment is right, and the same should be affirmed, with costs.

His cock, Ch. J., Caedozo, Pound, Cbane, Andbews and Lehman, JJ., concur.

Judgment affirmed.