author: Lehman, Ch. J.

text:
    Noah Fleder, Respondent, v. Max M. Itkin, Doing Business under the Name of Made-Rite Curtain Co., Appellant.
    Argued January 3, 1945;
    decided March 1, 1945.

      Arthur S. Rappaport for appellant.
    I. The defense that the action has been prematurely brought is established. (Kane Realty Co., Inc., v. Nat. Children’s Stores, Inc., 169 Misc. 699; Jaeger v. Canter, 13 N. Y. S. 2d 414.) II. The order granting partial summary judgment to the respondent should be reversed, the judgment entered thereon set-aside, and the order denying appellant’s cross motion to dismiss the complaint reversed. (Barrett v. Jacobs, 255 N. Y. 520.) III. The doctrine of anticipatory breach is inapplicable. (Nichols v. S. S. Co., 137 N. Y. 471; Indian River Islands Corp. v. Manufacturers Trust Co., 253 App. Div. 549; Werner v. Werner No. 3, 169 App. Div. 9.)

      Seymour Georges Mackler and Harvey Kay Mackler, for respondent.
    I. The claim that the action is prematurely brought, fails to meet the issues. (Ferris v. Spooner, etc., 102 N. Y. 10; Windmuller v. Pope, 107 N. Y. 674; Wester v. Casein Co. of America, 206 N. Y. 506; State Street Trust Co. v. Ernst, 278 N. Y. 104.) II. Plaintiff is entitled to partial summary judgment for the amount eoneededly due him. (Apfelbaum v. Gross, 117 Misc. 140, 200 App. Div. 914; Goodman v. Goulard & Olena, Inc., 145 Misc. 380; International Milk Co., Inc., v. Cohen, 219 App. Div. 308; Forsythe v. United States Fidelity & Guaranty Co., 130 Misc. 569; Tatum v. Maloney, 226 App. Div. 62; Reliable Loan & Investment Co. v. Delgus Co., Inc., 223 App. Div. 94; Dairymen’s League Co-operative Assn., Inc., v. Egli, 228 App. Div. 164; Sheehan v. Cone General Advertising Agency, Inc., 176 Misc. 882; Mayfair Detectives, Inc., v. Karp Metal Products Co., 264 App. Div. 410.) III. The doctrine of anticipatory breach is applicable and the action has not been brought prematurely. (Masconi v. Miller, Inc., 261 N. Y. 1; State Street Trust Co. v. Ernst, 278 N. Y. 104; Nichols v. S. S. Co., 137 N. Y. 471; Ferris v. Spooner, etc., 102 N. Y. 10.)
   Lehman, Ch. J.

The plaintiff was employed by the defendant as a salesman under a written contract dated January 9, 1943, which provided, among other things, that the agreement should be in effect for one year from its date, that the plaintiff should have a drawing account of forty dollars per week and should be entitled to one half of the net profit of the business as shown on the certificate of a semi-annual audit subscribed by a certified public accountant, to be “ nominated ” by the defendant. The measure to be used by the accountant in determining the “ net ” profit was fixed by the contract, and the parties provided that the audit of the said certified public accountant subscribed in his hand shall be accepted as conclusive evidence of the net profit or the net losses, as the case may be.”

On February 24, 1944, after the contract of employment had expired, the plaintiff commenced this action against the defendant for damages in the sum of $10,000, which, he alleged, had been caused by breach of the contract by the defendant. In his complaint the plaintiff alleged that the defendant had failed to operate the said business in its normal and usual course ” and had “ omitted to make shipments and fill orders * * * so that the profit upon the said sales would not accrue within the term of the said agreement.” He alleged in the complaint also that the defendant had failed “ to cause an ascertainment and determination of net profit to be made by a certified public accountant, pursuant to the terms of the said agreement, but has informed the plaintiff that a certain alleged audit has been made, which the defendant has refused to furnish to the plaintiff, although permitting the plaintiff to examine and copy ”. The plaintiff admits in the complaint that ‘ ‘ the defendant has paid to the plaintiff a drawing account as agreed upon ” and has paid the sum of $5000 on account of the share of the net profit of the business to which the plaintiff is entitled.

The defendant in his amended answer denied the breach of contract alleged in the complaint and pleaded two affirmative defenses. In the first defense he alleged that on January 10, 1944, before the net profit of the business had been ascertained and determined, the plaintiff, by an instrument in writing annexed to the answer, accepted from the defendant the sum of $4,000 on account of his share of the profits of the business and “ agreed to accept the balance thereof, if any, within forty days after an ascertainment and determination of the balance due him shall have been made in the manner and form set forth therein.” That “ an ascertainment and determination ” of the balance was made on February 14, 1944, and that the action commenced on February 24th, less than forty days thereafter, was prematurely brought. In the second affirmative defense the defendant repeated the allegations of the first defense and alleged in addition that the net profit of the business ascertained by an audit made by a certified accountant showed “ a balance of $2854.30 owing from defendant to plaintiff ”; that on March 22, 1944, “ the defendant duly tendered to the plaintiff * * * the sum of $2854.30 less the Withholding Tax on said sum amounting to $570.86 leaving a balance of $2283.44 together with the sum of $17.00 as and for the costs of this action.” making a total of $2,300.44, and that on March 24, 1944, defendant paid and deposited the sum of $2,300.44, inclusive of costs, into court.

The plaintiff then moved, pursuant to rule 114 of the Rules of Civil Practice, for a partial summary judgment in the sum of $2,283.44. The defendant made a cross motion pursuant to rule 113 for judgment dismissing the- complaint. The plaintiff’s motion was granted and the defendant’s cross motion denied. The Appellate Division affirmed the order of Special Term, granting partial summary judgment and severing the action in respect to the balance of the plaintiff’s claim, one justice dissenting, and the defendant has appealed from the judgment entered upon the order of the Appellate Division, and seeks to bring up for review the order denying his cross motion.

Payment of money into court by a defendant after the commencement of an action was said by Blackstone to be a “ species ” of confession of one. part of the complaint. “ If, after the money is paid in, the plaintiff proceeds in his suit, it is at his own peril: for if he does not prove more due than is so paid into court, he shall be non-suited and pay the defendant costs; but he shall still have the money so paid in; for that the defendant has acknowledged to be his due.” (3 Blackstone, p. 304.) The common-law rule was codified in the Revised Statutes and in turn in the Code of Civil Procedure. This court has said that the effect under the statutes, as now under the Code, has always been considered to be that the plaintiff recovers in any event the amount of the tender. Judge Bradley, at General Term, in the case of Wilson v. Doran (39 Hun, 90), collected the authorities in the English reports and in this state, and has there reviewed them.” (Taylor v. B. E. R. R. Co., 119 N. Y. 561, 565.) The court there held that “ the moneys belonged to the plaintiff from the moment of their deposit, by force of their payment into court ”.

The effect of a tender and payment into court was, however, changed when the Code of Civil Procedure was superseded by the Civil Practice Act. If the plaintiff accept a tender, it shall be deemed in satisfaction of the cause of action in respect of which the tender was made, and the defendant may move for a judgment dismissing the complaint, without costs. Where money constituting a tender shall have been paid into court and not accepted, 1. If the defendant recover judgment, the money shall be paid to him; 2. If the plaintiff recover judgment, the money shall be applied upon his judgment, and the surplus, if any, paid to the defendant; 3. If the plaintiff’s judgment * * * is not in excess of the tender * * * the plaintiff cannot recover costs or interest from the time of the tender, but must pay the defendant’s costs from that time * * (Civil Prac. Act, § 173.) The reviser’s notes explaining the reason for the suggested change state that under the older rule “ in case the plaintiff accepts the defendant’s tender, he can proceed with the action nevertheless. Resort therefore to these provisions is rare.” To encourage more general use of the right to pay money into court the practice in New York was, in the Civil Practice Act, assimilated to the practice in New Jersey, as provided in the New Jersey Practice Act of 1912 and the Supreme Court Rules, annexed by the Legislature to that act, under which a tender of -moneys by a defendant kept good by payment into court is little more than an offer to buy peace, which, if accepted, satisfies the plaintiff’s cause of action but which, if- not accepted, is not a confession that the ■ amount tendered is due upon the cause of action pleaded.

The plaintiff’s motion for partial summary judgment is not an acceptance of the tender, and is made subject to an implied reservation of the right to proceed with the prosecution of the cause of action for the remainder of his claim. The plaintiff’s application for partial judgment pursuant to rule 114 of the Rules of Civil Procedure must be supported by proof that part of plaintiff’s claim is admitted. The tender and payment of the money into court does not itself furnish such v proof since, under the Civil Practice Act, the defendant still has the right to defend' the action and the money paid into court can be applied upon the plaintiff’s claim only if the defendant is unsuccessful in his defense. At common law, as under the Code, a tender followed by payment into court was more than a purchase of peace — it was “ an admission of liability upon the cause of action alleged to the extent of the amount so paid in.” (Wilson v. Doran, 39 Hun 88, 90, 91.) See authorities collected in the opinion of Bradley, J., in that ease. See also opinion of this court (110 N. Y. 101) in the same case. The rules of the Supreme Court in New Jersey expressly provided: “ Payment into court by defendant upon plaintiff’s claim, shall be an admission of the cause of action in respect to which it is made; but not so, if the answer denies the cause of action.” (Rule 42.) The same rule that payment into court is not an admission of the plaintiff’s cause of action, at least if the answer denies the plaintiff’s asserted right to recover, is implicit in the provisions of the Civil Practice Act of this State. Otherwise the purpose of the Legislature to encourage resort to the provisions of the act would be thwarted. Only where, in court or out of court, a defendant admits without qualification a part of the plaintiff’s claim and it appears that there is no real dispute in regard to any fact affecting the plaintiff’s right to enforce that part of his claim, may the plaintiff have final judgment forthwith ” for the part of the claim which is admitted.

In this case it appears, not only from the pleadings but also from the affidavits submitted in support of the motion and from those submitted in opposition, that the defendant admitted at the time of his tender that the amount tendered was then due to the plaintiff and that the defendant still admits so much of the plaintiff’s claim but contends that no part of the plaintiff’s claim was due when the action was commenced. The pleaded defense that the action was prematurely commenced applies to the part of the plaintiff’s claim which the defendant admits as well as to the part of the plaintiff’s cause” of action which has been severed from the admitted claim. It constitutes a denial of the plaintiff’s right to recover upon that cause of action. Whether or not that defense can be established must await trial. The serious question presented upon this appeal is whether the plaintiff may, pursuant to rule 114, have judgment forthwith for the part of the claim which is admitted, though the validity of defendant’s challenge of the plaintiff’s right to recover upon the canse of action pleaded cannot he summarily determined.

In Appelbaum v. Gross (117 Misc. 140, 144, affd. 200 App. Div. 914), the court held, soon after rule 114 was adopted, that partial summary judgment might be granted pursuant to the new rule upon the admission of the defendant that a part of the amount claimed by the plaintiff was due though «“ it cannot be said surely to grow out of either of the causes of action set forth in the complaint.” More recently the scope of rule 114 was considered and discussed by Mr. Justice Shientag in the case of Sheehan v. Cone General Advertising Agency, Inc. (176 Misc. 882, 884). Pointing out the significance of the fact that " while rule 113 of the Rules of Civil Practice, providing for complete summary judgment, requires that it be given in accordance with the cause of action alleged in the complaint, rule 114, dealing with partial summary judgment, makes no reference to the cause of action but applies where any part of the plaintiff’s claim is admitted ”, Mr. Justice Shientag said that “ plaintiff’s claim is the transaction on which he sues.” The court held “ therefore, that rule 114 of the Rules of Civil Practice permits the entry of partial summary judgment where there is an unqualified admission that there is due to the plaintiff a precise sum, less than the amount sued for, upon the same transaction forming the basis of the plaintiff’s claim, although the admission of liability is predicated upon a cause of action different from that alleged in the complaint, or upon different terms concerning the same type of action.” (See, also, to the same effect,, Parthenia Corp. v. Morse, 41 F. 2d 961.)

We agree with the construction placed upon rule 114 by Mr. Justice Shientag. It permits a plaintiff to recover judgment forthwith ” where a defendant admits that he has no defense on the merits to a part of the plaintiff’s claim though he may have a defense which might enable him to defeat recovery upon the cause of action pleaded and to delay recovery of judgment even for the part of the claim which defendant is, admittedly, in duty bound to pay immediately. The defendant can suffer no injustice by the entry of such a partial judgment. Though the plaintiff has not accepted the tender of the amount admittedly due to him he has recovered a partial judgment for the amount so tendered upon the defendant’s unqualified admission that there is due to the plaintiff that precise sum and after satisfaction of that partial judgment he can, of course, no longer accept tender of the same sum. Under the circumstances of this case the defendant, upon proof of satisfaction of the judgment, can, therefore, apply to the Supreme Court for permission to withdraw the amount paid into court except the costs of the action up to the time of the tender. If the defendant thereafter in the severed action sustains his defense that the action is prematurely brought and the plaintiff fails to recover judgment upon the cause of action pleaded, the defendant will be entitled to costs and to the return of moneys paid into court for costs while the plaintiff will have what is concededly due him and no more.

The judgment should be affirmed, with costs.

Loughran, Lewis, Conway, Desmond, Thacher and Dye, JJ., concur.

Judgment affirmed.


source: Caselaw Access Project

license: Public Domain

text:
    In the Matter of the Estate of Thomas F. Ryan, Deceased. George E. Cleary et al., as Executors of Clendenin J. Ryan, Deceased, Appellants and Respondents; United States of America, Intervener, Appellant and Respondent; Clendenin J. Ryan, Jr., et al., Respondents and Appellants, and Guaranty Trust Company of New York, as Trustee for the Benefit of Clendenin J. Ryan under the Will of Thomas F. Ryan, Deceased, Respondent.
    Argued January 2, 1945;
    decided March 1, 1945.

      John L. Gray, Jr., for George E. Cleary and another, as executors of Clendenin J. Ryan, deceased, appellants and respondents.
    I. On the rent offset claim, appellants hereby concur and join in the brief filed herein on behalf of appellant United States of America. II. Section 17-a of the Personal Property Law was not intended to apply where so-called stock dividends are paid out of current corporate earnings. The words “ stock dividend ” as used in section 17-a do not include stock dividends paid out of current earnings. (Matter of Villard, 147 Misc. 472; Matter of Osborne, 209 N. Y. 450; Estate of John T. Atterbury, N. Y. L. J., May 5, 1937, p. 2251; Matter

      of Kennedy, N. Y. L. J,, Feb. 18, 1938, p. 848, 254 App. Div. 846, 279 N. Y. 255; Estate of Marie M. Runkle, N. Y. L. J., May 18, 1939, p. 2295; City Bank Farmers Trust Co. v. Ernst, 263 N. Y. 342; Kellogg v. Mann, 166 Misc. 791, 254 App. Div. 812.) III. The construction sought by the remaindermen would defeat the testator’s intention, place an onerous burden on trustees, and lead to endless litigation. IV. The will provides by clear implication that so-called stock dividends are payable to the life beneficiary and accordingly the provisions of section 17-a do not apply. (Matter of Villard, 147 Misc. 472.)

      John F. X. McGohey, United States Attorney for the Southern District of New York (John B. Creegan of counsel), for United States of America, appellant and respondent.
    I. The claim of the United States for income taxes must be accorded priority over the claim for rent of the trustee by the plain command of section 3466 of the Revised Statutes. (Matter of Watson, 262 N. Y. 284; Equitable Trust Co. of N. Y. v. Miller, 197 App. Div. 391, 233 N. Y. 650; Matter of Summerfield, 172 Misc. 509; Jarcho Bros., Inc., v. Leverich, 240 App. Div. 783; Matter of Depew, 179 Misc. 1074; Shiposki v. Von Leidersdorff, 261 App. Div. 1002; Matter of Lincoln Chair & Novelty Co., 274 N. Y. 353; United States v. Texas, 314 U. S. 480; In re Stephen Van Winkle, 49 F. Supp. 711; United States v. Emory, 314 U. S. 423; New York v. Maclay, 288 U. S. 290; Thistle v. Jones, 123 App. Div. 40.) II. In any event the trustee has no "equitable retainer or charge on the accrued income by reason of the rent claim. (Restatement, Trusts, §§ 251, 252, 253, 257, Scott on Trusts, §§ 251, 252, 255.1; Smith v. Kearney, 2 Barb. Ch. 533; Matter of Van Nostrand, 177 Misc. 1; Smith v. Smith, 1 Y. & C. Ex. 338; Matter of Grifenhagen, 174 Misc. 559; Matter of Friedman & Bro., Inc., 150 Misc. 209; Matter of Suderov, 153 Misc. 214; Thistle v. Jones, 123 App. Div. 40; Matter of Summerfield, 172 Misc. 509; In re Abrahams [1908] 2 Ch. [Eng.] 69; Hayes v. Hayes, 2 Del. Ch. 191; Matter of Cramer, 166 Misc. 713; Matter of Ungrich, 201 N. Y. 415; Matter of Chamberlin, 289 N. Y. 456.) III. Nor has the trustee a legal right to set off the rent due after the death of the life beneficiary against the income accrued to the date of death of the life beneficiary. (Pink v. Title Guarantee & Trust Co., 274 N. Y. 167; Fera v. Wickham et al., 135 N. Y. 223;
      Martin v. Kunzmuller, 37 N. Y. 396; Bradley v. Angel, 3 N. Y. 475; Matter of Friedman & Bro., Inc., 150 Misc. 209; Matter of Suderov, 153 Misc. 214; Gerseta Corporation v. Equitable Trust Co., 241 N. Y. 418.) IV. The lease and modification thereof did not in express terms authorize the retention by the trustee of income as against future obligations under the lease. If it can be so interpreted, the provision is null and void in violation of section 15 of the Personal Property Law. (Matter of Glover, 246 App. Div. 781.) V. The respondent, United States of America, concurs and joins in the brief filed herein on behalf of respondents George E. Cleary and Robert G. Surridge, as executors of Clendenin J. Ryan, deceased.

      Leonard P. Moore for Clendenin J. Ryan, Jr., and others, respondents and appellants.
    I. The rent and other charges owing, under the Clendenin J. Ryan lease, to the trustee of the large trust are equitable charges, set-offs or liens against any accrued income in trust. (Matter of Miller, 257 N. Y. 349; Matter of Thomas, 254 N. Y. 292; Matter of Lathers, 137 Misc. 226; Matter of Juilliard, 238 N. Y. 499; Matter of Flint, 120 Misc. 230, 206 App. Div. 778; Matter of Van Nostrand, 177 Misc. 1; Matter of Burr, 143 Misc. 877, 239 App. Div. 774; American Surety Co. v. Vinter, 224 Mass. 337; Matter of Eisner, 129 Misc. 106; Belknap v. Belknap, 87 Mass. 468; Matter of Cramer, 166 Misc. 713.) II. The Standard Oil Company of New Jersey stock dividends should be allocated to the corpus of the trusts. (Helvering v. Griffiths, 318 U. S. 371; Matter of Osborne, 209 N. Y. 450; Matter of Greenberg, 261 N. Y. 474; Matter of Brann, 219 N. Y. 263; Matter of Smith, 243 App. Div. 348; Matter of Van Schoonhoven, 142 Misc. 384, 233 App. Div. 886; Equitable Trust Co. v. Prentice, 250 N. Y. 1; People ex rel. Clark v. Gilchrist, 243 N. Y. 173; Matter of Hagen, 262 N. Y. 301; Rhode Island Hospital Trust Co. v. Tucker, 51 R. I. 507; Coolidge v. Grant, 251 Mass. 352; Gibbons v. Mahon, 136 U. S. 549; Eisner v. Macomber, 252 U. S. 189; Towne v. Eisner, 245 U. S. 418.)

      Edwin C. Hahn, Jr. for Guaranty Trust Company of New York, as trustee, respondent.
   Lehman, Ch. J.

Clendenin J. Ryan died on August 21, 1939. In the will of Ms father, Thomas F. Ryan, he was named the life beneficiary of a trust of a share of his father’s residuary estate. The trustees were directed at his death to divide the fund held in trust for him into as many shares as there might be issue of the life beneficiary, per stirpes, him surviving; to hold each share set apart for issue born before the death of the testator in trust until the person for whom it had been set apart should reach the age of thirty, and then to pay over such share to the person for whom it had been set apart. Four children survived Clendenin J. Byan. Two were over the age of thirty and were entitled immediately to the shares set apart for them. The other two have since then reached that age. Clendenin J. Byan was also named as the secondary life beneficiary of a trust of a smaller share of the residuary estate of his father, with remainder to his four children.

Clendenin J. Byan was named not only as the beneficiary but also as a trustee of the trusts created by his father. After his death his cotrustee, Guaranty Trust Company, filed its account of the proceedings of the trustees of the two trusts from the date of their last accounting to a time subsequent to the death of the life-tenant, and the executors of Clendenin J. Byan joined in his behalf, as cotrustee, in that account. The account so filed was settled by written agreement of the accountants and the remaindermen, except that two controversial matters were reserved for further agreement or for determination by the court. These matters concern the disposition of dividends which had accrued prior to the death of the life tenant upon securities held in the larger trust and the allocation to principal or income of shares of common stock of Standard Oil Company received by the trustee during the lifetime of the beneficiary, as a stock dividend upon stock of Standard Oil Company in the two trusts.

The executors of Clendenin J. Byan thereafter filed a petition for the determination of the matters upon which there was no agreement. An order granting leave to the United States to intervene was made upon its petition, stating that it has filed a claim for the unpaid balance of the income tax due from Clendenin J. Byan at the time of his death'. His estate is, concededly, insufficient to pay the claim of the United States even if the matters in controversy are decided in favor of the executor of the estate. The claim of the United States is entitled to priority of payment over all other claims in the distribution of the assets of the estate of the insolvent debtor and the controversy is, in effect, between the remaindermen of the trusts and the United States. All facts which are relevant to the questions presented upon this appeal have been stipulated by the parties.

In April, 1931, Clendenin J. Byan and Guaranty Trust Company as cotrustees of the larger trust purchased a house in the city of New York for the sum of $206,000. The house “was purchased as a principal investment ” of the trust and the purchase price was paid out of the proceeds of sales of securities in the trust. The house was immediately leased by the cotrustees to Clendenin J. Byan individually for a term of five years ending April 5, 1931, at an agreed rental of $10,329.40, and the tenant agreed, in addition, to pay all taxes, rates, charges and assessments which might be imposed upon the premises and that unpaid taxes, etc., should be added to the installment of rent next thereafter to become due.

.•The rent, when paid by the life beneficiary of the trust as tenant of the property, which was- a “ principal investment ” of the trust, became part of the income to which the tenant was entitled as beneficiary. To avoid such costly circuity, the lease was modified in October, 1933, to provide that “ the annual rental of $10,329.40 provided in said agreement of lease to be paid by the Tenant is hereby reduced to the sum of $10 annually from the date hereof until the end of the term provided in said agreement of lease or until the death of the Tenant, whichever event occurs earlier, subject, however, to the reinstatement of said annual rental in the manner and upon the happening of events as hereinafter provided. In the event of the Tenant’s death before the expiration of the term provided in said agreement of lease, then and in that event the annual rental of $10,329.40, or that portion of the same accruing after the death of the Tenant, shall be reinstated and become and continue an obligation of the estate of the Tenant.”

The term of the lease as modified was extended to April 6, 1941, and it was also provided that “ in the event that the Tenant fails to pay and discharge, when the same shall become due, the taxes, rents, charges, assessments, insurance and other charges provided in said agreement of lease to be paid by the Tenant, in addition to the annual rent therein provided for, or to satisfy the liabilities therein assumed by him, then and in that event such charges may be paid or such liabilities may be satisfied by the Landlord as Trustees of the aforesaid trust for the benefit of the Tenant provided under the will of Thomas F. Ryan, deceased, out of the income of said trust otherwise payable to the said Tenant as beneficiary of said trust.”

Clendenin J. Ryan occupied the leased property as his home, and, until his death in August, 1939, he complied with all the terms of the lease and paid the rental and all charges imposed upon the property. After his death the executors of his estate relinquished possession of the premises. The surviving trustee refused to accept a surrender of the lease but took possession of the premises for their protection. It was agreed that such action should be without prejudice to any question of the executors’ possible liability under the lease. Though, as we have said, two of the remaindermen of the trust were over the age of thirty when the life beneficiary died, and were entitled to their share of the trust fund, and the other two remaindermen have since reached that age, the surviving trustee, in accordance with agreements executed by each remainderman, still holds the premises and has filed a claim against the estate of the deceased life beneficiary in the amount of $26,109.98. That amount is made up of (1) $16,771.44 of fixed rental of the premises for the remainder of the extended term for which the premises were leased to the life tenant, and (2) $9,338.54 for taxes, water charges, upkeep and maintenance for the same period, constituting, as agreed, additional rental under the terms of the lease. Since the estate of the deceased beneficiary is concededly insolvent and the United States has priority in the distribution in the assets of the estate among the creditors of the decedent, nothing will be paid to the trustee by the estate upon that claim.

Guaranty Trust Company, as surviving trustee of the trust in which the leased premises were held as a “ principal investment ”, has retained the sum of $69,088.39 out of income which had accrued before the death of the life tenant. The life tenant could not assign that income nor could his creditors obtain a lien upon it while it was retained by the trustees, except to the limited extent permitted by section 684 of the Civil Practice Act. The executors upon the death of the life beneficiary have an unquestioned right to the accrued income which had not been paid to the life beneficiary unless the surviving trustee may set off as a charge against that income the amount which, after the death of the beneficiary, became due from his executors as rental under the lease made by the trustees as landlord ” to the life beneficiary as tenant The right of the United States to priority in payment of its claim against the deceased life beneficiary out of the assets of his estate, is not questioned. Out of the income of the trust which had accrued during the lifetime of the life' beneficiary the surviving trustee has set aside the sum of $42,798.41 as a reserve to cover possible liability to the United States. No objection is made by the executors of the life beneficiary or by any other person to the retention by the surviving trustee of these moneys as a reserve against that liability. The surviving trustee retains in addition the sum of $26,109.98, the amount of the claim of the surviving trustee against the estate of the life beneficiary. The surviving trustee and the remaindermen of the trust created for the benefit of Ciendenin J. Ryan contend that the beneficial interest of the deceased beneficiary is subject to a charge for the amount of the liability of the estate of the beneficiary, because it arises out of an obligation to pay moneys to the trustees which the life beneficiary assumed under the lease to him of the property, which he and his cotrustee had purchased as a capital investment of the trust. The courts below have sustained that claim. We do not agree with that .determination.

The priority of the United States in the order in which the property of an insolvent debtor, or of his estate, must be distributed among his creditors is not created by the law of the State and may not be impaired or superseded by a legislative or judicial declaration of a rule of law of the State, however conclusive such declaration may be in other fields. (United States v. Waddill Co., 323 U. S. 353.) In that decision, however, the general rule is implicitly recognized that the priority of the United States over other creditors is confined to the distribution of moneys or property to which, under the law of the State, the insolvent debtor, or upon his death his estate, is entitled, and that the rights of the insolvent debtor or his estate to property which may be available for distribution among his creditors are subject to and defined by the law of the State.

It has been said that where a beneficiary of a trust “ wrongfully deals with trust property causing a loss to the other beneficiaries, he is personally liable for the amount of the loss, and his beneficial interest is subject to a charge therefor ”. (Restatement, Trusts, § 253.) The life beneficiary Clendenin J. Ryan was, as we have said, also a trustee, and he joined with his cotrustee in the purchase — made at his request — of the real property thereafter leased to him. Authority to make such a purchase as a capital investment was conferred upon the trustees by the last will and testament of the creator of the trust. The parties have stipulated, too, that the purchase was made and the purchase price paid out of the proceeds of the sale of securities, all as shown in the account of said co-trustees * * * as judicially settled and allowed by decree ” of the Surrogate’s Court dated April 25, 1935. The life beneficiary as trustee thereafter joined with his cotrustee as “ landlord ” in the lease of the property to himself as t( tenant ”, and he occupied the leased property as his home; but the propriety and validity of the purchase and of the subsequent lease have not been challenged. Loss to the trust estate may have resulted from the purchase, but since there is neither claim nor proof that the purchase was wrongful, the beneficial interest of the deceased life beneficiary is not subject to a charge for such loss, and the courts below have not held otherwise.

The question remains whether that beneficial interest is subject to a charge for unpaid rent and taxes on the leased premises, which the beneficiary as “ tenant ” under the lease agreed to pay to the trustees as landlord. Applying the rule that ‘ ‘ If one of the beneficiaries of a trust contracts to pay money to the trustee to be held as part of the trust estate and he fails to make the payment, his beneficial interest is subject to a charge for the amount of his liability ” (Restatement, Trusts, § 252; Scott on Trusts, §§ 251, 252, 255.1), the Surrogate has held that the beneficial interest of the deceased life beneficiary is subject to a charge or offset for the amount which' under the terms of the lease was payable to the trustees of the trust as “ landlord ”. We need not now decide whether the beneficial interest of a beneficiary of a trust who fails to make a payment of money which he has contracted to pay to the trustees to be held as part of the trust estate is subject to a charge “ for the amount of his liability ” where his beneficial interest is not assignable and cannot be reached by creditors. (Cf. Matter of Chamberlin, 289 N. Y. 456, 461; Blakemore v. Jones, 303 Mass. 557; Scott on Trusts, § 255.1.) Here the beneficiary did not fail to pay during his lifetime the moneys, as they became payable, which he had contracted to pay, and the income of the trust would in no event have been subject to a charge for moneys which he had contracted to pay until he or his legal representatives failed to make the stipulated payment when it became due.

The “ covenant to pay rent créates no debt until the time stipulated for the payment arrives. * '* * It is not a case of debitum in praesenti solvendum in futuro. On the contrary, the obligation upon the rent covenant is altogether contingent.” In some contingencies the stipulated rent payable in the future by a lessee for the right to occupy leased premises might never become due. (In re Roth & Appel, 181 Fed. 667, 669.) Citing that case and other cases, we approved that rule in Kottler v. New York Bargain House, Inc., (242 N. Y. 28). (See, also, Central Trust Co. v. Chicago Auditorium, 240 U. S. 581; Varick Spring Corp. v. Bank of United States, 264 N. Y. 297.) In the case we are now deciding, the obligation to pay rent is, indeed, made contingent by the express provisions of the lease; for the lease as modified provided that if the trustees should sell the property before the expiration of the lease they might at their option cancel the lease, and if the trustees as landlord ” availed themselves of that option, no further payments would become due under the lease. Since concededly the beneficiary of the trust had not dealt wrongfully with the trust property and had not failed to meet his obligation to pay moneys which he had agreed to pay under his lease as such payments became due, and since his obligation to pay moneys in the future was contingent, no legal or equitable ground existed during his lifetime or at the time of his death for any charge against his beneficial interest in the trust. The life beneficiary was entitled to receive the accrued income of the trust and “ On the death of the beneficiary of a spendthrift trust, his executor or administrator is entitled to income which has accrued under the trust at the time of his death but which has not been paid to the beneficiary.” (Restatement, Trusts, § 158.)

The death of the life beneficiary terminated his beneficial interest in the trust estate; it did not terminate his contractual obligation, under the lease to him of the property of the trust estate, to pay rent and charges upon the leased premises. That obligation survived and is binding upon his executors. We repeat, however, that at the time of the death of the life beneficiary, no moneys then due under the lease were unpaid, and the obligation to pay money in the future was contingent and not fixed. The death of the life beneficiary did not accelerate the due date or change the nature of the obligation. Just as that obligation was not, during the life of the beneficiary, ground for a charge against income payable to him, so it could not be sufficient ground for a charge against income which had accrued during his lifetime if immediately upon his death such income became the property of his executors. We may point out here that the surviving trustees and the remaindermen of the trust have not contended that the contractual obligation of the beneficiary to pay rent in the future is not contingent, or that during the lifetime of the beneficiary or at the moment of his death money which under the lease might become due in the future could be charged dr offset against income to which the beneficiary or his executors were entitled. Nor has the Surrogate held that such moneys could be charged or offset before the obligation to pay became fixed and absolute. But the lease was never canceled and as moneys became due thereunder the obligation to pay became absolute and liability arose. The Surrogate has held that then the amount of the liability could be charged or offset against the accrued income which had not yet been paid over.

The death of the life beneficiary not only terminated his interest in the trust fund but also terminated the trust period, at least in respect to the share of the two remaindermen who were over the age of thirty at the death of the life beneficiary. Doubless, as the learned Surrogate pointed out in his opinion, the surviving trustee still had ‘ ‘ the duty of accounting and distribution ” and so the functions of the trustee were not entirely at an end. We may assume that legal title to moneys received by the trustee as income did not pass to the person entitled to the income until the trustee had deducted the legitimate charges against the money received and paid over the balance. A large part of the accrued income had not been received by the trustee when the beneficiary died, and certainly legal title to that money could not pass to the executors on the death of the beneficiary. Nevertheless on the death of the beneficiary his executors then stood in the place of the beneficiary and became entitled to receive the income of the trust which had accrued but which had not yet been paid to the beneficiary. The only duty or function of the surviving trustee, in respect to the trust created for the beneficiary, which continued after his death was to pay over the income which had already accrued after deducting the legitimate charges upon that income. The right to the net income passed to the representatives of the beneficiary on his death and the income received by the trustee which it was in duty bound to pay over to the representatives of the beneficiary was subject only to the charges to which it was subject at the time of the death of the beneficiary. Performance of the trustee’s remaining duty to pay over accrued income to the person entitled thereto might, we assume, be postponed a reasonable time for the convenience of the trustee, but the trustee by withholding payment could not obtain the right to charge against the income the amount of the liability against the estate of the beneficiary, which arose from an obligation which was still contingent at the death of the beneficiary and which became a liability of the estate after the period of the trust created for the deceased beneficiary had terminated. Not only was the obligation of the beneficiary upon his covenant to pay rent contingent when the beneficiary died, but when the obligation became absolute and payment of the promised moneys became due, the trust period was at an end and at least part of the moneys if paid would have belonged to the remaindermen and could not have been held by the trustee. In our opinion the claim of the executors of the beneficiary to income which accrued before the death of the life beneficiary and the claim of the trustees for rent and taxes which became payable, under the lease to the life beneficiary, after the death of the life beneficiary, are not cross claims, and the income to which the executors of the beneficiary became entitled on his death did not become subject to a charge for the amount of money which the executors failed to pay thereafter when the obligation to pay under the lease arose.

The creditors of the deceased beneficiary of a spendthrift trust are entitled to reach the accrued income received by his executor or administrator. (Scott on Trusts, § 158.1; Restatement, Trusts, § 158, comment a.) To permit the trustee of a trust to charge against the accrued income payable to the executor or administrator an amount due from the estate of the deceased beneficiary upon a debt which arose after the beneficiary died and the trust created for his benefit was ended, would give to the remaindermen of the trust a preference in the payment of the claim against the estate not based upon established rules of law or equity.

On December 15,1938, Standard Oil Company of New Jersey paid a “ regular dividend ” of fifty cents in cash and an “ extra ” stock dividend of 1%. Each trust of which Clendenin J. Byan was the life beneficiary owned some stock of Standard Oil Company of New Jersey and the surviving trustee holds the stock dividends paid on such stock. The stock dividends, it is stipulated, were paid out of earnings and profits of the corporation accumulated subsequent to the purchase by said two trusts of the stock on which such dividends were paid.” For that reason the executors of the life beneficiary claim that he was entitled to the stock dividends as income of the trust and that the stock dividends should now be paid to his executors.

The Personal Property Law, section 17-a, provides: “ Stock Dividends. Unless otherwise provided in a will, deed or other instrument, which shall hereafter be executed and shall create or declare a trust, any dividend which shall be payable in the stock of the corporation or association declaring or authorizing such dividend and which shall be declared or authorized hereafter in respect of any stock of such corporation composing, in whole or in part, the principal of such trust, shall be principal and not income of such trust. The addition of any such stock dividend to the principal of such trust, as above provided, shall not be deemed an accumulation of income within the meaning of this article.” It is said that this section is intended to apply only to extraordinary dividends payable in stock and that ordinary dividends paid in stock out of current earnings are not included in its scope. The Tax Law in article 16 entitled “ Taxes Upon and With Respect to Personal Incomes ” distinguishes between a “ dividend ” which is defined as any distribution made by a corporation out of its earnings or profits to its shareholders or members, whether in cash or in other property or in stock of the corporation, other than stock dividends ” (Italics are supplied) and stock dividends which are defined as “ new stock issued, for surplus or profits capitalized to shareholders in proportion to their previous holdings.” (§ 350, subd. 8.) The Personal Property Law makes no such distinction and contains no such definition. Argument is made that the Legislature intended that the words any dividend which shall be payable in stock ” as used in section 17-a of the Personal Property Law should be limited by the definition of a stock dividend contained in the Tax Law. The Legislature did not so provide in express Lerms, and it is far from clear that it so intended. In plain language the Legislature provided that “ any dividend which shall be payable in the stock of the corporation * * * shall be principal * * * ”. In accordance with that mandate the Standard Oil Company dividends payable in stock must be allocated to principal.

The order of the Appellate Division and the decree of the Surrogate’s Court should be modified in accordance with this opinion, and as so modified affirmed, without costs.

Loughran, Lewis, Conway, Desmond, Thacher and Dye, JJ., concur.

Ordered accordingly.


author: Thacher, J.

text:
    In the Matter of the Estate of Elizabeth C. G. Russell, Deceased. State Tax Commission, Appellant; Central Hanover Bank and Trust Company, as Executor of Elizabeth C. G. Russell, Deceased, and as Substituted Trustee under a Trust Agreement made by Elizabeth C. G. Russell, Respondent.
    Argued June 13, 1944;
    decided March 8, 1945.

      Mortimer M. Kassell and Paul Newman for appellant.
    I. The value of the entire corpus of the trust created by decedent is includible in her gross estate as a transfer intended to take effect in possession or enjoyment at her death. (Matter of Pratt, 262 App. Div. 240, 289 N. Y. 621; Matter of Cregan, 275 N. Y. 337; Matter of Weiden, 263 N. Y. 107; Matter of Suderov, 156 Misc. 661, 249 App. Div. 763, 274 N. Y. 525; Matter of Driscoll, 160 Misc. 97; Matter of O’Donnell, 153 Misc. 480; Helvering v. Hallock, 309 U. S. 106; Broderick v. Keefe, 112 F. 2d 293, 311 U. S. 721; Adriance v. Higgins, 113 F. 2d 1013; Chase Nat. Bank v. United States, 116 F. 2d 625; Commissioner of Internal Revenue v. Estate of Wilder, 118 F. 2d 281, 314 U. S. 634; Millard v. Maloney, 121 F. 2d 257, 314 U. S. 636; Commissioner of Internal Revenue v. Washer, 127 F. 2d 446, 317 U. S. 653; Schultz v. United States, 140 F. 2d 945.)

      David F. Cohen and Edward H. Lockwood for respondent.
    I. The life estate of decedent’s sister vested in her on January 3, 1928, under the inter vivos trust indenture, which was irrevocable and wholly beyond the grantor’s control (as to such life estate) and was not subject to estate tax as part of the grantor’s gross estate. The creation of the life estate of decedent’s sister was not a transfer to take effect in possession or enjoyment at or after the grantor’s death. (Matter of Pratt, 262 App. Div. 240, 289 N. Y. 621; Matter of Cregan, 275 N. Y. 337; Matter of Weiden, 263 N. Y. 107; Matter of Van Wagenen, 170 Misc. 820, 258 App. Div. 846; Matter of Sandford, 277 N. Y. 323; Hassett v. Welch, 303 U. S. 303; Reinecke v. Trust Co., 278 U. S. 339; May v. Heiner, 281 U. S. 238; Burnet v. Northern Trust Company, 283 U. S. 782; Morsman v. Burnet, 283 U. S. 783; McCormick v. Burnet, 283 U. S. 784.) II. The provision in the trust indenture permitting the trustee to devote principal to the support of the grantor did not constitute a possibility of reverter and did not prevent the life estate from vesting in decedent’s sister at the time of the creation of the trust. (First Nat. Bank of Boston v. Welch, 24 F. Supp. 695; Patterson v. Helvering, 36 B. T. A. 407, 99 F. 2d 1007; White v. Poor, 296 U. S. 98; Helvering v. Helmholz, 296 U. S. 93; Matter of Sandford, 277 N. Y. 323; Commissioner of Internal Revenue v. Flanders, 111 F. 2d 117; Commissioner

      of Internal Revenue v. F. G. Bonfils Trust, 115 F. 2d 788; Meierhof v. Higgins, 129 F. 2d 1002.)
   Thacher, J.

In this estate tax proceeding the question presented is whether the entire corpus of an inter vivos trust established by the decedent during her life is required to be included in her gross estate in computing the tax. The trust was established on January 3, 1928. The decedent died April 4, 1939. The applicable section of the Tax Law is section 249-r, subdivision 3, as it read prior to its amendment in 1931 (L. 1931, ch. 62), which can have no application. (Matter of Sandford, 277 N. Y. 323, 332.) Prior to this amendment the applicable section read: “ The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property * * * : To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, * * #

Under the trust indenture the grantor transferred securities to a trustee upon the following trusts: “1. To collect and receive the interest, income and dividends therefrom (hereinafter referred to as income) and to pay the net income therefrom after deducting all proper charges and expenses to the Grantor during her life. Upon the death of the Grantor to pay the net income therefrom to Grantor’s sister, Sarah B, Bussell, during'her life. Upon the death of Grantor’s sister, Sarah B. Bussell, or if Grantor’s sister, Sarah B. Bussell, predecease the Grantor, then upon the death of the Grantor, to transfer and pay over the principal of said trust fund as the Grantor may by her last will and testament appoint and in default of such appointment, the same shall constitute and be disposed of as a part of the estate of the Grantor.” The trustee was authorized to devote any of the principal at any time to the well being, support and maintenance of the grantor or, if she be dead, of the grantor’s sister, Sarah B. Bussell.

No part of the trust principal was paid to the grantor during her life. She was survived by her sister Sarah. The grantor exercised by her last will and testament the power of appointment reserved in the trust instrument.

It is conceded by the taxpayer that the value of the corpus of the trust is taxable except for such value as may be ascribed to the sister’s life estate. The State Tax Commission contends that this value must be included and that the value of the entire corpus is taxable. It is the established legislative policy of the State to conform the estate tax law to the provisions of the Federal estate tax law, and in determining the effect of provisions of the New York Tax Law similar to those of the Federal estate tax law we give great weight to the construction of corresponding provisions adopted in the Federal courts “ for the purpose of maintaining uniformity of administration of the Tax Law which the Legislature has sought to achieve.” (Matter of Cregan, 275 N. Y. 337, 341; Matter of Weiden, 263 N. Y. 107, 110; Matter of Pratt, 289 N. Y. 621.)

In Fidelity-Philadelphia Trust Co. v. Rothensies (324 U. S. 108), the Supreme Court of the United States held that the entire value of the corpus of an inter vivos trust should be included in the gross estate of the decedent for the purpose of the Federal estate tax under section 302, subdivision (c), of the Bevenue Act of 1926 (44 U. S. Stat. 9, 70). This provision of the Federal Bevenue Act of 1926 corresponds to section 249-r, subdivision 3, of the Tax Law quoted above and provides for the inclusion within the gross estate of property to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death ”. Under the trust indenture in the Fidelity-Philadelphia case the decedent had transferred certain property in trust and provided that the income of the trust was to be paid to the grantor during her life and at her death to her daughters during their respective lives. At the death of each daughter the corpus supporting her share of the income was to be paid to her descendants. If either daughter died without leaving surviving descendants, the corpus of her share was to be added to the share of the other daughter or of the surviving descendants of the other daughter. But if both daughters died without leaving surviving descendants, the corpus was to be paid to such persons as the grantor might appoint by will. In default of such appointment the corpus was to go to certain named charities. The Supreme Court of the United States held that the entire value of the corpus of this trust should be included in the decedent’s estate for determination of the estate tax. (See, also, Commissioner of Internal Revenue v. Estate of Field, 324 U. S. 113.)

In view of the fact that in the instant case, as in the Fidelity-Philadelphia and Field cases (supra), the life estate was contingent upon the life tenant’s surviving the decedent and took effect in enjoyment only at the death of the latter, we follow these decisions of the Supreme Court of the United States and hold that the value of the sister’s life estate must be included in the value of the corpus subject to tax.

The order of the Appellate Division and that of the Surrogate’s Court dated May 26, 1942, should be reversed and the pro forma order assessing the tax reinstated, with costs in all courts payable out of the fund.

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

Ordered accordingly.


author: Desmond, J.

text:
    In the Matter of Mounting & Finishing Company, Inc., Appellant, against Joseph D. McGoldrick, as Comptroller of the City of New York, Respondent.
    Argued January 3, 1945;
    decided March 8, 1945.

      Samuel B. Stewart, Jr., and Louis A. Perkins for appellant.
    I. Petitioner did not consume the materials purchased by the transactions taxed. It resold such materials to its customers in the form of tangible personal property. Petitioner’s original purchase of such materials therefore was not taxable. (American Molasses Co. v. McGoldrick, 281 N. Y. 269; Sterling Bag Company, Inc., v. City of New York, 281 N. Y. 269; Matter of Wood Packing Box Co. v. McGoldrick, 286 N. Y. 665; People ex rel. Walker Engraving Corp. v. Graves, 243 App. Div. 652; Western Leather & Finding Co. v. State Tax Comm. of Utah, 87 Utah 227; The Bradley Supply Company v. Ames, 359 Ill. 162; Revzan v. Nudelman, 370 Ill. 180; The C. & E. Marshall Company v. Ames, 373 Ill. 381 ; Berry-Kofron Dental Laboratory Company v. Smith, 345 Mo. 922.) II. The taxing authority is presumed not to have intended double or duplicate taxation. (Matter of Barbour, 185 App. Div. 445, 226 N. Y. 639; Socony Vacuum Oil Co. v. City of New York, 247 App. Div. 163, 272 N. Y. 668.) III. The order appealed from is discriminatory and denies the petitioner the equal protection of the laws and therefore violates the fourteenth Amendment to the Constitution of the United States and section 11 of article I, of the Constitution of the State of New York. (Stewart Dry Goods Co. v. Lewis, 294 U. S. 550; Giozza v. Tiernan, 148 U. S. 657; Bell’s Gap R. Co. v. Pennsylvania, 134 U. S. 232; City of Danville v. Quaker Maid, Inc., 211 Ky. 677.)

      Ignatius M. Wilkinson, Corporation Counsel (Murray M. Weinstein, Arthur H. Goldberg and Edmund B. Hennefeld of counsel), for respondent.
    Petitioner’s operations of taking lithographs of national advertisers, mounting them on cardboard, die-cutting, assembling and finishing them to form completed displays in accordance with instructions received from the advertisers, constitute rendition of sérvices rather than “ reselling ” of the cardboard, glue and other processing-materials. Hence, petitioner is subject to the sales tax on its purchase of those materials as being for a purpose “ other than for resale (Matter of Mendoza F. D. Works v. Taylor, 272 N. Y. 275; People ex rel. Walker Engraving Corp. v. Graves, 268 N. Y. 648; People ex rel. Foremost Studio, Inc., v. Graves, 246 App. Div. 130; Howitt v. Street & Smith Publications, Inc., 276 N. Y. 345; Dept. of Treasury v. Mfg. Co., 114 F. 2d 889, 313 U. S. 252; Sattler v. Hallock, 160 N. Y. 291; Utah Concrete Products Corp. v. State Tax Comm., 101 Utah 513; Svithiod

      Singing Club v. McKibbin, 381 Ill. 194; Herlihy Mid-Continent Co. v. Nudelman, 367 Ill. 600; Material Service Corp. v. McKibbin, 380 Ill. 226; Mahon v. Nudelman, 377 Ill. 331.)
   Desmond, J.

This proceeding is brought by petitioner to review a determination by the Comptroller of the City of New York that certain sales to petitioner are subject to the New York City sales tax (Administrative Code, § N 41-1.0 et seq.): Generally, petitioner, as it states in its brief to this court, manufactures and sells advertising displays to national advertisers and others.” The materials purchased by petitioner and taxed by the Comptroller are cardboard, paper, glue, wood, fibre board, etc., used by petitioner in building up, manufacturing or assembling the completed display pieces delivered by it to its customers. As to most of the displays, a principal or important feature of the finished product is a lithographed or printed picture or design which petitioner receives from its customer and incorporates into the end product which it delivers to the customer, for a price. The paper, wood and glue, etc., while necessary components of the final product, and despite the fact that they do not completely lose their identity in the process, are certainly not sold as paper, wood or glue to the national advertiser. Surely a reasonable mind could conclude that their use was accessorial, just as the furnishing of a frame is accessorial to the framing of a photograph or painting. The Comptroller could with reason decide that the fundamental character of petitioner’s occupation is, as its corporate name suggests, the “ mounting and finishing ” of the lithographs or prints sent to it by the advertisers and returned to them by petitioner, in embellished, elaborated form, and so set up as to be immediately usable on counters or in windows, etc. Petitioner, however, insists that the sales to it are specifically exempted from the tax by the statute itself which imposes the levy only on sales other than for resale in the form of tangible personal property ” (Administrative Code, § N 41-1.0). No purpose would be served by entering into a precise description of each of the numerous separate display pieces fabricated by petitioner for its several customers. They range in complexity and importance from the simplest item, where petitioner merely pastes a lithographed sheet onto a cardboard back, to an elaborate replica of the Eiffel tower, in several planes, and complete with an electric sign which flashes on and off. In some instances the lithographed picture furnished by the customer is the central and important feature of the final assembly — in others the customer’s contribution is only a small medallion or insignia, or some cut-out lettering. In view of the conflicting contentions of the parties, it was for the Comptroller, at least initially, to decide whether petitioner was buying the paper, wood, glue, etc., for “ resale ” or was buying those articles in connection with a basic occupation of " rendering skilled services and performing labor upon the property of others ” (Matter of Mendoza F. D. Works v. Taylor, 272 N. Y. 275, 279). The statutory language “ for resale ” is rather broad and inconclusive. Of course, statutory construction is the function of the courts " but where the question is one of specific application of a broad statutory term in a. proceeding in which the agency administering the statute must determine it initially, the reviewing court’s function is limited ” (Board v. Hearst Publications, 322 U. S. 111, 131). The administrative determination is to be accepted by the courts " if it has ‘ warrant in the record ’ and a reasonable basis in law ” (same citation.) “ The judicial function is.exhausted when there is found to be a rational basis for the conclusions approved by the administrative body ” (Rochester Tel. Corp. v. U. S., 307 U. S. 125, 146). We have no difficulty in discovering a factual basis for the Comptroller’s conclusion that petitioner was not buying the paper, wood, etc., “ for resale ”, Nor does such a conclusion lack reasonable support in law. In Matter of Mendoza (supra), this court held that a sale to a fur dyer of the dye-stuffs he used in coloring skins owned by others was not a sale for resale ”. In Dept. of Treasury v. Mfg. Co. (313 U. S. 252), the Supreme Court held that the Ingram-Richardson Company’s business of enameling metal parts for its customers was essentially a service ” not a sale of the enamel. These transactions of petitioner with the advertisers may properly be regarded as the furnishing by the latter to the former of materials (the lithographs, insignia, lettering, etc.) to be manufactured into articles of other forms and appearances, with petitioner furnishing services and necessary incidental materials. Such a transaction is a bailment, not a sale. (Mack et al. v. Snell, 140 N. Y. 193; Foster against Pettibone, 7 N. Y. 433.) Thus, the Comptroller’s determination in the present case does not conflict with the Personal Property Law (§ 82, subd. 2) definition of “ a sale of goods ” as “ an agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price.”

One other matter should be noticed. Some of petitioner’s products were sent out to its customers in wooden or cardboard cartons. Apparently some of these cartons were made or fabricated by petitioner — others it " purchased. Petitioner argues that these containers, or the materials from which they were made, were exempt from the tax under American Molasses Co. v. McGoldrick (281 N. Y. 269); and Matter of Wood Packing Box Co. v. McGoldrick (286 N. Y. 665). Petitioner, however, has not gone forward with any sufficient proof as to the number or origin of these containers, nor as to the arrangement or arrangements under which they were passed on to the advertisers, nor has it been made to appear in this record whether or not those cartons were such as could be used by others than the advertisers to whom they were sent. The burden of establishing nontaxability is, by this statute, specifically placed on the vendor or purchaser questioning the tax. (Administrative Code, § N 41-2.0.) The burden has not been met here, as to these containers.

The order should be affirmed.

Lehman, Ch. J., Loughran, Lewis, Conway and Dye, JJ., concur; Thacher, J., dissents.

Order affirmed.


text:
    Stephen Manko, Appellant, v. City of Buffalo et al., Respondents.
    Argued January 11, 1945;
    decided April 5, 1945.

      Thomas J. McKenna for appellant.

      Andrew P. Ronan, Corporation Counsel (Bart J. Shanahan of counsel), for respondents.
   Thacher, J.

Section 21 of the Civil Service Law affords to honorably discharged soldiers, sailors, marines and nurses of the army, navy or marine corps of the United States, disabled in the actual performance of duty in any war, a preference in appointment to positions in the public service. A refusal to allow this preference is denounced by the section as a misdemeanor, and an honorably discharged disabled veteran who has been denied the preference is given a right of action therefor in any court of competent jurisdiction for damages, and also a remedy by mandamus for righting the wrong.”

In a proceeding under article 78 of the Civil Practice Act the plaintiff, a disabled veteran, asserted that he was entitled to and had been deprived of a preference in appointment to the position of supervisor of automobiles in the Police Department of the City of Buffalo. In that proceeding he obtained an order directing his appointment to the position. (Matter of Manko v. City of Buffalo, 293 N. Y. 669.) He has since been appointed to the position and has brought this action for “ damages ” as provided by the statute.

It seems quite clear from the wording of the statute that there is but a single cause of action for damages resulting from the refusal of the preference. Plaintiff, however, having been put to very substantial expense for legal services necessarily incurred in the enforcement of his remedy under article 78 and in contempt proceedings to enforce the order therein, the reasonable value and agreed price of which is alleged to be the sum of $15,000, has seen fit in his complaint in this action to divide his single cause of action in two. In a first cause of action he seeks to recover his loss of salary of $300 a month during the period for which he was kept out of the position from April 23, 1942, to June 25, 1944, less earnings received during this period of $306.82, and then, in a second, separate, other and further cause of action ”, plaintiff realleges all the allegations previously alleged except those with relation to the loss of his earnings, and in lieu thereof alleges the circumstances under which and, the legal services for which he became obligated to the extent of $15,000.

A motion made by the defendants to dismiss the so-called second cause of action, upon the ground that it failed to set forth facts sufficient to constitute a cause of action, was denied by Special Term but its order was reversed by the Appellate Division, which granted the motion and directed judgment dismissing the “ second cause of action ”. From that judgment the plaintiff has appealed to this court. The motion to dismiss was properly denied at Special Term because the complaint in all its parts alleged but a single cause of action for damages predicated upon the statute and the motion was addressed, not to the sufficiency of facts constituting that cause of action, but merely to the right to recover as part of the damage expenses incurred for attorneys’ fees. One statement of the cause of action could not be dismissed without dismissing both. By dividing the damage one cannot divide a single cause of action.

■ For this reason only, and without consideration of the damages which may be recovered under the statute, the judgment of the Appellate Division should be reversed and the order of the Special Term affirmed, with costs in this court and in the Appellate Division.

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

Judgment accordingly.