author: Htjbbs, J.

text:
    Henry Hornstein, Respondent, v. Kopel Podwitz et al., Defendants, and Meyer Mersel et al., Appellants.
    (Argued October 9, 1930;
    decided November 18, 1930.)

      Thomas A. McKennell, Aaron Goody and Joseph L. Lefkowitz for appellants.
    The Appellate Division erred in holding that its prior decisions as to the sufficiency of the complaint, although overruled by this court in another action, constituted the law of the case which the trial court was bound to follow. (Matthews v. Matthews, 154 N. Y. 288; Mechanics’ & Traders’ Bank v. Dakin, 8 Hun, 431; Board of Supervisors v. Foote, 9 Hun, 527; Brennan v. Mayor, 1 Hun, 315; 62 N. Y. 365; Rickerson v. German American Ins. Co., 6 App. Div. 550; Trombley & Carrier Co. v. Seligman, 133 App. Div. 525.) The Court of Appeals is not precluded from passing upon the sufficiency of the complaint inasmuch as the intermediate orders of the Appellate Division are before it for review. (McCargo v. Jergens, 206 N. Y. 363; Ansorge v. Kane, 244 N. Y. 395; Vogeler v. Alwyn Improvement Corp., 247 N. Y. 131.) The only overt act which is alleged to have been committed in pursuance of the conspiracy was not an unlawful act and is not only not shown to have actually occasioned any damage to respondent but is affirmatively shown to have caused no damage. (Dulury v. Rezinas, 183 App. Div. 456; 229 N. Y. 513; Beardsley v. Kilmer, 200 App. Div. 378; 236 N. Y. 80; Carroll Building Corp. v. Greenberg Plumbing Supplies, Inc., 216 App. Div. 270; Marshall v. Thompson Feature Service, Inc., 216 App. Div. 428; Peabody, Jr., & Co. v. Travelers Ins. Co., 240 N. Y. 511; Cohen v. Fisher, 135 App. Div. 238; Prospect Park R. R. Co. v. Morey, 155 App. Div. 347; Von Au v. Magen

      heimer, 126 App. Div. 257; 196 N. Y. 510; Cooley on Torts [3d ed.], vol. 2, p. 1506; Auburn & C. Plank Road Co. v. Douglass, 9 N. Y. 444; Pickard v. Collins, 23 Barb. 444; Morris v. Tuthill, 72 N. Y. 575; Kiff v. Youmans, 86 N. Y. 329.) The complaint, before amendment, disclosed that no damage had been or could be suffered by respondent as the result of interference. (Posner Co. v. Jackson, 223 N. Y. 325; Lamb v. Cheney & Son, 227 N. Y. 418; Campbell v. Gates, 236 N. Y. 457; De Jong v. Behrman, 148 App. Div. 37; Turner v. Fulcher, 165 N. Y. Supp. 282; Daly v. Cornwell, 34 App. Div. 27; Ashley v. Dixon, 148 N. Y. 430; Guida v. Pontrelli, 114 Misc. Rep. 181; Lasky Feature Play, Inc., v. Fox, 93 Misc. Rep. 364.)

      Abraham Hornstein and George D. Hornstein for respondent.
    The first order of the Appellate Division establishes the law of the case and precludes the Court of Appeals from passing upon the sufficiency of the complaint. (Western Mfg. & Oil Co. v. American Spirits Mfg. Co., 187 App. Div. 230; Fortenberry v. Frazier, 5 Ark. 200; Matter of Sanford Fork & Tool Co., 160 U. S. 247; Bissell Carpet-Sweeper Co. v. Goshen Sweeper Co., 72 Fed. Rep. 545; Gohman v. City of St. Bernard, 111 Ohio St. 726; Gaines v. Rugg, 148 U. S. 228; Price v. Price’s Admr., 23 Ala. 609; Miller Lumber Co. v. Floyd, 169 Ark. 473 ; 273 U. S. 672; Western Union Tel. Co. v. Furlow, 129 Ark. 116; United States Annuity & Life Ins. Co. v. Peak, 129 Ark. 43; Lewis v. Jones, 97 Ark. 147; St. Louis, Iron Mt. & So. Ry. Co. v. York, 92 Ark. 554.) The complaint states a cause of action against the individual defendants on the theory that they intentionally and knowingly and without reasonable justification or excuse induced a breach of contract resulting in profit to themselves and damage to the plaintiff. (Deming v. Hill, 251 N. Y. 573; Weinberg v. Irwinessie Holding Corp., 225 App. Div. 241; Popper v. Korn, 218 App. Div. 513; Pickle v. Page, 225 App. Div. 454; 252 N. Y. 474; Campbell v. Gates, 236 N. Y. 457; Gonzales v. Kentucky Derby Co., 197 App. Div. 277; 233 N. Y. 607; Lamb v. Cheney

      & Son, 227 N. Y. 418; Posner Co. v. Jackson, 223 N. Y. 325.) The power to sue one’s co-contractor for the breach of contract does not bar recovery from those who have maliciously induced the breach of contract. (McDonald v. Hewett, 15 Johns. 349; Mettel v. Gales, 12 S. D. 632; Reed v. Schon, 2 Cal. App. 55; Campbell v. Gates, 236 N. Y. 457; Lamb v. Cheney & Son, 227 N. Y. 418; Posner Co. v. Jackson, 223 N. Y. 325; Gonzales v. Kentucky Derby Co., 197 App. Div. 277; 233 N. Y. 607; Aldridge v. Stuyvesant, 1 Hall, 210.)
   Htjbbs, J.

The complaint herein stated in proper form, with all necessary allegations, a cause of action against the defendant Hadassah Realty Co., Inc., a domestic corporation, for the recovery of $2,600 commissions due plaintiff, a real estate broker, on the sale of said defendant’s real property for $200,000.

It alleges that the plaintiff, acting as a broker, procured the defendants Mersel and Hirschhorn as purchasers and they agreed with the defendant Podwitz, the president of the corporation owner, to purchase the property at the price and on the terms specified by the owner, and a written contract of sale Was executed by the parties.

It also alleges:

“ Tenth. Upon information and belief that the defendants herein conspired together and entered into an agreement wherein and whereby they sought to deprive this plaintiff of the commissions to which he was entitled by reason of such sale and agreed among themselves to withhold from plaintiff the fact that such sale had been made and to deprive plaintiff of the commissions to which he was entitled by reason of such sale, and to distribute among themselves a sum of money in lieu of the commissions, which the plaintiff was entitled to receive on such sale.

“ Eleventh. Upon information and belief that in pursuance of such agreement defendant, Hadassah Realty Corporation, allowed to said defendants, Mersel and Hirschhorn, a part of the commissions on the sale of said premises.”

It then alleges that the plaintiff has duly demanded from the defendants said sum but no part thereof has been paid.

Upon the trial the complaint was amended to allege: “ That the plaintiff has suffered damages by reason of the insolvency of the defendant, Hadassah Realty Co., Inc.”

The question for review is whether the complaint as amended states a cause of action against the individual defendants-appellants, Mersel and Hirschhorn.

The argument of the respondent is that the complaint states a cause of action against the individual defendants for unlawfully, intentionally and knowingly and without reasonable justification or excuse, inducing a breach of contract, with profit to themselves and damages to the respondent.

The action for inducing a breach of contract as it now exists is of comparatively modern origin. The action for inducing a servant to breach a contract existed under the early common law in England. Not until the decision in Lumley v. Gye (2 El. & Bl. 216) in 1853 was it declared to be actionable to maliciously ” procure another to breach a contract for personal service, although the relation of master and servant did not exist. In Temperton v. Russell (1 Q. B. 715; 62 L. J., Q. B., 412), decided in 1893, the doctrine was extended and made applicable to contracts generally. The courts of this State have accepted the doctrine and extended the law of torts to actions to recover damages for unlawfully inducing the breach of contracts.

The elements necessary to constitute a valid cause of action have been variously stated. In Lumley v. Gye (supra) “ malicious ” procurement of the breach of contract was treated as the basis of the action and a vindictive spirit or ill will toward the plaintiff was indicated as necessary to establish the cause of action.

In South Wales Miners’ Federation v. Glamorgan Coal Co., Ltd., ([1905] A. C. 239, 246), it was said: “ It is settled now that malice in the sense of spite or ill-will is not the gist of such an action.” And in Quinn v. Leathem ([1901] A. C. 495, 510) it was stated: That a violation of legal right committed knowingly is a cause of action, and that it is a violation of legal right to interfere with contractual relations recognised by law if there be no sufficient justification for the interference.”

This court has limited the meaning of the word “ malicious ” as so used. This [malicious] does not necessarily mean actual malice or ill-will, but the intentional doing of a wrongful act without legal or social justification.” (Campbell v. Gates, 236 N. Y. 457.) That case also decides that one who, having knowledge of an existing valid contract between others, intentionally, knowingly and without reasonable justification or excuse, induces one of the parties to the contract to breach it to the damage of the other party, is hable in an action to recover the damages suffered. The action is predicated on the intentional interference without justification with contractual rights, with knowledge thereof. Such interference constitutes a legal wrong, and if damages result therefrom a valid cause of action exists therefor.

The complaint herein contains, as amended, all of the essential allegations necessary in a complaint to recover damages for wrongfully inducing a breach of contract. It sets forth the contract and the fact that the plaintiff had fully performed, and was entitled to the agreed commissions; that the defendants, with full knowledge thereof, entered into an agreement to deprive the plaintiff of the commissions which he had earned, and to distribute among themselves a sum of money in lieu of the commissions and that, in pursuance of the agreement, the owner allowed to the defendants Mersel and Hirschhorn a part of the sum which it had agreed to pay plaintiff as commissions. By amendment it was alleged that the owner was insolvent and that the plaintiff had been damaged.

The appellant contends that the complaint fails to state a cause of action because it discloses that the plaintiff had not suffered any damages, as he now has all that he ever had, viz., a cause of action against his principal for the agreed commissions. The appellants have misconceived the basis of the cause of action against them. If they had not induced the principal to breach its contract with the plaintiff, he would have received the commissions which he had earned or had a cause of action on contract therefor against his principal. They committed a legal wrong which gave rise to a cause of action in favor of the plaintiff. The fact that the plaintiff also has a cause of action against his principal for breach of contract does not prevent his having a cause of action in tort against them. They cannot be heard to say that they are not liable for their wrongful act because the owner of the premises is also liable to the plaintiff for his commissions. All of the parties who induced the breach of the contract are jointly and severally hable for the commissions due the plaintiff.

The case of Posner Co. v. Jackson (223 N. Y. 325) was an action to recover damages on the ground that the defendants had wrongfully induced a servant to breach her contract with the plaintiff. In the opinion it was said: “ She [the defendant] is hable at law for the damages occasioned by her failure to perform her contract.” It Was held that the complaint was good although the servant was also personally hable to the plaintiff for damages growing out of the breach of her contract. The same principle -applies in this case.

A recovery was permitted in each of the following cases against parties who had wrongfully induced a breach of contract, although in each case a cause of action for breach of contract existed in favor of the plaintiff against the other party to the contract. (Lamb v. Cheney & Son, 227 N. Y. 418; Gonzales v. Kentucky Derby Co., 197 App. Div. 277; affd., 233 N. Y. 607; Campbell v. Gates, 236 N. Y. 457; Motley Green & Co. v. Detroit Steel & Spring Co., 161 Fed. Rep. 389; Second Nat. Bank of Toledo v. Samuel & Sons, Inc., 12 Fed. Rep. [2d] 963; certiorari denied, 273 U. S. 720.)

Many authorities to the same effect are collated in a note in 30 Columbia Law Review, 232, under the title “ Damages Recoverable in an Action for Inducing Breach of Contract.” In so far as the cases of Popper v. Korn (218 App. Div. 513) and Weinberg v. Irwinessie Holding Corp. (225 App. Div. 241) hold to the contrary, they are disapproved.

In affirming the judgment in the case of Deming v. Hill (251 N. Y. 573, without opinion; reported, without opinion, in 225 App. Div. 815) this court did not hold anything to the contrary. That case was treated as an action to recover damages for a conspiracy and the complaint did not contain any allegation of damages.

While the complaint in this case is inartificially drawn, and is not as clear as it might be, still, when fairly read, it alleges inducement to breach the contract and damages as the result of the breach. The evidence upon the trial establishes the inducement and the damages. The owner was solvent when the plaintiff’s contract was made and completed, and insolvent at the time of the trial. We do not agree with the statement in the opinion handed down by the Appellate Division to the effect that the decision of that court on the appeal from the intermediate order, sustaining the sufficiency of the complaint, is binding on this court and prevents it from reviewing such intermediate order of the Appellate Division.

The order of the Appellate Division dated May 25, 1928, reversing the order dismissing the complaint should be affirmed and the appeal from the order of the Appellate Division dated May 10, 1929, dismissed. The judgment of the Appellate Division entered April 21, 1930, should be affirmed, with costs.

Cardozo, Ch. J., Pound, Crane, Lehman and O’Brien, JJ., concur; Kellogg, J., dissents.

Ordered accordingly.


source: Caselaw Access Project

author: Cardozo, Ch. J.

license: Public Domain

text:
    Anna G. Oliver, Appellant and Respondent, v. Katherine M. Wells, Individually and as Executrix of David A. Wells, Deceased, et al., Respondents and Appellants. Elsina M. Wells, Respondent, Impleaded with Another.

      (Argued October 10, 1930;
    decided November 18, 1930.)

      Wesley H. Maider for plaintiff, appellant and respondent.
    The trust provisions after the death of Mrs. Wells are void. (Matter of Gallien, 247 N. Y. 195; Matter of Shapiro, 134 Misc. Rep. 363; Vanderpoel v. Loew, 112 N. Y. 167; Wells v. Wells, 88 N. Y. 323; Matter of Buttner, 243 N. Y. 1; LaFarge v. Brown, 31 App. Div. 542; Matter of Colegrove, 221 N. Y. 455; Matter of Trevor, 239 N. Y. 6; Schettler v. Smith, 41 N. Y. 328.) The trust provisions create a single trust to endure for the hves of five persons in being at the death of the testator and the trust is void. (Herzog v. Title Guaranty & Trust Co., 177 N. Y. 86; Central Trust Co. v. Egleston, 185 N. Y. 23; Knox v. Jones, 47 N. Y. 389; Matter of Gallien, 247 N. Y. 195.) The plaintiff is entitled immediately to any interest undisposed of by reason of invalidity or otherwise. (Cambridge v. Rous, 8 Ves. Jr. 12; Matter of Colegrove, 221 N. Y. 455; Van Kleeck v. Dutch Church of New York, 20 Wend. 457; Benedict v. Salmon, 177 App. Div. 385; Gallavan v. Gallavan, 57 App. Div. 320; Cruikshank v. Home for the Friendless, 113 N. Y. 337.) The provision, of the will requiring the consent of the plaintiff is void. (Matter of Anonymous, 80 Misc. Rep. 10; Whiton v. Harmon, 54 Hun, 552; Cruger v. Phelps, 21 Misc. Rep. 252; Potter v.
      McAlpine, 3 Den. 108; Matter of Haight, 51 App. Div. 310.) The consent of the plaintiff is reasonably withheld pending a determination of the legal questions here involved. (2 Story Eq. Juris. [10th ed.] p. 1098; Page on Wills, § 1187; 1 Pom. Eq. Juris. [4th ed.] § 512; Willard Eq. Juris, pp. 545, 552; Larrabee v. Van Alstyne, 1 Johns. 306; Hindley v. Hindley, 29 Hun, 318.)

      Henry S. Manley and Claude T. Dawes for Katherine M. Wells, defendant, respondent-appellant.
    The trust is separable as to the provisions effective after the death of the widow. It is most consistent with the testamentary intent to disregard the provision for cross-remainders, so the trust provision does not violate the statute against perpetuities. (Wells v. Wells, 88 N. Y. 322; Vanderpoel v. Loew, 112 N. Y. 167; Schermerhorn v. Cotting, 131 N. Y. 48; Locke v. Farmers Co., 140 N. Y. 135; Matter of Colegrove, 221 N. Y. 455; Matter of Horner, 237 N. Y. 489; Matter of Trevor, 239 N. Y. 6; Matter of Buttner, 243 N. Y. 1; Matter of Gallien, 247 N. Y. 195; Matter of Drury, 249 N. Y. 154; Matter of Erickson, 113 Misc. Rep. 10; 198 App. Div. 999; City Bank F. T. Co. v. N. Y. C. R. R. Co., 253 N. Y. 49; Matter of Bump, 234 N. Y. 60; Carrier v. Carrier, 226 N. Y. 114.) The sister and nephew cannot take the gifts provided for them without accepting the conditions imposed by the testator. ((Beetson v. Stoops, 186 N. Y. 456; Matter of McGrath, 129 Misc. Rep. 514; Matter of Hughes, 225 App. Div. 29; 251 N. Y. 529.)

      Fred Linus Carroll and John M. Carroll for John E. Wells, defendant, respondent-appellant.
    The trust attempted to be created is void for the reason that the absolute power of alienation of real property and the absolute ownership of personal property are thereby unlawfully suspended. (Real Prop. Law, § 42; Matter of Hitchcock, 222 N. Y. 57; Herzog v. Title Guarantee Trust Co., 177 N. Y. 86; Matter of Wilcox, 194 N. Y. 288; Matter of Mount, 185 N. Y. 162; Brown v. Quintard, 177 N. Y. 75;
      Matter of Kingsley, 145 N. Y. Supp. 662; National Park Bank v. Billings, 144 App. Div. 536; 203 N. Y. 556; Matter of Kohler, 231 N. Y. 353; Central Trust Co. v. Falck, 177 App. Div. 501; Matter of Farmer, 99 Misc. Rep. 437.) The court cannot create five separate trusts and ehminate the cross-remainders in order to make for the testator a valid will.in violation of his obvious and invalid expressed intention. No power of revision is intrusted to the courts. (Matter of Durand, 250 N. Y. 45; LaFarge v. Brown, 31 App. Div. 542; Central Trust Co. v. Egleston, 185 N. Y. 23.) The provision of the will requiring consent is illegal, void and of no effect. (Fargo v. Squiers, 154 N. Y. 250; Booth v. Baptist Church, 126 N. Y. 215; Smith v. Rockerfeller, 3 Hun, 295; Matter of Silsby, 229 N. Y. 396; Brown v. Quintard, 177 N. Y. 75; Knox v. Jones, 47 N. Y. 389; Matter of Wilcox, 194 N. Y. 288; Benedict v. Salmon, 177 App. Div. 385; 223 N. Y. 707; Matter of Trevor, 239 N. Y. 6; Smith v. Smith, 154 App. Div. 313; Whitefield v. Crissman, 123 App. Div. 233; Brinkerhoff v. Seabury, 137 App. Div. 916; 201 N. Y. 559.)

      Alfred D. Dennison for Peoples Bank of Johnstown et ah, defendants, respondents-appellants.
    The provisions of the will do not suspend the power of alienation and absolute ownership beyond two lives in being. (Real Prop. Law, § 42; Chaplin on Suspension of Power of Alienation [3d ed.], p. 152; Steinway v. Steinway, 163 N. Y. 183; Nicoll v. N. Y. & Erie Ry. Co., 12 N. Y. 121; Matter of Traver, 161 N. Y. 54; Matter of Raab, 42 App. Div. 141; Hersee v. Simpson, 154 N. Y. 496; Cammann v. Bailey, 210 N. Y. 19; Matter of Ossman v. Von Roemer, 221 N. Y. 381; Matter of Trevor, 239 N. Y. 6; Haug v. Schumacher, 166 N. Y. 506; Sitz v. Faversham, 205 N. Y. 197; Schermerhorn v. Cotting, 131 N. Y. 48; Wells v. Wells, 88 N. Y. 323; Locke v. Farmers Loan & Trust Co., 140 N. Y. 135; Matter of Mount, 185 N. Y. 162.) The provisions of the will do not create atrust bevond the term of the life of the widow. (Hatch v. Bassett, 52 N. Y. 359; Monarque v. Monarque, 80 N. Y. 320; Bailey v. Bailey, 97 N. Y. 460; Durfee v. Pomeroy, 154 N. Y. 583; Haug v. Schumacher, 166 N. Y. 506; Snedeker v. Congdon, 41 App. Div. 433; Butler v. Butler, 41 App. Div. 477; Manice v. Manice, 43 N. Y. 303; Gilman v. Reddington, 24 N. Y. 9; Matter of Trumble, 199 N. Y. 454; Post v. Hover, 33 N. Y. 593.) Even though the provisions of the will should be construed to create a trust or trusts, nevertheless the illegal part may be separated from the legal and the will sustained as to the legal parts. (Post v. Hover, 33 N. Y. 593; Harrison v. Harrison, 36 N. Y. 543; Woodgate v. Fleet, 64 N. Y. 566; Wells v. Wells, 88 N. Y. 323; Tiers v. Tiers, 98 N. Y. 568; Van Derpoel v. Loew, 112 N. Y. 167; Kalish v. Kalish, 166 N. Y. 368; Smith v. Chesebrough, 176 N. Y. 317; Denison v. Denison, 185 N. Y. 438; Robb v. Washington & Jefferson College, 185 N. Y. 485; Chastain v. Dickinson, 201 N. Y. 538.) The provisions of the will conditioning the gifts of the nephew and sister upon their consent to use of real property and income of stocks is not void because futile or because of mistake of fact on the part of the testator. (Matter of Allen, 111 Misc. Rep. 93; 202 App. Div. 810; 236 N. Y. 503; Matter of Hunt, 207 App. Div. 127; Matter of Noyes, 7 N. Y. S. R. 703; Matter of Donchian, 120 Misc. Rep. 535; Matter of McGrath, 129 Misc. Rep. 514; Haack v. Weicken, 118 N. Y. 67; Gibbins v. Campbell, 148 N. Y. 410; Beetson v. Stoops, 186 N. Y. 456.)

      F. Law Comstock for James Oliver, 2d, et al., defendants, respondents-appellants.
   Cardozo, Ch. J.

The action is one for the construction of a will.

David A. Wells died in May, 1928, leaving a will admitted to probate in July, 1928. By the seventh subdivision thereof he gave his residuary estate in trust for his wife, Katherine M. Wells, during her life, the principal on her death (after the deduction of a legacy for the care of cemetery lots) to be divided into fifteen equal parts. A one-fifteenth part of the income was thereupon to be paid to a nephew, John E. Wells, for life, “ providing he and my sister [the plaintiff, Anna Gertrude Oliver] consent and agree to the use and occupancy of the real estate and the payment of the income of the Chicago & Northwestern Rahway stock to my wife as hereinbefore provided.” Another fifteenth part was to be paid for life to his wife’s niece, Gertrude S. Ackerknecht. A twelve-fifteenths part was to be paid to his wife's grandniece, Gertrude Katherine Ackerknecht, and a fifteenth part to another grandniece, Mary Ackerknecht. “ In the event of the death of any or either of the said beneficiaries, the income from the share or interest of said beneficiary ” was to be paid to the survivors, and not till the death of the last surviving beneficiary,” was the principal to be released from the trust and disposed of in accordance with the eighth subdivision.

By the eighth subdivision he gave his residuary estate not otherwise disposed of to his sister Anna Gertrude Oliver upon condition, however, that she and said John E. Wells consent to the use of the income of the Chicago & Northwestern Railway stock and the use of the real estate by my wife as hereinbefore provided.” In the event that his sister and nephew did not so consent, he gave this residue to his wife.

(1) The trusts established by the testator after the trust for the benefit of his wife are unlawful in so far as they provide that upon the death of any of the beneficiaries, the income from the share of the one so dying shall be paid to the survivors. The effect of that provision might be to continue the trust in respect of any share for a period of four lives. No reason is perceived, however, why the trusts should fail in their entirety. The primary trusts for the benefit of nephew, niece and grandnieces may stand, and the secondary trusts for the survivors be severed and rejected. The principles governing this process of division have been expounded so fully in recent cases that there is no occasion to restate them (Matter of Horner, 237 N. Y. 489; Matter of Trevor, 239 N. Y. 6; Matter of Gallien, 247 N. Y. 195; Matter of Durand, 250 N. Y. 45). In this instance, indeed, there is a striking absence of the circumstances that becloud intention and embarrass choice. The problem of severance is at times obscure and baffling when the consequence of excision is to accelerate a remainder bequeathed to some one other than a residuary legatee. Even in such circumstances acceleration is permitted when the plan and purpose of the will are better served thereby than they are by total sacrifice (Kalish v. Kalish, 166 N. Y. 368; Matter of Horner, supra). Here these queries and perturbations are stilled and set at rest. The remainder, though accelerated in enjoyment upon a severance of the trusts, will pass to the same person who would take under the will if the trusts, instead of being severed, were obliterated altogether. By the eighth subdivision, the sister, or, in a certain contingency, the wife, is to receive everything, real or personal, not otherwise disposed of. In such circumstances there is not even a plausible basis for the argument that the testator would have been unwilling, if he had known that some of his trusts would fail, to accelerate the remainder. In legal effect and almost in so many words he has told us by his will that he wished this very thing to happen if other gifts should lapse (Cruikshank v. Home for the Friendless, 113 N. Y. 337, 354; Lamb v. Lamb, 131 N. Y. 227, 234). There is indeed a technical rule, reluctantly enforced by courts when tokens are not at hand to suggest an opposite intention, that a gift of “ a residue of a residue ” is not to be augmented by the lapse of another gift out of the general residuum (Wright v. Wright, 225 N. Y. 329, 340). The testator has been careful to guard against the application of that rule to the gift of the remainder on the termination of the trusts. He has added to the eighth subdivision of his will the following, this clause to be construed and considered as the residuary clause of this my last will and testament.” The intention is thus manifest that the gift shall be a dragnet that will cover every interest not effectively disposed of otherwise.

(2) The plaintiff, a sister of the testator, and the defendant John E. Wells, a nephew, compláin of the conditions accompanying the gifts, and ask the court to declare them unlawful or at least inoperative. To state with accuracy the facts leading up to these conditions would extend this opinion beyond helpful bounds. With approximate correctness we may say that the sister and the nephew had an interest in certain land and shares of stock, or in the proceeds thereof in the event that land or shares were sold, which the testator wished them to surrender for the benefit of his wife, if they were to take under his will. We see no reason to doubt that the condition is one that he could lawfully impose. The long chapter of equity that bears the title “ election ” must be expunged or rewritten if a gift so conditioned is to be treated by the courts as absolute. Without the aid of an express condition equity was able through the inventiveness of her chancellors to attain a like result. “ One who accepts a benefit under a deed or will must adopt the whole contents of the instrument, conforming to all its provisions and renouncing every right inconsistent with it ” (Havens v. Sackett, 15 N. Y. 365, 369; Beetson v. Stoops, 186 N. Y. 456, 463). He is driven to a choice between the assumption of the burden and the rejection of the bounty, and this though the burden, unaccompanied by the bounty, would be an officious intermeddling with the concerns or interests of another. The will in suit accomplishes by the express statement of a condition a result substantially the same as was attained by the Chancery through its own creative powers. Stress is laid upon the point that the consents exacted may be futile even if obtained, since there are other interests outstanding, which, if they do not join in the consents, may mutilate the scheme. There is no substance to the criticism. The consents will at least be operative as to any interests represented by the sister or the nephew. The conclusion would not be different, however, if they were not operative at all. The legacies and devises were acts of bounty merely. The testator was free to withhold them altogether, or to subject them to conditions, whether sensible or futile. The gift is to be taken as it is made or not at all (Brown v. Knapp, 79 N. Y. 136, 143; Dinan v. Coneys, 143 N. Y. 544, 547).

(3) The final question remains whether nephew and sister have waited so long before accepting the condition that they must be held to have rejected it, and so renounced the gift. The testator died in May, 1928, and his will was admitted to probate in July. In October, 1928, this action was begun. The plaintiff in her complaint refused to accept the condition or to reject it until advised by the court as to the power of the testator to impose it and advised by the same authority as to the validity of the trusts. The defendant, the nephew, answered, and took the same position. By the time of the trial, in February, 1929, nearly a year had gone by since the death of the testator, and still election was postponed. The trial judge by his decision postponed the time again. He held that there should be a period of ninety days after the final judgment on appeal within which choice might be announced, but that the widow should be permitted in the interval to have the use of the land and the income from the shares without accountability thereafter.

The general principle is that election must be made within a time that is equitable in the light of all the circumstances. This time may be very long, if injury to others will not result from the delay, and by the same token very short if the failure to act promptly may work injury or hardship (1 Pomeroy Equity Juris. [4th ed.] §513; Halsbury Laws of England, title Equity, § § 141,144, and cases there collated). Broadly speaking, we may say that at least there should be adequate opportunity to investigate the cost of the burden as compared with the value of the benefit and to acquire that knowledge of the facts without which choice, if made, would be uninformed and unintelligent (Jaques v. Chandler, 73 N. H. 376; 1 Pomeroy Equity Juris. [4th ed.] § 512; Halsbury, supra). Indeed, authority is not lacking that relief may be granted against an election once declared if made in ignorance of values or misconception of the law (Larrabee v. Van Alstyne, 1 Johns. 307; Adsit v. Adsit, 2 Johns. Ch. 448, 451; Hindley v. Hindley, 29 Hun, 318; Bradhurst v. Field, 10 N. Y. Supp. 452; Halsbury, supra.) Liberality may well be greater when indulgence is craved in advance of the event. Upon a prayer for such indulgence all the circumstances are to be weighed. The time fairly to be allowed where the will is plain or uncontested and values are readily ascertainable, may be inadequate where there is contest or obscurity or a call for inquiry and reflection. Sometimes the period of permissible delay is governed by a statute with the result that discretion is excluded (Akin v. Kellogg, 119 N. Y. 441; Bunker v. Murray, 182 Mass. 335). In the absence of statute, the question is one of fact whenever conflicting inferences are possible (Jaques v. Chandler, supra). There will be no revision by this court except for manifest abuse.

Viewing the case at hand, we find confusion and obscurity as to the effect of an election, sufficient to excuse delay, or at least to furnish for the excuse a basis, not wholly unsubstantial, in equity and reason. In so saying, we give little, if any, weight to the supposed uncertainty as to the validity of the conditions accompanying the gift's. If choice between acceptance and rejection were embarrassed by nothing else, there would be strength in the position of the widow that excuse had not been shown. The testator did not mean that his widow should be left in uncertainty as to her enjoyment of the land or the income from the shares unless substantial grounds of justice made uncertainty inevitable. He had no thought that the recipients of his bounty would be suffered to postpone the hour of consent while debating the question, from one court to another, whether the condition could be flouted and the bounty still enjoyed. So, at least, one can argue with a force not unimpressive. The fact is, however, that apart from any uncertainty as to the binding force of the conditions, there were other uncertainties more embarrassing and in closer relation to justice and fair dealing. By concession there is illegality in respect of some of the provisions as to the duration of the trusts. Whether the consequence of 'this illegality has been to annul the trusts in part or to destroy them altogether, is a question not frivolous, and one not susceptible of being answered with confidence or certainty till the courts have had their say. The legatees till then were not provided with the data essential to a choice. Was it the part of wisdom to accept the prescribed condition, with the surrender thereby of what already was their own, or, on the other hand, to repudiate the condition and renounce in so doing the benefits that would come under the will? They were groping in the dark till the benefits were defined.

Let us consider in the first instance the position of the plaintiff, Mrs. Oliver, and the dilemma confronting her when asked to make a choice. If the trusts following the trust for the widow were to be held void in their entirety, the ultimate remainder to Mrs. Oliver would take effect in possession at once after the widow’s death. If the trusts were not void altogether, but void in part only, the enjoyment of the ultimate remainder would be postponed till long thereafter. Its value would be much larger in the first event than it would be in the second. How could the legatee of the remainder make an intelligent choice between the worth of what she was to get and the worth of what she was renouncing until these doubts had been dispelled? A court of equity might say with at least a reasonable basis for such an exercise of judgment that the time essential for a determination of the extent of the subject-matter passing under the will was a time not unreasonably long for the declaration of a choice. Injustice to the widow is sufficiently averted by the provision of the judgment whereby the intervening rents and income are assured to her as her own without accountability to any one.

The case is not different in respect of election by the nephew. There was no good in his consenting to surrender his interests in land and stock unless the sister did likewise, for joint consent was necessary to make the gift effective. If the sister would not act, he could not know the value of what he was getting, or know that he was getting anything. Whatever postponed the time for choice available for her, postponed almost of necessity the time available for him. Nor is that all. Even if the consent exacted had been several instead of joint, the only benefit that was to come to him was an interest in a trust, and this interest would be illusory if all the trusts were void. Very likely, in that event the consent would have been revocable (Akin v. Kellogg, supra, at p. 450), but the right to revoke might have been disputed, with the result of new embarrassments.

The judgment should be affirmed with separate bills of costs to all parties filing briefs in this court, payable out of the estate.

Pound, Crane, Lehman, Kellogg, O’Brien' and Hubbs, JJ., concur.

Judgment affirmed, etc.


author: O’Brien, J.

text:
    Ida Fischer, Respondent, v. Arthur Fischer, Appellant.
    (Argued October 13, 1930;
    decided November 18, 1930.)

      I. Maurice Wormser, Robert II. Elder and Abraham N. Davis for appellant.
    It was incumbent upon plaintiff to prove that she was lawfully married to defendant in order to entitle her to a decree of separation and maintenance. (Jones v. Jones, 108 N. Y. 415; Brinkley v. Brinkley, 50 N. Y. 184; Collins v. Collins, 80 N. Y. 1; Warshor v. Warshor, 130 Misc. Rep. 362; Blinks v. Blinks, 5 Misc. Rep. 193.) Plaintiff was never legally married to defendant. Her Nevada divorce decree was void. The courts of this State will not recognize a foreign decree of divorce when it appears that the defendant therein was a citizen of and domiciled in this State, and was not personally served in the foreign action in Nevada and did not appear therein. (Haddock v. Haddock, 178 N. Y. 557; 201 U. S. 562; Olmsted v. Olmsted, 216 U. S. 386; Atherton v. Atherton, 181 U. S. 155; Bell v. Bell, 181 U. S. 175; Streitwolf v. Streitwolf, 181 U. S. 179; Andrews v. Andrews, 188 U. S. 14; Cross v. Cross, 108 N. Y. 628; De Meli v. De Meli, 120 N. Y. 485; Baumann v. Baumann, 250 N. Y. 382; Kaiser v. Kaiser, 192 App. Div. 400; 233 N. Y. 524; Thompson v. Thompson, 89 N. J. Eq. 70; Dumont v. Dumont, 45 Atl. Rep. 107; Knill v. Knill, 119 Misc. Rep. 186.) A valid and legal marriage cannot be created by acts alleged to constitute an equitable estoppel so as to be made the basis of a separation decree. (2 Schouler Marr. & Div. [6th ed.] 1420; Petit v. Petit, 105 App. Div. 312; Blinks v. Blinks, 5 Misc. Rep. 193; 2 Bishop Marr. & Div. § 230; Arado v. Arado, 281 Ill. 123; People v. Baker, 76 N. Y. 78; Corvin v. Commonwealth, 131 Va. 649.) Defendant'is not estopped from questioning the validity of the Nevada decree; he does not seek affirmative relief. (Warshor v. Warshor, 130 Misc. Rep. 262; Durham v. Durham, 99 App. Div. 450; Carmody New York Practice, § 960; Stokes v. Stokes, 198 N. Y. 301.)

      M. Michael Edelstein for respondent.
    The plaintiff established a valid marriage to the defendant and the burden of proving such marriage invalid thereupon shifted to the defendant. (Hynes v. McDermott, 91 N. Y. 451; Wilson v. Burnet, 105 Misc. Rep. 279; Price v. Tompkins,
      108 Misc. Rep. 263; 190 App. Div. 967; Lazarowicz v. Lazarowicz, 91 Misc. Rep. 116; Johannassen v. Johannassen, 70 Misc. Rep. 361; Hall v. Hall, 139 App. Div. 120; Matter of Tyrrell, 115 Misc. Rep. 714; 198 App. Div. 1001; Matter of Biersack, 96 Misc. Rep. 161.) The defendant by his conduct is estopped from questioning the validity of the Nevada divorce decree. The defendant seeks affirmative relief. Such relief cannot be obtained in an action for separation. (Stokes v. Stokes, 198 N. Y. 301; Kaufman v. Kaufman, 177 App. Div. 162; Hubbard v. Hubbard, 228 N. Y. 81; Sorenson v. Sorenson, 219 App. Div. 344; Kinnier v. Kinnier, 45 N. Y. 535; Matter of Moncrief, 235 N. Y. 390; Ostro v. Ostro, 169 App. Div. 790; Murphy v. Murphy, 194 App. Div. 395.) Recognition of the Nevada decree does not contravene the public policy of this State. (Haddock v. Haddock, 201 U. S. 562; Atherton v. Atherton, 181 U. S. 155; Williamson v. Osenton, 232 U. S. 619; Dean v. Dean, 241 N. Y. 240; Hunt v. Hunt, 72 N. Y. 217; Richards v. Richards, 132 Misc. Rep. 551.)
   O’Brien, J.

At New York city, plaintiff and Bernard Dolinsky, both domiciled and resident in this State, intermarried. Always since that time she has remained domiciled and resident in New York. For the sole purpose of instituting an action for divorce against Dolinsky on grounds other than adultery, she went to Nevada. She intended, after the rendition of a decree, immediately to return here and consequently she never became a resident of that State. She temporarily lived there merely to give some appearance of colorable right to maintain her action. In her suit in the District Court at Reno based upon cruelty and neglect, Dolinsky was personally served at New York but he did not appear nor was he represented by counsel. A decree purporting to dissolve the marriage was entered in Nevada and plaintiff returned to New York. After the expiration of five months and during the lifetime of Dolinsky she went through the form of a marriage ceremony in New Jersey with defendant Fischer, who was and is domiciled and resident in New York. They lived together less than three months. In the present action, based upon desertion, she has recovered judgment against him for separation and alimony which has been unanimously affirmed. Appeal is by permission of this court.

The invalidity of the Nevada decree is not open to doubt in this State (Atherton v. Atherton, 181 U. S. 155; Haddock v. Haddock, 201 U. S. 562; Olmsted v. Olmsted, 216 U. S. 386; Baumann v. Baumann, 250 N. Y. 382; Bishop on Marriage, Divorce and Separation, vol. 2, § 102) and the courts below have not otherwise decided. The theory upon which plaintiff has succeeded rests upon a supposed resemblance in principle to Kaufman v. Kaufman (177 App. Div. 162) and upon the judicial declaration that defendant is estopped from assailing the validity of the foreign judgment. The judgment in the Kaufman case never was reviewed by this court. In Hubbard v. Hubbard (228 N. Y. 81) it was cited on the briefs but was not mentioned in the opinion. Even if approval of its doctrine were to be assumed, its essential facts are so unlike these at bar as to prevent the application of the rule. There the New York citizenship and residence of the first husband were unproved. Also the complaint in that action by the second husband for an annulment demanded affirmative relief. Here defendant does not come into court with demand for affirmative relief. He merely alleges plaintiff’s marriage with Dolinsky, denies plaintiff’s allegation concerning his own marriage with her and puts her to her proof to show that such allegation is correct. In every action for separation the primary fact to be proved is an existing marriage between the parties. (Jones v. Jones, 108 N. Y. 415.) By way of reply plaintiff admitted her former marriage and set up the Nevada decree of divorce by a court which she alleged to have jurisdiction of the persons of the parties. That allegation has been disproved and the marriage which she asserted as existing between herself and defendant is not such a one as is recognized by the law of this State.

Hubbard v. Hubbard (supra) does not help plaintiff. There the husband asked for affirmative relief in his demand for an annulment of a marriage which had been performed in North Dakota between parties both domiciled in Massachusetts. That marriage was valid under the law of Massachusetts. The wife while a resident of Pennsylvania had previously married a resident of that State and obtained a decree of divorce in Massachusetts. She and her former husband did not at any time as husband and wife reside here and he was no longer living when the annulment action by Hubbard was begun. The State of New York was not a party to any of the marital transactions of those parties and we held that the public policy of this State does not require the establishment of a forum for the resort of parties to a marriage which is valid in the State where they were domiciled when it was performed.

The judgment of the Appellate Division and that of the Special Term should be reversed and the complaint dismissed.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and Hubbs, JJ., concur.

Judgments reversed, etc.


author: Crane, J.

text:
    Benedict H. Gruntal et al., Copartners under the Firm Name of Gruntal, Lilienthal & Co., Respondents, v. United States Fidelity and Guaranty Company et al., Defendants, and National Surety Company et al., Appellants.
    (Argued October 14, 1930;
    decided November 18, 1930.)

      Stewart Maurice and Murray D. Welch for appellants.
    When the plaintiffs received the bonds in suit they did not become holders thereof in due course. (Leo v. McCormack, 186 N. Y. 330; Kent v. DeCoppet, 149 App. Div. 589; Crusius v. Louchheim, 132 Misc. Rep. 520; Neg. Inst. Law, § 98; Vosburgh v. Diefendorf, 119 N. Y. 357; Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191; American Exchange Nat. Bank v. New York Belting & Packing Co., 148 N. Y. 698; Kittredge v. Grannis, 236 N. Y. 375; Fidelity-International Trust Co. v. Canalizo, 211 App. Div. 325; National Bond & Investment Co. v. Howard, 218 App. Div. 65; Karpas v. Bandler, 218 App. Div. 418; Harter v. Peoples Bank, 221 App. Div. 122.) When the plaintiffs sold the bonds in suit, they converted said bonds to their own use. (Casey v. Kastel, 237 N. Y. 305; Turnbull v. Longacre Bank, 249 N. Y. 159; Hale v. West Porto Rico Sugar Co., 200 App. Div. 577; Iowa Securities Corp. v. Ridgewood Nat. Bank, 106 Misc. Rep. 335; Nicholson v. Morgan, 119 Misc. Rep. 309.) When the plaintiffs took back the bonds in suit they did not become holders thereof in due course. (Hibbs v. Brown, 190 N. Y. 167; Neg. Inst. Law, § 97; Devlin v. Brady, 36 N. Y. 531; Vosburgh v. Diefendorf, 119 N. Y. 357; Harter v. Peoples Bank, 221 App. Div. 122; Woods v. Sizer, 102 Misc. Rep. 453; Bute v. Williams, 162 S. W. Rep. 989; Andrews v. Robertson, 111 Wis. 334; Kost v. Bender, 25 Mich. 515; Battersbee v. Calkins, 128 Mich. 569; Aragon Coffee Co. v. Rogers, 105 Va. 51; Daniel Neg. Inst. §805.

      Harold Nathan and D. William Leider for respondents.
    The plaintiffs, when they took back the stolen bonds and delivered other bonds in their place, became transferees from the original purchasers and acquired all the rights of those purchasers as holders in due course, regardless of any notice imputable to the plaintiffs. (Neg. Inst. Law, § 91; Kost v. Bender, 25 Mich. 515; Hibbs v. Brown, 190 N. Y. 167; Holt v. Hopkins, 63 Misc. Rep. 537; 136 App. Div. 940; Dengler v. Paul, 83 Pa. Super. Ct. 37; Murtha v. Curley, 90 N. Y. 372; Bell v. Merrifield, 109 N. Y. 202; City of Syracuse v. Hogan, 234 N. Y. 457; Harter v. Peoples

      Bank, 221 App. Div. 122.) The plaintiffs were holders of the bonds for value. (1 Daniel Neg. Inst. §§ 821-823; Merchants Nat. Bank v. Santa Maria Sugar Co., 162 App. Div. 248; 220 N. Y. 732; Second Nat. Bank v. Breitung, 203 App. Div. 636; Geneva Nat. Bank v. Fox, 190 N. Y. Supp. 747; Citizens State Bank v. Tessman & Co., 121 Minn. 34.) There was no conversion of the bonds by the plaintiffs. (Casey v. Kastel, 237 N. Y. 305; First Nat. Bank v. Hudson, 166 App. Div. 51; 222 N. Y. 556; Mutual Trust Co. v. Merchants Nat. Bank, 236 N. Y. 478.) The plaintiffs are holders of the bonds in good faith and without notice. (Henry v. Allen, 151 N. Y. 1; Horan v. Mason, 141 App. Div. 89; Bienenstok v. Ammidown, 155 N. Y. 47; Benedict v. Arnoux, 154 N. Y. 715; New York v. Tenth Nat. Bank, 111 N. Y. 446; Welsh v. German American Bank, 73 N. Y. 424; Brooklyn Distilling Co. v. Standard Distilling Co., 120 App. Div. 237.)
   Crane, J.

The plaintiffs are stockbrokers, members of the New York Stock Exchange. Louis Katz and Cassie Lewin, of the firm of Katz, Lewin & Wiener, were customers. On April 17, 1928, and thereafter, Katz delivered to the plaintiffs to sell for his account three $1,000 New York Railways six per cent bonds, two $1,000 Detroit-International Bridge Company seven per cent bonds, and three $1,000 Brooklyn-Manhattan Transit Company six per cent bonds. The bonds were ¿old and the purchase price credited to his account, of which he received part in cash, leaving a balance due when his account was closed May 31, 1928.

Cassie Lewin brought to the plaintiffs in May of the same year three $1,000 Pennsylvania Railroad five per cent bonds, three $1,000 United States of Brazil six and one-half per cent bonds to be sold for his account. He received the full amount of the purchase price, less commissions.

All these bonds were coupon bonds payable to bearer and were negotiable instruments. They had been stolen from their true owners. Whether Katz and Lewin were parties to the theft or fraud in obtaining the bonds does not appear. The brokers, however, had no knowledge of the fact. All of these bonds, with the exception of one $1,000 United States of Brazil bond, were returned to the brokers as stolen bonds, and were replaced by them with like bonds of unquestioned title.

The rules of the New York Stock Exchange provided that negotiable bonds claimed to have been lost or stolen are not a good delivery, and if bonds are delivered which any one claims to have been lost or stolen, they can be at any time returned to the Stock Exchange house making delivery, and the latter must take them back when tendered, and deliver bonds constituting a good delivery, until such Stock Exchange house has established its title as against the claim of the previous holder. The plaintiffs, in making substituted deliveries, were complying with this rule.

This left them with the stolen bonds on their hands, which they could not dispose of until the title had been cleared up. Thus this action. The owners of the stolen bonds had been insured against theft by the three defendant insurance companies. Having paid the loss, these insurance companies became subrogated to the rights of the true owners, and claimed and still claim title to the bonds as against the plaintiffs. One of these companies, the United States Fidelity and Guaranty Company, has dropped out of the appeal. This action is to establish the title to these bonds and for judgment declaring the plaintiffs to be the true and lawful owners thereof.

When Katz and Lewin turned these bonds over to the plaintiffs to sell for them, the plaintiffs in so doing acted as agents for these customers, and the fact that under the rules of the Stock Exchange they had sold the bonds in their own name without revealing the identity of their principals, did not change the situation. Assuming for the moment that these bonds, payable to bearer, are to be treated like other personal property, these brokers were hable in conversion to the true owners. It would be no excuse that they acted in good faith and without knowledge of the theft. (Casey v. Kastel, 237 N. Y. 305, 312, 314.) Was their position changed, when they repurchased them from holders in due course?

When the plaintiffs sold the bonds to purchasers for value without notice, that is, to holders in due course (Neg. Inst. Law; Cons. Laws, ch. 38, § 91), these holders obtained good title and the rights of the true owners were barred; the purchasers held the bonds free from any defect of title. (Neg. Inst. Law, § 96.) The whole world was free to purchase good title from these holders with the exception of those stated in section 97, which reads: “In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.”

When the brokers took back the stolen bonds, as above stated, they paid value for them; they made good their delivery by substituting other bonds of like kind and nature. At that time they were not acting as agents for Katz and Lewin, but in their own right, and in fulfillment of their own obligations. The substituted bonds were then' property. The agency for their customers had terminated. They, therefore, had all the rights of these holders in due course, unless they came within the exception, that is, were parties to the fraud or illegality affecting the title to the bonds.

The Appellate Division, considering Hibbs v. Brown (112 App. Div. 214; 190 N. Y. 167) as authoritative upon this point, held that the brokers were holders in due course. An examination of that case fails to disclose that the question which has here been raised was there fully considered. In this court, at least, the main contention in the Hibbs case was over the negotiability of the bonds and not the title to them. We here have the question squarely presented whether the brokers’ liability for conversion, if any, when they held and sold the bonds, was wiped out when they repurchased them for value from a holder in due course. The answer to this requires two considerations: First, whether the liability of one for conversion who innocently takes and disposes of stolen securities makes him a party to the fraud and illegality affecting the instrument; and, second, whether the first assumption is correct that a broker, acting in good faith and without notice, is liable in conversion for selling and disposing of bonds payable to bearer.

Actual participation in the fraud or illegality affecting title to the instrument is not requisite to bring one within the meaning of section 97. A payee of a negotiable instrument merely having knowledge of an infirmity at the time of transfer does not change his position upon reacquisition from a holder in due course. His previous knowledge of defects in title at the time of transfer is revived; he does not become a holder in due course, although his reacquisition is from such an one. (Horan v. Mason, 141 App. Div. 89; Harter v. Peoples Bank of Buffalo, 221 App. Div. 122.) Whether this rule is limited to payees or extends to transferrers other than payees, we need not consider at this time. It certainly does not extend to those who take from a holder in due course with knowledge of defects, but who have not with such knowledge previously transferred the instrument. (Vosburgh v. Diefendorf, 119 N. Y. 357.)

The appellant insists that the broker who exercises dominion over stolen property is to be classed as a party to the fraud or illegality, and cannot better himself by repurchase from an innocent holder. We are confronted with the proposition that if the brokers were liable for conversion in selling the bonds, their title as holders in due course upon reacquisitiori is worthless. The value of the bonds would be offset by the damages for conversion, and to prevent circuity of action, the courts will consider the brokers, upon reacquisition, to have assumed their original position as takers without value and, therefore, not holders in due course. This matter has been thoroughly touched upon by Professor Chafee in an article in the Columbia Law Review (Vol. 21, p. 538), entitled, “ The Reacquisition of a Negotiable Instrument by a Prior Party.” (See, also, Bank of Meno v. Coulter, 94 Okla. 213; reviewed in 37 Harvard Law Review, p. 907.)

These reflections lead to a reconsideration of the main premise that the brokers were liable in the first instance for conversion in selling stolen negotiable bonds, payable to bearer.

The general rule no doubt is, as above stated, that an innocent holder, appropriating or disposing of stolen property, is hable for conversion. Both at common law (Turnbull v. Bowyer, 40 N. Y. 456) and under the Negotiable Instruments Law, a holder in due course of negotiable paper takes good title even from a thief. As to stock certificates, see Turnbull v. Longacre Bank, 249 N. Y. 159. United States government bonds, payable to bearer, and like bonds of corporations, circulate to-day as freely as money; title passes by delivery. A broker accepting such securities for disposition on behalf of a customer has little or no means of warning or inquiry such as indorsements or other relationships might suggest. The securities pass from hand to hand by delivery. He is a mere conduit between the seller and the purchaser, for which he receives a small commission. The purchaser is not hable for conversion, yet the broker, acting without any ground for suspicion, is said to be liable for the full value of the security which he has sold, although he has paid the purchase money over to the seller. The harshness of such a rule has been recognized by the courts in repudiating his liability Public policy does not demand the extension of liability for innocent acts to such a case. In Pratt v. Higginson (230 Mass. 256) the Supreme Judicial Court of Massachusetts said of brokers: “ The question for decision therefore is, whether the defendants, who received and sold the bonds and accounted for the proceeds to the apparent owner without notice of any infirmity in the title or of any circumstances which should have put them upon inquiry, can be held responsible in damages by the true owner for conversion.

The defendants undoubtedly exercised dominion over the bonds by converting them into money. If the property had consisted of chattels or non-negotiable documents, of which certificates of stock are an example, the plaintiff’s title would not have been divested by a sale even to a purchaser for value and in good faith. Scollans v. Rollins, 173 Mass. 275, 278, and cases there collected. But to this rule there is a well recognized exception where the property consists of negotiable securities.”

The decision of the court was that the brokers were not liable for conversion.

The Supreme Judicial Court of Maine, in Kimball v. Billings (55 Me. 147), has held to the contrary.

We are inclined to the view that the plaintiffs in this case were not hable for conversion, when, in behalf of an apparently honest customer with whom they had had past dealings, and without any cause whatever for suspicion, they sold for his account negotiable corporate bonds payable to bearer. This being so, the plaintiffs upon reacquiring the stolen bonds for value, became holders in due course and owners thereof.

For the reasons here stated, the judgment should, therefore, be affirmed, with costs.

Cardozo, Ch. J., Pound, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment affirmed.


author: Per Curiam.

text:
    The People of the State of New York ex rel. 1170 Fifth Avenue Corporation, Respondent, v. Henry M. Goldfogle et al., as Commissioners of Taxes and Assessments of the City of New York, Appellants.
    (Argued October 15, 1930;
    decided November 18, 1930.)

      Arthur J. W. Hilly, Corporation Counsel (William H. King and Isaac Phillips of counsel), for appellants.
    Section 889-a of the New York City Charter (L. 1913, ch. 324) was passed in violation of section 18 of article III of the Constitution'of the State of New York. (Matter of Church, 92 N. Y. 1; Arthur v. Glens Falls, 66 Hun, 139; Ferguson v. Ross, 126 N. Y. 459; People v. O’Brien, 38 N. Y. 193; People ex rel. Electric Lines v. Squire, 107 N. Y. 593; 145 U. S. 175; Matter of Wallace Ave., 222 N. Y. 139; Kittinger v. Buffalo Traction Co., 160 N. Y. 377; People v. Dunn, 31 App. Div. 139; 157 N. Y. 528; Sun Printing & Publishing Co. v. New York, 152 N. Y. 257; People v. Prendergast, 202 N. Y. 188; People v. Warden, etc., 81 Hun, 434; Treanor v. Eichorn, 74 Hun, 58.) As the invalidity appears upon the face of the statute, there being no ambiguity or question as to interpretation, the doctrine of practical construction is not applicable and it is immaterial that the subject of unconstitutionality has not heretofore been raised. (People ex rel. N. Y. C. & H. R. R. R. Co. v. Purdy, 216 N. Y. 704; People ex rel. Gleason v. Purdy, 179 App. Div. 232; People ex rel. Shelton v. Goldfogle, 220 App. Div. 451; People ex rel. Clark Henry Corp. v. Goldfogle, 204 App. Div. 710; Hermitage Co. v. Goldfogle, 204 App. Div. 710.)

      Kalman Sklar, Thomas I. Sheridan and Charles A. Winter for respondent.
    Section 889-a of the New York City Charter (L. 1913, ch. 324) is not a local law within the intent and interpretation of section 18 of article III of the New York Constitution. (Ferguson v. Ross, 126 N. Y. 459; Williams v. People, 24 N. Y. 405; Hermitage Co. v. Goldfogle, 204 App. Div. 710; People ex rel. Clancey v. Supervisors, 139 N. Y. 524; Admiral Realty Co. v. City of New York, 206 N. Y. 100; Matter of McAneny v. Bd. of Estimate, 232 N. Y. 373.) Section 889-a does not in itself grant an exemption from taxation nor is it a grant of any exclusive privilege or immunity whatever. (People ex rel. Strong v. Hart, 216 N. Y. 513; People ex rel. Metropolitan Street Ry. Co. v. Tax Commrs., 174 N. Y. 417; State v. Smith, 158 Ind. 543; Matter of Union Ferry Co., 98 N. Y. 153.) The application of section 889-a having been acquiesced in for seventeen years with never a question as to its validity, imparts to the defendants’ contention an academic character. (People
      v. Chicago, etc., R. Co., 256 Ill. 388; People ex rel. N. Y. C. & H. R. R. R. Co. v. Purdy, 167 App. Div. 637; 216 N. Y. 704; People ex rel. Gleason v. Purdy, 179 App. Div. 233; People ex rel. 176 West 87th Street Corp. v. Cantor, 191 App. Div. 946; 230 N. Y. 312; People ex rel. Shelton H. Corp. v. Goldfogle, 220 App. Div. 451; People ex rel. Clark Henry Corp. v. Goldfogle, 226 App. Div. 767; 252 N. Y. 581.)
   Per Curiam.

Relator owns land and a building erected thereon. The building was commenced subsequent to October 1, 1925, but was not completed and ready for occupancy on October 1, 1926, the date which fixed its taxable status for the year 1927. The land unimproved was assessed for the year 1927 at $397,000 and with improvements thereon at $1,300,000. The Special Term reduced the assessment to the value of the unimproved land. Unless section 889-a of the Greater New York Charter is unconstitutional, the reduction is proper. This section, as enacted by chapter 324 of the Laws of 1913, provides: “A building in course of construction, commenced since the preceding first day of October and not ready for occupancy, shall not be assessed.”

We think the proposition very plain that the statute does not offend the prohibition of article III, section 18, of the Constitution. That section is aimed primarily if not exclusively at legislation attempting to grant to some specified “ person, association, firm or corporation ” an exemption from taxation. It is not intended to prevent in every instance the enactment of laws which the Legislature deems salutary and which apply to all property of the same class in a defined territory. Section 889-a is likewise harmonious with the provisions of article VIII, section 10. By failing to assess a certain class of property the city does not give its money or property or lean its money or credit to or in aid of individuals, associations or corporations. It neither gives nor loans anything. This statute has been on the books for seventeen years, has been interpreted by the courts on many occasions and never before has its validity been assailed. These facts are not conclusive but are to some extent significant. The order should be affirmed, with costs.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Order affirmed.


text:
    Anna C. Fuhrmann, Respondent, v. Arthur E. Fanroth, Appellant, Impleaded with Another.
    (Argued October 16, 1930;
    decided November 18, 1930.)

      Charles J. Nehrbas and Malvin B. Mariash for appellant.
    Plaintiff was required to allege and prove fraud in the procurement of the foreclosure judgment. (Savage v. Allen, 54 N. Y. 458; Mandeville v. Reynolds, 68 N. Y. 528; Pray v. Hegeman, 98 N. Y. 358; Stewart v. Stewart,
      198 App. Div. 337; Goebel v. Iffla, 111 N. Y. 170; Tax Lien Co. v. Schultz, 213 N. Y. 9; Jasper v. Rosinski, 228 N. Y. 349; Field v. Chronik, 190 App. Div. 501; Lagrave v. Hellinger, 144 App. Div. 397; Archer v. Archer, 164 App. Div. 81; Buffalo Cold Storage Co. v. Harding, 214 App. Div. 643; Collins v. Burr, 209 App. Div. 116; Ward v. Town of Southfield, 102 N. Y. 292.)

      Mark B. Bennitt and George C. Manning, Jr., for respondent.
    The plaintiff has alleged and shown fraud in the procurement of the judgment of foreclosure and sale which deprives her of her property. (Miller v. Barber, 66 N. Y. 558; Istari v. Hecksher, 15 N. Y. Supp. 739; 45 N. Y. S. R. 699; Bienenstok v. Amidown, 31 Abb. N. C. 400; Meredith v. Art Metal Constr. Co., 97 Misc. Rep. 69; 176 App. Div. 945.)
   Cardozo, Ch. J.

The action is one to vacate a judgment for the foreclosure of a mortgage and the sale of the mortgaged premises on the ground that the judgment Was procured by fraud.

The plaintiff, Anna C. Fuhrmann, was in 1925 and afterwards the owner of a parcel of land in the county of Kings. She gave to her husband, the defendant Peter J. Fuhrmann, a power of attorney to mortgage the land in her name. The power was general in its terms, but its object, so she says, was to substitute a new mortgage in the sum of $6,500 for an earlier one of like amount then a hen upon the premises. The object once accomplished, the expectation was that the power would not be used again.

In May, 1926, the husband, Peter Fuhrmann, leased from the defendant Fanroth a restaurant at Coney Island. Fanroth wished to have a mortgage in the sum of $4,000 either as security for the lease or to enable him to borrow money. He took one on the plaintiff’s land, receiving it from Fuhrmann who signed as agent under the power. There is testimony that Fanroth had knowledge of the true purpose of the agency and the limitation of authority. He knew in any event that the agent was mortgaging without consideration or at best for a debt that was owing from the agent personally.

In June, 1927, Fanroth brought suit for the foreclosure of his mortgage, which was then overdue as to principal and interest. He caused the summons, and complaint to be served on Mrs. Fuhrmann, the process server throwing the papers on a table. Examining the papers later, she learned about the mortgage. She spoke to Fanroth over the telephone, and asked him what the papers meant. He answered that he was foreclosing the mortgage for money owing from her husband, whom he advised her to consult. Later in the day, she showed the papers to the husband, who told her, so she says, that there was nothing to the suit and that no mortgage had been made. He took the papers away with him, promising to give the matter his attention. The lawyer whom he consulted advised him that there had been a failure to serve the summons in the manner called for by the statute, and that there was no need of appearing or of putting in an answer. The next thing Mrs. Fuhrmann heard about the matter was when she learned that there had been a judgment of foreclosure and that the land was advertised for sale.

A motion quickly followed. It was made to vacate the service of the summons and to open the default. Both Mrs. Fuhrmann and her husband made affidavits in support of it. Mrs. Fuhrmann stated that she had never been served with the summons. Her narrative was contradicted in many of its features by the affidavit of the process server. She also stated as a proposed defense that the mortgage had been executed under the power of attorney without her knowledge and without consideration. There was a corroborating affidavit verified by the husband. The motion being denied, a motion for a reargument was made on fuller papers. Among them was an affidavit by the attorney retained by Mr. Fuhrmann. The affidavit shows that the attorney had been fully informed by Fuhrmann as to Mrs. Fuhrmann’s claim of fraud, but had failed to appear and defend because he believed from the report made to him that the service was invalid. Upon the application for reargument, the motion was again denied.

The present action followed. The plaintiff, reiterating her claim that she was persuaded not to defend by the advice of her own attorney that defective service of the summons made appearance and defense unnecessary, has prayed the aid of the court to set aside the judgment in the exercise of its equitable jurisdiction to relieve against deceit. The Supreme Court at Special Term has granted the relief demanded, and the Appellate Division has affirmed, though by a divided court.

For the purpose of this appeal, we assume in plaintiff's favor that the mortgage was subject to infirmities which, if seasonably proved, would have made out a defense to the action of foreclosure. That is not enough to call for its annulment in an independent action. There is no distinction in that regard between judgments by default and those rendered after trial. The plaintiff may not prevail by a showing of fraud in the underlying transaction which is the basis of the judgment, still less by a showing that there was a lack of consideration. Defenses such as these should have been pleaded and proved while the foreclosure suit was pending, and are not a subject of inquiry afterwards. The plaintiff, to prevail, must prove that there was fraud in the very means by which the judgment was procured (Mayor, etc. v. Brady, 115 N. Y. 599; Ward v. Town of Southfield, 102 N. Y. 287, 292; Crouse v. McVickar, 207 N. Y. 213, 218, 219; United States v. Throckmorton, 98 U. S. 61, 68; United States v. Atkins, 260 U. S. 220, 224), some covinous device, for illustration, whereby she was robbed of the opportunity to uncover her grievance and expose it to the court. The rüle is less rigid where the application for relief is by motion in the action (Crouse v. McVickar, supra; Dutton v. Smith, 10 App. Div. 566; Crim v. Handley, 94 U. S. 652). There is then a large discretion to open a default suffered through mistake of fact or law or even negligent inadvertence, though neither fraud nor other wrong is to be imputed to the adverse party. Such a motion, as we have seen, was made by Mrs. Fuhrmann, and the order denying it is still in force, unchallenged by appeal. If relief is now to be granted in an independent action, there must be a showing of that fraudulent procurement exacted by the precedents.

We find nothing in this record to justify us in saying that such procurement has been proved. Fanroth, the mortgagee, served the summons and complaint upon the owner in conformity with law. This fact is found in the decision of the trial court. He not only served the papers; he explained the object of the lawsuit in such a way as to warn her of the need of a defense. He told her that the suit was one to foreclose a mortgage upon her land as security for Fuhrmann’s debt. Later in the day she showed the papers to her husband, stating at the same time that they had been left at the house and never served upon her. The husband quieted her fears by telling her that no mortgage had been executed. This was a falsehood, but a falsehood without tendency to beguile into indifference. If no mortgage had been made, the need was the more obvious that there should be appearance and defense. Fuhrmann took the papers and brought them to a lawyer. To the lawyer he told everything. He explained with no concealment that the mortgage was without consideration and a fraud upon the maker. He reported also what his wife had told him about the service of the summons. The failure to defend was not due to concealment, either unilateral or covinous, as to the grounds of the defense. It was due to the belief, induced in good faith by the representations of the wife, that the summons had not been served, and hence that an answer was not due. Neither husband nor wife nor lawyer has offered a suggestion to the contrary. Upon a default suffered without covin, there has been a judgment duly rendered, which has been duly followed by a sale. Sale and judgment are unimpeached and upon this record unimpeachable.

The judgment of the Appellate Division and that of the Special Term should be reversed, and the complaint dismissed with costs in all courts.

Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgments reversed, etc.


author: O’Beien, J.

text:
    Alexander M. Bing et al., Appellants, v. The People of the State of New York, Respondent.
    (Argued October 16, 1930;
    decided November 18, 1930.)

      Lewis M. Isaacs for appellants.
    The conveyance of the real estate by the Charter Construction Company to Glenbrook Company, Inc., in pursuance of the agreement with the stockholders of the former company, coupled with the grantee’s declaration as to ownership, vested legal title in such stockholders. (Real Prop. Law, §§ 92, 93; Wright v. Douglass, 7 N. Y. 564; Ring v. McCoun, 10 N. Y. 268; Verdin v. Slocum, 71 N. Y. 345; Wendt v. Walsh, 164 N. Y. 154; Gueutal v. Gueutal, 113 App. Div. 310; Adams v. Adams, 114 App. Div. 390; 187 N. Y. 547; Bryant v. Shaw, 190 App. Div. 578; Sinnott v. McLaughlin, 198 App. Div. 630.)

      Hamilton Ward, Attorney-General {Borden H. Mills and Wendell P. Brown of counsel), for respondent.
    Plaintiffs were required to establish that they were the owners in fee of the premises. (Real Prop. Law, § 501, subd. 1.) Title is an essential element of a fee. (Matter of Brookfield, 176 N. Y. 138; Bradley v. Crane, 201 N. Y. 14; Olcott v. Wood, 14 N. Y. 32; Bulson v. Lohnes, 29 N. Y. 295.) Plaintiffs have at best, as between themselves and the owner of the fee, a right to control the property and to direct its disposition. (Matter of Briggs, 101 Misc. Rep. 191; Sehm v. City of New York, 130 App. Div. 148; Brandenstein v. Kawecki, 213 App. Div. 574; Stevens v. Foyle, 73 Misc. Rep. 417; Hazkate Holding Corp. v. People, 130 Misc. Rep. 409; United States v. Hyde, 132 Fed. Rep. 545; Matter of Clement, 101 N. Y. Supp. 442.)
   O’Beien, J.

Charter Construction Company, of which plaintiffs were sole stockholders, owned real property situated at Park avenue and Eighty-fourth street in the borough of Manhattan. The corporation agreed to transfer the premises to its stockholders or their nominees in exchange for the surrender of their stock. This agreement contemplated that the record title should be transferred to the Glenbrook Company which would issue to the stockholders of the Charter Construction Company certificates of ownership wherein the Glenbrook would certify that it had accepted the premises and held an undivided interest therein for the account of the Charter stockholders. In accordance with this agreement Charter conveyed to Glenbrook which took the record title and issued to each of the Charter stockholders its certificates of ownership. The Glenbrook Company was organized with a capital stock of only $500. All its officers were employees of Bing & Bing who are agents for plaintiffs and none of its stockholders ever held stock in Charter Construction Company. The Glenbrook paid no consideration to Charter or its stockholders but on the contrary received compensation for acting as depositary of the record title. All these facts have been found and the findings unanimously affirmed.

For the ten years ending in 1926 the State, acting under the provisions of section 182 of the Tax Law (Cons. Laws, ch. 60), assessed the Glenbrook Company a sum in excess of $45,000 for franchise taxes. This. assessment is based upon the theory that the Glenbrook Company is chargeable with such a tax as owner in fee of several parcels of real estate conveyed to it by Charter Construction Company. The computation of the tax as so assessed rests upon the inclusion of these premises at Park avenue and Eighty-fourth street and the income from this property as the income of the Glenbrook Company distributed by way of dividends. It is an apparent hen on this property and plaintiffs, alleging that they are the owners in fee, bring this action to bar the State from ah claim to such a hen or incumbrance.

In order to succeed, plaintiffs must show as matter of law that they, rather than the Glenbrook Company, are the owners in fee of this property. (Real Prop. Law; Cons. Laws, ch. 50, § 501, subd. 1.) Their equitable interest has been proved. Legal title also must reside in them. Unless the Glenbrook Company has such title, it is vested in plaintiffs. That corporation is found to have been organized for the purpose, among others, of holding real property as agent or attorney in fact. It agreed in its certificate of ownership that it would at any time assign or convey the property in such manner and upon such terms as the holder of the certificate might direct. Another finding of fact is that the Glenbrook Company performed no active duty with respect to the property but that the collection of rents and other activities in connection with the management and preservation of the property were performed by Bing & Bing acting on behalf of the holders of the certificates. The intent of the Charter Construction Company to transfer this property to its stockholders in exchange for the surrender of their stock clearly appears. No purpose ever existed to confer upon the Glenbrook Company any property or right to possession. It was employed and paid to act merely as the depositary of the record title. The effect of the transaction as found is to confer upon the certificate holders the right to possession and to the receipt of the rents and profits. Glenbrook Company did nothing except to lend its name as of record to hold the title. Its status rose no higher than that of a trustee of a passive trust and it took no estate legal or equitable. (Real Prop. Law, §§ 92, 93; Wendt v. Walsh, 164 N. Y. 154.) Plaintiffs’ position is in principle the same as that of the holder of an unrecorded deed. Assuming, therefore, that the franchise tax was properly assessed against the Glenbrook Company, it cannot attach as a lien upon land in which it possessed no legal or equitable estate.

The judgment of the Appellate Division and that of the Special Term should be reversed and judgment canceling the lien of the tax directed in favor of the plaintiffs, with costs in all courts.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and Hubbs, JJ., concur.

Judgment accordingly.


author: Pound, J.

text:
    Irwin Weissman et al., Appellants, v. Banque De Bruxelles, Respondent.

      (Argued October 16, 1930;
    decided November 18, 1930.)

      Sidney S. Bobbé for appellants.
    Under the law of New York, the defendant would be liable for the proceeds of the check. (Wagner v. Battery Park Nat. Bank, 228 N. Y. 37; Ward v. City Trust Co., 192 N. Y. 61; Fidelity Deposit Co. v. Queens County Trust Co., 226 N. Y. 225; Sims v. United States Trust Co., 103 N. Y. 472; Schmidt v. Garfield Nat. Bank, 64 Hun, 298; 138 N. Y. 631; Moch Co. v. Security Bank, 176 App. Div. 842 ; 225 N. Y. 723; New York Trust Co. v. Braham, 213 N. Y. Supp. 678; Nealis v. American Tube & Iron Co., 76 Hun, 220; 150 N. Y. 42; Brouwer v. Harbeck, 9 N. Y. 589.) The law of New York is the proper law to govern this transaction, because the corporation as owner of the check did nothing to submit its interest in the check to the law of Belgium. (Edgerly v. Bush, 81 N. Y. 199; Goetschius v. Brightman, 245 N. Y. 186; Wylie v. Speyer, 62 How. Pr. 107; Hubbard v. Hubbard, 228 N. Y. 81; Wagner v. Battery Park Nat. Bank, 228 N. Y. 37; Ward v. City Trust Co., 192 N. Y. 61; Austin v. Holland, 69 N. Y. 571; Diehl v. Becker, 227 N. Y. 318; Southworth v. Morgan, 205 N. Y. 293; McClemont
      v. Order of Foresters, 222 N. Y. 470; Canada Southern Ry. Co. v. Gebhard, 109 U. S. 527; Hammond v. Hastings, 134 U. S. 401; Supreme Council of Royal Arcanum v. Green, 237 U. S. 531.) In the event that the proper law is the law of the District of Columbia, it is to be presumed that that law is the same as the law of New York. (St. Nicholas Bank v. State Nat. Bank, 128 N. Y. 26; First Nat. Bank v. National Broadway Bank, 156 N. Y. 459; International Text Book Co. v. Connelly, 206 N. Y. 188.) Because the check was transmitted to defendant for collection and credit, title was never transferred to the defendant and, therefore, the law of the place of transfer is irrelevant. (Briggs v. Central Nat. Bank, 89 N. Y. 182; National Butchers & Drovers Bank v. Hubbell, 117 N. Y. 384; Carson v. Federal Reserve Bank, 226 App. Div. 225; Bank of America v. Waybell, 187 N. Y. 115; St. Nicholas Bank v. National Bank, 128 N. Y. 26; Mackersy v. Ramsays, 9 Cl. & F. 818.)

      W. Rice Brewster for respondent.
    The law of New York is not the proper law to govern the transaction. (Edgerly v. Bush, 81 N. Y. 199; Wylie v. Speyer, 62 How. Pr. 107.) The law of the place of transfer is the proper law to govern the rights of the parties. (Wharton on Conflict of Laws [3d ed.], § 447-b; Bradlaugh v. deRin, [1870] 5 C. P. 473; Alcock v. Smith, [1892] 1 Ch. 238; Embiricos v. Anglo-Austrian Bank, [1905] 1 K. B. 677.) The place of transfer was Brussels, Belgium. (Lee v. Selleck, 33 N. Y. 615; Story on Conflict of Laws [8th ed.], 444; Minor on Conflict of Laws, 394.)
   Pound, J.

The defendant bank is a foreign corporation located and doing business in Belgium. Plaintiffs are the assignees of the receiver of a New York corporation known as Jose Bensaude, Jr., Inc.

On May 14, 1923, a check was drawn on the Treasury of the United States for $9,278.40 for refund of income tax unlawfully collected., payable to the order of the Bensaude corporation and mailed by the Treasury Department in Washington, D. C., to such corporation in New York. The check was indorsed in the corporate name by the president of the corporation, Jose Bensaude, Jr., and afterwards indorsed “ pay to the order of Banque de Bruxelles, Lisbon, June 1, 1923, Jose Bensaude, Jr.” It was mailed to the Brussels bank and received by it for collection and credit to the personal account of Jose Bensaude, Jr. The bank indorsed it “ pay to the order of the National Metropolitan Bank of Washington,” forwarded it for collection, collected it in Washington through its correspondent bank, received the proceeds and credited the account of Jose Bensaude, Jr., therewith less collection charges. Bensaude afterwards withdrew the amount from the bank for his own use.

Under the decision in Wagner Trading Co. v. Battery Park Nat. Bank (228 N. Y. 37) a New York bank is liable for the amount of checks of a corporation, indorsed by the president thereof and deposited in such bank for his personal use unless such act is authorized or the corporation is negligent or has otherwise deprived itself of its right to recover against the bank. By the laws of Belgium, as pleaded and proved, no liability or duty of inquiry is imposed on a bank receiving such checks for collection and credit to the personal account of the corporate official.

The question is as to the law governing the transaction. Is it governed by the law of Belgium or does the common law as enunciated in the Wagner case apply? Not much that is decisive on the point may be found on the subject in reported cases, although it has been a fruitful subject of discussion and speculation by non-judicial authorities who, like courts, are found not always to be in accord. Wharton disputes Story, who approved for its simplicity and convenience a rule that all transfers of personal property inter vivos are governed by the rule of the owner’s domicile, and it is asserted that in modern business the law of the domicile of parties would be the last thing that people would naturally consider in connection with their business.” (Goodrich on Conflict of Laws, pp. 346, 347.)

Unquestionably the modern tendency favors a rule that the law of the situs of the property governs the creation and transfer of interests in tangible chattels, although we find Folger, Ch. J., saying quite needlessly in Edgerly v. Bush (81 N. Y. 199, 203): The law of the domicile of the owner of personal property, as a general rule, determines the validity of every transfer made of it by him.” A transfer of an interest in such property, effective by the law- of the situs of the property at the time, is valid even though by the law of the State of domicile no title would have been acquired. (Guillander v. Howell, 35 N. Y. 657.) To the general rule a variant is sometimes stated to the effect that when property is brought into a State without the consent of the owner, such State does not have general jurisdiction to control the title to the property. The distinction rests upon an enlarged policy to protect the rightful owner from one who carries the owner’s property into a jurisdiction where he can give good title under its laws.

In the leading case of Edgerly v. Bush (supra) the court holds that the title of an owner of chattels in New York is not divested by the surreptitious removal of the thing into another state,” and the sale of it there under different laws. Other grounds for the decision may be eliminated. In the American Law Institute, Conflict of Laws Restatement No. 2, section 52, the rule is stated as follows:

§ 52. Chattels brought into state without consent of owner.

(1) If a chattel belonging to a person who is not a national of or domiciled in a state is brought into the state without his consent, the jurisdiction of the state over the chattel is limited to the enforcement of

(a) rights growing out of acts done in the preservation of the property;

“ (b) rights essential to the exercise of the state’s police powers;

“ (c) rights dependent upon the exercise of the power of eminent domain.

“ (2) Except as stated in Subsection (1), the state may not subject the title of the owner of such chattel to the operation of .its laws unless the chattel has become incorporated into the general mass of property located therein. Such incorporation takes place if the owner fails to remove the chattel from the state after reasonable opportunity to do so, or if the time named in the statute of limitations of the state in which it was taken from the owner has passed, or if some other act or omission of the owner has rendered it inequitable for him to remove it.

“ (3) If by the law of the state from which the chattel is taken title would pass as the result of a transaction in another state, the title will pass though the chattel has been taken into the other state without the consent of the owner.”

Professor Beale in his article Jurisdiction over Title of Absent Owner in a Chattel ” (40 Harvard Law Review, p. 805) criticises the Edgerly case as inadequate in reasoning but correct in its conclusion and upholds the rule of the Law Institute.

On the one hand, it is said: The rule which looks to the law of the situs has the merit of adopting the law of the jurisdiction which has the actual control of the goods and the merit of certainty.” (Lees v. Harding, Whitman & Co., sub nom. Cooper v. Philadelphia Worsted Co., 68 N. J. Eq. 622.) On the other hand, it is reasoned that ownership is a legalized relation between a person and a thing; jurisdiction over the thing does not necessarily confer jurisdiction over the person or over his interest in the thing unless he has done something to submit his interest to the law of the State where the thing is; and that if the State where the thing is has no jurisdiction over the absent owner’s title, any provision of its law by which his interest as owner is affected will be given no force abroad. (Beale, supra.)

More weight should be given to a rule of reason than to a rule of convenience and we might accept the restatement as a logical evolution from the decision, if not the reasoning, in the Edgerly case if it were necessary to do so. Other considerations must be taken into account. It does not appear affirmatively that the check was taken from New York without the consent of the corporation and it may not be assumed that it was so taken.

The question then arises whether a check, being an evidence of debt merely, has a different situs than tangible personal property. (People ex rel. Hoyt v. Commissioners of Taxes, 23 N. Y. 224.) On this point the weight of authority is to the effect that if the chose in action has assumed the form of a commercial specialty, such as a bill of exchange or promissory note, its transfer is governed by the law of the place of the document at the time of the transfer. Bills and notes were developed under the law merchant as convenient instrumentalities of trade and commerce. They pass from hand to hand by indorsement and delivery and properly are governed by the rule relating to the transfer of tangibles. The rule of international law, that the validity of a transfer of movable chattels must be governed by the law of the country in which the transfer takes place, applies to the transfer of checks or bills of exchange by indorsement. (Goodrich on Conflict of Laws, p. 363 et seq. and cases cited; Embiricos v. Anglo-Austrian Bank, [1905] 1 K. B. 677.) If the Bank of . Bruxelles had acquired full title to the check, the Belgium law might properly be applied to the completed transaction. It is unnecessary to pass on that point at this time. But in the case at bar no full transfer of title to the check was made to the Bank of Bruxelles. It was received for the purpose of collection. The bank became the agent of the indorsee to collect the money from the United States Treasury. If it had not collected it would have lost nothing but its trouble. It collected the money in Washington, D. C.

In the absence of proof to the contrary it must be assumed that the law of Washington is the same as the common law of the State of New York governing commercial transactions. (Saint Nicholas Bank v. State Nat. Bank, 128 N. Y. 26, 33.) When the defendant bank accepted the check for collection for Bensaude it became his banking agent. When it went outside the jurisdiction to collect the check for him, as it did when it sent the check to Washington for collection there, it was in the same position as if it had sent its agent to New York to collect for the corporate official a check drawn on a New York bank payable to the corporation. The law of New York would govern the transaction and it would collect the money for Bensaude at its peril. As Bensaude had no authority to collect the check, title to the money in question never passed to the defendant. It received it in Washington without authority and must account therefor to the true owner. (Wagner Trading Co. v. Battery Park Nat. Bank, supra) When collection is once made, the bank, which was an agent for collection, becomes the debtor of the depositor only as it acquires title to the money collected. The defendant bank collected paper for the account of its depositor, although the depositor had neither title to the paper nor power, in the existing situation, to confer title on it. (Whiting v. Hudson Trust Co., 234 N. Y. 394.)

No business man of intelligence would cash' the check for Bensaude in New York without notice of the probability that he was assisting Bensaude to convert corporate funds to his personal use. The rule of the civil law is contrary in principle to that of the common law in this regard and the two cannot be reconciled nor should they be for the purposes of this case. Banks are constantly taking chances in their business transactions and here the bank took the chance of being held responsible for aiding Bensaude in converting the funds of his corporation when it collected the check for him in the United States.

The judgment of the Appellate Division and that of the Trial Term should be reversed and judgment directed for the plaintiffs for the amount demanded in the complaint, with costs in aE courts.

Cardozo, Ch. J., Crane, Lehman, Kellogg, O’Brien and Herbs, JJ., concur.

Judgment accordingly.