author: Rippey, J.

text:
    Reginald B. Lanier, Respondent, v. George T. Bowdoin, Individually and as Liquidator of Winslow, Lanier and Company, et al., Appellants, Impleaded with Others.

      Argued October 16, 1939;
    decided December 28, 1939.

      John W. Davis, Edwin F. Blair, Saul Levy, Luke W. Finlay and John B. Coleman, Jr., for George T. Bowdoin, individually and as liquidator of Winslow, Lanier and Company, appellant.
    By the express provisions of the partnership articles each of the general partners is obligated to bear only his own individual share of firm losses and no more — an obligation which is limited to a specified portion of firm losses. (Cream of Wheat Co. v. Crist Co., 222 N. Y. 487; Browne v. Paterson, 36 App. Div. 167; Home Ins. Co. v. Continental Ins. Co., 180 N. Y. 389; Pratt v. Dwelling House Mutual Fire Ins. Co., 7 App. Div. 544.) No obligation of guaranty can be implied. (Bunting v. Bunting,
      199 Penn. St. 27; Hawkins v. United States, 96 U. S. 689; Ætna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 82; Klebe v. United States, 263 U. S. 188; Rhinelander v. Farmers’ Loan & Tr. Co., 172 N. Y. 519; Simon v. Etgen, 213 N. Y. 589.) If the provisions of the partnership articles relating to the distribution of firm losses be deemed, in any way ambiguous, the practical construction of the articles by the conduct of the parties refutes any possible construction that defendant Bowdoin, as the only solvent general partner, is liable to plaintiff for any part of his lost capital. (Carthage T. P. Mills v. Village of Carthage, 200 N. Y. 1; Insurance Co. v. Dutcher, 95 U. S. 269; Clausen v. Title Guaranty & Surety Co., 168 App. Div. 569; 222 N. Y. 675; Brooklyn Public Library v. City of New York, 250 N. Y. 495.) In the absence of contract a general partner is not obligated to restore any part of a limited partner’s lost capital. Sections 40 (1) and 71 (d) ]of the Partnership Law (Cons. Laws, ch. 39) do not apply to the relations between a limited partner and a general partner. (Rosenberger v. Kuesel, 292 Penn. St. 184; Whitman v. Porter, 107 Mass. 522; Stone v. Fenno, 6 Allen, 579; Briggs v. Barnett, 108 Va. 404; Snyder v. Elkan, 187 Ga. 164; Harris v. Murray, 28 N. Y. 574; Fifth Ave. Bank v. Colgate, 120 N. Y. 381; Childs v. Seabury, 35 Hun, 548; 110 N. Y. 627; Baily v. Hornthal, 154 N. Y. 648; Bunting v. Bunting, 199 Penn. St. 27.)

      Chester C. Davis for de Bennville K. Seeley et al., appellants.

      Douglas Campbell and Ralph M. Ketcham for respondent.
    Under existing New York statutes, read in conjunction with the partnership agreement, Bowdoin is obligated to contribute to the losses of the firm in proportion to his share in the profits, and, as the only solvent general partner, to make up the shares of the insolvent partners to an extent sufficient to repay the special partner’s capital contribution. (Cons. Laws, ch. 39, §§ 10, 40, 71, 98, 99, 105, 112, 118.) The partnership' agreement is not to the contrary of section 71 (d) of the statute. (Farmers Bank
      v. Federal Reserve Bank, 262 U. S. 649; People ex rel. City of New York v. Nixon, 229 N. Y. 356; Ogden v. Saunders, 12 Wheat. 213; Strauss v. Union Central Life Ins. Co. 170 N. Y. 349; Commercial Bank v. Pfeiffer, 22 Hun, 327; Rhinelander v. Farmers Loan & Trust Co., 172 N. Y. 519; Whitcomb v. Converse, 119 Mass. 38; Meriden Nat. Bank v. Gallaudet, 120 N. Y. 298; Oppenheimer v. Clemmons, 18 Fed. Rep. 886.) Bowdoin’s proportional share of firm losses is sufficient to repay the special partner’s capital in full irrespective of Bowdoin’s obligation to respond for the shares of the insolvent partners. (Elevator Co. v. Thomson, 166 Mo. App. 170; Barnes v. Arnold, 45 App. Div. 314; 169 N. Y. 611; Lawrence v. Nelson, 21 N. Y. 158.)
   Rippey, J.

For many years prior to 1930, the partnership firm of Winslow, Lanier & Company continuously carried on a general banking and brokerage business in the city of New York with changes of personnel from time to time and with membership in the New York Stock Exchange. On December 31, 1928, a new partnership agreement in writing was entered into with James J. Higginson, de Bennville K. Seeley, George T. Bowdoin, Donaldson Tucker and Milton P. Harley as general partners and the plaintiff Reginald B. Lanier as special partner. Lanier contributed $550,000 cash to the capital of the firm, the general partners contributed varying amounts in cash aggregating $1,800,000 and Tucker also contributed his seat on the New York Stock Exchange. A certificate was thereupon filed as required by section 91 (1) of the Partnership Law of the State of New York (Cons. Laws, ch. 39). On October 31, 1929, a new partnership agreement in writing was executed by the partners, effective as of the close of business on that date, and Carroll J. Waddell was admitted to the firm as a general partner with a capital cash contribution of $25,000. This latter agreement contained substantially the same general provisions as were contained in the 1928 agreement. The accounts of the old firm were carried forward to the new firm. The only new cash contribution made to the capital assets was that made by Waddell. Changes were made in the percentages of profits which each member of the firm (except Lanier) should be entitled to receive, made necessary by the admission of Waddell.

Higginson died on February 24, 1930. At the time of his death he owed the firm more than his capital contribution. On June 3, 1930, the general partners entered into an agreement with the executors of Higginson, with the approval of Lanier, whereby the remaining general partners and the estate of Higginson compromised and settled all matters between them and the capital contributed by the deceased was transferred to the surviving general partners. Thereupon and on the same day, all of the remaining partners (including Lanier) entered into an agreement in writing supplemental to the partnership agreement of 1929 providing, among other things, for necessary changes in the capital interests of the general partners and the percentages of profits which each was entitled to receive. Necessary amending certificates were filed when the agreements of 1929 and of June 3, 1930, were executed. On October 21, 1930, Bowdoin furnished a special capital advance which all parties agreed should be repaid to him in preference to any distribution of assets to any of the partners.

The firm continued in business until December 15, 1930, when it was dissolved and Bowdoin was named as liquidator. The assets of the partnership, exclusive of claims against the general partners, were insufficient to pay the claims of creditors in full plus Lanier’s capital contribution. All of the general partners, except Bowdoin, were insolvent and their financial status continued to remain the same throughout the period of liquidation and the subsequent proceedings for the partnership accounting. As liquidator, Bowdoin converted all partnership assets into cash, except claims against insolvent partners. With the proceeds, after giving effect to the net credit in his favor, which amounted to a contribution of upwards of sixty per cent of the amount of his capital contribution to the firm, he paid the claims of all creditors of the firm (except the members of the partnership for capital contributions), and there remained a cash balance of $45,656.96. Out of this sum he paid Lanier $4,125 interest due upon his capital contribution owing at the date of dissolution. He thereupon paid to Lanier as special partner the balance of cash in his hands amounting to $41,531.96 to apply on the capital contributed by him to the firm.

Lanier claimed that he was entitled to recover the entire balance of his capital contribution from Bowdoin as the sole surviving solvent partner. The accounts were settled by the referee. No matters relating to the accounting are left open for consideration here except the findings and conclusions and the resulting decree: (1) That the general partners were required to* contribute in proportion to their respective interests in the net profits of the firm, to a fund aggregating $508,468.04 (the balance unretumed to Lanier for his capital contribution) plus $103.50 costs, making in all $508,571.54, (2) that Bowdoin, by virtue of the insolvency of all the other general partners, should pay to Lanier the entire sum, (3) that Bowdoin was entitled to recover from the other general partners, in proportion to their several interests in the profits, the net credit in his favor of $844,670.40, and (4) that, upon Bowdoin paying Lanier the amounts above specified, Bowdoin should recover over from the other general partners, in similar proportion, the amount so paid. Upon appeal, the Appellate Division affirmed by a divided court.

The claim of the plaintiff, as stated and sustained by the referee, was that plaintiff 'is entitled by the_terms of the partnership agreement and the provisions of the New York statutes to exemption from all share of the partnership losses and a return of his capital intact, either out of the partnership assets or from the general partners individually; and * * * that where only one of the general partners is solvent the solvent partner must bear the entire burden.” To sustain the claim, reliance was and must be placed upon the provisions of sections 10, 40, 71, 98 and 112_of_the Partnership Law and a construction thereof favorable to such contention. We need not pass upon what construction should be placed upon those provisions since, whatever construction may be placed upon them, they have no bearing upon the issue to be here decided. By their express terms, the rules there laid down for determining the rights and duties of partners and for distribution of assets are applicable only in the absence of an agreement between the partners on the same subject matter. There is no question here between third party creditors and the members of the partnership. A limited partnership is exclusively a creature of statute (Partnership Law, § 91) first recognized in this State in 1822 (Laws of 1822, ch. 244), and “ the object to be accomplished * * * is to protect the special partner, and exempt him from a general liability and to place his capital alone at the peril of the business ” (Casola v. Kugelman, 33 App. Div. 428, 433; affd. on opinion of Patterson, J., below, 164 N. Y. 608). The agreement between the partners in the case at bar does exactly that. In the absence of prohibitory provisions of the statutes or of rules of the common law relating to partnerships, or considerations of public policy, the partners of either a general or limited partnership, as between themselves, may include in the partnership articles any agreement they wish concerning the sharing of profits and losses, priorities of distribution on winding up of the partnership affairs and other matters. If complete, as between the partners, the agreement so made controls (Levy v. Leavitt, 257 N. Y. 461). The agreement here is not barred by law and furnishes a complete and legal scheme for distribution of assets and participation in profits and losses as between the partners and must control.

Article eleven of the agreement reads as follows:

All losses and debts incurred by the firm shall be borne by the General Partners in proportion to their respective interests in the net profits as hereinbefore provided. Upon the termination of the partnership term or the dissolution of the partnership, the assets shall be distributed as follows:

“ The Special Partner shall first receive back his cash contribution to the firm capital, together with any interest and any of his share of the profits then remaining unpaid;

The General Partners shall then receive back their respective contributions to the copartnership, subject to the deduction of losses, if any, in proportion to the capital contributed by each, and the assets then remaining after the capital of each partner has been returned in full, shall be distributed to and among the General Partners in proportion to their párticipation in the profits of the firm.”

The article thus provides for the payment of all losses and debts of the partnership by the general partners in proportion to their respective interests in the net profits to the exclusion of any participation in such payment by the special partner. It provides a plan for distribution of assets remaining after firm creditors are paid, the fund available therefor, if there are no firm assets, being made up by capital contributions by general partners in proportion to their respective interests in the net profits ” without reference to solvency or insolvency of the partners, mandating priority of payment of capital contribution to the special partner to the extent funds are available to pay the same, and later payment of capital contributions among the general partners, if funds are available, in proportions of the capital severally contributed. The article clearly provides that the liability of the several general partners shall be joint but not joint and several. There is no provision that the solvent partner must pay the shares of insolvent partners. The agreement is that each general partner shall pay only his proportionate share of all losses and debts in proportion to his interest in the net profits. Otherwise, the agreement contains no guarantee against Lanier’s loss.

Assuming, without deciding, that the statute provided something different than that contained in the agreement, the parties intended that their contract would be exclusively controlling. That it was the intention to make a complete agreement as to the financial relations between all the partners and a complete plan for participation in the profits of the partnership and for disposition of assets is not alone shown by article eleven, but also appears from articles ninth and sixteenth of the agreement and Exhibit C, the instrument amending the partnership articles after the death of Higginson. It cannot be successfully maintained that the parties intended to or in fact did leave anything to be implied. Dealing with the entire subject of distribution of assets after dissolution, as between themselves, they intended to include within the plan all the governing terms and conditions upon which final distribution should be made. The statute and the terms of the express agreement (articles eleven and sixteen) related to the same subject matter and, under those circumstances, there can be no importations from the statute, the effect of which would be to change the mutuality of the agreement. If anything is omitted, it must be implied from the contract itself. Provisions of the statute cannot be implied as part of the agreement so as to make a different contract from that which the parties intended nor override the agreement which the parties, in fact, made (Levy v. Leavitt, 257 N. Y. 461, 470).

The losses and debts ” of the firm consisted of debts to general third party creditors, special advances of the several partners exclusive of their capital contributions and capital contributions of the several partn ers. Payment of the capital contributions to the partners was secondary to payment of debts to third party creditors and to the advances by the several partners other than capital contributions. As between the partners, all of the losses and debts ” were payable by the general partners exclusively but only in proportion as they participated in the profits as above indicated. Concededly, Bowdoin was a participant in the profits to the extent of 27.04 per cent only and for that percentage of the losses and debts ” only was he hable. There is nothing Bowdoin did or omitted to do under the terms of the contract that gives Lanier any claim against him. Of the losses and debts,” he has paid more than he was required to pay.

The general partners were entitled to a decree settling the accounts of the partnership as made in accordance with the findings of fact and conclusions of law made by the referee. Bowdoin was entitled to judgment and to the immediate right to collect thereon against the several general partners for the amounts they should have contributed, as provided by the terms of the agreement, “ in proportion to their respective interests in the net profits ” of the partnership, to reimburse him, to the extent they are severally liable, for the net credit in his favor.

The judgments appealed from should be reversed, with costs in all courts, and the case remitted to the Special Term to proceed in accordance with this opinion. (See 282 N. Y. 611.)

Crane, Ch. J., Hubbs and Loughran, JJ., concur; Lehman and Finch, JJ., dissent; O’Brien, J., taking no part.

Judgments reversed, etc.


source: Caselaw Access Project

author: Rippey, J. Finch, J.

license: Public Domain

text:
    In the Matter of the Application of the City of New York, Appellant, Relative to Acquiring Title to Real Property Required for the Opening and Extending of 43d Avenue, 61st Street and 62d Street in the Borough of Queens. Harbro Holding Company, Inc., Respondent.
    Argued November 22, 1939;
    decided December 28, 1939.

      William C. Chanler, Corporation Counsel (Lewis Orgel, Julius Isaacs and Reuben Levy of counsel), for appellant.
    The decision of the court below was erroneous since it ignored the respondent’s concession that its mortgage had merged with the fee; and placed the city at the respondent’s mercy by limiting the city’s right of subrogation to whatever property happened to remain subject to the respondent’s mortgage when the city paid the award. (Asche v. Asche, 113 N. Y. 232; Lynch v. Pfeiffer, 110 N. Y. 33; Spencer v. Harford, 4 Wend. 381; Burnet v. Denniston, 5 Johns. Ch. 35; Hennessy v. King, 225 App. Div. 152; 252 N. Y. 570; Matter of City of New York [Braddock Ave.], 278 N. Y. 163.)
    A. Albert Bennin and I. Joel Komarow for respondent.
    The conveyance to respondent of the remaining lands, being subsequent to the vesting of title by the city to damage parcel No. 12, while effecting a merger as to the lands specifically conveyed, could not effect a merger as to that portion of the mortgaged lands previously acquired, for which it was entitled to an award as mortgagee. (Matter of City of New York [43d Ave.], 241 App. Div. 889; 242 App. Div. 261; Matter of City of New York [Braddock Ave.], 278 N. Y. 163; Matter of City of New York [Houghton Ave.], 266 N. Y. 26; Hendry v. Title Guarantee & Trust Co., 165 Misc. Rep. 349; 255 App. Div. 497; 280 N. Y. 740; Hill v. Wine, 35 App. Div. 520; Gates v. De La Mare, 142 N. Y. 307; Deering v. Schreyer, 171 N. Y. 451; Matter of City of New York [Boscobel Ave.], 242 App. Div. 392; 266 N. Y. 503; Matter of City of New York [Neptune Ave.], 271 N. Y. 331; Matter of City of New York [East 29th St.], 273 N. Y. 62; Matter of City of New York [Cyllene Corp.], 272 N. Y. 526; Matter of Graef, 169 Misc. Rep. 869.) The mortgage release given by respondent in no way impairs the right of subrogation erroneously granted to appellant by the court below.
      (Gates v. De La Mare, 142 N. Y. 307; Matter of City of New York [Braddock Ave.], 278 N. Y. 163; Sexauer & Lemke v. Burke & Sons Co., 228 N. Y. 341.)
   Rippey, J.

Condemnation proceedings were brought by the city of New York to acquire certain lands for opening and extending Forty-third avenue from Fifty-seventh street to Sixty-third street in the borough of Queens. Damage Parcel No. 12 was included within the lands condemned and an award of $1,500 was made by Special Term to the mortgagee and a nominal award of one dollar to the fee owner of the property. The Appellate Division, upon appeal, modified the Special Term order by providing that when the City pays the award to the mortgagee Harbro Holding Co., Inc., it shall have an equitable lien therefor upon the mortgaged premises not taken, by way of subrogation to the rights of the mortgagee, to the extent of the amount of the award,” and, as so modified, affirmed. The city alone is appealing to this court.

Title to Damage Parcel No. 12 vested in the city on November 2, 1927. The award was made on December 1, 1937. Trials and appeals intervened since the commencement of the proceeding on April 14, 1927.

On February 28, 1928, the Harbro Holding Company, Inc., became the owner by assignment of a mortgage dated October 19, 1925, of the face value of $18,000 for which it paid the sum of $10,000. On February 28, 1928, the assignee released to the Woodris Realty Corporation eight lots in the tract for a consideration of one dollar, although the mortgage provided for payment of $1,000 upon release of each interior lot and of $1,500 for the release of each corner lot covered by the mortgage, aggregating a total of $9,000. The Woodris Realty Corporation had become owner of nineteen lots in the tract on December 30, 1927. On April 11, 1929, the Woodris Realty Corporation conveyed a total of thirteen lots to the Harbro Holding Company, Inc.

At the time of that transfer any Hen which might have existed by virtue of the mortgage on Damage Parcel No. 12 had been extinguished by virtue of the vesting of title in the city (Administrative Code of City of New York [L. 1937, ch. 929], § B15-37.0; Matter of Braico, 235 App. Div. 132; affd., 260 N. Y. 625; Matter of City of New York [Boscobel Ave.], 242 App. Div. 392; Gates v. De La Mare, 142 N. Y. 307, 312; Deering v. Schreyer, 171 N. Y. 451). The nominal award to the owner was correct, since private street easements existed against the property prior to the time of the vesting of title in the city. That, however, did not affect the hen of the mortgage upon the property taken (Matter of City of New York [Braddock Ave.], 278 N. Y. 163).

The city contends here that its right to subrogation has been impaired since, subsequent to the date of vesting, the mortgagee released for a nominal consideration from the hen of its mortgage various lots as above stated, relying upon Matter of City of New York (Braddock Ave.) (supra), but the city overlooks the fact that the decision in that case was based upon an equitable necessity to prevent unjust enrichment on the part of the owner. Here, although the stockholders of the corporation to which the lots were released are the same as the stockholders of the Harbro Holding Company, Inc., the most that the city could ask for would be a reduction of the balance remaining due on Harbro’s mortgage in accordance with the schedule contained in the release clauses of the mortgage. The court took that fact into consideration in making the award. Harbro was in no way unjustly enriched and the doctrine of subrogation should not have been applied in this case. Nevertheless, it was applied, and the Harbro Holding Company, Lac., is not appealing. The city may claim the right of subrogation as to the lots not taken which the lower court has given it up to the full amount of the award and the city is not in any manner prejudiced by the modification by the court below. The award has been unanimously affirmed and is sustained by the evidence. There is no point that the city can urge here warranting any reversal or modification of the order appealed from.

The o"der appealed from should be affirmed, without costs.

Finch, J.

(dissenting). Upon this appeal the liability of the city to pay an award to a mortgagee for the taking of part of certain mortgaged premises is disputed for the reason that, since the vesting of title in the city the mortgage has been satisfied.

The facts, in so far as necessary to present the decision, are as follows:

On November 2, 1927, the city of New York condemned, for purposes of a street, and the title then vested to a certain strip of land already burdened with private street easements. This strip was a portion of a tract upon which a mortgage had been executed in 1925. The easements were created by the subsequent grantee after the mortgage. On December 30, 1927, the Woodris Realty Corporation acquired the fee of a portion of the tract not taken by the city. On February 28, 1928, Harbro Holding Company, respondent, became the holder of the mortgage, and on April il, 1929, Woodris conveyed the fee to Harbro. The fee and the mortgage were thus united in Harbro. The salé stockholders of each corporation are two brothers, who own a one-half interest each in the two corporations. During the interim between February 28, 1928, and April 11, 1929, Harbro, for a nominal consideration, had released from the mortgage hen certain lots which, according to the mortgage agreement, were to have been released upon payment of $1,000 for ordinary street lots, twenty feet by ninety feet, and $1,500 for corner lots of the same size.

The decision of Special Term entitled Harbro, as assignee of the holder of the mortgage on title vesting day, to be paid the value of the fee of the street taken by the city, up to the amount of the indebtedness remaining under the mortgage. In arriving at this amount the justice at Special Term apparently reduced the amount of the mortgage indebtedness by the sums which the mortgagee would have received had the latter enforced the terms of the mortgage in releasing the lots as above indicated. Thus the city was not aggrieved by the alleged fraudulent releases. The easements in the street created by the mortgagor subsequent to the mortgage were properly held not to affect the rights of the mortgagee. On appeal to the Appellate Division, that court modified the order of Special Term by granting the city a lien by way of subrogation to the position of the mortgagee but subordinate to the right of the mortgagee, upon payment of the award (Matter of City of New York [Braddock Ave.], 278 N. Y. 163). It appears from the opinion of the Appellate Division that the effect upon the position of the city of the alleged satisfaction of the mortgage subsequent to title vesting day, was not passed upon for the reason that the court held that all rights were immutably fixed as of that day, and hence a subsequent payment was of no moment.

In the case at bar the city has urged as a reason why it should not be compelled to pay the award to Harbro that the mortgage which existed on title vesting day is no longer a subsisting lien, and, therefore, the city should not be required to compensate Harbro for the taking of land which no longer formed part of the security under the mortgage.

The major question upon this appeal is as follows: Does a mortgagee, upon the taking by the city of a part of the mortgaged premises, become entitled absolutely to the value of the fee taken, up to the amount of the debt, even though prior to payment the debt may have been satisfied?

Ordinarily the amount of the damage sustained by the mortgagee must be ascertained at a time when the debt and the lien in support thereof are still in evidence. This was the situation in the Braddock Ave. case, where it was argued by the city that, since the mortgage is only security for a debt, the taking of part of the land which is subject to the mortgage inflicts no damage upon the mortgagee unless it appears that (1) the mortgagor probably will default on his obligations and (2) the remaining land will be inadequate to satisfy the debt. (Van Pelt v. McGraw, 4 N. Y. 110.) Admittedly, the mortgagee would suffer no damage if the mortgagor were certain to pay, or the security remaining after the taking were certain to be sufficient to satisfy the debt. The interest of the mortgagee is as broad as, but no broader than, the payment of his debt. It is never certain, however, that the debtor will remain able and willing to pay, and that a tract of land will continue to maintain a value sufficient to meet the indebtedness. Consequently, the very purpose of any given mortgage is (1) to afford the creditor some material assurance for the repayment of the loan, and (2) to provide not only some security but that margin of security which is created by the mortgage agreement. Although the mortgagee might ultimately be made whole, despite the loss of some or all of his security, the taking of a part of the land by the city constitutes an invasion of the present right of the mortgagee to that degree of material protection against the ultimate loss, for which he bargained. The performance of every contract involves some element of risk. In regard to a loan secured by land, the mortgage measures the extent to which the risk is eliminated by agreement between debtor and creditor. To enhance the risk and create a greater possibility of ultimate loss, even though repayment remains the probable eventuality, is to alter the agreement of the parties. For such an invasion of the rights of the mortgagee, compensation must be made. In this State the form of compensation has been to pay the mortgagee the award up to the amount of the lien. (Matter of City of New York [Braddock Ave.], supra; Matter of City of New York [Neptune Ave.], 271 N. Y. 331; Matter of City of New York [Houghton Ave.], 266 N. Y. 26.) By this procedure payment of the debt is in effect accelerated and the debt of the mortgagor is paid to the extent of the award by the city in those cases where encumbrances created subsequent to the mortgage render the mortgagor’s interest of only nominal value. In such cases prepayment of the loan to the extent of the award is the only satisfactory protection of the rights of the mortgagee, but since the mortgagor, being entitled to no award in his own right, would then be unjustly enriched at the expense of the city, a holding was required in the Braddock Ave. case, that for the recovery of the amount paid to the mortgagee, the city may assert the rights the mortgagee would have had against the mortgagor but for the award. It was there noted also that this remedy afforded to the city may not interfere with the lien of the mortgage upon the remaining premises for the amount of the mortgage debt remaining unpaid. Thus, if after the payment of the award the remaining land subject to the mortgage is not equal in value to the claims of both the mortgagee and of the city, that of the mortgagee must be first satisfied.

Thus far we have considered the liability of the city as of a time when payment of the mortgage debt has not yet taken place. But the city urges that the case at bar involves not that situation, but one where the doubt and risk of' ultimate payment of the debt secured by the mortgage have been dissolved by its subsequent satisfaction. It is the contention of the city that, although the mortgagee owned a valid lien on title vesting day in regard to Damage Parcel No. 12, the mortgage has since been extinguished and, therefore, the potential damage has failed to materialize. To illustrate, let us assume that on title vesting day, the mortgage indebtedness was $10,000, and the value of the land taken in condemnation $5,000. Before the award is made, the mortgagor discharges his entire obligation. May the mortgagee nonetheless claim the $5,000 for the land taken, on the ground that, by some principle of immutability, he is entitled to be compensated for a loss which was possible so far as prospects were concerned when viewed on title vesting day, but which is impossible in the light of facts known when the amount of compensation is to be paid? Rules of damages are necessarily approximations because of the uncertainties attendant upon the forecast of ordinary affairs; but may a satisfied creditor demand more than his debt in consequence of a rule designed to safeguard the interests of a creditor still unpaid? Indeed, the very reason for the latter rule prescribes the limits of its application. In the Braddock Ave. and similar situations, the risk of possible loss is shifted, to the extent of the award, from the mortgagee to the city. But where the mortgagee has already been satisfied, the possibility of loss cannot exist, and payment of the award by the city to the mortgagee would not be reimbursement for damages sustained, but a double payment or a gift of public funds. In other words, the city would be paying where the owner of the lands was entitled to no award and the mortgagee had already been paid in full.

In order to sustain its contention that the mortgage no longer existed as a valid hen, the city introduced the following evidence: that Harbro collected no interest upon the mortgage; that Harbro acquired the fee “ subject°to encumbrances ” for the consideration of $100; that the premises possessed a substantial value; that after Harbro acquired the fee it made an application for the reduction of a tax assessment in 1932 but did not include the mortgage in question among the encumbrances upon the property, thus confirming the contention of the city that the mortgage had been satisfied. From such evidence it might well have been found as a matter of fact that the mortgage indebtedness had been satisfied, not by payment of money, but by the grant of the land. If the land was transferred by the owner of the fee to the mortgagee with the intent that it satisfy the entire mortgage debt, then the entire-mortgage debt, including the hen on Damage Parcel No. 12, would have been extinguished just as though the mortgagor had paid in money. Whether the mortgage debt has been satisfied by the acquisition of the fee," presented an issue of fact. On a retrial the city may be able to show that the value of the land acquired by the mortgagee for a nominal consideration exceeded the amount still unpaid upon the mortgage. As already indicated, some evidence bearing on this question has been presented, but the evidence on both sides is not as complete as it might have been because of the confusion of the parties as to what constituted the decisive questions in the case. As stated at the outset, neither Special Term nor the Appellate Division, so far as this record discloses, has passed upon the issue involving the payment of the mortgage by the acquisition of the adjoining premises, so that the city might be relieved from the payment of the award on" Parcel No. 12. A new trial should be had in which both parties will have the opportunity to introduce proof upon this issue of payment, and a judicial determination will be had thereon.

If, however, the city should be unable to prove satisfaction of the mortgage debt, it would then not be entitled to a lien for repayment under the principle of the Braddoak Ave. case. This conclusion rests upon the basis that if the amount unpaid upon the mortgage requires the application of the award for Damage Parcel No. 12, in addition to the value of the remaining premises, then the city could not be in the position of paying the value of a part of the security to which the mortgagee was entitled, and taking away again this payment by a Hen on the remaining premises, aU of which the mortgagee was entitled to by way of security.

The city is entitled to a new trial to determine whether the award to the Harbro Holding Company, Inc., should be stricken out upon the ground that its mortgage, the basis for the award, has been satisfied. The order appealed from should be reversed and new trial granted, with costs in all courts to abide the event.

Crane, Ch. J., Lehman, Hubbs and Loughran, JJ.; concur with Rippey, J.; Finch, J., dissents in opinion; O’Brien, J., taking no part.

Order affirmed.


author: Finch, J. Rippey, J.

text:
    In the Matter of the Application of The People of the State of New York by George S. Van Schaick, as Superintendent of Insurance of the State of New York, for an Order to Take Possession of the Property and Liquidate the Business of Southern Surety Company of New York. Louis H. Pink, Superintendent of Insurance of the State of New York, as Liquidator of Southern Surety Company of New York, Appellant and Respondent; Goodyear Tire & Rubber Co., Inc., Respondent and Appellant.

      Argued November 21, 1939;
    decided December 28, 1939.

      Irvin Waldman, Benjamin Potoker and. Alfred C. Bennett for Superintendent of Insurance of the State of New York, as liquidator of Southern Surety Company of New York, appellant and respondent.
    All creditors of the same class of an insolvent insurer, wherever resident, are entitled to have the general assets distributed among them upon principles of perfect equality. Claimant, who already has received a dividend in excess of the amount paid by the New York liquidator, is entitled to no further dividends out of the general assets in the possession of the liquidator until all other creditors of the same class have received a dividend equal in amount to that so paid to claimant. (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148; American B. & C. Co. v. Chicago B. & I. Co., 251 Ill. App. 549; Reynolds v. Stockton, 140 U. S. 254; Blake v. McClung, 172 U. S. 239; Carpenter v. Ludlum, 69 Fed. Rep. [2d] 191; Bank Commissioner v. Granite State Provident Assn., 70 N. H. 557; Ramsey v. Ramsey, 196 Ill. 179; Huntington v. Attrill, 146 U. S. 657; Marshall v. Sherman, 148 N. Y. 9; Commissioner of Insurance v. Lloyds Ins. Co., 283 N. W. Rep. 703; Barth v. Backus, 140 N. Y. 230; Hibernia Nat. Bank v. Lacombe, 84 N. Y. 367.) The Appellate Division erred in ruling that the Ohio statutory deposit gave claimant and other Ohio creditors the status of secured creditors. (Merrill v. National Bank of Jacksonville, 173 U. S. 131; American B. & C. Co. v. Chicago B. & I. Co., 251 Ill. App. 549; Matter of Stoddard, 242 N. Y. 148; Scottish Union & National Ins. Co. v. Bowland, 196 U. S. 611; Matter of People [International Reinsurance Corp.], 243 App. Div. 764; 270 N. Y. 13; Matter of Hanreddy, 186 N. W. Rep. 744; People v. Metropolitan Surety Co., 205 N. Y. 135; Rozell v. Rozell, 281 N. Y. 106; Relfe v. Rundle, 103 U. S. 222; People v. American Loan & Trust Co., 172 N. Y. 371; Times-Mirror Co. v. Superior Court, 3 Cal. [2d] 309.)

      David E. Hudson, L. W. Baker and Arthur J. Marangelo for Goodyear Tire & Rubber Co., Inc., respondent and appellant.
    The Ohio statutes protect only resident Ohio policyholders. (State ex rel. Turner v. Union Casualty Ins. Co., 8 Ohio App. 285; McGhee v. Casualty Co., 15 Ohio App. 457; State ex rel. Turner v. Ins. Co., 28 Ohio C. C. [N. S.] 113; State ex rel. Van Schaick v. Bowen, 131 Ohio St. 310; Western Assur. Co. v. Holliday, 110 Fed. Rep. 259; 126 Fed. Rep. 257.) The decisions of the Ohio courts that the Ohio statutes protect only resident Ohio policyholders are binding upon the New York courts. (Saint Nicholas Bank v. State Nat. Bank, 128 N. Y. 26; Keeler v. Templeton, 164 Misc. Rep. 113.) Policyholders qualifying under the protection afforded by the Ohio statutes are secured creditors. (State ex rel. Van Schaick v. Bowen, 131 Ohio St. 310; McGhee v. Casualty Co., 15 Ohio App. 457; Western Assur. Co. v. Halliday, 110 Fed. Rep. 259; 126 Fed. Rep. 257; Scottish U. & N. Ins. Co. v. Bowland, 196 U. S. 611; Matter of People [Norske Lloyd Ins. Co.], 249 N. Y. 139; Matter of People [First Russian Ins. Co.], 253 N. Y. 365; People v. Granite State Provident Assn., 41 App. Div. 257; 161 N. Y. 492.) Secured creditors of an insolvent are entitled in New York to share in the distribution of the insolvent’s estate pro rata with other creditors after deduction from their claims of the amount realized from their security. (Cons. Laws, ch. 28, § 425; Matter of New York Title & Mortgage Co., 160 Misc. Rep. 67; Merrill v. National Bank of Jacksonville, 173 U. S. 131; Boston & Albany R. R. Co. v. Mercantile Trust & Deposit Co., 82 Md. 535; Bank Commissioners v. Granite State Provident Assn., 70 N. H. 557; People v. Granite State Provident Assn., 41 App. Div. 257; 161 N. Y. 492; Matter of People [First Russian Ins. Co.], 253 N. Y. 365; Matter of Van Schaick [Southern Surety Co], 266 N. Y. 580.) The claimant is entitled to share equally with all other policyholder claimants in the New York statutory deposit. (Matter of People [Norske Lloyd Ins. Co], 249 N. Y. 139; Matter of People [City Equitable Fire Ins. Co], 238 N. Y. 147.)
   Finch, J.

This is a proceeding for the hquidation of an insolvent insurance company incorporated under the laws of this State. The present appeal is brought by an Ohio policyholder of the insolvent company, which seeks to establish its right to participate in the distribution of (a) the general assets of the insolvent insurance company-in the possession of the New York liquidator, and (b) the statutory fund required by section 13 of the Insurance Law (Cons. Laws, ch. 28; L. 1909, ch. 33, asamd.) for the protection of policyholder creditors. Thus far, by the distribution of the special New York fund and of general assets, the New York liquidator has paid dividends of 3.2% and 7.3% respectively out of the two classes of assets. As a condition foi doing business in the State of Ohio, the insolvent insurance company had been required to create a special fund for the benefit of the policyholders. (Ohio General Code, § 9510, ^ 2.) Claimant, together with other Ohio policyholder creditors, has received a dividend of 12.675% on its claim as a result of the distribution of the Ohio fund. Only Ohio policyholders received payments out of the fund. The New York liquidator has allowed the claim of claimant for the difference between its original debt and the amount realized from the Ohio deposit upon the condition that no dividend will be paid to claimant until all allowed policyholder claimants shall have received dividends totaling 12.675% of their respective claims, or an amount equal to the dividend received by claimant in Ohio out of the deposit formerly there held by the Ohio State Superintendent of Insurance. Special Term sustained the report of the referee dismissing the objections of claimant to the condition which the liquidator attached to the allowance of the claims. The Appellate Division reversed the order of Special Term and directed that claimant be allowed to participate in the distribution of the general assets free from the condition imposed by the liquidator. In its opinion the Appellate Division stated further that it did not consider the right of claimant to participate in the special New York fund because the court understood that no claim was being made thereto. There are cross-appeals.

The liquidator appeals in order to have the determination of the Appellate Division reversed, and claimant appeals in order to have the determination of the Appellate Division modified so as to provide that claimant is entitled to share in the special New York fund.

Appeal of the Liquidator. The question to be determined on this phase of the appeal is whether the claimant, an Ohio policyholder creditor, may participate in the distribution of the general assets in New York on the same basis as any other secured creditor, i. e., by proving for the difference between the amount of the original debt and the amount realized on the collateral. The disposition of this question in turn depends upon whether the provisions of the Ohio law requiring the deposit established a trust fund for the benefit of Ohio creditors only.

The Ohio statute provides that “ * * * a company of another state, territory, district or country admitted to transact the business of indemnifying employers and others, in addition to any other deposit required by other laws of this state, shall deposit with the superintendent of Insurance for the benefit and security of all its policy holders, fifty thousand dollars in bonds of the United States or of the State of Ohio, or of a county, township, city or other municipality in this State, which shall not be received by the superintendent at a rate above their par value.”

In construing the above provision, together with other sections of the Ohio Code (641, 642 and 643), the courts of Ohio have held consistently over a period of years that such a deposit is security for the claims of Ohio policyholders only, and that the Superintendent of Insurance of Ohio is the trustee of an express trust in which these policyholders are beneficiaries as secured creditors, and such appears to be the interpretation given to the statute by the Supreme Court of Ohio. (State ex rel. Van Schaick v. Bowen, 131 Ohio St. 310.) In addition, the Superintendent of Insurance of New York concedes that, unlike the provisions designed to cover the same subject-matter in New York, which have been held to be for the benefit of all American creditors and not only those residing in New York (L. 1909, ch. 33; Insurance Law, § 13; cf. § 27; Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148), the Ohio fund is for the benefit of Ohio policyholder creditors only. Moreover this particular Ohio fund in question apparently has been distributed under, judicial sanction upon that basis. The Ohio viewpoint, that such a fund is a trust fund for the protection of Ohio policyholders only, and that the beneficiaries are secured creditors, has been the general view of 'deposits made under similarly worded statutes. (Blake v. McClung, 172 U. S. 239, 257; People v. Granite State Provident Assn., 161 N. Y. 492, 496, 497; Matter of People [Norske Lloyd Ins. Co.], 249 N. Y. 139, 149; Bank Commissioners v. Granite State Provident Assn., 70 N. H. 557.) Under the law of Ohio this claimant was, therefore, a secured creditor, notwithstanding that the security was not in its possession but was held in trust for its benefit by the Ohio Superintendent of Insurance. It was a secured creditor as would be a bondholder where a trustee held collateral for his benefit and for the benefit of other bondholders. (State ex rel. Haavind v. Crabbe, 114 Ohio St. 504; State ex rel. Van Schaick v. Bowen, supra; Western Assurance Co. v. Halliday, 110 Fed. Rep. 259; affd., 126 Fed. Rep. 257.) The same principle has been applied in this State. (People v. Granite State Provident Assn., 161 N. Y. 492.)

We are not now confronted with the problem of what the situation would have been if the State of Ohio had attempted merely to give a preference to Ohio creditors in the assets of the insolvent company situated in Ohio, when there were no facts present as there are in the case at bar, making them secured creditors. (Cf. Blake v. McClung, supra.)

Coming into this State, therefore, as a secured creditor, there appears no reason why claimant should not be included within the statutory provision regarding secured creditors, which reads as follows: No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the security and the amount for which the claim is allowed, unless the claimant shall surrender his security to the superintendent in which event the claim shall be allowed in the full amount for which it is valued.” (Insurance Law, art. XI, § 425, subd. 5.)

The above section merely restates the well-recognized Bankruptcy Rule,” by which secured creditors are allowed to prove the balance of their claims above the value of their security, as contrasted with the Chancery Rule,” by which secured creditors are allowed to prove their claims in full without regard to their security. (Merrill v. National Bank of Jacksonville, 173 U. S. 131.) There has thus been declared by statute that in a liquidation proceeding of an insolvent insurer in this State, the “ Bankruptcy Rule ” shall be followed. This court has also held that the equitable rule of equality among creditors of the same class does not operate to deprive a creditor who holds security, of his superior rights. (Matter of People [Southern Surety Co.], 266 N. Y. 589; Matter of People [First Russian Ins. Co.], 253 N. Y. 365.) In common with other secured creditors, therefore, the beneficiaries of such a trust may prove their claims for the difference between the original debt and the amount realized on the collateral. (Bank Commissioners v. Granite State Provident Assn., supra, at pp. 560-562; 2 Beale on Conflict of Laws, §§ 264.2, 264.3, 264.4.)

Upon the appeal of the liquidator, therefore, the order of the Appellate Division should be affirmed.

The Appeal of Claimant. The Insurance Law, section 13, provides that insurance companies shall deposit securities with the Superintendent of Insurance, which shall be held * * * for the protection of the policyholders of such domestic insurance corporation or insurer within the United States.” It is clear from the language, and the Superintendent of Insurance, apparently concedes, that this fund is not limited to New York policyholders but to policyholders anywhere within the United States. The section has been so construed. (Matter of People [Norske Lloyd Ins. Co.], 249 N. Y. 139.) Claimant, therefore, would seem to be entitled to participate in this fund were it not for the question of waiver.

The facts from which a waiver may be inferred are as follows:

1. Among the stipulated facts are the following:

u io. * * * the New York Liquidator has paid a dividend to policyholder claimants of 3.2% out of a certain statutory deposit of the Southern Surety Company of New York held by the New York State Superintendent of Insurance, and a dividend of 7.3% out of the general assets to all non-policyholder claimants and policyholder claimants throughout the country, who have not received a dividend equal in amount to that paid by the New York Liquidator ” (f. 107). * * *

“ 12. Claimant herein objected to the liquidator’s recommendation and requested that the liquidator pay to it a dividend of 7% which was paid by the liquidator out of the general assets as aforesaid, after first deducting from the amount of its claim herein a sum equal to 12.675% thereof. A copy of said objections is hereto annexed, made a part hereof and marked Claimant’s Exhibit ‘ B ’ ” (f. 109).

The reference to 7% in paragraph 12 must mean that the claimant asserts its right to participate in the distribution of the general assets, for otherwise the figures would be meaningless, since the only relevant numbers in this case are 3.2%, 7.3% and 12.675%.

2. At the conclusion of claimant’s objections to the recommendation of the liquidator relief was requested in the following terms: “ Wherefore, said claimants ask that payment be made forthwith of a dividend in the amount of 7% of each respective claim after deducting from the amount of each claim as heretofore approved, a sum equal to 12.675% of such claim representing the dividend heretofore received in the proceedings in the State of Ohio as referred to above.” Here, too, the reference to 7% must be taken to assert an interest in the general assets and not to the statutory fund.

3. Upon the argument before the referee counsel for claimant stated the following: “ Our position is that this Ohio statute in fact constitutes the Ohio claimants who qualify definitely as secured creditors, and we feel that it is therefore of interest to determine what the rule of law is with respect to the right of a secured creditor to participate in the distribution of the general assets of an insolvent.” Thus, here again, no claim to the New York statutory fund is asserted.

4. Finally, it is asserted in the brief of the Superintendent of Insurance that upon the oral argument in the Appellate Division, counsel for claimant was asked whether it asserted a right to participate in the New York statutory fund, and the answer was “No.” This would account for the reference in the opinion of the Appellate Division, which reads as follows: " In the liquidation proceedings in this State the Liquidator has paid a dividend to policy holder claimants of 3.2% out of a statutory deposit of the Southern Surety Company held by the Superintendent of Insurance of New York State (in which apparently the Goodyear Company claims no interest), and he has paid a further dividend of 7.3% out of the general assets * * (256 App. Div. 237, 239.)

Thus it would appear that at every stage of the proceeding prior to the argument in this court, there was no dispute between the liquidator and the claimant as to the latter’s right in regard to the New York statutory fund. To reverse the orders below upon the appeal of claimant would allow an objection in these proceedings raised for the first time, not only upon recourse to the courts but upon the appeal in this court.

The order appealed from should be affirmed, without costs.

Rippey, J.

(dissenting). The Southern Surety Company of New York, organized and existing under the laws of the State of New York, was placed in liquidation by an order of the Supreme Court dated March 22, 1932, and the Superintendent of Insurance thereupon, pursuant to directions contained in such order, took possession of its assets and thereafter proceeded in the matter of its liquidation. The claimant, the Goodyear Tire & Rubber Co., Inc., and its affiliates, the adjudication of whose claims is to follow the decision in this case, are residents of the State of Ohio. At the time of the entry of the order of liquidation, $50,000 of its assets, consisting of securities valued in that amount, was on deposit with the Superintendent of Insurance of the State of Ohio as a condition precedent to its doing business in that State as required by section 9510 of the Ohio General Code.

In an action brought by the Attorney-General of the State of Ohio in behalf of its Superintendent of Insurance against the Southern Surety Company of New York and another under the provisions of sections 641-643 of the General Code of Ohio, the claimant, being an Ohio resident policyholder, was paid 12.675% of the amount of its claim, whereupon it filed a claim with the New York liquidator for the difference of the face of its claim less the amount paid to it out of the deposit aforesaid with the Superintendent of Insurance of the State of Ohio. The New York liquidator recommended the allowance of the claim upon condition that no dividend be paid thereon unless and until all allowed policyholder claimants should have received dividends in an amount equal to 12.675% of their claims. Objections were filed to the recommendation of the liquidator in that respect and the claimant asserted that regardless of the dividend which it received upon its claim out of the deposit with the Superintendent of Insurance of the State of Ohio it was entitled in New York out of the general assets of the insolvent to a dividend equivalent in amount to that paid to other policyholder claimants. The objections were dismissed and the recommendation of the Superintendent of Insurance of the State of New York adopted and an order was made by Special Term accordingly. The Appellate Division reversed and sustained the objections and the New York liquidator has appealed to this court. The statutory deposit within the State of Ohio was made to enable the surety company to do business within that State. Construing the statutes of that State, the Ohio courts have held that the deposit will be there retained until all claims of Ohio policyholders against the company shall first have been paid or extinguished (State ex rel. Van Schaick v. Bowen, 131 Ohio St. 310), that the deposit was a trust fund for the protection of Ohio policyholders only, and that, as to such fund, Ohio policyholders were secured creditors (State ex rel. Turner v. Union Casualty Ins. Co., 8 Ohio App. 285).

It is conceded that the interpretation of the Ohio statute by the Ohio court is binding on the New York courts, but it is claimed by the liquidator that the Ohio statute and its construction are irrelevant to the distribution of assets of the insurance company located within the State of New York. With that assertion I am entirely in accord. It is stipulated that the New York liquidator was not a party to the suit of State ex rel. Van Schaick v. Bowen (supra), and that he did not appear therein. He, therefore, cannot be bound by the decision in that case (Reynolds v. Stockton, 140 U. S. 254). The courts of this State would recognize the decisions of another State, if at all, only on the basis of comity (Huntington v. Attrill, 146 U. S. 657, 669), and comity does not require us to give effect to the laws of Ohio where the effect thereof would be prejudicial to our own citizens or others who may have access to our courts to assert their claims (Willitts v. Waite, 25 N. Y. 577, 585, 586; Matter of Waite, 99 N. Y. 433, 448).

The pertinent Ohio law is not similar to ours, and to sustain the contention of the claimant would be to create a preference in its behalf. The assets subject to the order of distribution here have always been under the supervision and control of the Superintendent of Insurance of the State of New York and of our courts and within the jurisdiction of our courts. A statutory deposit is required by the laws of our State. Out of such deposit, the Superintendent of Insurance has distributed a dividend to policyholder claimants of 3.2%. Out of the general assets of the insolvent the Superintendent has paid a dividend of 7.3% to all non-policyholder claimants and to policyholder claimants throughout the country who have not received a dividend equal in amount to that paid by the New York liquidator. The surety company is insolvent. Its assets are insufficient to pay the claims of its creditors in full. Under section 71 of the Insurance Law of this State (Cons. Laws, ch. 28) the securities deposited with the Superintendent of Insurance were held by him in trust for the benefit and protection of and as security for all policyholders of the corporation wherever located. The ordinary rule of distribution of the assets of an insolvent is equality amongst creditors of the same class ” (Matter of People [ Norske Lloyd Ins. Co.], 242 N. Y. 148, 164). There is nothing in the statutes of our State to the contrary. Claimant has proved in the liquidation here as a general creditor. It is not a secured claimant within the sense of subdivision 5 of section 425 of the Insurance Law. The claimant has no property of the surety company in its possession nor does it have any mortgage or lien upon any property in the hands of the Superintendent of Insurance of the State of New York nor any specific lien or claim upon the fund in his hands for distribution. Our courts will not give it a preference simply because the laws and decisions of the State of Ohio have authorized a distribution to it upon its claim out of a special deposit made in that State to enable the surety company to do business there. Claimant has waived any interest in the statutory deposit of the surety company held by the Superintendent of Insurance of the State of New York.

The order of the Appellate Division should be reversed and the order of the Special Term reinstated' and confirmed, with costs in this court and in the Appellate Division.

Lehman, Hubbs and Loughran, JJ., concur with Finch, J.; Rippey, J., dissents in opinion in which Crane, Ch. J., concurs; O'Brien, J., taking no part.

Order affirmed. (See 282 N. Y. 678.)


author: Per Curiam.

text:
    William La Varre, Appellant, v. Warner Bros. Pictures, Inc., Respondent.
    Argued November 20, 1939;
    decided December 28, 1939.

      Stephen Callaghan, Ralph Stout and Thomas A. Gaffney for appellant.
    The evidence presented a question of fact for the jury. (Higgins v. Eagleton, 155 N. Y. 466; Sheldon v. Metro-Goldwyn Pictures Corp., 81 Fed. Rep. [2d] 49; Dam v. Kirk La Shelle Co., 175 Fed. Rep. 902.) The trial court erred in dismissing the complaint. (Foulke v. N. Y. Cons. R. R. Co., 228 N. Y. 269; Lombardi v. N. Y. State Railways, 224 App. Div. 438; Carlisle v. Norris, 215 N. Y. 400; Abramson v. Leo, 240 App. Div. 343; Layman v. Anderson & Co., 4 App. Div. 124.)

      George E. Quigley, Stanleigh P. Friedman and Harold Berkowitz for respondent.
    The trial court properly granted judgment dismissing the complaint. (Baulee v. New York & Harlem R. R. Co., 59 N. Y. 356.)
   Per Curiam.

Upon a reading of the record it cannot be said as a matter of law that the evidence does not present a question of fact which must in the first instance be submitted to the jury. The character of the negotiations between the parties, and defendant’s consequent access to plaintiff’s works, together with the basic similarities in the structures of the stories of plaintiff and those produced by defendant, are sufficient to require that the case be submitted to the jury.

The judgments should be reversed and a new trial granted, with costs to abide the event. (See 282 N. Y. 622.)

Crane, Ch. J., Hubbs, Loughran, Finch and Rippey, JJ., concur; Lehman, J., dissents; O’Brien, J., taking no part.

Judgments reversed, etc.


author: Finch, J. Lehman, J.

text:
    In the Matter of Mignon M. Otto et al., Appellants, against Albert Steinhilber et al., Constituting the Board of Appeals of the Village of Lynbrook, Respondents. Michael Garramone, Intervener, Respondent.

      Argued November 15, 1939;
    decided December 28, 1939.

      Thomas L. Driscoll for appellants.
    The return fails to show pertinent and material facts from which the inference of hardship or practical difficulties may be drawn. (Young Women’s Hebrew Assn. v. Board of Standards & Appeals, 266 N. Y. 270; Ward v. Murdock, 247 App. Div. 808; Barrett v. Bedell, 255 App. Div. 874; Parry v. Walsh, 121 Misc. Rep. 631; 209 App. Div. 889; Matter of Pounds v. Walsh, 129 Misc. Rep. 676; 248 N. Y. 591; People ex rel. Fordham M. R. Church v. Walsh, 244 N. Y. 280; Matter of Renorg Realty Co. v. Walsh, 225 App. Div. 774; Matter of Gardon Estates, Inc., v. Murdock, 241 App. Div. 761; 265 N. Y. 557; Matter of Richardson v. Knapp, 227 App. Div. 207; Matter of Levy v. Board of Standards & Appeals, 267 N. Y. 347.) A variance should not be granted when the hardship which may result therefrom will be on the owners of adjacent property. (Matter of Tenlan Realty Corp. v.
      Board of Standards & Appeals, 251 App. Div. 311.) The Board of Appeals lacked power to extend the commercial zone to unreasonable limits. (People ex rel. Sheldon v. Board, 115 Misc. Rep. 449; 200 App. Div. 907; People ex rel. Black v. Randall, 254 App. Div. 310; Matter of Tenlan Realty Corp. v. Board of Standards & Appeals, 251 App. Div. 311; Matter of 4672 Broadway Corp. v. Board of Standards & Appeals, 225 App. Div. 97; 250 N. Y. 571; Matter of Reed v. Board of Standards & Appeals, 255 N. Y. 126.)

      Raphael W. Alpher for Alfred Steinhilber et al., constituting the Board of Appeals of the village of Lynbrook, respondents.
    The Appellate Division did not commit any error in confirming the determination of the Board of Appeals. The record shows a state of fact of a character that afforded a basis for the determination at which the Board arrived in the exercise of its discretion. (Young Women’s Hebrew Assn. v. Board of Standards & Appeals, 266 N. Y. 270; Reed v. Board of Standards & Appeals, 255 N. Y. 126; Towers v. Thatcher, 271 N. Y. 94.)

      Charles L. Raskin for intervener, respondent.
    The conditions attached to and connected with the intervener’s property are widely different from the conditions relating to the property in that district, and the Appellate Division was fully justified in confirming the determination of the Board of Appeals. (Matter of Levy v. Board of Standards & Appeals, 267 N. Y. 347; Sloane v. Walsh, 245 N. Y. 208; Matter of Reed v. Board of Standards & Appeals, 255 N. Y. 126.)
   Finch, J.

The question presented on this appear is whether, upon the record in this case, there are shown the requisite elements which would authorize the Board of Appeals to grant a variance in the application of the zoning laws upon the ground of unnecessary hardship.

The property in question fronts on the north side of Merrick road in the incorporated village of Lynbrook, Nassau county. The tract is an irregular plot of about five acres, with a frontage of 598.9 feet, a depth of 614 feet on the easterly side and of 495 feet on the westerly side. The rear is 237.9 feet. The area is approximately in the shape of a truncated triangle. Property on Merrick road is zoned for commercial purposes to a depth of 150 feet on either side of the road. The adjoining area is zoned for residential purposes. Thus the major portion of the land in question is within a class “ A ” residential zone. The only access to the residential portion of the tract is by way of crossing the portion within the commercial zone fronting on Merrick road. To the rear and sides of this block are the properties of the neighboring owners Which front upon other streets. Intervener applied to the Board of Appeals for a variance (in the enforcement of the restrictions prevailing in the residential zone) so that he might erect a large roller skating rink upon both the commercial and the residential portions of his land. A roller skating rink is a permissible commercial use. The skating rink was to be set back fifteen feet from the property line and to face Merrick road. It was to have a width of 240 feet, a depth of 434 feet, and a height of 49 feet.

In the immediate residential area adjoining the proposed skating rink have been erected many family residences, the occupants of which allege that the erection of the skating rink and the attendance which it will bring will practically destroy the availability of the neighborhood for residential purposes. About 600 objectors have so protested.

The Board granted a variance on the ground of unnecessary hardship and, in its return to the order to review its determination, detailed as its reasons therefor these facts:

(1) That the land lies within two zones, in one of which the requested use is available as of right under the zoning law;

(2) that the only means of access to the residential portion is by crossing over the portion in the commercial zone;

(3) that the intervener could erect the roller skating rink wholly within the commercial zone, but access to the rear portion would thereby be obstructed; (4) that if the roller skating rink is restricted to the commercial portion of the land, parking of automobiles of patrons will necessarily have to be in the streets in that vicinity, whereas if the roller skating rink is allowed to be erected in accordance with the variance granted by the Board of Appeals, the automobiles could be parked on the property and at the sides of the rink building, thereby obviating a potential traffic problem. In addition thereto, the intervener contends that he could not create a street over the commercial portion of his property outside of that to be occupied by the rink because of the width and grade required for a village street. (Village Law [Cons. Laws, ch. 64], § 179-1.)

The object of a variance granted by the Board of Appeals in favor of property owners suffering unnecessary hardship in the operation of a zoning law, is to afford relief to an individual property owner laboring under restrictions to which no valid general objection may be made. Where the property owner is unable reasonably to use his land because of zoning restrictions, the fault may lie in the fact that the particular zoning restriction is unreasonable in its application to a certain locality, or the oppressive result may be caused by conditions peculiar to a particular piece of land. In the former situation, the relief is by way of direct attack upon the terms of the ordinance. (Nectow v. City of Cambridge, 277 U. S. 183; Dowsey v. Village of Kensington, 257 N. Y. 221. Cf. Village of Euclid v. Ambler Realty Co., 272 U. S. 365.) In order to prevent the oppressive operation of the zoning law in particular instances, when the zoning restrictions are otherwise generally reasonable, the zoning laws usually create a safety valve under the control of a Board of Appeals, which may relieve against unnecessary hardship ” in particular instances. (People ex rel. Fordham M. R. Church v. Walsh, 244 N. Y. 280; Bassett on Zoning [1936], p. 120 et seq. Cf. Matter of Eaton v. Sweeny, 257 N. Y. 176.) This the statute accomplishes in the following language: “ Where there are practical difficulties or unnecessary hardship in the way of carrying out the strict letter of such ordinance, the board ,of appeals shall have the power in passing upon appeals, to vary or modify the application of any of the regulations or provisions of such ordinance relating to the use, construction or alteration of buildings or structures, or the use of land, so that the spirit of the ordinance shall be observed, public safety and welfare secured and substantial justice done.” (Village Law, § 179-b. Cf. New York City Zoning Resolution, § 21.) As a result of these provisions, there has been confided to the Board a delicate jurisdiction and one easily abused.” (People ex rel. Fordham M. R. Church v. Walsh, supra, at p. 290.)

Before the Board may exercise its discretion and grant a variance upon the ground of unnecessary hardship, the record must show that (1) the land in question cannot yield a reasonable return if used only for a purpose allowed in that zone; (2) that the plight of the owner is due to unique circumstances and not to the general conditions in the neighborhood which may reflect the unreasonableness. of the zoning ordinance itself; and (3) that the use to be authorized by the variance will not alter the essential character of the locality. (Bassett, op. cit. supra, pp. 168, 169.)

In the case at bar the applicant has failed to introduce any evidence whatever tending to show that the portion of his land which is located in the residential zone may not be reasonably employed in conformity with the zoning regulations governing Class “ A ” districts. The most which can be said for the cause of the intervener is that, if the variance were granted he could make an immediate profitable use of the entire tract. Intervener contends that the lack of access to the street from the rear portion constitutes an element showing unnecessary hardship. Intervener further contends that after the erection of the rink insufficient_land will remain on either side to permit a street of the width required by the Village Law (§ 179-1) for access to the residential portion of his property. This section, in so far as we are presently concerned, provides: That the streets and highways shall be of sufficient width and suitable grade and shall be suitably located to accommodate the prospective traffic, to afford adequate light and air, to facilitate fire protection, and to provide access of firefighting equipment to buildings * * Intervener owns a frontage of virtually 600 feet upon Merrick road. He fails to show in any manner how the provisions of the statute quoted would prevent the creation of a right of way to the rear portion. For all that is shown, another use of the commercial property, or even a rearrangement of the rink building confined to the commercial portion, would seem to leave ample space for a village street. For the lack of any facts whatever from which it may reasonably be inferred that the zoning restrictions, requiring residential use of the rear portion of the land, would amount to an unnecessary hardship, a grant of a variance by the Board of Appeals was improper.

-Furthermore, there is no evidence to show that the situation in which intervener finds himself, as a result of the fact that the commercial belt bordering the Merrick road extends to a depth of only 150 feet on either side of the road, is unique and distinct from that of the other owners whose properties front on the Merrick road. The provision for a commercial zone along the Merrick road is the result of the same situation which was involved in Dowsey v. Village of Kensington (supra), where this court held invalid a zoning ordinance in so far as it failed to allow commercial uses along the frontage of a main commercial highway. In the vicinity and back along both sides of the Merrick road lies a residential district. Because of the heavy traffic upon that highway it was but a reasonable regulation to permit commercial uses of the property fronting upon the highway. Obviously there have to be some limits to this commercial zone. The extent thereof is primarily a legislative question and has been resolved in the zoning law to be no more than 150 feet away from the Merrick road. For all that appears in the record, other property owners may also have rear portions without direct access to the streets in the residential area. If this be a hardship, then the vice is in the legislation itself and is not to be remedied by piecemeal exemption which ultimately changes the character of the neighborhood and creates far greater hardships than that which a variance may alleviate because of the obsolescence caused to property values created by those seeking residences in reliance upon the design of the zoning ordinance. (People ex rel. Fordham M. R. Church v. Walsh, supra; Y. W. H. Assn. v. Board of Standards & Appeals, 266 N. Y. 270; Matter of Levy v. Board of Standards & Appeals, 267 N. Y. 347.) Thus, the variance granted by the Board of Appeals does not comply with the remaining two of the three prerequisites mentioned above, that the hardship to be alleviated not only be one peculiar to the applicant, but also that the relief granted shall not alter the essential character of the neighborhood heretofore devoted to residential purposes. In that event the commercial zone would to all intents and purposes extend not 150 feet, but for several hundred feet beyond. H

Intervener relies upon Matter of Reed v. Board of Standards & Appeals (255 N. Y. 126). That decision was concerned with the power of the Board to grant variances pursuant to a provision of the New York City Zoning Resolution (§ 7-c), which expressly granted jurisdiction to the Board to Permit the extension of an existing or proposed building into a more restricted district under such conditions, as will safeguard the character of the more restricted district.” It may be further observed that in the Reed case the question presented was whether the owner might erect a theatre for a depth of 125 feet where a theatre use for property fronting on the street in question was allowed to an extent of 100 feet. Clearly that situation cannot be analogous to the case at bar, where the use under the zoning ordinance is a permissible one for a distance of 150 feet out of a total depth of between 500 and 600 feet. Similarly, in Matter of Wilkins v. Walsh (225 App. Div. 774; affd., 251 N. Y. 518) the projected use was a permissible one upon property 84 by 100 feet, and the variance was granted for a gore lot whose base was 16 feet.

The grant of the variance to the intervener by the Board of Appeals, therefore, is improper upon this record, which' does not set forth any proof of the three elements constituting unnecessary hardship within the meaning of the zoning laws.

The order of the Appellate Division, confirming the determination of the Board of Appeals, should be reversed, the determination of the Board of Appeals annulled, and the application of the intervener denied, with costs in all courts.

Lehman, J.

(dissenting). Where the major part of a

large parcel of land lies in a residence district but has access only to a street in a business district, the unnecessary hardship and practical difficulties of strict enforcement of the zoning ordinance seem to me obvious.

Crane, Ch. J., Hubbs, Loughran and Rippey, JJ., concur with Finch, J.; Lehman, J., dissents in memorandum; O’Brien, J., taking no part.

Ordered accordingly. (See 282 N. Y. 681.)


author: Lehman, J.

text:
    Franklin Society for Home Building and Savings, Appellant, v. John J. Bennett, Jr., as Attorney-General of the State of New York, et al., Respondents.

      Argued November 27, 1939;
    decided December 28, 1939.

      James A. Davis and Leon Quat for appellant.
    The tax on mortgages is an ad valorem tax on intangible personal property and as such is prohibited by section 3 of article 16 of the State Constitution. (People ex rel. Eisman v. Ronner, 185 N. Y. 285; People ex rel. Mc Knight v. Union B. & P. Co., 63 Misc. Rep. 132; Federal Land Bank v. Crosland, 261 U. S. 374; Pittman v. Home Owners Loan Corp., 308 U. S. 21; Ackerman v. Hunsicker, 85 N. Y. 43; Matter of Mechanics’ Bank, 156 App. Div. 343; Mutual Life Ins. Co. v. Nicholas, 144 App. Div. 95; Flint v. Stone Tracy Co., 220 U. S. 107; Moyer v. Hinman, 13 N. Y. 180; Wheeler v. Weightman, 96 Kan. 50; Seamen’s Bank for Savings v. Fell, 166 App. Div. 271; People ex rel. Banner L. Co. v. State Tax Comm., 244 N. Y. 159; People ex rel. B. & M. R. R. v. Loughman, 227 App. Div. 361; 254 N. Y. 513; People ex rel. New York State Gas & El. Corp. v. Gilchrist, 209 App. Div. 771; 240 N. Y. 552.) Even if the mortgage tax be deemed a recording excise, it is unconstitutional as it is levied solely because of ownership. (Federal Land Bank v. Crosland, 261 U. S. 374; Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429.) Article 11 of the Tax Law conflicts with section 1 of the Fourteenth Amendment to the Constitution' of the United States. (Federal Land Bank v. Crosland, 261 U. S. 374; Pittman v. Home Owners Loan Corp., 308 U. S. 21.)

      John J. Bennett, Jr., Attorney-General (Henry Epstein and Jack Goodman of counsel), for respondents.
    Article 11 of the Tax Law does not tax intangible personal property ad valorem within the meaning of section 3 of article 16 of the State Constitution, but imposes an excise tax on the privilege of recording mortgages. (People v. Trust Co. of America, 205 N. Y. 74; 208 N. Y. 463; Macallen v. Massachusetts, 279 U. S. 620; James v. Dravo Contracting Co., 302 U. S. 134; National Sav. & Loan Assn. v. Gillis, 35 Fed. Rep. [2d] 386; People ex rel. Cooper Union v. Gass, 190 N. Y. 323; People ex rel. Casavoy v. Dimond, 121 App. Div. 559; People ex rel. Clyde v. Wendell, 197 App. Div. 913; 232 N. Y. 550; 262 U. S. 94; Educational Films Corp. v. Ward, 282 U. S. 379; Matter of Mechanics’ Bank, 156 App. Div. 343; 209 N. Y. 526; City of New York v. New York City Ry. Co., 193 N. Y. 543; United States v. Jackson, 280 U. S. 183; People ex rel. Lent v. Carr, 100 N. Y. 236; Ames v. Kansas, 111 U. S. 449; Knowlton v. Moore, 178 U. S. 41.) The tax imposed by article 11 does not violate the equal protection clause of the Fourteenth Amendment of the Constitution of the United States. (Story v. Craig, 231 N. Y. 33; Louisville Gas & Electric Co. v. Coleman, 277 U. S. 32.)
   Lehman, J.

The plaintiff is a savings and loan associa-

tion, organized under the provisions of article X of the Banking Law (Cons. Laws, ch. 2). By section 386 (now § 380, subd. 5) of that article it is required to record immediately every mortgage taken by it. The Register of the County of Queens, the recording officer of that county, refused to accept four mortgages tendered to him by the plaintiff for record unless the plaintiff paid to him the amount of the “ recording tax,” which the Legislature had attempted to impose upon each mortgage recorded after the 1st day of July, 1906. (Tax Law [Cons. Laws, ch. 60], § 253.) The plaintiff claimed that under the Constitution of the State of New York and the Constitution of the United States, the tax could not lawfully be imposed, but paid the tax under protest. The controversy has been submitted to the Appellate Division of the Third Department upon an agreed statement of facts and that court has sustained the validity of the tax.

The Legislature for more than a century has made provision for recording instruments affecting real property. (Laws of 1810, ch. 175; Revised Laws of 1813, ch. 97. Cf. Felix v. Devlin, 90 App. Div. 103.) Article 9 of the Real Property Law (Cons. Laws, ch. 50) now regulates the recording of such instruments and defines the rights and privileges of owners of recorded instruments. The advantage that may be acquired by recording is a compelling inducement to record and mortgages are withheld only in exceptional cases. Indeed, savings and loan associations like the plaintiff, which are regulated by the Banking Law, are allowed no choice there. They must record their mortgages. Other intangible personal property may easily be concealed from the tax collector; but few mortgages escape a tax collector, who lies in wait to demand the tax when the mortgage is recorded. A special tax upon mortgages, payable at the time when the mortgages are recorded, reaches a form of intangible property, which is likely to evade taxation under the general property tax.” That is the purpose and effect of the recording taxes which have become part of the taxing system of many States. (Cf. dissenting opinion of Brandeis, J., in Louisville Gas & Elec. Co. v. Coleman, 277 U. S. 32, 47.) A special tax on mortgages, payable when they are recorded and annually thereafter, was imposed by chapter 729 of the Laws of 1905. Though that statute required the application of a rule or system of taxation for mortgages recorded after July 1, 1905, different from that which was applied to those recorded before that date and to other personal property, yet such classification does not deprive the taxpayer of-his property without due process of law, or deny him the equal protection of the law. (People ex rel. Eisman v. Ronner, 185 N. Y. 285.) The tax imposed by that statute was an annual tax payable to the proper officer at the recording office where the mortgage is first offered for record in this state, until the same is satisfied of record in said office.” (§ 296.)

In 1906 the Legislature passed a statute (Laws of 1906, ch. 532), which, the court has said, provided “ a different scheme of mortgage taxation * * * to take effect July 1st of that year, and applicable to mortgages recorded on or after that date. It prescribed a recording tax of fifty cents on each hundred dollars in lieu of the annual property tax prescribed by the statute of 1905.” (Italics are new.) (People v. Trust Company of America, 205 N. Y. 74, 76.) With few changes the provisions of the 1906 statute are now embodied in article 11 of the Tax Law. Lest the inducement to record offered by the Real Property Law should in some cases be nullified by reluctance to pay a recording tax, the Legislature, in section 258 of the Tax Law, has provided an effective form of economic compulsion to supplement the inducement by restricting, if not, indeed, prohibiting, the use of an unrecorded mortgage for any practical purposes.

Many of the provisions of the statute of 1906 now part of the Tax Law were contained, also, in chapter 729 of the Laws of 1905, which was supplanted by the later statutes. For the taxpayer the significant difference was that under the earlier statute the tax was payable annually; under the later statute, the tax is payable only once — at the time the mortgage is recorded. Upon payment of the tax the owner of the mortgage might secure the benefit of the recording acts. Until the tax was paid, the use of the mortgage was subject to the drastic restrictions upon its use which were imposed by the Tax Law. The “ recording tax ” was unquestionably intended as a substitute for the property tax previously imposed on mortgages as a species of personal property. It has been referred to as “ a remnant of the old system of taxing personal property,” and argument has been made that with the passing of all taxes on personal property this “ remnant ” of an abandoned system should be cast aside by the Legislatures. (Cf. Report of the New York State Commission for the Revision of the Tax Laws, Legislative Document [1932], vol. 18, No. 77, p. 219; Report of the Joint Legislative Committee on State' Fiscal Policies, Legislative Document [1938], No. 41, p. 222.) The Legislature has not been moved by such arguments. Article 11 of the Tax Law is unrepealed. When the Legislature enacted the statute imposing a “ recording tax ” on mortgages, the label or classification of the tax could not affect the power of the Legislature to enact it. In 1938 article XVI, entitled “ Taxation,” was added to the Constitution of the State and placed restrictions upon the taxing power exercised by the Legislature. In section 3 of that article it was provided, among other things, that Intangible personal property shall not be taxed ad valorem nor shall any excise tax be levied solely because of the ownership or possession thereof, except that the income therefrom may be taken into consideration in computing any excise tax measured by income generally.” Now the validity of the tax depends upon whether it is properly labelled or classified as a “ recording tax,” which is not levied solely because of the ownership or possession of a mortgage or, is, as the plaintiff maintains, an ad valorem tax on property, within the meaning of the constitutional provision.

The substantial rights of a taxpayer are ordinarily not affected by the form of a tax or by the characterization of the tax by the Legislature or the court. “ The name by which the tax is described in the statute is, of course, immaterial. Its character must be determined by its incidents.” (Dawson v. Kentucky Distilleries & Warehouse Co., 255 U. S. 288, 292.) Substance rather than form should determine legal consequences and usually the controlling test is found in the operation and effect of the statute as applied and enforced by the State.” (Cf. Gregg Dyeing Co. v. Query, 286 U. S. 472, 476.) Where a taxpayer challenges in court his obligation to pay a tax which the State demands, the court is called upon to determine the operation and effect of the taxing statute upon the matters in dispute. Characterization by the court of a tax as a tax on property ” or as an excise tax ” or as a recording tax ” is a convenient method of describing the operation and effect of the tax statute — its legal consequences — but it must be remembered that characterization or description is dictated by the legal consequences of the statute and never dictates those consequences. Opinions of the courts in which a tax is described or classified as a “ tax on property ” or as an excise tax ” must be read, not as intended to indicate a mutually exclusive classification to be applied in all cases, but rather as a summary of those characteristics which carry with them legal consequences of a particular kind.

To determine whether a tax should be placed in the class of taxes on property or in the class of excise taxes, there must be a definition of the fine which divides the classes. We might without difficulty formulate a definition of a tax on property and a definition of an excise tax, but when we try to determine whether a particular tax falls in one class or another, difficulty must often arise, for the Legislature in adopting a system of taxation is, ordinarily, not concerned with the question whether a tax falls within a class which has been defined with scientific accuracy but is concerned with the question whether the tax in operation and effect will be fair to the taxpayer and produce a return satisfactory to the State. The problems of government are practical ones and may justify, if they do not require, rough accommodations— illogical, it may be, and unscientific ” (Metropolis Theatre Co. v. City of Chicago, 228 U. S. 61, 69) and a tax imposed by the Legislature may contain some features appropriate to a property tax and other features appropriate to an excise' tax. So the recording tax ” imposed by the Tax Law of this State may in some aspects be properly described as the last remnant of an abandoned system of taxation of personal property — a substitute for an ad valorem annual tax on mortgages — yet in other aspects the tax has features which we associate with excise taxes. How it shall be classified depends upon which features should be emphasized and that, in turn, depends upon which features have most direct application and most potent effect in the particular matter which is the subject of the litigation.

The problem which we must solve is not whether scientifically analogically the tax on mortgages should, be described as an ad valorem tax on one species of personal property or whether it should be described as an excise tax which is not levied solely because of ownership or possession of personal property but rather how the tax should be characterized for the very practical purpose of determining whether the tax falls within the class of taxes, described in the Constitution, which may not be imposed in this State. We have pointed out that this court has in People v. Trust Company of America (supra) contrasted the system of taxation of mortgages under the statute of 1905 and the system of taxation of mortgages under the statute of 1906, which has not been materially changed. Though in. many features the taxes are similar, yet because of other differing features this court has characterized the later tax as a “ recording tax" which has been prescribed in lieu of the “ annual property tax ” prescribed by the statute of 1905. By emphasis on the feature that the tax is not an annual tax but is a tax payable only when a mortgage is recorded to obtain the benefit of the recording acts or to rid the mortgage or its owner from the penalties and drastic restrictions resulting from failure to record, the court in effect has placed one tax in the class of ad valorem taxes on property and the other in the class of excise taxes not levied solely because of the ownership or possession of the mortgage.

We are told that what was there said is dictum and is not legally sound. Decisions of the Supreme Court of the United States are cited where similar statutes of other States have been described and classified in other manner. (Federal Land Bank v. Crosland, 261 U. S. 374; Pittman v. Home Owners Loan Corp., 308 U. S. 21.) On the other hand, it may be pointed out that in many States similar taxes have been characterized and classified as excise taxes imposed for the privilege of recording. (Barnes v. Moragne, 145 Ala. 313; Lee v. State Tax Commission, 219 Ala. 513; Middendorf v. Goodale, 202 Ky. 118; Louisville Gas & Elec. Co. v. Shanks, 213 Ky. 762; Mutual Benefit Life Ins. Co. v. County of Martin, 104 Minn. 179; Trustees, Executors & Securities Ins. Corp. v. Hooton, 53 Okla. 530; State ex rel. Hauk v. American Trust Co., 141 Term. 243; Pocahontas Collieries Co. v. Commonwealth, 113 Va. 108; Union Trust Co. v. Common Council of City of Detroit, 170 Mich. 692, but cf. Wheeler v. Weightman, 96 Kan. 50.)

We may assume, arguendo, that what we said in People v. Trust Company of America (205 N Y. 74), is a dictum and that other characterization or classification would not only be justified but might, logically, be sounder; yet the significant fact would still remain that the characterization was made and that nothing said or decided in People v. Trust Company of America (208 N. Y. 463) or in any other case has weakened the force of the characterization or classification. It has not been challenged here and it has been followed in other jurisdictions.

In deciding whether the tax on mortgages falls within one class or the other as defined in the Constitution, we cannot ignore the fact that judicial characterization or classification of the mortgage tax had been made previously and had not been challenged here. The language of the Constitution must be read in the light of that circumstance. We conclude that the court below has correctly decided that the prohibited class of taxes as defined by the Legislature was never intended to include a tax which might reasonably be excluded from that class and which this court has said falls into another class.

We have passed upon the claim that article 11 of the Tax Law conflicts also with section 1 of the Fourteenth Amendment of the Constitution of the United States, and we have rejected the claim.

The judgment should be affirmed, with costs.

Crane, Ch. J., Loughran and Finch, JJ., concur; Hubbs and Rippey, JJ., dissent; O’Brien, J., taking no part.

Judgment affirmed.