author: Crane, J.

text:
    Adrico Realty Corporation, Appellant, v. City of New York, Respondent.

      (Argued November 21, 1928;
    decided December 31, 1928.)

      M. S. Lockhart and John L. Wilkie for appellant.
    The assessment levied against the plaintiff was illegal and void. (L. 1901, ch. 466, § 391.) The defendant, having accepted a payment conditioned upon the retention by the plaintiff of the right to recover the same, is estopped from asserting that the payment was voluntary. (Fuller v. Kemp, 138 N. Y. 231.) The payment by plaintiff was under duress and may be recovered. (Jex v. Mayor of New York, 103 N. Y. 536; Matter of City of New York, 114 App. Div. 519; Bowns v. May, 120 N. Y. 357; Poth v. City of New York, 151 N. Y. 16; Bruecher v. Village of Port Chester, 101 N. Y. 240; Mtna Insurance Co. v. Mayor of New York, 153 N. Y. 331; Pell v. Mayor of New York, 31 Misc. Rep. 664; People ex rel. Wessell, Nickel & Gross v. Craig, 236 N. Y. 100; Mayer v. Mayor of New York, 101 N. Y. 284.)

      George P. Nicholson, Corporation Counsel (Vine H. Smith, Matthew J. Troy and J. Joseph Lilly of counsel), for respondent.
    Plaintiff’s payment to the collector of assessments and arrears is final and beyond recovery because it was made voluntarily, without compulsion or duress, and with full knowledge of the facts. (Redmond v. Mayor, etc., of New York, 125 N. Y. 632; Tripler v. Mayor, etc., of New York, 125 N. Y. 617; Vanderbeck v. City of Rochester, 122 N. Y. 285; Pooley v. City of Buffalo, 122 N. Y. 592; Vaughn v. Village of Portchester, 115 N. Y. 637; Phelps v. Mayor, etc., of New York, 112 N. Y. 216; Haven v. Mayor, etc., of New York, 67 App. Div. 90; 173 N. Y. 611; Matter of Village of Delhi, 201 N. Y. 408.) The case at bar presents no such special circumstances, either of agreement or of duress, as to constitute an exception to the general rule which precludes recovery of voluntary payments. (Flower v. Lance, 59 N. Y. 603; Union Pac. R. R. Co. v. Commissioners, 98 U. S. 541; Vaughn v. Portchester, 115 N. Y. 637; Boss v. Hutchinson, 182 App. Div. 88; Railroad Co. v. Commissioners, 98 U. S. 541; Little v. Bowers, 134 U. S. 547; Cheseborough v. U. S., 192 U. S. 253; Bedmond v. Mayor, etc., 125 N. Y. 632; Tripler v. Mayor, etc., 125 N. Y. 617.)
   Crane, J.

This appeal brings once more before this court the law of voluntary payments. The principle is well established that a voluntary payment of a tax made under a mistake of law, but with a full knowledge of all the facts, cannot be recovered. (Cooley on Taxation, vol. 3, sec. 1282; 48 American Law Reports Anno, p. 1382.) This court in Matter of Village of Delhi (201 N. Y. 408) stated the rule in this language: Where an assessment is void on its face and a person without duress in fact pays the tax levied upon such assessment, it is a voluntary payment and cannot be recovered. * * * Where an assessment although valid on its face, but in fact illegal and void, is paid by a person with knowledge of the facts which render the assessment void and without duress in fact it is a voluntary payment.”

These are general rules, easy to understand, easy to express. So frequently have they been used that we are tempted to fall into the habit of using them like a yardstick, as if they gave an accurate and unvarying measure. Like all general rules, common and frequent use may dull our sense of their meaning and of their early application leading us to overlook their exceptions and limitations. Payment to trustees in bankruptcy, for instance, is an exception. (Ex parte James, L. R. 9 Ch. App. 609-614.) Few rules of law can be applied without examination or analysis. The notion that the fundamental principles of law have been modified or changed when new circumstances present new phases of application is a mistaken one. We do not make the facts to fit a rigid formula, but rather re-examine our formula to see whether they fit the facts. Therefore, this rule of voluntary payment is dependent upon what is considered voluntary and what duress, also upon what is a mistake of law, as distinguished from a mistake of fact, and the determination of these questions varies the application of the rule. When we speak of duress in this connection, it does not necessarily mean personal fear or the use of force, but rather that pressure of circumstances which compels the will of man to yield to an exaction or a payment to release his property from some illegal hold upon it. Thus, paying unlawful freight charges to get personal property has been held to be involuntary. (Harmony v. Bingham, 12 N. Y. 99, and cases there reviewed.) Money paid “ through necessity and the urgency of the case ” was held not to be a voluntary payment.

The expression which runs through the cases is that duress exists when the payment of money becomes necessary to obtain the immediate liberty of person or the possession of property. (Tripler v. Mayor, 125 N. Y. 617, 626.) This statement is the embodiment of a principle and has not yet crystallized around the particular facts of the cases in which it is stated. It still yields to the reason of other situations. Judge Folger, of this court, in Peyser v. Mayor (70 N. Y. 497) has stated the reason for this rule of voluntary payment, which lies behind these various expressions of the principle.

“ The reason of this principle is, that a person shall not be permitted, with the knowledge that the demand made upon him is illegal and unfounded, to make payment without resistance, where resistance is lawful and possible, and afterwards to choose his own time to bring an action for restoration, when, perchance, his adversary has lost the evidence to sustain his side. I have spoken of coercion in fact and coercion by law. By the first I mean that duress of person or goods, where present liberty of person or immediate possession of goods is so needful and desirable, as that an action or proceedings at law to recover them will not at all answer the pressing purpose.”

Let this reasoning be the heart of this rule of voluntary payment giving it life sufficient to survive under modern conditions. With this concatenation of rule and reason, let us approach the facts of this case.

The charter of the city of New York, by section 391, provides that no street pavements shall be removed or disturbed without a permit from the President of the Borough and whenever any portion of the pavement * * * shall have been removed * * * and * * * shah not be relaid in a manner satisfactory to the president of said borough, the said president may cause a notice, in writing, to be served upon the person or corporation by whom the same was removed; or * * * upon the owner * * * requiring such person * * * to have such pavement properly relaid within five days after service of such notice.” The section then provides that in case such work is not done, pursuant to the notice, the Borough President may do the work and certify the cost to the Comptroller “ with a description of the lot or premises to improve which such removal was made.” The Comptroller thereupon shall pay the bill “ and the amount so paid shall become a lien and charge upon the premises so described, and, on being certified by the comptroller to the collector of assessments and arrears, may be collected in the same manner that arrears and water rates are collected under the direction of such collector of assessments and arrears.” Title V of the charter provides for the sales of lands for taxes, assessments and water rates. Sections from 1026 to 1039 give the procedure, a summary of which is all that is necessary here. The lien created under section 391 draws interest as a penalty at the rate of 7 per cent per annum. After remaining unpaid for a term of three or four years, the tax hen is sold to the highest bidder, who is to bid according to a rate of interest to be allowed, and who thereafter may foreclose the lien as a mortgage or any other lien upon real property. The main point for our purpose in this procedure is that no action is necessary to establish the lien; it is created by the certificate of the Borough President to the Comptroller and by the Comptroller to the Collector of Assessments and Arrears. A penalty for non-payment is 7 per cent. To redeem the property from the lien, it is necessary not only to pay all penalties, but the cost of advertising and other expenses created by the act.

The plaintiff is a foreign corporation duly authorized to do business in the State of New York. It was the owner in fee simple of the premises known as Nos. 4 to 16 West Thirty-fifth street, in the borough of Manhattan, New York city. These premises were subject to a mortgage for $1,600,000 held by the Mutual Life Insurance Company, which provided that the mortgagee at its option could declare the entire principal sum due if taxes, assessments, etc., were not paid within ninety days after they became due. The premises were leased to James McCreery & Co., a domestic corporation, which carried on a department store business. In 1914 the city of New York built a new sewer in Thirty-fifth street in front of the plaintiff’s premises. From time to time after the construction of this sewer, the pavement sank and the street had to be filled in and regraded.

Some time in September or October, 1921, a considerable shrinkage occurred over the manhole in front of the entrance to plaintiff’s building, which the city filled in and regraded.

On November 7, 1921, there was a break in the valve and the water service pipe leading from the street to the plaintiff’s premises. The settling of the ground in the street had caused a break in the pipe.

On November 17,1921, the President of the Borough of Manhattan caused to be served upon the owner or occupant a notice under section 391 of the Greater New York charter, referred to above. It read:

“ You will please take notice that 175 sq. yds. of pavement' have been destroyed by leak on Water Service leading to premises No. 4 to 6 W. 35th St.

“ As provided by Section 391 of the Greater New York Charter, you are hereby notified to have such pavement properly relaid within- five (5) days after service of this notice.”

The work called for by the notice not having been done, the city relaid the pavement, and on December 12, 1921, demanded from the owner, the plaintiff herein, the sum of $2,241.09 for repairing 388 square yards of pavement.

On March 18, 1922, the amount of the bill was certified as a lien by the Comptroller to the Collector of Assessments and Arrears, pursuant to the provisions of the charter, above referred to. This certificate used these words: " Said pavement havitig been destroyed because of shutting off of five tap.” The Collector of Assessments and Arrears also notified the owner that this amount had become a lien upon its property, pursuant to section 391 of the charter. According to title V thereof, for the collection of assessments and water rates, the Comptroller gave public notice by advertisement in the press that this assessment for the repair of the pavement had become a hen upon the premises and “ unless the amount assessed for benefit on any person or property shall be paid on or before May 22, 1922, which is sixty days after the date of said entry of the assessment, interest will be collected thereon at the rate of 7 per cent per annum to be calculated from ten days after the date of said entry to the date of payment, as provided by Sections 159 and 1019 of the Greater New York Charter.”

In January of 1923 the mortgagee of the plaintiff’s premises became insistent upon the removal of the lien, and the plaintiff paid the assessment with interest and penalties by a check for $2,363.23. The payment was made under protest. This action has been brought to recover this payment.

Two considerations concern us in reviewing this statement of the case. The lien was regular on its face. Nothing in the records showed it to be illegal. Whether the work was necessitated by the acts of the owner or by the acts of the city was a question of fact. The owner insisted that the cave-in of the street was due to a defective sewer. The city claimed, and still claims, that it was due to a leak in the owner’s premises. The certificate of the Deputy Comptroller stated, said pavement having been destroyed, because of shutting off of live tap.”

Under section 391 of the charter, the work of repaving could only be charged to the owner when it was done for the improvement of his house or lot, or for the purpose of constructing vaults, digging cellars, laying foundations, making sewer connections, or repairing sewers or pipes and the like. The city could not charge to the owner the cost of repairs due to its own neglect or carelessness. Here was a question of fact. Who was to decide it? Under these circumstances, are we to put upon the plaintiff all the burden of determining the accuracy of the facts? It may be charged with a knowledge of the law, but not with the knowledge of those facts which being disputed, must ultimately be decided by a court. Even upon the trial, the judge decided the facts against the plaintiff, holding, as he stated upon the motion to dismiss the complaint: The court has ruled that this was not a void assessment. I think the authority was conferred under section 391. I do not think you have made out a cause of action against the city. I will grant the motion.”

The plea of the city before this court now is that the payment was voluntary because made under a mistake of law with a full knowledge of facts which the court has found are not the facts. This rule that a party cannot recover money paid under a mistake of law, having knowledge of all the facts which made the payment unnecessary, does not refer to a situation like this, where facts are not clear, are in dispute, and the law is dependent upon the facts. All the cases referred to in this opinion, where this rule has been applied, relate to conceded facts well known to the party making the payment, which rendered the assessment utterly void.” There was no payment here, in my judgment, under a mistake of law, where the law (in this case the application of section 391 of the charter) was dependent upon the facts, and those facts depend upon disputed oral testimony. A payment under such circumstances to relieve the pressure of a lien upon real property carrying heavy penalties is a payment under a mistake of law mingled with a mistake or confusion of the facts, and not purely under a mistake of law.

The next consideration which confronts us upon this statement of the case is whether the payment was voluntary, within the meaning of the rule. The city automatically placed a lien upon the plaintiff’s property. The plaintiff was notified by the city that unless the lien was paid it would carry a penalty of 7 per cent interest per annum. What was the purpose of 7 per cent, which was more than the legal rate for money? Concededly, it was to force payment. It was not the rate collected upon unpaid judgments. It was the rate fixed by law to force the payment of taxes. Immediately the city advertised notice of the lien upon this property. It started the procedure outlined by the charter for the collection of this tax. The mortgagee, under a mortgage for $1,600,000, demanded the payment of the assessment and the satisfaction of this lien, or else it would elect to declare the whole principal sum due. The plaintiff, under this pressure of the lien binding its property, carrying a penalty of 7 per cent interest, paid the assessment under protest, and has brought this action. What other remedy did it have? The summary remedy provided in title III of the charter, sections 958, 959, does not apply to a case like this. Those sections relate to vacating and modifying assessments for local improvements, section 959 allowing an application to the Supreme Court “ in the proceedings relative to any assessment or assessments for local improvements.” There were no proceedings pending in court in which such an application could be made in this case. An action in equity might have been maintained to vacate the assessment as a hen upon the land, and thus remove a cloud upon the title. (Strusburgh v. Mayor, 87 N. Y. 452.) Was the plaintiff obliged to resort to this remedy and was it the only relief? I think not. We must not shut our eyes to the facts. Litigation, even on the equity side of the court, is in these modern days long delayed. Months, if not years, elapse before a case can be reached for trial. Here was a case where the validity of the assessment depended upon oral testimony, the outcome of which might at best be uncertain. In the meantime, a penalty of 7 per cent was running on the amount of the assessment. If the plaintiff should lose on the question of fact, it would be obliged to pay this penalty, as well as all the other incidental expenses and penalties which had accrued under the charter in the meantime. To relieve itself of this uncertainty and this liability created by an assessment which might possibly be void when the facts were ultimately established, the plaintiff paid the assessment and stopped the running of the penalty. Was this unreasonable or improper within the authorities? These facts, I think, bring this case within the reasoning of Peyser v. Mayor, which I have quoted above. Coercion is that duress of person or goods, where present liberty of person or immediate possession of goods is so needful and desirable, as that an action or proceedings at law to recover them will not at all answer the pressing purpose.” Time is sometimes an element to be considered. Mr. Justice Field in Radich v. Hutchins (95 U. S. 210, p. 213) wrote:

To constitute the coercion or duress which will be regarded as sufficient to make a payment involuntary, * " * * there must be some actual or threatened exercise of power possessed, or believed to be possessed, by the party exacting or receiving the payment over the person or property of another, from which the latter has no other means of immediate relief than by making the payment.” (See note to Mayor of Baltimore v. Lefferman, 45 Amer. Decisions, p. 145, p. 153.)

We find some intimation that the pressure of a lien under these circumstances may cause a payment to be involuntary. Thus in Tripler v. Mayor (supra) the court considered the lapse of time during which the assessment had remained dormant, without any attempt upon the part of the city to collect it, and said:

“ The very word used to describe an involuntary payment, imports a payment made against the will of the person who pays. It implies that there is some fact or circumstance which overcomes the will and imposes a necessity of payment in order to escape further ills. * * *

But plaintiff now alleges there was coercion in fact because the statute imposed interest on the principal sum of the unpaid assessment, and a payment to prevent the accruing of interest is claimed to be an involuntary one. There is no finding that the payment was made for that purpose, but there is a finding as to why the payment was made, which is at war with this contention. The running of interest had no terrors for the plaintiff.”

The reason the court said this was because the plaintiff had allowed the assessment to remain for six years or more. Here in this case the plaintiff paid the assessment to free itself, to escape the illegal penalty.

In Cooley on Taxation (vol. 3 [4th ed.], sec. 1283) we read the conclusions of that jurist after a review of the cases: “ A party ought not to be exposed to any more risks of loss in relieving his lands of an apparent cloud upon title than in protecting his goods against an illegal sale.”

And Mr. Justice Holmes, feeling that the doctrine of voluntary payment is sometimes pushed too far, said in Atchison, etc., Ry. Co. v. O’Connor (223 U. S. 280): “ It is reasonable that a man who denies the legality of a tax should have a clear and certain remedy. The rule being established that apart from special circumstances he cannot interfere by injunction with the State’s collection of its revenues, an action at law to recover'back what he has paid is the alternative left. Of course we are speaking of those cases where the State is not put to an action if the citizen refuses to pay. In these latter he can interpose his objections by way of defence, but when, as is common, the State has a more summary remedy, such as distress, and the party indicates by protest that he is yielding to what he cannot prevent, courts sometimes perhaps have been a little too slow to recognize the implied duress under which payment is made. * * * In this case the law, besides giving an action of debt to the State, provides that every corporation that fails to pay the tax shall forfeit its right to do business within the State until the tax is paid, and also shall pay a penalty of ten per cent, for every six months or fractional part of six months of default after May 1 of each year. * * * In any event the penalty would go on accruing during all the time that might be spent before the validity of the defence could be adjudged.” (See, also, Robertson v. Frank Brothers Co., 132 U. S. 17.) Connecticut has advanced this opinion:

A payment of a tax made to avoid the onerous penalties of the Act imposing the tax for its nonpayment, is not a voluntary payment. The more modern doctrine supports this view.” (Wheeler, J., in Underwood Typewriter Co. v. Chamberlain, 92 Conn. 199, p. 205.) Continuing the court says:

“ The Company was confronted with this situation: Though it contested the validity of the tax successfully it could not prevent the filing of the lien upon its property. And if it were unsuccessful, no matter what merit its claims possessed, the hen would attach, and the five per centum penalty and the nine per centum interest would accrue. The hen might prove a serious burden upon its credit, while the actual pecuniary losses, suffered or threatened, involved a hardship and loss which no company should be compelled to face. It could not measure the extent of these penalties, because it could not know the time the tax litigation would take. It would be unfair to it to compel it to take this risk of loss as the condition of its right to test the validity of the tax. It should have that right without condition, and by a clear and certain remedy.”

This court had something to say on the subject in Ætna Ins. Co. v. Mayor (153 N. Y. 331). This involved a tax upon bank stocks owned by a fire and marine insurance company. The tax was paid and the action brought to recover back the money. This court held that the payment of the tax was involuntary, as the law made the tax a lien upon the shares of the bank, and that all transfers of the shares were subject to the lien. The opinion was as follows:

“ That being the effect of the imposition of the tax, we think it amounted to such an impounding or duress of the plaintiff’s property as to render the payment so far involuntary as to authorize an action for the recovery of the money thus wrongfully received by the defendant. The plaintiff could only establish its right to a full enjoyment of its property by proof of the facts which entitled it to an exemption under the statute of 1886, in an action or proceeding instituted for that purpose, or by payment of the tax. The defendant having, by its unauthorized act, placed the plaintiff in that position, it cannot relieve itself from a liability to refund the amount it thus wrongfully received by asserting that the payment was a voluntary one, or by claiming that the plaintiff might have pursued some other remedy to relieve its property from the hen thus established. The payment was necessary to relieve the plaintiff’s property from the hen to which it was made subject by the wrongful acts of the defendant’s officers, unless it instituted a proceeding to establish the invalidity of the tax. The plaintiff, to enforce its rights, elected to pay the tax and thus relieve its property from such hen, and then to institute an action to recover the amount it was obliged to pay, instead of commencing a proceeding to set aside the tax. We think the defendant is not in a position to complain because the plaintiff elected to pursue the former instead of the latter remedy, and that the payment cannot be held to be so far voluntary as to deprive the plaintiff of its right to recover the amount of taxes thus wrongfully levied and received by the defendant.”

This was followed up by People ex rel. Wessell, Nickel & Gross v. Craig (236 N. Y. 100) which dealt with the powers of the Board of Taxes and Assessments under section 897 of the charter to modify erroneous assessments. The city claimed that no power existed after a tax based upon the assessment had been paid. In the course of the opinion, this court said: The tax becomes a lien at the times stated in the charter (Sec. 914). Payment made thereafter is not voluntary, for the menace of the hen with penalties added for delay (Charter, secs. 916, 1020) has the effect of rendering it compulsory.” (See, also, People ex rel. Amer. Exchange Nat. Bank v. Purdy, 196 N. Y. 270, 277.)

It is difficult for me to see any distinction in principle between the hen upon the bank stock and the hen upon the real estate. The inability to transfer bank stock subject to a hen was no more oppressive than the hen of the assessment with its accumulating penalties and expenses. The circumstances of these various cases may be different, but the hardship to the one illegally assessed is a reality, not a myth. (To the same effect are Western Union Tel. Co. v. Mayer, 28 Ohio St. 521, and Dexter v. Boston, 176 Mass. 247, p. 252.)

Under the circumstances of this case, therefore, the payment by the plaintiff of the assessment was not only involuntary, as a fact, but was also involuntary within the reason and the rule of the later authorities.

One case only do I find in this State which seems to hold a contrary opinion, and that is Haven v. Mayor (67 App. Div. 90; affd., 173 N. Y. 611, without opinion). Affirmance by this court without opinion does not mean that we have adopted the opinion of the court below in its entirety. The Appellate Division in that case not only held that the payment by the plaintiff was voluntary, but it also found that the assessment was not illegal. One judge concurred in the result. This court may very well have affirmed upon the latter reason.

Bruecher v. Village of Port Chester (101 N. Y. 240); Jex v. Mayor (103 N. Y. 536); Phelps v. Mayor (112 N. Y. 216); Bowns v. May (120 N. Y. 357); Vanderbeek v. City of Rochester (122 N. Y. 285); Scudder v. Mayor (146 N. Y. 245); Poth v. Mayor (151 N. Y. 16), state the general rule of voluntary payments in tax cases, but are not in conflict on the facts with the result we have reached in this case. We do not mean to say that a payment made without protest and under no immediate pressure to escape a penalty can be recovered if later it is ascertained that the assessment was illegal. We are dealing with the facts of this case.

Our conclusion, therefore, is that if the repaving of Thirty-fifth street was caused by the act or neglect of the city, and not by the act of the plaintiff or for the benefit of its property within the meaning of section 391, the assessment was illegal and void. This is a question of fact which must be tried out. The trial judge was wrong in concluding on the plaintiff’s evidence that the assessment was valid. We also hold that if the assessment was void by reason of facts dehors the record, the payment made by the plaintiff to relieve the land of the hen of the assessment and the burden of the penalties was not a voluntary payment and it may be recovered back.

The judgment of the Appellate Division and that of the Trial Term should be reversed, and a new trial granted, with costs to abide the event.

Cardozo, Ch. J., Andrews, Lehman and Kellogg, JJ., concur; Pound, J., dissents; O’Brien, J., not sitting.

Judgments reversed, etc.


source: Caselaw Access Project

license: Public Domain

text:
    In the Matter of Lillie M. Durand et al., Individually and as Executors of John E. Durand, Deceased, et al., Appellants. Virginia R. Durand et al., Respondents.

      (Argued November 22, 1928;
    decided December 31, 1928.)

      Clarence P. Moser and Raymond Bentley for appellants.
    The provisions of the will effective if Samuel E. Durand does not survive Lillie M. Durand, may suspend the absolute ownership of personal property during portions of the lives of persons who were not in being at the testator’s death, and such provisions are, therefore, void. (Chastain v. Tilford, 138 App. Div. 746; 201 N. Y. 538; Simpson v. Trust Company of America, 129 App. Div. 200; 197 N. Y. 586; Schlereth v. Schlereth, 173 N. Y. 444; Matter of Patten, N. Y. L. J. Jan. 15, 1927; Matter of Horner, 237 N. Y. 489; Matter of Wilcox, 194 N. Y. 288; Fargo v. Squiers, 154 N. Y. 250; Hoyt v. Hoyt, 125 Misc. Rep. 95; 215 App. Div. 773; Matter of Chittick, 243 N. Y. 304; Smith v. Edwards, 88 N. Y. 92; Greenland v. Waddell, 116 N. Y. 234.) The provisions of the will cannot be sustained so far as they provide for children of Samuel E. Durand, who were living at the testator’s death, and declared void as to afterborn children, and the issue of any child of his dying before the death of his mother. (Matter of Hardgrove, 223 App. Div. 646; Hoyt v. Hoyt, 125 Misc. Rep. 95; 215 App. Div. 773; Matter of Horner, 237 N. Y. 489; Bailey v. Buffalo L., T. & S. D. Co., 213 N. Y. 525; Benedict v. Webb, 98 N. Y. 460.) The effect of the suspension of absolute ownership is that the provisions of the will dealing with the contingency of Mrs. Durand surviving Samuel Durand are void in their entirety, resulting in intestacy. (Hoyt v. Hoyt, 125 Misc. Rep. 95; 215 App. Div. 773; Fargo v. Squiers, 154 N. Y. 250; Matter of Silsby, 229 N. Y. 396; Matter of Trevor, 239 N. Y. 6; Central Trust Co. v. Egleston, 185 N. Y. 23; Baker v. Gerow, 126 N. Y. Supp. 277; Matter of Crane, 164 N. Y. 71; Lewisohn v. Henry, 179 N. Y. 352.) In case Mrs. Durand accepts the provisions of the will, and Samuel E. Durand does not survive his mother, the residuary estate vests in him by intestacy as next of kin of the testator. (Schlereth v. Schlereth, 173 N. Y. 444; Clark v. Cammann, 160 N. Y. 315; Doane v. Mercantile Trust Co., 160 N. Y. 494; Matter of Briggs, 128 Misc. Rep. 221; Matter of Silsby, 229 N. Y. 396; Matter of Bloodgood, 129 Misc. Rep. 398; 223 App. Div. 640.)

      William F. Strang for respondents.
    The decision of the surrogate is correct and should be upheld. (Matter of Trevor, 239 N. Y. 6; Matter of Horner, 237 N. Y. 481; Matter of Hitchcock, 222 N. Y. 57; Matter of Silsby, 229 N. Y. 396; Matter of Chittick, 243 N. Y. 304; Kennedy v. Hoy, 105 N. Y. 134; Matter of Gallien, 247 N. Y. 195; Carrier v. Carrier, 226 N. Y. 114.) The elimination of the invalid possible partial life estates and the decreeing that the remainders vest in possession upon the death of the life tenant is in accordance with the theory of our statutes. (Matter of Conger, 40 Misc. Rep. 157; 81 App. Div. 493.) The testamentary provisions in favor of the grandchildren living at the testator’s death are separable and must be upheld in any event. (Matter of Mount, 185 N. Y. 162; Matter of Colegrove, 221 N. Y. 455; Matter

      of Hitchcock, 222 N. Y. 27; Matter of Silsby, 229 N. Y. 397; Matter of Horner, 237 N. Y. 489; Matter of Trevor, 239 N. Y. 6.)

      George A. Carnahan for undetermined infants.
    The surrogate and the Appellate Division correctly held that upon declaring that all trusts for grandchildren, both living and afterborn, were void, the residuum of the estate upon the death of the widow vested in the then living grandchildren. (Matter of Horner, 237 N. Y. 489; Matter of Trevor, 239 N. Y. 6; Matter of Chittick, 243 N. Y. 304.) The trusts for the living grandchildren are not separable from those set up for the afterborn grandchildren. (Matter of Horner, 237 N. Y. 489; Matter of Trevor, 239 N. Y. 6; Hoyt v. Hoyt, 125 Misc. Rep. 95.)
   Crane, J.

John E. Durand, a resident of the city of Rochester, New York, died at Rochester on the 15th day of May, 1926, survived by his widow, Lillie M. Durand, sixty-three years of age, and by his only child, Samuel E. Durand, who was then thirty years of age. Samuel Durand was married, and his wife is still living. They have two children, both of whom were living at the time of the testator’s death: Virginia Ranlet Durand, Jr., who was then five years of age, and John Ewing Durand, who was then three years of age. No other children have since been born. The deceased left no descendants of any deceased child.

Mr. Durand’s estate consisted entirely of personal property, the gross value of which as fixed in the transfer tax proceeding, being about $1,150,000, subject to debts and funeral expenses of about $20,000. He left a will and codicil, dated respectively May 2,1923, and December 24, 1925, which have been probated. They provide for various legacies and trust funds, totaling $50,000 for certain charities and for the testator’s niece and daughter-in-law; two trusts of $10,000 each for the education of the two living children of Samuel E. Durand, above mentioned; a trust of $100,000 for Samuel E. Durand during his life, with remainder to the granddaughter, Virginia Ranlet Durand, Jr., and a similar trust of $100,000 for his son, with the remainder to John E. Durand, the grandson. The residue of the estate was disposed of in the eleventh and twelfth clauses of the will, which are here quoted in full, as they have given rise to this litigation:

“ Eleventh. All the rest, residue and remainder of my property, both real and personal, I give, devise and bequeath to be disposed of by my executors as follows:

If my wife, Lillie M. Durand, survive me, said residuary estate is to be held by my executor, Samuel Ewing Durand, as trustee, or by his successor if for any reason he does not qualify, to keep said fund invested and pay the net income therefrom to my wife, Lillie M. Durand, semiannually, during the remainder of her life; and upon her death my said trustee shall pay over the corpus of said residuary estate to my son, Samuel Ewing Durand, if he be then living, and close the trust.

If my wife do not survive me, but my son, Samuel Ewing Durand, do survive me, then upon my decease my executors shall pay said residuary estate to my said son as residuary legatee under this will.

Twelfth. If my wife, Lillie M. Durand, survive me, but my son, Samuel Ewing Durand, be not living at her decease, then upon her decease, or if neither my wife nor son survive me, then upon my decease, I direct that said residuary estate, together with any accumulations belonging thereto and undistributed; be paid over to the Rochester Trust & Safe Deposit Company as trustee, or retained by said Trust Company if it shall then be acting as trustee of said fund, and said trustee shall thereupon divide said fund into as many equal parts as my son shall have children living at the time of such division, except that if any of his children shall have theretofore died, leaving issue then living, the share their parent would have taken if then living shall be set apart, held during minority, and paid to such issue upon arrival at twenty-one years of age. Said trustee to hold one of such equal parts for the benefit of each of the children of my son then living, pay the net income therefrom to the mother of such child during his or her minority, and thereafter pay the income to such child until he or she arrives at thirty years of age, at which time the principal shall be paid over to the beneficiary, and that particular trust closed.

In the event of the death of any such child living at the time of such division and before arriving at thirty years of age, then upon such death the principal of the fund for the benefit of the one so dying, together with all accumulations belonging thereto and undistributed, shall be distributed to the husband, wife, heirs-at-law and next of kin of the one so dying, as though he or she had died the intestate owner thereof.”

The codicil modifies the twelfth paragraph in the following words:

Third. I modify, and add to, the ‘ twelfth ’ paragraph of my said will of May 2, 1923, as follows:

“ Whenever, as provided in the said ‘ twelfth ’ paragraph of my will, any grandchild or great-grandchild of mine becomes the owner of a fund, subject only to the necessity of arriving at twenty-one years or thirty years of age as the case may be, before becoming entitled to full ownership in possession and to have the trust as to that particular fund terminated, I give to each such grandchild or great-grandchild the right to dispose of the principal of such fund by his or her will made after arrival at legal age to make a will of personal property, and I further direct payment and distribution to such appointee, if any; and in default of such appointment by will, I direct that' the principal be disposed of as directed by said ‘ twelfth ’ paragraph of my will.”

In this proceeding the executors have asked for a construction of this will, relating to the disposition of the remainder of the estate under the eleventh and twelfth clauses, as modified by the codicil. All parties are agreed that there is here a suspension of absolute ownership for a longer time than is permitted by the Personal Property Law (Cons. Laws, ch. 41), section 11. In case Samuel Ewing Durand, the son, died during the lifetime of his mother, the testator directs that the residuary estate be paid to the trust company,, as trustee, which shall thereupon divide the fund into as many equal parts as the son shall have children living at the time of such division. The trustee is to hold each of the parts and pay the net income therefrom to the mother during the minority of each child, and thereafter pay the income to each child until he or she arrives at thirty years of age, at which time the principal shall be paid over to the beneficiary and the trusts closed in the order of the happening of such events.

That the son, Samuel Ewing Durand, may have other children than the two now living, before the termination of the life estate, renders this proposed disposition illegal, as it ties up the estate and prevents its vesting for longer than two lives in being. The. power of alienation would be suspended during the lifetime of unborn child or children, or until they should arrive at thirty years of age.

The scheme of the maker of this will was first to provide for his wife, and then for his son. This he did by giving the income of the remainder of the estate, after certain bequests, to his wife for life; upon her death the principal to go to the son. The father expected the son in this case to look after his children, no matter how many there might be; in case of the son’s survivorship, the maker of the will had no anxiety about the welfare of his grandchildren. If, however, the son should not survive his mother, the life beneficiary, the grandfather desired to provide for the grandchildren. This to him apparently was an uncertain problem; two were still very young, too young to give any forecast as to their nature, character or wisdom. They might turn out to be improvident, extravagant, reckless. Other grandchildren might come along, whom the grandfather would never see. With these forebodings shadowing his mind, he tried to provide for contingencies by a very appropriate and thoughtful plan.' He would put the principal fund into a trust, the income to be paid to his daughter-in-law, the mother of his grandchildren, annually until the children became twenty-one years of age, and after they were twenty-one, then the income should be paid to them until each arrived at the age of thirty. On the thirtieth birthday each child was to receive his proportionate part of the principal. The difficulty with this wise plan, which the grandfather did not foresee, although he was a lawyer, is the law of our State in statute form, which says that the absolute ownership of personal property shall not be suspended by any limitation" or condition for a longer period than during the continuance and until the termination of not more than two lives in being at the death of the testator. This trust would suspend the vesting of the principal of this estate not only during the lives of the two children who are now alive, or until they arrive at the age of thirty, but also during the life of unborn children, until they became thirty years old; that is, those who may be born to Samuel Ewing Durand and his wife before the death of the grandmother, the life beneficiary. The trust for the two cannot be separated from the rest and held to be good as the grandfather did not intend to exclude after-born children; neither did he intend the estate in remainder to vest in the new-born children at the grandmother’s death. .This is not a case where the illegal suspension may be cut off.

It is for this reason, I take it, that all parties are agreed, or were agreed before the Surrogate, that the provisions of the twelfth clause are illegal, and the trust void. Both asked for a determination of the Surrogate as to the disposition to be made of the remainder. He decided that the trust provisions were void and held that they should be eliminated together with the gift of income to the mother of any minor grandchild, and construed the will as providing that in case Samuel E. Durand does not survive his mother, the life beneficiary, the residuary estate will vest absolutely in the children of Samuel E. Durand, living at Mrs. Durand’s death, in equal shares. The Appellate Division, while unanimously affirming this decree of the Surrogate, has certified the appeal to this court.

The citation of authorities is of very little use in cases of this kind upon the fundamental principles of the law of wills. All the authorities cited are a mere repetition of these rules. The difference in the opinions is in their application to varying facts. What constitutes a suspension of the power of alienation is to be determined by the facts. The law is plain (Matter of Chittick, 243 N. Y. 304.) That we must consider in determining the application of section 11 of the Personal Property Law, not what the actual conditions now are, but what may happen, is well established. (Matter of Mount, 185 N. Y. 162.) If the dominant purpose is the creation of a single trust to continue during more than two minorities, absolute ownership is illegally suspended and the trust in its entirety is void, even though in some contingencies it may end within the statutory term. (Matter of Horner, 237 N. Y. 489.) In some instances it has been possible to disregard that portion of the will which rendered the trusts illegal, and preserve the rest. (Matter of Trevor, 239 N. Y. 6; Matter of Horner, supra.) These cases express no new rule, but merely apply long-standing and well-recognized rules to new facts. The dominant, underlying principle in all these cases is to carry out as far as possible within the meaning of the statute, the intention of the testator. If we can read into a will an intention to preserve any part of it, even with the illegal portions stricken out, the court will do so. In such a case we try to determine whether the maker of the will would have created the trust if all his express purposes could not be accomplished. This is not strictly law; it is a matter of good judgment, the judgment of men who according to our judicial system must in the last analysis .determine the question. In declaring a testator’s intention, however, the courts are limited to the words which the testator, himself, has used in his will.

Our judgment in reading this will is that the testator desired to provide for all his grandchildren equally. He could have done so, as has the Surrogate in his decree, by giving the residuary estate absolutely to the surviving grandchildren on the death of the life beneficiary. This is the very thing, however, that the testator did not do, and did not want to do. He did not want his grandchildren to have the principal of the estate until they were thirty years of age. He provided the income only should be paid to them after they became twenty-one years of age, and that the principal should be kept from them until they were thirty. The revision attempted by the court below has done more, however, than eliminate intervening trusts and accelerate the remainders as in Kalish v. Kalish (166 N. Y. 368, 375). It has accelerated them by giving the absolute ownership to persons who were to take a defeasible ownership under the will as it was written. By the will as it was written, the death of a grandchild intestate while the trust was still in force would have carried the fund over, or a proportionate interest therein, to alternative remaindermen, the persons, that is to say, who would succeed under the intestate laws to any property belonging to the one so dying. By the will as rewritten the remainders thus given to those who would take upon intestate succession are cut off, for the owner of the remainder, enjoyed before its proper time, may not only dispose of it by will so as to bar his next of kin, but may consume it or dispose of it by conveyance during life. The law does not accelerate remainders except in favor of the same persons who would take them if the intermediate estate, expunged as illegal, had been allowed to run its course. (Kalish v. Kalish, supra.) He knew that his grandchildren were to get his estate. As a lawyer he must have realized that the easiest kind of a will which he could draw would be one vesting the remainder in his grandchildren. The dominant thought in his mind was their possible improvidence or extravagance, and he attempted to guard against this by the thirty-year provision. The codicil does not change the intention of the testator in this particular. He liberates the trust in only one particular; he gives to his grandchildren the privilege of making a will before thirty years of age. Emphasis is thus put upon his continuing desire that the principal shall not be at their disposal before that time.

We, therefore, cannot say that Mr. Durand, the testator, would have given his property in remainder to his grandchildren after the death of the life tenant, if he thought his attempted trusts were void. What provision he would have made we do not know. We do know that he did not make the provision that the decree of the Surrogate has directed. Even if we thought that Mr. Durand would have followed the interpretation which the lower courts have put upon this will, the fact is he did not do so, and the courts cannot reconstruct wills in accordance with the near intention of the maker.

The purpose which the testator had in mind has failed; the trusts for grandchildren and issue are void; the desire to give these grandchildren the remainder is laudable, but when the will of the grandfather has not done so, nothing remains but intestacy as to this portion. The courts must leave it as if there were no will. No power of revision of wills is intrusted to the courts. In the absence of a disposition by will the statute, not the court, provides for the disposition of the estate.

If the son survives his mother, the life beneficiary, he takes the remainder under the eleventh clause of the will; if he dies before his mother, the testator has failed to make any provision for such an event. In that case, there is an intestacy and his property will vest and is vested in his next of kin.

With this construction of the will of John E. Durand, the order of the Appellate Division and the decree of the Surrogate’s Court should be reversed, with costs in all courts payable out of the estate, and the proceeding remitted to the Surrogate’s Court for the entry of a decree in accordance with this opinion.

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

Ordered accordingly.


author: Cardozo, Ch. J.

text:
    Sarah Brody et al., Appellants, v. Vincenza Pecoraro et al., Respondents. Max Kimiatek, Appellant, v. Vincenza Pecoraro et al., Respondents. Max Warkow, Appellant, v. Vincenza Pecoraro et al., Respondents. Arthur Berger, Appellant, v. Vincenza Pecoraro et al., Respondents.

      (Argued November 22, 1928;
    decided December 31, 1928.)

      William H. Hamilton and Norman C. Conklin for appellants.
    There is no evidence of any consideration for the transfer other than the oral testimony of the defendants, and the maxim “ false in one thing false in everything ” should be applied to all their testimony. (N. Y. & Brooklyn Ferry Co. v. Moore, 32 Hun, 29; 18 Abb. [N. C.] 120; 102 N. Y. 667.) Mrs. Pecoraro intended to hinder, delay or defraud her creditors, and she has accomplished those objects. (Hennequin v. Naylor, 24 N. Y. 141; Shand v. Hanley, 71 N. Y. 322.) Where the proof shows a fraud has been perpetrated upon creditors, the burden of evidence is shifted upon one who claims to be an innocent purchaser to show that he acquired the property without any knowledge or notice that would put him upon inquiry; and for a full and adequate consideration. D’Aquila has failed to sustain such burden. (Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191; Kerker v. Levy, 206 N. Y. 109; Frank v. Von Bayer, 205 App. Div. 300; 236 N. Y. 475; Ga Nun v. Palmer, 216 N. Y. 611; Carstairs v. Spear, 201 App. Div. 420; Meyer v. Mayo, 196 App. Div. 82; Fox v. Moyer, 54 N. Y. 131; N. Y. & B. Ferry Co. v. Moore, 18 Abb. [N. C.] 106; 102 N. Y. 667; Smith v. White, 2 N. Y. Supp. 857.)

      Pascal J. Fortinash for Vincenza Pecoraro, respondent.
    A purchaser of land for a valuable consideration is entitled to be protected in his title, and in the absence of actual notice of fraud it is necessary, in order to defeat his claim to be a bona fide purchaser, that the facts and circumstances relied upon to charge him with knowledge of the fraud should be of a character equivalent to notice. (Anderson v. Blood, 152 N. Y. 285; Jacobs v. Morrison, 136 N. Y. 101; Bush v. Roberts, 111 N. Y. 278; Stearns v. Gage, 79 N. Y. 102; Truesdale v. Sarles, 104 N. Y. 164; Greenough v. Greenough, 32 App. Div. 631; Zoller v. Riley, 100 N. Y. 102; Parker v. Connor, 93 N. Y. 118; Sargent v. Jacobs, 103 N. Y. 125; Gilmour v. Colcord, 96 App. Div. 358; 183 N. Y. 342; Byongiermo v. Schiller, 112 App. Div. 916; Lehrenkrauss v. Bonnell, 119 N. Y. 240.) The record is absolutely barren of any proof that Mrs. Pecoraro perpetrated a fraud upon her creditors. (Bliss Co. v. Progressive Smelting & Metal Corp., 208 App. Div. 346; Schultz v. Hoagland, 85 N. Y. 464; Constant v. University of Rochester, 133 N. Y. 640; Ruppert v. Brooklyn Heights R. R. Co., 154 N. Y. 90; Shotwell v. Dixon, 163 N. Y. 43; Cowee v. Cornell, 75 N. Y. 99; Roberts v. Buckley, 145 N. Y. 215; Jewett v. Bowman, 29 N. J. Eq. 174; Kellogg v. Slawson, 11 N. Y. 302; Crook v. Rinskopf, 105 N. Y. 476.)

      Gordon S. P. Kleeberg, Jacob Greenwald and Jacob Kaplan for Frank D’Aquila, respondent.
    Whether Mrs. Pecoraro intended to and did hinder, delay or defraud her creditors is immaterial unless notice thereof was brought home to the defendant D’Aquila as to which there is no evidence. (Anderson v. Blood, 152 N. Y. 285; Jacobs v. Morrison, 136 N. Y. 101; Bush v. Roberts, 111 N. Y. 278; Stearns v. Gage, 79 N. Y. 102; Parker v. Connor, 93 N. Y. 118; Zoller v. Riley, 100 N. Y. 102; Sargent v. Jacobs, 103 N. Y. 125; Peetsh v. Sommers, 31 App. Div. 255; Byongiermo v. Schiller, 112 App. Div. 916; Lehrenkrauss v. Bonnell, 119 N. Y. 240; Bliss Co. v. Progressive Smelting & Metal Corp., 208 App. Div. 346; Schultz v. Hoagland, 85 N. Y. 464; Constant v. University of Rochester, 133 N. Y. 640; Ruppert v. Brooklyn Heights R. R. Co., 154 N. Y. 90; Shotwell v. Dixon, 163 N. Y. 43; Klein v. Gallin, 141 N. Y. Supp. 831; 164 App. Div. 958; Jaeger v. Kelly, 52 N. Y. 276; Marsh v. Fuller, 40 N. Y. 566; Bernheimer v. Rinskopf, 116 N. Y. 436.)
   Cardozo, Ch. J.

Plaintiffs are suing to set aside a conveyance of real property as made in fraud of creditors.

On January 29, 1925, Vincenza Pecoraro, the judgment debtor, made a deed of the house and lot 1122 First avenue in the city of New York. The grantee was Frank D’Aquila, who claims to have taken the property as a purchaser for value. At the time of the conveyance the grantor was insolvent, and harassed by her creditors Some of them, holding claims for upwards of $6,000, had charged her with fraudulently disposing of a stock of merchandise, and, suing for their debts, had levied an attachment by reason of that fraud on the very property in question. Others, less diligent, were already uneasy and importunate.

In this predicament, the deed was made. Witnesses for the plaintiffs fix the value of the land as between $34,000 and $39,000. The consideration, real or pretended, was $20,000, of which $7,250 was the amount of an existing mortgage. The grantor admits that the property was worth more. She says that she sacrificed it because her creditors were pressing her, and that money was needed in a hurry to pay a favored few. The trouble with this explanation is that with one or two exceptions the few thus marked for favor were not creditors at all. On her own showing, the proceeds of the sale, if it be assumed that any were received, were used for her own benefit or for that of persons not creditors, and the deed was made for the very purpose of enabling her thus to use them. The total sum to be accounted for was $12,750. Of this, the largest item, $5,200, was for a vault at Calvary Cemetery, the burial place of her husband, who had died two years before. She produced a receipted bill of a manufacturer of monuments showing the- payment of that amount on January 31, 1925, two days after the conveyance, for a vault “to be erected.” Argument is unnecessary to show that she could not lawfully divert this money from her creditors in order to obtain the benefit of a new executory contract. The item must be rejected unless otherwise explained. The sum of $1,118 was paid to some one who had loaned money to her husband. This was his debt, not hers. The property in suit was no part of his estate; she had bought it in 1921, two years before his death. The sum of $1,947 was, paid to an undertaker for the husband’s funeral, but of this, $1,000 had been paid shortly after his death, so that only $947 could have been supplied' from the proceeds of the sale. She paid $1,500 for work said to have been done in repairing wagons for the business, and $2,000 to a son-in-law for loans of small amounts received from him from time to time. These are the only items included in her statement. The total payments enumerated were $10,765, of which only $4,447, if we assume them to be genuine, were payments to her creditors. Out of a fund of $12,750, $6,318 was paid to persons not creditors at all, and for $2,005 more she offers a© accounting whatever# contenting herself with the admission that she used it for herself. This analysis shatters the pretense that the precipitate sale at a ruinous sacrifice was made in aid of creditors. The grantor was not thinking of aid in that direction. If we accept her testimony as true, about two-thirds of the proceeds were immediately withdrawn from her creditors and applied to other uses.

We have assumed up to this point that a consideration was in truth received. The tale as to the manner of its payment is a strain upon credulity. The story is that the price above the mortgage, i. e., $12,750, was paid by the grantee in bills, $500 at the signing of the contract, and the rest at the conveyance. He got the money, he says, from his mother, who had it somewhere in their apartment, where it had been kept in a bed or other hiding place. It did not come out of a bank account, though he had one at the time. The mother was not a witness to corroborate his narrative. When the closing day arrived, the property was found to be subject to the lien of an attachment. He took title without request for indemnity, though the result was to increase by about $6,000 the payment to be made. The contract called for an adjustment of rents, taxes and insurance, yet none was made or even asked for. The traditional badges of fraud are spread over the transaction in prodigal profusion.

We think the fraud of the grantor has been made out by evidence that allows no other inference (Bulger v. Rosa, 119 N. Y. 459, 464; Ga Nun v. Palmer, 216 N. Y. 603, 611, 612). If she received anything for the conveyance, she used it for herself. The use was not an afterthought. It was the end and aim of the transaction. This was to hinder creditors, and defraud them of their dues. The finding that the conveyance was made without fraudulent intent on the part of the grantor must be held to be erroneous and without basis in the proofs.

If the grantor made the conveyance with fraudulent intent, the burden was on the grantee to show that he had accepted it for value, in which event the plaintiffs might have had to prove that he had notice of the fraud (Frank v. Van Bayer, 236 N. Y. 473, 475; Greenwald v. Wales, 174 N. Y. 140, 144; Real Prop. Law [Cons. Laws, ch. 50], § 266; Pers. Prop. Law [Cons. Laws, ch. 41], §§ 35, 40; cf. Seymour v. McKinstry, 106 N. Y. 230). There is a finding by the trial judge that the conveyance was not made without consideration and was not accepted by the' grantee with intent to hinder or delay. Very probably, however, the finding was dictated by the erroneous belief that there was no such intent on the part of the grantor. The inevitable result of such an error was a misconception of the burden of proof that was cast on the grantee (Title Guarantee & Trust Co. v. Pam, 232 N. Y. 441, 453). Without such misconception we may doubt whether the narrative of payment would have been thought to be invested with the quality of truth. The tale of a large amount of money brought forth from a hiding place by a complaisant mother who is not offered as a witness, might then have been rejected as fantastic. The meek acceptance by the grantee of an added lien for $6,000 might have seemed unnatural if he was in truth. a buyer, but natural for a man of straw. We are not required to say that the evidence of payment was so confused and incredible that rejection became necessary as a matter of law. At least it was so doubtful as to exact a consideration of its merits with recognition of the differing burdens that are appropriate to assault and to defense. True indeed it is that when the lien of the attachment was later merged in a judgment, it was paid by the grantee, but evidence is lacking as to how the money was procured. Value at any stage will be unavailing in and of itself to keep an enterprise afloat if it is weighted down at the beginning by a concurring purpose to defraud (Baldwin v. Short, 125 N. Y. 553). The probe of a new trial may be trusted to disclose the truth.

In each action, the judgment of the Appellate Division and that of the Special Term should be reversed, and a new trial granted, with costs to abide the event.

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

Judgments reversed, etc.


text:
    Eugene C. Kraus, Respondent, v. Leo Kraus, Appellant, Impleaded with Another.

      (Submitted November 23, 1928;
    decided December 31, 1928.)

      Carlos C. Alden and Robert L. Strebel for appellant.
    The Appellate Division erred in refusing to allow the charge against Eugene Kraus for the reasonable rental value of the partnership premises used by him for his private business. (Hiscock v. Phelps, 49 N. Y. 97; Fairchild v. Fairchild, 64 N. Y. 471; Legore v. Peacock, 109 Ill. 94; Freeman v. Freeman, 136 Mass. 260; Stoughton v. Lynch, 2 Johns. Ch. 209.)

      George Clinton for respondent.
    The parties upon dissolution were, in this case, tenants in common. (Girard on Real Prop. [6th ed.] 1926, § 752; LaBaron v. Babcock, 122 N. Y. 153; Zapp v. Miller, 109 N. Y. 51; Adams v.
      Bristol, 126 App. Div. 660; Gray v. Board of Supervisors, 93 N. Y. 603; Jacobs v. Morange, 47 N. Y. 58.)
   Cardozo, Ch. J.

By an interlocutory judgment, the existence of a partnership has been established between the plaintiff, his father and a brother. The father, directed to account, has been found by the final judgment to have overpaid the complaining son. The balance in the father’s favor is $5,033.17. He filed a stipulation waiving an affirmative judgment with the result that none was rendered. The Appellate Division held that two items, one for income taxes, $6,505.84, and the other for rental value of partnership land, $1,466.66, had been charged against the son in error. Subtraction of these items would yield a balance the other way.

(1) Under both State and Federal law the income tax return by a member of a partnership should include his share of the partnership income, whether distributed or not (Tax Law [Cons. Laws, ch. 60], § 364; U. S. Code, title 26, § 1068-30). The return by the partnership as such is one for information only (Tax Law, § 368; U. S. Code, title 26, § 1068-36). The members of this partnership did not conform to that requirement. The business was in the father’s name. To the world he was its owner, and so for many purposes he was treated by the sons. In making his returns for taxes, he included the whole income of the business, and paid the tax accordingly. By so doing, he paid nearly $13,000 in excess of the tax that would have been due if computed on his share alone. Under the ruling of the referee, one-half of this excess was charged against each of the two sons.

We think the charge was proper. The plaintiff knew how the returns were made, and in substance, if not in form, approved them. He was told by his brother, who made out the statements, that his father, reporting individually, would include the income of the firm, and that the brothers might thus exclude it from their personal returns. The plaintiff acted on that advice, and made return accordingly. He omitted from his own return all mention of his interest in the income of the partnership, and reduced by so much the total of his yearly earnings. We think the substance of the transaction was a request by plaintiff to bis father to assume the tax on the excess and lay it out for his account.

The argument is made that the effect of this allowance is to deprive the plaintiff of the benefit of exemptions and deductions that might conceivably have been his if the excess has been included in his own reports of income. He does not attempt to show to what extent, if at all, the result would thus be changed. He insists that the burden is on the defendant to prove the precise extent to which the payment by the partnership resulted to his benefit. We think bis acquiescence bars him from limiting so narrowly the measure of the charge against him. If he believed that through the aid of exemptions or deductions he could reduce the tax upon his interest in the business, or wipe it out altogether, by making his own return, he should have sounded a timely warning against the method of return and payment in use with his assent.' With full knowledge of the method, he told his father to go on. He will not now be heard to urge that the expense thereby incurred is not a charge upon bis share.

(2) Land, bought with partnership money, was held during .the life of the partnership for partnership use. After dissolution, the plaintiff and his brother, and later the plaintiff solely, used it for their own profit to the exclusion of the father. A charge against the plaintiff for an equitable share of' the value thus appropriated, was allowed by the referee, and rejected on appeal.

We think the charge should be upheld. The plaintiff was not tenant in common with the defendants in the occupation of this land. If that had been the relation, the

rule might apply that between one tenant in common and another an accounting is not due for the fruits of occupation in the absence of ouster or a claim of hostile right (LeBarron v. Babcock, 122 N. Y. 153). The plaintiff was not tenant in common, but “ tenant in partnership ” (Partnership Law [Cons. Laws, ch. 39], § 51). The incidents of this tenancy are stated in the statutes. The incidents of this tenancy are such that * * * a partner, subject to the provisions of this chapter and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners.” The plaintiff did possess the partnership property for purposes not partnership without the consent of his partner, the appellant. He is accountable like any stranger for the value of the usufruct thus wrongfully engrossed (Legore v. Peacock, 109 Ill. 94). A different question would be here if the plaintiff had held possession after the partnership had been wound up, and the equities between the partners adjusted and satisfied. Then, but not till then, the tenancy might cease to be a tenancy in partnership, and take to itself the quality of a tenancy in common (Darrow v. Calkins, 154 N. Y. 503, 514). The equities between the partners had not been satisfied or adjusted when the plaintiff used the land for the transaction of his private business. They have not been satisfied even now, for a balance owing to the appellant is even now unpaid. We think the plaintiff was a trustee for the partnership while in occupation of the property, and that he is chargeable accordingly.

(3) Argument is made that the order of the Appellate Division may be upheld if right in its result, though erroneous in the grounds assigned (Foster v. Bookwalter, 152 N. Y. 166, 168; Mackay v. Lewis, 73 N. Y. 382).

Chief among the items thus subjected to our scrutiny is one of interest credited to appellant upon the amount of his advances.

The capital of the business was $6,000, made up of equal contributions of $2,000 by each of the three partners. The whole amount was used in payment for land and building. Continuously, through all the years of the partnership life, the father made payments of money, averaging not less than $30,000, though at intervals much higher, to keep the business going. We think the inference was fairly drawn that these payments were not contributions to the capital, already established by agreement, but loans or advances, upon which interest is allowable (Rodgers v. Clement, 162 N. Y. 422, 426; Baker v. Mayo, 129 Mass. 517; Mack v. Engel, 165 Mich. 540; Pollock, Partnership, p. 143).

Credit is due, and upon like grounds, for the rental value of the barn, and for interest on the value of partnership equipment.

A few credits are more doubtful. We do not go into them now, for if struck from the account, they would not vary the result. The balance, even then, would be adverse to the plaintiff. Whether more or less is unimportant, since the defendant has renounced the benefit of a judgment in his favor.

The order of the Appellate Division should be reversed, and the judgment of the referee affirmed, with costs in this court and in the Appellate Division.

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

Ordered accordingly.


text:
    Boris N. Sokoloff, Respondent, v. The National City Bank of New York, Appellant.

      (Argued November 23, 1928;
    decided December 31, 1928.)

      Carl A. Mead, John A. Garner and William Deering Howe for appellant.
    The deposit was paid on the plaintiff’s order. (1 Morse Banks & Banking [5th ed.], 557, § 295; Union Bank v. Knapp, 3 Pick. [20 Mass.] 96; Leonora Nat. Bank v. Ragland, 128 Ky. 548; Kvenster v. Woodhouse, 101 Wis. 216; Blinn Lumber Co. v. McArthur, 150 Cal. 610; Keyes v. First Nat. Bank, 20 Fed. Rep. [2d] 678; Mawhinney v. Millbrook Woolen Mills, 231 N. Y. 290; 2 Morse Banks & Banking [5th ed.], §§ 451, 569; Pratt v. Foote, 9 N. Y. 463; Oddie v. National City Bank of New York, 45 N. Y. 735; People v. Merch. & Mech. Bank, 78 N. Y. 269; Briggs v. Central Nat. Bank, 89 N. Y. 182; Metropolitan Nat. Bank v. Loyd, 90 N. Y. 530; Kirkham v. Bank of America, 165 N. Y. 132; Baldwin’s Bank v. Smith, 215 N. Y. 76; Consolidated Nat. Bank v. First Nat. Bank, 129 App. Div. 538; 199 N. Y. 516.) The evidence shows that the plaintiff has no cause of action arising out of the failure to pay the rubles on demand in Petrograd and failure to maintain a branch in Petrograd. (2 Morse Banks & Banking [6th ed.], §§ 446, 450, 453; Gilliam v. Merchants’ Nat. Bank, 70 Ill. App. 592; Payne v. Gardiner, 29 N. Y. 146; Bank of British N. A. v. Merchants’ Nat. Bank, 91 N. Y. 106; Smiley v. Fry, 100 N. Y. 262; Cottle v. Marine Bank, 166 N. Y. 53; Zimmerman v. Hicks, 7 Fed. Rep. [2d] 443; Sickles v. Herold, 149 N. Y. 332; Thurston v. Wolf-borough Bank, 18 N. H. 391; Nashville Bank v. Henderson, 13 Tenn. 104; F. & M. Bank of Memphis v. White, 34 Tenn. 482; Patten v. American Nat. Bank, 15 Colo. App. 479.) Force majeure under pre-Soviet Russian law is a complete defense to action based on breaches in Russia of a Russian contract. (Russian Republic v. Cibrario, 235 N. Y. 255; Wulfsohn v. Russian Socialist Federated Soviet Republic, 234 N. Y. 372; Sokoloff v. National City Bank, 239 N. Y. 158; 1 Hyde on International Law, 201, § 122; Beale on Conflict of Laws, § 131; Commonwealth v. Chapman, 13 Metc. 68; Rose v. Himely, 4 Cranch, 241; Gelston v. Hoyt, 3 Wheat. 246; Mitchell v. United States, 9 Pet. 711; Kennett v. Chambers, 14 How. 38; Ortega v. Lara, 202 U. S. 339; Russian Reinsurance Co. v. Stoddard, 211 App. Div. 132; 240 N. Y. 149.) There is no claim that a breach of the contract has occurred in New York. (Hicks v. Guinness, 269 U. S. 71; Sickles v. Herold, 149 N. Y. 332; Thurston v. Wolfborough Bank, 18 N. H. 391; F. & M. Bank of Memphis v. White, 34 Tenn. 482; Patten v. American Nat. Bank, 15 Colo. App. 479.) It was erroneous for the referee to allow interest at the legal rate from the date of the closing of the branch. (Sickles v. Herold, 149 N. Y. 332; Lewine v. National City Bank, 248 N. Y. 365; Patten v. American Nat. Bank, 15 Colo. App. 479.)

      Morris Hillquit for respondent.
    The defense of payment has not been sustained. (Persons v. Gardner, 122 App. Div. 167; Kingston Bank v. Gay, 19 Barb. 459; Roseboom v. Billington, 17 Johns. 182; Brown v. Bronson, 93 App. Div. 312; Linden v. Thierot, 96 App. Div. 256; Brennen v. Hall, 131 N. Y. 167; Highland Bank v. Dubois, 5 Den. 558; National Butchers & Drovers’ Bank v. Hubbell, 117 N. Y. 389; Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 13; Industrial & General Trust v. Tod, 180 N. Y. 215; Simon v. Etgen, 213 N. Y. 589; Wigand v. Bachman-Bechtel Brewing Co., 222 N. Y. 272; Klein v. Gallin, 141 N. Y. Supp. 831.) The amount of plaintiff’s deposit in the defendant’s Petrograd branch became due upon his demand for payment and the defendant’s failure to make such payment. (Allen v. Clark, 65 Barb. 563; Getter v. Seixas, 4 Abb. Pr. 103; Phœnix Ins. Co. v. Allen, 11 Mich. 501.) Even without demand the amount of plaintiff’s deposit became due and payable to him upon the suspension of the operations of the defendant’s Petrograd branch. (Clark v. Crandall, 3 Barb. 612; McNish v. Coon, 13 Wend. 26; Gallagher v. Nichols, 60 N. Y. 638; Robinson v. Frank, 107 N. Y. 655; McGowan v. McDonald, 111 Cal. 57; Richmond v. Irons, 121 U. S. 27; People v. Merchants’ Trust Co., 187 N. Y. 293; Pratt v. Union National Bank, 79 N. J. L. 117; Scott v. Armstrong, 146 U. S. 499; Williams v. Johnson, 144 Pac. Rep. 768; Watson v. Phœnix Bank. 8 Metc. 217; Holden v. Farmers & Traders’ National Bank, 77 N. H. 535.) The defense of force majeure under the Russian law cannot be sustained. The courts of this State as well as the Federal courts have refused to give effect to any laws or decrees of the Soviet government of Russia because the same has not been recognized as a government de jure or de facto by our State Department. (Schweitzer v. H. H. P. H. Gesellschaft, 149 App. Div. 90; Lucia Mining Co. v. Evans, 146 App. Div. 416; Vazakas v. Vazakas, 109 N. Y. Supp. 568; Smith v. Compania Litografica De La Habana, 127 Misc. Rep. 508; Savage v. O’ Neil, 44 N. Y. 298; Russian Reinsurance Co. v. Stoddard, 211 App. Div. 132; Dyke v. Erie Railway Co., 45 N. Y. 113.) The defendant’s liability in New York upon its breach of contract in Russia was to pay to the plaintiff damages in dollars, not in rubles. (Petkus v. Lietuvos Ukio Barkas, 204 N. Y. Supp. 726; Hicks v. Guinness, 269 U. S. 71.) The measure of the plaintiff’s recovery is the value of the Russian ruble at the time payment became due. (Gross v. Mendel, 171 App. Div. 237 ; 225 N. Y. 633; Hoppe v. Russo-Asiatic Bank, 200 App. Div. 460; 235 N. Y. 37; Kantor v. Aristo Hosiery Co., Inc., 222 App. Div. 502; 248 N. Y. 128; Hicks v. Guinness, 269 U. S. 71; Deutsche Bank v. Humphrey, 272 U. S. 517; Martyne v. American Union Fire Insurance Co., 216 N. Y. 183; Zimmerman v. Sutherland, 174 U. S. 253.) The plaintiff is entitled to interest from the date of the breach, at the rate of six per cent per annum. (McGowan v. McDonald, 111 Cal. 57; 43 Pac. Rep. 418; Richmond v. Irons, 121 U. S. 27; People v. Merchants’ Trust Co., 187 N. Y. 293; Forschirm v. Mechanics & Traders' Bank, 137 App. Div. 149; Met-calf v. Mayer, 213 App. Div. 607.)
   Crane, J.

This case was here before on the pleadings (239 N. Y. 158). It is here now on the facts after a trial before a referee. The objections to the recovery by the plaintiff are payment and the lack of a proper demand.

Boris N. Sokoloff, a Russian subject, was in the United States from 1914 to 1917, when he returned to Russia. On June 27, 1917, he gave to the National City Bank of New York, at its main office in New York city, $30,225 and $883.50 with which to open an account for him in its Russian branch in Petrograd. The receipt given by the bank explains the transaction.

New York, June 27, 1917.
“ Received from Boris N. Sokoloff thirty thousand two hundred twenty-five dollars, representing the cost of Rs. 130,000 at 23¼ cents, which are to be transferred to our Petrograd Branch to open his account.
“THE NATIONAL CITY BANK OF NEW YORK
“ $30,225.
«p. p. C. V. Sheehan.”

This agreement was carried out to the extent that the account was opened by the defendant at its Petrograd Branch which held on deposit to the credit of Boris N. Sokoloff 133,800 rubles. A pass book for this amount was given to Sokoloff by the branch when he appeared in Petrograd in September of 1917. Thereafter, in the ordinary course of business, on different occasions, he withdrew 13,800 rubles from the account. Toward the end of October and the first part of November, 1917, Sokoloff, who was then in the city of Kharkoff, Russia, sent a letter to the Petrograd Branch of the defendant, instructing it to transfer 120,000 rubles from his account through the State Bank to the credit of the Kharkoff Mutual Credit Society for his account, giving in the said letter the numbers of the Kharkoff Mutual Credit Society’s account with the Kharkoff Branch of the State Bank. The Russian State Bank was a government institution. It was depositary of the defendant’s reserves and had branches in almost every town and hamlet of Russia. Upon receiving this letter from Sokoloff, the Petrograd Branch communicated with the State Bank as follows: “We instruct you herewith to debit our account with the amount of 120,000 rubles, and transfer same to the credit of the account of Kharkoff Mutual Credit Society with your Kharkoff Branch, number so and so, [giving the number] for the account of Mr. Boris Sokoloff.”

The transfer was made in accordance with the Giro system, a system which in Russia applied to intercity or intracity transfers. The Giro system is simply a matter of bookkeeping and is explained as follows: “Upon the receipt of the order we debit the client’s account to the amount which he requested to be transferred. Our record and our account with the State Bank is credited with the same amount. Then the State Bank, upon receipt of our instructions, perform a similar operation; they debit our account and credit the account of the Kharkoff Branch with the same amount. They send a similar instruction to their Kharkoff Branch, where the system of debits and credits is repeated. Our part of the transfer is complete when we sent out our instructions to the State Bank. The rest of this transfer would be performed in the State Bank Petrograd or the State Bank Kharkoff or the Kharkoff Mutual Credit Society.”

A few days later Mr. Sokoloff sent another letter to the Petrograd Branch of the defendant, in which he advised it that he had not received the money as requested in his instructions, and that in view of this fact, the bank was to hold the funds at the disposal of his sister in Petrograd, who would call for them very shortly. Thereupon, the defendant wrote to the State Bank inquiring about the transfer, which replied that it had given instructions to its Kharkoff Branch to make the transfer, and that since then, disorders had broken out between Kharkoff a,nd Petrograd, and it was unable to advise the defendant as to whether the transfer had been made or not, or return the funds. The Petrograd Branch then wrote Mr. Sokoloff and told him that it had already acted upon the instructions in his first letter, had transferred the funds to the State Bank, and that, therefore, it was not in a position to hold them at the disposal of his sister.

The evidence regarding these transactions was given by the parties interested without the production of the original letters or any copies." The contents of the letters and telegrams were given from memory. There was, however, no dispute regarding the tenor of these communications. Mr. Sikes, an employee of the Petrograd Branch, testified that after receiving the second letter from Mr. Sokoloff, countermanding the transfer to Kharkoff, the communication to the State Bank was as follows: Please ascertain whether the transfer ordered by us on a certain date on behalf of Mr. Sokoloff has been effective, and if it has not, re-credit us with the amount.” In December, 1917, Mr. Sokoloff’s sister, following up his letter, called at the Petrograd Branch for his money. “ We,” says Mr. Sikes, “ explained the circumstances to her, and that we had acted upon Mr. Sokoloff’s first instructions and therefore did not have the funds there to hold at her disposal. She explained that her brother had not received the funds at Kharkoff, and we endeavored to trace them. * * * The State Bank did not tell us in their letter whether they were going to re-credit or had re-credited us with that money, and I wrote and asked them if the transfer had not been made to kindly re-credit our account with the money. * * * I did not hear anything more about it until the last part of April or the first part of May, when we got a letter from the State Bank in Petrograd referring to our communication before the first of the year, showing that they had just received information from their Kharkoff Branch that the transfer had not been made; that the Kharkoff Branch of the State Bank had not made the transfer to the Kharkoff Mutual Credit Society.” Mr. Sikes further states that they never received any communication from the State Bank to the effect that the money had been re-credited to the account of the Petrograd Branch.

I have given the evidence as it appears in the record, for upon it depends the claim of the defendant that these transfers constituted payment.

There may be many instances where an entry upon the books of a bank evidence a completed transaction or transfer, and constitute payment. (Baldwin’s Bank v. Smith, 215 N. Y. 76; Briggs v. Central National Bank, 89 N. Y. 182; Kirkham v. Bank of America, 165 N. Y. 132.) There can be no rule of law that the mere bookkeeping entry in itself constitutes payment. We must always look through the form of transactions and business communications to get the exact facts. (National Butchers & Drovers’ Bank v. Hubbell, 117 N. Y. 384, 389.)

We start these transactions with these fundamental facts. On the books of the State Bank there were many thousand rubles to the credit of the Petrograd Branch. On the books of the Petrograd Branch there were 120,000 rubles to the credit of Boris N. Sokoloff. The Petrograd Branch undertook to pay out this money belonging to Sokoloff. It was not to pay it to the State Bank, but to pay it through the State Bank to the Kharkoff Mutual Credit Society at Kharkoff, Russia. This would be done by entering a credit in the account of that society in the Kharkoff Branch of the State Bank. Therefore, the instructions of the Petrograd Branch to the State Bank were these: Out of the moneys which you have belonging to us in our account with you, transfer 120,000 rubles to the credit of the Kharkoff Mutual Credit Society at your Kharkoff Branch, and debit our account.” The instructions would not be executed until the credit had been established in favor of the Mutual Kharkoff Credit Society in the Kharkoff Branch. The credit was never established, the money was never transferred to Kharkoff. The debit, if made upon the books of the State Bank in the account of the Petrograd Branch, was premature; it was the entry in anticipation of fulfillment, but not an entry of a payment made. If the Petrograd Branch had notified the State Bank to pay 120,000 rubles to a Mr. A., when he should call for them, properly identified, and debit the account of the Petrograd Branch, I can see no reason under the Giro system, as explained, why the Petrograd Branch could not effectually stop payment or countermand the instructions before Mr. A. showed up and got the money. Up until the time that the book entries resulted in some change of position between the parties or the establishment of rights in third parties, they were nothing more than book entries. (Pratt v. Foote, 9 N. Y. 463, 468; Consolidated Nat. Bank v. First Nat. Bank, 129 App. Div. 538; affd., 199 N. Y. 516.)

For the reason, therefore, that the transfer directed by the Petrograd Branch had not been completed in accordance with instructions, justifying a debit of its account with the State Bank, there was no effectual payment to Sokoloff of his money with the Petrograd Branch. It is straining at the facts to say that the Petrograd Branch was out any money because of this transaction.

There is another reason, in my opinion, why the two banks at the time did not consider these book entries so important. When the Petrograd Branch heard that the money had not gone through to Kharkoff, it notified the State Bank that if the transfer had not been made to Kharkoff, to kindly re-credit its account with the amount; in other words, it countermanded the order, it stopped payment. What position did the State Bank take upon the receipt of this communication? Did it say: We cannot do this,” or The transaction is closed,” or The payment of 120,000 rubles out of your account must stand to your debit? ” Of course not. It immediately replied that because of the turbulent times it could not say whether the Kharkoff Branch had received the instructions and made the transfer, implying, as any one would understand, that if the transfer had not gone through, the request of the Petrograd Branch would be granted. The State Bank followed this up three or four months afterwards by voluntarily notifying the Petrograd Branch that the transfer inquired about had not been made and the credit at Kharkoff had not been established. What is this, if it be not an acknowledgment that the proper book entries had been or would be made? Why should the State Bank go to the trouble of explaining to the Petrograd Branch its instructions to the bookkeepers? The Petrograd Branch, in effect, said to the State Bank, If you have not paid out the 120,000 rubles as we directed, stop payment and credit our account.” The State Bank replies, “ Because of war conditions, we cannot tell whether it has been paid out or not; we will let you know later.” Subsequently, it writes the Petrograd Branch that upon investigation it finds the money has not been paid. This implies, if it does not express, the re-crediting of the account of the Petrograd Branch with the money. The liability of the State Bank is undeniable. So much for payment. Now as to the demand.

Sokoloff got his bank book September 1, 1917, showing a deposit with the Petrograd Branch of 133,800 rubles. From time to time he drew out 13,800 rubles; it was a live account. In December he sent his sister to the bank to get the balance. She came two or three times thereafter. Demands were made upon the bank in the spring of 1918. The bank, however, had not yet heard from the State Bank whether the money had gone through to Kharkoff. It learned this in April or May. From December of 1917 on, the bank knew that Sokoloff wanted his money. He or his sister had repeatedly demanded it. There is no evidence that the bank ever notified Sokoloff of the information which it had received from the State Bank, that the credit had not been established in Kharkoff. Its last communication with Sokoloff or his sister was that there was no money in his account: “We had acted upon Mr. Sokoloff’s first instructions and therefore did not have funds there to hold at her disposal.” The Petrograd Branch left its depositor in this situation. This is the last communication it made to Sokoloff. It never contradicted it, or notified him that because of non-payment at Kharkoff, his account was replenished. How many demands was Sokoloff to make under these circumstances? The duty, to set the matter right, was upon the defendant; it should have notified its depositor of the situation. The law did not require the branch to communicate with Sokoloff, but from the usual business methods of big banks, the depositor was justified in expecting such a notice. Usual conditions, however, did not prevail in Russia at this time, and we must make proper allowance for the turbulence and confusion following in the wake of revolutions. We must also make the same allowance in behalf of the plaintiff. Whatever demand the law may require in ordinary business transactions before an action can be maintained for the recovery of money, must likewise yield to sense and to reason. Things moved rapidly in Russia in 1918. By September 1, 1918, the Petrograd Branch of the National City Bank had ceased to exist, except as a name. In August its employees had been arrested; by September they had fled the country, or had been expelled. The place of the bank knew it no more; the Soviet government had seized it for other purposes. If Sokoloff had gone to the building which had formerly housed the bank, and demanded money, he would have been shot. Under these conditions, it is a little difficult to understand the position of the defendant in insisting that Sokoloff cannot maintain this action for a breach of contract as of September 1, 1918, because he failed to make a demand on or before that date. The fact that the bank had gone out of business on that date made a demand useless and unnecessary; the law by reason of the contract between the parties will consider the case as if a demand had been made. In other words, that which becomes impossible and useless ceases to be required by the law in cases like this. The implied contract is that the banks shall keep a deposit until called for and until the banks refuse to pay on demand, they are not in default. But where the bank has disclaimed liability, or for any other reason the demand would manifestly be futile, none need be made. (Holden v. Bank, 77 N. H. 535, p. 538; Flynn v. Ameri can Banking & Trust Co., 104 Me. 141; McGowan v. McDonald, 111 Cal. 57; Sickles v. Herold, 149 N. Y. 332, p. 335; People v. Merchants’ Trust Co., 187 N. Y. 293; Richmond v. Irons, 121 U. S. 27, p. 64.)

We do not fail to realize that the position. of the defendant is equally hard and embarrassing. The contract between Sokoloff and the bank was to pay rubles at the Petrograd Branch whenever he demanded them. (Chrzanowska v. Corn Exchange Bank, 173 App. Div. 285; affd., 225 N. Y. 728.) They were to be held there, under contract, on his call. Should the bank fail to meet the depositor’s demand in Petrograd up to the limit of the deposit, the contract would be broken. When the bank ceased to do business so that Sokoloff, who wanted his money, could not make a demand and could not draw upon his account, the contract was broken. The facts, however, cannot escape us. The bank did not willfully breach its contract; all its property was seized by the Soviet government. Under certain conditions, this also might have justified the. defendant in pleading impossibility of performance, the same as the fact excuses the plaintiff from making a demand. The difficulty is that the United States has not recognized the Soviet government, and in consequence, the seizure and nationalization of the banks is not an act of government within the recognized principles of international law. All this has been fully explained in our previous decision and need not be repeated here.

We, therefore, come to this conclusion: there was no payment, and demand by the plaintiff on or before September 1, 1918, other than had been made was unnecessary, under the circumstances.

The plaintiff, no doubt acting upon the suggestion contained in our previous opinions, elected to treat this case not as one in rescission, but as breach of contract. The contract was broken, as of September 1, 1918, when the Petrograd Branch ceased to function. On that date, he was entitled to 120,000 rubles in Petrograd. He wanted them and did not get them. His damages are to be measured according to the value of rubles as of that date in Petrograd measured in dollars in New York city, where he has sought his remedy. This has been our ruling in Gross v. Mendel (171 App. Div. 237; affd., 225 N. Y. 633); Hoppe v. Russo-Asiatic Bank (200 App. Div. 460; affd., 235. N. Y. 37); Kantor v. Aristo Hosiery Co., Inc. (222 App. Div. 502; affd., 248 N. Y. 630).

The arrangement between the bank and the depositor regarding interest was based upon contract. This arrangement ceased with the breach of the contract, and the allowance of interest from that time according to the legal rate in New York State was proper. (People v. Merchants’ Trust Co., supra; Ex parte Stockman, 70 S. C. 31.)

The National City Bank was permitted to do business in Russia under the following condition, which was binding upon it and its depositors:

. “ XXV.. .The. trial of disputes which may arisé between The. National City Bank .of New York andygovertiment iristituiaons or private persons with respect to matters concerning the operations of the Cojnpariy within the Empire , must .. he: conducted on The basis of the laws in torce in Russia, in Russian judicial institutions.” . -

The General Code of the Russian Empire (Vol. X, part 1, book 2) contains, this provision:

III. On the compensation for damage and losses caused by actions not considered crimes' and misdemeanors.

“ 684. Everyone shall be obligated to compensate for damage and losses caused by his action or neglect, even though said action or neglect does not constitute a crime or misdemeanor, provided it shall be proved that he was not compelled thereto by the stipulations of the law or of the government, or by necessary self defence, or the concurrence of such circumstances which, he was unable to advert. March 21, 1851 (25055), III, art. 70.”

We think this provision does not vary in essentials from the rule of our own law as to the frustration Of a contract. It does not relieve the defendant from the duty of restoring a sum not in excess of the benefit received. (Sokoloff v. National City Bank, 239 N. Y. 158, pp. 169, 171; Dolan v. Rodgers, 149 N. Y. 489; Keener on Quasi Contracts, p. 292.) A different case would be presented if there were a claim for something more, i. e., for damages for loss of profit.

The other questions we have considered and agree with the disposition below.

The judgment should, therefore, be affirmed, with costs.

Cardozo, Ch. J., Pound and Lehman, JJ., concur; Andrews, Kellogg and O’Brien, JJ., dissent ron the ground that the rubles, the subject of. the actidti).have been already paid by the defendant.. " . :

Judgment affirmed.