author: Froessel, J. Desmond, J.

text:
    In the Matter of Samuel Cohen, Respondent, against Cocoline Products, Inc., et al., Appellants.
    Argued April 28, 1955;
    decided July 8, 1955.

      Elliot A. Wysor and Leonard S. Halpert for appellants.
    I. Respondent lost the right of a director to have an inspection of its books and records when he ceased to be a director of Coco-line. Thereafter, there was no longer any basis for the granting of the order under appeal. (Matter of Overland v. Le Roy Foods, 279 App. Div. 876, 304 N. Y. 573; Matter of Cravatts v. Klozo Fastener Corp., 205 Misc. 781; Strassburger v. Philadelphia Record Co., 335 Pa. 485; Rohwer v. Gibson, 126 Cal. App. 707; People ex rel. Security Trust Co. of Rochester v. Treasurer of Co. of Monroe, 121 App. Div. 84; Traub v. Arrow

      Mfg. Corp., 207 App. Div. 292; Northern Pacific R. R. v. Dustin, 142 U. S. 492; Weber v. Zimmerman, 23 Md. 45.) II. Respondent disqualified himself from asserting rights of his fiduciary office as director. He did not have the equitable power to make any demand for an inspection effective as the basis for a writ of mandamus. (Matter of Davis v. Keilsohn Offset Co., 273 App. Div. 695; Matter of Latimer v. Herzog Teleseme Co., 75 App. Div. 522; Matter of Hitchcock, 149 App. Div. 824; People ex rel. Wood v. Board of Assessors & Collector of Taxes, 137 N. Y. 201; People ex rel. Pierce v. Sohmer, 167 App. Div. 437; People ex rel. Wilkins v. Ascher Silk Corp., 207 App. Div. 168, 237 N. Y. 574, 237 N. Y. 630; Matter of Bellman v. Standard Match Co., 208 App. Div. 4; Matter of Posen v. United Aircraft Products, 201 Misc. 260; Melup v. Rubber Corp. of America, 181 Misc. 826.) III. Respondent’s demand for inspection was not refused prior to the institution of this proceeding. A refusal is a necessary jurisdictional fact which must be proved before mandamus may issue. (Matter of Wong Wah Tew v. Mun Hey Pub. Co., 275 N. Y. 615.) IV. The answer having raised factual issues relating to the effectiveness of the demand, and the absence of a refusal, at least required a trial thereof, and such issues could not be summarily determined by Special Term. (Matter of Durr v. Paragon Trading Corp., 270 N. Y. 464; Matter of Schulman v. Dejonge & Co., 270 App. Div. 147; People ex rel. Pumpyansky v. Keating, 168 N. Y. 390.)

      Charles Gottlieb for respondent.
    I. The rulings below conformed to the principle of corporate practice enunciated by this court. The relief was granted while the applicant was still a director. (People ex rel. McInnes v. Columbia Paper Bag Co., 103 App. Div. 208; People ex rel. Leach v. Central Fish Co., 117 App. Div. 77; People ex rel. Wilkins v. Ascher Silk Corp., 207 App. Div. 168, 237 N. Y. 574; Matter of Hafter v. Eagle Fish Co., 296 N. Y. 808; Matter of Overland v. Le Roy Foods, 304 N. Y. 573.) II. The right to inspect was proper when it was granted. Subsequent events did not foreclose respondent’s right to proceed with inspection — especially since the inspection was limited to the period of his tenure as director. (Abrams v. Allen, 297 N. Y. 52; Hanover Nat. Bank v. American Dock & Trust Co., 148 N. Y. 612; Logan v. Fidelity-Phenix

      Fire Ins. Co., 161 Ápp. Div. 404.) III. The order below was properly granted because of appellants’ failure to submit with their answer an affidavit showing evidentiary facts. (Matter of Gardiner v. Harnett, 168 Misc. 349, 255 App. Div. 106; Matter of Clifford v. Seaman, 278 App. Div. 667.)
   Froessel, J.

This is an article 78 proceeding, in the nature of mandamus, for an order compelling respondent corporation to permit petitioner Cohen to inspect its corporate books and records. At the time this proceeding was instituted, Cohen was a director of the corporation, and had been such continuously since its organization in 1940. He transferred his previously held stock in this corporation to his wife.

Cohen, who is an attorney, took an active part in organizing the corporation, acting as its financial and legal adviser. It is apparent from the papers presented on this appeal that the underlying dispute here is over an alleged unauthorized $25,000 salary now being drawn by the president, plus the cost and maintenance of an automobile for his use, on the one hand, and the reduced retainer and legal fees Cohen claims are due to him from the corporation, on the other. Moreover, Cohen makes additional charges of mismanagement, defalcations and misappropriation of corporate funds.

On November 29, 1954, Cohen sent a letter to Samuel Klein, president of and dominant figure in the corporation, charging him with misappropriating moneys of the corporation for automobiles and maintenance, and demanding that he restore said moneys. Cohen also requested information regarding expenditures for salaries, commissions and expenses over the past six years. Klein did not answer the letter, but called a special meeting of the board of directors for December 10, 1954.

At that meeting, Klein and one Collins voted, over Cohen’s objection, to have a new board elected on December 20th. They also voted to postpone consideration of Cohen’s charges until the new board was installed. At this December 10th meeting, Cohen demanded an inspection of the corporate books and records, but was refused. Cohen thereupon brought the instant proceeding to compel that inspection.

The case came on for hearing on December 20, 1954, the same day for which the stockholders’ meeting was scheduled. At about 12:30 p.m., following the hearing, Special Term ruled from the bench in petitioner’s favor, and indorsed the moving papers as follows: “ Petitioner’s motion to examine books and records of Cocoline Products, Inc., granted with accountant.” However, no order was signed at that time.

Later that same day, the stockholders ’ meeting was held, and Cohen was not re-elected to his position as director. On the following day, by order to show cause, the corporation moved for leave to file a supplemental answer and for a “ re-hearing ”. Special Term granted this motion for ‘ ‘ reargument ’ ’, but, ‘ ‘ in view of the allegations made by the petitioner and the refusal of the officers of the corporation to allow him to inspect the corporate books ’ ’, he adhered to his original determination, notwithstanding that petitioner was ‘ ‘ no longer a director ’ ’. Then, on January 18,1955, the order appealed from, reciting the application for a “rehearing”, and granting petitioner’s motion to inspect the books and records, was made. The Appellate Division affirmed unanimously and without opinion, and our court granted leave to appeal.

In order properly to perform his directing duties, a corporate director must, of course, keep himself informed as to the policies, business and affairs of the corporation, and as to the acts of its officers. He owes a stewardship obligation to the corporation and its stockholders, and he may be subjected to liability for improper management during his term of office. Because of these positive duties and potential liabilities, the courts of this State have accorded to corporate directors an absolute, unqualified right, having its roots in the common law, to inspect their corporate books and records (Matter of Overland v. Le Roy Foods, 279 App. Div. 876, affd. 304 N. Y. 573; Matter of Hafter v. Eagle Fish Co., 270 App. Div. 995, affd. 296 N. Y. 808; People ex rel. Wilkins v. Ascher Silk Corp., 207 App. Div. 168, affd. 237 N. Y. 574, motion for reargument denied 237 N. Y. 630; Matter of Davis v. Keilsohn Offset Co., 273 App. Div. 695; People ex rel. Leach v. Central Fish Co., 117 App. Div. 77; People ex rel. McInnes v. Columbia Bag Co., 103 App. Div. 208; People ex rel. Muir v. Throop, 12 Wend. 183; People ex rel. Onderdonk v. Mott, 1 How. Prac. 247).

But when a director is removed from office, even if this is done while his suit to compel inspection of the books and records is pending before Special Term, Ms absolute right to such an inspection terminates forthwith (Matter of Overland v. Le Roy Foods, supra; Matter of Hafter v. Eagle Fish Co., supra). This is so manifestly because he no longer has a voice in governing the corporation, and consequently is under no further duty to keep himself informed either as to corporate business and policies or as to the acts of its officers. However, he still remains potentially liable for wrongful acts of the directors committed during his term of office.

Here Cohen claims (1) he may have “ exposed himself to personal liability for what transpired during his term of office ’ ’ (see Abrams v. Allen, 297 N. Y. 52, 55-56); (2) to that extent he is entitled to inspection; and (3) he should not be obliged to sit back and wait until someone sues him for dereliction of duty ”.

Stochholders have long been granted a qualified right, resting in the trial court’s discretion, to protect their financial interest in a corporation by inspecting its books and records (see Matter of Steinway, 159 N. Y. 250). Directors, while in office, must protect not only their own interests, but also those of the corporation and of the stockholders; consequently, as noted above, their right to inspect has been made absolute. While his duty to the corporation and to the stockholders ceases upon termination of Ms office, he may still have a personal responsibility interest to safeguard, the protection of which could very well inure to the benefit of the stockholders by a disclosure to them of any derelictions by other directors or officers. And this is more likely in the case, as here, of a director of long service who unexpectedly fails of re-election just at a time when he was about to undertake an investigation in his capacity as director.

It would seem to follow, then, that, although he has no absolute right, a discharged director may have a qualifi,ed right to inspect the corporate books and records covering a period of his directorship, whenever in the discretion of the trial court he can make a proper showing by appropriate evidence that such inspection is necessary to protect his personal responsibility interest as well as the interest of the stockholders.

In the instant case, however, Cohen was granted an order to inspect on the basis of the pleadings and affidavits only. The court so decided from the bench, and, after granting “ reargument ”— actually a rehearing since it considered the new matter — it adhered to its former determination, embodying the whole proceeding in a single order. If this was done on the theory Cohen had an absolute right to inspect, it was clearly error, for Cohen ceased to be a director while the proceeding was still pending before the court (Matter of Hafter v. Eagle Fish Co., supra; Matter of Overland v. Le Roy Foods, supra). And if it was done in the exercise of discretion, it would also have been error, for the answering papers supplemented by the rehearing papers raise triable issues of fact as to the purpose for which Cohen has sought this inspection, which issues should have been resolved only after a hearing (Civ. Prac. Act, § 1295; see Matter of Breswick & Co. v. Greater N. Y. Inds., 308 N. Y. 1041).

The order appealed from should be reversed, with costs in all courts to abide the event, and the matter remitted to Special Term for further proceedings in accordance with the opinion herein.

Desmond, J.

(dissenting). I, too, am for reversal, but I oppose remission of the proceeding to Special Term for the exercise of discretion. Under settled rules and our own decisions, there is no power in any court to grant, to one who, like petitioner, is neither a director nor a stockholder of a corporation, an inspection of the corporate books. The applicable rule is so old, simple, and well known that we have no choice but to follow it, and to order this petition dismissed on the law.

Ever since People ex rel. Muir v. Throop (12 Wend. 183, 185, 187 [1834]) and People ex rel. Onderdonk v. Mott (1 How. Prac. 247 [1845]), it has been settled in this State, as it is elsewhere (see Machen v. Machen & Mayer Elec. Mfg. Co., 237 Pa. 212), that a director has an absolute and unqualified right to inspect the corporation’s books and records. But it is settled, too, that such right is an incident of the office of director to help the incumbent carry out his duty of ‘ ‘ directing ’ ’ the corporation’s affairs (People ex rel. Leach v. Central Fish Co., 117 App. Div. 77, 80; People ex rel. Wilkins v. Ascher Silk Corp., 207 App. Div. 168, affd. 237 N. Y. 574, note 15 A. L. R. 2d 41). Since he cannot perform those duties without knowledge of the company’s affairs, he must have free access to the books (People ex rel. McInnes v. Columbia Bag Co., 103 App. Div. 208). Accordingly, so long as he is a director (see McInnes and Machen cases, supra) his exercise of the right of inspection cannot be challenged. Likewise, of course, the absolute right ceases absolutely when his term of office ends, however abruptly and for whatever reason (Matter of Hafter v. Eagle Fish Co., 296 N. Y. 808; Matter of Overland v. Le Roy Foods, 304 N. Y. 573). One who is a director must be given his inspection, regardless of bad motives (see Machen and McInnes cases, supra) and, by the same reasoning, one who has ceased to be a director cannot be granted such relief, no matter how pure his motives. A director has an absolute right so long as he holds office. A stockholder has a qualified right so long as he holds stock (Matter of Steinway, 159 N. Y. 250). Since petitioner is neither a director nor a stockholder, he has no rights at all, as to inspection. A holding that inspection of corporate books by a discharged director may be ordered in the discretion of the courts, is without precedent, unnecessary and in conflict with all the previous decisions, especially Hafter and Overland (supra).

The order should be reversed and the proceeding dismissed, with costs in all courts.

Conway, Ch. J., Van Voorhis and Burke, JJ., concur with Froessel, J.; Desmond, J., dissents in part in an opinion in which Dye and Fuld, JJ., concur.

Order reversed, etc.


source: Caselaw Access Project

author: Van Voorhis, J.

license: Public Domain

text:
    In the Matter of the Estate of James E. Albright, Deceased. William W. Albright, as Executor of James E. Albright, Deceased, Respondent; Edith E. Falvey [Albright], Appellant.
    Argued May 31, 1955;
    decided July 8, 1955.

      George Kent Weldon for appellant.
    A separate trial of one issue should be denied where, as here, it involves the merits of the case and will result in trying the main issue twice. (Fonville v. Irving Poultry Co., 243 App. Div. 528; House v. Scheffler, 261 App. Div. 1088; McGurty v. Delaware, Lackawanna and Western R. R. Co., 172 App. Div. 46; Smith v. Western

      Pacific Ry. Co., 144 App. Div. 180, 203 N. Y. 499; Commercial Trust Co. of N. Y. v. Columbia Trust Co., 183 App. Div. 106; Matter of Cook, 244 N. Y. 63; Matter of Trowbridge, 266 N. Y. 283; Stevenson v. News Syndicate Co., 302 N. Y. 81.)

      Edward W. Stitt, Jr., Charles F. Krause, Jr., and J. Paul Gerardi for respondent.
    I. The Surrogate was correct in ordering a separate trial of the issue respecting the validity and effect of the settlement agreement. (Matter of Cook, 244 N. Y. 63; Matter of Teller, 196 Misc. 933, 277 App. Div. 937; Matter of Frame, 128 Misc. 788, 234 App. Div. 748; Matter of Trowbridge, 266 N. Y. 283; Warner v. Star Co., 162 App. Div. 458.) II. Whether or not appellant was decedent’s common-law wife, her rights are fully protected by the Surrogate’s order for a separate trial of the issue respecting the validity of the settlement agreement. (O’Brien v. Lodi, 246 N. Y. 46; Farrington v. Harlem Sav. Bank, 280 N. Y. 1; Yehle v. New York Central R. R. Co., 267 App. Div. 301, 295 N. Y. 874; Werden v. Werden, 255 App. Div. 795; Matter of White, 182 Misc. 223, 268 App. Div. 759, 293 N. Y. 767; Yonkers Fur Dressing Co. v. Royal Ins. Co., 247 N. Y. 435.) III. Since the Surrogate’s exercise of discretion was not arbitrary or an abuse of discretion, the certified question should be answered in the affirmative. His order was proper. (Spencer v. Hunt, 247 App. Div. 503; Matter of Lauer v. Board of Elections of City of N. Y., 262 N. Y. 416; New York Post Corp. v. Kelley, 296 N. Y. 178.)
   Van Voorhis, J.

Appellant, claiming to be decedent’s common-law widow, filed a notice of election to take her intestate share pursuant to section 18 of the Decedent Estate Law. Subsequently she entered into a settlement agreement with the executor whereby she was to receive approximately $15,000, in consideration of which she promised to withdraw her notice of election and to give quitclaim deeds to nine parcels of real estate owned by decedent. After delivering one deed, she refused to execute or to deliver the remaining eight. The executor then moved for an order by the Surrogate compelling her to execute and deliver these remaining deeds. In her opposing affidavit, appellant asked to be relieved of the settlement agreement, upon the ground that it was improvident and unconscionable -in that she contends that the executor did not reveal the true value of the estate which, she asserts, exceeds $200,000. The Surrogate denied her cross application to be relieved of the settlement, and granted the executor’s motion for an order to compel her to execute the deeds. On appeal, the Appellate Division reversed and remitted the matter to the Surrogate’s Court for a determination after a hearing concerning the validity and effect of the settlement agreement. In a memorandum decision, the Appellate Division said: “ The Surrogate’s Court has plenary jurisdiction to make a full, equitable and complete disposition of all the issues presented in that proceeding, including the question of whether the settlement was binding and effective.”

The executor moved in Surrogate’s Court under section 443 of the Civil Practice Act for a separate, preliminary trial of the issue concerning whether the settlement agreement should be vacated. In granting this motion, the Surrogate said: “ The cross-relief asked for, viz., a trial of all the issues, is denied at this time, in the exercise of discretion, since the trial of the above-stated issue, if adverse to the respondent [appellant here] will end the litigation and render a trial on the merits of the other issue unnecessary.” That determination was affirmed by the Appellate Division and the order of affirmance is the subject of this appeal. Two of the Justices at the Appellate Division dissented upon the ground that the validity of the agreement should not be tried separately for the reason that, in their view, whether she is the widow of decedent would be an important factor in deciding whether the settlement agreement is unconscionable.

No rule of law or vested right of appellant was violated by the exercise of discretion which was made by the Surrogate’s order, affirmed by the Appellate Division, directing that the validity of the settlement agreement should be tried separately in advance of a trial of whether she was decedent’s common-law wife. In asking for the vacation of the settlement agreement, she stated by affidavit that I was unaware of the full extent of my husband’s property, which I now believe to be in excess of $216,586.71, the valuation given to the gross estate in the New York State Transfer Tax proceeding as my present attorney advises me * * * which will indicate to this court that the consideration for my release was so inadequate as to be unconscionable.”

Nowhere in appellant’s affidavit is it stated that the amount of the estate was misrepresented to her in the negotiations leading to the settlement agreement. Of course, an executor or administrator stands in fiduciary relationship to the beneficiaries of the estate of which he is the personal representative, and it is bis duty to make full and accurate disclosure to his cestuis que trustent of relevant facts and figures concerning the administration of the trust. There may have been an obligation of respondent as executor of his deceased brother’s estate, and the main beneficiary, to disclose to appellant the material facts concerning the estate before this settlement agreement was entered into unless she knew them already. At least, there was such an obligation if she was in reality decedent’s widow. In either event, that is the most that the executor was required to do. That obligation respondent contends was fulfilled. He avers that appellant’s then attorney knew the approximate amount of the decedent’s estate. In fact, it is contended that the estate turnee out to be worth something less than the amount which her attorney was told.

Concerning the amount of the estate, it is true that responden executor stood in a dominant position regarding appellant. His facilities for understanding its value were presumably greatei than hers, although she appears to have worked for decedent ant may have been familiar with the eight parcels of real estate anc their value which she was to deed to respondent under the settle ment agreement. The executor was in an inferior position t< appellant in not having at his command sources of informatioi available to her regarding whether or not she was the common law wife of decedent. She knew what the facts were on tho subject better than anyone else could have known them excep the man whom she claims to have been her husband.

Although the validity of her legal status as widow necessaril; bulked large in offering or consenting to any settlement whic was or might have been made of her claim to take against the wi under section 18 of the Decedent Estate Law, as the dissentin Justices at the Appellate Division said, nevertheless that does no preclude a separate trial of the preliminary issue of whether th settlement agreement should be vacated. That issue depend at the very most which she can claim, upon whether there was full and fair disclosure to appellant of the facts concerning tb amount of the estate at the time when she signed the settlement agreement. At that time it had not been established (and has not yet) whether she was legally his widow. The negotiations necessarily were affected by the probability or lack of it that she would be held to have been decedent’s common-law wife by the Surrogate after trial. That was a factor concerning which both executor and appellant had to make up their own minds, with independent legal advice, and about which they could deal and must have dealt at arm’s length. The executor had no fiduciary duty, as has been previously stated, to advise claimant concerning whether she was legally the wife of Ms testator. She had to make up her own mind upon that issue. It was enough for him to keep track of the estate.

Therefore, whether or not the settlement agreement is to be set aside will depend, at most, upon whether the executor faithfully informed appellant concerning the facts regarding the estate at the time when the agreement was made. It will not depend upon what ultimately proves to have been her status as widow. Upon the trial of the preliminary issue, the Surrogate cannot make a settlement for the parties, nor determine whether they should have made this settlement, depending upon hoAV he, the Surrogate, would have appraised the probability or improbability that the common-law wife question would be decided one way or the other. Whether the settlement agreement Avas “reasonable”, “oppressive”, “unconscionable” depends not upon whether it was the amount which the Surrogate might think that she ought to have been paid or to have accepted in settlement gouged by that variable factor. It will be set aside or not depending upon whether she was informed concerning the estate.

For these reasons, we think that the Surrogate and the majority at the Appellate Division did not exceed their powers in holding that whether the settlement agreement should be set aside is an issue that should be tried first. It does not involve an adjudication of her status as widow. If appellant is defeated upon that preliminary trial, the main trial will be unnecessary; she will be obliged (in the absence of some factual situation wMch is not disclosed by this record) to execute and deliver the deeds to the eight parcels of real property as she agreed to do in the settlement agreement. If she succeeds upon the preliminary trial, it will then be necessary to proceed to a trial at which her status will be adjudicated as decedent’s lawful widow entitled to her intestate share in the estate, or as a mere intruder entitled to nothing.

There is ample precedent for conducting a preliminary. trial upon the validity of a release or settlement agreement (Matter of Cook, 244 N. Y. 63; Matter of Frame, 128 Misc. 788, Foley, S.; see, also, Matter of Frame, 234 App. Div. 748, affg. the final decree; Warner v. Star Co., 162 App. Div. 458, 461-462).

The order appealed from should be affirmed, without costs, and the question certified answered in the affirmative.

Conway, Ch. J., Desmond, Dye, Fuld, Froessel and Burke, JJ., concur.

Order affirmed, etc.


author: Desmond, J. Van Voorhis, J.

text:
    Arthur Stone, Respondent, v. Bigley Bros., Appellant.
    Argued June 8, 1955;
    decided July 8, 1955.

      Hyman B. Friedman and Samuel J. Jackman for appellant.
    I. Plaintiff conceded and admitted that the act of opening the chain was an unloading act. The jury is thus barred from finding that same was not an unloading act. II. The jury cannot be permitted to find, in the face of the written contract, that the opening of the chain was not an unloading act. (Braxton v.
      Mendelson, 233 N. Y. 122; Pedersen v. Stockard S. S. Corp., 268 App. Div. 992; Singer Mfg. Co. v. Rahn, 132 U. S. 518; Anderson v. Boyer, 156 N. Y. 93; Delisa v. Arthur F. Schmidt, Inc., 285 N. Y. 314; Hexamer v. Webb, 101 N. Y. 377; Wyllie v. Palmer, 137 N. Y. 248; McNamara v. Leipzig, 227 N. Y. 291; Morris v. Brown, 111 N. Y. 318; Lewis v. New York, O. & W. Ry. Co., 210 N. Y. 429.) III. Even if defendant’s “transportation ” obligation be extended to include an obligation to open the chain in the course of the unloading, the jury could not find, on this record, that defendant had supreme control over such act. (Green v. Wachs, 254 N. Y. 437; Irwin v. Klein, 271 N. Y. 477; Charles v. Barrett, 233 N. Y. 127.) IV. Plaintiff failed to prove negligence. V. Plaintiff was barred as a matter of law because of contributory negligence — assumption of risk.

      Benjamin H. Siff and Melvin Sacks for respondent.
    I. Henn was presumptively under defendant’s control. (Bartolomeo v. Bennett Contr. Co., 245 N. Y. 66; Wawrzonek v. Central Hudson Gas & Elec. Corp., 276 N. Y. 412; Delisa v. Arthur F. Schmidt, Inc., 285 N. Y. 314.) II. Directions by Bethlehem as to when and where Henn was to park the trailer or remove the chains, do not, as a matter of law, rebut the presumption. (Murray v. Dwight, 15 App. Div. 241, 161 N. Y. 301; Ramsey v. New York Central R. R. Co., 269 N. Y. 219; Henry v. Stanley Hod Elevator Co., 129 App. Div. 613; McNamara v. Leipzig, 227 N. Y. 291; McHugh v. McCormick, 228 App. Div. 659; Johnson v. Netherlands Amer. Steam Navigation Co., 132 N. Y. 576; Walsh v. Riesenberg, 94 App. Div. 466; Cowell v. Saperston, 149 App. Div. 373, 208 N. Y. 619.) III. Assuming that Henn may have been assisting Bethlehem, that fact did not, as a matter of law, make him Bethlehem’s servant. (Bartolomeo v. Bennett Contr. Co., 245 N. Y. 66; Delisa v. Arthur F. Schmidt, Inc., 285 N. Y. 314; Murray v. Dwight, 15 App. Div. 241, 161 N. Y. 301; McNamara v. Leipzig, 227 N. Y. 291; Burton v. American Bridge Co., 297 N. Y. 993.) IV. It was a question of fact whether Henn’s removal of the chain was an act in the furtherance of defendant’s business so as to make defendant, his employer, responsible under the doctrine of respondeat superior. (Mott v. Consumers’ Ice Co., 73 N. Y. 543; Osipoff v. City of New York, 286 N. Y. 422; Muller v. Hillen

      brand, 227 N. Y. 448; Riley v. Standard Oil Co. of N. Y., 231 N. Y. 301; Quinn v. Power, 87 N. Y. 535.) V. Whether Henn’s removal of the chain was a facet of transporting the steel or a facet of unloading the steel was a question of fact for the jury. (Dittiger v. Isal Realty Corp., 290 N. Y. 492; May v. Dermont, 114 Misc. 106; Horby Realty Corp. v. Yarmouth Land Corp., 270 App. Div. 696.) VI. Negligence and freedom from contributory negligence were questions of fact.
   Desmond, J.

The question before us may be stated thus: when Bethlehem Steel Company, in connection with the erection by it of a bridge in Long Island City and the moving of steel from a waterfront dock to the bridge site, had made a contract with this defendant, a trucking corporation, to transport the steel from dock to bridge site, and when the contract specifically provided that all loading and unloading at the bridge site was to be done by Bethlehem and transportation was to be done by this defendant, and this defendant carried the steel from dock to bridge site in its own motor truck driven by its own employed chauffeur and the steel was tied or fastened on to the truck with chains which were part of the truck’s equipment, and the truck and load arrived at the bridge site where a Bethlehem employee took over the direction of unloading, but defendant’s truck driver opened up the chains above referred to without waiting for the hoisting apparatus to put a strain on the steel with the result that some of the steel fell off the truck and injured plaintiff, who was a Bethlehem employee at the job, was defendant’s truck driver absolutely and as matter of law an employee, for the time being, of Bethlehem, since the latter was in charge of the unloading, so that the truck driver was not the agent of defendant in unhooking the chains, and defendant therefore not liable for the truck driver’s negligence?

The Trial Justice, granting defendant’s motion to dismiss at the close of plaintiff’s case, delivered a short opinion, the substance of which is contained in this paragraph: “ I hold here as a matter of law the act of removing these chains was not part of the duty of Bigley under its contract; that Henn in undertaking to remove them, especially in the light of the testimony of the witness Turner, who said that he, for Bethlehem, was in complete control of the unloading operation and that it was his duty to see that unloading was performed both from the viewpoint of efficiency and safety, was not' engaged in the business of his master; that the plaintiff has failed to make out a case, and the defendant’s motion to dismiss is granted with an exception to the plaintiff.”

On appeal to the Appellate Division, however, that court wrote a brief opinion, in which it pointed out that continuance in the service of the general employer (defendant) is presumed until command is shown to have been surrendered, and that, in the present case, it was a jury question as to whether the chauffeur was acting in the interest of his employer, or of Bethlehem, and as to whether his act of unloosening these chains on his truck was a preparation of that vehicle for unloading, rather than part of the unloading operation itself. The dissenting Justice wrote that since, by the written contract, Bethlehem had the whole duty of unloading, therefore the chauffeur was performing a duty that was exclusively that of Bethlehem and that, for his negligently performing that duty, Bethlehem alone would be responsible. It seems to us that on the facts in this record it cannot be held as matter of law that this truck driver had completely passed from the control of his own employer and into the employment of Bethlehem when, on his own employer’s truck, he was unfastening chains which were a part of that truck, so as to make it possible for Bethlehem to unload the steel. Of cburse, in a sense the truck driver was furthering, and có-operating in, Bethlehem’s contractual duty of taking the steel off the truck, but it would not be irrational to say that at the same time he was doing work that could be said to be that of his own employer, since he was handling chains that belonged to his employer and which he, as a servant of his employer, had, earlier that day, locked around the steel. It is true that a Bethlebem employee (foreman Turner) was in charge of the unloading and had given directions to the truck driver, and that the unloading was Bethlehem’s job per contract, but there is nothing to show that this driver’s employer ever turned the driver over to Bethlehem. It would not be unreasonable for a jury to say that the unlocking of the chains, while a necessary preliminary to unloading, and in that sense part of the unloading, was a necessary incident, also,..of the handling of the truck itself and of its equipment,

The accident, in which plaintiff was injured, occurred on November 12,1953. Bethlehem was then and for some time had been, building a highway bridge over a creek in Long Island City. Defendant was in the general trucking and hauling business. In July, 1953, Bethlehem and defendant entered into a contract, the pertinent provision of which is as follows:

“The Carrier will unload at dock and/or railroad yard specified and transport to site above mentioned at a point within reach of Bethlehem’s equipment. Bethlehem will unload carrier’s trucks at the site. Carrier will have on hand a competent foreman who can speak English to take charge of loading Carrier’s trucks and to whom orders can be given. Carrier will furnish all necessary labor, tools, equipment, fuel and lubricants necessary for the above described unloading and transporting. Carrier will deliver girders in upright position.
“ The Carrier will assume all obligations placed upon Bethlehem pertaining to the transporting of structural steel for this project.”

There is no doubt or dispute that under this contract defendant was to do transportation only and Bethlehem was to retain the bridge site unloading functions. On the afternoon of November 12, 1953, acting under this contract, defendant, the trucking company, took on board one of its trucks, a load of steel consisting of two very large structural steel pieces weighing about five tons each and together being about five feet wide. Defendant, through the services of a “ loader ’ ’ employed by it and of its truck driver Henn, secured these steel pieces onto its trailer pulled by its tractor truck, by fastening around the steel pieces long steel chains belonging to the trucking company. Each of these chains had some kind of hook arrangement which could be, and was, tightened to secure the load for “ the safety of the load at all times ”. The truck and trailer, with the steel on board, travelled to the job site. As was the practice, a foreman employed by Bethlehem took over when the load arrived at its destination, and this foreman told defendant’s chauffeur where to put the truck and assigned a crew of men, employed by Bethlehem, to unload the steel. The unloading itself was done by a Bethlehem crane, the hook of which was attached to steel cables (not, of course, the chains above referred to) which steel cables belonged to Bethlehem and were tightened around the steel pieces. The whole scheme of the unloading operation was that these new chains or cables would be fastened by Bethlehem’s men around the steel, then the crane would be hooked on to these new chains and the lines from the crane would be tightened, and then, and only then, would there be unfastened the originally placed chains which belonged to defendant trucking company. It is undisputed that it was the invariable practice for the truck driver to remove these chains. Baker, a Bethlehem employee, testifying for plaintiff, when asked whether it was the truck driver’s job to take the chains off, said: It was always his job. The Bethlehem Steel don’t own the chains.” (See, also, testimony of Bethlehem’s foreman Turner.) From Baker’s testimony, we get the impression (and so could a jury) that while the Bethlehem foreman might give a signal to the driver to remove the chains, the matter of exactly when to remove them was to some extent up to the driver, who was an experienced man in this business. It is undisputed, too, that the only safe practice is to hook the crane chains on to the load before loosening the truck’s chains, so that the crane and the sling would be holding the load before the chains released it. Bethlehem’s foreman, testifying for plaintiff, said that the truck driver took no part in the unloading and took no orders from the foreman, except that when Bethlehem’s men were ready to take the load off he (the foreman) told defendant’s driver to take off truck chains.

On this occasion, when the truck arrived at the site, the Bethlehem foreman told the truck driver where the former wanted the steel unloaded. The foreman, as was his custom, told the driver where to put the truck, and then the foreman assigned plaintiff and another Bethlehem employee to unload the steel. Then he directed that the crane be brought for unloading to the place where the truck was. The foreman then told the chauffeur that the steel was going to be unloaded, and the foreman went away to other duties. As he left, he saw the chauffeur begin to take the front chain off but the foreman did not consider there was any danger at that point since the rear truck chain was still on and the Bethlehem men were hooking the cable on to the steel load. Stone, the plaintiff, who was one of the Bethlehem men assigned by the foreman to the job, testified that when he came to the job the front truck chain had been removed but the rear truck chain was still on the steel and plaintiff, too, thought that the rear chain would hold it until the crane hooked on. Plaintiff and Baker, the other Bethlehem man, climbed up on to the steel on the truck, and plaintiff then began to fasten on to the steel the cables or chokers furnished by Bethlehem which were going to be put on to the hook of the crane. Plaintiff had fastened one of these chokers and was working on another when suddenly one of the pieces of steel moved, slid off the trailer and rolled over with plaintiff underneath it, injuring him. It is true, as defendant argues, that the whole proof read together shows that the correct unloading practice was that the shackles and cables should first be fastened around the steel, then the crane hook affixed to the chokers, then the line from the crane tightened, and that only then should the truck’s oAvn chains have been loosened. Defendant concludes from this that the loosening of the truck’s oavu chains was one of a series of steps in-the unloading process and, of course, in a sense this is true. However, as it seems to us, a jury could conclude that even though this loosening of the truck’s chains was part of the unloading in the sense that it took place in the middle of the unloading preparations, nevertheless, in another sense it was part of the truck driver’s duty even though it coincided, or overlapped, or came betAveen, unloading steps which Avere being-performed by Bethlehem alone. A short and simple ansAver to defendant’s argument is, it seems to us, that it cannot be said as matter of laAV that a truck driver removing his own truck’s chains from his truck load had necessarily become, for the moment, a servant of the owner of the steel just because the latter had the contract obligation to do the unloading. The realities of the situation Avere such that the truck driver, by custom and practice, did this unloosening as part of what he at least thought to be his job.

The Trial Term dismissal of the complaint was based largely on the terms of the contract between defendant and Bethlehem, whereby the former Avas to do transportation only and Bethlehem Avas to do all the bridge site unloading. From this, Trial Term concluded that the truck driver was necessarily acting for Bethlehem. We think there is a missing term in that argument, or an erroneous assumption that because Avhat the truck driver did in unloosening the chains took place between two of the unloading steps, the unloosening was necessarily part of the unloading. We know that there are many situations where a ) general employer transfers an employee to a special employer (see Ohlenschlager v. South Buffalo Ry. Co., 309 N. Y. 741, decided today) and we will assume (doubtfully) that'the jury" could conclude from all the facts here that something of that nature did occur here. However, we cannot convince ourselves that, as matter of law, such a conclusion was bound to result from this undisputed testimony.

The Appellate Division'majority, in reversing, pointed to the settled law of New York (citing Delisa v. Schmidt, Inc., 285 N. Y. 314; Wawrzonek v. Central Hudson Gas & Elec. Corp., 276 N. Y. 412, and Bartolomeo v. Bennett Contr. Co., 245 N. Y. 66) that, absent conclusive proof of surrender of control by the' general employer, the presumption is that the general employment continues. The Delisa opinion, after stating this presumption, ‘ says, in effect (supra, p. 319), that the surrender of control may be by an agreement binding on the general employer, but there is no evidence in the present case of any specific agreement tó transfer the truck driver from one employment to the other. Defendant cites the Delisa case as one of its prime authorities, but what the Delisa opinion said (p. 319) is that when workers in a general employment are doing work which primarily benefits a special employer, but which work is substantially though indirectly beneficial to the general employer, a jury may' draw the inference that an employee who is furthering the interests of his immediate employer is acting witliin his authority as agent of the latter. Delisa, if it be authority here' at all, is an authority that the holding in the present case was one of fact for the jury.

We will analyze, briefly, the other principal authorities cited by defendant. In Braxton v. Mendelson (233 N. Y. 122, 124), the' opinion says that where there is a written contract, the question is for the court'not the jury. But that case must be read'in the light of its facts. What the court actually held was that when a trucking company agreed to do the delivery work for a milk company at a fixed price per day for truck and driver, the driver remained the servant of the trucking company even though he was delivering the milk company’s milk and taking orders from the milk company’s officers.

Other cases are pointed to by defendant as holding that where there is an unambiguous contract allocating or dividing work between a general and special employer the court must determine which category includes the work which the servant is doing at the time. Here, the written contract assigns the unloading to Bethlehem and the transportation to defendant, but the ambiguity or overlap is as to whether the particular thing that the driver was doing, that is, unloosening the truck chains, was, reasonably and realistically, to be considered transportation or unloading. Lewis v. New York, Ontario & Western Ry. Co. (210 N. Y. 429) is, we think, not at all in point here because it deals with a situation where a consignor loaded his goods onto a railroad car. The court held as matter of law that the railroad company had nothing to do with the manner in which the loading was done. The fact, in Lewis (supra), was that the railroad company simply had nothing whatever to do with any part of the loading or unloading but merely furnished the car and pulled it on its rails.

In McNamara v. Leipzig (297 N. Y. 291), defendant rented a passenger automobile and chauffeur from a garage company for three months for a fixed sum with the garage company paying all expenses; the court held that the defendant had no control over the driver except merely to tell him between what places to drive the car, and that the defendant, therefore, was not liable for the driver’s negligence. Again, as applied to our case, the result deduced from McNamara (supra) would be that defendant alone and not' Bethlehem would be liable, if we held it was a question of law rather than of fact. Anderson v. Boyer (156 N. Y. 93) deals with a charter of a ship. Its master and crew had been turned over absolutely to the charterer or lessee and the court held that there was a complete surrender of control and possession to the lessee or charterer since the owner of the lighter had nothing whatéver to do with it or its operation after the charter was made. Irwin v. Klein (271 N. Y. 477), besides restating the rule of presumption of continuance of control in the general employer, points out that the decisions in this field’can be reconciled only by the analysis of the specific facts in each case, although the rule itself is simple enough, that is, that the servant of one master becomes for the time being the servant of another when he passes completely out of the direction and control of the former into that of the latter. Irwin v. Klein (supra), citing other authorities, says the question is as to who has the supreme choice, control and direction of the servant, and whose will the servant represents, not merely in the ultimate result of his work but in all its details. To make Bethlehem in our case the pro tern employer of the driver would require a finding that when the driver was unloosening his own truck’s chains he was operating under the supreme control and direction of Bethlehem in all the details of what he was doing. We question whether this record would justify such a finding of fact, much less require such a conclusion of law.

Appellant’s counsel makes much of what appellant claims are concessions and admissions by plaintiff that the loosening of the truck chains was an unloading act, citing statements, at the trial, of plaintiff’s attorney, and various parts of plaintiff’s bill of particulars, at all of which points the plaintiff’s counsel said in words or effect that the accident happened during the 1 unloading ’ ’ of the steel. Similarly, appellant cites testimony of plaintiff’s witnesses that this accident happened while the steel was being unloaded ”. To all of this, plaintiff answers that these are the statements of counsel and witnesses and are not conclusive, but merely somewhat loose verbiage which cannot fairly be considered as binding or conclusive on plaintiff. We think that is so. We have the exact and undisputed facts as to what happened and, while the remarks of counsel and witnesses are illuminating, they cannot preclude the courts from ruling that there is a question of fact not as to whether unloading was going on at the time, or as to whether the truck driver’s activities expedited unloading, but as to whether the truck driver thus was transferred from one employment to another.

The latest decision in our court on this general subject is Dicenzo v. New York Shovel & Crane Corp. (308 N. Y. 871), decided in March, 1955, a case where decedent was crushed to death between a revolving cranehomse on a crane and the back of the crane’s truck cab. The crane was being operated by a man named Salvante who was being paid by the general contractor, but Salvante himself was one of four owners of the corporation which owned the crane and he divided with his co-owners anything he earned from the contractor over $100 a week. The proof showed that the defendant corporation as such did nothing beyond turning the crane over to the general contractor, even though the operator was one of the stockholders and officers of defendant corporation. The Trial Term gave plaintiff a verdict against the owner of the crane, but the Appellate Division reversed, on the law, on the ground that the crane driver was plainly an employee of the contractor and not of the crane owner, and on the further ground that there was no negligence on the crane operator’s part. We affirmed without opinion. The Dicenzo case (supra) cannot help defendant-appellant in the present case, since there is no real contention in our case that defendant “ turned over” to Bethlehem either the trailer-truck or its driver or the chains.

The order appealed from should be affirmed, with costs, and judgment absolute directed against the appellant on the stipulation herein.

Van Voorhis, J.

(dissenting). The facts are thus stated succinctly at the beginning of the Per Curiam opinion of the Appellate Division:

“ On October 12, 1953, plaintiff was injured when certain fabricated steel fell upon him and caused the loss of a leg among other injuries. Plaintiff was an employee of Bethlehem Steel Company, which was erecting a bridge in Long Island City. Bethlehem had a contract with defendant, a trucking company, under which the latter was to pick up fabricated steel at docks and railroad yards, and transport the same to the job site. The contract provided that unloading of the steel from the trucks at the job location was to be performed by Bethlehem.
On the day in question, two exceptionally large pieces of structural steel were loaded on a truck of defendant driven by one Henn. It was impossible to use the ordinary side stakes or stays. In order to secure the load, two encircling chains, property of defendant, were wrapped around the load and trailer platform at each end.
“ When the vehicle arrived at the job, plaintiff and a coworker climbed on the load to fasten cables known as ‘ chokers ’ in preparation for lifting the steel from the truck by means of a hoisting crane. Henn, in accordance with what witnesses said was the customary activity of a driver in such situations, ^removed the front encircling chain, and then attempted to remove the rear one. He did so, however, before the chokers were made taut. Thereupon, the large pieces of steel slid off the trailer, and plaintiff rolled underneath them and was injured.
The complaint was dismissed upon the ground that,,as the contract between defendant and. Bethlehem required the latter to unload the steel, the act of Henn in removing the chains was part of the unloading process and thus the work of Bethlehem, so that defendant was no longer liable for negligent acts of Henn.”

Under the authorities and upon the evidence in this case, it seems to me that dismissal of the complaint upon the law was correct. The contract between Bethlehem and defendant (described therein as The Carrier ”), in evidence as plaintiff’s Exhibit 1, provides that “ Bethlehem will unload carrier’s trucks at the site ”. It is not disputed that the latter clause applies to this operation. The reason for this clause was to enable the carrier to load the truck, and then transport it to the destination without bringing the unloading crew to that point where- Bethlehem already had its crew and the necessary unloading machinery. The only employee whom the carrier needed to have accompany the load was the driver of the truck.

These steel beams had been securely enclosed by encircling chains by the carrier’s loading crew, when they were placed upon the truck. The driver’s function on behalf of the carrier was to move the truck. It was apparent that he could not undertake to unload the truck alone, or commence, to unload it, and therefore the responsibility for unloading was placed by "the contract in unambiguous words upon Bethlehem.

■ The evidence is undisputed that Bethlehem’s unloading crew had taken over by commencing the operation of unloading before this accident occurred. There is mo contradiction of the testimony to this by Wilfred Turner, foreman of Bethlehem’s unloading gang of five men whose function and duty it was to unload this truck with the help of a crane. It was imposible- for the driver of the truck himself to unload these steel beams, and he could not undertake to loosen them and hold them upon the truck with his hands before Bethlehem’s unloading crew had made them secure. Bethlehem had to drive up its crane, and fasten it to, these beams and take other precautions,, so that they could be removed in safety and with efficiency before it was safe to release, the. chains. The circumstance that the chains were loosened by the driver of the truck is irrelevant. In the nature of things,, there could not be two bosses of this unloading job. Under the contract, when the driver brought the truck to its destination the carrier’s.function ended. Necessarily Bethlehem with its machinery and unloading gang had to assume responsibility at that point. If each tried to superintend this delicate and dangerous operation, the result would be chaotic. Therefore, when the driver undertook to loosen the chains, which he could only do subject to orders from Bethlehem, under clear principles of general and special employment, he became the special employee of Bethlehem. It makes no difference that express instructions were not' given. It was all part of a routine operation. The point is that appellant’s driver was at all times subject, to direction and control by Bethlehem concerning the details of the unloading operation, which was Bethlehem’s sole responsibility. It could, not have been otherwise, if Bethlehem had .already commenced the unloading operation, which it had done. In any other view there would have been a division of authority, at variance with the terms of the contract and which the. nature of the operation forbade. All of these men had to work together under single supervision, or the work could not be performed. Bethlehem’s foreman indicated to the chauffeur where to put the truck. He testified: Q. We now have that truck. stopped. A. Right. Q. From the time that truck is stopped until the steel is taken off that truck, whether you watch every particular job or not, when you are around, you are in complete charge of that unloading,.aren’t you? Á. .1 am.”

Again Turner testified, at all times as a witness for plaintiff: You could stop that truck driver, couldn’t you, from removing that chain at any time you wanted to? Couldn’t you? A. Yes, I.could. I could tell him not to take it off. Q. You have that right, haven’t you? A. Yes, I would have.”

Plaintiff testified that there was an established sequence of acts in the usual unloading operation, to wit: Q. And the usual method was that after you got onto this load with two chains holding it, that the hooking on process would take place with the chains still holding it, is that right, that is, the truck chains, right? A. Yes, sir. Q. That after the hooking on process had taken place, there would then be made a connection between the crane slings to the iron pieces, right, on the truck? A. Yes, sir. Q. Then the next thing, it would be made sure that the crane and its sling were holding the load, right? A. Yes, sir. ’ ’

“ Q. The two chains then holding, the load would then be removed after the crane held the load, is that right? A. Yes, sir.’ ’

This accident resulted from loosening the chains during the unloading operation before the crane was attached.

A coworker of plaintiff testified that “ There is one safe way you can do it: leave the safety line on there. Hook it, and then when you have got it with the crane, take your safety off, whatever it happens to be, chain, line, or whatever it is, leave it alone. Like this, they never should have been taken off.”

There is no doubt that the chauffeur took the chains off too soon. Neither is there any dispute in the evidence that Bethlehem’s unloading gang had already taken over and commenced the unloading operation. The foreman testified that the steel lie am s which did this injury rolled off during the unloading operation.

Thereafter the following occurred: 1 ‘ The Court: Mr. Turner, you as the foreman were responsible for efficiency, to see that the job was done right for the boss? The Witness: Yes. The Court: And for safety, too? The Witness: That is right.”

Plaintiff himself had confirmed that the unloading operation had commenced by testifying that he and his coemployee Baker had already been on the truck before these steel beams fell off. Referring to a time before the accident, the court inquired: ‘ ‘ Did any of your team go on the truck to do unloading, or did others do unloading and did you pick up the steel as it was unloaded? The Witness: Mr. Baker and myself.”

It is undisputed that the unloading operation had begun, that it went wrong due to the act of the driver who was in the carrier’s general employ but subject to Bethlehem’s orders while engaged in a single integrated operation, and that the decision of the appeal turns upon whether the driver was acting in the special employment of Bethlehem. The familiar rule is stated in Charles v. Barrett (233 N. Y. 127); Irwin v. Klein (271 N. Y. 477), and Braxton v. Mendelson (233 N. Y. 122). It is unimportant whether the question may usually be one of fact or of law. The undisputed evidence requires here that it should be decided as a question of law. There is no doubt that this driver was negligent in the part which he took in the unloading operation, that the injury to plaintiff (Bethlehem’s employee) resulted from that act of negligence, but neither is there any dispute in the evidence that the driver was wholly subject to the direction of Bethlehem’s foreman, or that Bethlehem’s unloading gang had already entered upon the operation of unloading for which Bethlehem had assumed responsibility pursuant to the unambiguous requirement of the written contract. It is true that where an employee is acting in furtherance of the business of his general employer, there is no inference of a new relation of employment '1 unless command has been surrendered, and no inference of its surrender from the mere fact of its division ” (Charles v. Barrett, supra, p. 129), but where command has been surrendered, as it without contradiction was and had to be in this instance, the general employer is no longer liable notwithstanding that the employee, in a general way, is still furthering its business. The judgment of the Appellate Division should be reversed, with costs, and that of the Trial Term should be reinstated, dismissing the complaint.

Conway, Ch. J., Dye, Fuld, Froessel and Burke, JJ., concur with Desmond, J.; Van Voorhis, J., dissents in an opinion.

Order affirmed, etc.


author: Burke, J.

text:
    Milton Jesselson, Individually and as Executor of Tessie Jesselson, Deceased, et al., Respondents, v. Gloria Moody, Appellant.
    Argued June 3, 1955;
    decided July 8, 1955.

      Wilbur M. Jones and John W. Trapp for appellant.
    I. The New Jersey common law is applicable. (Doran v. Thomsen, 76 N. J. L. 754; Dooley v. Saunders U-Drive Co., 109 N. J. L. 295.) II. Presumption of agency is rebutted by defendant’s uncontradicted testimony and corroborated by plaintiff Dutton’s statement that, at the time of the accident, defendant’s vehicle was being used in furtherance of Dutton’s business'. Thus, on plaintiff’s own testimony, the driver of defendant’s vehicle was Dutton’s agent or servant at the time of the accident. III. Defendant’s motion to dismiss at the end of plaintiff’s case should have been granted for the reason that, under the doctrine of respondeat - superior, plaintiffs had failed to make out a prima facie case. (Doran v. Thomsen, 76 N. J. L. 754; Wirth v. Gabry, 120 N. J. L. 432, 122 N. J. L. 95; Marsh v. Sasanoff, 9 N. J. Mis. Rep. 545; Miranda v. Lo Curto, 249 N. Y. 191.) IV. Alexander Versakos was “operating” or using defendant’s car at the time of the accident as a bailee or independent contractor. (Eaton v. Schild, 8 N. J. Mis. Rep. 245; Gochee v. Wagner, 257 N. Y. 344; Maurer v. Brown, 106 N. J. L. 284; Dooley v. Saunders U-Drive Co., 109 N. J. L. 295; Gavin v. Cohen, 5 N. J. Mis. Rep. 296; Paul v. Flannery, 128 N. J. L. 438; Kirrer v. Bromberg, 113 N. J. L. 98.) V. The Dutton action should have been dismissed on the additional ground that Dutton, having failed to introduce proof qualifying himself for the legal status of an invitee in defendant’s vehicle, was relegated to the status of a licensee and, in such latter status, defendant owed Dutton only the duty to refrain from willful injury, the record being bare of any such evidence. (Cowan v. Kaminow, 128 N. J. L. 398; Doran v. Thomsen, 76 N. J. L. 754; Lutvin v. Dopkus, 94 N. J. L. 64; Faggioni v. Weiss, 99 N. J. L. 157.) VI. The recovery of Milton Jesselson, as executor of Tessie Jesselson, deceased, is excessive. (Capone v. Notion, 21 N. J. Super. 6; Consolidated Traction Co. v. Home, 60 N. J. L. 444; O’Brien v. New Jersey State Highway Dept., 11 N. J. Super. 548.)

      Arnold B. Elkind, Harry Ostrov and Herbert Zelenko for Milton Jesselson, respondent.
    I. The question of agency was properly submitted to the jury because of: The New Jersey presumption of agency; the admissions of appellant; appellant’s inconsistent and self-contradictory testimony, and the fact that appellant was the sole witness on the question of agency and the only other witness who could have contradicted her was dead. (Mahan v. Walker, 97 N. J. L. 304; Efstathopoulos v.
      Federal Tea Co., 119 N. J. L. 408; Conway v. Pickering, 111 N. J. L. 15; Crowell v. Padolsky, 98 N. J. L. 552; Tischler v. Steinholtz, 99 N. J. L. 149; Spelde v. Galtieri, 102 N. J. L. 203; Schultz v. Hinz, 20 N. J. Super. 346; Doran v. Thomsen, 76 N. J. L. 754.) II. The law of New Jersey must be resorted to to interpret the transaction between Versakos and appellant. (Miranda v. Lo Curto, 249 N. Y. 191; Winkelstein v. Solitaire, 129 N. J. L. 38.) III. The damages awarded Milton Jesselson, as executor of Tessie Jesselson, deceased, were not excessive.

      Arnold B. Elkind and Herbert Zelenko for Robert M. Dutton, respondent.
    I. The question of agency was properly submitted to the jury. (Mahan v. Walker, 97 N. J. L. 304; Efstathopoulos v. Federal Tea Co., 119 N. J. L. 408; Conway v. Pickering, 111 N. J. L. 15; Crowell v. Padolsky, 98 N. J. L. 552; Tischler v. Steinholtz, 99 N. J. L. 149; Schultz v. Hinz, 20 N. J. Super. 346; Doran v. Thomsen, 76 N. J. L. 754; Dooley v. Saunders U-Drive Co., 109 N. J. L. 295; Maurer v. Brown, 106 N. J. L. 284.) II. The law of New Jersey must be resorted to to interpret the transaction between Versakos and appellant. (Miranda v. Lo Curto, 249 N. Y. 191; Winkelstein v. Solitaire, 129 N. J. L. 38.) III. There was evidence from which the jury could have found that respondent Dutton was an invitee of appellant. IV. The appeal as against respondent Dutton may be dismissed since it is not properly before the court as a matter of right.
   Burke, J.

The judgment in favor of plaintiff Jesselson, individually and as executor of the estate of his deceased wife, should be affirmed. However, defendant’s contention that, the plaintiff Dutton failed to establish that he was an invitee of the defendant is well taken and requires a reversal as to Dutton. New Jersey is one of the few remaining jurisdictions which adhere to the common-law distinction between invitees and licensees in automobile passenger cases. As in several other jurisdictions in which the liability of an automobile owner is determined by nonstatutory rules, varying standards of care are imposed in determining actionable negligence. Thus, as to an invitee, the owner is bound to use reasonable and ordinary care for the safety of the guest. However, as to a licensee, the only legal obligation imposed is that of refraining from the perpetration of acts wantonly or willfully injurious. (Lutvin v. Dopkus, 94 N. J. L. 64; Faggioni v. Weiss, 99 N. J. L. 157; Paiewonsky v. Joffe, 101 N. J. L. 521; Struble v. Bell, 126 N. J. L. 168; Tarasewicz v. Bowker, 5 N. J. Super. 399.) The evidence in the case at bar falls far short of proof that the acts of the driver were “ wantonly and willfully injurious.” It therefore became incumbent upon Dutton, if he would recover, to show affirmatively that he was an invitee of the owner.

At this point, it is necessary to observe that the presumption of agency relied upon to establish defendant’s liability on the theory of respondeat superior does not in any way affect the status of a passenger as invitee or licensee. As stated in Cowan v. Kaminow (128 N. J. L. 398, 403): However, this rule [presumption of agency] cannot, and should not, be extended to create a presumption that a passenger in a car, driven by one other than the owner, is an invitee of the owner. The status of a passenger as an invitee of the owner is a fact which must be proven, and failure of such proof has been recognized by our Supreme Court as sufficient to free the owner from liability as a matter of law.” There is a complete absence from the record below of any proof on the part of Dutton that he was anything other than an invitee of Versakos, the driver. However, proof that one is an invitee of the driver is not sufficient; he must further prove that he was an invitee of the owner. The applicable rule is set forth in Yanowitz v. Pinkham (111 N. J. L. 448, 450):

But one who is riding as a guest in an automobile, though the car is being driven by the owner’s agent duly authorized thereto, may be the guest of the agent, and not of the owner.
‘ ‘ If the driver of an automobile, though acting duly for his absent master in the operation of the car, was not acting for him or in the execution or furtherance of his master’s business in accepting and transporting the guest, the master and owner cannot be held liable by the guest for want of reasonable care of the driver.”

It is apparent in the case at bar that Versakos was not acting in furtherance of his master’s business in accepting and transporting the guest. Defendant denies, and there is no proof to the contrary, that she had any knowledge that Versakos. had invited Dutton as his guest. Dutton himself testified that he had met Versakos for the first time through a mutual friend on the evening before the accident, and that Versakos had invited Dutton to accompany him to New York City after the latter hqd mentioned that he intended to drive to La Guardia Airport for a business trip to Syracuse. Dutton’s own testimony unquestionably. establishes that Versakos’ invitation was purely an accommodation to Dutton and solely in furtherance of Dutton’s own business interests. It was therefore error to deny defendant’s motion to dismiss the complaint, and to submit the case to the jury on that evidence (Cowan v. Kaminow, supra).

The judgment should be modified by reversing so much thereof as affirmed the judgment in favor of Dutton, and the judgment, as so modified, should be affirmed, with costs to appellant against respondent Dutton and to respondent . Jesselson against appellant.

Corway, Ch. J., Desmord, Dye, Fuld and Var Voorhis,-JJ., concur with Burke, J.; Froessel, J., dissents and votes to affirm.

Judgment accordingly.


text:
    In the Matter of Oneida County Forest Preserve Council et al., Respondents, against Louis Wehle, as New York State Conservation Commissioner, et al., Appellants.
    Argued June 8, 1955;
    decided July 8, 1955.

      Jacob K. Javits, Attorney-General (James 0. Moore and Henry 8. Manley of counsel), for appellants.
    I. The council is a corporation. It is not a citizen and hence it is not authorized to maintain this special form of suit. (Fire Dept. of City of N. Y. v. Stanton, 28 App. Div. 334, 159 N. Y. 225; Anglo-Amer. Provision Co. v. Davis Provision Co., 169 N. Y. 506; Ivory v. Edwards, 278 App. Div. 359, 304 N. Y. 949; Matter of Civil Service War Veterans Protective Assn. v. Finegan, 249 App. Div. 822; Matter of J. D. L. Corp. v. Bruckman, 171 Misc. 3; Matter of Personal Finance Co. v. Lyon, 203 Misc. 710.) II. There is no application by Ralph Atwater individually. III. The application should have been made in the third department. (Bunyan v. Commissioners of Palisade Interstate Park, 167 App. Div. 457; Stoddard v. Manzella, 207 App. Div. 519; Pyrke v. Standard Acc. Ins. Co., 234 App. Div. 133; Dairy Sealed, Inc., v. Ten Eyck, 248 App. Div. 352; Bull v. Stichman, 189 Misc. 590, 273 App. Div. 311, 298 N. Y. 516.) IV. The application should have been denied because of loches; V. The statute is ponstitntional.

      Michael P. De Santis for respondents.
    I. The council is a citizen as defined in section 4 of article XIV of the Constitution. (Association for Protection of Adirondacks v. MacDonald, 253 N. Y. 234.) II. There is an application by Ralph Atwater individually. III. The Supreme - Court in any Appellate Division may give consent to institute suit. IV. There can be no loches where the constitutionality of a law is involved. V. The statute is unconstitutional.
   Burke, J.

The Conservation Commissioner and the Director of Lands and Forests appeal to this court from an order of the Appellate Division, Fourth Department, granting its consent to the respondents, Oneida County Forest Preserve Council and Ralph Atwater, its president, to institute suit against the appellants to restrain the violation by them of section 1 of article XIV of the New York State Constitution.

Among other grounds which do not here merit extended treatment, the appellants contend that the council, being a membership corporation, is not a ‘1 citizen ’ ’ within the meaning of section 4 of article XIV, which provides that: A violation of any of the provisions of this article may be restrained at the suit of the people or, with the consent of the supreme court in appellate division, on notice to the attorney-general at the suit of any citizen.” (Emphasis supplied.) In support of this contention, appellants refer us to two cases (Fire Dept. of City of N. Y. v. Stanton, 28 App. Div. 334, and Anglo-American Provision Co. v. Davis Provision Co., 169 N. Y. 506) which, we are told, hold that a corporation is not a 4 ‘ citizen ’ ’ as that word is used in the Constitution. Those cases, however, are not decisive of the point in issue, for they concern business corporations rather than membership corporations, and, further, because they involved a construction of the “ privileges and immunities ” clauses (art. IV, § 2; 14th Amendt., § 1) of the United States Constitution. Without delving into the complex sphere of Federal-State and interstate relations, it is obvious that the reason for such a construction when dealing with the relationship between a corporation of one State and the sovereign of another is neither decisive nor applicable to this situation in which the relationship is merely one between a domestic corporation and its sovereign. Moreover, even in the Federal courts, a corporation is deemed to be a citizen within the meaning of the “diversity of citizenship” clause (art. Ill, § 2) of the Federal Constitution. (Salem Co. v. Manufacturers’ Co., 264 U. S. 182.) It is clear, therefore, that there is no absolute and inflexible rule that a corporation, especially a membership corporation, may not be deemed a citizen for various purposes. (See Green, Corporations as Persons, Citizens and Possessors of Liberty, 94 U. of Pa. L. Rev. 202 [1945].) It may be that for other purposes, a corporation is not a citizen as that word is used in the Constitution or the statutes, but for the purpose of bringing a suit to enjoin a violation of section 1 of article XIV we hold that a corporation such as the respondent herein is a citizen.

The appellants further contend that a corporation has no justiciable interest that makes it an appropriate champion of constitutional principles. An analysis of the cases cited in support of this contention reveals that in none of them was a constitutional issue involved. The cases merely held that the particular corporations therein involved had no justiciable interest in the controversy, and the result would no doubt have been the same had the petitioner or plaintiff been an individual rather than a corporation. That the issue is whether or not the plaintiff has a justiciable interest in the controversy rather than whether or not it is a corporation is apparent from the many cases which have upheld the right of a membership corporation to sue for the benefit of its members or for the people of the State generally. (See, e.g., Associated Painting Employers of Brooklyn v. Kessler, 257 App. Div. 986; United Cloak & Suit Designers Mut. Aid Assn. v. Sigman, 218 App. Div. 367; Matter of New York State Licensed Bail Agent’s Assn. v. Murtagh, 279 App. Div. 851, motion for leave to appeal denied 303 N. Y. 1009; Association for Protection of Adirondacks v. MacDonald, 253 N. Y. 234.)

In Matter of United Press Assns. v. Valente (308 N. Y. 71) the plaintiff, a corporation, sued to enforce what it believed to be the right of its members under section 4 of the Judiciary Law to attend court sessions. We there held that the Judiciary Law conferred a right personal to the defendant and not to the members of the public generally. However, while section 4 of the Judiciary Law provides that “ every citizen ” may freely attend the sittings of every court, none of the opinions questioned the right of the corporation qua corporation, to assert rights guaranteed to ‘1 citizens ”.

In Association for Protection of Adirondacks v. MacDonald (supra), the association was a -membership corporation which obtained consent to institute suit under article VII’ (§ 7) of the Constitution as then constituted, which provision .contained language virtually identical to that of the provision presently under consideration (227 App. Div. 640). After obtaining such consent, the association and the Conservation Commissioner submitted the controversy to the Appellate Division under an agreed statement of .facts. Judgment was . rendered in favor of the plaintiffs, the association and John Agar, its. president, declaring chapter 417 . of the Laws of , 1929 unconstitutional. It apparently never occurred "'to' either party to question the corporate plaintiff’s right fo bring the action, and our decision in no way intimates that the/assbciation was not a citizen within the contemplation of that provision of the Constitution, nor that it was not a fit party to champion constitutional rights. Since the issue was riot there raised, that case, of course, is not determinative of the case at ba.r. However, in the absence of compelling reasons why we should not adhere to the practice followed in that case, we do not believe that.we should now hold that procedure to have been erroieous.

In view of these cases, and in view of the more liberal trend exhibited elsewhere permitting associations or corporations to charnpion constitutional rights (see, e.g., Pierce v. Society of Sisters, 268 U. S. 510; Anti-Fascist Comm. v. McGrath, 341 U. S. 123), we are not of the opinion that the word “ citizen ” as it is used in section 4 of article XIV should be limited in meaning to natural persons.

Nevertheless, the Constitution limits the type of action which a citizen may bring to a suit to restrain violations of the article. The order of the. Appellate Division, however, confers, greater relief upon these applicants than is authorized by the .Constitution. The latter does not authorize the Appellate Division to consent that the applicant may 1 ‘ invoke such other * * * remedy or remedies in the premises ” as it may be advised: In view of the broad relief sought in the moving' papers, the order should recite that the motion is granted only insofar as it seeks consent to institute suit to restrain a violation of section 1 of article XIV of the Constitution.

The order of the Appellate Division should be modified in accordance with this opinion, and, as so modified, affirmed.

Conway, Ch. J., Desmond, Dye, Fuld, Froessel and Van Voorhis, JJ., concur.

Ordered accordingly.


text:
    Ernest Aron, Appellant, v. Florence Gillman et al., as Administratrices D. B. N. of the Estate of Dora Ostroff, Deceased, Respondents.
    Argued April 11, 1955;
    decided July 8, 1955.

      Orrin G. Judd, Frank Kreitsberg and Irwin M. Rosenthal for appellant.
    I. Disallowance of Federal and State taxes in computing book value was inequitable, contrary to the terms of the contract, and without warrant in law. (Atwater & Co. v. Panama R. R. Co., 246 N. Y. 519; Benvenuto v. Rodriguez, 279 App. Div. 162; Sanitary Farm Dairies v. Gammel, 195 F. 2d 106; Fawcus Mach. Co. v. United States, 282 U. S. 375; Citizens Hotel Co. v. Commissioner of Internal Revenue, 127 F. 2d 229; Commissioner of Internal Revenue v. Schock, Gusmer & Co., 137 F. 2d 750; Allen v. Atlanta Stove Works, 138 F. 2d 452; United States v. Anderson, 269 U. S. 422; Carondelet Bldg. Co. v. Fontenot, 111 F. 2d 267; Hagan v. Dundore, 187 Md. 430; Hollister v. Fiedler, 22 N. J. Super. 439; Elhard v. Rott, 36 N. D. 221; Gurley v. Woodbury, 177 N. C. 70.) II. Book value of inventory was the only proper measure of value.

      Jacob Krisel, Charles L. Kramer and Melvin 8. Slade for respondents.
    I. The parties fixed the basis of purchase as booh value. (Farmers Loan & Trust Co. v. Winthrop, 238 N. Y. 477; Raleigh Associates v. Henry, 302 N. Y. 467; Friedman v. Handelman, 300 N. Y. 188; Matter of Marcus [Macy & Co.], 273 App. Div. 725, 303 N. Y. 711; Continental Co. v. United States, 259 U. S. 156.) II. Book value is assets less liabilities. (People ex rel. Knickerbocker Fire Ins. Co. v. Coleman, 107 N. Y. 541; Lane v. Barnard, 185 App. Div. 754; Heiner v. Mellon, 304 U. S. 271; Burnet v. Sanford & Brooks Co., 282 U. S. 359; Nichols v. Nichols, 306 N. Y. 490; Brainard v. New York Central R. R. Co., 242 N. Y. 125; Matter of People [Lexington Sur. & Ind. Co.], 272 N. Y. 210; Bush v. Remington Rand, 213 F. 2d 456; Brown v. Helvering, 291 U. S. 193; Security Mills Co. v. Commissioner, 321 U. S. 281; Wayne Tit. & Trust Co. v. Commissioner of Internal Revenue, 195 F. 2d 401; United States v. Anderson, 269 U. S. 422.) III. This court ordinarily will not review questions of fact. (Sadowski v. Long Is. R. R. Co., 292 N. Y. 448.)
   Froessel, J.

This appeal turns upon our construction of an agreement between plaintiff and defendants’ intestate, Dora Ostroff, which provides that upon the death of one, his or her shares of stock in their jointly owned corporation shall be sold to the survivor * ‘ at the book value thereof. The parties further agree that the book value of said stock shall be determined by the most recent audit of the books of the Corporation provided such audit has been made not more than sixty days before the death of such individual. * * * The payment therefor is to be made in eighteen (18) equal monthly installments ’ ’. (Emphasis supplied.)

Dora Ostroff died on September 21, 1953. The last previous audit had taken place between August 19th and 21st, less than sixty days prior to her death. It reflected the corporation’s financial position as of July 31, 1953. Claiming to be no longer bound thereby because plaintiff had breached its terms, Samuel Ostroff, Dora’s administrator, refused to perform the stock purchase agreement. He did, however, offer to buy plaintiff’s stock (one third of the total) for $100,000, or to sell to plaintiff his intestate’s share (two thirds of the total) for $200,000. Plaintiff thereupon brought this action in equity for specific performance against said administrator and, upon the latter’s death, the action was continued against his successors, the present administratrices. ' "

' Special Term granted specific performance to plaintiff, holding that defendants’ claim that plaintiff had breached" the agreement “ was a mere pretense designed to escape the obligation of a solemn agreement ”, that the purchase price' (according to the agreement) of the intestate’s stock was $186,222.30, to be paid in eighteen equal monthly installments. Cross appeals were taken to the Appellate Division, Second Department, defendants complaining of the granting of specific performance and of the provisions for installment payments, and plaintiff contending that the stock’s value had been incorrectly determined. The Appellate'Division affirmed, one Justice' dissenting only as to plaintiff’s appeal, agreeing with the latter’s contention that the Referee’s value of the stock had been incorrect. Only plaintiff has appealed to this court.

As the case now comes before us, only two items' — inventory and taxes — are in dispute. How are they to be' evaluated under the agreement which describes this method for determining the value of the stock: “ book value * * determined by the most recent audit”? Before discussing them in particular, howevér, it may be helpful to look more closely at the term “ book value ” without further definition.

Thére appears to be no agreement among the decisions or textbook writers on a complete and authoritative definition of the term “ book value ”. At least two principles seem to emerge from the better reasoned authorities: (1) the book entries must be correct and complete, and not made to defeat an outstanding claim, and (2) accepted accounting principles should not be entirely disregarded (see Steinbugler v. Atwater & Co., 289 N. Y. 816). Thus, where interest, which had accrued on notes held by a bank had not been posted on the books and was not yet payable, it was held that the interest should nevertheless be included as an asset in determining book value of the'bank’s stock (Elhard v. Rott, 36 N. D. 221). And where the parties were aware that several assets which were listed at substantial sums on the books of a bank had no actual value, it was held that they should be eliminated from the computation of book value (Gurley v. Woodbury, 177 N. C. 70).

Although when the peculiar asset good will ” has been in issue it has quite consistently been excluded from book value unless actually recorded at some value on the books (see Lane v. Barnard, 185 App. Div. 754; Mills v. Rich, 249 Mich. 489; Succession of Jurisich, 224 La. 325; Early v. Moor, 249 Mass. 223), not all unrecorded intangible assets have been so excluded. In Hollister v. Fiedler (22 N. J. Super. 439), where the book value of stock of an insurance business had been calculated without considering the value of the corporation’s expiration and renewal books and records, the court held that such information, of conceded value in the insurance business, should be included in determining the stock’s book value; otherwise, according to the court, the result would be inaccurate, inequitable and unintended by the parties to the stock purchase agreement.

So, if abnormal depreciation has been taken on the books for income tax purposes, the court in finding book value may go outside the books and determine a different rate of depreciation (Hagan v. Dundore, 187 Md. 430). In the last-mentioned case, the court also held that the labor cost invested in outstanding contracts of the corporation should be included in a computation of book value, even though no ledger entries indicated either the amount or value of that labor (see, also, Rubel v. Rubel, 75 So. 2d 59, 67-68 [Miss.]). And in Succession of Warren (162 La. 649), the court held that disputed claims by the government for taxes on the income of previous years should be included as liabilities in determining book value even though the claims might never have to be paid.

In the instant case, the parties have not contented themselves with the mere use of the term “ book value ”, but have themselves defined it, namely, that it should be determined according to the most recent audit of the corporation’s books. Webster (New International Dictionary, 2d ed., Unabridged, 1950) defines audit ” as a “ formal or official examination and verification of accounts, vouchers and other records ”, and as “ an account as adjusted by auditors ”. Thus the very purpose of an audit is to verify and reconcile the book entries of a business according to proper accounting practice, and to see that they are accurate.

We-now turn to the two specific problems presented in the instant case. First, as to the inventory: Among the current assets listed in the balance sheet of July 31,1953, is ‘ ‘ Merchandise Inventory — Estimated ........ 12,001.15 ”. it will be noted the amount is “ estimated ”. At the trial the accountant testified that this figure was submitted to him by Dora Ostroff, president, of the corporation; he did not know the correct figure and did not audit this item. It was conceded by plaintiff, however, that, on July 31,1953, the actual inventory value amounted to $51,058, nearly $40,000 more. Nevertheless, plaintiff contends that we should take the inventory figure at $12,001.15 simply because it is the figure appearing on the books, and despite the fact that it is concededly erroneous. We are not obliged to follow blindly entries in books that are indisputably untrue. The courts below were therefore correct in holding that the concededly accurate $51,058 inventory figure should be used for determining book value in place of the arbitrary and erroneous guess of $12,001.15 which was supplied to the accountant by the corporation’s president.

Second, as to taxes: The audit in question speaks as of July 31,1953. At the foot of the balance sheet appears the following: NOTE: Subject to Federal and State Income Taxes & year-end adjustments.” The same notation appears at the bottom of the statement of income, profit and loss. And on the schedule of surplus account, net profit for January 1, 1953, to July 31, 1953, is listed at $81,951.20, but this figure is stated to be “ Exclusive of Provision for Federal. Income & Excess Profits Tax & New York State Franchise Tax ”,

Plaintiff contends that before book value was determined by the courts below, the indicated provision for State and Federal income taxes should have been deducted. Defendants, on the other hand, insist that no such allowance should be made for income taxes because no figures therefor appear on the books, and because the corporation was not actually liable for taxes on 1953 income until the end of the taxable year — December 31, 1953. The difference, in practical result, is substantial. If the taxes are disregarded, the book value of intestate’s stock would be, as the trial court found, $186,222.30 (assuming that the true inventory figure rather than the inaccurate estimate is used), whereas, if both State and Federal income taxes are first deducted, the book value thereof would, we are told, be approximately $132,000 — a difference of over $53,000,

It is well settled that in construing the provisions of a contract Ave should giAre due consideration to the circumstances surrounding its execution, to the purpose of the parties in making the contract, and, if possible, Ave should give to the agreement a fair and reasonable interpretation (3 Corbin on Contracts, pp. 78-79, 88-91, 115; 3 Williston on Contracts, pp. 1780-1788). In the instant case the parties attempted to arrange a method whereby the suiwivor should buy out the other’s interest in the corporation. At the execution of the agreement, no one knew which party Avould be the survivor, or at Avhat time he would be obliged to purchase. The price was to be book value as determined by the most recent audit; but obviously in such a serious agreement inA7ohring the transfer of many thousands of dollars of stock, the parties must have intended by this provision to establish a fairly stable and predictable valuation basis.

The position maintained by defendants, however, namely, a complete ignoring of the income taxes until actually payable, Avould mean an arbitrary, capricious and widely fluctuating purchase price, depending on the time of the last audit. For example, if that audit took place one day before the taxes became payable, by defendants’ theory no income taxes at all should appear in the computation of book value. But if the audit should take place a few days later, book value would have suddenly dropped by an amount equal to the income taxes for the entire year. Such a result is manifestly unreasonable from both a practical and theoretical point of view.

Clearly it makes no sense to charge the entire year’s burden of income taxes to the income of the last month preceding termination of the taxable year. On the contrary, sound accounting practice requires that each dollar of income as it is earned throughout the year should bear its proportionate share of the costs of the enterprise, including the tax burden (see Carondelet Bldg. Co. v. Fontenot, 111 F. 2d 267; Citizens Hotel Co. v. Commissioner, 127 F. 2d 229; Commissioner v. Schock, Gusmer & Co., 137 F. 2d 750; Allen v. Atlanta Stove Works, 138 F. 2d 452). For this reason interim audits made during the taxable year should include an estimate of the income taxes applicable to the period in question. The mere fact that an item is not yet legally due and payable does not mean that it may be ignored as a liability (United States v. Anderson, 269 U. S. 422, 440-441; Fawcus Mach. Co. v. United States, 282 U. S. 375), nor does it mean that the item may not be included in a computation of book value (Hagan v. Dundore, 187 Md. 430, supra; Elhard v. Rott, 36 N. D. 221, supra).

Moreover, judicially, we must recognize that income taxes are continuing and reasonably predictable charg’es against corporate income. Their influence pervades modern business. Bare indeed is the corporation or businessman who is not. acutely aware of their incidence and effect upon its or his operations. Under such circumstances, to accept defendants’ argument that these taxes must be ignored because they were not yet “ liabilities ” would be to subject our reason to what Mr. Justice Cardozo termed the tyranny of labels ” (Snyder v. Massachusetts, 291 U. S. 97, 114). If a corporation, such as here, has earned a given net income over the first seven months of its tax year, it is only reasonable that the tax which will be payable on that income should be included in a determination of its financial position in terms of book value. The success or failure of the business thereafter is a risk the purchaser assumes.

In sum, then, the corrected inventory figure, conceded by plaintiff to be accurate, was properly allowed by the courts below. As for the estimated income taxes, they should have been deducted before reaching the final book value figure. The agreement called for book value as determined by audit; the audit, in turn, was expressly made subject to Federal and State income taxes, and prior to the contemplation of any contror versy. No question is raised as to the integrity of the accountant who made the audit — indeed, he was selected by defendants’ intestate herself. Good accounting practice required an estimation of those taxes for the seven-month period, and, although the actual computations did not appear on the corporate books, those computations should have been made by the trial court and deducted from the corporate earnings prior to determining book value.

Any other result would be unreasonable, . It would require plaintiff to pay to defendants over $53,000 extra for the stock, notwithstanding that at the end of the year he would be obligated either to pay out that same amount again in taxes on income attributable to the first seven months of the year, or to account for loss of that income in some other way. In other words, he would have to pay out an extra $53,000 in order to receive an income tax liability of equal amount. And, to make matters worse, the seriousness of this anomaly would vary tremendously depending upon when the applicable audit had taken place.

Accordingly, the judgment appealed from should be modified so as to take into account the estimated State and Federal income taxes in the computation of book value. In all other respects the judgment should be affirmed, with costs. Since no finding was made below as to what the book value of the stock would be when the inventory is valued at $51,058 and when the estimated taxes applicable to the January 1-July 31 income are included, the case should be remitted to the Supreme Court for computation of that figure.

The judgment of the Appellate Division should be modified in accordance with this opinion and, as so modified, affirmed, with costs.

Desmond, J.

(dissenting). Plaintiff and defendants’ intestate, each represented by counsel, and being the owners of all the outstanding stock of a corporation, agreed by a formal written contract: (1) that if either should wish to sell his or her stock while both were alive, the price should be the “ actual value ” as determined by arbitration; but (2) that when either should die, the stockholdings of the deceased should be sold to, and purchased by, the other stockholder at the “ booh value of said stock ” to “ be determined by the most recent audit of the boohs of the Corporation provided such audit has been made not more than sixty days before the death of such ” stockholder. (Italics supplied.) Stockholder Ostroff, defendants’ intestate, died on September 21, 1953, about a month after “ the most recent audit ” and less than sixty days after the date as of which the audit spoke. In this lawsuit the disputes are: first, as to whether the “ book value ” to be paid to defendants (Miss Ostroff’s administrators) should be reduced by the estimated amount of the corporation’s accrued Federal and State income taxes; and, second, whether “ book value ” should include, for inventory, the amount of $12,001.15 shown on the audit, or the amount of $51,058, shown not on the books but by a physical-count inventory made after Miss Ostroff’s death.

In every New York case we have found, the bare phrase “ bool value ’ ’ has been taken and defined to mean what it is popularly supposed to mean, that is, the assets shown on the books less the liabilities shown on the books (People ex rel. Knickerbocker Fire Ins. Co. v. Coleman, 107 N. Y. 541, 543; Steinbugler v. Atwater & Co., 289 N. Y. 816; Cabble v. Cabble, 111 App. Div. 426, 430 Lane v. Barnard, 185 App. Div. 754, 758). Book value “ if reached by estimating all the assets as they appear upon tin corporate books, and deducting all the liabilities and other mat ters required to be deducted by law ” (Coleman opinion, supra pp. 543-544). As tersely put in White on New York Corpora tians (Vol. 7, § 7.26): “ Book value means the value of the stock as shown on the books of the corporation. * * * Bool value is determined by deducting liabilities from assets. ’ ’ WitI that settled, we turn to the two items here in dispute: that is taxes and inventory.

The latest audit contained no liability figure for income taxei which could not, of course, be computed accurately until th< year ended. However, the report of audit contained a note tho the figures were “ Subject to Federal and State Income Taxes ¿ year-end adjustments ”. While, by such an audit, those taxei were not, in the fullest sense, “ determined ”, nevertheless, thi note, apparently made as a routine accounting practice, showec that the auditor (and the corporation) considered that its ne worth was lessened by accrued income taxes. Of course, th final amount of those taxes, dependent on future months’ earn ings and losses, could not be fixed until the end of the yeai However, they could be estimated. We, therefore, consider i reasonable to say that the book value ” of this corporation according to the “ most recent audit ”, necessarily involved deduction for the estimated amount of taxes to become due o: business already done.

As to inventory, the audit stated the value thereof as “ Esti mated..........$12,001.15 ’ ’, a figure submitted to the account ant at the time of the audit, by Miss Ostroff, the president, whos estate is now insisting that the larger figure of $51,058 be use because a post-death inventory produced that latter figure. W think that, in the absence of fraud or mathematical error, th book figure was the one to use. . These parties, taking thei chances as to which should die first, chose to make book valut as shown on the latest audit, the measure of price. It is entirely beside the point that the use of such figures turned out to he unfair ” to one or the other. As our courts long ago noted, a sale at book value is always unfair ” in the sense that book value, as to a going concern, is always more or less than, never 3qual to, actual or market value (People ex rel. Knickerbocker Fire Ins. Co. v. Coleman, 107 N. Y. 541, 544, supra; Cabble v. Cabble, 111 App. Div. 426, 430, supra). This corporation took inventory at intervals but had no running or continuous inventory. When the auditor came around, Miss Ostroff gave him an istimate of inventory and he put it on the books. At the trial, plaintiff’s counsel conceded that the actual figure, after Miss Dstroff’s death, was much higher than the book figure, but such a joncession could not change the contract’s test of book value ” is determined by latest audit. If, despite such a contract, there las to be a new physical inventory, and, likewise, a new, true valuation of every other asset and liability, then the phrase book value ” has no meaning and the convenient arrangements carecully worked out by the parties and their counsel in the written agreement comes to naught.

I have found no case where the New York courts have failed to 3arry out such an agreement according to its precise terms (see Drucklieb v. Sam H. Harris, Inc., 209 N. Y. 211, and Surrogate Griffith’s opinion in Estate of Reben, 115 N. Y. S. 2d 228, 237). In Steinbugler v. Atwater & Co. (289 N. Y. 816, supra), when the book value ” was computed, it was found that stocks 'in other corporations) owned by defendant Atwater were on the Itwater books at cost, which was concededly much higher than actual value. Atwater’s accountant then attempted to write these values down, but the courts, including this court, refused to.per-nit it. So the cost figures stood although, like the inventory value here, they were concededly erroneous ” in the sense that hey did not represent actuality.

The judgment should be modified accordingly, without costs.

Conway, Ch. J., Dye, Van Vooehis and Bubke, JJ., concur with Iboessel, J.; Desmond, J., dissents in part in an opinion in which Iuld, J., concurs.

Judgment accordingly.