author: Conway, J.

text:
    In the Matter of Guardian Life Insurance Company of America, Appellant, against Alger B. Chapman et al., Constituting the Tax Commission of the State of New York, Respondents.
    Argued November 29, 1950;
    decided March 8, 1951.

      Ferdinand Tannenbaum, James F. Donnelly, Merwin Lewis and Victor E. Whitlock for appellant.
    I. Premiums paid to and collected by appellant outside of the State of New York are not “ premiums written, procured or received in this state ” under subdivision 5 of section 187 of the Tax Law. (Provident Sav. Life Assur. Soc. v. Kentucky, 239 U. S. 103; Rosen v. Massachusetts Accident Co., 282 N. Y. 447; Connecticut Mut. Life Ins. Co. v. Spratley, 172 U. S. 602; Connecticut Gen. Life Ins. Co. v. Johnson, 303 U. S. 77; Thurman v. State, 37 Tex. Cr. Rep. 646; Smith v. State, 199 Ark. 900; People v. Daghita, 276 App. Div. 20, 301 N. Y. 223; Maryland Cas. Co. v. United States, 251 U. S. 342; General Fire Assur. Co. v. State Bank, 177 App. Div. 745; People ex rel. Hoyt v. Commissioners of Taxes, 23 N. Y. 224.) II. If section 187 of the Tax Law imposes a tax on the transmission into New York of the proceeds of premiums received by appellant’s agents in other States from policyholders residing outside of New York, it is unconstitutional. (U. S. Const., art. I, § 8, cl. 3; N. Y. Const., art. XVI, § 3; U. S. Const., 14th Amendt.; Brown v. Maryland, 12 Wheat. [U. S.] 419; Reading R. R. Co. v. Pennsylvania, 15 Wall. [U. S.] 232; Welton v. Missouri, 91 U. S. 275; Walling v. Michigan, 116 U. S. 446; Bowman v. Chicago & Northwestern Ry. Co., 125 U. S. 465; Leisy v. Hardin, 135 U. S. 100; Coe v. Errol, 116 U. S. 517; Brown v. Houston, 114 U. S. 622; Paul v. Virginia, 8 Wall. [U. S.] 168.) I'll. Section 187 of the Tax Law, as amended by chapter 530 of the Laws of 1937, does not impose a tax on premiums for reinsurance assumed where the person insured by the direct writer is not a resident of the State of New York. (People ex rel. Sea Ins. Co. v. Graves, 248 App. Div. 255, 274 N. Y. 312; Provident Sav. Life Assur. Co. v. Kentucky, 239 U. S. 103; Allgeyer v. Louisiana, 165 U. S. 578; Connecticut Gen. Life Ins. Co. v. Johnson, 303 U. S. 77.) IV. The clause “ including premiums for reinsurance assumed ” in section 187 (subd. 5) is confined to residents of New York or property located therein. (People ex rel. Continental Ins. Co. v. Miller, 177 N. Y. 515; Mutual Safety Ins. Co. v. Hone, 2 N. Y. 235; Pink v. American Sur. Co., 283 N. Y. 290; Matter of City of New York [Exterior St.], 285 N. Y. 455; Pouch v. Prudential Ins. Co., 204 N. Y. 281; Heald v. District of Columbia, 254 U. S. 20.) V. The clause ‘1 also including premiums written, procured or received in this state ” does not include reinsurance premiums. (People ex rel. Mutual Trust Co. v. Miller, 177 N. Y. 51; Smith v. People, 47 N. Y. 330; Chase v. Lord, 77 N. Y. 1; People ex rel. Westchester Fire Ins. Co. v. Davenport, 91 N. Y. 574; Matter of Livingston, 121 N. Y. 94; People ex rel. Callahan v. Board of Educ. of City of N. Y., 174 N. Y. 169; Tiger v. Western Investment Co., 221 U. S. 286; Cape Girardeau County Ct. v. Hill, 118 U. S. 68; Saltser & Weinsier, Inc., v. McGoldrick, 295 N. Y. 499; Helvering v. Stockholms Enskilda Bank, 293 U. S. 84.) VI. If subdivision 5 of section 187 be construed to apply to reinsurance premiums assumed with respect to nonresident risks, in no event does it cover reinsurance premiums where the direct writing company allocated and reported the corresponding direct premiums as taxable to another State.

      Harry D. Rudick, George 8. Allan and R. Palmer Baker, Jr., for North American Reassurance Company and another, amici curies, in support of appellant’s position.
    I. Section 187 of the Tax Law does not impose a tax on reinsurance premiums assumed where the original insured is not a resident of the State of New York. (People ex rel. New York Life Ins. Co. v. Walsh, 198 App. Div. 34, 233 N. Y. 539; People ex rel. Sea Ins. Co. v. Graves, 248 App. Div. 255, 274 N. Y. 312; Equitable Life Assur. Soc. of U. S. v. Pennsylvania, 238 U. S. 143; Connecticut Gen. Life Ins. Co. v. Johnson, 8 Cal. 2d 624, 303 U. S. 77.) II. The plain meaning of the term “ risk ” as used in section 187, with reference to life insurance, is that of the individual whose life is directly insured. III. The “ catch-all ” or inclusion clause contained in section 187 (subd. 5) does not cover reinsurance premiums. IV. Even if the “ catch-all ” clause contained in section 187 (subd. 5) has any application to reinsurance of risks resident outside New York State, it does not reach premiums on reinsurance assumed from ceding companies which report the ceded premiums as taxable in other States and which receive reimbursement from the reinsurers. (United States v. Collier, 104 F. 2d 420.)

      Nathaniel L. Goldstein, Attorney-General (John G. Grary, Jr., and Wendell P. Brown of counsel), for respondents.
    I. The direct premiums in issue are “ written, procured or received in this state ” within the meaning of section 187 of the Tax Law. (Cream of Wheat Co. v. County of Grand Forks, 253 U. S. 325; Lawrence v. State Tax Comm., 286 U. S. 276; Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U. S. 165.) II. The tax in issue does not violate any constitutional limitation. (Prudential Ins. Co. v. Benjamin, 328 U. S. 408; McGoldrick v. Berwind-White Coal Mining Co., 309 U. S. 33; Colgate v. Harvey, 296 U. S. 404; American Steel & Wire Co. v. Speed, 192 U. S. 500.) III. Section 187 of the Tax Law requires all reinsurance premiums written, procured or received in this State and not taxable as reinsurance premiums by any other State to be reported for taxation in gross premiums, subject to a deduction of such premiums received from authorized New York companies. (Pink v. American Sur. Co., 283 N. Y. 290; People ex rel. Sea Ins. Co. v. Graves, 248 App. Div. 255, 274 N. Y. 312; Connecticut Gen. Life Ins. Co. v. Johnson, 303 U. S. 77.)
   Conway, J.

In this proceeding, petitioner-appellant is here as of right, upon constitutional grounds (300 N. Y. 736), to challenge the determination of the State Tax Commission, which, under section 187 of the Tax Law, assessed certain additional franchise taxes upon it for the year 1939. The question presented is initially one of statutory construction, viz., whether, in view of the wording and purpose of section 187 of the Tax Law, certain direct and reinsurance premiums realized by petitioner should have been included in measuring the amount of its franchise tax. The constitutional arguments are advanced by petitioner in connection with the taxability of the direct premiums.

We note at the outset that the administration of insurance company taxation in this State is divided between two of the executive branches of our Government, the Department of Taxation and Finance, pursuant to the provisions of the Tax Law, and the Insurance Department, pursuant to the provisions of the Insurance Law. We need not concern ourselves with the reason for this division. We mention it only to show that both statutes deal with the same general subject matter and are obviously in pari materia. It is necessary here to compare the language of the Tax Law provisions with the present Insurance Law provisions. The latter, because of the circumstances surrounding their enactment, are valuable aids in illuminating the meaning of the former. Since the two laws are in pari materia, they must be read together and applied harmoniously and consistently. (Smith v. People, 47 N. Y. 330, 339, and cases cited.)

Prior to 1937, both under the Tax Law and the Insurance Law, the New York franchise tax had been computed by taking a percentage of the gross amount of premiums charged * * * for business done at any time in this state ”. Ih 1937, the Legislature adopted as a new basic tax measure, premiums “ on risks resident in this state ”. At that time, by the same chapter 530 of the Laws of 1937, both section 187 of the Tax Law and section 34 of the old Insurance Law were rewritten and both became substantially identical. Two years later, in 1939 (L. 1939, ch. 882), the entire Insurance Law was revised and recodified as a result of the work of a Joint Legislative Committee. Section 34 of the old Insurance Law was then broken up and its provisions — altered in form but not in substance — were placed in sections 550 and 552 of the new Insurance Law. It is apparent that the committee did not intend to change the meaning or scope of old section 34 (which, as noted, was identical with section 187 of the Tax Law), but merely attempted to clarify and restate its provisions.

The principal effect of the 1937 revision of both section 187 of the Tax Law and section 34 of the old Insurance Law was to substitute the new “ resident risks ” standard in place of the former “ business done ” standard for measuring the amount of premiums upon which the franchise tax was in turn to be computed. After the 1937 amendment, the basic taxing provision in subdivision 2 of section 187 of the Tax Law, applicable to domestic life companies such as petitioner, read in pertinent part as follows: “ * * * every domestic life insurance corporation * * * shall, for the privilege of exercising corporate franchises * * * pay a tax of one and three-fourths per centum on all gross direct premiums, less return premiums thereon, received in cash or otherwise on risks resident in this state * *

It was apparent, however, that adoption of the resident risks ” standard, as just quoted, without further provision, would eliminate from the total of premiums upon which the franchise tax was payable, a large amount of premium income received here by insurance companies organized in or authorized by New York, arising from policies on the lives of persons resident in other States and not taxed or taxable by such other States. Accordingly, at the time of the 1937 revision, the Legislature attempted to meet that problem in subdivision 5 of section 187: 5. In ascertaining the amount of direct premiums upon which a tax is payable under this section there shall be first determined the amount of total gross premiums or deposit premiums or assessments, less returns thereon, on all policies, certificates, renewals, policies subsequently cancelled, insurance and reinsurance executed, issued or delivered on property or risTcs located or resident in this state, including premiums for reinsurance assumed, and also including premiums written, procured or received in this state on business which cannot specifically be allocated or apportioned and reported as taxable premiums on business of any other state or states. * * * ” (Emphasis supplied.)

The clause last italicized above, viz., “ including premiums written, procured or received in this state on business which cannot specifically be allocated or apportioned and reported as taxable premiums on business of any other state or states ’ ’, has been referred to as the catch-all or inclusion clause. It is the clause upon which the dispute as to the direct premiums here involved has centered. It is clear, and no one questions, that the Legislature intended thereby to cover direct premiums received in New York under policies insuring the lives of individuals residing in States in which the New York company is not currently authorized to do business and therefore is not there subject to tax. The controversy here is not over that broad purpose of the inclusion clause, but rather over whether the particular direct premiums here involved, because of the method of their collection, were ‘ ‘ written, procured or received in this state ” within the meaning of the statute.

That leads us to a statement of the agreed facts of the ease, applicable for the tax year of 1939: Petitioner, whose home office is in New York City, is authorized to do business in all but fifteen of the States of the United States. Nevertheless, petitioner has in force policies covering the lives of persons resident in each of those fifteen States although not there authorized to do business. Policyholders in those States may pay their premiums, following the initial payment, either at the home office in New York, or at a local agency of the petitioner in a State where it is authorized to do business, adjoining or near the State of residence of the policyholder. Premiums, paid by policyholders resident in States where petitioner is not admitted, to agencies in near-by States where petitioner is admitted, are deposited in a bank account, in the name of the petitioner, located in the city where the collecting agency is located. Funds in those accounts are subject to withdrawal only by petitioner. From time to time, petitioner obtains possession of the funds in those accounts by drawing checks thereon, thereby withdrawing the funds to the State of New York. In each city where an agency of petitioner is located, there is also maintained another bank account in the name of the agency manager, subject to withdrawal only by the agency manager or cashier, for the payment of local expenses and commissions, but no premium moneys are deposited in such accounts.

In each of the States in which petitioner is admitted to do business it pays a franchise tax based upon the premiums paid to it on policies on the lives of persons resident in those States, except in one State, where the tax is upon the net reserves on policies on lives of residents there. In the fifteen States where petitioner is not admitted to do business, it is not taxed in any way upon the premiums paid to it on policies on the lives of persons resident in such States. Moreover, petitioner is not taxed by the States in which it is admitted to do business upon the premiums collected by its local agencies therein from policyholders resident in the States where it is not admitted to do business.

Petitioner made and filed with the State Tax Commission its written reports of gross premiums covering each quarter of 1939. The amount of gross premiums so filed consisted entirely of direct and reinsurance premiums received by petitioner [applicant] with respect to risks resident in the State of New York, and included no direct or reinsurance premiums with respect to any risks resident elsewhere.” Petitioner thus did not report as taxable the direct premiums, paid by policyholders residing in States where it was not admitted, collected by its agencies in adjoining States where it was admitted, and withdrawn by it to New York in accordance with the method specified above.

Petitioner’s principal contention with respect to the direct premiums above described is that they were “ received ” by it when they were collected by its agencies in other authorized States, and hence that the determination of the State Tax Commission that snch premiums were written, procured or received in this state ” was unauthorized by, and in conflict with, the meaning and intent of the inclusion clause in subdivision 5 of section 187 of the Tax Law. Petitioner argues, in other words, that there can be only one receipt of the premiums by it and that when the premiums were once “ received ” by its agency in another State and deposited in petitioner’s bank account, the premiums were, then and there, received ” by petitioner so that they lost their character as premiums and could not again be received in this state ” when petitioner withdrew the funds into this State.

The contention, in our judgment, is predicated upon too narrow a construction of the word “ received ”. Moreover, it obviously eliminates from the statute the other operative words, “ written ” and procured ”, which appear disjunctively with the word received ” in the inclusion clause. We find it unnecessary, however, to determine the scope and meaning of the words written ” and “ procured ”, for, on the facts of the instant case, we think it clear that the premiums here involved were received in this state ” within the meaning and purpose of the inclusion clause.

The language of the statute must be read in the light of what it was intended to accomplish. Quite evidently, the State of New York, in the inclusion clause, was attempting to include as a measure of the franchise tax, all premiums not taxable elsewhere and primarily attributable to the privilege granted to insurance companies to exist and do business here. As noted, the basic “ resident risks ” standard used in subdivision 2, without further provision, would exclude a large amount of premium income actually realized by New York companies from policyholders resident in States where the company was not authorized to do business. It has long been settled that the mere payment of premiums to a foreign insurance company does not constitute the doing of business by the company in the State of the policyholder’s residence so as to justify a tax by it. (See, e.g., Provident Sav. Life Assur. Soc. v. Kentucky, 239 U. S. 103; Allgeyer v. Louisiana, 165 U. S. 578.) Hence, none of the fifteen States from which petitioner admittedly realizes premium income, although not authorized to do business therein, could tax such premiums. It is not as clear whether the adjoining States, in which petitioner is authorized and maintains agencies where the premiums from residents in nonadmitted States are collected, would have the power to tax such premiums. That is a question, however, which is not before us, for it is here undisputed that no State has attempted to tax the premiums here in issue, and, by the very terms of the inclusion clause, if the premiums were properly “ allocated or apportioned and reported as taxable premiums on business of any other state or states ”, they would not be used as a measure of the New York franchise tax.

We thus have a situation in which petitioner is acquiring the benefit of a large amount of premium income which is either not taxed or not taxable elsewhere. Petitioner’s ability to earn such premiums stems directly from the privilege granted by the State of New York to it to exist and to carry on an insurance business in a corporate capacity. The Legislature has determined that such income, reasonably attributable to the New York franchise, should be included in measuring the amount of the New York franchise tax. In so doing, the Legislature, in the inclusion clause, has departed to some degree from the basic resident risks ” standard, and has continued the business done ” measure of computing premium income for the New York franchise tax. Thus, even though these risks are not resident in New York, they are treated for franchise tax purposes as though they were resident here, since the business is peculiarly attributable to the New York franchise and is either not taxed or not taxable elsewhere. This is made clearer in the corresponding provision of the recodified Insurance Law, enacted in 1939, where the catch-all or inclusion clause — amended in form but not in substance — appears as a separate subdivision 2 of section 550 and reads as follows: 2. In determining the amount of direct premiums taxable in this State, all such premiums written, procured, or received in this state shall he deemed written on property or risks located or resident in this state except such premiums as are properly allocated or apportioned and reported as taxable premiums of any other state or states.” (Emphasis supplied.)

When that is understood, it becomes clear that the word received ” in the inclusion clause of subdivision 5 of section 187 of the Tax Law can have no such narrow meaning as that asserted by petitioner. Dictionary definitions of the word, purporting to show that there can be only one receipt of money at a single fixed time and place, avail us little. We must recognize the practicalities of the situation. The premiums, it is true, are initially and constructively “ received ” by petitioner when they are collected by its agents in other States. At that time, the premiums are deposited in petitioner’s local bank account, subject to withdrawal only by petitioner. ‘ ‘ From time to time ’ ’, as the agreed statement of facts reads, petitioner obtains possession of the funds in said accounts by drawing checks thereon, thereby withdrawing the said funds to the State of New York.” Thus, the petitioner reduces to actual possession and receives ” in this State, the premium proceeds which had previously been constructively received on its behalf by its out-of-State agencies. The whole process by which petitioner ultimately obtains the benefit of these premiums must be viewed in its entirety, and when so viewed, it is clear that the disputed direct premiums are “ received in this state ” both within the language and intent of the statute.

The principal authority cited by petitioner on this point is Maryland Cas. Co. v. United States (251 U. S. 342, 345-348) which held, on the particular facts there involved, that premiums paid to the agents of the casualty company constituted income, for Federal income tax purposes, received within the tax year when so paid, even though not transmitted to the treasurer of the company until a later tax year. The question arose because, as the Supreme Court said, “ The amount, if deducted one year, might appear in the return of the claimant for the next year, but the rate might be different,” (P. 346.) There are important factual variations between that case and the case at bar. For instance, it appears that the agents in that case took physical possession of the premium money, and at stated intervals remitted ” by cash or equivalent, the balance due the company. Here, of course, the premiums were deposited in the company’s own bank account and could be withdrawn at any time by its own check. But aside from that, we do not think the Maryland Casualty Co. case supports petitioner ’s contention here. The issue was not whether the premium income should be reported at all, but rather whether it should be reported in one tax year or a later year, and, as the Supreme Court pointed out, “ only imperative language in the statute would justify a construction which would place it in the power of the claimant, by private contract with its agents, to shift payment of taxes from one taxing year into another.” (P. 347.) So, in the instant case, policyholders in unauthorized States may, at their option, mail their premiums to petitioner’s home office in New York or to the agencies in adjoining authorized States. We do not believe that it was intended that the incidence of the tax upon such premiums should depend upon the purely fortuitous circumstance of whether a policyholder should choose to mail his premium directly to New York, or to the nearby agency, when in either event, petitioner in New York is immediately in sole and exclusive control of the premium funds.

Nor do we find merit in the several constitutional arguments made by petitioner in connection with the taxability of the disputed direct premiums. On this appeal, the principal contention is that the statute, as applied, violates the commerce clause of the Federal Constitution. Before considering that contention, we pause to note two minor constitutional objections. Petitioner asserts that the statute, as we construe it, would be unconstitutional under the due process clause of the Fourteenth Amendment to the Federal Constitution if applied, in certain circumstances, to a foreign insurance company authorized to do business in New York. Petitioner supposes an extreme administrative application of the statute which may never come to pass. Aside from that, however, the simple and conclusive answer to the contention is that petitioner is not a foreign, but a domestic, insurance company, and hence has no standing to raise a constitutional objection not applicable to it, even if the argument might be valid if raised by another. (People v. Kunz, 300 N. Y. 273, 277, revd. on other grounds, sub nom. Kunz v. New York, 340 U. S. 290; O’Kane v. State of New York, 283 N. Y. 439, 449.) Likewise, there is no substance to petitioner’s claim that the portion of the franchise tax measured by the disputed direct premiums is an ad valorem tax forbidden by section 3 of article XVI of our State Constitution. The tax is not, in any sense, a tax upon property, but is a franchise tax measured by premium income. Obviously, no attempt is made to tax, ad valorem, any of petitioner’s intangible property in this State.

Finally, petitioner urges that by construing the inclusion clause to include premiums collected by its out-of-State agencies, deposited in its out-of-State bank accounts and eventually withdrawn by it to this State, the Tax Commission and the court below have, in effect, held that the State of New York may tax petitioner’s “ importation of its own money into New York ”. Petitioner in effect likens the tax to one upon goods or commodities in interstate commerce and says that the effect would be the erection by New York of toll booths along its borders to exact a tax for the privilege of bringing premium proceeds into the State.” This, says petitioner, is an unconstitutional regulation of commerce between the States, infringing upon Congress’ authority, and forbidden by the commerce clause.

It is plain that petitioner misconceives the nature of the tax here involved. It is not a tax upon income as such, but rather a fee paid by a domestic insurance company for the privilege of exercising a corporate franchise measured by its premiums reasonably attributable to business of this State, either because the. premiums arise from policies on resident New York risks (Tax Law, § 187, subd. 2), or may be deemed to be from policies on New York risks because they are received in New York and cannot be allocated or apportioned and reported as taxable on business of any other State. (Tax Law, § 187, subd. 5, inclusion clause.) New York has not attempted to impose a tax “ upon ” the money itself, much less upon any importation ” thereof. The tax is upon the domestic insurance company and is measured by the premiums traceable to the privilege of its existence conferred by the State of New York. It will be noted that the franchise tax is exactly the same, both as to domestic and foreign insurers, and that it does not discriminate or place anyone at a competitive disadvantage. No possible question of multiple taxation, which might be conceived as a potential burden upon interstate commerce, can arise because the inclusion clause by its own terms applies only where the premiums are not otherwise taxed anywhere. In short, there has been here demonstrated no unconstitutional burden upon, or regulation of, interstate commerce. (See McGoldrick v. Berwind-White Coal Mining Co., 309 U. S. 33, 45, Stone, J.)

Entirely apart from that, however, we are unable to agree that the commerce clause has any application to our problem. For many years, it was assumed that the business of insurance, despite the fact that it was frequently national in scope, was not interstate commerce within the meaning of this constitutional provision. This belief stemmed from the decisions of the Supreme Court in Paul v. Virginia (8 Wall. [U. S.] 168) and subsequent cases, holding that the negative implications from the commerce clause did not place any limitation upon the power of States over the business of insurance. (See Prudential Ins. Co. v. Benjamin, 328 U. S. 408, 414, 434.) Then, in United States v. South-Eastern Underwriters Assn. (322 U. S. 533), the Supreme Court sustained an indictment against the insurance association under the Sherman Act, thereby holding that Congress under the commerce clause had the power to regulate the business of insurance, i. e., that insurance was commerce and, when it crossed State lines, interstate commerce. It was then feared by many that the elaborate and detailed laws existing in every State for the regulation and taxation of insurance companies were jeopardized. Accordingly, Congress, after investigating the matter, passed the McCarran Act, which declared it to be the policy of Congress that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.” (U. S. Code, tit. 15, § 1011; see, also, § 1012.) These provisions were upheld and fully enforced by the Supreme Court in Prudential Ins. Co. v. Benjamin (supra, pp. 429-431). The result of this judicial and Congressional activity, in our judgment, is that, while the business of insurance may now be “ interstate commerce ”, nevertheless, the States, by express Congressional consent, may continue to tax and regulate it, free from any negative prohibitions implicit in the commerce clause, but subject, however, to other constitutional provisions which may be applicable, such as due process. Here, there is no claim that the franchise tax as applied to petitioner, a domestic insurance company, is unconstitutional for lack of jurisdiction or violatian of any provisions of the Federal Constitution other than the commerce clause and, by clear and unambiguous Congressional consent, approved by the Supreme Court, the application of the commerce clause has been removed from State systems of taxation and regulation of the business of insurance.

We turn now to the second main category of disputed premiums, which may be described as follows: Reinsurance premiums, paid to petitioner in New York, under contracts of reinsurance executed in New York, by direct writing companies not authorized to do business in New York, where the original policies are on the lives of persons not resident here.

It will be recalled that the main taxing provision in section 187 for life insurance companies, viz., subdivision 2, does not mention reinsurance premiums. They are mentioned only in subdivision 5 of section 187 of the Tax Law, quoted in full above, which requires the franchise tax to be computed upon “premiums * * * on all policies * * * insurance and reinsurance executed, issued or delivered on property or risks located or resident in this state, including premiums for reinsurance assumed. * * V.’ (Emphasis supplied.)

An identical provision appeared in section 34 of the old Insurance Law following the revision of 1937 which changed the basic tax measure, in both the Insurance Law and the Tax Law, from the “business done ” standard to the “ resident risks ” standard. Concurrently, both sections were also amended so that the administrative method of handling the taxation of reinsurance premiums was changed from the so-called ‘1 net retained basis ” to the “ direct basis Under the “ net retained ” formula, a direct writing company admitted to do business in this State, reported and was taxed upon only that portion of the premium which it retained, and the reinsuring company, admitted to do business in this State, reported and was taxed upon the portion which it received here from the direct writing company. Under the new “ direct ” basis, adopted in 1937, an admitted direct writing company reports and is taxed upon the whole premium received by it from the policyholder, and the admitted reinsuring company, while required to report the receipt of the reinsurance premium, is permitted to deduct it from the total of its gross premiums subject to tax. (Tax Law, § 187, subd. 5, par. [a].) There is no provision for such deduction where an authorized New York company receives reinsurance premiums from a direct writing company not authorized to do business in this State, for in that case, New York has not had an opportunity to tax the direct premium. A number of different factual situations may arise depending upon whether such reinsurance premiums are paid here or in another State under a contract of reinsurance executed here or in another State (see, e.g., Connecticut Gen. Life Ins. Co. v. Johnson, 303 U. S. 77), and depending also upon whether the original policy issued by the nonadmitted direct writing company is upon the life of a person resident here or in another State. Here, however, we are concerned solely with the state of facts presented and our discussion is limited thereto. The question before us is whether, under section 187 of the Tax Law, a domestic insurance company is required to report and is taxed upon reinsurance premiums received here by it from a direct writing company -not authorized to do business in this State where the person originally insured by such direct writing company is not a resident of this State.

Reinsurance premiums of that type have been included by the State Tax Commission in determining the amount upon which petitioner’s franchise tax is computed. Petitioner contends that it was not intended that these reinsurance premiums be included in measuring its franchise tax under subdivision 5 of section 187 of the Tax Law.

The Tax Commission, on the other hand, points to the following language of subdivision 5 as authority for the imposition of the tax: “ * * * there shall be first determined the amount of total gross premiums * * * on all policies * * * insurance and reinsurance executed, issued or delivered on property or risks located or resident in this state, including premiums for reinsurance assumed * * The words. “ including premiums for reinsurance assumed ”, read in context, are clearly limited to premiums on policies on “ property or risks located or resident in this state ”. In the last-quoted phrase, the word “property ” is to be read with the word “ located ” and the word “ risks ” is to be read with the word “ resident ”, Thus, in order to be taxable under the statute, the reinsurance premiums must either be “ on property * * * located * * * in this state ” or on “ risks * * * resident in this state ”. With respect to life companies, it is clear that the words “ property * * * located * * * in this state ’ ’ have no application. We are thus led to the question whether the reinsurance premiums here involved can be said to be on risks * * * resident in this state ” when the person whose life is insured by the direct writing company is a resident of another State.

It is urged by respondents here that these reinsurance premiums are taxable because the intangible liability of the reinsuring company to the nonadmitted direct writing company is the risk * * * resident in this state ”. In other words, that the risk under the reinsurance contract is not the life of the person insured by the direct writer of the policy but is the liability of the reinsuring company to the direct writer and that such risk ” is located ” where the contract of reinsurance is made and to be performed. To accomplish this, the sentence must be rewritten so that the word risk ” is modified by the word “ located ” rather than by the word “ resident ”, whereas the context of the statute makes it plain that the Legislature was referring separately to (a) “ risks * * * resident in this state ” and to (b) “ property * * * located * * * in this state ”. (Emphasis supplied.) In addition, the contention fails to recognize that the word resident ” normally connotes the idea of the dwelling place or abode of a living person. Inanimate things, whether tangible or intangible, do not ordinarily “ reside ”, but people do. It seems clear to us that the phrase “ risks * * * resident in this state ”, as used in the statute, refers to the residence of-the person whose life is insured and not to the location of the intangible liability of the reinsuring company to the non-admitted direct writing company. This court has so used the word risks ”. See, e. g., People ex rel. Continental Ins. Co. v. Miller (177 N. Y. 515, 521) where we said: “ Reinsurance is a contract by which one insurer insures the risks of another insurer.” The word has a commonly accepted meaning in the insurance business, viz., a “ risk ” is the physical property or the person insured. In dealing with insurance taxation matters, it is natural to assume that the Legislature used words in the sense commonly understood in the insurance world.

The matter has been put beyond all doubt by the action of the Legislature itself when it recodified in 1939, section 34 of the old Insurance Law, which as we have already noted is in pari materia with section 187 of the Tax Law and must be read together with it. (Smith v. People, 47 N. Y. 330, supra.) The recodifiers changed the reinsurance provision in the Insurance Law, which is applicable to alien life companies among others, and which formerly had been identical with the Tax Law provision, to read as follows (Insurance Law, § 552, subd. 4): “ * * * there shall be first determined the amount of total gross premiums * # * on all policies * * * on property or risks located or resident in this state, including premiums for reinsurance assumed, to the extent that the same covers property or risks located or resident in this state.” (Emphasis supplied.) The new italicized language above, repeating as it does in the same clause of the statute the words “ property or risks located or resident in this state ’ ’, was an obvious effort on the part of the recodifiers of the Insurance Law to make it clear that it was never intended by the Legislature to impose a tax upon reinsurance premiums where the original direct policy was on property or risks located or resident outside of the State of New York.

Since that was always so. intended by the Legislature as to alien life reinsurance companies, which are covered under section 552 of the Insurance Law, then it was also always so as to domestic life reinsurance companies, for if any discrimination were intended by the Legislature it would not be likely to be in favor of alien companies and against domestic companies. In a similar situation, the Supreme Court has said: “ On the contrary, the natural conclusion is that if any discrimination had been intended it would have been made in favor of, and not against, the domestic corporation, which contributes in a much more substantial degree to the support of the people and government of the United States.” (Helvering v. Stockholms Enskilda Bank, 293 U. S. 84, 90.)

It is also suggested that the disputed reinsurance premiums might be included as a measure of the franchise tax under the above-noted catch-all or inclusion clause, since, it is argued, that clause is not limited in terms to direct premiums but covers all premiums, including those received for reinsurance.” We do not think this to he a permissible construction of the inclusion clause. Subdivision 5 of section 187 — in which the inclusion clause appears — begins “ In ascertaining the amount of direct premiums * * *. ” (Emphasis supplied.) It seems evident that the language used therein, unless expressly stated otherwise, is to apply only to such direct premiums. If the inclusion clause had been intended to apply to reinsurance premiums, we think the Legislature would have so stated in explicit terms as it had already done at one other point in the same subdivision.

Here again, reference to the corresponding Insurance Law provision is helpful. Old section 34 when enacted with section 187 of the Tax Law contained the identical inclusion clause at exactly the same place. The recodifiers, however, removed it from that position, thereby separating it completely from the provision relating to reinsurance premiums, and made it a separate subdivision 2 of section 550 of the present Insurance Law. They also added new introductory words as follows: “ In determining the amount of direct premiums taxable in this state, all such premiums * * (Emphasis supplied.) Thus, as there used, the inclusion clause can only refer to direct premiums and not to reinsurance premiums. As stated earlier, this amendment of the Insurance Law is a legislative clarification of the language previously used in old section 34 and, since that same language was also used and still appears in section 187 of the Tax Law, the latter provision must be deemed to have the same meaning as the corresponding Insurance Law provision, as legislatively clarified.

In short, we conclude that, while the State Tax Commission correctly and constitutionally determined that the direct premiums here involved should be included to compute petitioner’s franchise tax under section 187 of the Tax Law, the further determination that the reinsurance premiums here involved should also be included was erroneous and not authorized by the language of the section.

The order of the Appellate Division should be modified by reversing so much thereof as confirms the determination of the respondents that the reinsurance premiums here involved were taxable and the determination, to that extent, should be annulled; in all other respects, the order should be affirmed, with costs to petitioner-appellant in this court and in the Appellate Division.

Loughran, Oh. J., Lewis, Desmond, Dye, Fuld and Froessel, JJ., concur.

Ordered accordingly.

       For example, most admitted “ alien ” insurance companies, viz., companies organized under the laws of any government outside of the United States, are taxed under the Insurance Law (present § 552, subds. 1, 2; old § 34, subds. 1, 2, 4), but certain admitted alien fire and marine companies are also taxed under the Tax Law (§ 187, subd. 4). Similarly, certain admitted “ foreign ” companies, viz., companies organized under the laws of any other State of the United States, are taxed upon nonlife business under the Insurance Law (present § 552, subd. 3; old § 34, subd. 4), while admitted foreign life companies, as well as all domestic insurance companies, are taxed under the Tax Law (§ 187, subds. 1, 2). Foreign casualty and surety companies pay a 2% tax which is customary for nonlife companies, but 1% is paid under the Insurance Law (present § 552, subd. 1, par. b; old § 34, subd. 3) and the other 1% is paid under the Tax Law (§ 187, subd. 3).


source: Caselaw Access Project

author: Fuld, J.

license: Public Domain

text:
    In the Matter of the Accounting of Henry M. Hubbell et al., as Trustees under the Will of Sophie E. Hubbell, Deceased, Respondents. Esther C. Weltmer et al., Appellants; Henry M. Hubbell et al., Individually, Respondents.
    Argued November 30, 1950;
    decided March 8, 1951.

      Malcolm Wilson and Thomas D. Scoble, Jr., for appellants.
    I. The Surrogate correctly ruled that respondent trustees had no power to set aside out of annual income a reserve for real estate depreciation; he erred in holding that as long as the annual net income in any event was insufficient to pay respondent life beneficiary all of the $10,000 per year, he was legally justified in selling out all of the trust corpus. The Appellate Division erred in holding that respondent trustees were under a legal duty to deduct annual reserves for depreciation in the absence of a specific term in the trust instrument forbidding such a deduction. Appellant remaindermen are entitled to the relief herein sought. (Matter of Ottmann, 197 Misc. 645; Matter of Davies, 197 Misc. 827; Matter of Kaplan, 195 Misc. 132; Matter of Kellogg, N. Y. L. J., Mar. 22, 1950, p. 1020, col. 5; Matter of Adler, 164 Misc. 544; Matter of Edgar, 157 Misc. 10.) II. The corporation owned in equal shares by the trust and respondent individually, and solely controlled by him, concededly never preserved a dollar of the “ depreciation reserves ” deducted -from income on the books. Therefore respondent cannot hide behind mere bookkeeping falsifications to justify his unnecessary sale of the trust stock to the corporation every year and totally obliterate the corpus of the trust. (Matter of Richardson, 149 Misc. 192, 229 App. Div. 738, 255 N. Y. 632; Underhill v. Newburger, 4 Redf. 499; Matter of Adler, 165 Misc. 544; City Bank Farmers Trust Co. v. Cannon, 291 N. Y. 125; Matter of Ridings, 297 N. Y. 417; Munson v. Syracuse, G. & C. R. R. Co., 103 N. Y. 58; Matter of Durston, 297 N. Y. 64; Carrier v. Carrier, 226 N. Y. 114.) III. Respondent’s annual sales of the trust stock between 1936 and 1943 at the fixed value of $370.43 per share, failed in each successive year to make fair allowance for the increased value each year of the additional treasury stock thus created.

      Albert Ritchie and J. Addison Young, II, for respondents.
    I. Respondents, as trustees, faithfully carried out the provisions of testatrix’ will. (Matter of Flint, 240 App. Div. 217, 266 N. Y. 607; Matter of Balfe, 152 Misc. 739, 245 App. Div. 22; Frankel v. Farmers’ Loan & Trust Co., 152 App. Div. 58, 209 N. Y. 553; Matter of Rowland, 273 N. Y. 100; Matter of Jackson, 258 N. Y. 281; Matter of Clark, 280 N. Y. 155; Matter of Woollard, 295 N. Y. 390.) II. The divided loyalty rule has no application in this case. (Matter of Balfe, 245 App. Div. 22; Crabb v. Young, 92 N. Y. 56; Matter of Durston, 297 N. Y. 64; Matter of Ridings, 297 N. Y. 417; Matter of Ryan, 186 Misc. 688; City Bank Farmers Trust Co. v. Cannon, 291N. Y. 125.) III. Nothing that the trustee did resulted in any loss or injury to the estate. TV. There was no act of the trustees as directors of the corporation that tended to impair the value of the stock held by them and had there been mismanagement in the affairs of the corporation in which they did not participate they are not liable therefor. (Isaac v. Marcus, 258 N. Y. 257; Wilmerding v. McKesson, 103 N. Y. 329; Bruen v. Gillet, 115 N. Y. 10; Riggs v. Purcell, 74 N. Y. 370; Bannon v. Bannon, 270 N. Y. 484; Skinner v. Paramount Pictures, Inc., 294 N. Y. 474; Everett v. Everett, 180 N. Y. 452; O’Brien v. Fitzgerald, 6 App. Div. 509, 150 N. Y. 572; People ex rel. Jamaica Water Supply Co. v. State Bd. of Tax Comrs., 196 N. Y. 39; Matter of Auditore, 249 N. Y. 335.) V. The burden of proof was on appellants to establish any loss due to the fault of the trusteees.
   Fuld, J.

Sophie Hubbell died in May of 1931. Her last will, dated in 1928, and a codicil, made less than a year later, were admitted to probate in the Surrogate’s Court of Westchester County in June, 1931. She devised and bequeathed the residue of her estate to her husband, Henry Hubbell, and the New Rochelle Trust Company, as trustees, with directions that ‘‘ should I leave real property or any interest therein, I direct that the same shall be converted into cash and my entire estate * * * converted into cash or investment securities and when so converted I direct that the same shall be invested and reinvested in interest bearing securities and the interest and income thereof paid to my husband * * * for and during the term of his life ”. She expressly provided, by the codicil, that, in case such net interest and income should not equal $10,000 in any year, the corpus of the trust was to be invaded upon his request in order to guarantee him that amount. Upon her husband’s death, the remainder was to be paid outright or in trust to Janet Hubbell — described as “ a member of my family since childhood although not adopted ” — to nieces and nephews, or their children, and to several charitable organizations. If she died possessed of stock of the Hubbell-Coligni Corporation or of the Hubbell Hardwood Door Company, such stock, the testatrix recommended, should ‘ ‘ be held as a part of the corpus of the various trusts which I have created ’ ’ and she specified that such securities * * * be taken at their appraised value on the inventory of my estate for taxation ’ ’. Providing that those securities “ may be sold at any time with the approval ” of her husband “ or at any time ” that her executors and trustees 11 may deem advantageous to my estate ”, she directed that they “ shall not be held accountable for any loss or depreciation in * * * [their] value * # * by the reason of holding them as investments of the trusts ”.

Mr. Hubbell and the New Rochelle Trust Company qualified as trustees and have so acted throughout the period involved in this proceeding. Their first intermediate account was judicially settled and allowed in July, 1935. Their second intermediate account, the subject of the present proceeding, covers the period extending from that date to March 12, 1945.

Mrs. Hubbell’s entire residuary estate consisted of 618 shares of stock, without par value, of Hubbell-Coligni Corporatian (hereinafter referred to as the Corporation); such shares, representing 50% of the Corporation’s outstanding stock, were valued in the federal estate tax proceedings at $228,925.74, being a value of $370.43 a share. The remaining 618 shares of the Corporation were and continue to be owned by the husband, who was and continues to be president of the Corporation and one of its directors. The board consists of three directors, Mr. Hubbell, a nominee of his and a representative of the corporate trustee. The assets of the Corporation consist of three apartment houses, several one-family houses, an industrial parcel, several lots and. a farm in Connecticut. Mr. Hubbell and his second wife have been living in one of the one-family dwellings and a hardware company which he controls has occupied the industrial parcel.

ÍSTo dividend has been paid on the stock of the Corporation since the trust was created; the only income with which the trustees have charged themselves — from sources not altogether clear — is the gross sum of $86.43. The account also shows that, in 1935 and in each of the following eight years, the husband requested that he be paid the guaranteed sum of $10,000. In f order to effectuate that result — and procure the $10,000 — the 1 trustees of the estate arranged with the directors of the Cor-I poration, who to all intents and purposes were one and the same, that the Corporation purchase from the trustees in each of the years involved 27 shares of its stock at the inventory value of $370.43 a share. These sales to the Corporation are justified by the trustees upon the ground that they knew of no other market for the stock. As a result of the method of invasion of principal employed, there has been, to the date of the account, a reduction of the estate holdings by approximately 44%, and the trust has been transformed from a holder of 50% of the outstanding stock of the Corporation to an owner of approximately 36% and, by the same token, the husband’s holdings have increased from 50% to 64% of the outstanding shares.

In addition to approval of their account, the trustees sought instructions as to how to meet the husband’s anticipated demands in later years. In that connection, they showed that in 1944 the Corporation changed its shares of stock from no par to $100 par value, had its assets appraised, and entered the appraised values on its books. ■ This resulted in reducing the book value of the shares to $152.29 each, and the trustees requested authority to make further sales to the Corporation at that new figure. This would exhaust the remaining shares held by the estate and effect a complete destruction of the trust corpus by the end of 1951.

Appellants, who are some of the remaindermen, interposed various objections to the account. As originally submitted, the account did not reflect the results of the operations of the Corporation; however, following an application for such data, the trustees filed, as a supplement to their account, the financial statements of the Corporation for the years 1935 through 1944. They show that the operations of the Corporation resulted in a loss in each of the ten years, amounting in the aggregate to $26,364.92 (without taking into account a loss of $5,347.27 on disposal of other assets). In arriving at those figures, the Corporation had set up on its books a reserve for depreciation, and that account was credited with the aggregate sum of $104,205.10 during the ten-year period. Accepting those figures, appellants claimed that the income before depreciation — $77,840.18 — should have been distributed and that, if that had been done, less shares of stock would have had to be sold to make up the guaranteed $10,000.

The Surrogate overruled that objection and all of the others advanced. He also approved, the proposal of the trustees that, “ in order to satisfy the request [ed] invasions of principal for the year 1944 ”, they be permitted to sell the stock to the Corporation at the new book value of $152.29 a share. He declined to consider “ at this time ” the value to be ascribed to the stock and the price at which it was to be sold in the years following 1944. The Appellate Division unanimously affirmed, and the case is here by permission of that court.

It is to be noted at the outset that no basis exists for the claim originally asserted by respondents — though apparently abandoned in this court — that the 1935 decree settling the trustees’ account for the period ending July 1935, is res judicata as to appellants’ present objections. Such a decree is conclusive against the parties only as to matters or items embraced in the account previously approved. (Surrogate’s Ct. Act, § 274; see Joseph v. Herzig, 198 N. Y. 456; Van Rensselaer v. Van Rensselaer, 113 N. Y. 207; Matter of Seaman, 275 App. Div. 484, 487; see, also, Jessup-RecLfield, Law and Practice in the Surrogates’ Courts, § 457, p. 510; Note, 1 A. L. R. 2d 1060.) The 1935 account failed to name the purchaser of the Corporation’s stock from the estate, and, accordingly, the propriety of the sale to the Corporation has not hitherto been reviewed by any court. A most unfortunate circumstance, for had the problem been submitted to the Surrogate when it first presented itself to the trustees, at the inception of difficulties, the present controversy would in all probability have been avoided and there would be no need to assay these transactions in the light of hindsight.

In judging the conduct of trustees, the basic consideration is the fiduciary obligation which they owe to all of the beneficiaries whom they represent. (Cf. Matter of Durston, 297 N. Y. 64, 71-72; Meinhard v. Salmon, 249 N. Y. 458, 464, 468; Carrier v. Carrier, 226 N. Y. 114,125-126; Munson v. Syracuse, G. & C. R. R. Co., 103 N. Y. 58, 73.) 11 A trustee ”, this court said in Meinhard v. Salmon (supra, 249 N. Y. 458, 464), ‘ ‘ is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘ disintegrating erosion ’ of particular exceptions (Wendt v. Fischer, 243 N. Y. 439, 444). Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.”

Where, as here, the trustees own, in their individual and representative capacities, the entire outstanding stock of a corporation, that duty extends not only to the trust estate as such but also to the operations of the corporation. (See Matter of Horowitz, 297 N. Y. 252; Matter of Doelger, 279 N. Y. 646, affg. 254 App. Div. 178; Matter of Auditore, 249 N. Y. 335, 278 N. Y. 234; Matter of Witkind, 167 Misc. 885, 893; Farmers’ Loan & Trust Co. v. Pierson, 130 Misc. 110, 119; see, also, Cahn, Estate Corporations, 86 U. of Pa. L. Rev. 136,138.) Cahn states the rule in this way (loc. cit.): “ It is well established that where a trustee holds a worldng control of the stock in an estate corporation he is accountable in the probate court for the administration of the corporate affairs. His cestuis que trustent may require him to treat the corporate transactions as though they were his own transactions as trustee [Farmers’ Loan & Trust Co. v. Pierson, 180 Misc. 110; Matter of Auditore, 249 N. Y. 335].”

While Mrs. Hubbell necessarily contemplated that the trustees would be required to deal with her husband with respect to occupancy of some of the properties owned by the Corporation — for that condition had existed when the Corporation was formed and was presumably to continue thereafter — there is nothing to indicate that she contemplated that, if it became necessary to sell the stock, the trustees were free to do so by agreement with one of themselves. The law has always frowned upon and condemned sales of trust property by a trustee to himself individually (see, e.g., Eestatement, Trusts, § 170, subd. [1], Comment b; § 206, Comment b; 3 Bogert on Trusts and Trustees [1935], § 484), and it can hardly be argued that a sale to a corporation in which one of the trustees was the only other stockholder stands on a different footing from a sale to him individually. Mrs. Hubbell did not direct that the sum of $10,000 a year be paid to her husband under any and all circumstances; it was to be paid to him only if he requested it. When in 1935 he made his request, he undoubtedly realized that he was creating a serious dilemma for himself as trustee and for his cotrustee. With no income available from the' stock and, as he testified, with no market for it, it was inevitable that serious damage would be done to the estate unless the greatest care were exercised. For instance, a sale of part of the stock, thereby reducing the estate holding to a minority interest, was bound to render the balance of the holding almost entirely unsaleable and, in any event, to diminish its value seriously. What, then, were the other alternatives available to them; what, the other choices?

The trustees should have considered the possibility of rendering the estate more remunerative. That trustees generally owe a duty to make the assets which they hold for the estate productive is plain. Indeed, the cases are at one in holding that fiduciaries, whether executors or trustees, are under a duty profitably to employ funds in their hands under penalty of personal liability for their neglect. (See De Peyster v. Clarkson, 2 Wend. 77, 87-88; Dunscomb v. Executors of Dunscomb, 1 Johns. Ch. 508, 510-511; Blauvelt v. De Noyelles, 25 Hun 590, 592-593; Matter of Ayvazian, 153 Misc. 467, 477; see, also, Restatement, Trusts, § 181; 1 Perry on Trusts and Trustees [7th ed.], § 452, p. 755.) As a corollary to that general duty — to employ the estate’s assets profitably — there arises the further duty to sell or convert unproductive assets and reinvest the proceeds. (See Restatement, Trusts, § 240; see, also, Matter of Rowland, 273 N. Y. 100,108 et seq.; Matter of Pennock, 285 N. Y. 475, 482-483; Matter of Pulitzer, 139 Misc. 575, 579 et seq., affd. 237 App. Div. 808; Edwards v. Edwards, 183 Mass. 581, 583; Rhode Island Hosp. Trust Co. v. Tucker, 52 R. I. 277, 278-279; 2 Scott on Trusts, § 240, pp. 1346-1348.) Thus, Scott has written (op. cit., pp. 1346-1347): “ Where a trust is created for successive beneficiaries and the trust estate includes unproductive property, the trustee is ordinarily under a duty to sell the property within a reasonable time, and to invest the proceeds in productive property. * * * The principle is also applicable to unproductive property other than land. Thus it has been held that the trustee is under a duty to sell unproductive securities and to invest the proceeds in income-producing property.” And that is so, if reason and prudence dictate such action, even where the will authorizes the trustees to retain the stock and exonerates them from liability for loss or depreciation in its value. (Cf. Matter of Clark, 257 N. Y. 132; Matter of Roche, 245 App. Div. 192; Matter of United States Trust Co., 189 App. Div. 75; Matter of Baldwin, 157 Misc. 692, affd. 250 App. Div. 767; Matter of Pulitzer, supra, 139 Misc. 575, affd. 237 App. Div. 808; Matter of Jarvis, 110 Misc. 5.)

Whether the trustees discharged their obligation in this respect has not heretofore been subjected to scrutiny. It may well be that, in the ordinary case, the presumption should be indulged that the management of a corporation has endeavored to make the best use of its assets. Where, however, the actual results of operation show an unvarying series of losses, more careful inquiry is demanded. Without attempting to pass judgment on the facts, we conclude that such an inquiry is called for here. For example, and we merely mention it as an illustration, the record shows that one of the properties is a farm in Connecticufc from which, no income has ever been derived although the Corporation has regularly paid taxes upon it.

The trustees should also have given thoug’ht to dissolving the Corporation and disposing of individual pieces of property in order to make up the annual deficiency. As noted above, the authorization given to the trustees by the will that they retain the stock constituted no obstacle and, in fact, it was overridden when Hubbell exercised the option given to him in the codicil and demanded $10,000. By exercising that right, he made retention of the stock left by his wife impossible. Even in its own context the direction to retain the stock was not absolute. Under the circumstances which in fact developed, the retention was not warranted if dissolution of the Corporation or a partial liquidation of its assets would have yielded more favorable results for the estate as a whole. That such a conversion from stock ownership to direct ownership might well have benefited the estate in carrying out the annual obligation to raise $10,000 seems sufficiently likely to warrant its consideration upon a new trial.

The law does not, of course, demand prescience of trustees; they are not required to foresee the future of investments in this or that particular enterprise or to predict that those investments will be fruitful, but we are here dealing, not with an enterprise or a corporation whose conduct is incapable of close scrutiny and evaluation, but rather with a company about which the husband — a trustee of the estate, president and director of the Corporation and a 50% stockholder in his own right — not only had intimate familiarity but was its guiding and directing force. By 1935, the opening date of this account, four hopelessly lean years had passed since the testatrix had died, and not a cent of income had been received from the trusteed stock. In spite of that, the trustees were content to stand by as spectators to the gradual obliteration of the trust corpus. At no time, according to the husband, was any thought given to the disposition of the stock, and no effort was made to justify the destruction of the estate through invasion, except by his vague statement that he and his cotrustee were acting in such a manner as to carry out the intention of the testatrix. ’ ’ By the use of normal faculties, the trustees should have realized that the stock was an imprudent trust investment; in the exercise of ordinary judgment, they should have done something about it.

Nor was it meet for the trustees — who between them owned all of the stock of the Corporation — simply to sit back and allow the Corporation to continue holding real property, even though, according to its books, operations resulted in a loss year after year. Prudence on their part and a due reg'ard for the rights of the remaindermen should have indicated to them, after the lapse of a reasonable time, the necessity of converting the real estate into income-producing assets. The testimony of the husband reveals a concern on his part that the neighborhood in which the principal real estate was situated was deteriorating and depreciating for causes other than the then general prevailing economic conditions. However, except for one small parcel of property, the trustees made no effort to sell although their own real estate expert testified that during the period covered by the account there were numerous sales of similar properties in the same locale. That a sales program executed by the trustees with diligence might have involved sales of properties, which were occupied by the husband and by a corporation controlled by him, are circumstances which trustees, indifferent as between life beneficiary and remainderman and equally intent upon safeguarding the interests of both, would not permit to affect or influence their judgment.

Although the decree settling the first intermediate account of the trustees precludes a holding that the duty to convert became imperative during the period covered by that account, the court may nevertheless consider that period in determining the reasonable time allowed to the trustees to effect a sale or conversion. In dismissing the objections interposed by the remaindermen, the courts below have held in essence that the retention during the period covered by the second intermediate account was not unreasonable. Normally, the determination of whether the conduct of a trustee measures up to the appropriate standards of prudence, vigilance and care, is a fact to be found by the trial court. In this case, however, the record contains no evidence from which even the minimal requirements may be inferred. The conclusion is unavoidable, therefore, that the trustees, in failing to take any steps toward converting the corpus into income-producing assets within five years of the testatrix’ death — that is, by the middle of the year 1936 — were guilty of gross negligence as a matter of law.

It has been suggested that the results here obtained were inevitable because the trust corpus consisted of stock of the Corporation. However, although the testimony as to the lack of marketability of the stock remaining was itself inconclusive, the absence of a market for the stock did not make its conversion impossible. Partial liquidation of the Corporation by which the trust would have acquired, in exchange for its stock, a prorata portion of the corporate assets, was a plain alternative and — accepting respondents’ view that the stock was in effect unsaleable — the only alternative by which the trust could have been saved. As already indicated, the proof demonstrated that the properties themselves were saleable and could have been converted had they been transferred to the trust in return for its stock. A trustee may not be heard to assert that the corporate form of organization compels an otherwise unjustifiable extinction of the interest of the remaindermen in instances where, by reason of his stock ownership as individual and as trustee, he could have prevented it. Under such circumstances, if an irreconcilable conflict between self-interest and fiduciary responsibility develops, the choice of the trustee is either to subordinate the former or resign; “ thought of self was to be renounced, however hard the abnegation.” (Meinhard v. Salmon, supra, 249 N. Y. 458,468.) As to the plaint that application of that principle results in unfairness to the husband, let it be borne in mind that he voluntarily assumed his trusteeship. He was not obliged to become a trustee, but, as soon as he does so, he accepts whatever are the limitations, obligations and conditions attached to the position ”. (Gratz v. Claughton, 187 F. 2d 46, 49.)

In thus holding that a duty existed on the part of the trustees to consent to a partial liquidation or dissolution of the Corporation in order to liquidate the stock held in trust, we dispose of any contention that the fiduciary, in his individual capacity, might have vetoed or prevented appropriate action by the Corporation towards that end. He may not use the corporate charter as a shield to protect himself from censure — for, as has been said, though in a different context (Matter of Witkind, supra, 167 Misc. 885, 893), where as here the fiduciaries control a corporation by the help of the estate stock interest added to the stock interest held personally by one of them they are not disabled to make such accounts and are, therefore, under obligation to do so. There is nothing sacrosanct about a corporation. It is not an impenetrable screen behind which facts may be successfully hidden.”

The courts below differed with each other as to whether a trustee has the power and authority to set aside, out of income, a reserve for depreciation, and thereby affect and reduce the amount of income available for the life beneficiary. The Surrogate believed that trustees have no such power; the Appellate Division ruled that they have. We do not resolve that difference of opinion, for, in our view, we do not reach that much-mooted question. (See Capron, “ Depreciation Reserves, Problem in Trust Accounting ”, Address before Probate and Trust Law Divisions of Amer. Bar. Assn., Sept., 1950; Report of N. Y. Law Revision Commission, N. Y. Legis. Doc., 1950, No. 65 [0].) The dispute as to whether a reserve for depreciation may properly be set up bears upon the question of whether depreciation moneys should be deemed principal or income vis-á-vis income beneficiary and remainderman. Where, as in the case before us, the life beneficiary was entitled to have the trustees invade the principal in order that he be assured a specified annual sum, it is immaterial whether the depreciation moneys be considered principal or income. Consequently, if the property had been held by the trustees in their own right, the depreciation moneys would clearly have been available for Mr. Hubbell’s use. And, under the facts of this case, the circumstance that the real property happened to he owned by a corporation cannot affect the result or require a different conclusion. The Corporation appears to have been largely a mere convenience rather than a true operating entity. It was wholly owned by the trustees in one or another capacity, and, as already observed, they were not privileged to take such corporate action as would result in benefit to one stockholder — the individual Hubbell — at the expense of, and to the undoubted detriment of, the other stockholder — the estate.

It must be presumed that the proper management of the Corporation’s affairs did not require the retention of the fund that had been denominated a reserve for depreciation, for, if it did, it would follow that the officers acted improperly in reacquiring the stock. Whether there was a surplus permitting a distribution to stockholders, is perhaps not free from doubt, but it is exceedingly clear that, if the trustees-directors had earlier employed that same business acumen or ingenuity which evolved the 1944 device of creating a book surplus by changing the par value of the capital stock of the Corporation from no par to a par value of $100, that doubt could have been removed and a surplus produced. Such a distribution might well be considered a liquidating dividend from the standpoint either of the Corporation (Ballantine on Corporations [1946], pp. 638-639) or of the trustees. (Cf. Matter of Osborne, 209 N. Y. 450.) But that is precisely the kind of partial liquidation which the trustees were under a duty to consider, in order to alleviate the dire consequences resulting to the trust from the invasion of principal following Mr. Hubbell’s demands.

In short, the trustees-directors were free to choose whether to use the depreciation moneys for the purpose of acquiring the stock or for the purpose of making a ratable distribution to the stockholders. In making that choice, they were required to act with due regard to the interests of all of the beneficiaries ; they were under a duty to refrain from that course of conduct which would, at the expense of other beneficiaries, benefit that beneficiary who also happened to be a trustee and director.

Beaching, then, the conclusion that, in any event, and at the very least, the depreciation moneys were available as a source of payment to the husband on account of his annual “ guaranteed ” stipend, we cannot accept the Surrogate’s decision that the failure of the trustees-directors so to apply them was immaterial and had no effect upon the end result. If the price paid for the stock was no more than its fair value, and there is no finding to the contrary, then there was no basis for the holding that no harm was done to the remaindermen. Obviously, the number of shares to be sold — and the quantity becomes a mere matter of arithmetic— would necessarily be diminished if a portion of the earnings before depreciation, aggregating $77,840.18 over the ten-year period, had been distributed to the life beneficiary before resorting to a sale of the shares to make up the annual deficiency.

The order of the Appellate Division should be reversed, with costs to appellants payable out of the estate, and the matter remitted to the Surrogate’s Court for further proceedings not inconsistent with this opinion.

Lotjghran, Ch. J., Lewis, Conway, Desmond, Dye and Froessel, JJ., concur.

Ordered accordingly.

       It was the Surrogate’s conclusion, however, that the remaindermen, in any event, suffered no injury, because, even without a deduction for depreciation, the corporate income was never large enough in any year to pay the beneficiary his guaranteed $10,000 a year. That being so, the Surrogate reasoned, it followed that the sale of stock “ was inevitable in any case ” to satisfy the requested invasions; that such sales would, as the years went by, necessarily and progressively decrease the amount o£ income on hand; and that an ever-increasing quantity of stock would have to be sold to make up the difference between such income available for distribution and the $10,000.

       As a matter of fact, the trustees-directors do not claim that there was no surplus prior to such recapitalization because, as they themselves recogwise, the purchases of stock from the estate, which they caused the Corporation to make, would have keen illegal if there had been no surplus (Penal Law, § 664, subd. 5).


author: Lewis, J.

text:
    In the Matter of the Accounting of The National City Bank of New York, as Trustee under Two Trust Agreements Made by William C. Fields (Known as William C. Fields Trusts No. 1 and No. 2), Respondent. Harriet V. Fields et al., Respondents; Walter Fields et al., Appellants.
    Submitted November 29, 1950;
    decided March 8, 1951.

      George L. Kobbé for appellants.
    I. The intention of the settlor, ascertained from the instrument as a whole rather than from any particular provision considered by itself, should be the guide in construing the trust agreement. (Matter of Fordham, 235 N. Y. 384; Williams v. Jones, 166 N. Y. 522.) II. The provisions of article 1 of the trust agreement, taken together, leave no reasonable doubt that the settlor intended the beneficiary, if living, to receive the principal on December 1, 1946, or, if the settlor should survive that date, on the death of the settlor. (Mead v. Coolidge, 179 N. Y. 386.) III. The gift of the principal is not rendered ineffectual by the fact that, because it could not take effect before the death of the donor, it could not take effect in the stated order and at the time expressed in the trust instrument. (Mead v. Coolidge, 179 N. Y. 386; United States Trust Co. v. Hogencamp, 191 N. Y. 281; Matter of Knapp, 206 App. Div. 260; Matter of Fordham, 235 N. Y. 384; Matter of Lawrence, 238 N. Y. 116.)

      Maurice Mound, Bert Cotton and Arthur H. Simms for Magda Michael, respondent.
    The trust agreement should not be rewritten to insert a gift which was not made by the settlor. (Thompson on Wills [3d ed., 1947], § 211; Post v. Hover, 33 N. Y. 593; Chater v. Carter, 238 U. S. 572; Brown v. Quintard, 177 N. Y. 75; Leggett v. Stevens, 185 N. Y. 70; Matter of Kearney, 169 Misc. 947, 258 App. Div. 39; Trowbridge v. Trowbridge, 182 Misc. 191, 269 App. Div. 826; Bradhurst v. Field, 135 N. Y. 564.)

      H. Vincent Smart and Robert D. Cole for Harriet V. Fields, respondent.
    General intent and implied gifts in construction of wills and trusts are dangerous doctrines which have not been accepted as the law of this State. (Matter of Sliter, 286 N. Y. 117; Matter of Leland, 219 N. Y. 387; Wadsworth v. Murray, 161 N. Y. 274; Herzog v. Title Guar. & Trust Co., 177 N. Y. 86; Matter of Winburn, 265 N. Y. 366; Van Nostrand v. Moore, 52 N. Y. 12; Simpson v. Trust Co. of America, 129 App. Div. 200; Bigelow v. Percival, 162 App. Div. 831; Matter of Barrett, 141 Misc. 637; Trowbridge v. Trowbridge, 182 Misc. 191, 269 App. Div. 826; Matter of Nelson, 268 N. Y. 255; Dwight v. Fancher, 245 N. Y. 71.)
   Lewis, J.

Incidental to an accounting the petitioner-respondent, the National City Bank of New York, as trustee under two inter vivas trusts made by the late William C. Fields, instituted these separate proceedings under article 79 of the Civil Practice Act for the construction of each trust agreement as a means of determining the rights, shares and interest, if any, of certain named beneficiaries in the two trust funds.

Although the two appellants have taken six separate appeals from various orders made herein by the Appellate Division, the case comes to us — by stipulation of the parties — on a consolidated record. It should also be noted at the outset that, although the settlor died domiciled in California, where his will has been admitted to probate, he was a resident of the State of New York on the date when the two trust agreements were signed, and in each agreement he directed that “ The trust hereby created shall be deemed a New York trust and shall, in all respects, be governed by the law of the State of New York.”

The two trust agreements — to which reference will be made respectively as Trust No. 1 and Trust No. 2 — were executed on November 8,1926, and are identical in text except that originally the contingent remainderman in Trust No. 1 was Mildred Linelle Blackburn and in Trust No. 2 was Elizabeth C. Poole. In 1927, the settlor amended Trust No. 2 by striking out the name of Elizabeth C. Poole and substituting therefor the name of Mildred Linelle Blackburn who thereby became until 1931 the primary beneficiary of both trusts. In the year last mentioned both trusts were amended by striking from each agreement the name of Mildred Linelle Blackburn and substituting therefor in Trust No. 1 the name of Walter Fields , the settlor’s brother, and in Trust No. 2 Adele Smith, the settlor’s sister.

As the two trust agreements are identical, except for the name of the beneficiaries, there is quoted below only the relevant portion of Trust No. 1, as originally executed :

“ Article First
“ The Settlor hereby assigns, transfers, conveys and sets over unto the Trustee the following described property, to wit, Fifty Thousand Dollars ($50,000.00), To Have and To Hold unto the Trustee and its successors, in trust, however, for the uses and purposes following:
“ A. To apply the income from said trust fund in monthly installments as nearly equal as may be practical, to the use of the Settlor so long as he shall live.
“ B. After the death of the Settlor, to apply the income from said trust fund in monthly installments as nearly equal as may be practical, to the use of Mildred Linelle Blackburn, until the First day of December, 1946, or until the death of the said Mildred Linelle Blackburn, whichever event shall first occur.
“ C. On the first day of December, 1946, if said Mildred Linelle Blackburn then survives and the Settlor is dead, to convey, transfer and pay over the principal of the trust fund to her, the said Mildred Linelle Blackburn.
D. In the event that the said Mildred Linelle Blackburn shall survive the Settlor for a period of at least three calendar months, but shall die prior to the first day of December, 1946, thereupon, upon such death forthwith, and without delay, to convey, transfer and pay over the principal of the trust fund to (a) if the said Mildred Linelle Blackburn shall have died intestate, to the same persons to whom, and in the same proportions in which, the said property would, if the same belonged to the said Mildred Linelle Blackburn, descend or be distributed in the event of her death according to the laws of descent of real property of the State of New York then in force, or (b) if she shall have died testate, to such person or persons and in such proportions as she shall by her last will and testament appoint, it being expressly understood and agreed that any general disposition of all her property, or of her residuary estate, which the said Mildred Linelle Blackburn shall make by her last will and testament shall be deemed to be a disposition of her interest in the said trust estate hereunder.
E. In the event that upon the death of the Settlor the said Mildred Linelle Blackburn shall be no longer living, then upon his death or in the event of her death prior to the first day of December, 1946, at a time that shall be after the death of the Settlor but shall not be at least three calendar months after the death of the Settlor, then upon her death, to convey, transfer and pay over the principal of the trust fund in equal shares, to Walter Dukenfield, brother of the Settlor, and/or Adele Dukenfield Smith, sister of- the Settlor, or if both of them be dead, to such person or persons, and in such proportions as the Settlor shall by his last will and testament appoint, it being expressly understood and agreed that any general disposition of all his property or his residuary estate which the said Settlor shall make by his last will.and testament, shall be deemed to be a disposition of his interest in the said trust estate hereunder, or in default of such appointment, to such persons as shall then constitute the heirs at law of the Settlor according to" the laws of descent of real property of the state of New York then in force. * * * ”
In each trust agreement the settlor reserved the right to revoke or modify the trust “ by any informal instrument in writing delivered to the Trustee * *

On April 15, 1931, Trust No. 1 was amended by the following instrument:

“ Pursuant to the powers reserved to me in a certain Trust Agreement dated November 8, 1926 between myself and the National City Bank of New York wherein Mildred Linelle Blackburn is named as a beneficiary, and which said Agreement is known as William: C. Fields Trust Number One, I hereby amend the said Trust Agreement by striking out the name of Mildred Linelle Blackburn wherever it appears in the Agreement and by substituting therefor the name of Walter Fields, my brother, now residing at Waterford Works, New Jersey.
In all other respects I hereby ratify and confirm the provisions of said Trust Agreement.
(Acknowledged by William C. Fields before a notary public on the 15th day of April, 1931.)
“ Received and Accepted
“ Apr. 20, 1931
“ Charles F. Wheaton
“ Trust Officer ”.

On the same date (April 15, 1931) Trust No. 2 was similarly amended so as to substitute the name of his sister, Adele Smith, for that of the former beneficiary.

The choice of the date “ December 1, 1946 ”, referred to in paragraphs B, O, D, and E or article 1 (quoted supra), appears to have been purely fortuitous — at least there is no record evidence indicating a reason for choosing that date.

The construction problem with which we are concerned arises because the settlor died on December 25, 1946 — a date twenty-four days subsequent to the date he directed should be inserted in the trust agreement at the time it was entered into twenty years prior to his death. The settlor’s brother and sister — as appellants before us — claim that each of the two trust instruments should be read as a whole and assert that thus read, the settlor intended they should have the corpus of each trust at his death, even should such event occur after December 1, 1946. It is the position of the executrix of the settlor’s will — the respondent Magda Michael — that the trust corpus is not disposed of by either trust agreement and therefore constitutes part of the settlor’s estate. In the courts below the settlor’s widow — from whom he had been separated since 1907 — and his son asserted claims to the corpus. However, both courts below denied their claim and they have not appealed to this court.

At Special Term, the court, upon a motion by the settlor’s widow for judgment on the pleadings, ruled that the settlor’s brother and sister were entitled respectively to take the corpus of the trust of which he or she is ultimately named as the primary beneficiary, as the case may be. The Appellate Division modified on the law the order of Special Term and ruled that the corpus of each trust passes to the settlor’s estate. The Per Curiam opinion of the Appellate Division is in part as follows: The only significance that may be attached to the settlor’s failure to provide for the disposition of the corpus in the event he lived beyond December 1, 1946, is that he intended to cut off all contingent interests in the principal of the trusts as of that date. Whatever his reasons for so doing, we may not read into the agreements a provision contrary to his wishes. It must be borne in mind that we are here concerned with inter vivas trust agreements and not with the provisions of a testamentary trust. We may not therefore imply an intention of effecting a full and complete disposition of the trust property unless an intention so to do is clearly indicated.” (276 App. Div. 835, 836.)

We believe that a reading of the full text of the trust agreements indicates that the result reached by the Appellate Division is not warranted. The disposition of the corpus of each trust — ■ in .the event the settlor’s death occurred after December 1, 1946 — is provided for by paragraph E of each trust agreement of which a relevant portion, after the first amendment of Trust No. 2, reads as follows: “ In the event that upon the death of the Settlor the said Mildred Linelle Blackburn shall be no longer living, then upon his death * * * to convey, transfer and pay over the principal of the trust fund in equal shares, to Walter Dukenfield, brother of the Settlor and/or Adele Dukenfield Smith, sister of the Settlor ”. Thus the settlor declared his intention to be that at his death, whenever that event might occur, if the primary beneficiary was not then able to receive the corpus of the trust, his brother and sister were to share it in equal parts. The amendments of the agreements which struck from the texts the name of the earlier primary beneficiaries and substituted as primary beneficiaries the name of the settlor’s brother in one instrument, and his sister in the other, clearly were not intended by the settlor to diminish the interest of these kin in the trust corpus. Since the prior beneficiaries Mildred Linelle Blackburn and Elizabeth C. Poole are not to share in the corpus of either trust — a result which follows not because they predeceased the settlor, but because he struck their names from the agreements — we believe the language — “ then upon his [the settlor’s] death * * * to Walter Dukenfield, brother of the Settlor, and/or Adele Dukenfield Smith, sister of the Settlor * * * ” — should be given full effect.

The fact that the settlor amended each agreement by instruments which directed that the name of the then designated primary beneficiary be stricken ‘ ‘ wherever it appears in the Agreement and by substituting therefor ” the names of the settlor’s brother and sister, rather than rewriting the instruments, serves to bring about a manifestly unintended result when the name of the prior beneficiary is excised wherever it appears ”. This, however, does not mean that the court is not permitted so to interpret the trust instruments to accord with the settlor’s declared intention. Processes of construction may not be resorted to for the purpose of reading into the trust deed an intention not expressed or legitimately to be implied from the language used when construed in the light of the surrounding circumstances. We are to search, not for the probable intention of the settlor merely, but for the intention which the trust deed itself, either expressly or by implication, declares. We are to ascertain the intention from the words used and give effect to the legal consequences of that intention when ascertained.” (Central Union Trust Co. v. Trimble, 255 N. Y. 88, 93.) If the “ striking out ” method chosen by the settlor of amending the trust instruments is adopted literally, the following change in paragraph E of Trust No. 1 would be brought about: In the event that upon the death of the Settlor the said Walter Fields shall no longer be living, then upon Ms death * * s to Walter Dukenfield (Fields) brother of the settlor, and/or Adele Dukenfield Smith, sister of the settlor. * * * ” A similar result would follow the amendment of Trust No. 2.

By amending the two instruments as the settlor did on April 15, 1931, he declared in each trust his intention to replace Mildred Linelle Blackburn as primary beneficiary, with his brother and sister. Obviously, by doing so, he did not have in mind the fact that in paragraph E of each agreement, where the name of Mildred Linelle Blackburn appeared, he had already designated his brother and sister as contingent remaindermen. By such method of substitution the settlor cannot reasonably be held to have directed that his brother or sister, as the case may be, must survive after his or her own death in order to receive the corpus of the trust. The changes in beneficiaries thus brought about, which concededly call for an absurd result if the terms of the amendment are carried out literally, patently was not intended by the settlor to alter the ultimate trust plan made clear by a reading of the dispositive provisions of the agreements.

We may, however, properly avoid the absurdity thus created so as to attain the result which the settlor intended. Paragraph E contemplates that, upon the death of the settlor, the corpus of each trust shall go to “ such person or persons, and in such proportions as the Settlor shall by his last will and testament appoint,” but only if both of them [his brother and sister] be dead ”. The settlor thus intended the corpus of each trust to pass to his estate only in the event death prevented his brother and sister from taking it. As they survived him his declared intention was that they thereupon became entitled to the corpus.

The ambiguity in the two trusts, if resolved as above indicated, enables us to reach a reasonable result which is in accord with the intention of the settlor whose brother and sister, even prior to the several amendments of the trust agreements, were the contingent remaindermen under paragraph E. By an amendment which made them primary remaindermen, we may not infer that the settlor intended to take away any property which his brother and sister were to receive before the deeds of trust were amended in their favor.

In construing each of the trusts as indicated above we “ * * * give effect to the intent with which the declaration of trust was made, so far as such intent can be collected from the whole instrument. * # # And for this purpose reference may be had to the general scheme of the trust, its object and purpose as so represented. ’ ’ (Knowlton v. Atkins, 134 N. Y. 313, 319.) We have also given effect to the canon that “ No technical rules of construction, no artificial analysis of language used, may defeat intention where that intention is manifest in the language of the instrument itself.” (Farmers’ Loan & Trust Co. v. Callan, 246 N. Y. 481, 487; and see Central Union Trust Co. v. Trimble, supra, p. 93; Williams v. Jones, 166 N. Y. 522, 533; First Nat. Bank & Trust Co. v. Palmer, 261 N. Y. 13. 17-18; Matter of Herzog, 301 N. Y. 127, 135.)

Manifestly, the settlor ineptly chose the striking out ” method of eliminating Elizabeth 0. Poole and Mildred Linelle Blackburn as primary beneficiaries under the trust agreements instead of accomplishing such excisions by redrafts of those instruments. That ill-chosen method, however, and the predicament it has created in the administration of the trusts should not be permitted to thwart the purpose of the settlor — which pervades each trust instrument as finally amended — to make his surviving brother and sister the ultimate recipients of the trust corpus.

The orders of the Appellate Division and of the Special Term, insofar as appealed from, should be modified in accordance with this opinion, and as so modified affirmed, and the proceedings remitted to Special Term for further action not inconsistent with the opinion herein, without costs but with disbursements to all parties to these appeals who have filed briefs herein payable out of the trust funds.

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

Ordered accordingly.

       Occasionally referred to by the settlor as “Walter Dukenfleld”.

       Although no order settling the accounts has yet been entered, settlor’s brother and sister are the only appellants in this court, and since the legal effect of the orders of the Appellate Division is to exclude them from any share in the trust estate, the orders are final as to them. (City Bank Farmers Trust Co. v. De St. Aubin, 296 N. Y. 953.)