author: Lewis, J.

text:
    In the Matter of the Application of The People of the State of New York, by George S. Van Schaick, as Superintendent of Insurance of the State of New York, for an Order to Take Possession of the Property and Liquidate the Business of the Consolidated Indemnity and Insurance Company. Louis H. Pink, Superintendent of Insurance of the State of New York, as Liquidator of Consolidated Indemnity and Insurance Company, Appellant; Hartford Accident and Indemnity Company, Respondent.

      Argued October 13, 1941;
    decided November 27, 1941.

      Alfred G. Bennett and Isaac Goldstein for appellant.
    Salvage under the reinsurance contracts is a trust fund and general claims of the trustee against the cestui que trust may not be offset irrespective of whether or not such general claims arose out of the same reinsurance contract. (Pink v. American Surety Co., 283 N. Y. 290; New York Title & Mortgage Co. v. Irving Trust Co., 241 App. Div. 246 ; 268 N. Y. 547; Matter of People [New York Title & Mortgage Co.], 260 App. Div. 729; Morris v. Windsor Trust Co., 213 N. Y. 27; Beecher v. Vogt Mfg. Co., 227 N. Y. 468; Libby v. Hopkins, 104 U. S. 303; McDaniel Nat. Bank v. Bridwell, 74 Fed. Rep. [2d] 331; Storing v. Manden Special School District, 53 N. D. 24; Ellis v. Baker-Matthews Lumber Co., 157 Ark. 139; Hostetter v. Giffen, 268 Penn. St. 530; Alvord v. Ryan, 212 Fed. Rep. 83; International Bank v. Jones, 119 Ill. 407; Cook County Nat. Bank v. United States, 107 U. S. 445.)

      Stewart Maurice for respondent.
    The general reinsurance agreement created a fiduciary relationship akin to that of partners or joint adventurers, and respondent is entitled to retain all funds in its hands until its lien for fiduciary claims has been satisfied. (Matter of People [General Indemnity Corp.], 274 N. Y. 510; Ætna Casualty & Surety Co. v. International Reinsurance Corp., 117 N. J. Eq. 190; Cunningham v. Republic Ins. Co., 94 S. W. Rep. [2d] 140; Meinhard v. Salmon, 249 N. Y. 458; Standish v. Babcock, 52 N. J. 628; Sturm v. Ulrich, 10 Fed. Rep. [2d] 9.) The liquidator cannot claim the benefits of the reinsurance agreement without performing its obligations. (Matter of Weston, Law Rep. [1900] 2 Ch. Div. 164; Brown v. Knapp, 79 N. Y. 136; Oliver v. Wells, 254 N. Y. 451; Matter of Grifenhagen, 174 Misc. Rep. 559.)
   Lewis, J.

As an incident in the above-captioned liquidation proceeding a controversy has arisen which involves the right of offset under section 538 of the Insurance Law (Cons. Laws, ch. 28).

The Superintendent of Insurance, as liquidator of Consolidated Indemnity and Insurance Company, was denied, at Special Term, an order directing Hartford Accident and Indemnity Company to turn over to him from a salvage fund a sum concededly due the company now in liquidation. The Appellate Division unanimously affirmed the order of Special Term but granted the liquidator permission to appeal to this court.

As reference will repeatedly be made to the two indemnity companies mentioned above, it will be convenient to refer to them, respectively, as “ Consolidated ” and Hartford.”

The controversy involves salvage collected and held by Hartford after the payment of losses on risks reinsured by Consolidated. Although it admits there is owing to Consolidated its proportionate share of the salvage fund, Hartford has thus far successfully resisted the liquidator’s demand for payment thereof upon the ground that Hartford is entitled to offset against the amount due the liquidator an amount which concededly is due to Hartford from Consolidated.

Prior to the entry of the order of liquidation, Consolidated had arranged to reinsure various risks which Hartford had assumed. It also appears that, prior to the liquidation, Hartford had paid losses on risks thus reinsured and that Consolidated had paid its proportionate share of those losses. Under the arrangement for reinsurance Consolidated became entitled to share in any salvage recovered by Hartford in proportion to the amount of reinsurance. In carrying out this arrangement there came a time when a certain salvage fund was collected and held by Hartford of which Hartford concedes the liquidator is entitled to the sum of $2,291.73. Meantime, however, while the claim on behalf of Consolidated to a portion of the salvage fund was concededly due, Hartford filed with the liquidator a general claim, which was allowed, for the sum of $2,549.32, the amount thereof being the proportionate share of other losses theretofore paid by Hartford on three bonds, the risks of which were reinsured by Consolidated. and as to which Consolidated had not paid its share of loss prior to liquidation. The salvage held by Hartford and involved in the present proceeding was not collected in connection with such losses. By his application now before us, the liquidator demands payment of only the admitted share of Consolidated in the salvage collected by Hartford in cases where, prior to liquidation, Consolidated had actually paid its share of loss to Hartford.

We are to determine the legality of the order here for review which in effect is a ruling that Hartford — the collector and holder of the salvage fund in which Consolidated, as reinsurer, is entitled to share to the extent of $2,291.73 — may set off against that amount the greater sum of $2,549.32 due from Consolidated as its share of losses paid by Hartford.

We think the offset may be allowed only in the event the general claim by Hartford, allowed by the liquidator, and the claim by the liquidator on behalf of Consolidated against the salvage fund held by Hartford, are mutual debts or mutual credits ” within the provisions of section 538 of the Insurance Law. That statute provides in part:

“ § 538. Offsets. 1. In all cases of mutual debts or mutual credits between the insurer and another person in connection with any action or proceeding under this article, such credits and debts shall be set off and the balance only shall be allowed or paid * • *

The phrase mutual debts ” is not new. It has been said: “ Debts, to be applied against each other, must be mutual * * *. To be mutual, they must be due to and from the same persons in the same capacity.” (Beecher v. Vogt Mfg. Co,, 227 N. Y. 468, 473; Morris v. Windsor Trust Co., 213 N. Y. 27, 31, 33; Pink v. Title Guarantee & Trust Co., 274 N. Y. 167, 175, 176.)

In the case at bar the fact that Hartford held a salvage fund which it had collected from losses on risks assumed by Hartford and reinsured by Consolidated., did not create between those companies the relationship of debtor and creditor. Rather was it the relationship of trustee and cestui que trust. What was said in that regard in Pink v. American Surety Co. (283 N. Y. 290, Rippey, J.) applies here with equal force (p. 296): The salvage was received for a specific purpose, by the terms of the contracts, to reimburse both the reinsured and reinsurer proportionately for their losses. Out of its receipt, no relation of debtor and creditor was created. In relation to any salvage collected to recoup losses on specific risks under the reinsurance contracts the reinsured was a trustee for the reinsurer as to moneys in its hands belonging to the latter or to be applied to a specific purpose.” (Emphasis supplied.)

However, the obligation of Consolidated to Hartford, which Hartford would now offset against the salvage trust fund, is a debt created by a conceded contractual obligation of Consolidated to pay to Hartford its proportionate share of losses upon .three bonds the risks of which were reinsured by Consolidated — which losses did not produce the salvage involved in the present proceeding.

Thus do the two claims in question lack the quality of mutuality. One asserts the right of a cestui que trust against a trustee; the other asserts a contractual obligation of a debtor to his creditor. The claims are not due to and from the same persons in the same capacity ” (Beecher v. Vogt Mfg. Co., supra, p. 473), nor are they held in the same right” (Pink v. American Surety Co., supra, p. 298). They are not mutual debts ” as that phrase is employed in section 538 of the Insurance Law.

In this view of our problem it is not necessary to determine whether the arrangement between Hartford and Consolidated grew out of a single reinsurance contract, as claimed by the respondent, or that each acceptance of an offer of reinsurance was a separate reinsurance agreement, as claimed by the appellant. In either case, upon the record before us the resulting claims were not mutual debts, and no offset may be allowed.

The orders should be reversed, with costs in all courts to the appellant, and the matter remitted to the Special Term for further proceedings in accord with this opinion.

Lehman, Ch. J., Lolghran, Finch, Rippey, Conway and Desmond, JJ., concur.

Orders reversed, etc.


source: Caselaw Access Project

license: Public Domain

text:
    In the Matter of Frederick K. Hart, Appellant, against Carroll E. Mealey, as Commissioner of Motor Vehicles of the State of New York, Respondent.

      Argued October 14, 1941;
    decided November 27, 1941.

      Thurlow W. Southwick for appellant.
    A revocation on account of reckless driving must be based upon evidence of reckless act or acts. (People v. Grogan, 260 N. Y. 138; Matter of Seid v. Harnett, 256 App. Div. 200; Matter of Prince v. Harnett, 256 App. Div. 201.)

      John J. Bennett, Jr., Attorney-General (Irving H. Lessen of counsel), for respondent.
    The revocation of the petitioner’s operator’s license was based upon evidence of grossly negligent and reckless acts on the' part of the petitioner. (People v. Grogan, 260 N. Y. 138.)
   Lewis, J.

In this proceeding under article 78 of the Civil Practice Act the Appellate Division, by a non-unanimous order, has confirmed a determination by the Commissioner of Motor Vehicles revoking the appellant’s license to operate a motor vehicle. The order of revocation states the cause ” thereof to be Violation of Section 58 of the Vehicle and Traffic Law — Reckless driving.”

At 8:15 on the night of April 4, 1940, the appellant was driving in the city of Syracuse westerly along Erie boulevard, which is a paved thoroughfare fifty feet in width. As he approached the intersection of Salina street, where traffic is controlled by illuminated signals, the red light turned against his progress and he stopped his car east of the east crosswalk of Salina street and north of the center line of the boulevard. At the same time, in response to the same red signal, east-bound cars had stopped on the boulevard west of the same intersection to await the green light. It was then dark and pavements were wet from falling rain driven by wind. The evidence is not disputed that the appellant’s car was in “ perfect condition ”— head lights were turned on “ bright,” brakes were properly adjusted and the windshield wiper was operating. When the light turned green for traffic on the boulevard the appellant looked to the north and south on Salina street. Seeing no pedestrian on either crosswalk, he started his car and proceeded straight across the intersection which is sixty feet in width. At the same time east-bound traffic, consisting of three or four cars, moved ahead. As the last east-bound car passed him on the left and while he was advancing at a speed of not more than fifteen miles an hour and was approaching the crosswalk lines on the west side of Salina street, the appellant saw for the first time on the westerly crosswalk five feet ahead of him two pedestrians — a man and woman- — -walking northward. They were dressed in black, walking in a “ leaning-forward position ” with an umbrella over their heads. The appellant stopped his car within slightly more than a car’s length but not before his right front fender had- struck the man who was crossing the lane for west-bound traffic, "who in turn knocked down the woman at his side. The accident occurred within the lines of the westerly crosswalk of Salina street eighteen or twenty feet from the north curb of the boulevard and at a time when the signal for west-bound traffic on the boulevard was green.

The facts stated above are from testimony given by the appellant at the hearing at which he was the only witness called except the driver of a car which stopped immediately behind the appellant in response to the red light and which followed him across Salina street. The latter witness corroborates the appellant in every detail except he stated his belief to be that the appellant’s speed, as he crossed Safina street, was less than fifteen miles an hour. He also stated: He [the appellant] didn’t proceed until the green light, because I particularly noticed it, he didn’t start on the amber, I am very positive of that * *

Accepting these undisputed facts as descriptive of the appellant’s conduct immediately prior to' the accident, we entertain no doubt that standing alone they do not afford proof that the appellant operated his car in a-manner which unreasonably interfered with the free and proper use of the public highway, or unreasonably endangered users of the public highway. (Vehicle and Traffic Law, § 58; Cons. Laws, ch. 71.) There was nothing in the evidence which gave proof of a reckless disregard by the appellant of the consequences of his conduct or of his indifference to the rights of others. (People v. Grogan, 260 N. Y. 138.)

There is, however, additional evidence elicited by the Commissioner upon the hearing, without objection by the appellant, that as a result of the accident the appellant was tried in the Traffic Court in Syracuse upon the charge of failure to give a pedestrian the right of way.” Upon that charge he was found guilty and paid a fine of ten dollars.

We thus reach the decisive question upon this appeal — whether the evidence last mentioned, when considered with the facts outlined above, is sufficient in law to justify the action taken by . the Commissioner of Motor Vehicles.

As to the weight which should be accorded to the evidence in question, we find that a failure by the driver of a motor vehicle to give the right of way to a pedestrian is defined by the Legislature as a “ traffic infraction.” (Vehicle and Traffic Law, § 2, subd. 29; § 85, subd. 1; § 91.) In that connection we note that the Legislature has gone further and has provided that a witness shall not “ * * * be required to disclose a conviction for a traffic infraction, as defined by the vehicle and traffic law, nor shall conviction therefor affect the credibility of such witness in any action or proceeding.” (Emphasis supplied.) (Civ. Prac. Act, § 355; De Stasio v. Janssen Dairy Corp., 279 N. Y. 501, 503.)

By the enactment of chapter 485 of the Laws of 1934, which amended section 355 of the Civil Practice Act, quoted in part above, the Legislature recognized the weakness of evidence of a traffic infraction as proof of facts which may have been involved. (Cf. Schindler v. Royal Ins. Co., 258 N. Y. 310, 312, 314.) At the hearing before the Commissioner of Motor Vehicles the appellant’s failure to object to its competency adds neither weight nor substance to evidence which the Legislature has declared a witness shall not be required to disclose. Giving this evidence the consideration to which it is entitled, we do not find it sufficient, when added to the uncontradicted testimony already outlined, to support a finding that at the time of the accident the appellant was guilty of “ reckless driving ” in violation of section 58 of the Vehicle and Traffic Law.

. The order of the Appellate Division should be reversed and the determination by the Commissioner of Motor Vehicles annulled, with costs in this court and in the Appellate Division.

Loughran, Finch, Conway and Desmond, JJ., concur; Lehman, Ch. J., and Rippey, J., dissent.

Order reversed, etc.


text:
    Yonkers Lodge No. 707 of the Benevolent and Protective Order of Elks of the United States of America, Respondent, v. John J. Condon et al., Constituting the Common Council of the City of Yonkers, et al., Appellants, and The Board of Education of the City of Yonkers, Respondent.

      Argued October 8, 1941;
    decided November 27, 1941.

      Leonard G. McAneny, Corporation Counsel, and J. Raymond Hannon for appellants.
    The provisions of subdivision 2 of section 879 of the Education Law (Cons. Laws, ch. 16) gave power to the Common Council and Board of Estimate and Apportionment of the city of Yonkers, to be exercised only in the discretion of those two city governing bodies, to create a funded debt to raise moneys for educational purposes referred to in paragraph c of subdivision 1 of section 877 of the Education Law, which power is now conferred oh the Common Council alone. (Board of Education v. Rogers, 278 N. Y. 66.)

      Sydney A. Syme and Irving J. Bland for petitioner, respondent.
    Subdivision 1 of section 879 of the Education Law expressly requires the Common Council to issue bonds. (Matter of DeAngelis v. Laino, 235 App. Div. 390; 260 N. Y. 661.) The Common Council, having approved the special estimate of the Board of Education and thereby authorized the execution of a contract, may not, in effect, abrogate such contract by declining to provide the necessary funds. (People ex rel. Holtzmann v. City of Schenectady, 136 App. Div. 127; People ex rel. N. Y. C. & H. R. R. R. Co. v. City of Buffalo, 123 App. Div. 141; Lowe v. City of New York, 240 App. Div. 484; 265 N. Y. 583.)
   Lewis, J.

The appeal is by permission of this court from an order of the Appellate Division which unanimously affirmed an order of Special Term directing the appellants, the Common Council of the City of Yonkers, forthwith to provide by ordinance for a bond issue to make available to the Board of Education the sum of $64,000 for the purchase from the petitioner of certain real property to be used for educational purposes. The appellants contend that the statutes involved do not require that bonds be issued, but grant to the Common Council discretion to determine the mode of payment — whether to issue bonds or to provide the purchase price by taxes collected over a period of years, ór otherwise. The petitioner has thus far successfully maintained that the controlling statutes are mandatory and require the Common Council promptly to enact an ordinance providing for the issuance of bonds.

The petitioner Yonkers Lodge No. 707 of the B. P. O. E. is the owner of premises at 138 South Broadway in the city of Yonkers. On November 9, 1939, pursuant to sections 875, subdivision 2, and 877, subdivision 8, of the Education Law (Cons. Laws, ch. 16), the Board of Education adopted a resolution declaring the necessity for the acquisition of petitioner’s property for educational purposes. It estimated the cost at $65,000 and constituted the same a special estimate.” Thereafter, on December 1, 1939, the Board of Estimate and Apportionment adopted a resolution approving the special estimate. On December 26, 1939, the Common Council enacted an ordinance by which such special estimate was adopted and it was further provided that the special estimate shall constitute a special tax budget and said amount shall be raised, levied and collected in twenty equal annual installments, together with such additional amount as may be necessary to pay the interest on any bonds or other obligations of the city issued in anticipation of the said tax for said purpose.”

On January 1, 1940, following the adoption by the electorate of a city manager form of government, a newly-elected Common Council took office, consisting of the appellants in this action. On January 10, 1940, the Board of Education entered into a written contract with the petitioner for the purchase of the premises for $64,000, payable in cash on February 9, 1940, or on such other date as might be set by the Comptroller. The new Common Council, however, failed to provide a bond issue and still refuses to do so.

The basis of the decision of Special Term, which has been affirmed, is found in the Education Law, sections 877, subdivision 1, paragraph c; 877, subdivision 8, and 879, subdivision 1, which provide, in part, as follows:

“ § 877. * * * i. * * * The board of education in each city having a population of less than one million shall prepare annually an itemized estimate for the current or ensuing fiscal year of such sum of money as it may deem necessary for the purposes stated in this section * * * Such estimate shall be for the following purposes: * * *

“ c. * * *, the purchase of real property for new sites * * *.”

“ § 877. * * * 8. A board of education may, to meet emergencies which may arise, submit a special estimate in which items for extraordinary expenses may be submitted to meet such emergencies. Such estimate shall contain a complete statement of the purposes for which the items are requested and the necessity therefor. The same method of procedure shall be followed in submitting such estimate and such estimate shall be subject to the same consideration and action as is required in the submission, consideration and action upon the regular annual estimate submitted by a board of education. The common council in such a city shall have power to make the appropriations requested by a board of education in such special estimate. The common council of a city of the third class, the common council, the board of estimate and apportionment of a city of the second class and, in a city having a population of four hundred thousand or more and less than one million, * * * the council may temporarily borrow the amount appropriated on city certificates of indebtedness or by the issuance of revenue bonds, or other municipal bonds; which certificates of indebtedness or bonds shall be payable at such time and in such manner as shall be provided by general laws or the charter of such city for other certificates of indebtedness or revenue bonds.”

§ 879. * * * 1. When the common council or the voters of a city authorize an appropriation to be raised by a tax in installments for any of the purposes enumerated in paragraph c of subdivision one of section eight hundred and seventy-seven of this chapter, city bonds shall be issued in the same manner and under the same provisions as other bonds are or may be issued by such city. The principal and interest of such bonds shall be paid out of moneys raised by tax therefor in the same manner as other school moneys are raised * * *.”

Summarizing these statutes, sections 877, subdivision 1, and 877, subdivision 1, paragraph c, together empower-the Board of Education to provide an annual estimate for the purchase of real property for new sites; section 877, subdivision 8, authorizes the Board, in the event of emergency, to submit a special estimate-in which items for extraordinary expense may be submitted, which special estimate shall be subject to the same consideration, action and procedure as is an annual estimate, and as to which the Common Council “ shall have power ” to make the appropriations requested; section 879, subdivision 1, provides that when an appropriation for any of the purposes mentioned in section 877, subdivision 1, paragraph c, is authorized, “ city bonds shall be issued in the same manner and under the same provisions as other bonds are or may be issued by such city.” It is the clause last quoted above with which this appeal is chiefly concerned.

The parties to this proceeding do not question the legality of the action taken by the Board of Education which declared the acquisition of petitioner’s property' a necessity and constituted the estimated cost a special estimate; nor is there challenge to the legality of either the approval of such special estimate by the Board of Estimate and Apportionment or the subsequent ordinance of the Common Council which adopted such special estimate as a special tax budget, and provided that the amount thereof should be collected in twenty equal annual installments, with interest on any bonds or other obligations which might be issued in anticipation of such tax.

Our inquiry is thus narrowed to the question whether, by the clause employed in section 879, subdivision 1, viz., “ * * * city bonds shall be issued in the same manner and under the same provisions as other bonds are or may be issued by such city ” — the Legislature intended to withdraw from the Common Council all discretion as to the method to be chosen by which the authorized special tax budget shall be financed. Stated otherwise — Is the statutory clause last quoted a legislative mandate that, in the circumstances now before us, the city’s bonds must be issued?

The question suggests at once the argument, which might well be made, that such a mandate might jeopardise the city’s financial position under the. bonded debt limitation fixed by the State Constitution (Art. VIII, § 4). In that connection it has been said * * * as to unusual and heavy emergency demands no department [of a city] should have the power to compel approval by the body upon which is placed the general responsibility for municipal financial safety.” (Matter of DeAngelis v. Laino, 235 App. Div. 390, 396; affd., 260 N. Y. 661.)

We disregard that line of inquiry, however, finding, as we do, the solution of our problem in the language of section 879, subdivision 2, of the Education Law, which provides in part as follows: In a city of the second class and in a city of the first class having a population of less than four hundred thousand, * * * the common council and the board tif estimate and apportionment, or other municipal authorities who were authorized and empowered under the laws in force prior to the eighth day of June, nineteen hundred and seventeen, to determine upon the necessity of issuing bonds for any of the purposes enumerated in paragraph c of subdivision one of section eight hundred and seventy-seven of this chapter, shall continue to possess such power and may authorize, issue and sell bonds for any of the purposes so enumerated, in the same manner and with the same force and effect as prior to the said eighth day of June, nineteen hundred and seventeen.” (Emphasis supplied.)

The date last mentioned, June 8, 1917, was the effective date of chapter 786 of the Laws of 1917 which added article 33-A to the Education Law (including sections 877 and 879). Prior to that date the law which governed appropriations for the purchase of sites for educational purposes by the Board of Education of the city of Yonkers was chapter 365 of the Laws of 1909, which provided in part: After such approval the common council shall have power from time to time, by ordinance, which before it shall take effect shall be approved by the board of estimate and apportionment, to authorize bonds of the city to be issued and sold in the manner provided by law and the proceeds thereof applied to the payment of the cost of any such purchase * * * or to the payment of temporary loans or notes or certificates of indebtedness incurred or issued * * (§ 3.) (Emphasis supplied.)

The language of the statute last quoted is not mandatory. According to its provisions there rested in the Common Council a discretion to select the mode of city financing by which the cost of the project should be met. Although that statute was repealed by chapter 786 of the Laws of 1917, we construe the language of section 879, subdivision 2, as serving to retain in the Common Council the same discretion which it had before the enactment of article 33-A of the Education Law. (Cf. Matter of DeAngelis v. Laino, supra, pp. 393-396.)

In reaching that conclusion we have been influenced by statutory changes made by two successive Legislatures. When, by chapter 452 of the Laws of 1908, the Legislature revised the charter of the city of Yonkers and defined the duty of the Common Council in reference to the financing of land purchases recommended by the Board of Education, it directed (Art. IX, § 11) that “ if there is insufficient money in the treasury applicable to such purposes the common council and the board of estimate and apportionment must cause bonds to be issued and sold * * Significant, we think, is the fact that the Legislature of the following year amended that provision of the city’s charter by striking out the mandate that the Common Council “ * * * must cause bonds to be issued * * * ” and substituted therefor the permissive provision “ shall have power from time to time, by ordinance, * * * to authorize bonds of the city to be issued and sold * * *.” (L. 1909, ch. 365 [amending art. IX, § 11, of the Yonkers City Charter].) It" is the amendment last mentioned which, within the language of section 879, subdivision 2, of the Education Law, was in effect prior to the said eighth day of June, nineteen hundred and seventeen.”

The orders should be reversed, with costs in all courts, and the application denied. (See 287 N. Y. 755.)

Finch, Conway and Desmond, JJ., concur; Lehman, Ch. J., Loughran and Rippey, JJ., dissent.

Orders reversed, etc.


author: Finch, J.

text:
    In the Matter of the Accounting of Bernard Segall et al., as Executors of Jacob W. Segall, Deceased, Appellants. Morris Gottlieb et al., Respondents.

      Argued October 20, 1941;
    decided November 27, 1941.

      William K. Hyman and Graham Miller for appellants.
    The respondent, having failed to file a timely notice of contingent claim, as required by section 207 of the Surrogate’s Court Act, and the executors having completely distributed the estate, it was error to direct the executors to pay the respondent’s claim eight years after distribution. (Matter of Burrow, 283 N. Y. 540; Matter of Goldowitz, 258 App. Div. 62; Matter of Brenner, 171 Misc. Rep. 627; 258 App. Div. 717; Matter of Cronin, 162 Misc. Rep. 370; Matter of Horner, 149 Misc. Rep. 695; Matter of Mutton, 145 N. Y. 98; Matter of Dederer, 6 N. Y. Supp. [2d] 183; Matter of Mallin, 142 Misc. Rep. 520; Schuylkill Fuel Corp. v. B. & C. Nieberg Realty Corp., 250 N. Y. 304; Rudd v. Cornell, 171 N. Y. 114; Rosenthal v. Equitable Life Assur. Soc., 254 App. Div. 205; Gay v. Riehmann Mantel

      Co., 53 App. Div. 507.) The respondent’s claim should have been dismissed for failure of proof. (Matter of Lichtman, 148 Misc. Rep. 228; Matter of Merllo, 152 Misc. Rep. 435.) The Surrogate having ruled that the respondent was entitled only to share proportionately with the other creditors and the respondent not having appealed, the Appellate Division erred in substituting a direction that the executors pay the claim in full. (Stark v. National City Bank, 278 N. Y. 388; Matter of City of New York [43rd Ave.], 282 N. Y. 42; McConkey v. Title Guarantee & Trust Co., 250 App. Div. 7.) Executors’ commissions, counsel fees and the costs payable out of the estate are administration expenses which must be paid before the net estate available for creditors is determined. (Stark v. National City Bank, 278 N. Y. 388; Matter of City of New York [43rd Ave.], 282 N. Y. 42; McConkey v. Title Guarantee & Trust Co., 250 App. Div. 7.)

      Frank S. DuBeshter for respondents.
    The provisions of sections 207 and 208 of the Surrogate’s Court Act do not apply in respect of any claim of which the fiduciary had personal knowledge. (N. Y. Surrogate’s Law and Practice, par. 1626; Matter of Shafran, 143 Misc. Rep. 754; Matter of Gill, 199 N. Y. 155; Matter of Recknagel, 148 App. Div. 268; Matter of Ebenstein, 116 Misc. Rep. 543; Matter of Purcell, 137 Misc. Rep. 727; Matter of Schulz, 152 Misc. Rep. 601; Matter of Frommelt, 154 Misc. Rep. 81; Matter of Huscher, 251 App. Div. 156; Matter of White, 159 Misc. Rep. 508; Matter of Goldowitz, 171 Misc. Rep. 198.)
   Finch, J.

This litigation arises upon an objection by a claimant to the disallowance of his claim upon an accounting demanded by him and filed by the executors of the decedent’s estate.

The claimant loaned the decedent $2,500 in 1928. The loan was secured by a $2,500 bond and mortgage on real property. This debt had been reduced to $2,200 at the time of decedent’s death, and subsequent payments of principal and interest made by the executors further reduced the amount to $1,850. It is for this that the claimant now claims against the estate.

The decedent died in February, 1930. Letters testamentary were issued in March, 1930, to the executors, namely, the widow, Clara Segall, and to the decedent’s son, Bernard Segall. The Surrogate has found that the executors settled the estate in December, 1930. The estate contained insufficient cash for the payment of debts and instead of selling the personalty and the real estate, the executors used money belonging to the widow, largely the proceeds of insurance policies, .and loaned by her to the estate to pay claims against the estate. For this purpose, the widow advanced $31,218.63 to the estate. Of this amount $16,291.80 has been returned to her from the personalty of the estate. The widow is the residuary legatee under the will and the decedent’s real property, valued at $16,489.83 by the Surrogate and the Appellate Division, passed to her.

In December, 1933, the executors and claimant arranged to transfer the lien of the second mortgage held by claimant to a different property. At' that time (three years after the assets had been distributed to the other creditors) claimant for the first time filed a notice of claim against the estate, based upon the new bond and mortgage. In 1937 the hen of the mortgage which had been taken in exchange was extinguished by foreclosure of a prior mortgage.

In May, 1938, the claimant commenced this proceeding to compel the executors to account. In answer the executors urged, inter alia, that an involved accounting was demanded and that an accounting might subsequently prove a needless expense to the estate if the creditor’s claim was ultimately disallowed upon the merits. Accordingly, it was stipulated between the parties that the claimant’s claim be tried upon the merits before the accounting was ordered. Pursuant to this stipulation a hearing was had at which the executors urged various defenses to the inherent validity of the claim, such as usury, novation, discharge, and that the substitution of new security had discharged the debt since the executors cannot bind the estate by their executory contracts. After this hearing the Surrogate decided only that the claimant had made a sufficient showing as to the inherent validity of his claim entitling him to call upon the executors for an accounting. Such accounting was ordered. The Appellate Division unanimously affirmed this order upon appeal. (Matter of Segall, 257 App. Div. 965.)

In July, 1939, the executors filed their account. Claimant’s claim was rejected. .Accordingly claimant has filed objections. The Surrogate has determined that the decree in the preliminary hearing which adjudged that the petitioner has made a sufficient showing entitling him to call upon the executors for an accounting ” was res judicata as to the claimant’s claim against the estate. The Surrogate further found that “ when the widow-executrix undertook to pay decedent’s debts, she put herself in the place of creditors, and by ignoring Gottlieb’s claim made preference ” and that in accordance with such finding, claimant was entitled to share pro rata with the widow (as subrogee of the other creditors) in the distribution of the assets of the estate. The Surrogate also allowed the executors commissions and counsel fees. Claimant has taken no appeal to the Appellate Division from this order. Upon' appeal by the executors, the Appellate Division modified the order of the Surrogate by striking out the Surrogate’s direction for the payment of a pro rata dividend to the claimant and substituted a direction that the executors pay his claim in full and struck out the items of executors’ commissions and counsel fees which the Surrogate had allowed. The executors have appealed from this modification.

The first question to be decided upon this appeal is whether the decree in the preliminary proceeding was res judicata as to the establishment of the claim of respondent against the estate. The way the matter came before the Surrogate in this preliminary proceeding is important as bearing on what the Surrogate did. The position of the executors was that an accounting would be expensive and that they should be saved this expense until the petitioner had shown that. he had a valid claim. The Surrogate adopted this view of the executors, and at the outset of the preliminary proceeding the parties stipulated that the merits of the claim be passed upon by the court and that if the claim was established it would follow that the claimant had a good and valid claim as a creditor against the estate and that at this stage of the proceeding an accounting will not be ordered. However, when the Surrogate came to make his decision, all that he decided was that the petitioner has made a sufficient showing entitling him to call upon the executors for an accounting.” This was the only question which was appealed to the Appellate Division rnd upon which they made their decision. Certainly in the consideration of that question the Appellate Division had to affirm the decision of the Surrogate as it would seem clear from the record that the claimant had made a sufficient showing on the preliminary hearing to call upon the executors for an accounting. The decision of the Surrogate, therefore, on this preliminary hearing was not res judicata as to the validity of the claim.

The second question involves the defenses upon which these executors now rely, namely, that the claimant having failed to file a timely notice of claim as required by sections 207 and 208 of the Surrogate’s Court Act, and the executors having completely distributed the estate, the claimant cannot recover upon his claim. (Surrogate’s Court Act, §§ 207, 208.) Section 207 of the Surrogate’s Court Act provides that whenever at death there is a contingent or unliquidated claim against the estate, or an outstanding bond upon which thé deceased shall have been principal, and on which at the time of his death the liability is still contingent or unliquidated, a claimant shall have the right to file with the executors on or before the day named in the notice an affidavit setting forth the facts upon which the unliquidated liability is based and the probable amount thereof. If such notice is filed, then there shall be no distribution of the assets of the estate without the reservation of sufficient moneys to pay such unliquidated claim when the amount is finally determined. . Section 208 provides that if the claim is not presented on or before the day fixed for the presentation of claims pursuant to the published notices, or if no notice be published within seven months, the executors shall not be chargeable for any assets which may have been paid out in satisfaction of claims or legacies or in making distribution to next of kin before the claim was presented.

The defense provided in this section has had imposed upon it by judicial decision an exception “ that its provisions will not apply in respect of any claim of which the fiduciary had personal knowledge at the time the disbursement of the assets of the estate was made * * (Butler on New York Surrogate Law and Practice, vol. 2, § 1626.) This exception is to a large extent based upon Matter of Gill (199 N. Y. 155). The principle enunciated in Matter of Gill would seem to be fundamental, namely, that sections 207 and 208 of the Surrogate’s Court Act apply where the distribution is made in good faith by the fiduciaries without knowledge of the claim. Where, however, the fiduciaries have notice that a beneficiary has a claim against the estate they cannot distribute the assets in satisfaction of legacies and to distributees without paying the debts which have a first claim on the assets. In Matter of Gill the claim was based upon a statutory liability imposed upon the holder of bank stocks.

In the case 'at bar, claimant had a second mortgage on real estate as security for the debt arising out of his bond. There is no question upon this record that the executors had knowledge of this claim against the estate for any deficiency. The widow, one of the executors, was co-obligor with decedent on the bond, and the other executor, the son of decedent, notarized the bond and mortgage. After the death of the decedent, they continued to make payments of interest on the bond, and some payments on account of principal. As already noted, these executors and the claimant agreed to exchange the second mortgage on one piece of property for a second mortgage on another piece of property. There is also ample evidence in the record that the executors not only knew that there would be a deficiency, but there is a concession in the record that the security of the second mortgage was worthless, as indeed it proved to be upon the foreclosure of the first mortgage in 1937. Under such circumstances, it would seem that the principle in Matter of Gill should be applied, and that sections 207 and 208 of the Surrogate’s Court Act do not protect executors who distribute an estate with knowledge that there is an outstanding claim, whether or not the claim is further secured by way of mortgage. It is to be noted here that this claim on the bond is a direct claim and also one in which the debt was due. In view of the principle of law that a debtor cannot avoid the payment of his debts by making gifts of his property when insolvent, a somewhat analogous principle is applicable, namely, that fiduciaries cannot distribute with knowledge that they are thus evading the payment of debts. Although there appears no direct authority, certainly not in the Court of Appeals, on the construction of these sections of the Surrogate’s Court Act, yet it would seem that the principle enunciated in the Gill case (199 N. Y. 155) should apply. Indeed this has been the holding in Matter of Recknagel (148 App. Div. 268, 272), and in a host of other cases in Surrogates’ Courts: Matter of Ebenstein (116 Misc. Rep. 543); Matter of Purcell (137 Misc. Rep. 727, 729); Matter of Schulz (152 Misc. Rep. 601, 602); Matter of Frommelt (154 Misc. Rep. 81); Matter of Huscher (251 App. Div. 156, 157); Matter of White (159 Misc. Rep. 508, 509); Matter of Goldowitz (171 Misc. Rep. 198, 200; revd. on other grounds in 258 App. Div. 62).

The executors further urge that if the claim should be allowed, they should not be directed to pay the claim in full, but only proportionately to the value of the assets in the estate, excluding the amount loaned by the widow to the estate. As already noted, the widow advanced some $31,000 to the estate so that instead of selling the personalty and realty, the debts might be paid. Of this amount advanced, some $16,000 has been returned to her from the personalty, and she has received, as residuary legatee, real estate valued at approximately $16,000 by the surrogate and the Appellate Division. The executors -urge that the effect of this $31,000 loan by the widow to the estate was the same as if she had paid the debts owed by the estate directly to the creditors, and that as subrogee she can still claim ^gainst the estate as assignee of these claims of creditors which she 'has paid. If this had been the transaction, then this claimant might have been entitled only to the payment of a proportionate part of his claim, depending upon the value of the personalty and the value of the equity in the real property. By the accounts, however, the executors, one of whom was the widow, have admitted that this sum was advanced directly by the widow to the estate and that she received the real estate at a value which showed that the estate of the decedent was solvent; hence by the account rendered by these executors there was sufficient to pay all the debts due by the estate including the debt of this claimant. It, therefore, appears that the claimant is entitled to payment in full, except for a technical reason which gives him slightly less than payment in full.

The Surrogate found that the ratio of liabilities to assets by taking the latter at a reduced figure yielded a result of .943492 and, therefore, that this claimant should receive that pro rata distribution. From this decision this claimant has not appealed and, therefore, cannot take advantage of the fact that the Appellate Division struck out this finding of the Surrogate and directed a payment in full. The decree of the Surrogate was conclusive as to this claimant who did not appeal. (Stark v. National City Bank, 278 N. Y. 388, 394; Matter of City of New York [43rd Avenue], 282 N. Y. 42, 47.)

The same authorities and reasoning apply to the modification by the Appellate Division which struck out the items of executors’ commissions and counsel fees which the Surrogate had allowed to the executors. Since the claimant did not appeal to the Appellate Division, the order of the Surrogate must be reinstated as to these commissions and counsel fees.

The executors object also to the allowance to the claimant of a bill of costs which has been affirmed by the Appellate Division. This allowance was clearly within the discretion of the Surrogate.

It follows that the order of the Appellate Division should be modified so as to reinstate the order of the Surrogate-providing for a pro rata dividend of .943492 upon the claim of claimant, and to reinstate the order of the Surrogate allowing executors’ commissions and counsel fees. As so modified, the order appealed from should be affirmed, without costs. (See 287 N. Y. 751.)

Lehman, Ch. J., Loughran, Rippey, Lewis, Conway and Desmond, JJ., concur.

Ordered accordingly.


author: Rippey, J. Desmond, J.

text:
    In the Matter of the Accounting of Giovanni del Drago et al., as Executors of Josephine del Drago, Deceased. Giovanni del Drago, Individually, et al., Appellants; Byron Clark, Jr., as Executor, et al., Respondents.

      Argued April 16, 1941;
    decided November 27, 1941.

      Henry Cohen, Ludwig M. Wilson and Robert W. Maloney for appellants.
    Congress intended that its tax should fall upon the estate and hence upon the residue rather than upon specific legacies. (Knowlton v. Moore, 178 U. S. 41; Matter of Sherman, 179 App. Div. 497; 222 N. Y. 540; Matter of Newton, 74 Penn. Super. Ct. 361; Matter of Vanderbilt, 281 N. Y. 297; Whitney v. State Tax Commission, 309 U. S. 530; Burnet v. Brooks, 288 U. S. 378; Louisville & Nashville R. R. Co. v. Mottley, 219 U. S. 467; New York Trust Co. v. Eisner, 256 U. S. 345; Matter of Hamlin, 226 N. Y. 407; Farmers L. & T. Co. v. Winthrop, 238 N. Y. 488; Plunkett v. Old Colony Trust Co., 233 Mass. 471; Matter of Oakes, 248 N. Y. 280.) The exclusive power of the state over inheritances is subordinate to the will of Congress as to the incidence of its tax. In truth, Congress pre-empted the field and excluded any state regulation on the question. (Burnes Nat. Bank v. Duncan, 265 U. S. 17; Frick v. Pennsylvania, 268 U. S. 473; Fidelity & Deposit Co. v. Tafoya, 270 U. S. 426; Davis v. Corona Coal Co., 265 U. S. 219; Santovincenso v. Egan, 284 U. S. 30; Knowlton v. Moore, 178 U. S. 41; Snyder v. Bettman, 190 U. S. 249; Plummer v. Coler, 178 U. S. 115; Southern Ry. Co. v. Reid, 222 U. S. 424; N. Y. C. R. R. Co. v. Winfield, 244 U. S. 147; Pennsylvania R. R. Co. v. Pub. Serv. Comm., 250 U. S. 566.) The state is without power to disturb the uniform incidence of the federal tax even assuming that Congress was silent on the matter. (Plunkett v. Old Colony Trust Co., 233 Mass. 471; Unites States v. Snyder, 149 U. S. 210; Steward Machine Co. v. Davis, 301 U. S. 548; Knowlton v. Moore, 178 U. S. 41; United States v. Bennett, 232 U. S. 299; Stebbins v. Riley, 268 U. S. 137; Burnet v. Harmel, 287 U. S. 103 ;Lyeth v. Hoey, 305 U. S. 188; Flaherty
      v. Hanson, 215 U. S. 515; Farmers & Mechanics' Nat. Bank v. Dearing, 91 U. S. 29; Easton v. Iowa, 188 U. S. 220; Kalb v. Feuerstein, 308 U. S. 433; Matter of Tarble, 13 Wall. 397; Graves v. New York ex rel. O’ Keefe, 306 U. S. 466; Prigg v. Pennsylvania, 16 Pet. 539; Townsend v. Yeomans, 301 U. S. 441.)

      Harold W. Hastings and Sydney A. Hellenbrand for Harold W. Hastings, as special guardian for Francesco del Drago et al., infants.
    Congress intended that the federal estate tax shall fall upon the estate and not upon the legatees. (Matter of Vanderbilt, 281 N. Y. 297; Farmers' L. & T. Co. v. Winthrop, 238 N. Y. 488; Edwards v. Slocum, 264 U. S. 61; Y. M. C. A. v. Davis, 264 U. S. 47; N. Y. Trust Co. v. Eisner, 256 U. S. 345; Knowlton v. Moore, 178 U. S. 41; Matter of Oakes, 248 N. Y. 280; Matter of Hamlin, 226 N. Y. 407; Plunkett v. Old Colony Trust Co., 233 Mass. 471; Turner v. Cole, 118 N. J. Eq. 497.) State statutes may not overrule or change federal legislation. (Lake Shore & Michigan Ry. Co. v. Ohio, 173 U. S. 285; Hines v. Lowney, 305 U. S. 85; Erickson v. Macy, 231 N. Y. 86; C. & O. Ry. Co. v. Stapleton, 279 U. S. 587; New York C. R. R. Co. v. Winfield, 244 U. S. 147; Northern Pac. Ry. Co. v. Washington, 222 U. S. 370; Missouri Pacific R. R. Co. v. Porter, 273 U. S. 341; Oregon-Washington Co. v. Washington, 270 U. S. 87; Pennsylvania R. R. Co. v. Pub. Serv. Comm., 250 U. S. 566; Burnet v. Harmel, 287 U. S. 103.)

      Lawrason Riggs, Jr., special guardian, and Enos Throop Geer for Angela del Drago et al., respondents.
    Section 124 of the Decedent Estate Law (Cons. Laws, ch. 13) is not in conflict with the Constitution of the United States or with the Constitution of the State of New York. (Y. M. C. A. v. Davis, 264 U. S. 47; Edwards v. Slocum, 287 Fed. Rep. 651; 264 U. S. 61; Hepburn v. Winthrop, 83 Fed. Rep. [2d] 566; Matter of Hamlin, 226 N. Y. 407; Matter of Oakes, 248 N. Y. 280; Matter of Ryle, 170 Misc. Rep. 450; Matter of Scott, 274 N. Y. 538; Matter of Vanderbilt, 281 N. Y. 297; Matter of Mayer, 174 Misc. Rep. 917; Matter of Mollenhauer, 257 App. Div. 286; Matter of Bull, 175 Misc. Rep. 197; Missouri, Kansas & Texas Ry. Co. v. Haber, 169 U. S. 623.) Congress did not intend to fix an immutable incidence of the tax. (Edwards v. Slocum, 287 Fed. Rep. 651; 264 U. S. 61; Hagood v. Doughton, 195 N. C. 811; United States v. Security-First Nat. Bank, 30 Fed. Supp. 113; Central Trust Co. v. Burrow, 144 Kan. 79.) In the field of estates there can be no repugnancy between estate law and the Constitution of the United States or with a federal statute unless the repugnancy is clear and the two statutes cannot stand together. Here the federal and state statutes are wholly consistent. (Matter of Davega City Radio v. State Labor Board, 281 N. Y. 13; Kelly v. Washington, 302 U. S. 1; Reid v. Colorado, 187 U. S. 137; Savage v. Jones, 225 U. S. 501; Sutton v. English, 246 U. S. 199; Vaughn v. Northrup, 15 Pet. 1; Magruder v. Drury, 235 U. S. 106.)

      Littleton Fox and Anthony J. Caputo for Byron Clark, Jr., as executor, respondent.
   Rippey, J.

Josephine del Drago died October 8, 1937, while a resident of New York State, leaving a last will and testament dated March 27, 1934, which was probated by the Surrogate of New York County, and Giovanni del Drago and Byron Clark, Jr., were appointed and thereupon qualified as executors of her estate. Upon an accouning by the executors to which all parties interested in the estate were parties, it appeared that, although no final determination has been made as to the amount of state and federal estate taxes properly assessable, the executors have already paid nearly $300,000 thereon out of the general assets of the estate. Before distribution to beneficiaries, the executors properly requested a determination of the question of whether the taxes so paid should be apportioned to, prorated among and deducted from the shares passing under the will to the several legatees and devisees or paid entirely from the remainder residuary estate.

The deceased left a substantial estate in the United States and also property in France and Italy which latter is not the subject-matter of this accounting or involved in the point to be decided. Following small specific legacies for various persons, the deceased left to her husband, Giovanni del Drago, who is domiciled in the United States, various articles of personal property and effects by the sixth clause of the will, the sum of $300,000 by the seventh clause and the life use of the residuary estate under the ninth clause of the will. By the eighth clause of the will, she left to her stepson, Marcel del Drago of Rome, Italy, the life use of $200,000 with remainder over, per stirpes, to his surviving children born in lawful wedlock and /or the children born in lawful wedlock of any such child of her stepson who should then be deceased. In the event that Marcel del Drago should leave no such children or such grandchildren surviving, the remainder was directed to pass to the children of Clemente del Drago, son of Luigi del Drago, a brother of her husband, born in lawful wedlock and/or to the children born in lawful wedlock of any deceased child or children. By the ninth clause of the will, the residue of the estate upon the death of her husband was to pass to the children born in lawful wedlock of Mario del Drago, the second son of Luigi.del Drago, of Rome, Italy, and/or the children born in lawful wedlock of any such child who might then be deceased.

The will contains no direction as to how, by whom or out of what portion of her estate so devised and bequeathed the estate taxes should be paid. By objections and answer to the account, specific legatees and guardians for infant legatees have suitably put in issue the constitutionality of chapter 709 of the Laws of 1930 (Decedent Estate Law, § 124 [Cons. Laws, ch. 13]) and chapter 710 of the Laws of 1930 as amended (Tax Law, § 249-t [Cons. Laws, ch. 60]) in so far as such statutes or either of them provide for the imposition, assessment or apportionment of the federal estate tax or any portion thereof against their legacies or interests in the estate of deceased. It is alleged that those acts of the New York State Legislature are violative of the provisions of article I, section 8, and article VI of the Constitution of the United States and of the Fourteenth Amendment thereto and in conflict with and in violation of the provisions of the Federal Estate Tax Law, being title III of the Revenue Acts of 1926 and 1932, as amended by the Revenue Acts of 1935, 1936 and 1938 as amended, and known as section 826 (b) of the United States Revenue Code (U. S. Code, tit. 26, § 826, par. [b]) and are consequently void. The Surrogate overruled the objections and ordered and adjudged that the executors apportion and prorate all estate taxes, whether federal or state, among the various persons who take under the will in accordance with state law. By direct appeal by Giovanni del Drago and Marcel del Drago from the final order of the Surrogate, the constitutional question is properly before this court; The question propounded which we consider is whether the State of New York may by statute regulate and determine the incidence of the federal estate taxes in the face of the uniformity, supremacy and due process clauses of the Federal Constitution and of a contrary congressional intent.

Article I of the Federal Constitution contains the uniformity clause and provides that “ the Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises * * *; but all Duties, Imposts and Excises shall be uniform throughout the United States * * * ” and “ To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers” (§ 8). Article VI contains the supremacy clause and reads in part: This Constitution, and the Laws of the United States which shall be made in Pursuance thereof * * * shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” Section' 1 of the Fourteenth Amendment to the Constitution provides, among other things, that all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

Prior to the act of 1916, all federal acts imposing death duties made specific provision for the payment of the tax by the several legatees individually and severally out of their shares and not by the estate (1 U. S. Stat. 527, July 6, 1797; 12 U. S. Stat. 433, 485, 486, July, 1862; 13 U. S. Stat. 223, 285-291, June, 1864; 30 U. S. Stat. 448, 464-466, June, 1898, as amended by 31 U. S. Stat. 946 [1901]). They were emergency measures and made no provision for permanent excises. They provided for inheritance taxes and not estate taxes. A reading of the 1898 act would seem to indicate that the rate was based on the net estate but the individual legacies were taxed. The constitutionality of that scheme of death-duty taxation was sustained only by construction whereby it was held that the rate was fixed alone by the size of the legacy (Knowlton v. Moore, 178 U. S. 41). By 1916, forty-two states (including the State of New York) were imposing death duties upon individual beneficiaries of decedent’s estates. In no case was such imposition an estate tax. They were all strictly inheritance taxes and so defined. Never before 1916, except as emergency measures, had the federal government invaded the field of inheritance taxation which the states considered their exclusive preserve. The proposal of Congress to tap that field for additional revenue met powerful opposition by the states with the result that political expediency and practical and constitutional considerations impelled Congress to abandon that idea and turn to a tax upon the net estate as a unit of taxation, a new and hitherto unused source of federal revenue, and leave the imposition of a tax'upon the separate successions to the property of each legatee or distributee to the several states (Congressional Record, 64th Congress, vol. 53, pt. 11, particularly at p. 10657, and pt. 15, Appendix, pp. 1495, 1942; Matter of Hamlin, 226 N. Y. 407; Matter of Sherman, 179 App. Div. 497; affd., 222 N. Y. 540; New York Trust Co. v. Eisner, 256 U. S. 345, 348; Y. M. C. A. v. Davis, 264 U. S. 47, 50; Edwards v. Slocum, 264 XJ. S. 61, 63; Gleason & Otis on The Law of Inheritance Taxation [4th ed., 1925], pp. 7-19). The federal estate tax as then proposed and subsequently developed was fundamentally different from a state inheritance tax (Knowlton v. Moore, supra). The distinction is pointed out and the authorities reviewed in Farmers Loan & Trust Co. v. Winthrop (238 N. Y. 488) and in Y. M. C. A. v. Davis (supra) and needs no further elaboration or discussion here. The theory of the federal estate tax is that the transfers are part of the estate and the tax thereon must be paid by the executor before distribution without recourse to the beneficiary (Fanners Loan & Trust Co. v. Winthrop, supra). Congress decided that a net estate tax was the one that it could adopt for a permanent part of its tax system with greater political and constitutional safety by leaving estate share taxes (inheritance taxes) to the states and estate taxes to the federal government. Thus, it was found, there would be established a co-ordinate tax system with separate sources of revenue, theoretically and constitutionally at least, each supplementing the other without overlapping ■— a federal system which lent itself without friction to uniform application. It also was held that such a system was in the interest of equality and equity as between the states and the federal government and on the part of those who bore the burden of the tax.

Accordingly, by the provisions of the Revenue Act of September 8, 1916 (39 XJ. S. Stat. 777 et seq.; 6 XJ. S. Compiled Stat. 1916, ch. 10A, p. 7364, § 6336|a et seq.) the Congress imposed an “ estate tax ” as distinguished from an “ inheritance tax ” on estates of deceased persons and placed the burden of the tax upon the residuary estate rather than upon legacies (Matter of Hamlin, 226 N. Y. 407). In that act and in subsequent similarly worded acts including the act in effect at the death of Mrs. del Drago, it was provided that the tax should be upon the net estate as found according to the provisions of the act, chargeable to and payable by the executor before distribution without recourse to the beneficiaries, that it was not a tax upon the shares which the legatees should take or upon the persons taking those shares and that it was a tax upon the transfer of the estate as a whole at the time of death and not a tax on the person’s privilege of receiving property under the will. Leaving no doubt that it was the purpose and intent of Congress to exclude specific legatees, as such, from bearing any of the burden of the tax, the Revenue Act of 1916 (§ 208; 39 U. S. Stat. p. 779) contained a provision which has been carried forward by Congress in subsequent estate tax acts (e. g., U. S. Code, tit. 26, § 826, par. [b]; 44 U. S. Stat. 79) that if the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution.” The courts have uniformly refused to order proration or apportionment among legatees of the amount of the tax (Matter of Hamlin, supra; Farmers Loan. & Trust Co. v. Winthrop, supra; Matter of Oakes, 248 N. Y. 280; Plunkett v. Old Colony Trust Co., 233 Mass. 471; Knowlton v. Moore, supra; Coolidge v. Long, 282 U. S. 582; Y. M. C. A. v. Davis, supra).

Under articles 10 (L. 1909, ch. 62, as amd.), and 10-A (L. 1925, ch. 143, as amd.) the New York Legislature imposed inheritance taxes upon individual legacies. Under article 10-B (L. 1925, ch. 320) it was provided that the state death tax was “ imposed upon the transfer of the net estate ” (§ 249-a). The executor of every estate was made personally liable for the tax (§ 249-g). The executor was required to make a return within two months after the decedent’s death or within a like period after qualifying as executor (§ 249-d), was forbidden finally to account unless he should have produced a final receipt or a certified copy thereof showing the payment of any taxes due (§ 249-e), was authorized to sell so much of the property of the estate as would enable him to pay the tax in the same manner provided by law for payment of a decedent’s debt, and the State Tax Commissioner was authorized to maintain an action against the executor personally to recover the tax (§ 249-g). If any part of the tax was paid out of a distributive share, the person entitled to that share was entitled to reimbursement and tax upon the legacies, as such, was effectively barred (§ 249-g). It was stated to be “ the purpose and intent of this article that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution.” (§ 249-g.) Thus state death duties for purposes of state revenue were assessable and collectible and the burden imposed in the same manner as the federal estate tax. In each sovereignty, the applicable statutes required the tax to be deducted and paid from the net estate before determination and computation of the shares payable to individual legatees.

After much agitation and effort in and out of the Legislature, a new state tax law applicable to estates of persons dying after September 1, 1930, was passed by the Legislature and became effective on that date (L. 1930, ch. 710, amdg. L. 1909, ch. 62, by adding a new article to be known as 10-C). By the provisions of the act itself, history of inheritance tax legislation of the state and proceedings antecedent to its passage, it was clearly shown that the act was passed for the purpose (1) of imposing death duties upon those who received the benefit and not upon the estate of the deceased and (2) to compel similar distribution of the federal estate tax notwithstanding and in the face of the federal law to the contrary (McKinney’s historical note, vol. 13, p. 420). The act required that the tax be apportioned among the beneficiaries and the order of reimbursement of the previous act was reversed. It was provided that the executor should pay the tax out of the net estate, should not make reimbursement to legatees but that he was entitled to contribution from them. It was provided that in respect to persons dying after September 1, 1930, that article should supersede any article of the Tax Law which imposes a transfer, inheritance or, estate tax ” (§ 249-mm) and that no exemption provided for in any other article of the Tax Law or of any other law of the state should be construed as being applicable under the new article. The act contains in itself no provision for apportionment and distribution of the tax among the legatees or distributees. In the face of probable necessary construction and possible unconstitutionality (Knowlton v. Moore, supra), other provisions were added (§ 249-t) and the Decedent Estate Law was amended (§ 124; L. 1930, ch. 709, effective September 1, 1930), whereby the rate of the tax is fixed by the amount of the estate and the tax found due is apportioned among the various legatees according to that rate. Section 249-t of the Tax Law provides for exclusive jurisdiction in the Surrogate’s Court “ to finally determine the amount of the tax imposed by this article, and to fix and adjudge the proportions in which the same shall be borne by the persons interested in the estate as in section one hundred twenty-four of the decedent estate law provided.” (§ 249-kk). Section 124 of the Decedent Estate Law provides that the death tax imposed shall “ so far as is practicable and unless otherwise directed by the will of the decedent * * * be paid by the executor as such out of the estate before its distribution,” and the executor shall not be required to distribute under the will any property with respect to which federal or state estate tax is imposed unless the amount thereof is apportioned to the distributees and such taxes are paid. Subdivision 1 of the section provides a scheme for apportionment and distribution and leaves it in the hands of the Surrogate equitably to carry that scheme into effect as far as the state tax is concerned. But it does not stop there. It further provides that the estate tax paid by an executor under the provisions of the United States revenue act of nineteen hundred twenty-six, as amended by the United States revenue act of nineteen hundred twenty-eight, or under any death tax law of the United States hereafter enacted, upon or with respect to any property required to be included in the gross estate of a decedent under the provisions of any such law, the amount of the tax so paid, except in a case where a testator otherwise directs in his will, [with an exception (L. 1.940, ch. 829, § 13) not here pertinent] shall be equitably prorated among the persons interested in the estate to whom such property is or may be transferred or to whom any benefit accrues,” and makes it mandatory on the executor, as to any property that does not come into his hands, to recover from whomever is in possession, oi from the persons interested in the estate, the proportionate amount of such tax payable by the persons interested in the estate with which such persons interested in the estate are chargeable under the provisions of this section, and the surrogate may by order direct the payment of such amount of tax by such persons to the executor.”

The Federal Revenue Act of 1918, in essential respects similar to the act of 1916 so far as the point at issue is concerned, was held in Y. M. C. A. v. Davis (supra, p. 50) to be “ an excise upon the transfer of an estate upon death of the owner ” and not a tax upon succession and receipt of benefits under the law or the will. It was death duties as distinguished from a legacy or succession tax. What this law taxes is not the interest to which the legatees and devisees succeeded on death, but the interest which ceased by reason of the death.” So far as material, identical provisions are contained in the Federal Estate Tax Law applicable to the estate under consideration. Similar provisions to those contained in the 1916 act were construed as above in Matter of Oakes (248 N. Y. 280) and the act was held constitutional in New York Trust Co. v. Eisner (supra) on the basis of such a construction since the federal tax was an excise upon the right of transmission of the whole estate applicable from its beginning to final distribution of the estate. The federal policy to control the incidence of the estate tax is clearly established and declared not only in the law itself but by our own decisions (Hamlin, Oakes and Winthrop cases) .and by necessary implication (Matter of Neagle, 39 Fed. Rep. 833). It was definitely established for uniform application in 1916 long prior to the policy-fixing tax statutes of the State of New York in 1930.

“ It is a principle firmly established that to the law of the State in which the land is situated we must look for the rules which govern its descent, alienation and transfer, and for the effect and construction of wills and other conveyances ” (DeVaughn v. Hutchinson, 165 U. S. 566, 570). Nevertheless, every sovereignty, whether state or federal, possesses the power of regulating the maimer and terms upon which property, both real and personal, within its dominion may be transmitted by will and of prescribing who shall and who shall not be capable of taking it (11 Am. Juris., Conflict of Laws, § 169; Mager v. Grima, 8 How. [U. S.] 490; United States v. Perkins, 163 U. S. 625; Blythe v. Hinckley, 180 U. S. 333; Nielsen v. Johnson, 279 U. S. 47; Snyder v. Bettman, 190 U. S. 249, 252; Santovincenzo v. Egan, 284 U. S. 30, 40; Knowlton v. Moore, supra; Johnson v. Olson, 92 Kan. 819; L. R. A. 1915E, 327 and note; Rixner’s Succession, 48 La. Ann. 552; 32 L. R. A. 177; Easton v. Huott, 95 Iowa, 473 ; 31 L. R. A. 177). Under all sorts of conditions, control over the right to hold and over the use, devolution and transmission of real and personal property of citizens within the United States has been exercised by Congress under the Constitution. It is a subject so broad that time and space and lack of importance to the present decision forbid extensive and detailed references. The right to impose an estate tax and to regulate and control its incidence or to determine the right to take by will is not exclusive to the state (See cases supra; Murdock v. Ward, 178 U. S. 139; Knowlton v. Moore, supra; Snyder v. Bettman, supra; New York Trust Co. v. Eisner, supra; Burnet v. Brooks, 288 U. S. 378; Matter of Hamlin, supra) and that conclusion is not in any manner affected by the dicta in Edwards v. Slocum (287 Fed. Rep. 651) or by the misconstruction and misapplication of the reference to the lack of concern of the United States in the incidence of the federal estate tax in the Eisner case or in other state cases of similar import. The state has not, as it has been loosely said, exclusive power, as against the federal government, to say who and in what proportions recipients of a testator’s bounty or distributees of an intestate’s estate shall take of either the gross or net estate. In Knowlton v. Moore {supra) the theory that the state may impose regulations as to the incidence of the federal estate tax to the exclusion of the right of Congress finally to fix the incidence of that tax because the state has the right to regulate successions was exploded.

The state’s right to taxation is subordinate to that of the federal government and when the latter has acted in a particular field, the full import and all the implications of that act must control. The Congress has not only acted in the field of decedents’ estate taxation to levy and collect duties but has expressly directed the manner of payment of such duties and excluded specific legatees from bearing the burden of any such levy. Such exclusion was final and conclusive and beyond the power of the state to vary or change. But if it be urged that failure of Congress to be more specific as to its purpose to exercise complete control of the incidence of the estate tax to the exclusion of state interference indicates an intent that the state might legislate on the subject, the answer is that silence does not give consent but implies only that there shall be no interference with the federal scheme (Prigg v. Pennsylvania, 16 Pet. [U. S.] 539; United States v. Snyder, 149 U. S. 210; W. U. Tel. Co. v. Boegli, 251 U. S. 315; Hines v. Lowrey, 305 U. S. 85, 91; Graves v. New York ex rel. O’ Keefe, 306 U. S. 466; Erickson v. Macy, 231 N. Y. 86, 91). In Prigg v. Pennsylvania it was urged that Congress had the exclusive power of legislation upon the subject-matter under consideration under the provisions of the Constitution of the United States, that if that power was not exclusive in Congress, still the concurrent power of the State Legislature was suspended by the actual exercise of the power of Congress and that if not suspended still the statute of Pennsylvania in all its provisions applicable to that case was in direct collision with the act of Congress and, therefore; unconstitutional and void. It appeared in that case that Congress had legislated upon the subject-matter in controversy. Thereupon the court said: For, if Congress have a constitutional power to regulate a particular subject, and they do actually regulate it in a given manner, and in a certain form,- it cannot be that the State Legislatures have a right to interfere, and, as it were, by way of complement to the legislation of Congress, to prescribe additional regulations, and what they may deem auxiliary provisions for the same purpose. In such a case, the legislation of Congress, in what it does prescribe, manifestly indicates, that it does not intend that there shall be any farther legislation to act upon the subject-matter. Its silence as to what it does not do, is as expressive of what its intention is as the direct provisions made by it. This doctrine was fully recognized by this court, in the case of Houston v. Moore, 5 Wheat. [U. S.] 1, 21, 22; where it was expressly held, that where Congress have exercised a power over a particular subject given them by the Constitution, it is not competent for State legislation to add to the provisions of Congress upon that subject; for that the will of Congress upon the whole subject is as clearly established by what it had not declared, as by what it has expressed ” (p. 617). In United States v. Snyder the court had under consideration the question of the right of the states under reserve power to interfere with the collection of a tax imposed by Congress. The court said: “ The 8th section of the 1st article declares that ‘ the Congress shall have power to lay and collect taxes, duties, imposts and excises, * * * but all duties, imposts and excises shall be uniform throughout the United States.’ The power to impose and collect the public burthens is here given in terms as absolute as the language affords. The provision exacting uniformity throughout the United States itself imports a system of assessment and collection under the exclusive control of the general government. And both the grant of the power and its limitation are wholly inconsistent with the proposition that the States can by legislation interfere with the assessment of Federal taxes, or set up a limitation of time within which they must be collected ” (p. 214).

Since Congress had the power to lay and collect taxes on decedents' estates and determine where the burden should rest (New York Trust Co. v. Eisner, supra), those acts are the supreme law of the land and the state legislative acts in question, if in conflict with the federal law, are a nullity though enacted in the exercise of concurrent and not controverted powers (Gibbons v. Ogden, 9 Wheat. [U. S.] 1, 24, 211; Florida v. Mellon, 273 U. S. 12, 17). That the federal and state statutes are in conflict on the question of where the burden of the federal tax shall fall is beyond doubt. The federal acts place the incidence of the tax upon the net residuary estate payable by the executor before distribution without recourse to the individual legatees; the state acts, though requiring the executor to pay, impose the burden of the federal estate tax upon the specific legatees and require the executor to deduct the pro rata burden from each legacy or collect such share or the part thereof he has paid from such legacy. So far as federal excises are concerned, the burden may not be regulated, distributed or apportioned by the state. Distribution must be accomplished under the federal law within the field within which Congress purports to act and has acted consistently and continually since long prior to 1930 when the state acts under attack went into effect. Repugnancy of the state acts to the federal acts render the former inoperative in so far as they purport to regulate the incidence of the federal estate tax and authorize and direct its distribution and apportionment. It is quite clear also that there can be no uniform operation of the federal estate act if each state is to determine for itself how distribution and apportionment of the tax shall be made.

In neither of the cases relied upon, in part at least, by the learned Surrogate (Matter of Scott, 274 N. Y. 538; certiorari denied, 302 U. S. 721; Edwards v. Slocum, 287 Fed. Rep. 651; affd., 264 U. S. 61, and Y. M. C. A. v. Davis, 264 U. S. 47) was the question here presented raised or decided or a determination thereof necessary for the decision. The only satisfaction that respondents may derive from those cases is eked out of isolated sentences from the opinions which are pure dicta. In the Scott case the deceased left various life insurance policies with benefits payable periodically to beneficiaries named in the policies and the questions propounded and decided were whether (1) the benefits were included in the gross estate of deceased and fell within the intendment of section 124 of the Decedent Estate Law and (2) whether, if applicable, the section was repugnant to due process and involved unconstitutional impairment of the obligation of contracts. The only questions involved in the Edwards case were the power of the federal government to impose an estate tax upon the gross net estate of a deceased where a part passed to charity and the scope of the Federal Estate Tax Law as to the imposition of such a tax. In the Davis case (p. 48), arising in Ohio, the question was what effect payment toy an executor of the federal estate tax should “ have in the distribution of the estate among the legatees and beneficiaries under the will ” under the provisions, properly construed, of the applicable Federal Estate Tax Law.

The question of the justice or equity of placing the burden upon the residuary estate is entirely irrelevant to the question under consideration. Whether it is just and' equitable in all cases to impose the tax upon the estate as a whole and not upon the specific legatees on the benefits they derive from the estate is a matter admitting of wide diversity of opinion. It is not the province of the courts to resolve that conflict. “ The Congress has spoken and it is our function to interpret, not to legislate ” (Matter of Hamlin, 226 N. Y. 407, 420; certiorari denied, 250 U. S. 672; Farmers’ Loan & Trust Co. v. Winthrop, 238 N. Y. 488, 496, 497; certiorari denied, 266 U. S. 633; Matter of Vanderbilt, 281 N. Y. 297; affd., 309 U. S. 530). Deceased knew the law when she made her will, and then knew that in the absence of directions to the contrary in the will all federal estate taxes would be payable out of her residuary estate and that her net estate, after deduction of the federal tax, would alone be available for distribution to legatees and she thereby took into account any alleged inequities that might result in its application (New York Trust Co. v. Eisner, supra; Matter of Vanderbilt, supra). In making her will she had a right to rely upon the federal law as the only law fixing the' burden of the federal estate taxes. It is not our province to remake the will and to have it provide as her wish and intent that such taxes should be apportioned and prorated among the various specific legatees.

It follows that in so far as section 124 of the Decedent Estate Law or section 249-t of article 10-C of the State Tax Law authorize, require or direct distribution and apportionment of the federal estate taxes levied and to be levied upon the estate of the deceased among the legatees, they are repugnant to the provisions of the Federal Estate Tax Act of 1926 and amendments thereto, the Congress being competent to legislate on the subject of estate excises, and to the uniformity and supremacy clauses of the Federal Constitution and are, therefore, unconstitutional. Since what we have said above is decisive of the issue here involved, it is unnecessary to consider other grounds of unconstitutionality which appellants urge. The question of the repugnancy of the legislative acts to the New York State Constitution is not before us on this record and nothing said above is to be considered an expression of opinion on that subject.

The order of the Surrogate’s Court should' be reversed, ■with costs in this court and in the Surrogate’s Court to each party appearing and filing a separate brief payable out of the estate and the matter remitted to the Surrogate’s Court to proceed in accordance with this opinion.

Desmond, J.

(dissenting). The appellants are general legatees under the will of Josephine del Drago. Over their objection the Surrogate, in this accounting proceeding, prorated the federal estate tax equitably “ among the persons interested in the estate ” and ordered the executor to charge the prorated amounts against the persons so interested, including appellants. All this was in obedience to the command of section 124 of the Decedent Estate Law, applicable to this estate, since testatrix did not direct otherwise in her will. In this court there is raised by appellants only one objection to this prorating and apportionment, namely, that section 124, in so far as it directs such prorating and apportionment, is invalid as being 'in conflict with the “ Supremacy Clause ” of the Federal Constitution (Art. VI, cl. 2).

The estate of Josephine del Drago became subject at her death to a tax imposed by the United States on the estates of decedents. No one questions that the tax so imposed is a true estate tax, falling on the estate itself and payable from the estate, and is not an inheritance tax which falls on the separate shares of the estate which go to the several beneficiaries. It is an excise tax laid upon the privilege of transmitting property rights at death. (Matter of Vanderbilt, 281 N. Y. 297, 311, 315.) To make this entirely clear, Congress provided (U. S. Code, tit. 26, § 826, par. [b]) that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution.” Congress never directed that the tax was to be paid out of the residuary estate and it is not a tax upon a residue.” (Edwards v. Slocum, 264 U. S. 61, 62.) Nor did Congress ever attempt to forbid the local probate courts to fix the final incidence of the tax" by apportioning its burden among the several beneficiaries, after the executor has paid it. Indeed, there is much evidence from various sources that Congress was not at all concerned about this matter of final incidence and that its only intent was to set up a simple system whereby there should be taken out of sizable estates, before any distribution was had in those estates, a sum fixed by the federal statute. Congressman Kitchin, Chairman of the House Ways and Means Committee, said on the floor of the House in answer to a question: “ We levy the tax on the transfer of the flat or whole net estate. We do not follow the beneficiaries and see how much this one gets and that one gets, and what rate should be levied on lineal and what on collateral relations, but we simply levy on the net estate. This also prevents the Federal Government, through the Treasury Department, going into the courts contesting and construing wills and statutes of distribution” (Congressional Record, 64th Congress [1916], pt. 15, p. 1942). The Senate Committee on Finance adopted this language in its own report on the bill (quoted in Matter of Hamlin, 226 N. Y. 407, at pp. 415, 416). The federal statute was, therefore, so drawn as not to control or determine the final incidence of the tax. As Circuit Judge Hough said in Edwards v. Slocum (287 Fed. Rep. 651, 653): “ So far as the words of the statute are concerned, the United States does not care who ultimately bear the weight of this tax; it announces the sum and demands payment from the executors; if the legatees and devisees cannot agree as to the burden bearing, the state courts can settle the matter.”

In affirming the decision of the Circuit Court of Appeals in Edwards v. Slocum, the Supreme Court (264 U. S. 61, 63) gave at least seeming approval to the position taken by the Attorney-General that the distribution of the burden of taxation among the several beneficiaries is a matter of state regulation.” On the same day, February 18, 1924, the Supreme Court announced its decision in Y. M. C. A. v. Davis (264 U. S. 47). There, in discussing the effect on charities, ordinarily exempt from federal taxation of the deduction of this federal estate tax from the residue in which the charities took a share, the Supreme Court held that the charities were not exempted from the final burden of the tax despite the fact that the statute in computing the net estate, deducted amounts bequeathed to charities. Comparing the situation of the charities with that of a beneficiary who might take under a will the first $50,000 of an estate (this first $50,000 being at that time similarly exempted in computing the net estate) the Supreme Court remarked that the legatee who took that $50,000 might ultimately have to stand his share of the Federal estate tax, “ if by the law of the state, such should be its incidence ” (p. 51).

We need not take time for a careful inquiry as to whether or not these expressions in the federal decisions are dicta. Dicta or not, binding on us or not, they cannot be ignored, particularly when they have been so long regarded as stating the law, and when they agree with the expressed views of the members of Congress and with the logic of the situation. Why should Congress concern itself as to the ultimate resting place of this tax? Having seen to it that the federal government’s toll shall always be taken before the beneficiaries divide up the estate, having commanded the executor to pay the tax before the distribution begins, and having provided adequate penalties for his failure so to do, what matters it to Congress how local law afterwards apportions the tax among the legatees or devisees? Long before the turn of the legatees and devisees comes, the United States Collector of Internal Revenue has gotten i the government’s tax money and closed the books on the estate. Thus in no real or reasonable sense can it be said that a later apportionment interferes with the enforcement of the Federal Tax Law, or modifies or changes that tax.

Early in the history of the federal statute, and before New York State had an apportionment statute, this court held that the executor was bound to charge the whole federal tax to the residue, as the state law then stood. (Matter of Hamlin, 226 N. Y. 407; certiorari denied, 250 17. S. 672.) This decision does not rest on any federal statute directing that the tax be charged finally, or in the first instance, upon the residue, for there is no such statute. The federal statute says only that the tax “ shall be imposed upon the transfer of the net estate ” (TJ. S. Code, tit. 26, § 810) and that “ so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution ” (TJ. S. Code, tit. 26, § 826). From these statutory provisions directing the executor to pay the tax to the Collector out of the net estate before distributing it, it follows mathematically, in most estates, that the original source of payment is the residue of the estate. It is quite a long jump from that interpretation of the net estate ” provision in the federal statute, to the position, here taken by appellants, that the statute somehow amounts to a prohibition against any prorating of the tax by a state among beneficiaries after it has been paid to the United States out of the residue.

Even without a state prorating statute, there are cases where, mathematically, the tax cannot be paid out of the residue, but must be charged immediately on the several bequests or devises. Suppose a case where there is no residue, as where the general legacies equal or exceed the actual net estate. In such a case the executor, paying the federal tax from the “ net estate,” is in fact deducting it from the amount available for the general legacies. Would he then not have to prorate it against those legacies, whether or not any statute so directed?

The Hamlin case (supra) and the later cases of Farmers’ Loan & Trust Co. v. Winthrop (238 N. Y. 488) and Matter of Oakes (248 N. Y. 280) held, we have seen, that under the statutes as they then stood the tax was ordinarily a charge upon the residue, primarily at least ” (Oakes opinion at p. 282). The resulting situation had its difficulties. The New York State Commission to Report Defects in the Law of Estates, which included among its members some of the recognized experts in the field, reported as follows in 1930: Experience has demonstrated that in most estates the residuary legatees are the widow, children, or nearer and more dependent relatives. This has been one of the objections to the Federal Estate Tax Law in New York. The burden of the tax has been imposed upon the residuary legatees not only as to the property passing under the will, but also upon transfers whether by gift or inter vivos trust, or other form of transfer taking effect at death. These transfers are included in both the Federal Estate Tax Law and under the proposed New York State Estate Tax Law as subject to taxation. Thus the residuary legatees have been compelled to pay the entire estate tax, including the tax assessed on testamentary transfers and those taking effect at death.” (Combined Reports of Commission to Investigate Defects in Laws of Estates [1928-1933], Reprint ed., p. 338.) The Commission then proposed what is now section 124 of the Decedent Estate Law, to provide statutory authority for the equitable apportionment of the estate taxes, both federal and state, citing as authority for the legality of such an apportionment statute, Edwards v. Slocum (supra). -w-i u«$SV* *wV/

Section 124, so proposed, was enacted by the Legislature and became effective in 1930. At least one other state, Pennsylvania, has a similar prorating statute (Pennsylvania Stat. Annotated [Purdon], tit. 20, § 844), passed in 1937. So far as appears, no court, state or federal, has ever held that a state is without power to pass such an act. The constitutionality of section 124 as against other claims of invalidity was upheld by this court in Matter of Scott (274 N. Y. 538; certiorari denied, 302 U. S. 721). In that case there was not advanced at all the' theory of unconstitutionality for which appellants here contend, i. e., that section 124 is in conflict with the so-called Supremacy Clause of the United States Constitution (Art. VI, cl. 2).

We do not find here any such interference by the t with the federal taxing power, or any attempt by state statute to assert supremacy. We see no possi» conflict between the command of the federal estate ta statute that, unless otherwise directed by the will, the tai be paid out of the net estate and the provision of section 124 that, unless otherwise directed by _ the will, the tax be apportioned. We have shown, above, that the interest and activity of the United States ceases when the executor has paid the tax, that the federal statute not only does not make the tax a non-transferable charge on the residue, but does not command payment from the residue at all. How then can there be any conflict? Surely appellants are not claiming that the field of estate taxation is one altogether sacred to the federal power, or that it is one of those fields from which the states are excluded, once Congress has entered in. Both the national and the state governments have power to impose such taxes (Snyder v. Bettman, 190 U. S. 249). The power of Congress so to legislate is not superior to that of the State Legislatures: * * * in considering the power of Congress to impose death duties, we eliminate all thought of a greater privilege to dp so than exists as to any other form of taxation, as the right to regulate successions is vested in the States, and not in Congress ” (Knowlton v. Moore, 178 U. S. 41, 58). Having in fullest measure the power of “ regulating the manner and term upon which property real or personal within its dominion may be transmitted by last will and testament, or by inheritance ” (Mager v. Grima, 8 How. [U. S.] 490, 493), a state, it would seem, may enact any reasonable measure to control such transmittal at death, by the levying or apportionment of taxes. So complete is the state’s power in this respect that it may impose such a tax on the United States of America itself, when the United States is a legatee (United, States v. Perkins, 163 U. S. 625, 627) and may tax an estate or a legacy consisting entirely of United States bonds, although the bonds were issued under a federal statute declaring them to be exempt from state taxation in any form (Plummer v. Coler, 178 U. S. 115). Our conclusion that the Congress has not attempted to restrain the states from fixing the final incidence of this federal estate tax, is strengthened by the authorities just cited which go far toward holding that such an attempted restraint by the Congress on the states would be an invasion of the state’s power to regulate the manner and term of transmitting property by will or inheritance.

Finally, there is a strong presumption in favor of a state statute, that it conforms to, and does not conflict with, the Federal Constitution. “ Doubts on this point are to be resolved in favor of, and not against, the State ” (Corporation Commission v. Lowe, 281 U. S. 431, 438). Practical considerations impel us to the same result. Why should we strain to hold this statute unconstitutional, when in so holding, we produce a result which the testatrix plainly did not intend? The will here, carefully drawn and disposing of a large estate, was made in 1934, four years after section 124 went into effect. Testatrix and her advisers are presumed to have known and must have known that, by the terms of section 124, she could, by inserting a few words in her will, forbid apportionment of the estate taxes and command their payment from the residue. She chose not to do so. We should not do it for her.

The order of the Surrogate should be affirmed, with costs against appellants.

Finch, Lewis and Conway, JJ., concur with Rippey, J.; Desmond, J., dissents in opinion in which Lehman, Ch. J., and Loughran, J., concur.

Order reversed, etc. (See 287 N. Y. 764.)


author: Per Curiam.

text:
    Elizabeth Rennie, Respondent, v. Robert G. Rennie, Appellant.
    Submitted October 20, 1941;
    decided November 27, 1941.

      William C. Kronmeyer for appellant.
    The trial court did not err in limiting the recovery on the second cause of action and refusing recovery for installments under the separation agreement after November 22, 1938. (Pinkus v. Pinkus, 230 App. Div. 791; O’Brien v. O’Brien, 299 N. Y. Supp. 511; Sockman v. Sockman, 300 N. Y. Supp. 187; Mangone v. Mangone, 130 Misc. Rep. 712; Landes v. Landes, 172 App. Div. 758; Lawsberg v. Lawsberg, 171 App. Div. 354; Halstead v. Halstead, 74 N. J. Eq. 596). The Appellate Division erred in holding that the filing of a counterclaim by the plaintiff in the New Jersey action asserting a claim for support and her motion for relief would not justify a holding as a matter of law that plaintiff had surrendered all rights under the separation agreement. (O’Brien v. O’Brien, 299 N. Y. Supp. 511; Sockman v. Sockman, 300 N. Y. Supp. 187; Lawsberg v. Lawsberg, 171 App. Div. 354; Pinkus v. Pinkus, 230 App. Div. 791; Breiterman v. Breiterman, 239 App. Div. 709; Schenck v. State Line Telephone Co., 238 N. Y. 308; United States v. Oregon Lumber Co., 260 U. S. 290; Whalen v. Stuart, 194 N. Y. 495; Randolph v. Field, 165 App. Div. 279; Graves v. White, 87 N. Y. 463; Butler v. Butler, 206 App. Div. 214; Mangone v. Mangone, 130 Misc. Rep. 712.)

      David Rapoport for respondent.
    It was erroneously held by the trial court that, as a matter of law, the plaintiff, merely by counterclaiming for separation and maintenance had abrogated the separation agreement. (Randolph v. Field, 165 App. Div. 279; Butler v. Butler, 206 App. Div. 214; Cain v. Cain, 188 App. Div. 780; Hirschthal v. Hirschthal, 235 N. Y. Supp. 451; Woods v. Bard, 285 N. Y. 11; Henry v. Herrington, 193 N. Y. 218; Clark v. Kirby, 243 N. Y. 295; Randall v. Randall, 279 N. Y. Supp. 806.)
   Per Curiam.

We agree with the Trial Term that the separation agreement alleged in the second cause of action was repudiated by the wife in the counterclaim for “ suitable maintenance which she interposed in the New Jersey action. The issues raised by that counterclaim were tried in the New Jersey suit and were therein determined against the wife by the final decree of divorce as entered in favor of the husband on November 22, 1938. It follows, as the Trial Term held, that after that date the separation agreement alleged in the second cause of action had no force or effect.

The order of the Appellate Division should be reversed and the judgment of the Trial Term affirmed, without costs.

Lehman, Ch. J., Loughran, Finch, Rippey, Lewis, Conway and Desmond, JJ., concur.

Ordered accordingly.