text:
    The People of the State of New York ex rel. Consolidated Water Company of Utica, Appellant, against Milo R. Maltbie et al., Constituting the Public Service Commission of the State of New York, Respondents.

      Argued May 25, 1937;
    decided July 13, 1937.

      Thayer Burgess, Neile F. Towner, T. Harvey Ferris and George H. Kenny for appellant.
    The Appellate Division erred when it failed to annul the determination of the Commission. (Matter of New Rochelle Water Co
      v. Maltbie, 248 App. Div. 66; Matter of New York Edison Co. v. Maltbie, 244 App. Div. 436; Matter of Brooklyn Union Gas Co. v. Maltbie, 245 App. Div. 74; People ex rel. Stephenson v. Bingham, 205 N. Y. 168; People ex rel. Hempstead v. Tax Comrs., 214 N. Y. 594.) The valuation of the company’s property at depression spot prices is illegal, and is confiscatory as a matter of law. (Matter of Peoples Gas & Electric Co. v. Public Service Comm., 214 App. Div. 108; New York Tel. Co. v. Prendergast, 300 Fed. Rep. 822; Los Angeles Gas & Electric Corp. v. Railroad Comm., 289 U. S. 287; McCardle v. Indianapolis Water Co., 272 U. S. 400; State of Missouri ex rel. Southwestern Bell Tel. Co. v. Public Service Comm., 262 U. S. 276; West v. Chesapeake & Potomac Tel. Co., 295 U. S. 662; Georgia Ry. & Power Co. v. Railroad Comm., 262 U. S. 625; Galveston Electric Co. v. Galveston, 272 Fed. Rep. 147; 258 U. S. 388; State v. Dept. of Public Works, 51 Pac. Rep. [2d] 610.) The denial of a rehearing, sought to establish a reversal of price trends, was a denial of constitutional right. (Baltimore & Ohio R. R. Co. v. United States, 298 U. S. 349; Atchison, T. & S. F. Ry. Co. v. United States, 284 U. S. 248.) The methods used by the Commission in determining the “ cost ” of the company’s property were erroneous and confiscatory as a matter of law. (McCardle v. Indianapolis Water Co., 272 U. S. 400; Los Angeles G. & E. Corp. v. Railroad Comm., 289 U. S. 287; Clark’s Ferry Bridge Co. v. Public Service Comm., 291 U. S. 227; Alton Water Co. v. Illinois Commerce Comm., 279 Fed. Rep. 869; St. Joseph Ry., L., H. & P. Co. v. Public Service Comm., 268 Fed. Rep. 267.) The Commission disregarded the actual cost of the properties acquired by the company in 1899. (San Diego Land & Town Co. v. Jasper, 189 U. S. 439; Dow v. Beidelman, 125 U. S. 680; Los Angeles G. & E. Corp. v. Railroad Comm., 289 U. S. 287; Westchester Street R. R. Co. v. Public Service Comm., 210 N. Y. 456; Matter of Seneca Oil Co., 153 App. Div. 594; 208 N. Y. 545;
      Matter of New York Edison Co. v. Maltbie, 244 App. Div. 685; 271 N. Y. 103; People ex rel. Iroquois Gas Corp. v. Public Service Comm., 264 N. Y. 17.) The return allowed by the Commission is inadequate, unreasonable and confiscatory. (McCardle v. Indianapolis Water Co., 272 U. S. 400; United Rys. & Electric Co. v. West, 280 U. S. 234; West v. Chesapeake & Potomac Tel. Co., 295 U. S. 662; Lindheimer v. Ill. Bell Telephone Co., 292 U. S. 151; Smith v. Illinois Bell Tel. Co., 282 U. S. 133; Bluefield Water Co. v. Public Service Comm., 262 U. S. 679.) The Appellate Division should have exercised its independent judgment as to the facts upon the issue of confiscation. (Matter of Rockland Light & Power Co. v. Maltbie, 241 App. Div. 122; Matter of New Rochelle Water Co. v. Maltbie, 248 App. Div. 66; Crowell v. Benson, 285 U. S. 22; Ohio Valley Co. v. Ben Avon Borough, 253 U. S. 287; St. Joseph Stockyards v. United States, 80 L. Ed. 679.)

      Gay H. Brown, George E. McVay and Raymond J. McVeigh for respondents.
    There was evidence to support the Commission’s determination as to the depreciable property upon which the company was entitled to earn a return. (Minnesota Rate Cases, 230 U. S. 352; City of Knoxville v. Knoxville Water Co., 212 U. S. 1; Lindheimer v. Illinois Bell Tel. Co., 292 U. S. 151; People ex rel. New York & Queens Gas Co. v. McCall, 219 N. Y. 84; Niagara Falls Power Co. v. Water Power & Control Comm., 267 N. Y. 265.) There was evidence to support the Commission’s determination as to the non-depreciable property upon which the company was entitled to earn a return. (Columbus Gas Co. v. Comm. of Ohio, 292 U. S. 398; United Fuel Gas Co. v. Public Service Comm., 14 Fed. Rep. [2d] 209; 278 U. S. 322; Lindheimer v. Illinois Bell Tel. Co., 292 U. S. 151; Matter of Yonkers Electric Light & Power Co. v. Maltbie, 271 N. Y. 364; Dayton Power & Light Co. v. Public Utilities Comm., 292 U. S. 290; St. Joseph Stock Yards Co. v. United

      States, 298 U. S. 38.) The Commission properly determined the value of all property owned by the company upon which it was entitled to earn a return. (Lincoln Gas & El. L. Co. v. City of Lincoln, 223 U. S. 349; Willcox v. Consolidated Gas Co., 212 U. S. 19; Minnesota Rate Cases, 230 U. S. 352; City of Houston v. Southwestern Bell Tel. Co., 259 U. S. 318; Bluefield Water Works & Improvement Co. v. Public Service Comm., 262 U. S. 679; Los Angeles Gas & E. Corp. v. Railroad Comm., 289 U. S. 287.) The rate of return allowed by the Commission is fair and reasonable. (Smith v. Illinois Bell Tel. Co., 282 U. S. 133.) Appellant’s application for rehearing was properly denied. (Village of Saratoga Springs v. Saratoga G., E. L. & P. Co., 191 N. Y. 123; Atchison, Topeka & Santa Fe Ry. Co. v. United States, 284 U. S. 248; Los Angeles Gas & E. Corp. v. Railroad Comm., 289 U. S. 287; Great Northern Railway Co. v. Weeks, 297 U. S. 135.) The validity of the orders of the Commission must be decided as of the date of their issuance, upon evidence in the record and not in the light of present price levels. (People ex rel. McCabe v. Board of Fire Commissioners, 106 N. Y. 257; People ex rel. O’Callahan v. French, 123 N. Y. 636; People ex rel. N. Y. & Queens Gas Co. v. McCall, 219 N. Y. 84.)
   Lehman, J.

The relator is a corporation which furnishes and distributes water in the city of Utica and its vicinity. By .chapter 715 of the Laws of 1931, which added article 4-B to the Public Service Law (Cons. Laws, ch. 48), the Public Service Commission was given specified powers of supervision and control over such corporations. In July, 1931, pursuant to provisions in the statute, the water company filed with the Commission a schedule of rates for water service. The company notified the Mayor of the city of Utica that the rates in that schedule were not sufficient to afford a fair and reasonable return upon its property, but that it was willing to forego a higher rate sufficient to yield such return until business conditions improved. The city of Utica did not accede to the company’s claim that the proposed rates were insufficient to yield a reasonable return on the company’s property. It promptly filed with the Commission a complaint against the rates in that schedule. Thereupon the company filed a schedule increasing its proposed charges. By stipulation the second schedule of rates was suspended until the determination of the proceedings based upon the complaint of the city and some of the surrounding villages. On June 28, 1933, the Commission made an order which directed that the company reduce the rates contained in its first schedule and which it had previously charged. An application of the company for a rehearing was denied. Then the company obtained an order of certiorari. The Appellate Division by a divided court confirmed the determination bf the Commission.

The Public Service Commission held hearings for more than a year in which the company and the city had full opportunity to present evidence in regard to every relevant factor in the proper determination of what rates would be reasonable and would be sufficient to yield a fair return on the company property. The last hearing was held on December 23, 1932. The matter was finally submitted to the Commission on March 1, 1933. Two of the Commissioners joined in a report in which they found that the “ fair value of all of the property of the Consolidated Water Company of Utica, N. Y., used and useful in rendering water service to its consumers is $5,850,000.” That the company is entitled to a return of 6% upon such fair value,” and that “ the company should decrease its rates to effect a reduction in its revenues of at least $120,000 per annum.” The two Commissioners in their report set forth at length the evidence upon which they based these findings, and the weight which they gave to each factor which in their opinion should enter into a determination of value. Another Commissioner concurred in the report, and two other Commissioners filed concurring opinions stating in effect that they reached the same result but by different reasoning. The majority of the Appellate Division in confirming the determination stated in a .per curiam opinion: “The principal questions raised relate to the determination by the Commission of the value of relator’s property used and useful in the public service. This is a question of fact and there is ample evidence to sustain the determination below.” (245 App. Div. 866.)

Upon this appeal, the appellant maintains that the determination of the value of its property is arbitrary, based on erroneous methods, without competent evidence to support it, and is confiscatory; that the return of six per cent allowed by the Commission is inadequate and unreasonable; that the order of the Commission to reduce its rates results in the confiscation of the company’s property; that the appellant had an absolute right to a rehearing for the purpose of showing that after the hearing there had been a marked rise in prices; that the appellant had a right to have questions of fact relating to the issue of whether the rate is confiscatory, determined by the Appellate Division, through the exercise of its independent judgment. The appellant urges that through these errors it has been deprived of its property in violation of the provisions of the Constitution of the State and of the Fourteenth Amendment to the Constitution of the United States.

The classic formula for the ascertainment of the fair value of property used by a corporation for the convenience of the public is stated in Smyth v. Ames (169 U. S. 466): “ In order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock; the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regarded in estimating the value of the property ” (p. 546). In subsequent cases in the same court the formula has been reconsidered at times, and even restated in somewhat different form. We do not pause to analyze these separate decisions and opinions. In one case some factor may be given a weight which has been denied to it in another case. There may be variation in emphasis in these cases and at times a difference of opinion among judges not only as to the relative weight to be given to particular factors, but even as to whether a particular factor must in all circumstances be given any weight. Nevertheless, the guiding principle consistently followed in all cases is that value depends upon varying and often unstable factors and often must be determined by prophecy as to probable change of conditions. Consistently the court has rejected the possibility of formulating a rigid standard which may be mechanically applied in measuring values in all circumstances. Every factor which may reasonably affect the determination of value in a particular case must be given the weight which it deserves. Earlier decisions may guide judgment in analogous cases; they are not intended to constrain judgment under circumstances where reason points to other conclusions.

The Commissioners who held the hearing received all the evidence, then available and offered, which upon any theory suggested by either side might be material and relevant upon the questions which the Commission was called upon to decide. In the report they made, consideration was given to each factor which the Supreme Court, in any case, had said or implied might be an element of value. To some of these factors, little if any weight was given and the determination of value rests almost exclusively upon the testimony of witnesses called by the complainants or by the Commission. In regard to each matter of substance the report contains an exhaustive statement of the reasons which influenced the choice of the Commissioners who joined in the report. The arguments of this appellant are not without force that the reasons given for the choice are not always sound. As we have said, two of the Commissioners who joined in the decisions of the Commission did not concur in the reasons for the decision given in the report. Perhaps the judges of this court might, if they were triers of fact, give greater weight to the testimony and the theories of the experts produced by the company than the Commission has given. In this court the determination of the Commission upon any question of fact is not open to review. We may reverse a decision or annul a determination only for erroneous determination of a question of law, and after careful consideration of the appellant’s argument; we find no errors there. Upon every point where the determination of the Commission is challenged we find that there is evidence to support the conclusion of the Commission and room for the exercise of choice.

In its determination of the value of the tangible property of the company, the Commission gave preponderant effect to the estimate, made by a contractor, of the cost of replacement of the property at the time when the estimate was made, i. e., May, 1932. The valuation is challenged on many grounds. We consider first the ground that the cost of reproduction based on prices prevailing in a period of unusual depression does not fairly reflect actual value.

Current or spot ” prices fluctuate, and cost of reproduction based on such prices constitutes a variable measure of value. (Cf. West v. Chesapeake & Potomac Tel. Co., 295 U. S. 662; McCardle v. Indianapolis Water Co., 272 U. S. 400.) In May and June, 1932, the fact could not be ignored that the country was suffering from the effect of a depression of unusual severity, and that there had been a precipitate decline in prices. If the decline was only temporary, a valuation of property based upon the cost of reproduction measured by such prices would furnish insecure ground for prediction of what rates would, probably, be sufficient to afford a reasonable return upon the “ value of the property in the future during the period when such rates would be in effect. (Cf. Georgia Ry. & P. Co. v. Railroad Commission, 262 U. S. 625.) Even so, the cost of reproduction at current or spot prices is a factor to be considered, and at times, indeed, the dominant factor in fixing present values, and a value so fixed may be the starting point for prophecy of future values. (McCardle v. Indianapolis Water Co., supra; Los Angeles Gas & Elec. Co. v. Railroad Commission, 289 U. S. 287.) Prophecy, though based on past experience, is uncertain, and the probable trend of prices is a matter upon which the opinion of qualified students of economics and economic history may properly be asked.

In this case two university professors testified that in their opinion the trend of prices was definitely downward and in spite of temporary fluctuations would continue downward thereafter. Based upon that testimony, the Commission found that the cost of reproduction based upon the spot or current prices of May, 1932, constituted in the circumstances of the case a fair criterion of value. There can hardly be serious doubt that the Commission could reasonably have accepted the opinion of these witnesses at the time it was given. Its decision was, however, rendered a year thereafter. The trend of prices during that period was a matter of economic history, not of prophecy. The question presented is whether the Commission could then fix rates intended to continue in the future, based upon an opinion or prophecy given a year before.

If the opinion or prophecy of the expert witnesses given in May, 1932, was proven wrong by events occurring during .the interval, the Commission could, of course, not base any finding upon the discredited opinion. If the Commission was bound to take judicial notice of such events, its decision must be based upon them rather than upon the discredited prophecy. If proof of such events was necessary, it might be offered by a party who challenged the opinion. In any case the party who attacks the correctness of the decision must show that intervening events have destroyed the force of the opinion testimony upon which the decision is based.

We know now that in the interval of a year between June, 1932, and June, 1933, a continuous rise in prices began. The opinion of the expert witnesses that the trend of prices was downward and the prophecy of the Commission based thereon were, we now know, mistaken. The Commission was bound to determine the present value of the company’s property to make possible an ' intelligent forecast of probable future values ’ in order that the validity of rates for the future may be determined.” (Los Angeles Gas & Elec. Co. v. Railroad Commission, supra, p. 311.) The Commission in determining the rates for the future could act only upon data known at that time. The determination must be based upon prediction and is not invalid if it is based upon prediction which is reasonable. Otherwise rates could never be fixed in advance. In reviewing the determination, the court can ordinarily consider only whether the Commission acted reasonably and in accordance with the evidence available at that time. The problem then is whether the facts which the Commission knew or which the company offered in June, 1938, conclusively prove that the valuation of the company was erroneous.

The appellant further maintains that the Commission acted erroneously as matter of law in failing to give more weight to its proof of the book value of the property. The book value of the property in this case is the cost of the property to the appellant. (Matter of New York Edison Co. v. Maltbie, 271 N. Y. 103; People ex rel. Iroquois Gas Corp. v. Public Service Comm., 264 N. Y. 17.) The appellant was incorporated in 1899. It acquired the assets of existing corporations in exchange for capital stock and bonds issued by it in the amount of over four million dollars. The original or historical cost of the property so acquired does not appear, and there is nothing to show that it had any relation to the amount of the purchase price in stocks and bonds which the appellant company paid in 1899. The amount shown upon the books of the original companies was only a fraction of the new book value ” attached to the same assets after they were bought by the appellant. Under these circumstances we cannot find that the Commission erred in giving preponderant weight to cost of reproduction less depreciation over “ historical value,” cost to the appellant or “ book value.”

It is said, however, that in this case the proof is not of cost of reproduction of the appellant’s property but of cost of reproduction of another plant which might be just as good. (Cf. McCardle v. Indianapolis Water Co., 272 U. S. 400.) It is true that the estimate of cost of reproduction is not based upon the use of exactly the same materials or methods used in the original construction. None the less, the estimate is the cost of reproduction of the company’s plant and property by the use of materials and methods which would produce a system substantially if not exactly similar. That estimate furnishes a criterion of value which is not Unreasonable.

Many other objections to the valuation have been raised by the appellant and considered by the court. We do not desire to extend the opinion by discussion of them. We find no error of law in the record, and we agree with the Appellate Division that there is evidence to sustain the determination of the Commission. We have said that even the Appellate Division may not substitute its own judgment of what is reasonable in place of the determination of the Public Service Commission. (People ex rel. New York & Queens Gas Co. v. McCall, 219 N. Y. 84; affd., 245 U. S. 345.) Upon the hearing of an order of certiorari to review a determination of the Commission, the jurisdiction and power of the Appellate Division are defined and limited by section 1304 of the Civil Practice Act. These powers do not include an independent consideration by the court of any question of fact. It is true that a determination by a legislative or administrative body on a question of fact is not binding upon a court where the power of the legislative or administrative body is challenged. (Cf. Ohio Valley Water Co. v. Ben Avon Borough, 253 U. S. 287; Crowell v. Benson, 285 U. S. 22; St. Joseph Stock Yards Co. v. United States, 298 U. S. 38.) Even so, where the State gives to an administrative body power to determine questions of fact by judicial inquiry subject to review in the courts, no Federal rights are denied by its order unless there was such a want of hearing or such arbitrary or capricious action on the part of the Commission as to violate the due process clause of the Constitution.” Except in the form of judicial review the courts do not examine the question whether the evidence preponderates for or against a conclusion. (People ex rel. New York & Queens Gas Co. v. McCall, supra, 245 U. S. at p. 348.)

The only question which remains is whether it may be said as matter of law that a return of six per cent per annum is confiscatory. The basic principles which determine what annual rate .will constitute just compensation have been set forth in Smith v. Illinois Bell Telephone Co. (282 U. S. 133). The rate may vary, as the return on the value of other investments attended by corresponding risk and uncertainties varies. We cannot say that in 1933 a rate of six per cent was unreasonable. (Cf. Indianapolis Water Co. v. McCart, 89 Fed. Rep. [2d] 522.)

The order should be affirmed, with costs.

Crane, Ch. J., O’Brien, Hubbs, Lottghran, Finch and Rippey, JJ., concur.

Order affirmed.


source: Caselaw Access Project

author: Lehman, J.

license: Public Domain

text:
    Emma S. Newman, Appellant, v. Arthur G. Dore et al., as Trustees, et al., Respondents, Impleaded with Others.

      Argued June 11, 1937;
    decided July 13, 1937.

      Edward G. Griffin, Carl Sherman and Samuel N. Leiterman for appellant.
    Sections 18 and 83 of the revised Decedent Estate Law (Cons. Laws, ch. 13) apply only to estates arising on death and not to property disposed of by non-testamentary instruments. (Van Cott v. Prentice, 104 N. Y. 45; N. Y. Life Ins. & T. Co. v. Cary, 191 N. Y. 33; Pickney v. City Bank Farmers Trust Co., 292 N. Y. Supp. 835; Matter of Schrauth, 292 N. Y. Supp. 923; Herrmann v. Jorgensen, 263 N. Y. 348; Matter

      of McCulloch, 263 N. Y. 408; Cunningham V. Edward, 52 Ohio App. 61; Doctor v. Hughes, 225 N. Y. 305.) Property passed by a living trust may be excluded from an estate. (Matter of Yarme, 148 Misc. Rep. 457; 243 App. Div. 693; Lines v. Lines, 142 Penn. St. 149; Matter of Young, 202 Penn. St. 431; Beirne v. Cont. Equitable T. & Tr. Co., 307 Penn. St. 570; Roche v. Brickley, 254 Mass. 584; Patterson v. McClenathan, 296 Ill. 475; Robertson v. Robertson, 147 Ala. 311; Smith v. Wold, 125 Minn. 190; Matter of Sides, 119 Neb. 314; Grilley v. Atkins, 78 Conn. 380; Harber v. Harber, 152 Ga. 98; Cowsart v. Cowsart, 136 Ga. 756; Robb v. Washington & Jefferson College, 185 N. Y. 485; Dunnett v. Shields, 97 Vt. 419; Patch v. Squires, 105 Vt. 405.) When a gift is made inter vivas with good delivery and the spouse is divested of all use or control of the property, such a gift is good as against a surviving spouse having no inchoate right in the property disposed of. Neither the intention to deprive the survivor nor the fact that deprivation is the inevitable result, standing by themselves, will destroy the validity of such a gift. (Small v. Small, 56 Kan. 1; Wright v. Holmes, 100 Me. 508; Trabbic v. Trabbic, 142 Mich. 387; Innes v. Potter, 130 Minn. 320; Potter Title & Trust Co. v. Braum, 294 Penn. St. 4S2.)

      Jacob H. Gilbert, Susan Brandeis and Emanuel Feldberg for Clara D. Straus, respondent.
    The trust agreement is a colorable subterfuge, and fraudulent, since it was executed by the husband for the sole purpose of evading and circumventing the provisions of sections 18, 82 and 83 of the Decedent Estate Law, and more particularly the provisions contained in his last will giving to his wife, now his lawful surviving spouse, a life interest in one-third of his net estate, the minimum under the statute. (Bodner v. Feit, 247 App. Div. 119; Rubin v. Myrub Realty Co., 244 App. Div. 541; Le Strange v. Le Strange, 242 App. Div. 74; Thayer v. Thayer, 14 Vt. 107; Grover
      v. Clover, 69 Col. 72; Smith v. Smith, 22 Col. 480; Payne v. Tatem, 236 Ky. 306; Evans v. Evans, 78 N. H. 352; Walker v. Walker, 66 N. H. 390; Delaney v. Valentine, 154 N. Y. 692; Byrnes v. Owen, 243 N. Y. 211; Amherst College v. Ritch, 151 N. Y. 282; Matter of O'Hara, 95 N. Y. 403; Vincent v. Kelly, 118 Misc. Rep. 591.) The high degree of control reserved in the settlor makes the trust agreement testamentary. Upon settlor’s death it fails for want of proper statutory execution. (Russell v. Webster, 213 Mass. 491; Ga Nun v. Palmer, 159 App. Div. 86.)

      Frank F. Bergenfeld and Abraham Brill for Arthur G. Dore, as surviving trustee and executor, respondent.
   Lehman, J.

The Decedent Estate Law (Cons. Laws, ch. 13, arts. 2,3) regulates the testamentary disposition and the descent and distribution of the real and personal property of decedents. It does not limit or affect disposition of property inter vivas. In terms and in intent it applies only to decedents’ estates. Property which did not belong to a decedent at his death and which does not become part of his estate does not come within its scope.

The share in the real and personal property of a decedent, not devised or bequeathed, which a husband or wife takes is now fixed by section 83 of the Decedent Estate Law. Prior to the revision of the Decedent Estate Law which took effect on September 1, 1930, a decedent could by testamentary disposition effectively exclude a wife or husband from the share of the estate which would pass to her or him in case of intestacy. That was changed by section 18 of the -revised Decedent Estate Law. By that section a personal right of election is given to the surviving spouse to take his or her share of the estate as in intestacy, subject to the limitations, conditions and exceptions contained in this section.” These hmitations and exceptions include a case where the testator has devised or bequeathed in trust an amount equal to or greater than the intestate share, with income thereof payable to the surviving spouse for life.” (Subd. b.) The Legislature has declared that its intention in enacting these sections of the revised Decedent Estate Law was “ to increase the share of a surviving spouse in the estate of a deceased spouse, either in a case of intestacy or by an election against the terms of the will of the deceased spouse thus enlarging property rights of such surviving spouse.” (Laws of 1929, chap. 229, § 20.)

Ferdinand Straus died on July 1, 1934, leaving a last will and testament dated May 5, 1934, which contained a provision for a trust for his wife for her life of one-third of the decedent’s property both real and personal. In such case the statute did not give the wife a right of election to take her share of the estate as in intestacy. She receives the income for life from a trust fund of the amount of the intestate share, but does not take the share. That share is one-third of the decedent’s estate. It includes no property which does not form part of the estate at the decedent’s death. The testator on June 28, 1934, three days before his death, executed trust agreements by which, in form at least, he transferred to trustees all his real and personal property. If the agreements effectively divested the settlor of title to his property, then the decedent left no estate and the widow takes nothing. The widow has challenged the validity of the transfer to the trustees. The beneficiary named in the trust agreement has brought this action to compel the trustees to carry out its terms. The trial court has found that the trust agreements were made, executed and delivered by said Ferdinand Straus for the purpose of evading and circumventing the laws of the State of New York, and particularly sections 18 and 83 of the Decedent Estate Law.” Undoubtedly the settlor’s purpose was to provide that at his death his property should pass to beneficiaries named in the trust agreement to the exclusion of his wife. Under the provisions of the Decedent Estate Law the decedent could not effect the desired purpose by testamentary disposition of his property. The problem in this case is whether he has accomplished that result by creating a trust during his lifetime.

The validity of the attempted transfer depends upon whether the laws of the State of New York and particularly sections 18 and 83 of the Decedent Estate Law ” prohibit or permit such transfer. If the statute, in express language or by clear implication, prohibits the transfer, it is illegal; if the laws of the State do not prohibit it, the transfer is legal. In strict accuracy, it cannot be said that a purpose of evading and circumventing ” the law can carry any legal consequences. We do not speak of evasion, because when the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits. When an act is condemned as an evasion what is meant is that it is on the wrong side of the line indicated by the policy if not by the mere letter of the law.” (Bullen v. Wisconsin, 240 U. S. 625, 630.) In a subsequent case it was said of a defendant: “ The fact that it desired to evade the law, as it is called, is immaterial, because the very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it.” (Superior Oil Co. v. Mississippi, 280 U. S. 390, 395, both opinions by Mr. Justice Holmes.) Under the laws of the State of New York, and particularly sections 18 and 83 of the Decedent Estate Law, neither spouse has any immediate interest in the property of the other. The enlarged property right ” which the Legislature intended to confer is only an expectant interest dependent upon the contingency that the property to which the interest attaches becomes part of a decedent’s estate. The contingency does not occur, and the expectant property right does not ripen into a property right in possession, if the owner sells or gives away the property. (Herrmann v. Jorgensen, 263 N. Y. 348; Matter of McColloch, 263 N. Y. 408.) Defeat of a contingent expectant interest by means available under the law cannot be regarded as an unlawful “ evasion ” of the law. A duty imperfectly defined by law may at times be evaded or a right imperfectly protected by law may be violated with impunity, but to say that an act, lawful under common law rules and not prohibited by any express or implied statutory provision, is in itself a fraud ” on the law or an “ evasion ” of the law, involves a contradiction in terms.

That does not mean, of course, that the law may not place its ban upon an intended result even though the means to effect that result may be lawful. The statute gives to a spouse a property right. The question is, how far the statute protects that right even while ip remains only expectant and contingent. A right created by law may be protected by law against invasion through acts otherwise lawful. A wrong does not cease to be a wrong because it is cloaked in form of law. The test of legality, then, is whether the result is lawful and the means used to achieve that result are lawful. Here, we should point out that the courts below have not based their decision primarily upon the finding that the trust agreements were executed for the purpose of evading and circumventing the law of the State of New York. The courts have also found, and the evidence conclusively establishes, that the trust agreements were made for the purpose of depriving the decedent’s widow of any rights in and to his property upon his death. Under the trust agreements executed a few days before the death of the settlor, he reserved the enjoyment of the entire income as long as he should five, and a right to revoke the trust at his will, and in general the powers granted to the trustees were in terms made “ subject to the settlor’s control during his fife,” and could be exercised in such manner only as the settlor shall from time to time direct in writing.” Thus by the trust agreement which transferred to the trustees the settlor’s entire property, the settlor reserved substantially the same rights to enjoy and control the disposition of the property as he previously had possessed, and the inference is inescapable that the trust agreements were executed by the settlor, as the court has found, “ with the intention and for the purpose of diminishing his estate and thereby to reduce in amount the share ” of his wife in his estate upon his death and as a contrivance to deprive * * * his widow of any rights in and to his property upon his death.” They had no other purpose and substantially they had no other effect. Does the statute intend that such a transfer shall be available as a means of defeating the contingent expectant estate of a spouse?

In a few States where a wife has a similar contingent expectant interest or estate in the property of her husband, it has been held that her rights may not be defeated by any transfer made during life with intent to deprive the wife of property, which under the law would otherwise pass to her (Thayer v. Thayer, 14 Vt. 107; Evans v. Evans, 78 N. H. 352; Dyer v. Smith, 62 Mo. App. 606; Payne v. Tatem, 236 Ky. 306.) In those States it is the intent to defeat the wife’s contingent rights which creates the invalidity and it seems that an absolute transfer of all his property by a married man during his life, if made with other purpose and intent than to cut off an unloved wife, is valid even though its effect is to deprive the wife of any share in the property of her husband at his death. (Dunnett v. Shields & Conant, 97 Vt. 419; Patch v. Squires, 105 Vt. 405.) The rule has been stated that while the wife cannot complain of reasonable gifts or advancements by a husband to his children by a former marriage, yet, if the gifts constitute the principal part of the husband’s estate and be made without the wife’s knowledge, a presumption of fraud arises, and it rests upon the beneficiaries to explain away that presumption.” (Payne v. Tatem, supra, p. 308.)

Motive or intent is an unsatisfactory test of the validity of a transfer of property. In most jurisdictions it has been rejected, sometimes for the reason that it would cast doubt upon the validity of all transfers made by a married man, outside of the regular course of business; sometimes because it is difficult to find a satisfactory logical foundation for it. Intent may, at times, be relevant in determining whether an act is fraudulent, but there can be no fraud where no right of any person is invaded. “ The great weight of authority is that the intent to defeat a claim which otherwise a wife might have is not enough to defeat the deed.” (Leonard v. Leonard, 181 Mass. 458, 462, and cases there cited.) Since the law gives the wife only an expectant interest in the property of her husband which becomes part of his estate, and since the law does not restrict transfers of property by the husband during his life, it would seem that the only sound test of the validity of a challenged transfer is whether it is real or illusory. That is the test applied in Leonard v. Leonard (supra). The test has been formulated in different ways, but in most jurisdictions the test applied is essentially the test of whether the husband has in good faith divested himself of ownership of his property or has made an illusory transfer. The good faith required of the donor or settlor in making a valid disposition of his property during life does not refer to the purpose to affect his wife but to the intent to divest himself of the ownership of the property. It is, therefore, apparent, that the fraudulent interest which will defeat the gift inter vivas cannot be predicated of the husband’s intent to deprive the wife of her distributive share as widow.” (Benkart v. Commonwealth Trust Co., 269 Penn. St. 257, 259.) In Pennsylvania the courts have sustained the validity of the trusts even where a husband reserved to himself the income for life, power of revocation and a considerable measure of control. (Cf. Lines v. Lines, 142 Penn. St. 149; Potter Title & Trust Co. v. Braum, 294 Penn. St. 482; Beirne v. Con tinental-Equitable Title & Trust Co., 307 Penn. St. 570.) In other, jurisdictions transfers in trust have been upheld regardless of their purpose where a husband retained a right to enjoy the income during his life. (Rabbitt v. Gaither, 67 Md. 94; Cameron v. Cameron, 10 Miss. 394; Gentry v. Bailey, 6 Grattan [Va.] 594; Hall v. Hall, 109 Va. 117; Stewart v. Stewart, 5 Conn. 317; Osborn v. Osborn, 102 Kan. 890.) In some of these cases the settlor retained, also, a power of revocation. In no jurisdiction has a transfer in trust been upheld where the conveyance is intended only to cover up the fact that the husband is retaining full control of the property though in form he has parted with it. Though a person may use means lawfully available to him to keep outside of the scope of a statute, a false appearance of legality, however attained, will not avail him. Reality, not appearance should determine legal rights. (Cf. Jenkins v. Moyse, 254 N. Y. 319.)

In this case the decedent, as we have said, retained not only the income for life and power to revoke the trust, but also the right to control the trustees. We need not now determine whether such a trust is, for any purpose, a valid present trust. It has been said that “ where the settlor transfers property in trust and reserves not only * * * a power to revoke and modify the trust but also such power to control the trustee as to the details of the administration of the trust that the trustee is the agent of the settlor, the disposition so far as it is intended to take effect after his death is testamentary * * *.” (American Law Institute, Restatement of the Law of Trusts, § 57, subd. 2.) We do not now consider whether the rule so stated is in accord with the law of this State or whether in this case the reserved power of control is so great that the trustee is in fact “ the agent of the settlor.” We assume, without deciding, that except for the provisions of section 18 of the Decedent Estate Law the trust would be valid. (Cf. Robb v. Washington & Jeffer son College, 185 N. Y. 485; Van Hesse v. MacKaye, 136 N. Y. 114.) Perhaps from the technical point of view such a conveyance does not quite take all that it gives, but practically it does.” That is enough to render it an unlawful invasion of the expectant interest of the wife. (Leonard v. Leonard, supra; Brownell v. Briggs, 173 Mass. 529.)

Judged by the substance, not by the form, the testator’s conveyance is illusory, intended only as a mask for the effective retention by the settlor of the property which in form he had conveyed. We do not attempt now to formulate any general test of how far a settlor must divest himself of his interest in the trust property to render the conveyance more than illusory. Question of whether reservation of the income or of a power of revocation, or both, might even without reservation of the power of control be sufficient to show that the transfer was not intended in good faith to divest the settlor of his property must await decision until such question arises. In this case it is clear that the settlor never intended to divest himself of bis property. He was unwilling to do so even when death was near.

The judgment should be affirmed, with costs.

Crane, Ch. J., Hijbbs, Loughran and Bippey, JJ., concur; Finch, J., concurs in result; O’Brien, J., taking no part.

Judgment affirmed.


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    Marian S. Honeyman, Appellant, v. Herbert G. Hanan, as Executor of Herbert W. Hanan, Deceased, Respondent.

      Reargued May 24, 1937;
    decided July 13, 1937.

      Robert B. Honeyman for appellant.
    The obligors in a primary obligation evidencing a loan upon collateral may guarantee the collateral or assure the lender in any other way without changing their primary liability or the substance of the transaction. Here the obligors received the obligees’ money and agreed to repay it, and not upon any condition, and they did not guarantee the collateral bond. (Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 88; Clark v. Howard, 150 N. Y. 239.) Section 1078 of the Civil Practice Act does not apply. (Reichert v. Stilwell, 172 N. Y. 86.) The contract of appellant has been materially impaired if chapter 794 of the Laws of 1934 is applicable thereto. (Van Hoffman v. City of Quincy, 4 Wall. 535; Worthen Co. v. Kavanaugh, 295 U. S. 56; Rutherfurd Realty Co. v. Cook, 198 N. Y. 29; N. Y. Life Ins. Co. v. Guttag, 265 N. Y. 292; Feiber Realty Corp. v. Abel, 265 N. Y. 94; Morris v. Morange, 38 N. Y. 172; City Bank Farmers Trust Co. v. Ardlea, 267 N. Y. 225; Sliosberg v. N. Y. Life Ins. Co., 244 N. Y. 482.) The provisions of chapter 794 of the Laws of 1933 impair the obligations of appellant’s contract and thus violate the constitutional prohibition upon such legislation. (Home Bldg. & L. Assra. v. Blaisdell, 290 U. S. 398; Green v. Biddle, 8 Wheat. 1; Bronson v. Kinzie, 1 How. 311; McCracken v. Hayward, 2 How. 608; Barnitz v. Beverly, 163 U. S. 118; Swinburne v. Mills, 17 Wash. 611; Strand v. Griffith, 63 Wash. 334; Robards v. Brown, 40 Ark. 423; Worthen Co. v. Thomas, 292 U. S. 426; Worthen Co. v. Kavanaugh, 295 U. S. 56; Louisville Bank v. Radford, 295 U. S. 555; Beaver County B. & L. Assn. v. Winowich, 187 Atl. Rep. 481.)

      James S. Brown, Jr., William Gilligan and Anthony F. Tuozzo for respondent.
    The bond in suit is a collateral bond or guaranty. (City Bank v. Ardlea, 267 N. Y. 224; Cupples Envelope Co. v. Lackner, 99 App. Div. 231; Bonnell v. Griswold, 68 N. Y. 294; Greeff v. Equitable Life Assur. Society, 160 N. Y. 19; Hamilton Trust

      Co. v. Shevlin, 156 App. Div. 307.) The amended complaint does not state a cause of action, because of appellant’s failure to comply with the provisions of section 1078 of the Civil Practice Act. (Scofield v. Doscher, 72 N. Y. 491; Robert v. Kidansky, 111 App. Div. 475; Farish v. Austin, 25 Hun, 430; Freeman v. Dutcher, 15 Abb. N. C. 431; Smith v. Briton, 45 How. Pr. 428; Rae v. Beach, 76 N. Y. 164; McKernan v. Robinson, 84 N. Y. 105; Morrison v. Slater, 128 App. Div. 467.) The motion to dismiss for insufficiency necessarily raised the question of appellant’s non-compliance with section 1078, and such defect could not be waived. (Roseman v. Fidelity & Deposit Co., 148 Misc. Rep. 132; Myers v. Chicago, St. Paul R. R. Co., 69 Minn. 476; Monette v. Cratt, 7 Minn. 234; Van Doren v. Tjader, 1 Nev. 380; Peck v. Hinds, 68 Ill. App. 319; Viertels v. N. Y., O. & W. R. R., 182 App. Div. 92; Scott v. Scott, 186 App. Div. 518; Erie R. R. Co. v. International R. R. Co., 209 App. Div. 380; 239 N. Y. 598.) The judgment in the foreclosure action adjudicated the rights of the parties and the respondent was thereby released from liability on this collateral bond. (Klinke v. Samuels, 264 N. Y. 144.) The question of constitutionality was not properly or timely raised. (Ross v. Lipscomb, 83 S. C. 136; Kansas City R. R. v. Stiles, 242 U. S. 111; Wall v. Parrot Silver & Copper Co., 244 U. S. 407; Beaupre v. Noyes, 138 U. S. 397; Electric Co. v. Dow, 166 U. S. 489; Hurley v. Commission of Fisheries, 257 U. S. 223; Matter of Anderson, 178 N. Y. 416; Dodge v. Cornelius, 168 N. Y. 242.) Chapter 794 of the Laws of 1933 is constitutional. (Blaisdell v. Home Bldg. & Loan Assn., 290 U. S. 398; Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69; Black v. Hirsh, 256 U. S. 135; Klinke v. Samuels, 264 N. Y. 144; City Bank v. Ardlea, 267 N. Y. 224; Kramer v. Relgov, 268 N. Y. 592; McCarty v. Prudence Bonds, 149 Misc. Rep. 13; Patterson v. Kentucky, 97 U. S. 501; Barbier v. Connolly, 113 U. S. 27; Sliosberg v. N. Y. Life

      Ins. Co., 244 N. Y. 482; Johnson v. Myer, 268 N. Y. 701; Suring State Bank v. Giese, 210 Wis. 489; Monaghan v. May, 242 App. Div. 64; Guaranteed Title & Mortgage Co. v. Scheffres, 247 App. Div. 294; Emigrant Industrial Savings Bank v. Bokkelen, 269 N. Y. 110; Waggoner v. Flack, 188 U. S. 595; Oshkosh Waterworks Co. v. Oshkosh, 187 U. S. 437; Johnson v. Myer, 268 N. Y. 701; Land Finance Corp. v. Giorgio, Jr., 235 App. Div. 627; Bank of Manhattan v. Elida, 147 Misc. Rep. 374.)
   Lehman, J.

The plaintiff seeks in this action to recover from Herbert G. Hanan, as executor of Herbert W. Hanan, deceased, the amount alleged to be due and unpaid under the terms of a bond executed and delivered in 1920 to plaintiff’s assignors whereby John H. Hanan, Herbert W. Hanan and Addison G. Hanan bound themselves, severally and jointly, to pay the sum of $60,000. The complaint alleges that at the time of the execution of the bond and as collateral security for the payment of said indebtedness ” the said John H. Hanan assigned to the obligees named in the bond another bond which had been executed in 1907 by John H. Hanan and John H. Hanan Realty Company and which was secured by a mortgage upon premises in the city of New York executed simultaneously with that bond, and that he delivered also an extension agreement, in writing, executed by the said John H. Hanan, extending the time for the payment of the indebtedness evidenced by the said bond dated January 10, 1907. In 1933 the plaintiff, to whom the bond of the said John H. Hanan, Herbert W. Hanan and Addison G. Hanan, together with the t'ond and mortgage hereinbefore referred to,” had been assigned, began an action to foreclose the mortgage. The sale held in March, 1934, under a judgment entered in that foreclosure action, resulted in a deficiency of about $58,000. A motion made in that action by the plaintiff for a deficiency judgment was denied. Then the plaintiff began this action. The defendant by motion made pursuant to rule 106 of the Rules of Civil Practice, has successfully challenged, the sufficiency of the complaint on the ground that it appears on the face thereof that the complaint does not state facts sufficient to constitute a cause of action. The challenge to the sufficiency of the complaint is based upon a contention that the plaintiff’s cause of action, if any, comes within the scope of sections 1083-a and 1083-b of the Civil Practice Act, and that under the provisions of these sections, no recovery may be had.

These sections by their terms apply here only if the action is to recover a judgment for an “ indebtedness secured by a mortgage on real property ” against a person “ directly or indirectly or contingently hable therefor.” It is not disputed that the allegations of the complaint are sufficient to constitute a cause of action if the bond of 1920 upon which recovery is here sought constitutes a primary obligation to repay a loan of $60,000 made at that time to the obligor for which the bond and mortgage of 1907 was, as stated in the complaint, assigned as collateral security. That is the theory of the complaint, but the defendant maintains that the bond, which is annexed to the complaint, does not constitute a primary obligation to repay a loan then made, but was given in connection with the sale of an existing bond and mortgage, and binds the obligors only to pay the indebtedness secured by that bond and mortgage in the event that payment is not otherwise obtained. If that is the correct construction of the bond in suit, then the plaintiff could not, even before sections 1083-a and 1083-b were enacted, maintain an action to recover any part of the mortgage debt without permission of the court in which the foreclosure action was brought, obtained in accordance with the provisions of section 1078 of the Civil Practice Act. Even if such leave were granted by the court the provisions of sections 1083-a and 1083-b would, if valid, preclude recovery after denial of a deficiency judgment in the foreclosure action. Thus upon the defendant’s motion to dismiss the complaint, the problem primarily presented concerned the proper construction,of the bond in suit; though the plaintiff maintains that even if the court should hold that under the terms of the bond the obligors are bound indirectly or contingently to pay the existing mortgage debt, the action could still be maintained because, as she claimed, the provisions of sections 1083-a and 1083-b would then violate the provisions of the Constitution of the State and of the United States.

The bond in suit is annexed to the complaint. The obligation of the defendant is created and defined therein. The conclusion of the pleader, who formulated the complaint, that the bond created an original indebtedness collaterally secured by the assignment of a pre-existing bond and mortgage, must be disregarded by the court, if the language of the bond defines in other manner, without ambiguity or equivocation, the obligation created by the bond. The bond recites that in 1907 John H. Hanan executed and delivered a bond and mortgage there described for the sum of $118,000; that the bond and mortgage has been assigned by mesne assignments to John H. Hanan and that John H. Hanan is “ about to assign the said bond and mortgage to the obligee above named [i. e., plaintiff’s predecessor in title] and Whereas the said John H. Hanan Realty Company (the owner of the mortgaged premises and an obligor under the bond secured by that mortgage) has executed and delivered .to the obligee above named an extension agreement bearing even date herewith wherein and whereby among other things it covenants and agrees to pay the principal sum of sixty thousand dollars ($60,000) being the balance unpaid upon the said bond and mortgage to the said obligee on the 17th day of August, 1923, with interest thereon at the rate of six per cent. (6%) =iper annum, computed from the 17th day of August, 1920, and to be paid semi-annually on the 17th days of February and August, as in the said extension agreement set forth, and

“ Whereas, to induce the said obligee to advance the said sum of sixty thousand dollars ($60,000) upon the said bond and mortgage, as aforesaid, and to execute and deliver the said extension agreement the said obligors hath agreed to make, execute and deliver this bond as further and additional security for the payment of the said above-mentioned bond and mortgage.
Now therefore the condition of this obligation is such, that if the parties bound to pay the moneys seemed by said bond and mortgage, or the above-bounden obligors, their respective legal representatives or assigns shall well and truly pay, or cause to be paid, to the said obligee, their successors, legal representatives or assigns, the just and full sum of sixty thousand dollars ($60,000), together with all interest thereon, as the same shall become due and payable according to the terms and conditions of the aforesaid bond and mortgage and extension agreement; and if the said obligors, their respective legal representatives and assigns shall, at all times hereafter, hold, indemnify and save harmless the said obligee, their successors, legal representatives and assigns, from and against all loss, damages, costs, expenses, suits, actions, claims and demands whatsoever, which-they may or might otherwise, at any time hereafter, sustain, suffer, be liable to or obliged to pay under or by reason of any default in any of the terms, provisions, covenants or conditions of the aforesaid bond and mortgage or any extension thereof, then this obligation to be void, otherwise to remain in full force and virtue.”

No argument, or even detailed analysis of the language of the bond, seems necessary in order to demonstrate that the bond in suit is a collateral bond which binds the obligors indirectly to pay the existing mortgage indebtedness and is not a bond by which the obligors assumed a primary obligation to repay a loan. There was no new loan but only an extension and sale of an existing mortgage debt with a new promise to pay that mortgage debt, by other persons not previously bound. That appears both from the recital and from the contractual portions of the bond. There is no room for other construction. This court had already sustained the constitutional validity of sections 1083-a and 1083-b, and had held that these sections would be applicable to a bond for the payment of an existing mortgage debt. (Klinke v. Samuels, 264 N. Y. 144; City Bank Farmers Trust Co. v. Ardlea Incorporation, 267 N. Y. 224.) Arguments which we recognized were not without force were urged for a contrary decision in this case. We determined to adhere to our previous decision. We had in the earlier cases stated the reasons for such decision, and, without restatement of our reasons, we affirmed the decision of the courts below, but upon application thereafter made by the appellant in order to facilitate a review by the Supreme Court of the United States, the remittitur was amended to show that “ A question under the Federal Constitution was presented and necessarily passed upon by this court. The plaintiff contended that chapter 794 of the Laws of the State of New York, enacted in 1933, as amended (Sections 1083-a and 1083-b of Civil Practice Act), impair the obligations of contracts, and thus violate article J, section 10, of the Constitution of the United States. This court held that such laws do not violate said provisions of article I, section 10, of the Constitution of the United States.” (271 N. Y. 662.)

Since we had decided in previous cases that the legislation was valid under the Constitutions of the State and of the United States, it was not necessary for the court to determine to which parts of the legislation the new challenge was properly directed or whether the constitutional questions properly raised were substantial. However raised and whether substantial or not, our answer was given in our previous opinions and decisions and it was immaterial in this court whether the answer had a wider scope than the questions properly presented.

Though the decision of this court upon the appeal here did not depend upon or require a definite formulation of the constitutional questions which were properly-raised by the appellant and a determination whether each question argued by the appellant must necessarily be decided by this court — since we had already decided in other cases all such questions adversely to the appellant — yet such formulation might be essential to proper review by the Supreme Court of the United States if the appellant brought the case there. In amending the remittitur in the manner requested by the appellant, our attention was not directed to the fact that the record in this case might leave uncertain the precise nature of the Federal question raised and necessarily determined upon the challenge of the constitutional validity of sections 1083-a and 1083-b of the Civil Practice Act, and that this uncertainty might not be removed by the general statement in the remittitur that the appellant contended that the statute impairs the obligations of contracts, and thus violates article I, section 10, of the Constitution of the United States ” and that “ this court held that such laws do not violate said provision of article I, section 10, of the Constitution of the United States.” Upon the appeal thereafter taken to the Supreme Court of the United States, that court remanded the cause for further proceedings in order that uncertainty may be removed and that the precise nature of the Federal question, how it was raised and the grounds of its disposition, may be definitely set forth.” (Honeyman v. Hanan, 300 U. S. 14, 26.) In accordance with the mandate of the Supreme Court, we ordered a reargument of the appeal.

Upon the reargument we have reached the same conclusion as we reached upon the original argument of this appeal. We again hold that the bond in -unequivocal language creates an indirect obligation to pay the amount remaining unpaid upon the original bond of 1907 secured by the mortgage on real property and that the provisions of sections 1083-a and 1083-b of the Civil Practice Act apply to this action. The complaint fails to show that after judgment for the plaintiff in the foreclosure action, leave of the court was obtained to bring this action, as required by section 1078. Section 1078 finds its origin in the Revised Statutes, antedating even the Code of Civil Procedure. Its validity under the Constitution has never been challenged and is not challenged now. If we sustain the objection that failure to comply with its provisions requires dismissal of the complaint, the court will not be required to consider any constitutional question. We did not upon the original hearing of this appeal consider that alleged defect in the complaint. The respondent did not challenge the sufficiency of the complaint on that ground in the courts below or upon the original argument here. The objection could under the old practice have been raised by demurrer. (Freeman v. Dutcher, 15 Abb. N. C. 431; Scofield v. Doscher, 72 N. Y. 491.) It may be raised under the modern practice by motion made upon rule 106 of the Rules of Civil Practice. The defendant urges that it is not too late to raise the objection even now. Failure to obtain leave of the court is not such a jurisdictional defect that it may not be waived, and that it must be com sidered by the court although the objection is not raised by any party. It is too late to raise such an objection now, but even if it had been raised earlier we should have been constrained to overrule the objection.

Section 1083-a is intended to provide an exclusive procedure for the entry of a judgment for any residue of a debt secured by mortgage after sale of the mortgaged premises. Whenever applicable, it was intended to supersede section 1078. It would, it is plain, be futile to ask leave to bring an action to recover a debt so long as the statute forbids a recovery in such an action if brought. If leave to bring an action had been denied because section 1083-a would make the bringing of such an action useless, the plaintiff might have challenged the validity of that section. He is not barred from raising that challenge because he did not court such refusal. Failure to ask leave has been waived by the defendant, and if not waived by the defendant would be sanctioned by the court.

The plaintiff made the defendant Herbert G. Hanan a party to the foreclosure action. He was a proper party under subdivision 7 of section 1079 of the Civil Practice Act, and upon proper proof the final judgment might have awarded payment by him of the residue of the debt remaining unsatisfied after a sale of the mortgaged property, and application of the proceeds, pursuant to bhe directions contained therein.” (§ 1083.) The foreclosure action was discontinued as to him only after the motion for a deficiency judgment was denied. Even if he had not originally been a party to the action, recovery in any action brought thereafter would be subject to the conditions and limitations imposed by sections 1083-a and 1083-b of the Civil Practice Act, and it seems clear to us that, if these sections are valid, no recovery could be had in any subsequent action after denial of a deficiency judgment in the foreclosure action. To sustain her cause of action, the plaintiff must then challenge, as she has done, the validity of these sections. In sections 1079 and 1083 of the Civil Practice Act the Legislature provided a convenient method by which a plaintiff might in a foreclosure action recover against any person hable for payment of a debt secured by mortgage the residue of the debt “ remaining unsatisfied, after a sale of the mortgaged property, and the application of the proceeds, pursuant to the directions contained therein.” A common law action against such a person to recover a money judgment might still be maintained, though no foreclosure action had been brought, but by section 1078 the Legislature placed conditions upon the bringing of a common law action to recover a money judgment while a foreclosure action is pending or after final judgment for the plaintiff therein. By sections 1083-a and 1083-b the Legislature introduced a new policy into the law of the State for the period of the emergency. Though a money judgment may still be recovered against a person liable, directly or indirectly or contingently, for payment of a mortgage debt, yet any party against whom such a judgment is demanded is entitled to set off the fair and reasonable market value of the mortgaged property. That is true alike where a money judgment is demanded in an action to foreclose the mortgage (§ 1083-a) or in an action “ other than an action to- foreclose a mortgage ” (§ 1083-b). However, to avoid the inconvenience and even injustice that might result from inconsistent determinations of the “ fair and reasonable market value of the mortgaged property ” that might be rendered in successive actions, the Legislature has required that after mortgaged premises have been sold under a judgment in a foreclosure action, the right of the plaintiff to a money judgment for any part of the mortgage debt remaining unpaid must be determined in the foreclosure action. The Legislature has declared that: “If no motion for a deficiency judgment shall be made as herein prescribed the proceeds of the sale regardless of amount shall be deemed to be in full satisfaction of the mortgage debt and no right to recover any deficiency in any action or proceeding shall exist.” (§ 1083-a.) Certainly the denial of a motion .for a deficiency judgment cannot in this respect be less effective than failure to make the motion.

We are not advised whether in the foreclosure action the plaintiff challenged the validity of section 1083-a. Even if the plaintiff did properly challenge in that action the validity of section 1083-a, we could not upon this appeal consider that challenge, for no order or judgment in that action is before us for review. On this appeal we review only the decision that after denial of a deficiency judgment in the foreclosure action upon a motion made pursuant to section 1083-a, the plaintiff is not entitled to maintain an action to recover upon the bond which the defendant’s testator, Herbert W. Hanan, signed as obligor. The challenge to the constitutional validity of the statute raises the constitutional question whether the obligations of the contract are impaired and article I, section 10, of the Constitution of the United States violated by the provisions of sections 1083-a and 1083-b, which provide that during the emergency period an action to recover a money judgment for any indebtedness secured by mortgage may not be maintained after the mortgaged premises have been sold under a judgment of foreclosure and sale, unless the right to a deficiency judgment has been determined in the foreclosure action. We decided that question against the appellant after the original argument. We adhere to that decision now.

In sustaining the validity of the statutes here challenged, we should perhaps state that we are not deciding that the Legislature has power to declare that for every purpose a debt shall be “ deemed ” to be satisfied though in fact the debt has not been paid or satisfied in accordance with the instrument which created it. We have given to this provision a limited application. (Cf. Matter of City of New York [Neptune Ave.], 271 N. Y. 331; Cyllene Corp. v. Eisen, 272 N. Y. 526; Matter of City of New York [E. 29th St.], 273 N. Y. 62.) We hold only that reasonable limitations and restrictions may be placed upon actions to recover the debt, in order to meet conditions which constitute an imminent danger to the public welfare.

The judgment should be affirmed, with costs. (See 275 N. Y. 625.)

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

Judgment affirmed.


author: Crane, Ch. J.

text:
    In the Matter of Israel Amter, as Chairman of the State Committee of the Communist Party of the State of New York, Appellant, against Edward J. Flynn, as Secretary of State of The State of New York, Respondent.
    Argued July 27, 1937;
    decided July 27, 1937.

      Joseph R. Brodsky and David M. Freedman for appelant.
    The Communist party is a “ party ” within the language, intent and meaning of subdivision 5 of section 2 of the Election Law (Cons. Laws, ch. 17). (McCluskey v. Cromwell, 11 N. Y. 593; Johnson v. Hudson River R. R. Co., 49 N. Y. 455; Young v. Dake, 5 N. Y. 463; Hamilton v. Rathbone, 175 U. S. 414; People ex rel. Rand v. Craig, 231 N. Y. 216.)

      John J. Bennett, Jr., Attorney-General (Henry Epstein of counsel), for respondent.
    The Communist party is no longer a “ party ” within the meaning of the Election Law, as amended by chapter 955 of the Laws of 1935. (Story v. Craig, 231 N. Y. 33; Matter of La Rocca v. Flynn, 257 N. Y. 5; Muller v. Oregon, 208 U. S. 412; People ex rel. Einsfeld v. Murray, 149 N. Y. 367.)
   Crane, Ch. J.

This is an appeal from an order of the Appellate Division, third department, which affirmed an order of a Special Term of the Supreme Court for Albany county denying an application for a peremptory order of mandamus which sought to compel the Secretary of State to accept for filing the designated statement of party positions of the Communist party to be filled at the primary elections to be held on September 16, 1937, and to direct the said Secretary of State to certify to the various boards of elections that the Communist party is a legally recognized party within the State. The Secretary of State refused to accept and file the statement thus offered on the ground that under the provisions of chapter 955 of the Laws of 1935, section 1, subdivision 5, the Communist party had ceased to be a recognized party having polled less than 50,000 votes for Governor at the election in 1936. In this ruling the Secretary of State has been sustained by the Special Term, and the Appellate Division.

By this law of 1935, chapter 955, section 1, the Election Law (Cons. Laws, ch. 17, § 2, subd. 5) of 1922 (L. 1922, ch. 588) was amended so as to read as follows: The term ‘ party ’ means any political organization which at the last preceding election for governor polled at least twenty-five thousand votes for governor, or at an election for governor after January first, nineteen hundred and thirty-six, polled at least fifty thousand votes for governor.”

At the election for Governor in 1936 the Communist party polled less than 50,000 votes, the total number being 40,406 votes. Nevertheless the appellant insists that upon a strict and literal interpretation of this amendment the Communist party is entitled to the designation and treatment of a party under the Election Law. Perhaps the section can be so read, as the word or ” would indicate an alternative. The appellant claims that if the Communist party at the gubernatorial election in 1934 polled at least 25,000 votes it is to be considered a party at every election thereafter, although its vote may have dwindled to almost nothing.

This amendment of 1935 became a law on May 16, 1935. There was an election to be held in November of that year, but it was not a gubernatorial election. The Communist party would be a party for that election. When, however, at the election for Governor in 1936 it polled less than 50,000 votes, thereafter it ceased to be a party. This is the only way in which this section can be interpreted and be given any sense. In other words, up until the gubernatorial election of 1936 the Communist party remained a party; thereafter it continued as a party provided it polled at least 50,000 votes for Governor.

The intention of the Legislature to increase the number of registered votes to give to an organization the standing of a party under the Election Law is apparent in prior legislation, Under the Election Law of 1911 (L. 1911, ch. 649, § 2; L. 1911, ch. 872, § 1; L. 1911, ch. 891, § 3), 10.000 votes were sufficient, which in 1922 were increased to 25,000 after January 1, 1923. Now we have it at 50.000 in or after the gubernatorial election of 1936.

We, therefore, approve of the decision and opinion of Mr. Justice Schenck at Special Term, and the affirmance by the Appellate Division.

The order should be affirmed, without costs.

Lehman, O’Brien, Hubbs, Lottghran, Finch and Rippey, JJ., concur.

Order affirmed.