text:
    Albert E. Brown, Respondent, v. Steamship Terminal Operating Corporation et al., Appellants.

      (Argued March 7, 1935;
    decided April 16, 1935.)

      Paul Austin Crouch and Andrew McGray for Steamship Terminal Operating Corporation, appellant.

      F. A. W. Ireland for Mercur Corporation, appellant.

      Dominic B. Griffin, Robert L. Callahan and Joseph J. Reiher for respondent.
   Crane, Ch. J.

At the Port of Newark, New Jersey, there is a long dock and certain warehouses owned by the United States government and leased to the Mercur Corporation. That corporation operated the warehouses. It is a domestic corporation. The Steamship Terminal Operating Corporation, known as “ S. T, O,,” is a foreign corporation, created under the laws of the State of Delaware, authorized to do business in the State of New York, It was engaged in the work of loading and unloading ships and lighters at the dock; in other words, it was the stevedore. These are the two defendants in this case.

The plaintiff, Albert E. Brown:, was employed by R, Markey & Sons, of New York, weighers of sugar. His work took him on the docks. On the 28th day of November, 1928, as the plaintiff was walking along the dock in front of the warehouses going to his work, he was struck and badly injured by a car or automobile truck, being a Ford car reconstructed in the form of a truck. This Ford was being driven by one Louis Fernandez, who had in the car with him one Edwin Hoffman, a superintendent or employee of the Mercur Corporation. Plaintiff sued both defendants, as being liable for the acts of the driver, and recovered a large verdict against both. The judge set it aside as to the Steamship Terminal Operating Corporation, but on appeal the verdict was reinstated, so that both defendants are before this court as appellants.

The case was submitted to the jury under a practice which we have criticized in Bergman v. Scottish Union & National Ins. Co. (264 N. Y. 205). (See, however, Civ. Prac. Act, § 459, as amd. by Laws of 1934, ch. 522.) The judge submitted seven questions to the jury, but failed to ask them for a general verdict and none was given in this case. . Judgment was entered by bis direction as against the Mercur Corporation, and by the Appellate Division, as to the Steamship Terminal Operating Corporation.

In his charge to the jury the trial judge said as to question 2:

By whom was the operator of the truck employed at the time of the accident?
Your answer will be the Steamship Terminal Operating Corporation or the Mercur Corporation, one or the other, for the proof does not admit that both of them were employing him at the same time.”
Question 4. Was the automobile at the time of the accident being operated in the furtherance of the business of the Mercur Corporation?
And your- answer will be yes or no.”

The questions and answers given were as follows:

Question 1. Has the plaintiff established that the defendant Steamship Terminal Operating Corporation was the owner of the automobile at the time of the accident?
“ Answer: No.
Question 2. By whom was the operator of the truck employed at the time of the accident?
“ Answer: The Steamship Terminal Operating Corporation.
Question 3. Was the automobile at the time of the accident being operated in the furtherance of the business of the Steamship Terminal Operating Corporation?
Answer: Yes.
Question 4. Was the automobile at the time of the accident being operated in the furtherance of the business of the Mercur Corporation?
Answer: Yes.
“ Question 5. Did the Steamship Terminal Operating Corporation permit, consent to, acquiesce in, and countenance the use of said automobile in its business?
“ Answer: Yes.
Question 6. Did the Mercur Corporation permit, consent to, acquiesce in, and countenance the use of said automobile in its business?
Answer: Yes.
Question 7. What damage did the plaintiff sustain?
“Answer: $12,500.”

Upon these questions and answers alone the judge should not have entered judgment against the Mercur Corporation. The only thing the jury found against that corporation was that it permitted the use of the automobile in its business. It did not own the automobile, nor was the driver its employee. So the jury found. Liability, therefore, is placed entirely upon the ground that the automobile was used in its business with its consent. We know of no such law that makes one liable because the servant of another may use a car or a truck in his business. There must always be established a relationship of respondeat superior, or that of master and servant.

Many instrumentalities are used in the furtherance of a man’s business without his being liable for their use. One may engage an automobile owned and operated by another for personal or business use without being liable for the acts of the driver. So likewise with trucks or dredging machines or moving equipment. Therefore, we have nothing in the findings of the jury in this case to sustain a judgment against the Mercur Corporation.

An to the Steamship Terminal Operating Corporation, the following request was made, which seems to bear directly upon liability: “ I respectfully ask your Honor to charge the jury that if the car was not owned by the Steamship Terminal Operating Corporation and was being used without the knowledge or consent of that corporation and by persons not in its employment, the verdict must be for the defendant Steamship Terminal Operating Corporation irrespective of whether or not it was about to be used in furtherance of the business of said corporation.” This request was refused, and the defendant excepted.

It is difficult to see how a defendant could be liable for the operation of an automobile not owned by it nor in the control of its employee, and being used without its knowledge or consent in the furtherance of its business. As stated before, liability arises out of the relationship through agency or that of employer and employee. The request assumes that no such relationship was established between the defendant Steamship Corporation and the driver of the car.

We must go a step further and consider the evidence to ascertain whether there be any proof of negligence by employees to hold these defendants. Sugar was being taken from the stores across the dock to the steamship. The work was being done by the stevedoring Steamship Terminal Operating Corporation. The Mercur Corporation was the custodian of the sugar in the storehouse, and used rope slings in hoisting up and down the bags of sugar. These slings were kept by both of these defendant corporations in their respective storerooms.

On the day in question the Steamship Terminal Operating Corporation was proceeding with this work, transferring sugar to the ship. The plaintiff proved this much; also that one Louis Fernandez was driving a Ford truck, accompanied by Hoffman, an employee of the warehouse men. What evidence is there to show that Fernandez was in the employ of the Steamship Terminal Operating Corporation or the Mercur Corporation?

The truck had on it the letters “ S. T. 0.,” the initials of the Steamship Terminal Operating Corporation, and the words Gear Room.” There was no evidence to show that the truck was owned by the corporation or used by its direction in its business. A witness, McLear, called by the defendant, says that he bought the car in 1927 for seventy dollars and sold it to one W. F. Bradley for twenty dollars. Bradley was an employee of the Steamship Terminal Operating Corporation. He used the car more or less as a personal convenience, possibly in the business of the defendant, with its acquiescence. The car had no license. All that the plaintiff has to connect it with the defendant’s steamship corporation are the letters S. T. 0.” and the words Gear Room.” The jury found, in reply to question No. 1, that the corporation was not the owner of the automobile. This would make little or no difference if Louis Fernandez, the driver, was an employee of the defendant Terminal Corporation, using the car with its knowledge and consent in its business. The plaintiff, however, on the evidence now before us, has failed to establish this.

Hoffman says that Fernandez was employed by the Mercur Corporation and paid by that corporation; that when he was employed by the Terminal Corporation he was paid for the work he did. There appears to be some haze about this relationship. Certainly Fernandez was employed by one or the other, and although the Mercur Corporation, through Hoffman, seems to have assumed responsibility for his acts, yet it is open to the plaintiff to prove otherwise if he has the evidence. We feel that upon the present trial this evidence is lacldng.

There are, therefore, three reasons why the appeal of these defendants must be sustained and the judgment reversed: one, the failure of the findings to support a verdict against the Mercur Corporation; two, error in the refusal of the Terminal Corporation’s request to charge; three, the failure of the evidence to show any relationship of master and servant between Louis Fernandez and the Terminal Corporation.

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

Lehman, O’Beien, Hubbs, Loughran and Finch, JJ., concur; Crouch, J., not sitting.

Judgments reversed, etc.


source: Caselaw Access Project

author: O’Brien, J.

license: Public Domain

text:
    In the Matter of Realty Associates, Inc., et al., Appellants; H. L. F. Realty Co., Inc., Respondent.
    (Submitted March 13, 1935;
    decided April 16, 1935.)

      Lynn G. Goodnough for appellants.

      Isidor Mates, Joseph J. Schwartz and Joseph Mates for respondent.
   O’Brien, J.

The Brooklyn Trust Company acquired a first mortgage for $200,000 on premises the title to which was then held by the Louis Friedman Realty Co., Inc., a domestic corporation. Subsequently, Realty Associates, Inc., became the owner of a participation in this mortgage. On February 20, 1933, there was due $183,500 on the principal and on that date an extension agreement was entered into between Brooklyn Trust Company and the Louis Friedman Realty Co., Inc. The mortgagor agreed: “ If, after the payment of interest and amortization on the first mortgage, taxes and insurance premiums against the mortgaged premises and interest on any subsequent mortgage or mortgages, there remains at any time a surplus from the rents, income and profits of. the mortgaged premises, all of such net income, rents or profits shall be paid to the mortgagee in reduction of the principal sum secured by the mortgage hereby extended.” All the capital stock of the Louis Friedman Realty Co., Inc., then the record holder of the title, was owned by a Delaware corporation, the Louis Friedman Realty Corporation, and this Delaware corporation organized and also owned all the capital stock of the H. L. F. Realty Co., Inc., a domestic corporation, to which on June 1, 1933, the Louis Friedman Realty Co., Inc., conveyed these mortgaged premises. There was then a second mortgage also on these premises. On the same day, June 1, 1933, the H. L. F. Realty Co., Inc., made a third mortgage, never recorded, to the Delaware corporation, the Louis Friedman Realty Corporation, for $155,862. The H. L. F. Realty Co., Inc., had no debts and assumed no obligations other than the mortgage executed by it to its organizer and owner. Louis Friedman was president of all three corporations and owned fifty-one per cent of the capital stock of the Delaware corporation. December 14, 1933, H. L. F. Realty Co., Inc., paid to the Delaware corporation $2,992.55, six months’ interest on the third mortgage held by the Delaware corporation.

This proceeding, pursuant to section 1077-c of the Civil Practice Act, was begun December 29, 1933, by Realty Associates, Inc., and Brooklyn Trust Company, holders of the first mortgage, to compel the record title holder, H. L. F. Realty Co. Inc., to pay over to them the surplus from the mortgaged premises for the period extending from June 1, 1933, to November 30, 1933.

The issue of law is whether the interest paid by H. L. F. Realty Co., Inc., to the Delaware corporation on the third mortgage may properly be allowed as a deduction from the income of the mortgaged premises. The courts below have held that it was properly allowed and have fixed the sum of $405.06 as the surplus income. These appellants argue that the unrecorded third mortgage made by the record holder of the premises to the Delaware corporation which was the owner of the record holder was without consideration and is a sham.

Any substance, if existing, in this third mortgage given by H. L. F. Realty Co., Inc., to the Louis Friedman Realty Corporation (Delaware) for $155,862 is so obscure as to be difficult and perhaps impossible of detection. The attempted explanation is that the Louis Friedman Realty Co,, Inc. (N. Y.) owed a certain sum of money to the Delaware corporation and that in order to discharge the indebtedness, the domestic corporation, record holder of the title, conveyed its equities in this property to H. L. F. Realty Co., Inc., a corporation organized and wholly owned by the Delaware corporation. As appellants argue, the conveyance of the equity was then complete, the H. L. F. Realty Co., Inc., was not indebted to the Delaware corporation and there was no consideration for the mortgage. The Delaware corporation, owning all the capital stock of both these domestic corporations, to all intent and purpose conveyed this property to itself for nothing. (Berkey v. Third Ave. Ry. Co., 244 N. Y. 84, at p. 95.) The transaction appears to be wholly fictitious (Beck v. Sheldon, 259 N. Y. 208), and the mortgage ought not to be regarded as a genuine one which can have the effect of defeating the purpose of the extension agreement of February 20, 1933. Such legerdemain, perpetrated under the forms of law, must not be sanctioned. By the devious process pursued by the Delaware corporation, the Louis Friedman Realty Corporation, with its two creatures, the Louis Friedman Realty Co., Inc., and the H. L. F, Realty Co., Inc., the actual owner of this property, the Delaware corporation, drew to itself the surplus which under the agreement belongs to the first mortgagee.

Section 1077-c of the Civil Practice Act provides:

" § 1077-c. Notice of application. Notwithstanding the foregoing provisions, any person who would otherwise have the right to foreclose a mortgage, shall have the right to make an application to any court in which such foreclosure action might be brought upon eight days notice, served personally, or in such manner as the court may direct to the last record owner of the mortgaged property, and if upon such application it shall appear to the satisfaction of the court that the mortgaged property during the six months prior to the application shall have produced a surplus over and above the taxes, interest and all other carrying charges, then the court may make an order directing the payment of such surplus or such part thereof as the court may determine to the mortgagee to apply toward the reduction of any past due principal. In the event of default in making of such payment for thirty days after service of a copy thereof with notice of entry thereof, then and in such event the applicant may maintain an action to foreclose such mortgage. In any such proceeding the court may enter an order permitting foreclosure without other proof if the owner of the property shall fail to make available for inspection by the mortgagee and the court all records and data available as to the income and disbursements, or if the owner shall fail to produce adequate records or data of income and disbursements.
“ This section shall • not apply to properties used or intended to be used for farming purposes or dwellings occupied by the owner or by the owner in conjunction with not more than one other family.”

If the third mortgage be regarded as fictitious, and we think that it must be so viewed, then this mortgaged property during the six months prior to appellants’ application under this section did produce an additional surplus of $2,992.55 which under the terms of the statute as well as the agreement of February 20, 1933, was available for the reduction of the principal then past due.

The order of the Appellate Division and that of the Special Term should be modified by adding the sum of $2,992.55 to the sum of $405.06 as surplus, and as so modified affirmed, with costs in all courts to appellants.

Lehman, Hubbs, Crouch, Loughran and Finch, JJ., concur; Crane, Ch. J., not sitting.

Ordered accordingly.


author: Crane, Ch. J.

text:
    Mary N. McKee, Appellant, v. Ralph H. McKee, Respondent.

      (Argued January 11, 1935;
    decided April 16, 1935.)

      H. James Hitching and Carl Edwin Ring for appellant.

      John J. Kirby for respondent.
   Crane, Ch. J.

The plaintiff and the defendant were married at Carthage, in the State of Illinois, on the 26th day of June, 1902. Two children, a boy and a girl, were subsequently born, the girl in 1908 and the boy in 1910. The family moved to this State in 1918 and continued to reside together until January of 1925, when the plaintiff ceased to live with the defendant, because of his violent, brutal and insulting treatment, and has since lived separate and apart from ” him. Such is the allegation of her complaint in this action which she has brought for separation and for maintenance. She alleges further, that the defendant’s cruel and inhuman treatment, and his conduct toward her renders it unsafe for her to live with him.

The defendant’s answer sets forth at length a divorce which he had obtained on the 2d of September, 1931, in the Second Judicial District Court of the State of Nevada. He alleges that, the plaintiff having abandoned him without any cause or justification, he went to Nevada, established a residence, and commenced an action against his wife, the plaintiff, for absolute divorce, and that he was awarded a decree on the date mentioned. He demands that under the Federal Constitution, article IV, section 1, full faith and credit be given by this State to this decree of the Nevada court, alleging that that court had full and complete jurisdiction over all of the parties thereto.” The further allegation in the answer is made in the following language: “ That said judgment and decree was and is binding upon both parties to this action, and is entitled to full faith and credit in the courts of the State of New York.”

When the case came to trial it proceeded along the fine of these issues prepared by the pleadings, the defendant insisting that by reason of the plaintiff’s conduct he had established a full and complete residence in Nevada, which became his domicile, and that the decree of divorce which he obtained was binding in this State, although Ms wife was not served witMn the State of Nevada and did not appear in the action. That tMs was the direction wMch the trial took and the main and principal issue presented to the trial judge is quite apparent from Ms findings. He made a decision in wMch he held.that the Nevada decree was not binding upon Mary McKee; that the husband, Ralph H. McKee, by marrying again and living in tMs State with Ms new wife, was living in adultery according to our laws; and that such acts constituted cruel and inhuman treatment, without considering anytMng else, and gave Ms decree for the plaintiff accordingly.

The charges in the plaintiff’s complaint of cruel and inhuman treatment prior to 1925, and brutal conduct of such a nature as to make it dangerous for her to live with her husband, were not considered by the trial judge. He made no findings or decision upon these allegations. His findings deal solely with the Nevada decree and the husband’s subsequent marriage. He refused the following requests:

III. On January 13,1925, plaintiff abandoned defendant without any cause or justification therefor, and severed and terminated the matrimomal domicile in New York by thus abandomng defendant, and since that time has, at all times, remained wilfully and continuously absent from defendant without Ms consent, and without any cause or justification therefor, and with intent not to return.
IV. Defendant did not, without justification, fail, neglect or refuse to provide for the support and maintenance of plaintiff.”

As I have said, however, the trial judge decided the case solely upon the defendant’s claim that the Nevada decree was binding upon the wife.

The case went to the Appellate Division, wMch made new findings of fact, wherein the court stated that Ralph H. McKee was never guilty of cruel and inhuman conduct towards Ms wife; and that the wife abandoned him on January 13, 1925, without any. cause or justification. That court said, basing its opinion upon these new findings: When it appeared therefore, that the plaintiff had abandoned the defendant, the trial court should have dismissed the complaint regardless of the defendant’s subsequent transgression, if such it be.” (241 App. Div. 149, 152.)

This court is now obliged, pursuant to section 589, subdivision 2, of the Civil Practice Act, to review these new facts found by the Appellate Division, and to determine whether they are sustained by the weight of evidence. We shall not attempt to review the evidence at length. Sufficient to state that the plaintiff stated that her husband was a man of quick temper and on- occasions had struck and beaten her. In this she was supported by her daughter, a college graduate and a student of medicine who had come from Florida to testify at the trial. The husband denied these allegations. The son in laconic answers stated that he had never seen his father cruel to his mother. Wherein lies the weight of testimony, and what tips the scales in favor of the husband or wife?

In matrimonial actions, where the family is divided, and feelings become intense, the judge who sees and hears the parties has a certain advantage which may not be as important in other cases. After all, there is something in the manner in which a witness testifies. We feel that the trial judge in this case should have an opportunity to express in proper legal form his decision, based upon both hearing and seeing the witnesses testify. The trial judge in this case made no findings or decision upon the husband’s cruel and inhuman treatment. He refused to find that the plaintiff abandoned the defendant without any cause or justification, and yet in his opinion said: The record has been searched and combed to discover some act of the defendant that could be branded as cruel.” The wife testified that her husband struck her and jumped on her with his knees until she became unconscious and had to be treated by her daughter. She testified that frequently her husband would slap and shake her, and in all this she was corroborated by her daughter. Quite apparent is it that the trial judge did not consider the question of cruelty as vital to the case. His mind, as directed by the course of the trial, was upon the validity of the Nevada divorce, and the cruelty arising from the husband living here in adultery. These other matters were not considered important or necessary to the plaintiff’s case.

We think, therefore, a matter so vital to the wife and to the husband, where the case had been tried upon one theory and reversed upon another; where the Appellate Division has made new findings of fact upon an issue not squarely decided or passed upon by the trial judge, and about which he made no findings, requires that we should send this case back for a retrial of this issue of cruelty.

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

Lehman, O’Brien, Hubbs, Crouch and Loughran, JJ., concur; Finch, J., not sitting.

Judgments reversed, etc.


author: Hubbs, J.

text:
    In the Matter of Irving Trust Company, as Trustee of the Bankrupt Estate of William A. Levy, Appellant. Central Hanover Bank and Trust Company et al., as Trustees, et al., Respondents.
    (Argued February 25, 1935;
    decided April 16, 1935.)

      Julius M. Arnstein and Joseph Dannenberg for appellant.

      David L. Charal, Alexander S. Natanson and Samuel L. Scholer for William A. Levy, respondent.

      T. R. Iserman for Central Hanover Bank and Trust Company, respondent.
   Hubbs, J.

William A. Levy was adjudicated a bankrupt on December 2, 1933. Irving Trust Company, the appellant, was appointed trustee on December 21, 1933, and on February 21, 1934, the bankrupt was granted a discharge. On March 20, 1934, the appellant moved under section 684 of the Civil Practice Act for an order directing execution to issue against the income from three spendthrift trusts of which the bankrupt is beneficiary, the income of which amounts to upwards of $6,900 under present financial conditions. Such income was not listed as an asset by the bankrupt and is and has been sufficient to maintain the bankrupt and his family without the necessity of his working for a living. At the time when' the motion was made, claims had been filed and allowed in the bankruptcy proceeding in the aggregate amount of $2,389.09, and the total amount of claims filed and allowed prior to expiration of the period for filing claims aggregated $14,738.47.

The motion was granted at Special Term to the extent of funds which came into the hands of the trustees of the trust funds prior to the date of the discharge from bankruptcy of the said William A. Levy, but denied as to all funds received by the trustees of the trust funds after that date.

Appellant appealed from so much of the order as denied part of the relief sought and the bankrupt appealed from so much thereof as granted part of the relief sought.

The Appellate Division modified the order of the Special Term by reversing that part of the order which permitted garnishment of funds coming into the hands of the trustee prior to February 21, 1934, the date of the discharge and affirmed as to the balance.

The question presented on this appeal is as to whether a trustee in bankruptcy, by a garnishee proceeding under section 684 of the Civil Practice Act brought subsequent to the bankrupt’s discharge, can reach income, from trust funds in the hands of the trustee of those funds, received by such trustee after the adjudication in bankruptcy.

Section 684 provides in part as follows:

Where a judgment has been recovered and where an execution issued upon said judgment has been returned wholly or partly unsatisfied, and where any * * * income from trust funds * * * are due and owing to the judgment debtor or shall thereafter become due and owing to him, to the amount of twelve dollars or more per week, the judgment creditor may apply to the court in which said judgment was recovered or the court having jurisdiction of the same without notice to the judgment debtor, and upon satisfactory proof of such facts by affidavits or otherwise the court, * * * if a court of record, a-judge or justice, must grant an order directing that an execution issue against the * * * income from trust funds * * * of said judgment debtor, * * * * and on presentation of such execution by the officer to whom delivered for collection to the person or persons from whom such * * * income from trust funds * * * are due and owing or may thereafter become due and owing to the judgment debtor, said execution shall become a lien and a continuing levy upon the * * * income from trust funds * * * due or to become due to said judgment debtor to the amount specified therein which shall not exceed ten per centum thereof, and said levy shall be a continuing levy until said execution and the expenses thereof are fully satisfied and paid.”

There can be no doubt that income from trust funds is now subject to garnishee orders granted upon motion of judgment creditors whose executions have been returned in whole or part unsatisfied. (Brearley School v. Ward, 201 N. Y. 358.) (Cf. Judis v. Martin, 218 App. Div. 402; appeal dismissed, 244 N. Y. 605; Crossman Co. v. Rauch, 238 App. Div. 299; revd. on another ground, 263 N. Y. 264.)

The Bankruptcy Act (Mason’s U. S. Code, tit. 11, ch. 5, § 75), section 47, subdivision a (2), provides that a trustee in bankruptcy “ as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies and powers of a judgment creditor holding an execution duly returned unsatisfied.” Courts of this State have recognized and enforced the rights given to a trustee in bankruptcy by section 47, subdivision a (2), of the Bankruptcy Law. (Matter of Poskanzer, 101 Misc. Rep. 100; affd., 181 App. Div. 915; Matter of Havemeyer, 127 Misc. Rep. 197.) (Cf. Rowe v. Farmers’ Loan & Trust Co., 132 Misc. Rep. 651; Matter of Rosenblatt, 235 App. Div. 812.) Likewise its effectiveness has been declared by the Federal courts. (Matter of Morris, 204 Fed. Rep. 770; Matter of Reynolds, 243 Fed. Rep. 268.) Moreover, the right of a trustee in bankruptcy to garnishee income of trust funds is unaffected by the discharge of the bankrupt. (See Matter of Poskanzer, supra; Matter of Morris, supra; Jenks v. Title Guarantee & Trust Co., 170 App. Div. 830; Matter of Reynolds, supra.)

The respondents contend that this is not a final order in a special proceeding and, therefore, is not appealable as a matter of right. In that, the respondents are in error. The appeal is properly taken without permission under section 588 of the Civil Practice Act, subdivision 1, which states in part: “As of right from [an] * * * order entered upon the decision of an Appellate Division of the Supreme Court which finally determines [a] * * * special proceeding * * * where the * * * order is one of * * * modification.”

The proceeding here is not a proceeding in an action but a proceeding of garnishment under a special statute. The trustee in bankruptcy has instituted no action. He moved for the order by notice of motion at Special Term under the authority of section 47, subdivision a (2) of the United States Bankruptcy Act. In Pistchal v. Durant (216 N. Y. 644), cited in support of respondents’ contention, the court held as to a garnishee order based upon a judgment previously rendered in an action, that the order appealed from was not a final order in the action and hence not appealable without permission.* That case is not authority for the respondents under the facts here presented.

The respondents contend further that no distinction is to be drawn between income from trust funds and salary, wages and earnings. With that premise as a basis they contend that a discharge in bankruptcy frees the salary and income of a bankrupt from the effect of a garnishee execution relating back to the date of adjudication, citing authorities which sustain the proposition that a discharge frees the salary of a bankrupt earned subsequent to the adjudication. A distinction is to be drawn between income from trust funds and wages. The one is the product of an asset in existence at the date of the adjudication, the other the product of the subsequent effort of the bankrupt. The effectiveness of the former, the so-called spendthrift trust, which prior to the inclusion of the provision with respect to income from trust funds in section 1391 of the Code of Civil Procedure, now section 684 of the Civil Practice Act, had the effect of permitting the evasion of claims of creditors, has been largely nullified by that change in our law, as pointed out in Brearley School v. Ward (supra). We see no reason, in law or upon principle, why the relief afforded by that section to judgment creditors should be withheld from a trustee in bankruptcy as the representative of the creditors of a bankrupt.

The orders should be reversed and the motion granted, with costs in all courts.

Crane, Ch. J., Lehman, O’Brien, Crouch and Loughran, JJ., concur; Finch, J., not sitting.

Orders reversed, etc.


author: Finch, J.

text:
    In the Matter of the Estate of Frederick F. Proctor, Deceased. City Bank Farmers Trust Company, as Executor of Frederick F. Proctor, Deceased, et al., Appellants; Charles L. Kingsley, Respondent.
    (Argued March 13, 1935;
    decided April 16, 1935.)

      Charles Angulo and Benjamin Nassau for appellants.

      Robert P. Smith for respondent.
   Finch, J.

This proceeding was instituted pursuant to section 231-a of the Surrogate’s Court Act, to fix the compensation of the petitioner for services rendered the estate of Frederick F. Proctor. The City Bank Farmers Trust Company is the sole executor of the estate and there are five trustees, including Georgena Mills Proctor, the widow of the testator. On September 4, 1929, shortly before the death of her husband, Mrs. Proctor employed the petitioner Charles L. Kingsley as her personal attorney, and he continued in such employ until June 1, 1931. After the death of her husband, Mrs. Proctor asked him to take care of certain matters for her in connection with the estate.

The testimony of Mrs. Proctor is that his arrangement was that he should act as her attorney on the basis of an annual retainer of $1,000 for all services rendered at her request, and his testimony is that in addition to the annual retainer he told her that he would expect to obtain an allowance from the court at the time of the accounting. In March, 1931, Mr. Kingsley in addition to the annual retainer obtained an allowance of $3,500 from the surrogate for services rendered by him in regard to the construction of Mr. Proctor’s will. At that time she was in Florida. He testified that soon after her return he told her of what had taken place before the Surrogate and of the allowances made by the Surrogate and of his proposed bill against the estate and that she consented thereto. She testified that when she learned of this allowance she told him that he was not entitled to it as he was employed as her personal attorney. Later the petitioner sent a bill to the estate in the sum of $12,000 for services rendered for the benefit thereof, and shortly thereafter she terminated his employment. He wrote the attorneys for the estate, as follows:

I do not claim that I was retained as attorney or counsel by the Trust Company, either in its capacity as Executor or as Trustee of the said estate.
The services rendered, as set forth in the bill, were of benefit to the entire estate.”

The matter remained dormant until December, 1931, when Mr. Kingsley sent Mrs. Proctor a bill for $550, covering the pro rata part of his annual retainer to June, the time when his employment ended. Mrs. Proctor refused to pay, on the ground that he had no right to the allowance and therefore had already been overpaid. Negotiations between Mrs. Proctor and Mr. Kingsley were commenced and culminated in an exchange of general releases between the two. The release signed by the petitioner stated that in return for $550 and Mrs. Proctor’s release he released and discharged “ said Georgena M. Proctor, individually and as a Trustee under the Last Will and Testament of Frederick F. Proctor.”

The petitioner subsequently commenced this proceeding against the estate for services rendered. The executor did not deny that the petitioner rendered legal services beneficial to the estate but relied largely upon the release as a bar to the proceeding. The Surrogate held that the general release did not release the estate and that under section 231-a of the Surrogate’s Court Act the petitioner was entitled to $7,500. The Appellate Division affirmed, two justices dissenting.

The decision of the lower courts can only be upheld if it is found that the petitioner’s release of Mrs. Proctor, as a trustee and as an individual, did not bar an action against the estate. Although an estate is generally spoken of as though it were a separate entity, as a matter of law it has no existence apart from that of its legal representatives. This court said, in Whiting v. Hudson Trust Co. (234 N. Y. 394, at p. 407): “ It is only a form of words when we speak of him [the trustee] as the representative of an ‘ estate.’ The ' estate ’ had no separate existence. It was not a legal person. The only person was the trustee.” Mrs. Proctor, as trustee, had the power to bind the trust estate (Jessup v. Smith, 223 N. Y. 203), and it necessarily follows that she had the power to procure the discharge of that obligation. The instrument releasing any claim against her, as trustee, therefore, exonerated the estate.

Section 231-a, as far as it is pertinent, reads as follows:

§ 231-a. Compensation of attorneys. At any time during the administration of an estate, and irrespective of the pendency of a particular proceeding, the surrogate shall have power to hear an application for and to fix and determine the compensation of an attorney for services rendered to an estate or to its representative * * *.
Such proceeding shall be instituted by petition of a representative of the estate * * *. Notice of the application shall be given in such manner as the surrogate may direct. The surrogate may direct payment therefor from the estate generally or from the funds in the hands of the representative belonging to any legatee, devisee, distributee or person interested therein.”

A brief reference to the historical development of the practice embodied in section 231-a is material. An attorney’s claim for compensation from a trust estate is derived through the representative, thereof. Originally a legal representative of an estate was required to pay his attorney’s compensation from his individual funds. Thereupon he had a right of reimbursement from the estate on the settlement of his account to the extent that the payment was found to be reasonable and necessary. (Jessup v. Smith, supra; Matter of Gilman, 251 N. Y. 265, at p. 271.)

The procedure was simplified in 1914 by the revision of the Code of Civil Procedure to include a provision authorizing the legal representative to pay his attorney’s compensation and other administration expenses, in the first instance, from the funds of the estate. (Code Civ. Proc. § 2692, now Surrogate’s Court Act, § 222.) If the representative, however, refused to make payment, attorneys generally brought an action at law against the client in his individual capacity. In 1916 it was held that if the representative refused to pay his attorney’s compensation the Surrogate’s Court had jurisdiction to fix such compensation and direct its payment from the estate in a special proceeding instituted for that purpose. (Matter of Rabell, 175 App. Div. 345.) Some doubt arose as to the rule declared in the Rabell case, by reason of the later decision in Matter of Connell (196 App. Div. 639.) The Connell case was distinguished by the Surrogate’s Court of New York county in Matter of Shipman (116 Misc. Rep. 405; affd., 200 App. Div. 896; affd., 234 N. Y. 499.) At the session of the Legislature following the affirmance of the Shipman case by this court section 231-a of the Surrogate’s Court Act was enacted. Disputes between representatives of estates and their attorneys are, therefore, now governed by section 231-a which embodies the rule laid down in the Rabell and Shipman cases. (Matter of O’Brien, 146 Misc. Rep. 556; Matter of Parsons, 121 Misc. Rep. 747; affd., 208 App. Div. 769; Matter of Matheson, 265 N. Y. 81, 85; 2 Jessup on Law and Practice in Surrogates’ Courts in State of New York [1930], § 1174.) Statutory sanction was thus given to the procedural development, but in no way was there a change in the nature of the attorney’s claim for compensation. The claim is still derived through the representative and the execution of a valid release to the trustee in his representative capacity extinguishes all rights against the estate.

It is unnecessary to consider the question of whether the release is ambiguous, since the petitioner objected to the admission of paroi evidence concerning the meaning of the terms employed.

Nor may the petitioner rest his claim on the thirty-third ” clause of the will. That clause provides that the Trustees shall determine any and all matters as to which any doubt, difficulty or question may arise in relation to any of the trusts created * * This would not seem to be intended to cover the claim of the petitioner. Even if it could be so construed, that would not alter the fact that the claim is now barred, since it was derived through the trustee and the petitioner has released the source of his claim.

For the foregoing reasons, the orders should be reversed and the petition denied, with costs payable out of the estate.

Crane, Ch. J., Lehman, O’Brien, Hubbs, Crouch and Loughran, JJ., concur.

Orders reversed, etc.


text:
    The People of the State of New York, Respondent, v. Ernest Suffern, Bonowitz X. Dawson and David Dyche, Appellants, Impleaded with Others.

      (Argued March 11, 1935;
    decided April 16, 1935.)

      David L. Podell, Richard T. Greene, Mortimer Hays and Mortimer Feuer for Ernest Suffern, appellant.

      Ulysses S. Grant and O. Arthur Stumpe for Bonowitz X. Dawson et al., appellants.

      William Copeland Dodge, District Attorney (Irving Jay Tell of counsel), for respondent.
   Hubbs, J.

The defendants have been convicted of the crime of conspiracy under an indictment which charges that on or about the 20th day of February, 1930, they unlawfully and corruptly conspired to cheat and defraud one Ella Patterson out of property and to obtain from her by false pretenses 600 shares of the common stock of the Curtis Publishing Company; that in pursuance and furtherance of the said conspiracy the defendants organized on March 4, 1930, a corporation called General Industrial Foundation; that on the 4th day of June, 1930, the defendants, by falsely pretending that 2,000 shares of class A common stock and 10,000 shares of class B common stock of the General Industrial Foundation were of the same value as 600 shares of the Curtis Publishing Company stock; .and by falsely pretending that the said General Industrial Foundation was a going concern and was about to erect an office building on the plot of the Hotel Belmont, did induce the said Ella Patterson to deliver to the General Industrial Corporation 600 shares of Curtis Publishing Company stock; and afterwards did unlawfully cause the General Industrial Foundation to sell the said 600 shares and pay to them, the defendants, the proceeds procured by the sale of the said 600 shares of Curtis Publishing Company stock.

The trial court took from the consideration of the jury the allegation in the indictment-charging a false representation that the General Industrial Foundation was about to erect an office building on the plot of the Hotel Belmont. The case was submitted on the issues raised by the other allegations in the indictment.

The evidence shows that as early as 1928 the defendant Ernest Suffern conceived the idea of forming an organization that could furnish expert advice and financial assistance for a consideration to corporations that were fundamentally sound but badly managed and financed. He also had in mind that such a corporation would handle investments and obtain interests in new business ventures that could be assisted and their success thus made more assured. From 1928 to January, 1930, he endeavored to interest a number of different people in such a corporation. In December, 1929, the defendant Philip Barnes was introduced to Mr. Suffern. Suffern employed Barnes to work with him on the proposed new corporation. During the latter part of January Barnes told Suffern about his acquaintance with appellant Dawson; that Dawson was a rrrmmg man who had an interest with one White in Western Empire Mines which held leases on a mine known as the Royal Mine; and that it might be possible to make some arrangements with White and Dawson to use the Western Empire Mines as the initial asset or project of the new corporation contemplated by Suffern. The result was that on March 4, 1930, the General Industrial Foundation was incorporated by Suffern and at a meeting of the directors held on March 10th, White transferred 100,000 shares of stock of Western Empire Mines to General Industrial Foundation, the new corporation, in exchange for 350,000 shares of the class B stock of the new corporation, 100,000 shares of which were to be returned by White to the General Industrial Foundation treasury and 250,000 shares "of which were to be given to Suffern to be held for the benefit of Suffern, Barnes, White and Dawson. White also agreed to give the new corporation an option on 50,000 additional shares of Western Mines at $2 per share. The stock of the Western Empire Mines represented a one-fifth interest in the mine leases. The mine had previously been largely productive but it had been flooded during the war and the best paying veins lost, so that its future success- was at best questionable and involved the expenditure of large sums of money to put it on a paying basis. White had already expended of his own and other people’s money over $150,000 in its reclamation.

In the interim, between the time when appellant Suffern first met Barnes and the incorporation of the General Industrial Foundation, appellant Dawson employed Dyche to sell stock in Western Empire Mines on a commission basis. This occurred some time in January, 1930. At that time White, Dawson, Dyche and Barnes were all endeavoring to raise capital to be used by Western Empire Mines in developing and operating the Boyal Mine. Dyche obtained from a friend of his the name of Mrs. Patterson, the complainant. He made an unsuccessful attempt to see her on February 21, 1930. He told White, Dawson and Barnes about her and on February 22d, White and Barnes called upon Mrs. Patterson and endeavored to sell her stock in Western Empire Mines. Mrs. Patterson had received, under her husband’s will, large blocks of stock in the Curtis Publishing Company which he had requested her not to sell except upon the advice of certain men named in his will. She refused to purchase stock in the Western Empire Mines. Thereafter, between February 28 and March 7, 1930, Dyche made several calls upon Mrs. Patterson in an effort to induce her to reconsider her decision and also interviewed her lawyer at her request. She did not, however, purchase any of that stock.

In April, 1930, Dyche was employedas a stock salesman by the General Industrial Foundation to work under the direction of Barnes on a commission basis. Between April 6, 1930, and April 19, 1930, sometimes alone and sometimes in the company of Barnes, Dyche made further visits to Mrs. Patterson and endeavored to sell her stock of General Industrial Foundation. On April 18, 1930, Barnes, who was accompanied by Dyche, did sell to Mrs. Patterson 35 shares of General Industrial Foundation stock at $32.50 per unit. After the sale of this stock, Dyche took no further part in the negotiations between Barnes and-Mrs. Patterson. On May 25, 1930, Barnes visited Mrs. Patterson and negotiated an agreement which was incorporated in a written contract dated June 4, 1930. Pursuant to that agreement, there was issued to her 2,000 shares of class A common stock and 10,000 shares of class B stock of the General Industrial Foundation and she deposited with the General Industrial Founds tian 600 shares of Curtis Publishing Company stock to be used as collateral for loans. It was provided in the agreement that the Curtis stock should not be sold and that she should receive the dividends thereon.

It does not appear that the appellant Suffern knew Mrs. Patterson or had any conversations with any one about her prior to May 25, 1930, which was almost three months after the corporation was organized. At that time Barnes suggested to him the possibility of obtaining Curtis stock of Mrs. Patterson to be used as collateral and Suffern was present when the contract of June 4th was executed. On June 18th further stock of the Curtis Publishing Company was turned over by Mrs. Patterson to General Industrial Foundation. An agreement was made on that day which was changed slightly by a third agreement dated the 19th, the result of which was that all the stock so deposited by Mrs. Patterson with General Industrial Foundation could be sold by the corporation. The corporation, however, was to continue to pay her the dividends on the Curtis stock or their equivalent and if she did not elect to take stock of the General Industrial Foundation in lieu thereof was obligated to repurchase the Curtis stock, if sold prior to the expiration of the agreement, through sale of such part of her General Industrial Foundation stock as might be required, and to retransfer to her the Curtis stock.

It should be noted that while the agreements of July 18th and 19th covered the 600 shares of stock referred to in the agreement of June 4th, and permitted a sale of the stock, whereas the first agreement prohibited a sale, the crime alleged in the indictment has reference only to the 600 shares covered by the June 4th agreement.

Until July, 1931, the General Industrial Foundation continued to pay to Mrs. Patterson the dividends on the Curtis stock. It appears that from the time when she made her first purchase of 35 shares, she was kept informed in a general way as to what was being done by the corporation and its officers, that she visited the offices frequently and had frequent consultation with its officers and employees and that she also corresponded with them.

After July 19th the corporation, which had previously been using the Curtis stock as collateral, began to sell the stock and put the money into the corporation treasury. The appellants each were paid substantial salaries, Dyche was paid a commission for the sale of the stock to Mrs. Patterson and also received compensation to the extent of about $1,600 in connection with the stock issued to her pursuant to the agreement of June 4th. There is no sufficient evidence to show that appellants Suffern and Dawson ever received any money in excess of the salaries voted to them by the board of directors or that Dyche received other than what was paid to him in connection with stock sales and the stock issued to Mrs. Patterson. There is, therefore, no proof to support the charge in the indictment that after the sale of the 600 shares of Curtis Pubhshing Company stock, the appellants “ did cause the said corporation called General Industrial Foundation to pay to them the said defendants the proceeds procured by the sale of the said 600 shares of stock of the said Curtis Pubhshing Company.” It fairly appeared that the money received from the sale of the Curtis stock was expended by the corporation in the investigation of various enterprises which it was endeavoring to promote, in efforts to sell its stock and to provide financing for its various projects. It fairly appeared that Mrs. Patterson at the time she made her first sale knew that this corporation was a new one and that its purpose was to furnish engineering advice and assistance and to invest in corporations which it was assisting and developing. Mrs. Patterson says Dyche did not tell her about the interest of the corporation in the Western Empire Mines when he was negotiating with her and that Barnes did not when he made the first sale to her. Barnes, who was the principal witness for the State, testified before the Attorney-General that he told her about the interest of the corporation in the Western Empire Mines within ten days of the first sale and before he negotiated the transaction which resulted in the agreement of June 4th. On the trial he said he thought it was a later date, that he told her about the mine, but he would not deny that it was on May 25th, and admitted that his recollection was better at the time when he appeared before the Attorney-General. It is apparent from the testimony and also from a letter which she admitted having received from Barnes about January, 1931, that at some time prior to that date she was informed of the interest of General Industrial Foundation in the mines.

It is the theory of the People that General Industrial Foundation was organized in pursuance of a plan to obtain Mrs. Patterson’s stock. The only indications of the correctness of that theory must be deduced from the facts that Dyche, Barnes and White endeavored to sell her mining stock; that the new corporation did take an interest in the mine; that shortly thereafter Dyche and Barnes sold her stock in the new corporation; and that the only asset which the new corporation had at the time was the stock in Western Empire Mines. Mrs. Patterson admitted that when she bought the stock she knew what stock of the General Industrial Foundation had been sold. In so far as Suffern is concerned, there is nothing to indicate that he ever heard of Mrs. Patterson prior to the organization of the corporation. The only theory upon which it can be said that Mrs. Patterson was cheated or defrauded is that at the time when the agreement of June 4th was made the stock of General Industrial Foundation had no substantial value or at least that it was represented to have a value equal to the Curtis stock and did not in fact have that value, and further that the agreement constituted an exchange of stock. As to whether the stock had any value depends, of course, upon whether or not the stock of Western Empire Mines had value. If the latter stock had a value equal to the stock of the foundation issued in exchange therefor, then the new corporation was not damaged from a financial standpoint by that transaction and when Mrs. Patterson took the stock of General Industrial Foundation in exchange for her 600 shares of Curtis stock, if it be deemed an exchange, the corporation became possessed of an asset which made the stock issued to her of the value of that asset. The agreement of June 4th on its face was simply a transaction whereby in consideration of the issuance of certain shares of its own stock, the foundation acquired the right to use the Curtis stock as collateral. There is nothing illegal or improper in that agreement and it would only be illegal in effect if used as a subterfuge to obtain possession of the Curtis stock. The only part which the agreements of July 18th and 19th and the subsequent sale of the Curtis stock occupy in the transaction, in so far as the crime charged in the indictment is concerned, to wit; cheating and defrauding the complainant by obtaining her stock, is to indicate the purpose in obtaining the stock in the first instance. The agreements of July 18th and 19th on their face are legal and, if not tainted with fraud, gave to the corporation the right to sell the stock and even if the agreements in question were part of a fraudulent scheme, these defendants could not be convicted of fraud but could only be convicted if they participated in a conspiracy by which the fraud was perpetrated. Barnes, the principal witness for the State and a defendant who has pleaded guilty, testified that there was no agreement between himself and any of the others to make any false representations. Mrs. Patterson testified that Dyche told her about the company except that he did not mention the gold mine. Dyche was not asked about his representations to her. Barnes testified that when the first sale of stock was made to her he did not mention the gold mine but he testified before the Attorney-General, as above mentioned, that within ten days of that sale and before the agreement of June 4th was negotiated he did tell her of the interest of the corporation in the gold mine. It does not appear that Dawson ever saw Mrs. Patterson until about July, 1931, over a year later. His letters along the latter part of July, 1930, indicate that he knew that Mrs. Patterson might furnish capital but there is nothing to indicate that he knew about any representations made to her. Barnes admitted at one place in his testimony that he did not mention the gold mine, but there is no proof that Suffern knew that fact. Dyche’s connection with any negotiations with Mrs. Patterson ended with the first sale of stock to her and he had nothing to do with the formation of the corporation.

Mrs. Patterson’s testimony and the loss which she suffered are conclusive proof that she made an investment which was wholly unwise, but her testimony fails to establish any conspiracy. Barnes’ testimony, while tending to prove that there was an agreement that Mrs. Patterson was not to be told about the mining property, is belied by the fact that he testified before the Attorney-General that he did tell her and to some extent by the fact that while she testified herself that she did not know about it until a later date, she admitted receipt of the letter written much earlier mentioning the property and indicating that she had previous knowledge of it. The proof fails in the following particulars:

(1) There is no proof direct or circumstantial indicating that the corporation was formed in pursuance of a plan to obtain complainant’s stock.

(2) There is no proof that the mining stock did not have a value so that it constituted a substantial asset of the corporation, at least as a project capable of development and of the type which the corporation was organized to develop. It also was shown that a large amount of money had already been invested in its improvement when it was acquired by the corporation; that it did show production during its operation by the corporation; and that it was thereafter operated profitably by others.

(3) There being no proof as to the value of the mining interests, there is no proof that in acquiring the Curtis stock, the stock of the foundation issued to Mrs. Patterson was not of a value equal to the Curtis stock.

(4) There is no proof that the foundation was not a going concern. It was organized for a particular purpose known to Mrs. Patterson and it was functioning along the lines for which it was organized.

(5) There is no proof that the defendants personally profited or that the money received from the sale of the stock was paid over to them as charged in the indictment. It affirmatively appears that Dawson did not meet Mrs. Patterson until long after the event or that he had any part in any misrepresentations or agreement to make misrepresentations as to the value of the stock of the foundation. There is no proof that Suffern met Mrs. Patterson before her first investment in the corporation or knew anything about what was said to her by Dyche or Barnes. While Dyche sold her the first stock, he had nothing further to do with sales or representations made to her and he was not a party to the transaction which resulted in her turning over the 600 shares. Whatever representation Barnes made or facts which he withheld are unimportant without proof that he and the appellants were conspiring together. The fact that he has pleaded guilty is no proof of the guilt of these appellants.

It is quite apparent that Mrs. Patterson was led into making an unwise investment and that she unwisely gave up her Curtis stock to be used to finance the foundation. It is probable that she was led into so doing by the enthusiasm of the defendants as to the probable success of the new corporation, but we believe that the record establishes that the appellants were honest in their expectations of success for the corporation and that the complainant was generally conversant with the fact that it was anew corporation, that its success was dependent upon projects to be developed and that it had to be financed from the outset. The object for which she transferred her Curtis stock to the corporation, namely, to permit it to obtain funds, would indicate that she must have known that the funds were to be used in the work of the corporation and that the only prospect of its being able to return her stock was it ability to make money. It would not make any difference whether the stock was sold or used as collateral. It could not have been returned in either event unless profit resulted. She expected those profits to develop, and so did appellants. We fail to see how it can be held that the evidence established beyond a reasonable doubt that complainant was cheated or defrauded, as the result of a conspiracy in the sale of the original block of 35 shares or in the transfer of the 600 shares of Curtis stock. There is no evidence to connect Dyche with the agreement of June 4th, by which the 600 shares were obtained. While Suffern did join in the negotiation of that agreement, there is no proof of any misrepresentations on his part or agreement with others to misrepresent, and Dawson apparently had no connection with that transaction, his only connection being with the organization of the foundation. Regardless of the question of whether the indictment is or is not sufficient and regardless of the alleged errors in the charge, the conviction cannot be sustained for the reason that the evidence does not warrant a finding beyond a reasonable doubt that appellants were guilty of the crime charged. We have not overlooked the fact that where the charge is conspiracy it is not necessary as a matter of law that there should be direct, positive evidence, but that a jury is justified in finding a conspiracy where all the facts and inferences, although circumstantial, indicate the purpose and intention of the defendants to conspire to commit a crime and in furtherance thereof perform overt acts.

Circumstantial evidence to justify the inference of guilt must exclude to a moral certainty every other reasonable hypothesis. It is of no value if consistent with either the hypothesis of innocence or the hypothesis of guilt. It is not enough if the hypothesis of guilt will account for all the facts proven. (People v. Razezicz, 206 N. Y. 249, 273.) The most that could be said here would be that the hypothesis of guilt would account for the facts proven. We believe that as a matter of,, law they are consistent, also, with the hypothesis of innocence and, therefore, that the issue was improperly submitted to the jury. The defendants were doing nothing more, in their crude way, than was being done in every case where a management trust was organized, the purpose of which was to permit the management to use the money paid in by stockholders for the purpose of investment, with the expectation that the ability of the managers would enable them to use the fund in such a way as to produce a profit to be paid to the stockholders by the way of dividends. It has never been suggested that such trusts, although based purely upon the expectation of the ability of the managers to so use the funds of" the stockholders as to produce a profit, constituted illegal transactions. Some of those trusts have not proved to be advantageous to the stockholders. In many instances such failure has not resulted from lack of ability in the managers but from the financial depression following the organization of such trusts. If the defendant Suffern and his associates honestly believed that their great ability would enable them to accomplish the purposes which they had in view, and they sold the stock of the corporation to carry out that honest purpose, and the purchasers of the stock knew of the purpose, there could be nothing illegal in such sales. Of course, the first assets of all such corporations consist of the first moneys received for stocks sold.

The judgment of the Appellate Division and that of the Court of General Sessions should be reversed and the indictment dismissed.

Crane, Ch. J., Lehman, O’Brien, Crouch and Loughran, JJ., concur; Finch, J., not sitting.

Judgments reversed, etc.


author: Loughran, J.

text:
    Margreth C. Rasmussen, Appellant, v. New York Life Insurance Company, Respondent.
    (Argued March 7, 1935;
    decided April 16, 1935.)

      Horace M. Gray and Irving L. Evans for appellant.

      Louis H. Cooke and Ferdinand H. Pease for respondent.
   Loughran, J.

A policy of insurance issued by defendant upon the life of plaintiff’s husband stipulates for payment to plaintiff of twice its face amount in the event that the death of the insured resulted directly and independently of all other causes from bodily injury effected solely through external, violent and accidental means.” This is an action to recover the double indemnity so to be paid. It is conceded that the insured died from carbon monoxide poisoning; ” that carbon monoxide is a poisonous gas; ” and that, within the foregoing term of the policy, death was the result of accident, without contributory cause.

The policy further provides: “ Double indemnity shall not be payable if the insured’s death resulted from * * * the taking of poison or inhaling of gas, whether voluntary or otherwise.” Unless ineffective for reasons in the record, this exception defeats plaintiff’s recovery. (Osburn v. Commercial Travelers Mut. Acc. Assn., 265 N. Y. 671.)

At the trial plaintiff offered in evidence a pamphlet which had been inclosed and delivered with the policy. The trial court sustained defendant’s objection that the issue was circumscribed within the four corners of the policy, and dismissed the complaint. The question is whether that ruling was right.

The policy is dated March 26, 1928. The pamphlet is entitled, 1927 in a Nutshell * * * Printed by New York Life Ins. Co. [defendant] N. Y. city.” It reads in part: Double indemnity for accidental deaths. Experience of the New York Life in 1927, the tenth year of this feature. Double indemnity added $1,983,060.01 to the amounts otherwise payable. Who can say that this feature is not valuable? Causes of death: * * * Carbon Monoxide 16. * * * ” Plaintiff testified that, in the course of solicitation of the insurance, defendant’s agent suggested double indemnity and left similar pamphlets with her husband.

The document offered by plaintiff is thus probative of the fact that the general words of this policy were used by both insurer and insured to connote accidental death by carbon monoxide as among the contingencies in which double indemnity would be paid. This mutual purpose, we think, is not made irrelevant by the exception for death by poison or gas. Had the excluded evidence been admitted, the jury could have found that the insured was induced to accept the policy by a clear assertion that death by carbon monoxide was not to be understood as death by poison or gas within the exception to the provision for double indemnity in the event of fatal accident. The words of exception are not so explicit that their scientific sense must be held to exclude a definite agreement that a particular situation is outside their operation.

“And even where the writing is not ambiguous on its face, the circumstances under which the parties contract may be looked at * * * to indicate the proper choice of possible meanings; and the common knowledge and the understanding of the parties * * * is sometimes such a circumstance.” (American Law Institute, Restatement of Contracts, § 242.) If this policy was accepted on the faith of a not incongruous dictionary of its terms supplied by defendant, there is no reason for denying effect to such substantial evidence of a mutual special sense of the parties. (5 Wigmore on Evidence [2d ed.], §§ 2463, 2465.) (Cf. Ruse v. Mutual Benefit Life Ins. Co., 23 N. Y. 516; Fowler v. Metropolitan Life Ins. Co., 116 N. Y. 389; Untermyer v. Mutual Life Ins. Co., 128 App. Div. 615.)

Defendant contends that its agent was not authorized to solicit business upon the basis of any pamphlet or to deliver any word-book of the policy. That question also is one of fact. It is undisputed that these circulars were printed by defendant and were made available by it to those employed to sell its contracts.

For these reasons, we are of opinion that the ruling made at the trial was error.

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

Crane, Ch. J., Lehman, O’Brien, Hubbs, Crouch and Finch, JJ., concur.

Judgments reversed, etc.


text:
    The People of the State of New York, Respondent, v. Cornelius Ryan, Appellant.

      (Submitted February 28, 1935;
    decided April 16, 1935.)

      Frank P. Luongo for appellant.

      William Copeland Dodge, District Attorney (Erwin N Schapira of counsel), for respondent.
   Loughran, J.

A rule of the State Alcoholic Beverage Control Board provided: “ No liquors and/or wines shall be sold * * * upon any premises licensed to sell liquors and/or wines at retail for on premises consumption, during the following hours: 1. Sunday, from 3 A. M. to 2 p. m. * * * A violation of this section shall be a misdemeanor.” In violation of the rule, appellant, on Sunday, January 21, 1934, between twelve and one o’clock in the afternoon, sold three glasses of whisky in premises in the city of New York then duly licensed for the sale at retail of liquors there to be consumed. For this transgression he has been convicted of the crime of unlawfully selling liquors on Sunday at unlawful hours.” The only question here is whether the conviction is warranted by law. -

The applicable statute (since repealed by Laws of 1934, ch. 478) is Laws oFT933, chapters 180 and 819. Chapter 180, enacted to regulate the brewing and sale of beer and similar fermented malt beverages, became effective April 12, 1933. It was amended and supplemented by chapter 819, so that the manufacture and sale of liquors and wines as therein defined would be subject to regulation coincidentally with the effective date of repeal of the Eighteenth Amendment to the Federal Constitution (Ch. 819, §§ 1, 3). The statute created the State Alcoholic Beverage Control Board (Ch. 180, art. II) with power to adopt rules and regulations for the supervision and regulation of the manufacture and sale of beer throughout the state not inconsistent with law ” (Ch. 180, § 17, subd. 7), and to adopt such rules and regulations and issue such orders for the control and regulation of the manufacture, sale and distribution of liquors and wines, including * * * the hours and days and conditions of their sale, as will effectively insure temperance in the consumption of liquors and wines in the state and promote obedience to law and order ” (Ch. 819, § 1 [132-a, subd. 2(e)]). At the time here in issue, all provisions of the statute relative to beer, except as otherwise expressly provided, applied to the sale of liquors and wines (Id.). The State Board thus had authority to make the rule in question without annexation of a penalty.

The statute made violation of any of its provisions a misdemeanor where punishment was not otherwise provided (Ch. 180, § 97, subd. 3). It set up a County Alcoholic Beverage Control Board in each county of the State, except in the counties comprising the city of New York, where it established a New York City Alcoholic Beverage Control Board with the same powers, functions and duties for that city as a county board had for its county. (Ch. 180, arts. Ill and IV.) The sole provision of the statute fixing hours of sale was section 89 of chapter 180T At the date here involved that section read: No beer [and so no liquors or wines (Ch. 819, § 1)] shall be sold in this state on Sundays between three antemeridian and noon, or on election day between three antemeridian and six postmeridian. The sale of beer [or liquors or wines] in any county may be further restricted as to hours of sale by the appropriate county board, or may be prohibited on Sundays. It shall be unlawful to sell beer [or liquors or wines] during such hours as are prohibited by such board.” Appellant’s act did not infringe this provision of the statute. There is neither allegation nor proof of any rule of the Board for the city of New York.

The statute further provided: “ Violation by any person of any rule of the state board shall be a misdemeanor if such rule so provides and if such rule shall be published in a manner prescribed by such board ” (Ch. 180, § 97, subd. 4). Unless this provision was valid, the conviction of appellant cannot stand. The attempt thus to commit to the unrestrained volition of an administrative board so essentially a legislative function as the definition of a substantive criminal offense was quite obviously without effect. (N. Y. Const. art. III, § 1; Penal Law, § 22; Matter of Mandel v. Board of Regents, 250 N. Y. 173, 176. See the authorities collated in 3 Willoughby on the Constitutional Law of the United States [2d ed.], § 1085, and in 35 Harv. L. Rev. pp. 952-956.)

The judgments should be reversed, and the information dismissed.

Crane, Ch. J., Lehman, O’Brien, Hubbs, Crouch and Finch, JJ., concur.

Judgments reversed, etc.


text:
    Sadie Markson, Appellant, v. Markson's Furniture Stores, Inc., Respondent.

      (Argued March 14, 1935;
    decided April 16, 1935.)

      Willard R. Pratt for appellant.

      Ralph Shulman for respondent.
   Finch, J.

This is an action brought upon an agreement made in April, 1929, whereby the defendant, a domestic corporation, promised the plaintiff that if she survived her husband it would pay her the sum of “ One Hundred Dollars ($100.00) each and every week during her natural life or as long as she or any of her descendants, owned any of the stock of Markson’s Furniture Stores, Inc.” The plaintiff alleges that on the 22d day of June, 1929, her husband died and thereafter the defendant duly performed said contract until the 23d day of July, 1932, at which time the defendant refused to continue the payments. The plaintiff also alleges that upon the death of her husband she became the owner of his shares of stock in said corporation and is now the owner and holder thereof.

The defendant admits the execution of the agreement, the death of Louis Markson, the husband of the plaintiff, that the plaintiff is a stockholder of the defendant corporation and that the defendant paid the plaintiff as alleged. In addition, the defendant alleges, by way of confession and avoidance, that the contract is without consideration and unconscionable, and sets up as a counterclaim a demand for the repayment of the sum of $15,900 paid to the plaintiff pursuant to the agreement. The defendant also sets up a separate defense and counterclaim, on the ground of ultra vires.

Upon the trial it appeared that the defendant was a family corporation, the stock of which was entirely held by the Markson family. Louis Markson, the husband of ' the plaintiff, held corporate stock of the value of $90,000. His brother Samuel held $90,000. Another brother, Isaac Markson, held $3,000, and E. Tuder Williams, a son-in-law of Louis Markson, held $10,000. The buildings and real estate occupied by the corporation were owned jointly /by Louis and Samuel Markson, subject to the inchoate rights of dower of their wives, Sadie Markson and Ida Markson, and leased by them to the defendant at a i rental of $12,000 a year.

On March 25, 1929, at a meeting of the board of directors, a new lease was proposed for the property occupied by the corporation, at the same rental which it had theretofore been paying; a proposed agreement was signed for the purchase of the stock of E. Tuder Williams; proposed agreements between the corporation and Sadie Markson, the plaintiff herein, and Ida Markson, the wife of Samuel Markson, were discussed, and the meeting adjourned for the purpose of communicating with Isaac Markson, the absent director, as to whether these agreements should be executed. On April 8, 1929, a meeting was held, at which Samuel Markson reported that he had communicated with Isaac Markson and “ everything was all satisfactory.”

It appears from the minutes of April 8th that a five-year lease, with privilege of renewal for five years by the lessee, between the corporation and Louis and Samuel] Markson and their wives, was ratified and confirmed: j The minutes show that the agreements between the corporation and the wives of Louis and Samuel Markson were duly signed and executed, Louis Markson signing on behalf of the corporation in the agreement with the wife of Samuel Markson, and Samuel Markson signing for the corporation in the agreement with this plaintiff. The agreement with the plaintiff is as follows:

Whereas, Markson’s Furniture Stores, Inc., a domestic business corporation of Utica, N. Y., has this day executed a lease with Louis Markson, Samuel Mark-son, Sadie Markson and Ida Markson, owners of the property and building which said corporation now occupies and,
“ Whereas, Sadie Markson, Ida Markson, Louis Mark-son and Samuel Markson, owners of said property, rented said property to Markson’s Furniture Stores, Inc., at a reduced rental for a term of years, and,
Whereas, Sadie Markson has performed numerous and varied services for said corporation,
Now, therefore, in consideration of One Dollar ($1.00) and other good and valuable consideration and in consideration of the covenant heretofore described it is hereby mutually understood and agreed between the parties hereto that after the death of Louis Markson, if his wife Sadie Markson shall survive him, the said Mark-son’s Furniture Stores, Inc., shall pay and hereby agrees to pay to the said Sadie Markson the sum of One Hundred Dollars ($100.00) each and every week during her natural life or as long as she or any of her descendants own any of the stock of Markson’s Furniture Stores, Inc. It being understood that the stock referred to which the said Sadie Markson or her descendants or heirs may own shall be the stock or part of the stock now owned by Louis Markson, her said husband.
“It is further mutually understood and agreed that the said Sadie Markson shall not be compelled to perform any services in connection with the operation or carrying on of said business. It being hereby understood and represented that the said Sadie Markson is entitled to said sum of One Hundred Dollars ($100.00) per week as aforesaid for the services she and her said husband are rendering to said corporation.”

It is clear that there was ample consideration for the agreement. The contract expressly recites as consideration the leasing of the property at a reduced rental. No attempt has been made to contradict this, the defendant merely pointing out that the rental remained unchanged. Considering that the corporation was given a long-term lease at the same rental as before, in the face of a rising market, it is evident that there was consideration adequate to support the contract. The plaintiff joined in the lease and was a party to the contract. Even if no consideration moved from the plaintiff, there was sufficient conjsideration in the making of the lease by her husband |to support the promise to the plaintiff. (Rector, etc., St. Mark’s Church v. Teed, 120 N. Y. 583; Seaver v. Ransom, 224 N. Y. 233; Buchanan v. Tilden, 158 N. Y. 109; Lawrence v. Fox, 20 N. Y. 268.)

The defense of ultra vires is also of no avail. In view of the fact that these very premises were utilized as the place of business of the defendant and have been so used for several years, no question of ultra vires would seem to arise. Furthermore, it appears that express assent to the contract was given by all the stockholders except Isaac Markson, who held but $3,000 of the shares in this $250,000 corporation. Isaac Markson tacitly assented to payments made under the contract for a period of three years and, therefore, is estopped by loches to object at this time. (Kent v. Quicksilver Mining Co., 78 N. Y. 159.)

In discussing the principle involved, Judge Folger said: “ The instance put in Bissell v. Mich. So., etc., R. R. Co. (22 N. Y. 269) is illustrative. A bank has no authority from the State to engage in benevolent enterprises; and a subscription, though formally made, for a charitable object would be out of its powers; but it would not be otherwise an illegal act; yet if every stockholder did expressly assent to such an application of the corporate funds, though it would still be in one sense ultra vires, no wrong would be done, no public interest harmed; and no stockholder could object, or claim that there was an infringement of his rights, and have redress or protection.” (Kent v. Quicksilver Mining Co., supra, at p. 186.)

The court at Special Term relied upon the case of Alexander v. Equitable Life Assur. Society (233 N. Y. 300). The resemblance between that case and this is superficial only. There, as here, the corporation agreed to pay an annuity to the wife of one of its officers; but with that the similarity ends. The only consideration cited in the Alexander case was services already rendered and future services which Alexander was.already bound to perform. No valid consideration having been given for it, the contract was declared unenforceable. In that case there was also lacking the element of express consent or estoppel.

The cases of Caldwell v. Mutual Reserve Fund Life Asn. (53 App. Div. 245) and Beers v. New York Life Ins. Co. (66 Hun, 75) are also not in point. In both those cases it was decided that the contracts made by the insurance company worked a fraud upon the policyholders. In the case at bar the contract was not made in fraud of creditors. It may be that the rights of the assenting stockholders have been impaired by the contract, but there is no evidence that it endangers in any way the rights of creditors.

It follows that the judgments should be reversed and judgment directed for the plaintiff, with costs in all courts.

Crane, Ch. J., Lehman, O’Brien, Hubbs, Crouch and Loughran, JJ., concur.

Judgment accordingly.


text:
    Village of Depew, Respondent, v. Town of Cheektowaga, Appellant.
    (Argued March 8, 1935;
    decided April 16, 1935.)

      George B. Doyle for appellant.

      Deane H. Adrew and Frederick T. Sherwood for respondent.
   Finch, J.

This action was brought by the plaintiff village to obtain a portion of the moneys received by the defendant town from the County Treasurer during the years 1927 to 1932, inclusive, on account of the distribution of corporation franchise tax moneys as between a town and a village within a town. These tax moneys are collected and apportioned by the State, under the Tax Law (Cons. Laws, ch. 60, art. 9-A). Two-thirds of this franchise tax collected in the village of Depew is paid by the State Comptroller to the State Treasurer for general fund purposes. The remaining one-third is paid to the Treasurer of the county of Erie. His duty is to distribute this one-third between the village of Depew and the town of Cheektowaga, as provided in the Tax Law (§ 219-h).

The plaintiff claims that the County Treasurer has paid to the defendant more than its proportionate share of this franchise tax. The trial court rendered a judgment against the defendant in the sum of $251.29, which is the amount the defendant concedes it received over and above the amount to which it was entitled. In addition, the plaintiff village claims varying amounts due to it from the defendant town, according to its view of the proper method of distribution pursuant to the command of the statute which is here presented for interpretation. The Appellate Division modified the decision of the trial court by awarding to the plaintiff the sum of $1,318.07, with interest, thereby adopting the most favorable interpretation claimed by the plaintiff.

The decision in this case hinges entirely upon what is meant by the words in the statute, “ taxes raised * ' * * for * * * town purposes,” as contained in section 219-h, subdivision 4, of the Tax Law. The trial court held that the foregoing phrase included all taxes raised in the town for all purposes, including the highway tax and the special district tax. The Appellate Division, on the other hand, decided that the words, “taxes raised for town purposes ” included such “ taxes [as were raised] for town expenses levied throughout the town, and exclude taxes levied by districts, * * * and also exclude highway taxes.” (242 App. Div. 480, 481.)

The pertinent portion of the statute is as follows:

“4. In making such payment to a county treasurer, the state comptroller shall indicate the portion thereof to be credited to any city or town within the county on account of the location therein of its principal financial office or property * * *; if such principal financial office or property is located in a village, there shall be paid to such village as hereinafter provided such a part of the entire amount credited to the town as the entire amount of taxes raised by said village, or portion thereof in said town, during the preceding calendar year for village and town purposes bears to the aggregate amount so raised by the town and village during the preceding calendar year for town and village purposes.”

Obviously this statute establishes a fraction to be employed as a basis for the division. The town must return to the village the same proportion of taxes credited to it as “ the entire amount of taxes raised by said village, or portion thereof in said town, * * * for village and town purposes,” bears to the entire amount raised by the town and village “ for town and village purposes.” The standard thus set up is a simple one. Problems of construction, however, arise as to the meaning of its constituent terms.

Difficulty was first encountered in connection with the numerator of this fraction. For a number of years the practice had been to limit the numerator, namely, the entire amount of taxes raised by said village * * * for village and town purposes,” to taxes which were raised by the said village solely for village purposes. Finally in the case of Village of Elmira Heights v. Town of Horseheads (234 App. Div. 270; affd. without opinion, 260 N. Y. 507) this view was challenged with the result that the Appellate Division, in that case, held that the numerator should include not only taxes raised by the village for village purposes, but also the taxes raised in the village for town purposes. This result was approved by this court (Village of Elmira Heights v. Town of Horseheads, supra).

The case now before us concerns the denominator of that fraction. The question is whether the denominator shall include all the taxes raised in the town, or only the taxes raised for purely town expenses, excluding taxes raised in special tax districts and for highway purposes. It would seem that the same principle which has been applied to the numerator should be applicable also to the denominator, so that both sides of the fraction should embrace the same governmental services. Taxes raised by the village for all governmental services and functions within the village are included in the numerator. The plaintiff village contends, however, that the tax “ for town purposes ” means something less than the whole town budget. The fact that some of the town tax items are raised and spent against property by districts for the purpose of allocating the tax burden to the property benefited does not alter their essential character as taxes raised for governmental purposes within the town and thus " for town purposes.” The latter phrase includes all those taxes raised in the town for the purposes of the government of the town throughout the territory included within the town limits. (Town of Amherst v. County of Erie, 260 N. Y. 361.) Therefore, the denominator should contain all the taxes raised by the town for governmental purposes, which includes all the taxes raised by the town. As Judge Hubbs, writing for this court in Town of Amherst v. County of Erie (supra, at p. 373), said: “ * * * the purposes for which the money [is] sought to be obtained * * * in this case are governmental. Furthermore, they are for the purposes of a town, which like a county is a corporation formed for the purpose of carrying on local government as a political subdivision of the State, to which is delegated certain governmental duties by the State in order that the governmental duties of the State may be carried on to the best advantage of ¿11 the people of the State.”

It follows that the judgment of the Appellate Division should be reversed and that of the Special Term affirmed, with costs in this court and in the Appellate Division.

Crane, Ch. J., Lehman, O’Brien, Hubbs, Crouch and Loughran, JJ., concur.

Judgment accordingly.