author: Thacher, J.

text:
    C. W. Munn, Appellant, v. Robert Boasberg, Respondent.
    Argued December 2, 1943;
    decided January 13, 1944.

      William J. Sernoff sky for appellant.
    I. Plaintiff having proved that the check was delivered for a special purpose, and the check having been diverted from that purpose, the burden is on the defendant to show that he is the holder in due course. (Negotiable Instruments Law, § 98; Canajoharie Nat. Bank v. Diefen-dorf, 123 N. Y. 191.) II. The defendant cannot be a holder in due course because he is the payee of the check. (142 A. L. B. 489; Jones v. Waring é Gillow [1926] A. C. 670.) III. Even if it is assumed that the owner may be the holder in due course, the court below erred in holding as a matter of law that the defendant was a holder in due course. (Hathaway v. County of Delaware, 185 N. Y. 368.)

      Charles J. McDonough and Daniel J. O’Brien for respondent.
    I. The payee of a negotiable instrument may be a holder in due course. (First Nat. Bank & Trust Co. of Elmira v. Conso, 169 Mise. 268; Brown v. Brown, 91 Mise. 220; Empire Trust Co. v. Manhattan Co., 97 Mise. 694, 180 App. Div. 891; Bergstrom v. Rits-Carlton Restaurant & Hotel Co., 171 App. Div. 776, 220 N. Y. 569; Miller v. Campbell, 173 App. Div. 821; Boston Steel & Iron Co. v. Steuer, 183 Mass. 140; Drumm Constr. Co. v. Forbes, 305 Ill. 303; Mac Ar dell v. Olcott, 189 N. Y. 368; 15 A. L. B. 437; 21 A. L. B. 1365; 26 A. L. B. 769; 32 A. L. B. 289.) II. Plaintiff proved no defect in title to the check. The burden of proof never shifted to the defendant. (Negotiable Instruments Law, § 98.) III. Plaintiff must prove actual bad faith on the part of the defendant. (Negotiable Instruments Law, § 95; National City Bank v. Cold Mix, 1 N. Y. S. 2d 459; Continental Cas. Co. v. Aetna Cas. Co., 251 App. Div. 467; Cheever v. Pittsburgh 8. & L. E. R. R. Co., 150 N. Y. 59; Sabine v. Paine, 166 App. Div. 9; Dutch v. McMahon, 219 App. Div. 203.) IY. Upon all the evidence, defendant was clearly a holder in dne course. Plaintiff failed to meet his harden of proof. Instruments Law, § 51; National City Bank v. Waggoner, 243 App. Div. 270 N. Y. 592.)
   Thacher, J.

Plaintiff-appellant brought suit to recover from the defendant the sum of $775, the amount of a check drawn to defendant’s order by the plaintiff. The defendant was president of the Blossom Heath Country Club on Sheridan Drive in the town of Amherst. It owned a golf course, a clubhouse and considerable acreage of land. On a Saturday afternoon in January of 1942, one George Shuman, who owned the capital stock of the Country Club, called on the defendant and told him that the utility companies were threatening to discontinue service at the Country Club and that their bills would have to be paid that day to prevent the loss of a great deal of money-owing to freezing of pipes, et cetera. Shuman said that, if the defendant would loan him the money, he would be sure to pay it back on the following Monday. The defendant gave Shuman a check to his order in the sum of $766.95 on this understanding and upon Shuman’s statement that a friend of his owed him some money and that he could get hold of this friend on Monday and get the money back to Boasberg. On Monday Shuman did not repay the defendant but promised to do so on Tuesday, when he brought the plaintiff’s check drawn to the defendant’s order in the sum of $775.

Earlier on that day Shuman went to the plaintiff and told him that he was in desperate circumstances with his Country Club, was negotiating with the Curtiss-Wright people for a lease, and if certain deposits were not paid, the utilities people would make trouble and the trust company which held the mortgage would start foreclosure proceedings. He feared the contract with the Curtiss people would be jeopardized and pleaded with the plaintiff to pay up these deposits. Upon these representations and to provide for these payments, the plaintiff gave his check for $775 to Shuman, who requested that it be drawn to the order of Boasberg, who he said was president of the company. This was the check which Shuman delivered to Boasberg, in payment of Shuman’s personal indebtedness to him.

The theory of the complaint is that the check was given to Shuman to be delivered to the defendant and used for the purposes for which it was requested; that the defendant indorsed the check and converted the proceeds to his own use, and that no part of these proceeds was used for the purposes intended.

Defendant contends that he is a bona fide purchaser for value and a holder in due course of the check which he received from Shuman and applied in payment of Shuman’s personal indebtedness.

At the close of the trial the court struck out the testimony as to what was said between the plaintiff and Shuman when the check was delivered and dismissed the complaint. The plaintiff requested no ruling that he was entitled to recover the amount of the check as matter of law; on the contrary, he asked that the case be sent to the jury to determine whether defendant was a holder in due course, and took an exception to the court’s denial of this request. On this state of "the record there is no ruling which raises the question of plaintiff’s right to recover as matter of lav/. (Kirsch v. Schwartz & Cohn, Inc., 256 N. Y. 7, 11.)

The judgment dismissing the complaint on the merits was affirmed in the Appellate Division, two justices dissenting and voting for a reversal and a new trial on the ground that the evidence raised questions of fact for the jury.

We the court erred in dismissing the complaint and refusing the plaintiff’s request to go to the jury. The check, being drawn by the plaintiff to the order of the defendant, imported on its face that the money represented by it was the plaintiff’s property and that the plaintiff, not Shuman, was paying it to the defendant. Shuman had no apparent title to the check and was therefore to be regarded as the agent of the plaintiff for the purpose of delivering the plaintiff’s check to the defendant. (Hathaway v. County of Delaware, 185 N. Y. 368; Sims v. United States Trust Co., 103 N. Y. 472; Bristol Knife Co. v. First National Bank of Hartford, 41 Conn. 421; Bowles Co. v. Clark, 59 Wash. 336; Apostoloff v. Levy, 186 App. Div. 767, 769.)

The fact was that Shuman had no title and was merely an agent authorized to deliver the check to the defendant, to be used for a specific purpose. The possession by Shuman of the plaintiff’s check drawn to defendant’s order gave no appearance of authority to use the check for his own purposes and the defendant could not in good faith accept the check and apply the'proceeds to the payment of Shuman’s personal indebtedness to him. (Apostoloff v. Levy, supra; Sims v. U. S. Trust Co., supra; Ward v. City Trust Company of New York, 192 N. Y. 61; Wen Kroy Realty Co. v. Public Nat. Bank & Trust Co., 260 N. Y. 84; Wagner Trading Co. v. Battery Park Nat. Bank, 228 N. Y. 37; Porges v. United States Mortgage & Trust Co., 203 N. Y. 181; Bischoff v. Yorkville Bank, 218 N. Y. 106.) This the defendant did without any inquiry as to the authority of Shuman to use the plaintiff’s funds in payment of his own debts. Such use was entirely unauthorized in fact, and it is apparent from the circumstances under which Shuman procured a check from the defendant for $766.95 on Saturday, and another check for $775 from the plaintiff on Tuesday, that Shuman was not only acting without authority but that he fraudulently intended so to act before he procured the plaintiff’s check and to this end obtained it by false pretenses.

Under the provisions of the Negotiable Instruments Law, the burden was cast upon the defendant to prove that he, or some person under whom he claimed, acquired title to the check as a holder in due course (§ 98). This he could not do because the check itself was constructive notice that the funds it represented were funds of the plaintiff which could not be applied in payment of the agent’s personal indebtedness without inquiry of the principal. Such an inquiry might well have disclosed immediately the purpose for which the check was delivered. The defendant was therefore chargeable with knowledge of that fact. Nor is this a case in which a payee of a check could acquire the title of a bona fide purchaser for value. Shuman was not a remitter who had acquired the instrument by purchase, (cf. Armstrong v. American Exchange Nat. Bank of Chicago, 133 U. S. 433, 453.) Nor is there any analogy to the purchase of cashiers’ checks for remittances to payees where it is desirable to use the credit standing of the bank in making payment by check or to the use of certified checks for similar purposes, (cf. Vander Ploeg v. Van Zuuk, 135 Iowa 350, 355.) In such eases the remitter is a purchaser for value of the bank’s promise to pay. Shuman, being an agent, had no title and could confer none on the defendant which would entitle him to apply the proceeds of the check in payment of Shuman’s debt.

The judgments should be reversed and a new trial granted, with costs to abide the event.

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

Judgments reversed, etc.


source: Caselaw Access Project

author: Lewis, J.

license: Public Domain

text:
    The People of the State of New York, Respondent, v. Ben Fein and Abe Cohen, Appellants, et al., Defendants.
    Argued November 22, 1943;
    decided January 13, 1944.

      Harry G. Anderson and Samuel Bader for Ben Fein, appellant.
    There was no evidence to show that the crime was committed in whole or in part in the county of New York, hence it was reversible error for the trial court to deny the motion to dismiss the indictment at the close of the case. (People v. Zimmer, 174 App. Div. 470, 220 N. Y. 597; People v. Spivak, 237 N. Y. 460; People v. McGlean, 243 App. Div. 578; People v. Werblow, 241N. Y. 55.)

      Patrick F. Dempsey, Peter E. Loscalso and Francis E. Vols for Abe Cohen, appellant.
    The trial court had no jurisdiction to submit the count of concealing and withholding to the jury. (People v. Zimmer, 174 App. Div. 470, 220 N. Y. 597; People v. Spivak, 237 N. Y. 460; Allison v. Commonwealth, 83 Ky. 254; State v. Pray, 30 Nev. 206; People v. Staken, 40 Cal. 599; State v. Rider, 46 Kan. 332; Rasch v. State, 5 Cold [Tenn.] 39; Commonwealth v. O’Neil, 10 Penn. Dist. 227; Commonwealth v. Kunsman, 41 Penn. St. 429; Derby on Criminal Law 3d ed., § 1930, subd. 1; People v. Werblow, 241 N. Y. 55.)

      Frank S. Hogan, District Attorney (Bernard L. Alderman of counsel), for respondent.
    I. The crime was committed in New York county. Actual manual or personal possession of stolen goods is not necessary to prove criminal concealment and withholding— constructive possession is sufficient. (United States v. Le Fanti, 255 F. 210, 259 F. 460; People v. Rossi, 15 Cal. App. 2d 180; People v. Silvas, 34 Cal. App. 638; People v. Poncher, 358 Ill. 73; People v. Jurek, 357 Ill. 626; State v. Conklin, 153 Iowa 216; Commonwealth v. Kuperstein, 207 Mass. 25; Price v. State, 9 Okla. Crim. 359; Zejf v. State, 98 Tex. Crim. 623; Long-man v. Commonwealth, 167 Va. 461; 53 C. J. 505; People v. Cosmides, 133 App. Div. 103, 198 N. Y. 566.) II. Constructive possession in New York county was further shown by Fein’s actual possession of the original invoices. (People v. Silvas, 34 Cal. App. 638; Glasser v. State [1921], 90 Tes. Crirn. 116; People v. Bowling, 84 N. Y. 478.)
   Lewis, J.

On the night of March 7, 1941, a sealed truck containing women’s wearing' apparel of value in excess of $5,000 was stolen from a garage in New York County. Although the truck was found the following day, empty and abandoned, the identity of the thieves was not established. Five days later police officers assigned to the case entered a garage in the borough of Brooklyn, Kings County, where they found concealed under a tarpaulin a quantity of wearing apparel which was later identified as the contents of the stolen truck.

A grand jury in New YorJc County thereafter returned an indictment which by four counts charged each of seven defendants named therein with (1) grand larceny in the first degree, (2) criminally buying and receiving stolen property, (3) criminally concealing and withholding stolen and wrongfully acquired property, and (4) conspiracy. The defendant John Doe was never apprehended. Of the remaining six defendants named in the indictment all except the two present appellants pleaded guilty to one of the several counts and were not subjected to further prosecution.

At a trial had in the Court of General Sessions, where the two appellants were convicted under the third count, their right to challenge the jurisdiction of the trial court was preserved by timely and appropriate motions. That challenge — reasserted on this appeal — was directed to the authority of the Court of General Sessions of New York County to render judgment upon an indictment which charged the appellants with having criminally concealed and withheld stolen property “ in the County-of New Yorh ”, when concededly the evidence established that the physical acts of concealment and withholding occurred in Kings County. At the Appellate Division the judgment of conviction has been affirmed. The case is here on appeal by permission of a member of this court. (Code Crim. Pro., § 520.)

When the trial of the indictment against the appellants was moved in the Court of General Sessions of the County of New York — which court has jurisdiction to try all crimes cognizable within said — the sufficiency of the indictment and the power of the court to try the appellants depended upon proof that the crime charged had been committed in New York County. (Code Crim. Pro. § 51, subd. 1, and § 284, subd. 4; and see People v. Spivak, 237 N. Y. 460, 462, 463; People v. Zimmer, 174 App. Div. 470, affd. 220 N. Y. 597; People v. Horton, 62 Hun, 610.)

To sustain the conviction of the appellants the People rely upon evidence which is said to have established that they conducted operations from Fein’s office in New York County which enabled them to exert control and domination over the stolen merchandise in Kings County.

True, there is evidence of operations by the appellants in New York County in furtherance of their efforts to arrange a sale of the stolen merchandise. Long distance telephone calls and telegrams brought prospective purchasers from Texas to Fein’s office in New York County where conferences were had and prices for the stolen merchandise were considered. Arrangements were also made in New York County to inventory the stolen property in Kings County and to secure packing cases preparatory to its shipment. But such evidence does not amount to legal proof of the independent substantive crime charged in the third count of the indictment of which the appellants stand convicted — that they concealed and withheld or aided in concealing and withholding the stolen merchandise “ in the County of New Yorh

In reaching that conclusion we have applied to facts of record here the test suggested in People v. Werblow (241 N. Y. 55, 61): Were the proven acts committed in New York County by either Fein or Cohen, so related to the crime of concealing and withholding stolen property (Penal Law, § 1308) that, if nothing more had followed, their acts would have amounted to an attempt to commit that The People’s evidence does not meet that test. Nor is it enough, in the absence of statutory sanction for such a ruling-, that there is evidence of the exercise by the appellants in New York County of control and dominion over the stolen merchandise then concealed in Kings County which, it is claimed, amounted to constructive possession of the merchandise in New York County. Long ago in this State * * * the abolition of all common-law crimes was accomplished not alone for the advantage of those individuals who might be charged with offenses but also for the benefit of the people of the State.” (People v. Brengard, 265 N. Y. 100, 107; and see People v. Jaehne, 103 N. Y. 182, 192, 193.) No act committed within this jurisdiction is criminal except as prescribed by statute. (Penal Law, § 22.) If evidence of constructive possession of stolen property is to constitute legal proof of criminal concealment and withholding within section 1308 of the Penal Law, the process by which that rule may be established is legislative, not judicial.

The judgments should be reversed and the indictment dismissed.

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

Judgments reversed, etc.


author: Rippey, J.

text:
    Patrick A. Callery et al., Respondents, v. John D. Lyons, Appellant.
    Argued November 22, 1943;
    decided January 13, 1944.

      Lawrence H. Cooke, Nellie Childs Smith and John D. Lyons, in person, for appellant.
    I. If an indorser signs for the accommodation of the payee he is not liable to the payee and the proof here shows that defendant was such an indorser. (Negotiable Instruments Law, § 114; Wittemann v. Sands, 238 N. Franklin v. Kidd, 219 N. Y. 409; Haddock, Blanchard & Go. v. Haddock, 192 N. Y. 499; Horne v. Loughman, 264 App. Div. 124; McAdam v. Wholesale Dry Gleaning & Dyeing Works, Inc., 232 App. Div. 30; Wittemann v. Spencer, 205 App. Div. 855; Easton Furniture Mfg. Go. v. Gaminez, 146 App. Div. 436; Bender v. Bahr Trucking Go., 144 App. Div. 742; Simonowitch v. Schwartz, 67 App. Div. 535; Crawford v. Debevoise-Anderson Go., 136 Mise. 838; Cohen v. Bossmoore, 225 App. Div. 300.) II. Determination of the issues of fact was for the jury. (La Rose v. Donnelly, 219 App. Div. 181; Witte-man v. Sands, 238 N. Y. 434; Higgins v. Bidgway, 153 N. Y. 130; Easterly v. Barber, 66 N. Y. 433; McAdam v. Wholesale Dry Gleaning & Dyeing Works, 232 App. Div. 30; Strasburger v. Strasburger & Go., 167 App. Div. 198; Bender v. Bahr Trucking Go., 144 App. Div. 742; George v. Bacon, 138 App. Div. 208; Simonoivitch v. Schwartz, 67 App. Div. 535; Ollendorf v. Liss-berger, 176 Mise. 661; Franco v. Swartz, 131 Mise. 74; Niagara County Bank & Trust Go. v. La Port, 233 App. Div. 501.) III. Direction by the Appellate Division of judgment in favor of plaintiffs was erroneous. (Carlisle v. Norris, 215 N. Y. 400; Fagan v. Atlantic Coast Line B. B. Co., 220 N. Y. 301; Tortora v. State, 269 N. Y. 167; La Bose v. Donnelly, 219 App. Div. 181.)

      Ellsworth Baker for respondents.
    I. Under the undisputed facts defendant is liable to plaintiffs. Plaintiffs did not request defendant to indorse the note in question. II. There were no issues of fact to be determined by the jury. III. The direction by the Appellate Division of judgment for plaintiffs was proper. IV. The Appellate Division was not in error as to the law applying to an accommodation indorser. (Packard v. Windholz, 88 App. Div. 365, 180 N. Y. 549; English v. Schlesinger, 55 Mise. 584; Isaacs v. Cohn, 10 App. Div. 216, 161 N. Y. 663.)
   Rippey, J.

This action was brought by plaintiffs to recover against defendant upon a promissory note made by Max Zall, dated March 25, 1933, payable, with interest, three months thereafter to the order of plaintiffs at the National Union Bank of Monticello, N. Y., and indorsed in blank in order by Sarah Zall and defendant. The instrument was the end note of a series of renewals of a note originally made by Zall on January 21,1931. for $700, with the same indorsements in order in blank, payable to plaintiffs’ order at that bank, then discounted by plaintiffs at the bank and credited to plaintiffs ’ account. When the renewal note in suit was not paid at maturity, it was protested by the bank for nonpayment and charged into plaintiffs’ account. The maker failed to pay the note and plaintiffs were the owners and holders of the note at the time suit was brought.

In addition to denials which put in issue the essential allegations of the complaint, the answer contains a separate specific defense that the indorsement by defendant was without consideration and solely for the accommodation of Zall and of plaintiffs upon an understanding and agreement that defendant was an accommodation indorser and should not be held liable as an indorser or otherwise upon the note.

App. Div. 208, 209, 210). If upon the whole record the jury were justified in concluding that such an agreement was made or that such an understanding existed, plaintiffs could not recover upon his indorsement.

Upon the record here, the jury were authorized to find that plaintiffs, during the period from 1929 to 1933, were partners engaged in the building supply business at Monticello, N. Y., and were large borrowers on customers’ paper at the National Union Bank of Monticello; that Zall was a building contractor and became indebted to plaintiffs for purchases of supplies; that plaintiffs demanded payment from Zall therefor in cash and that the latter was unable to comply with the demand; that the plaintiffs thereupon requested Zall to execute and deliver his note, with an indorser satisfactory to the bank, to accommodate plaintiffs in discounting the note and in securing additional credit; that Zall requested defendant to indorse the note, defendant discussed the matter with one of the plaintiffs and asked him why the latter desired to have him (defendant) indorse the note and was told that Zall owed them money, that they wanted to use the money, that they had a lot of paper at the hank, that the hank would not be satisfied with the names of Zall and his wife and that they would like to have his indorsement to help them out; that defendant placed his ¡indorsement on the note solely for the accommodation of plaintiffs ; and that there was an understanding or agreement, express or implied, that, as between defendant and the payees, there would he no liability of the former to the latter because of such indorsement. A question of fact was presented upon which reasonable men might draw different inferences as to the intent or agreement between the parties (McAdam v. Wholesale Dry Gleaning & Dyeing Works, Inc., 232 App. Div. 30; Easterly v. Barber, supra; Wittemann v. Sands, supra) and questions of credibility were involved which disabled the court from directing a verdict in plaintiffs’ favor (McDonald v. Metropolitan Street Ry. Co., 167 N. Y. 66, 69, 70).

The conversations and transactions out of which the alleged agreement arose occurred before and at the time of the making, indorsement, delivery and negotiation of the original note. There is no claim that any specific agreement or understanding arose at the time the renewal note in suit was indorsed by defendant. If the agieement was made or understanding between tbs parties was reached when the original note was indorsed by defendant that defendant was a mere accommodation indorser for plaintiffs and that he should have no liability to plaintiffs for the payment of the note and if that arrangement and understanding was in the minds of the parties when the renewal note the one in suit, was executed by Zall, indorsed by defendant and delivered, the conclusion follows, as the court correctly charged, that the agreement or understanding attached to the renewal note (Easterly v. Barber, supra, p. 439).

The judgments should be reversed and a new trial granted, with costs to appellant to abide the event.

LbhmaN, Ch. J., LougheaN, Lewis, CoNway, Desmond and Thachek, JJ., concur.

Judgments reversed, etc.


text:
    In the Matter of the Accounting of Frederick T. Walker, as Trustee of the Estate of Hugh C. Fox, Deceased.
    Argued November 15, 1943;
    decided January 13, 1944.

      Dudley Miller and Paul F. Saurel for appellant.
    I. The discretionary power to pay over principal in paragraph tenth was intended to he exercisable by a successor trustee. (Smith y. Floyd, 193 N. Y. of White, 135 Mise. 377.) II. The power to pay over principal continues in the grantees apart from their legal title as trustees. (Hutton v. Benkard, 92 N. Y. 295; Matter of Cooksey, 182 N.. Y. 92; Chase Nat. Bank. v. Chicago Title & Trust Co., 246 App. Div. 201.)

      Edward M. Swinburne, special guardian, for Sarah E. Fox et al., infants, respondents.
    The discretionary power to pay over principal was vested solely in the original trustees and may not be exercised by a successor or substituted trustee. (26 E. C. L., Trusts, §§ 201, 202; 126 A. L. B., 932; Jones v. Dodge, 69 Mise. 126; Benedict v. Dunning, 110 App. Div. 303; Whitaker v. McDowell, 82 Conn. 195; Matter of Sfencer, 119 Mise. 519; Hull v. Hull, 24 N. Y. 647.)
   Lewis, J.

The will of Hugh Corby Fox, deceased, created a trust which named his son — an only child — as the sole life beneficiary. The two trustees nominated by the testator were also authorized “ if in their discretion they so deem it advisable for his good and benefit” — to transfer to the son stated portions of the principal of the trust when he attained the ages of thirty, thirty-five and forty years. In the course of administering the trust the resignations of the two original trustees have led to the present proceeding in which is presented the question now before us: Was the discretionary power to invade principal for the benefit of the testator’s son intended to be personal to the original trustees and thus to terminate upon their death or resignation?

The tenth paragraph of the decedent’s will provides: “ Tenth: All the rest, residue and remainder of my Estate, both real and personal of every kind and nature and wheresoever situate, I give, devise and bequeath to my Trustees heretofore named, to accumulate the rents, issues and profits thereof, and to pay the net income to my son, Hugh Corby Fox, Jr., during his natural life, giving my Trustees full power, if in their discretion they so deem it advisable for his good and benefit, to pay over and transfer to my son, Hugh Corby Fox, Jr., one-quarter (¾) of the then principal of the Estate upon my son reaching

An accounting by the two testamentary trustees was had in. 1937 at which time one of the trustees resigned. Five years later the present accounting proceeding was instituted, wherein the sole remaining testamentary trustee has been permitted to resign and a substituted trustee has been appointed. .

The question for our decision arises upon a challenge by the appellant to rulings which are made a part of the Surrogate’s decree and which have been affirmed by the Appellate Division, one justice dissenting — that the discretionary power to transfer to the income beneficiary portions of the principal of the trust was personal to the two trustees originally named and terminated upon the resignation of the sole remaining trustee; that the substituted trustee appointed by the Surrogate in the present proceeding has no power or authority to transfer to said Hugh Corby Fox, Jr., any part of the principal of said trust

Whether the discretionary power vested in the two original trustees was a personal commission which may not be exercised by a substitute or successor trustee, depends upon the testator’s intention, to be ascertained from language employed to create the trust, construed in the light of relevant circumstances. We have followed those lines of inquiry and.conclude that the discretionary power here in question was given to the trustees as a part of a testamentary plan, which was incidental to the administration of the trust — not personal to the two trustees originally named.

The testator’s intention manifestly was to assure for his son, the income beneficiary, an additional measure of financial responsibility dependent upon the circumstances of his life. The direction is in effect that if through the years the trustees- in their discretion (shall) deem it advisable for his good and benefit ” that prescribed portions of principal be paid to the son, then such payments shall be made at stated intervals until he attains the age of forty when the portion of the principal then remaining may be transferred to him. If, as the Appellate Division and the Surrogate have ruled, the discretionary power given to the trustees to invade the principal is a personal power, the manifest object of the trust is defeated by the order now before us which permits the resignation of the sole remaining trustee and withholds from the substituted trustee authority to transfer to the testator’s son any part of the principal. We think the decedent’s testamentary plan may not thus be thwarted in the absence of language which dictates such a result.

We find nothing in the will which forecasts the result of the order which we now review — that the two testamentary trustees by abdicating the trust may extinguish the discretionary power to invade the principal in favor of the testator’s son. Inferences reasonably to be drawn from relevant circumstances point to a contrary conclusion. On the date when the will was executed — less than a year before the testator’s death — his son was eighteen years of age. At that time the ages of the two testamentary trustees were respectively fifty-seven and fifty-one years. In the absence of language more explicit than that found in the tenth paragraph, we do not think the decedent intended that the testamentary plan by which he had arranged to benefit his son could be defeated either by the death of the two original trustees or by their resignation. Either of those eventualities might have occurred within but a brief interval after the testator’s death. Indeed, one of those eventualities — the resignation of the two original trustees — has occurred when his son’s age was thirty-five.

We have given careful consideration to the respondents’ arguments, including their chief contention that when the testator directed that payments to his son from principal were to he made “ only at the discretion of my Trustees heretofore named 5 he thereby indicated his intention to limit the exercise of that power to the two original trustees previously named in the tenth paragraph. Such a construction, we think, attaches unwarranted significance to the words “ heretofore named ” and gives hut slight emphasis to “ discretion ” which we believe was intended to be the dominant word of that clause. Nor do we attach controlling significance to the fact that the tenth paragraph contains clauses which ultimately may benefit the widow and issue of his son. When the will was executed the testator’s son — the principal object of his bounty — was not married. True, the will provides that if at the time of his son’s death he shall have been married, his widow and any issue shall take “ the principal of said Trust or the remaining portion thereof ’ ’ in certain proportions. But such a provision is no more than would be expected to accomplish the disposition of the principal or remainder ” of the trust fund-in the event the death of the testator’s son should occur after his marriage.

We hold that under the terms of the will here involved the discretionary power given to the testamentary trustees was not personal to them; that it was not measured by the lives of the two original trustees, nor was it limited by the duration of their service as such fiduciaries; that it may be exercised by the trustee appointed to succeed the testamentary trustee with whose accounting and resignation this proceeding is concerned. (See Smith v. Floyd, 193 N. Y. 683; Restatement of the Law of Trusts, § 196, comment c.)

The order of the Appellate Division, and the decree of the Surrogate’s Court, so far as appealed from, should be reversed, with costs in all courts to the appellant payable out of the fund, and the proceeding remitted to the Surrogate’s Court for further proceedings in accordance with this opinion.

he had before him a problem which he was endeavoring to work out therein. He had a substantial estate and an onlv son who was unmarried and was eighteen years of age. He appointed as executors and trustees two men, to each of whom he referred as a friend. Under the trust created by paragraph Tenth, which has been quoted in the majority opinion and need not be repeated, he made his son the sole life beneficiary. We think the Surrogate was correct in holding that the ultimate purpose of the testator was to benefit a widow and issue of his son, the income beneficiary.

The trustees paid over and transferred to testator’s son one-quarter of the principal when he reached the age of thirty years. The remaining of the two trustees, when the son reached the age of thirty-five years, “ refused to make any further payment of principal ” to him. That trustee has now in turn resigned. To hold that there may be exercised by a substituted trustee a discretion as to whether the remaining portion of the estate may be paid over to the testator’s son when he reaches the age of forty years requires that the following sentence be entirely disregarded: is expressly understood, that these payments are to be made only at the discretion of my trustees heretofore named.” ■ (Italics supplied.) We must assume that the testator knew that the trustees he had appointed might die or resign. Nevertheless he used the word “ only ” and the words “ heretofore named.” We do not think that this clear manifestation of the deliberate intent of the testator should be disregarded.

The order should be affirmed, with costs.

Lehman, Ch. J., Desmond and Thacher, JJ., concur with Lewis, J.; Couway, J., dissents in opinion in which Lotjghrah and Rippey, JJ., concur.

Ordered accordingly.


author: Lehman, Ch. J.

text:
    The People of the State of New York, Respondent, v. Paul Margiotta, Appellant.
    Argued October 19, 1943;
    decided January 13, 1944.

      J. Napoli, Ralph J. Barra and Caesar B. F. Barra for appellant.
    Tbe motions to advise tbe jury to acquit defendant should have been granted. Tbe evidence was insufficient as a matter of law to warrant tbe submission of tbe case to tbe jury. (People v. Bearden, 290 N. Y. 478; People v. Orr, 270 N. Y. 193; People v. Mantin, 184 App. Div. 767; People v. Woltering, 275 N. Y. 51; People v. Albero, 223 App. Div. 442; People v. D’Anna, 243 App. Div. 259; People v. 'Be Martini, 218 N. Y. 561; People v. Galbo, 218 N. Y. 283; People v. Gior-dano, 213 N. Y. 575; People v. Rasesics, 206 N. Y. 249; People v. Mangan, 237 App. Div. 289, 262 N. Y. 508; People v. Suffern, 267 N. Y. 115; Matter of Case, 214 N. Y. 199; People v, Ledwon. 153 N.Y. 10.)

      Thomas CradocJc Hughes, Acting District Attorney (Edward H. Levine of counsel), for respondent.
    I. The evidence adduced against appellant was sufficient to justify its submission to the jury as no court could have directed an acquittal. (People v. Ledwon, 153 N. T. 10; People v. Gluck, 188 N. T. 167; Knickerbocker v. People, 43 N. Y. 177; Stover v. People, 56 N. Y. 315; Goldstein v. People, 82 N. Y. 231; People v. Jackson, 182 N. Y. 66; Wilson v. United States, 162 U. S. 613; People v. Place, 157 N. Y. 584; People v. Galbo, 218 N. Y. 283; People v. Suffern, 267 N. Y. 115; People v. Lewis, 275 N. Y. 33; People v. Woltering, 275 N. Y. 51; People v. Harris, 136 N. Y. 423; People v. Deitsch, 237 N. Y. 300; People v. Hughson, 154 N. Y. 153; People v. Trombino, 238 App. Div. 61, 262 N. Y. 689.) II. The appellant’s guilt was established beyond a reasonable doubt.
   Lehman, Ch. J.

The defendant was convicted of attempted robbery in the first degree. The indictment charges that on or about May 3,1942, he unlawfully attempted to take one hundred and twenty dollars in currency and a diamond ring “ from the person of Peter C. LaBella,. against his will, by means of force and violence and fear of immediate injury to his person, the above named defendant being armed at the time with a dangerous weapon, to wit a revolver.” The evidence establishes that some man did attempt to rob Peter C. LaBella, but no witness identified the defendant as the man who made the attempt, or testified that he saw the defendant at the place where the attempt was made. The question presented upon this appeal is whether alleged admissions of the defendant and circumstantial evidence produced by the People have probative force sufficient to sustain the finding of the jury that the defendant was a guilty participant in the crime.

LaBella and his daughter Pauline were the only eye-witnesses of the attempted crime who testified at the defendant’s trial. Their testimony establishes that on Sunday evening, May 3rd, LaBella, an undertaker, received a telephone call to go to an address in another part of Brooklyn, where, it was said, some person had died. In response to this call LaBella started off about 10:45 p. m., in his automobile which had been parked in front of his home. A person presumably the stranger who had beén standing for some time at the corner opposite the house and who had apparently sought to conceal his face, jumped on the running hoard of the automobile, pointed a gun at LaBella and commanded him to stop. Instead of stopping, LaBella so manipulated the automobile that the man with the gun lost his balance and jumped off the running board. The man again mounted the running board, but again LaBella drove the car with such sudden stops and jerks that the man was forced to jump off. The man then ran away but not in the direction in which the car was proceeding. LaBella carried a revolver, and fired six shots at the fleeing man. The man fell down. When LaBella was firing he noticed an automobile standing about sixty feet away, and the would-be robber was running towards the car. LaBella started to turn his car in order to get to the man who had fallen. By the time the turn was complete both the man and the standing automobile had disappeared.

Both LaBella and his daughter Pauline testified that they could not identify the defendant as the man who had been standing at the corner and who jumped on the running board of the car. Pauline LaBella, when asked “ Do you see him in this courtroom? ” answered “ Noand when the same question was put in other form: ‘1 You do not see him in this courtroom ? ’ ’ again answered “ No.” LaBella when asked: “ You could not say that he was not the man? ” answered I could not say yes or no”; and then in answer to the question “ Can you tell us whether he was as tall as this defendant? ” answered: He is not the one.” •

The evidence relied upon by the People to sustain the finding that the defendant is guilty of the attempted robbery, though the eye-witnesses testified that he is not the man who, in their view, made the attempt, may be briefly summarized as follows: The police, informed of the attempt by LaBella, began a search for the guilty man. A few days after the crime the defendant was taken to the police station and compelled to strip, but the police found no trace upon his person of any wound from a pistol shot. He was again taken to the police station two days later and again told to strip. Then a detective noticed a small bullet wound in the calf of the left leg. He was questioned at the station house by the detective and then by an assistant district attorney. He denied all knowledge of the attempted robbery, but it is said that by bis answers to tbe questions put to bim be involuntarily revealed bis guilt. Otherwise con-cededly there is no proof of such guilt.

We quote verbatim tbe testimony of tbe detective concerning tbe questioning of the defendant when tbe detective discovered tbe wound at tbe station bouse one week after tbe attempted robbery: “ A. I said, ‘ Did you bold up LaBella on Cropsey Avenue last Sunday? ’ He said ‘ No.’ I said, 1 Did you have tbe bullet taken out? ’ He said, ‘ No.’ He said, ‘ Tbe bullet is still in there.’ I said, ‘ Did you go to tbe hospital? ’ He said, ‘No I said ‘ Why? ’ He said, ! He was afraid.’ I asked him did be go to a doctor. He said ‘ No.’ I said, ‘ Why? ’ He said, 1 I will be afraid to go.’ I said, ‘ Tell me bow you got that bullet in your le'g?' ’ And be said be started riding in bis brother’s car about 9 o’clock that night and bad bis wife and was riding around the vicinity of Coney Island, Belt Parkway and Cropsey Avenue, and be stopped in that neighborhood for gas, and as be is driving along Cropsey Avenue be felt a sting in bis left leg. He continued driving and be left bis wife home and proceeded to bis home in 79th Street where be dressed tbe wound and then went down to repair tbe car.”

Questions put to bim later on tbe same day by tbe Assistant District Attorney and tbe defendant’s answers to these questions were taken down by a stenographer. There be said that be bad called for bis wife on Sunday evening, May 3rd, driving a car owned by bis brother; that be was with her tbe entire evening, and that be told her that be bad been shot while they were in tbe neighborhood where LaBella lived and where be shot some man attempting to rob bim.

If tbe defendant’s answer to tbe questions which were put to him on May 10th are true, then of course be bad no part in tbe attempted robbery, and was accidentally wounded at a different time and place, though on tbe same evening, and perhaps in tbe same general neighborhood. Tbe jury could reasonably refuse to credit tbe defendant’s claim that be received tbe wound while driving bis wife on innocent pleasure bent. Tbe wife testified as a witness for tbe People that though she bad been driving with tbe defendant on tbe afternoon of May 3rd, she returned home in tbe early evening, long before tbe time claimed by tbe defendant, and that she beard no shot while driving with the defendant and that he did not tell her at that time or later that he had been shot. Her testimony also showed that their relations had not been entirely idyllic, and that they were not living together. That testimony, with other evidence produced by the People, is sufficient to support an inference that the exculpatory parts of the defendant’s story are false. must decide whether, after rejecting the exculpatory portion of the answers given by the defendant, there inheres in what remains probative force sufficient to establish guilt beyond' a reasonable doubt.

• The only admissions made by the defendant are that he received his wound on the evening of the attempted hold-up, and that he had been at the place where the shooting took place at ox about the time LaBella fired shots at a would-be robber. Fragments of his story and other evidence permit the inference that in order to avoid inquiry by the police he tried to conceal the fact' that he had been wounded by a pistol shot on the evening of the attempted robbery. Fear of inquiry by the police might be due to consciousness of guilt, but it might also be due to the natural reluctance of a man with a criminal record. The admissions, viewed in the light most unfavorable to the defendant, might justify a suspicion of guilt, but constitute no substantial proof. Certainly they are not sufficient to overcome the testimony of the two eye-witnesses that the defendant was not the man who attempted to rob LaBella.

The judgments should be reversed and a new trial ordered.

LougheaN, .Rippey, Lewis, CoNway, DesmoNd and Thachek, JJ., concur.

Judgments reversed, etc.


text:
    Irene C. Albright et al., Respondents, v. Jefferson County National Bank, Appellant.
    Argued November 18, 1943;
    decided January 13, 1944.

      I. The Official Referee correctly held that the securities corporation was neither the alter ego of nor a department of the bank. (.People v. American Bell Tel. Go., 117 N. Y. 241; Stone v. Cleveland, G., Chicago & St. L. By. Go., 202 N. Y. 352; Brock v. Poor, 216 N. Y. 387; Elenkreig v. Siebrecht, 238 N. Y. 254; Berkey v. Third Ave. By. Go., 244 N. Y. 84; Lowendahl v. B. & O. B. B. Go., 247 App. Div. 144, 272 N. Y. 360; Matter of Lawyers Mtge. Go. [8718 Ridge Blvd.], 284 N. Y. 371; Boss v. Jacobowits, 216 App. Div. 184; Matter of Watertown Paper Go., 169 F. 252; Esmond Mills v. Commr. of Internal Revenue, 132 F. 2d 753; Nichols & Go. v. Secretary of Agriculture, 131 F. 2d 651; Brown v. Brock-ton Nat. Bank, 305 Mass. 521; Gledhill v. Fisher & Go., 272 Mich. 353.) II. It was improper to surcharge the trustee hank with the sum paid for the apartment bonds. There was no profit received thereon hy the securities corporation, but instead there was a small loss. III. Even though it be considered that the securities corporation was the alter ego of or a department of the trustee bank, such relationship was in no way the cause of the loss in market value of the challenged securities. (Lowendahl v. Baltimore & Ohio B. B. Go., 247 App. Div. 144, 272 N. Y. 360; Matter of Adriance, 145 Mise. 345; Chapter House Circle of Kings Daughters v. Hartford Nat. Bank & Trust Go., 121 Conn. 558; Matter of Gutherie, 320 Penn. St. 530; Springfield Safe Deposit & Trust Go. v. First Unitarian Society, 293 Mass. 480; Costello v. Costello, 209 N. Y. 252; Matter of Smith, 279 N. Y. 479.) IY. If the challenged securities are to be held void, that voiding must date back to the purchase of each security, and interest at the stipulated rate of four per cent must be computed from the date of purchase. The»Appellate Division erred in allowing the plaintiffs to retain the high interest paid prior to the depression, while in effect requiring the trustee hank to guarantee the principal after the depression together with four per cent interest. (Restatement of the Law of Trusts, § 210; 2 Scott on Trusts, § 210; Villard v. Villard, 219 N. Y. 482; Baker v. Disbrow, 18 Hun 29, 79 N. Y. 631; 3 Bogert on Trusts, § 708; Matter of Peck, 152 Mise. 315; Matter of Jones, 155 Mise. 315.) Y. The final judgment is erroneous in that the trustee bank is surcharged with expense items aggregating $74.86, to which no .objections were made hy plaintiffs until application at Special Term for final judgment and concerning which defendant bank was denied the right to offer any explanation. (Matter of Gordon, 166 Mise. 363; Matter of Melzak, 153 Mise. 600.)

      Harold L. Allen and A. Raymond Cornwall for respondents.
    I. The relationship between the trustee and the securities corporation was such that it tainted the challenged transactions between them. (Magruder v. Drury, 235 U. S. 106; Munson v. Syracuse, G. & G. B. B. Go., 103 N .Y, 58; Matter of Hufnagel, 258 App. Div. 1088; Shanley v. Fidelity Union Trust Go., 108 N. J. Eq. 564; Pylé v. Pyle, 137 App. Div. 568.) II. The Appellate Division properly set aside the challenged transactions. (Mein-hard v. Salmon, 249 N. T. 458; Wendt v. Fischer, 243 N. Y. 439; 3 Pomeroy’s Equity Jurisprudence, 4th ed., § 1077; Magruder v. Drury, 235 IT. S. 106; Taussig v. Hart, 58 N. Y. 425; Munson v. Syracuse, G. & C. B. B. Go., 103 N. Y. 58; Baxter v. Union Industrial Trust & Sav. Bank, 273 Mich. 642; Matter of Gulhane, 269 Mich. 68; Matter of Long Island Loan & Trust Go., 92 App. Div. 1; Shanley v. Fidelity Union Trust Co., 108 N. J. Eq. 564; Matter of Lawyers’ Westchester Title & Mtge. Go., 162 Mise. 531.) III. The surcharge rule applied below is an equitable one. (Matter of Tuttle, 162 Mise. 286; Villard v. Villard, 219 N. Y. 482.)
   Lehman, Ch. J.

The defendant hank was appointed trustee under a deed of trust executed by Alexander Copley in May, 1924, and a deed of trust executed by him in November, 1926. In 1938, after the death of the settlor, the beneficiary and the remainderman of the trust created by the settlor brought this action to compel the trustee to render an account of its acts, conduct and proceedings. The plaintiffs allege in their complaint, upon information and belief, the defendant herein, in violation of its duty as Trustee of the aforesaid trust, has improperly, improvidently and unlawfully administered the same by investing the said fund in a manner and in securities unauthorized by law and in violation of the terms of the aforesaid agreements.” The defendant trustee denied these allegations but did not deny its obligation to account. Accordingly the parties stipulated that an interlocutory judgment should be entered providing that the trustee should file its account; that the plaintiffs might file objections thereto; and that the issues raised by such objections should be referred to Hon. EeNest I. Edgcomb as Official Referee to hear and determine.

The plaintiffs filed no objections to the account of the trustee under the deed of trust executed in May 1924. We are concerned only with objections to the account of the trustee under the deed of trust of November 1926. The evidence conclusively establishes, and both the Official Referee and the Appellate Division have held, that the transactions complained of were conducted openly and under a claim of right and without negligence or willful wrongdoing. The objections of the plaintiff are based primarily upon the fact that the trustee purchased some securities for the trust estate from Jefferson Securities Corporation, a corporation closely affiliated with itself; and in other transactions the trustee employed Jefferson Securities Corporation and paid commissions to it as broker in the purchase of securities from other owners. The plaintiffs state in their objections that: “ The Securities Corporation was, in law, the Trustee ” and they urge that the Trustee should be surcharged with the purchase price of securities purchased from Jefferson Securities Corporation on the ground that the Trustee was dealing with itself in these transactions, and should be surcharged with commissions paid to the Securities Corporation as broker in other transactions, because in effect such commissions constitute profits unlawfully taken by the trustee for itself.

The referee upon undisputed evidence found that in 1918 the Board of Directors of the defendant bank adopted a resolution “ that in the opinion of this Board, there should be organized by the stockholders of this bank a Securities Corporation to co-operate with the bank in the purchase and sale of securities and of the taking of,title to property where necessary, provided and with the understanding that in so far as it is possible with the co-operation of the stockholders of the bank, the stockholders of the Securities Corporation should be identical with the stockholders of the Bank, and that the directors of the Securities Corporation be selected from the directors of the bank.”

At a subsequent meeting the Board of Directors approved “ of a form of agreement for the organization of a securities corporation to be known as ‘ The Jefferson Securities Corporation,’ and of the certificate of incorporation ”. The purpose of the plan or agreement to organize the Security Corporation was expressed in the ” clause of the resolution of approval as follows: “ Opportunities for making desirable investments and for performing services, other than those which are possible in the ordinary course of banking business, are, from time to time, presented to the officers of the Bank, which they desire to make available to the shareholders of the Bank and to the public.”

The plan was approved by the stockholders of the Bank and' Jefferson Securities Corporation was incorporated and has been doing business in accordance with the plan since 1919. On each certificate of stock which has been issued, a statement is indorsed showing that it is held by Trustees in for the benefit of the shareholders of the Jefferson County National Bank ”. During the period when the transaction now challenged took place, the seven directors of the Securities Corporation were also members of the Board of Directors of the Bank; and the beneficial owners of the stock of the Securities Corporation were the stockholders of the Bank. Though each corporation maintained a separate corporate existence, did a separate business, maintained a separate staff which was separately housed, and though the profits made by the Securities Corporation never reached the treasury of the Bank and pos: sible losses could not reduce the moneys available for payment of the creditors of the Bank, yet the'profits of the Securities Corporation enured solely to the benefit of the stockholders of the Bank in the same proportion as the profits of the Bank, and the same stockholders and the same directors controlled both corporations.

Upon these undisputed facts and the findings based upon them, the learned Official Referee rejected the objections of the plaintiffs and refused to surcharge the Trustee either with the purchase price of securities which the Trustee bought from the Securities Corporation, or with profits made by the Securities Corporation. Among the “ conclusions ” embodied in his formal decision are:

“ 1. That the Jefferson Securities Corporation not an instrumentality, a department or the alter ego of the defendant in the making of the investments to which the plaintiffs have objected; neither were the two corporations identical, nor were in law or in fact to be considered herein in effect as the same legal person.
“ 2. That the defendant Bank did not purchase or acquire from itself any of the trust securities to which the plaintiffs have objected, nor was there any ‘ self-dealing ’ on its part in reference thereto.
3. That the defendant Bank did not receive, directly or indirectly, any secret profits, commissions or other unlawful advantage in the purchase or in the handling of the securities to which the plaintiffs have objected.
‘ ‘ 4. That the defendant Bank, either as Trustee or otherwise, did not act improperly, impr'ovidently or unlawfully in the investment of the trust funds herein, or in administering or managing the estate. ’ ’

Upon appeal to the Appellate Division the judgment of the Official Referee was reversed “ on the law and facts ”. The Appellate Division did not, however, change or disturb the findings of fact made by the Official Referee except that it modified two findings in manner not material to the question we are now considering, and made some new findings in accordance with requests to find of the plaintiffs which the Official Referee had rejected. The substance of these requests to find was,- for the most part, embodied in findings made by the Official Referee, and do not materially affect the conclusions of the Official Referee. These conclusions ” were not expressly reversed by the Appellate Division, nor were other formal ‘ conclusions ’ ’ substituted for them, but the Appellate Division embodied in the order of reversal the following Memorandum

Tbe Securities Corporation was organized to conduct, for tbe profit of tbe shareholders of tbe defendant National Bank, a type of business which could not be conducted lawfully by a national bank at tbe risk of tbe depositors and other creditors of tbe bank. Other national banks bave formed similar corporations for similar purposes. So long as tbe corporations maintain their separate corporate entities, tbe conduct of business, not permitted to a national bank, by a corporation with tbe same stockholders and directors as tbe national and operated for tbe profit of tbe stockholders of tbe bank is lawful and has been generally recognized as lawful. Tbe formation of such a corporation is not an evasion of tbe banking laws intended for tbe protection of tbe depositors and other creditors of tbe bank, since it does not subject to any additional risk tbe capital or assets of tbe bank available for tbe payment of such depositors or other creditors. Here tbe men who controlled both corporations scrupulously maintained their separate corporate entities. Tbe Securities Corporation never became an agency of tbe bank for tbe purpose of promoting tbe corporate business of tbe bank. Tbe maintenance of tbe separate corporate entities is no fraud upon tbe public and causes no injustice to any person and contravenes no public policy. Disregard of tbe separation of tbe corporate entities by tbe courts would thwart tbe policy of tbe banking laws which are intended to safeguard against ordinary commercial risk tbe capital of a bank. We agree for these reasons with tbe conclusion of tbe Official Referee that neither principle nor authority would in such circumstances tbe court in treating tbe Securities Corporation as tbe alter ego of tbe Bank. It does not follow, however, that tbe Bank should not be surcharged as Trustee with tbe purchase price of securities which it bought from tbe Securities Corporation.

This court has recently said in considering a similar problem that tbe question is not whether a corporate trustee and an affiliated corporation are “ separate legal entities ” but whether tbe trustee has placed itself in a position “ where its interest was or might hem conflict with its duty. Either is sufficient to cause surcharging of tbe trustee.” (Matter of Ryan, 291 N. Y. 376, decided December 2, 1943.) Tbe court pointed out in that case that tbe rule is “ inflexible ” that a trustee may not deal with himself or put himself in a position where bis interest might be in conflict with bis duty. Included within its scope is every situation in which a trustee chooses to deal with another in such close relation with tbe trustee that possible advantage to such other person might influence, consciously or unconsciously, tbe judgment of tbe trustee who is in duty bound to consider only tbe interest of his cestui que trust. Where, as in Matter of Ryan, supra, and in’ this case, the corporate trustee has dealt with another corporation which, though affiliated with the trustee, is a separate legal entity not wholly under the dominion of the trustee, “ we are remitted to the tests of honesty and justice.” Though in the Ryan case the of this opinion did not concur in the conclusion of the court, that the evidence' established that the trustee had breached its obligation to the cestui to refrain from placing itself in a position where a strain might be placed upon its duty of undivided loyalty, here we find no room for difference of opinion that since the trustee dealt with a corporation which had been organized and is controlled by the stockholders and directors of the trustee, and the stockholders of the trustee share in the profits made by the seller in the same proportion as they share in the profits of the trustee, the trustee subjected its duty of undivided loyalty to the same strain to which it would have been subjected by direct dealing of the trustee with itself. The trustee, we may assume, acted with a view solely to the best interests o,f its cestui, uninfluenced by the fact that its stockholders might profit by the purchase from the Securities Corporation. Indeed, the amount of that profit was so small that such inference is perhaps inescapable. The law, however, does not inquire whether the transaction was fair or unfair. The value of. the rule depends in part upon its rigorous and inflexible enforcement. If a corporate fiduciary has placed itself in a position where its interest or the interests of its stockholders may conflict with the interests of the cestui, the law stops the inquiry when the relation is disclosed, and sets aside the transaction or refuses to enforce it, at the instance of the party whom the fiduciary undertook to represent, without undertaking to deal with the question of abstract justice in the particular case.” (Munson v. Syracuse, Geneva & Corning R. R. Co., 103 N. Y. 58, 74; Wendt v. Fischer, 243 N. Y. 439.) We agree with the Appellate Division that for these reasons the plaintiffs are entitled to demand that each transaction shall be set aside where the trustee dealt with its affiliate in the purchase of securities — nor do we draw any distinction between the transactions where the affiliate acted only as broker for a reasonable commission and those where the affiliate sold the securities for a small profit. At the instance of the cestui, all such transactions may be set aside.

A different problem is, however, presented where there has been no capital loss in the investment and the transaction has not been set aside and the trustee has not been surcharged with the purchase price, but has been surcharged with a commission of three per cent paid to the affiliate which acted as broker in the transaction. The courts below have found that, in the challenged transaction, the commission was “ no more than was customarily charged and taken by any broker ”. If the commission had been paid by the trustee to itself, the trustee would nevertheless have been chargeable with the profits it wrongfully made, and if the Securities Corporation were in effect the trustee and not a separate legal entity, the trustee would be compelled to account for the profits in form paid to its ego. Here, however, as we have said, the separate corporate entities may not be disregarded. The commissions went into the treasury of the Securities Corporation, and though the stockholders of the trustee may profit indirectly, the corporate trustee has made no profit and can make no profit. It cannot be called to account for profits it never earned or received. (Wendt v. Fischer, supra.) The judgment against the defendant should be modified by eliminating the sum of $645 the amount of the commissions paid in such transactions.

We find also some small errors in the computation of interest where the trustee- has been surcharged with the purchase price. The parties have stipulated that ‘‘the average rate of earnings on trust funds during the period involved in this action * * * may be fixed by the Court at, Special ⅞ * # Term at the rate of 4% ”. When a transaction is set aside and the trustee surcharged with the purchase price, the trustee should, as the Appellate Division directed, be surcharged also with interest at a rate commensurate with the average rate of earnings on trust funds during the same period.” (264 App. Div. 824, 825.) In some instances, more than the average rate of interest was paid during part of the period on the securities purchased by the trustees. The cestui has not been required to account for the interest received during that period, but the trustee has been directed to pay interest at the rate of four per cent when the return was less. When the transaction is set aside, the cestui must be put so far as possible in the same situation as if the purchase had not been made. The cestui may claim replacement of “ the original fund, with interest ” (Baker v. Disbrow, 18 Hun, 29, 30, affd. on opinion 79 N. Y. 631), but then must account to the trustee for interest and profits received by him. (Restatement of the Law of Trusts, § 206; see, also, § 205, comment h, and § 211, comments c and f.) In effect the transactions have in this case been set aside as of the date when the investment ceased to be profitable. That is error.

There was also error in surcharging the trustee with items of expense aggregating $74.86 to which timely objection was not made. We find no other errors.

The judgments should be modified in accordance with this opinion, and as so modified affirmed, without costs.

LottghraN, Rippey, Lewis, CoNWAY, DesmoNd and Thachbr, JJ., concur.

Judgment accordingly.


text:
    Argued November 16, 1943;
    decided January 13, 1944.

      David Drucker for defendant, respondent and appellant.
    I. The contract pertained only to refunds on entries made under the Tariff Act of 1922. II. The judgment appealed from having been based upon res judicata, presumably established by a prior judgment which has been reversed, the judgment appealed from is without foundation. (Hall v. Andrews, 65 N. Y. 572; Smith v. Fra/nkfield, 77 N. Y. 414; Wood v. Jackson, 8 Wend. 9; Chamberlain v. Choles, 35 N. Y. 477; Briggs v. Bowen, 60 N. Y. 454; Messing v. Faulkner, 83 Kan. 115; Barton v. Petit, 7 Cranch 288; Poole & Co. v. Seney, 70 Iowa 275.)

      Aaron Holman for plaintiffs, appellants and respondents.
    I. Upon the evidence the trial court correctly found that the importers had engaged respondents’ services in connection with all protests involved in the dogskin case. II. The Appellate Division erred in determining that the plaintiffs are not entitled to commissions on refunds collected on entries made by defendant after the date of the signing of the contract. III. Under the contract respondents were employed with respect to entries made under both tariff acts. IV. premise that in reversing the judgment in Action No. 1 the Appellate Division granted a new trial upon all the issues de novo is incorrect.
   Lehman, Ch. J.

The defendant and other importers of dressed dog skins ” signed a contract, prepared by the plaintiffs and dated June 29, 1932, whereby the importers employed the plaintiffs for the purpose of gathering evidence and making investigations in relation to a case now pending with Customs Court involving the rate of duty to be assessed on dressed dog skins As compensation for services rendered under the contract, the importers, signing the contract, agreed that “ in the event such case is finally determined in favor of the importers ” they would pay to the plaintiffs “5% of the refund paid or allowed to us on the reliquidation of entries of dog skins made by us or in our behalf since the latter part of 1927.” Concededly the “ case now pending with Customs Court ” to which the contract referred was decided in favor of the importers, and concededly refunds were allowed to the defendant “on the reliquidation of entries of dog skins made ” by' the defendant or in its behalf ‘ ‘ since the latter part of 1927.” Such entries were made both under the Tariff Act of 1922 (42 U. S. Stat. 858) and the Tariff Act of 1930 (46 U. S. Stat. 590).

In the case referred to in the contract of employment, the question presented concerned the proper interpretation of the Tariff Act of 1922, the classification under that Act of dressed dog skins and the rate of duty payable on such skins. The provisions of the Tariff Act of 1930 were not in all respects the same as the provisions of the Tariff Act of 1922, and no question of the interpretation of the Tariff Act of 1930 was directly presented in that case, but after the decision in that case the importers successfully urged in appropriate Federal tribunals that under the Tariff Act of 1930 no duty was imposed upon dressed dog skins and that they were entitled to a refund of all duties paid on entries of dressed dog skins under that Act. The defendant paid to the plaintiffs the stipulated five per cent on refunds on the reliquidation of entries made under the Tariff Act of 1922. It claimed that under the terms of the contract the plaintiffs were not entitled to compensation measured by refunds on the reliquidation of entries made under the later Tariff Act, though indirectly the case which determined authoritatively the proper classification of imports of dressed dog skins under the Tariff Act of 1922, may have dictated the determination that under the later Tariff Act no duty was imposed on imports of sldns so classified. The plaintiffs in June, 1941, brought an action to recover compensation measured by the refunds received by the defendant upon reliquidation of entries made under the Tariff Act of 1930.

That action was tried before the court without a jury, and it was stipulated by and between counsel that findings of fact and conclusions of law are waived and that the court may direct a verdict.” The trial court sustained the claim of the plaintiffs that under the terms of the contract of employment the plaintiffs are entitled to compensation measured by the refund on the reliquidation of entries both under the Tariff Act of 1922 and the Tariff Act of 1930, and judgment was entered in favor of the plaintiffs for the amount of the stipulated percentage of all refunds paid to the defendant before the date when the action was begun, including refunds paid upon the reliquidation of entries made after the date of the contract of employment. The plaintiffs immediately thereafter brought a second action to recover the stipulated percentage of the refunds paid to the defendant after the date when the prior action was begun. Hereafter in this opinion we refer to these actions as Action No. 1 and Action No. 2. •

In their complaint in Action No. 2 the plaintiffs pleaded the judgment in their favor in Action No. 1. After the defendant’s answer was served the plaintiffs moved for summary judgment on the ground that the judgment in Action No. 1 constituted a conclusive adjudication of every issue raised by the pleadings. The defendant opposed the motion made by the plaintiffs for summary judgment and made a cross motion for partial summary judgment in its favor dismissing that part of the claim of the plaintiffs based on refunds of entries made after the date of the contract of employment. The Justice at Special Term granted the motion of the plaintiffs and denied the cross motion of the defendant.

The defendant appealed to the Appellate Division from the judgments in both Action No. 1 and Action No. 2. The parties stipulated that the appeal in Action No. 2 he consolidated with the appeal now pending ” in Action No. 1. The consolidated ” appeals were presented to the Appellate Division upon one record and argued and decided together. Every issue which was raised in Action No. 2 had been litigated in Action No. 1, and it is that if the Appellate Division had affirmed the judgment in Action No. 1, it would have been constrained to affirm the judgment in Action No. 2. The Appellate Division did not, however, affirm the judgment in Action No. 1. In its opinion rendered npon the consolidated ” appeals it stated that “ with the exception of the court’s ruling that the agreement between the parties embraced entries made after the execution of the contract as well as those made before, it appears that all issues [in Action No. 1] were properly determined by the trial court. We are of the opinion that the contract did not cover entries made after the date of the execution thereof.” (265 App. Div. 540, 542.) In that opinion the court pointed out, too, that in Action No. 1 the record did not show what part of the judgment was based on entries made after the date of the contract, and therefore that it will “ be necessary to have an allocation of the entries made prior to the date of the execution of the writing ”. In Action No. 2 the record showed which entries were made after the execution of the writing, and accordingly the Appellate Division ordered that the judgment in that action be “ modified upon questions of law by eliminating therefrom all commissions on entries made on or after the date of the execution of the contract upon which this action was brought ”. The judgment in Action No. 2 as so modified was affirmed by the Appellate Division and both sides have appealed to this court from that judgment.

views expressed in the opinion of the Appellate Division, (cf. Gugel v. Hiscox, 216 N. Y. 145.) It is the order of the Appellate Division reversing the judgment upon questions of fact as well as questions of law which determines the scope of the new trial which has been granted, and the language of the order shows beyond possible doubt that the Appellate Division intended to grant a plenary new trial in Action No. 1 on every question of fact and of law. (Civ. Prac. Act, §§ 602 and 607.)

We assume that the judgment in Action No. 1, until reversed, constituted a conclusive adjudication of every issue raised in Action No. 2 by the pleadings; that the defendant at the time the motion for summary judgment was granted was not entitled to a second trial of such issues, that the judgment in the prior action “ established ” the plaintiffs’ cause of action in Action No. 2, and that in accordance with rule 112 of the Rules of Civil Practice the Justice at Special Term was constrained to grant plaintiffs ’ motion for summary judgment. The reversal of the prior adjudication in Action No. 1 destroys the basis of the summary judgment in Action No. 2. That summary judgment now constitutes an adjudication of liability against the defendant though at present there is no existing judicial determination of any issue of fact or law upon which the plaintiffs base their assertion of such liability and upon which the defendant bases its denial- of liability. This court cannot determine the questions of fact or law which in accordance with the order of the Appellate Division may be litigated upon the new trial in Action No. 1. It is plain that a judgment based solely on a prior adjudication which has been reversed thereafter cannot stand. (Restatement of the Law of Judgments, § 44.)

There has, however, been some diversity of opinion in regard to the procedure which must be followed to set aside a judgment based upon a prior adjudication subsequently reversed. It has been said that If proceedings for review in the second action are pending in an appellate tribunal, it may, by the weight of authority, take judicial notice of its own reversal or other disposition of the first judgment and reverse the judgment based upon it.” (2 Freeman on Judgments, § 721.) There are statements in the opinion in Parkhurst v. Berdell (110 N. 386, 392) which seem to indicate that in this State “ the only relief ” a party can have in such circumstances is-to move # ⅝ ⅜ £jje court 0f original jurisdiction for a new trial ”. The problem presented in that ease was very different from the problem presented upon this appeal. We need not now decide whether ordinarily an appellate tribunal may take judicial notice of its own reversal or other disposition of the first judgment ” though such reversal is not part of the record on appeal from the second judgment. Here the parties have stipulated that the appeals be consolidated and heard upon one record, and what was said by the Supreme Court of the United States in Butler v. Eaton (141 U. S. 240, 243, 244), is peculiarly apposite: £ ‘ The judgment complained of is based directly upon the judgment of the Supreme Judicial Court of Massachusetts, which we have just reversed. It is apparent from an inspection of the record that the whole foundation of that part of the judgment which is in favor of the defendant is, to our judicial knowledge, without any validity, force or effect, and ought never to have existed. "Why, then, should not we reverse the judgment which we know of record has become erroneous, and save the parties the delay and expense of taking ulterior proceedings in-the court below to effect the same object!”

For these reasons the judgment granted upon the plaintiffs’ motion for summary judgment must be set aside and the plaintiffs’ appeal challenging the sufficiency of the judgment must be dismissed.

The judgments should be reversed and motion for summary judgment denied, with costs to the appellant-defendant to abide the event. The appeals of the plaintiffs-appellants should be dismissed, without costs.

Lotjghran, Rippby, Lewis, Conway, Desmond and Thacher, JJ., concur.

Judgment accordingly.


author: Per Curiam.

text:
    In the Matter of Thomas J. Walsh, Appellant and Respondent. Thomas F. Cosgrove, Respondent and Appellant. S. Howard Cohen et al., as Commissioners of Elections of the New York, Respondents.
    Submitted January 13, 1944;
    decided January 14, 1944.

      A. David Benjamin and Irving Ginsberg for Thomas F. Cos-grove, appellant.

      Philip Jones for Ward H. Cann et al., interveners-appellants.

      Irving Bivkin and Jerome Otis Ellis for Thomas J. Walsh, respondent.

      Ignatius M. Wilkinson, Corporation Counsel, for Commissioners of Elections in City of New York, respondent.
   Per Curiam.

Under the provisions of section 30 (subd. 8) of the Public Officers Law, an office becomes vacant upon the refusal or neglect of the 1 ‘ incumbent ’ ’ to file his official oath or undertaking “ within fifteen days after the commencement of the term of office for which he is chosen, if an elective office ”. No person becomes an “ incumbent ” of an elective office until he has received his certificate of election. Until that time no person can file an oath of office and no vacancy in the office is created if the oath is filed as required by statute after an incumbent ” has received his certificate of election and may perform the duties of the office. (See, also, County Law, § 246; Matter of Sheils v. Koch, 249 App. Div. 829.)

Motion granted.


text:
    In the Matter of Charles C. Huitt, as Executor of Finley J. Shepard, Deceased, Appellant, against Carroll E. Mealey et al., Constituting the State Tax Commission, Respondents.
    Argued November 15, 1943;
    decided January 20, 1944.

      Charles A. Roberts and Robert 0. Muller for appellant.
    I. The determination of the State Tax Commission should he annulled because no findings were made by the Commission on the issues of fact raised in the application for revision. (Neto York Water Service Corp. v. Water Power & Control Comm., 283 N. Y. 23; Matter of Guernsey Breeders Co-op. v Noyes, 284 N. Y. 197.) II. The bonds became worthless in 1933 — not in 1932. As long as a corporation retains any assets whose value in liquidation depends upon the price that can be obtained upon a sale, there is a variable factor which precludes a determination that any definite part of the investment has been irrevocably lost. (Spring City Foundry Co. v. Commr., 292 U. S. 182; Lucas v. American Code Cd., 280 IT. S. 445; People ex rel. Hull v. Graves, 289 N. Y. 173; People ex rel. Maloney v. Graves, 289 N. Y. 178; Helvering v. Hammel, 311 U. S. 504; Helvering v. Price, 309 TL S. 409; People ex rel. Conway Co. v. Lynch, 258 N. Y. 245.) III. In any event, there were substantial grounds to justify a prudent man in believing that the bonds still had some potential value at the end of 1932. The taxpayer having ascertained in good faith that these bonds became worthless in 1933, was entitled to deduct the resulting loss in 1933. (People ex rel. Central Union Trust Co. v. Loughman, 249 N. Y. 409; Rosenthal v. Helvering, 124 F. 2d 474.)

      Nathaniel L. Goldstein, Attorney-General (Henry S. Manley, Orrin G. Judd and Wendell P. Brown of counsel), for respondents.
    I. The taxpayer was not justified in charging the loss against his 1933 income; he should have taken it in 1932 like other investors in the same bonds. (Matter of Chisholm v. Graves, 261 App. Div. 78.) II. Failure to make findings should not invalidate the determination. (Panama Refining Co. v. Ryan, 293 U. S. 388; Matter of Elite 'B>airy Products, Inc., v. Ten Eyck, 271 N. Y. 488; Matter of Thompson v. Mealey 290 N. Y. 230.)
   Rippey, J.

"Within the time required by law, Finley J. Shepard filed his personal income tax return for the year 1933, in Item 27 of which he reported $107,391.40 loss from transactions in stocks and bonds and in Schedule E of said return he gave the. details of such loss. Under section 360, subdivision 7, of the Tax Law (L. 1919, ch. 627, § 1, as amd. by L. 1921, ch. 214, § 1), and pursuant to directions contained in Item 31(c) of said return, he included in such loss so reported as a debt ascertained by him to be worthless and charged off within the taxable year an item of $100,000 invested by him. in cash on December 5, 1928, in Ten-Year Sinking Fund 6% Income Gold Debentures of Hotel Pierre, Inc. The State Tax Commission disallowed the deduction and assessed an additional income tax for the year 1933 on the ground that the debt became worthless on September 7, 1932, and should have been claimed by the taxpayer as a deduction for the year 1932. On the taxpayer’s application under section 374 of the Tax Law for revision and readjustment of the account and of the assessment, without specific findings of fact but after formal hearing at which evidence was taken, the Tax Commission adhered to its former decision and also overruled the claim of the taxpayer for deductions from his gross income in the year. 1933 of $1,458 on account of contributions made to charitable and religious organizations under section 360, subdivision 10(b). In this proceeding brought by the taxpayer under article 78 of the Civil Practice Act to review the determination of the State Tax Commission, the Appellate Division modified, the determination so as to allow the taxpayer a deduction for the charitable contributions in the. amount claimed and to reduce the additional assessment accordingly but otherwise confirmed the determination of the Tax Commission. While the proceeding was pending in the Appellate Division, Mr. Shepard died and Ms executor has Feen substituted in Ms place as petitioner.

Hotel Pierre, Inc., was organized to construct and operate a forty-story hotel in the city of New York. In connection with its financing, the corporation issued First Mortgage Leasehold 6¼% Sinking Fund Gold Bonds aggregating $6,500,000 under a mortgage which constituted a first and the only direct lien upon property of the corporation. In that connection it also issued Ten-Year Sinking Fund 6% Income Gold Debenture Bonds aggregating $3,250,000, junior in every respect to the lien of the mortgage securing the other bonds, of which Mr. Shepard purchased $100,000 at par. The only security back of the Debenture Bonds was such assets of the corporation as were not covered by the mortgage given as security for the senior first bond issue.

The Hotel Pierre was built in 1929 and 1930 on land leased from The Gerry Estates, Inc., and was opened for occnpancy on October 1, 1930. Thereafter and during the first six months of 1931, the hotel showed substantial operating income bnt it was insufficient even to satisfy taxes and ground rents and the operating expense largely exhausted its working capital by the summer of 1931. During the spring of 1931, a committee for the mortgage bondholders was organized. Upon default in the payment of interest upon the bonds, a foreclosure of the underlying mortgage security was instituted by the trustee named in the mortgage in September, 1931, and an equity receiver was appointed. On March 7, 1932, Hotel Pierre, Inc., filed a voluntary petition in bankruptcy, listing its liabilities at more than $10,000,000 and its unencumbered assets at slightly less than $100,000, and the Irving Trust Company was appointed receiver in bankruptcy. On June 8, 1932, the bondholders committee proposed a plan, dated June 1,1932, for reorganization of the enterprise which was specifically stated as required by law to be subject to the approval of an appropriate court. The plan contemplated the organization of a new corporation to acquire title to the leasehold at the foreclosure sale whose authorized securities should consist of leasehold mortgage income bonds, income debentures, Class A stock and Class B stock which were to be issued to bondholders in certain specified proportions in exchange for the First Mortgage Bonds of Hotel Pierre, Inc., which they held. The plan also offered an option to bondholders and debentureholders to subscribe new money to the extent of ten per cent of their holdings to an aggregate amount of $650,000 which was to serve as working capital of the new corporation for which they would receive in exchange certain specified securities. It was then contemplated that the plan should be effective, if approved, on June 25, 1932. By the chairman of the debentureholders’ committee notice was sent to the debentureholders of the proposed plan that if they did not subscribe and pay for bonds of the new company according to the option provided for their benefit, they would receive nothing under the reorganization plan but would “ recover only their proportionate share of the unmort-gaged assets of Hotel Pierre, Inc. which, as will be indicated by the literature sent you, are now being administered by the Bankruptcy Court.”

On June 9,1932, judgment of foreclosure and sale was entered. On July 7,1932, a judgment creditor of Hotel Pierre, Inc., intervened in the foreclosure action and procured an order staying the sale of the mortgaged chattels comprising about $1,250,000 worth of furniture and equipment pending the determination of the validity of the alleged mortgage lien thereon' and until further order of the court. That stay continued until January 7, 1933, when it was vacated by order of the Supreme Court. A large percentage of the bonds of the bankrupt corporation were surrendered to the trustee and the foreclosure sale was thereafter held on January 12,1933. Mr. Shepard neither subscribed for securities of the new corporation nor surrendered his debentures to the trustee under the mortgage or to the bondholders ’ or debentureholders’ committees. The referee’s report of sale was confirmed on February 11, 1933, and on the same.day an order was entered approving the plan of reorganization, there being no evidence that it had been previously offered for approval. It appeared that the new corporation provided for in the plan was the purchaser upon the sale and that the leasehold estate of Hotel Pierre, Inc., was conveyed by referee’s deed and the furniture and personal property described in the mortgage were transferred by sufficient bill of sale to the purchaser. After the sale, there remained a deficiency (which at that time was finally established) upon the mortgage in the sum of $6,937,040.15. When that took place, any opportunity which Mr. Shepard had to recoup his loss on the debentures which he had purchased or to participate in the benefits of the reorganization plan was extinguished and thereafter his opportunity to recoup any of his loss existed only to the extent that he might be a participant in a distribution of any assets which the receiver in bankruptcy might be authorized to make. At the time of the foreclosure sale and thereafter, there was litigation in the Federal courts in connection with the bankruptcy of Hotel Pierre, Inc., and it was not until 1936 that a distribution of assets was made to debentureholders and Mr. Shepard received $186.62 by way of a dividend upon such distribution.

The evidence is thus uncontradieted that complete liquidation of Hotel Pierre, Inc., was not effected during the year 1932. Up to the time of the foreclosure sale and transfer of the prop-1 erty by the referee and the vacating of the stay above referred to, there remained some possibility of a return either as a result of the foreclosure sale, a disapproval of the plan of reorganization, a new plan of reorganization giving the deben-tureholders greater rights, another extension of time for the debentureholders to join the reorganization, a dividend in the bankruptcy proceeding, or a successful attack by the judgment creditor against the trustee on the issue of the validity of the chattel mortgage covering over $1,000,000 worth of furniture and personal effects. Until action was taken by the court on the plan, Mr. Shepard was not conclusively foreclosed of his opportunity to elect whether or not to come in and thus save some part, at least, of his investment.

There can be no doubt that the indebtedness of Hotel Pierre, Inc., to Mr. Shepard was not a capital loss but was a bad debt within the meaning of subdivision 7 of section 360 of the Tax Law as the statute read in 1932 and 1933. That section provided, so far as material here, that “ In computing net income there shall be allowed as deductions: ⅝ * ⅜ 7. Debts ascertained to be worthless and charged off within the taxable year Under that section, the taxpayer was the person charged with the duty of ascertaining whether a debt was worthless, when it became worthless and during what year it should be charged off if he decided to take it as a deduction, provided that he should act in good faith (People ex rel. Central Union Trust Co. v. Loughman, 249 N. Y. 409). That rule has been similarly applied in construing analogous Federal statutes by the Federal courts (Moore v. Commissioner of Internal Revenue, 101 F. 2d 704, 707; Sherman & Bryan, Inc., v. Blair, 35 F. 2d 713; Rosenthal v. Helvering, 124 F. 2d 474, 475).

There is neither a finding by the Tax Commission nor any evidence in the case upon which such a finding might be based that the taxpayer, in the ease at bar, acted in bad faith in determining that the debt was worthless and in charging it off during the year 1933. On the contrary, the evidence is ample and conclusive that he acted in complete good faith. In addition to the uncertainty arising from the situation of the corporation at the end of 1932, as already pointed out, Mr. Shepard and the person in charge of his financial records discussed the matter and Mr. Shepard made a memorandum to the effect that they had reached the agreement that the loss-should await the final decision in the reorganization matter and should not be taken as a deduction in the 1932 return.

The order of the Appellate Division so far as appealed from should be reversed and the determination of the State Tax Commission annulled, with costs in the Appellate Division and in this court.

LehmaN, Ch. J., Lewis, Conway, and Thacher, JJ., concur.

Ordered accordingly.