text:
    Henry A. Nau, Respondent, v. Vulcan Rail & Construction Company, Appellant.

      Argued June 2, 1941;
    decided July 29, 1941.

      James I. Cuff and James I. McGuire for appellant.
    Plaintiff, as a matter of law, wholly failed to prove any cause of action, particularly the cause of action alleged in the second amended complaint. (Schweinburg v. Altman, 145 App. Div. 377; Gans v. Ætna Life Ins. Co., 214 N. Y. 326.) The defense of payment was established as a matter of law. (Danziger v. Hoyt, 120 N. Y. 190; Riley v. Mayor, 96 N. Y. 331; Matter of Wood, 251 App. Div. 141.) The court committed reversible error in its charge to the jury and in its refusal to charge as requested by the defendant. (Brainard v. New York C. R. R. Co., 242 N. Y. 125; Wendel Foundation v. Moredall Realty Corp., 282 N. Y. 239; Hop-wood Plays, Inc., v. Kemper, 263 N. Y. 380; First Nat. Bank v. National Surety Co., 228 N. Y. 469; Cream of Wheat Co. v. Crist Co., 222 N. Y. 487.)

      Myron J. Greene, Frederick W. Appell and Walter K. Pick for respondent.
    The question of the interpretation and meaning of the agreement was one of fact which was properly submitted to and determined by the jury.- (Columbia & N. R. R. Co. v. Chandler, 241 Fed. Rep. 261; Kendall v. Winsor, 62 U. S. 322; Detroit Iron & Steel Co. v. Carey, 236 Fed. Rep. 924; 242 U. S. 649; Evans v. Jordan & Morehead, 13 U. S. 199; Atwater & Co. v. Panama R. R. Co., 246 N. Y. 519; Mecca Realty Co. v. Kellogg Toasted Corn Flakes Co., 166 App. Div. 74; 221 N. Y. 724; Matter of People [Bond & Mortgage Guarantee Co.], 267 N. Y. 419;
      Becker v. Frasse & Co., 255 N. Y. 10; Utica City Nat. Bank v. Gunn, 222 N. Y. 204; Lamb v. Norcross Bros., Inc., 208 N. Y. 427; Wirth & Hamid Fair Booking, Inc., v. Wirth, 265 N. Y. 214.) The issue raised by the defense of payment presented a question of fact for the jury’s determination. (Fuller v. Kemp, 138 N. Y. 231; Manee v. Hossington, 205 N. Y. 33; Schuttinger v. Woodruff, 259 N. Y. 212; Leidy v. Proctor, 226 App. Div. 322.)
   Rippey, J.

Upon the causes of action set up in the complaint, the plaintiff recovered a jury verdict against defendant in the sum of $5,701.77 with interest from July 1, 1935. The verdict was based upon the construction placed by the jury upon a written contract between the parties, whose wording was held by the court to be ambiguous/in such a way as to permit of recovery of one-half of plaintiff’s expenses in defending an interference proceeding in the United States Patent Office. Defendant also had recovery on the first counterclaim set up in the answer for $2,041 with interest from September 1, 1937, which was set' off against plaintiff’s recovery and judgment was entered.in favor of plaintiff for the difference with costs. The jury found in favor of plaintiff on defendant’s second counterclaim. The Appellate Division unanimously affirmed and the case is here by our permission. The fundamental question to be considered on plaintiff’s case is whether he presented facts sufficient to establish the cause of action upon which his recovery is based.

Prior to July, 1931, plaintiff was an inventor and a designer of machines essentially of mechanical movements, was engaged in business under the name and style of American Turnstile & Supply Company and had filed an application in the United States Patent Office then claimed by him to cover improvements on mechanical turnstile mechanisms, with special reference to silencing arrangements therein. He had no plant of his own and did not manufacture turnstiles but those he sold were subcontracted and manufactured by others under his supervision. Defendant was a general contractor for supplies and equipment but did not manufacture turnstiles.

Before June, 1931, the Board of Transportation of the City of New York had advertised for bids for 300 turnstiles for installation in the Eighth Avenue Subway and plaintiff interviewed officers of defendant with reference to bidding on the contract. Another contractor, the Perey Company, claimed to have patent protection on turnstiles desired by the city and, to plaintiff’s knowledge, notified various contractors who might become bidders that they should refrain from giving consideration to turnstiles proposed by plaintiff. After the question of patent infringement by plaintiff’s devices was discussed between plaintiff and defendant’s officers and investigated by defendant, plaintiff represented to and assured defendant that the devices of his application did not infringe or conflict in any way with the Perey or other patents. The contract which the city proposed to make with the successful bidder was discussed between plaintiff and defendant’s officers with special attention to clause XVI which provided for' saving the city against expense or loss from infringement. Plaintiff had in mind and understood that he would be obligated to save the city harmless from expense, loss or damage arising from or growing out of infringement were his devices adopted and that he would also be required to protect any successful bidder furnishing such devices against such a guaranty in the city contract and also against liability of the contractor for infringement. He then knew that any profits that might be derived from a sale of such devices to defendant could not be finally determined until a decision was reached that the question of such liability on such guaranties was no longer open. As to all of that, the plaintiff testified.

On the strength of plaintiff’s representations and assurances, defendant undertook to procure the contract. Plaintiff furnished defendant verbally with a quotation on the turnstiles, defendant filed its bid and was awarded a contract known as L-12. Among other things, the contract, so far as material, contained the following provision:

“ Article XVI. Infringement of patents. The Contractor agrees that he will at his own expense defend all suits or proceedings instituted against the City and pay any award of damages assessed against the City in such suits or proceedings, insofar as the same are based on any claim that the Equipment, or any part thereof, or any tool, article or process used in the completion thereof, constitutes an infringement of any patent of the United States * * *. In case such equipment is in such suit held to constitute infringement and its use is enjoined, the Contractor, within a reasonable time, and at his own expense, will either secure for the City the right to continue using said equipment by suspension of the injunction, by procuring for the City a license or otherwise, or will replace such equipment with non-infringing equipment or modify it so that it becomes non-infringing or remove the said enjoined equipment and refund the sums paid therefor, and reimburse the City for all transportation and installation costs of such equipment.”

On July 8, 1931, the defendant, in writing, accepted plaintiff’s verbal quotation as follows:

“ We herewith accept your verbal quotation for furnishing approximately 223 Low Type Turnstiles at a price of $240.00 each and approximately 78 High Type Turnstiles at $260.00 each.
“ The above prices are f. o. b. our truck, 314 Dean Street, Brooklyn, N. Y.
“All of these turnstiles are to be made in accordance with plans and specifications of the Board of Transportation, New York City, known as their Contract #L-12, and is subject to their inspection, approval and acceptance.
“ In accepting this order, it is distinctly understood that you guarantee to defend and save this Company harmless from any infringement suits, threatened or actually brought forth for infringements or alleged infringements arising from our Purchase Sale or use of these turnstiles.
“ Deliveries are to be made as required by the terms of our contract with the Board of Transportation mentioned above.”

The plaintiff was unable to finance the contract or manufacture the turnstiles and apparently was unable to finance himself during.the period necessary for manufacture. He had arranged with the Fred Goat Company of Brooklyn for the manufacture of the machines and with others for supplies, etc. He had no credit to go forward with the manufacture of the devices. Thereupon, on the same day that defendant had accepted plaintiff’s proposal for the manufacture and delivery of the machines, the parties entered into a written agreement which recited the agreement whereby defendant contracted with plaintiff for the manufacture and delivery of the turnstiles, that it was the intention of the parties to organize a corporation to take over, manufacture and sell turnstiles in accordance with certain ' applications for letters patent which were then pending in the name of the plaintiff in the United States Patent Office, and then provided that, in consideration of defendant’s guaranteeing the plaintiff’s accounts with the manufacturers and furnishers of materials and supplies needed for the manufacture of the turnstiles, the plaintiff would pay over to defendant the entire net profits derived from the sale of the machines, such net profits to be the difference between the net actual cost to plaintiff plus an overhead charge of a salary of one hundred dollars per week to be paid to him plus office expenses not to exceed sixty dollars per month until the delivery of the machines, and then follows this clause: “ The said VULCAN RAIL AND CONSTRUCTION COMPANY agrees to hold the said sum to be paid herein as profits in escrow for a period of two years from the date of payment and to pay therefrom any costs of litigation or damages resulting therefrom which may arise out of or grow from the infringements of any patent in the manufacture or. sale of such turnstiles or any suit, claims, costs or damages arising out of the above-mentioned contract, and when the said period of two years shall have expired the VULCAN RAIL AND CONSTRUCTION COMPANY shall pay over to HENRY A. NAU for his own use and benefit 50% of such profits remaining after the above costs, expenses, etc., if any, shall have been paid, and shall retain for its own use and benefit the remaining 50% thereof.”

All of the turnstiles were delivered to, inspected, approved and accepted by the city of New York during the fall of 1931 and early in 1932 and defendant received payment in full. All moneys it received were turned over to plaintiff from which he deducted the cost of manufacture and other expenses in connection with the enterprise and there was left a net profit after the aforesaid deductions, including his weekly salary overhead, of $26,710.40, which sum he delivered to the defendant on February 2, 1932, to be held in escrow in accordance with the provisions of the contract.

At the time the contracts were entered into plaintiff had no patents on the devices which were sold to the city. On November 29, 1930, he had filed in the United States Patent Office an application for a patent involving the inventions claimed to have ultimately gone into the turnstiles. A division apparently occurred in the Patent Office, with the result that he received one patent, No. 1,844,784, on a portion of his invention on February 9, 1932, and the application, Serial No. 499,043, was continued on the balance of his claims. Some time after the contract between the parties was executed, one Kelton filed an application in the Patent Office allegedly upon the same invention, whereupon an interference was declared. Two other claimants to the same invention were brought in and the interference proceeding was carried on over many months. In that litigation plaintiff succeeded and the second patent was thereupon issued to him on May 3, 1938.

On October 13, 1934, plaintiff in due form and for sufficient consideration, by a written instrument under seal, transferred and assigned the patent which had already issued, the then pending application and all inventions embodied therein and all his inventions, applications for patents and patents relating to turnstiles and devices applicable thereto or to be associated therewith, together with all foreign patents and the right to obtain foreign patents on said inventions, and his good will and business and all assets in connection with his turnstile business, except accounts and bills receivable, to the Perey Company and agreed to aid the latter in the prosecution or defense of the Kelton interference proceeding then pending in the United States Patent Office to a conclusion and final determination and any other interference proceedings that might arise. By the terms of the assignment the plaintiff covenanted that he would cease manufacturing turnstiles and would not engage in the business of manufacturing or handling turnstiles for a period of fifteen years and that he would, by suitable instruments, turn over to the assignee any inventions in connection therewith that he might subsequently make. In addition to the $2,500 consideration mentioned in the assignment, Perey was to pay to plaintiff, and ultimately did pay him, some $15,000, representing the aggregate of from $60 to $70 per turnstile which Perey was manufacturing and selling to the city.

From time to time after February 2, 1932, defendant loaned moneys to plaintiff with which to pay his expenses in the interference proceeding and for other purposes and received notes from plaintiff for such loans. On November 9, 1934, defendant paid to plaintiff $884.60 which, with the aggregate loans, amounted to exactly one-half of the profits held by defendant in escrow plus earned interest, returned the notes and received a written receipt from plaintiff “ in full and final settlement of my share of reserve fund set up out of profits on operations covering the manufacture of Turnstiles for the Eighth Avenue Subway — Contract L-12, account of the City of New York.” Plaintiff agrees that he received one-half of the net profits held in escrow by defendant. Still he sues here on the written contract between the parties, making no claim that there was ever any other agreement, oral or written, between him and defendant and asserts that the contract as written, in express terms or by necessary implication, binds defendant to reimburse him for one-half of his expenses in the interference proceeding on the theory that a successful defense of that was necessary to ward off infringement suits and consequent liability under the guaranties.

The contract between the defendant and the city of New York was referred to in defendant’s acceptance of plaintiff’s offer and substantially made a part thereof, and the last writing referred to and substantially made the acceptance a part of it. All three instruments were executed at substantially the same time, related to the same subject-matter, were contemporaneous writings and must be read together as one (Marsh v. Dodge, 66 N. Y. 533, 537, 538; Meriden Britannia Co. v. Zingsen, 48 N. Y. 247; Matter of Board of Commissioners of Washington Park, 52 N. Y. 131; Knowles v. Toone, 96 N. Y. 534; American Law Institute, Restatement of Contracts, § 235 [c]). Even though they had been made at different dates, that fact would not affect the rule since they were to effectuate the same purpose and formed a part of the same transaction. When the instruments are read as one, clearly on the question of indemnity the purpose of the parties was to protect the city and defendant against infringement suits or claims arising or growing out of infringement through the manufacture, purchase, sale or use of the turnstiles. The wording of the instruments is plain and unambiguous upon that point.

Plaintiff, however, has so far successfully contended that an interference proceeding in the United States Patent Office was embraced within the terms “ infringement suits ” and “ infringement ” as those expressions were used in the contract. Much evidence extrinsic of the contract was introduced by plaintiff, over defendant’s objection and exception, designed to show that the parties so intended and there was evidence claimed to show that practical construction by the parties - of the language used so indicated. The court charged the jury: “It is for you to determine in the light of all the evidence before you what was the agreement upon which the minds of the parties met on July 8th, 1931. It is for you to determine from all the evidence in the case the sense in which the words of the written agreement were used by the parties thereto. You are to determine this from all the circumstances surrounding the-making of the agreement as you find them to have existed, and from the practical construction put on the agreement by the acts and conduct of the parties after the making of the agreement as it appears from the evidence.” The court further instructed the jury that while in the technical sense of the law of patents an interference is an entirely different proceeding from a suit for an infringement of a patent, the sense in which those words were used in the contract was to be determined by them.

When connected with patents and patent practice, the words and expressions infringement,” infringement suits,” “ interference ” and “ interference proceedings ” are words and expressions of art and have a definite, technical and well-understood meaning. Both parties, as plaintiff testified, knew the difference in meaning. The words infringement ” and interference ” are not synonymous and an interference ” proceeding is not an “ infringement suit.” The purpose of an interference proceeding is to determine in advance of the issue of a patent the question of priority of invention (30 Cyc. 892, 893). No infringement suit may be maintained by anyone at any time on a pending application for a patent (Rein v. Clayton, 37 Fed. Rep. 354). It is only after the patent issues that such a suit may lie (Gayler v. Wilder, 10 How. [U. S.] 477, 493). Technical words in a contract must be taken in a technical sense unless the context of the instrument or a usage which is applicable clearly indicates a different meaning (American Law Institute, Restatement of Contracts, § 235 [b]). There was no evidence of usage and the context of the contract indicates no different meaning.

The contract was plain and unambiguous upon its face and the intent of the parties is clearly indicated by the language used. The construction of a plain contract is for the court. The intention of the parties is found in the language used to express such intention. (Hartigan v. Casualty Co. of America, 227 N. Y. 175.) If the court finds as matter of law that the contract is unambiguous, evidence of the intention and acts of the parties plays no part in the decision of the case. Plain and unambiguous words, undisputed facts, leave' no question of construction except for the court. The conduct of the parties may fix a meaning to words of doubtful import. It may not change the terms of a contract ” (Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125, 133).

The language of the contract clearly indicates that protection against infringement was the sole purpose of the indemnity clauses. It is presumed that the contract, prepared by an attorney, was drawn with reference to applicable law. An infringement suit could he, if ever, against the city and the contractor only when brought by a person other than the plaintiff who owned a patent containing valid claims which were infringed. Both parties knew^that plaintiff had no patent. Both knew that ah he had was a pending application for a patent. It is so recited in the contract. No interference was pending when the contract was made. So far as the indemnity clauses were concerned, it was no concern of defendant whether an interference arose or not or whether a patent was ever issued to plaintiff since neither circumstance would bar an infringement suit by a stranger to the contract who was the owner of a patent covering the turnstiles. The words used in the contract have a precise, definite and well-understood meaning when used in connection with the subject-matter of the contract and the courts are not permitted to explore the actuality of the intent of the parties. Its plain terms indicate that there was no intent or purpose of the parties to give to the indemnity clauses a meaning and purpose other than the plain, unambiguous and well-understood words and expressions used import. There is nothing in the contract on which recovery by plaintiff may be predicated. There was nothing in the evidence which furnished any basis for reimbursement of plaintiff for expenses he incurred in the interference proceeding in the Patent Office out of defendant’s one-half share of the profits arising from the manufacture, sale and delivery of the turnstiles to the city. No infringement suits were brought or threatened nor were claims presented arising or growing out of infringement. Exceptions were noted to denial of defendant’s motions for nonsuit. Defendant adequately and fully protected itself by exceptions to the charge and to refusal of the court to charge as requested to enable it to present the question of the propriety of the court’s submitting to the jury the construction properly to be placed on the contract as a question of fact. The evidence was insufficient to warrant recovery by plaintiff and it was, therefore, error for the trial court to deny defendant’s motions for a nonsuit and a dismissal of the complaint.

Under defendant’s first counterclaim, a verdict was rendered for defendant for $2,041 and judgment authorized for that sum with interest from September 1, 1937. This claim arose out of moneys advanced by the defendant to plaintiff to finance other litigation to which we need give no attention here. Liability of plaintiff therefor was conceded. Neither party appealed from the judgment so far as it affected the first counterclaim so that is not before us for review and we have no power to disturb it (Wilson v. Mechanical Orguinette Co., 170 N. Y. 542, 553).

Defendant’s second counterclaim arose out of alleged damages which it suffered by virtue of the failure and refusal of the plaintiff to perform that part of the contract which provided for the turning over of plaintiff’s application and patents to a corporation to be jointly owned by the parties. Evidence appears which was designed to show that plaintiff disposed of his patents to the Perey Company with defendant’s consent, and that defendant abandoned that part of the contract or, at least, failed to perform conditions precedent to any requirement of plaintiff to perform. The issues raised on that counterclaim were properly submitted to the jury as questions of fact and we find no error of law in connection with such submission or in the trial involving the issues which warrants a reversal.

Defendant appealed to the Appellate Division from the judgment thus entered and from each and every part thereof, Obviously it could not appeal and did not intend to appeal from that portion- of the judgment in its own favor. Although the separate recoveries were based upon the same transaction, the causes of action were clearly separable and submitted to the jury as separate causes of action, the verdicts were rendered separately upon them and separate amounts were claimed on each cause of action and could be easily separated from the judgment rendered in gross. Under such conditions we have power to render such judgment as the law of the case and as justice requires (Civ. Prac. Act, § 584; Fred v. County of Queens, 154 N. Y. 661, 664, 666; Fisher v. Wakefield Park Realty Co., 203 N. Y. 539; Wilson v. Mechanical Orguinette Co., 170 N. Y. 542, 553; Picard v. Lang, 3 App. Div. 51; Haughey v. Belmont Quadrangle Drilling Corp., 286 N. Y. 584).

The judgments in so far as they allow recovery by plaintiff should be reversed and the complaint dismissed upon the merits, with costs to the appellant in all courts; the judgments as to the second counterclaim should be affirmed and the case remitted to the trial court to enter judgment for the defendant upon its first counterclaim in the sum of $2,041 with interest from September 1, 1937.

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

Judgment accordingly.


source: Caselaw Access Project

author: Finch, J. Desmond,. J.

license: Public Domain

text:
    In the Matter of Otto Marburg, Respondent, against Ernest E. Cole, as Commissioner of Education of the State of New York, et al., Appellants.

      Argued June 10, 1941;
    decided July 29, 1941.

      Charles A. Brind, Jr., and Joseph Lipsky for appellants.
    Respondent is not of conceded eminence and authority in his profession. (People ex rel. Williams v. Dayton, 55 N. Y. 367; City of New York v. New York City Ry. Co., 193 N. Y. 543; Grimmer v. Tenement House Dept., 205 N. Y. 549; Matter of City of New York, 217 N. Y. 1; Bullock v. Cooley, 225 N. Y. 566; Story v. Craig, 231 N. Y. 33; Town of Amherst v. County of Erie, 260 N. Y. 361; Kings County Lighting Co. v. City of New York, 176 App. Div. 175; People ex rel. Metropolitan Life Ins. Co. v. Knapp, 193 App. Div. 413; Matter of Dick v. Murphy, 219 App. Div. 141; People ex rel. Lewis v. Graves, 219 App. Div. 233; Gemenez v. Great Atlantic & Pacific Tea Co., 242 App. Div. 485; Matter of Deth v. Castimore, 245 App. Div. 156; Price
      v. Mullen, 247 App. Div. 528.) The application of respondent is addressed to the discretion of the Commissioner of Education and the Board of Regents. (Matter of Levi v. Regents, 256 App. Div. 444; 281 N. Y. 627; Matter of Bailey v. Board of Regents, 261 App. Div. 64; People ex rel. Comstock v. City of Syracuse, 59 Hun, 258; 128 N. Y. 632; Gilmore v. City of Utica, 55 Hun, 514; 121 N. Y. 561; Malcolm v. Rogers, 5 Cow. 188; People ex rel. Rota v. Baker, 136 App. Div. 7; People ex rel. Schwab v. Grant, 126 N. Y. 473; People ex rel. Goldenkoff v. Albany Law School, 198 App. Div. 460; People ex rel. Peixotto v. Board of Education, 212 N. Y. 463; Matter of Davis v. Sexton, 211 App. Div. 233.)

      Benjamin F. Feinberg and Clyde A. Lewis for respondent.
    The Commissioner of Education and the Board of Regents cannot exercise in an arbitrary, unfair or capricious manner the power delegated to them by the Legislature in section 1259 of the Education Law (Cons. Laws, ch. 16). (People ex rel. Doscher v. Sisson, 222 N. Y. 387; People ex rel. Comstock v. Mayor, 59 Hun, 258; 128 N. Y. 632; Matter of Schwab v. McElligott, 282 N. Y. 182; Matter of Small v. Moss, 277 N. Y. 501; 279 N. Y. 288; Matter of Erlanger v. Regents, 256 App. Div. 444; Matter of Siegel v. Mangan, 258 App. Div. 448 ; 283 N. Y. 557; Matter of DeLuca v. Byrne, 168 Misc. Rep. 841; 256 App. Div. 859.)
   Finch, J.

The petitioner in this proceeding, a licensed Austrian physician, has submitted to the appellants, the Commissioner of Education and the Board of Regents, an application for the indorsement of his Austrian license to practice medicine, without examination, pursuant to the power granted to them by the provisions of section 1259 of the. Education Law (Cons. Laws, ch. 16). The question presented for decision is whether the refusal by the appellants to indorse petitioner’s license is arbitrary, capricious or unreasonable so as to constitute an abuse of the discretion conferred upon appellants by the Legislature. This petition, brought pursuant to article 78 of the Civil Practice Act, requests that the court review the determination of the appellants and issue an order directing appellants to indorse petitioner’s medical license so as to enable him to practice medicine in the State of New York without the necessity of taking a licensing examination.

The petitioner, Otto Marburg, was licensed to practice medicine by the Austrian government in 1899. Upon coming to this country as a refugee he made the aforesaid application for indorsement of his foreign license pursuant to what he claims is his right under section 1259 of the Education Law. He filed with the Board of Regents such documents as he could procure from abroad as to bis preliminary and professional qualifications but was unable, because of the unsettled conditions in Germany, to produce any certificate of maturity indicating his completion of a gymnasium course nor evidence of his attendance at medical school so as to furnish the Board with information concerning his scholastic standing. At the same time he also filed with appellants verified statements as to his practice and experience together with letters from six American doctors who recommended that his application be granted. He also filed proof that he has declared his intention to become an American citizen. While his application was pending, the Board accorded petitioner an opportunity to appear in person and by counsel before a committee of the Board. Subsequently the appellants held a meeting at which the application was denied under section 1259 upon the ground that the petitioner had not in their opinion reached a position of conceded eminence and authority in the medical profession. Thereafter, the petitioner filed a supplemental application, which application upon consideration by the Board was again denied for the same reason. This latter denial, at the instance of petitioner’s counsel, was amended after further consideration on the merits to read that the application was denied pursuant to section 1259 of the Education Law whereas it had formerly read that it was denied pursuant to section 51 of that law.

Thereafter petitioner-respondent instituted this proceeding. Special Term annulled the decision of appellants and directed them to indorse respondent’s Austrian license, thereby opening the door for him to practice his profession in this State without submitting to a medical licensing examination. Upon appeal to the Appellate Division, the order was affirmed, one justice dissenting. The Commissioner of Education and the Board of Regents now appeal to this court.

Subject to the requirements and procedure set forth in detail by the Legislature, the administration of admittance to all professions which are regulated by license in this State, except the profession of the law, has been committed into the hands of the Board of Regents. As the late Judge John F. O’Brien has said in an opinion written for this court, the Board of Regents is the “ statutory guardian of the [Educational] policies of the State * * (Matter of Dr. Bloom Dentist, Inc., v. Cruise, 259 N. Y. 358, 363.)

In order to protect the health and provide for the welfare of the citizens of the State, the Legislature in the exercise of the police power of the State, has enacted laws requiring a certain standard of learning and training of those who undertake to preserve or repair the human body. Thus until he has been licensed by the proper authorities, no person has an absolute, unqualified or vested right to practice medicine or surgery. The methods by which such license may be obtained are clearly and concisely set forth by the Education Law and provide that licenses may be obtained by citizens of this State only after a rigorous course of study, and after the successful participation in a licensing examination designed to test their fitness. (Education Law, §§ 1256, 1257.) In the case of a person not a citizen of this State, the Education Law provides two methods by which he may be admitted to the practice of medicine besides the method pursued by petitioner. Thus section 51 of the Education Law provides that the Regents may indorse a license issued by a foreign State or country “ upon satisfactory effidence that the requirements for the issuance of such license were substantially the equivalent of the requirements in force in this state when such license was issued, and that the applicant has been in the lawful and reputable practice of his profession for a period of not less than five years prior to his making application; ” and section 1256 provides that any person who is a citizen of the United States or who has declared his intention to become such citizen may take a licensing examination provided he has completed the preliminary educational requirements. Petitioner has made no application under either of these provisions.

After providing the foregoing methods for licensing physicians and surgeons, the Legislature further provided in section 1259 that “ The commissioner of education may in his discretion on the approval of the board of regents indorse a license or diploma of a physician from another state, or country, provided the applicant has met all the preliminary and professional qualifications required for earning a license on examination in this state, has been in reputable practice for a period of ten years, and has reached a position of conceded eminence and authority in his profession.’ ’ (Italics added.) It is the interpretation of this provision by the Commissioner of Education and the Board of Regents that we are asked to review in the case at bar, since this is the method by which petitioner has sought to obtain entrance into the practice of medicine in the State of New York.

As bearing on the issue of whether the Commissioner of Education and the Board of Regents have acted arbitrarily and unreasonably in refusing this petitioner a license without calling upon him to take the ordinary medical licensing examination and placing him in the class of the four outstanding persons of conceded eminence to whom this honor has heretofore been accorded, it may not be amiss to call attention to the liberality with which the Legislature in New York State, and in turn, the Regents, have acted in granting medical licenses to non-citizens of this State. No State in the Union, and no foreign State or country has been as liberal in this respect as has the State of New York. On the other hand, only on exceedingly rare occasions are physicians from the State of New York enabled to secure a license to practice medicine in Europe or in South America. New York State in 1939 issued 497 licenses to graduates of schools outside of the United States. Pennsylvania issued 25, Illinois 80, Ohio 65, Indiana 6, Iowa 8, Missouri 6, and Massachusetts 66. Many States have never issued such a license. New York State in 1940 admitted to the practice of medicine 557 graduates of schools located outside of the United States. Of the 1,054 graduates of foreign medical schools admitted to practice medicine in the State of New York after examination in 1939 and 1940, the vast majority are persons who were born in foreign countries and came to this country during the last several years. The foregoing facts show that the many general allegations of arbitrariness and unreasonableness imputed to the Commissioner of Education and the Board of Regents in this record are wholly without foundation.

In view of this liberal policy toward non-citizens under sections 51 and 1256, it was not arbitrary for the Commissioner of Education and the Board of Regents to adopt a standard of unique and outstanding service as an interpretation of the power conferred upon them by section 1259.

The statute under consideration expressly invests the Commissioner of Education and the Board of Regents with a very wide discretion, the due exercise of which the courts do not have the power to disturb. Nor do the courts have the power to substitute their judgment in place of the judgment of the properly delegated administrative officials. Thus in the absence of clear and convincing proof that the discretion of the Board of Regents has been exercised arbitrarily, unfairly or capriciously, the courts will not interfere. (Matter of Erlanger v. Regents of University of State of New York, 256 App. Div. 444; People ex rel. Harris v. Commissioners of Land Office, 149 N. Y. 26; People ex rel. Wooster v. Maher, 141 N. Y. 330, 337; Matter of Levi v. Regents, 256 App. Div. 244; affd., 281 N. Y. 627.)

Construing section 1259 as conferring upon them the right to indorse the license of outstanding men in the medical world as a privilege and honor to the recipient, the Commissioner of Education and the Board of Regents have exercised the broad discretion conferred upon them with great caution. Since this power was created in 1918, only-four persons have been licensed under this section. In the case of each of the persons so singularly honored, the position of eminence and authority which he had attained in the medical profession was beyond question. Thus these persons and their qualifications for this honor are:

Dr. Bela Schick, license indorsed in 1923, discoverer of the Schick Test for Determining Susceptibility to Diphtheria.”

Dr. Benjamin Philip Watson, license indorsed in 1927, full professor of gynecology and obstetrics at the University of Toronto, Canada, from 1912 to 1922, and called to a full professorship of gynecology and obstetrics by Columbia University Medical School and the directorship of Sloane Hospital for Women in 1926.

Dr. George Hoyt Whipple, license indorsed in 1935, recipient in 1934 of the Nobel Prize in Medicine and co-discoverer of the cause and cure for pernicious anemia.

Dr. Manfred Sakel, license indorsed in 1939, the originator of the so-called insulin shock treatment for dementia praecox or schizophrenia.

Since three out of four of these persons have received their high position in the medical world because of original discoveries which they have made in their respective fields of medicine, there is ample evidence in this record to sustain the contention urged by the appellants in the case at bar that in interpreting the broad discretion conferred upon them by the standard, a position of conceded eminence and authority in [the medical] profession,” they have adopted a rigid objective test that the eminence required by the statute is obtained only by an outstanding original contribution in some one field of medicine.

Only in the case of Dr. Benjamin Philip Watson, who was admitted in 1927, does the record show that this test has not been satisfied. In his case the recent appointments which he had received at Columbia University and at The Sloane Hospital for Women were of sufficient importance to allow the Regents to make an exception within their discretion where they were satisfied that he ranked among the few outstanding men in his profession as evidenced by universal recognition and outstanding appointments in this State.

In the case at bar, after an oral hearing and after petitioner’s application had been before them for consideration upon three separate occasions, appellants have come to the determination that the eminence of this applicant does not satisfy the standard required by the statute as it has been interpreted by them in the past. It is this determination which we are asked to declare to be arbitrary, unfair and capricious upon this record. It is our opinion that such is not the case.

It is not claimed here by petitioner, nor does the record show, that this petitioner is responsible for any outstanding original contribution to any field of medicine. Thus, if the eminence of petitioner is in any way to satisfy the high degree of eminence which has been set as a prerequisite for the indorsement of a medical license, it must be shown that his eminence in the field of neurology is so great that it can be said to be arbitrary, unfair or capricious for appellants to have refused to make an exception to the general standard in his case.

A careful examination of the record in the case at bar reveals that such is not the case. The record shows that petitioner had an enviable record as the Director of the Neurological Institute at the University of Vienna from 1919 to 1938, that he was in active practice in Vienna from 1905 to 1938, and that he has published about two hundred scientific papers and books written in his native German tongue as well as being accorded membership in the American Neurological Society. Upon his enforced emigration to America, Dr. Marburg has continued his career and has received an appointment as a Clinical Professor of Neurology at Columbia University and as Research Neuropathologist at the Montefiore Hospital. The letters from his friends, former students and associates in the field of neurology clearly show that he has attained their esteem and respect as a medical teacher and practitioner. This evidence, while it is impressive, does not sustain the contention that appellants must make an exception to their general standard in Dr. Marburg’s case because their refusal to be satisfied that he ranks among the few outstanding men in his profession as evidenced by universal recognition and outstanding appointments to positions of high responsibility in this State is arbitrary, unfair or capricious. The language and the reasoning which was applied in Matter of Levi v. Regents (256 App. Div. 444, p. 447; affd., 281 N. Y. 627) to section 51 of the Education Law is equally applicable to section 1259: “ This section [§ 51] was only intended by the Legislature to apply to exceptional' cases where the merit of the applicant is clearly established to the satisfaction of the Regents. The burden of proof is upon the applicant.” In the case at bar neither were appellants satisfied that the evidence of his eminence in his profession introduced by Dr. Marburg proved that they should make an exception to their general standard in his case, nor was this evidence so overwhelming that we can say as a matter of law that their refusal to make such an exception was arbitrary, unfair or capricious. It follows that in the case at bar the refusal by appellants to indorse petitioner’s medical license was not an abuse of their discretion. Since the Board of Regents has determined that Dr. Marburg has not shown that he is of equal eminence with any of the other four persons who have been licensed pursuant to this section, that determination is binding upon us.

Petitioner does not allege, nor is there any evidence to support a claim, that the standard which has been adopted by appellants is arbitrary or unreasonable. The law is well settled that it is not always necessary that license legislation prescribe a specific rule of action. Where it is difficult or impractical for the Legislature to lay down a definite, comprehensive rule, a reasonable amount of discretion may be delegated to the administrative officials. (New York ex rel. Lieberman v. Van De Carr, 199 U. S. 552, affg. 175 N. Y. 440.) Where the administrative agency has adopted a standard as an interpretation of the broad powers granted to it by the statute, we may declare such a standard invalid only in the event that it is so lacking in reason for its promulgation that it is essentially arbitrary. (Cf. Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 78, 79; Borden’s Farm Products Co. v. Baldwin, 293 U. S. 194, 209, 210; Metropolitan Casualty Ins. Co. v. Brownell, 294 U. S. 580, 584; United States v. Carotene Products Co., 304 U. S. 144, 152; People v. Beakes Dairy Co., 222 N. Y. 416, 429.)

In view of the liberality accorded by New York State to practitioners of other States pursuant to sections 51 and 1256 of the Education Law, as well as the numerous applications made by non-citizens to practice medicine in New York, the interpretation of the powers confided to them by the Legislature through the provisions of section 1259 is not unreasonable. (Cf. Matter of Levi v. Regents, 256 App. Div. 444; affd., 281 N. Y. 627.) Thus in the case at bar, where the Board of Regents has interpreted the words conceded eminence and authority in his profession ” to mean an outstanding original contribution to a certain field of medicine or standing among the first few men of his profession, as evidenced by universal recognition and outstanding appointments to positions of high responsibility in the State, such interpretation cannot be said as a matter of law to be unreasonable or arbitrary.

The petitioner places great reliance upon this appeal upon two. letters which were written to him by the Director of the Division of Professional Education and the Associate Commissioner of Education respectively, as showing an inclination on the part of the Board of Regents to dismiss summarily his application. Neither of these letters shows any animosity toward this particular petitioner, but are merely declarations of a well-settled policy on the part of the Board of Regents in regard to the indorsement of medical licenses. On the other hand, the record as a whole shows that these officials aided the petitioner in every possible way to present his petition to the Board of Regents in the proper form.

The concurring opinion of the Appellate Division referred to and characterized as dirty business ” what it describes as an attempt by the appellants to entrap the petitioner by sending a “ stool-pigeon ” to him for treatment. Such a charge against the authorities administering the Education Law of this State is without warrant in the record. It is the duty of the Executive Secretary of. Professional Conduct to investigate all and any charges which might be made, by any citizen against any person who is practicing medicine in this State. The report which is contained in the record is more naturally and more plausibly explained as a routine investigation under the Medical Practices Act than as an attempt to “ entrap ” the petitioner in a breach of professional ethics for the purpose of defeating this application as alleged by the petition and apparently believed by the Appellate Division.

Success in this proceeding, wherein the performance of an alleged official duty is sought to be enforced, requires of the petitioner that he establish a clear legal right to the remedy he has chosen. (Matter of Stracquadanio v. Dept. of Health, 285 N. Y. 93, 95, 96.) From the language of section 1259, which informs the Commissioner of Education that he “ may in his discretion ” indorse a medical license upon the approval of the Board of Regents where the applicant has reached a position of conceded eminence and authority in his profession,” it appears that the power granted is more a power to confer a privilege and does not create an absolute right in an applicant. This is the interpretation which has been placed upon this power by the administrative officials. It follows that where the action of the appellants involved a refusal to exercise such discretionary power, no order to compel the exercise of the power will he except in the case where it is clearly shown that the refusal is arbitrary, unfair or capricious. Since there is no evidence in the record of the case at bar which would sustain a finding that the refusal to exercise the discretionary power conferred upon appellants by section 1259 of the Education Law was arbitrary, unfair or capricious, the courts below should not have interfered with such lawful exercise of discretion by the Board of Regents.

It follows that the orders should be reversed and the proceeding dismissed, without costs.

Desmond,. J.

(dissenting). If petitioner had submitted to the Regents only letters from “ friends, former students and associates ” showing " that he had attained their respect and esteem as a medical teacher and practitioner,” he would of course have no case at all. What he did submit was evidence from a number of American physicians, each of unquestioned eminence, that he was “ the leading neuropathologist of Europe; ” that people flocked to Mm from every country in Europe; ” that Ms name was “ one of the most important in Europe; ” that there is "no greater figure in the medical world; ” that " almost every neurologist the world over had studied under him; ” that he has the " respect of the world-wide medical profession ” and is " unquestionably the most prominent of recent emigres,” and had been the teacher of most of the prominent neurologists of America. None of tins is disputed in any way whatever. The opimons of these physicians who thus certify to petitioner’s eminence are not assailed. Indeed, in view of the positions held by them in their profession, successful assault would be impossible. As against the sufficiency of tMs proof, defendants now assert that petitioner has failed to meet a standard, unrevealed till now, wMch limits the coverage of the words of the statute: " position of conceded eminence and authority in Ms profession ” to persons who have made original discoveries in the field of medicine. We need not now decide whether such a limitation would be arbitrary, since respondents themselves show that not all of the persons whose licenses they have indorsed under section 1259 have made any such discoveries. In other words, there is no showing of the adoption of any standard other than the plain language of the statute. When, by a wealth of proof unanswered and presumably unanswerable, petitioner showed his conceded eminence and authority ” defendants went far outside the bounds of their broad discretion in denying his application. We are not here letting down any bars or making possible any great inrush of emigre physicians. We are merely applying the plain words of the statute in one of the very rare situations in which it can apply.

The order should be affirmed.

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

Orders reversed, etc.


author: Finch, J. Desmond, J.

text:
    In the Matter of the Liquidation of National Surety Company. Louis H. Pink, Superintendent of Insurance of the State of New York, as Liquidator of National Surety Company, Appellant; Milford Construction Company et al., Respondents.

      Argued May 21, 1941;
    decided July 29, 1941.

      A. Prentiss Butler and Edward F. Keenan for appellant.
    The absence of participation by the liquidator in the South Carolina actions was found as a fact in the lower court and is not subject to review by the Court of Appeals. (Fish v. Vanderlip, 218 N. Y. 29; Bigelow v. Old Dominion Copper M. & S. Co., 225 U. S. 111.) The dissolution of the surety company pursuant to the Insurance Law (Cons. Laws, ch. 28) abated pending actions and prevented the entry thereafter of any valid judgment against the company. (Matter of National Surety Co. [Laughlin], 283 N. Y. 68; Oklahoma Natural Gas Co. v. Oklahoma, 273 U. S. 257; Pendleton v. Russell, 144 U. S. 640; Matter of National Surety Co. [Cosby Motor Co.], 174 Misc. Rep. 955.) Liquidator’s notice to claimant that the claim would be recommended for allowance could not have the effect of binding the New York court to allow the claim (Insurance Co. v. Mowry, 96 U. S. 544; White v. Ashton, 51 N. Y. 280; Matter of Casualty Co. of America [Rubin], 244 N. Y. 443.)

      Jonas J. Shapiro and Theodore S. Jaffin for respondents.
    Participation by the New York liquidator on the merits in the South Carolina proceedings resulting in the judgment in favor of the construction company was found by the court below; and this finding being supported by the evidence is controlling on the Court of Appeals. Accordingly, the judgment is conclusive and binding upon the liquidator. (Marshall v. Meech, 51 N. Y. 140; Bannon v. Bannon, 270 N. Y. 484; Amherst College v. Ritch, 151 N. Y. 282; Britton v. Scognamillo, 238 N. Y. 375; Matter of Callahan, 139 N. Y. 51; Simmonds v. Sowers, 253 App. Div. 819; 282 N. Y. 651; Norton & Siegel, Inc., v. Nolan, 276 N. Y. 392; Hooper v. Beecher, 109 N. Y. 609; Mansbaeher v. Prudential Ins. Co., 273 N. Y. 140; Henderson v. Henderson, 247 N. Y. 428; Citizens Trust Co. v. Prescott & Son, Inc., 221 App. Div. 426; Stephens v. Ringling, 102 S. C. 329; Good Health Dairy Products Corp. v. Emery, 275 N. Y. 14; Baldwin v. Iowa State Traveling Men’s Assn., 283 U. S. 522; Johnston v. Compagnie Generate Transatlantique, 242 N. Y. 381; Carleton v. Lombard, Ayres & Co., 149 N. Y. 137; Tillman v. Tillman, 93 S. C. 281.) The South Carolina judgment is binding upon the liquidator. (People v. Square Deal Poultry Corp., 218 App. Div. 746; Clark v. Williard, 292 U. S. 112; Martyne v. American Union Fire Ins. Co., 216 N. Y. 183; Olcott v. Maclean, 73 N. Y. 223; Maxwell v. Stewart, 21 Wall. 71; 22 Wall. 77.) The Superintendent of Insurance is estopped as against respondent bank from interposing the alleged setoff. (Trustees v. Smith, 118 N. Y. 634; McClare v. Mass. Bonding & Ins. Co., 266 N. Y. 371; Curnen v. Mayor, 79 N. Y. 511; Carnegie Trust Co. v. First National Bank, 213 N. Y. 301; Tylee v. Yates, 3 Barb. 222; Henry v. Brown, 19 Johns. 49; Gould v. Chase, 16 Johns. 226.)
   Finch, J.

This is a proceeding to establish a creditor’s claim against the assets of the National Surety Company now in the course of liquidation by the Superintendent of Insurance. The claim is founded on a judgment rendered in another State after June 1, 1934, on which date the corporate existence of National Surety was terminated by order of the Supreme Court of this State.

In 1931, National Surety Company executed a surety bond on behalf of Copeland-Wey, Inc., as principal, guaranteeing to the Highway Department of South Carolina the performance of a highway construction contract and the payment of claims for labor and materials in connection with the highway project. J. H. Milford subcontracted with Copeland-Wey and assigned the contract to Milford Construction Company, which alleges a claim of approximately $5,000. In February, 1933, a representative creditors’ action was brought in South Carolina against Copeland-Wey, Inc., National Surety Company and the South Carolina State Highway Department, on behalf of all persons having claims against the defendants in connection with the road construction project. The Court of Common Pleas of South Carolina designated the Official Master of Richland county to hear the claims. Milford Construction Company filed its claim and a hearing thereon was held on May 24, 1933. In May, 1933, shortly after proceedings for the rehabilitation of National Surety Company were begun in this State, receivership proceedings were instituted in South Carolina and local receivers were appointed. In July, 1934, the South Carolina court in these receivership proceedings ordered that the claims against National Surety Company be referred to the same Official Master to whom the claims in the prior action previously had been referred. The report by the Official Master, captioned in both South Carolina proceedings, was filed in March, 1935. Shortly thereafter the Court of Common Pleas confirmed the recommendations of the Master and directed that the various creditors should have judgment against National Surety Company in the respective amounts allowed. Judgment in favor of Milford Construction Company was thereafter entered in the creditors’ representative action instituted against CopelandWey, Inc.

Meanwhile, however, on June 1, 1934, before the entry of judgment in South Carolina, National Surety Company, a New York insurance corporation, was dissolved by order of the Supreme Court of this State, and the Superintendent of Insurance took possession of its property for purposes of liquidation.

The claimant Milford Construction Company filed its claim with the New York liquidator in March, 1935, and in October, 1937, assigned its claim as collateral for a loan by the claimant County Bank of Greenwood, South Carolina. During the interim, on October 2,1935, the New York liquidator sent a notice to the Milford Construction Company that “ Your claim in the amount of $5,039.83 has been examined and found to be correct, and will be recommended to the Court for allowance in that amount.” The New York liquidator, however, did not recommend the claim for allowance. In this connection we note that according to the records of National Surety Company, the company had a claim of about $20,000 against J. H. Milford individually as a result of liability incurred in connection with some other surety bond and the liquidator has questioned the validity of the assignment. Claimants-respondents contend that their claim is unaffected by any setoff in favor of National Surety Company against J. H. Milford individually. In view of the result at which we have arrived this issue becomes immaterial.

The claim filed with the New York liquidator by the Milford Construction Company was referred to a referee who recommended the allowance of the claim on the ground that by force of the provisions of section 29 of the General Corporation Law [Cons. Laws, ch. 23] of the State of New York, the corporate existence of National Surety Company was continued for the purpose of being sued even after the entry of the order of dissolution, and that, therefore, the judgment rendered in South Carolina was binding in this State and conclusive on all questions affecting the claim. The referee, on the other hand, rejected the contention of claimants that as a matter of fact the New York liquidator had participated in the South Carolina proceedings and, therefore, was bound thereby as a party to the action would have been regardless of the effect of section 29 of the General Corporation Law. Special Term confirmed the report of the referee and the Appellate Division affirmed. Appeal is taken by leave of this court.

Three questions are presented by the record on this appeal: First, whether the South Carolina judgment is conclusive in view of the provisions of section 29 of the General Corporation Law; second, whether the South Carolina judgment is conclusive in view of the conduct of the New York liquidator in the South Carolina proceedings, and third, the effect of the liquidator’s notice of October, 1935, that the claim would be recommended for allowance. No proof in support of the claim was presented other than the South Carolina judgment and, therefore, unless the judgment is binding upon the courts of this State, the claim must be dismissed.

Subsequent to the report of the referee in the proceeding at bar, we held in Matter of National Surety Co. [Laughlin], (283 N. Y. 68) that because of the conflict between section 29 of the General Corporation Law and the provisions of the Insurance Law (Cons. Laws, ch. 28) concerning the dissolution of insurance companies, section 29 does not apply to the case of insurance companies in the process of liquidation. This is in accordance with section 6 of the General Corporation Law to the effect that where there is any other corporation law which conflicts with the General Corporation Law, the former shall prevail. The effect of the dissolution of the insurance company, therefore, is to be determined by the common law.

“ It is well settled that at common law and in the federal jurisdiction a corporation which has been dissolved is as if it did not exist, and the result of the dissolution can not be distinguished from the death of a natural person in its effect [cit. cas.]. It follows therefore that, as the death of the natural person abates all pending litigation to which such person is a party, dissolution of a corporation at common law, abates all litigation in which the corporation is appearing either as plaintiff or defendant.” (Oklahoma Natural Gas Co. v. Oklahoma, 273 U. S. 257, 259; Pendleton v. Russell, 144 U. S. 640; Matter of National Surety Co. [Laughlin], 283 N. Y. 68; certiorari denied, sub nom. Laughlin v. Pink, 311 U. S. 707, Nov. 25, 1940.)

Respondents do not attempt to argue in opposition to the foregoing principle but seek to sustain the result below on the ground that the New York liquidator virtually appeared in the South Carolina proceedings and, therefore, is bound by the judgment rendered therein. The evidence in this regard consists of letters and other papers in the files of the liquidator which show that he endeavored to keep informed of the course of the ancillary receivership proceedings in South Carolina, and that he contemplated the possibility of contesting unfounded claims. The receivers appointed in South Carolina had the right to conduct an ancillary receivership to reduce to possession and to distribute to local creditors the statutory deposit and other assets in that State and those receivers were in control of the litigation in South Carolina. The New York Superintendent of Insurance, as domiciliary liquidator, was interested in the result of the South Carolina proceedings to the extent that there would be transmitted to this State any surplus available after the payment of just claims filed in the ancillary receivership. In order to keep informed of the progress of the ancillary receivership and to indulge in the opportunity to contest claims filed therein in the event he considered it advisable, the domiciliary liquidator may request information of the ancillary receivers or their attorney. The referee found that the Superintendent of Insurance as domiciliary liquidator never exercised any control over the South Carolina proceedings, but left such control to the foreign representatives of the company or to the receivers appointed by the South Carolina court. Special Term confirmed the report of the referee and the Appellate Division has affirmed.

The findings of the referee are supported by ample evidence and are conclusive upon appeal to this court. (State Const, art. VI, § 7; Civ. Prac. Act, § 589.) Respondents contend that we must presume that Special Term made whatever findings of fact are necessary to support the result reached below, and cite Marshall v. Meech (51 N. Y. 140). In that case the report of the referee was disaffirmed by Special Term, and, therefore, it was held that this court would not presume that Special Term adopted the findings of the referee whose report was disaffirmed. That case is no authority for the position of respondents in the case at bar, since Special Term here confirmed the referee’s report.

In view of the fact that respondents failed to establish that the liquidator controlled the South Carolina litigation, evidence of his interest in the outcome of the proceedings cannot be deemed to prove a general appearance so as to render him bound by the judgment. (Bigelow v. Old Dominion Copper M. & S. Co., 225 U. S. 111, 126; Fish v. Vanderlip, 218 N. Y. 29.)

Respondents also contend that in view of the notice of the liquidator that the claim of the Milford Construction Company had been found correct and would be recommended for allowance, he is now estopped to assert the existence of a setoff. This argument is of no avail to respondents, since in the view which we take of the case they have failed to establish their claim, and, therefore, the question of a setoff does not arise. If, however, respondents mean to suggest that the liquidator is estopped to dispute the validity of the claim as distinguished_from the validity of the setoff, then their position is incorrect, for a claim against the assets of the dissolved insurance company may be allowed or disallowed only by the court and, as the referee found, the representation of the liquidator, even if it were not considered to be promissory, could not estop the court.

Since the judgment rendered in the South Carolina proceedings is not binding upon the courts of this State, it follows that the order of the Appellate Division and that of the Special Term should be reversed and the claim disallowed, without costs.

Desmond, J.

(dissenting). I agree with Judge Finch’s conclusion that section 29 of the General Corporation Law was inoperative in this situation. I disagree with his conclusion as to the legal effect of the admitted activities of the Superintendent of Insurance in connection with the South Carolina receivership. The Superintendent had an interest in any surplus that might remain of the company’s assets in South Carolina after local claims were satisfied, and the Superintendent quite properly took steps to investigate and protect that interest. On the proof before the referee a question of fact arose as to whether those steps were of such nature as to have made the Superintendent a party litigant in the South Carolina proceedings and so bound by the judgment which ended those proceedings. As showing such a dispute of fact we need only point to the evidence before the referee that the Superintendent instructed the attorney for the South Carolina receivers to defend any unfounded claims, promised to pay that attorney for his services, requested and obtained from the Special Master a postponement of the hearings in South Carolina, sent a representative to South Carolina to confer with the Special Master concerning these claims, received from the Special Master a report on the allowance of claims, and asked for and received an opportunity to object to any of the claims. Such proof, I think, was ample to support a finding of fact in this proceeding that the Superintendent had become an active litigant in the South Carolina receivership. The referee, who was appointed in this proceeding to hear and report only, did not make such a finding but found to the contrary. His report was confirmed by Special Term without opinion, and the Special Term order was affirmed by the Appellate Division, again without opinion. In this situation, as the case comes to us, we are in no way bound by the finding of the referee that the Superintendent of Insurance was not an active litigant in the South Carolina proceedings. Findings by such a referee are “ merely to inform the conscience of the court ” (Marshall v. Meech, 51 N. Y. 140, 148) and so the validity of the Special Term’s order of confirmation does not depend on the findings of the referee. Rather we are required to assume that Special Term made for itself such findings of fact as are necessary to support the order. (Trustees of Amherst College v. Ritch, 151 N. Y. 282, 321; Britton v. Scognamillo, 238 N. Y. 375, 377.) This seems to be the rule whether Special Term confirms the referee’s report as here, or disaffirms it, as in Marshall v. Meech (supra). (See Bannon v. Bannon, 270 N. Y. 484, 492.) Required as we are to assume that Special Term found as fact that the Superintendent of Insurance did place himself in the role of a litigant in South Carolina, and discovering, as we do, ample testimony to support such a finding, we must conclude that the result reached below was correct.

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

Orders reversed, etc.


author:
Loughran, J.
      Lehman, Ch. J. Desmond, J.

text:
    American Guild of Musical Artists, Inc., et al., Appellants, Impleaded with Another, v. James C. Petrillo, Individually and as President of American Federation of Musicians, et al., Respondents.

      Argued June 5, 1941;
    decided July 29, 1941.

      Louis B. Boudin, Henry Jaffe and Sidney Elliott Cohn for appellants.
    There is nothing in section 876-a of the Civil Practice Act which requires a dismissal of the complaint or which would stand in the way of plaintiffs obtaining relief in this suit. (Nevins, Inc., v. Kasmach, 279 N. Y. 323; Duplex Printing Press Co. v. Peering, 254 U. S. 443.)

      Samuel Seabury, Henry A. Friedman and George Trosk for respondents.
    The complaint abounds in conclusions that defendants acted “ maliciously ” in sending the letter but no facts are alleged to support these conclusions. In determining the sufficiency of the complaint herein, the only question presented is whether or not the sending of the latter was, per se, an illegal act. (Nann v. Raimist, 255 N. Y. 307; Gerdes v. Reynolds, 281 N. Y. 180; Knowles v. City of New York, 176 N. Y. 430; Meisel v. Central Trust Co., 179 App. Div. 795; 223 N. Y. 589; Almirall & Co., v. McClement, 207 App. Div. 320; 239 N. Y. 630; Goodman Bros., Inc., v. Ashton, 211 App. Div. 769; De Jong
      v. Behrman Co., 148 App. Div. 37; Nillson v. Lawrence, 148 App. Div. 678.) Even if the complaint were otherwise sufficient, it would have to be dismissed because it concerns a “ labor dispute ” within the meaning of section 876-a of the Civil Practice Act and that section provides that, in such a case, no court shall have jurisdiction to issue an injunction which would restrain persons from ceasing or refusing to perform work, or remaining in any relation of employment, or from advising, urging or inducing, without fraud, violence or threat thereof, others to do so. (May’s Furs & Ready-to-Wear, Inc., v. Bauer, 282 N. Y. 331; Milk Wagon Drivers Union v. Lake Valley Farm Products, Inc., 311 U. S. 91; Temer v. Glickstein & Terner, Inc., 283 N. Y. 299.)
   Loughran, J.

The plaintiffs are American Guild of Musical Artists, Inc. — a membership corporation — and certain members thereof, including a group of instrumental artists and symphony orchestra conductors. The individual plaintiffs sue for themselves and on behalf of all other members of the corporation similarly situated. The corporation will be called the plaintiff-guild. The defendants are American Federation of Musicians — an unincorporated association — and its president, James C. Petrillo. It will be convenient to refer to them as the defendant-union. The action is one in equity and is here on the pleadings only. The plaintiffs are the appellants. The judgment appealed from dismissed the complaint for insufficiency found to be apparent on the face thereof.

The material allegations of the complaint may be divided into four parts which in sum and substance are these:

. (1) The members of the plaintiff-guild are musical artists in the field of opera and concert. They are a professional class whose interests and problems are unique. With rare exceptions, each of them employs a manager through whom he makes professional engagements. These managers are paid standard commissions negotiated by the plaintiff-guild. Each engagement is made the subject of a separate contract which fits the repertoire of the artist to the localized requirements of the particular occasion.

(2) The members of the defendant-union are musicians who render service in bands and orchestras for wages pursuant to terms and conditions of employment established by collective bargaining agreements. The defendant-union cannot represent the members of the plaintiff-guild for the purposes of collective bargaining or in any other way act for their mutual business or professional aid or benefit.

(3) In August, 1940, the defendant-union sent to the plaintiff-guild a communication which said in part: “ At this time, the American Federation of Musicians desires to make a request that all instrumentalists belonging to your organization, such as Heifetz, Elman, Hoffman, Horowitz and all symphony orchestra conductors resign from your organization and become members of the American Federation of Musicians where they rightfully belong. As you know, the charter of the American Federation of Musicians granted by the American Federation of Labor calls for all instrumentalists to belong to the American Federation of Musicians. From the inception of the American Federation of Musicians, we have not interfered with such artists, and rightfully so, feeling that they were in a position to take care of themselves and were not in competition with members of the American Federation of Musicians. The request that we are making at this time has been brought about by the reason that these instrumentalists saw fit to join a labor union [the plaintiff-guild], and so long as they desire to belong to a labor union, then they rightfully belong to the American Federation of Musicians. * * * This office is notifying all the radio interests, picture studios, symphony orchestra managements, grand opera companies, recording companies, booking agencies, etc., that these people will not be recognized by the American Federation of Musicians and members of the American Federation of Musicians will not be permitted to render any services at any functions in which they may participate unless they become members of the American Federation of Musicians on or before Labor Day, 1940. * * * ”

(4) The parties that were so notified by the defendant-union thereupon informed the plaintiff-guild that instrumental artists and symphony orchestra conductors who did not resign from its membership and join the defendant-union on or before September 2, 1940, would not thereafter be permitted to fulfill any professional engagement. These parties include practically all the business organizations operating in the opera and concert field and were the main source of the existing professional engagements of the instrumental artists and symphony orchestra conductors who are members of the plaintiff-guild. No controversy exists herein as to the standards of wages or conditions of employment of members of the defendant-union.

Upon the foregoing allegations, the complaint demands judgment that an injunction issue against the conduct of the defendant-union so complained of, and that the plaintiffs recover damages alleged to have been caused to them thereby. The answer of the defendant-union consists of denials of the material allegations of the complaint. No defense consisting of new matter is set forth therein.

Special Term held that the complaint stated a cause of action. The Appellate Division reversed for reasons stated in its opinion as follows: If we strip the complaint of the allegations which are clearly conclusions of law, we find no facts set forth to indicate that the plaintiff union is entitled to the relief which it seeks. It has not shown that the defendant maliciously or illegally interfered with the contracts of the members of plaintiff’s union. What the defendant is seeking to do, undoubtedly, is to protect itself and to increase its membership. Defendant union is well within its rights in protecting its organization and in not permitting its members to play their instruments with non-members of their organization. * * * We have reached the conclusion, therefore, that the complaint must be dismissed for two reasons: first, that the controversy between the parties involves a ‘ labor dispute ’ within the meaning of subdivision 10 of section 876-a of the Civil Practice Act; and second, that it fails to state a cause of action viewed in the light of the law as it stood prior to the enactment of section 876-a.” (261 App. Div. 272, 277.) We think this result cannot be sustained.

In Opera on Tour, Inc., v. Weber (285 N. Y. 348) this court applied against a labor union the broad doctrine that harm intentionally done is actionable if not justified. (Cf. Pollock on The Law of Torts, [14th ed.] pp. 43-45.) This complaint, therefore, is sufficient as such, unless the purpose of the defendant-union must be presumed to be a lawful labor objective,— an activity having some reasonable connection with wages, hours, health, safety, the right of collective bargaining or some other condition of employment. (Opera on Tour, Inc., v. Weber, supra.) But no sign of such a justification reveals itself on the face of the complaint; and even if we should take it upon ourselves to notice all that the briefs for the defendant-union assert as common knowledge, we would not yet be competent to contradict the allegation that no part of the membership of the plaintiff-guild can be represented by the defendant-union in respect of any labor policy.

The averments which impute malice to the defendant-union do not imply more than is elsewhere stated in the complaint. Malice in common acceptation means ill-will against a person, but in its legal sense it means a wrongful act done intentionally without just cause or excuse.” (Colwell v. Tinker, 169 N. Y. 531, 537.)

Unless the objective of the defendant-union is a lawful one, this controversy is not a labor dispute ” in the sense of section 876-a of the Civil Practice Act. (Opera on Tour, Inc., v. Weber, supra.) Hence section 876-a is without application to the case stated in the complaint.

Our conclusion is that the complaint is sufficient on its face.

Perhaps it should be noticed that the cases cited by the Appellate Division were not decided on the pleadings.

The judgment of the Appellate Division should be reversed and the order of Special Term affirmed, with costs in this court and in the Appellate Division.

Lehman, Ch. J.

(dissenting). The decision made in this case throws into bold relief the narrowly restrictive interpretation of section 876-a of the Civil Practice Act, which the court adopted in Opera on Tour, Inc., v. Weber, and emphasizes the grounds for the contrary view put forth in my dissenting opinion in that case, in which Judge Loughran concurs. I still do not understand how a statute which expressly provides that in a case “ involving or growing out of a labor dispute,” acts specified therein, may not be enjoined on the ground that the persons engaged therein constitute an unlawful combination or conspiracy or on any other grounds whatsoever ” can be construed in manner which would exclude from the statutory definition of a “ labor dispute ” any dispute with a labor union unless “ the objective of the labor union is a lawful one.”

Accepting as I must the construction which the majority of the court has placed upon its earlier decision, I do not attempt to challenge the conclusion that the plaintiff has stated a cause of action for an injunction, if the earlier decision be accepted as binding precedent and authority. For the reasons stated in my dissenting opinion in the earlier case, I felt constrained to find that the injunction “ constitutes an intrusion by the court into a field from which it is excluded under the law of the state as formulated in an unbroken line of judicial decisions, by statute of the Legislature, and by the Constitution” (p. 366). For the same reasons I cannot accept the decision there as a precedent for subsequent decisions. I must continue to refuse my sanction to an injunction which I regard as an intrusion by the court into a field from which, in my opinion, it*jis excluded by statute, by the Constitution of the State of New York and by the Constitution of the United States.

Desmond, J.

(dissenting). I dissent and vote to affirm the judgment of the Appellate Division and dismiss the complaint. This complaint defeats itself, since it asserts the existence of a labor dispute within the definition of section 876-a of the Civil Practice Act, and then demands such an injunction as is forbidden by that statute in such situations.

Finch, Rippey, Lewis and Conwat, JJ., concur with Loughran, J.; Lehman, Ch. J., dissents in opinion; Desmond, J., dissents in separate memorandum.

Judgment accordingly.


author: Finch, J.

text:
    Michael LaRocca, as Administrator of the Estate of Joseph LaRocca, Deceased, Respondent, v. John Hancock Mutual Life Insurance Company, Appellant.
    Argued May 19, 1941;
    decided July 29, 1941.

      George W. Riley and Ralph L. Kinsley for appellant.
    As against the administrator of the insured, the company is entitled to deduct the costs taxed in the rescission suit from the premiums to be returned. (Whittingham v. Thornburgh, 2 Vern. 206; DeCosta v. Scandret, 2 P. Wms. 170; Wilson v. Ducket, 3 Burr. 1361; Prince of Wales Assn. v. Palmer, 25 Beav. 605; British Equitable Assur. Society v. Musgrave, 3 Times L. R. 630; Cleaver v. Mutual Reserve Fund Life Assn., [1892] 1 Q. B. 147; Waters & Co. v. Gerard, 189 N. Y. 302; Williams v. Williams, 8 N. Y. 525; Beekman v. Bonsor, 23 N. Y. 298; Western Union Tel. Co. v. Call Pub. Co., 181 U. S. 92; Kansas v. Colorado, 206 U. S. 46.) An action for money had and received on the theory that consideration has failed may be defended upon the same equitable principles upon which it may be maintained, and the company may assert the jus tertii of the beneficiary to be exonerated for his costs, out of these premiums. (American Surety Co. v. Conner, 251 N. Y. 1; Sleicher v. Sleicher, 251 N. Y. 366; Roberts v. Ely, 113 N. Y. 128; Rathbone v. Stocking, 2 Barb. 135; Mincho v. Bankers Life Ins. Co., 124 App. Div. 578; 129 App. Div. 332; Gifford v. Corrigan, 117 N. Y. 257; New York Life Ins. Co. v. Aitkin, 125 N. Y. 660; Berly v. Taylor, 5 Hill, 577; Vrooman v. Turner, 69 N. Y. 280; Lewis v. Phœnix Mutual Life Ins. Co., 39 Conn. 100; Friesmuthv. AgawamF. Ins. Co., 64 Mass. 587.) The judgment rests upon the fiction that upon rescission the contract will be regarded as if it has never been. Such fiction has never been applied in all its strictness when thereby 'the rights of innocent third persons will be prejudiced. (Hynes v. N. Y. C. R. R. Co., 231 N. Y. 229; Queens v. Sadler’s Co., 11 Eng. Rep. 1083; American Surety Co. v. Conner, 251 N. Y. 1; Sleicher v. Sleicher, 251 N. Y. 366; Basye v. Paola Befining Co., 79 Kan. 755; Moody v. Drown, 58 N. H. 45.)

      Irwin Isaacs for respondent.
    Where the contract of insurance is rescinded by the insurance company, it must return the premiums received from the insured. (Harris v. Equitable Life Assur. Society, 64 N. Y. 196; Mincho v. Bankers’ Life Ins. Co., 124 App. Div. 578; 129 App. Div. 332; Stumpf v. Halstead Land & Development Co., 59 Misc. Rep. 529; Moore v. Mutual Beserve Fund Life Assn., 121 App. Div. 335.) The amount of premiums was properly returnable to the estate of the insured upon the rescission of the policy of insurance by the company and not to the beneficiary designated in the policy of insurance. (Waltz v. Workmen’s Sick & Death Benefit Fund, 141 N. Y. Supp. 578; Seaback v. Metropolitan Life Ins. Co., 274 Ill. 516; Falberg v. Continental Casualty Co., 195 Ill. App. 237; McKinney v. Metropolitan Life Ins. Co., 191 Ill. App. 592; State v. Trimble, 292 Mo. 371; Brotherhood of American Yeoman v. Manz, 23 Ariz. 610; Thompson v. Travelers Insurance Co., 11 N. D. 274.)
   Finch, J.

This is an action for moneys had and received in the amount of the premiums paid on a policy of life insurance which has been rescinded by the insurer on account of material misrepresentations by the insured. Plaintiff is the administrator of the estate of the deceased insured. The return of the premiums to the plaintiff administrator is refused by the insurance company upon two grounds, first, that the premiums are payable to the beneficiary named in the policy and not to the insured or his estate, and second, that if the premiums are payable to the administrator, then the insurer is entitled to offset the amount of the judgment for costs which it recovered in a prior action brought on the policy unsuccessfully by the beneficiary.

, The policy on the life of the insured was issued in 1935. He died in October, 1936, and in April, 1937, the beneficiary brought an action in the Municipal Court of the City of New York to recover the face value of $1,000 together with interest from the date of the death of the insured. In that action the insurer set up as a defense that the policy had been issued as a result of material misrepresentations by the insured; that the insurer elected to rescind therefor, and the insurer “ now brings and tenders into court the sum of $57 [the amount of the premiums], with legal interest thereon up to the time of the trial, for the use and benefit of the plaintiff * * * and defendant further offers to do whatever else, if anything, it ought to do for the purpose of rescinding and cancelling said contract.” The beneficiary rejected the tender and proceeded to trial, which resulted in the dismissal of. the complaint and judgment for costs in the sum of $60, in favor of the insurer. The decision was affirmed upon appeal to the Appellate Term and an additional judgment for costs in the sum of $25 was awarded to the insurer as against the beneficiary. Thereafter the individual who had been named as the beneficiary in the policy, and who had been unsuccessful in the action on the policy, was appointed administrator of the estate of the deceased insured, and it is in the latter capacity that the plaintiff prosecutes this action. Upon the motion of plaintiff in the action at bar the Municipal Court granted summary judgment in his favor and denied the cross-motion of the. defendant. The Appellate Term and the Appellate Division have affirmed, and appeal is taken to this court by leave of the Appellate Division.

It is not disputed by the parties that there is no obligation on the part of the insurer to pay the face value of the policy in question, and further that the insurer is not entitled to the premiums since it has avoided the risk by rescinding the contract of insurance and offering to return the premiums which it received from the insured during his lifetime. But the parties are in dispute as to who is entitled to receive these premiums. Appellate insurer argues, in effect, as follows: Upon the death of the insured, all rights in the life policy became vested in the beneficiary named therein; since the beneficiary is the only person who may insist on performance of the policy, the beneficiary is the only one who may waive performance and consent to avoidance of the policy by the insurer; and, therefore, according to the argument, only the beneficiary may insist upon the return of the premiums as an alternative to performance of the obligations of the policy by the insurer.

It must be noted that the case at bar does not concern the power of the beneficiary to accept less than full performance in discharge of the obligations of the insurer or the choice of remedies of the beneficiary where there has been a breach of contract by the insurer. The case at bar is one where the insurer has been successful in declaring the policy void and, therefore, we must determine the rights of the parties in the absence of a valid contract of insurance. Therein lies the difficulty in the contentions of appellant insurer. The conclusion that the beneficiary is entitled to the refund of the premiums is said to follow from the premise that the rights of the beneficiary become vested upon the death of the insured. But the beneficiary has rights against the insurer only by virtue of the contract between the insured and the insurer. If there be no such contract, there are no rights of which the beneficiary can become vested. If an action for rescission had been brought by the insurance company prior to the death of the insured no claim is made but that the premiums would be returnable to the insured. But it is urged that the death of the insured transfers to the beneficiary not only all rights under the contract but also the right to a return of the premiums on the basis that no contract was made. A holding of the latter would rest upon a mere fiction having no existence in fact and precluded by the concession that if rescission had taken place in the lifetime of the insured the return premiums would be pa;rable to him. Any relief which should be accorded must lie with the Legislature.

Appellant insurer pursues the anomalous argument of asserting on the one hand that there is no contract with the insured which binds the insurer, and on the other hand that because of the contract with the insured the insurer need treat only with the beneficiary. If the insurer desired to recognize the rights of the beneficiary under the contract of insurance, that course was open to the insurer. Instead it elected to rescind the policy. That the insurer had the right so to do was recognized in the prior action and is accepted by the parties in the case at bar. But the insurer having chosen to declare the contract of no effect, the obligations of the insurer are not now to be determined as though a valid contract continues in existence. The obligation to return the premiums exists not by virtue of the contract but despite the contract. And since the right of the beneficiary is asserted only on the basis of the existence of a contract between the insured and the insurer, that right must fall with the contract which has been rescinded. The contract of insurance having been rescinded, the law implies an obligation on the part of the insurer to refund the consideration to the insured or his estate. (American Law Institute, Restatement of the Law of Restitution, § 109; Sullivan v. Metropolitan Life Ins. Co., 174 Mass. 467; State ex rel. National Council v. Trimble, 292 Mo. 371; Seaback v. Metropolitan Life Ins. Co., 274 Ill. 516.)

Appellant insurer suggests that if it is required to restore the premiums not to the beneficiary but to the insured or his estate, then in the event of the death of the insured any delay in the appointment of an administrator would redound to the benefit of the estate by enhancing the amount which the insurer must pay as interest upon the moneys. This difficulty envisioned by the insurer is apparent rather than real, for such interest upon moneys due and payable would not run while the insurer is ready and willing to return the premiums but is unable to do so because of the failure to appoint an administrator of the estate of the insured to whom the premiums are to be returned.

Appellant insurer also contends that it ought to be allowed to set off against the amount of the premiums the judgment for costs which it recovered in the prior action on the policy brought by the beneficiary. The judgment for costs admittedly was not recovered against the estate of the deceased insured. It is not suggested that the prior action by the beneficiary was maintained for the benefit of the estate or prosecuted at its direction and no authority is cited for the proposition that the estate ought to be saddled with the debts of a private individual for whose actions the estate is not responsible. The judgment for costs against the beneficiary in his individual capacity is not a proper setoff in an action by the same person in the capacity of administrator of the estate of the insured.

It follows that the judgment should be affirmed, with costs.

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

Judgment affirmed.