author: Hubbs, J. O’Brien, J.

text:
    Clarence Bezue, Respondent, v. The New York, New Haven and Hartford Railroad Company, Appellant.
    (Argued May 19, 1931;
    decided June 2, 1931.)

      E. R. Brumley and John M. Gibbons for appellant.
    The evidence did not justify the ruling of law made by the trial court that the plaintiff was engaged in interstate commerce within the meaning of the Federal Employers’ Liability Act. (Illinois Cent. R. R. Co. v. Behrens, 233 U. S. 473; Shanks v. Del., Lack. & West. R. R. Co., 239 U. S. 556; Minneapolis & St. Louis R. R. Co. v. Winters, 242 U. S. 353; Chicago, K. & S. Ry. Co. v. Kindlesparker, 246 U. S. 657; Industrial Comm. v. Davis, 259 U. S. 182; Comando v. Erie R. R. Co., 299 Fed. Rep. 1022; Knowles v. N. Y., N. H. & H. R. R. Co., 223 N. Y. 513; Erie R. R. Co. v. Winfield, 244 U. S. 170; Conklin v. N. Y. Cent. R. R. Co., 238 N. Y. 570; 266 U. S. 607; Leslie v. Long Island R. R. Co., 222 App. Div. 702; 248 N. Y. 511; Morini v. Erie R. R. Co., 227 App. Div. 822; 253 N. Y. 539; Parsons v. Delaware & Hudson Co., 167 App. Div. 536; 216 N. Y. 710; Larkin v. Industrial Comm., 208 Pac. Rep. 500; New Orleans & N. E. R. Co. v. Beard, 128 Miss. 172; Hiser v. Davis, 234 N. Y. 300; Tepper v. N. Y., N. H. & H. R. R. Co., 238 N. Y. 423; Phila. & Read. Ry. Co. v. Di Donato, 256 U. S. 327; New York Cent. R. R. Co. v. Marcone, 281 U. S. 345; Onley v. Lehigh Valley R. R. Co., 36 Fed. Rep. [2d] 705; 281 U. S. 743; Illinois Central R. R. Co. v. Peery, 242 U. S. 292; Phila. & Read. Ry. Co. v. Polk, 256 U. S. 332; Erie R. R. Co. v. Welsh, 242 U. S. 303.)

      Thomas J. O’ Neill and Charles D. Lewis for respondent.
    Plaintiff was engaged in interstate commerce as matter of law. (Illonardo v. Erie R. R. Co., 103 N. J. L. 4; New York Central R. R. Co. v. Marcone, 281 U. S. 345;
      Salvo v. New York Cent. R. R. Co., 216 App. Div. 592; Oglesby v. St. Louis-San Francisco Ry. Co., 218 Mo. 79; 277 U. S. 587; Lusk v. Bandy, 76 Okla. 108; D., L. & W. R. R. Co. v. Yurkonis, 220 Fed. Rep. 429; N. Y. C. R. R. Co. v. Porter, 249 U. S. 168; So. Ry. Co. v. Puckett, 244 U. S. 371; Erie R. R. Co. v. Welsh, 242 U. S. 303; Pederson v. D., L. & W. R. R. Co., 229 U. S. 146; Quinn v. Central N. E. Ry. Co., 218 App. Div. 858.) Plaintiff was engaged as an unskilled laborer at defendant’s maintenance roundhouse in work so closely related to interstate commerce as to be a part of it. (Illonardo v. Erie R. R. Co., 103 N. J. L. 4; N. Y. C. R. R. Co. v. Marcone, 281 U. S. 345; Salvo v. N. Y. C. R. R. Co., 216 App. Div. 592; St. Louis R. R. Co. v. Seale, 229 U. S. 156; Knowles v. N. Y., N. H. & H. R. R. Co., 223 N. Y. 513; Erie R. R. Co. v. Winfield, 244 U. S. 170.)
   Hubbs, J.

This is an action to recover damages growing out of injuries received by the respondent while in the service of the appellant. The action is under the Federal Employers’ Liability Act (Act of April 22, 1908, 35 Stat. at L. 65, ch. 149, as amd. by act of April 5, 1910, 36 Stat. at L. 291, ch. 143).

The respondent at the time in question was employed by the appellant as a member of an unskilled labor gang at appellant’s maintenance round-house and engine terminal at Maybrook, N. Y. Part of the time he operated a small portable electric truck with a crane. He also assisted in general maintenance work, oiled locomotives, filled grease boxes, assisted in adjusting couplers, brake-shoes, pressure tanks, rolling wheels and in all other work required of an unskilled laborer in and about the roundhouse. He also cleaned windows,'operated coal pockets, dumped coal and did whatever work of that nature he was called upon to do. Some of the jobs which he was directed to do would take only a few minutes, others a few hours. He was continually moved from one kind of work to another. He did. whatever he was directed to do by his superior.

Nearly all locomotives which ran in and out of the round-house were used exclusively in interstate commerce although a few locomotives which were not so used were brought in there for minor repairs. All locomotives underwent a boiler wash every thirty days. That work was done at the round-house and at the same time they were inspected and minor repairs made. The roundhouse was not used for the purpose of making extensive repairs.

On August 23, 1929, locomotive No. 3221 arrived at the round-house. It was a locomotive used exclusively in interstate commerce. Between the date of its arrival and September 2d, its boiler was washed and certain repairs were made on it. In doing that work it was necessary to remove two driving wheels. On the latter date, the respondent was called upon to help move the wheels by hand from a certain lathe to the engine. While engaged with other workmen in rolling one of the wheels, he was injured by being caught under the wheel which tipped over while being moved. He had been engaged in that particular work, part of the time, for about two hours before he was injured.

The sole question presented upon this appeal is, was the respondent engaged in interstate commerce at the time and place of the accident or in work so closely related to it as to be practically a part of it?

The round-house is an essential part of the railroad’s system, necessary in the operation of the road, and in carrying on interstate commerce. It is part of the plant required in keeping the locomotives in repair and in a proper condition to operate successfully in interstate commerce. The fact that some work is done on locomotives engaged in intrastate commerce, does not deprive it of its character as an essential instrumentality of interstate commerce any more than the running of intrastate trains over the roadbed of the appellant’s road deprives it of its character as a track used in interstate commerce.

The respondent was engaged in a plant service. He worked indiscriminately upon engines engaged in interstate or intrastate commerce. He also did work necessary to keep the plant in proper order and condition to carry on the work. Employees engaged in keeping tracks, bridges, ash pits and boilers which are used in both kinds of commerce in proper order and condition to maintain their effectiveness are engaged in each of them, are covered by the act and it matters not that at the moment of injury an employee was temporarily at work on a locomotive or some other instrumentality not engaged at the time in interstate commerce. (Erie R. R. Co. v. Collins, 253 U. S. 77; Pedersen v. D., L. & W. R. R. Co., 229 U. S. 146; Grybowski v. Erie R. R. Co., 88 N. J. L. 1; affd., 89 id. 361; Illonardo v. Erie R. R. Co., 103 N. J. L. 4; affd., 103 id. 698; Lindstrom v. N. Y. C. R. R. Co., 186 App. Div. 429; affd., 230 N. Y. 551; Salvo v. N. Y. C. R. R. Co., 216 App. Div. 592; Oglesky v. R. R. Co., 318 Mo. 79; certiorari denied, 277 U. S. 587.)

In Shanks v. D., L. & W. R. R. Co. (239 U. S. 556, 558) the Supreme Court stated the general rule for determining when an employee is engaged in interstate commerce within the meaning of the act: “Having in mind the nature and usual course of the business to which the act relates and the evident purpose of Congress in adopting the act, we think it speaks of interstate commerce, not in a technical legal sense, but in a practical one better suited to the occasion, * * * and that the true test of employment in such commerce in the sense intended is, was the employe at the time of the injury engaged in interstate transportation or in work so closely related to it as to be practically a part of it.” Within the principle stated the respondent was at the time of his injury “ engaged in interstate transportation or in work so closely related to it as to be practically a part of it.” (N. Y. C. R. R. Co. v. Marcone, 281 U. S. 345; Erie R. R. Co. v. Szary, 253 U. S. 86; Matter of Guida, 183 App. Div. 822; affd., 224 N. Y. 712; Hiser v. Doris, 234 N. Y. 300.)

Unless the act is given practical construction the condition of injured unskilled employees engaged in work which changes at short intervals would be extremely unsatisfactory. At one moment such an employee might be engaged in working on a locomotive engaged in interstate transportation and immediately thereafter employed on one engaged in intrastate transportation.

If required to determine, in case of injury, whether to proceed under the Federal act or the State Workmen’s Compensation Act, there would be danger that when he proceeded under one he would lose his rights under the other and if mistaken in proceeding under one act, all right to recover for the injury might be lost, as the time to proceed under the other might meanwhile have expired. “A rather abrupt transition it would seem at first blush.” (Erie R. R. Co. v. Collins, supra.)

In that case the court explained and distinguished the cases in the United States Supreme Court which have been cited as sustaining the contention that the nature of the work being done at the very time of the accident is the determining factor.

We have reached the conclusion that the maintenance round-house was a necessary part of the appellant’s plant, essential in its business of carrying on interstate commerce, that the maintenance and operation of the roundhouse was in aid of such commerce and that the work of the respondent was so closely related with interstate transportation that it constituted a part of it.

We find it unnecessary to determine whether at the time of the accident the locomotive being repaired had been so withdrawn from service that it was not in use in interstate commerce.

There was no conflict in the evidence in regard to the services performed by respondent. The trial court, therefore, properly decided as a matter of law that the respondent was covered by the act.

The judgment should be affirmed, with costs.

O’Brien, J.

(dissenting). For twelve days this locomotive, with driving wheels and other parts removed to the machine shop and undergoing thirty-two items of repairs, stood idle in the round-house. During that time it remained a useless thing, incapable of allocation to commerce of any kind. It was completely removed from service and, therefore, under the decisions of the Supreme Court, no longer an instrument of interstate commerce. An engine laid up for repairs for a duration no longer than three days ceases to be such an instrument. Its character is not affected by the fact that on the day before its cessation from actual use it was employed in commerce between the States and that immediately upon its restoration it might again be engaged in the same traffic. (Minneapolis & St. L. R. R. Co. v. Winters, 242 U. S. 353.) Equipment, accustomed to be used exclusively in such operations, when partially dismantled for repairs over a considerable length of time, is deemed to be withdrawn Com service. (Industrial Accident Comm. v. Davis, 259 U. S. 182.) This court’s opinion in the case before us does not otherwise hold. The majority deem it unnecessary to determine the question.

Since the object upon which plaintiff was engaged at the time of his injury did not then constitute a medium through which any kind of commerce could be conducted, difficulty insuperable as it seems to me, is encountered in allotting to him a place in transactions affecting interstate commerce. The character of his employment on other occasions is immaterial, says the Supreme Court, and the true test relates to the nature of service rendered by him when his injury is suffered. (Illinois Cent. R. R. Co. v. Behrens, 233 U. S. 473, 478; Shanks v. D., L. & W. R. R. Co., 239 U. S. 556, 558.) The general rule as announced in the Shanks case is quoted in this court’s opinion on this appeal but its application by the Supreme Court in that case now requires, in my view, a similar application by us. Shanks was a mechanic, generally but not exclusively, employed in the repair of locomotives used in interstate transportation. At the time of his injury he was engaged in relocating a shaft in the shop which transmitted power to machinery for repairing engines used in interstate transportation. The Supreme Court, affirming the judgment of this court, decided that his work was too remote from interstate transportation to be practically a part of it. In the present case, plaintiff for two hours had worked on the driving wheels of a locomotive which for twelve days was entirely separated from any activity in respect to transportation. Not only had these parts been removed from the engine and the round-house but they had been taken to the back shop ” and had not yet been again attached to the engine. The rule in the Shanks case has been applied by this court in Conklin v. N. Y. C. R. R. Co. (238 N. Y. 570) and Matter of Morini v. Erie R. R. Co. (253 N. Y. 539). Such decisions as Erie R. R. Co. v. Collins (253 U. S. 77) and Erie R. R. Co. v. Szary (253 U. S. 86), cited in the prevailing opinion, are readily distinguishable. There the workmen at the time of their injuries were employed in duties directly affecting both interstate and intrastate transportation. Here plaintiff’s work had no relation to commerce of either kind. His energies were directed toward an object which was not an instrument of commerce. Neither can I see the application to these facts of the principle controlling the decision in N. Y. C. R. R. Co. v. Marcone (281 U. S. 345), a case cited in the prevailing opinion. The engine in that case, unlike the one now under consideration, had not been withdrawn from service. It had been temporarily run into the roundhouse and no repairs were made upon it. Simply it was oiled, and the deceased had completed his work on it only a few minutes before his death.

Cardozo, Ch. J., Pound, Crane and Lehman, JJ., concur with Hubbs, J.; O’Brien, J., dissents in opinion in which Kellogg, J., concurs.

Judgment affirmed.


source: Caselaw Access Project

author: Cardozo, Ch. J.

license: Public Domain

text:
    Millfield Realty Company, Respondent, v. Eugene P. Catena et al., Defendants, and Joseph P. Day, Inc., Appellant.
    (Argued May 20, 1931;
    decided June 2, 1931.)

      William Harvey Smith and H. Schieffelin Sayers for appellant.
    The auctioneer sold according to the description furnished by the owner. This was a mistake of the owner, as to the rear dimension of the lot, not fraud of the auctioneer. (Baer v. Bonygne, 72 Hun, 33; 147 N. Y. 393; Von Bargen v. Ginsburg, 218 App. Div. 545.) While an equitable rescission as to the principal is sometimes granted for innocent misrepresentation that induces the purchase, no such liability exists against the auctioneer agent in the absence of fraud. (Richard v. Credit Suisse, 242 N. Y. 346; Harper, Inc., v. City of Newburgh, 159 App. Div. 695.)

      Bertram L. Marks and Samuel D. Cohen for respondent.
    The action was properly founded in fraud and the appellant was properly joined as a defendant. (Bloomquist v. Farson, 222 N. Y. 375; Gelman v. Day, Inc., 227 App. Div. 607; Cockcroft v. Muller, 71 N. Y. 367; Merritt v. Archer, 163 App. Div. 648; Mack v. Latta, 178 N. Y. 525; Laska v. Harris, 215 N. Y. 554.)
   Cardozo, Ch. J.

A house and lot in Brooklyn, belonging to the defendant Eugene P. Catena, was sold to the plaintiff at public auction by Joseph P. Day, Inc., auctioneer. The terms of sale, signed by the owner described the width of the plot as 30.7§ feet in front and 18.1 feet in the rear. A circular distributed at the sale described the building as a four-story and basement-brick apartment having two apartments of two rooms and bath on each floor. The buyer at the time of the sale made payment to the auctioneer of a fee of $30 and also $3,525, ten per cent of the bid.

At the time set for closing there was a rejection of the conveyance on the ground of misrepresentation and defect of title. Misrepresentation was charged in that the building, though it contained two apartments of two rooms and bath on each floor, was not so constructed as to comply with the Tenement House Law (Cons. Laws, ch. 61), and could not lawfully be occupied by tenants doing their cooking on the premises. Defect of title was charged in that the width of the lot was only 10.1 feet in the rear, a discrepancy of eight feet between the actual dimensions and those stated in the terms of sale. In this action, brought to recover the down payment and the expenses of the sale and of the searching of the title, the plaintiff seeks a money judgment against owner and auctioneer alike with the declaration of a lien against the interest of the owner. The court at Special Term dismissed the complaint. The Appellate Division reversed, holding in its opinion that the discrepancy in the dimensions was substantial and that the auctioneer as well as the owner was answerable to the plaintiff by reason of the defect of title. In its order, however, it found that false and fraudulent representations had been made by both defendants as to the nature of the building. The owner, Catena, has submitted to the judgment. The case is here upon the appeal by the auctioneer alone.

We find nothing in the record to charge the auctioneer with liability as a party to a fraud. The building was precisely what it was stated in the circular to be, a building having two apartments of two rooms and bath on each floor. There was no statement by the auctioneer that it was so constructed as to permit the tenants of the apartments to do their cooking on the premises. Apartments without facilities for cooking are to-day familiar incidents of life in the metropolis. There should have been an inspection of the premises or a request for additional information if the absence of cooking facilities was to become the basis of a charge of fraud. We do not say that there was not such excusable misconception on the part of the buyer in respect of the character of the dwelling as to make inequitable a judgment that would hold it to its bargain (Hammer v. Michael, 243 N. Y. 445; Margraf v. Muir, 57 N. Y. 155). Enough for. present purposes that the auctioneer should be relieved from the imputation of a willful wrong.

Relief from that reproach does not suffice to give relief from the duty of restitution to the extent of the deposit. Long ago it was held that an auctioneer receiving a deposit from a bidder is in the position of a stakeholder (Burrough v. Skinner, [1770] 5 Burr. 2639; Edwards v. Hodding, [1814] 5 Taunt. 815). He should hold the deposit intact till such time as the sale should be finished and completed and it should appear in the event to whom it properly belonged ” (Burrough v. Skinner, supra). The ancient rule to that effect is well sustained in modern times (Gelman v. Day, Inc., 227 App. Div. 607; 255 N. Y. 584; Merritt v. Archer, 163 App. Div. 648; Cockcroft v. Muller, 71 N. Y. 367; Mechem on Agency, § 2348, and cases cited). It controls the case at hand. Here the title was defective because of the mistake in the description. This defect developing, the stakeholder was chargeable with a duty to return to the bidder the money held as a deposit. Indeed, there is an admission in the answer that the deposit is still on hand for account of whom it may concern. Liability was erroneously extended, however, to include the expenses of the sale and for the services of counsel. As to those items the remedy should have been confined to an award against the owner.

The judgment should be modified by striking therefrom the adjudication that the appellant was a party to any false and fraudulent representations, and by deducting from the amount to be paid by the appellant the sum of $441.50, with interest from September 18, 1928, and as so modified affirmed without costs.

Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment accordingly.


author: Kellogg, J.

text:
    Martin S. Lindgrove, Respondent, v. Schluter and Company, Inc., et al., Appellants, Impleaded with Others.

      (Argued May 18, 1931;
    decided June 2, 1931.)

      Samuel Seabury for appellants.
    There was no contract by the corporation that dividends would be declared during the period of plaintiff’s employment; there are no words in the writing which justify the implication of such an agieement and, in any event, such an agreement, whether expressed or implied, would be contrary to public policy, void and unenforceable. (West v. Camden, 135 U. S. 507; Flaherty v. Cary, 62 App. Div. 116; 174 N. Y. 550; Kassell v. Empire Trust Co., 178 App. Div. 176; Groh’s Sons v. Groh, 80 App. Div. 85; Stone v. Young, 210 App. Div. 303.) The complaint does not state facts sufficient to constitute a cause of action for wrongful refusal of the directors to declare a dividend. It alleges that profits were made in particular transactions, but there is no allegation that these profits were net profits, or that there were no losses which reduced or wiped out the alleged profits, or that there was a surplus in any amount available for dividends. It does not show that the directors, though they recognized the existence of sufficient surplus, and the propriety of declaring a dividend, in bad faith refrained from declaring one. (Liebman v. Auto Strop Co., 241 N. Y. 427; Nauss v. Nauss Bros. Co., 195 App. Div. 318; Leslie v. Lorillard, 110 N. Y. 519; Hastings v. International Paper Co., 187 App. Div. 404; Greeff v. Equitable Life Assur. Soc., 160 N. Y. 19; Wilson v. American Ice Co., 206 Fed. Rep. 736; Trimble v. American Sugar Refining Co., 61 N. J. Eq. 341.) A wrongful refusal of directors to declare a dividend can be redressed by a stockholder only in an action for the benefit of all the stockholders. Such an action may not be maintained by a single stockholder suing in his own behalf. (Von Au v. Magenheimer, 126 App. Div. 257; Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493; Maeder v. Buffalo Bill’s Wild West Co., 132 Fed. Rep. 280; Jones v. Van Heusen Charles Co., 230 App. Div. 694; Hiscock v. Lacy, 9 Misc. Rep. 578; Liebman v. Auto Strop Co., 241 N. Y. 434.)

      Conrad Saxe Keyes for respondent.
    The contract in suit should be so construed as to give to plaintiff such rights as might reasonably have been anticipated by him. (Simon v. Etgen, 213 N. Y. 588; Wigand v. Bachman Brewing Co., 222 N. Y. 277; Gillette v. Bank of America, 160 N. Y. 549; Genet v. Delaware & Hudson C. Co., 136 N. Y. 593; Creamer v. Metropolitan Securities Co., 120 App. Div. 422; Beaty v. Bacon, 187 App. Div. 449; Grodsky v. Jason, 225 App. Div. 888.) A court of equity can compel the declaration of a dividend under proper conditions. (Hiscock v. Lacy, 9 Misc. Rep. 578; Kassell v. Empire Tinware Co., 178 App. Div. 176; Dodge v. Ford Motor Co., 204 Mich. 459; Kranich v. Bach, 209 App. Div. 52; Liebman v. Auto Strop Co., 212 App. Div. 306; 241 N. Y. 427; Matter of Brautman, 244 Fed. Rep. 101; Lee v. Fish, 222 Mass. 418; Mitchell v. Des Moines R. R. Co., 270 Fed. Rep. 468; Lawton v. Bedell, 71 Atl. Rep. 490.) The action was properly brought in the individual right of plaintiff. (Ochs v. Madole Hammer Co., 138 Misc. Rep. 665; Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; Hiscock v. Lacy, 9 Misc. Rep. 578.)
   Kellogg, J.

The first cause of action attempted to be stated makes these allegations:

The plaintiff and the defendant corporation, in October, 1926, entered into a contract, whereby the defendant employed the plaintiff to act as its vice-president, at an annual salary. The employment was to continue until such time as it might be terminated by the arrival of a day fixed for its termination by a three months’ notice served by either party upon the other. The plaintiff was elected vice-president and continued in the performance of his duties as such officer until November 15th, 1927, when the defendant served notice of the termination of the employment.

The contract also provided for the purchase by the plaintiff, as of November 1st, 1926, of 2,000 shares of the common stock of the defendant corporation, at a price to be ascertained in a prescribed manner, which was afterwards calculated to be $64,757.20. This sum might be paid in installments, but the whole sum, together with interest, must be paid prior to November 1st, 1938. The shares were to be issued to the plaintiff and to be transferred by him to the defendant as security for the payment in full of the purchase price.

The contract, attached to the complaint and made a part thereof, as alleged in paragraph 8, provided that until said stock should have been paid for in full, all ordinary or extraordinary dividends, whether in cash or in kind, on said stock declared after November 1st, 1926, should belong to the plaintiff but might be applied by the defendant company as paid upon any unpaid balance of the purchase price of said stock or interest due thereon at the time of the payment of such dividends; provided, however, that the plaintiff should have the right to have paid out to him up to 50% of any dividends declared in any one year, such payments, however, not to exceed $7,500 in amount in any one year.”

On the 1st of November, 1926, certificates for 2,000 shares of the common stock of the defendant Schluter and Company, Inc., were issued to the plaintiff, who became the holder of record thereof, and were thereafter indorsed by the plaintiff in blank and deposited with the defendant corporation as security for the payment of the purchase price therefor. The defendant corporation, during the period from November 1st, 1926, to November 15th, 1927, the term of plaintiff’s actual employment as vice-president, earned large profits in cash and securities upon its capital stock to an amount, as plaintiff is informed and verily believes, in excess of $500,000.” The proportion which accrued to the 2,000 shares owned by the plaintiff amounted to upwards of $118,000, or more than the full amount of the purchase price therefor. Nevertheless, the defendant corporation made no declaration of dividends.

The complaint contains an allegation that there was an implied agreement between the plaintiff and the defendant corporation “ that dividends would be declared and paid upon said stock at reasonable intervals as and when earned thereon so that the plaintiff herein might have an opportunity of performing his contract of purchase and having applied thereon the sums of money or the amounts of property declared as dividends or earned thereon, and of thereby participating in the profits of said corporation.”

The complaint also alleges “ that in order to avoid the effect of the contract and to defraud the plaintiff of his share of the earnings of the defendant company, and to secure the services of the plaintiff at the salary provided for in said contract, without allotting to him his fair participation in the aforesaid profits of the company, defendant corporation, by Frederic E. Schluter, its President, terminated plaintiff’s contract on the 15th day of November, 1927, without having declared any dividends upon said stock although the same had been earned.”

The plaintiff claims that a contract obligation to declare dividends, resting upon the defendant corporation, is sufficiently shown by the matter appearing in paragraph 8 of the complaint, which we have quoted above. We think that the quoted words fail utterly to justify an inference that any such agreement was made. The paragraph asserts that the contract provided that dividends should belong to the plaintiff ” which might be declared after November 1st, 1926; ” that they might be applied,” by the defendant, upon any unpaid balance of the purchase price, “ due thereon at the time of the payment of such dividends; ” that the plaintiff “ should have the right ” to have paid out to him up to “ 50% of any dividends declared in any one year ” not exceeding $7,500. Here is no promise made, either expressly or inferentially, that the defendant corporation will pay dividends. On the contrary, the words of the paragraph set forth nothing more than a contract provision, made on behalf of the corporation, that dividends, if declared, might in part be applied upon the debt of the plaintiff to the corporate defendant. Nor is there any other paragraph in the complaint or clause in the contract which justifies a conclusion that an obligation to declare dividends was undertaken by the defendant.

Even if the contract words disclosed the assumption of such an obligation, the plaintiff would not be helped. The directors of a corporation owe a duty to their stockholders to exercise an impartial judgment in reference to the declaration of dividends, and to declare them only when, under the existing circumstances, a declaration will seem best to serve the corporate interests; and no contract, engaging them unrestrictedly to declare dividends, can have any legal force. (Morawetz on Private Corporations, § 519; 1 Cook on Corporations [8th ed.], § 271; West v. Camden, 135 U. S. 507; Flaherty v. Cary, 62 App. Div. 116; 174 N. Y. 550.) Such an agreement would be dishonest and illegal; it would be an agreement to commit a breach of trust.” (Morawetz, supra) What is true of contracts by directors is true of contracts by corporations, which may act only through directors. (6 Fletcher, Cyclopedia of the Law of Private Corporations, § 3659.) Consequently, the plaintiff has no contract right to have dividends declared, which may be enforced herein.

We think also that the first cause of action alleged states no right of the plaintiff as a stockholder of record to require a declaration of dividends which may be enforced in a court of equity. For one reason, the obligation sought to be stated is clearly contractual in nature, and not otherwise. Thus the only wrong asserted is that the defendant “ terminated plaintiff’s contract ” without declaring dividends, “ in order to avoid the effect of the contract.” For another, there are no sufficient allegations of fact to indicate that the corporation’s failure to declare dividends was grounded in bad faith, or actuated by a motive to injure, rather than benefit, its stockholders generally, or this plaintiff as a stockholder in particular. Moreover, the plaintiff, at the conclusion of his term of service as vice-president, was no longer entitled to assert that he was possessed of the rights of a stockholder, or that he ever had been. The complaint correctly states a provision of the contract to have been that if, by reason of death or otherwise as provided in the contract, plaintiff should cease to be connected with the defendant company before the entire purchase of said stock should have been made as above provided, then and in that event the agreement of sale and purchase, so far as it related to such of the stock as should not at that time have been paid for, should be deemed canceled and of no effect and the defendant company might transfer the certificates for said stock free and clear of any claim by plaintiff under said contract.” At the time when the plaintiff’s services were terminated the plaintiff, so far as appears, had made no payments whatever for the stock. Therefore, at that time the contract of purchase became “ canceled ” and of no effect.” With the cancellation of his contract the plaintiff lost all title to the stock, and all rights, which may previously have been possessed by him, to have dividends declared.

The second cause of action alleges the purchase by the plaintiff of twenty additional shares of common stock of the defendant corporation but fails to assert that plaintiff has made payment in full therefor, so that the cause of action must be dismissed. The third cause of action stands, for the reason that the motion to dismiss was not directed thereto.

The order of the Appellate Division and that of the Special Term should be reversed and the question certified answered in the negative, with costs in all courts, and with leave to plaintiff to amend within twenty days on payment of costs.

Cardozo, Ch. J., Pound, Crane, Lehman, O’Brien and Hubbs, JJ., concur.

Ordered accordingly.


author: O’Brien, J.

text:
    Rosina Fierro, as Administratrix of the Estate of Savino Fierro, Deceased, Respondent, v. New York Central Railroad Company, Defendant, and The New York, New Haven and Hartford Railroad Company, Appellant.

      (Argued May 15, 1931;
    decided June 2, 1931.)

      E. R. Brumley and John M. Gibbons for appellant.
    There was no evidence of negligence on the part of the defendant-appellant. (C. & O. R. R. Co. v. Mihas, 280 U. S. 102; Chesapeake & Ohio Ry. Co. v. Nixon, 271 U. S. 218; Biernacki v. Pennsylvania R. R. Co., 45 Fed. Rep. [2d] 677; O’Brien v. Erie R. R. Co., 210 N. Y. 96; Chrystal v. Troy & Boston R. R. Co., 105 N. Y. 164; Reading Co. v. Haldeman, 20 Fed. Rep. [2d] 53; Norfolk & W. Ry. Co. v. Kratzer, 37 Fed. Rep. [2d] 522; Davis v. Pennsylvania & R. Ry. Co., 276 Fed. Rep. 187; Toledo, St. L. & W. R. R. Co. v. Allen, 276 U. S. 165; New Orleans & N. E. R. R. Co. v. Harris, 247 U. S. 367.)

      Milton Speiser and Joseph Speiser for respondent.
    The defendant-appellant was bound to use reasonable care. (Thayer v. New York Central R. R. Co., 102 N. Y. Supp. 135; Symond v. Brooklyn City R. R. Co., 256 N. Y. 69; Conrad v. New York Central & H. R. R. R. Co., 121 N. Y. Supp. 774.)
   O’Brien, J.

Savino Fierro, an employee of the New York Central Railroad Company, while engaged in shoveling snow on the viaduct in Park avenue, New York city, was killed by a train operated by defendant New York, New Haven and Hartford Railroad Company. This action was discontinued as against the New York Central and on the first trial the complaint was dismissed as against the New Haven. That judgment was reversed (Fierro v. N. Y. C. R. R. Co., 229 App. Div. 776) and on this second trial a verdict for $20,000 against the New Haven was reduced to $10,000. The judgment entered thereon has been affirmed by a divided Appellate Division.

At nine o’clock in the morning Fierro was working near One Hundred and Sixth street. A gang of several other New York Central laborers was near One Hundred and Fourth street. Two of these fellow-workmen, witnesses for plaintiff, testified that as Fierro started to shovel he looked north along the viaduct. At that time the train, which within a few seconds struck him, was near One Hundred and Sixteenth street traveling in a southerly direction at forty miles an hour and plainly visible to him. Shortly thereafter the New York Central watchman on duty blew his whistle and notified the men that trains were about to pass in both directions. All except Fierro heard and heeded the warning and found safety on another of the four tracks; While these other workmen vigorously shouted an announcement to him of the oncoming train from the north he was struck by it and killed. Plaintiff’s witnesses stated that nothing prevented decedent from seeing the train and the court charged, without objection, that, if he looked to the north and the train was in full view at One Hundred and Sixteenth street and he did not see it, he did not look within the meaning of the law. Also he charged, without objection, that no obligation exists on the part of the engineer to give warning to a person on the tracks unless he knows that he is there and that if the engineer sees a person on the tracks he has a right to assume that such person, if he has knowledge of the presence of the train, will act as an ordinary sensible individual will act and will leave the track. No issue of fact was created at the trial and we perceive no error in the charge. The only question is whether, on these conceded facts, any liability rests upon defendant.

The decisions of the courts of this State as well as those of the Federal courts preclude any possibility of affirming this judgment. As early as Chrystal v. Troy & Boston R. R. Co. (105 N. Y. 164) was formulated a rule that a locomotive engineer, seeing a person on the track at a time when his train is perfectly visible, may assume that such person will leave the track in time to escape injury and, without imputation of negligence, may continue his run until he discovers that the person is heedless of danger. This rule was repeated and even more strictly applied in O’Brien v. Erie R. R. Co. (210 N. Y. 96) where we held that an engineer has the right to assume that one whom he sees on the track repairing it will leave it in time to escape injury and that a jury may not infer; negligence from the engineer’s failure to keep a vigilant outlook, to sound a warning or to slow down his train when rounding a curve at a speed of fifty miles an hour. Of course, when violation of a rule or a custom is shown, as in Blanchard v. D., L. & W. R. R. Co. (211 N. Y. 79), or when there has been an omission by the employer to establish a suitable system of warning, the law is necessarily different, but, in instances where such proof is absent, the doctrine of the Supreme Court is the same as that within our own jurisdiction. (Chesapeake & Ohio Ry. Co. v. Mihas, 280 U. S. 102.) Here there is no evidence that any rule or custom was violated. The New York Central employed a watchman to protect its employees and plaintiff’s evidence is that he blew his whistle and shouted a warning. If negligence by either railroad company was present, it consisted in the failure of the servant of the New York Central rather than of this defendant to sound an alarm that was adequate. The principle in Davis v. Phila. & R. Ry. Co. (276 Fed. Rep. 187, 189) runs closely parallel with the one at bar. The court thus stated it: There was no violation of a statutory requirement, nor was there failure of compliance with any orders or recognized custom or rule adopted for the safety and protection of employees. Thus, in the absence of evidence showing that those in charge of the engine were aware of Davis’ presence on the track where he was injured, or, having discovered him, recklessly ran him down, they should not be held guilty of negligence. To hold the contrary would indeed unreasonably burden those charged with the grave and responsible duty of operating the instruments of conveyance by rail. It would remove the entire responsibility of caring for the safety of those employed upon the track, and place it upon the shoulders of those having to do with the operation of the engine and train, involving attention to signals of every degree of importance, and entirely reheve those who have nothing but their own safety at stake.” A driver guiding his engine over the network of tracks which approach the Grand Central Terminal at New York has the primary duty to operate his train and keep alert for signals. In' his care rests the security of thousands of passengers who, above every other consideration, must be protected from collision or derailment. Unless it be shown by some evidence that he is ignorant of the existence of a custom by watchmen to warn workmen on the tracks or is aware of a violation of such a custom or recklessly runs them down he ought not to be and will not be held to be culpable. In exerting his faculties toward the conservation of his passengers’ lives he fully performs his duty. In the observance of such a function are involved sufficient responsibility and gravity to engage the attention of any prudent man.

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

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and Hubbs, JJ., concur.

Judgments reversed, etc.


author: Crane, J.

text:
    Cold Spring Light, Heat and Power Company, Appellant, v. Charles M. Selleck et al., as Trustees of the Village of Cold Spring, Respondents. (Actions 1 and 2.)
    (Submitted May 20, 1931;
    decided June 2, 1931.)

      Allen S. Hubbard for appellant.
    Plaintiff was not in default under the judgment when defendants removed its poles and wires. (White v. Klinken, 16 Abb. Pr. 109; Gersman v. Levy, 58 Misc. Rep. 174; Sixth Avenue R. R. Co. v. Gilbert Elevated R. R. Co., 71 N. Y. 430; Danziger v. Gottlieb, 156 App. Div. 571; Jewelers’ Mer. Agency v. Rothschild, 155 N. Y. 255; Genet v. President, etc., D. & H. C. Co., 113 N. Y. 472; Matter of Meyer, 209 N. Y, 59; Laney v. Rochester R. R. Co., 81 Hun, 346; Mills v. Leland, 156 App. Div. 597; Clute v. Superior Court, 155 Cal. 15; McCoy v. Chicago, M. & St. P. Ry. Co., 192 Iowa, 448; Green Bay & M. Canal Co. v. Norrie, 128 Fed. Rep. 896; Allen v. Fink, 211 App. Div, 411; Ferry v. Bank of Central New York, 9 Abb. Pr. 100; Petrie v. Fitzgerald, 2 Abb. Pr. [N. S.] 354; Schwabe v. Herzog, 157 App. Div. 672; Morgan v. Williams, 85 Fla. 219; Pickel v. Pickel, 251 Mo. 197.) Whether the plaintiff was in default under the judgment could only be determined in contempt proceedings brought by defendants to enforce the judgment as prescribed by section 505 of the Civil Practice Act. (Mills v. Leland, 156 App. Div. 597; City of Syracuse v. Hogan, 234 N. Y. 457; Johnson v. Purpura, 208 App. Div. 505; Heughes v. Galusha Stove Co., 122 App. Div. 118; Cochrane v. Ingersoll, 73 N. Y. 613; Fischer v. Raab, 81 N. Y. 235; Moffatt v. Herman, 116 N. Y. 131; Socialistic Co-op. Pub. Assn. v. Kuhn, 164 N. Y. 473; Sagehomme v. Pugh & Co., 53 Misc. Rep. 41; Knickerbocker Trust Co. v. O., C. & R. S. Ry. Co., 201 N. Y. 179.) Defendants were not authorized to remove plaintiff’s poles and wires at plaintiff’s expense while plaintiff’s motion for reargument was pending in the Court of Appeals. (New York Electric Lines Co. v. Empire City Subway Co., 235 N. Y. 180; Merrimack River Savings Bank v. Clay Center, 219 U. S. 527; People ex rel. Platt v. Rice, 144 N. Y. 249.)

      M. S. Lockhart and J. Gordon Flannery for respondents.
    Plaintiff was in default when defendants removed plaintiff’s poles and wires. (Danziger v. Gottlieb, 156 App. Div. 571; Sixth Ave. R. R. Co. v. Gilbert El. R. R. Co., 71 N. Y. 430; Genet v. President, etc., D. & H. C. Co., 113 N. Y. 472; Allen v. Fink, 211 App. Div. 411; Ferry v. Bank of New York, 9 Abb. Pr. 100; Petrie v. Fitzgerald, 2 Abb. Pr. [N. S.] 354; Schwabe v. Hertzog, 157 App. Div. 672; Village of Stillwater v. Hudson Valley Ry. Co., 255 N. Y. 144; Rudiger v. Coleman, 228 N. Y. 225; Mills v. Leland, 156 App. Div. 597.)
   Crane, J.

The Cold Spring Light, Heat and Power Company served the village of Cold Spring with electric light from 1899 until December, 1926, at which time the village trustees passed an ordinance ordering the company to forthwith remove its poles and wires from the village streets. Action was thereupon brought to enjoin the enforcement of the ordinance, the trustees by counterclaim asking a mandatory injunction requiring the plaintiff to remove its property. After a trial, Mr. Justice Seeger dismissed the complaint, the judgment reading as follows:

Further Ordered, Adjudged and Decreed that the plaintiff be and it hereby is restrained and enjoined from maintaining its poles, wires and other property in, over or upon the streets, highways or public places in the Village of Cold Spring; and it is

Further Ordered, Adjudged and Decreed that the plaintiff proceed forthwith to remove its poles, wires and other property from the streets, highways and public places in the Village of Cold Spring, and that the said removal be completed within three months from the entry of this judgment and service of a certified copy thereof on the plaintiff or its attorneys, and in default thereof that the defendants be and they hereby are permitted to remove said poles, wires and other property at the cost of the plaintiff; * * * ”

There were two actions consolidated into one.

An appeal was taken to the Appellate Division, and on its judgment of affirmance a motion was made for leave to appeal to this court, which was denied on November 27, 1928. Up to that time execution of the judgment had been stayed by order of the courts. The first stay was given by Mr. Justice Seeger at the same time that he rendered judgment. It read: Ordered that all proceedings on the part of the defendants for the enforcement of the judgment to be entered herein contemporaneously with this order be and they hereby are stayed until the hearing and determination of the appeal to the Appellate Division to be taken by the plaintiff from said judgment.” The stay further provided that it did not authorize the plaintiff to erect new poles or extend its distribution of transmission lines without the consent of the village. Continuing, the stay, which was quite formal, further ordered: “ that such stay shall include the taking of any action by the defendants and all persons acting in their behalf under the resolution passed by the defendants on December 29,1926, requiring or purporting to require the plaintiff to remove its poles or wires or other property from the streets, highways or public places of the village of Cold Spring.” Provision was further made for application to vacate the stay in case of any delay in prosecuting the appeal.

After the affirmance of the judgment by the Appellate Division the stay was continued by that court pending application for leave to appeal to the Court of Appeals. It virtually followed the wording of the stay granted by the trial justice. Immediately after the denial of the motion for leave to appeal by this court application was made for a reargument, which was denied on January 7, 1929. In the meantime, however, and without any notice to the plaintiff, the defendants cut down the poles and wires and removed them from the streets of the village. This was done in a little over a week after the denial of the motion for leave to appeal on November 27, 1928, and before the hearing of the application for reargument. The stay having expired on November 27, 1928, it was and is the contention of the village trustees that the three months allowed by the judgment of Mr. Justice Seeger ran from the date of that judgment, although stayed, and had expired long before the appeal had been heard in the Appellate Division. This being so, the trustees insist they had the right to remove the poles at the expense of the plaintiff immediately upon the denial of the motion for leave to appeal by this court and the termination of the stay. This has been the view taken by the lower courts on this application and motion to charge up in the form of a judgment against the plaintiff the costs of the removal, amounting to $1,534.94. By this interpretation of the stays the plaintiff, in appealing, was penalized by losing all the benefits of the three months’ provision in the judgment; in other words, the mere fact of appeal deprived the plaintiff of the benefit of a very material part of that judgment. This cannot be.

By the judgment of Mr. Justice Seeger, the plaintiff was given three months within which to remove its poles; it was to proceed forthwith and complete the removal within three months from the entry of judgment. Only after the default of the plaintiff in complying with these requirements did the village have the right to remove the poles at the expense of the plaintiff. Ordinarily a municipal corporation has the right to remove nuisances and incumbrances and collect the cost of the removal in an action brought for that purpose from the person responsible for their existence. This is not such a case, as the rights of the parties upon the counterclaim of the trustees were adjusted and fixed, by the judgment. The plaintiff was directed to remove its poles and wires and given an opportunity to do so at its own expense. The right of the village to act was suspended for a period of three months while the plaintiff was doing this work. After the expiration of that time the village could do the work and charge the expense to the plaintiff. No necessity existed for the defendants to proceed against the plaintiff to punish it for contempt for a failure to comply with the judgment as prescribed by section 505 of the Civil Practice Act. After the plaintiff had defaulted and the defendants had removed the poles, they could have moved upon affidavits before the court at Special Term to open the judgment and to enter at the foot of the decree a judgment against the plaintiff for the cost, and allow execution thereon. Courts of equity undoubtedly have power to make such orders as may be necessary to carry out and give effect to their decrees. Where no change or modification is sought and further direction is necessary to carry out provisions of the decree and make them effective, a motion supported by affidavits setting forth the facts is ordinarily sufficient to obtain a further direction in the judgment. (4 Pomeroy Equity Jurisprudence [3d ed.], § 1317; Clark v. Hall, 7 Paige Ch. 382; Sprague v. Jones & Graham, 9 Paige Ch. 395; Kershaw v. Thompson, 4 Johns. Ch. 609; Salt Lake City v. Utah & Salt Lake Canal Co., 43 Utah, 591, 603.)

The defendants’ application to the Supreme Court for judgment in the amount of their expenditures, while not taking the usual form, amounted in effect to the same thing. The error is not in the form of the application but in granting it upon the merits. The defendants are not entitled to any judgment. They took upon themselves to remove the poles and wires without giving the plaintiff a reasonable opportunity to do so, as required by the judgment. They are not entitled to reimbursement. Even if we consider the judgment as one directing the plaintiff to proceed immediately after the stay to remove its poles, that is, to act without unnecessary delay, the defendants at least were obliged to give the plaintiff a reasonable time in which to proceed. Possibly the plaintiff could not wait after the expiration of the stay until near the end of the three months exercising the privileges in the street without making some attempt to comply with the judgment, but we are not confronted with any such situation here, as the village trustees have acted upon the assumption and have assumed the position that the privilege of the plaintiff to remove its own poles at its own expense had expired long before the stay had terminated. The stay prevented the trustees from acting but did not stay the plaintiff from the requirement to remove the poles at once. So the trustees said and now repeat. Possibly they have confused the effect of a stay in a case like this with those which operate upon a judgment granting a prohibitory injunction. Thus, if the plaintiff had sought to remove its wires and poles and the judgment had restrained it from so doing, a stay of that judgment would not have suspended its operation as a prohibition so as to permit the plaintiff to destroy the res or remove the poles, pending appeal. Such are the cases of Sixth Avenue R. R. Co. v. Gilbert Elevated R. R. Co. (71 N. Y. 430); Danziger v. Gottlieb (156 App. Div. 571); Genet v. President, etc., of D. & H. C. Co. (113 N. Y. 472); Matter of Meyer (209 N. Y. 59, p. 68); Green Bay & M. Canal Co. v. Norrie (128 Fed. Rep. 896); Clute v. Superior Court (155 Cal. 15); 2 Ruling Case Law (§ 97).

The stay in this case operated upon a different kind of judgment. The plaintiff had been directed to remove its poles, but action was suspended by the stay until final, determination of the plaintiff’s rights on appeal. One judgment is prohibitive, the other mandatory. Very unreasonable would it be to insist that the plaintiff destroy the very thing it was appealing to maintain. A reversal would cause confusion.

The order of the Appellate Division and that of the Special Term should be reversed, and the motion denied, with costs in all courts.

Cabdozo, Ch. J., Pound, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Orders reversed, etc.


author: Cakdozo, Ch. J.

text:
    Wacil Bible, Respondent, v. The John Hancock Mutual Life Insurance Company of Boston, Massachusetts, Appellant.

      (Argued May 21, 1931;
    decided June 2, 1931.)

      Thomas McCall and Frederick C. Tanner for appellant.
    Despite the knowledge of an agent of breach of conditions of an insurance policy or misrepresentations as to material matters in the application therefor, the insured, the company and the beneficiary are bound by the terms of the instrument. (Stanulevich v. St. Lawrence Life Assn., 228 N. Y. 586; Bollard v. New York Life Ins. Co., 228 N. Y. 521; Satz v. Mass. Bonding & Ins. Co., 243 N. Y. 385; Baumann v. Preferred Accident Ins. Co., 225 N. Y. 480; Grubiak v. John Hancock Mut. Life Ins. Co., 212 App. Div. 126.) The breach of the terms and conditions of the policy rendered the instrument void. (Rudolph v. John Hancock Mut. Life Ins. Co., 251 N. Y. 208; Cirrincioni v. Metropolitan Life Ins. Co., 223 App. Div. 461; Minsker v. John Hancock Mut. Life Ins. Co., 254 N. Y. 333; Travelers Ins. Co. v. Pomerantz, 246 N. Y. 63; Doherty v. Mut. Life Ins. Co., 166 N. Y. Supp. 838; E. D. P. Dye Works v. Travelers Ins. Co., 234 N. Y. 441; Malchak v. Metropolitan Life Ins. Co., 134 Misc. Rep. 640; Archer v. Equitable Life Assur. Soc., 218 N. Y. 18.)

      Charles E. Doyle and John J. Finn for respondent.
    The provisions of the policies in suit are not warranties, nor even representations, of or by the insured, but mere conditions precedent. (Archer v. Equitable Life Assn., 218 N. Y. 18; Satz v. Mass. Bonding & Ins. Co., 243 N. Y. 385; McClelland v. Mut. Life Ins. Co., 217 N. Y. 336; Chinnery v. Met. Life Ins. Co., 112 Misc. Rep. 109.) There can never be any element of fraud or misrepresentation, material or otherwise, involved where neither the application nor a copy thereof is attached to or indorsed upon the policy when issued or delivered. (Archer v. Equitable Life Assn., 218 N. Y. 18; Satz v. Mass. Bonding & Ins. Co., 243 N. Y. 385.) The policy language relied upon as a defense constituted mere conditions precedent and not warranties nor representations; and they were all the subject of waiver by the defendant. (McClelland v. Mutual Life Ins. Co., 151 App. Div. 264; 217 N. Y. 336; Ames v. Ins. Co., 40 App. Div. 465; Satz v. Mass. Bonding & Ins. Co., 243 N. Y. 385; Chinnery v. Metropolitan Life Ins. Co., 112 Misc. Rep. 109.)
   Cakdozo, Ch. J.

The defendant issued two policies of insurance, each in the sum of $400, upon the life of Anna Bible, payable at her death to her husband, the plaintiff.

Anna Bible was a patient in Hudson River State Hospital, a sufferer from a “ manic depressive psychosis.” An agent for the defendant visited her in the hospital and procured her signature to applications for insurance. Later he handed her the policies in the presence of her husband, received payment of the first premium, and at weekly intervals thereafter collected additional premiums at the hospital for a period of three months, the premiums thereafter being collected by another.

Upon the death of the insured, about a year and eight months after the delivery of the policies, there was filed with the insurer a proof of claim in due form exhibiting the condition of her health at the time of the delivery of the policies and earlier. The insurer disclaimed liability upon the ground that the policies had been avoided by the breach of two conditions.

The two conditions are the following:

This policy shall not take effect unless upon its date the insured shall be alive and in sound health and the premium duly paid.”

“ This policy shall be void * * * if the insured^ * * * has attended any hospital, or institution of any kind engaged in the care or cure of human health or disease, or has been attended by any physician, within two years before the date hereof, for any serious disease, complaint or operation * * * unless each such * * * medical and hospital attendance and previous disease is specifically waived by an endorsement in the space for endorsements on page 4 hereof signed by the secretary.” The policies contain also the following general provision as to alterations, erasures and waivers:

No modification, change or alteration hereof or endorsement hereon will be valid unless signed by the President, a Vice President, the Secretary or an Assistant Secretary, and no other person is authorized on behalf oí the company to make, alter or discharge this contract or to waive forfeiture. Agents are not authorized to waive any of the terms or conditions of this policy or to extend the time for payment of premiums or other moneys due to the company, or to bind the company by making any promise not contained in this policy.”

Upon the defendant’s disclaimer of liability this action was begun. The jury were instructed that the breach of the conditions might be found to have been waived if the defendant had knowledge through its agent of the state of health of the insured and of her confinement in the hospital when the policies were issued and the premiums accepted. The jury gave a verdict for the plaintiff, and the Appellate Division affirmed by a divided court.

Section 58 of the Insurance Law (Cons. Laws, ch. 28) provides that every policy of insurance issued or delivered within the State on or after the first day of January, 1907, by any life insurance corporation doing business within the state shall contain the entire contract between the parties and nothing shall be incorporated therein by reference to any constitution, bylaws, rules, application or other writings unless the same are endorsed upon or attached to the policy when issued; and all statements purporting to be made by the insured shall in the absence of fraud be deemed representations and not warranties ” (Minsker v. John Hancock M. L. Ins. Co., 254 N. Y. 333). The defendant procured applications from the insured, but did not attach them to the policies. What was in them we do not know, and we must act as if they had never been. In such circumstances Satz v. Massachusetts Bonding & Ins. Co. (243 N. Y. 385), Stanulevitch v. St. Lawrence Life Assn. (228 N. Y. 586), and Drilling v. N. Y. Life Ins. Co. (234 N. Y. 234) do not touch the case at hand except by pointing a distinction. There is here no warranty of health (Stanulevitch v. St. Lawrence Life Assn., supra; Bollard v. N. Y. Life Ins. Co., 228 N. Y. 521; Satz v. Massachusetts Bonding & Ins. Co., supra)] nor warning, extrinsic to the policy, of a limitation on the apparent authority proper to an agent (Drilling v. N. Y. Life Ins. Co., supra, at p. 242). In the absence of warranty or warning, the delivery of the policies by the insurer, and the keeping of the premiums with knowledge of a then existing breach of the conditions as to the health of the insured and her treatment in a hospital gave rise to a waiver or, more properly, an estoppel (Whipple v. Prudential Ins. Co., 222 N. Y. 39; Satz v. Massachusetts Bonding & Ins. Co., supra, at p. 390; McClelland v. Mutual Life Ins. Co., 217 N. Y. 336; Ames v. Manhattan Life Ins. Co., 40 App. Div. 465; 167 N. Y. 584; Vance on Insurance [2d ed.], 461, 496). If the insurer desired to overcome the effect of the estoppel, it should have annexed applications with appropriate recitals of notice and assent.

The question remains whether the agent to whom knowledge was imparted was so related to the defendant as to charge it with his knowledge. As to this our decision in McClelland v. Mutual Life Ins. Co. (supra) must be held to be conclusive. Here, as there, the agent was more than a soliciting agent (McCormack v. Security Mut. Life Ins. Co., 220 N. Y. 447, 457). He was that, but much besides. He was authorized not only to solicit applications, but to make delivery of the policies, and upon delivery and afterwards to collect the weekly premiums. So, at least, it may fairly be inferred from the evidence of his conduct and from the failure of the defendant to prove anything to the contrary (Forward v. Continental Ins. Co., 142 N. Y. 382, 389). If at the time of delivery and the collection of the premium, he was informed that the insured was in a hospital and ill, he was under a duty to communicate to his employer the information thus acquired (McClelland v. Mutual Life Ins. Co., supra; Vance, Insurance, pp. 413, 419, 518, 520). The employer with that knowledge retained the premiums as its own.

In holding that notice to the agent was notice to the principal, we are not unmindful of the limitations in the policies upon his authority to waive. They do not touch the case at hand. The insured became chargeable with notice, upon the acceptance of the policies, that there was no authority in the agent to waive the breach of a condition coming to his notice after a policy had been delivered as a contract presently existing (Drilling v. N. Y. Life Ins. Co., supra). She was not chargeable with notice that the limitation would apply by retroaction so as to nullify a waiver or estoppel having its origin in conduct antecedent to the contract (Whipple v. Prudential Ins. Co., 222 N. Y. 39, 43, and cases cited; Wood v. American Fire Ins. Co., 149 N. Y. 382, 386; Drilling v. N. Y. Life Ins. Co., supra). Section 58 of the Insurance Law has not changed the rule in that behalf. No doubt, the occasions for the recognition of the rule are likely to be more infrequent since the adoption of the statute than they were in former years. To-day, the restriction upon the authority of the agent and the manner of its exercise is commonly stated in the application signed by the insured. Controversy is foreclosed if the application is annexed. Here it was not annexed, and notice of the limitation, if imparted, must be proved in some other way. In these circumstances, whatever would have been effective before the adoption of the statute to charge the defendant with an estoppel through notice to its agent, must be equally effective now. The purpose of section 58 of the Insurance Law in requiring the whole contract to be stated in the policies, and not pieced out by documents included by mere reference, was not the relief of the insurer. It was the protection of those insured and of the beneficiaries claiming under them. The Legislature had no design to make their situation harder. We think the effect of an estoppel remains what it has always been, and that in the absence of notice to the contrary either in the application or otherwise, what is known to an agent with apparent authority to issue an effective policy is known also to the company.

The judgment should be affirmed with costs.

Pound, Cbane, Lehman, Kellogg, O’Brien and Hubbs, JJ.. concur.

Judgment affirmed.


author: Pound, J.

text:
    Martha Wills, Respondent, v. Ira Maier, Appellant.

      (Argued May 21, 1931;
    decided June 2, 1931.)

      Jay Leo Rothschild, Alexander L. Strouse and Louis Rivkin for appellant.
    The prior judgment between the corporation and the plaintiff is res judicata. (Rudd v. Cornell, 171 N. Y. 114.) Defendant did not constitute two different legal entities, but even if he did, what he did in one legal character was a complete defense to the result of his conduct in the other. (Collins v. Hydorn, 135 N. Y. 320; Rathbone v. Hooney, 58 N. Y. 463; Dyett v. Hyman, 129 N. Y. 351; Wilcox v. Gilchrist, 85 Hun, 1; Barclay v. Williams, 30 Misc. Rep. 687.) The issue of fraud was determined. (Dudley v. Congregation of St. Francis, 138 N. Y. 451; Saperstein v. Mechanics & F. Sav. Bank, 228 N. Y. 257; D’Aversa v. Guida, 213 App. Div. 355; 244 N. Y. 590; Jarvis v. Driggs, 69 N. Y. 143; Williams v. Barkley, 165 N. Y. 48; Perry v. Dickerson, 85 N. Y. 345; Earle v. Earle, 173 N. Y. 480; Blair v. Bartlett, 75 N. Y. 150; Goldman v. Rubinstein, 214 App. Div. 791; 242 N. Y. 517.) The release from the plaintiff to the defendant’s corporation operated as a complete satisfaction of the claim herein. (Barrett v. Third Ave. R. R. Co., 45 N. Y. 628.) Counsel fees paid by the plaintiff in resisting the action of the corporation for specific performance were not properly chargeable to defendant. (Stanton v. Hennessey, 78 Hun, 287; 150 N. Y. 564; Whitney v. National Bank, 45 N. Y. 303; Slingerland v. Bennett, 66 N. Y. 611; Hitchcock v. Bank of Suspension Bridge, 57 App. Div. 458.) There was no charge as to what constituted the relation of attorney and client. (Maloney v. Kaplan, 233 N. Y. 426; Stout v. Smith, 98 N. Y. 25; Kittredge v. Grannis, 236 N. Y. 375; Gallagher v. McMullin, 7 App. Div. 321; Pfeffele v. Second Ave. R. R. Co., 34 Hun, 497; Delost v. Parmer Co., 35 Hun, 386; Murray v. Narwood, 192 N. Y. 172; Newall v. Bartlett, 114 N. Y. 399.)

      Irving D. Lipkowitz and Claude L. Gonnet for respondent.
    The prior judgment in favor of the corporation is not res judicata. The question of defendant’s professional duty as plaintiff’s attorney was not actually determined and could not have been involved in the prior litigation. (Sternberger v. McGovern, 56 N. Y. 12; Saperstein v. Mechanics & Farmers Sav. Bank, 228 N. Y. 257; Ohl & Co. v. Standard Steel Sections, Inc., 179 App. Div. 637; Kraemer v. World Wide Trading Co., 195 App. Div. 305.) The prior judgment is not available to the defendant, not because of his acts as the agent of the vendee, but for the breach of an independent duty owing by him to the plaintiff as the latter’s agent and attorney. (St. John v. Fowler, 229 N. Y. 270; Fairview Chase Corp. v. Scharf, 225 App. Div. 232; 254 N. Y. 55.) The question of the defendant’s duty to plaintiff as her attorney could not possibly have been litigated in the prior action. (Wiebke v. De Wyngart, 101 Atl. Rep. 410; Grudberg v. Midvale Realty Co., 119 Misc. Rep. 558.) The rule that a release of one joint tort feasor discharges all, has no application to the case at bar, which is predicated, not upon a joint tort, but upon the fraudulent discharge by the defendant of his independent duty to the plaintiff as her attorney. (Frascone v. Louderback, 153 App. Div. 199; Fedden v. Brooklyn Eastern District Terminal, 204

      App. Div. 741; Atlantic Dock Co. v. Mayor, 53 N. Y. 64; Casey v. Auburn Tel. Co., 131 N. Y. Supp. 1; 148 App. Div. 900.) The charge was adequate and submitted to the jury the fundamental questions. (Haefeli v. Woodrich Engineering Co., 255 N. Y. 442; Haas v. King, 216 App. Div. 821; Robinson v. Ins. Co., 198 N. Y. 523.) No error was committed in the reception of evidence as to damages. (Reno v. Bull, 226 N. Y. 553; Foster v. Di Paolo, 236 N. Y. 132; Lurman v. Jarvie, 82 App. Div. 37; Dubois v. Hermance, 56 N. Y. 673; Hynes v. Patterson, 95 N. Y. 1.)
   Pound, J.

The complaint states a cause of action against the defendant as an attorney at law, based upon fraudulent and dishonest advice given by him to plaintiff to induce her to sign an agreement for the assignment of a lease.

Martha Wille, the plaintiff herein, had leased property in New York city known as 66 West Fifty-first street for a period of twenty years. The lease contained a provision forbidding the lessee to sublet the property. Ira Maier, the defendant herein, the president and principal stockholder of Tyler Hill Corporation, approached plaintiff with an offer on behalf of the corporation to take over her lease for an annual payment largely in excess of the rental provided for in the lease. She signed an instrument in writing providing for the transfer of the lease to Tyler Hill Corporation, together with the consent of the owner. She was unable to perform her contract for the reason that the landlord refused to give his permission for the transfer of the lease. Thereupon Tyler Hill Corporation brought an action for specific performance against her, and in lieu of specific performance obtained a judgment against her for $15,000 damages for her failure to perform. Plaintiff had defended the action on the ground that it was induced by fraud in that the corporation, by Ira Maier, its representative, had advised her that the paper she signed contained a provision that it should take effect only if she could obtain the consent of the landlord to the assignment of the lease. The court found that she was well aware of the terms of the lease forbidding her to sublet and that the only question remaining was the amount of damages. Thereafter she paid $10,000 in settlement of the judgment and gave the corporation a general release and then brought this action against Ira Maier, alleging that in the negotiations leading up to the transfer he undertook to act as her attorney and, as such, erroneously and wrongfully advised her that she could make the transfer without her landlord’s consent, with the result that she was cast in judgment for having signed the lease and incurred legal expenses in defending the action for specific performance. On the trial of the action she testified that Maier said to her: “ I am a lawyer, I know the owner cannot refuse the consent;” again, that he said: “ You may take a lawyer, but it is not necessary. I am a lawyer, I protect you, I take care of everything;” and again, “ Mrs. Wille, you can safely sign it, I protect you in every way. I am a lawyer and I protect you in every way, so you can safely sign it.” The jury believed her statement and she recovered a judgment against the defendant for upwards of $15,000 damages, this sum including the $10,000 which she paid in settlement of the judgment against her and a charge of $5,000 for attorney’s services.

The question is whether defendant may be regarded as two distinct entities, viz., as agent for his company and as attorney for plaintiff, so that his representations in the latter capacity may be the basis of an independent cause of action against him. although the corporation has been exonerated on the issue of fraud.

The advice thus found to have been given obviously was very bad and wicked as the prohibition against subletting was absolute as both plaintiff and defendant well knew. He advised her that, notwithstanding, the owner would be compelled to consent. As he agreed to protect her in every way and dissuaded her from seeking other legal advice, the defendant does-not greatly question that he is concluded on the facts by the verdict as-to the relation of attorney and client But relies as matter of law upon the prior judgment in favor of the defendant’s corporation and against plaintiff which he claims is res adjudicata.

It is settled law in this State that A judgment in one action is conclusive in a later one not only as to any matters actually litigated therein, but also as to any that might have been so litigated, when the two causes of action have such a measure of identity that a different judgment in the second would destroy or impair rights or interests established by the first. * * * It is not conclusive, however, to the same extent when the two causes of action are different, not in form only * * *, but in the rights and interests affected. The estoppel is limited in such circumstances to the point actually determined.” (Cardozo, Ch. J., in Schuylkill Fuel Corp. v. Nieberg Realty Corp., 250 N. Y. 304, 306, 307.)

In Tyler Hill Corporation v. Wille the plaintiff therein sought specific performance or money damages against this plaintiff. The defense was that the corporation through its representative Maier stated that the contract contained a provision that it would be of no effect unless she could obtain the consent of the landlord to the assignment. The court found that this plaintiff knew before signing the contract that it provided that she must obtain the consent of the lessor to the assignment of the lease and rendered judgment accordingly. '

This was the only point actually determined. Applying the rule as above stated, we ask whether the issue could have been litigated in the prior action that defendant, as plaintiff’s attorney, falsely misrepresented to her that, notwithstanding the contents of the contract, which she knew, the consent of the owner could be obtained and that she was induced to sign the same in reliance on the advice of defendant as her attorney that the owner could not refuse to give his consent to the assignment.

The answer should be in the negative. The two causes of action differ not only in form but also in substance. The subject-matter is different. The court in the first action did not hold that this defendant was free from tortious conduct toward plaintiff as her representative and no adjudication to that effect was made in favor of him. As against the corporation the contract was a valid agreement. That plaintiff was induced to execute it by bad and fraudulent advice of her attorney was not germane to the issue. The prior adjudication that the corporation did not misstate the contents of the contract is doubtless binding on plaintiff, both as to the corporation and the corporation’s agent. As to it, the transaction was entirely fair. This is entirely another cause of action charging not the fraud of the corporation but the different fraud of her volunteer attorney.

The trial judge ruled that the judgment in the former action was not res adjudicata because the parties were different. The record of the action against the corporation for specific performance is not in evidence and is marked for identification only. If, however, the decision is correct we should not reverse because the reasons given therefor are inadequate.

The same answer may be made to the point that the release from the plaintiff to the corporation of her cause of action against it operated as a satisfaction of the claim herein. The corporation has been exonerated. No relation of joint tort feasor existed when the release was signed. Defendant cannot assert that the corporation and he were joint tort feasors as to the wrong now complained of.

The question remains as to whether reversible error was committed in the reception of evidence as to damages. Damages include counsel fees paid by respondent in the defense of Tyler Hill Corporation action and the amount paid by respondent in settling the broker’s action for commissions. Both these items of expense were the direct and immediate result of entering into the contract of sale under defendant’s fraudulent advice.

It is complained that the charge to the jury was inadequate as to what constituted the relation of attorney and client. The question was fairly presented to the jury. Although counsel for the defendant excepted to the charge “ as a whole on the ground that it does not adequately present to the jury the fundamental question as to whether there was the relation of attorney and client under the circumstances thereof,” no material instructions were specifically requested which were not covered by the main charge. The issue of lawyer or no lawyer ” was properly submitted to the jury. Defendant either assumed the job of lawyer for her ” or he did _not. As the court said, that is all there is to it.” ____ )

Thus we have a case where an attorney at law is found to have established a definite relation of confidence which resulted in action taken on his advice as to the law. The evidence is ample to justify the verdict. Where such relation exists material fraudulent representations or opinions as to the law are actionable. In such cases as this, the attorney who induces the adverse party to a transaction to accept his word as to the law in order to avoid the appearance of another attorney on the scene, fails in the jealous care for his standing at the bar which he should sedulously exert and opens himself to liability for his false representations to his adopted client.

The judgment should be affirmed, with costs.

Cardozo, Ch. J., Crane, Lehman, Kellogg, O’Brien and Htjbbs, JJ., concur.

Judgment affirmed.


text:
    Schultz & Son, Inc., Respondent, v. Nels H. Nelson, Defendant, and Selma Stille, Appellant.
    (Argued May 21, 1931;
    decided June 2, 1931.)

      Francis G. Hoyt for appellant.
    There was no written agreement or memorandum signed by appellant as required by the Statute of Frauds. (Zilmaur Realty Corp. v. Pinkney, 208 App. Div. 467; Mentz v. Newwitter, 122 N. Y. 491; De Goode v. Benton, 141 App. Div. 22; Spielvogel v. Veit, 197 App. Div. 804.) The verdict was excessive. (Hopkinson v. Lee, 6 Wheat. 109; Northridge v. Moore, 118 N. Y. 419; Bulkley v. Rouken Glen, Inc., 222 App. Div. 570.)

      Benjamin I. Tunick for respondent.
    The defendant acted as an agent merely for the purpose of executing a deed, and it is unnecessary to show a contract to sell on her part. (Stafford v. Burke, 130 Misc. Rep. 12.)
   Crane, J.

Neis H. Nelson of the village of Croton Falls, county of Westchester, was the owner of a piece of property at Green Knolls, Scarsdale, Westchester county, N. Y. He was about to give up the building business on account of his physical condition and go to Sweden.

Oscar Le Roy Warren, of White Plains, was his lawyer, and to him he went in reference to the sale of this lot. Not wanting to delay leaving the country until the property was sold, he made a deed to his aunt, Selma Stille, of 65 Bleecker street, Brooklyn, N. Y., to be held by his lawyer until a purchaser had been procured. Warren, the attorney, was to negotiate the sale, execute the contract, and have a deed executed by the aunt, Selma Stille, who would be in this country, and through whom title could pass without the inconvenience of sending papers to Nelson in Sweden. The deed from Nelson to his aunt was made and dated August 2, 1927, and remained in the possession of the attorney until June of 1928. Warren was Nelson’s agent, so that delivery of the deed to him was not delivery to Selma Stille. (Van Valkenburg v. Allen, 111 Minn. 333; Shelinsky v. Foster, 87 Conn. 90.)

On March 9, 1928, Warren, as attorney in fact for Nelson, made a contract to sell the property to Schultz & Son, Inc., for $2,500, title to close at the office of the Cooley Realty Company in Scarsdale, on May 8, 1928. This contract with all its terms and conditions was made binding upon the heirs, executors, administrators, successors and assigns of the respective parties. At the time of closing, the attorney, Warren, and his partner, Scott, still had the deed of Nelson to his aunt in their possession. It had never been delivered to her, although she knew about it from letters and through conversations. The title company refused to close title until her deed was recorded, and a few days’ adjournment were taken for this purpose, Mrs. Stille being present at the time and saying, “All right, when the deed was recorded and title searched she was going to give us the deed.” The deed was thereupon recorded and for the first time delivery by this means was made to Mrs. Stille. (Whiting v. Hoglund, 127 Wis. 135; Boody v. Davis, 20 N. H. 140; Holmes v. McDonald, 119 Mich. 563.) She knew then, if not before, of the contract of sale, and took the property subject to its terms and conditions. As it was binding upon Nelson’s successors and assigns she was obliged to perform.

This she failed to do, but conveyed the property subsequently at a higher price to innocent third parties, thus depriving Schultz & Son, Inc., of the benefits of its bargain. The plaintiff' has brought this action against Mrs. Stille to recover its damage, and has recovered a judgment, which must be affirmed, except as modified in the particulars hereinafter stated.

Selma Stille knew as early as January 20, 1928, or two months before the making of the contract with the plaintiff, the purpose for which Nelson had made out a deed to her. In a letter under that date Warren informs her that he has a tentative offer of $2,500 for the property and states: “As you probably know, Herbert conveyed this lot to you before he left this country. I do not know just what he wanted for the lot but perhaps you do.” Again, on March 13, 1928, the lawyer wrote Mrs. Stille: “A few days ago I received a letter from Herbert saying that he would accept $2,500 half cash and the balance on a mortgage.” And then follows the information that he has sold the property, title to close on May eighth. To this letter Mrs. Stille replied March 14, 1928:

“ Mr. 0. Warren,
White Plains, N. Y.
“ Dear Sir.— I am very much pleased with the sale of Herbert’s lot, and also in favor of depositing the money in White Plains on Herbert’s account.
“ Yours very truly,
“ SELMA STILLE.”

If there be any doubt from this correspondence that Mrs. Stille knew why Nelson had made a deed to her and left it with his lawyer it is dispelled by the testimony of Attorney Warren that when she called in the following July with her lawyer he told them all the facts, and later sent her the deed, returned from the Register’s office. She did not convey away the property to an innocent third party until the following January, 1929.

In the absence of Mrs. Stille to testify or give any explanation of these facts, if she has any, the trial justice properly directed judgment for the plaintiff for the damages sustained through the grantee of the property taking it with knowledge of the contract and refusing to carry it out. Although section 294 of the Real Property Law (Cons. Laws, ch. 50) permits the recording of executory contracts of sale yet the record is not constructive notice to subsequent purchasers. To one who discovers such record, however, it is notice — actual notice. (Reeves on Real Property, vol. II, § 745.) Mrs. Stille had actual notice.

The judgment, however, must be modified in the following particulars. The plaintiff cannot have the profits and also recover for counsel fee and title search. It has received by this judgment the same benefits it would have had if the contract had been carried out and the property deeded to it. Under such conditions the plaintiff would have paid the counsel fee and the cost of a title search. Having received all the benefits in the form of the $500 profit, it likewise must stand this expense.

The judgment of the Appellate Division and that of the trial court should, therefore, be modified by deducting from the judgment of the trial court the sum of $175, with interest, and as thus modified affirmed, without costs.

Cardozo, Ch. J., Pound, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment accordingly.


author: Per Curiam.

text:
    Charles Grosch, Respondent, v. Karoline Kessler, Appellant.
    (Argued May 22, 1931;
    decided June 2, 1931.)

      W. L. Crawford and William A. Backer for appellant.
    The plaintiff has failed to prove that the deeds were forged. (People v. Holmes, 166 N. Y. 540; Vrooman v. King, 36 N. Y. 477; Williams v. Williams, 142 N. Y. 156; Spalding v. Hallenbeck, 35 N. Y. 204; New York Water Co. v. Crow, 110 App. Div. 32; 187 N. Y. 516; Hallohan v. Rempe, 66 Misc. Rep. 27.)

      Odin Gustafson and Joseph J. Shapiro for respondent.
    The evidence permits no other conclusion but that the deeds were forgeries. The finding of the Appellate Division to that effect must be sustained. (Nickell v. Tracy, 184 N. Y. 387.) There is no basis to defendant’s claim for taxes. (Dunham v. Townshend, 118 N. Y. 281; People ex rel. Warschauer v. Dalton, 159 N. Y. 235; Stemmler v. Mayor, 179 N. Y. 473; People v. Flack, 216 N. Y. 123; Kennedy Corp. v. Kennedy, 165 N. Y. 353; New York Bank Note Co. v. Hamilton, 180 N. Y. 280; Martin v. Home Bank, 160 N. Y. 190.)
   Per Curiam.

The preponderance of evidence sustains the finding of the Appellate Division that the deeds recorded in 1904 from Weeks to Medary and from Weeks to Barney, were forgeries and void.

The defendant, who received a conveyance in 1913, was a purchaser for value and in good faith. The plaintiff seeks the aid of equity, and must submit to the condition that he do equity himself. There must be reimbursement to the defendant for any moneys expended by her in the discharge of assessments for improvements (Thomas v. Evans, 105 N. Y. 601, 612, 613; Mickles v. Dillaye, 17 N. Y. 80, 86; Satterlee v. Kobbe, 173 N. Y. 91, 99). The effect of such payments is an equivalent enhancement of the value of the land. If the assessments had not been paid by the defendant, the plaintiff would have had to pay them, or to leave them as hens upon the land with a proportionate reduction of the value of the equity (Loos v. Wilkinson, 113 N. Y. 485, 499; Title G. & T. Co. v. Haven, 214 N. Y. 468; Frank v. Van Bayer, 236 N. Y. 473). There must also be reimbursement for the annual taxes except to such extent as taxes are offset by the reasonable value of the use and occupation (Thomas v. Evans, supra; Loos v. Wilkinson, supra).

The judgment of the Appellate Division should be modified by requiring the plaintiff to reimburse the defendant for the moneys expended by her in discharge of assessments for improvements, and also for the annual taxes in excess of rental value; by remitting the case to the trial court to ascertain and determine how much is due to the defendant by force of the condition thus imposed, and to impress the amount so found to be due as a lien upon the land; and as thus modified the judgment should be affirmed without costs.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment accordingly.


text:
    Samuel L. Goldstein, Respondent, v. Jacob Shapiro, Appellant.
    (Argued May 11, 1931;
    decided June 2, 1931.)

      Allan S. Locke for appellant.
    The defenses are sufficient in law. (Jones v. Butler, 87 N. Y. 613; Horton v. Horton, 83 Hun, 213; Weeks v. O’Brien, 141 N. Y. 199; Glazer v. Home Ins. Co., 190 N. Y. 6; Winter v. American Analine Products, 236 N. Y. 199; Sewell v. Bridge, 1 Ves. Sr. 296; Brown v. Perkins, 1 Hare, 564; Adler v. Jones, 208 Ala. 481; Reliance L. Ins. Co. v. Russell, 208 Ala. 559; Farnham v. Le Bolt, 133 App. Div. 520; Eisner v. Pringle Memorial Home, 130 App. Div. 559; Holdridge v. McKewen, 107 Ark. 367; Hamer v. Sidway, 124 N. Y. 538; Jones v. United States, 96 U. S. 24; White v. Hoyt, 73 N. Y. 505; Moers v. Moers, 229 N. Y. 294; Rodgers v. Rodgers, 235 N. Y. 408; McGovern v. City of New York, 234 N. Y. 392; Mississippi Shipbuilding Corp. v. Lever Bros. Co., 237 N. Y. 1; Nassau Supply Co. v. Ice Service Co., 252 N. Y. 277; Bernstein v. Kritzer, 235 N. Y. 410; Smith v. Dotterweich, 200 N. Y. 299; Schwartzreich v. Bauman-Basch, Inc., 231 N. Y. 196.)

      Samuel Gottlieb for respondent.
    The first affirmative defense which attempts to plead waiver is bad in substance as well as in form. (Clark v. West, 193 N. Y. 349; Kronman & Co. v. Public Nat. Bank, 218 App. Div. 624.) The second affirmative defense based on the theory of mutual release is insufficient in law upon the face thereof. (Rodgers v. Rodgers, 235 N. Y. 408; Bradford Co. v. Dunn, 250 N. Y. 461.)
   Per Curiam.

The parties were the sole members of a copartnership and by the terms of their agreement, annexed to the complaint and marked Exhibit “A,” they contracted that defendant would invest $4,000 in the business, that plaintiff would invest $11,000 and that all losses should be equally borne between them. The business was unsuccessful and they assigned all their assets to trustees for the benefit of creditors. A copy of the agreement by which this assignment was made is annexed to the complaint and marked Exhibit B.” In this action to recover from defendant his proportionate share of the losses sustained by the partnership, plaintiff alleges that he contributed capital in the sum of $13,854.50 and that defendant contributed only the sum of $4,600. In the answer this allegation respecting the amount of plaintiff’s contribution is denied and by way of a second separate defense the answer alleges: “Sixth. Alleged on information and belief that as a condition of the execution of the Settlement Agreement Plaintiff’s Exhibit ‘ B,’ by the plaintiff and defendant, it was agreed by and between them that they would and did release each other from any and all liability arising out of the copartnership agreement, plaintiff’s Exhibit ‘ A.’ ” This defense has been stricken out as insufficient but we think that, as matter of pleading, it is good. If the fact be proved on the trial that these parties agreed, to release and forego whatever right each might possess against the other, the contract will be shown to be supported by a valid consideration.

The order of the Appellate Division and that of the fpecial Term should be reversed and the motion denied, with costs in all courts and the questions certified answered as follows: first question, “ no; ” second question, “ yes.”

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Ordered accordingly.