author: Lehman, J.

text:
    Colin A. Stephenson, Respondent, v. The Go-Gas Company et al., Appellants.

      (Submitted May 22, 1935;
    decided July 11, 1935.)

      Louis S. Posner and Maurice Finkelstein for The Go-Gas Company et ah, appellants.
    There is no express or implied promise to give a hen to the plaintiff on any properties of any of the defendants; there are no words and no language from which any inference may be drawn of an intention to transfer existing rights to present or future property or funds to the plaintiff; nor are there any such equities pleaded or any fiduciary relations alleged which would justify the creation of any form of equitable lien or assignment known to the law. (Massachusetts Gasoline <fc Oil Co. v. Go-Gas Co., 259 Mass. 585; Matter of Hawkeye Oil Co., 19 Fed. Rep. [2d] 151; Thomas v. New York & Greenwood Lake Ry. Co., 139 N. Y. 163; Williams v. Ingersoll, 89 N. Y. 508; Wemple v. Hauenstein, 19 App. Div. 552; Addison v. Enoch, 48 App. Div. Ill; Netting v. Netting, 60 App. Div. 409; Holmes v. Bell, 139 App. Div. 455; McAvoy v. Schramme, 219 App. Div. 604; Matter of Interborough Consolidated Corp., 288 Fed. Rep. 334; Erb v. Banco Di Napoli, 243 N. Y. 45; Matter of Hill, 291 Fed. Rep. 922; Lewis v. Canadian Pacific Ry. Co., 39 Fed. Rep. [2d] 834; Sayer v. Wynkoop, 248 N. Y. 54.) There are no fiduciary relations between the plaintiff and any of the defendants nor any other circumstances which would justify an appeal to a court of equity for an accounting. (United States & Mexican Oil Co. v. Keystone Auto

      Gas & Oil Service Co., 19 Fed. Rep. [2d] 624; Matter of Hawkeye Oil Co., 19 Fed. Rep. [2d] 151; Shantz v. Oakman, 163 N. Y. 148; Marvin v. Brooks, 94 N. Y. 71; Salter v. Ham, 31 N. Y. 321; Lasch v. Marcin, 251 N. Y. 402; Uhlman v. New York Life Ins. Co., 109 N. Y. 421; Pelkey v. Pelkey, 236 App. Div. 55; Day v. Ogdensburgh & Lake Champlain R. R. Co., 107 N. Y. 129.)

      Frank Sowers for Edward M. Wharff et al., appellants.

      Arthur Ofner and William H. Freedman for respondent.
    The certificates create both an equitable lien upon and a trust in the receipts of the stations. (Hinkle Iron Co. v. Kohn, 229 N. Y. 179; St. Regis Paper Co. v. Santa Clara Lumber Co., 173 N. Y. 149; Williams v. IngersoU, 89 N. Y. 508; Barnes v. Alexander, 232 U. S. 117; Muller v. Kling, 209 N. Y. 239; Orton v. Tanenbaum, 194 App. Div. 214; Nellis v. Western Life Indemnity Co., 207 N. Y. 320; Hamer v. Sidway, 124 N. Y. 538; Hibbs v. Brown, 190 N. Y. 167; Harwood v. LaGrange, 137 N. Y. 538; Fairbanks v. Sargent, 104 N. Y. 108; Conn. Co. v. N. Y., N. H. & H. R. R. Co., 94 Conn. 13; Schermerhorn v. Gardenier, 107 App. Div. 564; 184 N. Y. 612; Sexton v. Kessler, 225 U. S. 90; Westall v. Wood, 212 Mass. 540.) Judgment creditor status is unnecessary to the maintenance of the action and the complaint states a cause of action. (Neresheimer v. Smyth, 167 N. Y. 202; Newton v. Jay, 107 App. Div. 457; Dittmar v. Gould, 60 App. Div. 94; Spelman v. Freedman, 130 N. Y. 421; Farmers Loan & Trust Co. v. N. Y. & N. R. R. Co., 150 N. Y. 410; Gray v. Richmond Bicycle Co., 167 N. Y. 348; Brownell v. Snyder, 122 App. Div. 246; Gitler v. Russian Co., 124 App. Div. 273; Johnson v. Golder, 132 N. Y. 116; Long v. Majestre, 1 Johns. Ch. 305; Colt v. Lasnier, 9 Cow. 320; National Trust Co. v. Gleason, 'll N. Y. 400; National City Bank v. Waggoner, 230 App. Div. 88; 255 N. Y. 527; Mack v. Latta, 178 Y. 525; Loud v. Clifford, 254 N. Y. 216; Inman v. Credit Discount Co., 230 App. Div. 505; Standard Fashion Co. v. Siegel-

      Cooper Co., 157 N. Y. 60; Waldorf Astoria Segar Co. v. Salomon, 109 App. Div. 65; 184 N. Y. 584; Regis Paper Co. v. Santa Clara Lumber Co., 186 N. Y. 89; Fur & Wool Trading Co. v. Fox, 245 N. Y. 215.)
   Lehman, J.

The plaintiff has, in his amended complaint, attempted to allege a cause of action for equitable relief. Its has been challenged by motion to dismiss the complaint. An order granting that motion was reversed by the Appellate Division “ upon the ground that the amended complaint states a cause of action for an accounting at least, and may, upon proper proofs, establish other relief sought.” (231 App. Div. 851.) It has granted leave to appeal from its order and has certified questions to us: Does the complaint state facts sufficient to constitute a cause of action against the defendants who have moved for its dismissal?

The primary question arising upon this appeal concerns the nature of the rights of the plaintiff under certificates, issued by Consumers’ Service Stations, Consolidated and by Go-Gas Company, denominated Participation Operation Certificate.” The language of these certificates is not identical but, in each, the issuing company in consideration of the receipt of two hundred and fifty dollars agrees to “ create ” a fund, by setting aside and depositing in a bank, from the receipts of a specified station for the sale of gasoline and other merchandise, one cent on each gallon of gasoline and five per cent on all other merchandise sold, and to distribute ” such fund at stated periods among the holders of certificates until the holder of the certificate shall have received the sum of $500.

The complaint alleges that large sums were realized from sales made by the gas stations referred to in the certificates, but those in control of the corporations failed to create and set aside any fund for the benefit of the certificate holders and omitted to pay and distribute to the registered holders of the certificates a sum equal to the percentage of the receipts of said stations. Damages caused by breach of contract would, of course, give rise to a cause of action at law against the promisor. The cause of action which the plaintiff seeks to establish is not a cause of action at law for breach of contract but a cause of action in equity for an accounting from the defendants of the receipts of the gas stations, and of their stewardship of the assets of Go-Gas Company which owned these stations. He claims that the holders of certificates have a lien upon the gross receipts arising from the operation of the gas stations, or which may hereafter be received from that operation, and he asks a decree accordingly. He asks further relief, also, against individual and corporate defendants who, he alleges, while in control of the Go-Gas Company, wrongfully wasted its assets and contrived a plan by which Go-Gas Company was driven into insolvency with the aim and purpose of extinguishing the rights, claim and interest of certificate holders and, then, through foreclosure of a mortgage upon the property of Go-Gas Company, and other wrongful acts, transferred its property to a subsidiary corporation controlled by these defendants or some of them. The subsidiary corporation is also made a party defendant.

If the plaintiff has no cause of action against Go-Gas Company other than a cause of action at law for damages, then, it is plain, he has no cause of action in equity against the other defendants, who, it is said, have wasted its assets and wrongfully gained possession of its property, including the gas stations referred to in the certificates. The plaintiff is not a judgment creditor of Go-Gas Company and cannot at this time assert a derivative cause of action for alleged wrong to that corporation. He had no personal relations with these other defendants. They never voluntarily assumed any fiduciary duty to him. Only if they wrongfully interfered with fiduciary duties owing by Go-Gas Company to the plaintiff and others similarly situated or if they wrongfully came into possession of property of that company in which its certificate holders had an equitable interest or lien, does the complaint state a cause of action against these additional defendants.

Under the terms of each certificate, the Go-Gas Company received $250 as the consideration for its promise to create a fund by setting aside a stipulated part of the proceeds of sales of a specified gas station and to distribute that fund among the holders of record of the certificates until each received the sum of $500. It is clear that the $250 received became the absolute property of the Go-Gas Company, and that the parties intended that the certificate holders should have an equitable interest in the fund to be created by setting aside a portion of the-receipts of the gas station; but no such fund was created. Then the question is whether the parties intended,"also, that there should be an equitable assignment of the stipulated part of the receipts of the gas station if and when such receipts came into the possession of the obligor, even before any part of such receipts were set aside and deposited in a bank.

We use the term equitable assignment ” in its broadest aspect, to include a present transfer of future property, a present contract to sell or assign future property, or a present agreement that a right in the nature of a lien should attach to the future property as security for the obligation embodied in the certificate. (Cf. 3 Pomeroy on Equity Jurisprudence [4th ed.], § 1290.) The rights of the parties must be determined by the language of the certificate. To create an equitable assignment,” the intention must appear on the face of the instrument in express language, or by necessary implication. The certificate, as we have said, creates, it is plain, an equitable assignment of the future fund which the obligor agreed to create by setting aside a portion of the proceeds of sales of gasoline. It is difficult to find in the language of the certificate any intention or agreement to assign an undivided part of such proceeds, as they were received.

We have said that in transactions of such a nature the surrounding circumstances are to be considered by a court of equity in determining the intention of the parties. If, from what took place, the inference is to be drawn that the parties intended to make a present appropriation of future proceeds as security for the ultimate performance of the obligation, a court of equity will give effect to that intent. Such a construction, to use the language of Judge Finch in Tallman v. Hoey (89 N. Y. 537), when speaking upon the subject of equitable assignments (p. 539), upon a necessity demanded by the justice of the case, and to obviate an injury, or a wrong, which would otherwise occur.’ ” (Muller v. Kling, 209 N. Y. 239, 244.) Here we find no such necessity.

In two cases, arising in bankruptcy, Federal courts in Pennsylvania and Delaware have considered the effect that should be given to certificates which used substantially the same language. In United States & Mexican Oil Co. v. Keystone Auto Gas & Oil Service Co. (19 Fed. Rep. [2d] 624, 625, 626) the holders of the certificates claimed that funds in a bank, which were derived from sales of gasoline and other merchandise “ are a trust fund specially created and earmarked for them, and that, immediately upon deposit in the bank concerned, the sums so deposited became their money, which neither the corporation nor its general creditors had any right to claim.” That claim was rejected by the court. There is no special equity vested in these certificate holders that should be protected. There is no special equity founded on the relation of these certificate holders to the funds on deposit in the several banks in question that should be protected. The fund in bank bears no special relationship to their money contributions to the company. The money in bank came from the sale of general assets of the company — i. e., gasoline and other merchandise — in the regular and ordinary course of business. To impress this fund with a special trust in favor of these certificate holders would be wrong and a fraud on general creditors.” That conclusion was approved and followed in the case of Matter of Hawkeye Oil Co. (19 Fed. Rep. [2d] 151).

We are constrained to reach the same conclusion here. The original certificate holders contributed moneys to be used as capital by the corporation in conducting a mercantile business. The moneys so contributed were not intended to create a debt, and the corporation never promised to repay a debt. Those who contributed the funds expected, not reimbursement to be secured by assignment of a portion of the proceeds of sales made by the corporation, but a profit of one hundred per cent to be paid out of a fund to be created from the proceeds of sales. There is no express agreement for an assignment of an undivided part of the future proceeds to be applied upon the certificates. The contract of the parties may fairly be construed to mean that the application should be made only when a portion of the proceeds was set aside to create a fund in accordance with the terms of the certificate. A construction which would give the certificate holders a lien upon, or a special right to, the proceeds of sales when received would work injustice upon unpaid merchandise creditors. Whether a court of equity could give effect even to the plain language of a contract which would work such injustice need not now be decided. We place decision upon the ground that here no such contract was made. Analysis of the cases upon which the plaintiff relies to sustain his position would serve no purpose, except to demonstrate that here the premises are lacking upon which the conclusions were drawn in those cases. As stated in Matter of Hawkeye Oil Co. (supra, p. 152), here “ the difficulty exists because the contract seems to give rise to rights or incidents hitherto probably not brought into combination, and which, when severally considered, have been recognized as peculiar to different, even contrasting relationships.”

Though, in the bankruptcy cases cited above, the courts were called upon to'decide only whether the certificate holders could claim a special right to the proceeds of the bankrupt corporation, and if that claim were rejected, whether they could share in the assets of the corporation with its general creditors, the court, in the case of Matter of Hawkeye Oil Co. (supra), said in its opinion: “ they are not creditors, but are coadventurers with the stockholders, hazarding their investment upon the continued operation, and hence upon the success, of the company.” Based upon that statement, argument is now made that, as coadventurers, the relationship of the certificate holders to the corporation was fiduciary, and that they are entitled to an accounting in equity from the corporation and those who dominated its affairs and wasted its assets. That does not follow, nor can precedent be found for an equitable accounting in such case.

The certificate holders were coadventurers with the stockholders only in the sense that their investment, like the investment of stockholders, was hazarded upon the success of the company. The holders of certificates were not sleeping partners of the corporation or its stockholders. They had no share in its capital, they had no share in its profits or losses. All that they had was a promise of the corporation that, so long as the operation of the corporation continued, a stipulated portion of the pro- ' ceeds would be set aside for redemption of the certificates. In the relationship of obligor and obligee good faith may be required of both; nevertheless the relationship of trust upon which a right to an accounting in equity depends does not arise from a promise alone. There must be something analogous to a trust res — some business, property, income, profits or moneys in which the person asking the accounting has an equitable interest. Since that is lacking here, the plaintiff has failed to state facts sufficient to state a cause of action to invoke the equitable powers of the court.

The order of the Appellate Division, should be reversed and those of the Special Term affirmed, with costs in this court and in the Appellate Division. The certified questions should be answered in the negative. (See 268 N. Y. 666.)

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

Ordered accordingly.


source: Caselaw Access Project

license: Public Domain

text:
    Boston and Maine Railroad, Appellant, v. The Delaware and Hudson Company, Respondent.

      (Argued May 27, 1935;
    decided July 11, 1935.)

      Robert E. Whalen for appellant.
    The judgment in the 1916 action established lack of title in the Mechanicville and Fort Edward Railroad Company. (Donahue v. New York Life Ins. Co., 259 N. Y. 98; Roberts v. Baum-gotten, 110 N. Y. 380; Rudd v. Cornell, 171 N. Y. 114.) The 1916 adjudication was a judgment in rem, affirmative as to the Fitchburg’s title to the main line; negative as to the want of title in the Mechanicville and Fort Edward to the Stillwater Branch. (Eiserilord v. Glum, 126 N. Y. 552; Schuylkill Fuel Corp. v. Neiberg Realty Corp., 250 N. Y. 304; Schindler v. Royal Ins. Co., 258 N. Y. 310; Marine Trans. Corp. v. Switzerland Gen. Ins. Co., 263 N. Y. 139; Embury v. Conner, 3 N. Y. 511; White v. Coatsworth, 6 N. Y. 137; Clemens v. Clemens, 37 N. Y. 59; Stowell v. Chamberlain, 60 N. Y. 272; Blair v. Bartlett, 75 N. Y. 150; Webb v. Buckelew, 82 N. Y. 555; Pray v. Hegeman, 98 N. Y. 351; Griffin v. Long Island R. R. Co., 102 N. Y. 449; Williams v. Barkley, 165 N. Y. 48; Southern Pacific R. R. Co. v. United States, 168 U. S. 1.) The defendant is bound by the judgment in the 1916 action. (Columbia Ins. Co. v. Mart Waterman Co., 11 Fed. Rep. [2d] 216; 271 U. S. 672; Castle v. Noyes, 14 N. Y. 329; Tootle v. Coleman, 107 Fed. Rep. 41; Hauke v. Cooper, 108 Fed. Rep. 922; Sou front v. Compagnie Des Sucreries, 217 U. S. 475; Liberty Mut. Ins. Co. v. Colon & Co., 260 N. Y. 305; Haddock v. Haddock, 201 U. S. 562; Wottrich v. Freeman, 71 N. Y. 601; Spratt v. Spratt, 4 Pet. 393; Christianson v. County, 239 U. S. 356; Pitman v. Cornr., 64 Fed. Rep. [2d] 740; Rio Grange, 23 Wall. 458; Fidelity & Deposit Co. v. Queens Co. Trust Co., 226 N. Y. 225; Hughes v. Jones, 116 N. Y. 67; Denike v. N. Y. & R. Lime Co., 80 N. Y. 599; Pope v. Heckscher, 266 N. Y. 114.) Error was committed in holding that the judgment in the 1916 action determined only the Mechanicville and Fort Edward Railroad Company’s lack of corporate existence and its incapacity to sue. (Heavrin v. Lack Malleable Iron Co., 153 Ky. 329; Schmidt v. Louisville, C. & L. R. R. Co., 99 Ky. 143; Castle v. Noyes, 14 N. Y. 329; Lovejoy v. Murray, 3 Wall. 1; Plumb v. Goodnow, 123 U. S. 560; Lyon v. Stanford, 42 N. J. Eq. 411; Amburgey v. Adams, 196 Ky. 646; Roby v. Eggers, 130 Ind. 415; Parsons v. Urie, 104 Md. 238; Weld v. Clarke, 209 9; Sparks v. Gallagher, 114 Okla. 103; Bracken v. Atlantic Tr. Co., 36 App. Div. 67; 42 App. Div. 621; 167 N. Y. 510.) The defendant should not have been permitted to proceed to a second judgment in the dissolution action to the prejudice of the plaintiff. (IV. S. B. Co. v. Bachman, 66 N. Y. 261; Wickham v. L. V. R. R. Co., 85 App. Div. 182; Knapp v. R. D. P. Assn., 235 App. Div. 436; Matter of O’Donnell, 240 N. Y. 99; Crockett v. Morrison, 11 Mo. 3; Munsey v. Hanly, 102 Me. 423; Haley v. Miller, 193 Ala. 482; Hawley v. Bennett, 5 Paige, 104; Moore v. Hitchcock, 4 Wend. 292; Emery v. Litchard, 137 Mise. Rep. 885.) Only through the injunctive relief which it seeks in this action can plaintiff be fully protected. (Wright v. Nostrand, 94 N. Y. 31; Jones v. Blun, 145 N. Y. 333; Hackley v. Draper, 60 N. Y. 88; Whittlesley v. Delaney, 73 N. Y. 571; United States v. Throckmorton, 98 U. S. 61; McHenry v. Hazard, 45 N. Y. 580; Penn Coal Co. v. D. & H. C. Co., 31 N. Y. 91; Empire Engineering Corp. v. Mack, 217 N. Y. 85; Eldridge v. Hill, 2 Johns. Ch. 281; Magee v. Cutler, 43 Barb. 239; Coykendall v. Hood, 36 App. Div. 558; Kienle v. Greisch Realty Co., 133 App. Div. 391; Hale v. Allison, 188 U. S. 56; Trustees of Huntington v. Nicoll, 3 Johns. 566; Town of Springport v. Teutonia Sav. Bank, 75 N. Y. 397; N. & N. B. H. Co. v. Arnold, 143 N. Y. 265.)

      Charles E. Hughes, Jr., James L. Fitzgerald, Daniel P. Loomis, Frederick W. P. Lorenzen and Joseph Rosch for respondent.
    Neither the facts alleged in the complaint nor those proved at the trial were sufficient to present any ground of equitable jurisdiction, either to avoid multiplicity of suits or otherwise. (Brass v. Rathhone, 153 N. Y. 435; Kienle v. Gretsch Realty Co., 133 App. Div. 391; Hapgood v. Hewitt, 119 U. S. 226; Savage v. Allen, 54 N. Y. 458; Colson v. Pelgram, 259 N. Y. 370; Jay’s Case, 6 Abb. Pr. 293; Minor v. Webb, 10 Abb. Pr. 284; Wolfe v. Burke, 56 N. Y. 115; Pond v. Harwood, 139 N. Y. Ill; Burke v. Burke, 212 N. Y. 303; Reis v. Graham, 122 App. Div. 312; West v. Mayor of New York, 10 Paige, 539; Adelson v. Sacred Associates Realty Corp., 192 App. Div. 601; Livingston v. Hudson River R. R. Co., 3 Code Rep. 143.) Equity jurisdiction cannot be supported on the ground of avoidance of multiplicity of suits. (1 Pomeroy Equity Jurisprudence [4th ed.], § 250; Purdy v. Manhattan El. Ry. Co., 13 N. Y. Supp. 295; Allegany & Kinzua R. R. Co. v. Weidenfeld, 5 Mise. Rep. 43; Susquehanna S. S. Co. v. Andersen Co., 195 App. Div. 161.) Equity jurisdiction cannot be supported on any analogy to a bill of peace. (Bailey v. Briggs, 56 N. Y. 407; Prospect Park & Coney Island R. R. Co. v. Morey, 155 App. Div. 347; Trustees of Huntington v. Nicoll, 3 Johns. 566; Sharon v. Tucker, 144 U. S. 533; Earl of Bath v. Sherwin, 4 Brown P. C. 373; Roberts v. Baumgarten, 126 N. Y. 336.) It should not be held in this action that the judgment in the 1916 action was such an adjudication of rights in the property described in the complaint as to justify an injunction. {Plows v. Burrage, 266 Fed. Rep. 347; People v. O’Brien, 111 N. Y. v. Kansas City & I. Short Line Ry. Co., 52 Mo. App. 439; Si. John v. Fowler, 229 N. Y. 270; Kessler v. Fligel, 240 App. Div. 232; United States Fire Ins. Co. v. Adirondack P. & L. Corp., 206 App. Div. 584; Schindler v. Royal Ins. Co., 258 N. Y. 310.) Injunction against the defendant is not justified on the theory that the 1916 judgment is binding upon it. (Sturges v. Vanderbilt, 73 N. Y. 384; Bonaffé v. Fowler, 7 Paige, 576; Fish v. Vanderlip, 218 N. Y. 29; Macan v. Scandinavia Belting Co., 264 Penn. St. 384; McAlevey v. Litch, 234 Mass. 440; Kessler v. Fligel, 240 App. Div. 232.)
   Lehman, J.

The plaintiff is a railroad corporation, formed in 1919 by the consolidation of the Fitchburg Railroad Company, the Boston and Maine Railroad and six other corporations. In 1916 the Fitchburg Railroad Company and Boston and Maine Railroad were named as defendants in an ejectment action, which the Mechanic-villa and Port Edward Bailroad Company attempted to bring against them for the purpose of obtaining possession of certain real property in Saratoga county, then occupied by the defendants so named, and the value of the use and occupation of that property. In their answer those defendants denied most of the material allegations of the complaint, and set up as affirmative defenses that the plaintiff was not a corporation and that neither the plaintiff nor any predecessor or grantor of the plaintiff was seized and possessed of the premises described in the complaint. The issues so raised were decided, after trial, in favor of the defendants and judgment was entered dismissing the complaint on the merits.

The Mechanicville and Fort Edward Bailroad Company, named as the plaintiff in that ejectment suit, was incorporated in 1880. It acquired some real property and railroad franchises. It never issued any stock or held a stockholders’ meeting. The directors named in its articles of association held one meeting in 1880 and another meeting in 1881. It was financed by the Delaware and Hudson Company, and, so far as it had any corporate existence, it was treated as a subsidiary and directed and controlled by that company. In 1894 notice was sent to the State Board of Bailroad Commissioners that it was defunct ” and had abandoned its charter. Attempt was made to revive it in 1915. Then two of the thirteen directors, named thirty-five years earlier in the articles of association, met and, claiming to act as a majority of the surviving directors, went through the form of filling vacancies in the board of directors. The new board of directors, so chosen, assumed to adopt by-laws and to authorize the issue to the Delaware and Hudson Company of stock of the par value of $54,000 for an alleged indebtedness of that amount due to it.

The decision rendered in the ejectment action of 1916 contains findings of fact in regard to these matters. The court found, also, that the Mechanicville and Port Edward Railroad Company was not a corporation at the time of the commencement of the action. From these findings, conclusions of law were drawn that the plaintiff has not the legal capacity to sue ” and that the attempt made in 1915 to fill the vacancies in said board of directors and to adopt by-laws was illegal, void and futile for any corporate purpose.

Since the court had sustained the plea in abatement that the “ plaintiff has not the legal sue,” decision upon the merits of the other issues raised by the answer to the complaint might have been postponed till an action was brought by some person who had capacity to sue. These issues had, however, been litigated by the parties, and, perhaps for the purpose of avoiding litigation of the same issues thereafter, the court made findings and conclusions of law, also, upon such issues. In brief, the court held that the action was barred by the twenty-year Statute of Limitations; that the corporate existence of the Mechanicville and Fort Edward Railroad Company was automatically terminated by its failure to complete and operate a railroad within the period fixed by law, and that then title to real property which had been acquired by the railroad company through condemnation proceedings reverted to the original owners, and that title to some other parcels of real property included in the complaint was in the defendants named in the action.

The judgment of dismissal in the ejectment action brought in 1916 constitutes unquestionably a bar to any other ejectment action for the same property which the Mechanicville and Fort Edward Railroad Company might attempt to bring. If fife and capacity to sue was not ended before the original ejectment was begun, then it has had its day in court, and opportunity to litigate its rights on the merits. If fife and capacity to sue was ended, then no new action could be brought by the same dead plaintiff. Thus, in either event, the judg

In 1929 the Delaware and Hudson Company began an action against the Mechanicville and Fort Edward Railroad Company pursuant to the provisions of section 71 of the General Corporation Law (Cons. Laws, ch. 23), which authorizes an action to procure a judgment dissolving a corporation ⅜ and forfeiting its corporate rights, privileges and franchises * * where the corporation * * * has suspended its ordinary and lawful business for at least one year.” The Boston and Maine Railroad was not made a party, and is certainly not a necessary party, to that action. Its only interest in defeating the action is indirect. If the action is successful a receiver appointed therein might again bring an ejectment action against it and urge that as to him the dismissal in the earlier futile action is without binding force. To avoid such an action, Boston and Maine Railroad has twice attempted to invoke the equitable powers of the court.

In its first attempt to invoke the exercise of the equitable powers of the court, Boston and Maine Railroad was partially successful, but partial success did not, in its opinion, furnish adequate protection of its rights. At that time, judgment of dissolution of the Mechanicville and Fort Edward Railroad Company had been granted upon the default of that company in the dissolution action. Promptly the receiver, appointed in that action, brought an action in ejectment against Boston and Maine Railroad to recover possession of some property which was the subject of the unsuccessful ejectment action of 1916, and another action for an accounting with respect to the occupancy of other property which was also the subject of that action. Then Boston and Maine brought its first action in equity to vacate and set aside the judgment, granted by default, in the dissolution action, on the ground that the judgment had been obtained by concealment of the decision in the earlier ejectment action that the corporate existence of the Mechanicville and Fort Edward Railroad Company had been terminated long before 1915, and that the Delaware and Hudson Company was not a stockholder of the railroad company. The sufficiency of the complaint in that action was sustained by the Appellate Division. (Boston & Maine R. R. v. Delaware & Hudson Co., 238 App. Div. 191.)

We are not here concerned with that decision of the Appellate Division. The Delaware and Hudson Company acquiesced in it, and upon its ex parte application the judgment in the dissolution action was vacated. At the same time it sent a stipulation to the Boston and Maine Railroad, consenting to its appearance in that action with all such rights and privileges as can be granted to any party to a litigation in a court of record.” Boston and Maine Railroad was not satisfied with that stipulation and began a new action in equity against the Delaware and Hudson Company to enjoin it from further prosecuting the dissolution action and to enjoin it from “ commencing or prosecuting, or procuring or suffering to be prosecuted any action at law, suit in equity or special proceeding wherein it shall be asserted, claimed or alleged that the Mechanicville and Fort Edw-ard Railroad Company has any right, title or interest of, in or to any part of the railroad premises which were the subject of the original ejectment action. After trial the complaint in the second equity action was dismissed and Boston and Maine Railroad now appeals from the judgment of dismissal.

The complaint contains no allegations from which it can be inferred that the Delaware and Hudson Company is threatening to do any wrong to Boston and Maine Railroad, unless it be a wrong to compel a party to defend a cause of action upon which a court has already passed judgment. A suit in equity will not lie to restrain the prosecution of another action, where the relief asked for in the equity action may be obtained by a proper defense of the action sought to be enjoined. (Savage v. Allen, 54 N. Y. 458; Colson v. Pelgram, 259 N. Y. 370.) Argument, if sustained, that the judgment in the ejectment action, brought in 1916, constitutes a bar to any other action involving the same property, which might be brought by the receiver of the original plaintiff, thus would lead to the conclusion that no action in equity will he to enjoin the bringing of the action. On the other hand, if the judgment in the prior action would not bar a new ejectment action by the receiver because in the earlier action no judgment on the merits could be rendered, then certainly a court of equity may not enjoin the commencement or prosecution of an action before a tribunal with jurisdiction to pass upon the merits.

We are told that here the Delaware and Hudson Company, though not a party to the original ejectment suit, is yet bound by the decision to the same extent as the parties to the action, because it instigated, directed and controlled that suit. We may assume, without deciding, that the Delaware and Hudson Company is so bound, for, even so, the judgment cannot be given force and effect beyond its scope. A judgment by a court which has jurisdiction of the parties and of the subject-matter of the action is binding upon the parties to the action, and, under some circumstances, also upon others; but a judgment rendered by a court without jurisdiction of the parties is not binding upon them or any other person. Thus if the court in the original action was bound to dismiss the action, because the plaintiff named in the action had no existence, only the adjudication that there was no party in court, or indeed in being, capable of litigating the issues, would be binding on any one, and the attempted adjudication upon the merits would be futile. The prior judgment, then, cannot be asserted as an estoppel against the Delaware and Hudson Company where it could not be asserted against a successor of the original plaintiff.

To escape these conclusions, the Boston and Maine Railroad urges that in an ejectment action brought by a receiver, it cannot collaterally attack a judgment which provides for the appointment of the receiver. Therefore, it is said that the plaintiff may properly invoke the equitable powers of the court to enjoin Delaware and Hudson Company from the appointment of a receiver of Mechanicville and Fort Edward Railroad Company as a preliminary to the commencement of an ejectment action, after the court, in an earlier action, decided that the life of that corporation was extinct. The argument is based upon two assumptions that are fallacious: First, it assumes that the judgment in the original ejectment action constitutes a conclusive adjudication that no receiver may be appointed of Mechanic-ville and Fort Edward Railroad Company in the dissolution action brought by Delaware and Hudson Company, and second, it assumes that Boston and Maine Railroad, because it is not a necessary party to the dissolution action, cannot in that action interpose a defense of prior adjudication.

After the complaint in the equity action was dismissed, Delaware and Hudson successfully prosecuted the dissolution action to judgment. In that action Boston and Maine had, by consent of Delaware and Hudson, the right to appear and urge every defense, including that of prior adjudication. For that, no decree of a court of equity was needed. In our opinion, rendered herewith, aifirming the judgment in the dissolution action, we point out the reasons why we think the judgment in the earlier ejectment action did not constitute a bar to the dissolution action. Sufficient, now, to point out again that a court of equity does not restrain the prosecution of other actions upon grounds which may be urged, in the actions sought to be restrained, to defeat such actions.

Finally, we are urged to reverse the judgment dismissing the equity action on the ground that the court of equity should take jurisdiction of all questions which may arise as to the scope and effect of the prior adjudication in the ejectment suit, in order to prevent a multiplicity of actions which might otherwise ensue. Doubtless where the equitable powers of the court have been successfully invoked on other grounds, the court may, frequently, in one action, grant complete relief which, otherwise, might be obtained only through multiplicity of actions. Here the plaintiff seeks to invoke the equitable powers of the court to prevent multiplicity of action, not as ancillary to its power to grant complete relief in a case where equity has assumed jurisdiction on other grounds, but as an independent source of diction, creating a novel equitable right of action. It is said that this action is analogous to an action to quiet title or for a bill of peace. The analogy is quite imperfect, and precedent for an action in equity to prevent a multiplicity of other suits is lacking. (1 Pomeroy on Equity Jurisprudence [4th ed.], § 250.) Here it is, indeed, doubtful whether the question of the scope and effect of the prior adjudication could not be litigated more speedily and conveniently in the threatened actions at law than in an action brought to restrain the prosecution of such actions.

The judgment should be affirmed, with costs.

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

Judgment affirmed.


text:
    The Delaware and Hudson Company, Respondent, v. The Meand Fort Edward Railroad Company, Defendant, and Boston and Maine Railroad, Appellant.
    (Argued May 27, 1936;
    decided July 11, 1935.)

      Robert E. Whalen for appellant.
    The plaintiff is not a creditor of the Mechanicville and Fort Edward Railroad Company. (Greenleaf v. B.,F. & C. I. Ry. Co., 141 N. Y. 395; Archibald v. N. Y. C. & H. R. R. R. Co., 157 N. Y. 574; Homestead Co. v. Valley R. R., 17 Wall. 153; National Bank of Ballston Spa v. Bd. of Supervisors, 106 N. Y. 488; Koehler v. Hughes, 4 Mise. Rep. 236; 73 Hun, 167; 148 N. Y. 507; City of Albany v. McNamara, 117 N. Y. 168; Title Guaranty & Trust Co. v. Haven, 196 N. Y. 487.) The plaintiff’s claim for moneys advanced to the Mechanic-ville and Fort Edward Railroad Company is both stale and barred by the statutes of limitation. (Matter of Neilley, 95 N. Y. 382; Calhoun v. Millard, 121 N. Y. 69; McKechnie v. McKechnie, 3 App. Div. 91; Matter of Straut, 126 N. Y. 201; Town of Mount Morris v. King, 8 App. Div. 495; 158 N. Y. 450; Kellogg v. Kellogg, 169 App. Div. 395; 224 N. Y. 597; Fletcher v. Manhattan L. Ins. Co., 204 App. Div. 814; 236 N. Y. 671.)

      Joseph Rosch and J. L. FitzGerald for respondent.
    This dissolution action was properly instituted and maintained. (General Corporation Law, §§ 71, 72; Cons. Laws, ch. 23.) The plaintiff is a creditor of the Mechanicville and Fort Edward Railroad Company. (Marstaller v. Mills, 143 N. Y. 398.)
   Lehman, J.

In an action brought pursuant to the provisions of section 71 of the General Corporation Law (Cons. Laws, ch. 23) by Delaware and Hudson Company, claiming to be a stockholder or creditor of Mechanicville and Fort Edward Railroad Company, to obtain a judgment dissolving that corporation and appointing a permanent receiver of its property, Boston and Maine Railroad, though not a necessary party to the action, has been permitted to appear in the action with all such rights and privileges as can be granted to any party to a litigation in a court of record.” The circumstances which dictated the grant of such permission have been outlined in our opinion in Boston & Maine Railroad v. Delaware & Hudson Co. (268 N. Y. 382). It has interposed an answer in which it specifically alleges that the Mechanicville and Fort Edward Railroad Company is not a corporation,” and also, " that the claims of plaintiff for and on account of money paid out, invested for and disbursed in behalf and on account of the Mechanicville and Fort Edward Railroad Company are stale, in that the last item thereof was so paid out, invested and disbursed by plaintiff in the year 1886.” It now appeals from the judgment in favor of the plaintiff in the dissolution action.

If the judgment stands, the receiver will have capacity to bring an action to obtain possession of real property occupied by Boston and Maine, though in a prior action of ejectment brought by Mechanicville and Fort Edward Railroad Company, judgment was rendered dismissing the complaint upon the merits and adjudging among other things that Mechanicville and Fort Edward Railroad Company has not the legal capacity to sue.” That is the only interest of the Boston and Maine Railroad in attacking the judgment of dissolution.

Delaware and Hudson Company was not a party to the earlier ejectment action, but we assume in this case that it so completely directed and controlled the action that it is bound by the judgment which was rendered therein to the same extent as the plaintiff therein named. In that action it was decided that, long prior to the bringing of the action, the corporate existence and powers of the Mechanicville and Fort Edward Railroad Company had been terminated and that it had no capacity to sue. That company was organized under the provisions of the Laws of 1850, chapter 140, and Laws of 1876, chapter 446. It never constructed or operated a railroad. The Legislature has provided that if a railroad corporation organised under the Laws of 1850 shall not finish its road and put it in operation in ten years from the time of filing its articles of association, as aforesaid, its corporate existence and powers shall cease.” (Laws of 1867, ch. 775.) In the ejectment action the court stated in its opinion: ‘‘ This provision of the statute is self-operating; by failing to comply with this provision of the statute the corporation became extinct and no judgment or order of the court is required to accomplish a forfeiture of all its corporate rights and powers.” (103 Mise. Rep. 46, 51.) Therefore, the court found that in 1916 Mechanicville and Fort Edward Railroad Company was not a corporation.

It is said that this finding established the status of Mechanicville and Fort Edward Railroad Company. It was, in fact, only a finding of fact as to an alleged existing status and not a decision in an action in rem to establish a status. As such it was binding, if at all, only as between the parties to the action. (3 Freeman on the Law of Judgments [5th ed.], § 1421.) Moreover, the only issue in that action in regard to the status of Mechanicville and Fort Edward Railroad Company concerned the question of whether that company was then without capacity to sue. The judgment that it was without capacity to sue is, of course, binding upon the same parties in any action where that issue might arise. A finding that, in other respects also, the plaintiff was without corporate capacity, or even life, was not in issue, and certainly could not be binding in an action in rem to which the defendant in the ejectment action is not a necessary party.

Even so, it is undisputed that Mechanicville and Fort Edward Railroad Company did fail to finish the construction of a railroad and to put it in operation within the time allowed by law, and the Legislature has decreed that thereupon its “ corporate existence and powers shall cease.” It has been held that by such language the Legislature intended to provide that extinction of cor-párate existence and powers shall result directly from failure to comply with the conditions imposed, even though no sentence of death be issued by a court. (Matter of Brooklyn, Winfield & Newtown Ry. Co., 72 N. Y. 245.) It did not thereafter have capacity to sue, for capacity to sue is derived from legislative grant of corporate powers.

The question then arises whether an action may be maintained under the provisions of section 71 of the General Corporation Law to procure a judgment “ dissolving ” a corporation which is even then without corporate existence. We think that the Legislature so intended. We are not now concerned with legal dialectics but with practical administration of law. Even after corporate life is extinct, some remains are left which must be disposed of in orderly fashion. The property which belonged to the corporation is not forfeited to the State. As in case of corporate dissolution by decree of the court, the property must be used for the payment of debts, and if there is a surplus it should be divided among the stockholders. We may assume that the Legislature intended that no other disposition should be made of the property and that some person duly appointed for that purpose by the court should have capacity to sue for property wrongfully withheld. Thus a judgment of dissolution and the appointment of a receiver of a corporation is not inconsistent with the view that even before dissolution of the corporation by judicial decree, both corporate right to exist and corporate powers had ceased. Indeed, resort to the provisions of section 71 is the orderly method of administering the affairs of the corporation after corporate life and powers are extinguished, and it seems plain that the Legislature so intended.

Finally, it is urged that The Delaware and Hudson Company is not a stockholder or a creditor entitled to bring an action for dissolution. We need not now determine whether it is a stockholder. The courts below have held only that it is a creditor. It showed that it advanced moneys to the Mechanicville and Fort Edward Railroad Company for its corporate purposes. It did so without intent to make a gift to the corporation. It undoubtedly expected reimbursement by payment of money or by issue of stock. Perhaps no definite promise was made by duly authorized corporate officers. The evidence shows that corporate forms were disregarded and the corporation treated as if it were a department of the Delaware and Hudson Company. None the less, the corporate entity existed and acquired title to the moneys contributed by Delaware & Hudson Company and used those moneys for corporate purposes. So long as it had corporate life it could not retain the fruits of the moneys contributed by Delaware and Hudson Company without obligation to restore the moneys. Otherwise there would be unjust enrichment. Thus a debt was then created, and the successor in title to the property of the debtor must pay the debt. True, perhaps, as to the larger part of the debt, claim for payment might perhaps be defeated by the defense of the Statute of Limitations; but only the corporation or its receiver in an appropriate action can interpose such a defense. We do not now decide whether the Statute of Limitations could be interposed in this dissolution action by any party to that action. Sufficient now that it cannot be interposed by Boston & Maine Railroad, which has no interest of any kind in the corporation whose life is ended.

The judgment should be affirmed, with costs.

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

Judgment affirmed.


text:
    S. MacAffer, as Receiver of The Mechanicville and Fort Edward Railroad Company, et al., Respondents, v. Boston and Maine Railroad, Appellant.

      (Argued May 27, 1935;
    decided July 11, 1935.)

      Robert E. Whalen for appellant.
    The judgment in the 1916 action is conclusive in this action. (Mygatt v. Coe, 124 N. Y. 212; Bigelow v. Old Dominion Copper Co., 225 U. S. Ill; Pringle v. Woolworth, 90 N. Y. 502; Matter of Delaney, 256 N. Y. 315; Pittsburg Carbon Co. v. McMillin, 119 N. Y. 46.) One who as plaintiff has gone into court, invoked its jurisdiction and brought in such parties as were deemed proper, cannot complain that the court determined all the questions needful for a proper disposition of the case. (Hewitt v. Northrup, 75 N. Y. 506; Geneva Furniture Co. v. Karpen, 238 U. S. 254; Rhode Island v. Massachusetts, 12 Pet. 657; People ex rel. Davis v. Sturtevant, 9 N. Y. 263; Fisher v. Hepburn, 48 N. Y. 41; Matter of Youker, 217 App. Div. 347; Sumner v. Sleeth, 87 Iff. 500.)

      Frank L. Wiswall for respondent.
    The judgment in the 1916 action is not res adjudicata here as to any of the matters purported to be decided therein for the reason that the court was without jurisdiction as to other matters, having found that the plaintiff was without capacity to sue. (Lewis v. O. N. & P. Co., 125 N. Y. 341; Parisi v. Hubbard, 226 App. Div. 380; People ex rel. Village of Chateaugay v. P. S. Comm., 255 N. Y. 232; Bell v. Merri-field, 109 N. Y. 202; Stowell v. Chamberlain, 60 N. Y. 272; McDonald v. Hygienic Ice & Refrigerating Co., 148 App. Div. 539; Russell v. Place, 94 TJ. S. 606; Clark v. Scovill, 198 N. Y. 279; Hughes v. United States, 4 Wall. 232; First Nat. Bank v. Colby, 21 Wall. 609; Pendleton v. Russell, 144 U. S. 640; Rodgers v. Adriatic Fire Ins. Co., 148 N. Y. 34; Robins v. Wells, 1 Robt. 666; Herzberg v. Boiesen, 53 N. Y. Supp. 256; Brooks v. Boston R. R. Co., 211 Mass. 277; Mumma v. Potomac Co., 8 Pet. 281; Venable Bros. v. Southern Granite Co., 135 Ga. 508; Merritt v. Gate City Nat. Bank, 199 Ga. 147.) If the Mechanicville and Fort Edward Railroad Company had no corporate existence and could not be sued in dissolution, no judgment could be rendered against it and the cause of action here belongs to the successor trustee and may be asserted by him as such as well as in the corporate name. (General Corporation Law; Cons. Laws, ch. 23, § 29; People v. O’Brien, 111 N. Y. 1; De Martini v. McCaldin, 184 App. Div. 222; Heath v. Barmore, 50 N. Y. 302; RexfordFlats Bridge Co. v. Canal Board, 96 Mise. Rep. 272; McCulloch v. Norwood, 58 N. Y. 562; Sturges v. Vanderbilt, 73 N. Y. 384.)
   Lehman, J.

The plaintiff, Kenneth S. MacAffer, has been appointed receiver of the Mechanicville and Fort Edward Railroad Company in dissolution proceedings. He has also been appointed successor trustee of the same company. Purporting to act in both capacities, he has brought an action in ejectment against Boston and Maine Railroad to recover possession of real property in Saratoga county. A motion made by the defendant to dismiss the complaint pursuant to rule 107, subdivision 5 of the Rules of Civil Practice was granted at Special Term, but order granting the motion was reversed by the Appellate Division and the motion denied.

The real property which is the subject of this ejectment action is part of the real property which was included in an ejectment action brought in 1916 by Mechanicville and Fort Edward Railroad Company. The complaint in the action brought in 1916 was dismissed upon the merits. A judgment on the merits constitutes a conclusive adjudication of all the issues litigated therein against the parties and their successors or privies. The judgment, dismissing the complaint upon the merits was entered after the issues raised by the allegations of the complaint and the denials and affirmative allegations of the answer had been litigated and decided, yet the court, in its decision, also found that the plaintiff in that action was not a corporation and had no capacity to sue. For that reason the Appellate Division has held that any decision of the issues upon the merits was beyond the jurisdiction of the court and not binding upon a successor of the plaintiff who has capacity to sue.

There seems no sound reason why a judgment on an issue in bar, though it also embrace an issue in abatement, should not conclude the parties in all future controversies.” (Sheldon v. Edwards, 35 N. Y. 279, 288, 289.) The reasoning in the opinion in that case is persuasive. The conclusion that under the Code practice of this State, “ preliminary issues, and issues on the merits, may be legitimately presented in the same answer and tried at the same time. If they are so presented and tried, the ordinary consequences must necessarily flow from the findings and the judgment entered thereon,” has been generally accepted and applied. The plaintiff indeed does not challenge that rule; he claims that it has no application here.

From its very nature, the rule that a judgment on the merits is binding upon the parties to the litigation assumes the existence of such parties. After death, no person, natural or artificial, can be the owner of a cause of action or can appear in court and litigate a controversy. . Since a dead person cannot be a party to an action, those who have succeeded to the rights of action or property of the deceased should not be bound by a judgment rendered against the deceased after death. (Brooks v. Boston & Northern St. Ry. Co., 211 Mass. 277; First Nat. Bank v. Colby, 21 Wall. [U. S.] 609.) We do not now decide whether others, successfully masquerading in the guise of a dead person, natural or artificial, and presenting in that guise a controversy to the court, might not be. so bound. That question is not now befoie us. In the original ejectment action of 1916 the trial court expressly held that the plaintiff had'no capacity to sue, because corporate existence and powers were terminated. The present plaintiff has been vested with capacity to sue upon causes of action which belonged to the corporation whose corporate powers to sue had been terminated before the ejectment action was brought by it. The question here presented is whether in the ejectment action the court had jurisdiction to hear and decide the merits of that cause of action. A judgment upon the merits rendered against a person who is not subject to the jurisdiction of the court, and, indeed, not in existence, is futile.

The judgment is in such case futile, because in truth no action is then pending between the parties named. If the plaintiff in that action was not in existence, the defendants named in the summons and complaint were, in fact, not required to appear in court and answer the complaint. Here distinction must be made between a plea in abatement and objection that no action is pending, and that the court is without jurisdiction. The plea in abatement constitutes, under our system, a defense to the action, which must be passed upon by the court in the action itself upon proper motion or pleading. The objection to the jurisdiction of the court may be raised at any time. So in this case, the conclusive force of the judgment on the merits is not weakened because in the same judgment the court sustained the defendant’s plea that the plaintiff did not have capacity to sue if, in fact, an action was then pending. The problem presented is whether the court had jurisdiction of an existing plaintiff, or was without jurisdiction and bound to enter a judgment of dismissal when it appeared and the court found that the plaintiff had no corporate existence and hence no capacity to sue.

Under the practice prevailing in 1916, when the first ejectment action was commenced, an(objection that the plaintiff has not legal capacity to sue ” was waived unless taken by demurrer or answer. (Code Civ. Proc. §§ 488, 498, 499.) (Cf. Civ. Prac. Act, § 278.) By express statute, then, that question was to be decided in the action. Even a person without a legal capacity to sue ” had at least capacity to appear in court and submit question of its capacity to the court for decision. The objection does not challenge the jurisdiction of the court to pass judgment; it is in effect a plea in abatement, and invites judgment accordingly. It assumes the existence of a plaintiff, but asserts that the plaintiff rests under a legal incapacity to bring the action. The objection or plea, then, is not that there is no plaintiff in court against whom a binding adjudication may be made on the merits, but only that the plaintiff who is in court has no legal capacity to call upon the defendant to answer the charge upon the merits. Then if the defendant chooses in its answer to challenge both the merits of the charge and the capacity of the plaintiff to make the charge, and the plaintiff, actually in court, chooses to proceed with the litigation, a judgment in favor of the defendant on the merits will be binding on both parties even though the court also decides that the defendant’s challenge of capacity to sue should be sustained. In no event, however, can there be a judgment on the merits in an action which fails because no plaintiff against whom judgment can be rendered, is in court. (Cf. Wells v. Merrill, 204 App. Div. 696.)

Though the trial court decided that the plaintiff’s corporate existence had terminated before the action was commenced, it is quite evident that the court did not intend to decide that termination of the plaintiff’s corporate existence resulted in complete destruction of the corporation, in the same manner as the termination of the life of a natural person would destroy such person. Quite evidently the court’s conception was only that the corporate powers were destroyed but that for some purposes the artificial person created by law continued to exist — otherwise it would not have rendered a judgment against it on the merits. The defeated plaintiff then appealed to the Appellate Division. It affirmed the judgment (190 App. Div. 887), though if it had held that the appellant was dead, it would have been bound to dismiss the appeal. Thus, throughout the litigation, courts and parties treated the plaintiff as an existing artificial entity, though perhaps deprived of all corporate powers.

Juridical concepts of corporate fife may seem out of harmony with such a view. In truth, the analogy between the fife ” of an artificial creation of the law and the life of a natural person may not be carried too far. The juridical concept that the State gives “ life ” to a corporation is only a convenient fiction. Use of biological terms in the field of social relations may produce confusion of thought. The law which gives a corporation that life ” may terminate it for some purposes, yet permit it to continue for others. The statute which decrees that corporate existence and powers shall cease ” (Laws of 1867, ch. 775) when a railroad corporation fails to comply with statutory conditions, makes no provision for the disposition of the corporate property or the winding up of its affairs. Change of status is invisible to the world. It continues to hold its property for the benefit of those equitably entitled to it. If there be dispute as to whether the conditions have been performed, upon which corporate rights and powers have been granted, it retains life ” sufficient to defend its right to exist. In many respects until dissolution under established form of law, it remains at least a “ de facto ” corporation, with powers implied by necessity, though not expressed in the statute. Those who directed its destinies while it had corporate existence and powers continued in control of its property thereafter. If judgment in the original ejectment action had been rendered in its favor, could the defendants have attacked that judgment collaterally? We think not. Its claim to right of possession of the real property occupied by the defendants may have been unfounded, its corporate powers may have been terminated, it may have been without legal capacity to sue. Nevertheless, it had at least sufficient existence to present these questions to the court for decision. The defendant, summoned by it to answer, did so successfully. Unsuccessful defense would have resulted in a judgment in favor of the plaintiff on the merits, and the defendants could not thereafter have litigated the same question against the plaintiff which was adjudged to have capacity to sue and valid corporate existence. Successful defense on the merits as well as upon the challenge of the capacity to sue of the plaintiff is binding upon the original plaintiff which had capacity to litigate these questions, though decision was rendered against it, and is also binding upon the present plaintiff whose title to the cause of action here asserted is derived through the original plaintiff.

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

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

Ordered accordingly.


author: Per Curiam.

text:
    Kenneth S. MacAffer, as Receiver of The Mechanicville and Fort Edward Railroad Company, et al., Respondents, v. Boston and Maine Railroad, Appellant.
    (Argued May 27, 1936;
    decided July 11, 1935.)

      Robert E. Whalen for appellant.
    The Mechanicville and Fort Edward Railroad Company has no capacity to sue because there is no such corporation. (Rudd v. Cornell, 171 N. Y. 114; Matter of Kings, Queens & Suffolk R. R. Co., 6 App. Div. 241; City of New York v. Bryan, 196 N. Y. 158; Sturges v. Vanderbilt, 73 N. Y. 384; Steinbach v. Prudential Ins. Co., 172 N. Y. 471; Matter of L. I. R. R. Co., 143 N. Y. 67; Day v. 0. & L. C. R. R. Co., 107 N. Y. 129; Matter of N. Y. & L. I. Bridge Co., 148 N. Y. 540; Matter of B., W. & N. Ry. Co., 72 N. Y. 245; 75 N. Y. 335; Brooklyn St. T. Co. v. City of Brooklyn, 78 N. Y. 524; Farnham v. Benedict, 107 N. Y. 159; Matter of B., Q. C. & S. R. R. Co., 185 N. Y. 171.) The amendment made by chapter 552 of the Laws of 1932 to section 29 of the General Corporation Law (Cons. Laws, ch. 23) gives the Mechanicville and Fort Edward Railroad Company no standing to sue. (Heath v. Barmore, 50 N. Y. 302; Central City Sav. Bank v. Walker, 66 N. Y. 424; People v. O’Brien, 111 N. Y. 1; Matter of Friedman, 177 App. Div. 755; Central U. T. Co. v. Amer. By. T. Go., 198 App. Div. 303; 233 N. Y. 531; v. Colgate, 217 N. Y. 235; N. Y. & O. M. B. B. Co. v. Van Horn, 57 N. Y. 473; v. Bosenfeld, 265 N. Y. 76; Feiber Bealty Corp. v. Abel, 265 N. Y. 94; O’Beilly v. U., N. & C. Stage Co., 87 Hun, 406; Isola v. Weber, 147 N. Y. 329; Morrison v. B. & O. B. B. Co., 177 App. Div. 613; Cunningham v. Glauber, 133 App. Div. 10; Security Trust Co. v. Pritchard, 201 App. Div. 142; Knickerbocker v. Grotton Bridge & Mfg. Co., Ill App. Div. 145; Matter of B., W. & N.B.B. Co., 75 N. Y. 335; Matter of B., Q. C. & S. B. B., 106 App. Div. 240; 185 N. Y. 171.)

      Frank L. Wiswall for The Mechanicville and Fort Edward Railroad Company, respondent.
    The plaintiff, the Mechanicville and Fort Edward Railroad Company, in the instant action sues under a statutory right. (Ward v. Petrie, 157 N. Y. 301; General Corporation Law, § 29.)
   Per Curiam.

The adjudication that Mechanicville and Fort Edward Railroad Company had not legal capacity to sue made in the ejectment action of 1916 is binding and conclusive. Section 29 of the General Corporation Law (Cons. Laws, ch. 23; Laws of 1932, ch. 552) does not apply to a railroad corporation whose corporate powers had ceased ” even before dissolution.

The order of the Appellate Division and that of the Special Term should be reversed, with costs in this court and in the Appellate Division, and the motion to dismiss granted.

The first certified question should be answered in the affirmative and the other question not answered.

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

Ordered accordingly.


text:
    Joseph A. Broderick, as Superintendent of Banks of the State of New York, Respondent, Max Aaron et al., Defendants, and Abe Kessler et al., Appellants.
    (Argued June 6, 1935;
    decided July 11, 1935.)

      Hyman Emerson for appellants.
    The appellants are not liable for an assessment. (Broderick v. Adamson,
      148 Mise. Rep. 353; 243 App. Div. 692; Matteson v. Dent, 176 U. S. 521; Earle v. Carson, 188 U. S. 42; Whitney v. Butler, 118 U. S. 655; Richards v. Robin, 178 App. Div. 535; Hayes v. Schoemaker, 39 Fed. Rep. 319; Richards v. Ackerman, 175 App. Div. 746; Van Tuyl v. Scharmann, 208 N. Y. 53; Citizens Bank of Georgetown v. Robinson, 134 Wash. 66; Lucas v. Coe, 86 Fed. Rep. 972.)

      Harold N. Cohen, Edward Feldman, Warren C. Fielding, Isadore H. Cohen and Carl J. Austrian for respondent.
    The mere delivery of the stock to the branch office of the bank was neither timely nor sufficient under section 120 of the Banking Law (Cons. Laws, ch. 2) to relieve defendants-appellants from liability. (Broderick v. Aaron-Sternlieb, 240 App. Div. 537; 266 N. Y. 506; Broderick v. McGuire, 119 Conn. 83; Broderick v. Adamson, 148 Mise. Rep. 353; Persons v. Gardner, 113 App. Div. 597; 188 N. Y. 571; Mahoney v. Bernhardt, 27 Mise. Rep. 339; 45 App. Div. 499; 169 N. Y. 589; People v. Merchants’ Trust Co., 187 N. Y. 293; Richards v. Scharmann, 97 Mise. Rep. 143; Parker v. Adams, 38 Mise. Rep. 325; Barnes v. Arnold, 23 Mise. Rep. 197; 169 N. Y. 611; Richmond v. Irons, 121 U. S. 27; Cook v. Carpenter, 212 Penn. St. 177; Broderick v. Aaron, 264 N. Y. 368; Johnson v. Underhill, 52 N. Y. 203; Mosler Safe Deposit Co. v. Guardian Trust Co., 208 N. Y. 524; Van Tuyl v. Robin, 160 App. Div. 41.)
   Lehman, J.

On December 9, 1930, the defendants Abe Kessler and Yetta Kessler sold shares of stock of the Bank of United States which they owned and which were registered in their names on the books of the bank. On the afternoon of the same day the certificates of stock duly indorsed were delivered to an assistant vice-president of the bank at a branch office of the bank and transfer to the purchaser was requested upon the books of the bank. The stockholders of record had fully performed every act required of them preliminary to transfer of the stock upon the books of the bank. The bank was then under a duty to make the transfer on its books, in accordance with the established practice and regular course of business. It failed to perform that duty. On December 11th the bank was closed and the Superintendent took possession of its property and finances. At that time the defendants were still the owners of record of the stock which they had sold.

No person who has in good faith, and without any intent to evade his liability as a stockholder, caused his stock to be transferred on the books of the bank when such bank is solvent to any resident of this state of full age previous to any default in the payment of any debt, or liability of the bank, shall be subject to any personal liability for any contracts, debts or engagements of the bank.” (Banking Law [Cons. Laws, ch. 2], § 120.) It is not disputed that the defendants in good faith sold their stock to a resident of the State without any intent to evade their liability as stockholders. It is not disputed that at that time the bank was solvent. The stock was, however, not transferred on the books of the corporation before the bank had closed and before consequent default in payment of its liabilities. For that reason the defendants have been held subject to the liability imposed by law upon the stockholders of a bank.

Title to the certificates of stock was transferred by delivery of the certificate. (Personal Property Law [Cons. Laws, ch. 41], § 162.) To terminate the personal responsibility of the original stockholder of record for the debts and liabilities of the bank, more was required. The stockholder must cause the stock to be transferred upon the books of the bank. (Broderick v. Aaron [Kornberg], 268 N. Y. 260, decided herewith.) That was not complete here. True the defendants had done all required of them to cause the certificates to be transferred on the books of the bank and the bank neglected and failed to perform its duty to transmit the certificates from its branch bank to its transfer office and thereafter to make the transfer upon the books of the bank in accordance with established and regular business routine. That routine, however, required time and it appears from the evidence and findings of the court that even if the certificates from the branch bank had been transmitted to the transfer office where the stock ledger was maintained and all other steps had been taken in accordance with its regular business routine, the transfer would in this case not have been made upon the books of the bank till some time on December 11th after the time when the bank was closed. In that respect the record here is different from that presented in the case of Broderick v. Adamson (148 Misc. Rep. 353; affd., 243 App. Div. 692), where the court found that failure to make the transfer was due to the fault and neglect of officers of the bank.

In accordance with the established practice and regular course of business of the bank, stock certificates delivered at branch banks were sent to the stock transfer office of the bank at about eleven o’clock on each business day. Thus, certificates delivered at a branch bank on the afternoon of December 9, 1930, would in the regular course of business of the bank reach the transfer office at about eleven o’clock on December 10th. Then after examination of certificates and indorsements new certificates would be drawn and at the close of the business day signed by the authorized officer of the bank. More remained to be done before the transfer could be made upon the books of the bank for each certificate bore on its face a provision that This certificate is not valid until registered by the registrar. Registered: The Chase National Bank of the City of New York, Registrar. By., Assistant Cashier.” In accordance with the usual routine of the bank new certificates which had been signed by the authorized officer of the bank would be delivered on the following day by the bank to the Chase National Bank as registrar and only after authentication by it would the stock be ready for transfer on the same day upon the stock ledger of the bank.

Even if the officers of the bank had transmitted the defendants’ stock certificates to the transfer office in accordance with their usual course of business, the transfer would not have been completed in accordance with its business routine till December 11th and at that time the bank was closed. The courts below have expressly found that the “ business practice and routine of the transfer office * * * above described was in all respects reasonable and proper and necessary in the orderly and efficient conduct of its transfer operations.” That finding cannot be successfully challenged. Thus, failure to have the stock certificates transferred on the books of the bank was not due to any neglect of the bank, but to the failure of the defendants to present the stock for transfer in time to complete the transfer on the books of the bank before the bank was closed.

A stockholder of record has not caused his stock to be transferred on the books of the bank ” until he has requested transfer of the stock, and at least a reasonable time has elapsed to enable the bank in accordance with established and reasonable routine to act upon the request. If default in payment of the bank’s liabilities intervenes, the stockholder’s personal liability remains intact. A different result might perhaps follow if failure to make the transfer had been due to wrong or neglect by the bank or its agents. (Cf. Broderick v. Adamson, supra.)

The judgment should be affirmed, with costs. (See 268 N. Y. 665.)

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

Judgment affirmed.


author: Cbane, Ch,. J.

text:
    Peter F. Gaynor et al., Appellants, v. William J. Marohn et al., Constituting the Board of Supervisors of the County of Albany, Respondents.

      (Argued July 11, 1935;
    decided September 9, 1935.)

      Robert E. Whalen for appellants.
    The act (L. 1935, ch. 842) sanctions the use of county moneys and the issuance of county bonds for other than county purposes. (N. Y. Const, art. 8, § 10; Sun Pub. Assn. v. Mayor, 152 N. Y. 257; Village of Kenmore v. County of Erie, 252 N. Y. 437; Markey v. County of Queens, 154 N. Y. 675; County of Albany v. Hooker, 204 N. Y. 1; Loan Assn. v. Topeka, 20 Wall. 655; Matter of Chap?nan v. City of New York, 168 N, Y. 80; Smith v. Smythe, 197 N. Y. 457; Hesse v. Rath, 224 App. Div. 344; 249 N. Y. 436; Hequembourg v. City of Dunkirk, 49 Hun, 550; Kelly v.
      Merry, 262 N. Y. 151.) The act contravenes the Home Rule provisions of the State Constitution. (N. Y. Const, art. 12, § 2; City of New York v. Village of Lawrence, 250 N. Y. 429; Matter of Mayor of New York [Elm St.], 246 N. Y. 72; Admiral Realty Co. v. City of New York, 206 N. Y. 110; Adler v. Deegan, 251 N. Y. 467; Robertson v. Zimmermann, 268 N. Y. 52.)

      Neile F. Towner, Randall J. LeBoeuf, Jr., and Horace R. La?nb for New York Power and Light Corporation, amicus cwrice.

    The act violates section 10 of article 8 of the Constitution by providing that the county of Albany shall loan its money and credit to or in aid of a corporation. (Heady v. Village of Lyons, 39 App. Div. 139; Holley v. City of Mount Vernon, 141 App. Div. 823; Belt Line Ry. Cory. v. City of New York, 118 Mise. Rep. 665; Brooklyn City R. R. Co. v. Whalen, 191 App. Div. 737; 229 N. Y. 570; Syracuse & S. R. R. Co. v. City of Syracuse, 113 Mise. Rep. 28; Horton v. Andrus, 191 N. Y. 231.) The act grants to the corporation an exemption from taxation of its real and personal property, in violation of the provisions of section 18 of article 3 of the Constitution. (Kerrigan v. Force, 68 N. Y. 381; Matter of Church, 92 N. Y. 1; Admiral Realty Co. v. City of New York, 206 N. Y. 110; Matter of McAneny v. Board of Estimate, 232 N. Y. 377; Beady v. Village of Lyons, 39 App. Div. 139.) The act in effect allows an indebtedness of certain of the municipalities in violation of section 10 of article 8 of the Constitution. (Newell v. People ex rel. Phelps, 7 N. Y. 9; Levy v. McClellan, 196 N. Y. 178; Horton v. Andrus, 191 N. Y. 231.) The act is a special or local law relating to the property and affairs of cities which is special or local in its terms and in its effect and was not passed on message from the Governor declaring that an emergency exists and the concurrent action of two-thirds of the members of each house of the Legislature in violation of section 2 of article 12 of the Constitution. ('Village of Kenmore v. County of Erie, 252 N. Y. 437;
      Markey v. County of Queens, 154 N. Y. 675; Ohio v. Helvering, 292 U. S. 360; Smith v. Smythe, 197 N. Y. 457; Admiral Realty Co. v. City of New York, 206 N. Y. 110.)

      Walter L. Collins, County Attorney (Robert R. Reed of counsel), for respondents.
    against the loan of money or credit "to or in aid of any corporation ” does not apply; the authority is a governmental agency of the State and county. (Loan Assn. v. Topeka, 20 Wall. 655; Matter of Chapman v. City of New York, 168 N. Y. 80; Horton v. Andrus, 191 N. Y. 231; Houck v. Drainage District, 239 U. S. 254; Miller v. Drainage District, 256 U. S. 129.) The purpose is a county purpose. (Town of Amherst v. County of Erie, 236 App. Div. 58; 260 N. Y. 361; Kelly v. Merry, 262 N. Y. 151; Matter of Chapman v. City of New York, 168 N. Y. 80; Horton v. Andrus, 191 N. Y. 231; Deady v. Village of Lyons, 39 App. Div. 139; Village of Kenmore v. County of Erie, 252 N. Y. 437; Admiral Realty Co. v. N. Y., 206 N. Y. 110; Sun P. & P. Co. v. Mayor of New York, 152 N. Y. 257; Augustine v. Town of Brant, 249 N. Y. 196; District of Columbia v. Woodbury, 136 IT. S. 450.) The debt authorized by the act whether bonds of the county or bonds of the authority is not a debt of the cities and other municipalities of the district or subject to the debt limitation on cities under section 10 of article 8 of the State Constitution. (Horton v. Andrus, 191 N. Y. 231; City of New York v. Village of Lawrence, 250 N. Y. 429; Fallbrook Irrigation Dist. v. Braddock, 164 U. S. 112; Valley Farms Co. v. County of Westchester 231 N. Y. 558; 281 IJ. S. 155; Roberts v. Irrigation Dist., 289 U. S. 71; Dineen v. Rider, 152 Md. 343.) The proposed act is not subversive of the constitutional classification of municipalities. (Hudson River Reg. Dist. v. Railroad, 249 N. Y. 445.)

      John J. Bennett, Jr., Attorney-General (Henry Epstein of counsel), for State of New York.
    Section 2 of article 12 of the State Constitution was not intended to deprive the Legislature of the power to act in aid of larger geographic units including cities. (Valley Farms Co. v. County of Westchester, 231 N. Y. 558; Robertson v. Zimmer-mann, 268 N. Y. 52; Admiral Realty Co. v. City of New York, 206 N. Y. 110; Adler v. Deegan, 251 N. Y. 467.) The act does not violate section 10 of article 8 of the State Constitution. (.Longken, Inc., v. City of Long Beach, 278 N. Y. Supp. 919; Robertson v. Zimmermann, 268 N. Y. 52.) It is an unreasonable straining of the constitutional provision to bar the efforts of the Legislature at furthering the public welfare by preventing the creation and the functioning of public benefit corporations through the application of section 10 of article 8 of the State Constitution. (Sun Printing Assn. v. Mayor, 152 N. Y. 257; Loomis v. Callahan, 196 Wis. 518; Alabama State Bridge Corp. v. Smith, 217 Ala. 311; Caldwell Bros. v. Board of Supervisors, 176 La. 825; Ohio Traction Co. v. Howe, 41 Ohio App. 337; Town of Amherst v. County, 236 App. Div. 58; Spain v. Hall County, 165 S. E. Rep. 612; Foster v. Commissioners of Cowlitz County, 100 Wash. 502; Board of Directors of Jefferson County Bridge District v. Collier, 104 Ark. 425; McWilliams v. Smith, 142 Ga. 209; Huskill v. Knox County, 132 Tenn. 180; State ex rel. Barnett Nat. Bank v. Thursby, 150 So. Rep. 252; Bevis v. Wright, 31 Idaho, 676; Chambers v. Gilbert, 17 Tex. Civ. App. 106; Erskine v. Steele County 87 Fed. Rep. 630.) The Legislature remains vested with the power to determine what are proper county purposes and how they may be best carried out. (Matter of 84th St. R. R. Co., 102 N. Y. 343; People ex rel. Simon v. Bradley, 207 N. Y. 592.) There is ng clear constitutional barrier to the authorization by the Legislature of a governmental agency to perform the functions vested in the “ Albany Light, Heat and Power Authority ” by the act. (Jones v. Portland, 254 U. S. 217; Admiral Realty Co. v. City of New York, 206 N. Y. 110; City of New York
      v. Village of Lawrence, 250 N. Y. 429; Horton v. Andrus, 191 N. Y. 231; Valley Farms Co. v. City of Yonkers, 193 App. Div. 433; 231 N. Y. 558; 261 U. S. 155.)
   Cbane, Ch,. J.

This action has been brought by taxpayers, under section 51 of the General Municipal Law (Cons. Laws, ch. 24), seeking to restrain the defendants, members of the Board of Supervisors of Albany county, from taking any steps to carry out the provisions of chapter 842 of the Laws of 1935 of the State of New York. The complaint alleges that the act is unconstitutional for various reasons, principally that it violates section 10 of article VIII, prohibiting a county from loaning its money or credit except for county purposes, and section 2 of article XII, known as the Home Rule provision.

After answer the defendants moved for judgment on the pleadings. The motion was granted and the complaint dismissed. The appeal has been taken directly to this court, pursuant to section 588 (Subd. 3) of the Civil Practice Act, bringing up for review the constitutional questions only.

This law under discussion creates a light, heat and power district in the county of Albany for the purpose of purchasing or establishing lighting and power plants whereby the inhabitants of the district may be furnished with light, heat and power through publicly owned and operated utilitities.

Before analyzing the somewhat lengthy act let us meet at the threshold the main objection which strikes at the heart of the'whole matter and which is, that the Legislature cannot authorize a county to purchase and operate a light or power plant; that it is not a county purpose. While it is true that the counties and towns originally have been political or governmental divisions of the State, created for the purpose of carrying out certain State functions, and that they have been. distinguished from cities and villages in that these latter have certain private or proprietary rights as distinguished from governmental duties, yet I find nothing in the Constitution which limits the Legislature in imposing upon counties or towns or any other district the right and authority as an agent of the State to carry out and perform a State function or purpose. (Markey v. County of Queens, 154 N. Y. 675; Porter v. Shields, 200 Penn. St. 241; 4 Dillon on the Law of Municipal Corporations [5th ed.], § 1374.) That the State itself may build and operate fight and power plants is not questioned.

When we consider the extent of the State highways and the necessity for keeping them safe for night travel we must concede that the State has the power to furnish the fight for this or any other public purpose. In fact the briefs in this case find no fault with the authority given to the villages or cities to establish their own fight, power and heating plants (General Municipal Law, art. 14-A, § 360, subd. 2; Kelly v. Merry, 262 N. Y. 151; Village of Grand Ridge v. Hayes, 271 Ill. 431; Putnam v. City of Grand Rapids, 58 Mich. 416); but the same law by which the State gives authority to the villages and cities also includes counties. “Any municipal corporation may construct, lease, purchase, own, acquire, use and/or operate any public utility service within or without its territorial I can find no restriction in the Constitution which forbids the State Legislature from using the county or town for this public purpose.

However, it is said that even if the county under these provisions of the General Municipal Law has the right to establish and operate its own fighting system, the Legislature cannot create a district or corporate power or similar body for these and'make the cost and expense thereof a charge upon the district served. This court has held otherwise in Horton v. Andrus (191 N. Y. 231); Robertson v. Zimmermann (268 N. Y. 52); Town of Amherst v. County of Erie (260 N. Y. 361). (See, also, Nehasane Park Assn. v. Lloyd, 167 N. Y. 431; Jones v. Town of Towanda, 158 N. Y. 438; Webster v. Fargo, 181 U. S. 394; Schneider Granite Co. v. Gast Realty & Investment Co., 259 Mo. 153; Dunham v. People, 96 Ill. 331.)

Very early in our law the authorities recognized the value of creating districts for certain special purposes where the usual governmental agencies would not be effectual. Irrigation District v. Bradley, 164 U. S. 112; Roberts v. Richland Irrigation District, 289 U. S. 71.) We have since had the water district, the sewer district and, of a later day, State functions exercised through boards, commissions or powers.” (Sun Publishing Assn. v. Mayor, 152 N. Y. 257; Admiral Realty Co. v. City of New York, 206 N. Y. 110.) Below in a footnote are some of the instances. In other words, the State may create an agency for the purpose of carrying out a State duty or function, provided of course that it does not infringe on other provisions of the Constitution, such as the delegation of constitutional authority vested in others.

Therefore, I can see no illegality in this act in so far as it creates a district for the furnishing of light, heat and power, calling that district or jurisdiction the light, heat and power authority, and vesting in commissioners the authority to establish light, heat and power plants for the serving of the inhabitants of the district. That the money is to be raised by taxation on the property of those deemed to be benefited within the district is constitutional has heretofore been decided by this court. (Robertson Case, supra; Longken, Inc., v. City of Long Beach, 268 N. Y. 532.) These cases also upheld the principle that the debt limit for certain municipalities specified in section 10 of article VIII of the Constitution does not apply to assessments for benefits.

Objection has been made to this law that as it provides for the possible fighting of the cities of Albany, Cohoes and Watervfiet it transgressed the Home Rule provision of the Constitution, known as article XII, section 2. This requires all laws relating to the property, affairs or government of cities to be either general laws applicable in effect to all cities of the State or else to be passed by two-thirds of the members of the Legislature, upon an emergency message from the Governor.

The law we are considering is not such a one as comes within this article of the Constitution. It does not relate to the property, affairs or government of cities as those terms are used in the Constitution. It does not in any manner alter the government of a city or interfere in its municipal affairs. We do not need here to weigh the preponderance of State and local interests.

A brief analysis of this act, however, is required to point out those parts wherein we think the Legislature has gone too far. Section 1 says that the act shall be known as the Albany Light, Heat and Power Authority Act, and that the area established, known as the light, heat and power district, shall embrace all the territory other than the towns of Berne, Knox, Rensselaerville and Westerlo. The authority is to be a body corporate and politic constituting a public benefit corporation. (General Corporation Law [Cons. Laws, ch. 23], § 3, subd. 2.)

Section 2 constitutes the board of directors, which shall consist of not more than five persons to be appointed by the Board of Supervisors of Albany county, three of which directors shall be residents of the city of Albany.

Section 3 gives to the authority power to construct or acquire, equip and operate, within or without the territorial limits of the county, structures and equipment for furnishing gas, electric current for light, heat and power to service the county or any municipality or persons in such district.

It may, by section 4, contract with the cities within the district for such service, and, by section 5, sell its surplus to other districts.

The other provisions of the act provide for the raising of revenue by borrowing money, issuing bonds or certificates of indebtedness and other obligations. It may also borrow money, if it can get it, from the Reconstruction Finance Corporation, the Federal Emergency Administrator of Public Works or any State agency.

Sections 8, 14 and 15 must be scrutinized carefully. In some respects they are inconsistent. Section 8 reads as as follows: “ The bonds and other obligations of the authority shall not be a debt of the state or of the county, and, subject to section fifteen, the board shall have no power to make them payable out of any funds except those of the authority. The real and personal property of the authority shall be exempt from all taxation, and so shall all of its activities and operations, except that the owners of its bonds and other obligations shall be subject to transfer and inheritance taxes.” The exemption of course is that of a public agency.

Section 14 reads in part as follows: The board of supervisors, when appointing the authority, may adopt a resolution providing, or it may by later agreement with the authority provide, that all properties acquired by the authority shall be acquired in or transferred to the name of the county or taken and held by the authority as a governmental agency of the county. The board of supervisors may at such time or by a later resolution provide that the county shall raise any part or all the money necessary for the purposes of this act by the issuance of county bonds. * ⅜ ⅝ Provision shall be made for the payment of any such bonds out of the revenues of the authority, but such bonds shall be a county charge and the board may if necessary levy general county taxes for the payment of the principal and interest thereof, and use the funds of the county therefor, but the county shall be reimbursed out of the revenues of the authority for any moneys so paid.”

This seems to be inconsistent with section 8, which provides that the bonds and other obligations of the authority shall not be a debt of the State or of the county, and that the Board of Supervisors shall have no power to make them payable out of any funds except those of the authority. The use of the words “ subject to section fifteen ” renders the latter phrase meaningless, as this section 14 provides that the Board of Supervisors may at any time raise the money necessary for the purposes of this act by the issuance of county bonds. The distinction between the bonds of the authority and bonds of the county, so far as power to issue bonds is concerned, is very slight, if it exists at all.

Although the board or the authority has no power to make the obligations of the authority payable out of anything except the funds of the authority, yet the Board of Supervisors is authorized to issue bonds binding on the county to obtain any moneys necessary to be raised for any purpose of the act. It is not for us to criticize the phraseology of this act or its purpose. We can only deal with its constitutional features. With the Legislature rests the responsibility for the methods of financing this enterprise. We need only say that this act as thus analyzed gives to the Board of Supervisors the power to issue county bonds for the purpose of creating electric light and power plants in or for this power district. That the district or the county may issue bonds payable out of the funds to be raised in the district by proper assessment upon the lands and territory benefited we have heretofore held in the cases above cited to be constitutional. The bonds of a county issued to raise money to pay for county lighting would come under no prohibition of law. Bonds issued by the county to pay for the lighting of a restricted district would be subject to the objection that the county had no right or power to use county money for this purpose and that such bonds are illegally issued. In other words, the county can use the county money for county purposes but it cannot use county money raised by taxing an excluded district to pay for the lighting or for furnishing of power within a restricted district within the county. (Village of Kenmore v. County of Erie, 252 N. Y. 437.) The Legislature may create the district which it deems to be benefited. This is generally a legislative function with which the courts will not interfere unless palpably unjust. (Webster v. Fargo, 181 U. S. 394.) But property without the district cannot be taxed to pay for benefits within it. (5 McQuillin on the Law of Municipal Corporations, p. 575, §§ 2166-2169.) Only such land as is included in the district can be assessed. (Farrington v. City of Mt. Vernon, 166 N. Y. 233; Prendergast v. Richards, 2 Mo. App. 187.) Of course a county could light a particularly dark spot and make it a county charge. We are here dealing with benefit districts created by the Legislature.

In so far, therefore, as this act authorizes the county to issue bonds which would become a charge upon the property by reason of taxation within the towns of Berne, Knox, Rensselaerville and Westerlo, it is unconstitutional.

Section 15 of the act provides as follows: “ § 15. Should it appear to the board of supervisors at any time that the revenue of the authority is or will be insufficient to provide for the payment of any bonds issued under this act, whether they be bonds of the authority or bonds of the county, and to reimburse the county for any moneys that it may have paid on such bonds or have advanced to the authority, the board of supervisors shall determine the amount of money necessary to be raised for such purpose, and shall levy a tax on the territory of the district and upon the several parcels of real estate in the district in an amount sufficient to produce the amount necessary to be raised as aforesaid provided that such tax shall not be levied to pay any bonds of the authority unless the authority with the consent of the board of supervisors has pledged such tax prior to the issuance of such bonds. Such tax shall be levied and apportioned upon such territory and collected from the several parcels of real estate in the district in like manner as other county taxes.”

This provision, in our judgment, is not unconstitutional. The Board of Supervisors may raise money by a bond issue to enable the authority to carry out the purposes of the act and tax the property within the benefited district to repay the bonds, provided, of course, such tax has been pledged with the sale of the bonds as provided in the section. The authority or the supervisors are the agents of the State, carrying out a State purpose, and the bonds which are issued, be they called county bonds or bonds of the authority, are payable out of two sources — either from the revenues of the authority or from the tax or assessment upon the district benefited. In so far as the money to be raised for the purposes of this act comes from taxation of property without the district, or not benefited, or money raised within the district is to pay for lighting territory without the district, it is unconstitutional.

In a word, we may state the law to be this: The State may authorize cities, villages or counties, as it has done by the provisions of the General Municipal Law, to establish lighting and power plants and systems. So, too, it may create power districts for this purpose, whether they embrace a county, or a portion of a county, or many counties, but the money to be raised for this purpose, if it is to come from taxation, must be limited to a tax or assessment upon the property benefited. For instance, the county of Albany cannot be taxed for the purpose of lighting the county of Rensselaer, which goes untaxed. What shall constitute a taxing district, and whether it be confined to, or in disregard of boundary lines of counties, townships or lesser municipalities is a matter wholly within the discretion of the Legislature. (5 McQuillin on the Law of Municipal Corporations, p. 668, § 2201.) Such a district is not inconsistent with county or town government. (Thielen v. Metropolitan Sewerage Comm., 178 Wis. 34; Matter of Bonds of Orosi Public Utility District, 196 Cal. 43; 4 Dillon on the Law of Municipal Corporations [6th ed.], § 1434.)

We think, however, that these portions of this act may be eliminated or excised without rendering the whole act unconstitutional. It is said that the Board of Supervisors is about to meet for the purpose of authorizing the issue of county bonds. This cannot be done. Whatever bonds are issued must be sold and disposed of as a charge either upon the revenues of the authority or upon the property benefited by the act, that is, the area called and defined as the Albany Light, Heat and Power District.

We note in this act that power is given to sell excess power and light to other districts and territory, municipalities, ' villages, towns, without stint or limitation. The question is not before us, as to whether this authority ” has the right to expend the moneys raised by taxation of the real property within the district, to establish a larger plant than is necessary to furnish light, heat and power to that district. It may be questionable whether the real estate can be taxed for the direct purpose of building a plant to light other and adjoining districts not taxed. We reserve this question, as no attempt to do this thing appears in the record. With the limitations which we have thus placed upon the act under review we reverse the decision of the Special Term by sustaining the complaint as good in so far as it attacks the provisions which we hold to be unconstitutional.

The judgment should be reversed, and the motion denied, with costs in this court and in the Special Term.

Lehman, O’Brien, Ceouch and Loughran, JJ., concur; Hubbs, J., concurs in result; Finch, J., concurs in the opinion of Chief Judge Ceane in so far as it holds the act to be constitutional but dissents from so much of the opinion as holds portions of the act to be unconstitutional, and, therefore, votes to affirm.

Judgment reversed, etc.

       See, for example, Laws of 1921, eh. 164, creating the Port of New York Authority; Laws of 1927, ch. 321; Laws of 1933, ch. 201, creating Lake Champlain Bridge Commission; Laws of 1929, ch. 594; Laws of 1930, ch. 827; Laws of 1931, ch. 380; Laws of 1933, eh. 89, creating the Niagara Frontier Bridge Commission; Laws of 1932, ch. 548; Laws of 1933, ch. 67, creating New York State Bridge Authority; Laws of 1933, ch. 68, creating the Pelham-Portchester Parkway Authority; Laws of 1933, ch. 70, creating Jones Beach State Parkway Authority; Laws of 1933, ch. 145, creating Triborough Bridge Authority; Laws of 1933, ch. 208, creating the Saratoga Springs Authority; Laws of 1933, ch. 209, creating the Thousand Islands Bridge Authority; Laws of 1933, ch. 214, creating the American Museum of Natural History Planetarium Authority; Laws of 1933, ch. 824, creating the Buffalo and Fort Erie Public Bridge Authority; Laws of 1933, ch. 232; Laws of 1935, chs. 846, 847, creating the Central New York Regional Market Authority; Laws of 1933, ch. 231; Laws of 1935, chs. 844, 845, creating the Lower Hudson Regional Market Authority; Laws of 1933, ch. 246; Laws of 1934, ch. 304, creating the Industrial Exhibit Authority; Laws of 1933, ch. 801, creating the Bethpage Park Authority; Laws of 1934, ch. 4, creating the Municipal Housing Authorities; Laws of 1934, ch. 138, creating the Henry Hudson Parkway Authority; Laws of 1934, ch. 162, creating the Marine Parkway Authority; Laws of 1934, ch. 819, creating the New York State World War Memorial Authority; Laws of 1935, ch. 349, creating the Buffalo Sewer Authority; Laws of 1935, ch. 681, relating to the creation of the Queens-Mid-town Tunnel Authority; Laws of 1935, ch. 843, creating the Albany Regional Market Authority; Laws of 1935, ch. 869, creating the Roekland-Westehester Hudson River Crossing Authority.