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    William A. Carson et al., as Trustees in Bankruptcy of Leonard S. Zartman et al., Individually and as Copartners under the Firm Name of G. E. Zartman & Company, Appellants, v. Federal Reserve Bank of New York, Respondent.

      (Argued June 4, 1930;
    decided July 8, 1930.)

      Arthur E. Sutherland, Samuel B. Dicker and Earl W. Murray for appellants.
    The defendant as payee and holder of the two dishonored drafts drawn by the insolvent firm was a creditor thereof and as such is liable for obtaining a preference over other creditors of the same class. (People v. Merchants Bank, 78 N. Y. 269; Matter of Veler, 249 Fed. Rep. 633; Federal Reserve Bank v. First Nat. Bank, 277 Fed. Rep. 300; Mercantile Trust Co. v. Schlafly, 299 Fed. Rep. 202; 266 U. S. 614; Marine Trust Co. v. Lauria, 213 App. Div. 64; 244 N. Y. 577.) The defendant was a creditor of the insolvent firm as defined in the United States Bankruptcy Act and received a voidable preference. (Bankruptcy Act, § 60, subds. A & B.) The indorsements on the checks are inconsistent with the theory that the defendant was a mere collection agency. (Marine Trust Co. v. Lauria, 213 App. Div. 64; 244 N. Y. 577; Interstate Trust Co. v. United States Nat. Bank, 67 Colo. 6; National Bank v. Bossemeyer, 101 Neb. 96; Burton v. United States, 196 U. S. 283; Downey v. National Exch. Bank, 96 N. E. Rep. 403; Auto & Accessories Mfg. Co. v. Merchants’ Nat. Bank, 116 Md. 179; Jefferson Bank v. Merchants’ Refrigerating Co., 236 Mo. 407; Krafft v. Citizens’ Bank, 139 App. Div. 610; King v. Bowling Green Trust Co., 145 App. Div. 398; Lyons v. Union Exch. Nat. Bank, 150 App. Div. 493.) Regulation “ J ” of the Federal Reserve Board and defendant’s circular letter, No. 728, do not make defendant a collection agent only. (Douglas v. Federal Reserve Bank, 271 U. S. 489; Interstate Trust Co. v. U. S. Nat. Bank, 67 Colo. 6; Pastene v. Irving Nat. Bank, 249 N. Y. 272; National Park Bank v. Seaboard Bank, 114 N. Y. 28.)

      Colin McLennan, Keith D. Poland and Walter S. Logan for respondent.
    The defendant was never the legal or beneficial owner of a claim against the insolvent firm; hence the payment to it cannot be recovered from the defendant as a voidable preference under the Federal Bankruptcy Act. (Marine Trust Co. v. Lauria, 213 App. Div. 64; 244 N. Y. 577; Matter of Veler, 249 Fed. Rep. 633; Richardson v. Shaw, 209 U. S. 365; Taylor v. Carraway, 282 Fed. Rep. 876; Keystone Warehouse v. Bissell, 203 Fed. Rep. 652; Matter of Ponzi, 4 Fed. Rep. [2d] 25; 268 U. S. 691; Rubenstein v. Lottow, 220 Mass. 156; Matter of Mosher, 224 Fed. Rep. 739; Matter of Kayser, 177 Fed. Rep. 383; Matter of Baar, 213 Fed. Rep. 629; Dean v. Davis, 242 U. S. 438; Hagan v. McNiel, 253 Fed. Rep. 716; Jump v. Bernier, 221 Mass. 241; Collier on Bankruptcy, 840-g.) Defendant was not the beneficial owner of any claim against the insolvent firm, for in collecting the checks it was merely the agent of its member banks. (Early v. Federal Reserve Bank, 50 Sup. Ct. Rep. 235; 30 Fed. Rep. [2d] 198; Federal Reserve Bank v. Malloy, 291 Fed. Rep. 763; 264 U. S. 160; Fergus County v. Federal Reserve Bank, 75 Mont. 582; Transcontinental Oil Co. v. Federal Reserve Bank, 172 Minn. 258.) The relation of agency between the defendant and the indorsing banks is indicated by the form of the indorsements on the checks and the letters of transmittal which accompanied the checks. (First Nat. Bank v. Stengel, 185 App. Div. 906; 227 N. Y. 659; Matter of Jarmulowsky, 243 Fed Rep. 633; Stark v. Public Nat. Bank, 123 Misc. Rep. 647; Richardson v. Louisville Bank

      ing Co., 94 Fed. Rep. 442; Scott v. Ocean Bank, 23 N. Y. 289; Balbach v. Frelinghuysen, 15 Fed. Rep. 675; Beal v. City of Somerville, 50 Fed. Rep. 647; Moors v. Goddard, 147 Mass. 287; National Park Bank v. Seaboard Bank, 114 N. Y. 28; Bank of America v. Waydell, 187 N. Y. 115; Thomas v. Supervisors, 115 N. Y. 47; Peoples Nat. Bank v. Moore, 25 Fed. Rep. [2d] 599.) Under the provisions of the contract between defendant and its member banks the agency relationship continues until the defendant receives final payment for checks in actual funds. The receipt of the remittance drafts was not final payment in actual funds and, therefore, did not change that relationship or constitute the defendant a creditor of Zartman & Company. (Thomas v. Supervisors, 115 N. Y. 47; Peoples Nat. Bank v. Moore, 25 Fed. Rep. [2d] 599; U. S. Fidelity & Guaranty Co. v. Forest County State Bank, 227 N. W. Rep. 27; Burton v. United States, 195 U. S. 283; Bank of America v. Waydell, 186 N. Y. 115; First Nat. Bank v. Stengel, 169 N. Y. Supp. 217; 185 App. Div. 906; 277 N. Y. 659.) The defendant is under no liability as an agent, for it accounted to its principals before the payment assumed its voidable character. (Nat. Park Bank v. Seaboard Bank, 44 Hun, 49; 114 N. Y. 28; Thompson v. St. Nicholas Bank, 113 N. Y. 325; Nostrand v. Ditmis, 127 N. Y. 355; Stanwix v. Leonard, 125 App. Div. 299; Cohen v. Barry, 108 N. Y. Supp. 573; Mountain Lumber Co. v. Davis, 9 Fed. Rep. [2d] 478; 11 Fed. Rep. [2d] 219; Insurance Co. v. Fourth Nat. Bank, 14 Fed. Rep. [2d] 131; Wilson v. Mitchell-Woodbury Co., 214 Mass. 514; Grandison v. Robertson, 231 Fed. Rep. 685.)
   Cardozo, Ch. J.

Trustees in bankruptcy are seeking to recapture moneys collected by the defendant, a Federal Reserve bank, with notice that a preference among creditors might be an effect of the collection.

G. E. Zartman & Company were engaged for many years in the business of private bankers at Waterloo, New York. On May 16 and 17, 1927, there came into the possession of the defendant, the Federal Reserve Bank in the Second Federal Reserve District, 157 checks drawn on the Zartman bank for sums amounting in the aggregate to $15,271.56. These cheeks, drawn by Zartman depositors in favor of various payees, had been indorsed by the payees to banks, thirty-seven in number, members of the Federal Reserve .banking system, and by these indorsed and transmitted to the defendant. The indorsements by the member banks show diversities of form, some being simply to the order of the Federal Reserve Bank of New York, some to the order of any bank, banker or trust company, some to the order of any bank or banker, and some to the order of any Federal Reserve bank. Accompanying the checks, when received by the defendant, were letters of remittance. In these the member banks gave notice to the defendant that the checks were inclosed “ for credit,” or, more commonly, for collection and credit,” “ collection and return,” or collection and remittance.” The defendant pursuant to this mandate caused the checks to be presented for payment to the Zartman bank, the drawee named therein. In response to this demand, it received two drafts, one for $8,699.25, the other for $6,572.27, drawn by the Zartman bank in Waterloo upon the American Exchange Irving Trust Company of New York. These drafts, received by the defendant on May 18 and 19, were presented to the trust company for payment on May 20 and again on May 21. On each presentation payment was refused on the ground that the drafts had been drawn by Zartman against uncollected funds. Thereupon, on May 23, the defendant’s manager went to Waterloo and made demand upon Zartman that the drafts be paid in cash. There is no occasion to recite the conversation that ensued. Enough for present purposes that what was said might reasonably be found by the triers of the facts to have been notice to the manager that Zartman was insolvent. After a delay of a few hours there was paid to the defendant in cash the sum of $10,363.93. The following day, May 24, the doors of the Zartman bank were closed for business, and have never been reopened. A petition in bankruptcy, filed on June 27, was followed by an adjudication of bankruptcy and the appointment of trustees. The trustees are suing to recover the cash paid to the defendant on May 23 as a voidable preference under the provisions of the Federal statute.

We turn back at this point to state the defendant’s use of the proceeds of collections. Each of the member banks had an account with the defendant, an account exacted by the statute (Federal Reserve Act, 38 U. S. Stat. pp. 251, 270, § 19) as one of the incidents of membership. These accounts were credited on May 19 and 20 with the amount of the Zartman drafts, i. e., the drafts drawn on the trust company, which were supposed, when received by the defendant, to be equivalent to cash. As soon as notice came that these drafts had been dishonored, the entry was reversed. Later, on May 31, the credit was re-established to the extent of $10,363.93, the cash payment then in hand, each of the thirty-seven banks being allotted its appropriate share. Before the bankruptcy petition, the banks had withdrawn from their deposit accounts in the usual course of business moneys equal to the balances in their favor at the date of the contested credits, though they had also made new deposits which kept the daily balances at a level nearly uniform. If the first payments out of the accounts be appropriated to the first receipts, all moneys collected from the bankrupts had been remitted by the defendant to the thirty-seven member banks, its correspondents and depositors.

The trial judge left it to the jury to say whether the collections had been made by the defendant as agent or as owner. The jury found for the plaintiff, thus holding by their verdict that the collection was as owner. The Appellate Division held as a matter of law that the collection was as agent, basing its holding in large degree upon an agreement yet to be considered between the defendant and its members. The collection having been made as agent, the conclusion was thought to follow that the agent was not liable since it had settled with its principals before the right of reclamation had been perfected by the bankruptcy.

We think the defendant was an agent and not an owner in its receipt of the Zartman drafts and the substituted moneys. How the 157 checks were indorsed by the payees when deposited with the member banks, the record does not tell us. The problem to be solved, however, is not one as to the relation between the member banks and their depositors. It is a problem as to the relation between those banks and the defendant. We assume that the form of the indorsements, if not qualified by agreement, would have passed to the defendant such title, if any, as belonged to the indorsers (Federal Reserve Bank v. Malloy, 264 U. S. 160, 164; City of Douglas v. Federal Reserve Bank, 271 U. S. 489; Equitable Trust Co. v. Rochling, 275 U. S. 248; Heinrich v. First Nat. Bank, 219 N. Y. 1). An agreement, however, is in existence, the terms thereof prescribed by regulations adopted by the Federal Reserve Board under authority conferred by the provisions of the statute. We must look to this agreement to discover the relation between the defendant and its members in the process of collection.

By the Federal Reserve Act, as first enacted in 1913, a reserve bank was authorized to collect only those checks which were drawn on member banks and which were deposited by a member bank or another reserve bank or the United States (Farmers Bank v. Federal Reserve Bank, 262 U. S. 649, 654). Even then, however, the regulations of the Board provided: In handling items for member banks, a Federal Reserve Bank will act as agent only (Circular No. 1 of 1916, Federal Reserve Board Report of 1916, p. 153, note; Federal Reserve Bulletin, May, 1916, pp. 259, 260). The statute was amended in September, 1916 (§ 13) (39 Stat. 752), so as to authorize a reserve bank to receive for collection from any member checks drawn on non-member banks located in the district. The Board renewed its order that the relation should be one of agency (Regulation J, subd. 7, Federal Reserve Board, Report of 1916, p. 171). In 1917 the statute was again amended, this time by a provision that solely for the purposes of exchange or of collection,” a reserve bank may receive from a non-member bank or trust company checks payable upon presentation, upon condition that such non-member bank or trust company maintain an adequate balance with the reserve bank of its district (Act of June 21, 1917, ch. 32, § 4; 40 Stat. 232, 234; cf. 262 U. S. at p. 655). Collections were thus permissible both for members and for non-members.

In the setting of this statute, Regulation J (series of 1924) was adopted by the Board, and is now to be construed. It recites (in terms substantially the same as those of earlier regulations) that the Board, desiring to afford both to the public and to the various banks of the country a direct, expeditious and economical system of check collection and settlement of balances, has arranged to have each Federal reserve bank exercise the functions of a clearing house and collect checks for such of its member banks as desire to avail themselves of its privileges,” to which is added a recital that like privileges will be afforded to non-member banks and trust companies qualifying in certain ways. It then proceeds to a statement of the terms and conditions on which business may be done. The Federal Reserve Board hereby authorizes the Federal reserve banks to handle such checks subject to the following terms and conditions; and each member and nonmember clearing bank which sends checks to any Federal reserve bank shall by such action be deemed (a) to authorize the Federal reserve banks to handle such checks subject to the following terms and conditions; (b) to warrant its own authority to give the Federal reserve banks such authority, and (c) to agree to indemnify any Federal reserve bank for any loss resulting from the failure of such sending bank to have such authority.” Among the terms and conditions thus prescribed are these: “A Federal reserve bank will act only as agent of the bank from which it receives such checks.” “A Federal reserve bank may present such checks for payment or send such checks for collection direct to the bank on which they are drawn,” or forward them to another agent.” "A Federal reserve bank may * * * at its option, either directly or through an agent, accept * * * bank drafts * * * in lieu of cash,” without being hable for any loss thereby resulting. “ The amount of any check for which payment in actually and finally collected funds is not received shall be charged back to the forwarding bank, regardless of whether or not the check itself can be returned.” Finally each Federal Reserve bank may promulgate its own regulations, not inconsistent with law or with the regulations of the Board, and such regulations shall be binding upon member and non-member banks availing of its privileges.

Pursuant to the authority thus conferred, the defendant made its own regulations (circular No. 728, July 1, 1926), reaffirming the regulations adopted by the Board and supplementing them by others. One of the supplemental rules prescribes the period that shall elapse before any credit shall be allowed, either provisional or final, for checks sent in by members. Credit may be given at once in what is known as a deferred account, not subject to be drawn on, but there is to be no credit in the reserve account until “ the appropriate time indicated on the current time schedule has elapsed,” though even upon entry in that account, credit and availability are in all instances subject to * * * actual receipt of payment.” The time schedule thus referred to is based upon the average mailing time required for items to leach the paying bank, plus the time required for the paying bank to remit to the defendant. Another supplemental rule gives notice to member banks and others that defendant will handle checks as cash items only in accordance with uniform instruction therein set forth, and that any contrary or special instructions noted on cash letters or attached to checks will be disregarded.” Another rule prescribes the form of the indorsement to be adhered to by transmitting banks, whether members or non-members. The indorsement must be without restriction to the order of the Federal Reserve Bank of New York or to the order of any bank, banker, or trust company with all prior indorsements guaranteed.” This form is necessary, as has been stated, whether the checks transmitted to the defendant are from members or non-members, though the statute is explicit to .the effect that there'shall be no power in a reserve bank to handle checks for non-members except “ solely for the purposes of exchange or of collection ” (Federal Reserve Bank Act, § 13, amendment of 1917, § 4). Plainly, then, the form of the indorsement was not conceived of as involving a departure from the mandate of the statute. Plainly, too, it was not conceived of as inconsistent with the regulations and the circular whereby checks received from any bank are to be handled by the reserve banks in the capacity of agents only. The same circular and regulations that prescribe the form of the indorsement establish the practice and the agreement to receive the checks as agent, and give notice to transmitting banks that the terms thus established shall be exclusive of any others.

The inference of ownership that follows in most cases from an unqualified indorsement is one dependent upon intention. It may be overborne by agreement to the contrary, whether the evidence of agreement be direct or circumstantial (Federal Reserve Bank v. Malloy, supra, at p. 164). Direct as well as circumstantial is the evidence before u,s. The regulations of the Board, reinforced by the defendant’s circular, and assented to by the transmitting banks, are equivalent to an express agreement that as between the defendant and the other banks the relation engendered by the receipt of uncollected paper shall be an agency and nothing more. The agreement is confirmed by “ the underlying purposes and policies of the Federal reserve system ” (per Crouch, J., in the court below), by the place of the reserve banks in the distribution of banking functions as conceived and developed by the framers of the statute. There is no token of a purpose to burden clearance and collection with the responsibilities of ownership.

The argument is made that a distinction is to be drawn between collection for the member banks and collection for the use of others. The regulations and the circular do not express such a distinction; if it is to be made, it must be interpolated by a process of construction. We are told that what is said in the rules as to the existence of an agency had its origin in an attempted adaptation of the structure of the system to the necessities of the new business made possible in 1917 through the amendment of the statute. Till then, collections by a reserve bank were always for the account of member banks, for whom it was also at liberty to receive checks or moneys for deposit. Since then, there may also be collections for the convenience of non-members. To these and to these only, we are told, the regulation and the circular were intended to apply. The history, statutory and administrative, of the Federal Reserve system teaches a different lesson. There is no connection, temporal or causal, between the genesis of the rule that the relation shall be one of agency and the enlargement of the field of business following the amendment of the statute. Long before there was power to make clearances or collections for banks not members of the system, there was already a statement in the rules that in the handling of cheeks and drafts when forwarded by members, the reserve banks were to be deemed to act in the capacity of agents only. Amendments of the rules have restrained responsibility still farther by adding a provision that the agency shall be one for the forwarding bank, and not for any other, thereby excluding an attempt to convert it into an agency for the payees of the checks, the original depositors (Federal Reserve Bank v. Malloy, supra; City of Douglas v. Federal Reserve Bank, supra). From the beginning, however, the relation has been classified as agency, not ownership. A classification so explicit may not be held to have been neutralized by the terms of the “ cash letters,” with their varying declarations that the checks are inclosed for “ credit,” or for collection and credit,” or for collection and remittance ” (cf. Bank of America v. Waydell, 187 N. Y. 115, 120). By express provision of the defendant’s circular the letters must be disregarded if inconsistent with the uniform practice established by the circular and by the regulations of the Board behind it. There and nowhere else, least of all in a perfunctory notice of remittance embodied in a printed form, the agreement governing the relation has its final and complete expression.

If the defendant was an agent in the receipt of the Zartman drafts and the substituted moneys, the question must still be met whether its liability was enlarged by any of its acts thereafter. We must say whether the agent became subject to the liability of an owner when instead of remitting the proceeds of collection directly to its principals, it put the proceeds to their credit in an ordinary deposit account, thereby turning the relation from one of agency into one of creditor and debtor. In effect, the situation was then the same as if the defendant, receiving the money in the capacity of agent, had handed it over to the principals, and had received it back at once to be retained as a deposit (Commercial Bank of Penn. v. Armstrong, 148 U. S. 50, 58, 59; Marine Bank v. Fulton Bank, 2 Wall. [U. S.] 252; Evansville Bank v. German American Bank, 155 U. S. 556; National B. & D. Bank v. Hubbell, 117 N. Y. 384, 396; Langley v. Warner, 3 N. Y. 327, 329). We think the new relation did not take from the defendant the protection of the rule that money paid to an agent, and lawfully accepted, may not thereafter be reclaimed by one who has made the payment with notice of the agency, if before the attempted reclamation the agent in good faith has settled with the principal (National Park Bank v. Seaboard Bank, 114 N. Y. 28; National City Bank v. Westcott, 118 N. Y. 468, 473, 474; Hooper v. Robinson, 98 U. S. 528; Buller v. Harrison, 1 Cowper, 565). True, indeed, it is that the settlement sufficient to call this precept into play must be actual and not constructive (Buller v. Harrison, supra; Mowatt v. McLelan, 1 Wend. 173, 178; La Farge v. Kneeland, 7 Cow. 456, 460). If all that the agent has done is to agree with the principal that the fund, still intact, shall be held thereafter as a debtor, he is not subjected to any loss if directed to make restitution out of the moneys thus retained (cf. La Farge v. Kneeland and Mowatt v. McLelan, supra). On the other hand, when once the fund has been depleted by payment of the debt, the situation becomes the same as if the payment to the principal had been made at the beginning. The agent is no better, off by reason of the new relation, but even if no better, he is equally no worse.

As to this aspect of the case, the ruling in National Park Bank v. Seaboard Bank (supra) is a precedent so nearly identical that it must be accepted as decisive. There the Seaboard Bank received a check for collection as agent for the Eldred Bank and upon receipt of the proceeds gave notice to its principal in accordance with a course of dealing that the proceeds had been credited in an account current between them on which drafts from time to time were drawn as on an ordinary account between a bank and a depositor. There can be no question that the collecting bank, after the giving of this notice, was at liberty to use the proceeds with all the freedom of an owner, discharged of any duty to remit in-specie to the principal (cf. Commercial Bank of Penn. v. Armstrong, supra; Marine Bank v. Fulton Bank, supra). Even so, the ruling was that it could no longer be held to restitution at the suit of the drawee bank after the drafts on the account current had exhausted the credit balance existing at the time of the collection. To determine whether the balance had been used up, the court applied the rule in Clayton’s Case (1 Meriv. 572, 604, 608) whereby the successive payments and credits are to be appropriated “ in discharge of the items of debt antecedently due in the order of time in which they stand in the account,” the first payments out extinguishing the first payments in. There are many other cases, State and Federal, enforcing a like rule (Allen v. Culver, 3 Denio, 284, 293; Thompson v. St. Nicholas Nat. Bank, 113 N. Y. 325, 333; Delaware Dredging Co. v. Tucker Co., 25 Fed. Rep. [2d] 44, 46; Cory Bros. & Co. v. Owners of S. S. Mecca, [1897] A. C. 286, 288; Deeley v. Lloyd’s Bank, Ltd., [1912] A. C. 756, 783; Matter of Stenning, [1895] 2 Ch. 433). We have no thought to suggest that this or any other formula as to the application of payments to the items of an account is of such inflexible validity as to admit of no exceptions. Whatever rule is framed will be subordinated to the broader principle that an application, usually appropriate, may be varied by the court when variance is necessary to promote the ends of justice (Korbly v. Springfield Inst. for Savings, 245 U. S. 330; Lichtenstein v. Grossman Constr. Corp., 248 N. Y. 390; Matter of Hallett’s Estate, 13 Ch. Div. 696; Cunningham v. Brown, 265 U. S. 1, 12, 13). None the less, the formula is expressive of a rule that must prevail in the absence of persuasive reasons for qualification or exception. We cannot fairly say that justice will be thwarted if the rule is followed here. The principals are solvent banks, and the trustees are at liberty to pursue the moneys in their hands (Matter of Hill Co., 130 Fed. Rep. 315, 318). At least, if there is any obstacle, there is nothing in the record to tell us what it is. No obvious requirement of policy or justice exacts the suspension or abandonment of an established rule of law to the end that collection from an agent may take the place of an existing and sufficient remedy by suit against the principals.

Passing, then, from the question of the application of payments, we come back to the inquiry whether the immunity of the agent is lost or impaired when the proceeds of the collection, instead of being remitted to the principal at once, are retained as a deposit and remitted later on. What was held on that subject in the case of the Seaboard Bank has not been modified by anything decided since that time. National B. & D. Bank v. Hubbell (supra), with some analogies on the surface, is essentially dissimilar. The facts in the Hubbell case were these: Checks forwarded for collection had been placed when collected to the credit of a deposit account. Upon the failure of the bank, the depositor made' claim to the proceeds in the hands of a receiver as if subject to a trust, though the entry in the deposit account had been made with its assent. The court held that the claim had been turned into a debt, and that the depositor must come in and share with the general creditors (cf. Latzko v. Equitable Trust Co., 275 U. S. 254). The point to be determined was the liability of an agent to a principal, of a bank to its correspondent, after the termination of the agency. No question was involved as to its liability to a third person, the drawee of the checks, seeking restitution after the agent and the principal had made a settlement between themselves.

. We conclude, as in the Seaboard case, that the defendant did not enlarge its liability to the representatives of the bankrupts when, after collection was complete, it transformed its relation to the forwarders from agency to debt.. Legal concepts will not be strained to relieve an agent of liability by force of a settlement that is merely formal or constructive, but by the same token they will not be strained against him to charge him with liability. In a formal or constructive sense, the defendant, acting as agent, settled with its principals when by the entries in its books in accordance with the course of dealing it gave up the moneys received by it as agent and took them back as debtor. Such a settlement will not halt the pursuit and relieve from liability while the fund is still intact. It will not open the door to enable the pursuit to be continued when the fund has been disbursed.

We have said that the money was lawfully collected by the agent and was paid by the drawee with notice of the agency. Lawful the collection was at the moment of the making, though the agent in collecting had cause to believe that the effect of the payment would be a preference among creditors. The statute does not say that one who accepts a payment from a debtor believed to be insolvent is guilty of a fraud (Van Iderstine v. National Discount Co., 227 U. S. 575, 582; Wilson v. Mitchell Woodbury Co., 214 Mass. 514, 519; Grandison v. Robertson, 231 Fed. Rep. 785, 788). A payment so made is not even voidable thereafter unless a petition in bankruptcy follows within four months. If that interval elapses with bankruptcy postponed, the preference, however dubious in its making, is proof against assault. We may not hold in such conditions that the defendant by the mere acceptance of the money was guilty of a wrong, and so chargeable with liability if it did not keep the fund intact (Mechem on Agency, vol. 1, §§ 1435, 1436). Before return became a duty, the money was paid out. If there was need of notice to the drawee that the drafts were collected by the defendant as agent and not as owner (Mechem, supra, § 1439; Holt v. Ross, 54 N. Y. 472; National City Bank v. Westcott, 118 N. Y. 468, 473; Canal Bank v. Bank of Albany, 1 Hill, 287; cf., however, Williston, on Contractsj vol. 3, § 1595, note), we think the notice was imparted by the regulations and the circulars, public and official documents, which, like the limitations of a corporate charter, were to be heeded by the world at large. But notice was unnecessary, if the defendant was not a creditor, for the right to avoid the preference is the creature of the statute, and the fact, not the supposition or fancy of the debtor, must tell us when the right exists.

We pass then to the final question, whether within the meaning of the act of Congress a bank collecting a draft as agent, and not as owner (Matter of Hill Co., supra), is a creditor subject to a duty to make restitution of a preference, though there has been remittance to its principal prior to the bankruptcy. There can be no answer without recalling the provisions of the statute.

Bankruptcy Act, section 60-b (Mason’s U. S. Code, title 11, ch. 6, § 96) provides: “ If a bankrupt shall * * * have made a transfer of any of his property, and if, at the time of the transfer * * * and * * * within four months before the filing of the petition in bankruptcy * * *, the bankrupt be insolvent, and * * * the transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such * * * transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person.”

One who accepts a preference not for his own account but as agent for a principal is not “ the person receiving it or to be benefited thereby.” To be sure, the principal is chargeable with notice imparted to the agent as to the financial condition of the debtor and the tendency of the payment to effect a preference. To be sure, also, the agent may be sued directly if the title is in his name and the subject of the transfer intact in his possession, just as suit might be brought in like conditions against any other trustee holding money or other property the fruits of an unlawful sale. The one who receives a preference, however, within the meaning of the statute, is the one who is preferred, and the one who is preferred is not the mere custodian or intermediary, but the creditor, present or contingent, who receives by virtue of the preference an excessive share of the estate. The statute does not intend, of course, that the form of the transaction shall be permitted to obscure realities. “ To constitute a preference, it is not necessary that the transfer be made directly to the creditor. It may be made to another for his benefit” (National Bank of Newport v. National Herkimer County Bank, 225 U. S. 178, 184). This will happen, for example, if bankrupts make a transfer of their assets to a creditor of their own creditor, who is thus preferred to the same extent as if the transfer had been made to him directly (225 U. S. at p. 184). There has been no attempt in the decisions to catalogue forms of benefit and methods of evasion. No doubt the case supposed is typical of others. One thread of uniformity may be looked for, none the less, among all diversities of circumstance. The person to be charged with liability, if he has parted before the bankruptcy with title and possession, must have been more than a mere custodian, an intermediary or conduit between the bankrupt and the creditor. Directly or indirectly he must have had a beneficial interest in the preference to be avoided, the thing to be reclaimed. One will find an apposite illustration of the effect and meaning of the statute in the holding in Keystone Warehouse Co. v. Bissell (203 Fed. Rep. 652). The buyer of flour, intending to prefer the seller, made payments to a warehouseman who had notice of insolvency. The holding was that the warehouseman, who had remitted the payments to the seller, was not chargeable thereafter at the'suit of the trustees. A possessory right or special property having its origin in the bailment may have given him capacity to maintain a suit for flour wrongfully withdrawn, but did not turn him into a creditor receiving directly or indirectly the benefit of a preference. Mercantile Trust Co. v. Schlafly (299 Fed. Rep. 202), much relied on by the plaintiffs, is not a holding to the contrary, for there the defendant to be charged, a trustee under a mortgage, had the moneys in its possession, the suit being brought before distribution among the bondholders (299 Fed. Rep. at p. 203). True, indeed, it is that the phraseology of the statute is inexact and ambiguous. Even so, a court will be cautious in imputing to the lawmakers a purpose to uproot the settled principles of the common law as to the effect of payment to an agent when followed by a settlement. All this is the more plainly true in view of the antithesis clearly marked upon the face of the enactment between the recipients of benefit, direct or Indirect, who are the persons to be sued, and their agents in the business of the transfer, whose liability, if it exists, is secondary and incidental to the liability of others.

We find nothing inconsistent with these views in Marine Trust Co. v. Lauria (213 App. Div. 64; affd., 244 N. Y. 577) and Matter of Veler (249 Fed. Rep. 633). A bank to which a check is transferred by a restrictive indorsement for collection only may maintain an action on the check in its own name because section 67 of the Negotiable Instruments Law1 (Cons. Laws, ch. 38) says that it may (Marine Trust Co. v. Lauria, supra; cf. Hays v. Hathorn, 74 N. Y. 486; Spencer v. Standard C. & M. Corp., 237 N. Y. 479). This does not mean that it is owner for every purpose; indeed by the very hypothesis it is not owner, but collector. Whether it is privileged in like circumstances to maintain a petition in bankruptcy must be held to be still uncertain. The opinion in Matter of Veler (supra) deals with a case where there was more than a mere agency. The assignee had a title absolute on its face, though the motive of the assignment was to facilitate collection for the benefit of another. Motive without more may be insufficient to derogate from title (Sheridan v. Mayor, 68 N. Y. 30; Hays v. Hathorn, supra). But the right to sue, if it exists, does not mean of necessity that the suitor is reciprocally subject to a liability to be sued (Keystone Warehouse Co. v. Bissell, supra). We think the statute must be read in conformity with common-law analogies to exempt an agent or custodian from the duty to account for property or money, the subject of a preference, if before the coming of bankruptcy he has settled with his principal.

The judgment should be affirmed with costs.

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

Judgment affirmed.


source: Caselaw Access Project

author: Htjbbs, J.

license: Public Domain

text:
    In the Matter of the Estate of Louise Haffner, Deceased. Hermine Baierlein, Appellant; Friedrich Haffner, as Administrator, Respondent.

      (Argued May 15, 1930;
    decided July 8, 1930.)

      Francis L. Driscoll and C. Campbell Hunicke for appelant.
    As a matter of law the respondent was not the husband of the decedent. (Hill v. Vrooman, 215 App. Div. 847; 242 N. Y. 549; Barnes v. Barnes, 90 Iowa, 282; Collins v. Collins, 80 N. Y. 1; Clayton v. Wardell, 4 N. Y. 230; Dietrich v. Dietrich, 128 App. Div. 564; Earle v. Earle, 141 App. Div. 611; McCullen v. McCullen, 162 App. Div. 599; Cartwright v. McGowan, 121 Ill. 388; O’Neil v. Davis, 88 Ark. 196; Collins v. Voorhees, 47 N. J. Eq. 555; Lanham v. Lanham, 136 Wis. 360; Lapsley v. Grierson, 1 H. L. Cas. 498.)

      August P. Wagener for respondent.
    The surrogate did not err in upholding the marriage between decedent and respondent as a.valid common-law marriage. (Graham v. Graham, 211 App. Div. 580; Collins v. Collins, 80 N. Y. 1.) There was a good, valid and legal common-law marriage entered into between decedent and respondent. (Matter of Crandall’s Estate, 214 App. Div. 363.)
   Htjbbs, J.

On February 10, 1894, the respondent, Frederick Haffner, entered into a ceremonial marriage with Lilli Scholl, in Germany.

In 1895 the respondent’s wife commenced an action against him in Germany for an absolute divorce. After the commencement of that action and in the same year, the respondent came to this country. The decree in that action granting a divorce to the plaintiff therein against the respondent was not entered until September 27, 1901. Before the entry of that decree and upon August 14,1898, the respondent at Newark, N. J., entered into a ceremonial marriage with Marie Louise Stoll, thereafter known as Louise Haffner, the deceased herein. Before her marriage to the respondent, she had entered into a ceremonial marriage with Adolph Hauk at Camden, N. J. In March, 1900, Adolph Hauk procured a divorce from decedent in the State of Illinois. At the time, deceased was a resident of the State of New York. She was served by publication but never personally appeared in the divorce action in Illinois. That divorce decree was void as to her. (Olmsted v. Olmsted, 190 N. Y. 458.) Thereafter the said Adolph Hauk, deceased’s first husband, died in 1921, a resident of the State of New Jersey.

It thus appears that in 1898 when respondent and deceased entered into a ceremonial marriage in New Jersey he had an undivorced wife living in Germany, and deceased had an undivorced husband living. Concededly the ceremonial marriage between respondent and deceased entered into on August 14, 1898, was void as both parties thereto had at the time a living spouse. In 1901 the divorce decree granted to respondent’s first wife was entered in Germany. In 1924 said first wife died in Germany. The record does, not contain a copy of the German decree. If we assume that it was a valid decree, the respondent and deceased were free to legally marry at any time after the death of deceased’s first husband in 1921. In any event, the last obstacle to their marriage was removed in 1924 by the death of respondent’s first wife in Germany. The question for determination is whether the conduct of the parties, after all impediments to their legal marriage were removed, was such as to constitute a valid common-law marriage under the laws of this State. ■ When respondent entered into the ceremonial marriage with deceased, he was twenty-nine years of age. He worked at his trade as a brewer in New York city. He and the deceased were thrifty and saved his earnings which were deposited in a savings bank in a joint account. About 1915 money was withdrawn from the account and invested in a rooming house. The savings from the income from the rooming house were placed in the savings bank joint account.

In 1921 they commenced to invest the savings from the joint account in bonds and mortgages upon real property. Between January, 1921, and May, 1926, three mortgages were taken in their names, as husband and wife. Thereafter, the deceased took three mortgages in her individual name but the money advanced therefor came from the joint account.

During the period from August 14, 1898, the date of the ceremonial marriage, until February 18, 1929, when deceased died, she and respondent had continuously lived and cohabited as husband and wife, and held each other out as bearing that relation. They never had any children. The record presents a picture of a frugal, hardworking German man and wife. It does not contain a suggestion of any trouble or improper conduct between the parties, other than the fact that their ceremonial marriage was illegal. Their conduct indicates their belief that they occupied the status of legally married persons.

Nothing in the record discloses their state of mind when they entered into the ceremonial marriage except the fact that they voluntarily entered into the solemn obligations of the marriage relation under the form of a valid ceremonial marriage. Whether deceased believed that her first husband, who had run away with another woman and left her in New York, was dead, or whether she supposed that his conduct and the lapse of time had released her from that marriage, we do not know. Neither do we know whether the parties believed that the commencement of the divorce action by respondent's first wife in Germany had resulted in freeing him from that marriage.

We do know that the parties undertook by a formal ceremonial marriage to enter the legal relation of a man and wife. True their relation in the eyes of the law was illegal in violation of section 6 of the Domestic Relations Law (Cons. Laws, ch. 14), but it was not intended by the parties to be “ meretricious in the sense that it was known to the parties to be immoral and unlawful, even if, as a matter of law, it was illegal and void.” (Matter of Crandall, 214 App. Div. 363.)

Common-law marriages have been valid in this State since January 1, 1908, when chapter 742 of the Laws of 1907, which amended the Domestic Relations Law of 1896, as amended by chapter 339 of the Laws of 1901, became effective. (Matter of Ziegler v. Cassidy’s Sons, 220 N. Y. 98; Domestic Relations Law of 1909, § 10.)

A common-law marriage is not required to be proved in any particular way. It is sufficient if the evidence establishes that legally competent parties in prcesenti intended to become husband and wife and thereafter lived and cohabited as husband and wife. The ceremonial marriage evidenced the intent of the deceased and respondent to enter into a legal and honorable state of matrimony.

For thirty years they lived together as man and wife, holding themselves out as husband and wife. By toil and saving they accumulated a modest estate. They first deposited their savings in a savings bank in their joint names under the belief that the survivor would take the account. Later they invested in real property mortgages taken in their joint names as husband and wife. Finally their joint funds were invested in mortgages taken in the name of the deceased. The appellant, a sister of the deceased, now seeks to deprive the respondent of all interest in the property standing in the name of the deceased and to remove him from the office of administrator of her estate. The appellant urges that the ceremonial marriage was void, that the relation of the parties was illicit and unlawful, and that such relation must be presumed to have continued in the absence of a new contract in prcesenii, by which the parties agreed to become husband and wife by a common law marriage after the obstacles to a legal marriage were removed.

Under the facts in this case public policy and sound morals justified the learned Surrogate in deciding that a common law marriage took place when the parties were legally competent to enter into that relation. He so decided and his decision has been affirmed by the Appellate Division. We are satisfied that such decision was justified by the law and the facts. The conduct of the parties evidenced their intent to live in lawful wedlock after the impediments to their marriage were removed. Courts_ should not be solicitous to nullify such intent and decree the relation which they believed lawful to be unlawful and void. (Leeds v. Joyce, 202 App. Div. 696; affd., 235 N. Y. 620; Matter of Wells, 123 App. Div. 79; affd., 194 N. Y. 548; Hynes v. McDermott, 91 N. Y. 451; Geiger v. Ryan, 123 App. Div. 722; Matter of Crandall, supra; Travers v. Reinhardt, 205 U. S. 423; Common Law Marriage After Removal of Impediment to Valid Ceremonial Marriage, 12 Cornell Law Quarterly, 513.)

In the case of Gall v. Gall (114 N. Y. 109) Judge Vann, writing for a majority of this court, said: It is sufficient if the acts and declarations of the parties, their reputation as married- people and the circumstances surrounding them in their daily lives, naturally lead to the conclusion that, although they began to live together as man and mistress, they finally agreed to live together as husband and wife.” That was an action to admeasure dower and although intercourse between the parties was illicit in its inception and without the form of a ceremonial marriage, the court sustained a judgment which established a common-law marriage. The fact that there was a ceremonial marriage between the parties in the case at bar adds greatly to the contention of the respondent that a common law marriage existed between him and the deceased.

The appellant relies largely upon the case of Matter of Hill v. Vrooman (242 N. Y. 549), a case which arose under the Workmen’s Compensation Law (Cons. Laws, ch. 67). The claimant and the deceased entered into illicit relations knowing and understanding that they were legally incompetent to enter into a contract of marriage, as the claimant had a husband living. The Appellate Division decided that the fact that they continued to cohabit claiming to be husband and wife after the death of the claimant’s husband did not establish a common-law marriage. The decision was based upon the intent of the parties as disclosed by their conduct.

In the case at bar the Appellate Division has decided that the parties intended to five in a state of matrimony after the impediments to their marriage were removed. In the Hill case there was no ceremonial marriage at the inception of the relation evidencing an intention to live as husband and wife. On the contrary, the conduct of the parties conclusively established that they intended to enter into an immoral and illegal relation. That case is clearly distinguishable from the case at bar.

The order should be affirmed, with costs.

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

Order affirmed.


author: Cabdozo, Ch. J.

text:
    The People of the State of New York, Respondent, v. David Rubenfeld, Appellant.
    (Argued June 9, 1930;
    decided July 8, 1930.)

      Walter A. Lynch and Hugo I. Epstein for appellant.
    The evidence of the witnesses for the prosecution did not establish the crime of maintaining a public nuisance. The evidence did not establish that the acts alleged in the information annoyed, injured or endangered the comfort, repose, health or safety of any considerable number of persons. (People v. Kings Co. Iron Foundry, 209 N. Y. 207; People v. Cooper, 200 App. Div. 413.) There is no evidence that the operation of Paramount Mansion resulted in annoyance or inconvenience to any person in a public place. Interference with people in the comfortable enjoyment of their homes may constitute a private nuisance, which does not become public merely because a considerable number may be so affected. (People v. Transit Development Co., 131 App. Div. 174.) The judgment of conviction was contrary to the law and the evidence. (Melker v. City of New York, 190 N. Y. 481.)

      Thomas C. T. Crain, District Attorney (Robert Darn of counsel), for respondent.
    The lawful business of running a catering establishment when three loud and large brass bands are permitted to play different tunes at once and until four o’clock in the morning, together with other avoidable and unnecessary noises, becomes a public nuisance where it annoys and- disturbs a considerable number of people in their residences, and a considerable number of witnesses are not necessary to prove that a considerable number of persons were so annoyed, injured or endangered in their comfort, repose, health and safety. (People v. Hess, 110 Misc. Rep. 76; Davis v. Sawyer, 133 Mass. 289; People v. Weeks, 172 App. Div. 117; Bohan v. Port Jervis Gas Light Co., 122 N. Y. 18.)
   Cabdozo, Ch. J.

The defendant stands convicted of maintaining a public nuisance in the city of New York.

At the northwest corner of One Hundred and Eighty-third street and St. Nicholas avenue, a caterer, the Paramount Mansion Company, occupies a three-story building for the uses of its business. The defendant is the manager. There are dances, weddings and other entertainments, one on each story, beginning in the evening and continuing till dawn. The sounds of revelry by night, to the accompaniment of drums and brasses, assail the quiet of the vicinage. Neighbors in the apartment houses to the right and to the left describe the tumult and the shouting with the disturbance of their sleep. A neighbor across the street bears witness to the same effect. A traveler on the highway heard the noise a block away. The district is a populous one in which many have their homes.

By the Penal Law of the State, an act which annoys, injures or endangers the comfort, repose, health or safety of any considerable number of persons ” is declared to be “ a public nuisance,” and punishable as a crime (Penal Law, § 1530, subd. 1). The definition corresponds to the distinction between public and private nuisances as it stood at common law (People v. Kings County Iron Foundry, 209 N. Y. 207, 210). To be reckoned as considerable,” the number of persons affected need not be shown to be “ very great ” (People v. Kings County Iron Foundry, supra). Enough that so many are touched by the offense and in ways so indiscriminate and general that the multiplied annoyance may not unreasonably be classified as a wrong to the community. Public is the nuisance whereby a public right or privilege common to every person in the community is interrupted or interfered with,” as by the obstruction of a public way (Wesson v. Washburn Iron Co., 13 Allen, 95, 102). Public also is the nuisance committed in such place .and in such manner that the aggregation of private injuries becomes so great and extensive as to constitute a public annoyance and inconvenience, and a wrong against the community, which may be properly the subject of a public prosecution ” (Wesson v. Washburn Iron Co., supra; cf. Wood on Nuisances [2d ed.], § 71, and cases cited).

Long ago it was adjudged that one dwelling in a city who with the aid of a speaking trumpet made great noises in the night time to the disturbance of the neighborhood, must answer to the King (Rex v. Smith, [1726] 2 Strange, 704). The precedent is not one to be hastily renounced in days when trumpets have a power unknown to a simpler age. Public also was the nuisance where works were so conducted that the air became impregnated with noisome stinks and smells ” (Rex v. White, [1757] 1 Burrows, 333).

We have gone back to early days, but not for dearth of modern instances.

A piggery so maintained that “ the occupation of the neighboring houses and passage over the adjacent highways ” became disagreeable, or worse ” was stigmatized by Holmes, J., as an indictable offense with copious references to precedents of early times and modern (Commonwealth v. Perry, 139 Mass. 198).

Shaw, Ch. J., thought the like of a fat rendering factory defiling the surrounding air. (Commonwealth v. Brown, 13 Metc. 365.)

The ruling was the same, and pronounced by the same court, when the annoyance was a public outcry (Commonwealth v. Smith, 6 Cush. 80; Commonwealth v. Oaks, 113 Mass. 8, 9).

The organs of smell and hearing, assailed by sounds and odors too pungent to be borne, have been ever favored of the law (cf. Bohan v. Port Jervis Gaslight Co. 122 N. Y. 18; McCarty v. Natural Carbonic Gas Co., 189 N. Y. 40), more conspicuously, it seems, than sight, which perhaps is more inured to what is ugly or disfigured (Woodstock Burying Ground Assn. v. Hager, 68 Vt. 488). Even so, the test for all the senses, for sight as well as smell and hearing, has been the effect of the offensive practice upon the reasonable man or woman of average sensibilities (Baltimore & Potomac R. R. Co. v. Fifth Baptist Church, 108 U. S. 317). One of the unsettled questions of the law is the extent to which the concept of nuisance may be enlarged by legislation so as to give protection to sensibilities that are merely cultural or aesthetic. The question need not be answered to decide the case at hand.

We think the area of this tumult, the range of it? disturbing power, is wide enough to bring it within the category of an offense to the community, or so the triers of the facts might find. Here is something more than an interference with a single dwelling or even two or three. Here is tumult so great, if the witnesses are to be credited, as to be a plague to a whole neighborhood.

The judgment should be affirmed.

Pound, Ceane, Lehman, Kellogg, O’Beien and Hubbs, JJ., concur.

Judgment affirmed.


author: Kellogg, J. Cardozo, Ch. J.

text:
    The People of the State of New York ex rel. Harold Marcley, Respondent, v. Lewis E. Lawes, as Warden of Sing Sing Prison, et al., Appellants.

      (Argued June 2, 1930;
    decided July 8, 1930.)

      Elvin N. Edwards, District Attorney (Phillip Huntington of counsel), for appellants.
    It was the obvious intention of the Legislature to provide that persons whose actual guilt of four different felonies was established should be segregated and con&ied in prison for life for the protection of society. (Penal Law, § 1942; People v. Cowasky, 219 App. Div. 19; Schiffer v. Pruden, 64 N. Y. 47; People v. Fabian, 192 N. Y. 443; Nathan v. Staples, 48 Me. 123; Commonwealth v. Lockwood, 109 Mass. 323; Commonwealth v. Gorham, 99 Mass. 420.) Under the rules of statutory construction the Legislature can and should be held to have used the word “ conviction ” in its ordinary sense. (People v. Abeel, 45 Misc. Rep. 86; 100 App. Div. 516; 182 N. Y. 416; People ex rel. Murray v. Becker, 78 Misc. Rep. 666; Cotheal v. Brouwer, 5 N. Y. 562; Penal Law, §§ 1942, 1943.)

      Edward McLoughlin and Edward Ward McMahon for respondent.
    The judgment sentencing the relator to life imprisonment was illegal. (Penal Law, § 1942; People v. Schaller, 224 App. Div. 3; People v. Fabian, 192 N. Y. 443; People ex rel. Forsyth v. Court of General Sessions, 141 N. Y. 283; People v. McGloin, 91 N. Y. 241; Blaufus v. People, 69 N. Y. 107; People v. Sullivan, 34 App. Div. 548; People v. Markham, 114 App. Div. 387; People v. Bork, 78 N. Y. 346; People v. Bradner, 107 N. Y. 1; People v. Canopi, 181 N. Y. 398.) Conviction means a final judgment of the court, and a verdict of a jury followed by a suspended sentence will not suffice. (Donnell v. Board of Registration, 149 Atl. Rep. 153; Smith v. Cowen, 4 Serg. & Rawle, 69; Commonwealth v. Minnich, 250 Penn. St. 363; Commonwealth v, Lewandowski, 74 Penn. Sup. Ct. 572; Commonwealth v. McDermott, 224 Penn. St. 363; State v. Brown, 115 Mo. 409; Commonwealth v. Lockwood, 109 Mass. 323; State v. Gani, 157 La. 231; State v. Savage, 86 W. Va. 655; United States v. Lindquist, 285 Fed. Rep. 447; Shepherd v. People, 25 N. Y. 406; Bluafus v. People, 69 N. Y. 107; Peopte v. McGloin, 91 N. Y. 241.)
   Kellogg, J.

The relator, as a fourth offender, upon a plea óf guilty to a charge of grand larceny in the first degree for the theft of an automobile, has been sentenced to imprisonment in Sing Sing Prison for the term of his natural life. The alleged prior convictions were these: On June 27, 1921, he pleaded guilty, in Kings County Court, to the crime of attempted grand larceny in the second degree, for the attempted theft of a motorcycle. Sentence was suspended. On April 22, 1922, he pleaded guilty, in Nassau County Court, to the crime of burglary in the third degree, for breaking and entering a chicken house and stealing chickens. Again, sentence was suspended. On the same day, in the same court, he pleaded guilty to the crime of burglary in the third degree, for burglarizing a garage and stealing automobile accessories. He was sentenced to three years and six months in Sing Sing Prison. If the sentence under review stands, the relator, who is twenty-five years of age, because he had previously stolen chickens, certain automobile parts and a motorcycle, must spend the remainder of his days in a State’s prison.

It is provided in section 1942 of the Penal Law as follows: Punishment for fourth conviction of felony. A person who, after having been three times convicted within this state, of felonies or attempts to commit felonies, or under the law of any other state, government or country, of crimes which if committed within this state would be felonious, commits a felony within this state, shall be sentenced upon conviction of such fourth, or subsequent, offense to imprisonment in a state prison for the term of his natural life.” The meaning of the word “ convicted,” as employed in the section, determines whether or not the sentence imposed was valid.

In People v. Fabian (192 N. Y. 443) an indictment charging the defendant with the crime of knowingly voting at an election “ not being qualified therefor ” was considered. The Election Law (Cons. Laws, ch. 17, § 34, as amd. by L. 1901, ch. 654, § 2, subd. 10) then provided that “No person who has been convicted of a felony shall have the right to register for or vote at any election unless he shall have been pardoned and restored to the rights of citizenship.” The defendant had previously been indicted for burglary in the first degree and upon his trial a verdict of guilty had been rendered against him, but no judgment was ever entered upon the verdict, sentence having been suspended. This court held that the defendant had not been “ convicted ” of a felony within the meaning of the Election Law. The dissenting words of Mr. Justice Olabk, in the Appellate Division (126 App. Div. 89, 104), to the effect that “ where disabilities, disqualifications and forfeitures are to follow upon a conviction, in the eye of the law, it is that conviction which is evidenced' by sentence and judgment, and that where sentence is suspended and so the direct consequences of fine and imprisonment are suspended or postponed temporarily or indefinitely, so also the indirect consequences are likewise postponed,” were cited with approval. In this instance, if two prior pleas of guilty, resulting in two suspended sentences, be regarded as giving to the relator the character of a person twice “ convicted,” the indirect consequences will be that the relator will suffer, as a fourth offender, an imprisonment for the term of his natural life. The case cited, therefore, is directly in point to establish that the relator, by the prior pleas and suspensions, was not convicted ” of felonies, and that the provisions of section 1942, with their dire consequences, are not applicable.

In the Fabian case it was said to be unreasonable to find the defendant disqualified merely because a verdict had been found against him upon which judgment might have been or might yet be arrested.” So in Commonwealth v. Kiley (150 Mass. 325), cited in the Fabian case, it was said: At any time before a final judgment of the court, a motion in arrest of judgment may be made, or the verdict may be set aside upon a motion for a new trial, on the ground of newly-discovered evidence or for other good cause; and, upon further proceedings, it may turn out that the defendant is not guilty.” So here, if, within the meaning of section 1942, a person is previously convicted ” by the mere verdict of a jury, without an application of the law to the finding made through a judgment of the court, he might become subject to the penalties of the section, although all previous convicting verdicts had been set aside. We think that no such construction should be given to the law, and that the finality of a judgment establishing each of the prior convictions should be present, before a prisoner is regarded as a fourth offender, and subject to the provisions of the section.

We have not overlooked the fact that under section 470-b of the Code of Criminal Procedure a prisoner against whom a sentence, upon a prior plea or verdict of guilt, has been suspended, if again guilty, must be regarded as a second offender; nor that under section 517 of the same Code an appeal lies from a conviction where sentence has been suspended. The provisions of these sections, however, are expressly limited by their terms; the former by the words for the purpose of indictment and conviction of a second offense;” the latter by the words for every purpose of an appeal herein.” Thus limited they can have no application when an interpretation o section 3942 is sought.

The writ was properly dismissed and the prisoner should be returned to the County Court of Nassau county for resentence. (People ex rel. Bork v. Gilbert, 96 N. Y. 631; People ex rel. Devoe v. Kelly, 97 N. Y. 212.)

The order should be affirmed.

Cardozo, Ch. J.

(dissenting). I dissent as to the construction of the statute upon the ground that Penal Law, section 1942, in its present form was enacted at the same time as Penal Law, section 1941; that under Penal Law, section 1941, read in connection with Code of Criminal Procedure, section 470-b, a prisoner is punishable as for a second offense though sentence has been suspended under the first verdict of conviction; that the question whether the word " conviction ” in any particular statute shall be taken to include a suspended sentence, is one of legislative intention; and that the Legislature may not reasonably be held to have intended that what is sufficient to constitute a second conviction under section 1941 shall be disregarded in determining whether there have been three convictions under section 1942.

Lehman, O’Brien and Hubbs, JJ., concur with Kellogg, J.; Cardozo, Ch. J., dissents as to the construction of the statute in memorandum, in which Pound and Crane, JJ., concur.

Order affirmed.


author:
Kellogg, J.
      O’Brien, J.

text:
    The People of the State of New York, Respondent, v. Claude Udwin, Jesse Thomas and William Force, Appellants.

      (Argued June 12, 1930;
    decided July 8, 1930.)

      Harry A. Gleason for Claude Udwin, appellant.
    The evidence is insufficient to sustain a verdict of murder in the first degree. (People v. Loppy, 128 N. Y. 629.) The defendant Udwin was not in the act of committing a felony at the time that Sullivan was shot and mortally wounded. (People v. Huter, 184 N. Y. 237.)

      Benjamin C. Mead for Jesse Thomas, appellant.
    The killing was not committed during an attempt to escape. (People v. Marwig, 227 N. Y. 382.)

      Perry E. Leary for William Force, appellant.
    The proof does not establish a killing while an attempt to escape was being made. (People v. Marwig, 227 N. Y. 382; People v. Tremaine, 222 N. Y. Supp. 432.) The evidence as to the defendant Force was entirely circumstantial and as such was insufficient to warrant a conviction. (People v. Galbo, 218 N. Y. 283; Underhill on Criminal Evidence [3d ed.], § 17.)

      John H. Sawyer, District Attorney (Theodore M. Coburn of counsel), for respondent.
   Kellogg, J.

The conviction was obtained upon an indictment, charging that the defendants, then inmates of Auburn Prison, on December 11, 1929, in concert with other inmates, made an attempt to escape, in violation of section 1695 of the Penal Law, and that, in the course of the attempted escape, they or their confederates killed one Henry Sullivan, whereby the defendants became guilty of the crime of murder in the first degree.

A group of seven inmates, not including these defendants, on the morning of December 11, 1929, instigated a riot at Auburn Prison. Among them was Henry Sullivan, for whose death these defendants have been found responsible. Some of the group, at one point, held up, captured and disarmed Warden Jennings and Captain Dempsey; others at a different point, made Officers Ryther and McTaggart captive. The four officers, with hands tied behind their backs, were forced, at pistol point, to mount the stairs leading to the punishment gallery in the south cell block. As they climbed the stairs, the convicts behind, members of the rioting group, called out to the four guards in the gallery: Stick them up. We got your Warden, or we will fire.” The guards, observing that the warden and three fellow officers made a shield for the rioting convicts, threw their pistols away, surrendered and were made captive. The eight officers were then locked in one of the gallery cells. There were fifty-seven convicts locked in an equal number of cells on this gallery. Among them were these defendants, Udwin, Thomas and Force. The cells were unlocked, the doors opened, and the inmates told that those who wanted to go home might come out. Among the many who emerged were these defendants. Some of the convicts remained standing before their cell openings; others joined the rioting group in its subsequent proceedings.

The original group of rioters, accompanied by eight to twelve of the freed convicts, after releasing the eight officers from the cell, marched them down the gallery stairs, and up into • a hall known as the chapel hall. Again using the officers as shields, they cried out as they came: “ This is the Warden coming, you will shoot your Warden.” They arrived at a grill work screen which, stretching from wall to wall, barred their progress. About twenty or thirty feet further on was the south wall of a room known as the guard room. A heavy door, with a small opening through it covered with grill work, closed off the hall from the room. Through this opening a few shots were fired into the hall by officers stationed beyond the door. The firing ceased and conversations were exchanged between the captive guards behind the screen and the officers in the guard room. Finally, Officer McTaggart, crowding through a small opening in the screen, carried a note, written by the warden, to the door of the guard room, and delivered it through the grill to an officer. The note read: “ Allow us to go with the prisoners without any fire. The officers are to be used as shields. If a shot is fired the prisoners will kill officers and have sworn to die. Open front gate so the fifteen men can go free. Please don’t shoot.” The note was signed E. S. Jennings.” No answer came for about an hour. Meanwhile, a door in the screen was opened by a convict and officers and prisoners swarmed through. Handcuffs were discovered in the principal keeper’s room. The officers were untied and handcuffed in pairs, making four groups of two handcuffed officers. During all the long wait a convict stood behind each officer pressing a pistol to his spine or the back of his neck. Henry Sullivan stood behind the warden. Needless to say many angry words and numerous threats were uttered. The convicts thought the officers were stalling.” They proposed to kill one of the screws ’ and paste him up as an example.” They shouted to the guard room officers: Let us out or we will shoot all the guards.” It was a tense time. “ It seemed an eternity.”

Word finally came from the officers in the guard room that they would comply with the request made in the warden’s note; that they would provide them with automobiles at the front gate. The door into the guard room was unbarred and a key to unlock it was thrown through the grill. The convicts opened the door, and the men marched through in double file, two handcuffed officers, then two convicts pressing them with pistols, then two officers, then two convicts, and so on until sixteen had passed, and then seven or more convicts. Warden Jennings and Officer McTaggart entered first. As the last convict passed through, the door into the chapel hall was closed behind them. Except for those who entered, the room was empty. No shots were exchanged. When the entrants had advanced to a point between one-quarter and one-half the length of the room, gas bombs were thrown through the closed grill of the door opening on the right, leading into the front hall, which was in the middle of the right wall. Gas bombs were also thrown down the stairs leading to the warden’s kitchen, which was behind and to the right of the entrants. Within a few seconds the room was filled with a black vapor. The handcuffed men and convicts fell to the floor, some of them unconscious, some of them not wholly so. Shots, variously estimated at from six to twenty, were heard in the room.

When the smoke had partly lifted officers with gas masks entered from the front hall. They found the warden, handcuffed to McTaggart, on the floor, and pulled the two into the hall. Other handcuffed officers were found and similarly disposed of. Three of them had been shot in the head but were alive and have since recovered. All the convicts, except Sullivan, had fled through the door into the chapel hall. Subsequently, in that hall, a battle between officers and convicts ensued, in which five of the original group of rioting convicts were killed. That, however, is a story with which we are not now concerned.

The body of Henry Sullivan was found on the floor of the guard room. He was apparently lifeless and was removed to the front hall. A bullet had entered the back of his neck making its exit just below the right eye. While Sullivan was lying on the floor in the hall, certain officers, whose' identity has not been established, discharged two bullets into his body. An autopsy was later performed. It disclosed that the bullet which passed through Sullivan’s head had torn the cerebellum; had severed the cartoid artery; had caused half a teacup of clotted blood to accumulate in the cavity of the skull. On the other hand, the bullets discharged into his body had caused mere flesh wounds; they had not penetrated the lung cavity; they left the heart untouched. The physician performing the operation testified that the wound in the head caused Sullivan’s death; that death therefrom was inevitable; that the chest wounds did not contribute to his death; that they did not even hasten death. It seems fairly clear, therefore, that Henry Sullivan died from a bullet wound received while he was in the guard room.

Did the bullet which killed Sullivan proceed from a pistol fired by an officer, or by a convict? The evidence upon the subject is wholly circumstantial. The captive officers testified that all the shots fired when they were in the guard room came from within the room; that they came from behind. Many officers, who had been stationed in the hall during the shooting, testified that no shots proceeded from the hall; that all the firing was done within the guard room. This testimony was in accordance with the probabilities. The officers in the hall were aware that the convicts were using the captive guards as shields; that the guards were doubtless in advance of the convicts. Therefore, they knew that a bullet from them might kill a fellow officer. They had previously desisted from firing for this reason; there was no need now to chance it, for soon convicts and guards would be overcome with gas and helpless. Moreover, Sullivan and two of the wounded officers had been shot in the back of the neck, so that the bullets must have come from behind as they were advancing toward the front hall door. Again, the convicts had repeatedly threatened to shoot the captive officers,, if they were double-crossed by those in charge. It is highly probable that a convict, in an attempt to kill the warden, accidentally shot Sullivan who was stationed just behind him.

None of the captive officers, except Hugunin, throughout the riot, had ever carried a gun or other weapon. When Hugunin was dragged into the front hall, after the shooting, he had a pistol in his hand. It was a pistol which had been carried by the defendant Thomas prior to the dropping of the gas bombs. Thomas was standing behind Hugunin. When the gas came Hugunin fell on Thomas. He tells the story thus: “He had a gun in his hand and tried to point it towards me and I reached up and grabbed it and held it to the floor or got it to the floor as quick as I could and he said ‘ look out or you will shoot yourself, the hammer is back’ and at that time the gun did go off and went through — I could feel the bullet strike my keys and went through my coat and struck these keys.” Again he said: “ Before the gun went off, Thomas made the remark give me that gun you son-of-a-bitch and I will blow your head off ’ and I said ‘ you give me the gun you son-of-a-bitch and I will blow your head off,’ and right after that the gun did go off.” The palm of Hugunin’s hand was cut, apparently by the hammer of the gun as it descended. It thus appears that Thomas still held the gun, probably with his finger on the trigger, since he had been pointing it at Hugunin, when the shot was discharged. If the shot was fired intentionally, certainly the intent did not rest in Hugunin’s brain. It cannot be that he willingly fired a pistol so pointed that the bullet struck the keys carried by him. If it was fired accidentally, the accident had its genesis in the wrongful conduct of the defendant Thomas in withholding the pistol from the officer. Assuming that the bullet thus fired killed Sullivan, we would then have a clear case against Thomas, of a killing of a human being “ without a design to effect death, by a person engaged in the commission of, or in an attempt to commit a felony, either upon or affecting the person killed or otherwise,” that is to say, of murder in the first degree. (Penal Law, § 1044.) “ There may be no intent to kill, but the violence having been perpetrated while engaged in the robbery, burglary or attempt to escape imprisonment, it is murder in the first degree.” (People v. Hüter, 184 N. Y. 237.) If the defendant Thomas was guilty, his fellow conspirators in the attempted escape would equally have been guilty.

By a process of exclusion, therefore, the jury was justified in reasoning to the conclusion that the shot which killed Sullivan was not discharged from an officer’s pistol, but from a gun possessed by one of the group of convicts in the guard room. In this respect their finding of guilt was sanctioned by the law of the case as stated by the trial justice: It is not necessary that the People establish that the shot which killed Sullivan was fired by any of the defendants but it must be established beyond a reasonable doubt that the shot which killed Sullivan was fired by one of the convicts engaged with the defendants, or some of them, in a common purpose or design to unlawfully and feloniously escape.”

In Ruloff v. People (45 N. Y. 213, 217) it was said: All present at the time of committing an offense are principals, although only one acts, if they are confederates, and engaged in a common design, of which the offence is a part, ” and This general resolution of the confederates need not be proved by direct evidence. It may be inferred from circumstances; by the number, aims and behavior of the parties at or before the scene of action.” In People v. Friedman (205 N. Y. 161, 165) it was said of a request to charge: “ The request assumes that if the appellant did not fire the fatal shot he could escape liability unless the conspiracy expressly contemplated the use of such force or violence as might cause death. This is an erroneous view of the law.” The court went on to say that there would be liability if a homicide was the natural and probable result ” of the commission of the lesser felony agreed upon. In People v. Marwig (227 N. Y. 382, 391) this court quoted with approval a statement from an opinion in People v. Knapp (26 Mich. 112, at p. 115) as follows: “In other words, the principle is quite analogous to that of agency, where the liability is measured by the express or implied authority.” In this instance a group of convicts planned to escape from State’s prison, to attempt which by overt acts constitutes a felony. (Penal Law, § 1695.) In furtherance of their design they captured and disarmed officers; armed themselves with pistols; marched the officers before them with pistols pressed against their bodies; threatened to shoot the guards on duty; announced their purpose to be that, in case of resistance to their efforts, they would kill every officer held hostage. Thus the commission of homicides, if their escape would thereby be aided, or if their efforts were resisted or frustrated, was made part and parcel of their original plan of breaking prison. The plan miscarried only in this, that, when their escape was resisted, the killing of a fellow conspirator, rather than a captive officer, resulted from a misdirected bullet discharged from a pistol held by one of them. That homicide, the jury might well have found, was the natural and probable consequence of the acts of escape originally planned, and, therefore, all the conspirators were liable therefor. People v. Marwig (supra) holds nothing to the contrary. There, a homicide was committed by one conspirator, after a robbery had been completed, in making an escape from the scene of the crime. It was held that a fellow conspirator might not be liable for the murder, since the crime of robbery agreed upon had already been accomplished, unless it were shown that killing in the course of an escape were a part of the original plan. There the escape itself was not a crime or a part of the robbery, as it might have been if the defendant, when fleeing, had the loot in his possession. Here it is the very crime which the conspirators had agreed to commit. It cannot be said that the escape had ended when the homicide occurred. The escape was in full progress when the gas bombs were thrown into the guard room. Almost simultaneously the conspirators discharged their pistols, a bullet from one of which killed Henry Sullivan. By no stretch of reasoning may it justly be said that all hope of escape and all effort to accomplish it had been abandoned before the shots were fired. On the contrary, it appears that the conspirators continued to resist capture by the officers, for a long period after Sullivan had been killed, at a cost to themselves of the death of five of their number.

It remains to inquire whether there was proof that these defendants had made themselves parties to the original conspiracy to escape. It will be remembered that in the beginning the conspirators constituted a group of not more than seven; that these defendants did not belong to the group. The original group, after capturing eight officers, released the convicts in the punishment gallery, among whom were these defendants. Some of the released convicts did not go more than a step from their cells to stand before the openings. It cannot well be said that the persons thus acting joined in the conspiracy. Each cell in which a prisoner had been confined was no more than three feet wide. If one prisoner, whose story was not in this respect disputed, is to be believed, he had been continuously confined in one of these cells for a period of six months, except for one fifteen-minute period in each week, during which he was removed for a shave and bath. If this were the case with others, it was a natural and entirely human act to step from the cells, and betokened no purpose to join in an effort to break prison. These defendants, however, did not thus restrict their activities.

Abundant testimony was given to the effect that the three defendants, Udwin, Thomas and Force, after their release from the punishment cells, armed themselves with pistols; that they joined the original group of conspirators in the chapel hall; that they were before the screen and guard room door during the long wait. As to Udwin, this appears in addition: In front of the guard room door Udwin searched the warden for money and took it from him. To Officer Hugunin he said: " We are going to get out of here but you will never leave anywhere.” Again he said to the same officer: “ Lets cut this big son-of-a-bitch’s throat first and put him up where the rest can see him.” Udwin stuck a gun in the face of Officer McTaggart and said that they were all going together. He compelled the same officer to hand over his money. As to Thomas: He was in the guard room iust back of Officer Hugunin, holding a pistol to his back. We have already related the scramble which the two had for the pistol. As to Force: He opened the door in the screen to enable the men to get through to the guard room door. The evidence is conclusive that the three defendants joined the original conspirators and took active part in furthering the escape. They were clearly fellow conspirators.

Our attention has been called to the precise reading of section 1695 of the Penal Law: “A prisoner confined in a state prison for a term less than for life, who attempts although unsuccessfully, to escape from such prison, is guilty of felony.” It is said that Force, a fife prisoner, could not have been guilty of an offense under this section, since he was not a prisoner confined “ for a term less than for fife.” The answer is that many of the convicts, engaged in the escape, were not life prisoners, and Force acted in their behalf. “ The one who aids and abets the common purpose is as guilty as the one who strikes the fatal blow.” (People v. Flanigan, 174 N. Y. 356, 367.)

We have examined carefully all the charges of error made, and have found none.

The judgment of conviction as to each defendant should be affirmed.

O’Brien, J.

(dissenting). I cannot vote for affirmance.

If probability or preponderance of evidence were the test, less difficulty would be encountered. By the law of the case the People are burdened with the obligation to establish beyond a reasonable doubt that the shot which killed Sullivan was fired by one of the convicts. If he was killed by officers of the law, then defendants are not guilty. This instruction by the trial justice is a correct statement of the-law. A rioter who is engaged in no felonious act except a forcible attempt to break jail and whose criminal associate in such an attempt is destroyed by a whiff of grape-shot ” delivered by the forces of government is not under our statute a murderer. (Penal Law, § 1044.)

In an effort to support the burden which the law imposes, the People endeavored by a process of elimination to show that the killing of Sullivan could not have been effected except by some member of the criminal group to which defendants belonged. The evidence so produced is sufficient to warrant the inference that the fatal shot did not proceed from the reception hall east of the guard room nor from the stairway ascending from the guard room to the warden’s Idtchen. In both locations armed officers were stationed but the proof is very strong that they withheld their fire. So far, the process of exclusion is good enough. The complete silence, however, respecting the presence or absence of guards outside the door opening from the west wall of the guard room into the prison yard seriously interrupts the continuity of that process. Indeed, it seems to terminate it. That door leads to a porch where guards could have been posted probably without detection by the rioting convicts. It is pierced by a wicket which commands a view of the interior of the guard room and through which revolvers could have been thrust and discharged. No prudent official familiar with tactics suitable for the suppression of outbreaks-by desperate criminals would disregard its advantages for ambush. It is an ideal spot for the disposition of his forces. Also it was accessible by the auxiliaries from Geneva, Syracuse, Rochester and Auburn who swarmed in and about the prison. Sullivan’s body was removed from a spot only a few feet distant from the wicket in that door and directly in line with it. Throughout the riot, Sullivan had charge of the warden and, immediately prior to the throwing of the gas bombs, he walked either at his left side or behind him. As the bombs were thrown, someone struck the warden on the back of the neck. He fell and became unconscious. Shots in the guard room then became numerous. About thirty seconds elapsed between the bomb throwing and the darkening of the atmosphere caused by the gas. During that interval, the shooting of Sullivan from the wicket in the west door would have been entirely feasible. McTaggart, who was handcuffed to the warden and was walking beside him in a northerly direction, describes the sound of shots as proceeding from the west. It came from the left hand side toward the prison yard, in other words the west side. * * * All the shots I heard came from that section. * * * I heard the report, four or five reports, that sounded like gun fire that came from that section of the room.” Sullivan was known as one of the foremost leaders of the mob, its principal spokesman and the custodian of the warden. He had been implicated in the previous July outbreak at the prison and was recognized as a resolute and dangerous character. The fear or hatred with which the guardians of the law regarded this obnoxious and formidable enemy of order and discipline may be inferred from the fact that when he was dragged from the guard room, unconscious and probably dead, twice again they shot him. To the end that the attempted process of efimination might in fact efiminate, ought not the People to have shown that none of the many prison guards, State troopers, municipal police and National guardsmen in and around the prison that day had taken their stand on the porch outside the wicket in the west door of the guard room and, even against orders, had shot this criminal in control of the warden who had just been felled by a blow? Two of the possible sources of the death dealing bullet have been successfully excluded. The third has been utterly ignored. The guilt of those defendants requires demonstration beyond a reasonable doubt. I do not think that it has been proved up to the point where fair inferences exclude their innocence.

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

Judgments affirmed.