author: Allen, J. Weight, J.

text:
    Cummings v. Morris.
    The indorsee of a note, for a consideration not to be paid till the note should be collected, is the real party in interest to maintain an action thereon.
    The note having been transferred, when past due, to one who was to use the avails, -in his discretion, for the benefit of the payee’s family, the maker cannot set up, by way of defence or counter-claim, that the payee was, at the time of the transfer, indebted to him for advances made to a firm of which they and a third person, not a party to the suit, were partners, of which no account had been stated, though the payee die insolvent subsequent to the transfer.
    Conceding that there is now no objection to setting off, against a legal demand, a claim arising out of contract which can only be liquidated in equity, the set-off is inadmissible, for the want of a party — the third partner — who would be essential to a suit for the establishment of the claim.
    Appeal from the Superior Court of the city of Mew York. The plaintiff sued as indorsee of two promissory notes made by the defendant to the order of James B. Sargeant, payable on demand—one dated October 25, 1852, and the other Movember 13, 1852, and indorsed by the payee to one Prime, a brother-in-law, late in the year 1855, and by the latter indorsed to the plaintiff a few days thereafter. The notes were transferred to Mr. Prime by the payee for the benefit of his family, and by way of making a provision for them, and the payee died in the spring of 1857. Prime transferred the notes to the plaintiff, in consideration of stock to an equal amount in value in the Cemetery of the Evergreens, to be transferred at some future time; but whether upon request or when the notes should be paid or collected, was left in doubt upon the evidence. The answer undertook to set up a defence to the notes in the hands of Sargeant, the payee, and upon the trial the defendant offered to prove, in support of such defence, that from April, 1853, to February, 1856, the payee and the defendant and one Allen were joint contractors in building, constructing and equipping a certain railroad in Queens county, and that in the performance of the contract the defendant' was at all times largely in advance to his co-contractors for moneys- advanced, and at no time less than $13,000, and generally more than $50,000, of which sum the payee of the notes was indebted to the defendant on the 1st of August, 1855, not less than $6,543, and has continued so indebted ever since; that the railroad contract was finished and the work accepted in May, 1855, and the payee was on that day, and ever since has been, indebted to the defendant in the amount above stated; that the payee is dead and his estate insolvent; which last fact was not alleged in the answer.
    The referee excluded the evidence, unless the defendant accompanied the same with proof of an account stated of and concerning the dealings mentioned between the defendant and the payee of the notes; and the defendant excepted.
    The defendant also claimed that the plaintiff was not the holder and owner of the notes, or the party in interest in the action; and, upon the evidence bearing upon that question, the referee found that the payee of the notes transferred them by indorsement to Mr. Frime,-and delivered the same to him to hold and use in his discretion for the benefit of the family of the payee; thai, a few days thereafter, Prime transferred the notes to the plaintiff for a valuable consideration agr'eed to be paid therefor, to wit, that the plaintiff agreed to give therefor to said Prime, when the notes should be paid, the amount thereof m the bonds of “ The Evergreen Cemetery Company.”
    The referee ordered judgment for the plaintiff, which was affirmed at general term; and from the latter judgment the defendant appealed to this court.

      Walter Rutherford, for the appellant.

      John H. Reynolds, for the respondent:
   Allen, J.

By statute, every action must now be prosecuted in the name of the real party in interest, except in the few cases of trust and representation excepted by law. (Code, § 111.) The object of this provision was to abolish the distinction between the former practice of courts of common law and chancery, and give full effect at law as well as in equity to assignments of rights in action by permitting and requiring the assignee to sue in his own name. If, as between the assignor and assignee, the transfer is complete, so that the former is divested of all control and right to the cause of action, and the latter is entitled to • control it and receive its fruits, the assignee is the real party in interest, whether the assignment was with or without consideration, and notwithstanding the assignee may have taken it subject to all equities between the assignor- and third persons. The consideration and circumstances of the transfer may be important with a view to settle the equities and establish the rights of others; but if it is absolute as between the immediate parties to it, the assignor not only may, but tnust, bring the action in his own name. The consideration was ample, and it does not affect the transaction that it was not to be paid until the notes should be collected, and it may be its payment was conditional, depending upon that contingency. But the notes became the property of the plaintiff, although his liability to pay for them was contingent. Heither Prime nor the payee could have revoked the contract and reclaimed the notes; and upon the recovery and collection of the judgment, or the payment of the notes-without suit, the recovery belongs to the plaintiff, and all that Prime or Sargeant can claim is the Evergreen stock. The plaintiff may, without let or hindrance from the former holder of the notes, receive and appropriate the money that may be collected on them to his own use. This gives him the legal title and makes him the proper party plaintiff. (Selden v. Pugh, 17 Barb., 468; Hastings v. McMurdy 1 E. D. Smith, 273; James v. Chalmers, 2 Seld., 209 ; Ross v. Bedell, 5 Denio, 467.)

The notes, however, having been transferred by the payee long after due, were subject to, any defence, legal or equitable, which could have been made to them if no transfer had been made. If, at the time of the indorsement and delivery of the notes to Prime, Sargeant, the payee, could not have maintained an action upon them, the same infirmity attaches to them in the hands of the present plaintiff; and the question is whether the matters relied upon, and proof of which was rejected by the referee, would have constituted a legal or equitable bar to an action at the suit of Sargeant. We may lay out of view the alleged insolvency of Sargeant for the reasons, 1st, it is not averred in the answer; and, 2d, it was alleged to exist only-at the time of the suit, and it was not claimed to have existed when Sargeant parted with his interest in the notes, nor even at the commencement of the action. There is now no exclusion of defences merely equitable in actions strictly legal in their character. The Code (§ 150) secures to a defendant the right to interpose as many defences as he may have, whether legal or equitable, or both ; and this provision has been administered by the courts in its spirit and with just liberality. (Gage v. Angell, 8 How., 335 ; Dobson v. Pearce, 2 Kern., 156; Blair v. Claxton, 18 N. Y., 529; Bank of Toronto v. Hunter, 20 How., 292; Phillips v. Gorham, 17 N. Y., 270.)

The claim of the defendant grows out of partnership dealings between himself, the payee of the notes, and a third person, which have not been settled or adjusted in any way, and in respect of which no account has been, stated between the partners, and the claim itself is unliquidated. This does not constitute a counter-claim under the statute; for, by the terms of the act, that can only arise or exist between the parties to the action, and the plaintiff has had no dealings with the defendant, and the contract dealings, which are the foundation of the claim, were with a third person. (Code, § 150; Vassar v. Livingston, 3 Kern., 248; Gleason v. Moer, 2 Denio, 639; Spencer v. Babcock, 22 Barb., 326; Ives v. Miller, 19 id., 197.) The transactions sought to be introduced and investigated were distinct and independent transactions, having no connection with the notes or their origin or consideration, so that there is nothing in the identity of the plaintiff’s cause of action and the defence insisted upon, to entitle the defendant to claim that both should be tried at the same time, and the rights of the parties in respect to each be adjusted in one action. It is simply a money claim against a former bolder and owner of the notes that is alleged as a set-off in this action. One difficulty is met at the outset in the examination of this claim. To ascertain whether any and what amount may be due from either partner to the other, the partnership dealings must be settled and an account stated between the partners. It is only for the balance that may be ascertained to be due upon such an accounting, that one partner can be said to be indebted to another.- It is only for a balance thus ascertained and acknowledged, that an action will lie by one partner against hia co-partner. (Murray v. Bogart, 14 Johns., 318; Cary v. Burch, 2 Caines, 293; Westerlo v. Evertson, 1 Wend., 532 ; Patterson v. Blanchard, 6 Barb., 537.) One partner may have an action of account at law against his copartner, but the more usual remedy is by bill in chancery, or under our present system by action in the nature of a suit in equity, for an account in which the partnership dealings may be adjusted, the account stated, and a balance struck and judgment given for any balance that may be found due from one to the other. These are the only remedies that are available for the recovery of a balance that may be due from one partner to his co-partners, when the balance has not been struck by the partners themselves. (Saddler v. Nixon, 5 B. & Ad., 936.) As a general rule, no account between partners, either general partners or partners in a particular transaction, can be taken at law, except in the obsolete action of account, nor can a partner sue another at law unless the cause of action is so distinct from the partnership accounts as not to involve their consideration, and unless the plaintiff, if he recovers, may keep the money without having to account to his copartners; nor can he sue at law upon any demand, if the question upon the right to recover turns upon the state of the partnership accounts. (Burill v. Hammond, 6 B. & C., 151; Millner v. Codd, 7 id., 421; Caldcutt v. Griffiths, 8 Exch., 898; Hobson v. Curtis, 1 Stark., 78.) By abolishing the distinction between actions and proceedings at law and in equity, and permitting the joinder of different causes of action, and authorising equitable1 as well as legal defences to be made to legal claims and demands, some of the difficulties which, before the Code, would have absolutely precluded a defendant, sued by his partner at law after the termination of the partnership upon a contract or for a money claim entirely disconnected with the partnership dealings, from claiming as a set-off or counter-claim a balance due upon the partnership accounts, and asking that the same be adjusted and the balance applied to the extinguishment of the plaintiff’s demand to be proven upon the trial, have been removed. Legal and equitable causes of action may be united in the same complaint, provided they both arise out of the contract, express or implied, or out of the same transaction (Code, § 167; Capron v. The Bank of Utica, 3 Seld., 486); and I see no objection to the setting off a claim arising.upon contract, express or implied, equitable in its character, and which can only be ascertained and liquidated in equity, against a legal demand also arising upon contract. (Gage v. Angell, supra.) But in order to such a set-off, as in an action to establish and enforce the same claim, the proper parties must be before the court. If the action would, as a suit for the recovery of the same demand, be defective for want of parties, the set-off cannot be admitted. Neither the law which gave the right of set-off, nor that which secures to a defendant defences legal and equitable, as well those which are personal to the party to the record as those which exist against the demand in the. hands of the plaintiff as an assignee or otherwise, makes any change in the law relating to the necessary parties to an action. The court cannot, either at the instance of the plaintiff or defendant, entertain j urisdiction of any subject in the absence of, or without having acquired jurisdiction over, all parties interested in the matters to be acted upon.

This principle is elementary, and is confirmed by the Code of Procedure. (Code, §§ 1.17, 118, 119, 122.) In partnership matters no account will be decreed unless all persons interested in taking the account are, either by themselves or their trustees, parties to the action in which the account is sought. In Hill v. Nash (1 Phi., 594), a bill was filed by one partner against the executors of a deceased partner to obtain the portion of a loss due from the estate of the deceased, the whole of the loss having been paid by the plaintiff, and all the other partners having settled with him. It was objected, and held, that the other partners ought, nevertheless, to have been parties to the suit, for no settlement had been come to which was binding as between them and the defendant. Ho decree in the suit, as framed, would be binding on the absent partners, and they, notwithstanding the decree and their settlement with the plaintiff, would have the right to institute another suit against the defendants to settle the proportion of their respective contributions. In a suit for the dissolution and winding up of an ordinary partnership, all the partners must be parties. (Evans v. Stokes, 1 Keen Chan. R., 26; Richardson v. Hastings, 7 Beav., 301; Calvert on Parties, 118; Story Eq. Pl., §§ 166, 218, et seq.) It follows, that, in every proceeding, whether at law or in equity, in which the adjustment and settlement of partnership accounts and dealings becomes necessary, whether to establish a claim for the prosecution or defence, or for any other purpose, all persons interested in the accounting must be parties, so as to be bound by the judgment, and that no accounting can be had in the absence of any such persons.

What would have been the right of the defendant, had he brought a cross action, bringing in Sargeant or his representative, and the other partner, Allen, setting up this defence with proper allegations of the insolvency of Sargeant and his estate, with other circumstances upon which an equitable defence might be based, it is not necessary to consider: It is sufficient here to say that neither Sargeant, nor his representatives, nor Allen, were parties to the action, and that no accounting could have been had for any. purpose by reason of such defect. The accounting, which was indispensable to determine whether anything and how much was due the defendant, and an equitable set-off against the sum due upon the notes, would have bound no one, not even the defendant, in any action between the proper parties for an accounting; as estoppels, in order to be binding, must be mutual. The referee, therefore, properly excluded the evidence offered, and the judgment must be affirmed.

Weight, J.

There is no force in the objection that the action was not prosecuted in the name of the real party in interest, within the meaning-of section 111 of the Code. Sargeant, the payee of the notes, indorsed and transferred them absolutely to Prime, in September, 1855, upon a good consideration ; and a few days afterwards, Prime, for a valuable consideration, indorsed and transferred them to the plaintiff. The referee found that the transfer to Prime was not made under any collusion- with Sargeant, or with any purpose or intent to assist him in avoiding the payment of any indebtedness to, or any offset which, the defendant had as against the notes in the hands of Sargeant. The transfer from Prime .to the plaintiff vested in the latter an absolute title to the notes and their proceeds. Having the actual possession of, and legal title to, the notes, an absolute right to the money due on them, and to recover and appropriate it when received to his own use, he is the real party in interest. There is no doubt whatever that a judgment in the plaintiff’s favor would, exonerate the defend ant from all claims by any one else.

The answer did not allege that any settlement of the partnership accounts had ever taken place, but, on the contrary, that an action had been commenced for the purpose of compelling such account in the Court of Chancery, in New Jersey, in which the defendant Morris .was complainant, and Allen and Sargeant defendants, and which was still pending. The answer nowhere alleged that Sargeant was insolvent.

If the matters stated in the defendant’s answer, coupled ' with the fact that at the time of the trial, in May, 1857, Sargeant’s estate was insolvent, constituted or were available as a defence, legal or equitable, to the action, then the referee erred in excluding the evidence. On the contrary, if the facts stated in the answer would have constituted no defence as against Sargeant at the time of the transfer of the notes, the referee was right. The notes having been negotiated nearly three years after their date, the plaintiff took them subject to all equities between the defendant and Sargeant.

The proposition was to use an unliquidated and unsettled partnership account, begun after the giving of the notes and ending subsequent to their transfer, and where the partnership was between three persons, one of whom was not a party to the suit, and there was no allegation of a dissolution of the partnership or Sargeant’s insolvency when the notes were negotiated, as a defence to the action. It was not offered to be shown that there had been a settlement or an account stated between the defendant and the payee of the notes, though the defendant was allowed the opportunity to prove such settlement if any had been had. On the contrary, the referee found that the affairs of the partnership were, at the time of joining issue in the action, open and unsettled; and no adjustment, settlement or other statement of any indebtedness of any of the copartners to the copartnership, or to one another on account thereof, had ever been made.

The proposed defence clearly did not establish a payment, nor was it available as a counter-claim, not being a claim against the plaintiff on the record. A remaining inquiry is, were the facts set out in the answer, in connection with those offered to be proved, sufficient to establish a set-off against the notes at law or in equity.

It is clear that this unadjusted partnership claim could not be set off at law. It was not a claim which existed and was due and payable, and belonged to the defendant before the notes were transferred in September, 1855, nor was it a demand against Sargeant alone, but against him and the partner Allen, jointly. It was not liquidated, nor could it be, without a statement and settlement of the partnership accounts. There was no account stated between the defendant and Sargeant, nor were the affairs of the partnership settled in any way. -At the time such partnership closed, if it did so on the completion of the Flushing railroad, the notes had been transferred over three months. And until the affairs of the partnership are closed and settled, it cannot be said that any debt exists from either partner to the other. (2 R. S., p. 354, § 18, subds. 3, 9; Beckwith v. Union Bank of New York, 5 Seld., 211; Beebe v. Bull, 12 Wend., 504; Plets v. Johnson, 3 Hill, 112; Ladue v. Hart, 4 Wend., 583.)

Could it be set off in equity according to the established principles of equity jurisprudence ? -If it could, there is probably no technical objection now to interposing an equitable defence against a legal liability which, at law, could not have been pleaded in bar. The Revised Statutes provide that in suits in Chancery for the payment or recovery of money, set-offs shall be allowed in the same manner and with likq effect as in actions at law. (2 R. S., 334, § 40.) In equity, when the demands are unconnected and distinct, the rule as to set-offs is as at law. (2 Story’s Eq. Jur., § 1434; Duncan v. Lyon, 3 John. Ch. R., 351; Dale v. Cooke, 4 id., 11; Barbour v. Spencer, 11 Paige, 507.) A court of equity will not interfere when the set-off claimed is of a debt arising under a distinct transaction, unless there is some peculiar equity calling for relief. When there is a legal debt on one side, and an equitable debt on the other, the mere fact of the existence of such cross demands will not be sufficient to justify a set-off in equity. 1 The party seeking it must show some further equitable' ground. Had the defendant in this case brought an action against Sargeant and Allen, while Sargeant held the notes, there would have been nothing (in the absence of an allegation of Sargeant’s insolvency) to show the existence of a right in equity to demand the set-off. (Bradley v. Angel, 3 Comst., 475; Keep v. Lovell, 2 Duer, 78; Gay v. Gay, 10 Paige, 369; Story’s Eq. Jur., §§ 1434 to 1437, inclusive.) Had Sargeant, prior to the transfer of the notes on the commencement of this suit, brought his action' upon them, and the defendant had interposed the same answer as in the present action in respect to his partnership demand, alleging nothing as to Sargeant’s insolvency, he would have shown no equitable right to set off such demand. The only ground relied on by the defendant to entitle him to make an equitable set-off wras, that Sargeant was dead and his estate insolvent at the time of the trial in May, 1857.. The answer averred no insolvency at the time of the transfer of the notes, or at the commencement of the suit in June, 1856. It is, therefore, evident that neither the allegations .of the answer nor the facts offered to be proved establish that any equitable right of set-off existed or had attached at the time when the notes vrere transferred to the plaintiff.

There was no legal or equitable right of set-off shown by the pleadings to have attached when the notes were negotiated by Sargeant, or even when the suit was brought; and the offer to show insolvency some eighteen months afterwards, presented no ground for equitable interposition against a bona fide transferee of the notes. The judgment of the Superior Court should be affirmed.

All the judges concurring,

Judgment affirmed.


source: Caselaw Access Project

author: Caedozo, Ch. J.

license: Public Domain

text:
    The Equitable Trust Company of New York, as Trustee under a Deed of Trust of John D. Rockefeller, Respondent, v. Alta R. Prentice, Appellant, and Mary A. Prentice et al., Respondents, Impleaded with Others.
    (Argued November 21, 1928;
    decided December 31, 1928.)

      H. A. Cushing for appellant.
    The effect of section 16 of the Personal Property Law requires the reversal of the judgment. (Pray v. Hegeman, 92 N. Y. 508; Matter of Rogers, 22 App. Div. 428; Matter of Osborne, 209 N. Y. 450; Matter of Megrue, 170 App. Div. 653; 224 N. Y. 284; Matter of Schaefer, 178 App. Div. 117; Barbour v. De Forest, 95 N. Y. 13; St. John v. Andrews Institute, 191 N. Y. 254; Matter of Van Doren, 137 N. Y. Supp. 420; Matter of Robinson, 145 App. Div. 925; Hill v. Guaranty Trust Co., 163 App. Div. 374; Matter of Hayden, 77 Hun, 219.) The effect of section 17-a of the Personal Property Law does not justify an affirmance of the judgment. (Metcalfe v. Union Trust Co., 181 N. Y. 39; Brearly School v. Ward, 201 N. Y. 358.) The economic theory of stock dividends provides no basis for affirming the judgment. (Sturgis v. Roche, 247 N. Y. 585; Bourne v. Bourne, 209 App. Div. 419; 240 N. Y. 172; Matter of Bird, 213 App. Div. 303.)

      Winthrop W. Aldrich and Harrison Tweed for plaintiff, respondent.
    This court has recognized the real nature of a stock dividend; that a stock dividend does'not constitute income because it effects no distribution of the earnings of the corporation to the stockholder and because the dividend shares represent purely a capital interest. (Towne v. Eisner, 245 U. S. 418; Eisner v. Macomber, 252 U. S. 189; Marr v. United States, 268 U. S. 536.) The dicta in the New York decisions which are claimed to suggest that the allocation of a stock dividend to principal may constitute an unlawful accumulation of income were made without reasoned consideration, are inconsistent with the recognition by the New York courts of the real nature of a stock dividend and, correctly understood, do not convey any such suggestion. (Matter of Rogers, 22 App. Div. 428; Matter of Osborne, 209 N. Y. 450; Matter of Megrue, 224 N. Y. 284; Matter of Schaefer, 178 App. Div. 117; 222 N. Y. 533; Bourne v. Bourne, 240 N. Y. 172.) The decisions whereby when the trust agreement is silent as to the allocation of a stock dividend, shares so received by a trustee are, under certain circumstances, to be allocated to the life beneficiary, are not inconsistent with a recognition of the real nature of a stock dividend. (Matter of Osborne, 209 N. Y. 450; Bourne v. Bourne, 240 N. Y. 172.)

      William D. Stiger for Mary A. Prentice et al., defendants, respondents.
    As the intention of the settlor here is clear, if his direction is not against the statutes of New York, the Osborne rule will not prevent carrying out his intention. (Matter of Osborne, 209 N. Y. 450; Bourne v. Bourne, 209 App. Div. 419; 240 N. Y. 172; U. S. Trust Co. v. Heye, 224 N. Y. 242; Matter of Megrue, 224 N. Y. 284; Robertson v. De Brulatour, 188 N. Y. 301; Equitable Life Assurance Society v. Un. Pac. R. R. Co., 212 N. Y. 360; People ex rel. Clark v. Gilchrist, 243 N. Y. 173.) The provisions of the trust deed that “ the trustees with the consent of the committee shall have power to determine all questions whether any moneys, securities, properties, stock dividends, rights or other things are to be treated as capital or income ” should be construed broadly to give the trustee acting with the committee full discretion within the limits set by the principles of equity and our statutory law. (Matter of Osborne, 209 N. Y. 450; Matter of Rogers, 22 App. Div. 428; 161 N. Y. 108; Carrier v. Carrier, 226 N. Y. 114.) The rule for the allocation of stock dividends between life tenant and remainderman established by Matter of Osborne (209 N. Y. 450), as limited and qualified by later cases (notably by United States Trust Company v. Heye, 224 N. Y. 242), does not prevent an increase of the corpus of the trust fund. (Macy v. Ladd, 227 N. Y. 670; Bourne v. Bourne, 209 App. Div. 419; 240 N. Y. 172; Baker v. Thompson, 181 App. Div. 469; 224 N. Y. 592; Thayer v. Burr, 201 N. Y. 155; Matter of Bemis, 123 Misc. Rep. 255; Matter of Schley, 202 App. Div. 169; 234 N. Y. 616.) As a true stock dividend is in law and in economics a subdivision of capital assets, and not a distribution of income, it may be added to corpus, if the trust deed so directs, without infringing the Osborne rule. (Matter of Rogers, 22 App. Div. 428; 161 N. Y. 108; Chester v. Buffalo Car Manufacturing Co., 70 App. Div. 443; Eisner v. Macomber, 252 U. S. 189; Gibbons v. Mahon, 136 U. S. 549.) A true stock dividend may be added to the corpus, if the trust deed so directs, without infringing section 16 of the Personal Property Law. (Rolfe v. Hewitt, 227 N. Y. 486; Chester v. Buffalo Car Mfg. Co., 70 App. Div. 443; 94 App. Div. 612; 183 N. Y. 425; Matter of Rogers, 22 App. Div. 428; 161 N. Y. 108; Clarkson v. Clarkson, 18 Barb. 646; Thayer v. Burr, 201 N. Y. 155.) The amendment of the Statute of Accumulations in 1922 was declaratory and did not change the public policy of the State in cases of true stock dividends. (Matter of Megrue, 224 N. Y. 284; Goldsmith v. Swift,
      25 Hun, 201; Riggs v. Cragg, 26 Hun, 89; Clarkson v. Clarkson, 18 Barb. 646; People ex rel. Clark v. Gilchrist, 243 N. Y. 173.)

      Thomas M. Debevoise and Eugene Congleton for Rockefeller Foundation et al., defendants, respondents.
    The determination by the trustee, with the consent of the committee, that the stock dividends of the Standard Oil Company of Indiana shall be principal of the trust fund, will not violate the provisions of section 16 of the Personal Property Law of this State. (Towne v. Eisner, 245 U. S. 418; Eisner v. Macomber, 252 U. S. 189; People ex rel. Clark v. Gilchrist, 243 N. Y. 173.) Section 16 of the Personal Property Law was never intended to have any application to stock dividends, and the words of section 10 of the Personal Property Law properly construed show clearly that stock dividends are not income as that term is employed in section 16. (Edison El. Illuminating Co. v. Frick, 221 N. Y. 1; Bridge Proprietors v. Hoboken Co., 68 U. S. 116; McKee v. United States, 164 U. S. 287; Brewer v. Blougher, 14 Pet. 178; People ex rel. Clark v. Gilchrist, 243 N. Y. 173; Matter of Bronson, 150 N. Y. 1; Eisner v. Macomber, 252 U. S. 189; People v. Board of Supervisors, 16 N. Y. 424; Farmers Bank v. Hale, 59 N. Y. 53.) The courts of this State have repudiated the doctrine that income to the corporation is income to the stockholder. Inasmuch as a stock dividend does not change the stockholder’s interest in the corporate property, it cannot be income within the provisions of the statute against accumulations. (Matter of Osborne, 209 N. Y. 450; Earp’s Appeal, 28 Penn. St. 368; Bryan v. Knickerbocker, 1 Barb. Ch. 409; Hewitt v. Green, 77 N. J. Eq. 345; Ballantine v. Young, 79 N. J. Eq. 70; Matter of Rogers, 22 App. Div. 428; 161 N. Y. 108; Matter of Kernochan, 104 N. Y. 618; Robertson v. DeBrulatour, 188 N. Y. 301; Richmond v. Richmond, 123 App. Div. 117; 196 N. Y. 535; Baker v. Thompson, 181 App. Div. 469; 224 N. Y. 592; Matter of U. S. Trust Co. v. Heye, 224 N. Y. 242.)

      Everett Colby and Dallas S. Townsend for John D. Rockefeller, Jr., et al., defendants, respondents.
    Section 16 of the Personal Property Law does not require that the intention of the grantor be defeated. These shares were delivered to the trustee as evidence of capital interest, not earnings; they were principal, not income; and the Appellate Division correctly held that the treatment of them as principal, admittedly intended by the grantor, would not violate section 16 of the Personal Property Law. (Matter of Kernochan, 104 N. Y. 618; Sproule v. Bouch, L. R. [29 Ch. D.] 635; Matter of Rogers, 22 App. Div. 428; 161 N. Y. 108; Matter of U. S. Trust Co. v. Heye, 224 N. Y. 242; Bourne v. Bourne, 209 App. Div. 419; 240 N. Y. 172; People ex rel. Clark v. Gilchrist, 243 N. Y. 173; Lamb v. Lehmann, 110 Ohio St. 59; Gibbons v. Mahon, 136 U. S. 549; Towne v. Eisner, 245 U. S. 418.) The rule laid down by this court in Matter of Osborne (209 N. Y. 450) does not require'.that this intention of the grantor be defeated by the treatment of these shares as income, and the Appellate Division correctly held that Matter of Osborne does not apply to this case. (Matter of United States Trust Co. v. Heye, 224 N. Y. 242; Equitable Life Assurance Society v. Union Pacific Railroad Co., 212 N. Y. 360.)

      John W. Davis, D. F. McPherson, George W. Jaques and James F. Oates, Jr., for Edith R. McCormick, amicus curiæ.

    This case falls squarely within the New York rule, established by the Osborne case. Portions of these dividends were income, and could not be lawfully accumulated. (Matter of Megrue, 170 App. Div. 653; 217 N. Y. 623; Matter of United States Trust Co. v. Heye, 224 N. Y. 242; Matter of Schaeffer, 178 App. Div. 117; 222 N. Y. 533; Bourne v. Bourne, 240 N. Y. 172; Matter of

      Norton, 129 Misc. Rep. 875.) The settlor had no intention to authorize unlawful accumulations; if he had the Osborne case prohibits fulfillment of such intention. (Matter of Megrue, 170 App. Div. 653; 217 N. Y. 623; 181 App. Div. 747; 224 N. Y. 28.) The law of the Osborne case as a rule of property laid down by this court and affirmed by the Legislature of New York must control this case. (City of Buffalo v. Erie R. R. Co., 83 Misc. Rep. 144; Starke Belknap v. New York Central R. R. Co., 197 App. Div. 249; 234 N. Y. 630; Jefferson v. Bangs; 124 App. Div. 916; 197 N. Y. 35; Grifenhagen v. Ordway, 218 N. Y. 451; Northwestern Portland Cement Co. v. Atlantic Portland Cement Co., 174 Cal. 308; Alsman v. Walters, 184 Ind. 565; Ewell v. Sneed, 136 Tenn. 602; Sacramento Bank v. Alcorn, 121 Cal. 379.)

      Hugo Kohlmann and Henry A. Stickney for Curtis, Malht-Prevost, Colt & Mosle, amicus curiæ.

   Caedozo, Ch. J.

A deed of trust, made in 1917, gave the net income of shares of stock to stated beneficiaries with remainders over. By its terms, the trustee was to have the privilege, acting with the consent of others, to allocate stock dividends to capital rather than to income. This privilege was exercised. There is no question that the allocation would be lawful if the trust had been created in 1922 or later (Pers. Prop. Law [Cons. Laws, chap. 41], §§ 10 and 17-a, as amended by L. 1922, ch. 452, and L. 1926, ch. 843). The question is whether it is to be condemned as an unlawful accumulation under a trust previously founded.

The rule in this State was settled, until changed in 1926 as to subsequent trusts by an amendment of the statute (L. 1926, ch. 843, amending Pers. Prop. Law, § 17-a), that as between fife beneficiary and remainderman a stock dividend would be reckoned as principal or income according to the origin of the surplus out of which it was declared. To the extent that it distributed a surplus existing at the creation of the trust, it would be allocated to principal; to the extent that it distributed a surplus earned thereafter, it would be allocated to income (Matter of Osborne, 209 N. Y. 450; U. S. Trust Co. v. Heye, 224 N. Y. 242; Macy v. Ladd, 227 N. Y. 670; Bourne v. Bourne, 240 N. Y. 172; Matter of Bird, 241 N. Y. 184; Sturgis v. Roche, 247 N. Y. 585). The search in all these cases was to find the intention of the founder of the trust and then to give effect to it. What is income for a corporation may not be income for a shareholder (People ex rel. Clark v. Gilchrist, 243 N. Y. 173, 182). What is principal for a shareholder, when taken in his own right, may be income when held in trust to be divided among others. So at least the cases hold. The thought back of them is this: A surplus in the treasury of a corporation, even though not income for the shareholder, is potentially a fund that may be converted into income. The declaration of a stock dividend- destroys this potential income, and turns the surplus into capital. The effect may be at times to thwart the plan of apportionment between life tenant and remainderman as conceived at the foundation. A founder of a trust has conveyed shares to a trustee to pay the income to wife or child for life with remainder upon death to others. Did he mean in thus apportioning his estate that potential income might be cut down through the vote of the corporate managers so that the beneficiary never could resort to it, and principal increased to the profit of remaindermen, perhaps unknown or unborn? We have thought that intention would be best promoted if the fund thus permanently diverted were included in a gift of income. Very likely the word dividend has had a part in shaping the conclusion, for in their typical or common form dividends are income like other recurrent gains (Lynch v. Hornby, 247 U. S. 339, 344), and one slips readily into the assumption that the equivalence is absolute. Confusion of the sign with the thing most typically signified is not impossible for judges, much less for founders of a trust. Even so, an appraisal of intention by which stock dividends, either wholly or in part, are classified as income, has met with stout resistance from courts of high authority. The Supreme Court of the United States and the courts of Massachusetts and England allot such dividends to principal (Gibbons v. Mahon, 136 U. S. 549; Minot v. Paine, 99 Mass. 101; Barton's Trust, L. R. 5 Eq. 238, 243). In the view of those courts, a stock dividend may be likened to a mere exchange of coins (Towne v. Eisner, 245 U. S. 418, 426). The life tenant is not aggrieved though an indirect effect of the exchange is to destroy the possibility of income in the future. Such changes are inherent in the nature of the gift. If the donor had in mind that income for the life tenant should have a secondary meaning alien to its primary one, he should have said so in his deed or will.

We have no thought to revive a controversy so inveterate by debating these conflicting views. All that concerns us now is to remember that the decisive test was not one of legality; it was one of presumable intention. Some of the earlier cases went upon the theory that the whole dividend should go to income (McLouth v. Hunt, 154 N. Y. 179; Lowry v. F. L. & T. Co., 172 N. Y. 137, 143; Robertson v. DeBrulatour, 188 N. Y. 301, 311). The notion of an illegal accumulation could not have dictated those decisions, for the surplus may have been earned before the trust was set up. What was accomplished by Matter of Osborne (supra) was a modification of the rule in the interest of remaindermen. Every one assumed in that case that the stock dividend, if earned after the foundation of the trust, would be classified as income. The only question was whether an exception should be introduced in respect of surplus earned before. We held that in determining the presumable intention of the founder the line of division was to be drawn at the date of the foundation (cf. Lowry v. F. L. & T. Co., supra; Robertson v. DeBrulatour, supra; Thompson on Corporations [3d ed.], vol. 7, § 5403; Perry on Trusts, vol; 2,-§ 544, p. 872).

If the decisive question in the earlier cases was the question of intention, the decisive one here is, the question of legality. So far as intention is concerned, the founder has said that a stock dividend shall be principal, if the trustee shall so declare. The only doubt is whether a rule of law stands in the way of his desire. The rule against accumulations in this State goes back to the Revised Statutes. For the benefit of minors, “ an accumulation of the interest money, the produce of stock or other income or profits arising from personal property, may be directed,” to continue not longer than the term of the minority (R. S. part II, chap. IV, title 4, § 3). “ All directions for the accumulation of the interest, income or profit of personal property, other than such as are herein allowed, shall be void ” (§4). Later revisions, though they have changed the verbiage of this restriction, have not worked a change of substance (Pers. Prop. Law, §§ 10, 16). Does the founder of a trust “ direct ” an illegal accumulation within the meaning of these statutes when he provides that a stock dividend, made possible by earnings of the corporation after the trust has been created, may be allocated to principal?

We said a while ago that the declaration of such a dividend destroys potential income by turning surplus into capital. The act by which this is done is not an accumulation by the individual shareholder, who may have nothing to do with it. It is no more his act than a refusal by the directors to vote out surplus cash (Matter of Kernochan, 104 N. Y. 618). Still less is it an accumulation directed by the founder of the trust. The change is one fortuitously ensuing from the declaration of the will of others. We must assume in the light of . past decisions that submission to this will defeats the purpose of the founder if the definition of income is not broadened in accommodation to the changed conditions. The consequence does not follow as of course that submission is direction ” within the meaning of the statute. Some courts have thought in circumstances not dissimilar that the dividend is wholly income (McLouth v. Hunt, supra); some that it is part principal and part income (Matter of Osborne, supra; Earp’s Appeal, 28 Penn. St. 368); some that it is wholly principal (Gibbons v. Mahon, supra). In the view of the Supreme Court, it is so essentially capital that a statute taxing it as income must be disregarded as unconstitutional (Eisner v. Macomber, 252 U. S. 189). Are we to view it as so essentially income that we must nullify as illegal a trust which disposes of it as capital?

The truth indeed is that what is income in one relation may at times be principal in another. Words,” as we are told, “ are flexible ” (Int. Stevedoring Co. v. Haverty, 272.W.,S. 50; Towne v. Eisner, 245 U. S. 418,425; Surace v. Danna, 248 N. Y. 18, 21). “ ' Income ’ like most other words has different meanings dependent upon the connection in which it is used and the result intended to be accomplished ” (Tax Commissioner v. Putnam, 227 Mass. 522). The owner of stock or of land sells it at a profit. The law is settled that the profit is income for the tax gatherer (Lynch v. Hornby, 247 U. S. 339; Hays v. Gauley Mt. Coal Co., 247 U. S. 189). Between life tenant and remainderman it is commonly an increment to principal (U. S. Trust Co. v. Heye, supra), though distinctions must be drawn between sales that are casual or occasional, and those regularly made in the operation of a business (Tax Commissioner v. Putnam, supra, at p. 529; Warren, Stock Dividend, 33 Harv. L. R. 885, 895). Here is the self-same return on the self-same investment, yet it is principal for one purpose and income for another. The rule as to subscription rights evinces the same contrast (Baker v. Thompson, 224 N. Y. 592; U. S. Trust Co. v. Heye, supra, at p. 262). A cash dividend by a going concern is income for the life tenant, though it be paid out of earnings that antedate the trust (Matter of Kernochan, supra). A stock dividend, capitalizing surplus, to the extent that it is based upon such earnings, is an accretion to the principal (Matter of Osborne, supra).

There is thus a twilight zone. Some things are always ncome, such as accruing interest or rent. Some are always principal, such as farms or factories or dwellings, held without change of title as part of an original investment, or even shares of stock so held in the absence of a change of form. Some may be one or the other for this purpose or for that. Stock dividends in the true sense, i. e., dividends capitalizing surplus as distinguished from those payable in the stock of a subsidiary (People ex rel. Clark v. Gilchrist, 243 N. Y. 173, 178; U. S. v. Phellis, 257 U. S. 156), have predominantly the quality of an increment to principal, though at times, in furtherance of intention, they have been classified as income. When a dividend is paid in cash, the ownership of the corporate assets is changed; the company owns less, and the shareholder owns- more, or something essentially different, though its value be no greater. Upon the distribution of a stock dividend, ownership of the assets is precisely as it was. “ A stock dividend does not distribute property, but simply dilutes the shares as they existed before ” (Williams v. W. U. Tel. Co., 93 N. Y. 162, 189). Whatever gain results to the shareholder from the division of his certificates is indirect and incidental, not extracted from the assets like the recurrent yield of an investment (Lynch v. Hornby, supra, p. 344; T. R. Powell, Income from Corporate Dividends, 35 Harv. L. Rev. 363, 366, 367; Warren, Stock Dividends, 33 id. 885). The law is now established in this court as elsewhere that for the purpose of taxation such a dividend is capital, whether the shareholder takes it in his own right or for the benefit of another (People ex rel. Clark v. Gilchrist, supra). There should be cogent evidence of intention to justify us in holding that for the purpose of another statute it is to be ranked as something else.

Dicta are quoted in support of the contention that to allocate such a dividend to capital is to accumulate unlawfully (Matter of Osborne, supra, at p. 475; Matter of Megrue, 224 N. Y. 284, 289). They are dicta and no more. Stock dividends were rare, if not unknown, when the Revised Statutes were enacted. There is no reason to believe that they were expressly within the thought of those who framed the prohibition. This is not to say of necessity that they are not within its implications. They will not be caught within the net, however, unless something in their essential nature has made them close of kin to the game for which the net was spread. Scrutiny of their essential nature reveals not kinship, but diversity. Predominantly, as we have seen, they are not increments to income, but subdivisions of the principal. The quality that is typical must determine whether they are permitted or forbidden. Doubts, when nicely balanced, are resolved in favor of legality.

The decision of this appeal is unaffected by the amendments of the statute in 1922 and 1926. The first (L. 1922, ch. 452) makes provision to the effect that thereafter a founder of a trust may direct that stock dividends be added to the principal, and that no unlawful accumulation shall result therefrom. This was a precautionary measure, to guard against the acceptance of dicta to the contrary. The second (L. 1926, ch. 843) prescribes a new presumption as to trusts thereafter founded. For trusts then in being, the presumable intention is to allocate the dividend to the income, or, more accurately, to apportion it under the rule already stated. For trusts subject to the statute, the presumable intention is to add the dividend to principal. In the one case as in the other the presumption may be reversed by the declaration of the founder.

The judgments should be affirmed, with costs payable out of the fund, and the question certified answered yes.”

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

Judgments affirmed, etc.


author: Cardozo, Ch. J. O’Brien, J. Kellogg, J.

text:
    In the Matter of the Claim of Charlotte B. Babington et al., Respondents, against Yellow Taxi Corporation, Appellant. State Industrial Board, Respondent.
    (Argued November 20, 1928;
    decided December 31, 1928.)

      Clarence B. Tippett for appellant.
    The death of the deceased did not arise out of and in the course of his employment, but was occasioned by the commandeering of the deceased and of the vehicle by a police officer. (Heitz v. Ruppert, 218 N. Y. 148; Saenger v. Locke, 220 N. Y. 556; Markowitz v. American Wet Wash Laundry, 219 App. Div. 756; Coyles v. Hurtin, 10 Johns. 85; Dale v. Saunders, 171 App. Div. 528; 218 N. Y. 59; Nolan v. Cranford Co., 171 App. Div. 959; 219 N. Y. 581; DeNoyer v. Cavanaugh, 175 App. Div. 284; Di Salvio v. Menihan, 225 N. Y. 123; Gifford v. Patterson, 222 N. Y. 4; Culhane v. Economical Garage Co., 188 App. Div. 1; Minerly v. Kingsbury Const. Co., 191 App. Div. 618; Urban v. Topping, 184 App. Div. 633; De Voe v. N. Y. State Railways, 218 N. Y. 320; Scholtzhauer v. C. & L. Lunch Co., 233 N. Y. 12; McCarter v. La Rock, 240 N. Y. 282.)

      Albert Ottinger, Attorney-General (E. C. Aiken of counsel), for State Industrial Board, respondent.
    It cannot properly be claimed that the city of Brooklyn through its police department was the employer in this case but, if so, it was merely a special employer for the time being and the general employer was still liable for accidental injuries occurring to its employees. (Dale v. Sanders Bros., 218 N. Y. 59; De Noyer v. Cavanaugh, 221 N. Y. 273.)
   Cardozo, Ch. J.

Babington, employed as a chauffeur by the Yellow Taxi Corporation, met his death through accident while driving one of its cabs. Ah that we know of the circumstances comes from the employer’s report of the injury, which has been embodied in the findings. A police officer jumped on the running board and ordered the driver to chase another car in order to arrest its occupant. Suddenly another vehicle cut across the path. The result was a collision from which death ensued. From the fact that Babington was in charge of the car at the request of the employer, the inference would follow, in the absence of evidence to the contrary, that he was in the performance of his duty at the time of the disaster (Ferris v. Sterling, 214 N. Y. 249; Matter of Norris v. N. Y. C. R. R. Co., 246 N. Y. 307). We are to say whether that inference must be held to have been neutralized by evidence that he was chasing an escaping criminal by order of a policeman.

“A person who after having been lawfully commanded to aid an officer in arresting any person, or in retaking any person who has escaped from legal custody, or in executing any legal process, wilfully neglects or refuses to aid such officer is guilty of a misdeameanor ” (Penal Law, § 1848). The duty goes back to the days of the hue and cry. “ The main rule we think to be this,” say the historians of our early law (Pollock & Maitland, History of English Law, vol. 2, p. 580) that felons ought to be summarily, arrested and put in gaol. All true men ought to take part in this work and are punishable if they neglect it ” (cf. Holdsworth, History of English Law, vol. 1, p. 294; vol. 3, p. 599; vol. 4, p. 521; Coyles v. Hurtin, 10 Johns. 85). The law did not limit itself to imposing upon the manhood of the country a duty to pursue. To make pursuit effective there were statutes in those early days whereby a man was subject to a duty to provide himself with instruments sufficient for the task. A typical illustration is the Statute of Winchester, 13 Edw. I, enacted in 1285. Immediately upon such Robberies and Felonies committed, fresh Suit shall be made from Town to Town, and from Country to Country.” Every man shall “ have in his house Harness for to keep the Peace after the antient Assise.” The amount is to be proportioned to the quantity of lands and goods. Thus, for fifteen pounds of lands and goods there shall be kept an Hauberke, a Breastplate of Iron, a Sword, a Knife, and an Horse.” We may be sure that the man who failed to use his horse, and who would only go afoot, would have had to answer to the King (Pollock & Maitland, History of English Law, vol. 2, p. 577; Holdsworth, History of English Law, vol. 1, p. 294).

The horse has yielded to the motor car as an instrument of pursuit and flight. The ancient ordinance abides as an interpreter of present duty. Still as in the days of Edward I, the citizenry may be called upon to enforce the justice of the State, not faintly and with lagging steps, but honestly and bravely and with whatever implements and facilities are convenient and. at hand. The incorporeal being, the Yellow Taxi Corporation, would have been bound to respond in that spirit to the summons of the officer if it had been sitting in the driver’s seat. In sending Babington upon the highway, it knew or is chargeable with knowledge that man and car alike would have to answer to the call. An officer may not pause to parley about the ownership of a vehicle in the possession of another when there is need of hot pursuit. In so far as the danger of pursuit was a danger incidental to the management of the car, it was one of the risks of the employment, an incident of the service, foreseeable, if not foreseen, and so covered by the statute. (Matter of Waters v. Taylor Co., 218 N. Y. 248.)

We have preferred to place the ruling upon the broadest ground available. Others, though narrower, sustain it. Babington was in charge of the cab, and could not desert it without peril to his master’s interests. The fact that while protecting it for his master, he used it incidentally to preserve the public peace, was not such a departure from the course of duty as to constitute an abandonment of the employment, even if it be assumed that the direction of the officer was not a binding order (Riley v. Standard Oil Co., 231 N. Y. 301; cf. Young B. Smith, Frolic and Detour, 23 Col. L. Rev. 444, and cases there cited). There is no evidence that the route was any different from the one that would otherwise have been followed, and none that the speed was so changed as to aggravate the danger. Causal connection there was none so far as the record has informed us, between the collision with the trolley car and the presence of the officer on the running board in pursuit of an offender.

The question is not here whether the employer would be liable to third persons injured in the chase, and, if so, to what extent. Negligence would certainly be relative to the need and the occasion; a speed too great at other times is proper in emergencies. Conceivably the employee would be deemed to have passed out of the service of his general employer and into the service of a special one. We leave that question open, not meaning to express, even by intimation, an opinion as to the answer. The general employer is still liable under the provisions of the statute (Matter of De Noyer v. Cavanaugh, 221 N. Y. 273).

The order should be affirmed with costs.

O’Brien, J.

(concurring in result). The hazard which Babington encountered was only such as is incidental to an employment to drive a public vehicle for hire! The Yellow Taxi Corporation operates its cabs with the presumptive knowledge that its employees, like all other persons when directed, are bound to aid in the apprehension of criminals. (Penal Law, sec. 1848.) This employee could not aid except by the use of his cab. A police officer, no less than a private citizen, is entitled to ride in this public conveyance. We may pass over many arguments raised by appellant. They do not seem to be decisive. No doubt the owner can recover the customary rate of fare for the use of the car. Whether recovery can be had for injury to the car while under the

directions of the police officer need not be determined in this proceeding. No occasion now arises to consider the owner’s liability or its absence for any negligence toward third parties with which the chauffeur might-be charged. The circumstance that he might drive more rapidly than the usual and legal rate of speed and while so driving might injure another would be considered in estimating the value of all the facts and in determining whether any negligence was present. The essential point is that the chauffeur continued to do the work of his general employer which was driving a taxicab for hire. A driver is always subject to such reasonable instructions in, respect to speed and direction as his passenger may issue. The fact that the passenger may be a police officer engaged at the time in official duty does not affect the driver’s status except iii regard to the higher degree of obedience which he is bound to observe. The driver’s duty to obey is the same as any person must yield and cannot be viewed in such a light as to transform a servant of a general employer into a servant of a special one. (Matter of Dale v. Saunders Bros., 218 N. Y. 591.) Even if on the facts before us we were to conclude that the public became Babington’s special employer, the power to make an award against the general employer remains vested in the State Industrial Commission and the award was made against it. In a case where a general and a special employment exists, either or both employers may be made liable for compensation. (Matter of De Noyer v. Cavanaugh, 221 N. Y. 273.) Where, however, the special employer is the sovereign and the special duties are those affected by a governmental and police character, no award can be made against the public unless such duties are among those enumerated in the statute as hazardous employments. Appellant’s argument by which it reasons that Babington was just as much an employee of the city of New York as was the police officer leads to the conclusion that his special duty, if such it may be deemed, was chasing thieves. That duty does not constitute an employment, hazardous or otherwise, within the Compensation Law of this State. It is a public function outside the operation of the statute. (Matter of Ryan v. City of New York, 228 N. Y. 16.)

The order should be affirmed.

Kellogg, J.

(dissenting). The Industrial Board found that, while the employee, was driving his employer’s car, “ a police officer of the city of New York jumped on the running board of said taxi, and ordered the deceased to chase another car, and a touring car suddenly cut him off and the car of deceased swerved into a trolley car,” with the result that the employee sustained injuries from which he died. The finding was evidently based on two reports of the employer. In one of these the employer stated: “Police officer commandeered cab.” In the other: “Police officer jumped on running board and ordered driver to chase another car.” In view of the word “ ordered,” used by the Board in its finding, and the words contained in the reports upon which that finding was based, it is idle to say that the police officer contracted with the cab driver for a ride in his cab. He did nothing of the sort. He “ ordered,” that is to say, he commanded the driver to chase another car. The order was given, and obedience thereto was yielded, because of the provisions of section 1848 of the Penal Law. They are as follows: “A person, who, after having been lawfully commanded to aid an officer in arresting any person, or in retaking any person who has escaped from legal' custody, or in executing any legal process, wilfully neglects or refuses to aid such officer is guilty of a misdemeanor.” Unquestionably when the employee, in obedience to a lawful command, gave aid to the police, he became himself a member of the police department. (Monterey County v. Rader, 199 Cal. 221; Village of West Salem v. Industrial Comm., 162 Wis. 57.) The direction which he took; the speed at which he drove his cab — these became subject to the supervision and control of the policeman on the running board. Since, from then on, in all his movements, he must have yielded obedience, not to his original employer, but to the officer, he ceased to be a servant of the former and became a servant of the police department of the government. The argument that he remained the general employee of his original employer and a special employee of the police department is not tenable. All the cases dealing with general and special employment proceed upon the theory that the work of the special employment is performed at the instance of the general employer. Here the original employer was not aware that his employee had been impressed into the police service and, therefore, could not have given its consent or its direction that the services should be performed.

I favor a reversal.

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

Order affirmed.


author: O’Brien, J. Kellogg, J.

text:
    In the Matter of the Claim of Mary Mausert against Albany Builders Supply Company et al., Respondents. State Industrial Board, Appellant.

      (Argued November 20, 1928;
    decided December 31, 1928.)

      Albert Ottinger, Attorney-General (E. C. Aiken of counsel), for appellant.
    The accident arose out of and in the course of employment. (Santacroce v. Sag Harbor Brick Works, 182 App. Div. 442; Barath v. Arnold Paint Co., 238 N. Y. 625; Wright & Greig, Ltd., v. McKendry, 11 B. W. C. C. 402; Wicks v. Dowell & Co., 7 W. C. C. 14; Fennah v. Midland & Great Western Railway, 4 B. W. C. C. 440; Swansea Vale v. Rice, 4 B. W. C. C. 298; Carroll v. What Cheer Stables Co., 96 Atl. Rep. 208; Dow’s Case, 121 N. E. Rep. 19; Board of Commissioners v. Shertzer, 127 N. E. Rep. 843.)

      Jeremiah F. Connor for respondents.
    There is no evidence to establish that the deceased was injured in an accident which arose out of his employment. (Daly v. United States Trucking Corp., 221 App. Div. 808; 248 N. Y. 515; Matter of Hansen v. Turner Construction Co., 224 N. Y. 331; Matter of Collins v. Brooklyn Union Gas

      Co., 171 App. Div. 381; Minerly v. Kingsbury Construction Co., 191 App. Div. 618; Neuberger v. Third Avenue Railway Co., 192 App. Div. 781; Joseph v. United Kimono Co., 194 App. Div. 568; Matter of Eldridge v. Endicott-Johnson & Co., 228 N. Y. 21; Russo v. Jarvis Stores, Inc., 193 App. Div. 587.)
   O’Brien, J.

This is the question certified: “ Was there any evidence in the record upon which the State Industrial Board could make a finding of fact that the injury resulting in the death of William Mausert was an accidental injury and arose out of and in the course of his employment? ”

William Mausert was employed as a teamster by the Albany Builders Supply Company. While driving his horses at a walk over smooth pavement, he fell from his seat and two wheels passed over his body. Within three hours he died. There is no evidence that his fall was intentional and the carrier at the hearing expressly disclaimed an attempt to prove intoxication. Although the report of our decision in Matter of Daly v. U. S. Trucking Corp. (248 N. Y. 515), upon which respondent relies, states no reason for affirmance, the fact is that we placed that decision upon the ground that no inference could fairly be drawn from the evidence except the conclusion that the injury resulted solely from intoxication. Here nothing indicates that Mausert may not have been sleepy or awkward or stupidly negligent. The statute does not bar recovery on account of such conduct. It excludes compensation for injuries due only to intention or intoxication. The Industrial Board made no finding in respect to the cause of the fall and the Appellate Division was of the opinion, as we are, that the cause is entirely unexplained. All we know is that death resulted from a fall followed by the imposition of the wagon’s weight and that these events occurred while the victim was in the course of his employment. The evidence proves that the injury could have happened only to one who, falling from a wagon seat, was run over. The driver’s position from which he fell was due entirely to his employment and, accordingly, the accidental injury arose out of his employment. There is no proof of illness preceding the accident, but in view of respondent’s suggestion in its brief that the explanation for the fall is illness and in view of the discussion in the briefs of both parties and in the Appellate Division’s opinion concerning decisions relating to injury following a fall caused by disease unrelated to the employment, we may properly take this opportunity to reaffirm the doctrine announced in Matter of Barath v. Arnold Paint Co. (238 N. Y. 625).

The revised finding by the State Industrial Commission in Matter of Barath, after that case had been remitted to it by the Appellate Division on the first appeal, is: “He was employed on a scaffold raised above the common level and was subjected, therefore, to a hazard greater than the average person; that while so employed he sustained an apoplectic stroke and fell from such scaffold, striking his head and thereby sustaining a fracture of the skull; and as a result of the injuries thus sustained he died on September 6, 1916. The injuries which resulted in the death of Michael Barath were accidental injuries, and arose out of and in the course of his employment.” The Attorney-General’s brief presented to this court on that appeal argued that the injuries came from an accident which arose out of and in the course of his employment and cited Wright & Greig, Ltd., v. McKendry (11 B. W. C. C. 402); Wicks v. Dowell & Co. (7 W. C. C. 14); Fennah v. Midland & G. W. Ry. (4 B. W. C. C. 440); Swansea Vale v. Rice (4 B. W. C. C. 298); Carroll v. What Cheer Stables Co. (38 R. I. 421); Dow’s Case (231 Mass. 348) and Board of Commissioners v. Shertzer (73 Ind. App. 589) in support of his contention; With those findings of fact and those arguments before this court, the award by the Industrial Commission and the order of the Appellate Division were unanimously affirmed here. The decision in the Barath case is the accepted doctrine of this court and of the highest courts of many other States in this country and of the English courts. We adhere to it not merely as a precedent but as a decision founded upon logic and justice. The question in the Barath case and in the case at bar as well as in all the others cited demands an answer respecting the immediate, proximate cause of the injury. An apoplectic stroke or vertigo may be the proximate cause of the fall but it is surely a remote cause of the injury. An illness sufficiently arresting to cause the patient to fall may prove entirely devoid of any result. The sick man may drop upon a bed or a soft rug and suffer no injury. Barath fell from a scaffold and fractured his skull; Mausert fell under wagon wheels and was crushed. A physical seizure unrelated to the employment is not such an accident as is compensable. (Matter of Hansen v. Turner Const. Co., 224 N. Y. 331.) It is the fall and the injury resulting from it that constitutes an accident within the purview of the statute. The cause may be disregarded and the inquiry limited to an investigation to disclose whether the fall, having occurred, bore with it such consequences as would not have occurred except for the employment. A teamster, suffering from heart disease may sink upon a quantity of straw in the stable. He may be temporarily dazed and immediately recover or he may die from cardiac syncope. Unless his disease was caused by his employment, his death does not arise out of his employment. Another teamster, suffering from the same disease in a form not sufficiently severe to cause him to do more than to slide from his seat to the pavement, breaks his bones or is killed. Then his injury arises out of his employment. If he had not been driving his wagon and fallen to the street he would not have been hurt.

The order of the Appellate Division should be reversed, the award of the State Industrial Board reinstated, with costs in this court and in the Appellate Division and the question certified answered in the affirmative.

Kellogg, J.

(dissenting). An injury which does not proceed from an occurrence, a happening, an event, cannot be an accidental injury which is compensable. Thus, a felon which arises from a continued use of a mechanical tool is not a compensable injury. (Matter of Woodruff v. Howes Construction Co., 228 N. Y. 276, 278.) This holding was made because the “ testimony was insufficient to show that the injury was caused by accident.” Again, a gangrenous condition of a finger, caused by continued dipping of the member in a poisonous solution, is not compensable. (Matter of Jeffreyes v. Sager Co., 198 App. Div. 446; affd., on opinion below, 233 N. Y. 535.). This holding was made because “ the injuries resulted from no occurrence which is referable to any particular moment of time which is definite.” A “ beat hand,” a miner’s injury, caused by continued friction, is not compensable because not the result of an accident. (Marshall v. East Holywell Coal Co., Ltd., 7 W. C. C. 19.) If it were not necessary that an injury should proceed from an accident every ailment acquired from a fellow-workman through contagion, every occupational disease, would constitute a compensable “ injury.” Concededly such is not the case. An “injury” is “an infliction not an affliction.” (Christian v. State Conservation Commission, 191 App. Div. 635 at p. 638.) Lead poisoning, due to a gradual process, is not compensable. (Steel v. Cammell, Laird & Co., Ltd., 7 W. C. C. 9.) The court so held because of the absence of an accident. That there must be a precedent accident was held to be requisite, because the statute (60 & 61 Vict. chap. 37, sec. 2) required that a “ notice of accident ” be given. Our law requires that a “ notice of injury ” be given. (Workmen’s Compensation Law, sec. 18.) However, the same section provides that the giving of the notice may be excused where agents of the employer “ in charge of the business in the place where the accident occurred or having immediate supervision of the employee to whom the accident happened, had knowledge of the accident.” Clearly the Legislature, which so provided, considered that, in order that an injury may be compensable, there must have been a precedent accident. If an injury must proceed from an accident then clearly the accident must be caused by the employment, otherwise there is no accidental injury “ arising out of and in the course of the employment.” For illustration, suppose two employees, A and B, are at work upon an iron girder swinging in the air thirty stories high. A attacks B, who replies with a blow which knocks A from the girder. A falls to the pavement and is killed. Or, suppose that a sailor, working near the rail of a ship, is attacked by an acquaintance, animated, as in Matter of Scholtzhauer v. C. & L. Lunch Co. (233 N. Y. 12), by a motive of personal enmity or spite, and as a result of the attack tumbles over the rail into the sea and is drowned. Every one would say that in neither of these cases would death benefits be recoverable by the dependents of the man killed. In each, although the place of work, prescribed by the employment, contributed to the result, so that death rather than a bare injury resulted, nevertheless the accident of falling was caused by a blow and that blow in turn arose through a quarrel wholly disconnected with the employment. So here, death resulted from the fact that the truckman so fell that a wheel of the truck ran over his body. In a sense, the position which his employment required him to occupy contributed to accomplish a result which might not otherwise have followed. Nevertheless, the fall was an accident not shown to have been caused by the employment. Thus, we have a death resulting from an employment, due to an accident not arising out of the employment, and, therefore, not compensable. The case of Matter of Barath v. Arnold Paint Co. (238 N. Y. 625), referred to by Judge O’Brien, no doubt supports his conclusions. However, no opinion was written in that case by this court, the Appellate Division (190 App. Div. 886), or the Industrial Board. It was decided in the Appellate Division in the year 1919. In the following year the Appellate Division decided the case of Matter of Minerly v. Kingsbury Construction Co. (191 App. Div. 618). There an employee who was required to work near a river bank, was stricken with a fit, fell into the river and was drowned. It was held that death benefits were not recoverable since the accident did not arise out of the employment. This case was followed in Matter of Neuberger v. Third Ave. Railway Co. (192 App. Div. 781); Matter of Joseph v. United Kimono Co. (194 App. Div. 568), and Matter of Kelly v. Nichols (199 App. Div. 870). None of these cases was ever brought to this court by the Attorney-General. In none of them was the case of Matter of Barath v. Arnold Paint Co. referred to or followed. Thus, for nearly a decade the rule of the Minerly case has been consistently applied in the administration of the Workmen’s Compensation Law. During that period of time the Barath case has never been cited or applied. That the rule of the Minerly case has long been the accepted rule for the administration of the Workmen’s Compensation Law is shown by a statement contained in a pamphlet circulated by the authority of the Industrial Commissioner himself. The statement reads: “An accidental injury due to disease is not compensable, as when sickness, other than dizziness due to height, causes an employee to fall from a scaffold, against moving machinery or a hot stove, or into water.” (Workmen’s Compensation Law, issued under the direction of James A. Hamilton, Industrial Commissioner, year 1928,.p. 17.) The Appellate Division cases above referred to are cited in support of the rule stated, whereas no citation of the Barath case¡is made. It would seem, therefore, that the principle of stare decisis, far from requiring the enforcement of the rule of the Baraih case, in fact would call for enforcement of a rule which is the very antithesis of that rule. In view of the fact that the rule of the Minerly case is better grounded, in point both of reason and authority, I think it should now be given effect. I favor an affirmance.

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

Ordered accordingly.