author: Lehman,

text:
    Thomas E. Devitt et al., Respondents, v. Fred C. Schottin, Jr., Doing Business under the Name of National Painting Company et al., Defendants, and Haglin Company, Inc., et al., Appellants.

      Argued January 26, 1937;
    decided April 27, 1937.

      Horace C. Winch and Charles F. Steele for appellants. The complaint does not state sufficient facts to constitute a cause of action, and should have been dismissed.

      (Matter of Miles, 170 N. Y. 75; Beebe v. Prime, 99 Misc. Rep. 668; Denniston v. Snyder, 98 Misc. Rep. 44.) If section 220-b of the Labor Law (Cons. Laws, ch. 31) has the force claimed for it by the plaintiffs, it 'deprives the general contractors of their property without due process of law in contravention of section 1 of the Fourteenth Amendment of the Constitution of the United States and section 6 of article 1 of the Constitution of the State of New York. (Garfield v. United States, 211 U. S. 249; Hovey v. Elliott, 167 U. S. 409; People v. Henriques & Co., 267 N. Y. 398; Ives v. South Buffalo Ry. Co., 201 N. Y. 271; Coe v. Armour Fertilizer Works, 237 U. S. 413; Stuart v. Palmer, 74 N. Y. 183; Wuchter v. Pizzutti, 276 U. S. 13; Louisville & Nashville Railway Co., v. Central Stock Yards Co., 212 U. S. 132; Londoner v. Denver, 210 U. S. 373; Central of Georgia Railway Co. v. Wright,
      207 U. S. 127; Chicago, Milwaukee & St. Paul Ry. Co. v. Minnesota, 134 U. S. 418; Frost & Frost Trucking Co. v. Railroad Commission, 271 U. S. 583.) Plaintiffs acquired no rights under the Lien Law (Cons. Laws, ch. 33). (Stevens v. Ogden, 130 N. Y. 182; Liberty Bank v. Peckham Construction Co., 147 Misc. Rep. 165; Crane v. Genin, 60 N. Y. 127; Ferguson v. Burk, 4 E. D. Smith, 760; Herrman & Grace v. Hillman, 203 N. Y. 435; Lackawanna Steel Constr. Co. v. Longacre Engineering & Constr. Co., 151 Misc. Rep. 17; Anderson v. Hayes Constr. Co. 243 N. Y. 140; Dempsey v. Mt. Sinai Hospital, 186 App. Div. 334; 227 N. Y. 661; Hollister v. Mott, 132 N. Y. 18.)

      George W. Davis and Julius A. Schreiber for respondents.
    Sections 220-a and 220-b of the Labor Law do not violate the Constitution of the United States and of the State of New York. (Atkin v. Kansas, 191 U. S. 207; People ex rel. Cossey v. Grout, 179 N. Y. 417; Campbell v. City of New York, 244 N. Y. 317.) Appellants, under sections 220-a and 220-b of the Labor Law, are liable for the payment of the wages of all laborers, whether in the employ of the contractors or the subcontractors. (Hill v. American Surety Co., 200 U. S. 197.) Under section 25-a of the Lien Law the sum paid the general contractors constituted a trust fund in the hands of such contractors to be applied in payment of plaintiff’s claims. (Schuessler v. Mack, 240 App. Div. 449; Laski v. State, 126 Misc. Rep. 360; 217 App. Div. 420; Clarke Co. v. Plass & Bro., Inc., 107 Misc. Rep. 722; Maneely v. City of New York, 119 App. Div. 376.)

      John J. Bennett, Jr., Attorney-General (Vincent Kiebala and Henry Epstein of counsel), for State of New York, defendant.
    Sections 220-a and 220-b of the Labor Law impose an obligation on the general contractor to pay for all labor on a public work, whether performed by employees of .the general contractor or those of a subcontractor. (Hill v. American Surety Co., 200 U. S. 197.) Sections 220-a and 220-b of the Labor Law do not violate any provisions of. the Federal or State Constitutions. (Campbell v. City of New York, 244 N. Y. 317; 277 U. S. 573; People ex rel. Williams Eng. & Con. Co. v. Metz, 193 N. Y. 148; People ex rel. Rodgers v. Coler, 166 N. Y. 1; Atkin v. Kansas, 191 U. S. 207.)
   Lehman,

J. In January, 1933, the defendants-appellants C. F. Haglin & Sons Company, Inc. (now known as The Haglin Company, Inc.), and Winston Brothers, Inc., entered into a contract (known as contract No. 2397) with the State of New York for the construction of certain additions to the Gowanda State Hospital at Helmuth, N. Y. As general contractors they made a subcontract with the defendant Fred C. Schottin, Jr., whereby the subcontractor agreed to furnish the necessary labor and materials in connection with the painting and decorating of the building. The plaintiffs as employees of the subcontractor performed work, labor and services in connection with such painting and decorating. Their wages have not been paid. In February, 1935, Fred C. Schottin, Jr., their employer, filed with the Comptroller of the State of New York a statement in writing, pursuant to section 220-a of the Labor Law (Cons. Laws, ch. 31), certifying that the sum of $1,702.40 was due from him to the plaintiffs for wages on account of labor performed under contract No. 2397. The plaintiffs filed protests in writing objecting to the payment of moneys due to the contractors to the extent of the amounts due them. The Comptroller thereupon deducted from payments due to the general contractors, under their contract with the State, the amount which, according to the certificate of the subcontractor, was due from him to the plaintiffs. The plaintiffs then brought an action or proceeding in equity demanding judgment for the amounts due to them respectively and that the Comptroller of the State of New York be directed to pay such amounts to the plaintiffs out of the moneys withheld by him under contract No. 2397 from the general contractor.

The evidence and findings estabhsh that the work for which the plaintiffs seek payment was performed “ at the special instance and request ” of the subcontractor. The obligation to pay for that work rests upon the subcontractor who assumed that obligation by voluntary agreement, express or implied. There is neither evidence nor findings that the work was performed at the special instance and request of the general contractors. The State made a contract with the general contractors for the construction of a public improvement. It agreed to pay the contractors the stipulated price; it made no agreement to pay any other person performing labor or furnishing materials in connection with the contract. The contractors in turn made a contract with the subcontractor for part of the Work. They agreed to pay the stipulated price to the subcontractor, but they assumed in that contract no obligation to pay any person performing labor or furnishing materials to the subcontractor. The plaintiffs do not assert any personal obligation on the part of the general contractors to pay them for the labór they performed at the special instance and request of the subcontractor. In effect, their claim is that the moneys payable by the State to the general contractors constitute a fund to which any person performing work on the public improvement may have recourse to obtain payment of daily or weekly wages by appropriate proceedings authorized by sections 220-a and 220-b of the Labor Law.

These sections provide:

§ 220-a. Statements showing amounts due for wages to be filed— Verification. ' Before payment is made by or on behalf of the state or of any city, county, town, village or other civil division of the state of any sum or sums due on account of a contract for a public improvement it shall be the duty of the comptroller of the state or the financial officer of the municipal corporation or other officer or person charged with the custody and disbursement of the state or corporate funds applicable to the contract under and pursuant to which payment is made to require the contractor and each and every subcontractor from the contractor of (or) a subcontractor to file a statement in writing in form satisfactory to such officer certifying to the amounts then due and owing from such contractor or subcontractor filing such statement to any and all laborers for daily or weekly wages on account of labor performed upon the work under the contract, setting forth therein the names of the persons whose wages are unpaid and the amount due to each respectively, which statement so to be filed shall be verified by the oath of the contractor or subcontractor as the case may be that he has read such statement subscribed by him and knows the contents thereof, and that the same is true of his own knowledge.

. “ § 220-b. Amounts due for wages may be withheld for benefit of laborers. In case any interested person shall have previously filed a protest in writing objecting to the payment to any contractor or subcontractor to the extent of the amount or amounts due or to become due to him for daily or weekly wages for labor performed on the public improvement for which such contract was entered into, or if for any other reason it may be deemed advisable, the comptroller of the state or the financial officer of the municipal corporation or other officer or person charged with the custody and disbursement of the state or corporate funds applicable to the contract for such public improvement may deduct from the whole amount of any payment on account thereof the sum or sums admitted by any contractor or subcontractor in such statement or statements so filed to be due and owing by him on account of labor performed on such public improvement before making payment of the amount certified for payment in any estimate or voucher, and may withhold the amount so deducted for the benefit of the laborers for daily or weekly wages whose wages are unpaid as shown by the verified statements filed by any contractor or subcontractor, and may pay directly to any person the amount or amounts shown to be due to him for such wages by the statements filed as hereinbefore required, thereby discharging the obligation of the contractor or subcontractor to the person receiving such payment to the extent of the amount thereof.”

Under the Lien Law (Cons. Laws, ch. 33), section 5, a person “ performing labor for or furnishing materials to a contractor, his subcontractor or legal representative, for the construction of a public improvement,” pursuant to a contract by such contractor with the State, is given a lien for its value or agreed price upon the moneys of the state * * * applicable to the construction of such improvement, to the extent of the amount due or to become due on such contract * * *.” Laborers are given a preference over other lienors, but the lien for unpaid wages owed by a subcontractor is enforceable only to the extent that money is due or about to become due to the immediate employer. (Cf. Upson v. United Engineering & Contracting Co., 72 Misc. Rep. 541, and cases there cited, opinion by Pound, J.) If the contractor owes no money to the subcontractor, then laborers employed by the subcontractor, like persons furnishing materials to the subcontractor, may go unpaid.

Sections 220-a and 220-b of the Labor Law have no purpose apparent except to grant some additional protection to laborers and especially to laborers employed by subcontractors. The extent of such additional protection, and even whether the Legislature effectively granted any additional protection, is more doubtful. The appellant contractors maintain that if these sections are intended to authorize the comptroller to deduct from payments due to the contractor the amount which the subcontractor certifies is due from Mm to his own laborers and to pay such amount to the laborers, then the statute deprives them of their property without due process of law. We postpone consideration of the validity of the statute until we have determined its intended scope.

The Legislature might easily have amended the Lien Law to provide that the lien of a laborer for unpaid wages might be enforced even though his immediate employer was not entitled to any part of the moneys due from the State. It chose not to do so, but it is said that it has indirectly done that and more by providing that each contractor and each subcontractor from a contractor must file a statement certifying to the amounts then due and owing from such contractor * * * filing such

statement to any and all laborers for daily or weekly wages ” and by authorizing the Comptroller in proper case to deduct from payments due by the State the sum or sums admitted ” to be due “ by any contractor or subcontractor.” The language of the statute might permit the construction that the Comptroller is authorized to deduct from payments due to a contractor the amounts admitted by such contractor to be due from Mm for wages, and might deduct from payments due to the subcontractor the amounts admitted by the subcontractor to be due from Mm. A statute which so provides would not be unreasonable. The difficulty with such construction is that rarely —- perhaps never — are moneys due from the State to a subcontractor from a contractor.” We may not impute to the Legislature an intent to make a futile gesture. On the other hand, we may not impute to the Legislature by doubtful implication an intent to give a laborer recourse for payment of wages to moneys belonging to the general contractor, to which the immediate employer was not entitled, where the immediate employer had admitted that wages were unpaid, and to deny such recourse where the immediate employer refused to make such admission. That construction would make the rights of laborer or general contractor in the fund dependent upon the act of a third party.

The statute contains no language which indicates a legislative intent to impose upon a contractor any obligation to pay wages due from a subcontractor where no such obligation existed before. It says that the Comptroller may ” deduct from moneys due from the State the sum or sums admitted by any contractor or subcontractor to be due and owing by him for wages; and may ” pay the sums deducted directly to the laborer.

■ It does not in terms require the Comptroller to make such deductions or payments. It is evident that the Legislature intended to leave some discretion here to the Comptroller, though we may assume that such discretion was not intended to be plenary. Exercise of such authority would protect laborers employed by a subcontractor without causing injustice to a contractor where the contractor had agreed with the State to be responsible for defaults of his subcontractors, and where the contractor is given opportunity to contest the truth of the admission of a default. Though a notice of lien for unpaid wages filed by a laborer employed by a subcontractor pursuant to section 5 of the Lien Law can be enforced only to the extent that moneys are or may become due thereafter to the immediate employer, yet the mere filing of a lien may cause inconvenience to a contractor and often, under the terms of his contract, prevent him from collecting moneys due him from the State until such liens are removed. Exercise of authority conferred upon the Comptroller to deduct from payments otherwise due to the contractor the amount of wages owed not by the contractor but by a subcontractor and to apply the sum deducted in satisfaction of wages for which otherwise liens might be filed, may at times prove of actual benefit to the contractor. The Legislature, in sections 220-a and 220-b, has provided, then, a method by which in some cases, at least, a laborer’s right to payment of wages may be protected without harm or even with positive advantage to the contractor. There is no reason to believe that the Legislature intended to impose upon a contractor any obligation to pay wages to laborers of a subcontractor where such obligation did not previously exist. Doubtless it assumed that in many cases such obligation did exist and that in many cases exercise of the authority conferred upon the Comptroller would prove of practical benefit to honest contractors as well as laborers. Analysis of the statute seems to demonstrate almost beyond possibility of dispute that the Legislature intended to grant a permissive power to be exercised in such cases. It appears that the statute was drafted in the office of the Corporation Counsel of the city of New York, and the explanatory memorandum filed with the bill by the Corporation Counsel shows that this was the intention at least of the draftsman.

The assumption of the Legislature that even without the new sections a contractor upon a public improvement is ordinarily under an obligation to see that laborers employed upon the work even by subcontractors are paid was shared by the Attorney-General (Opinion of Attorney-General [1933], p. 321.) Upon what is that assumption based? Since such obligation is not imposed by any statute it can rest only upon a general practice of the State to require a contractor for the construction of a public improvement to provide in the contract that he will see that all laborers performing work upon the improvement for daily or weekly wages will be paid.

The record does not inform us whether in 1932, when these sections were enacted, it was the custom of the State to require such provisions in the contracts it made. The contract made thereafter in this case is part of the record. It expressly makes sections 220-a and 220-b part of the contract, and provides that the contractor “ must keep full control of the subcontractors and be responsible for them.” Under a fair construction of the contract, it appears plain that the parties to the contract intended that the responsibility of the contractor for his subcontractors would extend to the payment of wages, and, where the subcontractor failed to pay them, payment would be enforceable in manner authorized by sections 220-a and 220-b. We need not consider whether the statute has application in cases where the contract with the State imposes no responsibility upon the contractor for wages due from a subcontractor, if such contracts there be.

Since the contractor voluntarily entered into a contract with the State assuming such responsibility, the question of how far the Legislature might go in imposing it is not before us. The contractor is bound by the terms of his contract, which embody the sections of the statute which are now challenged.

The judgment should, therefore, be affirmed, with costs.

Crane, Ch. J., O’Brien, Loughran, Finch and Rip-pet, JJ., concur; Hubbs, J., taking no part.

Judgment affirmed.


source: Caselaw Access Project

author: Lehman, J. Finch, J.

license: Public Domain

text:
    In the Matter of the Accounting of Fannie Stupack, as General Guardian of Lillian Stupack, an Infant, Appellant. Fidelity and Deposit Company of Maryland, Appellant; Cyrus S. Jullien, as Special Guardian of Lillian Stupack, an Infant, Respondent.

      Argued March 4, 1937;
    decided April 27, 1937.

      Thomas E. White, B. Elliott Davis and Frederick E. Zvirin for appellants.
    The mortgage investments in question were within the meaning and intent of section 111 of the Decedent Estate Law (Cons. Laws, ch. 13) made applicable to guardians by section 85 of the Domestic Relations Law (Cons. Laws, ch. 14). (Matter of Nix, 154 Misc. Rep. 61; Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69; Matter of Alexander, 152 Misc. Rep. 354; United States v. Falk & Brother, 204 U. S. 143; United States v. Hermanos y Companía, 209 U. S. 337.) If there were any ambiguity in the statute it should be construed to include the investments before the court because of the general practice adopted by fiduciaries while the statute was in effect and because of acquiescence in and recognition by governmental officers of such practice. (Anderson v. Title Guarantee

      & Trust Co., 160 Misc. Rep. 881; Matter of Nix, 154 Misc. Rep. 61; City of New York v. New York City Ry. Co., 193 N. Y. 543.)

      Wilkie Bushby, Edwin W. Cooney, Albert B. Maginnes, John C. Pirie, Edward L. Hunt, Jr., and Leonard Blue for New York State Bankers Association, amicus curice. The Legislature intended that group mortgage certificates should be authorized investments for trust funds under section 21 of the Personal Property Law (Cons. Laws, ch. 41) and section 111 of the Decedent Estate Law and for many years there has been a practical construction of these statutes by the Legislature to that effect.

      (Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69; People ex rel. Einsfeld v. Murray, 149 N. Y. 367; People ex rel. Cotte v. Gilbert, 226 N. Y. 103; United States v. Hermanos y Companía, 209 U. S. 337; Provost v. United States, 269 U. S. 443; Matter of Nix, 154 Misc. Rep. 61; Chesterman v. Eyland, 81 N. Y. 398; Barry v. Lambert, 98 N. Y. 300; Lawyers Mortgage Co. v. Anderson, 67 Fed. Rep. [2d] 889; Title Guarantee & Trust Co. v. Bowers, 67 Fed. Rep. [2d] 892; Matter of People [New York Title & Mortgage Co.], 264 N. Y. 475; Matter of Alexander, 152 Misc. Rep. 354; King v. Talbot, 40 N. Y. 76; Adair v. Brimmer, 74 N. Y. 539; Pratt v. Eaton, 79 N. Y. 449.)

      John F. Kavanagh, amicus curice.

    Mortgage participation certificates, such as are involved herein, were mortgage investments and legal for fiduciaries under section 111 of the Decedent Estate Law. (Matter of People [Westchester Title & Trust Co.], 268 N. Y. 432; Matter of People [Title & Mortgage Guarantee Co.], 264 N. Y. 69; E. T. C. Corp. v. Title Guarantee & Trust Co., 271 N. Y. 124.) The certificates involved herein are legal investments. (Matter of People v. Westchester Title & Trust Co., 268 N. Y. 432; Matter of Flint, 240 App. Div. 217; 266 N. Y. 607; E. T. C. Corp. v. Title Guarantee & Trust Co., 271 N. Y. 124; Matter of Buffalo Series D Corp.,
      270 N. Y. 629; Matter of Nix, 154 Misc. Rep. 61; Matter of Marczak v. B. C. R. R. Co., 262 N. Y. 472; Matter of Alexander, 152 Misc. Rep. 354; Matter of Turner, 156 Misc. Rep. 68; Matter of Mulford, 149 Misc. Rep. 728; Matter of Frazer, 150 Misc. Rep. 43; Matter of Jacobs, 152 Misc. Rep. 139; Matter of De Winter, 154 Misc. Rep. 50; Matter of Balfe, 152 Misc. Rep. 739; 245 App. Div. 22; Matter of Blake, 146 Misc. Rep. 780; Matter of Froelich, 150 Misc. Rep. 371.)

      Cyrus S. Jullien, as special guardian, respondent. It was the duty and obligation of the general guardian to invest guardianship funds in investments authorized by statute and to exercise prudence in the investment of such funds.

      (Delafield v. Barret, 270 N. Y. 43; National Surety Co. v. Manhattan Mortgage Co., 185 App. Div. 733; Costello v. Costello, 209 N. Y. 252; Matter of Muller, 155 Misc. Rep. 748; Matter of Clark, 257 N. Y. 132.) The mortgage certificates involved herein were not legal for the investments of the trust funds in the hands of the general guardian. (People v. Title & Mortgage Guarantee Co., 264 N. Y. 69; Matter of Title & Mortgage Guarantee Co., 246 App. Div. 435; Prudential Ins. Co. v. Liberdar Holding Corp., 72 Fed. Rep. [2d] 395; Mortgage Guarantee Co. v. Welch, 38 Fed. Rep. [2d] 184; Lawyers Mortgage Co. v. Anderson, 67 Fed. Rep. [2d] 889; Title Guarantee & Trust Co. v. Bowers, 67 Fed. Rep. [2d] 892; Ross v. Savings & Investment Co., 120 N. J. Eq. 87; Matter of Title & Mortgage Guarantee Co., 246 App. Div. 435; Matter of Allen, 142 Misc. Rep. 113; Chesterman v. Eyland, 81 N. Y. 398; Barry v. Lambert, 98 N. Y. 300; Matter of Union Trust Co., 219 N. Y. 514; Transit Comm. v. Long Island R. R. Co., 253 N. Y. 345; Burnside v. Whitney, 21 N. Y. 148.)
   Lehman, J.

Upon the accounting of Fannie Stupack, as general guardian of her daughter, Lillian Stupack, the fiduciary was surcharged with the sum of $27,500 which she had invested in guaranteed mortgage certificotes, Series F-l, of New York Title and Mortgage Company. The Surrogate held that such certificates are not legal investments for trust funds. The general guardian contends that such investments are authorized by section 111 of the Decedent Estate Law (Cons. Laws, ch. 13) (made applicable to investments of general guardians by section 85 of the Domestic Relations Law [Cons. Laws, ch. 14]).

Prior to 1918, section 111 of the Decedent Estate Law provided that an executor, administrator, trustee or other person holding trust funds for investment may invest the same in the same kind of securities as those in which savings banks of this state are by law authorized to invest the money deposited therein, and the income derived therefrom, and in bonds and mortgages on unincumbered real property in this state worth fifty per centum more than the amount loaned thereon.” By amendment to this section, made by chapter 544 of the Laws of 1918, specific authority was added for investment in shares or parts of mortgages. Some unimportant changes in the language of that section were made thereafter, and in 1929 and 1930, when the guardian made the investments which have been held to be unlawful, the section expressly authorized investment in shares or parts_of such bonds and mortgages, provided that any share or part of such bond and mortgage so held shall not be subordinate to any other shares thereof and shall not be subject to any prior interest therein, and provided further that bonds and mortgages in parts of which any fiduciary may invest trust funds together with any guaranties of payment, insurance policies and other instruments and evidences of title relating thereto shall be held for the benefit of such fiduciary and of any other persons interested in such bonds or mortgages by a trust company, a bank authorized to conduct a trust department or title guaranty corporation organized under the laws of this State, or a national bank located in this State and duly authorized to act as a trustee therein, and that a certificate setting forth that such corporation holds such instruments for the benefit of such fiduciary and of any other persons who may be interested in such bond and mortgage among whom the corporation holding such instruments may be included, be executed by such corporation and delivered to each person who becomes interested in such bond and mortgage. * * The question presented upon this appeal is whether the certificates of Series F-l of New York Title and Mortgage Company fall within the scope of that section.

These certificates are guaranteed “ First Mortgage Certificates ” and are issued in varying amounts. Each provides, among other things, that New York Title and Mortgage Company “ hereby sells and assigns to the registered holder hereof an undivided co-ordinate share of the same amount in the principal sum * * * secured to the Company in the bonds and mortgages deposited, or which may hereafter be deposited, by the Company with the American Trust Company (hereinafter called ‘ the Depositary ’), as Depositary under the terms of an agreement dated February 21,1927, * * * subject to which agreement this Certificate is issued, and to the terms of which the holder hereof does hereby assent and agree, together with a corresponding share, at the rate of five and one-half per cent, per annum, in the interest on the said principal sum, the duplicate original of which agreement is open to the inspection of all registered holders of Certificates, at the office of said Depositary or of the New York Title and Mortgage Company, during business hours.

“ This certificate is one of a series of certificates of interest of like tenor issued by the Company to an amount not exceeding in the aggregate the principal sum secured by the bonds and mortgages deposited, or which may hereafter be deposited, under the terms of the agreement hereinabove referred to, wherein the Company covenants and agrees, among other things, and hereby agrees to and with each and every holder of this ■ certificate, as follows: That there shall be no preference or priority in favor of any share in the deposited bonds and mortgages, or of any certificate of interest;

“ That each deposited mortgage shall be accompanied by a policy of title insurance, issued by the New York Title and Mortgage Company under its corporate seal, insuring that such mortgage is a valid first Hen for the amount therein specified, with interest, upon the real property covered thereby, which shall be .only real property improved for business or residence purposes, and situated within the limits of the City of New York, as the same now are, or may hereafter be, fixed by law, and by a sworn certificate of the Company’s expert appraiser, showing the appraised value of the property covered thereby, which shall be at least fifty per cent, greater than the principal sum so secured.”

Annexed to each certificate is the agreement with the depositary and a certification ” by the depositary, which reads as follows:

This is to certify that the within is one of the Certificates of Series E-l, issued by New York Title and Mortgage Company, and that there have been deposited with the Undersigned the bonds and mortgages and other instruments mentioned herein, and the same are held by the Undersigned in accordance with the agreement herein recited.”

It is plain that the certificates were intended to represent shares or parts ” of bonds and mortgages in which trustees might lawfully invest trust funds in accordance with the provisions of the statute. Bach purports to be an assignment of a “ share or part ” of bonds and mortgages which have been deposited with a trust company. They contain a covenant against priority of interest in favor of any other share in the deposited bonds and mortgages. The difficulties in this case arise from additional provisions in the certificate and in the agreement with the depositary “ subject to which the Certificate is issued.”

The primary difficulty is that under those provisions New York Title and Guarantee Company retains an interest in the bonds and mortgages. It guarantees to the registered holder of the certificate payment of the principal and interest of the deposited bonds and mortgages to an extent sufficient to pay the principal and interest of all certificates issued under said agreement,” but it may exercise certain powers over these bonds and mortgages including the power to withdraw from deposit deposited bonds and mortgages and to substitute other first mortgages, accompanied by policies of title and certificates of fire insurance and certificates as to appraisal, in their place, to such an amount that the principal sum of all deposited bonds and mortgages shall never be less than the principal sum of the outstanding certificates of interest.” In consequence of those and other provisions, the interest acquired by those who invest in the certificates is, at most, an incomplete or conditional share in the bonds and mortgages. Indeed, in Matter of People (Title & Mortgage Guarantee Co.) (264 N. Y. 69, at p. 88), this court, in an opinion which I wrote, said.: Certainly the holder acquires, prior to default, no rights in the mortgages other or greater than the rights of a holder of collateral security and the guaranty company retains at least the rights of an owner who has cumbered his title with a lien.”

In that case our task was to determine the jurai relations and rights created by the written agreement embodied in the participation certificates. We were free to disregard the labels applied by the parties to the agreement and to provide our own description and classification of these rights and obligations based, not on the labels, but on the nature of the obligations and the rights granted. These jurai relations, we pointed out, were not accurately described in the certificates. In form, each certificate purported to assign a share in a group of mortgages. In fact, the holder of the certificate did not become the owner of a share in the group of mortgages deposited with the bank or trust company, for the insurance company retained a right to substitute other mortgages for the mortgages so deposited. We found that the rights of certificate holders are more nearly analogous to the rights of a holder of collateral security than to the rights of an owner of a part or share in the mortgages deposited. Even so, by purchase of a certificate, the investor acquired a fractional interest- in, and a right to resort to a group of mortgages which, though otherwise subject to change at the will of the obligor, could include only mortgages on real property improved for business or residence purposes, and situated within the limits of the City of New York ” and must be accompanied by a sworn certificate of the Company’s expert appraiser, showing the appraised value of the property covered thereby, which shall be at least fifty per cent, greater than the principal sum so secured.”

It may be conceded that an investment in such certificates does not, with complete accuracy, fit the statutory description of lawful investments of trust funds; but our task in this case is not to determine the correct classification of the rights and obligations created by the certificates or even to determine whether the Legislature has accurately described them. Our problem is whether the Legislature, by the language used in describing lawful investments of trust funds intended to include in that description investment in mortgage certificates like those in which, as shown upon the accounting in this case, the infant’s estate has been invested; and whether a fiduciary reading the statute with reasonable care would so understand. For that purpose we must read the language of the statute in the light of its history and of the conditions prevailing when the statute was adopted; and must consider, too, the construction which the Legislature, the administrative officers of the State and the general public placed upon the statute prior to and at the time the investments by the general guardian were made.

In 1885 the Legislature enacted a statute permitting the incorporation of companies to guarantee real estate titles (Laws of 1885, ch. 538). In 1892, when the Insurance Law (Cons. Laws, ch. 28) was enacted, the provisions relating to title guaranty companies were placed in article V thereof. Section 170 (Subd. 1) of that article provided that such companies should have power “ To examine titles to real property and chattels real, to procure and furnish information in relation thereto, make and guarantee the correctness of searches for all instruments, liens or charges affecting the same; and guarantee or insure bonds and mortgages and the owners of real property and chattels real and others interested therein against loss by reason of defective titles thereto and other incumbrances thereon, which shall be known as a title guaranty corporation.” (Laws of 1892, ch. 690.) By chapter 543 of the Laws of 1904 the section was amended to authorize the companies to guarantee or insure the payment of bonds and mortgages.” (The italicized words were, at that time, inserted in the statute.) By chapter 525 of the Laws of 1911 the section was again amended to authorize the companies in addition to invest in, purchase and sell, with such guarantee or with guarantee only against loss by reason of defective title or incumbrances, such bonds and mortgages as are lawful investments for insurance companies under this act.” The powers of the companies were thereafter further amended by chapter 215 of the Laws of 1913.

The companies, pursuant to these powers, sold to investors with their guaranty, not only whole mortgages but also certificates of participation in single mortgages and in groups of mortgages. The Legislature had not at that time provided that fiduciaries might invest trust funds in parts or shares of mortgages or in certificates issued by title and mortgage insurance companies, though a fiduciary holding a number of trust funds, might, even then, invest them, subject to proper safeguards, in a single mortgage. (Matter of Union Trust Co. [Hoffman Estate], 219 N. Y. 514.) By chapter 385 of the Laws of 1917 the Banking Law (Cons. Laws, ch. 2), section 188, subdivision 7, was amended to provide that investment of trust funds by a corporate fiduciary might be made by apportioning to any estate or fund held by the fiduciary “ a part interest in a bond and mortgage held * * * in the name of such corporationAt the same session the Legislature passed a bill which was intended to authorize all fiduciaries to invest in parts or shares ” of such mortgages which were not held in the name of the fiduciary. That bill was vetoed by the Governor, but a similar bill was passed in 1918 and became chapter 544 of the Laws of 1918, amending in the manner set forth at the beginning of this opinion section 111 of the Decedent Estate Law and section 21 of the Personal Property Law (Cons. Laws, ch. 41). so as to authorize ¡fiduciaries to make such investments.

It may hardly be doubted that when the Legislature in 1918 amended the statutes governing the investment of trust funds by fiduciaries, it intended to authorize investments in the certificates of ownership in parts or shares of mortgages which insurance companies were authorized under the provisions of section 170 of the Insurance Law to sell to investors. It is not disputed that at that time the title companies were selling to investors certificates of a fractional share of a single mortgage and also certificates purporting to represent fractional shares in groups of mortgages — both where the group of mortgages was fixed and the company had no power to withdraw any mortgages and substitute others in their place, and where the company had reserved such power of substitution. (See Report to the Governor by George W. Alger, Commissioner appointed under the Executive Law [Cons. Laws, ch. 18], dated October 5, 1934, pages 10 and 11.) It is by no means clear that the Legislature intended to authorize the sale of certificates of participation in groups of mortgages where the company reserved a power of substitution, and in 1915 the Superintendent of Insurance asked the Attorney-General for an opinion on the legality of an issue of certificates where the company had reserved such power of disposition.

The opinion of the Attorney-General in response to the question of the Superintendent, states in part:

“ It is true that this assignment is not absolute and unconditional, but is upon condition, among others, that the mortgage company may withdraw one or more of the group of mortgages deposited with the mortgage company, a fractional interest in which has been assigned to a certificate holder, and substitute therefor a mortgage or mortgages of Hke amount, character and quality, in which event the fractional interest of the assignee or certificate holder in the withdrawn mortgage or mortgages ceases, and the same fractional interest attaches to the substituted mortgage or mortgages.
If the mortgage company has the right, under section 170 of the Insurance Law, to sell and assign by ordinary assignment a fractional interest in a mortgage, and I see no reason to doubt that it has that right, I am unable to see why it may not lawfully agree with the assignee that upon the demand of the mortgage company the assignee will retransfer to the mortgage company his fractional interest so assigned to him, and accept in lieu and place thereof from the mortgage company the assignment of the same fractional interest in another mortgage of the same kind, character and quality.
Such, in my opinion, is the real nature of the transaction between the mortgage company and the certificate holders in question here, the only difference being, as I view it, that for convenience of all parties to the transaction, instead of an assignment from the mortgage company directly to the assignee the mortgages are deposited with the trust company as trustee for the mortgage company and for the certificate holders which, in my judgment, in no way changes the nature of the transaction.
“ I conclude that the practice inquired about is not unlawful, and that if there be question with regard to the propriety of such transaction, it may be a question of administrative policy not for this office to determine.” (Opinion of the Attorney-General, May 1, 1915, reported in N. Y. Sen. Docs. 138th Session, 1915, vol. 29, No. 44, part 5, pp. 182, 183.)

The opinion of the Attorney-General referred solely to the legality of the sale of such certificates to individual investors. He was not at that time concerned with the sale of such certificates to fiduciaries, for prior to the enactment of chapter 544 of the Laws of 1918 any investment of trust funds in a certificate of any fractional share, even in a single mortgage or in a fixed group of mortgages, would unquestionably have been illegal. The significance of the opinion lies only in the fact that thereafter and at the time when the Legislature did authorize investment of trust funds in a share or part of a mortgage, the Attorney-General had rendered an official opinion that the practice by the companies of selling certificates of participation in a group of mortgages was a lawful exercise of the authority conferred by section 170 of the Insurance Law, even though the company reserved a right of substitution, and that such a transaction constituted a transfer of a fractional share of mortgages to the holder of the certificate. '

At least, it was then arguable that the Legislature intended to include investments in such certificates, within the statutory description of investments in shares or parts of such bonds and mortgages ” which fiduciaries made lawfully. If it did not so intend, it inadvertently laid a snare for unwary fiduciaries. For ten years it appears that such certificates were widely advertised as legal investments for trust funds. Question of the legality of such advertisements and investments might still remain, but until 1928 the Superintendent of Insurance apparently did not challenge the propriety of the advertisements, and no court passed upon the legality of investments in such certificates by fiduciaries.

In 1928 the Attorney-General rendered an opinion at the request of the Superintendent of Insurance in which it was said:

There are three situations which might be covered by the above quoted language: (1) Where there is but one mortgage against which participating certificates are issued (quite obviously permitted by the statute); (2) where there is a fixed group of mortgages which the title company has no power to change, and (3) where the title company may change or substitute the mortgages in any group.
“ Counsel for one of the title companies have sent us able briefs in interpretation of the statute and upon the right of trustees to invest in not only form (1) but in forms (2) and (3) as well. We have been slow to be convinced, but have given way when shown that all three forms of mortgage participation certificates were in use before fhe statute authorizing trustees to invest in such certificates was passed. That is to say, there was presented before the Legislature an existing kind or kinds of investment in which other investors were placing their funds, and by the statute we have been discussing (Chapter 544, Laws of 1918) the Legislature apparently opened the same field to the trustee or fiduciary. Certain it is that the plan of grouping and substituting mortgages in any group was used as early as 1915 (Opinion of Attorney-General, May 1, 1915) and has been used ever since.
For these reasons we believe the statute should now be construed to authorize the investment by trustees and fiduciaries in participation certificates in groups of mortgages, and in groups where the power of substitution is conferred.” (Opinions of the Attorney-General, 1928, pp. 211, 212.)

The Superintendent of Insurance made the opinion part of his report to the Legislature. Thereafter the Legislature repeatedly amended the statute, but without indicating any failure to acquiesce in the construction placed by the Attorney-General upon its scope.

It was in that situation that the guardian made the . investments which the courts below have held are unlawful. Certainly she had ground to believe that the statute was intended to authorize the investment she made. That was the generally accepted construction of the statute; a construction which rested securely upon the opinion of the highest law officer of the State, and was in conformity with the administrative practice of the officer of the State charged with the enforcement of the law. 1

In the report of George W. Alger (supra), page 25, the Commissioner pointed out that after the Legislature had in 1918 amended section 111 of the Decedent Estate Law.

It was still far from clear whether trustees could invest in group series. In the following ten years no court decision interpreted the amendment quoted above so as to permit such investments by trustees in group series. Nevertheless, during this period and subsequent to this amendment both types of certificates were freely advertised and sold by these companies as legal investments for trustees. This doubtful question was finally presented for decision not to the courts but to the Attorney General who, in 1928, wrote an opinion approving group series certificates as legal investments even where the right of substitution existed (Opinions of the Attorney-General, 1928, p. 211).

Although the Attorney General in his opinion stated that he had reached his interpretation based upon the able briefs of one of the title companies, and although he stated ‘ we have been slow to be convinced ’ by this persuasive brief, and although the public policy of permitting such investments was clearly questionable, the Legislature itself took no steps to correct the situation,, or to give effect to the objections previously made by the Association of the Bar to which I have referred. After the Attorney General’s opinion had been rendered a number of amendments were made to Section 111 of the Decedent Estate Law and to Section 21 of the Personal Property Law without, however, any amendment to that portion of these sections which was enacted by Chapter 544 of the Laws of 1918 from which I have quoted above. It will thus appear that the Attorney General’s opinion must be deemed to have the sanction of the Legislature.”

Careful analysis of the terms of the statute may still cause some doubt as to whether the construction placed upon the statute by the mortgage companies and by fiduciaries, by the Legislature and by the officers of the State, is quite justified. Indeed, experience now proves that the statute so construed constituted an unwise exercise of legislative authority. None the less under the circumstances disclosed, careful fiduciaries and their legal advisers could not reasonably doubt that the language used by the Legislature in describing investments of trust funds which fiduciaries might lawfully make was intended to include investments in certificates like those in Series F-l.

We have not overlooked other objections to the legality of investment in these certificates. Though those objections are not without weight, we do not here analyse them in detail. They fall with the primary objection which we have considered at length.

The order of the Appellate Division and the decree of the Surrogate’s Court should be reversed, with costs in all courts to the petitioner and the special guardian payable out of the estate, and the matter remitted to the Surrogate’s Court for the entry of a decree in accordance with this opinion.

Finch, J.

(dissenting). To me it seems very clear that the Legislature did not grant permission to trustees to invest in certificates of participation in a group of mortgages where the group is not fixed but is subject to change and substitution at the will of the mortgage company. The language of the statute does not authorize such investments. It permits fiduciaries to invest “ in bonds and mortgages on unincumbered real property in this state worth fifty per centum more than the amount loaned thereon, and in shares or parts of such bonds and mortgages, * * The statute does not authorize the trustee, even by implication, to delegate to the mortgage company his discretion to determine in what bonds or mortgages or shares or parts thereof the funds should be invested. To permit the investment in the certificates involved in the case at bar constitutes an irrevocable delegation of this discretionary power.

It is urged that it has been generally accepted that the statute permitted such investments and, therefore, we should read into the statute this practical construction. Some support for this argument is found in an opinion of the Attorney-General rendered in 1928 in which he stated that he believed that the statute should be construed to authorize such investments. Such a statement by the Attorney-General is not binding upon the courts. Nor is it clear that the practical construction which the appellant asserts was placed on the statute was universally accepted. That some at least doubted that the statute permitted of such construction is evidenced by the fact that in 1930 a bill to legalize such investments was introduced in the Legislature, and that the bill was condemned by a publication circulating among corporate fiduciaries and by members of the bar. (50 Trust Companies Magazine, p. 182 [1930]; Simpson, Participation Certificates Permitting Substitutions of Securities as Legal Investments for Trust Funds, 7 N. Y. U. Law Quart. Rev. p. 950; Report of Committee on State Legislation of the Association of the Bar of the City of New York [No. 69]; Bulletins of Committee on State Legislation [1930], p. 122.) The bill died in committee. We cannot draw any definite conclusions from the failure of the legislative committees to report the bill or from the criticisms of the bill, but that it was introduced and appraised shows that there was not unanimous acceptance of this so-called practical construction.

The mere fact that a number of trustees have invested in such certificates is not sufficient reason for reading into the statute a grant of authority to trustees to delegate to mortgage companies the discretion to determine in what property the trust fund should be invested. Such discretion has always been held to be non-delegable and the way of the court lies plain unless a statute by clear and express language alters the wise and established rule. (See 3 Bogert on The Law of Trusts and Trustees, p. 2028; Matter of Allen, 142 Misc. Rep. 113.)

The decree of the Surrogate, unanimously affirmed by the Appellate Division, was right and should be affirmed.

Crane, Ch. J., O’Brien, Hubbs and Loughran, JJ., concur with Lehman, J.; Finch, J., dissents in opinion in which Rippey, J., concurs.

Ordered accordingly.


author: Crane, Ch. J. Lotjghran, J.

text:
    Jamaica Savings Bank, Appellant, v. M. S. Investing Co., Inc., et al., Defendants, and William E. Kennedy et al., Respondents.

      Argued March 3, 1937;
    decided April 30, 1937.

      Charles H. Street for appellant.
    Respondents are not entitled to a jury trial as of right under section 429 of the Civil Practice Act. (Reichert v. Stilwell, 172 N. Y. 83; Dudley v. Congregation of St. Francis, 138 N. Y. 451; Vanderbilt v. Schreyer, 91 N. Y. 392; Hochstein v. Schlanger, 150 App. Div. 124; 208 N. Y. 513; Klinke v. Samuels, 264 N. Y. 144; Robert v. Kidansky, 111 App. Div. 475; 188 N. Y. 638; Morrison v. Slater, 128 App. Div. 467; Weinstein v. Sinel, 133 App. Div. 441; Carroll v. Deimel, 95 N. Y. 252; Knickerbocker Life Ins. Co. v. Nelson, 8 Hun, 21; Manhattan Life Ins. Co. v. Hammerstein Opera Co., 184 App. Div. 440; Borowsky v. Gallin, 126 App. Div. 364; Merry Realty Co. v. Martin, 181 App. Div. 951.) A jury trial is not a matter of right in equity cases generally. (McKenna v. Meehan, 248 N. Y. 206; Porter v. International Bridge Co., 79 App. Div. 358; 175 N. Y. 467; Miller v. Edison Electric Illuminating Co., 184 N. Y. 17; Bell v. Merrifield, 109 N. Y. 202; Shepard v. Manhattan R. Co., 131 N. Y. 215; Imperial Shale Brick Co. v. Jewett, 169 N. Y. 143; Stono v. Weiller, 128 N. Y. 655.)

      James Adikes, William E. Kennedy and John C. Donovan for respondents.
    The respondents are entitled, as a matter of right, to a trial by jury. (People v. Jansen, 7 Johns. 332; Sailly v, Elmore, 2 Paige, 497; Gahn v. Niemcowicz, 11 Wend. 312; Steck v. C. F. & I. Co., 142 N. Y. 236; Snell v. Niagara Paper Mills, 193 N. Y. 433; Dunkley v. Van Buren, 3 Johns. Ch. 330; Equitable Life Ins. Society v. Stevens, 63 N. Y. 341; Wynehamer v. People, 13 N. Y. 378; Moot v. Moot, 214 N. Y. 204; Colon v. Lisk, 13 App. Div. 195; 153 N. Y. 188; Maas v. Swalbach, 96 Misc. Rep. 559; Di Menna v. Cooper & Evans Co., 220 N. Y. 391; City of Syracuse v. Hogan, 234 N. Y. 457; Van Deventer v. Van Deventer, 32 App. Div. 578; Ehrle v. Sutton Place Apartments, Inc., 137 Misc. Rep. 122; Phillips v. Gorham, 17 N. Y. 270.)
   Crane, Ch. J.

It has been quite generally held by eminent text writers that in a foreclosure action there was no right of trial by jury. (8 Carmody’s New York Practice, § 769 ; 3 Jones on Mortgages [8th ed.], § 1840; 1 Fiero on Special Actions, p. 710; Thomas on Mortgages [3d ed.], § 819.)

Prior to the Revised Statutes, a mortgagee could pursue his remedy in chancery to foreclose the mortgage, but was confined in his remedy to the pledge. (Dunkley v. Van Buren, 3 Johns. Ch. 330.) The general rule was “ that the mortgagee may exercise all his rights at the same time, and pursue his remedy in equity upon the mortgage, and his remedy at law upon the bond or covenant accompanying it, concurrently.” (4 Kent’s Commentaries [14th ed.], p. 183.) After foreclosure he could sue in an action at law for the deficiency. The New York Revised Statutes (1830) materially changed the established practice on this subject.

“ The statute goes on and declares, that if the mortgaged premises should prove insufficient to satisfy the debt, the court of chancery has power to direct the payment, by the mortgagor, of the unsatisfied balance, and to enforce it by execution against the other property or the person of the debtor. (Sec. 152.) As the action of ejectment upon a mortgage is abolished (lb. 312, sec. 57), the jurisdiction at law over the debt, as well as over the pledge, would appear, by these provisions, to be essentially taken away and transferred to chancery.” (4 Kent’s Commentaries, p. 184, n. b.)

Prior to 1830 no deficiency judgment could be had on the foreclosure of a mortgage. The Revised Statutes of 1830 (2 R. S. [1st ed.] p. 191, § 152) provided that a deficiency judgment might be recovered in the foreclosure action. The Constitution provides, as had the earlier ones, that trial by jury in all cases in which it has been ■ theretofore used shall remain inviolate forever (N. Y. Const. art. I, § 2.) Respondents contend that prior to 1830 they could have been sued only in an action at law, and that they would have been entitled to a trial by jury. It follows, they argue, that they are guaranteed by the Constitution a right to a jury trial.

Section 429 of the Civil Practice Act provides: “ Where a party is entitled ,by the constitution, or by express provision of law, to a trial by jury, of one or more issues of fact in an action not specified in section four hundred and twenty-five of this act, he may apply upon notice to the court for an order directing all the questions arising upon those issues to be distinctly and plainly stated for trial accordingly. * *

An action to foreclose a mortgage is an action in equity. As incidental to the main relief sought, the court ever since 1830 may award judgment for the deficiency after sale. This relief is purely incidental, and a complaint asking such relief states only one cause of action. In Reichert v. Stilwell (172 N. Y. 83, 88) the court said:

An action to foreclose a mortgage is not an action to recover the mortgage debt from the mortgagor personally, but to collect it out of the land by enforcing the lien of the mortgage. There is only one cause of action alleged, even if the bond is set forth in the complaint and judgment for deficiency is demanded as a part of the relief. No motion to separate could be successfully made under section 483 of the Code, upon the ground that a cause of action at law on the bond had been united with a cause of action in equity on the mortgage. * * * The Revised Statutes authorize the court in an action of foreclosure to render judgment against the person hable for the mortgage debt for any deficiency that may remain after selling the land and applying the proceeds. * * * That, however, is not a distinct and independent cause of action, but is an incidental remedy, dependent wholly upon the statute and subsidiary to the main object of the action.”

And in Dudley v. Congregation of St. Francis (138 N. Y. 451, 458) it was said:

“ In an action to foreclose a mortgage a judgment for deficiency is authorized, and may be rendered as incidental to the principal relief demanded, but it cannot be rendered in an action where the plaintiff fails to establish the mortgage. The peculiar statutory provisions applicable to actions of foreclosure above referred to indicate that it was never intended to permit the joinder in the same complaint of two separate causes of action, one at law to recover a personal judgment on the bond for the debt, and the other in equity to procure a sale of the land covered by the mortgage, given to secure the same debt and the application of the proceeds thereon, and if not, then the complaint in this case does not contain but a single cause of action, and that in equity, for the foreclosure of the mortgage lien.”

It has always been a recognized principle of equity that when a court of equity has obtained jurisdiction of a cause, it will retain control of the cause generally, and award complete relief even though the rights of the parties are legal and the remedy finally granted is one which a court of law would have been able to grant. (1 Pomeroy on Equity Jurisprudence, § 231; Lynch v. Metropolitan Elec. Ry. Co., 129 N. Y. 274; Van Rensselaer v. Van Rensselaer, 113 N. Y. 207.) Indeed, the refusal of the court of equity to grant a deficiency judgment as incidental relief in an action of foreclosure was said to be an exception to the general rule, that where a court of equity obtains jurisdiction of an action it will retain it and administer full relief, both legal and equitable, so far as it pertains to the same transaction or the same subject-matter.” (Frank v. Davis, 135 N. Y. 275, 278.) At any rate, the Legislature at an early date changed the law so as to bring this situation within the general rule. This change was effected prior to the date when courts of law and equity were merged. In this instance the Legislature “ went further than the equitable rule, and authorized a personal judgment, not only against the mortgagor, as to whom equitable relief could be had, but also against any other person who was obligated for the payment of the same debt.” (Frank v. Davis, supra.)

In an action in equity there is no right of trial by jury. Even where, as incidental to the main relief prayed for, the complainant asks money damages, a separate trial by jury is not within the purview of the constitutional guaranty. (Lynch v. Metropolitan Elec. Ry. Co., 129 N. Y. 274; Shepard v. Manhattan Ry. Co., 131 N. Y. 215; Cogswell v. N. Y., N. H. & H. R. R. Co., 105 N. Y. 319.) In the first case cited (Lynch v. Metropolitan Elec. Ry. Co., at p. 283) Judge Gray said: “ I think some confusion of thought concerning the constitutional guaranty of a trial by jury may arise in a misapprehension as to its proper application. That provision relates to the trial of issues of fact in civil and criminal proceedings in the courts; as it was held by the chancellor in the case of Beekman v. Saratoga & Schenectady R. R. Co. (3 Paige Ch. 45). Where the trial of a civil proceeding presents for determination a question of fact, the right of trial by jury is proper and can be invoked. But an action brought to restrain the commission of trespasses, which are continuous in their nature, is necessarily in equity, and the court interferes, to prevent multiplicity of suits, and grants equitable relief by way of an injunction. The question presented for determination in such an action is one of law, whether, upon the facts to be established upon the trial, the plaintiff is entitled to such relief. Upon the proofs, showing the nature of the trespasses, and the consequent injury to the complainant’s property, the court decides the question of plaintiff’s right to an injunction. It does not seem to me that it can be said that any issue of fact as to damage remains. That was necessarily decided in the action, and all that remains is to fix its amount; and I do not think the constitutional provision was aimed at such a proceeding. As defined by the chancellor in the case above referred to, it seems difficult to rationally give it an application to what is simply an assessment of the damages.”

When an action is brought to foreclose a mortgage, and no demand is made for a personal judgment for the deficiency, neither party is entitled to a trial by jury. In such an action the scope of the court’s inquiry is wide. The court must find whether the mortgage is a valid and subsisting • one; questions of fraud, usury, duress, mistake, and so forth, may be presented for determination. The court must determine the amount of the mortgage, the amount paid thereon, and the amount still due and unpaid. The rights of paramount and subordinate lienors must be adjudicated and settled. Issues between plaintiff and defendant, or between plaintiffs, or defendants, too countless to enumerate might be raised. All of these issues, concededly, can be tried by the court in a foreclosure action where no personal judgment is demanded, because such issues were triable by the court from earliest times. The court can order the property to be sold. The officer who sells the property must report on the disposition of the proceeds. As was said in Carmichael v. Adams (91 Ind. 526, 527):

“ There could, in such a case as this ■— a suit upon a note and mortgage ■— be no decree without an ascertainment of the amount due on the note, and, therefore, the whole matter was necessarily for the decision of the court. In order to determine whether the plaintiff was entitled to the relief sought, it was absolutely necessary to ascertain that there was a debt secured by the mortgage, for, if there was no debt, there was nothing upon which the power of the court could be exercised. It was not possible to make a step of progress in the decree without settling the defendants’ indebtedness.”

Conceding that all this can be accomplished without the intervention of a jury, what issue of fact remains to be tried? Nothing remains except an arithmetical calculation. Certainly no right of trial by jury exists as to this step. The soundness of Judge Gray’s exposition of the law is apparent when applied to such a situation. The case of Carroll v. Deimel (95 N. Y. 252) correctly states the law. This was an action to foreclose a mortgage upon certain real estate. The defendants alleged a cash payment of 11,000. The question was submitted to a jury, which rendered a verdict for defendant, but upon plaintiff’s motion the verdict was set aside and the court found facts contrary to the verdict and ordered judgment for the plaintiff. The appellant claimed a jury trial as matter of right. The judgment was reversed by this court for error in the admission of evidence. However, the court said:

“ This is an action for the foreclosure of two mortgages on real estate, and was triable by the court. The defendant was not entitled as matter of right to a trial by jury. Although a sale of the mortgaged premises might result in a deficiency for which a money judgment could be docketed against the defendant liable for such deficiency, such a judgment was not the sole object of the action, but was an incident of the equitable relief sought. It might not even become necessary, as the mortgaged premises might bring a sufficient sum to pay the mortgage debt, and the circumstance, that in the contingency of the premises proving insufficient, a judgment for the deficiency might result, did not entitle the defendant to a jury trial.” The court held that the case “is to be reviewed as if the trial had been by the court without the intervention of a jury.”

Respondents seek to distinguish this case. They argue, “ There is nothing in the opinion in Carroll v. Diemel or in the synopsis of the brief of the defendant therein, to show that the right to a trial by jury there claimed was the constitutional right.” The constitutional question is not discussed by the court, but appellants’ contention that they were entitled to a jury trial as a matter of strict right was weighed by the court. If respondent in this case is correct, then the Carroll ease was not correctly decided.

In Knickerbocker Life Ins. Co. v. Nelson (8 Hun, 21) the action was brought to foreclose four mortgages. The mortgagor and guarantor were joined, and both pleaded usury. Ruea Nelson, the defendant, had executed an instrument under seal, wherein he covenanted to pay upon demand any deficiency up to $20,000 that might arise on the sale or sales under foreclosure of said mortgages. He alleges that this instrument was obtained by fraud. The court held that the action was purely an equitable one, and that there was no right to trial by jury-

We find no case since the Revised Statutes of 1830 where a jury trial was had as matter of right in a foreclosure action.

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

Lotjghran, J.

(dissenting). In this action to foreclose a mortgage upon real property judgment for a deficiency is demanded against the respondents who guaranteed payment of the mortgage debt. They allege in their answer that the time for payment of the mortgage was extended and that its terms were otherwise varied without their consent. Whether they are entitled as of right to a trial by jury of the issues of fact so raised is the question upon which we differ.

“ The trial by jury in all cases in which it has been heretofore used shall remain inviolate forever.” (N. Y. Const. art. I, § 2.) These words have been part of the fundamental law of the State since the adoption of the Constitution of 1821.

Prior to 1830 a decree for a deficiency could not be had in foreclosure. In that day an issue of personal liability for a mortgage debt was independently triable at law, that is tó say, by jury. (Dunkley v. Van Buren, 3 Johns. Ch. 330; Jones v. Conde, 6 Johns. Ch. 77.) “ This was an exception to the general rule, that where a court of equity obtains jurisdiction of an action it will retain it and administer full relief, both legal and equitable, so far as it pertains to the same transaction or the same subject-matter.” (Frank v. Davis, 135 N. Y. 275, 278.)

The law was changed in 1830 by the Revised Statutes. Since then only one action has been permitted at one time, except as the statute provides, for it forbids a suit in equity to foreclose the mortgage until the remedy at law, once resorted to, has been exhausted; and it forbids an action to recover the debt after foreclosure is begun, without leave of the court. (Reichert v. Stilwell, 172 N. Y. 83. So, Civ. Prac. Act, §§ 1077,1078.) The Revised Statutes also authorized a personal judgment in a foreclosure suit, “ not only against the mortgagor, as to whom equitable relief could be had, but also against any other person who was obligated for the payment of the same debt.” (Frank v. Davis, supra, p. 278. So, Civ. Prac. Act, § 1083.) Nevertheless, the complaint in an action to foreclose a real property mortgage still states a single cause of action. Judgment for a deficiency is demanded, not as upon a separate count, but as incidental ” to the principal relief sought in rem. (Dudley v. Congregation of St. Francis, 138 N. Y. 451.) In this way, all the rights of the parties are submitted to the court in one action in equity.

It follows, so the court now holds, that since 1830 in this State no party in such an action has been entitled as of right to a jury trial of an issue of personal liability. Carroll v. Deimel (95 N. Y. 252) is said to commit us to that position and this seems to have been the view of learned commentators. It is my opinion that the court did not in that case attempt to go so far, common as the contrary impression may have been.

In Carroll v. Deimel the defendant mortgagor pleaded part payment. This court there said: The defendant was not entitled as matter of right to a trial by jury. Although a sale of the mortgaged premises might result in a deficiency for which a money judgment could be docketed against the defendant liable for such a deficiency, such a judgment was not the sole object of the action, but was an incident of the equitable relief sought. It might not even become necessary, as the mortgaged premises might bring a sufficient sum to pay the mortgage debt, and the circumstance, that in the contingency of the premises proving insufficient, a judgment for the deficiency might result, did not entitle the defendant to a jury trial ” (pp. 254, 255). This was correct as an answer to the contention there made by the defendant mortgagor that section 968 of the former Code of Civil Procedure (now Civil Practice Act, section 425) gave to him a statutory right to have the issue of fact tried by a jury as in “ an action in which the complaint demands judgment for a sum of money only.” The complaint in the action did not demand such a judgment. For that reason it was held that the application for a jury trial made pursuant to the statute was properly refused. No question of constitutional right to a jury trial was there raised or considered.

These respondents demand a trial by jury as their constitutional right in accordance with Civil Practice Act, section 429. It is thereby provided:

“ Where a party is entitled by the constitution, or by express provision of law, to a trial by jury, of one or more issues of fact in an action not specified in section four hundred and twenty-five of this act, he may apply upon notice to the court for an order directing all the questions arising upon those issues to be distinctly and plainly stated for trial accordingly. Upon the hearing of the application, the court must cause the issues, to the trial of which by a jury the party is entitled, to be distinctly and plainly stated. The subsequent proceedings are the same as where questions arising upon the issues are stated for trial by a jury, in a case, where neither party can, as of right, require such a trial; except that the finding of the jury upon such questions so stated is conclusive in the action unless the verdict is set aside, or a new trial is granted.”

As guarantors of this mortgage debt, the respondents can suffer liability only for a deficiency that may result on the sale of the mortgaged premises. Prior to 1821, the trial by jury was used in an action against the guarantor of a mortgage debt to recover on his guaranty. The right to such a trial in that case was made fast by the foregoing constitutional mandate of that year. This mandate has never since been modified. The right thereby secured therefore remains inviolate, despite statutory changes meantime in the practice in foreclosure. (See Steck v. Colorado Fuel & Iron Co., 142 N. Y. 236, 247.)

Knickerbocker Life Ins. Co. v. Nelson (8 Hun, 21) appears to be a decision to the contrary. If so, I think we are constrained to disapprove that case.

I vote to affirm the orders and to answer in the affirmative the questions certified.

Hubbs, Finch and Rippey, JJ., concur with Crane, Ch. J.; Loughran, J., dissents in opinion in which Lehman and O’Brien, JJ., concur.

Orders reversed, etc.


author: Hubbs, J.

text:
    In the Matter of the Claim of Grant Stevens, Respondent, against Hull Grummond & Co., Inc., et al., Appellants. State Industrial Board, Respondent.
    Argued April 21, 1937;
    decided April 30, 1937.

      F. A. W. Ireland for Hull Grummond & Co., et ah, appellants.
    While the injury was sustained in the course of employment of the employee by Hull Grummond & Co., it did not arise out of such employment. (Matter of Giliotti v. Hoffman Catering Co., 246 N. Y. 283.) If - the court holds that the injuries arose out of and in the course of the joint employment, the order of the Appellate Division affirming the award against each employer equally should be affirmed. (Matter of Green v. Shaner, 225 App. Div. 713.)

      Walter D. Smith for Whipple, Inc., et al., appellants.
    The evidence in behalf of the claimant does not support the finding that claimant was an employee of the Whipple Company within the meaning of the Workmen’s Compensation Law (Cons. Laws, ch. 67). He was an independent contractor. (Matter of Beach v. Velzy, 238 N. Y. 100; Ball v. Bertelle, 201 App. Div. 768; Hexamer v. Webb, 101 N. Y. 377; Matter of Dutcher v. Victoria Paper Mills Co., 219 App. Div. 541; Greenberg v. Sommer, 216 App. Div. 416.) If the court holds that the relation of independent contractor does not exist and that, in view of the finding of joint employment, the award cannot be made solely against Hull Grummond & Co., it should be apportioned on an equitable basis, determined by the relative services and corresponding wages paid by each employer to the claimant. (Rahm v. Buffalo, Lockport & Rochester R. R. Co., 217 App. Div. 711; Keenley v. New York University & Bellevue Hospital, 229 App. Div. 819; Bauer v. Fisher & Voorheis, 217 App. Div. 702; Hudson v. Whitridge, 242 App. Div. 742; Matter of Wickham v. Glenside Woolen Mills, 252 N. Y. 11; Matter of Geliotti v. Hoffman Catering Co., 246 N. Y. 279; Matter of McCarter
      v. LaRock, 240 N. Y. 282; Matter of Filitti v. Lerode Homes Corp., 244 N. Y. 291; Matter of Connelly v. Samaritan Hospital, 259 N. Y. 137; Matter of Jacobi v. Superior Junior Coat Co., 268 N. Y. 654; Cohen v. Rothstein & Pitofsky, 176 App. Div. 35; Matter of Anderson v. Babcock & Wilcox Co., 256 N. Y. 146.)

      John J. Bennett, Jr., Attorney-General {Leon Freedman of counsel), for State Industrial Board, respondent.
    The Industrial Board properly made the award against both employers. (Matter of Moochler v. Herrick & Son, 272 N. Y. 545; Matter of Jacobi v. Supreme Junior Coat Co., 268 N. Y. 654; Green v. Shaner, 225 App. Div. 713; Marshall v. Hunt, 230 App. Div. 797; Vogel v. Clifford, 245 App. Div. 874; Rice v. Stoneham, 254 N. Y. 531; Rahm v. Buffalo, L. & R. R. R. Co., 217 App. Div. 711; Matter of Pierce v. Bowen, 247 N. Y. 305.)
   Hubbs, J.

Claimant was employed by Hull Grummond & Co., Inc., and Whipple, Inc. For the former he acted as night watchman, receiving wages of eighteen dollars per week, and during the time of his employment he did certain cleaning up for Whipple, Inc., a lessee of Hull Grummond & Co., Inc., for which services he received two dollars and fifty cents-per week. An award of compensation has been made against both employers, to be divided equally, resulting in a requirement on the part of Whipple, Inc., and its carrier of a payment of four dollars and sixty cents per week, whereas the wages paid amounted to only two dollars and fifty cents per week.

Hull Grummond & Co., Inc., contends on this appeal that while the injury was sustained in the course of employment of the employee by Hull Grummond & Co., Inc., it did not arise out of such employment. In that respect only a question of fact was involved which has been decided in favor of the respondent.

It is the contention of appellants Whipple, Inc., and the State Insurance Fund, its carrier, first, that the evidence does not support the finding that Stevens was an employee of Whipple, Inc. That likewise is a question of fact, supported by evidence, decided against appellants’ contention. They further contend that if an award against them is proper, it should have been upon the basis of the proportion of the wages paid by Whipple, Inc., to the total wages received, which would result in an award against Whipple, Inc., for one dollar and twelve cents and against Hull Grummond & Co., Inc., for eight dollars and eight cents per week. In this contention the appellants Whipple, Inc., and State Insurance Fund are correct, in view of the finding that at the time of the accident the employee was engaged in the service of both employers. The case cannot be distinguished from Matter of Jacobi v. Supreme Junior Coat Co. (268 N. Y. 654). The respondent State Industrial Board seeks to distinguish that case from the case at bar on the ground that there an employee regularly engaged in selling cloth coats was making a trip on which he was selling goods for that concern as well as another and was injured in an automobile accident. Here, as there, the employee was available for work for both employers and had not temporarily in part or otherwise left the employment of either. He was a night watchman, required to be in the building for the purpose of protecting the property for the benefit of Hull Grummond & Co., Inc., his employer, and while engaged in that work he was doing cleaning for Whipple, Inc., his other employer, which necessitated the operation of an elevator, the operation of which was a part of his employment by Hull Grummond & Co., Inc.

The order of the Appellate Division and the award of the State Industrial Board should be modified in accordance with this opinion and, as so modified, affirmed, with costs in this court and in the Appellate Division to WTiipple, Inc., against Hull Grummond & Co., Inc., and Globe Indemnity Co

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

Ordered accordingly.