author: Crane, J.

text:
    The First National Bank of Edgewater, N. J., Respondent, v. National Surety Company, Appellant.
    Insurance (indemnity) — banks and banking — charge — action to recover upon policy insuring bank against loss from dishonesty of employees — erroneous charge that cashier committed dishonest act in permitting depositor to withdraw money against checks deposited but unpaid — question for jury whether cashier in permitting account to be overdrawn acted in bad faith — erroneous charge that permitting overdrawing of account was a criminal or dishonest act and that purpose could not be explained — erroneous refusal to charge that payment of funds of bank on drafts against uncollected deposits is not a crime under National Banking Act.
    1. In an action to recover upon an indemnity policy insuring plaintiff against loss through “ the fraud, dishonesty, forgery, theft, . embezzlement, wrongful abstraction, misapplication or misappropriation or any other dishonest or criminal act or omission ” of, among others, its cashier, it was error for the trial justice to instruct the jury that the'cashier committed a dishonest act and misapplied the funds of the bank within the terms of the policy if he knowingly permitted a depositor to draw out moneys from the bank on its cheeks before deposits by it had been cashed. If such withdrawal was authorized, or permitted by the cashier through an honest mistake in judgment, or to help his bank, or in the ordinary course of the bank’s business, and without any dishonest intent or purpose, it would not be an act covered by the policy.
    2. Evidence that the depositor had made a practice of depositing checks and drawing on them before, in the process of collection, the deposits were paid; that this had been going on for a long time and that the bank had lost no money thereby, together with testimony of the cashier that he had no knowledge of any improper practice of the depositor in connection with its deposits until a few days before its bankruptcy; that he had made an examination of its financial condition and found it solvent, and that he relied, for his action, upon information given him by a director of the bank, taken together with other evidence in the case, presents a question for the jury to determine whether the cashier, in directing or permitting the depositor’s account to be overdrawn, during the iast days preceding its bankruptey, was acting in bad' faith, and dishonestly, or for and in the interest of the bank, and it was error to instruct the jury or leave them to believe that the permitting of an overdraft or the overdrawing of an account was an act in violation of law, a criminal act, or a dishonest act, or that the purpose for which such overdraft was permitted could not be explained or excused.
    (Argued May 11, 1926;
    decided May 25, 1926.)
    3. It was also error for the court to refuse to charge, as requested by defendant’s counsel, “ that to pay out funds of the bank on cheeks drawn against uncollected deposits is not a crime under the National Banking Act.” The request was a correct statement of the law as applicable to National banks, and the refusal of the court to so charge, without explanation, permitted the jury to believe that such an act was criminal.

      First National Bank v. National Surety Co., 215 App. Div. 809, reversed.
    Appeal from a judgment of the Appellate Division of the Supreme Court, in the first judicial department, entered February 4, 1926, affirming a judgment in favor of plaintiff entered upon a verdict.

      Robert H. Elder and Otho Bowling for appellant.
    The undisputed evidence proved that plaintiff failed tó give the required notice within the ten days. (Gallin v. Allemania Fire Ins. Co., 184 App. Div. 876; Hull v. Littauer, 162 N. Y. 569; Woolverton v. N. Y. Fidelity Co., 190 N. Y. 41; Christatos v. New England Casualty Co., 95 Misc. Rep. 618; Ward v. Maryland Casualty Co., 71 N. H. 262; Moran v. Pacific Coast Cas. Co., 48 Wash. 592; Black Co. v. London Guarantee & Accident Co., 190 App. Div. 218; 232 N. Y. 535; Ehrreich v. Cohn, 170 App. Div. 828; Walrath v. Hanover Fire Ins. Co., 216 N. Y. 220; Alsens A. P. C. Co. v. Degnon Contracting Co., 222 N. Y. 34; Draper v. Oswego Co. Fire Rel. Assn., 190 N. Y. 12.) The court erroneously charged that if Coe permitted checks to be cashed when drawn against uncollected deposits, it was dishonest misapplication of plaintiff’s funds, and that the verdict should be for plaintiff. (Wallace v. Lincoln Savings Bank, 89 Tenn. 630; Commercial Bank v. Ten Eyck, 48 N. Y. 305.) The court erred in declining to charge that to pay out funds of the bank on checks drawn against uncollected deposits is not a crime under the National Banking Act. (Wilson v. United States, 162 U. S. 613; Coffin v. United States, 162 U. S. 664; United States v. Heinze, 218 U. S. 532; United States v. Steinman, 172 Fed. Rep. 913; Galbreath v. U. S., 257 Fed. Rep. 654; United States v. Jenks, 258 Fed. Rep. 763.) Plaintiff failed to make a case because there was no proof that Coe was guilty of being either criminal or dishonest. (Coffin v. United States, 162 U. S. 664; United States v. Heinze, 218 U. S. 532, 539; United States v. Steinman, 172 Fed. Rep. 913; Galbreath v. United States, 257 Fed. Rep. 654; United States v. Jenks, 258 Fed. Rep. 763.) The court erred in receiving in evidence the testimony of Stolzenberg that he and the Hamilton Dairy Company had “ kited ” a large number of checks, and in declining to strike out such evidence. (People v. Harris, 209 N. Y. 70.)

      A. S. Gilbert and Godfrey Cohen for respondent.
    The term of the bond as to notice was either complied with or waived. (National Surety Company v. Western Pac. Ry. Co., 200 Fed. Rep. 675; Fidelity & Casualty Co. of New York v. Bank of Timmonsville, 139 Fed. Rep. 101; Brink v. Hanover Fire Ins. Co., 80 N. Y. 108; Second Nat. Bank of Allegheny v. Lash Corp., 299 Fed. Rep. 371; Oelbermann v. Toyo Risen Kabushiki Kaisha, 3 Fed. Rep. [2d] 5; Isham v. Erie Railroad Co., 112 App. Div. 612; 191 N. Y. 547; Alsens A. P. C. Works v. Degnon Contracting Co., 222 N. Y. 34; Glazer v. Home Ins. Co., 190 N. Y. 6.) There was no error in the court’s charge. The case was tried and submitted to the jury on appellant’s own theory of the law. (Commercial Bank v. Ten Eyck, 48 N.'Y. 305.) The court correctly declined to charge at the defendant’s request that to p^ay out funds of the bank on checks drawn against uncollected deposits is not a crime under the National Banking Act. (Coffin v. United States, 162 U. S. 664; U. S. R. S. § 5209; Galbreath v. United States, 257 Fed. Rep. 656; United States v. Britton, 107 U. S. 655; United States v. Northway, 120 U. S. 327.) The evidence justified the finding of the jury that Coe, plaintiff’s cashier, was affirmatively dishonest. The proof justified a finding that he connived with the Hamilton Dairy Company to loan them large sums of money belonging to the bank which he and it knew would not be authorized by the board of directors of the plaintiff bank. (Wallace v. Lincoln Savings Bank, 89 Tenn. 630; United States v. Fish, 24 Fed. Rep. 585; Craigie v. Hadley, 99 N. Y. 131; Brown v. Finn, 34 Fed. Rep. 124; Germ. Sav. Bank v. Wulfelkuhler, 19 Kans. 60; Logan v. Fidelity Phenix Fire Ins. Co., 161 App. Div. 404; Coffin v. United States, 156 U. S. 432; United States v. Heinze, 218 U. S. 532; U. S. Fidelity & Guaranty Co. v. Egg Shippers, Strawboard & Filler Co., 148 Fed. Rep. 353; Prettyman v. United States, 180 Fed. Rep. 30; Minor v. Mechanics Bank of Alexandria, 1 Pet. 46.) The court committed no error in the reception of Stolzenberg’s testimony. (Logan v. Fidelity Phenix Fire Ins. Co., 161 App. Div. 404; Germ. Sav. Bank v. Wulfekuhler, 19 Kans. 60; Craigie v. Hadley, 99 N. Y. 131; Brown v. Finn, 34 Fed. Rep. 124.)
   Crane, J.

The policy of insurance issued by the defendant to the plaintiff provided as follows:

The National Surety Company as Insurer, * * * hereby binds itself to pay to First National Bank, Edge-water, N. J., as Employer, such pecuniary loss as the Employer shall sustain of money or other personal property (including that for which the Employer is responsible) through the Fraud, Dishonesty, Forgery, Theft, Embezzlement, Wrongful Abstraction, Misapplication or Misappropriation or Any Other Dishonest or Criminal Act or Omission of or by any of the employees listed in the schedule forming part of this bond directly or In Connivance With Others while such employee Holds Any Position At Any Location in the service of the Employer * * *”

Elmer J. S. Coe, cashier, was listed in the schedule of the bond. The defendant’s liability was fixed at $45,000 as to him.

The Hamilton Dairy Company had been a depositor at this bank for many years, long before Coe became cashier. It was said to have owned eight or ten creameries near Boscoe, in the State of New York.

On the 13th of August, 1920, the Hamilton Dairy Company went into bankruptcy, and the bank lost about $16,348. This loss was caused by overdrafts on the bank made just prior to bankruptcy. The bank has sued the defendant, claiming that the acts and omissions of Coe, its cashier, were responsible for the overdrafts, and that these acts and omissions were dishonest within the meaning of the above clauses taken from the policy.

The plaintiff has recovered a judgment for $20,572.35, which has been affirmed in the Appellate Division by a divided court, two of the justices dissenting.

The case has been argued before us largely upon the court’s charge which, if the appellant be right, presented the case to the jury upon a theory which the respondent cannot sustain. If the trial justice told the jury that Coe, the cashier, committed a dishonest act and misapplied the funds of the bank within the terms of the policy, if he knowingly permitted the Hamilton Dairy Company to draw out moneys from the bank on their checks before deposits by them had been cashed, he was clearly in error. If such withdrawal was authorized, or permitted by Coe through an honest mistake in judgment, or to help his bank, or in the ordinary course of the bank’s business, and without any dishonest intent or purpose, it would not be an act covered by this policy, whatever else it might be as between Coe and the bank.

We understand the respondent’s counsel to concede the correctness of this statement. He, however, points out that the judge fully covered all these elements in his charge and clearly and distinctly told the jury that the plaintiff could only recover by proving Coe’s dishonesty. We of course agree that the judge did make these statements to the jury, but we are also inclined to believe for the reasons hereinafter stated that he defined and explained dishonesty ” to mean in this case the direction or permission to allow overdrafts to the Hamilton Dairy Company; that this, and this alone without any other intent and purpose would constitute dishonesty. It now remains to consider whether or not our conclusion be correct, and to state briefly that portion of the record upon which it is based.

The evidence shows that the Hamilton Dairy Company had made a practice of depositing checks and drawing on them before in the process of collection the deposits were paid. This had been going on for a long time. The bank, whether aware of this or not, had lost no money through this practice up to the time in question. Jacob Stolzenberg' was in the butter and egg business, buying milk from the Hamilton Dairy Company. As an accommodation, he gave his checks to the company, which it deposited with the bank to make good its own checks. This method is referred to as the kiting of checks. About 338 of these checks of Stolzenberg’s passed through the bank and were drawn on by the Hamilton Dairy Company before they were paid. Stolzenberg’s checks however, were always paid. His testimony was: Q. Your checks were good checks, weren’t they? A. Yes, sir. Q. All paid? A. All paid.” This refers to the 338 checks, and up to within a week of the bankruptcy, when some of the checks were not paid. Coe testified that he knew nothing about this practice of the kiting of checks until his return from his vacation about the fourth of August, at which time he gave instructions not to pay the Hamilton Dairy Company checks until there were cash deposits to meet them. He did admit that just before the Hamilton Dairy Company ceased to do business, he ordered certain of their checks to be paid, although deposits had been rejected. He, however, was not permitted to explain his action in this particular. This is what occurred at the time.

“ Q. Now, you were starting to explain how you came to order those payments made on the 12th when you know that certain checks had been returned. Explain that, please?

“ Mr. Gilbert: I object on the ground that no explanation can obviate the testimony given that he gave and was directing payments of funds of the bank against uncollected checks. That was a misapplication of checks. No excuse of any kind or description can obviate the result of that statement.

The Court: That may be so, but I will let him say.”

Here we have a view of the case as expressed by the plaintiff’s counsel, apparently adopted by the court, and as I shall subsequently show, enlarged upon by the court. A payment of funds against uncollected checks is a misapplication for which there can be no excuse. When the witness attempted to state the information which he had received, upon which he had directed payment of these checks, he was stopped by the court, and the objections made by the plaintiff’s counsel were sustained over exception.

Coe also testified that after August 4th, he investigated the financial condition of the Hamilton Dairy Company, and was told that they owned eight or ten creameries up around Roscoe, thirty or forty thousand milk cans valued at three or four dollars a can, and that their statement showed a net worth of over $175,000. He further stated that he relied upon information given him for his action in August of 1920 by Fred Weiler, a director. His testimony is: “ Every time a note of the Hamilton Dairy Company would come up, or any question about the Hamilton Dairy, there was never any question except on their notes, he would also say, Why, Paul Steffins (President of the Hamilton Dairy Co.) is all right,’ he said, ‘ I play cards with bim every other Saturday and every other Sunday,’ and he said, ‘ Give him anything he wants, he is O. K.’ ”

We do not say or even intimate that Coe was telling the truth. We do say, however, that on this evidence, together with the plaintiff’s contradictions and other matters, which for brevity cannot be referred to, a question was presented for the jury to determine whether Coe, in directing or permitting in the lagt days of the Hamilton Dairy Company its account to be overdrawn was acting in bad faith, and dishonestly, or for and in the interest of the bank; and that it was error to instruct the jury or leave them to believe that the permitting of an overdraft or the overdrawing of an account was an act in violation of law, a criminal act, or a dishonest act, or that the purpose for which such overdraft was permitted could not be explained or excused.

Now for the charge: What did the judge tell the jury? In accordance with the by-laws of the plaintiff bank, Coe, the cashier, was responsible for all the moneys, funds and valuables of the bank. He was obligated to faithfully and honestly discharge his duties as such cashier. He was obligated to faithfully apply and account for all the moneys, funds and valuables of the bank * * *. Coe, as cashier, had no right to pay or permit any employee of the bank to pay any check drawn upon the bank or to pay out any money of the bank on any order unless the drawer of such check or order at the time of the presentation thereof on deposit in the bank had funds sufficient to meet such check or order. * * *

Uncollected checks, that is checks which had not yet been paid, were not funds in the bank out of which checks or other orders for the payment of money could be paid. To allow customers of a bank to withdraw funds and have their checks charged up without present funds in the bank is to misapply such funds. If you find from the evidence that Coe as cashier of the plaintiff’s bank permitted the funds of the bank to be paid out on checks drawn out by the Hamilton Dairy Company, and that he knew there were not sufficient funds in the bank to pay the checks, such payments were overdrafts, and if the bank sustained a loss thereby you must find that Coe misapplied the funds of the bank within the meaning of the agreement or bond, and your verdict would have to be for the plaintiff. Amounts credited to the account of ,the Hamilton Dairy Company by reason of the deposit of checks, did not place funds in the bank belonging to the Hamilton Dairy Company until those checks had, in fact, been collected. The defendant, however, cannot be held hable for mere errors of judgment, for carelessness or negligence on the part of Coe, because the defendant’s agreement or bond did not cover such matters.

The plaintiff must establish that Coe acted in bad faith in discharging his duty. The question is, did Coe, the plaintiff’s cashier, misapply or permit to be misapplied funds of the plaintiff by paying out or permitting the same, to be paid out on checks drawn by the Hamilton Dairy Company with knowledge that such payments were overdrafts and that the Hamilton Dairy Company had no funds on deposit with the plaintiff sufficient to pay these checks. If your answer to this question is in the affirmative, that is, if you conclude from the evidence that these matters have been established to your satisfaction, you may then find that there was a dishonest misapplication of the plaintiff’s funds by Coe.”

• What did the judge mean when he told the jury that the defendant cannot be held hable for errors of judgment, carelessness or negligence on the part of Coe, and that the plaintiff must establish bad faith in discharging his duty? He meant this, for he said so. That if Coe permitted overdrafts and the bank sustained loss, he misapplied the funds within the meaning of the bond; that if Coe misapplied the funds by permitting them to be paid out with knowledge that such payments were overdrafts, the jury might find a dishonest misapplication bv Coe. In other words, the mere fact of knowingly permitting an overdraft could constitute a dishonest misapplication. The use of the words “ dishonest ” and “ bad faith ” in the subsequent requests to charge, received no other interpretation or meaning as applicable to this case.

Mr. Elder: I request your Honor to charge that this bond does not insure against any omission unless that omission be either dishonest or criminal.

The Court: I think I have already covered that, and I charge it again.”

That the charge is fairly to be taken as I have here stated it is further supported by a request to charge, to which no exception was taken.

Mr. Elder: I request your Honor to charge that if Coe believed he acted right, the verdict must be for the defendant.

The Court: Declined.”

There is one other error m the case which I think requires reversal. When Coe was on the stand he was asked in cross-examination:

“ Q.' Did you know during all of the time, say from the beginning of the year 1920, down to the 16th of August, that the payment of checks against funds not in the bank and against uncollected checks was a violation of law? ”
Over objection and exception the witness answered: Why, I don’t know.
Q. Did you know at any time prior to August the 16th that the payment of money, of funds of the bank against uncollected checks, were a violation of law?
Mr. Elder:. Your Honor, it was not a violation of law.
The Court: Mr. Elder, that is improper. Whatever objection you have to make, make it an objection.
“ Mr. Elder: I object to it.
The Court: Objection overruled.
Mr. Elder: Exception.
“ A. I didn’t know, no.
“ Q. You have been a cashier how long?
“ A. About three and one-half years.”

The bond, or undertaking offered in evidence, and which the jury had before it, refers to fraud, dishonesty, forgery, theft, embezzlement, misapplication or misappropriation or any other dishonest or criminal act,, This category is made up almost entirely of criminal acts. Forgery, theft, embezzlement are crimes. Fraud may be a crime; likewise dishonest misapplication or misappropriation. When, therefore, the plaintiff was suing on Coe’s act as coming within this category, the jury could reasonably have understood that the words “ violation of law ” referred to a criminal act. Personally, I do not see how they could have understood anything else.

When, therefore, counsel requested the court to charge, “ I request your Honor to charge that to pay out funds of the bank on checks drawn against uncollected deposits is not a crime under the National Banking Act,” and the court declined, this was error in my judgment on the crucial point in the case, and one which allowed the jury to believe that such an act was criminal. The court does not decline to charge it on the ground that it has nothing to do with the case or that there is no claim that Coe’s acts were criminal. The jury were not told why the court declined to charge it.

The request was a correct statement of the law as applicable to National banks. (R. S. § 5209, amd. September 26, 1918; 40 Stat. 972; Comp. Stat. § 9772; Coffin v. United States, 162 U. S. 664; United States v. Heinze, 218 U. S. 532.)

The appellant has made quite an argument on the question of notice. We have carefully considered this point and are of the opinion that notice was given in time within the terms of the policy. It might have been a question for the jury, but we cannot hold as matter of law on the evidence that notice was not given in time.

For the reasons here stated, the judgments below should be reversed and a new trial granted, costs to abide the event.

Cabdozo, Pound and Lehman, JJ., concur; His cock, Ch. J., and McLaughlin, J., dissent; Andbews, J., absent.

Judgments reversed, etc.


source: Caselaw Access Project

license: Public Domain

text:
    Geneva Erb, Respondent, v. Banco di Napoli, Appellant.
    Banks and banking — principal and agent — relation of banker and depositor that of debtor and creditor — no trust for benefit of third party— action may not be maintained for value of lost coupons against bank with which money had been deposited for payment when presented and surrendered — authority of agent not enlarged by section 333 of Civil Practice Act.
    1. Directions standing alone to a bank or to an agent do not constitute an agreement by the bank or the agent for the benefit of a third party. The relation of banker and depositor is that of debtor and creditor, and has in it none of the elements of a trust. For a breach on the part of the bank of its obligation, the depositor alone can sue. (Lawrence v. Fox, 20 N. Y. 268, distinguished.)
    2. An action may not be maintained against a bank, with which funds have been deposited to pay coupons on bonds, to recover the value of certain of such coupons which have been lost and destroyed, and this is especially so where the depositor has given directions to the bank to pay the coupons “ on their presentation and surrender to it but not otherwise.” Section 333 of the Civil Practice Act cannot enlarge or create, nor can the court modify, the authority of an agent. (Noyes v. First Nat. Bank, 180 App. Div. 162; 224 N. Y. 542, followed; Holland Trust Co., v. Sutherland, 177 N. Y. 327; Boss v. Curtis, 30 Barb. 238; 31 N. Y. 606, distinguished.)
    (Argued May 5, 1926;
    decided May 25, 1926.)

      Erb v. Banco di Napoli, 213 App. Div. 264, reversed.
    Appeal, by permission, from a judgment entered August 18, 1925, upon an order of the Appellate Division of the Supreme Court in the first judicial department, which reversed a determination of the Appellate Term reversing a judgment of the Municipal Court of the city of New York in favor of plaintiff and affirmed the Municipal Court judgment.

      Carroll G. Walter and Ralph Atkins for appellant.
    A deposit of money with a bank or trust company for the purpose of paying interest coupons creates the relationship either of debtor and creditor or of principal and agent between the bank or trust company and the depositor, and does not create a trust in favor of the coupon holders or make the bank or trust company an agent of or trustee for such holders. (Noyes v. First National Bank, 180 App. Div. 162; 224 N. Y. 542; Staten Island Cricket & B. B. Club v. Farmers’ Loan & Trust Co., 41 App. Div. 321; Rogers Locomotive Works v. Kelley, 88 N. Y. 235; Holland Trust Co. v. Sutherland, 177 N. Y. 327; Baldwin’s Bank v. Smith, 215 N. Y. 76; Kelly v. Roberts, 40 N. Y. 432; Ætna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 82; Title Guarantee & Trust Co. v. Haven, 214 N. Y. 468; Steel Cities Chemical Co. v. Virginia-Carolina Chemical Co., 7 Fed. Rep. [2d] 280.) If the relationship between the defendant and the Kingdom of Italy be viewed purely as that of the conventional relation between bank and depositor, then it is clear that the plaintiff cannot maintain an action against this defendant. (Hentz v. National City Bank, 159 App. Div. 743; O’Connor v. Mechanics’ Bank, 124 N. Y. 324; First National Bank v.
      Clark, 134 N. Y. 368; Hall v. Lauderdale, 46 N. Y. 70; Gledhill v. Schiff, 224 N. Y. 593; Crawford v. West Side Bank, 100 N. Y. 50.) Section 333 of the Civil Practice Act has no application to this action. (Tuttle v. Standish, 4 Allen [Mass.], 481; Smith v. Rockwell, 2 Hill, 482.)

      J. B. Erb and Henry Amerman for respondent.
    The law will infer a promise by defendant to pay to bondholders the amounts it receives for their benefit pursuant to the terms and conditions of the bonds. (Weston v. Barker, 12 Johns. 276; Ellward v. Monk, 5 Wend. 235; Lawrence v. Fox, 20 N. Y. 268; Burr v. Beers, 24 N. Y. 178; Ross v. Curtis, 30 Barb. 238; Del. & Hud. Canal Co. v. Westchester Co. Bank, 4 Den. 97; Arnold v. Lyman, 117 Mass. 404; Holland Trust Co. v. Sutherland, 177 N. Y. 327; Matter of Le Blanc, 14 Hun, 8; Hurd v. Farmers L. & T. Co., 63 How. Pr. 314; Marvin v. Brooks, 94 N. Y. 71.) Coupons, such as those forming the basis of this action, are promissory notes within the purview of section 333 of the Civil Practice Act. (Rolston v. R. R. Co., 21 Misc. Rep. 439; Evertson v. Nat. Bank, etc., 66 N. Y. 14.)
   Crane, J.

The Appellate Division has certified that we should review the law in this case. The agreed statement of facts was submitted to the Municipal Court, which gave judgment for the plaintiff. The Appellate Term reversed that judgment and dismissed the complaint. The Appellate Division has reversed the Appellate «Term and sustained the Municipal Court. We have determined that the submitted facts do not go far enough to sustain the plaintiff’s claim, and that the complaint should be dismissed. I will state our reasons.

The Kingdom of Italy issued bonds which were negotiated or sold in the State of Néw York. On their face they provided: “ Such principal and interest will be paid at the office of the Banco di Napoli in the borough of Manhattan, city of New York, United States of America, in gold, coin of the United States of America, of the standard of weight and fineness existing on January 1st, 1920.”

The coupons attached to the bonds read as follows:

The Government of the Kingdom of Italy promises to pay to bearer at the office of the Banco di Napoli, in the Borough of Manhattan, City of New York, United States of America $32.50 in gold coin of the United States of America, without deduction for Italian taxes, present or future, being six months interest then due on the Government of the Kingdom of Italy, six and one-half per cent gold bond No. M2337.”-

The plaintiff possessed three of these coupons dated August 1, 1922, which were lost and destroyed by dropping through the trolley-slot of the Broadway Street Railway.

The Kingdom of Italy had provided funds to meet its obligations. The agreed facts contained this statement:

That the Kingdom of Italy has supplied the defendant with the funds wherewith to pay these coupons in the City of New York, on their presentation, and surrender to it, but not otherwise. Defendant is without authority from the Kingdom of Italy to part with said funds for or on account of such interest coupons, except on their presentation and surrender.”

In thus providing the defendant bank with money to pay the accruing coupons upon its bonds, did the Kingdom of Italy change the conventional relationship which exists between a bank and its depositor into one of trust so that the plaintiff, the holder of the coupons, can sue directly the alleged trustee having the funds?

The plaintiff has obtained a recovery upon the doctrine of Lawrence v. Fox (20 N. Y. 268). • As has been repeatedly stated, the fundamental fact in that case was the agreement made upon consideration to pay money received to a third party. We find no such agreement to pay contained in the agreed statement of facts in this case. Directions standing alone to a bank or to an agent do not constitute an agreement by the bank or the agent for the benefit of a third party. In Ætna National Bank v. Fourth National Bank (46 N. Y. 82) it was decided that the relation of banker and depositor is that of debtor and creditor, and has in it none of the elements of a trust. For a breach on the part of the bank of its obligation, the depositor alone can sue. This court said: “ Lawrence v. Fox (20 N. Y., 268) was upon an express promise, to pay a sum of money received by the defendant, from a debtor of the plaintiff, to the plaintiff] and the promise was the consideration upon which, and upon which alone he received the money. The naoney was appropriated by the debtor, to the payment of the debt to the plaintiff, and intrusted to the defendant upon an express promise to pay that debt.”

The facts as presented in the statement bring these lost coupons under the rule applicable to notes and checks to pay which money has been deposited with or sent to a bank. The holder cannot sue the bank. (Baldwin’s Bank v. Smith, 215 N. Y. 76, page 82.) The case of Noyes v. First National Bank of New York (180 App. Div. 162; affd., 224 N. Y. 542) seems to be directly in point. There it was held that money sent to a bank to pay interest coupons and entered by the bank in a special account for this purpose did not create a trust in favor of the holders of outstanding coupons. This was also the decision in Staten Island Cricket & Baseball Club v. Farmers’ Loan & Trust Co. (41 App. Div. 321), where the same element was lacking as pointed out here. “ The defendant,” said the court, “ has entered into no agreement to pay the bondholders, nor has it made any promise that it would pay them.” (See, also, Matter of Interborough Consolidated Corp., 288 Fed. Rep. 334; Kelly v. Roberts, 40 N. Y. 432.)

Holland Trust Co. v. Sutherland (177 N. Y. 327), cited by the respondent, is- distinguished and explained by Scott, J., in the Noyes case, while Boss v. Curtis (30 Barb. 238; affd., 31 N. Y. 606), quoted in the Appellate Division opinion in- this case, dealt with a statutory duty imposed upon the defendant, a town supervisor.

As before stated, we find no fact which creates the Banco di Napoli a trustee for the plaintiff or justifies an action against it for the interest on the Italian bonds.

There is, moreover, another reason why this suit cannot be maintained. While the relation existing between' a bank and its depositor, in a strict sense, is that of debtor and creditor, in discharging its obligation as a debtor, the bank must do so subject to the rule obtaining betwee . principal and agent. It can pay out the money or in conformity to directions. (Crawford v. West S Bank, 100 N. Y. 50, 53.)

The Italian government gave directions to the Banco di Napoli, its depositary agent, to pay these coupons in the City of New York, on their presentation and surrender to it but not otherwise. Defendant is without authority from the Kingdom of Italy to part with said funds for or on account of such interest coupons except on their presentation and surrender.” I do not see how any court can modify these instructions so as to protect the bank in its accounting with its depositor. The plaintiff did not have her coupons to surrender. Section 333 of the Civil Practice Act cannot enlarge or create the authority of an agent, however binding it might be upon a suable principal. (Gledhill v. Schiff, 224 N. Y. 593.)

I recommend, therefore, that the judgment of the Appellate Division should be reversed, and the determination of the Appellate Term affirmed, with costs in this court and in the Appellate Division.

His cock, Ch. J., Cabdozo, Pound and McLaughlin JJ., concur; Andbews and Lehman, JJ., absent.

Judgment accordingly.


author: Cabdozo, J.

text:
    Alexander Roman, Appellant, v. Juliana Lobe, Respondent.
    (Argued May 5, 1926;
    decided May 25, 1926.)
    Constitutional law — real estate brokers — requirement that they be licensed a constitutional exercise of legislative power.
    The Legislature has a wide discretion in determining whether a business or occupation shall be barred to the dishonest or incompetent, and acts within its lawful powers when it establishes a system of licenses for real estate brokers with annual renewals. (Real Prop. Law, art. XII-A; Cons. Laws, eh. 50.)

      Roman v. Lobe, 213 App. Div. 162, affirmed.
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered March 6, 1925, which unanimously affirmed a determination of the Appellate Term affirming a judgment of the Municipal Court of the city of New York in favor of defendant. (See 241 N. Y. 514; 242 N. Y. 568.)

      Abraham, Feinstein and Louis J. M. Druss for appellant.
    Chapter 672 of the Laws of 1922 is an invalid exercise of police power in that it violates the Federal and State Constitutions. (People v. Beattie, 96 App. Div. 383; People v. City Prison, 144 N. Y. 529; Hauser v. North British, 206 N. Y. 455; Ives v. Southern Buffalo, 201 N. Y, 271; People v. Klinck Packing Co., 214 N. Y. 121; People v. Gillson, 109 N. Y. 389; People v. Orange Co., 175 N. Y. 84; People v. Williams, 189 N. Y. 131; People v. Marx, 99 N. Y. 377; People v. Arsenberg, 103 N. Y. 388; Forster v. Scott, 136 N. Y. 577; Schnaier v. Hotel Navarre, 182 N. Y. 183.) Appellant was a licensed real estate broker within the purview of the Real Property Law on the date when the contract was signed. (L. 1922, ch. 672; Merzarian v. Papazian, 199 Pac. Rep. 826.)

      Frank J. Irving and Peter B. Hanson for respondent.
    Chapter 672 of the Laws of 1922 is constitutional. (People ex rel. Nechamcus v. Warden, etc., 144 N. Y. 529; People v. Gillson, 109 N. Y. 389; Hauser v. North British & Mercantile Insurance Co., 206 N. Y. 455; People ex rel. Armstrong v. Warden, etc., 183 N. Y. 223; Musco v. United Surety Co., 196 N. Y. 459; People v. Weller, 237 N. Y. 316; Biddles, Inc., v. Enright, 239 N. Y. 354; Groetzinger v. Forest Hills Terrace Corp., 205 N. Y. Supp. 125.) The appellant was not a licensed real estate broker within the purview of the Real Property Law on the date when the contract was signed. (L. 1922, ch. 672.)

      Albert Ottinger, Attorney-General (Henry S. Manley of counsel), for respondent.
    Licensing of real estate brokers is a proper exercise of the police power. (Munn v. Illinois, 94 U. S. 113; Fisher Co. v. Woods, 187 N. Y. 90; Keller v. Jamaica Motor Service Corp., 125 Misc. Rep. 825; Luce v. Cook, 227 Penn. St. 224; City of Little Rock v. Barton, 33 Ark. 436; Buckley v. Humason, 50 Minn. 195; 52 N. W. 385; Riley v. Chambers, 181 Cal. 589; Bratton v. Chandler, 260 U. S. 110; Hoblitzel v. Jenkins, 263 S. W. Rep. 764; Truax v. Corrigan, 257 U. S. 312.)
   Cabdozo, J.

Plaintiff, a broker, having effected a sale of real estate, sues the seller for his commissions. The defendant, admitting the employment and the service, defends upon the ground that the broker was not licensed in accordance with the statute (Real Prop. Law [Cons. Laws, ch. 50], art. XII-A). Plaintiff held a license for the year ending September 30, 1923. He did not obtain a renewal license till October 26, 1923. He was thus without a license on October 16, 1923, when the purchaser was procured and the cause of action arose. There was judgment for the defendant, which was unanimously affirmed, first at the Appellate Term and later at the Appellate Division. The sole question in this court is whether the requirement of a license is a constitutional exercise of legislative power.

By article XII-A of the Real Property Law, enacted in 1922, a real estate broker in certain cities and counties may not do business as such until a license has been issued (§ 440-a). There were amendatory statutes in 1923 (L. 1923, ch. 517) and 1924 (L. 1924, ch. 579). The applicant must be a citizen of the United States, or have declared his intention to become such a citizen (§ 440-a, as amd. in 1924). That provision was not in force when the plaintiff’s services were rendered. Authority to grant the license resides with the State Tax Commission, and the application shall give such information as the Commission may reasonably require “ to enable it to determine the trustworthiness of the applicant.” By the amendment of 1924, it may exact such other information as may be necessary to establish the competency ” of the applicant “ to transact the business of real estate broker * * * in such manner as to safeguard the' interests of the public ” (§ 441). This may include “proof that the applicant has a fair knowledge of the English language, a fair understanding of the general purposes and general legal effect of deeds, mortgages, land contracts of sale, and leases, and a general and fair understanding of the obligations between principal and agent, as well as of the provisions of this act ” (§ 441, as amd. by L. 1924, ch. 579). The license, if granted, shall be effective up to and including the thirtieth day of September following the date of issue (§ 441-a). It may, however, be renewed upon application therefor by the holder thereof, in such form as the commission may prescribe, and payment of the annual fee ” (§ 441). “ In case of application for renewal of license, the commission may dispense with the requirement of such statements as it deems unnecessary in view of those contained in the original application for license ” (§ 441). The action of the Commission in granting or refusing a license may be reviewed by the courts on certiorari (§ 441-e); A license once granted may be revoked by the Commission for fraud or demonstrated misconduct or incompetency (§ 441-c). In such cases the remedy of certiorari is available again (§ 441-e). There shall be no refusal of a license and no revocation or suspension without notice to the applicant and opportunity for a hearing (§ 441-d). From the operation of the act certain classes of persons, e. g., receivers, referees, administrators, executors and attorneys at law, are excluded (§ 442-g). No action to recover commissions may be maintained without alleging and proving that a license had been issued when the cause of action arose (§ 442-e). _

_ The Legislature has a wide discretion in determining whether a business or occupation shall be barred to the dishonest or incompetent (People v. Beakes Dairy Co., 222 N. Y. 416, 427; Hall v. Geiger-Jones Co., 242 U. S. 539; State v. De Verges, 153 La. 349; C. W. Pound, Constitutional Aspects of Administrative Law in Growth of Administrative Law, 111, 112). Callings, it is said, there are so inveterate and basic, so elementary and innocent, that they must be left open to all alike, whether virtuous or vicious. If this be assumed, that of broker is not one of them. The intrinsic nature of the business combines with practice and tradition to attest the need of regulation. The real estate broker is brought by his calling into a relation of trust and confidence. Constant are the opportunities by concealment and collusion to extract illicit gains. We know from out judicial records that the opportunities have not been lost. With temptation so aggressive, the dishonest or untrustworthy may not reasonably complain if they are told to stand aside. Less obtrusive, but not negligible, are the perils of incompetence. The safeguards against incompetence need not long detain us, for they were added to the statute after the services were rendered. We recall them at this time for the light that they cast upon the Legislature’s conception of the mischief to be remedied. The broker should know his duty. To that end, he should have a general and fair understanding of the obligations between principal and agent” (§ 441, as amd. by L. 1924, ch. 579). Disloyalty may have its origin in ignorance as well as fraud. He should know, so the Legislature has said (L. 1924, ch. 579), what is meant by a deed or a lease or a mortgage. At any moment he may have to make report as to such matters to expectant buyers or lessees. Often he goes farther, perhaps too far, and prepares a memorandum of the contract. He is accredited by his calling in the minds of the inexperienced or the ignorant with a knowledge greater than their own.

The Legislatures of many States, awaking to these evils, have adopted statutes like to ours. Licenses to be issued after suitable inquiry as to character and competence are required in California (L. 1919, p. 1252), Tennessee (L. 1921, ch. 98), Kentucky (L. 1924, ch. 138), Virginia (L. 1924, ch. 461; Virginia Code, § 4359, title 38-B), New Jersey (L. 1921, ch. 141), Louisiana (Act No. 236 of 1920), Idaho (L. 1921, ch. 184), Illinois (L. 1921, ch. 153), Michigan (L. 1921, ch. 387), Montana (Rev. Code, 1921, § 4065), Oregon (L. 1921, ch. 223), Wisconsin (Stat. 1923, sec. 136.01), and Wyoming (L. 1921, ch. 31). Legislation so general marks a. rising tide of opinion which is suggestive and informing (Klein v. Maravelas, 219 N. Y. 383, 385). The Supreme Court of California in a careful judgment upheld the act adopted in that State (Riley v. Chambers, 181 Cal. 589). The ruling there made was approved and followed by the Supreme Court of Louisiana (Zerlin v. La. Real Estate Board, 158 La. 111). In accord also is the Supreme Court of Wisconsin (Payne v. Volkman, 183 Wis. 412). The Court of Appeals of Kentucky at first upheld the Kentucky act (Hoblitzel v. Jenkins, 204 Ky. 122), but afterwards condemned it (Rawles v. Jenkins, 212 Ky. 287). A like statute of Tennessee was before the Supreme Court of the United States in Bratton v. Chandler (260 U. S. 110). By dictum and manifest implication, if not by necessary decision, the statute was sustained. Valid by the judgment of the same court are statutes for the licensing of dealers in securities (Hall v. Geiger-Jones Co., 242 U. S. 539; Merrick v. Halsey & Co., 242 U. S. 568), insurance brokers (La Tourette v. McMasters, 248 U. S. 465, 468), and brokers dealing in farm produce (Payne v. Kansas, 248 U. S. 112; cf. State v. Payne 98 Kan. 465; State v. Bowen & Co., 86 Wash. 23, and State ex rel. Beek v. Wagener, 77 Minn. 483, 491; Lasher v. People, 183 Ill. 226, 232). One searches vainly for any adequate distinction in respect of legislative control between one broker and another.

Significant, also, is the argument from history. For the better part of a century, real estate brokers in many States, even though not subjected to a test of character and competence, have been prohibited from doing business without a preliminary license. The validity of these requirements has been uniformly upheld. Decisions enforcing them will be found in the Federal courts (Bradley v. City of Richmond, 227 U. S. 477, 480), in Illinois (Braun v. City of Chicago, 110 Ill. 186), in Pennsylvania (Luce v. Cook, 227 Penn. St. 224), in Minnesota (Buckley v. Humason, 50 Minn. 195), and in Arkansas (City of Little Rock v. Barton, 33 Ark. 436). Such forms of regulation are less drastic, indeed, than the system now in question. They have significance, none the less, in marking off the business of the broker as distinct from occupations which by general acquiescence are pursued of common right without regulation or restriction. “ We do not readily overturn the settled practice of the years ” (Story v. Craig, 231 N. Y. 33, 40; cf. Jackman v. Rosenbaum Co., 260 U. S. 22; Ownbey v. Morgan, 256 U. S. 94; Biddles, Inc., v. Enright, 239 N. Y. 354, 365).

The case circumscribes the judgment. We hold that the Legislature acts within its lawful powers when it establishes a system of licenses for real estate brokers with annual renewals. Farther than that we do not have to go to decide the controversy before us. The plaintiff does not show himself an alien. That being so, the question is not here whether the restriction of the license to citizens and expectant citizens denies to aliens thus excluded the equal protection of the law (Lehon v. City of Atlanta, 242 U. S. 53; Arkadelphia Co. v. St. Louis S. W. Ry. Co., 249 U. S. 134, 149; Truax v. Raich, 239 U. S. 33; Yick Wo v. Hopkins, 118 U. S. 356). Besides, the discrimination against aliens is the result of subsequent amendment. The plaintiff is not complaining that the test of fitness applied to him has been unreasonable or arbitrary. If he is without the needed license, he has only himself to blame, in that he did not ask for renewal till his license had expired. That being so, the question is not here whether character should be held to qualify, though other competence were lacking. These and other situations that may be imagined must be dealt with as they develop. A workable system would be left though the tests of fitness were diminished (Weller v. N. Y., 268 U. S. 319). By section 442-1, Should the courts of this State declare any provision of this article unconstitutional, or unauthorized, * * * such decision shall affect only the section or provision so declared to be unconstitutional or unauthorized and shall not affect any other section or part of this article ” (cf. Dorchy v. Kansas, 264 U. S. 286). The plaintiff is not aggrieved unless the exaction of a license is to be disregarded altogether.

The judgment should be affirmed with costs.

His cock, Ch. J., Pound, McLaughlin and Crane, JJ., concur; Andrews and Lehman, JJ., absent.

Judgment affirmed.


text:
    The People of the State of New York, Respondent, v. Burrill Ruskay, Appellant.
    .(Argued May 6, 1926;
    decided May 25, 1926.)
    Crimes — stockbroker trading for his own account against order of customer — violation of statutory prohibition impossible where shares bought for customer have been delivered to broker and paid for — failure of evidence to show that any balance of shares purchased for customer remained undelivered or unpaid for at close of period of clearance — sale thereafter by broker for own account of shares of same stock no basis for charge that he matched orders to neutralize each other.
    1. Violation of section 954 of the Penal Law, providing that a stockbroker who trades for his own account against the order of a customer is guilty of a felony, is impossible when once the shares that are to be bought for the customer have been delivered to the broker upon his payment of the price. The order has then been executed, and is no longer subject to be neutralized by a cross-order to sell.
    2. Where the evidence of the People, upon trial of an indictment charging defendant, a stockbroker, with trading for his own account against the order of a customer, fails to prove that any balance of shares of the stock ordered to be purchased by the customer remained undelivered or unpaid for at the close of the appropriate period of clearance, the purchase must be deemed to have been then complete, and a sale by defendant, three days thereafter, of shares of the same stock for his own account, forms no sufficient basis for the charge that he matched orders to the end that one should neutralize the other. An order for a sale may not be held to be a trade against an order for a purchase in the absence of some evidence that the purchase was still open at the sale.

      People v. Ruskay, 212 App. Div. 436, reversed.
    Appeal from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered April 3, 1925, which affirmed a judgment of the Court of General Sessions of the county of New York rendered upon a verdict convicting the defendant of a violation of section 954 of the Penal Law.

      Martin W. Littleton, Louis B. Eppstein and Perdval E. Jackson for appellant.

      Joab H. Banton, District Attorney (Felix C. Benvenga and William B. Moore of counsel) for respondent.
    The evidence establishes the commission of the crime charged in each of its elements. (Douglas v. Carpenter, 17 App. Div. 329; Tompkins v. Morton Trust Co., 91 App. Div. 274; 181 N. Y. 578; Strickland v. Magoun, 119 App. Div. 113; 190 N. Y. 545; Wood v. Fisk, 215 N. Y. 233; Quincey v. White, 63 N. Y. 370; Knickerbocker v. Gould, 115 N. Y. 533; People v. Crossman, 241 N. Y. 138; People v. Miles, 123 App. Div. 862; 192 N. Y. 541; People v. Lovejoy, 37 App. Div. 52.)
   Cabdozo, J.

Defendant, a stockbroker, has been convicted of the crime of trading for his own account against the order of a customer (Penal Law, § 954).

S. S. Ruskay & Co., in which firm the defendant was a partner^ were members of the Consolidated Stock Exchange in the city of New York. On February 17, 1922, they received from one Brunner, a customer, an order for the purchase of 200 shares of Mexican Petroleum stock. They made a contract at once on the floor of the Exchange for the purchase of the shares from Pearsall & Maloney. At that time and for some months past, they were seriously embarrassed for lack of money. The charge is that before Brunner’s shares had been paid for or delivered, they sold for their own account on February 20, 200 shares of the same stock to be offset against the purchase. Suspension and bankruptcy followed a few days later. The question is whether the evidence makes out the essentials of the crime.

At the outset there is need to recall the precise wording of the statute. By Penal Law (§ 954) “ A broker, who, being employed by a customer to buy and carry upon margin the stocks, bonds or other evidences of debt of a corporation, company or association, while acting as broker for such customer in respect of such stocks, bonds or other evidences of debt, sells for his own account the same kind or issue of stocks, bonds or other evidences of debt of such corporation, company or association with intent to trade against the customer’s order, or, who, being employed by a customer to sell the stocks, bonds or other evidences of debt of a corporation, company or association, while acting as broker for such customer in respect to the sale of such stocks, bonds or other evidences of debt, purchases for his own account the same kind or issue of stocks, bonds or other evidences of debt of such corporation, company or association, with intent to trade against the customer’s order, is guilty of a felony, punishable by a fine of not more than five thousand dollars, or by imprisonment for not more than one year, or by both. Every member of a firm of brokers, who either does, of consents or assents to the doing of any act which by the provisions of this section is made a felony shall be guilty of a violation thereof.”

Violation of this statute is impossible when once the shares that are to be bought have been delivered to the broker upon his payment of the price. The order has then been executed, and is no longer subject to be neutralized by a cross-order to sell. True, indeed, it is that the shares thus acquired may. still be criminally misapplied. If the broker. sells thereafter without his customer’s consent, or hypothecates unduly, he offends against another section of the statute (Penal Law, § 956) and is guilty of a felony (People v. Atwater, 229 N. Y. 303). If in so selling or hypothecating he acts with intent to steal, he offends against section 1290, and is guilty of the crime of larceny (People v. Atwater, supra). The defendant is not charged either with misappropriation under section 956 or with larceny under section 1290. He is charged with matching orders to the end that one shall neutralize the other. What is charged has not been proved unless at the time of the order for the sale there was something yet undone upon the order for the purchase. Nothing to the contrary is urged by counsel for the People. The points of difference do not touch the construction of the statute. They have their origin in varying interpretations of the significance of evidence.

Deliveries between brokers, members of the Exchange, are effected through a clearing house. Under the rules of some exchanges, clearances are made daily. Under the rules of the Consolidated Exchange, they are made twice a week, Tuesday and Friday nights. In 1922, February 17 was Friday. The clearance sheets that night covered the purchases and sales for that day. They covered also the purchases and sales for February 15 and 16, the other days included in the same clearance period. Balances reported by the clearing house, whether of cash or securities, are settled the next day. Thus, in the usual course of business, the shares covered by the Friday clearance are delivered and paid for Saturday morning. Balances cannot be ascertained, when the clearance is made daily, by choosing the transactions for half a day and excluding those of the other half. For the same reason, balances are deceptive, when the clearance is made twice a week, if the transactions of one day are considered, and those of other days within the same period of clearance are put aside and disregarded.

The People proved that on February 17, 1922, the defendant’s firm bought from Pearsall & Maloney 225 shares of Mexican Petroleum and sold on the same day to the same firm 188 shares of the same stock. There is no complaint as to these sales. The prosecution does not urge that they were for the benefit of the firm itself. They were legitimate transactions for the account of other customers. The record does not even inform us whether the sales were “ long ” or “ short.” Upon this showing there was at most a balance of 37 shares to be delivered to the defendant the next morning. The other shares (188 in number) were already in their possession or under their control. They were delivered through the clearing house by a setoff of purchases and sales (Springs v. James, 137 App. Div. 110; affd., 202 N. Y. 603; Board of Trade v. Christie Grain & Stock Co., 198 U. S. 236; Fiske v. Doucette, 206 Mass. 275, 282, 284).

The People failed, however, to prove that even a balance of 37 shares was undelivered • or unpaid for. Their evidence was limited to the transactions on a single day (February 17) with a single firm of brokers, the firm of Pearsall & Maloney. There was no attempt to prove the transactions of any other day within the same period of clearance. There was no attempt to prove the transactions with other firms. For all that appears, the clearance sheets of February 17 would show that the sales for the period then ending were greater than the purchases. In that event, no further act of delivery would be needed to make the purchases complete, since the shares already on hand would be utilized therefor. We do not need to go into the question whether this conclusion would be affected if the sales were shown to be short.” There is no suggestion in the record that they were. For all that the People have shown, the defendant’s firm had already in their possession on the morning of February 18, 1922, 200 shares of Mexican Petroleum stock, allocated to Brunner’s order and held for his account. Nothing done thereafter by wrongful sale or hypothecation could undo what had thus been done. Misappropriation or larceny might ensue. The time for “ bucketing ” or cross-trading had gone by. The-People went to trial upon an indictment which made it necessary for them to show that on February 20 when the cross-sale is charged to have been ordered, there was yet some act to be performed for the execution, complete and indefeasible, of the order from the customer to buy. One cannot frustrate the doing of an act already done.

As to yet another basic element, the People’s case has failed. If evidence were at hand that at the close of February 17 a balance of shares bought was undelivered and unpaid for, there would still be need to show that the sale of February 20 was made with the intent of intercepting the delivery and thereby obviating the payment. Normally a pinchase in one clearance period is unaffected by a sale in a clearance period to follow. If exceptional circumstances may lead to another and exceptional result, the burden is on the People to bring the case within the exception. Settlements were due on the morning of Saturday, February 18, for transactions closed on February 17 or earlier. Settlements for later transactions were not due till February 23, for February 22, when they would naturally have been made, was a holiday and so excluded. If shares were sold on February 20, they would not be offset by the clearing house against purchases which had been made during an earlier period of clearance. To give them that effect, the first transaction would have to' be kept open and delivery withheld until the time should arrive when it could be canceled by the second. The People concede that without such an extension of performance the later transaction was unavailing to neutralize the earlier. Not a syllable of evidence suggests that the purchase was still open. According to the custom of the Exchange, delivery and payment would have been made on February 18, when settlements were due for the term of clearance then expired. The People made no attempt to show that the custom was not followed. Both Pearsall and Maloney, the brokers from whom the shares were bought, took the stand upon the trial. There was a significant omission to inquire of them as to any departure from the normal practice. We cannot guess at such a departure to supply the elements of guilt.

Stress is laid by the People upon another, line of proof that is yet to be considered. We do not underrate its significance as tending to show that the defendant’s business was illegally conducted, with wanton disregard of his duty to his customers. We cannot find, however, that it fills the open gaps in the proof of this specific crime. At weekly intervals or oftener the bookkeeper submitted a position ” sheet which showed to what extent the firm was long ” of stocks or short ” of them in transactions for its customers. From this statement one could see the stocks pledged with other brokers for money borrowed for the business, the stocks bought but not received, and the stocks sold but not delivered. A member of the firm would go over this sheet and indicate the shares which for the relief of the firm’s finances there was need to sell or buy. Sales or purchases so made, as well as any other transactions for the account of the firm itself, were to be entered in one or other of four accounts under assumed or fictitious names. This practice began in October, 1921, when the firm was endeavoring without success to transfer to new lenders the loans which other brokers were calling and which it was unable to repay. In one of these fictitious accounts, the account of C. E. King, there is an entry on February 20 of the sale of 400 Mexican Petroleum, 200 at 120% and 200 at 120%. Other sales of the same stock were made on the same day as legitimate transactions for the benefit of customers. There were sales, to Pearsall & Maloney at prices different from those for King,” 100 at 123%, 90 at 123%, and Í0 at 122%. For anything the record shows, there may also have been sales to others. The prosecution asks us to infer that of the 400 sold for King, 200 were intended to neutralize the purchase during an earlier clearance period made for the account of Brunner.

We see no basis for such a holding. The inference is not difficult, in View of the purpose of the King account, that the sales of February 20 were unlawful, if not criminal. There is nothing to identify the crime, or fix its character and -quality. We do not know how many shares of Mexican Petroleum the firm was carrying for customers. There may have been other customers besides Brunner trading in that stock. Indeed, evidence that there were may be found in the very fact that the sales for that day were at least 600 shares. Even if part of the aggregate for the day is to be allocated to Brunner and not to some one else, the transaction unexplained is a misappropriation or a larceny rather than an offset to a purchase which had seemingly been closed. The crucial difficulty remains that an order for a sale may not be held to be a trade against an order for a purchase in the absence of some evidence that the purchase was still open at the sale.

A misconception of the King account, revealed quite distinctly in the opinion of the court below, explains the varying conclusions in that court and in this. Analyzing that account, the Appellate Division pointed out that King ” was short of Mexican Petroleum when he sold on February 20, since his account does not show that he had bought the stock before. From the fact that King ” had not bought, there was a leap to the conclusion that the defendant had not bought. The sale,” therefore, was no sale, but merely a trade against an order. The trouble with this argument is that from the King account alone there is no method of determining the complete position of the firm in respect of this stock or any other. Let us assume, for example, that shares of Mexican Petroleum had been bought in due course, and that the firm, unable to carry the shares longer because of the calling of a loan, had determined to dispose of them without the order of the customer. A sale so made when entered under the name of King would figure as a short one in any statement of the King account. He was selling what he had not bought. This would not mean that what he sold had not been bought for some one else.

Neither in the King account nor elsewhere is there a basis for a finding that the purchase of February 17 was left unexecuted at the close of the appropriate period of clearance, and, held over into a new period, was frustrated by a sale. For lack of such evidence, the conviction may not stand.

The judgments should be reversed and a new trial granted.

His cock, Ch. J., Pound, McLaughlin, Crane and Lehman, JJ., concur; Andrews, J., absent.

Judgments reversed, etc.


author: Pound, J.

text:
    John Corbett, an Infant, by Alice B. Corbett, His Guardian ad Litem, Respondent, v. Leroy Scott, Appellant.
    Negligence — motor vehicles — highways —• trespass —■ operation of motorcycle by boy under sixteen years of age — injury from collision with defendant’s automobile — charge that jury may find boy free from contributory negligence if age in no way contributed to accident proper — boy not a trespasser on highway because of his operation of motorcycle in violation of law.
    1. In an action to recover for personal injuries received by a boy operating a motorcycle while under the age of sixteen years, through a collision with defendant’s automobile, where it appears that he had had three years’ experience in operating motorcycles but had obtained his license to operate by falsely representing his age, it was proper for the trial justice to charge the jury in substance that plaintiff was 'prima facie guilty of negligence in operating the motorcycle when under the age of sixteen years but that the jury might find him free from contributory negligence if his immature age in no way contributed to the happening of the accident. (Martin v. Herzog, 228 N. Y. 164; Brown v. Shyne, 242 N. Y. 176, followed.)
    2. A contention that plaintiff was a trespasser on the public highway because he was, by reason of his age, operating his motorcycle in violation of law, and, therefore, defendant was not liable for mere negligence, but that some reckless or willful act must be shown, cannot be sustained. The effect intended by the statute (Highway Law, § 302, subd. 2) was to protect the public from the dangers which might arise from unskilled operation of a motorcycle by persons under the age of sixteen years rather than to outlaw all youthful drivers, however competent. It does not declare him to be a trespasser or single him out for peculiar penalties. The illegal element should not be allowed to offset the cause of action where it is irrelevant to the result.
    (Argued May 6, 1926;
    decided May 25, 1926.)

      Corbett v. Scott, 215 App. Div. 763, affirmed.
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered December 22, 1925, unanimously affirming a judgment in favor of plaintiff entered upon a verdict.

      Barnett Cohen, William E. Lyons and Frank J. O’ Neill for appellant.
    Plaintiff’s willful violation of the express provision of the Highway Law defeats his right to a recovery. (Amberg v. Kinley, 214 N. Y. 531; Atkinson v. Newcastle & Gateshead W. W. Co., L. R., 2 Exch. Div. 441; Taylor v. L. S. & M. S. Ry. Co., 45 Misc. 74; Knupfle v. Knickerbocker Ice Co., 84 N. Y. 488; Martin v. Herzog, 228 N. Y. 164; Racine v. Morris, 201 N. Y. 240; Schultz v. Morrison, 91 Misc. Rep. 248; 172 App. Div. 940; Wiley v. Mulledy, 78 N. Y. 310; Horton v. N. Y. C. R. R. Co., 205 App. Div. 763; Clark v. Doolittle, 205 App. Div. 697.)

      Thomas J. O’ Neill and Leonard F. Fish for respondent.
    The fact that the plaintiff was riding upon the street in violation of the Highway Law does not defeat a recovery for injuries sustained through the culpable negligence of the defendant. (Clark v. Doolittle, 205 App. Div. 697; Zagier v. Express Co., 171 N. C. 692; Switzer v. Sherwood, 80 Wash. 19; Scorsoni v. Pittsburgh Co., 272 Penn. St. 253; Crosem v. R. R. Co., 158 Ill. App. 42; Page v. Mayor, etc., 216 Pac. Rep. 31; Stock v. General Baking Co., 223 S. W. Rep. 89; Muller v. West Jersey St. R. Co., 122 Atl. Rep. 693; St. Louis R. Co. v. Price, 244 S. W. Rep. 642; Martin v. Herzog, 228 N. Y. 164.)
   Pound, J.

The case comes up on leave to. appeal granted by the Appellate Division on a question of law not heretofore directly passed on by this court.

The plaintiff, while operating a motorcycle, was run into by defendant’s automobile and injured. At the time of the accident he was under the age of sixteen years. He had a license to operate his motorcycle which he had obtained by falsely representing his age. He had had three years of experience in operating motorcycles. Highway Law (Cons. Laws, ch. 25), § 302, subd. 2, provides: “ Age of operator. No person shall operate or drive a motorcycle who is under sixteen years of age.” He was, therefore, chargeable with a misdemeanor (a) in making a false statement in his application for a license (Highway Law, § 290, If 7); (b) in operation of .the motorcycle in violation of law. (Highway Law, § 308.) For the latter offense he would be punishable with a fine not exceeding $25. Article XI-A of the Highway Law (§ 300) provides: “ except as herein otherwise expressly provided, this article shall be exclusively controlling * * * 4. On the punishment for the violation of any of the provisions of this article.”

The trial justice' charged the jury in substance that plaintiff was prima facie guilty of negligence in operating the motorcycle when under the age of sixteen years but that the jury might find him free of contributory negligence if his immature age in no way contributed to the happening of the accident. In so doing he followed the rule laid down in Martin v. Herzog (228 N. Y. 164). That was a case where the plaintiff’s intestate was traveling in a buggy without lights after sunset which was struck by defendant’s automobile. We held that the omission of lights was culpable and may or may not have been a contributing cause of the injury; the question was for the jury. The rule was again stated in Brown v. Shyne (242 N. Y. 176), where the court had under consideration the question of negligent treatment by a chiropractor practicing medicine without a license, as follows: Breach or neglect of duty imposed by statute or ordinance may be evidence of negligence only if there is logical connection between the proven neglect of statutory duty and the alleged negligence.” To charge otherwise was held to be error; the jury might not infer negligence producing injury merely from the violation of the statute, although such violation may be shown, if relevant, in connection with other facts. Breach of statutory duty may in some cases create liability per se, either for negligence because the Legislature has established the line of causation between violation of statute and injury, or without regard to negligence. (Karpeles v. Heine, 227 N. Y. 74.) It may be difficult to assign a given case to its proper classification in this regard (Martin v. Herzog, supra) but the general rule was properly applied in this case.

The appellant goes further. He presents the question whether the plaintiff was a trespasser on the public highway because he was, by reason of his age, operating his motorcycle in violation of law. If so, it is contended that defendant was not liable for mere négligence; that some reckless or willful act must be shown. This point was not raised or reached in Martin v. Herzog (supra). A wide range of opinion is expressed in different jurisdictions on the fundamental principle involved. The rights of those who traveled on Sunday in violation of law have frequently been considered. Shaw, C. J., in Bosworth v. Inhabitants of Swansey (10 Met. 363, 365) said: That act of the plaintiff (i. e., driving on business on the Lord’s Day) in doing which the accident occurred, was plainly unlawful * * *; and this would be a species of fault on his part. It would show that his own unlawful act concurred in causing the damage complained of.” But New York, not viewing the violation of the Sunday laws as so grievous an offense as did its Puritanical neighbor, took the contrary view. Danforth, J., in Platz v. City of Cohoes (89 N. Y. 219) gives cogent reasons why the trivial offense of traveling on Sunday for pleasure should not defeat a right of recovery when one is injured by the negligence of another. It must' appear that the disobedience contributed to the accident, or that the statute created a right in the defendant, which it could enforce. * * * The traveller is not declared to be a trespasser upon the street, nor was the defendant appointed to close it against her. * * * The act of travel is not one which usually results in injury. * * * At common law the act was not unlawful, and the plaintiff was still under its protection.”

So Massachusetts (Dudley v. Northampton Street Railway Co., 202 Mass. 443) applied the rule to a person operating an unlicensed automobile in violation of statute and held that he is a trespasser on the highway and may not recover for any injury to himself or his car unless the injury is caused by some reckless, wanton or willful act. Why? Automobiles whose appearance is frightful to most horses that are unaccustomed to them, introduce a new element of danger and great care should be exercised to protect the public. But Massachusetts protects the competent operator, although unlicensed, and makes a distinction between the unlicensed car and the unlicensed operator. The machine is an outlaw by reason óf its terrifying and dangerous character and those who operate it are trespassers. The unlicensed operator is not .a trespasser. He is not per se terrifying' or dangerous. (Bourne v. Whitman, 209 Mass. 155; and see Clark v. Doolittle, 205 App. Div. 697.)

The specific question arises as to the object of the statute prohibiting all persons under the age of sixteen years from operating motorcycles. Is it for the promotion of public order or for the protection of individuals who may be injured? The wrongdoer may be punished by a fine of $25. Does the Highway Law contemplate a further penalty or does it levy but one penalty? By its terms (§ 300, supra) it is exclusively controlling. The verdict herein and the unanimous affirmance by the Appellate Division place plaintiff before us as one who was not only competent but careful. If he were an adult we would unhesitatingly hold that his violation of the law was evidence of negligence only in relation to his fitness to operate the motorcycle and that if his illegal act had no tendency to cause the accident he would come within the rule in Brown v. Shyne (supra).

But it is urged that the State has sought to remove entirely the dangers incident to operation of motorcycles by the young. (Karpeles v. Heine, supra; La Rose v. Shaughnessy Ice Co., 197 App. Div. 821.) Again we find the results flowing from violation of the statute are in themselves of slight importance compared with their possible effect on the civil rights of the violator and that the statute does not declare him to be a trespasser or single him out for peculiar penalties. Again the illegal element should not be allowed to offset the cause of action where it is irrelevant to the result. If one who operates a motorcycle while under the age of sixteen years is a trespasser, it would follow that the violator of any of the terms of the Highway Law would also be a trespasser and that even the failure to display proper lights and sound proper signals would outlaw the operator of a motor vehicle. No such absurd result would be for a moment tolerated.

The difficulties in drawing the line between those breaches of statutory duty which create or defeat a cause of action and those which may be merely a contributing cause of injury must be met as they present themselves. It seems clear that the effect intended by the statute before us was to protect the public from the dangers which might arise from unskilled operation of a motorcycle by persons under the age of sixteen years rather than to outlaw all youthful drivers, however competent; to create a presumption of unskillfulness or lack of proper care on the part of one who violates the statute which may be rebutted by showing that such a one was in fact in the exercise of reasonable care when injured through another’s negligence.

The judgment should be affirmed, with costs.

His cock, Ch. J., Cardozo, McLaughlin, Crane- and Lehman, JJ., concur; Andrews, J., absent.

Judgment affirmed.


text:
    Helen Eckert, Appellant, v. Louis Reichardt, Respondent.
    (Argued May 7, 1926;
    decided May 25, 1926.)
    Negligence — landlord and tenant — trial — charge — action to recover for injury to tenant from fall of ceiling — plaintiff not chargeable with contributory negligence as matter of law because she went to bed under cracked ceiling which she believed might fall — question for jury — proper refusal to charge.
    Upon the trial of an action to recover for personal injuries alleged to have been received by plaintiff through the fall of the ceiling in a bedroom of her apartment, rented from defendant, where it appeared that the ceiling had been cracked for about a year before the accident and at different times the plaintiff and her husband had notified' defendant’s agent of its condition, the court properly declined to charge that “ if the plaintiff believed that the ceiling in this bedroom was dangerous or liable to fall, she was not at liberty to remain there and then attempt to hold the landlord for damage.” The plaintiff cannot be charged with contributory negligence as matter of law because she went to bed under a cracked ceiling although she may have believed that it was liable to or might fall. Under all the circumstances and conditions, this was a question for the jury.

      Eckert v. Reichardt, 215 App. Div. 144, reversed.
    Appeal from an order of the Appellate Division of the Supreme Court in the first judicial department, entered January 29, 1926, reversing a judgment in favor of plaintiff entered upon a verdict and granting a new trial.

      George F. Hickey and Morris Lavitt for appellant.
    The refusal of the trial court to charge as requested on the subject of contributory negligence does not present reversible error. (Altz v. Leiberson, 233 N. Y. 16; Frank v.
      Simon, 109 App. Div. 38; Dollard v. Roberts, 130 N. Y. 269; Kenney v. Rhinelander, 28 App. Div. 246; 163 N. Y. 576; Brown v. Wittner, 43 App. Div. 135; Keating v. Mott, 92 App. Div. 156; Stern v. Equitable Trust Co., 238 N. Y. 267.)

      William L. O’Brien and E. C. Sherwood for respondent.
    The refusal of the trial court to charge as requested on the question of contributory negligence presents reversible error. (Eckert v. Reichardt, 215 App. Div. 144; Frank v. Simon, 109 App. Div. 38; Dollard v. Roberts, 130 N. Y. 269; Barnevo v. Munson Steamship Line, 239 N. Y. 486; Curry v. Rochester R. Co., 90 Hun, 230; Schick v. Fleischhauer, 26 App. Div. 210; Frank v. Mandel, 76 App. Div. 413; De Negro v. Christman, 77 Misc. Rep. 147; Knapp v. Barrett, 216 N. Y. 226; Stephens v. Ely, 162 N. Y. 79; Herman v. New England Navigation Co., 143 App. Div. 551; Caboni v. Gott, 149 App. Div. 440; Burns v. Delaware & Hudson Co., 110 App. Div. 592; Gilliland v. Delaware & Hudson Co., 207 App. Div. 509.)
   Crane, J.

The plaintiff, with her husband, a police officer, and‘their two children, lived in a tenement house, No. 523 East One Hundred and Thirty-eighth street, for a period of about two and one-half years prior to October 22, 1922. The apartment consisted of four rooms and a bath. The rent had been paid in advance covering the date mentioned.

The ceiling of the bedroom had been cracked for a period of about a year before the accident, and at different times the plaintiff and her husband notified the agent of the premises of this condition. Promises were made that the ceiling would be examined, tested and repaired. No one came to inspect it and no repairs were made.

On the date mentioned, while the plaintiff was in bed with her child, a large part of the ¡ceiling fell, causing her injuries for which she recovered damages in this case. The Appellate Division affirmed the facts on appeal from the judgment, but reversed on the law.

The duty rested upon the defendant, landlord, to keep and maintain the plaintiff’s apartment, including the ceiling, in a reasonably safe condition; and after notice, to use reasonable diligence to make necessary repairs. (Altz v. Leiberson, 233 N. Y. 16.)

Apparently the principal issue tried was the question of notice to the agent. The plaintiff’s evidence in this particular was contradicted. We do not, however, fully agree with the appellant that this, with the question of injury, was the only issue for the jury, and that contributory negligence was by reason of concessions removed from the case. A request to charge upon the question of contributory negligence has been the cause of the reversal by the Appellate Division.

The defendant’s counsel requested the court to charge: I respectfully ask your Honor to charge the jury that if the plaintiff believed that the ceiling in this bedroom was dangerous or hable to fall, she was not at liberty to remain there and then attempt to hold the landlord for damage.” This the court declined to charge.

We do not think that the plaintiff can be charged with contributory negligence as matter of law, because she went to bed with her* child under a cracked ceiling, although she may have believed that the ceiling was hable to fall, or might fall. Under ah the circumstances and conditions this was a question for the jury. The nature and size of the apartment, the fact that the law permitted the plaintiff to remain in the apartment, and placed the duty upon the landlord to cure defects, after notice, together with his promise through the agent, to make inspection and repairs, if necessary, must be considered. Likewise, a jury must have in mind the nature of the crack, its size, the portion of the wall in which it was, and whether or not the plaintiff’s belief that it might fall also carried to her mind the belief that it would fall upon her when in bed to such an extent as to cause physical injury. If tenants could be forced out of rooms and apartments in tenement houses by landlords refusing to make repairs, by having visited upon them the rule of contributory negligence as matter of law if they remained, it would in effect nullify to a large extent not only the provisions of the Tenement House Law, but also weaken'the enforcement of the so-called Emergency Rent Laws. (Stern v. Equitable Trust Co., 238 N. Y. 267.)

That this question' of contributory negligence under similar circumstances is one for.the jury and not for the court is sustained by the cases. (Dollard v. Roberts, 130 N. Y. 269, 274; Frank v. Simon, 109 App. Div. 38, 42; Kenney v. Rhinelander, 28 App. Div. 246; affd., 163 N. Y. 576.)

The order of the Appellate Division should, therefore, be reversed, and the judgment of the Trial Term affirmed, with costs in this court and in the Appellate Division.

His cock, Ch. J., Cardozo, Pound, McLaughlin and Lehman, JJ., concur; Andrews, J., absent.

Ordered accordingly.


author: Lehman, J.

text:
    Exchange Mutual Indemnity Insurance Company, Respondent, v. Central Hudson Gas and Electric Company, Appellant.
    Limitation of actions — assignment — workmen’s compensation — no new remedy conferred upon dependents of deceased employee to recover for his death against third parties — action may not be maintained by insurance carrier against third party to recover, on assigned claim, for death of workman when not commenced until five years after death — insurance carrier not vested with new cause of .action when award is not made until after action by next of kin to recover against third party is barred.
    1. It was not intended by section 29 of the Workmen’s Compensation Law to confer upon the dependents of a deceased employee a new remedy or cause of action against third parties for the benefit of the next of kin. (Matter of Zirpola v. Casselman, Inc., 237 N. Y. 367, followed.)
    (Argued May 3, 1926;
    decided May 25, 1926.)
    2. An action may not be maintained by an insurance carrier, to which has been assigned, by an award of compensation under the Workmen’s Compensation Law, the cause of action of the dependents of a deceased workman against defendant, a third party, for negligently causing his death, where the cause of action was not begun until more than five years after that death. Neither assignment nor subrogation confers upon a new party rights greater than those which the original party possessed, and the only remedy of the dependents against defendant was through action brought by the personal representative of the decedent as provided in section 130 of the Decedent Estate Law, which action is barred unless brought within two years of decedent’s death.
    3. Nor may it be properly held that plaintiff may maintain this action, because, owing to permission to dependents to withdraw their previous election, to proceed against the wrongdoer, the award was not made until more than two years after the decedent’s death. The language of the Workmen’s Compensation Law fails to show an intent that the insurance carrier, upon the maldng of an award, should be vested with a new cause of action and the court may not read such an intention into the statute even if there may be some occasion when award is made after dependent’s cause of action or remedy has been lost by lapse of time.

      Exchange Mutual Indemnity Ins. Co. v. Central Hudson Gas & El. Co., 216 App. Div. 764, reversed.
    Appeal, by permission, from an order of the Appellate Division of the • Supreme Court in the second judicial department, entered March 19, 1926, which affirmed an order of Special Term denying a motion by defendant for a dismissal of the complaint.

      N. Otis Rockwood and M. Glenn Folger for appellant.
    It is impossible to read into section 29 of the Workmen’s Compensation Law an intention on the part of the Legislature to create a very broad and, in point of time, unlimited cause of action in the insurance carrier against a third party. (Zirpola v. Casselman, 237 N. Y. 367; Travelers Ins. Co. v. Padula Co., 224 N. Y. 397; Casualty Co. of America v. Swett E. L. & P. Co., 209 App. Div. 175.)

      Francis R. Holmes for respondent.
    The limitation contained in section 130 of the Decedent Estate Law requiring that an action by the personal representative of a deceased to recover damages for wrongful death shall be commenced within two years after the death, does not apply to an action brought by a workmen’s compensation insurance carrier as assignee under section 29 of the Workmen’s Compensation Law. (Bennett v. Page Brothers, 197 App. Div. 745; Travelers Ins. Co. v. Padula Co., 224 N. Y. 397; Travelers Ins. Co. v. Brass Goods Mfg. Co., 239 N. Y. 273.) The ends of justice demand that the right to sue upon an assigned cause of action against a third party under section 29 of the Workmen’s Compensation Law should continue so long as the possibility of an award against the employer or insurance carrier continues. Bennett v. Page Bros., 197 App. Div. 745.)
   Lehman, J.

The complaint alleges that on the 3d day of July, 1920, one E. Forrest Smith was in the employ of Charles P. Raymond as an electrician and, while acting within the scope of his employment, came into contact with transmission wires maintained by the defendant and sustained injuries which resulted in his death. Smith left him surviving a widow and three infant children, and the widow and children made claim for compensation under section 16 of the Workmen’s Compensation Law (Cons. Laws, ch. 67) and after due hearing an award was made in their favor by the New York State Industrial Board on or about March 20, 1923. The plaintiff is the insurance carrier hable for the payment of the compensation and, under the provisions of section 29 of the Workmen’s Compensation Law, the awarding of compensation operated as an assignment of the cause of action against the defendant based upon remedy which the dependents of the deceased employee might have pursued against the defendant for negligence in causing the death of the wage-earner if they had not elected to take compensation under the statute.

The present action is based upon such assignment. The complaint alleges that E. Forrest Smith’s death was caused solely by.defendant’s negligence. The action was begun more than five years after that death. The defendant has moved under subdivision 6 of rule 107 of the Rules of Civil Practice for an order dismissing the complaint. The motion was denied and on appeal to the Appellate Division the order denying the motion was affirmed by a divided court which has granted leave to appeal and has certified the question: “ Did the alleged cause of action upon which the plaintiff seeks to recover in this case exist at the time of the commencement of the suit or had it ceased to exist or been barred by limitation of time? ”

The right of the plaintiff to bring this action is governed solely by the provisions of section 29 of the Workmen’s Compensation Law. Its cause of action is based upon assignment of the cause of action which the dependents of the deceased might have had against the defendant and upon subrogation to the remedies which they might have pursued against the defendant. Under the provisions of section 130 of the Decedent Estate Law (Cons. Laws, ch. 13) an action by an executor or administrator for negligence or wrongful act causing death of the decedent must be commenced within two years of the decedent’s death. If the dependents had no remedy against this defendant except through action brought by administrator or executor under section 130 of the Decedent Estate Law, then even at the time the award was made, the remedy was lost by lapse of time. Question as to whether section 29 of the Workmen’s Compensation Law was intended to confer upon the dependents of a deceased employee, new remedy or cause of action, has been foreclosed by our decision in Matter of Zirpola v. Casselman, Inc. (237 N. Y. 367). “ We think the cause of action against third parties for the benefit of next of kin is unchanged by the Compensation Act except to the extent that the act substitutes the carrier, upon the execution of appropriate assignments, to the distributive shares of next of kin who claim as dependents also.” The dependents of the deceased employee in the present case had no remedy against the defendant except through action brought by the personal representatives of the decedent. It appears that they elected originally to pursue that remedy and brought an action against the defendant but subsequently abandoned it without the knowledge or consent of the plaintiff. Thereafter they were permitted to elect to take compensation under the Workmen’s Compensation Law. At the time of the award the defendant could have defeated any cause of action brought by them on the ground that it was brought too late. Neither assignment nor subrogation confers upon a new party rights greater than those which the original party possessed.

If we now hold that the plaintiff may maintain this action though the original cause of action or remedy of the personal representative or dependent of the deceased employee no longer exists, we must find, from the language of the statute, a legislative intent that the insurance carrier upon the making of the award should be vested with a new cause of action for which the Legislature has provided no statutory period of limitation. The language of the statute fails to show such intent and the general purpose of the statute may be given effect without stretching its language. In spite of obvious difficulties which would arise if the statute were given the construction for which the plaintiff contends, there might perhaps be argument in its favor if it appeared that, ordinarily, an award would not be made until after the time had passed when mere assignment of the cause of action or subrogation to the remedy of the dependents could result in the transfer of an existing and enforcible right. The Workmen’s Compensation Law contains provisions which must ordinarily result in an award long before two years have elapsed, unless there is election by the dependents of a deceased employee to pursue their remedy against the wrongdoer. Here there was such election and it is only the subsequent withdrawal of such election that has resulted in the assignment of an unenforcible remedy. Permission to withdraw previous election was granted, apparently, because it was thought that the plaintiff was not injured by the dependent’s abandonment of an action brought against the defendant after such previous election. We do not pass upon whether the election to proceed against the wrongdoer may be withdrawn when the parties cannot be restored to their original position. The court may not read into the statute an intention to create a new cause of action in favor of the insurance carrier or to wipe out limitation upon the bringing of a cause of action assigned to the carrier even if there may be some occasions when award is made after dependents’ cause of action or remedy has been lost by lapse of time. The orders of the Appellate Division and Special Term should be reversed, with costs in all courts; the motion granted, with costs, and the question certified answered as indicated in the opinion.

Hiscock, Ch. J., Cardozo, Pound, McLaughlin and Crane, JJ., concur; Andrews, J., absent.

Orders reversed, etc.