author: Pound, J.

text:
    Michael Shea, Respondent, v. Export Steamship Corporation et al., Appellants.

      (Argued October 10, 1929;
    decided February 11, 1930.)

      Frederick H. Cunningham, Howard W. Ameli and Edgar G. Wandless for appellants.
    The State court was without jurisdiction to consider the action because the vessel involved was a merchant vessel owned by and operated for the United States of America. (Suits in Admiralty Act of March 9, 1920.) The judgment should be reversed for lack of jurisdiction of the trial court. (United States Shipping Board Emergency Fleet Corp. v. Lustgarten, 50 Sup. Ct. Rep. 118; Minnesota v. Hitchcock, 185 U. S. 373.)

      Raymond Parmer for respondent.
    The trial court had jurisdiction. (United States Shipping Board Emergency

      Fleet Corp. v. Rosenberg Bros. & Co., 276 U. S. 202.) The court may not take judicial notice of the interest of the United States in the Emergency Fleet Corporation. (Sloan Shipyard Corporations v. United States Shipping Board Emergency Fleet Corp., 258 U. S. 546; United States v. Brown, 247 N. Y. 211; Cunningham v. Macon R. Co., 109 U. S. 446; United States v. Lee, 106 U. S. 196; Pollitz v. Wabash R. Co., 207 N. Y. 113.)
   Pound, J.

In this case the plaintiff sued in the State court to recover damages sustained by him as a result of the failure of the defendants to provide him, a seaman of the steamship Blue Triangle, owned by the Export Steamship Corporation and operated and controlled by the United. States Shipping Board Emergency Fleet Corporation, with proper food and drinking water. He recovered a verdict for $3,250. Judgment entered thereon was unanimously affirmed by the Appellate Division and an appeal was taken by leave to this court. ' ' Vj

Two points were made on the argument: First, that the court should have granted defendants’ motion to dismiss the complaint because the plaintiff had executed a release of his cause of action. Plaintiff denied that he had knowingly executed a release and alleged that he had been induced by fraud to execute what he supposed was a receipt which turned out to be a release. The issue on this question was one of fact and the record presents no question of law thereon. (Whipple v. Brown Bros. Co., 225 N. Y. 237.) Secondly, that the remedies given against United States Shipping Board Emergency Fleet Corporation by the Suits in Admiralty Act of Congress of March 9, 1920 (Mason’s U. S. Code, title 46, ch. 20, § 741 et seq.), are exclusive of all other .remedies, whether in law or in admiralty for liability of the Fleet Corporation growing out of the operation of merchant vessels of the United States, and that no suit would lie in the State court to recover damages in a tort action, either against the Fleet Corporation or its agent, the Export Steamship Corporation.

As to the second point, respondent contends that the question of jurisdiction was not raised below and cannot be raised in this court.

The record indicates that the case was tried on the theory that it was admitted by defendants that at the times mentioned in the complaint the defendant Export Steamship Corporation did manage and operate the merchant vessel Blue Triangle but only under and pursuant to an agreement with the United States Shipping Board represented by the defendant United States Shipping Board Emergency Fleet Corporation known as (l Agency agreement for managing and operating vessels,” whereby the Export Steamship Corporation managed, operated and conducted the business of the Blue Triangle as agent for the Fleet Corporation, as alleged in the answers of the defendants and that no proof was necessary on these points either from plaintiff or defendants. Both defendants had by their answers denied ownership, operation, management and control of the Blue Triangle except as provided in the agency agreement, a copy of which is attached to the answers. No cause of action was made out which connected the Blue Triangle with either defendant except by this qualified admission in the answer of such ownership and management.

The answers contained an allegation that the remedy provided by Congress by the Suits in Admiralty Act of March 9, 1920, was exclusive, and the question of jurisdiction was thus brought to the attention of the court. The question was then an open one. (United States Shipping Board Emergency Fleet Corp. v. Rosenberg Bros. & Co., 276 U. S. 202.)

While the general rule is that the allegations of new matter contained in the answer are deemed to be controverted by the plaintiff (Civ. Prac. Act, § 243), this rule should not be applied when for the purposes of the trial the plaintiff clearly and necessarily is compelled to rely on such allegations in order to make out his own case.

No motion to dismiss was made on the question of jurisdiction nor was it referred to on the trial. We thus have a case where the question of jurisdiction is, apart from the answers, raised for the first time in this court, although on facts set forth in the answers so relied on by the plaintiff in making out his case or susceptible of judicial notice which were before the trial court. The case thus differs from Dobbins v. S., B. & N. Y. R. r. Co. (215 N. Y. 674) and like eases where the issue of jurisdiction was not presented by the pleadings or proofs. The question of jurisdiction over the subject-matter, when Congress imposes a prohibition against action in the State courts and makes the status of the defendant a jurisdictional fact, cannot be dispensed with by litigants. In such a case the court may at any stage of the action ex mero motu refuse to proceed further and dismiss the action when the lack of jurisdictional facts comes to its' attention. (Robinson v. Oceanic Steam Nav. Co. Ltd., 112 N. Y. 315.)

The principal facts are sufficiently before the court by the acceptance by the plaintiff of the allegations of the answers in making out his case. Plaintiff could not avail himself of the admission that the Blue Triangle was operated by the defendant Export Steamship Corporation as the agent of the defendant United States Shipping Board Emergency Fleet Corporation without also conceding that it was a merchant vessel operated by the United States by its agents.

From the foregoing it appears that the court below dealt with a tort claim involving a merchant vessel of the United States operated for its account through the agency of the United States Shipping Board Emergency Fleet Corporation by the Export Steamship Corporation under a managing operation agreement.

The Supreme Court of the United States on January 6, 1930,. in Johnson v. United States Shipping Board Emergency Fleet Corporation and other cases involving the same jurisdictional question, particularly United States Shipping Board Emergency Fleet Corporation and Consolidated Navigation Co., Inc., v. Lustgarten, held (280 U. S. 320) that the remedy given by the United States Suits in Admiralty Act — i. e., a libel in personam in the United States District Court on its admiralty side — is exclusive in all tort cases' arising out of the possession or operation of merchant vessels by the United States or by any corporation in which the United States or its representatives own the entire outstanding capital stock, acting either directly or through its agents.

We may take judicial notice of the fact of the incorporation of the Fleet Corporation and of the fact that the United States became its sole stockholder. (United States v. Brown, 247 N. Y. 211, 216.) In addition, it sufficiently appears that “ directly or mediately the money required to pay a judgment against [defendants] would come out of the United States.” This is the accepted test bn the question of jurisdiction as laid down in the Johnson Case (supra). Against this background we must place this case for observation. Thus viewed, plaintiff shows no right to sue in the State court. The case should be dismissed for lack of jurisdiction.

The judgment of the Appellate Division and that of the Trial Term should be reversed and the complaint dismissed, with costs in all courts.

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

Judgments reversed, etc.


source: Caselaw Access Project

author: Cardozo, Ch. J.

license: Public Domain

text:
    Petrogradsky Mejdunarodny Kommerchesky Bank, Appellant, v. The National City Bank of New York, Respondent.

      (Argued January 13, 1930;
    decided February 11, 1930.)

      Frederick B. Campbell and Paul C. Whipp for appellant.
    The courts of the State of New York should not refuse to take jurisdiction of this action at law to recover a debt. (Bank of British North America v. Merchants Nat. Bank, 91 N. Y. 106; Crawford v. West Side Bank, 100 N. Y. 50; Shipman v. Bank of State of New York, 126 N. Y. 318; Baldwin’s Bank v. Smith, 215 N. Y. 76; Ætna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 82; Erb v. Banco Di Napoli, 243 N. Y. 45; Citizens Nat. Bank v. Importers & Traders Bank, 119 N. Y. 195; Banque de France v. Equitable Trust Co., 33 Fed. Rep, [2d] 202; Joint Stock Co. v. National City Bank, 240 N. Y. 368; Sliosberg v. New York Life Ins. Co., 244 N. Y. 482; Coler v. Corn Exchange Bank, 250 N. Y. 136; Newhall v. Longacre Bank, 248 N. Y. 252; Scheffer v. Erie County Savings Bank, 229 N. Y. 50; The defendants plea of possible double liability is without substance. (Banque Internationale de Commerce de Petrograd v. Goukassow, L. R. [1925] App. Cas. 150; Russian Commercial & Industrial Bank v. Comptoir d’Escompte de Mulhouse, L. R. [1925] App. Cas. 112; Employers Liability Assurance Corp., Ltd., v. Sedgwick, L. R. [1927] App. Cas. 95; Sokoloff v. National City Bank, 239 N. Y. 158.) The plaintiff exists and may maintain this action. (Matter of Huss, 126 N. Y. 537; People v. President & Directors of Manhattan Co,, 9 Wend. 351; Russian Commercial & Industrial Bank v. Comptoir d’Escompte de Mulhouse, L. R. [1925] App. Cas. 112; Banque Internationale de Commerce de Petrograd v. Goukassow, L. R. [1925] App. Cas. 150; Employers Liability Assurance Corp., Ltd., v. Sedgwick, Collins & Co,, L. R. [1927] App. Cas. 95; First Russian Ins. Co. v. London & Lancashire Ins. Co., Ltd., L. R. [1928] Ch. Div. 922; James & Co. v. Rossia Ins. Co., 247 N. Y. 262; First Russian Ins. Co. v. Stoddard, 240 N. Y. 601; Moscow Machine Tool & Engine Co. v. Richard & Co,, 240 N. Y. 707; Joint Stock Co. v. National City Bank, 210 App. Div. 665; Sokoloff v. National City Bank, 250 N. Y. 69.) The plaintiff’s directors had the requisite authority to institute this action. (Matter of Second Russian Ins. Co., 250 N. Y. 449; James & Co. v. Rossia Ins. Co., 247 N. Y. 262; First Russian Ins. Co. v. Beha, 240 N. Y. 601; Russian Reinsurance Co. v. Stoddard, 240 N. Y. 149; Beers v. N. Y, Life Ins. Co., 66 Hun, 75; Townsley v. Niagara Life Ins. Co., 160 App. Div. 178; 218 N. Y. 228.)

      Carl A, Mead and Justus Sheffield for respondent.
    Plaintiff has no right in our courts since the rule of comity does not apply to plaintiff. (Demarest v. Flack, 128 N. Y. 205; Russian Republic v. Cibrario, 235 N. Y. 255; Sliosberg v. N. Y. Life Ins. Co., 244 N. Y. 482; Bank of Augusta v. Earle, 13 Pet. 519; Russian Reinsurance Co. v. Stoddard, 240 N. Y. 149.) The plaintiff’s corporate powers and the lawful method of exercising them are determined by imperial Russian law. (Demarest v. Flack, 128 N. Y. 205; Mariyne v. American Union Fire Ins. Co., 216 N. Y. 183; Russian Reinsurance Co. v. Stoddard, 240 N. Y. 149; Sliosberg v. N. Y. Life Ins. Co., 244 N. Y. 482; Bank of Augusta v. Earle, 13 Pet. 519; Southworth v. Morgan, 205 N. Y. 293; Croker v. Croker, 252 N. Y. 24; Electric Fireproofing Co. v. Smith, 113 App. Div. 615; Fitzpatrick v. International Ry. Co., 252 N. Y. 127; Electric Welding Co. v. Prince, 200 Mass. 386; Hite v. Keane, 149 Wis. 207.) Plaintiff cannot bring this action, since its corporate existence had terminated before the action was begun. (First Russian Ins. Co. v. Beha, 240 N. Y. 601; Matter of Beha [Second Russian Ins. Co.], 215 App. Div. 796; 243 N. Y. 524; Wulfsohn v. Russian Republic, 234 N. Y. 372; Sokoloff v. National City Bank, 239 N. Y. 158; Russian Reinsurance Co. v. Stoddard, 240 N. Y. 149; Banque de France v. Equitable Trust Co., 33 Fed. Rep. [2d] 202; United States v. Palmer, 3 Wheat. 610; McCulloch v. Norwood, 58 N. Y. 562; People v. Knickerbocker Life Ins. Co., 106 N. Y. 619; Rodgers v. Adriatic Fire Ins. Co., 148 N. Y. 34; Pendleton v. Russell, 144 U. S. 640.) The terms of the plaintiff’s former directors having expired, they had no authority to bring this action. (Story on Agency, § 141; Drummond v. Wood, 2 Caines, 310; Joslin v. Cowee, 52 N. Y. 90; Harter v. Blanchard, 64 Barb. 617.) Possible double liability is a complete equitable defense. (Crary v. Goodman, 12 N. Y. 266; Chase v. Peak, 21 N. Y. 581; New York Central Ins. Co. v. National Ins. Co., 14 N. Y. 85; Hoppough v. Struble, 60 N. Y. 430; Glacken v. Brown, 39 Hun, 294; James v. Second Russian Ins. Co., 239 N. Y. 248; Murphy v. Second Russian Ins. Co., 240 N. Y. 554; Russian Republic v. Cibrario, 235 N. Y. 255.)
   Cardozo, Ch. J.

The plaintiff, a Russian bank, chartered in 1869 by the Imperial Russian Government, has deposit accounts with the defendant, opened in 1911 and 1915, with a balance of $66,749.45 to its credit at the trial.

Following the Soviet revolution of November, 1917, the assets of the bank in Russia were seized by the revolutionary government, and the directors driven into exile. By decrees of the Russian Soviet Republic in 1917, the bank was declared to be merged in the People’s or State Bank, its assets were confiscated, its liabilities canceled, and its shares extinguished, and by a later decree, in January, 1920, the People’s or State Bank was itself abolished, a banking system having been found to be unnecessary to the new economic life.

The terms of the plaintiff’s charter or statutes ” are printed in the record. The governing body was to be a directorate consisting of seven members, of whom three were to form a quorum. One of the directors lost his life in the revolution. The other six made their way to Paris, where they held meetings from time to time, and did such business as they could. All six were alive in October, 1925, when this action was begun. Three have since died, but a quorum, three, survive.

At the time of the revolution the bank had assets of large value outside the territorial limits of the Soviet Republic. The refugee directors have sought and are still seeking to bring these assets together at their present domicile in Paris. Branch banks were in existence in London, Paris, Brussels and Geneva. The assets in these branches, with the exception of those in Geneva, have been paid to the directors, and are held in the name of the bank to be distributed hereafter as justice may require. At times the payments have been voluntary, and at times in obedience to judgments of the courts. In fulfilment of the same policy, the directors have attempted to collect the balance on deposit with the defendant in New York. They requested payment, but the defendant declined to recognize their authority. They presented a check, signed by directors who had been accredited in former years as competent to draw, but the check was dishonored. In this action, which followed, the defendant insists: (1) That the plaintiff corporation has been dissolved and is no longer a juristic person; (2) that.if it be a juristic person, its former directors are without authority to speak for it; and (3) that the court, in any event, should decline jurisdiction since a judgment for the plaintiff will leave the defendant unprotected against the danger of conflicting claims. The Trial Term gave judgment in favor of the defendant, and the Appellate Division unanimously affirmed.

(1) We think the plaintiff is not dissolved, but is still a juristic person with capacity to sue.

The decrees of the Soviet Republic nationalizing the Russian banks are not law in the United States, nor recognized as law (Sokoloff v. National City Bank, 239 N. Y. 158; James & Co. v. Second Russian Ins. Co., 239 N. Y. 248; Russian Reinsurance Co. v. Stoddard, 240 N. Y. 149). They are exhibitions of power. They are not pronouncements of authority. “Acts or decrees, to be ranked as governmental, must proceed from some authority recognized as a government de facto ” (Sokoloff v. National City Bank, supra, p. 166). Exhibitions of power may be followed or attended by physical changes, legal or illegal. These we do not ignore, however lawless their origin, in any survey of the legal scene. They ar.e a source at times of new rights and liabilities. Ex facto jus oritur. Exhibitions of power may couple the physical change with declarations of the jural consequences. These last we ignore, if the consequences, apart from the declaration, do not follow from the change itself (cf. Russian Reinsurance Co. v. Stoddard, supra). There may be exceptions to this as there are to most principles of equal generality. If so, it is only when “ violence to fundamental principles of justice or to our own public policy might otherwise be done ” (Sokoloff v. National City Bank, supra, p. 166). The every-day transactions of business or domestic life are not subject to impeachment, though the form may have been regulated by the command of the usurping government (Sokoloff v. National City Bank, supra, p. 165; James & Co. v. Second Russian Ins. Co., supra; MacLeod v. United States, 229 U. S. 416, 428; Baldy v. Hunter, 171 U. S. 388; Connick, The Effect of Soviet Decrees in American Courts, 34 Yale L. J. 499, 506). To undo them would bring hardship or confusion to the helpless and the innocent without compensating benefit. On the other hand, there is no shelter in such exceptions for rapine or oppression. We do not recognize the decrees of Soviet Russia as competent to divest the plaintiff of the title to any assets that would otherwise have the protection of our law. At least this must be so where the title thus divested is transferred to the very government not recognized as existent. For the same reason we do not admit their competence in aid of a like purpose to pass sentence of death on the expropriated owner. Death,' if it has followed, is not death by act of law (Hervey, The Legal Effects of Recognition in International Law, passim, 38 Harv. L. Rev. 818, 822; cf. Noel-Henry, Les Gouvernements de Fait devant le Juge, pp. 98, 107, 108).

In saying this we assume, though we are not required to decide, that the decrees were intended to extinguish the life of the nationalized banks, and not merely to strip them of ownership or usufruct (cf., however, Russian C. & I. Bank v. Comptoir d’Escompte de Mulhouse, [1925] App. Cas. 112; Banque, etc., v. Goukassow, [1925] App. Cas. 150; Employers’ Liability Assur. Corp., Ltd., v. Sedgwick & Co., [1927] App. Cas. 95; Wohl, Nationalization of Joint Stock Banking Corporations in Soviet Russia, 75 U. of Penn. L. Rev. 385, 386, '392, 395, with references to decisions in France and Germany). Even so, the jural consequence of dissolution will not follow from what was said unless, though nothing had been said, it would result from what was done. The dissolution of the banks was not mere ordinary legislation, such as naight have been had there been no war ” (United States v. Insurance Companies, 22 Wall. [U. S.] 99, 103), but legislation closely interwoven with the overthrow of the old order and the creation of a new one. These and like circumstances have a bearing on the meed of recognition that is due in foreign lands. There is a distinction not to be ignored between the life of a human being and the life of a persona ficta, the creature of the State. When a human being dies, his death is equally a fact whether it is brought about legally or illegally, whether he has died of illness in his bed or has been murdered on the highway. The event is not conditioned by the juristic quality of the cause. But in respect of juristic beings, the quality of the cause may determine the event as well. The personality created by law may continue unimpaired until law rather than might shall declare it at an end. Conceivably, the law will declare it at an end when marauders have brought frustration to the purpose for which personality was given. ' That is another question. What is not to be lost sight of is that even so it is the law and not merely an assassin that must pronounce the words of doom.

Putting aside, then, as irrelevant the fiat of the Soviet Government that the jural consequence shall be death, we are brought to the question whether the law of the Imperial Government of Russia or of the later Provisional Government would have ascribed the consequence of death to the supervening changes irrespective of the fiat. These changes in briefest summary are the loss of the Russian assets, the dispersion of the stockholders, and the exclusion of the directors as well as all subordinate agents from the soil of the old empire.

An answer to that question leads us to the contentious problem of the origin and nature of juristic personality. The theories, broadly speaking, are two, though subject to many variations within the main lines. The one is the concession theory, by which corporate personality is invariably the gift, and creature of the State (Holdsworth, History of English Law, vol. 9, p. 48; Kohler, Philosophy of Law, Modern Legal Philosophy Series, p. 68; Dewey, The Historic Background of Corporate Legal Personality, 35 Yale L. J. 655). Corporate life and form,” says Holdsworth (supra), “ cannot exist without the permission of the state, express, presumed, or implied.” This is the prevailing theory in Anglo-American law, though rifts in its uniformity are visible here and there (cf. United Mine Workers v. Coronado Coal Co., 259 U. S. 344, 385, 387). The other is the theory that even in the absence of a charter or other token of the will of government there are groups so natural and spontaneous as to evoke legal recognition of a corporate existence (Maitland, Introduction to Gierke’s Political Theories of Middle Age; Pollock, Essays in the Law, p. 153; Laski, The Personality of Associations, 29 Harv. L. Rev. 404; Saleilles, De La Personnalité Juridique, passim; Roguin, Science Juridique Pure, vol. 2, pp. 434, 460, el seq.; Wise’s Outlines of Jurisprudence [4th ed. by Oliver], p. 49). We are not advised by this record whether, by the law of Imperial Russia, the theory of a concession was exclusive of any other. Certain, however, it is that the theory was not unknown whether it be exclusive or concurrent. Here in this record are the legislative act and the charter or statutes ” formulated thereunder that bespeak the legislative gift. What the law itself' has granted, the law must take away.

The corporation once existing, the burden was on the defendant to overthrow the presumption of continuance and to show that life had ceased (Russian C. & I. Bank v. Comptoir d’Escompte de Mulhouse, supra; Matter of Huss, 126 N. Y. 537, 542). We cannot say upon this record that the burden has been borne. If we look to the analogies of our own law, the conclusion is not doubtful. Neither bankruptcy (Chemical Nat. Bank v. Hartford Dep. Co., 161 U. S. 1; Brock v. Poor, 216 N. Y. 387, 401), nor cessation of business (Brock v. Poor, supra; Brooklyn Steam Transit Co. v. City of Brooklyn, 78 N. Y. 524,529), nor dispersion of stockholders, nor the absence of directors (Speer v. Colbert, 200 U. S. 130, 144; Brock v. Poor, supra), nor all combined, will avail without more to stifle the breath of juristic personality. The corporation abides as an ideal creation, impervious to the shocks of these temporal vicissitudes. Not even the sequestration of the assets at the hands of a receiver will terminate its being (Mann v. Pentz, 3 N. Y. 415, 420; Kincaid v. Dwinelle, 59 N. Y. 548, 553; Brock v. Poor, supra; Folger v. Columbia Ins. Co., 99 Mass. 267). “A corporation may by virtue of proceedings against it, or by reason of its pecuniary condition, cease to exist for all practical purposes, all the purposes for which it was created or for which a corporation may exist, but it cannot be held to be actually dissolved till so adjudged and determined, either by judicial sentence or the sovereign power” (Kincaid v. Dwinelle, supra, at p. 552). “ The appointment of a receiver to take and distribute among the creditors and stockholders all the property of a corporation may with sufficient accuracy be called, as it was by Chancellor Walworth in Verplanck v. Mercantile Ins. Co. (2 Paige, 452), and Bank Commissioners v. Bank of Buffalo (6 Paige, 503), ‘ a virtual dissolution of the corporation;’ but it does not extinguish its franchise, terminate its legal existence, or render it incapable of being sued, at law or in equity ” (per Gray, J., in Folger v. Columbia Ins. Co., supra). A fortiori must that be true if assets remain either in the domicile or elsewhere to be administered for the benefit of stockholders, known or unknown. In such a situation, there is no dissolution of any kind, either virtual ” or legal (Kincaid v. Dwinelle, supra, at p. 553; cf. Russian C. & I. Bank v. Comptoir d’Escompte de Mulhouse, supra). The corporate fife in that event does not serve an expropriated being, but one endowed with worldly goods, and in need of capacities adequate to protect them. Survival follows in such circumstances from the very concept of a corporation as it is known to our law. If there is anything in that concept at variance with the concept corporation as known to the law of Russia, the defendant, charged with the burden, has not informed us of the variance.

We are not unmindful of the witnesses who testified to an opinion that the plaintiff, as a result of all the changes it had experienced, was no longer a juristic person in the jurisdiction of its domicile. Their opinion, at least in part, was based on the assumption that the Soviet decrees were to be given the effect of law. It is not easy to disentangle what is left when that assumption is withdrawn. Prove, indeed, they did that the law of Imperial Russia would not suffer a bank to carry on the banking business while thus despoiled and crippled. This was far from proving that there would be a lack of corporate capacity to gather in the assets and repair the spoliation. In determining that capacity, we think away the physical impediments to the attainment of the corporate will, and ask, if these could be surmounted, whether the law would interpose new impediments of its own, would hold the struggle vain for want of a living victor to enjoy the tardy triumph. The statute does indeed prescribe that a bank shall be liquidated if it loses a quarter of its capital. The witnesses for the defendant concede that this provision does not execute itself and is unavailing ipso facto to terminate the corporate fife. The statute prescribes visitation and control by the Minister of Finance. The witnesses for the defendant do not say that there is any law whereby the death of the Minister is the death of the corporations subject to his scrutiny. The statute prescribes the election of the directors on the expiration of their terms at the annual meeting of the shareholders. The witnesses do not say that the shareholders would be prohibited by anything in the pre-Soviet law from coming together now and choosing a new board. The statute prescribes by implication, or so we may assume, that the directors shall meet at the principal office of the corporation, which in this instance was stated in the charter to be the city of Petrograd. The witnesses for the defendant do not point to any law whereby the directors would be without capacity to meet in Petrograd today if the new regime were overthrown or its vigilance eluded. The sum and substance of their testimony is this and nothing more, that through the exercise of power without authority of law there has been a paralysis of action within the confines of the territory where the power is still dominant. They have yet to show that as a consequence of this paralysis of action the very law that has been flouted multiplies the misfortunes of the victim by talcing back also the concession of juristic life. One of the witnesses was asked whether the plaintiff would be without corporate capacity if the revolutionary government were to be destroyed tomorrow and the empire re-established. He answered that capacity would fail because a new statute would be necessary to annul the Soviet decree that had nationalized the banks. Here, as often, interwoven into the statement of opinion even when formally disclaimed, is the notion that the Soviet decrees have the authority of law. Abstract that notion, and the structure falls.

We are told from time to time in textbook and decision that a finding of foreign law is a finding of fact, to be reviewed in subjection to the same restraints that apply to the review of findings of fact generally. True, of course, it is that there is no judicial notice of the law of foreign lands. This does not mean, however, that the mere opinion of a witness will control the judgment of a judge except to the extent that it is a reasonable inference from statute or from precedent or from the implications of a legal concept, such as contract or testament or juristic personality (Eastern Bldg. & Loan Assn. v. Williamson, 189 U. S. 122, 127; Finney v. Gay, 189 U. S. 335, 342; Bank of China, etc., v. Morse, 168 N. Y. 458, 470; Fitz patrick v. International Ry. Co., 252 N. Y. 127, 138, 139). Unless it is this, the judge must use his own judgment and find the meaning of the foreign law as he would if the meaning to be ascertained were that of a deed or an agreement. This is as true upon appeal as it is upon a trial. At such times and for such inquiries, opinion has a significance proportioned to the sources that sustain it. Especially is that so where the problem to be solved is the measure of recognition that. is due under a given legal system to the acts of another system that professes to displace and supersede it. There is little in the practice or training peculiar to a Russian lawyer that enables him to speak as to such matters with any special measure of assurance or authority. In the absence of any precedents supplied by Russian history, the tests to be applied are those of international law as distinguished from any law that is municipal or local. The witnesses for the defendant believe that the corporation is no more, but the witness for the plaintiff believes that it survives. The fact is significant that there is no witness on either side who deduces his conclusion from any principle specifically Russian as to the continuance or destruction of juristic personality. Russian law is cited to show the rules that govern corporations during life. There is silence as to any rules for the ascertainment of the fact of death. In this conflict of opinion we are driven back upon the sources from which opinion must be derived if it is to have persuasion or validity. Statute and precedent and concept must be brought before the bar.

We find no statute or precedent that points with reasonable clarity to the conclusion that by the law of preSoviet Russia there has been an extinguishment of life as well as a suspension of activity. We find nothing in the Russian concept of juristic personality that leads to that conclusion, for there is nothing to show that the concept differs from our own. This being so, the presumption of continuance must tilt the balanced scales. The corporation survives in such a sense and to such a degree that it may still be dealt with as a persona in lands where the decrees of the Soviet Republic are not recognized as law. We think there is no substantial basis in the evidence for an opinion to the contrary (Matter of Case, 214 N. Y. 199).

(2) The corporation surviving, the question must still be answered whether the former directors have authority to speak for it.

The concept of corporate personality is to be kept distinct in thought from that of authority or agency, though they are easily confused. It is one thing to say that there is still a corporation for whom directors, legally qualified, will be competent to act. It is another thing to say that directors, so qualified, exist.

The defendant insists that at least for two reasons the former directors are not qualified today to represent the plaintiff corporation by suing in its name, even if corporate personality be assumed to have continued. One is that the directors, though lawfully elected, were chosen for terms which have expired, and that there has been no re-election since the Soviet revolution. The other is that meetings should have been held in Petrograd and nowhere else.

Neither objection, in our view, is sufficient to disprove authority.

The witnesses for the defendant state that there is no rule of Russian law whereby, in default of an annual meeting, a director holds over until the choice of his successor. The plaintiff’s witness says the contrary, and reinforces his opinion by the analogy of precedents in which the principle of holding over has been applied to fiduciaries of other kinds. One finds it incredible that automatically, upon the failure to hold a meeting of the shareholders before the expiration of the year at which an election is due, directors, not re-elected, are shorn of their powers, the corporation becoming a derelict without managers to guide it. Such a thing does not seem possible in an enlightened legal system. Taking the defendant’s witnesses at their word, they do not go so far as to maintain that this chaos would ensue. The directors in their view would not hold over in the capacity of directors, but would be charged, none the less, with a special obligation of conservation and protection. That is merely to say in other words that they are directors de facto, whatever the title of the office, since there is no one other than themselves on whom the duty to manage is imposed. We think their authority is sufficient in default of other representatives to permit them to sue in our courts in the name and for the benefit of the corporation they represent (James & Co. v. Rossia Ins. Co., 247 N. Y. 262). In saying this we are not unmindful that the shareholders, the equitable owners of the assets, are dispersed and to some extent unknown. Some of them, however, are known, though the complete list was destroyed upon the seizure of the Russian office. Others, if now unknown, may, not impossibly, be identified or discovered through inquiry and advertisement, or other forms of constructive service. The charter of the bank provides that upon the death of a shareholder, his rights pass to his heirs at law or his testamentary heirs, but in no case can a share be split.” It will be for the courts of the French Republic, if the fund is sent to France, to devise and apply the process and the remedies that will insure an administration of the assets in conformity to justice.

What has been said as to the consequences of a failure to re-elect the directors may be said with little variation as to the failure of the directors to hold their meetings at the banking house in Petrograd. The witnesses for the defendant assert that there was no authority to meet elsewhere. The witness.for the plaintiff states the contrary. We may assume for present purposes that the principal banking house in Russia was the proper place of meeting, and that any director, not present, might refuse to be bound by action taken elsewhere (cf. Ormsby v. Vermont Copper Mining Co., 56 N. Y. 623; Matter of George v. Holstein-Friesian Assn., 238 N. Y. 513, 521). This does not mean of necessity that action might not be taken elsewhere by unanimous consent. Still less does it mean that action taken elsewhere by unanimous consent must be disregarded as a nullity if it was impossible by reason of vis major to hold the meeting at the home office. Fire, flood or earthquake, as well as insurrection, might threaten death or ruin. One finds it incredible that at such a time a board would be driven by law to abandon the corporation to spoliation and destruction because unable to meet in Petrograd, though able to come together in some other part of Russia or across the Russian border. Testimony much more explicit and persuasive than any offered by the defendant would be necessary in order to lead us to the acceptance of a conclusion so grotesque. There is no suggestion of any rule of Russian law that so obstructs and cripples the life preserving power in the face of present peril. At the very least, a resolution thus adopted would have the force to be attributed to the action of de facto managers, speaking and acting for the corporation in an emergency too urgent to wait upon formality.

(3) The possibility of adverse claims does not relieve the defendant from liability when sued in an action at law by a depositor who is successful in proving a title to the fund.

The defendant cites our decision in Russian Reinsurance Co. v. Stoddard (240 N. Y. 149, April, 1925), as supporting its defense. The ruling is inapplicable to the situation now before us. There the subject of the controversy was a fund deposited in a bank to be held as trustee for a Russian insurance company, its stockholders and creditors. The company made demand that the res be returned by the trustee upon the ground that the purposes of the deposit had failed and that the trust was at an end. The bank set up in defense the existence of an adverse claim of title by the Soviet Republic, and the danger that this claim might be upheld in France and in other countries where the Soviet decrees were recognized as law. We held that in a suit in equity, there is discretion, if not duty, to refuse a decree whereby a trustee will be directed to make payment of the subject of the trust to one of two claimants unless there is power also by force of the same decree to protect against the rival (Mahr v. Norwich Union Fire Ins. Co., 127 N. Y. 452). The rule is different altogether in actions at law (Chapman v. Forbes, 123 N. Y. 532; Bauer v. Dewey, 166 N. Y. 402). Here in the case before us the subject of the controversy is not property burdened with a trust to be administered in equity. The subject is an ordinary deposit in a bank to be sued for, if at all, in an action founded on the debt. In actions of that order, a refusal to pay when due is not sustained without more by the presence of an adverse claim. The defendant, if unable to interplead, must respond to the challenge, and defend as best it can (Coler v. Corn Exchange Bank, 250 N. Y. 136, 145; Newhall v. Longacre Bank, 248 N. Y. 252, 254; Scheffer v. Erie County Sav. Bank, 229 N. Y. 50, 53).

The argument is pressed that the danger of double liability supplies the basis for an equitable defense, if not for any other. The danger is not imminent, as the course of events since our decision in Russian Reinsurance Co. v. Stoddard (supra) sufficiently attests. France recognizes the Soviet Republic as a member of the family of nations. Yet, till now at least, it has failed to give effect to titles having their basis in decrees of confiscation (cf. Wohl, Nationalization of Joint Stock Banking Corporations in Soviet Russia, 75 U. of Penn. Law Rev. 385, 392, 395, with citation of French authorities). But in actions at law, the danger, whatever it may be, is no defense at all, whether equitable or legal. An equitable defense is one of such an order as would once have been enforced by the Court of Chancery through the remedy of an injunction restraining the prosecution of the remedy at law (Susquehanna S. S. Co., Inc., v. Andersen & Co., Inc., 239 N. Y. 285, 292). The Court of Chancery did not enjoin the prosecution of a legal action because of the possibility of adverse claims unless the circumstances were such as to sustain a bill of interpleader. The defendant does not and cannot interplead the Soviet Republic. That being so, it must wage the battle for itself. Negligible is the risk that by any judgment in its domicile it will be compelled to pay again. Whatever risk it runs abroad, is one that it assumed as part of the business of a bank. “ The chance of double payment is a common risk of life ” (Coler v. Corn Exchange Bank, supra, p. 145).

The case comes down to this: A fund is in this State with title vested in the plaintiff at the time of the deposit. Nothing to divest that title has ever happened here or elsewhere. The directors who made the deposit in the name of the corporation or continued it in that name now ask to get it back. Either it must be paid to the depositor, acting by them, or it must be kept here indefinitely. Either they must control the custody, or for the present and the indefinite future it is not controllable by any one. The defendant expresses the fear that the money may be misapplied if the custody is changed. The fear has its basis in nothing more than mere suspicion. The directors, men of honor presumably, will be charged with the duties of trustees, and will be subject to prosecution, civil or criminal, if those duties are ignored. The defendant is not required to follow the money into their hands and see how they apply it. Its duty is to pay.

The judgment of the Appellate Division and that of the Trial Term should be reversed and judgment directed in favor of the plaintiff for $66,749.45 with interest from December 21, 1920, and costs in all the courts.

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

Judgment accordingly.


author: Crane, J.

text:
    John T. Williamson, Respondent, v. John Casa-Eguia, Appellant, Impleaded with Another.
    (Argued January 14, 1930;
    decided February 11, 1930.)

      Edward E. Franchot for appellant.
    The court may not read into a writing by implication an intention of the parties not expressly stated therein but presumed to exist as a matter of fact and exclude all testimony tending to negative such intention or hold, as a matter of law, that there is an irrebuttable presumption of law irrespective of the actual intention of the parties that the defendant agreed not to appropriate to his own use collateral for one of several notes. (Barney v. Forbes, 118 N. Y. 580; Burritt v. Palmer-Marcy Co., 236 N. Y. 135; Studwell v. Bush Co., 206 N. Y. 416; Thomas v. Scutt, 127 N. Y. 133; Matter of Canfield, 190 Fed. Rep. 266; Whipple v. Brown Bros. Co., 225 N. Y. 237.) Respondent’s claim that the errors of the trial court in excluding testimony have been cured or waived by the introduction of the excluded testimony in another form is not valid. (Barber v. Ellingwood, 137 App. Div. 702; Silberstein v. Silberstein, 218 N. Y. 525; Shaw v. Broadbent, 129 N. Y. 114; Rose v. Hawley, 133 N. Y. 315.)

      Frank Gibbons for respondent.
    The decision of the trial court excluding oral testimony was right. (Traders National Bank v. Laskin, 207 App. Div. 18; 238 N. Y. 535; Holloran v. N. & C. Contracting Co., 249 N. Y. 381; Mitchell v. Lath, 247 N. Y. 377; Lyon Brewery v. Loughran, 223 App. Div. 623; Kelly v. Ruppert, 173 App. Div. 116; Lyon Brewery v. Fricke, 204 App. Div. 470; Ruppert v. Singhi, 243 N. Y. 156.)
   Crane, J.

The plaintiff, John T. Williamson, is a resident of Niagara Falls, and an ice merchant. He has been president of the Cataract Ice Company, and of the Niagara County Savings Bank. He has been in the ice business all his life. A rival ice company was owned by the defendants. It was known as the Niagara Falls Manufacturing and Storage Company. The capital stock consisted of 1,500 shares, of which John Casa-Eguia owned 780 shares, and Herbert M. Pease owned 720. Pease proposed to Williamson that he buy them out. An offer was made and accepted, and the deal closed on December 1, 1922. The defendants sold their stock to the plaintiff. The value of the stock depended upon the assets of the corporation. Right after the deal was consummated and the money paid, the defendant Casa-Eguia seized $25,000 worth of second mortgage bonds belonging to the corporation, and appropriated them to his own use. At least this was the claim of the plaintiff, who, in a few days after taking possession of the corporation which he had purchased, discovered the fact and made demand for the return of the property. This action was brought to recover the damages which the plaintiff sustained in the lessened value of his stock by reason of this misappropriation, or unwarranted seizure of the corporate property. Whether this claim of Williamson is true was the question litigated on the trial. The defendant Casa-Eguia admitted taking the bonds, but as a defense claimed that it was with the consent of the plaintiff and part of the agreement of purchase that he should keep them. The trial court ruled out this defense upon the ground that the contract for the purchase of the stock of the Niagara Falls Ice Manufacturing and Storage Company was in writing and would be varied or changed by the evidence of Casa-Eguia. This ruling is presented to us as error requiring reversal.

The books of the corporation show that it owned and possessed at the time of these transactions $50,000 of second mortgage bonds which were in the treasury of the corporation. The defendants had borrowed money for the corporation at the Power City Bank. The note was made by the corporation and indorsed by Casa-Eguia and his wife. It had been reduced to $16,000. The bank held $25,000 of these second mortgage bonds as security for the note.

The company also had other notes outstanding — four notes aggregating $39,000, payable to the Peoples Bank of Niagara Falls.

With these facts before them, Casa-Eguia made his offer or proposition in writing November 29, 1922, in part reading as follows:

“ November 29th, 1922.
“ Mr. John T. Williamson, ■
“ c /o Catabact Ice Company,
“ 821 Cedar Avenue.
“ Niagara Falls, New York.
“ Deab Sib.— I hereby offer to sell to you 780 shares of the common stock of Niagara Falls Ice Manufacturing & Storage Company, and to pay all outstanding notes of the Niagara Falls Ice Manufacturing & Storage Company except four notes made by the company payable to Peoples Bank of Niagara Falls for $4,000, $5,000, $5,000 and $25,000, dated November 29th, 1922, November 29, 1922, November 8th, 1922, and July 1st, 1921, respectively, for $67,500 in cash.
“ The total authorized issue of the capital stock of Niagara Falls Ice Manufacturing & Storage Company is 1500 shares, of which Mr. Pease owns 720 and I own 780 shares. Immediately upon the acceptance of this offer, a directors’ meeting will be called. * * *
“ Yours very truly,
“ J. CASA EGUIA.
The above proposition is accepted.
“ 12/1/22 JOHN T. WILLIAMSON.”

As above stated, the sale was consummated on December 1, 1922, and the price paid by Williamson. At the time these negotiations were going on with Williamson, Casa-Eguia procured from his codefendant, the only other, stockholder, consent that he take the $25,000 of second mortgage bonds pledged with the Power City Bank as and for his own. This was to be ratified later by the corporation, which of course was a mere empty form, as these two men owned until the sale to Williamson all the stock. The consent of the corporation meant merely writing in a book. With this consent from Pease, Casa-Eguia went to the Power City Bank, paid $16,000 and took the $25,000 of second mortgage bonds, which he immediately appropriated to his own use. If by his agreement with Williamson he was to pay the note at the Power City Bank as part of the consideration for the purchase by Williamson of the corporate stock, and thus release the hen of the bank on the $25,000 mortgage bonds in behalf of the company for the benefit of Williamson, his appropriation of the bonds was an unlawful seizure of the corporate assets. By his acts CasarEguia reduced the value of the corporate stock which Williamson had purchased in the amount of the value of the bonds. This was a wrong, damaging the value of the property which Casa-Eguia and Pease had sold to Williamson, and to recover which this action could be maintained. (Matter of Auditore, 249 N. Y. 335; General Rubber Co. v. Benedict, 215 N. Y. 18.)

On December 11, 1922, the facts were discovered by Mr. Williamson who, in behalf of the company, wrote to Casa-Eguia, demanding the return of the bonds to the treasury of the company. Casa-Eguia replied on the 15th, stating that he had purchased the bonds and refused to return them.

Was the letter of November 29, 1922, complete in itself so that any arrangement or understanding had at or before the time between Williamson and Casa-Eguia in reference to this Power City Bank note could not be explained orally? The testimony which Casa-Eguia intended to give is before us in an exhibit admitted for another purpose. He [Williamson] says that this could be very well arranged so far as the notes at the Peoples Bank were concerned. Then the question came up of the note at the Power City Bank. Mr. Williamson had some doubt if he could take care of this note. I then offered to pay this note personally in return for certain bonds which were left in the bank as part collateral for that note. He stated that he would be very glad to have me take up those bonds in payment for that note at the Power City Bank. He then asked me if I would hold his bonds until their maturity. He said he would reheve me of my indorsements on those notes as a condition to the sale to him of the stock at the price mentioned. He said he could not handle the note at the Power City Bank.”

Should this testimony have been admitted? To repeat, it was excluded by the judge when asked of the defendant and his witnesses, for the reason that it would vary the terms of a written instrument, the letter or agreement of November 29, 1922. We are of the opinion that this evidence should have been admitted and that it does not come within the “ variance ” rule.

By the letter, Casa-Eguia agrees to pay all outstanding notes of the corporation, except the four held by the Peoples Bank of Niagara Falls. That means that he agreed to pay the Power City Bank note of $16,000. He did pay it. What was to become of the $25,000 of second mortgage bonds held as security? The letter of November 29th is silent on this point. Casa-Eguia was liable on this note — he and his wife, as indorsers. While it may seem far fetched that Williamson was willing that Cása-Eguia should receive $25,000 of mortgage bonds for $16,000, thereby making $9,000 profit, instead of paying the note and taking the profit himself, yet this would depend upon the value of the second mortgage bonds. But whether it be an extravaganza or not, the agreement is silent on the subject. In this respect it is incomplete. Having before us the claim of Casa-Eguia, and what he has to say about the arrangement, it does not appear to be inconsistent with the writing, or contrary to its terms. (Thomas v. Scutt, 127 N. Y. 133.) Would the security with the Peoples Bank of Niagara Falls go to Williamson or his company on payment of its notes with that bank? Would the security for all other outstanding notes which were to be paid by Casa-Eguia go to the latter? Here is room for argument; here is an uncertainty or ambiguity, because the agreement has nothing on the point. Where an indorser or maker of a note secured by collateral takes it up, he is entitled to the collateral as a general rule. (National Exchange Bank v. Silliman, 65 N. Y. 475, p. 479; O’Hara v. Haas, 46 Miss. 374; Surghnor v. Beauchamp, 24 La. Annual, 471.) It may be that in this case, however, the collateral at the Power City Bank by the agreement between Williamson and Casa-Eguia was to go to the corporation, the maker, discharged of the lien; that Casa-Eguia was to pay the $16,000 note as part of his agreement of sale; to pay $16,000, free the bonds and turn over his stock for $67,500 cash. A question of fact was here presented to be determined on all the evidence. The application of the parol evidence rule is at times difficult, but we feel that in this case the testimony should have been admitted.

The evidence of Casa-Eguia and his witnesses, which was excluded, appears in the printed record, so that we know of that with which we are dealing. The record of a previous trial brought by the corporation against Casa-Eguia to recover possession of the bonds was offered in evidence. The case is reported in 215 Appellate Division, 750; 243 New York, 634. The record was introduced for the purpose of showing that the issue in that case was or was not the same as that here presented to the court. It was not received in evidence or considered by the judge as testimony of the witnesses on the above point or on the nature of the agreement. The trial judge in this present case had excluded all attempts of Casa-Eguia or his witness to explain the arrangement or agreement about the Power City Bank security. In this he was consistent to the end. The rulings and the exceptions are numerous. The record of the previous trial was admitted merely to disclose the issue in that case. We, therefore, cannot say that his rulings, although erroneous, were harmless. ■ He refused to consider the testimony on the previous trial as bearing upon the issue in this case or as creating an issue. In fact, a trial judge cannot exclude the oral testimony of witnesses present in court, and admit instead thereof their printed testimony on another occasion. As the trier of facts, he must listen to the spoken word, even if repetitious, provided the witnesses are ready and willing to give their testimony. Variances, changes or additions may appear in the later testimony which will make a marked difference.

The exceptions, therefore, taken upon the trial to the exclusion of the testimony mentioned have not lost their value because of the admission of this printed record. Casa-Eguia and his witnesses should be allowed to present what they have to offer on his side of the case. Whether this testimony be true or false will then be a matter for the determination of the trial judge.

The judgment of the Appellate Division and that of the Trial Term should be reversed and a new trial granted, with costs to abide the event.

Cardozo, Ch. J., Pound, Lehman, Kellogg and O’Brien, JJ., concur; Hubbs, J., not voting.

Judgments reversed, etc.


text:
    City Bank Farmers’ Trust Company, as Executor of Francis T. King, Deceased, Respondent, v. The New York Central Railroad Company, Appellant.

      (Argued January 17, 1930;
    decided February 11, 1930.)

      William Mann and Charles C. Paulding for appellant.
    The reciprocity section of article 10-A (L. 1925, eh. 143), is not severable from the invalid parts of said statute. (Smith v. Loughman, 245 N. Y. 486; Rathbone v. Wirth, 150 N. Y. 459; Duryee v. Mayor, 96 N. Y. 477; People ex rel. Alpha Co. v. Knapp, 230 N. Y. 48; Lawton v. Steele, 119 N. Y. 227; Poindexter v. Greenhow, 114 U. S. 270; Williams v. Standard Oil Co., 278 U. S. 235; Williams v. State, 125 Atl. Rep. 661; Reagan v. Farmers’ Loan & Trust Co., 154 U. S. 362; Dollar Co. v. Canadian C. & F. Co., 220 N. Y. 270; Commonwealth of Pennsylvania v. Farmers Loan & Trust Co., 147 Atl. Rep. 71.)

      Charles Angulo and James D. Ouchterloney for respondent.
    The provisions of the New York Tax Law relating to reciprocity are entirely separable from the provisions relating to the Matthews flat-rate plan, and, therefore, the former remained in effect notwithstanding the invalidity of the latter. (Matter of Village of Middletown, 82 N. Y. 196; Reagan v. Farmers’ Loan & Trust Co., 154 U. S. 362; People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48; Dollar Co. v. Canadian C. & F. Co., 220 N. Y. 270.) The legislative intent must prevail over the literal meaning of words. (Bell v. Mayor, 105 N. Y. 139; People ex rel. Jackson v. Potter, 47 N. Y. 375; Curtis v. Stovin, [1889] 92 Q. B. D. 513; Blaschko v. Wurster, 156 N. Y. 437.) Even if Laws of 1925, chapter 143, was wholly void, Laws of 1926, chapter 509, re-enacting the reciprocity section, would be valid and effective as an independent statute. (Columbia Wire Co. v. Boyce, 104 Fed. Rep. 172; Beatrice v. Masslich, 108 Fed. Rep. 743; State v. Silver Bow Refining Co., 252 Pac. Rep. 301; People ex rel. Strough v. Board of Canvassers, 143 N. Y. 84.) The 1928 legislation (Laws of 1928, ch. 330) does not affect the question involved in the present case. (Matter of Pell, 171 N. Y. 48; Matter of Lansing, 182 N. Y. 238; Matter of Lyon, 233 N. Y. 208; Matter of Pettit, 65 App. Div. 30; 171 N. Y. 654; Matter of Craig, 97 App. Div. 289; 181 N. Y. 551; Matter of Embury, 154 N. Y. 746; Matter of Vanderbilt, 172 N. Y. 69; Matter of Slosson, 216 N. Y. 79; Matter of McKelway, 221 N. Y. 15; Matter of Smith, 150 App. Div. 805; Matter of Chapman, 133 App. Div. 337; Matter of Meyer, 83 App. Div. 381; Matter of Haight, 152 App. Div. 228.)

      Hamilton Ward, Attorney-General (Amos D. Moscrip and Henry S. Manley of counsel), for the State of New York, amicus curice.

      Francis Smyth for The Farmers’ Loan and Trust Company, as executor of Henry R. Taylor, deceased, amicus curice.

      Cyrus E. Woods, Attorney-General (Philip S. Moyer and Alfred Yankauer of counsel), for Commonwealth of Pennsylvania, amicus curice.

   Cardozo, Ch. J.

The plaintiff, the executor of the will of Francis T. King, has sought and obtained a declaratory judgment whereby the defendant, the New York Central Railroad Company, is found to be subject to a duty to transfer shares of stock forming part of the estate of the testator without exacting proof of the payment of transfer taxes thereon to the Commonwealth of Pennsylvania.

Plaintiff’s testator died on August 4, 1927, a resident of the State of New York. Included in his estate was a certificate for 100 shares of the stock of the New York Central Railroad Company, which is a domestic corporation, but is also incorporated under the laws of Pennsylvania and other States. The plaintiff presented this certificate to the defendant at a transfer office in New York, and requested that it be transferred upon the corporate books to the name of the plaintiff as executor of the will. The defendant, believing the stock to be subject to the payment of a tax under the laws of Pennsylvania, declined to make the transfer without the waiver or consent of the Commonwealth of Pennsylvania by its Auditor-General. This action was brought to declare the rights of the parties as to the matters in controversy.

Pennsylvania, though imposing a tax upon the transfer by will of shares belonging to non-residents in Pennsylvania corporations, is one of a group of States subjecting such transfers to the rule of reciprocity.

Personal property of a nonresident decedent made taxable under this section shall not be subject to the tax so imposed if a like exemption is made by the laws of the state or country of the decedent’s residence in favor of residents of this Commonwealth ” (Pennsylvania Inheritance Tax Law, as amended by act of May 14, 1925, P. L. 717, 718).

New York announced its adherence to the rule of reciprocity by a statute effective July 1, 1925 (Laws of 1925, ch. 143). The section embodying the change was part of a revision of the Tax Law (Cons. Laws, ch. 60), and was numbered 248-p. In July, 1927, other sections of the statute were adjudged void by this court as in con.flict with limitations of the Federal Constitution (Smith v. Loughman, 245 N. Y. 486; certiorari denied, 275 U. S. 560). The defendant insists that the section embodying the rule of reciprocity fell with those condemned. The plaintiff insists that it may be severed from the void, and through such severance survives.

Until the adoption of the act of 1925, transfer taxes upon the estates of residents and non-residents were regulated in New York by a single article of the Tax Law which was designated 10. Two reforms had been advocated by students of finance. Each was designed to correct abuses that had developed in the collection of taxes from the estates of non-residents. The one, known as the Matthews plan, was proposed in 1921 at a meeting of the National Conference of the National Tax Association. By this the representatives of non-resident estates might elect to pay a flat rate upon the gross amount of the taxable property in States other than the domicile. They would save thereby the expense and annoyance of a computation of the net value in foreign jurisdictions (cf. Smith v. Loughman, supra, pp. 489, 490). The other plan, known as the reciprocity movement, had its origin at a meeting of the same association in 1924. By this it was proposed that taxes upon transfers by non-residents be abolished altogether, at least as to intangibles, in return for a reciprocal exemption at the jurisdiction of the domicile. The movement spread apace, accelerated by a growing sense of the evils of multiple taxation (cf. Farmers’ Loan & Trust Co. v. Minnesota, 280 U. S. 204, per McReynolds, J.). We find a statement in the briefs that, in one form or another, provision has been made for reciprocal exemptions in thirty-seven States. Even between foreign countries there is a movement in the same direction.

New York in 1925 attempted to enact into law both measures of reform, the Matthews plan for a simplified assessment, and the plan for the adoption of the rule of reciprocity. We summarized in Smith v. Loughman (supra) the scheme of the revision. The tax upon transfers by will or intestate succession where the owner of the property was at death a resident of the State, was to be governed by article 10. It was substantially what it had been before. The tax upon transfers by non-residents was to be governed by a new article, known as 10-A. Sections 248 to 248-o prescribe the method of assessment to be followed when a tax is to be laid. Section 248-p prescribes a rule of reciprocity whereby taxation is renounced. We quote it for greater certainty:

“ § 248-p. Reciprocity. The tax imposed by this article in respect of personal property (except tangible personal property having an actual situs in this state) shall not be payable (1) if thé transferor is a resident of a state or territory of the United States which at the time of the transfer did not impose a transfer tax or death tax of any character in respect of personal property of residents of this state (except tangible personal property having an actual situs in such state or territory) or (2) if the laws of the state or territory of residence of the transferor at the time of the transfer contained a reciprocal provision under which nonresidents were exempted from transfer taxes or death taxes of every character in respect of personal property (except tangible personal property having an actual situs therein) providing the state or territory of residence of such nonresidents allowed a similar exemption to residents of the state or territory of residence of such transferor. For the purposes of this section the District of Columbia shall be considered a territory of the United States.”

Nothing decided or. suggested in Smith v. Loughman (supra) has any bearing upon the binding force of this rule of reciprocity. We held that the sections of the new article fixing the rate of the tax upon transfers by non-residents were in violation of article IV, section 2, of the Federal Constitution, since the rate in many instances was higher for non-residents than it was for residents. This was hostile discrimination at war with the declaration of the Constitution that the citizens of each State shall be entitled to the privileges and immunities of citizens in the several States. We did not hold, and the reason of the decision does not support a holding, that there is any infirmity in a statute whereby a citizen of another State, instead of being subjected to burdens heavier than those of residents, is declared under the rule of reciprocity to be exempt from taxes altogether. The spheres of thought are independent. They do not even overlap.

We think the failure of those sections of the revision of 1925 which define the tax to be imposed upon transfers by residents of other States not adhering to the rule of reciprocity, does not involve the failure of the section which says that in respect of transfers of intangibles by residents of other States adhering to that rule there shall be no tax in any amount. The provisions are severable, and one can stand without the other (People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48, 60; Field v. Clark, 143 U. S. 649, 696; Loeb v. Columbia Township Trustees, 179 U. S. 472, 490; El Paso & N. E. Ry. Co. v. Gutierrez, 215 U. S. 87, 96, 97). Clearly this is so if we view the parts of the statute without reference to verbal niceties, but rather in their logical relation as means directed to an end. One set of sections is aimed at residents of those States that have failed to give effect by their laws to the rule of reciprocity. The other section is aimed at residents of other States, the members of the group where reciprocity prevails. There is no sensible reason why a change in the tax to be paid by residents of the one group should destroy an exemption enjoyed by residents of the other. This being so, it is plain that severance must follow unless the Legislature has said in terms too clear for misconstruction that none shall be permitted.

We are told by the appellants that this is what was done. The burden of their argument is cast upon the opening words (§ 248-p). The opening words are that the tax imposed by this article ” shall not be payable if the domiciliary State allows a reciprocal exemption. The argument runs thus: the tax “ imposed by this article ” has failed; a tax at another rate is now exacted in its place; that being so, the exemption has failed too, for by the terms of the statute it is to be an exemption from a particular tax, and not from any other. We think a reading so literal does violence to intention. The conclusion is not to be avoided, when we mark the history of the movement, that the reciprocal exemptions were not to depend for their continuance upon the rates prevailing from time to time beyond the zone of reciprocity. The very purpose of the exemptions was the creation of a zone in which such things would be irrelevant. Rates might go up or down in their application to States adhering to the old order. The mutations were to be of no concern for States adhering to the new. It is in the light of the end to be attained that the tax imposed by this article ” must receive its definition. The situation is much the same as if the sections held to be unconstitutional had been transferred to another article by an amendatory act, leaving section 248-p standing by itself. If this had happened, no one would be likely to urge that the section so left would be repealed by implication. The effect of our decision is no greater than the effect to be ascribed to an amendatory statute. In the one case as in the other, the subject-matter of the exemption is no longer described with precision by the number of the article, yet described in other ways. The number is 10-A, but beneath the number is the heading “ taxable transfers; non-residents,” to indicate the kind of tax to which the article is dedicated. Here is the key to the subject-matter envisaged by the rule of reciprocity. The key does not fail when we pass beyond the heading of the article to the sections embraced within it. First in order is section 248, which declares the transfers that are subject to taxation in the absence of reciprocal exemption, and “ imposes ” a tax upon them. There is not one of these transfers that was not already subject to taxation under article 10 of the act at the time of the revision. What was formerly in one article had been transported into another. Not till we reach section 248-b with its enumeration of the rates is there any change except of form. There indeed the change ends. What follows, even if different, is procedure and machinery.

We think the conclusion is imperative that the tax imposed by this article ” is merely a convenient and compendious substitute for the tax imposed by this act,” i. e., the general Tax Law of the State, “ upon transfers by non-residents.” In the construction of a statute, adherence to the written word will not be suffered to “ defeat the general purpose and manifest policy intended to be promoted ” (Spencer v. Myers, 150 N. Y. 269, 275; Surace v. Danna, 248 N. Y. 18, 20). The intent, when discovered, will prevail over the letter (Smith v. People, 47 N. Y. 330, 336; People ex rel. Jackson v. Potter, 47 N. Y. 375, 379; Bell v. Mayor, 105 N. Y. 139, 144; Blaschko v. Wurster, 156 N. Y. 437, 442).

We have considered till now the act of 1925, standing by itself, and without reference to the complications ensuing from later legislation. Upon the decision of Smith v. Loughman in July, 1927, the State Tax Commission was advised by the Attorney-General of the State that transfers by residents and non-residents were thereafter to be taxed under the rates that had been in force before the revision of the statute. The Commission interpreted that advice to mean that the reciprocity section had fallen with the others, and so notified the taxing officers in the States other than our own which allowed reciprocal exemptions. Upon receipt of that notice, the Auditor-General of Pennsylvania proceeded to enforce the tax against residents of New York holding intangible property in Pennsylvania, and the Tax Commission of New York proceeded to enforce the tax against residents of Pennsylvania holding intangible property in New York. . The Legislature came to the rescue with a statute adopted March 12, 1928 (Laws of 1928, ch. 330). As to transfers by non-residents to be made in the future, it re-enacted article 10-A of the act of 1925, including section 248-p, with amendments intended to give protection against adverse discrimination. Nonresidents might elect to be taxed at a flat rate of two per cent, but they were to be subject to no greater burden than that applicable to residents (§ 248-b; Laws of 1928, ch. 330). There were, however, separate sections (Laws of 1928, ch. 330, §§ 6, 11, 12) that were aimed to bridge the period between July 1, 1925, and March 12, 1928. A tax similar to the one imposed by the new statute upon transfers to be made thereafter was imposed retroactively upon transfers already made between the dates stated (§6). If the burden so laid was found to be unconstitutional, or failed for other cause, then the tax was to be assessed under the statutes previously in force (§ 12). The reciprocity clause was also re-enacted as applied to the tax thus retroactively imposed, but subject to a proviso (§ 11). The proviso was this, that there was to be no refund of the taxes that had been collected by the Commission upon transfers by nonresidents in the belief that the reciprocity section of the act of 1925 had fallen with the section condemned in Smith v. Loughman, unless the laws of the State of such non-resident transferors made provision for the refund of like taxes collected by them upon transfers by residents of New York. More concretely, New York would not refund to Pennsylvania unless Pennsylvania made provision to refund to New York. Not only was there to be no refund, unless this condition was complied with, but the non-residents in such circumstances were declared to have lost any privilege of reciprocal exemption and to be subject to the tax. In aid of greater certainty, we quote the clause in full (Laws of 1928, ch. 330, § 11):

“ § 11. There shall be refunded pursuant to the provisions of section two hundred and forty-eight-f of the tax law, as enacted by this act, any taxes heretofore collected pursuant to the provisions of article ten of the tax law upon estates of decedents entitled to exemption from tax under the reciprocity provisions contained in section two hundred and forty-eight-p of the tax law, as enacted and made retroactive by this act; provided, however, that no such refunds shall be made in the case of estates of decedents which otherwise would be entitled to reciprocal exemptions if the state or states of residence of such decedents shall assert a tax against estates of decedents residents of this state dying during the period in which the law of such state or states has contained" a reciprocal provision, or, having collected taxes upon estates of decedents residents of this state dying during said period, shall not make provision for the refunding of the same, but in all such cases estates of decedents residents of such states dying during said period and prior to the time this act takes effect, shall not be entitled to reciprocal exemptions but shall be taxable under article ten-a of the tax law as enacted and made retroactive by this act.”

We have seen that the reciprocity section (248-p) of the act of 1925 was untouched by the fall of the sections which prescribed the rate of tax where there were no reciprocal exemptions. This being so, an act of the Legislature attempting to revoke the exemption in respect of past transactions would be a denial of “ due process,” and so of no effect (Matter of Pell, 171 N. Y. 48; Matter of Lansing, 182 N. Y. 238; Matter of Pettit, 65 App. Div. 30; 171 N. Y. 654; Matter of Craig, 97 App. Div. 289; 181 N. Y. 551; Matter of Schmidlapp, 236 N. Y. 278, 285; Untermyer v. Anderson, 276 U. S. 440). A different question would be here if all that had been canceled were the duty laid upon the Comptroller (§ 248-f) to refund any taxes found by the Commission to have been erroneously collected, or if the duty had been limited to cases of payment under compulsion. In many instances a sufficient remedy would still be left under another section of the Tax Law (§ 225, Laws "of 1909, ch. 62) when the validity of the collection had been seasonably challenged. The Legislature did not confine itself, however, to a modification of the remedy. The denial of the refund was coupled with a denial of the right to the exemption, whether payment had been made or not. The two are so tied together that either in its overthrow will drag the other down with it. There is a single fiat of confiscation which must stand or fall as one.

We speak of confiscation, for such was the effect, yet we have no thought that the Legislature would have been willing to give assent to confiscation, if the effect had been foreseen. In revoking the exemption, it was acting in the erroneous belief, induced, beyond doubt, by the advice of the Commission, that between July, 1925, and March, 1928, there was no rule of reciprocity in force in this State. Given that premise, the conclusion, otherwise a harsh one, takes on another aspect. If there was no rule of reciprocity in force at those times, the Legislature might fairly say that it would not create one by retroaction except on its own terms. It might say for the same reason that if taxes had been collected from residents of Pennsylvania and others similarly situated, there was nothing in equity and good conscience that would impose an obligation to pay the money back. What it said must be interpreted in the light of what it thought. We are not at liberty to believe that if there had been knowledge of the exemption, there would have been repudiation of the duty or obstruction of performance.

The case comes down to this: since July 1, 1925, transfers of intangibles by residents of Pennsylvania have been immune from taxation in this State by force of the rule of reciprocity, and taxes erroneously collected, if payment was seasonably challenged (Tax Law [Laws of 1909, ch. 62], § 225; [Laws of 1925, ch. 143], § 248-f), have been subject to be refunded through appropriate proceedings. The rule of reciprocity did not expire in New York at the behest of the State Tax Commission, an administrative board, any more than it expired in Pennsylvania at the behest of the Auditor-General, an administrative officer. New York, having become a member of the group of reciprocity ” States, was free, at the pleasure of its Legislature, to withdraw from the group in respect of transfers to be made thereafter. It could not do so retroactively. The reciprocity movement would be stifled in its infancy if such a right should be conceded. Whatever immunity existed when the transfer became effective, continued to exist thereafter, untouched in its integrity by anything that the Legislature could do.

These views would lead us to an affirmance of the declaratory judgment which applied to this transfer the rule of reciprocity, were it not for a recent judgment of the Supreme Court of Pennsylvania. In Commonwealth v. Taylor (May, 1929, 297 Penn. St. 335), that court decided that a ^transfer of intangible property in Pennsylvania, belonging to a testator domiciled in New York, was subject to taxation under the statute of Pennsylvania if the death of the testator occurred between July 1, 1925, and March 12, 1928, on the ground that between those dates there was no reciprocal exemption in New York within the meaning and intent of the Pennsylvania law. The court did not attempt to pass upon the question whether section 248-p of the act of 1925 had fallen with the section or sections condemned as unconstitutional in Smith v. Loughman (supra). It observed that only this court could pass upon that question with finality. It held, however, that by reason of the retroactive provisions of the act of 1928, the act of 1925, even if severable, would not determine. the result.

“ Under their Act of 1928, New York will not refund the transfer inheritance taxes collected by it from estates of Pennsylvania decedents, who died between July 1, 1925, and March 12, 1928, unless we make provision for the return of the transfer inheritance taxes collected by us from the estates of New York decedents who died between those dates. Such a provision cannot be made by this Commonwealth, save by a statute. Such legislation has not been enacted, and may never be; a bill to that end was presented to the last legislature, but was not passed by it. Hence, as actual reciprocity is that for which the statutes of both states attempt to provide, not an unenforceable right to reciprocity, which is what defendant claims already exists, our taxing authorities should continue to collect such transfer inheritance taxes from the estates of New York decedents who died between the dates stated, until our legislature chooses to make provision for the return of the taxes collected by us from the estates of New York decedents who died between these dates.”

The conclusion thus stated is based on the assumption that by force of the act of 1928 there was an effective withdrawal by retroaction of the rule of reciprocity. The court did not examine the question whether the withdrawal of the exemption was a denial of due process under the Federal Constitution. It did not go beyond the administrative practice, established by the ruling of the State Tax Commission, and the legislative policy, declared, with at least' presumptive validity, by the mandate of a statute. Finding in these a denial of the rule of reciprocity, it held that within the meaning of the statute of Pennsylvania there was no reciprocal exemption by “ the laws ” of New York.

The court announcing that conclusion speaks with final authority as to the law of the Commonwealth of Pennsylvania. Whether it would have reached the same result if at the time of its decision the act of 1928 had already been condemned as void by a judgment of this court, we make no attempt to say. Its careful opinion seizes with precision upon the test to be applied, and states it in a few words with directness and simplicity. “An actual reciprocity is .that for which the statutes of both states attempt to provide, not an unenforceable right to reciprocity.” Actual reciprocity, however, is not destroyed by the failure of administrative officers to execute a law in the mistaken belief that it has ceased to bind them. They may be compelled to do their duty. Actual reciprocity in the year 1927 is not destroyed by an unconstitutional attempt in the year 1928 to withdraw the rule of reciprocity by retroactive legislation. The attempt is but a gesture, and the legislation a nullity.

The judgment before us may not stand while the judgment of the Supreme Court of Pennsylvania is standing unchanged. That judgment, right or wrong, decides the whole issue. The issue is merely this: do the laws of Pennsylvania, properly interpreted, impose a tax upon the plaintiff’s shares of stock in a Pennsylvania corporation? The Supreme Court of Pennsylvania has said that they do. In reaching that conclusion it has had occasion to consider the meaning and effect of the statutes of New York. What it has said in that regard does not constitute its decision. What it has said in that regard is a step in the process of reasoning leading up to the decision. In the end it has determined, not the meaning and effect of the statutes of New York, but the meaning and effect of the statutes of Pennsylvania. As to that, as we have said, its authority is final.

Whether the certificate of stock in the defendant corporation had such a situs in Pennsylvania as would subject it to taxation in that State, apart altogether from any rule of reciprocity (Farmers’ Loan & Trust Co. v. Minnesota, supra; Frick v. Pennsylvania, 268 U. S. 473, 497), is a question not before us, since it was not raised in the courts below, nor was any declaratory judgment sought with reference thereto. The record does not inform us whether the certificate was used in connection with a business localized in Pennsylvania, nor even where it was kept, if that be now important (Blodgett v. Silberman, 277 U. S. 1, 14; Metropolitan Life Ins. Co. v. New Orleans, 205 U. S. 395; Wheeler v. New York, 233 U. S. 434; Iowa v. Slimmer, 248 U. S. 115). The case is here on the assumption that the tax must be paid if reciprocity has failed.

The judgment of the Appellate Division and that of the Special Term should be reversed and a new trial granted, with costs to abide the event.

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

Judgments reversed, etc.


text:
    Theodore H. Miller, Appellant, v. American Eagle Fire Insurance Company, Respondent.
    (Argued January 17, 1930;
    decided February 11, 1930.)

      Harry C. Barker and John B. Grubb for appellant.
    There was no change of user of the premises during the term of the policy in force at the time of the fire which in any way rendered it void or impaired its obligation on the part of the defendant. (Robins v. Springfield Fire & Marine Ins. Co., 149 N. Y. 477; Short v. Home Ins. Co., 90 N. Y. 16; Walker v. Phenix Ins. Co., 156 N. Y. 628.) The defendant is liable even though gasoline was used as fuel. (Kohlman v. Selvage, 34 App. Div. 380; Coffaro v. Queens Ins. Co., 217 App. Div. 197.)

      John E. Mack for respondent.
    The change of user of the insured premises from a dwelling house into a general restaurant and tourists’ inn constituted an increase of hazard and voided the policy. (Hobby v. Dana, 17 Barb. 111; Williams v. Peoples Fire Ins. Co., 57 N. Y. 274; Wood v. Hartford Fire Ins. Co., 13 Conn. 544; Wall v. East River Mutual Ins. Co., 7 N. Y. 370; Appleby v. Astor Fire Ins. Co., 54 N. Y. 253; Kohlmann v. Selvage, 34 App. Div. 380; Westchester Fire Ins. Co. v. Oceanview Pleasure Pier Co., 106 Va. 633; Fire Assn. v. Williamson, 26 Penn. St. 196.) The use of gasoline on the insured premises suspended the protection of the policy. (Kohlmann v. Selvage, 34 App. Div. 380; Westchester Fire Ins. Co. v. Oceanview Pleasure Pier Co., 106 Va. 633; Fire Assn. v. Williamson, 26 Penn. St. 196.)
   Crane, J.

The defendant insured a dwelling house owned by the plaintiff, and located on the South road of Poughkeepsie, on the main highway of the Albany Post road. The amount of the insurance was $6,000. There were three extensions, or renewals, of the policy, each covering a three-year period.. The premises were used as a tea room as well as dwelling house, and later, for a period of some months before the fire, a restaurant had been conducted on the premises under the title of “ Cedar Hill Farm.” The signs on the house called attention to “ Cedar Hill Farm’s Blue Plate Dinner.” As many as sixty in the good season had been fed in the dining room. In the kitchen was the usual cooking stove and kitchen utensils. One of the tenants had installed a gasoline stove or range in the kitchen, which proved to be the cause of a fire on October 20, 1925, destroying the building. The gasoline was kept in a tank near the stove, and fed from there to the stove. The tank carried five gallons, and the quantity generally used was three gallons. When the fire occurred, the occupants were pouring gasoline into the tank, after having just put out the light in the stove. The heat evidently caused an explosion which resulted in the fire.

The owner, Mr. Miller, the plaintiff in this action, knew that there was a restaurant being conducted in the place, for he took some meals there. There is no evidence that he knew about the installation or the use of the gasoline stove or the storage of gasoline on the premises.

The insurance company has successfully resisted payment of the insurance because of breach of conditions or because by the terms of the policy the risk was not covered. The policy contained the following provisions:

“ Use of gasoline — Permission to keep on hand not exceeding one quart of gasoline, benzine or naphtha for household use, but the use thereof for cooking, heating or fighting is prohibited without special permission endorsed on this policy.”

The policy further stated: Unless otherwise provided by agreement in writing added hereto this Company shall not be liable for loss or damage occurring. * * .

(b) while the hazard is increased by any means within the control or knowledge of the insured; or * * *

(d) while there is kept, used or allowed on the described premises * * * benzine, gasoline,” etc.

Whatever question might arise under clause (b), above quoted, because of a subtenant storing gasoline without the knowledge and beyond the control of Miller, the owner, no such question can arise as to the other clauses quoted. Coffaro v. Queen Ins. Co. (217 App. Div. 197), and the cases therein cited, refer to the increased risk caused by a tenant or subtenant without the knowledge of the insured. His knowledge or control is immaterial as to risks which the policy specifically excludes. The use of gasoline for cooking or lighting is prohibited, without special permission indorsed on the policy. Such permission was never obtained. The fire occurred through the use of gasoline for cooking purposes. This was a cause against which the policy did not run. It was a risk which the company specifically refused to undertake. The knowledge or the control of the owner was immaterial. This was the contract and he, not the company, assumed responsibility for the acts of the tenant or subtenant. The same reasoning applies to subdivision (d), wherein it is expressly stated that the company shall not be liable for loss occurring while gasoline is kept on the premises. To hold the company to liability in this case because the gasoline was kept by a tenant and not by the landlord, or was kept without his knowledge, would be to rewrite the policy and make a new contract for the parties. The insurance company may be strictly held to its policy; its contract may even be liberally construed in favor of the policyholder, but the losses which it has specifically excluded cannot be brought within the insurance by a ruling of the courts. The contract which the parties have made limits the power of the courts. The law can declare a liability based upon the contract, but it has no power to make a contract. (See Liverpool & London Ins. Co. v. Gunther, 116 U. S. 113, 128; Gunther v. Liverpool & London & Globe Ins. Co., 134 U. S. 110; Duncan v. Sun Fire Ins. Co., 6 Wend. 488; Mead v. Northwestern Ins. Co., 7 N. Y. 530, 533; Richards on Insurance Law [3d ed.], p. 356, § 269.)

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

Cabdozo, Ch. J., Pound, Lehman, Kellogg, O’Brien and Hubbs, JJ., concur.

Judgment affirmed, etc.


text:
    Gaston & Company, Inc., Appellant, v. Alfred Storch, Respondent, Impleaded with Another.

      (Submitted January 10, 1930;
    decided February 11, 1930.)

      Leon N. Putter for appellant.
    The judgment is erroneous because undisputed facts, as well as the respondent’s own testimony, pleadings and affidavits and the light of the conduct of both sides preclude the invocation of a theoretical doctrine of accord and satisfaction. (Douglass v. Scott, 130 App. Div. 322; Eames Vacuum Brake Co. v. Prosser, 157 N. Y. 289; Moers v. Moers, 229 N. Y. 300.)

      Moses Katcher and Lewis Landes for respondent.
   Cardozo, Ch. J.

The complaint is for conversion; the defense accord and satisfaction.

Rubber of the value of $14,000 and upwards was stolen by the defendant and others acting in combination. One of the thieves was convicted of larceny through testimony supplied by Storch, the defendant now before us, who was a witness for the State. Later, the plaintiff corporation, the owner of the rubber, brought an action for damages against the thieves other than the defendant, expecting that he would co-operate again by appearing as a witness. Upon his refusal to testify, he was served with a summons and called upon to defend a suit for damages himself.

The service of the summons was followed by a treaty for a settlement, the parties acting by attorneys. The testimony for the plaintiff is that $650 was to be accepted in settlement of the action upon the understanding that if Storch failed to co-operate in the suit against the others, the cause of action should revive as if nothing had been paid. The attorney for Storch has not denied the understanding, though he was a witness for his client upon the trial under review. The promised payment was made, the action was discontinued, and a release delivered. The release by its terms was subject to a condition subsequent. It was to be null and void if Storch failed to co-operate in the other litigation, and failed to appear voluntarily and testify when requested so to do. The release with this condition was accepted by the attorney and at once transmitted to the client.

The other lawsuit came on for trial, but Storch did not co-operate. Knowing that the case was on the calendar and that his presence as a witness was desired, he willfully refrained from appearing; and later tried to justify his absence by the false pretense that he was away in Massachusetts when requested to attend. Plaintiff had judgment by default against one of the conspirators, but without the aid of Storch could not prevail against the other.

This action for conversion followed. It ignores the earlier settlement, and proceeds upon the theory that by force of the, breach of the condition, the cause of action has revived. The trial judge found that Storch combined with others in the conversion of the rubber. He found that there had been a breach of the condition of the release, in that Storch willfully disappeared when required to attend. Judgment went for the defendant, none the less, upon the ground that there had been an accord and satisfaction by force of the acceptance of a check. This check, $650 in amount, was drawn by the defendant’s attorney to the order of the attorneys for the plaintiff, and was collected by their bank the day before the signing and delivery of the release. Upon the back of the check, above the signature of the payees, there had been written the words: " Full sett, [settlement] Gaston & Co. v. Alfred Storch.” The trial judge held that the effect of these words was to extinguish eo instanti the cause of action for conversion irrespective of the earlier understanding or the subsequent release.

We think the significance of the indorsement is exaggerated when it is given this finality. True, indeed, it is that a payment tendered in settlement of a disputed or unliquidated claim must be accepted upon the terms accompanying the tender, or rejected altogether (Fuller v. Kemp, 138 N. Y. 231; Nassoiy v. Tomlinson, 148 N. Y. 326; 3 Williston on Contracts, § 1856). This does not mean that the significance of the tender is unaffected by what goes before and after. The setting of the occasion may characterize a memorandum on a check as an offer by the maker to enter into a contract on the conditions there imposed (Fuller v. Kemp, Nassoiy v. Tomlinson, supra). The setting of the occasion may characterize another memorandum, similar in terms, as nothing more than a receipt, to be supplemented by parol (Komp v. Raymond, 175 N. Y. 102; cf. Lovekin v. Fairbanks, Morse & Co., 282 Penn. St. 100, 103).

In the case at hand the check, when transmitted to the plaintiff, was not accompanied by any notice that it was the purpose of the maker to submit a new offer at variance with the old one which the plaintiff had accepted. The purpose, so far as indicated, was not rescission, but performance. In the setting of the occasion, the check was the fulfillment of an existing understanding, and was to be interpreted accordingly. The words indorsed upon it, read as the plaintiff might be expected to read them, did not reverse that understanding, and substitute another. There was need of other notice, more distinct and 'unequivocal, to work that transformation. We have had occasion in other cases to point out the ambiguity that inheres in a phrase so loose and popular, so little a term of art, as the “ settlement of a lawsuit (Walsh v. N. Y. C. & H. R. R. R. Co., 204 N. Y. 58, 64; Herder v. Clifford, 252 N. Y. 141, 146). It is a term which is loosely and indiscriminately used to describe all sorts of compromises as well as technical discharges and releases. In most cases its accurate meaning and legal effect can only be determined in view of the particular transaction to which it is applied ” (Werner, J., in Walsh v. N. Y. C. & H. R. R. R. Co., supra). So in the case at hand. Settled the action was, but the cause of action might revive, and another action follow, if the defendant should commit a breach of a collateral agreement (cf. Williston, supra, p. 3181).

We think the plaintiff might well assume in accepting such a check that the inconspicuous indorsement, if noticed at all, was intended merely as á receipt for the only payment promised, the payment that was received as the price of discontinuance (Komp v. Raymond, supra; Eames Vacuum Brake Co. v. Prosser, 157 N. Y. 289, 300). Nothing in the occasion gave notice that it was meant for more.

A different situation would be here if the preliminary agreement were contradicted or uncertain. The court might then accept the indorsement as discrediting the plaintiff and corroborating the defendant. But. uncertainty or contradiction there is none upon this record. The attorney for the defendant did not venture a denial of the understanding as stated by his adversary, though the opportunity was ample. The release, delivered the next day, and retained without objection, is significant as an admission that denial was impossible.

The judgment of the Appellate Division and that of the Trial Term should be reversed and a new trial granted, with costs to abide the event.

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

Judgments reversed, etc.