author:
Cardozo, J.
      Crane, J.

text:
    Minnie B. Berkey, Respondent, v. Third Avenue Railway Company, Appellant. Charles P. Berkey, Respondent, v. Third Avenue Railway Company, Appellant.
    Negligence — railroads — contract between railroad corporations by which one is to use other’s franchise illegal unless approved by Public Service Commission — inference of existence of such an illegal contract not drawn from ownership by one corporation of stock of other and conduct appropriate to such ownership — complaint in action against dominant company for personal injury from negligence of motorman of car on subsidiary road, dismissed.
    V 1. A contract, written or oral, between two railroad corporations by which one is to use and operate the other’s franchise as its own, if made, would be not only ultra vires, but illegal, because prohibited by section 54 of the Public Service Commissions Law which provides that no such contract shall be valid unless approved by the Commission.
    2. An inference of the existence of such a contract will not be drawn, therefore, merely from the facts that the one company owned substantially all of the stock of the other, the members of the two boards of directors were nearly the same, each road had the same executive officers, the dominant company had made loans to its subsidiary from time to time for construction and operating expenses and that ears marked in the same way were used over the entire system covering the larger part of the borough of Manhattan and extending into Westchester county. Such conduct is appropriate to the ownership of stock and fairly, explicable thereby and does not warrant inference of an agreement criminal in conception and effect, especially where separate life and operation of the subsidiary are indicated by its keeping its own bank account from which it paid its operative employees and that from the date-of its organization, in which it does not appear the now dominant company had any interest, it has preserved its corporate organization with property adequate to the maintenance of its life. v
    3. An action, therefore, brought against the dominant company to recover for a personal injury occasioned through the negligence of the motorman operating a car on the subsidiary road, cannot be maintained and the complaint was properly dismissed.

      Berkey v. Third Avenue Railway Co. (2 cases), 217 App. Div. 604, reversed.
    (Argued December 3, 1926;
    decided December 31, 1926.)
    Appeal, in each of the above-entitled actions, from an order of the Appellate Division of the Supreme Court in the first judicial department, entered July 13, 1926, reversing a judgment in favor of defendant entered upon a dismissal of the complaint by the court at a Trial Term and granting a new trial.

      Alfred T. Davison and Addison B. Scoville for appellant.
    The evidence herein conclusively shows that the car from which the plaintiff alighted at the time of the accident was operated by the Forty-second Street Railway Company over its own railway fine on Broadway. (Doran v. New York City Interborough R. Co., 239 N. Y. 448; Stone v. C., C., C. & St. L. R. Co., 202 N. Y. 352.) The fact that the Third Avenue Railway Company owns a majority of or controlling interest in the stock of the Forty-second Street Railway Company does not make the Third Avenue Railway Company, as such stockholder, responsible for the ordinary daily operations of the Forty-second Street Railway Company. (Stone v. C., C., C. & St. L. R. Co., 202 N. Y. 352; Matter of Vannier v. Anti-Saloon League, 238 N. Y. 457.) The Appellate Division erred in holding that the trial court should have submitted to the jury the question .whether the defendant Third Avenue Railway Company made use of its ownership and control of the Forty-second Street Railway Company, not merely for the purpose of participating in its affairs, but for the purpose of using it as a mere instrumentality to carry on defendant’s business. (Demarest v. Flack, 128 N. Y. 205; Elenkrieg v. Siebrecht, 238 N. Y. 254.)

      George F. Canfield, R. Randolph Hicks and Thomas F. Compton for respondent.
    The dominant corporation is liable or at least it is a question for the jury to decide whether as a matter of fact it is hable for torts committed by its subsidiary. (Summo v. Snare & Triest Co., 166 App. Div. 425; Otway v. Snare & Triest Co., 167 App. Div. 128; Anthony v. American Glucose Co., 146 N. Y. 407; C., M. & St. P. R. Co. v. Minn. Civic & Commerce Assn., 247 U. S. 490; Lehigh Valley R. R. Co. v. Dupont, 128 Fed. Rep. 840; Lehigh Valley R. R. Co. v. Delachesa, 145 Fed. Rep. 617; Crown Cork & Seal Co. v. Brooklyn Bottle Stopper Co., 190 Fed. Rep. 323; Foard Co. of Baltimore City v. State of Maryland, 219 Fed. Rep. 827; The Willem Van Driel, Sr., 252 Fed. Rep. 35; Luckenbach S. S. Co. v. Grace & Co., 267 Fed. Rep. 676; Wilkinson v. Walker, 294 Fed. Rep. 939.) A railway company which operates a unified system through the device of subsidiary corporations may be held responsible for accidents occurring on the fine of any subsidiary company, provided it appears that such subsidiary company is operated as an integral part of the unified system and as an instrumentality for performing the service of that system. (C., M. & S. P. R. Co. v. Minn. Civic Assn., 246 U. S. 490; Davis
      v. Alexander, 269 U. S. 114; Dobbins v. Pratt Chuck Co., 242 N. Y. 106.)
   Cardozo, J.

The plaintiff boarded a street car at Fort Lee Ferry and One Hundred and Twenty-fifth street on October 4, 1916, in order to go east on One Hundred and Twenty-fifth street to Broadway, and thence south oh Broadway to Columbia University at One Hundred and Seventeenth street. She was hurt in getting out of the car through the negligence of the motorman in charge of it. The franchise to operate a street railroad along the route traveled by the plaintiff belongs to the Forty-second Street, Manhattanville and Saint Nicholas Avenue Railway Company (described for convenience as the Forty-second Street Company) and no one else. Substantially all the stock of that company is owned by the Third Avenue Railway Company, the defendant, which has its own franchise along other streets and avenues. Stock ownership alone would be insufficient to charge the dominant company with liability for the torts of the subsidiary (Elenkrieg v. Siebrecht, 238 N. Y. 254; Stone v. C., C., C. & St. Louis Ry. Co., 202 N. Y. 352). The theory of the action is that under the screen of this subsidiary and others, the defendant does in truth operate for itself the entire system of connected roads, and is thus hable for. the torts of the consolidated enterprise (Chicago, etc., Ry. Co. v. Minn. Civic Assn., 247 U. S. 490; Davis v. Alexander, 269 U. S. 114).

We are unable to satisfy ourselves that such dominion was exerted. The Forty-second Street Company deposits in its own bank account the fares collected on its route. It pays out of that account and no other the wages of the motormen and conductors engaged in the operation of its cars. It was not organized by the defendant as a decoy or a blind. It was not organized, so far as the record shows, by the defendant at all. There is no evidence that at the túne of its formation the defendant had any interest in it as shareholder or otherwise. Its franchise goes back to the year 1884, and through all the intervening years it has preserved its corporate organization with property adequate to the maintenance of life. Its balance sheet for the year ending July, 1917, shows assets of $12,456,847.86. The values there stated are much 1 in excess of the debts and liabilities, including in the reckoning of liabilities the outstanding capital stock. In no possible view, even if they are to be scaled down to some extent, are they unsubstantial or nominal. True the subsidiary lost money that year, but so also did its parent. The fact remains that it was functioning as a corporation continuously and actively. It was so functioning at the trial in 1924. There is no evidence or suggestion that it has ceased to function since.

The question is whether other circumstances yet to be noted neutralize these indicia of separate life and operation. The defendant, as we have seen, was the owner in 1916 of substantially all the stock of the subsidiary corporation. Its president in reporting to the stockholders the financial situation-, at the end of the fiscal year informed them that to make the picture ■ accurate, the statement must exhibit the consolidated income, and this was obviously true. Other ties must be shown in addition to the one resulting from ownership of shares. The members of the two boards of directors were nearly, though not quite the same. Each road had the same executive officers, i. e., the same president, treasurer, general manager, paymaster and counsel. The parent has made loans to the subsidiary from time to time, sometimes for construction, sometimes for operating expenses. The loan for construction expenses ($6,415,152.92) is represented by a demand note. There is nothing to show whether the money was borrowed for the original construction in 1884 or for later changes of 'construction when the road was electrified. The parent is also the holder of the second mortgage bonds, $1,487,000, the first mortgage bonds, however ($1,200,000), being issued to the public. The operating loans are temporary-advances for electric power, for materials or supplies and for the salaries of executive officers. As a matter of convenience these are made in the first instance out of the treasury of the parent company. They are then charged to the account of the subsidiary, and repaid generally the following month, and not later than the following year. Repayment is inconsistent with an understanding that the parent in making the advances was operating on its own account the cars of a connecting line. The charges are more than book entries, mere devices of an accountant. Drafts are drawn upon the subsidiary and paid with its own money. The unpaid advances for operation in July, 1917, were only $253,029.37, and this at the end of a poor year. We are not to confuse the salaries of the executive officers with the wages of motormen and conductors. The latter, as already pointed out, were paid in the first instance as well as ultimately by the subsidiary itself. So were many other expenses for maintenance and repair. So were the many judgments for personal injuries recovered in the past.

One other circumstance or group of circumstances is the subject of much emphasis in the arguments of counsel. The defendant was the dominant stockholder, not only in this subsidiary, but also in many others. The routes when connected cover an area from the lower part of Manhattan at the south to Yonkers "and other points in Westchester at the north. All the cars, wherever used, are marked Third Avenue System.” On the other hand, the transfer slips bear the name in each instance of the company that issues them. The cars, when new ones become necessary, are bought by the defendant, and then leased to the subsidiaries, including, of course, the Forty-second Street Company, for a daily rental which is paid. The cars leased to one road do not continue along the routes o' others. The motormen and conductors do not travel beyond their respective lines. With the approval of the Public Service Commission, transfer slips are issued between one route and another, but transfers could have been required by the Commission if not voluntarily allowed (Public Service Comm. Law, § 49, subds. 3 and 6; Cons. Laws, ch. 48).

. Upon these facts we are to say whether the parent corporation, the owner of a franchise to operate a street railroad on Third avenue and the Bowery and a few connected streets, has in truth operated another railroad on Broadway and Forty-second street, and this in violation of the statutes of the State. The plaintiff’s theory of the action requires us to assume the existence of a contract between the defendant on the one side and the Forty-second Street Company on the other. The several circumstances relied upon — community of interest and in a sense community of management — are important only in so far as they are evidence from which the existence of a contract may fairly be inferred. The contract in the plaintiff’s view was one between the two corporations by which the defendant was to use and operate the other’s franchise as its own. If such a contract was made, it was not only ultra vires, but illegal, because prohibited by statute. By Public Service Commissions Law (§ 54), “ no franchise nor any right to or under any franchise, to own or operate a railroad or street railroad shall be assigned, transferred or leased, nor shall any contract or agreement with reference to or affecting any such franchise or right, be valid or of any force or effect whatsoever, unless the assignment, transfer, lease, contract or agreement shall have been approved by the proper commission.” By section 56 any violation of the provisions of the statute exposes the offending corporation to continuing fines of large amounts, and its officers and agents to prosecution and punishment as guilty of a misdemeanor. If a written contract had been made for the operation by the defendant of the subsidiary’s line, no one would doubt that such contract would fall within the condemnation of section 54 of the act. The contract is not the less illegal because made by word of mouth.

We cannot bring ourselves to believe that an agreement, criminal in conception and effect, may be inferred from conduct or circumstances so indefinite and equivocal. Community of interest there must obviously be between a'subsidiary corporation and a parent corporation, the owner of its stock. This community of interest would prompt the parent, not unnaturally, to make advances' for operating expenses to the subsidiary when con-venience would be thus promoted. The advances so; made have for the most part been repaid, and in so far as they remain unpaid have been carried as a debt. During all this time the cars have been manned by the subsidiary’s servants, who are paid for their work out of the subsidiary’s fares. We do not stop to inquire whether the inference of unified operation would be legitimate in a case where a contract for such an extension of the area of activity would be permitted by the law. We feel assured that no such inference is to be drawn from acts so uncertain in their suggestions where the inference is also one of the commission of a crime. The law prohibits a contract for operation by the parent of a franchise other than its own without the consent of the appropriate commission. It does not prohibit stock ownership, or at least did not, so far as the record shows, when the defendant bought the shares. We are now asked to draw from conduct appropriate to the ownership of stock, and fairly explicable thereby, the inference of a contract prohibited by law. We do not obviate the difficulty when we say that the stockholders by acquiescence have ratified any departure from the restrictions of the charter. They could do this so as to wipe out the transgression of their officers if the act constituting the transgression were ultra vires only. They could not do so where the act was one prohibited by law (Kent v. Quicksilver Mining Co., 78 N. Y. 159). The statute is aimed at more than the protection of the stockholders. It protects the creditors also, and beyond the creditors the public. Creditors are to be guarded against an increase of liabilities and an impairment of assets by an extension of corporate activities not approved by the Public Service Commission, the representative of the State. The public is to be guarded against like consequences, for the public which rides upon the cars has an interest, not to be ignored, in cheap, continuous and efficient operation. These benefits cannot be enjoyed if a road has been plunged into insolvency by improvident extensions. “ The business of a railroad [i. e., a street railroad] is to run its own lines. The law does not permit it at its pleasure to run the lines of others ” (Doran v. N. Y. City Int. Ry. Co., 239 N. Y. 448).

We do not mean that a corporation which has sent its cars with its own men over the route of another corporation may take advantage of the fact that its conduct in so doing is illegal to escape liability for the misconduct of its servant (Nims v. Mt. Hermon Boys School, 160 Mass. 177; Bissell v. Mich. R. R. Co., 22 N. Y. 258). There is no room for varying constructions when operation results from acts so direct and unequivocal. A defendant in such circumstances is liable for the tort, however illegitimate the business, just as much as it would be if its board of directors were to order a motorman to run a traveler down. We do mean, however, that an intention to operate a route in violation of a penal statute is not to be inferred from acts which reasonably interpreted are as compatible with innocence as with guilt (Shotwell v. Dixon, 163 N. Y. 43, 52). Such, it seems to us, whether viewed distributively or together, are the acts relied on here to establish an agreement between two corporations that the business of one shall be the business of the other. Many arrangements for economy of expense and for convenience of administration may be made between carriers without subjecting them to liability as partners or as coadventurers “ either inter sese or as to third persons ” (Ins. Co. v. Railro d Co., 104 U. S. 146, 158). For like reasons such arrangements may be made without establishing a relation of principal and agent. Where the coadventure or the agency, if created, carries consequences along with it that are offensive to public policy, the law will not readily imply the relation it condemns. The basis for the implication must be either intention or estoppel. We perceive no evidence sufficient to support a finding of estoppel. Intention is presumed, unless the inference of innocence is belied with reasonable certainty, to be conformable to law.

There is no need to enter into a minute analysis of cases such as Davis v. Alexander (269 U. S. 114); Lehigh Valley R. R. Co. v. Dupont (128 Fed. Rep. 840); Lehigh Valley R. R. Co. v. Delachesa (145 Fed. Rep. 617); A., T. & S. F. R. R. Co. v. Davis (34 Kan. 199); Wichita Falls, etc., Ry. Co. v. Puckett (53 Okla. 463); and many others that might be added. In none of them was an illegal agreement imputed to the dominant railroad by force of conduct fairly compatible with an innocent construction. On the contrary, the defendant in every case would have acted wholly within its rights if it had assumed liability as principal by an unequivocal engagement. Thus, in Davis v. Alexander (supra) a contract for the carriage of goods was made in Texas, the transportation to begin on the route of the parent corporation and to continue over the line in the ownership of the subsidiary. There is no doubt that at common law a corporation doing business as a carrier of passengers or goods may charge itself with liability for loss on a connecting line, and to that end may enter, within reasonable limitations not yet accurately defined, into a joint adventure with another (Swift v. Pac. Mail S. S. Co., 106 N. Y. 206, 216, 217). The situation was the same in Lehigh Valley R. R. Co. v. Dupont and Lehigh Valley R. R. Co v. Delachesa (supra). Indeed, in the Dupont case the court was at pains to point out that the contract of carriage, if extended to the connecting route, was not even ultra vires (128 Fed. Rep. at p. 845). Other differences are exposed when we press the process of dissection farther. Thus, in Davis v. Alexander (supra) the case was submitted to the jury upon the theory that the proceeds of operation over the two routes were commingled in a single fund. Not only that, but engines and cars were used indiscriminately, and so also were the crews. The jury were told that all these facts must be found to coexist before the wrong of the subsidiary could be charged against the parent. The Supreme Court in its opinion does not catalogue the circumstances supporting the inference of unity of control. The opinion is confined to the statement that “ the shippers introduced substantial evidence in support of their allegations.” The facts are disclosed when we examine the record on appeal. So in Wichita Falls Ry. Co. v. Puckett (supra) the same employees worked on the' entire route, and a common treasury received the proceeds of the system. Between such cases and the one before us there exists a distinction plain upon the surface. This being so, there is no need to choose between the. Federal doctrine and our own, if indeed when they- are understood, there is any difference between them. Liability of the parent has never been adjudged when,the subsidiary has maintained so consistently and in so-many ways as here the separate organization that is the' mark of a separate existence, and when the implication*of a contract for unity of operation would be the implication of a contract for the commission of a crime.

The whole problem of the relation between parent and1subsidiary corporations is one that is still enveloped in the mists of metaphor. Metaphors in law are to be narrowly watched, for starting as devices to liberate thought, they end often by enslaving it. We say at times that the corporate entity will be ignored when the parent corporation operates a business through a subsidiary which is characterized as an alias ” or a dummy.” All this is well enough if the picturesqueness of the epithets does not lead us to forget that the essential term to be defined is the act of operation. Dominion may be so complete, interference so obtrusive, that by the general rules of agency the parent will be a principal and the subsidiary an agent. Where control is less than this, we are remitted to the tests of honesty and justice (Ballantine, Parent & Subsidiary Corporations, 14 Calif. Law Review, 12, 18, 19, 20). The logical consistency of a juridical conception will indeed be sacrificed at times when the sacrifice is essential to the end that some accepted public policy may be defended or upheld. This is so, for illustration, though agency in any proper sense is lacking, where the attempted separation between parent and subsidiary will work a fraud upon the law (Chicago, etc., Ry. Co. v. Minn. Civic Assn., 247 U. S. 490; United States v. Reading Company, 253 U. S. 26, 61, 63). At such times unity is ascribed to parts which, at least for many purposes, retain an independent life, for the reason that only thus can we overcome a perversion of the privilege to do business in a corporate form. -We find in the case at hand neither agency on the one hand, nor on the other abuse to be corrected by the implication of a merger. On the contrary, merger might beget more abuses than it stifled. Statutes carefully framed for the protection, not merely of creditors, but of all who travel upon railroads, forbid the confusion of liabilities by extending operation over one route to operation on another. In such circumstances, we thwart the public policy of the State instead of defending or upholding it, when we ignore the separation between subsidiary and parent, and treat the two as one.

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

Crane, J.

(dissenting). The United States Supreme Court in Davis v. Alexander (269 U. S. 114) said: " Where one railroad company actually controls another and operates both as a single system, the dominant company will be liable for injuries due to the negligence of the subsidiary company.” This court decided in Stone v. Cleveland, C., C. & St. L. Ry. Co. (202 N. Y. 352) “ that the ownership of a majority of the stock of a corporation, while it gives a certain control of the corporation, does not give that control of corporate transactions which makes the holder of the stock responsible for the latter.”

These two decisions are not inconsistent. Each depends upon the particular facts and the nature and extent of the control by the dominant company of the subsidiary. It is largely a question of degree. This was recognized in the opinion in the Stone case when referring to the Federal authorities. We there said (p. 361) that the facts in those cases were stronger for the plaintiff than in the Stone action.

On this appeal we must determine which of these two rules is applicable to the facts in this case. The Trial Term dismissed the plaintiff’s complaint. The Appellate Division has reversed and granted a new trial, holding that it was a question of fact for a jury to determine whether the Third Avenue Railway Company was liable for an injury to the plaintiff happening on the line of the Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company, called the Forty-second Street Railway Company.

The plaintiff was injured on the evening of October 4, 1916, by stepping into an unlighted excavation in the street, while alighting from a car at the corner of Broadway and One Hundred and Seventeenth street. The proof of negligence for this appeal is unquestioned and need not be further mentioned, so that we may turn our attention at once to the corporation responsible.

The Forty-second Street Railway Company is a street railroad corporation having a franchise to operate passenger cars through Broadway at the point in question. Its authorized capital stock is $2,500,000, of which $2,494,900 is outstanding, and of this the Third Avenue Railway Company owns $2,471,300. The Third Avenue Railway Company is also a duly authorized and chartered railroad, operating surface lines in the city of New York connecting with and transferring to the cars running on the Forty-second Street line. Its system, which includes the Third Avenue and Amsterdam line, the One Hundred and Twenty-fifth Street Crosstown line, Broadway-Kings-bridge line as well as the branches of the Forty-second Street Railway, was termed and called “The Third Avenue Railway System.” The car from which the plaintiff fell had on it the words, “ Third Avenue Railway System.”

The report of the president to the stockholders for the year ending June 30, 1917, stated:

“ The Third Avenue Railway System is composed of the Third Avenue Railway Company and the following subsidiary companies.”

The Forty-second Street Railway Company was one of these named subsidiary companies.

“ The Third Avenue Railway Company,” says the report, “ controls all the above companies through ownership of stock and to arrive at the result of the operations it is necessary to consolidate the income accounts and the balance sheets of all the corporations and eliminate the inter-company transactions so that all duplications may be avoided. This explanation is made in order that there may be no misunderstanding in considering the statements appearing in this report.”

The outstanding second mortgage bonds, amounting to $1,487,000, were entirely owned by the Third Avenue Railway Company. This second mortgage was past due.

415,152.98 was due for construction. It was represented by a note of the Forty-second Street Railway Company given years ago to the Third Avenue Railway Company. It is a demand note.

The officers for both companies were the same. Edward A. Maher, Jr., was the assistant manager of the Third Avenue Railway Company and of the Forty-second Street Railway Company. His father, Edward A. Maher, was the general manager of both. Each railway company had the same president, treasurer, secretary and the same board of directors with some slight variation. “ They were practically all the same directors.” The following question was asked of Edward A. Maher, Jr.: Q. Take the Third Avenue Railroad Company and the Forty-second Street and Manhattanville Railroad Company, were they identical? A. They were.”

The general auditor, Walter Farrington, was asked:

Q. I notice on page 6 of this report this statement: The Employes Association — the statement is as follows: ‘ The Association on June 30th, 1917, had a membership of 3,412, and had to its credit on that date New York City bonds valued at $79,833.30, and cash on deposit amounting to $13,285.51, the total of $93,116.81.’ These employes were employes of the entire system? A. Yes.

Q. The next item to which I would call your attention is on page 6:' It is most gratifying to contrast the attitude of some of the employes of the company with the strikes, was the response of the men to the company’s invitation to subscribe to the Liberty Loan of 1917 within two weeks of the announcement of the company’s partial payment plan of 3,265 subscriptions which have been received from 73%, and investment of bonds to the value of $200,000.’ That refers to the employes of the subsidiary companies as well as of the others; as well as of the Third Avenue? A. May I see what you are reading from?

Q. Yes. Subscription to Liberty Loan Bonds.’ A. It does.

Q. They are all treated as employes of the Third Avenue, with reference to that loan? A. Employes of all the companies.”

The company referred to, of which these men were the employes, was the Third Avenue Railway Company. In its report the company did not discriminate.

Again, the Third Avenue Railway Company had a printing plant, referred to as follows:

“ Q. I find on page 9 of this report this expression: The economical effect to the operation of its own printing plant has continued during the past year. All of the company’s printing has been done in its own plant.’ That refers to the printing plant which was used for printing matter of not only the Third Avenue Railway Company, but of the subsidiary Companies? A. It does, yes.”

As to pensions for employes, the report of the president said: Under this plan, any employes who have reached the age of seventy years after at least twenty years service with the company, or who have reached the age of sixty-five and have been incapacitated are eligible for pensions,” etc. That the company referred to was the Third Avenue Railway Company appears from this testimony:

Q. You had a system of pensions for the employes, didn’t you? A. Yes.

“ Q. That was entirely under the control of the Third Avenue Railway Company, wasn’t it? A. Yes.

Q. Which handled that entirely; is that right? A. Yes.”

The executive officers, above referred to, were paid by the checks of the Third Avenue Railway Company; the general manager of the entire system had charge of the superintendents of operation, who in turn had control of the conductors and motormen, all of whom reported to a central school for instruction; repairs and construction were operated from a single department; the cars of both the Third Avenue Railway Company and the Forty-second Street Railway Company were marked “ Third Avenue Railway System; ” the Third Avenue Railway Company contracted and paid for the electricity to be used in the system; there was one common purchasing agent, and it is conceded that the Third Avenue Railway Company in the first instance paid the bills for all general and miscellaneous expenses, including salaries of claim agents and expenses for services and for material purchased. The Third Avenue Company owned ■ all the cars which were operated over the lines of the system. One paymaster for the entire system, with assistants, paid the motormen and conductors of the Forty-second Street Railway Company with cash obtained at the bank by checks drawn by Mr. Sage, who was the treasurer of the Third Avenue Railway Company and the Forty-second Street Railway Company. The testimony of this point is as follows:

“ Q. How many paymasters were there for the whole system? A. I think there was one so-called paymaster, possibly two assistants.

“ Q. And they were employes of the Third Avenue Railway Company? A. They were paid out of the Third Avenue Railway Company’s general fund.

“ Q. Was there any such department in the Forty-second Street and Manhattan Railway Company pay department? A. No. * * * They were employes just as much of the 42nd Street company as they were of the Third Avenue. * * *

“ Q. Who pays that paymaster and his subordinates? A. The paymaster was paid out of the Third Avenue Company’s fund.”

The legal department for the adjustment and settlement of claims and the claims themselves were paid by the Third Avenue Railway Company. So, too, the accounting department was for the entire system paid by the Third Avenue Railway Company. Walter Farrington, the general auditor, testified as to the advertising: “ Q. Do you know where the money for that advertising came from, from the various advertisements? A. Yes.

“ Q. Who was it paid to? A. It was paid to the Third Avenue Railway.”

Ely M. T. Ryder, engineer of the Forty-second Street Railway Company, swore that the annual report of that company states that the road was held in joint title by the Third Avenue Railway Company and the Forty-second Street Railway Company.

Q. What does that mean, joint title? A. That is the title to the ownership of the road, which has nothing to do with maintenance.

Q. Then the ownership of the road is jointly in the ■two companies; is that right? A. It is so stated.

Q. Will you go a little further and read the next section, ‘ Operated jointly with/ and say whether the same statement is not made there? A. It states, ‘ Operated jointly with/

Q. That means the joint operation of the two, does it not? A. Yes.

Q. Do you still adhere to your former statement that it was operated alone by the Forty-second Street and Manhattanville Railway Company? A. I did not say that it was operated alone, but it was maintained by the Forty-second Street.

Q. You admit that it is jointly owned, jointly operated, but that you say that it is jointly — it is maintained solely by the one road? A. Correct.”

These being the facts regarding the maintenance and operation of the Third Avenue Railway System, what is our conclusion? Is it that the Forty-second Street -Railway Company maintained a separate and distinct existence as a corporation operating its railroad as a corporate entity under the guidance and control of its own officers and board of directors? Such to my mind would be an absurd conclusion, especially in the face of the declarations of the Third Avenue Railway Company through its officers. They certainly know the facts, and it is the facts, and the facts alone which the law seizes upon to form and to justify its conclusion. These facts are that the Third Avenue Railway Company owned and controlled the Forty-second Street Railway. It dominated its entire existence. It not only owned the majority of the stock; it owned nearly all of its bonded and floating indebtedness. It officered it with its own officers; it executed the work and the service by its own executives; it paid the employes, including motormen and conductors, by and through its own paymaster; it bought and paid for all materials, supplies and operating facilities. Every activity as an operating railroad was dominated, controlled and executed by the Third Avenue. Railway Company, its officers and employes. Ryder, the engineer, had it right when he said that both railroads jointly owned and operated this branch of the system.

These are the facts which cannot be changed by mere bookkeeping entries. It is true that the Forty-second Street Railway Company made out separate reports required by law; that it existed as a corporation; that it owned the street franchise; that upon the books of the Third Avenue Company charges were made for the various services and expenses to the Forty-second Street Railway Company as though it were in reality an independent, vital organism. But all these things cannot hide the reality or cover up the fact that the Third Avenue Railway Company in operation, in control, in dominance, in execution and in the furnishing of service to the city of New York was the Forty-second Street Railway Company.

No facts could exist which would justify the application of the statement in the Davis Case (supra), if these facts did not. “ Where one railroad company actually controls another and operates both as a single system, the dominant company will be liable for injuries due to the negligence of the subsidiary company.” Such was the rule with which I commenced this opinion, as laid down in Davis v. Alexander by the United States Supreme Court, and such is the law which must be applied to the Third Avenue Railway Company in this case. Its activities fit it exactly. Other cases, nowhere near as strong in their facts of dominance as is this case, have held the controlling company hable. An analysis of these cases is not necessary. I shall simply refer you to them. Chicago, M. & St. P. Ry. Co. v. Minn. Civic Assn. (247 U. S. 490, 500, 501). A quotation may not be inapt at this point.

Much emphasis is laid upon statements made in various decisions of this court that ownership, alone, of capital stock in one corporation by another, does not create an identity of corporate interest between the two companies, or render the stockholding company the owner of the property of the other, or create the relation of principal and agent or representative between the two. * * *

“ While the statements of the law thus relied upon are satisfactory in the connection in which they were used, they have been plainly and repeatedly held not applicable where stock ownership has been resorted to, not for the purpose of participating in the affairs of a corporation in the normal and usuai manner, but for the purpose, as in this case, of controlling a subsidiary company so that it may be used as a mere agency or instrumentality of the owning company or companies.” (See, also, U. S. v. Lehigh Valley R. R. Co., 220 U. S. 257, p. 274; Lehigh Valley R. R. Co. v. Delachesa, 145 Fed. Rep. 617; Lehigh Valley R. R. Co. v. Dupont, 128 Fed. Rep. 840; Summon. Snare & TriestCo., 166 App. Div. 425; Wichita Falls & N. W. Ry. Co. v. Puckett, 53 Okla. 463; Foard Co. v. State of Maryland, 219 Fed. Rep. 827; Atchison, Topeka & Santa Fe Ry. Co. v. Davis, 34 Kans. 199.)

The attorney for the appellant, with his customary fairness and frankness, admits that some of these authorities are directly against his contention, and he relies upon our ruling in Stone v. Cleveland, C., C. & St. L. Ry. Co. (202 N. Y. 352); Elenkrieg v. Siebrecht (238 N. Y. 254), and Doran v. N. Y. City Interborough Ry. Co. (239 N. Y. 448) as supporting his view, and as conflicting with these cited authorities. The Stone case I have already referred to. It follows Peterson v. Chicago, Rock Island & Pac. Ry. Co. (205 U. S. 364) in holding that mere stock ownership and control is not sufficient to make the one company liable for the other, its subsidiary. The facts in this case go much further than the facts in the Stone case, as I have already explained. Elenkrieg v. Siebrecht (238 N. Y. 254) dealt with real property owned by a corporation. It was there shown that the corporation and not the stockholder was liable for the care and maintenance of the real property. The corporation was in actual control as'much as any corporation can be and had engaged its authorized real estate agent to look after the property. We held that the fact that the principal stockholder had previously owned the real property which he conveyed indirectly to the corporation did not make him Hable for the neglect of this agent. Here also was a question regarding control or dominance, a question of degree. The Doran case dealt merely with a question of pleading. In speaking of the relationship between these very railroads, this court said regarding an allegation that a motorman was the employe of a group of railroads making applicable the Workmen’s Compensation Act, that a relation so extraordinary must rest upon something more than words of a doubtful import or equivocal conclusions. No such facts were related in the pleadings as were proved in this case. Besides, here one railroad, not a group of railroads, is sought to be held as the actual employer.

For the reasons here stated, I believe the Appellate Division has rightly disposed of this case,

His cock, Ch. J., McLaughlin, Andrews and Lehman, JJ., concur; Crane, J., dissents in opinion in which Pound, J., concurs.

Ordered accordingly.


source: Caselaw Access Project

author: Cardozo, J.

license: Public Domain

text:
    Lillian Honig, Respondent, v. Benjamin C. Riley, Appellant.
    ■ Bailment — restaurants — negligence — damages — liability of restaurant keeper for loss of checked garment limited by statute to seventy-five dollars unless value stated and receipt delivered — limitation not applicable in case of theft by himself or his agents.
    In an action to recover the value of a fur coat left by plaintiff in the cheek room of defendant’s restaurant, for which she received the usual cheek, she being neither questioned as to, nor stating its value, liability is limited by section 201 of the General Business Law (Cons. Laws, ch. 20, amd. L. 1924, ch. 506) to the sum of seventy-five dollars, even though negligence be found. Only where value is stated and a receipt delivered is the exemption made dependent upon freedom from negligence or other fault. The statute, however, is aimed at loss or misadventure and has no application to theft either by defendant or his agents.

      Honig v. Riley, 217 App. Div. 570, reversed.
    (Submitted December 3, 1926;
    decided December 31, 1926.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 11, 1926, which affirmed a determination of the Appellate Term affirming a judgment of the Municipal Court of the city of New York in favor of plaintiff entered upon a verdict.

      Ralph O. L. Fay, David Klein and Henry Fluegelman for appellant.
    Section 201 of the General Business Law is a valid enactment which effectively limits appellant’s liability herein to a sum not in excess of seventy-five dollars. (Rosenplaenter v. Roessle, 54 N. Y. 262; Hyatt
      v. Taylor, 42 N. Y. 258; Purvis v. Coleman, 21 N. Y. 111; Gardiner v. N. Y. C. & H. R. R. R. Co., 201 N. Y. 387; Smith v. People, 47 N. Y. 330; Matter of Livingston, 121 N. Y. 94; People v. Luce, 204 N. Y. 478; Vail v. Broadway R. Co., 147 N. Y. 377; Hyman v. South Coast Hotel Co., 146 App. Div. 341.) When interpreted in accordance with accepted rules of construction the statute is intelligible and effective to reduce the common-law liability of proprietors of hotels and restaurants. (Rosenplaenterv. Roessle, 54 N. Y. 262; Wells v. Steam Navigation Co., 2 N. Y. 204; Julian v. Rathbone, 39 N. Y. 369; Clark v. Brown, 18 Wend. 213; Freeman v. McCullough, 1 Den. 414; White v. Wagar, 32 Barb. 250; 25 N. Y. 328; Carpenter v. Taylor, 1 Hilt. 193; People v. Jones, 54 Barb. 311; Simpson v. Rourke, 13 Misc. Rep. 230; Montgomery v. Ladging, 30 Misc. Rep. 92; Block v. Sherry, 43 Misc. Rep. 342; Robin v. Colaizzi, 101 Misc. Rep. 298.)

      Charles J. Campbell for New York State Hotel Association et al., amici curice.

    The liability of the defendant, a restaurant keeper, is limited to seventy-five dollars by section 201 of the General Business Law. (Story on Bailments, 475; Montgomery v. Lodging, 30 Misc. Rep. 92; Gastenhover v. Clair, 10 Daly, 265; Clary v. Fitzgerald, 155 App. Div. 659; Matter of Dwyer, 192 App. Div. 72; People v. N. Y. & Man. Beach Ry. Co., 84 N. Y. 565; People ex rel. Collins v. Spicer, 99 N. Y. 225.) The act in question is a reasonable regulation of liability, and does not impose an absolute limitation of liability regardless of value. (Rosenplaenter v. Roessle, 54 N. Y. 262; Gardiner v. N. Y. C. & H. R. R. R. Co., 201 N. Y. 387; Tewes v. North German Lloyd S. S. Co., 186 N. Y. 151.)

      Aaron Honig and Jacob J. Lazaroe for respondent.
    The appellant’s contention that in any event his liability is limited to seventy-five dollars by reason of section 201 of the General Business Law is wholly untenable. (Shaine v. Jacobson, 121 Misc. Rep. 590; Chatillon v. Co-operative Apartment Co., 80 Misc. Rep. 108.) The appellant was not a gratuitous bailee and was hable to the respondent for the full value of her coat, if the loss thereof was occasioned by his negligence. (Bird v. Everard, 4 Misc. Rep. 104.)
   Cardozo, J.

Plaintiff, visiting defendant’s restaurant on New Year’s Eve, 1925, left a fur coat of the value of $850 at the check room, receiving the usual check therefor. She was not questioned as to the value, and did not state it. The court charged the jury in effect that the plaintiff should have a verdict for the full value of the coat if the jury believed that the defendant had been negligent in caring for it. The question is whether liability has been limited by statute.

The case involves the construction of section 201 of the General Business Law (Cons. Laws, ch. 20), as amended by Laws of 1924, chapter 506. The whole section must be quoted, but for convenience the part directly applicable is printed in italics:

“No hotel keeper except as provided in the foregoing section shall be liable for damage to or loss of wearing apparel or other personal property in the room or rooms assigned to a guest for any sum exceeding the sum of five hundred dollars, unless it shall appear that such loss occurred through the fault or negligence of such keeper, nor shall he be liable in any sum exceeding the sum of one hundred dollars for the loss of or damage to any such property when delivered to such keeper for storage or safekeeping in the store-room, baggage room or other place elsewhere than in the room or rooms assigned to such guest, unless at the time of delivering the same for storage or safekeeping such value in excess of one hundred dollars shall be stated and a written receipt, stating such value, shall be issued by such keeper, but in no event shall such keeper be liable beyond five hundred dollars, unless it shall appear, that such loss occurred through his fault or negligence, and such keeper may make &' reasonable charge for storing or keeping such property, nor shall he be liable for the loss of or damage to any merchandise samples or merchandise for sale, unless the guest shall have given such keeper prior written notice of having the same in his possession, together with the value thereof, the receipt of which notice the hotel keeper shall acknowledge in writing over the signature of himself or his agent, but in no event shall such keeper be liable beyond five hundred dollars, unless it shall apppear that such loss or damage occurred through his fault or negligence; os to property deposited by guests or patrons in the parcel or check room of any hotel or restaurant, the... delivery of which is evidenced by a check or receipt therefor and for which no fee or charge is exacted, the proprietor shall not be liable beyond seventy-five dollars, unless such value in excess of seventy-five dollars shall be stated upon delivery and a written receipt, stating such value, shall be issued, but he shall in no event be liable beyond one hundred dollars, unless such loss occurs through his fault or negligence.”

The defendant maintains that where property is deposited in a parcel or check.room without statement of value or delivery of the prescribed receipt, there is a limit of liability to $75 for loss from any cause. Disclosure of the value, if followed by a receipt, will extend liability for fault or negligence up to the limit of the value stated, though even then the liability, if any, as insurer will be $100 and no more. The plaintiff on her side maintains, and the courts below have held, that the exemption from liability in excess of $75 where the value is not disclosed, is not to be read as a limitation of liability for loss from any cause, but is confined to losses not due to the fault or negligence of the proprietor.

We think the defendant’s construction is the true one, however clumsy and inartificial may be the phrasing of the statute. A limitation of liability affecting merely the measure of recovery is applicable, if not otherwise restrained, to loss for any cause (D’ Utassy v. Barrett, 219 N. Y. 420, 424; Boyle v. Bush Terminal R. R. Co., 210 N. Y. 389, 392). The final words of the section, unless such loss occurs through his fault or negligence,” are to be confined to the limitation of $100 immediately preceding. They do not relate back to the beginning and modify all that follows. The sense of the words-, and the order of the clauses would lead to this conclusion as a matter of verbal or grammatical construction though the provision as to check rooms were one standing by' itself. The construction is confirmed when the provision is read in conjunction with the provisions immediately preceding it as part of a connected plan. The guest at an inn who delivers goods to the innkeeper for storage or safekeeping in a place other than his room must state the value of the goods and procure an appropriate receipt. If he fails to do this, the liability of the innkeeper is limited to $100. In no event, however, is there to be liability in excess of $500 except for fault or negligence. There are similar provisions in respect of liability for merchandise samples or merchandise for sale. From the beginning of the section to the end, the exemption from liability in excess of the prescribed maximum is absolute where value is concealed. Only where value is stated and a receipt delivered is the exemption made dependent upon freedom from negligence or other fault.

Argument is made that the statute is unworkable and meaningless. Proprietors of restaurants who are informed of the value and give a receipt are to have the benefit of a $100 limitation if fault or negligence is not established. In that contingency, however, they do not need a limitation. The common law does not charge them with an obligation approaching that of an insurer. The argument overlooks the fact that the statute is not aimed at the protection of proprietors of restaurants exclusively. Another purpose, and indeed the chief one, if we may judge from v the preceding exemptions of the sectioh, is the protection of innkeepers, whose liability to guests is absolute, with exceptions not here important, under the rule at common law. For the purpose of the new exemption, proprietors of inns and proprietors of restaurants are grouped as a single class. If they have' been guilty of fault or negligence, they are liable for damages to the extent of the value stated. If free from fault or negligence, their liability, if any, as insurers, will not exceed $100, but within that limitation will be determined by the existing law. Negligence may indeed be inferred in the first instance from the delivery of the subject of the bailment and the failure to return it. Even so, the inference may be repelled through proof by the bailee that the thing, though not returned, has been lost without his fault (Claflin v. Meyer, 75 N. Y. 260). Whether liability will then survive must be determined by the character of the bailment and the liability assumed. The bailee now before us would not be liable in any amount if negligence were absent. Negligence being found, the statute preserves the liability, but limits the recovery.

In one of the opinions at the Appellate Term the point was made that the statute, if read as the defendant reads it, would permit the innkeeper or the proprietor of a restaurant to limit his liability to $75, in default of disclosure of the value, though he had stolen or willfully misused the thing confided to his custody. We have no thought by our decision to sanction such injustice. The statute is aimed at loss or misadventure. It has no application to theft by the defendant or his agents (D’ Utassy v. Barrett, 219 N. Y. 420, 424). Very likely, the statute would be fairer if it charged a bailee with a duty to make inquiry as to value so as to put the owner on his guard. Those considerations are for the Legislature. They do not relieve us of the duty to enforce the law as it is written. ■

The judgment of the Appellate Division and the determination of the Appellate Term should be reversed, and the judgment of the Municipal Court modified by reducing the amount thereof to the sum of $75 with interest and costs, and as so modified affirmed without costs of appeal in this or any court.

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

Judgment accordingly.


text:
    Catherine Dougherty, as Administratrix of the Estate of Leo Dougherty, Deceased, Respondent, v. Pratt Institute, Appellant.
    Negligence —■ buildings — rule of Industrial Board requiring installation of hooks for safety belts of window cleaners not applicable to school building — no common-law liability for death of window cleaner who fell from window unprovided with hooks — assumption of risk — liability of owner unaffected by Lab of Law, §§ 201, 202.
    A rule of the Industrial Board, adopted pursuant to the Labor Law (Cons. Laws, ch. 31), that hooks for safety belts of window cleaners shall be installed in buildings used for factories or mercantile establishments does not apply to a school building. Nor does an action against the owner thereof to recover for the death of a window cleaner who fell from the ledge of a window unprovided with hooks exist at common law! The absence of hooks was obvious to the worker, there was no hidden defect accentuating the danger and he assumed the risk when he continued at work. Defendant’s liability is unaffected by the statute (Labor Law, §§ 201, 202).

      Dougherty v. Pratt Institute, 217 App. Div. 752, reversed.
    (Argued December 3, 1926;
    decided December 31, 1926.)
    Appeal from a judgment, entered July 7, 1926, upon an order of the Appellate Division of the Supreme Court in the second judicial department, which reversed a judgment in favor of defendant entered upon an order of the court at a Trial Term granting a motion to set aside a verdict in favor of plaintiff and for a dismissal of the complaint and directed a reinstatement of the verdict.

      Benjamin C. Loder and John H. Scully for appellant.
    The defendant’s failure to supply an appliance or contrivance on its school building, to which a window cleaning belt might have been attached, did not constitute a violation of any legal duty owed to plaintiff’s intestate nor does it impose upon the defendant any liability, based on negligence, to the plaintiff in this action. (Pauley v. S. G. & L. Co., 131 N. Y. 90; Huda v. Amer. Glucose Co.; 154 N. Y. 474; Lindsley v. Stern, 203 App. Div. 615. Kunder v. Purchase Holding Co., 188 App. Div. 94; Hickey v. Taaffe, 105 N. Y. 26; Dillon v. National Coal Tar Co., 181 N. Y. 215; Glens Falls P. C. Co. v. Travelers Ins. Co., 162 N. Y. 399; Sullivan v. New Bedford Gas & Edison Co., 190 Mass. 288; Crimmins v. Booth, 202 Mass. 17; Pettingill v. Porter & Son, 219 Mass. 347; Hess v. Bernheimer, 219 N. Y. 415.)

      Julius F. Newman for respondent.
    Defendant was under obligation to the deceased to furnish him with a safe place to work. (Alexander v. City of New York, 194 App. Div. 161; Dowdell v. Lackawanna Steel Co., 198 N. Y. 362; Blumquist v. Snare & Triest Co., 135 App. Div. 709; Wistinetz v. Goldman, 154 App. Div. 829; Glennon v. Star Co., 130 App. Div. 491; 197 N. Y. 597; Pepe v. Utica Pipe Foundry Co., 132 App. Div. 458; Conyes v. Oceanic Amusement Co., 202 N. Y. 408.) The defendant owed to plaintiff’s intestate the same, duty that it owed to its own employee. (McLean v. Studebaker Bros. Co., 221 N. Y. 475; Hess v. Bernheimer, 219 N. Y. 415; Alexander v. City of New York, 194 App. Div. 161.)
   Cardozo, J.

The action is to recover damages for injuries resulting in death.

Plaintiff’s intestate was employed by the Consolidated Window Cleaning Corporation which had a contract with the defendant, the Pratt Institute, for the cleaning of windows. He was sent by his employer to the defendant’s building, constructed and then in use as a school. While standing on the outer ledge of one of the windows he fell to his death. A few of the windows were fitted with hooks for the safety belts of cleaners. Other windows were without hooks. There were none at the window where the man was standing when he fell. A rule of the Industrial Board, adopted in pursuance of the Labor Law (Cons. Laws, ch. 31; Schumer v. Caplin, 241 N. Y. 346), says that hooks shall be installed in buildings used for factories or mercantile establishments. By concession these classes do not include defendant’s school. The cause of action cannot be built, nor does the plaintiff try to build it, upon a violation of the ordinance. The question is whether a cause of action exists at common law.

The absence of hooks was obvious to the worker the moment that he stood upon the ledge. There was no hidden defect accentuating the danger. An owner of a building may owe as great a duty to the invited servant of another as he does to his own servant. He does not owe a greater one (Hess v. Bernheimer & Schwartz Brewing Co., 219 N. Y. 415, 418). The risk was assumed when the cleaner continued at the work (McLean v. Studebaker Bros. Co., 221 N. Y. 475, 478; Collelli v. Turner, 215 N. Y. 675). There is no question here of the breach of any statutory duty (Fitzwater v. Warren, 206 N. Y. 355). The plaintiff sues at common law. The defendant’s liability is unaffected by the statute (Labor Law, §§ 201, 202; Collelli v. Turner, supra).

We are not required to consider other objections to the recovery which were pressed upon us at the bar with earnestness and force.

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

His cock, Ch. J., Pound, McLaughlin, Cbane, Andbews and Lehman, JJ., concur.

Judgment accordingly.


author: Cardozo, J. Crane, J.

text:
    The People of the State of New York ex rel. The Studebaker Corporation of America, Appellant, v. John F. Gilchrist et al., Constituting the State Tax Commission, Respondents.
    Tax — franchise tax —• corporations —■ stock of corporation doing business in this State owned entirely by foreign corporation— franchise tax improperly assessed, under Tax Law on July 1, 1922, upon basis of consolidated income of both corporations, against subsidiary, whose business was sale of goods manufactured by parent corporation — tax not sustainable on theory that fair and reasonable profit of subsidiary would absorb entire profit of principal from business done with subsidiary — tax not sustainable under provision of statute that combined report may be permitted or required by Tax Commission — business of parent corporation and of subsidiary to be reached by assessments directed to each proportioned to value of their separate privilege.
    1. Where all of- the stock of a foreign corporation, doing business in this State, was owned by another foreign corporation, which did no business here, the business of the subsidiary being to sell here and elsewhere motor vehicles, parts and accessories, manufactured by the parent corporation in other States, and the business of the subsidiary showed a loss while that of the parent corporation showed a large gain, a franchise tax was improperly assessed against the subsidiary corporation upon the basis of the consolidated income of subsidiary and parent, under the provisions of subdivision 9 of section 211 of the Tax Law as it read on July 1,1922. (Cons. Laws, ch. 60, amd. L. 1922, ch. 507.) The statute made provision for a return on the basis of consolidated income by the owner corporation, where it did business in tMs State, so as to be subject to our laws. It made no such provision as to the corporation that was owned. The tax as to it was to be measured by the value of its franchise, not the franchise of another.
    2. The tax may not be sustained on the theory that the subsidiary conducted the business for the benefit of the parent corporation and that the Tax Commission was authorized by the statute, in determining the net income of the subsidiary, to consider the fair profits which, but for its agreement with its principal, it might have obtained in its business and to determine that profit to the agent in order to be fair and reasonable must absorb the entire profit to the principal from the business of the agency. The evidence affords no basis for a holding that a fair agreement between the parent which manufactured and the subsidiary which sold would have given the whole profit to the subsidiary and nothing to the parent. A fair and reasonable contract between corporations so related would have assured to the subsidiary the customary return upon the business of an agency.
    3. The tax may not be sustained under other provisions of the statute permitting a joint report.
    4. The business of the parent corporation, the principal, is to be reached under the statute by assessment directed to the principal and proportioned to the value of the privilege of acting as a principal. The business of the subsidiary, the agent or the conduit, is to be reached under the same statute by assessment directed to the subsidiary and proportioned to the value of the privilege of acting as a conduit or an agent.

      People ex rel. Studebaker Corp. v. Gilchrist, 217 App. Div. 130, reversed.
    (Argued November 15, 1926;
    decided December 31, 1926.)
    Appeal from an order of the Appellate Division of the Supreme Court in the third judicial department, entered May 27, 1926, which modified and confirmed as modified a determination of the State Tax Commission upon an application for the revision of franchise taxes under article 9-A of the Tax Law.

      E. J. Dimock for appellant.
    Whether the attempt to assess was made upon a revised income basis or a consolidated basis, the assessment as made is invalid because unauthorized by the statute. The assessment is invalid on the revised income basis because the income taxed was not the income of the subsidiary, as required by statute, but the consolidated income of the parent. (People ex rel. Thompson v. McComber, 7 N. Y. Supp. 71; Conley v. Mathieson Alkali Works, 190 U. S. 406; Peterson v. Chic., etc., Ry. Co., 205 U. S. 364; U. S. v. American Bell Tel. Co., 29 Fed. Rep. 17; People v. American Bell Telephone Co., 117 N. Y. 241; People ex rel. Edison L. & P. Co. v. Kelsey, 101 App. Div. 205; Procter & Gamble Co. v. Newton, 289 Fed. Rep. 1013.) Whether the attempt to assess was made upon a revised income basis or a consolidated basis, the actual assessment against the relator was based on consolidated figures of assets and income of a non-resident parent and such an assessment is invalid as depriving the taxpayer of its property without due process of law. (People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48.) If the attempt to assess was made upon a consolidated basis, the discrimination inherent in the statute and the discretion vested in the Tax Commission to adopt such a consolidated assessment, or to adopt a normal one, would deprive the taxpayer of its property without due process of law and deprive it of the equal protection of the laws. (Stuart v. Palmer, 74 N. Y. 183; Colon v. Lisk, 153 N. Y. 188; Coe v. Armour Fertilizer Works, 237 U. S. 413; People v. Klinck Packing Co., 214 N. Y. 121; State v. Lyons, 183 Wis. 107.)

      Albert Ottinger, Attorney-General (Wendell P. Brown and Claude T. Dawes of counsel), for respondents.
    The taxes were properly assessed upon the basis of the combined entire net income and combined segregated assets of the parent corporation and its subsidiaries. (Matter of Lorimier-Greenbaum Co., Inc., v. Gilchrist, 212 App. Div. 733; People ex rel. Barcolo Manufacturing Co. v. Knapp, 227 N. Y. 64; People ex rel. Kohlman & Co. v. Law, 239 N. Y. 346; People ex rel. New York Realty Corp. v. Miller, 92 App. Div. 116; People ex rel. Wiebusch

      & Hilger Co. v. Roberts, 18 Misc. Rep. 530.) The assessments were not unconstitutionally imposed. (People ex rel. Jaeckel & Sons, Inc., v. State Tax Commission, 209 App. Div. 120; Matter of Lorimier-Greenbaum Co., Inc., v. Gilchrist, 212 App. Div. 733; People ex rel. Butler, Inc., v. Law, 210 App. Div. 804; 240 N. Y. 644; McCaskill v. United States, 216 U. S. 504; Linn & Lane Timber Co. v. United States, 236 U. S. 574; Miller & Lux v. East Side Canal Co., 221 U. S. 293; Northern Securities Co. v. United States, 193 U. S. 197; United States v. United Shoe Machinery Co., 234 Fed. Rep. 127; Chicago Mill & Lumber Co. v. Boatmen’s Bank, 234 Fed. Rep. 41; Matter of Rieger, 157 Fed. Rep. 609; United States v. Milwaukee Refrigerator Co., 142 Fed. Rep. 247.)
   Cardozo, J.

“ The Studebaker Corporation of America ” is a New Jersey corporation. It sells automobiles and automobile accessories in New York and elsewhere. Its entire capital stock is owned by The Studebaker Corporation,” which manufactures the automobiles and the accessories in Indiana and Michigan, and sells them to subsidiaries. Of these subsidiaries the Studebaker Corporation of America is only one. Other subsidiaries (e. g., Studebaker Sales Corporation of Ohio, Studebaker Bros, of Utah, Studebaker Bros, of California) do business in other districts.

By agreement made August 25, 1920, the parent corporation (the manufacturer) agreed to sell its motor vehicles and parts and accessories to this subsidiary (The Studebaker Corporation of America), the distributor, at the retail list price (to be fixed by the manufacturer), less 25% discount on cars and 33%% discount on parts. The discount was too small to enable the subsidiary to do business at a profit. Its loss during the year 1920 was $449,133.14. There was a loss during the same year to all the other subsidiaries, except the Studebaker Sales Corporation of Ohio. On the other hand, the parent corporation made in the same year a net profit of $11,434,954.41 from the operations of its business everywhere, which included, of course, the process of manufacture as well as the act of sale. The loss sustained by the subsidiary now before us, The Studebaker Corporation of America, was taken over by the parent at the close of the year. Apparently this had been done in previous years also. At all events, the subsidiary was indebted to the parent on December 31,1920, for upwards of nine million dollars.

The year 1921 makes a continued showing of loss. The subsidiary before us, operating under the same agreement, sustained a loss of $2,168,178.63, which again was taken over by the parent. Losses were sustained by the other subsidiaries except the Studebaker Sales Company of Ohio. The net profits of the parent were $13,684,952.73. These profits, like those of the preceding year, were the result of the transaction of its business everywhere.

Article 9-A of the Tax Law (Cons. Laws, ch. 60; § 209) is to the effect that every domestic corporation shall pay for the privilege of exercising its franchise in this State, and every foreign corporation for the privilege of doing business, an annual franchise tax to be computed by the Tax Commission upon the basis of its entire net income for the year next preceding. The exceptions established by section 210 are unimportant for the case before us. The appellant, The Studebaker Corporation of America, made a report in 1922 for its income for the year ending December 31, 1920, and in 1923 for the year ending December 31, 1921. These reports showed that there had been no net income for either of these years, but on the contrary losses of $449,133.14 and $2,168,178.63, respectively. On the basis of these reports, the only tax payable would be the minimum tax prescribed by the final paragraph of Tax Law, section 214, $12.14 for 1921, and $15.91 for 1922. The Tax Commission imposed a tax upon the basis of the consolidated income of subsidiary and parent, gaining the requisite information from reports under the Federal law. As thus computed the tax was $9,671.27 in one year and $15,580.71 in the other. Upon applications for revision under Tax Law, section 218, slight errors' of computation were corrected, and the taxes as thus reduced confirmed. There was a correction of other errors of computation at the Appellate Division with confirmation as modified, one member of the court dissenting. The taxes, as corrected, stand at $9,398.66 and $11,936.24, respectively.

The case involves the construction of subdivision 9 of section 211 of the Tax Law as it read on July 1, 1922 (Tax Law, as amended by L. 1922, ch. 507). We are not concerned at this time with later amendments which became effective in 1925 (L. 1925, ch. 322). Subdivision 9 of section 211, as it stood before the amendment of 1925, contained the following provisions:

Any corporation owning or controlling, either directly or indirectly, substantially all of the capital stock of .another corporation, or of other corporations, liable to report under this article, may be required to make a consolidated report showing the combined net income, such assets of the corporations as are required for the purposes of this article, and such other information as the tax commission may require, but excluding inter-•corporate stockholdings and intercorporate accounts.

The tax commission may permit or require the filing of a combined report where substantially all the capital stock of two or more corporations liable to taxation under this article is owned by the same interests. The tax commission may impose the tax provided by this article as though the combined entire net income and segregated assets were those of one corporation, or may, in such other manner as it shall determine, equitably adjust the tax.

“ Where any corporation liable to taxation under this article conducts the business whether under agreement or otherwise in such manner as either directly or indirectly to benefit the members or stockholders of the corporation, or any of them, or any person or persons, directly or indirectly interested in such business by selling its products or the goods or commodities in which it deals at less than a fair price which might be obtained therefor, or where such a corporation, a substantial portion of whose capital stock is owned either directly or indirectly by another corporation, acquires and disposes of the products of the corporation so owning the substantial portion of its capital stock in such a maimer as to create a loss or improper net income, the tax commission may require such facts as it deems necessary for the proper computation provided by this article, and may for the purpose of the act determine the amount which shall be deemed to be the entire net income of the business of such corporation for the calendar or fiscal year, and in determining such entire net income the tax commission shall have regard to the fair profits which, but for any agreement, arrangement or understanding, might be or could have been obtained from dealing in such products, goods or commodities.”

The first paragraph of the subdivision quoted has no application to the situation now before us. It deals with a case where the parent corporation as well as the subsidiary is subject to the taxing power of this State, and is required by appropriate direction to make report on the basis of the consolidated income. No such direction has been made. The parent corporation in the Studebaker system is organized under foreign laws and manufactures its products in States far distant from our own. We do not now inquire whether the State of New York might disregard the subsidiary as a mere cover or pretense and lay a tax upon the parent as upon a corporation doing business here through the instrumentality of an agent (Procter & Gamble Co. v. Newton, 289 Fed. Rep. 1013; Chicago, M. & St. P. Ry. Co. v. Minn. Civic Assn., 247 U. S. 490; So. Pac. Co. v. Lowe, 247 U. S. 330, 337; U. S. v. Reading Co., 253 U. S. 26, 61, 63; Cannon Mfg. Co. v. Cudahy Co., 267 U. S. 333, 337; Gramophone & Typewriter, Ltd., v. Stanley, 1908, 2 K. B. 89; cf. Ballantine, Separate Entity of Parent & Subsidiary Corporations, 14 Calif. Law Rev. 12, 18, 20). If this or something not unlike might have been done, the Commission has not sought to do it. The parent has not been taxed, nor has any requirement been addressed to it to make return as to its business. The only tax imposed has been a tax on the subsidiary, to be measured by the value of its franchise, not the franchise of another. The subsidiary in these transactions, if it had any genuine autonomy (Procter & Gamble Co. v. Newton, supra), was either a buyer or an agent. If in truth and in good faith it was a buyer of the parent’s products, its operations were its own. By the very terms of the hypothesis, they are not to be identified with the operations of the seller. On the other hand, if the sale is to be disregarded as nothing but a cover for an agency, the value of the privilege of doing business in a corporate form as agent for another is not to be confused with the value to the principal of acting through the agent. The position of the subsidiary may be no better than if its certificate of incorporation had stated that the purpose of its business was to act as factor or intermediary for the products of the parent. The position may be no better, but it can also be no worse. The statute makes provision for a return on the basis of consolidated income by the corporation that is owner where the owner does business in this State so as to be subject to our laws. It makesc no such provision, or made none till the act of 1925 corrected the omission, for a return by the corporation that is owned.

The meaning of the final paragraph of section 211 (subdivision 9) is still to be considered. It is this paragraph, and not the first, that supplied a basis for the assessment in the judgment of the court below. We think the inference is permissible that loss would have been avoided if a contract fair and reasonable in its terms, such as would naturally have existed between independent corporations, had been made between the subsidiary as the agent and the parent as the principal. Whatever the form of the transaction, the business of the subsidiary was in fact a selling agency, or so a trier of the facts might find (Lehigh Valley R. R. Co. v. Delachesa, 145 Fed. Rep. 617; The William Van Driel, Sr., 252 Fed. Rep. 35). If the parties had been dealing upon a normal business footing, the discount would have been large enough to allow the selling agent a fair or customary commission upon the sales effected by the agency. There would have been little difficulty, one would suppose, in placing evidence in the record from which a conclusion could be drawn as to the extent of such commissions and the fair profits that would have been earned if such commissions had been paid and a reasonable return allowed on capital invested. Nothing of the kind was proved. Instead, the tax has been laid upon the theory that the profit to the agent in order to be fair and reasonable must absorb the entire profit to the principal from the business of the agency. In the view of the Appellate Division, “ the amount to be deemed the net income of relator under a fair agreement with its parent corporation should be exactly the same figure at which the parent’s net income from New York business would have been fixed had it itself transacted the New York business ” (217 App. Div. 130, 135). The privilege for which the appellant .has been taxed is the privilege of selling in New York the products of its principal. The business transacted by the principal included the process of manufacture carried on in-Michigan and Indiana, a process which was anterior of necessity to any service by the agent. We find no basis for a holding that a fair agreement between the parent which manufactured and the subsidiary which sold would have given the whole profit to the subsidiary and nothing to the parent.

We assume once again that the taxing officers of the State may disregard a subsidiary altogether as a bookkeeping device when there is evidence to justify the finding that it is that device and nothing more. In that event, there is power to tax the parent corporation, the owner of the stock, on the basis of the consolidated income apportioned to New York. Stock ownership is not enough without more to bring the parent owner within the State if the subsidiary “ has its own. set of officials who actually conduct its business ” (Procter & Gamble Co. v. Newton, supra), and this though their tenure may be precarious in that the parent can oust them as soon as their terms expire by the choice of new directors. At least there is no decision yet announced that has attempted to go farther (cf. Cannon Mfg. Co. v. Cudahy Co., supra). Before the corporation persona ” may be ignored, the evidence must show that the subsidiary is not left with any autonomy,” (Learned Hand, J., in Procter & Gamble Co. v. Newton, supra), and that the parent though in form speaking and acting through another, is operating the business directly for itself. The taxing officers made a choice which relieves us of the duty of determining whether the sparse evidence in this record upholds a finding of dominion so absolute and abdication so complete. Instead of passing over the subsidiary as the mere shadow of a name, they chose to view it as an entity, a separate and independent center of energy and action. So viewing it, they have said that we are to substitute for the contract made the one that would be fair and reasonable if the two corporations were acting at arms length. A fair and reasonable contract between corporations so related would have assured to the subsidiary the customary return upon the business of an agency. The argument for the State would lead to the conclusion that such a contract might exist, and the State even then be entitled to something more. The statute in this paragraph postulates the existence of separate corporations, each of them conducting a business of its own. The meaning is that the contract between parent and subsidiary shall be as liberal and just as it would be if the subsidiary were a stranger. Activities equal to those of a factor or other agent are to be rewarded at a rate appropriate to the true relation. Activities less than these, or so slight as to be nominal, are to be rewarded at a rate no higher. Nothing in this record gives support to a conclusion that the distributor was lacking in the corporate organization essential for the mechanical operations of sale and distribution. It was more than a figment, however much its policy may have been directed from without. We have no need to consider how the case would stand if it had not exercised in any form the privilege of doing business for which the tax is to be paid. Where the subsidiary has done nothing, there might be difficulty in showing why its fair share of the profits should be anything at all.

If the first and third paragraphs do not sustain the tax, there can be little basis for an argument that the second paragraph applies. That paragraph assumes the existence of two corporations both owned by like interests and both subject to taxation. It assumes that the two shall join in a single or combined report, and the tax then laid upon the two, or divided between them according to some equitable adjustment. There is thus a two-fold difficulty in applying this paragraph to the situation now before us. One is that the two corporations have not joined in any report, and that their equities as between themselves have been neither adjusted nor considered. A second is that if both were before us, there would be no basis for an adjustment that would place upon the subsidiary the undivided burden. The only theory on which both parent and subsidiary may be taxed in this State for the exercise of a corporate privilege is that one is the principal and the other the agent. In that view of their relation, an equitable adjustment would require that the agent bear the tax upon its profits as an agent, and the principal the tax upon its profits as a principal. If some other method of adjustment is to be followed, its basis must be found, not in the will of the assessors, but in a pronouncement of the statute.

Public policy may indeed require that a foreign corporation manufacturing its products elsewhere shall not be at liberty to market them here by subsidiary corporations subject to its complete control without exposing the subsidiary to the same taxation as the parent. Convenience may demand that a corporation supplying a disguise shall be taxed as if it were one with the stockholder by whom the disguise has been assumed. The difficulty is that in the absence of prescribed conditions no such public policy had been declared, when these taxes were imposed, by the only agency of government competent to declare it. Section 214, subdivision 7, was intended to apply to cases where a consolidated report had been filed by the parent corporation for itself and its subsidiary in accordance with section 211, subdivision 9, and was not extended till 1925 to cases where a report had been filed by a subsidiary alone. The parent, if required to make return to the Commission on a consolidated basis, would have had notice of the existence of a claim that it was doing business in the State. The opportunity would then have been at hand to prove that the subsidiary had an independent organization and an autonomous existence. In the absence of such notice there was no warning at any stage either to parent or to subsidiary that there was any denial by the State of the immunity of the one or the autonomy of the other. Even now, we search in vain through the briefs of the Attorney-General for argument or suggestion that the parent is here so as to be subject to our laws. There is thus substance, and not mere formality, in the requirement of notice, or of preliminary conditions that would be equivalent to notice. The taxing officers of the State are mere administrative agents. They may not devise new forms and methods of taxation, however convenient or useful. They have no more inherent power to tax a corporation upon the income of its stockholder whfere the stockholder is another corporation than they have where the stockholder is a natural person. They do not help themselves by saying that the stockholder in the long run may be expected to pay the bill, so that little harm will be done, whatever the method of assessment. Assessment, however handy, must find its warrant in the statute. A statute levying a tax will not be extended by implication beyond the clear import of its terms (Gould v. Gould, 245 U. S. 151, 153). If one method of assessment or collection is pointed out, the courts will not permit the application of another on the theory that the Legislature might just as well have chosen it, since in the final devolution of the burden the result will be the same, or, at worst, not widely different (U. S. v. Field, 255 U. S. 257; Slebbins v. Kay, 123 N. Y. 31; People ex rel. Mutual Trust Co. v. Miller, 177 N. Y. 51). We take the statute as we find it. One who serves as a conduit for a payment to some one else may not be taxed upon that payment as if he had kept it for himself.

We have no thought in anything here said to curtail the limits of the taxing power under statutes differently contrived. A corporation masquerading in the disguise of a subsidiary may be compelled, when the disguise is pierced, to contribute to the fisc as its true activities require. We would not be understood to hold that by appropriate enactment a burden as heavy may not be laid upon the corporate body supplying the disguise and thus promoting the deception. Problems such as these must be postponed until there is brought before us a statute which gives occasion for an answer. Such is not the scheme of the statute now before us. The business of the parent corporation, the principal, is to be reached under the statute by assessment directed to the principal and proportioned to the value of the privilege of acting as a principal. The business of the subsidiary, the agent or the conduit, is to be reached under the same statute by assessment directed to the subsidiary and proportioned to the value of the privilege of acting as a conduit or an agent. When the burden is so restricted, these taxes may not stand (People ex rel. Kohlman & Co. v. Law, 239 N. Y. 346, 352).

The order of the Appellate Division should be reversed, with costs in the Appellate Division and in this court, the determination of the State Tax Commission annulled, and the proceeding remitted to the Commission for the revision of the taxes in accordance with this opinion.

Crane, J.

(dissenting). The Studebaker Corporation is the name of a company organized under the laws of the State of New Jersey engaged in the manufacture of motor vehicles in the States of Indiana and Michigan. It has in various States subsidiary corporations for .the sale and disposition of its product. One of these corporations does business in the State of New York. It is the relator in this case, and is named The Studebaker Corporation of America.” Organized under the laws of the State of New Jersey, it disposes of the product of the parent company in New York State.

That it should be taxed for the privilege of doing business in this State upon the basis of its net income is conceded. This litigation has arisen over the determination of its net income.

The parent company, the Studebaker Corporation, owns all the stock of the Studebaker Corporation of America, the relator, which, as I have said, was its subsidiary, or selling agent, in the State of New York. By an arrangement between the two corporations, motor vehicles, parts and accessories were sold by the parent company to its subsidiary at a 25 per cent discount on cars, and a 33^ per cent discount on parts. The result of this arrangement was that during the year 1920 the relator sustained a loss of $449,133.14, and for the year 1921 a loss of $2,168,176.63. These figures were purely artificial, mere matters of bookkeeping.' As a matter of fact, they did not represent an actual loss; the figures were the result of the arbitrary discount apparently allowed by the parent company. The discount might have been anything; the result would have been the same to the parent company which owned all the stock, and merely used its subsidiary as a means of disposing of its cars. Whatever may have been the distinct corporate entity, in reality and in fact one was the creature of the other. I do not mean to say that they were one and the same corporation for the purpose of taxation, but they were one and the same corporation regarding control, and for the purpose of this discount. During these years the parent company made a profit in 1920 of $11,434,954.41, and in 1921 of $13,684,952.73. Apparently there is no question about the loss of the subsidiary being a mere bookkeeping item; not an actual loss, but a result reached under the system of doing business devised by the parent corporation which was making all the profits. This is recognized in the main opinion which very frankly states that the relator could have been taxed upon the fair profits which would have been earned under a fair and reasonable agreement.

As the parent company created a situation and by its system established a fictitious loss on the business in New York, who is to determine what a fair profit would have been on the sales here? Who would know better than the persons conducting the business and ultimately making the profit? It must be presumed that the Studebaker Corporation, the parent company, - and even its subsidiary knew what this court is undertaking to state, namely, that it was taxable upon the basis'of the net income which would be derived from the sales in, New York State under a fair and reasonable arrangement with the manufacturer. Knowing this law, the relator furnished no such information.

We have, therefore, at the outset of this case these facts beyond dispute, treating of course, the relator as an independent corporation having an enthy and a vitality of its own. It is carrying on business in New York State; its loss is fictitious. It may have made profits, or should have made profits, on its business in the State. Under a fair arrangement with the manufacturer, it could have made profits, or might have made them. The manufacturer owns all its stock and made the profits, if any. All but one of its subsidiaries in other States made losses, while the parent company made the profits according to the above figures.

What were the taxing authorities here in the State of New York going to do? They were in duty bound under article 9-A of the Tax Law to assess and tax the relator upon the basis of its net income, or the net income which it should have had. How were they to ascertain this? By any fair and reasonable method, and such means as they had at their disposal in the first instance. They had the returns made by the companies to the Federal government. Later, the relator furnished the figures regarding its business, that of the parent company and of its various subsidiaries. To determine what should have been this fair return or net profit on the business in this State, the Tax Commissioners allocated the net profits of the parent company in proportion to all its assets and that of all its companies to the assets of the relator in New York State. The figures were arrived at by taking such a proportion of the combined net income of the parent corporation and its subsidiaries as the total determinative assets of those corporations bore to the determinative assets of those corporations allocated to the State of New York. Now this might not have been accurate; it was apparently the only method, or at least a lawful method of proceeding in the absence of other information. The relator failed to furnish any other information or to show what would have been a fair profit under a reasonable agreement with the holding company. The relator was afforded an opportunity to furnish this information. The tax as fixed by the Commission was presumptively correct. The relator had the opportunity and the burden of showing it to be incorrect. (People ex rel. Barcalo Mfg. Co. v. Knapp, 227 N. Y. 64; People ex rel. Kohlman & Co. v. Law, 239 N. Y. 346; Matter of Lorimier, Greenbaum Co., Inc., v. Gilchrist, 212 App. Div. 733.)

I know of nothing in the law which prevents the Tax Commission from adopting this method of allocation in order to determine the net profits when other information is not forthcoming and it is conceded that the books do not correctly show the actual facts. It was for the relator to show whether or not there was an actual instead of a fictitious loss, in view of all the circumstances of this case. It is no answer in my judgment to say that the Tax Commission could not have compelled the parent company, a foreign corporation, to make a return or give' information. The fact is that the information was furnished according to the figures which the Commission used. The Commission adopted the figures furnished by or through the parent company and the relator.

This case in my judgment comes within subdivision 9 of section 211 of the Tax Law, and subdivision 7 of section 214. The latter provision reads:

In case any report is made as provided by subdivision nine of section two hundred and eleven of the tax law, the tax commission may assess the tax against either of the corporations whose assets or net income are involved in the report and upon the basis of the combined entire net income and the combined segregated assets of the corporation and upon such other information as it may possess, or may adjust the tax in such other manner as it shall determine to be equitable,”

A method specifically provided for corporations coming within these subdivisions is not improperly or illegally used to ascertain net profits under such conditions as here exist, although the condition may not be specifically stated in the statute. The Comrüission had a duty to discharge and that was to ascertain what would have been the net profit under a fair agreement with the holding or parent company. In the absence of other means of ascertainment or of other information furnished by the relator, it was justified in adopting the figures which were given and arriving at the net profits according to the methods used in other and similar cases. If the parent company had been doing business directly in New York State, there is no question about the correctness of the methods adopted by the Tax Commission. What can be the objection by the relator to such methods when it is a mere subsidiary carrying on business in New York State for the parent company, and fails to show a true state of facts? The only answer to be made is that such method is not specifically prescribed in the statute for such specific relationship. What is prescribed, however, is that the Tax Commission must find what the net profit was or would be, if any, under normal conditions on such business done in New York State. To arrive at such a conclusion the Tax Commission could adopt and use any information it had, and this is specifically stated. It did use the figures given by the relator and the process of allocation which was the correct method for ascertaining profit when a foreign corporation was doing business directly. In the absence of other information furnished by the relator, this in my judgment was legal and proper.

For these reasons I vote for affirmance of the action of the Tax Commission.

His cock, Ch. J., McLaughlin, Andrews and Lehman, JJ., concur; Crane, J., dissents in opinion in which Pound, J., concurs.

Ordered accordingly.