author:
Lewis, Ch. J.
      Conway, J.

text:
    In the Matter of Doris Hutchins, Respondent, against Joseph D. McGoldrick, as State Rent Administrator, Appellant. In the Matter of Philip W. Ransom, Appellant, against Joseph D. McGoldrick, as State Rent Administrator, Respondent.
    Argued March 1, 1954;
    decided May 20, 1954.

      Emory Gardiner and Robert H. Schaffer for appellant in first above-entitled proceeding.
    I. The administrator’s order finding that failure to create self-contained apartments bars decontrol is in full accord with the intent and meaning of the statute. (Matter of Paikoff v. McGoldrick, 280 App. Div. 996; Matter of Chatlos v. McGoldrick, 302 N. Y. 380; Matter of Ransom v. McGoldrick, 282 App. Div. 566; United States v. American Trucking Assns., 310 U. S. 534; Surace v. Danna, 248 N. Y. 18.) II. Issuance of the final order and mailing thereof to petitioner precluded the institution of a proceeding to review that order thirty days thereafter. (Matter of R. E. Associates v. McGoldrick, 278 App. Div. 347; News Syndicate Co. v. Gatti Paper Stock Corp., 256 N. Y. 211.)

      James R. Ulsh for appellant in second above-entitled proceeding. I.
    The premises in question are exempt from and not subject to control under the Sate Residential Bent Law. (Allen v. Stevens, 161 N. Y. 122; Matter of City of Rochester v. Public Service Comm., 275 App. Div. 172, 301 N. Y. 801; Neumann v. City of New York, 137 App. Div. 55; Westchester Co. S. P. C. A. v. Mengel, 266 App. Div. 151, 292 N. Y. 121; Thompson v. Wallin, 276 App. Div. 463, 301 N. Y. 476.) II. The order of the administrator annulled by the court below was arbitrary and capricious, in excess of his jurisdiction, and was the result of prejudice and bias. (Flynn v. Woods, 181 F. 2d 867; Matter of Federal Tel. & Radio Corp. [Corsi], 301 N. Y. 95; Packer Collegiate Inst. v. University of State of N. Y., 298 N. Y. 184; Matter of Levine v. O’Connell, 275 App. Div. 217, 300 N. Y. 658; Matter of Small v.
      Moss, 279 N. Y. 288; Panama Refining Co. v. Ryan, 293 U. S. 388; United States v. Grimaud, 220 U. S. 506; Schechter Corp. v. United States, 295 U. S. 495.)

      S. Gerald Duckor and Charles L. Kellar for respondent in first above-entitled proceeding.
    I. The intent and meaning of the statutes in question is clear and unambiguous. (Fowler v. Buffalo & Jamestown R. R. Co., Sheld. 525; City of New York v. Whitridge, 227 N. Y. 180; Newell Universal Mill Co. v. Muxlow, 115 N. Y. 170; People ex rel. N. Y. C. & H. R. R. R. Co. v. Woodbury, 208 N. Y. 421; People v. Long Is. R. R. Co., 194 N. Y. 130; Lawrence Constr. Corp. v. State of New York, 293 N. Y. 634; Town of Putnam Valley v. Slutzky, 283 N. Y. 334; People v. Gitlow, 195 App. Div. 773, 234 N. Y. 132; Meltzer v. Koenigsberg, 302 N. Y. 523; Matter of Ransom v. McGoldrick, 282 App. Div. 566.) II. Petitioner was timely in instituting her proceeding to review the orders in question. (Anthony v. Schofield, 265 App. Div. 423; Matter of Spanierman v. Crescent Plaza Corp., 270 App. Div. 885.)

      Emory Gardiner and Robert H. Schaffer for respondent in second above-entitled proceeding.
    The administrator’s order finding that failure to create the new units through substantial structural alteration barred decontrol is in full accord with the intent and meaning of the statute. (Matter of Paikoff v. McGoldrick, 280 App. Div. 996; Woods v. MacNeil Bros. Co., 80 F. Supp. 920; Thierry v. Gilbert, 147 F. 2d 603; Woods v. Dodge, 170 F. 2d 761; Matter of Chatlos v. McGoldrick, 302 N. Y. 680; United States v. American Trucking Assns., 310 U. S. 534; Surace v. Danna, 248 N. Y. 18.)
   Lewis, Ch. J.

The double caption which prefaces this opinion entitles two rent law cases which were argued together and present the following question: Were conversions made between February 1, 1947, and May 1, 1950 — resulting in additional housing accommodations — decontrolled by the State Residential Rent Law (L. 1946, ch. 274, as amd. by L. 1950, eh. 250).

In the first proceeding captioned above — an article 78 proceeding instituted by the petitioner-respondent Hutchins against the State Rent Administrator — the appeal, by our permission, is by the Rent Administrator from an Appellate Division order which unanimously affirmed an order of Special Term setting aside orders of the Rent Administrator determining that converted apartments, owned by the petitioner and converted after February 1, 1947, but before May 1, 1950, were subject to rent control, and fixing maximum rentals therefor.

Briefly, as to facts: In November, 1949, the petitioner Hutchins became the owner of a one-family dwelling of sixteen rooms located at 171 New York Avenue in Brooklyn. At that time the building was boarded up.” Thereafter, and prior to May 1, 1950, alterations were made which resulted in the creation of ten separate dwelling units of two or three rooms each. However, except as to one apartment, none of the new units included a private bathroom. It is not disputed that the alterations which resulted in the creation of the new units were structural changes, substantial in character; that such alterations resulted in additional housing units and were completed between February 1,1947, and May 1,1950. Between those two dates there had developed in urban districts of the State a critical shortage of housing accommodations amounting to a public emergency which led to the intervention of Federal, State and local governments and the adoption of measures to curb and control mounting housing rentals. Among remedial measures enacted by the Legislature — prompted in part by a purpose to promote the creating of additional housing accommodations— was the State Residential Rent Law (as amd. by L. 1950, eh. 250) which, by the exclusory provisions of section 2 (subd. 2, pars. [a]-[g] inclusive), served to exclude — and thus to decontrol — certain types of housing from the definition of “ Housing accommodation.”

The problem presented by the Hutchins proceeding requires us to determine whether the new additional rental units, created by the conversion of the Hutchins property and accomplished between February 1, 1947, and May 1, 1950, were decontrolled by section 2 (subd. 2, par. [g], cl. [2]) of the statute last mentioned above. That clause of the statute prescribes that among types of property excluded from the definition of “ Housing accommodation ’ ’ — and thus decontrolled — are: ‘ additional housing accommodations created by conversion on or after February first, nineteen hundred forty-seven * *

After thus excluding from rent control housing accommodations resulting from “ conversion ” which took place on or after February 1, 1947, there follows immediately in the text of the statute the provision that as to additional housing units created by conversion after the effective date of the enactment — May 1, 1950 — certain requirements in addition to conversion ” shall be fulfilled. To that end the continuing text prescribes : “ * * * provided, however, that any housing accommodations resulting from any conversion created on or after the effective date of this act (May 1, 1950) shall continue to be subject to rent control as provided for herein unless the commission issues an order decontrolling them which it shall do if the conversion resulted in additional, self-contained family units as defined by regulations issued by the commission (Emphasis and parenthetical insertion supplied.)

Indicative of the Legislature’s intent to differentiate factors incident to “ conversion ” which effected decontrol before May 1, 1950, from those factors which served to bring about decontrol after May 1, 1950, is the following amendment to the same statute — 'enacted by the Legislature in 1951 (§ 2, subd. 2, par. [g], cl. [2], as amd. by L. 1951, ch. 443) —which provides that the following accommodations shall not be subject to rent control: * * * (2) additional housing accommodations created by conversion on or after February first, nineteen hundred forty-seven; provided, however, that any housing accommodations created as a result of any conversion of housing accommodations on or after May first, nineteen hundred fifty, shall continue to be subject to rent control as provided for herein unless the commission issues an order decontrolling them which it shall do if there has been a structural change involving substantial alterations or remodeling; and such change has resulted in additional housing accommodations consisting of self-contained family units as defined by regulations issued by the commission * * *.” (New and rephrased matter emphasized.)

The statute of 1951 — like its immediate predecessor — thus clearly distinguishes between conversions made prior to May 1, 1950, and those made thereafter. As to conversions made prior to 1950 — such as the conversion of the petitioner Hutchins’ property — freedom from rent control was not a privilege; it was a statutory right. In that connection it will be noted that the 1951 Legislature made no change in the provision governing conversions made between 1947 and 1950 which we now review. It did no more than amplify the requirements which a building converted after May 1, 1950, must meet before it may be decontrolled. Thus, as to the period prior to May 1, 1950, all that is required before the new accommodations are decontrolled is that additional housing accommodations be created by conversion. However, as to conversions effected under the 1951 act after May 1,1950, in addition to requirements referred to above which prevail as to pre-1950 conversions, the following elements are necessary: (1) proof of structural change, involving (2) substantial alteration or remodeling, which create (3) self-contained family units and, lastly, an order of the commission decontrolling the accommodations.

For this conclusion we find support in the State Bent and Eviction Regulations promulgated by the Temporary State Housing Rent Commission. Under section 9 of those regulations— the caption of which is “ Housing accommodations not subject to rent control ” — it is provided by subdivision 5 that the rent regulations contained therein shall not apply to “ Additional housing accommodations created by conversion, consisting of a structural change in housing accommodations involving substantial alterations and remodeling, on or after February 1, 1947 and prior to May 1, 1950.” Nothing in that regulation contains the further requirement that the rental unit — to be decontrolled — must also be a self-contained family unit, i.e., contain a private bathroom. It is also significant that section 11 of the regulations, bearing the title “ Conversions after May 1, 1950 ”, is the regulation which defines a “ self-contained family unit ”, thus indicating that even the commission understood that term to apply only to conversions after May 1, 1950.

The further fact should be noted, however, that the references in the regulation last quoted above to “ structural change ” and ‘ ‘ substantial alterations and remodeling ’ ’ have no place in regulations concerning the period between 1947 and 1950, because — as we have seen — those words were not in the 1950 statute (L. 1950, ch. 250); they were inserted into the 1951 statute (L. 1951, ch. 443) only as to housing converted after May 1, 1950. It is significant in this connection that the original regulation (§ 9) read as follows: “ Housing accommodations not subject to rent control. * * * 5. Additional housing accommodations created by conversion on or after February 1, 1947, and prior to May 1, 1950 * * It will be noted that the original regulation conformed to the wording and content of the statute, and did not contain the disputed words.

The administrator, as appellant before us, asserts that the conversion of the Hutchins property was completed at a time early in 1950 when Federal rent control laws governed. It is argued that by the standards prescribed in the Federal laws the housing units here involved could not have qualified for decontrol, the claim of the administrator being that it is unreasonable to assume the Legislature intended thus to reward housing which failed to meet the minimum standards of the only two statutes which govern the conversion. Concerning what the administrator suggests are “ the only two statutes which govern ”, it appears that as to one of those statutes — the Federal law — we are not here concerned; and the State law — complete in itself — makes no reference to the Federal act in this connection which would prompt us to look in that direction for aid in our search for indications of legislative intent. Turning then to the State legislation, we have seen that it clearly indicates that the requirements for structural change, for substantial alteration and for self-contained family units ” apply only to housing accommodations converted after May 1, 1950. The State legislation is equally clear that, as to conversions which occurred after February 1, 1947, and prior to May 1, 1950, the only requirement for decontrol is that there be “ additional housing accommodations created by conversion ”.

Subdivision (c) of section 36 of the State Bent and Eviction Begulations provides that where, as in the present case, no registration statement has been filed as required by those regulations or by the Federal act, the administrator, upon written request of either party or on his own initiative, may at any time issue an order fixing a maximum rent. The administrator implies that this is a blanket authorization to him to fix maximum rentals in all eases where no registration has been filed, whether or not the premises are decontrolled. As the Appellate Division has noted herein (282 App. Div. 945, 946), this would make the regulations inconsistent with the statute, which authorizes decontrol of certain premises. However that may be, section 9 of the regulations — as we have seen — clearly states that “ These Regulations shall not apply to * * * Additional housing accommodations created by conversion * * * on or after February 1, 1947 and prior to May 1, 1950.” Thus it would seem that subdivision (c) of section 36 of the State Bent and Eviction Regulations does not apply to the present case in any event.

The administrator further contends that the petitioner herein did not commence this proceeding to review the administrator’s order within thirty days after the issuance thereof as required by the State Residential Bent Law (§ 9; L. 1951, ch. 443). In support of that position the administrator argues that the provisions for commencing a review of the administrator’s order do not prescribe that a copy of the order must be received by the parties in order to make effective the period of limitation. Such an interpretation might mean that if the administrator made a determination and failed within thirty days to give notice thereof, a review of such determination could be precluded as untimely. Such we think is not the law (see Matter of R. E. Associates v. McGoldrick, 278 App. Div. 347, 348). As to whether notice of the administrator’s determination herein was mailed to or received by the petitioner, the finding of fact made at Special Term and affirmed at the Appellate Division — to the effect that the notice was either not mailed or not received — is conclusive upon us.

Accordingly, in the Hutchins proceeding, we conclude that under provisions of the State Residential Bent Law, it is clear that the additional housing accommodations created by conversion on or after February 1, 1947, and before May 1, 1950, were decontrolled.

Passing then to the Ransom proceeding, in which the petitioner has taken an appeal as of right from an order of the Appellate Division which reversed — two Justices dissenting — an order of Special Term holding that the administrator exceeded his jurisdiction in fixing a maximum rent for the petitioner’s premises: The Ransom proceeding differs from the foregoing (Hutchins) proceeding in that in Ransom the administrator contends there was no structural change involving substantial alterations, and therefore the premises thus converted were not decontrolled. It is not disputed — and this is significant— that an additional housing accommodation was created as a result of conversion, albeit the alteration involved only-minor changes to create the additional accommodation.

The statute enacted by the Legislature (L. 1950, ch. 250, as amd.) —as was disclosed in the Hutchins case — provides simply, as to conversions created between the appropriate dates in 1947 and 1950, that “ additional housing accommodations created by conversion * * * ” shall be decontrolled. The only statutory test is whether, between the crucial dates, any additional accommodations were created by conversion. In our view there is no doubt that the present case meets these requirements. That the conversion was easily established is not a bar to decontrol under the standard set by the Legislature. Requirements such as “ structural change ”, “ substantial alteration ” and “ self-contained family unit ” apply only to conversions effected after May 1, 1950, and we are not concerned therewith upon these appeals.

The conclusion thus reached by us in the Ransom proceeding is in accord with the view expressed by the minority in the Appellate Division and by the Justice at Special Term (282 App. Div. 566, 569).

In Matter of Hutchins v. McGoldrick, the order of the Appellate Division should be affirmed, with costs.

In Matter of Ransom v. McGoldrick, the order of the Appellate Division should be reversed and the determination of the Temporary State Housing Rent Commission annulled, with costs in this court and in the Appellate Division.

Conway, J.

(dissenting). In these two cases we are called upon to ascertain the intention of our Legislature when it enacted the State Residential Rent Law (L. 1946, ch. 274, as amd.). The history of Federal and State rent control, as well as the Legislature’s expression of intent, shed a clear light thereon.

We consider first the Federal rent control laws.

In section 201 (subd. [b]) of the Federal Housing and Rent Act of 1947 (U. S. Code [Supp. I], tit. 50, Appendix, § 1891, subd. [b]), Congress declared that it recognized the existence of an emergency and that, for the prevention of inflation and for the achievement of a reasonable stability in the general level of rents during the period of return to a peacetime economy, as well as the attainment of other salutary objectives, it was necessary for a limited time to impose certain restrictions upon rents charged for rental housing accommodations in defense-rental areas.

Section 202 of the 1947 act was entitled “ Definitions In subdivision (c) of that section Congress defined “ controlled housing accommodations ” to mean “ housing accommodations in any defense-rental area ”. It then went on to say in paragraph (3) of subdivision (c) that the term did not include: “ any housing accommodations (A) the construction of which was completed on or after February 1,1947, or which are additional housing accommodations created by conversion on or after February 1, 1947 * * (U. S. Code [Supp. I], tit. 50, Appendix, § 1892, subd. [c], par. [3].)

On April 1, 1949, by the Housing and Rent Act of 1949 (63 H. S. Stat. 18), Congress made amendments to the Housing and Rent Act of 1947. Among others, was an amendment to paragraph (3) of subdivision (c) of section 202. Thus paragraph (3), quoted supra in part, was stricken out and the following inserted in its place and the section numbered 201: (3) any housing accommodations (A) the construction of which was completed on or after February 1, 1947, or which are housing accommodations created by a change from a nonhousing to a housing use on or after February 1,1947, or which are additional housing accommodations created by conversion on or after February 1,1947. Provided, however, that any housing accommodations resulting from any conversion created on or after the effective date of the Housing and Bent Act of 1949 [April 1, 1949] shall continue to he controlled housing accommodations unless the Housing Expediter issues an order decontrolling them, which he shall issue if he finds that the conversion resulted in additional, self-contained family units as defined by regulations issued by him * * . (U. S. Code [Supp. III, Vol. 2], tit. 50, Appendix, § 1892, subd. [c], par. [3]; second emphasis supplied.)

The Controlled Housing Bent Begulation prescribed that decontrolled housing shall include (§ 825.21, subd. [b], par. [2], subpar. [vi], cl. [b]) (Friedlander and Curreri, Bent Control [1950 Supp.], p. 93):

* * * (b) Housing accommodations as to which a decontrol order has been entered by the Housing Expediter based on a conversion created on or after April 1, 1949 * * *. On petition by the owner such a decontrol order shall be entered by the Housing Expediter, if the following facts are established:

“ (1) There has been a structural change in a residential unit or units involving substantial alterations or remodeling; and

“ (2) Such change has resulted in additional, self-contained family units. For the purposes of this § 825.21 (b) (2) (vi):

‘‘The term ‘ self-contained family unit’ means a housing accommodation with private access, containing one or more rooms in addition to a kitchen (including kitchenette or pullman kitchen) and a private bathroom: Provided, however, That where a housing accommodation meets all these conditions except that it has no private bathroom or no bathroom facilities other than toilet, theArea Bent Director may waive such requirement if he finds that the accommodation is of the type recognized as a self-contained family unit in the neighborhood in which it is located.”

So it will be seen, that from April 1, 1949, on, decontrol of additional housing accommodations could be brought about only by obtaining an order from the Federal Housing Expediter, and, as a condition to receiving such an order, the landlord was required to show (a) that there had been a structural change involving substantial alterations or remodeling, and (b) that the change had resulted in additional self-contained family units, i.e., units having private access, containing one or more rooms in addition to a kitchen and a private bathroom unless that latter was specifically waived by the area rent director.

The alterations in the Hutchins case, as a result of which additional housing accommodations were created, were completed in March of 1950, while the afore-mentioned Federal rent control law and regulations governed. The .building was a one-family dwelling, containing sixteen rooms. Alterations were made resulting in the creation of ten separate housing units, of two or three rooms each, almost all of which contained a living room, a bedroom, and some cooking space. With the exception of one apartment, none had a private bathroom or toilet within the apartment. All shared common sanitary facilities located in the hallways. No decontrol order was obtained under the Federal act of 1949 and regulations and no decontrol order was obtainable under such statute and regulations because of the absence of individual bathrooms. With that in mind we turn to the State rent control law.

On March 31, 1950, pursuant to the provisions of the Federal Housing and Bent Act of 1949, the Governor of this State notified the Federal Housing Expediter that the State had provided for its own rent controls and requested the discontinuance of Federal controls as of May 1, 1950. Accordingly, the Housing Expediter issued a proclamation declaring that Federal rent controls would come to an end in New York State at midnight, April 30, 1950, and that State controls would become effective immediately thereafter. (See McKinney’s Cons. Laws of N. Y., Book 65, Part 2 [1953 ed.], p. 789.) Thus, there was no lapse of time between the end of Federal rent control and the beginning of State rent control.

What was the intention of the Legislature when it enacted the New York State Residential Rent Law? In subdivision 1 of section 14, which is entitled “ Intent ”, the Legislature expressly declared: “ 1. It is the intention of this act to subject to control only those housing accommodations, as that term is defined herein, which were subject to rent control and for which a maximum rent was in effect on March first, nineteen hundred fifty pursuant to federal or local laws, and in the discretion of the commission those housing accommodations for which a maximum rent was thereafter established, pursuant to the provisions of section four hereof.” (Emphasis supplied.)

And, in subdivision 1 of section 4, the act states that: “ * * * the commission shall establish maximum rents which shall be (a) for housing accommodations outside the city of New York, the maximum rent which was established on March first, nineteen hundred fifty pursuant to the federal act * * *; and (b) for housing accommodations within the city of New York, the maximum rent which was established on March first, nineteen hundred fifty pursuant to the federal act * *

It is evident from the statement of legislative intent and from section 4 quoted, that the Legislature intended that the State rent control law, which took effect the instant the Federal rent control law ended, was to continue State control for those accommodations which were subject to rent control under the Federal law. We do not perceive any valid reason for assuming that the State intended to decontrol automatically any of the properties theretofore subject to Federal rent control laws, and, none is advanced. To conclude that the Legislature intended to reward owners of housing units which failed to meet the minimum standards in effect under the Federal law, by decontrolling such units automatically, is to ignore the Legislature’s expressed intent to continue to control those housing accommodations which were subject to rent control under the Federal law. As we have noted, the Hutchins property was subject to control under the Federal law.

There is no dispute as to the fact that, as to additional accommodations created after the effective date of the State rent control law, May 1,1950, the same elements required under the preceding Federal act as a condition precedent to the issuance of a decontrol order were in force. That is:

(1) there must have been a structural change,

(2) involving substantial alterations or remodeling

(3) additional accommodations must have resulted, each of which is a self-contained family unit. (State Residential Rent Law, § 2, subd. 2, par. [g], cl. [2].)

Petitioners’ argument that additional housing accommodations created during the period that the Federal act of 1949 was in force were automatically decontrolled by the State rent control law is based upon a construction which they place upon section 2 (subd. 2, par. [g], cl. [2]) of the State Residential Rent Law.

It is quite evident, when one lays the State and Federal rent control laws side by side, that the draftsman of the State law was following the pattern and ofttimes the exact language of the Federal law and intended to maintain the standards laid down by the Federal statute. Thus, section 2 of the State rent control law, like section 202 of the 1947 Federal rent control law and section 201 of the 1949 act, deals with Definitions ” and just as section 202 of the 1947 Federal law and section 201 of the 1949 Federal law declared that enumerated structures, such as hotels and motor courts, were not subject to rent control, so that State statute lists in section 2 (subd. 2, pars, [a] — [i], as amd. by L. 1953, ohs. 320, 321) numerous structures not subject to rent control. Clause (2) of paragraph (g) of subdivision 2 of section 2 is the one with which we are concerned. It reads: “ (2) additional housing accommodations created by conversion on or after February first, nineteen hundred forty-seven; provided, however, that any housing accommodations created as a result of any conversion of housing accommodations on or after May first, nineteen hundred fifty, shall continue to be subject to rent control as provided for herein unless the commission issues an order decontrolling them which it shall do if there has been a structural change involving substantial alterations or remodeling; and such change has resulted in additional housing accommodations consisting of self-contained family units as defined by regulations issued by the commission ; provided further, however, that such order of decontrol shall not apply to that portion of the original housing accommodation occupied by a" tenant in possession at the time of the conversion but only so long as that tenant continues in occupancy.”

The State Rent Commission’s definition by section 11 of the State Rent and Eviction Regulations of “ self-contained family unit ” is identical with the regulation (§ 825.81, subd. [b], par. [2], subpar. [vii], cl. [b]) of the Federal Housing Expediter, viz., “ a housing accommodation with private access, containing one or more rooms in addition to a kitchen (including kitchenette or pullman kitchen) and a private bathroom ’

The petitioners argue that section 2 (subd. 2, par. [g], cl. [2]) differentiates between additional housing accommodations created by conversion before May 1, 1950 — the effective date of the State act — and those created thereafter; that .as to those created between February 1, 1947, and May 1, 1950, decontrol was automatic if they were created by " conversion " but that as to those created after May 1, 1950, there must be a showing, in addition to conversion ” of:

(1) a structural change,

(2) involving substantial alterations or remodeling

(3) additional accommodations must have resulted each of which is a self-contained family unit.

We think it clear that section 2 (subd. 2, par. [g], cl. [2]) may not be thus read; it may not be read as a solitary unit apart from its very subordinate setting in section 2. To properly understand its significance in the scheme of the State rent control law we must carry in the forefront of our minds the history of Federal and State rent control and the legislative intent as expressed in section 14 of the State act and fortified in section 4 thereof. With those matters in proper perspective, the term conversion appearing in the first portion of clause (2) of paragraph (g) includes within its meaning the elements of (1) structural change, (2) involving substantial alterations or remodeling, and (3) resulting in additional self-contained family units. The State statute does not contain a definition of the word “ conversion ”. However, at the time the State rent control law became effective, a conversion which would bring about a decontrol order under the Federal law of 1949 — the statute in effect when the creation of the additional accommodations herein took place — had to result in “ additional, self-contained family units ”. The Legislature was aware of that fact. Had it intended to establish a new policy or definition of that word It would have expressly so stated. Instead, in its declaration of intent, it expressed its will to continue State rent control for those units which were subject to antecedent Federal rent control, and the property involved here was subject to Federal rent control. The term1 ‘ conversion ” as applied to newly created housing accommodations at that time (May 1, 1950) had a meaning under the Federal Act of 1949 which encompassed self-containment ” and our Legislature did not undertake to give the term a different meaning. On the contrary, it gave it the identical meaning by statute and regulation.

Doubtless it is within the power of the lawmakers to enact an unreasonable law and the courts cannot revise such a statute to harmonize it with their conception of reason. However, the intent to enact such a statute is never presumed and before the court will conclude that the Legislature has done that, such intent must appear clearly and in unmistakable terms (see McKinney’s Cons. Laws of N. Y., Book 1, Statutes [1942 ed.], § 143). No such intent appears here.

Decontrol was conceived in an effort to create additional housing in order more directly to achieve the legislative objective, i.e., of alleviating the serious shortage of residential housing. But it was not the State legislative intent, as we perceive it, to accomplish that by means of substandard housing accommodations, when the Federal Act of 1949 had been careful to insure the contrary. Minimum standards were prescribed by the Federal Act of 1949 if one were to obtain the benefits of decontrol.

Accordingly, in the Hutchins case the orders of the Appellate Division and of the Special Term should be reversed and the proceeding dismissed.

Turning now to Matter of Ransom: The alterations took place in July of 1949, and so our reasoning in the Hutchins case applies and the premises are not subject to decontrol unless petitioners can show, in addition to the creation of additional housing accommodations that there was

(1) a structural change,

(2) involving substantial alterations or remodeling, and

(3) that the additional accommodations are self-contained family units.

The order of the Bent Administrator fixing a maximum rent is based in terms only on the fact that the alteration made was not substantial. However, he also urges, in his brief, that the upstairs apartment is not self-contained for the reason that it does not have a kitchen. Since the administrator did not base his determination on such ground and there is not sufficient evidence in the record to enable us to ascertain whether it is the fact, we would reverse and remand the matter to the commission for the taking of evidence on that subject. Petitioner also claims that evidence offered by him hearing on the question of whether the alteration was substantial was rejected and not considered by the commission. Accordingly, the commission should also give further consideration to that matter.

The matter should be remitted to the commission for action not inconsistent with this opinion.

As to the Hutchins appeal: Desmond, Dye, Fuld and Froessel, JJ., concur with Lewis, Ch. J.; Conway, J., dissents in opinion in which Van Voorhis, J., concurs.

Order affirmed.

As to the Ransom appeal: Desmond, Dye, Fuld and Froessel, JJ., concur with Lewis, Ch. J.; Conway, J., dissents in opinion in which Van Voorhis, J., concurs.

Order reversed, etc.

       State Rent and Eviction Regulations, § 11, define “ self-contained family unit” as “a housing accommodation with private access, containing one or more rooms in addition to a kitchen (including kitchenette or pullman kitchen) and a private bathroom.”


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    Lewis S. Flagg, Jr., Respondent, v. D. Ward Nichols, as Bishop of the First Episcopal District of the African Methodist Episcopal Church and as Presiding Officer of Each of the Conferences Comprised Thereunder, Appellant, et al., Defendants.
    Argued March 9, 1954;
    decided May 20, 1954.

      Menahem Stim, Alan L. Dingle, Bruce McM. Wright, Lisle C. Garter, Jr., Alvahteen A. Howard and- Joseph D. Niim for appellant.
    I. A judgment against an unincorporated association cannot stand where the plaintiff has neither alleged nor proved the individual liability of every single member of the association. (McCabe v. Goodfellow, 133 N. Y. 89; Martin v. Curran, 303 N. Y. 276; National Bank v. Van Derwerker, 74 N. Y. 234; Schouten v. Alpine, 215 N. Y. 225.) II. The finding of ratification by the governing body of the church cannot be the basis of a judgment against a member-subdivision, First Episcopal District, until after entry of a final judgment against the church itself. (Institute for Public Service v. Winter, 233 App. Div. 1.)

      Bernard B. Lieberman and Theodore Siskind for respondent.
    I. The motions made by defendants at the end of plaintiff’s case and again at the close of the entire ease did not seek a dismissal of the complaint on the ground that no judgment could be recovered against defendants because plaintiff had allegedly failed to plead or establish individual participation and individual liability of every single member or communicant of defendants. (Rapee v. Beacon Hotel Corp., 293 N. Y. 196; Widmeyer v. Crane, 121 Misc. 309; Martin v. Herzog, 228 N. Y. 164; Dunning v. Dunning, 300 N. Y. 341; Martin v. Home Bank, 160 N. Y. 190; Nasaba Corp. v. Harfred Realty Corp., 287 N. Y. 290; People ex rel. Rutland R. R. Co. v. State Tax Comm., 243 N. Y. 543; Nicholson v. Greeley Square Hotel Co., 227 N. Y. 345; People v. Bresler, 218 N. Y. 567; Caponigri v. Altieri, 165 N. Y. 255; Maloney v. Hearst Hotels Corp., 274 N. Y. 106; Milbank v. Jones, 127 N. Y. 370; Muck v. Hitchcock, 212 N. Y. 283.) II. Plaintiff’s hiring did not depend upon a ratification by the council of bishops. (Matter of Robison v. Cocheu, 18 App. Div. 325.) III. A religious society is responsible for the acts of its officers performed in its behalf and within the scope of their authority. (Trapp v. St. John’s Baptist Church, 174 Ill. App. 213; Farris v. St. Paul’s Baptist Church, 220 Mass. 356.) IV. The judgment in this action is directed against the named defendant in his representative capacity. No individual liability is sought against any member. (Lloyd v. Sloan, 259 App. Div. 615; Thomann v. Flynn, 251 App. Div. 325.) V. The 1944 Book of Discipline, in defining the duties of an active bishop, conferred upon him such powers coincident with that of a president.
   Per Curiam.

By permission of this court defendant D. Ward Nichols, as Bishop of the First Episcopal District of the African Methodist Episcopal Church, and as presiding officer of each of the conferences comprised within said district, appeals from a judgment of the Appellate Division, First Department, which unanimously affirmed, without opinion, a judgment of the Supreme Court, New York County (Hecht, J.) in favor of plaintiff in the amount of $5,000 plus interest for legal services rendered by plaintiff.

The facts are fully set forth in the trial court’s opinion (202 Misc. 1096), and in view of the affirmance by the Appellate Division, they are not open to us on this appeal (Civ. Prac. Act, § 605).

The trial court found that the governing bodies of the General Church, an unincorporated association, impliedly ratified plaintiff’s retention as counsel. However the only remaining party defendant at the conclusion of the trial was the appellant D. Ward Nichols in his representative capacity as Bishop of the First Episcopal District and as presiding officer of each of the conferences comprised thereunder, and the trial court directed judgment against the appellant in such representative capacity.

Appellant seeks a reversal of the judgment on two grounds. First, he contends that a judgment against an unincorporated association cannot stand where the plaintiff has neither alleged nor proved the individual liability of every single member of the association, citing Martin v. Curran (303 N. Y. 276) and McCabe v. Goodfellow (133 N. Y. 89). However, that point was not raised at the trial and may not be urged here as a basis for a reversal of the judgment. (See Civ. Prac. Act, § 242; Milbank v. Jones, 127 N. Y. 370, 376; Muck v. Hitchcock, 212 N. Y. 283, 289; Maloney v. Hearst Hotels Corp., 274 N. Y. 106, 111.)

Appellant’s second contention is that the finding by the trial court, that the governing bodies of the General Church ratified plaintiff’s retention as counsel, cannot be the basis for a judgment against a member-subdivision, i.e., the First Episcopal District, until the entry of a final judgment against the General Church itself has been returned unsatisfied or unexecuted. (General Associations Law, § 16.) Section 16 of the General Associations Law provides that a plaintiff is permitted to bring an action against any individual member or members of an unincorporated association only after he has obtained a judgment against the officers of the entire association and such judgment has been returned unsatisfied or unexecuted. (Institute of Public Service v. Winter, 233 App. Div. 1.)

Here, plaintiff has brought suit against one of the subdivisions of the General Church, and the trial court properly found that plaintiff’s cause of action is based on a liability of the General Church itself. The trial court erred, however, in directing judgment against one of the subdivisions of the General Church where plaintiff had not, in the first instance, obtained a judgment against the General Church.

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

Lewis, Ch. J., Conway, Desmond, Dye, Fuld and Fboessel, JJ., concur; Van Voobhis, J., talcing no part.

Judgments reversed, etc.


author: Desmond, J.

text:
    In the Matter of the Estate of Herman K. Endemann, Deceased. State Tax Commission, Appellant and Respondent; Sarah H. Endemann, as Executrix of Herman K. Endemann, Deceased, Respondent and Appellant.
    Argued April 7, 1954;
    decided May 27, 1954.

      Mortimer M. Kassell and Miriam Wernick for appellant-respondent.
    I. Decedent’s election to receive a reduced retirement allowance and an annuity for his widow constituted a “ transfer intended ” to take effect at his death. (Roddy v. Valentine, 268 N. Y. 228; Rees v. Teachers’ Retirement Bd., 247 N. Y. 372; People ex rel. Fitzpatrick v. Greene, 181 N. Y. 308; Matter of Giannettino v. McGoldrick, 295 N. Y. 208; Hoyt v. County of Broome, 285 N. Y. 402; Schieffelin v. Berry, 127 Misc. 178, 217 App. Div. 451, 243 N. Y. 603; Matter of Mearkle v. Commissioner of Internal Revenue, 129 F. 2d 386; Commissioner of Internal Revenue v. Clise, 122 F. 2d 998, 315 U. S. 821; Commissioner of Internal Revenue v. Wilder, 118 F. 2d 281, 314 U. S. 634; Matter of Harbord, 201 Misc. 358, 279 App. Div. 914, 305 N. Y. 622.) II. The annuity should be valued at $8,572 as required by section 249-v of the Tax Law. (Liebmann v. Hassett, 148 F. 2d 247; Igleheart v. Commissioner of Internal Revenue, 77 F. 2d 704; Hagy v. Kelly, 135 N. J. Eq. 436.) III. The New York Constitution does not prohibit the inclusion of the annuity in decedent’s gross estate. (Chase Nat. Bank v. United States, 278 U. S. 327; Magoun v. Illinois Trust & Sav. Bank, 170 U. S. 283; New York Trust Co. v. Eisner, 256 U. S. 345; United States Trust Co. v. Helvering, 307 U. S. 57; Matter of Plummer, 30 Misc. 19, 47 App. Div. 625, 161 N. Y. 631; Plummer v. Coler, 178 U. S. 115; Black v. Graves, 257 App. Div. 176, 281 N. Y. 792.)

      Carleton H. Endemann for respondent-appellant.
    I. The court below erred in holding that decedent’s selection of option 3 was a transfer intended to take effect at death within subdivision 3 of section 249-r of the Tax Law. (Hetherington v. O’Dwyer, 272 App. Div. 919; Marks v. La Guardia, 262 App. Div. 709, 286 N. Y. 625.) II. Decedent’s exercise of the privilege permitted by the statute was not a “ transfer ” of “ property ”. (Dimock v. Corwin, 19 F. Supp. 56, 99 F. 2d 799, 306 U. S. 363; Brown v. Routzahn, 63 F. 2d 914, 290 U. S. 641; Commissioner of Internal Revenue v. Pierce, 146 F. 2d 388; Higgs’ Estate v. Commissioner of Internal Revenue, 184 F. 2d 427; Commissioner of Internal Revenue v. Twogood’s Estate, 194 F. 2d 627.) III. Assuming, arguendo, decedent transferred a property interest, there was no transfer within subdivision 3 of section 249-r of the Tax Law because decedent failed to retain any interest in the transferred property. (Matter of Harbord, 201 Misc. 358, 279 App. Div. 914, 305 N. Y. 622; Matter of Vanderbilt, 281 N. Y. 297; Reinecke v. Northern Trust Co., 278 U. S. 339; Matter of Seaich, 136 Misc. 201; Matter of Stewart, 138 Misc. 866, 235 App. Div. 772.) IV. Since there are no express words requiring the estate taxation of pensions, rules of statutory construction, the equitable considerations and public policy involved should persuade this court to hold that selection of option 3 was not a taxable transfer. (Howitt v. Street & Smith Publications, 276 N. Y. 345; Matter of Cohen, 270 N. Y. 383; Matter of Terry, 218 N. Y. 218; United States v. Supplee-Biddle Hardware Co., 265 U. S. 189.) V. Assuming, arguendo, a taxable transfer, the court below correctly held a survivorship annuity and not a single life annuity was transferred. It erred in valuing such annuity as it did and instead should have remitted it to the appraiser for revaluation. VI. The court below erred in holding that section 5 of article XVI of the New York Constitution does not prohibit the imposition of an estate tax on the widow’s pension. VII. The court below erred in holding that section 7 of article V of the New York Constitution does not prohibit imposition of an estate tax on the widow’s pension. (Cashman v. Teachers’ Retirement Bd., 193 Misc. 57, 275 App. Div. 908, 301 N. Y. 501.)
   Desmond, J.

In this appraisal proceeding under the New York estate tax law, both the executrix and the State Tax Commission appeal here from a nonunanimous modification, by the Appellate Division, of the Surrogate’s taxing order. The deceased, Herman K. Endemann, who died on November 4, 1947, had been, until his retirement on October 1, 1936, in the employ of New York City and a member of the city’s employees’ retirement system. On his retirement, Endemann (who, if he had not selected an Option ”, would have been entitled to an annual retirement allowance for his own life of $3,747.69) had, pursuant to the statute which is now section B3-46.0 of the New York City Administrative Code, made an irrevocable election of ‘ Option 3 ” of the available retirement benefits, which option provided him (then sixty-four years old) with an annual retirement allowanee for Ms life of $3,140.60, and, for Ms wife (then sixty-two years old), provided after Ms death, an annuity of $1,570.20. At the time of Endemann’s retirement there was in existence, or set up, for Endemann in the city’s retirement system funds, an ‘ ‘ initial reserve ’ ’ of $34,183.04, made up of his own accumulated contributions, with interest, of $5,373.36, plus the city’s contributions of $28,809.68, or $34,183.04 total. That “ initial reserve ” (and tMs becomes important later on) was the amount allocated, as a bookkeeping matter, for a reserve as against the payments the system was obligated to make to Endemann, and later to Ms wife if she should survive him. The total payments actually to be made might, of course, turn out to be much higher, or much lower.

When decedent died, his executrix filed a New York estate tax report in wMch she valued the retirement benefits at “ 0 ”. The appraiser, however, and the Surrogate in his pro forma taxing order, included in the gross estate for tax purposes, as a transfer taking effect at decedent’s death, the widow’s annuity from the retirement system, valuing it at $8,572 in accordance with a certificate of valuation thereof made by the Superintendent of Insurance for the tax appraiser, under section 249-v of the Tax Law. That $8,572 represented, according to the appropriate tables, the calculated present value as of decedent’s death, of a life annuity to the widow, then seventy-three years old, of $1,570.20 per year. It is not disputed that $8,572 is the mathematically correct figure, if it was correct to value this annuity by that ‘ ‘ present value as of death of a future annual payment ’ ’ method. However, as we shall see, the Appellate Division majority held (incorrectly, we hold) that the value of the widow’s annuity, both at the time of its creation (decedent’s retirement) and at the time of decedent’s death, was the same: $5,514.44. As pointed out above, the 11 initial reserve ” for decedent’s retirement payments was, at his retirement, $34,183.04; he elected to take for himself an annual retirement allowance of I $3,140.60; since, reasoned the Appellate Division, the initial reserve of $34,183.04 would have produced a single life annuity! for Endemann of $3,747.69 and did produce, as optioned, an I annuity for him of $3,140.60 and a survivor’s annuity of I $1,570.20, the value or cost of Endemann’s optioned annuity was! 314060/374769 of $34,183.04, or $28,668.60, as computed by the Appellate Division, and the balance is the cost or value of the widow’s survivorship annuity, according to the Appellate Division majority. We agree with the Tax Commission and with the Presiding Justice’s dissent that this method of valuation is incorrect, and that the appraiser was right in using the Insurance Superintendent’s certified value for the wife’s annuity. Both counsel, on this appeal, although differing as to which is the proper method, agree that the Appellate Division’s valuation theory was erroneous.

Because the pro forma order had included this annuity in the tax estate at $8,572, the executrix appealed therefrom to the Surrogate, who modified the pro forma order by excluding therefrom any value for the widow’s annuity. The Surrogate wrote two opinions in which he held in substance that the annuity was not taxable at all because of section 5 of article XVI of the State Constitution, which is as follows: " All salaries, wages and other compensation, except pensions, paid to officers and employees of the state and its subdivisions and agencies shall be subject to taxation The Surrogate agreed with the appraiser that the selection by the testator of option 3 (giving his wife an annuity after his death) was, under subdivision 3 of section 249-r of the Tax Law, " a transfer * * * intended to take effect in possession or enjoyment at or after his death ”, and as to this all the Appellate Division Justices agreed, except one dissenter whose view was that at the time of his death decedent had no property in this fund and that he had at no time made a transfer of any interest in the fund ”. In other words, the Surrogate held that this was an otherwise taxable to-take-effect-at-death transfer, but that the State Constitution forbade its taxation since it was a “ pension ”. Four of the Appellate Division Justices held that the Constitution had no such meaning or effect and that the annuity was taxable, but one of those four upheld the appraiser’s method of valuation, and the three other Justices used a different kind of mathematics. The other dissenting Justice, at the Appellate Division, saw no unconstitutionality in the taxing, but thought that there was no transfer to the wife by decedent, effective at his death.

So we have three questions:

1. Does the State Constitution forbid taxing this annuity? (We answer: “ no ”.)

2. Did decedent’s choice of option 3 constitute a transfer to his wife intended to take effect at his death? (We answer: “ yes ”.)

3. Did the Appellate Division majority, or the appraiser, use the correct method of valuing the widow’s annuity? (We answer: “ the appraiser ”.)

First, as to the constitutional question: when the 1938 Constitutional Convention enacted section 5 of article XVI (supra), making subject to taxation “ all salaries, wages and other compensation, except pensions, paid to officers and employees ”, it was putting into the Constitution the already existing statutory law that public officers and employees, like everyone else, had to pay taxes on their earnings, that is, income tax. This is clearly shown by the excerpts from the convention journal (II New York State Constitutional Convention of 1938, Revised Record, pp. 1119, 1120) quoted by the Surrogate. As originally introduced, the new constitutional provision referred to ££ Salaries, wages and other compensation ” but the word ££ pensions ” was added, out of caution, to make sure that it could not be construed to make ££ pensions ” subject to income tax (££ pensions ” were already exempt therefrom by section 70 of the Civil Service Law, but the word ££ pensions ” was put into the Constitution, we assume, to make clear that this exemption was not being abolished). Retirement benefits were originally exempt from estate taxes but this exemption was, apparently, abolished by section 249-kk in 1930 (and the abolition confirmed and continued in 1947 by an amendment to section 91 of the Civil Service Law). Thus, when section 7 of article V of the State Constitution was adopted in 1938, to make retirement system membership and benefits contractual, these annuities were already subject to estate taxes.

The next question is as to whether decedent, when he chose option 3, made to his wife ££ a transfer * * * intended to take effect in possession or enjoyment at or after his death ” (Tax Law, § 249-r, subd. 3). The Surrogate wrote a convincing analysis of this problem. He pointed out that while, during Ms life, Endemann was required to contribute to the retirement system and could not dispose of his interest therein, he, nevertheless, at time of retirement, had enforcible and valuable rights as against the system. He could demand a retirement allowance for himself alone, or a retirement allowance for himself with additional payments to go at Ms death to others. We agree with both courts below that “ It is difficult to understand how the selection of option 3 by the testator was not a ‘ transfer ’ of a portion of Ms property rights in the reserve funds ” (201 Misc. 1080). Endemann could have decided to use up Ms rights by electing a $3,747.69 retirement allowance for himself, but, instead, he accepted for his life a lesser retirement allowance of $3,140.60, plus an agreement by the system to pay his widow $1,570.20 per year after Ms death, should she survive. He, in fact and effect, then and there created an annuity for her, to take effect at his death. We do not concur in the idea that the transfer was complete when Endemann chose option 3 and that nothing took effect at Endemann’s death. Mrs. Endemann could not enjoy the annuity until her husband died, and, since she might have died first, there was no certainty that her annuity would ever actually have an existence (see Commissioner of Internal Revenue v. Clise, 122 F. 2d 998, certiorari denied 315 U. S. 821, involving an annuity purchased from an insurance company, which is the nearest analogy possible). Endemann had bought ” tMs annuity, as he had bought his pension rights, by service to the city. The recent Federal cases cited by the executrix here (Higgs’ Estate v. Commissioner of Internal Revenue, 184 F. 2d 427, and Commissioner of Internal Revenue v. Twogood’s Estate, 194 F. 2d 627) are not in point — they say that such annuities are not subject to Federal estate taxes, but this because of a 1949 Federal statutory change which makes such transfers prior to a certain date nontaxable unless the transferor retained an interest — New York State enacted a somewhat similar statute (L. 1950, ch. 683) but its exemption was as to transfers made by decedent dying on or after May 1, 1950, not including this Endemann estate (see Matter of Harbord, 305 N. Y. 622).

We do not agree with the executrix, here, that what Endemann did, at retirement, was merely to renounce ” part of his retirement rights in favor of his wife, like a legatee renouncing a legacy (see Brown v. Routzahn, 63 F. 2d 914, certiorari denied 290 U. S. 641). Here, Endemann had built up for himself, by contributions of money and services, a fund which, at retirement, he had a contractual right to dispose of in any one of several ways —he chose a way which involved a transfer to his wife, effective at his death.

Both counsel here are in agreement that this is a so-called “ joint and survivorship annuity ” and that such an annuity would be included in a tax estate, if purchased from an insurance company. (If, however, decedent had bought, not a joint annuity but an annuity for his wife only, that would have been a present completed gift, apparently not subject to estate tax.) It seems to us that decedent here did, in effect, purchase a joint and survivorship annuity, out of his retirement funds, when he chose the option. His executrix argues against that concept, telling us that the reason a commercially purchased joint and survivorship annuity is taxable under estate tax statutes is that, by purchasing it, decedent, during his lifetime, depletes his funds which otherwise would have been part of his estate at his death, theoretically. There is at least one answer to that: this testator did, by electing this type of annuity, reduce his own annual retirement allowance from $3,747.69 to $3,140.60, or $600 per year for the rest of his life, and thus suffered the same sort of theoretical estate depletion, but on an installment basis.

Our third, and last, question is as to the correct method of valuing the property right which came to the widow at death. The appraiser accepted the Insurance Superintendent’s valuation (made pursuant to Tax Law, § 249-v, which says it is “ conclusive ”). At decedent’s death the appropriate tables showed that the present value of $1 per year for the life of a person aged seventy-three (like this widow) was $5.45928, which, multiplied by the $1,570.20 annuity, made a value of $8,572. The Appellate Division, however, said that the Superintendent’s computation should not be used since the evidence showed the “ actual value of the asset ”. By that, the court meant that since decedent had an initial reserve ” in the system of $34,183.04, and took for himself a retirement allowance of $3,140.60 to which $28,668.60 of that reserve was proportionately applied, the balance in the reserve of $5,514.44 was the value ” of the annuity Endemann arranged for his wife — the value both at the time of his retirement and at the time of his death. But, even if we assume that the $5,514.44 was in fact the “ value ” at his retirement, of a $1,570.20 annuity payable to his widow at death, that value is still not the one to be taxed; it is the value at his death. The Appellate Division thought the value at both times would be the same. That, we submit, is impossible, since if the wife had predeceased her husband, the at-death value would have been zero. The value, at the time of the gift, of the gift of an annuity to begin at the donor’s death, cannot be the same as the value of that annuity to the beneficiary at the later time when payments begin. Endemann retired in 1936, died in 1947. Suppose he had died in 1937, when his widow was sixty-three instead of seventy-three (her age when he actually died) ? Would not the property right which she would have begun to enjoy at sixty-three have been more valuable than it was when she did begin to enjoy it at the age of seventy-three?

Further evidence of the error in the Appellate Division’s formula is found in this: the executrix says that if, as held by the Appellate Division, the value of the annuity was, at retirement date, $5,514.44, then it must have been worth less at death since her right, when her husband was eleven years younger, to an annuity was worth more than when she received it, eleven years later when she was eleven years older. We must do what section 249-v of the Tax Law mandates, and take the Insurance Superintendent’s calculated value of the annuity at the date of decedent’s death.

Of course, this executrix is not much concerned about the method of valuation since, at the highest figure suggested, that is, the appraiser’s $8,572, the New York State estate tax here involved would be only $85.72. However, the question may be important in other cases. Both sides agree that the Appellate Division’s valuation method is incorrect since it assumes that a certain proportion of the initial reserve was the correctly calculated value of Mrs. Endemann’s annuity, and there is no proof that the reserve was so calculated. The comparatively simple position of the State Tax Commission on this valuation question is: that, included in Endemann’s tax estate when he died, was a transfer made at Ms retirement and taking effect at Ms death of this annuity to his wife, that the vaMe of the transferred property for such purposes can only be its value when the wife took it, and that the method of calculating this value is set forth in, and is mandated by, section 249-v of the Tax Law. The executrix, insofar as she argues this valuation question as such, says this: that, while what Endemann did at his retirement resulted in a joint and survivorship annuity, the most that he transferred to his widow, and the thing that passed to Mrs. Endemann at his death, was “ a survivorship annuity ”. The executrix says that what the appraiser should have done, assuming it was correct to tax this transfer at all, was to value, as of just before Endemann’s death by the appropriate table, the then value of Mrs. Endemann’s survivorship annuity rights which, of course, would be calculated on the basis of Endemann’s then age and her then age. The executrix says, although it is not in the record, that this would result in a valuation of about $3,300 and says that it is absurd to say that such an annuity worth $3,300 the day before Endemann’s death would be worth $5,514.44 or $8,572 the next day. The answer to that is, we think, that all such valuations of prospective future interests must be made on the basis of pure formulae.

The executrix says that this taxation is somehow invalidated by section 7 of article V of the State Constitution which says that, after July 1,1940, “ membership in any pension or retirement system of the state or of a civil subdivision thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired ”. The argument of the executrix in this connection is that retirement benefits are here being impaired by the State because the avails thereof are being diminished by taxation. The executrix ascribes too much meaning to section 7 of article V. The New York estate tax, as applied to tax this annuity, was in effect long before 1940,

The order appealed from should be modified in accordance with this opinion, and, as so modified, affirmed, without costs.

Lewis, Oh. J., Conway, Dye, Ftjld, Froessel and Van Voorhis, JJ., concur.

Ordered accordingly.


author: Van Voorhis, J.

text:
    Madawick Contracting Co., Inc., Appellant, v. Travelers Insurance Company et al., Respondents.
    Argued April 7, 1954;
    decided May 27, 1954.

      Stephen J. Masse and Albert A. DuPont for appellant.
    I. In the circumstances presented here, Travelers is required to pay under the terms of the policy any judgment entered upon an award that might be made on Ley’s claim in arbitration. (Schwartz v. Merola Bros. Constr. Corp., 290 N. Y. 145; Rosenberg v. Schwartz, 260 N. Y. 162; Di Marco & Ciccone v. Travelers Ind. Co., 287 N. Y. 601; Green Bus Lines v. Ocean Acc. & Guar. Corp., 287 N. Y. 309; People v. Richetti, 302 N. Y. 290; Hyman v. Pottberg’s Executors, 101 F. 2d 262; People ex rel. Hunter Arms Co. v. Foster, 247 App. Div. 619; Tilden v. Aitkin, 37 App. Div. 28.) II. The policy, having been amended to include insurance coverage required by the Madawick-Ley contract, should be construed in the light of that contract. III. If Travelers is not bound, the claim for property damage caused by accident is not arbitrable. (Matter of Smith Fireproof Constr. Co. v. Thompson-Starrett Co., 247 N. Y. 277; Matter of Marchant v. Mead-Morrison Mfg. Co., 252 N. Y. 284.)

      Joh/n Q. Donovan and Louis P. Galli for Travelers Insurance Company, respondent.
    I. Travelers never consented to arbitration. (Matter of Lehman v. Ostrovsky, 264 N. Y. 130; Matter of Philip Export Corp. [Leathertone, Inc.], 275 App. Div. 102; Matter of Brescia Constr. Co. v. Walart Constr. Co., 264 N. Y. 260; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N. Y. 288; Matter of General Silk Importing Co., 200 App. Div. 786, 234 N. Y. 513; Schafran & Finkel v. Lowenstein & Sons, 280 N. Y. 164.) II. Arbitration is not a suit. (Son Shipping Co. v. De Fosse & Tanghe, 199 F. 2d 687; Boyden v. Lamb, 152 Mass. 416; Matter of Curtis, 64 Conn. 501; American Almond Products Co. v. Consolidated Pecan Sales Co., 144 F. 2d 448; Syracuse Plaster Co. v. Agostini Bros. Bldg. Corp., 169 Misc. 564; Matter of Interocean Mercantile Corp., 204 App. Div. 284; Crook v. Chambers, 40 Ala. 239; McKesson & Robbins v. Leonard James Co., 129 F. 2d 563.) III. Judgment entered upon an arbitrator’s award is not “ liability imposed by law ” within the terms of this policy. (Green Bus Lines v. Ocean Acc. & Guar. Corp., 287 N. Y. 309; People ex rel. Steckler v. Warden of City Prison, 259 N. Y. 430.) IV. Travelers was not a party to the Madawick-Ley contract and is not bound by the arbitration clause contained in it. (Bohlinger v. Zanger, 306 N. Y. 228.)

      Clarence C. Meleney for Fred T. Ley & Co., Inc., respondent.
    I. Under the terms of the policy the insurance company would be obligated to pay any judgment entered upon an arbitration award. II. The Travelers Insurance Company is estopped from denying its obligation to defend Madawick in the arbitration. III. The claim of Ley against Madawick is arbitrable.

      John G. Jackson for American Arbitration Association, Inc., Woodson Pi. Scott for Chamber of Commerce of the State of New York, John T. Carr Lowe for American Institute of Architects, Samuel L. Bosenberry for New York Stock Exchange and John K. Watson for General Arbitration Council of the Textile Industry, amici curice.

    I. An arbitration award is a liability imposed by law. (Matter of Arcadu v. Levinson, 250 N. Y. 355.) II. The words “ suit ” and “ trial ” as used in the insurance policy issued by the Travelers Insurance Company to Madawick Contracting Co., Inc., include arbitration. (Kohl v. United States, 91 U. S. 367; Weston v. City Council of Charleston, 2 Pet. [U. S.] 449; Drake v. Gilmore, 52 N. Y. 389; Matter of Hayt, 39 Misc. 356; Stathatos v. Bernstein S. S. Corp., 202 F. 2d 525; Murray Oil Products Co. v. Mitsui & Co., 146 F. 2d 381; Hyman v. Pottberg’s Executors, 101 F. 2d 262.) III. Insurance contract provisions are to be resolved against the insurer. (Taylor v. United States Cas. Co., 269 N. Y. 360; Marshall v. Commercial Travelers’ Mut. Acc. Assn., 170 N. Y. 434; McGrail v. Equitable Life Assur. Soc. of U. S., 292 N. Y. 419, 293 N. Y. 663; Abrams v. Great Amer. Ins. Co., 269 N. Y. 90; Herrman v. Merchants’ Ins. Co., 81 N. Y. 184; Dupee v. Travelers Ins. Co., 253 App. Div. 278; Gumbinsky Bros. Co. v. Smalley, 203 App. Div. 661, 235 N. Y. 619; Oswego Falls Pulp & Paper Co. v. Stecher Lithographic Co., 215 N. Y. 98; Zeig v. Massachusetts Bonding & Ins. Co., 23 F. 2d 665; Rickerson v. Hartford Fire Ins. Co., 149 N. Y. 307; McMartin v. Fidelity & Cas. Co., 239 App. Div. 296, 264 N. Y. 220.)
   Van Voorhis, J.

This action concerns the liability of an insurance company carrying liability insurance protecting a subcontractor against its contractual obligation to indemnify the general contractor against “ liability imposed upon the Contractor by law for damages because of (a) * * * and (b) Injury to or destruction of property caused by accident, due to any act or omission of the Subcontractor, his employees or agents, arising out of and during the prosecution of the Work of the Subcontractor as contemplated under this Agreement.” The work to be performed by the subcontractor consisted of sheet piling, shoring, bracing and underpinning at the new Mercantile Building in Hempstead, Nassau County. The contract required the subcontractor to carry liability insurance against such risks. The general contractor has made a claim against the subcontractor for property damage alleged to have been caused to part of the west foundation wall and part of the adjoining property on the west, due to accident arising out of the prosecution of the work of the subcontractor.

The contract between the contractor and the subcontractor called for arbitration of disputes, and the insurance carrier seeks to escape liability upon its policy upon that ground, contending that it became obligated to indemnify only in event of a liability established by action in the courts resulting in a judgment.

The action is for a declaratory judgment determining that the insurance carrier is required to defend plaintiff, the subcontractor, and to pay any award which may be rendered against plaintiff in the arbitration proceeding which has been instituted by the general contractor pursuant to the arbitration clause in the contract. The trial court found that the insurance policy covered liability for property damage imposed by law due to destruction of the property from accident arising out of the hazards of the performance of the work under the subcontract, that the insurance carrier is liable for indemnification, that the dispute involves an amount less than the face of the insurance policy, that the contractor served a formal demand for arbitration of the claim upon plaintiff subcontractor, that the insurance carrier was duly informed of the aforesaid dispute or claim and of the demand for arbitration, but notified plaintiff that it refused to appear for or defend plaintiff in the arbitration proceeding and took the position that it would not make payments under the policy pursuant to any award in those proceedings. The trial court found as conclusions of law that the arbitration proceeding demanded by the general contractor, Fred T. Ley & Co., Inc., was in accordance with the clause in the subcontract, that the contractor has the right to arbitrate the claim, that the word “ suit ” appearing in the liability insurance policy issued by the carrier to the subcontractor is a broad term which includes arbitration within its scope, and that the insurance carrier is obliged to defend plaintiff in the arbitration proceeding and pay any award which may be entered provided that it is confirmed by the court.

The Appellate Division held that the insurance carrier is not required to defend plaintiff in the arbitration proceeding nor to pay any award which may be rendered against plaintiff. New findings were made to the effect that by the insuring agreement the carrier agreed to defend in the insured’s name and behalf “ any suit ” against the insured’s alleging such injury or destruction to property, and that among the conditions it is provided that no action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of the policy, “ nor until the amount of the insured’s obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant, and the company.” The policy in its original form had been issued prior to the signing of the subcontract which gives rise to this dispute. Deference to the coverage of the policy under what is defined as “ Operations ” on the front page shows that “ Contractual ” indemnity was not originally included. The meaning of the word contractual is defined on pagé 2 as The express undertakings of the named insured designated in the declarations.” The subcontract between plaintiff and the general contractor was signed July 11, 1950. After receiving this subcontract, which required insurance coverage of plaintiff by way of ‘ ‘ contractual ” indemnification of the sort just mentioned, plaintiff’s manager telephoned to a Mr. Doyle of Donohue & Company, agents of the Travelers, and told him what the contract called for and asked for an oral binder. Upon the following day, plaintiff’s manager went to the Donohue office bringing the contract with him and handed it to Mr. Doyle who read it in his presence. Soon afterward a certificate was mailed to plaintiff’s manager. It refers to the original policy by number, provides coverage of $50,000 property damage liability for each accident, describes the "Operations ” covered as " Sheet piling, shoring, bracing and underpinning ’ ’, and adds: " Including contractual between Fred T. Ley & Co., Inc. and assured as per agreement contained on the reverse side of this certificate.” The location of the work is stated as " Mercantile building on N/S Fulton Ave. 113.25' E. Main St., Hempstead, N. Y.” The indemnity clause in the contract with the general contractor is substantially set forth on the back of this certificate. This excerpt is the part of the contract which rendered the insurance policy necessary.

This paper was, strictly speaking, a certificate rather than an indorsement, and thereafter formal indorsements were prepared and issued by the carrier, specifically enumerating the hazards involved in this operation and expressly indemnifying plaintiff against its liability to the general contractor. Concerning the latter subject, which directly concerns this litigation, one of the formal indorsements is entitled " Contractual liability endorsement ”, beneath which is written " (Statement of express understanding with respect to which insurance applies) ”. Then under this is written: " Such insurance as is afforded under division 5 of the Definition of Hazards applies to that part of the contract between the named insured and Fred T. Ley Co. Inc. at North Side of Fulton Ave. 113.25 feet east of Main St., Hempstead, N. Y.”. Division 5 of the master policy then in force is the one mentioned above which is designated on the face of the policy as " Contractual ”.

During the course of the work and on September 22, 1950, the foregoing policy expired, but the insurance coverage was continued by the issuance by defendant Travelers of a renewal policy with indorsements, and a certificate similar to the one previously issued was mailed to defendant Ley.

The situation here presented is unlike either the case of Matter of Riverdale Fabrics Corp. (Tillinghast-Stiles Co.) (306 N. Y. 288) or Matter of Level Export Corp. (Walz, Aiken & Co.) (305 N. Y. 82). Here we are confronted by a situation where the insurance carrier, whose representative had read the subcontract containing an arbitration clause which the policy was given to implement, now repudiates liability upon the ground that the contract made arbitration the exclusive remedy which the general contractor refuses to waive. The object of this policy was to indemnify the subcontractor and the contractor against liability resulting from the operations of the subcontractor, Having incorporated the relevant portion of the subcontract in its insurance policy, and having indemnified the subcontractor against its liability thereunder, the insurance carrier must be deemed to have implemented this clause in its context as part of the entire subcontract, inasmuch as protection of the subcontractor against its liability to indemnify the general contractor meant protecting it under this clause however the clause might be affected by the terms and provisions of the agreement as a whole. The insurance company cannot escape liability under such circumstances by claiming that it was ignorant of some other part of the contract which conditioned the meaning or operation of the indemnity clause. Each portion of an agreement is qualified by other portions that are relevant thereto, and has no separate existence apart from them. Even without the testimony that this contract was read by the insurance agent, when an insurance company contracts to indemnify under such circumstances as to protect the insured against a particular liability imposed upon it by a construction contract, the insurer should be construed to have promised to do so in accordance with the requirements, terms and conditions of the agreement. The contract of a surety on a building or construction contract is to be construed together with other instruments to which it refers (72 C. J. S., Principal and Surety, § 100, p. 580). The same rule should be applied to a policy of insurance indemnifying a surety in respect to the performance of such an obligation.

Insofar as concerns the conditions precedent prescribed in paragraph 11 of the policy, it is unnecessary to decide whether for all purposes an arbitration would amount to a “ trial ” or whether the use of the word judgment ” would imply generally that there must he a court action resulting in the judgment. In certain contexts, that might be true. Nevertheless, words and phrases as used in particular contracts are to be interpreted in accordance with the meaning with which they have been invested by the parties. It is sometimes said that parties in their agreement may furnish their own glossary of the terms which they have employed. Here, by issuing an insurance policy to implement a construction contract which shows on its face that liability under the policy may result only through an award in arbitration proceedings, unless the adverse party elects to waive arbitration, the carrier is deemed to have meant the word trial ” as used in this policy to include arbitration proceedings, and to have intended that ‘ judgment ’ ’ shall include such judgments as are entered upon confirmation of arbitration awards pursuant to section 1464 of the Civil Practice Act, which by section 1466 are given the same force and effect after entry as a judgment in an action ”. The policy indicates that for its purposes such a judgment is intended to express a liability imposed by law ” in fulfillment of the conditions of paragraph 11. Otherwise the insurance coverage would be illusory. The insurance company must be construed to have issued its policy in the light of the circumstance that the general contractor might insist upon the right to arbitration, as Ley has done in this instance. “ All words,” says Lord Bacon, “ whether they be in deeds, or statutes, or otherwise, if they be general, and not express and precise, shall be restrained unto the fitness of the matter and the person.” (Bacon’s Law Maxims, reg. 10.) This was quoted in an opinion per Collin, J., in People ex rel. New York Central & H. R. R. R. Co. v. Walsh (211 N. Y. 90, 100), to which was added: “ The ascertainment of the substantial intent of the parties is the fundamental rule in the construction of all agreements.”

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

Lewis, Ch. J., Conway, Desmond, Dye, Fuld and Froessel, JJ., concur.

Judgment reversed, etc.


author: Dye, J. Desmond, J.

text:
    Central Railroad Garage Corp., Respondent, v. Eastern Transportation Company, Inc., Appellant.
    Argued March 5, 1954;
    decided May 27, 1954.

      David 8. Elgot for appellant.
    I. Either party had the absolute right to cancel the lease if defendant Eastern were not successful in obtaining possession of the premises. (Dubois & Son v. Goldsmith Bros., 273 App. Div. 306; Matter of Loew’s Buffalo Theatres, 233 N. Y. 495; Scheele v. Waldman, 136 App. Div. 679.) II. (a) The error of Mr. Justice Quinn of the Municipal Court in granting an unauthorized interim stay, and (b) the error of Mr. Justice Bennett of the Municipal Court in having a concededly mistaken impression, should not be charged to defendant Eastern. III. The modification agreement is clear and unambiguous. (Wood v. Sheehan, 68 N. Y. 365.) IV. Actual physical possession was contemplated by the parties when they entered into the lease. (N. R. M. Garage Corp. v. Feig Garage Corp., 279 App. Div. 126, 303 N. Y. 922.)

      Karl Propper and Morris K. Bauer for respondent.
    I. The lease entered into by the parties is in full force and effect; the attempt to cancel was a complete nullity since defendant was in legal possession. (Millie Iron Min. Co. v. Thalmann, 34 App Div. 281; Matter of Altman v. Joffe, 138 Misc. 745; People ex rel. Allen v. Murray, 2 Misc. 152, 138 N. Y. 635; Podalsky v. Ireland, 137 App. Div. 257; Fong Ling v. Nathans, 204 App. Div. 265; Gardner v. Keteltas, 3 Hill 330; United Merchants’ Realty & Improvement Co. v. Roth, 193 N. Y. 570; Mirsky v. Horowitz, 46 Misc. 257; Whitmarsh v. Farnell, 298 N. Y. 336;
      Tartaglia v. McLaughlin, 297 N. Y. 419.) II. Appellant cannot insist upon a condition precedent, when its nonperformance has been caused by itself. (Amies v. Wesnofske, 255 N. Y. 156; Wood v. Duff-Gordon, 222 N. Y. 88; Moran v. Standard Oil Co., 211 N. Y. 187; Stern v. Gepo Realty Corp., 289 N. Y. 274; Goldberg, 168-05 Corp. v. Levy, 256 App. Div. 1086; Reliable Press v. Bristol Carpet Cleaning Co., 261 App. Div. 256; Greenwald v. Rosen, 61 Misc. 260.)
   Dye, J.

The plaintiff, hereinafter called Central ”, as owner of premises 899 East 149th Street, Bronx, New York City, sued the defendant, hereinafter called Eastern ”, for three months’ rent allegedly due under a written lease. The lease was executed September 7, 1951, for a term expiring September 30, 1972, a period of over twenty-one years. In making the lease the parties took into consideration that the premises were then occupied by a statutory tenant under a lease dated November 4, 1944, which, by its terms, had expired in 1947. Because of this the parties mutually agreed in a separate writing of even date that Eastern was to forthwith commence summary proceedings against the statutory tenant to obtain possession of the premises and if Eastern was “ unsuccessful in obtaining possession of the premises * * * either one of us may cancel the lease by giving at least fifteen days’ registered written notice of cancellation to the other prior to September 1,1952, and in'the event that such registered written notice is given, neither party shall have any rights against the other of any kind and the lease shall be considered terminated, null and void.” (Emphasis supplied.)

Thereafter, Eastern promptly commenced summary proceedings against the statutory tenant and obtained a final order of eviction which was duly entered January 11, 1952. Its execution was initially stayed until June 13, 1952, the maximum allowable period (Commercial Bent Law, § 8, subd. [k], par. [1], as amd. by L. 1951, ch. 431). Nonetheless, the statutory tenant in a series of legal maneuvers, which need not be detailed here, succeeded in extending the stay to August 25,1952. Faced with this situation and being mindful that the deadline date for cancellation was August 17th, Eastern gave registered written notice of cancellation to Central under date of August 8, 1952, certifying that we have been unsuccessful in obtaining possession of said premises Central, some time later, rejected the notice of cancellation and demanded payment of the rent reserved in the lease.

At the time the cancellation notice was given, Central, Eastern and the statutory tenant did not know that the Municipal Court, to which the show cause order with interim stay to August 25th had been assigned for hearing on the oral argument, on its own initiative and without notice to any interested party, had denied the motion and vacated the stay. Its order was dated July 19th and entered in the clerk’s office July 22d. When, later and on or about August 21st, the statutory tenant in possession learned of this inadvertent disposition, it applied for and was granted a further order to show cause containing a temporary stay which was made returnable August 29, 1952, and thereafter denied September 4th.

The notice of cancellation on its face at the very least was valid and effective. The burden of establishing the contrary rested with Central and in this it failed. It has not shown, for indeed it cannot, that the defendant Eastern who, concededly, had no knowledge of the vacatur, was dilatory in not obtaining a warrant of eviction between July 19th and the deadline date of August 17th. It is idle speculation to assume that had Eastern done so it would have been successful in obtaining possession by September 1st. According to this record, the statutory tenant was actually in possession, and was avoiding eviction by every means available, first by resorting to the protection of the Commercial Bent Law and then by means outside the statute. As late as August 21st, four days after the deadline, the holdover tenant was before a court of competent jurisdiction pleading for an extension of time and had been successful in obtaining a stay of execution which was not set aside until September 4th, four days after the agreed expiration date. As we read the cancellation clause it seems clear that the posses sion mentioned contemplated actual physical possession as distinguished from a bare legal or constructive possession. Quite obviously, Eastern needed the premises for its immediate and personal use, hence the option to cancel was conditioned on obtaining possession of the prémises. It is reasonable to assume that in making this ordinary business contract the possession the parties contemplated was actual and physical possession and, unless such possession was obtained on or prior to September 1, 1952, the lease was to be “ considered terminated, null and void ”.

The judgment appealed from should be reversed and the complaint dismissed, with costs in all courts.

Desmond, J.

(dissenting). Defendant, unfortunately for it, did not learn until much later that, on July 19, 1952, the statutory tenant’s stay of eviction had been ended by a Municipal Court order, and that defendant was, therefore, entitled to evict the statutory tenant, forthwith. But the loss or damage resulting from defendant’s failure so to inform itself of the entries on the Municipal Court docket cannot reasonably be visited on plaintiff who had nothing whatever to do with those eviction proceedings. The lease which defendant had taken, of this garage, put on defendant-lessee, not on plaintiff-lessor, the burden of getting the statutory tenant out of the building. To protect defendant against the possibility that such an ouster could not be effected by defendant, plaintiff-lessor agreed that defendant-lessee should have a whole year for that attempt, and that, if defendant should in the end be “ unsuccessful in obtaining possession of the premises ”, defendant might give notice, not later than August 17, 1952, of cancellation of the lease. Success in obtaining possession could not, in this context, mean anything other than defendant’s obtaining, from the Municipal Court, a final order terminating all stays and authorizing immediate physical eviction. Such an order was in effect from July 19, 1952, to August 21, 1952, and the only reason defendant did not act on that order was defendant’s own failure to keep itself informed of the progress of the proceeding which it had brought. Perhaps some of the blame for that failure should be laid to the Municipal Court’s little comedy of errors, but this is not a debate between defendant and the Municipal Court, as to which was the more careless. Defendant was not unsuccessful ”, but it failed to act on its success ”. That there were such dire consequences of defendant’s lapse is unfortunate, but there is absolutely no ground for laying those consequences on the entirely guiltless plaintiff.

I vote for affirmance.

Conway, Fuld, Froessel and Van Voorhis, JJ., concur with Dye, J.; Desmond, J., dissents in an opinion in which Lewis, Ch. J., concurs.

Judgment reversed, etc.