author: Hubbs, J. Kellogg, J. (concurring).

text:
    Commercial National Bank, Appellant, v. National Surety Company et al., Respondents.

      (Argued March 25, 1932;
    decided May 10, 1932.)

      Arthur W. Clement and Henry J. Bogatko for appellant.
    The plaintiff as pledgee for value of the original shares was entitled to the additional shares as a dividend. (Brightson v. Claflin, 225 N. Y. 469; First Nat. Bank v. Exchange Nat. Bank, 226 N. Y. 633; Wetsel v. Forgey, 20 S. W. Rep. [2d] 523; Equitable Trust Co. v. Prentice, 250 N. Y. 1; Gibbons v. Mahon, 136 U. S. 559; Pers. Prop. Law, §§ 162-185; Turnbull v. Longacre Bank, 249 N. Y. 159; Hale v. West Porto Rico Sugar Co., 200 App. Div. 577; Travis v. Knox Terpezone Co., 215 N. Y. 259; Lockwood v. U. S. Steel Corp., 209 N. Y. 375.)

      William Dean Embree and A. Donald MacKinnon for respondents.
    The plaintiff settled and adjusted its claims to the certificate of stock by entering into the agreement of October 28, 1920, and that agreement did not include, and none of the parties intended it to include, stock or cash dividends paid on the certificates of stock. (President Suspender Co. v. MacWilliam, 238 Fed. Rep. 159; Gans v. Ætna Life Ins. Co., 214 N. Y. 326; Corbett v. Winston Elkhorn Coal Co., 296 Fed. Rep. 577; Schweinburg v. Altman, 145 App. Div. 377; 207 N. Y. 681; Fairbanks v. Merchants Nat. Bank, 22 N. E. Rep. 524.) The plaintiff did not become a trustee for the other parties to the agreement and is without legal capacity to maintain the action. (Brown v. Spohr, 180 N. Y. 201; Matter of Bogan, 129 Misc. Rep. 119.) Aside from the agreement of settlement the plaintiff had no such title to the certificate for the Reynolds stock as against the owners of record, as to entitle plaintiff to dividends. (Brisbane v. Delaware R. R. Co., 94 N. Y. 204; Wilson v. Tuttle, 2 N. Y. 443; Warner v. Fourth Nat. Bank, 115 N. Y. 251; Matter of Hallenbeck, 231 N. Y. 409; 6 Thompson on Corporations, §§ 4247, 4248; Travis v. Knox Terpezone Co., 215 N. Y., 259; Turnbull v. Longacre Bank, 249 N. Y. 159; State Bank v. Syndicate Co., 178 Fed. Rep. 359.)
   Hubbs, J.

The sole question involved in this case is whether the plaintiff, a national bank acting as trustee, is entitled to recover the value of a stock dividend issued upon fifty shares of the common stock of the R. J. Reynolds Tobacco Company.

The solution of that question requires an examination of the facts involved in the transactions between the parties.

In November, 1919, plaintiff loaned $50,000 to N. S. Bowles, and received as collateral security certificates of stock in a number of different corporations. The certificates had been indorsed in blank by the various owners' from whom they had been stolen. Some of the owners were insured by the National Surety Company; others by London Lloyd. The insurance companies paid the loss to the various owners of the stock and became subrogated to their rights. They notified the different companies which had issued the stock of the loss of the certificates and also notified the transfer agents. Bowles, who had obtained the loan from the plaintiff by means of the fraudulent use of the stock certificates, did not pay the loan.

Among the stock certificates secured by the plaintiff from Bowles was one for fifty shares of class B, common stock, of the R. J. Reynolds Tobacco Company. The plaintiff on February 19th, 1920, notified the Reynolds Company and its transfer agent, the Equitable Trust Company, that it held the same and-was entitled to the dividends thereon. The certificate had been issued to Bamberger Brothers who owned it at the time it was lost or stolen. Bamberger Brothers was insured by the National Surety Company, defendant. It and the other insurance companies interested commenced replevin actions against plaintiff to recover possession of the shares of stock which it had received as collateral from Bowles. During the pendency of those actions, the plaintiff was unable to have the stock transferred to its name.

The plaintiff, in making the loan to Bowles, acted in good faith and without notice of any claim of third parties to any of the stock taken by it as collateral. It was, therefore, an innocent pledgee holder for value and entitled to dividends issued on the stock which it held.

Negotiations were carried on by the attorneys for the various parties to the replevin actions for the purpose of reaching some kind of an adjustment. During those negotiations, a valuation was made of the different shares of stock. They were valued at $68,000 at the market price. The fifty shares of Reynolds stock was valued at $23,000. On October 28th, 1920, an arrangement was entered into between the plaintiff and attorneys for the insurance companies by which it was agreed that • the stock should be sold at auction; that if it was sold for less than $50,000 it should be bid in by the plaintiff and resold by it on the market. From the sum received, less expenses, the plaintiff should retain $44,000 and pay over the balance to the other parties to the agreement.

The record owners of the stocks withdrew the notices to the transfer agents and the stocks were transferred to an officer of the plaintiff bank after the auction sale. The stocks were sold at public auction to the plaintiff for $43,250, which was appropriated by it. The principal reason why the stocks sold for less than expected under the original valuation was that the Reynolds Tobacco Company had reduced the par value of its class B, common stock, from $100 to $25 and declared a stock dividend of 200 per cent. Two hundred shares of the $25 common stock were issued to plaintiff in place of the 50 shares of old $100 par common, and the stock dividend of 400 shares of new $25 par common was issued to Bamberger Brothers, the record owner of the original 50 shares.

The market value of the new stock was about $39 per share, while the market value of the old stock was, when valued during the negotiations, $460 per share. The effect was that the value of the 200 shares of $25 par value stock received by plaintiff in exchange for the 50 shares of old $100 par value stock was about $15,000 less than the 50 shares had been figured at.

On October 28, 1920, when the agreement was entered into between the attorneys for the various parties, none of them knew that the Reynolds Company had declared a stock dividend. Nothing is said in the agreement about dividends on the stock. The plaintiff did not know about the stock dividend until after it had bid in the stock at the public auction.

It is clear that when the agreement of October 28th was entered into, the attorneys who entered into it for their clients had in mind the stocks actually pledged to plaintiff which included the 50 shares of class B, common stock of $100 par value issued by the Reynolds Tobacco Company, which had been valued during the negotiations at $460 a share, or $23,000 for the 50 shares. They had no knowledge that the value-of the stock had been reduced by a 200 per cent stock dividend. Because of the fall in the market of stocks and the issue of the stock dividend by the Reynolds Company, the stock sold for $43,250 instead of $63,000, the value at which they had been appraised during the negotiations. Instead of the insurance companies realizing $19,000 from the sale, the plaintiff failed to receive the full sum of $44,000 which it was entitled to under the agreement.

When the plaintiff was informed after the auction sale of the stock dividend which had been declared by the Reynolds Company and that such dividend of 400 shares had been issued to Bamberger Brothers, the holder of record, it demanded such stock dividend by letter dated November 16, 1920, and the demand was refused.

The position of the plaintiff is that under the terms of the agreement, it became a trustee and that as trustee it is entitled to receive the stock dividend. We believe it is right in such contention. At the date of the agreement it held the stocks as a bona fide pledgee for value. The equity therein over and above its claim, if any, belonged to the insurance companies as assignees of the record owners. By the agreement it waived all of its claim over $44,000 and agreed to bid in the stock if it sold for less than $50,000, to resell it and divide the proceeds over and above the $44,000 due it. Such agreement placed upon plaintiff the duty to exercise the care and obligations of a trustee and made it responsible to the other parties to the agreement for the faithful performance of "such duties. It could not give away a part of the securities or permit the former record holder of the Reynolds stock to appropriate the stock dividend without taking action to protect its rights as- trustee for the benefit of the other parties to the agreement.

The contention of the defendants is that plaintiff’s rights as pledgee have been abrogated by the agreement of October 28th. Concededly, the plaintiff was pledgee of the stock for a valuable consideration without notice under a bona fide transaction. The defendants attempted to deprive the plaintiff of the stock by the replevin actions. While the litigation was pending, the parties reached an agreement by which the plaintiff waived its interest to all sums above $44,000. It did not, however, give up its rights as a bona fide pledgee. The trial court found as a fact that it sold the stocks at auction under its power of attorney from Bowles, i. e., as pledgee. Assuming that the owner in whose name the stock stood upon the books of the company was the proper party to whom the Reynolds Company should issue the stock dividend, nevertheless, when the defendant, Bamberger Brothers, received the dividend it held it subject to the rights of the pledgee. In addition to the rights which the plaintiff held as a bona fid,e pledgee, it assumed additional obligations under the agreement of October 28th, which were not inconsistent with its rights as pledgee, except in so far as it waived the right to receive any sum above $44,000.

The plaintiff was entitled to the dividends as pledgee under section 162 of the Personal Property Law (Cons. Laws, ch. 41), being the Uniform Stock Transfer Act. (Turnbull v. Longacre Bank, 249 N. Y. 159.) When Bamberger Brothers accepted the stock dividend it knew that plaintiff held the stock as pledgee. The Reynolds Tobacco Company and the Equitable Trust Company also had that information.

The whole transaction assumes that the plaintiff was entitled to hold the fifty shares of $100 par value stock as security as against all parties. The value' of the stock which plaintiff held as pledgee could not be diluted by the issue of a stock dividend which had that effect, after notice of the facts and without plaintiff’s consent. The defendants contend that by failing to insist on the cash and stock dividends on other stocks which it held as pledgee, plaintiff waived its rights and placed a practical construction on the agreement. Plaintiff might waive its rights as to other dividends without affecting its rights as to this one. It might have felt that as it had abundant security with the fifty shares of Reynolds stock of a par value of $100 selling for $460 a share, it was not interested in the other dividends. It does not appear that any of those dividends were paid after the agreement of October 28th, and prior to that time it was not obligated to the other parties to collect such dividends.

The defendants also contend that by the agreement plaintiff waived its rights. We do not agree with such contention. The agreement does not provide for payment to plaintiff in the event that the stocks should sell for less than $44,000. If they had sold for $30,000 plaintiff would have' been vitally interested to secure for itself the stock dividend. The agreement does not purport to deprive it of such right. The agreement being silent, the plaintiff may insist on its rights as pledgee to the dividend. It cannot be presumed that plaintiff intended to give up its clear legal rights as pledgee of the stock in the absence of language in the agreement fairly susceptible to such construction. True, when it receives the dividend it will receive it in trust for all above the balance of $782 due it under the agreement.

It is earnestly urged that the plaintiff on account of a letter written by its general counsel to the attorney for the National Surety Company, dated December 6th, 1920, has placed a construction upon the agreement of October 28th which justified the finding of fact to the effect that the plaintiff was not acting as trustee and that its only interest was to collect its $44,000. That letter must be read in connection with its letter of November 16th to the same party, where it specifically demanded the 400 shares stock dividend which had been issued to Bamberger Brothers. The letter of December 6th wherein it demanded the sum of $782 to make up the $44,000 claimed to be due it under the agreement of October 28th, and gives a statement of the account which shows that balance due related solely to its claim of $44,000, does not in any way indicate that it waives its demand made in the letter of November 16th or intimate that it was not acting as trustee.

On January 17th, 1921, and before the National Surety Company had answered its letter of December 6th, 1920, it wrote all parties in interest, setting forth its claim to the stock dividend. Its letter of December 6th could not, therefore, have estopped the plaintiff, and when read in connection with the letter of November 16th, 1920, and in view of all the other circumstances, does not afford evidence to sustain the finding of the trial court, which is, therefore, entirely without evidence to sustain it.

Plaintiff was not required to rescind the agreement when it ascertained that Bamberger Brothers had appropriated the stock dividend. That information was not received by plaintiff until after the stock had been sold at auction and bid in by it. Meanwhile the market price of the stock was going down.

The plaintiff as trustee is entitled to the stock dividend. The Reynolds Company issued the stock with full notice of plaintiff’s claim. The Equitable Trust Company, as transfer agent, delivered the stock to Bamberger Brothers with like notice and Bamberger Brothers with notice appropriated the stock and refused to surrender it after demand.

The judgments should be reversed and judgment directed in favor of the plaintiff against the defendants for $11,886 and interest thereon from December 2, 1920, with costs in all courts.

Kellogg, J. (concurring).

I concur in the result reached by Judge Hubbs, on the following grounds: The plaintiff was the pledgee of a fractional interest in the capital stock of the Reynolds Company, evidenced by a certificate for fifty shares. The precise interest of the plaintiff was then determinable by a fraction having the figure 50 as the numerator and a figure representing the total issue of stock as the denominator. This fraction was not altered, nor was the quantum or intrinsic value of the plaintiff’s interest affected in the slightest degree by the declaration and distribution to stockholders of a stock dividend. “ Upon the distribution of a stock dividend, ownership of the assets is precisely as it was.” (Per Cardozo, Ch. J., in Equitable Trust Co. v. Prentice, 250 N. Y. 1, 12.) When the Reynolds stock became the subject of an agreement between the parties, none of whom were aware that a stock dividend had been declared, necessarily it was the stock interest of the plaintiff, as indicated by the fraction referred to, not as represented by the incorrect tokens of the old certificate and the new capital issue, which was involved. When this interest was sold and bid in by the plaintiff, it necessarily became the absolute owner, for itself and others, of the same fractional interest. It was, therefore, entitled to the certificate for the additional shares, since their possession was necessary to indicate the precise interest held by it.

Pound, Ch. J., Crane, Lehman and Crouch, JJ., concur with Hubbs, J.; Kellogg, J., concurs in result in separate opinion; O’Brien, J., not sitting.

Judgment accordingly.


source: Caselaw Access Project

author: Pound, Ch. J.

license: Public Domain

text:
    Mildred V. S. Gwynne, Appellant, v. Board of Education of Union Free School District No. 3, in the Town of Huntington et al., Respondents.

      (Argued April 29, 1932;
    decided June 1, 1932.)

      Joseph M. Proskauer, Willard N. Baylis, M. E. Harby and Eugene Eisenmann for appellant.
    The district superintendent had no power to consolidate a school district within his jurisdiction with a school district excluded from his jurisdiction. (L. 1910, ch. 140; Education Law, §§ 121, 122, 123, 126, 130, 136, 170; East End Trust Co. v. Otten, 225 N. Y. 283; Bullock v. Cooley, 225 N. Y. 566; People ex rel. Cherry v. Graves, 219 App. Div. 563.) Reasonable canons of statutory construction limit the powers of a district superintendent under section 129 of the Education Law to school districts subject to his supervisory power. (People v. Pelham, 215 N. Y. 374; People v. Ahearn, 196 N. Y. 221; Ewen v. Thompson-Starrett Co., 208 N. Y. 245.) The decision of the Commissioner of Education upon the appeal by the trustees of the dissolved school districts does not preclude the plaintiff from maintaining the action. (Matter of Appeal Relating to Union Free School District No. 3, Town of Huntington, 37 State Dept. Rep. 660; The Board [No. 6] v. The Board [No. 7), 76 App. Div. 355; 179 N. Y. 556; Union Free School District v. Village of Glen Park, 109 App. Div. 414; Steele v. Village of Glen Park, 193 N. Y. 341; Bullock v. Cooley, 225 N. Y. 566; Barringer v. Powell, 230 N. Y. 37; Matter of Levitch v. Board of Education, 243 N. Y. 373; People ex rel. Board of Education v. Finley, 211 N. Y. 51; People ex rel. Hylan v. Finegan, 227 N. Y. 219.)

      Lewis L. Delafield, Jr., and Guy O. Walser for respondents.
    The order dissolving a school district and uniting its territory to another district was valid. (Bullock v. Cooley, 225 N. Y. 566; People ex rel. Wood v. Graves, 225 App. Div. 176; People ex rel. Cherry v. Graves, 219 App. Div. 563.) The determination of the Commissioner of Education which affirmed the order of the district superintendent is final and conclusive and not subject to question or review in any place or court whatever. (People ex rel. Wood v. Graves, 225 App. Div. 176; People ex rel. Hill v. Collins, 34 How. Pr. 336; People ex rel. Light v. Skinner, 159 N. Y. 162; People ex rel. Board of Education v. Finley, 211 N. Y. 51; Bullock v. Cooley, 225 N. Y. 566; Barringer v. Powell, 230 N. Y. 37; Matter of Levitch v. Board of Education, 243 N. Y. 373; People ex rel. Underhill v. Skinner, 74 App. Div. 58; People ex rel. Jennings v. Finley, 175 App. Div. 204; Matter of Birmingham v. Graves, 227 App. Div. 262; Van Wormer v. Mayor, 15 Wend. 263; Osterhoudt v. Rigney, 98 N. Y. 222; People ex rel. Myers v. Barnes, 114 N. Y. 317; People ex rel. McCabe v. Matthies, 179 N. Y. 242; People ex rel. Best v. Preston, 62 Hun, 185.)
   Pound, Ch. J.

This is an action for a declaratory judgment and for the removal of a cloud on the title of plaintiff’s real estate. Plaintiff challenges the validity of an order of Leonard J. Smith, district superintendent of schools of the third supervisory district of Suffolk county, made June 17, 1926, without the consent of the interested districts, whereby common school district No. 2, with which common school district No. 5 had been consolidated and in which her property is located, was dissolved and its territory united to union free school district No. 3 of the town of Huntington. The latter is an adjoining district, having a population of more than five thousand, employing its own superintendent of schools. The order was affirmed on appeal to the State Commissioner of Education by the trustees of the dissolved districts.

In making this order the district superintendent claims to have acted under the authority of Education Law (Cons. Laws, ch. 16), section 129, which provides: “Any school commissioner may dissolve one or more districts, and may from such territory form a new district; he may also unite such territory or a portion thereof to any adjoining school district, except a union free school district whose boundaries are coterminous with the boundaries of an incorporated village or city.”

The plaintiff contends that this section, read, not as a single statute, standing alone, but as a part of the Education Law, has not the broad meaning which has been given to it below. An examination of the laws for the government of schools will be helpful in this connection. The towns are divided into school districts. (Education Law, § 120.) The qualified voters of the districts elect school trustees. (Education Law, § 206.) The school districts formerly were embraced in school commissioner districts but the district superintendent of schools has succeeded to the powers conferred on school commissioners (Education Law, § 397) and we now have supervisory districts in the place of school commissioner districts.

“ The territory embraced in the school commissioner districts of the state outside of cities and of school districts of five thousand population or more, which employ a superintendent of schools,” is organized and divided into supervisory districts. (Education Law, § 381.) Each town included within a supervisory district elects two school directors. (Education Law, § 382.) The school directors of the several towns composing a supervisory district elect the district superintendent. (Education Law, § 383.)

Union free school district No. 3 of the town of Huntington is thus, by the plain language of the statute, wholly outside of the supervisory district for which Mr. Smith was chosen as district superintendent. The question is whether the district superintendent has power to annex a school district included in his supervisory district to an adjoining school district outside such district, limited only by the restriction that he may not unite such a district to a union free school district whose boundaries are coterminous with the boundaries of an incorporated village or city.

Education Law, section 395, defines the general powers and duties of the district superintendent. He is thereby territorily limited to supervision over his own district.

The policy of the law, since the creation of school commissioner districts for the oversight of country schools (L. 1856, ch. 179), has tended generally toward the separation of the methods of supervision of school districts into two groups: the urban groups which have their own superintendents of schools and the more rural districts over which the school trustee exercised original jurisdiction. From the school commissioner districts were excluded first, school districts in cities which had their own superintendent of schools; then all cities (L. 1894, ch. 556, tit. V, § 2); then school districts of five thousand population or more which employ a superintendent of schools. If the district superintendent may unite a part of his territory to territory outside his district, he may, by his own fiat, arbitrarily transfer some portion or all of his own supervisory district to an outside adjoining union free school district without the consent of the residents of either district and without a hearing. Thus far the contention that the law permits such action has been sustained, subject-only to review on appeal to the State Commissioner of Education.

The Education Law (§§ 123-128) provides a procedure for the alteration by consent, or without consent after a hearing, of the boundaries of a union free school district having a population of five thousand or more and employing a superintendent of schools and an adjoining school district in a supervisory district. • The district superintendent may thereby acquire jurisdiction to make an order altering the boundaries of such districts, and fix in such order a day when the alteration shall take effect.” It is urged, however, that a distinction exists between the consolidation of districts under section 129, for which no consent is required, and the alteration of boundaries under sections 123-128 and that it has been so held by this court. (Bullock v. Cooley, 225 N. Y. 566, 570, 571.)

The question in the Bullock case was, however, whether the district superintendent had power, under section 129, to dissolve a school district and annex its territory to a union free school district in his own supervisory district. The answer depended on the ruling of the district superintendent, upheld on appeal by the State Commissioner of Education, that the districts were " adjoining ” for school purposes although they were not contiguous. The question now before us for decision did not arise. In that connection the court said: “ Section 129 of the Education Law * * * has been amended to authorize uniting the territory or a part thereof of a dissolved district to any adjoining school district, without exception or limitation other than that it cannot be united to the territory of a union free school district whose boundaries are coterminous with the boundaries of an incorporated village or city.” (Bullock v. Cooley, 225 N. Y. at pp. 571, 572.) This statement has been relied upon as an express holding that the acts of the district superintendent herein complained of were not ultra vires. Its application should be limited to what was actually decided.

In People ex rel. Cherry v. Graves (219 App. Div. 563, 566) and People ex rel. Wood v. Graves (225 App. Div. 176) it was held, largely on the authority of the Bullock Case (supra), that although a union free school district of more than five thousand inhabitants with its own superintendent of schools was no part of a supervisory district, the court had no power to decide that the district superintendent could not annex thereto a portion of his district under section 129 (supra). If section 129 were read so literally throughout, the provision that “ any school commissioner ” may dissolve and unite school districts would confer on a local superintendent a State-wide jurisdiction to dissolve and unite districts. To state such a proposition is to answer it. The palpable meaning of the Education Law is that the district superintendent may act only within the limits of his own supervisory district; that he may not consolidate a part of its territory with a district over which he has no jurisdiction; that he must officiate rather than abdicate; that he may not cut off his responsibilities to suit himself (Edwards v. United States, 103 U. S. 471, 473); that the practical fair meaning of the entire statute prevails over the literal language of a single section (Matter of Livingston, 121 N. Y. 94, 104), and that the explicit language of a later statute should control the general language of an earlier enactment. (East End Trust Co. v. Otten, 255 N. Y. 283.)

The next question is whether the decision of the Commissioner of Education, directing the affirmance of the order of the district superintendent, upon an appeal by the trustees of the annexed school districts, is final and conclusive so as to preclude plaintiff from maintaining her action.

The decision of the Commissioner of Education upon an appeal by a person aggrieved is “ final and conclusive, and not subject to question or review in any place or court whatever ” as to all matters over which he has jurisdiction. (Education Law, § 890; Matter of Levitch v. Board of Education, 243 N. Y. 373; Bullock v. Cooley, supra.) It was held to be final in this case as between the districts in question in the case of People ex rel. Wood v. Graves (supra). When the Commissioner acts on an examination of the facts and circumstances on an appeal properly before him the courts will not review his decision, “ particularly at the instance of a subordinate school officer who has first subjected himself by appeal to the jurisdiction and authority of the commissioner.” (Bullock v. Cooley, supra, p. 578.) The fact that the question may have involved the construction or application of a statute does not deprive the Commissioner of jurisdiction as between the parties who invoke his decision. (Matter of Levitch v. Board of Education, supra.) The corporate entities, the school districts, are, therefore, bound by the decision of the Commissioner and as to them the order of consolidation is lawful and effective.

The right of plaintiff to attack the validity of the consolidation rests on other grounds. As she sues as a landowner to remove as a cloud on title the lien of a tax levied by a school district on property which she contends is without its borders, she is not, if she has proceeded with due diligence, bound by a decision of the school authorities on matters of school administration. Her property rights are directly involved and she may assert them in court. (Bullock v. Cooley, supra, p. 578.)

The new district was in good faith organized and it has assumed and exercised corporate powers. It is a de facto corporation. A de facto corporation cannot exist where there is no law authorizing a de jure corporation (Norton v. Shelby County, 118 U. S. 425), but it has never been held in this State that there can be no de facto organization under a void act of the Legislature. On the contrary, it has been held that a de facto corporation might exist although organized under an act later held void for unconstitutionally. (Coxe v. State, 144 N. Y. 396, 408.) A de facto corporation came into existence under the law as construed by the school authorities when the consolidated district, formed in attempted compliance with section 129 of the Education Law, assumed corporate powers. Is the existence of such a corporation subject to collateral attack by an individual claiming to be aggrieved?

The rule has been recently stated as follows: If a village has been organized or territory has been annexed to it with color of adherence to existing forms of law and if there has been user for a substantial time of the franchise or jurisdiction supposed to be acquired, there arises a corporation de facto, whose existence may not be challenged by any one except the State. Color of compliance with the statute does not suffice, however, if user has not followed. If, however, the period of user is too short to establish a de facto franchise the legality of the proceeding may be challenged by a private suitor. (Jarl Co. v. Village of Croton-on-Hudson, 258 N. Y. 303.)

When did user begin? Not before plaintiff’s real property was assessed and included in the assessment roll for 1928 for school taxes to be collected for the union free school district No. 3. This action was begun about one year thereafter. Taxes have been paid under protest. The de facto district had never exercised its franchise without resistance or protest ” on her part. (Jarl Co. v. Village of Croton-on-Hudson, supra, p. 310.) She consistently resisted the consolidation. She did not wait a substantial time ” before she attacked its validity. The New York rule permits any one to set up lack of compliance with the law in the organization of a municipal corporation, unless he has estopped himself by his conduct from doing so. (Village of Lynbrook v. Cadoo, 252 N. Y. 308.) Such estoppel may consist in acquiescence “ for a substantial time ” in the existence of the new corporation. If the corporation is once permitted to organize, prompt resistance alone justifies individual attack. Otherwise the State alone can challenge its existence. What shall be deemed a reasonable time must to some extent depend, as a question of fact, upon the circumstances of the case. It may not be defined with precision. (Matter of Sternberg, 300 Fed. Rep. 881, 884, 885.) As this consolidation was a nullity and the tax imposed was without authority and plaintiff’s attitude was consistently one of protest, she did not delay too long her action to vacate the assessment on her property as a cloud on title.

The judgment of the Appellate Division should be reversed and that of the Trial Term affirmed, with costs in this court and in the Appellate Division. (See 259 N. Y. 634.)

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

Judgment accordingly.


author: Crane, J.

text:
    William L. Collins, Appellant, v. The State of New York, Respondent.
    (Claim No. 18655.)

      (Argued May 10, 1932;
    decided June 1, 1932.)

      Charles B. Sullivan for appellant.
    The Court of Claims erred in dismissing the claim upon the ground that claimant failed to prove the execution of a supplemental agreement for the work which he was required to do in removing the old center pier and constructing a new pier. The claim was not for extra work ex contractu but for damages as upon a breach of contract. (Borough Const. Co. v. City of New York, 200 N. Y. 149; Uvalde Asphalt Paving Co. v. City of New York, 154 App. Div. 112; 211 N. Y. 560; Mulholland v. Mayor, 113 N. Y. 631; Gearty v. Mayor, 171 N. Y. 61; Anderson v. State, 103 Misc. Rep. 388.)

      John J. Bennett, Jr., Attorney-General (Harold P. Burke and Edward E. Tanner of counsel), for respondent.
    In the absence of a supplemental contract claimant cannot recover. (Stanton v. State, 103 Misc. Rep. 221; 187 App. Div. 963; Paddleford v. State, 103 Misc. Rep. 398; 192 App. Div. 870.)
   Crane, J.

On June 19, 1927, William L. Collins entered into a contract with the State of New York, through the State Department of Public Works, Bureau of Highways, for the repair of Livonia-Ontario county line highway in Livingston county, known as Reconstruction Contract No. 1582: The road was a little over five miles in length and was to be reconstructed with a concrete pavement.

The contract provided that claimant was to perform certain work on a large bridge designated as No. 3, in the village of Hemlock, which work consisted in removing the old truss, refacing the old abutments, the construction of new wings, the recapping of the old center pier, with a small extension on the west end, and the construction of a new floor slab with parapets.

Old bridge No. 3, which spanned the outlet of Hemlock lake, was a two-span iron truss bridge, about seventy feet in length, resting upon masonry 'abutments, and a center pier -which stood in the outlet of the lake.

The center pier at ground level was about thirty-five feet in length, twelve feet in height and about nine feet in width at the base. It was. an old masonry pier consisting of stones mortared up. Some sections of the pier where it had previously been repaired consisted of concrete.

The plans and drawings made a part of the contract, and set forth in detail the work required to be performed to construct a reinforced concrete T beam bridge, with floor pavement, slab and parapet, in place of the existing iron truss bridge.

These plans set forth that the old center pier, when altered as provided thereby, was to remain in place, as a center support for the new bridge. The plans provided that claimant should cut down the elevation of the pier slightly by cutting off the top and recapping it, and extend the length of the pier upstream about five feet by adding a concrete extension on the end, and also provided for refacing the downstream end.

When the contractor reached the work on the bridge and pier, it was discovered that the interior of the old pier, instead of being solid and suitable to be used in the construction of the bridge, was composed of a fill of loose stone and unstable materials. Wilson Harger, bridge engineer of District No. 4, New York State Department of Highways, testified that at the time of his investigation to ascertain the work to be done, the pier seemed to be solid and firm, and, in fact, seemed to be in better condition than either the north or south abutment. “ We knocked off some of the outside plaster with hammers, and examined it with a short drill. We also got the history of the pier from the local people, and we came to the conclusion that the probabilities were that the pier could be utilized essentially as shown on the plan, although we admitted the possibility of some further modification.”

Later, when the contractor had reached this part of the work, Harger made another inspection, and testified: “And the object of my inspection on that day was to examine this pier to determine whether it could be utilized as called for on the plans, or whether some modification would be necessary to ensure stability of the structure. The result of that inspection, after finding the masonry as described, was that I ordered the engineer — Mr. James Douglass — to have the pier entirely removed and an entire new pier constructed of exactly the same general dimensions in regard to batter, top, width and grade as shown for the pier extension on the original plan.”

The Mr. Douglass referred to, testified, regarding the pier, as follows: “ I found a fairly good outer crust on the top of the pier that was exposed. But the inner portion was composed of stone and very loose broken up mortar, and some dirt. * * * I found the same rotten condition of the inner core — the pier core.”

Collins, the contractor, was, therefore, ordered through the bridge engineer, and his assistant civil engineer, to destroy the pier, a stone structure about thirty-five feet in length, twelve feet high and nine feet in width, built in the bed of a stream. This meant blasting with dynamite, the construction of an earth dyke, or cofferdam, and the rebuilding, from a depth a little lower than the original, of a new pier.

Collins protested that this was no part of his contract; that the State was preventing the execution of the contract as made. That called for the use of the old pier by cutting off the top and recapping it and extending its length. The very structure which the plans and specifications required him to use in constructing the new bridge, to wit, the pier, was to be destroyed and taken away by the State, so that he, Collins, could not do the work unless he rebuilt that which the State was to supply. This in his opinion was a breach of the contract, and he protested. On the other hand, Harger, the bridge engineer of the district, acting in perfect good faith, considered this work merely a modification of the plans, coming within the provisions of.section 4 of the contract which reads as follows: "4. * * * The State, however, reserves the right to make such additions, deductions or changes as it deems necessary, making an allowance or deduction therefor at the prices named in the proposal for this work, and this contract shall in no way be invalidated thereby; and no claim shall be made by the Contractor for any loss of anticipated profits because of any such change, or by reason of any variation between the approximate quantities and the quantities of the work as done. It is further agreed that any extra work performed or extra material furnished shall be covered by a supplemental contract as provided in Chapter 30 of the Laws of 1909 and the amendments thereto, and that no claim will be made by the Contractor for any such items performed or furnished before such supplemental contract shall have been approved by the Comptroller of the State of New York and executed by the Commissioner of Highways as provided by Chapter 342 of the Laws of 1913 and amendments thereto.”

The contractor did the work, finished it by December, 1927, and under protest, in March of 1928, received from the State pay for this rebuilding of the pier at the prices named in the proposal for the work. The State engineers contended that the removal of the old pier was work which came under the excavation item of the contract, for which claimant was to be paid fifty cents per cubic yard, and that the construction of the new pier came under the item for second class concrete, for which claimant had a contract item price of $10.50 per cubic yard. In preparing the final estimate and making payment, the Highway Department and the Comptroller assumed that the work came within the contract provisions and under the items and prices for unclassified excavation and second class concrete, and allowed and paid claimant for the quantities of excavation and concrete under these two items.

The claim which the contractor has presented to the Court of Claims is for his damages sustained when the State of New York, in breach and violation of the provisions of said contract, directed and compelled claimant over his protest to blast out, excavate and entirely remove said old center pier, and construct an entire new center pier in place thereof.”

We are of the opinion that the rule laid down in Borough Construction Co. v. City of New York (200 N. Y. 149, 156) governs the facts of this case. We there said: The underlying justice of the principle is that where a municipal representative having authority to speak for it and supposed to be familiar with such matters in apparent good faith and with a show of reason requires a contractor to do certain things as covered by his contract, the contractor although protesting against the requirement ought not to be compelled to refuse obedience and incur the hazard of becoming a defaulter on his contract even though it shall subsequently turn out that he was right and the municipal representative wrong in the dispute. The theory involves the idea that the requirement of the municipal representative finds some reasonable basis in the contract and that the question whether his demand is proper or improper is one which may be the subject of some doubt and debate and in respect of which the contractor might prove to be mistaken if he should refuse to do what was required of him, and there is no justification for applying it where the municipal representative requires something which is so palpably and manifestly beyond the provisions of the contract that the contractor would not be confronted by any of the legal perils of an erroneous decision if he should refuse to obey.”

The Attorney-General has taken the position that the destruction and rebuilding of the pier was so clearly without the terms of the contract that Collins was not justified in going on with the work without obtaining a supplemental contract, approved by the Comptroller, as provided in section 4, above quoted. This was not so apparent to Mr. Harger, whom everyone recognizes to be efficient and capable and to have acted in good faith. He probably knew as much, if not more, than most of the lawyers regarding the terms and conditions of these construction contracts. He was of the opinion that the destruction of the old pier was excavation work, and the building of the new pier was second class concrete construction, to be paid for at the prices named in the proposal for the work, as specified in section 4 of the contract. The State authorities have paid the contractor upon this basis, over his protest. Unless we question the motives of these State employees, we are justified in assuming that there was some reasonable basis in the contract for this position which they have taken. We agree with the Attorney-General that they were wrong in their interpretation, but we disagree with the courts below, which held that the contractor went ahead with the extra work at his peril, and cannot now recover from the State because he failed to obtain a supplemental contract. The claim was dismissed for this reason. Here was an honest dispute, in which the bridge engineer claimed this extra work to be within the contract, while Collins insisted that this blasting and reconstruction work was not a modification within section 4, to be done at unit prices. In this we agree with the contractor and hold that there was a breach of contract by the State, which enables the contractor to recover his fair, reasonable compensation, by way of damages, for this additional work required of him. We find no evidence in the case of any attempt to evade the provisions of the law regarding extra work or changes called for by contingencies,” within subdivision 9 of section 130 of the Highway Law (Cons. Laws, ch. 25). This action is brought to recover damages for a breach of contract, and not for work recognized as extra work, or arising out of unforeseen contingencies. The dispute arose over the meaning of the contract — the contractor, over protest, adopted the construction placed upon it by the State engineers. In doing so, he did not lose his right to subsequently justify his position. The danger of resorting to an action for breach of contract, which in reality is an attempt to recover for extra work, was fully recognized in the Borough Construction Company Case (supra). We there said that the action can only be maintained where it is quite apparent that there has been an honest dispute over the terms of a contract, with color of right upon both sides, and no attempt to avoid the provisions of the contract and of law regarding extra work.

For the reasons here stated, the judgments below must be reversed, and the case remitted to the Court of Claims for a rehearing, and the award of such damages as that court may, in its good judgment, find the claimant has suffered.

Pound, Ch. J., Lehman, Kellogg and Hubbs, JJ., concur with Crane, J.; O’Brien, J., dissents on the ground that the destruction and rebuilding of the pier was so clearly outside the terms of the contract the plaintiff was not justified in proceeding with the work without obtaining a supplemental contract, approved by the Comptroller, as provided in section 4 of the contract (Borough Construction Co. v. City of New York, 200 N. Y. 149); Crouch, J., not sitting.

Judgments reversed and new trial granted, with costs in all courts payable to the appellant.


text:
    George F. Beck, Respondent, v. Marion C. Sheldon, Appellant, Impleaded with Another.
    (Argued May 2, 1932;
    decided June 1, 1932.)

      Edmund P. Cottle for appellant.
    An assignee of a mortgage takes the same subject to the equities and defenses between the original parties, and has no greater right against the mortgagor than belonged to the mortgagee. (Ingraham v. Disborough, 47 N. Y. 421; Stevenson v. Iba, 155 N. Y. 224; Schlitz v. Koch, 138 App. Div. 535; Ball v. Petrocy, 226 App. Div. 347; Rapps v. Gottlieb, 142 N. Y. 164; Clute v. Robison, 2 Johns. 595.) The mortgagor received no consideration from the mortgagee for the Roseville street mortgage. (Matter of Case, 214 N. Y. 199.)

      Louis W. Manchester and Alfred C. Ueck for respondent.
    The bond and mortgage were executed and delivered by the defendant to the guardian mortgagee for a good, valid and adequate consideration. (Beakes v. Da Cunha, 126 N. Y. 293; Miller v. Drake, 1 Caines, 45; Herendeen v. DeWitt, 49 Hun, 53; Girard Nat. Bank v. Brody, 122 Misc. Rep. 790; Crook v. Scott, 65 App. Div. 139; 174 N. Y. 520.) The assignment of the bond and mortgage by the guardian mortgagee to the plaintiff was good and valid and transferred the title thereto to the plaintiff. (Mahoney v. Bernhard, 45 App. Div. 499; 169 N. Y. 589; Rosen v. Ward, 96 App. Div. 262; Willetts v. Haines, 96 App. Div. 5; 182 N. Y. 543.)
   Pound, Ch. J.

The action is brought to foreclose a mortgage called the Roseville street mortgage, which was made on February 21, 1920, by defendant Marion C. Sheldon to Theodore B. Sheldon, as guardian of Carew and Octavia F. Sheldon, to secure the payment of $3,333.33, and assigned on November 27, 1923, by Sheldon, as guardian, to the plaintiff. The mortgagee is the mortgagor’s father. He had been her guardian until she became of age on January 18, 1918. The defense is lack of consideration.

. Marion C. Sheldon, her brother Carew and her sister Octavia each owned an undivided one-twelfth interest in the Roseville street property. They had each owned a one-third interest in a Main street mortgage for $5,000, but Marion had sold her interest when she came of age. Title to this mortgage was in Theodore B. Sheldon, as general guardian. It was deposited with his surety as such general guardian for its protection.

On February 21, 1920, Sheldon took an assignment of the Main street mortgage, executed by him as general guardian of Carew and Octavia F. Sheldon, from Buffalo to Roscoe, Sullivan county, New York, where Marion was teaching school. He also took the bond and mortgage in suit and an assignment of the Main street mortgage to himself individually ready for execution by Marion. At his request she executed the mortgage in suit. She says he told her it was to be security for his bond as guardian; that she was not to pay anything on it. At the same time he delivered to her the assignment of the Main street mortgage and she executed the assignment thereof to him individually. This transaction had on its face the appearance of trading one mortgage for another coupled with the assignment to Theodore B. Sheldon, individually, of Marion’s interest in the Main street mortgage. Reduced to its substance, it amounted to a transfer to Theodore B. Sheldon, individually, of the Main street mortgage from himself as general guardian, through the medium of the assignment to Marion. He assigned the mortgage to her and she assigned it back to him. This was a mere shifting of securities.

When we come to the Roseville street mortgage, it follows that the mortgagor received nothing for it, except a gesture, whereby Sheldon tendered her one assignment and took back another, without permitting her to understand the action or exercise an independent judgment in the matter. Sheldon received the proceeds from the sale of both mortgages. Marion received nothing.

If Sheldon, as guardian, had foreclosed the Roseville’ street mortgage, Marion might have pleaded want of consideration as a defense. She might have shown that the plan or scheme of her father was to get title to the Main street mortgage in himself and to get her to execute the Roseville street mortgage as well; that she became a mere conduit for transferring the record title of the Main street mortgage.

The best answer, that plaintiff makes to this defense is that the consideration for the Roseville street mortgage was the assignment of the Main street mortgage; that when she assigned the latter to her father the assignment was a voluntary parting with vested rights, unconnected except in time with the other part of the transaction; that she had a right to do what she would with her own. But the whole affair obviously was no more than a colorable excuse for conveying the Main street mortgage to Sheldon and furnishing him with another mortgage to take its place with the surety company. Marion was not benefited by her promise to pay the Roseville street mortgage for she received nothing for it. Sheldon suffered no detriment, but rather a benefit, for he gave nothing to Marion for her promise. He received her mortgage without giving any consideration therefor. “ Nothing is consideration * * * that is not regarded as such by both parties.” (McGovern v. City of New York, 234 N. Y. 377, 388.)

An assignee of a mortgage, although a bona fide holder, takes the same subject to all defenses existing between the original parties. (Ingraham v. Disborough, 47 N. Y. 421; Trustees of Union College v. Wheeler, 61 N. Y. 88, 105; Stevenson Brewing Co. v. Iba, 155 N. Y. 224; Kommel v. Herb-Gner Constr. Co., 256 N. Y. 333, 336.) Plaintiff bought the mortgage when it was past due, at a discount and without an estoppel certificate. It follows that the defense of no consideration has been sustained.

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

Crane, O’Brien and Hubbs, JJ., concur; Lehman and Kellogg, JJ., dissent; Crouch, J., not sitting.

Judgments reversed, etc.


author: O’Brien, J.

text:
    Otto Schuttinger, Appellant and Respondent, v. Frank C. Woodruff, as Surviving Partner of the Firm of S. D. Woodruff & Sons, Respondent and Appellant.

      (Argued May 3, 1932;
    decided June 1, 1932.)

      Henry Braverman and Edward E. Reichman for plaintiff, appellant and respondent.
    The fourth cause of action is based upon an enforceable contract. (U. S. Rubber Co. v. Silverstein, 229 N. Y. 168; Watson v. Muskegon S. S. Corp., 208 App. Div. 158; Carter, Macy & Co. v. Matthews, 220 App. Div. 679.) The first three causes of action were not discharged by an accord and satisfaction. (Schnell v. Perlmon, 238 N. Y. 362; Mance v. Hossington, 205 N. Y. 33; Fuller v. Kemp, 138 N. Y. 231; Milford Spinning & Weaving Corp. v. Manowitz, 203 App. Div. 415; International Battery Co. v. Westreich, 182 App. Div. 843; Cornell v. Taylor, 137 App. Div. 496.)

      Robert McLeod Jackson and Henry Hoelljes for defendant, respondent and appellant.
    The fourth cause of action cannot be maintained as one for the price of the goods. (Pers. Prop, Law, § 100, rule 4; Smiley Steel Co. v. Schmoll, 200 App. Div. 655; 235 N. Y. 520; Carter, Macy Co. v. Matthews, 220 App. Div. 679; 247 N. Y. 532; Funt v, Schiffman, 115 Misc. Rep. 155; Reichbart v.

      Smith-Eisemann Corp., 199 App. Div. 571; American Aniline Products, Inc., v. Nagase & Co., 187 App. Div. 555; Robison & Co. v. Kram, 195 App. Div. 873; Pottash v. Cleveland-Akron Bag Co., 197 App. Div. 763; 235 N. Y. 520; Economu v. Schwartz, 198 App. Div. 723.) The first three causes of action set forth in the complaint were discharged by -an accord and satisfaction, and the trial court erred in leaving the question to the jury. (Schnell v. Perlmon, 238 N. Y. 362; Simons v. American Legion of Honor, 178 N. Y. 263; Post v. Thomas, 212 N. Y. 264; Morris v. Talcott, 96 N. Y. 100; Constant v. University of Rochester, 133 N. Y. 640; Shotwell v. Dixon, 163 N. Y. 43; Lopez v. Campbell, 163 N. Y. 340; Shultz v. Hoagland, 85 N. Y. 464; O'Rourke v. Rankin, 193 App. Div. 494; Lumbrazo v. Woodruff, 256 N. Y. 92.) There was a bona fide dispute. (Horan v. Hastorf, 223 N. Y. 490; Thompson v. Postal Life Ins. Co., 226 N. Y. 363; Paige v. Willet, 38 N. Y. 28; Civ. Prac. Act, § 243; Schnell v. Perlmon, 238 N. Y. 362; St. Regis Paper Co. v. Tonawanda Co., 107 App. Div. 90; Simons v. American Legion of Honor, 178 N. Y. 263; Rogers-Pyatt Shellac Co. v. Starr Piano Co., 212 App. Div. 792; Fuller v. Kemp, 138 N. Y. 231; Wisner v. Schopp, 34 App. Div. 199; Whitaker v. Ellenberg, 70 App. Div. 489.)
   O’Brien, J.

Plaintiff’s assignor, Carmine Faraone Mennella, residing in Italy and there engaged in the business of growing and dealing in all kinds of seeds, sold to defendant, a wholesale seed dealer in New York, large quantities of seeds at agreed' prices. Defendant’s first order, dated May 20, 1926, required the delivery of onion seed of the 1926 crop guaranteed to germinate eighty-five per cent or better. A second order, dated June 16, 1926, also provided for onion seed. A third order, dated October 11, 1926, for onion, broccoli and other seed, good germination, of the 1927 crop was placed with Mennella by defendant on condition that the seed purchased under the previous orders should prove satisfactory to defendant’s customers. Between November, 1926, and February, 1927, additional orders for seeds were sent by defendant to Mennella. The first alleged cause of action grows out of the order of May 20. The second cause arises from the order of June 16 and a balance is demanded after deducting the sum of $2,135.43 alleged by plaintiff to have been paid by defendant on account. The third is based on the orders between November, 1926, and February, 1927, and avers that no payment has been made for the merchandise therein stated to have been delivered. The fourth cause of action proceeds on the theory that under the conditional order of October 11, 1926, defendant agreed to pay but has refused to accept or pay for the merchandise then ordered. At Trial Term plaintiff recovered the entire amount alleged in all his causes of action. The Appellate Division modified the judgment by dismissing as to the fourth cause. It dismissed for the reason, as stated in the opinion, that the conditional order of October 11, 1926, was to become effective only in the event that the seed sold the previous year was satisfactory to defendant’s customers. The record shows that it was not only unsatisfactory but that many customers refused to pay for the seed and that fact was communicated on several occasions to the plaintiff.” (233 App. Div. 272, 277.)

We agree that the fourth cause of action was, for the reason stated, properly dismissed. That reason, if no other, seems to require that the defense of accord and satisfaction pleaded to the first three causes of action should be sustained. This defense alleges that by the agreements of May 20 and June 16, 1926, Mennella warranted that the seeds would germinate eighty-five per cent or better, that they did not so germinate but were defective and unmerchantable, that defendant was unaware of this fact when he accepted delivery, that prior to April 27, 1927, a controversy had arisen between defendant and Mennella concerning the quality of the merchandise, that defendant in good faith claimed that it was not as warranted but was defective and the seeds did not germinate eighty-five per cent or better, that on April 27, 1927, defendant tendered to Mennella a check for $2,135.43 in full of all accounts to date and that Mennella accepted it in full satisfaction and discharge of all claims included within the first three causes of action. If true, these allegations by defendant establish a perfect defense.

Unless there exists a genuine controversy concerning the amount due, mere payment by one party of a sum less than the whole of the claim and its acceptance by the other do not erect a foundation for such a settlement as may be deemed an accord and satisfaction. An indispensible element contributing to the establishment of this defense consists in an actual and substantial difference of opinion. One must assert the validity of his claim and the other must in good faith deny all or part of it. His denial cannot be fabricated for use as a pretext to evade the discharge of an obligation. Disclaimer must be bona fide and based upon real faith that the demand is not meritorious. The debtor must honestly hold the opinion either that he owes nothing or that he is bound only to the extent of paying less than his adversary seeks to exact. Compensation by the debtor up to an amount concededly due and rejection by him of a balance representing the subject of dispute even when accepted by the creditor cannot be regarded as anything in excess of a partial payment, but the tender of a sum, less than one representing a claim asserted but in good faith disputed, as a complete discharge of all indebtedness and its acceptance by the creditor under such conditions create premises from which the conclusion must follow that the creditor acquiesces in the amount offered. Such a tender and acceptance satisfies the doctrine of accord and satisfaction. The dispute need not rest upon factors arising from sound reasons. The debtor may be wrong in his contention. That he honestly believes in the correctness of his position is enough. (Schnell v. Perlmon, 238 N. Y. 362; Hudson v. Yonkers Fruit Co., 258 N. Y. 168.)

The payment by defendant on April 27, 1927, of $2,135.43 in full of all accounts to date,” as noted on the face of the check, together with plaintiff’s acceptance, is the pivotal point in the case. That sum was less than plaintiff claimed and more than defendant admitted. An opportunity for compromise was present. When that payment was made and accepted, a controversy of some nature between these parties certainly existed. If the disagreement was bona fide in that defendant in good faith disputed the merits of the claim against him, then the transaction constitutes an accord and satisfaction. The question of fact whether defendant sincerely or deceitfully assumed his position of resistance was left to the jury and a verdict was rendered in favor of plaintiff. We can discover no evidence tending to support it. When defendant delivered and plaintiff accepted the check for $2,135.43, the aggregate of the prices for the seeds ordered as alleged in the first three causes of action was $9,056.88, upon which defendant had previously made partial payments amounting to $3,000, leaving a balance claimed for $6,056.88 on those three causes of action. On the fourth cause of action a bill for $4,086.25, upon which nothing had been paid, was alleged to be due. The total claim on all alleged causes was $10,143.13, upon which defendant refused to pay more than $2,135.43. Plaintiff’s recovery for which he sued was $8,007.70. Accompanying the check for $2,135.43 defendant sent the following letter: “ We enclose herewith check for $2,135.43 payment in full for the seeds you shipped us. We are going to ask you to forget the balance due on this seed, for reason, as already reported to you, that the Onion Seed, White and Yellow Bermuda you shipped us did not germinate over 40%. We have actually lost two-thirds of the entire amount of money we sold this seed for, our customers demanding the return of their money due to the fact that they found the seed did not germinate. We are, therefore, submitting this check in full settlement of the account, believing that you will agree with us that the seed did not germinate and certainly should not be paid for. We are paying you in full for the Broccoli Seed, although we had to make a refund of $1,000 to our customers on this seed. We are wondering, if, by any chance, the seed you intend to ship us this year will be the same as shipped us last year, if so, we must ask you to cancel the order as we cannot again ship out seed of such poor quality to our customers.” This letter was the culmination and summary of many oral and written statements which defendant had proffered to plaintiff in relation to complaints received from customers. The verdict importing that such complaints were counterfeit and that defendant’s declared loss was spurious or that his avowed belief that he was entitled to some kind of redress was feigned is entirely baseless. Not a word in the record justifies such inferences. After we arrive at agreement with the Appellate Division that the record shows that the 1926 seed was unsatisfactory to defendant’s customers and that many of them refused to pay, it is impossible to reach any conclusion except that defendant was free from guile in his profession of injury, that a genuine controversy existed between the parties and that the merits necessarily lay with defendant.

The judgment of the Appellate Division and that of the Trial Term should be reversed by directing a dismissal of the first three causes of action and the complaint dismissed, with costs in all courts.

Pound, Ch. J., Crane, Lehman, Kellogg, Hubbs and Crouch, JJ., concur.

Judgments reversed, etc.


text:
    M. Salimoff & Company et al., Appellants, v. Standard Oil Company of New York, Respondent.
    (Argued April 25, 1932;
    decided June 1, 1932.)

      J. Alvin Van Bergh and Eugene Eisenmann for appellants.
    Only one bill of costs is taxable against co-plaintiffs, and hence only one bond is required. (Hinman v. Booth, 20 Wend. 666; Carpenter v. Nixon, 5 Hill, 260; Knowlton v. Pierce, 41 How. Pr. 361; Karrick v. Edes, 19 Fed. Rep. [2d] 693.) Joinders pursuant to section 209 of the Civil Practice Act are not an exception to the general rule that but a single security for costs is required of non-resident plaintiffs. (Akely v. Kinnicutt, 238 N. Y. 466.) The policy of the Civil Practice Act is clearly to prevent multiplication of costs. (Woodworth v. Brooklyn Elevated Ry. Co., 22 App. Div. 601; Brown v. Kinnicutt, 2 Fed. Rep. [2d] 263; Miranda v. Witte, 127 Misc. Rep. 669; Hull v. Shannon, 139 Misc. Rep. 564; Hilimire v. Fitzgerald Bros. Const. Co., 139 Misc. Rep. 110; Pankau v. Cosar, 139 Misc. Rep. 177.) The fact that the decree will direct payment to the individual plaintiffs in the amounts to which they may be individually entitled does not bring the joinder under section 209. (White’s Bank of Buffalo v. Farthing, 101 N. Y. 344; Brinkerhoff v. Brown, 6 Johns. Ch. 139; Carpenter v. Nixon, 5 Hill, 260; Garner v. Harmony Mills, 6 Abb. N. C. 212.)

      A. Donald Mac Kinnon and William Dean Embree for respondent.
    Each of the plaintiffs was properly required to furnish security for costs pursuant to the provisions of sections 1522 and 1524 of the Civil Practice Act. (Markt & Co. v. Knight Steamship Co., [1910] 2 K. B. 1021; Akely v. Kinnicutt, 208 App. Div. 491; Matter of Rouss, 221 N. Y. 81.)
   Crane, J.

This is an application for security for costs in an action where there are eighteen non-resident plaintiffs. The courts below have required eighteen bonds to be given and have stayed the action until all were furnished. Akely v. Kinnicutt (208 App. Div. 491) is the authority for this ruling, although the court below was not unanimous. The Appellate Division granted leave to appeal, certifying the following questions:

“ 1. Is it sufficient for the plaintiffs herein to give one undertaking in the sum of $250 or to deposit $250 to secure costs which may be awarded against any or all of the plaintiffs herein?

“2. Is it necessary for each of the plaintiffs herein to give separate undertakings in the sum of $250 or for each to deposit $250, to secure costs which may be awarded against each of the plaintiffs individually herein?

3. Does the Civil Practice Act require the court to stay all of the plaintiffs herein, unless each of the plaintiffs give separate undertakings in the sum of $250 or unless each plaintiff deposit the sum of $250 to secure costs which may be awarded against each of the plaintiffs individually herein?

4. Should the order herein have been granted?

We answer the first question in the affirmative and the second, third and fourth questions in the negative.

Section 1522 of the Civil Practice Act (Subd. 8) provides that if there are two or more plaintiffs the defendant cannot require security for costs to be given unless he is entitled to require it of all the plaintiffs. In this case, therefore, if one of the plaintiffs had resided within the State of New York and the seventeen others were nonresidents, the defendant could not have required security for costs. The inconvenience and difficulty, therefore, of preparing a case against non-residents, which is one of the arguments used by the defendant for the reasonableness of requiring security from each plaintiff, cannot be considered, as the statute refuses the defendant security for costs where only one plaintiff resides in the State, and there are any number of other non-resident plaintiffs. We must take these statutes as we find them, especially when dealing with the subject of costs, which is entirely statutory. This provision of section 1522 has not been affected by the amendment of section 209 of the Civil Practice Act, for the simple reason that the Legislature has made no amendments to the cost provisions in reference to this matter.

Article 85 of the Civil Practice Act provides for the allowance of costs to the plaintiff or to the defendant in the cases specified in the sections. Section 1470 specifies when the plaintiff is entitled to costs of course, section 1475 when the defendant is to have costs, and sections 1476 and 1477 state when costs shall be discretionary. See, also, section 1483 regarding costs when the recovery is by both the plaintiff and the defendant on separate issues.

There is no provision that I can find in the Civil Practice Act which would permit these eighteen plaintiffs, if they win, to have eighteen bills of costs against the defendant, or, if the defendant should win, would give it eighteen bills of costs against the plaintiffs. Prior to section 209, only a single bill of costs was assessed against unsuccessful co-plaintiffs, whether their causes of action were joint or several. (Hinman v. Booth, 20 Wend. 666; Carpenter v. Nixon, 5 Hill, 260; Knowlton v. Pierce, 41 How. Pr. 361.)

The defendant and the courts below have approached this action as if there were to be eighteen separate trials of the issues. Section 209 was adopted for the very purpose of avoiding such unnecessary litigation and expense. To facilitate litigants and the courts, all persons whose claims involve any common question of law and of fact may be joined as plaintiffs in the one action. Thus, there will be but one trial, and the main issue of fact, the liability, settled in the one law suit. True, after the cause of action has been established in favor of the plaintiffs against the defendant, there may be separate elements of damage for each plaintiff, but this frequently happens in foreclosure actions, mechanic lien cases and equity cases generally. The practice is not unfamiliar to the courts. The very purpose sought to be accomplished by section 209 would be somewhat frustrated if by consolidation into one action, costs were allowed on the basis of separate actions.

As the successful plaintiffs can recover but one bill of costs, and the defendant but one bill of .costs against the unsuccessful plaintiffs, security should be required, under section 1522, in the sum of $250 from the non-resident plaintiffs, and no more.

Another reason for our answers to these questions lies in the fact that the plaintiffs have been properly united as parties to the action without the assistance of section 209 of the Civil Practice Act. They have a joint interest, which makes them proper parties, and would have justified their joint complaint prior to the enactment of this section. They allege that their oil lands in Russia were confiscated by the Russian government and all distinguishing lines of title obliterated. Thereafter, it is said, the government commingled the extracted oil, sold it to the defendant, which knew that the oil had been wrongfully taken and misapplied. If these facts be true, it is appropriate, if not necessary, that these owners should join in one action to have their various quantities allocated to each of them.

With this expression of our views, the order of the Appellate Division and that of the Special Term should be reversed, with costs in all courts, and the motion requiring each plaintiff to furnish security for costs denied, with ten dollars costs of motion, and the questions certified answered as heretofore indicated.

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

Ordered accordingly.


author: Hubbs, J.

text:
    Henry S. Chittick, Respondent, v. Thompson Hill Development Corporation et al., Defendants, and Bessie Rosenson, Appellant. (Actions 1 and 2.)
    (Argued May 9, 1932;
    decided June 1, 1932.)

      Charles H. Street for appellant.
    The instruments purporting to be assignments of the mortgages to respondent’s assignor were never executed or acknowledged so as to be entitled to record and conferred no rights upon respondent as against appellant. (Hulbert v. Walker, 258 N. Y. 8; Rogers v. Pell, 154 N. Y. 518; Real Prop. Law, § 291; People ex rel. Oaklawn Corp. v. Donegan, 226 N. Y. 84; Bradley v. Walker, 138 N. Y. 291; Leavitt v. Thornton, 123 App. Div. 683; Gross v. Rowley, 147 App. Div. 529; Armstrong v. Combs, 15 App. Div. 246; Paolillo v. Faber, 56 App. Div. 241; Marden v. Dorthy, 160 N. Y. 39.)

      Maurice B. Rich for respondent.
    Where an instrument bearing a certificate of acknowledgment is presented to the recording officer it becomes his duty to record it and the recording operates as constructive notice notwithstanding that there may be a hidden or latent defect in the acknowledgment. (Heilbrun v. Hammond, 13 Hun, 474; Kirsch v. Tozier, 63 Hun, 607; Fulton v. Priddy, 123 Mich. 298; Peoples Trust Co. v. Tonkongy, 144 App. Div. 333; Real Prop. Law, § 291; Tax Lien Co. v. Schultze, 213 N. Y. 9; Fulton County Gas & Electric Co. v. Hudson River Tel. Co., 200 N. Y. 287; Railroad

      Equipment Co. v. Blair, 145 N. Y. 607; Webster v. Kings County Trust Co., 45 N. Y. 276.)
   Hubbs, J.

The sole question for determination upon this appeal is whether an alteration in an assignment of a mortgage made after execution, acknowledgment and delivery, with the consent and approval of all parties in interest, affects its validity so that after it is recorded it does not constitute constructive notice to subsequent lienors.

The assignee of the two bonds and mortgages consented upon the request of the mortgagee assignor to accept in place of the bonds and mortgages assigned, two other bonds and mortgages for the same amount, upon different premises. The two new bonds and mortgages were delivered and the assignee returned the first two bonds and mortgages.

Thereupon, the assignments of the first two bonds and mortgages were altered by consent, so as to refer to the substituted bonds and mortgages. The assignments were not reacknowledged. They were thereafter recorded in the County Clerk’s office. The Appellate Division has decided that the record of the assignments constituted constructive notice to subsequent lienors. We believe the decision to be in accord with the weight of authority and correct in principle.

The general rule is that where an instrument entitled to be recorded which contains a certificate of acknowledgment regular in form, is presented to a recording officer for record, he is obliged to record it and it will constitute constructive notice even though there be a latent defect in the acknowledgment. (Ogden Bldg. & Loan Assn. v. Mensch, 196 Ill. 554; Bank of Benson v. Hove, 45 Minn. 40; Woolridge v. LaCrosse Lumber Co., 291 Mo. 239; 19 A. L. R. 1068; Morrow v. Cole, 58 N. J. Eq. 203; Angier v. Schieffelin, 72 Penn. St. 106; Blanton Co. v. Bostic, 126 N. C. 418; Dillon & Son Co. v. Oliver, 106 S. C. 410; Titus v. Johnson, 50 Tex. 224; Boswell v. First Nat. Bank, 16 Wyo. 161.)

A different view has been expressed by some courts. (Kothe v. Krag-Beynolds Co., 20 Ind. App. 293; Farmers’ & Merchants’ Bank v. Stockdale, 121 Iowa, 748; Carter v. Champion, 8 Conn. 549.)

The question has never been directly passed upon by this court, but it was decided in the case of Heilbrun v. Hammond (13 Hun, 474, 480) that the record of an assignment of a mortgage, regular upon its face, constituted constructive notice, where the assignment was valid between the parties thereto.

Mr. Justice Ingalls said: “ A contrary rule would be disastrous in its effect, so far as the reliability of the public records is concerned; all confidence in their disclosures would be destroyed.”

A different rule applies where the instrument recorded shows upon its face that it is invalid or the certificate of acknowledgment is defective in a material particular. The record of a forged instrument or one secured by trickery or fraud does not constitute constructive notice.

The Recording Act * * * never was intended to be a protection to innocent purchasers against theft, forgery, fraud or duress.” (Marden v. Dorthy, 160 N. Y. 39, 60.)

The judgments should be affirmed, with costs.

Pound, Ch. J., Lehman, Kellogg, O’Brien and Crouch, JJ., concur; Crane, J., not sitting.

Judgments affirmed.


text:
    The People of the State of New York ex rel. Salisbury Axle Company, Appellant and Respondent, v. Thomas M. Lynch et al., Constituting the State Tax Commission, Respondents and Appellants.

      (Argued March 15, 1932;
    decided June 1, 1932.)

      Ezra P. Prentice and Hamilton Le Viness for relator, appellant and respondent.
    The corrected assessment was illegal, and not authorized by section 214-a of the Tax Law. (People ex rel. Claire Belle Dresses, Inc., v. State Tax Comm., 221 App. Div. 471; 248 N. Y. 568; New York v. Jersawit, 263 U. S. 493.) If section 214-a of the Tax Law authorizes the corrected assessment it violates the equal protection clause of the Constitution. (Bass,

      Ltd., v. Tax Comm., 266 U. S. 271; Educational Films Corp. v. Ward, 282 U. S. 379; New York v. Jersawit, 263 U. S. 493; People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48; People ex rel. Bass, Ratcliff & Gretton v. State Tax Comm., 232 N. Y. 42; International Paper Co. v. Massachusetts, 246 U. S. 135; Air-way Corp. v. Day, 266 U. S. 71; Hanover Fire Ins. Co. v. Harding, 272 U. S. 494; People ex rel. Griffith, Inc., v. Loughman, 249 N. Y. 369; Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389; Ohio Oil Co. v. Conway, 281 U. S. 146; Kentucky R. R. Tax Cases, 115 U. S. 321; Cotting v. Kansas City Stock Yards Co., 183 U. S. 79; Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283; Hans Rees’ Sons v. North Carolina, 283 U. S. 123; New York v. Latrobe, 279 U. S. 421.) The assessment should be based on relator’s capital stock. (People ex rel. Terminal & Town Taxi Corp. v. Walsh, 202 App. Div. 651; Roberts & Schaefer Co. v. Emmerson, 271 U. S. 50; People ex rel. Griffith, Inc., v. Loughman, 249 N. Y. 369; New York v. Latrobe, 279 U. S. 421; International Shoe Co. v. Shartel, 279 U. S. 429.)
    John J. Bennett, Jr., Attorney-General (Wendell P. Brown of counsel), for. defendants, respondents and appellants.
    The statute does not violate the equal protection clause of the Fourteenth Amendment to the Federal Constitution. (Matter of French Co. v. State Tax Comm., 233 App. Div. 178; Educational Films Corp. v. Ward, 282 U. S. 379; New York Terminal Co. v. Gaus, 204 N. Y. 512; Carey v. Keith, 250 N. Y. 216; People ex rel. Claire Belle Dresses, Inc., v. State Tax Comm., 221 App. Div. 471; 248 N. Y. 568; Denman v. Slayton, 282 U. S. 514; Quaker City Cab Co. v. Pennsylvania, 277 U. S. 391; Merchants’ Bank v. Pennsylvania, 167 U. S. 461; Ohio Oil Co. v. Conway, 281 U. S. 146; New York v. Latrobe, 279 U. S. 421; Hodge v. Muscatine County, 196 U. S. 276; Linsay & Phelps Co. v. Mullen, 176 U. S. 126;
      Sheldon v. Van Buskirk, 2 N. Y. 473; Hersee v. Porter, 100 N. Y. 403; Aikens v. Gray, 170 N. Y. Supp. 736; Bertholf v. O’Reilly, 74 N. Y. 509; Waters & Co. v. Gerard, 189 N. Y. 302; Lemieux v. Young, 211 U. S. 489; Kidd, Dater & Price Co. v. Musselman Grocery Co., 217 U. S. 461; Klein v. Maravelas, 219 N. Y. 383; Illinois Central R. R. Co. v. Kentucky, 218 U. S. 551; Pierce Oil Corp. v. Hopkins, 264 U. S. 137; People ex rel. Bass, Ratcliff & Gretton v. State Tax Comm., 232 N. Y. 42; 266 U. S. 271; People ex rel. Kohlman & Co. v. Law, 239 N. Y. 346; People ex rel. Lorimer Greenbaum Co. v. Gilchrist, 212 App. Div. 733; People ex rel. Beck Hazzard, Inc., v. Gilchrist, 220 App. Div. 362; People v. Beakes Dairy Co., 222 N. Y. 416.)
   Hubbs, J.

This is a certiorari proceeding to review the determination of the State Tax Commission upon the relator’s application for a revision and resettlement of its account for an annual franchise tax, under article 9-A of the Tax Law (Cons. Laws, ch. 60) for the tax year beginning November 1, 1920, measured by net income for the calendar year 1919.

The case comes to this court on cross-appeals from a final order of the Appellate Division, annulling the determination of, but remitting the matter to, the Tax Commission for a revision of the tax in accordance with the order. The questions presented relate to the application and constitutionality of section 214-a of the Tax Law.

The relator is a Delaware corporation organized August 5, 1919. Its business is manufacturing automobile axles which business it conducts at Jamestown, New York. It commenced business in New York as of July 1, 1919. It does business in no other State. Prior to its incorporation, there had been in existence a corporation organized under the laws of New York, bearing the name Salisbury Axle Company, Inc., and engaged in the same business. Prior to January 1, 1919, the New York corporation had certain war contracts with the United States government under which it manufactured shells and automobile axles. Under instructions from the government, it had ceased substantially all operations under the war contracts prior to January 1, 1919. The contract for shells was canceled February 12, 1919, and the contract for axles was canceled June 19, 1919. About July 1, 1919, one Dana made a contract with Salisbury Axle Company, Inc., to purchase physical properties appraised at $1,500,000. The purchase included all of the real and personal property used by the New York corporation in its ordinary business of manufacturing axles. It did not include certain materials and equipment which it had used in the performance of the war contracts and which were valued at about $495,000. Neither did it include certain shares of the stock of other corporations owned by the New York corporation. The relator was thereupon incorporated and took over Dana’s contract with the New York corporation. It commenced business as of July 1, 1919, and during the ensuing six months sustained a loss of $88,855.16. About June 24, 1920, the Delaware corporation made a franchise tax report under article 9-A of the Tax Law which contained an incorrect answer to question 24, which question and answer read: “Has this corporation since January 1, 1917, either directly or indirectly acquired by merger, consolidation or purchase, the major part of the assets or of the franchises of any other corporation or corporations? ” “ No.”

Upon that report, the State Tax Commission assessed a franchise tax of $2,750 against the Delaware corporation, computed at the rate of one mill per dollar, upon $750,000, represented by 7,500 shares of preferred stock of the par value of $100 each, and one mill per dollar on $2,000,000, represented by 20,000 shares of common stock without par value, treating such common stock as having a par value of $100. This tax was paid without protest. Subsequently, the Tax Commission ascertained that the answer to question 24 of the corporation return was erroneous and made a corrected assessment against the Delaware corporation of $10,546.79 for the year ended October 31, 1921, based on the income of both corporations for the calendar year 1919. Against this tax was credited the payment previously made and the balance was paid under protest by the Delaware corporation.

The New York corporation was not dissolved until September 24,1921, when it paid a franchise tax of $660.60 based on its capital stock for the year ended October 31, 1921.

The relator contends that it should have been assessed on the basis of its capital stock instead of upon income and further contends that its non-par value stock for the purpose of fixing such tax should have been valued at $12.50 per share instead of $100 per share, which would reduce its tax to $1,000.

The State Tax Commission contends that the relator is taxable upon the entire net income of the New York and Delaware corporations as found by it in making the corrected assessment. The Appellate Division has decided that the Delaware corporation was properly taxable upon its own income plus the income of the New York corporation arising from the assets which it transferred to the Delaware corporation, thereby excluding from the income taxable to the Delaware corporation $65,444.21 received by the New York corporation through the use of assets employed by the New York company in government work and not transferred to the relator and excluding also the profit earned by the New York corporation through dividends on stocks held by it and not transferred to the relator.

Section . 214-a of the Tax Law, added by Laws of 1918, chapter 292, as amended by Laws of 1919, chapter 628, the statute in force at all times mentioned herein, read as follows: If any corporation taxable under this article shall acquire either directly, indirectly or by merger or consolidation the major portion of the assets or the franchise of another corporation or of corporations exercising any franchise or franchises or doing any business in this state during any year, it shall include in its own next annual return, in addition to its own entire net income, so much of the entire net income of the corporation or corporations whose assets or franchises it acquired as shall not have been used or included in measuring a franchise tax to this state, and shall be taxed upon such combined entire net incomes for the year to ensue and as hereinbefore provided. The provisions for a minimum tax shall be applied only when under such provisions a tax will result in excess of the amount which would be produced by a tax on entire net income as hereinbefore provided and then in lieu thereof.

This section shall be construed as having been in effect as of the date of the original enactment of article nine-a of the tax law, as added by chapter seven hundred and twenty-six of the laws of nineteen hundred and seventeen.”

We' believe that the corrected assessment, as made by the Tax Commission, was proper in amount-if the statute in question is constitutional and is to be strictly construed. The relator contends that the statute is unconstitutional because violative of the equal protection clause of the Fourteenth Amendment to the Federal Constitution and if held to be constitutional should not be construed so as to tax a purchasing corporation on all income of the vendor corporation, during preceding calendar or fiscal years not previously used in measuring a franchise tax, but only on such part of the income of the vendor corporation as was derived from the assets transferred to the purchaser.

The total income of the vendor corporation which was included in the income of the Delaware corporation and used as a basis for computing the tax was $323,227.83, made up of the following items:

Net profit for work performed under governinent contracts prior to January 1, 1919.. $65,444 21

Net profit on sale of assets to Delaware corporation ............................. 40,554 01

Net profit on closing in 1919 reserves for inventory accumulated prior to January

1, 1919.............................. 125,949 84

Net profit by dividends on stocks......... 1,664 79

Net profit from ordinary operations....... 90,596 21

$334,209 06

Less adjustments for unallowable deductions 10,981 23

$323,227 83

It is clear that if the statute is constitutional, and is to be strictly construed, the Tax Commission was right in including in the income of the Delaware corporation each and every item above enumerated because it is not contended that any of such income had previously been used or included in measuring a franchise tax to this State, and under the statute, the Delaware corporation was expressly liable for the tax upon its own entire net income and the entire net income of the corporation whose assets or franchise it acquired if they had not previously been used or included in measuring a franchise tax to this State.

The relator, the Delaware corporation, contends that the statute in question is unconstitutional because it is not a tax upon the transfer of assets but a tax upon the privilege of doing business, and by including the entire net income of the New York corporation, it is made to pay a larger tax than other corporations carrying on a business of the same size or nature under like circumstances; that it would depend upon the extent to which the vendor corporation had failed to pay franchise taxes in the previous years no matter how long previous.

The statute provides that the purchasing corporation shall include in its own next annual report, in addition to its own entire net income, so much of the entire net income of the vendor corporation as shall not have been used in measuring a franchise tax and shall be taxed upon such combined entire net income for the year to ensue. In this case the next annual report of the purchasing corporation was not due until on or before July 1st, 1920. (Tax Law, § 211.) It was, therefore, required to include in that report all income of the vendor which had not previously been used in measuring a tax. It neither included the income in its report nor did it inform the State of the purchase. Any delay in fixing the tax was due to the fault of the relator.

It is apparent that the statute in question prescribes the same basis for fixing the franchise tax upon every corporation coming within the provisions of that section. It is true that the amount of the tax will vary according to the amount of net income upon which the corporation from which the purchase is made has failed to pay a tax. But so would it vary if limited to income from the corporation’s ordinary operations or to any other specific class of income. Neither can it be said that it places the purchasing corporation in a position where it may become liable to an excessive tax burden because the language of the statute is plain and the very requirement that it shall report the income of the corporation whose assets it has purchased upon which income a tax has not been paid is notice to the purchasing corporation that it must ascertain the amount thereof, and it must be presumed that ‘the corporation acquires the assets with a willingness to assume the burden whatever it may be, or in making its contract has protected itself by security or otherwise against loss on account of such income not previously used as a basis for fixing a franchise tax.

No element of discrimination against foreign corporations is involved upon this appeal. The restriction placed upon foreign corporations by the statute in question is no different than that placed upon domestic corporations.

The purpose of the section is plain, namely, to eliminate the possibility of tax evasion through the transfer of the assets of one corporation to another by placing the burden upon the purchasing corporation to pay, or provide for the payment of, the tax due or which, but for the sale, would become due from the vendor corporation. The purchase of assets by a new corporation is one of the privileges of doing business in the State and to say it may not be prevented from purchasing assets in such a manner as to permit tax evasion would hardly seem reasonable.

The difficulty in this case is that the vendor did not sell its entire assets and was not immediately dissolved. It did sell its going business, its war contracts having been canceled and that branch of its business having been terminated. The relator argues that the statute provides an arbitrary measure for fixing the tax upon the vendee; also that a purchaser acquiring fifty-one per cent of the assets would be required to pay a tax equal to that which would be required of another corporation purchasing the entire business. As the statute has been drawn, that result would follow. If, to be constitutional, a statute of this kind should specify liability on the part of the vendee only upon a sale of the entire assets, ninety-nine per cent could be transferred and the balance which might be of negligible value could be retained, thus relieving the vendee without affording protection to the State.

Though the statute may, in the case suggested by the relator, seem somewhat burdensome upon the vendee corporation, it is not so in fact, because of the opportunity afforded to the vendee corporation, upon the transfer of assets, to protect itself, whereas, if the statute provided a less strict rule upon a sale of a large proportion of the assets, the interests of the public would be jeopardized with benefit to no one except the parties to the transfer.

In this case, the business originally conducted by the New York corporation was not discontinued. For the privilege of carrying on that business, a tax is imposed by the statute measured by the income of the business for the preceding year. A partial sale of assets having been made and both corporations continuing to exist, if loss in taxation is not to result, Some practical method of determining which corporation succeeds to the business of the vendor must be adopted. What more practical understandable method could be devised than to provide that the tax liability for the particular business shall follow the major assets? That method this statute provides and the vendor corporation for the privilege of continuing its corporate existence is left hable for the minimum tax imposed upon any corporation not having profits upon which to base a tax.

Moreover, to impose upon the tax authorities the burden of determining in a given case what portion of the income of a going concern is derived from certain of its assets and what portion is derived from other assets, would not be practical. The Appellate Division, in the instant case, has exempted the vendee from tax liability on account of certain specific income which it has been able to say was derived from specific assets not transferred, but the rule which it has adopted would be difficult of enforcement in most instances of partial transfers.

No need for construction of the statute is shown. The language used is clear and unequivocal. If held to be constitutional, it should not be given a meaning not reasonably to be deduced from its wording. If the Legislature had intended to say that the purchasing corporation should be hable for unpaid tax upon the income derived from that portion of the assets transferred, it easily could and presumably would have so stated. It has not done so and the court should not by construction give it a meaning neither intended nor warranted by the language used.

We have reached the conclusion that the statute does not violate the equal protection clause of the Fourteenth Amendment to the Federal Constitution.

The cases cited by the relator which deal with special statutes prescribing conditions under which foreign corporations may do business within a State are not closely in point because such statutes are in a sense discriminatory. Statutes of that nature were under consideration in International Paper Co. v. Massachusetts (246 U. S. 135); Air-Way Electric Appliance Corp. v. Day (266 U. S. 71); People ex rel. Alpha Portland Cement Co. v. Knapp (230 N. Y. 48) and Hanover Fire Ins. Co. v. Harding (272 U. S. 494).

In Quaker City Cab Co. v. Pennsylvania (277 U. S. 389) a statute was involved which laid a tax upon receipts of corporations engaged in a business in which the receipts of natural persons engaged in the same kind of business were not taxed. In Ohio Oil Co. v. Conway (281 U. S. 146, 159) the court said: The States, in the exercise of their taxing power, as with respect to the exertion of other powers, are subject to the requirements of the due process and the equal protection clauses of the Fourteenth Amendment, but that amendment imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to schemes of taxation.”

It said further: “ With all this freedom of action, there is a point beyond which the State cannot go without violating the equal protection clause. The State may classify broadly the subjects of taxation, but in doing so it must proceed upon a rational basis. The State is not at liberty to resort to a classification that is palpably arbitrary. The rule is generally stated to'be that the classification must rest upon some ground of difference having a fair and substantial relation to the object of the legislation; so that all persons similarly circumstanced shall be treated alike’ ” (p. 160).

The classification applicable to the case at bar is as to corporations which purchase the assets of other corporations and continue their business. The object of the statute is taxation and the section prescribes a classification which has a fair and substantial relation to that object. Moreover, all corporations, domestic and foreign, which fall within the classification are treated alike. Whatever inequality of burden results, comes from the election of -certain taxpayers to avail themselves of privileges offered to all. (Merchants’ & Manufacturers’ Bank v. Pennsylvania, 167 U. S. 461.) As was said in New York v. Latrobe (279 U. S. 421, 427): “Although permissible, a franchise tax need not be based solely on the amount of business done or property owned within the State. It may be rested on the nature of the business. * * * or the particular form in which it is carried on, * * * so long as it bears some real and reasonable relation to the privilege granted or to the protection of the interests of the State.”

It seems clear that this statute bears a real and reasonable relation to the privilege granted, affords a protection to the State, is not unnecessarily burdensome, contains no element of discrimination against a foreign corporation and is not violative of the amendment to the Federal Constitution. It further appears that it is clear and unequivocal and requires no construction. (People ex rel. Bass, Ratcliff & Gretton v. State Tax Commission, 232 N. Y. 42; affd., 266 U. S. 271.)

The determination of the Tax Commission, as shown by its corrected assessment, follows the statute and results in a tax correct in amount. It is unnecessary to consider the question raised as to the valuation of the no par value stock of the relator, since a tax based upon the value of the capital stock of a corporation is prescribed only as a minimum. (§ 214, subd. 8.)

The order of the Appellate Division should be reversed and the determination of the State Tax Commission affirmed, with costs payable to the State Tax Commission in the Appellate Division and in this court.

Pound, Ch. J., Crane and O’Brien, JJ., concur; Lehman, J., dissents and votes to modify the determination of the State Tax Commission by deducting from the income of the relator the net profit on the sale of assets to it; Kellogg, J., not sitting.

Ordered accordingly.