text:
    Congregation Yetev Lev D’Satmar, Inc., Respondent, v County of Sullivan et al., Appellants, et al., Defendant.
    Argued June 1, 1983;
    decided July 12, 1983

      POINTS OF COUNSEL

      William C. Rosen, County Attorney (Alfred M. Gerstman of counsel), for County of Sullivan and others, appellants.
    I. Plaintiff-respondent’s claim is barred by the Statute of Limitations. (Press v Monroe County, 50 NY2d 695;
      Stewart v Crysler, 100 NY 378; Hilton v Fonda, 86 NY 340; Lily Dale Assembly v County of Chautauqua, 72 AD2d 950, 52 NY2d 943; Slud v Guild Props., 6 Misc 2d 188, 280 App Div 1018, 281 App Div 776; Smith v Russell, 172 App Div 793; Botens v Aronauer, 32 NY2d 243; Witherhead v Ort, 223 App Div 626, 249 NY 567; Crockford v Zecher, 74 Misc 2d 1067, 45 AD2d 914.) II. Plaintiff-respondent did not acquire title by adverse possession. (Meerhoff v Rouse, 4 AD2d 740.) III. The county complied with the provisions of law relating to collection of delinquent taxes. (Roby v Baker, 78 AD2d 918; Botens v Aronauer, 32 NY2d 243; Hayes v Blachly, 40 AD2d 518; Crockford v Zecher, 74 Misc 2d 1067, 45 AD2d 914.)

      Henri Shawn for respondent.
    I. Subdivision 3 of section 1020 of the Real Property Tax Law is not a bar to this action. (Union & New Haven Trust Co. v People, 26 Misc 2d 831.) II. Plaintiff-respondent established sufficient elements of adverse possession to have standing in this lawsuit. (Sackett v O’Brien, 43 Misc 2d 476; Meerhoff v Rouse, 4 AD2d 740; Rogoff v Vanderbilt Sons’ Corp., 263 App Div 841, 290 NY 666; Brand v Prince, 35 NY2d 634.) III. There were substantive irregularities which render the tax sale void. (Matter of Grace v New York State Tax Comm., 37 NY2d 193; People ex rel. Wallington Apts. v Miller, 288 NY 31; People ex rel. Seligman v Gilchrist, 215 App Div 166; Stewart v Crysler, 100 NY 378; Rowley v City of Poughkeepsie, 106 App Div 258; Whitney v Thomas, 23 NY 281; Union & New Haven Trust Co. v People, 26 Misc 2d 831; Cromwell v MacLean, 123 NY 474; McCoun v Pierpont, 232 NY 66; Lancaster Sea Beach Improvement Co. v City of New York, 214 NY 1.)
   OPINION OF THE COURT

Simons, J.

This is an action to determine claims to real property (RPAPL 1501 et seq.). The property in dispute consists of six acres of land improved with bungalows, wells and a heating system. It is located within the boundaries of a 21-acre parcel owned by plaintiff which is similarly improved and used for religious purposes. Plaintiff purchased the 21-acre parcel from White Lake Sanruth Corporation in 1971. The six-acre parcel was excepted from the property conveyed by the deed but plaintiff claims ownership of the disputed land by adverse possession.

Defendant Carnesi & Son, Inc., claims title to the same six acres by a deed from defendant County of Sullivan executed in 1977. The county in turn acquired ownership by deed from the county treasurer as the result of a tax sale for delinquent 1973 taxes. The county’s deed was recorded on October 12,1977, more than two years before this action was commenced and the action is barred by the provisions of subdivision 3 of section 1020 of the Real Property Tax Law unless cancellation is warranted pursuant to one of the exceptions contained in the subdivision.

Trial Term found that one Frances Ettinger acquired record title to the six acres in 1930 and still held it, that plaintiff had not acquired ownership by adverse possession and that even if it had, it had failed to sustain its burden of proving the tax proceedings were irregular and subject to cancellation. The Appellate Division reversed. It found that plaintiff acquired ownership of the six acres by adverse possession and it held that the proceedings were constitutionally defective because the county had failed to assess the premises to the owner or occupant of the land and had failed to give personal notice to plaintiff of the tax sale. It held the original assessment and the tax sale void.

The provisions of the Real Property Tax Law have changed substantially since this sale in 1974, but under the law as it existed at the time, assessments were legally sufficient if the assessor assessed property in the “name of the owner, last known owner or reputed owner” so long as the property was described sufficiently on the assessment roll to identify it (Real Property Tax Law, § 502, subd 2) and the roll was published as required by statute (Real Property Tax Law, § 506). The assessor was not required to give personal notice of the assessment to the owner because the correct name of the owner was not a primary concern. The assessment is against the property not the owner, and the obligation of the assessor is to correctly identify the property subject to tax. “Ownership is only one part of the identification and absent a description so imperfect that identification of the property with any degree of certainty is impossible, error or omission in identifying the owner does not invalidate the levy or enforcement proceedings (Real Property Tax Law, § 504, subd 4; Matter of Doughty v Loomis, 9 AD2d 574, affd 8 NY2d 722; Crockford v Zecher, 74 Misc 2d 1067, 1069, affd 45 AD2d 914; see, also, People ex rel. Gale v Tax Comm. of City of N. Y., 17 AD2d 225, 227)” (Lily Dale Assembly v County of Chautauqua, 72 AD2d 950, affd 52 NY2d 943, cert den 454 US 823).

Similarly, the statute provided for notice of an increase in assessment to the owner but a failure to mail or receive the notice did not prevent levy, collection, or enforcement of taxes (Real Property Tax Law, § 510). Nor did the statute require personal notice to the owner or occupant before or after a tax sale, except insofar as notice was required to shorten the period of redemption (Real Property Tax Law, § 1022, subd 2; § 1024, subd 2). The redemption period in this case expired in July, 1977, three years after the sale, and no further notice was required under the statute (Mabie v Fuller, 255 NY 194; Mosher v La Rose, 44 AD2d 878; Crockford v Zecher, 74 Misc 2d 1067, 1073, affd 45 AD2d 914). Moreover, we have held that there is no constitutional requirement that the owner receive personal notice of the tax sale or of expiration of the redemption period (Botens v Aronauer, 32 NY2d 243, app dsmd 414 US 1059; see, also, Ballard v Hunter, 204 US 241, 254-255; Lily Dale Assembly v County of Chautauqua, supra). Notification by publication is adequate.

These rules require reversal of the Appellate Division’s order. Subsequent to its decision, however, the Supreme Court decided Mennonite Bd. of Missions v Adams (462 US _, 51 USLW 4872 [June 22, 1983]) in which it considered the notice due process requires and applied the principles of Mullane v Central Hanover Trust Co. (339 US 306) to tax sales. It remains to determine what affect that decision has on this action.

In Mullane v Central Hanover Trust Co. (339 US 306, supra), the Supreme Court stated that “[a]n elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections” (at p 314 [citations omitted]). Personal notice is always adequate, but it is not indispensable in all circumstances. Due process requires only that the notice be appropriate to the nature of the case without creating impossible or impractical obstacles to concluding the proceedings. A balancing process is involved, to measure the interests of the State against the individual interest sought to be protected. If notice is due, it must be such as one actually desiring to give notice would reasonably adopt to accomplish it. As to parties whose identity and address is known, notice by publication may not be sufficient. Those whose names or whereabouts are unknown and cannot be learned with due diligence or those whose interests are uncertain may be notified by publication even though it is reasonably certain that such notice will prove futile (at p 316).

Mullane involved notice to beneficiaries of a common trust fund but consistent with it the courts for many years have held that indirect notice is sufficient in tax proceedings (North Laramie Land Co. v Hoffman, 268 US 276; Ballard v Hunter, 204 US 241, 254-255, supra; Huling v Kaw Val. Ry., 130 US 559; Botens v Aronauer, 32 NY2d 243, supra; Lily Dale Assembly v County of Chautauqua, 72 AD2d 950, affd 52 NY2d 943, supra). Statutes taxing real property are universal and property owners are chargeable with knowledge that taxes will be levied against the property regularly and that a default may result in forfeiture of the land (cf. Schroeder v City of New York, 371 US 208).

In Mennonite Bd. of Missions v Adams (462 US_, 51 USLW 4872, supra), the Supreme Court held that constitutional due process requires that a party possessing a substantial property interest which is affected and whose name and address are “readily ascertainable”, is entitled to notice “reasonably calculated to apprise him of a pending tax sale” (at p_, p 4874). The action involved a claim by a mortgagee whose rights had been extinguished by a tax sale. The court held that as to the mortgagee neither publication, posting nor mailed notice to the owner was sufficient because the mortgagee’s interest clearly appeared on the real property records. Unless the mortgagee was not reasonably identifiable, it held that constructive notice was insufficient to satisfy due process strictures.

Applying these principles to this action, we find no constitutional infirmity in the assessor’s actions.

Prior to 1919 these parcels were one and held in single ownership. In 1919, the larger 21-acre tract was encumbered by a purchase-money mortgage but for reasons which do not appear the six-acre parcel, subject of this litigation, was excepted from its terms. In 1935 the mortgage was foreclosed and the properties became separately owned. There were several subsequent conveyances but the 21-acre parcel was eventually acquired by White Lake Sanruth Corporation and the corporation conveyed it to plaintiff by a deed dated June 9, 1971 and recorded June 11, 1971. The deed to plaintiff expressly excepted the six-acre parcel from the description of the property conveyed and the exception was initialed by all parties to the conveyance.

Until 1973 the properties were assessed as one on the tax rolls but in that year the assessor listed them separately. Each was identified by the section, block and lot numbers of the tax map and by acreage. The large parcel was assessed to plaintiff (and after plaintiff’s application in 1972 it was exempt from taxes on religious grounds). The smaller parcel was assessed to White Lake Sanruth Corporation with the Brooklyn address of its principal listed on the rolls. It was not exempt. Presumably, the parcel was listed in the corporation’s name because the assessor believed the exception contained in the deed to plaintiff indicated that the corporation had retained title to the six-acre parcel when in fact it had never been its owner of record.

The 1973 taxes were not paid and none have been paid since then. The property was advertised and sold to the county for delinquent 1973 taxes in July, 1974. After expiration of the three-year redemption period, in 1977, the county treasurer conveyed title to the county and it conveyed to defendant Carnesi & Son, Inc. Although the point is far from clear, we assume for purposes of this appeal that plaintiff has acquired ownership of the six-acre parcel by adverse possession.

Plaintiff’s name did not appear as owner on either the real property records or the tax rolls and therefore the question is whether further inquiry was required before the assessor was excused from giving it personal notice of the tax sale. The Fourteenth Amendment, Mennonite Bd. of Missions (supra) holds, requires the assessor to give personal notice to all parties readily ascertainable who have a substantial interest in the property and the assessor is charged with knowledge of facts which an examination of the real property and tax records reveals. Our statute, not inconsistently, requires that the assessor shall ascertain by “diligent inquiry” all the property within the town and the “names of the owners thereof” (Real Property Tax Law, § 500).

The last recorded deed referring to this property revealed that 21 acres was conveyed to plaintiff by White Lake Sanruth Corporation and the landlocked parcel of six acres was excepted from the conveyance. The assessor was justified in accepting that transaction as evidence that ownership of the six-acre parcel remained in the corporation. That inference was entirely consistent with the tax history of the property because both parcels had been assessed together to White Lake Sanruth Corporation before the 1971 conveyance and after the conveyance, the six-acre parcel remained on the rolls in the corporation’s name and the taxes were paid on it until 1973. Accordingly, the assessor mailed a personal notice of the sale to the corporation at its address as shown on the tax and real property records. That White Lake Sanruth Corporation did not in fact own the property is not determinative. The assessor was not required to make extraordinary efforts to discover the identity and whereabouts of the owner (see Mennonite Bd. of Missions v Adams, supra, at p_, n 4, at p 4874, n 4). Even if he had done so and discovered the deed to Ettinger 42 years earlier, he still would not be on notice of plaintiff’s claim of adverse possession to the six acres because nothing in the real property or tax records indicated it. Furthermore, to assume that further inquiry was required and would produce the name of the “true owner” suggests that the assessor was obliged to ignore the facts contained on plaintiff’s recorded deed which indicated that it was not the owner and did not have a property interest in the six acres.

Plaintiff claims that the assessor was not entitled to rely on this record information but should have given personal notice not only to the listed owner but also to the occupant of the lands. The statute requires that notice to redeem be given to the occupant but the failure to do so only operates to extend the period of redemption (see Real Property Tax Law, § 1022; Mabie v Fuller, 255 NY 194, supra). After three years, title is valid whether notice has been given to the occupant or not. Plaintiff’s constitutional contention assumes that the occupant has a property interest which is extinguished by the sale. It may or may not, depending upon the nature of its possession, but due process requires only notice to one who has a substantial interest in the property and is identifiable. There is no constitutional requirement of personal notice to an occupant simply because of the occupancy.

The assessor’s procedures were consistent with the information available to him by examining the records and the notices met constitutional standards. Plaintiff’s claim to the disputed land was not “readily ascertainable” by “diligent search” of the real property records or the tax rolls and the substantiality of its ownership interest was open to conjecture and legally unresolved (the courts below did not agree on whether it had acquired ownership of the land). Conversely, plaintiff was chargeable with knowledge of the tax levies, it had actual notice that the corporation’s prior lands had been subdivided into six-acre and 21-acre parcels for tax purposes in 1972 and it had actual knowledge that it had obtained a tax exemption for religious reasons on the 21-acre parcel. Under the circumstances, we find no constitutional requirement of personal notice to it and since two years elapsed before the action was initiated, the tax deed is conclusive evidence that the tax sale and all proceedings were regular (Real Property Tax Law, § 1020, subd 3).

Accordingly, the order of the Appellate Division should be reversed, with costs, and the judgment of Supreme Court reinstated.

Chief Judge Cooke and Judges Jasen, Jones, Wachtler and Meyer concur.

Order reversed, with costs, and judgment of Supreme Court, Sullivan County, reinstated.

      . Subdivision 3 of section 1020 of the Real Property Tax Law: “Every such conveyance shall be presumptive evidence that the sale and all proceedings prior thereto from and including the assessment of lands sold, and that all notices required by law to be given previous to the expiration of the time allowed by law for the redemption thereof, were regular and in accordance with all the provisions of law relating thereto. After two years from the date of the record of such conveyance such presumption shall be conclusive; provided, however, that any such conveyance shall be subject to cancellation by reason of (a) the prior payment of the taxes, the non-payment of which resulted in the sale, (b) the illegal levy thereof by the city or town or (c) any defect in the proceedings affecting jurisdiction upon constitutional grounds, if application is made to a court of competent jurisdiction within five years from the expiration of the period allowed by law for the redemption of lands sold at the particular sale sought to be cancelled.”

      . Plaintiff’s claim of title by adverse possession required tacking its possession of the land to that of its predecessors in title. Trial Term thought the adverse possession was interrupted by virtue of the deed. The general rule is that successive adverse possessions omitted from a deed description may be tacked if it appears that the adverse possessor intended to turn over possession of the disputed parcel with the land included in the deed (see Brand v Prince, 35 NY2d 634). The intent is unclear here because plaintiff and its predecessors apparently exercised unrestricted use of the land but its agent’s initials on the deed from White Lake Sanruth Corporation acknowledged exclusion of the six-acre parcel from the interests conveyed. Neither White Lake Sanruth Corporation nor Ettinger are parties to this action.


source: Caselaw Access Project

author: Jasen, J.

license: Public Domain

text:
    Israel Discount Bank Limited, Respondent, v Efraim Rosen et al., Appellants. Israel Discount Bank Limited, Respondent, v Bernard Rappaport et al., Appellants.
    Argued June 7, 1983;
    decided June 30, 1983

      POINTS OF COUNSEL

      Donald A. Derfner, Kevin L. Smith and John H. Beers for Efraim Rosen, appellant.
    I. Evidence is admissible to establish the nature and extent of Rosen’s obligations on the diamond receipts. (Rafkin v Continental Diamond Mines, 19 AD2d 615; Benton v Martin, 52 NY 570; Smith v Dotterweich, 200 NY 299; Cooper & Son v Finlay Depts., 11 Misc 2d 382.) II. The parol evidence rule permits Rosen to show that respondent had notice that his obligations were voidable at best. (Miles v Houghtaling, 32 AD2d 714.) III. As.a principal actor in the underlying transactions, respondent cannot be treated as a holder in due course. (Chemical Bank of Rochester v Haskell, 51 NY2d 85; Buffalo Ind. Bank v De Marzio, 162 Misc 742; Chemical Bank of Rochester v Ashenburg, 94 Misc 2d 64.) IV. American law is inapplicable to this case. (Swift & Co. v Bankers Trust Co., 280 NY 135; De Sairigne v Gould, 3 Misc 2d 452, 1 AD2d 820.) V. Rosen’s valid defenses, should be heard. (Mount Vernon Trust Co. v Bergoff, 272 NY 192; Long Is. Trust Co. v International Inst. for Packaging Educ., 38 NY2d 493.)

      Robert J. Kaplan for Leo Siegman and another, appellants.
    Respondent cannot look to Consolidated for payment unless and until it demonstrates that it cannot reasonably satisfy its claims against Siegman out of his diamond collateral. (Ingalls v Morgan, 10 NY 178.)

      Jacob Imberman and John Woodward for respondent.
    I. The documents sued on are unconditional negotiable instruments. (Leumi Fin. Corp. v Richter, 17 NY2d 166; Conn Organ Corp. v Walt Whitman Music Studios, 67 AD2d 995; Hogan & Co. v Saturn Mgt., 78 AD2d 837; Community Nat. Bank & Trust Co. of N. Y. v Intercoastal Trading Corp., 55 AD2d 525; Chase Manhattan Bank v Kahn, 66 AD2d 704; Petroleum Acceptance Corp. v Queen Anne Laundry Serv., 265 App Div 692; Chase Manhattan Bank v Komons, 73 AD2d 556; Fleck v Bank of Suffolk County, 67 AD2d 676; Marine Midland Bank-Eastern Nat. Assn. v Haufler Assoc., 55 AD2d 803; Franklin Nat. Bank v Skeist, 49 AD2d 215.) II. Respondent is a holder in due course. (Stratford Factors v Liborio Corp., 6 AD2d 423; Matter of Albano v Kirby, 36 NY2d 526.) III. The makers raise no defense to payment. (Martin v City of Cohoes, 37 NY2d 162; Saale v Interstate Steel Co., 27 AD2d 1, 19 NY2d 933; General Elec. Credit Corp. v Cambria Sav. & Loan Assn., 448 F Supp 782; Farmers’ Loan & Trust Co. v Kip, 192 NY 266; Markman v Russell State Bank, 358 F2d 488.) IV. Siegman raises no defense to payment. (Executive Bank of Fort Lauderdale, Fla. v Tighe, 54 NY2d 330; State Bank of Albany v Duesler, 41 AD2d 1009.) V. Appellants’ unsupported, conclusory allegations are insufficient to defeat summary judgment. (Hogan & Co. v Saturn Mgt., 78 AD2d 837; Freedman v Chemical Constr. Corp., 43 NY2d 260; Chemical Bank of Rochester v Haskell, 51 NY2d 85; Solomon v Van De Maele, 21 AD2d 396; Flag Realty Co. v Pisciotti, 52 AD2d 744; Leumi Fin. Corp. v Richter, 24 AD2d 855, 17 NY2d 166.)
   OPINION OF THE COURT

Jasen, J.

On these appeals, we are asked to decide whether summary judgment was properly granted to plaintiff bank as a holder in due course of certain promissory notes.

Plaintiff is a bank which operates out of the Diamond Exchange in Ramat-Gan, Israel. Defendants are diamond merchants who have in the past engaged in numerous transactions involving the purchase and sale of diamonds. Rappaport and Fishman, doing business as Consolidated Jewelry Co. (Consolidated), and Rosen regularly purchased diamonds from Siegman and, as part of the transaction, executed promissory notes in his favor. Siegman, in turn, indorsed and delivered these notes, along with portions of his diamond inventory, to the Israel Discount Bank to help collateralize his existing debt and to secure additional loans.

When the bank presented these notes for payment, they were dishonored. Thereupon, plaintiff commenced the underlying actions by moving, pursuant to CPLR 3213, for summary judgment in lieu of complaint. Defendants opposed the motion, contending that there had been a failure of consideration with respect to the underlying diamond transactions upon which the notes were predicated and that the bank was vulnerable to this defense because its knowledge of and participation in those transactions precluded it from asserting holder in due course status with respect to the notes.

Supreme Court in the Rosen case denied plaintiff’s motion, holding that triable issues of fact exist with respect to the extent of the bank’s participation in the transactions and its understanding of the custom and usage of the instruments sued upon. Supreme Court in the Consolidated case, however, granted plaintiff’s motion, holding that “[njothing has been shown which would challenge plaintiff’s status as a holder in due course”.

On appeal, the Appellate Division reversed in Rosen and affirmed in Consolidated, holding in both cases that its recent decision in First Int. Bank of Israel v Blankstein & Son (88 AD2d 501, affd 59 NY2d 436 [decided herewith]) was controlling. The Rosen appeal is before us as of right (CPLR 5601, subd [a]), while permission to appeal in Consolidated was granted by the Appellate Division.

We are presented with a dramatically different situation by the instant appeals than that which we are called upon to address in First Int. Bank of Israel v Blankstein & Son (supra). The defendants here have demonstrated the existence of triable issues of fact by presenting proof in evidentiary and documentary form in support of their position. Accordingly, the orders of the Appellate Division should be reversed and the cases remitted for trial.

In order to assert holder in due course status, the purchaser of a negotiable instrument must take the instrument for value, in good faith and without notice of claims or defenses to it. (Uniform Commercial Code, § 3-302, subd [1].) The holder is deemed to have notice of a claim or defense if he has notice that “the obligation of any party is voidable in whole or in part”. (Uniform Commercial Code, § 3-304, subd [1], par [b].) As we more fully discuss in First Int. Bank of Israel v Blankstein & Son (supra), a note predicated upon an agreement which is rescindable at will is a voidable obligation. So, too, is a note predicated upon an executory agreement to which a defense has arisen. If the holder of such a note actually knows of the voidability of the underlying agreement at the time he takes the note, he cannot be a holder in due course. (Chemical Bank of Rochester v Haskell, 51 NY2d 85, 92; Uniform Commercial Code, § 3-302, subd [1], par [c]; § 3-304, subd [1], par [b]; subd [4], par [b].) However, knowledge that the instrument was issued in return for a binding executory promise does not of itself give the purchaser notice of a defense or claim because the code does not require the holder to presume that a party will breach his promise and thereby give rise to a defense to performance. (Uniform Commercial Code, § 3-304, subd [4], par [b]; First Int. Bank of Israel v Blankstein & Son, 59 NY2d 436, 443, supra.) Only after a defense to the executory contract actually arises does the obligation predicated upon that contract become voidable.

While plaintiff has demonstrated that it took the subject notes for value and in good faith, we believe the record before us discloses that triable issues of fact are raised in evidentiary form as to whether the notes are voidable obligations predicated upon agreements which were rescindable at will and whether the bank knew of the alleged voidability of the notes at the time it accepted them. The evidentiary facts alleged and the documentary evidence submitted by the defendants, if proven, would demonstrate that the bank knew the notes were voidable when it accepted them and, therefore, would be precluded from asserting holder in due course status.

All of the defendants, purchasers and seller alike, submitted sworn affidavits asserting in evidentiary form that, as known to the plaintiff, any of the parties to the underlying diamond transactions could rescind the agreement for any reason without incurring liability. In the event that one of the parties exercised this unqualified right not to perform, the agreement and notes tendered pursuant thereto were to be considered nullities having no force or effect. These allegations, if proven, would establish that no binding obligation to perform ever arose and that the notes issued by Consolidated and Rosen to Siegman were rescindable at will and must be deemed voidable obligations, rather than instruments referable to binding executory contracts. (First Int. Bank of Israel v Blankstein & Son 59 NY2d 436, 445, supra.)

Further evidence of the voidable nature of these notes is found in the bank’s own invoices. According to the evidence submitted by defendants, Siegman would solicit diamond orders and deliver the diamonds requested to the Israel Discount Bank. The bank would then ship the diamonds to the purchaser along with an invoice, prepared by the bank on a form bearing the bank’s letterhead, detailing the size and quantity of diamonds delivered and a request for remittance of the amount due. The bank’s invoices contained the following statement:

“IN CASE OF RETURN OR REFUSAL PLEASE RETURN PARCEL BY AIRFRIEGHT (Full value declared to airline) OR BRINKS COURIER SERVICE TO: ISRAEL DISCOUNT BANK LTD., DIAMOND EXCHANGE BRANCH, RAMAT-GAN, ISRAEL”.

The express provision notifying Siegman’s customers that they could return or refuse the diamonds could be viewed by the trier of fact as evidence that Rosen and Consolidated had an unqualified right to reject the diamonds and refuse to perform the agreement, thus rendering the subject notes, which were predicated upon that agreement being performed, voidable obligations. Furthermore, by apparently acting as a middleman in these transactions and expressly notifying Rosen and Consolidated of their right to return or refuse the diamonds, the bank could be found to have had knowledge, at the time it took the notes, of their voidability.

We also note that Rosen submitted copies of credit memos which could be viewed by a trier of fact as indicating that it was not unusual for Rosen to return diamonds to Siegman via the bank and receive credit therefor. Such a view would bolster Rosen’s claim that he could reject any or all diamonds received for any reason whatsoever without incurring liability. Additionally, Consolidated submitted a consignment memorandum addressed to Leo Siegman. This document could be considered by a trier of fact to be further evidence that the subject diamond transactions were carried out pursuant to nonbinding consignment arrangements as opposed to binding executory contracts.

Having demonstrated, by means of tender of evidentiary facts, that a plenary trial is required with respect to their allegations, defendants should be allowed to pursue further discovery and present their evidence to a trier of fact. (See Terranova v Emil, 20 NY2d 493.)

Inasmuch as these cases must be remitted for trial, we need not discuss defendants’ remaining contentions. Suffice it to say, those issues are fully explored in First Int. Bank of Israel v Blankstein & Son (supra) and the principles stated therein are equally applicable here.

Accordingly, in each case, the order of the Appellate Division should be reversed, with costs, and plaintiff’s motion for summary judgment denied.

Chief Judge Cooke and Judges Jones, Wachtler, Meyer and Simons concur.

In each case: Order reversed, etc.

      .  Defendants contend that Israeli, rather than New York, law should be applied. We disagree. The businesses of Rosen and Consolidated are located in New York and plaintiff does business here through a wholly owned subsidiary, the Israel Discount Bank of New York. Furthermore, many of the underlying diamond transactions took place, at least in part, in New York, and some of the subject notes were made and dishonored here. We believe, therefore, that a sufficient relationship exists between the disputed transactions and this State to justify the application of New York law. (See Uniform Commercial Code, § 1-105, subd [1].) Moreover, this State has a strong interest in regulating commercial transactions which take place largely within its boundariés. (Intercontinental Planning v Daystrom, Inc., 24 NY2d 372, 385.)

      . Inasmuch as the issue was neither briefed nor argued, we express no opinion as to the applicability of subdivision (2) of section 3-305 of the Uniform Commercial Code to the facts of this case.


text:
    First International Bank of Israel, Ltd., Respondent, v L. Blankstein & Son, Inc., et al., Appellants. First International Bank of Israel, Ltd., Respondent, v Jacob Klein & Son, Inc., et al., Defendants, and Leo Siegman, Doing Business as Leo Siegman Diamonds, Appellant.
    Argued May 4, 1983;
    decided June 30, 1983

      POINTS OF COUNSEL

      Robert J. Kaplan for appellants.
    I. Respondent has failed to show how much, if anything, Siegman owes it. (Jones v Schreyer, 49 NY 674; Security Trust Co. of Rochester v Thomas, 59 AD2d 242; Flickinger Co. v 18 Genesee Corp., 71 AD2d 382; General Elec. Credit Corp. v Durante Bros. & Sons, 79 AD2d 509; Marine Midland Bank v Connelly, 79 AD2d 1102; National Bank of Del. County v Gregory, 85 AD2d 839.) II. Respondent has failed to show what status or interest it has vis-a-vis the notes in issue. (Ehrlich v American Moninger Greenhouse Mfg. Corp., 26 NY2d 255; Eichinger v Zimmerlein, 230 App Div 708; Broad & Wall Corp. v O’Connor, 37 Misc 2d 408.) III. Respondent relinquished any interest it had in the Blankstein note. IV. The judgment granted respondent is violative of public policy. (Riggs v Palmer, 115 NY 506; McConnell v Commonwealth

      Pictures Corp., 7 NY2d 465; Reiner v North Amer. Newspaper Alliance, 259 NY 250.)

      Steven J. Harvis and Frederic M. Umane for respondent.
    I. CPLR 3213 was intended to provide for a speedy and effective means of summary judgment on a note. (Chase Manhattan Bank, N.A. v Kahn, 66 AD2d 704.) II. Respondent is entitled to enforce the notes as a holder in due course. (Petroleum Acceptance Corp. v Queen Anne Laundry Serv., 265 App Div 692; Seaman-Andwall Corp. v Wright Mach. Corp., 31 AD2d 136, 29 NY2d 617; Pioneer Credit Corp. v Bon Bon Cleaners Corp., 38 AD2d 743; Stagg Tool & Die Corp. v Weisman, 12 AD2d 99, 10 NY2d 741.) III. Appellants’ argument that the underlying transaction was executory in nature does not defeat respondent’s status as a holder in due course. (Stratford Factors v Liborio Corp., 6 AD2d 423; Petroleum Acceptance Corp. v Queen Anne Laundry Serv., 265 App Div 692; Chemical Bank of Rochester v Haskell, 51 NY2d 85.) IV. Respondent acted in a commercially reasonable manner with regard to the notes. (Executive Bank of Fort Lauderdale, Fla. v Tighe, 54 NY2d 330; Marine Midland Bank v Connelly, 79 AD2d 1102.) V. The assertion that custom and usage in the diamond industry made otherwise negotiable instruments unenforceable is commercially incredible. (Solomon v Van De Maele, 21 AD2d 396; Hogan & Co. v Saturn Mgt., 78 AD2d 837; Freedman v Chemical Constr. Corp., 43 NY2d 260; Thrift Credit Co. v American Overseas Trading Corp., 54 AD2d 994; Chemical Bank of Rochester v Haskell, 51 NY2d 85; Flag Realty Co. v Pisciotti, 52 AD2d 744.) VI. Appellants are barred by the parol evidence rule from making these allegations. (Leumi Fin. Corp. v Richter, 17 NY2d 166; Hogan & Co. v Saturn Mgt., 78 AD2d 837; Community Nat. Bank & Trust Co. of N. Y. v Intercoastal Trading Corp., 55 AD2d 525; Chase Manhattan Bank, N. A. v Kahn, 66 AD2d 704; Farm Stores v School Feeding Corp., 79 AD2d 504, 53 NY2d 910.) VII. Respondent has proven the value of its interest in the notes and Siegman is barred as a matter of law from arguing otherwise. (Smith v Stewart, 45 AD2d 853, 38 NY2d 747; Government Employees Ins. Co. v Long Is. Coll. Hosp., 82 AD2d 797; Chase Manhattan Bank, N.A. v Marcovitz, 56 AD2d 763; Sea

      man-Andwall Corp. v Wright Mach. Corp., 31 AD2d 136, 29 NY2d 617; Petroleum Acceptance Corp. v Queen Anne Laundry Serv., 265 App Div 692.) VIII. Appellants are estopped as a matter of public policy from claiming that the notes are unenforceable. (Mount Vernon Trust Co. v Bergoff, 272 NY 192; Chase Manhattan Bank, N.A. v Komons, 73 AD2d 556; Fleck v Bank of Suffolk County, 67 AD2d 676; Marine Midland Bank-Eastern Nat. Assn. v Haufler Assoc., 55 AD2d 803; Franklin Nat. Bank v Skeist, 49 AD2d 215.)
   OPINION OF THE COURT

Jasen, J.

The critical issue presented on these appeals is whether the plaintiff bank is entitled to recover on two promissory notes as a holder in due course. We conclude that the bank was a holder in due course and in that capacity took the notes free of all personal defenses raised by the makers.

Beginning in 1976, plaintiff, an Israeli bank, lent money to defendant Leo Siegman, a leading Israeli diamond merchant, on the credit of his accounts receivable. These accounts often took the form of promissory notes made payable to Siegman by other diamond merchants to whom Siegman had sold or consigned gems. Two of these notes are in issue here. The first had been issued to Siegman in the principal sum of $50,000 by defendant L. Blankstein and Son, Inc. (Blankstein). The other, with a face amount of $71,550, had been issued to Siegman by defendant Jacob Klein and Son, Inc. (Klein). Siegman, in turn, indorsed the notes in blank and delivered them, along with a large portion of his diamond inventory, to plaintiff in consideration of a loan.

When plaintiff presented the notes for payment, they were returned unpaid. Upon receiving notice of said dishonor, plaintiff commenced the underlying actions by moving for summary judgment in lieu of complaint, pursuant to CPLR 3213. Supreme Court denied both motions, holding in the Blankstein case that triable issues of fact existed with respect to plaintiff’s claimed status as a holder in due course; and, in the Klein case, that disputed factual issues “surrounding the promissory note and the collateral mandate denial of summary judgment.”

On appeal, the Appellate Division reversed, on the law, and granted the bank summary judgment, holding that the bank was a holder in due course and that as against the contention that the promissory notes were really given as collateral whereby payee would release the makers and cancel the notes upon the happening of a future event, parol evidence of such condition subsequent was inadmissible to directly contradict the terms of the notes, and that even if the notes were issued in exchange for a promise of future diamond delivery, the existence and even subsequent breach of such executory promise did not create a defense against the holder in due course. Finally, the court held that the bank, “a secured creditor, did not have to first proceed against the diamonds as collateral before seeking satisfaction of the debt in enforcing the terms of the note.” While we agree with the Appellate Division that the bank was a holder in due course, we reach this conclusion for different reasons.

The applicable law is clear. The Uniform Commercial Code defines a holder in due course as a holder who takes the instrument (1) for value; (2) in good faith; and (3) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person. All that is necessary for a holder of an instrument to acquire holder in due course status is to meet the requirements of this section. (See § 3-302, subd [1].)

As to the first two requirements of the code, there is no question that by taking the notes as partial security for Siegman’s loan, value was given and that the bank took the notes in good faith as that term is defined in subdivision (19) of section 1-201 of the code. Defendants’ affidavits are wholly devoid of any evidentiary facts which indicate that the plaintiff knew of any alleged improprieties involved in the underlying transactions which would have prevented a commercially honest individual from taking the notes. (Chemical Bank of Rochester v Haskell, 51 NY2d 85, 92.)

The true focal point of these cases is the third requirement of the code, the “notice of claim or defense” provision. In order to determine whether or not plaintiff had notice of a defense against the subject notes within the meaning of that provision, we turn to section 3-304 of the Uniform Commercial Code. This section (subd [1], par [b]) provides, in pertinent part, that the holder of an instrument will be deemed to have notice of a defense against the instrument if he has “notice that the obligation of any party is voidable in whole or in part”. (Emphasis supplied.) Defendants contend that this provision applies to these notes because the bank knew at the time it took the notes that they were referable to nonbinding agreements between Siegman, Klein and Blankstein for the sale of diamonds wherein Siegman could refuse to deliver the diamonds or, if delivered, Klein and Blankstein could return the diamonds without further obligation and receive full credit. Thus, defendants argue that a personal defense of failure of consideration with respect to the underlying transactions can be asserted against plaintiff pursuant to subdivision (c) of section 3-306.

The bank, on the other hand, relies on section 3-304 (subd [4], par [b]) of the Uniform Commercial Code, which provides that a holder’s knowledge that a note was issued and delivered by the maker in return for an executory promise does not give the holder notice of a defense or claim to the note unless he has knowledge that a defense or claim has arisen from the terms thereof. It is the bank’s position that the underlying agreements between Siegman, Blankstein and Klein were executory agreements whereby Klein and Blankstein would issue promissory notes to Siegman in return for his binding, albeit executory, promise to deliver diamonds at some future date and that its knowledge of this arrangement does not defeat its holder in due course status. The bank contends, in the alternative, that if the defendants’ underlying agreements were in fact rescindable at will, thus rendering the notes mere voidable obligations, it had no notice thereof.

The distinction between executory promises and voidable obligations is an important one in the law of commercial paper as set out in article 3 of the Uniform Commercial Code. An executory contract is one in which a party binds itself to perform at some time in the future. (21 NY Jur, Contracts, § 7, pp 416-417.) The usual method by which a party can avoid an executory obligation is to prove a breach by the other party. A holder who takes a note merely with knowledge that the note is referable to an executory contract is not charged with notice of a defense or claim which has not yet arisen in conjunction with the executory obligation. (Uniform Commercial Code, § 3-304, subd [4], par [b].) Of course, where a defense has arisen to the executory obligation, the obligation becomes voidable at that point and the purchaser of the instrument who has notice of said defense at the time he accepts the instrument is precluded from asserting holder in due course status. (Uniform Commercial Code, § 3-304, subd [1], par [b].)

Similarly, an agreement which is rescindable at will is also a voidable obligation. (See Restatement, Contracts 2d, § 7; Matter of Rothko, 43 NY2d 305, 323-324.) A holder who takes a note with notice of the maker’s absolute right to rescind is properly chargeable with the ramifications of this knowledge. As where the holder has knowledge that a defense has arisen to the performance of an underlying executory obligation, knowledge that an agreement is rescindable at will similarly provides the holder with notice that a defense to the performance of the agreement has arisen and such notice precludes the holder from asserting that he is a holder in due course. (Uniform Commercial Code, § 3-304, subd [1], par [b].) Therefore, the disposition of these appeals necessarily turns on whether the subject notes are referable to a binding executory agreement or are merely voidable obligations, and if they are voidable obligations, the extent of the bank’s knowledge with respect thereto.

It is appropriate at this point to briefly examine the respective burdens of proof imposed on each of the parties. Subdivision (2) of section 3-307 of the Uniform Commercial Code provides that when a holder produces a properly signed instrument, it is entitled to recover on it unless the defendant establishes a genuine defense. When such a defense is established, the burden shifts to the holder to establish its status as a holder in due course. (Uniform Commercial Code, § 3-307, subd [3].) Since the requirement that a holder show that it did not have knowledge of a defense or claim to the instrument involves proof of a negative fact, we have held that its burden of proof is a slight one. In Chemical Bank of Rochester v Haskell (51 NY2d 85, 93, supra), we held that the testimony of the holder that it had no knowledge of a defense to the note in issue was sufficient to sustain its burden on that point and to require the defendant to come forward with evidence to directly controvert the holder’s testimony. Implicit in that decision is the recognition that rarely, if ever, will the holder have documentary evidence showing its lack of knowledge. In this situation, evidence, if any, that the holder had knowledge of defenses will ordinarily be in the hands of the defendant. It is appropriate, therefore, to require the defendant in such cases to proffer such evidence to rebut the holder’s statement of no knowledge.

Turning then to the cases before us, the record discloses that Amos Idelson, senior manager of the plaintiff bank, stated in his affidavits that the bank received both the Klein and Blankstein notes in good faith and without notice of any defenses or claims against them. While necessarily conclusory in form, the bank cannot reasonably be required to produce additional evidence of its lack of knowledge. (See Chemical Bank of Rochester v Haskell, supra.) Accordingly, the burden shifted to defendants to allege, in evidentiary form, facts which, if proven, would show that the bank either had notice of defenses to the notes or that it knew the notes were referable to an agreement which was rescindable at will.

All three defendants submitted affidavits stating, in evidentiary form, that any of the parties to the diamond transactions at issue here could have refused to perform for any reason whatsoever without incurring liability — i.e., Siegman could have refused to deliver the diamonds and Klein and Blankstein could have returned any or all of the diamonds they received. If one of the parties chose to exercise this right, the agreement and the notes tendered by the defendants pursuant thereto were to be considered of no force and effect. While these allegations, if proven, would establish that none of the defendants were under any binding obligation to perform and, therefore, that the notes issued by Klein and Blankstein to Siegman would have to be considered voidable obligations and not instruments referable to binding executory contracts, the defendants did not allege sufficient evidentiary facts to show that plaintiff had actual knowledge that the subject notes were predicated upon voidable obligations. The most that can be said of the affidavits offered to controvert the bank’s position of having no notice of any defenses is a basic allegation that the bank was aware of a general custom prevailing in the diamond trade whereby promissory notes, unconditional on their faces, are used merely as evidence of particular transactions and are not intended to be used as negotiable paper. This hardly satisfies subdivision 7 of section 3-304 and our holding in Chemical Bank of Rochester v Haskell (supra), which imposes upon the defendants the requirement of showing, by evidentiary facts, that the bank had actual knowledge of the voidable nature of the instruments. Summary judgment on a note will be defeated only where material issues of fact are raised which are “genuine and based on proof, not shadowy and conclusory statements” (Hogan & Co. v Saturn Mgt., 78 AD2d 837). Here, the defendants have alleged mere conclusory assertions of a trade custom without evidentiary facts to support their claim that the bank was aware, at the time of acceptance, that the notes in issue were mere voidable obligations. (Cf. Hall v Bank of Blasdell, 306 NY 336, 341.)

We also note that the unsigned undated piece of paper which purportedly contains a list of certain notes held by the bank as collateral is of no probative value. This is so because, contrary to defendants’ assertions, the fact that the subject Blankstein note was not on that list does not establish that the bank withdrew the note from its inventory of collateral after Siegman allegedly refused to deliver diamonds to Blankstein as promised. Nor can this paper be considered evidence that the bank thereby recognized the voidable character of that note. There is nothing on this piece of paper indicating that the list was a complete one, a fact the bank denies, or that Blankstein’s obligation thereunder had been discharged. Such worthless writings do not raise triable issues of fact with respect to a commercial bank’s handling of collateral accepted as security for significant loans.

As a result of defendants’ failure to allege sufficient facts showing that defendant had actual notice that the subject notes were voidable obligations, no triable issue of fact exists with respect thereto. Thus, having satisfied the requirements of section 3-302 of the Uniform Commercial Code, plaintiff, as a holder in due course, must be deemed to have taken the subject promissory notes free from all of defendants’ personal defenses, including failure of consideration. (Uniform Commercial Code, § 3-306, subd [c]; see, also, Uniform Commercial Code, § 3-305.)

Before addressing defendants’ remaining contentions, it is necessary to briefly discuss the reasoning employed by the Appellate Division in awarding summary judgment in plaintiff’s favor. The Appellate Division erroneously based its decision on the rule that parol evidence is inadmissible to vary the terms of written instruments. While this is a true statement (see Leumi Fin. Corp. v Richter, 17 NY2d 166, 173), it has no application to the case before us. Subdivision (1) of section 3-302 of the Uniform Commercial Code specifically provides, in conjunction with sections 3-102 (subd [1], par [e]) and 3-104, that a holder of a note which is unconditional on its face is not a holder in due course if he has not taken the note for value, in good faith and without notice of claims or defenses to it. Consequently, the introduction of evidence for the purpose of showing that a holder has not satisfied one or more of these three requirements is contemplated by the code. This is so even though the terms of the written instrument are, by definition, clear on its face. The Appellate Division’s error was in failing to recognize that evidence offered to show that a holder did not take the instrument for value, in good faith or without notice of claims or defenses, is not introduced to vary the terms of the note, but, rather, to show that the bank was not a holder in due course. Parol evidence is clearly admissible for those purposes. Indeed, in Ehrlich v American Moninger Greenhouse Mfg. Corp. (26 NY2d 255, 258), we stated that parol evidence is admissible to rebut the recital of “value received” on the note.

Defendants’ remaining arguments are without merit. Contrary to defendant Siegman’s assertions, the bank did not act in a commercially unreasonable manner when it proceeded against the notes rather than selling the diamonds it also held as collateral. (Uniform Commercial Code, § 9-501, subd [1].) That the diamond market may have declined during the course of this litigation does not require a different conclusion for a secured creditor has no obligation to “play the market” by selling nonperishable collateral when it appears that the market is most favorable. Furthermore, we note that defendants cannot and do not claim that plaintiff acted unreasonably as to the notes since nothing has been done with respect thereto other than commencing the instant actions.

With respect to defendants’ claim, raised for the first time on appeal, that a triable factual issue exists as to the amount of Siegman’s debt to the bank, we note that defendants’ failure to raise this issue when plaintiff moved for summary judgment precluded the plaintiff from including in its affidavits documentary evidence reflecting the amount owed. Consequently, because the issue might have been obviated by such an evidentiary showing, the issue cannot be raised for the first time on appeal. (See Telaro v Telaro, 25 NY2d 433, 439; Smith v Stewart, 45 AD2d 853, affd 38 NY2d 747; 10 Carmody-Wait 2d, NY Prac, Appeals, § 70:417, p 688.)

Finally, defendants have failed to proffer any evidentiary facts to support their claim that plaintiff relinquished the Blankstein note and thereby discharged both Siegman and Blankstein from liability under it.

For all of these reasons, in each case, the order of the Appellate Division should be affirmed.

Chief Judge Cooke and Judges Jones, Wachtler, Meyer and Simons concur.

In each case: Order affirmed, with costs.

      . Defendants do not dispute the fact that plaintiff is a “holder” (Uniform Commercial Code, § 1-201, subd [20]) of the two “instruments” (Uniform Commercial Code, 8 3102, subd [1], par [e]; Uniform Commercial Code, § 3-104) as those terms are defined in the code.

      . Subdivision (c) of section 3-306 of the Uniform Commercial Code states as follows:
      “Unless he has the rights of a holder in due course any person takes the instrument subject to ***
      “(c) the defenses of want or failure of consideration, non-performance of any condition precedent, non-delivery, or delivery for a special purpose (Section 3-408)”.


text:
    In the Matter of Anthony Morrisette, Appellant, v Donald Dilworth, as Commissioner of Police, Suffolk County Police Department, Respondent.
    Argued June 9, 1983;
    decided July 7, 1983

      POINTS OF COUNSEL

      Allen M. Kranz for appellant.
    The Suffolk County Police Department regulation at issue is unconstitutionally over-broad. (Grayned v City of Rockford, 408 US 104; Shelton v Tucker, 364 US 479; Perry v Sindermann, 408 US 593; Pickering v Board of Educ., 391 US 563; Broadrick v Oklahoma, 413 US 601; Dombrowski v Pfister, 380 US 479; Papachristou v City of Jacksonville, 405 US 156; Coates v City of Cincinnati, 402 US 611.)

      David J. Gilmartin, County Attorney (Michael P. Bazell of counsel), for respondent.
    I. The charge is supported by substantial evidence. (Pell v Board of Educ., 34 NY2d 222.) II. The rule herein should be upheld. (Kelley v Johnson, 425 US 238; Matter of De Boer v Looney, 60 Misc 2d 673; Matter of Purdy v Kreisberg, 47 NY2d 354; Matter of Alfieri v Murphy, 38 NY2d 976; McGuire v Krane, 48 NY2d 661; Dolan v Kelly, 76 Misc 2d 151; Flood v Kennedy, 12 NY2d 345; Broadrick v Oklahoma, 413 US 601.)
   OPINION OF THE COURT

Jasen, J.

On this appeal, we are asked to decide whether the Suffolk County Police Department’s rule which bars members of the police department from associating or fraternizing with “persons known to have been convicted of any misdemeanor or felony under the laws of this state or any similar conviction under the laws of any other state or under the Federal Law” is unconstitutionally overbroad.

Petitioner, a Suffolk County police officer, brought this proceeding seeking a review of a determination of the police commissioner which accepted the decision of a hearing officer that petitioner had violated the department’s antiassociation rule and recommended forfeiture of 10 days’ accrued vacation time as a penalty. At the hearing, it was determined that petitioner had been a close friend of “Jukebox Tony” for five years when an officer from internal affairs advised petitioner that “Jukebox Tony” was a convicted felon and petitioner should stay away from him. Although petitioner agreed to terminate the friendship, he instead questioned his friend about the officer’s information. “Jukebox Tony” explained that the conviction was nearly 20 years old and he showed petitioner a certificate of relief from civil disabilities. On the basis of the length of time that had passed since the conviction and the certificate of relief, petitioner decided that it would not violate the department’s rule to continue his friendship with “Jukebox Tony”.

Approximately 14 months later, a different internal affairs officer who was investigating a report that another officer was employed by “Jukebox Tony” on a part-time basis observed petitioner in the company of “Jukebox Tony”. Petitioner was then charged with violating the department’s rule and a hearing was held pursuant to section 75 of the Civil Service Law.

At the hearing and in this proceeding, petitioner has argued that the department’s regulation is unconstitutionally overbroad because it proscribes associating with anyone who was at any time convicted of any crime except for Vehicle and Traffic Law violations and such an all-inclusive proscription is unnecessary to protect the integrity of the police department.

It is well established that it is within the State’s power to regulate the conduct of its police officers even when that conduct involves the exercise of a constitutionally protected right. (Matter of Purdy v Kreisberg, 47 NY2d 354, 360-362.) Certainly, the State has a legitimate concern and interest in maintaining the independence and integrity of the police force, it is beyond cavil that those interests are protected by a regulation which forbids police officers from associating or fraternizing with persons known to have been convicted of a crime.

Equally apparent is that a regulation such as is being challenged may well impose upon an individual officer’s First Amendment right of association. The Supreme Court has held that when fundamental personal liberties. are subject to government regulation “even though the governmental purpose be legitimate and substantial, that purpose cannot be pursued by means that broadly stifle fundamental personal liberties when the end can be more narrowly achieved.” (Shelton v Tucker, 364 US 479, 488.)

In this case, the governmental purpose is to insure the integrity of the police department and to avoid conflicts of interest on the part of those charged with enforcing the law. Petitioner contends that these goals could be reached by a regulation which did not encompass all those convicted of crimes regardless of the nature of the infraction, the amount of time that has passed since the conviction or the nature of the association between the officer and the other person. It is, of course, entirely possible and perhaps preferable that such a regulation be written in such a manner so as to allow some associations, such as those with relatives, despite a criminal conviction. In deciding whether a statute is unconstitutional on its face, however, the Supreme Court has also stated that where conduct as well as speech, or, in this case, the analogous right of association, is involved, “the overbreadth of a statute must not only be real, but substantial as well, judged in relation to the statute’s plainly legitimate sweep.” (Broadrick v Oklahoma, 413 US 601, 615.)

We hold that this regulation effectuating as it does a valid governmental concern with the integrity of law enforcement has a broad legitimate sweep because the concern encompasses the public’s perception of a police department’s conduct as perceived through the conduct of the individual officers. Any indication that the officers are corrupt or inclined to give preferential treatment will necessarily erode the public’s belief in the integrity of its police officers and police department. Judged in relation to that legitimate purpose we conclude that this regulation passes constitutional muster in that it is not impermissibly overbroad.

Accordingly, the judgment of the Appellate Division should be affirmed, with costs.

Chief Judge Cooke and Judges Jones, Wachtler, Meyer and Simons concur.

Judgment affirmed, with costs.

      . Section 5.6 of chapter 2 of the Suffolk County Police Department Rules and Procedures provides: “No member of the Force is to associate or fraternize with persons known to have been convicted of any misdemeanor or felony under the laws of this state or any similar conviction under the laws of any other state or under the Federal Law. A conviction under this rule shall not mean a conviction for any offense under the Vehicle and Traffic Law or a violation of an ordinance of a political subdivision of this state.”

      . Granting of certificate of relief from civil disabilities does not eradicate or expunge the underlying conviction. (Able Cycle Engines v Allstate Ins. Co., 84 AD2d 140, 145, mot for Iv to app den 57 NY2d 607.)


author: Meyer, J. Jasen, J.

text:
    The People of the State of New York, Respondent, v Reggie Smith, True Name Craig Smith, Appellant.
    Argued June 6, 1983;
    decided July 7, 1983

      POINTS OF COUNSEL

      Robert J. Boyle for appellant.
    The warrantless search of appellant’s closed briefcase was unconstitutional and the contents should be suppressed, inasmuch as appellant was effectively neutralized, the briefcase in the exclusive control of the police, and there were no exigent circumstances. (Coolidge v New Hampshire, 403 US 443; Katz v United States, 389 US 347; Chimel v California, 395 US 752; United States v Chadwick, 433 US 1; People v Caldwell, 53 NY2d 933; People v Quarles, 58 NY2d 664; People v Roman, 53 NY2d 39; People v Spinelli, 35 NY2d 77; United States v Edwards, 415 US 800.)

      Robert M. Morgenthau, District Attorney (Robert M. Pitler and David H. Steiner of counsel), for respondent.
    The loaded gun was found in defendant’s briefcase pursuant to a lawful search incident to arrest. (People v De Santis, 46 NY2d 82, 443 US 912; People v Miner, 42 NY2d 937; People v Weintraub, 35 NY2d 351; People v Moore, 32 NY2d 67, 414 US 1011; People v Caldwell, 53 NY2d 933; New York v Belton, 453 US 454; United States v Chadwick, 433 US 1; United States v Fleming, 677 F2d 602; United States v Brown, 671 F2d 585.)
   OPINION OF THE COURT

Meyer, J.

A container capable of concealing a weapon and the contents of which are readily accessible, taken from a person arrested or from the area readily accessible to him, may be searched without a warrant when the search is close in time to the arrest and there is reason to suspect that the arrested person may be armed. There being no violation of defendant’s rights under either the United States or the New York Constitution, the order of the Appellate Division should be affirmed.

Defendant having passed through the exit gate next to the subway turnstile without paying a fare or exhibiting a pass was confronted by two Transit Authority detectives who had observed him do so. The detectives’ assignment that day was to prevent such a theft of services. Detective Dukes inquired whether defendant had a pass and was told that defendant did not and had not paid because he had no money. Detective Hantz, who had noticed that defendant was wearing a bullet-proof vest, asked defendant whether he was wearing such a vest. Defendant denied that he was. Hantz then drew his gun and informed defendant that he was under arrest. Dukes and Hantz then escorted defendant to a porter’s room, less than 10 feet away. There Hantz handcuffed defendant and searched his person while Dukes took from him the briefcase he had been carrying, unzipped it and found inside it a .38 caliber revolver, a set of handcuffs and a handcuff key.

Supreme Court, New York County, granted defendant’s motion to suppress the contents of the briefcase. It found that at the time of the search defendant had been handcuffed and the police had exclusive control of the briefcase. New York v Belton (453 US 454), it reasoned, merely extended the “grabbable area,” in which a search incident to arrest is permissible, to the passenger compartment of an automobile and any container therein; it did not overrule United States v Chadwick (433 US 1), which held that, absent an exigency, the warrantless search of luggage or other property seized at the time of an arrest cannot be justified.

The Appellate Division reversed. It found that the briefcase had been opened prior to the time that the defendant had been handcuffed, but held that the timing of the search made no difference, answering affirmatively the question “whether, incident to a lawful arrest, the police may contemporaneously search the inside of a briefcase, package, or the like, carried by the arrested person or effectively in his possession, after the object has been removed so that the arrested person no longer has ready access to it.” It reached this result on the authority of New York v Belton (453 US 454, supra, revg People v Belton, 50 NY2d 447) and in light of the fact that our decision on remand had left the question open (People v Belton, 55 NY2d 49). We affirm, although on different reasoning.

Defendant argues before us that the search violated the Fourth Amendment of the Federal Constitution because New York v Belton (supra), only applies to searches involving occupants of an automobile. As to other searches incident to arrest, he suggests, the critical inquiry is whether at the time of the search the person arrested may gain access to the contents of the container. Alternatively, he contends that section 12 of article I of the New York Constitution was violated because the briefcase was searched after he had been effectively neutralized and the briefcase was in the exclusive control of the police.

Although both Federal and State warrant requirements derive from the common law (United States v Robinson, 414 US 218, 230; People v Chiagles, 237 NY 193, 197), they are measured differently. The Supreme Court has interpreted the United States Constitution to permit if not require the drawing of a bright line for reasons of efficiency between permissible and impermissible searches, even though the result is occasionally to forbid a reasonable search or permit an unreasonable one (Illinois v Lafayette, 462 US_, 51 USLW 4829; United States v Robinson, 414 US, at p 235; Dunaway v New York, 442 US 200, 213-214). We have interpreted the New York Constitution to require that the reasonableness of each search or seizure be determined on the basis of the facts and circumstances of the particular case (People v De Bour, 40 NY2d 210, 222-223; People v Marsh, 20 NY2d 98, 102-103; see People v Perel, 34 NY2d 462, 468-469).

Applying the standards articulated by the Supreme Court in New York v Belton (supra) and United States v Robinson (supra), we discern no Fourth Amendment violation in the search of defendant’s briefcase, for those cases permit the search of any closed container taken from the person of, or within the “grabbable area” accessible to, the person arrested, even though the police have no reason to fear for their safety or to suspect that evidence of the"crime for which the arrest is made will be found within the container.

The State Constitution, however, has not been read so broadly. A person’s privacy interest in a closed container readily accessible to him may become subordinate to the need of the People, under exigent circumstances, to search it for weapons or evidence that otherwise might be secreted or destroyed (People v De Santis, 46 NY2d 82, 88-89, cert den 443 US 912). Whether the circumstances are such as to justify a warrantless search incident to arrest is to be determined, as we recognized in our first Belton decision (50 NY2d, at p 452, n 2), at the time of the arrest, but the justification does not necessarily dissipate with the making of the arrest. For compelling reasons, such as the safety of the officers or the public or to protect the person arrested from embarrassment, a search “not significantly divorced in time or place from the arrest” may be conducted even though the arrested person has been subdued and his closed container is within the exclusive control of the police (see People v De Santis, 46 NY2d, at p 88; People v Darden, 34 NY2d 177, 180).

There must, however, be circumstances at the time of the arrest justifying the search. Although probable cause to believe that the person arrested has committed a crime will justify the search of his person (People v Marsh, 20 NY2d, at p 102), it will not necessarily justify the search of a container accessible to him. Thus a container may not be searched for a weapon or evidence if it is apparent that it is so securely fastened that the person arrested cannot quickly reach its contents (cf. People v De Santis, 46 NY2d, at p 89), or the person arrested makes unmistakably clear that he will not seek to reach the contents (see People v Caldwell, 53 NY2d 933 [defendant placed package on the ground and moved away prior to arrest]) or the container is so small that it could not contain a weapon or evidence of the crime.

Applying those principles to the facts of the present case, we conclude that the warrantless search of defendant’s briefcase was permissible under the State as well as the Federal Constitution. At the time of arrest defendant was holding the briefcase in his hand; its contents were, therefore, readily accessible to him and it was of sufficient size to contain a weapon. Defendant had just committed a crime and while that crime was not one suggestive of the presence of a weapon, the fact that defendant was wearing a bullet-proof vest certainly was, and was enhanced by his denial of the fact. The arrest and search of the briefcase were for all practical purposes conducted at the same time and in the same place. The conduct of the search was reasonable; one detective handcuffed defendant and searched his person while the other simultaneously searched the briefcase. Whether in fact defendant could have had access to the briefcase at the moment it was being searched is irrelevant. He clearly could have had when arrested and neither the distance from nor the time elapsed since the arrest was sufficient to dissipate the reasonableness of conducting a search of the briefcase without a warrant.

Accordingly, the order of the Appellate Division should be affirmed.

Jasen, J.

(concurring). While I agree that the order of the Appellate Division should be affirmed, I would do so by recognizing that under the State Constitution, as well as the Federal Constitution, a lawful arrest provides all the justification necessary for a search of both the defendant and the area within his immediate control. Thus, it was permissible for the arresting officers to open and search the briefcase which defendant was carrying at the time of his arrest. The only reasonable restriction would be that the search occur in close spatial and temporal proximity to the arrest. As the Supreme Court has recently stated: “‘A custodial arrest of a suspect based on probable cause is a reasonable intrusion under the Fourth Amendment; that intrusion being lawful, a search incident to the arrest requires no additional justification.’ ” (New York v Belton, 453 US 454, 461, quoting United States v Robinson, 414 US 218, 235.)

Furthermore, I perceive no rationale for creating a different standard under the State Constitution than currently exists under the Fourth Amendment to the United States Constitution. We have repeatedly recognized that the similar language used in section 12 of article I of the State Constitution means that it should be interpreted in the same manner as the Fourth Amendment (People v Ponder, 54 NY2d 160, 165.) There is even less justification for establishing different standards when the result creates, as I believe it does in this situation, a rule which will do little to eliminate the confusion that exists in this area of the law. The rules set forth by the majority have the same infirmities complained of by the Supreme Court in New York v Belton and by the concurring Judges when this court heard People v Belton on remand from the Supreme Court — that is, that the task of discerning the acceptable scope of a search incident to an arrest requires the evaluation of so many variables that “ ‘a person cannot know the scope of his constitutional protection, nor can a policeman know the scope of his authority.’ ” (People v Belton, 55 NY2d 49, 57, quoting New York v Belton, 453 US 454, 459-460, supra.)

If anything, those infirmities previously complained of will be exacerbated by the existence of two standards in this State.

Chief Judge Cooke and Judges Jones and Wachtler concur with Judge Meyer; Judge Jasen concurs in result in a concurring opinion in which Judge Simons concurs.

Order affirmed.

      . Subdivision 3 of section 165.15 of the Penal Law makes it a class A misdemeanor, punishable by incarceration for up to one year, “Fwlith intent to obtain ** * * subway * * * service without payment of the lawful charge therefor * * * to avoid payment therefor * * * by unjustifiable failure or refusal to pay”.

      . The People moved to dismiss the appeal on the ground that the Appellate Division’s reversal was not on the law alone or on the law and such facts which, but for the determination of law, would not have led to reversal (CPL 450.90, subd 2, par [all. We denied the motion (58 NY2d 800).