text:
    In the Matter of Adolpho Soto et al., Respondents. Nathan Goldman, as President of Local 122, National Jewelry Workers Union, AFL-CIO, Appellant. [In the Matter of the Arbitration between Lenscrapt Optical Corp. (Rayex), Petitioner, and Nathan Goldman, as President of Local 122, National Jewelry Workers Union, AFL-CIO, Respondent.]
    Argued January 6, 1960;
    decided March 3, 1960.

      Murray A. Frank for appellant.
    I. Respondents did not comply with the requirements of section 1462 of the Civil Practice Act and it was, therefore, error to affirm the vacatur of the arbitrator’s award. (Matter of Weiner Co. [Freund Co.], 2 A D 2d 341, 3 N Y 2d 806; Bernhardt v. Polygraphic Co., 350 U. S. 198; Matter of Dembitser [Gutchen], 3 A D 2d 211, 3 N Y 2d 851; Matter of Wheat Export Co., 185 App. Div. 723, 227 N. Y. 595.) II. The decision of this court in Parker v. Borock requires the reversal of the decision of the court below. (Parker v. Borock, 5 N Y 2d 156; Matter of Cox [Macy & Co.], 14 Misc 2d 294; Matter of Brettner [Canada Dry Ginger Ale], 9 Misc 2d 725; United States v. Voges, 124 F. Supp. 543; Rotnofsky v. Capitol Distrs. Corp., 262 App. Div. 521.)

      Martin H. Schneider and Harry J. Halperin for respondents.
    I. Respondents had the right to intervene and be represented by their own counsel in an arbitration involving their discharge where the evidence disclosed that the attorney representing their union could or would not fairly represent them. (Donato v. American Locomotive Co., 283 App. Div. 410, 306 N. Y. 966; Parker v. Borock, 5 N Y 2d 156; Jenkins v. Schluderberg-Kurdle Co., 217 Md. 556; Pattenge v. Wagner Iron Works, 275 Wis. 495; Newburger v. American Sur. Co., 242 N. Y. 134.) II. Respondents had standing under the provisions of subdivision 3 of section 1462 of the Civil Practice Act to move to vacate the arbitration award. (Busch Jewelry Co. v. United Retail Employees’ Union, 170 Misc. 482; Matter of Petroleum Research Fund, 3 A D 2d 1; Clark v. Sandusky, 205 F. 2d 915.)
   Dye, J.

In this proceeding commenced by an order to show

cause, the respondent-appellant union appeals by permission from an order vacating an award of the New York State Board of Mediation, rendered in an arbitration between the respondent Lenscraft Optical Corp. (Bayex), as employer, and appellant union, as collective bargaining agent, under an agreement then in full force and effect, the validity of which had previously been upheld (cf. Rayex Corp. v. Sanchez, 6 A D 2d 902, motion for reargument denied 6 A D 2d 1044, motion for leave to appeal to the Court of Appeals dismissed 5 N Y 2d 915). The award permitted the employer to discharge the petitioners-respondents for conduct violative of the contract conditions, a deliberate slowdown.

The basic issue is whether the petitioners-respondents have status, within the meaning of subdivision 3 of section 1462 of the Civil Practice Act, to initiate the proceeding.

The court below accepted the petitioners’ contention that they had been prejudiced by the mediator’s refusal to allow them to be independently represented at the arbitration by counsel of their own choosing. In so deciding, the Appellate Division deemed the petitioners had status as parties since — because their jobs were at stake — they were either third-party beneficiaries of the collective contract or in the position of beneficiaries of a trust. This was a wrong approach. The award, having been rendered in a controversy between the parties to a valid collective agreement, could be vacated only at the initiation of a party to the arbitration in the manner and for the reasons provided by section 1462 of the Civil Practice Act. The misconduct of an arbitrator, contemplated by the statute, and warranting the setting aside of an award, is that ‘1 by which the rights of any party have been prejudiced” (§ 1462, subd. 3; emphasis supplied). The petitioners, not being parties to the agreement, may not avail themselves of rights which under the Civil Practice Act are limited to parties; an exception to such limitation may not be created by judicial application of equitable principles, nor may a basis for vacatur be supplied by implication. Such a result can be accomplished only by appropriate legislative action. Furthermore, the ruling complained of was well within the reach and scope of our recent decision in Parker v. Borock (5 N Y 2d 156). There we made it clear that an employee could not avail himself of the arbitration procedure provided in the collective bargaining agreement since there, as here, the contract granted such right only to the union and to the employer (cf. Hudak v. Hornell Ind., 304 N. Y. 207). This was in the interest of maintaining orderly procedure under accepted principles of substantive law. At the same time, an employee is not foreclosed, in an appropriate case, from pursuing any remedy at law that might be available for breach of fiduciary duty owing by the union.

The order of the Appellate Division should be reversed and the arbitrator’s award reinstated.

Froessel, J.

(dissenting). Seven employees (herein called petitioners), each earning about $42 per week, were threatened with discharge by their employer, Lenscraft Optical Corporation, for having allegedly caused slowdown activities at the latter’s plant. At the instance of appellant, petitioners’ union Local No. 122, which had a collective bargaining agreement with the employer, the provisions of which are not before us, arbitration was had with the employer and the matter was submitted to the New York State Board of Mediation.

About two hours before the arbitration hearing was scheduled, the employer delivered letters to petitioners informing them that the hearing was to be held at 2:00 p.m. on that day, March 8, 1957, and that the letters were “being handed ” to them so that they “ may appear before the Board and be heard at the hearing” (emphasis supplied). The union also asked them to be present.

At 2:00 p.m:. petitioners attended the hearing with an attorney, Henry Brickman. The latter on behalf of his clients applied for an adjournment because of the short two hours’ notice, and pointed out that the union lawyer then present was the same attorney who appeared as of counsel to the attorneys for the employer in an injunction proceeding seeking to enjoin these very petitioners and others from picketing in December, 1956; that this same attorney appeared again as of counsel to the employer in an employer’s application to punish officials of another union for contempt. He further stated to the arbitrator that, absent proper representation by an attorney of their own selection, petitioners would be in effect defendants in a kangaroo court. His application was resisted by the same nnion attorney.

The arbitrator granted a short four-day adjournment (from Friday to Tuesday, March 12th), and reserved decision as to Brickman’s right to represent petitioners, who were the specific individuals involved in the dispute before the arbitrator. On Monday the arbitrator telephoned Brickman that petitioners could not be represented by independent counsel, whereupon Brickman advised him that “ that would be the same as not having any lawyer ”. On the following Thursday the arbitrator informed Brickman that the employer had put in its case, that the union interposed no defense, and that on the record he was impelled to award the employer the right to discharge the seven petitioners. Whether or not petitioners deserved to be discharged is of course not before us.

Thereafter, petitioners succeeded in having the award vacated at Special Term in the present proceedings, and the Appellate Division has unanimously affirmed. Upon the record, we agree with the courts below. The Appellate Division has collated the cases in this and the lower courts in this somewhat unsettled area of the law. Ordinarily, it may be said that a union, as the employees’ bargaining agent, may control the presentation and prosecution of grievances under a standard collective bargaining agreement. Respondents recognize this rule which is based on sound policy. But the rule is not inflexible. Where, for example, employees, as to specific rights, are in effect the designated third-party beneficiaries under such an agreement, they may sue the employer directly (Hudak v. Hornell Ind., 304 N. Y. 207). And where as here the rights of specific employees are directly involved, and a determination in an arbitration proceeding voluntarily initiated by the employer and the union will in effect be binding upon the employees, it would be contrary to every principle of justice and fair dealing to have them or their union represented by counsel who has in related matters also acted as counsel for the employer. Implicit in the general rule above stated is the requirement that such representation must be free from fraud, collusion, double-dealing or like conduct; otherwise a workman would be wholly at the mercy of a conspiracy against him. between his union and his employer. How, indeed, could one reasonably require these petitioners, who were invited to come to the hearing and be heard, to submit to representation by union counsel who represented the employer in litigation affecting these same petitioners? Upon the plainest principles of elementary justice, the policy of the courts in formulating the general rule cannot be deemed to embrace such a situation (see Matter of Iroquois Beverage Corp. [International Union], 14 Misc 2d 290; Manson, Labor Relations Law, 32 N. Y. U. L. Rev. 1374-1375; Rights of Individual Workers in Union-Management Arbitration Proceedings, 66 Yale L. J. 946 et seq.; Pattenge v. Wagner Iron Works, 275 Wis. 495).

This is not a case where the union by inaction declines to demand arbitration as in Parker v. Borock (5 N Y 2d 156). Nor is it a situation where the employee sought to vacate an award by a plenary action in equity, as in Donato v. American Locomotive Co. (283 App. Div. 410, 417, affd. 306 N. Y. 966). In that case it was strongly intimated that the employee might intervene in the arbitration proceeding and move to vacate the award (p. 416) under the provisions of sections 1459 and 191-193-b of the Civil Practice Act. '

If a union under a collective bargaining agreement assumes to represent its members, it must do so fairly and in good faith. When it supplies counsel who has also acted for the employer in labor matters and who merely goes through the form of an arbitration proceeding affecting substantial rights of specific individuals, of all of which the arbitrator had notice, the award may properly be vacated. Petitioners had no time to seek leave from the Supreme Court to intervene, for they had but two hours’ notice of the hearing and but 24 hours’ notice that they could not be represented by independent counsel. They properly sought redress under section 1462 of the Civil Practice Act.

As the Appellate Division stated below: ‘ ‘ Enough was shown to negative the possibility of fair representation of the interests of petitioners by Local 122. The denial of the right to independent representation, under the special circumstances of this case, vitiated the award rendered in the absence of the petitioners at the hearings, particularly since the evidence which they were seeking to adduce on the question of collusion went directly to the issues to be decided by the arbitrator. There was no invalid exercise of power and no abuse of discretion in vacating the award. ’ ’

The order of the Appellate Division should be affirmed, with costs.

Chief Judge Desmond and Judges Fuld, Burke and Foster concur with Judge Dye; Judge Froessel dissents in an opinion in which Judge Van Voorhis concurs.

Order reversed, without costs, and matter remitted to Special Term for further proceedings in accordance with the opinion herein.


source: Caselaw Access Project

author: Desmond, Ch. J. Froessel, J.

license: Public Domain

text:
    Grove Hill Realty Company, Appellant, v. Ferncliff Cemetery Association et al., Respondents.
    Argued January 5, 1960;
    decided March 3, 1960.

      Thomas F. Croake and Ronald L. Unger for appellant.
    I. If the interpretation of subdivision 2 of section 87 and subdivisions 1 and 4 of section 86-a of the Membership Corporations Law by the Cemetery Board is proper, those statutory provisions are unconstitutional insofar as they affect the agreement of plaintiff-appellant herein. (Matter of Norton, 97 Misc. 289; Firmes v. Mount Hope Cemetery Assn., 248 N. Y. 152; Reese v. Pinelawn Cemetery, 243 App. Div. 165; Whittemore v. Woodlawn Cemetery, 71 App. Div. 257; Home Bldg. & Loan Assn. v. Blaisdell, 290 U. S. 398; Von Hoffman v. City of Quincey, 4 Wall. [71 U. S.] 535; Matter of People [Tit. & Mtge. Guar. Co.], 264 N. Y. 69; Matter of Matson, 293 N. Y. 476; Worthen Co. v. Thomas, 292 U. S. 426; Worthen v. Kavanaugh, 295 U. S. 56; Defiance Milk Prods. Co. v. Du Mond, 309 N. Y. 537; East N. Y. Bank v. Hahn, 326 U. S. 230; Veix v. Sixth Ward Assn., 310 U. S. 32; Twentieth Century Associates v. Waldman, 294 N. Y. 571; Adamec v. Post, 273 N. Y. 250; Central Sav. Bank v. City of New York, 279 N. Y. 266.) II. Subdivision 2 of section 87 of the Membership Corporations Law permits payment of one half of the proceeds of sale of each cemetery plot to appellant in accord with its agreement with Ferncliff Cemetery Association. (United States v. Jin Fuey Moy, 241 U. S. 394; Keith v. Maple Grove Cemetery Assn., 208 Misc. 217.) III. The order and judgment appealed from should he reversed.

      Louis J. Lefkowitz, Attorney-General (Jean R. McCoy and Paxton Blair of counsel), for Cemetery Board of State of New York, respondent.
    The Membership Corporations Law (§ 87, subd. 2) constitutes a reasonable and proper exercise of the police power of the State and is constitutional insofar as it affects plaintiff’s agreement with Ferncliff Cemetery Association. (Keith v. Maple Grove Cemetery Assn., 208 Misc. 217, 1 AD 2d 665; Reese v. Pinelawn Cemetery, 243 App. Div. 165; Manigault v. Springs, 199 U. S. 473; Dillingham v. McLaughlin, 264 U. S. 370; Home Bldg. & Loan Assn. v. Blaisdell, 290 U. S. 398; Williamson v. Lee Opt. Co., 348 U. S. 483.)

      Francis R. Doherty for Ferncliff Cemetery Association, respondent.
   Desmond, Ch. J.

Plaintiff sued for a declaratory judgment but the courts below entered a declaratory judgment in favor of defendant State Cemetery Board. The other respondent, that is, defendant Ferncliff Cemetery Association, a nonprofit membership corporation (see Membership Corporations Law, art. IX), intervened but takes no position on this appeal.

The judgment appealed from declares “ that Section 87, subdivision 2 and Section 86-a of the Membership Corporation Law of the State of New York are valid and constitutional insofar as they affect the agreement of the plaintiff, Grove Hill Realty Company with the defendant Ferncliff Cemetery Association, dated November 22, 1910 ”. The 1910 agreement was for the sale and conveyance by plaintiff Grove Hill to defendant Ferncliff of certain lands in Westchester County for cemetery purposes. No purchase price was stated in dollars but as consideration for the conveyance Ferncliff agreed that it would pay Grove Hill “ one-half of the proceeds ” of the former’s sales to the public of burial lots out of the tract. That contract conformed to section 70 of the Membership Corporations Law of 1909 which authorized cemetery corporations to pay, for lands purchased, not more than half the proceeds of sales of burial plots, the residue to be ‘ ‘ applied to the preservation, improvement and embellishment of the cemetery ’ ’. The agreement between Grove Hill and Ferncliff was carried out for many years until defendant, Cemetery Board of the State of New York, notified Ferncliff that, because of the 1949 amendments to section 86-a and subdivision 2 of section 87 of the Membership Corporations Law, it was illegal for Ferncliff to continue the existing scale of payments to Grove Hill. Those amendments ordered every cemetery corporation to set up a permanent maintenance fund of not less than 10% of the gross proceeds of cemetery lot sales and a current maintenance fund of an additional 15% of such proceeds. Another 1949 amendment to section 87 required that, where a contract for sales of lands for cemetery purposes (like this Grove Hill-Ferncliff agreement) called for payment to the contract vendor of part of the proceeds of sales of burial lots, the amounts to go into the current and permanent maintenance funds must first be deducted from such sales proceeds before determining the contract vendor’s share.

As construed by the Cemetery Board, the Attorney-General and both courts below, the 1949 legislation means that Ferncliff, when it sells a burial lot, and establishes a net sales price after selling expenses, must first deduct 15% and 10% for the maintenance funds, and only then, after those subtractions, may it pay Grove Hill 50% of the remaining balance. Result: Grove Hill collects not half of the whole net price of the burial lot, but half of 75% thereof. Grove Hill in this suit for a declaratory judgment argues that the statute should not be so construed, and asserts that, if it is to be read as requiring a reduction of Grove Hill’s proportion of lot sale proceeds, it is unconstitutional as impairing Grove Hill’s contract rights and depriving it of its property without due process of law.

We first discuss the intent and meaning of the 1949 amendments and then pass to the other question, that is, constitutionality. The 1949 changes, we hold, mean just what they say— that, where a vendor is by agreement being paid a share of his vendee’s burial lot sale proceeds, the vendor’s share is to be figured not on the net burial lot price, but on that price reduced by a prior deduction of 25% for the required contributions to the maintenance funds. It is equally clear that the Legislature, in subdivision 2 of section 87, intended the new rule be applied to existing contracts.

Subdivision 2 of section 87 says in simple words that when a corporation has agreed to pay, for lands purchased, not exceeding “ one-half of the proceeds of sales of lots ” it may “ continue to make payments as so agreed ” (that is, one half of lot sale proceeds) provided that “there be first deducted from said proceeds of sales ” the 15% and 10% maintenance fund contributions. As was held below, that means that, after first deducting 25% from and of the net proceeds for maintenance, the corporation may continue to pay one half the net proceeds to the vendor of the land. If that be not the meaning, the phrase ‘ ‘ first deducted ” means nothing. The only doubt would be as to the meaning of the word1 ‘ proceeds ’ ’ but plaintiff itself has resolved for us any such doubt since it admits that the phrase “ gross proceeds ” in its contract and the word “ proceeds ” in the old and new statutes mean net proceeds after sale expense — in other words, not lot sale price but the amount the cemetery corporation actually gets net after deductions (so held in Reese v. Pinelawn Cemetery, 243 App. Div. 165, and Jackson v. Elmont Cemetery, 300 N. Y. 526). But that word “ proceeds ” must mean the same thing in the part of the new statute which requires that plaintiff’s right to one half the “ proceeds ” (that is, half of the net) is to be paid only after first deducting the two maintenance fund contributions. Unless the word “ proceeds ” is to be given several different meanings, the statute means (as almost everyone seems to have interpreted it) that you start with proceeds (after expenses), then deduct 10% and 15%, then pay not more than half the balance to the vendor, leaving the other half of the net with the corporation for purposes listed.

We turn to the constitutional question. Of course, Grove Hill’s rights as to payment are reduced by the amendments, since under the amended statutes Grove Hill is allowed to collect from Ferncliff not half of the net prices of burial lots, but half of 75% of such net prices. It is conceded that the 1910 contract was legal when made since old section 70 of the Membership Corporations Law, in force in 1910, permitted a cemetery corporation to contract with a seller of lands for cemetery use, to pay the seller a percentage, not exceeding one half, of the proceeds of burial lots made from the land. But it does not follow that the 1949 laws are unconstitutional as to Grove Hill. In New York State, historically and in principle, funds derived from the sale of cemetery lots are regarded as dedicated to a public use and held in trust therefor and their disposal is subject to statutory regulation under the State’s police power (see Matter of Norton, 97 Misc. 289; Whittemore v. Woodlawn Cemetery, 71 App. Div. 257; Matter of Lyons Cemetery Assn., 93 App. Div. 19). The New York Legislature has been exercising that power since 1847 and contracts for the sale of lands for development into cemeteries have necessarily been, to some extent, subject to the later possible operation of that power. Indeed, as we shall see, the 1909 statute gave fair warning by its use of the phrase ‘ not exceeding one-half of the proceeds of all sales ’ ’ that the vendor rights were to a fraction of the net only after any prior charges.

Statutes passed in 1847 (ch. 133) and 1853 (ch. 122) dealt directly with this matter of payment to contract vendors out of the moneys collected by the vendees from burial lot purchasers. The 1847 laws which forbade cemetery corporations being formed except on a nonprofit basis said that such a corporation could agree to pay a fixed price for land and, if it did so agree, it must pay to its transferor not less than 50% of the proceeds of the resale of each cemetery lot until the full purchase price should be paid to the former owner. The 1853 statute authorized an agreement (like the one here litigated) whereby, in consideration of the transfer of land to a cemetery association, the transferor would be paid not an over-all fixed price but a percentage of the prices at which burial lots were sold. The 1853 statute decreed, however, that such percentage could not exceed one half of the burial lot sale proceeds. The 1847 and 1853 enactments were substantially incorporated into section 70, part of Membership Corporations Law of 1909 and, later, became section 87 and continued as such until the 1949 changes.

In 1948, the Attorney-General of New York State began an investigation into the activities of nonprofit cemetery corporations. A year later he made a long report to the Governor in which he pointed out that by law such corporations ‘1 are dedicated to, and holding their properties for, a public use ” but that many of them were actually 1‘ run as lucrative commercial ventures.” Various frauds, deceptions and mismanagements were described in detail. Cemetery grounds had been shamefully neglected while extravagant profits were made by promoters, salesmen and others. In transmitting the Attorney-General’s report to the Legislature in February, 1949, the Governor recaEed that “ for over one hundred years the operation of cemeteries has been recognized as affecting the public interest and of having the status before the law and the courts of quasi-public utilities ” and that “ The policy of the State in controlling their operation has never been questioned.” The Governor reminded the Legislature that a true public trust is involved in the operation of a tax-free cemetery by a supposedly nonprofit membership corporation (which is given the power of eminent domain and other public powers) and that the discovered abuses of such trusts required legislative attention since existing laws had proven ineffective.

The Attorney-General reported that difficulties had arisen because of the use of the land acquisition method whereby the organizers of a cemetery corporation buy, for the corporation, land owned by the promoters themselves and then, by agreement, receive a specified percentage of burial lot sales receipts “ until the last plot is sold.” If this method of payment be not limited by statute, said the report, the receipts of a cemetery corporation may be diverted to the promoters without adequate provision for care and maintenance of the cemetery. One of the Attorney-General’s recommendations (followed by the Legislature in the 1949 amendments) was for mandated maintenance funds to be made up of 15% and 10% priority deductions from burial lot sales moneys. The Legislature adopted a “ Declaration of Policy” (see L. 1949, ch. 533) which spoke of the people’s vital interest in the preservation of cemeteries and of the existing bad practices in the maintenance and operation of cemeteries.

It is the settled law of this court that the interdiction of statutes impairing the obligations of contracts does not prevent the State from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general good of the public, though contracts previously entered into between individuals may thereby be affected. This power, which in its various ramifications is known as the police power, is an exercise of the sovereign right of the Government to protect the lives, health, morals, comfort and general welfare of the people, and is paramount to any rights under contracts between individuals * * * in other words, that parties by entering into contracts may not estop the legislature from enacting laws intended for the public good. While this power is subject to limitations in certain cases, there is wide discretion on the part of the legislature in determining what is and what is not necessary— a discretion which courts ordinarily will not interfere with ” (Manigault v. Springs, 199 U. S. 473, 480-481). As Chief Justice Hughes wrote in Home Bldg. & Loan Assn. v. Blaisdell (290 U. S. 398, 435): “ Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order.” It is true that the Minnesota statute in the Home Building case was construed by the Supreme Court as modifying “ remedies ” but not destroying contract “ rights ” (see 290 U. S., pp. 428-430). However, many other decisions of the Federal and State courts have strengthened the authority of the States under the police power to affect the obligations of contracts when public interest required it. Direct statutory controls over substantive, existing, contractual rights were upheld as to constitutionality by our court in Matter of People (Tit. & Mtge. Guar. Co.) (264 N. Y. 69), and in Twentieth Century Associates v. Waldman (294 N. Y. 571) and Matter of Schmidt v. Wolf Contr. Co. (295 N. Y. 748).

“ ‘ The question ’ ”, wrote Judge Lehman in the Title & Mortgage opinion (quoting the Home Building opinion, supra), “ ‘ is not whether the legislative action affects contracts incidentally, or directly or indirectly, but whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end ’ ” (264 N. Y., p. 83). Or, as we phrased it in Defiance Milk Prods. Co. v. Du Mond (309 N. Y. 537, 541): “reasonably related and applied to some actual and manifest evil ”.

The situation dealt with in 1949 concerned the operation of a public trust. The “ actual and manifest evil” was found by the Attorney-General and the Legislature. The statute’s requirements for the setting up and prior deductibility of maintenance funds were reasonably related to the discovered evils. Its application to this plaintiff and this contract was not arbitrary or unreasonable since plaintiff w;as on notice in 1910 when it made its contract that the actual size of its 50% share of the proceeds of lot sales would depend on what amounts were first deducted before the ‘ ‘ proceeds ’ ’ became available. Let us recall how the law read in 1910 when this agreement was signed. The Legislature had already taken hold. The 1909 amendment had authorized this kind of contract but only when the transferor’s share was “not exceeding one-half of the proceeds of all sales” of burial lots. The parties here construed “proceeds ” to mean net, not gross, sales prices and it was authoritatively determined in 1934 in Reese v. Pinelawn Cemetery (243 App. Div. 165, supra, followed in Jackson v. Elmont Cemetery, 275 App. Div. 544, affd. 300 N. Y. 526, supra) that a contract promising the vendor one half of the ‘1 gross proceeds ’ ’ was, under the statute, enforcible as to one half of the net amount only which the cemetery corporation received after necessary deductions. Grove Hill must be held to have made its pact accordingly and to have taken its chances that the Legislature which had asserted its right to regulate such agreements might reduce the “proceeds” by giving priority to additional expenditures required in the public interest.

The judgment should be affirmed, with costs.

Froessel, J.

(dissenting). We disagree with the majority on both the issues of statutory construction and the constitutionality of the statute as construed by them.

More than a century ago (L. 1853, ch. 122), the Legislature expressly authorized an owner of real property to contract for its sale to a cemetery corporation upon the latter’s agreement to pay, instead of a fixed price, any specified portion “ not exceeding one-half, the proceeds of all sales of lots or plots made from such lands ’ ’; said portion ‘ ‘ shall be first appropriated and applied to the payment of the purchase money of the lands so acquired, and the residue thereof shall be appropriated to preserving, improving and embellishing the said cemetery grounds and * * * to defraying the incidental expenses of the cemetery establishment”. In substantially the same language, this statute became section 70, and later section 87, of the Membership Corporations Law and continued so until 1949.

On November 22, 1910 appellant, in full compliance with this old statute, entered into such an agreement with the defendant cemetery corporation, and thereupon conveyed to it certain real property. The terms of this agreement were honored by the parties for nearly half a century and until the defendant Cemetery Board notified the cemetery corporation that continued payments in accordance with the agreement would be “ illegal and improper ”,

As the result of an investigation of cemetery corporations by the Attorney-General, and his Report to the Governor dated February 11, 1949 (N. Y. Legis. Doc., 1949, No. 7), the Legislature amended article IX of the Membership Corporations Law-dealing with private cemetery corporations (i.e., other than religious and municipal corporations), so as to subject them to stricter regulation. One of the chief abuses sought to be remedied was the failure of the cemetery corporations to apply a sufficient amount of the funds retained from the sales of plots to the care and maintenance of their cemeteries. To this end, one of the ‘ ‘ key elements ’ ’ of the recommended legislation was described in said report as follows: “ A cemetery corporation would be required to maintain its burial grounds in good condition, and in order to do so would also be required to establish a permanent maintenance fund and a current maintenance fund. At the time of making a sale of burial space, at least 10 per cent of the gross proceeds would have to be put in the permanent maintenance fund and an additional 15 per cent in the current maintenance fund.” According^, new section 86-a requires every cemetery corporation to maintain (1) a permanent maintenance fund” and (2) a “current maintenance fund”. When an individual plot is sold, the corporation must deposit not less than 10% of the gross proceeds of the sale into the permanent fund and an additional 15% into the current fund. Present subdivision 2 of section 87, the construction and constitutionality of which are the subject of this action, provides:

‘1 Where a corporation has agreed with a person from whom any such lands were purchased to pay therefor a specified share not exceeding one-half of the proceeds of sales of lots * * *, such corporation may continue to make payments as so agreed, provided however that there be first deducted from said pro ceeds of sales the amount required to be deposited in the permanent maintenance fund and current maintenance fund as aforesaid together with the expenses of sale. The balance of such proceeds shall continue to be applied by the corporation to the preservation, improvement and embellishment of the cemetery, and the expenses and liabilities of the corporation.” (Emphasis supplied.)

The defendant Cemetery Board contends that the statute requires defendant to deduct 25% from the proceeds of the sale of each plot, and then pay to plaintiff “ one-half of the net amount remaining after the deductions ” (emphasis supplied). In other words, the payment to plaintiff on the resale' of an individual plot was to be reduced by 25%.

Plaintiff agrees that 25% must first be deducted for deposit into the maintenance funds, but argues that it is then entitled to one half the original sales price, in accordance with its agreement, and not simply one half of the balance remaining. It recognizes, of course, that the expenses of sale are to be deducted from the gross proceeds before computing the 50% share due it (Reese v. Pinelawn Cemetery, 243 App. Div. 165; Jackson v. Elmont Cemetery, 275 App. Div. 544, affd. 300 N. Y. 526). It further contends that if the board’s interpretation is correct, the statute would be unconstitutional on two counts: (1) it would impair the obligation of its contract with defendant, in violation of section 10 of article I of the United States Constitution and section 15 of article I of the State Constitution, and (2) it would bear no reasonable relation to the evils sought to be rectified and hence would deprive plaintiff of substantive due process (U. S. Const., 14th Arndt.; N. Y. Const., art. I, § 6).

Subdivision 1 of section 87 now clearly provides that at least one half of the proceeds of sales of lots remaining “ after the deductions ” for the permanent and current maintenance funds and the sale expenses ‘ ‘ shall be applied ’ ’ to the payment ‘ ‘ of the purchase-price of the real property acquired ”, "Where there is an agreement, however, subdivision 2 applies. It provides that where a cemetery corporation has agreed to pay “ a specified share not exceeding one-half of the proceeds of sales of lots”, such corporation “may continue to make payments as so agreed ”, to wit, “ not exceeding one-half of the proceeds of sales of lots ” (emphasis supplied). It does not qualify this language with the words “ after the deductions ” for maintenance funds and sale expenses as is done in subdivision 1. The only condition subdivision 2 imposes is ‘ ‘ that there be first deducted from said proceeds of sale ” the 25% for the maintenance funds and the sale expenses. In other words, maintenance funds are to be in the nature of a first lien on the proceeds; otherwise the agreement of the parties is unaffected, for the statute expressly provides that a cemetery corporation ‘ ‘ may continue to make payments as so agreed ”, i.e., from the proceeds of sales of lots ”, and the deduction for the maintenance funds are also made “ from said proceeds of sales ” (emphasis supplied). To put it still otherwise, under the former section 87 the cemetery corporation was authorized to pay not more than one half of the sales proceeds to the seller, but the remainder had to be retained for maintenance and general corporate expenses. Because it was found that some cemetery corporations did not set aside enough for maintenance but rather consumed much of this remainder in corporate expenses, the Legislature mandated the 10% and 15% maintenance funds — to be set aside first — but permitted continuance of the payment of not exceeding half the sale proceeds to the sellers “ as so agreed ”; it then permitted the cemetery corporation to retain the remainder for maintenance and corporate expenses. Such, it seems to us, is the very plain meaning of present section 87, and as so construed it has a reasonable relation to the evils sought to be rectified, and impairs the obligation of no contract.

To construe the statute as does the majority would in our opinion render it clearly unconstitutional. Reducing plaintiff’s contractual share in the sales proceeds from 50% of 100% to 50% of 75% is pure confiscation; it has no relation to the evil sought to be cured and is, therefore, not a proper exercise of the police power. If the State could take 25% of a seller’s contract right, why not 50% or even 100% Í (See, in this connection, Membership Corporations Law, § 86-a, subd. 4, which authorizes the Supreme Court to increase the 25% maintenance funds without notice to the seller of the land.) The distinction between rights under a contract and the remedies for its enforcement must be kept in mind (Home Bldg. & Loan Assn. v. Blaisdell, 290 U. S. 398). We of course recognize that the police power is broad, but it has its limitations. In the last-cited case, in determining whether a State statute unconstitutionally impaired the obligations of a contract, the general test was said to be “ whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end.” (p. 438; emphasis supplied.) In order to conform with due process, the statute, as applied, must also meet this ‘ ‘ reasonable relations ” test, for, as this court noted in Defiance Milk Prods. Co. v. Du Mond (309 N. Y. 537, 541): “ due process demands that a law * * * be reasonably related and applied to some actual and manifest evil” (emphasis supplied).

The amount to be paid to the original transferor of cemetery land would appear to bear no reasonable relation to the evils sought to be corrected by the remedial legislation in question. As noted, the principal evil sought to be remedied was the misuse of funds by the cemetery corporations, including their failure to apply a sufficient portion of the 50% of the sales proceeds retained towards preserving and maintaining the cemetery. The Legislature sought to correct the latter abuse by requiring an initial 25% deduction to be deposited into the two maintenance funds. Once this deduction is made, there would appear to be no further policy to be served by limiting plaintiff’s share to 50% of this reduced amount, rather than 50% of the original amount, as provided for in the agreement.

The statute does not expressly purport to affect the amount due the original transferor under existing agreements. Unlike subdivision 1 of present section 87, subdivision 2 in no way implies that the 50% share due under existing agreements is to be measured by the reduced amount. Under former section 87, which expressly authorized contracts of the type here before us, it was provided that the remaining 50% be applied to “ preserving, improving and embellishing the cemetery grounds and the avenues and roads leading thereto, and to defraying its expenses and discharging its liabilities ” (see American Exch. Nat. Bank v. Woodlawn Cemetery, 194 N. Y. 116, 124). Under present section 87, that provision remains virtually unchanged, except that one half of the 50% retained by the corporation is specifically earmarked for the cemetery’s permanent and current maintenance funds. These funds are designed- to insure an effective preservation program; the directors are now prevented from diverting them to other purposes at the expense of the suitable maintenance of the cemetery grounds, and for that reason they are made a first lien on the proceeds of sale.

As we said in Saltser & Weinsier v. McGoldrick (295 N. Y. 499, 509): “We know that- — -‘ A statute must be construed, if fairly possible, so as to avoid not only the conclusion that it is unconstitutional but also grave doubts upon that score. ’ (United States v. Jin Fuey Moy, 241 U. S. 394, 401; Tauza v. Susquehanna Coal Co., 220 N. Y. 259, 267.) We are also aware that legislation which impairs vested rights is unconstitutional. (Germania Savings Bank v. Suspension Bridge, 159 N. Y. 362, 368-369; Matter of Pell, 171 N. Y. 48, 52-53.) ”

The judgment appealed from should be reversed, with costs, and the matter remitted to Special Term with directions to grant judgment to plaintiff.

Judges Dye, Fuld and Burke concur with Chief Judge Desmond ; Judge Froessel dissents in an opinion in which Judges Van Voorhis and Foster concur.

Judgment affirmed.


author: Fboessel, J.

text:
    In the Matter of Sutton-53rd Corp., Respondent, against Tax Commission of the City of New York, Appellant.
    Argued January 18, 1960;
    decided March 3, 1960.

      Charles H. Tenney, Corporation Counsel (Morris Einhorn and Morris Handel of counsel), for appellant.
    The first act in the installation of an integral part of a building — here, the first pouring of concrete for foundations on December 4, 1950 ■ — ■ constitutes the commencement of building construction. Special Term’s conclusion that a “ union ” of concrete with different materials is required for commencement of construction is unauthorized by the literal language of the statute and unsupported by both long-standing judicial construction and administrative interpretation thereof. (Sikora Realty Corp. v. City of New York, 262 N. Y. 312; People ex rel. 71 Park Ave. v. Goldfogle, 226 App. Div. 241; People ex rel. New York Cent. & H. R. R. R. Co. v. Purdy, 167 App. Div. 637, 216 N. Y. 704; People ex rel. Shelton Holding Corp. v. Goldfogle, 220 App. Div. 451; People ex rel. Ortenberg v. Bales, 224 App. Div. 87, 250 N. Y. 598; Riverdale Community Planning Assn. v. Crinnion, 285 App. Div. 1047, 1 N Y 2d 689.)

      Anthony Curreri, Allan D. Emil and Eugene J. Schwartz for respondent.
    The overwhelming weight of the evidence established that petitioner’s building was not actually and literally in the course of construction on January 25, 1951, and was not ready for occupancy or a part thereof occupied on April 15, 1952. This finding of ultimate fact, affirmed by the Appellate Division, cannot be reviewed in this court. (Angelos v. Mesevich, 289 N. Y. 498; People ex rel. Ortenberg v. Bales, 224 App. Div. 87, 250 N. Y. 598; People ex rel. New York Cent. & H. R. R. R. Co., 167 App. Div. 637, 216 N. Y. 704; Bushey & Sons v. American Ins. Co., 237 N. Y. 24; People ex rel. 176 W. 87th St. Corp. v. Cantor, 230 N. Y. 312; People ex rel. Shelton Holding Corp. v. Goldfogle, 220 App. Div. 451.)
   Fboessel, J.

This is a proceeding to review the tax assessment on petitioner’s premises for the year 1952-53. The assessment for that year, as fixed by the appellant Tax Commission, totaled $3,875,000. Included therein was a $3,000,000 “ progress ” assessment representing the value of an improvement, under construction, but uncompleted, on January 25, 1952, the status date for the tax year in question. Special Term, and the Appellate Division by a divided court, held that the construction of the improvement was commenced after January 25, 1951, and hence this progress assessment was in violation of section 157-1.0 of the New York City Administrative Code. Petitioner’s total assessment was accordingly reduced to $875,000.

Section 157-1.0, with interpolation of the years relevant to this proceeding, provides: 11 Taxable status of building in course of construction.- — -A building in course of construction, commenced since the preceding twenty-fifth day of January [1951] and not ready for occupancy on the twenty-fifth day of January following [1952], shall not be assessed unless it shall be ready for occupancy or a part thereof shall be occupied prior to the fifteenth of April [1952].” (Emphasis supplied.) The parties agree that the subject building was not ready for occupancy on January 25 or on April 15,1952, nor was a part thereof occupied on April 15, 1952. Hence, on this appeal, we must determine as a matter of law whether, on the basis of the undisputed factual evidence adduced below, ‘1 construction ’ ’ of the building on petitioner’s property “ commenced” prior or subsequent to January 25, 1951, within the meaning of section 157-1.0 of the Administrative Code.

The undisputed facts in the case reveal that excavation was commenced on November 22, 1950. The materials excavated were primarily rock. The procedure followed was, first, to “blow out the rock” until the general floor elevation was reached. Then, at points where bearing columns were to be located, blasting was continued until rock of sufficient tensile strength — called “design” rock — for the bearing of the building was found. As soon as this design rock was reached, a hole of about 4 to 6 feet square was chipped out. The depth of the holes varied from 18 inches to 6 feet, depending upon the location of the design rock beneath the surface of the general floor elevation. After each of these holes (there were 250) was blasted and chipped out, an inspector from the building-department was summoned to inspect the rock exposed at the bottom of the hole. The inspector would ascertain whether it was design rock, and would accordingly pass or reject it. Upon approval of the rock at the bottom of each hole, concrete, which ranged in quantity from 1 to 10 cubic yards, was poured into the hole. By January 25, 1951 concrete was poured into 98 of these holes.

It was revealed during the course of the trial that these holes, when completely filled with concrete, served as “ piers ”. Piers constitute a part of the foundation of the building, and provide a means for support, transmitting the weight of the building to the rock. In terms of the superstructure of the building, there were piers to begin with, above each pier a “pedestal”, and then the columns or walls above the pedestals. Some of the pier holes into which concrete was poured prior to January 25, 1951 — particularly those located in the southeast sector of the building — -were filled to grade level with the concrete. The piers, in the language of petitioner’s witness, were in those instances “ automatically poured ”. The remainder of the 98 piers poured prior to January 25th were filled close to grade level. As said witness stated at the trial, the pier holes were filled with a sufficient quantity of concrete so as to prevent water ” or “ dirt going into the hole, or something else like that”. There was also evidence that, prior to the status date, forms for the east wall were erected, and reinforced steel placed therein.

There can be no doubt that piers in the southeast sector were completed prior to the status date, ready for the second level of the foundation, the pedestals to be placed upon them. With regard to the other pier holes, though in some cases not completely filled, they were at least partially completed foundation piers. In any event, whether the foundation piers were partially or totally completed, as were some of them, the test which has evolved from the case of People ex rel. New York Cent. & H. R. R. R. Co. v. Purdy (216 N. Y. 704) has been satisfied here.

In that case, we passed upon section 889a of the Greater New York Charter, the forerunner of section 157-1.0, as applied to the construction of the Hotel Biltmore in New York City. The majority of the Appellate Division (167 App. Div. 637) had held that, by excavation, a building is in the course of construction. Justice Scott disagreed and we reversed the Appellate Division upon his “ dissenting opinion”. He expressed the view that excavation of a site, without more, did not constitute the commencement of construction within the meaning of the statute. A line of division, for purposes of tax exemption, was drawn between the mere digging or excavation of the soil or rock and the introduction and use for construction purposes of materials foreign to the soil which eventually become a part of the completed improvement. In the latter situation, construction is deemed to have commenced. A building is then “ actually and literally in the course of construction ” (Bushey & Sons v. American Ins. Co., 237 N. Y. 24, 28).

In the instant case, construction had advanced beyond the stage of mere excavation prior to the status date. The concrete, consisting of cement, stone and sand, poured into the pier holes by that date constituted the material foreign to the soil which was set in place at the premises and eventually became an integral part of the completed building.

It is clear from Justice Scott’s summary of the evidence in the New York Central case (supra), read in the light of his interpretation of the words “ construction ” and “ commenced ”, that the pouring of concrete, as we have here, is decisive for purposes of section 157-1.0. He there stated that prior to the status date no work other than excavation was done, and it was not until 1% months later that “ concrete ivas placed for the grilling foundations designed to support the columns of the hotel building” (167 App. Div., p. 643; emphasis supplied).

Petitioner’s characterization of the pouring of concrete in this case as a “ sealing ” process for the purpose of protecting the design rock from atmospheric conditions does not alter the situation. The motivation for pouring of concrete is not controlling, but rather the end result achieved (see dissenting opinion below 8 A D 2d 791; see,, also, People ex rel. Shelton Holding Corp. v. Goldfogle, 220 App. Div. 451). Although by such pouring the underlying rock was sealed for protection — and sealing per se required very little concrete — it is the fact that, in addition thereto, partially completed, and in some instances completed, piers for support of the building were created which constituted a part of the completed structure. Hence “construction” of petitioner’s building-had “ commenced ”.

Were we to grant petitioner an exemption from the instant assessment, the purpose of the statute would be defeated. In People ex rel. 176 W. 87th St. Corp. v. Cantor (230 N. Y. 312, 315) we said: “ The purpose of section 889a of the charter undoubtedly was to encourage building by extending to owners a limited exemption from taxation during the time when no income would be derived from the capital invested. Until a building could be occupied for living purposes it was not to be presumed that there could be much income from rentals.” (Emphasis supplied.) In this case, petitioner applied for a certificate of occupancy on April 18, 1952, three days after occupancy would have defeated its exemption in any event. A temporary certificate was granted on April 28, 1952. The building was then ready for occupancy and could, therefore, produce rental income. The tax assessed here on January 25, 1952 was for the tax year 1952-53, which commenced in July, 1952. Granting petitioner in this case an exemption would, therefore, mean that petitioner’s building was capable of yielding income for 14 months (from May, 1952 through June, 1953), and yet it would not be obligated to pay a property tax on the improvement. This would be far more than the ‘ ‘ limited exemption ” contemplated by the statute.

The orders of the Appellate Division and Special Term should be reversed, and the assessment as originally imposed by the Tax Commission reinstated, with costs.

Judges Dye, Fuld, Van Voorhis, Burke and Foster concur with Judge Froessel; Chief Judge Desmond dissents and votes to affirm for the reason that on the proof here, particularly the testimony of Benz and the work sheets, there was a question of ultimate fact as to whether or not the actual construction of this building began before January 25, 1951.

Order reversed, with costs in all courts, and the tax assessment reinstated.


author: Froessel, J.

text:
    City of Albany et al., Respondents, v. Standard Accident Insurance Company, Appellant, et al., Defendants.
    Argued January 7, 1960;
    decided March 3, 1960.

      Neile F. Towner and William R. Crotty for appellant.
    I. The exclusion clause in the policy of the Standard Accident Insurance Company is clear and unambiguous. Under said exclusion clause coverage does not apply to claims for damages for injuries, fatal or otherwise, to an employee of the insured caused by the alleged negligence of another employee while said employees are in the performance of their duties. (Matter of Evans v. Berry, 262 N. Y. 61; Matter of Ryan v. City of New York, 228 N. Y. 16; Miller v. Town of Irondequoit, 243 App. Div. 240, 268 N. Y. 578; Miller v. City of Albany, 158 Misc. 720, 247 App. Div. 848; Matter of Krug v. City of New York, 196 App. Div. 226; Matter of Kahl v. City of New York, 198 App. Div. 30; Standard Sur. & Cas. Co. v. Maryland Cas. Co., 281 App. Div. 446; American Fid. & Cas. Co. v. St. Paul-Mercury Ind. Co., 248 F. 2d 509; Johnson v. Ætna Cas. & Sur. Co., 104 F. 2d 22.) II. The exclusion applicable to the employer under this policy also is applicable to the employees of said employer, (Johnson v. Ætna Cas. & Sur. Co., 104 F. 2d 22; Stewart v. Liberty Mut. Ins. Co., 256 F. 2d 444; Campbell v. American Farmers Mut. Ins. Co., 238 F. 2d 284.)

      John W. Hacker, Corporation Counsel (John E. Boe of counsel), for respondents.
    I. The police officers of the City of Albany are not “ employees ” within the meaning of the term as used in the standard accident insurance policy. (Levine v. Accident & Cas. Ins. Co., 203 Misc. 135; Shapiro v. Employers Liab. Assur. Corp., 139 Misc. 454; Fox v. Employers’ Liab. Assur. Corp., 239 App. Div. 671; Miller v. City of Albany, 158 Misc. 720; Matter of Kahl v. City of New York, 198 App. Div. 30; Matter of Ryan v. City of New York, 228 N. Y. 16; Matter of People ex rel. Sherwood v. State Bd. of Canvassers, 129 N. Y. 360; People ex rel. Kelly v. Common Council, City of Brooklyn, 77 N. Y. 503; Matter of Krug v. City of New York, 196 App. Div. 226; Schwarts v. City of New York, 16 Misc 2d 822; Berger v. City of New York, 260 App. Div. 402, 285 N. Y. 723; Leppard v. O’Brien, 225 App. Div. 162; Miller v. Town of Irondequoit, 243 App. Div. 240; Van Buren v. Town of Richmondville, 253 App. Div. 484.) II. The exclusions of the policy intend to exclude coverage only for liability to employees of an employer who carries, or is required to carry, workmen’s compensation insurance. (Greaves v. Public Serv. Mut. Ins. Co., 5 N Y 2d 120; Standard Sur. & Cas. Co. v. Maryland Cas. Co., 281 App. Div. 446; Morgan v. Greater N. Y. Taxpayers Mut. Ins. Assn., 305 N. Y. 243; Ross v. Franklin Sur., 281 Mass. 538; Adams v. American Employers Ins., 292 Mass. 260; Home Ind. Co. v. Plymouth, 146 Ohio St. 96.) III. If exclusion (d) intends to exclude all employees, then at least the insured’s employee-driver is covered as an additional insured under the policy. (Standard Sur. & Cas. Co. v. Maryland Cas. Co., 281 App. Div. 446; Wenig v. Glens Falls Ind. Co., 294 N. Y. 195; American Sur. Co. v. Diamond, 1 N Y 2d 594; Ætna Cas. & Sur. Co. v. General Cas. Co., 285 App. Div. 767; Catania v. Hartford Acc. & Ind. Co., 4 A D 2d 440; Kaifer v. Georgia Cas. Co., 67 F. 2d 309; Buck v. Home Mut. Cas. Co., 258 Wis. 538; Sandstrom v. Estate of Clausen, 258 Wis. 534; McMann v. Faulstich, 259 Wis. 7.)
   Froessel, J.

The issue before us in this declaratory judgment action is whether an automobile liability policy issued by appellant to the City of Albany afforded coverage to the city and one Douglas Wells, a member of the Albany police force, for any liability incurred as a result of a fatal accident to one Samuel Robinson, also a member of the Albany police force. If such coverage was afforded, then appellant, under the terms of its policy, is obligated to defend a wrongful death action instituted against the city and Wells by Robinson’s administratrix. The case was tried by the court without a jury upon the following stipulated facts:

On May 13, 1957 an Albany police prowl car driven by Wells in the performance of his duties collided with another vehicle at the intersection of Madison and Lake Avenues in the City of Albany. Robinson was a passenger in the police car, in the performance of his duties as a police officer, and was killed as a result of the collision. The decedent’s administratrix commenced a wrongful death action against the City of Albany and Wells and, after appellant disclaimed coverage under the policy and refused to defend the action, the city and Wells brought this declaratory judgment action.

At the time of the accident, and for an annual premium of $95.85, the police car was insured by an automobile liability policy issued by appellant to the “ City op Albany, Dept, op Police ” as the named insured. In the section entitled “ Exclusions ’ ’ the policy provided, insofar as pertinent:

‘ ‘ This policy does not apply: * * *
“ (d) under coverage A, to bodily injury to or sickness, disease or death of any employee of the insured arising out of and in the course of (1) domestic employment by the insured, if benefits therefor are in whole or in part either payable or required to be provided under any workmen’s compensation law, or (2) other employment by the insured-,
“(e) under coverage A, to any obligation for which the insured or any carrier as his insurer may be held liable under any workmen’s compensation, unemployment compensation or disability benefits law, or under any similar law” (emphasis supplied). •

Neither Wells nor Robinson was “ engaged in domestic employment within the meaning and intent of the policy at the time of said accident”, nor were they covered by workmen’s compensation, social security, or the Employers’ Disability Benefits Law. The City of Albany is not required to carry workmen’s compensation on its police officers.

Section III of the policy, entitled “Definition of Insured ”, contained the usual omnibus clause in subdivision (a) insuring, in addition to the named insured, any person operating the vehicle with the permission of the named insured, and further provided: ‘ ‘ The insurance with respect to any person or organization other than the named insured * * * does not apply: (1) * * *; (2) to any employee with respect to injury to or sickness, disease or death of another employee of the same employer injured m the course of such employment in an acci dent arising out of the maintenance or use of the automobile in the business of such employer.” (Emphasis supplied.) Wells was using the involved vehicle with the permission of the named insured at the time of the accident.

It may he noted at the outset that the question of the liability of the City of Albany and Wells to the administratrix of the Robinson estate is not before us now. We are concerned solely with the liability of the insurer under the policy, as written. Special Term simply held that neither the “ exclusion ” nor the “ definition ” provision of the policy was applicable, since ‘ policemen are not employees of the city but are governmental agents of the State ”. The Appellate Division agreed that the issue of coverage was controlled by the common-law rule that “ a policeman is not considered a municipal agent or servant but a public officer performing a governmental function. (Matter of Evans v. Berry, 262 N. Y. 61, 68; Matter of Ryan v. City of New York, 228 N. Y. 16, 19.) ” In that connection, the court reasoned that section 50-a of the G-eneral Municipal Law — which provides, in pertinent part, that a person appointed ” by a municipality to operate a municipally owned vehicle ‘ ‘ shall, for the purpose of this section, be deemed an employee of the municipality, notwithstanding the vehicle was being operated in the discharge of a public duty for the benefit of all citizens of the community and the municipality derived no special benefit in its corporate capacity ” — did not create “ an employee status on the part of the decedent” for the purpose of the employee exclusionary provision of the policy, since 6 Decedent was not the driver and it is only the driver — the person ‘ appointed ’ to operate the vehicle — who shall be 6 an employee ’.” The statutory purpose of imposing liability on the municipality for the negligent" operation of municipal vehicles was ‘‘ completely accomplished” by “ denominating the operator an employee 1 for the purpose of [the] section ’ ”, and hence the court saw ‘ ‘ no ground for extending the application of the statute to any other person ”.

The Appellate Division further held that Wells qualified as an additional insured ‘ within the definition of the policy ’ ’, since 11 Decedent, retaining his common-law status as a public officer, was not Wells’ fellow servant and never became ‘ another employee ’ of the city” (Policy, § III, subd. [a], par. [2]). Although the court recognized that “ The concept of statuses differing as between the two police officers and variable as to one of them is doubtless an artificial one ”, it felt that such a result was ‘ ‘ clearly mandated by the unambiguous language employed by the Legislature to effect a particular and unmistakable intent.”

We cannot agree that the nonemployee status of Police Officer Robinson is ‘1 clearly mandated by the unambiguous language ’ ’ of section 50-a. That section was derived from former section 282-g of the Highway Law (enacted by L. 1929, ch. 466), whose purpose was to make municipalities liable for the negligence of the operators of their vehicles in the exercise of their statutory duties, in the course of their employment and in the discharge of their governmental functions. (Miller v. City of New York, 235 App. Div. 259.) The Legislature provided that such an operator should, for the purposes of the act, ‘ be deemed to be an employee of the municipality, notwithstanding the vehicle was being operated in the discharge of a public duty.’ (Matter of Evans v. Berry, 262 N. Y. 61, 68; emphasis in original.)

But this court further noted in the Evatls case (262 N. Y., pp. 70-71), in holding that the City of New York could constitutionally assume a liability for injuries caused by a police officer while engaged in his governmental duty of making an arrest: “ As was noted in Augustine v. Town of Brant [249 N. Y. 198, 205], the modern tendency is against the rule of non-liability of municipalities for the acts of firemen and policemen employed by them. The fiction that they are not acting in the course of their duties as city employees is no longer regarded as a part of the fundamental law. The tendency to apply the rule of respondeat superior ha,s been noted with approval in [citing numerous articles].” (Emphasis supplied.) In expressly abrogating the rule of nonliability with respect to the negligent operation of municipal vehicles, and making it crystal clear that those appointed to drive the vehicles were to be deemed employees of the municipality even when performing a governmental function, the Legislature certainly did not intend to provide that, for all other purposes, city nolicemen, etc., were not to be deemed employees of the municipality. If anything, it recognized the modern tendency ” referred to above.

In the same year in which section 282-g of the Highway Law was enacted, the Legislature fully waived the State’s immunity ‘ ‘ from liability for the torts of its officers and employees ’ ’ by enacting section 12-a (now § 8) of the Court of Claims Act (L. 1929, ch. 467), which presently makes the State, as well as its municipal subdivisions, liable in the same manner as individuals and corporations (Jackson v. State of New York, 261 N. Y. 134; Bernardine v. City of New York, 294 N. Y. 361, 365-366). As we noted in Becker v. City of Neto York (2 N Y 2d 226, 235), the Bernardine case “ expressly held ” that section 8 was ‘ ‘ equally applicable to the subdivisions of the State, such as the City of New York, as to the State itself, despite the existence of specific provisions for liability in the General Municipal Law5 ’. While section 50-d of the General Municipal Law expressly made a municipality liable only for the negligence of physicians and dentists in public institutions — who are deemed to be employees of the municipality ‘1 for the purpose of this section ” (50-d) — we held in the Becker case that the effect of section 8 of the Court of Claims Act is to make the State and its subdivisions liable, under the doctrine of respondeat superior, for the negligent acts of its paid employees, including nurses employed by it in its hospitals * * *. Under this enactment, all persons who are employees of the State are treated as such, and the doctrine of respondeat superior is applied to determine whether the State is liable.” (2 N Y 2d, pp. 235-236; emphasis supplied.) In rejecting the rule that treated persons, who by all other tests are clearly employees, as independent contractors when they arc engaged in the performance of a medical act ”, wo noted that “ In enacting the Court of Claims Act, the Legislature did not intend to apply such rule to the State and its subdivisions ” (2 N Y 2d, p. 235; emphasis supplied; see, also, McCrink v. City of New York, 296 N. Y. 99, 105-106; Schuster v. City of New York, 5 N Y 2d 75, 81-83).

Thus, even if section 50-a of the General Municipal Law could be read as preserving the 11 public officer ” status of those city policemen who are not1 ‘ appointed ’ ’ to operate municipal vehicles, section 8 of the Court of Claims Act — the controlling legislative enactment — requires us to treat all city policemen as employees of the municipality, since “by all other tests [they] are clearly employees As Judge Lotjghean observed in the Bernardine case (294 N. Y., p. 366, supra), “ the argumentation that had been contrived as a front for the doctrine of governmental immunity [that officers and employees when engaged in the discharge of so-called governmental functions acted as delegates of the State and not in behalf of any municipal master] did not survive the renouncement of that doctrine.'1 ’ (Emphasis supplied.)

In any event, section 50-a does not purport to affect or have any bearing on the definition of the word ‘ ‘ employee ’ ’ as used in an insurance policy. We are concerned, in the instant case, not with the liability of a municipality under a statute (cf. Miller v. City of Albany, 158 Misc. 720, affd. 247 App. Div. 848), but with the liability of an insurer under a contract of insurance. The issue is the intent of the contracting parties, not the intent of the Legislature— (cf. Matter of Ryan v. City of New York, 228 N. Y. 16, holding that members of the New York City Police Department were not covered by the Workmen’s Compensation Law since compensation was assured them by an independent statute) —and in deciding what the parties meant by the word “ employee ”, “ ‘ Our guide must be the reasonable expectation and purpose of the ordinary business man when making an insurance contract * * * ’ (Burr v. Commercial Travelers Mut. Accident Assn., 295 N. Y. 294, 301). ‘ The language employed in the contract of insurance must be given its ordinary meaning, such as the average policyholder of ordinary intelligence, as well as the insurer, would attach to it.’ (Abrams v. Great Amer. Ins. Co., 269 N. Y. 90, 92.) ” (Morgan v. Greater N. Y. Taxpayers Mut. Ins. Assn., 305 N. Y. 243, 248; emphasis supplied.)

Since the policy in question was specifically issued to cover the prowl car involved and used by the Albany Police Department, the parties surely must have considered members of the Albany police force to be employees of the city. If the language used in an insurance contract£ £ must be given its ordinary meaning ”, then it would be most unreal to hold that members of the Albany police force were not considered employees of the City of Albany, by which they are hired, paid, disciplined, and discharged. It is not necessary to extend the application of any statute to hold that both Wells and Robinson were employees of the city for purposes of the insurance contract. All we need do is to give the word “ employees ” its 11 ordinary meaning ”, and not assume that the parties intended to import an outmoded ‘1 fiction ’ ’ into their contract.

With reference to the risks excluded by the policy, the city contends that, even if decedent may be deemed its employee within the meaning of the policy, coverage is nonetheless afforded for any liability it incurred as a result of his death, since the purpose of the exclusionary provisions was “ to exclude coverage only for liability to employees of an employer who carries, or is required to carry, Workmen’s Compensation Insurance. ’ ’ Such a holding would completely disregard the provision excluding coverage for the ‘‘ death of any employee of the insured arising out of and in the course of * * * other [than domestic] employment by the insured ”, and include within the coverage of the policy a risk which the insurer manifestly considered too great to cover for the small premium involved. While it is well settled that ambiguities in an insurance policy are to be resolved against the insurer, since it wrote the policy, we find no ambiguity here.

The pertinent provisions of the policy exclude three separate and distinct risks from coverage: (1) any obligation for which the insured or its carrier may be held liable under any Workmen’s Compensation or similar law (subd. [e]), (2) “ death of any employee of the insured arising out of and in the course of * * * domestic employment ”, if and only if workmen’s compensation benefits were payable or were required to be provided (subd. [d], par. [1]), and (3) “ death of any employee of the insured arising out of and in the course of * * * other employment by the insured ’ ’, i.e., employment other than domestic employment, without qualification (subd. [d], par. [2]). The distinction between domestic and other employment, with respect to the availability of workmen’s compensation, is clearly drawn, and the language plainly excluded from coverage the death of an insured’s employee arising out of and in the course of * * * other employment ’ ’, notwithstanding the fact that the death may not have been compensable. It was so squarely held in Jewtraw v. Hartford Acc. & Ind. Co. (280 App. Div. 150,153), where Presiding Justice Foster wrote: “ ‘ Coverage A ’ refers to bodily injuries and is common to both clauses (d) and (e). Reading the two clauses together it is quite clear (d), so far as claims for personal injuries are concerned, excludes all employees, other than domestics not covered by workmen’s compensation, irrespective of compensation benefits. If this is not so then clause (e) is superfluous. In our opinion the language of (d) if read alone is clear enough, but certainly when the two clauses are read together no ambiguity appears in either.” (See, also, Jewtraw v. Hartford Acc. & Ind. Co., 286 App. Div. 931, affd. 2 N Y 2d 788.)

While some language of the Appellate Division, First Department, in Greaves v. Public Serv. Mut. Ins. Co. (4 A D 2d 609, 612) appears to take a different view, that language was not necessary to the decision, and was not adopted or indorsed by our court’s affirming opinion (at 5 N Y 2d 120). In that case, the party injured was concededly not an employee of Greaves, who qualified as an additional insured within the definition of the policy. We held (p. 125) the exclusionary clause had “no effect as to him [Greaves] since the injured man was not an ‘ employee of the insured ’ Greaves and the ‘ insured ’ Greaves was not liable to the injured man ‘ under any workmen’s compensation law ’ ” (emphasis supplied).

Inasmuch as the injured party in that case was not an employee of the additional insured, it was not necessary to — and this court did not — approve the reasoning of the Appellate Division that “the basic and underlying purpose apparently was to exclude coverage only as to an insured who either carried, or was required to carry, workmen’s compensation insurance for the protection of an injured employee ” (4 A D 2d, p. 612). In defining the excluded risks, the Appellate Division’s dictum erroneously ignored the distinction between domestic and other employment with respect to the availability of workmen’s compensation benefits, perhaps because the two risks were not as clearly separated in the policy as here.

The policy now before us, as opposed to that in the Greaves case, makes the distinction crystal clear. The exclusionary clause in Greaves included domestic employment and other employment in a single subdivision, immediately after which appeared the provision as to obligations incurred under the Workmen’s Compensation Law. Here, on the other hand, domestic employment, with the condition as to workmen’s compensation, is denominated paragraph (1) of subdivision (d); other employment, without such condition, is separately denominated paragraph (2) of subdivision (d); and obligations incurred under the Workmen’s Compensation Law are treated separately in subdivision (e). Since decedent here was an employee of the named insured — the City of Albany — and since his death arose out of and in the course of employment other than domestic employment, the policy as written did not afford coverage to the city for any liability incurred by it as a result of its employee’s death. The language of the exclusionary clause unequivocally excluded this risk from coverage (subd. [d], par. [2]).

As to the driver of the vehicle, Police Officer Wells, respondent contends “ that even if Wells and Robinson are held to be employees of the City of Albany, and even if they are held to be the type employees as intended by exclusion (d), coverage is still afforded by the policy to Wells as an additional assured.” If Wells qualified as an additional insured within the definition of the policy, he would be entitled to coverage under the “separability” doctrine established by this court in Morgan v. Greater N. Y. Taxpayers Mut. Ins. Assn. (305 N. Y. 243, supra) and Greaves v. Public Serv. Mut. Ins. Co. (5 N Y 2d 120, supra) since decedent was not his employee under exclusion (d). In the two cited cases, this court (5 N Y 2d, p. 125) rejected the argument that an additional insured could not have more protection under a liability policy than the named insured, and established the proposition “ that an additional although unnamed insured * * * had to be treated as if he had a separate policy”.

Under the omnibus clause provision in the ‘ ‘ Definition of Insured” (§ III, subd [a]), Wells would qualify as an additional insured, since he was using the car with the permission of the named insured at the time of the accident. However, as respondents themselves concede, paragraph (2) of this same “ Definition of Insured ” section also expressly excluded “ from coverage as an additional insured ” “ any employee with respect to injury to * * * or death of another employee of the same employer injured in the course of such employment in an accident arising out of the # * * use of the automobile in the business of such employer.” Since both decedent and Wells were employees of the same employer, and inasmuch as decedent sustained fatal injuries in the course of that employment “in an accident arising out of the * # * use of the automobile in the business of such employer ”, Wells is expressly excluded from coverage as an additional insured with respect to the accident in question.

The city’s further contention that it is not engaged in a “ business ” is as unreal as its argument that decedent and Wells are not its employees. As previously noted, the language employed in an insurance contract “ must be given its ordinary meaning ’ ’, and, since it is stipulated that both decedent and Wells were engaged in the performance of their duties as police officers at the time of the accident, it necessarily follows that the accident arose “ out of the * * * use of the automobile in the business of such employer ’ ’.

It should be noted, in conclusion, that this case comes to us on bare stipulated facts, and the only issue presented to and decided by the lower courts was whether the terms of the policy, as written, afforded coverage to the City of Albany and Wells. Both parties rely on the policy provisions, and do not question their validity. The ‘ ‘ employee ’ ’ exclusion provision of the policy has been approved in the exact language and form used here by the State Department of Insurance (Ins. Beg. 35, subd. 2; N. Y. Off. Comp, of Codes, Rules & Regulations, 12th Off. Supp., 1959, Jan. 1, 1956, to Dec. 31, 1956, p. 698).

Accordingly, under the provisions of the policy as-written, no coverage is afforded to the plaintiffs herein by reason of the death of Robinson, and hence appellant is not required to defend the action brought by Robinson’s administratrix.

The judgment appealed from should be reversed, with costs, and the matter remitted to Special Term for the entry of judgment in favor of appellant.

Chief Judge Desmond and Judges Dye, Fuld, Van Voorhis and Burke concur; Judge Foster taking no part.

Judgment reversed, with costs in all courts, and matter remitted to Special Term for further proceedings in accordance with the opinion herein.

       For similar provisions, see sections 50-b and 50-d of the General Municipal Lew*


author: Dye, J. Desmond, Ch. J.

text:
    Drug Research Corporation, Respondent, v. Curtis Publishing Company et al., Appellants.
    Argued January 11, 1960;
    decided March 24, 1960.

      Harold R. Medina, Jr., and Stephen E. O’Neil for appellants.
    I. The article is not libelous of plaintiff. The article does not refer to plaintiff. (Feely v. Vitagraph Co., 184 App. Div. 527; Dale System v. General Teleradio, 105 F. Supp. 745; Barringer v. Sun Print. & Pub. Assn., 160 App. Div. 691; Denis v. Reynolds Tobacco Co., 279 App. Div. 78, 303 N. Y. 985; Hays v. American Defense Soc., 252 N. Y. 266; Tracy v. Newsday, 5 N Y 2d 134.) II. Plaintiff’s allegation pursuant to rule 96 of the Rules of Civil Practice does not aid it. (Lehmann v. Tribune Assn., 37 Misc. 506; Corr v. Sun Print. & Pub. Assn., 177 N. Y. 131; Fleischmann v. Bennett, 87 N. Y. 231; Hays v. American Defense Soc., 252 N. Y. 266; Knickerbocker v. Press Pub. Co., 143 App. Div. 138; Fagan v. New York Evening Journal Pub. Co., 129 App. Div. 28; Feely v. Vitagraph Co., 184 App. Div. 527.) III. A libel on plaintiff’s product is not, in itself, a libel on plaintiff. (Marlin Fire Arms Co. v. Shields, 171 N. Y. 384; Larsen v. Brooklyn Daily Eagle, 165 App. Div. 4; Kennedy v. Press Pub. Co., 41 Hun 422; Stillman v. Paramount Pictures Corp., 2 A D 2d 18; Maglio v. New York Herald Co., 93 App. Div. 546.) IV. Plaintiff has not alleged special damages and accordingly cannot recover for libel on the product “ Regimen ” and cannot recover for libel by extrinsic fact. (O’Connell v. Press Pub. Co., 214 N. Y. 352; Reporters’ Assn, of America v. Sun Print. & Pub. Assn., 186 N. Y. 437; Rager v. McCloskey, 305 N. Y. 75; Philipp Co. v. New Yorker Staats-Zeitung, 165 App. Div. 377; Faulk v. Aware, Inc., 3 Misc 2d 833, 3 A D 2d 703; Gonzales v. Hearst Cons. Pubs., 115 F. Supp. 721; Marlin Fire Arms Co. v. Shields, 171 N. Y. 384; Kennedy v. Press Pub. Co., 41 Hun 422; S. & R. Motors v. Gowen’s Motors, 207 Misc. 890; Kuhn v. Veloz, 252 App. Div. 515; Dale System v. General Teleradio, 105 F.

      Philip A. Friedman for respondent.
    I. The complaint states a cause of action. (Stokes v. Morning Journal Assn., 72 App. Div. 184; Corr v. Sun Print. & Pub. Assn., 177 N. Y. 131; Jackson v. Consumer Pubs., 256 App. Div. 708; Gross v. Cantor, 270 N. Y. 93; Bornmann v. Star Co., 174 N. Y. 212; Weston v. Commercial Advertisers Assn., 184 N. Y. 479.) II. The libel on plaintiff’s product was a libel of plaintiff. (Marlin Fire

      Arms Co. v. Shields, 171 N. Y. 384; Kennedy v. Press Pub. Co., 41 Hun 422; Samson United Corp. v. Dover Mfg. Co., 233 App. Div. 155; Reporters’ Assn, of America v. Sun Print. & Pub. Assn., 186 N. Y. 437; Vocational Guidance Manuals v. United Newspaper Mag. Corp., 280 App. Div. 593; Kirkman v. Westchester Newspapers, 287 N. Y. 373; First Nat. Bank v. Winters, 225 N. Y. 47.)
   Dye, J.

In this libel action the complaint alleges that defendant Ben Pearse wrote an article entitled “Don’t Fall for the Mail Frauds ”, which appeared in the March 29, 1958 issue of the Saturday Evening Post, a magazine owned, published and circulated by defendant Curtis Publishing Company. The article contains the following statements which are complained of (Complaint, par. Eleventh) :

“ The hottest gimmick in the mail-fraud field today is the alleged weight-reducing pill. Recent emphasis by medical authorities on the harmful effect of overweight has made avoirdupois a national obsession. The underlying causes of overweight are often obscure: boredom, nervousness, unrequited love are only a few. But the cure — eating less — calls for something most fat people don’t have when it comes to food: will power.
“ That’s where the gimmicks come in. Certain drugs, medical authorities agree, have the effect of deadening the appetite. Doctors often prescribe them to help obese patients stick to a diet, but they frequently have harmful side effects and generally are available only on prescription. Yet so common is the desire to get something for nothing — in this case slimness without diet — that some schemes promising this impossibility have taken in over a million dollars a year. Forty-five such schemes, not all quite so profitable, have been barred from the mails during the past two years.
“ About a year ago, the Wonder Drug Corporation, in a flood of full-page newspaper advertisements, heralded an allegedly new reducing discovery called Regimen, which required ‘ no giving up the kinds of food you like to eat.’ In the box of green, pink and yellow pills you got for three dollars, however, were instructions warning you to avoid heavy gravies, oils, thick soup, rice, spaghetti, jam, jelly, noodles, nuts, ice cream, potatoes, cake, candy, chocolate, cereal, crackers, cream, custard, bread, butter, pastry, pudding, sugar and salt.
‘1 Last June, after an investigation by postal inspectors, officials of the Wonder Drug Corporation voluntarily signed an ‘ affidavit of discontinuance, ’ agreeing to stop soliciting orders through the mail — after taking in $200,000 in six months, according to-inspectors’ estimates. Nevertheless, Begimen is still obtainable over the counter in some retail stores, where postal authorities have no jurisdiction. However, the Federal Trade Commission, which has responsibility concerning deceptive advertising when the mails are not used, has Begimen under investigation.
‘1 Why all this red tape in dealing with questionable schemes í The reason is that Congress has always been leary of interfering with the secrecy or speedy delivery of the mails. In 1868, to break up the many notorious lotteries flourishing at the time, Congress declared it unlawful to use the mails for ‘ lotteries and guessing games.’ In codifying the postal laws four years later, the unlawful list was extended to include mail concerning schemes intended to deceive and defraud the public.’ But even tpday the Postmaster General himself can’t open a letter <or refuse to deliver it, without following certain judicial or administrative procedures.
“ The judicial course is to instigate criminal charges in a Federal court, and successful prosecution will not only stop the fraud but will also punish the defrauder with a prison sentence or fine or both. Administrative action is designed to stop the fraud without imposing criminal penalties. The offender is entitled to an open hearing before an impartial examiner, but if a fraud order is issued, mail addressed to him is returned unopened to the sender, marked ‘ Fraudulent. ’
1 Because of the time element, the Post Office Department generally relies on administrative rather than court action, at least when only nominal sums are involved. A fraud order can be processed in about six months under the Federal Administrative Procedure Act, and in a matter of weeks if the firm cited voluntarily signs a discontinuance affidavit. A criminal action, on the other hand, usually takes much longer, as it did with a mail-order nursery in Bloomington, Illinois

According to the complaint, the plaintiff is the manufacturer and a distributor of ‘ ‘ Regimen ’ ’, and, as stated in the briefs, Wonder Drug is a distributor.

It is further alleged that the article concerned the plaintiff; that it is “ false and defamatory as to the product Regimen and the plaintiff ’ ’; that hospital and clinical studies on obese persons had established that patients under no calorie restrictions and taking Regimen lost substantially the same amount of weight as those patients under a 1,000-calorie restriction and taking Regimen; that the published matter gave the impression, as it was intended to, that plaintiff is a swindler and engaged in obtaining money by false pretenses, misrepresentation and fraud, and is engaged in conducting a racket; that the defendants acted with knowledge of the article’s falsity, with malice, and with intent to injure plaintiff’s reputation and business; and that the article has caused drug jobbers, wholesalers, retail chain stores and others to cancel orders for, and refuse to sell, Regimen, has prompted various communications media to refuse Regimen advertising, and has caused grave injury and prejudice to plaintiff’s name and business reputation, all to the tune of $5,000,000.

The sufficiency of the pleading depends in part on whether the article, when fairly read, concerns the plaintiff. That it concerns the Wonder Drug Corporation is obvious, but nowhere does it mention the plaintiff with particularity. The complaint sets forth the connection between the alleged libel and the Drug Research Corporation in abbreviated form, pursuant to rule 96 of the Rules of Civil Practice. But the form of the allegation does not foreclose defendant from impeaching the sufficiency of the complaint on the ground that the pleading, taken as a whole, clearly removes the plaintiff from the reach of the alleged libel (Corr v. Sun Print. & Pub. Assn., 177 N. Y. 131 [1904]; Fleischmann v. Bennett, 87 N. Y. 231 [1881]). In short, rule 96 is not available to supply a deficiency in what might otherwise be a good cause of action.

The Appellate Division saw in the statement ‘ ‘ However, the Federal Trade Commission, which has responsibility concerning deceptive advertising when the mails are not used, has Regimen under investigation ’ ’ a connection with the plaintiff because Wonder Drug Corporation is not mentioned in this context. This is straining to reach a result quite inconsistent with a fair reading of the text. Libelous language must be tested by a “ fair ”, not a “ broad ”, reading (cf. Tracy v. Newsday, 5 N Y 2d 134 [1959]). This is so because the law of libel imposes restraints on the right of free speech (Julian v. American Business Consultants, 2 N Y 2d 1 [1956]); and, too, always present is the possibility of resort to penal sanctions (Penal Law, §§ 1340-1349, 1937). The article in its entirety is at variance with the construction that it was written of and concerning the plaintiff. When so read, it effectively negatives the short-form allegation that the article libels the plaintiff. It is one thing to save an ineptly worded pleading by construing it liberally (Civ. Prac. Act, § 275), yet quite another to supply elements essential to the cause of action.

The only theory remaining is that the article contains matter libelous of the product, Regimen, and that it thereby constitutes a libel on the plaintiff manufacturer. The rule is that, if a product has been attacked, the manufacturer may recover in a cause of action for libel, providing he proves malice and special damages as well as the falsity of the criticism. Of course, if the accusation impeaches the integrity or business methods of the corporate manufacturer itself, no special damages need be shown (New York Soc. for Suppression of Vice v. Macfadden Pubs., 260 N. Y. 167 [1932]; First Nat. Bank of Waverly v. Winters, 225 N. Y. 47 [1918]) as the direct accusation constitutes a libel per se. In this regard, corporations enjoy the same right, that is, to plead general damages, as do individuals. Such generality, however, is not available to this plaintiff in the setting of this case. On its face, the complained of article is written of and concerning the deceptive business activities of Wonder Drug Corporation in promoting the sale of the product Regimen. This is a far cry from an alleged defamation of the integrity and business methods of the plaintiff, which, if it can be shown at all, must be shown by extrinsic facts.

Giving the pleading its most favorable construction, namely, that it states a libel on the product, it nonetheless must be dismissed for failure to allege special damages. A libel of the plaintiff’s product is not necessarily a libel of the plaintiff. Paragraphs “ Sixteenth ”, “ Seventeenth ” and “ Eighteenth ” set forth allegations of general damage. But “ ‘special damage must be fully and accurately stated. If the special damage was a loss of customers * * * the persons who ceased to be customers, or who refused to purchase, must be named * * *. [I]f they are not named, no cause of action is stated.’ ” (Reporters’ Assn. of America v. Sun Print. & Pub. Assn., 186 N.Y. 437, 442 [1906]).

The damage claimed is $5,000,000. Such round figures, with no attempt at itemization, must be deemed to be a representation of general damages (see Seelman, Law of Libel and Slander in the State of New York [1933], p. 388). It is an established rule in New York that a libel on the product is actionable by the manufacturer only if special damages are alleged (Marlin Fire Arms Co. v. Shields, 171 N. Y. 384 [1902]), with the afore-mentioned exceptions not relevant here.

Accordingly, the orders of the courts below should be reversed, with costs, and the motion to dismiss the complaint granted, with leave to serve an amended complaint alleging special damage. The questions certified are answered in the negative.

Desmond, Ch. J.

(dissenting). As the Appellate Division majority held, this entire article read as a whole in its ordinary meaning is naturally and proximately injurious to plaintiff and damaging to its credit and reputation (Samson United Corp. v. Dover Mfg. Co., 233 App. Div. 155, 156, citing 52 L. R. A. 526). If this pill manufactured by plaintiff does not reduce weight at all, as the article says, then no manufacturer could have produced it'without intending that it be sold under false pretenses (cf. Marlin Fire Arms Co. v. Shields, 171 N. Y. 384, 389, 390). Therefore, the complaint alleges a libel against plaintiff as well as against its product, and so no allegation of special damages is necessary.

The order should be affirmed, with costs.

Judges Fuld, Burke and Foster concur with Judge Dye; Chief Judge Desmond dissents in an opinion in which Judges Froessel and Van Voorhis concur.

Order reversed, with costs in all courts, and case remitted to Special Term for further proceedings in accordance with the opinion herein. Questions certified answered in the negative.