author: Kaye, J. Wachtler, J.

text:
    Esther G. M. Perez, as Administratrix of the Estate of Rosa M. Manas y Pineiro, Deceased, Respondent-Appellant, v Chase Manhattan Bank, N. A., Appellant-Respondent.
    Argued February 22, 1984;
    decided March 30, 1984

      POINTS OF COUNSEL

      Andrew J. Connick and Mark N. Parry for appellant-respondent.
    I. The Act of State doctrine requires that plaintiff’s claims herein be dismissed. (Underhill v Hernandez, 168 US 250; First Nat. City Bank v Banco Nacional de Cuba, 406 US 759; Banco Nacional de Cuba v Sabbatino, 376 US 398; Oetjen v Central Leather Co., 246 US 297; Ricaud v American Metal Co., 246 US 304; Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689, 29 AD2d 847, 393 US 982; French v Banco Nacional de Cuba, 23 NY2d 46; Republic of Iraq v First Nat. City Bank, 353 F2d 47, 382 US 1027; Vishipco Line v Chase Manhattan Bank, 660 F2d 854; Menendez v Saks & Co., 485 F2d 1355, revd on other grounds sub nom. Alfred Dunhill of London v Cuba, 425 US 682.) II. New York choice of law rules also require that plaintiff’s claims against Chase be dismissed. (Auten v Auten, 308 NY 155; Sokoloff v National City Bank, 239 NY 158; Dougherty v Equitable Life Assur. Soc., 266 NY 71; Tillman v National City Bank, 118 F2d 631, 314 US 650; United States v Belmont, 301 US 324; Zimmermann v Sutherland, 274 US 253; Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689; Day-Gormley Leather Co. v National City Bank, 8 F Supp 503.) III. No interest is payable on the certificates of deposit from the date of maturity to January 21, 1974, the date of demand.

      Gerald D. Roth, Irving Margolies and Peter P. Kenny for respondent-appellant.
    I. Under its contract with plaintiff, Chase is obligated under the certificates, notwithstanding the confiscatory actions of the Cuban government. (Long Is. R. R. Co. v Northville Inds. Corp., 41 NY2d 455; Wood v Duff-Gordon, 222 NY 88; South Amer. Petroleum Corp. v Colombian Petroleum Co., 177 Misc 756; Anglo-Continen

      tale Treuhand, AG. v St. Louis Southwestern Ry. Co., 81 F2d 11, cert den sub nom. Henwood v Anglo-Continentale Treuhand, AG., 298 US 655; Pan Amer. Securities Corp. v Fried, Krupp AG., 169 Misc 445, 256 App Div 955; Van der Veen v Amsterdamsche Bank, 178 Misc 668.) II. New York law is applicable as a matter of choice of law, and under New York’s traditional policy against uncompensated confiscations, the Cuban confiscation should not be recognized. The Act of State doctrine does not require a different result. It is not applicable because of the territorial limitations on that doctrine. (Zeevi & Sons v Grindlays Bank [Uganda], 37 NY2d 220, 423 US 866; Intercontinental Planning v Daystrom, Inc., 24 NY2d 372; Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574; Vishipco Line v Chase Manhattan Bank, 660 F2d 854; Republic of Iraq v First Nat. City Bank, 353 F2d 47, 382 US 1027; KMW Int. v Chase Manhattan Bank, 606 F2d 10; Blanco v Pan-American Life Ins. Co., 221 F Supp 219, 362 F2d 167; Stroganoff-Scherbatoff v Weldon, 420 F Supp 18; Salimoff & Co. v Standard Oil Co., 262 NY 220; Tabacalera Severiano Jorge, S.A. v Standard Cigar Co., 392 F2d 706.) III. Chase’s nationalization and banking law defenses are not sustainable. IV. Plaintiff is entitled to interest at the legal rate from and after the date Chase breached its obligations in 1959. (Borrello v Perera Co., 381 F Supp 1226; Rachlin & Co. v Tra-Mar, Inc., 33 AD2d 370; Sokoloff v National City Bank, 250 NY 69; People v Merchants’ Trust Co., 187 NY 293; Smiley v Fry, 100 NY 262; Delahunty v Central Nat. Bank, 37 App Div 434; Hechter v New York Life Ins. Co., 46 NY2d 34; Barr v Wackman, 36 NY2d 371; Lowden v Northwestern Nat. Bank & Trust Co., 86 F2d 376, 298 US 160, 299 US 583.)

      John L. Warden, H. Rodgin Cohen and Michael Straus for The New York" Clearing House Association, amicus curiae.

    I. Cuba’s seizure of Chase’s debt to Manas was an Act of State affecting property situated in Cuba and extinguished the debt. (Banco Nacional de Cuba v Sabbatino, 376 US 398; Underhill v Hernandez, 168 US 250; Republic of Iraq v First Nat. City Bank, 353 F2d 47, 382 US 1027; Clearfield Trust Co. v United States, 318 US 363; Det Bergenske Dampskibsselkab v Sabre Shipping Corp., 341 F2d 50; Dougherty v National City Bank, 157 Misc 849; McCloskey v Chase Manhattan Bank, 11 NY2d 936; Bluebird Undergarment Corp. v Gomez, 139 Misc 742; Dougherty v Equitable Life Assur. Soc., 266 NY 71; Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689, 29 AD2d 847, 393 US 982.) II. Cuba’s nationalization of Chase’s Cuban branch was also an Act of State and extinguished any liability of Chase to Manas. (Dougherty v Equitable Life Assur. Soc., 266 NY 71; Tillman v National City Bank, 118 F2d 631, 314 US 650; Dougherty v National City Bank, 157 Misc 849.) III. The court below erred in concluding that under the circumstances of this case, Chase’s debt was situated only outside of Cuba. (Menendez v Saks & Co., 485 F2d 1355; Harris v Balk, 198 US 215; Vishipco Line v Chase Manhattan Bank, 660 F2d 854; Republic of Iraq v First Nat. City Bank, 353 F2d 47; Sokoloff v National City Bank, 239 NY 158; Dougherty v Equitable Life Assur. Soc., 266 NY 71.) IV. The court below’s imposition of double liability contravenes the mandate of the State Legislature. (Dougherty v National City Bank, 157 Misc 849.) V. The court below’s holding conflicts with Federal and State law regulating banking.

      John Leferovich, Jr., Henry Harfield, John E. Hoffman, Jr., and Jennifer Freeman for the New York State Bankers Association, amicus curiae.

    I. New York law protects New York banking organizations against multiple liability. (Banco Nacional de Cuba v Sabbatino, 376 US 398; Underhill v Hernandez, 168 US 250; Salimoff & Co. v Standard Oil Co., 262 NY 220; Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689, 29 AD2d 847, 393 US 982; Bernstein v Van Heyghen Frères Societe Anonyme, 163 F2d 246, 332 US 772; Republic of Iraq v First Nat. City Bank, 353 F2d 47, 382 US 1027; First Nat. City Bank v Banco Nacional de Cuba, 406 US 759; Banco Nacional de Cuba v First Nat. City Bank, 478 F2d 191; Banco Nacional de Cuba v Farr, 383 F2d 166, 390 US 956; Pons v Republic of Cuba, 294 F2d 925, 368 US 960.) II. The place of payment determines the situs of a debt. When the contract of indebtedness specifies no place of payment or contemplates alternate places of payment, the debt acquires a final situs at the place of first enforcement. (Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689; Menendez v Saks & Co., 485 F2d 1355, revd on other grounds sub nom. Alfred Dunhill of London v Cuba, 425 US 682; Vishipco Line v Chase Manhattan Bank, 660 F2d 854; Tillman v National City Bank, 118 F2d 631, 314 US 650; Sokoloff v National City Bank, 239 NY 158; Dougherty v Equitable Life Assur. Soc., 266 NY 71; Zeevi & Sons v Grindlays Bank [Uganda], 37 NY2d 220, 423 US 866.) III. The decision of the court below improperly and unfairly imposes political risk on New York banking organizations and disregards the realities of international banking. (Shaffer v Heitner, 433 US 186.)
   OPINION OF THE COURT

Kaye, J.

Rosa Manas y Pineiro (Manas), a Cuban national, in 1958 purchased five certificates of deposit from the Marianao, Cuba branch of defendant Chase Manhattan Bank (Chase), and first presented them for payment at Chase’s New York office in 1974. The issue on this appeal is whether Chase is excused from payment to Manas because, in September, 1959, the Cuban government confiscated Manas’ accounts and Chase surrendered the funds representing the certificates. Because the certificates were payable in Cuba and Chase at the time of the confiscation was present there, the Cuban government had the power to enforce and collect Chase’s debt to Manas in Cuba, and the Act of State doctrine precludes inquiry by this court into the propriety of a confiscation directed particularly at Manas’ assets in Cuba. Having once made payment, Chase is not liable to pay on the certificates of deposit a second time.

Plaintiff, Esther Garcia Manas Perez, is the administratrix of Manas’ estate. Manas was the wife of a cabinet minister in the government of Cuba’s former leader, General Fulgencio Batista. Between May and December, 1958, she purchased five non-negotiable certificates of deposit, totaling $227,336.47, from Chase by depositing Cuban pesos in that amount at Chase’s branch in Marianao, a suburb of Havana. The certificates provided for the payment of 3% interest and had maturity dates between April and June, 1959. Plaintiff claims that political uncertainty in Cuba motivated the purchase of these certificates from a worldwide bank, and that Manas was repeatedly assured by a Chase employee that the certificates could be redeemed wherever Chase had an office, particularly in the United States. However, no place of payment was specified in the certificates. The certificates provided only that payment was to be made in “moneda nacional,” or national currency.

When Fidel Castro assumed control on January 1,1959, Manas’ husband took asylum in the Colombian embassy in Havana and thereafter left Cuba for Colombia. Manas remained in Cuba for the first half of 1959, visited her husband in Colombia, returned to Cuba for approximately four months in 1960, joined her husband in Mexico, and both later relocated to the United States. In that period no effort was made to redeem the certificates.

By Law No. 78 of February 13, 1959, the Cuban government created the Ministry of Recovery of Misappropriated Property “to recover property of any type which has been removed from the National Wealth and obtain the complete restoration of the proceeds of unjust enrichments obtained under the cover of the Public Power.” The minister was given the power to conduct investigations, freeze bank accounts, take possession of property, and enact “final decisions” returning the confiscated property to the “National Wealth.” Chase was thereafter directed to freeze accounts belonging to certain former government officials and their families, and in September, 1959 the ministry ordered Chase to close such frozen accounts — including specifically those represented by Manas’ certificates which had by then reached maturity — and remit the proceeds to the ministry. In compliance with that directive Chase turned funds in the amount of Manas’ certificates over to the government. Approximately a year, after the confiscation of Manas’ assets, on July 6, 1960, the Castro government enacted Law No. 851, providing for nationalization of United States firms in Cuba, and by Resolution No. 2 of September 17, 1960, the government nationalized all of Chase’s Cuban branches.

It was not until January, 1974 that Manas, by then residing in the United States, for the first time presented her certificates to Chase’s office in New York and demanded payment, which was refused. Manas instituted this action in July, 1974 by motion for summary judgment in lieu of complaint, and Chase cross-moved for summary judgment. Both motions were denied, and the Appellate Division affirmed (52 AD2d 794). Chase subsequently removed the case to the United States District Court for the Southern District of New York, but the action was remanded (443 F Supp 418).

The action proceeded to trial in June of 1980. The following three questions were submitted to the jury:

“1. What was the intention of [Manas] and [Chase] with regard to the currency with which the certificates of deposit were to be repaid? 1. U.S. dollars; 2. Cuban pesos.

“2. What was the intention of [Manas] and [Chase] with regard to the place of presentment of the certificates of deposit? 1. New York only; 2. Marianao, Cuba only; 3. any branch of the defendant Chase anywhere in the world, including New York and Marianao, Cuba; 4. any branch of defendant Chase anywhere in the world, excluding Marianao, Cuba.

“3. Were [Manas’] funds on deposit in defendant Chase in Marianao confiscated by the Cuban government’s Ministry of Misappropriated Funds?”

The jury found that the certificates of deposit were repayable in United States dollars, that the certificates could be presented to any Chase branch in the world, including New York and Cuba, and that Manas’ funds on deposit in Chase’s Marianao branch were confiscated by the Ministry of Misappropriated Funds.

Both parties then moved for judgment. In view of the jury’s findings, Trial Term held that Chase’s debt to Manas had its situs in Cuba as the certificates were capable of being repaid in Cuba and Chase’s Cuban branches were open and operating subject to the laws and jurisdiction of the Cuban government at the time of the September, 1959 confiscation. Trial Term thereupon entered judgment for Chase in December, 1980, concluding:

“In the case at bar, both the persons and the res were within the territorial dominion of the acting State at the time of the confiscatory taking. In this court’s opinion, under the facts as established at trial, the situs of the debt herein was Cuba. In order for this debt to be beyond Cuban jurisdiction in this case, it would have been necessary for the jury to have found that the place of presentment was only outside of Cuba. The jury finding that payment could be anywhere did not change the situs of this debt from Chase in Cuba while it functioned there. It only created an option for plaintiff to collect the debt elsewhere prior to the confiscation. Although it is true, as asserted by plaintiff, that the parent bank is ultimately liable for the obligations of the branch (Sokoloff v National City Bank of N. Y., 130 Misc 66, affd 223 App Div 754, affd 250 NY 69), such a liability does not alter the situs of the debt. When the branch’s liability is extinguished, as under the facts herein, the parent is relieved as well.

“Accordingly, this court holds that the judicial self-limiting act of State doctrine applies herein as the confiscation of plaintiff’s funds was an official act of a sovereign government fully executed within its own jurisdiction and whose validity this court must refuse to inquire into, thereby implicitly giving the act extraterritorial effect.” (106 Misc 2d 660, 666-667.)

The Appellate Division reversed (93 AD2d 402), holding that: (1) the Act of State doctrine applies to the taking of intangible property such as Chase’s debt to Manas only “where the obligation is found to be situated exclusively within the foreign State”; (2) “the Act of State doctrine should not be, and apparently never has been, applied to relieve an American bank of obligations owed by its branches to depositors” (93 AD2d, p 409); and (3) under the rationale of Vishipco Line v Chase Manhattan Bank (660 F2d 854, cert den 459 US 976), when Chase’s Cuban branches ceased operation due to the bank nationalization in 1960, Chase was not relieved from its obligation to redeem the certificates at its other branches, even though the nationalization decree provided that the Cuban government (through Banco Nacional de Cuba) assumed the liabilities of Chase’s Cuban branches. Chase appeals to this court from that determination, and plaintiff cross-appeals from that portion of the Appellate Division’s order relating to the computation of interest on the certificates. Because the Appellate Division’s analysis erroneously ignores the impact of the September, 1959 confiscation specifically seizing Manas’ deposits before Chase’s Cuban branches ceased operation, and otherwise misperceives the applicability of the Act of State doctrine, we now reverse.

The basic premise of the Act of State doctrine is that “the courts of one country will not sit in judgment on the acts of the government of another done within its own territory.” (Underhill v Hernandez, 168 US 250, 252; Banco Nacional de Cuba v Sabbatino, 376 US 398, 416; see Restatement, Foreign Relations Law of United States 2d, § 41.) Whether the property seized is tangible or intangible is not dispositive. (Menendez v Saks & Co., 485 F2d 1355, 1364, revd on other grounds sub nom. Alfred Dunhill of London v Cuba, 425 US 682.) The doctrine applies when the foreign sovereign’s act amounts to a taking of property within its own borders. (Republic of Iraq v First Nat. City Bank, 353 F2d 47, cert den 382 US 1027.)

We must first determine whether the property taken by the Cuban government — here, Chase’s debt to Manas — was within its borders. For purposes of the Act of State doctrine, a debt is located within a foreign State when that State has the power to enforce or collect it. (Weston Banking Corp. v Turkiye Garanti Bankasi, A. S., 57 NY2d 315, 324; Zeevi & Sons v Grindlays Bank [Uganda], 37 NY2d 220, 228, cert den 423 US 866; Menendez v Saks & Co., 485 F2d 1355, 1364, supra; United Bank v Cosmic Int., 392 F Supp 262, affd 542 F2d 868, 873.) Since Harris v Balk (198 US 215, 222-223), the power to enforce or collect a debt has been dependent on the presence of the debtor. If the debtor is present in the foreign State and the debt is payable there, the foreign sovereign then has power to enforce or collect it, and a confiscation of that debt amounts to a seizure of property within that sovereign’s borders.

At the time the Cuban government confiscated Manas’ deposits in September, 1959, the debtor (Chase) was present in Cuba. Its Cuban branches were open and operating under Cuban authority, and the debt owed by Chase to Manas — as the jury found — was payable at any Chase bank in the world including the Marianao branch where it was confiscated. While the certificates had by that time matured, and could have been redeemed elsewhere, Manas had taken no steps to redeem them in or out of Cuba. Where, as here, Chase paid over the full amount of its debt pursuant to the direction of the Cuban government, a direction which under the Act of State doctrine, is beyond our review, Chase is relieved of liability on any subsequent demand by Manas for the funds. (Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689, 692-693, affd 29 AD2d 847, cert den 393 US 982.)

The fact that Chase’s debt to Manas was not exclusively payable in Cuba, but could in addition have been paid in other countries, does not affect this result. Manas bargained for and received the right to collect the debt from Chase at any of its branches throughout the world. While the debt contemplated alternate places of payment and thus had multiple situs, because it constituted but a single obligation to pay, payment at one of the places chosen for performance extinguished the debt at all of its situses. Manas herself surely could not have redeemed the certificates of deposit in Cuba and subsequently received payment on those same certificates at a Chase branch in another country. Chase’s debt to Manas was satisfied by payment to the Cuban government in response to its confiscation of Manas’ accounts, and at that point the debt, wherever else it had been payable, was extinguished.

Only when a debt or other obligation is not payable at all in the confiscating State would the Act of State doctrine be inapplicable. In such situations, the foreign sovereign has no power to enforce or collect the debt. (Zeevi & Sons v Grindlays Bank [Uganda], 37 NY2d 220, supra; Republic of Iraq v First Nat. City Bank, 353 F2d 47, cert den 382 US 1027, supra.) Here, however, as the jury found, Chase’s debt to Manas was payable in Cuba, giving Cuba the jurisdiction to collect and enforce it, which the Cuban government exercised. By reason of the Act of State doctrine the legitimacy of the confiscation is beyond our review.

The Hickenlooper amendment (US Code, tit 22, § 2370, subd [e], par [2]), which operates to preclude the application of the Act of State doctrine in certain circumstances, has no effect in this case. The amendment provides as follows: “Notwithstanding any other provision of law, no court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other right to property is asserted by any party including a foreign state (or a party claiming through such state) based upon (or traced through) a confiscation or other taking after January 1, 1959, by an act of that state in violation of the principles of international law, including the principles of compensation and the other standards set out in this subsection: Provided, That this subparagraph shall not be applicable (1) in any case in which an act of a foreign state is not contrary to international law or with respect to a claim of title or other right to property acquired pursuant to an irrevocable letter of credit of not more than 180 days duration issued in good faith prior to the time of the confiscation or other taking, or (2) in any case with respect to which the President determines that application of the act of state doctrine is required in that particular case by the foreign policy interests of the United States and a suggestion to this effect is filed on his behalf in that case with the court.”

The Hickenlooper amendment does not apply to confiscations by a foreign State of the property of its own nationals within its borders, since such confiscations are “not contrary to international law” (F. Policio y Compañía, S.A. v Brush, 256 F Supp 481, 486-487, affd 375 F2d 1011, cert den sub norm. Brush v Republic of Cuba, 389 US 830), or to expropriated property that remains in the confiscating country without coming within the territorial jurisdiction of the"United States (Banco Nacional de Cuba v First Nat. City Bank, 431 F2d 394, 400-402, revd on other grounds 406 US 759). Here, Manas was a Cuban citizen at the time of the confiscation and was either present in Cuba or only temporarily absent at the time of confiscation, and the debt, once seized in Cuba, did not come within this country’s jurisdiction. Accordingly, the Hickenlooper amendment does not preclude application of the Act of State doctrine in this action.

Nor are the decisions in Sokoloff v National City Bank (239 NY 158) and Vishipco Line v Chase Manhattan Bank (660 F2d 854, cert den 459 US 976, supra), in any way inconsistent with the result we reach today. In both Sokoloff and Vishipco, the banks were not entitled to rely upon a foreign sovereign’s order confiscating a depositor’s property where the bank’s branches in the foreign State had ceased operations prior to the confiscation order. The situs of the banks’ debts to their depositors was thus no longer in the foreign States and the confiscation order directed at the depositor’s property was of no effect. In Sokoloff this court explained that a “decree of confiscation directed against depositors does not reduce the liabilities of a bank which has already yielded up its assets in virtue of a decree of confiscation directed against itself.” (239 NY 158, 169.) And in Vishipco the Second Circuit wrote (p 862): “More importantly, however, upon Chase’s departure from Vietnam the deposits no longer had their situs in Vietnam at the time of the confiscation decree. As we have said in the past, ‘[f]or purposes of the act of the state doctrine, a debt is not “located” within a foreign state unless that state has the power to enforce or collect it.’ Menendez v. Saks and Co., 485 F.2d 1355, 1364 (2d Cir. 1973), rev’d on other grounds sub nom. Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976). The rule announced in Harris v. Balk, 198 U.S. 215, 25 S.Ct. 625, 49 L.Ed. 1023 (1905), continues to be valid on this point: the power to enforce payment of a debt depends on jurisdiction over the debtor. Since Chase had abandoned its Saigon branch at the time of the Vietnamese decree, and since it had no separate corporate identity in Vietnam which would remain in existence after its departure, the Vietnamese decree would not have had any effect on its debt to the corporate plaintiffs.” But in the case before us it is undisputed that at the time Manas’ accounts were confiscated in September, 1959, Chase’s branches in Cuba were open and operating, and the certificates had matured. Manas thus had the opportunity prior to the seizure to redeem the certificates in Cuba or at any of Chase’s branches throughout the world. Since Chase’s debt to Manas was extinguished before the bank was nationalized, there is no occasion to apply the rationale of Sokoloff and Vis hipeo.

In sum, the situs of Manas’ property — the debt due from Chase on her certificates — was Cuba at the time of the government’s confiscation of her property and Chase’s payment. The confiscation was an act of a foreign sovereign affecting the property of one of its own nationals within its own borders, and cannot be examined in this court. Having paid the full amount of the certificates, Chase was relieved of liability to make a second payment on those certificates when Manas presented them some 15 years later.

Accordingly, the order of the Appellate Division should be reversed, and Trial Term’s judgment for defendant Chase reinstated, and plaintiff’s cross appeal dismissed as academic.

Wachtler, J.

(dissenting). Money deposited in an American bank which is payable at any of its branches, should not be deemed to have its situs in every country in which the bank may have a branch office, so that the debt may be extinguished by any government which decides to confiscate the account “located” within its borders. The concept that a debt may have multiple situses — in every jurisdiction where the debtor has established an office — has never been held by the Supreme Court to be an essential or acceptable ingredient of the Act of State doctrine.

A more conservative application of the Act of State doctrine should not bar the courts of this State from granting the plaintiff any relief in this case. Although the suit is occasioned by the confiscation of bank assets in Cuba, it involves only private litigants and the question as to which of them must bear the loss: the bank whose assets were physically confiscated; or the depositor whose intangible account, payable at any of the bank’s worldwide branches, was designated in the Cuban order of confiscation. If the Act of State doctrine requires this court to abstain from considering the legality or illegality of the foreign seizure, and thus from deciding the case on that ground, it should not preclude the court from resolving this private dispute by consideration of other factors in much the same manner as we would if it had been precipitated by an act of nature.

The Act of State doctrine, which precludes the courts of this country from adjudicating the legality of acts of foreign governments, is akin to the rule which requires the courts to abstain from deciding political questions. It is a rule of Federal law which, although not expressly stated in the Constitution, has “constitutional underpinnings” and is binding on all courts, both State and Federal (Banco Nacional de Cuba v Sabbatino, 376 US 398, 417, 421, 427). It is based on the principle that matters relating to foreign affairs are primarily within the province of the political branches of the Federal Government, and that it is inappropriate for the courts to pass on such matters in the context of individual suits because it could lead to confusion or embarrassment in an area in which the Nation should speak with one voice (Banco Nacional de Cuba v Sabbatino, supra, pp 423, 427-428). Thus, when the courts invoke the Act of State doctrine they are not enforcing the right of a private litigant. Instead they are exercising judicial restraint by declining to decide a question which should properly be resolved through the political process by the political branches of the government charged with responsibility for the conduct of foreign affairs.

The application of the doctrine to foreign seizures of physical assets, such as ships, real estate, raw materials and other products, has posed little difficulty for the courts. In such cases the location of the property at the time of the confiscation is a matter of fact which is generally conceded (see, e.g., Oetjen v Central Leather Co., 246 US 297; Ricaud v American Metal Co., 246 US 304; Shapleigh v Mier, 299 US 468; Banco Nacional de Cuba v Sabbatino, supra). Any threshold questions as to whether the property seized was within the territorial jurisdiction of the confiscatory power, have also been reduced to matters of fact. As Justice Holmes observed, in a case where it was urged that a plantation seized by troops from Costa Rica was actually in Panama: “The fact, if it be one, that de jure the estate is in Panama does not matter in the least; sovereignty is pure fact” (American Banana Co. v United Fruit Co., 213 US 347, 358).

When, however, a foreign government has purported to seize an intangible asset “within” its territory, it is not clear from the Supreme Court decisions whether the Act of State doctrine is applicable and, if so, how it is to be applied (cf. Alfred Dunhill of London v Cuba, 425 US 682, 690). The problem, of course, is that an intangible, such as a debt, has no actual physical location and can only be said to be “located” within a jurisdiction as a matter of law or “legal fiction” (Severnoe Securities Corp. v London & Lancashire Ins. Co., 255 NY 120, 123 [Cardozo, J.]). If the doctrine does generally apply to intangibles it poses two problems for the courts. First, in order to determine whether the doctrine precludes the courts from considering the legality of the seizure in a given case, the court must decide, as a matter of law, the threshold question as to whether the intangible had its legal situs in the confiscating country. Thus the court must apparently violate the concept and determine the legality of the seizure, at least to the extent of determining the threshold question as to whether the confiscating country could lawfully exercise jurisdiction over the asset. This may be a tolerable intrusion into foreign affairs, although it is conceivable that a judicial resolution of the “limited” jurisdictional question could interfere with the political branches by undermining a position they have previously, and perhaps secretly, taken or might otherwise adopt in the future with respect to this or similar confiscatory acts.

Secondly, the courts must decide which law or legal fiction is most appropriate for fixing the situs of the intangible, bearing in mind that nothing is more intangible than the laws respecting the situs of an intangible (Tabacalera Severiano Jorge, S.A. v Standard Cigar Co., 392 F2d 706, 714).

One of the many rules the courts may choose from, in determining the legal situs of an intangible asset, is the rule that the asset travels with the creditor (Severnoe Securities Corp. v London & Lancashire Ins. Co., supra, p 123; Farmers Loan Co. v Minnesota, 280 US 204). That rule is supported by fiscal reality since a debt can only be said to be an asset of the creditor, and not the debtor for whom it is a liability (Railroad Co. v Pennsylvania, 15 Wall [82 US] 300, 320; Farmers Loan Co. v Minnesota, Supra, pp 211-213). Application of that rule to this case would permit the plaintiff to recover since the record does not establish that the creditor-depositor, and thus her intangible asset, was in Cuba at the time of the confiscation. The affirmed factual findings show only that the depositor fled Cuba before the confiscation, and made one or more return trips in early 1959 at unspecified times. There are also affirmed findings that the debt was payable in this State, and thus could be enforced against the bank which also has its headquarters in this State.

The complicating factor is that the facts establish that the debt was payable at any of the bank’s branches anywhere in the world. That, of course, would include the branch it continued to maintain in Cuba at the time of the confiscation and for sometime afterwards, until the Cuban government nationalized its remaining assets. Because of these circumstances the bank and the amicus, New York State Bankers Association, urge that the court adopt the rule that the plaintiff’s intangible asset should be held to have its legal situs where the debtor was located, although they disagree as to whether the rule should extend to all of the branches, as Chase contends, or only to the Cuban branch, as the amicus urges.

The court has applied the rule tendered by the defendant by relying on cases in which the debtor was not present in the confiscating country, or the debt was held not to be payable there (Republic of Iraq v First Nat. City Bank, 353 F2d 47, cert den 382 US 1027; Menendez v Saks & Co., 485 F2d 1355, 1364; United Bank v Cosmic Int., 392 F Supp 262, affd 542 F2d 868, 873; Weston Banking Corp. v Turkiye Garanti Bankasi, A. S., 57 NY2d 315; Zeevi & Sons v Grindlays Bank [Uganda], 37 NY2d 220). Adoption of the rule in those cases placed the intangible beyond the confiscating power and, therefore, leaves open the question as to whether the courts would have found the same rule appropriate if it would have yielded a different result. The question was candidly reserved in the leading case (Republic of Iraq v First Nat. City Bank, 353 F2d 47, cert den 382 US 1027, supra) where the court stated (at p 51): “[I]n the absence of any showing that Irving Trust had an office in Iraq or would be in any way answerable to its courts, we need not consider whether [our] conclusion would differ if it did”. That the selection of the “proper” rule is essentially a policy decision is underscored by the opinion in Menendez v Saks & Co. (485 F2d 1355, revd on other grounds sub nom. Alfred Dunhill of London v Cuba, 425 US 682, supra). In that case the Cuban government urged that the court employ the competing rule, that the debt follows the creditor, and observed that it had been endorsed by the Supreme Court and indeed held constitutionally mandated in another context. The court rejected the argument simply noting that the Supreme Court’s determination with respect to situs was based on different “policy” considerations (see, also, Tabacalera Severiano Jorge, S.A. v Standard Cigar Co., supra).

In sum, the cases employing the rule that an intangible is located where the debtor can be found do not establish a fixed rule of law under the Act of State doctrine and can only be so construed if the policy nature of the decisions is ignored (e.g., Trujillo-M v Bank of Nova Scotia, 51 Misc 2d 689, affd without opn 29 AD2d 847, cert den 393 US 982). What is more significant is that the court’s decision to employ the rule in the prior cases served to “place” the asset within a single country. This is apparently the first case in which the rule has been applied to the Act of State doctrine in such a way as to expose deposits made in an American bank, payable in United States currency at any of its branches worldwide, to confiscation by any country in which the bank maintains a branch office.

This extension of the rule comes at a time when the rule itself has been discarded or abandoned in most, if not all, other areas of American jurisprudence. In recent years the Supreme Court has consistently found constitutionally unacceptable the notion that an intangible asset may be located, and therefore be subject to seizure by a third party, wherever the debt may be enforced against the debtor (see, e.g., Farmers Loan Co. v Minnesota, supra; Texas v New Jersey, 379 US 674; Shaffer v Heitner, 433 US 186; Rush v Savchuk, 444 US 320). In those cases the court has noted in particular that the natural tendency of the rule is to establish multiple situses for the debt, which could leave the creditor in an unfair position. One of the cases recently overruled is our own decision in Seider v Roth (17 NY2d 111).

Similarly the Supreme Court’s most recent decisions with respect to the Act of State doctrine, all of which have been pluralities, also limit its application and call into question many of the premises on which it rests (see First Nat. City Bank v Banco Nacional de Cuba, 406 US 759, supra; Alfred Dunhill of London v Cuba, 425 US 682, supra). The Supreme Court has never considered whether for the purposes of the Act of State doctrine an intangible bank asset may be said to be present wherever the debt is enforceable against the bank. It is interesting to note, however, that the cases holding the rule applicable in that context have relied on older Supreme Court decisions (e.g., Harris v Balk, 198 US 215), which, as noted above, have recently been overruled by that court. The majority has admittedly relied on the overruled cases in the case now before us. Therefore, acceptance of the bank’s position in this case resurrects dead concepts, extends the Act of State doctrine far beyond the Supreme Court’s holdings and creates a kind of international Seider v Roth.

In a narrow sense the Supreme Court’s recent decisions rejecting the rule that a debt has its situs wherever it can be enforced against the debtor are distinguishable because they deal with the jurisdiction of the States, as opposed to that of foreign countries. Our courts, of course, cannot place jurisdictional limitations on foreign governments, as they can with respect to the States. But the broader principle the cases stand for is that the courts can and should reject the legal fiction of a ubiquitous debt or one which roves with the debtor, when the rule is capable of producing unfair results between private litigants. That is a principle which can be enforced even when the private suit has been prompted by the confiscatory act of a foreign State.

Judicial deference to the Act of State dpctrine can be accomplished in this case by ignoring legal fictions concerning intangibles and focusing instead on the fact that the only assets physically seized were those belonging to the bank. There is no doubt that the Act of State doctrine precludes the courts from considering the legality of Cuba’s act in seizing the bank’s assets. The court must accept, as a fact, that the title to the assets passed to the Cuban authorities and that they cannot be recovered from that government or from those to whom it may transfer the assets (see, e.g., Oetjen v Central Leather Co., supra; Banco Nacional de Cuba v Sabbatino, supra). With that issue Out of the case the fact remains that the bank has sustained a loss which it now seeks to shift to the depositor by refusing to pay the account. In my view it should not be permitted to do so.

The essence of the relationship between the parties is that the bank agreed to safeguard the depositor’s money. It did so in the midst of a revolution by accepting deposits from a person whose husband was an official in the government under attack. The bank specifically agreed that the certificates would be redeemed at any of its branches, most of which are in this country, and further agreed to pay in United States currency. Even after the revolution had succeeded, the bank remained in Cuba and maintained assets all of which could have been, and in fact ultimately were, confiscated by the Cuban government. Under these circumstances it could be said that the bank was fully aware of and accepted the risk of confiscation of its assets, and should not be permitted to refuse to honor its commitment to this depositor after her arrival in this country.

Accordingly, I would affirm the order of the Appellate Division.

Judges Jasen, Jones, Meyer and Simons concur with Judge Kaye; Judge Wachtler dissents and votes to affirm in a separate opinion in which Chief Judge Cooke concurs.

On defendant’s appeal, order reversed, without costs, and judgment of Supreme Court, New York County, reinstated. Plaintiff’s appeal dismissed, without costs.

      . Although another aspect of Harris v Balk has been overruled (see Shaffer v Heitner, 433 US 186), the debt-situs holding remains unimpaired.

      . The Appellate Division’s conclusion that “the Act of State doctrine * * * apparently never has been, applied to relieve an American bank of obligations owed by its branches to depositors” (93 AD2d, p 409) ignores the thrust of the decision in Trujillo. While the bank in Trujillo was a Canadian bank, the question presented was the liability of its New York office to repay deposits confiscated from one of its foreign branches pursuant to an order directed at plaintiff’s accounts. The court in Trujillo determined that under the Act of State doctrine the bank could not be liable to plaintiff on his subsequent demand for repayment.

      . Given this result, we do not reach the applicability of subdivision 1 of section 138 and section 204-a (subd 3, par [a]) of the Banking Law. We note that in Garcia v Chase Manhattan Bank (SDNY, June 7, 1983), a case similar on its facts, the Federal District Court found the Act of State doctrine inapplicable “since the situs of Chase’s obligation to plaintiff was outside of the jurisdiction of Cuba,” citing as its authority the Appellate Division decision which we now reverse. Garcia on March 28,1984 was affirmed by the Court of Appeals for the Second Circuit.

      . The Trial Term decision denying recovery to plaintiff is in fact cited in Vishipco (660 F2d 854, 863), and the court points out the factual distinction between the two cases.

      . The dissent misapprehends our holding. We hold that in the circumstances disclosed in this record as crystallized by the verdict of the jury, the rights of plaintiff evidenced by the certificates of deposit issued by Chase were located in Cuba at the time of the confiscation specifically directed against Manas’ assets, and that this act of the Cuban government is beyond our review. We do not hold that any purported confiscation by a foreign sovereign of deposits at American bank branches would be accorded similar effect. The certificates here were both issued and payable in Cuba, and therefore subject to enforcement and collection by the foreign sovereign. The circumstance that the Chase branch in Cuba was nationalized a year after confiscation of the certificates is irrelevant.


source: Caselaw Access Project

author: Meyer, J.

license: Public Domain

text:
    Henry Majauskas, Appellant-Respondent, v Sandra Majauskas, Respondent-Appellant.
    Argued February 20, 1984;
    decided April 3, 1984

      POINTS OF COUNSEL

      Gerald Beckerman and Diana S. Pitts for appellant-respondent.
    I. Plaintiff-appellant’s pension rights are not “marital property” under New York’s Domestic Relations Law. (Matter of Albano v Kirby, 36 NY2d 526.) II. Under the statutory scheme of the Domestic Relations Law (§ 236, part B) pension rights are not marital property. (Perri v Perri, 115 Misc 2d 478.) III. Pension rights are potential future income, not marital property. (Lesman v Lesman, 88 AD2d 153.) IV. The Domestic Relations Law (§ 236, part B) must be construed that pension rights are not marital property to avoid unconstitutionality; the award of a portion of plaintiff-appellant’s pension rights to defendant-appellant is unconstitutional. V. Plaintiff-appellant’s pension rights are in the nature of a social insurance program and are not property. VI. If plaintiff-appellant’s pension rights are property, they are separate property. (Birnbaum v New York State Teachers Retirement System, 5 NY2d 1.) VII. Previous New York decisions are not determinative of whether plaintiff-appellant’s pension rights are marital property. (Sauer v Sauer, 91 AD2d 1166; Jolis v Jolis, 111 Misc 2d 965; Kobylack v Kobylack, 110 Misc 2d 402; Perri v Perri, 115 Misc 2d 478; Szulgit v Szulgit, 92 AD2d 712; Lentz v Lentz, 117 Misc 2d 78; Hebron v Hebron, 116 Misc 2d 803; Reed v Reed, 93 AD2d 105; Damiano v Damiano, 94 AD2d 132.) VIII. The courts are without jurisdiction to award defendant-respondent a portion of plaintiff-appellant’s pension rights. (Lesman v Lesman, 88 AD2d 153.) IX. The court below erred in modifying the maintenance award.

      Mark A. Drexler for respondent-appellant.
    I. The husband’s vested but unmatured pension rights acquired during marriage are marital property subject to equitable distribution. (Hebron v Hebron, 116 Misc 2d 803; Reed v Reed, 93 AD2d 105; Damiano v Damiano, 94 AD2d 132; Matter of Albano v Kirby, 36 NY2d 526; Lentz v Lentz, 117 Misc 2d 78; McMains v McMains, 15 NY2d 283.) II. The New York courts have overwhelmingly concluded that vested pension rights acquired during marriage are marital property. (Reed v Reed, 93 AD2d 105; Damiano v Damiano, 94 AD2d 132; Szulgit v Szulgit, 92 AD2d 712, 94 AD2d 979; Sauer v Sauer, 91 AD2d 1166; Matter of Bentley v Knight, 92 AD2d 638; D'Amato v D'Amato, 96 AD2d 849; Hebron v Hebron, 116 Misc 2d 803; Fay v Fay, 108 Misc 2d 373; Jolis v Jolis, 111 Misc 2d 965; Lentz v Lentz, 117 Misc 2d 78.) III. The vast majority of equitable distribution and community property States are in agreement with New York’s decision to equitably distribute pension rights. (Lentz v Lentz, 117 Misc 2d 78.) IV. Even if the husband’s pension rights are not marital property, the distribution of pension rights below was correct. V. The equitable disposition granting to the wife her share of marital pension property was not unconstitutional. (Cogollos v Cogollos, 93 Misc 2d 406; Matter of M.H. v J.H., 93 Misc 2d 1016; Kleinfeldt v New York City Employees’ Retirement System, 36 NY2d 95.) VI. The modification of the maintenance award by the court below was proper. VII. The court below erred by modifying the procedure for payment of the wife’s share of pension benefits, and the further modification respecting payment of taxes on the wife’s share serves no useful purpose. VIII. The court below erred in modifying the child support award. (Lesman v Lesman, 88 AD2d 153; Matter of Trickel v Trickel, 88 AD2d 741; Matter of Brescia v Fitts, 56 NY2d 132; Matter of Boden v Boden, 42 NY2d 210; Friederwitzer v Friederwitzer, 55 NY2d 89; Doris v Doris, 81 AD2d 602; Murena v Murena, 75 AD2d 640; Schine v Schine, 28 AD2d 976; Glassman v Glassman, 20 AD2d 563; McMains v McMains, 15 NY2d 283.)
   OPINION OF THE COURT

Meyer, J.

Vested rights in a noncontributory pension plan are marital property to the extent that they were acquired between the date of the marriage and the commencement of a matrimonial action, even though the rights are unmatured at the time the action is begun. The matrimonial court in the exercise of the discretion vested in it by part B of section 236 of the Domestic Relations Law may order distribution to one spouse of an equitable portion of that part of the present value of the other spouse’s pension rights earned during marriage, or may provide that upon maturity of the pension rights the recipient pay a portion of each payment received to his or her former spouse or may, if it determines that valuation or other problems make equitable distribution impractical or burdensome, order a distributive award in lieu of equitable distribution. The order of the Appellate Division should, therefore, be affirmed, with costs to defendant.

I

Plaintiff and defendant were married on December 1, 1973. Plaintiff is a policeman with the Rochester Police Department and also works part time as a radio announcer. He became a participant in the department’s pension plan on February 20, 1973, but had worked for the department since 1969. Because he had more than 10 years’ service with the department when his divorce action was begun on August 4, 1980, plaintiff’s rights under the pension plan were vested but he was not then entitled to benefits under the plan. On November 23, 1981, plaintiff having withdrawn his complaint, defendant was granted a divorce against him on her counterclaim.

The trial evidence established that the parties owned no property of substance other than plaintiff’s pension rights under the provisions of section 384-d of the Retirement and Social Security Law. It included no details concerning what rights plaintiff would have upon retirement or when his right to retire matured, but defendant presented, without objection, two letters from an actuarial firm, stating the present value of plaintiff’s interest in the plan, prorated for the period of the marriage, to be $28,204.81. The Trial Judge awarded defendant custody of the two children of the marriage, maintenance of $43 per week, to be reduced if defendant obtained employment by $1 per week for every $3 of her gross earnings and child support of $60 per child, to be increased in proportion to any increase in gross salary from plaintiff’s police department job. With respect to plaintiff’s pension rights, the Trial Judge found that in view of the length of his service and of his membership in the retirement system, he had a vested but unmatured right to a pension which would permit him to retire at half pay on February 20, 1993, at the earliest. He held those rights to be marital property subject to equitable distribution, and of a present value as to the portion the wife was entitled to share in of $14,102.40, and directed that defendant be paid, at plaintiff’s option, as follows: (1) $14,102.40 outright to be paid within 30 days; (2) at any time before retirement, $14,102.40 plus interest at the legal rate from the date of judgment; or (3) in default of either of the above, that proportion of one half of each pension check which the number of months the parties were married bears to the total number of months plaintiff was employed as a policeman prior to his retirement. The judgment directed service upon the pension plan administrator of a copy of the judgment and enjoined the administrator to withhold and forward to defendant’s attorneys the amount of defendant’s benefits under the third option from each payment becoming due to plaintiff unless defendant notified the administrator that she had been paid the money to which she was entitled under option 1 or 2.

On the husband’s appeal to the Appellate Division, that court, two Justices dissenting, agreed that vested but unmatured pension rights constitute marital property, but, concluding that the record was insufficient for it to determine the propriety of the lump-sum award decreed by the Trial Judge and that there was little purpose to be served in ordering retrial of that question in view of plaintiff’s lack of means with which to pay such an award, deleted the alternate provisions for lump-sum payment, it also modified the judgment to provide that payments out of plaintiff’s retirement benefits when received be made to defendant by plaintiff, be measured against the payment received by plaintiff less taxes, and that defendant’s entitlement be measured by the period between the date of the marriage and the commencement of the action, and deleted from the judgment the provisions for future increase of child support and decrease of maintenance.

On plaintiff’s appeal to us he argues that pension rights are not marital property and that an award to defendant of any part of those rights violates the constitutional prohibition against diminishment or impairment of the benefits derived from the pension system of a civil division of the State (NY Const, art V, § 7). He contends also that the Appellate Division erred in deleting the provision for future reduction of maintenance. Defendant wife cross-appeals so much of the Appellate Division order as modified the method of computation and the procedure for payment of her portion of plaintiff’s pension benefits and the deletion of the provision for future increases in child support.

II

Marital property is defined by statute as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action” (Domestic Relations Law, § 236, part B, subd 1, par c). Expressly excluded from the definition is separate property which, as defined in paragraph d, includes only property acquired before marriage or through gift or inheritance, compensation for personal injury, property exchanged for or acquired through increase in value of separate property, or property designated as separate by written agreement of the spouses. The only express reference to pension rights, however, is contained in subdivision 5 (par d, cl 4 [Factor 4]), which specifies that one of the factors to be considered by the court in determining an equitable distribution of marital property is “the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution.” Plaintiff husband argues that the explicit reference to loss of pension rights upon dissolution of the marriage requires the conclusion that they cannot be marital property, that pension rights are not acquired until they mature, which will be after commencement of the action, that they are only a contingent right to future income, that if they constitute property they originated prior to the marriage and, therefore, constitute separate property and its increase, and that to order him to pay to defendant by way of distribution part of his future pension income, which when received may constitute the basis for maintenance payments to defendant, constitutes impermissible “double-dipping.”

Those arguments misperceive the legislative intent behind the enactment of part B and the nature of rights under a pension plan. As the Governor noted on approving the statute (L 1980, ch 281) which enacted part B of section 236 of the Domestic Relations Law, it was enacted after consideration over a six-year period and in response to his urging of the adoption of legislation which would consider the economic impact on spouses and children of the dissolution of a marriage, and it recognized “that the marriage relationship is also an economic partnership” (McKinney’s Session Laws of NY, 1980, p 1863). Moreover, that the Legislature intended the contribution of both spouses to the partnership to be recognized with respect to property acquired through the efforts of either becomes evident when the statutory scheme is considered as a whole. The court is empowered “in order to achieve equity between the parties,” not only to make an equitable disposition of marital property between them, but also to make a distributive award “in lieu of or to supplement, facilitate or effectuate the division or distribution of property where authorized in a matrimonial action, and payable in a lump sum or over a period of time” (Domestic Relations Law, § 236, part B, subd 1, par b; subd 5, par e). Importantly, not only is marital property defined broadly as all property acquired during the marriage prior to commencement of the action, but also the exception for separate property is narrowly written and expressly excludes from the increase in separate property which will be deemed separate property “such appreciation [as] is due in part to the contributions or efforts of the other spouse” (Domestic Relations Law, § 236, part B, subd 1, par d, cl [3]). Significantly also, the court is enjoined in determining an equitable disposition of marital property to consider the “direct or indirect contribution made to the acquisition of such marital property by the party not having title, including * * * contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party” (§ 236, part B, subd 5, par d, cl [6]).

If, against that statutory background, we consider, as the Legislature may be deemed to have by reason of its specific reference to “pension rights,” the rights commonly accorded an employee and his or her spouse in a pension plan, it becomes evident that an employee’s interest in such a plan, except to the extent that it is earned before marriage or after commencement of a matrimonial action, is marital property. The employee’s rights in such a plan are incremental; for each month or year of service he receives credit which will enter into the computation of what the plan will pay out to him or to his family. Until he has been employed for a stated period of years his interest in the plan is defeasible; if he is fired, or leaves voluntarily, and under some, but not all, plans if he dies before expiration of that period, neither he nor his family will receive anything from the plan, unless the plan is contributory, in which event he will usually be entitled to withdraw his contributions together with the interest they have earned. Once that period is past, his rights are said to be vested, which means that if he is fired, or leaves, he can, when he reaches retirement age, draw a pension even though no longer employed, and if he dies after vesting, a death benefit will be payable under most plans. Though his rights in the plan be vested, however, he may not draw a pension until he reaches a specified age, and if he continues employment after that age, he will continue to accrue time credit and thus increase the amount of the pension he can draw when he retires. Upon retirement his rights are said to be matured, and payments will be made under one of several options he may select. If he opts for a monthly stipend for himself alone, it will be determined by multiplying his average monthly wage over a given period (usually the highest consecutive 36 months) by a fraction the numerator of which is the number of months employed and the denominator of which is determined under the plan by the age at which he retires, and will be paid to him for life, any amount remaining in his pension reserve account when he dies being paid to his beneficiary. Another available option permits him to select a lesser monthly stipend for his life to be followed by a monthly stipend to his beneficiary for life, the amount of each being calculated actuarially on the basis of the life expectancies of each.

From the foregoing recital it is apparent that the nonemployee spouse may have rights under a pension plan which are independent of those of the employee: to receive the death benefit before vesting, if there is one, or before maturity; to receive the balance of the reserve if the employee retires but dies before the reserve is paid out, or to receive a monthly stipend after the death of the employee if the employee elects to take that option.

Whether the plan is contributory or noncontributory, the employee receives a lesser present compensation plus the contractual right to the future benefits payable under the pension plan. The value of those contractual rights will vary depending upon the number of years employed, but where, as here, the rights are vested, or where they are matured, they have an actuarially calculable value. To the extent that they result from employment time after marriage and before commencement of a matrimonial action, they are contract rights of value, received in lieu of higher compensation which would otherwise have enhanced either marital assets or the marital standard of living and, therefore, are marital property.

The husband’s arguments do not require a contrary conclusion. Factor 4’s reference to “loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution” must be read as speaking to the loss of the nonemployee’s independent rights outlined above, which are essentially equivalent to inheritance rights, not to loss of the employee spouse’s pension rights acquired during marriage, for otherwise even matured pension rights, though clearly marital property, would be excluded. Moreover, pension rights acquired incrementally during marriage cannot be characterized as the increase of separate property originating before marriage in light of the exclusion of “appreciation * * * due in part to the contributions or efforts of the other spouse” (Domestic Relations Law, § 236, part B, subd 1, par d, cl [3]) from the definition of separate property increase and thus its inclusion in the concept of marital property. Nor does the fact that the highest consecutive 36 months’ earnings upon which the employee spouse’s monthly stipend depends may occur after divorce affect the conclusion, for as the Delaware Supreme Court held in Jerry L. C. v Lucille H. C. (448 A2d, at p 226), “Mince each employment year is counted for pension purposes each contributes to the high salary years.” Finally, the suggestion that by making the distribution under consideration the husband will be unjustly burdened by “double-dipping” ignores the provisions of the statute which require that in determining distribution the court must consider “any award of maintenance under subdivision six” (Domestic Relations Law, § 236, part B, subd 5, par d, cl [5]) and that in determining the amount of maintenance the court must consider “marital property distributed pursuant to subdivision 5” (§ 236, part B, subd 6, par a, cl [1]).

There remains for consideration the husband’s contention that to distribute his pension is to diminish or impair it contrary to the State Constitution (art V, § 7). The short answer is that the pension of the employee spouse is not diminished in the sense that the pension fund will pay any lesser amount. The husband’s reliance upon Caravaggio v Retirement Bd. (36 NY2d 348) is misplaced, for that decision depended not upon the Constitution but upon an antiassignment statute, and held that the pensioner could not contract away, by a provision in a separation agreement purporting to make his then wife the irrevocable beneficiary of all benefits payable upon his death after retirement, his right under the plan to designate his second wife as such beneficiary. Although section 410 of the Retirement and Social Security Law contains similar protection of police pensions against assignment or legal process, such provisions have been consistently construed not to have the effect of depriving the nonemployee spouse of the rights accorded him or her upon dissolution of the marriage by a decree of divorce (Monck v Monck, 184 App Div 656; Zwingmann v Zwingmann, 150 App Div 358; Matter of Spadaro v New York City Police Dept. Pension Serv., 115 Misc 2d 494; see American Tel. & Tel. Co. v Merry, 592 F2d 118).

Ill

The modifications of the judgment ordered by the Appellate Division are either correct as a matter of law or matters committed to the discretion of that court and, therefore, beyond our power of review.

Whether marital property shall be distributed or a distributive award shall be made in lieu of, or to supplement, facilitate or effectuate a distribution of marital property are matters committed by section 236 (part B, subd 5) of the Domestic Relations Law to the discretion of the Trial Judge in the first instance. The authority of the Appellate Division is, however, as we have often noted (e.g., Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492), as broad as that of the Trial Judge, and absent an exercise of discretion on its part so egregious that it can be characterized as an abuse as a matter of law, its exercise of discretion is not reviewable by us (Patron v Patron, 40 NY2d 582). Its change in the procedure of payment of defendant’s portion of future pension payments received by plaintiff is, therefore, beyond our review. As concerns the method of computation, the Trial Judge had directed the use, as the numerator of the fraction, of the number of months the parties were married. By limiting the numerator to the number of months prior to commencement of the action during which the parties were married, the Appellate Division simply conformed the judgment to the statutory definition of marital property as property acquired before commencement of the matrimonial action (Domestic Relations Law, § 236, part B, subd 1, par c).

Nor was there error in the deletion of the provisions for future changes in maintenance and support. The husband, having argued before the Appellate Division that both modifications should be deleted, will not now be heard to say that, because the wife did not cross-appeal to the Appellate Division, deletion of the provision for future decrease of his maintenance payments was improper. Moreover, deletion of both the increase and the decrease provisions was correct. The maintenance and support provisions of a matrimonial decree are discretionary determinations based upon not one but a number of interrelated facts found by the Trial Judge to exist (Domestic Relations Law, § 236, part B, subds 6, 7). To direct a future change on the occurrence of any given fact (for example, as here, the wife’s obtaining employment) ignores the possibility of change in other factors affecting the computation (e.g., increased expenses for child care during the wife’s hours away from home after she obtains employment). Except when a judgment provides for an imminent and measurable change (as when it directs sale of the marital residence and increases maintenance by the amount of rent that will be required after sale), or where statutory provision expressly provides otherwise (e.g., Domestic Relations Law, § 32, subd 3), such a judgment should not include provision for increase or decrease upon the happening of a particular future event (Lesman v Lesman, 88 AD2d 153, 161, app dsmd 57 NY2d 956; Golden v Golden, 37 AD2d 578; see 22 NYCRR 699.9 [f] [5]).

Accordingly, the order of the Appellate Division should be affirmed, with costs to defendant.

Chief Judge Cooke and Judges Jasen, Jones, Wachtler, Simons and Kaye concur.

Order affirmed, etc.

      . The letter erroneously used as the number of months for apportionment 90, rather than the correct figure, which is 80. In view of the Appellate Division’s deletion, in the exercise of discretion, of any lump-sum award, the error has no bearing on the conclusion reached in this opinion.

      . As a matter of convenience only the pronoun “he” is used in the description of rights that follows.

      . (See, generally, as to such rights, Mamorsky, Employee Benefits Law, §§ 1.02, 1.03, 1.04; Buck, Features of Present-Day Pension Plans, BNA Pensions & Profit Sharing [3d ed], 20-37; 1 Prentice-Hall, Pension and Profit Sharing, par 5500 if.)

      . Although the record contains no complete specification of plaintiff’s rights, the Trial Judge’s findings and the provisions of article 8 of the Retirement and Social Security Law establish the following: He can retire after 20 years of service with an allowance of one half his final average salary, or after attaining age 62 with an allowance of Moth of his final average salary for each year of service (Retirement and Social Security Law, § 384-d, subd e); final average salary means the highest average annual compensation earned during any three consecutive years (Retirement and Social Security Law, § 302, subd 9); the plan includes an ordinary death benefit payable when an employee dies before retirement to the person he nominates to receive it (Retirement and Social Security Law, § 360, subds a, c), and an accidental death benefit payable to his widow or, if none, other designated relative (Retirement and Social Security Law, § 361); the plan includes a vested retirement allowance after 10 years of service payable upon discontinuance of service but not earlier than age 55 (Retirement and Social Security Law, § 376); and the retirement allowance is payable to him and his designated beneficiary in accordance with one of five options spelled out in the statute (Retirement and Social Security Law, § 390).

      . In view of that fact, we do not reach or consider the status of nonvested pension rights.

      . The conclusion thus reached accords with that of most out-of-State courts (e.g., Matter of Brown, 15 Cal 3d 838; Jerry L. C. v Lucille H. C., 448 A2d 223 [Del]; Matter of Hunt, 78 Ill App 3d 653; Hatcher v Hatcher, 129 Mich App 753, 343 NW2d 498; Copeland v Copeland, 91 NM 409; Kikkert v Kikkert, 177 NJ Super 471, affd 88 NJ 4; see Foster, A Practical Guide to the New York Equitable Distribution Divorce Law, pp 159-188, 191-200; Ann., 94 ALR3d 176) and with the result though not entirely with the reasoning of those Appellate Divisions (D’Amato v D’Amato, 96 AD2d 849; Damiano v Damiano, 94 AD2d 132; Szulgit v Szulgit, 92 AD2d 712, on rearg 94 AD2d 979; see Reed v Reed, 93 AD2d 105, app dsmd sub nom, Patricia R, v Thomas R., 59 NY2d 761) and trial courts (Hebron v Hebron, 116 Misc 2d 803; Perri v Perri, 115 Misc 2d 478; McDermott v McDermott, 123 Misc 2d 355; see Lentz v Lentz, 117 Misc 2d 78) that have considered the question.


author:
Meyer, J.
      Jones, J.

text:
    F & F Restaurant Corp., Appellant, v Wells, Goode & Benefit, Ltd., et al., Respondents.
    Argued January 10, 1984;
    decided April 3, 1984

      POINTS OF COUNSEL

      Donald S. Snider and Gerald M. Levine for appellant.
    I. The existence of a conditional side lease which by its terms becomes void on the happening of an event cannot be construed as a surrender of a prior existing lease. (Aron v Gillman, 309 NY 157; Manson v Curtis, 223 NY 313.) II. The two versions of the October lease should be read together as contemporaneous writings. (Nau v Vulcan Rail & Constr. Co., 286 NY 188; Knowles v Toone, 96 NY 533; Marsh v Dodge, 66 NY 533.) III. The third-party beneficiary agreement contained in rider paragraph 49 expressly manifests the intention of the parties to protect “any future assignee” from losing its possessory rights to the leasehold estate. (Matter of Associated Teachers of Huntington v Board of Educ., 33 NY2d 229; Cutler v Hartford Life Ins. Co., 22 NY2d 245; Goodman-Marks Assoc. v Westbury Post Assoc., 70 AD2d 145; Beveridge v New York El. R. R. Co., 112 NY 1.) IV. Margin Call and F & F were each assigned their predecessor’s entire possessory interest in the leased premises, not merely a piece of paper. (New Amsterdam Cas. Co. v National Union Fire Ins. Co., 266 NY 254; Stewart v Long Is. R.R. Co., 102 NY 601; Mann v Munch Brewery, 225 NY 189; Meeder v Provident Sav. Life Assur. Soc., 171 NY 432.) V. The failure to obtain consent from Neuman for the two lease assignments cannot affect their validity where Neuman agreed to accept and recognize the April lease which contained the landlord’s covenant that it shall not unreasonably withhold permission to assign the lease. (Arlu Assoc. v Rosner, 14 AD2d 272, 12 NY2d 693; Williams v Haddock, 145 NY 144.)

      Joseph A. D’Addario and Sanford Silver for respondents.
    I. Upon the execution of the contract of sale herein respondent as the contract vendee became the equitable owner of the property, and the contract vendor could not as against said contract vendee thereafter encumber the title so contracted for with a new lease. (Ferry v Stephens, 66 NY 321; Thomson v Smith, 63 NY 301; Lewis v Smith, 9 NY 502;
      Williams v Haddock, 145 NY 144; Engle v Tinker Nat. Bank, 269 F Supp 199; Buffalo Sav. Bank v Siger, Inc., 28 AD2d 815; Klapp v Dealy, 213 App Div 523.) II. The evidence amply sustains the finding of the trial court that the lease under which appellant tenant was in possession was the lease dated October 29, 1979, without the reversion rider. (Orr v Doubleday, Page & Co., 223 NY 334, 700; Metropolitan Fuel Distrs. v Coogan, 277 App Div 138; People by Long Is. State Park Comm. v Savage, 236 App Div 745; Soft-Lite Lens Co. v Squibb & Sons, 23 Misc 2d 777; Wernick v Mehl Realty Co., 190 Misc 400; Goldstein v Totman, 163 Misc 114.) III. The contract vendee was under no obligation to join appellant as a party defendant in his specific performance action. (Wrightsville Hardware Co. v Assets Realization Co., 159 App Div 849; Stoddard v Stoddard, 227 NY 13; Garfein v McInnis, 248 NY 261; Hulbert v Clark, 57 Hun 558, 128 NY 295; Merritt v Youmans, 21 App Div 256.) IV. The trial court was correct in finding that Suffolk did not have the authority to consent to the assignment of the lease to appellant long after the signing of the contract by the landlord with respondent, Neuman, and after the filing of the notice of pendency of action herein. (Niman v Niman, 269 App Div 675.) V. The dissenting opinion of the court below is contrary to the facts and law of the case. (Melnick v Kulka, 228 App Div 321.)
   OPINION OF THE COURT

Meyer, J.

One who purchases real property subject to a lease which gives the tenant the option to renew for an additional seven years and the right to assign subject to consent of the landlord, such consent not, however, to be unreasonably withheld, may not, unless he can show reason for withholding consent, oust an assignee of the tenant, notwithstanding that upon the tenant’s exercise, after execution of the purchase contract, of the renewal option the seller and the tenant agreed to revised rent provisions. Although the purchaser is not bound by the rent provision changes, he is bound to honor the renewal on the terms of the original lease and not unreasonably to withhold consent to assignment of the lease as extended. The order of the Appellate Division should, therefore, be reversed and the matter remitted to Supreme Court for consideration of the question whether the present owner (successor to the purchaser) has reasonable grounds for withholding consent to the assignment of the lease to plaintiff.

On September 19, 1979, defendant Neuman contracted to purchase from Suffolk Industrial Commodities (Suffolk) the premises at 13 South William Street in Manhattan. The contract stated that the sale was subject to a lease dated April 10, 1979, between Suffolk and Pussycat Lounge (Pussycat). That lease, which was exhibited to Neuman, expired March 31, 1980, but gave Pussycat the option of extending the term for a further period of seven years to March 31,1987. It also provided for assignment of the lease with the written consent of the landlord which the landlord “shall not unreasonably withhold.”

On October 2, 1979, Pussycat exercised its renewal option, after which, on October 29, 1979, two separate lease documents were executed between Suffolk and Pussycat. Each was for a term running from November 1, 1979 through March 31, 1987, but contained more stringent noise and hours limitations on the tenant and reduced the fixed rent from $2,400 to $2,000 per month but required the tenant to pay 50% of real estate taxes and fire and liability insurance premiums and, unless the tenant installed its own heating system and water meters, 50% of the heating costs and water and sewer charges. The only significant difference between the two October 29, 1979 leases was that one contained but the other did not a rider paragraph defining the rights of the parties in the event the contract with Neuman, which Suffolk had disaffirmed claiming that the down payment check had been dishonored, were held valid or if Suffolk decided to consummate the contract.

On October 31, 1979, Neuman began an action for specific performance and filed a notice of pendency. On March 31,1980, Pussycat executed an assignment to Margin Call Restaurant, Inc., and on November 7, 1980, Margin Call executed an assignment to plaintiff, in each case with the consent of Suffolk, and delivered with the assignment the October 29, 1979 lease which did not contain the rider referred to above. Neuman’s specific performance action having resulted in judgment in his favor, Suffolk, on February 2, 1982, deeded the premises to defendant Wells, Goode and Benefit, Ltd., Neuman’s successor. Plaintiff’s February rent check having been returned by the latter’s attorney with a letter stating the intention to commence eviction proceedings, plaintiff began the present action seeking judgment declaring the rights and legal relations of the parties. Supreme Court concluded that although Suffolk was the legal owner of the property when the October lease was executed, Neuman, as purchaser, was the equitable owner, and as to him the October lease was void as an illegal encumbrance. Based upon that conclusion it held that Pussycat and Margin Call had nothing to assign and plaintiff, having received nothing, could not remain in the premises. Plaintiff’s argument that it was successor by assignment of Pussycat’s rights under the April lease was rejected on the ground that Neuman’s consent to the 1980 assignments had not been obtained and that, in any event, plaintiff could be a third-party beneficiary of the April lease only if it had been assigned the October lease which contained the rider paragraph referred to above, which the court found not to be the case.

The Appellate Division affirmed, two Justices dissenting, for the reasons stated by Supreme Court. The dissenters would have held that plaintiff was entitled to remain in the premises under either the April or the October lease, at defendant’s option. They reasoned that Neuman was bound by the April lease subject to which he had purchased and that the failure to obtain his consent to the 1980 assignments was not a bar unless he could show cause for withholding consent. We agree.

Although a seller of real property may not, after contracting to sell, encumber the property to the purchaser’s disadvantage (Fruhauf v Bendheim, 127 NY 587; West 72nd St. Realty Corp. v Yeshiva Chofetz Chaim, 205 Misc 124, mod on other grounds 284 App Div 962, mot for lv to app den 285 App Div 806), and in that sense the purchaser is deemed to be the equitable owner (Williams v Haddock, 145 NY 144,150; see 7 Williston, Contracts [3d ed], § 927, p 819), a purchaser who obtains specific performance of his contract is entitled to no greater rights than he would have had had the contract been performed at the agreed time (see Bostwick v Beach, 105 NY 661, 663). Neuman purchased subject to the April lease and to the rights of renewal and of assignment which that lease contained, but not subject to the altered terms contained in the October lease, even though arguably in his favor. That the October lease was void as to Neuman did not, however, invalidate the April lease, unless by their actions the parties to it had themselves invalidated it.

From the execution of a subsequent lease inconsistent with an earlier one, surrender of the earlier lease may be implied (Coe v Hobby, 72 NY 141,146), but for there to be a surrender “there must be a new lease, valid in law, to pass an interest according to the contract and intention of the parties” (id., at p 147). There is, however, no surrender if the new lease is ineffective (Chamberlain v Dunlop, 126 NY 45, 51; see Smith v Kerr, 108 NY 31, 38; 2 Walsh, Real Property, § 190, pp 338-339; 34. NY Jur, Landlord & Tenant, § 392, pp 237-238), or when the purpose of the new lease is to obtain a renewal or extension of the term (Witmark v New York El. R. R. Co., 149 NY 393, 396, affg 76 Hun 302, 306). It follows that though Pussycat could take nothing by the October lease without Neuman’s consent, it retained its rights, under the April lease and its exercise of the option in that lease, to a term ending March 31, 1987, and to assign subject to the consent provision of the lease.

The assignment by Pussycat to Margin Call was, therefore, not wholly invalid as the courts below have held. We need not now decide whether Suffolk’s consent to that assignment would be sufficient had Pussycat not been given notice of Neuman’s interest under the contract of sale, for the rider establishes that prior to the assignment to Margin Call, Pussycat was aware of that contract. It is enough on this point to note that Neuman as equitable owner had the right to withhold consent only if he had a reasonable ground for so doing and that the existence of a reasonable ground must be proved by Neuman’s successor, the present owner, and will not be presumed. For like reason the assignment from Margin Call to plaintiff must be given effect unless the landlord can establish a reasonable ground for withholding consent.

The fact that the assignments to Margin Call and to plaintiff purported to be of the October rather than the April lease is not fatal. Having assigned the right to possession of the entire premises for the entire term to which it was entitled under the April lease, Pussycat will not be heard to say that its assignment conveyed nothing because it referred to a document of another date but for the same premises and term (see Thompson v Simpson, 128 NY 270, 286; Stewart v Long Is. R. R. Co., 102 NY 601, 608; Christie v Gage, 71 NY 189,193), and the same rule applies to Margin Call’s assignment to plaintiff. The assignees under those respective assignments have not suggested that the present landlord is limited by the October lease nor has plaintiff contested the right of the landlord to enforce the terms of the April lease. The landlord is, thus, in the same position that Neuman would have been had title closed on the contract date, provided only that it is afforded the opportunity to establish, if it can, reasonable ground for withholding consent to plaintiff’s occupancy as assignee. Neuman’s decree of specific performance entitled him and his codefendant, as his successor in interest, to no more (Bostwick v Beach, 105 NY 661, 663, supra).

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Supreme Court, New York County, for further proceedings in accordance with this opinion.

Jones, J.

(dissenting). I accept the finding of Supreme Court, affirmed by the majority at the Appellate Division, that the lease purportedly assigned by Pussycat to Margin Call and by Margin Call to plaintiff was plaintiff’s exhibit 2, the lease dated October 29, 1979 which did not include rider paragraph 49 (the paragraph which accorded recognition to the prior lease between the parties dated April 10, 1979). There is no evidence in the record sufficient to support a finding that this lease dated October 29, 1979 was intended by the parties as an extension of their prior lease or that it was executed in implementation of the tenant’s October 2,1979 exercise of its option to renew that lease, and neither court below so determined. In fact, although the expiry date was consistent, i.e., March 31, 1987, the substantive terms of the October 29, 1979 lease were significantly different from those of the lease which it replaced, and there is neither any reference therein to the prior lease nor any internal provision from which it could be inferred that it was intended as an extension of that lease. As a replacement or substitute lease it gave rise to the implication that the earlier lease had been surrendered (majority opn, at p 502).

In any event, the assignments from Pussycat to Margin Call and from Margin Call to plaintiff made explicit reference only to the lease dated October 29, 1979, no reference whatsoever was made to the original lease dated April 10, 1979 or to any rights of the assignors thereunder. I am, therefore, in agreement with Justice Arnold G. Fraiman in Supreme Court and the majority at the Appellate Division that the lease dated October 29, 1979 was void as to defendants-respondents whose standing, in consequence of the outcome of the action for specific performance of their contract to purchase the property, related back to September 19, 1979 the date of their contract, and that plaintiff accordingly acquired no rights to possession against defendants in consequence of the assignment by Margin Call to it of the October 29, 1979 lease.

I would, therefore, affirm the order of the Appellate Division.

Chief Judge Cooke and Judges Simons and Kaye concur with Judge Meyer; Judge Jones dissents and votes to affirm in a separate opinion in which Judges Jasen and Wachtler concur.

Order reversed, etc.

      . The paragraph read, in full: “Tenant recognizes that tenant’s prior lease dated April 10, 1979 relative to these premises was annexed to a proposed Contract of Sale dated September 19, 1979 between Suffolk Industrial Commodities, Inc., and Edwin M. Neuman, which contract has been disaffirmed by Suffolk by reason of failure of consideration. Tenant understands and agrees, for itself and on behalf of any future assignee or sublessee, that if the aforementioned contract is held to be valid by any court or if landlord herein for any reason, in its sole and absolute discretion, decides to consummate an agreement of sale with Edwin Neuman, this lease shall be void and of no further effect and tenant shall have only those rights and obligations as are set forth in the prior lease dated April 10,1979. Under no circumstances shall any liability, charge or obligation attach to landlord by reason of its exercise of its option to sell the building to Edwin Neuman.”

      . In view of the conclusion hereafter reached, the fact that the assignments were accompanied by the version of the October lease which did not contain the rider is not relevant.

      . To reason as does the dissent ignores the principle long ago declared in Van Rensselaer’s Heirs v Penniman (6 Wend 569, 579) that, “As this presumption of a surrender arises from the acts of the parties, which are supposed to indicate an intention to that effect, it must follow that where no such intention can be presumed, without doing violence to common sense, the presumption cannot be supported” (accord Coe v Hobby, 72 NY 141, 146).


author: Per Curiam.

text:
    In the Matter of Bertina Hernandez, on Behalf of Her Son, Jose Hernandez, an Infant, Appellant, v Barbara Blum, as Commissioner of the New York State Department of Social Services, et al., Respondents. In the Matter of Patricia Martin, Respondent, v Barbara Blum, as Commissioner of the New York State Department of Social Services, Appellant, et al., Respondent.
    Argued February 15, 1984;
    decided April 3, 1984

      POINTS OF COUNSEL

      Eileen R. Kaufman for appellant in the first above-entitled proceeding.
    The policy of the New York State Department of Social Services of considering income over a six-month period in computing eligibility for retroactive Medicaid for the medically needy conflicts with Federal law and is thus invalid under the supremacy clause of the United States Constitution. (Schweiker v Gray Panthers, 453 US 34; Matter of Martin v Lavine, 39 NY2d 72; Matter of Dumbleton v Reed, 40 NY2d 586; Scarpuzza v Blum, 73 AD2d 237; Batterton v Francis, 432 US 416; Fleshman v Heckler, 709 F2d 999; Cutler v Weinberger, 516 F2d 1282; Gold v Secretary of Health, 463 F2d 38; National Muffler Dealers Assn. v United States, 440 US 472; Uniformed Firefighters Assn. v Beekman, 52 NY2d 463.)

      Robert Abrams, Attorney-General (Diane DeFurio Foody and Peter H. Schiff of counsel), for Barbara Blum, respondent in the first above-entitled proceeding.
    The State commissioner should not be required to apply a three-month computation provided for in an Action Transmittal issued by the Department of Health and Human Services because such computation conflicts with Federal statutory and regulatory law which allows a six-month computation. (Matter of Bosh v Fahey, 53 NY2d 896; Wisconsin Welfare Rights Organization v Newgent, 433 F Supp 204.)

      Samuel S. Yasgur, County Attorney (.Denise J. DAmbrosio and Lester D. Steinman of counsel), for Charles W. Bates, respondent in the first above-entitled proceeding. Respondents properly employed a six-month prospective accounting period in determining that Mrs. Hernandez was ineligible for medical assistance.

      (Skidmore v Swift & Co., 323 US 134; United States v Larionoff, 431 US 864; Udall v Tollman, 380 US 1; Matter of Bosh v Fahey, 53 NY2d 896; Townsend v Swank, 404 US 282; Shapiro v Thompson, 394 US 618.)

      Robert Abrams, Attorney-General {Diane DeFurio Foody and Peter H. Schiff of counsel), for appellant in the second above-entitled proceeding.
    I. The State commissioner should not be required to apply a three-month “spend-down” computation provided for in an Action Transmittal issued by the Department of Health and Human Services because such computation conflicts with Federal statutory and regulatory law which allows a six-month “spend-down” computation. (Matter of Bosh v Fahey, 53 NY2d 896.) II. Petitioner is not entitled to attorney’s fees pursuant to section 1988 of title 42 of the United States Code. (Matter of Johnson v Blum, 58 NY2d 454.)

      Thomas Dubel and Andrew M. Rothstein for respondent in the second above-entitled proceeding.
    I. Appellant’s failure to abide by the three-month spend-down provision violates Federal Medicaid law and section 1983 of title 42 of the United States Code. (Becker v Blum, 464 F Supp 152; Matter of Vetter v Poland, 72 AD2d 776; Matter of Bosh v Fahey, 53 NY2d 896; Schweiker v Gray Panthers, 453 US 34.) II. Petitioner is entitled to attorney’s fees pursuant to section 1988 of title 42 of the United States Code in the amount awarded by Special Term. (Matter of Johnson v Blum, 58 NY2d 454.)
   OPINION OF THE COURT

Per Curiam.

The narrow issue presented in these two appeals is the legal effect of an Action Transmittal issued by the United States Department of Health and Human Services upon the New York State Department of Social Services computations for determining eligibility for Medicaid.

An Action Transmittal is a bulletin authorized by Federal regulations (45 CFR 201.3 [d]) and sent to State agencies by the Department of Health and Human Services to advise them of current Federal policy and departmental views regarding the proper interpretation and application of the public assistance laws (see Matter of Bosh v Fahey, 53 NY2d 896, 898, n 1). The department considers its transmittals to be “binding” on State agencies. The transmittal before us directs that as to retroactive benefits, eligibility be computed on a three-month basis although the applicable regulations, both Federal (42 CFR 435.831 [a]) and State (18 NYCRR 360.5 [d] [2] [i], renum 360.5 [d], [1]) provide that eligibility shall be determined upon the basis of net available income for a period of not more than six months. The commissioner contends that she may rely upon the six-month provision to determine applicant’s excess monthly income available for retroactive medical expenses notwithstanding the department’s transmittal.

In Matter of Hernandez v Blum, the Appellate Division, Second Department, confirmed, without opinion, the commissioner’s determination measuring eligibility by using a six-month period (92 AD2d 1089). In Matter of Martin v Blum, the Appellate Division, Third Department, held the transmittal binding on the State commissioner and affirmed a holding directing the commissioner to determine eligibility by computing the applicant’s excess monthly income available by using the three-month period (87 AD2d 688). However, it reversed so much of the judgment as denied petitioner’s counsel fee application and remitted the matter to Special Term for further proceedings. The commissioner appeals pursuant to CPLR 5601 (subd [d]) from the judgment of Special Term to review the prior nonfinal Appellate Division order.

Medicaid is a Federal-State co-operative program created by the Social Security Act amendments of 1965 (US Code, tit 42, § 1396 et seq.)- Once a State elects to participate in the program, as New York has, it must comply with Federal Medicaid requirements. New York has complied with the provisions of Federal law. The New York regulation tracks the language of the Federal statute and the Federal regulation and it has been approved by the Department of Health and Human Services thus complying with the applicable Federal requirements (see Social Services Law, § 366, subd 2, par [b]). The present transmittal rather than interpreting or clarifying the existing regulations, however, is at complete variance with them.

Both section 1396a (subd [a], par [34]) of title 42 of the United States Code and 42 CFR 435.914 require that cooperating States provide Medicaid to applicants for covered services which were rendered within a three-month period prior to application for assistance if the applicant would have been eligible for Medicaid at the time the services were rendered. Pursuant to 42 CFR 435.831, a co-operating State “must use a prospective period of not more than six months” to compute income when determining the income eligibility of medically needy individuals. When read together these two provisions provide that an applicant’s qualification for retroactive benefits depends on his eligibility at the time services were rendered and that it is determined under a prospective income test measured from the date of the services which takes into consideration the applicant’s income for a period of up to six months. The Action Transmittal challenged here, however, requires that a State, such as New York, which opts to use the maximum six-month period for determining the income eligibility of medically needy applicants, is nonetheless limited to a three-month period should the application be for retroactive benefits. This is so despite the fact that the six-month period would have been used to determine eligibility had the applicant applied for benefits at the time that services were rendered.

Petitioners contend that this apparent inconsistency is reconciled when the requirement of eligibility for assistance at the time services were rendered, as a precondition to an applicant’s qualification for retroactive benefits, is regarded as “categorical eligibility” rather than “income eligibility”. The “categorically needy” are individuals who are aged, blind, disabled or under 21, whose income and resources are sufficiently low to qualify them for cash assistance under the Aid to Families with Dependent Children (“AFDC”) program or Supplemental Security Income (“SSI”) program (US Code, tit 42, § 1396a, subd [a], par [10], cl [A]; US Code, tit 42, §§ 601-644). The “medically needy” are individuals who would qualify as categorically needy except that their income is too high to qualify them for cash grants under the AFDC or SSI programs, but who nonetheless cannot afford the cost of medical care (US Code, tit 42, § 1396a, subd [a], par [10], cl [C], subcl [i]; 42 CFR 435.4). Petitioners contend that because only “categorical eligibility” is considered for a determination regarding retroactive benefits, the allowance for a prospective income period up to six months to determine “income eligibility” for medically needy individuals under 42 CFR 485.831 does not control. Such a restrictive interpretation of the term “eligibility” has no basis in the language of the statutes or in the regulatory scheme. While the interpretation given a statute by an agency charged with enforcing its provisions is entitled to substantial deference, the agency may not change the eligibility requirements provided by the clear language of the statute and regulations without formal amendment (see Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451). We therefore hold that the transmittal is not binding on the commissioner.

Our view is supported by evidence that since these proceedings were initiated the department has proposed a modified position on the period for measuring eligibility indicating that it will accept the contention that there is no statute or regulation compelling the States to use a three-month eligibility period (Commentary to Proposed Regulations of Dept of Health, Education and Welfare published in the 48 Fed Reg 39960-39961).

Accordingly, the judgment of the Appellate Division, Second Department, in Matter of Hernandez v Blum should be affirmed, without costs, and the judgment appealed from and the order of the Appellate Division, Third Department, brought up for review in Matter of Martin v Blum should be reversed and the petition dismissed, without costs.

Chief Judge Cooke and Judges Jasen, Jones, Wachtler, Meyer, Simons and Kaye concur in Per Curiam opinion.

In Matter of Hernandez v Blum: Judgment affirmed, without costs.

In Matter of Martin v Blum: Judgment appealed from and order of the Appellate Division brought up for review reversed, without costs, and the petition dismissed.