author: Dye, J. Fuld, J. (dissenting).

text:
    In the Matter of the City of New York, Respondent, Relative to Acquiring Title to Real Property for the Washington Square Slum Clearance, Borough of Manhattan. United States of America, Appellant; Bernard W. Coblentz et al., Respondents.
    Argued October 7, 1958;
    decided March 5, 1959.

      Paul W. Williams, United States Attorney for the Southern District of New York (Nicholas Tsoucalas and Elliot L. Hoffman of counsel), for United States of America, appellant.
    I. The lower court lacked jurisdiction to determine the rights of the United States to the award granted by the City of New York to Tailored Contour, Inc. (Stanley v. Schwalby, 162 U. S. 255; Minnesota v. United States, 305 U. S. 382; United States v. Shaw, 309 U. S. 495.) II. The lower court erred in finding that Bernard W. Coblentz was a “ purchaser ” (within U. S. Code, tit. 26, § 6323) by virtue of the assignment provision of the retainer agreement. (United States v. Scovil, 348 U. S. 218; United States v. Hawkins, 228 F. 2d 517; National Refining Co. v. United States, 160 F. 2d 951; United States v. Hoper, 242 F. 2d 468; United States v. Pay-O-Matic Corp., 162 F. Supp. 154; United States v. Goldstein, 256 F. 2d 581, 358 U. S. 830; Matter of Weitling, 266 N. Y. 184; Marteney v. United States, 245 F. 2d 135; United States v. Ball Constr. Co., 355 U. S. 587; United States v. Acri, 348 U. S. 211; United States v. Waddill Co., 323 U. S. 353; Aquilino v. United States, 3 N Y 2d 511.) III. The Government’s lien for taxes is prior and superior to Bernard W. Coblentz’ attorney’s lien and the judgment lien of New York University. (Citizen State Bank v. Vidal, 114 F. 2d 380; Glass City Bank v. United States, 326 U. S. 265; United

      States v. Colotta, 350 U. S. 808; United States v. Gilbert Associates, 345 U. S. 361; United States v. White Bear Brewing Co., 350 U. S. 1010.)

      Bernard W. Coblentz, in person, and Alfred D. Jahr for Bernard W. Coblentz, respondent.
    I. The courts below had jurisdiction to determine the conflicting claims to the condemnation award made to Tailored Contour, Inc. (United States v. Bank of New York & Trust Co., 296 U. S. 463; Merryweather v. United States, 12 F. 2d 407; Moscow Fire Ins. Co. v. Bank of New York & Trust Co., 161 Misc. 903, 253 App. Div. 644, 280 N. Y. 286, 309 U. S. 624; Lavenburg v. Universal Sportwear, 92 F. Supp. 473; Matter of Meltzer v. Geglia, 9 Misc 2d 464; Matter of Lavenburg v. Universal Sportwear, 198 Misc. 318.) II. The attorney’s lien of respondent Coblentz is superior to the lien claimed by the Director of Internal Revenue. (Matter of Swartz, Inc., v. City of Utica, 223 App. Div. 506, 254 N. Y. 555; Goodrich v. McDonald, 112 N. Y. 157; Erie R. R. Co. v. Tompkins, 304 U. S. 64; Swift v. Tyson, 16 Pet. [41 U. S.] 1; United States v. Acri, 348 U. S. 211; United States v. Scovil, 348 U. S. 218; United States v. Boyd, 246 F. 2d 477, 355 U. S. 889; Matter of Herlihy, 274 App. Div. 342; National Refining Co. v. United States, 160 F. 2d 951; Grossman v. City of New York, 188 Misc. 256; Matter of Astoria Blvd., 171 Misc. 1018; Cranford Co. v. Leopold & Co., 189 Misc. 388, 273 App. Div. 754.)

      Lester Nelson for New York University, respondent.
    I. The lower court had jurisdiction to determine the conflicting claims to the condemnation award made to Tailored Contour, Inc. (Matter of Lavenburg v. Universal Sportwear, 198 Misc. 318; Matter of Meltzer v. Ceglia, 9 Misc 2d 464; Lemar Paint Prods. Co. v. Di Miceli, 3 Misc 2d 705; United States v. Bank of New York & Trust Co., 296 U. S. 463; Moscow Fire Ins. Co. v. Bank of New York & Trust Co., 161 Misc. 903, 253 App. Div. 644, 280 N. Y. 286, 309 U. S. 624; Merryweather v. United States, 12 F. 2d 407; Lavenburg v. Universal Sportwear, 92 F. Supp. 473.) II. The lien of New York University is superior to that of the United States Government. (United States Fid. & Guar. Co. v. Triborough Bridge Auth., 297 N. Y. 31; Fidelity & Deposit Co. v. New York City Housing Auth., 241 F. 2d 142;
      United States v. Anders Contr. Co., 111 F. Supp. 700; Dohany v. Rogers, 281 U. S. 362; National Refining Co. v. United States, 160 F. 2d 951; Marteney v. United States, 245 F. 2d 135.)

      Norris Darrell, John F. Dooling, Jr., Caroline K. Simon and David G. Oringer for New York County Lawyers Association, amicus curice, in support of respondents’ position.
    I. The lien of the attorney attached to the right of action for an award before the notice of Federal tax lien was filed and is prior in right. (United States v. Acri, 348 U. S. 211; United States v. Scovil, 348 U. S. 218; United States v. Pay-O-Matic Corp., 162 F. Supp. 154, 256 F. 2d 581; United States v. Beaver, 252 F. 2d 486; United States v. Ball Constr. Co., 355 U. S. 587; Smith v. Young, 268 App. Div. 801; Frear v. Lewis, 201 App. Div. 660; Steenburgh v. Miller, 11 App. Div. 286; United States v. Waddill Co., 323 U. S. 353; United States v. Hawkins, 228 F. 2d 517; United States v. Hoper, 242 F. 2d 468; National Refining Co. v. United States, 160 F. 2d 951.)
   Dye, J.

On this appeal the respondent, an attorney, and the

appellant Government are contesting the relative priority in payment of the attorney’s fee for services rendered and the Government’s lien for unpaid withholding taxes. The question posed is whether the attorney, by virtue of the assignment clause in his retainer contract, is a “ purchaser ” of “ property ” or “ rights to property ” within the meaning of section 6323 (formerly § 3672) of title 26 of the United States Code.

As part of its Washington Slum Clearance project, DP # 125, the City of New York condemned the fee of premises occupied under a leasehold by Tailored Contour, Inc. (hereinafter Tailored). As compensation for the taking of its trade fixtures, Tailored was awarded $5,750 which, with legal interest, a total of $6,056, the City Comptroller is holding, pending determination of priority in payment.

The petitioner Coblentz, an attorney, instituted this proceeding for an order declaring that his claim for an attorney’s lien in the amount of $1,211.20 had priority over a judgment lien noticed by New York University, as project sponsor, for arrears in rent in the sum of $920 and a lien for withholding taxes due the United States Government in the sum of $8,436.78. The Special Term ruled that the liens should be paid in the following order: First to the University, second to Coblentz and third to the Government, and directed the Comptroller to pay the claims in that order to the extent of the funds withheld. Upon appeal, the Appellate Division, First Department, unanimously affirmed and granted the Government permission to appeal to this court, certifying that a question of law is involved which ought to be reviewed.

It is undisputed that:

On March 8, 1954

Tailored retained the respondent Coblentz to appear for and to represent them in the condemnation proceeding and for their services 1 ‘ agree to pay, and do hereby assign to said Bernard W. Coblentz for his services in the matter Twenty (20%) per cent of the award and interest that may be paid or awarded for the said property. [Trade fixtures] * * * plus disbursements ’ ’, that

On August 5,1955

Title vested in the City of New York on the entry of the order of condemnation (Administrative Code of City of New York, § B15-36.0);

On September 25,1956

Final decree of condemnation was signed;

On May 23, 1956

The Bureau of Internal Revenue duly filed withholding tax lien in the sum of $8,436.78 viz.:

Tax Period Assessment Date Amount of Assessment 3-31-55 5-55 $ 1,549.76 6-30-55 8-55 1,317.98 9-30-55 11-55 2,059.21 3-31-56 3,000.00 Delinquent interest 509.83 Total $ 8,436.78

On May 23,1956

New York University, as a sponsor of the project, obtained a judgment in the Municipal Court, City of New York, against Tailored in the sum of $920, being the reasonable value of the use and occupation of the condemned premises (Administrative Code, § B15-37.0, subd. b).

On May 28, 1956

New York University filed a notice of its judgment lien against Tailored with the Comptroller. Because of such filing, the City Comptroller retained the damage check due Tailored.

On January 28,1957

Coblentz moved at Special Term, pursuant to section 475 of the Judiciary Law, to have his attorney’s lien enforced and paid from the proceeds of the award, claiming that it had attached from the commencement of the condemnation proceedings and that he had a first lien on the proceeds to the amount agreed upon, which could not be defeated by the claims of others whose claims, if any, attached only to the balance. The Government appeared and cross-moved for an order declaring its tax lien.

In ruling that the Government’s lien for taxes was subordinate to both the judgment for arrears in rental and the attorney’s lien for services, the Special Term deemed that under State law the petitioner, by virtue of the assignment, had a property interest in the award as ‘1 purchaser ’ ’ within the meaning of section 3672 (as it then was, now § 6323) of title 26 of the United States Code, and that, as to him, the Government’s position was subordinate because its lien was not valid against a purchaser within the meaning of that section unless notice thereof had been filed as provided (Lien Law, § 240, National Refining Co. v. United States, 160 F. 2d 951 [C. C. A., 8th Cir.] ; Grossman v. City of New York, 188 Misc. 256; Matter of Astoria Blvd., 171 Misc. 1018; Government lien filed May 23, 1956, attorney’s lien and assignment dated March 8, 1954). This ruling was in accordance with the long-established principle that an attorney’s lien upon his client’s recovery is a vested property right created by law and not a priority of payment.

By statute in New York (Judiciary Law, § 475) it is expressly provided:

§ 475. Attorney’s lien in action, special or other proceeding. From the commencement of an action, special or other proceeding in any court or before any state, municipal or federal department, except a department of labor, or the service of an answer containing a counterclaim, the attorney wiho appears for a party has a lien upon his client’s cause of action, claim or counterclaim, which attaches to a verdict, report, determination, decision, judgment or final order in his client’s favor, and the proceeds thereof in whatever hands they may come; and the Hen cannot be affected by any settlement between the parties before or after judgment, final order or determination. The court upon the petition of the client or attorney may determine and enforce the Hen.” (Emphasis suppHed.)

It is to be noted that the statute gives an attorney a Hen on the cause of action which attaches to the judgment from the commencement of the action.

Section 475, in substance, declares the common law. The origin of an attorney’s Hen, whether as retaining or as charging, is obscure, but in aU events, irrespective of type, has been recognized and enforced by the courts from very early times (see Fourth Annual Eeport of N, Y. Judicial Council, 1938, p. 49; 7 C, J. S,, Attorney and Client, § 210 et seq.; 5 Am. Jur., Attorneys at Law, § 208 et seq.). The underlying purpose at both common law and now, by statute, is to protect an attorney against the knavery of his client (Matter of Rosentover v. Weiss, 247 App. Div. 137, affd. 272 N. Y. 557; Goodrich v. McDonald, 112 N. Y. 157) and, being created by statute, does not require the giving of any notice in order to bring it into existence (Matter of Drake v. Pierce Butler Radiator Corp., 202 Misc. 935) for it is generaUy regarded as an equitable assignment to the attorney of the fund procured by his efforts to the extent of the amount of his Hen (Matter of Herlihy, 274 App. Div, 342).

When, however, the right depends on contract, as it does here, the terms of the contract must be examined in Hght of the statute (Matter of Heinsheimer, 214 N. Y. 361),

Under this retainer contract the cHent, Tailored, agreed to pay 11 and do hereby assign ” to said Coblentz for his services 20% of the award and interest, When that express language is read in Hght of the statute, the parties must be deemed to have intended to, and in fact did, accompHsh an immediate transfer of a percentage interest in Tailored’s cause of action against the city for the taking of its trade fixtures and which became effective at, as and of the time of the making and which amounted to a pro tanto assignment of the proceeds. In other words, the attorney by virtue of the assignment clause in the contract presently acquired a vested property interest in the award which he had purchased ” for a good and valuable consideration, to wit: Ms services as rendered and to be rendered in the premises. He had title to ‘ ‘ property and rights to property” (a cause of action, as we know, is property) which neither the client nor anyone claiming through or against him could subsequently disturb. By the same token, the measure of the client’s “ property and rights to property” (the cause of action) from the date of the retainer contract was the balance remaining after transfer to the attorney of his agreed share.

Title to property and right to property are exclusively a matter of State law (Ætna Gas. & Sur. Co. v. United States, 4 N Y 2d 639; United States v. Bess, 357 U. S. 51; United States Fid. & Guar. Co. v. Triborough Bridge Auth., 297 N. Y. 31; Fidelity & Dep. Co. v. New York City Housing Auth., 241 F. 2d 142 [see Scarsdale Nat. Bank & Trust Co. v. United States Fid. S Guar. Co., 264 N. Y. 159, 163, 164]; Matter of United States Cas. Co. v. Met Contr. Corp., 11 Misc 2d 492; Matter of [American] Lumbermen’s Mut. Cas. Co. v. Great Atlantic Constr. Corp., 11 Misc 2d 491; Vincent v. Matthews, 126 P. Supp. 102; Alabama-Tennessee Natural Gas Co. v. Lehman-Hoge & Scott, 122 F. Supp. 314; Royal Ind. Co. v. United States, 93 F. Supp. 891; Matter of Cummins Constr. Corp., 81 F. Supp. 193; Herrmann v. Rogers, 358 U. S. 332; Rogers v. Calumet Nat. Bank, 358 U. S. 331).

By Federal statute liens for taxes owing to the United States arise upon receipt by the Collector of the assessment list (U. S. Code, tit. 26, § 6322, formerly § 3671) but they attach only to “ property and rights to property” belonging to the taxpayer (§ 6321). To quote a succinct comment by Judge Medina: “In adopting this legislation, the Congress did not create property interests on which a lien might be imposed; there is no suggestion that it authorized the federal courts to do so. On the contrary, it took for granted here, as it normally does in the tax law, the vital existence of state laws creating and maintaining various interests. The statute was fashioned to require the courts to determine for federal purposes whether those state-created interests are property ’ or ‘ rights to property. ’ That classification of interests is a federal question; the existence of the interests to be federally classified, however, is solely a question of state law.” (Fidelity & Dep. Co. v. New York City Housing Auth, supra, p. 144.)

As a generality, it may be said that the right of the Government to levy and collect taxes uniformly throughout the land may not be defeated by the State court rule or regulation (United States v. Vorreiter, 355 U. S. 15, revg. 134 Col. 543; United States v. White Bear Brewing Co., 350 U. S. 1010, revg. 227 F. 2d 359; United States v. Colotta, 350 U. S. 808, revg. 224 Miss. 33; United States v. Scovil, 348 U. S. 218; United States v. New Britain, 347 U. S. 81; United States v. Kings County Iron Works, 224 F. 2d 232; Aquilino v. United States, 3 N Y 2d 511).

A Government tax lien, however, is not always paramount. By Federal statute, it “ shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary” (U. S. Code, tit. 26, § 6323, subds. [a], [b], formerly § 3672).

The courts below have ruled C'oblentz to be a “ purchaser ” within the meaning of that section as indeed he was by State law, and that, accordingly, the only ‘ property ” or “ rights to property ” belonging to the taxpayer was the balance of the proceeds remaining after the attorney’s retainer assignment had been satisfied in full. The client’s interest thus amounted to no more than 80% of the proceeds remaining after satisfaction of the judgment held by New York University since the award was made subject to its judgment for arrears in rental.

The Government seeks reversal of the judgment appealed from on two grounds: lack of jurisdiction in the State court to determine the rights of the United States in the proceeds of the award, and that, if the State courts have jurisdiction, its determination was wrong.

The challenge to jurisdiction is on the ground of sovereign immunity which the Government asserts has never been waived in a matter of this sort and has not been waived here (Stanley v. Schwalby, 162 U. S. 255) and that it was not made a party to the proceeding or served with process therein and that jurisdiction was not conferred by the voluntary appearance of the United States Attorney since only Congress has the power to so consent (Minnesota v. United States, 305 U. S. 382; United States v. Shaw, 309 U. S. 495).

In the setting of this case, these contentions must be rejected. This is not a situation in which the Government is cast in the role of a defendant being sued without its consent but, rather, that of a claimant to disputed funds. In intervening for the purpose of presenting its claim, the United States is an actor— voluntarily asserting a claimed right—and is not a defendant. In so acting, the G-overnment suffers no impairment of its sovereignty by prosecuting such a claim in the appropriate forum where the funds are held (United States v. Bank of New York Co., 296 U. S. 463; Merryweather v. United States, 12 F. 2d 407; cf. Moscow Fire Ins. Co. v. Bank of New York & Trust Co., 161 Misc. 903, affd. 253 App. Div. 644, affd. 280 N Y 286, affd. 309 U. S. 624). Since the enactment of section 316 of title 5 of the United States Code, an official of the Department of Justice, whenever required to attend to the interests of the United States, is authorized to appear in any suit pending in any of the United States courts or of any State court. The jurisdiction thus recognized is not defeated by failure to expressly follow the procedure laid down in section 2410 of title 28 of the United States Code. Subdivision (d) of that section has reference to the release of a lien against real or personal property so as to permit its sale and has no reference to the enforcement of an attorney’s lien under section 475 of the Judiciary Law. An action brought pursuant to that section need not comply with the procedural directions prescribed in section 2410 of title 28 (Lavenburg v. Universal Sportwear, 92 F. Supp. 473; Matter of Meltzer v. Ceglia, 9 Misc 2d 464). Thus, it is manifest that the situs of the fund being in New York, its State courts have jurisdiction to determine its distribution.

As we turn to the merits, perhaps it would be well to again mention that in the court below the attorney’s retainer contract and its assignment were treated as an immediate transfer of 20% of the client’s cause of action which brought the attorney and his lien within the exception accorded to purchasers (U. S. Code, tit. 26, § 6323). When the taxpayer signed the retainer agreement, it effectively divested itself of a part of its cause of action; that since the Government’s lien for taxes attaches by statute only to “ property and rights to property ” belonging to the taxpayer (§ 6321), only the unassigned balance was liable for the tax. Thus the pivotal question turns on who holds the property and rights to property ” liable for the tax rather than on priority in payment of conflicting claims,

The appellant Government now says that such ruling is wrong for the reason that Cohlentz was not a purchaser by virtue of the assignment clause within the meaning of section 6323; that all Cohlentz obtained was a potential or contingent right conditioned on the making of an award—that under Federal tests his right was inchoate, and he had no more than a 11 mere caveat of a more perfect lien to come ”.

The Government relies on the recently decided Federal court case entitled United States v. Pay-O-Matic Corp. (162 F. Supp. 154; 256 F. 2d 581). Pay-O-Matic, just as Tailored, was a lessee in possession of premises and the owner of trade fixtures taken by the City of New York in connection with the same Washington Square Slum Clearance project—by the same order in condemnation dated August 5, 1955. Subsequent to the making of that order, and

On November 18, 1955

Pay-O-Matic, by written agreement, retained Goldstein & Sons as attorneys to represent it in a suit against the city for the taking of its trade fixtures. Among other things, the agreement recited that “ it [Pay-O-Matic] agrees to pay and hereby assigns to said attorneys twenty-five (25%) per-cent of any award and interest that may be made for trade fixtures contained in said property”.

On November 22, 1955 Goldstein filed a notice of lien with the City Comptroller for his fee.

On December 6, 1955 the Government filed a lien for withholding taxes for the year 1955.

On June 27, 1956 the Government filed an amended lien for unpaid withholding and unemployment taxes for the same period totaling $11,822.42.

On August 22, 1956 a final decree was entered awarding damages to Pay-O-Matic in the sum of $4,569.28.

Thereafter, the United States commenced suit in the United States District Court, Southern District of New York, for payment of its tax lien and moved for summary judgment in its favor. Goldstein appeared in the action and cross-moved for summary judgment in his favor. In granting the Government’s motion, Btau, J., ruled that while section 475 of the Judiciary Law, and cases cited, gave an attorney a lien for services which arise at the commencement of the suit and attached to the proceeds, he nonetheless applied the general principle expressed in United States v. Waddill Co. (323 U. S. 353) that priority in payment of a Government lien for unpaid taxes was ‘11 always a federal question to be determined finally by the federal courts. The state’s characterization of its liens, while good for all state purposes, does not necessarily bind this Court.’ United States v. Acri, 348 U. S. 211, 213 # * * Whether attorney Gold-stein’s lien by state tests would be held to be choate, it is clear that under federal tests it is as compared to that of the Government inchoate. It was not established for the amount of the lien was contingent on the outcome of a trial in the state condemnation court to fix the amount of the award to be made to Pay-O-Matic for the property condemned. It was but a ‘ caveat of a more perfect lien to come ’ (United States v. Scovil, 348 U. S. 218, 220 * * *) and is therefore subordinate to the federal tax lien; United States v. City of New Britain, 347 U. S. 81, 84”. (United States v. Pay-O-Matic Corp., supra, pp. 155-156.)

On appeal, the United States Court of Appeals, 2d Circuit, affirmed April 28, 1958 without opinion (United States v. Goldstein, 256 F. 2d 581) under authority of United States v. Ball Constr. Co. (355 U. S. 587) and certiorari was denied October, 1958 (358 U. S. 830).

In Waddill {supra) the United States claimed its lien for taxes was entitled to priority in payment over State and municipal claims and arrears in rental against an insolvent taxpayer. In allowing the Government a preference, the court pointed out that the other claimants, having failed to perfect their lien prior to the assignment for the benefit of creditors, could not invoke local rules and regulations even though valid for State purposes to defeat the Government. With this there can be no serious quarrel. We followed that general principle in Aquilino v. United States (3 N Y 2d 511). There, it also appeared that the Government had duly filed its tax lien before the plaintiffs had filed their notice (Lien Law, § 240, subd. 2). The plaintiffs sought to avoid this consequence by arguing that their lien dated back to the making of the contract for, under State law, funds received by a contractor from the owner are deemed trust funds (Lien Law, §§ 36-a, 13, subd. [7]), a contention which had to be rejected for the very good and simple reason that the Government lien attached as soon as it satisfied the State’s requirement as to filing first, which it so happened was first in point of time.

The Ball case (supra), relied on as authority in the Circuit Court, was an interpleader to determine priority of rival claims. There a subcontractor, in order to induce a surety to file a performance bond, assigned to the surety all sums due or to become due under the subcontract as collateral for any liability it might sustain through nonperformance of the subcontract and for any other liability to the surety not exceeding the penalty of the bond. The United States Supreme Court ruled that such assignment did not constitute the surety a ‘ ‘ mortgagee ” of those sums within the meaning of subdivision (a) of section 3672 of the Internal Revenue Code of 1939 (as amd. in present § 6323) which provides that a Federal tax lien shall not be valid as against any mortgagee until notice thereof has been filed. Here, again, there was lack of timely notice which could not be cured by resort to a State rule or regulation so as to defeat the Government’s prior claim in point of time (cf. United States v. Security Trust & Sav. Bank, 340 U. S. 47).

At first glance, Pay-O-Matic would seem to be controlling and require a reversal. An examination of the authorities on which it was based suggests that it was an extension of the well-recognized “first in time, first in right ” doctrine in the determination of priority in payment of conflicting claims. Here, there is a clear difference in this case and Pay-O-Matic. It is to be noted in the first instance that the cases were instituted in different courts under different law and to enforce different claims. Here, the attorney sued in the State court to enforce his retainer contract (Judiciary Law, § 475). The Federal Government intervened and demanded preference in payment of its lien for taxes. In point of time, the attorney’s retainer antedated the condemnation order by over one year, that is, March 8, 1954 to August 5, 1955. The tax assessment was not made until May, 1955 through November, 1955, in point of time, over 14 to 21 months subsequent to the making of the retainer contract and which was the earliest time on which the taxpayer and the attorney could be said to have had notice that Tailored owed withholding taxes.

The Government’s lien for taxes was not filed until May 23, 1956, two years and two months after the attorney’s retainer contract and after the attorney had fully performed the services necessary to create the fund. In point of time, then, the Government’s claim was last. The tardiness of the Government in filing may not be excused by asserting sovereign paramountcy. To do so would be the reverse of the rule under which recovery had been allowed in Aquilino and Ball (supra).

By way of summary, it is well established that the laws of the several States, including the common law, as declared by the highest courts of such States, prevail upon and are enforced in the courts of the United States except where the Constitution, Treaties or Statutes of the United States otherwise require (Erie R. R. v. Tompkins, 304 U. S. 64). That case overruled and disapproved the contrary doctrine of Swift v. Tyson (16 Pet. [41 U. S.] 1). The determination of what constitutes property of a taxpayer on the date of the asserted lien by the Government is a matter of State law (Ætna and Bess, supra, and cases cited; Aquilino, supra, petition for certiorari granted, No. 132, Feb. 24, 1959, 27 U. S. Law Week 3231).

Compensation for private property taken for public use is to be determined by the procedures established for the exercise of the sovereign power of eminent domain, subject only to certain constitutional limitations not here involved (Dohany v. Rogers, 281 U. S. 362). Under the New York City Administrative Code, title vests in the city on the entry of the condemnation order (§ B15-36.0). By section B15-37.0, the value of the property taken is reduced by the reasonable value of the use and occupancy from the date the property was condemned until actual payment of the award. Here the University, as sponsor, had a claim for such use and occupancy which was confirmed by a judgment entered and filed the same day the Government lien was filed. Furthermore, as the lower courts have properly ruled, the award was made subject to the payment of that judgment as provided by the Code (supra) which together constituted it a first lien on the proceeds of the award. At most, the owner had right and title to the award as made, less the $920 judgment due the University, payment of which, in the first instance, was made subject to the judgment. Of the balance the attorney had acquired, by prior assignment, 20% of the award and interest which took effect upon the commencement of the action. The ‘ ‘ property and rights to property ’ ’ which remained was all that the taxpayer had to which the Government lien for taxes could attach in any event.

The order appealed from should be affirmed, with costs.

Fuld, J. (dissenting).

In my view, the lien of the United States for unpaid taxes is superior both to the attorney’s lien of the respondent Coblentz and the judgment lien of the respondent New York University.

Although 1 ‘ a new trend ’ ’ may be portended by Commissioner v. Stern, 357 U. S. 39 (see American Bar Assn., Proceedings of Section of Real Property, Probate & Trust Law, Part II [1958], p. 81), the cases actually decided by the Supreme Court point the conclusion that the Government’s tax lien is superior to the lien of an attorney on a condemnation award where such award was made after a notice of tax lien had been filed against the taxpayer-client. (See United States v. Ball Constr. Co., 355 U. S. 587; United States v. Scovil, 348 U. S. 218; see, also, United States v. Pay-O-Matic Corp., 162 F. Supp. 154, affd. 256 F. 2d 581, cert. denied 358 U. S. 830; Aquilino v. United States, 3 N Y 2d 511, cert. granted Feb. 24, 1959, 27 U. S. Law Week 3231.)

The respondent Coblentz and his client, Tailored Contour, Inc., entered into a retainer agreement whereby the latter authorized the respondent to act for it in the condemnation proceedings and agreed to pay him, and “ do hereby assign ” to him, for his services, 20% of the award and interest that may be paid ” for the property to be taken. As is manifest, no provision of the agreement transferred title or possession to any property and, just as clearly, there was no vendor-vendee relationship created between the respondent and his client, as those terms are ordinarily understood. The respondent agreed to represent the client and to perform legal services, the fee to be paid to bim, uncertain in amount, being strictly contingent, payable only if and after an award was made. Indeed, the client was free, despite the retainer agreement, to terminate the attorney-client relationship at any time he chose. (See Matter of Weitling, 266 N. Y. 184.) At best, therefore, the respondent obtained a potential and inchoate interest, for he had the right neither to receive any money nor to proceed against the property involved in the condemnation proceeding unless and until an award was made. (See, e.g., United States v. Acri, 348 U. S. 211; United States v. Scovil, 348 U. S. 218, supra.) And, beyond all this, there was the possibility that some eventuality might prevent him from ever obtaining even a part of the award.

All of these factors negate any inference that the assignment relied upon constituted a purchase or stamped the respondent a purchaser within the meaning of the Internal Revenue Code. (See United States v. Pay-O-Matic Corp., 162 F. Supp. 154, affd. 256 F. 2d 581, cert. denied 358 U. S. 830, supra; United States v. Ball Constr. Co., 355 U. S. 587, supra; United States v. Scovil, 348 U. S. 218, 221, supra; United States v. Hawkins, 228 F. 2d 517, 518-519.) The Pay-O-Matic case, also involving priority between an attorney’s lien on a condemnation award and a federal tax lien, is indistinguishable from the case before us. In reaching its conclusion, that the attorney’s lien was subordinate to the lien of the Government, the court wrote (162 F. Supp. 156):

“Whether attorney Goldstein’s lien by state tests would be held to be choate, it is clear that under federal tests it is as compared to that of the Government inchoate. It was not established for the amount of the lien was contingent on the outcome of a trial in the state condemnation court to fix the amount of the award to be made to Pay-O-Matic for the property condemned. It was but a ‘ caveat of a more perfect lien to come ’ (United States v. Scovil, 348 U. S. 218, 220 * * *) and is therefore subordinate to the federal tax lien; United States v. City of New Britain, 347 U. S. 81, 84”.

It is likewise my opinion that the judgment lien of New York University is subordinate to the tax lien. The Government filed its notice of tax liens on May 23, 1956, both in the office of the City Register, the place designated by section 240 of this state’s Lien Law, and with the City Comptroller. The University obtained its judgment against the taxpayer, Tailored Contour, on the same day, May 23, 1956, but such judgment was neither filed nor docketed, as required, in the office of the Clerk of the County of New York, until June 5. Since the University could not have a lien against the fixtures belonging to the taxpayer until its judgment was docketed (Civ. Prac. Act, §§ 509, 510), it is clear that the Government’s lien for taxes was prior in time. Once the federal tax lien is properly filed, no subsequently recorded lien or claim may prevail against it. (See United States v. Colotta, 350 U. S. 808; United States v. New Britain, 347 U. S. 81, 84.)

The order appealed from should be reversed and the Comptroller directed to pay to the United States, in partial satisfaction of its tax liens, the moneys heretofore awarded to Tailored Contour, Inc.

Chief Judge Conway and Judges Desmond, Froessel, Van Voorhis and Burke concur with Judge Dye; Judge Fuld dissents in a separate opinion.

Order affirmed.


source: Caselaw Access Project

author: Burke, J. Fuld, J. (dissenting).

license: Public Domain

text:
    Danann Realty Corp., Respondent, v. David A. Harris et al., Appellants.
    Argued November 12, 1958;
    decided March 5, 1959.

      George E. Netter, Morris A. Marks and Milton Waxenfeld for appellants.
    I. The Appellate Division erred in refusing to follow its own holding and that of this court in Cohen v. Cohen (3 N Y 2d 813), which is directly applicable to this case. Sabo v. Delman (3 N Y 2d 155), relied on by the Appellate Division, is not applicable. (Goldsmith v. National Container Corp., 287 N. Y. 438; Merry Realty Co. v. Shamokin & Hollis Real Estate Co., 230 N. Y. 316.) II. There is no authority which supports the holding of the Appellate Division herein. (Bridger v. Goldsmith, 143 N. Y. 424; Ernst Iron Works v. Duralith Corp., 270 N. Y. 165; Angerosa v. White Co., 248 App. Div. 425, 275 N. Y. 524; Kamerman v. Curtis, 285 N. Y. 221; Jackson v. State of New York, 210 App. Div. 115.) III. Sound public policy requires a reversal of the holding of the Appellate Division herein. (Fogelson v. Rackfay Constr. Co., 300 N. Y. 334; Becker v. Colonial Life Ins. Co., 153 App. Div. 382.)

      David Haar for respondent.
    I. Counsel has misconstrued the language of this court in the case of Sabo v. Delman (3 N Y 2d 155). (Goldsmith v. National Container Corp., 287 N. Y. 438; Vail v. Reynolds, 118 N. Y. 297.) II. Appellant’s contention, that this action at law for damages, because of fraud in the inducement, constitutes an affirmance of the whole contract and is virtually an estoppel on the claim of fraud, is contrary to law. (Sager v. Friedman, 270 N. Y. 472; 422 W. 15th St. v. Estate of Johnson, 258 App. Div. 227; Benedict Co. v. McKeage, 201 App. Div. 161; Bennett v. Burch-Buell Motor Gory., 221 App. Div. 517.) III. The argument that “ sound public policy requires a reversal ’ ’ of the order of the Appellate Division in this case is contrary to a ruling by this court in a similar situation. (Sabo v. Delman, 3 N Y 2d 155; Fogelson v. Rackfay Constr. Co., 300 N. Y. 334; Cohen v. Cohen, 1 A D 2d 586, 3 N Y 2d 813; Crowell-Collier Pub. Co. v. Josefowitz, 5 N Y 2d 998.)
   Burke, J.

The plaintiff in its complaint alleges, insofar as its first cause of action is concerned, that it was induced to enter into a contract of sale of a lease of a building held by defendants because of oral representations, falsely made by the defendants, as to the operating expenses of the building and as to the profits to be derived from the investment. Plaintiff, affirming the contract, seeks damages for fraud.

At Special Term, the Supreme Court sustained a motion to dismiss the complaint. On appeal, the Appellate Division unanimously reversed the order granting the dismissal of the complaint. Thereafter the Appellate Division granted leave to appeal, certifying the following question: “Does the first cause of action in the complaint state facts sufficient to constitute a cause of action? ”

The basic problem presented is whether the plaintiff can possibly establish from the facts alleged in the complaint (together with the contract which was annexed to the complaint) reliance upon the misrepresentations (Cohen v. Cohen, 1 A D 2d 586, affd. 3 N Y 2d 813).

We must, of course, accept as true plaintiff’s statements that during the course of negotiations defendants misrepresented the operating expenses and profits. Such misrepresentations are undoubtedly material. However, the provisions of the written contract which directly contradict the allegations of oral representations are of equal importance in our task of reaching a decisive answer to the question posed in these cqses,

The contract, annexed to and made a part of the complaint, contains the following language pertaining to the particular facts of representations: “ The Purchaser has examined the premises agreed to be sold and is familiar with the physical condition thereof. The Seller has not made and does not make any representations as to the physical condition, rents, leases', expenses, operation or any other matter or thing affecting or related to the aforesaid premises, except as herein specifically set forth, and the Purchaser hereby expressly acknowledges that no such representations have been made, and the-Purchaser further acknowledges that it has inspected the premises and agrees to take the premises ‘ as is ’ * * * It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract, made by the other. The Purchaser has inspected the buildings standing on said premises and is thoroughly acquainted with their condition.” (Emphasis supplied.)

Were we dealing solely with a general and vague merger clause, our task would be simple. A reiteration of the fundamental principle that a general merger clause is ineffective to exclude parol evidence to show fraud in inducing the contract would then be dispositive of the issue (Sabo v. Delman, 3 N Y 2d 155). To put it another way, where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud—either in the inducement or in the execution—despite an omnibus statement that the written instrument embodies the whole agreement, or that no representations have been made. (Bridger v. Goldsmith, 143 N. Y. 424; Angerosa v. White Co., 248 App. Div. 425, affd. 275 N. Y. 524; Jackson v. State of New York, 210 App. Div. 115, affd. 241 N. Y. 563; 3 Williston, Contracts [Rev. ed.], § 811 A.)

Here, however, plaintiff has in the plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which" it now claims it" was defrauded. Such a specific disclaimer destroys the allegations in plaintiff’s complaint that the agreement was executed in relianee upon these contrary oral representations (Cohen v. Cohen, supra). The Sabo case {supra) dealt with the usual merger clause. The present case, as the Cohen case, additionally, includes a disclaimer as to specific representations.

This specific disclaimer is one of the material distinctions between this case and Bridger v. Goldsmith (supra) and Crowell-Collier Pub. Co. v. Josefowitz (5 N Y 2d 998). In the Bridger case,'the court considered the effect of a general disclaimer as to representations in a contract of sale, concluding that the insertion of such a clause at the insistence of the seller cannot be used as a shield to protect him from his fraud. Another material distinction is that nowhere in the contract in the Bridger case is there a denial of reliance on representations, as there is here. Similarly, in Crowell-Collier Pub. Co. v. Josefowitz (supra), decided herewith, only a general merger clause was incorporated into the contract of sale. Moreover, the complaint there additionally alleged that further misrepresentations were made after the agreement had been signed, biff_ while the contract was held in escrow and before it had been finally ’approved.

Consequently, this clause, which declares that the parties to the agreement do not rely on specific representations not embodied in the contract, excludes this case from the scope of the Jackson, Angerosa, Bridger and Crowell-Collier cases (supra). (See Foundation Co. v. State of New York, 233 N. Y. 177.)

The complaint here contains no allegations that the contract was not read by the purchaser. We can fairly conclude that plaintiff’s officers read and understood the contract, and that they were aware of the provision by which they aver that plaintiff did not rely on such extra-contractual representations. It is not alleged that this provision was not understood, or that the provision itself was procured by fraud. It would be unrealistic to ascribe to plaintiff’s officers such incompetence that they did not understand what they read and signed. (Cf. Ernst Iron Works v. Duralith Corp., 270 N. Y. 165, 171.) Although this court in the Ernst case discounted the merger clause as ineffective to preclude proof of fraud, it gave effect to the specific disclaimer of representation clause, holding that such a clause limited the authority of the agent, and hence, plaintiff had notice of his lack of authority. But the larger implication of the Ernst case is that, where a person has read and understood the disclaimer of representation clause, he is hound by it. The court rejected, as a matter of law, the allegation of plaintiffs ‘1 that they relied upon an oral statement made to them in direct contradiction of this provision of the contract.” The presence of such a disclaimer clause “ is inconsistent withT the contention that plaintiff relied upon the misrepresentation and was led thereby to make the contract.” (Kreshover v. Berger, 135 App. Div. 27, 28.)

It is not necessary to distinguish seriatim the cases in other jurisdictions as they are not, in the main, in point or, in a few instances, clash with the rule followed in the State of New York. The marshaling of phrases plucked from various opinions and references to generalizations, with which no one disagrees, cannot subvert the fundamental precept that the asserted reliance must be found to be justifiable under all the circumstances before a complaint can be found to state a cause of action in fraud. We must keep in mind that “ opinions must be read in the setting of the particular cases and as the product of preoccupation with their special facts ” (Freeman v. Hewit, 329 U. S. 249, 252). When the citations are read in the light of this caveat, we find that they are generally concerned with factual situations wherein the facts represented were matters peculiarly within the defendant’s knowledge, as in the cases of Sabo v. Delman (supra) and Jackson v. State of New York (supra).

The general rule was enunciated by this court over a half a century ago in Schumaker v. Mather (133 N. Y. 590, 596) that ‘ if the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. (Baily v. Merrell, Bulstrode’s Rep. Part III, p. 94; Slaughter v. Gerson, 13 Wall. 383; Chrysler v. Canaday, 90 N. Y. 272.)”

Very recently this rule was approved as settled law by this court in the case of Sylvester v. Bernstein (283 App. Div. 333, affd. 307 N. Y. 778)

In this case, of course, the plaintiff made a representation in the contract that it was not relying on specific representations not embodied in the contract, while, it now asserts, it was in fact relying on such oral representations. Plaintiff admits then that it is guilty of deliberately misrepresenting to the seller its true intention. To condone this fraud would place the purchaser in Afavored position. (Cf. Riggs v. Palmer, 115 N. Y. 506, 511, 512.) This is particularly so, where, as here, the purchaser confirms the contract, but seeks damages. If the plaintiff has made a bad bargain he cannot avoid it in this manner.

If the language here used is not sufficient to estop a party from claiming that he entered the contract because of fraudulent representations, then no language can accomplish that purpose. To hold otherwise would be to say that it is impossible for two businessmen dealing at arm’s length to agree that the buyer is not buying in reliance on any representations of the seller as to a particular fact.

Accordingly, the order of the Appellate Division should be reversed and that of Special Term reinstated, without costs. The question certified should be answered in the negative.

Fuld, J. (dissenting).

If a party has actually induced another to enter into a contract by means of fraud—and so the complaint before us alleges—I conceive that language may not be devised to shield him from the consequences of such fraud. The law does not temporize with trickery or duplicity, and this court, after having weighed the advantages of certainty in contractual relations against the harm and injustice which result from fraud, long ago unequivocally declared that “ a party who has perpetrated a fraud upon his neighbor may [not] * * * contract with him in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it and bind him never to seek redress. Public policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule but the exception.” (Bridger v. Goldsmith, 143 N. Y. 424, 428.) It was a concern for similar considerations of policy which persuaded Massachusetts to repudiate the contrary rule which it had initially espoused. The same public policy that in general sanctions the avoidance of a promise obtained by deceit”, wrote that state’s Supreme Judicial Court in Bates v. Southgate (308 Mass. 170, 182), “ strikes down all attempts to circumvent that policy by means of contractual devices. In the realm of fact it is entirely possible for a party knowingly to agree that no representations have been made to him, while at the same time believing and relying upon representations which in fact have been made and in fact are false but for which he would not have made the agreement. To deny this possibility is to ignore the frequent instances in everyday experience where parties accept * * * and act upon agreements containing * * * exculpatory clauses in one form or another, but where they do so, nevertheless, in reliance upon the honesty of supposed friends, the plausible and disarming statements of salesmen, or the customary course of business. To refuse relief would result in opening the door to a multitude of frauds and in thwarting the general policy of the law.”

It is impossible, on either principle or reasoning, to distinguish the present case from the many others which this court has decided. (See, e.g., Bridger v. Goldsmith, 143 N. Y. 424, 428, supra; Jackson v. State of New York, 210 App. Div. 115, affd. 241 N. Y. 563; Ernst Iron Works v. Duralith Corp., 270 N. Y. 165, 169; Angerosa v. White Co., 248 App. Div. 425, 431, affd. 275 N. Y. 524; Sabo v. Delman, 3 N Y 2d 155, 162; Crowell-Collier Pub. Co. v. Josefowitz, 5 N Y 2d 998, also decided today.) As far back as 1894, we decided, in the Bridger case (143 N. Y. 424, supra), that the plaintiff was not prevented from bringing an action for fraud, based on oral misrepresentations, even though the written contract provided that it was “understood and agreed ” that the defendant seller had not made,

‘1 for the purpose of inducing the sale * * * or the making of this agreement * * * any statements or representations * * * other than ’ ’

the single one therein set forth (pp. 426-427). And, just today, we are holding, in the Crowell-C oilier Publishing case, that the plaintiffs were not barred from suing the defendants for fraud in inducing them to make the contract, despite its recital that

“ This Agreement constitutes the entire understanding between the parties, [and] was not induced by any representations * * * not herein contained ’ \

In addition, in Jackson v. State of New York (210 App. Div. 115, affd. 241 N. Y. 563, supra), the contract provided that

the contractor (plaintiff’s predecessor in interest) agreed that he had satisfied himself by his own investigation regarding all the conditions of the work to be done and that his conclusion to enter into the contract was based solely upon such investigation and not upon any information or data imparted by the State.

It was held that even this explicit disavowal of reliance did not bar the plaintiff from recovery. In answering the argument that the provision prevented proof either of misrepresentation by the defendant or reliance on the part of the plaintiff, the Appellate Division, in an opinion approved by this court, wrote: “ A party to a contract cannot, by misrepresentation of a material fact, induce the other party to the contract to enter into it to his damage and then protect himself from the legal effect of such misrepresentation by inserting in the contract a clause to the effect that he is not to be held liable for the misrepresentation which induced the other party to enter into the contract. The effect of misrepresentation and fraud cannot be thus easily avoided ” (pp. 119-120).

Although the clause in the contract before us may be differently worded from those in the agreements involved in the other cases decided by this court, it undoubtedly reflects the same thought and meaning, and the reasoning and the principles which the court deemed controlling in those cases are likewise controlling in this one. Their application, it seems plain to me, compels the conclusion that the complaint herein should be sustained and the plaintiff accorded a trial of its allegations.

It is said, however, that the provision in this contract differs from those heretofore considered in that it embodies a specific and deliberate exclusion of a particular subject. The quick answer is that the clause now before us is not of such a sort. On the contrary, instead of being limited, it is all-embracing, encompassing every representation that a seller could possibly make about the property being sold and, instead of representing a special term of a bargain, is essentially “ boiler plate.” (See Contract of Sale, Standard N. Y. B. T. U. Form 8041; Bicks, Contracts for the Sale of Realty [1956 ed.], pp. 79-80, 94-95.) The more elaborate verbiage in the present contract cannot disguise the fact that the language which is said to immunize the defendants from their own fraud is no more specific than the general merger clause in Sabo v. Delman (3 N Y 2d 155, supra) and far less specific than the provision dealt with in the Jackson case (210 App. Div. 115, affd. 241 N. Y. 563, supra) or in Crowell-Collier.

In any event, though, I cannot believe that the outcome of a case such as this, in which the defendant is charged with fraud, should turn on the particular language employed in the contract. As Judge Augustus Hand, writing for the Federal Court of Appeals, observed, ‘ ‘ the ingenuity of draftsmen is sure to keep pace with the demands of wrongdoers, and if a deliberate fraud may be shielded by a clause in a contract that the writing contains every representation made by way of inducement, or that utterances shown to be untrue were not an inducement to the agreement,” a fraudulent seller would have a simple method of obtaining immunity for his misconduct. (Arnold v. National Aniline & Chem. Co., 20 F. 2d 364, 369.)

The guiding rule — that fraud vitiates every agreement which it touches—has been well expressed not only by the courts of this state, but by courts throughout the country and by the House of Lords in England. And, in recognizing that the plaintiff may assert a cause of action in fraud, the courts have not differentiated between the type or form of exculpatory provision inserted in the contract. It matters not, the cases demonstrate, whether the clause simply recites that no representations have been made or more fully stipulates that the seller has not made any representations concerning certain enumerated subjects and that the purchaser has made his own investigation and has not relied upon any representation by the seller, not embodied in the writing. (See, e.g., Sabo v. Delman, 3 N Y 2d 155, 161-162, supra; Ernst Iron Works v. Duralith Corp., 270 N. Y. 165, 169, supra; Bridger v. Goldsmith, 143 N. Y. 424, 428, supra; Angerosa v. White Co., 248 App. Div. 425, 431, affd. 275 N. Y. 524, supra; Jackson v. State of New York, 210 App. Div. 115, affd. 241 N. Y. 563, supra; Pearson & Son v. Dublin Corp., [1907] A. C. 351, 353-354, 362; Arnold v. National Aniline & Chem. Co., 20 F. 2d 364, 369, supra; Lutfy v. Roper & Sons Motor Co., 57 Ariz. 495, 506; Omar Oil Co. v. MacKenzie Oil Co., 33 Del. 259, 289-290; Jordan v. Nelson, 178 N. W. 544 [Iowa]; Bryant v. Troutman, 287 S. W. 2d 918, 921 [Ky.]; Bates v. Southgate, 308 Mass. 170, 182, supra; Ganley Bros. v. Butler Bros. Bldg. Co., 170 Minn. 373, 376-377; Brown v. Ohman, 42 So. 2d 209, 212-213 [Miss.]; Martin v. Harris, 121 Neb. 372; Blacknall v. Rowland, 108 N. C. 554, 557-558; Pennsylvania Turnpike Comm. v. Smith, 350 Pa. 355, 361-362; Dallas Farm Mach. Co. v. Reaves, 307 S. W. 2d 233, 239 [Texas]; Dieterich v. Rice, 115 Wash. 365; see, also, 3 Williston, Contracts [Rev. ed., 1936], §§ 811, 811A; Corbin, Contracts [1951], Vol. 3, § 578; Vol. 6, § 1516; Restatement of Contracts, §573.)

In England, in the Pearson case ([1907] A. C. 351, supra), the contract to perform certain construction work provided that

the contractor 11 should satisfy himself ” as to various specified items connected with the job and that the defendant corporation ‘1 did not hold itself responsible for the accuracy of [such] information ” (p. 351).

After performing the contract, the plaintiffs brought a deceit action, claiming damages for false representations as to the very items concerning which they had agreed they would satisfy themselves. The House of Lords reversed the judgment directed for the defendants and held that the action could be maintained; the Lord Chancellor, after noting that “ The contract contained clauses * * * to the effect that the contractors must not rely on any representation * * * but must ascertain and judge of the facts for themselves ” (p. 353), went on to say (pp. 353-354):

“ Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them.”

Lord Ashbourne, concurring with the Lord Chancellor, pointed out that the clause relied upon ‘ ‘ might in some cases be part of a fraud, and might advance and disguise a fraud ” (p. 360) and Lord Hereford, also concurring, declared (p. 362) that, if the “ protecting clause ” be inserted fraudulently,

‘1 When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it.”

In the Dieterich case (115 Wash. 365, supra), the contract contained the provision that

“ The land is sold to [the plaintiff buyer] * * * with the understanding that he has personally and carefully inspected said premises, and is purchasing the same by said inspection and not from any other sayings or inducements by [the seller] * * * and there has been no other inducements other than recited herein ’ ’.

Despite this explicit disclaimer of reliance and inducement, the Washington Supreme Court decided that the recital did not bar the plaintiff from showing ‘1 the fraudulent nature of the contract” (p. 373) and, in the course of its opinion, observed (p. 368) that the contention of the defendants to the contrary was “ effectually answered by the court of appeals of New York, in the case of Bridger v. Goldsmith, 143 N. Y. 424 ”.

In Martin v. Harris (121 Neb. 372, supra), the agreement recited:

There have been no representations of the reasonable value of any of the properties herein described made by or to either party to this contract. Each party is relying upon his own judgment of such values after a personal inspection of the properties.”

The plaintiff, alleging that the defendant fraudulently misrepresented the value of the property, sought damages. Again, despite the explicit statement that such a representation had not been made and the specific disavowal of reliance thereon, the court upheld the plaintiff’s right to bring the action (p. 376).

In the Ganley case (170 Minn. 373, supra), too, the disclaimer was quite specific, reading in this way:

“ The [plaintiff] contractor has examined the said contracts * * * and the specifications and plans forming a part thereof, and is familiar with the location of said work and the conditions under which the same must be performed * * * and is not relying upon any statement made by the company in respect thereto.”

In deciding that a defendant could not protect himself against liability for fraud by such a provision or, indeed, by any language, the court wrote in no uncertain terms (p. 377):

“ The law should not and does not permit a covenant of immunity to be drawn that will protect a person against his own fraud. Such is not enforceable because of public policy. Industrial &• General Trust, Ltd. v. Tod, 180 N. T. 215 * * *. Language is not strong enough to write such a contract. Fraud destroys all consent. It is the purpose of the law to shield only those whose armor embraces good faith. Theoretically, if there is no fraud the rule we announce is harmless. If there is fraud the rule we announce is wholesome. Whether the rule is effective depends upon the facts. Public interest supports our conclusion.”

And, said the court, while the argument that a party should have the right “ to let his work to a certain person because the other will therein agree that he relies and acts only upon his own knowledge and not upon the representations of his adversary ”, might on first thought seem plausible, it does not stand analysis. ‘1 It may be desirable in dealing with unscrupulous persons to have this clause as a shield against wrongful charges of fraud. But, if there is no fraud, that fact will be established on the trial. The merits of defendant’s claim reach only the expense and annoyance of litigation. But every party should have his day in court. We are unable to formulate a rule of law sustaining defendant’s contention which would not at the same time give opportunities for the commission of fraud for which the wronged party would have no redress ” (p. 376).

And in the Lutfy case (57 Ariz. 495, supra), the contract of sale contained as specific a disavowal of reliance upon a particular represggj^yjgn as could be written:

reed that there is no reprethe ‘ year model ’ of said
property, as hereinbefore stated, correctly states the year in which said property was manufactured, but is merely used by the parties hereto for convenience in describing it. * * * Purchaser agrees that he has made an independent investigation of the property and has relied solely upon his own investigation with reference thereto in entering into this contract, and has placed no reliance and acted upon no representations or warranties upon the part of the Seller.”

The plaintiff, suing for damages, alleged that the defendant had falsely represented the year model of the automobile which he purchased, and the high court of Arizona held that he could prove that such a representation had been made and that he had relied upon it, notwithstanding the contract’s most explicit recital to the contrary (p. 506):

‘ ‘ If binding upon [plaintiff] appellant, it would protect appellee from the consequences of any fraudulent misrepresentations it might have made to appellant to induce bim to sign the contract and, as we see it, any provision in a contract making it possible for a party thereto to free himself from the consequences of his own fraud in procuring its execution is invalid and necessarily constitutes no defense.”

The cases cited—all upholding the sufficiency of a complaint based on fraud no matter how the exculpatory language in the contract is phrased—show how firmly established the rule is, and the passages quoted show how compelling are the reasons for the rule. Nor is their force or value weakened or impaired by the decisions upon which the court now appears to rely. Except for Cohen v. Cohen (3 N Y 2d 813), no one of them has anything to do with the adequacy of the complaint as a pleading; two are concerned with the proof adduced at the trial (Schumaker v. Mather, 133 N. Y. 590; Ernst Iron Works v. Duralith Corp., 270 N. Y. 165, supra), while the third deals with the subject of res judicata (Sylvester v. Bernstein, 283 App. Div. 333, affd. 307 N. Y. 778).

In the Ernst Iron Works case, |tt^as, as I have noted, taken after trial and wasJ[^^H proof and not, as is the present appeal. ^^^^■k.the com-

plaint. The contract contained both a blanket merger clause and a recital that the defendant ‘1 makes no representation regarding previous sales ” in Buffalo, where the plaintiff did business. Notwithstanding that provision, the plaintiff claimed that he had relied upon a representation by the defendant’s salesman that the product had not been sold in that city, and testimony to that effect was received at the trial. The court ■did reverse the judgment for the plaintiff, but not on any theory that the specific disclaimer clause barred suit or that the evidence was inadmissible because of it. It was the court’s conclusion, based on the evidence adduced at the trial, first, that the false representation attributed to the defendant had not been made (270 N. Y., at pp. 169-170); second, that, in any event, the defendant’s salesman did not have authority to make such a representation and the plaintiff knew this (pp. 170-171); and, finally, that “ it [was] clear [from the proof at the trial] that the plaintiff did not rely upon the statement” (pp. 171-172). And, most significantly, the court did not question the general principle but affirmed it, stating that 11 A rogue cannot protect himself from liability for his fraud by inserting a printed clause in his contract ” (270 N. Y, at p. 169).

As to Cohen v. Cohen, I dissented from the decision there made and still consider it to have been wrongly decided. Constrained to accept it, I do so, but I cannot subscribe to extending its application beyond its own peculiar fact setting. A husband and wife had separated; there were bitter mutual recriminations followed by three separate lawsuits. The parties were ultimately reconciled and their lawyers drew a settlement agreement, which they executed, reciting that the husband had not made any representations “as to the continuation of the marital status ”. The wife sometime later brought another action, alleging that her husband had falsely represented that he “would effect a reconciliation with [her], return to live with her * * * permanently, and permanently resume their marital relationship ”, As is quite evident, the Cohen case is a most unusual one, not only because it involved an agreement designed to settle pending marital litigation, but because of the extraordinary and promissory nature of the misrepresentation alleged. Indeed, the only resemblance claimed for the cases — that is, for Cohen and the present one—is that in both there is a specific disclaimer by the plaintiff of the very representations charged against the defendant. However, as noted above (pp. 325-326), since the provision in the contract before us encompasses every representation which a seller of real estate could possibly have made, including those alleged, even the asserted similarity does not in fact exist.

Contrary to the intimation in the court’s opinion (p. 323), the nonreliance clause cannot possibly operate as an estoppel against the plaintiff. Essentially equitable in nature, the principle of estoppel is to be invoked to prevent fraud and injustice, not to further them. The statement that the representations in question were not made was, according to the complaint, false to the defendant’s knowledge. Surely, the perpetrator of a fraud cannot close the lips of his victim and deny him the right to state the facts as they actually exist. Indeed, the contention that a person, such as the defendant herein, could urge an estoppel was considered and emphatically disposed of in Bridget v. Goldsmith with this statement: The question now is whether [the no-representation non-inducement clause] can be given the effect claimed for it by the learned counsel for the defendant, to preclude the plaintiff from alleging fraud in the sale and pursuing in the courts the remedies which the law gives in such cases. It cannot operate by way of estoppel for the obvious reason that the statements were false to the defendants-knowledge. He may, indeed, have relied upon its force and efficacy to protect him from the consequences of his own fraud, but he certainly could not have relied upon the truth of any statement in it. A mere device of the guilty party to a contract intended to shield himself from the results of his own fraud, practiced upon the other party, cannot well be elevated to the dignity and importance of an equitable estoppel” (143 N. Y. 424, 427-428, emphasis supplied; see, also, Angerosa v. White Co., 248 App. Div. 425, 433-434, affd. 275 N. Y. 524, supra).

The rule heretofore applied by this court presents no obstacle to honest business dealings, and dishonest transactions ought riot to receive judicial protection. The clause in the contract before us may lend support to the defense and render the plaintiff’s task of establishing its claim more difficult, but it should not be held to bar institution of an action for fraud. Whether the defendants made the statements attributed to them and, if they did, whether the plaintiff relied upon them, whether, in other words, the defendants were guilty of fraud, are questions of fact not capable of determination on the pleadings alone. The plaintiff is entitled to its day in court.

Chief Judge Conway and Judges Desmond, Dye, Froessel and Van Voorhis concur with Judge Burke; Judge Ftjld dissents in a separate opinion.

Order reversed, etc.


author: Froessel, J. Desmond, J. (dissenting in part). Van Voorhis, J. (dissenting).

text:
    In the Matter of the Accounting of Adrian R. Allan, Jr., et al., as Executors of Adrian R. Allan, Deceased, Respondents. Irving Trust Company, as Executor of Helen H. Allan, Deceased, Appellant; Virginia A. Carter et al., Respondents.
    Argued November 5, 1958;
    decided March 5, 1959.

      John F. LeViness, Elting E. Smith and James W. O’Neil, Jr., for appellant.
    I. The notice by which the deceased widow exercised her right of election could not be validly withdrawn without court authorization after the expiration of the statutory period allowed for making such election. (Matter of Daub, 305 Pa. 446.) II. No effect should be given to the notice of withdrawal in view of the provisions and intent of section 18 of the Decedent Estate Law. (Matter of Herle, 165 Misc. 46; Davis v. Davis, 11 Ohio St. 368; Matter of Zweig, 145 Misc. 839; Matter of Hearn, 158 Misc. 370; McGarry v. Mathis, 226 Iowa 37.) III. The well-accepted rule that an election may not be withdrawn without court approval should be followed in this proceeding. (Craven v. Craven, 181 Ky. 428; Matter of Donovan, 409 Ill. 195; Macknet v. Macknet, 29 N. J. Eq. 54; Evan’s Appeal, 51 Conn. 435; Matter of McFarlin, 9 Del. Ch. 430; Cannon v. Apperson, 82 Tenn. 553; United Australia, Ltd., v. Barclays Bank, Ltd. [1941] A. C. 1.) IV. To allow an election under section 18 to be withdrawn at any time without court approval would not be consistent with orderly estate administration. V. Appellant’s second ground for challenging the validity of the notice of withdrawal was legally sufficient. The notice of withdrawal was voidable if procured by unreasonable pressure or duress. (Matter of Hearn, 158 Misc. 370; Barnette v. Wells Fargo Nat. Bank, 270 U. S. 438; Oregon Pacific R. R. Co. v. Forrest, 128 N. Y. 83; Matter of Moore, 165 Misc. 683, 254 App. Div. 856; Matter of Smith, 243 App. Div. 348.) VI. Appellant’s objections should not be dismissed for failure to set forth sufficient facts with respect to the alleged duress. (Matter of Razoux, 154 Misc. 477.)

      Stewart Maurice and Robert Brooks White for Adrian R. Allan, Jr., and another, executors, respondents.
    I. The widow’s withdrawal of her notice of election is valid and enforcible. (Matter of Moore, 165 Misc. 683, 254 App. Div. 856, 280 N. Y. 733.) II. Section 18 of the Decedent Estate Law does not forbid or restrict the withdrawal of a notice of election. (Matter of Zweig, 145 Misc. 839; Matter of Hearn, 158 Misc. 370.) III. There is no rule in New York that an election may not be withdrawn without court approval. IV. Appellant cannot complain that its own testatrix did something to disrupt the orderly administration of the estate. (Matter of Carll, 201 Misc. 829, 279 App. Div. 607; Matter of Mihlman, 140 Misc. 535; Matter of Coffin, 152 Misc. 619; Matter of Brill, 175 Misc. 236; Matter of Gross, 177 Misc. 716.) V. The widow’s withdrawal of election is not voidable on the ground of possible duress.

      Charles E. Birdsall for Virginia A. Carter, respondent.
    I. Neither the provisions of section 18 of the Decedent Estate Law nor the intention of the Legislature as expressed therein invalidate the widow’s withdrawal of her election. (McCluskey v. Cromwell, 11 N. Y. 593; Fifth Ave. Bank v. Colgate, 120 N. Y. 381; Matter of Meyer, 209 N. Y. 386; Matter of Rathscheck, 300 N. Y. 346; Meltzer v. Koenigsberg, 302 N. Y. 523.) II. Section 18 of the Decedent Estate Law makes sense without implying that it bars withdrawals of election. Only necessary implications may be read into a statute. (Matter of Tourneau, 4 Misc 2d 941; Tompkins v. Hunter, 149 N. Y. 117; Fontheim v. Third Ave. Ry. Co., 281 N. Y. 392.) III. Section 18 of the Decedent Estate Law imposes no time restrictions upon withdrawals of elections, and none should be implied as the Legislature failed to consider withdrawals of elections or, if it did consider them, determined to omit any reference to them. (McKuskie v. Hendrickson, 128 N. Y. 555; Lawrence Constr. Corp. v. State of New York, 293 N. Y. 634; Matter of Second Ave. M. E. Church, 66 N. Y. 395; Levberg v. Schumacher, 225 N. Y. 167.) IV. Apart from statute the widow had the right to withdraw her notice of election. (Steuer v. Hector’s Tavern, 1 Misc 2d 614, 1 A D 2d 1003; Matter of Moore, 165 Misc. 683, 254 App. Div. 856, 280 N. Y. 733; Albany Hosp. v. Albany Guardian Soc., 214 N. Y. 435; Matter of Wilson, 298 N. Y. 398.) V. Appellant’s objection that the widow’s withdrawal of her election was involuntary and the result of unreasonable pressure, possibly constituting duress, was insufficient on its face and was properly dismissed.

      Harold Obstler for Alice W. Allan, respondent.
    I. A surviving spouse may waive the benefits conferred by section 18 of the Decedent Estate Law at any time, without prior judicial approval, where no public policy or estoppel intervenes. (Selzer v. Baker, 295 N. Y. 145; Matter of Moore, 165 Misc. 683, 254 App. Div. 856, 280 N. Y. 733; Matter of Tourneau, 4 Misc 2d 941; Matter of Clark, 275 N. Y. 1; Matter of Byrnes, 260 N. Y. 465; Matter of Matthews, 255 App. Div. 80, 279 N. Y. 732; Albany Hosp. v. Albany Guardian Soc., 214 N. Y. 435; Burritt v. Silliman, 13 N. Y. 93; Matter of Wilson, 298 N. Y. 398.) II. The provisions of subdivision 7 of section 18 of the Decedent Estate Law, regulating the filing of a notice to elect, are not applicable to withdrawing a notice once filed. (Matter of Zweig, 145 Misc. 839; Matter of Hearn, 158 Misc. 370.) III. Cases in other jurisdictions arising under statutes totally dissimilar to section 18 of the Decedent Estate Law cannot be controlling herein. IV. The primary policy of the courts to carry out the testamentary intent of a decedent requires this court to affirm the decision below. (Matter of Chalmers, 264 N. Y. 239; Matter of Hayes, 263 N. Y. 219; Matter of Clarkson, 171 Misc. 188; Matter of Moore, 165 Misc. 683, 254 App. Div. 856, 280 N. Y. 733; Matter of Jackson, 176 Misc. 1020; Matter of Herter, 193 Misc. 602, 274 App. Div. 979; Matter of Brill, 175 Misc. 236; Matter of Froman, 165 Misc. 400; Matter of Ackler, 168 Misc. 623.) V. Where no material facts constituting duress on the part of the representatives of this estate are alleged, the widow’s notice of withdrawal cannot be set aside. (Matter of Silverman, 144 Misc. 675; Matter of Walsh, 107 Misc. 475; Matter of Dennis, 206 Misc. 593; Matter of Britton, 167 Misc. 747; Matter of Conover, 163 Misc. 599, 252 App. Div. 917; Matter of Hearn, 158 Misc. 370; Matter of Ziegler, 265 App. Div. 820; Matter of Goldstein, 176 Misc. 366.)

      Edward Edelman, in person, and David M. Berger for Edward Edelman, special guardian for infants, respondent.
    I. The widow’s notice of the exercise of her personal right of election under section 18 of the Decedent Estate Law was effectively nullified by her acknowledged withdrawal thereof. (Matter of Garlock, 252 App. Div. 419; Flynn v. McDermott, 183 N. Y. 62; Matter of Brown, 212 App. Div. 677; Matter of Brill, 175 Misc. 236.) II. Neither public policy nor section 18 of the Decedent Estate Law prohibits the withdrawal of the notice of election. Only persons other than the widow’s executor, if prejudiced, could object to or prevent such withdrawal. (Selzer v. Baker, 295 N. Y. 145; Vose v. Cockcroft, 44 N. Y. 415; Matter of Moore, 165 Misc. 683, 254 App. Div. 856, 280 N. Y. 733; Matter of Tourneau, 4 Misc 2d 941.) III. Appellant’s objection that the widow’s notice of withdrawal of her election was not her free and voluntary act but the result of 1‘ unreasonable pressure, possibly constituting duress ” exerted by others is legally insufficient. {Matter of Goldstein, 176 Misc. 366.)
   Froessel, J.

In this accounting proceeding commenced by the executors under the will of Adrian Bussell Allan, respondents herein, the executor under the will of Allan’s widoiv appeals by permission of the Appellate Division. The courts below have dismissed as insufficient on their face appellant’s objections to the account. These objections challenged the validity of an instrument executed and filed by the widow, Helen H. Allan, which withdrew a prior notice of the exercise of her right of election under section 18 of the Decedent Estate Law.

The value of the widow’s interests under the will totaled $590,890, while the elective share amounted to $1,132,001. The widow and four other residuary legatees, including decedent’s first and divorced wife, Alice W. Allan, and his daughter by said wife, Virginia A. Carter, both respondents herein, were each given a 20% interest in the residue.

The widow served timely notice of the exercise of her right of election, and, pursuant thereto, the executors estimated the extent to which each interest under the will would have to abate to make up for the widow’s additional share. To adjust the distribution of income, they ceased payments to the four other legatees and made distributions to the widow only, continuing this method until June 10, 1955, when she served notice upon them — and filed the instrument with the Surrogate’s Court — that she was withdrawing her notice of election. Thereafter the executors, giving effect to the withdrawal notice, made no payments to the widow in the distribution of June 30, 1955.

Shortly after the commencement of this proceeding, the widow died, and appellant, her executor, was substituted as a party. Appellant thereupon objected to the account insofar as it recognized the validity of the withdrawal notice, on the ground that it was void because filed “ after the expiration of the period during which the notice of the exercise of the right of election might have been filed and without any application having been previously made to this or any other court for leave to 'file the same;” and on the further ground that, even if legally possible under such circumstances, the withdrawal here was nevertheless invalid in that the widow “ did not act voluntarily and of her own free will, but rather as the result of unreasonable pressure, possibly constituting duress, exerted either by Virginia A. Luginbuhl, now Virginia A. Carter, a party to this proceeding, or by other persons whose names are at present unknown to objectant.”

Objections to the account were also filed by Virginia A. Carter and Alice W. Allan, challenging, among other things, the rejection by the executors of Mrs. Carter’s claim for $24,000 for services allegedly rendered to the estate. The basis for this claim may be summarized as follows: that the widow and her late husband’s executors entered into a plan to minimize estate taxes whereby it was agreed that the widow would elect and thereafter redistribute to certain of the residuary legatees, excluding Virginia A. Carter and Alice W. Allan, the additional property received by the election and which, because of the election, qualified for the marital deduction; that the executors made no independent appraisal of the property passing to the widow under the will but accepted the grossly understated valuations furnished to them by the widow; that, having learned of the above plan and of the filing of the notice of election and the consequent abatement of all other beneficiaries’ interests, Virginia A. Carter personally undertook to establish the true value passing to the widow under the will, and “ that as a result of this action on the part of Virginia A. Carter, the late Helen Hyland Allan withdrew her notice of election ”. The sufficiency of this objection is not before us on this appeal but it has a bearing upon the issues which are before us.

We defer for the present the question of the voluntariness of the withdrawal, and turn to the general question of whether a notice of election may be withdrawn at all, and, if so, under what circumstances. As to this issue, the courts below were unanimously agreed that, in the absence of any express limitation in the statute or of any claim that the instant withdrawal prejudiced existing rights, there was no reason to prevent the widow from voluntarily relinquishing the rights derived from her exercise of the election.

Section 18 concededly makes no reference to the question of withdrawal of an election, apparently leaving that to be determined by general principles of law, and is expressly concerned only with the making of an election. Appellant would nevertheless have the court extend the application of subdivision 7 of the section—providing time limitations with respect to elections — to the instant situation. Under this subdivision, the six months ’ time within which to make an election may be enlarged by the Surrogate before the expiration of that period, and may be further enlarged any number of times (at least prior to the final accounting) upon a showing of reasonable cause, provided each application is made before the expiration of the previously extended period (Matter of Baker, 171 Misc. 1022, affd. 258 App. Div. 718; Beechler, Elections Against Wills, pp. 360-361, 395-396, 405-406; Matter of Siegel, 180 Misc. 818, 819; see, also, Matter of Schmidt, 168 Misc. 534, 539). In the case of a default, the application for relief must be made to the Surrogate before the expiration of 12 months from the issuance of letters (provided the final accounting decree has not been made), but the time fixed by the Surrogate for making the election may extend beyond the 12 months’ period (see, e.g., Matter of Burr, 168 Misc. 240, 242, 245, affd. 254 App. Div. 825).

We agree with the Surrogate that the time limitations expressed in section 18 were “ intended to be applicable to wholly different rights ” from the one claimed here. The exercise of an election to take against (or more accurately in addition to the provisions in) the will cuts down the interests of the beneficiaries under the will. The withdrawal of the election increases or restores the interests of these beneficiaries, precisely as the testator directed. Nothing is being taken away from the persons interested in the decedent’s estate. Bather, they are all benefited by the surrender of the widow’s additional share. Thus in this proceeding the beneficiaries seek to uphold the validity of the withdrawal. Surrogate Wingate, a member of the Decedent Estate Commission, which wrote section 18, said of subdivision 7 in Matter of Clark (166 Misc. 909, 913): “ The purpose of this requirement is obvious and is merely to assure timely notice to those charged with the administration of the estate that the surviving spouse is dissatisfied with the terms of the will and asserts the additional right accorded by the statute, thus enabling them to be on their guard against any mode of dealing with the assets in their charge which does not take into consideration the statutory rights-of the elector(Emphasis supplied.)

In Matter of Zweig (145 Misc. 839, 853, 857 [1932]) the widow failed to file her notice of election against the will within the required period, and applied to the Surrogate for relief from the default. In denying the application, Surrogate Wingate analyzed the problem on two alternative theories. The first was to view the application as one for additional time to comply with the requirements of the statute, which he denied — the amendment of subdivision 7 of section 18 authorizing such relief was enacted thereafter (L. 1936, ch. 114). The second was to view the failure to comply as an election to take under the will, and the application as one to revoke this election. The Surrogate held that “ If the matter be now considered in its aspect of an application to reverse an intentional and valid election in favor of the will, the respective widows are in no more favorable position ” than they would be under the first theory (p. 857). In its opinion in the instant case, the Appellate Division stated that Surrogate Wingate in the Zweig case 1 ‘ expressed the view by way of considered and deliberate dicta that an election, once validly made, is generally irrevocable ’ \ (Italics supplied.) It is clear, however, that in the quoted statement the Surrogate was referring to the attempted revocation of an election to take under the will in order to take a larger share against the will, which was the issue in the Zweig case. In the instant case the situation is precisely the reverse; thus the Zweig case has no application whatever.

It is argued that if the procedure followed in this case by the widow—with whom appellant is in privity — be approved by our court, the time limitation of subdivision 7 of section 18 would be nullified. Appellant states that surviving spouses will be advised by their attorneys to file the required notice of election and “ in that way prolong substantially the period during which a choice could be made ”. This argument is not persuasive. If a spouse is permitted to elect in the first place, it is because she chooses to receive a larger share of her husband’s estate thereby. If then she does elect and thus becomes entitled to this greater interest, it is quite unlikely in most cases that she will wish to surrender it. On the other hand, if the spouse has serious and reasonable doubt as to the value of the assets she is to receive under the will and the value of the estate as a whole, and wishes to postpone her decision beyond the six months ’ period, the law expressly provides that she may secure one or more extensions of time (Matter of Baker, supra), and thus defer her final decision.

Appellant also urges that we should follow the ‘ ‘ well accepted rule that an election may not be withdrawn without court approval”. The cases cited by appellant from other jurisdictions are of little value here. As pointed out by both of the courts below, the New York statute is sui generis. Under section 18, unlike the statutes of other jurisdictions (see Combined Reports of Decedent Estate Comm. [1928-1933], pp. 117-140), the surviving spouse may not elect unless the testator gives her less than the statutory requirements (Matter of Byrnes, 141 Misc. 346, 347, 348-349, affd. 235 App. Div. 782, affd. 260 N. Y. 465), and upon election she does not take against the will entirely , but, as the Appellate Division stated, is merely entitled to take the difference between the testate disposition, if any, and the intestate share ”. The consequence of this distinction is that in New York when a surviving spouse withdraws her election she simply surrenders the additional share to the estate and increases the shares of other beneficiaries. Thus the reason for requiring judicial approval in other jurisdictions is not present here.

Appellant makes the further argument that to allow withdrawal 1 ‘ at any time without court approval would not be consistent with orderly estate administration ”, since “ extra administration work and expense will be involved ”. This, however, would seem to be exclusively the concern of the executors, who make no complaint here. All that is required in the present case is to take the difference between the widow’s interest under the will and her intestate share and allot that difference to the beneficiaries entitled thereto — a mere matter of accounting — and the reverse of what the executors here did when the widow filed her notice of election.

It is clear from the foregoing discussion that no legislative or other public policy or legal precedent compels a holding that a notice of election may not be withdrawn under the circumstances here presented, where the rights of other beneficiaries or creditors are in nowise invaded, where there is no prejudice and where the final accounting has not yet been made. The right of election, which is a personal right, is purely statutory, to be exercised only as prescribed by statute. It was so exercised here. The power to surrender this right is neither prescribed nor forbidden by statute, and we may assume that the Legislature was satisfied to leave such a situation to be governed by general principles of law. (See Matter of Moore, 165 Misc. 683, 689, affd. 254 App. Div. 856, affd. 280 N. Y. 733; People ex rel. McLaughlin v. Board of Police Comrs., 174 N. Y. 450, 456.) As the Appellate Division noted, the identical result could have been achieved if the widow, instead of filing a notice of withdrawal, had filed an assignment to the same beneficiaries of all her interest in the difference between her share under the will and her intestate share, and the executors would then have had to make the same adjustment in their account. Inasmuch, therefore, as no adverse rights have intervened, and no prejudice has been shown as to creditors of the widow or as to other persons interested in the estate, we agree with the courts below that the notice of withdrawal dated May 24, 1955, and filed prior to the accounting, was valid and effective, if voluntarily made.

This brings us to appellant’s second ground of objection, heretofore referred to, namely, that the withdrawal notice was invalid since the widow did not act voluntarily and of her own free will. The Surrogate first expressed the view that this ground of objection was “ in terms too broad and vague to stand against attack ”. He then assumed, however, that it could be read “as a charge that the widow’s withdrawal of her notice of election was rendered ineffective because of its having been the result of unreasonable pressure, possibly constituting duress, exerted either by * * * Virginia A. Carter * * * or by other persons whose names are at present unknown to objectant ’ ”. Nevertheless, he held that the validity of the notice would not be open to question, since the “ accounting executors are not charged with knowledge of any infirmity in the notice of withdrawal and if one exists and was created by the wrongful act of a third person then the remedy lies elsewhere than in this proceeding or in this forum ”, citing Matter of Goldstein (176 Misc. 366). It may be fairly assumed that because of the latter view, which we think is erroneous, no leave was given to appellant to plead over.

That the accounting executors are not charged with knowledge of any infirmity in the notice of withdrawal ” is irrelevant. The Surrogate has jurisdiction of the estate, and would have power to set aside a widow’s involuntary relinquishment of her statutory rights, irrespective of who was responsible for such relinquishment, just as he may refuse to probate a will obtained by undue influence or fraud. Indeed, the very purpose of section 18 — to protect a surviving spouse from the testator’s willfulness or neglect—would be utterly defeated if a Surrogate were powerless to guard the spouse against involuntary surrender of what the statute has said should be hers.

The Goldstein case (supra) is not authority for the Surrogate’s holding here. There, a widow attempted to vacate the decree on accounting in order to file her election. The application was made more than one year after the issuance of letters. Stating that the question was “purely one of statutory construction ”, the Surrogate held (p. 367) “that the limitations in the section are exclusive and that, since twelve months have elapsed since letters issued, no right of election now exists ” (emphasis supplied). As an afterthought, however, the Surrogate indicated in the last sentence of his opinion that the widow might nevertheless have a remedy by bringing an action for damages against the person who allegedly defrauded her. The actual decision was of course correct, but involves a quite different issue. It would be anomalous to say that respondent Virginia Carter may recover from the estate the amount of her expenses (the consequence of-which she alleges was the withdrawal of said notice), as the Appellate Division said she might upon a proper showing, on the theory that the beneficiaries would profit from such services, but that the widow’s estate may not in the same proceeding assert its claim of involuntariness with respect to the notice of withdrawal. The beneficiaries must take the consequences either way.

In affirming, the Appellate Division made no reference in its opinion to the sufficiency of the allegations of appellant’s second ground of objection, but merely stated: “ The widow’s estate is, of course, in no position to object because its decedent surrendered an interest that she had, if in fact she had the capacity and voluntarily did so surrender her interest.” (Emphasis supplied.) That is precisely appellant’s claim— that she did not voluntarily surrender her interest; and it would follow that in the absence of such voluntariness, her executor should be entitled to attack the withdrawal notice in .this proceeding.

While recognizing the fact that the widow can no longer speak for herself, and that pleadings in the Surrogates’ Courts are rather liberally construed (Matter of Dixon, 7 Misc 2d 812, 813-814, affd. 2 A D 2d 987, motion for leave to appeal denied 3 A D 2d 672; Matter of Baum, 11 Misc 2d 934), we think that the allegations of the second ground of objection are somewhat equivocal and indefinite (Surrogate’s Ct. Act, § 49), but, under the circumstances of this case, leave should be given to replead the allegations as to involuntariness ‘ as the result of unreasonable pressure, possibly constituting duress ” definitely and sufficiently. This will not unduly delay the settlement of the account since there will undoubtedly be a hearing in any case on the related question raised by the second objection of Virginia A. Carter heretofore referred to. Inasmuch as the trial of this objection will very probably disclose the reasons for the withdrawal and the connection of Mrs. Carter therewith, it would seem only reasonable to permit appellant to try out at the same time its related allegation of involuntariness, when sufficiently pleaded.

Accordingly, the order, insofar as appealed from, should be affirmed, but the appellant granted leave to plead over the objection denominated in its pleading as “ First, (b) ” within 20 days, with costs payable out of the estate to all parties appearing separately and filing briefs. The question certified should be answered in the negative.

Desmond, J. (dissenting in part).

I dissent from so much of this decision as allows appellant executor to replead the objection that decedent “ did not act voluntarily and of her own free will, but rather as the result of unreasonable pressure, possibly constituting duress, exerted either by Virginia A. Luginbuhl, now Virginia A. Carter, a party to this proceeding, or by other persons whose names are at present unknown to objectant.” Such language raised no issue and was meaningless as a pleading (see Kamenitsky v. Corcoran, 177 App. Div. 605; Liscomb v. Agate, 51 Hun 288; Prouty v. Nichols, 282 App. Div. 962; Gerdes v. Reynolds, 281 N. Y. 180; Kalmanash v. Smith, 291 N. Y. 142; Radich v. Hutchins, 95 U. S. 210). Thus, it was insufficient to put the other parties to the trouble and expense of a trial. And I see no reason why, three and a half years after this proceeding was commenced, we should allow this executor to start all over again. There must be some sort of public policy forbidding an executor making such charges without adequate reason and attempting to set aside a reasonable and deliberate act of his own testatrix.

Van Voorhis, J. (dissenting).

Section 18 of the Decedent Estate Law authorizes a surviving spouse" under specified circumstances to take his or her intestate share against the will of a decedent. But such an election is required by this section to be made within six months after the issuance of letters testamentary. The statutory language says nothing about a right to withdraw an election that has been made, and it seems to me that the Legislature intended that it cannot be withdrawn after the lapse of six months. If the position taken by the surviving spouse may thus be changed at any time, the administration of estates is liable to be seriously disrupted. Executors can be placed in a quandary concerning how to act regarding important items in the administration of estates, including the payment of estate, gift or income taxes. Such taxes have to be paid within time limitations established by Federal and State statutes. Tax returns and payments may have to be radically revised if the surviving spouse alters at some late date a decision previously made to file an election, which may occur after Statutes of Limitation have run against applications for refunds of taxes that have been paid on the basis of the election to take the intestate share. In this instance, the widow had the right to donate to others portions of her intestate share received in consequence of her election under section 18, and she could make these gifts to the persons who would have taken under the will if she had not made her election, but the legal effect of a gift out of her intestate share is widely different from a renunciation or withdrawal of her election, which had previously taken effect and presumably had been acted upon. I think that the right to withdraw such an election after the lapse of six months cannot be made to depend on an inquiry concerning whether some interested person has been prejudiced by such a change in position of the surviving spouse. This view renders academic whether the widow here was actuated by unreasonable pressure or duress in her attempt to withdraw her notice of election to take her intestate share. She lacked power to withdraw it if it was validly exercised in the first instance.

The portion of the order appealed from should be reversed which dismisses the objections of appellant Irving Trust Company as executor of Helen H. Allan, and said objections should be sustained.

Chief Judge Conway and Judges Fuld and Burke concur with Judge Froessel; Judge Desmond dissents in part in an opinion in which Judge Dye concurs; Judge Van Voobhis dissents in a separate opinion.

Order affirmed, etc.

       Except in the very narrow case presented by paragraph [e] of subdivision 1 of said section where the intestate share is less than $2,500.