text:
    Ira M. Ball, Respondent, v State of New York, Appellant.
    (Claim No. 59498.)
    Argued February 15, 1977;
    decided April 7, 1977

      Louis J. Lefkowitz, Attorney-General (William J. Kogan and Ruth Kessler Toch of counsel), Albany, for appellant.

      Ira M. Ball, Utica, respondent pro se.

   Gabrielli, J.

In this case we must decide whether claimant, Chairman of the State Bingo Control Commission, is entitled to his salary for that office from April 1, 1975 to September 2, 1975. More precisely, the determinative issue is whether the Legislature in enacting the 1975-1976 budget (L 1975, ch 50) abolished both the State Bingo Control Commission and claimant’s office either by direct action or by implication in failing to expressly appropriate funds for the commission or for claimant’s salary. Both the Court of Claims and the Appellate Division have held that the Legislature had not taken the necessary action to abolish claimant’s statutorily created position. We agree with the determination of the courts below.

Bingo had been legalized in New York State by a 1957 amendment to the New York State Constitution (see NY Const, art I, § 9, subd 2). The State Bingo Control Commission was created in 1962 to rigidly regulate the game of bingo in the State and prevent the infiltration of criminal and other undesirable elements into the game (see Executive Law, art 19-B, §§ 430-439-b; General Municipal Law, art 14-H, §§ 475-499; Report to Governor Rockefeller of Moreland Act Commission [March 1, 1962]). Claimant has been the chairman of the commission since its creation. In June, 1974, he was reappointed to this position for a third five-year term to expire in 1979, and his appointment was confirmed by the Senate. In his 1975-1976 executive budget, the Governor recommended the abolition of the Bingo Control Commission, and budget bill S 3492/A 4509 was introduced to effect that recommendation and transfer the functions of the commission to the State Wagering and Racing Board. The bill was passed by the Assembly but failed to win approval in the Senate and, thus, never became law. The 1975-1976 budget, formally known as "State Purposes Appropriation Bill” (L 1975, ch 50), was passed by the Legislature on March 26, 1975 and signed by the Governor on April 7, 1975. The budget contained no provision relating to the abolition of the Bingo Control Commission or the transfer of its functions to the Racing and Wagering Board. Although no funds were specifically appropriated for the commission or for claimant’s salary, the budget contained a lump-sum appropriation for $399,200 under the title "Regulation of Wagering” earmarked for "Personal service—regular” (L 1975, ch 50, p 240). A portion of these funds was presumably intended for the regulation of bingo activities in the State. Following the enactment of the budget bill, representatives of the Racing and Wagering Board proceeded to dismantle the Albany and New York City offices of the Bingo Control Commission and purported to terminate its staff and transfer some of the positions to the Racing and Wagering Board. Former employees of the commission who had been transferred to the board were instructed not to provide any information to claimant or perform any work for him. Nonetheless claimant continued to perform and execute his responsibilities as best he could. Claimant received no salary after April 1, 1975 and on April 9, 1975 claimant received a letter from the secretary to the Governor stating that his office was terminated. Claimant, filling a statutorily created office, replied that no action had been taken by the Legislature to abolish the commission and was informed in reply that "[wjhile you are correct in stating that final approval has not been given to the budget bill abolishing your agency * * * assurances have been given * * * that it will be passed in the Senate.” As previously noted, the bill was never enacted into law. On July 29, 1975 claimant filed his claim for salary due. His motion for summary judgment was granted in the amount of $14,966.57, representing his salary from April 1, 1975 to September 2, 1975, the date of the motion.

Events subsequent to the enactment of the 1975-1976 budget are of particular interest in this case. On August 6, 1975, the Governor approved a bill (L 1975, ch 667, § 16) which amended section 169 of the Executive Law by repealing a subdivision thereof and relettering certain other subdivisions, without deleting a subdivision expressly setting forth the salary of the "chairman of the state bingo control commission” (see Executive Law, § 169, subd [j], as amd). The amendment became effective on August 6, 1975 but was made retroactive to April 1, 1975. It is also noteworthy that on January 20, 1976, the Governor submitted, in connection with the 1976-1977 budget, a new budget bill to abolish the Bingo Control Commission (S 7298/A 9268). The bill was identical to that which failed to win legislative approval in 1975 except that it contained the following provision: "All appropriations made to the State Bingo Control Commission pursuant to Section 1 of Chapter 50 of the Laws of 1975, to the extent of remaining unexpended balances, are hereby transferred to and made available for use by the State Racing and Wagering Board.” This bill died in committee and thus met the same fate as the 1975 bill seeking to abolish the Bingo Control Commission.

It is axiomatic that the Legislature may abolish or shorten the term of positions which it has created (see, e.g., Lanza v Wagner, 11 NY2d 317, 324; Nichols v MacLean, 101 NY 526, 533; Matter of Friedman v D'Antoni, 50 AD2d 9, 10-11, affd 41 NY2d 1004). Thus, in the early case of Nichols v MacLean (supra, p 533), it was held that "[t]he legislature may abolish an office during the term of an incumbent, or diminish the salary, or change the mode of compensation, subject only to constitutional restrictions.” It is clear in this case that the Legislature took no express action to abolish the Bingo Control Commission or the office of chairman of that agency. Thus, the issue presented is essentially one of legislative action and intent; may it be inferred from the enactment of the 1975-1976 budget without explicit appropriation of funds for claimant’s salary that the Legislature expressly or impliedly repealed the office of Chairman of the Bingo Control Commission?

Article 19-B of the Executive Law creates the Bingo Control Commission and specifies its purpose and function. Subdivision 1 of section 433 of the Executive Law establishes the position of chairman of the commission, and subdivision 5 thereof provides that "[t]he chairman shall receive compensation fixed by the governor within the amount made available by appropriation therefor.” Subsequent to the adoption of the latter statute, section 169 of the Executive Law (as amd by L 1975, ch 667, § 16) was approved by the Governor and became effective on August 6, 1975, but, by its terms, was made retroactive to April 1, 1975. That section fixes the chairman’s salary, providing that:

"The annual salaries of the officers holding the positions indicated hereinbelow shall be as follows:

* * *
"(j) * * * chairman of state bingo control commission * * * $35,250.”

As we have already pointed out, the initial executive budget included a bill which would "transfer responsibility for the regulation and control of bingo from the Department of State” to the Racing and Wagering Board by abolishing the bingo commission but this bill failed to win legislative approval. Nowhere in the 1975-1976 budget as enacted by the Legislature is there any provision for the elimination of the Bingo Control Commission or the transfer of its activities. While there is no specific appropriation of funds for the commission or claimant’s salary, there is a lump-sum appropriation for the regulation of wagering. This court has held that in some instances the failure to make appropriation for the salary of one appointed to a statutorily created office may not operate to deprive the office holder of his salary (O’Neil v State of New York, 223 NY 40, 44; see, also, Matter of Collins v City of Schenectady, 256 App Div 389, 391). By its failure to pass the législation explicitly accomplishing the result sought by the Governor, or to specifically provide in the budget as finally enacted for the abolition of the bingo commission, the Legislature may be deemed to have expressed an intent not to eliminate the commission or the office of chairman. The Governor’s reintroduction of the bill eliminating the Bingo Control Commission in 1976 quite obviously seems to indicate his own understanding that the Legislature had not, by the mere enactment of the 1975-1976 budget, repealed the applicable sections of the Executive Law.

The doctrine of repeal by implication is heavily disfavored in the law and may be resorted to only in the clearest of cases (Cimo v State of New York, 306 NY 143, 148; City of New York v Maltbie, 274 NY 90, 97; see, also, Matter of Corning v Donohue, 29 NY2d 209, 215; McKinney’s Cons Laws of NY, Book 1, Statutes, § 391; cf. Brooklyn Union Gas Co. v New York State Human Rights Appeal Bd., 41 NY2d 84). The rule has been neatly stated that "such repeals [by implication] will not be discovered unless the conclusion is unavoidable, as when repugnancy between the two statutes in plain” (Cimo v State of New York, supra, p 148). Moreover, the general rule " 'applies with peculiar force to statutes enacted at the same session of the Legislature’ ” (County of Saratoga v Saratoga Harness Racing Assn., 4 NY2d 622, 627, quoting from Board of Educ. v Rogers, 278 NY 66, 71). The Legislature which enacted the 1975-1976 budget also amended section 169 of the Executive Law without deleting from that statute the express provision for claimant’s salary. We may not conclude, therefore, that the budget operates as a repeal by implication of section 433 and subdivision (j) of section 169 of the Executive Law since the Legislature itself appears to have recognized that the provision for claimant’s salary in subdivision (j) of section 169 remains an enactment of continuing legal validity in the State (see McKinney’s Cons Laws of NY, Book 1, Statutes, § 376). In sum, the budget bill is a general statute which establishes a lump-sum appropriation for the regulation of wagering; it does not supersede the specific, detailed statutory provisions creating the Bingo Control Commission and its operations.

We turn now to appellant’s contentions that the enactment of the budget was sufficient to repeal the applicable sections of the Executive Law upon which claimant bases his claim for salary. On this appeal, the State advances the argument that subdivision 2 of section 44 of the State Finance Law should be construed to require that the budget must provide a specific appropriation for a public officer’s salary. That statute provides: "Any appropriations for salary, compensation or expenses shall be the salary, compensation or expenses for one year of the officer, employee, office, board, department, commission or bureau for whom or which the same is appropriated, notwithstanding existing provisions of any other statute fixing the annual salary, compensation or expenses of such officer or employee * * * at a different amount.” This section is operative only in the situation in which an actual budgetary appropriation for salary differs from the salary specified in a statute. In such a case subdivision 2 of section 44 provides that the amount of the appropriation is the controlling amount of salary. It does not operate to deprive a public officer of his salary where the budget makes no specific appropriation for salary but only contains a general lump-sum provision for "Personal service”. In fact, it appears that not only did the 1975-1976 budget make no specific appropriation for the salary of the Chairman of the Bingo Control Commission but there are also no specific salary appropriations for any other public officials (except for certain members of the Alcoholic Beverage Control Board in New York City; see L 1975, ch 50, p 20). Indeed, the budget merely contains lump-sum provisions for "Personal service” under the various departmental headings; it cannot be seriously maintained that by virtue of subdivision 2 of section 44 of the State Finance Law, the vast majority of public officials of the State are not entitled to any salaries.

Appellant also relies on the "Joint Legislative Report of the Senate Finance and Assembly Ways and Means Committee on Actions Taken on the 1975-1976 Executive Budget” as a "precise declaration of Legislative intent” to abolish the Bingo Control Commission and claimant’s position. The report merely indicates the recommendation of the joint committee and obviously is not itself an expression of legislative intent, especially in light of the failure of the bill specifically abolishing the commission to win approval. However, an examination of the portion of the report dealing with regulation of wagering contains no discussion relating to the elimination of the commission. The report (p 85) recites that four nonstatutory positions in the Racing and Wagering Board are abolished, that 14 bingo investigator positions transferred from the Department of State are abolished, and that a position, director of division of bingo, in the Racing and Wagering Board is approved "to design and clarify” the State’s regulatory activities with respect to bingo. There is a conspicuous absence of any language relating to the elimination of claimant’s position or the bingo commission itself. The same reasoning applies with regard to a memorandum from the Deputy Comptroller. The memorandum is dated March 31, 1975 and prior, of course, to the adjournment of the Legislature on July 12, 1975 without having passed any legislation designed to abolish the bingo commission. The memorandum itself noted that substantive legislation abolishing some agencies had not yet been enacted. Obviously, in the face of the failure of such legislation to win final approval, the initialing of the memorandum by the secretaries of the Senate Finance and Assembly Ways and Means Committees may not serve as evidence of legislative intent.

Finally, appellant places considerable reliance on our recent decision in Matter of Blyn v Bartlett (39 NY2d 349), which involved the question whether the Administrative Board of the Judicial Conference could validly abolish the positions of confidential attendant in the Supreme Court and law secretary in the Civil Court of the City of New York. Our decision in the case was predicated upon the conclusion that section 222 of the Judiciary Law vested the Administrative Board with the power to abolish such positions despite the provision in section 166 of the Judiciary Law that Supreme Court Justices shall appoint law assistants. We held that "article 7-A of the Judiciary Law is infused with the idea of centralized control and authority and in section 222 thereof the power to appoint personal assistants is made expressly subject to such control” (supra, pp 360-361). In the instant case, respondent’s position is not statutorily conditioned upon the review or approval of any administrative body.

We conclude by emphasizing that this case is not resolved by recourse to the truisms that "[t]he courts do not sit in judgment upon questions of legislative policy” (Gaynor v Rockefeller, 15 NY2d 120, 134) and that the province of the courts does not extend to the wisdom, necessity or motivation of legislation (see Kittinger v Buffalo Traction Co., 160 NY 377, 388, 389). Reliance on these basic jurisprudential principles may not compensate for the absence of required legislative action. The policies of the executive branch in budgetary matters are subject to the approval of the Legislature (NY Const, art VII, §§ 2, 3, 4) and only the Legislature may repeal a validly enacted statute. Under the circumstances presented here we cannot conclude that the Legislature has manifested a clear intent to repeal the existing statutory authority establishing the Bingo Control Commission. In making this determination we do not abdicate our judicial role in derogation of legislative authority. Rather, we only apply the constitutional dictate that the legislative power of the State is vested in the Senate and Assembly (NY Const, art III, § 1). "Thus reads the fundamental law binding on us all, Judiciary, Governor, Legislature” (People v Tremaine, 281 NY 1, 11).

Accordingly, the order of the Appellate Division should be affirmed, without costs. The court has denied costs because of the excessive length of respondent’s brief (see, e.g., Slater v Gallman, 38 NY2d 1; see, also, Rochester City School Dist. v Rochester Teachers Assn., 41 NY2d 578).

Chief Judge Breitel and Judges Jasen, Jones, Wachtler, Fuchsberg and Cooke concur.

Order affirmed.

       There is, of course, no claim that there has been any alteration of the comprehensive statutory scheme for the regulation, licensing and supervision of bingo contained in articles 19-B of the Executive Law and 14-H of the General Municipal Law. Thus it remains the legislative policy in this State that “all phases of the supervision, licensing and regulation of bingo and the conduct of bingo games, should be closely controlled and that the laws and regulations pertaining thereto should be strictly construed and rigidly enforced” (Executive Law, § 431; General Municipal Law, § 475).


source: Caselaw Access Project

author: Chief Judge Breitel. Gabrielli, J. (dissenting).

license: Public Domain

text:
    Doreen McGrath, Respondent, v Roy F. Hilding, Appellant.
    Argued February 18, 1977;
    decided April 7, 1977

      Charles M. Schutzman, Wantagh, for appellant.

      Herbert Sachs, Bellmore, for respondent.
   Chief Judge Breitel.

Plaintiff Doreen McGrath, a wife of three months of defendant Hilding, having divorced him, and then evidently having remarried her former husband Mc-Grath, sought equitable relief against Hilding based on a constructive trust. Relying on an oral premarital promise by Hilding to give her a tenancy by the entirety in the home owned by him, she contributed money to construct an extension with two additional bedrooms to accommodate her children by the former marriage. In lieu of the half interest in the property, if that were not available, she sought equitable relief either for half the value of the home or, at least, for the money she advanced.

Supreme Court, after trial, held that Hilding had been unjustly enriched, and granted plaintiff judgment for $3,950, the money the court found that she had advanced. From a divided affirmance at the Appellate Division, Hilding appeals.

The issue is whether a court of equity, called upon to remedy enrichment allegedly gained unjustly from abuse of a confidential relationship, may grant relief without regard to or examination of the conduct of plaintiff affecting the transaction from which the alleged unjust enrichment arose.

There should be a reversal and a new trial. The powers of a court of equity are not so circumscribed that the inequitable conduct of one who invokes its relief may escape its scrutiny and evaluation. From the unduly restricted and sparse record made at trial it is unclear whether Hilding was indeed unjustly enriched. Plaintiff’s proof, accepted by the trial court and affirmed by the Appellate Division, does show that Hilding failed to convey, as he had orally promised, half his interest in his home in exchange for his new wife’s contribution. But those facts do not conclude the matter. Repeatedly rejecting, as collateral, proof that plaintiff may have grievously breached the marital relationship, the trial court abrogated its responsibility to view the transaction realistically in its human setting, and, as a result, awarded equitable relief on too naked a record.

A widower with four children, Hilding met plaintiff in February, 1971. At the time, she was living apart from her then husband, McGrath, pursuant to a separation agreement. By summer, although plaintiff was not yet divorced from McGrath, she and Hilding became engaged. The new couple set a wedding date and discussed living arrangements. Hilding testified that, while he would have "preferred to wait until 1972”, to accommodate plaintiff’s desire to have the two families together by Christmas he suggested they move into his house. Plaintiff, however, was hesitant to occupy the bedroom her new husband had shared with his former wife and was also concerned about adequate sleeping arrangements for the two of her three children who were in her custody. It was finally decided that the couple would build an extension to Hilding’s house.

In September, 1971, plaintiff and McGrath were divorced. In late October or early November, she received $8,900 of the proceeds from the sale of the McGrath home, jointly owned by the McGrath couple.

The addition to the Hilding home cost $7,900, half paid by plaintiff. It is an affirmed finding of fact, not reviewable by this court, that plaintiff’s contribution was in reliance on Hilding’s promise "to put her name” on the deed to his home. The contractor completed his work before November 27, the day the Hilding-McGrath couple were married.

After a one-week honeymoon, plaintiff and two of her children, as planned, came to live with defendant. The marriage was ill-fated. There is testimony that by early January the couple had already discussed divorce. Prompted by an argument at home some time around January 8, plaintiff met her ex-husband McGrath at a restaurant and went, with her children, to stay overnight in his apartment. She returned to Hilding the next morning. In short order Hilding found himself alone again when his wife went to Florida for a week. On February 6 plaintiff left Hilding for the last time, and the two obtained a quick divorce later that month in the Dominican Republic. Plaintiff, never having received a legal interest in Hilding’s home, brought this action.

Obviously, the whole story leading to Hilding’s failure to convey a half interest in his home to plaintiff has never been told and is therefore not reflected in the record. A number of times Hilding tried, without success, to introduce evidence of plaintiff’s conduct. For example, Hilding was precluded from showing that plaintiff arranged to purchase a house with her former husband, McGrath. In fact, in the contract of sale, dated February 3, 1972, while married to and still living with Hilding, plaintiff was described as the wife of McGrath. So, too, when defendant’s lawyer tried to discover what the Hilding-McGrath couple had discussed before plaintiff went alone to Florida, or whether plaintiff went back to live with Mc-Grath after she left Hilding and before the Dominican divorce, the trial court stopped the inquiry as bearing only on a collateral matter. It is unfortunate but evident that the trial court was of the view that beyond the paltry facts surrounding the agreed-upon extension, the marital relationship of the parties was not relevant to whether plaintiff was entitled to equitable relief.

The applicable law is clear. The Statute of Frauds will ordinarily prevent enforcement of an oral agreement to convey an interest in land (General Obligations Law, § 5-703). A constructive trust will be impressed, however, when an unfulfilled promise to convey an interest in land induces another, in the context of a confidential or fiduciary relationship, to make a transfer resulting in unjust enrichment (Foreman v Foreman, 251 NY 237, 240 [Cardozo, Ch. J.]). As restated plainly by this court just recently, there must be "(1) a confidential or fiduciary relation, (2) a promise, (3) a transfer in reliance thereon and (4) unjust enrichment” (Sharp v Kosmalski, 40 NY2d 119, 121; accord Vassel v Vassel, 40 AD2d 713, affd 33 NY2d 533; Sinclair v Purdy, 235 NY 245, 252-253).

The principles are not disputed by the parties. In fact, the trial court purportedly applied them. The problem lies instead in the apparent misunderstanding of the term "unjust enrichment”.

A variety of circumstances may be posited in which, through an unfulfilled promise and abuse of a confidential relationship, one party induces another to make a transfer resulting in the first party’s enrichment. But the law is adamant. Enrichment alone will not suffice to invoke the remedial powers of a court of equity. Critical is that under the circumstances and as between the two parties to the transaction the enrichment be unjust. (Restatement, Restitution, § 1, Comments a, c; see, generally, 5 Scott, Trusts [3d ed], § 462.2.) Hence, whether there is unjust enrichment may not be determined from a limited inquiry confined to an isolated transaction. It must be a realistic determination based on a broad view of the human setting involved (cf. Sinclair v Purdy, 235 NY 245, 254, supra; Janke v Janke, 47 AD2d 445, 448, affd 39 NY2d 786).

On the above analysis, the infirmity in a contrary approach is the narrow view taken of the events culminating in Hilding’s failure to convey an undivided half interest in his home. With self-imposed restrictions, the trial court repeatedly excluded from consideration evidence bearing upon plaintiff’s conduct in a relationship based supposedly on mutual trust and fidelity. And yet, without regard to plaintiff’s conduct it cannot be determined whether Hilding’s enrichment, if that it be, was in fact unjust.

There is an analogue in other branches of the law, especially in the field of contracts. A promisee may not recover for a broken promise unless he has performed his obligations, usually categorized as a condition precedent (see 5 Williston, Contracts [3d ed], § 676). Certainly, the promisee seeking to establish a constructive trust must show that he has not been guilty of an equivalent breach of the trust and fidelity upon which the constructive trust is to be based (see 20 NY Jur, Equity, §§ 106-107).

Giving Hilding the benefit, as one must, of the inferences to be drawn from the excluded evidence, plaintiff herself may have breached the relationship, supposedly based on mutual trust and fidelity, upon which she relies. Illustrative is the offer of proof that plaintiff, while married to and, more important, still living with defendant, signed a contract to purchase a house with her former husband and was described in that contract as the wife of McGrath.

Involved here is more than a technical question of evidence. In excluding proof of plaintiff’s possibly grievous fault in the reciprocal relation between husband and wife, the trial court lapsed. In the hectic abbreviated period of this so-called marriage, punctuated perhaps with grievous breaches of the relationship by the wife, none would, let alone a court of equity, expect the hapless husband to deed half his home to the wife.

In the discussion, thus far, it has been assumed that Hilding was indeed enriched. Actually, the home he had, so far as is known from this record, may have been ample for his purposes, if the McGrath family were not added. A larger house is not necessarily better than a small house. A man who needs and wants a compact car is not enriched by a limousine, especially if its saleability may be more difficult. Actually, Hilding has since sold the enlarged house, but there is no evidence, except for plaintiff’s inexpert opinion, that it was worth more than before it had been altered, or that any increase in economic value was reflected in the sale price. Nor was there evidence that the physical addition increased the esthetic value or livability of the house. To the contrary, the addition may have increased the burdens of maintaining and furnishing it. There is evidence that Hilding was put to additional expense for carpeting, for which he had to borrow the money, as he had had to borrow money to provide his share of the extension.

On the other hand, one should not conclude that one who parts with valuable assets, like the wife, is necessarily debarred from equitable relief just because she may have been guilty of misconduct, even grievous misconduct. There may be cases where the "enrichment” may be so disproportionately great in favor of the offended spouse that it would be equally disproportionate to permit the offended spouse to retain the assets or benefits received, as for example, the bulk of the assets previously owned by the offender transferred for some reason to the spouse offended.

The point is that no intelligent determination can be made unless all of the relevant facts are explored, including the excuses and justifications rooted in the reciprocal relation of trust and fidelity. Then, upon such exploration, a nice balancing is required. None of that happened or was permitted to happen in this case. Instead a simplistic analysis based on the . superficial application of equitable principles was employed. And, of course, the issue is not, as some might mistakenly assume, whose fault caused the marriage to terminate, but whose fault it was that the oral promise was not performed.

If Hilding is to be believed and his proffers of proof credited to the full, Hilding was not only bedeviled by an ill-fated marriage, but perhaps by the venal co-operation of wife and former husband, presumably remarried. Before he may be held in judgment a new trial should be had exploring the issues.

Accordingly, the order of the Appellate Division should be reversed and a new trial granted, with costs to abide the event.

Gabrielli, J. (dissenting).

There should be an affirmance.

We are once again presented with the question of the availability of the remedy of constructive trust in an action for, and based upon, unjust enrichment.

The facts may be briefly stated and are not in serious dispute. Defendant was a widower who lived with his four children in a house which he owned. Plaintiff was a divorcee with three children. The parties met in 1971 and in the summer of that year, became engaged. In connection with their plan for marriage, they discussed living arrangements for their respective families following marriage and it was decided that an extension would be constructed on defendant’s house to provide additional space to accommodate both families. A contractor was engaged in October, 1971 and the work was completed in November of that year.

The cost of adding the extension was $7,900 and from her own funds plaintiff contributed $3,950, or one half of this sum, which, incidentially, was paid directly to the contractor. Both the Trial Judge and the Appellate Division found there was an oral agreement between the parties that defendant would convey a joint interest in the property to the plaintiff in return for her contribution for the enlargement of the house. The parties were married on November 27, 1971 but serious marital problems arose shortly thereafter. On two occasions in the following January, the parties temporarily separated and plaintiff left the marital residence. Ultimately, the parties permanently ceased living together and on February 17, 1972 were divorced. The house in which the parties resided, formal title to which had remained in defendant, was eventually sold by him.

Plaintiff commenced this action alleging, inter alia, that the defendant had been unjustly enriched because he received the benefit of plaintiff’s contribution toward the improvement of the property without making her a co-owner of the property as he had promised. She thus sought to impose a constructive trust on the proceeds of the sale of the house, claiming that defendant’s equity was increased by the improvements, and was granted a judgment, following a nonjury trial, of $3,950 representing the funds she expended for the improvements in what had been the parties’ marital residence. The Appellate Division affirmed.

Recently, in Sharp v Kosmalski (40 NY2d 119, 121), we articulated the rules governing the applicability of the equitable remedy of constructive trust, and we held that there must be (1) a confidential relationship; (2) a promise; (3) a transfer in reliance thereon, and (4) unjust enrichment. The Trial Judge found that "there existed between plaintiff and defendant at the times the oral understanding was reached a relation of trust and confidence by reason of their status of an engaged couple formulating plans for adequate housing for themselves and their children”. This finding was affirmed by the Appellate Division and thus we conclude that the first requirement has been satisfied (see Sharp v Kosmalski, supra, p 121). In addition, there are also affirmed findings of fact that plaintiff tendered funds for the improvements to defendant’s property in reliance on a promise that she would receive a joint interest therein. The parties’ marital problems prevented fulfillment of that promise but defendant, however, retained the benefit of plaintiff’s performance in reliance thereon. Under these circumstances, we agree with the conclusion of the courts below that the defendant was unjustly enriched for he "has received a benefit * * * the retention [of which] would be unjust” (Restatement, Restitution, § 1, Comment a; Sharp v Kosmalski, supra, p 123; see, also, 50 NY Jur, Restitution, § 3).

Defendant contends that plaintiff is not entitled to equitable relief because she abused the parties’ relationship and was the party at fault in the failure of the marriage. He thus argues that the Trial Judge erred in refusing to admit into evidence a contract for the purchase of a home entered into by plaintiff and her former husband on February 3, 1972 and a deed to the premises, dated February 14, 1972, designating plaintiff and her former husband as husband and wife. We agree with the Trial Judge that this proof was collateral. That transaction occurred when the parties’ marital relationship was beyond salvage. The record reveals that plaintiff and defendant, discussed the likelihood of divorce in early January, 1972. It cannot be concluded from the evidence sought to be admitted that plaintiff was the party responsible for the termination of the marriage, or that she did not act in good faith or was guilty of inequitable conduct toward the defendant (see, generally, 20 NY Jur, Equity, §§ 103-104, 107). Thus, the equitable maxim of "clean hands” may not be here invoked to bar plaintiff from obtaining relief in equity.

The determination here does not require or entail a moral judgment that one or the other party is at fault but merely that there has been an irreconcilable breakdown of the parties’ relationship. The majority and dissenters are not at odds regarding the applicable legal principles, and the majority concede that misconduct on the part of the plaintiff, if such there be, does not foreclose recovery based on unjust enrichment. Nonetheless, the majority embark upon an analysis of the facts, replete with conjecture as to the "possible grievous” misconduct of the plaintiff, and casting defendant in the role of the abandoned or injured spouse at a point when the parties’ relationship, for whatever reason, had proceeded beyond the point of reconciliation. As the philosopher Pascal wrote, "love has its reasons which reason cannot know”. It is not our task, as the majority recognize, to evaluate and weigh the reasons why the parties’ marriage failed. Rather, I only conclude that it would result in unjust enrichment to permit the defendant to retain the sums advanced by the plaintiff for improvements to the defendant’s property on the unfulfilled understanding that the parties and their children would reside there together and that plaintiff would receive a joint interest in the property.

The majority intimate that there should be evidence that the defendant’s house actually increased in value in order for plaintiff to recover. However, it is important to note that the courts below awarded plaintiff only the sum she advanced for the cost of the addition on the house, a sum of money which no one can deny clearly enriched the defendant. It is axiomatic that "[i]n an action in restitution in which the benefit received was money, the measure of recovery for this benefit is the amount of money received” (Restatement, Restitution, § 150, Comment a). Thus, it is irrelevant whether defendant’s house increased, or for that matter decreased, in value following the addition.

Judges Jasen, Jones, Wachtler and Cooke concur with Chief Judge Breitel; Judge Gabrielli dissents and votes to affirm in a separate opinion in which Judge Fuchsberg concurs.

Order reversed, etc.


author: Gabrielli, J. Jasen, J. (dissenting).

text:
    The People of the State of New York, Respondent, v Jack F. Ryan, Appellant.
    Argued February 16, 1977;
    decided April 7, 1977

      Leslie A. Bradshaw and Laura Jane Poyzer, Rochester, for appellant.

      Thomas D. Saunders, District Attorney (Raymond W. Bulson and Alan D. Marrus of counsel), Belmont, for respondent.
   Gabrielli, J.

A jury found the defendant, John F. Ryan, guilty of having committed the crime of grand larceny (two counts) by false promise under section 155.05 (subds 1, 2, par [d]) of the Penal Law. He was sentenced to serve two concurrent indeterminate terms with a maximum of four and one-half years. The issue presented is whether the prosecution has met its burden of proving the elements of this crime and, more especially, the requirement of the specifically defined intent as limited and mandated by the Penal Law (§ 155.05, subd 2, par [d]).

The defendant was a partner in Ryan & Boyce Inc., a bond brokerage business. He maintained an approved line of credit with Marine Midland Bank on which he would borrow money for his continuing business purposes. Among other transactions, Ryan was engaged in the business of purchasing retain-age bonds to be held in custodial bank accounts for the benefit of contractors performing work under agreements with political subdivisions. Generally the program operated in the following manner. The contractor would enter into an agreement with a school district (or other political subdivision) to perform certain construction work and, to assure completion of the construction, the school district retains the first 10% of the contract price. This retainer could be used to purchase municipal bonds which would earn interest for the benefit of the contractor (see General Municipal Law, § 106), and this is where Ryan would enter the picture. Ryan, using his line of credit with Marine Midland, borrows the funds necessary to purchase the municipal bonds, the purchase being made by Marine Midland at the direction of Ryan, with the bonds to be held by the bank as collateral for the loan. The school district is notified that the bonds were ordered, and is directed to remit the requisite amount to cover the purchase of the bonds. The school district forwards a check payable to the contractor and Ryan, and the contractor endorses the check and sends it to Ryan, who deposits it and repays the loan. When the loan is repaid the bank transfers the bonds from the loan account in which they serve as collateral to a custodial account in the trust department, which custodial account is payable to the contractor upon consent of the school district. In this way the school district maintains control over the retainer and the contractor has the benefit of interest-bearing municipal bonds.

During the course of his business, Ryan had a variety of dealings with the bank. As a result, he had a number of outstanding loans based on unsecured notes as well as loans secured by bonds. This case involves only one of several transactions.

In the instant case Ryan served as the agent for the L. C. Whitford Company, a construction firm which was under contract with the Wellsville Central School District to perform work in connection with a swimming pool project and an elementary school. In the summer of 1972 the contractor arranged with Ryan to buy bonds for the two contracts, approximately $15,000 being required for each contract. Ryan ordered the bonds using his line of credit to borrow the necessary funds under the usual arrangement that the bonds would serve as collateral. The total amount of the loan secured by these bonds was $26,500. In June, the bank notified the school district that Ryan had ordered the bonds and set up the custodial account, and that the school district should forward the appropriate checks. The school district issued a check for $14,917.50 payable jointly to the contractor and Ryan, which was endorsed by the contractor and forwarded to Ryan. On July 10 Ryan deposited it in his checking account, noting on the deposit slip the word "Whitford”, the name of the construction company. On that same day he wrote a check to the bank for $22,000. On July 11, the bank’s trust officer directed the establishment of the custodial account for the Ryan-Whitford transaction. Sometime between July 11 and July 21 the bank manager telephoned the school district to inform it that only one check had been received and two were expected since there were two contracts involved. After further clarification, the district forwarded the second check in the same manner as the first and it was deposited by Ryan on August 1, noting on the deposit slip the words "Wellsville School & Whitford”. On the same day he wrote a check for $5,000 to the bank. Thus, as noted, after depositing each school district check, Ryan had made a payment to the bank, such payments totaling $27,000 or some $500 in excess of the loan secured by the bonds.

In mid-July the bank received $90,000 of municipal bonds which were taken as collateral for an $88,170 loan to Ryan, the loan being used to pay for the purchase of the bonds. Of these bonds, $30,000 worth were part of the Whitford-Ryan transaction, and correspondingly, $26,500 of the loan itself involved this transaction. The collateral loan ledger of the bank indicated that all the bonds were received by the bank and placed in various collateral loan accounts. But there were August 2 notations on the ledger showing that at least $20,000 of municipal bonds were released from collateral and sent to the trust department, and perhaps another $5,000 to $10,000 were also forwarded to the trust department. The defendant argues, and successfully we think, that the only available custodial account into which these bonds could have been placed was the Whitford-Wellsville account.

On August 3, 1972 Ryan notified Whitford by letter that $30,000 of securities had been paid for and delivered to the Wells ville School District. Between August 4 and August 25 the $88,170 note was reduced by payments totaling $61,902.49. In all, from July 10 to August 25 Ryan paid to the bank $101,369.85 of which only $1,900 was applied by the bank to the loan secured by the school district’s bonds. The rest of the payments were applied against another bond loan and a separate note. On October 16, at the request of the school district, the bank’s trust officer wrote to Whitford’s accounting firm verifying that the bank was holding the bonds for the contractor and school district. In addition the internal bank memo establishing the custodial account contained a notation dated October 19 that "[b]onds not to be released”. Such a notation, of course, implies that the bonds were in the account. Later in October the bank manager telephoned the school district to advise it that the bonds were not in the account as indicated and that the prior letter had been a mistake.

During the fall of 1972 Ryan had suffered some business difficulties, leaving his financial status less than secure. The bank was aware of his problems and apparently desired to protect its interests. The bank manager stated that he telephoned Ryan’s office several times but his calls were not returned. Finally, on November 17 the bank terminated his credit and demanded the balance due on the loan secured by the bonds within 10 days. Ryan was unable to make payment and the Whitford bonds serving as security for Ryan’s loan were sold with the proceeds applied to that loan. Eventually Ryan filed in bankruptcy and Whitford filed a complaint with the District Attorney.

The crime of larceny by false promise is defined in section 155.05 of the Penal Law as follows:

"1. A person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.

"2. Larceny includes a wrongful taking, obtaining or withholding of another’s property, with the intent prescribed in subdivision one of this section, committed in any of the following ways: * * *

"(d) By false promise.

"A person obtains property by false promise when, pursuant to a scheme to defraud, he obtains property of another by means of a representation, express or implied, that he or a third person will in the future engage in particular conduct, and when he does not intend to engage in such conduct or, as the case may be, does not believe that the third person intends to engage in such conduct.

"In any prosecution for larceny based upon a false promise, the defendant’s intention or belief that the promise would not be performed may not be established by or inferred from the fact alone that such promise was not performed. Such a finding may be based only upon evidence establishing that the facts and circumstances of the case are wholly consistent with guilty intent or belief and wholly inconsistent with innocent intent or belief, and excluding to a moral certainty every hypothesis except that of the defendant’s intention or belief that the promise would not be performed”.

The charge against Ryan of committing larceny by false promise is based on the August 3 letters notifying Whitford that the bonds were in the custodial account. The prosecution contends that at the time the letters were sent, the payment for the bonds had been received, but that the bonds had not been transferred to the custodial account, that the collateral loans had not been paid and that the defendant had no intention of ever completing the deal. The crucial question is whether the facts support a jury finding that on August 3 Ryan never intended to pay the loans and never intended to have the bonds transferred to the collateral account. This issue necessarily involves the question whether the bonds were in fact transferred to the custodial account.

The statute sets forth a high standard of proof for establishment of the defendant’s intent (People v Newman, 80 Misc 2d 975). The facts, as specifically required by the statute, must be "wholly consistent with guilty intent or belief and wholly inconsistent with innocent intent or belief, and excluding to a moral certainty every hypothesis” except an intent not to perform. This special standard was not idly inserted. The Temporary State Commission on Revision of the Penal Law and Criminal Code recognized that the crime of larceny by trick was inadequate to cover numerous frauds of a promissory nature, and consequently "many a swindle in which the culprit’s deceitful intent is crystal clear from the circumstances in their entirety goes unprosecuted or unpunished”. (Third Interim Report, Temporary State Commission on Revision of the Penal Law and Criminal Code, Feb. 1, 1964, p 25.) To cover these situations the crime of larceny by false promise was established but not without qualifications. "The danger of increasing the scope of larceny to cover thefts predicated upon false promises and fraudulent intent is that the crime may reach into the civil realm of mere breach of contract or nonperformance. Though mindful of this peril, the Commission feels that the crime of larceny can be expanded to cover obvious frauds of the indicated nature without opening the door to an avalanche of prosecutions for relatively innocent conduct that does not merit criminal sanctions. Accordingly, the proposed Penal Law does extend the definition of larceny to cover such promissory frauds, but concomitantly limits and qualifies this extension in such fashion that the fraudulent character of a defendant’s promise or intent must be so clearly evident as to render the existence of that element a moral certainty.” (Third Interim Report, p 25.)

The statute has thus created a higher burden of proof of intent because of the close relationship larceny by false promise holds with mere civil wrongs. The standard in the statute equates to the rule used in circumstantial evidence cases (see People v Borrero, 26 NY2d 430, 434-435; People v Bearden, 290 NY 478, 480). We must insist, under this standard, that any inference of intent to be drawn from the facts be reliable (see People v Wachowicz, 22 NY2d 369, 372). The inference of intent must be logically compelling and must exclude any "logical gaps—that is, subjective inferential links based on probabilities of low grade or insufficient degree—which, if undetected, elevate coincidence and, therefore, suspicion into permissible inference” (People v Cleague, 22 NY2d 363, 367). In the context of the crime of larceny by false promise, the inference of intent must overcome to a moral certainty any implication of mere civil wrong. In this case the People have simply failed to sustain that burden.

The defendant had a long relationship with Marine Midland involving a variety of transactions, as well as previous dealings with Whitford. In but one of these transactions, which rose to the fore because of his insolvency, the defendant finds himself accused of perpetrating a scheme to defraud. But the charge can stand only if the high standard of proof of intent was met and we find that it was not.

The prosecution relies on the fact that the bank records indicate that none of the payments made by defendant were credited to the bond loan but the proof of this contention consists only of those records which were kept by the bank. The bank acknowledged that payments were made. The bank officer testified that he did not know what instructions Ryan had given when the payments were made. Nowhere in the record is there any evidence that Ryan instructed the bank to do anything that was improper or illegal. On the other hand, the bank was fully aware of the arrangement involving Ryan, the school district and Whitford, and that the school district checks should have been credited to the bond loan. This awareness was demonstrated by the fact that the bank discovered the school district’s failure to forward two checks as required and specifically requested payment of the second contract retainer bond. Likewise, Ryan deposited each check with a notation reference to the transaction and with each deposit made payments to the bank totaling $27,000. Defendant’s letter of August 3 to the contractor’s accountant certainly does not evidence a false promise in light of the undisputed facts outlined above, but more naturally shows an understandable belief or misguided notion that the bank had in fact applied the funds in the proper manner. Such a belief is, at the very least, reasonable in light of the fact that Ryan and the bank had properly and customarily engaged in these transactions in the manner as indicated.

Although the prosecution contends that the payments were never applied to the bond loan and consequently the bonds were never released to the custodial account, there is evidence to the contrary. The bank collateral loan ledger indicated that on August 2 at least $20,000 of municipal bonds in Ryan’s account were transferred to the trust department where the custodial account was maintained. Additionally, the October 16 letter and the October 19 notation acknowledged that the bonds had been so transferred. Although this letter was later retracted, it indicates that there was internal confusion concerning the accounts of defendant, and the bank could not be sure exactly, and never satisfactorily explained, how the payments were handled.

Thus, it cannot be said with any moral or reliable degree of certainty that on August 3 the defendant did not intend to complete the transaction, or indeed that on that date he did not honestly believe that he had already completed it. Nor can it be said that the bank did not improperly apply some of the payments made by Ryan to the open accounts it held against him, for there is no evidence as to why any of the payments were applied in the manner they were. Under the circumstances of this case we must conclude that the proof has failed to exclude to a moral certainty every hypothesis except a guilty intent (but see People v Rolchigo, 33 AD2d 1060). At most the People have shown that Ryan was a businessman who over extended himself and was consequently unable to meet his financial obligations.

Although not determinative of this appeal in light of our position on the question of adequacy of proof, we note that in this trial involving complex commercial transactions the better practice is to marshal the entire evidence and present the case to the jury in a clear context (CPL 300.10, subd 2; People v Salemi, 309 NY 208, 213). Furthermore, in charging the jury, the court attempted to paraphrase that portion of the statute relating to the specifics of the intent required to convict wherein it is stated that a defendant’s "intention or belief that the promise would not be performed may not be established by or inferred from the fact alone that the promise was not performed”, but he also informed the jury that they could infer intent from the failure of the defendant to carry out his promise, when he told them "a man is presumed to intend the natural consequences of his act”, which cannot be the test under the statute (Penal Law, § 155.05, subd 2, par [d]). We do not find it necessary to reach the other issues raised.

Accordingly, the order of the Appellate Division should be reversed and the indictment dismissed.

Jasen, J. (dissenting).

I would affirm the order of the Appellate Division and sustain the conviction of the defendant.

The defendant’s principal contention on this appeal is that the evidence was insufficient to support the conviction. Specifically, defendant argues that there is insufficient evidence to establish his intent to unlawfully withhold the payment due the bank for the bonds bought for the school district and the contractor. The statutory burden of proof for the crime of larceny by false promise, defendant contends, "prohibits an inference of intent from non-performance (i.e., non-application of the check to the bonds, as promised) alone.” According to defendant, it is not enough that the promise to pay for the bonds was not fulfilled.

It is true that a conviction for the crime of larceny by false promise upon proof of nonperformance alone cannot stand even though failure to perform is substantial evidence of larcenous intent. Rather, the necessary intent must rest "upon evidence establishing that the facts and circumstances of the case are * * * wholly inconsistent with innocent intent or belief, and excluding to a moral certainty every hypothesis except that of the defendant’s intention or belief that the promise would not be performed.” (Penal Law, § 155.05, subd 2, par [d].)

Here, as is usually the situation, criminal intent must be inferred from the facts and circumstances of the particular case. Necessarily, the defendant’s intent, at the time the promise to apply the released funds to the bond account was made, must be established through inferences supplied by his subsequent actions. Indeed, this is almost always necessary, since direct proof of intent is rarely available. (Hall v United States, 286 F2d 676, 679, cert den 366 US 910.)

I conclude that the defendant’s intention not to perform the promise was sufficiently established by the following facts and circumstances presented at the trial. Defendant deposited the funds received from the school district for the bond purchase in his own business bank account, instead of endorsing the check, as had the contractor, and forwarding same to the bank. He then notified the contractor that the $30,000 in bonds "have been delivered” to the school district, when, in fact, the bank had possession and custody of the bonds. After learning that the delivery of the bonds to the school district had not taken place, the contractor made numerous phone calls to the defendant seeking an explanation of his actions. Defendant’s only explanation, after some lapses of time, was the statement that there had been a "mixup” in the bank in applying the money deposited. This statement was obviously false since he took no steps to correct the claimed "mixup”. In addition, there is evidence in the record that the defendant failed to respond to a number of phone calls from the bank relative to this transaction, making it necessary for a bank officer to go to his office to speak to him. Finally, there is undisputed evidence that the defendant failed to return the funds entrusted to him and the contractor for the purchase of the bonds, and thereby required the contractor to repay the school district the sum advanced.

All of this evidence, properly received and considered by the jury, bore upon the question of defendant’s guilt of the crime of larceny by false promise. These connected transactions and events were relevant to a determination of the state of mind of the defendant. The weight to be assigned to this evidence, of course, was for the jury, which, on this evidence, found the defendant guilty. I would not disturb the jury’s verdict of conviction.

Judges Jones, Wachtler, Fuchsberg and Cooke concur with Judge Gabrielli; Judge Jasen dissents and votes to affirm in a separate opinion in which Chief Judge Breitel concurs.

Order reversed, etc.


author: Per Curiam.

text:
    William J. Quirk et al., Appellants, v Municipal Assistance Corporation for the City of New York et al., Respondents. Max Gilman, Appellant, v Municipal Assistance Corporation for the City of New York et al., Respondents.
    Argued March 31, 1977;
    decided April 26, 1977

      Leon Edward Wein and William J. Quirk, Brooklyn, appellants pro se in the first above-entitled action.

      Simon H. Rifkind, Allen L. Thomas, Max Gitter, Richard M. Zuckerman, William B. Lawless, Donald J. Robinson and Allen P. Rosiny, New York City, for Municipal Assistance Corporation for the City of New York, respondent in the first above-entitled action.

      W. Bernard Richland, Corporation Counsel (James G. Greilsheimer and Stanley Buchsbaum of counsel), New York City, for the City of New York, respondents in the first and second above-entitled actions.

      Louis J. Lefkowitz, Attorney-General (Shirley Adelson Siegel and Samuel A. Hirshowitz of counsel), New York City, intervenor in the first above-entitled action.

      Lawson F. Bernstein and Harold B. Obstfeld, New York City, for appellant in the second above-entitled action.

      Simon H. Rifkind, Max Gitter, Howard S. Veisz, Richard M. Zuckerman, William B. Lawless, Donald J. Robinson and Allen P. Rosiny, New York City, for Municipal Assistance Corporation for the City of New York, respondent in the second above-entitled action.

      Louis J. Lefkowitz, Attorney-General (Shirley Adelson Siegel and Samuel A. Hirshowitz of counsel), New York City, for State Tax Commission and another, respondents.

      Davis Polk & Wardwell; Shearman & Sterling; Milbank, Tweed, Hadley & McCloy; James J. Baechle and Burton M. Freeman; Sullivan & Cromwell; Cravath, Swaine & Moore; Winthrop, Stimson, Putnam & Roberts; Simpson, Thacher & Bartlett and Carter, Ledyard & Milburn, New York City, on behalf of certain holders of MAC bonds, amici curiae, in the second above-entitled action.
   Per Curiam.

These cases present a very narrow issue. That issue is whether the State’s "diversion” of the proceeds of the New York City sales tax and the tax on stock transfers from the general revenues of New York City to the Municipal Assistance Corporation unconstitutionally impairs the rights of city bondholders. Plaintiffs, holders of New York City long-term bonds, seek declaratory judgments that the challenged diversion is unconstitutional. They appeal directly from summary judgments in favor of defendants granted by Supreme Court (see CPLR 3212; NY Const, art VI, § 3; CPLR 5601, subd [b], par 2).

The summary judgments should be sustained. There is no requirement, either in the State Constitution or in any undertaking in the city bonds, that the diverted taxes be continued directly payable to the city. There is not, and never has been, an agreement, express or implied, that the revenues of these taxes be used to repay city bonds. Thus, since the challenged diversion does not impair any contractual obligations, the Federal Constitution is not violated (see US Const, art I, § 10).

On June 10, 1975, by action of the State Legislature, the Municipal Assistance Corporation for the City of New York was created (L 1975, chs 168, 169; see Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y., 40 NY2d 731, 733). To provide the new entity with a financial base, the New York City sales tax was suspended, and an identical sales tax was imposed by the State, with the revenues to be committed to MAC (L 1975, ch 168, §§ 4, 7-a). This suspension of the city tax was to continue until all obligations of MAC had been repaid (L 1975, ch 168, § 4). In addition, to the extent necessary to enable MAC to meet its obligations and carry out its corporate purposes, MAC was to receive appropriations from the stock transfer tax fund (L 1975, ch 168, § 7-b). It is the diversion of these tax revenues, and no other portions of the applicable statutes, that plaintiffs challenge in this litigation.

Plaintiffs’ contention is simply stated: the diversion of tax revenues from the city to MAC impairs the position of city bondholders, since fewer tax revenues will be available for repayment of principal and interest on city bonds. Therefore, the argument runs, the diversion is an impairment of contract in violation of the Federal Constitution (US Const, art I, § 10).

The answer to plaintiffs’ contention is equally simply stated. In no way was the city ever committed to maintain sales tax revenues or stock transfer tax revenues for the benefit of its bondholders. That these taxes have been a substantial source of revenue for the city, in one instance since the 1930’s and in the other since 1965, is of no consequence. What is important is that city bondholders are protected by the State Constitution, which obligates the city to appropriate moneys for the repayment of city bonds, and to exceed normal real estate tax limitations in order to raise the necessary moneys (NY Const, art VIII, §§ 2, 10, 12). In those provisions, which reflect the municipality’s traditional source of revenue from its real estate tax levy, lies the constitutionally guaranteed protection of city bondholders.

Assuredly, the State Constitution provides that unpaid bondholders for whom moneys have not been appropriated are entitled to have sufficient sums for repayment "set apart from the first revenues thereafter received and * * * applied to such purposes” (NY Const, art VIII, § 2). But this "first lien” on the city’s revenues does not give bondholders the right to insist that any particular existing taxes be maintained or new ones imposed to produce those revenues. It only assures that out of the revenues which are collected, money must be provided to satisfy obligations to the bondholders.

On the other hand, with respect to the traditional real estate tax levies, the bondholders are constitutionally protected against an attempt by the State to deprive the city of those revenues to meet its obligations. Section 12 of article VIII of the State Constitution prohibits the Legislature from restricting the power of a locality "to levy taxes on real estate for the payment of interest on or principal of indebtedness theretofore contracted.” This provision, combined with the city’s pledge of faith and credit, constitutionally mandated in all municipal contracts of indebtedness, requires the city to raise real estate taxes, and without specification other revenues, if such a levy be necessary to repay indebtedness (NY Const, art VIII, § 2; Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y., 40 NY2d 731, 736-737, supra). The challenged statute does not, and could not, alter this obligation. A different case would be presented if, realistically, the city were stripped of all sources of revenue, other than the real estate tax, and its outcome would be, at this time, unpredictable (cf. Mobile v Watson, 116 US 289, 305).

Plaintiffs’ thesis rests on an untenable contention, namely, that city bondholders were entitled to rely on continued collection of the now diverted taxes. Nowhere, however, not in the State Constitution and not in the bonds themselves, is there any requirement that collection of particular taxes be continued. As a consequence, there is no impairment of obligation of contract under the Federal Constitution.

Accordingly, the judgments should be affirmed, without costs.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Cooke concur in Per Curiam opinion; Judge Fuchsberg taking no part.

In each case: Judgment affirmed.


author: Cooke, J.

text:
    George Reiner and Co., Inc., Respondent, v Arnold Schwartz, Appellant.
    Argued February 7, 1977;
    decided April 28, 1977

      Edward S. Haddad and William A. Sekellick, Albany, for appellant.

      Harvey M. Lifset, Albany, for respondent.
   Cooke, J.

Arnold Schwartz, a resident of Salem, Massachusetts, responded to an advertisement placed by plaintiff, a New York corporation, in the Boston Globe. At the request and expense of plaintiff, Schwartz traveled to plaintiff’s corporate offices at 328 Central Avenue, Albany, New York, and was there interviewed by George Reiner, plaintiff’s president. The position Schwartz sought was that of salesman, the territory was that of New England.. An agreement was reached that day and, when Schwartz returned to Massachusetts, he took with him a memorandum thereof, which included notations as to his sales territory, his rate of commissions, and other incidentals of his employment. The employment relationship, entered into on December 23, 1967, apparently continued for over four years, during which time Schwartz covered the New England area, an area not including New York, using his Massachusetts home as hi§ office.

Sometime after termination of the employment relationship, plaintiff brought an action against Schwartz, alleging that the latter "knowingly, willfully and fraudulently violated the terms of the contract”. Recovery was sought in the amount of $13,553.35, which amount was alleged to represent the excess of drawings over commissions retained by Schwartz in violation of the terms of the agreement. Schwartz moved to dismiss the action on the grounds that the court lacked personal, as well as subject matter, jurisdiction. Special Term granted the motion, crediting defendant’s claim of lack of personal jurisdiction. By a divided court, the Appellate Division reversed, reinstating the complaint. The following question was certified for our review: "Did Special Term err as a matter of law in granting defendant’s motion to dismiss the cause of action set forth in the complaint on the ground that the court lacked jurisdiction of the person of the defendant?”

When tracing the modern notion of due process as it relates to in personam jurisdiction, it is necessary to go back no further than International Shoe Co. v Washington (326 US 310). There the Supreme Court cast aside the narrow and rigid view taken in Pennoyer v Neff (95 US 714, 733) that due process required a defendant’s physical presence in the territorial jurisdiction of the court for that court’s judgment to be binding upon him. "Due process”, the court in International Shoe wrote, "requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice’ ” (326 US, at p 316). Although the court’s analysis and discussion which followed focused on the sometimes difficult task of identifying corporate activities sufficient to constitute "presence”, the court recognized that there are certain acts which because of their "nature and quality and the circumstances of their commission” may be "deemed sufficient” to render a defendant, not physically present, liable to suit (326 US, at p 318). Thus, the Supreme Court explained that there is no simple mechanical or quantitative test to be applied, due process in each case depending upon "the quality and nature of the activity in relation to the fair and orderly administration of the laws” (326 US, at p 319).

McGee v International Life Ins. Co. (355 US 220) exemplified the application of a type of qualitative test, in personam jurisdiction based and upheld solely upon a contract, a reinsurance agreement, made between a California resident and a nonresident defendant insurance company. While in McGee there was but a single contact, the court gave special weight to the nature of such contact insofar as it credited California’s special interest in providing effective redress for its residents when nonresident insurers refused to pay claims on insurance solicited within its borders. In Hanson v Denckla (357 US 235), a case decided soon after McGee, the Supreme Court stressed the qualitative aspect of the contact in McGee in order to show that the " 'minimal contacts’ ” requirement had been satisfied there (357 US, at pp 251-252). The court pointed out that, as the unilateral activity of those claiming relationship with nonresident defendants could not satisfy the requirement of contact with the forum State (357 US, at p 253), the Florida court in Hanson v Denckla had no jurisdiction over the Delaware trustee, the latter neither having an office nor transacting any business in Florida. The court continued, explaining that while the application of the "minimal contacts” rule will vary with the quality and the nature of the defendant’s activity, "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws” (357 US, at p 253; emphasis supplied).

The Supreme Court’s recognition of the scope of a State’s power exercisable within the newly defined limits of due process was a recognition that in personam jurisdiction could be had over a nonresident defendant on but a single act, but only if such act was of a particular quality or nature. In 1962, aware of this new due process standard, the New York Legislature enacted CPLR 302 (subd [a]) of which in pertinent part provides that personal jurisdiction may be asserted over a nondomiciliary "who in person or through an agent * * * 1. transacts any business within the state” so long as the cause of action arises out of such transaction. The first major New York decision in the area and the one most often looked to for guidance as to the breadth of this portion of the statute is Longines-Wittnauer Watch Co. v Barnes & Reinecke (15 NY2d 443). In Longines, our court, after reviewing defendant’s numerous New York activities, declined to determine the sufficiency of any one, instead holding that in combination they more than met the statutory, as well as the constitutional, standard. Such declination was not meant to indicate that a single transaction in New York out of which a cause of action arose would not be sufficient to satisfy the statutory transaction of business requirement. To the contrary, the court asserted that even appellant Barnes & Reinecke did not dispute that a single transaction might suffice. Barnes & Reinecke’s argument was, rather, that neither preliminary nor subsequent New York activities could be regarded as amounting to the transaction of business if the underlying contract was not made in New York. This argument was, of course, rejected and the court counted and weighed the lesser activities to determine their sufficiency. For its holding, as already noted, the court relied upon the quantity and compos-, ite quality of the various related activities, choosing not to rely upon the quality of any particular one.

In Parke-Bernet Galleries v Franklyn (26 NY2d 13) the court again indicated that proof of a single transaction in New York would satisfy the statutory requirement, citing Longines, as well as several noted commentators (McLaughlin, Supplementary Practice Commentary to CPLR 302, McKinney’s Cons Laws of NY, Book 7B [1969 Cum Supp], pp 129-130; 1 Weinstein-Korn-Miller, NY Civ Prac, par 302.06) and quoted Dean McLaughlin’s characterization of CPLR 302 as " 'a single-act statute requiring, but one transaction—albeit a purposeful transaction—to confer jurisdiction in New York’ ” (26 NY2d, at p 17). Although not physically present, defendant Dr. Franklyn had actively participated in a New York auction by means of an open telephone line, his bids being relayed to the auctioneer who announced them to the other bidders in the auction room. One of the two alternative grounds for the holding was that Dr. Franklyn had personally engaged in purposeful activity here. In the opinion, the court characterized the situation where a defendant was physically present at the time the contract was made as "the clearest sort of case in which our courts would have 302 jurisdiction” (26 NY2d, at p 17). Had the doctor been physically in the auction room when he made his bids there would have been no question that his presence coupled with his participation would have been sufficient purposeful New York activity to have conferred jurisdiction. Viewing Dr. Franklyn’s direct and personal involvement in the auction, albeit by open telephone line, as "presence”, the court found that such "presence”, in combination with active participation in the bidding, amounted to the sustained and substantial transaction of business here.

More recently, in Hi Fashion Wigs v Hammond Adv. (32 NY2d 583), this court acknowledged jurisdiction over third-party defendant Schuminsky who had traveled from Oklahoma to New York to deliver his personal guarantee on a contract. The court found the delivery of the guarantee to be essential to the existence of the contract, reasoning that such delivery constituted acceptance of the offer. Not only did the contract of guarantee come into being upon delivery but, by making such delivery in New York, Schuminsky was "deemed to have 'purposefully’ availed himself 'of the privilege of conducting activities within [this] State,’ thereby 'invoking the benefits and protections of its laws’ (Hanson v. Denckla, 357 U. S. 235, 253)” (32 NY2d, at p 587). The court identified the situation in Hi Fashion Wigs as being an example of the " 'clearest sort of case in which our courts would have 302 jurisdiction’ ” (p 586) since defendant had been physically present at the time the contract was made. Although the court found a contract made in New York on which to bottom the holding, it acknowledged that the same result could have been reached absent a New York contract, by " 'looking at the transaction as a whole’ ” (32 NY2d, at p 587) and, in effect, making an analysis of Schuminsky’s activities similar to that made of the defendant’s activities in Longines.

The instant case can be analyzed in the manner of the afore-mentioned New York cases (see, also, Iroquois Gas Corp. v Collins, 42 Misc 2d 632, 634-635 [Jasen, J.], affd 23 AD2d 823) as here we have the "clearest sort of case” in which our courts would have 302 jurisdiction. Here, Schwartz was physically present in New York at the time the contract, establishing a continuing relationship between the parties, was negotiated and made and, the contract, made in New York, was the transaction out of which the cause of action arose. Additionally we note that by such holding we have not overstepped constitutional bounds, for the acts upon which we rely, the defendant’s coming into New York purposefully seeking employment, his interview and his entering into an agreement with a New York employer which contemplated and resulted in a continuing relationship between them, certainly are of the nature and quality to be deemed sufficient to render him liable to suit here. There can be no question that, by his acts, defendant has purposefully availed himself of the privilege of conducting activities, in our jurisdiction, thus invoking the benefits and protection of our laws (Hanson v Denckla, 357 US, at p 253). Here, the activities of Schwartz cannot be reasonably viewed as merely the " 'last act marking the formal execution of the contract’ (cf. Longines-Wittnauer v. Barnes & Reinecke, 15 NY 2d 443, 457, supra) which might not, without more, suffice to subject [defendant] to this State’s jurisdiction” (Hi Fashion Wigs v Hammond Adv., 32 NY2d 583, 586, supra). Rather, we have before us, as has been noted, a day which included interviewing, negotiating and contracting—the purposeful creation of a continuing relationship with a New York corporation. Considering the parties involved and the type of contract appropriate, no longer or more extensive negotiations or more detailed agreement would have been necessary to establish an employer-employee relationship such as that established here (cf. Harry Winston, Inc. v Waldfogel, 292 F Supp 473, 481).

Although defendant cites McKee Elec. Co. v Rauland-Borg Corp. (20 NY2d 377) in support of his position, that case is distinguishable. While here we can rely upon a single but complete transaction of business in the forum, there the majority, giving no weight to the original one-year contract (made, possibly in New York, but seven years previous), employed the same type of analysis as was used in Longines. While in Longines the cumulative weight of the activities was deemed sufficient, in McKee, even cumulatively, the contacts were characterized as "infinitesimal” and thus judged insufficient to sustain jurisdiction. Likewise, the McKee majority found that jurisdiction could not be sustained under the Hanson v Denckla criteria (20 NY2d, at pp 381-382). Comparing the one-day visit into New York of defendant’s representative in McKee with the equally brief New York visit of defendant Schwartz, we note that it is the nature and quality of the visits that so clearly set them apart, permitting one to serve as the basis for jurisdiction, and the other not. In the case before us we have purposeful activity in New York directed toward and resulting in the establishment of a contractual relationship while in McKee there was merely a casual attempt by defendant’s representative to look into or smooth out difficulties between plaintiff and plaintiff’s customers. The McKee court expressed valid concern that, were the visit there to serve as a sufficient basis for jurisdiction, then "every corporation whose officers or sales personnel happen to pass the time of day with a New York customer in New York [would run] the risk of being subjected to the personal jurisdiction of our courts” (20 NY2d, at p 382).

While not in any way controlling, mention should be made of the many Federal decisions cited by the parties. Federal courts are in the unenviable position of being required to decide questions of 302 in personam jurisdiction as the New York courts would decide such questions, but often without benefit of State precedent. While some cases appear in consonance with our holdings (see, e.g., American Eutectic Welding Alloys Sales Co. v Dytron Alloys Corp., 439 F2d 428; Liquid Carriers Corp. v American Mar. Corp., 375 F2d 951; Harry Winston, Inc. v Waldfogel, 292 F Supp 473, supra), others do not (see, e.g., Aurea Jewelry Creations v Lissona, 344 F Supp 179).

The order of the Appellate Division should be affirmed, with costs, and the question certified answered in the affirmative.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Fuchsberg concur.

Order affirmed, etc.


author: Chief Judge Breitel.

text:
    State of New York, Appellant, v Whitney G. Wilkes, Respondent.
    Argued February 18, 1977;
    decided April 28, 1977

      Louis J. Lefkowitz, Attorney-General (Lawrence J. Logan and Ruth Kessler Toch of counsel), Albany, for appellant.

      Freling H. Smith, Albany, for respondent.
   Chief Judge Breitel.

The State seeks to recover $3,892.56 from defendant Wilkes on three promissory notes issued by Wilkes as evidence of his obligation to repay National Defense Student Loans made by the State over a nine-year period. Wilkes asserts, as a complete defense, his discharge in bankruptcy. Each party moved for summary judgment. Special Term granted summary judgment to defendant, and a divided Appellate Division affirmed.

The issue is whether student loans which need not be repaid if the debtor dies, becomes disabled, or decides to teach in specified schools are, despite the contingencies, provable, and therefore dischargeable, debts within the meaning of the Bankruptcy Act (Bankruptcy Act, § 17; US Code, tit 11, § 35; Bankruptcy Act, § 63; US Code, tit 11, § 103).

The order of the Appellate Division should be reversed, defendant’s motion for summary judgment denied, and plaintiffs cross motion for summary judgment granted. Although a close question is presented, it is concluded that the various conditions attached to the student loans make the obligation to repay dependent on a series of events so speculative as to make valuation, in any realistic sense, impossible. Hence, at the time of the bankruptcy discharge there existed no provable debt, and Wilkes’ obligation to the State survived the discharge.

Between 1960 and 1963, Wilkes received three advances, totaling $975, under the National Defense Student Loan Program. In return for these advances, Wilkes executed two promissory notes, containing similar terms, under which he agreed to repay the notes, with 3% interest, over a 10-year period beginning one year after he ceased being a full-time student. Of major significance, however, is that the unpaid indebtedness would be canceled in the event of Wilkes’ permanent disability or death, and would be reduced at the rate of 10% of the unpaid balance for each year that Wilkes served as a full-time teacher in a public elementary or secondary school, up to a maximum of 50% of the total principal plus interest.

On January 31, 1968, Wilkes executed another promissory note, by the terms of which he agreed to repay the total amount indicated on the included schedule of advances. Three advances, totaling $3,000, were made, scheduled, and indorsed by early 1969. This later promissory note, like the earlier ones, excused repayment entirely in case of death or disability, and up to 50% if Wilkes served as an elementary or secondary school teacher. But, in addition, it provided that Wilkes could reduce the amount of the note by 15% for every year of teaching in specified low-income areas, or of teaching the handicapped. No limit was placed on such reduction. Hence, Wilkes could avoid repaying the entire amount of the note by engaging in certain kinds of teaching.

Wilkes received his B.S. degree from the State University at Albany in June, 1968, and studied for a Master’s degree until June, 1969. In September, 1969, defendant became employed by the State Education Department. On January 25, 1970, at a time he was earning an annual salary of $9,000, Wilkes filed a petition in bankruptcy. The only obligations scheduled were student loans exceeding $6,000 and three separate disputed charge account balances, which, in the aggregate, amounted to $158.48. Hence, it appears that the bankruptcy petition was filed solely to avoid repayment of student loans. No payments on the loans at issue in this case had yet become due. The State did not file formal objections to the discharge, and did not file a proof of claim.

Wilkes filed his petition and received his discharge before the 1970 amendments to section 17 of the Bankruptcy Act became effective. As a result, unlike a bankruptcy court under current law, the bankruptcy court in this case was not empowered to determine the dischargeability of any individual debt (see Bankruptcy Act, § 17, subd [c]; US Code, tit 11, § 35, subd [c]; 1A Collier, Bankruptcy [14th ed], pars 17.28, 17.28A). That determination, under the law governing this case, was one reserved for State courts. And even after the 1970 amendments, the State courts retain the power, subject to statutory exception, to determine the effect of a discharge (see Bankruptcy Act, § 17, subd [c]; US Code, tit 11, § 35, subd [c]; Chevron Oil Co. v Dobie, 40 NY2d 712, 714-715, mot for rearg den 40 NY2d 1093). Hence, the issue in this case is appropriately before this court.

Only provable debts are dischargeable in bankruptcy (Bankruptcy Act, § 17, subd [a]; US Code, tit 11, § 35, subd [a]). In general, contingency of an obligation is no bar to provability (Bankruptcy Act, § 63, subd [a], cl [8]; US Code, tit 11, § 103, subd [a], cl [8]). If, however, an unliquidated or contingent claim "is not capable of liquidation or of reasonable estimation”, that is, valuation, then the claim may not be allowed (Bankruptcy Act, § 57, subd [d]; US Code, tit 11, § 93, subd [d]). And a contingent claim that has been proved but which has not been allowed is deemed to be not provable (Bankruptcy Act, § 63, subd [d]; US Code, tit 11, § 103, subd [d]). Hence, on parallel reasoning it may be concluded that if the claim, as in this case, would not have been allowable if a proof of claim had been filed because it is not susceptible of "liquidation or of reasonable estimation”, then it is not dischargeable.

In Maynard v Elliott (283 US 273, 278), still the primary precedent in this area, although decided before contingent debts were explicitly made provable by statute, the Supreme Court noted that a "contingency of the bankrupt’s obligation may be such as to render any claim upon it incapable of proof. It may be one beyond the control of the creditor, and dependent upon an event so fortuitous as to make it uncertain whether liability will ever attach. * * * Or, the contingency may be such as to make any valuation of the claim impossible, even though liability has attached.” In that context Mr. Justice Stone, as he then was, illustrated the rule by nondischargeable obligations to pay a divorced wife an annuity so long as she remained unmarried.

The loan agreements involved in this case are fraught with conditions, almost all of which are beyond the control of the creditor. Death or disability of the borrower terminates the borrower’s obligation to repay. This contingency alone might not make the State’s claim incapable of reasonable estimation. But, by teaching, the borrower can avoid repaying most or all of his debts. No readily available actuarial tables exist to estimate the possibility that Wilkes might decide to teach at some point, or where. Taken together, therefore, the conditions make the ultimate amount of liability impossible to ascertain or even to approximate.

At the time the petition in bankruptcy was filed, no payments had yet become due. Wilkes had not yet defaulted, and as a consequence, there was nothing due and owing on that date. Whether anything would ever become due was still a fortuity, a fortuity still to occur in the future. Had the State filed a claim in bankruptcy, the claim would not have been allowed.

Critical under the teaching of Maynard v Elliott (supra) is that the decision whether the condition will be fulfilled lies exclusively within the control of the student, not the lender, with a period of more than 10 years in which to fulfill it completely.

Moreover, this loan agreement is not a commercial transaction. The State did not weigh the benefits of having the student borrower teach against the benefits of having the loan repaid. If such a balancing process had been used, this would be a different case, for the value to the State of having Wilkes teach might be equated to the value of having him repay the loan. But no such weighing occurred. Wilkes could reduce his repayment obligation by teaching in any State in this country. New York State receives no measurable economic benefit from such an agreement to teach in the future. Hence, any attempt at valuing the teaching obligation by reference to the amount of the loan is unavailing.

In recent years, an increasing number of student borrowers have chosen to extinguish their loan obligations through bankruptcy rather than through payment. The number of student loan bankruptcies has increased from a cumulative total of 2,146 for an aggregate of $2.4 million from the beginning of the student loan program through fiscal 1972, to an accumulated total of 8,969 for an aggregate of $11.3 million by February, 1975 (Senate Report No. 94-882, 94th Cong, 2d Sess, US Code Congressional & Administrative News [1976] 4713, 4744). Yet no reported cases dealing with the contingency issue have been cited or found.

In reaction to the growing problem, Congress has restricted the effect of a bankruptcy discharge on insured student loans outstanding, at the time of bankruptcy:

"Five-year nondischargeability of certain loan debts; effective date.

"(a) A debt which is a loan insured or guaranteed under the authority of this part may be released by a discharge in bankruptcy under the Bankruptcy Act only if such discharge is granted after the five-year period (exclusive of any applicable suspension of the repayment period) beginning on the date of commencement of the repayment period of such loan, except that prior to the expiration of that five-year period, such loan may be released only if the court in which the proceeding is pending determines that payment from future income or other wealth will impose an undue hardship on the debtor or his dependents.

"(b) Subsection (a) of this section shall be effective with respect to any proceedings begun under the Bankruptcy Act on or after September 30, 1977” (Education Arndts of 1976; Public Law No. 94-482, § 127; 90 US Stat 2141; US Code, tit 20, § 1087-3).

While this provision is prospective in effect, and hence does not apply to this case, it reflects a strong legislative reaction to the resort to bankruptcy of student loan borrowers and the intention to block frustration of the purposes of the national student loan program.

Deciding whether a claim is sufficiently definite to be provable under the Bankruptcy Act is often difficult. The statute provides guidance that is, at best, vague. Much depends on the circumstances. In this kind of case, allowing discharge would thwart the purposes of student loan programs. Discharge in this case, then, would be out of harmony with the basic purpose of the Bankruptcy Act, which is to relieve honest debtors of the crushing burdens of heavy debt (see Brown v O’Keefe, 300 US 598, 606). No such burdens attend this debtor. Thus, construing the vague provisions of the statute to effect the basic statutory purpose, discharge should not be allowed in this case.

Accordingly, the order of the Appellate Division should be reversed, with costs, defendant’s motion for summary judgment should be denied, and the State’s cross motion for summary judgment granted.

Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Cooke concur.

Order reversed, etc.