author: Wachtler, J.

text:
    F. Phillip Geraci, Appellant, v Richard H. Jenrette, Respondent, et al., Defendant.
    Argued March 22, 1977;
    decided May 3, 1977

      Lloyd I. Isler, New York City, for appellant.

      Roger L. Zissu, New York City, for respondent.
   Wachtler, J.

Plaintiff, the owner of a building in Manhattan, commenced this action for specific performance of a three-year lease. Defendant moved for dismissal of the complaint and summary judgment claiming that the lease is unenforceable under the Statute of Frauds (General Obligations Law, § 5-703, subd 2). It is conceded that the lease is signed only by the plaintiff. The trial court denied the motion stating that a question of fact was presented as to whether the defendant orally accepted its terms. The Appellate Division reversed, granted summary judgment to the defendant and dismissed the complaint without deciding the applicability of the Statute of Frauds. Instead the court held that "[q]uite apart from the Statute of Frauds” it was conclusively demonstrated by the escrow arrangement between the parties that they did not intend to be bound until a formal written contract had been signed and delivered. From that determination plaintiff has now appealed to this court as of right (CPLR 5601, subd [a], par [ii]).

The complaint and the affidavits submitted in opposition to the defendant’s motion allege that in May of 1975 the parties began negotiations for a lease of the top four floors of the plaintiffs building. According to the plaintiff, this resulted in full agreement on the terms of the lease, and all that remained were the formalities of a written document. Defendant’s lawyer then drafted a three-year lease with a term beginning on June 1, 1975 and sent a copy to plaintiff and his attorney on May 29. The following day plaintiff and his attorney spoke with defendant’s attorney at his office with regard to certain proposed changes. The defendant was not present but defendant’s attorney contacted him by telephone and discussed the changes. Plaintiff then spoke with the defendant on the phone and, once again, they fully agreed on the terms .of the lease. Plaintiff agreed to return the following day to sign the papers and, although defendant could not attend, it was agreed that defendant’s attorney would hold the lease in escrow until he obtained the defendant’s signature and the first month’s rent.

On May 31 plaintiff signed the lease and left it with defendant’s attorney. However on June 2 the defendant called the plaintiff and told him that he had changed his mind and did not intend to sign the lease.

In a second, separate cause of action plaintiff alleges that both parties partially performed the lease. He says that he removed his office, telephone equipment and furniture from the premises and sold certain antiques in order to clear the area for the defendant’s use. He claims that the defendant "went into possession” by directing his mail to that address and by having various people "upon the said premises” on June 2 "for the purpose of initiating renovations and decorations”.

The defendant denies ever orally agreeing to the terms of the lease. His primary point, however, is that the lease is unenforceable since he never signed it. He relies on subdivision 2 of section 5-703 of the General Obligations Law which states: "A contract for the leasing for a longer period than one year, or for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.”

The plaintiff’s position is that subdivision 2 applies only to contracts to enter into a lease. But once a lease is in existence, plaintiff contends that its validity depends on subdivision 1 of section 5-703 of the General Obligations Law the relevant portion of which states: "An estate or interest in real property, other than a lease for a term not exceeding one year * * * cannot be created, granted * * * or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting * * * or declaring the same, or by his lawful agent, thereunto authorized by writing.” The plaintiff readily concedes that a landlord cannot simply sign a lease and unilaterally bind an unwilling tenant to its terms. He claims however that under this subdivision "a lease for a term of more than one (1) year is valid and binding if, after full agreement with the tenant as to all of the terms, it is subscribed by the landlord.” He urges that our decision in 300 West End Ave. Corp. v Warner (250 NY 221) supports this position.

In the West End case the plaintiff landlord sought damages for a breach of an alleged agreement to enter into a lease. The defendant argued that the purported agreement was unenforceable because it involved "a contract for the leasing * * * of any real property” and had not been "subscribed by the lessor or grantor” as was then required by section 259 of the Real Property Law (the predecessor of General Obligations Law, § 5-703, subd 2). The question was whether the lessee could assert the statute as a defense. We held that he could.

During the course of the opinion we indicated that the statute as it then read did not appear to provide adequate safeguards for the lessee. We noted that the original statute, passed in 1787, required the signature of the party to be charged; that it was redrafted in 1828 to require the signature of both parties, but in the revised version finally adopted, only the lessor’s signature was necessary. We could find no explanation for the change, but we proceeded to dispell the notion that the statute should be literally read so as to permit a lessor or vendor to "enforce an oral executory contract against the purchaser merely by writing and subscribing a memorandum of the bargain” (p 227). As we interpreted the statute it was still necessary for the vendor or lessor to prove that there had, in fact, been a meeting of the minds. We stated: "The note or memorandum, although subscribed by the lessor or grantor alone becomes enforceable by him only when the lessee or grantee is shown in some manner to have accepted it as evidence of a valid and operative agreement between the parties” (300 West End Ave. Corp. v Warner, supra, at p 228).

The Law Revision Commission felt that even this interpretation did "not afford sufficient protection to the grantee or lessee, where it is sought to enforce the contract against him” (see Law Revision Commission Report, NY Legis Doc, 1944, No. 65, p 75). They recommended that section 259 of the Real Property Law (now General Obligations Law, § 5-703, subd 2) be amended to require the signature of the party to be charged before the agreement would be enforceable, and the Legislature adopted the recommendation (see NY Legis Doc, 1944, No. 65, p 73).

This analysis shows that subdivision 2 (General Obligations Law, § 5-703) does indeed apply to contracts to enter into a lease, as plaintiff maintains. It also shows that upon reconsideration the Legislature rejected the theory suggested in West End, that a "tenant” should be bound to such an agreement when it has been signed only by the lessor—even though there may be evidence that the tenant orally accepted its terms. Now an agreement to enter into a lease is void unless signed by the party against whom it is sought to be enforced.

The question then is whether the Legislature intended a different rule to apply when, as in the case now before us, the landlord seeks to enforce a lease which he alone has signed. From a practical standpoint, of course, it makes little difference to the tenant whether the lessor has signed a lease or an agreement to enter into a lease. In either event, if the agreement is held to be enforceable, the tenant will ultimately be bound to observe the terms of the lease. And if the landlord’s signature on an agreement to enter into a lease, coupled with proof of the tenant’s oral acceptance of its terms, does not adequately protect the tenant from fraud or perjury, merely requiring the landlord to sign the lease itself will hardly improve the tenant’s position. It might in fact evolve into a device for avoiding the statute or at least inspire the kind of questionable testimony and litigation which the Statute of Frauds was designed to prevent (see, e.g., Burns v McCormick, 233 NY 230, 234).

The argument on the other side is essentially technical. The plaintiff notes that a lease is an interest in real property (General Obligations Law, § 5-301, subd 2) and that subdivision 1 (General Obligations Law, § 5-703) provides that such an interest may be effectively created by a deed or conveyance subscribed only "by the person creating * * * the same.” But it does not follow, as plaintiff suggests, that a person named as a tenant in a purported lease should be bound by its terms because it is signed by the lessor. The point is that a lease, especially a modern lease, is generally more than a simple conveyance of an interest in land for a fixed period of time. Typically it is also a contract which requires the parties, particularly the tenant, to fulfill certain obligations while the lease is in effect. Indeed the proviso suggested by the plaintiff —that the lessor’s signature should be binding on the tenant under subdivision 1 (General Obligations Law, § 5-703) only when the parties have previously reached "full agreement * * * as to all of the terms”—indicates that although the lease may be a conveyance, it is one part contract as well. In some cases it has been assumed without question that a lease is a contract governed by subdivision 2 (General Obligations Law, § 5-703) and thus unenforceable unless signed by the party to be charged (see, e.g., Commission on Ecumenical Mission v Roger Gray, Ltd., 27 NY2d 457; Dung v Parker, 52 NY 494; but see 300 West End Ave. Corp. v Warner, supra, at p 228).

At best plaintiff’s argument now points up an ambiguity in the wording of the statute. In one sense, narrow and incomplete, a lease may be viewed as a transfer of an interest in land and therefore effective although it is signed only by the lessor (General Obligations Law, §5-703, subd 1). But in another more realistic and accurate sense it is "a contract for the leasing * * * 0f * * * rea] property” which is void unless signed by the party against whom it is sought to be enforced (General Obligations Law, § 5-703, subd 2). The apparent overlap or ambiguity inherent in the statutory language disappears when the two subdivisions are traced to the source.

Both of these subdivisions are derived from the Real Property Law. Subdivision 1 (General Obligations Law, § 5-703) was formerly section 242 of the Real Property Law, and as already noted, subdivision 2 (General Obligations Law, § 5-703) was formerly section 259 of the Real Property Law. Prior to our decision in the West End case both of those statutes required a writing subscribed by the lessor or grantor. However, the Law Revision Commission noted that this consistency was inappropriate because the two statutes relate to entirely different types of transactions. The report states that "the transactions described in section 242 are executed, whereas section 259 relates to executory agreements. All other statutes of frauds which concern executory agreements or transactions require a writing signed by 'the party to be charged,’ which is held to mean the person against whom enforcement is sought. Originally the provision which is now section 259 also prescribed signature by 'the party to be charged.’ (Laws of 1787, Ch 44.)” (See Law Revision Report, NY Legis Doc, 1944, No. 65, p 715.) This report prompted the amendment, mentioned earlier, which restored the original wording to the statute. Thus section 259 of the Real Property Law, and now subdivision 2 (General Obligations Law, § 5-703) requires that "executory” contracts relating to land be signed by the party to be charged; that is, the usual Statute of Frauds concept or, in the words of the Legislature, "the provision found in other statutes requiring a contract to be in writing” (NY Legis Doc, 1944, No. 65, p 73).

The distinction between the two subdivisions then is the traditional one between a true Statute of Frauds—which applies only to contracts and requires a writing signed by the party to be charged— and a statute codifying the common-law rules of conveyance, which merely require the writing to be signed by the party creating the interest (see 2 Corbin, Contracts, §§ 396, 520). Subdivision 2 is obviously derived from the Statute of Frauds prototype, the British "Statute for the Prevention of Frauds and Perjuries”, which invalidated most contracts relating to land, unless in writing and signed by the party to be charged (see, e.g., Simpson, Contracts, §§ 46, 58; 2 Corbin, op. tit., §§275, 396). The statute does not "include executed conveyances” but it does apply to a leasing agreement, for a term exceeding a year, "whether it purports to be an immediate transfer of the leasehold interest or to be a contract requiring the future execution of a documentary lease” (2 Corbin, op. tit., §§396, 402; see, also, 3 Warren’s Weed N. Y. Real Property [4th ed], Leases and Settings, § 3.01, p 27). In sum, the lease is a contract within the Statute of Frauds (General Obligations Law, § 5-703, subd 2), and the statute has not been satisfied.

As regards the plaintiff’s second cause of action, it is sufficient to note that although a court of equity may enforce an oral agreement when there has been part performance (see, e.g., General Obligations Law, § 5-703, subd 4), the acts performed must be " 'unequivocally referrable’ to the agreement * * * It is not enough that what is promised may give significance to what is done” (Burns v McCormick, 233 NY 230, 232, supra). The acts alleged by the plaintiff, if proven, would not satisfy that requirement (see, e.g., Wilson v Le Van, 22 NY2d 131; Wills v Wills, 28 NY2d 645).

The order of the Appellate Division should be affirmed.

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

Order affirmed, with costs.

       In view of this disposition, it is unnecessary to consider the point decided at the Appellate Division: that is, whether the parties did not intend to be bound until a formal written contract was signed and delivered.


source: Caselaw Access Project

author: Gabrielli, J.

license: Public Domain

text:
    Joseph P. Tonelli, as Chairman and on Behalf of the Board of Trustees of the Paper Industry Union-Management Pension Fund, Respondent, v Chase Manhattan Bank, N. A., Appellant, and Totowa Savings and Loan Association, Respondent.
    Argued March 24, 1977;
    decided May 3, 1977

      Andrew J. Connick and Eugene F. Farabaugh, New York City, for appellant.

      Jesse Climenko and Joseph Ferraro, New York City, for respondent.
   Gabrielli, J.

This case concerns the duty and obligation of a drawee bank to disburse funds in its customer’s account only in accordance with the latter’s order, and requires us to determine whether a drawee bank is liable to its customer for the delivery of a cashier’s check to a thief in exchange for the customer’s certified check, lacking the payee’s indorsement. More precisely, the question presented may be posed as follows: Is the drawee bank absolved from liability because the cashier’s check is made payable to the same payee as the customer’s certified check for which it was exchanged?

Respondent Fund caused two checks, each in the amount of $100,000, to be drawn on its account at appellant Chase Manhattan Bank (Chase). The checks were made payable to Totowa Savings and Loan (Totowa), a New Jersey bank, and were marked "CD” to indicate that they were drawn for the purpose of purchasing certificates of deposit from Totowa. Respondent Fund’s administrator, Fabio, requested one Naiman to deliver the checks to Totowa and to obtain the certificates of deposit for the Fund. Naiman caused the two checks to be certified by Chase and then proceeded to Totowa where he met with Totowa’s president. He informed the president that he wished to open two certificate of deposit accounts, each for $100,000, one in the name of the Fund and the other in the name of Playmate Enterprise Products, Inc. (Playmate), which Naiman represented to be a subsidiary of the Fund. Upon the advice of a subordinate, Totowa’s president refused to use the Fund’s check to open an account in the name of Playmate but informed Naiman that if he were able to obtain a cashier’s check from Chase, payable to Totowa, a Playmate account could be opened. Naiman then proceeded to Chase and requested an officer of Chase to issue a cashier’s check for $100,000 payable to Totowa in place of the Fund’s certified check for the same sum. In compliance with this request, Chase accepted the Fund’s check without the indorsement of Totowa, the named payee, charged the Fund’s account for the amount of the check, issuing its own cashier’s check payable to Totowa, and gave it to Naiman.

Naiman returned to Totowa and utilized the cashier’s check to open a $100,000 account in the name of Playmate. Loans were made to Playmate against this account and Playmate ultimately defaulted on them. The funds in the account were applied by Totowa as a setoff against the outstanding balance of the loans and the Fund never recovered the proceeds of its check, eventually discovering that only one certificate of deposit had been issued to it.

The Fund commenced this action against both Chase and Totowa; and Chase, in turn, cross-claimed against Totowa. Special Term, upon severing the Fund’s claims against Chase from the other claims, counterclaims and cross claims in the suit, granted the Fund’s motion for summary judgment against Chase and denied Chase’s motion for summary judgment or, in the alternative, for judgment over against Totowa. By a divided court, the Appellate Division affirmed. It should be emphasized that on this appeal we deal only with the liability of Chase as drawee bank to its customer, the Fund. Hence, in the posture in which the case comes to this court, the question of Totowa’s possible liability to either Chase or the Fund is not now presented for our resolution.

We hold that Chase breached the duty owed to its customer, the Fund, in issuing the cashier’s check since the original certified check, lacking the necessary indorsement of the payee, was not "properly payable” and thus the Fund’s account could not be charged for the amount of the check (Uniform Commercial Code, § 4-401; 5A NY Jur, Banks & Trust Companies, § 380, pp 129-130). The drawee bank stands in a debtor-creditor relationship to its customer and may make payment on checks drawn against its customer’s account only as directed by the latter (Sundail Constr. Co. v Liberty Bank, 277 NY 137, 141-142; Shipman v Bank of State of N. Y., 126 NY 318, 327; Lynch v First Nat. Bank of Jersey City, 107 NY 179, 184; 5B Michie, Banks and Banking, § 277a, p 78). The messenger who procured the exchange was concededly not an agent of the payee, Totowa, nor himself a holder of the certified check and therefore had no right to obtain payment of the check (see Uniform Commercial Code, §§ 3-301, 3-202, 1-201, subd [20]). Chase did not adhere to reasonable commercial practice in issuing the cashier’s check in exchange for the unindorsed certified check for it has long been settled that "[possession of a bill or note unendorsed by the payee is not of itself sufficient evidence of title. It may have been acquired by fraud or theft” (Hathaway v County of Delaware, 185 NY 368, 374; see, also, Bunge Corp. v Manufacturers Hanover Trust Co., 31 NY2d 223, 230, 234 [majority and dissenting opns]; People’s Trust Co. v Smith, 215 NY 488, 493; cf. Uniform Commercial Code, § 3-201, subd [3]). Despite appellant’s protestation to the contrary, this case is analogous to one in which the drawee bank has paid a check over a forged indorsement. A bank making payment on such an indorsement does so at its peril and may not charge its customer’s account for a check so paid unless some basis of estoppel is available to relieve the bank of liability (Shipman v Bank of State of N. Y, supra, p 327; 5B Michie, op. cit. § 276; White & Summers, Uniform Commercial Code, § 17-3, pp 559-560). The same rule should prevail where a bank honors a check payable to order which lacks the indorsement of the payee (cf. Lynch v First Nat. Bank of Jersey City, supra, p 184).

Not seriously disputing the well-established rules articulated above, Chase relies on the principle that a drawer may be precluded from recovering on an improperly paid check where the proceeds of the check actually reached the person intended to receive them (Sundail Constr. Co. v Liberty Bank, supra, p 142; Lynch v First Bank of Jersey City, supra, p 184; Sweeney v National City Bank of Troy, 263 App Div 418, affd 290 NY 624; Gotham-Vladimir Adv. v First Nat. City Bank, 27 AD2d 190, 192-193; 5B Michie, op. cit, § 277a; 5A NY Jur, Banks & Trust Companies, §393). This equitable defense is founded on the concept of unjust enrichment and is based on the view that the drawer should not be permitted to recover from the drawee bank where he has suffered no loss from the improper payment of a check (Sweeney v National City Bank of Troy, supra, p 423 [concurring opn]). Chase thus argues that because the cashier’s check issued in exchange for the certified check was made payable to Totowa, the payee on the original check, the Fund suffered no loss for which Chase may be held responsible. This argument overlooks the nature and function of the cashier’s check issued in the exchange. The cashier’s check, the effective equivalent of the funds which it represented (see Goshen Nat. Bank v State of New York, 141 NY 379, 387; 5A NY Jur, Banks & Trust Companies, § 359), did not indicate its origin and purpose as did the Fund’s check. Thus, while nominally payable to Totowa, the cashier’s check could be utilized for another purpose by its possessor. It could be deposited to any account at Totowa and when so deposited would become the property of the depositor since a debtor-creditor relationship would arise between Totowa and the depositor. This is precisely the scheme employed in this case where the cashier’s check was deposited to the account of Playmate, an instrumentality of the thieves. Totowa, the true payee, never actually received the proceeds of the original certified check for the purpose intended by the drawer. By virtue of the issuance of the cashier’s check, the thieves were able to convert the Fund’s moneys to their own use. Under these circumstances, the reasoning of Hillsley v State Bank of Albany (24 AD2d 28, affd 18 NY2d 952) is applicable to the instant case. In Hillsley (pp 30-31), the court held that a drawee bank, which paid a certified check over a forged indorsement, could not rely upon the defense that the funds eventually reached the rightful payee where the proceeds of the check were not applied by the payee for the purpose intended by the drawer.

Chase also interposes the defense of equitable estoppel contending that the Fund was negligent in entrusting its check to a dishonest messenger. This defense is inapplicable here where the instrument was payable to order and, thus, could not be negotiated without the indorsement of the payee (see Uniform Commercial Code, § 3-202). In cases relied upon by Chase, the instrument entrusted to a dishonest messenger or agent was freely negotiable bearer paper and thus the drawee bank could not be held liable for making payment to one presenting a negotiable instrument in bearer form who may properly be presumed to be a holder (5B Michie, op. tit., §262, p 37; § 277a, p 88; see, e.g., People v Bank of North Amer., 75 NY 547, 565; National Safe Deposit Co. v Hibbs, 229 US 391). The Fund’s check had not been indorsed or properly negotiated to the presenter. The fact that an employee of the Fund, Fabio, entrusted the check to a dishonest messenger does not relieve Chase of liability for the improper exchange, even if the employee himself were implicated in the scheme (see American Sur. Co. v Empire Trust Co., 262 NY 181, 186-187; Gutfreund v East Riv. Nat. Bank, 251 NY 58, 64-65; Shipman v Bank of State of N. Y., 126 NY 318, 331, supra; 5B Michie, op. cit., § 277b, pp 92-93). Chase remained obligated to assure that only the named payee or a holder of the check received payment (5A NY Jur, Banks & Trust Companies, § 376). Its violation of the obligation is especially manifest here where it honored an unindorsed check not properly negotiated to the person presenting it for payment. This is not a case where the drawer has authorized the wrongdoer to draw and issue checks (see Uniform Commercial Code, § 3-405; compare Policy Funding Corp. v Kings County Lafayette Trust Co., 40 AD2d 525, affd 33 NY2d 776); nor does it involve a situation in which the drawer has by its own negligence contributed to the alteration of a check or the making of an unauthorized signature (Uniform Commercial Code, § 3-406). No claim is advanced that the Fund was remiss in examining its monthly statement of account from Chase and could therefore itself have discovered a continuing fraudulent scheme (see Uniform Commercial Code, § 4-406; compare Arrow Bldrs. Supply Corp. v Royal Nat. Bank of N. Y., 21 NY2d 428). Rather, it was the improper exchange by Chase of the Fund’s check for its own cashier’s check which occasioned its customer’s loss. Chase cannot therefore assert that it stands in the position of an innocent party which breached no duty owed to its customer (compare Bunge Corp. v Manufacturers Hanover Trust Co., 31 NY2d 223, 228-231, supra).

Finally, we reiterate that Chase’s cross claim against Totowa is not before us on this appeal because the issues raised on that claim have been reserved by the courts below for resolution at trial. Thus, our decision here does not affect any remedy which may be available to Chase against Totowa based on the latter’s knowledge of the source of the funds credited to the Playmate account or its negligence in permitting respondent’s moneys to be diverted into the hands of thieves (cf. Federal Ins. Co. v Groveland State Bank, 37 NY2d 252).

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

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

Order affirmed.

       Naiman, Totowa’s president and others allegedly implicated in the scheme were indicted in New Jersey Federal court. The record before us does not reveal the disposition of these indictments.


text:
    Miriam Kostika, Respondent, v Mario Cuomo, as Secretary of State, et al., Appellants.
    Argued March 24, 1977;
    decided May 5, 1977

      Louis J. Lefkowitz, Attorney-General (David L. Birch and Samuel A. Hirshowitz of counsel), New York City, for appellants.

      Benjamin H. Segal, New York City, for respondent.
   Wachtler, J.

The sole issue presented in this case is whether the penalty imposed by the Secretary" of State against the petitioner real estate broker was " 'so disproportionate to the offense, in light of all the circumstances, as to be shocking to one’s sense of fairness’ ” (Matter of Pell v Board of Educ., 34 NY2d 222, 233, quoting Matter of Stolz v Board of Regents, 4 AD2d 361, 364). The Appellate Division found that the secretary’s $200 fine was an adequate punishment but that his direction that, as a condition for the removal of the suspension of petitioner’s real estate broker’s license, the broker be compelled to repay the $15,050 profit she made on the resale of certain property was an excessive sanction and, therefore, should be set aside. We are of the opinion that the Appellate Division erred in setting aside the secretary’s determination that the $15,050 profit be returned.

In April, 1974, the petitioner, Mrs. Miriam Kostika, sold a three-family residence which she owned in Forest Hills, New York, to Mr. and Mrs. Hanel. Mrs. Kostika was at that time a licensed real estate broker, although she never informed the purchasers of that fact and indeed used her maiden name, Miriam Schwecky, in all her dealings with the Hanels, despite the fact that Mrs. Hanel had on several occasions asked petitioner if she was a real estate broker. In addition, in connection with her attempts to sell the premises in question, during the winter of 1973-1974 Mrs. Kostika placed an advertisement in the New York Times. This advertisement did not indicate either Mrs. Kostika’s name or the fact that she was a licensed real estate broker or dealer in real property.

On April 1, 1974, title passed to Mrs. Kostika from the Rubegold Realty Co. for the purchase price of $61,000. At a simultaneous closing, Mrs. Kostika transferred title to the same premises to the Hanels for a purchase price of $76,050. It was not until this point that the Hanels became aware that Mrs. Kostika was a real estate broker.

Subsequently, the Hanels complained about Mrs. Kostika’s conduct to the Department of State and an investigation by the Division of Licensing Services ensued. A hearing was convened pursuant to section 441-e of the Real Property Law to determine the validity of the alleged violations raised in a formal complaint filed by the investigator. Mrs. Kostika was charged with having violated both section 175.6 of the Rules and Regulations of the Department of State promulgated pursuant to article 12-A of the Real Property Law (19 NYCRR 175.6) and with a violation of section 396-b of the General Business Law.

Section 175.6 of the Rules and Regulations of the Department of State clearly requires that "[bjefore a real estate broker sells property in which he owns an interest, he shall make such interest known to the purchaser.” Section 396-b of the General Business Law requires: "Any person, firm, corporation or association, or agent or employee thereof, hereinafter called person, who, being engaged in the business of dealing in any property, makes, publishes, disseminates, circulates or places before the public or causes, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in this state, any advertisement respecting any such property, in any newspaper, magazine, or other publication, or over any radio station or television station, unless it is stated in any such advertisement that the advertiser is a dealer in such property or from the context of any such advertisement, it plainly appears that such person is a dealer in such property so offered for sale in any such advertisement * * * is guilty of a misdemeanor.”

Mrs. Kostika appeared in person at the hearing and was represented by counsel. Both sides were given the opportunity to present witnesses and offer evidence, and at the conclusion of the hearing, the hearing officer found that Mrs. Kostika had demonstrated untrustworthiness. Pursuant to section 441-c of the Real Property Law the hearing officer declared that Mrs. Kostika’s license be "suspended for a period of three months or in lieu thereof to pay a fine to the department [of State] in the sum of $200”. The officer further determined that "[a]t the end of the period of suspension or upon payment of the fine the aforementioned license shall be further suspended until such time as the respondent [Mrs. Kostika] has presented proof satisfactorily to the Department that she has returned to Mr. and Mrs. Hanel the sum of $15,050.”

The Secretary of State confirmed the determination of the hearing officer in all respects. In modifying the secretary’s decision, the Appellate Division found that there was substantial evidence in the record to support the finding of untrustworthiness, correctly noting that it is not the province of the court to substitute its judgment for that of the administrative agency (see Matter of Pell v Board of Educ., 34 NY2d 222, supra, and cases cited therein; Matter of Sigety v Ingraham, 29 NY2d 110, 114; Matter of Luxemburg v Stichman, 2 AD2d 605, 607). Yet, that court struck down the secretary’s ruling that the broker be compelled to disgorge the profit made on the transaction, requiring only that the $200 fine be paid and noting that in their opinion it did not appear that the purchasers had been overcharged for the property.

Where, as here, the administrative agency’s determination is based upon substantial evidence, the penalty imposed is a matter of discretion to be exercised solely by the agency. Of course, this discretion is not to be completely unfettered. As we noted in Matter of Pell v Board of Educ. (34 NY2d 222, supra) it has long been settled in our State’s jurisprudence that a fine or penalty imposed by the administrative agency is not to be disturbed unless it is clearly disproportionate to the offense and completely inequitable in light of the surrounding circumstances. Thus, the "shocking to one’s sense of fairness” test was developed in the case law.

This court has also recognized the subjective and somewhat amorphous nature of this standard. Thus, in Pell (p 234) we attempted to broadly outline the myriad considerations to be taken into account in evaluating the sanction imposed in each individual case: "[I]t may be ventured that a result is shocking to one’s sense of fairness if the sanction imposed is so grave in its impact on the individual subjected to it that it is disproportionate to the misconduct, incompetence, failure or turpitude of the individual, or to the harm or risk of harm to the agency or institution, or to the public generally visited or threatened by the derelictions of the individuals. Additional factors would be the prospect of deterrence of the individual or of others in like situations, and therefore a reasonable prospect of recurrence of derelictions by the individual or persons similarly employed.”

Applying these guidelines to the case now before us, the conclusion is inescapable that the penalty imposed by the Secretary of State should have been allowed to stand. It cannot be gainsaid that the public at large has an interest in being protected from unreliable and untrustworthy real estate brokers engaging in somewhat less than arms-length and honorable sales practices. The responsibility for effectively providing that protection has been delegated to the Secretary of State (see Matter of Butterly & Green v Lomenzo, 36 NY2d 250, 256). Accordingly, the secretary must be accorded broad discretion in imposing penalties designed to safeguard the public interest and discourage real estate brokers from engaging in shadowy practices (Matter of Butterly & Green v Lomenzo, 36 NY2d 250, 256, supra; see Matter of Barlow v Lomenzo, 49 AD2d 160; Matter of Diona v Lomenzo, 26 AD2d 473; Matter of Edelstein v Department of State, 16 AD2d 764).

In the instant case, the sanction imposed by the secretary is well-suited to these ends. One can hardly fathom a more effective means of removing the incentive for engaging in devious conduct, and thereby protecting the unwary purchaser from being overreached or defrauded, than a penalty which insures that the malefactor is denied the fruits of his misdeed. Further, it cannot outrage one’s sense of fairness that the impact on the broker here was disproportionate in that she was compelled to return her ill-gotten profit and pay a fine of $200—a net loss to her of $200. Hence, there was no basis for upsetting the determination of the Secretary of State.

Accordingly, the judgment of the Appellate Division should be reversed and the Secretary of State’s direction that the petitioner be required to disgorge the profit made on the transaction should be reinstated.

Chief Judge Breitel and Judges Gabrielli, Jones, Fuchs-berg and Cooke concur with Judge Wachtler; Judge Jasen dissents and votes to affirm for the reasons stated in the concurring memorandum by Mr. Justice Vincent A. Lupiano at the Appellate Division.

Judgment reversed, with costs, and the determination of the Secretary of State reinstated.


author: Jasen, J.

text:
    The People of the State of New York, Respondent, v Perry Davis, Appellant.
    Argued April 1, 1977;
    decided May 5, 1977

      Louis A. Haremski and Nathaniel A. Barrell, Buffalo, for appellant.

      Edward C. Cosgrove, District Attorney ( John J. DeFranks of counsel), Buffalo, for respondent.
   Jasen, J.

Appellant Perry Davis stands convicted on charges of burglary and grand larceny, both in the third degree, arising from the looting of an office equipment store on Main Street in the City of Buffalo. The judgment of conviction was unanimously affirmed, without opinion, by the Appellate Division. The primary issue on appeal is whether the circumstantial evidence adduced by the People at trial is legally sufficient to support the conviction. We believe that it is and would affirm the order of the Appellate Division.

In the early morning hours of May 14, 1974, a caretaker who lived in a basement apartment within the burglarized premises reported to the police that the storefront window had been broken and that he could hear footsteps on the floor above. The police arrived in time to find defendant, the only person in the area, standing in front of the shattered window, looking into the store. Investigating officers noticed that one sleeve of defendant’s jacket was pulled down over a badly bleeding hand. Defendant explained that his hand had been cut in a fight and that he was en route to a local hospital. However, the officers noticed blood stains on the broken store window and on the floor inside the store. There was a trail of blood leading to an alleyway and in the alleyway was stashed blood-stained office equipment removed from the store. Chemical analysis revealed that defendant’s blood type matched the blood stains on the window, in the store and on the equipment. Readable fingerprints were found on the equipment, but did not correspond to the fingerprints of the defendant.

A conviction based exclusively upon circumstantial evidence may be sustained only if the hypothesis of guilt flows naturally from the facts proved, and is consistent with them, and the facts proved exclude to a moral certainty every reasonable hypothesis of innocence. (E.g., People v Benzinger, 36 NY2d 29, 32; People v Cleague, 22 NY2d 363, 365-366; see, also, People v Von Weme, 41 NY2d 584.) "In the end, it is a question whether common human experience would lead a reasonable man, putting his mind to it, to reject or accept the inferences asserted for the established facts.” (People v Wachowicz, 22 NY2d 369, 372.) This conviction amply meets the relevant standards. Defendant was observed at the crime scene by officers responding immediately to a report of a crime in progress. Defendant’s hand was badly cut and his blood type matched that found inside the premises and on the stolen equipment. He was the only person in the area and the authenticity of his claim of being en route to a hospital was negated by the fact that the store was not situated on a direct route between the hospital and the location of the alleged fight, although defendant was familiar with the area.

Further, it was not error for the court to deny defendant a requested bill of particulars for information with respect to the composition, attendance and vote of the Grand Jury that indicted him, as well as the nature of the legal advice furnished to the Grand Jury by the prosecution and the court. "The sole function of a bill of particulars is to define more specifically the crime or crimes charged in the indictment, or, in other words, to provide clarification of certain matters set forth in the pleading.” (Denzer, Practice Commentary, McKinney’s Cons Laws of NY, Book 11A, CPL 200.90, p 292.) A bill of particulars serves to clarify the pleading; it is not a discovery device. Since the defendant’s request was unrelated to the factual allegations of the charge and was, in truth, a trial gambit in the hope of finding evidence to rebut the regularity of the indictment, the motion for a bill of particulars was properly denied.

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

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

Order affirmed.


author: Chief Judge Breitel

text:
    Gelder Medical Group, Respondent, v Freeman B. Webber, Appellant.
    Argued March 28, 1977;
    decided May 5, 1977

      Donald C. Carmien, Binghamton, for appellant.

      Thomas G. O’Neil, Sidney, for respondent.
   Chief Judge Breitel

In an action by a medical partnership for a permanent injunction to enforce a restrictive covenant not to compete, defendant physician appeals. He had been expelled as a partner pursuant to the partnership agreement. Special Term granted the injunction on summary judgment under CPLR 3212, and dismissed defendant’s counterclaim for a declaratory judgment and damages resulting from plaintiff’s alleged breach of the partnership agreement. A divided Appellate Division affirmed.

At issue is whether a partner who has been forced out of a partnership as permitted by the partnership agreement may be held to his covenant not to compete within a restricted radius of 30 miles for a five-year period.

There should be an affirmance. Having joined a partnership governed by articles providing for the expulsion without cause of a member on terms that are not oppressive, and including a reasonable restrictive covenant, defendant may not complain of its enforcement.

The Gelder Medical Group, a partnership engaged in practicing medicine and surgery in Sidney, New York, was first formed in 1956. Some 17 years later, defendant Dr. Webber, then 61 years old and a newcomer to Sidney, a village of 5,000 population, was admitted to the small partnership following a one-year trial period in which he was employed by the group as a surgeon. Previously, after having entered the field of surgery, he had drifted from one professional association to another in two different provinces of Canada and in at least four different States of this country in the northeast and midwest. He came to the group from Columbus, Indiana.

As had the other members of the group who had joined since its inception, and critical to plaintiff’s complaint, Dr. Webber had agreed that he "will not for five years after any [voluntary or involuntary] termination of his association with said Gelder Medical Group, practice his profession within a radius of 30 miles of the Village of Sidney, as a physician or surgeon * * * without the consent, in writing, of said Gelder Medical Group.” The partnership agreement also provided a procedure for the involuntary withdrawal of partners. Thus, it was, in pertinent part, provided that "In the event that any member is requested to resign or withdraw from the group by a majority vote of the other members of the group, such notice shall be effective immediately and his share of the profits to the date of termination shall be computed and he shall be paid in full to the date of termination of his employment pursuant to his agreement with the association.”

Dr. Webber’s association turned out to be unsatisfactory to his partners. His conduct, both professional and personal, assertedly became abrasive and objectionable to his partners and their patients, a cause of "intolerable” embarrassment to the group. Revealing is a letter of a psychiatrist who, after his formal termination, examined Dr. Webber a number of times on the referral of the partnership. In the psychiatrist’s words, Dr. Webber initially "appeared clinically with what would be termed an adjustment reaction of adult life with anxiety and depression”. While the psychiatrist concluded that the adjustment reaction soon cleared, he summed up his description of Dr. Webber as a perfectionist who was a "rather idealistic sincere, direct, frank individual who quite possibly could be perceived at times as being somewhat blunt.” In fact, Dr. Webber, in one of his affidavits, conceded, commendably, that he is probably "more of a perfectionist and idealist than he should be.”

Although during the association difficulties were from time to time discussed with Dr. Webber, the unhappy relationship persisted. In October, 1973, the discord culminated with the group’s unanimous decision to terminate Dr. Webber’s association with the partnership. After Dr. Webber refused to withdraw voluntarily, the group, in writing, formally notified him of the termination. It was effective immediately, and, on the basis of an accounting, Webber was paid $18,568.41 in full compliance with the articles of agreement which, it is notable, provided for voluntary or involuntary termination on substantially the same terms. But that did not end the unpleasantness.

In about two months, the expelled partner, disregarding the restrictive covenant, resumed his surgical practice as a single practitioner in Sidney. The group, to protect its practice, promptly brought this action to enjoin Dr. Webber’s violation of the restrictive covenant and obtained a temporary injunction. Dr. Webber instituted his own action for a declaratory judgment and for damages in allegedly wrongfully expelling him. The actions were consolidated.

The plain meaning and intended effect of the restrictive covenant and the provisions for expulsion are not now in dispute. Dr. Webber urges, however, that the court superimpose a good faith requirement on the partnership’s right to expel and to enforce the restrictive covenant. Also urged is the inevitable argument that the restrictive covenant is unreasonable under the circumstances.

The applicable law is straightforward. Covenants restricting a professional, and in particular a physician, from competing with a former employer or associate are common and generally acceptable (see, e.g., Karpinski v Ingrasci, 28 NY2d 45, 47-49; see, generally, Validity and Construction of Contractual Restrictions on Right of Medical Practitioner to Práctice, Incident to Partnership Agreement, Ann., 62 ALR3d 970). As with all restrictive covenants, if they are reasonable as to time and area, necessary to protect legitimate interests, not harmful to the public, and not unduly burdensome, they will be enforced (see, e.g., Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307, mot for rearg den 40 NY2d 918; Karpinski v Ingrasci, 28 NY2d 45, 49-51, supra).

Similarly common and acceptable are provisions in a partnership agreement to provide for the withdrawal or expulsion of a partner. While there is no common-law or statutory right to expel a member of a partnership, partners may provide, in their agreement, for the involuntary dismissal, with or without cause, of one of their number (see Millet v Slocum, 4 AD2d 528, 532, affd 5 NY2d 734; Gill v Mallory, 274 App Div 84, 85 [Van Voorhis, J.]; see, also, 43 NY Jur, Partnership, §98).

Turning to the Gelder Group agreement, no acceptable reason is offered for limiting the plainly stated provisions for expulsion, freely subscribed to by Dr. Webber when he joined the group, and none is perceived. When, as here, the agreement provides for dismissal of one of their number on the majority vote of the partners, the court may not frustrate the intention of the parties at least so long as the provisions for dismissal work no undue penalty or unjust forfeiture, overreaching, or other violation of public policy (cf. Gill v Mallory, 274 App Div 84, 85, supra).

Assuming, not without question, that bad faith might limit the otherwise absolute language of the agreement, the record does not reveal bad faith. Embarrassing situations developed, affecting the physicians and their patients, as a result of Dr. Webber’s conduct, however highly motivated his conduct might have been. It was as important, therefore, in the group’s eyes, as anything affecting survival of the group that it be disassociated from the new member’s conflict-producing conduct. Indeed, at the heart of the partnership concept is the principle that partners may choose with whom they wish to be associated (see Partnership Law, § 40, subd 7; 43 NY Jur, Partnership, § 15).

Even if bad faith on the part of the remaining partners would nullify the right to expel one of their number, it does not follow that under an agreement permitting expulsion without cause the remaining partners have the burden of establishing good faith. To so require would nullify the right to expel without cause and frustrate the obvious intention of the agreement to avoid bitter and protracted litigation over the reason for the expulsion. Obviously, no expulsion would ever occur without some cause, fancied or real, but the agreement provision is addressed to avoiding the necessity of showing cause and litigating the issue. On the other hand, if an expelled partner were to allege and prove bad faith going to the essence, a different case would be presented. As with any contractual agreement, in the time-honored language of the law, there is an implied term of good faith (Van Valkenburgh, Nooger & Neville v Hayden Pub. Co., 30 NY2d 34, 45, cert den 409 US 875; 10 NY Jur, Contracts, § 203). In his affidavits Dr. Webber has not shown even a suggestion of evil, malevolent, or predatory purpose in the expulsion. Hence, he raises no triable issue on this score.

Insofar as the restrictive covenant is concerned, its reasonableness must be measured by the circumstances and context in which enforcement is sought (Reed, Roberts Assoc. v Strau man, 40 NY2d 303, 307, supra). The Gelder Group, named after its founder and long dominant manager, was founded more than 20 years ago. Dr. Gelder and his associates, before Dr. Webber’s advent, had spent years, great effort, and money in its development, including ownership of the building in which it operated. It was not unreasonable, in admitting new members to the partnership, that voluntary withdrawal or involuntary expulsion should be coupled with a restrictive covenant. In the small Village of Sidney, it was not unreasonable to extend the covenant tó a radius of 30 miles of the village, and it was certainly quite reasonable to limit the noncompetition term to five years.

In this case the covenant applies to a man whose career had been spent, during the same time the Gelder Group was built up, in repeatedly changing professional associations within a range of thousands of miles. Until his arrival in Sidney he had no roots there, and, if he had developed any, they were shallow and originated largely because of his association with the Gelder Group.

There is, and it is significant, no evident harm brought to the public by enforcing the covenant. Dr. Webber is, obviously, not the only physician in Sidney; defendant himself submits there are at least a half dozen others serving the small village and its environs. Even crediting his contention, which does not go unchallenged, that he is the village’s only surgeon, there is every indication surgeons are available in nearby Binghamton and Oneonta, cities presumably capable of supporting surgical facilities more sophisticated than those of modest Sidney. Moreover, Dr. Webber points out in his affidavit that, by arrangement, surgeons came from Binghamton to Sidney.

Hence, defendant’s attempts to free himself from the covenant not to compete, which, it is notable, will expire by its own provisions in less than two years, must be rejected. It is true, as the group stated in its letter of termination to Dr. Webber, that the termination was a tragedy which it regretted. But the expulsion clause was designed to function when the conflict between the group and one of its members was insoluble, and the necessity for its use must always be unfortunate. Such use is free of fault to remedy an intolerable situation, a situation which would not be less intolerable because the "blame” for its occasion could be pointed in one direction rather than another.

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

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

Order affirmed.


author: Fuchsberg, J.

text:
    Loretta Quinlan, by Her Father and Natural Guardian, Edwin Quinlan, et al., Appellants, v Vito D. Cecchini et al., Respondents.
    Argued March 21, 1977;
    decided May 10, 1977

      Joseph J. Napoli and Morns J. Eisen, P. C., New York City, for appellants.

      Benjamin Vinar, J. Robert Morris and Thomas R. Newman, New York City, for respondents.
   Fuchsberg, J.

This is the first case of an injured social guest to reach us since we abandoned resort to common-law classifications as the conclusive determinant of a land occupier’s duty to entrants on property based on whether they were to be regarded as licensees, invitees, trespassers or members of any of their patchwork of subclassifications, adopting in its place a "single standard” under which liability is to be measured by what is "reasonable care under the circumstances” (Basso v Miller, 40 NY2d 233, 241; Scurti v City of New York, 40 NY2d 433, 437).

Plaintiff Loretta Quinlan, then a 17-year-old high school senior, fractured her skull when she fell down a flight of stairs in defendants’ one-family house. At the conclusion of the testimony, the trial court took the case from the jury and dismissed it on the ground that Loretta and her father, the latter suing derivatively, failed to prove either any actionable negligence on the part of the defendants or Loretta’s freedom from contributory negligence. The Appellate Division affirmed on the ground that a social guest is to take "the premises as the guest finds them”, a statement which, while categorically correct pre-Basso, is no longer the law. For the reasons which follow, we find that plaintiffs made out a prima facie case and that there must be a new trial.

To reach that determination, we turn first to the facts, viewing the evidence, as we must in the present procedural posture of the case, in the light most favorable to the plaintiffs (Parvi v City of Kingston, 41 NY2d 553, 554).

After school recessed on the day she was injured, Loretta accompanied her classmate Anna Cecchini to the home of Anna’s parents, the defendants. The young ladies were going to attend a dance that evening and Loretta had been invited to spend the night at the Cecchini home. This was her first visit there. Upon their arrival at the Cecchini residence, they entered by the front door. After dining with Anna’s parents, they drove to the dance and, returning at about 12:30 a.m., Anna led the way to the side entrance door which she proceeded to unlock. An outdoor light fixture alongside the door was not on; street lights provided the illumination which enabled Loretta to see the side of the house.

Upon being opened, the door swung toward the left into a small vestibule only about three feet square. Two lights switches were located on the left vestibule wall against which the door came to rest; one switch controlled the overhead vestibule light and the other the outside light, but both switches were concealed and rendered inaccessible by the opening of the door. Opposite the entranceway were some steps leading up to the kitchen. As one faced into the vestibule from the outside, the edge of the top landing of a stairway leading to the basement was located at a point only four inches to the right of the vestibule. A qualified expert called by the plaintiffs characterized this arrangement as "architecturally unsound”, particularly because of the door’s obstruction of the switch which controlled the light that would have revealed the presence of the stairwell.

As Anna opened the side door, she let Loretta step into the vestibule first. There were no lights on in the house; the vestibule was, in Loretta’s words, "pitch-dark”. She "couldn’t see anything” except the wall diagonally opposite the doorway and, accordingly, stood still on the right while waiting for Anna to enter. Though Loretta was then dangerously close to the staircase, the absence of light made her unaware of that fact. Then, as Anna entered on the left side of the vestibule, she inadvertently brushed against Loretta who "put one foot back” in order that Anna "would have more room”, whereupon she fell down the stairs, losing consciousness as she struck the bottom.

In essence, four points are urged upon us by the defendants to sustain the dismissal. These are: that the unlit small vestibule with the open staircase adjacent to it was not a trap or hidden danger, that in any event the defendants acted with reasonable care under the circumstances, that the fall down the stairs was not the proximately produced result of the defendants’ negligence and that plaintiff’s own negligence was the cause of the occurrence.

If the traditional system of classifications still prevailed, since, Loretta Quinlan was not a business visitor but only a social guest, we would be enmeshed in the decision of such questions as, for instance, whether the defendants afforded the plaintiff the protection owed to "the members of their own family” and perhaps how such a duty is to be applied pragmatically (Krause v Alper, 4 NY2d 518, 520) or, as defendant suggests is pertinent here, whether or not the arrangement of the vestibule constituted a "trap or hidden danger” (Wilder v Ayers, 2 AD2d 354, affd 3 NY2d 725). The "single standard of reasonable care” rule no longer so confines us. Our primary concern has now been shifted from the status of the plaintiff to the conduct of the defendant. Specifically, those facts which at one time might have tended to establish a "hidden danger” are now subsumed in the broader consideration of whether there has been reasonable care.

Similarly, the factual props which formerly determined status are not irrevelant in the determination of foreseeability and the expectation of care which a particular social guest would expect of a particular host (Peterson v Balach, 294 Minn 161; cf. Scurti v City of New York, 40 NY2d 433, supra). But they too are now encompassed by the all-embracing standard of reasonable care, compliance with which is to be judged by a defendant’s conduct in the totality of all the prevailing circumstances.

Of course, it is still the trial court which, in the first instance, must determine whether the facts will support a negligence finding as a matter of law (Basso v Miller, 40 NY2d 233, 242, supra). The traditional role of the court in setting the perimeters of negligence did not disappear with the abolition of the uncompromising common-law classifications. It remains the court’s duty to examine the facts of each particular case for that purpose. On that inquiry, it may consider whether the foreseeability of the presence of an entrant on land is too remote, given the nature of the risk and the burdens that would be imposed on a landowner to guard against it. It is also concerned with the weighing of the probability of the harm, the gravity of the harm against the. burden of precaution, and other relevant and material considerations from which it can determine whether reasonable persons can differ as to whether the defendant was negligent (see Weiner, The Civil Jury Trial and the Law-Fact Distinction, 54 Cal L Rev 1867, 1882-1883; James, Functions of Judge and Jury in Negligence Cases, 58 Yale LJ 667, 676-677). As in all such cases, "[t]he range of reasonable apprehension is at times a question for the court, and at times, if varying inferences are possible, a question for the jury” (Palsgraf v Long Is. R. R. Co., 248 NY 339, 345 [Cardozo, Ch. J.]; see, also, Peterson v City of New York, 267 NY 204 [Loughran, J.]).

Measured by these criteria, it is clear that the present case should have been permitted to go to the jury, whose province it would have been, after evaluating the proof, to determine whether in fact there was or was not a lack of ordinary care in the management of the premises at the time and place in question (Cooper v Goodwin, 478 F2d 653, 656 [Bazelon, Ch. J.]). For there was ample proof from which it could be found that the defendant should reasonably have foreseen that, under the conditions which prevailed, it was only a matter of time until someone might be injured. The defendants were aware that their daughter and her friend would return to the house after nightfall and that one of the means of access was through the side door. Yet they left the lights out. It could readily be found that they should have foreseen the nature of the risk that would flow from the absence of light in the path of Loretta as she entered the house after dark, particularly in view of the location of the switch at a point where the young women Would be compelled to traverse a dark area before they could reach a position from which the door must be closed. It would also have been reasonable to find that the defendants were aware or should have been aware of Loretta’s total unfamiliarity with the premises and especially with the proximity of the cellar stairway at a point where a single misstep could bring serious injury. Nor can it be said as a matter of law that it would have been a severe or disproportionate burden for them to have removed the hazard; a relocation of the switch, a rehanging of the door, a gate across the stairwell, a mere leaving on of the lights—any one of these may have sufficed.

Nor can it be said that Loretta herself was contributorily negligent as a matter of law. Crediting her testimony, the jury well could have found that it was perfectly reasonable for her to rely on the guidance of Anna, who, having lived there for 14 years, could be presumed to know that no unusual hazards presented themselves or, if danger lurked, to know it well enough to give warning (cf. Amaro v City of New York, 40 NY2d 30, 37; Wolf v City of New York, 39 NY2d 568, 574). Furthermore, Loretta stopped as soon as she was in the vestibule. It would have been reasonable for her to expect Anna to then turn on the lights. Instead, the arrangement of the door vis-á-vis the switches compelled Anna to move alongside of her and thus precipitate the movement without which the fall might not have taken place. In the end, the question was whether Loretta’s use of the premises at the time of the accident was reasonable under all the circumstances. That was clearly a question of fact. (See, generally, James, Tort Liability of Occupier of Land: Duties Owed to Licensees and Invitees, 63 Yale LJ 606, 630.)

Finally, the consideration of whether the circumstances in this case were sufficient to make out a prima facie case is not unrelated to the issue of proximate cause as well. For what reasonable care requires of a landowner may both be determined by and be determinative of the question as to whether the activity of an injured entrant on land was an intervening cause of an accident. Foreseeability bears on both issues. Here the owner, concededly, had reason to know that the young women, including one who was a stranger to the house, would have to obtain access to it at night. Under all the circumstances here, proximate cause too was at least a question of fact (Pagan v Goldberger, 51 AD2d 508).

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

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

Order reversed, etc.

       Comparative negligence does not apply to cases accruing prior to September 1, 1975 (CPLR 1411, 1413). The case here accrued before then.


author: Jones, J.

text:
    New York Telephone Company, Respondent, v Town of North Hempstead et al., Appellants.
    Argued March 28, 1977;
    decided May 5, 1977

      Edward McCabe, Town Attorney (Adolph Koeppel and William D. Siegel of counsel), Mineola, for appellants.

      John M. Clarke, George E. Ashley, Kenneth J. Lucey and David L. Sohn, New York City, for respondent.

      W. Bernard Richland, Corporation Counsel (L. Kevin Sheridan, Alexander Gigante, Jr., and Stephen P: Kramer of counsel), for City of New York, amicus curiae.

      Edward M. Barrett and Calvin E. Rafuse, Jr., Mineola, for Long Island Lighting Company, amicus curiae.

   Jones, J.

We hold that inasmuch as the Town of North Hempstead did not have the right to attach its street lighting fixtures to utility poles owned by the New York Telephone Company without the company’s permission, the Telephone Company is entitled to an order directing their removal. While the town is not liable to the company for rent for the unauthorized use of the poles, the Telephone Company may recover for any damages it has sustained in consequence of such use.

Under the provisions of section 27 of the Transportation Corporations Law, New York Telephone Company when it was incorporated in 1896 received from the State of New York an unconditional right to erect and maintain poles for its lines upon public streets and highways, including those in the Town of North Hempstead. Pursuant thereto the Telephone Company has erected and now maintains some 3,800 telephone poles throughout the town.

Prior to 1969 the Telephone Company had entered into agreements with Long Island Lighting Company (LILCO) for the joint use by each company of utility poles of both companies, and the town was furnished street lighting by LILCO street light fixtures energized through LILCO electric wires attached to both LILCO and Telephone Company owned poles. On December 31, 1966 the town created a North Hempstead Lighting District, and on July 1, 1969 the town on behalf of that district entered into an agreement with LILCO for the attachment of street lighting fixtures to the utility poles of both LILCO and the Telephone Company. Pursuant to this agreement approximately 73 street lighting attachments were lawfully made to Telephone Company poles.

On July 15, 1969 the Lighting District wrote a letter to the Telephone Company stating that as of August 1, 1969 the town expected to start installing town owned lighting fixtures on the Telephone Company’s poles in place of the then existing LILCO owned fixtures. By that time a revised arrangement had been made between LILCO and the Telephone Company as to the use of Telephone Company poles. Acknowledging that the town accordingly no longer had the right under its agreement with LILCO to attach town fixtures to Telephone Company poles after May 31, 1969, the town requested permission from the Telephone Company to make the planned attachments beginning August 1, 1969. Over the following months negotiations were conducted looking to a mutually acceptable agreement under which the town’s lighting fixtures could be attached to Telephone Company poles. While this matter was under discussion the town and the Lighting District attached electrical fixtures to some 1,010 Telephone Company poles.

When negotiations became stalled, the Telephone Company wrote to the town on July 9, 1971 demanding that all fixtures be removed from its poles by August 15, 1971, adding that "[i]n the event any such street lighting fixtures remain on our poles after said date we will consider the town a tenant and thereby fix rental at the rate of $10 per pole, to which such fixtures are attached, per month, or fraction thereof, as long as such attachments remain”. Nonetheless, the right to enforce removal of the attachments by legal action was expressly reserved.

When the town failed to respond to the letter of July 9 and did not remove the lighting fixtures, the Telephone Company instituted the present action seeking relief of two sorts—rent in the amount of $224,750, plus interest, for use of the telephone poles from August, 1971 through August, 1973, and injunctive relief directing the town to remove all lighting fixtures from Telephone Company poles. The town’s answer set forth, in addition to the customary general denial, several affirmative defenses. While cross motions for summary judgment were pending and before their determination, on December 3, 1974 the town adopted Local Law No. 13 of 1974. That law purported expressly to accord to the town, and to every special district within the town with the consent of the town board, "the right to attach, install, and maintain municipal apparatus, without fee or charge, upon any utility pole constructed, erected, owned, leased, or maintained by a utility company within the Town right-of-way, provided that such attachment, installation, and maintenance does not unreasonably interfere with the right of the utility company or its licensees to use such utility poles for the purposes of its franchise”.

The Appellate Division affirmed an order of Supreme Court which had granted the Telephone Company’s motion for summary judgment on its claim for injunctive relief, but stayed entry of judgment thereon pending trial and determination of the Telephone Company’s claim for rent (as to which claim the court denied the town’s cross motion for summary judgment). Supreme Court directed that in the event the Telephone Company prevailed on its claim for rent, summary judgment granting injunctive relief should not be entered, but that if it did not so prevail, the judgment granting injunctive relief should be entered. The town’s appeal is now before us by permission of the Appellate Division. We reach somewhat different conclusions than did the courts below.

On our analysis the town’s motion for summary judgment dismissing the Telephone Company’s first cause of action for rent should have been granted. On the Telephone Company’s second cause of action for injunctive relief, the stay of entry of judgment attached to the relief granted below should be vacated and the town should be unconditionally ordered to remove all lighting fixtures which have been attached to Telephone Company poles since May 31, 1969. Because the Telephone Company did not appeal we are procedurally precluded from considering whether, as incidental to the injunctive relief sought, the Telephone Company should be afforded an opportunity to establish what damages, if any, were suffered by it in consequence of the unauthorized attachment by the town of its lighting fixtures to the company’s poles.

As to the alleged cause of action for rent we conclude that, as a matter of law, the town cannot be held to have entered into any agreement to pay rent. For the purpose of the town’s present motion for summary judgment we assume that, were the litigants private parties, sufficient evidence is tendered in this record to create a triable issue of fact as to whether, in the circumstances, the town’s failure to remove its lighting fixtures in response to the Telephone Company’s letter of July 9, 1971, or to assert (contrary to the position taken in its letter of July 15, 1969) that it had the right to attach the fixtures without the permission of the Telephone Company, operated to manifest an implied acceptance of the rental arrangement proposed by the Telephone Company. Such a factual issue would be irrelevant in this case however, for, even if it were to be resolved in favor of the Telephone Company, there would not have been created an obligation enforceable against the town to pay the specified or any other rental.

The Town Law requires formal approval by the town board of town contracts and the execution thereof by the town supervisor (Town Law, § 64, subd 6). As our court wrote in Seif v City of Long Beach (286 NY 382, 387 [contract for legal services rendered to the city at the instance of the Mayor]): "Where the Legislature provides that valid contracts may be made only by specified officers or boards and in specified manner, no implied contract to pay for benefits furnished by a person under an agreement which is invalid because it fails to comply with statutory restrictions and inhibitions can create an obligation or liability of the city.” (See, also, Scarborough Props. Corp. v Village of Briarcliff Manor, 278 NY 370, 375-376, 379 [village contract for purchase of sewers and water lines].) The Appellate Division, Fourth Department, has written: "The creation of an obligation against the town, by way of contract, cannot be founded upon omission of action by the town officials, but must be the result of an affirmative determination to create the obligation in the form and manner provided by statute.” (Gardner v Town of Cameron, 155 App Div 750, 759, affd 215 NY 682 [town contract for lease-purchase of steamroller; emphasis added.)

In the present instance no evidence is tendered of the performance of any of the formal prerequisites to the execution of a valid contract on the part of the town to pay rental for the right to attach lighting fixtures to the telephone poles. Consequently, the Telephone Company’s cause of action for rent should be dismissed.

We turn then to the Telephone Company’s second cause of action—for injunctive relief based on the contention that, without the permission of the Telephone Company, the town had no right to attach its lighting fixtures to the company’s poles and now has no right to continue such attachments. The town bases its claim of right on two legal theories. In the first place it contends that such right stems from the reasonable exercise by the town of its police power, even when there was no express authorizing ordinance but certainly in consequence of the enactment of Local Law No. 13 of 1974. In the alternative, it asserts a right of inverse condemnation. We reject both theories.

As to the town’s police power: The Telephone Company acknowledges that the placement and its own use of its telephone poles are subject to reasonable police power regulation. The town cites authorities upholding the right of a municipality to regulate the location of utility poles and the height above the street at which wires must be strung.

The assertion of the right of a municipality to impose restrictions on the use of property by the owner of the property, however, is entirely different in essence from a claim that the municipality may take another’s property for municipal use. In the former instance, for the general welfare the owner is deprived, to a lesser or greater extent, of use to which he might otherwise put his property. The police power justification comes from the general benefit to the municipality from the limitation imposed on the use of private property. In the latter case the objective is direct municipal use of the private property, in effect a transfer of the right to the particular use from the owner to the municipality and thus a taking. It is the latter claim which is involved in this case; what the town seeks is a pro tanto appropriation of the Telephone Company’s poles for the use of the town to mount its street lighting fixtures. We recently had occasion to consider the distinction between the exercise of the police power and an appropriation under the guise of an exercise of the police power (French Investing Co. v City of New York, 39 NY2d 587). The present case affords a clear instance of a taking of private property for the use of the municipality. The elements of an appropriation which we identified in the French case are present in this—an "actual appropriation or taking * * * by * * * governmental occupation”, a "physical invasion of the owner’s property”, and an "assumption by the [town] of the control or management of’ a portion of the owner Telephone Company’s poles (p 595). (Cf. Delaware, Lackawanna & Western R. R. v Morristown, 276 US 182.)

Two cases from other jurisdictions support the position of the Telephone Company in this case. In each the court struck down, as in excess of the municipality’s police power, an ordinance which, inter alia, purported to allow the municipality to use a portion of the utility’s poles for the support of the municipality’s apparatus. (State ex rel. Wisconsin Tel. Co. v City of Sheboygan, 111 Wis 23 [use of the top 30 inches of all poles for city police and fire alarm systems]; State ex rel. Hudson & Middlesex Tel. & Tel. Co. v Township Committee of Twp. of Linden, 80 NJ L 158 [right to place and maintain fire and police wires on utility poles].)

The two cases on which the town chiefly relies do not support the position for which it contends in this case. In Western Union Tel. Co. v Richmond (224 US 160) the Supreme Court of the United States upheld a city ordinance which, inter alia, conditioned the right of telegraph companies to the use of city streets on a reservation by the city of the right to string a limited number of wires on utility poles. It was the contention of the telegraph company that it had received the right to construct, maintain and operate its lines over the post roads of the United States (including the streets of Richmond which were admitted to be such post roads) under an 1866 act of the Congress, and that no city ordinance could impair such right. In major part the city ordinance which was upheld regulated the placement and use of poles by the telegraph company for its own use—the distinguishable aspect of municipal police power to which reference has earlier been made in this opinion. Under Virginia law, notwithstanding the Federal statute, a utility could occupy the streets of a city or town only with municipal consent. As to the reservation for use by the City of Richmond, Mr. Justice Holmes, writing for the court, said, "When the [telegraph company] without the right to exercise the power of eminent domain desires to occupy land belonging to others, prima facie it must submit to their terms. We assume, as we have said, that the city has some interest in the streets that is affected by the presence or by the establishment of conduits or poles. If it demands, as a condition of its assent, as it does in § 6, that positions shall be reserved upon the poles for the city * * * it is within its rights.” (224 US, at p 170.) This case then stands for the proposition that when a municipality grants utilities a franchise or right to erect and maintain utility poles on the public streets it may reserve a right to limited use of such poles for municipal purposes. On two grounds that holding is not pertinent to the case now before us—first, there was no such express reservation in the original grant to the Telephone Company of the right to erect and maintain poles in the public streets and highways of the Town of North Hemp-stead, and second, the grant of such right came from the State of New York and not from the Town of North Hempstead (Transportation Corporations Law, § 27). The assent of the town was in no wise required to authorize the Telephone Company to erect its poles, and thus there was no grant from the town to which a reservation in its favor could have been attached.

In Postal Tel. Cable Co. v City of Chicopee (207 Mass 341), the utility, incident to its activities in interstate commerce, had been granted the right by the Congress to construct and maintain lines along public highways which were post roads. By provision of the Federal statute this congressional franchise was expressly made subject to the right of cities and towns, by ordinance or by law, to make any reasonable local regulations in regard to the exercise of the franchise. The only issue before the Massachusetts court, resolved in favor of the City of Chicopee, was whether the municipal ordinance in which, inter alia, there was a reservation of a right to the city without charge to place its fire alarm, telegraph or other electrical wires on the poles, was "reasonable” within the meaning of the Federal statute. Again the issue was not the same as in our case.

Our conclusion that the Town of North Hempstead may not, under the guise of an exercise of its police power, appropriate the Telephone Company’s poles for the attachment of the town’s street lighting fixtures, extends as well, of course, to Local Law No. 13 of 1974. What is not permitted the municipality is denied whether the town’s claim be asserted with or without the formality of an express ordinance. The obstacle is the absence of municipal power, not some alleged deficiency in the manner of its purported exercise.

As to the town’s right to inverse” condemnation: Even if it were to be thought that a taking municipality could invoke the doctrine of inverse condemnation to justify an intentional appropriation of private property (itself a doubtful proposition), such a rule would be unavailing to the Town of North Hempstead in this instance. The town’s and the Lighting District’s right of condemnation extends only to interests in real property (Town Law, § 215, subd 5; cf. id., § 64, subd 2). The statutory scheme contemplates that acquisition of personal property will be accomplished by purchase or contract.

The town’s argument on this branch of the case is not that it has a right of eminent domain over personal property; its contention is that the right to attach street lighting fixtures to utility poles is an interest in real property which is subject to the power of eminent domain. We disagree.

The town concedes, as it must, that the utility poles themselves are personal property. The town seeks the right to affix further articles of personal property to these poles—in effect to acquire an interest in the poles. The town does not seek to share in the Telephone Company’s right to erect poles; its interest ripens only after the poles have been erected.

Beyond that, the Telephone Company’s right to erect the poles under section 27 of the Transportation Corporations Law has been held to be a license or privilege, not the grant of an interest in or appurtenant to real property (New York Tel. Co. v City of Binghamton, 18 NY2d 152, 162, supplanting statements in earlier cases; cf. Matter of Consolidated Edison Co. v Lindsay, 24 NY2d 309, 318). Every right which may in some way affect real property does not thereby rise to the dignity of an "interest in real property”. That a special franchise may be taxed as if it were an interest in real estate does not alter the reality.

Thus, we conclude that the Town of North Hempstead had and has no right, either under the guise of an exercise of its police power or by way of inverse condemnation, to attach its lighting fixtures to the Telephone Company’s poles. The company prayed for and we hold that it is entitled to an injunction requiring the town to remove all street lighting fixtures and apparatus installed on the poles of the Telephone Company after May 31, 1969. Fixtures installed prior to that date appear to have been attached at a time when LILCO could grant the town such right and the Telephone Company concedes that the pre-May, 1969 installations were lawfully made.

Having determined the rights and remedies of the parties to this litigation we cannot conclude this opinion without recognizing that it would make great economic and practical sense for the town and the Lighting District to attach their street lighting fixtures to the Telephone Company’s poles, rather than to erect new standards, if that can be accomplished without interference with the rights of the Telephone Company and its licensees to use of the existing poles. It is our conclusion that the town does not now have the right to impose any such arrangement on the Telephone Company even if the town were to pay what might be determined to be just compensation therefor. If the parties cannot reach an amicable agreement, recourse may have to be had to relief which may be available at the hands of the State Legislature.

For the reasons stated, the order of the Appellate Division should be modified, with costs, and the case remitted to Supreme Court, Nassau County, for further proceedings in conformity with this opinion.

Chief Judge Breitel and Judges Jasen, Gabrielli, Fuchs-berg and Cooke concur; Judge Wachtler taking no part.

Order modified, with costs, and the case remitted to Supreme Court, Nassau County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed. Question certified answered in the negative.


text:
    In the Matter of Nassau Insurance Company, Appellant, v Denise McMorris, Respondent.
    Argued April 1, 1977;
    decided May 10, 1977

      Morris Hass, Jamaica, for appellant.

      Gerald J. Silver, The Bronx, for respondent.
   Jones, J.

We hold that under the present standard provisions of no-fault insurance assuring a claimant "the option of submitting any dispute involving the insurer’s liability to pay first party benefits” (Insurance Law, § 675, subd 2) to binding arbitration, the question as to whether the policy in question had been canceled prior to the accident is for the arbitrator and not for the courts.

In this case appellant insurer had issued a policy of insurance on the taxicab in which claimant was riding as a passenger at the time of the accident. The accident occurred on December 13, 1974. It is the insurer’s position that the policy had been canceled effective the preceding November 23 and accordingly that there was no coverage when the accident occurred. Claimant demanded arbitration of her claim for damages for personal injuries and the insurer made a timely application for a stay of arbitration. The insurer characterizes the cancellation issue as a question whether there was a valid agreement to arbitrate, thus a threshold question to be resolved by judicial determination (CPLR 7503, subd [b]). We agree with the courts below that arbitration should not be stayed.

If the contention were that a policy of insurance covering the claim had never been issued, a question might be tendered as to whether there was a valid agreement to arbitrate. In the present instance, however, it is not disputed that a policy was initially issued carrying with it the obligation to arbitrate any dispute involving the insurer’s liability to pay first-party benefits. The controversy between the parties is whether that contract had been terminated at the time of the accident.

While the provisions of section 675 of the Insurance Law and the terms of the standard no-fault policy cannot be likened precisely in form to what has come to be known as a "broad arbitration clause”, there can be no doubt that the sweep of the statute and policy provision is at least as encompassing as a broad arbitration clause; indeed it can be argued that the Legislature intended to impose an even more sweeping obligation to arbitrate under no-fault insurance than that under a broad arbitration clause. Under traditional law, where there is a broad arbitration clause, questions as to whether the agreement has been- terminated (as distinguished from those as to whether an agreement had ever been made) have customarily been held to be for the arbitrator. Thus, we have recently held that the issue as to whether the contract containing the arbitration clause has been abandoned was for the arbitrator and not the court (Matter of Macy & Co. [National Sleep Prods.], 39 NY2d 268, 270-271). Similarly, whether the agreement containing the arbitration clause had been superseded by a later agreement between the parties was for the arbitrator (Matter of Riccardi [Modern Silver Linen Supply Co.] 36 NY2d 945, 947). In Matter of Lipman (Haeuser. Shellac Co.) (289 NY 76, 79-80) it was held that whether the contract with the arbitration clause had been canceled should be determined by the arbitrator. "Upon this appeal appellant stresses that the issue of the cancellation of the contract is one which must be determined by the court before it may compel arbitration. A different question would be here if the issue was whether the contract never came into existence * * * But since appellant in the case at bar admits the making of the contract of September 18, 1940, and its failure to proceed to arbitration in accordance with that portion of the contract which provides therefor, sufficient has been shown to make applicable that part of section 1450 of the Civil Practice Act [which authorizes the court to make an order directing the parties to proceed to arbitration].”

In our analysis, once the policy which carries with it the obligation to arbitrate any dispute as to the insurer’s liability has been issued, all questions as to the continuation and scope of coverage are to be resolved in arbitration if the claimant so elects.

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

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

Order affirmed.