author: Gabrielli, J.

text:
    The People of the State of New York, Respondent, v Baxter W. Floyd, Appellant.
    Argued November 18, 1976;
    decided December 28, 1976

      George Donald Covington, New York City, for appellant.

      Eugene Gold, District Attorney (Alan D. Rubinstein of counsel), Brooklyn, for respondent.
   Gabrielli, J.

Defendant claims, on his appeal to this court, that the wire interception of his telephone was not conducted in accordance with the minimization requirement of CPL 700.30 (subd 7) and, therefore, the approximately 40 intercepted communications admitted at trial concerning defendant’s involvement in the distribution of narcotics should have been suppressed (see CPL 710.20, subd 2). As a corollary question, it is also argued that the failure of the Judge presiding at the minimization hearing to require the prosecution to provide a transcript of the tapes of all intercepted communications to the court and defense counsel constituted reversible error.

Following the issuance of an eavesdropping warrant, based upon the affidavit of Sgt. James HcNicholas, the supervisor of the investigation into defendant’s narcotics activities, a wiretap was placed on defendant’s telephone. On this appeal, the defendant does not challenge the validity of the eavesdropping warrant or the sufficiency of the affidavit upon which the issuance of the warrant was based. The warrant along with three subsequent extensions (see CPL 700.40) authorized surveillance for a period of 120 days but surveillance was terminated after 107 days.

On defendant’s motion to suppress eavesdropping evidence (see CPL 710.20, subd 2), a hearing was held to determine whether the police officers involved in the electronic surveillance had complied with the minimization directive contained in the eavesdropping warrant as mandated by CPL 700.30 (subd 7). Sgt. McNicholas, the supervising officer, testified that while surveillance had been authorized for 2,880 hours, the eavesdropping was actually conducted for only 1,210 hours. He also testified that he received instructions from two Assistant District Attorneys that only communications of the defendant, Baxter Floyd, were to be intercepted and not those of any other person using the telephone, such as one Patricia Mitchell who was believed to reside at the address at which the subject telephone was located. He was also instructed to intercept only those communications involving the defendant which were pertinent to the crimes under investigation and that privileged communications, such as calls between the defendant and his attorney, priest or doctor were not to be intercepted. These instructions were relayed by the supervising officer to the police officers manning the eavesdropping apparatus. The general aim of the investigation was to determine the extent of the defendant’s role in the distribution and sale of narcotics and any narcotics-related crimes, the participation of any other persons such as dealers and buyers in such activity and the involvement of any government agencies. The procedures utilized during the period of surveillance were described in considerable detail. For most calls, the monitoring officers would intercept the calls for a brief 30- to 40-second interval in order to determine the pertinency of the call to the investigation. If the call was deemed nonpertinent because the defendant was not a party or because the call was innocent in nature, monitoring would cease and the recording device was turned off. If the duration of the call exceeded two to three minutes, the officers would once again monitor the call for a 30- to 40-second period to ascertain whether the parties to the conversation had changed and to redetermine the pertinency of the call. There was never any indiscriminate, automatic overhearing or recording of conversations and police officers were always present operating the monitoring and recording devices. Several calls not involving the defendant were recorded in their entirety but these were of very short duration. The supervising officer also testified that at the inception of the investigation, for the first two or three weeks, when it was necessary to determine a pattern of usage, there was a greater degree of monitoring. Defendant presented no evidence at the minimization hearing but moved that the District Attorney be required to submit to the court and to the defendant transcripts of every conversation intercepted; this motion was denied, on the ground that the tapes of the intercepted conversations themselves had been made available to the defendant for inspection and transcription. The court then denied appellant’s motion to suppress the wiretap evidence, having concluded that the statutory directive to minimize interception of nonpertinent calls had been satisfied. The court specifically held that there was a good faith effort to minimize interception, and that the procedures established by the investigating authorities resulted in a minimization of interception of nonpertinent calls. The defendant proceeded to trial at which approximately 40 tape recordings evidencing defendant’s involvement in narcotics trade were admitted into evidence and he was convicted of the crimes of criminal possession and sale of dangerous drugs in the first, second and third degrees. He does not now challenge the sufficiency of the evidence supporting those convictions which were affirmed by an unanimous Appellate Division.

CPL 700.30 (subd 7) mandates that an eavesdropping warrant contain a "provision that the authorization to intercept * * * shall be conducted in such a way as to minimize the interception of communcations not otherwise subject to eavesdropping under this article”. An "intercepted communication” is defined in CPL 700.05 (subd 3) as "a telephonic * * * communication which was intentionally overheard or recorded by a person other than the sender or receiver thereof, without the consent of the sender or receiver, by means of any instrument, device or equipment”. (Emphasis added.)

This case does not involve a claim that the eavesdropping warrant failed to include the talismanic language of CPL 700.30 that the interception of nonpertinent calls be minimized (see, e.g., United States v Manfredi, 488 F2d 588; People v Sturgis, 76 Misc 2d 1053; People v Kennedy, 75 Misc 2d 10; People v Holder, 69 Misc 2d 863). Rather, the issue presented on this appeal is whether minimization was actually achieved and whether the surveillance procedures utilized by the monitoring police officers were adequate to insure that the smallest practicable number of calls not pertinent to the criminal enterprise under investigation were intercepted. Since previously we have had occasion to comment only briefly on this requirement (see People v Di Stefano, 38 NY2d 640, 651-652), this case affords an opportunity to discuss in depth the scope of the minimization directive.

The minimization requirement is founded upon the deep-rooted concern expressed by the Supreme Court in Berger v New York (388 US 41, 57) that, in investigations utilizing eavesdropping techniques, "no greater invasion of privacy * * * than was necessary under the circumstances” should be permitted (see, also, United States v Focarile, 340 F Supp 1033, affd sub nom. United States v Giordano, 469 F2d 522, affd 416 US 505). The requirement also has its underpinnings in the Fourth Amendment interdiction of unreasonable search and seizures and its mandate that search warrants contain provisions "particularly describing the place to be searched, and the persons or things to be seized.” The court in Berger sought to prevent the expansion of eavesdropping warrants into full blown "general” warrants prohibited by the Fourth Amendment. The minimization requirement is designed to insure that the communications intercepted conform, as nearly as possible, to those subject to interception by the terms of the eavesdropping warrant (see Note, Post-Authorization Problems in Use of Wiretaps, 61 Cornell L Rev 92, 94-99).

Minimization does not necessarily require that all nonpertinent communications be free from interception in their entirety, for such a standard would be unrealistic and virtually impossible to satisfy (see United States v Bynum, 485 F2d 490, 500, vacated on other grounds 417 US 903). This is especially true in narcotics conspiracies where crime-related conversations may be prefaced by innocent "chatter” and, thus, in such cases, some minor degree of intrusion must take place before a determination of pertinency can be made (United States v Turner, 528 F2d 143, 156; United States v Armocida, 515 F2d 29, 42; United States v Bynum, supra; United States v Falcone, 364 F Supp 877, affd 505 F2d 478, cert den 420 US 955). Courts examining interceptions in retrospect cannot fairly expect government agents to be possessed of clairvoyant powers in foreseeing in advance the relevance of particular communications to the crimes under investigation (United States v Bynum, supra, p 502; United States v LaGorga, 336 F Supp 190, 196).

Minimization may be defined as a good faith and reasonable effort to keep the number of nonpertinent calls intercepted to the smallest practicable number (United States v Turner, supra; United States v Scott, 516 F2d 751, 757; United States v Quintana, 508 F2d 867, 875; United States v James, 494 F2d 1007, 1018, cert den sub nom. Tantillo v United States, 419 US 1020). The determination whether minimization has been achieved must be made on a case-by-case basis with regard to the scope and circumstances of the particular investigation under review (see United States v Turner, supra, p 156; United States v Cox, 462 F2d 1293, 1296; cf. Senate Rep No. 1097, 1968 US Code Congressional & Administrative News, p 2190). The government agents conducting the surveillance must have shown a "high regard for the right of privacy and have done all they reasonably could to avoid unnecessary intrusion” (United States v Tortorello, 480 F2d 764, 784). The burden lies with the People "of going forward to show the legality of the police conduct in the first instance” (People v Di Stef ano, 38 NY2d 640, 652, supra). This burden may be satisfied by demonstrating that procedures were established to minimize interception of nonpertinent communications and that a conscientious effort was made to follow such procedures (United States v Armocida, supra; United States v Quintana, supra; United States v Rizzo, 491 F2d 215, 218).

We hold that in the instant case the People have met their burden and the defendant has failed to rebut the prima facie showing that minimization procedures were established and complied with. Initially, we note that there was no constant, indiscriminate overhearing or recording of all conversations emanating from the subject telephone (compare People v Sturgis, 76 Misc 2d 1053, supra; People v Castania, 73 Misc 2d 166; People v Holder, 69 Misc 2d 863, supra). Furthermore the monitoring officers were given specific instructions to intercept only calls involving the defendant and only those calls which were pertinent to the investigation and not privileged (see United States v Turner, supra, p 157). The procedures followed by the officers demonstrate compliance with these instructions. If a call was made by an individual other than the defendant the officers monitored the conversation for a brief interval lasting only 30 to 40 seconds to assure that the defendant did not become involved and, if the call was prolonged, they would once again ascertain whether the original parties were "on the line” by monitoring the conversation for the same brief interval. It appears that the same procedure was followed for seemingly innocent calls involving the defendant. This procedure, known as the intrinsic method of minimization, was adequately tailored to protect the expectation of privacy of other persons using the subject telephone as well as the defendant (see United States v Scott, 516 F2d 751, 755, supra; United States v James, 494 F2d 1007, 1020, supra; United States v Bynum, 485 F2d 490, 500, supra; Commonwealth v Vitello, 327 NE2d 819, 844 [Mass]; see, also, Note, 61 Cornell L Rev 92, 121-122).

We note that the initial monitoring at the outset of the investigation of a greater number of calls was permissible to ascertain the pattern of usage for the telephone. As indicated, it has been recognized that in cases involving the sale and distribution of narcotics, subjects of the investigation are often sophisticated in the use of innocent language disguised as code and in other means of deception; furthermore, in the early stages of a wiretap, it may be necessary to establish the precise extent of the conspiracy and the identity of the participants and, thus, a greater degree of intrusion may be tolerated (see United States v Chavez, supra, p 494; United States v Quintana, supra, p 875; United States v Turner, supra, p 157).

In light of these procedures, some general guidelines with respect to minimization may be articulated. First, when the government is aware that only a single individual is, or a known group of individuals are, involved in a possible crime, then only communications involving those individuals should be monitored. Where the investigation, however, is directed toward discovery of the participants of what appears to be a broad conspiracy, then the surveillance may be larger in scope in order to accomplish this objective, although steps should be taken to assure, to the extent possible, minimization of "innocent” conversations. Conversations of persons who are not targets of the investigation may be monitored for brief intervals to assure that their use of the phone is not a ruse to mask a suspect’s use of the phone or to convey information regarding the crimes being investigated (see, e.g., United States v Bynum, supra, where an unwitting babysitter was used to convey to participants information relating to a large scale narcotics conspiracy).

Calls between individuals who are both known targets of the surveillance are almost always subject to interception. As previously noted, in narcotics conspiracies innocent conversation may be interlaced with dialogue of a criminal nature or may perhaps itself be disguised to conceal discussion of criminal activity (see, e.g., United States v Bynum, 360 F Supp 400, 413-416; United States v King, 335 F Supp 523, 541). Where a conversation occurs between a known suspect and an individual who is not involved in the conspiracy, or whose possible involvement is unknown, great care must be taken to avoid interception of innocent conversation but monitoring officers should be permitted to make an on-the-spot determination of pertinency through a brief period of interception (see Note, 61 Cornell L Rev 92, 109).

Statistical evidence should be viewed with caution and while it is not in itself determinative of the minimization issue, it is relevant in evaluating the degree of compliance with procedures established to restrict the interception of nonpertinent calls (see United States v Armocida, 515 F2d 29, 42, supra; United States v Bynum, 360 F Supp 400, 410, 415, supra; United States v Focarile, 340 F Supp 1033, supra). Although it is not incumbent upon them to do so (see People v Di Stefano, 38 NY2d 640, 652, supra), the People here presented statistical evidence to support their position that minimization was achieved. The record shows clearly that, eliminating incomplete calls and recorded messages from consideration, approximately 85% of the telephone conversations initially monitored were minimized and approximately 6.5% of nonpertinent conversations were not minimized. Of the 70 nonpertinent calls, approximately 18 are claimed to be of short duration. The recordation of calls of short duration (less than two to three minutes) should be disregarded because of the difficulty of making a determination of pertinency in such a short period of time; indeed, one court has stated that brief calls do not lend themselves to minimization (United States v Bynum, 360 F Supp 400, 415, supra; accord United States v Scott, 516 F2d 751, 757, supra; United States v Armocida, supra, p 45). In sum, the small percentage of nonpertinent calls which were not minimized supports the People’s position that there was a reasonable and conscientious effort to comply with the procedures established to achieve minimization.

The defendant claims, not unpersuasively, that the Judge issuing the eavesdropping warrant should have required progress reports to be made to him during the 120-day interval over which surveillance was authorized. CPL 700.50 (subd 1) does not make progress reports mandatory but requires that "[s]uch reports shall be made at such intervals as the [issuing] justice may require.” Despite the precatory language of the statute, we think that the better practice is to require such reports to be made, especially where the surveillance extends over a rather long period of time as in the instant case. The preferred use of progress reports assures close judicial supervision of the execution of eavesdropping warrants and such supervision is strongly supportive of the claim that the minimization requirement has been satisfied (see United States v Armocida, supra, p 44; United States v Quintana, 508 F2d 867, 875, supra; United States v James, 494 F2d 1007, 1020, supra; United States v Bynum, 485 F2d 490, 500, supra). We therefore express our strong preference for judicial supervision of eavesdropping warrants by means of the statutorily authorized progress reports. Turning to the circumstances of the instant case, however, in light of the strong evidentiary showing that a reasonable and successful effort to minimize was made, we cannot conclude that the failure to require periodic progress reports should result in the suppression of the eavesdropping evidence.

A subsidiary claim advanced by defendant is that the hearing court erred in not directing the People to provide a transcript of the tapes of intercepted conversations to the court and defense counsel. This claim is without merit. The tapes were made available to the defendant for transcription, and the hearing court had before it the tapes themselves as well as the daily logs kept by the monitoring officers describing the content of the conversations intercepted. We do not think that the People should bear the burden of providing a transcript of all interceptions to the defendant.

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

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

Order affirmed.

      . A prior motion to suppress the wiretap evidence based on alleged infirmities in the eavesdropping warrant and the underlying affidavit was denied and the defendant does not dispute that determination on this appeal. The hearing court on that motion concluded that other normal investigative procedures reasonably appeared to be unlikely to succeed or too dangerous and that visual surveillance of the defendant’s narcotics activities had proved fruitless (see CPL 700.20, subd 2, par [d]).

      . This provision is virtually identical to its Federal counterpart contained in subdivision (5) of section 2518 of the Omnibus Crime Control and Safe Streets Act of 1968 (US Code, tit 18, §§ 2510-2520).

      . Thus, CPL 700.30 (subd 4) requires that an eavesdropping warrant contain, inter alia, "[a] particular description of the type of communications sought to be intercepted”.

      . We do not, however, intimate that, where there has been interception of all or virtually all conversations, a per se violation of the minimization requirement has been made out. We agree with the reasoning of the Federal cases that when a large scale, far-flung conspiracy is in progress and the Government is seeking to discover the scope of the conspiracy and the identity of those involved, the interception of all communications may be justified (see, e.g., United States v Chavez, 533 F2d 491; United States v Scott, supra; United States v Quintana, supra; United States v Bynum, supra; United States v Manfredi, supra; United States v Cox, supra). This accords with our view that compliance with the dictate of minimization must be adjudged on a case-by-case basis with due consideration to the nature and extent of the criminal enterprise under surveillance.

      . This claim is based on entries from wire-bound notebooks maintained by the monitoring officers which describe generally the nature of intercepted conversations. The calls of short duration appear to be those to individuals who were not at home.


source: Caselaw Access Project

license: Public Domain

text:
    United Bank Limited et al., Respondents, v Cambridge Sporting Goods Corp., Appellant.
    Argued October 21, 1976;
    decided December 28, 1976

      Herbert Rubin and Bernard J. Wald, New York City, for appellant.

      John J. Hayes, New York City, for respondents.
   Gabrielli, J.

On this appeal, we must decide whether fraud on the part of a seller-beneficiary of an irrevocable letter of credit may be successfully asserted as a defense against holders of drafts drawn by the seller pursuant to the credit. If we conclude that this defense may be interposed by the buyer who procured the letter of credit, we must also determine whether the courts below improperly imposed upon appellant buyer the burden of proving that respondent banks to whom the drafts were made payable by the seller-beneficiary of the letter of credit, were not holders in due course. The issues presented raise important questions concerning the application of the law of letters of credit and the rules governing proof of holder in due course status set forth in article 3 of the Uniform Commercial Code. In addition, we are called upon to determine whether it was proper for the trial court to permit respondents to introduce as direct evidence their responses to interrogatories served by appellant, as part of respondents’ case-in-chief.

In April, 1971 appellant Cambridge Sporting Goods Corporation (Cambridge) entered into a contract for the manufacture and sale of boxing gloves with Duke Sports (Duke), a Pakistani corporation. Duke committed itself to the manufacture of 27,936 pairs of boxing gloves at a sale price of $42,576.80; and arranged with its Pakistani bankers, United Bank Limited (United) and The Muslim Commercial Bank (Muslim), for the financing of the sale. Cambridge was requested by these banks to cover payment of the purchase price by opening an irrevocable letter of credit with its bank in New York, Manufacturers Hanover Trust Company (Manufacturers). Manufacturers issued an irrevocable letter of credit obligating it, upon the receipt of certain documents indicating shipment of the merchandise pursuant to the contract, to accept and pay, 90 days after acceptance, drafts drawn upon Manufacturers for the purchase price of the gloves.

Following confirmation of the opening of the letter of credit, Duke informed Cambridge that it would be impossible to manufacture and deliver the merchandise within the time period required by the contract, and sought an extension of time for performance until September 15, 1971 and a continuation of the letter of credit, which was due to expire on August 11. Cambridge replied on June 18 that it would not agree to a postponement of the manufacture and delivery of the gloves because of its resale commitments and, hence, it promptly advised Duke that the contract was canceled and the letter of credit should be returned. Cambridge simultaneously notified United of the contract cancellation.

Despite the cancellation of the contract, Cambridge was informed on July 17, 1971 that documents had been received at Manufacturers from United purporting to evidence a shipment of the boxing gloves under the terms of the canceled contract. The documents were accompanied by a draft, dated July 16, 1971, drawn by Duke upon Manufacturers and made payable to United, for the amount of $21,288.40, one half of the contract price of the boxing gloves. A second set of documents was received by Manufacturers from Muslim, also accompanied by a draft, dated August 20, and drawn upon Manufacturers by Duke for the remaining amount of the contract price.

An inspection of the shipments upon their arrival revealed that Duke had shipped old, unpadded, ripped and mildewed gloves rather than the new gloves to be manufactured as agreed upon. Cambridge then commenced an action against Duke in Supreme Court, New York County, joining Manufacturers as a party, and obtained a preliminary injunction prohibiting the latter from paying drafts drawn under the letter of credit; subsequently, in November, 1971 Cambridge levied on the funds subject to the letter of credit and the draft, which were delivered by Manufacturers to the Sheriff in compliance therewith. Duke ultimately defaulted in the action and judgment against it was entered in the amount of the drafts, in March, 1972.

The present proceeding was instituted by the Pakistani banks to vacate the levy made by Cambridge and to obtain payment of the drafts on the letter of credit. The banks asserted that they were holders in due course of the drafts which had been made payable to them by Duke and, thus, were entitled to the proceeds thereof irrespective of any defenses which Cambridge had established against their transferor, Duke, in the prior action which had terminated in a default judgment. The banks’ motion for summary judgment on this claim was denied and the request by Cambridge for a jury trail was granted. Cambridge sought to depose the petitioning banks, but its request was denied and, as an alternative, written interrogatories were served on the Pakistani banks to learn the circumstances surrounding the transfer of the drafts to them. At trial, the banks introduced no evidence other than answers to several of the written interrogatories which were received over objection by Cambridge to the effect that the answers were conclusory, self-serving and otherwise inadmissible. Cambridge presented evidence of its dealings with Duke including the cancellation of the contract and uncontested proof of the subsequent shipment of essentially worthless merchandise.

The trial court concluded that the burden of proving that the banks were not holders in due course lay with Cambridge, and directed a verdict in favor of the banks on the ground that Cambridge had not met that burden; the court stated that Cambridge failed to demonstrate that the banks themselves had participated in the seller’s acts of fraud, proof of which was concededly present in the record. The Appellate Division affirmed, agreeing that while there was proof tending to establish the defenses against the seller, Cambridge had not shown that the seller’s acts were "connected to the petitioners [banks] in any manner.” The Appellate Division also held that CPLR 3117 "seemingly” authorized the introduction of the challenged interrogatories into evidence.

We reverse and hold that it was improper to direct a verdict in favor of the petitioning Pakistani banks. We conclude that the defense of fraud in the transaction was established and in that circumstance the burden shifted to petitioners to prove that they were holders in due course and took the drafts for value, in good faith and without notice of any fraud on the part of Duke (Uniform Commercial Code, § 3-302). Additionally, we think it was improper for the trial court to permit petitioners to introduce into evidence answers to Cambridge’s interrogatories to demonstrate their holder in due course status.

This case does not come before us in the typical posture of a lawsuit between the bank issuing the letter of credit and presenters of draffs drawn under the credit seeking payment (see, generally, White and Summers, Uniform Commercial Code, § 18-6, pp 619-628). Because Cambridge obtained an injunction against payment of the drafts and has levied against the proceeds of the drafts, it stands in the same position as the issuer, and, thus, the law of letters of credit governs the liability of Cambridge to the Pakistani banks. Article 5 of the Uniform Commercial Code, dealing with letters of credit, and the Uniform Customs and Practice for Documentary Credits promulgated by the International Chamber of Commerce set forth the duties and obligations of the issuer of a letter of credit. A letter of credit is a commitment on the part of the issuing bank that it will pay a draft presented to it under the terms of the credit, and if it is a documentary draft, upon presentation of the required documents of title (see Uniform Commercial Code, § 5-103). Banks issuing letters of credit deal in documents and not in goods and are not responsible for any breach of warranty or nonconformity of the goods involved in the underlying sales contract (see Uniform Commercial Code, § 5-114, subd [1]; Uniform Customs and Practice, General Provisions and Definitions [c] and article 9; O’Meara Co. v National Park Bank of N. Y., 239 NY 386; Laudisi v American Exch. Nat. Bank, 239 NY 234; Rosenfeld v Banco Internacional, 27 AD2d 826; Imbrie v Nagase & Co., 196 App Div 380; Frey & Son v Sherburne Co., 193 App Div 849, 853; American Steel Co. v Irving Nat. Bank, 266 F 41; 1955 Report of NY Law Rev Comm, vol 3, Study of Uniform Commercial Code, pp 1654-1655). Subdivision (2) of section 5-114, however, indicates certain limited circumstances in which an issuer may properly refuse to honor a draft drawn under a letter of credit or a customer may enjoin an issuer from honoring such a draft. Thus, where "fraud in the transaction” has been shown and the holder has not taken the draft in circumstances that would make it a holder in due course, the customer may apply to enjoin the issuer from paying drafts drawn under the letter of credit (see 1955 Report of NY Law Rev Comm, vol 3, pp 1654-1659). This rule represents a codification of precode case law most eminently articulated in the landmark case of Sztejn v Schroder Banking Corp. (177 Misc 719, Shientag, J.) where it was held that the shipment of cowhair in place of bristles amounted to more than mere breach of warranty but fraud sufficient to constitute grounds for enjoining payment of drafts to one not a holder in due course (see, also, Bank of Montreal v Recknagel, 109 NY 482; Dulien Steel Prods, v Bankers Trust Co., 298 F2d 836, 841; Old Colony Trust Co. v Lawyers Tit. & Trust Co., 297 F 152, 158; Finkelstein, Legal Aspects of Commercial Letters of Credit, pp 246-248). Even prior to the Sztejn case, forged or fraudulently procured documents were proper grounds for avoidance of payment of drafts drawn under a letter of credit (Finkelstein, Legal Aspects of Commercial Letters of Credit, pp 231-236-247); and cases decided after the enactment of the code have cited Sztejn with approval (see Banco Tornquist, S. A. v American Bank & Trust Co., 71 Misc 2d 874, supra; Banco Espanol de Credito v State St. Bank & Trust Co., 409 F2d 711, 712-713; Dynamics Corp. of Amer. v Citizens & Southern Nat. Bank, 356 F Supp 991, 996-998; Intraworld Ind. v Girard Trust Bank, 336 A2d 316, 324-327, supra).

The history of the dispute between the various parties involved in this case reveals that Cambridge had in a prior, separate proceeding successfully enjoined Manufacturers from paying the drafts and has attached the proceeds of the drafts. It should be noted that the question of the availability and the propriety of this relief is not before us on this appeal. The petitioning banks do not dispute the validity of the prior injunction nor do they dispute the delivery of worthless merchandise. Rather, on this appeal they contend that as holders in due course they are entitled to the proceeds of the drafts irrespective of any fraud on the part of Duke (see Uniform Commercial Code, § 5-114, subd [2], par [b]). Although precisely speaking there was no specific finding of fraud in the transaction by either of the courts below, their determinations were based on that assumption. The evidentiary facts are not disputed and we hold upon the facts as established, that the shipment of old, unpadded, ripped and mildewed gloves rather than the new boxing gloves as ordered by Cambridge, constituted fraud in the transaction within the meaning of subdivision (2) of section 5-114. It should be noted that the drafters of section 5-114, in their attempt to codify the Sztejn case and in utilizing the term "fraud in the transaction”, have eschewed a dogmatic approach and adopted a flexible standard to be applied as the circumstances of a particular situation mandate. It can be difficult to draw a precise line between cases involving breach of warranty (or a difference of opinion as to the quality of goods) and outright fraudulent practice on the part of the seller. To the extent, however, that Cambridge established that Duke was guilty of fraud in shipping, not merely nonconforming merchandise, but worthless fragments of boxing gloves, this case is similar to Sztejn.

If the petitioning banks are holders in due course they are entitled to recover the proceeds of the drafts but if such status cannot be demonstrated their petition must fail. The parties are in agreement that section 3-307 of the code governs the pleading and proof of holder in due course status and that section provides:

"(1) Unless specifically denied in the pleadings each signature on an instrument is admitted. When the effectiveness of a signature is put in issue

"(a) the burden of establishing it is on the party claiming under the signature; but

"(b) the signature is presumed to be genuine or authorized except where the action is to enforce the obligation of a purported signer who has died or become incompetent before proof is required.

"(2) When signatures are admitted or established, production of the instrument entitles a holder to recover on it unless the defendant establishes a defense.

"(3) After it is shown that a defense exists a person claiming the rights of a holder in due course has the burden of establishing that he or some person under whom he claims is in all respects a holder in due course.”

Even though section 3-307 is contained in article 3 of the code dealing with negotiable instruments rather than letters of credit, we agree that its provisions should control in the instant case. Section 5-114 (subd [2], par [a]) utilizes the holder in due course criteria of section 3-302 of the code to determine whether a presenter may recover on drafts despite fraud in the sale of goods transaction. It is logical, therefore, to apply the pleading and practice rules of section 3-307 in the situation where a presenter of drafts under a letter of credit claims to be a holder in due course. In the context of section 5-114 and the law of letters of credit, however, the "defense” referred to in section 3-307 should be deemed to include only those defenses available under subdivision (2) of section 5-114, i.e., noncompliance of required documents, forged or fraudulent documents or fraud in the transaction. In the context of a letter of credit transaction and, specifically subdivision (2) of section 5-114, it is these defenses which operate to shift the burden of proof of holder in due course status upon one asserting such status (Banco Espanol de Crédito v State St. Bank & Trust Co., 409 F2d 711, supra). Thus, a presenter of drafts drawn under a letter of credit must prove that it took the drafts for value, in good faith and without notice of the underlying fraud in the transaction (Uniform Commercial Code, § 3-302).

Turning to the rules of section 3-307 as they apply to this case, Cambridge failed to deny the effectiveness of the signatures on the draft in its answer and, thus, these are deemed admitted and their effectiveness is not an issue in the case. However, this does not entitle the banks as holders to payment of the drafts since Cambridge has established "fraud in the transaction”. The courts below erroneously concluded that Cambridge was required to show that the banks had participated in or were themselves guilty of the seller’s fraud in order to establish a defense to payment. But, it was not necessary that Cambridge prove that United and Muslim actually participated in the fraud, since merely notice of the fraud would have deprived the Pakistani banks of holder in due course status.

In order to qualify as a holder in due course, a holder must have taken the instrument "without notice * * * of any defense against * * * it on the part of any person” (Uniform Commercial Code, § 3-302, subd [1], par [c]). Pursuant to subdivision (2) of section 5-114 fraud in the transaction is a valid defense to payment of drafts drawn under a letter of credit. Since the defense of fraud in the transaction was shown, the burden shifted to the banks by operation of subdivision (3) of section 3-307 to prove that they were holders in due course and took the drafts without notice of Duke’s alleged fraud. As indicated in the Official Comment to that subdivision, when it is shown that a defense exists, one seeking to cut off the defense by claiming the rights of a holder in due course "has the full burden of proof by a preponderance of the total evidence” on this issue. This burden must be sustained by "affirmative proof’ of the requisites of holder in due course status (see Official Comment, McKinney’s Cons Laws of NY, Book 62 Vi, Uniform Commercial Code, § 3-307, p 212). It was error for the trial court to direct a verdict in favor of the Pakistani banks because this determination rested upon a misallocation of the burden of proof; and we conclude that the banks have not satisfied the burden of proving that they qualified in all respects as holders in due course, by any affirmative proof. The only evidence introduced by the banks consisted of conclusory answers to the interrogatories which were improperly admitted by the Trial Judge (see discussion, infra). The failure of the banks to meet their burden is fatal to their claim for recovery of the proceeds of the drafts and their petition must therefore be dismissed.

The final question of the admissibility of the answers to Cambridge’s interrogatories remains to be discussed. CPLR 3117, which governs the admissibility of interrogatories as well as depositions (CPLR 3131), provides, in pertinent part,

"(a) * * * At the trial * * * any part or all of a deposition, so far as admissible under the rules of evidence, may be used in accordance with any of the following provisions:

* * *

"2. The deposition of a party * * * may be used for any purpose by an adversely interested party; and

"3. the deposition of any person may be used by any party for any purpose against any other party who was present or represented at the taking of the deposition * * * provided the court finds: * * *

"(ii) that the witness is at a greater distance than one hundred miles from the place of trial or is out of the state, unless it appears that the absence of the witness was procured by the party offering the deposition ”. (Emphasis added.)

The general rule under CPLR 3117 (subd [a], par 2) subject to the exceptions set forth in paragraph 3 of subdivision (a) of the statute, is that answers to interrogatories may be introduced only by an adverse party and not by the party responding to the interrogatories (Wojtas v Fifth Ave. Coach Corp., 23 AD2d 685). The trial court concluded, however, that the interrogatories were admissible under the exception contained in CPLR 3117 (subd [a], par 3, cl [ii]). The court incorrectly reasoned that, because Cambridge served the interrogatories, it was not in a position to assert a deprivation of the right to cross-examine. Cambridge, however, did not forfeit its right to cross-examination because it was the banks who offered the answers as evidence-in-chief. While CPLR 3131 provides that interrogatories may be utilized to the same extent as depositions, a party serving interrogatories is certainly not "present” or "represented” at the time the answers are given as required by CPLR 3117 (subd [a], par 3) and does not have the opportunity to impeach or inquire into self-serving responses rendered by the party interrogated or its agent. The adversary therefore is effectively deprived of the right to cross-examine (cf. Stern v Inwood Town House, 22 AD2d 650). The self-serving answers of a party to written interrogatories which are not subject to the scrutiny of cross-examination may not be introduced by that party under CPLR 3117 (subd [a], par 3, cl [ii]) (see, also, Haskell Plumbing & Heating Co. v Weeks, 237 F2d 263, 267, applying rules 26 [d] and 33 of the Federal Rules of Civil Procedure, identical respectively to CPLR 3117 and 3131; Ann., 13 ALR3d 1312, 1323-1330). CPLR 3117 (subd [a]) articulates the fundamental rule that depositions and interrogatories may be introduced only so far as the rules of evidence permit and the basis for this rule is the fact that matter contained in these discovery devices constitutes hearsay and is admissible as evidence-in-chief only insofar as a hearsay exception is available (Jobse v Connolly, 60 Misc 2d 69, 70 [Younger, J.]; 3A Weinstein-Korn-Miller, NY Civ Prac, par 3117.04). Where the party who served the interrogatories is the proponent, the hearsay problem is eliminated because the answers are admissible under the admissions exception to the hearsay rule (cf. Richardson, Evidence [10th ed], § 209, p 187), but where the party responding is the proponent, the hearsay rule presents a barrier to admission (Jobse v Connolly, supra; Barrett v Melton, 112 Ariz 605, 545 P2d 421, 423). CPLR 3117 (subd [a], par 3), referred to as the "deposition exception to the hearsay rule”, permits any party to introduce answers to interrogatories if certain conditions are met but does not provide an exception to the hearsay barrier under the circumstances of this case because, as we have noted, the adversary, Cambridge, did not have the opportunity to cross-examine the declarants (representatives of the banks) who responded to the interrogatories, an essential requirement for the application of the exception (see CPLR 3117, subd [a], par [3]; 3113, subd [c]; Stern v Inwood Town House, 22 AD2d 650, supra; cf. CPLR 4517).

There is an additional reason why the banks may not rely upon CPLR 3117 (subd [a], par 3, cl [ii]) to sustain the admission of the answers. That subdivision requires that the absence of a witness must not have been procured by the party seeking to offer a deposition or responses to interrogatories. The unavailability of the declarants responding to the interrogatories was at least countenanced by the proponent banks. Muslim and United may not be permitted to capitalize on their own failure to produce a prospective witness or witnesses under their control and thereby deprive Cambridge of the opportunity to cross-examine them (see Jobse v Connolly, supra; Great Plains Supply Co. v Mobil Oil Co., 172 NW2d 241, 252-253 [ND]). The answers to Cambridge’s interrogatories were therefore improperly admitted into evidence and, as we have noted, in the absence of this evidence, there is absolutely no proof in the record on the part of the banks to sustain their burden of demonstrating holder in due course status; therefore, their petition to obtain the proceeds of the drafts and to set aside Cambridge’s levy thereupon should be dismissed.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the petition dismissed.

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

Order reversed, etc.

      . Cambridge has no direct liability on the drafts because it is not a party to the drafts which were drawn on Manufacturers by Duke as drawer; its liability derives from the letter of credit which authorizes the drafts to be drawn on the issuing banks. Since Manufacturers has paid the proceeds of the drafts to the Sheriff pursuant to the levy obtained in the prior proceeding, it has discharged its obligation under the credit and is not involved in this proceeding.

      . It should be noted that the Uniform Customs and Practice controls, in lieu of article 5 of the code, where, unless otherwise agreed by the parties, a letter of credit is made subject to the provisions of the Uniform Customs and Practice by its terms or by agreement, course of dealing or usage of trade (Uniform Commercial Code, § 5-102, subd [4]). No proof was offered that there was an agreement that the Uniform Customs and Practice should apply, nor does the credit so state (cf. Oriental Pacific [U. S. A.] v Toronto Dominion Bank, 78 Misc 2d 819). Neither do the parties otherwise contend that their rights should be resolved under the Uniform Customs and Practice. However, even if the Uniform Customs and Practice were deemed applicable to this case, it would not, in the absence of a conflict, abrogate the precode case law (now codified in Uniform Commerical Code, § 5-114) and that authority continues to govern even where article 5 is not controlling (see White and Summers, op. cit, pp 613-614, 624-625). Moreover, the Uniform Customs and Practice provisions are not in conflict nor do they treat with the subject matter of section 5-114 which is dispositive of the issues presented on this appeal (see Banco Tornquist, S. A. v American Bank & Trust Co., 71 Misc 2d 874, 875; Intraworld Ind. v Girard Trust Bank, 336 A2d 316, 322 [Pa]; Harfield, Practice Commentary, McKinney’s Cons Laws of NY, Book 62½, Uniform Commercial Code, § 5-114, p 686). Thus, we are of the opinion that the Uniform Customs and Practice, where applicable, does not bar the relief provided for in section 5-114 of the code.

      . Subdivision (2) of section 5-114 of the Uniform Commercial Code provides that, "[u]nless otherwise agreed when documents appear on their face to comply with the terms of a credit but ** * * there is fraud in the transaction (a) the issuer must honor the draft or demand for payment if honor is demanded by a * * * holder of the draft * * * which has taken the draft * * * under the credit and under circumstances which would make it a holder in due course (Section 3-302) * * *; and "(b) in all other cases as against its customer, an issuer acting in good faith may honor the draft * * * despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor.”

      . It is not necessary, therefore, for us to reach the difficult question whether the Pakistani banks were indispensible parties in the first action (see 1955 Report of NY Law Rev Comm, pp 1667-1668; cf. Lantz Int. Corp. v Industria Termotecnica Campana, 358 F Supp 510).

      . In its original version section 5-114 contained the language "fraud in a required document” (see 1955 Report of NY Law Rev Comm, pp 1655-1658).

      . Although several commentators have expressed a contrary view, the weight of authority supports the proposition that fraud on the part of the seller-beneficiary may not be interposed as a defense to payment against a holder in due course to whom a draft has been negotiated (see Finkelstein, op. cit, p 246; Ward and Harfield, Bank Credits and Acceptances, pp 94-98; 1955 Report of NY Law Rev Comm, pp 1662-1663, and authorities cited therein). This approach represents the better view that as against two innocent parties (the buyer and the holder in due course) the former, having chosen to deal with the fraudulent seller, should bear the risk of loss (see Harfield, Practice Commentary, McKinney’s Cons Laws of NY, Book 62½, Uniform Commercial Code, § 5-114, pp 686-687).


author: Fuchsberg, J. Cooke, J. (dissenting).

text:
    In the Matter of William Bott, Respondent, v Board of Education, Deposit Central School District, Appellant.
    Argued January 3, 1977;
    decided February 8, 1977

      Kevin F. McDonough, Binghamton, for appellant.

      Ivor R. Moskowitz and Bernard F. Ashe, Albany, for respondent.

      Louis J. Lefkowitz, Attorney-General (Ruth Kessler Toch and William J. Kogan of counsel), Albany, for the constitutionality of section 3020-a of the Education Law.
   Fuchsberg, J.

In an article 78 proceeding, the Board of Education of Deposit Central School District appeals from a judgment which, while confirming so much of the determination of the board as sustained a charge of incompetence and professional misconduct lodged against the petitioner, a tenured teacher, annulled so much of it as sustained two charges relating to physical abuse of his students. The Appellate Division also reduced the penalty from dismissal as of the date of filing of the charges to three months’ suspension without pay.

The principal issue is whether the excessive use of force against schoolchildren by a teacher may form the basis for the disciplining of the teacher where the force employed is not sufficient to constitute a crime. We hold that it may.

The two charges with which we are primarily concerned here are one for physical abuse and one for insubordination, the latter stemming in the main from a failure to adhere to regulations and instructions regarding corporal punishment. The board sustained both of these charges after a full hearing at which there was ample opportunity for the teacher to present his defense. The parties concede that, while State law does not forbid teachers from administering corporal punishment, State educational policy delegates its permissibility and control to local school authorities and that, when permitted, corporal punishment must be "reasonable in manner and moderate in degree”. Our review of the record here discloses that there was substantial evidence to support the factual determinations of the board. There was proof that the teacher had engaged in repeated acts of physical abuse, some in the face of prior admonitions to the teacher by school authorities, and that he had ignored binding guidelines with respect to corporal punishment contained in the district’s teaching manuals and in supplementary instructions communicated to him by the school principal. The board’s findings should therefore have been upheld on appeal (Matter of Peres v Frank, 40 NY2d 868; Mattar of Eno v Frank, 40 NY2d 869).

But that does not end the matter. The teacher, citing both subdivision 1 of section 35.10 of the Penal Law and Matter of Clayton v Board of Educ. (49 AD2d 343), takes the categorical position that the two charges must be dismissed because of lack of proof that petitioner’s acts of corporal punishment constituted a crime.

Subdivision 1 of section 35.10 of the Penal Law grants a defense of justification to parents, guardians, teachers and other persons entrusted with the care of minors who "reasonably” resort to physical force to discipline their charges (e.g., People v Baldini, 4 Misc 2d 913; People v Mummert, 183 Misc 243; see, generally, Levy, Criminal Liability for the Punishment of Children: An Evaluation of Means and Ends, 43 J Crim Law and Criminology 719, 730-732). However, the statute does not set the standard to which teachers may be held in the performance of their professional duties in a noncriminal context.

Thus, a school district may conclude that the use of corporal punishment is improper when administered in particular circumstances or in a particular manner, irrespective of whether it is or is not a crime (cf. Matter of Smart v Francis, 35 NY2d 872, revg 43 AD2d 623; Restatement, Torts 2d, § 150). Put another way, disciplinary charges against teachers are not criminal proceedings. Indeed, their primary function is not punitive, but rather the determination of the fitness of the teachers against whom they may be brought to continue to carry on their professional responsibilities (cf. Matter of Ropiecki, 246 App Div 80, 86 [attorneys]; Matter of Pepe v Board of Regents, 31 AD2d 582, 583, mot for lv to app den 24 NY2d 741 [physician]; Matter of Bell v Board of Regents, 295 NY 101 [dentist]). Moreover, the proof necessary to sustain such charges is not the same as that required to disprove the justification defense provided by the Penal Law (see Penal Law, §§ 35.00, 25.00; People v Steele, 26 NY2d 526).

Nor does the fact that the statute under which the proceedings here were brought (Education Law, § 3020-a) does not, in so many words, expressly refer to physical abuse of pupils as a ground on which tenured teachers may be removed mean that the conduct here was not within the embrace of that statute. Although the statute, as relevant to this case, lists only "(a) Insubordination, immoral character or conduct unbecoming a teacher [and] (b) Inefficiency, incompetency * * * or neglect of duty” as causes for removal (Education Law, § 3012, incorporated by reference into Education Law, § 3020-a), the Commissioner of Education has long held that excessive or otherwise improper use of physical force against pupils comes within the scope of the statute (Matter of Kelly, 13 Ed Dept Rep 122 ["unauthorized use of corporal punishment and dereliction of duty”]; Matter of Donahue, 12 Ed Dept Rep 104 ["incompetence”]; Matter of Donnenberg, 1 Ed Dept Rep 42 ["incompentecy and inefficient service”]; see, also, Matter of Jerry v Board of Educ., 50 AD2d 149, app dsmd 40 NY2d 847).

It is interesting too that even in Clayton, assuming that case was correctly decided, while the charges of excessive force were rejected because they were not supported by substantial evidence, the court indicated that, had they been so supported, they could have served to "establish the charges” of insubordination and conduct unbecoming a teacher (Matter of Clayton, 49 AD2d, at p 346, supra).

Having concluded that the determination of the board should have been upheld as to all three charges, we also find that the punishment imposed by the board is not so disproportionate as to warrant judicial correction (Matter of Alfieri v Murphy, 38 NY2d 976; Matter of O’Connor v Frank, 38 NY2d 963; Matter of Pell v Board of Educ., 34 NY2d 222).

We do, however, agree with the Appellate Division that petitioner was entitled to be paid his salary up to December 16, 1974, the date of his termination. Section 3020-a of the Education Law does not authorize the withholding of pay during a period of suspension pending determination of disciplinary charges (Matter of Jerry v Board of Educ., 35 NY2d 534). The proscription against such withholding may not be circumvented indirectly by fixing the effective date of punishment retroactively.

Accordingly, the judgment of the Appellate Division should be modified as indicated in this opinion.

Cooke, J. (dissenting).

I dissent and vote to affirm on the opinion of Mr. Justice Robert G. Main at the Appellate Division (51 AD2d 81), particularly the holding therein that the record is barren of substantial evidence that petitioner used excessive force.

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

Judgment modified, without costs, in accordance with the opinion herein and, as so modified, affirmed.


author: Jones, J.

text:
    Barclay’s Ice Cream Co., Ltd., Respondent, v Local No. 757 of the Ice Cream Drivers and Employees Union et al., Appellants.
    Argued January 6, 1977;
    decided February 10, 1977

      Stanley M. Berman, New York City, for appellant.

      Jay Goldberg, New York City, for respondent.
   Jones, J.

We reject the proposition that under the doctrine of pre-emption our State courts must defer in this case to the exclusive competence of the National Labor Relations Board and thus are powerless to protect against the unlawful coercive activity designed by this union to erect an embargo on the flow of out-of-State goods into New York.

The Appellate Division reversed the order of Special Term (which had denied plaintiffs motion for a preliminary injunction) on the law and in the exercise of discretion, and restrained defendants pendente lite from picketing and distributing written material aimed at discouraging purchases of ice cream manufactured outside, and sold within, New York State by Barclay’s. The case is before us on appeal from the nonfinal order of the Appellate Division by leave granted by that court on a certified question inquiring whether the order was properly made. In that posture it must be presumed that questions of fact—which defendants now contend exist—were resolved in plaintiffs favor (CPLR 5612, subd [b]). Our only inquiry is whether on the facts deemed to have been established the Appellate Division had power to grant the injunctive relief that it did; if that power existed we do not inquire into the propriety of its exercise (Cohen and Karger, Powers of the New York Court of Appeals [rev ed], p 378).

Barclay’s is a New Jersey corporation engaged in the wholesale distribution of ice cream manufactured in Pennsylvania and Ohio to customers in New York and New Jersey. Local 757 represents employees engaged in the manufacture of ice cream in the New York City area. The employees of Barclay’s suppliers, as well as Barclay’s own employees, are represented by local unions affiliated with the same parent union as is Local 757. After the latter local had been unsuccessful in calling on Barclay’s to purchase all its ice cream from certain designated manufacturers within New York, the local made known its intention to conduct a consumer boycott by picketing retail stores where ice cream distributed by Barclay’s was sold and by handing out literature urging consumers not to buy Barclay’s products, which were described as having been manufactured outside New York "under sub-standard labor conditions”—a description found by the Appellate Division to be without basis in the record. Labor conditions existing at the manufacturing plants which supplied the ice cream distributed by Barclay’s were determined under collective bargaining agreements negotiated by the locals representing the employees at those plants. The sole objective of the Local 757 action as described by its secretary-treasurer was "to protect our members’ jobs”—i.e., by compelling Barclay’s to purchase locally produced ice cream rather than that manufactured in Pennsylvania and Ohio.

For present purposes, accepting the facts averred by Barclay’s, as we must, it cannot be disputed that the union’s contemplated activities would constitute an unlawful restraint on trade under our State law and public policy (Mayer Bros. Poultry Farms v Meltzer, 274 App Div 169). The remand to our State courts by the United States District Court for the Southern District of New York, following the union’s removal of this case to the Federal court, forecloses the contention that State court action is precluded because there is jurisdiction in the Federal courts. The critical question now is whether under the doctrine of pre-emption Barclay’s must look for relief to the National Labor Relations Board.

We note that it does not suffice to negate such pre-emption merely to conclude that there is no "labor dispute” within the contemplation of section 807 of our State’s Labor Law. The issue is whether the activity of the local is "arguably” subject to the provisions of the Labor Management Relations Act, either by way of protection or prohibition (San Diego Unions v Garmon, 359 US 236, 245;. Dooley v Anton, 8 NY2d 91). Manifestly, it is not enough that Local 757 itself asserts that its conduct in this case comes within the National Labor Relations Board ambit or that in other factually similar cases other litigants may have advanced corresponding assertions. The resolution must turn on whether it may rationally be concluded that the conduct in question is activity conducted for the purpose and within the scope of recognized labor union objectives or whether it is conduct outside that scope although engaged in by the members of a labor union. If the activity is "’a merely peripheral concern of the Labor Management Relations Act’” the jurisdiction of the State to regulate the activity in furtherance of local feeling and responsibility remains undiminished (Linn v Plant Guard Workers, 383 US 53, 59).

Measured by these standards, we conclude that the consumer boycott planned by Local 757 in this instance falls outside the scope of the exclusive jurisdiction of the National Labor Relations Board. No legitimate objective of labor union activity is here involved. There is no question of interunion rivalry, nor of Barclay’s handling non-union-made ice cream. There is no issue of union representation or dispute over wages or conditions of employment with respect to either Barclay’s employees or the employees of the Pennsylvania and Ohio manufacturers of the ice cream that Barclay’s distributes. The sole objective and consequence of the intended consumer boycott is by means of coercive economic pressure to force Barclay’s to abandon its out-of-State suppliers and to turn exclusively to local sources. The imposition of such an embargo to promote the economic interest of members of the local union is an unlawful purpose contrary to the public policy of this State; as such it is not beyond the power of the courts to reach and to enjoin (cf. Linn v Plant Guard Workers, 383 US 53, 59, supra).

The narrow issue before us on this appeal is whether, as a matter of law, there was a legal barrier to the exercise by the Appellate Division of its authority to grant an injunction pendente lite. For the reasons stated we conclude that there is no such barrier.

Accordingly, the order of the Appellate Division should be affirmed. We interpret the certified question as an inquiry as to whether the Appellate Division had the power to make the order that it did (Cohen and Karger, Powers of the New York Court of Appeals [rev ed], p 378, n 92). So interpreted the certified question should be answered in the affirmative.

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

Order affirmed, with costs. Question certified answered in the affirmative.


author: Per Curiam.

text:
    In the Matter of Clarence O. Dimmock, Jr., Appellant, v Reichhold Chemicals, Inc., Respondent.
    Argued January 6, 1977;
    decided February 17, 1977

      Paul W. Williams, Thomas B. Gilchrist, Jr., and George J. Marchese, New York City, for appellant.

      John J. Walsh and Edwin David Robertson, New York City, for respondent.
   Per Curiam.

This is a special proceeding under section 623 of the Business Corporation Law, commenced by Clarence O. Dimmock, Jr., to determine the fair value of his shares of stock of Modiglass Fibers, Inc., incident to the merger of said corporation into Reichhold Chemicals, Inc.

On October 16, 1963, Dimmock owned 14,825 shares of the Modiglass stock. On that date, Reichhold, which owned 811,-350 of the 850,000 outstanding shares of Modiglass and which had been operating Modiglass as a subsidiary since 1960, notified the Modiglass shareholders of a merger that would take place. Dimmock dissented and demanded the full value of his shares. When Reichhold’s offer of $3.82 per share was not accepted by Dimmock, Reichhold commenced a proceeding to determine the fair value, which proceeding, commenced one day late, was dismissed as untimely on Dimmock’s motion. Thereupon, Dimmock instituted the instant proceeding to determine the value of his shares. Almost 10 years later and on January 13, 1974 an appraiser was appointed who in due course recommended a value of $4.75 per share.

Dimmock moved to confirm the appraiser’s report, but to set the per share value at $6.75, and for interest from the shareholders’ authorization daté to the date of payment, an assessment against Reichhold covering the costs and expenses of the appraiser and the fees and expenses of Dimmock’s counsel and expert witness. Reichhold cross-moved for: a rejection of the appraiser’s report and a determination of the fair value of the stock at $3.65 per share; an assessment against Dimmock for the costs and expenses of the appraiser; a denial of any allowance to Dimmock for interest, fees and expenses of counsel and expenses of an expert witness; and a trial to determine whether Dimmock’s conduct was vexatious, arbitrary or in bad faith and to inquire into the fees and expenses of Dimmock’s counsel and expert witness. Special Term confirmed the appraiser’s report and denied Dimmock’s motion in all other respects. It also denied the cross motion and directed a hearing to determine the reasonable compensation and expenses of the appraiser, one half to be assessed against Dimmock and the other half against Reichhold.

The Appellate Division affirmed the order and judgment of Special Term, with two Justices concurring as to that portion of the disposition which fixed the valuation of the stock but otherwise dissenting and voting to remand the proceeding. Dimmock now appeals to this court from so much of the order of the Appellate Division which affirmed the order and judgment of Supreme Court denying him an allowance for interest, assessing against him half of the costs and expenses of the appraiser, denying his application for the fees and expenses of his counsel and of his expert witness and failing to assess against Reichhold the costs and expenses of the proceeding.

Section 623 (subd [h], par [6]) of the Business Corporation Law provides: "The final order shall include an allowance for interest at such rate as the court finds to be equitable, from the shareholders’ authorization date to the date of payment. If the court finds that the refusal of any shareholder to accept the corporate offer of payment for his shares was arbitrary, vexatious or otherwise not in good faith, no interest shall be allowed to him.” Special Term’s denial of an allowance for interest to Dimmock was based on the conclusion "under all of the circumstances presented, that petitioner [Dimmock] did not act in good faith, and it would be patently unfair to require the respondent to pay interest from the authorization date to the date of payment, especially since this proceeding has been unnecessarily delayed to a great degree by the tactics of the petitioner.” Under the express language of paragraph (6), no interest allowance is to be made to any shareholder whose "refusal” to accept the corporate offer was arbitrary, vexatious or otherwise not in good faith. Thus, the pivotal time for testing the shareholder’s conduct is fixed at the point of refusal, not subsequently during the legal proceeding based on and following the refusal (see 3 White, New York Corporations [13th ed], par 623.05, p 6-589). While it has been stated that evidence upon the issue of good faith must take a rather wide range (see 21 NY Jur, Evidence, § 201; 29 Am Jur 2d, Evidence, § 358), to be admissible or entitled to consideration, there must be a relevance between the proof in question and the good faith in issue. Here, Special Term did not relate the unnecessary delay in the proceeding caused by the tactics of Dimmock to the arbitrariness, vexatiousness or bad faith of Dimmock in refusing the corporate offer, since it followed the mention of Dimmock’s delaying tactics with the statement: "Were the Court to rule otherwise, a party could unnecessarily delay a determination for the sole purpose of earning interest on the value of the shares held by him.” It therefore appears that the denial of the interest allowance may have resulted at least in part from a consideration of events that occurred after the refusal.

Section 623 (subd [h], par [7]) of the Business Corporation Law, relating to the subjects of costs and expenses of the proceeding and fees and expenses of counsel and experts, provides: "The costs and expenses of such proceeding shall be determined by the court and shall be assessed against the corporation, except that all or any part of such costs and expenses may be apportioned and assessed, as the court may determine, against any or all of the dissenting shareholders who are parties to the proceeding if the court finds that their refusal to accept the corporate offer was arbitrary, vexatious or otherwise not in good faith. Such expenses shall include reasonable compensation for and the reasonable expenses of the appraiser, but shall exclude the fees and expenses of counsel for and experts employed by any party unless the court, in its discretion, awards such fees and expenses. In exercising such discretion, the court shall consider any of the following: (A) that the fair value of the shares as determined materially exceeds the amount which the corporation offered to pay; (B) that no offer was made by the corporation; and (C) that the corporation failed to institute the special proceeding within the period specified therefor.” Thus, costs and expenses of the proceeding, although provided for in the same paragraph, are treated separately and determined differently from fees and expenses of counsel for and experts employed by any party. Costs and expenses of the proceeding normally are to be assessed against the corporation, except that all or part of them may be apportioned or assessed as the court determines against any or all dissenting party shareholders "if the court finds that their refusal to accept the corporate offer was arbitrary, vexatious or otherwise not in good faith.” Here again, the crucial period is the time of refusal, but Special Term apportioned and assessed one half of the reasonable expenses of the appraiser against Dimmock "[i]n view of the fact that the Court has made a finding that petitioner has not acted in good faith” and "in the exercise of the Court’s discretion”. Thus, this apportionment and assessment, by being linked to the previous finding of an absence of good faith, appears to have been grounded possibly also, at least in part and contrary to statute, on events subsequent to the refusal.

As to fees and expenses of counsel and for experts, they are to be excluded from "expenses” of the proceeding "unless the court, in its discretion, awards such fees and expenses” and, in exercising such discretion, the court is to consider any of three specified subjects (see Matter of Endicott-Johnson Corp. v Bade, 37 NY2d 585, 591). Special Term denied, "in the exercise of the Court’s discretion”, Dimmock’s application for the fees and expenses of counsel and for experts employed by him. It explained: "In making this determination, the Court concludes that the fair market value of the shares as determined by the appraiser and confirmed by the Court does not materially exceed the amount that the corporation offered to pay, and that the corporation did, in fact, make a valid offer for the stock in question. The Court notes that the respondent did commence a proceeding pursuant to the provisions of BCL 623 to determine the value of the shares which proceeding was dismissed upon motion of the petitioner herein as being untimely commenced, (apparently by one day). This fact alone does not mandate that respondent should be required to pay the fees and expenses of the petitioner’s attorney and the experts employed by him, especially in the instant case where the legal fees and expenses claimed to be due are in excess of Fifty Thousand ($50,000.00) Dollars.” On those scores, and assuming that the court did not exercise its discretion in a fashion so as to be swayed by any determination that Dim-mock did not act in good faith in respect to the application for interest and the expenses of the proceeding, there is no warrant to overturn what has been done regarding counsel fees and expenses and those of experts. If the court, upon remittal as herein ordered, is not fully satisfied that in the exercise of its discretion it was not influenced by said determination as to good faith, then the court may reopen that part of the application regarding counsel fees and expenses and those for experts and consider that part of the application anew, including as well the reasonableness or unreasonableness of the fees and expenses sought. This court, without intimation as to whether there should be such a reopening, notes that the differential between $3.82, the amount offered, and $4.75, the found fair value, per share, totaled $13,787.25 for the shares held by Dimmock. At Special Term, prior to appeals which have ensued, Dimmock sought $42,641.22 for legal services and $11,793.68 for expenses for expert witnesses. It must be kept in mind that the protection afforded minority stockholders should not be wielded as an offensive weapon nor employed to cause unwarranted expense or embarrassment to the corporation (see Corwin v Shelter Is. Light & Power Co., 199 NYS2d 866, 868; see, also, Randall v Packard, 142 NY 47, 55-56).

The order of the Appellate Division should be modified by reversing Special Term’s denial of and remitting those parts of appellant’s application for an allowance for interest and for an assessment against respondent covering the reasonable compensation and expenses of the appraiser to Special Term for further proceedings and determination, with leave to Special Term sua sponte to reopen and redetermine that part of the application seeking fees and expenses of counsel and for expert witnesses in the event Special Term is not fully satisfied that its discretion in denying said last mentioned items was not influenced by its determination as to good faith in denying an allowance for interest and an assessment covering the compensation and expenses of the appraiser, and, except as so modified, the order should be affirmed.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Cooke concur in Per Curiam opinion.

Order modified, with costs to appellant, and the matter remitted to Supreme Court, Westchester County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed.


author: Wachtler, J.

text:
    The People of the State of New York, Respondent, v George Woods, Appellant.
    Argued January 11, 1977;
    decided February 17, 1977

      Diana Budzanoski and William E. Hellerstein, New York City, for appellant.

      Eugene Gold, District Attorney (Florence M. Sullivan of counsel), Brooklyn, for respondent.
   Wachtler, J.

After a jury trial, the defendant, George Woods, was found guilty of robbery in the second degree (Penal Law, § 160.10) and sentenced to an indeterminate term of imprisonment with a maximum of 10 years. The Appellate Division affirmed the judgment of conviction. On this appeal, the defendant argues that the evidence introduced by the People at trial was insufficient to support the jury’s verdict.

At approximately 10:45 a.m. on August 2, 1972, Miriam Ukiwe, the complainant, a nurse who had been living in this country for about two years, was walking along Clinton Street in Brooklyn. As she reached the corner of Clinton Street and Amity Street she was approached by a man with a brown envelope in his hand. He claimed to have just found the envelope in a nearby telephone booth and that he wanted to return it to its owner, but he was unable to read the name scrawled across the front of the envelope. He asked the complainant for assistance, but she too was unable to read the name. At this point, another man, subsequently identified as the defendant, joined them and attempted to aid them. When he failed to make out the name on the envelope, Ms. Ukiwe suggested that he look inside to see if there was any other identification. The defendant opened the envelope, looked inside and proclaimed that it contained $20,000 in cash. Ms. Ukiwe opined that the money was probably counterfeit and suggested that they turn it over to the police.

At this point the defendant "nudged” the complainant on the elbow and told her that she had to give them $2,500 to insure that she would not tell anyone and "for [her] own safety.” He also offered to share the found money with her, but she declined his offer. When she told him she did not have that much money with her, he suggested that she go home to get her bankbook. The defendant then escorted her home and entered her apartment and waited for her while she retrieved her bankbook. He then walked with her to the bank and waited for her to withdraw the funds, staying by her side throughout the entire transaction.

The complainant and defendant then left the bank together and were immediately joined by the man who had initially approached her. The two men then escorted her to their car, and, once inside, the defendant told her to give him the money and took it from her. They then allowed her to get out of the car and she walked home and immediately telephoned the police. Thereafter, on October 11, 1972 the defendant was arrested and subsequently identified by the victim at a police lineup.

George Woods was indicted for robbery in the second degree, grand larceny in the second degree, grand larceny in the third degree and burglary in the third degree. At the conclusion of the People’s case, the court, on motion of the defense counsel, dismissed both larceny counts and the burglary count but refused to dismiss the count charging the defendant with robbery. Subsequently, the jury found the defendant guilty of robbery in the second degree.

A person is guilty of robbery when "he uses or threatens the immediate use of physical force upon another person for the purpose of * * * [compelling the owner of such property * * * to deliver up the property * * *”. (Penal Law, § 160.00; see Clark & Marshall, A Treatise on the Law of Crimes, § 12.09 [7th ed]; La Fave & Scott, Criminal Law, § 94.) In the instant case, the defendant contends that the People have failed to make out a prima facie case of robbery in that they did not establish that he had threatened the complainant with the immediate use of physical force. The People, on the other hand, argue that the evidence was sufficient to support the jury’s verdict. The People are correct.

Under former law, it was robbery whenever a person obtained property by way of a threat of injury "immediate or future” (former Penal Law, § 2120; see People v Thompson, 198 NY 396). The present statute, however, requires that the threat be of the "immediate use of physical force” upon another person (Penal Law, § 160.00). The obtaining of property by means of a threatened physical injury in futuro is no longer robbery, but larceny by extortion (Penal Law, § 155.05, subd 2, par [e], cl [i]). Thus, in order to sustain a charge of robbery, the People must show not only the taking of the property, but that the taking was accomplished by means of the use or threatened immediate use of physical force. We feel that the People have met their burden in this case.

The complainant’s uncontradicted testimony at trial clearly indicates that the defendant and his companion had set out to perpetrate a "flim-flam” or confidence game on the complainant by claiming to have found a large sum of money and offering her a share of it if she would evince her good faith by giving them some of her own money. They encountered some unexpected resistance, however, when their victim, rather than willingly going along with their scheme, expressed some doubt as to whether the "found money” was genuine and suggested that they turn it over to the police.

The complainant’s testimony indicates, and the jury would be warranted in finding, that at this point the two men abandoned their more sophisticated attempt to obtain her money and took a new tack, for the defendant then "nudged [the complainant] on the elbow and said I have to come.” Thereafter, when she asked the defendant why she had to give him money, "he said it’s because to make sure that I wouldn’t tell anybody and for my own safety.” She further testified that when she told the defendant she did not have the money with her, he took her home and when she opened the door to her apartment "he pushed himself inside” and waited while she retrieved her bankbook. He then walked with her to the bank, staying right at her side the whole time. When they left the bank, the other man approached them and "one on each side, [they] walked [her] to their car.” Once inside, the defendant ordered her to "[c]ome on, give us the money” and she testified that she did so "[b]ecause I was afraid of him anyway. He demanded it, and you know, they are dangerous. What are you going to do?”

The defendant argues that the demand that the complainant pay the money "for [her] own safety” is not a threat of the immediate use of physical force and that the People have failed to establish this essential element of robbery. Here, however, we do not have to evaluate those words in a vacuum, but rather, it was proper for the trial court to allow the jury to interpret these words in light of the myriad facts and circumstances of this case, and it is within the province of the jury to determine the weight to be accorded the testimony (see People v Conroy, 34 NY2d 917, 919; People v White, 2 NY2d 220, app dsmd 353 US 969). It was for the jury to determine, under an appropriate charge, whether the defendant’s actions were a mere continuation of the original "con game” or whether the scheme had broken down and the defendant’s activities, taken in context and as a whole, constituted threats of the immediate use of physical force. In the instant case, there was ample evidence from which the jury could conclude that the defendant had resorted to the use of threats of the immediate use of physical force to compel the complainant to part with her money.

To suggest that the threatening words, if any there be, must in and of themselves express the immediacy of the use of physical force is to graft an added and unjustified requirement onto the statute and to invade the jury’s domain as the fact finder. The statute does not require the use of any words whatsoever, but merely that there be a threat, whatever its nature, of the immediate use of physical force. It certainly should not be read so as to allow a criminal to go free on the mere happenstance that he did not employ what by hindsight a reviewing court would categorize as threatening words of art.

Finally, the defendant contends that the trial court committed reversible error in its charge to the jury with respect to the robbery count in that the court substituted the word "safety” for the word "force” in reading the jurors the statutory definition of robbery. Reading the charge as a whole, however, we find that the Judge accurately stated the law with respect to the elements of the crime of robbery (cf. People v Tanner, 30 NY2d 102, 107-108; People v Bloeth, 9 NY2d 211).

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

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

Order affirmed.

       In dismissing the count charging grand larceny in the third degree, the trial court ruled: "That case will be dismissed, not because grand larceny was not established, but rather because of failure of pleading. The pleading should have been that grand larceny was committed by extortion, but because it wasn’t pleaded, and only because of that, I am granting the motion to dismiss that.” The dissenters at the Appellate Division argued that the trial court was in error in dismissing the larceny counts, noting that in their opinion the larceny involved was not by extortion, but rather a common-law larceny by trick or false pretenses and that the indictment sufficiently pleaded that crime. We need not reach the issue since it was not raised on this appeal.


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    In the Matter of Charles Jeter et al., Respondents, v Ellenville Central School District et al., Respondents, Board of Education of the City of Yonkers et al., Appellants-Respondents, and Board of Education, City School District of the City of New Rochelle, Respondent-Appellant.
    Argued January 3, 1977;
    decided February 15, 1977

      W. Bernard Richland, Corporation Counsel (Alfred Weinstein, L. Kevin Sheridan and Joseph F. Bruno of counsel), for New York City Board of Education and another, appellants.

      Eugene J. Fox, Corporation Counsel (Howard Most of counsel), for Board of Education of City of Yonkers, appellant-respondent.

      Peter M. Fishbein and Robert S. Ellenport, New York City, for Board of Education, City School District of City of New Rochelle, respondent-appellant.

      Gerald Harris, County Attorney (Jonathan Lovett of counsel), White Plains, for Westchester County Department of Social Services, respondent.
   Jones, J.

We hold that paragraph a of subdivision 5 of section 3202 of the Education Law is to be interpreted as imposing the cost of instruction of pupils placed in family homes at board by social services districts and State departments and agencies on the school district in which the pupil resided at the time the district, department or agency assumed responsibility for his support and maintenance, provided that the cost of instruction shall continue to be borne by any district, department or agency which had assumed responsibility for tuition costs (as distinguished from support and maintenance) prior to January 1, 1974. The attacks aimed by appellants at paragraph a as so interpreted must be rejected.

The statutory provision with which we deal is a portion of the section of the Education Law that establishes the right to free public education for resident pupils and sets forth details of making education available to nonresident pupils, including allocation of the cost of such education. Paragraph a was added to subdivision 5 of section 3202 by chapter 867 of the Laws of 1973 with a view to relieving school districts of the financial burden of educating pupils who are placed in family homes within the district at board from other school districts, a burden to which the districts furnishing the educational services had been subjected under prior law. Paragraph a, as amended by chapter 919 of the Laws of 1974, now provides in relevant part: "The cost of instruction of pupils placed in family homes at board by a social services district or a state department or agency shall be borne by the school district in which each such pupil resided at the time the social services district or state department or agency assumed responsibility for the support and maintenance of such pupil; provided, however, that such cost of instruction shall continue to be borne while such pupil remains under the age of twenty-one years, by any social services district or state department or agency which assumed responsibility for tuition costs for any such pupil prior to January one, nineteen hundred seventy-four.”

This litigation, instituted to compel provision of public education for particular children residing in foster homes in Ellenville Central School District, was subsequently expanded and parties added to permit a broad determination of responsibility for the cost of such instruction under the quoted statutory subdivision. The courts below have given a literal meaning to the language of paragraph a of Education Law, section 3202, subdivision 5, and have upheld its constitutionality.

We first address the issue of statutory interpretation pressed by the City School District of the City of New Rochelle. This appellant would have us read the defining phrase in the proviso at the end of the quoted statutory sentence— "which assumed responsibility for tuition costs for any such pupil”—as referable not to tuition costs but to the assumption of responsibility for support and maintenance of the pupil. The result of such an interpretation would be to relieve all school districts of educational costs of pupils who had become public charges prior to January 1, 1974, rather than to limit such relief only to those public charges for whom a social welfare district or State department or agency had assumed responsibility for tuition costs (as distinguished from support and maintenance) prior to that date. We reject this suggestion. In our view the language of the subdivision facially and literally draws an unmistakable distinction between responsibility of a social services district or a State department or agency for "support and maintenance” and for "tuition costs”. Use of the different terms in such close proximity within the same sentence gives strong support to the conclusion that the references were to assumptions of different responsibilities. We find nothing in the legislative history to which our attention is drawn which would suggest, let alone compel, a contrary legislative meaning, intention or purpose (cf. New York State Bankers Assn. v Albright, 38 NY2d 430, esp 435-438, and cases cited). Accordingly, we agree that the proviso at the end of the first sentence of paragraph a of Education Law, section 3202, subdivision 5, must be held to refer only to social services districts and State departments and agencies that, prior to January 1, 1974, assumed responsibility for the tuition costs of welfare beneficiaries in addition to or as distinguished from responsibility for their general support and maintenance.

As to challenges to the validity of the paragraph in general, we first observe that very much of the extensive arguments advanced by the parties is addressed to the economic and political wisdom of the cost allocation scheme set out in the statute, a realm of disputation which is quite outside the scope of judicial review (Montgomery v Daniels, 38 NY2d 41, 53; cf. People v Broadie, 37 NY2d 100, 118). The New York City Board of Education and Department of Social Services and the Board of Education of the City of Yonkers seek also to mount attacks of varying degrees of plausibility and relevance under the due process and equal protection clauses of our State and Federal Constitutions. While these units of municipal government have procedural standing to participate in the present litigation (and thus to be heard, for instance, on questions of statutory interpretation), they do not have the substantive right to raise these constitutional challenges. (Williams v Mayor, 289 US 36; Trenton v New Jersey, 262 US 182; City of New York v Richardson, 473 F2d 923, 929, cert den sub nom. Lavine v Lindsay, 412 US 950; Lindsay v Wyman, 372 F Supp 1360, 1366; Triplett v Tiemann, 302 F Supp 1239, 1242; Matter of County of Cayuga v McHugh, 4 NY2d 609, 616; Black Riv. Regulating Dist. v Adirondack League Club, 307 NY 475, 488, app dsmd 351 US 922; Robertson v Zimmermann, 268 NY 52, 64; see Right of municipality to invoke constitutional provisions against acts of State Legislature, Ann., 116 ALR 1037.) This is not an instance in which the municipal challengers assert that if they are obliged to comply with the State statute they will by that very compliance be forced to violate a constitutional proscription (cf. Board of Educ. v Allen, 20 NY2d 109, affd 392 US 236).

Finally, we agree with the Appellate Division that, whatever may be the practical problems of administration engendered by the present statutory formulation, and understandable as is the temptation to offer judicial assistance in their minimization, there is no warrant in this statute nor in its legislative history for the erection of the presumption fashioned by Supreme Court that the school district in which the pupil resided immediately before his transfer to the receiving school district is the municipal entity responsible for payment of the cost of instruction to the receiving district. Again, if relief be needed or desired, address must be to the Legislature and the Appellate Division properly excised the provision of the judgment that implemented the novel presumption.

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

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

Order affirmed, without costs.


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    Home Insurance Company, Respondent, v T. C. Chang (Misnamed Hop Chong), Doing Business as Hop Chong Trading Co., Appellant.
    Argued January 13, 1977;
    decided February 17, 1977

      Martin Zuckerman, New York City, for appellant.

      Bernard Meyerson and Herman B. Zipser, New York City, for respondent.
   Jones, J.

We hold that appellant’s commercial transactions did not come within the coverage of the "Ocean Marine Cargo Open Policy” issued by respondent insurer, and accordingly that premiums are not payable with respect thereto.

Appellant Chang was engaged as a broker dealing in foodstuffs produced and canned in Taiwan and imported into the United States. Respondent, Home Insurance, was the insurer under a policy of ocean marine insurance which covered foodstuffs shipped on voyages "from ports and/or places elsewhere in the world (excluding Russia and Russian dominated territories) to ports and/or places in the United States direct or otherwise including the risk of transhipment, if any”. The policy stated as its insurable interest: "To attach upon all goods and merchandise as described above shipped by or consigned to the Assured, or shipped by or consigned to others for account or control of the Assured and in which the Assured may have an insurable interest, but excluding all shipments sold by the Assured on F.O.B., F.A.S., Cost and Freight or similar terms whereby the Assured is not obligated to furnish ocean marine insurance and excluding all shipments bought by the Assured on terms which include ocean marine insurance to the final destination; notwithstanding the foregoing, also to cover shipments for account of others by whom the Assured may be instructed to insure, provided such instructions are given in writing prior to shipment.” (Emphasis added.) Home Insurance instituted the present action for premiums due and unpaid on shipments of foodstuffs undeclared by Chang and asserted by Home Insurance to come within the policy coverage.

In the pertinent transactions, Chang entered into contracts with New York importers on F.O.B., Taiwan or C & F U.S.A. port terms. To fulfill his commitments to his customers Chang in turn placed orders with Taiwan suppliers on the same terms—on what is described as a back-to-back basis. The particular foodstuffs were delivered by the Taiwanese suppliers to vessels at Taiwan, consigned to customers or to letters of credit opening banks with notification to the American importers.

The issue is whether under these commercial arrangements Chang had a risk which fell within the coverage of the ocean marine insurance policy. If so, Home Insurance is entitled to recover the premiums which would be applicable thereto. It is Chang’s position that the shipments in question to the extent that they might otherwise be said to come within policy coverage were excluded under the terms of the explicit exclusionary clause of the policy. We agree with Chang.

We think that there can be no question that the transoceanic shipments by Chang to his American importers are excluded from policy coverage; they come squarely within the terms of the exclusionary clause in the policy. Indeed the customers provided their own marine insurance with respect to such shipments; Chang was under no obligation to do so.

In addition to asserting claims with respect to the transoceanic shipments themselves, Home Insurance contends that for however brief a period of time, Chang had a risk with respect to the merchandise between the shipments under the purchases from the Taiwanese producers and the ocean shipments on to his customers in the United States. Chang rejoins —effectively, we think—that he did not have title to the merchandise before the deliveries were received from the producers, at which time title simultaneously vested in his customers in accordance with the terms of his sales to them (Chase Manhattan Bank v Nissho Pacific Corp., 22 AD2d 215, 221, affd 16 NY2d 999; Disch v National Sur. Co., 203 App Div 723, 724). Even if it were to be considered that there was a momentary, interim risk, however theoretical, between the two contracts, such risk had terminated prior to any covered ocean voyage between a foreign port and a United States port which did not start until the merchandise came under the contracts of sale to Chang’s customers. Home Insurance’s policy provided ocean marine coverage and not inland insurance coverage. Nor was the insurer otherwise at risk under the "warehouse to warehouse” clause or any policy indorsement.

Home Insurance then points to the fact that under the terms of his sales agreements with his customers, Chang warranted, that the foodstuffs would "pass U.S. Food & Drug Administration and U.S. Customs” inspection and agreed that should any foodstuffs fail to pass such inspection he would refund the purchase price to his customer. The insurer argues that in consequence of this obligation Chang retained an insurable interest in the goods until they passed inspection. To this contention Chang makes twofold response. First, under subdivision (2) of section 2-401 of the Uniform Commercial Code title to the goods was in Chang’s customer, the buyer. Second, to the extent that in the event the merchandise failed to pass inspection standards, the buyer could have tendered the goods back to Chang, who would then have been obliged to repurchase them, Chang’s interest would have arisen at that time, after the conclusion of the ocean voyage and outside the policy coverage. We reject the assertion that this inchoate contingency gave rise to an insurable interest within the definition of the perils covered by the policy, as contemplated by the parties.

In sum, we conclude that the transactions with respect to which Home Insurance seeks to recover unpaid premiums come within the express exclusionary clause in the policy and that the insurer was not otherwise at risk under this ocean marine insurance policy. Chang was not, therefore, obligated to make any declaration as to such transactions and is not liable for any unpaid premiums with respect thereto.

Accordingly, the order of the Appellate Division should be reversed and the judgment of Supreme Court reinstated.

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

Order reversed, with costs, and the judgment of Supreme Court, New York County, reinstated.