text:
    The People of the State of New York, Respondent, v Mahmood Ahmed, Appellant.
    Argued October 14, 1985;
    decided November 21, 1985

      POINTS OF COUNSEL

      Robert Koppelman for appellant.
    I. The absence of the trial judge from the courtroom during deliberations when the jury was requesting and/or receiving additional testimony, exhibits and instructions rendered the trial a nullity. (People v Parisi, 276 NY 97; People v Silver, 240 App Div 259; Capital Traction Co. v Hof, 174 US 1; People v Gonzalez, 293 NY 259; People v Malloy, 55 NY2d 296; Cancemi v People, 18 NY 128; People ex rel. Battista V Christian, 249 NY 314; People v Patterson, 39 NY2d 288; Crain v United States, 162 US 625.) II. The admissible evidence was insufficient to prove that the substance "sold” by defendant was in fact heroin. (People v Julian, 41 NY2d 340; Bergen v I.L.G.W.U. Houses, 38 AD2d 933; Durham v Metropolitan Elec. Protective Assn., 27 AD2d 818; People v Miller, 57 AD2d 668; People v Branton, 67 AD2d 664; People v Kenny, 30 NY2d 154; Amaro v City of New York, 40 NY2d 30; People v Snyder, 90 AD2d 894; People v Turcsik, 71 Misc 2d 24, 43 AD2d 777.) III. The evidence was insufficient to establish a sale of narcotics; demonstrating no more than a mere physical transfer of drugs between coconspirators who had previously conspired to jointly possess those drugs. (People v Roche, 45 NY2d 78; People v Feldman, 50 NY2d 500; People v Sierra, 45 NY2d 56; People v Lam Lek Chong, 45 NY2d 64.)

      Robert M. Morgenthau, District Attorney (Donald J. Siewert and Mark Dwyer of counsel), for respondent.
    I. The evidence established beyond a reasonable doubt that the substance which defendant delivered to McClement in February 1982 was heroin, and that the transaction was a sale as defined by the Penal Law. (People v Way, 59 NY2d 361; People v Kenny, 30 NY2d 154; People v Lynch, 85 AD2d 126; United States v Clark, 613 F2d 391, 449 US 820; United States v Agueci, 310 F2d 817; People v Julian, 41 NY2d 340; People v Connelly, 35 NY2d 171; People v Lam Lek Chong, 45 NY2d 64, 439 US 935; People v Feldman, 50 NY2d 500.) II. Defendant’s claims that it was error to continue deliberations in Justice Dontzin’s absence from the courtroom and that he was prejudiced by the proceedings below do not present questions of láw reviewable by this court. In any event, the procedure below was permissible, and defendant was not prejudiced by it. (People v Patterson, 39 NY2d 288, affd sub nom. Patterson v New York, 432 US 197; Cancemi v People, 18 NY 128; Pierson v People, 79 NY2d 424; People v Cosmo, 205 NY 91; United States v Pfingst, 477 F2d 177, 412 US 941; Stirone v United States, 341 F2d 253, 381 US 902; Rice v United States, 35 F2d 689, 281 US 730; People v Narayan, 54 NY2d 106; People v Rucker, 22 AD2d 753, 16 NY2d 743; Taylor v United States, 386 F Supp 132, 521 F2d 1399.)
   OPINION OF THE COURT

Chief Judge Wachtler.

The main issue presented on this appeal is whether the absence of the trial judge from the courtroom for a portion of the jury’s deliberations, during which time they were supervised by the judge’s law secretary with the defendant’s consent, constitutes a denial of the right to jury trial. We conclude that it does, and therefore reverse the order of the Appellate Division affirming the conviction and order a new trial.

The defendant was charged with conspiracy and criminal sale of a controlled substance in the first degree. At the trial, the People elicited legally sufficient proof to support the jury’s verdict of guilty of both counts. However, on the second day of jury deliberations, the trial judge reported that he had "a very bad throat and very bad cold”. He remained in the courtroom, but, with the consent of the parties, the court reporter and the judge’s law secretary reread portions of the testimony and the charge in response to requests from the jury. That afternoon, the jury announced that they had found the defendant guilty of conspiracy, but the trial judge did not accept the verdict.

The morning of the third day of deliberations, the trial judge again appeared, but it was his law secretary who reread the instructions on reasonable doubt with the parties’ consent. The judge then left. That afternoon, in chambers, the law secretary noted that he had received a number of notes from the jury, had conferred with the trial judge and would answer the first of the notes, court exhibit 14. After a discussion of another note, court exhibit 13, the law secretary indicated that he had also received two other notes, court exhibits 15 and 16, which he had not discussed with the trial judge.

Both counsel consented to the answering of court exhibit 14 by the law secretary, which was done. Another note, court exhibit 17, was then answered in a similar fashion, after which the jury was discharged for lunch. When they returned, the law secretary related to counsel the trial judge’s response to an application that had been made to him by counsel over the telephone and recorded the fact that both counsel had agreed to the procedure. Sometime thereafter, the jury reached a verdict of guilty on both counts, apparently without the benefit of having court exhibits 15 and 16 considered, ruled on and answered by the trial judge. Those notes had requested the rereading of considerable portions of the testimony and production of the laboratory report on the package containing in part the heroin defendant was alleged to have sold.

We find that the absence of the trial judge, and the delegation of some of his duties to his law secretary during a part of the jury’s deliberations, deprived the defendant of his right to a trial by jury, an integral component of which is the supervision of a judge. That defense counsel consented to this arrangement does not constitute either a failure to preserve a question of law for our review or a waiver. Generally, a defendant may not present a question of law to this court unless he has preserved it for review by timely objection in the trial court (CPL 470.35 [1]; 470.05 [2]; People v Patterson, 39 NY2d 288, affd sub nom. Patterson v New York, 432 US 197). However, we have long recognized that certain errors need not be preserved, and, even if consented to, they may still present a question of law (e.g., Cancemi v People, 18 NY 128, 137). More recently, such errors have been classified as those "that would affect the organization of the court or the mode of proceedings prescribed by law” (People v Patterson, 39 NY2d, at p 295, supra). They have been held to include trial before fewer than 12 jurors in a criminal case (Cancemi v People, supra), trial before a court not of competent jurisdiction (People v Bradner, 107 NY 1, 4-5), trial for an "infamous crime,” even where purportedly allowed by statute, upon an information (People ex rel. Battista v Christian, 249 NY 314), a court’s comment on the defendant’s failure to testify (People v McLucas, 15 NY2d 167), addition of a new count to an indictment after trial (People v Miles, 289 NY 360), an improper instruction on the burden of persuasion (People v Patterson, supra), violation of the right to counsel (People v Kinchen, 60 NY2d 772; People v Ermo, 47 NY2d 863) and violation of the ban on double jeopardy (People v Michael, 48 NY2d 1). The failure of a judge to retain control of deliberations, because of its impact on the constitutional guarantee of trial by jury, also implicates the organization of the court or the mode of proceedings prescribed by law (Cancemi v People, supra), and such failure presents a question of law for our review even absent timely objection.

That we may review this contention is not the only obstacle to our consideration of the merits of defendant’s claim, for the People contend that, by his counsel’s consent to the procedure employed, he also waived whatever right he may have had to the presence of the trial judge during deliberations. Waiver and preservation are separate concepts (People v Iannone, 45 NY2d 589, 600), although they are often "inextricably intertwined” (People v Michael, 48 NY2d, at p 5, n 1, supra). Waiver connotes the intentional relinquishment or abandonment of a known right (Johnson v Zerbst, 304 US 458, 464-465). To insure that a waiver of the right to trial by jury meets this requirement, our statute provides, consistent with constitutional mandate (NY Const, art I, § 2), that it "must be in writing and must be signed by the defendant in person in open court in the presence of the court, and with the approval of the court” (CPL 320.10 [2]; see also, 3 ABA Standards for Criminal Justice, Trial by Jury Standard 15-1.2 [b] and commentary). The defendant signed no such waiver in this case.

Reaching the merits, we conclude that the absence of the trial judge, and his allowing his law secretary to discharge some of his duties, though motivated by a commendable desire to avoid delay of the proceedings, deprived defendant of his right to a proper trial by jury. That right, conferred by our Constitution (art I, § 2), has been properly interpreted as guaranteeing the right to trial by jury as it had existed at common law (Cancemi v People, 18 NY, at 135, supra; People v Silver, 240 App Div 259, 261). The drafters of our present Constitution understood that the procedure they would be maintaining "can most accurately be described as the judge and jury system. This procedure provides for the removal of the case from the jury if no issue of fact is presented, the setting aside of a verdict if it is an unreasonable one, instructions to the jury on the law of the case, the sifting of evidence for the jury to consider, and the guidance of the jury in analyzing and weighing the evidence” (1938 New York State Constitutional Convention Committee, Problems Relating to Bill of Rights and General Welfare, at 7). Substantial judicial authority has also concluded that the presence and active supervision of a judge constitute an integral component of the common-law right (e.g., Capital Traction Co. v Hof 174 US 1, 13 [" 'Trial by jury’, in the primary and usual sense of the term at the common law and in the American constitutions * * * is a trial by a jury of twelve * * * in the presence and under the superintendence of a judge”]; People v Parisi, 276 NY 97, 100 ["since the judge is a most important part of a court, it is his duty to be present throughout all proceedings relating to the trial”]; Freeman v United States, 227 F 732, 743-744, mot to mod mandate of reversal denied 237 F 815; People v Silver, supra; see generally, 1 Hale, Pleas of the Crown, at 33; Ann., 34 ALR2d 683). Here, by delegating his function, at least in part, tó his law secretary, the trial judge deprived the defendant of his right to a trial by jury.

United States v Pfingst (477 F2d 177, cert denied 412 US 941; see also, Rice v United States, 35 F2d 689, cert denied 281 US 730), relied upon by the People, is distinguishable. There, the trial judge, though absent for part of the deliberations, did not in any way relinquish control to his law clerk, and himself answered the one note sent by the jury during his absence. Indeed, the court concluded that "the procedure he followed in responding to the jury’s note was no different, except that it was slower, from the procedure he would have followed had he been physically present” (477 F2d, at p 196). Here, in contrast, the law secretary answered several questions, and at least two of the jury’s notes appear not to have been answered by or even called to the attention of the trial judge, which itself would constitute grounds for reversal (CPL 310.30; see, People v Almodovar, 62 NY2d 126, 131-132; People v Malloy, 55 NY2d 296, 302, cert denied 459 US 847; People v Gonzalez, 293 NY 259). Accordingly, the order appealed from should be reversed and a new trial ordered.

Judges Jasen, Meyer, Simons, Kaye, Alexander and Ti-tone concur.

Order reversed, etc.

      . NY Constitution, article I, §2 provides in pertinent part: "Trial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever”.

      . All previous Constitutions contained similar guarantees (see, 4 Lincoln, Constitutional History of New York, at 38 if; 1938 New York State Constitutional Convention Committee, Problems Relating to Bill of Rights and General Welfare, at 8).


source: Caselaw Access Project

author: Meyer, J.

license: Public Domain

text:
    In the Matter of Blossom Lippman et al., Appellants, v Board of Education of the Sewanhaka Central High School District et al., Respondents.
    Argued September 12, 1985;
    decided November 26, 1985

      POINTS OF COUNSEL

      Harold G. Beyer, Jr., and Robert D. Clearfield for appellants.
    I. The actions of respondents constituted a violation of petitioners’ vested contractual rights. (Matter of Giannettino v McGolbrick, 295 NY 208; Matter of Teachers Assn. [Board of Educ.], 34 AD2d 351; Roddy v Valentine, 268 NY 228; Danzig v Dikman, 78 AD2d 303, 53 NY2d 926.) II. The action of respondent constituted a violation of NY Constitution, article V, § 7. (Birnbaum v New York State Teachers Retirement Sys., 5 NY2d 1; Kleinfeldt v New York City Employees’ Retirement Sys., 36 NY2d 95; Matter of Donner v New York City Employees’ Retirement Sys., 33 NY2d 413; Mutterperl v Levitt, 89 Misc 2d 428, 41 NY2d 956.)

      Douglas E. Libby for Board of Education of the Sewanhaka Central High School District, respondent.
    The judgment appealed from should be affirmed in all respects. (Public Employees Fedn. v Cuomo, 62 NY2d 450; Majauskas v Majauskas, 61 NY2d 481; Incorporated Vil. of Lynbrook v New York State Public Employment Relations Bd., 48 NY2d 398; Cook v City of Binghamton, 48 NY2d 323; Genet v President of Del. & Hudson Canal Co., 136 NY 593; Matter of Giannettino v McGolbrick, 295 NY 208; Matter of Teachers Assn. [Board of Educ.], 34 AD2d 351; Camardo v Board of Educ., 79 AD2d 864.)

      Robert Abrams, Attorney-General (Robert Hermann, Peter H. Schiff and John Q. Driscoll of counsel), for Edward V. Regan, amicus curiae.

      A participating employer’s contribution to a retired employee’s health insurance coverage may be reduced to the minimum required by Civil Service Law § 167 (2). (Matter of Incorporated Vil. of Lynbrook v New York State Public Employment Relations Bd., 48 NY2d 398; Burdett v City of Batavia, 97 AD2d 973; Matter of Corinth Cent. School Dist. [Corinth Teachers Assn.], 77 AD2d 366; Birnbaum v New York State Teachers Retirement Sys., 5 NY2d 1; Kleinfeldt v New York City Employees’ Retirement Sys., 36 NY2d 95; Matter of Donner v New York City Employees’ Retirement Sys., 33 NY2d 413; Mutterperl v Levitt, 89 Misc 2d 428, 41 NY2d 956; Matter of Pettit v McCabe, 60 Misc 2d 177; Hoar v City of Yonkers, 295 NY 274; Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 85 Misc 2d 695.)

      Henry F. Sobota for The New York State School Boards Association, amicus curiae.

    I. The district’s contribution of a portion of retirees’ State health insurance plan premiums is not a "benefit” of their "membership in any pension or retirement system of the State or of a civil division thereof.” (Cook v City of Binghamton, 48 NY2d 323; Matter of Incorporated Vil. of Lynbrook v New York State Public Employment Relations Bd., 48 NY2d 398.) II. There is no evidence in the record that the district has promised to perpetually continue to pay retirees’ health insurance premiums at any given percentage. (Long Is. R. R. Co. v Northville Indus. Corp., 41 NY2d 455; Cook v City of Binghamton, 48 NY2d 323; Indiana ex rel. Anderson v Brand, 303 US 95; Burdett v City of Batavia, 97 AD2d 973; Swerdloff v Mobil Oil Corp., 74 AD2d 258; Collins v Manhattan & Bronx Surface Tr. Operating Auth., 62 NY2d 361; Public Improvements v Board of Educ., 56 NY2d 850.)
   OPINION OF THE COURT

Meyer, J.

Health insurance benefits are not within the protection of article V, section 7 of the State Constitution, and on the facts of this case there was no contract, express or implied, by respondent Board of Education not to reduce its contribution to payment of health insurance premiums of retired employees and their dependents. There should, therefore, be an affirmance, without costs.

I

Article 11 of the Civil Service Law authorizes the establishment of a State health insurance plan and section 163 of that law authorizes the inclusion in the plan of employees and retired employees of, among others, school districts, electing to participate in the plan. Section 167 (2) requires each participating employer to pay not less than 50% of the cost of premium or subscription charges for the coverage of such employees and 35% of the cost of coverage for their dependents, and provides that such an employer may elect to pay higher rates of contribution. Subdivision 3 of the section directs that any contribution required to be made by an employee or retired employee for his or her coverage or coverage of his or her dependents shall be deducted from salary payments or retirement allowance as the case may be.

In 1971 the Board of Education of Sewanhaka Central School District adopted a resolution directing payment by it of 100% of the health insurance premiums for its retired employees and 50% of the premiums for dependents of retirees. By resolution adopted in March 1983 and effective July 1, 1983, however, the Board reduced the district’s contribution from 100% to 50% of premiums for retired employees and from 50% to 35% of premiums for dependents of retirees. The present article 78 proceeding was then begun by petitioner Lippman, a currently employed teacher eligible for retirement, and petitioners Vandenburgh and Woll, retired teachers formerly employed by the district. The proceeding sought rulings that the reduction in contributions was arbitrary and capricious and declaratory judgment that it is in violation of article V, section 7 of the State Constitution and of the vested contract rights of petitioners and others similarly situated. Special Term rejected petitioners’ arbitrary and capricious contention as well as the Board’s defense based upon Education Law § 3813, but held health benefits premiums payable with respect to employees who retired prior to the July 1, 1983 effective date of the Board’s resolution reducing contributions to be protected by the Constitution. On appeal by the Board of Education to the Appellate Division, that court, noting that no part of the health insurance premium contributed by the school district came from the retirement system and that the reduction made by the 1983 resolution had no impact on how a retiree’s pension is calculated and did not otherwise impair a retirement system benefit, modified Special Term’s judgment and dismissed the proceeding as to all respondents. On petitioner’s appeal to us they have abandoned, by failing to argue, their CPLR 7803 (3) contention. We conclude that health insurance benefits are not within the protection of the constitutional provision and that there is no contractual impediment to reduction of the Board’s contribution to health insurance premiums to the 50% and 35% levels called for by Civil Service Law § 167 (2). We, therefore, affirm.

II

Article V, section 7 of the Constitution provides that "[a]fter July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.” That provision protects only the benefits of membership in a retirement system; other employment conditions, though they may be protected by statute, resolution or individual or collective bargaining agreement, are not within its coverage. That no more was intended is evident from the memorandum of the Constitutional Convention Committee which proposed the provision, which stated (2 Revised Record of 1938 New York State Constitutional Convention, at 1405): "It is a substantial factor in entering the permanent Civil Service of the government, State or local, 'career service’ as some call it, that the employee can look forward to a pension or retirement allowance when his service is over. That reward or benefit is part of the compensation which he accepts in lieu of the greater rewards of private employment. The membership in a pension or retirement system is, therefore, substantially a contractual relationship when the member joins the system. The benefits which are the essence of that contract should not be diminished or impaired. That protection is given by this proposed amendment.” (Emphasis supplied.) As that statement makes clear, more than an incidental relationship to the retirement system must be found before an employee benefit will be held to be within the area of action prohibited by the Constitution (Cook v City of Binghamton, 48 NY2d 323; see, Majauskas v Majauskas, 61 NY2d 481; Brown v New York State Teachers Retirement Sys., 19 NY2d 779, affg 25 AD2d 344).

The cases which have held the constitutional provision violated all involved changes directly related to the retirement benefit — in Public Employees Fedn. v Cuomo (62 NY2d 450), to prevent change concerning refund of retirement contributions upon resignation through the device of limiting the duration of the statutory provision and then successively extending it;

Kleinfeldt v New York City Employees’ Retirement Sys. (36 NY2d 95, 101), with respect to the rate of compensation part of the retirement formula (but with the recognition that "[t]his does not mean necessarily, and it should not be decided now, that no part of the formula, however trivial, or however within the contemplation of the 'contracting parties’ would never be subject to retroactive modification”); Matter of Weber v Levitt (34 NY2d 797, affg 41 AD2d 452), in relation to final average salary for pension purposes; Matter of Donner v New York City Employees’ Retirement Sys. (33 NY2d 413), concerning the right to reenter the retirement system after withdrawal from service; Matter of Hessel v New York City Employees’ Retirement Sys. (33 NY2d 381), in relation to what part of terminal leave pay was includible in computing the retirement benefit; Kranker v Levitt (30 NY2d 574), with respect to the inclusion of vacation pay in computing the retirement benefit; Matter of Ayman v Teachers’ Retirement Bd. (9 NY2d 119), concerning the calculation of the annuity portion of the retirement allowance; Birnbaum v New York State Teachers Retirement Sys. (5 NY2d 1), same as Ayman. The only such holding not directly related to benefit computation is Sgaglione v Levitt (37 NY2d 507), which invalidated a legislative direction to the Comptroller as administrative head of the retirement system to invest in Municipal Assistance Corporation bonds because the effect was "to remove a safeguard integral to the scheme of maintaining the security of the sources of benefits for over half a century” (id., at p 512), and "because the means designed to assure benefits to public employees and those already retired will be impaired by the offending device” (id., at p 511 [emphasis supplied]).

While Sgaglione concerned a less direct relationship to retirement benefits than the other cases reviewed, there was nevertheless a real and important nexus; the Comptroller’s discretion was an integral part of the plan by which such benefits are provided. Here, to the contrary, the only relation between health benefits and retirement benefits is the purely incidental one that the latter provides the means by which the former is paid in those instances where the employer has elected to pay less than the full premium. The result of a reduction in the proportion of the health insurance premium paid by the school district is that a retiree will receive a smaller retirement check, but this is no more a change in retirement benefits than would be an increase in the price of eggs at the supermarket or in a retiree’s apartment rent. The retiree has less to spend, but there has been no change in his retirement benefit. Payment of part or all of his or her health insurance premium is a benefit that comes to a retired employee not as a benefit of membership in the retirement system but because he or she was an employee of the State of New York or participating employer, as to whom the Legislature has provided, in Civil Service Law § 167, that part of the premium shall be paid by the employer and that the employer may, if it so chooses, increase the portion of the premium that it pays.

The more particularly is this so because the health insurance premium payment provision is contained not in the Retirement and Social Security Law but in section 167 of the Civil Service Law, which provides health insurance benefits not only to retired employees but also to employees still in service. As originally enacted in Laws of 1956 (ch 461), the provision with respect to contributions of retired employees was contained in section 127 (2), which read: "During any period in which a retired employee is covered under this article, after the date of his retirement, contributions shall be deducted from his retirement allowance in the amounts prescribed by the [temporary health insurance] board.” By the Laws of 1967 (ch 617, § 6), that provision became Civil Service Law § 167 (3) and was revised to read: "Contributions, if any, required to be paid by an employee or a retired employee for his coverage and for the coverage of his dependents, if any, shall be deducted from his salary payments or from his retirement allowance, as the case may be.” Nothing in the wording of article 11 suggests that employer contributions above the statutory mínimums were intended to be frozen once made or that the separately enacted provisions of the health insurance benefit article were intended to be a retirement benefit within the meaning of the Constitution. Indeed, the direction in section 167 (3) for payment of a retired employee’s share, whatever it may be, "from his retirement allowance” strongly suggests the contrary.

Ill

With respect to the claimed contractual right to continuation of the 100% and 50% contributions provided for by the 1971 resolution, we agree with the Appellate Division’s conclusion (104 AD2d, at p 126) that the record does not support the claim. We add that there is, indeed, positive evidence to the contrary in the provisions of the Health Insurance Program Manual for Participating Subdivisions that such subdivisions may unilaterally adjust rates of contribution.

For the foregoing reasons, the order of the Appellate Division should be affirmed, without costs.

Chief Judge Wachtler and Judges Jasen, Simons, Kaye, Alexander and Titone concur.

Order affirmed, without costs.

       Sections 050 and 605 of the Manual. The former states that: "An agency which has established rates higher than the minimum may also reduce its rates of contribution so long as they are not reduced below the legally mandated mínimums.” The latter provides that: "For those retired employees who are not subject to a negotiated agreement and for active employees who are not members of any negotiating unit, an agency may retain or adjust the existing rates of contribution unilaterally.”


author: Jasen, J.

text:
    Horn Waterproofing Corp., Appellant, v Bushwick Iron & Steel Co., Inc., Respondent.
    Argued September 10, 1985;
    decided October 17, 1985
    POINTS OF COUNSEL

      Martin Gallent for appellant.
    I. Uniform Commercial Code § 1-207 changed the law of accord and satisfaction in the case of a party who indorses a full payment check under protest. (Braun v C.E.P.C. Distribs., 77 AD2d 358; Kroulee Corp. v Klein & Co., 103 Misc 2d 441; Lange-Finn Constr. Co. v Albany Steel & Iron Supply Co., 94 Misc 2d 15; Ayer v Sky Club, 70 AD2d 863, 48 NY2d 705.) II. Though the full payment check was for work, labor and services there was no accord and satisfaction. (Agar v Orda, 264 NY 248.) III. Article 3 of the Uniform Commercial Code concerning commercial transactions covers checks without exception and therefore makes section 1-207 applicable. (Cohen v Ricci, 120 Misc 2d 712; Ayer v Sky Club, 70 AD2d 863.)

      Michael A. Rubin for respondent.
    I. Uniform Commercial Code § 1-207 should not alter common-law accord and satisfaction nor affect a full payment check. (Nassoiy v Tomlinson, 148 NY 326; Lange-Finn Constr. Co. v Albany Steel & Iron Supply Co., 94 Misc 2d 15; Ayer v Sky Club, 70 AD2d 863, 48 NY2d 705; Transit Commn. v Long Is. R. R. Co., 253 NY 345.) II. Majority of sister state decisions hold Uniform Commercial Code § 1-207 not applicable to accord and satisfaction or the full payment check. III. Use of a check does not make the Uniform Commercial Code applicable. IV. Uniform Commercial Code § 1-207’s application to the full payment check would destroy contract principles of "offer and acceptance”. (Nassoiy v Tomlinson, 148 NY 326.) V. Uniform Commercial Code has no application to a services contract. (Geelan Mechanical Corp. v Dember Constr. Corp., 97 AD2d 810; Milau Assoc. v North Ave. Dev. Corp., 42 NY2d 482.)
   OPINION OF THE COURT

Jasen, J.

This appeal presents an issue of first impression: whether the common-law doctrine of accord and satisfaction has been superseded by operation of Uniform Commercial Code § 1-207 in situations involving the tender of a negotiable instrument as full payment of a disputed claim.

The relevant facts are uncomplicated. The parties entered into an oral agreement whereby plaintiff was to repair the leaking roof on defendant’s building. After two days work, plaintiff concluded that a new roof was needed and submitted a bill for work already done. Defendant disputed the amount charged and plaintiff revised the bill downward from $1,241 to $1,080. Defendant remained unsatisfied with the charges and sent plaintiff a check for only $500. The check bore the following notation affixed on the reverse side: "This check is accepted in full payment, settlement, satisfaction, release and discharge of any and all claims and/or demands of whatsoever kind and nature.” Directly thereunder, plaintiff printed the words "Under Protest”, indorsed the check with its stamp, and deposited the $500 into its account.

Plaintiff then commenced this action in Civil Court seeking $580 as the balance due on its revised bill. Defendant moved for summary judgment on the ground that plaintiffs acceptance and negotiation of the check constituted an accord and satisfaction. The motion was denied and the Appellate Term affirmed. The court held that the Uniform Commercial Code (the Code) was applicable to the type of commercial transaction in which the parties were involved and that, under the provisions of section 1-207, plaintiff was entitled to reserve its right to demand the balance due.

On appeal by leave of the Appellate Term, the Appellate Division reversed, granted defendant’s motion, and dismissed the complaint. The majority of that court held that the parties’ agreement, being a contract for the performance of services, fell outside the scope of the Code. It was, therefore, concluded that the common law applied and that the doctrine of accord and satisfaction precluded plaintiffs recovery. In dissent, Justice Weinstein argued that application of the common-law doctrine to the facts of this case is inequitable and needlessly constricts the modernizing effect of the Code. We now reverse and hold that, under section 1-207 of the Code, a creditor may preserve his right to the balance of a disputed claim, by explicit reservation in his indorsement of a check tendered by the debtor as full payment.

The effect of Code § 1-207 upon the common-law doctrine of accord and satisfaction has been much debated. Indeed, the courts that have addressed the issue in this State have rendered conflicting decisions, and our sister state courts are likewise divided. In our view, applying section 1-207 to a "full payment” check situation, to permit a creditor to reserve his rights and, thereby, preclude an accord and satisfaction, more' nearly comports with the content and context of the statutory provision and with the legislative history and underlying purposes of the Code as well, and is a fairer policy in debtor-creditor transactions.

It has long been the general rule in this State that "if a debt or claim be disputed or contingent at the time of payment, the payment, when accepted, of a part of the whole debt is a good satisfaction and it matters not that there was no solid foundation for the dispute. The test in such cases is, Was the dispute honest or fraudulent? If honest, it affords the basis for an accord between the parties, which the law favors, the execution of which is the satisfaction.” (Simons v American Legion of Honor, 178 NY 263, 265; see also, Nassoiy v Tomlinson, 148 NY 326.)

The theory underlying this common-law rule of accord and satisfaction is that the parties have thus entered into a new contract displacing all or part of their original one. (Merrill Lynch Realty v Skinner, 63 NY2d 590, 596.) Although the creditor might have been confronted with an "embarrassing * * * choice” upon the debtor’s presentment to him of partial payment (Hudson v Yonkers Fruit Co., 258 NY 168, 172), such as in the case of a "full payment” or "conditional” check, nevertheless, the rule of accord and satisfaction has generally been accepted as a legitimate and expeditious means of settling contract disputes. (See, Merrill Lynch Realty v Skinner, supra; Post v Thomas, 212 NY 264; 6 Corbin, Contracts § 1276 et seq. [2d ed]; Restatement [Second] of Contracts § 281.) As this court stated more than 70 years ago: "The law wisely favors settlements, and where there is a real and genuine contest between the parties and a settlement is had without fraud or misrepresentation for an amount determined upon as a compromise between the conflicting claims such settlement should be upheld, although such amount is materially less than the amount claimed by the person to whom it is paid.” (Post v Thomas, supra, at pp 273, 274.)

Still, where the creditor is presented with partial payment as satisfaction in full, but, nevertheless, wishes to preserve his claim to the balance left unpaid, it cannot be gainsaid that conflicting considerations of policy and fairness are implicated. This is particularly so in the case of a full payment check. On the one hand, the debtor, as the master of his offer, has reason to expect that his offer will either be accepted or his check returned. At the same time, however, the creditor has good cause to believe that he is fully entitled to retain the partial payment that is rightfully his and presently in his possession, without having to forfeit entitlement to whatever else is his due.

In dismissing these latter considerations with specific regard to the applicability of Code § 1-207 to a check tendered as "full payment”, one commentary argued that: "Besides operating as an unnecessary destruction of a valuable common law doctrine, the expansive interpretation of U.C.C. § 1-207 * * * conflicts with another basic principle of the Uniform Commercial Code, the duty of good faith imposed by § 1-203, certainly the more fundamental concept * * * It is unfair to the party who writes the check thinking that he will be spending his money only if the whole dispute will be over, to allow the other party, knowing of that reasonable expectation, to weasel around the deal by putting his own markings on the other person’s checks. There is no reason why § 1-207 should be interpreted as being an exception to the basic duty of good faith, when it is possible to interpret the two sections consistently. The academic writers who support this result offer no analysis, to the current knowledge of this treatise, which would justify licensing the recipient of the check to so deceive the drawer.” (Corbin, Contracts § 1279, at 473 [Kaufman Supp, 1984].)

However, an entirely different conclusion is reached in another commentary which explains that:

"Offering a check for less than the contract amount, but 'in full settlement’ inflicts an exquisite form of commercial torture on the payee. If the offer is reasonable it creates a marvelous anxiety in some recipients: 'Shall I risk the loss of $9,000 for the additional $1,000 that the bloke really owes me?’ In general the law has authorized such drawer behavior by regarding such a check as an offer of accord and satisfaction which the payee accepts if he cashes the check. Traditionally the payee could write all manner of disclaimers over his indorsement without avail; by cashing the check he was held to have accepted the offer on the drawer’s terms. Even if he scratched out the drawer’s notation or indorsed it under protest he was deemed to have accepted subject to the conditions under which the drawer offered it.

* * *

"However, we believe * * * that 1-207 authorizes the payee to indorse under protest and accept the amount of the check without entering an accord and satisfaction or otherwise forsaking his claim to any additional sum allegedly due him.” (White and Summers, Uniform Commercial Code § 13-21, at 544-547 [2d ed].)

We concur with the latter view. Indeed, the common-law doctrine of accord and satisfaction creates a cruel dilemma for the good-faith creditor in possession of a full payment check. Under that rule, the creditor would have no other choice but to surrender the partial payment or forfeit his right to the remainder. (See generally, Note, Role of the Check in Accord and Satisfaction: Weapon of the Overreaching Debtor, 97 U Pa L Rev 99.) We are persuaded, however, that the common law was changed with the adoption of section 1-207 pursuant to which a fairer rule now prevails.

Section 1-207 provides: "A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as 'without prejudice’, 'under protest’ or the like are sufficient.” The plain language of the provision, "without much stretching”, would seem applicable to a full payment check. A fortiori, if liberally construed, as the Code’s provisions are explicitly intended to be, it seems clear that the reach of section 1-207 is sufficiently extensive to alter the doctrine of accord and satisfaction by permitting a creditor to reserve his rights though accepting the debtor’s check.

The Comment prepared by the National Conference of Commissioners on Uniform State Laws and the American Law Institute is fairly subject to a variety of interpretations as to the purpose of section 1-207. It simply does not, however, specifically address the law of accord and satisfaction and how it might have been altered. By contrast, the Report of the State of New York Commission on Uniform State Laws quite clearly took the position that the common-law doctrine would be changed. With specific reference to section 1-207, the report stated:

"This section permits a party involved in a Code-covered transaction to accept whatever he can get by way of payment, performance, etc., without losing his rights to demand the remainder of the goods, to set-oíf a failure of quality, or to sue for the balance of the payment, so long as he explicitly reserves his rights.

"* * * In Nassoiy v. Tomlinson, 148 N.Y. 326, 42 N.E. 715 (1896), the debtor paid no more than the exact amount he claimed was due. The court held that the conditional payment was payment of an unliquidated claim if any part was disputed, and that the acceptance of the payment discharged the entire debt. [Citations omitted.] The Code rule would permit, in Code-covered transactions, the acceptance of a part performance or payment tendered in full settlement without requiring the acceptor to gamble with his legal right to demand the balance of the performance or payment.” (Report of Commn on Uniform State Laws to Legislature, at 19-20 [1961].)®

This interpretive analysis, which was submitted to the Legislature together with the Commission’s recommendation for enactment of the Code, unmistakeably addresses the common-law doctrine and notes that the section permits a reservation of rights upon acceptance of partial payment where an accord and satisfaction might otherwise have resulted. Particularly significant is the reference to Nassoiy v Tomlinson (148 NY 326, supra), a seminal decision in this State applying the doctrine of accord and satisfaction under facts involving a full payment check. This commentary clearly apprised the Legislature that section 1-207 would change the rule upheld in that case. Moreover, it is notable that the analysis explicitly speaks of the acceptance of part "payment tendered in full settlement.” The section was clearly not deemed restricted to situations involving the acceptance of goods or such other "performance” in part.

This view derives further support from the very context of section 1-207 within the Code. The provision is set forth in the introductory article 1, among the general provisions of the Code dealing with such matters as its title, underlying purposes, general definitions, and principles of interpretation. Presumably, section 1-207, as with other provisions in the introductory article, is to apply to any commercial transaction within the reach of one of the substantive articles — i.e., to any "Code-covered” transaction, as denominated in the New York Annotations. There is simply no language in section 1-207 expressing or intimating a more restrictive intention to limit its application to specific kinds of transactions particular to one of the articles, or sections, of the Code such as the purchase and acceptance of goods (art 2), investment securities (art 8) or chattel paper (art 9). Rather, the nonlimiting language of section 1-207 and its placement in the Code with the other generally applicable provisions of article 1 is persuasive that the section is, indeed, applicable to all commercial transactions fairly considered to be "Code-covered”.

Hence, the payment of a contract debt by check or other commercial paper and its acceptance by the creditor fall within the reach of section 1-207. Whether the underlying contract between the parties be for the purchase of goods, chattel paper or personal services, the use of a negotiable instrument for the purpose of payment or attempted satisfaction of a contract debt is explicitly and specifically regulated by the provisions of article 3 and, therefore, undeniably a Code-covered transaction. Consequently, a debtor’s tender of a full payment check is an article 3 transaction which is governed by section 1-207, regardless of the nature of the contract underlying the parties’ commercial relationship.

Indeed, Dean Rosenthal, who otherwise contended that section 1-207 was not originally intended by the drafters to alter the doctrine of accord and satisfaction by full payment checks, observed that:

"Article three ('Commercial Paper’), however, is a special case. Does the fact that a check is used as the device to effect a settlement in itself bring the transaction within the Code (and therefore make section 1-207 arguably applicable) even if the underlying transaction was one not otherwise covered by the Code? Article three contains no scope provision analogous to the "transactions in goods’ language in [article 2]. * * *

"[I]t seems fairly clear that if such a check is tendered in settlement, the transaction must be regarded as being within article three, and if section 1-207 is otherwise relevant its application cannot be avoided by showing either that article one was not meant to be applied to non-Code transactions or that the underlying obligation did not arise out of one of the other substantive articles of the Code.” (Rosenthal, Discord and Dissatisfaction: Section 1-207 of the Uniform Commercial Code, 78 Colum L Rev 48, 70.)

Finally, as Justice Weinstein noted below, such a readi section 1-207 would seem to promote the underlying pol and purposes of the Code. (See, Code § 1-102, supra, n 6.) construing the section to permit a reservation of rights whoever a negotiable instrument is used to make payment on a existing debt, regardless of the nature of the underlying obligation between the parties, the commercial law of negotiable instruments is rendered more simple, clear and uniform. Moreover, the policy embodied in section 1-207, to favor a preservation of rights despite acceptance of partial satisfaction of the underlying obligation, is thus extended to reach all commercial transactions in which the Code is implicated by reason of payment by an article 3 instrument. As a consequence, such a reading of section 1-207 serves to liberalize, or "de-technicalize”, that important branch of commercial law governing the full payment check. (See, White and Summers, Uniform Commercial Code § 4, at 14-18 [2d ed]; Cohen v Ricci, 120 Misc 2d 712, 715.)

Application of the foregoing to the facts of this case is evident. Defendant presented a "full payment” check for $500 in satisfaction of a debt in the amount of $1,080. Plaintiff indorsed the check below its notation, "Under Protest”, thereby indicating its intent to preserve all rights to the $580 balance. Such an explicit reservation of rights, falling squarely within section 1-207 as we construe that provision today, was an effective means of precluding an accord and satisfaction or any other prejudice to the rights thus reserved. Regardless of whether the underlying transaction between the parties was a contract for the performance of services rather than for the sale of goods, defendant’s tender of a check to plaintiff brought the attempted full payment or satisfaction of the underlying obligation within the scope of article 3, thereby rendering it a "Code-covered” transaction to which the provisions of section 1-207 are applicable.

Accordingly, the order of the Appellate Division should be reversed, with costs, and defendant’s motion to dismiss denied.

Chief Judge Wachtler and Judges Meyer, Simons, Kaye, Alexander and Titone concur.

Order reversed, etc.

      . Among the commentaries which have taken an unequivocal position on the issue, see, e.g., 1 Anderson, Uniform Commercial Code § 1-207:7; 4 Anderson §§ 3-408:54 — 3-408:57 (3d ed) (the majority and sounder rule is that it does not apply to the full payment check); Calamari and Perillo, Contracts §§ 4-12, 5-16 (the debtor may now accept the check under protest and reserve his rights); 6 Corbin, Contracts § 1279 (2d ed, 1984 Supp) (the common-law doctrine is not affected); Restatement (Second) of Contracts § 281 comment d (§ 1-207 "need not be read as changing” the common law); White and Summers, Uniform Commercial Code § 13-21 (2d ed) (§ 1-207 permits a debtor to accept with explicit protest and still claim the balance due him). See also the discussions in the following: Hawkland, The Effect of UCC § 1-207 on the Doctrine of Accord and Satisfaction by Conditional Check, 74 Comm LJ 329; Rosenthal, Discord and Dissatisfaction: Section 1-207 of the Uniform Commercial Code, 78 Colum L Rev 48; Caraballo, The Tender Trap: UCC §1-207, 11 Seton Hall L Rev 445; Grosse and Goggin, Accord and Satisfaction and the 1-207 Dilemma, 89 Comm LJ 537; Comment, UCC Section 1-207 and the Full Payment Check, 7 U Dayton L Rev 421; Comment, Section 1-207, 1 Mem St U L Rev 425; Comment, Accord and Satisfaction: Conditional Tender by Check Under the Uniform Commercial Code, 18 Buffalo L Rev 539; Note, Does UCC Section 1-207 Apply to the Doctrine of Accord and Satisfaction by Conditional Check?, 11 Creighton L Rev 515.

      . In the following, the courts of this State held that section 1-207 has superseded the common-law doctrine of accord and satisfaction in the "full payment” or "conditional” check situation: Braun v C.E.P.C. Distribs. (77 AD2d 358 [1st Dept]); Continental Information Sys. v Mutual Life Ins. Co. (77 AD2d 316 [4th Dept]); Ayer v Sky Club (70 AD2d 863 [1st Dept], appeal dismissed 48 NY2d 705); Kroulee Corp. v Klein & Co. (103 Misc 2d 441); Lange-Finn Constr. Co. v Albany Steel & Iron Supply Co. (94 Misc 2d 15); Cohen v Ricci (120 Misc 2d 712); Hanna v Perkins (2 UCC Rep Serv 1044). Some courts in this State have ruled otherwise: Geelan Mechanical Corp. v Dember Constr. Corp. (97 AD 2d 810 [2d Dept]); Schenectady Steel Co. v Trimpoli Gen. Constr. Co. (43 AD2d 234 [3d Dept], affd on other grounds 34 NY2d 939); Channave v Kraai (120 Misc 2d 859); Blottner, Derrico, Weiss & Hoffman v Fier (101 Misc 2d 371).

      . In the following cases, the courts adopted the view that section 1-207 has altered the doctrine of accord and satisfaction by permitting the creditor to reserve his rights: United States v Consolidated Edison Co. (590 F Supp 266 [SDNY]); Majestic Bldg. Material Corp. v Gateway Plumbing (694 SW2d 762 [Mo Ct App]); Bivens v White Dairy (378 So 2d 1122 [Ala Civ App]); Miller v Jung (361 So 2d 788 [Fla Ct App]); Kilander v Blickle Co. (280 Ore 425, 571 P2d 503); Scholl v Tallman (247 NW2d 490 [SD]); Baillie Lbr. Co. v Kincaid Carolina Corp. (4 NC App 342, 167 SE2d 85).
      On the other hand, an admittedly greater number of jurisdictions have held that the common-law rule is not affected: Milgram Food Stores v Gelco Corp. (550 F Supp 992 [WD Mo]); Stultz Elec. Works v Marine Hydraulic Eng. Co. (484 A2d 1008 [Me]); Flambeau Prods. Corp. v Honeywell Information Sys. (116 Wis 2d 95, 341 NW2d 655); Air Van Lines v Buster (673 P2d 774 [Alaska]); Schwab Tire Centers v Ivory Ranch (63 Ore App 364, 664 P2d 419 [distinguishing Kilander v Blickle Co., supra]); Connecticut Printers v Gus Kroesen (134 Cal App 3d 54, 184 Cal Rptr 436); Eder v Gervey Interiors (407 So 2d 312 [Fla Ct App] [noting a conflict with Miller v Jung, supra]); American Food Purveyors v Lindsay Meats (153 Ga App 383, 265 SE2d 325); Chancellor, Inc. v Hamilton Appliance Co. (175 NJ Super 345, 418 A2d 1326); Sharpe v Nationwide Mut. Fire Ins. Co. (62 NC App 564, 302 SE2d 893); Brown v Coastal Truckways (44 NC App 454, 261 SE2d 266 [distinguishing Baillie Lbr. Co. v Kincaid Carolina Corp., supra]); State Dept. of Fisheries v J-Z Sales Corp. (25 Wn App 671, 610 P2d 390); John v Burns (593 P2d 828 [Wyo]).

      . Rosenthal, supra, n 1, at 49.

      . See, id., at 49, 64; Hawkland, supra, n 1, at 329, 332. Despite the view shared by Rosenthal and Hawkland that section 1-207 was not intended by the drafters to alter the common-law doctrine in a full payment check situation, they each acknowledge that, if literally construed, the provision does permit such a result. See also, Calamari and Perillo, supra, n 1 § 5-16, at 197; White and Summers, supra, n 1 § 13-21, at 547.

      . UCC § 1-102 provides in part:
      "(1) This Act shall be liberally construed and applied to promote its underlying purposes and policies.
      "(2) Underlying purposes and policies of this Act are
      "(a) to simplify, clarify and modernize the law governing commercial transactions;
      "(b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties;
      "(c) to make uniform the law among the various jurisdictions.” See also, A. M. Knitwear Corp. v All Am. Export-Import Corp. (41 NY2d 14); Agar v Orda (264 NY 248); Comment to UCC 1-102, McKinney’s Cons Laws of NY, Book 62-1/2, p 5; New York Anns to UCC 1-102, McKinney’s Cons Laws of NY, Book 62-1/2, p 7; McDonnel, Purposive Interpretation of the Uniform Commercial Code: Some Implications for Jurisprudence, 126 U Pa L Rev 795, 824-828.

      . The Official Comment to section 1-207 states in pertinent part: "This section provides machinery for the continuation of performance along the lines contemplated by the contract despite a pending dispute, by adopting the mercantile device of going ahead with delivery, acceptance, or payment 'without prejudice’, 'under protest’, 'under reserve’, 'with reservation of all our rights’, and the like. All of these phrases completely reserve all rights within the meaning of this section. The section therefore contemplates that limited as well as general reservations and acceptance by a party may be made 'subject to satisfaction of our purchaser’, 'subject to acceptance by our customers’, or the like.” (As quoted in Official Comment, UCC 1-207, McKinney’s Cons Laws of NY, Book 62-Vz, p 64 [1964].) Hawkland suggests that section 1-207 permits a party to proceed with the "contemplated performance of the original contract” without fear of a waiver. (Hawkland, supra, n 1, at 331.) Rosenthal takes issue with Hawkland and contends that the provision was only intended to apply where one party’s acquiescence in the other’s performance or demand might, "by operation of law”, effectuate a waiver or other prejudicing of his rights. (Rosenthal, supra, n 1, at 63; see also, Corbin, supra, n 1.)

      . This comment, together with all the section by section comments prepared by Professors William E. Hogan and Norman Penney, was submitted to the Legislature as part of the Commission’s Report, prepared pursuant to Executive Law § 165, and subsequently has served as part of the "New York Annotations” to the Consolidated Laws of New York. (See, New York Anns, McKinney’s Cons Laws of NY, Book 62-Vz, UCC 1-207, p 65 [1964].)

      . The commentators and the courts of other jurisdictions agree that the New York Annotations are quite expansive and do deal with the full payment check situation. (See, e.g., Hawkland, supra, n 1, at 332; Rosenthal, supra, n 1, at 61-62; Flambeau Prods. v Honeywell Information Sys., 116 Wis 2d 95, 341 NW2d 655, 661-662; Chancellor, Inc. v Hamilton Appliance Co., 175 NJ Super 345, 418 A2d 1326, 1328.) Moreover, as noted by Rosenthal, ”[i]n view of the importance of New York’s adoption of the Code to the national decision to do so, as well as the especially intensive study of the Code by that state’s Law Revision Commission before enactment, interpretative clues derived from the New York experience may be of particularly great weight.” (Rosenthal, supra, n 1, at 62; see also, Flambeau Prods. v Honeywell Information Sys., supra, at p 662.)

      . With regard to article 3, it is also notable that a proposed subdivision three to section 3-802, specifically giving accord and satisfaction effect to a negotiated full payment check, was ultimately deleted from the Code prior to its adoption. The proposed provision in the May 1949 Official Draft stated: "Where an instrument by its terms provides that it is taken in full satisfaction of an obligation the payee by obtaining payment of the instrument or by negotiating it discharges the obligation unless he establishes that unconscionable advantage has been taken by the obligor, or unless the drawer initiates the collection of the instrument on behalf of the payee.”

        In the 1952 Official Draft, it was somewhat modified: "Where a check or similar payment instrument provides that it is in full satisfaction of an obligation the payee discharges the underlying obligation by obtaining payment of the instrument unless he establishes that the original obligor has taken unconscionable advantage in the circumstances.”
      The Official Comments explained the intended effect of this codification of the law of accord and satisfaction. In part, it was noted: "Checks are frequently given with a term providing that they are 'in full payment of all claims’, or similar language. The holder who obtains payment of such a check takes its benefits subject to the drawer’s stipulation that he releases the original obligation. Even where the obligation is for an undisputed and liquidated debt there is no unfairness in the tender and acceptance of an accord and satisfaction; and in this respect subsection (3) changes the law in a number of states.”
      Ultimately, the provision was dropped in the 1956 Official Draft. Its withdrawal had been recommended by the sponsors, who stated: "Reason: The change consists in the deletion of (3); that subsection had provided that a check reciting full satisfaction of an obligation discharges the obligation, but this provision evoked criticism on the ground that it would work hardship, and was open to abuse. ” (Emphasis added; see generally, discussion in Rosenthal, supra, n 1, at 58-61.)

      . If the further purpose stated in Code § 1-102 (2) (c) "to make uniform the law among the various jurisdictions” is to be achieved, the National Conference of Commissioners should give serious thought to a clarifying revision. Until such revision is forthcoming and until or unless it is adopted by the Legislature, the foregoing analysis represents our view of the meaning of Code § 1-207.


text:
    In the Matter of Rye Psychiatric Hospital Center, Inc. David E. Doniger et al., Respondents, v Jack C. Schoenholtz et al., Appellants.
    Argued October 9, 1985;
    decided November 19, 1985

      POINTS OF COUNSEL

      Michael J. Trainor for appellants.
    I. The Rye Psychiatric Hospital Center, Inc.’s board of directors had but three vacancies on November 12, 1982. (Matter of Hammond Light & Power, 131 Misc 747, 224 App Div 684; Matter of Hellenic Cultural Circle v Kotsilimbas, 79 Misc 2d 675, 43 AD2d 672, 35 NY2d 814; Model, Roland & Co. v Industrial Acoustics Co., 16 NY2d 703.) II. The decision of the court below ignored petitioners-respondents’ sworn statements in prior litigations before the court in this proceeding. Petitioners-respondents are estopped by their pleadings. III. Petitioners-respondents should not, in any event, hold over as directors.

      Julius W. Cohn for respondents.
    I. This court should affirm the finding below that in the absence of mandatory charter or statutory provisions as to the mode of enactment of bylaws, a particular mode of enactment or formality is not necessary; a bylaw may be adopted either orally, or in writing, or by acts as well as by words and the existence of such a bylaw may be evidenced by a uniform course of proceeding for usage and acquiescence, as well as by an express vote manifested in writing. (Thistlethwaite v Thistlethwaite, 200 Misc 64.) II. Assuming a bylaw may be adopted by custom, usage or acquiescence in a course of conduct by those authorized to enact bylaws, the decision below that a specific numerical figure for the number of corporate directors was not transcribed into the bylaws of this corporation because the number of directors constituting the entire board was to equal the number of shareholders owning an equal interest in the corporation and having the right to vote in an election of directors should be affirmed. (Matter of Hellenic Cultural Circle v Kotsilimbas, 35 NY2d 814.) III. The court below rightfully held all parties to be estopped from denying their prior behavior; all parties changed position in this action. (Triple Cities Constr. Co. v Maryland Cas. Co., 4 NY2d 443; Metropolitan Life Ins. Co. v Childs Co., 230 NY 285; Lynn v Lynn, 302 NY 193; Romano v Metropolitan Life Ins. Co., 271 NY 288.) IV. Business Corporation Law § 705 is not applicable here. V. By their conduct, the parties have waived the irregularity in the bylaws. (Matter of Flushing Hosp. & Dispensary, 288 NY 125; Matter of Hungarian Fighters Fedn. v Samson, 30 Misc 2d 354; Matter of Wyatt v Armstrong, 186 Misc 216.) VI. The notice of the special meeting of November 12, 1982 was insufficient to properly apprise petitioners that a meeting had been called pursuant to Business Corporation Law § 603 and, therefore, that a quorum was not required in order to hold an election of directors. (Parochial Bus Sys. v Board of Educ., 60 NY2d 539; Matter of Faehndrich, 2 NY2d 468.)
   OPINION OF THE COURT

Jasen, J.

The issue of first impression presented on this appeal is whether the Business Corporation Law permits the number of directors constituting a corporate board to be determined by custom, usage and acquiescence, where there is no governing provision in the bylaws. We hold that it does not.

Respondent Rye Psychiatric Hospital Center (Rye Center) is a private psychiatric hospital incorporated in October 1973. At the time of incorporation, Rye Center had five equal shareholders who adopted corporate bylaws but failed to specify the size of the board of directors. In 1977, a sixth individual purchased an equal share in Rye Center. Although the bylaws remained silent on the number of directors, the parties conducted business as though the six of them, as the corporate shareholders, also constituted the board of directors.

In August 1982, petitioners, three of the shareholders, commenced an article 78 proceeding challenging the status of the sixth shareholder as a member of the board. The proceeding was eventually dismissed but, during its pendency, respondents, the remaining three shareholders, decided that the composition of the corporate board, for which there had concededly been no election at least since 1977, ought to be settled by a special meeting of the shareholders. One of the respondents formally demanded the special meeting and another, in his capacity as secretary of Rye Center, notified each of the shareholders in writing that such would be held on November 12, 1982, "for the purpose of electing directors”. Petitioners initially sought to obtain a temporary restraining order but, ultimately, chose instead simply to boycott the special meeting.

On the scheduled date, the special meeting proceeded in the petitioners’ absence. The respondents, all of whom were present, elected themselves as the three directors of Rye Center. Immediately thereafter, the respondents held a meeting of the board of directors and elected themselves to all the corporate offices.

Subsequent to being notified of the results of the meetings held on November 12, 1982, petitioners commenced this proceeding pursuant to Business Corporation Law § 619, seeking to nullify the respondents’ election of themselves as directors and then as officers of Rye Center. Special Term granted the petition and declared the election of directors to be null and void and the subsequent actions of the board of directors under the authority of that election to be unauthorized and invalid. The court held, inter alla, that the three shareholders present at the meeting in question failed to elect a full complement of six directors, that they had no authority to reduce that number and, therefore, that they failed to fulfill the sole purpose for which the special meeting had been called. On reargument, Special Term adhered to its original decision.

On appeal, the Appellate Division modified Special Term’s order by declaring the election of three directors to be valid but affirmed insofar as that order set aside respondents’ election of themselves as the corporate officers. The court held, inter alla, that proper notice of the special meeting had been given to all parties and that the respondents did have the necessary quorum at the special meeting to elect themselves as directors. The court also ruled, however, that the size of the board of directors had been established as six by the parties’ prior course of dealings, that the three individual respondents did not constitute the quorum necessary to reduce that number at the meeting and, therefore, that the three petitioners remain on the board, together with respondents, as three holdover directors. Because we disagree with the Appellate Division that the number of directors on Rye Center’s corporate board was established by the parties’ prior course of conduct, we now reverse.

Pursuant to Business Corporation Law § 603 (b), a quorum for the purpose of electing directors at a special meeting called on the demand of one of the shareholders is merely the actual number of "shareholders attending, in person or by proxy, and entitled to vote in an election of directors”. But such does not constitute a quorum of shareholders "for the transaction of any other business.” For that purpose, Business Corporation Law § 608 requires that, unless otherwise provided in the certificate of incorporation or the bylaws, the "holders of a majority of the shares entitled to vote” must be present. Here it cannot be disputed that the three individual respondents attending the special meeting constituted a quorum of shareholders for the purpose of electing directors under the definition of section 603 (b). Whether, however, the three respondents in attendance constituted a quorum of shareholders under section 608 for the transaction of any other corporate business, and whether any such quorum was even necessary, are questions for which resort must be had to other provisions of the Business Corporation Law.

Contrary to the holding of the Appellate Division, a section 608 quorum was not required to "reduce the number of directors constituting the board from six to three”. (101 AD2d, at p 316.) Indeed, the size of the board did not have to be reduced whatsoever inasmuch as the number of directors could not be other than three under the law applicable to the facts of this case.

Business Corporation Law § 702 (a) provides that: "The number of directors constituting the entire board shall not be less than three, except that where all the shares of a corporation are owned beneficially and of record by less than three shareholders, the number of directors may be less than three but not less than the number of shareholders. Subject to such limitation, such number may be fixed by the by-laws, or by action of the shareholders or of the board under the specific provisions of a by-law adopted by the shareholders. If not otherwise fixed under this paragraph, the number shall be three. As used in this article, 'entire board’ means the total number of directors which the corporation would have if there were no vacancies.” (Emphasis added.) Pursuant to the unambiguous and unequivocal language of this statute, where, as here, the corporate bylaws make no provision whatsoever for the size of the board of directors, "the number shall be three”.

This court has previously held that the clear provisions of Business Corporation Law § 702 specifying particular requirements for setting the number of directors on a corporate board must be complied with strictly. (See, Model, Roland & Co. v Industrial Acoustics Co., 16 NY2d 703.) In Model, Roland & Co., we held that, in accordance with section 702 (b), a change in the number of directors could not be accomplished except "by means of a by-law”. A fortiori, where, as here, the corporation has no governing bylaw whatsoever, a deviation from the number of directors explicitly fixed by the statute could only be effectuated by the proper enactment by the shareholders of a statutorily requisite bylaw.

The sole New York authority relied upon by petitioners and the Appellate Division for the proposition that the size of the board of directors may be established by "custom, usage and acquiescence” is Thistlethwaite v Thistlethwaite (200 Misc 64). Although this 1950 case has been cited as authority in some of the commentaries (see, e.g., 13 NY Jur 2d, Business Relationships § 153; 2 White, New York Corporations j[ 601.08 [13th ed]; 8 Fletcher, Cyclopedia of Corporations § 4173 [Permanent ed]), reliance thereupon is misplaced. The statement of Monroe County Supreme Court in that case, that the number of directors might be fixed " 'by acts as well as by words [as] evidenced by a uniform course of proceeding, or usage and acquiescence’ ” (at p 70), was unnecessary dictum in that court’s decision and, moreover, it was not then, nor has it ever since been, adopted by this court. Such a rule would be wholly incompatible with the clear mandate of section 702 that a board of directors shall consist of three members in the absence of a bylaw provision to the contrary. Indeed, the adoption of such a rule would inevitably contravene the manifest statutory policy purpose to reduce, as much as possible, the confusion, uncertainty and potential debate over the composition and size of corporate boards of directors in every case where no formal corporate decision has been reached and memorialized in a written bylaw.

Here, Rye Center having never adopted a bylaw provision' establishing the size of its board of directors, Business Corporation Law § 702 governs and the board, thereby, comprised three members. Consequently, the three individual respondents, acting as a lawful section 603 (b) quorum of shareholders, filled all the directorships at the special meeting of November 12, 1982, when they elected themselves to the corporate board. Further, because the number of directors was already fixed by operation of statutory law at three, no section 608 quorum consisting of the holders of the majority of the shares was necessary to "reduce” the size of the board to that number.

Contrary to petitioners’ contention, this court’s decision in Matter of Hellenic Cultural Circle v Kotsilimbas (35 NY2d 814, affg 43 AD2d 672, affg 79 Misc 2d 675) does not require a different result. In that case, a shareholder sought to set aside the election of a certain number of directors in excess of that established by the certificate of incorporation. (At the time, former Stock Corporation Law § 5 [7] provided that the certificate was controlling.) Supreme Court, exercising its "as justice may require” authority (see, Business Corporation Law § 619, formerly found in General Corporation Law § 25), denied the petition on the ground that the challenging shareholder had herself participated in the election. At the same time, however, the court directed that all subsequent elections must comply with the mandate of the statute in electing only the lawfully fixed number of directors. Both the Appellate Division and this court affirmed.

In this proceeding, none of the parties have challenged any prior election of an excess number of directors or sought to set aside any prior action taken by the parties while they were conducting corporate affairs as though all were members of the board of directors. Rather, an election of directors was properly demanded and scheduled, all the parties were properly notified, a quorum was in attendance at the special meeting, and the statutorily mandated number of directors was elected. No violation of the Business Corporation Law is alleged, and no basis for equitable relief, as was involved in Matter of Hellenic Cultural Circle, is presented.

Finally, having the authority to elect three directors and having elected themselves to those positions, respondents then constituted the entire corporate board. Thereafter, they had the authority to elect corporate officers. Under Business Corporation Law § 707, a majority of the directors constitutes a quorum sufficient for the transaction of corporate business and, under section 715, the election of officers is a proper function of the board. Consequently, respondents, in their capacity as the newly elected board of directors, were empowered to conduct the business of Rye Center following the special meeting of November 12, 1982, and, under such authority, to elect themselves as corporate officers.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, and the petition dismissed insofar as it sought to vacate and set aside actions of the board of directors under authority of the election held at the special meeting of November 12, 1982.

Chief Judge Wachtler and Judges Meyer, Kaye, Alexander and Titone concur; Judge Simons taking no part.

Order, insofar as appealed from, reversed, etc.


text:
    Maross Construction, Inc., Respondent, v Central New York Regional Transportation Authority, Appellant.
    Argued October 8, 1985;
    decided November 21, 1985

      POINTS OF COUNSEL

      Walter D. Kogut for appellant.
    I. The contract documents required Maross to supply tanks V18 and V28. (White v Hoyt, 73 NY 505; Joseph Davis, Inc. v Merritt-Chapman & Scott Corp., 27 AD2d 114.) II. Maross’s alteration of a contract document undermined the competitive bidding process. (Matter of Glen Truck Sales & Serv. v Sirignano, 31 Misc 2d 1027; Le Cesse Bros. Contr. v Town Bd., 62 AD2d 28, 46 NY2d 960; Matter of Superior Hydraulic v Town Bd., 88 AD2d 404, 58 NY2d 824; Matter of Fischbach & Moore v New York City Tr. Auth., 79 AD2d 14, 53 NY2d 604; Acme Bldrs. v Facilities Dev. Corp., 51 NY2d 833; Matter of Municipal Consultants & Publishers v Town of Ramapo, 47 NY2d 144; Matter of Town of Hempstead v United States Trucking Corp., 31 Misc 2d 419.) III. The American Institute of Architects document should be reformed to conform to the intent of the parties. (Welles v Yates, 44 NY 525; Brandwein v Provident Mut. Life Ins. Co., 3 NY2d 491; Levy v Mindlin, 21 Misc 2d 983; Krieger v Krieger, 25 NY2d 364.) IV. The court below erred when, it granted plaintiff summary judgment. (Phillips v Kantor & Co., 31 NY2d 307; Stillman v Twentieth Century-Fox Film Corp., 3 NY2d 395; Esteve v Abad, 271 App Div 725; Glick & Dolleck v Tri-Pac Export Corp., 22 NY2d 439; Barrett v Jacobs, 255 NY 520.)

      Thomas F. O'Donnell for respondent.
    I. The contract between Maross and the Authority did not require Maross to include the tanks. II. Defendant-appellant was acting within the scope of its authority in executing a contract which contained the provision absolving plaintiff-respondent of responsibility for the tanks. (Matter of Glen Truck Sales & Serv. v Sirignano, 31 Misc 2d 1027; Thompson Constr. Corp. v Dormitory Auth., 48 Misc 2d 296; Matter of Exley v Village of Endicott, 51 NY2d 426.) III. There certainly is no basis for "reformation of the contract” to delete Maross’s disclaimer and to render Maross responsible for installation of the tanks. (Channel Master Corp. v Aluminum Ltd. Sales, 4 NY2d 403.)
   OPINION OF THE COURT

Jasen, J.

The issue dispositive of this appeal is whether a broad arbitration clause in a public construction contract which empowers the architect to resolve all contractual disputes submitted by the parties binds those parties to the architect’s determination, notwithstanding a provision in the contract with which the determination conflicts.

Defendant, Central New York Regional Transportation Authority (the Authority), invited bids for a certain liquid handling systems contract as part of a project for the construction of a public bus garage in the City of Syracuse. Prior to the date on which bids were to be submitted, a representative of plaintiff, Maross Construction, Inc. (Maross), informed the Authority’s architect of an apparent ambiguity in the bid documents. While certain contract drawings indicated that the responsibility for the supply and installation of two fiberglass tanks belonged to the general contractor, the bid specifications placed that responsibility upon the so-called liquids handling systems contractor. Maross requested that the matter be clarified by means of an addendum to the bid documents. The architect responded that the bid specifications took precedence and that the minor discrepancy in the drawings did not require that an addendum be issued.

Maross submitted a bid which was the lowest of three submitted. The Authority awarded the liquids handling systems contract to Maross and sent an owner-contractor agreement for its signature. Prior to affixing its signature, however, Maross added a paragraph to the agreement at article 2 which is labeled "the work” and which contains a preprinted clause introducing the description of the "Work required by the contract documents”. The typed language inserted by Maross provided as follows: "The contractor, Maross Construction, Inc., is not responsible for the supplying and installing of fiber-glass tanks V18 and V28 on page H1.4 of the contract drawings, as the drawings specifically place such responsibility with the general contractor.”

Although Maross thus attempted to relieve itself of responsibility for the supply and installation of the tanks, it did not otherwise notify the Authority and, moreover, it did not make any modifications to certain other provisions of the agreement which pertain to the same matter. Article 7 of the owner-contractor agreement, which appears on the signature page and is entitled "Miscellaneous Provisions”, contains an itemization of all the "Contract Documents” stated to "constitute the entire agreement between the Owner and Contractor”. This itemization lists various specifications and drawings which, in turn, specifically include the tanks in question among the liquid handling systems contractor’s responsibilities.

With article 2 thus altered and article 7 and its referenced contract documents left undisturbed, Maross signed the owner-contractor agreement and returned it to the Authority. Without making any protests, corrections or deletions, the Authority added its signature to the agreement and the project eventually commenced. Shortly thereafter, a dispute arose concerning responsibility for the supply and installation of the tanks. When Maross insisted it was not responsible under the provisions of the contract, the Authority requested that the issue be resolved by the architect. Under the "General Conditions of the Contract”, a document explicitly incorporated into the owner-contractor agreement, the parties entrusted broad arbitration powers to the architect. At article 2, paragraph 2.01, entitled "Authority and Duties of Architect”, the "General Conditions” provide in pertinent part: "To resolve all disputes and to prevent litigation the parties to this Contract authorize the Architect to decide all questions of any nature whatsoever arising out of, under or in connection with, or in any way related to or on account of, this Contract (including claims in the nature of breach of Contract or fraud or misrepresentation before or subsequent to acceptance of the Contractor’s Proposal and claims of a type which are barred by the provisions of the Contract), and his decisions shall be conclusive, final and binding on the parties. His decision may be based on such assistance as he may find desirable, including advice of engineering specialists. The effect of his decision shall not be impaired or waived by any negotiations or settlement offers in connection with the question decided, whether or not he participated therein himself, or by any prior decision of others, which prior decisions shall be deemed subject to review, or by any termination or cancellation of this Contract.” (Emphasis added.)

Pursuant to the foregoing authority, the architect accepted documentary submissions from both parties and ultimately concluded that the contractual specifications clearly impose the responsibility for the tanks upon Maross. The architect directed Maross to return to work and to provide the tanks in question without extra cost.

Maross refused to comply with the architect’s directives and, instead, commenced this action seeking a declaration that it is not responsible under the contract for supplying and installing the tanks. On cross motions for summary judgment, Special Term granted judgment to the Authority. The court found that Maross knew and understood the terms of the contract as intended and drafted by the Authority, and ruled that Maross had no power to alter a substantial term of a public contract subject to competitive bidding as it had attempted to do. On appeal, the Appellate Division reversed and awarded summary judgment to Maross. That court held that the Authority had bound itself to the disclaimer provision added by Maross when it affixed its signature to the contract. The court added, moreover, that the architect’s arbitration authority extends only to the resolution of factual disputes and, therefore, that the architect’s contrary construction of the parties’ contract was not entitled to binding effect. Because we disagree with the Appellate Division’s characterization of the architect’s arbitral authority under the contract in question, we now reverse.

An agreement to submit contractual disputes to arbitration, once viewed adversely as an improper attempt to preclude judicial review even where such was warranted (see, Meacham v Jamestown, Franklin & Clearfield R. R. Co., 211 NY 346), is now well recognized as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process (Matter of Sprinzen [Nomberg], 46 NY2d 623, 629; see also, Matter of Silverman [Benmor Coats], 61 NY2d 299, 307; CPLR art 75). Indeed, wherever the agreement to arbitrate is clearly expressed, a subsequently resistant party will be deemed to have relinquished the right to litigate disputes in the courts and may be compelled, instead, to submit to arbitration. (Matter of Franklin Cent. School [Franklin Teachers Assn.], 51 NY2d 348, 356-357; cf. Matter of Waldron [Goddess], 61 NY2d 181, 183-184.)

Where the parties have expressly agreed to arbitrate their disputes, it remains to be determined whether the subject matter of the dispute is one that may be submitted to arbitration without violation of any law or public policy and, if so, whether it falls within the scope of the arbitration agreement. (See, Matter of Franklin Cent. School [Franklin Teachers Assn.], supra, at p 355.) Hence, where jurisdiction over a particular type of dispute is statutorily bestowed exclusively upon the courts (see, e.g., Matter of Knickerbocker Agency [Holz], 4 NY2d 245; cf. Matter of South Colonie Cent. School Dist. [South Colonie Teachers Assn.], 46 NY2d 521, 525-526) or where judicial, as opposed to arbitral, enforcement of particular rights and prohibitions is mandated by public policy (see, e.g., Board of Educ. v Areman, 41 NY2d 527; Matter of Aimcee Wholesale Corp. [Tomar Prods.], 21 NY2d 621), an agreement to arbitrate will not be given effect by the courts. Otherwise, where no such conflict with law or public policy exists, the courts will enforce the parties’ contractual decision to submit their disputes to arbitration (see, Matter of Sprinzen [Nomberg], supra, at pp 631-632). Moreover, while a specifically enumerated restriction upon arbitral authority will be upheld by the courts (see, Matter of Silverman [Benmor Coats], supra, at p 308; Matter of United Nations Dev. Corp. v Norkin Plumbing Co., 45 NY2d 358, 364), no such limitation upon either factual or legal dispute resolution will be inferred from a broadly worded contractual provision expressly calling for the arbitration of all disputes arising out of the parties’ contract (Matter of Turner [Booth Mem. Hosp.], 63 NY2d 633; Matter of Albany County Sheriff’s Local 775 [County of Albany], 63 NY2d 654; Matter of Silverman [Benmor Coats], supra, at p 308; Matter of Board of Educ. v Dover-Wingdate Teachers’ Assn., 61 NY2d 913).

Finally, the resolution of a dispute properly submitted to arbitration will not so readily be disturbed by the courts. Indeed, an arbitrator’s interpretation of the parties’ contract is impervious to judicial challenge even where "the apparent, or even the plain, meaning of the words” of the contract has been disregarded. (Rochester City School Dist. v Rochester Teachers Assn., 41 NY2d 578, 582.) The arbitrator’s determination may even entail a misapplication of substantive rules of law and still be not subject to being vacated unless the court concludes that it is totally irrational or violative of a strong public policy. (Matter of Silverman [Benmor Coats], supra, at p 308; cf. Garrity v Lyle Stuart, Inc., 40 NY2d 354, 357; Matter of Associated Teachers v Board of Educ., 33 NY2d 229, 235-236.) The foregoing principles, it should be noted, are equally applicable to commercial arbitration in the public and private sector. (See, Matter of Turner [Booth Mem. Hosp.], supra).

Here, the parties expressly agreed to resolve all their disputes by arbitration in the clear and unequivocal language contained in article 2 of the "General Conditions of the Contract”. Maross has not contended otherwise and, moreover, there has been no challenge made to the lawfulness of the arbitration provision or to its conformity with public policy.

Additionally, the language used to describe the architect’s arbitral authority is all-encompassing. The arbitration provision empowers the architect to resolve "all questions of any nature whatsoever” which might arise out of the contract, and no specific restriction upon that authority is enumerated. Contrary to the holding at the Appellate Division, such a broad arbitration provision is not limited to the resolution of mere factual questions but, rather, includes within its scope the interpretation of the legal meaning of the contract. Of course, the parties may choose by limiting language to restrict arbitral authority to factual disputes or to those falling within the particular technical competence of an architect, engineer, accountant or other expert serving as the arbitrator. (See, e.g., Joseph Davis, Inc. v Merritt-Chapman & Scott Corp., 27 AD2d 114, affd 23 NY2d 872.) However, there is no general prohibition, emanating either from statute, case law or public policy, against the arbitral resolution of disputes regarding the legal meaning of the parties’ contract if they so agree. (See, e.g., Matter of Albany County Sheriff’s Local 775 [County of Albany], supra; Matter of Silverman [Benmor Coats], supra; Rochester City School Dist. v Rochester Teachers Assn., supra.)

Moreover, it cannot be said that the architect’s determination was totally irrational. Notwithstanding the disclaimer provision added by Maross and regardless of the construction which a court of law might consequently give to the parties’ contract, there is a rational basis for the architect’s decision apparently to give no effect to the added language and to interpret the contract otherwise. Prior to submitting its bid, Maross was clearly advised by the architect that it was responsible for providing the tanks and that the two drawings apparently indicating otherwise were erroneous. Hence, when Maross did submit its bid, it already knew and understood the intention of the Authority and the architect’s interpretation of the bid specifications. Moreover, other drawings clearly place responsibility for the tanks upon Maross as the liquids handling systems contractor and certain contract specifications expressly state that the liquids handling systems contractor must provide the tanks and complete their installation.

Maross argues that an ambiguity was thus created by the erroneous drawings and should have been resolved against the Authority as the drafter. While this principle of contra profer entem may be a generally valid rule for the judicial construction of contractual provisions (see, 151 W Assoc. v Printsiples Fabric Corp., 61 NY2d 732), it in no way rebuts the test of mere rationality by which an arbitrator’s award must be judged. Here, it cannot be gainsaid that the architect had reasonable grounds, both in the pre-bid communications between the parties and in the drawings and specifications in their contract, upon which to predicate its decision that Maross was responsible for the tanks.

Finally, the fact that the architect chose only to consider the contractual drawings and specifications it deemed relevant and ignored the disclaimer paragraph inserted by Maross does not require a different result. Indeed, unless the arbitrator’s determination is thus rendered totally irrational, a refusal or failure to pass upon an arguably relevant issue or piece of evidence, even if mistaken, is a matter of arbitral judgment which, being part and parcel of the arbitrator’s determination, is not judicially reviewable. (Matter of Raisler Corp. [New York City Hous. Auth.], 32 NY2d 274, 282-283; Lentine v Fundaro, 29 NY2d 382, 385.)

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

Chief Judge Wachtler and Judges Meyer, Kaye, Alexander and Titone concur; Judge Simons taking no part.

Order reversed, etc.

       Contract drawings H1.3 and H1.4, which the architect had advised Maross were erroneous, indicate that the tanks were not Maross’s responsibility. On the other hand, as noted by Special Term, the architect’s conclusion is supported by drawings FE1.2 and FE2.9 and by specifications section 01016, paragraph 1.04, and section 11441, paragraphs 2.08 and 3.01.


text:
    Daniel H. Ivancic, Appellant, v Mary Olmstead, Respondent.
    Decided November 26, 1985
    APPEARANCES OF COUNSEL

      Robert J. Krzys for appellant.

      Fred J. Hutchison for respondent.
   OPINION OF THE COURT

Jasen, J.

At issue on this appeal is whether plaintiff, who seeks to recover for injuries sustained when an overhanging limb from a neighbor’s maple tree fell and struck him, established a prima facie case of negligence and whether Trial Term erred, as a matter of law, in refusing to submit to the jury the cause of action sounding in common-law trespass.

Plaintiff was working on his truck in the driveway of his parents’ home located in the Village of Fultonville, New York. Since 1970, defendant has owned and lived on the property adjoining to the west. A large maple tree stood on defendant’s land near the border with plaintiff’s parents’ property. Branches from the tree had extended over the adjoining property. During a heavy windstorm on September 26, 1980, an overhanging limb from the tree fell and struck plaintiff, causing him serious injuries. As a result, plaintiff commenced this action, interposing causes of action in negligence and common-law trespass.

At trial, the court declined to charge the jury on the common-law trespass cause of action or on the doctrine of res ipso loquitur, submitting the case solely on the theory of negligence. The jury rendered a verdict in favor of the plaintiff in the sum of $3,500. Both parties moved to set aside the verdict, the plaintiff upon the ground of inadequacy, and the defendant upon the ground that the verdict was against the weight of the evidence. The court ultimately found the verdict to be one of compromise and ordered a new trial on the issues of both liability and damages.

Upon cross appeals, the Appellate Division reversed, on the law, and dismissed the complaint. The court reasoned that no competent evidence was presented upon which it could properly be concluded that defendant had constructive notice of the alleged defective condition of the tree. The Appellate Division did not address the correctness of the trial court’s ruling in declining to charge the jury on the common-law trespass cause of action. For the reasons that follow, the order of the Appellate Division should be affirmed.

Considering first the negligence cause of action, it is established that no liability attaches to a landowner whose tree falls outside of his premises and injures another unless there exists actual or constructive knowledge of the defective condition of the tree. (Harris v Village of East Hills, 41 NY2d 446, 449; Restatement [Second] of Torts § 363; Prosser and Keeton, Torts, at 390 [5th ed].)

Inasmuch as plaintiff makes no claim that defendant had actual knowledge of the defective nature of the tree, it is necessary to consider whether there was sufficient competent evidence for a jury to conclude that defendant had constructive notice. We conclude, as did the Appellate Division, that plaintiff offered no competent evidence from which it could be properly found that defendant had constructive notice of the alleged defective condition of the tree. Not one of the witnesses who had observed the tree prior to the fall of the limb testified as to observing so much as a withering or dead leaf, barren branch, discoloration, or any of the other indicia of disease which would alert an observer to the possibility that the tree or one of its branches was decayed or defective.

At least as to adjoining landowners, the concept of constructive notice with respect to liability for falling trees is that there is no duty to consistently and constantly check all trees for nonvisible decay. Rather, the manifestation of said decay must be readily observable in order to require a landowner to take reasonable steps to prevent harm. (See, Berkshire Mut. Fire Ins. Co. v State of New York, 9 AD2d 555.) The testimony of plaintiff’s expert provides no evidence from which the jury could conclude that defendant should reasonably have realized that a potentially dangerous condition existed. Plaintiff’s expert never saw the tree until the morning of the trial when all that remained of the tree was an eight-foot stump. He surmised from this observation and from some photographs of the tree that water invaded the tree through a "limb hole” in the tree, thus causing decay and a crack occurring below. However, the expert did indicate that the limb hole was about eight-feet high and located in the crotch of the tree which would have made it difficult, if not impossible, to see upon reasonable inspection. Although there may have been evidence that would have alerted an expert, upon close observation, that the tree was diseased, there is no evidence that would put a reasonable landowner on notice of any defective condition of the tree. Thus, the fact that defendant landowner testified that she did not inspect the tree for over 10 years is irrelevant. On the evidence presented, even if she were to have inspected the tree, there were no indicia of decay or disease to put her on notice of a defective condition so as to trigger her duty as a landowner to take reasonable steps to prevent the potential harm.

Since the evidence adduced at trial failed to set forth any reasonable basis upon which notice of the tree’s defective condition could be imputed to defendant, and recognizing that the cases relied upon by plaintiff are readily distinguishable, we agree with the view of the Appellate Division that plaintiff failed to establish a prima facie case of negligence.

Turning to plaintiff’s claim of error by the trial court in declining to submit to the jury the cause of action sounding in common-law trespass, we conclude there was no error. The scope of the common-law tort has been delineated in Phillips v Sun Oil Co. (307 NY 328, 331), wherein this court held: "while the trespasser, to be liable, need not intend or expect the damaging consequences of his intrusion, he must intend the act which amounts to or produces the unlawful invasion, and the intrusion must at least be the immediate or inevitable consequence of what he willfully does, or which he does so negligently as to amount to willfulness.” In this case, there is evidence that defendant did not plant the tree, and the mere fact that defendant allowed what appeared to be a healthy tree to grow naturally and cross over into plaintiff’s parents’ property airspace, cannot be viewed as an intentional act so as to constitute trespass. (See, Turner v Coppola, 102 Misc 2d 1043 [overhanging tree branches are not an intentional invasion of adjoining property and are therefore not a trespass on the adjoining property].) Language in Countryman v Lighthill (24 Hun 405) is not contrary to this holding. There, the court stated (at p 407) that no liability could be imposed absent "real, sensible damage” resulting from the overhanging branches. However, in Countryman, the theory of recovery was nuisance rather than trespass and the damage the court was referring to appears to be damage to land rather than damage to person. (See, McKenna v Allied Chem. & Dye Corp., 8 AD2d 463, 467.)

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

Chief Judge Wachtler and Judges Meyer, Simons, Kaye, Alexander and Titone concur.

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order affirmed, with costs.

       Plaintiff principally relies on three cases which he claims support the jury’s finding of negligence: Harris v Village of East Hills (41 NY2d 446), Rinaldi v State of New York (49 AD2d 361) and Edgett v State of New York (7 AD2d 570). However, each of these cases is factually distinguishable from this case. In Harris, the Village of East Hills was found liable when a defective tree fell on a passing motorist. The tree in that case was "patently defective” and contained a "cavity which was observable on ordinary inspection” (at p 449). It is interesting to note that in Harris, the county, whose duty it was to inspect the trees from the highway, was not found liable because the exterior sign of decay was on the backside of the tree which faced away from the road. In Rinaldi v State of New York (supra), inspection would have revealed a hole one-foot deep and one foot in diameter in the tree. The State highway authorities were also on notice that trees of the same age and species as the fallen tree had been found diseased , two years earlier. Recognizing that each case should turn on its particular facts, the State was found liable in that it failed to make an observation that would have alerted the State to the "readily observable” condition of the tree. (Id., at p 364.) Finally, in Edgett v State of New York (supra), the State had actual notice of the defective nature of the tree. Witnesses testified that the tree decay was readily visible.