text:
    In the Matter of the Estate of Mark Rothko, Deceased. Kate Rothko et al., Respondents; Bernard J. Reis et al., as Executors of Mark Rothko, Deceased, et al., Appellants-Respondents; Attorney-General of the State of New York, Respondent-Appellant.
    Argued October 4, 1977;
    decided November 22, 1977

      POINTS OF COUNSEL

      Arthur Richenthal for Bernard J. Reis and another, appellants-respondents.
    I. As a matter of law, there is no such conflict of interest to invoke the "no further inquiry” rule of a self-dealing transaction. (Phelan v Middle States Oil Corp., 220 F2d 593; Matter of Foss, 282 App Div 509; Van Heusen v Van Heusen Charles Co., 74 Misc 292; Matter of Sherman, 9 Misc 2d 731, 279 App Div 981; Fox v Arctic Placer Min. & Milling Co., 229 NY 124; Borden v Guthrie, 23 AD2d 313, 17 NY2d 571; Dodge v Richmond, 10 AD2d 4, 8 NY2d 829; Grace v Deepdale, 9 Misc 2d 538, 8 AD2d 965, 7 NY2d 987, 363 US 811; Meinhard v Salmon, 249 NY 458.) II. Prior court approval of the estate contracts was not required since there was no self-dealing. (Matter of Tannenbaum, 20 AD2d 808, 15 NY2d 829; Matter of Stulman, 146 Misc 861; Matter of Ebbets, 139 Misc 250; Matter of Pulitzer, 139 Misc 575, 237 App Div 808; City Bank Farmers Trust Co. v Smith, 263 NY 292; Matter of Ryan, 188 Misc 61, 272 App Div 799, 996; Matter of Foss, 282 App Div 509.) III. The testator waived any claim of impermissible conflict. (Matter of Dow, 32 Misc 2d 415, 3 AD2d 968, 5 NY2d 739; City Bank Farmers Trust Co. v Cannon, 291 NY 125; O’Hayer v de St. Aubin, 30 AD2d 419; Matter of Kellogg, 35 Misc 2d 541; Matter of Ahrens, 193 Misc 844, 275 App Div 588, 301 NY 701; Matter of Heidenreich, 85 Misc 2d 135; Matter of Foss, 282 App Div 509; Matter of Berri, 130 Misc 527; Matter of Hammer, 16 AD2d 111, 12 NY2d 893.) IV. The 1970 contracts were fair and in the best interests of the estate. (Borden v Guthrie, 23 AD2d 313, 17 NY2d 571; Matter of Vought, 70 Mise 2d 781, 45 AD2d 991; Sinkoff Beverage Co. v Schlitz Brewing Co., 51 Misc 2d 446; Simon v Electrospace Corp., 28 NY2d 136; Youssoupoff v Widener, 126 Misc 491, 219 App Div 712, 246 NY 174; Oglesby v Allen, 408 F2d 1154; MacDonald v Commissioner of Internal Revenue, 230 F2d 534; Propper v Commissioner of Internal Revenue, 89 F2d 617; Plaza Hotel Assoc, v Wellington Assoc., 55 Misc 2d 483, 28 AD2d 1209, 22 NY2d 846; Lawrence v Mullen, 40 AD2d 871.) V. As a matter of law it is improper to remove Stamos and Reis as executors. (Matter of Jung, 205 App Div 37; Matter of Berri, 130 Misc 527.) VI. The award of appreciation damages is legally erroneous and improperly punitive rather than compensatory. (Greiss v Royal Nat. Bank, 31 NY2d 1003; Vinlis Constr. Co. v Roreck, 21 NY2d 687; Ungewitter v Toch, 31 AD2d 583; 26 NY2d 687; Matter of Segal, 170 Misc 673; Menzel v List, 24 NY2d 91; Simon v Electrospace Corp., 28 NY2d 136; Wendt v Fischer, 243 NY 439.)

      Bernard H. Greene and John A. Silberman for Morton Levine, appellant-respondent.
    I. Levine at all times acted honestly, prudently and reasonably, and did not commit or knowingly assent to any dereliction of duty. (Matter of Clark, 257 NY 132; King v Talbot, 40 NY 76; Matter of Weston, 91 NY 502; Matter of Brower, 71 Misc 398; Wilmerding v McKesson, 103 NY 329; Matter of McCafferty, 147 Misc 179.) II. Levine’s reasonable reliance upon counsel’s advice combined with his exercise of prudent business judgment constitutes a complete defense in this proceeding. (United States v Jackson, 55 F Supp 517; Matter of Smith, 148 Misc 585; Matter of Joost, 50 Misc 78, Matter of Ball, 55 App Div 284; Matter of Westerfield, 32 App Div 324; Matter of Niles, 113 NY 547; Matter of Silkman, 121 App Div 202, 190 NY 560; Matter of Demmerle, 130 Misc 684; United States v Benjamin, 328 F2d 854.) III. Levine’s removal would be a flagrant miscarriage of justice. (Matter of Jung, 205 App Div 37; Matter of Leland, 219 NY 387; Matter of Israel, 64 Misc 2d 1035; Matter of Berri, 130 Misc 527; Matter of Burr, 118 App Div 482; Elias v Schweyer, 13 App Div 336; Matter of Monroe, 142 NY 484; Matter of Rosenberg, 165 Misc 92.)

      David W. Peck, John W. Dickey, David M. Olasov, Pamela S. Dwyer and David B. Tulchin for Marlborough Gallery, Inc., and others, appellants-respondents.
    I. There was admittedly no self-dealing and the "no further inquiry” rule was thus improperly applied. If there was a conflict of interest, the contracts could be set aside only if proved to be unfair. (Van Heusen v Van Heusen Charles Co., 74 Misc 292; Matter of Sherman, 9 Misc 2d 731, 279 App Div 981; Skinnell v Mahoney, 197 App Div 808; Otier v Neiman, 96 Misc 481; Matter of Hubbell, 302 NY 246; La Vin v La Vin, 283 App Div 809, 307 NY 790; Globe Woolen Co. v Utica Gas & Elec. Co., 224 NY 483; Phelan v Middle States Oil Corp., 220 F2d 593.) II. No executor had a conflict of interest. The alleged conflict on the part of Reis, assuming it existed, was sanctioned by the decedent (who also bound his executors to deal with Marlborough) and was eliminated by Reis’ recusal from the contract negotiations. (Grace v Deepdale, Inc., 9 Misc 2d 538, 8 AD2d 965; Matter of Berri, 130 Misc 527; O’Hayer v de St Aubin, 30 AD2d 419; Matter of Hammer, 16 AD2d 111, 12 NY2d 893; Matter of Kellogg, 35 Misc 2d 541; Matter of Dow, 32 Misc 2d 415, 3 AD2d 968, 5 NY2d 739; Matter of Balfe, 245 App Div 22; Matter of Johnson, 14 Misc 2d 138.) III. The 1970 sales and consignment contracts were reasonable and fair. (Matter of Bloch, 189 Misc 942; Purdy v Lynch, 145 NY 462; Costello v Costello, 209 NY 252.) IV. The Marlborough appellants lacked notice of any breach of trust and have no liability as third parties. (Bonham v Coe, 249 App Div 428, 276 NY 540; Purñeld v Kathrane, 73 Misc 2d 194; Fidelity & Deposit Co. of Md. v Queens County Trust Co., 226 NY 225; Fleck v Perla, 40 AD2d 1069; Dye v Lincoln Rochester Trust Co., 40 AD2d 583, 31 NY2d 1012.) V. The award of damages was calculated on an impermissible legal theory, was grossly excessive and admittedly punitive rather than compensatory. (Wetmore v Porter, 92 NY 77; Fleck v Perla, 40 AD2d 1069; Bullís v Bruce, 274 App Div 532; Noll v Smith, 250 App Div 453; Bonham v Coe, 249 App Div 428, 276 NY 540; Jones v Morgan, 90 NY 4; Jones v National Chautauqua County Bank of Jamestown, 272 App Div 521; Filer v Creole Syndicate, 230 App Div 509, 256 NY 346; Vanleigh Carpet Corp. v Schoor’s Iron Forge, 65 Misc 2d 504.) VI. The Surrogate had no jurisdiction or authority to alter the 1969 contracts between Marlborough and Rothko. VII. The finding of contempt was clearly erroneous. (Sternberg v Zaretsky, 20 AD2d 795, 14 NY2d 842; Silverman v Oberman, 5 AD2d 927; Tierney v James, 269 App Div 348; Ketchum v Edwards, 153 NY 534; People v Balt, 34 AD2d 932; Ziegfeld v Norworth, 148 App Div 185.)

      Louis J. Lefkowitz, Attorney-General (Gustave Harrow of counsel), for ultimate charitable beneficiaries, respondent-appellant.
    I. There was a rising curve of prices through all of the pertinent points in time. (Murray v Cooper, 268 App Div 411; Lynch v Bailey, 275 App Div 527; Youssoupoff v Widener, 246 NY 174; Weinberg v Edelstein, 201 Misc 343; Larido Corp. v Crusader Mfg. Co., 4 Misc 2d 231; Mandel v Liebman, 303 NY 88; Elco Shoe Mfrs. v Sisk, 260 NY 100.) II. The consignment of 100 of the best paintings left by Mark Rothko involved an unbroken chain of fraudulent manipulations, concealment and finally fabrication of documents involving the consigned paintings. III. Paintings were sold in "contempt” of court. (Korde Corp. v Casino Classics, 280 App Div 740; Matter of Black, 138 App Div 562; Jackson v Murray, 25 App Div 140; Schieffelin v Hylan, 191 App Div 324, 229 NY 633.) IV. To the extent that paintings are not returned, the beneficiaries herein can never be made whole; therefore the only appropriate measure of damages is one which most nearly provides a substitute for failure to. return paintings. (Elco Shoe Mfrs. v Sisk, 260 NY 100; Polley v Daniels, 238 App Div 181; Matter of De Belardino, 77 Misc 2d 253, 47 AD2d 589; Menzel v List, 24 NY2d 91; Simon v Electrospace Corp., 28 NY2d 136; Buffum v Barceloux, 289 US 227.)

      Edward J. Ross, James R. Peterson and James J. Sabella for Kate Rothko, respondent.
    I. All the relief granted is warranted by the fundamental rule of undivided loyalty. (Munson v Syracuse, Geneva & Corning R. R. Co., 103 NY 59; Wendt v Fischer, 243 NY 439; Albright v Jefferson County Nat. Bank, 292 NY 31; City Bank Farmers Trust Co. v Cannon, 291 NY 125; Dabney v Chase Nat. Bank of City of N. Y, 196 F2d 668; United States v Mississippi Val. Co., 364 US 520; Matter of Hufnagel, 258 App Div 1088; Manson v Curtis, 223 NY 313; Diamond v Oreamuno, 29 AD2d 285, 24 NY2d 494; Globe Woolen Co. v Utica Gas & Elec. Co., 224 NY 483.) II. The Surrogate granted the proper relief as to Reis, Stamos and Levine. (Matter of McGillivray, 138 NY 308; Pyle v Pyle, 137 App Div 568, 199 NY 538; Matter of Wagner, 257 App Div 972; Matter of Giaimo, 73 Misc 2d 130, 41 AD2d 600; Matter of Israel, 166 Misc 156, 256 App Div 1063; Earle v Earle, 93 NY 104; Matter of Slensby, 169 Misc 292; Matter of Westerñeld, 32 App Div 324; Matter of Durston, 297 NY 64; Frontier Excavating v Sovereign Constr. Co., 30 AD2d 487, 24 NY2d 991.) III. The Surrogate correctly set aside the two contracts.
      (Wendt v Fischer, 243 NY 439; City Bank Farmers Trust Co. v Cannon, 291 NY 125.) IV. Marlborough is liable with respect to the two contracts. (Rippey v Denver United States Nat. Bank, 273 F Supp 718; Matter of Gauthier, 143 Misc 788; Fidelity & Deposit Co. of Md. v Queens County Trust Co., 226 NY 225; Kirsch v Tozier, 143 NY 390.) V. The facts of this estate required the executors either to distribute the paintings in kind or at a minimum to determine whether the beneficiaries wanted a distribution in kind or preferred a hurried disposal of all the paintings, a small amount of cash and a 12-year interest-free receivable. (Lane v Albertson, 78 App Div 607; Matter of Hostin, 33 Misc 2d 206; Matter of Morrison, 173 Misc 503; Matter of Thompson, 41 Misc 420, 178 NY 554; Hancox v Meeker, 95 NY 528.) VI. The courts below applied the proper measures of damages. (Baker v Drake, 53 NY 211; Menzel v List, 24 NY2d 91; Meinhard v Salmon, 223 App Div 663, 249 NY 458; Simon v Electrospace Corp., 28 NY2d 136; Guckenheimer v Angevine, 81 NY 394; Kinsey v Leggett, 71 NY 387; Noce v Kaufman, 2 NY2d 347.) VII. The Surrogate correctly found that provisions of the February 21, 1969 contracts between Rothko and Marlborough were abandoned and abrogated. (Matter of Ryan, 63 Misc 2d 415.) VIII. Lloyd and Marlborough violated the temporary restraining order and injunction and were properly adjudged in contempt.

      Judith A. Ripps-Goldstone, George E. DeSipio and Martin I. Gdanski for The Mark Rothko Foundation, Inc., respondent.
    I. The lower courts correctly held Marlborough, who had knowledge of the executors’ breach of trust in entering into the estate contracts, liable for money damages measured by the value of the unrecoverable paintings at the date of the decision. (Rippey v Denver U. S. Nat. Bank, 273 F Supp 718; Bonham v Coe, 249 App Div 428, 276 NY 540; First Nat. Bank of Paterson, N. J. v National Broadway Bank, 156 NY 459; Bullís v Bruce, 274 App Div 532; Matter of Gauthier, 143 Misc 788.) II. The courts below imposed the correct measure of money damages on the executors guilty of disloyalty and conflict of interest: the value of the unrecoverable paintings measured at the date of the decision. (Mooney v Byrne, 163 NY 86; Menzel v List, 24 NY2d 91; Simon v Electrospace Corp., 28 NY2d 136; Markham v Jaudon, 41 NY 235; Baker v Drake, 53 NY 211; Hartford Acc. & Ind. Co. v Walston & Co., 22 NY2d 672; Mayer v Monzo, 221 NY 442.) III. The Surrogate was fully justified in imposing a higher measure of damages on the two executors guilty of conflict of interest and breach of loyalty. (Meinhard v Salmon, 249 NY 458.) IV. The Surrogate’s computation of appreciation damages was correct. (Story Parchment Co. v Paterson Co., 282 US 555; Eastman Co. v Southern Photo Co., 273 US 359; Alexander’s Dept. Stores v Ohrbach’s, 269 App Div 321; Matter of Hyde, 149 Misc 291; Madden v Atkins, 24 Misc 2d 4, 10 AD2d 989, 11 AD2d 802; Latham Holding Co. v State of New York, 16 NY2d 41; Enmac Realty Corp. v State of New York, 38 AD2d 650.) V. The estate is entitled to the monetary equivalent of the irrevocably lost paintings; no reduction may be made for hypothetical and speculative "wholesale” values, commissions or expenses. VI. Appellants’ claim of a duty to sell the estate paintings as a justification for using May, 1970 values for the computation of damages is without merit. (Matter of Bulova Fund, 30 AD2d 321, 31 AD2d 526; Matter of Schmitt, 179 Misc 83; Matter of Durston, 297 NY 64.)

      Paul Sarno, Gerald Dickler and Jack Schachner for Barbara B. Northrup, as guardian of the person and property of Christopher Rothko, respondent.
    I. The Rothko consignment contract is damning in its failure to protect, let alone benefit, the artist’s estate. (Matter of Cohen v Cocoline Prods., 309 NY 119; Matter of Maidman v Central Foundry Co., 27 AD2d 923; Garrett v United States, 120 F Supp 193; Smith v Dunn, 224 F2d 353; United States v Winthrop, 417 F2d 905; Brown v Commissioner of Internal Revenue, 143 F2d 468; Matter of Ullman, 56 Misc 2d 495.) II. The sales contract is grossly unfair to the estate. The price paid on a deferred basis is extraordinarily low for these outstanding 100 works. (Plaza Hotel Assoc, v Wellington Assoc., 37 NY2d 273; Thomas v State of New York, 37 AD2d 1030; Dormann v State of New York, 4 AD2d 979; Pauly v State of New York, 14 Misc 2d 3Í4.) III. The persistent concealment by the executors and Marlborough of their activities is probative of conflict of interest and breach of loyalty which led to fraud and great waste of estate assets. (Matter of Levy, 19 AD2d 413; Matter of Perutz, 23 Misc 2d 229; Matter of Kopytkiewicz, 156 Misc 297; Harrington v Sharif, 305 F2d 333; Globe Woolen Co. v Utica Gas & Elec. Co., 224 NY 483; Bailey v Baker’s Air Force Gas Corp., 50 AD2d 129; Allen v Stokes, 260 App Div 600; Larsen Baking Co. v City of New York, 30 AD2d 400, 24 NY2d 1036; Matter of Bayside Mason Supplies v Barber Co., 31 Misc 2d 921.) IV. Appellants may not properly rely on testimony given and self-serving documents prepared by Marlborough. (People ex rel. MacCracken v Miller, 291 NY 55; Cooper v Kaufman, 13 AD2d 915.) V. The beneficiaries have every right to the third alternative remedy, appreciation damages, where there is a breach of the duty of loyalty known to a third party who benefits from it and despoils the estate by violating an injunction and by "reselling” in bulk for inadequate prices. (Hammond v Pennock, 61 NY 145; Meinhard v Salmon, 249 NY 458; Buffum v Barceloux Co., 289 US 227; Jacobs v Mulford, 197 App Div 835; Michalowski v Ey, 7 NY2d 71; Simon v Electrospace Corp., 28 NY2d 136; City Bank Farmers Trúst Co. v Cannon, 291 NY 125; Matter of De Planche, 65 Misc 2d 501.)
   OPINION OF THE COURT

Cooke, J.

Mark Rothko, an abstract expressionist painter whose works through the years gained for him an international reputation of greatness, died testate on February 25, 1970. The principal asset of his estate consisted of 798 paintings of tremendous value, and the dispute underlying this appeal involves the conduct of his three executors in their disposition of these works of art. In sum, that conduct as portrayed in the record and sketched in the opinions was manifestly wrongful and indeed shocking.

Rothkos’ will was admitted to probate on April 27, 1970 and letters testamentary were issued to Bernard J. Reis, Theodores Stamos and Morton Levine. Hastily and within a period of only about three weeks and by virtue of two contracts each dated May 21, 1970, the executors dealt with all 798 paintings.

By a contract of sale, the estate executors agreed to sell to Marlborough AG., a Liechtenstein corporation (hereinafter MAG), 100 Rothko paintings as listed for $1,800,000, $200,000 to be paid on execution of the agreement and the balance of $1,600,000 in 12 equal interest-free installments over a 12-year period. Under the second agreement, the executors consigned to Marlborough Gallery, Inc., a domestic corporation (hereinafter MNY), "approximately 700 paintings listed on a Schedule to be prepared”, the consignee to be responsible for costs covering items such as insurance, storage restoration and promotion. By its provisos, MNY could sell up to 35 paintings a year from each of two groups, pre-1947 and post-1947, for 12 years at the best price obtainable but not less than the appraised estate value, and it would receive a 50% commission on each painting sold, except for a commission of 40% on those sold to or through other dealers.

Petitioner Kate Rothko, decedent’s daughter and a person entitled to share in his estate by virtue of an election under EPTL 5-3.3, instituted this proceeding to remove the executors, to enjoin MNY and MAG from disposing of the paintings, to rescind the aforesaid agreements between the executors and said corporations, for a return of the paintings still in possession of those corporations, and for damages. She was joined by the guardian of her brother Christopher Rothko, likewise interested in the estate, who answered by adopting the allegations of his sister’s petition and by demanding the same relief. The Attorney-General of the State, as the representative of the ultimate beneficiaries of the Mark Rothko Foundation, Inc., a charitable corporation and the residuary legatee under decedent’s will, joined in requesting relief substantially similar to that prayed for by petitioner. On June 26, 1972 the Surrogate issued a temporary restraining order and on September 26, 1972 a preliminary injunction enjoining MAG, MNY, and the three executors from selling or otherwise disposing of the paintings referred to in the agreements dated May 21, 1970, except for sales or dispositions made with court permission. The Appellate Division modified the preliminary injunction order by increasing the amount of the bond and otherwise affirmed. By a 1974 petition, the Attorney-General, on behalf of the ultimate charitable beneficiaries of the Mark Rothko Foundation, sought the punishment of MNY, MAG, Lloyd and Reis for contempt and other relief.

Following a nonjury trial covering 89 days and in a thorough opinion, the Surrogate found: that Reis was a director, secretary and treasurer of MNY, the consignee art gallery, in addition to being a coexecutor of the estate; that the testator had a 1969 inter vivos contract with MNY to sell Rothko’s work at a commission of only 10% and whether that agreement survived testator’s death was a problem that a fiduciary in a dual position could not have impartially faced; that Reis was in a position of serious conflict of interest with respect to the contracts of May 21, 1970 and that his dual role and planned purpose benefited the Marlborough interests to the detriment of the estate; that it was to the advantage of coexecutor Stamos as a "not-too-successful artist, financially”, to curry favor with Marlborough and that the contract made by him with MNY within months after signing the estate contracts placed him in a position where his personal interests conflicted with those of the estate, especially leading to lax contract enforcement efforts by Stamos; that Stamos acted negligently and improvidently in view of his own knowledge of the conflict of interest of Reis; that the third coexecutor, Levine, while not acting in self-interest or with bad faith, nonetheless failed to exercise ordinary prudence in the performance of his assumed fiduciary obligations since he was aware of Reis’ divided loyalty, believed that Stamos was also seeking personal advantage, possessed personal opinions as to the value of the paintings and yet followed the leadership of his coexecutors without investigation of essential facts or consultation with competent and disinterested appraisers, and that the business transactions of the two Marlborough corporations were admittedly controlled and directed by Francis K. Lloyd. It was concluded that the acts and failures of the three executors were clearly improper to such a substantial extent as to mandate their removal under SCPA 711 as estate fiduciaries. The Surrogate also found that MNY, MAG and Lloyd were guilty of contempt in shipping, disposing of and selling 57 paintings in violation of the temporary restraining order dated June 26, 1972 and of the injunction dated September 26, 1972; that the contracts for sale and consigment of paintings between the executors and MNY and MAG provided inadequate value to the estate, amounting to a lack of mutuality and fairness resulting from conflicts on the part of Reis and Stamos and improvidence on the part of all executors; that said contracts were voidable and were set aside by reason of violation of the duty of loyalty and improvidence of the executors, knowingly participated in and induced by MNY and MAG; that the fact that these agreements were voidable did not revive the 1969 inter vivos agreements since the parties by their conduct evinced an intent to abandon and abrogate these compacts. The Surrogate held that the present value at the time of trial of the paintings sold is the proper measure of damages as to MNY, MAG, Lloyd, Reis and Stamos. He imposed a civil fine of $3,332,000 upon MNY, MAG and Lloyd, same being the appreciated value at the time of trial of the 57 paintings sold in violation of the temporary restraining order and injunction. It was held that Levine was liable for $6,464,880 in damages, as he was not in a dual position acting for his own interest and was thus liable only for the actual value of paintings sold MNY and MAG as of the dates of sale, and that Reis, Stamos, MNY and MAG, apart from being jointly and severally liable for the same damages as Levine for negligence, were liable for the greater sum of $9,252,000 "as appreciation damages less amounts previously paid to the estate with regard to sales of paintings.” The cross petition of the Attorney-General to reopen the record for submission of newly discovered documentary evidence was denied. The liabilities were held to be congruent so that payment of the highest sum would satisfy all lesser liabilities including the civil fines and the liabilities for damages were to be reduced by payment of the fine levied or by return of any of the 57 paintings disposed of, the new fiduciary to have the option in the first instance to specify which paintings the fiduciary would accept.

The Appellate Division, in an opinion by Justice Lane, modified to the extent of deleting the option given the new fiduciary to specify which paintings he would accept. Except for this modification, the majority affirmed on the opinion of Surrogate Midonick, with additional comments. Among others, it was stated that the entire court agreed that executors Reis and Stamos had a conflict of interest and divided loyalty in view of their nexus to MNY and that a majority were in agreement with the Surrogate’s assessment of liability as to executor Levine and his findings of liability against MNY, MAG and Lloyd. The majority agreed with the Surrogate’s analysis awarding "appreciation damages” and found further support for his rationale in Menzel v List (24 NY2d 91). Justice Kupferman, in an opinion styled "concurring in part and dissenting in part”, stated that, although he had "expressed reservations with respect to various factors to be considered in the calculation of damages”, he concurred "in the basic conclusion and, therefore, in order to resolve the matter for the purpose of appeal” voted to modify as per the Lane opinion (56 AD2d 499, 505-506). Justices Capozzoli and Nunez, in separate dissenting in part opinions, viewed Menzel v List as inapplicable and voted to modify and remit to determine the reasonable value of the paintings as of May, 1970, when estate contracts with MNY and MAG had their inception in writing.

Since the Surrogate’s findings of fact as to the conduct of Reis, Stamos, Levine, MNY, MAG and Lloyd and the value of the paintings at different junctures were affirmed by the Appellate Division, if there was evidence to support these findings they are not subject to question in this court and the review here is confined to the legal issues raised (CPLR 5501, subd [b]; Simon v Electrospace Corp., 28 NY2d 136, 139; Matter of City of New York [Fifth Ave. Coach Lines], 22 NY2d 613, 620-621).

In seeking a reversal, it is urged that an improper legal standard was applied in voiding the estate contracts of May, 1970, that the "no further inquiry” rule applies only to self-dealing and that in case of a conflict of interest, absent self-dealing, a challenged transaction must be shown to be unfair. The subject of fairness of the contracts is intertwined with the issue of whether Reis and Stamos were guilty of conflicts of interest. Scott is quoted to the effect that "[a] trustee does not necessarily incur liability merely because he has an individual interest in the transaction * * * In Bullivant v. First Nat. Bank [246 Mass 324] it was held that * * * the fact that the bank was also a creditor of the corporation did not make its assent invalid, if it acted in good faith and the plan was fair” (2 Scott, Trusts, § 170.24, p 1384 [emphasis added]), and our attention has been called to the statement in Phelan v Middle States Oil Corp. (220 F2d 593, 603, cert den sub nom. Cohen v Glass, 349 US 929) that Judge Learned Hand found "no decisions that have applied [the no further inquiry rule] inflexibly to every occasion in which the fiduciary has been shown to have had a personal interest that might in fact have conflicted with his loyalty”.

These contentions should be rejected. First, a review of the opinions of the Surrogate and the Appellate Division manifests that they did not rely solely on a "no further inquiry rule”, and secondly, there is more than an adequate basis to conclude that the agreements between the Marlborough corporations and the estate were neither fair nor in the best interests of the estate. This is demonstrated, for example, by the comments of the Surrogate concerning the commissions on the consignment of the 698 paintings (see 84 Misc 2d 830, 852-853) and those of the Appellate Division concerning the sale of the 100 paintings (see 56 AD2d, at pp 501-502). The opinions under review demonstrate that neither the Surrogate nor the Appellate Division set aside the contracts by merely applying the no further inquiry rule without regard to fairness. Rather they determined, quite properly indeed, that these agreements were neither fair nor in the best interests of the estate.

To be sure, the assertions that there were no conflicts of interest on the part of Reis or Stamos indulge in sheer fantasy. Besides being a director and officer of MNY, for which there was financial remuneration, however slight, Reis, as noted by the Surrogate, had different inducements to favor the Marlborough interests, including his own aggrandizement of status and financial advantage through sales of almost one million dollars for items from his own and his family’s extensive private art collection by the Marlborough interests (see 84 Misc 2d, at pp 843-844). Similarly, Stamos benefited as an artist under contract with Marlborough and, interestingly, Marlborough purchased a Stamos painting from a third party for $4,000 during the week in May, 1970 when the estate contract negotiations were pending (see 84 Misc 2d, at p 845). The conflicts are manifest. Further, as noted in Bogert, Trusts and Trustees (2d ed), "The duty of loyalty imposed on the fiduciary prevents him from accepting employment from a third party who is entering into a business transaction with the trust” (§ 543, subd [S], p 573). "While he [a trustee] is administering the trust he must refrain from placing himself in a position where his personal interest or that of a third person does or may conflict with the interest of the beneficiaries” (Bogert, Trusts [Hornbook Series—5th ed], p 343). Here, Reis was employed and Stamos benefited in a manner contemplated by Bogert (see, also, Meinhard v Salmon, 249 NY 458, 464, 466-467; Schmidt v Chambers, 265 Md 9, 33-38). In short, one must strain the law rather than follow it to reach the result suggested on behalf of Reis and Stamos.

Levine contends that, having acted prudently and upon the advice of counsel, a complete defense was established. Suffice it to say, an executor who knows that his coexecutor is committing breaches of trust and not only fails to exert efforts directed towards prevention but accedes to them is legally accountable even though he was acting on the advice of counsel (Matter of Westerñeld, 32 App Div 324, 344; 3 Scott, Trusts [3d ed], § 201, p 1657). When confronted with the question of whether to enter into the Marlborough contracts, Levine was acting in a business capacity, not a legal one, in which he was required as an executor primarily to employ such diligence and prudence to the care and management of the estate assets and affairs as would prudent persons of discretion and intelligence (King v Talbot, 40 NY 76, 85-86), accented by "[n]ot honesty alone, but the punctilio of an honor the most sensitive” (Meinhard v Salmon, 249 NY 458, 464, supra). Alleged good faith on the part of a fiduciary forgetful of his duty is not enough (Wendt v Fischer, 243 NY 439, 443). He could not close his eyes, remain passive or move with unconcern in the face of the obvious loss to be visited upon the estate by participation in those business arrangements and then shelter himself behind the claimed counsel of an attorney (see Matter of Niles, 113 NY 547, 558; Matter of Huntley, 13 Misc 375, 380; 3 Warren’s Heaton, Surrogates’ Courts [6th ed], § 217, subd 3, par [b]).

Further, there is no merit to the argument that MNY and MAG lacked notice of the breach of trust. The record amply supports the determination that they are chargeable with notice of the executors’ breach of duty.

The measure of damages was the issue that divided the Appellate Division (see 56 AD2d, at p 500). The contention of Reis, Stamos, MNY and MAG, that the award of appreciation damages was legally erroneous and impermissible, is based on a principle that an executor authorized to sell is not liable for an increase in value if the breach consists only in selling for a figure less than that for which the executor should have sold. For example, Scott states:

"The beneficiaries are not entitled to the value of the property at the time of the decree if it was not the duty of the trustee to retain the property in the trust and the breach of trust consisted merely in selling the property for too low a price” (3 Scott, Trusts [3d ed], § 208.3, p 1687 [emphasis added]).

"If the trustee is guilty of a breach of trust in selling trust property for an inadequate price, he is liable for the difference between the amount he should have received and the amount which he did receive. He is not liable, however, for any subsequent rise in value of the property sold”. (Id., § 208.6, pp 1689-1690.)

A recitation of similar import appears in Comment d under Restatement, Trusts 2d (§ 205): "d. Sale for less than value. If the trustee is authorized to sell trust property, but in breach of trust he sells it for less than he should receive, he is liable for the value of the property at the time of the sale less the amount which he received. If the breach of trust consists only in selling it for too little, he is not chargeable with the amount of any subsequent increase in value of the property under the rule stated in Clause (c), as he would be if he were not authorized to sell the property. See § 208.” (Emphasis added.) However, employment of "merely” and "only” as limiting words suggests that where the breach consists of some misfeasance, other than solely for selling "for too low a price” or "for too little”, appreciation damages may be appropriate. Under Scott (§ 208.3, pp 1686-1687) and the Restatement (§ 208), the trustee may be held liable for appreciation damages if it was his or her duty to retain the property, the theory being that the beneficiaries are entitled to be placed in the same position they would have been in had the breach not consisted of a sale of property that should have been retained. The same rule should apply where the breach of trust consists of a serious conflict of interest—which is more than merely selling for too little.

The reason for allowing appreciation damages, where there is a duty to retain, and only date of sale damages, where there is authorization to sell, is policy oriented. If a trustee authorized to sell were subjected to a greater measure of damages he might be reluctant to sell (in which event he might run a risk if depreciation ensued). On the other hand, if there is a duty to retain and the trustee sells there is no policy reason to protect the trustee; he has not simply acted imprudently, he has violated an integral condition of the trust.

"If a trustee in breach of trust transfers trust property to a person who takes with notice of the breach of trust, and the transferee has disposed of the property * * * [i]t seems proper to charge him with the value at the time of the decree, since if it had not been for the breach of trust the property would still have been a part of the trust estate” (4 Scott, Trusts [3d ed], § 291.2; see, also, United States v Dunn, 268 US 121, 132). This rule of law which applies to the transferees MNY and MAG also supports the imposition of appreciation damages against Reis and Stamos, since if the Marlborough corporations are liable for such damages either as purchaser or consignees with notice, from one in breach of trust, it is only logical to hold that said executors, as sellers and consignors, are liable also pro tanto.

Contrary to assertions of appellants and the dissenters at the Appellate Division, Menzel v List (24 NY2d 91, supra) is authority for the allowance of appreciation damages. There, the damages involved a breach of warranty of title to a painting which at one time had been stolen from plaintiff and her husband and ultimately sold to defendant. Here, the executors, though authorized to sell, did not merely err in the amount they accepted but sold to one with whom Reis and Stamos had a self-interest. To make the injured party whole, in both instances the quantum of damages should be the same. In other words, since the paintings cannot be returned, the estate is therefore entitled to their value at the time of the decree, i.e., appreciation damages. These are not punitive damages in a true sense, rather they are damages intended to make the estate whole. Of course, as to Reis, Stamos, MNY and MAG, these damages might be considered by some to be exemplary in a sense, in that they serve as a warning to others (see Reynolds v Pegler, 123 F Supp 36, 38, affd 223 F2d 429, cert den 350 US 846), but their true character is ascertained when viewed in the light of overriding policy considerations and in the realization that the sale and consignment were not merely sales below value but inherently wrongful transfers which should allow the owner to be made whole (see Menzel v List, 24 NY2d 91, 97, supra; see, also, Simon v Electrospace Corp., 28 NY2d 136, 144, supra).

The decree of the Surrogate imposed appreciation damages against Reis, Stamos, MNY and MAG in the amount of $7,339,464.72—computed as $9,252,000 (86 works on canvas at $90,000 each and 54 works on paper at $28,000 each) less the aggregate amounts paid the estate under the two rescinded agreements and interest. Appellants chose not to offer evidence of "present value” and the only proof furnished on the subject was that of the expert Heller whose appraisal as of January, 1974 (the month previous to that when trial commenced) on a painting-by-painting basis totaled $15,100,000. There was also testimony as to bona fide sales of other Rothkos between 1971 and 1974. Under the circumstances, it was impossible to appraise the value of the unreturned works of art with an absolute certainty and, so long as the figure arrived at had a reasonable basis of computation and was not merely speculative, possible or imaginary, the Surrogate had the right to resort to reasonable conjectures and probable estimates and to make the best approximation possible through the exercise of good judgment and common sense in arriving at that amount (see Story Parchment Co. v Paterson Co., 282 US 555, 562-563; Eastman Co. v Southern Photo Co., 273 US 359, 379; Wakeman v Wheeler & Wilson Mfg. Co., 101 NY 205, 209-210; Alexander’s Dept. Stores v Ohrbach’s, 269 App Div 321, 328-329; Sutcliffe v Potts, 88 NYS2d 55, 57, affd 277 App Div 751; cf. Sheldon v Metro-Goldwyn Pictures Corp., 106 F2d 45, 51 [L. Hand, J.]). This is particularly so where the conduct of wrongdoers has rendered it difficult to ascertain the damages suffered with the precision otherwise possible (Story Parchment Co. v Paterson Co., supra, at p 563; Eastman Co. v Southern Photo Co., supra, at p 379). Significantly, the Surrogate’s factual finding as to the present value of these unreturned paintings was affirmed by the Appellate Division and, since that finding had support in the record and was not legally erroneous, it should not now be subjected to our disturbance.

On February 21, 1969, decedent made a contract with MAG which provided that "Mark Rothko agrees not to sell any works of art for a period of eight years, except to Marlborough A.G. if a supplementary contract is made.” A supplementary contract made that same day recited that "Mark Rothko has the option to sell to Marlborough A.G. an additional four paintings each year at prices not below Marlborough A.G.’s then current selling prices, the price to be paid being [90%] of the current selling prices.” The Surrogate reasoned that the fact that the 1970 agreements for the sale and consignment of paintings were voidable because of self-dealing did not revive the 1969 inter vivos agreements and found that the parties by their conduct intended to abandon and abrogate these 1969 agreements. In turn and in effect, the Appellate Division agreed with this finding of abandonment (56 AD2d, at p 501). "A voidable contract is one where one or more parties thereto have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract; or by ratification of the contract to extinguish the power of avoidance” (Restatement, Contracts, § 13). Where a contract is voidable on both sides, as where there has been a violation of the duty of loyalty and improvidence by executors knowingly participated in and induced by the other contracting parties (see 84 Misc 2d, at p 858), the transaction is not wholly void, since in order to prevent the contract from having its normal operation the claim or defense must in some manner be asserted and also since the contract is capable of ratification, such a contract affects from the outset the legal relations of the parties (1 Williston, Contracts [3d ed], § 15, pp 28-29). The question of whether there has been an abandonment or abrogation of a contract is usually one of fact (see Green v Doniger, 300 NY 238, 245) and the circumstances disclosed by the record, including a showing of the new agreements in 1970, contained a sufficient basis for the finding of the abandonment or abrogation of those which came into being in 1969 (see Schwartzreich v Bauman-Basch, 231 NY 196, 203).

The Marlborough corporations and Lloyd contend that there was no violation of either the temporary restraining order or the preliminary injunction by the delivery of paintings sold prior to the court’s restraints and that, therefore, the finding of contempt was erroneous. The Attorney-General in response contends that the "group” sales did not pass equitable ownership and that even if the invoices had been typed prior to said order and injunction no sale took place until after the injunction. In support of the latter position, the Uniform Commercial Code (§ 2-106, subd [1]; §§ 2-307, 2-401, subds [2], [3]) is cited for the proposition that as a matter of law the questioned sales took place on delivery to the purchasers which in all instances occurred after the injunction, the latter of the two court restraints. MNY, MAG and Lloyd counter with the argument that, under art market custom, invoices of paintings are sales and that the restraining order and preliminary injunction failed to clearly state what acts were prohibited. In any event, the plain and simple import of both the order and the injunction—not to sell or otherwise dispose of the paintings (cf. Matter of Black, 138 App Div 562, 565)—was violated by dispositions of them. Consequently, it is immaterial how the applicable Uniform Commercial Code provisions might be interpreted. If MNY, MAG and Lloyd had invoiced paintings and were acting in good faith, they would have advised the court of their prior commitments.

We have considered the other alleged errors urged by the parties, and find those arguments to be without merit. In short, we find no basis for disturbing the result reached below.

Accordingly, the order of the Appellate Division should be affirmed, with costs to the prevailing parties against appellants, and the question certified answered in the affirmative.

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

Order affirmed, etc.

      . The decree of the Surrogate’s Court, New York County, dated January 15, 1976, was amended in this respect pursuant to an order filed April 28, 1976 by substituting "63” for "57” as the number of paintings sold and disposed of and "$3,872,000” as the amount of the fine instead of "$3,332,000”.

        . In New York, an executor, as such, takes a qualified legal title to all personalty specifically bequeathed and an unqualified legal title to that not so bequeathed; he ' holds not in his own right but as a trustee for the benefit of creditors, those entitled to receive under the will and, if all is not bequeathed, those entitled to distribution under the EPTL (Blood v Kane, 130 NY 514, 517; see Bischoff v Yorkville Bank, 218 NY 106, 110-111; Bankers Sur. Co. v Meyer, 205 NY 219, 223-224; but see Restatement, Trusts 2d, § 6; Bogert, Trusts [Hornbook Series—5th ed], p 31).


source: Caselaw Access Project

author: Gabrielli, J.

license: Public Domain

text:
    Leon E. Wein, Appellant, v Abraham D. Beame, as Mayor of the City of New York, et al., Respondents.
    Argued November 10, 1977;
    decided December 15, 1977

      POINTS OF COUNSEL

      William J. Quirk for appellant and Leon Edward Wein, appellant pro se.

    I. The Commodore Hotel project is not a UDC project. II. Special Term applied an erroneous standard —that it would be "judicial usurpation” to intervene in this transaction. III. The Board of Estimate resolution and agreements thereunder purport to surrender, suspend and contract away the power of taxation in violation of section 1 of article XVI of the Constitution. IV. There are two city contracts in existence. (Village of Lake George v Town of Caldwell, 5 NY2d 727.) V. The presence of an unconstitutional gift of city property and the absence of competitive bidding are in disregard of the law.

      W. Bernard Richland, Corporation Counsel (Leonard Koerner, L. Kevin Sheridan and Mark A. Levine of counsel), for respondents.
    The courts below correctly held that there had been no "surrender, suspension, or contracting away” of the city’s sovereign taxing powers since the renovation of the Hotel Commodore is an industrial project undertaken by the New York State Urban Development Corporation, which, by statute, is exempt from city imposed real estate taxes. (City of New York v Long Is. R. R. Co., 49 AD2d 540.)
   OPINION OF THE COURT

Gabrielli, J.

In this case, we are called upon to determine whether the plan by the City of New York and the Urban Development Corporation (UDC) to revitalize a section of midtown New York, to stem the decay of the area and to provide for the renovation of the Commodore Hotel constitutes a violation of the proscriptions against special tax exemptions and the contracting away of the power to tax which are contained in section 1 of article XVI of the New York State Constitution. Plaintiff appeals from an order of the Appellate Division, First Department, which affirmed a judgment of Supreme Court, New York County, granting defendant summary judgment and sustaining the constitutionality of the challenged plan to save the Commodore Hotel. We hold that the plan is not in violation of the Constitution, and therefore affirm the order appealed from.

The Commodore Hotel, owned by a subsidiary of the insolvent Penn Central Transportation Company, has itself fallen on evil times. The building, located near Grand Central Terminal in the very heart of the city, has deteriorated so greatly that it has been closed, and it is well on its way to becoming yet another boarded-up illustration of the grim realities of urban decay. Tax arrears on the building, including interest and penalties, amount to over 10 million dollars, and the possibilities of the city’s recovering the arrears from Penn Central in the foreseeable future are problematic at best. Indeed, due to certain protective orders of the bankruptcy court, the city is precluded from foreclosing during the pendency of the bankruptcy proceedings, which may well prove to be of long duration; and even, in fact, were the city to foreclose on the premises, there would apparently be considerable. difficulty in obtaining a purchaser willing to pay an amount commensurate with the tax arrearages alone. Penn Central itself is obviously in no position to renovate the hotel, and unless some action be taken, the building will simply disintegrate altogether, thus further contributing to the urban blight against which both the city and the State are struggling. It appears that the cost of repairs are such that rehabilitation is not economically feasible unless accompanied by some form of relief until the building begins to operate economically and the expenses of renovation can be recouped.

Faced with this problem, the city, UDC, Penn Central, and a private developer, Wembley Realty, Inc. (Wembley), formulated a complex plan which is intended to result in the reconstruction of the hotel by Wembley and ultimately restore it as a functionally integrated part of the business community of the city. It is hoped that this will have a beneficial effect on the midtown area as a whole, and will encourage continuing private investments in the area. Stripped to its essentials, the plan is as follows: Wembley will purchase the hotel from Penn Central for 10 million dollars;* Wembley will then sell the building for one dollar to UDC; the purchase of the building by UDC will exempt the hotel from city taxes, pursuant to section 22 of the Urban Development Corporation Act (L 1968, ch 174, § 22); the city will waive its right under section 26 of the act (L 1970, ch 1041) for reimbursement from the State for an amount equal to the taxes it would have assessed against the building had UDC not purchased it; UDC will then lease the building back to Wembley under a 99-year lease; the rental will be payable to the city rather than to UDC; for the first 40 years of the lease, the rent will be less than the taxes which could otherwise be assessed, whereas for the remainder of the lease the rental will be equal to the taxes; and, at the termination of the lease, title to the property will vest in the City of New York.

Following the acceptance of this plan by the city council, plaintiff commenced this action, seeking a judgment declaring the scheme to be in violation of section 1 of article XVI of our Constitution, which provides in pertinent part that "[t]he powers of taxation shall never be surrendered, suspended or contracted away * * * Exemptions from taxation may be granted only by general laws.” Plaintiff contends that the effect, and indeed the sole purpose of the plan is to grant the hotel a special tax exemption in violation of this explicit constitutional provision.

In proffering this argument, plaintiff is, of course, presented with an insurmountable obstacle in the fact that the property will obtain tax exempt status not by any claimed or alleged invalid legislation enacted by the city council, but rather by virtue of the purchase of the hotel by the UDC. Plaintiff seeks to overcome this difficulty by characterizing the UDC as a "straw man”, with no real interest in or connection with the project, which has been brought into the plan solely as a means of providing a tax exemption which the city could not grant directly. Plaintiffs attempt to so easily avoid the inconvenient fact of UDC participation in the plan is of no avail. It is not for us to speculate as to the motive for the UDC’s participation, nor to delineate the amount of active participation which is necessary to denominate a particular project a UDC project. Here, UDC will be the owner of the building, and it is enough that UDC has chosen to participate in a project which is designed to combat otherwise inevitable urban blight, and which is thus clearly in accordance with the benign purposes of the Legislature in creating UDC (see L 1968, ch 174, § 2).

Turning then to the basic question of the plan’s validity, it should be noted initially that there exists a strong presumption of constitutionality which accompanies legislative actions (see, e.g., Montgomery v Daniels, 38 NY2d 41, 54), especially in the area of municipal financing (see, e.g., Wein v City of New York, 36 NY2d 610, 619-620). This is not to say, of course, that such actions must always be sustained without question (cf. Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y., 40 NY2d 731); they are, however, entitled to the benefit of the presumption, and will be sustained absent a clear showing of unconstitutionality (see, also, Wiggins v Town of Somers, 4 NY2d 215, 218-219). In the case before us, the purchase of the hotel by UDC will result in a valid tax exemption by operation of law, regardless of any action or inaction upon the part of the city. This is true whether the plan was originally developed by the city, UDC, or Wembley; and this is so regardless of the extent of actual participation in the project by UDC. Thus, since the only tax exemption contained in the plan is the explicit statutory exemption granted UDC, the validity of which is unchallenged, it is apparent that there is no violation of the constitutional prohibition against special exemptions, and no contracting away of the power to tax by the city.

Plaintiff also claims that the plan is unconstitutional in that it improperly calls for a waiver by the city of its right to payment by the State, pursuant to section 26 of the UDC Act (L 1970, ch 1041), of an amount equal to the tax revenues which would have been derived from the property absent the exemption which will be created by the UDC purchase. It is argued with some force that since the tax exemption which will be created by virtue of the purchase of the hotel by UDC is an essential element of the project, and since it is possible that UDC might not have chosen to participate without the waiver by the city of its right to reimbursement, the waiver is the equivalent of an attempt by the city to provide an invalid special exemption. However, it should be noted that the constitutional prohibition against special exemptions is not to be automatically applied whenever a municipality is engaged in a business transaction which will of necessity have tax consequences upon another party to the transaction. The constitutional limitation on exemptions operates only to prevent the city in its sovereign role as tax gatherer from directly granting an exemption to a taxpayer (see City of New York v Long Is. R. R. Co., 49 AD2d 540, affd 43 NY2d 780 [decided herewith]). Moreover, in the present case, proper classification of the right which the city has waived obviates any potential difficulty.

We note that although the State has elected to provide funds to reimburse municipalities for the loss in tax revenues which would otherwise result from a purchase by UDC of previously taxable property, it is clear that these payments from the State cannot be classified as taxes, and thus waiving the right to receive such funds is not the equivalent of granting a special tax exemption. To consider these payments as taxes would be to ignore the realities of the relationship between the State and its subdivisions, and the essentially voluntary nature of these payments. Absent the statute, the State is under no obligation to make such payments, and a municipality certainly lacks the power to demand such reimbursement from the State. The fact that the Legislature has decided to provide reimbursement for certain losses in tax revenues does not justify characterizing the payments as taxes. Rather, these funds constitute a grant from the State to the municipalities, and a refusal to accept such a grant is not to be construed as the provision of a special exemption from taxation simply because the grant was intended to remedy the loss in tax revenue which results from a purchase by UDC of taxable property.

Accordingly, the order appealed from should be affirmed, without costs.

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

Order affirmed.

      . Of considerable interest here are certain of the legislative findings which accompany the statutory provisions governing UDC: "It is further found and declared that there exist in many municipalities within this state residential, nonresidential, commercial, industrial or vacant areas, and combinations thereof, which are slum or blighted, or which are becoming slum or blighted areas because of substandard, insanitary, deteriorated or deteriorating conditions, including obsolete and dilapidated buildings and structures, defective construction, outmoded design, lack of proper sanitary facilities or adequate fire or safety protection, excessive land coverage, insufficient light and ventilation, excessive population density, illegal uses and conversions, inadequate maintenance, buildings abandoned or not utilized in whole or substantial part, obsolete systems of utilities, poorly or improperly designed street patterns and intersections, inadequate access to areas, traffic congestion hazardous to the public safety, lack of suitable off-street parking, inadequate loading and unloading facilities, impractical street widths, sizes and shapes, blocks and lots of irregular form, shape or insufficient size, width or depth, unsuitable topography, subsoil or other physical conditions, all of which hamper or impede proper and economic development of such areas and which impair or arrest the sound growth of the area, community or municipality, and the state as a whole.” (L 1968, ch 174, § 2.)

      . Although the city consented to the sale free of lien for tax arrears, it reserved its rights against Penn Central for these tax arrears. Viewed realistically, the city may well have improved its position, since the 10 million dollars are to be placed in escrow for several years, and the city is granted the option of settling its claim against Penn Central during that period for an amount equal to at least 50% of the arrears to be paid directly from that fund.


text:
    The People of the State of New York ex rel. Martin Henig, Appellant, v Commissioner of Mental Hygiene et al., Respondents.
    Argued November 16, 1977;
    decided December 19, 1977

      POINTS OF COUNSEL

      Philip R. Edelbaum and Gerald Sheindlin for appellant.
    I. CPL 330.20 must be construed to require a hearing prior to involuntary commitment, in an appropriate case, to determine the present mental condition of a person acquitted by reason of mental disease or defect in order to meet constitutional requirements. (Lynch v Overholser, 369 US 705; Baxstrom v Herold, 383 US 107; Bolton v Harris, 395 F2d 642; Specht v Patterson, 386 US 605; People v Lally, 19 NY2d 27; Jackson v

      Indiana, 406 US 715; Matter of Kesselbrenner v Anonymous, 33 NY2d 161; United States ex rel. Schuster v Herold, 410 F2d 1071, 396 US 847; People v Anonymous, 71 Misc 2d 8; People v Metesky, 71 Misc 2d 519.) II. In a hearing to determine defendant’s need for hospitalization the court should adopt the standards contained in the Mental Hygiene Law. III. If defendant is automatically committed to the custody of the Commissioner of Mental Hygiene, the court should order a report and hearing on defendant’s need for hospitalization within 15 days of commitment. (Bolton v Harris, 395 F2d 642.)

      Louis J. Lefkowitz, Attorney-General (Thomas P. Dorsey, Samuel A. Hirshowitz and Anne Marsha Tannenbaum of counsel), for respondents.
    I. The procedures mandated by CPL 330.20 are consistent with the requirements of equal protection. (Jackson v Indiana, 406 US 715; Baxstrom v Herold, 383 US 107; People v Lally, 19 NY2d 27; People ex rel. Peabody v Chanler, 133 App Div 159,- 196 NY 525; Ragsdale v Overholser, 281 F2d 943; Lynch v Overholser, 369 US 705; People ex rel. Henig v Commissioner of Mental Hygiene, 56 AD2d 398; Matter of Miller, 46 AD2d 999; Matter of Levy, 38 NY2d 653.) II. The procedures mandated by CPL 330.20 comport with the requirements of due process. (People ex rel. Henig v Commissioner of Mental Hygiene, 56 AD2d 398; Matter of Kesselbrenner v Anonymous, 33 NY2d 161; People v Del Guidice, 74 Misc 2d 293; Matter of Miller [Sherman], 73 Misc 2d 690.) III. The standard of commitment contained in CPL 330.20 is not and need not be the same standard as applied in civil commitments. (People ex rel. Henig v Commissioner of Mental Hygiene, 86 Misc 2d 932.)
   OPINION OF THE COURT

Gabrielli, J.

We are called upon in this case to consider the constitutional validity of CPL 330.20, which mandates that persons acquitted by reason of mental disease or defect be automatically committed to the custody of the Commissioner of Mental Hygiene without prior hearing. Petitioner appeals from an order of the Appellate Division, First Department, reversing a judgment of Supreme Court, New York County, which had directed that the petitioner be forthwith examined as to his present mental condition prior to commitment. We find the provisions of CPL 330.20 to be in accord with the mandates of due process and equal protection, and affirm the order appealed from.

On January 8, 1970, petitioner fatally stabbed his nine months’ pregnant girl friend. He was found to be unfit to proceed to trial, and was institutionalized until March, 1973, at which time he was deemed fit to proceed and was released on bail. In November, 1975, he was tried without jury, and found not guilty by reason of mental disease or defect. Petitioner then commenced this proceeding, requesting that rather than being automatically committed pursuant to CPL 330.20, he first be examined to determine whether his present mental condition warranted commitment. He apparently remains unhospitalized pending the outcome of this proceeding.

CPL 330.20 (subd 1) provides in pertinent part that "[u]pon rendition of a verdict of acquittal by reason of mental disease or defect, the court must order the defendant to be committed to the custody of the commissioner of mental hygiene to be placed in an appropriate institution in the state department of mental hygiene.” It should be noted that this provision is mandatory rather than discretionary, and does not require or provide for a hearing or examination prior to commitment. The remainder of the statute deals mainly with procedures for conditional release and other discharge provisions. It is further provided that if the commissioner determines that such a person "may be discharged or released on condition without danger to himself or to others”, the commissioner may apply to the court for permission to release or discharge him. In such circumstance, the court cannot deny the application without holding a hearing "to determine whether such person may safely be discharged or released”. Should the commissioner refuse to recommend discharge or release, the statute provides that the committed individual may himself apply to the court for release at any time. Petitioner essentially contends that the statute is fatally defective insofar as it authorizes commitment without any prior hearing, upon a verdict of acquittal by reason of mental disease or defect. We disagree.

New York law has long provided for the automatic institutionalization of persons acquitted because of insanity (see Code Crim Pro of 1881, § 454), and we have consistently sustained the validity of such provisions (see People ex rel. Peabody v Chanler, 196 NY 525, affg 133 App Div 159). Indeed, as recently as 1966 we sustained the constitutionality of the former commitment statute and predecessor to the present provision, in People v Laliy (19 NY2d 27). Interestingly, since that time the statute has been amended to delete the provisions which then authorized commitment to the Correction Department rather than the Commissioner of Mental Hygiene (see L 1974, ch 629, § 4; see, also, Matter of Kesselbrenner v Anonymous, 33 NY2d 161; People v Lally, supra). The fact that we have previously sustained the statute does not, of course, render it immune from constitutional attack based on the perhaps somewhat more sensitive approach to the requirements of due process and equal protection with respect to the mentally disturbed, which has developed in the last decade (see Jackson v Indiana, 406 US 715; Baxstrom v Herold, 383 US 107; Bolton v Harris, 395 F2d 642; State v Krol, 68 NJ 236; see, also, O’Connor v Donaldson, 422 US 563; Humphrey v Cady, 405 US 504). Nonetheless, viewed even in light of these developments, the automatic commitment procedure of CPL 330.20 is valid (cf. Fhagen v Miller, 29 NY2d 348, cert den 409 US 845).

CPL 330.20 deals with an exceptional class of individuals who may properly be treated somewhat differently from those who are not subject to the statute in that they have not been acquitted by reason of insanity(see Matter of Miller [Lee], 46 AD2d 999, 1000; United States v Ecker, 543 F2d 178, 196-197). The statute applies only to those individuals who have admittedly cominitted or have been proven to have committed what would normally be a crime, but who have been relieved of the penal sanctions of criminal liability as a result of their success in convincing a Judge or jury that they were insane. It has been forcefully said, and with much logic, that "[although acquittal represents a lack of criminal culpability, and therefore makes punitive treatment inappropriate, reliance on the insanity defense is tantamount to an admission that the person performed the criminal act in question and has therefore been dangerous to the community” (Note, Commitment of Persons Acquitted by Reason of Insanity: The Example of the District of Columbia, 74 Col L Rev 733). An individual who has committed an act of violence, and has thus demonstrated his dangerousness, and who has successfully asserted an insanity defense, may quite properly be treated somewhat differently from other individuals who, although they may in fact be potentially equally dangerous as a result of mental problems, have not yet so vehemently demonstrated their dangerousness by violent antisocial behavior.

Obviously, that persons subject to the provisions of CPL 330.20 are an exceptional class, and may thus be treated differently because of the State’s dual interest in protecting both these individuals and society as well, would not permit the State to ignore all constitutional guarantees, nor to provide disparate treatment not reasonably related to the actual distinguishing factors. This is not, of course, the effect of CPL 330.20. The challenged provision simply provides that a person who has been acquitted by reason of mental disease or defect is initially to be committed to the custody of the Commissioner of Mental Hygiene rather than being immediately released. As we observed in People v Lally, "[w]e see no reason why a man who has himself asserted that he was insane at the time the crime was committed and has convinced the jury thereof should not in his own interest and for the protection of the public be forthwith committed for detention, examination and report as to his sanity” (19 NY2d, at p 33). It must be emphasized that although CPL 330.20 mandates automatic commitment without a prior hearing for persons acquitted by reason of insanity, such persons are not at all thereby deprived of the procedural safeguards guaranteed other institutionalized individuals. Not only are they guaranteed periodic re-examination and re-evaluation (Mental Hygiene Law, § 15.03), but also the statute itself authorizes the patient to seek a hearing at any time to challenge the validity of his detention. Moreover, pursuant to our holding in Lally, a person who has been committed via CPL 330.20 is entitled at that hearing to a jury trial on the issue of whether he "may be discharged or released without danger to himself or to others” (19 NY2d, at pp 34-35).

One final point deserves comment. Petitioner argues that if the automatic commitment procedures of CPL 330.20 are valid, there must nonetheless be some provision for a subsequent, automatic hearing within a reasonably prompt time after the commitment. He thus asks that such a hearing should be held within 15 days, by an analogy he would draw between commitment pursuant to CPL 330.20 and emergency commitment pursuant to section 31.39 of the Mental Hygiene Law. This analogy is unpersuasive for several reasons, the most obvious of which is that the 15-day limit in section 31.39 will not lead to a full hearing at its expiration, but rather to continuing commitment pursuant to medical certification with its concomitant right to a subsequent hearing within 60 days (see Mental Hygiene. Law, §§ 31.27, 31.33). We think, however, that a prompt hearing should be provided. We so hold because automatic commitment under CPL 330.20 is, in a sense, based on a presumption of continuing dangerous insanity, and such a presumption may not ripen to a conclusion of dangerousness in every case, and should not be blindly applied to deprive an individual of his liberty.

The order appealed from should be affirmed, without costs.

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

Order affirmed.


text:
    In the Matter of Laurence Lublin, Respondent, v Central Islip Psychiatric Center et al., Appellants.
    Argued November 16, 1977;
    decided December 19, 1977

      POINTS OF COUNSEL

      Louis J. Lefkowitz, Attorney-General (Thomas P. Dorsey, Samuel A. Hirshowitz and Anne Marsha Tannenbaum of counsel), for appellants.
    I. The court below erred in holding that the statute does not place the burden of proof upon the proponent of release. (People v Lally, 19 NY2d 27; Lynch v Overholser, 369 US 705; Matter of Miller, 46 AD2d 999.) II. The statute’s imposition of the burden of proof upon the proponents of release does not violate the constitutional right to due process. (People v Lally, 19 NY2d 27; Morrissey v Brewer, 408 US 471; Cafeteria Workers v McElroy, 367 US 886; Jackson v Indiana, 404 US 908; Orencia v Overholser, 163 F2d 763; Overholser v Leach, 257 F2d 667, 359 US 1013; Ragsdale v Overholser, 281 F2d 943.)

      Donald W. Leo for respondent.
    A hearing conducted pursuant to CPL 330.20 is a "civil proceeding” in which the parties who oppose release of petitioner bear the burden of proving that petitioner presently constitutes a danger to himself and/ or others. (People ex rel. Henig v Commissioner of Mental Hygiene, 86 Misc 2d 932, 56 AD2d 398; Bolton v Harris, 395 F2d 642; Gomez v Miller, 341 F Supp 323; Specht v Patterson, 386 US 605.)
   OPINION OF THE COURT

Gabrielli, J.

On October 4, 1971, petitioner killed his wife, stabbing her more than 80 times with an awl. He then threw himself off an overpass of the Long Island Expressway, in an apparent suicide attempt. On May 2, 1973, he was found not guilty of a charge of her murder by reason of mental disease or defect, and was committed to the custody of the Commissioner of Mental Hygiene pursuant to CPL 330.20 (subd 1). He was initially placed in Mid-Hudson Psychiatric Center, and was subsequently transferred to Central Islip Psychiatric Center. His condition was several times re-evaluated, but each time the commissioner decided not to apply to the court for permission to conditionally discharge or release petitioner pursuant to CPL 330.20 (subd 2). Petitioner himself then commenced this proceeding seeking release pursuant to CPL 330.20 (subd 5). Following an extended hearing at which numerous witnesses testified, Suffolk County Court denied the petition for release on the ground that petitioner had failed to prove by a fair preponderance of the evidence that he could be released "without danger to himself or others” (CPL 330.20, subd 3). The Appellate Division reversed, holding that the burden of proof should have been placed on the commissioner, and remanded for a new hearing. We reverse and hold that Suffolk County Court properly placed upon the petitioner the burden of proving by a fair preponderance of the evidence that he could be released without danger.

It should first be noted that petitioner does not challenge the validity of his initial commitment pursuant to CPL 330.20 (subd 1) (cf. People ex rel. Henig v Commissioner of Mental Hygiene, 43 NY2d 334 [decided herewith]). Indeed, at the time this proceeding was commenced he had been institutionalized for almost two years. Rather, his claim is that he is no longer dangerous to either himself or others, and should therefore be released. The issue before us is a narrow, purely legal one: Must a person who has been validly committed as a result of an acquittal by reason of mental defect or disease, and who at a later time seeks release on the claimed ground that he is no longer dangerous to either himself or others, be required to prove by a fair preponderance of the evidence that he may safely be released? We hold that he must.

The Suffolk County Court applied the traditional rule that a person who has been lawfully committed, and who subsequently seeks release on the ground that the reasons for his commitment no longer exist, must bear the burden of proving this change in condition (see, e.g., Matter of Richard E. R., 52 AD2d 927; People ex rel. Peabody v Chanler, 133 App Div 159, 164-165, affd on opn below 196 NY 525; Rosario v State of New York, 42 Misc 2d 699, 703; cf. Bolton v Harris, 395 F2d 642, 653; United States v Ecker, 543 F2d 178, 191-193; but see State v Krol, 68 NJ 236, 257). We see no reason to adopt a different rule, since we do not believe that it deprives petitioner of either due process or equal protection. It is beyond doubt that petitioner was both insane and dangerous at the time he murdered his wife and attempted to take his own life; indeed, it is only because of his insanity that he is relieved of criminal liability. Given the clear existence of this condition, as evidenced by the admitted commission of a violent act, it is appropriate that the condition be presumed to continue until the contrary is proven.

The burden which is placed on petitioner is neither excessive nor novel, for the burden of proof is normally placed upon the party who is seeking affirmative relief (see, generally, Richardson, Evidence [10th ed], § 100). Moreover, in a very pragmatic sense, the question of who must shoulder the burden of proof in a case such as this becomes significant only when the evidence is so delicately balanced that to reach a solution it is necessary to give one side or the other the benefit of the doubt. In determining which party is to receive this benefit in a close case, it is necessary to balance the conflicting interests implicated. The petitioner is obviously asserting his very strong and basic interest in liberty, for it can no longer be denied that commitment, albeit for treatment, does involve a substantial deprivation of liberty. The State, on the other hand, is asserting both its parens patriae interest in the mentally incompetent, with its concomitant obligation to protect them from harm to either themselves or others, and its responsibility to exercise its police powers to protect its citizenry from an individual who has given proof positive that he is in fact dangerous to both society and himself. We find that in such a case, the State’s interest must outweigh that of the individual, and it is the people of the State who must be given the benefit of the doubt. As Mr. Justice Titone stated in his dissent below (56 AD2d 1, 20), "where the underlying act was one of extreme violence, reasonable medical doubts and judicial doubts should be resolved in favor of the public * * * and, a fortiori, the burden of proof should devolve upon the detainee to show that he no longer constitutes a danger to himself or others” (citations omitted).

With respect to the extent of the burden which must be shouldered by an individual who is seeking release, we reject any suggestion that he must prove lack of dangerousness beyond a reasonable doubt (see State v Taylor, 158 Mont 323, cert den 406 US 978). Aside from the rather clear constitutional objections to the imposition of such a harsh burden, it should be noted that CPL 330.20 (subd 3) characterizes such a hearing as a civil proceeding. Thus, the applicable standard of proof is that of the normal civil proceeding, and petitioner need only show by a fair preponderance of the credible evidence that he may be discharged or released without danger to himself or others.

Accordingly, the order appealed from should be reversed, without costs, and the case remanded to the Appellate Division for review of the facts.

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

Order reversed, without costs, and the matter remitted to the Appellate Division, Second Department, for further proceedings in accordance with the opinion herein.

       We note that our decision today is to be limited to this type of situation. We do not reach the question of the appropriate placement of the burden of proof in a situation wherein someone has been conditionally released or discharged, and the commissioner subsequently seeks to revoke that discharge or release pursuant to CPI 330.20 (subd 4).


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

text:
    Josephine Adkins, Appellant, v City of New York, Respondent.
    Submitted November 18, 1977;
    decided December 21, 1977

      POINTS OF COUNSEL

      Robert M. Trien and Philip Handelman for appellant.
    The mailing of the notice of claim by regular mail, within the 90-day period satisfied the statutory requirement since the notice was actually received and the city caused claimant to be examined. (Montez v Metropolitan Transp. Auth., 43 AD2d 224; Soules v City of Rochester, 10 AD2d 362; Matter of Drake v Comptroller of City of N. Y., 278 App Div 317; Perl v New York City Housing Auth., 35 Misc 2d 92; Appeal Print. Co. v Sherman, 99 App Div 533; Teresta v City of New York, 304 NY 440; Matter of Stallone v Board of Educ., 205 Misc 697.)

      W. Bernard Richland, Corporation Counsel (Donald J. Dawidoff, L. Kevin Sheridan and Bernard Burstein of counsel), for respondent.
    Section 50-e of the General Municipal Law requires that a notice of claim sent by ordinary mail be received by the municipality within 90 days of the accident. (Gates v State of New York, 128 NY 221; Missano v Mayor of City of N. Y, 160 NY 123; Karr v Village of Alfred, N. Y, 148 App Div 435; Montez v Metropolitan Transp. Auth., 43 AD2d 224; Chikara v City of New York, 10 AD2d 862, 8 NY2d 1014; Chesney v Board of Educ., 2 AD2d 761, 5 NY2d 1007; Weisman v City of New York, 219 NY 178; Van Der Lugt v City of New York, 36 AD2d 915; Matter of Miller v New York City Housing Auth., 7 AD2d 922, 6 NY2d 932; Sherman v Metropolitan Tr. Auth., 36 NY2d 776.)
   OPINION OF THE COURT

Jasen, J.

In this personal injury action arising out of a collision between plaintiff’s automobile and a sanitation truck owned by defendant City of New York, the issue presented for our review is whether a notice of claim sent by ordinary mail and received by the city more than 90 days after the accident was effective service within the meaning of section 50-e of the General Municipal Law.

It is claimed that plaintiff’s car collided with a city sanitation truck on November 12, 1969. A notice of claim upon the city was sent by ordinary mail on February 10, 1970, the 90th day after the accident. The city received the notice on February 16, 1970. At this point no objection was voiced as to whether the service of notice was timely, and on January 20, 1971 the city examined plaintiff. Suit was commenced on February 8, 1971. Before trial, the city moved to dismiss the complaint on the ground that it had not been served within the time limitations imposed by subdivision 3 of section 50-e of the General Municipal Law. Special Term denied the motion, and the Appellate Term unanimously affirmed. By a closely divided court, the Appellate Division reversed and dismissed the complaint.

Section 50-e of the General Municipal Law as it existed at the time of the accident, provided that prior to commencing suit against a public corporation, notice of claim "shall be served on the party against whom the claim is made by delivering a copy thereof, in duplicate, personally, or by registered mail” "within ninety days after the claim arises.” The provision also contained a "saving clause” which provided in pertinent part: "that if service of such notice be made within the period prescribed by this section, but in a manner not in compliance with the provisions of this subdivision, such service shall be deemed valid if such notice is actually received * * * and such party against whom the claim is made shall cause the claimant or any other person interested in the claim to be examined in regard to such claim.”

Appellant argues that the mailing of the notice of claim by ordinary mail on the 90th day satisfies the statutory requirement since the notice was actually received and the city caused plaintiff to be examined. While the city concedes that the statute permits the service of the notice of claim by ordinary mail, it contends that the notice must be actually received within 90 days of the accident to be effective service.

A review of the legislative history of section 50-e of the General Municipal Law reveals that it was enacted to establish a uniform and equitable procedural system for instituting tort claims against public corporations. Such a system was intended to supersede the numerous and inconsistent procedural hurdles erected by general and local laws. (Twelfth Ann Report of NY Judicial Council, 1946, p 21.) Although remedial in nature, the law as finally adopted did not embrace all the liberal recommendations of the Judicial Council, but, rather, accommodated some of the concerns voiced by public corporations. (Eleventh Ann Report of NY Judicial Council, 1945, pp 51-52.) The statute required, as a condition precedent to the institution of a lawsuit against a public corporation that notice of all tort claims be delivered within the time period prescribed to a duly authorized representative of the public corporation. Although such statutory provisions are properly denominated as conditions precedent to liability, the service of the notice of claim within the time period prescribed operates, in effect, as a Statute of Limitations. "The requirement of notice is one of the safeguards devised by law to protect municipalities against fraudulent and stale claims for injuries to person and property. It is designed to afford the municipality opportunity to make an early investigation of the claim while the facts surrounding the alleged claim are still 'fresh’.” (Tenth Ann Report of NY Judicial Council, 1944, p 265.)

When first enacted, section 50-e contained no "saving clause”, the only statutorily prescribed methods of service of notice of claim being personal service and service by registered mail. Such strict requirements brought harsh results. In Teresta v City of New York (277 App Div 787, revd 304 NY 440), notice of claim was served by ordinary mail on the New York City Comptroller well within the then extant 60-day statutory period. After the trial had commenced, the city moved to dismiss on the ground that plaintiff, in serving notice by ordinary mail within the statutory period, had not complied with section 50-e. The motion was granted, and the Appellate Division affirmed.

To obviate the possibility that similarly harsh results would occur, the Legislature enacted the "saving clause” which was designed to permit effective service within the statutory period by means other than registered mail or personal delivery. (NY Legis Ann, 1951, p 42.) By this enactment, certified or ordinary mailing would also constitute effective service, provided, however, that "service of such notice be made within the period prescribed by [the] section * * * and such party against whom the claim is made shall cause the claimant * * * to be examined in regard to such claim.” This amendment permits service of notice of claim by means other than registered mail or personal service if two conditions are met: first, the notice of claim must be actually received "within the period prescribed by [the] section”; and, second, that there be an examination of the claimant.

As to the first condition, the notice of claim, served by ordinary mail, was received by the city on the 96th day after the claim arose. Clearly, the notice of claim was not "actually received” by the city within the 90-day period prescribed by statute. Since this condition of the "saving clause” was not met, it is of no avail that the second condition—examination of the claimant—took place. The statute being worded in the conjunctive, both conditions must be satisfied to constitute effective service.

The time and manner of service of a notice of claim upon a public corporation is wholly one of legislative judgment. To assure that the public corporation receives actual notice of the claim within the period prescribed, the Legislature required that notice of claim be served upon the public corporation personally or by registered mail. The apparent reason that, in addition to personal service, notice by registered mail was authorized is that the date of mailing is recorded by the post office and, therefore, mailing and delivery may be established without any doubt. Since this is not so with ordinary mail, the Legislature, in enacting the "saving clause”, did authorize service of notice by ordinary mail, provided the notice was actually received by the public corporation within the 90-day period. That the Legislature intended that service by ordinary mail be ineffective until received is strongly implied in the Judicial Conference Report on the proposed 1976 amendments to section 50-e. The report, speaking as of a time when service by registered mail only was authorized, states: "Under present law, service by registered mail is complete upon mailing, but service by certified mail is complete upon receipt. Service in either fashion should be complete upon mailing, and it is so provided in paragraph (b).” (Judicial Conference Reports, 2 McKinney’s 1976 Sess Laws 2071, 2087.) If, prior to the 1976 amendment, service by certified mail was complete only on receipt, it cannot be seriously argued that service by ordinary mail, as was done here, was complete when posted.

There can be little doubt that there are significant general differences with respect to tort liability between public corporations, with their numerous employees and departments and diverse operations, and private tort-feasors. These differences required appropriate legislative regulation. Our Legislature responded to this need by enacting section 50-e requiring that service of notice of claim on a public corporation be made "within the period prescribed” to afford the public corporation an opportunity to investigate claims while the facts are still "fresh”.

Indeed when in 1976 the statute was amended to authorize service by certified as well as registered mail, the Legislature explicitly provided, "[i]f the notice is served within the period specified by this section, but in a manner not in compliance with the provisions of this subdivision, the service shall be valid * * * if the notice is actually received by a proper person within the time specified by this section(Emphasis added.) Although concededly this 1976 amendment is not applicable to this case, the conclusion that we now reach accords with the provision subsequently enacted by the Legislature.

Since we conclude that the notice of claim was not timely served within the meaning of section 50-e, as it then existed, the complaint was properly dismissed. Accordingly, the order of the Appellate Division should be affirmed, without costs.

Chief Judge Breitel (dissenting).

I dissent, and vote to reverse and reinstate the complaint.

The "saving clause” of subdivision 3 of section 50-e of the General Municipal Law then applicable, and before its most recent amendment in 1976, provided in relevant part: "that if service of such notice be made within the period prescribed by this section, but in a manner not in compliance with the provisions of this subdivision, such service shall be deemed valid if such notice is actually received * * * and such party against whom the claim is made shall cause the claimant or any other person interested in the claim to be examined in regard to such claim.”

I would hold that notice of claim by ordinary mail, sent before, but received after, expiration of the statutory 90-day period, is service "made within the period prescribed by this section”. Since it is undisputed that the notice was actually received by the city, albeit six days after expiration of the period, and that the city caused plaintiff to be examined, the other conditions of the saving provision were met, and the complaint should stand.

It is true that the statute requires personal service or service by registered mail. But service by ordinary or certified mail has been sustained (see, e.g., Melisi v Central School Dist. No. 1, 25 AD2d 54 [Gibson, J.]; Teresta v City of New York, 304 NY 440, 442-443). Once it is accepted that service by ordinary mail is not a fatal defect, it need only be determined whether service is effected by mailing alone, or whether service is not complete until the time of delivery. Concededly, if the service is by registered mail, it is complete at the time of mailing (see Desroches v Caron, 11 Misc 2d 838, 839-840; Graziano, Recommendations Relating to Section 50-e of the General Municipal Law and Related Statutes, Twenty-First Ann Report of NY Judicial Conference, 1976, p 391). Since the possibility of delay inherent in ordinary mailing is not demonstrably greater than in registered mailing, the same rule should apply. Hence, service was "made within the period prescribed by this section”.

The rule finds support in the general CPLR provision dealing with service of papers (CPLR 2103). Service by mail "shall be complete upon deposit of the paper enclosed in a postpaid properly addressed wrapper, in a post office or official depository”. (CPLR 2103, subd [b], par 2). Delivery is not required (see A. & B. Serv. Sta. v State of New York, 50 AD2d 973, 974). It has been said that even pleadings are served when mailed, not when received (1 Weinstein-Korn-Miller, NY Civ Prac, par 308.14, p 3-220; see Burns v Inman, 32 Misc 2d 286, 287; Schraub v Landes, 31 Misc 2d 817). No distinction is drawn between ordinary mail and registered mail.

The majority opinion adopts an improperly and unnecessarily restrictive reading of the statute. It interpolates a requirement not explicit in the statute that the notice be "actually received” within the 90-day statutory period. Service must be made within the statutory period, but there is no express time limit on actual receipt of the notice, and no compelling reason to infer one. A municipality is generally afforded sufficient protection by the requirement that service be timely; there is no persuasive reason, based either on social policy or principles of statutory construction, for requiring that actual receipt be timely as well. The effect of the restrictive reading is unjust in its preclusion of a claim on the most technical of time requirements without offsetting benefit to the municipality. Had the notice never been received the case would be different, as would be the situation if the receipt were unduly delayed as, for example, one year after mailing and expiration of the 90-day time limit. In that event, at least, the city might be able to show prejudice, but not when the delay is as little as six days as here.

Finally, it is crucial that upon receipt of the notice of claim, the city did not reject the notice in any way (cf. General Municipal Law, § 50-e, subd 3, par [c], eff Sept. 1, 1976). Instead, the city proceeded to examine claimant on the merits of the claim. This conduct by the city has elements of waiver of proper notice of claim (cf. Teresta v City of New York, 304 NY 440, 442-443, supra). And although lack of prejudice cannot be determinative of the statutory issue, the challenged notice left the city in precisely the position it would have enjoyed had service by registered mail been deposited on the last day of the statutory period. Service by ordinary mail, therefore, resulted in no injustice to the city.

The 1976 statutory amendment demonstrates the Legislature’s conception of the justice of the case, for after September 1, 1976 noncompliant mailing if followed by examination of the claimant works a waiver. The court’s sense of justice should be no less. Thus, the 1976 amendment provides that: "If the notice is served within the period specified by this section, but in a manner not in compliance with the provisions of this subdivision, the service shall be valid if the public corporation against whom the claim is made demands that the claimant * * * be examined” (§ 50-e, subd 3, par [c]). It is only after the disjunctive "or” that there is explicit provision that the notice must have been received within the time specified by the section, and if there is a failure to return the noncom-pliant mailing there is a waiver.

It is not without significance that Special Term sustained the notice in this case, a unanimous Appellate Term sustained the notice, and the Appellate Division reversed on a three to two vote. This court by as sharp a division sustains the fruitless technicality. It is notable that the city initially treated the notice as valid and directed the examination of the claimant. It was only after almost four years that the city bestirred itself to attack the notice as invalid.

The notice on this $10,000 claim was mailed February 10, 1970; the examination was conducted January 20, 1971, and the order denying the motion to dismiss was filed June 5, 1974, more than four years after the notice, six days late in receipt.

The result in this case closes the trap for the unsophisticated. This case becomes another in the aggregation of errant cases which have never pursued a pattern in accordance with the "plain meaning” of these statutes, constantly amended, and constantly softened by decision and amendjnent to 'avert their harsh consequences (cf. Matter of Murray v City of New York, 30 NY2d 113, 121 [concurring opn]; Graziano, Recommendations Relating to Section 50-e of the General Municipal Law and Related Statutes, Twenty-First Ann Report of NY Judicial Conference, 1976, p 384).

Accordingly, I dissent and vote to reverse and reinstate the complaint.

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

Order affirmed.

      . The “saving clause” was subsequently amended (L 1976, ch 745, § 2) and now provides: "If the notice is served within the period specified by this section, but in a manner not in compliance with the provisions of this subdivision, the service shall be valid if the public corporation against which the claim is made demands that the claimant or any other person interested in the claim be examined in regard to it, or if the notice is actually received by a proper person within the time specified by this section, and the public corporation fail to return the notice, specifying the defect in the manner of service, within thirty days after the notice is received.”

      . The decision was reversed on appeal to this court on the ground that despite the "irregularity in the form of service”, the city had waived the statutory requirements of section 50-e by refraining to object until after commencement of trial. (304 NY 440.)