text:
    Lorinda Wilson, Adm’rx of William Wilson, App’lt, v. The Hudson River Water Power & Paper Co., Resp’t.

      (Supreme Court, General Term, Third Department,

      Filed September 15, 1893.)

    Master and servant—Negligence.
    Plaintiff’s intestate was killed while in the employ of defendant engaged in fixing machinery in a vat. It appeared that while so employed the water was turned on by one Gr., and the machinery thus set in motion. No defect in the machinery itself was shown. Defendant had a superintendent who had charge of the business and men, and it did not appear that Gr. was invested with any general power or authority oyer the employes or the operation of the machinery. Held, that a dismissal of the complaint was proper; that the injury resulted from the negligence of GL, who was a co-employe with deceased, and not from any negligence of the defendant.
    Appeal from a judgment entered upon an order of a judge at a circuit dismissing plaintiff’s complaint.
    The action was for an alleged injury on the part of the defendant in not furnishing a reasonably safe place and safe machinery in the defendant’s factory where plaintiff’s intestate was employed as a laborer by the defendant.
    At the time of the injury complained of the defendant had in process of construction an addition to its mill, and the intestate was engaged in working aj; the fixtures or machinery in the mill so in process of construction, and while so engaged was caught in a chest or vat being constructed for mixing pulp by revolving shafts and arms, and was killed, and this action is prosecuted by his administratrix to recover damages resulting from the killing.
    At the conclusion of the case the defendant moved to nonsuit the plaintiff, which motion was granted, and from the judgment entered upon that decision the plaintiff appealed.

      James A. Burnham (Edgar T. Brackett, of counsel), for app’lt; Edward W. Douglas, for resp’t.
   Mayham, P. J.

The plaintiff was nonsuited by the learned judge at the trial upon the ground that the negligence complained of was not negligence fairly imputable to the defendant, but was the result of negligence of a co-employe of the intestate in turning the water on the wheel, and thus setting the machinery in motion at a time when the intestate was engaged in a position where no harm could have come to him but from the starting of the machinery, and that the intestate was not proven to be free from contributory negligence.

The determination of the first question upon which the learned judge placed his decision must turn upon the question as to whether Griffin, the man who opened the gate, and thus precipitated the water upon the wheel, setting the machinery in motion, was the alter ego of the defendant

If he was, then his act was the act of the defendant, and it would be charged with negligence. If he was not, then his act would be that of a co-employe, for which the defendant would not be liable.

The evidence shows that Griffin was the chemist in the employ of the defendant in its manufacturing business, and there is no direct evidence that he had any authority or control over the machinery, or those whose duty it was to operate it.

The defendant had in its employ a superintendent, who seemed to have general charge of its business, and of the men in its employ, and the employes appear by the evidence to have had assigned to them their respective duties, and it nowhere appears that the company had invested Griffin with any general power or authority, either over the employes or the operation of the machinery in its mills.

Under these circumstances the evidence discloses that Griffin, who, it must be assumed, was a co-employe with the deceased, carelessly or negligently, and without appearing to have any express authority or direction from the superintendent, set the machinery in motion by turning the water upon the wheel, and thereby caused the death of the plaintiff’s intestate.

He was, within the facts of this case, a co-employe and fellow servant with the intestate. Against his negligent acts the intestate took the risk.

The rule seems settled that all who serve the same master, work under the same control, derive their authority and compensation from the same common source, and are engaged in the same general business, though it may be in different grades or departments of it, are fellow servants who take the risk of each other’s negligence. Mele v. D.& H. C. Co., 39 St. Rep., 153, 154.

In this case the court held that “prima facie the servants of a common master employed in the railway service are fellow servants, and neither has a cause of action for the negligence of the other.” Boldt v. R. R. Co., 18 N. Y., 432; Malone v. Hathaway, 64 id., 5 ; Vick v. R. R. Co., 95 id., 267 ; Mahoney v. N. Y. C. & H. R. R. R. Co., 46 St. Rep., 738-741; Webber v. Piper, 109 N. Y., 499 ; 16 St. Rep., 423.

’ The machinery in the mill upon which plaintiff’s intestate was engaged to work was incomplete, and he was at the time of the accident engaged in completing it. No inherent defect existed in the machinery itself, and no harm could have come to him, but for the improper setting of the machinery in motion while he was exposed. It is not, therefore, a case of unsafe and improper machinery furnished by the. employer to the employe by which the employe is injured, but rather a case of the improper use by a fellow servant of machinery suitable and proper for the purpose for which it was intended, and it was by the improper use of the machinery itself that the injury resulted to the deceased.

We are, therefore, of the opinion that the decision of the learned judge was correct, and that the injury resulted, not from any negligence on the part of the defendant, but from the negligence or improper conduct of a fellow servant.

The judgment should be affirmed, with costs.

Herrick, J., concurs._


source: Caselaw Access Project

author: Mayham, P. J.

license: Public Domain

text:
    The People ex rel. Dennis H. Kennedy et al., v. Peter Lahr et al.

      (Supreme Court, General Term, Third Department,

      Filed September 15, 1893.)

    1. Excise—Appointment of commissioners—Laws 1893, chap. 401.
    On the first of April, 1893, the mayor of Hudson appointed the relators as excise" commissioners for a term of three years from May 1st. Subsequent to the passage of chap. 401 of the laws of that year they were reappointed and again qualified. On the 1st of January, 1893, a new mayor went into office, who appointed the defendants as excise commissioners. Held, that the relators being in office under a valid appointment at the time of the passage of the act of 1893, were entitled under §§ 3 and 45 of the act to hold the same during the term for which they were appointed, and that such right" was not affected by their reappointment or the appointment of defendants.
    3. Same—Disqualification.
    A supervisor of a ward of a city, otherwise eligible, is not disqualified under § 3 of chap. 401, Laws 1893, from holding the office of excise commissioner.

      (People ex rel. Furman v. Clute, 50 ÍT. Y., 451, distinguished.)
    Submission of controversy upon agreed statement of facts.

      Collier, Collier & Browning (Edward F. McCormick,, of counsel), for Lahr et al.; Andrews & Longley (L. F. Longley, of counsel), for relators.
   Mayham, P. J.

This is a submission under § 1279 of the Code of Procedure presenting to this court for adjudication and determination questions arising between the plaintiffs and defendants upon a disputed claim by them respectively to the office of commissioners of excise of the city of Hudson.

The case as submitted discloses, that on the 4th of April, 1892, Levi F. Longley, mayor of the city of Hudson, appointed Dennis H. Kennedy, David" Ryan and George Yan de Bogart, respectively, as commissioners of excise by an appointment in the words and figures following:

“Mayor’s Office, Hudson, N. T.
“By virtue of the power and authority in me vested, and pursuant to the statute in such case made and provided, I, Levi. F. Longley, mayor of the city of Hudson, do hereby, on this first Monday of April, 1892, appoint Dennis H. Kennedy, George Van de Bogart and David Ryan, commissioners of excise in and for the city of Hudson for three years, commencing on the 1st day of May, 1892.
“ Dated April 4, 1892.
“ Levi F. Longley, Mayor.
To James McShane, City Clerk'.”

At the time of said appointment Dennis H. Kennedy was supervisor of the first ward of the city of Hudson, and he and David Ryan were holding the office of commissioners of excise, which they held under an appointment by the mayor of Hudson, made April 1, 1889, and that Peter Lahr was also at that time commissioner of excise, and the term of each of said commissioners by their appointment would expire on the 1st day of May, 1892 ; that each of the plaintiffs and persons so appointed by the order of April 4, 1892, qualified, filed their bond, and took the oath of office, and entered upon the discharge of their duties as commissioners of excise of Hudson, and were exercising the duties of said office on the 30th of April, at the time of the passage of chapter 401 of the Laws of 1892.

That act, which took effect immediately, changed in many inv portant particulars the time or manner of appointment and the tenure of office of excise commissioners.

On the 23d day of July, 1892, Levi F. Longley, mayor of the city of Hudson, made and filed an order or appointment of the plaintiffs as commissioners of excise in the words and figures following:

“ Mayor’s Office, Hudson, N. 7.
“By virtue of the power and authority in me vested, and pursuant to the statute in such case made and provided, I, Levi F. Longley, mayor of the city of Hudson, do hereby appoint Dennis H. Kennedy, George Van de Bogart and David Ryan, commissioners of excise in and for the city of Hudson, for the unexpired term of three years, commencing on the 1st day of May, 1892.
“Dated July 23, 1892.
“ L. F. Longley, Mayor.”

On the same day of the date of the appointment the plaintiffs respectively took the oath of office, filed their bond, which was approved by the mayor, and entered upon, or continued in the discharge of their duties as commissioners of excise of the city of Hudson, and were so exercising their duties as commissioners of excise on the 1st day of January, 1893.

On the 31st day of December, 1892, the term of office of Levi F. Longley as mayor of the city of Hudson expired, and on the 1st day of January, 1893, George G. Miller became mayor of the city of Hudson, and on the 2d day of January, 1893, he made and filed an appointment of the defendants, of which the following is a copy:

“Mayor’s Office, Hudson, N. T.
“By virtue of the power and authority in me vested, and pursuant to the statute in such case made and provided, I, George G. Miller, mayor of the city of Hudson, do hereby appoint Peter Lahr, Edward H. Carpenter and James Maloney, Jr., commissioners of excise in and for the city of Hudson, for a term expiring December 31, 1894.
“Dated January 2, 1893.
“George G. Miller, Mayor."

On the same day the defendants severally took the oath of office, and severally gave and filed their bonds, approved by the mayor, conditioned for the faithful performance of their duties as commissioners of excise; the said defendants thereupon claiming-to be legally appointed excise commissioners of the city of Hudson, and severally entitled to said office, entered upon the duties, and have ever since been claiming, and still are, to be commissioners of excise of said city, as are also the plaintiffs, under the-appointment of Mayor Longley dated April 1,1892 and July 23„ 1892.

The case discloses that each of the alleged boards of commissioners of excise, on or about the 25th day of April, 1893, published a notice required by law for their meeting on the 4th of May, for the purpose of granting licenses to such as might apply for licenses to sell liquor for the year 1893, and that pursuant to said notice the plaintiffs and defendants, each severally claiming to be the legally appointed commissioners of excise for the city of Hudson, met for the purpose of acting as boards of commissioners of excise respectively, whereupon, and to settle said disputed claim, the attorney general, on behalf of the state, and the respective parties to this controversy, make and file their submission under chapter 1279 of the Code above referred to.

Prior to, and at the time of the enactment of chapter 401 of the Laws of 1892, the commissioners of excise of the city of Hudson were appointed under and their tenure of office was fixed by the provisions of chapter 145 of the Laws of 1879. Section 2 of that act provides that the commissioners of excise in cities shall hold their office for three years, and until others shall be appointed in their place, and shall receive a salary not exceeding $2,500 each year, to be fixed by the common council of said city, and shall be paid as other city officials are paid.”

Chapter 145 of the Laws of 1879 was repealed by chapter 401 of the Laws of 1892, but § 2 of the last mentioned act provides as follows: “ The term of office of every commissioner of excise now in office shall be the term for which he was elected or appointed, and the term of office of every commissioner of excise appointed prior to the expiration of the term of the mayor now in office shall be for the term now provided by law.”

The plaintiffs, or relators in this action, as we have seen, were appointed on the first Monday in April, 1892, with a tenure of office to commence on the 1st day of May, 1892, anc^ continue for the term of three years, under the provision of chapter 145 of the Laws of 1879. They were, therefore, commissioners of excise appointed prior to the expiration of the term of the mayor then in office, and under the provisions of § 2 of chapter 401 their tenure shall be for a term as now provided by law.

If that construction of the act of 1892 is correct, then the officers appointed by the mayor on the 1st of April, 1892, would hold their office under the law then in force for three years from the 1st of May, 1892, and § 2 of chapter 401 of the Laws of 1892 would continue them in office during the period for which they were appointed.

In that view of the case no vacancy existed, either at the time of the appointment, July 23rd, by Mayor Longley, or at the time of the appointment, January 2, 1893, by Mayor Miller, and neither of these appointments could divest the relators of an office with which they had been legally invested by a valid appointment made on the first Monday of April, 1892.

We find nothing in the act of 1892 which in express terms-authorized Mayor Longley to make the appointment of July 23d, and if the relators were required to stand upon that appointment alone, there would be great doubt as to its validity, and the title to office derived under that appointment would at least be doubtful; but, as we have seen, the relators were appointed on the 1st of April under a valid law then in force, and the act of the mayor in making that appointment was a valid act, and although the appointment was made to take effect on the 1st of the succeeding May, they were appointed under the provisions of law in force at the time of the order making the appointment, and are therefore exempt from that provision of § 5, of chapter-401, which provides that the term of office of excise commissioners appointed by the mayor of a city shall expire with the expiration of - the term of office of the mayor, and the relators at the time of such appointment were invested with title to the office under the qualification of § 2 of chapter 401, “ as now provided by law.” Goillotel v. Mayor, Aldermen and Commonalty of the City of New York, 87 N. Y., 441.

But as the appointment made April 1, 1892, was a valid appointment under the law as it then existed, such appointment, it seems to us, would be upheld by § 45 of chapter 401 of the Laws of 1892, which contains a saving clause as to the effect of the repeal by that act, and provides : “ That such repeal shall not revive a law repealed by any law hereby repealed, but shall include all laws amendatory of the laws hereby repealed, but the repeal of a law or any part of it specified in such schedule shall not affect or impair any act done, or right accruing, accrued or acquired, or liability, penalty, forfeiture or punishment incurred prior to the time this act takes effect under or by virtue of any law so repealed, but the same may be asserted, enforced, prosecuted or inflicted as fully, and to the same extent, as if such law had not been repealed.”

This saving clause leaves unaffected the appointment made by Mayor Longley on April 1, 1892, and reserves in the relators all the rights, powers and privileges conferred on them by that appointment. Angel, as Receiver v. The Town of Hume, 17 Hun, 374; Calhoun v. The Delhi & Middletown R. R. Co., 28 id., 379; Savings Bank v. The Town of Seneca Falls, 86 N. Y., 317; McCahill v. Hamilton, 20 Hun, 388.

If we are right in our construction of these various statutes, the relators held their position by a valid tenure under the appointment of April 1, 1892, and their rights to the office in controversy have not been impaired, either by the appointment made by Mayor Longley on the 23rd of July, and their acceptance under that appointment, nor by the appointment of the defendants made by Mayor Miller on the 2nd of January, 1893, on his accession to the office of mayor as the successor of Longley.

Ho such act of either of the mayors could operate as a removal of the relators from office, nor create a vacancy which said mayors or either of them would be authorized to fill, nor would the qualification of the relators under the appointment made by Longley on July 23rd operate as a resignation by the relators of that office which they at that time held, so as to produce a vacancy in such office.

We are, therefore, clearly of the opinion that the relators are entitled to retain their position as commissioners of excise until the expiration of their three years term from the 1st of May, 1892.

The only remaining question is, whether the relator Kennedy was eligible to the office of commissioner of excise, he being at the time of his appointment a supervisor of the first ward of the ■city of Hudson.

Section 3 of chapter 401, of the Laws of 1892, provides: “ That no person shall be eligible to the office of commissioner of excise who is a supervisor, justice of the peace, or town clerk of a town, president or trustee of an incorporated village, or engaged ■or interested in the sale or manufacture of strong or spirituous liquors, wine, ale or beer, or who is not a citizen of this state and a resident of the town or city for which he is elected or appointed.”

This section especially enumerates the disabilities which shall render an incumbent ineligible to the office of commissioner of ■excise. If the relator Kennedy comes within any of these ■enumerated disabilities, then he would be, and is ineligible to the office which he claims ; but it will be observed by a careful reading of this section that the legislature has not in express terms extended the disability to the supervisors of a ward in a city, and while all the reasons which would disqualify the supervisor of a town of acting in that capacity might be applicable to a supervisor from a ward, yet, in the absence of express statutory disability, a person otherwise eligible cannot be adjudged by the court disqualified where the legislature has failed to establish such disability. We must, therefore, hold that the relator Kennedy is not by the terms of this act disqualified from holding the position of commissioner of excise for the city of Hudson.

In the People upon the relation of Furman v. Clute, 50 N. Y., 451, the defendant was adjudged to be ineligible to the office of superintendent of the poor of the county of Schenectady on the ground that he was supervisor of a ward in the city of Schenectady, where the language of the act was substantially identical with the language used in § 3 of chapter 401 of the Laws of 1892, but there was a marked difference between that case and this, as in that case the charter of the city of Schenectady, under which -Clute held the office of supervisor, subjected the supervisor of a ward to the same disabilities as a supervisor of a town, Laws of 1862, chap. 385, and therefore by reason- of the disability under the charter the court held him ineligible to the office of superintendent of the poor.

We are, therefore, led to the conclusion that Kennedy was not, under the statute, ineligible to the office of commissioner of ex•cise, and that the relators are therefore entitled to judgment affirming their title to the office of commissioners of excise of the city •of Hudson against the defendants, with costs of this action.

Let judgment be entered accordingly.

Putnam and Herrick, JJ., concur.


author: O’Brien, J.

text:
    In the Matter of the Distribution of Proceeds of Real Estate of Elizabeth A. Stilwell, Deceased.

      (Court of Appeals,

      Filed October 3, 1893.)

    ,1. Foreclosure—Judgment.
    The validity or regularity of a provision in a judgment of foreclosure, not raised by a party to the suit by answer, appeal or motion, cannot be raised collaterally where the court rendering the judgment had general jurisdiction of the parties and the subject matter of the action.
    :2. Same—Surplus.
    A statute that provides for the deposit of surplus moneys arising from the sale of the lands of a deceased person in the surrogate's court having jurisdiction of the settlement and distribution of his estate, and providing for the proceedings in that court for its distribution among the parties entitled, subject to the appellate jurisdiction of the supreme court upon the law- and the facts, is constitutional.
    Appeal from judgment of the supreme court, general term, ■first department, affirming decree of surrogate directing distribu"tion of surplus arising from sale under foreclosure and order de* mying stay.

      John G. Agar, for app’lt; Payson Merrill, for resp’ts.

       Affirming 52 St. Rep., 689.

   O’Brien, J.

The order from which this appeal was taken made distribution of surplus mo.neys arising upon a sale of real • estate after judgment in an action to foreclose a mortgage on the ;same. Elizabeth A. Stilwell died seized of the property, subject to a mortgage, December 21, 1890, and by her will devised it to her heirs and next of kin, of whom the petitioner in this proceeding was one The mortgage was foreclosed, and judgment of foreclosure and sale was entered in the month of November, 1891. The surplus arising upon the sale was paid into the surrogate’s •court pursuant to § 2798 of the Code. The appellant, Frances Dixon, claims to be the daughter of Mrs. Stilwell; that the will was void, and that the surplus, or at least some part of it, passed to her as heir. She was a party to the action to foreclose the-mortgage, and one of the questions that arises upon the appeal is how far she is bound by the provisions of that judgment. The surrogate made distribution of the surplus among the devisees, under the will, and thus the appellant’s claim has been ignored. On the 14th of September, 1891, she brought an action of ejectment to enforce her claim, and this action being pending when the application for distribution was made to the surrogate, she-interposed it as an answer or bar to the proceeding, and the objection was disregarded, but no evidence was offered with respect to her right to share in the distribution of the fund.

The contention of the appellant is that the provisions of the Code pursuant to which the surplus was deposited in the surrogate’s court are unconstitutional, in that they deprive the supreme court of its general jurisdiction in law and equity secured to it by the state constitution. Art 6, § 6. There are, we think, two answers to this objection :

(1.) The appellant was a party to the foreclosure action in which the direction to pay the money into the surrogate’s court was made. She was entitled to be heard on this question as well as any other in the case. The fact that she omitted to answer is not material. ' The judgment binds her as to every question litigated, or which could have been litigated, as a former adjudication between the parties or their privies, and she cannot now question anything decided collaterally. It is urged that this provision in the judgment in that case was made without notice to her, and hence she never had an opportunity to be heard. If this is so,, and she was entitled to notice, her.remedy was by motion to set aside the judgment, or to correct or amend it, and upon such motion she could have appealed from any decision made. The validity or regularity of a provision in a judgment of foreclosure not raised by a party to the suit by answer, appeal or motion, cannot be raised collaterally where the court rendering the judgment had general jurisdiction of the parties and the subject-matter of the action.

(2.) The surplus moneys in question were a part of the estate-of a deceased person, and had been disposed of by will. The distribution of such estates between heirs, next of kin, legatees and devisees was always a part of the jurisdiction of the surrogate’s court recognized by the constitution. The fund may have been devoted by the will or by law to the payment of debts or legacies in the ordinary course of administration, and at some time or in some way was liable to come within the jurisdiction of the surrogate. The sections of the Code, the validity of which are questioned, §§ 2798, 2799, treat the surplus, in the cases there specified, in the same way as the proceeds of real estate sold under the order of the surrogate. They were intended to save the expense incident to the distribution of the surplus where the mortgagor is alive, and to facilitate the orderly settlement of the estates of deceased persons.

The legislature connot limit or abridge the general j urisdiction of the supreme court as conferred by the constitution. But it sseems to me that it may, without restricting its general jurisdiction, within the meaning of the constitution, designate the place where surplus moneys arising from the sale of lands in foreclosure •or partition actions, where the owner is dead, may be deposited. Before an act of the legislature can be declared void as repugnant to the constitution, the conflict must be manifest. A statute that provides for the deposit of surplus moneys arising from the sale of the lands of a deceased person in' the surrogate’s court having jurisdiction of the settlement and distribution of his estate, and providing for the proceedings in that court for its distribution among the parties entitled, subject to the appellate jurisdiction of the supreme court upon the law and the facts, does not, in my opinion, violate any provision of the constitution. The jurisdiction of the supreme court to entertain, hear and determine the action and to execute its judgment has not been touched. The Code deals only with a fund arising from the execution of the foreolosure judgment, not disposed of by the decree, and commits that fund to the custody and control of a court which, at the time the constitution was adopted, had exclusive jurisdiction over the estates of deceased persons, and this jurisdiction was recognized by that instrument in various provisions for its future organization and existence. The action of the surrogate’s court with respect to the distribution of the fund is subject to review by the supreme court on the law and the facts. The general jurisdiction conferred upon the supreme court by the constitution does not operate to prevent the legislature from giving additional jurisdiction to other tribunals, or from changing the common law, or from regulating and altering the jurisdiction and proceedings in law and equity in the same manner and to the same extent as had been exercised by it before the constitution of 1846 was adopted. People v. Green, 58N. Y., 301; Const, art. 6, § 8. These general powers are broad enough to sustain the provisions of the Code assailed upon this appeal

The order should be affirmed, with costs.

All concur.


author: Andrews, Ch. J.

text:
    Mary Weston, Resp’t, v. The City of Troy, App’lt.

      (Court of Appeals,

      Filed Oct. 3, 1893.)

    ÜEGLIGENCE—CONTRIBUTORY.
    The mere happening of an accident to a pedestrian through stepping on a ridge of ice upon the sidewalk, when it was covered with a light snow, does not make the question of contributory negligence one for the jury; the absence of negligence on the part of the plaintiff must be affirmatively shown either by direct proof or by circumstances.
    (Peckham and O’Brien, JJ., dissent.)
    Appeal from judgment of the supreme court, general term, third department, affirming judgment for plaintiff.

      William J. Roche, for app’lt; Charles E. Patterson and Frank J. Parmenter, for resp’t.

       Reversing 46 St. Rep., 963.

   Andrews, Ch. J.

It is a fundamental principle in the law of this state that, in an action for a personal injury based on negligence of the defendant, the absence of negligence on the part of the plaintiff, contributing to the injury, must be affirmatively shown by the plaintiff either by direct proof or by circumstances, and that no presumption arises from the happening of an injury and proof of negligence on the part of the defendant that the plaintiff was free from blame. Reynolds v. N. Y. C., etc., R. R. Co., 58 N. Y., 248.

The plaintiff was injured by falling on a sidewalk in Troy in March, 1885. Her leg was broken, and she recovered a moderate verdict. We think a case of neglect by the city was made out, and we should affirm the judgment of the general term which sustained the recovery, but for the reason that it would make a precedent for overturning the rule to which we have adverted. The proof shows that the plaintiff was passing over a sidewalk on Madison street, in the forenoon of a clear, cold day in March, adjacent to the saloon of one Foley, and stepped upon a ridge of ice formed by the discharge of water from a conductor on the outside of Foley’s building, and that she fell, sustaining the injury complained of. There is no shred of evidence as to the exercise by the plaintiff of any care on the occasion. An inch or two of light snow, which had fallen the night before, covered the ice, thereby rendering it more dangerous. The ridge, according to the plaintiff’s witnesses, was formed by the water overflowing from a gutter leading from the house where the water was discharged across the sidewalk to the roadway, and then congealing, the ridge being several inches high and two or three feet wide.

The evidence on the part of the plaintiff tends to show that the ridge of ice was plainly visible, and that it formed a dangerous obstruction to the use of the sidewalk was shown by the fact that two other persons had fallen there on the same day the plaintiff fell, and another person two or three weeks before.

Whether the plaintiff saw the ridge before stepping upon it does not appear, nor was it shown whether she was walking fast or slow, or what attention she was paying, if any, to the condition of the sidewalk. If she discovered the ridge, she was not required to leave the sidewalk, but she might, without being subjected to the charge of negligence, using due care, have kept on her way. But she could not heedlessly disregard the precautions which the obvious situation suggested, and proceed as though the sidewalk was free and unobstructed. The presumption which a wayfarer may indulge, that the streets of a city are safe, and which excuses him from maintaining a vigilant outlook for dangers and defects, has no application where the danger is known and obvious, if the plaintiff did not discover the ridge and passed along relying upon the walk being safe, or supposing, if she saw the ridge, that it was made by compacted snow, and not by ice, these and other circumstances might have been shown to meet the burden the law places upon a plaintiff suing for negligence of being himself free from fault But no evidence whatever was given by the plaintiff to meet this condition.

It is said by counsel that this was a mere inadvertence, and he asks us in substance to hold that the mere happening of the accident, by stepping upon the ridge, when it was covered with a light snow, made the question of contributory negligence one for the jury. We cannot assent to this view.

The judgment should, therefore, be reversed and a new trial granted.

Judgment reversed and new trial granted, costs to abide event.

All concur, except Beckham and O’Brien, JJ., dissenting.


text:
    Clara Fairchild, App’lt, v. Lucy Ann McMahon, Resp’t.

      (Court of Appeals,

      Filed October 3, 1893.)

    Foreclosure—Purchase money mortgage—False statement op con SIDERATION.
    The purchaser of property for $7,000 caused the consideration to be stated at $12,000 in the deed, and shortly after, through her agents, in selling the property stated that it was worth $15,000, etc. In an action to foreclose a mortgage given as part of the purchase price of the properly so sold, Held, that such false statement constituted a sufficient basis for a, finding of fraud as a defense.
    Appeal from judgment of the supreme court, general term, second department, affirming judgment of special term for defendant in action to foreclose mortgage.

      Payson Merrill, for app’lt; Dennis McMahon, for resp’t.
   O’Brien, J.

The plaintiff sought to foreclose a mortgage assigned to her before the commencement of the action, executed and delivered by the defendant, upon certain real estate of which she was the owner, subject to other mortgage liens, and bearing date April 30, 1890, for $1,500, payable one year from date, with semi-annual interest. The mortgage was given to one Joseph H. Gain, with whom the negotiations and transactions which resulted in its execution and delivery were had, or with agents acting for him or in his interest. The defense is fraud practiced upon the defendant, and by means of which she was induced to-make and deliver the mortgage and the accompanying bond. The facts to sustain this defense are stated with considerable detail, the substance of which, in brief, is as follows:

On the ninth of April, prior to the execution of the mortgage, the defendant, through her husband acting for her, entered into an agreement with Cain to exchange real estate. Each owned a house and lot incumbered by mortgage, the equity of redemption in which was to be conveyed to the other, and the agreement was actually carried out by the execution and delivery of proper conveyances. The mortgage in question was executed and delivered in pursuance of this agreement. It is alleged in substance that one Yoran, the plaintiff’s son, was the principal actor in the transaction and the real party to be benefited. That though the record title to the real estate to be conveyed to the defendant was in Cain, jet his title was nominal, as his name was simply used by Yoran in the purchase of the property and in the negotiations for its sale to the defendant and in the conveyance. It is then charged in substance that Yoran, Cain and their broker, and another broker employed by and acting for the defendant’s husband, her agent, conspired together to cheat and defraud the defendant by false and fraudulent representations concerning the value and condition of the house which the defendant by the agreement was to receive in exchange for her property, and which she subsequently conveyed, and that, in reliance upon the truth of the statements, she, through her husband, entered into and executed the agreement and made the exchange.

It is further averred that upon discovery of the fraud the defendant offered to rescind the whole transaction. The courts below have sustained the defense, and the charges of fraud and other facts alleged by the defendant are found by the learned trial judge to be substantially true. The testimony upon the issues of fact was very conflicting, but after considering it with all the circumstances, we are unable to say that any of the findings, material to the defense, and challenged by exception, are without support, and, therefore, feel concluded by them as to the facts.

There are one or two questions of law, however, that should be noticed. One of' the false representations made by Yoran and his broker to the defendant’s husband, as appeared from the findings, which was relied upon, and which influenced her action in making the exchange and giving the bond and mortgage in suit, and upon which the finding of fraud is based, was that the house and lot transferred to the defendant in the exchange was worth $15,000. That Cain had just purchased it at the price of $12,000 from the executors of the deceased owner, who were compelled to sell at a price below the real value, and that such was the consideration expressed in the deed to him from the executors, as would appear from the record in the county clerk’s office.

It is further found that the defendant’s husband, before entering into the transaction, did examine the deed in the clerk’s office under which Cain took the title, and that it appeared from the same that the consideration was $12,000, and that the defendant and her husband believed the statement. That while it was true that the consideration stated in the deed was $12,000, it was not true that the real consideration paid was that sum, but, on the contrary, the fact was that about twenty-four days before the transaction Yoran had purchased the property for $7,000, which was its true value, and had taken the deed in the name of Cain, expressing a fictitious consideration, and for the purpose of deceiving investors, and that he had procured the consideration to be falsely stated in the deed. This finding raises the question whether a false statement, deliberately made, by a party about to sell property, to the party about to purchase it, with respect to the price which he had paid for it to a former owner, is a sufficient basis upon which to predicate a finding of fraud, when the statement is relied 'upon by the party to whom made.

It has been held that a false statement by a vendor to a vendee concerning the value of property about to be sold will not sustain an action for fraud, but the vendee in such cases must rely on his own judgment. Ellis v. Andrews, 56 N. Y., 83.

It may be that the rule in such cases would be different if the purchaser was prevented by any act or artifice of the seller from exercising his judgment in ascertaining the value.

But the question here is not one arising out of a representation as to value. The representation was with respect to a fact which might, in the ordinary course of business, influence the action and -control the judgment of the purchaser, namely, the price paid for the property about to be sold by the vendor within less than a month prior to the transaction; and so we think that a false statement with respect to the price paid under such circumstances, which is intended to influence the purchaser, and does influence him, constitutes a sufficient basis for a finding of fraud.

It was so held in Sandford v. Handy, 23 Wend., 260, where a new trial was granted to the plaintiff in an action of this char"acter on the ground that proof of such representations was improperly excluded at the trial. Ch. J. Nelson, delivering the -opinion of the court, p. 269, said:

“ I am also inclined to think that any misrepresentation as to the actual cost of the property is a material fact, and naturally calculated to mislead the purchaser. * * * Misrepresentation as to the cost of an article stands somewhat on the same footing. It is a material fact, which not only tends to enhance the value, but gives to it a firmness and effect beyond the force of mere opinion.
“ The vendor is not bound to speak on the subject, but if he does, I think he should speah the truth."

The same principle received the sanction of the court in Van Epps v. Harrison, 5 Hill, 63, and is apparently recognized in Smith v. Countryman, 30 N. Y., 655; Hammond v. Pennock, 61 id., 151, and Goldenbergh v. Hoffman, 69 id., 326.

There is another question in the case as to how far these statements as to the cost of the property made by a broker employed by Yoran can bind the plaintiff or Cain, her assignor. But it sufficiently appears that Yoran used Cain’s name in the transactions with his consent, and that he also employed the broker to sell the property or negotiate the agreement for an exchange. All persons who acted for or in the name of Cain, or with his consent, in bringing about the transaction must now be deemed to be his agents, and as he accepted the fruits of their efforts in this regard and took the title to the bond and mortgage, which was a part of the result of their negotiations, and transferred them to the plaintiff, all the methods employed by either Yoran or his broker to procure the agreement for an exchange and the mortgage in suit are imputable to the person in whose name they acted, and who voluntarily received the securities thus procured. He could not, ■even though innocent, receive a mortgage thus procured, and at the same time disclaim responsibility for the fraud by means of which the defendant was induced to deliver it. Krumm v. Beach, 96 N. Y., 398. The findings imply that the broker was the general agent of Gain, and as such his statements bound his principal, and those findings are sustained by the evidence.

The plaintiff took no other or different title to the bond and mortgage than Gain had. The record discloses no estoppel or other principle or equity which can protect the plaintiff against any defense whieh might have been urged if the securities had remained in the hands of the original parties.

We have examined the other exceptions in the case, and as they do not present any question requiring discussion or any error than affects the judgment it should be affirmed, with costs.

Judgment affirmed, with costs.

All concur.

       Affirming 47 St. Rep. 760.


text:
    G. Weld Thomas, App’lt, v. The New York & Greenwood Lake Railway Company et al., Resp’ts.

      (Court of Appeals,

      Filed October 3, 1893.)

    1. Railroad—Income bonds—Pleading.
    The complaint in an action upon railroad income bonds which, provide that no more interest shall be payable than shall be certified by the board of directors to have been earned over and above all expenses, including necessary repairs, aud in default of such certificate no interest shall be payable, is fatally defective if it does not show that there were earnings applicable to the payment of interest on the bonds, which had either been retained by the corporation or applied to other purposes.
    2. Same.
    The board is bound to act in good faith, but any expenditures incurred! which by fair construction come within the permitted charges are conclusive upon the bondholders. It is for the board to determine, in the first instance, what repairs are necessary, and a mistake in judgment as to the necessity or extent of repairs directed, will afford no ground of complaint by the bondholders.
    3. Same.
    The contract by designating a fund out of which the interest is to be paid does not operate as an equitable assignment of the fund so designated to the bond creditors, or create an equitable lien thereon in their favor, so that when any sum has been earned applicable to the payment of interest it should be constituted a trust fund in the hands of the company for the benefit of the bondholders. The latter acquire no title, legal or equitable, to the fund itself.
    4. Same.
    Such an action can not be maintained on the theory that there is a fiduciary relation created by the contract between the railroad company and the bondholders in respect of the fund out of which the interest was payable.
    5. Same.
    Where the bonds state that in default of certificates of the board of directors to the fact and amount of the earnings no interest should be payable, an allegation in the complaint that the “board of directors have wrongfully neglected and refused to certify that said interest, or any interest whatever, has at any time been earned " is sufficient.
    Appeal from judgment of the supreme court, general term, first department, affirming judgment of special term, sustaining demurrer to complaint.

      The complaint is as follows:
    The plaintiff, suing in his own behalf, as well as in behalf of all other holders and owners of income mortgage bonds issued by the defendant, the New York & Greenwood Lake Railway Company, similarly situated with himself, who shall come in as parties to, and contribute to the expenses of this action, for an amended complaint, alleges, upon information and belief:
    I. That the defendant, the New York & Greenwood Lake Railway Company, is a foreign corporation duly incorporated under the laws of the state of New Jersey, and that it owns and operates a line of railroad from a point in or near Jersey City, New Jersey, to or near Greenwood Lake, in said state, together with branches of its main line, and is the owner of the franchises and property described in the mortgages hereinafter particularly mentioned.
    II. That on the 80th day of November, 1878, the defendant railway company duly issued and put upon the market its bonds, known as its first mortgage income bonds, to the amount of $900,000 par value, each of said bonds being under seal and of the denominations of $50, or multiples thereof, up to $1,000, par value, and in and by each of said bonds said railway company covenanted and promised to pay to the person named therein (being the purchaser thereof) or his assigns, thirty years after the date thereof, the principal sum named therein, and also interest thereon, at six per cent, per annum, half yearly during said term, on the first days of April and October in each year, out of the earnings of said company, at its agency in the city of New York. Each of said bonds contained the following proviso: “ Provided always, nevertheless, that no more interest shall be payable by virtue hereof than shall be certified by a vote of a majority of the board of directors for the time being to have been, by said corporation, earned over and above all expenses, including necessary repairs, during the six months ending one month before such time fixed for such half yearly payments, or theretofore to have accumulated during the current year, so as altogether to make enough to pay at the rate of six per cent, per annum, and in default of such certificates, no interest shall be payable.”
    III. That to secure said issue of bonds, the defendant railway company on said 30th day of November, 1878, duly executed to> the defendants, Edwin F. Bedell and Charles G. Barber, as trustees for the owners and holders of said bonds, a mortgage upon all its franchises and property then owned or subsequently acquired by it, and all appurtenances thereto, which said mortgage was thereupon duly recorded in compliance with the laws of New Jersey, in all the counties in which the mortgaged property, or any of it, was located, both as a mortgage of real estate and also as a chattel mortgage. And that said trustees thereupon duly accepted the trust reposed in them by said mortgage.
    IY. That on the 30th day of November, 1878, the defendant railway company also duly issued and put upon the market its bonds known as its second mortgage income bonds, to the amount of $1,800,000 par value, said bonds being under seal and of various denominations from $100 to $1,000, and in and by each of said bonds said railway company covenanted and promised to pay to the person named therein (being the purchaser thereof), or his assigns, bearers thereof, thirty years after its date, for value received, the principal sum named in said bond, and also interest thereon at six per cent per annum half-yearly during said term, on the first days of May and November of each year, out of the earnings of said company, as its agency in the city of New York. Each of said bonds contained the following proviso : “ Provided always, nevertheless, no more interest shall be payable by virtue hereof than shall be certified by a vote of a majority of the board of directors for the time being to have been by said corporation earned over and above all expenses during the six months ending one month before such time fixed for such half-yearly payments, or to have heretofore accumulated during the current year, so as altogether to make enough to pay interest at the rate of six per cent per annum, and in default of such certificate no interest shall be payable. In estimating expenses in order to such certificate there shall be included necessary repairs, and also six per cent interest in said current year on the ‘ first mortgage bond.’ ”
    Y. That to secure said issue of second mortgage income bonds the defendant railway company, on said 30th day of November, 1878, duly executed to the defendants, William L. Eaymond and Edson D. Hammond, as trustees for the owners and holders of said bonds, a second mortgage (subsequent and subject to the first mortgage hereinbefore described) upon all its franchises and property then owned or subsequently acquired by it, and all appurtenances thereto, which said mortgage was thereupon duly recorded in compliance with the laws of New Jersey, in all the counties in which the mortgaged property, or any of it, was located, both as a mortgage of real estate and as a chattel mortgage. And that said trustees thereupon duly accepted the trust reposed in them by said mortgage.
    YI. And the plaintiff further alleges that he is the owner and holder of a number of said first mortgage income bonds, to wit, of five bonds of the par value of $1,000 each, and is also the owner and holder of a number of said second mortgage bonds to the par value of $5,000, having purchased all said bonds in the open market and for value.
    And plaintiff further alleges that he represents other holders of said first and second income bonds to the aggregate amount of $425,000 and upwards, par value thereof, all of said holders being similarly situated with this plaintiff.
    YII. And the plaintiff further alleges upon information and belief, that shortly after the 30th day of November, 1878, the defendant railway company disposed of all or the greater part of said bonds, both the first mortgage and the second mortgage income bonds, and that a large amount of them—but precisely what amount plaintiff is unable to state—are now owned and held by bona fide purchasers thereof for value. That said owners and holders are very numerous, and it is impracticable to bring them in by name as parties to this action.

      VIII. That no interest has ever been paid on said first mortgage ■income bonds or on said second mortgage income bonds.

    IX That the defendant railway company was organized and became a corporation under the laws of New Jersey on or about the 5th day of October, 1878, and almost immediately thereafter, and on or before December 24, 1878, an agreement was entered into by and between the defendant Hewitt, who was president of said railway company, and H. J. Jewett, the president of the New York, Lake Erie & western Railroad Company (hereinafter called the Erie Railroad Company), said defendants acting in their capacity as said presidents respectively, under which the defendant railway company was, and has ever since continued to be and now is, operated by the Erie Railroad Company.

    That the defendant railway company is now, and ever since said agreement has been, practically controlled by said Erie Railroad Company.

    That a majority of the directors of the defendant railway company are now, and were at the time of the execution of, and ever since said agreement have been, officers or directors of the Erie Railroad Company. The defendant King is president of the Erie Railroad Company, and is a director of the defendant railway company, the defendant Hewitt is now, and ever since its organization has been, president and a director of the defendant railway company.

    The secretary of the Erie Railroad Company is now, and ever since said agreement has also been, secretary of the defendant railway company, and has his office for the transaction of business in the offices of the Erie Railroad Company in the city of New York.
    That the capital stock of the defendant railway company is $100,000 and no more. And that the shares of said stock are almost entirely owned and held, and ever since said agreement have been owned and held, by or for the Erie Railroad Company, and by said defendant Hewitt, or the firm of Cooper & Hewitt, of which he is a member.
    X. That the defendant railway company for many years past, and in each of said years, has during the six months ending one month before the several times fixed for the half-yearly payment of interest on said first and second income bonds respectively, earned enough money, over and above its operating expenses, including necessary repairs, and including all expenses properly chargeable against or payable out of the gross earnings, before paying interest on said bonds, to pay said interest in full at the rate of six per cent, per annum on both said classes of bonds. But that the defendant railway company has, nevertheless, at all times, wrongfully neglected and refused to pay said interest or any part thereof, and the board of directors thereof have wrongfully neglected and refused to certify that said interest, or that any interest whatever, has at any time been earned over and above said expenses. And that the defendants Hewitt and King have at all times participated and aided in such wrongful neglect and refusal.
    XI. That the necessary and legitimate operating expenses of the defendant railway company, including necessary repairs, and all other expenses properly chargeable against the gross receipts before paying the interest on said bonds according to the terms thereof as aforesaid, do not exceed and never have exceeded seventy per cent of the gross receipts of said defendant railway company. But said defendant company has, through its directors, including the defendants Hewitt and King, wrongfully and improvidently incurred great and unnecessary expenses, which they have wrongfully charged against and paid out of the earnings of said defendant railway company properly applicable to the payment of interest as aforesaid, and have thereby at all times since said bonds or any of them were issued as aforesaid, wrongfully prevented the accumulation of a fund to pay said interest
    That among other diversions of the moneys properly applicable to the payment of said interest, and preventing the accumulation and application thereof for that object, the defendant railway company, with the consent and aid of the defendants Hewitt and King, improvidently and wrongfully, as against the owners and holders of said first and second income bonds, used and appropriated a large part of said moneys to rebuilding the railway of the defendant company, and to building new railway and structures. That such rebuilding and 'such building were not necessary for the maintenance and operation of the defendant s railway. But the defendant railway company, with the consent or by the procurement of the defendants Hewitt and King, wrongfully charged the moneys so used and appropriated as expenses against its gross earnings.

    That the defendant railway company, with the consent and aid of the defendants Hewitt and King, caused a further wrongful diversion from the moneys properly applicable to the payment of said interest, and preventing the accumulation and appropriation thereof for that object, by leasing and operating a railroad known as the Watchung railroad, resulting in a loss to the defendant railway company in every year since said leasing was effected, and amounting in 1888 to $10,47402, and in 1889 to $9,493.98.
    That at the time of such leasing said Watchung railroad was insolvent, and the defendant Hewitt was the receiver thereof, and that said defendants Hewitt and King and their associate directors of the defendant railway company knew, or had good reason to know, that said leasing would be improvident, and would result in loss to the defendant railway company, but they, nevertheless, procured the lease of said Watchung railroad to the defendant railway company to be consummated. And although the Erie Railroad Company had undertaken to operate said defendants’ railway (including the Watchung railroad as one of the branches), the loss resulting from operating the Watchung railroad was, with the procurement or consent of the defendant railway company and by the procurement or aid of the defendants Hewitt and King, thrown on to the defendant railway company, and paid out of the gross receipts of said company.
    XII. That the defendant railway company has never accounted to the plaintiff and the other holders of said bonds.
    And the plaintiff further alleges, that before bringing this action the plaintiff applied to the defendant railway company for information respecting its receipts and disbursements, but was unable to obtain any fuller or further information than is herein-before set forth, and is unable after due inquiry made by him to ascertain or state more definitely than as before set forth the facts as to said receipts and disbursements, and as to the diversions of moneys properly applicable to payment of interest on the income bonds issued by the defendant railway company.
    And the plaintiff further alleges, on information and belief, that the defendant railway company has at all times wrongfully neglected to keep such an account of its earnings and expenditures as will show the net income of each semi-annual interest period applicable to the payment of the interest on its income bonds.
    XIII. And the plaintiff further alleges, upon information and belief, that it is provided in and by said, mortgages severally that in case of a sale under 'foreclosure the bonds secured by said mortgages respectively may be used in payment of the purchase money at such sale, after the payment of expenses of foreclosure .and the compensation and expense of the said trustees provided for in case of default under said mortgages respectively. That the great majority of both said first and said second mortgage income bonds are owned and controlled by the defendants Hewitt and King, or by said firm of Cooper & Hewitt, and by the said Erie Railroad Company. That it is claimed by the defendant railway company and by the defendants, Hewitt and King, that largesums of money are due and payable to said Erie Eailroad Company and to said defendant Hewitt, or his said firm, and that they would be liens prior to said bonds upon any moneys resulting from any such sale.
    That in case of sale the defendants, Hewitt and King, and the said Erie Eailroad Company intend and expect, by the use of the said bonds so owned or controlled by them,to buy in the mortgaged property for their own use, benefit and advantage, and inequitably to deprive the plaintiff and minority bondholders of all benefit from such sale.
    XIY. And the plaintiff further alleges that before bringing this action he duly requested the defendant trustees to bring suit for the purposes stated in the prayer of the complaint, but they have neglected and declined to do so.
    That said defendant trustees have not, as plaintiff is informed and believes, at any time taken any steps to protect or enforce the rights of plaintiff and the other holders of said bonds, or to prevent the waste of the revenue of said defendant railway company.
    And plaintiff further alleges, upon information and belief, that said trustees are in the employ of the defendant Hewitt, or of the Erie Eailroad Company, or of the said firm of Cooper & Hewitt, or are otherwise under their influence. They are made formal parties to this action, but no personal claim is made against them.
    YTherefore, plaintiff demands judgment that the defendants (other than the defendant trustees) account for all income and earnings of said defendant railway company, and that an account be taken and stated of the net earnings of the defendant railway company over and above operating expenses, including necessary repairs and all disbursements properly payable out of gross earnings before paying interest on said income bonds, during each period of six months ending one month before the several times fixed for the payment of interest on said first and second income bonds respectively since said bonds were issued, and that the defendants (other than the defendant trustees) pay the amount of said net earnings into the hands of a special receiver to be appointed by the court, to be disposed of under the direction of the court for the benefit of the plaintiff and all other bona fide holders of the said income bonds now outstanding issued by the defendant railway company who may come in as parties to this action, and contribute to the expense thereof. And for such further or other relief as to the court may seem equitable and proper.

      Oliver P. Buel, for app’lt; Cortlandt Parker, Jr., and Charles Steele, for resp’ts.

       Affirming 47 St. Rep., 250.

   Andrews, Ch. J.

The main proposition upon which this action is sought to be maintained is that the relation created between the New York & Greenwood Lake railway and the holders of the income bonds, in respect to the earnings of the railroad, was. fiduciary, and that the bondholders under the general equitable rule which permits a cestui que trust to maintain an action against the trustee for an accounting in respect to the trust fund, the plaintiff may maintain this action, without showing any misappropriation or wrong doing by the company or its directors. This proposition upon the facts disclosed in the complaint fails, we think, in its primary and essential assumption, that a trust relation between the company and the bondholders was created by the contract between the parties.

The obligation of the company to pay the principal of the bonds at maturity was absolute, but it assumed to pay the interest only out of the earnings of the company. The proviso which follows the covenant in respect to the payment of interest had two general objects, viz., to limit the scope of the prior general covenant to pay interest on bonds out of the earnings to such earnings as should be made during the six months’ period, or such as should have accumulated during the current year, “ over and above all expenses, including necessary repairs,” and next to constitute the board of directors of the company the tribunal to determine whether there were earnings in excess of the charges first to be paid applicable to the payment of interest The language is as follows: Provided always, nevertheless, that no more interest shall be payable by virtue hereof than shall be certified by the board of directors for the time being to have been by said corporation earned over and above all expenses, including necessary repairs, during the six months ending one month before such time fixed for such half-yearly payments, or theretofore to have accumulated during the current year, so as altogether to make enough to pay at the rate of six per cent, per annum, and in default of said certificates, no interest shall be payable.” In substance, the current interest was to be paid out of the current earnings, and then so far only as the board of directors should certify that interest had been earned “ over and above all expenses, including necessary repairs.” The claim that the contract, by designating a fund out of which the interest was to be paid, operated as an equitable assignment of the fund so designated to the bond creditors, or created an equitable lien thereon in their favor, so that where any sum had been earned applicable to the payment of interest it constituted a trust fund in the hands of the company for the benefit of the bondholders, is opposed to the authorities in this state: This is not the case of the administration in a court of equity of the estate of an insolvent corporation. If that was the condition and the question was presented as between bond creditors and other creditors of the corporation as to the distribution of surplus earnings specially devoted by the contract with the bond creditors to the payment of interest on the bonds, it may be that in that case the court would award to the bondholders an equitable preference by reason of the contract.

But the question here is between a solvent corporation and the-bondholders, and the only ground in support of the claim that a fiduciary relation was established by the contract between the corporation and the bondholders, or that the surplus earnings became a trust fund in the hands of the corporation for the benefit of the bondholders, is the promise of the corporation implied in the contract, that when the existence of surplus earnings was ascertained and certified by the board of directors it would apply them to-the payment of interest on the bonds.

The substance of the contract between the corporation and the-bondholders is that the interest should be paid out of a particular-fund, which should come into existence and be ascertained in the-manner provided in the contract The earnings of the corporation when received would, of necessity, become the property of the corporation. They might be wholly absorbed in paying expenses and repairing and operating the road. If there was a surplus beyond what was required for these purposes, ascertained as provided in the contract, the corporation obligated itself to apply it to the payment of interest on the bonds. But until the surplus was ascertained and applied by the corporation to the payment of interest, it remained the absolute owner of the fund, and it was subject to disposition for any corporate purpose by the board of directors. The corporation was, by its contract, obligated to apply it to the payment of interest on the bonds, and a breach of the contract would subject it to liability to the bondholders, and such remedies would be open to them as the law affords for breach of contract in other cases. But the bondholders acquired no title, legal or equitable, to the fund itself. A disregard of the contract by the-corporation, or a diversion of the surplus to any other purpose, would be a flagrant breach of confidence reposed in the corporation by the bondholders. But the rights and obligations of the parties rested in contract. There was no appropriation of the fund out of which the interest was to be paid in any sense which worked a transfer of the legal or equitable title thereto to the bondholders when it should come into existence and before it had been set apart by the action of the directors to the payment of interest.

It is the settled doctrine in this state “ that an agreement, either "by parol or in writing, to pay a debt out of a designated fund does not give an equitable lien upon the fund, or operate as an equitable assignment thereof.” Earl, J., Williams v. Ingersoll, 89 N. Y, 508, and cases cited. In Trist v. Child, 21 Wall., 441, the court, referring to this subject, said: “ But a mere agreement to pay out of such fund is not sufficient. Something more is necessary. There must be an application of the fundy>ro tanto, either by giving an order, or by transferring-it otherwise in such a manner that the holder is authorized to pay the amount directly to the creditor without the further intervention of the debtor.”

The question has usually arisen where the debtor promised his creditor to pay his debt out of a claim he held, or which should accrue in his favor against a third person, the primary liability of the debtor continuing. In this case, the promise to pay the interest on the bonds out of surplus earnings when the amount was ascertained was made at the inception of the bonds, and was the security the bondholders had for its payment, no general liability therefor being assumed by the corporation.

But these circumstances do not, we think, distinguish the case in principle from the cases cited. The corporation was bound to act in the utmost good faith towards the bondholders. They relied, as they had a right to rely, upon its faithful performance of the contract, and if it failed to apply the surplus when certified, or if its board of directors wrongfully refused to certify, when there was a surplus applicable to the payment of interest, an action would lie against the corporation in behalf of the bondholders for damages, measured by the amount of interest of which they had been wrongfully deprived.

This court, in Boardman v. Lake Shore & Mich. S. Railway Co., 84 N. Y., 157, sustained a judgment which enforced a contract between the company and the holders of guaranteed stock to make preferential dividends out of the net earnings, but there is no intimation in the opinion_that the holders of such stock acquired by force of the contract an equitable lien on the earnings, or that the agreement operated as an equitable assignment of the fund out of which the dividends were to be paid, The case of Uhlman v. New York Life Ins. Co., 109 N. Y., 421; 16 St. Rep., 371, which dealt with the relation of tontine policyholders to the insurance company, where the contract upon which it was claimed that a fiduciary relation was created between the company and the holders of such policies as to the tontine fund was stronger in support of the claim made in that case than is the contract upon which the similar claim is made in this case, the court rejected the claim made, and held that the relation was that of debtor and creditor only. Our conclusion upon the point now under consideration is that this action cannot be maintained on the theory , ■that there was a fiduciary relation created by the contract between the New York & Greenwood Lake Railway Company and the bondholders in respect oí the fund out of which the interest was payable. The claim of the bondholders under the contract is legal, and not equitable, and if any right to equitable relief in the ■nature of an accounting exists, it must be found in circumstances •outside of the contract relation between the parties.

It remains to consider whether the complaint discloses any breach of the contract between the defendant corporation and the bondholders. Unless facts are stated showing that the contract has been violated by the corporation, there can be no ground for either legal or equitable relief. In ascertaining the meaning ■of the contract, the same rules of construction apply as in other -cases. The words are to be interpreted according to their natural ■and legal import. No strained construction is to be placed upon them to meet a supposed hardship, or to relieve either party from ,a situation which, if it had been foreseen, might have been provided for, but for which no provision was made. If an ambiguity exists in any of the terms of the contract, resort may be had to circumstances constituting the res gestee which tend to explain their meaning.

It is manifest that as the bondholders were, by the contract, to receive interest only in case there were earnings of the -corporation remaining “over and above all expenses, including necessary repairs,” any application of the earnings to any purpose •other than the purposes embraced within the phrase quoted, before reserving sufficient to pay the interest on the bonds, would constitute a breach of the contract. We assent to the argument -that the restriction of the right of the corporation to apply the .gross earnings to certain designated purposes was an essential element of the security of the bondholders. The bonds were offered "to the public and were purchased upon the faith of the contract therein stated. The security for the payment of interest on the bonds was at best precarious, and although it may be assumed that the price of the bonds in the market was affected by this circumstance, it is but the dictate of obvious justice that such security as was afforded should not be permitted to be impaired by dealings of the corporation with the earnings not justified by the fair construction of the contract with the bondholders.

But the point now before us is whether the complaint discloses that the corporation has received earnings applicable under "the contract to the payment of interest which it either wrongfully retains and refuses to apply, or has applied to purposes not within the fair meaning of the words “ all expenses, including ■necessary repairs.”

There is a question somewhat preliminary which will first be noticed. It is claimed, in behalf of the defendant, that assuming -that earnings have been made applicable to the payment of interest on the bonds, it is by the contracta condition precedent to the Tight of the bondholders to maintain an action that the board of directors should certify to the fact and the amount, the language ♦of the bonds being, “ in default of such certificates no interest shall be payable.” This point is, we think, sufficiently met by the averment in the complaint that the “ board of directors have wrongfully neglected and refused to certify that said interest, or any interest whatever, has at anytime been earned,’’ which follows a general averment of the receipt of earnings applicable to the payment of interest. It was necessary for the plaintiff to show that, the required certificate had been made, or had been demanded and! wrongfully refused. It would be a very unreasonable construction of the contract that the bondholders are concluded by the-omission of the board of directors to certify, although there were-earnings in excess of the fair charges against them applicable to-the payment of interest. The wrongful withholding of a certificate when demanded satisfies the condition precedent, and this-is especially true where the alleged condition precedent is some-act of the party who is liable to pay. In such case his wrongful inaction is no obstacle to a recovery. Doll v. Noble, 116 N. Y., 230; 26 St. Rep., 629, and cases cited. The allegation of refusal to make the certificate implies a prior demand, and on demurrer is equivalent to an allegation of demand and refusal. Marie v. Garrison, 83 N. Y., 14; Abbott’s Trial Brief, § 220.

But we concur in the opinion of the general term, that the complaint is fatally defective in that it does not show that there were earnings applicable to the payment of interest on the bonds which had either been retained by the corporation or applied to other purposes. The averment in the 10th paragraph in the complaint, that earnings had been made by the corporation “over and above its operating expenses, including necessary repairs and including all expenses properly chargeable or payable out of gross earnings” sufficient to pay the interest, and the averment in the 11th paragraph, that the “legitimate operating expenses of the corporation, including necessary repairs and all other expenses properly chargeable,” etc., before paying interest, did not exceed seventy per cent of the gross receipts, standing alone, are simply averments that in the opinion of the pleader the expenses “properly chargeable,” when deducted from the gross earnings, would leave sufficient to pay the interest. If the pleader had stopped with these averments, we think the allegations would have been plainly insufficient to show that there were-earnings applicable to interest. The question, what expenses-, were “ properly chargeable,” is a question of law, and the necessary facts should have been averred, so that the court could see that the company had appropriated earnings to purposes excluded by the language of the bonds. The pleader, apparently recognizing the necessity, proceeded in the latter part of the 11th paragraph to specify the instances of misapplication, prefacing the specification with the language: “ Among other diversions,” etc. The pleading is, we think, to be treated as if the acts specified, were the grounds of the complaint of misapplication and diversion which the plaintiff charges. It is to be observed that it was. not the intention of the parties to the contract to withdraw the general management of the affairs and business of the corporation from the board of directors. - The power of control by the board was left unimpaired up to the point that its exercise did not interfere with the rights of bondholders to have the earnings applied to paying the interest on the bonds after defraying “ all expenses, including necessary repairs.” The fullest discretion was reposed in the board of directors consistent with the limitation for the benefit of the bondholders, and it was left to the board to ascertain and determine whether any earnings had been made •applicable to the payment of interest. The board was bound to act in good faith, but any expenditures incurred which by fair -construction came within the permitted charges were conclusive upon the bondholders.

It was for the board to determine, in the first instance, what repairs were necessary, and a mistake in judgment as to the necessity or extent of repairs directed would afford no ground of complaint by the bondholders. The court could not review this dis-cretion, provided there was room for difference of opinion as to their wisdom or necessity. The application of earnings to rebuilding the road might in many cases constitute necessary repairs. The improvement of the roadway, the relaying of the track with new rails, the erection of new buildings, bridges or structures, the construction of new sidings, and the general improvement of the road, to insure its safety, and to accommodate •a growing business, may constitute necessary repairs, and the board of directors, acting in good faith, might so determine, and the contract does not withdraw these matters from the determination of the governing body of the corporation.

There is no charge of bad faith, nor that the corporation or the board have applied any of the earnings to private uses. The allegation in the complaint that various acts enumerated were ■“ wrongful” or “improvident” are not allegations of fact, but of law, and are not admitted by the demurrer, and the allegation that the “rebuilding” and the “building of new railway and structures” were not necessary for the maintenance and operation of the railway does not show that what was done did not constitute “ necessary repairs,” and so was not within the discretion of the board of directors.

The leasing of the Watchung railroad by the defendant corporation is charged as having entailed a loss in each year to the lessee, “amounting in 1888 to $10,474.02, and in 1889 to $9,-498.98.” It is not claimed that the lease was not authorized by the charter of the defendant corporation, nor does it appear that the direct loss was not more than made up by the advantage derived by the main line from the transaction. The general question of the relation between “ income bondholders ” and a railroad corporation under a contract quite similar to the one now in question was exhaustively considered by this court in the case of Day v. Ogdensburgh & L. C. R. R. Co., 107 N. Y., 129; 11 St. Rep., 335, and the opinion of Judge Danforth in that case is very pertinent upon the question raised by this discussion, as to what may be done by a board of directors in charging income, consistently with the rights of the bondholders.

Our conclusion is that the demurrer to the complaint was well taken, and the judgment should, therefore, be affirmed.

Judgment affirmed, with costs.

All concur.


author: Earl, J.

text:
    Jacob H. Van Deventer, App’lt, v. Long Island City et al., Resp’ts.

      (Court of Appeals,

      Filed October 3, 1893.)

    Taxes—Assessment.
    The fact that the assessors, by mistake or design, omit from the rolls certain real estate laid down - upon the official map of the city as streets, and parks, which had not in fact been opened, and which remained in the ownership and possession of the individual owners thereof, and also resolved that no personal property should be assessed during certain years, does not render the entire assessment during those years illegal and void.
    Appeal from judgment of the supreme court, general term, second department, reversing judgments cancelling certain taxes.

      George F. Danforth, for app’lt; George W. Stephens, for resp’ts.

       Affirming 32 St. Rep., 1054.

   Earl, J.

This is an equitable action to have certain city, county and state taxes laid upon plaintiff’s real estate in Long Island City in the years 1877 to and including the year 1886 and various sales thereunder declared void and canceled, on the ground that the taxes were illegally imposed. The grounds of the illegality are that a large quantity of real estate was intentionally omitted from the assessment rolls in each of such years, and that in the years 1882 and 1883 the assessors resolved that no personal property within the city should be assessed, and in pursuance of such resolution no person resident within the city was assessed in either of the two years on account of any personal property. The real estate omitted from the assessment rolls was located within streets and parks laid down upon the official map of the city, which had not in fact been opened, and which remained in the ownership and possession of the individual owners thereof.

The real estate omitted from assessment was probably liable to-to taxation, and none of it was exempt until 1889, when, by chapter 548 of the Laws of that year, amending the charter of the city, it was provided that “ no taxes shall, after the passage of this act, be levied, assessed or collected upon any unimproved land included within the lines of streets, avenues and roads shown and laid out upon the official city map.” While it was found by the trial judge that the assessors intentionally and purposely omitted to assess the real estate, it was not found that they made the omission knowing that the real estate was liable to assessment and taxation. It is a legitimate inference from the' facts found that the assessment was omitted by the assessors in the exercise of théir judgment under the belief that the real estate thus situated was not liable to taxation.

There is no question that the plaintiff’s real estate was liable to assessment; that thq assessors had jurisdiction to assess it; that they acted within their jurisdiction; that they observed all the forms of law, and that the assessment rolls were proper in form. Was the entire assessment in each of the years mentioned absolutely illegal and void so that any person assessed can assail it and thus defeat the collection of the tax imposed upon him or his property because some real estate liable to taxation was omitted from the assessment roll ? If we were obliged to answer this question in the affirmative a Pandora box of litigation would be opened and scarcely any taxation for governmental purposes could be upheld. Fortunately, upon principle and authority, the question can be answered in the negative.

Most of the taxes complained of have been confirmed by subsequent legislation. Laws of 1882, chap. 383, § 1; Laws of 1886, chap. 656, § 15. There can be no doubt about the validity of these acts. Acts of the same purport and effect have frequently received the sanction of the courts. Spencer v. Merchant, 100 N. Y., 585; S. C., 125 U. S., 345; Francklyn v. Long Island City, 32 Hun, 451; S. C., 102 N. Y., 692; Ensign v. Barse, 107 id., 329; 12 St. Rep., 39; In the matter of Lamb, 51 Hun, 633; 22 St. Rep., 650; 121 N. Y., 703; 31 St. Rep., 996; Cromwell v. MacLean, 123 N. Y., 474 ; 34 St. Rep., 85. The legislature could have originally exempted the land omitted from these assessment rolls from taxation, and could thus have cast the whole burden of taxation in the city upon the other property, and what it could originally have done it can do by ratification and confirmation subsequently.

These acts relate only to the taxes prior to 1883, and do not touch the taxes for the years 1883, 1884, 1885 and 1886, and the validity of the taxes for those years must stand upon other considerations.

The trial judge based his decision against the plaintiff upon the two acts above mentioned, and also upon the act, chapter 656 of the Laws of 1886, §10 of which provides that “any action or proceeding by any person or corporation to test the validity or regularity of any tax levied, or assessment or water rates or rents made, shall be commenced within one year from the time of delivery of the roll in which said tax or assessment, or water rates or rents are claimed to the ” village treasurer. That act may defeat this action as to the taxes of 1886, as the assessment rolls for that year may have been delivered to the treasurer before the passage of that act; but it can have no retroactive operation so as to defeat the action as to the prior years. Matter of Trustees of Union College, 129 N. Y., 308; 41 St. Rep., 640.

The learned counsel for the defendants contends that the only remedy of the plaintiff for relief against the taxes complained of was by certiorari under the act chapter 269 of the Laws of 1880. But that act is not applicable to a case where the whole assessment roll is claimed to be illegal and void. It applies only to eases where there is a valid assessment roll in which some person has for some reason been illegally assessed, or where the assessment is excessive or unjust. People ex rel. etc., v. Parker, 117 N. Y., 86 ; 26 St. Rep., 698.

But we think there are fundamental reasons for defeating this action which have not yet received attention. The assessors in making the assessments acted judicially, and if they omitted any property from the assessment rolls, either by mistake or design, the entire assessments are not thereby rendered invalid. An assessment roll is in the nature of a judgment, and it was never heard that a judgment rendered by an officer exercising judicial functions was void because by mistake or design he had made it too large or too small, in a case where he had jurisdiction, and acted within his jurisdiction. That no action could be maintained against the assessors who made the assessments cannot be doubted, and this is so whether they omitted the property by mistake or design. They have the immunity of judicial officers. Weaver v. Devendorf, 3 Denio, 117. The only complaint the plaintiff can have is that he was taxed too much, because other property was omitted from the rolls, and that is a complaint which can nearly if not always be made in the case of all taxation for governmental purposes. It is doubtful if a village, town or city assessment roll is ever made from which some property is not omitted. If an assessment is void because some property is omitted, would it not also be void in those numerous cases where assessors agree to assess property at one-half, or some other fractional part of its value ? It is quite apparent that if the plaintiff’s contention is well founded very few assessments could stand assaults, and that the collection of revenues for governmental purposes would be very uncertain, and that interminable litigation would attend its -collection. The case of Dillingham v. Snow, 5 Mass., 547, is a very precise authority for the defendants in this case. There certain real estate was purposely omitted from the assessment roll by the assessors, and a taxpayer contended that the assessment was thereby rendered illegal and void ; and the court held against that contention, expressing views quite pertinent to this case.

Our assessment laws contemplate that assessors may, by mistake or design, omit property from the assessment roll, as provision is made for entering such property in the assessment roll for the subsequent year.

The question may be asked, what is the remedy of the taxpayer whose taxes are too high because some property has been omitted from the assessment roll ? Where the omission is intentional he may prosecute the assessors criminally for taking a false oath to the assessment roll. His remedies may be very inadequate. But he is in the position of every citizen aggrieved by official or governmental action. He must appeal to public opinion and to the ballot, and use his efforts to procure the election of better or more competent assessors. The mischiefs from unjust and unequal taxation are numerous, and most of them are without any adequate remedy.

The learned counsel for the plaintiff cites as authorities for the maintenance of this action the cases of Hassan v. City of Rochester, 67 N. Y., 528; Matter of New York Prot. Episcopal School, 75 id., 324 ; Ellwood v. City of Rochester, 122 id., 229; 33 St. Rep., 260. These cases bold that where the law requires the expense of a local improvement to be assessed upon property within prescribed limits to be benefited thereby, in proportion . to the benefits, the assessment is void if any of the property be omitted from the assessment. Ho public mischief can come from the establishment of such a rule. The property to be assessed generally consists of a few pieces of laud within known limits, which are easily ascertainable. Mistakes must be quite rare, and when made are easily remedied, and can usually produce no great embarrassment.

Assessments for local improvements and taxation for governmental purposes are in their nature essentially different, and the same rules of law may not be applicable to both. Local improvements for which assessments are made are not supposed to be beneficial to the general public. They are usually beneficial wholly, or mostly, to the locality in which they are made, and they are to be paid by the property specially benefited. The law gives the precise authority under which the improvements are to be made, and that authority must be quite literally followed in all matters of substance. In making the improvements the public authorities, to a certain extent, and in a substantial sense, act as the agents of the property owners. Dillon’s Municipal Oorporations (4th ed.), § 810 ; Lake v. Trustees of Williamsburgh, 4 Denio, 520. The statute is the limit of their authority and the measure of their agency for the lot owners, their principals, and it must be strictly pursued.

Under the authorities cited above, if a single lot be omitted from assessment through ignorance or mistake, the mere fact of the omission renders the assessment illegal and void. Can such a rule be applied to such assessments as are here involved ? Could a rule be tolerated that would render every such assessment invalid if a single piece of real estate, or if any chose in action or any chattel were omitted from assessment through the ignorance ■of the assessors, or by imposition upon them, or even by design ?

We need not pursue this line of argument further. These assessments were not invalid, and, therefore, this action cannot be maintained.

The judgment must be affirmed, with costs.

All concur.