author: Beekman, J.

text:
    The People ex rel. Harry P. Pike et al., Pl’ffs, v. Edward P Barker et al., as Commissioners, etc., Def’ts.

      (Supreme Court, New York Special Term,

      Filed February, 1895.)

    .1. Taxation—Assessment.
    An assessment for taxation of a fund of personal property, held by trustees, and subject to assessment against them as trustees, is not vitiated by the fact that in the assessment rolls, as originally prepared, the trustees were described “ as executors and trustees.”
    S. Same—Correction of inaccuracies.
    Tax commissioners have power, to correct inaccuracies in the assessment rolls, both as to names and words of description of persons assessed in a representative capacity.
    S. Same—Order of names.
    Section 818 of the consolidation act, requiring the assessed valuation of all personal "property to be entered in alphabetical order of the names of persons and corporations subject to taxation, is sufficiently complied with, where property is held by two trustees, by entry of the assessment in alphabetical arrangement under the first letter of the name of one of the trustees.
    Certiorari to review the action of commissioners of taxes and .-assessments in the city of New York.

      Lucien B. Chase, for relators ; William H. Clark (George S. Coleman, of counsel); for resp’ts.
   Beekman, J.

Hannah Benrimo died on the 6tli day of January, 1893, leaving a will appointing Harry P. Pike and her daughter, Emma Benrimo (now Emma Chase), executor and executrix of the same, and also trustees of a fund bequeathed to them in trust for the benefit of her said daughter during her life. Prior to the making of the assessment complained of, the executors had wholly administered upon the estate of the deceased, and had retained to themselves, in their capacity as trustees, all of the property which appertained to the trust estate. As executors purely, they were therefore without any property in their hands which could be made the subject of taxation. In making up the assessment rolls for the taxation of personal property for the year 1894, the relators were included therein under the following entry : il Pike, Henry, and Emma Benrimo, as executors and trustees of estate of Hannah Benrimo, deceased, $85,000.” The relators received actual notice of the assessment, and objected before the respondents to the same, on the ground that the assessment was invalid because it assumed to assess the relators as joint owners of the fund in their several capacities as executors and trustees, and that there was no such joint ownership; that the assessment should also have been entered against the relators in that portion of the assessment roll devoted to names commencing with the letter “ B,” and that 'the property assessed had been overvalued. A further objection was made, that the name of the relator Pike was Harry P. Pike, and not Henry Pike, as stated in the assessment list. The tax commissioners thereupon corrected their books by striking out the words “ executors and,” and correcting Mr. Pike’s name, and also reduced the valuation to the sum of $75,000, which, upon the evidence, was quite within the limit of their right to assess. The entry then read as follows : “ Pike, Harry P., and Emma Benrimo, as trustees of estate of Hannah Benrimo, deceased, $75,000.” The relators, still claiming to be aggrieved, now apply to this court, on certiorari, to cancel the whole assessment.

The relators insist upon the application of a most rigid rule of construction to the statute, and the acts of the tax commissioners under it. It is true that the authority to exercise the powers of taxation has been carefully scrutinized, and limited to the express warrant of the statute, and cannot be extended by implication or construction. McLean v. Jephson, 123 N. Y. 142-146; 33 St. Rep. 490. I am not aware, however, of any authority which requires the court to prefer a construction which will defeat, rather than sustain, a tax ; nor do I believe that any court has asserted, or will assert, any such unreasonable doctrine. The public has a most vital interest in sustaining the taxing power, for upon it rests the very existence of government; aud while the individual right of the taxpayer to have the law substantially complied with, in the process through which his proportion of the burden is laid upon him, is undoubted, the public is equally entitled to the benefit of n fair and reasonable construction in support of the tax, and to have the tax sustained where there has been no substantial departure from statutory requirement. The statute applicable to the case at bar requires that “where a person is assessed as trustee, guardian, executor or administrator he shall be assessed as such, with the addition to his name of his representative character, and such assessment shall be carried out in a separate line from his individual assessment.” 1 Rev. St. art. 2, p. 391. The object of this provision is that each class of assessments may be dealt with singly in reference to deductions and other considerations peculiar to each, and also be free from the confusion and error likely to result, both to the city and taxpayer, if personal and trust funds should be assessed together. It was the right of the relators to have this provision observed, and their right was respected. They insist, however, upon a legal exactness of definition, in characterizing the particular representative capacity in which they a.re assessed, as if the stress of the statute was upon this instead of upon the separation of one class of-assessments from the other. Ho such exactness is required. If the representative character of the relators is indicated with substantial correctness, the statute has been complied with; and the fact that the description is inartificial, and without legal nicety, does not vitiate the assessment. Tax laws are not to be treated as nicely-laid traps to snare unwary assessors, but should be upheld, and the acts of public officers under them sustained, where there has been a substantial compliance with all the requirements designed for the protection of the taxpayer. As was said by Peckham, J., in Overing v. Foote, 43 N. Y. 290-297, concerning assessors in making up tax lists, “in construing the acts of these officers, we should not sacrifice substance to form, nor lose sight of the spirit and purpose of the laws they are required to execute.”

In the case at bar the fund assessed was held by the relators as trustees, and was subject to assessment against them in that capacity. They were so described in the assessment roll, and the entry of the assessment was made on a separate line, as required by the statute. It is true that they were also designated as executors, but this was mere surplusage, technically inaccurate, in view of' the legal ownership of the fund by them as trustees, but certainly not operative to destroy the legal effect of that portion of the description which correctly indicates the capacity in which they were assessable. The collocation of these words is not at all infrequent where the same persons are both executors and trustees under a will and the addition of the word “executors,” as employed by the tax commissioners in this case, may more fitly be regarded as a redundancy of expression, or an inartificial designation, in no way misleading, or raising any doubt as to the capacity in which the relators.were actually assessed. In order to destroy the assessment and avoid the tax, the relators have taken the position that the-assessment is in form against the executors and trustees, as joint owners of the fund, when, as a matter of fact, no such joint ownership exists. The court will not favor a construction so strained as-to require such an extraordinary legal proposition as a joint ownership by executors and trustees of property under the same will, to sustain it. Nor, in order to defeat a tax, will it grope for a theory upon which to support such a postulate. No such purpose is imputable to the tax commissioners in this case, and the assessment must therefore be upheld as sufficiently made against the relators as trustees under the will, The commissioners, upon hearing the objections of the relators, struck out the words objected to, and also corrected Mr. Pike’s name from Henry Pike to Harry P. Pike. This seems to have been within their power. People ex rel. Neustadt v. Coleman, 42 Hun, 581; 4 St. Rep. 493. In that case the change made was much more substantial, as it eliminated from the assessment the names of two nonresident executors; leaving only the name of the resident executor, who was thus taxed in respect to the whole trust estate, although jointly owned by him with the others. See, also, Van Voorhis v. Budd, 39 Barb. 479.

The objection is also made to the assessment that it has been entered on one line only against Pike, whereas it should also have been entered on another line against Benrimo. Section 818 of the New York city consolidation act of 1882 provides that “the assessed valuation of all personal property shall be entered by said commissioners in books or rolls in alphabetical order of the names o£ persons and corporations subject to taxation.” It is sufficient to say, in answer to this objection, that the ownership of the fund in question was joint. Each relator had an interest in the whole. They were not owners, respectively, of undivided halves. The law required them to be assessed together in respect to the fund, and the tax commissioners fully complied with the law when they- entered the assessment in alphabetical arrangement under the letter “P.” The statute does not, in terms, require the same assessment to be entered more than once ; and it would be unreasonably extending it by construction to hold that there must be as many separate entries as there may be trustees whose names are headed by as many different letters of the alphabet. Such a course would be inconvenient, in the extreme, and likely to raise questions of multiple assessments of the same property. When the assessment has been once properly entered, the act is complete, and the statutory requirement has been fully satisfied. If the alphabetical arrangement is required to facilitate the examination of the roll by those who may be affected by the assessment, it is quite as much their duty to search against all the trustees as against one, and this they can do without appreciable inconvenience. The entry of the assessment against the name of the relator Pike was especially appropriate, in view of the fact that the other trustee was the beneficiary of the trust, and subject to limitation on that account in participating in the administration of the same. Rogers v. Rogers, 111 N. Y. 228 ; 19 St. Rep. 94.

The relators have been treated with perfect fairness by the respondents. They were personally notified of the assessment, and a full hearing was afforded to them in respect to their objections, and every effort was made, short of canceling the assessment, to meet their complaint. The amount of the assessment was reduced as soon as the attention of the respondents was called to their over-valuation. The fact that the relators are subject to assessment for taxation in respect to the reduced amount is unquestioned. The objections now insisted upon are highly technical,, and are of no value or consequence to the relators, except in so-far as they may be available to afford an escape from any taxation. I am of the opinion that the points raised by the relatorsare^without merit, and that the respondents have not committed any errors calling for a reversal of their action. The writ is dismissed, with costs.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    Mary L. McCready, as Executrix, etc., Resp’t, v. Metropolitan Life Insurance Company, App’lt.

      (Supreme Court, General Term, First Department,

      Filed January 18, 1895.)

    Will-Power of sale.
    Where the testator gives his executrix, in her discretion, full power and authority to manage, sell or otherwise dispose of any or all of his real, estate, either at public or private sale, and to give good and sufficient deed, or deeds for the proper conveyance of the same,, she is given a general, power of sale.
    Appeal from a judgment in favor of plaintiff.

      C. N. Bovee, Jr., for app’lt; McCready Sykes, for resp’t.
   Per Curiam.

Judgment affirmed, with $10 costs, on opinion-of special term.

The opinion of Mr. Justice Patterson at special term is as follows :

The question in this case relates to the sufficiency of the power-of sale pursuant to which the plaintiff claims she can convey a title in fee simple to the premises referred to in the complaint. It. is understood that both parties desire to complete the contract, specific performance of which is sought in this action; but the defendant questions the right of the plaintiff to give a valid title. If this power—namely, that contained in the second clause of Mr. McCready’s will—is to be considered as a simple power in trust,, ■and one limited and restricted to the power of paying debts, legacies, or for distribution, it might be regarded as insufficient to-authorize the conveyance tendered by the plaintiff, when the-eighth clause of the will is taken into consideration, from which clause it may be successfully argued that the 'absolute power of alienation is suspended during four minorities, and hence that the power of sale, being in aid of a perpetuity, cannot be supported, and that a conveyance pursuant to it would not clothe the purchaser of the land with a valid title. But it would seem that this-power is one of the character to be exercised when, “in the judgment of the'donee, the prudent or profitable management of the-property required its exchange into some safer or more remunerative investment,” and it is one that could be exercised or omitted at the discretion of the donee; and it seems to me, taking the whole scope- and purpose of the testator’s will into consideration, that it was the intent of the testator, by the power contained in the second clause of the will, to grant to the executrix and trustee-a complete power of disposition of all the testator’s real estate im her discretion. If we examine critically this second clause of the-will, we ascertain that the power of sale is associated with the-widest latitude of management and control of the whole estate.. We find that it is a power created at the beginning of the instru-. ment before any dispository provision is mentioned; that it stands-separate from any other provisions of the will; and that it is not-by necessary construction made inseparable from the trust which is created in the residuum of the estate. This clause confers not. only a power of sale, but in terms an “ authority to mortgage,, sell, or otherwise dispose of any and all real estate of which I may die seised, either at public or private sale, and to give good and sufficient deed or deeds for the proper conveyance of the same.’’' There is no limit to this discretionary power. It may be exercised for any legitimate purpose satisfactory to the executrix. Standing: by itself, it neither promotes nor otherwise affects the establishment of the trust, whether the land is converted into money or kept in specie or a division is made or not. In the case of' Benedict v. Webb, 98 N. Y. 460, it was held that, under the terms-of the will, the power could not be executed as a separate and independent provision, and that, as it could .be exercised only in furtherance of the establishment of a void trust, it could not be: upheld. But that does not seem to me to be the effect of this power when we come to consider other provisions of the will. The intention of the testator in the creation of this power must be ascertained, and of course, if ascertained, is to control; and I think it is clear from other provisions of the will that this was a general power of sale, embracing the widest power of disposition that could, be granted to the discretion of an executor or trustee, for it is associated with an authority to mortgage, sell, or otherwise dispose-of the testator’s land. The words otherwise dispose of ” are-somewhat vague ; but they certainly have some meaning, and were employed with some intention. I have suggested that this power of sale, standing alone, has great significance as indicative of the-testator’s intention, and a study of this will will further disclose that the testator meant it to be operative independently. Coming to the examination of the sixth clause of the will, we ascertain precisely what the scheme of the testator was with respect to the-creation of the trust which is claimed to be invalid. It is obvious that the testator’s intention was to grant another power with reference to the sale of the land for the purpose of constituting the alleged invalid trust, and that, therefore, he has conferred two powers of sale; and the fair inference is that the one—the first power—was a general power of disposition, by the exercise of which the executrix and trustee could by deed convey good title, and that, if she did not exercise that power, the additional and implied power contained in the sixth clause was to be exercised for the purpose of the constitution of the trust referred to in the sixth clause. It will be observed that, by the provisions of the will last referred to, the executrix is required to invest all the real estate, as well as other property of the testator, in certain specified securities of a particular character. Of course, that could-not be done without disposing of the real estate; and this clause operates as an equitable conversion of the realty into personalty for the purposes of the trust, and an implied power of sale therefore exists. Whether the purposes of the trust are valid or invalid does not affect the question of the intention of the testator in making this provision of his will; but the provision itself shows that there must have been in his mind a distinction between the two powers, and that he did not intend the first—a general power —to be cut down simply to the purposes of the creation of the trust. It seems to me, therefore, that this power contained in the second clause is independent of the power in trust, and that it is unnecessary to consider the question of the invalidity of the trust, for, if the trust is void, the estate would pass to the heirs at law of the testator, subject to the execution of the power contained in the second clause; and it may well be that this power was intehded to facilitate a division of the testator’s estate irrespective of the trust if, for any reason, that trust could not be constituted lawfully. I think the power can be upheld, and that such construction should be given to it as would uphold it according to the intention of the testator; and, if this construction is right, the defendant can acquire a good title by the conveyance tendered.

The will of decedent is as follows:

I, Benjamin W. McOready, physician, of the city, county, and state of New York, do hereby make, publish, and declare this as, and for my last will and testament: First. I hereby revoke, annul, and declare void and of no effect each and every will, testament, or codicil thereto, by me at any time heretofore made, published, and declared. Second. I make, constitute, and appoint my daughter Mary Louisa McOready, of the city, county, and state of New York, sole executrix of this, my last will and testament; and L give and grant unto her, in her discretion, full power and authority to mortgage, sell, or otherwise dispose of any and all real estate of which I may die seised, either at public or private sale, and to give good and sufficient deed or deeds for the proper conveyance of the same. And I hereby direct that no bonds or securities shhll be required of my said executrix. Third. I direct that all my* just debts aud funeral expenses first be paid out of my estate. Fourth. I give to my niece Elizabeth Hills, of Harlem, New York, two thousand dollars. Fifth. I give all my household furniture, books, pictures, silver, bric-a-broc, ornaments, etc., to my said daughter, Mary Louisa McOready, now residing with me. Sixth. All the rest, residue, and remainder of my property, whether real, personal, or mixed, and wherever the same may be situated, I give, devise, and beqeath to my said executrix, Mary Louisa McOready, in trust, nevertheless, for the following express purposes : To invest „and keep invested the same in bond or bonds secured by mortgage upon improved real estate situated in the cities of New York or Brooklyn, or in bonds or other dividend paying securities of the city, county, or state of New York, or of the United States of America; and to receive the rents, issues, income, and profits thereon ; and to apply the same" to the following purposes, to wit: To divide such income into four equal parts, and to pay over one of such parts to each of my daughters, namely, Mary Louisa McCready, Frances Jane Harris, and Elizabeth Beck Sykes, except as the same may be diminished by the respective payments hereinafter provided for, and to divide the remaining one of said parts among the children of my deceased son, Thomas Lawrence McCready, equally, share and share alike. Seventh. Upon the death of either of my said daughters, to pay over the one-fourth part of the principal of my said residuary estate, except as her share may be reduced by the subsequent provisions of this will, to such person or persons as such deceased daughter may by last will or testament duly executed nominate and appoint. Eighth. To pay over to each of the children of my deceased son, Thomas Lawrence McCready, as they shall severally arrive at the age of twenty-one years, the sum of two thousand dollars; and, upon the arrival of the youngest survivor of said children at the age of twenty-one years, to distribute the residue of said remaining one-fourth part to such children of said Thomas Lawrence McCready as may then survive, share and share alike. Hi nth. In case either of my said daughters should die without a will, leaving children her surviving, then the principal sum of her said one-fourth part to be divided equally among the children of said deceased daughter. Tenth. I give to my daughter Elizabeth Beck Sykes the house in which she now lives, at Scotch Plains, 1ST. J., valuing it at $6,000, in fee simple absolute, to her and her heirs forever ; such amount to be deducted from the one-fourth portion of my estate set apart for her benefit under the terms of this my will, as hereinbefore provided. Eleventh. I give to my daughter Mary Louisa McCready the sum of six thousand dollars, to be deducted from the one-fourth portion of my estate set apart for her benefit, as hereinbefore provided. Twelfth. I give to my daughter Frances Jane Harris all advancements made and hereafter to be made by me; the same to be deducted from the one-fourth portion of my estate set apart for her benefit, as hereinbefore provided.


author: McLennan, J.

text:
    Murphy Varnish Company, Pl’ff, v. Lansing V. Connell et al., Def'ts.

      (Supreme Court, Onondaga County Special Term,

      Filed December, 1894.)

    1. Corporations—Foreign—Certificate.
    Section 15, chap_. 687 of 1892, cannot operate to prevent a foreign corporation from selling goods within this state by traveling salesmen, without procuring a certificate of authority to do business therein.
    2. Same.
    Whats act of a foreign corporation do not constitute doing business in this state within the meaning of the above mentioned section.
    Action to charge defendants, as stockholders of the Syracuse Bamboo Furniture Company, for goods sold and delivered to said company by plaintiff.

      George H. Sears, for pl’ff; Hancock, Beach, Peck & Devine for def’ts.
   McLennan, J.

The plaintiff is a foreign stock corporation, organized under the laws of the state of New Jersey, and has its principal office and place of business in the city of Newark, in that state. Between the 24th day of September, 1892, and the 21st day of January, 1893, the plaintiff sold and delivered to the Syracuse Bamboo Furniture Company, a domestic manufacturing corporation, having its office'and principal place of business at Baldwinsville, N. Y., goods, wares, and merchandise to the amount and value of $303.75, upon four months’ credit, as follows : September 24, 1892, $76.45; October 13, 1892, $13.10 ; November 1, 1892, $70.20 ; and January 21, 1893, $144. The order for the first bill of goods was given to a drummer or agent of the plaintiff, at Baldwinsville, N. Y., and was by him forwarded’to the plaintiff, at its place of business in New Jersey, for approval. • The order was approved by the plaintiff, and the goods shipped in the ordinary way. The other goods were ordered by the Syracuse Bamboo Furniture Company by letters or telegrams to the plaintiff, directed to it at its place of business in the state of New Jersey, and in each case the goods were shipped to the bamboo company as before.

It is conceded that, at the dates in question, and for ten years prior thereto, the plaintiff, through its drummers or agents, was, afid had been, engaged in taking orders for its goods throughout tiré cities and villages of the state -of New York, to be delivered by it in such state. The goods of the plaintiff were manufactured in the state of New Jersey, and the plaintiff had no office ór place of business within the state of New York. The defendants, at all of the times mentioned, were directors of the Syracuse Bamboo Furniture Company, and they failed and neglected to file a report as required by chapter 687 of the Laws of 1892, and were in default during the year 1892 and until the 31st day of January. 1893, at which date they filed a report in compliance with -the requirements of the statute. All the questions presented by the evidence in this case were decided at this term of court in the case of Adams Furniture Company v. Connell et al., (these defendants) favorably to the plaintiff, except the question which arises from the fact that the plaintiff is a foreign stock corporation, and that, prior to the commencement of this action, it had failed to comply with the requirements of sections 15 and 16 of the general corporation law of this state. The provisions of those sections are as follows:

“Sec. 15. No foreign stock corporation, other than a monied corporation, shall do business in this state without having first procured from the secretary of state a certificate that it has complied with all the requirements of law to authorize it to do business in this state, and that the business of the corporation to be carried on in this state is such as may be lawfully ‘harried on by a corporation incorporated under the laws of this state for such or similar business; or, if more than one kind of business, by two or more corporations so incorporated for such kinds of business respectively. The secretary of'State shall deliver such certificate to every such corporation so complying.with the requirements 'of law No such corporation now doing business in this state shall do business herein after December 31, 1892, without having procured such certificate from the secretary of state; but any lawful contract previously made by the corporation may be performed and enforced within the state subsequent to such date. No foreign stock corporation doing business in this state without such certificate shall maintain any action in this state upon any contract made by it in this state until it shall have procured such certificate.

“Sec. 16. Before granting such certificate the secretary of state shall require every such foreign corporation to file in his office a sworn copy of its charter or certificate of incorporation, and a statement under its corporate seal, particularly setting forth the business or the objects of the corporation which it is engaged in carrying on, or which it proposes to carry on within the state, and a place within the state which is to be its principal place of business, and designating, in the manner prescribed in the Code of Civil Procedure, a person upon whom process against the corporation may be served within the state. The person so designated must have an office or place of business at the place where such corporation is to have its principal place of business within the state,” etc.

The defendants insist that the plaintiff, having failed to comply with the provisions .of the sections above quoted, cannot maintain this action. Was the plaintiff, at the times in question, doing business in the state of New York, within the meaning and intent of the statute? The contract was made in the state of New Jersey. It is true, the first order of the bamboo company for goods, which was simply a request that the plaintiff ship to it at its place of business in this state certain goods, at a specified price, was given to the'plaintiff’s agent at Baldwinsville, N. Y., and was by him sent by mail, or otherwise transmitted, to the plaintiff at its place of business in the state of New Jersey, subject to approval by the plaintiff. It was approved. The minds of the parties then met. The contract was made and the goods were shipped in the ordinary way. The other orders, in no way differing from the first, upon which the balance of the goods were shipped, were sent directly to the plaintiff by mail or by telegraph, instead of being sent by or through the plaintiff’s agent.

In Parsons on Contracts (volume 2, p. 701) it is said:

“If a New York merchant send his orders for goods from New York to Boston, and the goods are sent to him from Boston, either by a carrier whom he pointed out or in the usual course of trade, this would be a completion, a making, of the contract, and it would be a Boston contract.”

As to all the orders except the first, the plaintiff simply received them at its place of business in New Jersey, and, after having approved them, or assented to their terms, it made a contract with a common carrier in that state, who had the means of transporting goods within the state of New York, but not a New York corporation, we must assume, to deliver the goods to the bamboo company within this state; and pursuant to such contract, also made in the state of New Jersey, the goods were delivered to the bamboo company. So far as appears, all the transactions had by the plaintiff respecting goods sent by it into the state of New York prior to the commencement of this action were of the same character as those had with the Syracuse Bamboo Furniture Company. The transactions of the plaintiff within this state were the same, we may assume, as those of other foreign corporations who are engaged in shipping goods into this state upon orders obtained by their respective drummers or agents, a practice which has become general in this country. The fact, however, that this method of disposing of goods by foreign stock corporations to residents of this state is, and for years has been, generally, and almost universally, adopted does not aid the contention of the defendants. It would hardly be claimed that, if a resident in this state could send an order for merchandise to a stock corporation, resident of a sister state, or any number of orders, and the goods designated were shipped as directed, such foreign corporation, before it could recover for the same in our courts, would be compelled to establish an office within this state, and designate a person who should occupy the same, and upon whom process could be served, notwithstanding such corporation, through an agent or otherwise, had never been within this state for any purpose whatsoever. And yet precisely such is the transaction had between the plaintiff and the Syracuse Bamboo Furniture Company, except in respect to the first order given, and. as has been seen, that transaction only' differed from the others in the fact that it was transmitted to the plaintiff by its agent, rather than directly by the bamboo furniture company. In principle the transactions were identical.

In the ease of Bertha Zinc & Mineral Co. v. Clute, 7 Misc. Rep. 123; 57 St. Rep. 70, it is held :

“Where a foreign corporation consigns goods to persons in this state for sale, and sales are made by the factor in his own name, and the proceeds collected and accounted for by him, such corporation does not do business in this state, within the meaning of chapter 687 of the Laws of 1892, and no certificate is necessary to enable it to maintain an action to recover the net proceeds of such goods.”

In that case, it is suggested by the learned, judge writing the opinion that a very large number of transactions of that character are constantly being had between foreign corporations and the merchants of the city of New York, and this form of business had been carried on between the parties to that action for a series of years ; but it was held that such transaction was not interdicted by the statute in question. In the case it will be observed that the foreign corporation sent its goods to a factor in New York, to be sold in the name of the factor, collected for in the name of the factor, and the proceeds, less the factor’s commission, remitted to the foreign corporation. In the case at bar a foreign corporation sent its goods to the Syracuse Bamboo Furniture Company, to be used or sold by it, as it might see fit, and their value, as agreed upon, to be remitted to the plaintiff. It is difficult to discover any dii ference in principle between the two transactions.

In Manufacturing Co. v. Ferguson, 113 U. S. 727; cited by plaintiff’s counsel, it was held that a corporation Ohio which contracted in Colorado to manufacture machinery at its place of business in Ohio, and to deliver it in Colorado, was not doing bnsiness in Colorado, within the intent of the statute of that state, which is substantially the same as our statute. But the decision was put upon the ground that a single transaction—which was all that was proven in the case—did not constitute doing business, and by implication it was decided that, if a number of similar contracts had been made in Colorado, the plaintiff would have been doing business within the meaning of the statute. It will be observed that stress is laid upon the fact that the contract for the manufacture and delivery of the Ohio goods was made in Colorado, and not, as in this case, in the foreign state.

It is urged by the plaintiff’s counsel that, if the transactions of the plaintiff within this state were “doing business” within the meaning of the statute under consideration, it must be concluded that the statute is violative of the provision of the constitution of the United States which provides that congress shall have power “to regulate commerce with foreign nations and among the several states and with the Indian tribes.” There can be no doubt that a state has the power to regulate the method of doing business within its borders by a foreign as well as by a domestic corporation. It may exclude it entirely, or may impose such limitations and regulations as the legislature may deem for the best interests of the state. That such limitations are burdensome, are unjust, or unjustly discriminate between foreign corporations and domestic corporations or individuals, is unimportant, subject only to two qualifications: (1) The state cannot exclude from its limits a corporation engaged in "interstate or foreign commerce, or regulate the same. Pensacola Tel. Co. v. Western Union Tel. Co., 96 U. S. 1-12. (2) The other limitation on the power of the state is where the corporation is in the employ of the general government, which is not involved here. Stockton v. Railroad Co., 32 Fed. 9. Mr. Justice Field, in discussing this question in the case of Horn Silver Min. Co. v. State, 143 U. S. 315, after calling attention to the two exceptions above referred to, says:

“Having the absolute power of excluding the foreign corporation, the state may, of course, impose such conditions upon permitting the corporation to do business within its limits as it may judge expedient; and it may make the grant or privilege depend upon the payment of a specific license tax, or a sum proportioned to the amount of its capital. Ho individual member of the corporation, or the corporation itself, can call in question the validity of any exaction which the state may require for the grant of its privileges. It does not lie in any foreign corporation to complain that it is subjected to the same law with the domestic corporation. The counsel for the appellant objects that the statute of Hew York is to be treated as a tax law, and not as a license to the corporation for permission to do business in the state. Conceding such to be the case, we do not perceive how it in any respect affects the validity of the tax. Howev er it may be regarded, it is the condition upon which a foreign corporation can do business in the state ; and in doing such business it puts itself under the law of the state, however that may be characterized. The only question, therefore, open to serious consideration in this case is one of fact,—did the Horn Silver Mining Company do business as a corporation within the state ?”

In the case of Gunn v. Sewing Mach. Co., 57 Ark. 24, one Julian, a resident of Faulkner county, Ark., entered into a contract with the defendant, a corporation organized and doing business under the laws of Ohio, by which the company agreed to sell sewing machines to him at a stipulated price, on credit, when and as he might order the same from it in Ohio. Julian agreM to canvass Faulkner county exclusively for the sale of defendant’s machine; and at the same time Julian, as principal, and the plaintiff, as surety, executed a bond to the defendant, conditioned for the payment to the defendant of all sums of money for which Julian should become liable for and on account of sewing machines sold and delivered to him. The defendant sold and shipped a large number of sewing machines to Julian upon orders sent to it at its place of business in Ohio, and Julian became indebted to the defendant on account thereof in a large sum of money. Julian failed to pay: The company brought suit in Arkansas on the bond against Gunn. Gunn defended upon the ground that the sewing-machine company had failed to file any certificate in the office of the secretary of state of the stateof Arkansas, designating an agent upon whom process could be served in its principal place of business in that state, as required by the statutes of Arkansas. The. court says (pages 38, 39):'

“In this case the contract between the corporation and Julian and the bond sued on were executed in this state, and were business transacted in Arkansas. But no sales or indebtedness were created by them. The contract was only an agreement to sell, and the bond was a condition upon which the corporation agreed to sell, and the means adopted to secure the indebtedness to be contracted by sales, and both constituted a contract. They were made a foundation of a future trade between a corporation of one state and a citizen of another, and were a direct method devised to increase the business of the former, and as to them, serve as a basis of interstate commerce. Belying on them, the corporation sold the machines and other property, and shipped them from the state of Ohio, its place of manufacture and business, to Julian, in Arkansas ; the place of sale being in Ohio. Until they ceased, according to their terms or by agreement of the parties, to be of any force, they were an inducement to, and entered into, every sale, and formed a part of it. According to the principles firmly established by numerous decisions of the supreme court of the United States, they (the bond and contract), the sales and shipment of the machinery and other property, were a part of the interstate commerce of the United States, which congress has the exclusive right to regulate, and were'not, and could not be, affected by the act of April 4, 1887.”

It will be observed that stress is laid upon the fact that while the original contract between the parties, and also the bond, were made and executed in Arkansas, they were regarded simply as the foundation of a future trade between the parties, and that the order for and shipment of the goods constituted the contract, and that it was made in Ohio. Assuming that conclusion to be correct, the court would have been unanimous in its decision. The chief justice dissents mainly upon the ground that, in his opinion, the contracts were all made in Arkansas, and therefore did not come within the prohibition of the constitution.

In Robbins v. Taxing Dist., 120 U. S. 489, the taxing district of Shelby county, Tenn., which included the city of Memphis, acting under the authority of a statute of that state, attempted to impose a license tax upon a drummer for soliciting within that district the sale of goods for a Cincinnati firm, which he represented. The court decided that such soliciting of business constituted a part of interstate commerce, and that the statute of Tennessee imposing a tax upon such business was in conflict with the commerce clause of the constitution of the United States, and was, therefore, void.

In McCall v. California, 136 U. S. 104, the plaintiff was the agent of the Hew York, Lake Erie & Western Railroad Company, a corporation having its principal place of business in the city of Chicago, and'which operated a continuous line of railway between Chicago and Hew York. As such agent, his duties consisted in soliciting passenger traffic in the city of San Francisco over the road he represented. He did not sell tickets for the company, nor receive or pay out money on account of it. The plaintiff was convicted of violating an ordinance of the city, in that he failed to pay the license tax imposed upon him as a condition precedent to his right to act as such agent in that city. The court held that the license fee as to such agency was a tax upon interstate commerce, and in that respect was unconstitutional.

It is concluded that, if the plaintiff was doing business in the state of Hew York, within the meaningand intent of the statute in question, the statute is in violation of the commerce clause of the constitution of the United States, and is void in so far as it attempts to regulate the transactions in question. It follows that the plaintiff is entitled to recover against the defendants the amount of the judgment recovered by it against the Syracuse Bamboo Furniture Company on account of the goods sold and delivered to it. The plaintiff’s attorneys will prepare findings, submit them to defendants’ attorneys, and, if no't agreed upon, they will be settled before me upon three days' notice.

Ordered accordingly.


text:
    Miles M. O’Brien et al., App’lts, v. Hugh J. Grant, as Receiver, etc., Resp’t.

      (Supreme Court, General Term, First Department,

      Filed December 14, 1894.)

    Banks—Contract for clearance.
    The payment of the checks of an insolvent bank by another bank under an arrangement in pursuance of rule 25 of the New York Clearing House, is not in violation of section 48 of the Stock Corporation Law, though made with knowledge of the farmer's insolvency.
    Appeal from a judgment, dismissing the complaint on the merits.

      L. Marshall, for app’lts; W. A. Butler, for resp’t.
   Per Curiam.

Judgment affirmed, with costs, on opinion of court below.

The opinion of William G. Choate, Esq., to whom the canse was referred to bear and determine, is as follows:

In this case the plaintiffs, the receivers of the Madison Square Bank, seek to recover from the receiver of the St. Nicholas Bank certain securities, the property of the Madison Square Bank, which were deposited with the St. Nicholas Bank under the circumstances, hereinafter stated, together with the proceeds of certain other securities, part of such deposit, which had been converted into money before the commencement of this action. In January, 1891, an arrangement was made between the Madison Square Bank and the St. Nicholas Bank, by which the latter bank, which was a member of the New York Clearing-House Association, became the agent to clear, through the clearing house, checks drawn upon the Madison Square Bank. The St. Nicholas Bank submitted in writing a memorandum of the conditions on which it would undertake this business for the Madison Square Bank as follows : “ The conditions under which this bank agrees to make the clearance of checks of the Madison Square Bank are as follows : $'50,000 balance to be kept at all times, to be free from interest. An allowance at the rate of two per cent per annum shall be allowed on average exceeding this amount. The Madison Square Bank is to keep with this bank $100,000 in approved bills receivable.” In a letter dated January 9, 1891, addressed by the Madison Square Bank to the St. Nicholas Bank, the cashier of the Madison Square Bank says: ‘‘ Referring to conversation of our president with your good selves, we would say that we accept the terms and conditions on which your hank agrees to clear for us as per your memorandum, namely, $50,000 balance to be kept with you at all times free of interest. Interest at two por cent per annum to be allowed us on average exceeding that amount. This bank to keep with you $100,000 of approved bills receivable. * * * We inclose copy of a letter addressed by us to the-clearing-house committee, to conform with the requirements of their circular of December 18th last.” Then follows a request that the arrangements shall be made to go into effect on the 13th of January, on which day an arrangement between the Madison Square Bank and another member of the clearing-house association was to expire. The letter to the clearing-house committee was as follows, dated December 30, 1890 : “In conformity with the terms of your circular of the 18th inst, I beg xo inform you that, at a regular meeting of the board of directors of- this company, the following resolution was adopted, namely: ‘Resolved, that the cashier cf this bank is hereby instructed to notify the committee of the "clearing house that this bank" will be open to the examination of the committee of the clearing house as often as it may deem necessary, and that a report of the condition of the-bank be forwarded to the chairman of the committee, with a, check for the annual payment of two hundred dollars, in compliance with the terms of his circular of the 18th inst.' ” The circular required the passing of a resolution submitting the bank to the examination of the clearing-house committee, as in said resolution set forth. It was verbally agreed between the parties at the time of the arrangement referred to in said letter of 9th January that other securities of equal value might be substituted, from time to time, for those first deposited, making up the $100,000 of bills receivable. It was also distinctly understood between the two-banks that the St. Nicholas Bank was to act in the matter for the Madison Square Bank, under and in accordance with the constitution and rules of the clearing-house association, which were, well known to the Madison Square Bank, and the agreement between the two banks was made with reference to such constitution and rules.

The clearing-house association was and is a voluntary association of banks and banking associations of the city of New York. The object of the association, as stated in its constitution, is “the effecting at one place of the daily exchanges between the several associate banks, and the payment at the same place of the balances resulting from such exchanges.” The St. Nicholas Bank was a member of the association. The Madison Square Bank was not so. Section 25 of the constitution was as follows: “When-

ever exchanges shall have been made at the clearing house by previous arrangements between members of the association, through one of their own number, and banks in the city and vicinity who are not members, the receiving bank at the clearinghouse shall in no case discontinue the arrangements without giving previous notice, which notice shall not take effect until the exchanges of the morning following the receipt of such notice shall have been completed.” This section was in force at and before January 9, 1891, and is still in force, and it was known to be-so by the Madison Square Bank at the time of the making of this arrangement. After the making of this arrangement, and on and after the 18th of January, 1891, the St. Nicholas Bank made the clearances at the clearing house for the Madison Square Bank up to and including the 8th day of August, 1893 ; and the Madison Square Bank deposited and kept good, as to amount and value, its deposit of bills receivable with the St. Nicholas Bank, as required by the agreement, and up to some time in July, 1893, kept good its money balance of $50,000, in addition thereto. Some time prior to the 8th of August, 1893, the St. Nicholas Bank desired to terminate the arrangements for making clearances for the Madison Square Bank. The Madison Square Bank had not kept up uniformly, from day to day, its cash balance of $50,000, from some time in the month of July to the 8th of August. On the 8th of August the St. Nicholas Bank held three promisspry notes of the Madison Square Bank for loans theretofore made by the St. Nicholas Bank to the Madison Square Bank, in the aggregate amounting to §150,000, and held bills receivable and -other securities as collateral thereto, with the agreement that they or their proceeds should be applied to any other obligations of the Madison Square Bank to the St. Nicholas Bank. On the 8th day of August, 1893, the St. Nicholas Bank gave the notice required by the twenty-fifth rule, that it would cease to make clearances for the Madison Square Bank. This was served upon the banks constituting the clearing-house association on that day. By the terms of section 25, this notice took effect upon the completion of the exchanges at the clearing house on the 9 th of August These clearances were made every day immediately after ten o'clock, and were completed before twelve o’clock. The St. Nicholas Bank paid on the 9th of August, through the clearing house, cheeks drawn upon the Madison Square Bank by depositors having amounts.to meet the same to their credit, as depositors, on the books of the Madison Square Bank, $372,000. On the 8th of August; 1893, the Madison Square Bank, after ineffectual efforts to obtain a loan to- relieve its immediate necessities, was visited by the clearing-house committee, and, its condition examined; also, by an officer of the state banking department. After this examination by the committee of the clearing house, their conclusion that the bank was not in a condition to, continue business was communicated to the officers and some of the directors of the Madison Square Bank. The committee, for the protection of the St. Nicholas Bank, took from the assets of the Madison Square Bank, with the assent of its officers, a considerable aijiount of its assets,—upwards of $300,000 in securities. These assets were, however, afterwards restored to the receivers, and no claim has been made against them on the part of the St. Nicholas Bank. This was the act of the committee alone, and not of the St. Nicholas Bank. The Madison Square Bank did not open for business on the following day. It was, in fact, insolvent on the 8th of August, 1893; and the officers of the St. Nicholas Bank knew before the exchanges were made on the 9th of August that the Madison Square Bank was insolvent, or that its insolvency was imminent, and that it had stopped business.

The sole question in this case is whether the plaintiffs, as receivers of the Madison Square Bank, have a right to recover from the St. Nicholas Bank, or its receiver, the securities remaining in the hands of the St. Nicholas Bank on the 8th of August, 1893, and the proceeds thereof, so far as the.sarne have not been required for the payment of the three notes held by the St. Nicholas Bank, aggregating $150,000, which notes were paid out of the proceeds of thesecurities held by the St. Nicholas Bank on the 27th of October, 1893, and before the commencement of this action. The amount of the securities so held by the defendant, being the same held on the 8th of August, and their proceeds after payment of the three notes above referred to, is $86,780.68, in securities at their face value, and $149,643.93 in money, on which has accrued interest to the amount of $10,567.16 up to this date. The claim of the ■defendant is that said securities and proceeds are rightfully withheld as security for the repayment to the St. Nicholas Bank of the $372,000 checks upon the Madison Square Bank, which were paid through the clearing house on the 9th of August by the St. Nicholas Bank. Prior to the commencement of the action the re-ceivers of the Madison S mare Bank demanded these securities and proceeds from the St. Nicholas Bank, which demand was refused, and thereupon this action was commenced against the St. Nicholas Bank; and afterwards, a temporary receiver of the St. Nicholas Bank having been appointed, he was, by order of the court,, substituted as defendant. The claim on the part of the plaintiffs is that the St. Nicholas Bank has no valid claim upon them as security for the payment of said checks; that the payment of said checks was prohibited by the forty-eighth section of the ;stock corporation law, which reads as follows: “No corporation

which shall have refused to pay any of its notes or other obligations when due, in lawful money of the United States, nor any of its officers, or directors, shall transfer any of its property to any of 'its officers, directors or stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash. No conveyance, assignment or transfer of any property of any such corporation by it or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it or by any officer, director or stockholder, when the corporation is insolvent, or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the ■corporation, shall be valid. Every person receiving by means of any such prohibited act or deed any property of the corporation, shall be bound to account therefor to its creditors or stockholders or other trustees. No stockholder of any such corporation shall make any transfer or assignment of his stock therein to any per■son in contemplation of its insolvency. Every transfer or assignment or other act done in violation of the foregoing provisions of this section shall be void. No conveyance, assignment or transfer of any property of a corporation formed under or subject to the banking law exceeding in value one thousand dollars shall be made by such corporation or by any officer or director thereof, unless authorized by a previous resolution of its board of directors, except promissory notes or other evidences of debt issued or received by the officers of the corporation in the transaction of its ordinary business, and except payments in specie or other current money or in bank bills made by such officers. No such conveyance, assignment. or transfer shall be void in the hands of a purchaser for a valuable consideration without notice. Every director or officer of a corporation who shall violate or be concerned in violating any provision of this section, shall be personally liable to the creditors and stockholders of the corporation of which he shall be director or an officer, to the full extent of any loss they may respectively sustain by such violation.”

It is obvious from the above recital of facts that the securities in question came rightfully into the possession of the St. Nicholas Bank; and, if the action can be maintained, it must be on the ground that, by the demand and refusal preceding the action, this possession became wrongful, unless, indeed, as claimed by the plaintiffs, the original contract on which they were deposited was illegal and void, under the statute. There seems to be no doubt that if the St. Nicholas Bank, in making the clearances for the Madison Square Bank on the 9th of August, was a mere agent for the payment of its checks, and not bound to make such clearances- or payments by a valid and existing contract, either with the Madison Square Bank, or with some other party, the payment of these checks was prohibited by the statute. Ii is understood that, this position is not controverted. As a mere agent, the St. Nicholas Bank, would, of course, make no payment which would be-valid if the same payment made by its principal would have been, invalid; and on the 9th of August, 1893, at ten o’clock, when these" checks were paid through the clearing house, the failure of the Madison Square Bank, audits ceasing to do business, had been publicly announced. If these securities were held by the St, Nicholas Bank merely as the agent of the Madison Square Bank, and with no lien or claim upon them to secure the payment of said checks, then such securities constituted a part of the assets of the Madison Square Bank, in which, according to existing laws of the state, all its creditors had, in equity, an equal interest, without preference of one over another; and the real controversy in this case has been over the construction and effect of rule 25 of the-clearing house, and the nature of the contract which, in view of that rule, existed on the 9th of August, at the time of making these exchanges, between the St. Nicholas and the Madison Square Bank, and the associated banks and the clearing-house association.

It has been contended on the part of the plaintiffs that the fair and reasonable construction of section 25 did not require the payment of these checks by the St. Nicholas Bank, as the clearing agent of the Madison Square Bank, after the insolvency of the Madison Square Bank happened, and had become known to the St. Nicholas Bank; secondly, that if such was the true meaning and construction of the contract between the parties, in view of the twenty-fifth rule, then such contract, so far as relates to the clearances of the 9th of August, was invalid, and in violation of that act.

The first question is, what did the St. Nicholas Bank undertake to do, and did its undertaking extend to an obligation to pay checks drawn on the Madison Square Bank which were presented to it at the clearing house on the 9th of August ? It seems to me that the obvious purpose of section 25 was to secure to the associated banks who should present to a clearing-house bank checks upon an outside bank, witli which such clearing-house bank had made such previous arrangement to act for it, the payment of such checks up to and including the day following the giving of a notice of the termination of such arrangement. The original arrangement being made with the direct reference to this rule requiring one day’s notice, it is to be construed exactly in this case, as if it had been an agreement between two banks for the making of clearances by the St. Nicholas Bank for the Madison Square Bank up to and including the clearances of the 9th day of August, 1893. The giving of the notice on the 8th day of August, which expired by the rule on the 9th of August, marked the termination of the arrangement, as agreed upon by the parties, in the same way as if had been inserted in the original agreement. No meaning or force is given to this arrangement for the admission of an outside bank through a representation by a clearinghouse bank, unless it were the understanding of the parties that so long as the arrangement should subsist, by its terms, checks upon such outside bank, presented through the clearing house, should be paid by its representative in the same manner in which checks upon itself were required to be paid; and this agreement was impliedly made, not alone between the Madison Square Bank and the St. Nicholas Bank, but between both of those banks and each of the associate banks in the clearing-house association. At the time this arrangement was made, in January, 1891, there is no suggestion that the Madison Square Bank was not in sound condition. It was certainly not made at that time in actual contemplation of insolvency. No suggestion was made at the time of the negotiation of this arrangement as to whether it should or should not require the St. Nicholas Bank to pay checks upon the Madison Square Bank after the Madison Square Bank might become insolvent. The arrangement thus made must be considered as for the mutual benefit of all the parties who entered into it. It was obviously for the advantage of the Madison Square Bank. It paid $200 a year for the privilege of having its exchanges made through the clearing house, and it was agreed to put up the stipulated security to protect the St. Nicholas Bank in making those exchanges. As between the St. Nicholas Bank and its associates in the clearing house, it was a contract upon a valid consideration, and bound the St. Nicholas Bank to them to receive and pay, as it was to pay its own checks drawn upon the Madison Square Bank. It cannot be denied that this promise of payment or guaranty added to the value of the checks deposited with the several associate banks, and the title to which, by such deposit, was vested in them. There was thus ample consideration for this tripartite agreement. It is, however, contended that, if the agreement extended so far as to promise such payment after the insolvency of the Madison Square Bank should happen, it was an agreement which the parties had no right to make, because in violation of the statute above referred to, or that the intervention of insolvency excused the St. Nicholas Bank from making such payments, because such payments would operate, as between the depositors paid and the depositors not paid, as a preference in violation of the statute. That which is forbidden by the statute is a transfer of property or a payment after insolvency, or after insolvency is imminent, with intent to give a preference to one creditor over another creditor of the corporation. A payment made in pursuance of a prior valid agreement binding the St. Nicholas Bank to pay could not be a payment made by the Madison Square Bank, through its agent, with intent to give a preference. The' expression, “ with intent to give a preference,” implies a voluntary payment on the part of the insolvent corporation. It implies a payment which it could decline to make, or which its agent, acting for it and making the payment could decline to make. The question recurs, therefore, whether the contract, as above construed, was in itself illegal, or whether the St. Nicholas Bank was excused from the contract by the happening of insolvency. Ordinarily, the happening of insolvency does not change the contractual relations of the insolvent party with the party with whom he or it has contracted. Insolvency may, and in some cases does, excuse performance on the part of the other party, because of the resulting inability of the insolvent party to perform a contract still executory, but it does not ordinarily excuse the insolvent party from performance. Insolvency certainly cannot effect the termination or dissolution of a contract between the other party and a third party, the entering into which was the basis and condition understood and accepted by the insolvent party, upon which its own contract rested. The Madison Square Bank could not, as it well understood, have made the arrangement that it did with the St. Nicholas Bank, except on the condition that the St. Nicholas Bank should enter into the contractual relations which it did enter into with its associates in the clearing house; and by no possibility, as it seems to me, can the solvency of the Madison Square Bank excuse performance, as between the St. Nicholas Bank and its associates.

It is urged, against the construction of the twenty-fifth section claimed by the defendant, that it puts the clearing-house bank at the mercy of the outside bank for which it clears. It is very true that the arrangement made puts no limit on the amount of the checks drawn on the outside bank which the clearing-house bank is obliged to take care of on a particular day. In the present ease, checks might have been drawn against the? Madison Square Bank on the 8th of August for the whole amount, of its deposits ($850,000), for the payment of which, under theconstruetion claimed by the defendant, the St. Nicholas Bank would only have had its $100,000 of securities, and such cash balance, contemplated to be $50,000, which the Madison Square Bank had on deposit with it. It is true, also, that such an outside bank, being, to the knowledge of its officers, about to become-insolvent, might ruin the clearing-house bank, under this arrangement, if its officers should give information to depositors to a very large amount, which would induce them to draw their checks-the day before the failure. The St. Nicholas Bank undoubtedly took these risks. The present ease shows that that- risk was considerable and serious. Those risks were well known to it, and it is to be presumed that parties in this, as in all other business transactions, dealing together, trust to a great degree to the supposed good character and good faith of the parties with whom they are dealing,' as their main protection against the abuse of powers which, by the contract, are lodged in the hands of their co-contracting party. I do not think these suggestions are of sufficient weight to affect what appears to me to be the obvious meaning of the twenty-fifth rule. Practically, contracts are not made with reference to the extreme possibilities of danger or risk which they may involve, but rather upon an estimate of probable risks and probable results. The fact that the St. Nicholas Bank exacted security only for $150,000 shows that it measured its probable risks at that amount. Besides, the clearing-house bank has the matter very much in its own control. Having the power to terminate the arrangement on twenty-four hours' notice, it is not to be expected that affairs could drift into so great peril, at least without negligence' on its part; and it is to be presumed that it would keep, and intended to keep, a careful watch over the bank for which it assumes this responsiblity.

If this view is correct of the nature of the contract between the two banks, and between them and the associated banks, and indeed between the Madison Square Bank and each member of the association, then the payment of these checks cannot be considered as the payment by the Madison Square Bank with an intent to give a preference, but as a payment in pursuance of a valid contract made by it, and a collateral contract made by its agent, with its knowledge and consent, from which that agent was not at liberty to recede by reason of the insolvency of the Madison Square Bank. The agreement between these several parties certainly was not made in contemplation of insolvency. Without doubt, when it was made it was not expected that the exchanges of any day would exceed $150,000 while the contract lasted; and the very fact that this amount of security was treated as sufficient during two years tends to show that the contract was not made in contemplation of insolvency happening during its running. As originally made, it cannot be tortured into a contract with intent, m its operation and effect, to give preference to one creditor of the Madison Square Bank over another, for no such thing was within the express agreement of the parties, or apparently within the contemplated possibilities of the future. But it is said that if the parties intended, even in case insolvency should happen, that the”clearing-house banks should go on paying the checks, that would in fact give one creditor a preference over another, and therefore it must be deemed to have been their intent, from the beginning, to provide for the case of insolvency, and so to give an illegal preference, and therefore, in case that has happened, and as applied to that case, the contract was illegal. This argument, as it seems to me, is unsound. The Madison Square Bank then being in solvent condition, made a contract for the better, more economical and safer transaction of its business; and for this purpose, and for the security of its co-contracting parties, pledged part of its assets. It has enjoyed for two years all the advantages of that contract, and now it endeavors by this action to deprive its co-contracting party of the consideration which it was to enjoy for the privilege conferred. It is very true that when the contract was made a future insolvency was possible, but the contract was not made “in contemplation of insolvency,” as that term is used in the class of prohibitory statutes to which this belongs, but wholly alio intuitu,—not to provide for expected or intended solvency, but to provide for legitimate business transactions ; and no case is cited which warrants the invalidating of such a. contract because future insolvency was possible, to the knowledge of the contracting parties. When the pledge of the securities was made, therefore, it was lawful, and the possession of the pledges has not now become unlawful, either by the intervening insolvency of the pledgor, nor by the demand and refusal to redeliver the securities.

It is unnecessary to hold, as claimed by the defendant, that the drawers or holders of the checks drawn on the 8th of August had an equitable lien on these funds, or to decide whether the special remedies given by statute for the ascertainment of the validity of claims made against insolvent corporations in the hands •of receivers are exclusive of remedy by action brought, as this action was, by the plaintiffs under their general powers as receivers, and not by special leave of the court, or whether the defendant receiver can urge as a defense that he stands in a better position on the pleadings in this case than the St. Nicholas Bank, for which, as defendant, he has been substituted.

A suggestion was made on the part of the plaintiffs that the agreement between these banks should be construed as a contract continually renewed from day to day. Reference was, in this connection, made to the substitution of securities up to and asíate as the 8th of August. Such substitution, however, was provided for in the original contract, and it worked no change of value in the fund held by the St. Nicholas Bank. The same amount was released which was at any time added to the fund. The purpose of it was apparently to allow the pledgor to collect maturing obligations ; making them good by the substitution of other obligations, having further time to run. Such a provision in a contract does not alter its nature or construction, or affect its validity in case of insolvency. Cook v. Tullis, 18 Wall. 332. This contract was made.in January, 1891, and continued in force till it was terminated, August 9, 1893, in the mode provided therefor in the contract itself.

It is also claimed that the sole purpose of the clearing house is to do in one place and at one time what otherwise would have to be done at many places, and with much less safety, and with the consumption of much more time and labor on the part of the banks. Hence, it has been held that its rules are for the benefit of, and binding on, its members, and not for the benefit of, and binding on, strangers. Merchants' Nat. Bank v. National Bank, 139 Mass. 513; Overman v. Bank, 30 N. J. Law, 61; 31 id. 563. But though this is the purpose of the clearing house, as plainly stated in its constitution, it does not follow that for the effecting of that purpose the banks composing the association do not enter into positive and binding obligations, as between themselves, and with nonmembers; and the fact that the clearing-house bank is called and is the ageut, for certain purposes, of the nonmember bank for which it clears, is not at all inconsistent with its assuming other obligations and other relations, in the discharge of its duty as such agent, than the relations and obligations of a mere agent.

A question is made with regard of particular checks, and a good deal of evidence has been given of the peculiar circumstances under which some of these checks were drawn. Two checks, aggregating $250,000, were drawn by Mr. Danforth, at that time the treasurer of the state of New York, against his deposit in the Madison Square Bank of moneys belonging to the state. A check for $50,000 was drawn on the 8th of August by Frederick Uhlman, as president of, and against a deposit to the credit of, the East River Bridge Company. Mr. Uhlman was one of the directors of the bank. He was at the bank on the afternoon of the 8th of August, and knew its precarious condition. He was the president and a large stockholder in the corporation the East River Bridge Company. The Glen Ridge Quarry & Mining Company, by Simon Uhlman, its president, also drew a check on the 8th of August for $4,731.12. Mr. Simon Uhlman was a brother of Mr. Frederick Uhlman, and was in communication with him on the .afternoon of August 8, before the drawing of this check, and both the Uhlmans were interested in said corporation. All these checks which are made the subject of special inquiry were drawn late in the day on the 8th of August, were deposited' in banks which were members of the clearing association, between nine and ten o’clock on the 9th of August, and were presented by those banks for payment, through the clearing house on the 9th of August, and were honored and paid by the St. Nicholas Bank, like all other checks against the Madison Square Bank presented through the clearing house on that day. It is proved beyond all controversy that the deposit of these checks on the morning of the 9th, and their subsequent presentation at the clearing house, was not irregular, or out of the usual course of business; that is, it was proved that it was the usage and custom with the banks which composed the clearing house to pass through the clearances of the day checks—especially such as were for a large amount—received on the morning of the clearance, before ten o’clock, but bearing an earlier date than that day. Such checks are constantly received by mail from out of town correspondents, and put through the clearing house; and it was not uncommon or irregular for checks of date prior to that day to be received directly from depositors in the morning, before ten o’clock, and passed through the clearances on the same day. No doubt the contract of the parties contemplated only the clearance of checks which, according to established usage, were entitled to be cleared. There is evidence that Mr. Danforth, having determined to draw his funds some time during the 8th,—his check book being then at Albany, and the checks requiring the signature of another officer,—made his preparations, in which he succeeded, to have the checks completed before midnight on the 8th, and deposited before ten o’clock in the morning with the clearing-house banks. It is true that Mr. Blaut, the president of the bank, and Mr. McDonald, one of its directors, were sureties on Mr. Danforth’s bond; but I am unable to find from the evidence that the Madison Square Bank, through its officers or directors, or any of its officers or directors, actively promoted the drawing of these checks By Mr. Danforth on the 8th, or their presentation, through the clearing house, for payment on the 9th. On the contrary, the evidence is clear that this whole transaction, so far as these checks are concerned, wag the voluntary act of Mr. Dan-forth himself. As regards the checks drawn by the Uhlmans, there may be a question whether the corporations which were paid by these checks can rightfully hold the proceeds, especially as to the check drawn by Mr. Frederick Uhlman, a director of the bank, for $50,000; but as the other checks paid that day, including the two checks of Mr. Danforth, are more than sufficient to absorb the securities and their proceeds in question in this suit, it is unnecessary to go into those inquiries. It should, however, be observed that there is no evidence of notice to"the St. Nicholas Bank, prior to ten o’clock on the 9th of August, of the peculiar circumstances under which any of these checks were drawn or deposited. B’or these reasons, I am of opinion that the plaintiffs cannot maintain this action, and that the defendant is entitled to have judgment, dismissing the complaint upon the merits, with costs.


author: Putnam, J.

text:
    Peter A. Delany, Resp’t, v. Charles Miller, Jr., App’lt.

      (Supreme Court, General Term, Third Department,

      Filed February 12, 1895.)

    1. Pleadings—Demurrer.
    In tlie consideration of a demurrer to a separate answer, the court has before it and can consider only the complaint, the separate answer demurred to and the demurrer.

      2. Same—Counterclaim—Costs.
    The costs recovered in an action belong to the attorney without any assignment, and his claim thereto is superior to the right of the adverse^ party in the action to set off claims against the successful party.
    Reargument after reversal of an interlocutory judgment, sustaining a demurrer to defendant’s counterclaim..

      William T. Murray, for app’lt; Stephens & Delaney (Peter A. Delaney, of counsel), for resp’t.
   Putnam, J.

The court below sustained the demurrer on the-ground that plaintiff’s action was not brought upon a contract, and hence the cause of action set up in the answer did not constitute legal counterclaims, as held in Furber v. McCarthy, 27 St. Rep. 294. When this case was first before this court, our attention was chiefly devoted to the position taken by the learned justice at special term, and we reached the conclusion that plaintiff’s claim upon undertaking set out in the complaint was a cause of action upon contract, to which a counterclaim could be legally interposed. But in our consideration of the case we overlooked the fact that the separate answer demurred to contained no denial of any allegation in the complaint, and hence that, in our consideration of the question of the sufficiency of such answer it should be remembered that all the allegations of the complaint were admitted. It is true that the first separate defense contained in the answer denied all the allegations set out in the complaint, except the execution of the undertaking; but there is no denial in the second part of the answer, and it is well settled, that in the consideration of a demurrer to a separate answer the court only has before it, and can only consider, the complaint, the separate answer demurred to, and the demurrer. In Douglass v. Phenix Insurance Co., 138 N. Y. 209-215 ; 52 St. Rep. 164, where a demurrer had been interposed to a separate defense contained in the answer, it is said :

“The allegations of the complaint nor denied in the affirmative defense are, for the purposes of the question now presented, to be deemed admitted. The affirmative defense is to be treated as a separate plea, and the defendant is not entitled to have the benefit of denials made in another part of the answer, unless repeated or incorporated by reference, and made a part of the affirmative defense.”

In Valentine v. Lunt, 51 Hun, 544-547 ; 22 St. Rep. 847, Justice Dykmak remarks:

“As the defense to which the demurrer was interposed makes no deuial of any of the allegations of the plaintiff, the complaint stands admitted, for all purposes of the demurrer, precisely as if it was the sole and only defense set up by the answer.”

See, also, Boyd v. McDonald, 35 St. Rep. 484; Hammond v. Earle, 58 How. Pr. 426. In the opinion of Justice Mayham, delivered when this case was first considered by this court, he remarked (78 Hun, 19, 20 ; 51 St. Rep. 481):

By the assignment to the plaintiff in this action the right of the original obligee passed to him, added to which was his lien for services, but, until the value of such services were liquidated and ascertained, it could not, as matter of law, be said that they were sufficient in amount to equal the defendant’s liability on the undertaking, which was as well for damages as costs, and any valid defense as to any excess existing between the original parties would be good as against the assignees of the bond.”

But in fact, by the failure of defendant in the answer to deny any of the allegations of the complaint, the value.of plaintiff’s services were liquidated and admitted to be equal to the amount of the judgment for costs sought to be recovered in this action. It is admitted that the judgment set up in the complaint was entirely for costs; that plaintiff was attorney in the action; that the value of his services exceeded the - amount of the judgment; and that plaintiff has not been paid, and his client is irresponsible. Hence the allegations in the complaint, not being denied in the answer to which the demurrer was interposed, and it being in the pleading admitted that the judgment which plaintiff seeks to recover was entirely for costs; that he was attorney for the plaintiff in the action; and that the value of his services equaled the amount of the judgment,—under the doctrine assumed by this court in Delaney v. Miller, 78 Hun, 19-20; 61 St. Rep. 481, defendant’s alleged counterclaims cannot be set off against plaintiff's bill of costs in the action referred to in the complaint. It is well settled that the costs recovered in an action belong to the attorney, without any assignment, and that the claim of the attorney thereto is superior to the right of the adverse party in the action to set off claims against the successful party. Tunstall v. Winton, 31 Hun, 219; Ennis v. Curry, 22 id. 584. In Marshall v. Meech, 51 N. Y. 140-143, it is said, as to an attorney’s lien:

“The lien exists, not only to the extent of the costs entered in the judgment, but for any sum which the client agreed his attorney should have as a compensation for his services. To the amount of such lien, the attorney is to be deemed as equitable assignee of the judgment. To the extent of the taxed costs entered in the judgment, the judgment itself is legal notice of the lien, and this lien cannot be discharged by payment to any one but the attorney.”

For the reasons above stated, we think the court below properly sustained the demurrer, and hence that the judgment should be affirmed, with costs.

All concur.


text:
    Henry W. Hayden, Resp’t, v. Catharine E. Van Cortlandt, App’lt.

      (Supreme Court, General Term, Third Department,

      Filed February 12, 1895.)

    Deposition—Discovery and inspection.
    An order for discovery and inspection will never be granted, unless the necessity therefor is clearly shown.
    Appeal from an order, allowing discovery and inspection.

      Frost & Manser (Clarence H. Frost, of counsel), for app’lt; Henry W. Hayden, in pro. per.
   Putnam, J.

This action was brought for the purpose of enjoining the defendant from trespassing on property which plaintiff claimed to own at Lake George, and to establish the boundary line between such property of the plaintiff and defendant’s premises. The answer of defendant alleges that she is the owner in fee of the property which plaintiff claims. On the 2d day of October, 1894, plaintiff, on a verified petition and affidavits, obtained an order from a judge of this court requiring defendant to allow plaintiff to make discovery and inspection of certain marks alleged to be on a tree on defendant's property, or on the line between plaintiff’s and defendant’s lots, or to show cause at a special term on the 20th day of October, 1894, why said order should not be made absolute. On said 20th day of October, 1894, at a special term of the supreme court, an order was made directing defendant to allow a discovery and inspection of the markings on said tree. From this order the defendant appeals.

It appears from the affidavits and papers presented to the court below that the division line between the lots of defendant and plaintiff is the south line of lot Ho. 15 of Kennedy’s patent, such line forming the north bounds of defendant’s premises; and that the question in controversy between the parties is as to the true location of said south line of lot Ho. 15. Plaintiff claimed that a certain terminal marked tree on the premises now occupied by defendant, if examined and cut into, would probably exhibit marks showing that it is the terminal line tree of said south line of lot No. 15, and afford material evidence to sustain the allegations of the complaint. The order appealed from provided that defendant permit an examination of said terminal line tree by one Arnold, a suiveyor, who, in the order, was appointed referee to examine said tree by boxing and cutting into it as far as necessary to read the marks therein. We are not prepared to decide that the court below had not power to grant the order appealed from, under the previsions of section 803 of the Civil Code. It may be that a terminal tree, on which certain marks and symbols have been placed, which tell the true line of a lot of land,—which marks have a meaning well understood bv surveyors,—may be deemed a document within the meaning of section 803, supra. Rice, in his work on Evidence (page 105), speaking of documents, says :

“ Under this term are properly included all material substances on which the thoughts of men are represented by writing or any other species of conventional mark or symbol. This is the comprehensive definition by Best. Sir James Stephen’s definition is more restricted: ‘ Any substance having any matter expressed or described upon it by marks capable of being read.' Dig. Ev. art. 1.”

Chamberlain, in his valuable annotations on the treatise of Best, at page 215, comments suggestively as follows:

“Within these definitions, a ring or banner, with an inscription, a musical composition, and a savage tattooed with the words intelligible to himself, would all be documents.”

In the Century Dictionary the meaning of the word “ document ” is defined as follows:

“ In the law of evidence, anything bearing a legible or significant inscription or legend; anything that may be read as communicating an idea (including thus a tombstone, a seal, a coin, a sign board, etc., as well as paper writings).”

Without passing on the question, however, and assuming that the court below had power to make the order appealed from, we think plaintiff failed in his petition and affidavits to establish a state of facts showing the necessity and the propriety of the order in question. It is well settled that an order for discovery and inspection will never be granted unless the necessity therefor is clearly shown. Bien v. Hellman, 2 Misc. Rep. 168 ; 19 St. Rep. 617; Morrison v. Sturges, 26 How. Pr. 177. In Brownell v. National Bank of Gloversville, 20 Hun, 517, the general term of this district held that what is called a “ fishing ” examination to enable the plaintiff to discover something, if there is anything worth a discovery, will not be allowed. And see the cases cited in the opinion delivered in that case. Walker v. Granite Bank, 44 Barb. 39; Pegram v. Carson, 18 How Pr. 519 ; Mott v. Consumers' Ice Co., 52 id. 148. See, also, Douglas v. Delano, 20 Wkly. Dig. 85, 86. A careful examination of the petition and affidavits on which the plaintiff applied for the order in question makes it apparent that the necessity for the examination of the terminal line tree in question was not shown. As we have before suggested, the question in the ease was as to the true south line of lot No. 15 of Kennedy’s patent. Plaintiff claimed that certain marked line trees on defendant’s premises showed the true south line of said lot, while defendant claimed that certain other marked trees north of her premises were on the ti’.ue south line of lot No. 15 of Kennedy's patent. In his petition plaintiff states in regard to the terminal tree he desires to inspect as follows:

“ That your petitioner has been advised by said D. M. Arnold that said terminal line tree bears the surveyor’s mark oí a blaze and three hacks, which are now plainly visible to any one examining the tree; and that, as all terminal line trees were marked to designate the line they stood in, in conformity with the general custom, he believes said terminal line tree to be marked in a manner which will show what the line is which it monumento.':’

The surveyor, Arnold, in bis affidavit, sajs as follows in regard to the terminal line tree :

■ “ One of which line trees stands upon the shore of the lake, and is the terminal line tree of the line trees marking the north village line, and the south line of what remained of lot No, 15, Kennedy patent; and that the blaze and three hacks are plain to be seen by any one familiar with the marking upon ancient trees (and that in deponent’s opinion said terminal line tree is marked in some manner which will indicate the line upon which it stands),jand throw much light upon the question whether it marks the south line of lot No. 15, Kennedy patent, as referred to in the said description of defendant’s fishpond lot, as its northerly lino. * * * That it was apparently marked many years ago, probably when the village of Caldwell was laid out, and that whatever marking was made upon the blaze at that time, although now overgrown, and concealed from view, still remains there, plain and legible, andean be read as well to day as when placed there, if said tree is cut into, and the growth over said marking and blaze is removed. * * * That it was the custom to mark all terminal line trees in some manner, and to refer to them by the marks in the survey bill, and that the said torminal line tree bears the blaze and three hacks, which are now plainly visible; and deponent believes that it will be found marked, upon examination, in some manner designating the line of which it is the terminal monument, and that it will shed much light upon the question .at issue, if it does not practically determine it.’’

From the above quotations from the petition and the affidavit of Arnold it is clear that a case for a discovery and inspection was not established. Arnold and the plaintiff merely believe that the tree in question will afford some evidence bearing upon the issues between the parties. But they do not know. It is quite apparent that the object of the examination is to find out whether the marks on the tree will or will nut afford any evidence tending to establish the allegations of the complaint. The application for a discovery is subject to the objections stated in Brownell v. Bank, supra. ít seeks a “fishing" examination. Plaintiff and his surveyor surmise that there may be marks on the tree that will afford evidence favorable to one of the parties, and wish to obtain an order of the ■court allowing plaintiff to ascertain the facts. Should the markings on the tree aid plaintiff to establish his cause of action, he would use the evidence afforded by them on the trial, otherwise not. Arnold does not say that the marks on the terminal tree in ■question which would be developed by cutting into it will show that plaintiff’s contention is correct. He does not claim to know. He merely states that there are probably marks on the tree that 0will show on what, line it was a terminal boundary tree. It is quite evident, therefore, that the order is subject to the objection pointed out in the case of Brownell v. Bank, supra. It authorizes a “ fishing examination, to enable the plaintiff to discover something, if there be anything worth showing.” The order should be reversed, with costs.

Mayham, P. J., concurs. Herrick, J., dissents.