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(146 N.E.) (239 N. Y. 248)

Appeal from Supreme Court, Appellate DiFRED S. JAMES & CO. V. SECOND RUS. vision, First Department. SIAN INS. CO.

Action by Fred S. James & Co. against the (Court of Appeals of New York. Jan. 21,

Second Russian Insurance Company. From 1925.)

an order of the Appellate Division (210 App.

Div. 82, 205 N. Y. S. 472), affirming an order 1. Corporations Om617(5)-Death of corpora

of the Special Term, denying defendant's motion answering complaint no defense.

tion that plaintiff be directed to reply to its Persons in charge of assets of defunct cor

defenses, defendant appeals by permission. poration may place on record suggestion of its Order affirmed, and certified questions andeath, stay progress of suit against it, and even

swered. vacate process, but corporation, having an- See, also, 208 App. Div. 141, 203 N. Y. S. swered complaint, cannot allege its death as 232; App. Div. 206 N. Y. S. 905. defense.

The Appellate Division certified the fol2. Insurance em 26–International law emla lowing questions: Russian insurance company not relieved from

(1) Is the new matter contained in the first liability to suit by decree of Russian governo separate defense set out in the answer, if true ment nationalizing insurance companies, and not avoided in some manner, sufficient in

Decree of Russian Soviet government na- law as a defense to the causes of action? tionalizing insurance companies has no effect in (2) Is the new matter contained in the secUnited States, unless, possibly, to guch extent ond separate defense set out in the answer, if as justice and public policy require, and hence true and not avoided in some manner, sufficient does not relieve Russian insurance company, in law as a defense to the causes of action? qualifying under Insurance Law, 88 27, 28, to (3) Is the new matter contained in the third do business in New York, from liability to be separate defense set out in the answer, if true sued.

and not avoided in some manner, sufficient in

law as a defense to the causes of action? 3. Insurance Cam 679- International law Own 10

(4) Is the new matter contained in the fourth -Liability of Russian insurance company on separate defense set out in the answer, if true reinsurance policy held not extinguished by and not avoided in some manner, sufficient in Soviet decree canceling debts of nationalized law as a defense to the causes of action? companies.

Albert Massey and Michael S. Gleason. Liability of Russian insurance company, baving assets available for seizure in New both of New York City, for appellant. York, on reinsurance policy, held not extin

Carl Sherman, Atty. Gen. (Edward G. guished by Russian Soviet decree canceling or Griffin, of Albany, and J. Du Pratt White, of releasing debts of nationalized insurance com- New York City, of counsel), for Superintendpanies, such decree not being bankruptcy de- ent of Insurance of State of New York, cree, nor of unlimited extraterritorial effect if

David Rumsey and Louis J. Wolff, both of

New York City, for respondent. 4. International law 10Decree of unrec

John W. Hogan, of Syracuse, and Paul ognized government confiscating assets of in. Bonynge and Wendell P. Barker, both of surance companies not enforced to prejudice New York City, for Anchor Ins. Co. of New of citizens of United States or friendly pow. York and others, amici curiæ.

Frederick B. Campbell and Paul C. Whipp, Neither comity nor públic policy requires both of New York City, amici curiæ. enforcement of mapdate of another govern- B. F. Sturgis and Hartwell Cabell, both ment, confiscating assets of nationalized insur- of New York City, for John F. Murphy, ance companies for its benefit, to prejudice of amici curiæ. citizens of United States or any friendly power, especially where it has been denied recognition.

CARDOZO, J. The Eagle, Star & British

Dominions Insurance Company Limited, 5. International law Own 10Trade agreement plaintiff's assignor, entered into contracts or between Great Britain and Russia held not treaties with the defendant, Second Russian to have extinguished rights of action of for- Insurance Company, a Russian corporation, mer's nationals against Russian corporations. by which the latter reinsured the former's

Trade agreement of 1921 between Great marine risks to the extent therein stated. Britain and Soviet Russia, declaring principles Losses were sustained, and the British comon which general peace treaty will be concluded, if made

, held not to have extinguished, by pany attempted to recover them from its Rusforce of eminent domain, rights of action of sian reinsurer. The demand having met with British nationals against Russian corpora

a refusal, the cause of action was assigned tions, nor put British government in place of to the plaintiff, a domestic corporation. The nationalized Russian corporation as substituted defendant, which has appeared generally, ad

mits that it is engaged in business in New 146 N.E.-24

it were.

ers.

debtor.

York, but urges as a defense that its corpo- | mune from suit. In the circumstances ex. rate life was ended by a decree of the Rus hibited by this record, we find it profitless to sian Soviet government nationalizing the consider whether the decree was intended to business of insurance companies in Russia ; put the nationalized companies out of existthat, by the same decree, the companies were ence altogether, or, on the other hand, to pre released from the payment of debts and lia- serve them as corporate entities though in bilities; that Great Britain has recognized the ownership of the government. Russian the existence of the Russian Soviet govern-Commercial & Industrial Bank v. Comptoir ment, and by a trade agreement set forth in D’Escompte de Mulhouse, House of Lords, 40 the answer has confirmed the confiscation of T. L. R. 837. Our concern is not so much the debts owing to its nationals; that all with the consequences intended by the au. these things were done before the transfer to thors of the decree as with those that will the plaintiff ; and that the plaintiff, taking be permitted in other jurisdictions where no greater rights than its assignor, is seeking the intentions of its authors are without efto enforce a right of action which at the time | fect as law. The defendant has complied of the assignment had already been extin- with the provisions of our statutes prescribguished. The defendant moved that the plain- ing the conditions in which foreign insurance tiff be directed to reply to its defenses, and companies may do business within our bor. the Appellate Division, refusing that relief, ders. Insurance Law, 88 27, 28; Consol. Laws, has certified questions which require us to dec. 28. It has put itself for many purposes termine whether the defenses, variously in the same category as our own domestic pleaded, are sufficient on their face.

corporations. Comey v. United Surety Co., [1] We deal first with the so-called defense 217 N. Y. 268, 274, 111 N. E. 832, Ann. Cas. that the corporation which defends is dead 1917E, 424. Far from suspending its activand so incapable of defending. Martyne v. | ities since the promulgation of the decree American Union Fire Ins. Co., 216 N. Y. 183, which is said to have ended its existence, it 190, 110 N. E. 502; Sturges v. Vanderbilt, 73 has since then written policies of insurance N. Y. 384. This is obviously not a “defense" covering millions of dollars of risks, has colat all, if the word defense is employed as one lected premiums in large amounts and by of art, with a proper legal meaning. A cor- the admissions of its answer, is doing busiporation with vitality sufficient to answer a ness to-day. If the Russian government had complaint has, by the very terms of the hy- been recognized by the United States as a pothesis, vitality sufficient to permit it to be government de jure, there might be need, sued. The shades of dead defendants do not even then, to consider whether a defendant appear and plead. Expedients, of course, so circumstanced, continuing to exercise its there are whereby a court may be informed corporate powers under the license of our that jurisdiction has been halted. If the cor- laws, would be heard to assert its extinction poration is defunct, those in charge of its as-in avoidance of a suit. Cf. Thompson on sets may place upon the record a suggestion Corporations, 8 6569; 2 Morawetz, Private of its death, may stay the progress of the Corporations (2d Ed.) $ 1003; 37 Harvard suit, and may even vacate the process that Law Review, 610. assumes to bring it into court. Nankivel v. In the existing situation, the refinements Omsk All Russian Government, 237 N. Y. 150, ) of learning that envelop and to some extent 142 N. E. 596; Martyne v. Am. Union Fire obscure the definition of de facto corporaIns. Co., supra. Such are not the expedients tions are foreign to our inquiry. So long, at that by the questions now certified to us we least, as the decree of the Russian governare asked to approve or to condemn. But if ment is denied recognition as an utterance we put the questions to one side and view of sovereignty, the problem before us is gov. the statements of the answer, verified by the erned, not by any technical rules, but by the defendant's officers, as a suggestion of its largest considerations of public policy and death, to be heeded even in this court, lest justice. MacLeod v. U. S., 229 U. S. 416. a controversy with an unreal litigant be un- 428, 429, 33 S. Ct. 955, 57 L. Ed. 1200. wittingly determined, the result will not be When regard is had to these, the answer changed.

is not doubtful. The defendant asks us to [2] The decree of the Russian Soviet gov- declare its death as a means to the nulliernment nationalizing its insurance compa- fication of its debts and the confiscation nies has no effect in the United States un- of its assets by the government of its dom. less, it may be, to such extent as justice and icile. Neither the public policy of the napublic policy require that effect be given. tion, as established by President and ConWe so held in Sokoloff v. National City Bank, gress, nor any consideration of equity or jus239 N. Y. 158, 145 N. E. 917. Justice and tice, exacts an exception in such conditions public policy do not require that the defend to the need of recognition. We do not say ant now before us shall be pronounced im- that a government unrecognized by ours will

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(146 N.E.) always be viewed as nonexistent by our or decree is that of a recognized government courts, though the sole question at issue has de jure, it is still more clearly so where the to do with a transaction between the un- decree is that of a government to which recrecognized government and a citizen or sub-ognition has been denied. Neither comity nor ject of a government by which recognition public policy requires us to enforce a manhas been given. To say this might seem to date of confiscation at the behest of such a imply, for illustration, that a voluntary con-government to the prejudice either of our veyance by a British citizen to the Soviet own citizens or of those of any friendly powgovernment would be viewed as a nullity in er seeking justice in our courts. the United States on some theory that the [5] The defendant insists, however, that grantee, though recognized in Great Britain, though the Soviet decree standing by itself was without capacity to take. No such may have been inoperative in England to tersweeping declaration is essential to the de- minate the right of recourse to assets becision of the case before us. We deal now yond the territory of Russia, yet the effect with the single question whether the defend- of the trade agreement of 1921 between Great ant has an existence sufficient to subject it Britain and Soviet Russia was to extinguish to suit in the domestic forum. That is a by force of eminent domain the rights of acquestion which the law of the forum will tion of British nationals against Russian cordetermine for itself. Liability to be sued is porations, and to put their own government quite distinct from liability to be held in in place of the defendant, and of others simjudgment upon the facts developed in the ilarly situated as a substituted debtor (citsuit. We keep our ruling within these lim- ing Ware v. Hylton, 3 Dall. 199, 245, 1 L. Ed. its, and hold that the defendant is amenable 568; Gray v. U. S., 21 Ct. Cl. 340, 390 ; 2 to the process of our courts.

Wharton, Digest Int. Law, p. 709, $ 248; cf. (3) If existence be assumed, the question Hijo v. U. S., 194 U. S. 315, 323, 24 S. Ct. remains whether liability has been extin- 727, 48 L. Ed. 994; The Blonde, 1922, 1 App. guished. Was it extinguished by the Soviet

Cas. 335).

We pass the question whether decree canceling or releasing the debts of the such an agreement, if made, would be disrenationalized companies? If not, was it ex- garded by our courts because of our refusal tinguished by the action of Great Britain in to recognize the existence as a government negotiating the trade agreement of 1921? As of one of the parties to the compact. We to the Soviet decree, we think its attempted assume, though we are not required to deextinguishment of liabilities is brutum ful- cide, that if the compact existed we would men, in England as well as here, and this not treat it as a nullity. A sufficient answer whether the government attempting it has is that no such substitution of liabilities was been recognized or not.

Russia might ter

established by the trade agreement minate the liability of Russian corporations thought of in its making. All that the trade in Russian courts or under Russian law. Its agreement does is to declare the principles fiat to that effect could not constrain the upon which a general peace treaty, if made, courts of other sovereignties, if assets of the will be concluded. The Russian government debtor were available for seizure in the ju- declares that it recognizes in principle that risdiction of the forum.

Barth v. Backus, it is liable to pay compensation to private per140 N. Y. 230, 35 N. E. 425, 23 L. R. A. 47,

sons who have supplied goods or services to 37 Am. St. Rep. 545; Matter of People (City Russia for which they have not been paid. Equitable Fire Ins. Co.), 238 N. Y. 147, 152, The British government makes a correspond144 N. E. 484; cf. Matter of Barnetts' ing declaration. Plaintiff's claim is neither Trusts

, 1902, 1 Ch. 847. The decree invoked for goods nor for services, even if a recogniby the defendant is not in any true sense a

tion in principle of a duty of reparation were decree of bankruptcy, though even if it were thought to be important. Beyond this, both there would be limits to its extraterritorial parties declare that:

"All claims of either party or of its nationals (4) A decree of bankruptcy presupposes a against the other party in respect of property, distribution of the assets for the benefit of or rights, or in respect of obligations incurred creditors, and this decree is one of confisca- by the existing or former governments of eition, appropriating the assets for the benefit the formal general peace treaty referred to in

ther country shall be equitably dealt with in of the Soviet republic. One government does

the preamble."
not execute the tax laws of another (State
of Colorado v. Harbeck, 232 N. Y. 71, 82, 133

We are to observe that the claims here N. E. 357), nor help another in enforcing a mentioned are those, not against a Russian penalty or forfeiture (Loucks v. Standard Oil citizen or corporation, but against the RusCo. of New York, 224 N. Y. 99, 102, 120 N. E. sian government; and that even as to these 198)

. If this is so where the foreign statute the obligations of the declaration are wholly

or

.

validity.

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future and executory. What is equitable is I will to charitable corporation on death of life to be agreed upon at some indefinite time tenants, were earned before testatrix' death, thereafter, if an agreement can be reached. they must be treated as ordinary increases, We should be straining words to the break- constituting part of residuum, rather than of ing point if we held that Great Britain, by tion is entitled under Decedent Estate Law,

share of trust estate, to which such corporaexacting from Russia a promise of just treat

$ 17. ment in the future, presently extinguished the rights of action of its nationals which 5. Conversion 19(2)-Conversion held not till then had been enforceable.

effected until life beneficiary's death. The order should be affirmed, with costs, Under provision of will that testatrix's and the questions certified answered in the house and furniture should be sold and proceeds negative.

become part of residuary estate when surviving

husband's occupation of house ceased, there HISCOCK, C. J., and POUND, MCLAUGH

was no conversion into personalty unti hus

band's death. LIN, ANDREWS, and LEHMAN, JJ., con

McLaughlin, J., dissenting in part. CRANE, J., absent.

Appeal from Supreme Court, Appellate Di. Order affirmed.

vision, Second Department.

Petition by the Brooklyn Trust Company to render and settle its accounts as trustee,

etc., under the will of Mrs. William H. Sey. (239 N. Y. 259) in re SEYMOUR'S WILL.

mour, for the benefit of William H, Seymour.

From an order of the Appellate Division (209 In re BROOKLYN TRUST CO.

App. Div. 655, 205 N. Y. S. 327), modifying, (Court of Appeals of New York. Jan. 21, 1925.) (122 Misc. Rep. 343, 203 N. Y. S. 914), settling

and, as modified, affirming, surrogate's decree 1. Wills em 15—Charitable corporation held not accounts, the executor of the estate of Wil

entitled to share in increase in value of es- liam H. Seymour appeals. Order and decree tate during life tenant's lifetime.

modified, and, as so modified, affirmed. Charitable corporation, to which will gave principal of trust estate on death of life bene

Henry A. Ingraham and Samuel C. Worficiaries, but which, under Decedent Estate then, both of New York City, for appellant. Law, $ 17, could take only one-half of estate R. W. Crolley, of Brooklyn, for Brooklyn held pot entitled to share in increase in value Trust Co., trustee. of estate during life of beneficiaries, but en- James's. Regan, of New York City, for retitled to no more than half of estate's value at spondent special guardian. time of testatrix' death, after payment of her 0. F. Hibbard, of New York City, for redebts, allowance being made for fact that pay- spondent Church Charity Foundation of ment is postponed.

Long Island. 2. Wills en 15Administration expenses, etc., paid from, and profits and losses charged

ANDREWS, J. Mrs. Seymour died in 1920. against, part of trust estate not passing to By her will she devised and bequeathed subcharitable corporation.

stantially all her property to trustees, with Under Decedent Estate Law, $ 17, all ad- instructions to pay the income therefrom to ministration expenses, legacies, and commissions must be paid from, and 'all profits and certain beneficiaries named therein for life. losses charged against half of trust estate The chief of these were her husband, a man not passing to charitable corporation, statute then 85 years old. On the death of the bentransforming residuary gift to corporation, un- eficiaries the trustees were instructed to pay certain in amount, into general legacy for fixed the principal to the Church Charity Founda

tion of Long Island, a charitable corporation. 3. Wills Em 15-Interest during year after tes

The statute provides that: tatrix' death goes to residuum.

"No person having a husband, wife, child, or Interest earned by trust estate within year parent, shall, by his or or her last will and tesafter testatrix' death swells residuum, not gentament, devise or bequeath to any benevolent, eral legacies.

charitable, literary, scientific, religious, or mis

sionary society, association, corporation, of 4. Wills Co 15—Charitable corporation held

purpose, in trust or otherwise, more than onenot entitled to share in stock dividends in: half part of his or her estate, after the pay. creasing value of trust estate payable to it ment of his or her debts, and such devise or after life tenant's death.

bequest shall be valid to the extent of oneIn absence of evidence that stock dividends, half, and no more." Decedent Estate Law increasing value of trust estate, payable under(Consol. Laws, c. 13) $ 17.

sum.

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(146 N.E.)
Therefore, upon the probate of Mrs. Sey. | from the use of capital to which the corpo-
mour's will it was adjudicated that the dis-ration was at the time entitled.
position of her property to the Church Chari- We have not before us a case where the
ty Foundation was invalid, in so far as it amount which the corporation is to receive
was to receive more than one-half of her es- is fixed and is presently payable, but where
tate after the payment of all debts. The to- for one reason or another it has not been
tal after such deductions were made was paid within the year after the testator's death,
then fixed and it was paid to the trustees. / and where the executors so used the estate

Mr. Seymour died in 1923 and the amount in their hands, including the part to which
to which the corporation now becomes enti- the corporation is entitled, so as to increase
tled must be determined. It appears that its value. We do not decide that under such
during his lifetime there was an increase of circumstances the corporation might not
$76,314.21 in the value of the estate held by share in the increase caused in part by the
the trustees. This increase was the result use of its funds.
of favorable sales and also of certain stock [4] As to that portion of the increase caus-
dividends received.

ed by the stock dividends there is no evi.
[1] The first question we must decide is dence as to when they were earned. Had it
whether or not, under these circumstances, appeared that the whole or any part of them
the Church Charity Foundation is entitled to had been earned before Mrs. Seymour's death
share in this increase as was held by the it might be that the corporation would be en-
courts below. We see no reason why it titled to share therein, as they would repre-
should do so. The statute speaks as of the sent the capital of the estate of the decedent
time of the death of the deceased. St. John as it existed at that time. In the absence of
V. Andrews Institute for Girls, 191 N. Y. 254, such evidence, however, we can only treat
83 N. E. 981, 14 Ann. Cas. 708. As of that them as ordinary increases in the value of
time the value of the estate is to be fixed the estate held by the trustees, and the gen-
upon the same basis as if it had been then eral rule which we have stated applies to
turned into cash and the amount which a them also.
charitable corporation may receive then de-

[5] A matter of lesser importance remains. termined. To that amount it is entitled, no The will of Mrs. Seymour provided that she more and no less. If the payment of the gave to her husband the use of her house in legacy is postponed, allowance must be made Brooklyn and of all the furniture therein so for that fact. One hundred thousand dol- long as he personally occupied the same. lars presently due is of more value than one

When such occupation ceased the house and hundred thousand dollars payable ten years furniture was to be sold and the proceeds hence. Hollis v. Drew Theological Seminary, were to become part of the residuary estate. 95 N. Y. 166; Matter of Durand, 194 N. Y. After Mr. Seymour's death the house was 477, 87 N. E. 677.

sold for between seven and eight thousand [2, 3] But whether, under the circumstanc- dollars. The question is whether one-half of és of this case, the present value of a legacy these proceeds belonged to the heirs at law payable in the future is calculated, or wheth- of Mrs. Seymour or to the estate of her huser, when the distribution is made upon the band. If, by the terms of the will, an equideath of the life tenant, interest is allowed table conversion occurred as of the time of out of the estate upon the half as it stood her death the latter rule applies. If, on the at the testator's death, as the Appellate Di- contrary, there was no conversion into pervision has here done without objection, the sonalty until Mr. Seymour's death then her result is practically identical. Out of the heirs are entitled to this sum. We are satremaining half of the estate must be paid isfied with the conclusion reached by the Apall expenses of administration, all legacies, pellate Division that the latter construction and all commissions. To it also must be at is the correct one. tributed all profits, and all losses must be

The order of the Appellate Division and charged against it alone. By virtue of the the decree of the surrogate should be modistatute a residuary gift to the corporation fied in accordance with this opinion, and, uncertain in amount is transformed into a

as so modified, affirmed, with separate bills general legacy for

fixed sum.

Matter of of costs to all parties filing briefs in this Brooklyn Trust Co., 179 App. Div. 262, 264, court payable out of the estate. 166 N. Y. S. 513. The same rule is applied as in the case of all general legacies and all and LEHMAN, JJ., concur.

HISCOCK, C. J., and CARDOZO, POUND, residuary estates. For this reason any in

MCLAUGHLIN, J., dissents from modifiterest that may be earned by the estate dur

cation.
ing the year after the testator's death goes

CRANE, J., absent.
to swell the residuum. Matter of Brooklyn
Trust Co., supra. Any gain comes in no sense Ordered accordingly.

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