From Casetext: Smarter Legal Research

Grove Hill Co. v. Ferncliff Cemetery Assn

Court of Appeals of the State of New York
Mar 3, 1960
7 N.Y.2d 403 (N.Y. 1960)


upholding constitutionality of section that requires certain percentage from sale of plots deposited into maintenance funds

Summary of this case from Warschauer Sick Support Society v. New York


Argued January 5, 1960

Decided March 3, 1960

Appeal from the Appellate Division of the Supreme Court in the Second Judicial Department, GEORGE M. FANELLI, J.

Thomas F. Croake and Ronald L. Unger for appellant. Louis J. Lefkowitz, Attorney-General ( Jean R. McCoy and Paxton Blair of counsel), for Cemetery Board of State of New York, respondent.

Francis R. Doherty for Ferncliff Cemetery Association, respondent.

Plaintiff sued for a declaratory judgment but the courts below entered a declaratory judgment in favor of defendant State Cemetery Board. The other respondent, that is, defendant Ferncliff Cemetery Association, a nonprofit membership corporation (see Membership Corporations Law, art. IX), intervened but takes no position on this appeal.

The judgment appealed from declares "that Section 87, subdivision 2 and Section 86-a of the Membership Corporation Law of the State of New York are valid and constitutional insofar as they affect the agreement of the plaintiff, Grove Hill Realty Company with the defendant Ferncliff Cemetery Association, dated November 22, 1910". The 1910 agreement was for the sale and conveyance by plaintiff Grove Hill to defendant Ferncliff of certain lands in Westchester County for cemetery purposes. No purchase price was stated in dollars but as consideration for the conveyance Ferncliff agreed that it would pay Grove Hill "one-half of the proceeds" of the former's sales to the public of burial lots out of the tract. That contract conformed to section 70 of the Membership Corporations Law of 1909 which authorized cemetery corporations to pay, for lands purchased, not more than half the proceeds of sales of burial plots, the residue to be "applied to the preservation, improvement and embellishment of the cemetery". The agreement between Grove Hill and Ferncliff was carried out for many years until defendant, Cemetery Board of the State of New York, notified Ferncliff that, because of the 1949 amendments to section 86-a and subdivision 2 of section 87 of the Membership Corporations Law, it was illegal for Ferncliff to continue the existing scale of payments to Grove Hill. Those amendments ordered every cemetery corporation to set up a permanent maintenance fund of not less than 10% of the gross proceeds of cemetery lot sales and a current maintenance fund of an additional 15% of such proceeds. Another 1949 amendment to section 87 required that, where a contract for sales of lands for cemetery purposes (like this Grove Hill-Ferncliff agreement) called for payment to the contract vendor of part of the proceeds of sales of burial lots, the amounts to go into the current and permanent maintenance funds must first be deducted from such sales proceeds before determining the contract vendor's share.

As construed by the Cemetery Board, the Attorney-General and both courts below, the 1949 legislation means that Ferncliff, when it sells a burial lot, and establishes a net sales price after selling expenses, must first deduct 15% and 10% for the maintenance funds, and only then, after those subtractions, may it pay Grove Hill 50% of the remaining balance. Result: Grove Hill collects not half of the whole net price of the burial lot, but half of 75% thereof. Grove Hill in this suit for a declaratory judgment argues that the statute should not be so construed, and asserts that, if it is to be read as requiring a reduction of Grove Hill's proportion of lot sale proceeds, it is unconstitutional as impairing Grove Hill's contract rights and depriving it of its property without due process of law.

We first discuss the intent and meaning of the 1949 amendments and then pass to the other question, that is, constitutionality. The 1949 changes, we hold, mean just what they say — that, where a vendor is by agreement being paid a share of his vendee's burial lot sale proceeds, the vendor's share is to be figured not on the net burial lot price, but on that price reduced by a prior deduction of 25% for the required contributions to the maintenance funds. It is equally clear that the Legislature, in subdivision 2 of section 87, intended the new rule be applied to existing contracts.

Subdivision 2 of section 87 says in simple words that when a corporation has agreed to pay, for lands purchased, not exceeding "one-half of the proceeds of sales of lots" it may "continue to make payments as so agreed" (that is, one half of lot sale proceeds) provided that "there be first deducted from said proceeds of sales" the 15% and 10% maintenance fund contributions. As was held below, that means that, after first deducting 25% from and of the net proceeds for maintenance, the corporation may continue to pay one half the net proceeds to the vendor of the land. If that be not the meaning, the phrase "first deducted" means nothing. The only doubt would be as to the meaning of the word "proceeds" but plaintiff itself has resolved for us any such doubt since it admits that the phrase "gross proceeds" in its contract and the word "proceeds" in the old and new statutes mean net proceeds after sale expense — in other words, not lot sale price but the amount the cemetery corporation actually gets net after deductions (so held in Reese v. Pinelawn Cemetery, 243 App. Div. 165, and Jackson v. Elmont Cemetery, 300 N.Y. 526). But that word "proceeds" must mean the same thing in the part of the new statute which requires that plaintiff's right to one half the "proceeds" (that is, half of the net) is to be paid only after first deducting the two maintenance fund contributions. Unless the word "proceeds" is to be given several different meanings, the statute means (as almost everyone seems to have interpreted it) that you start with proceeds (after expenses), then deduct 10% and 15%, then pay not more than half the balance to the vendor, leaving the other half of the net with the corporation for purposes listed.

We turn to the constitutional question. Of course, Grove Hill's rights as to payment are reduced by the amendments, since under the amended statutes Grove Hill is allowed to collect from Ferncliff not half of the net prices of burial lots, but half of 75% of such net prices. It is conceded that the 1910 contract was legal when made since old section 70 of the Membership Corporations Law, in force in 1910, permitted a cemetery corporation to contract with a seller of lands for cemetery use, to pay the seller a percentage, not exceeding one half, of the proceeds of burial lots made from the land. But it does not follow that the 1949 laws are unconstitutional as to Grove Hill. In New York State, historically and in principle, funds derived from the sale of cemetery lots are regarded as dedicated to a public use and held in trust therefor and their disposal is subject to statutory regulation under the State's police power (see Matter of Norton, 97 Misc. 289; Whittemore v. Woodlawn Cemetery, 71 App. Div. 257; Matter of Lyons Cemetery Assn., 93 App. Div. 19). The New York Legislature has been exercising that power since 1847 and contracts for the sale of lands for development into cemeteries have necessarily been, to some extent, subject to the later possible operation of that power. Indeed, as we shall see, the 1909 statute gave fair warning by its use of the phrase "not exceeding one-half of the proceeds of all sales" that the vendor rights were to a fraction of the net only after any prior charges.

Statutes passed in 1847 (ch. 133) and 1853 (ch. 122) dealt directly with this matter of payment to contract vendors out of the moneys collected by the vendees from burial lot purchasers. The 1847 laws which forbade cemetery corporations being formed except on a nonprofit basis said that such a corporation could agree to pay a fixed price for land and, if it did so agree, it must pay to its transferor not less than 50% of the proceeds of the resale of each cemetery lot until the full purchase price should be paid to the former owner. The 1853 statute authorized an agreement (like the one here litigated) whereby, in consideration of the transfer of land to a cemetery association, the transferor would be paid not an over-all fixed price but a percentage of the prices at which burial lots were sold. The 1853 statute decreed, however, that such percentage could not exceed one half of the burial lot sale proceeds. The 1847 and 1853 enactments were substantially incorporated into section 70, part of Membership Corporations Law of 1909 and, later, became section 87 and continued as such until the 1949 changes.

In 1948, the Attorney-General of New York State began an investigation into the activities of nonprofit cemetery corporations. A year later he made a long report to the Governor in which he pointed out that by law such corporations "are dedicated to, and holding their properties for, a public use" but that many of them were actually "run as lucrative commercial ventures." Various frauds, deceptions and mismanagements were described in detail. Cemetery grounds had been shamefully neglected while extravagant profits were made by promoters, salesmen and others. In transmitting the Attorney-General's report to the Legislature in February, 1949, the Governor recalled that "for over one hundred years the operation of cemeteries has been recognized as affecting the public interest and of having the status before the law and the courts of quasi-public utilities" and that "The policy of the State in controlling their operation has never been questioned." The Governor reminded the Legislature that a true public trust is involved in the operation of a tax-free cemetery by a supposedly nonprofit membership corporation (which is given the power of eminent domain and other public powers) and that the discovered abuses of such trusts required legislative attention since existing laws had proven ineffective.

The Attorney-General reported that difficulties had arisen because of the use of the land acquisition method whereby the organizers of a cemetery corporation buy, for the corporation, land owned by the promoters themselves and then, by agreement, receive a specified percentage of burial lot sales receipts "until the last plot is sold." If this method of payment be not limited by statute, said the report, the receipts of a cemetery corporation may be diverted to the promoters without adequate provision for care and maintenance of the cemetery. One of the Attorney-General's recommendations (followed by the Legislature in the 1949 amendments) was for mandated maintenance funds to be made up of 15% and 10% priority deductions from burial lot sales moneys. The Legislature adopted a "Declaration of Policy" (see L. 1949, ch. 533) which spoke of the people's vital interest in the preservation of cemeteries and of the existing bad practices in the maintenance and operation of cemeteries.

"It is the settled law of this court that the interdiction of statutes impairing the obligations of contracts does not prevent the State from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general good of the public, though contracts previously entered into between individuals may thereby be affected. This power, which in its various ramifications is known as the police power, is an exercise of the sovereign right of the Government to protect the lives, health, morals, comfort and general welfare of the people, and is paramount to any rights under contracts between individuals * * * in other words, that parties by entering into contracts may not estop the legislature from enacting laws intended for the public good. While this power is subject to limitations in certain cases, there is wide discretion on the part of the legislature in determining what is and what is not necessary — a discretion which courts ordinarily will not interfere with" ( Manigault v. Springs, 199 U.S. 473, 480-481). As Chief Justice HUGHES wrote in Home Bldg. Loan Assn. v. Blaisdell ( 290 U.S. 398, 435): "Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order." It is true that the Minnesota statute in the Home Building case was construed by the Supreme Court as modifying "remedies" but not destroying contract "rights" (see 290 U.S., pp. 428-430). However, many other decisions of the Federal and State courts have strengthened the authority of the States under the police power to affect the obligations of contracts when public interest required it. Direct statutory controls over substantive, existing, contractual rights were upheld as to constitutionality by our court in Matter of People ( Tit. Mtge. Guar. Co.) ( 264 N.Y. 69), and in Twentieth Century Associates v. Waldman ( 294 N.Y. 571) and Matter of Schmidt v. Wolf Contr. Co. ( 295 N.Y. 748).

"`The question'", wrote Judge LEHMAN in the Title Mortgage opinion (quoting the Home Building opinion, supra), "`is not whether the legislative action affects contracts incidentally, or directly or indirectly, but whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end'" ( 264 N.Y., p. 83). Or, as we phrased it in Defiance Milk Prods. Co. v. Du Mond ( 309 N.Y. 537, 541): "reasonably related and applied to some actual and manifest evil".

The situation dealt with in 1949 concerned the operation of a public trust. The "actual and manifest evil" was found by the Attorney-General and the Legislature. The statute's requirements for the setting up and prior deductibility of maintenance funds were reasonably related to the discovered evils. Its application to this plaintiff and this contract was not arbitrary or unreasonable since plaintiff was on notice in 1910 when it made its contract that the actual size of its 50% share of the proceeds of lot sales would depend on what amounts were first deducted before the "proceeds" became available. Let us recall how the law read in 1910 when this agreement was signed. The Legislature had already taken hold. The 1909 amendment had authorized this kind of contract but only when the transferor's share was "not exceeding one-half of the proceeds of all sales" of burial lots. The parties here construed "proceeds" to mean net, not gross, sales prices and it was authoritatively determined in 1934 in Reese v. Pinelawn Cemetery ( 243 App. Div. 165, supra, followed in Jackson v. Elmont Cemetery, 275 App. Div. 544, affd. 300 N.Y. 526, supra) that a contract promising the vendor one half of the "gross proceeds" was, under the statute, enforcible as to one half of the net amount only which the cemetery corporation received after necessary deductions. Grove Hill must be held to have made its pact accordingly and to have taken its chances that the Legislature which had asserted its right to regulate such agreements might reduce the "proceeds" by giving priority to additional expenditures required in the public interest.

The judgment should be affirmed, with costs.

We disagree with the majority on both the issues of statutory construction and the constitutionality of the statute as construed by them.

More than a century ago (L. 1853, ch. 122), the Legislature expressly authorized an owner of real property to contract for its sale to a cemetery corporation upon the latter's agreement to pay, instead of a fixed price, any specified portion "not exceeding one-half, the proceeds of all sales of lots or plots made from such lands"; said portion "shall be first appropriated and applied to the payment of the purchase money of the lands so acquired, and the residue thereof shall be appropriated to preserving, improving and embellishing the said cemetery grounds and * * * to defraying the incidental expenses of the cemetery establishment". In substantially the same language, this statute became section 70, and later section 87, of the Membership Corporations Law and continued so until 1949.

On November 22, 1910 appellant, in full compliance with this old statute, entered into such an agreement with the defendant cemetery corporation, and thereupon conveyed to it certain real property. The terms of this agreement were honored by the parties for nearly half a century and until the defendant Cemetery Board notified the cemetery corporation that continued payments in accordance with the agreement would be "illegal and improper".

As the result of an investigation of cemetery corporations by the Attorney-General, and his Report to the Governor dated February 11, 1949 (N.Y. Legis. Doc., 1949, No. 7), the Legislature amended article IX of the Membership Corporations Law dealing with private cemetery corporations (i.e., other than religious and municipal corporations), so as to subject them to stricter regulation. One of the chief abuses sought to be remedied was the failure of the cemetery corporations to apply a sufficient amount of the funds retained from the sales of plots to the care and maintenance of their cemeteries. To this end, one of the "key elements" of the recommended legislation was described in said report as follows: "A cemetery corporation would be required to maintain its burial grounds in good condition, and in order to do so would also be required to establish a permanent maintenance fund and a current maintenance fund. At the time of making a sale of burial space, at least 10 per cent of the gross proceeds would have to be put in the permanent maintenance fund and an additional 15 per cent in the current maintenance fund." Accordingly, new section 86-a requires every cemetery corporation to maintain (1) a "permanent maintenance fund" and (2) a "current maintenance fund". When an individual plot is sold, the corporation must deposit not less than 10% of the gross proceeds of the sale into the permanent fund and an additional 15% into the current fund. Present subdivision 2 of section 87, the construction and constitutionality of which are the subject of this action, provides: "Where a corporation has agreed with a person from whom any such lands were purchased to pay therefor a specified share not exceeding one-half of the proceeds of sales of lots * * *, such corporation may continue to make payments as so agreed, provided however that there be first deducted from said proceeds of sales the amount required to be deposited in the permanent maintenance fund and current maintenance fund as aforesaid together with the expenses of sale. The balance of such proceeds shall continue to be applied by the corporation to the preservation, improvement and embellishment of the cemetery, and the expenses and liabilities of the corporation." (Emphasis supplied.)

The defendant Cemetery Board contends that the statute requires defendant to deduct 25% from the proceeds of the sale of each plot, and then pay to plaintiff "one-half of the net amount remaining after the deductions" (emphasis supplied). In other words, the payment to plaintiff on the resale of an individual plot was to be reduced by 25%.

Plaintiff agrees that 25% must first be deducted for deposit into the maintenance funds, but argues that it is then entitled to one half the original sales price, in accordance with its agreement, and not simply one half of the balance remaining. It recognizes, of course, that the expenses of sale are to be deducted from the gross proceeds before computing the 50% share due it ( Reese v. Pinelawn Cemetery, 243 App. Div. 165; Jackson v. Elmont Cemetery, 275 App. Div. 544, affd. 300 N.Y. 526). It further contends that if the board's interpretation is correct, the statute would be unconstitutional on two counts: (1) it would impair the obligation of its contract with defendant, in violation of section 10 of article I of the United States Constitution and section 15 of article I of the State Constitution, and (2) it would bear no reasonable relation to the evils sought to be rectified and hence would deprive plaintiff of substantive due process (U.S. Const., 14th Amdt.; N.Y. Const., art. I, § 6).

Subdivision 1 of section 87 now clearly provides that at least one half of the proceeds of sales of lots remaining "after the deductions" for the permanent and current maintenance funds and the sale expenses "shall be applied" to the payment "of the purchase-price of the real property acquired". Where there is an agreement, however, subdivision 2 applies. It provides that where a cemetery corporation has agreed to pay "a specified share not exceeding one-half of the proceeds of sales of lots", such corporation " may continue to make payments as so agreed", to wit, "not exceeding one-half of the proceeds of sales of lots" (emphasis supplied). It does not qualify this language with the words "after the deductions" for maintenance funds and sale expenses as is done in subdivision 1. The only condition subdivision 2 imposes is "that there be first deducted from said proceeds of sale" the 25% for the maintenance funds and the sale expenses. In other words, maintenance funds are to be in the nature of a first lien on the proceeds; otherwise the agreement of the parties is unaffected, for the statute expressly provides that a cemetery corporation "may continue to make payments as so agreed", i.e., from "the proceeds of sales of lots", and the deduction for the maintenance funds are also made " from said proceeds of sales" (emphasis supplied). To put it still otherwise, under the former section 87 the cemetery corporation was authorized to pay not more than one half of the sales proceeds to the seller, but the remainder had to be retained for maintenance and general corporate expenses. Because it was found that some cemetery corporations did not set aside enough for maintenance but rather consumed much of this remainder in corporate expenses, the Legislature mandated the 10% and 15% maintenance funds — to be set aside first — but permitted continuance of the payment of not exceeding half the sale proceeds to the sellers "as so agreed"; it then permitted the cemetery corporation to retain the remainder for maintenance and corporate expenses. Such, it seems to us, is the very plain meaning of present section 87, and as so construed it has a reasonable relation to the evils sought to be rectified, and impairs the obligation of no contract.

To construe the statute as does the majority would in our opinion render it clearly unconstitutional. Reducing plaintiff's contractual share in the sales proceeds from 50% of 100% to 50% of 75% is pure confiscation; it has no relation to the evil sought to be cured and is, therefore, not a proper exercise of the police power. If the State could take 25% of a seller's contract right, why not 50% or even 100%? (See, in this connection, Membership Corporations Law, § 86-a, subd. 4, which authorizes the Supreme Court to increase the 25% maintenance funds without notice to the seller of the land.) The distinction between rights under a contract and the remedies for its enforcement must be kept in mind ( Home Bldg. Loan Assn. v. Blaisdell, 290 U.S. 398). We of course recognize that the police power is broad, but it has its limitations. In the last-cited case, in determining whether a State statute unconstitutionally impaired the obligations of a contract, the general test was said to be "whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end." (p. 438; emphasis supplied.) In order to conform with due process, the statute, as applied, must also meet this "reasonable relations" test, for, as this court noted in Defiance Milk Prods. Co. v. Du Mond ( 309 N.Y. 537, 541): "due process demands that a law * * * be reasonably related and applied to some actual and manifest evil" (emphasis supplied).

The amount to be paid to the original transferor of cemetery land would appear to bear no reasonable relation to the evils sought to be corrected by the remedial legislation in question. As noted, the principal evil sought to be remedied was the misuse of funds by the cemetery corporations, including their failure to apply a sufficient portion of the 50% of the sales proceeds retained towards preserving and maintaining the cemetery. The Legislature sought to correct the latter abuse by requiring an initial 25% deduction to be deposited into the two maintenance funds. Once this deduction is made, there would appear to be no further policy to be served by limiting plaintiff's share to 50% of this reduced amount, rather than 50% of the original amount, as provided for in the agreement.

The statute does not expressly purport to affect the amount due the original transferor under existing agreements. Unlike subdivision 1 of present section 87, subdivision 2 in no way implies that the 50% share due under existing agreements is to be measured by the reduced amount. Under former section 87, which expressly authorized contracts of the type here before us, it was provided that the remaining 50% be applied to "preserving, improving and embellishing the cemetery grounds and the avenues and roads leading thereto, and to defraying its expenses and discharging its liabilities" (see American Exch. Nat. Bank v. Woodlawn Cemetery, 194 N.Y. 116, 124). Under present section 87, that provision remains virtually unchanged, except that one half of the 50% retained by the corporation is specifically earmarked for the cemetery's permanent and current maintenance funds. These funds are designed to insure an effective preservation program; the directors are now prevented from diverting them to other purposes at the expense of the suitable maintenance of the cemetery grounds, and for that reason they are made a first lien on the proceeds of sale.

As we said in Saltser Weinsier v. McGoldrick ( 295 N.Y. 499, 509): "We know that — `A statute must be construed, if fairly possible, so as to avoid not only the conclusion that it is unconstitutional but also grave doubts upon that score.' ( United States v. Jin Fuey Moy, 241 U.S. 394, 401; Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267.) We are also aware that legislation which impairs vested rights is unconstitutional. ( Germania Savings Bank v. Suspension Bridge, 159 N.Y. 362, 368-369; Matter of Pell, 171 N.Y. 48, 52-53.)"

The judgment appealed from should be reversed, with costs, and the matter remitted to Special Term with directions to grant judgment to plaintiff.

Judges DYE, FULD and BURKE concur with Chief Judge DESMOND; Judge FROESSEL dissents in an opinion in which Judges VAN VOORHIS and FOSTER concur.

Judgment affirmed.

Summaries of

Grove Hill Co. v. Ferncliff Cemetery Assn

Court of Appeals of the State of New York
Mar 3, 1960
7 N.Y.2d 403 (N.Y. 1960)

upholding constitutionality of section that requires certain percentage from sale of plots deposited into maintenance funds

Summary of this case from Warschauer Sick Support Society v. New York
Case details for

Grove Hill Co. v. Ferncliff Cemetery Assn

Case Details


Court:Court of Appeals of the State of New York

Date published: Mar 3, 1960


7 N.Y.2d 403 (N.Y. 1960)
198 N.Y.S.2d 287
165 N.E.2d 858

Citing Cases

Warschauer Sick Support Society v. New York

Sale and disposition of cemetery property is a matter of strong public concern in New York and is subject to…

Reed v. Knollwood Park Cemetery

The New York Court of Appeals has heretofore held that the predecessor of § 1401(z)(2) is constitutional and…