Creamer v. Metropolitan Securities Co.

120 A.D. 422, 105 N.Y.S. 28, 1907 N.Y. App. Div. LEXIS 1204

Opinion

Woodward, J.:

The defendants demur to the complaint upon the ground that it does not state facts sufficient to constitute a cause of action. Tlie court at Special Term has overruled the demurrer, and the question presented upon this appeal is whether there is an implied covenant or promise on the part of defendants that they should, through certain corporations in their control, afford an opportunity to litigate certain questions upon the determination of which,, by the Court of Appeals, depended the right of the plaintiff to the sum of $600,000. The question depends upon the construction of a very Complicated contract, or series of contracts, made and entered into between one Patrick H. Flynn and Robert Bussing. Mr. Flynn has assigned all of his rights to the plaintiff, and the defendant securities company has assumed all of Mr. Bussing’s liabilities under these" contracts. The original and principal contract was entered into on the 4tli day of February, 1901. it provided for the sale of certain street railroad property and franchises in the county of Westchester, and the capital stock of the People’s Traction Company, a surface railway company which owned a street railway ■ franchise in the northern part of the island of Manhattan, acquired under a consent of the common council of the city of Mew York dated July 2, 1895.. This franchise was obviously without value as it stood at the time this contract was made, for it required the payment to the city of Mew York of 100 per cent of its gross earnings annually. It was contemplated, however, that this burdensome or prohibitive restriction might be removed, and the contract' provided that “ bn contingencies and with the reservation” thereafter stated, Bussing would pay to Flynn the sum of $1,600,000 for these properties. The provision of the contract providing the contingencies. and reservations here under consideration reads as follows:

“ (a) If (1) at any time within two years from the ’ date hereof, the Legislature of Mew York shall pass an act or acts, agreed-upon by counsel for the parties hereto as validating the aforesaid consent of the Common Council of Mew York City, adopted July 2, 1895, and the Qqmptroller’s sale of the People’s Traction Company of the franchise therein provided .to be sold, and also extending the time to at least January 1, 1904, for tiling the bond, required by Section 93 of the Railroad Law

Footnotes

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* or substituting a new bond, and for obtaining the necessary consents of property owners and for .commencing railrqad construction on the routes described in said Common Council consent, and also reducing or providing a means for reducing the percentage or† gross receipts payable according to the terms of the franchise sale aforesaid to not more than one per cent of such gross receipts; * * * and if (2) said percentage shall in fact be according to any such means reduced within two years from this date,- both parties agreeing to co-operate t.o secure such reduction ; and if (3) within the same two years the Court of Appeals shall establish the validity.of said consent and sale and of said .percentage reduction, that is to say, in the event of all of the aforesaid contingencies happening, the party of the second part (Bussing) shall, within thirty days thereafter, pay to. the party of the first part (Flynn) the sum. of one million six hundred thousand dollars ($1,600,000) in cash or securities, * * * provided, however, that in the event of a portion only of said contingencies happening, to wit, those, specified in subdivision (1) and (2) of this division - (relating to the amendment of the Railroad Law and reduction of said percentage) the party of the second part shall * * ■ * pay to the party of the first, .part the sum of one million dollars ($1,000,000) in cash or securities as above provided with respect to said payment of $1,600,000; and if thereafter, but within five ■years, from date.the contingencies, specified in subdivision (3) (relating to. a decision of the Court of Appeals) shall take place^ the party of .the second part shall, within thirty days thereafter, pay to the party of the first part '.the further sum of six hundred thousand ($60.0,000) in cash or securities as above provided.

■ “ (b) In case nothing shall he jiayable under subdivision' (a) of this paragraph, then' the party of the second part shall within thirty days after demand in writing by the party of the first part pay to the party of the first part the sum of' five hundred thousand dollars i ($500,000) in cash or securities as above provided with respect to said payment of $1,600,000.

“ (c) It is agreed that two hundred thousand dollars ($200,000) in cash or securities, of the sum to be paid as aforesaid, whether the same is to be paid under subdivision (a) or subdivision (b) of this paragraph, shall be paid by the party of the second part making a deposit of that amount with the Morton Trust Company as an indemnity fund to be retained by said Trust Company for one year or longer if necessary, to meet the contingency of valid and lawful claims for causes existing prior to the date hereof, being asserted successfully in a court of law within said year against-the companies or some or one of the companies whose securities are sold hereunder, or against their successors respectively, or against the party of the second part-, or his successors or assigns, as the purchaser of the same, said two hundred thousand dollars ($200,000) to be paid to the party of the first part by said Trust Company when aiiy such said claims shall have been satisfied or in any manner ended by the party of the second part, it being understood that the party of the second part does not assume any such claims now or hereafter.”

The above provisions' were modified by a subsequent agreement of the same date, in which it was provided that the “ party of the second part agrees that the precise periods of time and dates specified in subdivision (2) of paragraph Sixth of the agreement hereto annexed shall not be regarded as of the essence of the contract, but that the sum of one million dollars ($1,000,000) and the further sum of six hundred thousand dollars ($600,000) respectively shall be payable as prescribed in said subdivision (a),- provided the conditions applicable to each payment specified in said subdivision shall, at any time before demand by the party of the first part for payment under subdivision (b) of said paragraph Sixth and actual payment thereunder (not extending, however, five years from the date hereof) be complied with.” And, as bearing upon the intention of the parties, it may be proper to quote the 8tli paragraph of this modifying agreement, which provided that “in case any question shall'arise as to the sufficiency of a decision by the Court of Appeals upon the questions provided in the first subdivision ’(3) of division (a) of paragraph Sixth of the annexed agreement, the parties agree that a gtfttqment of facts embodying the facts of this transaction to such ■extent as may be necessary to enable the Court to pass upon the' question shall be subriiitted in such form as shall enable the Court to duly pass upon such question, to the Appellate Division1 of the Supreme. Court of the Second Judicial Department, the decision of which shall- be deemed final unless reversed'by the Court of Appeals.”

Just why all of this circumlocution was necessary it is difficult to discover. The real agreement appears to have been that Bussing undertook to buy the several railroad properties from Flynn ; that he was to pay the sum of. $500,000 in any event, which may be assumed to have represented the properties outside of- the People’s Traction Company franchise, for all of the contingent amounts were based upon matters relating to this, franchise. An .additional $500,000 was to be paid if the Legislature ratified the franchise and reduced the percentage of gross receipts tó oné per cent, and the $600,000 additional was to be paid if the Court of Appeals, within a period of five years from the' date of the contract, sustained the legislation necessary to give value to the franchise. The Legislature did enact the necessary legislation, and -Bussing 'or the Securities Company paid the sum of $1,000,000. In a supplemental agreement of December 9, 1901,- Flynn acknowledges the final'payment on the $1,000,000 account, and' it is agreed that “the two hundred thousand dollars ($200,000) which, pursuant to the provisions of subdivision (c) of paragraph Seventh "of said agreement of February 4th, 1901, was to be deposited with the Morton Trust. Company as an indemnity fund, shall be so. retained out of the six hundred thousand dollars ($600,000) hereafter-payable- to the party of the first part under the terms of said agreement of February 4th, 1901, when certain contingencies specified in said agreement occur; the party of the second part hereby agreeing to waive his right under the' agreement of February -4th, .1901, to retain said indemnity fund out of the one million dollars ($1,000,000) now due and payable,” etc. ►

The purpose of this clause,' it would seem, was to indemnify Blissing against claims which might be asserted against the properties he was buying; he contemplated buying them free of lie.ns and incumbrances, and under the.original agreement he was to reserve $20.0,000 out of the-$1,000,0.00 agreed to be paid, but in December of that year the contract had been-so. far fulfilled that Bussing con sented to making the full payment of $1,000,000, and to let the $200,000 stand as a payment upon the remaining $600,000 to be ■paid in the event of the Court of Appeals giving its sanction to the legislation which had then been enacted, and under which Bussing had completed his contract for paying the $1,000,000. It seems. entirely clear, therefore, that in December, 1901, the parties to the contract now under consideration understood that there was a strong likelihood of the $600,000 becoming due and payable, for unless this was true, Blissing' would have no fund out of which to indemnify himself against the contingency of claims being succéssfully asserted against the properties purchased. Courts do not decide academic questions; in order that Flynn or his assignee should ■ have any claim upon the $600,000 made contingent upon the action of the Court of'Appeals in'reference to the legislation which had been secured, it was necessary that Bussing or his successors in interest should take some steps to assert rights under the franchise of the People’s Traction Company, .and the fact that Bussing had agreed, in effect, in the event of securing the necessary legislation, to pay $500,000 for this franchise, Flynn was warranted in assuming that the defendants, who, under the contract, had full control of the corporate powers of. the People’s Traction Company, would take the necessary steps to enable the courts to determine the questions oil which the contingent sum depended. It is true that under the languages of the contract Bussing1 does not agree to do anything to bring about the necessary litigation, but when we get beneath the verbiage of this agreement or series of agreements, and discover that in effect $1,100,000 of the $1,600,000 involved in the contract related to the' People’s Traction Company franchise, and that Bussing agreed to and did - pay $500,000 for the property upon the Legislature enacting the legislation which it was mutually agreed should be secured if possible, leaving $600,000 to be paid in the event of tiie legislation being approved by the Court of Appeals, it is evident that the contracting parties contemplated that the question should be ¡haced in shape where it could be litigated, and there was an implied promise on the part of Bussing that this- should be done. This is made entirely clear by the provision of the 8th paragraph of the supplemental agreement of February 4, 1901, thpt “ip case any question shall arise as to the sufficiency of a decision by. the Court of Appeals, upon the questions provided in the first subdivision (3) of division (a) of paragraph Sixth of the annexed agreement, the parties agree that a ■ statement' of facts embodying the. facts of this transaction, to such extent as may be necessary to enable the Court to pass upon the. question shall he submitted in such form,” etc. ’ Flynn had a right" • to. assume,- when leaving more than' one-half of' the agreed value of the property in this franchise-to depend upon a contingency, that Bussing would-so handle the property,that' the question--might be determined; he saw that the property, as it stood, was--of -no value, but that it would have a value if the Legislature ratified the sale and reduced the agreed percentage. Bussing saw that this property would .have value, and he agreed, in effect, to give $500,000 for the same as soon -as the Legislature liad acted upon the proposition in accord with his ideas, with $600,000'addi-tional as soon as this legislation should bé sanctioned by the Court of Appeals. Knowing that $500,000 was.t-0 be invested as soon as .-the .legislation "was secured,' Flynn had a,right to assume that this investment• wquld not be. made- unless Bussing o.r his successors,in interest contemplated making use of the franchise, and it is not to be doubted that this contract was made and entered into with the understanding and intention on the part of Bussing of making use of the People’s Traction Company franchise in the event of secure, ing the legislation.' It would he strange,, indeedj if any prudent man would invest half a million of dollars in- a franchise- unless he expected that lie or some one else was to make use of such franchise. -It- was mutually agreed between them, in effect, .that this franchise, if perfected by the proposed legislation, sanctioned by a decision of the Court of Appeals, was worth $1,100,000; that it was worth $500,000 when- supported by the legislative enactment alone, and as- the entire value of the franchise depended upon its /being made use of within-the time which should be .prescribed by law, p-nd as Bussing had agreed to pay $500,000 upon the securing of the legislation, in addition to the value of the other properties, aggregating a like amount, Flynn could not anticipate that there would be a failure on the part of Bussing to make use of the property for which he was willing to pay so much money. • Standing in the position -of the parties at the time this' contract was made, no one would have thought of requiring Bussing to agree to attempt to construct or operate the People’s Traction • Company lines ; there was no other apparent reason for making the contract than to vest the property in the hands of Bussing, who could get nothing out' of the property unless it could be made use of for the purposes of a street surface railroad. There was a $500,000 guaranty that Bussing or his successors would Undertake to make use of this franchise as soon as the necessary legislation was secured, and both parties mutually promised to aid in the securing of such legislation, and Flynn’s right to the additional $600,000 was made to depend upon the Court of Appeals approving such legislation. The attempt to make use of the franchise, modified by legislation, would of necessity. force the local authorities, a taxpayer or some one, to contest the right, and it was in contemplation of this situation that the'parties contracted; there was a duty on the part of Bussing or his successors to do the things which the contracting parties understood were to be done in order that Flynn might have the benefit of his contract. The case is thus brought within the rule that “ where there is no express agreement which can be enforced, * * * the law will imply one; that is, will impute a promise, or intend that one was made. And such implication will always exist where equity and justice [require] the party to do the thing in question, even though it expressly appears that he never actually made the promise or agreement which-by such implication the law attributes to him.” (Scrantom v. Booth, 29 Barb. 171, 174; Booth v. Cleveland Rolling Mills Co., 6 Hun, 591; Wilson v. Mechanical Orguinette Co., 170 N. Y. 542; Genet v. D. & H. C. Co., 136 id. 593.) The reasoning in the latter case is peculiarly applicable to. the facts in this case, and must be considered as controlling here.

The complaint sets out this contract and alleges a breach on the part of the defendants in failing to take action to construct or operate the railroad contemplated in the People’s Traction Company franchise until it was too late to secure the action of the Court of Appeals within the time provided in the contract, and it is likewise alleged that the defendants have failed to act until now the franchise has been forfeited, and the relief demanded is the payment of the $600,000 deferred payment, the same as though the Court of' Appeals had actually decided in favor of the validity of the 'franchise, We are not entirely clear that the plaintiff . h&s setup the proper measure of damages, but upon a demurrer it does not seem necessary to determine this question. If there was an implied promise on .the part of Bussing to take- steps which would force-, the testing of the right to construct and operate a railroad under the People’s Traction Company franchise—and we think there was — the plaintiff has set forth facts sufficient to show a breach of that contract and a right on hs partfo damages. Whether he has asked for the proper .relief is not very particular,, so long as he is entitled to some relief, and it may he left to the court upon the trial to-determine questions of this character. The demurrer only goes to the facts pleaded, and we are. of the opinion that the facts set forth, and which may-be implied, are sufficient to state a cause of action, " ,

The interlocutory judgment appealed from should1 be affirmed, with costs.

' Jenks, Hooker, Gaynor and High, JJ., concurred..

Interlocutory judgment affirmed, with costs.

See Laws of 1890, chap. 565, § 93, as ámd. by Laws of 1892, chaps. 306, 676,. and Laws of 1893, chap.. 434; subsequently amended by.Laws, of 1901, chap. 494.— [Rep.