author:
Conway, J.
      Rippey, J.

text:
    Lorraine Rupert et al., Appellants, v. Town of West Seneca, Respondent, et al., Defendants.
    Argued May 25, 1944;
    decided October 12, 1944.

      Daniel J. O’Neil for appellants.
    I. There is nothing in the Highway Law from 1913, the date the walk was established, to 1935, the time of the enactment of chapter 772 of the Laws of 1935 (Highway Law of 1909, § 74, Highway Law of 1936, § 215), that gives anyone outside the town or town highway superintendent, authority over the walk in question. II. If the decision of the Appellate Division and contention of respondent are correct, towns were entirely relieved of liability and this is beyond the power of a legislative body. No person or corporation can legislate themselves out of responsibility. The matter is still left for our courts. III. Section 215 of the Highway Law is not effective in this action. (Anderson v. Van Tassel, 53 N. Y. 631; Saulsbury v. Village of Ithaca, 94 N. Y. 27; Nelson v. Village of Canisteo, 100 N. Y. 89; Bullock v. City of New York, 99 N. Y. 655; Seymour v. Vil. of Salamanca, 137 N. Y. 364; Brusso v. City of Buffalo, 90 N. Y. 679; McSherry v. Trustees, etc., 129 N. Y. 612; Stern v. International R. Co., 220 N. Y. 284; Kunz v. City of Troy, 104 N. Y. 349; Ivory v. Town of Deerpark, 116 N. Y. 476; Weed v. Village of Ballston Spa, 76 N. Y. 329.) IV. As a matter of law appellants are entitled to- a reversal of the judgment of the Appellate Division, and an affirmance of the judgment of the trial court. (City of Rochester v. Campbell, 123 N. Y. 405; Pomfrey v. Village of Saratoga Springs, 104 N. Y. 459; Willis v. Parker, 225 N. Y. 159; Gaynor v. Town of Hempstead, 153 Misc. 321; Ivory v. Town of Deerpark, 116 N. Y. 476.)

      Edward B. Horning and Fred R. Scharf for respondent.
    I. Present legislation, which clearly relieves towns of liability in this type of case, is indicative of legislative intention in 1938. II. There was no proof of construction or maintenance of the sidewalk in question within the meaning of section 215 of the Highway Law and the town is not therefore liable. (People ex rel. Van Keuren v. Town Auditors, 74 N. Y. 310; People ex rel. Loomis v. Board Town Auditors, 75 N. Y. 316; Monk v. Town of New Utrecht, 104 N. Y. 552; Flynn et al. v. Hurd, 118 N. Y. 19; Holroyd v. Town of Indian Lake, 180 N. Y. 318; Lorillard against The Town of Monroe, 11 N. Y. 392; Short v. Town of Orange, 175 App. Div. 260.)
   Conway, J.

The question presented involves the liability of a town for injuries sustained by a pedestrian in falling upon a sidewalk therein. The sidewalk was constructed by the defendant The Union Free School District No. 3 of the Town of West Seneca, Erie County, New York (hereinafter referred to as School District) and later became in such a state that it was defective. As a result there occurred the accident with which we are here concerned. Upon trial before a court and jury the husband and wife plaintiffs had verdicts against the defendant Town of West Seneca, Erie County, New York (hereinafter referred to as Town) but the jury found in favor of the defendant School District. Town appealed but no appeal whs taken by the plaintiffs from the judgment in favor of School District. The Appellate Division reversed the plaintiffs’ judgment against Town and dismissed the complaint. Under those circumstances the only question presented is as to the liability of Town.

The accident occurred in August, 1938, on Bellwood Avenue in Town. Bellwood Avenue is a public highway fifty feet wide. Within those fifty feét there was constructed a sidewalk along the school district property. The vehicle-way, which was asphalted, was about twenty feet wide. Between it and the sidewalk was what might be termed a shoulder of dirt or gravel. Then came the sidewalk and then another strip of dirt or gravel between the sidewalk and the fence enclosing the school district premises. The sidewalk in question was constructed in 1913 pursuant to an agreement by which the School Board of School District No. 3 of the Town of West Seneca engaged one Fisher to do the work. The same sidewalk was there at the time of the accident. It had been repaired once in 1927 when an addition to the school was built. In transporting material the contractor had wrecked a portion of the sidewalk and had then repaired it without cost to the School District.

The question presented involves, therefore, the liability of a town, and not of an abutting owner in a town, for a defective sidewalk.

We shall assume for the purpose of our discussion that the entire fifty feet within the lines of Bellwood Avenue, including the land on which the sidewalk was constructed by School District, was a town highway and while without a sidewalk was under the control, superintendence and regulation of the town authorities and that the town was responsible .for a defect therein. Logically one would say that the same situation continued as to a sidewalk constructed within those fifty feet even though constructed without the consent of the town. Historically and by legislative action such is not the case in a town.

In Augustine v. Town of Brant, 249 N. Y. 198, 204-5, we said: 11 Towns and counties have been held to be merely divisions of the State organized for the convenient exercise of portions of the political power of the State (Lorillard v. Town of Monroe, 11 N. Y. 392), and as such exempt from liability for the negligent exercise of -such power. A distinction has been drawn for this reason between the liability of counties and towns and the liability of cities for highway negligence. * * * The distinction rests on the difference between the exercise by the town of political powers and the exercise by the city of powers assumed by or imposed upon it which are ‘ more immediately performed in the interest of the corporation itself.’ (Missano v. Mayor, etc., 160 N. Y. 123, 128.) ”

The Town of West Seneca was formed in the year 1852 (L. 1852, ohs. 98 and 412). Like all other towns it derived its existence and organization as well as its duties, obligations and power from the Legislature. (Holroyd v. Town of Indian Lake, 180 N. Y. 318, 322.)

The first statute imposing highway liability upon towns was enacted by Laws of 1881, chapter 700. (See Highway Law, § 215.) The Legislature therein referred to “ defective highways or bridges ’ ’ and11 defective roads or bridges. ’ ’ Sidewalks were not mentioned. There followed a series of acts to which we may refer as town-liability statutes, to wit (L. 1890, ch. 568, § 16; L. 1908, ch. 330, § 74; L. 1909, ch. 30, § 74; L. 1913, ch. 389; L. 1918, ch. 161, § 2). None of those statutes mentioned sidewalks.

On October 25, 1934, the case of Gaynor v. Town of Hempstead (153 Misc. 321) was decided. In the opinion in that case the following language was used: “ If the sidewalk which causes the injury is erected within the limits of the town highway by permission of the town or its superintendent, liability of the town for negligence of the superintendent in its maintenance follows. Liability follows equally when by omission to repair or compel the removal of a sidewalk constructed without their consent, but of the existence of which they have notice, a walk dangerous for travel is allowed to stand within the limits of the town highway. In such a case it would follow that a duty arises in the town superintendent of highways either to repair or to remove it, for whether it was built with or without their permission, once it has been built, is being used and they have notice of it, they become responsible for it.

“ As we have seen, the town superintendent under the statute is required to make at least semi-annual inspection of town highways. If the sidewalk in question was erected upon a town highway without the consent of the superintendent or the town board, it must necessarily follow that in the course of time they were bound to have notice of its existence. It thereupon became their duty either to cause it to be removed as an obstruction or to keep it in a safe condition for travel. So far as this principle of law is concerned there can and should be no distinction whether the municipal corporation be a town or whether it be a city or a village.

#*####♦

‘ ‘ It follows, therefore, in the instant case, that if it appears upon the trial that the sidewalk was constructed by the abutting owner without the consent of the town or its superintendent, the town may be absolved from liability if the injury caused by the sidewalk occurred before the town or its superintendent could be held to have had notice of its existence. At the same time it is equally true that the town may be held liable if the accident occurred after it or its superintendent knew of the existence of the sidewalk and of its condition, or should by the lapse of time have known of them, and nevertheless failed to take any action to cause the walk to be removed or repaired.” (pp. 332-333.)

At that time, the following language, originally enacted in the statute of 1890, remained substántially in the statute as subsequently amended: “ Every town shall be liable for all damages to person or property, sustained by reason of any defect in its highways or bridges, existing because of the neglect of any commissioner of highways of such town.”

At the following session of the Legislature, which convened less than three months thereafter, there was enacted Laws of 1935, chapter 772, which amended said section 74 of chapter 30 of the Laws of 1909 (the Highway Law) so as to provide so far as here applicable, the italicized portion being new: § 74. Liability of Town fob Defective Highways, Bridges and Sidewalks. Every town shall be liable for all damages to persons or property sustained by reason of any defect in its highways or bridges, existing because of the neglect of any town superintendent of such town but it shall not be liable for damages to persons or property sustained by reason of any defect in its sidewalks unless such sidewalks are 'constructed or maintained by the town or the superintendent of highways of the town, pursuant to law * * * ”. That was reaffirmed and renumbered as section 215 of the Highway Law by Laws of 1936, chapter 63, and amended by Laws of 1936, chapter 266. The change by the latter statute was from the words “ pursuant to law ” to the words pursuant to statute ”. By the 1935 statute the holding in the Gaynor case was declared not to be the law in this State.

It is plaintiffs’ contention that there was no statute which relieved Town from liability when the sidewalk was constructed in 1913 and that the statute of 1935 could not relieve it from such liability. We think that plaintiffs have misconstrued the liability imposed upon towns. Any such liability for defects in highways is a statutory one. (People ex rel. Van Keuren v. Town Auditors, 74 N. Y. 310; People ex rel. Loomis v. Board Town Auditors, 75 N. Y. 316; Monk v. Town of New Utrecht, 104 N. Y. 552; Flynn et al. v. Hurd, 118 N. Y. 19; Bowman v. Town of Chenango, 227 N. Y. 459.) In People ex rel. Van Keuren v. Town Auditors (supra), we said (p. 315): “ Under our system, no corporate duty is imposed upon towns in respect to the care, superintendence, or regulatian of highways within their limits. Commissioners of highways, have by the statute, the care and superintendence of highways, (1 Rev. St., 501, § 1), and, in the administration of the highway system, they, and the overseers of highways in subordination to them, are independent public officers, exercising public powers, and charged with public duties specially prescribed by law. * * * They.are responsible, in a civil action, for any injury resulting from their neglect to repair a highway * * * whereby an individual sustains damage * * # >>

Neither at common law nor by statute were towns under any legal liability to respond in damages until after the enactment of chapter 700 of the Laws of 1881. (Monk v. Town of New Utrecht, 104 N. Y. 552, 557, supra.) It was there provided: The several towns in this state shall be liable to any person suffering the same, for all damages to person or property by reason of defective highways or bridges in such town, in cases in which the commissioner or commissioners of highways of said towns are now by law liable therefor, instead of such commissioner or commissioners of highways. ’ ’

The mention of sidewalks in Laws of 1935, chapter 772, was not by any means an initial legislative reference. On the contrary, the Legislature had many times distinguished between highways and sidewalks in towns. When it intended to refer to a highway, it used that word. When it intended to refer to a board walk or its renewal in concrete or other material (Highway Law [L. 1909, ch. 30] § 47, subd. 2, § 62, now Highway Law [L. 1936, ch. 63] § 140, subd. 2, § 151) it used the word board walk. When it intended to define a board walk as a sidewalk (Highway Law [L. 1909, ch. 30] § 62, now Highway Law [L. 1936, ch. 63] § 151), it used both those words. The word highway was not used as including a sidewalk of whatever material constructed. Thus, section 61 of the former Highway Law (now Highway Law, § 150) provided that a town superintendent might authorize, under circumstances therein detailed, the owners of property adjoining the town highways “ at their own expense, to * * * locate and construct sidewalks along the highways, in conformity with the topography thereof * * * " Under section 62 of the former Highway Law (now Highway Law, § 151) a town superintendent might “ with the consent of the town board, maintain and repair existing sidewalks and he might also be directed by the town board by resolution upon the petition of not “ less than twenty-five taxpayers * * * to construct a sidewalk along a described portion of any highway of the town, * . " Former Highway Law, section 47, subdivisions 1 and 2 (now Highway Law, § 140, subds. 1, 2), charged the town superintendent with the repair, the care and superintendence of the highways and bridges and boardwalks or renewals thereof on highways less than two rods in width * * * ” (33 feet) with exceptions not here material. There is also a series of statutes 56in which provision was made, at a period when apparently there was popular demand for cement sidewalks, for petitions, public hearings, estimates, plans, contracts and sideivalk taxes, which may have been designed to induce or compel property owners in towns to build or finance their own sidewalks Finally there is a recent amendment, not here applicable, found in Highway Law, section 140, subdivision 18, by which it is now provided that a town superintendent shall “ maintain all sidewalks in the town constructed by the state adjacent to state highways and all sidewalks in the town constructed by the county adjacent to county roads * * *.” (See, also, L.-1936, ch. 35.)

As further indicating the clear legislative intent and trend, we point out that in 1941 and 1942, subsequent to the accident here, by Laws of 1941, chapter 677, section 1 (repealing Highway Law, § 215, and adding a new section with same number) and Laws of 1942, chapter 300 (amending said § 215 as added), one injured may not sue a town even if it be shown that the sidewalk upon which he fell were in front of a town building, such as a town hall, and, therefore, constructed and maintained by the town, unless the claimant can show that written notice of the defect was given to the designated town official a sufficient time prior to his fall.

We need not quote here Highway Law, section 215, in full, as so repealed or added. Suffice it to say that it is now divided into numbered parts and that there is disclosed a clear Legislative distinction between •the measure and method of proof required to establish liability for injuries sustained by reason of defects in highways and those sustained by reason of defects in sidewalks of towns. In the first of the numbered subdivisions injuries to person or property sustained by reason of a defect in a highway are considered. Subdivision two deals with injuries sustained by reason of a defect in a sidewalk. Subdivision three provides for notice of claim and commencement of action in either case. We note, however, that as to highways the claimant may have the benefit of constructive notice of defect by the town. As to sidewalks, a claimant may not avail himself of constructive notice nor may he avail himself of actual notice of defect served on the specified officer prior to injuries sustained, except as to sidewalks constructed or maintained by the town or town superintendent of highways pursuant to statute.

Despite the 1935 amendment to Highway Law, section 74 (supra), the trial court denied Town’s motions to dismiss the complaint at the end of the plaintiffs’ case and at the end of the entire case, after reserving decision upon them until after the rendition of the jury’s verdicts and followed the decision in the Gaynor case. The words of the charge to the jury were frequently the words of the Gaynor opinion. The trial court made clear its position by charging without exception by anyone that “ the town of West Seneca did not construct or maintain this sidewalk ”. It may or may not be that the logic and reasoning in the Gaynor case are more consonant with justice than the rule adopted- by the Legislature. The plaintiffs, in their brief, phrase it well in pointing out that the statutory rule means that “ any trap or dangerous condition could remain indefinitely, and in the event of an accident, the town could look up the record and if the walk had been constructed by a property owner, they could point out this fact to the injured pedestrian and say, ‘ We did not construct and we do not maintain ’ ” or “ ‘ You have no remedy, because twenty-seven years ago the school district constructed a walk.’ ” It would seem that that is what the residents of towns wish. The action of the Legislature following swift upon the Gaynor decision so indicates. It may be that for a town to maintain all sidewalks now or hereafter constructed by private persons within town limits and to respond in damages for injuries suffered by reason of defects therein would impose too Serious a financial burden upon town residents. That is for the Legislature to determine and it has spoken. “ The courts are without power to substitute something else.” (Thomann v. City of Rochester, 256 N. Y. 165, 172.)

The rule seems to be to the contrary insofar as cities and villages are concerned.* It has been stated that “ A manifest difference in this respect, arising out of charter provisions, and the obvious requirements of the situation, exists between village and municipal corporations, and country towns, in respect to such obligations.” (Monk v. Town of New Utrecht, 104 N. Y. 552, 557, supra.) Thus in Saulsbury v. Village of Ithaca (94 N. Y. 27, 30) it was said: It is true that whether a municipal corporation shall build, or permit to be built, a sidewalk on any of its streets, is matter of discretion not to be regulated by the courts, yet when a sidewalk is built with or without its permission, it becomes responsible for its condition and bound so long as it exists to keep it in order.”

Pursuant to statute (Town Law, § 2), towns are now municipal corporations. However, prior to the enactment of section 2 of chapter 569 of the Laws of 1890, towns were not called municipal corporations. The above cases Monk v. Town of New Utrecht (supra), and Saulsbury v. Village of Ithaca (supra) use the words “ municipal corporation ” as referring to a city or a village. The rule placing greater liability upon cities and villages than upon towns is also found in the following cases: Bullock v. Mayor, etc., of City of New York (99 N. Y. 654); Nelson v. Village of Canisteo (100 N. Y. 89-92); City of Rochester v. Campbell et al. (123 N. Y. 405); Stern v. International Ry. Co. (220 N. Y. 284).

The judgment should be affirmed, with costs.

Rippey, J.

(dissenting). On August 16,1938, Lorraine Rupert, who resided with her husband at 90 Bellwood Avenue in the Town of West Seneca, Erie County, was injured by a fall due to a defective sidewalk near the northwést comer of Bellwood Avenue and Seneca Street. She brought an action for her injuries and her husband sued to recover expenses in caring for his wife and for loss of services. After a jury trial and a verdict for plaintiffs, judgment was entered against the Town of West' Seneca. On appeal, the Appellate Division stated in its order that the findings of fact had been examined and affirmed (Civ. Prac. Act., § 602) but reversed, by a divided court, the judgment on the law and dismissed the complaint on the ground that section 215 of the Highway Law relieves the defendant Town of West Seneca from liability.”

Ho motion was made by the defendant for a direction of verdict in its favor. There was ample evidence, as the Appellate Division unanimously affirmed, from which the jury were authorized to find that Lorraine Rupert was free from negligence contributing to her injuries and that the sole proximate cause of her accident was the defective condition of a sidewalk-furnished for the use of pedestrians using the public highway and upon which she fell. In that view of the case, the verdict must be reinstated unless, under the facts and circumstances here existing, section 215 of the Highway Law bars recovery.

The Town of West Seneca is and has been since its organization a municipal corporation. Bellwood Avenue was a public highway fifty feet wide laid out and maintained by the Town of West Seneca prior to 1911. It extended from Graham Street on the north end to and across Seneca Street at the south. Prior to that year it was and continuously since has been located in a residential section, dwellings were erected on both sides of the- street and it was generally used for both pedestrian and vehicular traffic. Sidewalks were constructed on both sides. The center of the street had a twenty-foot pavement for the use of vehicles which the town constructed and maintained. '

During 1912 and 1913, Union School District Ho. 3 constructed the first section of a public school building on a lot which it owned on the northwest corner of Bellwood Avenue and Seneca Street, made an addition to the building in 1922, and a further addition in 1928. - The lot on which the school was located faced 195 feet on Bellwood Avenue and 111 .feet on Seneca Street and was enclosed by an iron fence on the lot lines as laid out by the town. As part of the school building and improvement program, the school board entered into a written agreement on July 14, 1913, with one George F. Fischer, under the supervision of the board, to construct a new concrete sidewalk, four feet wide, within the highway and along the street sides of the school property at the expense of the School District. In 1927, a contractor, when delivering material for the school addition, wrecked a small portion of the sidewalk and repaired it at no expense to the School District. So far as appears, no other repairs were ever made to the walk. There was evidence that other improvements were made and maintained within the street limits by the town. It was on that walk that the accident occurred. The court charged that as matter, of law sufficient time had elapsed after the construction of the sidewalk so that the town board was presumed to have notice of its existence.

At the time of the construction of the sidewalk, the town superintendent of highways was charged with the care and superintendence of town highways and with the duty to keep them in repair and free from obstructions and with inspection thereof during the months of April and October in each year- and was authorized to employ persons with means to enable him to perform the duties thus imposed (L. 1909, ch. 30, § 47). Section 74 of the same act made the town liable for all damages to persons or property sustained by reason of any defect in its highways existing because of the neglect of the town superintendent in the performance of the duties imposed upon him. Similar powers and duties had long prior to that time been imposed upon the town officer in charge of the highways of the town for whose negligence in the performance of such duties the Legislature imposed liability on the town (Snowden v. Town of Somerset, 171 N. Y. 99) and it could not be relieved from such liability merely because some duty of repair might also be imposed upon abutting owners (Ferguson v. Town of Lewisboro, 213 N. Y. 141, 146). It is presumed that the town superintendent performed the duties imposed upon him by the Legislature and by the required inspection, if not otherwise, knew of the construction of the sidewalk by the school board and that the town consented thereto. Not only was there nothing to indicate that the town had surrendered any jurisdiction, supervision or control over any part of the highway or over its entire width, but it had no power to do so as against the public who were authorized to use the highway. The Legislature since 3909 not only has not modified or curtailed the powers granted to and duties imposed upon town superintendents of highways with respect to the control, maintenance and supervision of town highways or the obligations of towns to respond in damages for negligent failure of the town superintendents to exercise those powers or perform those duties but has by specific acts continued them (Highway Law, §§ 140, 215; Town Law, § 32). The entire width of the street, including the part on which the sidewalk was located, was a public highway and under the control, superintendence and regulation of the same town authorities (Highway Law, § 215 (formerly § 74), § 140 (formerly § 47); 37 Cyc., p. 12, et seq.; 39 C. J. S., pp. 909-918; People v. Meyer, 26 Misc. 117; Schell v. Town of German Flatts, 123 App. Div. 197; Anderson v. Van Tassel, 53 N. Y. 631; see People v. County of Westchester, 282 N. Y. 224, 228) and was recognized and treated as such by the defendant Town.

By chapter 266 of the Laws of 1936, the Legislature added to section 215 of the Highway Law the words, but it shall not be liable for damages to persons or property sustained by reason of any defect in its sidewalks unless such sidewalks are constructed or maintained by the town or the superintendent of highways of the town pursuant to statute, * * That addition to the statute furnishes no relief to defendant since the sidewalk on which the accident happened, on the record here, was presumably constructed with the consent of the town superintendent and necessarily, Under legislative mandate, was maintained under his supervision, authority and control. Presumably, through long continued, public and notorious use and enjoyment of the sidewalk, the Town recognized it as a completed part of the public highway and accordingly must be deemed to have maintained it within the meaning of section 215 of the Highway Law. It was the duty of the town superintendent, for whose neglect in the performance thereof the town was still liable, to inspect the highway and to maintain it in a reasonably safe condition for the use of travelers, who were entitled to use it. Where a walk in a dangerously defective condition for the use of the public was allowed to stand within the limits of the highway, it was the duty of the town superintendent of highways either to repair or remove it. The town superintendent, after 1936, could not shake off the mandatory duties imposed by the Legislature merely by failure to perform them and the town could not thereby assert that it was within the protection of the exception contained in the 1936 amendment by the mere failure of the town superintendent to perform those duties imposed upon him long prior to and at the time of the accident. There is nothing in the amendment of 1936 to section 215 of the Highway Law that grants immunity to a town from liability for neglect of the town superintendent with reference to the duties imposed upon him as to control, supervision and maintenance of the town highway throughout its entire geographical limits as so defined. The court correctly charged the jury in accordance with the foregoing principles of law.

In the circumstances in the record of this case, for injuries sustained by a traveler through no fault of his own, the town is liable if the proximate cause of the injuries is the neglect of the town superintendent in failing to keep the highway in suitable condition and repair or in failing to require the removal or repair of the defective condition after adequate notice. (Highway Law, § 215 (formerly § 74); Gaynor v. Town of Hempstead, 153 Misc. 321; Robinson v. Chamerlain, 34 N. Y. 389; Sewell v. City of Cohoes, 75 N. Y. 45; Saulsbury v. Village of Ithaca, 94 N. Y. 27; Pomfrey v. Village of Saratoga Springs, 104 N. Y. 459; Ivory v. Town of Deerpark, 116 N. Y. 476; Embler v. Town of Wallkill, 132 N. Y. 222; Bryant v. Town of Randolph, 133 N. Y. 70; Flansburg v. Town of Elbridge, 205 N. Y. 423, 428).

The judgment appealed from should be reversed, with costs in this court and in the Appellate Division, and the judgment of the trial court reinstated.

Lehman, Oh. J., Lewis, Desmond and Thacheb, JJ., concur with Conway, J.; Rippey, J., dissents in opinion in which Loughran, J., concurs.

Judgment affirmed.

       The series of statutes distinguishing between highways and sidewalks in towns and resulting in Highway Law, section 150, began with Laws of 1860, ch. 61; see also, Laws of 1836, ch. 281.

       The series of statutes resulting in Highway Law, section 151, began with Laws of 1890, ch. 568, § 45.

       The series of statutes resulting in Highway Law, section 140, subdivisions 1 and 2, began with Laws of 1890, ch. 588, §§ 4, 20;

       This series began with Laws of 1910, ch. 183.

       See Laws of 1910, ch. 183; Town Law, sections 200, 200-a, and Town Law, section 198, sub'division 5, repealed by Laws of 1935, ch. 915, § 4.

       Laws of 1937, ch. 833, § 3; Laws of 1939, ch. 266, § 1; Laws of 1941, ch, 736.


source: Caselaw Access Project

author: Loughran, J.

license: Public Domain

text:
    In the Matter of James V. King et al., Appellants, against S. Howard Cohen et al., Constituting the Board of Elections in the City of New York, et al., Respondents.
    Argued October 2, 1944;
    decided October 17, 1944.

      Louis Feldman for appellants.
    I. As to respondents Spitzer and Schukin, copies of the moving papers having been mailed tó them within the statutory period and in accordance with the direction of the order to show cause, service was completed on mailing copies to them and the proceeding was commenced within the statutory period. II. The courts below should have declared invalid the nominating petitions of respondents Rayfiel and Levine on the merits. The Fall primary map remained in full force and effect until October 1, 1944, and the new map only became effective on October 1, 1944. (Matter of Lieblich v. Cohen, 286 N. Y. 559; Matter of McElroy v. Cohen, 286 N. Y. 686; Matter of Nagler v. Cohen, 252 App. Div. 741.)

      Abraham J. Mutter and Harry Berper for Leo Kayfiel and J. Sidney Levine, respondents appearing specially.
    I. This appeal is academic. II. The nominating petition contained the correct election and assembly districts alongside the names of the voters.

      Matthew M. Levy, Abraham M. Roth and Philip Haber for David Schukin and Jack Spitzer, respondents appearing specially.
    I. The issues involved are academic inasmuch as many thousands of war ballots have been forwarded to soldier voters and time will not permit the printing and forwarding of new ballots which must be uniform for the entire electorate. II. None of the proceedings were instituted within the time required by the Election Law. Section 330, subdivision 1, of the Election Law requires that proceedings such as the ones at bar “ must be instituted within fourteen days after the last day to file petitions.” (Matter of Gallagher v. Cohen, 180 Misc. 1030; Matter of Kram v. Cohen, 293 N. Y. 746; Matter of Constantino, 286 N. Y. 681; Matter of Tombini, 177 Misc. 148, 262 App. Div. 756.) III. The election districts inserted next to signers’ names and addresses were the ones required by law. Since central registration began on June 1, 1944, and ended September 30, 1944, the new districts for central and Fall registration for the general elections of 1944 were on that day in existence.

      Ignatius M. Wilkinson, Corporation Counsel (William J. Fleming of counsel), for Board of Elections of the City of New York, respondent.
   Loughran, J.

This proceeding was brought under section 330 of the Election Law to procure a declaration of the invalidity of four independent nominating petitions that were filed with the Board of Elections of the City of New York in asserted compliance with section 137 of the statute. Each petition purported to nominate a candidate of the Liberal Party for a public office to be voted for at the general election of November 7,1944, and was questioned by the rival candidate of the American Labor Party. The Liberal Party is an “ independent body ”. The American Labor Party is a political “ party ”. (See Election Law, § 2, subds. 5, 11.) In this court, the American Labor Party candidates are appellants and the nominees of the Liberal Party are the respondents.

On August 30,1944, the appellants obtained an order directing each of the respondents to show cause why the petition for his nomination should not be annulled. Service of this order was therein directed to be made before midnight of the same day by delivery of a copy thereof to each of the respondents personally or by leaving a copy at his address with a person of suitable age and discretion; or, in the event both such methods of notice should chance in any instance to be without avail, then by sending a copy to the respondent at the same place by registered mail with return receipt requested.

The date so set for service (August 30, 1944) was the last day on which this proceeding could have been instituted (see Election Law, § 330, subd. 1). A copy of the order was on that day left with a person of suitable age and discretion at the address of each of two of the respondents. At the same time, service upon the two remaining respondents was attempted by the mailing of a copy of the order in the fashion prescribed therein, with the result that delivery thereof did not ensue on that last day.

Such mailing was held by Special Term to be without effect and this proceeding was for that reason dismissed as to the two respondents to whom the order had been thus dispatched. The substituted service made upon the other two respondents was held to be effectual. In the end, however, this proceeding was dismissed as to them on the merits.

The Appellate Division affirmed without opinion, but on there • after denying leave to appeal to this court gave expression to its point of view in these words: The issues involved are academic inasmuch as many thousands of war ballots have been forwarded to soldier voters and time will not permit the printing and forwarding of new ballots, which must be uniform for the entire electorate.” (268 App. Div. 834.) We gave leave to the appellants to present the case to us.

(1) Voting by members of the armed forces during time of war is regulated by article 12 of the Election Law (L. 1944, eh. 183). Section 311 thereof provides: “ The determination of a board of elections made on the twenty-ninth day of August as to the candidates duly nominated for public office whose names should appear on the war ballot * * * shall be final and conclusive with respect to such offices for which petitions or certificates are required to be filed with the board of elections * * *. But the foregoing shall not prevent * * * a court from determining at a later date that any such certification or nomination is invalid and in the event of such determination no vote cast for any such nominee by any voter shall'be counted at the election * * Questions as to the effect of these provisions upon the rights of members of the armed forces may be conceived but they do not arise here. None of these respondents — as a candidate of the Liberal Party — has a right to be voted for by civilian electors unless his name is validly on the ballots in question, and that being so, we cannot agree with the Appellate Division in its assumption that this controversy is an academic one.

(2) The parties against whom a proceeding of this kind is brought are entitled to such notice thereof as the court, justice or judge shall direct ”. (Election Law, § 335.) As heretofore construed by us, this requirement calls for delivery of the instrument of notice not later than on the last day on which the proceeding may be commenced. (Matter of Constantino, 286 N. Y. 681.) Consequently the attempted service by mail upon two of. the respondents was ineffectual, as the Special Term ruled. Ill this connection, we are moved to remark that the use of registered mail is likely to result in a failure of timely delivery of notice of the proceeding.

(3) We think the Special Term was right in validating the substituted service that was made upon the other two respondents. (Cf. Civ. Prac. Act, § 231.)

(4) We also think this proceeding was properly dismissed on the merits as to those two respondents. On this branch of the case, the only question was whether the election districts and assembly districts of the signers of the nominating petitions were required to be set forth in accordance with maps that had been prepared by the Board of Elections especially for the primary of August 1, 1944 (see Election Law, § 137). Each petition specified such districts in accordance with the official maps for the election of 1943 (before the reapportionment of that year) as well as the new districts that were shown on the maps for the election of 1944. In our judgment, this was the requisite identifying data.

The order should be affirmed.

Lehman, Ch. J., Bippey, Lewis, Conway, Desmond and Thacher, JJ., concur.

Order affirmed.


author: Per Curiam.

text:
    The People of the State of New York, Respondent, and Irving Langmuir et al., Interveners, Respondents, v. System Properties, Inc., Appellant, et al., Defendants.
    Argued October 5, 1944;
    decided October 20, 1944.

      Lawman Martin for appellant.

      Nathaniel L. Goldstein, Attorney-General (Donald G. Glenn, Orrin G. Judd and Arthur W. Mattson of counsel), for People of the State of New York, respondent.

      Richard D. Moot for Irving Langmuir and others, respondents.
    Section 429 of the Civil Practice Act is mandatory that the issues of flooding and damage be settled for trial by jury. (Hudson v. Caryl, 44 N. Y. 553; Cohen v. Cohen, 160 App. Div. 240; Halgren v. Halgren, 160 App. Div. 477; Moot v. Moot, 164 App. Div. 525, 214 N. Y. 204; Stafford v. Stafford, 165 App. Div. 27.)
   Per Curiam.

The complaint alleges, among other things, that a dam constructed and maintained by defendant System Properties, Inc., in the Ticonderoga River is an unlawful encroachment on the bed of a public navigable stream and a nuisance. Plaintiffs demand judgment for the removal of the dam, for a declaration on the conflicting claims of the State and defendant System Properties, Inc., and for an injunction restraining that defendant from continuing its alleged trespass and encroachment and from interfering in any manner with the water levels. After issue was joined, plaintiffs moved to have certain issues of fact settled for a jury trial. Special Term denied the motion but the Appellate Division reversed and granted it, then allowed an appeal to this court, certifying to us a question as to whether plaintiffs are “ entitled as a matter of law to have the issues of fact in this case determined by the jury.”

Plaintiffs insist that theirs is an “ action for a nuisance ” (Real Property Law, § 529; Hudson v. Caryl, 44 N. Y. 553), in which there is a right to a trial by jury. (Civ. Prac. Act, § 425.) Defendants, pointing to the prayers for declaratory and injunctive relief in the complaint, take the position that the suit is one in equity, and urge that there is, accordingly, no right to a jury trial. (See Cogswell v. N. Y., N. H., etc., 105 N. Y. 319.)

Whether the action be one “ for a nuisance ” or one in equity because of the demands for equitable relief, there is no right to have separate fact issues framed or settled for a jury trial. The only statute under which a party may demand that form of jury trial is section 429 of the Civil Practice Act, which statute does not include within its coverage either actions “ for a nuisance ” or equitable actions for injunctions.

' Since plaintiffs were not entitled as of right to the framing of issues, the question of a waiver by plaintiffs of the alleged right thereto does not arise.

The order of the Appellate Division should be reversed and that of the Special Term affirmed, with costs in this court and in the Appellate Division and the certified question answered in the negative.

Lehman, Ch. J., Loughban, Rippey, Lewis, Conway, Desmond and Thaoheb, JJ. concur.

Ordered accordingly.


author: Lehman, Ch. J.

text:
    Chelrob, Inc., et al., Suing on Their Own Behalf and on Behalf of All Other Stockholders of Queens Borough Gas & Electric Company, Similarly Situated, Appellants, v. Edward F. Barrett et al., Respondents, et al., Defendants.
    Argued October 20, 1943;
    decided October 20, 1944.

      Milton Paulson, Abraham L. Pomerantz, Harry, Tabershaw, Robert G. Richter, Joseph A. Rushay and Edwin V. Hellawell for appellants.-
    I. The Appellate Division improperly reversed Special Term’s finding of domination, which was amply supported by the evidence. As dominant stockholder, Long Island owed Queens the fiduciary duty to deal fairly with it. (Matter of Long Beach Gas Co., Inc., v. Maltbie, 264 App. Div. 496; Southern Pacific Co. v. Bogert, 250 U. S. 483; Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; Farmers L. & T. Co.
      v. N. Y. & N. R. Co., 150 N. Y. 410; Sage v. Culver, 147 N. Y. 241; Pepper v. Litton, 308 U. S. 295 ; Pollitz v. Wabash R. R. Co., 207 N. Y. 113; Nesbit v. Lockman, 34 N. Y. 167; Meeker v. Winthrop Iron Co., 17 F. 48.) II. The judgment of Special Term was inadequate in failing to reimburse Queens the true cost of the gas sold to Nassau. (White v. Rankin, 18 App Div. 293, 162 N. Y. 662.) III. Queens is entitled to judgment jointly against Nassau, Long Island and the directors of Queens. (Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; Gallin v. National City Bank of New York, 155 Misc. 880.)

      Charles G. Blakeslee, John J. Donohue, John C. Bruckmann and Charles E. Elbert for Long Island Lighting Company, respondent.
    I. The boards of directors of Nassau and Queens had power to enter into contracts providing for intercompany sales and purchases of gas. . In the absence of fraud or collusion, the court may not interfere with the free exercise of this power or change the terms of such contracts. (Pollitz v. Wabash R. R. Co., 207 N. Y. 113; Winter v. Anderson, 242 App. Div. 430; Cleary v. Higley, 154 Misc. 158, 246 App. Div. 698, 270 N. Y. 673; Rous v. Carlisle, 261 App. Div. 432; Marony v. Applegate, 266 App. Div. 412; City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62; Liebman v. Auto Strop Co., 241 N. Y. 427; Holmes v. Saint Joseph Lead Co., 84 Misc. 278, 163 App. Div. 885.) II. The Appellate Division properly reversed Special Term’s finding that Long Island dominated Nassau and Queens. (Burden v. Burden, 159 N. Y. 287; Continental Ins. Co. v. N. Y. & H. R. R. Co., 187 N. Y. 225; Venner v. New York Central & H. R. R. Co., 160 App. Div. 127, 217 N. Y. 615; Manson v. Curtis, 223 N. Y. 313; Continental Securities Co. v. Belmont, 206 N. Y. 7; Pollitz v. Wabash R. R. Co., 207 N. Y. 113; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97; Winter v. Anderson, 242 App. Div. 430.) III. The record establishes, and the Appellate Division properly found, that the contracts made were fair and just. (Farmers L. & T. Co. v. N. Y. & N. R. Co., 150 N. Y. 410; Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; Southern Pacific Co. v. Bogert, 250 U. S. 483; Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493; City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62.) IV. Queens sustained no loss as the result of selling gas to Nassau at the prices fixed by contract. (In re Atlanta Gas Light Co., P. U. R. 1931-E 461; Hassett v. Rathbone, 204 App. Div. 229; Cohen v. Long Island Railroad Co., 154 App. Div. 603; Young v. Valentine, 177 N. Y. 347; Morley v. Castor, 63 App. Div. 38; Skinner & Eddy Corp. v. United States, 249 U. S. 557; Interstate Comm. Comm. v. Chicago G. W. Ry., 209 U. S. 108.)

      Jackson A. Dykman and Edward J. Crummey for Nassau & Suffolk Lighting Company, respondent.
    I. Voting control creates no absolute liability. (Hoyt v. Thompson’s Executor, 19 N. Y. 207; Beveridge v. N. Y. E. R. Co., 112 N. Y. 1; City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97; Weinberger v. Quinn, 264 App. Div. 405, 290 N. Y. 635; O’Connor v. Virginia Passenger & Power Co., 184 N. Y. 46; Gerdes v. Reynolds, 281 N. Y. 180; New York State Electric & Gas Corp. v. Maltbie, 147 Misc. 560; Prentis v. Atlantic Coast Line, 211 U. S. 210; Prendergast v. N. Y. Tel. Co., 262 U. S. 43; Peoples ex rel. D. & H. Co. v. Stevens, 197 N. Y. 1; Matter of Rochester Gas & Electric Corp. v. Maltbie, 258 App. Div. 682, 284 N. Y. 626; Gamble v. Q. C. W. Co. et al., 123 N. Y. 91.) II. The same test is applied to acts of directors and majority stockholders in their dealings on behalf of a corporation. (Gamble v. Q. C. W. Co. et al., 123 N. Y. 91; Rous v. Carlisle, 261 App. Div. 432, 290 N. Y. 869; Venner v. New York Central & H. R. R. Co., 160 App. Div. 127, 217 N. Y. 615; Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185; City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62; Everett v. Phillips, 288 N. Y. 227; Kovarsky v. Brooklyn Union Gas Company, 253 App. Div. 635, 279 N. Y. 304.) III. Queens sustained no loss as the result of the sale of gas to Nassau. (City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62; Marony v. Applegate, 266 App. Div. 412.) IV. There is no evidence of domination. (Venner v. New York Central & H. R. R. Co., 160 App. Div. 127, 217 N. Y. 615.) V. Appellants’ assertion that the judgment of the trial court was inadequate is erroneous in law and fact. (White v. Rankin, 18 App. Div. 293, 162 N. Y. 622; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97.)

      Stephen Callaghan, Ralph Stout and Thomas A. Gaffney for Ellis L. Phillips and others, respondents.
    Plaintiffs failed to establish any cause of action. (Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97; Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493; City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62; Winter v. Anderson, 242 App. Div. 430; Holmes v. Saint Joseph Lead Co., 84 Misc. 278, 163 App. Div. 885; Everett v. Phillips, 288 N. Y. 227; Continental Ins. Co. v. N. Y. & H. R. R. Co, 187 N. Y. 225; Marony v. Applegate, 266 App. Div. 412; Weinberger v. Quinn, 264 App. Div. 401, 290 N. Y. 635; Gamble v. Q. C. W. Co. et al., 123 N. Y. 91.)

      Charles G. Blakeslee for Edward F. Barrett and others, respondents.

      Philip Huntington for F. H. Maidment, respondent.
    The record herein does not present any basis in fact or in law for imposing the contingent liability provided for in the judgment, as originally made and entered herein, upon any of the directors individually.
   Lehman, Ch. J.

The defendant corporations, Long Island Lighting Company, Queens Borough ’Gas & Electric Company and Nassau & Suffolk Lighting Company, are public utility companies organized under the laws of the State of New York, serving sections of Long Island. Prior to 1927 Long Island Lighting Company (hereinafter referred to as “ Long Island ”) acquired the common or voting stock of Queens Borough Gas & Electric Company (hereinafter referred to as “ Queens ”). Six per cent cumulative preferred stock of Queens of the par value of $6,686,000 remains in the hands of the public. In 1927, Queens acquired the common or voting stock of Nassau & Suffolk Lighting Company (hereinafter referred to as “Nassau”). Seven per cent cumulative preferred stock of Nassau of the par value of $2,726,200 remains in the hands of the public. In 1928 Queens expanded its production plant and transmission facilities to enable it to sell gas to Nassau. Since that time Nassau has purchased from Queens a substantial part of the gas it furnishes to consumers within the territory it serves and in addition has purchased from Queens gas which it resold to Long Island. The price of the gas sold by Queens to Nassau was fixed by the directors of the two corporations. All of them had been elected by Long Island, which directly or indirectly held the voting stock of both corporations. Dividends on the preferred stock of Queens have been in arrears since 1937 and several holders of preferred stock of Queens, claiming that the price paid to Queens by Nassau was unreasonable and caused a loss to Queens, brought actions against the corporate and individual defendants for an accounting of the resulting profits which the defendants may have obtained and the losses which Queens suffered.

The actions were consolidated and, pursuant to the provisions of section 96-a of the Civil Practice Act, the consolidated action was tried together with an action brought by preferred stockholders of Nassau who claimed that Long Island had compelled Nassau to sell to it for an inadequate and unfair price some of the gas which Nassau had purchased from Queens (Espach v. Nassau & Suffolk Lighting Co., 293 N. Y. 463, decided herewith in separate opinion). Mr. Justice McGarey at Special Term (177 Misc. 521) held that Long Island dominated both Queens and Nassau and that the price fixed by the directors of these companies for gas purchased by Nassau from Queens was inadequate and caused loss to Queens, and granted judgment in favor of Queens against Long Island and Nassau in the sum of $387,020, as an additional price for gas supplied after 1934, with interest at the rate of 2%. Any cause of action for additional compensation for gas furnished prior to that date, he held, was barred by the Statute of Limitations. The judgment directs that “ as between Nassau and Suffolk Lighting Company and Long Island Lighting Company, said judgment shall be paid by Nassau and Suffolk Lighting Company ”. The complaints against the individual defendants were “ dismissed upon the merits * * * without costs to any party as against any other party and without prejudice to the bringing of an action against the defendant directors in the event that this judgment is not paid”.

All parties appealed to the Appellate Division. The plaintiffs acquiesced in the ruling that the six-year Statute of Limitations applied but claim that the judgment in their favor based on alleged wrongs since 1934 is inadequate. The defendants claim that the directors acted honestly and carefully, seeking in good faith to promote the interests of both corporations, and that the price fixed by them was fair. The Appellate Division unanimously reversed on the law and the facts the judgment in favor of the plaintiffs and directed judgment dismissing the complaint on the merits against all the defendants. It expressly reversed some of the findings of the Justice at Special Term and found many of the findings proposed by the defendants. It did not reverse some significant findings of the trial court. ,

Long Island acquired all the voting stock of Queens and indirectly of Nassau with the written consent and approval of the Public Service Commission of the State. The defendant Ellis L. Phillips and a small group of associates owned and controlled, directly or indirectly, a substantial majority of the voting stock of Long Island. By voting that stock they elected the directors of Long Island who, in turn, chose the directors of Queens and of Nassau. A majority of the directors of Queens and of Nassau were at all times also directors and, in some cases, were paid officers or employees of Long Island and some of the directors of Nassau were also directors of Queens. The three corporations maintained their separate corporate form and conducted their business as separate corporate entities. So long as preferred stock of Queens and of Nassau was outstanding the corporations could not be merged. Nevertheless the three corporations were operated through their interlocking directorate as parts of a single system. Such operation is not forbidden by law or unjust to any. of the corporations in the system if the interests of each corporation are zealously safeguarded by its own board of directors. Indeed, such operation may be more economical and efficient and may benefit the public and all the corporations. We may perhaps assume that otherwise the Public Service Commission would not have given its consent and approval to the acquisition by Long Island of the voting stock of the other corporations.

Nonetheless, the directors of each corporation — though all elected by Long Island — may authorize corporate action by the corporation which they represent only if in their considered opinion such action will promote the best interests of that corporation and is fair to it. That is a fiduciary obligation to the corporation and indirectly to its stockholders and creditors which its directors have assumed. In the operation of separate utility corporations as a single system, agreement must be reached by the directors of the separate corporations in regard to the share of each corporation in such operation and the compensation to be paid by one to the other. The compensation to be paid for benefits received is ordinarily fixed by negotiation or bargaining, but where in negotiations between two corporations the same men represent both, their determinations are subject to judicial scrutiny. In this case we are confronted with the question of what relief may be afforded when such determinations are predicated upon mistake of fact entering into the fixation of the price to be paid by one corporation to the other. The plaintiffs challenge, on that and other grounds, the agreement reached by the boards of directors of Queens and of Nassau. Under its terms Nassau purchases gas from Queens at a price which it is said causes a loss to Queens. The plaintiffs charge that in making the challenged agreement the interests of Queens were disregarded by its directors acting under the domination of Long Island and for the benefit of Long Island and Nassau, rather than of Queens.

Most of the charges of flagrant wrong contained in the complaint were abandoned by the plaintiffs and the Trial Justice found against the plaintiffs in regard to some other charges. These findings were not reversed by the Appellate Division and are sustained by the evidence. The Trial Justice refused to find that the directors had acted wrongfully but did find in favor of the plaintiffs that the price fixed by these directors was unfair to Queens and caused a loss to it. Upon the basis of that finding he concluded that Queens must now receive the difference between the agreed price for the gas it furnished to Nassau and the price which Nassau should have been required to pay. The Appellate Division has held that the price was determined by the directors of the two corporations acting honestly and carefully and that the court may not set aside a price so fixed even if it be the result of bad judgment.or error and that the price fixed in this case was not unfair and caused no loss to Queens.

Before 1927 when Queens acquired the common stock of Nassau, Nassau made, at its own plant, the gas which it supplied-to consumers within the territory it served and, in addition, gas which it sold to Long Beach Gas Company and to Public Service Corporation of Long Island, utility corporations operating in contiguous territory and controlled by the same group which at that time owned the common stock of Nassau. When Queens acquired the common stock of Nassau it also acquired the common stock of Long Beach, and Long Island then acquired the common stock of Public Service Corporation. Thus, the three affiliated corporations which had obtained gas from the Nassau plant became parts of the same system or group of utility corporations as Queens, all under the stock control of Long Island. The plant owned by Nassau had no access to water where delivery of materials could be made and it could not be operated economically and efficiently unless extended and improved. It could supply the gas needed by Nassau as well as the two affiliated corporations to which Nassau had supplied gas only if it operated with three shifts a day. Queens, on the other hand, owned a plant which could be operated very efficiently and economically. Materials for making gas were delivered at the plant by water and were handled automatically. It produced gas at a low cost — below the average production cost of Nassau. The plant of Queens had a capacity greater than the needs of Queens and its facilities could be extended sufficiently to supply to Nassau the gas required by it and the gas which Nassau had supplied to affiliated corporations. Under these circumstances, commencing in 1928, Nassau reduced the production of gas at its plant and since then has purchased from Queens a substantial part of the gas required by it for distribution to consumers within the territory it served and for resale to Long Island or to Public Service of Long Island.

Gas mains interconnecting the utility corporations were constructed in order to carry out this arrangement. Expenditures were also made by Queens to increase and improve the production and distributing facilities of its plant. The evidence established and the courts below have found that: “ The con-, struction of gas mains and the resulting interconnection of the distribution system of the said utility corporations constituted good sound business policy on the part of the respective companies, and said interconnections insured each company of a supply in the case of any emergency, and thereby benefited the general consumers and each of the respective utilities herein.” The gas supplied by Queens to Nassau and in part resold by Nassau to Long Island was produced at the plant which' could make it at the smallest cost and any agreement by which Nassau and Long Island could obtain gas from Queens at a price lower than either of them could produce gas or obtain it from others and higher than the average cost to Queens of producing and supplying gas would, it is plain, benefit both. By the findings of fact of the court at Special Term, sustained by the weight of the evidence and approved by the Appellate Division, the controversy between the parties to this litigation is reduced to the question whether the price fixed by the directors of the purchasing and selling corporations was fair to each and benefited each.

In 1928 when the intercompany purchases and sales began, both Queens and Nassau had earnings far in excess of the amount required to pay dividends on their outstanding preferred stock and since Long Island owned all the common stock of Queens and Queens owned all the common stock of Nassau, the balance of the earnings of- both companies, after payment of the preferred stock dividends, eventually reached the treasury of Long Island. In these circumstances it made little, if any, practical difference to anybody whether the intercompany price was too high or too low. What was important was that all the companies in the system should be efficiently and honestly operated and the record does not show that any of the directors selected for the companies in the system by' Long Island or by the group which had voting control of Long Island were remiss in the performance of their duties in that respect, and the courts below agreed that there was no dereliction on their part.

Since the profits-of all the corporations —with the exception of the small amount paid out as dividends on the preferred stock, ultimately came into the treasury of Long Island and Long Island elected all of the directors of these corporations, including some who were paid officers of Long Island — the employment of completely independent engineering and legal staffs might have been wasteful. As might be expected, engineers selected for their ability by Long Island, at times give advice and assistance to all the companies in the system and there is only one legal department for all the corporations in the system. Where the interests of companies in the system might conflict, the general legal department advises both by assigning one of the attorneys in the department to each side. The joint use of competent expert advisers and professional staffs is doubtless entirely justifiable. We do not refer to it as an indication that any corporation has suffered a wrong. It is, however, a circumstance which may not be overlooked in considering whether the agreement by Queens to supply gas to Nassau for the stipulated price may be challenged by minority stockholders of Queens.

The evidence shows and the courts below have found that engineers retained by Long Island or by the defendant Ellis L. Phillips, its president, who was a director of Long Island and of both Nassau and Queens, made studies of the comparative cost of producing gas at the plants of Queens and of Nassau, of the possibility of enlarging and improving both plants or either, and of the comparative advantages to each corporation of obtaining gas for its own requirements from its own plant or of utilizing the most efficient plant of any company to supply gas to all companies. We shall hereafter refer to the contents of these reports. At this point it is sufficient to say that the evidence establishes, as both courts below agree, that the experts "who made these studies were men of ability and integrity.

Upon that evidence the court at Special Term.found, and the Appellate Division approved the finding, that “ the price at which said gas was sold as set forth in the said contracts was arrived at by study of the physical and operating situation by competent engineers and those experienced in the operation of gas utilities, and the said prices in said contracts were determined after consideration by the boards of directors of said corporations, and that reports recommending the prices at which gas should be sold, as aforesaid, were prepared by competent engineers and fully discussed and considered, and the provisions of said contracts were thoroughly discussed by the officers and directors of said corporations, and contracts for the sale of gas, as aforesaid, were made after an investigation and discussion of the prices to be charged for gas, as stated in said contracts, and that none of the directors of said corporations was guilty of fraud, bad faith or overreaching, in negotiating the said contracts.” The defendants had proposed a finding in exactly this language except that the proposed finding stated that the prices were determined after “ careful ” consideration by the directors and the contracts were made after' a “ full and complete investigation and discussion. The Appellate Division in its order of reversal made and allowed the finding as proposed by the defendants, thus restoring the words excised by the Justice at Special Term.

In. the reports of the engineers which the directors considered and studied in fixing the price which Nassau should pay for gas supplied by Queens, the price which the engineers recommended was determined by them upon a formula whereby the cost of the labor ancl material used in the production of all the gas made at Queens was allocated pro rata to the gas supplied by Queens to consumers within the territory it served and the gas sold to Nassau, so that Nassau paid to Queens the average “ direct ” or “ commodity production cost ” of supplying the gas, but the “ indirect ” cost of supplying gas, that is, such expenses as taxes, insurance, pumping, as well as interest on investments, was allocated on the increment cost ” method, and Nassau paid to Queens only the additional cost which Queens incurred in producing the additional gas supplied to Nassau. Since Queens owned a plant with capacity beyond the needs of Queens, the average cost of labor and material required for the production of the additional amount of gas was lower than the average cost of producing only the amount required by Queens to supply gas to general consumers and was, of course, lower than the average cost of producing gas at the less efficient plant of Nassau; and since Nassau was required to pay to Queens the “ average commodity production cost ” of gas and the additional 11 indirect ” expenses incurred by Queens in supplying the additional gas, it is plain that both companies would benefit to some extent by the purchase and sale of gas at a price fixed in accordance with that formula. For that reason the court at Special Term held that the price thus fixed and paid until 1936 was not unfair to Queens and should not be set aside by the court though errors in applying the formula should be corrected by the court.

The plaintiffs do not contend that a price fixed in accordance with that formula would cause loss to Queens or would in all circumstances be unfair to that company. In 1938 the price paid by Nassau was, however, reduced. At that time the defendant Maidment, the holder of a considerable ¡amount of preferred stock "of Nassau and a director, member of the price committee, and vice-president of that corporation, insisted that the price paid to Queens for gas supplied by it must be reduced or Nassau would proceed to enlarge its plant and itself produce the gas it needed. Maidment was not a director of Queens. Nassau had not bound itself by contract to continue to purchase gas from Queens for a definite term. Though the expenditures by Queens for the extension and improvement of its plant and transmission system without insisting upon such a contract with Nassau might well have been criticised as ill-advised if Nassau had been an entirely independent corporation dealing with Queens at arm’s length and able to procure the gas it needed either from a competitive producer or by manufacting it in its own plant, yet Maidment as a director of Nassau who had assumed no fiduciary obligation to Queens was justified in demanding that no higher price be exacted from Nassau for gas supplied by Queens than the cost at which Nassau could obtain the gas elsewhere. The directors of Queens could not, however, accept from Nassau a price which would not be fair to it.

In a finding approved by the Appellate Division the trial court has stated the limits of what may constitute a fair price; * ‘ 64. That a fair price to be charged for the gas sold, as aforesaid, falls within certain limits. To the selling company it is the additional cost to the seller, including additional operating expense incurred by the seller and fixed charges on additional plants installed for the purpose of making the transfer over and above the cost of the operating expenses and fixed charges on plants which would be incurred by the seller if the sale of gas were not made; and to the buying company the maximum reasonable price would be the competitive additional cost at which the buying company could secure the quantity of gas transferred either by manufacturing it itself in its own facilities, or by purchasing it from some alternative source, and this additional competitive cost of the buying company is the limit beyond which the purchasing company would not be justified in buying the gas and the price beyond which it could not be justified in paying.”

The general rule so formulated is not challenged upon this appeal. When objection was made to the price of gas which Nassau was then paying to Queens and to the formula upon which that price had been calculated in reports of engineers submitted to Queens and to Nassau, Mr. Phillips, president of Long Island, directed engineers to make new studies of the price which Nassau should thereafter pay to Queens. In their report, they recommended a price based upon the engineers’ estimate of the cost to Nassau of enlarging its facilities and itself producing the gas. The report was submitted to Mr. Phillips and considered and approved bjr the board of directors of Long Island at a meeting in which many of the directors of Queens and Nassau took part. Then the same directors took part in meetings of the boards of directors of Queens and of Nassau, and the same report was approved at these meetings also and the price fixed accordingly.

The evidence establishes, and the trial court has made a finding not reversed by the Appellate Division, that: 11 19. During all of the time that Queens Borough Gas & Electric Company has been selling and delivering gas to Nassau & Suffolk Lighting Company, there have been restrictions to the expansion of Nassau & Suffolk Lighting Company’s production plant, which limited further expansion.” That finding completely destroys the basis of the report of the engineers upon which the directors of Queens and Nassau acted in fixing the price. A fair price which Queens should receive for the gas it sells to Nassau cannot be based upon an estimate of the hypothetical cost of expanding the plant belonging to Nassau and of producing there the gas required by Nassau where further expansion is not feasible. It is true that the Trial Justice also found that Nassau “ was in a'position, in the opinion of its officers and directors to have enlarged its gas manufacturing plant located at Hempstead-Garden City and to have increased the capacity of that plant to an extent suficient to supply all of its gas requirements, including gas sold to Long Island Lighting Company.” We need not pause to consider whether upon this record the directors of Nassau could have been of the opinion that it was “ in a position * * * to have enlarged its plant ” if they had made any investigation. We may assume arguendo that the directors in good faith were of that opinion. It does not appear that in fact Nassau could have procured gas from a source other than Queens at or near the price which Nassau had theretofore paid. The defendants maintain, nevertheless, that the price so fixed was a fair price because it was not less than the price which might have been fixed by using what is known Jas the increment cost formula ”, The testimony of the expert witnesses produced by the defendants that the price fixed is not less than the price would have been if calculated by the ‘ ‘ increment cost ’ ’ method is persuasive and was for the most part accepted by both courts below, but there is no credible evidence that a price fixed by that method would be fair to Queens.

Queens could operate its plant' to full capacity if Nassau agreed to buy gas produced there in excess of the amount required by Queens to supply consumers within the territory served by Queens. The average cost of gas when the plant is operated to its full capacity is lower than the average cost of gas when the plant produces gas only sufficient to, meet the requirements of Queens as an independent utility corporation. A price for the excess gas fixed in accordance with the increment cost ” formula, even though less than the average cost of producing gas at the Queens plant, would, at least, reimburse Queens for the additional cost of producing such excess gas, and it is said that Queens suffered no loss and, in fact, made a profit by accepting the price so fixed. That is true only if Queens could continue to supply gas to consumers in the territory it served at a price not lower than it could have exacted if the average cost of production of gas at its plant had not been reduced by increased production.

Doubtless, at times, when increased production at a plant reduces the average cost, the producer suffers no loss if he obtains a market for the increased output by selling the incréase at a price which though less than the average cost is greater than the additional cost of producing such increase — but the producer must inevitably suffer a loss if he cannot sell the remainder at more than the average cost. The rate at which Queens may sell gas to consumers must be fair and must be approved by the Public Service Commission. The cost of the gas sold is a factor in determining the rate that may be charged. The trial court found that in fixing a fair rate which Queens might charge for gas supplied to consumers in its “ franchise territory ”, “ the general consumers should benefit to some extent, at least, from the savings resulting from the additional business ”, and that accordingly the average “ commodity production cost ” should be allocated both to the gas supplied by Queens to general consumers and to the gas produced as an additional service to Nassau, but that “ the increment cost method should apply to all the other elements applicable to such additional service ”. The Trial Justice indicated that in his opinion the record establishes that this method of combination of average commodity production cost and increment cost ” was used by Queens and by the Public Service Commission in calculating the rate which Queens might exact from general consumers in its franchise territory ”. If that be true then Queens would inevitably suffer a loss by selling part of the gas it produced at a price fixed by the increment cost ” method and the remainder at a price fixed by the “ average commodity production cost ” method or combination method, but the Appellate Division reversed findings in favor of the plaintiff in that regard and the defendants contend that there is no evidence in the record to support it.

Whether or not there is evidence in the record which would support a finding that the rate charged by Queens to general consumers was calculated by the average commodity production cost ” method, depends largely upon the construction placed upon language, possibly equivocal, used in colloquy at the trial. For the purposes of this appeal we accept the sense in which counsel for the defense understood these words. Even so it is plain that there is nothing in the record which could possibly justify an inference that Queens would be permitted to exact from general consumers a rate based on more than the average production or commodity cost of gas supplied from its plant. Extracts from the opinion of the Public Service Commission in the case of Freeport v. Nassau & S. Lighting Co., (P. U. R., 1924A, p. 96) read into the record upon the cross-examination of a witness, indicate that it is the rule or practice of the Commission to measure the rate which a public utility may charge to general consumers by the average production cost, and that in a case where the public utility can, at a smaller additional cost, produce additional gas to be supplied in bulk to a single customer, the benefit of the consequent reduction in average cost must be apportioned equitably to the general consumers and the customer purchasing the additional gas. Though that rule or practice is not a formal regulation, adopted and published by the Commission and constituting “ a public document or record which this court may consider ” (Matter of Ackerman v. Kern, 281 N. Y. 87, 94), yet we may certainly not assume that the' Public Service Commission would approve a rate measured by a different rule. One expert witness did, It is true, testify that during the years 1934 to 1940, inclusive, Queens made a profit of $53,000 upon its sales of gas to Nassau over and above an annual return of 6% on an average investment of more than $900,000. That is a conclusion drawn by the expert based upon his opinion as to the proper adjustments and deductions to be made from the gross profits in determining the amount of the net profit. To analyze this testimony and to point out the uncertain nature of some of the factors entering into the calculation would extend this opinion unduly. Even if accepted in its entirety it would still remain true that a profit of $53,000 in six years on so large a volume of business would hardly justify a board of directors in authorizing the capital investment required, with its consequent risk, particularly if Nassau could at any time terminate the contract and obtain its gas from another source.

A finding by a court of equity that a contract of sale authorized by a board of directors of " a corporation is ill advised or causes loss to a corporation would not by itself constitute ground for setting aside the contract and compelling the purchaser to pay a price which the court considers fair. "We have said that: “ As a general rule, courts have nothing to do with the internal management of business corporations. * * ■ * All questions within the scope of corporate powers which relate to the policy of administration, to the expediency of proposed measures, or to the consideration of contracts, provided it is not so grossly inadequate as to be evidence of fraud, are beyond the province of the courts. The minority directors or stockholders cannot come into court upon allegations of a want of judgment or lack of efficiency on the part of the majority and change the course of administration.” (Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493, 507.). Where directors act with undivided loyalty towards the corporation which they direct, their determination that a corporate course of action will promote the interest of the corporation is ordinarily not subject to review by the court, and “ errors of judgment by directors do not alone suffice to demonstrate lack of fidelity. That is true even though the errors may be so gross that they may demonstrate the unfitness of the directors to manage the corporate affairs.” (Everett v. Phillips, 288 N. Y. 227, 232.) The test in each case is whether corporate action is the result of the exercise by the directors of their unbiased judgment in determining that such action will promote the corporate interests. We apply that test here.

The directors of Queens intended to exercise an unbiased judgment and in good faith believed that the price fixed by them was fair. Their good faith is established by persuasive evidence and by the findings of the trial court approved by the Appellate Division. So, too, is the fact that the price was fixed after the directors had considered and discussed reports, in regard to the price at which gas should be sold, made by competent engineers and operating experts. But in this case the determination of directors is open to limited review in the courts because neither they nor the experts who prepared the reports were in a position where their loyalty to the interests of Queens was undivided.

We repeat that the directors were elected by Long Island, which owned directly or indirectly the common stock of both Queens and Nassau. A majority of the directors of each corporation were directors of Long Island and several were directors of all three corporations. We are told that though Long Island elected the directors of Queens and of Nassau, it did not usurp the functions of the directors and dominate and control their actions; but concededly all the corporations were operated as part of a “ system ” and corporate actions of the separate corporations dictated by directors elected by Long Island would inevitably be influenced by that fact. The directors acted upon the advice of experts retained by the system and often after the board of directors of Long Island had approved a proposed policy. That Long Island selected for the position of director men of ability and integrity and that no officer of Long Island dictated to them what action they should take as directors, does not destroy the significance of these- facts. They require the most careful scrutiny of transactions between the corporations represented by common directors, to the end that in the absence of arm’s length bargaining the scales may not, even through mistake or inadvertence, be unfairly tipped to one side or the other. Though Long Island in acquiring such control, and even in its exercise within limits imposed by equitable rules, commits no wrong and incurs no liability to Queens, yet where those limits are transgressed to the detriment of Queens, Long Island becomes liable for the consequent damages to Queens and must account for consequent profits to itself. Power of control carries with it a trust or duty to exercise that power faithfully to promote the corporate interests, and the courts of this State will insist upon scrupulous performance of that duty. ’ ’ (Everett v. Phillips, supra, p. 232.) Liability arises not from the power of control, but from breach of the duty which accompanies it. (Blaustein v. Pan American Petroleum & Transport Co., 293 N. Y. 281.) Here it must be conceded that Long Island and the directors of Queens and of Nassau elected by Long Island sought no personal benefit from the transaction and did not intend to act unfairly towards Queens, and perhaps Long Island obtained no substantial benefit from the inadequacy of the price fixed for gas sold by Queens to Nassau, but the transaction is subjected to judicial scrutiny because the price was fixed by corporate boards having common directors elected by Long Island and these directors had been placed in a position of divided loyalty.

The rule that must be applied in such a situation has been stated by the Supreme Court of the United States. “ The relation of directors to corporations is of such a fiduciary nature that transactions between boards having common members are regarded as jealously by the law as are personal dealings between a director and- his corporation, and where the fairness of such transactions is challenged the burden is upon those who would maintain them to show their entire fairness and where a sale is involved the full adequacy of the consideration. Especially is this true where a common director is dominating in influence or in character. This court has been consistently emphatic in the application of this rule, which, it has declared, is founded in soundest morality, and we now add in the soundest business policy.” (Geddes v. Anaconda Mining Co., 254 U. S. 590, 599.) Though the dual position of the directors does not itself render such transactions void, it does make “ the unprejudiced exercise of judgment by them more difficult ” and “ should lead the courts to scrutinize these transactions with care.” (Everett v. Phillips, supra, p. 236.)

The transaction in this case will not bear that scrutiny. The price was fixed upon the basis of reports made by engineers retained by the “ system ” and these reports are based upon the assumption — which the courts below have agreed is erroneous ■ — that Nassau could expand its plant and manufacture gas for the price it paid to Queens. This erroneous assumption having been accepted as justification of an inadequate price, we cannot doubt that in equity the fixing of a fair price may be required. The defendants have failed to show that the price fixed would not cause a loss to Queens. At best it would make a profit unreasonably small in relation to the volume of the business, the investment of capital and the attendant risk. The proof is insufficient to show justification for the abandonment of the average production cost ” method in calculating the price of gas sold by Queens to Nassau, and the trial court did not err in setting aside the price fixed in 1936 by the increment cost ” method. The Public Service Law (§ 110, subds. 3, 4) confers upon the Public Service Commission jurisdiction to determine whether such an intercompany contract of sale is not in the public interest,” but it does not divest the courts of jurisdiction to determine that it should be set aside' on equitable grounds. Since the directors acted in good faith and upon studies prepared by competent engineers, judgment on the merits dismissing the complaint against them is proper.

The question remains whether the trial court’s calculation by the average production cost ” method of the price which Nassau should pay is correct. Both sides claim errors there. The controversy involves in large part matters of fact. The Appellate Division, holding that the trial court was not justified in setting aside the price fixed by the directors, has not reviewed the correctness of the calculation of a different price by the trial court. The case should he remitted to it for that purpose.

The judgment of the Appellate Division dismissing the complaint against the Long Island Lighting Company and Nassau & Suffolk Lighting Company should he reversed, with costs to appellants, and the matter remitted to the Appellate Division. The judgment of the Appellate Division dismissing the complaint against the individual defendants should be affirmed, with costs. (See 293 N. Y. 859.)

Loughran, Rippey, Lewis, Conway, Desmond and Thacher,

JJ., concur.

Judgment accordingly. '


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    Margaret Espach et al., Appellants, et al., Suing on Their Own Behalf as Stockholders and for the Benefit of All Other Stockholders of the Nassau & Suffolk Lighting Company Similarly Situated, Plaintiffs, v. Nassau & Suffolk Lighting Company et al., Respondents.
    Argued October 20, 1943;
    decided October 20, 1944.

      Percival E. Jackson, C. Walter Randall and Milton Pinkus for appellants.
    I. Long Island Lighting must account for purchases from its subsidiary by the standards adopted and employed by the corporations in dealing between themselves. Errors and omissions in computing the price may not be justified or condoned by refuge in some different standard. (City Bank F. T. Co. v. Hewitt Realty Co., 257 N. Y. 62; Pollitz v. Wabash R. R. Co., 207 N. Y. 113; Gamble v. Q. C. W. Co. et al., 123 N. Y. 91; Hopwood Plays, Inc., v. Kemper, 263 N. Y. 380; Holtz v. Schmidt et al., 59 N. Y. 253; Winkelman v. General Motors Corporation, 44 F. Supp. 960; Gallin v. National City Bank of New York, 152 Misc. 679, 155 Misc. 880; Consolidated Fruit Jar Co. v. Wisner, 103 App. Div. 453; Gutchess v. Daniels et al., 49 N. Y. 605.) II. The increment cost method is not a proper means of determining a fair price and in no event was it available in passing upon that issue' as between Nassau & Suffolk and Long Island Lighting. (Dayton P. & L. Co. v. Comm’n, 292 U. S. 290; Nor. Pac. Ry. Co. v. North Dakota, 236 U. S. 585; Banton v. Belt Line Ry., 268 U. S. 413; Re N. Y. State Elec. & Gas Corp., 6 P. U. R. [N. S.] 113.) III. The corporate opportunity doctrine would have prevented Long Island Lighting from appropriating the gas on an increment cost basis. (Guth v. Loft, Inc., 5 A. 2d 503; Blake v. Buffalo Creek R. R. Co., 56 N. Y. 485; Red Top Cab Co. v. Hanchett, 48 F. 2d 236; Irving Trust Co. v. Deutsch, 73 F. 2d 121.) IV. The errors and omissions in computation resulted in a loss to the subsidiary and a profit to the parent for which no accounting has been made. (Wheeler v. Abilene Nat. Bank Co., 159 F. 391.) V. The dismissal as to defendant directors was error. (Kavanaugh v. Commonwealth Trust Co., 223 N. Y. 103; Manson
      v. Curtis, 223 N. Y. 313; German American Coffee Co. v. Diehl, 86 Misc. 547, 168 App. Div. 913; Saunders et al. v. Reilly, 105 N. Y. 12.)

      Stephen Callaghan, Ralph Stout and Thomas A. Gaffney for Ellis L. Phillips and others, respondents.
    Plaintiffs made out no cause of action against the defendants. (Gamble v. Q. C. W. Co. et al., 123 N. Y. 91; Blaustein v. Pan American Petroleum & Transport Co., 263 App. Div. 97; Levy v. American Beverage Corp., 265 App. Div. 208; Weinberger v. Quinn, 264 App. Div. 405, 290 N. Y. 635; Marony v. Applegate, 266 App. Div. 412.)

      Charles G. Blakeslee, John J. Donohue, John C. Bruckmann and Charles E. Elbert for Long Island Lighting Company, respondent.
    I. Nassau & Suffolk made a large profit in selling gas to Long Island. II. Long Island always paid a fair market price for gas purchased from Nassau & Suffolk. (Hine v. Lausterer, 257 N. Y. 523; Weed v. Lyons Petroleum Co., 294 F. 725, 300 F. 1005.) III. It would have been illegal and unlawful to have established higher prices for gas sold by Nassau & Suffolk to Long Island than those fixed by contract. (Re Queens Borough Gas & Electric Company, 39 P. U. R. [N. S.] 65; Berkey v. Third Avenue Railway Co., 244 N. Y. 84; Purcell v. New York Central R. R. Co., 268 N. Y. 164; Murphy v. N. Y. C. R. R. Co., 225 N. Y. 548; Adler v. Chicago & Southern Air Lines, 41 F. Supp. 366; Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204 U. S. 426; Balt. & Ohio R. R. v. Pitcairn Coal Co., 215 U. S. 481; New York Telephone Co. v. Maltbie, 291 U. S. 645.)
   Lehman, Ch. J.

In the case of Chelrob, Inc., v. Barrett (293 N. Y. 442) decided herewith, holders of preferred stock of Queens Borough Gas & Electric Company (hereinafter referred to as “ Queens ”) challenged the fairness and adequacy of the price which Nassau & Suffolk Lighting Co. (hereinafter referred to as “ Nassau ”) paid to Queens for gas manufactured by Queens and sold to Nassau. Nassau resold to Public Service Corporation of Long Island and to Long Island Lighting Company part of the gas it bought from Queens. Preferred stockholders of Nassau have challenged in three actions thereafter consolidated, the fairness and adequacy of the price paid by Long Island for this gas. In our opinion in Chelrob, Inc., v. Barrett (decided herewith) we 'have discussed the relations of the three corporations and the influence and control which Long Island Lighting Company exercised over the other two.

In each case the price was fixed by boards of directors having common members — all selected by Long Island Lighting Company, but acting in good faith with a desire to promote the interests of each corporation concerned and fairly to both. In each case, too, the price was fixed after consideration of reports by competent engineers retained by Long Island Lighting Company. The price of the gas supplied by Queens to Nassau was set aside because the court found that it was inadequate and unfair to Queens. In the consolidated action challenging the fairness and adequacy of the price paid to Nassau for gas it supplied to Public Service Corporation of Long Island and to Long Island Lighting Company, the court found that “ each paid a fair market price for all gas purchased from Nassau & Suffolk Lighting Company, and by reason of said transactions Long Island Lighting’ Company made no improper profit. ’ ’ On that ground the court dismissed the complaint on the merits.

The finding in favor of the defendants was affirmed by the Appellate Division, and the plaintiffs do not seriously dispute that the evidence shows, that Nassau obtained substantial benefit from the transaction. They contend, however, that the price fixed by the directors was based upon erroneous calculations made by engineers and that if the price had been accurately calculated, the price would have been higher and the profit to Nassau greater. Whatever may have been the method by which the price fixed by the directors was calculated, and whatever errors may have entered into the calculations, it still remains true that Nassau made a substantial profit from the transaction and Long Island Lighting Company gained no unfair advantage. That is the test which must be ¡applied in a case like this, where the common directors acted honestly, seeking to arrive at a fair price, and both corporations benefited by the transaction. The plaintiffs, we assume, showed that in fixing the price the defendants had a fiduciary duty to Nassau to seek to promote its interests. They have not shown a breach of that duty or detriment to Nassau.

The judgment should be affirmed, with costs. (See 293 N. Y. 859.)

Loughran, Bipfey, Lewis, Conway, Desmond and Thacher, JJ., concur.

Judgment affirmed.


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    The People of the State of New York, Respondent, v. Vincent Keane, Appellant.
    Submitted October 12, 1944;
    decided November 22, 1944.

      Vincent Keane, appellant in person.
    The ordinance is invalid and unenforcible. (Vehicle & Traffic Law, § 54; City of Buffalo
      v. Lewis, 192 N. Y. 193; People v. Bedell, 251 N. Y. 415; People v. County of Westchester, 282 N. Y. 224; People v. Schrader, 172 Misc. 246; Great Atlantic & Pacific Tea Co. v. City of New York, 173 Misc. 470; People v. Marcello, 25 N. Y. S. 2d 533; Decker v. Goddard, 233 App. Div. 139; People v. President & Trustees of Village of Ossining, 238 App. Div. 684, 264 N. Y. 574; Gilsey Buildings, Inc., v. Village of Great Neck Plaza, 170 Misc. 945; Holroyd v. Town of Indian Lake, 180 N. Y. 318; Jewish Consumptives’ Relief Soc. v. Town of Woodbury, 230 App. Div. 228, 256 N. Y. 619; Matter of N. Y., W. & B. Ry. Co. v. Huntington, 193 N. Y. 72.)

      Edward J. Neary, District Attorney (Philip Huntington of counsel), for respondent.
    I. The town hoard had power to enact the ordinance in question. (Town Law, § 130, subd. 6; Matter of Jordan v. Smith, 137 Misc. 341, 254 N. Y. 585; Matter of O’Donnell v. Morrissey, 151 Misc. 315; People v. Propp, 172 Misc. 314; Berlenbach v. Bischoff, 137 Misc. 719, 231 App. Div. 734; People ex rel. B. P. Comm. v. Common Council, 229 N. Y. 1; Coykendall v. City of Kingston, 115 Misc 557; People v. Jones, 218 App. Div. 443.) II. The ordinance in question is not so “ inconsistent with law ” as to be void. (People v. President & Trustees of Village of Ossining, 238 App. Div. 684, 264 N. Y. 574; Chapman v. Selover, 172 App. Div. 858; People v. Rubin, 284 N. Y. 392.)
   Per Curiam.

The Town Law, section 130, subdivision 6 (now subd. 7), confers upon a town board a limited authority to restrict. parking on the .streets of the town. An ordinance enacted in conformity with the authority so conferred is not “ inconsistent with law because such authority had previously been expressly withheld from town boards by section 54 of the Vehicle and Traffic Law.

The judgment should be affirmed.

Lehman, Ch. J., Loughban, Rippey, Lewis, Conway, Desmond and Thachee, JJ., concur.

Judgment affirmed.