author: Jones, J. Gabrielli, J.

text:
    The People of the State of New York, Appellant, v Central Federal Savings and Loan Association of Nassau County et al., Respondents.
    Argued October 24, 1978;
    decided December 6, 1978

      POINTS OF COUNSEL

      Louis J. Lefkowitz, Attorney-General (Shirley Adelson Siegel and Samuel A. Hirshowitz of counsel), for appellant.
    I. Respondents admittedly did not include the commitment fee as "interest”. In so acting they violated valid regulations of the banking board, which had a rational basis and which the Legislature has confirmed by successive re-enactments of the statute without change. (Woodhouse, Drake & Carey v Anderson, 61 Misc 2d 951; Matter of Rubin v Levine, 41 NY2d 1024; Matter of Howard v Wyman, 28 NY2d 434; Bethlehem Steel Corp. v Board of Educ., 61 AD2d 147; Engle v Talarico, 33 NY2d 237.) II. The Attorney-General has standing to bring this action. (State of New York v Cortelle Corp., 38 NY2d 83; People v Allied Med. Clearing House, 55 Misc 2d 489, 29 AD2d 919, 21 NY2d 645; State of New York v Abortion Information Agency, 69 Misc 2d 825, 37 AD2d 142, 30 NY2d 779; Matter of La Belle Creole Int. S. A. v Attorney-General of State of N. Y, 10 NY2d 192; Matter of State of New York v Scottish-Amer. Assn., 52 App Div 528, 39 NY2d 1033; Matter of State of New York v Mohawk Arms, 83 Misc 2d 623; Matter of State of New York v Italian Line, 56 AD2d 533, 43 NY2d 851; Matter of People v Parker, 38 NY2d 743.) III. The State’s power to regulate interest rates charged by Federal savings and loan associations has not been pre-empted by the Federal Government. (Cooper v Baldwin-Bellmore Fed. Sav. & Loan Assn., 390 F Supp 874; New York Dept. of Social Servs. v Dublino,
      413 US 405; Automobile Workers v Wisconsin Bd., 336 US 245; Matter of Ochs v Washington Hgts. Fed. Sav. & Loan Assn., 17 NY2d 82.)

      Louis Lauer and Sol Neil Corbin for Central Federal Savings and Loan Association of Nassau County, respondent.
    I. The facts alleged in the complaint do not show any usurious rate of interest. (Bevier v Covell, 87 NY 50; Boston Rd. Shopping Center v Teachers Ins. & Annuity Assn. of Amer., 13 AD2d 106, 11 NY2d 831; TBS Enterprises v Dime Sav. Bank of N. Y., 55 AD2d 910; Clarke v Sheehan, 47 NY 188; Chambers & Co. v Equitable Life Assur. Soc. of U. S., 224 F2d 338; Orvis v Curtiss, 157 NY 657.) II. The Attorney-General cannot maintain this action under subdivision 12 of section 63 of the Executive Law. (Matter of State of New York v Italian Line, 56 AD2d 533, 43 NY2d 851; Matter of State of New York v Parkchester Apts. Co., 28 NY2d 842; Matter of State of New York v Parker, 30 NY2d 964; Matter of State of New York v Parker, 47 AD2d 611; Empire Nat. Bank v 27 Leonard St. Corp., 46 AD2d 194; Barrett v Conley, 35 Misc 2d 47; Williams v Tilt, 36 NY 319.) III. Under pre-emptive Federal law, the Attorney-General cannot maintain this action against a Federal savings and loan association. (Meyers v Beverly Hills Fed. Sav. & Loan Assn., 499 F2d 1145; Rettig v Arlington Hgts. Fed. Sav. & Loan Assn., 405 F Supp 819; California v Coast Fed. Sav. & Loan Assn., 98 F Supp 311; Murphy v Colonial Fed. Sav. & Loan Assn., 388 F2d 609; Kupiec v Republic Fed. Sav. & Loan Assn., 512 F2d 147; City Fed. Sav. & Loan Assn. v Crowley, 393 F Supp 644; Motor Coach Employees v Lockridge, 403 US 274, 404 US 874; Campbell v Hussey, 368 US 297; Pennsylvania v Nelson, 350 US 497; Rice v Santa Fe Elevator Corp., 331 US 218.) IV. The required showings have not been made for a preliminary injunction. (State of New York v Princess Prestige Co., 42 NY2d 104; State of New York v Cortelle Corp., 73 Misc 2d 352, 43 AD2d 668, 38 NY2d 83; Niagara Falls Power Co. v White, 292 NY 472; Foley v D'Agostino, 20 AD2d 770; Matter of Askinazi v Police Dept. of City of N. Y., 25 AD2d 429.)
   OPINION OF THE COURT

Jones, J.

A commitment fee paid by a developer to a lender to reserve funds for future mortgage loans to individual homeowners is not to be considered any part of the interest paid by the mortgagor for purposes of applying the usury statute.

The Attorney-General’s complaint alleges that in May, 1973 Central Federal Savings and Loan Association of Nassau County agreed with the sponsor-developer of a condominium housing project to reserve $7,500,000 from which to make future purchase-money mortgage loans to individuals to finance the acquisition of condominium units in the project. The developer paid Central Federal a fee of $150,000 for this commitment. Thereafter, it is alleged, Central Federal provided the contemplated financing to approximately 66 individual borrowers to enable them to purchase condominium units. These loans were evidenced by bonds and mortgages providing for interest at 8.5% per annum. Asserting that the maximum interest rate which could be charged by Central Federal was 8.5%, the Attorney-General contends that the $150,000 commitment fee paid to Central Federal in addition to the 8.5% interest due on the 66 loans rendered each of the loans usurious as in excess of the maximum interest rate permitted by law and regulation. There follows an allegation that these acts and practices constituted repeated illegal acts in the transaction of business within the meaning of subdivision 12 of section 63 of the Executive Law. The complaint prays for injunctive relief, repayment to the individual borrowers of amounts two times the amount of interest already paid as usurious interest in excess of that permitted by law and regulation, and an allowance for costs pursuant to CPLR 8303 (subd [a], par 6).

Motions were made to dismiss the complaint on the ground that the Attorney-General did not have standing to bring the action and that the complaint failed to state a cause of action. The Attorney-General had moved for a preliminary injunction. Affidavits were submitted in support of and in opposition to the motions. Special Term granted the motions to dismiss the complaint for failure to state a cause of action on the ground that it did not allege persistent or repeated fraud or illegality within subdivision 12 of section 63 of the Executive Law. The court accordingly denied the cross motion for a preliminary injunction. Special Term expressly declined to pass on the other grounds urged for dismissal. The Appellate Division affirmed, without opinion, and we granted leave to appeal. We now affirm the dispositions below but on a different ground from that relied on at Special Term. We conclude that the commitment fee paid by the developer is not to be taken into account in computing interest, and accordingly that the loans were not usurious.

The Attorney-General relies on the provisions of section 14-a of the Banking Law and subdivision (a) of section 4.2 and section 4.3 of the Banking Board Regulations (3 NYCRR 4.2 [a], 4.3). Section 14-a of the Banking Law provided in pertinent part:

"§ 14-a. Power of the. banking board to prescribe rate of interest

"1. It is hereby declared to be the policy of the state of New York that for the period ending September first, nineteen hundred seventy-one the rate of interest provided in section 5-501 of the general obligations law shall be adjusted by the banking board in response to changed economic conditions in such manner as to insure the availability of credit at reasonable rates to the people of the state while affording a competitive return to persons extending such credit.

"2. (a) For the purpose of effectuating the policy declared in subdivision one of this section, the banking board shall have power prior to September first, nineteen hundred seventy-one* by a three-fifths vote of all its members:

* * *

“(2) To adopt such other regulations as it shall deem necessary or proper to implement the provisions of this section.

"(b) The rate of interest prescribed by the banking board pursuant to paragraph (a) of this subdivision shall be based on prevailing economic conditions including, in particular, yields on conventional home mortgages throughout the United States and on corporate interest-bearing securities of high quality, and shall include as interest any and all amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan or forbearance as defined by the banking board pursuant to subparagraph two of paragraph (a) of this subdivision.”

The Banking Board Regulations insofar as pertinent provided:

"4.2 Amounts included as interest. The term 'interest’ as used in section 4.1 of this Part:

"(a) when applied to any loan or forbearance secured primarily by an interest in real property improved by a one or two family residence occupied by the owner, shall include origination fees, points and other discounts and all other amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan or forbearance. The fees, charges and costs described in section 4.3 of this Part do not constitute amounts paid or payable, directly or indirectly, to or for the account of the lender in consideration for making the loan or forbearance and are not included in 'interest’ * * *

"4.3 Amounts not included as interest in certain home mortgage loans. The term 'interest’ for purposes of subdivision (a) of section 4.2 of this Part shall not include the following amounts payable in connection with the loan or forbearance, if itemized in writing to the borrower:

"(a) a reasonable fee in consideration for the legally enforceable written commitment of the lender to reserve funds for future disbursement to the borrower, provided such commitment was made prior to November 1, 1968”. (3 NYCRR 4.2 [a], 4.3.)

Based on these provisions of statute and regulation, it is asserted that the commitment fee of $150,000 paid by the developer must be added when interest on the individual loans is computed, and, inasmuch as the direct interest rate on the individual mortgages was at the ceiling, this indirect supplemental payment made the loans usurious. The critical issue is whether the $150,000 commitment fee must indeed be included in computation of interest on the individual loans. It is the position of the Attorney-General, which is not disputed by defendants, that the Legislature in section 14-a of the Banking Law delegated responsibility for defining what is and what is not interest to the banking board. Defendants, however, challenge the Attorney-General’s conclusion that the commitment fee is interest within the definitions promulgated by the banking board. We agree with defendants.

Analysis of subdivision (a) of section 4.2 of the regulations discloses that the inclusive series of differently labeled payments embraced within its prescription — "origination fees, points and other discounts and all other amounts paid or payable, directly or indirectly” — qualify as "interest” only if paid "to or for the account of the lender in consideration for making the loan or forbearance” (emphasis added). This latter limitation is precisely the same as that set forth in the description of payments to be included in determining interest in section 14-a (subd 2, par [b]) of the Banking Law — "any and all amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan or forbearance” (emphasis again added). In the present case the commitment fee was not paid by the developer in consideration for making the loans to the individual purchasers of condominium units; it was paid in consideration of Central Federal’s keeping $7,500,000 on reserve during the period anterior to the making of the individual loans, to be available when funds were needed for such loans. Central Federal was entitled to the commitment fee if the stipulated reserve was maintained, whether or not any loan was ever made to an individual purchaser (Fort M Dev. Corp. v Inland Credit Corp., 54 AD2d 862, affd on mem at App Div 43 NY2d 763; cf. Boston Rd. Shopping Center v Teachers Ins. & Annuity Assn. of Amer., 13 AD2d 106, affd without opn 11 NY2d 831).

This analysis conforms to the economic realities of the transactions. While not wholly unrelated, the reserve arrangement obtained by the developer from Central Federal was discrete and separate in time and function from the later loans to the individual purchasers. The developer required an advance assurance of the future availability of mortgage financing to meet a condition precedent to its obtaining a loan from a third party for land acquisition and development, and that is what it paid for. (Compare Bevier v Coveil, 87 NY 50, in which this court recognized the distinction between a payment made to keep funds available prior to the making of a loan and interest paid at the ceiling rate after the mortgage closed.) To merge the commitment transaction with the developer and the loans to individual purchasers is to ignore the realities of the situation. Indeed, if there were to be any "tacking” of these separate transactions the payment of the commitment fee would have to be related to the period during which Central Federal kept the funds on reserve. Inasmuch as the record discloses no individual loans closed within a year after the May, 1973 commitment, a $150,000 payment to hold $7,500,000 would represent an "interest rate” of less than 2% per annum, paid with respect to a period prior to closing the individual loans — thus presenting permissible sequential payments, first by the developer for the availability of money and later by the individual purchasers for the use of money, as distinguished from an impermissible cumulative payment for the use of money as characterized by the Attorney-General.

The scope of applicability of subdivision (a) of section 4.2 of the regulations (3 NYCRR 4.2 [a]) is illustrated in the present case by reference to the advance mortgage commitment letters given by Central Federal to the individual borrowers, for which no fee was charged or received. Any fee paid for such individual mortgage commitments, whether paid by the developer or the borrower, would indeed have come within the embrace of the regulation as being "in consideration for making the loan”. But there was none.

It remains to observe additionally that the provisions of subdivision (a) of section 4.3 of the regulations do not provide any support for the position urged by the Attorney-General, even by way of negative implication. The provisions of section 4.3 serve to identify payments which it was the intention of the banking board to exclude from what would otherwise have been the inclusiveness of subdivision (a) of section 4.2 — thus, "[t]he term 'interest’ for purposes of subdivision (a) of section 4.2 of this Part shall not include the following payments in connection with the loan”. If the particular payment never came within the embrace of subdivision (a) of section 4.2 in the first place (as we hold to be the case with respect to the $150,000 reserve commitment paid by the developer because it was not in consideration for making the later loans to purchasers) it is immaterial to consider whether it falls within a defined exclusion. In this instance the scope of inclusion is not enlarged because it is diminished by specified exclusions.

We therefore conclude that the $150,000 commitment fee paid by the developer for reservation of funds to be available for future loans to individual purchasers is not to be deemed a component of interest on the eventual loans to the purchasers. In view of this conclusion it is unnecessary to reach or consider the other contentions tendered by the parties.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Gabrielli, J.

(dissenting). I dissent on the ground that the Attorney-General’s complaint states adequately a valid cause of action. Despite the clever formulation and structure of the loans made or to be made, as described in the pleadings, I conclude that the Legislature and State banking board define this scheme as usurious.

The relevant facts in this case are uncomplicated. The defendant bank received $150,000 from a developer in consideration for making money available to grant mortgage loans to purchasers of the homes built by the developer. It granted those mortgages at the maximum legal rate and, together, the sums received via the commitment and the interest charged to the purchasers exceeded the maximum allowed by statute and banking board regulations; ergo a claim has been stated in usury.

The current maximum rate of interest for mortgage loans to individuals is 81A%. Section 14-a of the Banking Law empowers the banking board to set maximum rates, but mandates that the rate prescribed "shall include as interest any and all amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan” (subd 2, par [b]); and the banking board regulations track this language precisely (3 NYCRR 4.2 [a]). In simple terms the sum of $150,000 "was paid * * * [by the developer] * * * ^ * * * the lender in consideration for making the loan”, exactly as defined by statute and regulation; and must therefore be considered as part and parcel of the interest charged. Upon this analysis, the amount received by the bank was most certainly in excess of the maximum legal rate of interest. The regulation does exclude from the term "interest” "a reasonable fee in consideration for the legally enforceable written commitment of the lender to reserve funds for future disbursement to the borrower, provided such commitment was made prior to November 1, 1968” (3 NYCRR 4.3 [a]; emphasis added). The commitment here involved was made in 1973 and, of course, cannot be excluded in the computation of the total interest to be received by the bank. The limited exclusion for pre-1968 fees implicitly, and indeed explicitly, recognizes that mortgage commitment fees fit squarely within the definition of interest; and as such it represents the considered judgment of the administrative body charged with defining lawful interest rates, and should not be cavalierly thrust aside by this court.

A contrary result ignores the realities of the situation. A mortgage commitment fee requires that the bank make money available for mortgages, and certainly is a consideration for the loans themselves. To say it is consideration only for setting aside the money ignores the reason for making the commitment. The developer was interested in purchasers being able to secure mortgages and, of course, he was not interested, in what the bank did with its funds before the mortgage applications were made. It is unreasonable to postulate that a developer would pay the bank for holding funds in abeyance; what he bargained for and received was the eventual grant of the mortgages issued here: nothing else. The majority’s computation based on "tacking” the time period during which the commitment was enforceable to the time of the loans likewise assumes that the money was set aside in a bank vault awaiting loan applications; if in fact this unlikely event occurred, it should be demonstrated at trial and not on a motion to dismiss for failure to state a cause of action. Assuming, as we must, the correctness of the factual allegations of the complaint, it appears without question that since the mortgage loans were made to purchasers at the maximum legal rate of interest, the commitment charge received by the bank, when added to that rate of interest, gave the bank a rate of return in excess of the maximum allowable rate of interest.

Today’s result imposes a burden on home purchasers not heretofore recognized. The land developer paid a sizeable sum to defendant bank in consideration for his purchasers receiving mortgage money. This certainly was not done in the spirit of charity but was, of course, passed on to the purchasers to pay, at least by indirection by way of increased cost of the homes, or whatever. In order for the Attorney-General to discharge his obligation to stifle any form of usurious charges by lenders, it matters not that the purchasers did not themselves directly pay any part of the commitment. It suffices under the statute and regulation if money was paid "directly or indirectly, by any person [here the developer], to * * * the lender in consideration for making the loan” (Banking Law, § 14-a, subd 2, par [b]; 3 NYCRR 4.2 [a]).

In reaching an affirmance, the majority relies, in part, on the holdings in Fort M Dev. Corp. v Inland Credit Corp. (54 AD2d 862, affd on mem at App Div 43 NY2d 763) and Boston Ed. Shopping Center v Teachers Ins. & Annuity Assn. of Amer. (13 AD2d 106, affd without opn 11 NY2d 831), cases which are readily distinguishable. The issues resolved therein are not dispositive of the larger question and issue in the case before us. Those cases dealt with strictly personal contractual commitment arrangements which in no conceivable manner could possibly affect the amount of interest that would be payable by other borrowers from the principal. More important, whether the commitment was exercised or abandoned in those cases, there was no understanding or provision whereby the borrower would be required to pay the maximum legal rate of interest in addition to the commitment fee.

There is an inescapable conclusion to be reached in the scheme devised by bank, and it is succinctly this: there undoubtedly would have been no mortgage transaction without the commitment fee of $150,000 having been paid by the developer.

Accordingly, I dissent and vote to modify and deny the motion to dismiss the complaint, with costs.

Judges Jasen, Wachtler and Fuchsberg concur with Judge Jones; Judge Gabrielli dissents and votes to modify in a separate opinion in which Chief Judge Breitel and Judge Cooke concur.

Order affirmed.

       Successively extended to present expiration date of May 1,1979.


source: Caselaw Access Project

author: Fuchsberg, J.

license: Public Domain

text:
    Watergate II Apartments, Appellant-Respondent, v Buffalo Sewer Authority, Respondent-Appellant.
    Argued September 15, 1978;
    decided December 6, 1978

      POINTS OF COUNSEL

      Evan E. James and William M. Feigenbaum for appellant-respondent.
    L. Sewer charges that are not based on use, consumption or services rendered are unlawful per se. (Robertson v Zimmermann, 268 NY 52; Silkman v Board of Water Comrs. of City of Yonkers, 152 NY 327; New York Univ. v American Book Co., 197 NY 294; Rock Hill Sewerage Disposal Corp. v Town of Thompson, 27 AD2d 626; State Univ. of N. Y. v Patterson, 42 AD2d 328; Torsoe Bros. Constr. Corp. v Board of Trustees of Inc. Vil. of Monroe, 81 Misc 2d 702; Young Men’s Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371.) II. Under the circumstances of this case, plaintiff was not required to exhaust its administrative remedies prior to suing for a declaratory judgment. (Bloom v Mayor of City of N. Y., 28 NY2d 952; Buffalo Hebrew Christian Mission v City of Syracuse, 33 AD2d 152; Battala v State of New York, 10 NY2d 237; Young Men’s Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371; Matter of First Nat. City Bank v New York Fin. Admin., 36 NY2d 87; Dun & Bradstreet v City of New York, 276 NY 198; Matter of Bertholf v Cisco, 72 Misc 2d 901, 45 AD2d 787; Matter of Lees v City of Syracuse, 91 Misc 2d 637.) III. Defendant’s purported "sewer rent” is a void and illegal tax. IV. Defendant’s imposition of its purported "sewer rent” violates plaintiffs tax abatement agreement with the City of Buffalo. (Matter of Cromwell Towers Redevelopment Co. v City of Yonkers, 41 NY2d 1.)

      Joseph P. McNamara, Corporation Counsel (Eugene J. Martin of counsel), for respondent-appellant.
    I. The sewer rents of the Buffalo Sewer Authority are not taxes, but are charges for specific services rendered, even though computed on the basis of the assessed value of the real property served, so long as the method or basis used in such computation is equitable. (Metropolitan Transp. Auth. v Nassau County, 28 NY2d 385; Smith v Zimmermann, 268 NY 491; Young Men’s Christian Assn. v Rochester Pure Waters Dist., 44 AD2d 219, 37 NY2d 371; Silkman v Board of Water Comrs. of City of Yonkers, 152 NY 327; Riverview Estates v City of New York, 20 AD2d 890; Rock Hill Sewerage Disposal Corp. v Town of Thompson, 27 AD2d 276; State Univ. of N. Y. v Patterson, 42 AD2d 328; Buffalo Hebrew Christian Mission v City of Syracuse, 33 AD2d 152.) II. Plaintiff has failed to exhaust its statutory or administrative remedies in this matter. (Peters v State Tax Comm., 18 AD2d 886, 13 NY2d 1148; Buffalo Gen. Hosp. v Sipprell, 33 AD2d 977; Berkshire Fine Spinning Assoc. v City of New York, 5 NY2d 347, 361 US 3.) III. The Buffalo Sewer Authority’s imposition of its sewer rent did not and could not violate a tax abatement agreement between plaintiff and the City of Buffalo because the Buffalo Sewer Authority is not bound by the terms of said agreement. (Kennedy v Fehlhaber Pile Co., 263 App Div 819.)
   OPINION OF THE COURT

Fuchsberg, J.

This case involves a challenge to the power of the Buffalo Sewer Authority to levy "sewer rents” computed on the basis of the assessed valuation of the appellant’s property in the face of a tax limitation agreement between the appellant and the City of Buffalo.

The plaintiff-appellant, Watergate II Apartments, is a designated "redevelopment company” organized under article 5 of the New York Private Housing Finance Law. To satisfy eligibility requirements for a Federal national mortgage construetion loan, it entered into a tax abatement agreement with the City of Buffalo under which it was exempt from "taxes * * * in excess of $35,200 per year”.

After Watergate completed construction of the apartments so financed, the defendant-respondent Buffalo Sewer Authority billed it for (1) "sewer rents” based on the assessed value of its taxable property, (2) "sewer charges” based on the actual consumption of water at the Watergate II Apartments, and (3) "sewer rents” based on the assessed value of its tax exempt property. In doing so, the authority acted pursuant to section 1180 of the Public Authorities Law, which empowers it to "establish a schedule of * * * sewer rents [which] may be based upon either the consumption of water on premises connected with such facilities * * * the number and kind of plumbing fixtures connected with such facilities, or the number of persons served by such facilities, or may be determined by the authority on any other equitable basis” (emphasis ours).

Watergate paid the first two items, but refused to pay the third. It then commenced this action against the authority to obtain a declaration that the rejected charges were "unlawful and unconstitutional” as applied, essentially because, though denominated sewer rents, they "[bore] no relationship to the quantity of water used or the amount of flow therefrom” and therefore constituted a discriminatory tax beyond the power of the authority to impose. Watergate moved for summary judgment; the authority cross-moved pursuant to CPLR 3211 to dismiss the complaint.

Special Term, granting Watergate’s motion and denying that of the authority, declared the sewer rents in question "null and void” and entered an order to that effect. The court agreed with Watergate that, because the sewer rents were computed on the basis of assessed valuation, they were taxes, which the authority did not have the power to levy. It also rejected the authority’s contention that Watergate had failed to exhaust its administrative remedies. Finally, it found, it unnecessary to reach the question, raised by the parties, of the effect of the tax abatement agreement with the city.

The Appellate Division, in reversing, expressed the opinion that the sewer rents were not violative of Watergate’s agreement with the city, but, without going on to determine the propriety of using assessed value as a factor in fixing water charges, held that, in any event, Watergate was not entitled to judicial relief until it had exhausted its administrative remedies. We now uphold its order, but we do so on the ground that the authority did not overstep its statutory bounds merely by basing sewer rents on assessed valuation.

It is hornbook law that one who objects to the act of an administrative agency must exhaust available administrative remedies before being permitted to litigate in a court of law (e.g., Young Men’s Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371, 375). This doctrine furthers the salutory goals of relieving the courts of the burden of deciding questions entrusted to an agency (see 1 NY Jur, Administrative Law, § 5, pp 303-304), preventing premature judicial interference with the administrators’ efforts to develop, even by some trial and error, a co-ordinated, consistent and legally enforceable scheme of regulation and affording the agency the opportunity, in advance of possible judicial review, to prepare a record reflective of its "expertise and judgment” (Matter of Fisher [Levine], 36 NY26 146, 150; see, also, 24 Carmody-Wait 2d, NY Prac, § 145:346).

The exhaustion rule, however, is not an inflexible one. It is subject to important qualifications. It need not be followed, for example, when an agency’s action is challenged as either unconstitutional or wholly beyond its grant of power (cf. Matter of First Nat. City Bank v City of New York, 36 NY2d 87, 92-93; see Jaffe, Judicial Control of Administrative Action, p 438), or when resort to an administrative remedy would be futile (Usen v Sipprell, 41 AD2d 251; 1 NY Jur, Administrative Law, § 171, p 575) or when its pursuit would cause irreparable injury (Pierne v Valentine, 291 NY 333; Utah Fuel Co. v Coal Comm., 306 US 56).

It is sufficient unto the purposes of the present case that it falls within the first of these exceptions. As is made clear by the First Nat. City Bank case (supra, p 92), even where a statute expressly designates an article 78 proceeding as the sole route to relief from its invalid application, resort to another form of judicial scrutiny nevertheless may be had when the statute "is alleged to be unconstitutional, by its terms or application, or where [it] is attacked as wholly inapplicable”. There is no reason why this principle should have less force where our jurisprudence requires that one challenging the enforcement of a statute first pursue administrative remedies.

Watergate points to no violation of any State or Federal constitutional provision; to the contrary, section 1180 of the Public Authorities Law, under which the authority promulgated its schedule of water rent classifications, long ago was declared constitutional (Robertson v Zimmermann, 268 NY 52). Rather, the complaint is that, in interpreting the "equitable basis” language of the statute as though it granted power to base water rents on assessed valuation, the authority has in fact imposed a tax.

For the reasons we later indicate, the levying of a tax is dehors the authority’s jurisdiction. Unlike taxes, which go to the support of government without • any necessity to relate them to particular benefits received by the taxpayer (58 NY Jur [rev], Taxation, § 2), the charges that the authority was empowered to collect were in the nature of fees which had to bear a direct relationship to the cost of furnishing the water services (Jewish Reconstructionist Synagogue v Incorporated Vil. of Roslyn Harbor, 40 NY2d 158, 163; New York Univ. v American Book Co., 197 NY 294). Thus, if Watergate’s contention is correct, the manner in which the authority has chosen to apply the statute would be wholly beyond its power. We therefore address that issue, but without reaching the factual question of the accuracy of the actual computation of the exact charges imposed (see Berkshire Fine Spinning Assoc. v City of New York, 5 NY2d 347, app dsmd 361 US 3; 3 Weinstein-Korn-Miller, NY Civ Prac, par 3001.09c, pp 30-83).

Turning then to the substance of the plaintiffs claims, we conclude, preliminarily, that the tax abatement agreement with the city did not apply to the authority’s sewer rents. The agreement limited Watergate’s liability with respect to taxes imposed "by or in behálf of any taxing jurisdiction as defined in Subdivision 1 (d) of Section 125 of the Private Housing Finance Law”. And that definition, by expressly listing "any municipal corporation or district corporation, including any school district or any special district, having the power to levy or collect taxes” (Private Housing Finance Law, § 125, subd 1, par [d]), as the entities which are taxing jurisdictions, in effect excluded public benefit corporations, such as the authority, from its reach. Furthermore, section 1178 of the Public Authorities Law, which delineates the defendant’s power, does not grant it the right to tax.

Focusing now on the argument that the charges constitute an illegal arrogation of power, we observe that, consistently with the rule to which we have already alluded, the Public Authorities Law allows the defendant to fix charges only for such services as it actually provides its customers (Public Authorities Law, § 1178, subd 11). In doing so, however, we are mindful that subdivision 11 of section 1178 must be read not only in conjunction with the specific indices of section 1180 — i.e., water consumption, the fixtures employed and the number of persons served — but also against the possibility that other more sophisticated formulae might be adopted under section 1180’s general "equitable basis” provision.

On review of the authority’s compliance with these standards, the test is whether its formulae reflect reasonable and nonarbitrary interpretations of the statute (see Matter of New Rochelle Water Co. v Public Serv. Comm. of State of N. Y., 31 NY2d 397, 408-409; Silkman v Board of Water Comrs. of City of Yonkers, 152 NY 327, 331). Exact congruence between the cost of the services provided and the rates charged to particular customers is not required. Where only an approximation of cost or value is possible, discrepancies may have to be endured in the name of administrative flexibility so long as there exists some rational underpinning for the charges levied (see Lander, Public Utility Rate Design: The Cost of Service Method of Pricing, 19 St Louis U LJ 36, 41; cf. Matter of Rothko, 43 NY2d 305 [allowing recovery of damages where exact quantum of harm is indeterminable]).

Against these general considerations, attempts to match the authority’s costs with the services rendered may be viewed as falling into two broad categories. The first and most obvious relates to the providing of water for current and predictable use. The specifically described standards for pricing set forth in section 1180 of the Public Authorities Law are straightforward methods of apportioning charges for direct use of water. Their very simplicity renders them well-nigh impervious to attack and. it is not surprising that Watergate finds them acceptable.

But, supplying an essential service to the people of Buffalo also entails responsibilities of a far more complex, and perhaps equally important, nature. For instance, the authority’s province encompasses construction and maintenance of effluent and storm sewer lines, sewage collection and treatment facilities, removal of industrial wastes to prevent pollution and seeing to the availability of water distribution networks for use in firefighting. It also must look beyond the business of meeting present usage and availability requirements; constant planning is needed to ensure that reserves for future development of the system keep pace with projected societal change and growth (see, generally, Bryant & Hermann, Elements of Utility Rate Determination, 314-315 [1st ed]).

The cost of these activities is bound to bear only limited direct relationship to the volume of water utilized by particular consumer (see 11 McQuillin, Municipal Corporations, § 31.30a, p 232). This is especially true because the identities of potential consumers may not be ascertainable at the time such capital outlays are incurred and, indeed, may never be completely ascertainable in a totally mathematical sense. The authority’s function — to help fill over-all community needs relating to health and safety for the benefit of present and future inhabitants of the area it serves — may not admit of complete correlation between consumption and cost.

Given these concerns, the Legislature’s addition of a flexible standard — "any other equitable basis” — constitutes a logical response to the necessity for accommodating them. And the disputed basis chosen by the authority as a criterion for apportioning sewer rents seems a reasonable exercise of its power. Indicative of the reliability of the method so adopted is its widespread use by water utilities in other jurisdictions (see 11 McQuillin, Municipal Corporations, § 31.30a, p 232; Nash, Public Utility Rate Structures, pp 129-130 [1st ed]).

Nor is it inconsequential that assessed valuations, which might well be expected to increase in proportion to need for and use of such facilities as effluent and storm sewer lines, will more readily reflect expenditures for installations of that kind. Everyday experience teaches that highly valued central business districts or desirable residential properties might, because of the density of construction and the concomitant increased need for sanitation, require a disproportionate (to water consumption) outlay for sewer construction and maintenance as compared to that required for more moderately priced rural areas.

An exclusively use-based rate, as urged by Watergate, may, therefore, be largely an oversimplistic, unreliable and inadequate measure of "services rendered”, while utilization of a combination of the assessed value of real estate and of the amount of water consumed, though seemingly less exact, may result in a far more accurate allocation of charges. All this militates in favor of upholding the authority’s sewer rent schedule.

The authority, then, is no mere seller of a good the cost of which may be fairly allocated to each purchaser solely on the basis of the quantity consumed. The public benefit the authority provides to all within its assigned territory goes far beyond that measure. Many of its activities redound to the common benefit of all property. A rational basis thus underlies the use of assessed valuation in the calculation of sewer rents, especially, as in the case before us, when combined with bases that directly weigh actual use as well.

Having concluded that the charges bear a direct relationship to the broader reality of the services and benefits actually rendered to property owners as a whole and thus may properly be regarded as rents rather than taxes, and having construed the agreement with the city as not applying to "water rents” as distinguished from taxes, there is no less reason to apply the charges to the exempt portion of the Watergate property than to that which was nonexempt.

Accordingly, on Watergate’s appeal, the order of the Appellate Division should be affirmed, with costs. The authority’s cross appeal should be dismissed, without costs.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Cooke concur.

On plaintiff’s appeal: Order affirmed.

On. defendant’s cross appeal: Appeal dismissed.

       [1] Defendant authority attempted to cross-appeal "from that part of the memorandum decision of the Appellate Division — Fourth Judicial Department, which * * * did not decide whether the defendant’s method of computing sewer rent charges is legal under Section 1180 of the Public Authorities Law.” Although no appeal can be taken from a "decision”, were the authority otherwise entitled to invoke our review, we would treat this defect as a mere misdescription (Cohen and Karger, Powers of the New York Court of Appeals, § 27, p 113). However, since the authority is not a "person aggrieved” by the order of reversal in its favor, its appeal must be dismissed (see CPLR 5511; Cohen and Karger, Powers of the New York Court of Appeals, § 91, pp 394-395.


author: Gabrielli, J.

text:
    Robert L. Rowe, Respondent, v Great Atlantic & Pacific Tea Company, Inc., et al., Appellants.
    Argued October 18, 1978;
    decided December 6, 1978

      POINTS OF COUNSEL

      Alan M. Gelb, Donald S. Snider, James E. Merriman and Philip S. Kaufman for Great Atlantic & Pacific Tea Company, Inc., appellant.
    I. In the absence of clear and convincing evidence to the contrary this long-term lease was freely assignable. (Clarkson v Skidmore, 46 NY 297; Presby v Benjamin, 169 NY 378; Eten v Luyster, 60 NY 252; American Book Co. v Yeshiva Univ. Dev. Foundation, 59 Misc 2d 31; 1130 President St. Corp. v Bolton Realty Corp., 198 Misc 198; Dolman v United States Trust Co., 2 NY2d 110; General Phoenix Corp. v Cabot, 300 NY 87; 455 Seventh Ave. v Hussey Realty Corp., 295 NY 166; 67 Wall St. Co. v Franklin Nat. Bank, 37 NY2d 245; Tuttle v Grant Co., 5 AD2d 370, 6 NY2d 754.) II. Nothing in the general nature of long-term leases containing percentage rent provisions and nothing in this lease in particular, makes them nonassignable. (Tuttle v Grant Co., 5 AD2d 370, 6 NY2d 754; Nassau Hotel Co. v Barnett & Barse Corp., 162 App Div 381, 212 NY 568; MacFadden-Deauville Hotel v Murrell, 182 F2d 537; Bovin v Galitzka, 250 NY 228; Lyon v Bethlehem Eng. Corp., 253 NY 111; 57th St. Luce Corp. v General Motors Corp., 182 Misc 164, 267 App Div 978, 293 NY 717; Mutual Life Ins. Co. of N. Y. v Tailored Woman, 309 NY 248.) III. Failing the reinstatement of the judgment at trial term A&P should be accorded the right to try the issues decided by the court below. (Howard v Murray, 43 NY2d 417; Castellano v State of New York, 43 NY2d 909.)

      Thomas P. Dougherty and Edward S. St. John for The Southland Corp., appellant.
    I. Absent a conditional limitation in the lease, the landlord may not be awarded possession of the leased premises pursuant to article 7 of the Real Property Actions and Proceedings Law. (Beach v Nixon, 9 NY 35.) II. The court below should not have substituted new, untried and uncontested issues for those considered by the trial court. (Tai On Luck Corp. v Cirota, 35 AD2d 380; Equitable Lbr. Corp. v IPA Land Dev. Corp., 38 NY2d 516; Mandel v Liebman, 303 NY 88; Yantic Grain & Prods. Co. v Bullet Hole Farms, 29 AD2d 764; Vincent v Thompson, 50 AD2d 211.) III. The landlord and appellant, A&P, should be estopped from impeaching the assignment of the lease to Gristede’s. (Hulburt v Walker, 258 NY 8; Rosenthal v Reliance Ins. Co., 25 AD2d 860, 19 NY2d 712; Simmons v Westwood Apts. Co., 46 Misc 2d 1093, 26 AD2d 764.)

      Abraham D. Sofaer for respondent.
    I. The court below properly found a covenant against A&P’s assignment to Gristedes, since this long-term precentage lease guaranteed only nominal rent, and since landlord had bargained for the percentage clause and relied upon A&P’s fiscal integrity and merchandising practices. (Presby v Benjamin, 169 NY 377; Wood v Duff-Gordon, 222 NY 88; Goldschmidt & Loewenick v Diamond State Fibre Co., 186 App Div 688; Fifth Ave. Bldg. Co. v Kernochan, 221 NY 370; Nassau Hotel Co. v Barnett & Barse Corp., 162 App Div 381, 212 NY 568; Bentley v Textile Banking Co., 26 AD2d 112; Wilson Sullivan Co. v International Paper Makers Realty Corp., 307 NY 20; Taylor v United States Cas. Co., 269 NY 360; Frenchman & Sweet v Philco Discount Corp., 21 AD2d 180.) II. Assignment of the present percentage lease breached the covenant implied in every contract that neither party shall do anything to diminish the value of his promised performance. (Wilson v Mechanical Orguinette Co., 170 NY 542; Lamport v Smedley, 213 NY 82; Bruno v Kosnac, 13 AD2d 650; Victor Catering Co. v Nasca, 8 AD2d 5; York Mtge. Corp. v Clotar Constr. Corp., 254 NY 128.)
   OPINION OF THE COURT

Gabrielli, J.

We are called upon to determine whether a certain real property lease agreement contains an implied covenant limiting the lessee’s power to assign the lease. The property subject to the lease is located in Sag Harbor, New York. In 1964, petitioner, Robert Rowe, an experienced attorney and businessman and the owner of the land involved herein, leased the property to respondent Great Atlantic & Pacific Tea Co. (A&P) for use as a "general merchandise business”. The agreement required Rowe to erect a building on the property, and provided for a yearly rental of $14,000 for a 10-year term. It also granted A&P options to renew for two additional seven-year periods, at a slightly lower rental. The lease contained no restrictions on assignment of the lease by A&P. Rowe constructed the building as agreed, and A&P took possession and utilized the premises for a supermarket.

Some years later, both parties sought to renegotiate the agreement. Rowe desired a higher rental because of increases in taxes and other expenses, while A&P wished to have the building enlarged. Following protracted negotiations, a new lease was executed in 1971, in which it was provided that Rowe would expand the building by an additional 6,313 square feet, and that the base rental would be increased to $34,420 per year. This figure was reached by estimating the cost to Rowe of the improvements to the building and then computing a rate of return agreed to by the parties and adding that to the old rental. The new lease was for a period of 15 years, and provided A&P with the option to renew for three additional seven-year periods at the same rental. In addition to the base rental, the new lease provided that Rowe was to receive lVz% of the store’s annual gross receipts in excess of $2,294,666 and less than $5,000,000. In other words, unless gross receipts reached the $2,294,666 mark, the percentage clause would be inoperable. There was no warranty, stipulation or promise by A&P that sales would climb to the minimum necessary to trigger the percentage clause. The lease contained no restriction on the lessee’s right to assign the lease. Nor did it make any reference to assignability other than providing that the lease would bind the heirs and assigns of the parties.

Unfortunately for all concerned, the new store did not fare as well as had been hoped. Indeed, A&P entered into a period of retrenchment in which it decided to close several of its less profitable stores, and the Sag Harbor store was one of those selected. Following months of discussion with Rowe and others, and over Rowe’s objections, A&P in 1975 shut down its operation in Sag Harbor and assigned the lease of the premises to respondent Southland Corp., which operates a chain of supermarkets under the name Gristede Brothers. Rowe then commenced this proceeding seeking to recover possession of the premises as well as money damages. His claim is premised on the theory that A&P breached an implied covenant against assignment without consent of the lessor.

Following a nonjury trial, Supreme Court dismissed the petition on the merits, concluding that in the absence of bad faith, which was not shown, A&P had the unqualified right to assign the lease since there existed no provision limiting that right. With respect to Rowe’s claim that the lease contained an implied covenant limiting A&P’s right to assign, the court concluded that he had not met his burden of proof on this issue in that he had failed to prove that no reasonable landlord would have entered into this lease without an implicit understanding that the lessee could not freely assign the lease. The court reasoned that in order to show the existence of such an implicit covenant, the lessor would first be required to prove that without the percentage rent clause, which was the only factor indicating that there might actually exist such an implied agreement, the lease would have been unconscionable.

Petitioner appealed and the Appellate Division reversed, stating that the trial court had placed too heavy a burden upon petitioner. Noting that the courts will find the existence of an implied covenant limiting the right to assign if the lease is such that the landlord entered.into it in reliance upon the special ability or characteristics of the lessee, the court reasoned that the existence of a percentage clause in a lease is a strong indication of such reliance. Although the existence of a base rental in addition to the percentage rental would be some evidence to the contrary, the Appellate Division concluded that in this case that was not true because in the court’s judgment the base rental was not substantial. Accordingly, the Appellate Division reversed Supreme Court and ruled in favor of petitioner. We cannot agree with that determination.

A lease agreement, like any other contract, essentially involves a bargained-for exchange between the parties. Absent some violation of law or transgression of a strong public policy, the parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party. It is, of course, far too late in the day to seriously suggest that the law has not made substantial inroads into such freedom of private contracts. There exists an unavoidable tension between the concept of freedom to contract, which has long been basic to our socioeconomic system, and the equally fundamental belief that an enlightened society must to some extent protect its members from the potentially harsh effects of an unchecked free market system. Thus, rightly or wrongly, society has chosen to intervene in various ways in the dealings between private parties. This intervention is perhaps best exemplified by statutes mandating the express or implicit inclusion of certain substantive or procedural provisions in various types of contracts (e.g., Insurance Law, § 167; Real Property Law, §§ 226-b, 234, 235-b). It is also illustrated by judicial decisions to the effect that there exists in every contract certain implied-bylaw covenants, such as the promise to act with good faith in the course of performance (e.g., Kirke La Shelle Co. v Armstrong Co., 263 NY 79, 87). In a similar vein, the law has developed the concept of unconscionability so as to prevent the unjust enforcement of onerous contractual terms which one party is able to impose under the other because of a significant disparity in bargaining power (e.g., Uniform Commerical Code, § 2-302). Despite all this, there yet remains substantial room for bargaining by the parties.

Contrary to petitioner’s contentions, this appeal does not implicate any of the methods utilized by society to police both the substance of contracts and the process of contracting. There has been no violation of law or of public policy, nor does it appear that A&P acted in bad faith. Moreover, the status of the parties to this contract is not such that the doctrine of unconscionability would normally be applicable even if there were any indications that the contract was unusually one-sided. Finally, we are not here confronted with a situation in which a party seeks to apply a covenant which must be implied by law in a particular contract. Rather, it is petitioner’s claim that the parties in fact impliedly did agree that A&P could not assign the lease without Rowe’s permission, and simply neglected, for one reason or another, to verbalize that understanding and to incorporate it into their written contract.

That a particular provision has not been expressly stated in a contract does not necessarily mean that no such covenant exists. As was eloquently stated by Judge Cardozo, "[t]he law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be 'instinct with an obligation,’ imperfectly expressed” (Wood v Duff-Gordon, 222 NY 88, 91, quoting McCall Co. v Wright, 133 App Div 62, 68). More succinctly expressed, "the undertaking of each promisor in a contract must include any promises which a reasonable person in the position of the promisee would be justified in understanding were included” (5 Williston, Contracts [rev ed, 1937], § 1293, p 3682).

Nonetheless, a party who asserts the existence of an implied-in-fact covenant bears a heavy burden, for it is not the function of the courts to remake the contract agreed to by the parties, but rather to enforce it as it exists. Thus, a party making such a claim must prove not merely that it would have been better or more sensible to include such a covenant, but rather that the particular unexpressed promise sought to be enforced is in fact implicit in the agreement viewed as a whole. This is especially so where, as here, the implied covenant sought to be recognized and enforced is of a type not favored by the courts.

It has long been the law that covenants seeking to limit the right to assign a lease are "restraints which courts do not favor. They are construed with the utmost jealousy, and very easy modes have always been countenanced for defeating them” (Riggs v Pursell, 66 NY 193, 201; accord Presby v Benjamin, 169 NY 377, 380; see 1 Rasch, Landlord & Tenant, § 253; Restatement [2d], Property, Tentative Draft No. 4, § 14.1, Comment a). This is so because they are restraints on the free alienation of land, and as such they tend to prevent full utilization of the land, which is contrary to the best interests of society (see De Peyster v Michael, 6 NY 467, 493). Since such covenants are to be construed strictly even if expressly stated, it follows that a court should not recognize the existence of an implied limitation upon assignment unless the situation is such that the failure to do so would be to deprive a party of the benefit of his bargain.

In the case presently before us petitioner Rowe has failed to prove the existence of an implied covenant limiting the lessee’s right to assign the lease. Such a convenant is to be recognized only if it is clear that a reasonable landlord would not have entered into the lease without such an understanding, for it is only in such a situation that it can be said with the requisite certainty that to refuse to recognize such a covenant would be to deprive the landlord of the fruits of his bargain. This is not such a case.

An implied covenant limiting the right to assign will often be found in those situations in which it is evident that the landlord entered into the lease in reliance upon some special skill or ability of the lessee which will have a material effect upon the fulfillment of the landlord’s reasonable contractual expectations. In the typical lease in which the landlord is assured of a set monthly rent, and has not placed any unusual restrictions upon the use of the premises, there is no occasion to find an implied covenant precluding or limiting assignment. This is so because the only reasonable expectation of the landlord is that the rent will be paid and the premises not abused, and thus the identity of the tenant is not material to the landlord’s expectations under the lease. If, however, the expectations of the landlord are substantially dependent upon some special skill or trait of the lessee, the lack of which might endanger the lessor’s legitimate contractual expectations, then it may be appropriate to find the existence of an implied covenant limiting the right to assign, for in such circumstances no reasonable person would enter into the contract without assurance that the tenant could not be replaced by an assignee lacking the requisite skills or character traits. Even in such a case, however, the implied restrictions must of course be limited to the extent possible without destroying the landlord’s legitimate interests (see Restatement [2d], Property, Tentative Draft No. 4, § 14.1, Comment c; § 14.2).

The type of situation in which a court may properly find that there exists a covenant limiting the right to assign is illustrated by the factual pattern which confronted the court in Nassau Hotel Co. v Barnett & Barse Corp. (212 NY 568, affg on opn at 162 App Div 381). There, the owner of a hotel had leased the hotel and all its appurtenances to two men, one of whom was an experienced hotel manager. The lease granted them " 'the exclusive possession, control and management’ ” of the hotel, and they not only became responsible " 'for the operation * * * and maintenance’ ” of the hotel, but also promised that they would operate it " 'at all times, in a first class, businesslike manner’ ” (162 App Div, at p 382). In lieu of any set rental, the owner was to receive 19% of the gross receipts of the hotel. Subsequently, the lessees assigned the lease to a corporation and the landlord sued to recover the premises. The courts concluded that the lease could not be assigned without the owner’s consent, even though the lease did not contain a provision limiting the lessees’ power to assign, because the entire agreement indicated conclusively that a fundamental premise of the agreement was that the two original lessees would, operate the hotel. This was so in part because the landlord had agreed to accept a percentage of the receipts in place of rent, and thus his legitimate expectations were completely dependent on the ability and honesty of the two individual lessees. To deprive him of the right to depend on the fact that the hotel was being operated by the individuals with whom he had contracted would have been to deprive him of a substantial element of his reasonable and legitimate contractual expectations.

Although the existence of the percentage clause was a significant factor in that decision, it alone was not dispositive. Rather, the court properly considered the entire agreement, with its emphasis on the operation of the hotel and the implicit dependence of the landlord upon the identity of the operators of the hotel. Thus, while a percentage clause in a lease is some sign of an implied agreement to limit the lessee’s power to assign the lease, its significance will vary with the other terms of the lease, the surrounding circumstances, the nature of the business conducted upon the premises, and the identities and expectations of the parties.

Although the lease we are called upon to interpret today does contain a percentage clause, it is a far cry from that involved in Nassau Hotel. There, the percentage of gross receipts to be received by the landlord was the only value the landlord was to receive from the agreement, for there was no set rental. Here, in contradistinction, the landlord is provided with an annual rental of some $34,420 in addition to whatever amount he might receive pursuant to the percentage clause. We would also emphasize that the percentage clause does not result in any additional income to the landlord until and unless the store first attains sales of over $2,294,666 in a particular year. Of some interest is the fact that this figure is considerably higher than the previous record gross sales at the Sag Harbor store at the time the lease was entered into. It is thus evident that the percentage clause, although doubtless of considerable interest to the landlord as a hedge against inflation and as a means of sharing in the hoped for success of the store, was not a material part of the lessor’s fundamental expectations under the lease. Hence, it cannot be said that the lease was entered into in sole reliance upon the skill, expertise, and reputation of A&P, and thus there is no reason to find an implied covenant limiting the lessee’s right to assign the lease.

This conclusion is buttressed by consideration of the circumstances surrounding and preceding the making of the new lease in 1971. It should not be forgotten that at that time the landlord was bound by a long-term lease which provided substantially less rent per square foot of store space than does the current lease, taking into account the expansion in size of the store. Indeed, examination of the two leases indicates that even absent the percentage clause, the new lease was an improvement over the old from the landlord’s point of view. Moreover., comparison with other supermarket leases indicates that the base rental in the new lease is not out of line with the rentals reserved in other leases. Thus we cannot agree with the Appellate Division that it is "not substantial”.

Of additional interest is the identity of the parties to this agreement. Petitioner is an experienced attorney and businessman knowledgeable in real estate transactions. A&P is, of course, a national firm presumably represented by capable agents. The negotiations which resulted in the new lease were long and exhaustive, dealing with a variety of topics, and the lease itself is obviously the result of a process of give and take. Although A&P might well have agreed to include a provision limiting its right to assign the lease had petitioner insisted upon such a clause, we may safely assume that petitioner would have had to pay a price for that concession. In these circumstances, the courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include. As we have previously declared in a similar context, "such lack of foresight does not create rights or obligations” (Mutual Life Ins. Co. of N. Y. v Tailored Woman, 309 NY 248, 253).

Finally, although not necessary to our disposition of this appeal, we would note that even were the circumstances such as to support the conclusion that the lease contains a provision limiting the lessee’s right to assign the lease, that finding alone would not justify judgment in favor of petitioner. It would then be necessary to further consider whether that implied restriction would in fact be violated by assignment of the lease to another supermarket chain in light of all the facts and circumstances.

Accordingly, the order appealed from should be reversed, with costs, and the judgment of Supreme Court, Suffolk County, reinstated.

Chief Judge Breitel and Judges Jasen, Jones, Wachtler, Fuchsberg and Cooke concur.

Order reversed, etc.


author: Cooke, J.

text:
    The People of the State of New York, Respondent, v Ivan Duncan, Appellant.
    Argued October 24, 1978;
    decided December 7, 1978

      POINTS OF COUNSEL

      Bennett M. Epstein for appellant.
    I. The trial court erred in submitting the theory of accessorial liability to the jury for the first time in a supplemental charge during deliberations. (People v Katz, 209 NY 311; People v Corbalis, 178 NY 516; People v Rosenberg, 293 NY 16; People v Ferrara, 30 AD2d 814; People v Law, 283 App Div 441, 308 NY 658; People v Miller, 6 NY2d 152; People v Stevenson, 31 NY2d 108; People v Jackson, 20 NY2d 440; People v Weiner, 248 NY 118; People v Lewis, 238 NY 1.) II. The trial court erred in refusing to permit two defense witnesses to testify. (People v Archer, 35 AD2d 1014; People v Gilliam, 45 AD2d 744, 37 NY2d 722; People v Hepburn, 52 AD2d 958.)

      Carl A. Vergari, District Attorney (Janet Cunard of counsel), for respondent.
    I. The charge was in all respects proper. (People v Katz, 209 NY 311; People v Corabilis, 178 NY 516; People v Santana, 42 AD2d 869; People v Basch, 36 NY2d 154; People v Lang, 36 NY2d 366; People v Conigliaro, 20 AD2d 930; People v Wheatman, 31 NY2d 12; People v Dlugash, 41 NY2d 725.) II. The testimony of the witnesses Kelley and Allen was properly excluded. (People v Sorge, 301 NY 198; People v McCormick, 303 NY 403.)
   OPINION OF THE COURT

Cooke, J.

On the morning of September 25, 1974, police officers arrived at an apartment in the City of Mount Vernon and encountered a horrifying scene. Two elderly women, their corpses riddled with stab wounds, lay dead on the bedroom floor. Robbery appeared to have been the underlying motive. The apartment itself was in complete disarray, with papers, clothing and women’s hand bags scattered about, blood splattered on the walls and floor and prints from bloodied men’s sneakers in the bedroom and bathroom. A preliminary investigation unveiled the defendant and his common-law wife Ziriphia Mayhew, the niece of one of the victims, as suspects in the crime.

As the inquiry proceeded, it became apparent that defendant and Mayhew were indeed involved in the events of the prior evening. In return for a grant of immunity, Mayhew implicated defendant to such an extent that he was soon indicted and tried for two counts of intentional murder (Penal Law, § 125.25, subd 1), two counts of felony murder (Penal Law, § 125.25, subd 3), one count of attempted robbery in the first degree (Penal Law, § 160.15, subd 1) and four counts of criminal possession of a weapon in the fourth degree (Penal Law, § 265.01, subd [2]).

At trial, the most damaging incriminating evidence was supplied by Mayhew’s testimony. It had previously been established that on prior occasions the two had discussed the means whereby they could separate Mayhew’s aunt from her money. Indeed, on one occasion defendant had stated in the presence of Mayhew and a third person that they would "have to hurt her to get it.” On the night of September 24, 1974, defendant put his plan into action.

According to Mayhew, after stating that she was going to retrieve some personal items at her aunt’s apartment, defendant asked to accompany her so that he could "get some scratch money.” On the way to their destination, defendant stopped off at a friend’s apartment and borrowed a hammer. Upon arriving at the victim’s apartment, the couple was surprised to see that Mayhew’s aunt had guests. They stayed only a few minutes, during which time defendant surreptitiously entered the bedroom and searched for cash. His quest proved unsuccessful, however, and the couple journeyed elsewhere, waiting for the guests to depart.

Later that evening, Mayhew and defendant returned to her aunt’s apartment and noticed that the visitors’ car was no longer in sight. Defendant told Mayhew that he intended to "rip off” her aunt and kill the two elderly women. When Mayhew sat in silence, defendant punched her in the chest and she agreed to accompany him into the apartment. May-hew testified that she watched terror stricken as defendant savagely murdered the two women, first striking them with the hammer and later repeatedly stabbing them, after his efforts to extract money proved unsuccessful. The couple then drove home, where defendant laundered his bloodstained clothes and sneakers, after first disposing of the murder weapons in a nearby sewer.

As might be expected, defendant’s version of the events of that night tended to significantly downplay his role in the crimes. Testifying on his own behalf, defendant claimed that he had waited in the car while Mayhew went to the apartment to ask her aunt for money. After waiting over one-half hour for her return, defendant went upstairs and knocked on the apartment door. Some time later, the door opened and defendant encountered Mayhew in a state of shock, the bloodied bodies of the two women lying on the bedroom floor. Upon seeing the bodies, defendant testified, he asked Mayhew what had happened and received a response that there had been an altercation. Mayhew prevented him from summoning assistance and disposed of the weapons on their way home.

As the testimony unfolded, it became apparent that under either version of the relevant testimony, Mayhew was no mere witness to the crime. Under any view of the evidence, May-hew participated in the events of that night to such an extent that she could have been prosecuted for the underlying offenses but for her grant of immunity. She was, at the very least, an accomplice to the crimes for which defendant was charged (CPL 60.22, subd 2; see People v Dlugash, 41 NY2d 725, 731; People v Beaudet, 32 NY2d 371, 376). Being such, her testimony took on a special significance.

The law looks upon accomplice testimony with a suspicions eye. Especially when traded for immunity from prosecution, such evidence must be scrutinized with the utmost caution and circumspection because, while such testimony is certainly competent, it lacks the inherent reliability attached to the testimony of a disinterested witness. To compensate for its untrustworthy nature and to insure the rights of the defendant, accomplice testimony, standing alone, is insufficient to sustain a criminal conviction (People v Kress, 284 NY 452, 460). Thus, where the undisputed evidence establishes a witness as an accomplice, the jury must be so instructed and charged that the witness’ testimony must be corroborated by independent evidence materially connecting defendant with the commission of the crime (People v Basch, 36 NY2d 154, 159; People v Ohlstein, 54 AD2d 109, affd 44 NY2d 896; CPL 60.22, subd 1).

While the jury did receive proper instructions with respect to the nature and corroboration requirements of Mayhew’s accomplice testimony, the court neglected to give instructions with respect to the nature of accessorial liability (Penal Law, § 20.00). The jury at this point was understandably confused and requested supplemental instructions as to "the element of guilt between partners in crime.” Counsel for defendant, while raising no objection to giving these supplemental instructions, did request, for the first time, that they be given in conjunction with a charge of criminal facilitation in both the first and second degrees (Penal Law, §§ 115.00, 115.05). The court, however, only instructed the jury with respect to the implications of accessorial liability.

We find no error in either the supplemental charge or the refusal to charge criminal facilitation upon defendant’s belated request. At any time the jury, during its deliberations, requests additional instructions concerning the law or the evidence, it is incumbent upon the court to give such instructions (People v Jackson, 20 NY2d 440, 454, cert den 391 US 928; People v Miller, 6 NY2d 152, 156). Of course, this does not mean that the court must respond to all jury inquiries at the expense of creating reversible error. It is reversible error, for example, to submit to the jury a theory of liability not supported by the evidence adduced at trial or contained in the indictment (CPL 200.70; People v Rosenberg, 293 NY 16, 17). But for present purposes whether the defendant was the actual perpetrator of the crime or liable as an accessory thereto is irrelevant. There is no distinction between liability as a principal and criminal culpability as an accessory and the status for which the defendant is convicted has no bearing upon the theory of the prosecution (People v Katz, 209 NY 311, 325-326; People v Corbalis, 178 NY 516, 523 [concurring opn]; People v Henry, 18 AD2d 293). Since the jury was already charged that Mayhew was an accomplice as a matter of law, the court’s amplification of the charge with respect to the scope of accessorial liability was entirely proper. And, even more fundamental,, inasmuch as there was no exception to the supplemental instructions there has been no issue of law preserved for our review (People v Patterson, 39 NY2d 288, 294-295, affd 432 US 197; People v Lang, 36 NY2d 366, 371; People v Rainey, 27 NY2d 748, 749).

The assignment of error to the refusal of the court to charge criminal facilitation merits little discussion. We need not decide whether under these circumstances a charge of facilitation would have been proper as a lesser included offense for there was no timely request to so charge. So that opposing counsel may have the opportunity to address all offenses that the court will submit to the jury, all requests to submit lesser included offenses, as a general rule, should be made prior to submission to the jury (see CPL 300.50, subd 2; 470.05). By failing to make the request until after the jury had commenced its deliberations, defendant waived whatever right he may have had to have facilitation submitted as a lesser included offense (CPL 470.05, subd 2; People v Williams, 31 NY2d 151, 153).

Defendant also contends that the court erred in refusing to permit the jury to hear testimony concerning what are claimed to be prior statements by Mayhew inconsistent with her testimony at trial. As a general rule, the credibility of any witness can be attacked by showing an inconsistency between his testimony at trial and what he has said on previous occasions (Richardson, Evidence [10th ed-Prince], § 501). However, as this testimony is often collateral to the ultimate issue before the jury and bears only upon the credibility of the witness, its admissibility is entrusted to the sound discretion of the Trial Judge whose rulings are not subject to review unless there has been an abuse of discretion as a matter of law (People v Sorge, 301 NY 198, 202). Further, it is necessary that the witness be clearly and fairly apprised of the statements which may be subject to impeachment (Loughlin v Brassil, 187 NY 128, 134). Thus, there must be a proper foundation laid for the introduction of prior inconsistent statements of a witness. In order to prevent surprise and give the witness the first opportunity to explain any apparent inconsistency between his testimony at trial and his previous statements, he must first be questioned as to the time, place and substance of the prior statement (People v Weldon, 111 NY 569, 575-576; Richardson, Evidence [10th ed-Prince], § 502).

Applying these principles to the facts at bar, we find that the testimony of both witnesses was properly excluded. The first, a correction officer at the jail in which Mayhew was incarcerated as a material witness, was uncertain of the tenor and substance of the statement she attributed to Mayhew. The trial court ruled that the proffered testimony was irrelevant. As the witness could not testify to the statement with any degree of precision or specificity, its probative value was negligible and was properly excluded.

The testimony of the second witness, Joseph Allen, the estranged husband of Mayhew, was likewise correctly rejected as a proper foundation for its introduction had not been laid. Allen was prepared to testify that one year prior to the murders, Mayhew had told him that she wanted to get some money from her aunt and would kill her if necessary. On cross-examination, Mayhew had denied that she told Allen she wanted money from her aunt but was never asked whether she threatened to kill her, the critical inquiry in the entire line of questioning. While it was error to exclude the former statement, such error was indeed harmless since there had been no foundation laid which would permit the introduction into evidence of the latter and more crucial statement as to the threat to slay the aunt.

Accordingly, the order of the Appellate Division should be affirmed.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Fuchsberg concur.

Order affirmed.


author: Cooke, J. Wachtler, J.

text:
    The People of the State of New York, Respondent, v James L. De Santis, Appellant.
    Argued October 17, 1978;
    decided December 7, 1978

      POINTS OF COUNSEL

      William B. Mahoney for appellant.
    I. The use of a screening system on December 10, 1974, by Ticket Agent Lindsay was not authorized by section 121.538 of the regulations of the Federal Aviation Agency. The search of defendant’s suitcase on December 10, 1974, based on nonexistent regulation was a violation of defendant’s Fourth Amendment rights. (United States v Lopez, 328 F Supp 1077; United States v Bell, 464 F2d 667.) II. There being no Federal regulations of the Federal Aviation Agency in effect December 10, 1974, concerning the screening system as applicable to checked baggage, the court in its basis for denial of the motion misconstrued the testimony of Bruce Johnson in reference to profiles stated therein. The court’s interpretation made the use of the word profiles as being in existence December 10, 1974, and was in error. The court failed to differentiate between section 121.538 and section 121.538(b) as amended April 15, 1976. III. Warrantless searches are per se unreasonable under the Fourth Amendment. A search of defendant’s suitcase on December 10, 1974, was founded upon suspicion alone which had no authorization in the amendment to section 121.538 of the regulations of the Federal Aviation Agency. Amendment to section 121.538(b) did not become effective until April 15, 1976. There was no testimony at the suppression hearing as to what, if any, profiles had been established by the Federal Aviation Agency in relation to their antihijacking system as to checked baggage, effective on December 10, 1974. The record clearly establishes that certain unidentified profiles had come to the attention of Agent Johnson of the Buffalo, New York, office as appears from the examination of the witness Johnson who stated "exactly what the profile is, I don’t know.” (United States v Lopez, 328 F Supp 1077; United States v Bell, 464 F2d 667; United States v Ruiz-Estrella, 481 F2d 723; United States v Muelener, 351 F Supp 1284; People v Allende, 39 NY2d 474; People v Cantor, 36 NY2d 106.) IV. Failure of Agent Lindsay to advise appellant that he could have avoided the search of his suitcase or person by not boarding the airplane. Such failure to so advise resulted in conclusion that such search was unreasonable. (Terry v Ohio, 392 US 1; United States v Ruiz-Estrella, 481 F2d 723; United States v Davis, 482 F2d 893; United States v Muelener, 351 F Supp 1284; United States v Bell, 464 F2d 667.) V. Statements made by appellant subsequent to seizure of appellant’s suitcase and contents and arrest of appellant at Buffalo, New York, Airport and while in custody of Deputy Sheriff Petronella and agents of the Buffalo, New York, Drug Enforcement Agency should be suppressed as fruits of the illegal search. (Silverthorne Lbr. Co. v United States, 251 US 385; Wong Sun v United States, 371 US 471; Silverman v United States, 365 US 505.) VI. Did the court below in its decision of November 4, 1977 overlook and fail to consider the content of the reply brief submitted and filed by appellant on September 9, 1977? The reply brief contained a full discussion of case law on airport searches since 1973. No reference was made to the same in the decision of the court below dated November 4, 1977. (United States v

      Davis, 482 F2d 893; United States v Canada, 527 F2d 1374; Jones v United States, 357 US 493; Angello v United States, 269 US 20; People v Brown, 24 NY2d 421; People v Corrado, 22 NY2d 308; People v Toletino, 40 AD2d 596.) VII. Neither Deputy Sheriff Petronella nor any of the officers of the Narcotic Bureau had reason to believe that appellant’s suitcase contained some immediate dangerous instrumentality such as explosives. Thus, there was no urgency existing for the warrantless search of the suitcase.

      Edward C. Cosgrove, District Attorney (Judith Blake Manzella of counsel), for respondent.
    I. Intrusion, into defendant’s property, by a private person, does not require exclusion of the evidence gained through that search. (People v Horman, 22 NY2d 378; Lustig v United States, 338 US 74; Gold v United States, 378 F2d 588; United States v Cangiano, 464 F2d 320; United States v De Berry, 487 F2d 448; United States v Echols, 477 F2d 37; United States v Wilkerson, 478 F2d 813; United States v Mitchell, 352 F Supp 38, 486 F2d 1397; United States v Ogden, 485 F2d 536; United States v Pryba, 312 F Supp 466, 502 F2d 391, 419 US 1127.) II. The warrantless search of defendant’s suitcase was proper in the circumstances. (People v Darden, 34 NY2d 177; United States v Chadwick, 433 US 1; United States v De Berry, 487 F2d 448; United States v Haes, 551 F2d 767; Williams v United States, 401 US 646; Chimel v California, 395 US 752.) III. Defendant’s statements, made subsequent to his arrest and the search of his suitcase, were properly admitted at trial.
   OPINION OF THE COURT

Cooke, J.

Defendant appeals from his conviction, after a jury trial, of criminal possession of a controlled substance in the second degree (Penal Law, § 220.18, subd 3) and criminal possession of a controlled substance in the fifth degree (Penal Law, § 220.09, subd 10). Among several grounds urged for reversal, it is argued that the determination of the Supreme Court in United States v Chadwick (433 US 1 [June 21, 1977]) renders the actions of the police unreasonable and mandates that the fruits of their warrantless search be suppressed. We hold that the conviction should be affirmed, as the scope, intensity and duration of the search and seizure incident to defendant’s lawful arrest did not exceed constitutional limits.

On December 10, 1974, defendant and his traveling companion approached a United Airlines ticket agent in San Diego, California, to purchase tickets for a flight to Buffalo by way of Chicago. They paid for their tickets by peeling one hundred dollar bills from what, according to the agent, appeared to be a wad of bills of large denomination. Throughout the entire transaction, defendant and his fellow traveler exhibited a degree of anxiety atypical of persons engaged in such a routine occurrence. His suspicions aroused by this curious conduct, and in keeping with his "responsibility to the company”, the agent opened the two unlocked suitcases which the pair had checked for the flight. While subjecting the contents of the baggage to a cursory examination, the agent discovered two large plastic bags containing what appeared to be marihuana.

Upon making this discovery, the agent relayed this information to Federal drug enforcement authorities in San Diego, furnishing them with the suspects’ names and features, a description of their luggage, their flight number and destination and the baggage claim ticket number for the suitcase containing the contraband. This information, in turn, was communicated to Federal authorities in Buffalo who notified the Erie County Sheriff’s Department of the then impending arrest.

Upon arrival of the flight in Buffalo, Federal Agent Johnson observed two individuals matching the description supplied by San Diego authorities disembark from the plane. He followed them to the baggage claim area where he observed defendant pick up the suitcase bearing the claim number furnished by the authorities in San Diego. Addressing the defendant, Johnson said, "Excuse me, I believe you have my suitcase.” When defendant produced the claim check matching the number of the ticket on the bag, Johnson apologized and defendant walked away with the suitcase. Defendant was then arrested by an Erie County Deputy Sheriff.

Both defendant and his suitcase were at once taken from the baggage claim area to a police substation located within the airport. Once there, defendant was immediately searched and the suitcase opened, revealing two large plastic bags of marihuana and a brown paper bag containing smaller bags of amphetamine pills.

Defendant raises a number of objections to the events leading up to his arrest, all of which are without merit for the reasons stated in the opinion of Mr. Justice Michael F. Dillon at the Appellate Division (59 AD2d 257, 258-259). All that remains for our determination is the claim that the warrantless search of the suitcase exceeded constitutional limits under the rule of United States v Chadwick (433 US 1, supra).

It merits little discussion but to note that, except in a few specified categorical instances, the Fourth Amendment prohibits all searches and seizures without the prior approval of a disinterested Magistrate (Coolidge v New Hampshire, 403 US 443, 455). One of these exceptions, of course, allows for a warrantless search of a person and the objects within his access incident to his lawful arrest (Chimel v California, 395 US 752, 762-763; Marron v United States, 275 US 192, 199). A warrantless search incident to a lawful arrest is most often justified as necessary to protect the safety of the arresting officer, to deprive the arrestee of any potential means of escape or of the ability to destroy the evidence of a crime (Chimel v California, supra, at p 756; People v Evans, 43 NY2d 160, 165; People v Erwin, 42 NY2d 1064, 1065; People v Darden, 34 NY2d 177, 180). But the practical impetus for allowing these searches lies in the fact that the arrest itself constitutes such a major intrusion into the privacy of the individual that the encroachment caused by a contemporaneous search of the arrestee and his possessions at hand is in reality de minimis (People v Perel, 34 NY2d 462, 467-468; see, also, People v Weintraub, 35 NY2d 351, 354). Thus, when viewed in the context of reasonableness, the cornerstone in any Fourth Amendment inquiry (Katz v United States, 389 US 347), the lawful custodial arrest being reasonable (see United States v Watson, 423 US 411), the search of the person and the area within his immediate control, in this instance defendant’s suitcase, does not involve any greater reduction in the arrestee’s expectation of privacy than that caused by the arrest itself.

United States v Chadwick (433 US 1, supra) does not compel a different result. In that case, railroad officials in San Diego observed two individuals loading a heavy footlocker on a train bound for Boston. Their suspicions were aroused when they noticed it was leaking talcum powder, a substance often used to mask the odor of marihuana. These suspicions were reported to Federal agents who relayed the information to their counterparts in Boston. When the train arrived in Boston, the two individuals who had loaded the footlocker in San Diego were on hand and lifted it into the trunk of Chadwick’s waiting car. At that point, Federal agents arrested all three and seized the footlocker. Ninety minutes later, after the footlocker had been transported to the Federal building and separated from the arrestees, the agents opened the trunk and seized a large quantity of marihuana.

Rejecting the contention of the Government that a double-locked footlocker has the same inherently mobile characteristics which support warrantless searches of automobiles (see Chambers v Maroney, 399 US 42; Cady v Dombrowski, 413 US 433), the court refused to extend the automobile exception to all personalty located outside the home (433 US, at p 13, supra). The alternative ground upon which the Government sought to legitimize the search was also repudiated, the court holding that a search could not be justified as incident to an arrest "if the 'search is remote in time or place from the arrest’ ” (id., at p 15, quoting Preston v United States, 376 US 364, 367). Once the property is within the exclusive authority of the police and the arrestee’s association with the property is at an end, there remains no predicate to justify the warrantless search.

As Chadwick makes plain, a search or seizure without a warrant has always been considered to be a strictly circumscribed right (see, e.g., People v Marsh, 20 NY2d 98, 101-102). But it has always been, and continues to be, the rule that a warrantless search, not significantly divorced in time or place from the arrest, is lawful.

In this case, at the time of his arrest, the police could have conducted a full-blown search of defendant and the suitcase within his immediate control in the baggage claim area (People v Darden, 34 NY2d 177, supra; Draper v United States, 358 US 307). But the fact that this did not occur and the search took place just as soon as defendant was in a place where the search could be performed without endangering innocent bystanders and sparing defendant public embarrassment is of no constitutional significance (Abel v United States, 362 US 217). To be sure, the arrest of defendant, standing alone, did not destroy whatever privacy interests he had in the contents of the suitcase. It did, however — at least for a reasonable time and to a reasonable extent — subsume those interests into the legitimate governmental interest in discovering weapons, thwarting access to means of escape and preventing the destruction or secretion of evidence.

The particular result obtained in Chadwick is not determinative of this appeal. This becomes apparent from a mere review of the circumstances surrounding the two searches. In Chadwick, the object seized was a bulky, double-locked footlocker, which obviously could be neither quickly opened nor rapidly removed by the defendant or an accomplice. More significantly, the search itself was not undertaken in close proximity to the time and place of the arrest and seizure. Rather, the footlocker was opened an hour and a half after the arrest, and only after it had been removed to police headquarters some distance away. The defendants, furthermore, had been securely confined and were not present when the footlocker was opened. Indeed, the only people present were the police. Under these circumstances, there was no reason whatsoever which would justify a delay of the search until a search warrant could be obtained. In the present case, in marked contrast, the suitcase was opened, not after the police had gained exclusive control of it, not away from the securely incarcerated defendant as in Chadwick, but rather directly upon defendant’s arrest in a private airport room with no danger to the public and in the presence of defendant and his traveling companion. Thus, the police had a strong legitimate interest in immediately opening the suitcase and securing its contents. In short, the search of the unlocked suitcase, having a close nexus to the time and place of the arrest, was reasonable under the circumstances.

Accordingly, the order of the Appellate Division should be affirmed.

Wachtler, J.

(dissenting). I dissent on the ground that the illegal search and seizure condemned in United States v Chadwick (433 US 1) occurred under facts indistinguishable from those here presented. Indeed the challenged search and seizure is even less supportable in this case. Whereas in Chadwick there was no inspection of the trunk prior to the seizure, here the ticket agent in San Diego examined the contents of the suitcases before informing the authorities that defendant was transporting contraband drugs. Hence the possibility that the suitcases contained explosives or other instrumentalities posing an immediate danger was dispelled.

Chief Judge Breitel and Judges Jasen and Gabrielli concur with Judge Cooke; Judge Wachtler dissents and votes to reverse in a separate opinion in which Judges Jones and Fuchsberg concur.

Order affirmed.