text:
    George B. Martin, App’lt, v. Peter A. Perqua, Resp't.

      (Supreme Court, General Term, Third Department,

      Filed September 14, 1892.)

    ¡Bills and notes—"Waiver op protest.
    Defendant, who was an accommodation endorser on a note, wrote to plaintiff the day-before it came due that he wanted no cost made on the notes; that he could pay them in time and would give him a claim on his interest in his father’s estate to make him satisfied, and afterward wrote to ask if the maker of the note had paid. It appeared that he was also endorser on a note which was overdue at the time the first letter was written. Held, that waiver of notice of protest could not he implied from the correspondénce.
    • This action was commenced in justice’s court to recover against the defendant as endorser of a promissory note.
    The plaintiff recovered before the justice, and an appeal was taken to the county court of Saratoga county, where the judgment was reversed and the plaintiff appeals to this court.

      Ira D. Roods (J. W. Hill, of counsel), for app’lt; Charles H. Sturges, for resp’t.
   Mayham, P. J.

—The complaint was in the ordinary form of a complaint by the holder against an endorser, alleging the demand and refusal at the place where the note was payable and notice of protest to the defendant

The answer contained a general denial and, among other separate defenses, alleged that the note was never presented for payment at the place designated as the place of payment, and no demand was made and no notice of protest ever given to the defendant.

On the trial no demand or notice of protest was proved and the defendant asked the court to non-suit the plaintiff for that reason, and that motion was denied by the justice, who thereupon rendered judgment for the plaintiff for the amount of the note and costs. It is not denied by the respondent that to charge an endorser of a promissory note demand of payment and notice to the endorser of non-payment are necessary pre-requisites to a recovery against him unless notice of protest is waived.

But it is insisted by the respondent that notice of protest was waived in this case. The chief ground of that contention is a clause in a letter written by the defendant to the plaintiff, in which he uses this language: “No^I want no cost made on notes; I can in time pay them, and I would rather than ask Isaac to sign with me. I will give you a claim on my father’s estate, or will do anything to make you safe and satisfied.” This letter was written on the 29th day of October, the day before the note in question became due. At this time another note held by plaintiff, and on which the defendant was also an endorser, was about a month past due, to which the above language would apply with even more force than to the note in question, and it appears from other correspondence that the note which matured on the 30th day of October was paid, or that he relied upon the maker’s promise that he would pay it. On the 10th of November, after the letter of October 29th, he writes the plaintiff as follows: “ Did Conkey (the maker) pay the note which fell due on" October 30 % He wrote me that he would meet it”

•In the absence of any express waiver of notice of protest, we do not think that one can be implied from this correspondence.

The defendant being an accommodation endorser and not the principal debtor, there are no equities between him and the holder which requires the court to relax the rule which exists between the holder and endorser as to the notice of protest.

The plaintiff, who had procured the note to be discounted at the bank, voluntarily paid the same and withdrew it from the bank without suffering it to go to protest, and he expressly testifies that he did not present the note to any one and demand payment. On the day the note fell due, before three o’clock, the hour for closing the bank, he presented his own check and took the note out of the bank, and no demand of payment of the maker, or notice of non-payment to the defendant, who was the first endorser, was given.

By that omission the endorser was discharged, unless he had waived notice of protest, which, as we have seen, he had not, Nor do we think his letter of November 10 revived his liability on this note. We think the judgment of the county court, reversing that of the justice of the peace, is right and should be affirmed.

Judgment affirmed, with costs.

Putnam and Herrick, JJ., concur.


source: Caselaw Access Project

author: Putnam, J. Mayham, J. Herrick, J.,

license: Public Domain

text:
    James E. Ten Eyck et al., Pl’ffs, v. The Rector, etc., of the Protestant Episcopal Church in the State of New York, Def’ts.

      (Supreme Court, General Term, Third Department,

      Filed September 14, 1892.)

    Lease—Construction—Paying.
    The lease under which defendants occupied a building provided that the lessees should pay all taxes and all assessments for paving, flagging or repairing the streets adjoining the premises, but assessments for opening streets, squares or for other public purposes of an extraordinary character, or for permanent improvements, should be paid by the parties of the first part. At the time of making and renewing said lease the streets . were paved with cobblestones. Thereafter the city had them paved with granite block pavement and an assessment was laid therefor. Held, that this was a permanent improvement within the meaning of the lease, and that plaintiffs, the parties of the first part, were liable therefor.
    (Herrick, J., dissents.)
    Submission of controversy without action.

      Stedman, Thompson & Andrews (Arthur L. Andrews, of counsel), for pl’ffs; Abraham Lansing, for def’ts.
   Putnam, J.

—Defendants are in possession of premises situated on Maiden lane and Lodge streets in the city of Albany under a lease executed on April 80, 1859, for a term of thirty years at a yearly rent of $50,0. Said lease contains the following covenant:

“ During the continuance of said term, the said party of the second part shall pay all taxes and water rents which shall be lawfully assessed or charged upon said premises, and also all assessments for paving, flagging or repairing the streets adjoining said premises, but assessments, if any shall be made, for opening streets, squares, or for other public purposes of an extraordinary character, or for permanent improvements, shall be paid by the said parties of the first part.”

On April 25, 1889, said lease was renewed for five years at the annual rent of $400, but with the same conditions and covenants contained in' the original lease.

At the time of the execution of said lease the streets known as Maiden lane and Lodge streets had been laid out and graded “ under the laws and ordinances applicable to the city of Albany, and had been and were then paved and curbed, and the expenses thereof bad been paid for by the owners of the property adjoining said streets, and by the owners of the property in question, to the extent of their proper portion thereof. * * * .The pavement of the roadway, as so paved, was of cobblestone, which pavement from use, and the nature of the soil upon which the same was laid, required frequent and usually annual repair; the sidewalks of said streets had been and were at the said date laid with flagstones. Cobblestones were the pavement in universal use in the city at that time, and no other kind of pavement was then generally known in cities.”

On the 8th of April, 1889, an act was passed by the legislature amending chapter 298 of the Laws of 1883, entitled “An act to provide for the government of the city of Albany,” under which the common council of said city of Albany in the summer and fall of the year 1891 caused Maiden lane to be repaved with granite block pavement and suitable cross-walk stones and recurbed, and the officers of the city assessed the expense of the work, labor and services and materials for such work upon the property adjoining said street and in part upon the property described in said lease. The said premises were duly sola for default in the payment of said assessment, which amounted to $799.79, being the amount assessed with interest and charges.

The plaintiffs claim that the defendants under the above quoted clause of the lease are legally bound to pay the aforesaid assessment.

The defendants insist that they are only bound to pay for ordinary repairs to the street, and that the said assessment being for unusual and extraordinary as well as permanent improvements, the assessment, therefore, under the lease, is for the plaintiffs to pay.

If the covenant of the defendants had ended with its promise to pay u all assessments for paving, flagging or repairing the streets adjoining said premises," no serious question would arise as to its liability, although the assessment in question was made under the provisions of a statute passed subsequently to the date of the lease. Post v. Kearney, 2 Comst., 394.

“ Paving ” is defined to be the laying of streets with pavement, and assuming that this word in the lease has the same meaning as “ repaving, ” the covenant above to pay for paving, flagging or repairing, if unmodified by the subsequent part of the sentence, might be construed as an agreement to pay for all that constitutes paving, the material of which a pavement is formed as well as the work of placing it. But that part of the clause above quoted in reference to defendants’ paying for assessments is modified by the balance thereof, viz : “ But assessments, if any shall he made, for opening streets, squares, or for other public purposes, of an extraordinary character, or for permanent improvements, shall he paid hy the said parties of the first part."

The covenant of defendants, therefore, taking the whole sentence together, is an agreement to pay all assessments for paving, flagging or repairing streets, adjoining said premises, except assessments for opening streets, squares, or for other public purposes of an extraordinary character, or for permanent improvements, which shall be paid for by the parties of the first part.

The assessment for repaving and recurbing Maiden Lane in 1891 was doubtless an assessment for a public purpose, and the question to be determined is, was it an assessment to pay for work of an extraordinary character or in the nature of a permanent' improvement. Extraordinary is defined to mean beyond or out of the common order or rule; not usual, regular or of a customary kind; not ordinary ; remarkable ; uncommon ; rare.

It appears that when the lease was made, in 1859, the streets adjoining such premises and generally in the city of Albany were paved with cobblestones, and I infer from the case that they remained in that condition, with ordinary repairs, until the repaving in question in 1891, a period of over thirty years. At this time, in 1891, the whole pavement was removed and replaced with granite.

'• The question submitted is not free from doubt and I have had some hesitation in reaching a conclusion. I think, however, that the covenant contained in the lease on the part of the defendants was not one to pay assessments for removing a pavement already existing and to lay down a new and expensive pavement with entirely different materials. I think the agreement should be construed to mean that defendants would make the • ordinary repairs, keeping the pavement existing when the lease was made irr proper condition.

The new granite pavement for which the assessment was made was a repavement of the street in place of the old pavement that had remained over thirty years. Hence it was a rare, unusual, infrequent kind of work. It was not ordinary. It was uncommon. The fact that the new pavement was put down after using the old pavement for over thirty years shows that it was an extraordinary repair.

The assessment was also for a public purpose of an extraordinary character, because of its amount. The annual rent reserved in defendant’s lease was $400. The assessment was for $800, twice the amount of the annual rent. A repair costing that amount cannot be deemed ordinary. The assessment, therefore, was for a public purpose of an extraordinary character.

I think this construction of the covenant in question will carry out what may be deemed was the intent of the parties to the contract

I also am of the opinion that the assessment may properly be considered as one made by the city to pay for a permanent improvement. The old cobblestone pavement was taken up and replaced by granite. This pavement is of a permanent character; “Permanent” is defined to mean not temporary or subject to change; abiding; remaining; fixed or enduring in character; state or place. I think that the court may take judicial notice that the new granite pavement of the character described in this cáse is permanent, lasting and not subject to change.

In Twycross v. Fitchburg R. R. Co., 10 Gray, 295, Justice Thomas, in delivering the- opinion of the court, remarked (page 295) in reference to a new pavement laid in front of the plaintiff’s premises, referred to in the opinion : “ It is a permanent improvement of the estate, the benefit of which is to be found in the increased value óf the estate and in the increased rent which it would permanently command.”

I conclude, therefore, that under the clause in the lease to which our attention is called, the plaintiffs were liable to pay for the new pavement in question, and' that, therefore, the defendants should have judgment on the case submitted, with costs.

Mayham, J.

—The questions in this case grow out of the construction to be placed upon the following exception in the lease: “But assessments, if any shall be made, for opening streets, squares or for other public purposes of an extraordinary character, or for permanent improvements, shall be paid by the said parties of the first part.”

.If this assessment comes within any of the above exceptions it must be under that which exempts the lessee from the payment of taxes for permanent improvements.

This street was paved with cobble pavement at the time of making and renewing the lease. That kind of pavement necessitated frequent relaying, paving or repairing, for which the lessee under the lease would be clearly liable.

That kind of pavement was in universal use in the city of Albany at that time ; and it seems that it required the authority conferred by chapter 298 of the Laws of 1883, to enable the ■common council to adopt the more permanent, but more expensive kind of pavement, known as Belgium block.

It is by no means probable that the parties to this lease, either when it was made or renewed, had in contemplation a repavement of this street with a pavement of this character. Nor do I think the language of the lease which binds the lessee to pay “all assessments for paving, flagging or repairing the streets adjoining the premises,” necessarily embraces this kind of' repavement, especially when read in connection with the paragraph relating to “ permanent improvements,” above quoted.

By that paragraph or provision of the lease • the lessee is exempted from taxes imposed for permanent improvements, and it is difficult to conceive of a more substantial or permanent improvement than that of paving a street with granite block. The lease does not in express terms require the lessee to pay for “repaving” but for “paving,” which means when pavement is laid for the first time on a dirt road; repaving is when an old pavement is replaced by a new one. If by the conditions of the streets at the time of making or renewing the lease there was no paving ” that could be required, the lessee was only the more secure from that burden, and the court cannot import into the agreement any word that could increase the defendants’ liability.

If therefore that provision in the lease is to have any effect, it must be applicable to the permanent improvement of paving this street with granite block.

If this tax is imposed upon the tenant, it, or the rector, by whom it is represented, would be required to pay for the use of the premises in 1891 about three times the amount of rent stipulated in the lease, a burden which should not be cast upon the defendant unless by the clear terms of the lease it assumed that burden, which I do not think it did.

. I therefore concur in the conclusion reached by my brother Putnam in this case, that the- defendants should have judgment,, with costs.

Herrick, J.,

(dissenting).—The defendants are in possession of premises situated on Maiden lane and Lodge street in the city of Albany, under a lease executed on April 30, 1859, for a term of." thirty years, at a yearly rent of $500. Said lease contains the following covenant: “During the continuance of said term, the said, party of the second part shall pay all taxes and water rents which shall be lawfully assessed or charged upon said premises, and also-all assessments for paving, flagging or repairing the streets adjoining said premises, but assessments, if any shall be made, for opening streets, squares, or for other public purposes of an extraordinary character, or for permanent improvements, shall be paid by the said parties of the first part.”

On April 25th, 1889, said lease was renewed for five years, at the annual rent of $400, but with the same conditions and covenants contained in the original lease.

At the time of the execution of said lease the streets known as Maiden lane and Lodge street had been laid out and graded under the laws and ordinances applicable to the city of Albany, and had been, and were then, paved and curbed, and the expenses thereof had been paid for by the owners of the property adjoining said streets, and by the owners of the property in question, to the extent of their proper proportion thereof. * * * Tim pavement of the roadway, as so paved, was of cobble-stone, which pavement, from use, and the nature of the soil upon which the same was laid, required frequent and usually annual repair; the ■sidewalks of said streets had been, and were at the "said date, laid with flag-stones. Cobble-stones were the pavement in universal use in the city at that time, and no other kind of pavement was then generally known in cities.

On the 8th of April, 1889, an act was passed by the legislature amending chapter 298 of the Laws of 1883, entitled “An act to provide for the government of the city of Albany,” under which the common council of said city of Albany in the summer and fall of the year 1891 caused Maiden lane to be repaved with granite block pavement and suitable crosswalk stones, and re-curbed ; the officers of the city assessed the expense of the work, labor and services and materials for such work upon the property adjoining said street, and in part upon the property described in said lease. The said premises were duly sold for default in the payment of said assessment, which amounted to $799.79, being the amount assessed, with interest and charges.

The plaintiffs claim that the defendants under the above quoted clause of the lease are legally bound to pay the aforesaid assessment.

The defendants insist that under the aforesaid clause they are only bound to pay for ordinary repairs to the street, and that the said assessment is for unusual and extraordinary, as well as permanent improvements ; the assessment, therefore, under the lease,. is for the plaintiffs to pay. The intent of the parties must be gathered from the language of the instrument if possible, and seemingly inharmonious and conflicting expressions must be-reconciled. It seems to me that the evident intent was that the defendants should pay the expense or assessments for keeping the street adjoining the leased premises in proper condition, keeping' them paved and in order.

The charter of the city of Albany, chapter 298 of the Laws of 1883, title 9 and 10, recognizes three (3) classes of paving work upon its streets; “ paving,” when a pavement is laid for the first time upon a new street, or one theretofore having only a dirt road bed; “ repaving,” where a street has once been paved, and the old pavement is taken up, and a new one laid in its place; and “repairing,” where the 'pavement is not entirely relaid, but defects in it made good. The agreement to pay assessments here was part of the rent, and to confine the meaning of the word “ paving ” in the agreement to the signification attached to it in the charter of the city would render it of no value whatever, because, as appears-from the submitted case, the street in question had been paved before the execution of the agreement between the parties hereto,, and hence could not be paved again; it could be repaved or repaired, but never “ paved.” If the construction contended for by the defendant is correct, it is released from all liability to pay that portion of the rent to be paid by taking care of the assessments for paving and repaving the streets, because, as we have seen, the street can never be “paved,” and now being “repaved” with granite block pavement, no assessment can be made for repairing such pavement, the city being bound to keep it in repair at its own expense. Chapter 298, Laws of 1883, title 10, § 3.

If nothing had been said about paying assessments for paving the streets, we might then consider paving the street a permanent improvement, for which the defendant was not to pay under that clause exempting it from paying assessments for permanent improvements. Probably paving or repaving a street may be considered a permanent improvement to property.

But in giving, or trying to give, effect to all the language of an agreement, and where in one sentence or part of a sentence there is a specific provision to pay assessments for various things specificially set forth, among others for paving a street, and in another sentence, or part of the same sentence, assessments for specific purposes, including assessments for permanent improvements, are excepted, it seems to me that the reasonable construction is to hold that paving streets was not a permanent improvement within the meaning and intent of the parties making the agreement.

_ Paving in the agreement here must be construed in its broader signification, as including “ repaving; ” as meaning in fact the laying of a pavement through or upon the street.

And paving assessments being specifically mentioned as assess-. ments to be paid, they must be held to be excepted from the general terms of the clause, “ but assessments, if any shall be made, for opening streets, squares, or for other public purposes of an extraordinary character, or for permanent improvements, shall be paid by the parties of the first part.” Neither can the assessment in question be excepted as one of an extraordinary character. First, because paving or repaving streets is not an extraordinary thing to be done in a city ; the amount of the assessment does not determine the question; it is the purpose for which the assessment is levied that must be of an extraordinary character; but the amount itself in this case, considering the frontage of the premises and the character of the pavement on the street paved, is not excessive or extraordinary. Second, it does not come' within the meaning of that phraseology, because it was before specifically mentioned as one of the assessments to be paid, and, therefore, cannot be held to be one of those assessments which, in the general terms set forth in the lease, it is provided shall be paid by the parties of the first part to the agreement; general terms and expressions must give way to specific ones.

I am, therefore, of the opinion that under the clause in question the defendants must pay the assessment for the new pavement, and that the plaintiffs should have judgment upon the case submitted, with costs.

Judgment on submitted case rendered for defendants, with costs.


author: Putnam, J.

text:
    David J. Johnston, Resp’t, v. John Garside, Mayor, and Michael J. Daley, Impl’d, App’lts,

      (Supreme Court, General Term, Third Department,

      Filed September 14, 1892.)

    Injunction—Claimant of office cannot be restrained from acting EXCEPT BY QUO WARRANTO PROCEEDINGS.
    An action by a tax-payer or official to restrain a claimant to a municipal office from attempting to exercise its powers and duties cannot be sustained. Such action indirectly involves the question of titlé to the office, which can only be tried in an action to which the people are parties.
    Appeal from order denying motion of defendants Garside and Daley to dissolve a temporary injunction issued in this action.

      J. F. Crawford, for app'lts; Charles H. Sturges (C. F. Doyle, of counsel), for resp’t.
   Putnam, J.

—The complaint states that the defendant Daley was nominated by the mayor of the city of Cohoes as fire commissioner on the'12th day of March, 1889, but was never confirmed by a vote of two-thirds of the common council of the city as required by its charter, and hence never became vested with the office.

That defendant W. James Dickey, having been duly appointed and vested with the office of fire commissioner, for sufficient cause, was on the 7th day of April, 1891, by the common council of the city of Cohoes, in pursuance of the provisions of said city’s charter, removed from office.

That defendant John Garside, the mayor, assumed without authority of law to veto the resolution of the common council removing said Dickey, and also illegally assumed to vote for the confirmation of said Daley, and now unlawfully recognizes said Daley and Dickey as fire commissioners and officials of the city, and the said three persons intend, on the 18th of April, 1891, to meet, and as a majority of the board of fire commissioners appoint some person in place of plaintiff, whose term will then have expired.

The complaint further alleges a conspiracy between the said three persons to obtain control and possession of the fire department of the city of Gohoes and the property appertaining thereto, and demands judgment “that the defendants Dickey and Daley may be severally restrained and enjoined from further acting or claiming to act as fire commissioners of said city; that the defendants be restrained and enjoined from appointing or attempting to appoint any person as fire commissioner in the place of this plaintiff, and that the said defendants be further restrained and enjoined from removing or attempting to remove any of the officials, officers or employees of said fire department or appointing others in their stead,” etc.

Plaintiff is one of the fire commissioners of the city and a taxpayer therein.

It is well settled that it is only in an action of quo warranta brought by the people that the question of title to a public office can be tried Mayor v. Conover, 5 Abb., 171; Lewis v. Oliver, 4 id., 121; City of Buffalo v. Mackay, 15 Hun, 204; Morris v. Whelan, 64 How., 109; Palmer v. Foley, 45 id., 112.

Plaintiff insists that the action is maintainable as a tax-payer's action under § 1925 of the Civil Code. It is obvious, however, that this claim is untenable. Wo facts are stated in the complaint authorizing such an action. It is alleged that certain parties in violation of the law have intruded into an office, and plaintiff imagines that such parties are about to remove employees of the fire department and appoint others and that damage will result. Wo actual damage, no waste of public funds, is alleged, but plaintiff imagines that damage will result on account of the usurpation of the office of fire commissioner by defendants Daley and Dickey. As a taxpayer’s action under § 1925 of the Code no cause of action is stated, because no facts are stated showing waste or injury to the city property, nor any grounds to apprehend such waste other than the alleged unlawful intrusion of defendants Daley and Dickey into the office of fire commissioner.

The plaintiff further claims that the action can be maintained as an equitable one to enjoin and restrain Daley and the other defendants from illegally acting and unlawfully interfering with the fire department of the city. But the only grounds set out in the complaint on which the motion in this view can be maintained is that the defendants Dickey and Daley are not in fact fire commissioners and have unlawfully intruded themselves into said office. If they are fire commissioners of said city the plaintiff has no cause of action. In that case defendants have the legal right to do the acts which plaintiff apprehends they intend and are about to do. But if said defendants are not fire commissioners they have no such right. It is obvious therefore that the only substantial question to be tried in this action is the title of Dickey and Daley to the office in question. As we have seen, .such a question cannot be tried in this action.

The cases cited by the respondent do not sustain his contention. People v. Canal Board, 55 N. Y., 890, and People v. Conklin, 5 Hun, 452, were actions brought by the people of the state as plaintiff’s, and hence are not applicable. Possibly in an action of .quo warranta by the People in a proper case a temporary injunction may be granted. See Fiero Special Actions, 746; People v. Draper, 24 Barb., 265-270.

The case of Palmer v. Foley, supra, cited by plaintiff, was an unusual one. The plaintiff was deputy chamberlain of the city of New York and in possession of the office. As such he had under his control the city funds amounting to a very large sum, and the defendant, it-was alleged, was unlawfully about to interfere with his possession of said funds. That case was criticized, however, by Westbrook, Justice, in Morris v. Whelan, supra, and the doctrine stated by the learned justice in the case fast mentioned, I think, has been generally followed. I have examined the other cases cited by the respondent but fail to find any authority for this action. As before stated, its plain object is to try the title of the defendants Daley and Dickey to the office of fire commissioner. Practically that is all there is to be determined. Under the pleadings if this question were determined in favor of the defendants, plaintiff’s case would be ended. If, however, plaintiff could establish the fact upon the trial that said defendants Daley •and Dickey were not fire commissi on ers he would be entitled without showing any further facts to all the relief claimed, assuming that in the equitable action he has brought defendants’ title to said office can be properly tried and that plaintiff as a taxpayer or a fire commissioner of said city is a proper plaintiff.

I conclude, as held in Morris v. Whelan, 11 Abb. N. C., 64, that such an action as this to restrain a claimant to a municipal office from attempting to exercise its powers and duties cannot be sustained. Such action indirectly involves the question of the title to the office, which can only be tried in an action to which the people are parties. Therefore, the temporary injunction should not have been granted.

There are other objections to the action and injunction not necessary to be considered.

The order should be reversed as to the appellants with costs and printing and the motion, as to the appellants granted, with costs.

Mayham, P. J., concurs; Herrick, J., not acting.


author: Follett, Ch. J.

text:
    Charles E. Skinner, Trustee, App’lt, v. Warren B. Smith et al., Resp’ts.

      (Court of Appeals, Second Division,

      Filed October 1, 1892.)

    1. Mabufactubing- cobpobatiobs— Tbabsactiobs of tbustees with THEMSELVES.
    The rule that a contract entered into by the trustees of a corporation with themselves, or a transfer of its property to themselves may he set aside, is not broad enough to condemn as void all contracts and transfers executed by a purely private business corporation with or to its trustees in good faith, in case no public or private interest is harmed thereby. Such contracts are not void,but voidable at the election of those who are affected by the fraud.

      % Same.
    The individual defendants, being the owners of a patent upon carpet looms, formed a company under the manufacturing act for the purpose of collecting and distributing the royalties, with a nominal capital of §40,000, for which stock was issued to them. Two yéars after defendants concluded to engage in the manufacture of carpets themselves, and retransferred the patent to themselves individually, giving their note for §40,000 increased the capital stock to §600,000, all of which was issued to them, they being credited with $40,000 for the retransfer of the patent, $210,000 to be paid in cash and §350,000 for an unlimited license to the corporation to use the patents upon payment of twenty cents royalty per yard. Held, that the plaintiff as a trustee with knowledge of the whole transaction had no cause of action in favor of himself or any shareholder because neither he nor they have any grievance to .redress.
    •3. Same—Discontinuance.
    A manufacturing company has the right to discontinue its operations when they have become unprofitable for the purpose of protecting shareholders from further loss.
    Appeal from a judgment of the general term of the supreme court of the second department, affirming a judgment dismissing a complaint on *the merits, which was entered on the decision of a special term.

      Theron G. Strong, for app’lt; Joseph H. Choate, for resp’ts.

       Affirming 31 St. Rep., 448.

   Follett, Ch. J.

—This action was brought by a trustee of The Smith Moquette Loom Company, pursuant to §§ 1781 and 1782 of the Code of Civil Procedure (which authorize, actions against the officers of corporations, but not against corporations), to set aside alienations of property made or "authorized by the individual defendants to themselves, who were at the time a majority of the trustees of the corporation, and also to compel them to account for all sums and property received under such alienations.

Before considering the facts of this case, it will be well to bring to mind and state one or two of the well settled general rules of law applicable to actions of this class.

A contract entered into by a corporation by the authority or direction of its trustees with, themselves and for their benefit, or a transfer of its property by the authority of the trustees to themselves, may be set aside in case it injures any public interest, or the private interest of any shareholder or creditor, even though the contract or transfer was executed in good faith by the trustees. Duncomb v. N. Y., H. & N. R. R. Co., 84 N. Y., 190. But this rule is not broad enough to condemn as void, on the ground of public policy, all contracts and transfers executed by a purely private business corporation, with or to'its trustees, in good faith, in case no public or private interest is harmed thereby. Such contracts are not void, but voidable at the election of those who are affected by the fraud. Twin-Lick Oil Co. v. Marbury, 91 U. S., 587-589; Thomas v. Brownville, etc., R. R. Co., 109 id., 522-524; Risley v. Indianapolis, B. & W. R. R. Co., 62 N. Y., 240; Barnes v. Brown, 80 id., 527-536; Munson v. S., G. & C. R. R. Co., 103 id., 58-73; 3 St. Rep., 31; Barr v. N. Y., L. R. & W. R. R. Co., 125 N. Y., 263-277; 34 St. Rep., 743.

Whether an action against trustees to prevent them from violating a public duty or to redress a public wrong can be maintained by any party other than “by the attorney general in behalf of the People of the state need not now be determined, for this action is not for the prevention or redress of a public wrong, but for damages for the violation of private rights. The public wrongs mentioned in the third and fourth subdivisions of § 1781 can be prevented or redressed only by an action brought in behalf of the People. Code Civ. Pro., § 1782.

What private interest was injured or imperiled by the transfer of the patent from the corporation to the individual defendants ? Creditors were not injured by the acts complained of, for there were none, so far as the record shows, between the time when the corporation was organized and the date when this action was begun, except as the individual defendants became such by reason of advances made. The only private rights or interest alleged to have been impaired or jeopardized are those of share holders. Who were the share holders, and when and how did they become such ?

January 16, 1877, letters patent numbered 186,374, werq issued by the United States to Alexander Smith, for an improvement in carpet looms, which was assigned on December 12, 1878, by his executors, to the following named persons, and in the following proportions : One-half to Warren B. Smith, one-fourth tq William F. Cochran and one-fourth to Eva S. Cochran, which assignments were duly recorded in the United States patent office December 14, 1878. Warren B. Smith and Eva S. Cochran are brother and sister, the children of Alexander Smith, and William F. Cochran is the husband of said Eva S. Cochran.

December 13, 1878, The Smith Moquette Loom Company was incorporated pursuant to chapter 40 ofxthe Laws of 1848, and the acts amendatory thereof and supplementary thereto, with a capital stock of $40,000 divided into four hundred shares of the par value of $100 each. The purpose of the formation of the corporation was stated in the certificate as follows: “ That the objects for which the said company is formed are the manufacture and selling of carpets, and transacting of all business necessary for and incident to the manufacture and sale of carpets and the development and introduction of the Smith Moquette Loom, and other inventions relating to the manufacture of carpets, and the issuing licenses and collecting royalties for the use of such inventions.”

December 24, 1878, said three assignees of said patent assigned their interests therein to The Smith Moquette Loom Company, in consideration of, and in payment for, the above mentioned shares of stock issued by that corporation to them. January 20, 1879, these assignments were duly recorded in the United States Patent office. These assignments were subject to a license granted February 1, 1877, by the original patentee, Alexander Smith, to Alexander Smith Son’s Carpet Company, by which that company acquired the right to use 100 looms upon the payment of twenty cents royalty for every yard of carpet made on them.

Upon the organization of the corporation, Warren B. Smith became the owner of two hundred shares of its stock, William F. Cochran and Eva S. Cochran of one hundred shares each, which they continued to own until November 18th, 1880, when the capital stock of the corporation was increased to $600,000..

The court found in respect to the transfer from the individual defendants to the corporation as follows : “ That the original transfer of the invention and patent by the individual defendants to the company for forty thousand dollars was made by them without any regard to its actual value, which was many times greater than the sum, and solely as a convenient mode of holding and enjoying title to the same, and to the royalties to be derived therefrom for their exclusive benefit as the sole owners thereof.”

“ Eighth.—That the said defendants, Warren B. Smith, William F. Cochran and Eva S. Cochran, being the sole stockholders and trustees of said company, carried on the business of said company until the fall of 1880 upon the original plan, to wit: the collection of royalties under licenses issued under said patent, during which period a large amount of royalties was collected and divided between them, and that during such period no manufacturing was carried on by said company.”

Ninth. That in the fall of 1880 the demand for Moquette carpets was large and the future prospects of manufacturing were encouraging, and the said defendants concluded that it would be advantageous for them that said company should engage in such manufacturing business, and, as they were unwilling to part with the exclusive ownership of said patent and invention, that said patent should be transferred to themselves individually at the same nominal figure at which they had transferred it to the company, and that to enable the company to go into manufacturing, erect the necessary buildings, buy machinery and to manufacture, its capital stock should be increased to $600,000, all of which should be issued to themselves, forty thousand for that amount of money to be paid by them for the re-transfer of the patent, and in lieu of the four hundred shares originally issued to them, which were to be surrendered. Two hundred and ten thousand dollars "of that amount to be paid in cash by them, and the residue of $350,000 for an unlimited license to use the patents upon payment of the same rate of royalty paid by the Alexander Smith & Sons’ Carpet Company, viz.: twenty cents per yard.”

September 23, 1880, the corporation acquired the right to increase its capital stock to $600,000. That increase was effected as follows: The individual defendants paid $250,000 in cash for 2,500 shares, and they granted to the corporation an unlimited license to manufacture under the patent for 3,500 shares and the: payment of a royalty of twenty cents per yard, which made up the full amount of the capital stock. At this time no person had anjf interest in the corporation, or in the patent, except these individual defendants. From the date of the organization of the corporation to November 18, 1880, when the capital stock was-increased, no business was transacted by it except the granting of licenses for the use of the patents and collecting royalties for the same. Among other rights granted by the corporation was one on the 17th of April, 1879, to the Hartford Carpet Company, by which it acquired the right, in consideration of $62,000, to use sixty-two looms upon the payment of a royalty of twenty cents per yard for every yard manufactured on the looms.

In respect to the increase, the court found: “ That at the time of the said re-transfer of said patent and invention the value thereof had not materially changed, and that said re-transfer at the same price at which the same had been conveyed to the company was made by the defendants without regard to its actual value, in good faith, in the belief that they had the legal right to cause said re-transfer to be made by said company on the terms on which it was made, without any design or intent to injure or defraud any person who might thereafter .become the holder of any of the increased stock to be issued by the company, and that no such person or any person was injured or defrauded thereby.”

“ That the unlimited license to manufacture under said patent upon payment of a royalty of twenty cents per yard was necessary for the manufacturing business of said Smith Moquette Loom Company, and was not an inadequate consideration for the amount of thirty-five hundred shares of its capital stock then issued therefor to the said defendants Warren B. Smith, William F. Cochran and Eva S. Cochran, according to their belief and expectation at that time as to the manufacturing possible to be done by said company, and the issue thereof for that consideration was made by them in good faith and with no intent to defraud said company or any future holder of stock therein."

November 18, 1880, a certificate, No. one, for three thousand shares was issued to Smith. A certificate, No. two, for fifteen hundred shares was issued to William F. Cochran, and a certificate, No. three, for fifteen hundred shares to Eva S. Cochran. These shares they continued to hold until March 31, 1881, during which said period said three persons were the only trustees of the corporation.

At some time prior to March 31, 1881, Charles E. Skinner and Eugene Tymeson had received from the United States -letters patent for improved machinery for the manufacture of tufted or pile fabrics, which were numbered respectively 233, 290 and 233, 291,- and, as they claimed, had invented five other improvements in looms for weaving tufted fabrics, for which patents had not been obtained. On the 31st of March, 1881, Skinner and Tymeson agreed to assign to the Smith Moquette Loom Company said patents already issued and also such patents for improved looms as they should thereafter obtain, in consideration of one thousand shares of the stock of the corporation which were on that day assigned to them ; 500 to Skinner and 500 to Tymeson. Warren B. Smith assigning 500, and Mr. and Mrs. Cochran 250 each. Afterwards, Skinner and Tymeson made formal assignments of the patents granted to them.

The court found in respect to this purchase as follows; Twenty-fifth. “ That the said plaintiff and Tymeson, at and before the time they assigned said patents to said Moquette Loom Company, and took an assignment of said certificates of stock, had knowledge that said Loom Company did not own the Smith Moquette Loom patent aforesaid, but had only a right or license to use the same upon payment of a royalty, and that said patent, had been transferred to the original owners, to wit: said individual defendants.”

Twenty-sixth. “ That the negotiations for the purchase of said! Tymeson and Skinner patents were conducted between the plaintiff and the defendant Smith, and that the said defendant informed the plaintiff, before the same were closed, that the Smith Moquette Loom patent had been reassigned to the owners, to wit: himself. Mr. and Mrs. Cochran; that the capital stock had been increased to $600,000; and that it had all been issued to said defendants, who were to put in $250,000 in cash, and that the company was to have a license to manufacture upon a royalty of twenty cents, a yard.”

Twenty-seventh. “That no misrepresentations were made to said plaintiff or Tymeson to induce them to assign their patents or accept any stock.”

September 16, 1881, the individual defendants sold one thousand shares of their stock to John Sloane, to whom certificates were issued therefor.

November 19, 1881, the number of trustees of the corporation was duly increased from three to six, and John Sloane, Halcyon Skinner and Frank T. Holder were then elected as such additional trustees. Since that date said persons have continued to-be trustees, except, March 15,1884, Charles E. Skinner was elected in the place of Halcyon Skinner, since which date he has continued to be a trustee.

It is very clear, we think, that under these facts as found, that, is, knowledge on the part of plaintiff, and of all the shareholders,, that the original patent had been assigned to the individual defendants, and an unlimited license granted to the corporation to» manufacture carpets for $350,000, payable in the shares of the-corporation, that this plaintiff as a trustee has no cause of action; in favor of himself or of any shareholder because neither he nor they have any grievance to redress.

The court further finds the corporation went on and erected manufactories and engaged in and continued in the business o£ manufacturing carpets until about February 1, 1883, at which, time the individual defendants had advanced $384,627.40. There-does not seem to have been any dispute about the validity of this-indebtedness. It was found upon examination that the business-was being done at a loss, and thereupon it was resolved by the-trustees that the stock on hand should be sold, the manufactoriesleased, and the sums due to the individual defendants secured by mortgages upon the realty and personalty of the corporation.. More than two-thirds of the shareholders consented to the execution of these mortgages, and they were executed accordingly.

" Fifteen months afterwards, nothing having been paid upon the mortgages, they were foreclosed and the property covered by them purchased by Warren B. Smith. The court found in respect to stopping the manufacture of goods, the leasing of the property and the execution of the mortgages, as follows : ■ Thirty-third. “ That the said defendants and Mr. Sloane voted for said resolutions in good faith, believing that there was no other way to save the Moquette Company and its stockholder^ from further loss, and that the acts and proceedings therein directed were for the best interests of said company and its stockholders, and such also was the fact, and the defendants in passing the said resolutions did not intend to injure or defraud the plaintiff as a stockholder of said company, and did not, in fact, injure or defraud him.”

Thirty-fourth. “ That said resolutions so adopted by the board of trustees were necessary and proper, and were for the best interest of said company and its stockholders, and no better or other arrangement to save said company and its stockholders from further loss was practicable.”

It should have been stated that John Sloane testified that when he purchased his one thousand shares that the patent had been transferred by the corporation to Warren B. Smith and William F. and Eva S. Cochran.

• November 29, 1880, two hundred and fifty shares were in form transferred by Smith and the Cochrans to Frank T. Holden, to enable him to become a trustee, but he never had any real interest in them. No persons other than these mentioned ever held any of the shares of the corporation.

As before stated, this action is not brought to redress a public wrong. There is no finding that the transfer of the patent from the corporation to the individual defendants, and the issuance of $350,000 in stock for the license, were in contemplation of thereafter selling shares to the public, or to this plaintiff, who, as well as Tymeson, purchased with full knowledge of all the facts.

This case falls within the principle stated in Kent v. Quicksilver Mining Co., 78 N. Y., 159, where it was said: “In the applieacation of the doctrine of ultra vires, it is to be borne in mind that it has two phases; one where the public is concerned; one where the question is between the corporate body and the stockholders in it, or between it and its stockholders and third parties dealing with it and through it with them. When the public is concerned to restrain a corporation within the limit of the power given to it by its charter, an assent by the stockholders to the use of unauthorized power by the corporate body will be of no avail. When it is a question of the right of a stockholder to restrain the corporate body within its express or incidental powers, the stockholder may in many cases be denied on the ground of his express assent, or his intelligent though tacit consent to the corporate action. If there be a departure from statutory direction, which is to be considered merely a breach of trust to be restrained by a stockholder, it is pertinent to consider what has been his conduct in regard thereto. A corporation may do acts which affect the public to its harm, inasmuch as they are per se illegal, or are malum prohibitum. Then no assent of stockholders can validate them. It may do acts not thus illegal, though there is want oí power to do them, which affect only the interest of the stockholders. They may be made good by the assent of the stockholders, so that strangers to the stockholders dealing in good faith-with the corporation will be protected in a reliance upon those; acts.”

The right of a manufacturing company to discontinue its operations when they have become unprofitable, for the purpose of protecting shareholders from further loss, does not admit we think of doubt. Treadwell v. Salisbury Mfg. Co., 7 Gray, 395; Hancock v. Holbrook, 9 Fed. Rep., 353; Boston R. R. v. N. Y. R. R., 13 R. I., 263; Morawetz Corp., §§ 413 et seq.; 1004; Buford v. Keokuk Packet Co., 69 Mo., 611.

The judgment should be affirmed, with costs.

All concur.


author: Landon, J.

text:
    The Atlantic Avenue Railroad Co., App’lt, v. Tom L. Johnson et al., Resp’ts.

      (Court of Appeals, Second Division,

      Filed October 1, 1892.)

    Lease—Railroads—Covenants by lessor.
    Plaintiff leased to defendant a certain line of street railroad a mile long- and agreed to perfect its chartered rights and obtain the necessary consents so as to enable defendant to run four miles further. A certain rent was fixed until October 1, 1886; after that date defendants guaranteed §15,000 per annum. Plaintiff failed to obtain the necessary consents as to a material part of the route, and the assignees of the lease, being excluded from such part, offered to surrender to plaintiff on payment of their expenditures. In this action for rent, Held, that performance by the-plaintiff as to obtaining the consents was a condition precedent to the liability of the defendants upon their guaranty and that plaintiff could not recover upon said guaranty.
    Appeal from a judgment of the general term, second depart ment, affirming a judgment entered upon the decision of the-court upon trial at the Kings county special term.
    The action was to recover rent upon an alleged lease by the plaintiff to the defendants, executed April 6, 1886, of the right to use and operate a street railroad in the city of Brooklyn, then already constructed from Fulton Ferry to Park and Vanderbilt avenues, and also the plaintiff’s franchises and rights to construct, maintain and operate an extension of the existing railroad through certain other streets, including Central avenue, to the Evergreens-cemetery. The answer was non-performance by the plaintiff of the condition precedent to the accruing of the rent sued for.
    The plaintiff had, in addition to its existing railroad, franchises under which with the consent of the local authorities and property owners it could make this extension. The defendants desired to operate a cable railroad upon the constructed road and to use the plaintiff’s franchises to create the extension and operate the. whole as a cable road. The instrument of April, 1886, is both a lease and an agreement. It recites that the parties “in consideration of the mutual covenants and agreements herein contained, and by each of said parties to be observed and performed, have .agreed and by these presents do mutually agree as follows: ”
    By the first clause, the plaintiff does “ grant, demise and to farm let ” to the defendants, their successors and assigns, for and during the term of its corporate existence, “ all the franchises and rights of the party of the first part to construct, maintain and ■operate a railroad in the city of Brooklyn, commencing at Park .and Washington -avenues,” describing the route of the proposed ■extension; “ also the right to use jointly with the party of the first part the present railroad tracks, franchises and rights, from Washington avenue to Fulton Ferry,” and then describing the ■existing railroad, together with other rights and property not here necessary to mention.
    By the second clause, the plaintiff agreed “ to obtain at its own proper cost and expense all necessary consents, including the consent of the local authorities of the city of Brooklyn, to the construction and operation of a cable road * * * so.as to allow the work of the second party to proceed without hindrance. * * * But in case the party of the first part shall be unable to procure the requisite consents for the construction of a cable road within sixty days from the execution of this agreement, and ■shall give notice of such failure in writing to the party of the second part, this lease and agreement shall, at the option of the ,said party of the second party cease and determine, or the party of the second part shall have the right to continue said agreement and to operate said road by any other lawful power.”
    By the fifth clause, the defendants agreed that “ the said railroad shall be completed and the cars run thereon from Broadway to Fulton Ferry on or before November 15, 1886,” and “ through Central avenue, so far as the same is or may be graded,' on or before October 15, 1887; and to the Evergreens Cemetery as soon thereafter as the grading of the street will permit, unless delayed by legal proceedings or lawful authority over which it has no control; in which case the time so delayed shall be added to the times in which said road is to be completed and operated.”
    By the eleventh and thirteenth clauses, defendants agreed to pay the plaintiff monthly fourteen per cent of its gross receipts from passengers, and agreed “ that the annual rent, commencing October 1, 1886, and for each and every year thereafter, shall amount to a sum not less than $15,000 per year,” whether earned ■or not-.
    The defendants took possession of the completed road, but the plaintiff did not procure the requisite consents for the construction of the extension until in October, 1886. The defendants then -commenced the work of construction, and while prosecuting it upon Central avenue were interrupted by the Broadway Railroad ■Company of Brooklyn and by the local authorities. Litigation followed, and the plaintiff was enjoined from proceeding with the •construction in that avenue, the court holding that the consent of the Broadway Company was requisite to the plaintiff’s right to lay its railroad tracks upon it. Such consent was never obtained. The defendants meanwhile had completed about one-half of the entire proposed extension. In January, 1887, the defendants assigned the lease to the Brooklyn Cable Company, which thereafter assumed the defendants’ rights and liabilities under it. This company paid the plaintiff $1,916.45 as rent. Soon after the plaintiff was enjoined from laying its tracks in Central avenue the Cable Company gave the plaintiff notice that it elected -to hold the contract as broken by the plaintiff by its .non-perform-once, and that the Cable Company was ready to surrender the property it had received under it, upon being reimbursed for the expenditures incurred in complying with it.
    The plaintiff paid no attention to this notice. The plaintiff abated $5,000 of the guaranteed rent of the first year, and brought this action for the balance for the remainder of the year, being, after crediting the payment mentioned, $8,083.55.
    The trial court found that plaintiff failed to perform its covenants with respect to the consents, and that such failure prevented the defendants from constructing the extension as contemplated by the lease, and therefore the guaranty of a fixed sum as rent never became operative. Further facts are stated in the opinion.

      B. F. Tracy, for app’lt; Elihu Root, for resp’ts.

       Affirming 32 St. Rep., 1052.

   Landon, J.

—The plaintiff, by the instrument of April 6,1886,, leased to the defendants for the term of its corporate existence! the right to use an existing street railroad of about one mile in length, and agreed to perfect its chartered rights to extend the railroad about four miles further, and to confer such rights upon the defendants, who agreed to act under such perfected rights, and to complete the extension, and as completed the lease was to attach to it; and the defendants agreed to operate both the old road and the extension as a cable railroad. The rent reserved to the plaintiffs was to be at the rate of fourteen per centum of the gross earnings of the railroad, and without any guaranty of the amount until Oct. 1, 1886; but from and after that date the defendants guaranteed that the rent should not be less than $15,000 per annum. This action is to recover the guaranteed rent from February 1,1887, to October 1, 1887. The defendants' answer in substance is that the guaranty was dependent upon the performance by the plaintiff of the conditions precedent, which were necessary to enable the defendants to complete the contemplated extension, and that these were not performed by the plaintiff, and thus the guaranty never became operative.

By the agreement, which for convenience may be called a lease, the plaintiff agreed to obtain the consents of the local authorities and property holders, which by statute, chapter 252, Laws 1884, § 3, were necessary to perfect its right to construct the extension, “so as to allow the work of the second party to proceed without hindrance.” The defendants agreed that “the said railroad shall be completed and the cars run thereon from Broadway to Fulton. Ferry on or before November 15, 1886.” This required the completion of about one and one-half miles of the proposed extension. But the plaintiff did not procure the requisite consents until in ■October, 1886, and thus the defendants could not “proceed without hindrance,” but were prevented from proceeding at all until .after the day fixed for the guaranteed rent to begin.

It was provided in the lease that “ in case the party of the first part shall be unable to procure the requisite consents for the construction of a cable road within sixty days from, the execution of this agreement, and shall give notice of such failure in writing to the party of the second part, this lease and-agreement shall at the •option of the said party of the second part cease and determine,” but the plaintiff notwithstanding its failure gave no notice thereof to the defendants.

By this delay the defendants suffered the loss of the season most suitable for the work of construction. They commenced it, however, in October, 1886, and prosecuted it with diligence. Beyond Broadway the most considerable part of the remainder of the proposed extension lay in Central avenue. The defendants commenced the work of construction upon this avenue in February, 1887. The Broadway Eailroad Company of Brooklyn, assuming to act under the authority granted to it by chap. 461, Laws of 1860, had already commenced the construction of a railroad upon the same avenue. The trial court found that its consent was necessary to allow the work of the defendants to “ proceed without hindrance,” and that that consent was refused. Three several actions were commenced in the supreme court; one by this plaintiff against the Broadway Eailroad Company, one in the interest of this plaintiff against the same defendant, and the third in the interest of the said Broadway company against this plaintiff ; all involving the plaintiff’s right to construct its railroad in Central avenue. The result was that about July 1, 1887, this plaintiff was enjoined'by the court from proceeding .with the construction of the railroad therein. This injunction was effective to prevent the defendants from completing the railroad. Meantime the defendants'had assigned the lease to the Brooklyn Cable Company, a corporation organized, professedly, pursuant to the terms of the lease to take such assignment. The plaintiff alleges that the assignment is invalid because the corporation has not the paid up capital required by the lease in case of an assignment, but we do not think it necessary to pursue this question. The defendants and their assignee had spent large sums of money in the construction of the extension of the railroad.

About July 20,1887, shortly after the injunction, the Brooklyn Cable Company notified the plaintiff that it would hold the lease as broken by the non-performance of its conditions to be performed by the plaintiff, and that it was ready to surrender to the plaintiff all the property it had received under the agreement, upon being reimbursed for its expenditures in complying with the contract. The plaintiff paid no attention to this notice. The trial court found that the portions of the route contemplated by the lease upon which the defendants and their assignee were unable to construct and operate a railroad were material and substantial parts thereof, and the failure of the plaintiff to procure the requisite consents prevented such construction and operation.

The plaintiff claims that it leased to defendants a railroad in being, and delivered possession of it to them, and also made certain covenants to promote the building and operation of its extension by the defendants; that the lease is complete, and plaintiff’s default, if any, in regard to the extension is no defense to the action for rent, and can only avail the defendants as a counterclaim, and this they have not pleaded.

The defendants claim that the lease was executory, at least as to the guaranteed amount; that the covenants of the lease were in this regard mutual and dependent, and that the certain amount of rent was guaranteed because the plaintiff’s covenants, if performed, would have given to the defendants an opportunity to complete the railroad early enough to enable them to try to earn the rent they guaranteed to pay; and that the breach of the covenants on the part of the plaintiff resulted in the non-creation of that part of the railroad whose contemplated earnings were a substantial part of the consideration for the defendants’ guaranty of a fixed amount of rent; also that the delivery of the perfected right to construct the extension was never fully made.

We think the judgment must be affirmed.

The lease recited that the agreements expressed in it were “for and in consideration of the mutual covenants and agree-z ments herein contained, and by each of said parties to be observed! and performed.”

The lease was twofold in its character; the plaintiff demised to the defendants an existing railroad and reserved a percentage of its gross earnings as rent. It also assumed to demise its franchise and right to operate an additional line of railroad. We assume, without deciding, that the lease was valid. Woodruff v. Erie Railway Co., 93 N. Y., 609. The defendants were ready and willing to treat it as valid. But the additional line of railroad had no existence, and the plaintiff’s right to construct it was incomplete, and would remain so until it should procure the requisite consents of the property owners and city authorities. The lea&e would, therefore, be inoperative as a present demise of nonexistent property, and could not be effective with respect to the right to create such property until the plaintiff should procure the consents. No present rent could be properly reserved out of the mere possibility of first acquiring the right to construct the railroad and the contingent right of afterwards proceeding under it, however it might be as to compensation. Hence, the plaintiff covenanted to procure the consents, and the defendants agreed thereupon to' proceed with the construction. The construction was dependent upon the consents, and hence the plaintiff agreed, to procure them so as to allow the defendants to proceed with the construction “ without hindrance,” and the defendants thereupon agreed to have a substantial part of the road completed before November 15,1886, and also that the guaranteed rent should begin October 1,1886. Thus, the lease was an executed one with resuset to the existing road and the rent reserved upon it, and an executory one with 'respect to the additional road and the guaranteed rent to be reserved both upon it and the old road .after the defendants should have both the time and opportunity .specified in the lease to create the new or certain substantial portions of it The executory covenants of the lease were plainly dependent True, the date when the guaranteed rent should begin was fixed, but it was fixed in reliance upon plaintiff’s timely performance of the covenants on its part.

By the terms of the lease the plaintiff was to obtain the consents before the guaranteed rent should begin to accrue; such consents were a condition precedent to the existence of the right to create the additional railroad, much more to the plaintiff’s ability to give defendants the possession of it, or of the right and power to take possession of it under the plaintiff. By the terms of the lease defendants’ guaranty of the amount of rent from October 1, 1886, was in consideration of the covenants and agreements “ to be observed and performed by the plaintiff. Performance by the plaintiff was therefore a condition precedent to the liability of the defendants upon this guaranty. Grant v. Johnson, 5 N. Y., 247; People's Bank v. Mitchell, 73 id., 411; Pike v. Butler, 4 id., 360.

The plaintiff urges that in case of a lease under which the tenant takes and remains in possession, the breach of a particular covenant on the part of the lessor is not a defense to the action ior rent, but the proper subject of recoupment or counterclaim. Taylor’s Land. & Ten., §§ 351-374; Newman v. French, 45 Hun, 65; 9 St. Rep., 492; Etheridge v. Osborn, 12 Wend., 529.

The defendants are not called upon by this action to deny their liability for rent under the lease. They have made some payments and it is not alleged that these are not equal to fourteen per centum of their gross earnings. The plaintiff seeks recovery ior a fixed amount to begin to accrue October 1, 1886. The question is not whether the defendants should pay rent, but it is at what rate ? They do not claim to have been evicted, but they do claim that before the guaranteed rate should begin the plaintiff should give them the time and opportunity specified in the lease to create and take possession of the additional premises, in consideration of which an additional rent was guaranteed, and that the plaintiff failed to perform. The complaint proceeds upon this theory, for it alleges performance.

If the fixed amount of rent had been guaranteed from the beginning of the term, it is probable that defendants would have been obliged to counterclaim for damages, since in that case plaintiff’s breach of its covenants would have been subsequent to the time when defendants’ liability for rent became fixed. Adjustment of mutual liabilities and not absolute exemption from all liability upon the guaranty would have been the proper mode of measuring defendants’ rights. But here the additional rent is to accrue as the result of plaintiff’s precedent performance; failing in such performance it has not acquired the right to such rent.

But the plaintiff insists that it is not properly chargeable with the non-performance of its covenants to obtain the requisite consents. It was enjoined from constructing its railroad upon Central avenue as the result of litigations in which the Broadway Eailroad Company was the opposing party in interest. The plaintiff insists that it now appears that the Broadway Eailroad Company had forfeited its charter by non-user of its franchises. It appears from the public reports of the decisions of the court that final judgment to that effect was obtained against that company subsequently to the trial 'of this action. People v. Broadway R. R. Co., 126 N. Y., 29; 36 St. Rep., 376.

The plaintiff thence insists that that company was a wrongdoer in opposing and preventing the construction of the railroad upon Central avenue by the plaintiff, or by defendants under the plaintiff; that it had no right in the avenue and, no consent to give or withhold, and that the plaintiff did not agree to overcome the resistance of a wrong-doer.

But we cannot go outside of the record in order to reverse this judgment. Besides, in the actions referred to, in which the plaintiff and the Broadway Eailroad Company were parties, the court held that until judgment of forfeiture at the suit of the People should be obtained against the latter company, it had a right to construct and operate a railroad in Central avenue under the authority given by chapter 461, Laws 1860, and having constructed a portion of its railroad - upon said avenue, the plaintiff was prevented by chapter 252, Laws 1884, § 14, from constructing a railroad thereon without the consent of the Broadway Eailroad Company.

Heither the plaintiff nor defendants could proceed with the construction of the railroad upon Central avenue in the face of the decision and injunction. Ro appeal was taken. If we could take notice of the judgment in the case of The People v. The Broadway Railroad Company, we should still be confronted with the fact that it was not obtained until long after the plaintiff made default in procuring the consents, which during all the time for which it seeks to recover rent in this action were, as a matter of fact, essential “ to allow the work of the second party to proceed without hindrance.” . Practically the plaintiff was to obtain for defendants the field for their work of extension; this was clearly the intention of both parties and is the essential basis of the contract; failure in this respect is the misfortune of the plaintiff.

Other defaults on the part of the plaintiff are found by the trial . court which we do not deem it necessary to specify. Ror do we deem it necessary to consider whether the assignment by the defendants to the Brooklyn Cable Company aids their defense.

The judgment below was without prejudice to the rights of the plaintiff to recover otherwise than upon the guaranty of rent, and should be affirmed, with costs.

All concur,