A.A.R.R. Co. v. . Johnson

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 377 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 378 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 *Page 379 completed the lease was to attach to it; and the defendants agreed to operate both the old 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 October 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, Ch. 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 *Page 380 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 Railroad Company of Brooklyn, assuming to act under the authority granted to it by Ch. 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 Railroad 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 *Page 381 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 respect 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 agreements herein contained, and by each of said parties to be observed and performed." The lease was two fold 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 *Page 382 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 lease would, therefore, be inoperative as a present demise of non-existent 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 respect 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 *Page 383 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 for rent, but the proper subject of recoupment or counterclaim. (Taylor's Land. Ten. §§ 351-374; Newman v.French, 45 Hun, 65; 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 for 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 have given 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. *Page 384 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 Railroad Company was the opposing party in interest. The plaintiff insists that it now appears that the Broadway Railroad 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.) 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 wrongdoer. 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 Railroad 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 Ch. 461, Laws of 1860, and having constructed a portion of its railroad upon said avenue, the plaintiff was prevented by Ch. 252, Laws of 1884, § 14, from constructing a railroad thereon without the consent of the Broadway Railroad Company. Neither the plaintiff nor defendants could proceed with the construction of the railroad upon Central avenue in the face of the decision and injunction. No appeal was taken. If we could take notice of the judgment in the case of People v. BroadwayRailroad 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 *Page 385 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. Nor 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. Judgment affirmed.