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Matter of Board of Water Comrs

Appellate Division of the Supreme Court of New York, Second Department
Apr 1, 1902
71 App. Div. 544 (N.Y. App. Div. 1902)


April Term, 1902.

Louis Marshall, for the appellants, the Westchester County Water Works Company and the New York and White Plains Suburban Water Works Company.

David McClure, for the appellant, the Farmers' Loan and Trust Company.

Henry T. Dykman, for the respondent.

The supplementary report of the commissioners, Messrs. Joseph F. Daly, William Temple Emmet and William H. Wright, clearly and cogently states the basis of their award. They report that they intended to cover and did cover whatever rights to transact future business in White Plains the Westchester Water Works Company possessed at the beginning of the proceedings, and that they were unanimously of the opinion that the company did not possess such a franchise as would entitle it to an award therefor, based upon its annual earnings or its future business prospects, for the reason that the restrictive conditions which incumbered the franchise made its value necessarily insignificant compared with the value of an unrestricted franchise. They concluded that the water company did not possess a valuable franchise which could be taken as the basis for the transaction of an unlimited or even of a limited but prolonged amount of future business. They determined that approximately $100,000 would cover the value of the plant and the realty, and the balance of the award was made in part as a slight overpayment for the material properties taken and in part as a payment "for the nominal and practically valueless remaining `rights' which the company possessed at the time of the commencement of these proceedings." Thus it appears that some compensation was made for the franchise.

The acute and learned counsel for the respective corporations appellant first contend that the water company acquired a valid franchise, unlimited as to time, to supply water to the village of White Plains and to its inhabitants. On May 14, 1886, under the act of 1873, chapter 737, and the amendments thereto, certain persons requested the board of trustees of White Plains to consider their application to supply water and to grant permission to form a water works company. On May 28, 1886, permission was granted under certain conditions. One of them read: "The village shall have at the end of five years and at the end of every five years thereafter, the right to purchase said water works in the manner as now provided for by law." On June 7, 1886, the certificate of intention of incorporation was executed, and on July 1, 1886, a contract was entered into between the company and the village of White Plains, reciting the permission of May 28, 1886, and that the party of the first part was a corporation formed pursuant thereto. The contract contained the following clause:


"The party of the second part reserves the right at the expiration of five years from the date of the completion of the works and at the expiration of every five years thereafter to purchase said works as they may then exist by giving to said company one year's notice of such intention and paying to said company the appraised valuation. The amount so to be paid to be determined by three persons not in the interest or employ of said village or company, the Board of Trustees of said village choosing one, the company choosing one, and these two persons choosing a third. Such valuation by said appraisers in no case to exceed the cost of the said works more than 10 per cent. And the decision and appraisal of these three persons to be final and conclusive on the parties to this contract."

The assent of the village authorities was a preliminary and a necessary step in the formation of the corporation. ( Matter of City of Brooklyn, 143 N.Y. 596, 607.) After the corporation was formed it became its duty and it was authorized and empowered in the premises to contract with the authorities or with the inhabitants to supply water. In Matter of City of Brooklyn ( supra, at p. 613) GRAY, J., says: "The dealings with the town authorities amounted to a proposition to form a company for the purpose of supplying water to the inhabitants from certain sources; upon which the authorities acted by voting in acceptance thereof. Under the statute, that warranted the formation of a company, and authorized it to proceed with its works and the laying of pipes in the streets. The subsequent formal contract regulated the relations of the contracting parties, fixed the number of miles which the company should pipe, limited the prices to be charged and in other ways arranged for the working of the contract." The assent gave the corporation life, and the contract ruled and defined its doings. The law provided that the contract with the village could not be made for a longer period than five years. (§ 5, as amd. by Laws of 1885, chap. 422, § 1.) The condition of the grant was plain notice that the village had in view the ultimate acquisition of the water works, and the formal contract thereafter made embodied a provision for the purchase thereof. The only practical difference is that under the grant the purchase was to be made in any manner which the law permitted, and in the contract there was an agreement for purchase and sale as if between an ordinary vendor and vendee. I shall consider presently the powers of purchase permitted by the law.

The next question presented by the appellant is whether the purchase clause in the contract was valid. The general rule is that the corporeal property of a corporation may be sold and transferred. ( Chesapeake Ohio R. Co. v. Miller, 114 U.S. 176.) I find no express or implied statutory prohibition against such a sale as is provided for in the agreement, and I think that it was fairly within the powers of the company. In order to perform its contract with the village, the company must make an outlay commensurate with its obligation. The statute provided that the term of such contract should not exceed five years. There was a possibility of a renewal, but no assurance of it. At the termination of the contract the company might have no further, at least no immediate, use for so extensive a plant, or, indeed, for any plant, and common business prudence would suggest its sale to the one who naturally would desire to buy it for use. In view of this, I think that an agreement to sell the water works at such time was fairly within the powers of the corporation. ( Legrand v. Manhattan Mercantile Association, 80 N.Y. 638; South Wales Railway Co. v. Redmond, 10 C.B. [N.S.] 675, citing Shrewsbury Birmingham Ry. Co. v. Northwestern Ry. Co., 6 H.L. Cas. 113; Morawetz Corp. [2d ed.] §§ 335, 336, 419; Brady v. Mayor, etc., of Brooklyn, 1 Barb. 584; Barry v. Merchants' Exchange Company, 1 Sandf. Ch. 280; Green's Brice's Ultra Vires, 68, and authorities; Dupee v. Boston Water Power Company, 114 Mass. 37; Yates v. Van De Bogert, 56 N.Y. 526.) On the other hand, I think that the proposed purchase could not be said to be ultra vires the village (Morawetz Corp. [2d ed.] § 420), for there was a statute available under which it could purchase the property. (Laws of 1875, chap. 181, especially § 4, as amd. by Laws of 1881, chap. 175; Laws of 1883, chap. 255, and Laws of 1885, chap. 211.) The village was not, under these statutes, bound to proceed by condemnation. ( Skaneateles W.W. Co. v. Village of Skaneateles, 161 N.Y. 154, 160, 162; Warsaw Water Co. v. Village of Warsaw, 16 App. Div. 502, modified, but not on this point, and affd., 161 N.Y. 176.)

It is also contended that the purchase clause in the contract is a mere reservation, and that it lacks the element of mutuality. The agreement contained many provisions which were in form akin to specifications; e.g., "Supply" "Reservoir," "Pipe System," "Indemnity" "Rental," "Purchase." The learned counsel excises this clause from the agreement, and then points out that the clause thus isolated does not embody any agreement upon the part of the water company. I know of no authority which requires that there must be restoration of the formal words of contract in every clause thereof. In order to determine the true construction of a clause we should resort to the agreement in its entirety. ( Hamilton v. Taylor, 18 N.Y. 358, 361; Sattler v. Hallock, 160 id. 291, 297.) The instrument was under seal, executed by both parties, whereby they did covenant and agree, and at the close thereof it is termed "this contract." The very idea of purchase imports a sale. If both of the parties did covenant and did agree that one of the parties should reserve the right to purchase the property of the other at a certain period, it is a fair implication that the other party would sell at that time. I think that there is no force in the objection. (Bish. Cont. [Enlarged ed.] § 315; Nounenbocker v. Hooper, 4 E.D. Smith, 401; Richards v. Edick, 17 Barb. 260; Barton v. McLean, 5 Hill, 256; Baldwin v. Humphrey, 44 N.Y. 609, 615; Booth v. Cleveland Mill Co., 74 id. 15; Butler v. Thomson, 92 U.S. 412, 416; Baker Transfer Co. v. Merchants' Mfg. Co., 1 App. Div. 507.) Moreover, I find in the clause itself a provision that upon the proposed purchase the company shall select an arbitrator as to the value, which implies not only consent but concert upon the part of the company; and the further provision that such appraisal shall be conclusive on the parties. The cases cited contra may be discriminated. In Chicago G.E.R.R. Co. v. Dane ( 43 N.Y. 240) the court construed the word "agree" in the defendant's letter as synonymous with "offer;" the answering letter as the acceptance of the offer that the defendant would receive not exceeding 6,000 tons gross, and held that the letter of the defendant was a mere proposition. In Stern v. Ladew ( 47 App. Div. 331) there was no written contract, and the alleged contract was stated in these words: "Mr. Fayerweather said to me: `If you shingle the hides for me — all your hides which you kill and buy — I will give you the highest market price and one cent a pound above the market price for your hides,'" and the agreement as thus expressed was held a mere option. In Moffett v. City of Goldsborough (52 Fed. Rep. 560) the court below held that the mere ordinance authorizing certain individuals to construct, maintain and operate water works was a contract to build and complete the water works, and that a bond required of the grantees (though nothing in the ordinance itself warranted the requirement thereof) was security for the execution thereof; and the Circuit Court of Appeals held this to be error inasmuch as the ordinance did not constitute a contract, and the failure of the grantees to proceed thereunder did not make them liable on the bond. But in the case at bar it must be considered that in the assent itself there is a reservation of this right of purchase which cannot be disregarded. In People v. O'Brien ( 111 N.Y. 1, 46) the court say: "It may be assumed in this discussion that the authority of the Legislature to repeal a charter, if it has expressed its intention to reserve such power in its grant, constitutes a valid reservation. Parties to a contract may lawfully provide for its termination at the election of either party, and it may, therefore, be conceded that the State had authority to repeal this charter, provided no rights of property were thereby invaded or destroyed." We are not then considering a mere assent, but an assent with reservation, and not only an assent with a reservation, but a formal contract. I am clear that the contract of July, 1892, was a renewal of the original contract, inasmuch as it not only recites that contract of 1886, but also that it has been mutually agreed to renew the said agreement dated July 1, 1886, subject to the changes and modifications hereinafter specifically set forth. The criticism that the purchase clause must be deemed to have been eliminated because specifically reiterated, may be answered by the statement that the plain and express purpose of restating any of the provisions is to mark the changes and the modifications thereof.

It is true, as contended by the learned counsel, that the purchase clause has no application to the present proceeding in eminent domain; that is, no direct application. But inasmuch as the contract with the village terminated at a definite period, whereupon the right of purchase might be exercised, and the right of purchase involved the power to put an end to that franchise which was essential to the operations of the company and was inseparable from its water works and its system, it might be taken into consideration upon the question of value of the franchise. ( West Chester, etc., Co. v. Chester County, 182 Penn. St. 40, 50, 51.)

I think that chapter 769 of the Laws of 1896 authorized the condemnation of the franchise. Section 3 of that act provided for the acquisition of "Any lands, easements, water rights, dam, water plant, water mains and connections, laterals and appurtenances, whether owned or possessed by individuals or water companies. * * * Nothing herein contained shall be deemed to enhance the value of or add to the franchise or property of said individuals or water companies," etc.

I now consider the disposition made of the franchise by the commissioners. Generally speaking, a franchise is a right or privilege conferred by law. (Morawetz Corp. [2d ed.] § 922, and authorities cited.) We find that the term when applied to a corporation is often used indifferently to describe the right to be, or the right to act, or, again, mere personal immunities. In Morgan v. Louisiana ( 93 U.S. 217, 223) the court, per FIELD, J., say: "Much confusion of thought has arisen in this case and in similar cases from attaching a vague and undefined meaning to the term `franchises.' It is often used as synonymous with rights, privileges and immunities, though of a personal and temporary character; so that, if any one of these exists, it is loosely termed a `franchise,' and is supposed to pass upon a transfer of the franchises of the company. But the term must always be considered in connection with the corporation or property to which it is alleged to appertain." When this corporation was formed, it became possessed of certain rights and privileges which were essential to its operations, without which its corporeal property, its reservoir, storage system, pipes, and the like, would be of little value. Those rights and privileges, generally speaking, were the rights to collect and to store water, to convey it to consumers, and to charge water rates therefor. I have followed the language mutatis mutandis of FIELD, J., in Morgan v. Louisiana ( supra), who concludes that such rights and privileges may be conveyed to a purchaser as part of the property of the corporation. (See, too, Chesapeake Ohio R. Co. v. Miller, supra.)

In People v. O'Brien ( supra) the court, per RUGER, Ch. J., referred to such "franchises" as are usually authorized to be transferred by statute, viz., those requiring for their enjoyment the use of corporeal property, such as railroad, canal, telegraph, gas, water, bridge and similar companies, and not to those which are in their nature purely incorporeal and inalienable, such as the right of corporate life, the exercise of banking, trading and insurance powers, and similar privileges, saying that the franchises last referred to, being personal in character and depending upon the continued existence of the donee for their lawful exercise, necessarily expire with the extinction of corporate life unless special provision is otherwise made, citing People v. Brooklyn, F. C.I.R. Co. ( 89 N.Y. 75), but, further, speaking of the former class, the learned judge also said: "In the former class it has been held that at common law real estate acquired for the use of a canal company could not be sold on execution against the corporation separate from its franchise so as to destroy or impair the value of such franchise. ( Gue v. Tide Water Canal Co., 24 How. [U.S.] 257), and by parity of reasoning it must follow that the tracks of a railroad company and the franchise of maintaining and operating its road in a public street are equally inseparable, in the absence of express legislative authority providing for their severance." (See, too, Parker v. Elmira, C. N.R.R. Co., 165 N.Y. 274, 280; People v. Trustees of Geneva College, 5 Wend. 211, 217.)

When the proceedings were begun the commission had before it a corporation which had the right or privilege to furnish water to the village of White Plains and the inhabitants thereof. The right did not afford a monopoly, because the company was open to competition from other corporations which might legally be formed, or from the village itself. The company had a contract with the village, which expired by legal limitation in a few months. It is to be inferred that it had contracts with individuals, but the legal duration thereof does not appear. There was a possibility of an extension of the contract with the village, but every probability against it, for the reason that the village had exercised the right of notice under the purchase clause, which provided for a purchase at the close of the contract. There was not the slightest legal obligation upon the village or upon individuals to take a drop of water from the corporation beyond their respective contracts. ( Skaneateles W.W. Co. v. Village of Skaneateles, 161 N.Y. 154.) Aside from the right of acquiring the franchise and the plant of the water company, the village had the right to go into the business of supplying water to itself and to its inhabitants. I conclude that there were no data whatever for any forecast that the corporation would have the assurance of any future business dealings even with the individual inhabitants, and that any award of substantial damages, based upon the deprivation of such business, would have no foundation on either facts or on probabilities. I think that the basis of the award was correct, and is sustained by the decisions in Matter of City of Brooklyn ( supra; S.C., sub nom. Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685). In Syracuse Water Co. v. City of Syracuse ( 116 N.Y. 167, 187) the court say: "But the franchise granted to the plaintiff and the property united with it constitute its estate, and which it holds subject to the reserved right of the city to acquire it in the manner so provided by the charter."

The contract with the village would have expired in 1897. These proceedings were begun in September, 1896. The water company was entitled to retain its property until the compensation determined on was paid, inasmuch as the court had not awarded prior possession thereof. The report was not confirmed until 1898. While the company retained its property, it was enabled to fulfill its contracts and to collect its water rentals. I think that the compensation to be made was to be determined in view of the time of the award, and that, therefore, the commissioners would not have erred if they had entirely disregarded the possible profits to be realized under the contract which expired within a few months after the condemnation proceedings were begun. But, as I have said, they report that they did allow $3,000 in part payment "for the nominal and practically valueless rights which the company possessed at the time of the commencement of the proceedings." It is said that the notice of purchase under the contract was served too late. I take it that the learned counsel means that less than a year intervened the date of the service of the notice and the expiration of the contract. But even so, there was no consequent obligation upon the village to renew the contract, and as the franchise was not exclusive, there is no presumption that the village would have been compelled to do so. But let us assume that though the commission intended to make an award for the water works and its system and for the "inseparable franchise" to operate them, which, being inseparable, necessarily followed the water works and the system ( People v. O'Brien, supra, 47, and other authorities, supra), there still remained that other right or privilege, also within the term "franchise," which may be described as the right of this corporation to be. And assume still more that such franchise emanating from the State ( Skaneateles W.W. Co. v. Village of Skaneateles, supra) was still potential, and must also be considered under the term "franchise," when the commissioners came to the question of compensation for the franchise, how could the commission determine upon any substantial sum that must be paid for wiping out the mere right of corporate existence? What was its value? It was not an exclusive right, but it was similar to rights which might be vested in other proposed incorporators, and in the village itself. It had no assured field for any business enterprise, for there was no obligation upon any one to deal with it. The value of corporate being is the profits anticipated from the exercise of corporate powers. The exercise in this case would require a new construction of an entire system. There is not the slightest proof that such a venture would result in any return whatever.

Inasmuch, then, as the commissioners state that they did consider the franchise and did make an award therefor, it cannot be said that they failed to consider this mere right of corporate existence. I think that their view was correct and that their determination should not be disturbed. I am of opinion that the petition was properly filed by the board of water commissioners of the village of White Plains. ( Matter of Rochester Water Commissioners, 66 N.Y. 413.)

The commissioners, while not a law unto themselves, are, nevertheless, clothed with not merely the functions of a jury. In Troy Boston R.R. Co. v. Lee (13 Barb. 169), HARRIS, J., says: "Unlike a jury, they are restricted to no peculiar species of evidence or any peculiar sources of information. They may collect information in all the ways which a prudent man usually takes to satisfy his own mind concerning matters of the like kind where his own interests are involved in the inquiry. They may seek light from other minds that they may be the better able to arrive at just conclusions, but at the last they must be governed by their own judgment." (See, too, Matter of Staten Island R.T. Co., 47 Hun, 396, and Matter of Grade Crossing Commissioners, 52 App. Div. 122; affd., 164 N.Y. 575; 52 App. Div. 27; affd., 165 N.Y. 605.) The award in this case was evidently made after much diligent inquiry and patient hearing. It is less than that which they might have awarded if they had accepted the evidence offered by the water company and its allied corporation, and it is more than they might have determined if they had based it on the evidence offered by the petitioner. As was said by WOODWARD, J., in Harlem River P.R.R. Co. v. Reynolds ( 50 App. Div. 575) : "An award by commissioners will not be set aside for inadequacy or because excessive unless the award is palpably wrong in either respect." (See, too, Matter of Grade Crossing Commissioners, supra.) The question to be answered was what was the market value of the property, including its franchises, not its value to the petitioners nor to the respondent, but its value in view of all the purposes to which it was naturally adapted. ( Moulton v. Newburyport Water Co., 137 Mass. 163.) This would include the value of any business under existing contracts which might accrue to a purchaser at the time the compensation was paid and the property taken over. As I have said before, the purchaser would take the plant, the inseparable franchise, the existing contract rights and the benefits of the going concern, but at the same time there was no exclusive franchise and no assurance of the continuance of a profit-returning business. In Newburyport Water Co. v. Newburyport ( 168 Mass. 541, 555) the court, per HOLMES, J., say: "If capitalizing profits would give a much greater excess over the value of the land, water easements and plant of the company than the commissioners allowed, the reasons are to be found in the franchise and monopoly of the company, in its right to lay pipes in the streets, and partly, perhaps, in the personal skill of the management, none of which are things for which the city is to pay." It is true that in the case at bar the village is to pay for the franchise, but it is not to pay, nor would any purchaser be compelled to pay, for any right to lay pipes, for the reason, also given by HOLMES, J., in the case last cited (p. 553) that water pipes are not an additional burden to the street, and as soon as any one was authorized to furnish water, that right would imply the further right to lay pipes for that purpose. I see no reason why the award should be disturbed, either on account of the amount thereof or for any erroneous basis of compensation adopted by the commissioners.

The judgment and order should be affirmed, with costs.

All concurred.

Judgment and order affirmed, with costs.

Summaries of

Matter of Board of Water Comrs

Appellate Division of the Supreme Court of New York, Second Department
Apr 1, 1902
71 App. Div. 544 (N.Y. App. Div. 1902)
Case details for

Matter of Board of Water Comrs

Case Details

Full title:In the Matter of the Application and Petition of the BOARD OF WATER…

Court:Appellate Division of the Supreme Court of New York, Second Department

Date published: Apr 1, 1902


71 App. Div. 544 (N.Y. App. Div. 1902)
76 N.Y.S. 11

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