(77 Hun, 18.)

#### TOWN OF MT. MORRIS v. KING.

(Supreme Court, General Term, Filth Department.

April 12, 1894.)

1. Equity—Laches—Demurrer.

A demurrer to a complaint in equity will not be sustained on the ground that plaintiff’s claim is stale, but such question can be determined only on trial of the issues of fact.

2. Contracts—Interpretation.

A lease of a railroad provided that certain shares of stock should be transferred to a trustee, “which stock shall be held by the said trustee for the benefit of the party of the second part [lessee] so long as the second party shall retain the possession of said demised premises, and continue to perform the conditions of this agreement and lease. But in case of the forfeiture of this lease, and the repossession of the said demised premises by the parties of the first part, then it is hereby mutually agreed that in that case said capital stock held by said trustee shall become forfeited, and shall be retransferred to the original holders thereof.” *Held,*that it was not the intention of the parties that the stock should be retransferred merely on the forfeiture of the lease, without a repossession of the railroad by the lessors.

Appeal from special term, Monroe county.

Action by the town of Mt. Morris against John King, individually and as trustee, and the Few York, Lake Erie & Western Railroad Company, to compel an assignment of a stock certificate and for an accounting of dividends received thereon, etc. From an interlocutory judgment overruling a demurrer to the complaint, defendants appeal. Affirmed.

Argued before DWIGHT, P. J., and LEWIS, HAIGHT, and BRADLEY, JJ.

E. C. Sprague, for appellants.

W. A. Sutherland, for respondent.

HAIGHT, J.

The demurrer is upon the grounds that there is a defect of parties plaintiff or defendants, and that the complaint does not state facts sufficient to constitute a cause of action. The complaint, among other things, alleges that the Avon, Geneseo & Mt. Morris Railroad Company was and is a railroad *282corporation duly created Tby and under the laws of this state for the purpose of constructing and operating a railroad from the town of Avon, in the county of Livingston, to a point in the town of Mt. Morris, in said county; that it had constructed its road, and had issued 2,250 shares of its capital stock, of the par value' of $100 each; that the town of Mt. Morris had aided in such construction to the extent of $25,000, and had issued its bonds, therefor, and had received in return therefor 250 shares of such capital stock; that on the 27th day of December, 1871, the Avonr Geneseo & Mt. Morris Railroad Company leased its railroad, together with all its rights, easements, powers, and privileges in connection therewith, and the appurtenances thereto, to the Erie Railway Company for and during the unexpired term of its charter, and in and by such1 lease the former company undertook with the latter, as a part consideration therefor, to cause to be- ■ transferred to the president of the latter company as trustee, for its use, the 250 shares of stock held by the plaintiff; that in pursuance of that agreement, and simultaneously therewith, the railroad commissioners of the plaintiff, holding such stock for the-town, transferred the same to Jay Gould, as trustee for the latter company. It is alleged that this transfer was without consideration; that the New York, Lake Erie & Western Railroad Company has succeeded to the rights of the Erie Railway Com-' pany;' and that John King, as its president, now holds such stock in trust for it. The complaint demands judgment that the defendant, John King, individually and as trustee, be adjudged and decreed to execute an assignment of the certificate of stock to. the plaintiff, and to surrender up the same, and that an accounting be had of the dividends received thereon, etc. The theory upon which this branch of the complaint is prosecuted is that the railroad commissioners of the town had no power to, giveaway the stock of the railroad company owned by the town and held by them as its trustees, and that their act in so doing was ultra vires; that Jay Gould, in the taking and transfer of the stock from them, and those that have succeeded to his interest, are in law deemed to hold the same as trustees for the town. On behalf of the defendant it is claimed that, the transfer of the stock by the railroad commissioners being ultra vires, an action at law could at once have been maintained, either by the town or a taxpayer thereof, to recover the same back, or for its conversion; but that in neglecting to do so, and waiting until the Erie Railway Company had performed its covenants under the lease, among which was a provision that it should put the road into first-class repair, and operate the same, and resting upon its rights from December, 1871, until June, 1892, upwards of 20 years, a court of equity would not, at this late day, interfere with a contract that has so long been relied upon and executed by the parties; and in support of this contention our attention is called to the authorities bearing upon that subject. It is quite possible that upon the trial of the issues of fact a *283court of equity, in the exercise of the judgment and discretion vested in it, may sustain the appellant’s contention in this regard. But we are now reviewing the determination of a court of law upon an issue of law in which a purely legal proposition is presented, not involving the judgment and discretion of the court. While the court, upon a trial of the issues of fact, may find that the plaintiff has rested upon its rights for so many years, and that its claim has become so stale that it will refuse relief, still, upon a demurrer in which a question of law only is raised, it must sustain the complaint. It is further alleged in the complaint that the defendant company has neglected to keep the covenants of its lease, and that the plaintiff is now entitled to recover the stock by reason of such neglect. It was also alleged that the Erie» & Genesee Valley Railroad connected with the Avon, Geneseo & Mt. Morris road; that its road had been leased to Lauren C. Woodruff, and by him leased to the Erie Railway Company, and that by the terms of that lease the road was to be operated by the latter company, which was also to build a branch connecting it with its main line at Burns; that it failed to fulfill its covenant in that regard, and that in 1891 it also ceased, to operate the Avon, Geneseo *¿c*Mt. Morris Railroad from the Milage of Mt. Morris to the • town line, a distance of about two miles. The proMsion under which this claim is sought to be maintained is as follows: .

“That the party of the first part (which is the Avon, Geneseo & Mount Morris Railroad Company) further agrees that, in consideration of the premises, and also in consideration of the covenants of the agreement between the party of the second part hereto (which is the Erie Railway Company) ,and Lauren C. Woodruff as lessee of the Erie & Genesee Valley Railroad, it will, simultaneously with the execution of this agreement and lease, transfer, or cause to be transferred and delivered, to the president of the Brie Railway Company, Jay Gould, as trustee, for the said party of the second part, 250 shares, of the par value of twenty-five thousand dollars ($25,000), of the capital stock of the said Avon, Geneseo & Mount Morris Railroad Company, now held by the town of Mount Morris, * * * which stock shall be held by the said trustee for the benefit of the party of the second part so1 long as the second party shall retain possession of said demised premises, and continue to perform the conditions of this agreement and lease; but in case of the forfeiture of this lease, and the repossession of the said demised premises by the party of the first part, then, and it is hereby mutually agreed that in that case, the said capital stock of said Avon, Geneseo & Mount Morris Railroad Company held by said trustee shall become forfeited, and shall be retransferred to the original holders thereof.”

It will be observed that while the Woodruff lease of the Erie & Genesee Valley Railroad is referred to as a part of the consideration under which the town transferred the stock to Gould in trust for the Erie Railway Company, no provision is contained in the lease by which the town is given the right to recover back the stock because of a failure to carry out the proMsionsof the Woodruff lease. As we have seen, the Erie & Genesee Valley Railroad was a connecting line. The operation of it in connection with the Avon, Geneseo & Mt. Morris Railroad, giving the citizens of the town the benefit of communication with *284towns upon the line of the former as well as that of the latter road, and the extension of the former to a point upon the main line of the Erie Railway, which would afford another outlet to cities and towns in the west, might have operated as an inducement for the officers of the town to make the transfer in question. But the Erie '& Genesee Valley Railroad lease to the Erie Railway Company was an independent contract. The town of Mt. Morris was not a party thereto, and no agreement for forfeiture is based upon a breach of that agreement.

We are thus brought to a consideration of the alleged breach of the Avon, Geneseo & Mt. Morris lease in not operating the road to the town line beyond the village of Geneseo. The provision is that the stock transferred by the town to the trustee of the Erie Railway Company is to be held by the «trustee “so long as the second party shall retain possession of the said demised premises, and continue to perform the conditions of this agreement and lease.” If this provision stood alone, there might be some doubt in reference to its meaning, and an argument might be made in support of the claim that the trustee was not to retain the stock after the lessee ceased to perform the conditions of the lease, notwithstanding the first clause provides that .the trustee shall retain possession of the stock so long as the lessee retains the possession of the leasehold premises. But this clause has to be read and construed in connection with that which follows, which is:

“But In case of the forfeiture of this lease and the repossession of said demised premises by the party of the first part, then it is hereby mutually agreed that in that case the said capital stock of said Avon, Geneseo & Mt. Morris Railroad Company held by said trustee shall become forfeited, and shall be retransferred to the original holders thereof.”

This is the clause of the agreement under which a forfeiture is provided for. Forfeiture is not favored in the law, and the provisions upon which it is based must be strictly construed. Thus construing the provisions, there must be not only a forfeiture of the lease, but there must be a repossession of the demised premises by the Avon, Geneseo & Mt. Morris Company in order to entitle the town to recover back the stock. Reading these provisions together, it is quite evident that in preparing the lease the Erie Railway Company did not care to have a claim to recover back the stock made upon any of the trifling breaches of the contract that might be made in many ways, such as the failure to keep the road or some particular part thereof in as high a state of repair as the officers of the town might think it should be, and limited the right to recover the stock to both an actual forfeiture of the lease and the repossession of the road by the lessor. It is therefore not apparent how a recovery could be had upon this theory, under the allegations of the complaint.

If the Avon, Geneseo & Mt. Morris Railroad Company’s lease has been forfeited, and it has taken repossession of the road, it cannot be interested in the determination of any question involved in this litigation, and we do not understand that it would be a *285necessary party. The interlocutory judgment appealed from should be affirmed, with costs, but with leave to the defendants to withdraw demurrer, and answer over within 20 days upon payment of the costs of the demurrer and of this appeal All concur.