Case Name: Hydraulic Race Company, Appellant, v. Frederick Stuart Greene, Individually and as Superintendent of Public Works of the State of New York, and Another, Respondents, Impleaded with Lockport Light, Heat and Power Company and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1930-09-26
Citations: 230 A.D. 374
Docket Number: 
Parties: Hydraulic Race Company, Appellant, v. Frederick Stuart Greene, Individually and as Superintendent of Public Works of the State of New York, and Another, Respondents, Impleaded with Lockport Light, Heat and Power Company and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 230
Pages: 374–389

Head Matter:
Hydraulic Race Company, Appellant, v. Frederick Stuart Greene, Individually and as Superintendent of Public Works of the State of New York, and Another, Respondents, Impleaded with Lockport Light, Heat and Power Company and Others, Defendants.
Third Department,
September 26, 1930.
Killeen & Sweeney [Henry W. Killeen, Warren Tubbs and Francis J. Maloney of counsel], for the appellant.
Hamilton Ward, Attorney-General [Paul Shipman Andrews, Special Assistant Attorney-General, of counsel], for the respondents.
Revg. 133 Misc. 410.

Opinion:
Van Kirk, P. J.
This action is brought to have determined to what extent the plaintiff, as lessee of the State, has the right to use the waters of the Erie Canal at Lockport and to restrain the Superintendent of Public Works from interfering with plaintiff's use according to its rights.
The lease, made in 1826, granted " all the surplus waters, which, without injury to navigation, or security of the canal, may be spared from the canal " at Lockport; and reserves the right to " limit, control or wholly resume the said waters, and all the rights granted by this lease, whenever, in the opinion of the said Canal Commissioners, or of the Legislature, the safety of the canal or its appendages, or the necessary supply of water for the navigation of the canal shall .render such hmitation, control or resumption necessary."
The lower court has found that this is a valid lease and its term is perpetual, but has also found that " Neither plaintiff nor its sub-grantees has any right in law or equity to receive any waters from the State's canal at Lockport in excess of the 109.11 c. f. s. which was surplus from the original Erie Canal." To this finding plaintiff duly excepted; and contends that the lease was of all the surplus water at the Lockport locks at all times during the fife of the perpetual lease, subject only to the reservations named in the lease.
In respect to this lease the State acts as a proprietor, as a lessor of water not used for navigation. In the lease nothing is granted which is necessary for navigation. Save for the needs of navigation the lease of all the surplus is absolute and unrestricted and save for such need the State may not resume the surplus waters. So we have a business transaction between the State and another. The State has power to contract and " must be governed by the same rules of common honesty and justice which bind individuals." (People ex rel. Graves v. Sohmer, 207 N. Y. 450, 457.) When the State's contract " ' comes before the courts, the rights and obligations of the contracting parties must be adjusted upon the same principles as if both contracting parties were private persons. Both stand upon equality before the law, and the sovereign is merged in the dealer, contractor and suitor.' " (People ex rel. Graves v. Sohmer, supra, 458; People v. Stephens, 71 N. Y. 550.) The rules of construction which apply between persons apply to the State. (Louisiana v. Jumel, 107 U. S. 711.) " 'The words used should be construed in their most natural and obvious sense and whatever is essential to the enjoyment of the thing granted will be necessarily implied in the grant.' " When the grant is as proprietor and " ' upon a valuable consideration [it] shall be construed favorably to the patentee for the honor of the King.' " (Langdon v. Mayor, etc., of City of N. Y., 93 N. Y. 129, 145, 146.) The contrary rule applies to gratuitous grants made at the solicitation of the grantee. (Id.) The court must, so far as possible, ascertain the mutual intent of the parties and give effect thereto rather than to particular words which, while used to express that intent, in fact occasion uncertainty. To this end the conditions of the time, the purposes of the parties, and the interests involved are to be considered. (13 C. J. 521, § 482; Smith v. Kerr, 108 N. Y. 31, 37.)
When this lease was made a system of canals was contemplated; water transportation across the State was to be furnished and that not alone to the scanty population then west of the Hudson river, but to the growing population which it was believed water transportation would encourage. They were looking to the future more than the present. What did the State have to dispose of to accomplish its purpose? It had the Erie Canal full of water in the upper level west from Lockport; it had the lower level east from Lockport to Rochester without water. This want must be supplied with water from Lake Erie through the canal west of Lockport. At Lockport were canal locks from the upper to the lower level; but a very small part of the water necessary for the lower level could be passed through the locks without injury to them and to navigation. Thus conduits outside the canal and around the locks were necessary. Here entered the thought of leasing. By leasing the State could gain some income and, at the same time, could shift to another the expense of constructing and maintaining the necessary conduits. But these were the minor considerations; more important was it that vacant lands would be occupied and improved by a thrifty people; that industries would be multiplied to meet growing needs; that increased tolls on the canal would be received; that increased taxes would be collected upon the properties constructed and lands improved. The State's purpose was the same as that which induced it to sell thousands of acres, which had been donated in aid of the canal construction, at a few cents per acre. The rent reserved is a trifling item among the advantages the State expected to gain. And what did the bidder for the lease see ahead? He saw undeveloped water power; to him the rental was a small part of the expense which he must incur to get a return. The conduits would cost considerable sums; but the conduits without mills and machinery were waste; these must be constructed. Thus was required the expenditure of large sums of money. The bidder was entering upon an adventure which could result in profit in a distant future only. He, too, expected growing industries supplied with water from a canal improved and enlarged to meet the needs of a growing population; he intended to provide for these and to use the increasing surplus of water therefor.
We of course cannot cite the many documents in the record which disclose the inducements which actuated the State and the bidder. But we get a glimpse from a report of the Canal Commissioners to the Assembly in January, 1825, in part as follows: " The utmost reach of human sagacity cannot foresee the variations that may hereafter take place in the supply, nor perhaps calculate the quantity, which the future use of the canals, increased as it necessarily must be, will demand. Water privileges should be granted subject to the wants of the canals, with the right of resumption whenever the public good may be adjudged to require it. It is quite evident that the value of these grants will correspond with the extent of the privileges to be enjoyed under them. Without the prospect of a constant supply of water, and for a considerable length of time, no one will think of using it to put in operation costly or extensively useful works. It is, therefore, proper that the grants to be made, should be for as constant a supply of water, and for as long a time as can be safely given, without exposing the future navigation of the canals to any interruption or inconvenience." (See 2 Laws, etc., Relating to Erie and Champlain canals [1825], 308.) Again, in the report of the Commissioners made in March, 1825, is this: " With respect to the greatest amount of transportation, of which the Erie canal is capable, it may not be amiss to submit a few observations; because, although its capacity in this respect, is much greater than is generally believed, yet the time will arrive within the present century,, when it will be entirely incapable of satisfying the multiplied demands of a great and increasing community." (Id. 268.) The Governor of the State expressed views to like effect in messages and letters. Thus was foreseen increases in the capacity of the canal, increased quantities of surplus waters and the necessity for perpetual leases thereof.
We turn then to more direct consideration of the lease. It was authorized by chapter 275 of the Laws of 1825, which contains this: " That whenever, in the opinion of the Canal Commissioners, any water may be spared from either the Erie or Champlain Canal, without injury to the navigation or safety thereof, in such case the Canal Commissioners are authorised to lease the said waters to such person or persons as may be willing to give the highest annual rent therefor, reserving, however, in the lease to be given, the right to limit, control or wholly resume the said waters, and all the rights granted by any such lease, whenever, in the opinion of said Commissioners, or of the Legislature, the safety of such canals or works, or the necessary supply of water for the navigation of any canal which now is or hereafter may be constructed by the authority of the State, render such limitation, control or resumption necessary." It has never been questioned, prior to this action, that the lease of January, 1826, was fully authorized by this act. Under it the Canal Commissioners advertised for bids, describing to bidders what waters the State purposed to lease. Bids were made and the highest bid was accepted. Thereupon the lease was drawn, probably by representatives of the State, and undoubtedly in accord with the terms advertised as then understood.
This statute provides that " whenever " there is a surplus of water in the canal at Lockport, it may be leased. Such time came; there was a surplus. It was certain, due to the conditions existing there, that, so long as the canal was used, there would be this surplus at the Lockport locks. The State leased all this surplus without limitation for time and without measure for quantity. This was consistent with the conditions and the purposes of the parties. The surplus at the locks is a unit, one thing not many things. When the surplus grows it is still the single surplus, not several surplusses. If a man buys a sapling and keeps it growing, he will own the mature tree. This is an inadequate illustration, but it suggests our meaning. Because a surplus has grown to twice its original size, it has not thereby become two surplusses. We think it plain that the State intended to lease and the lessee intended to take the surplus at the Lockport locks perpetually expecting that it must grow in quantity. It is a mistake to magnify the importance of the word " whenever " used in the statute. It does not suggest that, as the surplus increases, it may be cut into parts and the amputated parts separately leased. The " whenever " day came and this perpetual lease was made. Thereafter, as to this surplus, another " whenever " day would never come. Nor is too great significance to be given to the word " all." A lease of a thing is the lease of the whole thing, not a part of it. Without the word " all " the lease would be of all the surplus, subject only to the reservations. The word " all " perhaps emphasizes the intent to lease the surplus at Lockport without limit of time or measure of quantity. The quantity or size will vary, but the thing will be constant. We must hold in mind that only a minor part of the water in the upper level which must be passed to the lower level at Lockport could be passed through the locks. Of 125 cubic feet per second available in the upper level in 1826, 109 cubic feet per second had to be by-passed. Had there been any intent on the part of the State to limit the surplus water conveyed to the amount that then existed, it would have been so expressed. The State of course did not intend to deceive the bidders with a phantom lure. We are not justified in interpolating words which parties to the lease did not use and so far as the evidence shows never intended to use. In the light of the existing conditions and the intent of the parties, the wording of the grant seems plain. It expresses with exactness that which the conditions, the purposes and the interests of the parties naturally demanded.
It is not disclosed in the record, but is a fact in hydraulics that 109 cubic feet per second under a 50-foot head will give a theoretical horse power of 617.6. Under the most modern equipment this theoretical horse power will give eighty per cent, or even ninety per cent, effective power. Probably in the year 1825, with the equipment then available, it would give not to exceed fifty per cent effective power. It is impossible to believe that the lessees and their sublessees would have expended the large sums of money put into these properties if they had the right to use but 109 cubic feet per second; nor is it conceivable that the State so understood the lease. To accept the construction that the lease covered only the surplus waters at Lockport in the quantity the Canal Commissioners in 1825 estimated, in our view, is not only in disregard of the actual words of the contract, but is in disregard of what both parties understood the contract to mean as disclosed by one hundred years of open and notorious use by one party and permission to use by the other.
The acts of the Legislature and of the Canal Commissioners confirm this understanding of the lease. In 1838 an enlargement of the canal was undertaken. An increased quantity of water began to pass through the canal in 1842 and the work at Lockport was completed so that the full quantity of water contemplated was passing in 1858 or 1859. To by-pass this water additional conduits had to be made, and the lessees constructed a large tunnel through rock, thus having conduits on both sides of the canal. The water in both was connected up, through flumes, with the plants of the hydraulic company and its lessees and since then the increased quantity of water, some 415 cubic feet per second, has been used by this plaintiff with the knowledge of the Legislature and the Canal Commissioners. The conduits are in part at least upon State lands which were under the control of the Canal Com missioners and the Legislature. In or about 1858 this plaintiff took over or was about to take over the lease. Apparently it wanted assurance of its rights in the future. At any rate, the Legislature, by chapter 42 of the Laws of 1858, authorized the Lockport Hydraulic Company to purchase and hold real estate contiguous to the mill race which said company may hereafter construct on the Erie canal, and provided that " it shall be lawful for said company to dispose of any of its real estate and rights of water to other corporations or individuals, for manufacturing purposes, by grant or lease; and all such grants and leases shall have the same legal force and effect as if made to a natural person, by an individual owner seized in fee simple; It was further provided that, in lieu of the yearly rent now payable on this perpetual lease, a lump sum could be paid.
This is an act of the Legislature, a body which speaks for the sovereign State. The Legislature may ratify a contract though originally unauthorized. Such ratification need not be in direct terms; it " may be effected by legislation recognizing the contract as valid." (36 Cyc. 879.) The intent and effect of this act are too plain to pass over lightly; it not only declares that the lease of .1826. is perpetual, but it also grants the plaintiff authority to dispose of its water rights. The plaintiff had no water rights other than those at Lockport under its lease; this act distinctly recognizes those rights; it declares that leases by plaintiff of water rights to others shall have the same effect as if granted by an individual owner seized in fee simple. This act was passed after the full amount of surplus water then in the canal at Lockport was known and was being used. It assured the lessee that further-developments to use the increased amount of water could be constructed safely; it encouraged men to make such developments. The State of New York did not intend to mislead these people, to encourage them to invest large sums of money in anticipation of using a quantity of water to which they had no legal right; such a contention is unwarranted. And further, sixty years later, in 1918, it was necessary, after the enlargement for the Barge Canal development, to lower the bottoms of the conduits around these . locks. The then Superintendent of Public Works, W. W. Wotherspoon, in two letters to plaintiff, called attention to the fact that the amount of water " that can be fed through the north tunnel, the old locks and the south race is not sufficient to maintain the lower level; " also that some of the mills were not able to obtain their full requirements of water and suggested that " the mill owners anticipate this condition and so adapt the race to present conditions as will enable them to secure the water they desire." In the letter of December 18, 1918, he says: "You will recall that some time ago, the Department suggested to you that you make such provision on the south hydraulic race so that sufficient water would be available for your use even when the water is lowered by the Department's feed through the south tunnel." Again: " It would seem that unless some provision is made by your company on your south race to meet your own requirements, during periods of low water it is quite certain that you will be cut off from water next year during a considerable period." The plaintiff and its lessees for ninety years had been, and were then, using this surplus for the plants they had been induced by the State to build on the strength of the lease. After such undisputed use the State, through its Superintendent, called upon plaintiff to bear the expense of making the necessary alterations, which it did, at the cost of $36,000. Mr. Wotherspoon was the Superintendent of Public Works. Under the Canal Law he must execute the laws relating to navigation and improvements of the canals and is empowered, subject to the control of the Legislature, to make rules and regulations for the use of the canal and for navigation. It was a part of his duty to provide for by-passing the surplus waters at Lockport. Certainly, whether or not the State is estopped by his acts, his acts were a continuation of the construction which had been put upon this contract during its life by the Legislature and the Canal Commissioners. A lessee of water power would never think of questioning the authority of the Superintendent of Public Works to direct further improvements in order to enjoy the privileges granted by its lease. We recall here that it is the present Superintendent of Public Works who has notified plaintiff of the intention of the State to limit plaintiff's use of the water. The acts and matters above recited should " have great if not controlling weight upon the interpretation of this " lease. (People v. Home Ins. Go., 92 N. Y. 328, 337.) The " rules of common honesty and justice which bind individuals " must bind the State here. (People ex rel. Graves v. Sohmer, supra.) If this were a question between individuals could there be any doubt?
It is said that the policy of the State in respect to leasing surplus waters from the canals has been changed since 1826. But a change in its policy does not change its valid outstanding contracts; nor does it disclose that the earlier contracts were improvidently made. In the light of the considerations, other than the money item, we cannot conceive how this leasing can be considered an improvident act, due to carelessness or wrong. There are no charges of deceit, fraud, collusion or other chicanery in connection with the leasing. Here we have no water grabbers or thieves. If there have been water thieves other than the lessee or users under this lease, such wrongdoing cannot be an excuse for breaking it. The State has not, through negligence or oversight, lost anything; it leased what it intended to lease.
As appears in the findings there is no pretense that the present use of this water interferes with navigation. The State does not assume to act under the reservation in the lease when its Superintendent threatens to shut the water from plaintiff's raceways; it intends simply to secure a larger rental from plaintiff or from some others.
The Erie Canal was and is the main waterway connecting the Great Lakes with the Hudson river and the Atlantic ocean. The Barge Canal is but an improved Erie Canal which the Constitution says shall not be sold, leased or otherwise disposed of, but " shall remain the property of the State and under its management forever." (Const, art. 7, § 8.) The Lockport locks of the Erie Canal are the locks of the Barge Canal.
The judgment should be reversed and judgment awarded determining that. the plaintiff is entitled under its lease to use all the surplus waters of the canal at Lockport, subject only to the rights reserved in the lease and granting an injunction restraining the Superintendent of Public Works from shutting off the surplus waters of the canal from conduits or raceways leading to the plants of the plaintiff and its lessees.
We make findings of fact and conclusions of law in accord with this opinion. Findings may be prepared and, if not agreed upon, may be presented to the court for settlement.
Hinman, Hill and Hasbrouck, JJ., concur; Whitmyer, J., dissents, with an opinion.