Case Name: BROOKLYN DISTILLING CO. v. STANDARD DISTILLING & DISTRIBUTING CO.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1907-06-21
Citations: 105 N.Y.S. 264
Docket Number: 
Parties: BROOKLYN DISTILLING CO. v. STANDARD DISTILLING & DISTRIBUTING CO.
Judges: 
Reporter: West's New York Supplement
Volume: 105
Pages: 264–272

Head Matter:
(120 App. Div. 237)
BROOKLYN DISTILLING CO. v. STANDARD DISTILLING & DISTRIBUTING CO.
(Supreme Court, Appellate Division, First Department.
June 21, 1907.) .
1. Monopolies—Rights of Persons Dealing with Combination.
Under Laws 1897, p. 310, c. 383, prohibiting an arrangement or combination whereby a monopoly in the production or sale of any article in common use is or may be created, or whereby conpetition in the supply or price of such article is or may be restrained or prevented, a lease of a distillery to a corporation, organized to create' a monopoly in the manufacture and sale of alcohol and spirituous liquors, is not invalid, though the lessor, which did not become a party to the illegal combination, knew tile motive.of the lessee in taking the lease was to aid in the accomplishment of its unlawful purpose.
2. Corporations—Knowledge of Officers.
Plaintiff! corporation leased its distillery to defendant, organized to create a monopoly in alcohol and spirituous liquors. Plaintiff’s president, who was interested in defendant, knew of the illegal purpose for which defendant was organized, and which induced it to take the lease. Held, that under the rule that, where the agent is engaged in doing an act against his principal’s interest, his knowledge will not be imputed to the principal, the knowledge of plaintiff’s president would not be imputed to it, if with such knowledge the lease would be void, and so prevent plaintiff recovering rent on it.
fEd. Note.—For cases in point, see Cent. Dig. vol. 86, Municipal Corporations, §§ 1748-1762.]
Scott, J., dissenting.
Appeal from Trial Term.
Action by the Brooklyn Distilling Company against the Standard Distilling & Distributing Company. From a judgment for plaintiff entered on a decision after a trial without a jury, defendant appeals. Affirmed.
Argued before PATTERSON, P. J., and McLAUGHLIN, SCOTT, LAUGHLIN, and HOUGHTON, JJ.
John L. Cadwalader, for appellant.
Herbert Parsons, for respondent.

Opinion:
McLAUGHLIN, J.
On the 28th of June, 1898, the plaintiff leased to the defendant certain real estate on which- was located a distillery, not then quite completed, for a term of three years from July 1, 1898, with privilege of renewal for four }rears. The defendant went into possession of the premises leased and paid the rent, which was payable in mdnthly installments, to and including the month of November, 1899. It thereafter refused to pay, though remaining in possession, and this action was brought to recover installments which had become due, together with certain sums paid by the lessor for taxes and insurance.' The only defense relied upon at the trial .was the alleged illegality of the lease; defendant contending that 'it was illegal and void, inasmuch as it was made in violation of the statute which prohibits an arrangement or combination whereby a monopoly in the manufacture, production, or sale in this state of any article or commodity in common use is or may be created, or whereby competition in the supply or price of such article or commodity is or may be restrained or prevented. Chapter 383, p. 310, Laws 1897. The plaintiff had a judgment, from which defendant appeals to this court, and it contends here, as it did at the trial, that the lease is void, having been in violation of the statute referred to, and, the recovery being predicated on the lease, is erroneous.
The execution of the lease is conceded, as is also the fact that the defendant went, into possession of the distillery and paid the rent stipulated to be paid to and including November 1, 1899, and it is not denied that it has since remained in possession, and wholly failed and neglected to make any further payments. The general rule is that a tenant who has gone into possession under a lease must either pay the rent which is due or vacate the premises; that he cannot keep both the rent and possession. Douglas v. Cheesebrough Building Co., 56 App. Div. 403, 67 N. Y. Supp. 755. But it is said this rule does not apply because the relation of landlord and.tenant was never created, inasmuch as the lease was void in its inception. The assertion that the lease is yoid is predicated upon the fact that the defendant was incorporated for the purpose of creating a monopoly in the manufacture and sale of alcohol and spirituous liquors, and regulating the price at which the same should be sold to the public, in violation of the statute, and that the making of the lease was a part of and to aid in the accomplishment of the unlawful purpose, of which the plaintiff had full knowledge at the time the lease was executed. If it be assumed that the plaintiff had all the knowledge which the defendant had as to its purpose in making the lease, I do not think that in and of itself made the lease void. There was no obligation resting upon the plaintiff to .operate its distillery at all, much less at a loss; nor was there any obligation to let it lie idle. If it did not see fit to do either, it could sell or lease it. This naturally leads to the question of what its board of directors should have done when the proposition was made by the defendant to lease. The plaintiff then had invested nearly $1,000,000 in the construction of the distillery, which was designed to produce alcohol and spifituous liquors from the refuse of sugar and molasses. It was then somewhat problematical whether or not this could be successfully done; it not having been theretofore demonstrated in a practical way. Not only this,-but, if successful in producing the alcohol'and spiritous liquors in the way contemplated, it was threatened at the outset with very serious competition by the defendant. Should it then have operated the distillery at a possible loss, allowed it to remain idle, or leased for a term of years at a rental which would insure to its stockholders a good return on the capital invested? Good business judgment would seem to suggest the answer to the questions propounded, viz., to accept the certainty instead of the uncertainty. The statute does not prevent one selling or leasing property, nor does it prevent one buying or leasing property to prevent competition. Diamond Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. 419, 60 Am. Rep. 464; Leslie v. Lorillard, 110 N. Y. 519, 18 N. E. 363, 1 L. R. A. 456; Tode v. Gross, 127 N. Y. 480, 28 N. E. 469, 13 L. R. A. 652, 24 Am. St. Rep. 475. It is designed to prevent the owners or controllers of property entering into a combination to regulate production and maintain" prices for their mutual benefit, according to their respective interests.
,The court, in Cummings v. Union Blue Stone Co., 164 N. Y. 401, 58 N. E. 525, 52 L. R. A. 262, 79 Am. St. Rep. 655, clearly pointed out the purpose of the statute and the kind of a contract which, if made, would be void under it; but in doing so it took occasion to say:
"It may be conceded that the law as now understood restrains no one from selling his property, nor does it compel any one to continue a business which he can sell or finds it is to his interest to abandon, much less to continue it for any time or in any particular manner or place. Contracts between individuals to that effect are not in general restraint of trade."
And substantially the same statement was made in Wood v. Whitehead Bros. Co., 165 N. Y. 545, 59 N. E. 357, which was cited with approval in New York Bank Note Co. v. Hamilton Bank Note Co., 180 N. Y. 280, 73 N. E. 48.
The fact that the plaintiff knew the defendant's motive in leasing the distillery did not render the lease invalid. The validity of a contract under this statute cannot be made to depend upon the motive of one of the parties. This was held in the Diamond Match Co. Case, supra, where the court said:
"We are not aware of any rule of law which makes the motive of the covenantee the test of the validity of such a contract; on the contrary, we suppose a party may legally purchase the trade and business of another for the very purpose of preventing competition, and the validity of the contract, if supported by a consideration, will depend upon its reasonableness as between the parties. Combinations between producers to limit production and to enhance prices are, or may be, unlawful, but they stand on a different footing." •
It must be borne in mind that the plaintiff in making the lease did not in any way become a party to the illegal combination or participate to any extent in any scheme to avoid the statute by controlling the manufacture or sale of the commodity referred to. The lease was the only contract which it made with the defendant. It could just as well be contended that a contractor who had built the distillery for the defendant, with knowledge of its purpose, was not entitled to recover the contract price, or that a farmer who had sold his corn to the defendant, knowing its purpose in buying it, could not recover the price agreed to be paid, as it can that the plaintiff is not entitled to recover in this action. The plaintiff, as we have already seen, took no part in the illegal combination; could derive no benefit from it or from the incorporation of the defendant, or the carrying out of its purpose; had nothing to do with regulating the quantity of alcohol and spirituous liquors to be produced, or the price to be charged, and therefore this contract is clearly distinguishable from those where preitiises are leased to be used for an immoral purpose.
The foregoing discussion has been upon the assumption that the plaintiff knew the illegal purpose for which the defendant was formed and which induced it to make the lease in question. But there is, in fact, no evidence which would justify a finding to this effect. The only evidence bearing on that subject is that Matthiessen, its president (since deceased), had that knowledge, and it is claimed that the knowledge which he had is to be imputed to his principal. This is the general rule; but it does not apply where the agent is engaged in doing an act against his principal's interest. Benedict v. Arnoux, 154 N. Y. 715, 49 N. E. 326. It is undisputed that Matthiessen was largely interested in the defendant company. He was one of its' promoters, directors, and a member of its executive committee. Appellant insists that in the negotiations which resulted in the execution of the lease Mattheissen acted, not in the interest of the defendant, but in the interest of the plaintiff, and therefore his knowledge-must be imputed to the plaintiff, and yet it is insisted that the lease procured by Matthiessen is void, for which reason defendant cannot be compelled to pay the rent stipulated. If the lease were illegal and void, Matthiessen must have known it because he is presumed to have known the law, and, if he induced the plaintiff to execute it, knowing it to be void and unenforceable against defendant, being himself personally interested in the defendant, it cannot be said he was acting in the interest of the plaintiff. Either the' lease is valid, in which case it is immaterial for whom Matthiessen acted, qr else it is invalid because made for an illegal purpose. If the latter, it was made against the interest of the plaintiff, and the presumption is that Matthiessen did not impart to the plaintiff the knowledge which he had of the defendant's illegal purpose. Benedict v. Arnoux, supra.
I am of the opinion that the judgment is right, and should be affirmed, with costs.
PATTERSON, P. J., and LAUGHLIN and HOUGHTON, JJ., concur.