Court Opinion

ID: 5863678
Source: CourtListenerOpinion
Date Created: 2022-01-13 01:26:25.938452+00
Date Added: 2024-06-11T08:44:30.858116
License: Public Domain

Weiss and Levine, JJ.,
dissent and vote to affirm in the following memorandum by Levine, J. Levine, J. (dissenting). We are presented here with a simple and unambiguous contract in which the agreed upon reciprocal performances of the parties are clearly identified. Under the agreement, the city consented to LIALS’ operation of routes for a term of almost 10 years. In return LIALS agreed to make periodic payments based upon a percentage of its receipts. LÍALS also agreed, however, that should it continue to operate routes after the termination of the city’s contractual obligation to consent thereto, it would continue to pay the city on the basis of the last effective rate of remuneration before termination of the contract. This additional obligation that LIALS undertook is, in our view, the only reasonable meaning which can be ascribed to the plain words of section 4.7 of the franchise contract in which LIALS agreed to continue to pay if it “continues the operation of the authorized routes after and in spite of the termination, cancellation or expiration of the franchise hereby granted * * * together with all taxes it would have been required to pay had its operation been duly authorized” (emphasis added). Thus, the parties explicitly provided for the eventuality of the city’s contractual consent terminating and, for whatever reason, LIALS’ continuing to operate routes, in which case LIALS would pay neither more nor less than it last paid while the contract was still in effect. The contingency covered by section 4.7 is precisely what happened here. The franchise contract expired and LIALS has continued to operate without the city’s consent, as though “its operation [had] been duly authorized”. Therefore, in our view, we should enforce LIALS’ promise to pay under such circumstances. That the city, as a result of our prior decision, has lost its power to prevent LIALS’ operation of the routes by withholding consent is of no moment. LIALS agreed to pay the city even without any continuing obligation of the city to consent, so long as it continued to use the routes. Under section 4.7 of the subject agreement, the obligation to pay following expiration of the term of the franchise is as much measured by use as that presented in *1000Muzak Corp. v Hotel Taft Corp. (1 NY2d 42). Muzak should be controlling, in that entitlement to compensation for use of sound equipment was enforced in that case despite the plaintiff’s loss of its right to prevent such use when it previously transferred title to the equipment to the defendant. To avoid the clear language of the franchise contract imposing the duty to pay for use of routes after effective consent by the city had terminated, the majority invokes the doctrine of failure of consideration. Its reasoning is as follows: LIALS only entered into the contract to secure what was then the city’s legally necessary consent to its operation of the routes. Now that the city can no longer prevent LIALS’ use of the routes, the consideration (the city’s consent) supporting LIALS’ promise to pay has been rendered valueless, resulting in the discharge of any further performance by LIALS by reason of failure of consideration. For several reasons, the discharge of LIALS’ further performance of its obligation under section 4.7 cannot be excused on the basis of failure of consideration or “supervening frustration of purpose”, the phrase employed in the Restatement of Contracts, Second (§ 265) when a change in circumstances makes one party’s performance virtually worthless to the other, frustrating his purpose in making the contract. First, the majority’s rationale has to assume that the contract continues to be totally executory on both sides, so that the bargained-for equivalent of LIALS’ continuing promise to pay is the city’s continuing consent. This interpretation of the agreement may perhaps have been viable if LIALS had refused to pay during the term of the franchise and if section 4.7 had not been inserted in the agreement. Here, LIALS’ refusal to pay occurred after the city’s contractual duty to consent had expired. At that point section 4.7 takes over defining the rights and obligations of the parties and, as previously discussed, clearly negates the existence of any executory duty of consent on the part of the city. Further, the majority’s interpretation is inconsistent with the practical construction of the contract by the parties, since LIALS continued to make the payments provided thereunder for a period of approximately five years after the Legislature removed the requirement of the city’s consent to its operation of routes (see Muzak Corp. v Hotel Taft Corp., 1 NY2d 42, 46-47, supra). Second, in order for a party to be discharged on the basis of failure of consideration, the reciprocal performance rendered valueless must be the “foundation of the contract” (Raner v Goldberg, 244 NY 438, 442; Pettinelli Elec. Co. v Board of Educ., 56 AD2d 520, 521, affd 43 NY2d 760), “so completely the basis * * * that, as both parties understand, without it the transaction would make little sense” (Restatement, Contracts 2d, § 265, Comment a). Further, the circumstance destroying the consideration must be one which could not have been anticipated by the parties and, therefore, provided for specifically in the agreement (Raner v Goldberg, 244 NY 438, 441, supra; Strauss v Long Is. Sports, 60 AD2d 501, 510-511). Neither of these requirements is met here. Certainly, LIALS attained its major objective when the city granted its consent for the original term of the franchise. LIALS was thereby enabled to open its routes and to obtain its State certificate of public convenience and necessity, which in turn protected it from competition and ultimately from the effect of the city’s termination of consent. LIALS continues, presumably profitably, to operate its routes. Thus, it can hardly be said that the city’s continued power to withhold permission to operate after the expiration of the contract was the “foundation of the contract” or, as the majority has held, that LIALS would not have entered into the contract had it known that the city subsequently would be stripped of its veto power. Rather, just as in Haines v City of New York (41 NY2d 769), the initial performance of the city furnished sufficient consideration to support LIALS’ obligation, even though later governmental action may have obviated the original purpose of the agreement. Likewise, when this agreement was entered into, the law was well *1001established that the State had the pre-eminent power to regulate intermunicipal public transportation, and any sharing of that control with local government was not a matter of right, but of legislative grace (People ex rel. City of New York v Nixon, 229 NY 356, 360; see, also, Matter of Village of Bronxville v Maltbie, 284 NY 206; Matter of City of New York v Fullen, 276 NY 547 [Finch, J., dissenting]). Therefore, LIALS should reasonably have anticipated the possibility of legislative curtailment of the city’s veto power and could have suitably provided for that eventuality in the agreement.* In sum, the parties fairly and explicitly allocated their respective financial risks concerning the need for the city’s consent after the expiration of the term of the franchise. If the city’s authorization was still required, undoubtedly it would have exacted additional remuneration for permitting LIALS’ continued operation of the routes. The parties agreed, however, that if LIALS was able to operate the routes without permission, it would pay the sums required immediately before expiration of the franchise. LIALS should be held to its bargain. Therefore, we would affirm Special Term in granting the city’s motion for summary judgment on its fifth cause of action.

 In this regard, it is noteworthy that the agreement is replete with other provisions showing the parties’ awareness that the rights conferred therein were subject to superior State authority (see §§ 2.12, 8.1-8.4, 15.1).