Court Opinion

ID: 5725389
Source: CourtListenerOpinion
Date Created: 2022-01-12 16:15:56.75661+00
Date Added: 2024-06-11T08:40:47.074392
License: Public Domain

Breitel, J. (dissenting in part).
Involved is the interpretation of a 1913 modification of a written agreement made in 1907 between the New York Central and the New Haven railroads. The modification concerned the construction and exploitation of buildings to be erected over covered railroad trackage under Park Avenue in New York City. Specifically, New Haven claims the right to share equally in the control and management of such buildings. New York Central, on the other hand, contends that, while New Haven has the right to share in certain respects in surplus rents accruing from such buildings, it is not entitled to share in their control and management.
For reasons to be discussed, the judgment should be modified, but not in the manner determined by this court.
Under the 1913 modification and the 1907 basic agreement New Haven had the right “ to join ” with Central in the “ construction, holding, maintenance and leasing of buildings ”, under separate agreements to be made from time to time.* By advancing moneys for such construction New Haven would receive ‘' an undivided interest which shall bear the same pro-, portion to the entire building as the amount of money furnished or contributed”. The agreement provided that in such case rentals were to be used for repayment of advances, together with interest, and the excess was to be credited to a terminal, account. The terminal account was one under which, after balancing income and expenses, the rental New Haven had to pay for trackage and terminal facilities was in proportion to its-actual use of the jointly-used facilities. The 1907 agreement' also provided that New Haven might use up to 50% of the; facilities. In fact, it now uses 40%. This “ use in common ” (to which this court attaches such significance) was to accommodate New Haven’s railroad operations and the percentage of its use was measured by the volume of such operations. It was not related to properties having no direct connection with railroad business.
It was further provided that after all advances were repaid New Haven’s undivided interest in the buildings would cease. In every instance, however, where New Haven joined in the construction of the buildings the surplus rentals thereafter were to continue to be deposited to the terminal account, still as a credit toward the cost of the railroad facilities, thereby decreasing the rental charges for which New Haven would be liable.
Until the depression years of the mid-thirties the Hotel Biltmore, the only building directly involved on this appeal, was *323occupied by a rent-paying tenant under a lease made by Central and New Haven as lessors. In 1934 the hotel tenant defaulted, and New Haven itself was in reorganization under the bankruptcy statutes. At that time the coplaintiff, Eealty Hotels, Inc., was organized by Central as its subsidiary. Central owned all the stock, but the New Haven was represented on the board of directors and, significantly, Central did not numerically dominate the board. New Haven’s representation was, however, never equal to that of Central, except for a brief accidental interval. The railroads thereupon leased the hotel to the subsidiary. Since then until the present, under the original lease and renewals, the subsidiary has operated the hotel and paid the rentals.
By 1957 the construction advances had been fully repaid, and, consequently, New Haven’s “undivided interest in the building ’ ’ ceased. The then current lease for the hotel expired in 1958. New Haven, under new management, refused to join in a new proposed lease presented by Central. Instead, it asserted the right to share equally in management and control of the hotel, claiming under the 1913 modification.* Central denied that New Haven had such right, except, of course, where New Haven joins in a lease and to the extent that it is a joint “lessor” it has some voice. Central contended, too, that by not joining in the 1958 lease New Haven would, and had, forfeited all right to benefit from surplus rentals thereafter. This lawsuit was then begun.
*324On this record there is no evidence that New Haven had ever, since 1913, asserted any right to participate in the control and management of the buildings constructed over the Central track-age in Manhattan, before actually joining in the leases. It is true, however, that after the 1934 default New Haven obtained minority representation on the new lessee’s board of directors. It is also true that New Haven elected not to join with respect to two buildings and, in the depression years, not to continue as to a third. Therefore, as to such buildings, it did not have, or ceased to have, any obligations or rights, even with respect to surplus rentals. In each instance had New Haven elected to join or continue it would have had to put up substantial funds.
There are other relevant details with respect to the Hotel Biltmore. Each railroad contributed equally to the construction cost of $5,600,000. The building was completed, and it was leased to a third party for a term of 21 years, with a bilateral option to renew for a further term of 21 years. As noted earlier, the lessee defaulted in 1934, before the lease had terminated. When the railroads took the building over, the tenant transferred to both railroads, as lessors, the right to the name “ Biltmore ” and the hotel furniture. (Of course, under the extant lease New Haven “ shared control ” as a lessor.)
The facts thus far discussed are not disputed. The controlling documents are accepted as such by both sides. The problem is exclusively one of interpretation.
Needless to say, failures of draftsmanship (which appear to be failures, perhaps, only in retrospect) are rarely solved by saying that the scrivener could have, and therefore would have, so provided if thus had been intended. Of course, in any case if the provisions had been clear enough, there would have been no dispute. But surely, it is a sound rationale, which one may cautiously use as a guide that a party to a document who claims unusual rights or protections must find them in the language of the document or else the omission may support the inference that such rights and protections were not intended (e.g., President etc. of Del. & Hudson Canal Co. v. Pennsylvania Coal Co., 50 N. Y. 250, 259, compared with 272).
A principal purpose of the 1913 modification was to provide joint financing of the buildings to be constructed and, by applying surplus rentals, to reduce the costs of operating the railroad facilities. In accomplishing the foregoing result the agreement, with one qualified exception, did not purport to affect the “ownership title” of Central to the properties. Certainly, there was no express language to that effect. Moreover, in the railroad facilities, Central coneededly had the exclusive owner*325ship, but New Haven had the right to use them in common with Central upon payment of a rental charge based on net costs. The exception, with respect to the surface buildings only, is that, while advances are being reimbursed, New Haven is said to have ‘ ‘ an undivided interest ’ ’ in the buildings in proportion to its contribution. The very least such provision establishes is a security interest in the buildings until New Haven has been repaid its advances. Notably, again, the property interest ceases on reimbursement.
Despite the fact that the property interest ceases when advances are repaid, the contractual right of New Haven to share in surplus rentals continues. This is so stated immediately after provision that the property interest ceases upon complete reimbursement of advances. It is thus clear that New Haven was, as an inducement to its participation, also granted a right, indefinite in time, to share in the profits of the building, in reduction of rentals payable for joint use of railroad facilities.
It would seem, applying the rationale earlier mentioned concerning inferences from the omission of provision for unusual rights and protections, that if it had been intended for New Haven to share in ultimate managerial control, it would have been unavoidable to have made such provision express. It is significant, too, that one deals here with early 20th century draftsmanship when ownership and title were conceived in more absolute terms than today. Hence, in such, a period the draftsman was not likely to create shared controls without explicit reference to title and ownership.
The point, of course, is that the 1913 modification agreement is one that contemplates further agreements which will provide specific detail as to any other issues, including shared control, between the parties. New Haven cannot claim and need not claim a right to control from the 1913 agreement. It has the right to ask for and to receive a share in control when it is asked to “ join ” in the particular agreements relating to a building. So, it is on the Biltmore agreements * that it must rest its claim for control, not on the general 1913 modification. As will be seen later, the Biltmore agreements do not give New Haven the laro-or mea^urp of control it now claims, albeit they determine quite specifically what rights New Haven has. Hence, New *326Haven has never argued its position on the basis of those agreements, which is strange, indeed. Of course, to the extent that New Haven has rights Central’s “ ownership ” is limited. But of significance is that New Haven’s rights are defined in much greater detail in the particular building agreements and are only broadly indicated in the general 1913 modification.
The New Haven, however, makes specific argument based on the language of the 1913 provision. It argues that the right ‘ ‘ to join * * * in the construction, holding, maintenance and leasing of buildings ” must mean more than merely acquiescence in following the lead of Central. It argues that the words ‘ ‘ to join” embrace a connotation of sharing in control as joint venturers or partners would.
This argument stretches the language unduly. There Avere many buildings to be constructed and the ultimate cost was problematical. New Haven concededly, under the 1913 modification, had the option to participate or not to participate in the financing and the obligations of a lessor. “To join” need mean no more, and meant no more, than to so participate. Moreover, New Haven’s option was to be a continuing one in the sense that it could always refuse new obligations entailed. This in fact it did with respect to one building during the depression.
The economic and legal fact is that the lessor does more than collect rents. A lessor has or may have the obligation to maintain and repair, even to replace, and sometimes, depending upon the lease, to remodel or reconstruct.* Contributions beyond the stage of initial construction may, therefore, be very large. At no time after 1913 was New Haven committed to such additional participation unless it joined in leases as well as the construction. If the roof fell in and it cost $500,000 to replace it New Haven would have no obligation unless it were bound on the lease, and it could choose not to be so bound. This is the full Aveight of the language “to join” in the provision and also explains why it was necessary to specify, in addition to construction, “ holding, maintenance and leasing ”.
New Haven also stresses that in the provision for sharing in the rentals, even after full reimbursement of advances, the condition for such rights is merely participation in the “ construction ” of the building without reference to “holding, maintenance and leasing”. Again, once New Haven had participated in construction its option to participate in sur*327plus rentals persisted, subject, of course, to the particular building agreements that were invariably executed. But this does not mean that it may reject, at least unreasonably, continued participation in a lessor’s responsibility and still be entitled to the credit of surplus rentals to the terminal account.
The railroads by their dealings since 1912 confirm the present analysis of their rights and responsibilities. In the first lease of the Hotel Biltmore New Haven and Central committed themselves not only to build the hotel but to renovate it, if necessary, at the end of the first 21-year term. The lease was renewable for a further 21-year term at the option of either the railroads or the lessee, and the railroads were obligated to renovate at a cost of up to $500,000. The exact extent of this obligation was to be determined, in the case of dispute, by submission to arbitration, as provided in detail in the lease. Thus, the railroads were fully aware of the continuing responsibilities involved in the leasing of commercial buildings at the time of the 1913 modification. By joining in the first Biltmore lease, New Haven undertook these responsibilities and could not thereafter reasonably expect to reap the benefits of the leasehold without meeting the lessor’s obligations.
Significantly, New Haven’s obligation to join in the cost of repair, renovation and structural change of the Biltmore was defined in the 1912 lease and did not survive the expiration of the lease or its renewal. The 1912 building agreement also confined New Haven’s financial obligation for expenses to the term of the first lease and the single optional renewal. Thereafter, it could assume the burden of further expense or not, depending upon the terms of any agreement it might reach Avith Central regarding a division of profits accruing from such participation.
In the ease of another building, 320 Park Avenue, New Haven joined in financing the construction and, by 1936, had recouped its entire investment, Avith interest. When Central proposed extensive renovations at an estimated cost of $900,000, New Haven was unable to contribute and declined further participation. It then relinquished all claim to future rentals, seeking to preserve only the right to join at a later date if it undertook its equitable share of the obligations as lessor.
In detailed Avritten agreements, made upon the leasing of any building in Avhich the railroads shared construction costs, a division of rentals was provided. In a 1936 agreement, affecting the Hotel Biltmore, this division Avas specified for the then current lease and any future leases made by Central and New *328Haven. The prospect of New Haven sharing in rentals from a lease in which it did not join was clearly not contemplated. More importantly, neither in this nor in any other agreement or correspondence did New Haven assert any control over the development and leasing of buildings beyond merely exercising the option to participate or not in the financial and other obligations, and in the resultant rental return. As a colessor on leases, it acquired certain rights, well-defined in the leases, including a share of control. But as a party to the 1913 modification, it acquired no right to control the course of commercial development on lands owned by Central.
New Haven makes the argument that if the agreement is thus construed, New Haven is at the mercy of Central. Of course, so long as the hotel was rented to a third party New Haven was no more at the mercy of Central than any mortgagee is at the mercy of a mortgagor who has the uncontrolled right to lease or not to lease and on such terms as the mortgagor sees fit. And, of course, the parties in 1913 contemplated a third-party tenant. For the ensuing 21 years, the hotel, indeed, remained rented to a third party. As a consequence it was unlikely that Central would make arrangements, or could make arrangements, with a third party, which would be harmful to New Haven without at the same time harming itself.
Once, of course, the unexpected happened, namely, that the railroads had to take over the hotel, a different situation arose. It is inferable that, because of the changed circumstance, the board of directors of the subsidiary was constituted, as earlier described, to protect the interest of New Haven, since now there was the risk, which there had not been before, of self-dealing between Central and a subsidiary. Under this consensual arrangement New Haven and Central lived without complaint for another 23 years. Notably, even now New Haven does not accuse Central of breach of faith in making the 1958 lease with its subsidiary.
There is no doubt, and Central concedes it, that New Haven, in any event, would never be at the absolute mercy of Central in the making of leases for the hotel. New Haven would always have the right to reject any lease, and refuse to join in it, if the lease were an unreasonable one* and were the fruit of faithless self-dealing by Central. Nor would New Haven have to act at its peril when confronted with such a lease. It could always *329seek relief by way of declaratory judgment, and even in this case, as will be seen later, equity may prevent a gross and unnecessary forfeiture. Nor would New Haven’s right to refuse to join in a lease be limited to leases involving faithless self-dealing. If, conceivably, Central should choose faithlessly or improvidently to make a lease for an unreasonable consideration to a third party New Haven would not have to join. The implied covenant of good faith exists in every contract (e.g., Wigand v. Bachmann-Bechtel Brewing Co., 222 N. Y. 272, 277; Industrial & General Trust, Ltd. v. Tod, 180 N. Y. 215, 225).
Perhaps, the most telling omission in the 1913 modification, as distinguished from the particular Biltmore agreements, is the absence of any machinery for resolving an impasse between the railroads. If New Haven’s contention is correct, it was entitled to share equal control, apart from particular building agreements. It borders on the inconceivable to suggest that the executives of two railroads and their legal advisers, with a history of the enterprises extending well over a half-century, would permit their companies to be subjected to deadlocks, without avenue of escape, for an indefinite future. Nor is it any answer, and the New Haven does not suggest it as an answer, that the 1907 agreement had an arbitration clause.
Even under the modern law of arbitration in order for an issue to be arbitrable it must be a justiciable one (Civ. Prac. Act, § 1448). Under the more limited arbitration law extant before 1920 it would have been even better recognized that an arbitration enforcible under the statute could not be used to make a contract, although it might have some limited usefulness in interpreting an existing one (Code Civ. Pro., § 2366). In other words, if the railroads could not agree on a lease to a third party, neither could compel arbitration of the issue at common law (which was restricted to enforcement of antecedent awards) or under the statute (which confined enforcement of agreements to arbitrate to justiciable disputes) and thus have the lease made for them.
For all the reasons thus far discussed it is concluded that New Haven has no right (at least once its advances have been fully reimbursed and it no longer has a declared “undivided interest ” in the building) independent of joining in leases and other agreements affecting the premises, to share in the control and management of the Hotel Biltmore merely because it participated in the financing of its construction. As a consequence, unless it is asked to join in a lease which is corrupt, unreasonable or otherwise violates the express or implied *330agreements' between the parties, it has no choice but to join in the lease and the obligations of the lessors thereunder if it wishes to share in the surplus rentals.
As one views the entire relationship between the railroads in broad perspective, in the length of time and the breadth of the documents, it is evident that the issue of control is all but a chimera. So long as the written agreements, particularly the Biltmore agreements, between the railroads are extant and not annulled by substantial breach, the parties share in control as defined by those very agreements. When substantial breach occurs, if it is sufficient to work a forfeiture, then the fact of Central’s ownership gives it complete control. Before that, Central’s effective ownership and opportunity to take undivided control is but in the wings. Applied to the imbroglio which occurred here, the organic agreements between the parties required New Haven to join in any lease which met the minimal requirements, namely, those provided by the 1913 modification and the agreements made in connection with the construction and leasing of the Hotel Biltmore, all long before 1958. Hence, New Haven’s refusal to join in the 1958 lease was at least a technical breach. The consequences of such breach, technical or substantial, are another matter.
But it does not follow that because New Haven under a mistaken notion of law refused to sign the lease in 1958 that, therefore, it should forevermore forfeit its right to the profits to be derived from the Hotel Biltmore. Indeed, it would be a sad commentary and indicative of the absence of justice in law if, after the 45 years that it took to repay the construction advances, New Haven could lose its valuable residual rights because of mistake in the absence of a showing that the mistake caused harm or other prejudice to Central. These rights are quite substantial and consist of an accumulation at the time of judgment of rental overstatements for the terminal facilities in the amount of $1,236,212.15, and a 45-percent interest in the furniture and name of the Hotel Biltmore.
Indeed, there is no express provision in the agreement for such a forfeiture. A forfeiture might arise only if there has been a substantial breach, and then there might be qualifications. Since the lease made by Central in 1958 was with its own subsidiary and it imposes no unusual obligations on the lessor, it is reasonable to assume that no prejudice has resulted thus far from New Haven’s refusal to join. In consequence, equity is with power to remedy or to ignore the barely technical breach and permit New Haven, if it wishes, to now join in the 1958 lease, in the absence of a showing by Central that New *331Haven’s mistaken rejection of the lease caused irreparable harm and constituted a substantial breach of agreement not compensable in pecuniary damages (Restatement, Contracts, § 302, cf. § 275; 3 Williston, Contracts [Rev. ed.], § 793; 30 C. J. S., Equity, § 56).
Accordingly, I dissent in part and vote that the judgment in favor of defendant New Haven should be modified, on the law and in the exercise of discretion, to declare the rights of the parties in accordance with these views, and that judgment be granted in favor of plaintiffs on the complaint, but with leave to defendant to apply at the foot of the judgment at Special Term for appropriate directions under which it may join in the current lease for the Hotel Biltmore.
Botein, P. J., and Bergan, J., concur with Rabin, J.; Breitel, J., dissents in part in opinion in which Eager, J., concurs.
Judgment in favor of the defendant modified, on the law, by striking therefrom so much of the fifth decretal paragraph as directs the forthwith removal of those claiming under Realty and by granting leave to the defendant to apply at the foot of the judgment, if so advised, for such relief as it might deem proper in the circumstances; and as so modified affirmed, without costs. Settle order on notice.

 Such agreements were made and, although the parties refer to them but slightly, they are quite significant and will be mentioned in greater detail later.

 In his affidavit, the president of New Haven stated “ When I became President of New Haven in January 1956, Central nominated 5 directors to Realty’s Board and New Haven nominated only 2. So long as this situation persisted, Central was able to operate the Biltmore pretty much as it saw fit. It is true that in each year annual budgets for the operation of the Biltmore were submitted to New Haven for its approval. Basically, these budgets related to the expenditures for capital purposes and important replacements and renewals; they were a far cry from affording New Haven active participation in the direction of the valuable Biltmore property. In view of New Haven’s interest in the Biltmore property (the credits to the maintenance and operation account of the Terminal in the previous year, 1955, were $878,535.03), I came to the conclusion that New Haven should, in accordance with the original understanding between the railroads, receive such representation on the Board of Directors of Realty with Central so as to give New Haven an active voice in the management of the Biltmore. In addition, I caused investigations to be made respecting the operations of the Biltmore and from those investigations I concluded that the Biltmore was not being run so as to give to the railroads the maximum possible return. Based on these two considerations, I gave to Central, therefore, a clear indication that New Haven would not be interested in renewing the lease to Realty when it terminated on December 8, 1958, unless changes were made in the setup which would go at least part of the way toward meeting my objections to the then current management of the Biltmore.”

 The Biltmore agreements are the particular documents related to the Hotel Biltmore, as distinguished from agreements covering all buildings, such as the 101.3 mor!ifir=ntinn. There are almost two dozen Biltmore agreements, ranging from the 1912 leases through special rental arrangements between the railroads to the final renewal agreements between the railroads and the subsidiary tenant immediately preceding 1958.

 There was, in fact, provision therefor in the Biltmore lease of 1912. Mark, this was a lease executed before the 1913 modification, and one, therefore, in contemplation of the parties to that modification.

 I.e. If it were destructive of New Haven’s right to participate in the benefits of surplus rentals, once it had acquired that right by “ joining ” in the construction of a building.