Court Opinion

ID: 3586380
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:36:14.127054+00
Date Added: 2024-06-11T13:58:58.750638
License: Public Domain

I concur in the result reached by Judge HAIGHT, but as I have some views which he has not expressed, I will briefly announce my conclusions without much effort at argument.
The primary question is, what does the contract mean? This, as I think, is a question of law which we should now decide, so that both parties may know their rights and understand their legal relations to each other during the long period that their contract yet has to run. The meaning of a written agreement is rarely a question of fact, although in case of doubt surrounding circumstances may be taken into account, so that the court may read the instrument in the same light that the parties wrote it.
The contract is not a lease, either in form or substance, any more than an agreement to work a farm. The terms, conditions and covenants usually found in leases are wholly wanting. There is no rent reserved, no exclusive right to income and no covenant to pay rent, as such, or in effect. On the other hand, compensation, expressly named as such, is provided through a division of gross earnings to pay one party for "managing, operating and maintaining" the railroad belonging to the other.
No express trust was created, for the elements of such a relation are absent. Title to the railroad property continued in the original owner, while the other party was *Page 601 
to perform certain services with reference thereto for a compensation prescribed. The defendant was entitled to possession for a specified period, but simply to enable it to manage and operate the plaintiff's road.
What, then, was the relation between the parties as created by the contract? When that relation began the defendant was an old railroad company, operating a long line of road, fully equipped with the rolling stock, men and appliances necessary to manage not only its own road but also any short road connecting therewith that it might acquire the right to operate. Thus, without much increase of expense by adding a short line as a "feeder," it could enlarge the business of its main road. On the other hand, the plaintiff was simply a road on paper, duly organized as a railroad corporation, with its road projected but not built. As described in its charter, its road was to extend from a branch of the defendant a distance of two miles through the village of Ticonderoga, past one manufactory and to another. It had the right to issue bonds and stock to build its road, but it could not itself operate a line only two miles long to advantage. As the contract recited, "such proposed road can be most economically operated by said first party (the defendant) as a side or switch track, at but a slight expense over that required to handle the freight and passenger traffic of said village with present imperfect facilities." Ticonderoga, as it is further recited, was a "thriving manufacturing village," with "water power and natural facilities for the development of manufacturing industries of an unusual order." It was situated about three-quarters of a mile from a branch of the defendant, which was built "on very high ground * * * and at a considerable elevation above" the village. The plaintiff wanted to build the road, for its projectors were interested in the manufacturing plants reached by it. The defendant wanted the road built so as to use it as a feeder to its own "and thus," as was also recited, "secure an increase of traffic upon said railroad at the smallest expense to itself." While the plaintiff was willing to build the road, it could *Page 602 
not well operate it, and the defendant was willing to operate it, but did not wish to build it.
Such being the situation, the parties came together and entered into the contract, which I regard as an operating agreement between principal and agent, which implies a trust relation, but not that of cestui que trust and trustee. The plaintiff agreed to build the road wholly at its own expense with steel rails of a specified weight, "a sufficient freight and passenger station at the village of Ticonderoga, with the usual and necessary switches and side tracks and other appurtenances." All the construction was to be done in first-class manner and to "conform in all respects to the requirements of the Chief Engineer of the Delaware  Hudson Canal Company." The plaintiff also agreed to procure the legislation necessary to authorize charges not exceeding twenty-five cents for each passenger, twelve and one-half cents for each ton of factory supplies or products, and seventy-five cents for each ton of general merchandise. It was stipulated that no provision of the contract should bind the defendant unless such legislation was secured. The factory rate thus prescribed was very low, the rate for general freight very high and the rate for passengers almost unprecedented. After the plaintiff had performed these stipulations the defendant was to take possession, maintain, manage and operate the road and provide freight and passenger connection with all day trains on its own road during the corporate existence of the plaintiff, which was fifty years. These were the special promises of the respective parties, the remaining provisions being mutual by express statement.
After thus providing for the construction of the road by one party and the operation thereof by the other, it was mutually agreed that the gross earnings should be disposed of as follows: The defendant was to "retain twenty-five per cent of the annual gross earnings derived from all traffic upon said Ticonderoga Railroad, as full compensation for managing, operating and maintaining said railroad." The remaining seventy-five per cent was *Page 603 
to be used in the payment of taxes and interest on bonds, while not to exceed $1,000 per annum was to be deposited with trustees as a sinking fund to pay the bonds when due. Provision was also made for the payment to the plaintiff of all moneys received in excess of that required to meet these expenditures "to the extent of a sum sufficient to pay a dividend not to exceed five per cent upon its capital stock of $30,000." Any unexpended balance after these payments were made was to be retained by the defendant "to be applied in paying the cost of extensions or improvements so far as it may find the same necessary."
When the road was built it belonged to the plaintiff and the defendant had no interest in it except as given by the contract. It was to manage, operate and maintain a railroad belonging to another party and to receive a certain percentage of the gross proceeds in full compensation for such services. It was not to be liable for any debt of the plaintiff, nor to expend a dollar of its own money except to operate the road and not even for that purpose unless its share of the gross receipts was insufficient. When one person agrees to manage another person's property for a definite time at a prescribed compensation, with no transfer of title, the relation of principal and agent exists between them, and the same is true if the two contracting parties happen to be railroad companies. The defendant was not to work for itself but for another, using its property in order to do the work. As it operated the road, it necessarily received the income, not for its own use, however, except to a limited extent, but as agent. It was to retain a certain proportion of the income as full compensation for its services in managing property belonging to another railroad company, and was to devote the remainder to certain specific purposes. I see nothing in the nature of a lease or of an express trust in such an arrangement, but simply an agreement between principal and agent. The relation was fiduciary in character, because the plaintiff intrusted its property to the defendant to manage, receive *Page 604 
the income, and use it for specific purposes. Hence, the defendant was bound to account to the plaintiff at reasonable times and under reasonable circumstances for the income received, even if no part thereof was at the time payable to the plaintiff. Every principal has the right to know how his agent has managed the business intrusted to him and how he has disposed of the proceeds of such business. The accident that each party happens to be a corporation does not affect the right. This action, therefore, was properly brought and the Appellate Division had no power to dismiss the complaint, even if nothing were found due to the plaintiff upon the accounting.
In order that a proper accounting may be had it is necessary to know how the gross earnings are to be disposed of according to the contract. The defendant is to retain twenty-five per cent thereof, in any event, even if there is not enough left to pay the interest and taxes. That is its compensation in full for all services rendered. From the seventy-five per cent remaining, the taxes, interest and a deposit for a sinking fund are to be met and the rest is to be paid to the plaintiff, "to the extent of a sum sufficient to pay a dividend not to exceed five per cent upon its capital stock." There is no controversy over this provision, although it is relied upon as an aid in construing the final stipulation. After all these payments are made the remainder of the gross proceeds is to be paid to the defendant, not, however, for its own use and benefit, but "to be applied in paying the cost of extensions or improvements, so far as it may find the same necessary."
As I read the contract, the twenty-five per cent to be retained by the defendant is not simply for operating expenses, but is in "full compensation for managing, operating and maintaining said railroad," and hence it is all that in any event the defendant can receive under the contract for its own benefit. The words "full compensation" are words of exclusion and forbid the defendant from taking any more as its own property. What *Page 605 
function do these words fill if the defendant was to have all the final residue for itself? Why were they inserted in the contract? Whether the compensation agreed upon was adequate or not, as the defendant agreed to accept it in full it must abide by its promise. This is the plain and natural meaning of the stipulation, as I think, and to so construe it as to allow other compensation than such as was agreed to be accepted in full, would do violence to the intention of the parties as shown by their written agreement.
The defendant, however, was to retain any unexpended balance that might remain after making all the other payments specified, not for its own use but for a definite purpose clearly specified. It was to retain it "to be applied in paying the cost of extensions or improvements so far as it may find the same necessary." "To be applied" are the controlling words in this controversy. They govern the disposition of all the final residue. They fasten upon the entire "unexpended balance," however large it may be, and hold it so as to leave no ground for the contention that one party can keep as its own what both parties agreed should be applied in paying the cost of improving the property in which both were interested. The defendant was made the custodian of the residuum simply for the purpose of applying it to the object mentioned. It had no right to keep the money for itself, but it had the right in its sound discretion to expend it in improvements when necessary and it was the sole judge of the necessity so long as it acted in good faith. While the balance did not belong to the defendant, it had the power to hold it and use it to benefit the plaintiff's property and for no other purpose. If all should be thus used the plaintiff would have the benefit of it in the increased value of its property and while it could derive no immediate benefit from it its stockholders might through appreciation in the value of their stock. All improvements and extensions belong to it as fast as they are made and at the end of the fifty years of corporate life its stockholders will have the benefit thereof upon sale or *Page 606 
reorganization. If, however, all the balance is not thus expended it will necessarily belong to the plaintiff at the close of the corporate period when the stockholders will come into full enjoyment. The title to the balance conclusively appears from the fact that if expended in improvements as directed, such improvements will belong to the plaintiff and upon the expiration of the charter to its stockholders. If not so expended, it will not belong to the defendant but will stand in the place of the improvements into which it might have been converted, as the exclusive property of the plaintiff, or its stockholders.
The defendant expended but little of the balance in extensions and improvements, and in the nature of things more will be required in the future, as the road gradually wears out and needs reconstruction. The balance, already a large sum, is increasing by several thousand dollars each year, and the referee was of the opinion that the sum of $15,000 out of that already on hand, together with the annual accumulations, would be sufficient to take care of the future. This involved a question of fact, and as the Appellate Division reversed that determination we cannot interfere with their conclusion in that regard (139 App. Div. 542,551). A new trial is, therefore, necessary, for the plaintiff had a right to an accounting in any event, and hence the complaint should not have been dismissed. Upon the new trial it may be found as a fact that all of the residuum, including interest, for the defendant did not invest the fund, but used it for its own purposes, will be needed for necessary extensions and improvements. In that event the plaintiff, although entitled to the accounting, will not be entitled to recover any part of the surplus in this action. If, however, it should be found as a fact that even upon the most liberal estimate all the remainder will not be needed for extensions and improvements, I think the plaintiff will be entitled to judgment for the part not so needed, with the right to pay it out in dividends to its stockholders. The limitation to a dividend of "not to exceed five per cent" does not extend to an unexpended balance *Page 607 
remaining after every payment has been made, all necessary improvements paid for and a safe allowance made for the future.
As the Appellate Division had the right to reverse the judgment of the referee on the facts, its judgment to that extent should be affirmed, but as it had no right to dismiss the complaint, its judgment in that respect should be reversed and a new trial ordered, with costs to abide the event.
WILLARD BARTLETT, HISCOCK and COLLIN, JJ., concur with HAIGHT, J.; CULLEN, Ch. J., concurs with VANN, J.; GRAY, J., not sitting.
Judgment reversed, etc.