151 N.Y. 24, Bath Gaslight Co. v. Claffy

Citation:151 N.Y. 24
Party Name:THE BATH GAS LIGHT COMPANY, Respondent, v. JOHN CLAFFY, Appellant, Impleaded with Others.
Case Date:December 01, 1896
Court:New York Court of Appeals

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151 N.Y. 24

THE BATH GAS LIGHT COMPANY, Respondent,

v.

JOHN CLAFFY, Appellant, Impleaded with Others.

New York Court of Appeal

December 1, 1896

Argued June 19, 1896.

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COUNSEL

Abram J. Rose, L. Laflin Kellogg and Alfred C. Petté for appellant. The contract leasing, for a term of years, all the property and corporate rights of the plaintiff to the defendant, the United Gas, Fuel and Light Company, is void as against public policy. (People v. N. R. S. R. Co., 121 N.Y. 582; N. O. G. Co. v. L. L. Co., 115 U.S. 650; Gibbs v. C. G. Co., 130 U.S. 396; 27 Am. & Eng. Ency. of Law, 384; B. G. L. Co. v. U. F. G. Co., 85 Me. 532; Thomas v. W. J. R. R. Co., 101 U.S. 71; P. R. R. Co. v. S. L., A. & T. H. R. R. Co., 118 U.S. 317; S. L. R. R. Co. v. T. H. R. R. Co., 145 U.S. 393; C. T. Co. v. P. P. C. Co., 139 U.S. 24; Black v. D. & R. C. Co., 24 N. J. Eq. 465; M. R. R. Co. v. B. R. R. Co., 115 Mass. 247; Hay v. O. O. & F. R. V. R. R. Co., 64 Ill. 422; People v. C. G. T. Co., 130 Ill. 286.) The lease in question being void, the bond given for its performance is also void. (3 Am. & Eng. Ency. of Law, 889; Swift v. Beers, 3 Den. 70; Leavitt v. Palmer, 3 N.Y. 19-36; Vose v. Cockcroft, 44 N.Y. 415; Foley v. Speir, 100 N.Y. 552.)

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The parties to the lease and the bond are not estopped from questioning their legality even in so far as they had become partially executed. (W. A. Co. v. Barlow, 63 N.Y. 62; Thomas v. W. J. R. R. Co., 101 U.S. 71; Arnot v. P. & E. C. Co., 68 N.Y. 558-569; Peck v. Burr, 10 N.Y. 294; Saratoga Co. Bank v. King, 44 N.Y. 87; Woodruff v. E. R. Co., 93 N.Y. 609.)Even if it could be shown that the lease in question is not contrary to the public policy of this state, it has been expressly held, under the law of the state of Maine, the place where the lease was made and was to be performed, that such contracts are against the public policy of that state and void, and the lease being void where it was made, it is void everywhere. (Pratt v. H. R. R. R. Co., 21 N.Y. 305; Staples v. Nott, 128 N.Y. 403; Dickinson v. Edwards, 77 N.Y. 573; L. & G. W. S. Co. v. P. Ins. Co., 129 U.S. 397; E. L. Ass. Society v. Clements, 140 U.S. 226; United States v. North Carolina, 136 U.S. 211; Andrews v. F. Ins. Co., 37 Me. 356; B. B. Co. v. Whiting, 29 Me. 123; Dailey v. M. E. Church, 71 Me. 473; S. L. R. R. Co. v. T. H. R. R. Co., 145 U.S. 393.) The plaintiff is not entitled to recover against this defendant as surety in this or any action, on a quantum meruit in disaffirmance of the contract. (Southwick v. F. Nat. Bank of M., 84 N.Y. 420; Saratoga Co. Bank v. King, 44 N.Y. 87; Arnot v. P. & E. C. Co., 68 N.Y. 558.) The plaintiff is not entitled to recover in any event from this defendant the item charged for use and occupation of the premises from May 1, 1890, to August 2, 1890, the date of eviction, to wit, $700, for the reason that the eviction was in the middle of the term between the two rent days, and prior to the date when the rent for that term fell due. (Vanderpool v. Smith, 4 Abb. Ct. App. Dec. 463; Taylor's Land. & Ten. § 378; Giles v. Comstock, 4 N.Y. 275; Pendleton v. Dyett, 4 Cow. 582; Christopher v. Austin, 11 N.Y. 218.)

James McKeen for respondent. Assuming that the lease was ultra vires, the plaintiff nevertheless was entitled to the

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judgment rendered. A lessee is estopped from defeating a recovery on the contract by the plea of ultra vires. (Woodruff v. E. R. Co., 93 N.Y. 609; R. L. R. Co. v. Roach, 97 N.Y. 378; Starin v. Edson, 112 N.Y. 206; Mayor, etc., v. Huntington, 114 N.Y. 631; City of Buffalo v. Balcom, 134 N.Y. 532; Seymour v. S. F. C. Assn., 144 N.Y. 341; Carpenter v. B. H. G. M. Co., 65 N.Y. 43.) The rule of estoppel applicable to the lessee is applicable to the surety, especially where, as here, the surety was a stockholder and officer in the lessee company and a participant in the benefits acquired and retained under the lease. (Kimball v. Newell, 7 Hill, 116; Remsen v. Graves, 41 N.Y. 471; Mason v. Nichols, 22 Wis. 360.)

ANDREWS, Ch. J.

A brief statement of the material facts will present the important question arising upon this appeal.

The plaintiff is a Maine corporation created under a special law of that state, passed in 1853, for the purpose of supplying gas for the lighting of the streets and buildings in the city of Bath. The United Gas, Fuel and Light Company is also a Maine corporation, organized in 1888, under a general law, by the execution and filing of a certificate, which in pursuance of the law of Maine was first submitted to and approved by the attorney-general, who certified that it was conformable to the Constitution and laws of that state. The certificate, among other things, specified that the corporation was organized to 'manufacture, lease, purchase and otherwise acquire, deal in, manage, use and sell any and all machinery, fixtures, appurtenances, appliances and plants for using and furnishing light, heat and power, and for any and all purposes for which gas is now used.' The plaintiff under its charter established a plant, and at the time of the execution of the lease now to be mentioned was engaged in supplying the streets and buildings in Bath with gas for lighting and other purposes. On the 10th day of November, 1888, it executed to the United Gas, Fuel and Light Company a lease of its property and franchises for the term of twenty-five years from November

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1, 1888, at an annual rent of $2,500, which the lessee covenanted to pay in semi-annual payments on the first day of May and the first day of November in each year, and also the taxes assessed during the term. Provision was made for the payment by the lessor to the lessee, at the expiration of the term, of the value of any improvements or extensions made by the lessee, and it was also provided that the lessee should give to the lessor a satisfactory bond for the faithful performance by the lessee of its covenants in the lease. In pursuance of the provision last mentioned, the United Gas, Fuel and Light Company, on the same day, executed a bond with the defendants John Claffy and John T. Rowland as sureties, conditioned for the faithful performance by the company of the covenants in its behalf contained in the lease, which bond was delivered to and accepted by the plaintiff. The sureties were interested in the United Gas, Fuel and Light Company as stockholders, and Claffy (the appellant) was also a director. The lessee immediately, upon the execution of the lease, entered into possession of the demised property and paid the rent up to the 1st day of November, 1889, but defaulted in the semi-annual payment due May 1st, 1890, and on the 2nd day of August, 1890 (the rent remaining unpaid), the plaintiff re-entered and took possession of the demised property under a provision of the lease which authorized the lessor to enter and expel the lessee on failing to pay rent. The entry also was, as may be inferred, with the consent and, indeed, at the suggestion of the officers of the lessee. This action was brought on the bond against the lessee and the sureties to recover as damages the rent which fell due May 1, 1890, and the proportionate rent from that date up to August 2nd, 1890, and taxes which had been assessed against the property during its occupation by the lessee, which it had failed to pay.

The defendant Claffy alone appeared and defended the action. His sole defense to the general claim is that the lease was ultra vires, illegal and void, because (as is conceded) it was made without legislative sanction. If the court is compelled to accede to this contention by force of controlling authority,

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or from considerations of public policy which overbear in the particular case the rules of ordinary justice, it will be our duty so to declare and to say that, although the United Gas, Fuel and Light Company received and enjoyed the undisturbed possession of the demised property under the lease until the re-entry, and accepted and appropriated the benefit of the contract, nevertheless, when called upon to pay the rent which accrued during its occupation, it may defend itself on the ground that the plaintiff, in making the lease, exceeded its power and escape the performance of its obligation, and, further, that the defendant Claffy may, for a like reason, avoid his guaranty.

The modern doctrine, as stated by Chancellor KENT, is to consider corporations as having such powers as are specifically granted by the act of incorporation, or as are necessary for the purpose of carrying into effect the powers expressly granted, and as not having any others. (2 Kent Comm. 299.) This doctrine is embodied in the Revised Statutes of New York, and the section relating to the subject is regarded as simply declaratory of the antecedent law. (1 Rev. St. 600, § 3.) It has been frequently stated that the validity of contracts of corporations is to be determined by comparing the contract made with the charter, and if upon such comparison it appears that the contract was neither expressly authorized, nor a necessary or reasonable incident to the exercise of the powers specifically granted, the contract is ultra vires. It seems that by the ancient common law a corporation could bind itself by a contract under its corporate seal, although the contract was not within the powers specified in the charter, and even although it contained negative words. This was in substance stated by BLACKBURN, J., in the case of Riche v. Ashbury Railway Carriage Co. (L. R. [ 9 Exch.] 262), citing as authority Sutton's Hospital Case (10 Co. 1). He said: 'If there are conditions contained in the charter that the corporation shall not do particular things, and those things are nevertheless done, it gives ground for a proceeding by sci. fa. in the name of the crown to repeal the letters patent creating the corporation.

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But if the crown take no such steps it does...

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