Long Island R. Co. v. Northville Industries Corp.

• Decision Date: 24 March 1977
• Citation: 393 N.Y.S.2d 925,362 N.E.2d 558,41 N.Y.2d 455
• Parties: , 362 N.E.2d 558 LONG ISLAND RAIL ROAD COMPANY, Appellant-Respondent, v. NORTHVILLE INDUSTRIES CORP., Respondent-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 925

393 N.Y.S.2d 925

41 N.Y.2d 455, 362 N.E.2d 558

LONG ISLAND RAIL ROAD COMPANY, Appellant-Respondent, v. NORTHVILLE INDUSTRIES CORP., Respondent-Appellant.

Court of Appeals of New York.

March 24, 1977.

David Cohen, Richard M. Sharfman, James A. Shanman and Charles I. Poret, New York City, for appellant-respondent.

Leonard H. Moche, New York City, Joseph J. Ackell, Huntington Station, and Harry A. Gottlieb, New York City, for respondent-appellant.

COOKE, Judge.

As early as 1962, Northville Industries Corporation, then known as Northville Dock Corporation, had expressed its interest in acquiring a right of way along the trackage of the Long Island Rail Road Company for the installation of a pipeline for the transportation of fuel oil, and possibly gas, in connection with Northville's storage, terminal and docking facility at Riverhead, Long Island. This proposal was further refined, and, on different occasions, apparently to assure the railroad of its intention to enter upon the project, Northville stressed its desire for 'the prompt establishment of an operating pipeline' and, sought the cooperation of the railroad 'in speeding the pipeline construction process'. After numerous meetings, the parties entered into a written agreement, dated as of September 1, 1965, under which the railroad granted Northville 'the right and privilege to erect, construct, install, use, operate, maintain, repair, renew and remove a pipeline, together with its appurtenances above or below and along and within the limits of the Railroad's normal right of way * * * along the Railroad's Main Line from Riverhead, New York, to a point distant not more than three miles west of Brentwood, New York.'

A provision in the agreement characterized it as a license agreement, and not a lease, in explanation of the fact that there would be no reduction in compensation payable by Northville to the railroad by reason of inconvenience, annoyance or loss of busine arising from the railroad's operations or repairs to and physical changes to its properties. Nevertheless, although many of the provisions recognized the paramount rights of the railroad in the maintenance and operation of its business and the subsidiary nature of the rights granted to Northville, the writing did provide, in general terms, that the railroad would not 'impair, prejudice, or derogate from the rights granted herein * * * by any sale, lease, surrender, or other disposal' without the written consent of Northville.

Under the agreement, as compensation for the right to erect and maintain the pipeline, Northville agreed to pay the railroad: '(a) $10,000 in advance, covering a 3-year period during which Northville Dock shall, at its sole cost and expense and at no cost to the Railroad, acquire a right of way from its terminals to the railroad rights of way, procure the necessary consents, licenses, franchises, permits, or other authority, construct the pipe line, etc. After the 3-year period, or when construction is completed if sooner than three (3) years, or if any portion of the pipe line becomes operative within the 3-year period, Northville Dock shall pay the Railroad $1 per inside diameter inch per 100 lineal feet of pipe, plus 1cents per barrel of throughput, with a guaranteed minimum of $20,000 per year.' A 20-year term was specified, unless sooner terminated by operation of law or as otherwise permitted, except that the amount of compensation to the railroad was to be subject to renegotiation at the request of either party at the end of 10 years. Northville was also given an option to renew the agreement for an additional 20 years.

Cancellation was permitted by Northville, at any time during the first three years of the original term, and by the railroad, if Northville did not complete at least half the pipeline during said three-year period. This three-year period was subject to extension, but in no event for a period longer than six months, by reason of delays due to such causes as accidents, fires, floods, defaults of subcontractors, or any other similar causes beyond Northville's reasonable control. Significantly, this cancellation clause provided that 'if Northville (Industries) does not so cancel during the first three (3) years of the original term (of the agreement), it will be bound thereafter.'

With respect to the acceleration of payments, it was provided that 'the whole compensation for the remainder of the term' would 'be due and payable' in the event of any one of the following specified occurrences: (1) if Northville, after the first three years of the original term of the agreement, attempted to remove or manifested an intention to remove all the pipeline and its appurtenances from the railroad's property; or (2) if Northville became insolvent or bankrupt, or (3) made an assignment for the benefit of creditors, or (4) was sold out by any sale under process of law. In addition, provision was made for arbitration of 'any disputed question' with respect to 'the construction and performance of this agreement, including the rate of compensation as provided herein'.

Upon execution of the agreement in September of 1965, Northville made the initial $10,000 to the railroad required thereunder and began preparations for the construction of the pipeline. Elaborate plans and specifications were prepared and submitted by Northville to the railroad for approval. In March, 1966, Northville requested permission to use a 12-inch diameter pipeline rather than the 8-or 10-inch diameter originally specified, and the railroad consented to amend the agreement accordingly.

Thereafter, Northville became involved in litigation with third parties concerning the construction of the pipeline and the project was delayed. On July 3, 1968, two months before the expiration of the three-year period in which Northville could cancel, it asked for the additional six months permitted for delays for causes beyond its control. In this connection, Northville stated that through March, 1968, it had expended more than $666,826 in preparing and equipping itself for construction. Around this time, Northville also sought an extension of the time, until October 11, 1969, during which it could cancel, but this extension was never formal consented to by the railroad. Without this extension, the period passed within which Northville was permitted to cancel under the agreement. Nevertheless by a letter dated August 4, 1969, Northville described its dissatisfaction with the railroad concerning the requested extension, and stated that it had concluded that the matter could not be adjusted and that it was forced to cancel the agreement. With the dispute thus unresolved, the pipeline was never built along the railroad's right of way, although in 1973 Northville commenced use of another pipeline which was constructed along a portion of the Long Island Expressway's right of way.

The railroad began billing Northville for the guaranteed annual minimum of $20,000, but Northville did not pay these amounts. The railroad then brought an action against Northville seeking not merely the overdue installments of $20,000, but damages in the amount of $4,446,659, based on estimates of the compensation to which the railroad would have been entitled had the pipeline been constructed and put in operation along its right of way.

At Special Term, the railroad moved for an order pursuant to CPLR 3124 to compel Northville to disclose evidence for the purpose of proving damages concerning the volume of oil which would have been put through the pipeline which was the subject of the agreement. This motion was denied.

On the merits, Special Term considered and rejected the railroad's argument that under the agreement Northville was obligated to build the pipeline and thus liable for damages based on the volume of oil that would have been put through the line had it been laid and functioning. Instead, it construed the agreement as a license whereby the railroad granted Northville permission to construct and operate a pipeline along the railroad's right of way, without any obligation on the part of Northville to exercise that privilege. The court also rejected the railroad's argument that, if such an obligation was not expressed in the contract, it should be implied.

With respect to damages, Special Term dismissed so much of the railroad's complaint which demanded damages for annual installment payments under the agreement allegedly due after April 11, 1973, the date of the commencement of the action. The court determined that the acceleration clause provided for in the agreement was inapplicable to the cancellation by Northville. Moreover, since it had determined that Northville was not obligated to construct and operate the pipeline, it was concluded that the only compensation to which the railroad was entitled was the guaranteed minimum of $20,000 per year. Viewed in this fashion, the agreement was construed as a contract solely for the payment of money, the court reasoning that the doctrine of anticipatory breach had no application to such contracts, thereby disallowing the railroad's claim for payments not yet due. Finally, since that portion of the complaint which sought installments due after the date of the commencement of the action had been dismissed, it denied as moot Northville's motion to dismiss so much of the complaint which demanded damages for payments due after August 31, 1975--for which Northville contended there was no enforceable obligation as to compensation because the agreement afforded either party the right to request renegotiation of the compensation to be paid after that date.

On appeal, the Appellate Division modified. In a memorandum, that court noted its approval of Special Term's denial of the railroad's motion for disclosure, and stated that under the agreement the railroad could not recover damages of more than the guaranteed minimum of $20,000 per year. In modifyin however, ...