Ripley v. International Rys. of Central America

• Decision Date: 01 December 1960
• Citation: 209 N.Y.S.2d 289,8 N.Y.2d 430,171 N.E.2d 443
• Parties: , 171 N.E.2d 443 Charles B. RIPLEY et al., Individually and as Stockholders of International Railways of Central America, Suing in Behalf of Themselves and All Other Stockholders Similarly Situated, Appellants-Respondents, v. INTERNATIONAL RAILWAYS OF CENTRAL AMERICA, Appellant-Respondent, and UnitedFruit Company, Respondent-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 289

209 N.Y.S.2d 289

8 N.Y.2d 430, 171 N.E.2d 443

Charles B. RIPLEY et al., Individually and as Stockholders of International Railways of Central America, Suing in Behalf of Themselves and All Other Stockholders Similarly Situated, Appellants-Respondents, v. INTERNATIONAL RAILWAYS OF CENTRAL AMERICA Appellant-Respondent, and UnitedFruit Company Respondent-Appellant.

Court of Appeals of New York.

Dec. 1, 1960.

T. Roland Berner, Aaron Lewittes, Julian S. Bush, M. Victor Leventritt, Shirley D. Brinsfield and Sidney Bender, New York City, for Charles B. Ripley and others, appellants-respondents.

Harry Bijur and Alexander Kahan, New York City, for John A. Bonaudi and others, appellants-respondents.

Herman A. Bayless, of the Ohio Bar, Cincinnati, Ohio, admitted on motion pro hac vice, for Peter G. Thomson, Jr., and others, appellants-respondents.

Inzer B. Wyatt, New York City, for International Railways of Central America, appellant-respondent.

Ralph M. Carson, Theodore Kiendl, Porter R. Chandler, Edwin J. Jacob and Edward E. Ellis, New York City, for respondent-appellant.

VAN VOORHIS, Judge.

This is a minority stockholders' suit on behalf of International Railways of Central America (hereafter described as Irca) against United Fruit Company (hereafter described as United) to recover damages arising from what are claimed to have been insufficient freight rates charged by Irca for the transportation in Guatemala of bananas for export and of imported materials and supplies for United or its subsidiary. Exerting practical control over Irca, United is charged with having obtained inadequate rates for its advantage to the detriment of Irca's minority stockholders. Without restating the evidence on which the findings depend, we are satisfied that the findings are sustained that United was in practical control of Irca at least after the creation of the voting trust in 1928, and stood in a fiduciary relationship to Irca as respects the latter's minority shareholders insofar as concerned business transactions between Irca and United or its subsidiary (Farmers' Loan & Trust Co. v. New York & Northern Ry. Co., 150 N.Y. 410, 44 N.E. 1043, 34 L.R.A. 76; Godley v. Crandall & Godley Co., 212 N.Y. 121, 105 N.E. 818, L.R.A.1915D, 632; Kavanaugh v. Kavanaugh Knitting Co., 226 N.Y. 185, 123 N.E. 148; Blaustein v. Pan Amer. Petroleum & Transp. Co., 293 N.Y. 281, 56 N.E.2d 705; Chelrob, Inc., v. Barrett, 293 N.Y. 442, 57 N.E.2d 825; Ripley v. International Rys., 276 App.Div. 1006, 95 N.Y.S.2d 871). The Referee determined the deficiency between the freight rates which were paid and what he deemed to have been the fair and reasonable value of the transportation services rendered, and gave judgment to Irca for the deficiency. The Referee's findings have been affirmed by the Appellate Division.

Appellant United relies for reversal and dismissal of the complaint primarily upon the Statute of Limitations and the controlling character of certain unrescinded contracts made in 1936. Under subdivision 8 of section 48 of the Civil Practice Act, the recovery has been limited to the period beginning February 14, 1943, six years before the commencement of this suit. United's contention is that the rates charged were fixed by agreement in 1936, and that it is too late to attack those contracts. The judgment appealed from determines those contracts to be valid and binding except with respect to the freight rates. United contends that this is inconsistent, and that unless those agreements are rescinded the rates stipulated in them are binding as part of the consideration to United and its subsidiary for benefits which these contracts conferred upon Irca (Barr v. New York, L. E. & W. R. Co., 125 N.Y. 263, 26 N.E. 145; New York Trust Co. v. American Realty Co., 244 N.Y. 209, 155 N.E. 102). Under those decisions, and on principles of fair dealing, it is clear that where a fiduciary contracts with its cestui regarding the individual property rights of the fiduciary, the transaction may be rescinded where there has been overreaching, but the cestui cannot knowingly retain the benefits which it receives under such agreements and simultaneously repudiate its obligations thereunder. An agreement with a fiduciary may be set aside, but the courts cannot compel a fiduciary to enter into an agreement which it has not made. The consideration running to Irca under the 1936 contracts did not consist of property which United held in a fiduciary capacity, but it was bargaining with respect to property rights which it owned. If the freight rates which were paid by Irca under the 1936 contracts were part of the consideration for benefits which Irca received, the position of United on this appeal might well be correct. It is now too late to rescind the 1936 contracts, an unsuccessful attempt was made to rescind them in the Federal courts (Henis v. Compania Agricola de Guatemala, D.C., 116 F.Supp. 223, affirmed 3 Cir., 210 F.2d 950), and the agreements would not be reformed in court so as to make them provide for different rates from those which they specify. An analysis of these agreements leads us to conclude, however, that the rates which they fix were not an integral part of the consideration for the benefits under them running to Irca. The courts below have apparently held and we believe the evidence to be clear that the rate agreements were separate from the other contracts or portions of contracts on which United relies upon this appeal, and that they are divisible from the rest of the consideration. The rule has been stated in Black on Rescission and Cancellation (2d ed., Vol. 3, § 585) that 'When a contract is separable or divisible into a number of elements or transactions, each of which is so far independent of the others that it might stand or fall by itself, and good cause for rescission exists as to one of such portions, it may be rescinded and the remainder of the contract affirmed. And it has been held that where a contract consists of parts so distinct and independent that each could be performed without reference to the others, a failure of one of the parties to perform one of the parts or terms of the contract does not authorize the other to rescind the whole contract, and refuse to accept a tender of performance of the remainder of the contract by the party in default.' The same principle of divisibility has been applied to restitution as essential to rescission (Corbin, Contracts, § 1111; 5 Williston, Contracts (Rev. ed.), § 1530; Schwasnick v. Blandin, 2 Cir., 65 F.2d 354, 358, per L. Hand, J.; Restatement, Contracts, §§ 351(a), 487; Thompson v. Fesler, 74 Ind.App. 80, 123 N.E. 188). In Banberger Bros. v. Burrows, 145 Iowa 441, 451, 124 N.W. 333, 337, it was said: 'If the contract consists of several distinct and independent parts, each of which can be performed without reference to the other, a failure of one of the parties to perform one of the terms does not authorize the other to rescind the whole and refuse to accept performance of the other terms by the party so in default.'

It follows from these principles that, if the freight rate provisions of these 1936 contracts were divisible from the other portions of the agreements, the charging of inadequate freight rates by Irca would not have furnished a basis on which the rest of the agreements, supported by independent consideration, could have been rescinded. Under that state of facts, it was not incumbent upon Irca represented by its minority stockholders to attempt to rescind the other portions of the agreements made in 1936, nor did the existence of the other portions of these agreements operate as a bar to this suit for damages based on unjust enrichment of United and Agricola by the carriage of freight at inadequate rates. A cause of action would lie for the difference between the stipulated rates and the fair and reasonable cost of the transportation furnished (Chelrob, Inc., v. Barrett, 293 N.Y. 442, 57 N.E.2d 825), without rescinding the rate agreements by themselves.

Whether this action can be maintained on this theory depends upon whether the parties in 1936 'assented to all the promises as a single whole, so that there would have been no bargain whatever, if any promise or set of promises were struck out. * * * Did the parties give a single assent to the whole transaction or did they assent separately to several things?' (3 Williston, Contracts (Rev. ed.), § 863.)

The Appellate Division refers to the rate agreements as separate agreements. The Referee poses the query whether the 1936 rate agreements are divisible or entire, and appears to have inferred the former to be the fact. We think that the evidence admits of no other conclusion. The 1936 contractual arrangements consist of 10 purportedly separate contracts between Irca and United, or between Irca and United's subsidiary known as Agricola. The circumstance that they are different documents does not necessarily mean that they do not form a single contract (Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551), but it does indicate that they are separate unless the history and subject matter shows them to be unified. The first of these 1936 contracts, entitled 'Main Agreement', is between Irca and Agricola. It does not mention freight rates, but provides that Agricola will purchase 10 new locomotives and 300 banana cars for use by Irca 'under separate trackage and operating agreements, the terms of which have been agreed to and are satisfactory to the Railway Company.' For 20 years Agricola agrees to refrain from building a port without Irca's consent on the Pacific seaboard of Guatemala, which might compete with Irca, and it agrees to use the main lines of Irca to transport its bananas and to carry its imported materials and supplies 'under such arrangements as the parties hereto may agree upon from time to time.' (Italics supplied.) Agricola agrees to obtain permission for Irca...