York Haven Water & Power Co. v. York Haven Paper Co.

• Decision Date: 05 December 1912
• Docket Number: 1,680.
• Citation: 201 F. 270
• Parties: YORK HAVEN WATER & POWER CO. v. YORK HAVEN PAPER CO.
• Court: U.S. Court of Appeals — Third Circuit

201 F. 270

YORK HAVEN WATER & POWER CO. v. YORK HAVEN PAPER CO.

No. 1,680.

United States Court of Appeals, Third Circuit.

December 5, 1912

Reynolds D. Brown, of Philadelphia, Pa., and Charles L. Bailey, Jr. of Harrisburg, Pa., for appellant.

R Stuart Smith, of Philadelphia, Pa., W. U. Hensel, of Lancaster, Pa., John P. Kelly, of Scranton, Pa., and Charles E. Morgan, of Philadelphia, Pa., for appellee.

Before GRAY, BUFFINGTON, and McPHERSON, Circuit Judges.

GRAY Circuit Judge.

The York Haven Paper Company, the complainant below (hereinafter called the Paper Company), from 1885 to 1901 owned a tract of land on the west bank of the Susquehanna river. In 1901, the then stockholders of the Paper Company caused the York Haven Water & Power Company, the defendant below (hereinafter called the Power Company), to be incorporated, and to be conveyed to it the greater portion of the said tract of land owned by the Paper Company, to wit, 374 acres, having a frontage on the said river of about 6,825 feet.

The conveyance from the Paper Company to the Power Company was effectuated through an intermediate conveyance to the Security Title & Trust Company, of New York. The deed contained the following:

'Reserving also to the said York Haven Paper Company, its successors and assigns, a sufficient flow of water to enable the said York Haven Paper Company to develop three thousand horse power for all time after the construction of a contemplated power plant by the said York Haven Water & Power Company said supply of water to be furnished said York Haven Paper Company without cost or charge to it, by the said York Haven Water & Power Company and delivered at headgates to be constructed at the expense of the said Power Company in accordance with plans to be approved by the York Haven Paper Company, at such point on land belonging to the said Paper Company as it may designate; and the said York Haven Paper Company is to be first entitled to receive from the said York Haven Water & Power Company the said supply of water to enable it to develop the said three thousand horse power, before any power which may be developed by the said York Haven Water & Power Company to be used by it or furnished by it to any person or corporation; and no power shall be used or furnished at any time by said York Haven Water & Power Company unless said Paper Company is so supplied with the water necessary to develop said three thousand horse power hereby reserved to it. And in the event of the said Power Company refusing or failing to supply the said water necessary to create said three thousand horse power, then the York Haven Water & Power Company shall pay to the said York Haven Paper Company at the rate of forty dollars per horse power per annum, for as many horse power as are represented by the difference between the amount actually furnished and the said three thousand horse power agreed to be supplied, and this payment to be considered as liquidated damages between the said York Haven Paper Company and the said York Haven Water & Power Company. In the event of the deficiency of supply being caused by destruction of or injury to the dam, race or waterworks in consequence of floods or ice, such liquidated damages shall not be enforced. Together with all and singular the water rights and privileges of the said grantor in the said Susquehanna river, except as hereinbefore reserved, ways, streets, alleys, passages, waters, water courses, rights, liberties, privileges, hereditaments and appurtenances whatsoever, unto the hereby granted premises belonging or in any wise appertaining; and the reversions and remainders, rents, issues and profits thereof; and all the estate, right, title, interest, property, claim and demand whatsoever, of it the said grantor, as well at law as in equity, of, in and to the same.'

Though the consideration named in the deed was nominal, a very large proportion of the bonds of the newly created Power Company passed, as alleged in the answer, to the Paper Company, and the greater part of its capital stock fell into the hands of stockholders of the Paper Company, as promoters of the scheme. The Power Company having thus been originally created in the interest and for the benefit of the Paper Company and its stockholders, a community of interest between the two companies continued to a time recently before the commencement of the present suit, the officers of the two companies being to a great extent the same.

Immediately after its creation, the Power Company built, as was contemplated, its power plant at the lower end of its water frontage and out into the river, damming the water at that point and extending a wing dam therefrom up the stream for a considerable distance, making a forebay, in which the water was raised to a sufficient height to be used for power purposes. It also constructed headgates and a conduit therefrom, to supply the water to the mills of the Paper Company, as stipulated for in the reservation contained in the deed from the Paper Company to the Power Company above referred to. These works were all constructed at the expense of the Power Company, but under the supervision of one Henry L. Carter, president of the Paper Company, as well as of the Power Company. The smaller tract of land, with the paper mills thereon erected, retained by the Paper Company, lay below and to the south of the tract conveyed by the Paper Company to the Power Company. This tract does not abut on the Susquehanna river, as expressly found by the court below, and the headgates for supplying the Paper Company with water are not the property of the Power Company, though built by it under the arrangement with the former company.

It appears from the evidence that the stockholders of the Paper Company, as promoters of the Power Company, had in view, when it was created, that it should engage in the business of supplying electric power and light to business concerns and municipalities within the region accessible to its operations, extending from York to Harrisburg, and various contracts to that end had been made on behalf of the Power Company for furnishing power to street car lines, manufacturing plants and electric lighting systems in the region aforesaid. At the time the Power Company was formed, it was understood by its promoters that its power plant for thus furnishing electricity for industrial purposes would require a flow of water capable of producing 20,000 horse power, including the 3,000 horse power for the use of the Paper Company. As this 3,000 horse power was reserved to the Paper Company for all time, and free of expense to it, it was necessarily in contemplation of the Paper Company and its stockholders at the time they caused the Power Company to be created, that its (the Power Company's) only source of revenue would be its capacity to furnish electrical power and electric lighting to customers in the region referred to, on the basis of the 21,000 calculated horse power, to be obtained by damming the flow of the stream. It appears from the evidence that the money secured from the proceeds of the securities of the Power Company remaining in its hands after the deduction of those delivered to or retained by the Paper Company and its stockholders, proved to be insufficient to defray the expense of the construction of works necessary to produce the requisite horse power. New issues of bonds and stock to a large amount were therefore made by the Power Company to raise the funds required for that purpose. The Power Company, after the completion of its works, entered upon its business of supplying electrical power and light to manufacturing concerns, street railways and municipal lighting plants.

It appears from the evidence that the bottom of the headgates, built by the Power Company under the supervision of the Paper Company, opening into the race, through which the water was conveyed to the paper mills, was nine feet or more above the bottom of the forebay containing the dammed up water, and from which the water power was supplied to the turbines of the Power Company, as well as to the mills of the Paper Company. Such being the situation, it necessarily resulted that when, in a dry season, the water was drawn down to the level, or nearly to the level, of the bottom sills of the headgates, the Power Company could still secure a flow of water which was not available, for the reasons stated, to the Paper Company. In order, therefore, that the Paper Company might at all times have its stipulated flow of water, it would be necessary that the height of the water in the forebay should be maintained considerably above the level of the bottom of the headgates. This, the Power Company claims, and its claim is supported by the evidence, it was not able to do at certain seasons of drought and low water in the Susquehanna, and that at such seasons, even if the Power Company were to abstain from any use of the stored water power, it would be unable to furnish more than a small proportion of the stipulated flow to the Paper Company.

This state of things having been brought about by low stages of water in the Susquehanna, and especially after a severe drought in 1907, complaints were made by the Paper Company to the Power Company, and various suggestions of accommodation, by equitably dividing the water power that was obtainable, were made by the Power Company.

On December 4, 1909, upon the petition of a New Jersey corporation, a creditor of the Paper Company, alleging, inter alia, that by reason of the interruption of the operation of its plant, resulting from failure of water power from the Susquehanna river, the Paper Company was without cash and quick assets sufficient to pay its current liabilities, the Circuit Court of the...