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Niagara Falls Hydraulic Power & Mfg. Co. v. Schermerhorn

Supreme Court of New York, Appellate Division

May 5, 1909


Appeal from Trial Term, Niagara County.

Action by the Niagara Falls Hydraulic Power & Manufacturing Company against Julian H. Schermerhorn, as trustee in bankruptcy of the Acker Process Company. From a judgment for plaintiff ( 60 Misc. 209, 111 N.Y.Supp. 576), defendant appeals. Affirmed.

McLennan, P. J., dissenting.

[117 N.Y.S. 11] The action is brought to recover the value of certain personal property, left over after a fire which burned the buildings and plant of the Acker Process Company, a domestic corporation, of which the defendant was appointed the trustee in bankruptcy. The defendant sold the property, and the plaintiff contends that the property belonged to it.

The plaintiff is a power company at Niagara Falls, and owns the lands upon which the process company's buildings and plant were located. In 1899 the process company, desiring to carry on the business of manufacturing bleaching powder and caustic soda (which is made from common salt) and other by-products, entered into a contract in writing, dated June 14, 1899, by which the power company leased to the process company certain lands for 25 years, beginning on the 15th day of February, 1900, and terminating on the 15th day of February, 1925, at an annual rental of $500. The lease was from time to time extended to lands additional to those described in the original lease, and the rent increased accordingly, so that eventually the annual rent for all the demised premises was $1,050, payable quarterly on the 10th day [117 N.Y.S. 12] of May, August, November, and February, and at the same time at which the compensation for furnishing power (which will be presently referred to) was payable. The agreement of June 14, 1899, further provided: That the process company should use the demised premises for the purpose of erecting thereon buildings and plant for carrying on the business of manufacturing the products referred to, and the power company should furnish the process company, for use on the premises and not elsewhere, electric current to the extent of at least 3,200 horse power, in the manner specified in the agreement, at an annual rental of $17.50 per horse power, and should proceed with all reasonable dispatch, by ordinary methods, to install two turbine wheels, three electrical generators, and other electrical appliances necessary for the purpose of furnishing such power; that the process company should not use the buildings and premises and plant for any purposes other than those specified; and that no electricity or electric power should be used thereon or therein, except that furnished by and with the consent of the power company.

The power company installed the turbine wheels, generators, and other appliances as agreed, at a cost of $100,000 and upwards, and the process company erected substantial buildings of masonry, metal, and other substantial material, installed therein various machines, piping systems, fixtures, and appliances for carrying on its said business. The power company supplied the power, and the manufacturing business was carried on until on or about February 25, 1907, when the fire occurred and practically destroyed the usefulness of the buildings and plant.

The seventh paragraph of the lease provided as follows:

" Seventh. Payment for power shall be made on the 10th days of May, August, November and February as above stated, and shall be made by the lessee promptly and without any regard to any counterclaims whatever, if any exist. If such payment for power shall not be made promptly when due, the lessor may at its election, terminate this lease upon the following conditions: The lessor shall give the lessee thirty days' notice of its election and intention so to terminate the lease, whereupon this lease and agreement shall be terminated at the expiration of thirty days from the service of such notice, to the same extent and effect as if the term of twenty-five years hereinbefore provided shall have expired; but if the lessee shall within thirty days pay said rent and interest thereon, such said notice shall be deemed to be of no effect and shall be considered as never having been served. Any claim or demand which the lessee may have or claim to have against the lessor shall, if disputed, be the subject of suit or adjustment against the lessor, but shall not be an offset or counterclaim against any claim for rent hereunder."

The fifteenth paragraph of the lease provided for the lessee terminating the lease, and is as follows:

" Fifteenth. It is further covenanted and agreed that the lessee shall have the right to terminate this lease and agreement at the end of any period of five years during the continuance hereof, to wit, on the 15th day of November in either of the years 1904, 1909, 1914 and 1919, by giving to the lessor written notice of its intention to do so at least six months prior to the date of the proposed termination of such lease, the time to be specified therein, the same as if that date was the time originally fixed for the termination hereof."

The sixteenth paragraph relates to the rights of the respective parties in the buildings and plant, when the lease is terminated, and is the one under which the power company claims title to the property in question. It reads as follows:

" Sixteenth. At the termination of this lease and agreement either by notice or by expiration of the term or for any cause hereunder, the lessee may except as hereinafter provided if all rental hereunder has been paid, remove from the premises leased hereunder or under any susbequent lease, all the buildings, machinery, fixtures and other property of the lessee erected or placed on said premises by it, all of which is hereby regarded as personal property, but said buildings of the lessee shall not be removed from the said premises if this lease be terminated prior to November 15, 1909, but in case of the termination hereof prior to November 15, 1909, said buildings shall become and be the property of the lessor, nor shall said buildings or machinery of the lessee be removed from said premises subsequent to November 15, 1909, unless all rents [117 N.Y.S. 13] hereunder reserved are fully paid as herein agreed, and if such rents or any part thereof shall remain unpaid, the said buildings, machinery, fixtures and property of the lessee shall be held by the lessor as collateral security for the payment thereof. During the term of this lease and agreement the lessee may erect or place upon the premises leased hereby or by any subsequent lease by the lessor, all such buildings, machinery, fixtures and other property as may be necessary or proper for the purpose of its business as hereinabove described."

On the 1st day of May, 1907, there was due and owing to the power company rentals for land and power to the amount of $23,002.50, and on that day the power company served a 30 days' notice as provided in the seventh paragraph of the lease. The rent was not paid, and the lease terminated on May 31, 1907. The power company notified the defendant trustee of its claim, but he disregarded the notice and took possession of the property in question, included it as part of the assets of the estate of the process company, and sold it.

The trial court held that the provision holding the buildings and machinery as collateral security for the rent was, in effect, a chattel mortgage, governed by the statute relating to the filing thereof, and that, since the lease and agreement had not been filed as provided by the statute, it was void as to creditors, but that under the other provision of the lease and agreement, permitting the power company to terminate the lease for nonpayment of rent, and providing that if the lease was terminated before November 15, 1909, the buildings should belong to the power company, such buildings and any and all parts thereof, whether of machinery, fixtures, piping, or other material theretofore constituting a part of said buildings to the extent therein named, and whether severed from the freehold by reason of the fire or otherwise, became and were the property of the plaintiff and entitled it to the lawful possession thereof. The value of the property so sold and converted by the defendant trustee aggregates $44,166.94, which is the amount the trustee realized therefrom. Judgment was directed for ...

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