Interborough Rapid Transit Co. v. New York Rapid Transit Corp.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The "Supplementary Agreement" was executed at the same time as Contracts Nos. 3 and 4. It refers specifically to both contracts "as if the same were herein fully set forth." This supplemental contract related to the Steinway Tunnel Line and fixed the terms on which the New York Municipal Railway Corporation (defendant's predecessor and referred to as the Brooklyn Company) could use it to the extent of one-half its capacity.

Contracts 3 and 4 provide for the construction of certain railroads to be owned by the city of New York. The plaintiff (called the Interborough) and the Brooklyn Company were required to furnish the equipment for and contribute toward the cost of construction of the new railroads to be built and operated. Out of the revenue derived from the operation of its system each railroad was to receive certain preferential payments, which were to be cumulative and all deficits therein were to be paid in full before the city should receive any return on the money put up by it. This is the dominant idea expressed and running through all these contracts, viz., out of revenues the railroads were to receive first payments of certain amounts before the city received anything. The years were divided into quarters for accounting purposes but any deficits were carried over and had to be made up before the city got its share. These preferential contracts are much alike, this dominant purpose being in all three. Thus by article XLIX of Contract 4 "the gross receipts from whatever source derived directly or indirectly by the lessee [Brooklyn Company] or on its behalf in any manner from, out of or in connection with the operation of the Railroad and the Existing Railroads (hereinafter referred to as the `revenue') shall be combined during the term of this contract and the city shall receive for the use of the Railroad at the intervals provided a specified part or proportion of the income, earnings and profits of the Railroad and the Existing Railroads. The amount of such income, earnings and profits shall be determined as follows: From the revenue the Lessee shall at the end of each quarter year ending December 31, March 31, June 30 and September 30, deduct in the order named:" 1. Certain rentals as specified. 2. Taxes and assessments. 3. "All expenses, exclusive of maintenance, actually and necessarily incurred by the Lessee in the operation of the Railroad and the Existing Railroads." 4. "An amount equal to twelve per centum (12%) of the revenue for the maintenance," etc. 5. An amount for depreciation. 6. "One-quarter (1/4) of the sum of three million five hundred thousand dollars ($3,500,000) to be retained by the Lessee for each quarter year of the term of the lease," etc. 7. "One-quarter (1/4) of an amount equal to six percentum (6%) of (1) the Lessee's contribution toward the cost of construction of the Railroads," etc. 8. An amount to be retained equal to one-fourth of the annual interest payable by the lessee on the cost of additional equipment as defined in the contract. Then and then only does the city come in for anything. In subdivision 9 for each quarter year the city is to be paid one-quarter (1/4) of the annual interest payable by the city upon its share of the cost of construction, together with one-quarter of one per cent of the city's share of the cost of construction. Subdivisions 10 and 11 specify other payments to the city after which comes the prophetic section 12, "The amount remaining after making all such deductions shall be deemed to be the income, earnings and profits of the Railroad and the Existing Railroads," to be divided fifty, fifty.

These items are important here merely to show that the "preferential" consists in the eight items which the railroad is to receive each quarter before the city comes in under item 9. And to make sure that the "quarter years" are not confusing, article LI is inserted, reading: "If in any quarter year the revenue shall be insufficient to meet the various obligations and deductions referred to in Article XLIX, the deficits shall be cumulative and payments of such deficits shall be thereafter made in full before deducting the amounts required in the paragraph of such article, succeeding the paragraph providing for the payment of the obligations or deductions as to which there has been such deficit."

The supplementary agreement must be read in harmony with the underlying specifications of the main contracts, referred to as "if the same were herein fully set forth." For the use of the Steinway Tunnel Line certain payments are to be made which are not in dispute. The contract is between the city through the Public Service Commission, the plaintiff, and the New York Municipal Railway Corporation (The Brooklyn Company). The pertinent part is here quoted:

"Article Eighth: The Railway Corporation, after the commencement of joint operation and during the continuance of this agreement, shall pay to the Interborough Company at quarter-yearly intervals for the quarter years ending March 31, June 30, September 30 and December 31 as rental an amount (for interest and amortization) equal to one-quarter of six per centum (1/4 of 6%) on one-half the cost of the line equipment (as defined in paragraph (c) of Article Sixth) of Subdivisions III, IV and V of the Steinway Tunnel Line. The cost of such line equipment shall be determined in the manner provided in the Interborough Contract for determining the cost of Equipment.

"Article Ninth: The Railway Corporation, after the commencement of joint operation and during the continuance of this agreement, shall also pay to the Interborough Company at quarter-yearly intervals for the quarter years ending March 31, June 30, September 30 and December 31 as rental an amount (for interest and amortization) equal to one-quarter of six per centum (1/4 of 6%) on one-quarter of the cost of construction of Subdivisions III, IV and V of the Steinway Tunnel Line. Such cost of construction shall be determined in the manner provided in the Interborough Contract.

"The Railway Corporation shall also pay to the Interborough Company at such quarter-yearly intervals, after the commencement of joint operation and during the continuance of this agreement, for such quarter years as additional rental, an amount (for interest and amortization) equal to one-quarter of six per centum (1/4 of 6%) on one-quarter of such cost of construction, provided, however, that such additional rental shall only be immediately payable for such quarter years as the revenue of the Railway Corporation as defined in Article XLIX of the Railway Contract shall exceed the amount of the deductions specified in Paragraphs 1 to 8 inclusive of said Article XLIX, and then only up to the amount of such excess; but any deficits in the payment of such additional rental under this paragraph shall be cumulative and shall bear simple interest and shall be paid to the Interborough Company before any payment is made to the City under Paragraph 9 of said Article XLIX of the Railway contract."

Article 8 refers to cost of line equipment; article 9 to cost of construction, the first paragraph relating to the one-half of the one-half amount of the cost of construction expended by the Interborough. The second paragraph — the provisional payments — relates no doubt to the other half of the cost of construction contributed by the city. Anyhow this is only paid in any event out of surplus — What surplus? — "as the revenue of the Railway Corporation as defined in Article XLIX of the Railway Contract shall exceed the amount of the deductions specified in Paragraphs 1 to 8 inclusive of said Article XLIX."

We have given the eight deductions above. Until there is such a surplus no money is due under this last paragraph of article 9 of the Supplementary Agreement — the conditional payment. When will there be a surplus after such deductions as specified in article XLIX? Only after all deficits are made up as stated in article LI.

The appellant says that when the revenue in any quarter year exceeds the deductions the additional rental is due, irrespective of deficits in past quarter years. We would expect this contract to be more specific if such a change were to be made in the meaning and application of "quarter years" and "deficits," especially as the main contracts using these terms were made a part of or referred to in this Supplementary Agreement. We consider the words "for such quarter years as the revenue of the Railway Corporation as defined in Article XLIX of the Railway Contract shall exceed the amount of the deductions specified in Paragraphs 1 to 8 inclusive of said Article XLIX" to have the same effect as the contract containing said article, i.e., there is no excess until past deficits are made up, for so says that contract in article LI.

The judgment should be affirmed, with costs.