Brooklyn Distilling Co. v. Standard Distilling & Distributing Co.

McLaughlin, J.:

On the 28th of June, 1898, the plaintiff leased to the defendant certain realestate on which was located a. distillery, not then - quite completed, for a term of.three years from 'July 1, 1898, with privilege of renewal for four years. The defendant went into possession of the premises leased and paid the rent — which was payable' in monthly installments— to and including the month of Rovember, 1899, It thereafter, refused to pary, though remaining in possession, and this action was brought to recover installments which had. become due, together with certain sums paid by the lessor for taxes and insurance. The only ■ defense relied lipón at the trial was the alleged, illegality of the lease — defendant contending that it'was illegal arid void inasmuch as it was made. 'in violation - of the statute which prohibits an arrangement or combination whereby a monopoly in the manufacture, production or sale in this State-of any article br commodity in common usé is dr may be created, or whereby competition in the supply or price of -such article or commodity is or may be-restrained or prevented. (Laws of 189-7, chap. 383.) The plaintiff had a judgment, from which defendant appeals to this court,, and it -contends here, as-it did a-t the trial, that the lease is void, having been-in violation .of the statute referred to, and the recovery being predicated'on the lease, is erroneous.

The execution of the lease is conceded,'as is-also the fact that the defendant went into possession of the distillery and paid the.rent' ¡stipulated to be paid to and including ¡November 1, 1899, and it is not denied tliat-it has since remained in. possession and wholly failed and neglected to make any further payments. The general rule is that a tenant- who has- gone into possession under a' lease must either pay the rent which is due or vacate the premises-; that he cannot keep both the rent and possession. (Douglas v. Chesebrough Building Co., 56 App. Div. 403.) But it is .said this rule, does not apply because the relation of landlord and -tenant was never created, inasmuch as the lease was void in its inception. -The assertion, that the lease is.void is predicated, upon the fact' that the defendant was incorporated for the purpose of creating a mpnoply in -the manufacture and- sale óf alcohol and spirituous liquors, and regulating-the pi-ice at wliich-.the same should be sold to the public, in violation . of the statute, and that the making- of the lease was- a part of and' to aid in the accomplishment of the. unlawful purpose,'of which thé • plaintiff had- full knowledge at the time the lease was executed. If at be assumed that the plaintiff had all the knowledge- which the (defendant had as to its-purpose in making, -the lease, I do not think that, in and of itself, made the lease void. There was no obligation ahsting upon the plaintiff to operate its distillery at all, -much less ¡at a loss; nor was there any obligation to let it lie idle; if it did not see fit to do either, it could sell or lease- it.. This naturally leads to the question of what its board- of' directors should have done when the proposition was made by the defendant to lease. The plaintiff then had invested -nearly $1,000,000 in the construction of the distillery, which was designed to produce alcohol and spirituous liquors from the refuse of sugar and molasses. It was then somewhat problematical whether or not this could be successfully done, it not having been theretofore demonstrated in a practical way. Not only this, but if successful in producing the alcohol and spirituous liquors in the way contemplated, it was threatened at the outset with very serious competition by the defendant. Should it then have operated the distillery at a possible loss, allowed it to remain idle or leased, for a term of years at a rental which would insure to its stockholders a good return on the capital invested? Good business judgment would seem to suggest the answer to the questions propounded, viz., to accept the certainty instead of the uncertainty.

The statute does not.prevent one selling or leasing property, nor does it prevent one buying or leasing property to prevent competition. (Diamond Match Co. v. Roeber, 106 N. Y. 473; Leslie v. Lorillard, 110 id. 519; Tode v. Gross, 127 id. 480.) It is designed to ‘prevent the. owners or controllers of- ■ property entering into a combination to regulate production and maintain prices for their mutual benefit according to their respective interests.

The court in Cummings v. Union Blue Stone Co. (164 N. Y. 401) clearly pointed out the purpose of the statute and the kind of a contract which, if made, would be void under it, but in doing so it took occasion to say : “ It may be conceded that the law, as now-understood, restrains no one from selling' his property, nor does it ' compel any one to continue a business which he can sell or finds it to his interest to abandon; much less to continue it for any time or in any particular manner or place. * * * Contracts between individuals to that effect are not in general restraint of' trade.” And substantially the samp statement was -made in Wood v. Whitehead Brothers Co. (165 N. Y. 545), which was cited with approval in New York Bank Note Co. v. Hamilton Bank Note Co. (180 id. 280).

The fact that the plaintiff knew the defendant’s motive in leasing the distillery did not render the lease invalid. The validity-of a contract under this statute cannot be made to depend upon the motive of one of the parties. This was held in the Diamond Match Co. Case (supra), where the court said : “ We .áre not aware of any rule of law which makes the-motive of the covenantee the" test of the validity of such a contract. On the contrary, we suppose a party may legally purchase the trade and business of another for the very purpose of preventing competition, and the validity of the contract, if supported by a consideration, will depend upon its reasonableness as between the" parties.' Combinations between producers to limit production and to enhance prices are, or may be, unlawful, but they"staud on a different footing.”

■ It must be borne ill mind that the plaintiff in making the lease did not in any way become a party to the illegal combination or participate to any extent in any scheme to avoid the statute by controlling the manufacture or sale of the-commodity referred to. The lease was the only contract which it made with the defendant.. It could, just as we,11 be contended, that a- contractor who had built the distillery for the" defendant, with knowledge of. its purpose, was not entitled to recover the contract price or that a farmer who had sold liis corn to the defendant, knowing its purpose in buying it, could not recover the price agreed to be paid, as it can that the plaintiff is not entitled to recover in this action. The plaintiff, as we have already seen, took no part in the illegal combination ; could ‘derive no benefit from it or from the incorporation of the defendant or the carrying out of its purpose; had nothing to do with regulating the quantity of alcohol- and spirituous liquors to be produced or' the price to be charged ; and, therefore, this contract is.clearly distin-"• guishable' from, those where premises are leased to be used for an 9 immoral purpose.

The'foregoing discussion has been upon the assumption "that the plaintiff knew the illegal purpose for which the defendant was formed and which induced it to make the lease in question. ■ But ' there is, in fact, no evidence which would justify a finding to. this effect. The-only evidence bearing on that subject is that Maftliiessen, its president (since deceased), had that knowledge,, and it is claimed that the knowledge which he had- is to be imputed to his principal. This is the general rule, but it does not apply where the agent is engaged in doing ‘ an act against liis principal’s interest. (Benedict v. Arnoux, 154 N. Y. 715.) It is undisputed/ that Matthiessen was largely interested in the defendant company. He was one of its promoters, directors and a member of its executive committee. Appellant insists that in the negotiations which resulted in the execution of the lease Matthiessen acted not in the interest of the defendant, but in the interest of the plaintiff and, therefore, his knowledge must be imputed to the plaintiff, and yet it is insisted that the lease procured by Matthiessen is void, for which reason defendant cannot be compelled to pay the rent stipulated. If the lease were illegal and void Matthiessen must have known it because he is presumed to have known the law, and if he induced the plaintiff to execute it, knowing it to be void and unenforeible against defendant— being himself personálly interested in the defendant — it cannot be said he was acting in the interest of the plaintiff. Either the lease is valid — in which casé it is immaterial for whom Matthiessen acted — or else it is invalid because made, for an illegal purpose. If the latter, it was made against the interest of the plaintiff, and the presumption is that Matthiessen did not impart to the plaintiff the knowledge which he had of the defendant’s illegal purpose. (Benedict v. Arnoux, supra.)

I am of the opinion that the judgment is right and should be affirmed, with costs.

Patterson, P. J., Laughlin and Houghton, JJ., concurred; Scott, J., dissented.