App. Div. 689] First Department, May, 1921.

authority," the city might take possession of the subways subject to any valid mortgages or liens thereon outstanding, not exceeding fifty per cent, on the actual cost of the subways and all leases or contracts then existing for the use thereof and that the defendant should forfeit its interest therein. The contention of the city that the ten per cent which the defendant was entitled to retain from the profits for each year is limited to a percentage of the cash received by it for capital stock and invested in constructing the subways and conduits is likewise without merit. Defendant only received $40,000 in cash for stock issued by it but it issued capital stock and bonds for the cost of construction work. The provisions of the contract, especially in view of the provisions thereof authorizing a recoupment by the defendant on account of deficits in profits, plainly entitle defendant to retain ten per cent on the actual cost to it for the construction of the subways and conduits. Prior to the commencement of the action, the commissioner of water supply, gas and electricity, who had succeeded to the powers of the commissioners of electric subways, certified that in his opinion there had been a substantial failure by the defendant to carry out the provisions of the agreement. Defendant's alleged failure is predicated on its omission to keep books and to make annual reports to the comptroller as required by the contracts. We agree with the learned referees that the city having acquiesced in these violations of the contracts and having required the defendant from time to time after such violations to continue construction work, is estopped from claiming a forfeiture of the contracts on account of these omissions to comply therewith of which its representatives made no complaint until 1892 as already stated.

The referees reduced the defendant's construction account first so shown as of December 31, 1890, as already stated, by the difference between the par value of the bonds and the amount allowed by the Phoenix Company therefor, and by other items, thereby reducing the construction account as of that date to $4,496,659.60. There can be no doubt on the evidence but that the construction down to that time cost the defendant that amount; but the plaintiff insists that it should be wholly disallowed for the reason that the defendant failed to keep

First Department, May, 1921.

[Vol. 196 its books and make reports as required by the contracts. It is not claimed that any competent evidence offered by the plaintiff was excluded or that there is in existence or available for the determination of the cost of construction any evidence not in the record. The city does not ask a new trial for the determination of the cost of construction but contends technically that since the books of the defendant do not contain an itemized statement of the cost of construction but start with the settlement in gross made with the Phoenix Company, no cost of construction on which the defendant is entitled to retain ten per cent has been shown. That would be quite inequitable and we agree with the decision of the referees in disallowing the city's claim. These are the only contentions made in behalf of the plaintiff and we find them all without merit.

Defendant's claim that it should be allowed to retain ten per cent on the cost of construction by its subcontractors during the years preceding 1890 is not wholly without merit; but it did not pay anything for construction until 1890 and then it failed to enter in its books an itemized statement of the cost of construction, and it also made false reports to the comptroller for in those years it permitted its contractor to receive rentals for the years 1887, 1888 and 1889, and received credit therefor in the settlement of 1890, and failed to report them to the comptroller until after said settlement. Having paid nothing during those years for the construction for which it now claims to be allowed and having failed to keep its books and to make reports as required by the contract, defendant is in no position to appeal to a court of equity to relieve it from the strict letter of the contract, which allowed a deduction of ten per cent only on cost of construction, and allowed it for the construction during those years for which it paid in 1890. The referees allowed on account of other items for construction account, not controverted, in 1887, $5,014; 1888, $3,011.55; and 1889, $3,162.96. The defendant's receipts for the year 1887 were less than the expenditure allowed by the referees for construction and operation; but its receipts for the year 1888 less the cost of maintainance and operations were $22,791.64. From this the referees allowed it to retain $1,303.95, being ten per cent on the cost of construction, allowed by the referees for that and the preceding year, leaving a balance of

First Department, May, 1921.

App. Div. 689]

$21,989.09 to which the referees held the plaintiff was entitled. During the year 1889 defendant's receipts over and above the cost of maintenance and operation were $79,472.21. From this amount defendant was allowed to retain $2,422.80 on account of ten per cent on the cost of construction, as allowed by the referees, leaving a balance of $78,353.36 to which it was held plaintiff was entitled.

We now come to an item on which we think the learned referees erred. The contract prescribed that the accounting year should commence on the first day of September. On the trial the parties jointly employed accountants who prepared the accounts according to the calendar years and that evidently was acquiesced in on the trial and is not questioned here. Defendant constructed and operated two systems of subways, one known as low tension subways containing telegraph, telephone and low power electric light wires, and the other known as high tension subways containing electric wires carrying high power. In the accounts as prepared by the accountants defendant has been charged with its receipts for rentals for both systems for the entire calendar year of 1890. The referees found that the construction account on which the defendant, but for its sale, to which reference will be made presently, would have been entitled to retain ten per cent from the rentals received that year, were $4,496,659.60; but they credited this construction account with $2,964,931.73 for the proceeds of the sale of the low tension system, leaving a balance of $1,531,727.87 on which, only, they allowed defendant a deduction of ten per cent. In this we are of opinion that the learned referees erred. The ten per cent deduction was allowed to the defendant under the contracts for the use of the money invested by it in the construction of the subways and conduits.

The entire amount found by the referees to have been so invested remained so invested if not throughout the year 1890, at least until the eighth of December that year. On the 3d of July, 1890, defendant agreed with the Phoenix Company to sell and convey to the nominee of the latter company its low tension subways, on condition that the nominee assume its mortgage indebtedness thereon to the extent of $2,500,000 and that the Phoenix Company cancel an indebtedness of $162,642.97 owing by defendant to it, such assumption and

First Department, May, 1921.

[Vol. 196 cancellation of indebtedness to become effective when the property should be conveyed. Defendant conveyed the property to the Empire City Subway Company, Ltd., which was nominated by the Phoenix Company, by deed dated the 8th of December, 1890, which the referees found was executed on the tenth of December. In the formal account reported to the comptroller by the defendant in 1892, to which reference has been made, it credited as of December 31, 1890, to the cost of construction as the consideration received from the conveyance, $3,657,633.25. The referees found that this item exceeded the cost of construction of the subways so conveyed and reduced it to $2,964,931.73 which they found to be the true cost of construction thereof. Doubtless the referees were led into what we deem to be an error by this act on the part of the defendant in erroneously crediting the proceeds of the sale of the low tension subways to the construction account. So far as here appears, the defendant remained liable to account to the city for the profits from receipts for rentals for both systems for the entire year 1890. It was deemed necessary to procure an enabling act from the Legislature with respect to this transfer and the effect thereof on the contracts; and, accordingly, chapter 231 of the Laws of 1891 was enacted authorizing a new contract with the purchaser and the modification of the contract with the defendant and on the fifteenth of May that year the city authorities approved the transfer and authorized the making and modification of the contracts. On the theory, which both parties assume to have been correct, that the defendant was required to account to the city with respect to the receipts for rentals for the entire year 1890, it is perfectly plain, I think, that it is entitled to have the entire cost of construction deemed invested in the construction work throughout that year and to retain from receipts ten per cent thereon. On that theory, there would be a deficit for that year, under the ten per cent which the defendant would be entitled to deduct, of $207,470.58, and, therefore, the decision of the referees that the city was entitled to $89,022.59 as excess profits over ten per cent for that year was erroneous. It follows that on the defendant's appeal the judgment against it should be modified by reducing it to $100,342.45, and the deficit found by the referees as of December 31, 1906, should be increased

App. Div. 701]

First Department, May, 1921.

by the sum of $207,470.58, making it $1,543,501.24, and as so modified the judgment should be affirmed, with costs to defendant.

CLARKE, P. J., SMITH, PAGE and MERRELL, JJ., concur.

Judgment modified as indicated in opinion, and as so modified affirmed, with costs to defendant. Settle order on notice.

FULTON BAG & COTTON MILLS, INC., Appellant, v. JOSEPH FRANKEL and LOUIS FRANKEL, Copartners Doing Business under the Firm Name of FRANKEL BROTHERS, Respondents.

First Department, May 27, 1921.

Sales-payment in advance cannot be required under provision that terms of payment may be revised by seller contract construed to require tender of goods at buyer's place of business when attempt to cancel contract and refusal to order goods out does not relieve seller from making tender - refusal of seller to make delivery till balance due on another contract is paid constitutes breach.

The seller of goods has no right to demand payment for the goods in advance under a contract which gives him the privilege of revising the terms of payment. The reasonable construction of such a provision is that it was intended to relate to terms of payment involving some period of credit after delivery.

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66

Under a contract for the sale of goods which contains a provision, with respect to the time and place of delivery, that Goods to be taken out prior to Nov. 25th, 1918. * Delivery: After completion your order Sept. 18th; 10 bales every ten days. Freight paid to 318 East 32d Street, N. Y. C.," the seller did not have the right to await shipping directions from the buyer, but if it wished to put the buyer in default it was bound to tender delivery at the place designated. Tender of the goods was not made unnecessary by the fact that the buyer asked to have the contract canceled, which the seller refused to do, and that the buyer refused to order the goods out as provided in the contract. The seller breached the contract by refusing to make deliveries thereunder till a balance due on a prior contract had been paid, as the reference to the prior contract was for the purpose only of fixing the time when deliveries should commence.

CLARKE, P. J., and GREENBAUM, J., dissent in part, with memorandum.