Citation Codes

Equivalent Citations

citation codes

Attorney(S)

James B. Vredenburgh, for complainants. Gilbert Collins, for defendants.

Judges

BERGEN, V. C.

See more information ...

Smart Summary

Opinion Summary: Mayor, etc., of Jersey City v. Jersey City Water Supply Co., et al. (Aug. 9, 1905)

Factual and Procedural Background

This is a suit by the mayor and aldermen of Jersey City (the complainant) against the Jersey City Water Supply Company and others. The matter was heard on a motion for a preliminary injunction, and an injunction was granted.

Under a contract dated February 28, 1899, between the city and Patrick H. Flynn (whose interest was later assigned to the defendant Jersey City Water Supply Company), Flynn agreed to construct a system of waterworks for Jersey City and to supply "pure and wholesome water" according to contract specifications. The city agreed to pay for water at a fixed price per 1,000,000 gallons. The contract also provided that, if the city gave notice within one year after the date of the contract of its desire to purchase the completed works, Flynn would convey the completed plant to the city for $7,595,000. The city exercised that option.

Flynn did not complete the works within the time agreed and had not fully qualified to convey all he promised. Because of the default, the city procured a temporary supply from the East Jersey Water Company under terms that effectively reimbursed interest at 4% on the purchase price plus estimated operating costs. That arrangement continued until May 24, 1904, when East Jersey ceased supplying the city (without the city's knowledge), turned over the supply main to the defendant, and the defendant then began to furnish water from its incomplete system. The defendant charged the city at the contract's per-gallon rate (the rate applicable if the city did not purchase), increasing the city's cost by approximately $80,000 per year. The city refused to pay those charges, and defendants brought actions at law to recover for the water furnished — the suits at law that the city sought to have enjoined pending equitable resolution.

The city asserted that having complied with its contractual conditions it was, in equity, the owner of the works (subject to vendor's lien for the purchase price), that the defendant held the property in trust for the city, and that the defendant was not entitled to recover more than the purchase price, interest, and necessary operating costs. The city tendered its readiness to accept conveyance and to make such equitable payments as the court should require.

Legal Issues Presented

Whether suits brought by the defendants to recover unpaid charges for water furnished at the contract per-gallon rate should be restrained by preliminary injunction until the equitable rights of the parties (including ownership and the proper price) are finally determined.
Whether, upon the city's performance of its contractual conditions, the city has acquired an equitable estate in the works (subject to vendor's lien) such that the vendor cannot recover at law for water furnished in a manner that would permit exacting beyond what equity permits given the vendor's incomplete performance.

Arguments of the Parties

Complainant's (City's) Arguments

The city exercised the contract option to purchase the works and therefore, having performed the conditions placed upon it by the contract, is in equity the owner of the plant (subject to vendor's lien for the purchase price).
Because Flynn (and his assignee) failed to complete the works and has not fully qualified to convey, allowing the defendants to recover at law for water furnished at the higher per-gallon rate would permit the defendants to exact payments beyond what equity allows.
The defendants hold the property in trust for the city and are, in equity, entitled only to the purchase price, interest thereon, and necessary costs of operation; the city is ready to accept conveyance and make equitable payment.

Defendants' Position (as reflected in the opinion)

The defendants commenced actions at law to recover for water supplied and charged the city at the contract per-gallon rate applicable if the city did not purchase. Those suits form the basis of the legal actions the city seeks to enjoin.
The opinion does not set out further detailed affirmative legal arguments made by the defendants.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The vice-chancellor reasoned that, upon the city's performance of the contractual conditions required of it (alleged to be performed), a prima facie equitable case exists showing that the vendee (the city) has acquired an equitable estate in the property, subject to the vendor's lien for the purchase price. The opinion cites the equitable principle (via Pomeroy's treatise reference) that a vendee who has performed may acquire an equitable estate while the vendor retains a lien for the price.

The court emphasized that the vendor should not be allowed, by neglecting to perform its contractual obligations (i.e., by refusing to complete the works), to place itself in a position to extort money "beyond the reach of this court." Given the city's vital interest in securing a proper water supply for a large urban population, allowing the defendant to force the city to accept the defendant's contractual construction (and thereby pay higher per-gallon charges) would be unjust and intolerable.

Because specific performance and the determination of equitable rights are matters for a court of equity, and because the right of the defendants to recover at law depends on the equitable question of ownership and deductions for incomplete performance, the court concluded that this controversy is properly cognizable in equity. Consequently, the suits at law should be restrained at least until the equitable issues are finally adjudicated.

To protect the defendants from being wholly deprived of income in the interim, and in recognition of the large sums and operating costs involved, the court prescribed an interim payment regimen: the city should pay interest at 4% per annum on the principal sum (computed from May 24, 1904) less any payments already made for water, and $50,000 per annum as the estimated cost of operation (the same basis used for the prior temporary supply), with future payments quarterly and past amounts payable in full. These payments are to be without prejudice to either party's rights in the present cause or in the suits enjoined, and acceptance or payment will not constitute a waiver of any right.

If specific performance is ultimately decreed, the interim payments can be adjusted when fixing the final amount to be paid; if performance is refused, the interim payments will be considered payments on account.

Holding and Implications

Holding: The court granted a preliminary injunction restraining the defendants' actions at law to recover for water supplied at the contract per-gallon rate, at least until the equitable questions regarding ownership, completion, and appropriate price are disposed of. The court also ordered the city to make interim payments: interest at 4% per annum on the principal from May 24, 1904 (less prior payments) and $50,000 per year as estimated operating costs, payable quarterly for future periods and in full for past periods, all without prejudice to the parties' rights.

Implications: The direct effect is to enjoin the defendants' pending legal suits for water charges during the equitable litigation and to require the city to make specified interim payments to prevent complete deprivation of the defendants' income. The opinion does not announce or purport to establish a new judicial precedent beyond applying established equitable principles (as discussed) to the circumstances of this contractual and factual record.

Citation details and counsel: Opinion dated August 9, 1905. Counsel of record — James B. Vredenburgh for the complainants; Gilbert Collins for the defendants.

Show full summary ...

MAYOR, ETC., OF JERSEY CITY v. JERSEY CITY WATER SUPPLY CO. et al.

BERGEN, V. C.

Suit by the mayor and aldermen of Jersey City against the Jersey City Water Supply Company and others. Heard on motion for preliminary injunction. Injunction granted.

James B. Vredenburgh, for complainants. Gilbert Collins, for defendants.

BERGEN, V. C. Under a contract dated February 28, 1899. between the complainant and Patrick H. Flynn, who has since assigned his interest therein to the defendant Jersey City Water Supply Company, Flynn agreed to construct a system of waterworks for Jersey City, and to supply it with pure and wholesome water in accordance with specifications made a part of the contract. The city on its part agreed to pay for such water at a price fixed in the contract per 1,000,000 gallons, according to the quantity used. The contract further stipulated that, upon receipt of a notice that the city desired to purchase the works when completed, Flynn would convey the completed plant to the city for $7,595,000, provided notice of the intention to purchase was given within one year after the date of the contract. The contract contained other options to purchase reserved by the city, but, as the option to purchase at completion was exercised and the required notice given, they need not be considered. The case made by the bill is that the city, instead of buying the water at so much per gallon, has exercised its option and elected to buy the plant at its completion for the price named. It appears that Flynn did not complete the works within the time agreed upon, and it is claimed has not yet fully qualified himself to convey all he agreed to pass over. Nevertheless the city, in view of the great interest it has in securing a proper water supply, demands that the defendants comply as fully as they can, submitting to such deduction from the contract price as this court shall adjudge equitable to meet the cost of a substantial compliance with the contract.

The right to a decree for specific performance is not now under consideration, and only so much of the contract and claim is here set out as is necessary to properly determine whether suits brought by defendants against the complainant to recover for water furnished at the price fixed per gallon in the contract, if the city do not purchase, should be restrained, and the defendants enjoined, until the final determinationof this cause, and the equitable rights of the respective parties ascertained and decreed. The default in the completion of the works compelled the complainant to contract for a temporary supply of water with the East Jersey Water Company, a corporation whose relations with the Jersey City Water Supply Company were sufficiently friendly to induce it to agree to furnish the quantity required in consideration of the payment of a sum equal to the interest at 4 per cent. on the purchase price and the estimated cost to the complainant of operating the plant if it were in possession. This arrangement continued until May 24, 1904, when the East Jersey Company, without complainant's knowledge, ceased to furnish the water, and turned over to the defendant the supply main then in use, and that company then began to furnish water from its incomplete system, and to charge the complainant therefor, but against its protest, at the rate fixed in the contract should the city not purchase on completion, which increased the cost to the city, over the rate paid for the temporary supply, to the extent of $80,000 per annum. It is the refusal to pay these charges that is the foundation of the action at law sought to be enjoined. The present claim of the city is that, having complied with its agreement and being thereby entitled to a conveyance, it is in equity the owner, and, while at law it will not be able to resist successfully the actions at law, that in equity the defendant holds the property in trust for it, and is not, in any event, entitled to more than the purchase price, interest thereon, and the necessary cost of operation, and tenders itself ready to accept the conveyance and to make such payment as may equitably be required.

It appears to me that this claim has the support of authority in the law, and that, upon the performance of the conditions cast upon it by the contract, all of which are alleged to be performed, a prima facie case is presented, which shows that the vendee has acquired an equitable estate in the property, subject to the vendor's lien for the purchase price, falling within the rule as stated in Pom. Eq. Jur. § 372, and that the vendor cannot, by neglecting to perform his part of the contract, obtain, as alleged in the bill, a position to extort money beyond the reach of this court. A large and populous city is dependent for health and comfort upon the water to be furnished from this supply, and if the defendant, by refusing to complete the works and comply with its bargain, can compel the city to accept its construction of this agreement, and take the water on its terms—for use the water the people must, or perish—a condition is presented that not only justified, but demands, the Interference of this court. As specific performance can only be had in this court, the complainant is properly here, and as the right of defendants to recover for water supplied depends upon the question of equitable ownership, and the price to be paid depends upon deduction to be allowed for incomplete performance, a case cognizable in equity is presented. I think the suits should be restrained, at least until the equitable questions are disposed of, and will so advise.

In consideration of the large amount of money involved, and the great expense of operating the plant, the defendant ought not to be deprived of all income, and to meet this the city should pay the interest on the principal sum at the rate of 4 per cent per annum, to cover the past and future period since May 24, 1904, less payments, if any, made on account of water supplied by the defendant, and also $50,000, per annum for the same term, and subject to same conditions, as the estimated cost of operation, that being the basis of the agreement for the temporary supply; such payments to be made quarterly as to the future, and in full as to the past, but without prejudice to either party, nor shall payment or acceptance be taken as a waiver of any right either in this cause or in the suits enjoined. If performance shall be decreed, the payments can be adjusted in fixing the amount to be paid. If refused, they will be considered as so much paid on account. I will advise an injunction order according to the views I have expressed.

Mayor v. Jersey City Water Supply Co.