National Grid v. Albany Engineering Corp., NY Slip Op 51463(U) (2014) (Platkin, J.).

Contract; breach; affirmative covenant; breach; deed; privity; running with the land; perpetual burden

By: Michael Vandermark

Plaintiff, Niagara Mohawk (“Niagara”), a power corporation, brought an action seeking a judicial determination that it was not obligated to perform under a covenant in an 1899 deed, as amended by a 1903 settlement agreement, to supply free electricity. Under the deed, a Mr. and Mrs. Frisbee conveyed all of their water rights and privileges and certain other lands surrounding their property to Colonial Trust Company (“Colonial Trust”). The water rights ensured power would be supplied to the Albany & Hudson Railroad Company (“Railroad”). In return, the Frisbee’s were to receive free power, to run several mills located on the property, from a hydroelectric dam that would be constructed along the property. Soon afterwards, in 1903, Colonial Trust, the Railroad, and the Frisbees amended their original agreement to give the Frisbees, or their survivors, heirs, or assigns, free electrical power for certain mechanical or manufacturing purposes. In return, the Frisbees conveyed both an easement on part of their property and a parcel of land, up to four acres in size, to the Railroad. Over the years, both the Frisbees’ property and the power plant changed hands several times. At the time of the action, the Frisbees’ property was owned by defendant, Allied Healthcare Products, Inc. (“AHP”), the hydro-plant was purchased by defendant, Albany Engineering Corporation (“AEC”), who brought a cross-claim against AHP in an attempt to escape it’s obligation to provide AHP with free electricity, and the electricity generated at the plant was sold by AEC to Niagara pursuant to a purchase agreement.

In holding that plaintiff, Niagara and defendant, AEC, were obligated to provide power to defendant, AHP, the court noted that the covenant to provide AHP with free electricity was an affirmative covenant. As such, the burden is on the party seeking continued enforcement of the covenant, in this case defendant AHP, to establish that: (1) the original parties intended the covenant to run with the affected property interests; (2) privity of estate exists; and (3) the covenant touches or concerns the affected property interests to a substantial degree. First, the court determined the amended agreement’s stipulation that both the Frisbees’ heirs or assigns would be entitled to the free electricity strongly indicated the original parties intended the agreement to run with the land. Further, the court rejected Niagara’s contention that even if this was the original intent of the parties the intent did not extend to all of the property because of inconsistencies between the original deed and the amended agreement. Instead, the court, looking at the circumstances surrounding the agreement, found both instruments pertained to the same subject matter and reflected a common purpose and should thus be read together. Second, the court noted for privity to exist the supposed property owner need only show that his property interest derives from the original grantor via a continuous lawful succession. Here, AHP submitted detailed proof demonstrating the necessary privity and because neither Niagara nor AEC objected, the court determined that AHP had fulfilled the privity requirement. Finally, the court noted that a covenant touches or concerns the land if the purpose and effect of the covenant substantially alters the legal rights which otherwise would flow from ownership and which are connected to the land. The court determined that the covenant was closely tied to the land because the amended agreement provided AHP (and previous owners) with the valuable advantage of free electricity, a right clearly not available to other typical landowners. As such, the court held that to deprive AHP of such a unique right would substantially affect its property rights. Moreover, the court determined the affirmative covenant did not constitute a perpetual burden on either AEC or Niagara, even if the amended agreement contained no express temporal limitation. Furthermore, the court reasoned that because AEC and Niagara failed to show any changed conditions that would extinguish the benefits of the covenant to AHP, such as AHP’s permanent abandonment of the power producing properties, there was no perpetual burden. Finally, the court rejected all other arguments made by AEC and Niagara and held that the amended agreement to provide free electricity for certain purposes to AHP was binding and enforceable.

National Grid v. Albany Engineering Corp., NY Slip Op 51463(U) (2014) (Platkin, J.).

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