
    Pneumatic Signal Company, Appellant., v. Texas and Pacific Railway Company, Respondent.
    Fourth Department,
    July 6, 1909.
    Contract —railroad signals — when approval by Railroad Commissioners prerequisite to recovery—when no waiver, estoppel ór acceptance.
    Where a contract for the construction of a system of interlocking railroád signals required the contractor to install a system acceptable to the State Railroad Commissioners as a condition precedent to the payment of any part of the contract price, there can be no recovery without such approval, in the absence of evidence that the same was unreasonably withheld, or that there was collusion between the railroad and the State officials.
    Although the Railroad Commission authorized a temporary operation of the system and postponed its final decision until certain improvements and changes were made both by the contractor and by the railroad, the latter by failing to comply fully with the conditions imposed upon it did not waive its right to an approval by thefCommission, if the matters required of ' it did not relate to the mechanism of the device itself or influence the ultimate disapproval of the Commission. (
    Nor did, the use of the system for three years by the railroad pending the final determination of the Railroad Commission amount to an acceptance of the system so as to estop it from setting up the non-approval of the Railroad Commission as a'bar to an action for the purchase price.
    The burden was on the contractor, not upon the railroad,, to secure the approval of the Railroad Commission, which was not the agent of either party.
    Robson, J., dissented.
    . Appeal by the plaintiff, the Pneumatic Signal Company, from a judgment of the Supreme Court in fay or of the defendant, entered in the office of the clerk of the county of Monroe on the 1st day of March, 1909, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk’s office on ^ the 11th day of March, 1909, denying the plaintiff’s motion for a new trial made upon the minutes.
    
      William H. Tomkins and Medcalf, Averill & Tompkins, for the appellant.
    
      George S. Cooper, for the respondent.
   Spring, J.:

' The plaintiff, a domestic corporation of this State, has sued the defendant, a Texas railroad' corporation, • to .'recover the contract price for installing a. system' of interlocking railroad signals at Texarkana in the State of Texas on the railroad of said defendant. The parties, entered info a written contract in 1903 whereby the plaintiff agreed that “ it f * * shall and will * * perform all the labor and furnish all the. material, exceptas hereinafter specified,. necessary to install the Pneumatic Signal Company’s interlocking system on the railroad of the party of the second part,” and “ to construct the said interlocking system in-a first-class and workmanlike manner in all its parts, and to provide all necessary fixtures a-nd appliances, except, as hereinafter specified, to enable the said system- properly to perform- its functions, whether hereinafter specifically described or not, and that the materials and apparatus to be furnished and labor to be performed by the said party of the first part (the plaintiff) shall be in conformity with the .attached- specifications and satisfactory ■ and acceptable to the. Chief Engineer dr other authorized officer of the p>arty of the second part and to the engineer.of the Railroad Commission of Texas.”

The plaintiff further agreéd to complete the plant by January 1, 1904 (later extended to June first of that year), and in the event of its failure it agreed to pay all “ fines, penalties or damages ” imposed upon the defendant by. any-order of said Railroad Commission or by any law of the State of Texas “ on account of the failure to have said plant completed and accepted by .the Railroad Commission of Texas.” The defendant agreed to pay for the installation of the said plant the sum of $16,650, “ and the payment shall be made as follows ; Said jDai-ty of the first part' (the plaintiff) shall operate said plant for sixty (60) days at its own expense and if same shall work perfectly and satisfactory in every particular, during that period of time, and after being accepted by the- Railroad Commission of Texas, then said sixteen thousand, six hundred and fifty dollars ($16,650.00) shall be paid in full to the party of the first part. . In the evént, however, that said plant- shall not work -satisfactory, or be accepted by the Railroad Commission- of Texas, then and in that. . event the party of the first part shall not be entitled to :any part of said sum, but same shall be forfeited in full, and the work done Or material furnished by the party of the first part shall also be forfeited to the party of the second part as liquidated damages for its failure to carry out the terms of this contract.”

The plant comprised an interlocking safety switching system of signals, intricate and extensive, and operated by electricity. It was the first system in operation by electricity. It was regarded by all parties as somewhat of an experiment, and the approval of the State Railroad Commission was essential before the plant could be operated in that State. The contract was obviously entered into with the realization of the necessity of obtaining the acceptance of the plant by the Railroad Commission in order to make it effective, and that fact is very important in determining the liability of the defendant.

The jfiaintiff claims the plant was completed in the early summer of 1904 and was inspected by Mr. Thompson, the engineer of the ■ Railroad Commission. That official made a report to the Commission under date of July fifth of that year recommending improvements which he enumerated, and also that the tehiporary operation of the device be approved awaiting the final action upon it. In pursuance of this report .the Railroad Commission on July seventh entered an order approving the device temporarily,” and authorising its operation “ conditionally until not after October, 1904,” and certain improvements were ordered to be made by said date, subject to the regulations of the Commission. The order contained the following provision : “ And it is further Ordered that upon the completion of said construction, additions and improvements noted above and upon the safe and successful operation, to the satisfaction of this commission, of the said device, as may be shown by the said daily reports filed, then this commission will after further inspection on or before October, 1904, issue its order approving finally and authorizing permanently the operation of said device; otherwise said companies party to said crossing will be required to construct another device of character and design to be approved by this" commission, which shall be first class in every respect.”

Until further order of the Commission the speed, of trains in passing through the limits of said device was not to exceed ten miles an hour. Of the' improvements ordered, some- were to be made by the defendant and others by the plaintiff.

It is quite clear from the text of this order that there was no intention On the part of the Commission to accept permanently this device at that time. The order is careful to recite that the acceptance is only temporary.' The project was still a tentative one and was new, to the engineer and the members of the said board, and it is reasonable that an adequate test of its efficiency would be required before the Commission sanctioned its use. The device, if successful, was a beneficial one, adding materially to the safety of operating the trains at the crossing ofi these intersecting roads at this important railroad cepter.

On November 12, 1904, the engineer of the Commission again inspected the device, finding the conditions substantially the same as recorded?’in his former.report; and he orally reported to the Commission, but,no order was entered. .Nothing further seems to have been done by the Commission for nearly three years. In the meantime the device was used by the defendant and no payment was made; there was no claim, by the plaintiff that any sum was due or that the plant was completed, or that the Commission was derelict in failing to inspect, or that the defendant Was liable for the contract, price by reason of its use of ¡the device irrespective of the sanction of the Commission. , Nór is. there any suggestion, that the. plaintiff applied to the Commission to accept the plant. Apparently the parties were awaiting the' action of that body, in the interim testing the sufficiency of the device.

This suggestion is fortified to some extent in. that the plaintiff kept its engineer at the plant making changes, in it and looking after .it until 1905, and again another engineer for a time' in 1906. In the ¡summer of 1907 the engineer in compliance with the instructions of the Commission made another inspection of the plant, and under date of August ninth of that year rendered an. elaborate ieport ¡to that body advising its disapproval and minutely “described the defects existing in the device. On the twelfth of August the Commission entered a formal order disapproving the same and requiring the railroad companies using said crossings to proceed to the construction of a first-class interlocking device.

The plaintiff' contends that for several reasons the approval of the Railroad Commission is not indispensable to the maintenance of the action, or at least the questions in controversy should have been submitted'to the jury.

1. The engineers on behalf of the plaintiff, who were on the ground as above stated, testified that the system worked satisfactorily and properly. The difficulty with this statement is that it was not the engineers of the plaintiff, but the Railroad Commission, who were by the agreement of the parties to determine the efficiency of the plant. Inasmuch as there w7as a direction of a verdict for the defendant, if the performance of the contract were an open question dependent upon the conclusions of engineers, the plaintiff’s position would be invulnerable. Unless, however, there is some important reason why the acceptance of the body chosen, may be disregarded, its approval will be deemed essential. (Weeks v. O'Brien, 141 N. Y. 199.)

' 2. It is the contention of the plaintiff that the defendant by failing to comply fully with the conditions of the order of the Railroad Commission entered in July, 1904, has waived its right to insist upon an approval of the Commission before its liability is fixed. The failures referred to do not seem to relate to the mechanism or operation of the device itself; nor did they apparently influence the ultimate disapproval of the Railroad Commission. The engineer in his final report stated : 1st. The conditions imposed by your order of July 7, 1901, have only been partially carried out, but the features of your order which have not been completed would not now be considered material to - the questions of final approval or rejection of this plant.”

The failure of the machinery operating the switches to do its work properly, the weakness of the motors regulating the signals and the bad adjustment of the detector bars are chief among the defects presented by this engineer in his report. These are mainly inherent defects and all relate to the system installed by the plaintiff and not to the subsidiary appliances furnished or to be furnished by the defendant and which might be. essential in the operation of any interlocking switch system.

3. The plaintiff claims that the use of this system for three years by the defendant amounts to an acceptance and that it cannot at this late date successfully urge the non-approval of the Railroad Commission as a bar to the action. The defendant could not do otherwise than use the device. It was left in place and to be operated on the tracks of the' defendant, and it would have been obliged to detach the appliances in order to stop the use of the signals. The plant had not yet been fully tried and all parties were simply anticipating the final action of the Railroad Commission. 'Ro demand was made of the defendant for pay during this time, and no offer was tendered ; and apparently there was. no expectation that payment was to be made until the acceptance .by the Commission. In that situation, of affairs the use of the device did not preclude the defendant from requiring full performance .by the plaintiff. (Smith v. Brady, 17 N. Y. 173, 187; Mack v. Snell, 140 id. 193, 198.)

Again, by the terms of the contract the plaintiff forfeited both the work performed and the material used in the erection of the plant. The removal of the appliances might endanger the opera, tion of trains at the crossings, and the plaintiff was willing to pay this forfeiture penalty if its device did not receive the sanction of ■ the Commission. The approval of the Railroad Commission was a matter of necessity in order to enable the defendant to use the device permanently. Both parties understood this necessity. The requirement in the contract was, therefore, not limited to the satisfactory operation of the plant antecedent to payment, but the acceptance of the Commission was also made a prerequisite. The approval was not to be secured by the defendant. If the plaintiff expected payment it must secure the sanction of. this body. The defendant was not called upon to take the initiative. . There is no intimation in the complaint and no evidence that the approval was unreasonably withheld or that there was any collusion between the-defendant and the official body charged with the inspection and approval of the plant. There is no evidence that the plaintiff was urging action by the Commission during this long period, The defendant from time to time was sending reports setting, forth “ the' daily condition of the apparatus and machinery of said device,” and. in the meantime the parties were quiescent until the successful issue of' tbe system was fully developed and approved.

The Commission was-not the agent of the defendant, as claimed by the appellant’s counsel. It was not /the agent of either party. Its approval o.f the system was essential and the plaintiff undertook to procure that ap'proval which was just as much1 a part of the obligations assumed as the erection of the device,

The reports of the engineer of the Commission may not establish the facts contained in them. No matter. The crux of the difficulty is that the plaintiff has failed to procure the sanction of the Commission to the use of the device, and has not shown any satisfactory reason for this omission.

We think there was nó question of fact to submit to the jury.

The judgment should be affirmed, with costs.

All concurred, excejit Robson, J., who dissented^

Judgment and order affirmed, with costs.  