THIRD DEPARTMENT, JULY TERM, 1896. [Vol. S. were partners, and was carried on for the gratification of the tastes of both and with their mutual consent. It was continued under the corporation, and, for about a year, with the consent or at least with the acquiescence, of the plaintiff, when he began to manifest his disapprobation, and he has since that time orally, by letter, and by resolution protested against the further expenditure of the corporate funds for this purpose. On July 19, 1883, at a meeting of the board of trustees at which all the members were present, he offered the following resolution : "Resolved, That it is inexpedient for this company to continue the business and attending expense of what is known as fancy farming, as heretofore carried on before the formation of this company, and that it be discontinued altogether from and after this date." He urged the board to entertain and adopt this resolution and it refused. The business was still being carried on and the expenses defrayed from the treasury of the corporation when the action was commenced, and this is the cause of action set forth in paragraph 17 of the complaint, and to restrain the continuance of these acts is part of the relief demanded. That this is an illegal diversion of the funds of the company is conceded. So long as the stockholders consented there was no substantial objection to these brothers gratifying their tastes at the expense of the company, but as soon as either of them dissented it was the legal duty of the corporation to immediately cease the practice. There can be no doubt that under the co-partnership, and for some time under the corporation, this practice was as acceptable to the plaintiff as to his brother, but there came a time when he chose to dissent. His motives for doing so have been criticised, but it is the duty of the court to determine the various questions in this case not on those ethical principles which should control the conduct of brothers, but according to the rules of law applicable to corporations. The plaintiff has a legal right to object, and he exercised that right. It is true that after the intimation of the court, in its opinion on the motion for a temporary injunction, there was a cessation of this practice and it has not been resumed; but I do not think this furnishes an adequate reason for not enjoining its continuance or resumption. When the plaintiff offered before the board his resolution for its App. Div.] discontinuance and urged its adoption it was unquestionably its duty to adopt it. But it refused and the practice was in existence when the action was commenced, and I can conceive of no sufficient reason why the plaintiff should not now be secured in his rights, and not be left to another application for an injunction in case of a resumption of the practice. I am of opinion that upon the proofs now before the court, within the decision of Judge PECKHAM, as well as upon principle, the plaintiff has a clear right to this relief, the form of which will be determined on the settlement of the judgment. On the other causes of action contained in the complaint the defendants are entitled to judgment. UTICA, CHENANGO AND SUSQUEHANNA VALLEY RAILROAD COMPANY, Respondent, v. HENRY A. GATES, as Executor, etc., of AARON D. GATES, Deceased, Appellant. Deed-covenant against incumbrances — corenantee may recover his payment necessary to protect himself against incumbrances, not exceeding the value of the premises when they were conveyed. Where the owner of premises, incumbered by a mortgage, conveys them by a deed containing a covenant against incumbrances as well as covenants of seizin and warranty, and the grantee accepts the conveyance in ignorance of the incumbrance, and subsequently is forced to pay off the incumbrance in order to protect the premises, the grantee may recover from the grantor damages to the amount of such payment made by him, not exceeding the then value of the premises. The rule as to the measure of damages in an action upon a covenant against incumbrances distinguished from that in an action on a covenant of seizin and for quiet enjoyment. APPEAL by the defendant, Henry A. Gates, as executor, etc., of Aaron D. Gates, deceased, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Chenango on the 27th day of April, 1895, upon the decision of the court rendered after a trial at the Chenango Circuit before the court without a jury. Eugene Clinton, for the appellant. W. & N. E. Kernan, for the respondent. THIRD DEPARTMENT, JULY TERM, 1896. PARKER, P. J.: [Vol. 8. The evidence in this case shows, beyond controversy, that the grantor, Aaron D. Gates, executed to this plaintiff a conveyance of certain premises in the village of Oxford, for the purchase price of one dollar, and that such purchase was made for the purpose of contructing its railroad across it; that at the time of such conveyance there was an outstanding mortgage for $2,000, upon these and other premises, given by the grantor, and, therefore, of course, then known by him to be outstanding and a lien upon the premises conveyed. The mortgage had been outstanding since February 2, 1869, but it was not put upon record until May 11, 1870, at three-thirty o'clock, P. M. The deed to plaintiff was executed and delivered May 12, 1870. Such deed contained a covenant against incumbrances. It also contained a covenant of seisin and the usual covenant to warrant and defend. The grantor did not make known to the plaintiff the existence of the outstanding mortgage, and the purchase was made and the conveyance taken by plaintiff in ignorance of the same. The plaintiff constructed its railroad upon the premises so conveyed, and has ever since remained in the possession and use of the same. In June, 1892, the said mortgage was foreclosed, and the plaintiff, in order to prevent the sale of its premises thereunder, was compelled to pay and did pay to the holder of the mortgage the sum of $401. At the time of such payment the premises were worth the sum of $800. The question presented by this appeal is whether, under such circumstances, the plaintiff is entitled to recover against the grantor's estate the sum of $401, he was so compelled to pay, and interest from the time of its payment; or whether his damages should have been confined to the purchase price of the premises and interest thereon. The trial court awarded judgment to the plaintiff for such sum of $401 and interest, and from that judgment the defendant takes this appeal. Although it has never been directly approved by the Court of Appeals in this State, the rule that upon an action for a breach of covenant of seisin, and of warranty for quiet enjoyment, where there has been an actual eviction, the grantee can recover no more than the purchase price and interest, is too well-settled in this State to be disturbed by this court. (Jenks v. Quinn, 61 Hun, 434, and App. Div.] cases there cited.) But the question whether a similar rule must be adopted and applied to actions upon breach of covenants against incumbrances is not so clear. Prior to the case of Dimmick v. Lockwood (10 Wend. 142) the rule seems to have been that in such cases the covenant was broken as soon as it was made, and that, therefore, an action might at once be maintained thereon. If the incumbrance was merely outstanding, and nothing had been paid or enforced against the grantee thereon, the damages in such an action were merely nominal. But if the grantee had paid the same, or any part thereof, he might recover from the grantor the amount so paid and interest. (Delavergne v. Norris, 7 Johns. 358; Hall v. Dean, 13 id. 105; De Forest v. Leete, 16 id. 123; Stanard v. Eldridge, Id. 225.) It is true that in the above cases the precise question, whether such recovery could in any event exceed the original purchase price and interest, was not discussed, but in each one of them the rule is stated. without any such limitation as to the amount. In Dimmick v. Lockwood, however, doubt was expressed as to the accuracy of this rule, and, although that case could have been, and possibly was decided, upon the ground that it was one upon a breach of warranty for quiet enjoyment, and absolute eviction from the premises, and hence was controlled by the rule in such cases, yet it must be conceded that the reasoning of the court limits the damages in actions under either of the covenants above referred to, so that they cannot exceed the consideration paid for the premises. Since such case there have been some expressions in opinions, intimating that the rule is as therein stated. (Andrews v. Appel, 22 Hun, 429.) But I do not find that the question has since been so decided in any case where it has been squarely up and its decision has been necessary. On the contrary, there have been some decisions which seem to be inconsistent with such a rule. Thus, in Huyck v. Andrews (113 N. Y. 81) it is held that in an action on a covenant against incumbrances, when the breach claimed was the existence of an easement upon the premises, the measure of damages is the difference in value of the land with and without the easement. (See, also, Hymes v. Esty, 133 N. Y. 342-346.) It seems, therefore, that where the action is upon a covenant against incumbrances, and the breach assigned is, not that the title has failed and that an THIRD DEPARTMENT, JULY TERM, 1896. [Vol. 8. eviction has followed, but that the grantee has been compelled to pay off the incumbrance in order to protect his possession, we are not confronted by any such ancient and well-settled rule as prevails in an action for a breach of covenant of seisin, or for quiet enjoyment, and we are at liberty to apply such a rule of damages as will award to the covenantee such an indemnity as may fairly be supposed to have been contemplated by the parties when the covenant was made. In Pitcher v. Livingston (4 Johns. 10), which is a leading case in establishing the rule of damages in actions for breach of covenants for seisin and for quiet enjoyment, it is said: "The covenant against incumbrances stands upon a different footing, and is governed by different principles. That is strictly a covenant of indemnity; and the grantee may recover to the full extent of any incumbrances upon the land which he shall have been compelled to discharge." Treating, then, the covenant against incumbrances as an indemnity, which it very clearly seems to be, nothing less than payment of the loss actually sustained by reason of the incumbrance can satisfy it. If the grantee has put valuable improvements upon the premises, and thereby enhanced their value, and the enforcement of an existing incumbrance upon them is about to deprive him of his property in them, evidently the loss which he sustains by reason of such incumbrance is the sum which he must pay to prevent such enforcement, not to exceed, however, the then value of the premises. The payment is made for the purpose of retaining to himself the use and ownership of such premises, and, of course, if not made he could lose no more than their value. But in very many cases, as in the one at bar, it is plain that the grantee will have to expend, in relieving the premises from the burden of the incumbrance, more than he originally paid for the premises, and if he may not recover upon the covenant a greater sum than such purchase price, he has by no means been indemnified for the loss he sustains. In other words, complete indemnity cannot be made to the grantee by restoring to him only the purchase money and interest, when he has been deprived of property which far exceeds that amount in value. It is a fair presumption that, in all cases where lands are sold and conveyed, the parties understood that the purchaser will put such improvements on them as he deems necessary for their profitable |