259 A.D. 661 | N.Y. App. Div. | 1940
Plaintiffs in a bondholders’ representative action sue on their own behalf and on behalf of all other owners of twenty-year eight per cent gold bonds issued in 1921 by the Consolidated Textile Corporation and secured by a mortgage covering all of the corporation’s real property, buildings, plants, factories, water rights, good will, trade-mark and trade names, but expressly excluding “ quick assets * * * now owned or hereafter acquired, or any securities now owned or hereafter acquired by the company.” Defendant was trustee under the trust indenture.
The amended complaint consisting of forty-one printed pages in substance charges that between 1924 and 1935 defendant and other banks, general creditors of the Textile Corporation, whose indebtedness was not secured by any hen on the assets of the corporation but was subject to the prior rights of the bondholders, succeeded in having enormous bank loans paid through a scheme by which the income from the corporation was siphoned off through a .selling company, a wholly owned subsidiary of Textile, known as the Consolidated Selling Co., Inc., formed in 1924. The complaint alleges that Textile paid to the banks in 1924 thirty per cent of their claims, issued to the banks five-year gold notes for the balance, organized the subsidiary selling company and pledged all its stock
The stipulation of facts, consented to by plaintiffs, shows that in 1935 Textile filed a reorganization proceeding under section 77B
Special Term held that, under the allegations of the complaint, the action was brought to protect an interest in the “ good will of the corporation which is covered by the mortgage indenture,” a portion of which plaintiffs allege was received by defendant as a creditor although at the same time it was trustee, to the detriment of the rights of the bondholders, and accordingly denied the motion for judgment in defendant’s favor.
We think the ruling was error and the motion should have been granted. The allegations of fact in the complaint, as distinguished from plaintiffs’ characterizations, clearly indicate that the action is to make defendant account in damages for alleged breaches of fiduciary duties in taking money payments on bank loans from a subsidiary corporation instead of stepping in and protecting the bondholders. There are no allegations of fact showing that the “ good will ” of the corporation pledged to the bondholders was transferred to defendant or other bank creditor. The claimed transfer of “ good will ” is a mere characterization at variance with the facts alleged. Thus there is no allegation of the transfer of accounts receivable, customers’ lists, nor of facts showing defendant did anything to interfere with the favorable consideration of Textile, its trade names or trade-marks, by its customers and the public, which really constitutes its good will. Plaintiffs wholly fail to allege facts showing that defendant ever received any of the corporation’s good will or that the good will, as a part of the -underlying security, was transferred.
There is no allegation of fact that defendant ever received any part of the property that was covered by the mortgage. It is alleged that the common and second preferred stock of the subsidiary were pledged with the banks, the second preferred retired, the banks’ hen on the common canceled, and that the banks received payments of money from the corporation and the subsidiary on account of their loans. These allegations of fact refer solely to transfer of stock and money which, as indicated above, were expressly excluded from the hen of the trust indenture mortgage.
This does not mean that several bondholders may not join as plaintiffs in a single action where the right to relief arises out of the same transaction or series of transactions and there are common questions of law and fact. (Civ. Prac. Act, §§ 195, 209.)
. Plaintiffs claim this suit is to recover collateral which secured not only plaintiffs’ bonds but the bonds of every other bondholder and is, therefore, an action for injury to the bondholders as a class and, therefore, maintainable as a representative action. For the reasons indicated above, we think the allegations of fact in the complaint, as distinguished from the few general characterizations relating to “ good will,” .fail to sustain plaintiffs’ contention. Plaintiffs’ right, if any, to relief herein arises from the alleged wrongful receipt by defendant of moneys, securities and income — all of which are specifically exempted from the coverage of the mortgage and are not part of the mortgaged res.
There is no claim that recovery is limited to a fund not sufficient to satisfy the claims of all, or that defendant has not sufficient assets to satisfy any judgment brought against it by any bondholders or individuals ■ for breach of its fiduciary duties. (See Kovarsky v. Brooklyn Union Gas Co., 279 N. Y. 304, 314; Society Milion Athena v. National Bank of Greece, 281 id. 282, 294.)
Even with regard to the breaches of fiduciary duty alleged, the trust indenture mortgage expressly provided that the trustee in its individual capacity may acquire, hold and dispose of bonds and coupons and engage in or be interested in any financial or other transactions with Textile or any corporation in which it is interested “ with the same rights which it or he would have if the trustee were not trustee hereunder.”
With regard to the alleged breach of duty in failure to foreclose, the indenture expressly provides that unless the trustee receive written notice from the holders of not less than ten per cent of bonds outstanding, the trustee may conclusively assume that no default has occurred and shall not be required to take action in respect of a default which is likely to involve the trustee in expense or liability unless requested in writing by the holders of not less than one-fourth of the face amount of the bonds outstanding and tendered security and indemnity satisfactory to it against expense and liability. The complaint alleges no facts complying with these conditions.
It afiirmatively appears from the complaint and the admitted facts that this is not an action to recover property that was part of the collateral and subject to the Hen of the mortgage, nor is it shown that the mortgage Hen may be asserted even though the mortgage is canceled.
The order appealed from should be reversed, with twenty dollars costs and disbursements, and defendant’s motion for judgment pursuant to section 476 of the Civil Practice Act granted.
Martin, P. J., Untermyer, Cohn and Callahan, JJ., concur.
Order unanimously reversed, with twenty dollars costs and disbursements, and motion granted.
See 48 U. S. Stat. at Large, 912.— [Rep.