201 N.Y. 379 | NY | 1911
The controversy is between the holders of first mortgage bonds and the holders of certain receiver's certificates over a fund in court arising from a sale in foreclosure under the mortgage upon the railroad. A judgment creditor of the railroad company, after issue of execution and its return unsatisfied, brought an action in the Supreme Court *383
to sequestrate the property under the Code of Civil Procedure. (§§ 1784 et seq., now art. 6 of General Corporation Law, Consolidated Laws, ch. 23.) At that time the trustee under the mortgage had instituted an action for its foreclosure based on default in the payment of the interest coupons, which action was still pending, but it does not appear that any receiver had been appointed therein. Thereafter, and in July, 1903, the receiver appointed in the sequestration action, upon notice to the trustee under the mortgage, applied for and the court granted an order authorizing the issue of receiver's certificates not to exceed $35,000, out of the proceeds thereof to pay the overdue interest on the mortgage bonds and the fees and expenses of the trustee incurred in the foreclosure suit, "thereby to prevent a default and to prevent the trustee from declaring the whole principal sum to be due and a consequent foreclosure for such principal and loss to the stockholders and creditors of said company." Such certificates were declared by the order to be a lien on the lands, premises, franchises and property of the company prior to all other liens and claims thereon whatever, except such other certificates as the receiver might thereafter be authorized to issue. On this application the trustee appeared specially to object to the jurisdiction of the court. After it had failed in its opposition, it appealed to the Appellate Division from the order made by the Special Term, and that order was reversed. (
The argument of the learned counsel for the appellants is that, though the order of the Special Term authorizing the issue of the certificates was reversed on appeal, nevertheless *384
the rights acquired under it by third parties in good faith were not affected by the reversal. He relies on the general rule, often declared, that a judgment or decree of a court which has jurisdiction of the person and subject-matter is binding until reversed and cannot be attacked collaterally. This general principle may be conceded, and I shall assume, for the argument, that the powers of the court in a sequestration action are as great as those possessed by it in an ordinary equity action, but the general rule quoted is subject to this qualification, which obtains not only in criminal cases (Ex parte Lange, 18 Wall. 163; People ex rel. Tweed v. Liscomb,
This also is the doctrine of the courts of our state. In fact the whole doctrine is taken over from the Federal courts and the two cases quoted from the United States Supreme Court are cited and followed by this court in Vilas v. Page (
It is claimed the bondholders are estopped by the receipt by the trustee of the defaulted interest from funds raised on the certificates. I think not. The trustee did not consent to obtaining the money for that purpose by the issue of certificates, but opposed it. The money was in the hands of the company or its receiver, and as long as the trustee was offered *387 payment it could not question the source from which it came. It may be the certificate holders were willing to lend the receiver money even without the security of a paramount lien on the property. A refusal to receive payment on a tender might possibly have discharged the lien of the mortgage to the extent of the interest unpaid. Indeed the receipt of the money was practically compulsory; the bondholders were forced to surrender a cause of action shortly to become due, to wit, foreclosure for the whole principal sum secured by the mortgage, and to leave the railroad for another six months in the hands of adverse parties.
The order of the Appellate Division should be affirmed, with costs.
VANN, WERNER, WILLARD BARTLETT, HISCOCK and CHASE, JJ., concur; HAIGHT, J., absent.
Order affirmed.