34 N.Y.S. 890 | N.Y. Sup. Ct. | 1895
The above-entitled appeals all arise out of an action commenced by the New York Security ■& Trust Company, to foreclose a mortgage executed by the Saratoga Gas & Electric Light Company. Appeals 1 and 2 are appeals from judgments, and numbers 3, 4, and 5 are appeals from orders made in the course of such proceedings. The facts in each appeal shed some light upon the others, and to save unnecessary repetition, it seems to me best to consider all the appeals in a single discussion. On the 1st day of February, 1887, the defendant the Saratoga Gas & Electric Light Company, a corporation organized under the laws of the state of New York, and doing business at Saratoga Springs, for the purposes of securing an issue of bonds made or to be made by it, to the amount of $300,000, each of said bonds to be in the sum of $1,000, executed a mortgage to the American Loan & Trust Company, of New York, a corporation doing business as a trust company under the laws of the state of New York, as trustee. Such mortgage purports to convey—
“All the corporate property, real, personal and mixed, Including all lands, easements, rights of way, buildings, fixtures, materials, supplies, machinery, -and plant, franchises, contracts, and choses in action, whether now owned or hereafter acquired or constructed by said gas company, together with the appurtenances thereto, and all the rents, tolls, issues, income, and profits of said gas company present and future.”
It was provided that said property was to be held by said, trust company, its successors and assigns, in trust for the equal benefit and security of all the holders of said bonds, and it contains the usual covenants and conditions of mortgages executed for such purposes. It is provided that—
“Any vacancy in the trusteeship, from whatever cause, may be filled by a written appointment executed by said gas company, and the holder or holders of a majority of the bonds hereby secured; or if in thirty days such ap*893 pointment be not made, then by the supreme court of the state of New York for the Fourth judicial district, upon application of any party in interest, on such notice as the court may prescribe.”
Such mortgage also provided that—
“If any default shall be made and shall continue for sixty days, as above specified, then the principal of all said bonds, although not then due by their terms, shall, at the trustee’s option, become immediately due and payable, anything in said bonds or herein contained to the contrary notwithstanding. Such option shall be exercised or not exercised, and such principal declared due or such declaration annulled and withdrawn by the trustee, according to the written request of the holder or holders of a majority of said bonds.”
In March, 1891, an action was brought in behalf of the people of the state of New York against the American Loan & Trust Company, for a dissolution of that corporation for alleged insolvency; and thereafter, in the month of May, 1891, a judgment was rendered in said action dissolving such corporation, and appointing J. Edward Simmons as permanent receiver thereof. Thereafter, and in the month of May, 1892, one Walter Stanton presented to the supreme court a petition wherein he stated that he represented a majority of the bonds issued by the Saratoga Gas & Electric Light Company, and was the owner, or in possession, and had control, of the majority of said bonds at that time, and representing that the American Loan & Trust Company had become insolvent and that J. Edward Simmons had been appointed as receiver thereof, and that no proceedings had been taken for the appointment of a successor trustee to said company, and that the interest upon said bonds which had matured May 1,1892, was in default, and coupons therefor had been presented, but were unpaid; and asked that a successor trustee to the American Loan & Trust Company be at once appointed. On the same day, the president of the Saratoga Gas & Electric Light Company executed and acknowledged an instrument whereby he consented to the appointment of the New York Security & Trust Company as successor trustee to the American Loan & Trust Company, and requested that such company be appointed as such successor trustee under the deed of trust or mortgage executed by the Saratoga Gas & Electric Light Company February 1, 1887. Thereupon, on the 23d day of May, 1892, notice having been given to the attorney general of the state and to the receiver of the American Loan & Trust Company, an order was made at a special term of this court held in the city of New York, entitled in the same proceedings, wherein and whereby the American Loan & Trust Company was dissolved, appointing and designating the plaintiff herein, the New York Security & Trust Company as successor trustee “for the said Saratoga Gas & Electric Light Company, under the mortgage and deed of trust of said company to the American Loan & Trust Company dated the 1st day of February 1887.” Thereafter, and on the 3d day of June, 1892, at a meeting of the trustees of the Saratoga Gas & Electric-Light Company, the following was adopted: “On motion, resolved that the New York Security & Trust Company be appointed trustee for the bondholders of the Saratoga Gas & Electric Light Company.” On the 10th day of June, 1892, an agreement in writing was entered
The appellants claim that there was no authority given to execute said instrument, and none was proved upon the trial, and the book of minutes of said company does not show that any resolution was ever adopted authorizing the execution of such instrument. On the 1st day of December, 1893, an agreement was entered into between certain holders of such bonds, and such others as might thereafter deposit their bonds' in pursuance of such agreement, and a committee of five named in the agreement, whereby such committee was authorized to procure the sale of all the property of the said Saratoga Gas & Electric Light Company as an entirety, and to declare the principal of said mortgage debt due, or if the same had already been declared due, to confirm the same, and to purchase the property of said company upon the foreclosure sale, and to reorganize said company, in the event of its being bid in by them, in the interests of the bondholders; and the plain tiff trust company was designated as the depositor and trustee under such agreement; and in pursuance to such agreement the majority of the bonds of said gas company are held by the plaintiff trust company. After the order of May 23,1892, appointing it as successor trustee to the American Loan & Trust Company, the New York Security & Trust Company assumed to act as' trustee under such mortgage, receiving money from the Saratoga Gas & Electric Light Company to pay the interest upon the bonds as they became due, and paying the coupons as they were presented to it, down to August, 1893. On the 3d day of October, 1893, upon the petition of one Pruyn, who claimed to be the owner of $15,000 of said bonds, and upon the statement of the insolvency of the American Loan & Trust Company, and upon his statement also that he believed that no trustee had been appointed as successor of said American Loan & Trust Company, at a special term of the supreme court, held in
The defendant the First National Bank, of Saratoga Springs, in answer to the plaintiff’s complaint, alleged that before the commencement of the foreclosure action, and on or about the 27th day of September, 1893, it recovered judgments in the supreme court against the Saratoga Gas & Electric Light Company, to the amount of over $7,900; that executions had been issued thereon, and personal property belonging to the said gas company had been levied upon and sold, and bid in by the said bank, upon which sale the amount realized, over and above the fees and expenses of the sheriff, was the sum of $1,296.06, which had been credited upon the amount of said judgment, and that the balance of said judgment remained due and unpaid; that thereafter, and on the 11th day of November, 1893, other executions upon said judgments were issued to the sheriff of Saratoga county; and the said bank claims that such executions are liens “upon any property acquired by said gas company after the execution and delivery of the mortgage set out in .the complaint, prior and superior to the lien of said mortgage.” The bank also asserts in its answer that the mortgage sought to be foreclosed was, as against such defendant, “so far as the same was and assumed to be a mortgage upon the personal property of said gas company, fraudulent and void”; alleging that after the execution of such mortgage the mortgagee continued to use up, dispose of, and sell properly covered by the said mortgage, and instead of applying said proceeds in payment of said mortgage debt, used the same in the purchase of other property, which, under the terms of the said mortgage, became subject to the lien of said mortgage, and which in turn was itself sold, and the proceeds again used as before,—which process continued until the commencement of this action and the appointment of the receiver therein; that such use and disposition of the property was by and with the consent and concurrence of said mortgagee, and of the holders of said bonds, secured by such mortgage, and such use and disposal was contemplated and agreed to when such mortgage was given. The bank further alleges that the plaintiff was not entitled to begin or maintain the action, because it was illegally and improperly appointed successor trustee to the American Loan & Trust Company, and in contravention of the terms of the mortgage, wherein the manner of appointing a successor trustee was provided for; and asked judgment that the judgments and- executions issued thereon in favor of such bank be declared a lien upon the property, real and personal, to the amount remaining unpaid on such judgment, and that'the property bid in by such bank at the sales under such execution be declared to belong to it, not subject to the lien of the mortgage set out in the complaint, and that the value of the property used by
The' appellant Andrews, in his answer to the complaint, set forth the obtaining of a judgment against the gas company, the return of an execution unsatisfied, the commencement thereon of sequestration proceedings against the gas company, and the appointment of William V. Reynolds as receiver thereof. He also put in issue the legality of the appointment of the trust company as successor trustee, and also raised the same question as to the use of the mortgaged property by the mortgagor as is raised in the answer of the Saratoga National Bank, and asked that his judgment be declared a lien upon all the property of the gas company, and in all other respects asked the same relief as is asked by the bank in its answer. The appellant William V. Reynolds, in his answer to the complaint, set forth his appointment as receiver on the 16th day of December, 1893, and put in issue the legality of the appointment of the trust company as successor trustee, and also put in issue the exercise of the option, by the trust company, to declare the whole amount of the principal of the bonds to be due, and asked that t¡ie order appointing the trust company as successor trustee be vacated and set aside, and that it be adjudged that the said trust company is not the trustee under the said mortgage.
On the 28th day of April, 1894, William V. Reynolds, as receiver, commenced an action against the New York Security & Trust Company and others, as defendants, alleging in his complaint the commencement of the action first entitled, for the foreclosure of the mortgage, the dissolution of the American Loan & Trust Company, and the appointment of the New York Security & Trust Company as successor trustee to the American Loan & Trust Company, and alleging that no notice of any application for the appointment of the New York Security & Trust Company was given to any one, except to the attorney general, and to the attorneys for the receiver of the American Loan & Trust Company; and alleging, upon information and belief, that Walter Stanton, upon whose petition such appointment was made, was not at that time the owner of any bonds issued by the Saratoga Gas & Electric Light Company, and did not have any in his possession nor under his control, and that the receiver of the American Loan & Trust Company, Simmons, did not, nor did the people of the state of New York, own any such bonds; and asked that the order appointing the New York Security & Trust Company as successor trustee “be reviewed, vacated, set aside, and held for nothing”; and also asked that the complaint in the foreclosure action commenced by the New York Security & Trust Company be dismissed.
Both actions, the one to foreclose the mortgage and the action of Reynolds as receiver to review the order appointing the trust com
The history of the entire proceeding having been thus given, so that the situation of all the parties, as to each appeal, may be fully understood, we will now consider such-appeals in their order. First,' the appeal of Reynolds from the judgment in the foreclosure action, and from the judgment in the action seeking to review the order by which the trust company was appointed the successor trustee.
No question was raised upon the trial but what default had been made in the payment of interest upon the bonds, and that such default had continued for a period of over 60 days before the commencement of this action. No question is raised but that the trust company represents in fact a large majority of the bondholders, and it appears that upon the hearing before the referee appointed under the interlocutory judgment the plaintiff trust company produced before such referee, and had in its custody, 271 of the 300 mortgage bonds. The only questions raised upon the trial, and argued upon this appeal, by the appellant Reynolds, were as to the legality of the appointment of the trust company as successor trustee, which
The plaintiff is properly acting as trustee of the gas company. The court of chancery has jurisdiction of trusts and trustees, and had power, independent of any statute, to remove a trustee, on good •cause shown, and to appoint another in his place. The supreme court has succeeded to the jurisdiction and power of the court of ■chancery, and it seems to me unnecessary to cite authorities to prove its jurisdiction and power to appoint one trustee in the place and stead of another. The original trustee under the mortgage becoming insolvent, the supreme court had jurisdiction to appoint a successor trustee. Its order making such appointment was therefore not a void order, but may have been, under the circumstances, irregular.
Without discussing the question as to the power and authority of the court, in a proceeding pending before it for the dissolution of •a corporation which is acting as a trustee, to appoint a successor trustee as a part of the proceeding pending before it, I will assume that the original appointment of the New York Security & Trust ■Company as successor trustee to the American Loan & Trust Company was irregular. The orderly and ordinary course of proceeding to dispose of such an order is to appeal from it, or, if facts upon which it was obtained were falsely stated to the court, to move for a rehearing. As we have heretofore seen, a motion to vacate the ■order appointing the trust company as successor trustee was made in another district from that in which such order was granted, and was denied, which denial was affirmed upon appeal to this court. That was the only proceeding taken by any bondholder to vacate or set aside the appointment of the trust company as successor trustee. From that time forward no bondholder has appeared in these proceedings to contest the appointment of the trust company or to contest the foreclosure proceedings.
After the commencement of the foreclosure action a motion was made at a special term, before the same justice who had appointed the trust company as successor trustee, to vacate such appointment, which motion was denied, and no appeal was taken therefrom. This •ordinarily would conclude the matter. But assuming the right in a proper case to have reviewed by action a judgment, decree, or order obtained by fraud, in wthat position does the appellant then stand? He alleges as his cause of action that the person upon whose petition such appointment was made falsely represented himself as the •owner, or in possession of, or having under his control, bonds of the gas company, and claims that at that time such petitioner neither owned, possessed, nor controlled any such bonds. In my view of this case, as it now stands, it is a matter of absolutely no importance
As to the exercise of the option to declare the principal sum due, the majority of the bondholders requested the trust company to exercise such option. The contention is made that the trust company did not legally comply with that request; that the notice sent by the secretary of the company to the gas company was not sufficient, it not' appearing that he was authorized so to do by a resolution of the board of directors of such company. I am inclined to think that no such resolution was necessary; that it was a matter that called for no deliberation or action upon the part of the directors, but that it was a mere executive duty, which the executive officers of the trust company could perform in the ordinary discharge of their duty. By the terms of the mortgage, the request of the bondholders was conclusive and mandatory; but, be that as it may, the bringing of the suit itself was a sufficient declaration of its intention to exercise such option. Bank v. Kidder, 106 N. Y. 221, 12 N. E. 577. And no question is
But, in addition to that, there was produced and given in evidence upon the trial a resolution of the board of directors of the trust company ratifying and approving the action of the secretary in giving notice that the trust company exercised the option in question. It is true that this resolution was passed after the commencement of the action, and during the trial thereof, but nevertheless I think it was a sufficient confirmation of the action of the secretary to sustain and make good the position of the trust company, if any such resolution was at any time necessary to authorize the secretary to act. What should have been done only by their authority, having been done without such authority, they may at any time ratify.
The contention of the appellants the bank and Andrews that the liens of their judgments, execution, and sale be declared liens prior to the lien of the mortgage, I do not think should be sustained. The gas company was organized under chapter 40 of the Laws of 1848, entitled “An act to authorize the formation of corporations for manufacturing, mining, mechanical or chemical purposes,” passed February 17th. By chapter 163 of the Laws of 1878 all corporations organized under chapter 40 of the Laws of 1848, and the acts amendatory thereto, were authorized to mortgage “all or any part of the goods and chattels of such corporation, and also the franchises, privileges, rights and liberties thereof.” By chapter 517 of the Laws of 1864 companies organized under such acts aforesaid were authorized to mortgage all or any part of the real or personal property of such corporation. Under these statutes, the gas company had power to execute the mortgage in question. Chapter 171 of the Laws of 1893 provides that: “It shall not be necessary to file as a chattel mortgage any mortgage which has been or shall hereafter be executed by any telegraph, electric light,- or telephone company upon real and personal property, and which has been or shall be recorded as a mortgage,” etc. This statute, I think, includes the gas company. Being a gas and electric light company, it properly comes under the words “any * * * electric light * * * company.”
The mortgage being recorded in the proper county, it was notice to all persons as to the personal property as well as to the real estate. I am not prepared at this time to assent to the doctrine that mortgages of the kind in question here do not extend to after-acquired personal property. It seems to me that the principle established in Distilling Co. v. Rasey, 142 N. Y. 570, 37 N. E. 632, is not applicable to mortgages of the kind here under consideration. Enterprises like that of the gas company commonly require too much capital to be carried on by single individuals. A partnership is not adapted to conduct such undertakings. It requires an aggregation of capital, and a method of business, which is best secured by a corporation. The accepted manner of raising the greater portion of the needed capital is by an issue of bonds, secured by a mortgage upon the franchise, real estate, and business plant and property of the corporation. These bonds and mortgages are ordinarily, and almost necessarily, long-term bonds and mortgages. Those in ques
When the real estate is conveyed to the mortgagee, the lien of the mortgage, which before that time remains but an equitable claim upon the property to be acquired, becomes a vested legal right to such subsequently acquired realty. Fisk v. Potter, 2 Abb. Dec. 138-144. In the case of Seymour v. Railroad Co., supra, where the question was whether real estate acquired by a railroad corporation, after the execution of a mortgage, was within the lien of such mortgage, the court said that it was entirely “immaterial whether the right of way was all acquired, or not, at the time the mortgage was recorded; or whether the road had, or had not, been at that time entirely located, or the location thereof, if previously made, was afterwards changed.” That case was approved in the case of Carpenter v. Mining Co., supra. The mortgagor in that case was organized under the same act that the gas company in this case is, and the court said of the mortgage given by it that: “It is not in conflict with the statute because it mortgaged the future as well as the present real estate of the company. There is nothing in the statute which limits
If 1 am mistaken, however, as to that aspect of the case, there is another which I think must dispose of the appeal of the bank and Andrews. Their contention, it will be borne in mind, is that their judgments and executions should be declared liens, prior to the mortgage, upon all after-acquired property. The mortgage by its terms covered all the property of the gas company, and all property to be thereafter acquired. As to after-acquired property, I take it that there is no occasion to cite authorities to show that, as between mortgagor and mortgagee, at least, it was valid. Upon the face of the mortgage, then, the trust company was entitled to foreclose upon all the property in the possession of the gas company at the time of the foreclosure. The appellants the bank and Andrews by their answer claim a lien prior and superior to that of the mortgage. They allege that they have such a lien because the property levied upon by them was purchased after the execution of the mortgage. It was incumbent upon them to prove that allegation; and if the fact that any part of it was after-acquired property was an essential element to establish the priority of the lien claimed by them, it was incumbent upon them to establish that fact. Their mere assertion of their claim in their answers .was not sufficient to place the burden of proof upon the trust company to show that all the property in the possession of the gas company was in its possession at the time of the execution of the mortgage. There is no evidence that any of the property upon which the bank and Andrews claim that their judgments or executions and sale should be declared liens prior to that of the mortgage .was purchased after the execution of the mortgage, except the dynamos and exciters. Dynamos and exciters are essential in the manufacture of electricity. They were placed in the building used by the gas company for the manufacture of electricity as a part of the electric plant. It appears that the dynamos weighed about two tons each; that they rested upon special foundations, upon which were sliding grooves in such form that a dynamo could be slipped out and another of the same size slipped in. They were fastened to the floor by screws. Each dynamo was joined by a large leather strap to the shaftings. The floor of the building could be removed without dis
.The property of the gas company that has been used, disposed of, and sold by the gas company since the execution of the mortgage, as set forth in the answer of the bank and of Andrews, the value of which they allege should, as against them, be credited upon the amount of such mortgage, appears to have consisted of coal oil, lime, and articles of that character, which were used in manufacturing gas and electricity, and renewed from time to time in carrying on the business of the corporation. The moneys expended appear to have been expended for the purchase of supplies, repairs to the building and plant, and the general expenses of conducting the business. It
As was stated in the court below, the question “whether a mortgage is fraudulent as against creditors is a question of fact”; and again: “Every case must stand upon its own facts, and the test of fraud in such cases is whether the mortgaged property is really devoted to the creditors’ security.” It is not pretended here that this was any scheme by which the gas company, under the shield of a mortgage, was to be permitted to dispose of its property for its own profit in fraud of its creditors. ¡No question is raised but that the mortgage wras actually given for the security of the bondholders. Such being the case, the rule that is involved, that where mortgaged property is permitted by the mortgagee to be used or appropriated by the mortgagor it shall, as against other creditors of the mortgagor, be credited upon the mortgage, for the reason that then the security of the bondholders is lessened, and ultimately leaving less for other creditors, I do not think can be applied to corporate mortgages like the one in question, where such appropriation and use of property and expenditure of money is made in the course of the corporate business; the articles used up or worn out, replaced by others; the moneys expended necessarily expended, in keeping the business alive, and to produce a revenue,—and without which use of property and expenditure of money the corporate business w'ould cease, and no revenue could be derived with which to pay the interest upon the mortgage, or other debts of the corporation, and but for which it would cease to have any active existence. By such use of the corporate property and expenditure of money the value of the corporate property is enhanced, or at least kept good, which is for the benefit of all creditors of the company, whether mortgage creditors or others. To hold to the contrary would greatly impair the value of long-term bonds secured by mortgage upon real and personal corporate property, as authorized by statute, and would not, upon the whole, be for the benefit of other creditors of such corporation.
The appeals from the orders denying the motions to vacate the judgments entered as above stated, and direct the entry of a single judgment, embracing both actions, are next to be considered. These motions were founded upon the assumption that a cross action as known to the old chancery practice still exists. The argument to that effect was predicated upon section 217 of the Code of Civil Procedure, which states that the general jurisdiction formerly possessed and exercised by the supreme court of the colony of ¡New York, at any time, and by the court of chancery of England, on the 4th day of July, 1776, is now vested in the supreme court, with such exceptions, additions, and limitations as have been created and imposed by the constitution and laws of the state; “and that subject to those exceptions, additions and limitations, the supreme court of the state has all the power and authority of each of those courts, and exercises the same in like manner.” By the words, “exercises the same in like manner,” I do not think it can be held that a cross action, with
As to the appeal of Reynolds from the order denying the motion to direct the receiver Gleason to pay certain coupons, and, upon the payment by said Reynolds of the remaining coupons, to turn over all the property of the gas company in his possession to said Reynolds, it seems to me that such motion was properly denied. No question was raised upon this appeal but that the appointment of a receiver in the foreclosure proceeding to preserve the property and receive the profits for the bondholders was within the power and discretion of the court. The order appointing Gleason receiver seems to have never been questioned or appealed from. The motion to discharge him, and to turn over the property in his possession to a receiver appointed in a sequestration proceeding, was one largely in the discretion of the court at special term to grant or refuse. Each of these receivers is an officer of the court, acting for it and in its place and stead. Each is simply the instrument of the court, to guard, protect, and manage for it the property and interests which are in its custody and control. The discretion of the court as to which
The number of questions to be considered in these appeals, and the length to which their consideration would necessarily extend, have precluded me from entering upon any discussion of many of the authorities cited in the learned and ingenious briefs of counsel, and I have therefore largely confined myself to an expression of the conclusions at which I have arrived after considering the authorities referred to.
The views herein expressed lead to an affirmance of the judgments and orders appealed from, with costs of the appeals wherein Reynolds, as receiver, is appellant, against said Reynolds personally.
MAYHAM, P. J., concurs. PUTNA3I, J., not acting.