135 Misc. 456 | N.Y. Sup. Ct. | 1929
The right of the plaintiff to discontinue and abandon any portion of its railway system covered by the mortgage, of which the Security Trust Company of Rochester is the trustee, may be found in the terms of the mortgage agreement, or, if not contained in that instrument, may be obtained, under proper circumstances, through the exercise of the equitable powers of the Supreme Court.
The instrument under consideration is a mortgage upon the properties of the plaintiff, to secure bonds to take up outstanding underlying bonds, and for other purposes, and covers the railway system then owned and operated by the plaintiff, and such replacements, extensions or improvements as might thereafter be made. This system of railways covered the network of street railways in Rochester, Syracuse, Utica, Oneida, Rome and elsewhere, and was, at that time, a growing, expanding and promising enterprise, which it was necessary to adjust, from time to time, to an ever-increasing territory and population, and to adapt to changes in methods of' transportation and to other conditions, which could not wholly be foreseen, affecting that subject. It is a matter of common knowledge that steam, electricity and gasoline have vied with one another, according to circumstances and conditions, as the most
All of these considerations will be assumed to have been in the minds of the framers of the mortgage involved here, and any construction of the mortgage necessary to keep the railway system of the plaintiff up to date will be read into the agreement, where the language used is capable of such a construction and there is nothing expressly to the contrary. When this mortgage was made, the parties knew that the property covered by it was not a fixed and inflexible substance, but a transportation enterprise, in active operation, consisting of tangible and intangible property, very sensitive to new conditions and to public sentiment. It was clearly in the minds of the parties, when the agreement was made, that improvements and extensions would be required, and these matters are expressly recognized in the agreement and provided for, and it was also equally well understood that the system, branches and extensions, during the life of the mortgage, would not remain just as they were when mortgaged and, especially, that replacements, improvements and changes would be required. There is nothing in the agreement directly mentioning the abandonment of any part of the railway system, but there can be no question that the discontinuance of some useless and unprofitable portions of the system were expected, in the usual process of the normal operation of the railway system, in the exercise of good business methods, and that branches and extensions, serving profitably,
There is a clause in the agreement which permits the plaintiff, when not in default, to exchange, sell or withdraw “ all, or any part of the estates, properties and premises hereby conveyed (other than the said railways itself, its rights, privileges and franchises, branches and extensions),” but this provision applies to the railway system as a whole, and was not intended to prevent the company, in the economical operation of the road, to discontinue useless and unprofitable parts of the system. The language, referred to, was intended, merely, to prevent the plaintiff from disposing of the system of railways, branches and extensions, treated as a unit, and was not designed to prevent the plaintiff from adjusting or readjusting its system to new conditions and circumstances arising after the execution of the agreement. The agreement, read as a whole, contemplated that the plaintiff would operate the system “ in the same manner and with the same effect ” as if the mortgage had not been given, which were the only practicable terms upon which such a mortgage could be made. But it, also, intended that the plaintiff should not alienate its properties, as a railway system, which constitute the heart of the security and the basis of the income from which the interest and principal of the bonds might be paid. The agreement was not drawn with the thought that the operation of any portion of the railway system might prove unprofitable, but that some portion might become worn out, or otherwise unnecessary, and the situation now confronting the plaintiff, with respect to portions of its lines, is controlled by the broader power, contained in the agreement, leaving in the plaintiff “ all the rights, powers, duties and privileges belonging or incident to
But, if the- agreement were to be construed as prohibiting the plaintiff from discontinuing an unprofitable branch or Une and to compel it to continue to operate such a branch or line at an annual loss, not only impairing the returns available for the interest and principal of the bonds but of possible- dividends upon the stock, or to suffer a default, where it appears tha such portions constitute a small part of the entire system and cannot be profitably operated in any other manner, it would be clogging the use of the property to an unnecessary extent, and would be so unwieldy and oppressive, that it would constitute a proper basis for the application of the equitable powers of the court. A court of equity will not enforce a covenant, where the conditions have changed so as to frustrate the purposes of the covenant (Trustees of Columbia College v. Thacher, 87 N. Y. 311; Rector of St. Stephens, etc., Church v. Rector, etc., Church of Transfiguration, 201 id. 1), and it, likewise, should give relief from an agreement, where the enforcement is impracticable, oppressive and useless. It may remove a restrictive covenant as a cloud upon the title, where the covenant has lost its initial vitality (McArthur v. Hood Rubber Co., 221 Mass. 372), and, so, it may authorize the abandonment of a part of a railway system, where its operation is an increasing burden upon those financially interested in the road. (Mayor of Baltimore v. United Rys. & Electric Co., 108 Md. 64.) Where there is no provision for releasing a lien of preferred stock upon a useless piece of real estate, a court of equity will relieve the property from the lien where it is necessary to conserve the capital invested. (Leviness v. Consolidated Gas, etc., Co., 80 Atl. 304.) In Colorado & Southern Ry. Co. v. Blair (214 N. Y. 497) the court said: “ We may assume that a court of equity under its general supervisory power over trusts may in the interest of all parties direct a sale of the trust property, though not authorized by the instrument creating the trust.” (P. 512.) In Johns v. Montgomery (265 Ill. 21) it is held that a court of equity has jurisdiction to modify the terms of a trust when unforeseen conditions have arisen which require such modification, in order to protect the trust estate. “ We think it well
There are sufficient bondholders represented among the defendants to warrant a decree binding upon them all. It is evidently impracticable to secure the presence of all of the bondholders, and as their interests are “ equal and proportionate,” an adjudication in which the questions involved are thoroughly considered should be binding upon all of the bondholders. The statutes of this State permit of such adjudication and are based upon necessity, without which the rights of the parties to a controversy, like the present one, could not be determined for want of the presence of some of the bondholders. (Civ. Prac. Act, § 195.) In Colorado & Southern Ry. v. Blair {supra, 515), where the subject of the proper parties defendant was considered, the court said: “ If upon proper allegations some of the bondholders had been made parties in the prior suit, it would doubtless have been within the discretion of the court to proceed without the presence of the others.” There are enough bondholders among the defendants to make it equitable
Plaintiff, therefore, has the right to discontinue and abandon, and is authorized to discontinue and abandon, the Rochester and Sodus Bay Une and the parts of its system mentioned in the 21st paragraph of the complaint, and to use and apply the proceeds of the sale of any property included in such lines, useless for other purposes of the plaintiff in the operation of its railway system, as provided in the mortgage agreement.
So ordered.