88 A.D. 208 | N.Y. App. Div. | 1903
The facts relating to the receivership appear in an opinion written by this court on an appeal from another order made in this case. (Townsend v. O., C. & R. S. R. Co., 86 App. Div. 604; 83 N. Y. Supp. 1034.) On May 1, 1902, the railway company executed and delivered a mortgage as a first lien on all its property, real and personal, and all property, real and personal, which it might thereafter purchase or acquire, to the Knickerbocker Trust Company, in trust for the benefit and security of all persons or corporations who should become the owners or lawful holders of any of 1,500 bonds of
It thus appears that a temporary receiver, having in his possession the property of a street railway corporation, the operating expenses of which about equals its income and without having any funds in his hands for the purposes of his trust other than for bare operating expenses, and without producing any proof or even suggesting to the Court that a larger income can reasonably be expected in the near future from which temporary repairs, taxes and the fixed charges for interest can be paid, is allowed, in opposition to 'the objections of
One of the purposes' of a receiver of a railroad corporation is to manage and operate the property and maintain its' integrity as a road and as a going business. “ The character of the property gives character to the particular species of preservation which it requires; Unimproved land may lie idle with only payment of taxes. Improved property should be rented. Movable property that is not perishable may be locked up and kept, but if perishable it must be sold by way of preservation. A railroad and its appurtenances is a peculiar species of property. Not only will its structures deteriorate and decay and perish if not cared for and kept up, but its business and good will will pass away if it is not run and kept in good order. Moreover, a railroad is a matter of public concern. The franchises and rights of the corporation which constructed it were given not merely for private gain to the corporators, but to furnish a public highway, and all persons who deal with the corporation as creditors or holders of its obligations must necessarily be held to do so in the view that, if it falls into insolvency and its affairs come into a court of equity for ádjustment involving the transfer of its franchises and property by a sale into other hands to have the purposes of its creation still carried out, the court while in charge of the property has the power, and under some circumstances it may be its duty to make such repairs as are necessary to keep the .road and its structures in a safe and proper condition to serve the public.” (Union Trust Co. v. Illinois Midland Co., 117 U. S. 434.)
“ The reason of the rule is to be found in the character of quasi public corporations. The assumption and control by a court through a receiver of a railroad devolves upon that court a duty to the public in the continued operation of the road. In the performance of that duty the court’ has undoubted power to authorize its receiver to con
“ The power of a court of equity to appoint receivers of corporate property, as, for example, a railroad, when taken under its charge as a trust fund for the payment of incumbrances, and to authorize such receivers to raise money necessary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repayment before the first mortgage bonds, cannot be disputed. It is a part of that jurisdiction always exercised by the court by which it is its duty to protect and preserve the trust funds in its hands. It is, undoubtedly, a power to be exercised with great caution; and, if possible, with the consent or acquiescence of the parties interested in the fund.” (Gluck & Becker Receivers of Corporations [2d ed.],. 120; Beach Receivers, §§ 326, 366, 380; Wallace v. Loomis, 97 U. S. 146.)
“ The power of a court of equity to authorize receivers’ certificates is derived from its duty to protect and preserve the trust property in its hands, and should be exercised only in cases where the creation of such liens is absolutely necessary for the preservation of the property pending litigation, and in all cases, if possible, with the consent or acquiescence of the parties interested in the fund. The power to authorize certificates is, therefore, one to be sparingly exercised, and when exercised the order of the court should be strictly construed.” (24 Am. & Eng. Ency. of Law [2d ed.], 39.)
Brown v. N. Y. & Erie R. R. Co. (22 How. Pr. 451) was an action brought by the trustees of the third, fourth and fifth mortgage bondholders. A receiver was appointed in the action and an application was made for leave to pay the interest coming due on the fourth
In Morgan's Company v. Texas Central Railway (137 U. S. 171) the Texas company had executed a mortgage to the Farmers' Loan and Trust Company, as trustee, to secure the payment of certain bonds. A foreclosure action was brought and the property sold. The Morgan Company claimed certain sums which its predecessor in interest had advanced to the Texas company during the receivership, and which were used to pay interest on the mortgage indebtedness to forestall foreclosure and to prevent the intervention of the trustee of the mortgage in the' receivership. The Morgan Company claimed, upon distribution, a priority in respect to'these sums over the bondholders whose interest had thus been paid.,The court say: “ It is true that a railroad company is. a corporation operating a public highway, but it does not follow that the discharge of its public, excuses it from amenability for its private, obligations. If it cannot keep up and maintain its road in a suitable condition and perform the public service for which it was endowed with its faculties and franchises, it must give way to those who can. Its bonds cannot be confiscated because it lacks, self-sustaining ability. To allow another corporation which, for its own purposes, has kept a railroad in operation in the hands of the original company, by enabling it to prevent those who would otherwise be entitled to take it from doing so, a preference in reimbursement over the latter on the ground of superiority of equity would be to permit the speculative action of third parties to defeat contract
It is said in Beach on Beceivers (§ 379): “ Within the past twelve or fifteen years these certificates to .the amount of many millions of dollars have been issued, and the courts are constantly authorizing the further issue of them, ostensibly for the preservation of the property and in the interest of the bondholders, but it is believed in a majority of the cases in' which they are issued, to the hindrance and delay of a prompt foreclosure, to the impairment of the bondholders’ security and to the scandal of the courts of equity.”
“ The lien of a mortgagee once legally established cannot be displaced without his consent or by the legal operations of some acts on his part, which estops him from asserting the superiority of his incumbrance. It is the duty of a court of equity, when it has assumed the control and management of mortgaged property pendente lite, -to protect the rights of all parties having liens thereon, and to preserve the order of their priority as established by law. The governing principles upon which priority of lien on property is based and preserved are the vested rights of the creditor which he has acquired, and they are as sacred as any other right of property, and cannot be invaded or displaced in favor of a subsequent creditor.” (Metropolitan Trust Co. v. Tonawanda R. R. Co., 40 Hun, 86.)
The authority of the court to authorize a receiver of a railroad corporation to issue receiver’s certificates and to make the lien thereof prior to all other liens on the property held by the receiver does not rest upon consent when the issue of such certificates is absolutely necessary for the preservation of the property as a going concern pending litigation. Such authority to issue receiver’s certificates has been so long recognized by the courts that mortgage bondholders are presumed to have received their bonds with knowledge of, and acquiescence in, such authority, but the authority to so issue receiver’s certificates without the consent of persons and corporations having vested liens on the railway property should not be extended beyond
The facts before the court in this case were not sufficient to authorize the issue of such certificates against the objections of the trustee for the mortgage bondholders and the holders of the legal title to a majority of said bonds. The order should not have been granted.
We must assume that the court, in the final distribution of the proceeds of the corporate property, will take into account and give due weight to all enforcible equities existing between the persons or corporations before the court on such distribution, including such equities, if any, as arise by reason of anything that occurs after the granting of the order appealed from or which may exist by reason of the decision of actions now pending.
The order should be reversed, with ten dollars costs and disbursements.
All concurred.
Order reversed, with ten dollars costs and disbursements,