Zebley v. Farmers' Loan & Trust Co.

• Decision Date: 17 October 1893
• Citation: 139 N.Y. 461,34 N.E. 1067
• Parties: ZEBLEY v. FARMERS' LOAN & TRUST CO.
• Court: New York Court of Appeals Court of Appeals

139 N.Y. 461

34 N.E. 1067

ZEBLEY

v.FARMERS' LOAN & TRUST CO.

Court of Appeals of New York.

Oct. 17, 1893.

Appeal from supreme court, general term, first department.

Action by John F. Zebley against the Farmers' Loan & Trust Company for an accounting. From a judgment of the general term (18 N. Y. Supp. 526) affirming a judgment sustaining a demurrer to the complaint, plaintiff appeals. Reversed.

William Wirt Hewett, for appellant.

Turner, McClure & Rolston, (Herbert B. Turner, of counsel,) for respondent.

O'BRIEN, J.

The courts below have sustained a demurrer to the plaintiff's complaint. The actual merits of the plaintiff's claim are not involved in this appeal, but only the question whether he has stated enough in his complaint to call for an answer from the defendant and an examination of the facts by the court. If he has, then the case must be disposed of upon the facts as they may appear. The action was commenced in April, 1888. The allegations of the complaint are quite broad and general. It states that prior to the commencement of the action the plaintiff became and is the owner of 11 bonds, issued by the New York & Boston Railroad Company, a domestic corporation, upon which there is due and unpaid the sum of $11,000, with interest from November 1, 1872. That such bonds were a part of an issue of $2,500,000, duly issued by said corporation, for the purpose of borrowing money to be used in completing and operating its road, under date of November 1. 1869, payable with semiannual interest November 1, 1889. That at the same time the railroad duly executed, sealed, and delivered to the defendant a mortgage or deed of trust, conveying to the defendant, as security for the redemption and payment of said bonds, and the interest thereon, all of its property and franchises, the mortgage being referred to and made a part of the complaint. That the defendant became a party to the mortgage, and accepted the trust, and the bonds were thereupon issued in form payable to the defendant, trustee or bearer, in the sum of $1,000 each; and the defendant did thereafter, in accordance with the terms of the mortgage, certify in writing that the bonds were secured by the mortgage, which the complaint averred was duly recorded in the proper office. That about May 1, 1873, the railroad company made default in the payment of the interest on the bonds, which default continued for more than 60 days, whereupon the defendant, as trustee, by the terms of the mortgage, did elect that the principal of all the bonds should become and be immediately due and payable. That thereafter, and on or about April 23, 1875, the defendant brought suit for the foreclosure of the mortgage, and procured a judgment in foreclosure, directing a sale of the property for the purposes of the trust. It is alleged that the decree in the action contained a direction in pursuance of the terms of the mortgage that upon the sale, in case there should be no bona fide bid in cash to an amount equal to that of all the bonds ascertained and reported to be outstanding and secured by the mortgage, the trustee might bid for and purchase the property in behalf of all the bondholders in proportion to their respective interests, not exceeding the whole amount of the outstanding bonds, but of the purchase price only so much should be payable in cash as should be necessary to meet and defray the expenses of the action and the other expenses therein directed to be paid in cash, and thereupon, and upon the payment by each bondholder of his share of such cash payments, the purchase inure to their benefit in proportion to their respective holdings, such sale, however, to be subject to certain liens or claims as should thereafter be determined. That thereafter, and on June 5, 1876, no cash bid having been made, the property was sold to the defendant in conformity with the terms of the mortgage and decree, in behalf of all the bondholders, and conveyed to the defendant. That about this time certain persons associated themselves together and formed a new corporation with a new name, to which the defendant conveyed the property held by it in trust, upon some consideration to the plaintiff unknown, with knowledge that the plaintiff's bonds were still outstanding, due and unpaid. That the transfer was made without the knowledge or consent of the plaintiff or the holder of the bonds in suit, and they have never received any of the benefits or advantages of the reorganization, but, on the contrary, have at all times elected to have their distributive share of the proceeds of the mortgaged property, and that the corporation, maker of the bonds, is insolvent. It is then averred that though the plaintiff has at all times been ready and willing to pay his share of the expenses of the defendant, and has at divers times, and particularly on or about December 16, 1887, demanded that the defendant account with him of and concerning the premises, and pay him his share of the proceeds or value of the property and any other moneys that have come to its possession or under its control as such trustee; but the defendant has refused and still refuses to so account or pay, and denies that the plaintiff has any right or interest in the proceeds of the sale or in any wise under said trust, and has wrongfully, and in violation of the trust, converted to its own use the share of the property or its proceeds to which the plaintiff is entitled under the trust. Judgment is prayed that the defendant be required to account and pay over any sum in its hands applicable upon the plaintiff's bonds. There were three defects or grounds of demurrer specified by the defendant: (1) That the complaint did not state facts sufficient to constitute a cause of action; (2) that the court has not jurisdiction of the subject of the action; (3) that there was a defect of parties, in that the new corporation, to which the property was transferred by the defendant upon the reorganization, had not been made a party defendant.

It will be seen that the facts stated show that the defendant was a trustee for the bondholders under the mortgage, and then under the decree of foreclosure; that it sold the trust property, and has not accounted therefor to the plaintiff, who owns part of the bonds, for the payment of which the defendant held the property. The complaint will be deemed to allege every fact which can by reasonable and fair intendment be implied from the statements. Marie v. Garrison, 83 N. Y. 14;Sanders v. Soutter, 126 N. Y. 193, 27 N. E. Rep. 263. Whatever may in...