Bracken v. Atlantic Trust Co.

• Citation: 60 N.E. 772,167 N.Y. 510
• Parties: BRACKEN v. ATLANTIC TRUST CO. et al.
• Decision Date: 14 June 1901
• Court: New York Court of Appeals

167 N.Y. 510

60 N.E. 772

BRACKEN

v.ATLANTIC TRUST CO. et al.

Court of Appeals of New York.

June 14, 1901.

Appeal from supreme court, appellate division, First department.

Action by William Bracken against the Atlantic Trust Company and others. From a judgment of the appellate division (59 N. Y. Supp. 1099) affirming a judgment in favor of the Atlantic Trust Company, William Bracken and the Knickerbocker Trust Company appeal. Affirmed.

This action was commenced to recover damages of the Atlantic Trust Company for its neglect of a duty alleged to be owing to the plaintiff, as the holder of certain bonds of the Julien Electric Traction Company. These bonds were issued, in 1889, to the extent of $102,000, and were secured by a mortgage to the Mercantile Trust Company, as trustee, covering certain property therein described. In the following year the United Electric Traction Company, by an instrument in writing, guarantied to the Mercantile Trust Company, as trustee, the payment of the principal and interest of the bonds. At that time the Atlantic Trust Company held a large amount of the capital stock of the Consolidated Electric Storage Company, which that company had issued to it, as trustee, for certain corporate purposes, not relating to this guaranty, and, upon the execution of the instrument of guaranty, the president of the Atlantic Trust Company made the following indorsement upon it: ‘There has been deposited with the Atlantic Trust Company 30,000 shares of the Consolidated Electric Storage Company's stock, security for the performance of above guarantee;’ subscribing his signature thereto as president. In 1892 the mortgagor defaulted in the payment of interest upon its bonds, a foreclosure of the mortgage securing them was had, and a sale of the mortgaged assets resulted in a large deficiency upon the bonded debt. Thereupon the Mercantile Trust Company, in November, 1892, made two demands upon the Atlantic Trust Company,-one for the delivery to it of the 30,000 shares of stock, in order that the proceeds of their sale might be applied to the payment of the bonds; and, later, another that the Atlantic Trust Company should sell the said shares, in order that the proceeds might be applied to the same purpose. These demands being refused, the Mercantile Trust Company, in December, 1892, brought an action against the Atlantic Trust Company and others, and demanded judgment-First, that the Atlantic Trust Company be decreed to deliver to the plaintiff the 30,000 shares of stock ‘in order that the proceeds of the sale of said stock may be applied by the plaintiff to the payment of the principal and interest remaining unpaid on said one hundred and two bonds; or, second, that the said stock be sold under the direction of this court, and the proceeds thereof applied as aforesaid,’ etc. The action was instituted in precise conformity with a written request of the bondholders. The Atlantic Trust Company in its answer, among other things, set up claims upon the stock, growing out of transactions with the United Electric Traction Company. In 1895 the plaintiff had a judgment, which decreed the sale of the 30,000 shares of stock by the Mercantile Trust Company, as trustee, and the application of the proceeds to the payment of the bonds, and which also directed the Atlantic Trust Company to deliver up the said stock for the purpose aforesaid. From this judgment the Atlantic Trust Company appealed to the general term, where the judgment was affirmed. An appeal was then taken to the court of appeals. No stay of proceedings to enforce the judgment was obtained pending the appeals. In March, 1896, the appeal to the court of appeals was discontinued by stipulation. The shares of stock were delivered to the Mercantile Trust Company, and a sale at auction was thereupon had, from which but a trifling sum was realized, by reason of a decline in the market value of the stock. Thereupon the plaintiff, who had obtained the assignment of all of the outstanding bonds, except five belonging to the defendant Shoaff, commenced this action against the Atlantic Trust Company, alleging in his complaint the principal facts relating to the issuance of the bonds, their guaranty by the United Electric Company, the deposit of the stock as security for the performance of the guaranty, the foreclosure of the mortgage securing the bonds, and the subsequent action to compel a delivery and a sale of the stock for the purpose of making good the deficiency upon the bonds. It was further, in substance, alleged that the market value of the deposited stock, at the time of the demand by the Mercantile Trust Company for its delivery or sale, was such that it could then have been sold for an amount more than sufficient to pay the sum remaining due upon the bonds; that the Atlantic Trust Company refused to perform its duty to the bondholders to sell the stock, or to deliver it to the Mercantile Trust Company, and that it insisted upon its superior rights therein; that it persisted in its refusal for the period of some four years; and that, when finally delivered up and sold, not enough was realized to cover the compensation of the trustee and the expenses, by reason of the decline which had taken place in the market value of the stock. Judgment was demanded against the Atlantic Trust Company for damages in an amount sufficient to cover the amount due on the bonds and the expenses to which the bondholders had been put. The Atlantic Trust Company pleaded in its answer, among other defenses, the prior recovery by the Mercantile Trust Company of its judgment, and the subsequent delivery of the stock there in question. Upon the conclusion of the trial below, a verdict was directed in favor of the Atlantic Trust Company, and the judgment entered thereupon has been unanimously affirmed by the appellate division in the First department. The plaintiff and defendant executor have appealed to this court.

O'Brien and Landon, JJ., dissenting.William B. Hornblower, Howard A. Taylor, and George J. Peet, for appellants.

Henry L. Stimson, Thomas Thacher, and Alfred B. Tracher, for respondent.

GRAY, J. (after stating the facts).

The direction of the verdict at the trial term in favor of the respondent, the Atlantic Trust Company, was made in pursuance of a prior determination by the appellate division, which reversed a judgment recovered by the plaintiff. The appellate division had held, upon what was the main question in the case, that the bondholders were bound by the judgment which their trustee, the Mercantile Trust Company, had obtained in 1895, and were privy to it; that the effect must be the same as though the previous action had been brought in the names of the bondholders; and that the recovery of the judgment constituted an estoppel against the right of this plaintiff to maintain an action for any damages which he suffered by reason of the retention of the stock by the Atlantic Trust Company until the termination of the litigation. I think the case has been correctly decided. The action cannot be maintained. It rests upon the facts which existed at the time of the trial of the trustee's action, and, in order to make out his case, the plaintiff was...