Buffalo Loan, Trust & Safe-Deposit Co. v. Medina Gas & Elec. Light Co.

• Decision Date: 27 February 1900
• Citation: 56 N.E. 505,162 N.Y. 67
• Parties: BUFFALO LOAN, TRUST & SAFE-DEPOSIT CO. v. MEDINA GAS & ELECTRIC LIGHT CO. et al.
• Court: New York Court of Appeals Court of Appeals

162 N.Y. 67

56 N.E. 505

BUFFALO LOAN, TRUST & SAFE-DEPOSIT CO.

v.MEDINA GAS & ELECTRIC LIGHT CO. et al.

Court of Appeals of New York.

Feb. 27, 1900.

Appeal from supreme court, appellate division, Fourth department.

Action by the Buffalo Loan, Trust & Safe-Deposit Company against the Medina Gas & Electric Light Company and the Holland Trust Company. From a judgment of the appellate division (42 N. Y. Supp. 781) modifying and affirming a judgment in plaintiff's favor, defendants appeal. Affirmed.

Louis Marshall, for appellants.

Tracy C. Becker, for respondent.

BARTLETT, J.

This action was brought to foreclose a mortgage executed by the Medina Gaslight Company to the plaintiff, the Buffalo Loan, Trust & Safe-Deposit Company, as trustee, under date of September 15, 1886. The action was instituted at the request of the German-American Bank of Buffalo, as alleged owner of 10 bonds, of $1,000 each, secured by the mortgage. A joint answer was interposed on behalf of the Medina Gas & Electric Light Company and the Holland Trust Company of the City of New York. The original mortgagor, the Medina Gaslight Company, was duly consolidated in 1891 with the Medina Electric Company, and assumed the name of the Medina Gas & Electric Light Company; the new company assuming all of the obligations of the old corporations. After such consolidation the Medina Gas & Electric Light Company executed a second mortgage to the Holland Trust Company of New York to secure the sum of $75,000 in bonds. The contest in this action grows out of the claim made on behalf of the Holland Trust Company that, as matter or law, its lien is superior to that of the first mortgage. The capital stock of the Medina Gas & Electric Light Company consisted of 300 shares, of the par value of $100 each, and at the time of issuing the first mortgage, and for some years thereafter, one Robert A. Stranahan was the owner of 298 shares; Horace Bacon, 1 share; and James Robertson, 1 share. Robertson was the president of the company, and Stranahan the secretary, and the three shareholders were the directors. On the 15th day of September, 1886, at a meeting of the directors, the issuance of the 10 bonds and the mortgage securing the same was duly authorized by resolution, which, among other things, provided: ‘Resolved, that the president cause such bonds and mortgage to be prepared in such form and containing such conditions as he shall deem proper, and when prepared he cause the corporate seal to be affixed thereto, and execute the same under his hand, attested by the signature of the secretary, and that, when the same be so prepared and executed, he make delivery of such mortgage, and negotiate the said bonds upon the best terms possible.’ In pursuance of this resolution, and on the 15th day of September, 1886, the officers of the company duly executed the bonds and mortgage; and on the 20th of September, 1886, the plaintiff, by its secretary, duly signed the morgage, and accepted the trust therein reposed in it. The president and secretary of the mortgagor company did not acknowledge the execution of the mortgage until the 18th of September, 1886. The bonds are due on the 15th day of September, 1906, with interest at 6 per cent. per annum, payable semiannually, at the office of the plaintiff, on the 15th days of March and September in each year. Coupons were duly attached to each bond, representing these interest payments. The bonds provided that in case default should be made in the payment of any semiannual installment of interest, and it continued for the period of six months after the interest became due and had been demanded, principal and interest of all the bonds should become due. On the 21st day of September, 1886 (the day following the date that the plaintiff, by its secretary, signed the certificate upon each of the 10 bonds), Stranahan pledged to the plaintiff all of the bonds as collateral security for an individual loan of $6,000 made to him by the plaintiff that day. Stranahan was at that time indebted to the plaintiff in the further sum of $6,000, and it held as collateral to that loan stock of the Tonawanda Gaslight Company, which stock was also pledged to the plaintiff for the new loan of $6,000. The plaintiff afterwards made further loans to Stranahan, until his indebtedness amounted to the sum of $14,650.

The findings of the referee are in substance as follows, viz.: The only delivery ever made of said mortgage by the mortgagor to the plaintiff was by Stranahan to Clark, the secretary of the plaintiff, on the day the mortgage was presented to Clark for signature and acceptance of the trust therein contained, and the only delivery of the bonds to the plaintiff was on the same day, by Stranahan, at the time he pledged them to the plaintiff for his individual loan of $6,000. There is no evidence that any of the moneys advanced by the plaintiff to Stranahan were applied by him to any of the purposes recited in the resolution by virtue of which the mortgage was executed and the bonds issued, and there is no evidence that Stranahan had any power or authority from the Medina Gaslight Company to pledge the bonds for his individual debt. The plaintiff received the same with notice that Stranahan had no such power or authority. The referee found, as a conclusion of law, that this transfer of the bonds was an unauthorized diversion from the purposes for which they were issued, and did not give the plaintiff title to the same, as against the Medina Gaslight Company. It will be observed that the plaintiff occupies a dual position in this case, to wit: ‘Trustee under the first mortgage, and a holder of the 10 bonds as collateral security for the loan made to Stranahan individually. More than four years later, and on the 27th of December, 1890, Stranahan was indebted to the German-American Bank, doing business in Buffalo, in the sum of $8,000 and interest. On the day last mentioned the German-American Bank commenced an action, by attachment and publication of summons, against Stranahan, and caused the warrant of attachment to be levied upon the interest of Stranahan in 305 shares of the stock of the Tonawanda Gaslight Company and the said $10,000 of bonds of the Medina Gaslight Company, then in the possession of the plaintiff. Almost immediately the German-American Bank discontinued this action, withdrew its attachment, and paid to the plaintiff the sum of $14,650, in which sum Stranahan was indebted to it at that time, and received the Tonawanda Gaslight Company stock and the 10 bonds of the Medina Gaslight Company, held as collateral for the debt so paid. At the time the German-American Bank paid this money to the plaintiff, it did so at the request of Stranahan, who was still the owner of 298 shares of the capital stock of the Medina Gaslight Company, and upon his representation and the representation of Charles E. Clark, secretary and treasurer of the plaintiff, that the bonds were good and valid securities. It further appears that, at the time the German-American Bank paid the money to the plaintiff, it had no notice of any irregularity or illegality in the issue of the...