Cent. Trust Co. of New York v. West India Imp. Co.

• Decision Date: 31 December 1901
• Citation: 62 N.E. 387,169 N.Y. 314
• Parties: CENTRAL TRUST CO. OF NEW YORK v. WEST INDIA IMP. CO. et al.
• Court: New York Court of Appeals Court of Appeals

169 N.Y. 314

62 N.E. 387

CENTRAL TRUST CO. OF NEW YORK

v.WEST INDIA IMP. CO. et al.

Court of Appeals of New York.

Dec. 31, 1901.

Appeal from supreme court, appellate division, First department.

Action by the Central Trust Company of New York against the West India Improvement Company and others. From a judgment of the appellate division (63 N. Y. Supp. 853) affirming a judgment for defendants, plaintiff appeals. Reversed.

William D. Guthrie and Adrian H. Joline, for appellant.

William Parker Butler and George W. Wickersham, for respondents Manhattan Trust Co. and others.

George Hoadly and Eugene Treadwell, for respondent William Kenefick.

CULLEN, J.

In March, 1889, the colony of Jamaica was the owner of about 65 miles of railway in that island, which it was desirous of extending by the construction of 125 miles of additional road. It sought to have this extension made by private capital, and for this purpose entered into an agreement with Frederick Wesson, the material parts of which may be briefly stated as follows: A corporation was to be formed by Wesson and his associates under the laws of the colony, to be known as the Jamaica Railway Company. The existing railroad was to be conveyed to that company for £100,000 in cash, and £>>>700,000 in second mortgage bonds, out of a total issue of £>>>800,000. The company was authorized to issue first mortgage bonds to the amount of £1,500,000. The agreementrequired Wesson and his associates to proceed with the construction of the road at a prescribed speed and to complete the same by a specified time. It provided that the first mortgage bonds should be issued only as the work progressed, and it secured the application of the proceeds of the bonds to the prosecution of the work by the deposit of the funds so as to be subject to the control of the colony. The details of these provisions it is unnecessary to recite, further than to say that the remaining £100,000 in second mortgage bonds were to be deposited immediately with the colonial government as security for the carrying out of the agreement, which were to be returned to Wesson and his associates on the completion of the railroad, and that £ 30,000 of the first mortgage bonds were to be retained for the further period of one year from such completion, to defray the cost of repairs of replacement that might become necessary during that time. The agreement gave Wesson and his associate promoters a land grant for every completed section of the road. This agreement was confirmed by an act of the legislative council of the colony, which authorized the promoters to form a corporation, a foreign one, if desired, for the purpose of carrying out the agreement. In accordance with this privilege the defendant the West India Improvement Company was organized as a corporation under the laws of this state, and in August, 1889, Wesson assigned to said company all the grants, concessions, powers, and privileges which he had under said agreement and law. To raise money for the cash payment of £>>100,000 required on the transfer of the existing railroad to the Jamaica Railway Company, and to obtain funds to prosecute the construction of the new road, the West India Company executed and delivered to the plaintiff, as trustee, a mortgage and deed of trust, by which it conveyed and transferred to said trustee the grant and concession, with all the rights and privileges thereunder, which had been transferred to it by Wesson, and all lands owned or thereafter to be acquired and owned under said concession, the common capital stock of the Jamaica Railway Company to the amount of £>>1,000,000, ‘and also all other property, or rights of property, real, personal, or mixed, now held and acquired, or which the party of the first part may hereafter hold, acquire, or be entitled to, in, for, upon, by reason of, or in connection with, the purchase, construction, maintenance, or operation of said railway, or under or in pursuance of the provisions of said act, or any of the grants, concessions, rights, powers, privileges, franchises, or liberties thereby conferred.’ The mortgage was made to secure the payment of 1,000 negotiable bonds, for the sum of $1,000 each, payable in 10 years, with interest at 4 per cent. per annum. The West India Improvement Company disposed of $921,000 par value of these bonds, receiving therefor $920,000. This mortgage was filed or recorded in Jamaica. The railway company was organized, the existing railroad transferred to it, £>>100,000 in cash and £700,000 in second mortgage bonds were paid to the colony in consideration of the transfer, and the remaining £100,000 of the second mortgage bonds were delivered to it as security for the performance of Wesson's agreement. The West India Company entered upon the construction of the new railroad, using what we may term the current issue of first mortgage bonds provided for in the agreement to raise money to defray the expense of the work. In September, 1896, the railroad was substantially completed, but the improvement company was in financial straits. It owed J. P. McDonald & Co., a firm of contractors, for work done on the railroad, about the sum of $700,000, exclusive of a further claim of $100,000whichwas in dispute. Besides this it had other outstanding indebtedness. It had disposed of all the first mortgage bonds except £30,000 thereof reserved by the colonial authorities as security for repairs on the road. It had its interest in the £>>100,000 of second mortgage bonds, also held by the colonial authorities, but which it was entitled to receive as soon as the road was completed and turned over to the railway company. It owned the whole capital stock of the railway company, nominally £1,060,000, which stood in its name on the books of the railway, and certificates of which were then in its possession. The firm of J. P. McDonald & Co. was also in financial difficulty. In the prosecution of its contract with the improvement company it had incurred debts for large sums, which were then outstanding. To raise funds with which to satisfy the claims of McDonald & Co. and its other creditors, the West India Improvement Company, on the 3d of September, 1896, executed an assignment or trust deed to the defendant the Manhattan Trust Company, to secure an issue of promissory notes, not to exceed in amount $1,000,000. By this deed it transferred to the trustee: (1) 53,000 shares, of the par value of £20 each, of the railroad company the certificates for which it deposited with said trustee; (2) the right, title, and interest of the improvement company in £30,000 first mortgage bonds held by the government of the island of Jamaica, which bonds it agreed to deposit with the trustee when released; (3) the right, title, and interest of the improvement company in the £ 100,000 of the second mortgage bonds of the railway company, similarly held by the government of Jamaica, which also it agreed to deposit with the trustee when released by the colonial government. The notes issued by the improvement company were certified by the trustee to be secured by the transfer or trust deed. The trustee's certificate stated what the transferred property was, to wit, the railway company's stock, the certificates of which were deposited with the trustee, and the interest of the improvement company in the specified first mortgage and second mortgage bonds, which were to be deposited with the trustee when received by the improvement company. Under this trust deed the trustee certified to a series of notes made by the improvement company, aggregating $1,000,000. They were all negotiated by the improvement company, with the exception of one for the sum of $237,399.02, which the referee found was still held by the maker. Notes amounting to $190,000 were discounted by the defendants Samuel Thomas, the Chase National Bank, and the Manhattan Trust Company, for cash, the Chase National Bank advancing the sum of $60,000 on September 17, 1896, Thomas advancing the sum of $100,000 on September 18, 1896, and the Manhattan Trust Company advancing the sum of $30,000 on September 21, 1896. The remainder of the issued notes were given to McDonald or his creditors on account of their claims. After the execution of this trust deed, the improvement company received the £100,000 of second mortgage bonds from the colonial authorities, and on the 19th day of September delivered them to the trustee, the Manhattan Trust Company. At this time the bonds were registered in the name of the colonial secretary, and were not assigned or indorsed by him so as to be negotiable. Subsequently, as found by the referee, and on the 26th day of October, the legal title to the shares of stock was transferred to the defendant the Manhattan Trust Company, and the second mortgage bounds were transferred by the colonial secretary and made payable to bearer. On December 10, 1896, the plaintiff first learned of the transfer of the stock and bonds to the defendant the Manhattan Trust Company, and demanded their surrender, which was refused. Thereupon the plaintiff brought this action against that defendant and the West India Improvement Company, praying judgment that the plaintiff's mortgage be declared a prior and superior lien on the securities transferred to the Manhattan Trust Company; that that defendant be required to surrender the securities to the plaintiff, and that both defendants be enjoined from making any sale or disposition of the securities. Subsequently, on the application of the Manhattan Trust Company, the various holders of the notes were made parties defendant to the action.

The learned referee has found the facts as I have stated them. The first question of law presented to him for determination was whether the mortgage to the plaintiff by its terms covered the stock and bonds subsequently transferred to the Manhattan Trust Company. He held that it did. In the opinion delivered by the learned referee the...