Davidson v. Westchester Gas-Light Co.

• Decision Date: 06 October 1885
• Citation: 99 N.Y. 558,2 N.E. 892
• Parties: DAVIDSON v. WESTCHESTER GAS-LIGHT CO.
• Court: New York Court of Appeals Court of Appeals

99 N.Y. 558

2 N.E. 892

DAVIDSON

v.WESTCHESTER GAS-LIGHT CO.¹

Court of Appeals of New York.

Filed October 6, 1885.

Ralph E. Prime and S. H. Thayer, Jr., for the Westchester Gas-light Co. and others.

Calvin Frost, for respondent, Stratford P. Davidson.

RUGER, C. J.

This an action by the plaintiff, as trustee of certain bondholders, to foreclose a mortgage given for their security on October 15, 1875, by the Westchester Gas-light Company, upon certain real and personal property, described substantially as follows: Certain parcels of land in the city of Yonkers, and the tenements, hereditaments, and appurtenances thereunto belonging, ‘and all the buildings, gasometers, retorts, meters, and all machinery, tools, and implements belonging to said party of the first part, and now in or upon the said premises hereinbefore described;’ and also upon their right, title, and interest in a certain invention for manufacturing illuminating gas; and also the rights, privileges, franchises, property, and benefits acquired by them through several grants and conveyances from Yonkers to construct and lay gas-pipes and mains in the streets of said city; and all gas-pipes already laid, owned, and possessed by said party of the first part in said city of Yonkers; and all the rights, privileges, and permission to lay gas-pipes in and through the streets and avenues of said city, owned, used, and held by the party of the first part. The mortgagors and their lessees, the Yonkers Fuel Gas Company, the receivers of both of said companies, and certain of their creditors, were made defendants. The companies and their receivers alone appear and defend.

The answers allege several defenses, among which are- First, the invalidity of the mortgage for want of statutory power on the part of the corporation to give it for the purposes stated in the instrument; second, the omission to obtain the written consent for its execution of two-thirds of the stockholders of the mortgagor; third, the want of authority by reason of the absence of the proper qualifications as stockholders on the part of the directors assuming to authorize its execution; fourth, certain claims set up by the Yonkers Company by way of counter-claim; and, fifth, that the claim included property not covered by the mortgage, for the reason that it had been added to the mortgaged property subsequent to its execution by certain lessees for the purposes of trade and manufacture. The defenses will be noticed in the order in which they have been stated.

1. The mortgage recited that it was given to secure the payment of bonds to the amount of $50,000, to be issued for the purpose of borrowing that sum to carry on the operations of the company. The trial court found, as matter of fact, that it was delivered to the plaintiff in payment of a part of the purchase price of the mortgaged property. This finding was based upon uncontroverted evidence, and must here be assumed conclusive. By the terms of purchase the Westchester Gas-light Company bought the property described in the mortgage of Davidson, the plaintiff, agreeing to pay therefor $50,000 in cash, and $200,000 in the stock of the company. Davidson accepted the mortgage in lieu of the cash payment, and it was competent for him to do so without impairing its validity, and for the company to transfer it to him in lieu of the money which it was authorized to borrow for the purpose of making such payment. The result accomplished by this transaction was the precise equivalent of a delivery to a creditor to secure a loan, and did not constitute a diversion of the mortgage from its intended object. The agreement of purchase created a debt; and the purpose of its creation being to enable the company to carry on its business operations, the transaction was brought within the terms of the statute authorizing such a corporation to mortgage its property. Section 2, c. 374, Laws 1872. By section 2, c. 37, Laws 1848, being the original act under which the company in question was organized, it was prohibited from mortgaging its property for any purpose whatever. This act was amended in 1867 by chapter 480 of the laws of that year, authorizing such a company, upon the written consent of two-thirds of its stockholders, to mortgage its real estate for the purpose of securing the payment of any bonds that may be issued, or debt that may be contracted, for the extension or improvement of its works. The act was again amended by the law of 1872 referred to, whereby such corporations were authorized to purchase, hold, and convey any real or personal estate necessary to enable them to carry on their corporate operations, and also to borrow such sums of money, not exceeding one-half of their capital, as might be necessary to carry on their business, and to issue and dispose of their bonds for any amount so borrowed, and mortgage the corporate property and franchises of the company to secure the payment of any debt contracted by it for the purposes aforesaid. The obvious effect of the latter act was to supersede the provisions of the law of 1867 requiring the assent of two-thirds of its stockholders as a condition to the exercise of the right to mortgage, and to enlarge the power of the company to mortgage, so as to include personal property and franchises as well as real estate, and to cover the payment of all debts contracted for the legitimate operations of the corporation. The power to purchase property for the purposes of the corporation, and, if necessary, to contract a debt therefor, is expressly given to the corporation; and authority to mortgage its property for the payment of such debt is clearly within the spirit as well as the letter of the statute. It would seem, therefore, that the first and second defenses pleaded are not well founded.

2. The objection to the validity of the mortgage upon the ground that the persons acting as a board of directors for the mortgagor were not, at the time of passing the resolution authorizing the mortgage, stockholders of such company, and were therefore not qualified under the statute to act as such directors, is not tenable. The provisions of the statute, (section 3, c. 37, Laws 1848,) requiring the stock, property, and concerns of such company to be managed by directors, who shall respectively be stockholders of the company, and who shall, except the first year, be annually elected by the stockholders, do not...