Guar. Trust Co. of New York v. New York & Queens Cnty. Ry. Co.

• Decision Date: 18 March 1930
• Citation: 170 N.E. 887,253 N.Y. 190
• Parties: GUARANTY TRUST CO. OF NEW YORK v. NEW YORK & QUEENS COUNTY RY. CO. et al.
• Court: New York Court of Appeals Court of Appeals

253 N.Y. 190

170 N.E. 887

GUARANTY TRUST CO. OF NEW YORK

v.NEW YORK & QUEENS COUNTY RY. CO. et al.

Court of Appeals of New York.

March 18, 1930.

Action by the Guaranty Trust Company of New York, as trustee, against the New York & Queens County Railway Company and the Bankers' Trust Company, as trustee under the First Consolidated Mortgage of the New York & Queens County Railway Company. Judgment of Special Term directing foreclosure and sale of mortgaged premises was modified and affirmed by the Appellate Division (226 App. Div. 299, 235 N. Y. S. 127), and plaintiff appeals, and defendant Bankers' Trust Company cross-appeals.

Judgment of Appellate Division modified and affirmed.Appeal from Supreme Court, Appellate Division, Second department.

Alfred T. Davison, Charles E. Hotchkiss, Martin A. Schenck, and H. C. McCollom, all of New York City, for Guaranty Trust Co.

James H. McIntosh, of New York City, for the Bankers' Trust Co.

Charles F. Kingsley, Arthur G. Peacock, and James L. Quackenbush, all of New York City, for New York & Queens County Ry. Co.

CARDOZO, C. J.

The action is one for the foreclosure of a mortgage given in 1892 by the Steinway Railway Company to a trustee for bondholders.

The mortgagor owned and operated a street railroad in Long Island City, and the subject-matter of the mortgage was the road so owned and operated, its rolling stock and equipment, and any after-acquired property necessary or convenient for use in connection therewith.

The defendant New York & Queens County Railway Company was incorporated in 1896 to acquire by merger the Steinway line as well as other lines in neighboring communities, i. e., in Newtown, Flushing, and College Point.

Having purchased the entire capital stock of the Steinway Railway Company, it filed a certificate of merger under section 58 of the Stock Corporation Law then in force (Laws 1896, c. 932; Consol. Laws, c. 59), with the result that it became the owner of the franchise and property of the corporation so merged. It did not, however, either by covenant or by statute, assume the obligations or liabilities of the merged corporation, nor was it answerable therefor. Irvine v. New York Edison Co., 207 N. Y. 425, 101 N. E. 358, Ann. Cas. 1914C, 441;Syracuse Lighting Co. v. Maryland Cas. Co., 226 N. Y. 25, 122 N. E. 723.

The shares of the Newtown Railway Company which operated a line in Newtown, the shares of the Riker Avenue & Sanford's Point Company, and the shares of the Flushing & College Point Company, as well as the property and franchises of the Long Island & Newtown Railroad Company, were acquired at or about the same time.

The New York & Queens County Railway thereupon executed its first consolidated mortgage to a trustee, subject to the underlying mortgages on the constituent lines, the new mortgage covering the property then owned by the mortgagor or thereafter to be acquired.

The present controversy is one between the trustee of the Steinway mortgage on the one side, and on the other side the maker and the trustee of the consolidated mortgage, the former contending that certain after-acquired properties are subject to the lien of the Steinway mortgage, and the others that they are free from that lien and subject only to the lien of the consolidated mortgage. The chief properties so acquired are the Purvis Street substation, the Woodside car barns and contiguous tracks, the Borden Avenue office building, and rolling stock, tools, supplies, and miscellaneous equipment.

The essential facts as to these acquisitions are the following:

1. In 1906, ten years after the merger, the merging corporation acquired a new parcel of land at Purvis street, in what had formerly been Long Island City, and built a new power house thereon, which was completed in 1908, for the use of all the lines. Until then power had been supplied from the Mills Street power house which belonged to the Steinway line. Sixty-three per cent. of the current output of the new station is required for the Steinway cars; 37 per cent. for other cars. The trial court and the Appellate Division have held that the new station is subject only to the lien of the consolidated mortgage. The plaintiff insists that there is a prior lien in favor of the Steinway mortgage bondholders either upon the station as a whole, or upon an undivided 63 per cent. interest therein, the percentage being determined by the proportion of the use.

2. In 1896 the merging corporation acquired a new parcel in what was formerly known as Woodside, Long Island, for a new car barn to serve the unified lines. A new barn was built upon the land in 1897. Till then the Steinway Company had maintained a separate barn in which it kept its own cars. It also used the barn as a repair shop, though the shop and its equipment were already out of date. By the decision of the courts below the Woodside barn and connecting tracks have been held to be security for the consolidatedmortgage. The plaintiff insists that they should be made to feed the Steinway mortgage, at least to the extent of 50.8 per cent., a percentage determined by the proportion of the use.

3. Land and building described as 7 and 9 Borden avenue were acquired in 1896 for use as an office, and title thereto was taken in the name of the Steinway Company. The courts below have held that the result was an accession to the property that was subject to the Steinway lien. The trustee under the consolidated mortgage insists that its own bondholders should have the protection of the new security.

4. Railroad cars, bought by the merging corporation, have been held by the Appellate Division to be subject for the most part to the consolidated mortgage only, the evidence being insufficient except as to nineteen cars to make out an allocation to specific lines. On the other hand, miscellaneous equipment, tools, and supplies have been apportioned among the underlying mortgages in percentages corresponding to the proportionate use.

A mortgage of property to be acquired in the future is not a present lien at law. Rochester Distilling Co. v. Rasey, 142 N. Y. 570, 37 N. E. 632,40 Am. St. Rep. 635. It is, however, equivalent to a covenant to give a lien, and as such, when the property comes into existence, may be specifically enforced in equity. Kribbs v. Alford, 120 N. Y. 519, 24 N. E. 811. In the absence of intervening equities forbidding such a use, the property, when acquired, is deemed to feed the mortgage, as if in existence at the beginning. Holroyd v. Marshall, 10 H. L. Cas. 191; Zartman v. First Nat. Bank of Waterloo, 189 N. Y. 267, 82 N. E. 127,12 L. R. A. (N. S.) 1083. There is need to distinguish, however, between the enforcement of the covenant in respect of property thereafter acquired by the mortgagor itself, and property thereafter acquired by a successor or a purchaser. Property thereafter acquired by the mortgagor itself will be subject to the mortgage, if within the description of the covenant, however alien it may be in quality or function to the property presently subjected to the lien. People's Trust Co. v. Schenck, 195 N. Y. 398, 88 N. E. 647,133 Am. St. Rep. 807;Ithaca Trust Co. v. Ithaca Traction Corp., 248 N. Y. 322, 162 N. E. 93. It is otherwise in respect of purchasers, and even at times successors. To spread the lien of the mortgage to property acquired by these, there must be an independent ground of duty. This may have its origin in a statute or in a covenant of assumption or in the principles of estoppel or accession, or in some other kindred equity. Trust Co. of America v. City of Rhinelander, Wis. (C. C.) 182 F. 64, 69;Metropolitan Trust Co. of City of New York v. Chicago & E. I. R. Co. (C. C. A.) 253 F. 868, certiorari denied 248 U. S. 586, 39 S. Ct. 184, 63 L. Ed. 434. In the case at hand the covenant as to acquisitions is sweeping in its terms, embracing anything ‘necessary or convenient’ for the operation of the road. By its terms also it is to apply to such property when acquired by the mortgagor's ‘successors' as well as by the mortgagor itself. The problem to be solved is the effect to be given to a covenant so phrased in its applicationto a railroad succeeding through merger to the franchise of another.

[5] At the outset there is need to consider the meaning of the term ‘successors.’ A covenant by a corporation for itself and ‘its successors' is like a covenant by a natural person for himself, ‘his executors and administrators.’ It adds nothing of substance, for it is the expression of an obligation that if not stated would be implied. Matter of Buccini v. Paterno Const. Co., 253 N. Y. 256, 170 N. E. 910;Kernochan v. Murray, 111 N. Y. 306, 308,18 N. E. 868, 2 L. R. A. 183, 7 Am. St. Rep. 744; Chancellor v. Bell, 45 N. J. Eq. 538, 541, 17 A. 684;Overseers of Poor of City of Boston v. Sears, 22 Pick. (Mass.) 122, 126; Cumberland Bldg. & Loan Ass'n v. Aramingo M. E. Church, 13 Phila. (Pa.) 171, 172; 8 Halsbury Laws of England, pp. 371, 372. In like manner, a covenant by a corporation extending the lien of a mortgage to property thereafter acquired by its ‘successors' is not an attempt to impose the continuing burden of the covenant in respect of future acquisitions upon a new corporation that is merely a purchaser. It is directed to future acquisitions by those successor corporations that preserve or continue the corporate persona (Mississippi Valley Trust Co. v. Southern Trust Co. [C. C. A.] 261 F. 765), much as the heir in the Roman law continued the persona of the ancestor (Holmes, The Common Law, p. 343), and in our own system the executor continues for the most part as universal successor the persona of a testator (Holmes, The Common Law, pp. 344, 345, 350; Holmes, Executors, 9 Harv. L. Rev. 42; Collected Legal Papers, pp. 141, 143; Holdsworth, History of English Law, vol. 3, pp. 573, 583). How far the covenant is effective even then as to land or other property subsequently acquired must depend upon the statutes that...