Herring v. New York, L.E.&W.R. Co.

• Citation: 105 N.Y. 340,12 N.E. 763
• Parties: HERRING v. NEW YORK, L. E. & W. R. CO. and others.
• Decision Date: 19 April 1887
• Court: New York Court of Appeals

105 N.Y. 340

12 N.E. 763

HERRING

v.NEW YORK, L. E. & W. R. CO. and others.¹

Court of Appeals of New York.

April 19, 1887.

The plaintiff commenced this action on behalf of himself and all other creditors of the Erie Railway Company similarly situated, and made parties defendants the New York, Lake Erie & Western Railroad Company, the Farmers' Loan & Trust Company, and Hugh J. Jewett, receiver of the Erie Railway Company. In his complaint he alleges that, prior to its dissolution, the Erie Railway Company was a corporation organized under the laws of this state. That in the year 1870, to secure the payment of its bonds, amounting to about $16,000,000, it executed and delivered to the Farmers' Loan & Trust Company, as trustee, a mortgage of its railway, and certain property then owned by it, which railway and property were described in the mortgage in the following words, to-wit: ‘All and singular the railway of the party of the first part, from and including Pierpont on the Hudson river, to and including the final terminus of the said railway on Lake Erie, and the railway known as the ‘Newburgh Branch,’ from Newburgh to the main line, and also all that part of the railway designated as the ‘Buffalo Branch of the Erie Railway,’ extending from Hornellsville to Attica, in the state of New York, and also all other railways belonging to the party of the first part in the states of New York, Pennsylvania, and New Jersey, or any of them, together with all the lands, track, lines, rails, bridges, ways, buildings, piers, wharves, structures, erections, fences, walls, fixtures, franchises, privileges, and rights of the said company, and also all the locomotives, engines, tenders, cars, carriages, tools, machinery, manufactured or unmanufactured materials, coal, wood, and supplies of every kind, belonging or appertaining to the party of the first part, and all the tolls, income, issues, and profits arising out of the saidproperty, and all rights to receive or recover the same; also all the estate, right, title, and interest, terms and remainder of terms, franchises, privileges, and rights of action, of whatsoever name or nature in law or in equity, conveyed or assigned unto the New York & Erie Railroad Company, or unto the Erie Railway Company by the Union Railroad Company, by the Buffalo, New York & Erie Railroad Company, by the Buffalo, Bradford & Pittsburgh Railroad Company, by the Rochester & Genesee Valley Railroad Company, and by the Long Dock Company.' That afterwards, in 1874, to secure the payment of other bonds, amounting to about $24,000,000, it executed to the same trustee another mortgage upon its railway and property by the same description contained in the prior mortgage. That about the twenty-fifth day of May, 1875, an action was brought by the attorney general in the supreme court of this state in the name of the people as plaintiffs against the Erie Railway Company, its directors and certain trustees under various mortgages, including the Farmers' Loan & Trust Company, as defendants. That the relief prayed for in that action, among other things, was that the corporation should be dissolved and be wound up; that the plaintiffs should have judgment accordingly; and that in the mean time, while the action was pending, Jewett, president of the company, should be appointed receiver, to take, hold, and possess, under the immediate authority and direction of the court, the franchises and property, with full power to operate the road, and to preserve its franchises and corporate existence until final judgment, and with such other and general powers as it is usual and in accordance with the rules and practice of the court to confer upon receivers in like cases.

That on the twenty-sixth day of May, 1875, on the application of the attorney general in that action, Jewett was appointed receiver of the company, in pursuance of the prayer of the complaint. That, by virtue of such appointment, Jewett undertook the duties of the receivership; and all the estate of the Erie Company and its franchises thereupon became vested in him as receiver, to be administered and distributed by him in accordance with the statutes in such case provided. That about the fifteenth day of June, 1875, the defendant the Farmers' Loan & Trust Company, as trustee, commenced an action against the Erie Railway Company for the foreclosure of the two mortgages above mentioned. That in that action the trust company was sole plaintiff, and the Erie Railway Company and the trustees under prior mortgages were the only defendants. That subsequently the summons and complaint in that action were amended so as to make certain creditors of the Erie Company co-defendants therein; but Jewett, as receiver in the people's action, was at no time made a party to that action. That the complaint in that action alleged, among other things, the insolvency of the Erie Company; that it had made default in the payment of the interest falling due upon its bonds; that, to the extent of the rightful interest in the mortgaged premises of the trust company as the mortgagee, its rights were in law and equity superior to the rights of the people of the state of New York; that the trust company was entitled to have the mortgaged premises foreclosed and sold for the payment and satisfaction of the respective debts to secure which the premises were mortgaged to it; and that the prayer of the complaint demanded that an accounting should be had as to the bonds outstanding under the mortgages; that Jewett should be appointed receiver of the mortgaged premises and property in that action, and that the mortgaged premises and property should be sold, and the proceeds applied, for the payment of the mortgage debts, and that the complaint further demanded in words following, to-wit: ‘That an inquiry may be had and an account taken of and concerning all and singular the premises and property so mortgaged to this plaintiff as aforesaid, in order that it may be fully and at large ascertained whereof the said mortgaged premises consist.’ That on the fifteenth day of June, 1875, Jewett was appointed receiver in that action of all the property covered by the two mortgages. That the estate of the Erie Railroad Company, at the time Jewett was appointed receiver in the people's action, consisted, not only of the railway and the property described in the two mortgages, but also of a large amount of other property, such as bonds and stocks in other corporations, which property was not appurtenant to the mortgaged premises, not subject to the lien of the mortgages or either of them, and not in any manner necessary for the practical operation of the mortgaged premises, or to the use, management, or maintenance thereof, amounting to many millions of dollars in value. That part of such property had been acquired by the Erie Company subsequently to February 4, 1874, the date of the second mortgage. That the property not subject to the lien of the mortgages constituted a large and valuable fund applicable to the payment of the general and unsecured creditors of the Erie Company. That the Farmers' Loan & Trust Company, or its attorney, admitted in the foreclosure action the existence of such fund, and the necessity of an accounting with respect to the same, on a motion in that action in which it was made to appear to the court by the affidavit of such attorney, on or about the sixth day of April, 1876, that there were in the hands of Jewett, as receiver, stocks and bonds, as before mentioned, representing interests in other corporations to the nominal amount of more than $22,000,000, which belonged to the estate of the Erie Company. That an unascertained portion of such securities was covered by the two mortgages. That another unascertained portion had been acquired with moneys supplied by the respective parties for whom the Farmers' Loan & Trust Company was trustee. That advances had been made upon or against a further portion thereof out of the income of the mortgaged property in the hands of the receiver. That the receiver had paid out of the income of the mortgaged premises in his hands certain debts of the Erie Railway Company contracted prior to the appointment of the receiver for labor, salaries, and supplies, which ought of right to be reimbursed to the mortgage creditors out of the assets of the Erie Company not covered by the mortgages. That certain resulting trusts existed in favor of the mortgage creditors in such securities, and that such securities, or the proceeds thereof in case of their sale, should be dealt with by the receiver as a part of the general funds in his hands under the several mortgages; and that it was alleged in the affidavit that it was impracticable at that time to take, state, and adjust the accounts, and to finally account in respect to the matters above referred to, and that such final accounting and adjustment could only be had with due regard to the rights and interests of the parties upon the accounting preliminary to the final decrees, and by the final decrees to be made upon the basis of such accounting. That an order was made on that motion in the foreclosure action, on or about the sixth day of April, 1876, authorizing the receiver to treat the fund as a part of the general fund and estate embraced in the two mortgages, ‘without prejudice to any equitable rights and interests of the respective parties which may be established on final accounting.’

That, during the pendency of the foreclosure action, the holders of the bonds and stocks of the Erie Company formed a plan for the formation of a new corporation in which their interests were to be represented; but no provision whatever was made in the plan of reorganization for the unsecured debts or obligations of the Erie Company. That the reorganization was consummated in pursuance of the plan and the sanction of the court, and with the co-operation of Jewett as receiver in the foreclosure...