Holland Trust Co. v. Thomson-Houston Elec. Co. of New York (In re Morgan)

• Decision Date: 25 February 1902
• Citation: 170 N.Y. 68,62 N.E. 1090
• Parties: HOLLAND TRUST CO. v. THOMSON-HOUSTON ELECTRIC CO. OF NEW YORK et al. In re MORGAN.
• Court: New York Court of Appeals Court of Appeals

170 N.Y. 68

62 N.E. 1090

HOLLAND TRUST CO.

v. THOMSON-HOUSTON ELECTRIC CO. OF NEW YORK et al.In re MORGAN.

Court of Appeals of New York.

Feb. 25, 1902.

Appeal from supreme court, appellate division, First department.

Action by the Holland Trust Company against the Thomson-Houston Electric Company of New York and others. Application of George N. Morgan to compel the payment of certain claims. From an order of the appellate division (71 N. Y. Supp. 51), reversing an order directing the purchasers to deposit an amount sufficient to pay certain coupons held by the petitioner, he appeals. Affirmed.

David Gerber, for appellant.

H. E. Bolles, Francis Lynde Stetson, Charles McVeagh, and Charles H. Tyler, for respondents.

O'BRIEN, J.

This is an appeal from a final order in a special proceeding which originated in the application to the court, by a party claiming to be interested, to compel the purchasers of corporate property at a sale under a judgment of foreclosure to perform the contract of purchase. The facts in the case are somewhat complicated; but, as they are stated in great detail in the discussion in the court below (62 App. Div. 299,71 N. Y. Supp. 51), it will be sufficient here to refer to them in a general way. In the year 1889, and for some time after, the defendant was doing business under the name of the East River Electric Light Company, and under that name it executed a mortgage upon all its property and franchises to the plaintiff, as trustee, to secure an issue of 600 $1,000 5 per cent. bonds. The mortgage was dated and executed September 1, 1889, but not acknowledged by the mortgagor until July 9, 1890, or by the plaintiff as trustee until April 15, 1890, and was not recorded until August 9, 1890. It appears that the whole issue of bonds was prepared and printed as of the same date as the mortgage,-that is, on September 1, 1889,-but none of the bonds were actually issued or certified by the plaintiff as trustee until August 11, 1890, more than 11 months after the date of the bonds and the mortgage. There were attached to these bonds interest coupons, payable semiannually; and the first set of coupons, therefore, matured March 1, 1890, long before the bonds were certified, sold, or delivered. The purpose for which the bonds were issued contemplated a sale or use of them from time to time as the corporation defendant needed the money to take up prior bonds or for other purposes. The result was that, as the defendant corporation needed to use the bonds from time to time, they procured them to be certified by the plaintiff as trustee, and always detached the past-due coupons, and in some cases those that were about to fall due in a short time after the certification. It appears that these coupons that were detached, instead of being canceled or destroyed, came into the hands of the presidentof the defendant corporation, either in payment of or as security for a past-due debt claimed by him against the corporation for certain services and disbursements. They were transferred by the president to another party, and, through other intermediate transfers, have come into the hands of the petitioner in this proceeding, who claims that they represent obligations secured by the lien of the mortgage, and are entitled to be paid out of the proceeds of the sale prior to any of the bonds regularly issued and certified.

The mortgage contained a provision that the bonds secured thereby should not be valid until the certificate indorsed thereon should have been signed by the trustee,-that is, by the plaintiff; and this condition was indorsed on each bond. It contained a further provision that, in event of foreclosure and sale of the property mortgaged, if the proceeds should be insufficient to pay both principal and interest, then the accrued interest should first be paid in the order of the coupons representing the same. In the year 1893 the defendant corporation made default in the payment of interest upon the bonds, and the plaintiff, as trustee for the bondholders, began this action to foreclose the mortgage. In October, 1894, judgment of foreclosure and sale was entered, and a referee was appointed to sell the property under the terms prescribed in the judgment, which, in substance, were as follows, that is to...