New York Sec. & Trust Co. v. Saratoga Gas & Elec. Light Co.
| Decision Date | 02 May 1899 |
| Citation | 53 N.E. 758,159 N.Y. 137 |
| Court | New York Court of Appeals Court of Appeals |
| Parties | NEW YORK SECURITY & TRUST CO. v. SARATOGA GAS & ELECTRIC LIGHT CO. et al. |
OPINION TEXT STARTS HERE
Appeal from supreme court, appellate division, Third department.
Suit by the New York Security & Trust Company against the Saratoga Gas & Electric Light Company and others. There was an order of the special term denying a motion for repayment of certain money by the receiver of defendants, which was reversed by the appellate division (51 N. Y. Supp. 749), and an appeal was allowed on certified question. Judgment reversed.
Edward Winslow Paige, for appellants.
Howard A. Taylor, for respondent.
The questions raised by this appeal arise upon a controversy between the receiver in an action to foreclose a corporate mortgage given to secure bondholders and a receiver appointed at the same time, in a suit by a general creditor of the corporation, brought for the purpose of sequestrating the assets of the corporation after a judgment upon the claim, and an execution returned unsatisfied. While both receivers were appointed at the same instant of time, the sequestration action was commenced before the foreclosure action, and before the appointment of the receiver therein.
On the 1st day of February, 1887, the Saratoga Gas & Electric Light Company, a domestic corporation, executed and delivered to the American Loan & Trust Company a mortgage to secure its bonds, amounting in the aggregate to $300,000, due in 1907. The bonds so issued had interest coupons attached, payable semiannually, at the rate of 6 per cent. The property covered by the mortgage is described therein as follows: ‘All the corporate property, real, personal, and mixed, including all lands, easements, rights of way, buildings, fixtures, materials, supplies, machinery, and plant, franchises, contracts, and choses in action, whether now owned or hereafter acquired or constructed by said gas company, together with the appurtenances thereto, and all rents, tolls, issues, income, and profits of said gas company, present and future; to have and to hold the same unto said American Loan and Trust Company, its successors and assigns, forever, upon trust for the equal benefit and security of all holders of said bonds, and subject to the following covenants, conditions, and provisions, which are assented to by both parties, to wit,’ etc. It must, I think, be admitted that this language is broad enough to cover not only all the property that the corporation then had, but all that it ever could have by any possibility, whether lands, chattels, moneys, or things in action. But the language here used, broad and comprehensive as it is, is very much qualified and restricted by other provisions of the instrument, as will be seen by reference to the following stipulations: (1) ‘Until default occurs in some duty, or upon some covenant, agreement, or promise of the gas company hereunder, said gas company, its successors and assigns, shall retain the possession, control, and enjoyment of all the property and franchises hereby mortgaged, and may receive and use the earnings, income, and profits thereof in any manner not inconsistent with these presents, nor tending to lessen the security hereby provided.’ (2) ‘The said gas company, for itself and its successors, covenants to pay to the several holders of the bonds hereby secured the principal and interest of said bonds, according to the tenor and true intent of said bonds and the coupons thereto attached.’ (5) ‘But, if default be made in any payment of principal or interest upon said bonds when due, or in the performance of any covenant or agreement on the part of the said gas company herein contained, and if such default shall continue for the period of sixty days, then, and in either of said cases, the trustee may enter into and upon, and take possession, management, and control of, all the property and franchises covered by these presents, and may operate the same, and continue the business, and exercise the franchises of said gas company, making all needful repairs, alterations, and additions, and may collect and receive all earnings and income thereof.’ (7) ‘If any default shall occur or continue as in article five specified (that is, ‘continue for the period of sixty days'), the trustee may, and upon the written request of the holder or holders of one-fourth or more of said bonds then outstanding, accompanied by indemnity as hereinafter provided, shall, with or without entry as aforesaid, proceed to foreclose this mortgage, either by advertisement or sale according to law, or by proper judicial proceedings.’ These several provisions of the instrument must obviously be read together in order to ascertain the real intention of the parties, and the true construction which should be of its products, prior to the time of the commencement the broad general language used in the description of the property mortgaged, it is plain that the mortgagor was to have, at least until default, the possession and enjoyment of all the property, whether existing at the time or acquired in the future, and was to use the future earnings for the purpose of conducting the business for which the corporation was organized. This must mean that it had a right to sell and transfer the future products of its operations as its own, free, and clear from any lien of the mortgagee. The intention was that it should purchase materials for its business, employ labor, contract debts, and discharge all obligations arising therefrom by the use of the products of the business or the earnings of the plant.
In this condition of things the corporation made default in the payment of the interest coupons due on the 1st of August, 1893, and, on November 11th following, the plaintiff, as substituted trustee, brought an action to foreclose the mortgage, and a receiver was appointed on the 16th of November following, and on the same day, and at the same time, the sequestration creditor procured the appointment of a receiver in his action. The receiver in the foreclosure action took possession of the gas plant, and proceeded to operate the works, and to make and sell manufactured gas and electricity. At that time there were moneys in the office of the company, and to its credit on deposit in banks, and due to it on open accounts for gas and electricity manufactured before, and it owed debts for materials...
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