Platt v. New York & S. B. Ry. Co.

• Decision Date: 08 April 1902
• Citation: 63 N.E. 532,170 N.Y. 451
• Parties: PLATT et al. v. NEW YORK & S. B. RY. Co. et al.
• Court: New York Court of Appeals Court of Appeals

170 N.Y. 451

63 N.E. 532

PLATT et al.

v.NEW YORK & S. B. RY. Co. et al.

Court of Appeals of New York.

April 8, 1902.

Appeal from supreme court, appellate division, Second department.

Action by William O. Platt and others against the New York & Sea Beach Railway Company and others for the foreclosure of a mortgage. Motion by George E. Joseph, receiver, for an order on James T. Nelson, receiver on foreclosure, to compel an accounting. From an order of the appellate division (71 N. Y. Supp. 913) which affirmed in part, and reversed in part, an order denying such motion, plaintiffs and James T. Nelson appeal. Reversed.

Charles F. Brown, Thomas J. Sanson, and Henry H. Man, for appellants.

Joseph Wamsley, for respondent.

O'BRIEN, J.

The questions involved in this appeal arose upon a series of facts with respect to which there is no dispute, and when these facts are clearly understood there is little difficulty in stating the legal principles which control the controversy. It is important to state the events which culminated in the order appealed from in the order of time.

On the 1st of April, 1885, the New York & Sea Beach Railway Company, a railroad corporation, executed and delivered to the plaintiffs, as trustees, a mortgage to secure a series of bonds then about to be issued and negotiated. This mortgage covered all the corporate property existing at the time of its execution, and also such property as the company should thereafter acquire, including the rents, income, and profits of the company from the operation of its railroad or otherwise. In the year 1896 an action was pending in behalf of the plaintiffs for the foreclosure of this mortgage, default having been made by the corporation in the payment of interest upon the bonds, and on the 16th of January, 1896, one Nelson, who was then the treasurer of the company, was appointed receiver in the foreclosure action. The form of the order appointing this receiver was very broad and general. It recited that he was appointed receiver of all the property of the railroad of whatever kind, including money, book accounts, contracts of every kind due to the corporation, things in action, rents, profits, and income accruing and to accrue to the company. In pursuance of this order he took possession of all the real and personal property of the company, including money in bank and cash on hand, amounting to something over $3,700. This money was derived from the income or earnings of the railroad prior to the time of his appointment. On the 14th of April, 1896, judgment of foreclosure and sale was entered in the action, which authorized the plaintiffs as trustees to bid in the property for the benefit of the bondholders, continued Nelson as receiver until the purchasers should take possession under the deed, and ordered him thereafter to account. This judgment was followed by a reorganization of the company and the transfer of the property to the new company. On the 18th of February, 1897, the court made an order, based upon the report of a referee, stating and passing the accounts of Nelson as receiver, in which the money on hand by the company at the time of his appointment was included with other income which accrued during the operation of the railroad by the receiver. After deducting the expenses of the receivership, this order directed Nelson as receiver to pay the balance in his hands to the plaintiffs for the benefit of the bondholders, and it is admitted that he complied with the order and paid over the money in pursuance of its directions. On the 21st of September, 1898, a general judgment creditor brought an action against the railroad for the purpose of sequestrating all its assets and appropriating the same to the payment of the judgment, and in this action the defendant Joseph was appointed receiver of the defendant's property. In May, 1899, this court decided that the earnings of a corporation, prior to the time that a receiver in such a foreclosure action took actual possession of the mortgaged property, in equity belong to the general creditors in perference to the bondholders. New York Security & Trust Co. v. Saratoga Gas & Electric Light Co., 159 N. Y. 137, 53 N. E. 758,45 L. R. A. 132. In August, 1899, Joseph, the receiver in the sequestration action, made a motion to the court at special term in which he asked the court to (1) declare the order appointing Nelson as receiver of the moneys of the company in the foreclosure action void ab initio; (2) that the judgment in the foreclosure action be amended by an entry at the foot of the decree that the mortgage foreclosed was not and never had been a lien upon the rents and profits that had accrued prior to the entrance and possession of the foreclosure receiver; (3) that Nelson, the foreclosure...