Vilas v. Page

• Decision Date: 04 October 1887
• Citation: 13 N.E. 743,106 N.Y. 439
• Parties: VILAS and others, Adm'rs, etc., v. PAGE and others.
• Court: New York Court of Appeals Court of Appeals

106 N.Y. 439

13 N.E. 743

VILAS and others, Adm'rs, etc.,

v.PAGE and others.¹

Court of Appeals of New York.

October 4, 1887.

In 1852 and 1853 the Plattsburgh & Montreal Railroad executed first and second mortgages on its property. In 1854 its rolling stock was bought by S. F. Vilas, a director, at an execution sale. Two years later actions were begun to foreclose the aforesaid mortgages. In February, 1857, a receiver was appointed for the road; and in the following September, under a decree of the court, the road was sold, but the purchasing committee who bought it did not complete the purchase until 1867. On March 10, 1858, the receiver was authorized by an order of court to purchase rolling stock on credit; the purchase money to be a first lien on the road. Under this order, V., on August 27, 1858, released his rolling stock to the receiver, and it was agreed between them that, ‘in case it shall be finally determined, in or by this or any other action or proceeding, that the said property belongs absolutely and beneficially to Vilas, he shall be paid for the foregoing release $18,000, with interest; and the sum which may become due as aforesaid shall be a first lien on the premises, which, when deeded by the receiver, shall be conveyed expressly subject to said lien.’ Neither the order of the court nor this agreement was recorded before the commencement of this suit. On September 13, 1867, a majority of the first mortgage bondholders sold their bonds to Page and others, and it was agreed between the parties that ‘the purchasers are to assume the prosecution of that (Vilas') suit, and abide its result and judgment; and, if there shall be any recovery in Vilas' favor, the purchasers agree to indemnify the sellers, and said Platt, as receiver, against the same. In August, 1868, the referee conveyed, under the sale of the road in 1857, the property to Page and others, who on the same day conveyed to the Plattsburgh & Montreal Railroad. In 1872 the Plattsburgh & Montreal Railroad transferred its property to the New York & Canada Railroad, which latter was under a perpetual lease to the Delaware & Hudson Canal Company. In 1875 Vilas commenced suit, and in 1880 he recovered a judgment, which directed that execution issue against Page and the others, and, if not satisfied, that the road be sold to pay the amount. In the case of Hoyle v. Railroad, 54 N. Y. 314, the court of appeals decided, in 1873, that the two mortgages were not, at the time of the sale of the rolling stock on the execution, a lien on the stock, as against the purchase of Vilas, and that by said purchase the legal title of the stock became vested in him.

Peter B. Olney, Alfred R. Page, and Benjamin H. bristow, for appellants.

George H. Beckwith and Matthew Hale, for respondents.

ANDREWS, J.

The validity of the order of March 10, 1858, lies at the basis of the lien claimed by the plaintiff under the agreement of August 27, 1858. The receiver had no power, as incident to his general authority as receiver, to create a lien on the property of the railroad company for the purchase of rolling stock. The jurisdiction of the court to appoint receivers of property has for its primary object the care and custody of the property which is the subject of the receivership,pending the determination of the questions involved in the litigation, and to enable the court, by placing the property under the control of its officer, to preserve it to answer the final decree which may be made in the action. But the receiver cannot, of his own motion, contract debts chargeable upon the fund in litigation. The court must authorize expenditures on account of the property before they can be charged thereon; and while it may, and does in its discretion, allow expenses incurred by a receiver strictly for preservation to be charged upon the fund, although incurred without the prior sanction of the court, it is nevertheless the order of the court, and not the act of the receiver, which creates the charge, and upon which its validity depends. The order of March 10, 1858, authorized the receiver to expend not exceeding $27,500 in the purchase of necessary rolling stock for the Plattsburgh & Montreal Railroad, upon a credit of not less than six months, provided the purchase should be approved by the plaintiffs or their attorney; and directed that the purchase money of the mortgaged premises directed to be sold by the interlocutory decree of February 28, 1857, should be applied by the referee, first, to the payment of his own costs and disbursements, and, next, to paying for the rolling stock which might be purchased by the receiver; and, further, that the ‘amount which the said receiver may so contract to pay for the rolling stock, with all interest that may accrue thereon, is hereby made a first lien on the said mortgaged premises, and all proceeds thereof which may come into this court, or are or shall become subject to its disposition or authority.’ The order was granted upon the petition of the receiver, supported by the affidavit of the attorney for the plaintiffs in the action, which, among other things, represented that the rolling stock then in use had been hired by the receiver, and was very scanty and inadequate to the proper working of the road.

The jurisdiction of a court of equity, having possession in a foreclosure action, through its receiver, of the property of a railroad company, to authorize the creation of debts for rolling stock and other purposes, when in its opinion it is necessary so to do to secure the continued and successful operation of the road, and to charge the debts so created as a first lien on the mortgaged property, has of late years been the subject of consideration by the courts, and the doctrine that this jurisdiction appertains to the power of the court to appoint receivers is now firmly established. Wallace v. Loomis, 97 U. S. 146;Trust Co. v. Railroad Co., 117 U. S. 434, 6 Sup. Ct. Rep. 809;Woodruff v. Railway Co., 93 N. Y. 609. The order of March 10, 1858, was therefore a lawful exercise of the power vested in the court, and was binding upon the parties to the action, even if it had been made without their consent. But it was procured on the application of the receiver, who represented the company in making the application, and of the plaintiffs, the trustees in the mortgages sought to be foreclosed, who, with the individual co-plaintiff, represented the bondholders, and neither the company nor the bondholders can assail its validity.

But it is insisted, on behalf of the grantees of the purchaser on the foreclosure sale, that, inasmuch as the order of March 10, 1858, was made after the sale under the foreclosure judgment, the court could not create a lien on the property purchased without the consent of the purchasers, and that the purchasers, on completing their purchase, had the right to demand and receive a title subject only to such liens, if any, paramount to the mortgages foreclosed, as existed on the property at the time of the sale. The sale on the interlocutory judgment was made September 24, 1857, several months prior to the order in question. The property was bid off by a purchasing committee, representing nearly all the bondholders under the first mortgage, for the sum of $150,000, a sum much less than the amount of the mortgage. It does not appear with certainty that any payment was made at the time on account of the purchase. If any was made, it did not exceed a few hundred dollars. In July, 1858, the referee made his report of sale, which was confirmed July 31, 1858, and this was followed August 20, 1868, by a conveyance from the referee to the purchaser, which recites the sale of September 24, 1857, for the sum of $150,000. The consideration, however, was paid almost wholly by the surrender of bonds held by the purchasers. Meanwhile, from 1857 to 1868, a period of 11 years, the receiver remained in possession, and operated the railroad, without objection, and apparently in the interest of the purchasers. During this time the order of March 10, 1858, was made; and on August 27, 1858, the receiver entered into the contract with the plaintiff Vilas which has given rise to this controversy. The rolling stock purchased of Vilas was used by the receiver in operating the road up to the time of the conveyance to the purchasers on the foreclosure sale, and what remained was received by them, and was used on the road down to the time of trial.

The claim made, that the purchasers on the foreclosure are not bound by the order of March 10, 1858, has no foundation in law or equity. When the order was made the title had not passed under the foreclosure sale. The sale of September 24, 1857, was afterwards vacated, and the road was advertised for resale under the decree in 1863, but was not again sold; and, for some reason not disclosed, the order vacating the original sale was itself set aside, and a conveyance finally made pursuant thereto. The rolling stock authorized to be purchased by the order of March 10, 1858, would on its purchase belong to the estate owned by the mortgagor, out of which the purchase money was to be paid. The purchasers, by their conduct and delay, acquiesced in the operation and management of the road by the receiver in the usual way. The court was not divested of its power and duty of managing the property by reason of a sale which the purchasers delayed or neglected for many years to complete. If the court after a sale, and before completion, had made an inequitable or improvident order injurious to purchasers, it would present a ground on which to base an application by them to be released from the purchase. The purchasers in this case have no equity to be relieved from the just operation of the order in question.

There is another question raised by the appellants which it is proper to consider before considering the questions arising upon the agreement of August 27, 1858. It is claimed that...