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

• Decision Date: 01 December 1891
• Citation: 29 N.E. 251,129 N.Y. 27
• Parties: WOODRUFF v. NEW YORK, L. E. & W. R. CO. et al.
• Court: New York Court of Appeals Court of Appeals

129 N.Y. 27

29 N.E. 251

WOODRUFF

v.NEW YORK, L. E. & W. R. CO. et al.

Court of Appeals of New York.

Dec. 1, 1891.

Appeal from superior court of Buffalo, general term.

This was an action by Lauren C. Woodruff against the New York, Lake Erie & Western Railroad Company and others to obtain certain allowances for services and expenses as trustee. From an order of the general term affirming an order of the special term making such allowances, defendants appeal. For special term decision, see 10 N. Y. Supp. 305. Modified and affirmed.

EARL, PECKHAM, and O'BRIEN, JJ., dissenting. 10 N. Y. Supp. 305 , modified.

John C. Milburn and E. C. Randall, for appellants.

M. H. Peck, for respondent.

RUGER, C. J.

The object of this proceeding was to obtain certain allowances out of a fund in court for the plaintiff's services and expenses in prosecuting certain litigations resulting in the creation of such fund. The fund was procured by the prosecution of the lessees of the Erie & Genesee Valley Railroad upon a covenant in its lease whereby they were obligatedto pay the amount of certain bonds at maturity and the annual interest thereon to the holders, who were secured by a mortgage upon such road, executed to the plaintiff and two others, as trustees, for their benefit. Both parties are here asking for the distribution of this fund by the court if it has the power to order distribution. We think there is no doubt as to the authority of the court over the fund. For the purposes of this discussion the plaintiff may be regarded as the sole trustee under the mortgage, inasmuch as one of such trustees had died before any litigation ensued, and the other took no active part in administering the trust. The bondholders, who were permitted by the court to litigate the question, opposed the granting of any allowances from the fund. The special term ordered such allowances to be made, and the general term affirmed the order. The evidence tended to show that the plaintiff had incurred large liabilities, made large expenditures, and performed valuable services in the prosecution of the several actions which produced the fund in dispute, and was industriously engaged for the period of nearly 13 years in pushing them to a successful conclusion. The amount and value of such expenses and services have been fixed by the courts below upon contradictory evidence, and we are not, therefore, at liberty to review their conclusions upon the facts. The sum allowed was quite large, amounting to about 25 per cent. of the sum recovered; but it must be borne in mind that without the action of the plaintiff there would have been no fund to distribute, and that for a long period of time, without assistance from the beneficiaries of the fund, and against an energetic and untiring opposition, he resolutely prosecuted the actions which resulted in recovering the sum of upwards of $50,000, now lying on deposit in the Metropolitan Trust Company of New York to the credit of the trustees, and subject to the order of the court.

It is a cardinal principle in the disposition of trust-estates that the trust fund shall bear the expenses of its administration, and that one who successfully conducts a litigation in autre droit for the benefit of a fund shall be protected in the distribution of such fund for the expenses necessarily incurred by him in the performance of his duty. In re Holden, 126 N. Y. 589, 27 N. E. Rep. 1063; Trustees v. Greenough, 105 U. S. 527. It is laid down as an elementary rule in Perry on Trusts that ‘trustees have an inherent equitable right to be reimbursed all expenses which they reasonably incur in the execution of the trust, and it is immaterial that there are no provisions for such expenses in the instrument of trust. If a person undertakes an office for another in relation to property, he had a natural right to be reimbursed all the money necessarily expended in the performance of the duty.’ Lewin, Trusts, p. 557; Perry, Trusts, § 910. This right is extended, not only to necessary traveling expenses, but to all reasonable fees paid for legal advice in the discharge of his duties, and in most of the states includes compensation for time, labor, and trouble. Perry, Trusts, §§ 910, 917, 918. It was held in Wetmore v. Parker, 52 N. Y. 450, that this court has decided in two cases (Downing v. Marshall, and De Courval v. Ray, 37 N. Y. 380) that the special term has power to make allowances to trustees and others acting in a fiduciary capacity for all expenses necessarily incurred in the faithful performance of their duties, including counsel fees. In Downing v. Marshall, supra, the court said ‘that persons acting in autre droit, as executors, administrators, trustees, guardians, receivers, etc., are, upon a faithful execution of their trusts, to be indemnified out of the trust property for all expenses necessarily incurred in the faithful performance of their duties.’ There can be no reasonable doubt but that the general rule is that trustees and others acting in a fiduciary capacity are entitled to reasonable allowances for costs and expenses incurred in the course of the performance of their duties, out of a fund which has been secured or protected by their efforts.

It is claimed, however, that the plaintiff was not a trustee for the bondholders, and in securing the fund in question was not acting for the interest of the bondholders, but was engaged in protecting his own personal interest. We do not think that this claim is supported by the facts of this case. The proof shows that the plaintiff and two other persons were appointed trustees under a mortgage made by the Erie & Genesee Valley Railroad Company in 1871, to secure bonds to the extent of $120,000, issued and negotiated for the purpose of obtaining money for the construction of its railroad. It does not appear that the plaintiff had any other interest in such railroad than as trustee under such mortgage until the circumstances hereinafter related took place, which gave him a certain interest therein. On November 1, 1871, the railroad company executed a lease of the road to him for the unexpired term of its charter, upon the consideration that he should, among other things, pay the annual interest accruing on said bonds, and also the principal sum of said bonds at the maturity thereof. It was further provided in the lease that upon the payment of such bonds by the said plaintiff or the Erie Railway Company the annual rent of such railway should be reduced to one dollar and taxes. On the 8th day of November thereafter the plaintiff executed a lease of the railroad to the Erie Railway Company upon the agreement of that company that it should make the payments and perform the covenants agreed to be made and performed by him; and thereupon the Erie Railway Company entered into the possession of such railroad, and performed the covenants made by it, and paid the interest on such bonds until the year 1874, when it defaulted in such payment. This default continued for four years, and no effort seems to have been made by any one except the plaintiff to compel the performance by the Erie Railway Company of its obligations. In the mean while that company had become insolvent, and its property went into the hands of a receiver. At this time the bondholders of the Genesee Valley Railroad had the security, not only of the original mortgage, but also the covenants of the plaintiff and the Erie Railway Company to pay the principal and interest of this claim. In 1877 an action to foreclose such mortgage was begun by the trustees against the mortgagor.L. C. Woodruff, individually, and the successors to the Erie Railway Company. This action was defended by the successors of the Erie Railway Company, and resulted, after many years of litigation, in a judgment for the sale of the property mortgaged, and the recovery of the deficiencies against the mortgagors and Woodruff. The sale resulted in a deficiency. In 1877 Woodruff commenced an action in the supreme court in his individual name against the Erie Railway Company, H. J. Jewett, its receiver, and a number of other individuals and corporations, to compel the payment by them...