Rochester Trust & Safe-Deposit Co. v. Rochester & Irondequoit Railroad

This is a motion by the receiver of the property and franchises of the Eochester & Irondequoit Eailroad Company for leave to issue certificates, as such receiver, not to exceed §32,000, bearing interest at the rate of 5 per cent, per annum, which certificates shall be acfirst lien upon all the property of the Eochester & Irondequoit Eailroad Company, both real and personal, and the proceeds of the sale thereof shall be used for the purpose of constructing two permanent bridges or undercrossings in place of the temporary bridges or undercrossings under the railroad tracks of the Borne, Watertown & Ogdensburg Eailroad near Windsor Beach, in the town of Irondequoit, as required by the terms and conditions of a certain contract in writing made between the New York Central & Hudson River Eailroad Company, as lessee of the Rome, Watertown & Ogdensburg Railroad Company, and the Rochester & Irondequoit Railroad Company, bearing date the 28th day of December, 1893. The motion is opposed by the Rochester Trust & Safe-Deposit Company, as trustee for the first and second mortgage bondholders of the Rochester & Irondequoit Railroad Company, on the ground that the court has no power to authorize the receiver to issue certificates for the purpose of building said permanent structures.

It appears from the receiver’s petition that in the year 1893 the Rochester & Irondequoit Railroad Company constructed a boulevard and double-track railroad, to be operated by electricity by the trolley

The rule is well settled that a license is a mere authority to enter upon the land of another for a certain purpose, and it may be revoked at any time. ' It has been held in this state that an easement to operate a railroad or to do some act of a permanent nature on the land of another can be created only by deed or conveyance in writing operating as a grant, and that a consent in writing on the

In White v. Railway Co., 139 N. Y. 25 , 34 N. E. 888 , Judge Peckham, in speaking for the court, says:

“It is said that a license is a mere authority to enter upon the land, and is a sufficient protection to the licensee while it lasts, but that it may be revoked at any time, and after, its revocation it cannot he used as a protection for any future acts. It is held there can be no equitable estoppel which will operate to prevent the revocation of the license, grounded upon the fact that the licensee has entered upon the land of the licensor and expended thereon labor and money upon the faith of the license, because it must be held that the licensee knew that the license gave him no interest in the land, and that he must rely upon the indulgence of the licensor, and, if that be withdrawn, he must himself withdraw from the land; otherwise, it is said, the statute in regard to the creation and conveyance of interests in land would he in great part abrogated.”

It is important to understand and hear in mind the distinction between a license and an easement or right of permanent occupancy of the land. Chancellor Kent, in his Commentaries (3 Kent, Comm. 452), says:

“The modern cases distinguish between an easement and a license. A claim for an easement must be founded upon a grant by deed or writing, or upon prescription, which presupposes one; for it is a permanent interest in another’s land, with a right at all times to enter and enjoy it. But a license is an authority to do a particular act or series of acts upon another’s land, without possessing any estate therein. It is founded in personal confidence, and is not assignable.”

The learned commentator adds:

“This distinction between a privilege and an easement, creating an interest in land, and requiring a writing within the statute of frauds to support it, and

a license which may he by paroi, is quite subtle, and it becomes difficult, in some of the cases, to discern a substantial difference between them.”

The case of Mumford v. Whitney, 15 Wend. 380 , contains an able review of many of the conflicting cases. Savage, C. J., cites with approval the case of Cook v. Stearns, 11 Mass. 533 . He says:

“Much of the discrepancy may have arisen from the different ideas attached to the word ‘license.’ If we understand it as Chancellor Kent defines it, it seems to me there can be no difficulty. It is an authority to do a particular act upon another’s land. It is founded in personal confidence, and is not assignable.”

The learned chief justice then proceeds to illustrate and show what an easement is, or right which can only be acquired by a grant or prescription, as contradistinguished from a mere license. It appears that the marked and leading distinction between them is that in the former there is a permanent interest in the land for some specified period, amounting to an estate in the land, which is assignable and is irrevocable, and gives a right at all times to enter upon and remain in possession during its continuance; while the-latter is a mere authority to enter upon the land of another for a temporary purpose, and to do a particular act or series of acts upon the land, and is revocable at pleasure, is not assignable, and gives no estate or interest in the land upon which the act or acts are to-be done. It will be seen from the above definition of a ‘license’ and an ‘easement’ that the Rochester & Irondequoit Railroad Company has no permanent interest or easement in the land of the New York Central & Hudson River Railroad Company by virtue of said contract, and it must therefore rely upon the verbal consent and indulgence of said company for leave to operate its trolley line over said company’s lands.

The power of a court of equity to authorize a receiver to- raise-money necessary for the preservation and management of the railroad, and make the same chargeable as a lien thereon for its repayment, cannot at this day be seriously disputed. It is a part of that jurisdiction always exercised by a court when necessary to protect and preserve the trust properly in its hands. It is undoubtedly a power to be exercised with great caution, and, if possible, with the consent or acquiescence of the parties interested in the fund. Not only will the structures of a railroad deteriorate and decay if not cared for and kept up, but its business and good will will pass away if it is not run and kept in good order. Moreover, a railroad is a matter of public concern. The franchises and rights of the corporation which constructed it were not given merely for private gain for the corporators, but to furnish a public highway. The court, while in charge of the property, has the power to make such repairs as are necessary to keep the road and its structures in a safe and proper condition to serve the public. Many circumstances may exist which may make it necessary and indispensable to the business of the road and the preservation of the property for the receiver to pay pre-existing debts of certain classes out of the earnings of the receivership, or even to issue certificates to pay the same, yet the discretion to do so should be exercised with very

Mr. Beach, in his work on Receivers (section 379), says:

“Within the past twelve or fifteen years these certificates to the amount of many millions of dollars have been issued, and the courts are constantly authorizing the further issue of them, ostensibly for the preservation of the property and in the interest of the bondholders, but, it is believed, in the majority of cases in which they are issued, to the hindrance and delay of a prompt foreclosure, and the impairment of the bondholder’s security, and to the scandal of the courts of equity.”

Mr.' Jones, in his work on Corporate Bonds and Mortgages (section 541), says:

“Complaint as to the management of railroad receivers has generally come, not from stockholders, because it is seldom they care to redeem, but from mortgage bondholders, and as often perhaps from those at whose solicitation the receiver was appointed as from those who may hold under junior mortgages. The history of such management in this country shows that the bondholders chiefly interested have sometimes found themselves improved out of their interest in the property.”

And in a note which he appends he adds:

“Judge Baxter is reported to have expressed himself strongly, in a recent case before the circuit court of the United States, against the practice of placing railroads in the hands of receivers. He cites the case of a railroad company in Georgia which cost one million five hundred thousand dollars. The receiver who was in charge of it for three years issued certificates to the value of over one million dollars, and when the road was sold the proceeds were not sufficient to pay the certificates.”

In Wood v. Deposit Co., 128 U. S. 416 , 9 Sup. Ct. 131 , it was held that the doctrine of Fosdick v. Schall, 99 U. S. 235 , applied to operating expenses only, and not to a contract in the ordinary construction of the road. The reasoning in the case of Addison v. Lewis, 9 Am. & Eng. R. Cas. 702, is that the claim of contractors for the construction of the road or an extension thereof is simply a general debt, which will not be entitled to priority. In American Loan & Trust Co. v. East & W. R. Co., 46 Fed. 101 , the United States circuit court for the Northern district of Alabama held that a debt created for materials for original construction of a portion of a railroad more than six months before the appointment of a receiver in proceedings for the foreclosure of a mortgage is not within the rule authorizing the court to provide arrears due for operating expenses of the road out of the net income of the property. It would not do to charge the income of mortgaged railroad property managed by a receiver, or the property itself, with every debt or contract obliga

In Rhat v. Attrill, 106 N. Y. 423 , 13 N. E. 282 , Judge Andrews, in speaking for the court, says:

“The lien of the mortgage attaches not only to the land in the condition in which it was at the time of its execution, but as changed or improved by accretions or by labor expended upon it while the mortgage is in existence; and creditors whose debts were created for money, labor, or materials used in the improvements acquire no legal or equitable claim to displace or subordinate the lien of the mortgage for their protection.”

The claim of contractors for the construction of the road or an extension is simply a general debt, which will not be preferred to the claim of the bondholders.

It may be said, however, that no fixed and inflexible rule can be laid down for the government of courts in all cases. Each case will necessarily have its own peculiarities, which must to a greater or less extent influence the court when it comes to act. The purpose for which receiver’s certificates may be issued is usually confined to making necessary repairs and protecting the property as it is. The propriety of every expenditure is to be judged by thé necessity of making it in order to preserve the value of the property in the hands of the receiver. This power, as a general rifle, extends only to such expenditures as are necessary for the protection of the property; and the court will not ordinarily authorize expenditures for the completion of structures and improvements unless it is morally certain that the railroad, in consequence of such improvements, will sell for a higher price.

Assuming that the court has power to direct the receiver to issue these certificates for the purpose of making the improvements referred to, the question is whether, under all the circumstances surrounding this case, it would be a proper exercise of judicial discretion to grant this motion. The Hew York Central & Hudson Biver Bailroad Company is not a party to this action, and would not be bound by any order made herein affecting its rights and interest in said undercrossings. It also appears that the first mortgage upon the Bochester & Irondequoit Bailroad Company’s corporate franchises is being foreclosed, and the property- will soon be sold at public sale to the highest bidder, who will take it subject to the contract in question. I am unable to see how the Hew York Central & Hudson Biver Bailroad Company can be prejudiced or affected in any way by the foreclosure proceedings, or even prejudiced by waiting until after the foreclosure sale before taking steps to enforce the construction of the permanent undercrossings. It seems to me that it would be better to have the purchaser of this road assume the care and responsibility of making the permanent improvements than to impose that duty upon the receiver.

The motion therefore must be denied.