Frank v. Erie & Genesee Valley Railroad — 33 N.Y. St. Rep. 235

Majority

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Augustus Frank et al., Appl’ts and Resp’ts, v. The Erie & Genesee Valley Railroad Co. et al., Appl’ts and Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed October 7, 1890.)

Headnote

1. Railroad—Lease.

Plaintiff Woodruff leased a certain, railroad, covenanting in the lease among other things to pay the interest coupons on certain bonds as they accrued, and the principal at maturity. Woodruff sub-leased to the Erie Railroad, conveying by the lease all the rights he had taken by his lease, and the company agreed to perform all the obligations he had assumed. The Erie Co. gave a mortgage to the F. L. & T. Co. for $40,000,000, but defaulted on the original bonds in January, 1875, and in June the F. L. & T. Co. began foreclosure of their mortgage, announcing at the sale that it did not include the Woodruff lease. Held, that the lease was neither destroyed nor affected by the foreclosure of the F. L. So T. mortgage, nor by the subsequent action to dissolve the Erie Co. ; that the leasehold estate had been expressly exempted from the sale by the court, the receiver and the grantees.

2. Same—Rents—Foreclosure.

. A mortgagee out of possession has no lien upon rents. Until he elects to take possession, or moves for a receiver, the rents belong to the lessor, who may contract as he chooses with the lessee or his assignee in regard to them.

8. Same—Title of mortgagee.

4. Same.

As the appellant company, the purchaser at the foreclosure sale, was induced not to abandon possession of the road by the arrangement under consideration, so long as it remained in force it effectually reduced the amount payable-by it as assignee in possession.

Appeal by both parties from a judgment of the general term of the supreme court, in the fifth judicial department, modifying a judgment entered upon the decision of the court at special term.

Action to foreclose a trust deed, in the nature of a mortgage, executed by a railroad company to secure the payment of its bonds.

Certain railroad corporations, organized severally under the names of the Erie & Genesee Valley Eailroad Company, the Erie Eailroad Company, and the New York, Lake Erie & Western Eailroad Company, are herein referred to, respectively, as the Genesee Valley Company, the Erie Company, and the Appellant Company.

The mortgage sought to be foredlosed was executed June 20, 1871, by the Genesee Valley Company to the plaintiffs and one Lockwood, as trustees for the bondholders, to secure the payment of certain bonds concurrently issued to the amount of $120,000 of principal, due July 1, 1886, and the interest coupons attached, due successively on the first days of January and July in each year. The mortgage provided that if the interest on the bonds remained unpaid for six months, the whole amount of principal

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and interest should be due and payable and the mortgagees might take possession.

November 1, 1871, the Genesee Yalley Company leased its road, and all the rights, powers and privileges appurtenant thereto, to Lauren C. Woodruff for the unexpired term of its charter, which was for 100 years, and of any renewals thereof, the lessee “ paying, or causing to be paid therefor, the bonded debt of $120,000, whenever the same shall become due, * * * and

also all lawful taxes * * '* and assessments. * * * In case of payment of the bonds by the party of the first part (Yoodruff), or the Erie Eailway Company, thereafter the annual rent to be one dollar and taxes.”

The lessee expressly covenanted, among other things, to operate the road as a first-class railroad; to pay the interest on the bonded debt, and upon its maturity to pay the principal or provide for a renewal of the loan; to complete the road from Dansville to a connection with the Erie railway; to keep it and its appurtenances in repair; to indemnify the lessor against all suits, damages and costs, and upon the expiration or other sooner determination of the term granted to surrender the demised property in as good condition as when received, ordinary wear and use excepted. The various covenants were made binding upon the successors and assigns of the respective parties. November 8, 1871, said Woodruff leased the same property to the Erie Company by an instrument containing substantially the same covenants and conditions.

February 4, 1874, the Erie, Company, being then in possession of the railroad and property covered by said leases, executed a mortgage thereon, as well as upon other property, to the Farmers’ Loan & Trust Company to secure the payment of bonds to the amount of $40,000,000.

The interest coupons outstanding against the Genesee Yalley Co., up to and including those falling due January 1, 1875, were paid by the Erie Company, which, shortly after that date, became embarrassed and thenceforward failed to comply with that condition of its lease which required payment of interest. In May, 1875, the people, through the attorney-general, commenced an action to dissolve the corporation, and on the 26th of that month, Hugh J. Jewett, who was then the president of the Erie Company, was appointed receiver of its property and franchises, and took possession of the same, including the property covered by the lease from Woodruff. In June, 1875, the Farmers’ Loan & Trust Co. commenced an action to foreclose its said mortgage, and on the 15th of the same month said Jewett was appointed receiver in that action also. From May, 1875, until April, 1878, when the Erie Company was reorganized, the railroad of the Genesee Yalley Co. was operated as a part of the Erie system of railroads by said receiver, who took and retained the receipts and profits, all of which he was authorized to do by orders of the court which appointed him. In like manner he was further authorized, in his discretion, to pay rent due and to become due upon the leases held by the Erie company “ in manner and form as provided in such leases respectively; ” but he was not required, as the court further

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•said in its order, to adopt and confirm any such leases that upon -due inquiry he should find not to be advantageous to all parties in interest.

November 7, 1877, a decree was made foreclosing the mortgage to the Farmers’ Loan & Trust Co., which, after reciting among •other things that some of the leasehold interests covered by said mortgage are “ burdensome, unprofitable and worthless,” adjudged that the property “ mortgaged or intended so to be” should be sold by a referee in one parcel subject to all liens prior to the date of the mortgage, but that the plaintiff should “be at liberty to abandon and disclaim, at any time before the sale, any leasehold estates or interests, embraced or included in the mortgage, not •deemed to be valuable, by giving notice of such abandonment and disclaimer to the referee in writing, and the referee shall not expose for sale the leasehold estates and interests so abandoned and disclaimed, as part of the mortgaged premises.” The decree further provided that all leasehold estates and interests sold by the referee as part of the mortgaged property should be sold subject to the terms and provisions of the leases and contracts under which they were held. The referee was authorized to do all things needful and proper and take all measures deemed judicious and necessary to expose the 'property for sale in such a manner as to command the highest price. The receiver was directed to assign to the purchasers of the mortgaged premises, upon-their request, all executory contracts of the Erie Company, but such purchasers, as the -decree further provided, should “ not be required to assume any contracts of the defendant company entered into before the appointment of the receiver, and all such contracts not so assumed by Such purchaser * * shall be re-assigned by the receiver to the said defendant company.” It was further adjudged that if a purchase ■should be made under the reorganization act, Laws 1874, chap.480, the purchaser should take title subject to all the lawful provisions of the plan and agreement of reorganization and that he should be fully vested with the property and premises sold in pursuance of the judgment. The property “ authorized to be sold” under the decree included “ terms and remainders of terms, franchises, * "*" * leasehold estates, contracts and other property.”

The notice of sale contained the same description as the decree, but the terms of sale, which were publicly read before the property was sold, excluded “ such portions thereof as will be declared excepted at the time and place of sale.” The plan of reorganization, entered into July 21, 1876, was approved by the court, August 12, 1876. It provided for the “ foreclosure of the property of the company,” and that “if the railway is bought in after such foreclosure, a new company shall be formed to hold and work it.”

The referee, in his report of sale, states that at and prior to the ■sale due and public announcement was made by him that the lease between Woodruff and the Genesee Valley Go., or the estate or interest purporting to be created thereby, would not be included in the property sold. The sale took place April 24, 1878, and the next day it was duly confirmed by the court, which directed the referee to forthwith execute a proper deed of conveyance to

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the purchasers, who were the reconstruction trustees, of alL the-property “ so as aforesaid sold or intended so to be.” The referee’s deed conveys the property described in the decree, “ except, however, as follows: * * * 4. A memorandum of agreement, or lease, dated November 8,1871, between the Erie Railway Company, of the first part, and Lauren C. Woodruff, lessee of the Erie & Genesee Valley Railroad Company, of the second part.” The grantees covenanted to assume and save the receiver harmless from his contracts, obligations and lawful indebtedness.

April 27, 1878, the purchasing trustees conveyed to the appellant company, which was organized on that day, the same property, by a deed containing the same exceptions as the deed from the referee. The certificate of incorporation of the appellant, company recites the foreclosure proceedings, but expressly states, that the Woodruff lease was excepted from the property sold.

May 3, 1878, said receiver presented to th,e court his petition,, wherein, after reciting the proceedings had in the foreclosure action, he stated that in pursuance of the judgment therein “ all and singular the mortgaged premises were sold as therein directed,”* and that the referee executed and delivered a deed “ conveying the premises and every part thereof ” to the purchasers ; that the purchasers conveyed to the appellant company “ all and singular the said premises so, as aforesaid, conveyed to them,” but the petition also refers to the several deeds on record as a part, thereof and, as already stated, each deed expressly excepts the Woodruff lease. The petition further states that the appellant, company claims to be entitled to receive' from him, as receiver, “ the possession of all the property and franchises embraced in the said judgment and the several deeds of conveyance.” The petitioner asked for authority to transfer, surrender and deliver to the appellant company “allthe property and franchises in his hands', and under his control as receiver ” with certain immaterial exceptions. On the same day an order was made by the court directing him to transfer, deliver and surrender to said company “all the property and franchises whereof he is now possessed as receiver * * * and which were embraced or intended to be embraced in the judgment of foreclosure herein.”

June 1, 1878, the appellant company gave the receiver a receipt for “ all the property mentioned as being in judgment and enumerated in the referee’s report of sale thereunder.” July 18, 1878, the receiver transferred to the appellant company a large number of contracts and agreements formerly belonging to the Erie Company, but not including the Woodruff lease. It was stated in the instrument of transfer that the purchasers under the foreclosure- and their successors, the appellant company, had assumed the ex-ecutory contracts so assigned.

July 26, 1878, the receiver re-assigned to the Erie Company the Woodruff lease, among other instruments, by a writing which recited his power to do so as conferred by the judgment in the foreclosure action in case the purchasers at the mortgage sale should refuse to assume them and stated that such purchasers had not assumed them, but had rejected and refused to assume them. De

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cember 4, 1879, the receiver executed and delivered to the appellant company an instrument, which after reciting the application and order of May 3, 1878, stated that on the first day of June, 1878, he “ formally transferred and surrendered to your company the property of the Erie Eailway Company,” excepting such as he had retained to satisfy his outstanding indebtedness as receiver.

He further stated in said instrument as follows: “ I now propose to, and herewith do, transfer and surrender to your company all of the property of the Erie Eailway Company, real and personal, remaining in my hands as receiver, not heretofore transferred and surrendered to you as above recited, in order that you may become completely possessed of all the property of the Erie Eailway Company, which was sold under foreclosure, and which became vested in you by such sale and subsequent conveyances and assignments above referred to.”

November 25, 1879, final judgment was entered in the action brought by the people, dissolving the corporation and adjudging that “by reason of the said foreclosure and sale the said Erie Eailway Company has been wholly and permanently deprived of ■every right and franchise, and of every kind and character of property necessary to enable it to carry on business and to exercise and employ its franchises as contemplated and required by the laws under which said company was created.”

December 30,1879, various reports of the foregoing transactions, among othersj were confirmed by the court, and the receiver was discharged from all liability to and including December 5, 1879.

The railroad of the Genesee Valley Company has been held and operated as follows: From November 8, 1871, to May 26, 1875, by the Erie Company; from the latter date to June 1, 1878, by Mr. Jewett, as receiver; and from that time onward, so far as appears, by the appellant company.

May 14, 1879, the appellant company, of which Mr. Jewett was president from its organization, served a notice upon the Genesee Valley Company, and upon Lauren C. Woodruff, stating that the Erie Company came into possession of the road under an agreement with Woodruff, and although extensive and permanent improvements were made, it was operated at a loss ; that he, as receiver, also operated it at a loss, having been advised that the lease was void, to which Mr. Woodruff had assented, but on account of public and other considerations, he did not abandon it; that “he did not expect that the operation of the road at a loss solely for the benefit of that part of the public which it accommodated would, in addition to his loss, expose him to a claim for rental; ” that the appellant company “ acquired no interest in this property, but merely succeeded to the possession of the receiver; ” that the appellant company was no longer willing to continue the operation ■of the road at a loss, and, therefore, gave notice that it would cease to operate the road on July 1, 1879.

June 30, 1879, said Woodruff made a written proposition to the appellant company to the effect that it should continue to operate the road in question after July 1, 1879, until further notice, and to pay the expenses of running it, but that it should

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not “be compelled to pay any rent for the use of the same.” No obligation was to be implied from the execution of such proposal, which was not to be so construed as to affect any of the legal rights of the parties thereto “ as the same shall exist on and after July 1, 1879.” This proposition was presented to the directors of the Genesee Valley Company, who, on July 5, 1879, declared by resolution that their company desired “ to have its road operated in the future as in the past for the benefit of the citizens of the territory through which it runs, and that it will assent to any arrangement made by Mr. Woodruff having that end in view that will not conflict with or change the rights or obligations of Mr.. Woodruff and this company under the contract between them, bearing date November 1, 1871.”

They directed that a copy of this resolution, with its preamble embracing the opinion of their counsel upon the subject, should be attached to said proposal and returned to the appellant company, which on the 8th of July, 1879, notified the Genesee Valley Company and said Woodruff that it would continue to operate-the road during the month of July upon the terms mentioned in said proposal, but that unless some permanent arrangement were made by August 1, it would withdraw its trains from the road. July 30 said Woodruff agreed in writing with the appellant company that if it would not withdraw its trains on the 1st of August, but would continue to operate the road' until the 1st of September, it should have the right to do so “ free of any rental or obligation for the use of said road during said month of August.” January 24, 1880, this agreement was continued in force from September 1, 1879, until May 13, 1880, and by two subsequent agreements said arrangement was continued until May 15, 1881.

August 25, 1879, a resolution was adopted by the board of directors of the Genesee Valley Company appointing a committee to confer with Mr. Woodruff" with reference to a final settlement, of the difficulties, and in the meantime requesting the appellant, company to continue the operation of the road “as heretofore operated without liability to this company for its use, until such conference can be had and a settlement or compromise effected.”

This action was commenced October 25, 1877, but by order of the court a supplemental summons was issued March 10, 1883, bringing in said Woodruff and the appellant company as parties defendant. Upon the trial, the special term by its decree, made as of October 1, 1885, adjudged that the sum of $235,605 of principal and interest was due upon the mortgage in question, and directed the usual foreclosure and sale, with judgment for any deficiency, collectible by execution out of the property of the following defendants in the order named: 1. The appellant company. 2. Lauren C. Woodruff. 3. The Genesee Valley Company.

Upon appeal, the general term modified the decree “ so as to limit the liability ” of the appellant company “ to a sum equal to the amount of interest upon the bonds of the Genesee Valley Company ” “from the 1st day of January, 1875, to the 1st day of July, 1879, with interest on the several installments from the time they became due, respectively, amounting on July 1, 1887, the

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date of entering judgment, to $61,425.” This was declared to be without prejudice to the right of any party entitled thereto to require the appellant company to account for and pay any such rent as it might be liable to pay on account of the possession and. operation of the road after July 1, 1879.

December 10, 1889, the parties stipulated that when the appellant company or the said receiver should deposit to the credit of the plaintiffs, “ $37,882.45, the amount decreed in the action of Lauren 0. 'Woodruff v. Hugh J. Jewett, as receiver, * * * being the amount due and unpaid of ” the interest coupons in question from January 1, 1875, to January 1, 1878, and should pay certain costs, “such payments to be proved by the affidavit of Hon. E. C. Sprague, * * * such affidavit may be annexed to the record in this case, * * * with the like force and effect as if a supplemental answer had been interposed and a final decision of the court made to the effect that such payments had been made.”

The affidavit of Mr. Sprague, dated February 26, 1890, that the deposit had been made as required by said stipulation is. annexed to the appeal book.

James C. Carter and James Wood, for pl’ffs; Imcius N. Bangs, for Laurence C. Woodruff; J. A. Yanderlip, for Erie & Genesee Valley R. R. Co.; B. C. Sprague, for Hew York, Lake Erie & Western R R Co.

By the agreement entered into Hovember 1, 1871, between the Genesee Valley Company and Lauren C. Woodruff, a leasehold estate was carved out of the fee belonging to the former and the «consideration agreed to be paid therefor by the latter was the rent reserved, although in an unusual form. Wooruff v. Erie Railway Co., 93 N. Y, 609 , 615; The People v. O'Brien, 111 id, 1; 19 N. Y. State Rep, 173. As the lease from Woodruff to the Erie Company embraced all that he had acquired from his lessor, it operated as an assignment in fact, although not such in form, of the entire term granted by the original lease. Stewart v. The Long Island R. R. Co., 102 N. Y. 601 ; 2 N. Y. State Rep., 557. Thenceforward the legal relations of the three parties named were those of lessor, lessee and assignee under a lease. The Erie Company became liable for the interest and principal, as it fell due, both by privity of contract and by privity of estate. Wood’s Land. & T, 742; Gear L. & T. §§ 125-6. The former liability depended upon its express promise to pay, whether it entered into possession or not, and could be discharged only by payment, while the latter depended upon entry into possession under the lease and could be avoided by assigning the entire term and relinquishing possession. When the receiver of the Erie Company took possession and operated the railroad, he also became liable, in effect, as assignee during the period of his. occupation. The foundation and nature of his liability was defined by this court when it said that “ ho could not take possession of the property and enjoy its use and occupation without incur

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ring a liability for the payment of the rent under the lease by which his predecessor secured its possession. The principles which govern the liability of an assignee of a lease seem to be applicable to the case of a receiver, and he would be eqitably and legally chargeable with the payment of-rent under a lease for such time as he continued to occupy the property demised.” Woodruff v. Erie R. R. Co., supra, 624.

The next and last possessor of the leasehold estate was the appellant company, and the origin, nature and effect of its possession present the chief points of controversy on this appeal. It is clear that the lease was neither destroyed nor affected by the foreclosure of the mortgage held by the Farmers’ Loan & Trust Company, nor by the action brought to dissolve the Erie Company, because all of the contracting parties were not before the court in either of those actions, and the decree was made subject to all prior liens. The leasehold estate, therefore, was still in existence, unimpaired, when the appellant company entered into possession of the property. By what authority and in what capacity did it make that entry?

The claim of the plaintiffs that it entered as assignee in fact, because the judgment of foreclosure and the referee’s deed thereunder actually transferred the lease, does not appear to be well founded.

The mortgage foreclosed doubtless covered the interest of the Erie Co. in the lease, and the judgment authorized its sale as a part of the property embraced by the foreclosure, but it also authorized the plaintiffs therein to' abandon and disclaim their lien upon any of the nineteen leases not regarded as valuable, by notifying the referee to that effect before the sale. Thereupon, as the decree provided, that officer was required not to expose the leasehold estates, so abandoned, for sale as part of the mortgaged premises. No reason is perceived why a creditor has not the right to waive or release a part of his security, but if there is any question as to this because, in the case under consideration, the debtor did not ask for it, it cannot be raised collaterally. The remedy must be sought in the suit in which the judgment was rendered, as even third persons who claim rights under the judgment are bound by the provisions affecting those rights. It does not appear expressly whether the requisite notice was given or not. It appears, however, by the referee’s report of sale that the lease in question was not embraced in the property sold, and that he publicly announced before the sale that neither the Woodruff lease nor the estate created thereby would be included in the sale. The terms of sale corresponded with this announcement. The report .of the referee was confirmed and his conveyance, made under the direction of the court, expressly and specifically excepted, from the effect of the sale the lease in question. The deed from the purchasing trustees contained the same exception, and the receipt of the appellant company was for the property enumerated in the referee’s report of sale. Under these circumstances and those relating to the subject more fully detailed elsewhere, we think that the presumption arises that the notice had

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been given. When an officer of the court does an act “which would be a violation of his duty unless a certain condition had first been performed, it will be presumed that such condition was performed.” Davis v. Bowe, 118 N. Y., 55 , 60; 27 N. Y. State Rep., 862. Moreover, independent of this presumption, the evidence shows an unmistakable intention on the part of the court, its officer and the grantees that the lease, which created, defined and, in a certain sense, constituted the leasehold estate, should be excepted from the transfer.

While the appellant company was the successor of the Erie Co., still, as to the ownership of the property sold under the mortgage, at least, it was a new corporation. This plainly appears from the title, text and object of the statutes under which the reorganization was effected. Laws 1876, chap. 446, § 1; Laws 1874, chap. 430; Chesapeake & Ohio Railway Co. v. Miller, 114 U. S., 176 ; Hoard v. C. & O. R'y Co., 123 id., 222 . It acquired title, therefore, to no property of the old company by virtue of the foreclosure proceedings, except such as was actually transferred to it under the direction of the court. If it were true, as claimed by the plaintiffs, that all the property covered by the mortgage must be sold as an entirety, and that the purchaser must accept each and every part cum onere, a railroad corporation, by making bad bargains after it had mortgaged its'property, could destroy the value of the mortgage.

The plaintiffs further contend that said lease was transferred to the appellant company by the receiver under the powers conferred upon him by the special term, and that it accepted such transfer. Title to the lease was vested in the receiver by virtue of his appointment, and it may be that the new company was willing to accept the naked title from him without any covenant to assume the burdens thereof, when it was unwilling to accept title under the foreclosure sale and assume performance of all the covenants, as required by the judgment. Certain acts of the appellant company and of the receiver are difficult to explain upon any other theory. In his petition of May 3, 1878, that officer asked for authority “to transfer, surrender and deliver” to the appellant company “ all the property and franchises in his hands and under his control as receiver,” subject to certain exceptions not now material.

The order made was as broad as- the prayer of the petition and each was broad enough to cover the lease, which was still held by the receiver. Yet the transfer, made July 18, 1878, of various executory contracts did not include the lease. That transfer, however, does not allude to said order, but purports to have been made pursuant to the judgment of foreclosure and it required the purchasers to assume the burdens. No transfer, depending on said order for authority, appears to have been made until December 4, 1879, when the receiver, by an assignment of that date, transferred to the appellant company “ all the property of the Erie Bailway Co., real and personal, remaining in my possession not heretofore transferred and surrendered to you as above recited in order that you may become completely possessed of all the property of the Erie Eailway Co., which was sold under foreclosure and which be

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came vested in yon by such sale and the subsequent conveyances and assignments above referred to.” It does not appear whether any transfer, other than those mentioned, was made or not, except under certain proceedings in the courts of the state of Hew Jersey, which affected the property in that state only and did not include the lease in question. The assignment of July 26, 1878, to the Erie Company is not regarded as important, for the effect of a conveyance to a dying corporation, made by its own receiver in anticipation of its dissolution, is not apparent.

The appellant company, right after its organization, entered into possession of the property covered by the lease and it has remained in possession and has operated the railroad ever since, yet it failed to show upon the trial in what capacity it entered, or by what authority it operated the road. The theory of the plaintiffs as to transfer by the receiver finds some support in the entry into possession by the appellant company. It cannot be heard to say that it entered as a trespasser, for that would be asserting its own wrongful act as a defense to the claim of one who had the right to waive the tortious element, if it existed, and to insist upon the entry as valid with all the consequences that may be implied, therefrom. Schuyler v. Smith, 51 N. Y., 309 ; Conway v. Starkweather, 1 Den., 113 .

The law presumes, under the circumstances, that it entered rightfully, and as it failed to show any other authority, may not the act of entry be regarded as a practical construction of the order of May 3, 1878, and the subsequent action of the receiver? At all events it entered into possession in subordination to the lease, for in no other way could it have entered except as a trespasser. As long as the leasehold estate was in existence no person or body corporate could give it authority to enter except under the lease. What presumption arises from the fact of possession and occupation under these circumstances ? Where a person other than the lessee is shown to be in possession of leasehold premises, the law presumes that the lease has been assigned to him. Williams v. Woodard, 2 Wend., 487 , 493; Acker v. Witherell,, 4 Hill, 112 , 116; Carter v. Hammett, 12 Barb., 253 ; S. C. 18 id., 608; Cross v. Upson, 17 Wis., 618 ; 1 Washburn on Real Property, 509 ; Taylor’s Land. & Ten., § 450; 2 Phil. Ev., 150; Woodfall’s Land. & T., 276. It further presumes that the assignment was sufficient to transfer the term and to satisfy the statute of frauds. Bedford v. Terhune, 30 N. Y., 453 . It does not, however, presume that the assignee entered into any express covenant to pay rent, so as to make himself liable through privity of contract, or otherwise than through privity of estate. The appellant company, therefore, under the facts proved became prima facie liable as assignee of , the lease during the period that it operated the road. This involved the obligation to perform all covenants running with the land that were broken during said period, including the covenant to pay rent, or that which stood in the place of rent. The presumption that a party, other than the lessee, who is found in possession of leased premises, holds them under an assignment of the lease, may be rebutted by showing that he was in as an under-

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tenant Armstrong v. Wheeler, 9 Cow., 88 ; Carter v. Hammett, 12 Barb., 253 .

It is claimed that the supposed assignee may rebut this presumption by proving that he never had any assignment, and there is authority for the position. Quackenboss v. Clarke, 12 Wend., 555 ; Welsh v. Schuyler, 6 Daly, 412 . This, we think, is open to question, provided proof of that fact involves proof of entry without right or as a trespasser, but it is not necessary to so decide in this case, as the appellant company failed to show that it never had an assignment of the lease in question. Proof that it did not take title in a certain way, as under the foreclosure proceedings, is no proof that it did not take title at all. No effort was made to show that the documents read in evidence were the only papers in existence relating to the subject. The receiver was not called to testify that he never executed and delivered to the appellant company any instrument purporting to be an assignment of, or relating to, the lease, other than those in evidence. No officer of the company was asked whether he knew of any such paper. There was a failure to meet the burden of proof resting upon the putative assignee in this regard, and hence the presumption arising from possession ripened into a fact. The appellant company, therefore, is to be regarded as assignee of the lease during the time that it has occupied the leasehold estate, and as such liable for the rent accruing subsequent to the date of entry, at least until the new arrangement was made, which is alleged to have relieved it from further liability to pay rent as stipulated in the lease.

The appellant company operated the railroad covered by the lease without complaint or question until May 14, 1879, when it notified the original lessor and lessee, the latter being at the time one of the two mortgagees then surviving, that it was operating the road at a loss and that it would cease to operate it on the 1st of July following. Appended to this was a notice signed “ Erie Railway Company, by H. J. Jewett, president and receiver;” that “ on behalf of the Erie Railway Company, and on behalf of myself as receiver of that company, all rights to compensation for improvements and additions and all rights of reclamation for losses are hereby reserved.” Negotiations followed, which resulted in an arrangement between the Genesee Valley Company, Lauren C. Woodruff and the appellant company, by which the last named, at the request of the others, agreed to continue the operation of the road at its own expense for the public benefit, provided it should not “ be compelled to pay any rent for- the use of the same.” The mortgagees, through Woodruff, had notice of these negotiations, and of the result thereof, but they made no objection, and did not attempt to take possession of the road, although they had the right to do so. What was the effect of this arrangement ?

As we have held, the appellant company was at the time in possession as naked assignee, with no express promise on its part to pay rent. This is equally true whether its title rests upon an assignment presumed, but not otherwise proved, or upon the order

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of May 3, 1878, as neither source of title required anything but a bare operative transfer.

It was, therefore, liable only in respect of its possession and for such covenants only as might be broken while privity of estate continued. It was in its power to escape this liability at any time by assigning the lease and abandoning possession, even if it were done for the express purpose of avoiding the further payment of rent. Childs v. Clark, 3 Barb. Ch., 52 ; Tate v. McCormick, 23 Hun, 218 ; Durand v. Curtis, 57 N. Y., 7 ; 2 Platt on Leases, 416.

Privity of estate would thus be destroyed, and with it the foundation of future liability.

It is clear that, ordinarily, the lessor, lessee and assignee of a lease may modify its terms by reducing the amount of rent. Can they do so when there is a mortgage upon the property covered by the lease, but not upon the leasehold estate, itself ? Why can they not, in the absence of fraud and when, as in this case, there is no covenant on the part of the assignee for the benefit of the mortgagee? Without such & covenant, or some express promise, the assignee of a lease is under no more obligation to the mortgagee of a lessor, than a grantee is to the mortgagee of a grantor. Vrooman v. Turner, 69 N. Y., 280 , 283; Pardee v. Treat, 82 id., 385 ; Root v. Wright, 84 id., 72 ; Seward v. Huntington, 94 id., 104.

A mortgagee out of possession has no lien upon rents. Until he elects to take, possession, or moves for a receiver, the rents belong to the lesgor, whp" may contract as he chooses with the assignee in regard to them. Argall v. Pitts, 78 N. Y., 239 ; Rider v. Bagley, 84 id., 461; Wyckoff v. Scofield, 98 id., 475.

When the mortgagee takes possession he does so subject to all arrangements made in good faith between a lessor, lessee and assignee for the relief of the latter, unless there was an express promise by him enuring to the mortgagee’s benefit. The fact that rent is payable as interest on a mortgage does not affect the liability of an assignee, except while privity of estate continues. When the appellant company was about to abandon possession of the road and extinguish the privity of estate, it was induced not to do so by the arrangement under consideration. How long that arrangement continued does not appear, but we think that so long as it remained in force it effectually reduced the amount of rent payable by the appellant company as assignee in possession.

The judgment of the general term should be modified by deducting therefrom the amount deposited in the Metropolitan Trust Company of Hew York, under the stipulations of December 10,1889, and, as modified, affirmed, without costs in this court to any party.

All concur, except Bradley, and Haight, J. J., not sitting.

Cases cited

Stewart v. Long Island Railroad 102 N. Y. 601 N.Y. 1886-06-15 p. 241