Hubbell v. Syracuse Iron Works — 36 N.Y. St. Rep. 902

Majority

p. 902

Charles E. Hubbell, Rec’r, Resp’t, v. The Syracuse Iron Works et al., App’lt.

(Supreme Court, General Term, Fourth Department,

Filed February 20, 1891.)

Headnote

Corporations—Mortgage to pay debts—Eights op creditors.

Where a corporation executes a mortgage and issues bonds in trust to pay its debts by delivering the bonds directly to its creditors or by selling-them and paying the avails to the creditor, the legal title to the bonds is in the mortgagee, and until a creditor has received from him and accepted the bond or bonds he has no title to the same, and is not entitled to share in the proceeds of a foreclosure of the mortgage.

Appeal from a judgment entered upon a decision made at the Onondaga special term. The principal ground presented upon the argument by the appellants was stated as follows: “The error of the judgment appealed from consists in the affirmative adjudication that Charles P. Everson as holder of the $36,000-claim is not entitled to any lien or interest or to share in the distribution of the proceeds of mortgage sale, for the reason that, he has not accepted the terms of the mortgage by demanding the bonds. And the adjudication that the bonds adjudged to-be invalid shall be cancelled instead of being restored to the trustee.”

Waters & McLennan, for app’lts ; Henry A. Maynard, for resp’t; W. G. Tracy, for resp’ts, Merchants’ Eat. Bank and others; Knapp, Nottingham & Andrews, for resp’ts, The Robert Gere Bank and others; Hiscoch, Doheny & Hiscoclc, for resp’t His-cock,as rec’r, etc.; William G. Holbrook, for resp’ts, Tower and others.

After the bonds were executed in pursuance of the consent of the stockholders by the corporation and delivered to the mortgagee, the legal title to the bonds was in the mortgagee. He held a legal title until he either sold the same in the market or applied the same to a creditor or creditors in payment of the debts of the corporation in pursuance with the restrictions and limitations under which the bonds came into the hands of the mortgagee. Until he made a delivery of the bonds, their vitality as a security was not perfect, as was said in Lord v. Yonkers F. G. Co., 99 N. Y., 556 , viz.: “ Where a bond of this description, having no previous vitality, is delivered to a creditor of the company to pay or secure his debt, the delivery of the bond is the act by which his debt becomes secured. The security to the creditor then, for the first time, comes into being, and is as effectual as if the mortgage were executed at the same time with the delivery of the bond. The effect is the same if the bond is sold to provide means to pay a debt existing at the time of the sale, and the proceeds are paid to the creditor. As held in the case of Carpenter v. Black Hawk Co., 65 N. Y., 43 , the statute prescribes no form in which the mortgage shall be made. The' mode in which the mortgage lien shall be created is left to the company. All that is required is that the lien should be given to secure a legitimate debt of the corporation, and any appropriate and convenient form for accomplishing that end may be adopted.”.

p. 903

Until a creditor had received from the mortgagee and accepted the bond or bonds he had no title to the same either in law or in equity. Dillon v. Barnard, 21 Wall., 430 .

(2.) Some of the minor questions raised by the appellants upon this appeal were decided adversely to them by this court in Hubbell v. Syracuse Iron Works, 42 Hun, 183 ; 4 N. Y. State Rep., 690. We must adhere to and follow that decision so far as it applies to such questions.

Concurring, as I do, in the opinion delivered by the learned trial judge at special term in the result reached by him, I advise an affirmance of the judgment entered upon his decision.

Judgment affirmed and one bill of costs payable to the respondents out of the funds.

Martin, J., concurs; Merwin, J., not sitting.