Farmers' Loan & Trust Co. v. Equity Gas-Light Co. — 65 N.Y. St. Rep. 591

Majority

p. 591

Farmers’ Loan and Trust Company, Resp’t, v. Equity Gas-Light Company, App’lt.

(Supreme Court, General Term, Second Department,

Filed February 11, 1895.)

Headnote

Corporation—Mortgage.

A corporation may give a purchase-money mortgage, without the consent of the stockholders.

Motion for a new trial on exceptions, ordered to be heard at general term in the first instance.

Tracy, Boardman & Platt, for appl’t; Turner, McClure & Rolston, for resp’t.

This is a motion for a new trial made in the first instance at the general term under the provisions of section 1001 of the Code of Civil Procedure. The action was brought by the plaintiff as trustee under a mortgage made to it by the defendant, dated July 1, 1891, and a supplemental mortgage, dated December 8, 1891, given to secure the issue of bonds of the defendant aggregating $1,000,000. The defendant was incorporated in the month of January, 1874, under the act of February 16, 1848, being chapter 37 of the Laws of 1848, as amended by subsequent acts. On the 18th day of November, 1890, the defendant entered into a construction contract with the Equity Gas Works Construction Company. The contract provided, among other things, that the construction company should convey to the gaslight company a plot of land in the city of Brooklyn, upon which it should erect gas tanks, engines, engine houses, coal sheds, and should lay mains, and furnish tools, etc.; and in return therefor the defendant should execute a mortgage to the Farmers’ Loan & Trust Company to secure the sum of $1,000,000, and deliver bonds secured thereby to the construction company to that amount, and should also deliver to the construction company $1,000,000 of its capital stock. Such stock, at the time of the contract, amounted to $2,000,000, and the defendant had under its control the sum of $1,900,000 of such capital stock. It agreed by such contract, among other things, that it would not issue the remaining $100,000 until the completion of the contract. It appeared from the evidence upon the trial that work was immediately commenced under the contract, agreements were entered into with subcontractors for the performance of the work, and a large amount of money was expended day by day; that the •work ,was pushed on with great energy, and finally completed, so far as the gaslight company permitted such completion. The

p. 592

deed of the real property was made and delivered to the defendant by the construction company, and was offered in evidence upon the trial. It appeared that all the property covered by this mortgage was transferred by the construction company to the gaslight company. In pursuance of the contract, the defendant made a mortgage to the Farmers’ Loan & Trust Company, dated July 1, 1891, for $1,000,000, and the bonds secured by that mortgage, being the entire issue, have been certified and delivered to the plaintiff, as follows: $750,000 of them directly to the construction company, and $250,000 of them to Trask, who is and was at the time the president of the gaslight company. The other bondholders have raised some question as to the right of Trask to insist that those bonds'are entitled to the security of the mortgage in question, and, in framing the judgment entered herein, provision has been made to decide whether these bonds are entitled to the lien of the mortgage. There are many reasons why this motion should not prevail, and why the judgment should be affirmed. The mortgage in question is a purchase-money mortgage, and such mortgages may be issued by corporations without the consent of stockholders. The property covered by the mortgage was conveyed to the gaslight company by the construction company under an agreement that the mortgage should be executed and the bonds issued and delivered to the latter company. That agreement was made before the statute of 1891, which requires the assent of stockholders to the issuance of a mortgage, and that statute is therefore inapplicable to this case. Moreover, a court of equity will not permit the successful interposition of the defense here attempted, even assuming all that is claimed by way of defense to this action. No court will permit the defendant to retain the vast property it occupies, with all the benefits of its purchase, and at the same time repudiate its liability for the purchase price, or, what is the same thing, its liability under the mortgage in question. The motion should be denied, with costs.

All concur.