Case ID: misc_38/html/0260-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Catherine M. Yuengling, Plaintiff, v. John F. Betz, Defendant.
    (Supreme Court, New York Special Term,
    June, 1902.)
    Trust — Fiduciary relation — Accounting — Following proceeds.
    Where a woman, owning second mortgage bonds oí a corporation covering its realty and personalty and containing a clause permitting the holders oí three-fourths of the bonds to determine whether the second mortgage should be foreclosed for a default in the payment of interest, reluctantly puts, upon the embarrassment of the corporation, her bonds in the hands of her husband’s uncle without any agreement in the matter, although he had promised to assist her husband, the principal stockholder, purchase enough bonds to control a foreclosure, carry them for a number of years and turn them over to her husband on payment of their cost and interest, a fiduciary relation is created between the woman and the uncle, and therefore where he soon afterward procures the second mortgage to be foreclosed, as well as a prior mortgage on the realty only, buys the property in, using her bonds to pay a part of the purchase price, and becomes sole owner, he must account to her for the value of so / much of the- property as her b.onds, which he has rendered worthless, purchased.
    Action for an equitable lien and for an accounting.
    Kellogg & Beckwith, for plaintiff.
    James O. McEaehen (Abraham I. Elkus, of counsel), for defendant.
   Scott, J.

The plaintiff is the wife of David G-. Yuengling who was, in 1894, the principal stockholder of the D. Gr. Yuengling Brewing Company, a corporation organized under the laws of this State. This corporation owned considerable real and personal property which was incumbered by two mortgages, the first affecting the real estate only, and the second covering both real and personal estate, given to secure bonds which had been issued to the amount of $900,000, out of an authorized issue of $1,000,000. The plaintiff was the owner of second mortgage bonds of the par value of $71,600. The brewing company having become financially embarrassed, ■ plaintiff’s husband with her knowledge, appealed to defendant, his uncle, to come to his relief. Defendant and plaintiff’s husband thereupon entered into an agreement whereby the defendant agreed to purchase sufficient of the second mortgage bonds to control the foreclosure thereof. These bonds the defendant promised to carry for a number of years, and to turn them over to plaintiff’s husband at any time upon payment of the cost of acquisition and interest. The second mortgage bonds contained a somewhat unusual clause whereby the holders of three-fourths thereof could modify and change the contract between the mortgagor and the bondholders to a very considerable extent, and, among other things, could determine whether or not the mortgage should be foreclosed for default in payment of interest, or could agree to a change in the rate of interest, or to a postponement of the time of payment thereof. The defendant, in addition to agreeing to purchase bonds, insisted that the plaintiff should hand over to him all the bonds she owned. There does not appear to have been any agreement between plaintiff and defendant, respecting the terms upon which the bonds were to be held by defendant. There certainly is no evidence that plaintiff either sold or gave her bonds to him. Indeed she was very reluctant to part with them at all, and only did so after the defendant had repeatedly sent peremptory messages insisting that they be handed over to him. There is evidence that the defendant caused it to be stated to plaintiff that he insisted upon possession of the bonds in order to be able to vote upon them when necessary. In view of the importance to the defendant of acquiring the control of a large block of the bonds, I am inclined to believe this evidence, and am quite convinced that in delivering her bonds to defendant, the plaintiff understood that she was merely depositing them with him in order to strengthen his position, but without any intention of transferring the title thereto to him. The scheme to preserve the brewery property, which at first contemplated only the acquisition of second mortgage bonds, finally developed so as to involve the acquisition by the defendant of the property itself. This was effected by a foreclosure of the two mortgages, and the purchase by the defendant upon the foreclosure sales of all the real and personal property of the brewery company. The plaintiff’s husband was fully cognizant of defendant’s intention of acquiring the property, and actively cooperated in the various steps taken. It does not appear that the plaintiff was advised of defendant’s intention to acquire the property, or consulted with reference thereto. At least some of the plaintiff’s bonds were used by the defendant in purchasing the property, and were turned in as part of the purchase price. It is quite clear to me that the plaintiff never parted with the ownership of the bonds, and that in delivering them to the defendant she did so merely in order to put him in a position whereby he could prevent or control the foreclosure of the second mortgage, and this I am convinced was the defendant’s understanding of the transaction. In holding her bonds and dealing with them, he bore to her a fiduciary relation. She undoubtedly retained the right to the bonds or their value. If the sale of the property had not intervened the plaintiff might have obtained full relief in an action at law. That is however impossible under existing conditions, and the conditions which render it impossible are of the defendant’s own creating. He has by his own act transferred his ownership of the bonds into an ownership of the property itself. The mortgage which secured the bonds has been foreclosed and wiped out, and the bonds, as bonds have become valueless. To award the bonds to the plaintiff would be to give her so many pieces of blank paper. Having thus rendered it impossible that the plaintiff should obtain specific relief, the defendant must in some way account to her for the property which she intrusted to him. The defendant acquired the property through his control of the second mortgage bonds which he held, some of which had become his by purchase, and some of which had been intrusted to him by plaintiff. She is I think entitled to share with him in the property acquired, in part, by the use of her bonds, and her interest therein should be in the proportion which her bonds, bear to the whole number of second mortgage bonds owned by the defendant. The second mortgage was a subordinate lien to the prior mortgage which covered the real estate only. What the plaintiff is entitled to share in is the value of the brewery property less the amount of the first mortgage lien. This amount is to be measured not by the sum which defendant bid for the property at the sale under foreclosure of the first mortgage, but by the amount for which the property was directed to be sold by the judgment of foreclosure. The practical effect of the foreclosure of the second mortgage was to vest the defendant with title to the property itself, in place and stead of his ownership of the bonds. The value of the próperty in which the plaintiff is entitled to share is therefore the value of the brewery property as it was on the date of the sale under the second mortgage, less the amount of the judgment on the foreclosure of the first mortgage with interest to the date of the second sale. Of this value the plaintiff is entitled to recover from defendant that proportion which $71,600 bears to the whole number of second mortgage bonds owned, held or controlled by him at the date of the sale, with interest, and for the sum so found to be due the plaintiff is entitled to a lien upon the brewery property. An interlocutory judgment may therefore be entered declaring the plaintiff’s rights or interest in the property, and directing a reference to ascertain the number of second mortgage bonds, held, owned, or controlled by defendant at the date of the second sale, exclusive of plaintiff’s bonds; the amount adjudged to be due upon the foreclosure of the first mortgage; and the value of the brewery property on the date of the sale under the second mortgage.

Decision and judgment to be settled on notice.

Judgment accordingly.