Case ID: abb-pr_10/html/0296-01.html
Source: Caselaw Access Project
Author: {"author": "Leonard, J.—(After stating the facts.)", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

COE a. BECKWITH.
    
      Supreme Court, First District ;
    
    
      Special Term, April, 1860.
    Railway Mortgages.—Powers of Trustees.—Pleading.—
    Parties.
    The powers and duties of trustees under railway mortgages.
    Requisites of a complaint in an action by a trustee respecting the trust-fund arising under a railway mortgage.
    Neither the railway company which executed the mortgage, nor the depositary who holds the fund to the credit of the trustee, nor the sheriff who has served an attachment on the fund in a suit against the railway company, are necessary parties to an action brought by the trustee for the purpose of obtaining instructions as to the application of the fund to the bondholder’s claims.
    The fact that certain parties in interest are numerous and unknown, is a sufficient excuse for not joining them as defendants.
    It is not within the office of a demurrer to state objections not apparent upon the face of the complaint,—e. g., to name parties who should have been joined;—and no conclusion is to be drawn from such statements, adverse to the plaintiff.
    Demurrer to complaint.
    The plaintiff alleged that he was a trustee under a trust-deed from the Cleveland, Zanesville, and Cincinnati Railroad Company, conveying the track, equipments, tolls, and income of the road to secure the holders of the first mortgage-bonds of the road, amounting to $500,000, and was authorized thereby to take possession of the road and equipments, carry it on, and apply the proceeds to the payment of the bondholders, after deducting expenses, in case the company made default in paying the coupons, &c., as they became due, for the period of sixty days after demand by the bondholders.
    
      That none of the coupons had been paid by the company since 1856.
    That the plaintiff under the trust-deed, took possession of the tolls, and income, and the same were deposited in the United States Trust Company to the credit of “ George S. Coe, trustee.”
    The complaint set forth a letter to the Trust Company, from the president of the Railroad Company, dated February 19, 1858, informing the Trust Company that all funds thereafter remitted by the Railroad Company, “ are to be deposited to the credit of George S. Coe, trustee of our first mortgage-bonds, for the purpose of paying the coupons on our bonds secured thereby.” The Railroad Company had previously deposited funds in the Trust Company, since the Railroad Company had ceased paying coupons at maturity, to the credit of the plaintiff as trustee, and Beckwith had been paid some $453 on coupons then overdue.
    The complaint stated that various sums have since been deposited in the Trust Company to the credit of “ George S. Coe, trustee,” which the plaintiff took possession of under the said deed, and were intended to meet those coupons of the Railroad Company on these bonds, due in 1856.
    That an attachment had been granted by this court in an action brought by Beckwith against the Railroad Company on coupons of the first mortgage-bonds due in 1856,1857, 1858, and 1859, amounting to $9520, directed to the sheriff of this city, who had served it on the Trust Company and on the plaintiff, accompanied by a special notice that Beckwith claimed that the attachment covered funds mentioned in the letter of 19th February, 1858.
    That Beckwith claimed to hold the funds now on deposit in the Trust Company to the credit of the plaintiff as above stated, by virtue of that attachment.
    That the holders of the coupons were numerous, and unknown to the plaintiff, and it is impracticable to make all the holders thereof parties to this action.
    Four parties who are holders of a large amount of these coupons, were made defendants, and they have made demand on the plaintiff for payment out of the funds so deposited to his credit in the Trust Company.
    The plaintiff alleges that he apprehends that he will be involved in some personal liability if he should pay the one or the other of these claimants, and he demands the instruction of the court, as to who is entitled to the funds standing to his credit as trustee, in the manner above mentioned.
    To this complaint the defendant Beckwith demurred on grounds which appear in the opinion of the court.
    
      Frederick A. Lane, for the plaintiff.
    I. This court has jurisdiction of the person of the defendant Beckwith. 1. This court has succeeded to the power and jurisdiction of the Court of Chancery. (Myers a. Rasbuck, 4 How. Pr. R., 83 ; Sess. Laws, 1847.) 2. The Court of Chancery had jurisdiction whenever the parties or subject, or such portion of the subject, were within the jurisdiction, that an effectual decree could be made and enforced so as to do justice between the parties. (Hurd a. Arredondo, Hopk., 213.) 3. It is not necessary that the defendant should be a resident of this State in order to subject him to the jurisdiction of the court. All the cases show that it is only essential to acquire jurisdiction of their persons, and this can be accomplished by service of process on them. (Mussina a. Belden, 6 Abbotts’ Pr. R., 165.) 4. The interest of the plaintiff is to have the moneys mentioned in the complaint divided up equally among the coupon-holders. Beckwith claims an interest adverse to the plaintiff. The question involved is, who is entitled to the money in the United States Trust Company, and Beckwith is a necessary party, to the complete determination of that question. (Code, § 118 ; Hallett a. Righters, 13 How. Pr. R, 43.)
    II. This court has jurisdiction of the subject-matter of this action. The subject-matter is the proper disposal of certain moneys in the United States Trust Company in the city of Hew York, and, whether the same are held under and controlled by the provisions of the trust-deed recited in the 'bill of complaint. (Mead a. Merritt, 2 Paige, 402 ; Messina a. Belden, 6 Abbotts' Pr. R., 165; Newton a. Bronson, 3 Kern., 587; Massie a. Watts, 6 Cranch, 148 ; McDowell a. Reed, 3 Louis. R., 391.)
    III. The Cleveland, Zanesville, and Cincinnati Railroad Company ought not to have been made parties to this action. They had no interest in it. The deed of trust authorized Coe, the plaintiff, to take the income, or any part of it, and he did take it with the knowledge and assent of the bondholders, and more especially of defendant Beckwith, who accepted a ohecle under the arrangement for his coupons due April and October, 1855. 1. Eeither the United States Trust Company nor John Kelly, sheriff, ought to be joined as parties, as they have no interest in the subject-matter of the action or in the controversy:— the judge who issued the warrant, or the attorney of record might as well be made parties. 2. It was not necessary to make Vose, Livingston, and Perkins defendants in the suit; there is nothing to show that they are coupon or bond holders. It was not necessary to make any other parties to the bill, except such as made a demand with plaintiff to have the money paid to them. (Pierce's Am. Railway Law, 526, 527.)
    IV. The complaint states facts sufficient to constitute a cause of action. 1. The complaint shows that the plaintiff was a trustee, and trustees are always entitled to come into court to get direction as to the administration of their trust. (Hill on Trustees., 543, and cases cited in notes; Dimmock a. Bixby, 20 Pick., 368, résumé of English cases.) Where trustees are acting under the direction and protection of a court of equity, they may file a bill for those purposes against the persons interested in the trust-property. (Mitford's Eq. Pleading by Jeremy (1334), Am. ed., 155-6 ; Fuldan a. Fuldan, 1 Sunius & Stuart, 255 ; 2 Story Eq. Jur., 518, n. 3.) 2. The mortgage or deed of trust gives the complainant the power to take possession, on default in payment of interest, of the premises mortgaged, or any part thereof. “ The tolls, rents, or income,” were a part of the premises conveyed to him, and he was by the deed bound to apply it “ to the payment of the principal and interest of all of said bonds remaining unpaid.” The defendant Beckwith, by special instructions, aims at this particular fund, and seeks to have it used to pay his coupons alone. The principles of law applicable to the trusts contained in these railroad mortgages are not yet entirely settled, and are new in many important particulars. In order, therefore, to guard against any.difficulty, the trustee makes his request to the court for instructions.
    
      F. E. Mather, for the demurrant.
    The complaint does not state facts sufficient to constitute a cause of action.—I. If plaintiff has any standing in court, it must be as trustee under and by virtue of the deed mentioned in the complaint. 1. That deed does not make him a trustee, but rather under certain specified contingencies confers a power in the nature of a trust. 2. That power, as specified, is inequitable, illegal, and void.
    II. If the plaintiff is thus made a trustee, he is not thereby entitled to the possession of any of the property mentioned in the deed. Before plaintiff could take possession, several contingencies must have happened, viz.: interest on the bonds must have become due and payable. Payment thereof must have been demanded from the Bailroad Company. At least sixty days mnst have elapsed thereafter, and then, such interest being still unpaid, some bondholder who made such demand must have requested plaintiff to take possession.
    III. There is no statement of facts showing in plaintiff a right to the possession of any thing.
    IV. If any such right is shown, it relates solely to such possession, and for such use and purposes as the deed declares, viz.: possession of said premises (i. e., said road and running stock), “and as the attorney in fact, or agent of” said Bailroad Company, to “ have, use, and employ the same, making from time to time all needful repairs, alterations, and additions thereto, and after deducting the expenses of such use, repairs, alterations, and additions,” &c. Bio such possession is shown, but the possession is shown to remain in the Bailroad Company.
    V. It is not sufficiently stated that there are any deposits in the Trust Company to the credit of plaintiff.
    VI. If it is so shown that there are such deposits, it is not sufficiently shown that they are to his credit as trustee under the deed. 1. Such deposits were made by the Bailroad Company without plaintiff’s interposition—and, in fact, without his knowledge thereof until after the attachment was served. 2., They were not deposits to his credit as trustee for any purpose under the deed. 3. The word “ trustee,” as used in this respect in the letter of February 19, 1858, merely designates the person. 4. If it does more, there is nothing to show that the company ever authorized it. 5. If the letter gives any character to those deposits, then, by reference to the deed, they are placed to the credit of plaintiff, as the attorney in fact, or agent of the depositors and Bailroad Company. 6. Being so deposited, and the purpose (whether real or pretended) mentioned in the letter not being accomplished or begun, the deposits are not beyond the reach of the attachment. 7. The deposits are a cover to hinder, delay, and defraud creditors.
    VII. In case plaintiff has any color of character as trustee under the deed, no sufficient ground is shown for the interposition of this court. 1. If in respect to the deposits, plaintiff should be admitted to be credited as trustee, yet no sufficient claim upon him is shown to warrant this action. 2. If the service of the attachment should be admitted to be a claim, yet it amounts to nothing unless followed up to judgment, and further prosecution by a new action against plaintiff. 3. In such new action, if commenced, all the rights, interests, and liabilities of plaintiff could be better determined than in this, and in such action at law he would have a plain, adequate, and complete remedy.
    VIII. Ho such actions are favored for the reason (among others) that they tend to destroy rights which creditors may gain by legal diligence.
    IX. If the action can be sustained, yet not as now framed, without others being made parties. The rights of all the parties in interest cannot be determined, unless others are joined. Such are the persons, all or some of them, named in this respect in the demurrer.
   Leonard, J.—(After stating the facts.)

The defendant, as one of his grounds of demurrer, insists that the complaint does not state facts sufficient to constitute a cause of action.

It is necessary then to ascertain whether the plaintiff has any title to these funds as a trustee. If he has such title, he is entitled to apply to this court for instructions as to his conduct in relation to the trust, when questions of difficulty arise, and in that event also, the defendant will have acquired no lien upon the funds in question, by virtue of his attachment.

In my opinion, the complaint fails to make title in the plaintiff to the funds in question by virtue of the trust-deed.

In order to derive title under this deed, it is necessary that the plaintiff take possession of the railroad and run it, whereby he would be entitled to the tolls and income, and, after paying expenses, could divide them among the bondholders. The complaint does not, however, allege that the plaintiff has taken possession of the road, or run it. The funds have been deposited to his credit in the Trust Company as trustee, but he' did not acquire them in any manner by virtue of any power or authority under the trust-deed. The complaint does not show that any one was under any legal liability to deposit those funds to the credit of the plaintiff, any more than to the credit of another person. The position which he held, rendered him a very proper person to be chosen for the purpose of receiving and paying out the funds; but there is nothing to show his right to compel any person to account to him for the earnings of the road. The plaintiff could acquire that right under the deed, only by taking possession of the railroad.

True, the complaint alleges that he has taken possession of the tolls and income—but how did he do it ? That has not been disclosed.

The money in question may have been taken possession of by being deposited to the plaintiff’s credit, and that is all that this allegation (from the other facts stated) can mean in this case.

The allegation that the plaintiff took possession of this money by virtue of the deed, is merely a mental deduction or conclusion, without any facts stated upon which any one else can arrive at the same result.

It is stated in the complaint, that an officer of the Bailroad Company visited the East, after the company were in default for the non-payment of coupons, for the purpose of making an arrangement with the bondholders; but it is not alleged that any arrangement was in fact effected, or that any change was made in the trust, or in the manner of securing the payment of the bonds or coupons, or any thing from which the plaintiff derives title to the funds in question.

The plaintiff must stand, as far as this complaint is concerned, upon the appropriation made by the letter of February 19, 1858, and the actual deposit made in pursuance thereof. The complaint does not state, expressly, that the Bailroad Company deposited the funds in question, but from the whole tenor, it is fairly to be inferred. If not deposited by the Bail-road Company, then none of the defendants have any interest therein.

The allegation is, that there has been deposited various sums in the Trust Company to the credit of George S. Coe, trustee; but who made the deposits, or from what source derived, is not , definitely stated.

It is there alleged that the plaintiff took possession of them under the trust-deed. That he took possession is probable ; but that he did so under the deed is impossible from the evidence of any fact alleged. The complaint then alleges that the funds so deposited were intended to meet the coupons which fell due in 1856. This latter averment is pregnant with meaning, and is probably the saving fact in the complaint. I am of opinion that the allegations of the purpose for which the deposits were made, of the taking possession thereof by the plaintiff; of the letter of February 19, 1858, apprising the Trust Company of the account and purpose for which the future deposits of the Railroad Company were to be made,—constitute an appropriation of the funds; and that the plaintiff was invested thereby with the title thereto, as trustee for the holders of the coupons, who had an immediate right therein, and would enforce a pro-rata division thereof on demand, and was not invested therewith as agent only for the Railroad Company. The Railroad Company cannot control or reclaim the deposit. As to them, the deposits are appropriated. The Trust Company would be liable to the plaintiff in a suit on behalf of the holders of the coupons, if they should suffer these deposits to be withdrawn on the authority of the Railroad Company alone.

The objection of the want of authority in the officers of the Railroad Company to make these deposits in the manner they did, is not tenable, inasmuch as if deposited without authority, the act would constitute a breach of trust. It does not appear that the officers had not the authority.

Courts never assume a breach of trust to have been committed. Authority to make the deposit must be presumed.

The objection for the want of proper parties is not, I think, well taken:

1. The Railroad Company have fully parted with all title to the money, and have dedicated it to the holders of the coupons.

2. The plaintiff’s check will afford a good discharge to the Trust Company, and the coupons which he retires he will then • hold as the trustee or agent of the Railroad Company. Therefore, neither the Trust nor Bailroad Companies are necessary. parties.

3. The sheriff has no interest at present. The fund is not in his possession or control.

4. The plaintiff’s excuse for not joining all the holders of coupons, is well recognized and sufficient, viz., that they are numerous and unknown.

The demurrer is irregular, in naming others who are holders of such coupons, who have not been joined as defendants. It assumes the functions of a plea in abatement. No conclusion is to be drawn therefrom adverse to the plaintiff, as such statements are not. within the office of a demurrer.

The defendant Beckwith is one of the same class of coupon- . holders as the other defendants, and entitled to participate with themyw rata only, and it would be wholly unjust and inequitable for him to obtain the whole fund, or more than his share, by a common-law action upon his coupons. At least it so appears from the allegations of the complaint.

Judgment must be for the plaintiff on the demurrer, with leave to the defendant to answer the complaint in twenty days. The costs of the demurrer are to abide the event of the action. •