Case ID: ad_2/html/0545-01.html
Source: Caselaw Access Project
Author: {"author": "O’Brien, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James R. O’Beirne, on Behalf of Himself and all Other Bondholders of the Allegheny and Kinzua Railroad Company, Respondent, v. Spencer S. Bullis and Mills W. Barse, Appellants, Impleaded with Others.
    
      Specific performance—when it is refused and damages are awarded a jury trial is denied—bondholders as assignees of a contract for the purchase of land—representation implied from the giving of a mortgage—right of subrogation in the bondholders.
    
    In an action brought to procure the specific performance of a contract, or in .the alternative to recover damages for non-performance, it appeared that the contract was made between the defendants Bullís and Barse and Newcombe & Co., who bad been asked to furnish capital to complete a railroad contemplated by the parties; that, in order to obtain the necessary money, Bullís and Barse agreed that they would cause to be created a mortgage or deed of trust upon certain railway properties which it was proposed to consolidate, and also upon 30,000 acres of land, which mortgage was to be given to the Central Trust Company of New York to secure bonds. ■ Newcombe & Co. agreed that when the mortgage had been executed they would sell the bonds and use the proceeds to complete the railroad. Bullís and Barse executed a mortgage which purported to convey the property contemplated, but it subsequently appeared that the 30,000 acres of land were to a considerable extent incumbered, were in part of little value, and were in part not owned by Bullís and Barse.
    The complaint charged that the defendants were interfering with the construction company, were making unauthorized constructions, that the Central Trust Company threatened to release the lands to Bullís and Barse, and that it had-refused, although requested so to do, to enforce the contract. The complaint demanded as relief specific performance of the agreement to convey made by Bullís and Barse, or that these persons be required to pay to the Central Trust Company, for the security' of the bondholders, such a sum of money as was equivalent to the value of the land agreed to he conveyed, and it also asked an injunction against the trust company and the other defendants to prevent the acts complained of.
    The answer denied the fraud and alleged that Bullís and Barse were not required to convey until a certain number of miles of the railroad had been built, and, in its legal effect, alleged that Bullís and Barse had complied with the contract.
    Newcombe & Co. sold the bonds to various persons, in whose behalf, as well as. his own, the plaintiff sued.
    
      Held, that the action was maintainable;
    That, although the action was in equity for specific performance, and it appeared that Bullis and Barse could not perform their agreement to convey, damages for non performance might be awarded' to the plaintiff in this action, notwithstanding the fact that specific performance was refused;
    That as upon the pleadings the action was' purely equitable, the defendants were not entitled to a trial by jury;
    That the plaintiff, who also sued for himself aiid all others similarly situated who were to be regarded as assignees of a contract for the purchase of land, had the sime right to enforce the contract as his assignor, 2Tewcom.be & Co., and upon the refusal of the Central Trust Company to sue had a right to enforce any rights which the Central Trust Company had as trustee for the bondholders;"
    That when Bullis and Barse executed the mortgage in question to the Central Trust Co'mpany they thereby made a distinct representation, both to the Central Trust Company and to 2Tewcom.be So Co., that they had title to the land of such a nature that the lien provided for by the contract attached to the land to , secure the payment of the bonds;
    .That in this view a contract between the Central Trust Company and the defendants was created which the Central Trust Company was entitled to enforce and which the plaintiff might enforce in the right of the Central Trust Company.
    Appeal ¡by the defendants, Spencer S. Bullis and another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 29th day of June, 1895, upon the decision of the court rendered after a trial at the New York Special Term, and also' from the decision upon which said judgment was entered.
    
      William W Cook, Adelbert Moot and George L. Roberts, for the appellant Barse.
    
      Joseph Koch, FrcmJe Rumsey, Charles 8. Gary and- William H. Henderson, for the appellant Bullis.
    
      Frank Sullivan Smith, ■ Hamilton Odell and C. Walter Arts, for the respondent.
    ' Adrian H. Jolme, for the defendant Central Trust Company.
   O’Brien, J.:

When this case was before the General Term on a former appeal (80 Hun, 5J0), one question seems to have been presented and decided, and .that was whether or not the plaintiff could'maintain this action as an action in equity for specific performance, when it appeared on the trial that the defendants would he unable to perform the contracts on the ground that they had no title to the property Avhich they had agreed to mortgage to the trust company to secure the payment of the bonds. That question was decided in favor of the plaintiff on that appeal, and it is Unnecessary to say more upon that question than that we adopt- the opinion of the court delivered upon that appeal as a correct exposition of the law upon that question, and agree in that opinion. It was therein said-: “We take it to be too well settled to require the citation of many authorities, that in case a plaintiff in an equitable action shows that he is entitled to equitable relief which, if granted, would be unavailing because of the defendant’s inability to perform, that the damages sustained by the plaintiff may be recovered in the same action. * * * It has been held in many cases brought to compel the specific performance of contracts that damages may be awarded to the plaintiff though specific performance be refused.” And we- think this rule is expressly recognized by the late case of Haffey v. Lynch (143 N. Y. 247), where it is said: “ It is a general rule in equity that the specific performance of a contract to convey real estate Avill not be granted when the vendor, in consequence of a defect in his title, is unable to- perform. In such cases specific performance is denied because the court cannot enforce its judgment, and because also it would be oppressive to the vendor. But if the defect in the title existed at the date of the contract, or was due to some fault, or to some act of the vendor subsequent to the contract, the court' will generally entertain an action for specific performance and retain jurisdiction for the purpose of awarding damages for the breach of the contract. But where, as in this case, the defect in the title arises after the making of the contract, without any fault of the vendor, and the vendee knew of the defect in the title when he commenced his action, it Avas formerly the rule that the court Avould not retain the action for the purpose of awarding damages. ( Wiswall v. McGowan, Hoffman’s Ch. 125 ; Morss v. EImendorf, 11 Paige, 277.) This rule was adopted because the vendee should not commence a fruitless action'in equity simply to recover there his damages for a breach of contract. The rule has been modified since the Code practice, which authorizes the joinder of legal and equitable causes of action, and Avhile the equitable relief will be denied in such a case, now the action will be retained, and the issue as to the breach -of contract and damages, will be sent to a jury for trial.” '(Sternberger v. McGovern, 56 N. Y. 12.)

• After the case was called, and before any witnesses were examined, counsel for defendant said : “We would make a formal demand for trial by jury.” This motion was denied and defendants excepted. It is claimed that this was error, the insistence being that as the General Term had sent the case back to be tried as an action for damages, defendants were entitled to a trial by jury. To determine whether the motion should then have been granted, the trial judge had before him the pleadings, and his ruling was necessarily based thereon. If therefrom it had appeared that the action was one for damages only, which would be triable by a jury, there might be some ground for the motion. If the pleadings presented questions of - equitable cognizance, then the court was right in proceeding with the trial and taking the evidence with á vie'w to determining whether or not the plaintiff was entitled to equitable relief. In 'effect, the complaint alleged^that the defendants Bullís and Barse agreed to convey to the trust company a certain number of acres' of unincumbered timber land, to be included in a mortgage as security for the issue of bonds, but instead thereof, and fraudulently and as a compliance with these contracts, they assumed to mortgage-, land which was not unincumbered, but the greater part of which was subject to mortgages or other liens or incumbrances, for a large amount of which they had no title at" all; and, second, that the said, defendants were interfering with the construction company engaged, in constructing the railroad under the agreements, and that said defendants ai-e making certain unauthorized construction of lines of railroad; and, third, that the defendant trust company is threatening and is about to execute a release of lands to the defendants. Barse and Bullís, and that the plaintiff is without an adequate remedy at law to prevent the same. The relief demanded is a judgment for the immediate specific performance of the agreement to-convey, or that the defendants Bullís and Barse be required to pay to the trustee, for the security of the bondholders, such a sum of money as, the court shall' ascertain to be equivalent to the value of' the lands which the)' had agreed to convey ; and, second, an injunction against the trust company and the other defendants to prevent the other acts complained of. The answer denied the fraud, and claimed that the defendants Bullís and Barse were not required to convey the lands until such time as a certain number of miles of railroad were built and constructed.

It will thus be seen that the answer does not allege inability to comply with the contract, nor does it allege that the plaintiff has an adequate remedy at law, but it puts in issue the plaintiff’s charge of fraud, and disputes the construction of the contract as contended for by the plaintiff, and the whole defense in effect is that the defendants Bullís and Barse have fully complied- with the agreements which they enteied into. Upon these pleadings it would have been entirely competent for the plaintiff to show, if he could, that Bullís and Barse had the land which the court could compel them to convey ; and the alternative relief prayed for, which is the usual one in an action for specific ¡performance, is not a demand for damages in the ordinary sense, namely, damages which the plaintiff has suffered and which should be ascertained. Bor did the- plaintiff demand a sum in liquidation to he paid over to him by the defendants. "What he asked was, that Bullís and Barse should mortgage the lands. And inability to perform not having been set up by way of defense, it would have been entirely competent for the "defendants Bullís and Barse, upon t}le judgment going against them, to have complied with their contract by mortgaging the lands, which the court adjudged they had contracted to mortgage, by acquiring the title to the lands and mortgaging them to the trust company, and thus have relieved themselves from a judgment for the alternative relief asked for. We think, therefore, regard being had to the pleadings, that the relief demanded by the plaintiff was purely equitable, and that the refusal to comply at that stage of the case with the formal demand for a jury trial was right. And if defendants wished for a trial by jury, after it appeared that they were unable specifically to perform, they should have then made a specific demand.

The right of either the plaintiff or the trust company as trustee for the bondholders to maintain this action to enforce specifically a contract made between Bewcombe & Co. and the defendants Bullís and Barse, is questioned by appellants. The contracts were under seal. Bewcombe & Co. had been asked to furnish capital to complete the railroad contemplated by the parties. With this end in. view; and to obtain the money necessary for the completion of the railroad by the agreements of .October ¡8,. 1889/, ;and December. 9, 1889,, the defendants agreed that they would cause to be created a mortgage or a deed of trust upon the railwpiys, properties and franchises of several railroad companies, that the parties contemplated consolidating into one corporation, and- also upon 30,900 acres of land, to be duly executed to the Central Trust Company of New. York, as trustee, for the purpose of' seeming mortgage bonds to an amount specified. Upon the mortgage being executed, thus becoming a lien upon the said, railroad property and franchises, and upon the said 30,000 acres of land, Newcombe & Co. undertook to sell at par a certain number of the said bonds and to use the proceeds thereof for the purpose of completing the railroad which was to be built. As a compliance with this contract, the defendants' Bullís and Barse executed a mortgage to the Central Trust Company, which purported t.o comply with the 'contract by creating a lien upon the railroad properties and franchises, and upon the said 30,000-acres of land. It subsequently appeared that of the 30,000 acres of land which the mortgage purported to convey to. the trust company to secure the payment of the bonds, the defendants had no title to a large portion thereof, and another part' was valueless and did not comply with the contracts,, as all the timber upon it had been removed, and substantially all of the remainder was covered by other , liens and incumbrances.

When this conveyance was made to the trust company, if Nexv- ' combe •& Co-, had' themselves purchased and held the bonds and advanced the money required by the contracts to be advanced ’by-them from the proceeds of the bonds, the trust company would have been trustee for Newcombe & Co., and it is clear that Nexvcombe & Co.;, or the trust company as trustee of the express trust, could have maintained an action-for the specific performance" of the contract made by the defendants to convey this land to the trust", compony to secure the payment of the bonds. Newcombe & Co. ■ having transferred the bonds to bona fide holders for value, such bona fide holders would have been subrogated to the rights of New- ■ combe & Co. to' enforce this contract, and the trust company -as trustee for such bondholders would have been- entitled to- commence an action to compel the specific performance of the contract made by the defendants with Newcombe & Co. for the benefit of the bondholders.

Whether that cause of action would have vested exclusively in the trust company, or whether the bondholders would have been entitled to maintain such an .action as those who had become subrogated to Newcombe & Co.’s right of action to have the contracts specifically enforced, is not important, as the plaintiff sues on behalf of himself and all other bondholders, and he could enforce any rights existing in the bondholders or in the trust company as trustee for them. It is settled that an assignee of a contract for- the purchase of lands has the same rights to enforce the contract as his assignor. (See 22 Am. & Eng. Eiicy. of Law, 936,- and cases cited.) And the purchaser of these bonds would be considered in equity as the assignee of Newcombe & Co.’s interest in their contract with the defendants whereby the defendants agreed to convey to the trust company the said 30,000 acres of land as security for the payment of the bonds. It is also clear that the execution of the mortgage by the defendants as a compliance with this contract, whereby they purported to convey to the trust company 30,000 acres of land to secure the payment of the bonds, was a distinct representation both to the trust company and to Newcombe & Co. that they had such a title to the land that the lieu provided for by the agreements attached to such land to secure the payment of the bonds. Thus, a contract between the trust-company and the defendants was created, which the trust company was entitled to enforce.

,We think it clear, therefore, that the plaintiff, suing on behalf of himself and all other holders of the bonds issued under the mortgage given in pursuance of the contracts between Newcombe & Co. and the defendants, and having alleged a request to the trust company to enforce this contract, which was refused, was entitled to maintain whatever action either Newcombe & Co. had to enforce the contracts, or the trust company; as trustee for him and the other bondholders, had to enforce the covenants of the defendants contained in the mortgage which purported to comply with the contracts to convey the lands so that the same should be held subject to a lien to secure the payment of the bonds.

A careful examination of the testimony has satisfied us that the findings of fact by .the court below were amply sustained by the evidence, and we are clearly oE the opinion that upon those findings the plaintiff was entitled to, the relief granted to, him by the judgment. ■

The judgment should, therefore, be affirmed, with costs.

Van Brunt, P. J., Rumsey and Ingraham, JJ., concurred.

Judgment affirmed, with costs.