Case ID: nys_3/html/0165-01.html
Source: Caselaw Access Project
Author: {"author": "Landon, J. Learned, P. J., (dissenting.)", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Janes v. Fitchburg R. Co.
    
      (Supreme Court, General Term, Third Department.
    
    November 20, 1888.)
    Railroad Companies—Consolidation—Prior Liabilities—Mortgages.
    Under Laws N. Y. 1809, c. 917, § 5, authorizing the consolidation of railroad companies, and providing that all debts and liabilities of either company, except mortgages, shall attach to the new corporation, and be enforced against it and its property as if created by it, an action will not lie against the new company on interest coupons of the bonds of one of the old companies, if they are secured by a mortgage on the property of the original debtor. Learned, P. J., dissenting.
    Appeal from special term, Rensselaer county.
    Action by Samuel B. Janes against the Fitchburg Railroad Company upon certain coupons for interest on bonds executed by the Troy & Boston Railroad Company, which had been consolidated with the Fitchburg Railroad Company under the name of the latter. Judgment for plaintiff, and defendant appeals.
    Argued before Learned, P. J., and Landon and Ingalls, JJ.
    
      E. Cowen, for appellant. John B. Gale, for respondent.
   Landon, J.

The plaintiff had a recovery against the defendant upon certain past-due interest coupons of the bonds of the Troy & Boston Railroad Company. The payment of the bonds and coupons is secured by a mortgage given by the company in 1874 to trustees upon the real estate and property of the Troy & Boston Railroad Company. The principal of the bonds falls due in 1924. The mortgage contains no covenant to pay the bonds or post-foreclosure deficiency. The defendant is a new corporation, formed by the consolidation in June, 1887, of the Troy & Boston Railroad Company and the former Fitchburg Railroad Company, made by an agreement under and in pursuance of chapter 917, Laws 1869. The liability of the defendant, the new corporation, upon these past-due coupons, if any, exists by virtue of the terms of the aforesaid act of consolidation. The act provides for the consolidation of two or more railroads, coming within the terms of the statute, by organizing a new corporation, to which all the property and franchises of the roads joining in the consolidation are to be transferred. It is manifestly the purpose of the act to place the new company completely in the shoes of the constituent companies with respect to their property and franchises, and also with respect to their debts and liabilities, except as provided in the fourth and fifth sections of the act. By section 4 all real estate, personal property, rights, franchises, privileges, and exemptions of the old companies become vested in the new. Section 5 provides: “The rights of all creditors of and all liens upon the property of either of said corporations, parties to said agreement and act, shall be preserved unimpaired, and the respective corporatiohs shall be deemed to continue in existence to preserve the same, and all debts and liabilities incurred by either of said corporations, except mortgages, shall thenceforth attach to such new corporation, and be enforced against it and its property to the same extent as if said debts or liabilities had been incurred or contracted by it.”

The question presented by this appeal is: Do the words “ except mortgages” exempt the new company from present liability upon the past-due coupons in suit? The contention of the plaintiff is that the coupons are not mortgages; that the bonds are not mortgages; that the present action does not seek to make the defendant answerable upon the mortgage liability of the Troy & Boston Railroad Company, but does seek to make it answerable upon a liability of that company which exists by virtue of its promise to pay, and for which the mortgage is only collateral, and possibly inadequate, security. This view prevailed in the court below. We should be inclined to adopt it, if by .any fair construction of the exception we could attach it to anything else than to the debts and liabilities of the constituent company secured by mortgage. But if the term “mortgages,” in the connection in wliich it is used, does not mean the debts secured by their very terms, what else does it mean ? We are to look for the legislative intent. We know that the draughtsmen of legislative bills are sometimes incompetent"or careless, and do not always use words with technical precision. We must therefore try to discover what is the meaning intended to be conveyed by the words employed, so that the act shall accomplish its manifest purpose, instead of defeating it. We know well enough that in ordinary language the term “mortgage” is commonly used to signify the debt it secures. We think that is what it means here; that such was the meaning intended by the legislature; and that every other suggested meaning is artificial and unnatural. The new company, by the terms of the act, is liable for “all debts and liabilities incurred by either of said corporations, except mortgages. ” In the legislative mind mortgages were either debts or liabilities. The exception is made out of the class previously mentioned. We can argue that mortgages are neither debts nor liabilities, and are made, not incurred; but it is clear that the legislature did not pause over technical distinctions, nor search for technical accuracy. They used language of very common use in the sense of its common acceptation. Debts and liabilities secured by mortgage are usually regarded as already protected. We can suppose this to have been the reason for the exception. A case may arise—the present may be such a case—in which the mortgage security is inadequate. If so, we can conceive that it either is unprovided for or that the justice of making a third party, succeeding to the over-incumbered property, liable for such debts of the insolvent constituent, was denied; or that to the extent that the mortgaged property fails to pay the mortgage debt, to that extent, where the fact appears, the debt is not secured, and therefore not within the excep-■ tion of the statute, and hence the liability of the new company exists, but meanwhile is undeterminable. However this may be, we are to interpret the statute as we find, it, giving full effect to its words in the sense which the legislature, as we can gather it from the act itself, employed them. The judgment is reversed, and a new trial granted, costs to abide the event.

Ingalls, J., concurs.

Learned, P. J., (dissenting.)

Section 3 of the consolidated act says that on perfecting and filing the agreement “the said corporation parties thereto shall be deemed and taken to be one corporation, by the name provided in agreement and act, but said act of consolidation shall not release said newr corporation from any of the restrictions, disabilities, or duties of the several corporations so consolidated.” We see, then, that the consolidation is not a sale by one corporation to another; but it is an act by which the two become one, and the duties of the two now become the duties of the one. In section 5 the second clause provides that no suit, etc., pending, in which either of the corporations shall be a party, shall be abated, but the new corporation may on motion be substituted as a party. If, then, at the time of consolidation an action at law had been pending against the Troy & Boston Railroad Company on past-due coupons, the present defendant might, after consolidation, have been substituted as a party. This clause seems to show, as does section 3, that the duty of paying its debts, which, before the consolidation, rested on either corporation, now rests on the new; and that such new corporation may be substituted as a party to an action to enforce such duty. Section 4 strips the two consolidating corporations of all their property, and transfers it all to the new corporation. Hot only all existing property and franchises, but all future ability to earn anything, is taken from the old corporation, and given to the new. A mere creditor of one of the old corporations can no longer collect anything from it. It seems to me that it would be quite doubtful whether this could be legally done if the statute did not continue to the creditor against the consolidated corporation the same rights which he had had against either of the old corporations; and as the property formerly belonging to each of the two corporations can to a great extent be no longer kept distinct, but has become blended in one ownership, the new owner is made directly liable for the debts of each of the old corporations. It would seem that this result would almost necessarily follow from the whole structure and provisions of the statute, and from the nature of the two bodies which maybe consolidated under it. But to make this beyond doubt, section 5 provides: “The rights of all creditors * * * of either of said corporations * * * shall be preserved unimpaired. ” How, can the rights of a creditor be said to be unimpaired if there is no longer any person who may be sued in an action at law to recover the debt, and no longer any property, or possibility of future property, subject to execution therefor? Before this consolidation the present plaintiff might have sued on these coupons when payable, and, on recovering judgment, he might have enforced it on any property he could find (other than that mortgaged.) If it be said that everything tangible was mortgaged, he might perhaps have reached debts due the corporation, or he might have had the remedies provided by section 1784 of the Code. But now the defendant insists he can have none of these.

The defendant admits that if the plaintiff were a mere creditor all these rights would remain to him against the consolidated corporation. But it urges that, inasmuch as there is a mortgage given to cover the plaintiff’s debt, his right to sue on the bond and coupons is cut off by the consolidation; and it matters not, on the argument of the defendant, whether the mortgage is practically any security or not. It may be utterly valueless to the plaintiff, but it is very valuable as a protection to the defendant. This view rests on the following clause in the fifth section: “All debts and liabilities incurred by either of said corporations, except mortgages, shall henceforth attach to such new corporation, and be enforced against it and its property to the same extent as if said debts and liabilities had been incurred or contracted by it.” Now, it will be seen, as above stated, that if the defendant’s construction of this clause is correct it can be of no consequence whether the mortgage is valuable or not. The defendant says that the phrase “except mortgages” takes out from defendant’s liability all debts to which mortgages are collateral. I cannot construe those words to mean “except that where a debt is secured by a mortgage the corporation shall be liable only for a deficiency. ” That might be a good law, but there is no such thing in the statute. If the words “except mortgages” relieve the defendant from liability, they must do so without any consideration whether the mortgage was a sufficient security for the debt or not. Now, in view of what has been already said in reference to the first clause of this section, and a part of the third section, the defendant’s construction should not be adopted, if any other can be found. These railroad mortgages often have (this one has) a clause for embracing within their lien all after-acquired property. Now, there is made a consolidation of two railroads. Are the mortgages which had been executed by each to be extended, by virtue of such clauses contained in them, so as to embrace the property newly acquired by the consolidation? That is, is the mortgage of the Troy & Boston Railroad Company to extend over the property of the old Fitchburgh Railroad Company, “in the same manner as if it had belonged to” the Troy & Boston Railroad originally? Possibly, to guard against such a construction, “mortgages” were excepted from “all debts and liabilities.” This clause in the mortgage, this agreement for further assurance, might be a liability on which a question might arise. Hence it may be the exception. But, whether that is the intention or not, we ought not to give these two words a meaning at variance with other provisions of the statute, contrary to sound principle, and unjust to creditors. It is plain that strictly a mortgage is not a debt; and it is equally plain that in ordinary language the word is often used to include the debt to which a mortgage is collateral. I think, in construing the phrase here we should rather consider the general scope of the act, and the rights of the creditors of the old corporation. It would seem strange that the legislature should intend to give to a mere creditor an advantage over one who held a worthless fifth mortgage, or that they should intend to deprive one who had sold land to one of the consolidated companies of his right to sue at law for the purchase price, if such price was secured by a mortgage.

But it is argued by defendant that if one corporation were largely indebted on its mortgages, and the other but little, it would be unjust that the bondholders of the former should collect their debts out of property of the new corporation, which had largely belonged to the latter. But that same injustice (if it be such) would exist if the one corporation were largely indebted on debts not secured by mortgage, and the other but little indebted. The truth is that the condition of the two is in every case known and provided for in the consolidated agreement. It is urged by the defendant that it is only by virtue of the clause above cited from the fifth section of the consolidation statute that this defendant is liable for debts of the old corporations; that without it all such debts would be extinguished. Ang. & A. Corp. 750. It is quite immaterial what the common law was on the civil death of a corporation. It has not been the law of this state for many years that such debts were extinguished by the civil death of the corporation. Furthermore, the consolidation statute does not contemplate the civil death of either corporation. On the contrary, it says: “The said corporations, parties thereto, [to the agreement,] shall be deemed and taken to be one corporation.” It does not destroy; it perpetuates under another name,—“thename provided in said agreement. ” Certainly the continued existence of a corporation under a new name would not change its liability for existing debts. Therefore, as I think, even without the clause above cited from the fifth section, the two corporations, which are now claimed and taken to be one, continue now, in their united condition, liable for all debts and liabilities existing at the consolidation. There has been no amendment of the charters or dissolution of the corporations. Only the two corporations are become one; and that one, by the very force of the transaction, must succeed to all the rights, and be subject to all the debts, of each. The construction which the defendant gives deprives the plaintiff of all legal remedy on his contract, except so far as it has been already secured by mortgage. If this can be done as to contracts to which a mortgage is collateral, it can be done as to other contracts; and the legislature might declare that the consolidated corporation should not be liable for any of the old debts. Thus they would deprive the party of all legal remedy. But this cannot be constitutionally done. Cooley, Const. Lim. 354. I think the judgment should be affirmed, with costs.