Case Name: MEDINA GAS & ELECTRIC LIGHT CO. v. BUFFALO LOAN, TRUST & SAFE DEPOSIT CO.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1907-05-24
Citations: 104 N.Y.S. 625
Docket Number: 
Parties: MEDINA GAS & ELECTRIC LIGHT CO. v. BUFFALO LOAN, TRUST & SAFE DEPOSIT CO.
Judges: 
Reporter: West's New York Supplement
Volume: 104
Pages: 625–637

Head Matter:
(119 App. Div. 245)
MEDINA GAS & ELECTRIC LIGHT CO. v. BUFFALO LOAN, TRUST & SAFE DEPOSIT CO.
(Supreme Court, Appellate Division, First Department.
May 24, 1907.)
1. Trover and Conversion—What Constitutes.
Plaintiff corporation executed to defendant, as trustee, a mortgage to secure the payment of certain bonds, depositing the bonds with defendant. Subsequently one of the officers of plaintiff, who owned practically the entire stock of the corporation, agreed with defendant that the bonds in its possession should be pledged to it for his individual indebtedness. Held, that the subsequent delivery of the bonds by defendant to another constituted a conversion by defendant of the bonds.'
[Ed. Note.—For cases in point, see Cent. Dig. vol. 47, Trover and Conversion, §§ 84, 86.]
2. Mortgages—Property Covered—Subsequently Acquired Property.
Plaintiff corporation executed to defendant, as trustee, a mortgage to secure the payment of certain bonds. Thereafter one of the officers of plaintiff, who was practically the owner of the entire stock of the corporation, agreed with defendant that the bonds should be pledged as security for his personal indebtedness to defendant. Defendant thereafter converted the bonds by delivering them to another for a consideration. The mortgage conveyed all the particularly described property of the plaintiff, and also all and singular all the other real estate, “whether the same have been or may be hereafter acquired” by the mortgagor, or “may thereafter be acquired by it,” and all other property, real, personal, or mixed, which may have been acquired or may thereafter be acquired, etc. Held, that the legal lien created by the mortgage did not cover, so as to convey the same to the purchaser at foreclosure sale, the right of action for the conversion of the bonds, though the mortgagee might have an equitable lien on after-acquired property, which he could enforce by action or by taking possession of the property.
8. Chattel Mortgages—After-Acquired Property.
At law the right of a mortgagee to have subjected to the lien of his mortgage chattels which shall be acquired by the mortgagor subsequent to the execution of the mortgage depends upon the mortgagee taking possession of the after-acquired property.
[Ed. Note.—For cases in point, see Cent. Dig. vol. 9, Chattel Mortgages, §§ 208, 209.]
Laughlin and Scott JJ., dissenting.
Appeal from Trial Term, New York County.
Action by the Medina Gas & Electric Light Company against the Buffalo Loan, Trust & Safe Deposit Company. Judgment for plaintiff, and defendant appeals.
Affirmed.
Argued before PATTERSON, P. J., and INGRAHAM, LAUGH-LIN, CLARKE, and SCOTT, JJ.
Edward W. Hatch, for appellant.
Louis Marshall, for respondent.

Opinion:
INGRAHAM, J.
This action, which was commenced on the 14th day of September, 1895, was to recover from the defendant for the conversion of certain bonds by the defendant. The plaintiff made and executed to the defendant, as trustee, a mortgage to secure the payment of 10 bonds of $1,000 each. After this mortgage was executed and recorded, the 10 bonds were, on the 21st day of September, 1886, in the possession of the defendant. On that day one Stranahan, sec retary of the mortgagor and the owner of the most of its capital stock, agreed with the defendant that the 10 bonds then in its possession should be pledged as security for his indebtedness to defendant, and the' defendant thereupon retained possession of said bonds until on or about the 27th day of December, 1890, when it converted the same by delivering the bonds to the German American Bank of Buffalo, in consideration- of the sum of $14,650 paid by the German American Bank to the defendant, and the said bank thereupon became the bona fide owner and holder of said bonds for value before maturity. On the 26th day of August, 1895, the plaintiff demanded of the defendant the said bonds and the coupons thereto attached, or payment to it of the amount due upon the said bonds, and the defendant has -refused to comply with the said demand. On the 4th day of February, 1893, the defendant, at the request of the German American Bank, brought an action to foreclose the mortgage. Judgment was finally entered in that action, foreclosing the mortgage and directing a sale of the mortgaged property, which property was sold by the sheriff and a conveyance of the property sold duly executed and delivered to the purchaser.
I agree with Mr. Justice SCOTT that there was no conversion of these 10 bonds and no cause of action existed in favor of the creditor until the transfer of the bonds by the defendant to the German American Bank. Prior to that time the bonds thus in the possession of the defendant had no validity and imposed no obligation upon the obligors. No cause of action existed to enforce the bonds or the mortgage to secure them, as the bonds were not valid and existing obligations of the mortgagor. The agreement between the defendant and Stranahan was not binding on the mortgagor, and created no lien on the bonds, and gave to the defendant no right to retain them. Consequently nothing that the defendant did gave validity to the bonds, or imposed any liability at all upon the mortgagor, or gave the creditor any cause of action against the defendant. The subsequent delivery of the bonds by the defendant to the German American Bank was, however, a conversion by the defendant of the bonds, as by that delivery to the bank the latter became the bona fide holder for value of the bonds and entitled to enforce them against the mortgagor. This was settled by the Court of Appeals on appeal from a judgment in the action to foreclose the mortgage. 162 N. Y. 67, 56 N. E. 505. Upon the delivery of these bonds by the defendant to the bank, therefore, a cause of action arose in favor of the mortgagor, to whose rights the plaintiff has succeeded, for a conversion of the bonds by the defendant ; and, as this action was commenced within six years after this act of the defendant which was a conversion of the bonds, -it is not barred by the statute of limitations.
The remaining question is whether this cause of action, which thus arose on the 27th day of December, 1890, was included in the property transferred to the defendant as trustee for the benefit of the bondholders, and whether the subsequent sale under the judgment foreclosing the mortgage vested the title to this cause of action in the purchaser, and the plaintiff was thereby divested of such cause of. action. The mortgage was dated September 15, 1886, and recited the execution of ten 6 per cent, bonds, and to secure the payment of the said bonds, "granted, bargained, sold, aliened, remised, released, conveyed, and confirmed" unto the defendant, as trustee, certain real estate in the village of Medina, county of Orleans, in the state of New York, which was particularly described, with all the gasworks, fixtures, pipes, and machinery connected with or pertaining to the gasworks located on said premises, and also all and singular the other real estate of the mortgagor, whether the same have been or are now acquired by the mortgagor, or may thereafter be acquired by it, "and all and singular the scales, tools, machinery, fixtures, implements, and appliances of every nature and description, and all the brands, stamps, trade-marks, and other articles of personal property, now or which shall hereafter be acquired by the party of the first part, and, after default shall be made herein, all and singular the materials manufactured, unmanufactured, or in process of manufacture, bills receivable, debts, demands, dues, dioses in action, accounts, and all other property, real, personal, or mixed, which have been acquired or may hereafter be acquired by the party of the first part, with all and singular its rights, privileges, franchises, and all and singular the estate, right, title, interest, property, possession, claims, and demands whatsoever, as well in equity as in law, of the party of the first pad, of, in, or to the same, and to every part and parcel thereof, with the appurtenances." This instrument was recorded on the 22d day of September, 1886. ' The cause of action which is here sought to be enforced arose on the 27th day of December, 1890, by a conversion by the defendant of the very bonds which were secured by the execution and delivery of this mortgage; and on the 4th day of February, 1893, the defendant, as trustee for the German American Bank, who was the holder of these bonds, brought an action to foreclose the mortgage. The complaint in that action, after alleging the execution of the mortgage and the issuing of the bonds, alleges the transfer of the bonds for value by Stranahan to the German American Bank of Buffalo, and the execution of the mortgage, describing the property mortgaged by the same description as is contained in the mortgage. There' is no allegation in the complaint that the property sought to be foreclosed included subsequently acquired property. The' final judgment directing a foreclosure of that mortgage was entered on June 22, 1895. It directed a sale of the property by the same description as is contained in the mortgage. There was, neither in the report of the referee nor in the judgment, any finding as to> subsequently acquired property, or that this cause of action was covered by the mortgage or to be sold under the judgment.
What was enforced in that action was the lien given by the mortgagor upon the specified property described, and the property thus described was sold under the judgment and transferred by the sheriff's deed to the purchaser. The sheriff's deed described by metes and bounds the real property covered by the mortgage, and then purports to convey "all other articles of personal property which then were or should thereafter be acquired by the said Medina Gaslight Company, and, after default should be made in the condition of said mortgage, all and singular the materials manufactured, unmanufactured, or in process of manufacture, bills receivable, debts, demands, dues, choses in action, accounts, and all other property, real, personal or mixed, which have been acquired or may hereafter be acquired by the said Medina Gaslight Company." The conveyance does not in form purport to convey debts, demands, dues, choses in action, and accounts which had actually accrued to the plaintiff after the execution of the mortgage, and before default had been made in the condition of the mortgage. The cause of action here sought to be enforced was a chose in action which had arisen prior to the default in the condition of the mortgage, and subsequent to the execution and delivery of the morD gage; and therefore there was no lien that attached or could attach on the execution and delivery of the mortgage. The mortgage contained an agreement between the trustees and the mortgagor by which subsequently acquired property should become subject to the mortgage* and this agreement gave an equitable lien upon property which should be subsequently'acquired by the mortgagor. By the very form of this instrument it was to act in the future, to take effect after default was made in the condition of the mortgage, and was then to affect the property "which have been acquired or may hereafter be acquired" by the mortgagor. In Deeley v. Dwight, 132 N. Y. 59, 30 N. E. 258, 18 L. R. A. 298, in speaking of a mortgage upon subsequently acquired chattels, it was said:
"The instrument under which the plaintiff claims to recover is in form, a chattel mortgage. Gandolfo, who executed it, assumes to transfer the legal title to the machinery to Robert Deeley, the plaintiff's assignor, subject to be defeated upon the payment of $4,700. But, the machinery not having been manufactured, Gandolfo had no title to it, and the instrument did not vest the legal title of the machinery in Deeley, nor did it create a legal lien upon the property described therein. We find no case which holds that the legal title to property not in existence actually or potentially can be transferred either by way of sale or mortgage. That an equitable lien may be created on property to be brought into existence is well settled, and an action to foreclose the lien may be maintained. It [a court of equity] construes the instrument as operating by way of present contract to give a lien, which, as between the parties, takes effect and attaches to the subject of it as soon as it comes into the ownership of the party."
In National Bank of Deposit v. Rogers, 166 N. Y. 380, 59 N. E. 922, the action was brought to have a lien declared upon certain property which the defendant had agreed should be pledged to the plaintiff to secure the payment of a note held by the plaintiff. The action was thus in form to have such a lien declared and enforced, and in such a case the rule is there stated:
"A party cannot mortgage property which he does not have, but he can agree to mortgage it or give a lien upon it as soon as he gets it, and equity will enforce the agreement and establish the lien. So, where the intent is to give a lien, and what is done to that end Is too defective to create it, but is consistent with its creation, and not a contract for something else, equity will treat as done what was intended to be done, and the lien may be established and foreclosed in the same action."
That such an equitable lien, which arises from the contract or agreement that a mortgage should attach to subsequently acquired property, is quite distinct from the actual lien that attaches upon the execution and delivery of the mortgage, appears from R. D. Co. v. Rasey, 142 N. Y. 570, 37 N. E. 632, 40 Am. St. Rep. 635; for it is there expressly held that a mortgage upon chattels having no actual or potential existence cannot operate to charge them with a lien when they come into existence as against an attaching or execution creditor. It is there said:
"It results from a review of the authorities that a mortgage cannot be given future effect as a lien upon personal property which at the time of its delivery was not in existence, actually or potentially, when the rights of creditors have intervened. The mortgage could have no positive operation to transfer in prsesenti property not in esse. At furthest, it might operate by way of a present contract between the parties that the creditor should have a lien upon the property to be subsequently acquired by his debtor, which equity would enforce as against the latter. Regarding the chattel mortgage in question as a mere executory agreement to give a lien when the property came into existence, some further act was necessary, in order to make it an actual and effectual lien as against creditors. But there was no further act by the parties to the instrument to create such an actual lien, and the levy of the execution upon the crops operated to transfer their possession from the owner to that of the sheriff. As against his possession the equities of the mortgages are unavailing for any purpose."
It has been held that a mortgage of future-acquired property will be enforced only as a right under a contract and not as a trust attached to the property. 6 Cyc. 1053; Otis v. Sill, 8 Barb. (N. Y.) 103; Wood v. Lester, 29 Barb. (N. Y.) 145-154. At law the right of a mortgagee to have subjected to the lien of his mortgage chattels which shall be acquired by the mortgagor subsequent to the execution of the mortgage depends upon the mortgagee taking possession of the chattels after acquired by the mortgagor. In McCaffrey v. Woodin, 65 N. Y. 459, 22 Am. Rep. 644, Commissioner Dwight, after a review of the authorities, said:
"The general idea running through these cases in a court of law appears to be that the executory agreement operates as a license, authority, or power, revocable in its nature, until the creditor is either put into possession of the goods at the time of or after they come into existence or are vested in the debtor. As soon as that new act has intervened, the lien of the creditor becomes perfect, and, in the absence of statutory regulation, prevails over the liens of subsequent executions."
It was, however, also held in that case that the rule in equity is much less technical and more comprehensive, and approves Holroyd v. Marshall, 10 House of Lords Cases, 191, when it was held that in equity the lien of the mortgage attached as soon as the property came into possession of the mortgagor. As Lord Chelmsford put it:
"In equity, the estate attaches as soon as the property is acquired by the debtor. At law, property not existing, but to be acquired at a future time, is not assignable. In equity, it is transferable. At law, though a power is given in a deed of assignment to take possession of after-acquired property, no interest is transferred, even as between the parties themselves, unless possession is actually taken. In equity, it is not disputed that the moment the property comes into possession the deed operates upon it."
In Moody v. Wright, 13 Metc. (Mass.) 17, 46 Am. Dec. 706, speaking of an instrument which assumed to give a lien upon subsequently acquired personal property which had no existence at the time of the execution of the mortgage, it was held that neither in a court of law nor of equity can such security be made effectual by the making and recording of such instrument, without any further act of the parties, with no delivery by the mortgagor, and no act on the part of the mortgagee, taking possession or exercising any rights of property in the newly acquired articles, by virtue of the provisions in the mortgage. This case is clearly against the authorities in this state, in holding that such an instrument did not give an equitable lien. But I think it is an authority for the proposition that to enforce the right of a mortgagee he must either take possession of the specific property or do some act in relation to it to subject the property to the existence of the lien. Such an act would be talcing actual physical possession of the property when it is of such a nature that possession can be taken, or by commencing a proceeding in equity to subject the specific property to the lien and to enforce the lien.
In Rochester Distilling Co. v. Rasey, 142 N. Y. 570, 37 N. E. 632, 40 Am. St. Rep. 635, Judge Gray says:
"Regarding the chattel mortgage In question as a mere executory agreement to give a lien when the property .comes into existence, some further act was necessary to make it an actual and effectual lien as to creditors."
It is true that in this case there are no intervening creditors, and the question depends upon the effect of the sale under the judgment of foreclosure; but these authorities all recognize the distinction between the lien created by the mortgage upon existing property and the equitable lien arising from the contract between the parties that the lien of the mortgage shall extend to subsequently acquired property. It seems to me to necessarily follow that, if a mortgagee wishes to enforce his equitable lien against subsequently acquired property, he must either take actual possession of the property or bring his action for that purpose, describing with reasonable certainty the property to which he seeks to have the equitable lien attach or declared and enforced. An action to foreclose the legal lien created by the execution and delivery of the mortgage, without some allegation that there existed property upon which there was also an equitable lien and which the mortgagee was entitled to have declared and enforced, would not, as I view it, affect subsequently acquired property; and a sale under a judgment in such an action, which did not in effect direct such subsequently acquired property to be sold, and where it was not in fact sold under the judgment, would not pass to the purchaser title to the subsequently acquired property. The complaint in this foreclosure action is to enforce the lien created by the execution and delivery of the mortgage. The report of the referee directs judgment for an enforcement of the lien created by the mortgage, and the judgment follows the referee's report. It seems to me that, to include subsequently acquired property upon which it was agreed that there was to be a lien, the property thus subsequently acquired and which was to be subject to the lien of the mortgage must be specifically described and the specific property sold and conveyed. A conveyance in general terms, conveying all the property or choses in action, bills, notes, and demands of the mortgagor, would not include specific prop erty which had been acquired subsequent to the execution of the mortgage.
I do not think, therefore, that the conveyance by the sheriff to the purchaser under the judgment of the foreclosure of this mortgage was a transfer of this cause of action against the defendant; and the judgment should be affirmed, with costs.
PATTERSON, P. J., and CLARKE, J., concur.