Case Name: Zebley v. Farmers' Loan & Trust Co.
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1892-03-31
Citations: 18 N.Y.S. 526
Docket Number: 
Parties: Zebley v. Farmers’ Loan & Trust Co.
Judges: 
Reporter: West's New York Supplement
Volume: 18
Pages: 526–531

Head Matter:
Zebley v. Farmers’ Loan & Trust Co.
(Supreme Court, General Term, First Department.
March 31, 1892.)
1. Railroad Mortgages—Foreclosure—Rights of Bondholders.
Mortgaged railway property was purchased by the trustee at foreclosure sale under a provision in the decree allowing such purchase, and providing that on payment by any bondholder of his proportionate share of the moneys paid by the trustee for the expenses of the action, and other moneys directed by the decree to be paid in cash, the purchase should inure to the benefit of any such bondholder. Meld, that the payment or tender of such proportionate share by the bondholder was a condition precedent to his right to an accounting from the trustee.
8. Same—Laches.
In such a case, 14 years after the decree is too late for a bondholder to offer to contribute for the purpose of participating in the benefits of the purchase; the trustee having disposed of the property.
O’Brien, J., dissenting.
Appeal from special term, Hew York county.
Action by John F. Zebley against the Farmers’ Loan & Trust Company for an accounting. From an interlocutory judgment sustaining a demurrer ■to the complaint, plaintiff appeals.
Affirmed.
Argued before Van Brunt, P. J., and O’Brien and Patterson, JJ.
William Wirt Hewett, for appellant. Turner, McClure & Ralston, (William W. MacFarland and Herbert B. Turner, of counsel,) for respondent.

Opinion:
Van Brunt, P. J.
This action was brought by the plaintiff, a bondholder •of the Hew York & Boston Railway Company, against the defendant, as trustee under a mortgage given by said company. The plaintiff alleged the incorporation of the defendant, the incorporation of the Hew York & Boston Railroad Company, the execution of the mortgage, the issuance of the bonds, .and that the plaintiff before the commencement of this action became, and still is, the owner and holder of H of said bonds, with the coupons thereon; that said railroad company made default in payment of the interest on said bonds, and that thereupon the defendant, as trustee, elected that the principal of the bonds should become immediately due and payable, in pursuance of the power conferred therein; that thereafter, on or about some day entirely indefinite, the defendant commenced an action in this court to foreclose the mortgage; and that on some day not mentioned a decree was entered, directing a sale of the mortgaged premises, which decree provided that in case there should be no bona fide bid in cash at such sale to an amount equal to that of all the bonds outstanding and secured by said mortgage the defendant might bid for and purchase the premises, property, and franchises so sold, in behalf of all holders of such bojids and coupons, in proportion to the respective interests of such holders, at a price not exceeding the whole of such outstanding bonds and coupons, so much being payable in cash only as should be necessary to meet and defray the expenses of the action, and the several payments in said decree directed to be paid in cash; and that said decree further provided that thereupon, and upon the payment by each bond or coupon holder of his proportionate share of such cash payments, such purchase should inure to the benefit of each such bondholder in the proportion of his interest as aforesaid; such sale, however, to be subject to certain liens. The complaint further alleged that on June 5, 1876, no cash bid being made therefor, the said railroad property, franchises, etc., were sold to the defendant, in conformity with the before-mentioned decree; that subsequently the New York, Westchester & Putnam Railroad Company was incorporated, and the defendant, in co-operation with the corporation, conveyed said mortgaged property to said persons or to said company for some consideration to plaintiff unknown; and that at all the times mentioned the 11 bonds alleged to be held by the plaintiff were outstanding, and the whole amount thereof, with interest, was due thereon. The complaint further alleged that the plaintiff and the holders of said 11 bonds had no notice of the formation of said last-mentioned railroad company, or of said transfer by the defendant to said company, nor did said bondholders or this plaintiff in any wise assent or agree thereto, and that the New York & Boston Railroad Company was and is insolvent. The complaint contains the further allegation that this plaintiff has at all times been ready to pay his reasonable share of the expenses of the defendant, if any there be, and has at divers times, particularly on the 16th December, 1887, demanded that defendant account with him, and that defendant pay him his just and reasonable share of the value of said mortgaged property, and that the defendant has refused and still refuses so to account, and has wrongfully, and in violation of its duties as trustee, converted to its own use the share of the plaintiff; and judgment is demanded for an accounting. The defendant demurs to the complaint upon the ground that it does not state facts sufficient to constitute a cause of action; that the court has no jurisdiction of the action; and that there is a defect of parties defendant, in that the New York, Westchester & Putnam Railway Company is necessary to a complete determination of the questions raised therein. This demurrer was sustained, and from the judgment thereupon entered this appeal is taken.
Without discussing the many interesting points upon this demurrer, there is one which stands at the threshold of the plaintiff's right to recover, which seems fatal to the cause of action stated in the complaint. It is there alleged that by the terms of the decree of foreclosure and sale the defendant might, under certain circumstances, purchase the property which was the subject-matter of the foreclosure action, and that thereupon, and upon payment by each bond and coupon holder of his proportionate share of the cash payments required to be made under the decree, such purchase should inure to the benefit of each such bond and coupon holder, etc. It is not alleged what the amount of this cash payment was, but the plaintiff does allege that he has been at all times ready and willing to pay his reasonable share of the expenses of the defendant, if any there be, and demands an accounting. But he nowhere alleges that, prior to the commencement of this action or in this bill, he has ever made any effort to pay, or even to ascertain what he was in duty bound to pay, prior to his acquiring any interest under the foreclosure sale; and it is clear, from the expression used in his allegation of willingness to pay his reasonable share of the expenses, viz., "if any there be," that there is no admission upon his part of any obligation to pay anything. Now, as the interest of this plaintiff depended entirely upon the fact that he had paid his proportionate share of the expenses of the action, and the several payments in the decree directed to be made in cash, until a tender of these amounts had been made, it is clear that he had no interest whatever in the purchase under the foreclosure action, for which he was entitled to call the defendant to account. This payment was a condition precedent to the acquiring of an interest. Until it was made, or at least tendered, the defendant did not become his trustee for any purpose whatever. His claim upon the property was represented by the mortgage. By the foreclosure that claim was cut off, and it was only by coming in and paying his proportion of these various charges that he could acquire any interest in the purchase made by the defendant as trustee. The fact that this defendant did convey this property to another corporation was a matter of no interest or moment to this plaintiff or his predecessors in interest of the bonds of which he now claims to be the holder. As it appears upon the face of the bill, the defendant owed to them no duty. The defendant was neither his trustee, nor was he the defendant's cestui que trust. This purchase was made under this decree in 1876, it would seem. When the sale was made to the Hew York, Westchester & Putnam Railway Company does not appear. But can it be claimed for a moment that this trustee was bound to hold this property forever in order to see as to whether outstanding bondholders would come in and contribute their share of the expenses and cash payments, as required by the decree, and thus be entitled to share or have a voice in the disposition of the property purchased under the foreclosure sale? The action in question seems to have been instituted nearly 14 years after this foreclosure sale, and all that the defendant was. bound to do was to wait a reasonable time in order to enable these bondholders to come in and participate, and it does not appear that it did not do so. It is certainly too late, 14 years after the entry of this decree, for the holders of these bonds now to claim that they may come in and contribute, and participate in the benefits of the foreclosure sale. If such a scheme is to operate, then there never could be, in the case of bonds passing from hand to hand, the closing up' of a foreclosure suit upon a mortgage given to secure such bonds; and bondholders might lie quiet, and wait and see what might be the result of the purchase by the trustee, and, if advantageous to them, come in and contribute, and, if it turned out badly, then stay out. Such is not the rule. Under a decree such as is alleged in the plaintiff's complaint, the bondholder must come in within a reasonable time and make himself a beneficiary under the trust; and if he does not do this, then the trustee may close out his trust without in any way consulting or notifying the defaulting bondholder. It would seem to us to be almost too plain for argument, were it not for the facts that one of my associates thinks otherwise, that before an action of this kind can be maintained the party must be a beneficiary; and this plaintiff shows upon the face of his complaint that he is not a beneficiary, as he has not done those things which he is bound to do before he can participate in the trust. The judgment should be affirmed, with costs.
Patterson, J" concurs.