Case Name: JOHN F. ZEBLEY, Appellant, v. THE FARMERS' LOAN AND TRUST COMPANY, Respondent
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1892-03
Citations: 70 N.Y. Sup. Ct. 541
Docket Number: 
Parties: JOHN F. ZEBLEY, Appellant, v. THE FARMERS’ LOAN AND TRUST COMPANY, Respondent.
Judges: Patterson, .1., concurred.
Reporter: Supreme Court Reports (Hun)
Volume: 70
Pages: 541–550

Head Matter:
JOHN F. ZEBLEY, Appellant, v. THE FARMERS’ LOAN AND TRUST COMPANY, Respondent.
ISq,uity — pwchase by a trustee under mortgage foreclosure for the benefit of bondholders electing to contribute — the option must be exercised in less than fourteen years.
The complaint, in an action brought to compel an accounting by a trust company ■which had purchased certain mortgaged premises under foreclosure of the mortgage thereon, for the.benefit of those bondholders who might come in and contribute, alleged that a railroad company executed to the defendant, a trust company, a mortgage to secure certain bonds, some of which the plaintiff owned; that the mortgage was foreclosed, and under a provision in the decree the trust company bought in the property for the benefit of such bondholders as should come in and pay upon their bonds their proportionate share of the cash sum which it was necessary to realize upon the sale; that the trust company afterwards sold the property to another railroad company, of which sale the plaintiff had no notice; that the plaintiff had at all times been ready to pay his share of such cash sum; and that; in 1887, which was fourteen years after entry of the decree of foreclosure, he had demanded of the trust company that it account, which demand was refused, and that the trust company had wrongfully converted the plaintiff’s share in the property.
A demurrer was interposed to the complaint.
Held, that the complaint was bad and stated no cause of action.
That as the plaintiff had not paid, nor tendered his proportionate share of the cash sum, he had no interest in the purchase undei the foreclosure which entitled him to call the trustee to account.
That the relation between the parties, failing payment or tender, was not that of trustee and cestui que trust.
That the trust company was not bound to wait indefinitely to see what bondholders might come in and pay their share of the amount paid on the foreclosure sale.
That it was obliged to wait for that purpose only a reasonable time, and that fourteen years was too great a delay upon the part of a bondholder. (O’Brien, J., dissenting.)
Appeal by the plaintiff John F. Zebley from a judgment of the Supreme Court, entered in the office of the clerk of the city and county of New York on the 10th day of January, 1891, sustaining a demurrer to the amended complaint, and dismissing the latter, with costs; and also from an order, entered in said clerk’s office on the 11th day of November, 1890, upon which the judgment was entered after a trial by the court of the issues of law at the New York Special Term.
W. W. Hewett, for the appellant.
H. B. Turner, for the respondent.

Opinion:
Van Brunt, P. J.:
This action was brought by the plaintiff, a bondholder of the New York and Boston Railroad 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 New York and 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 eleven 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 bonds and coupons, in proportion to the respective interests of such holder's, 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; tliat subsequently the New York, Westchester and 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 eleven 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 eleven 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 and 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 of 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 and Putnam Railroad 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 pay ments required to be made under the decree, such purchase should enure 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, that 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. Ilis 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 1816 it would seem. When the sale was made to the New York, Westchester and Putnam Railroad 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 fourteen 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, fourteen 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 fact 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, .1., concurred.