Case Name: Harriet H. Vilas et al., Administrators, etc., Resp'ts, v. John B. Page et al., App'lts
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1887-10-04
Citations: 11 N.Y. St. Rep. 416
Docket Number: 
Parties: Harriet H. Vilas et al., Administrators, etc., Resp’ts, v. John B. Page et al., App’lts.
Judges: 
Reporter: New York State Reporter
Volume: 11
Pages: 416–436

Head Matter:
Harriet H. Vilas et al., Administrators, etc., Resp’ts, v. John B. Page et al., App’lts.
(Court of Appeals,
Filed October 4, 1887.)
1. Receivers—Limitations to power op.
The receiver of the property of a railroad company has no power as incident to his general authority as such to create a lien on the property of the company for the purchase of rolling stock.
8. Same—Jurisdiction op court op equity—Object op.
The jurisdiction of the court to appoint receivers of property has for its primary object the care and custody of the property which is the subject of the receivership, pending the determination of questions involved in litigation, and to enable the court, by placing the property under the con_ trol of its officers, to preserve it to answer the final decree which may he made in the action.
3. Same—Jubisdiction of coubt of equity with beoabd to—Extent of.
The jurisdiction of a court of equity, having possession in a ioreclosure action, through its receiver, of the property oí a railroad company, to authorize the creation of debts for rolling stock and other purposes, when in its opinion, it is necessary so to do to secure the continued and successful operation of the road, and to charge the debts so created as a first lien on the mortgaged property, appertains to the power of the court to appoint receivers.
4. Estoppel—What will opebate as.
Held, that the receiver of the railroad company, and the trustees of the mortgages sought to be foreclosed, who, with another, represented the bondholders, having applied for an order that the receiver purchase rolling stock, and that the purchase be a first lien on the mortgaged property, neither the company nor the bondholders could assail the validity of the order.
8. Fobeclostjbe of mortgage — Jubisdiction of coubt — When not DIVESTED BY SALE.
The order above referred to was made March 10, 1858. A sale of the mortgaged property made September 34, 1857, was afterwards vacated, and theroad was advertised ior resale under the decree in 1865, but was not again sold, and the order vacating the original sale was in itself set aside and a conveyance made purs ant thereto. Held, That -when the order was made the title had not passed under the foreclosure sale. That the court was not divested of its power and duty of managing the property by reason of a sale which the purchasers delayed or neglected to complete.
6. Same—Claims of general cbeditobs tbansfebbbd to the pboceeds OF SALE.
Held, That in general, assets derived from the sale of mortgaged property under the mortgage become, as regards creditors, the substitute for the things sold, and that the claims of creditors are transferred by the sale to the fund, the purchaser taking the land free from the claims of general creditors,
7. Obdbb of coubt—Becomes effective when.
Held, That the order became effective as an authority to the receiver upon its being filed in the proper clerk’s office, and that the failure of the clerk to transcribe it on the record did not operate to prejudice parties dealing with the receiver in reliance thereon, or furnish a defense to other persons which they would not have had if the order had been promptly recorded.
8. Tbustee—Cannot pubchase pbopebty of cestui que tbust fob his OWN BENEFIT.
One occupying a fiduciary relation cannot purchase the trust estate for his own use, and hold it absolutely against his cestui que trust.
Appeal from an order of the general term of the supreme court for the third judicial department, affirming the judgment of the special term, entered in Clinton county June 4, 1880, whereby Samuel F. Vilas recovered a personal judgment against John B. Page, Peter Butler and George B. Chase for the sum of $52,803.73, and the plaintiffs’ claim was made a lien on certain property of the defendant corporations.
This amount was made up of the principal sum of $18,-000, with interest thereon from the 1st day of May, 1858,. and the principal sum of $722.65, with interest from November 13, 1874, together with the costs, allowances and disbursements of the action.
The said foreclosure suit was one brought in the supreme court, first district, by Edward Bement and William F. Haile, as trustees, and one John Acósta, a bondholder, to foreclose a first mortgage of $200,000, and a second mortgage of the same amount, on the road, equipments and appurtenances of the Plattsburgh and Montreal Railroad Company, and was begun about 15th of October, 1856. The first mortgage was executed in June, 1852, and the second mortgage in July, 1853.
After the making of the mortgages, and before the commencement of the foreclosure suit, various judgments had been recovered against said P. and M. R. R. Co., one of which was in favor of Vilas, April 10, 1854, for the sum of $19,828.23, and there were six other judgments of prior date.
Executions on these judgments were issued to the sheriff of Clinton county, who seized and sold thereunder certain rolling stock of the P. and M. R. R. Co.
Vilas, who was then a director of the railroad company, bought in at the sheriff’s sales certain of the rolling stock, paying therefor the sum of $10,077.25, of which $1,890.75 was applied on the executions on the Vilas judgment at the date of May, 1854.
Vilas was made a party defendant in the foreclosure suit, and in December, 1856, put in an answer therein, setting up the said judgments, executions and sales thereunder, and denying that the mortgages sought to be foreclosed ever were liens on said personal property bought by him. He also alleged that he had bought same without any notice that mortgages were, or were claimed to be, a lien thereon; and that said mortgages had never been filed as chattel mortgages in the office of the clerk of Clinton county, or in any town clerk’s office in said county, in which said property had been situated and used, and that no copies of said chattel mortgages had been filed as chattel mortgages, and that he held the property so bought by him free and clear from any lien of said mortgages, but he consented that a judgment might be entered for the foreclosure of the mortgages and sale of said railroad and fixtures, and adjudging said mortgages to. be no lien on such personal property.
On February 21, 1857, the supreme court appointed Moss K. Platt receiver of the mortgaged premises^sought to be foreclosed, etc., and said receiver was authorized and em powered to operate the railroad embraced in the mortgaged premises, and for that purpose to make and fulfill all necessary purchases and contracts, including the hiring of rolling stock.
On February 28, 1857, a decree of the court was entered directing the sale of the mortgaged premises, and appointing Henry J. Scudder, Esq., referee to conduct said sale. The equipments of said railroad company, “averred in the answer of the defendant Vilas to have been purchased by him under certain judgments and executions against the said company,” were excepted from said sale. The said referee was, also, directed by said decree, to inquire and ascertain and report as to the issues raised in the action between the plaintiffs and the defendant, Samuel F. Vilas, and whether or not the “locomotive engines, tenders, cars and any other personal property in the answer of said Vilas mentioned, or any or what part or parts thereof are or is subject ” to the lien of the said two mortgages, or either, and which of the same.
Pursuant to this direction in the order, Mr. Scudder, as referee, reported under date of June 16. 1865, among other things, the following:
That prior to the sheriff’s sales hereinabove mentioned, some of the directors of the P. and M. B. B. Co., “but not while formally assembled as a board, requested the defend ant Vilas to purchase the said rolling stock, equipment and personal property, and hold the same, until the company could repay him the amount bid, and extinquish his claim upon it, which he refused to do, and informed them if he purchased, he should purchase on his own individual account and for his own benefit alone.
That “ the directors had at the time no funds and furnished no funds to bid off the property. That upon such sale the said defendant Vilas became the purchaser of a large amount of the rolling stock and equipments for the price in all of $10,047.75.
That he was at the time a director of said company.
That afterwards the company hired from him the said rolling stock, paying him rent therefor.”
That one, Price, a lessee of the company, also hired said rolling stock from Vilas; that Vilas, also, sold portions of said rolling stock.
That he received from the sale and hire of the said rolling stock, the sum in all of $16,317.74, leaving a surplus in his hands of $5,658.86, over and above all his expenditures in the purchase of said rolling stock or on account thereof.
That the said mortgages “not being filed as chattel mortgages, were void as to judgment-creditors.
“That the company had a fight to redeem the property purchased by defendant Vilas by reason of his being a trustee at the time of the purchase; but such right was equitable only and materially modified by the company’s hiring the property from him.”
“That the equitable right of redemption in the company could be claimed and exercised by the plaintiffs as mortgagees. ”
The court at special term overruled the conclusion of the referee that the mortgages were not liens on the rolling stock because not filed as chattel mortgages, and from this judgment Vilas appealed to the general term of the court "where the judgment was affirmed, and from the general term Vilas appealed to the court of appeals, and there the order of the general term was reversed and, upon the remittitur, the supreme court confirmed the report of the referee upon the matters as to the issue raised in that action between the plaintiffs and defendant Vilas, and adjudged that the said mortgages were not, at the time of the sale of the rolling stock on said executions, a lien or encumbrance upon said rolling stock, nor on any parts thereof as against the said judgments and executions, and the sale thereof thereon, nor as against the paid purchase thereof by said Vilas, and that the legal title of said rolling stock became vested in said Vilas on his said purchase thereof; “but that said judgment should be without prejudice to any equity of redemption which the plaintiffs had, if any, at the time of commencing said action.”
On the 24th day of September 1857, pursuant to the decree of sale, the mortgaged premises other than the rolling stock claimed to have been purchased by Vilas, were sold by the referee to a committee appointed by first mortgage bondholders to the amount of $193,000, or thereabouts, for the price or bid of $150,000, in trust for said bondholders. The committee so appointed consisted of Richard M. Blatchford, John Acosta and Mathias O. Halstead.
The referee, by the decree of sale, was authorized in substance to accept bonds in lieu of cash, of persons appointed by the first bondholders who held bonds to the amount altogether of $100,000, exclusive of interest", and to require, in that case, to be paid in cash, only such amount as he in his discretion might deem proper.
The referee seems to have required only the sum of $414 to be paid in cash.
Thereafter Halstead and Acosta having died, the holders of the bonds to the amount of $179,150 executed an appointment of Michael J. Myers and and Timothy Hoyle in the place of Halstead and Acosta as a committee, with said Blatchford to receive the conveyance and reconvey the same as directed by the parties in interest.
Upon a petition setting forth the facts an order of the supreme court was made on the 31st day of July, 1868, directing the said referee 6 6 to execute a deed of conveyance of all and singular the property, rights and franchises described and referred to in the said two mortgages, to said Blatchford, Myei's and Hoyle, in trust for such of the holders of the said bonds secured by said first mortgage, as appointed Blatchford, Acosta and Halstead such committee, or the successors or assigns of said bondholders, and that the said committee, when duly appointed by said bondholders, or a majority of them, or of their successors or assigns, execute a good and sufficient conveyance of the property, effects, franchises and rights which should be conveyed to them, to such person or persons, or corporations, as the said bondholders, or a majority of them, should designate.”
Pursuant to this order, by deed executed and acknowledged on the 17th day of August, 1868, said referee conveyed to said Blatchford, Myers and Hoyle, in trust for such first mortgage bondholders, said railroad and all the railroad equipments belonging thereto, or to the said Plattsburgh and Montreal Railroad Company, since the 1st day of June, 1852, other than those averred in said answer of the said Vilas to have been purchased by him under-certain judgments against said company.
And by deed, dated 20th August, 1868, said Blatchford, Myers and Hoyle, as committee a,nd trustees for such bondholders, conveyed to the Montreal and Plattsburgh Railroad Company, a new corporation just then organized under the laws of the state of New York, the same railroad property and all the equipments belonging thereto, or to the said P. and M. R. R. Co., on or since the first day of June, 1852, other than those averred in the said answer of defendant Vilas, to have been purchased by him under certain judgments and executions against the company.
By deed, dated August 20, 1868, John K„ Myers and George V. Hoyle, trustees for the holders of the mortgage bonds of the P. and M. R. R. Co., appointed in place of Bement and Haile, by order of the court, pursuant to the decree of foreclosure of February 28, 1857, remised, released and quit-claimed to the Montreal and Plattsburgh Railroad Company, all their right, title and interest, property, possession, claim or demand in and to the same property, and with the same exception as to property purchased by Vilas as in the last named deed.
On 25th September, 1868, Michael J. Myers, Moss K. Platt, Timothy Hoyle and Smith M. Weed, by their deed of that date, sold, assigned, transferred and set over to the M. and P. R. R. Co., all their right, title-and interest, claim or demand of, in, to, upon or relating to any and all locomotives, engines, tenders, passenger cars, etc., etc., and other personal property, purchased, or claimed to have been purchased, by Vilas at certain sales made, or claimed to have been made by the sheriff of the county of Clinton, in 1854, by virtue of certain judgments and executions against the said P. and M. R. R. Co., being the same property mentioned in the answer of the said Vilas, etc.
This deed recited that nothing therein was to affect or impair a certain agreement, bearing date the 13th day of September, 1867, by which John B. Page and others were to prosecute the action with said Vilas, and abide the result.
On February 25, 1873, the Montreal and Plattsburgh Railroad Company became consolidated and merged in the New York and Canada Railroad Company.
About the same time, in the consideration of a $1,000,000 the transfer of the property of the Whitehall and Plattsburgh Railroad Company, and the property of the Montreal and Plattsburgh Railroad Company, was made to the New York and Canada Railroad Company, and to the Deleware and Hudson Canal Company, which latter company had an agreement for a perpetual lease of the' New York and Canada Railroad Company.
On 7th March, 1873, on the occasion of such sale or transfer, said John B. Page covenanted and agreed with the Deleware and Hudson Canal Company that the property sold was then free and clear as in the proposition for the sale stated, and that he would pay and discharge any, all and every claim, charge, obligation or incumbrance, should there be any, upon or against said Montreal and Plattsburgh Railroad Company, of every name or nature, and save, harmless and protect said Deleware and Hudson Canal Company and the New York and Canada Railroad Company from any payment of any such claim, etc. The defendant Butler was not a party to this agreement.
On September 13, 1867, the defendants, John B. Gage, Peter Butler, George B. Chase and Oakes Ames, made an agreement for the purchase of the first mortgage bonds of the Plattsburgh and Montreal Railroad Company, to the amount of $170,300, from Timothy Hoyle, Moss K. Platt and Michael J. Myers, who had become the owers thereof.
By, reason of the covenants in this agreement contained the plaintiffs seek to make the defendant and appellant Butler and his associates, or their representatives, personally liable for the payment of the plaintiff’s claim, amounting at the present time, with accumulated interest, to some $75,000.
In March, 1858, on the petition of Platt, the receiver, and the affidavit of Mr. Fessenden, the attorney of the plaintiffs in the foreclosure suit, the supreme court made an order authorizing said receiver to purchase the necessary rolling stock for the Plattsburgh and M. R. R. Co., provided he •could make such purchase for a sum not exceeding $27,500, and upon a credit of not less than six months, and that such purchase should be approved by the plaintiffs or their attorneys; that the purchase money of the mortgaged premises which were directed to be sold, should be appropriated first by the referee, after payment of his costs and disbursements, to pay for the rolling stock which might be so purchased, instead of paying the same over to the plaintiffs, as directed by the interlocutory judgment; and that the amount which the receiver might so contract to pay for the said rolling stock, with all interest that might accrue thereon, should be a first lien on the said mortgaged premises, and all proceeds thereof which might come into court, as were or should be subject to its disposition or authority. This order, by mistake of the clerk, was not entered into the records of the court, and it was not filed or recorded in the county of Clinton until 13th March, 1877.
Mr. Whiting, who drew for Myers and Hoyle the agreement of September 13, 1867, selling their bonds to Page and associates, found this order after search m the office of the clerk of the city and county of New York in October or November, 1877. Mr. Whiting first heard of the agreement of August, 1858, between Platt, receiver, and Vilas (hereinafter referred to), after the organization of the new company and after Mr. Platt had been discharged as receiver. Mr. Platt, receiver, was discharged 22d May, 1869, by order of the supreme court.
On the 27th August, 1858, the receiver, Platt, and Vilas entered into a written agreement, dated that day, and entitled in the foreclosure action, whereby Vilas released to said receiver as of the first day of May, 1858, the property so bid off by Vilas, except a portion before disposed of by him.
By this agreement it was provided, among other things, “ that in case it should finally be determined in or by that or any other action or proceeding that' the said property belonged absolutely and beneficially to said Vilas, he should be paid for such release the sum of $18,000, with interest from said first day of May, 1858; that neither the receiver or his successors should be personally liable for the payment of such money or interestbut it was attempted to be provided that such agreed price should be charged as a lien on the mortgaged premises sold by the referee.
Peter B. Olney, Alfred B. Page and Benjamin H. Bristow, for app’lts; Geo. H. Beckwith and Matthew Hale, for resp’ts.
Modifying 30 Hun, 222, mem.

Opinion:
Andrews, J.
—The validity of the order of March 10, 1858, lies at the basis of the lien claimed by the plaintiff under the agreement of August 27. 1858. The receiver had no power, as incident to his general authority as receiver, to create a hen on the property of the railroad company for the purchase of rolling stock. The jurisdiction of the court to appoint receivers of property has for its primary object the care and custody of the property which is the subject of the receivership, pending the determination of the questions involved in the litigation, and to enable the court, by placing the property under the control of its officer, to preserve it, to answer the final decree which may be made in the action. But the receiver cannot of his own motion contract debts chargeable upon the fund in litigation. The court must authorize expenditures on account of the property before they can be charged thereon; and while it may, and does in its discretion, allow expenses incurred by a. receiver strictly for preservation to be charged upon the fund, although incurred without the"8prior sanction of the court, it is, nevertheless, the order of the court and not the act of the receiver which creates the charge and upon which its validity depends.
The order of March 10, 1858, authorized the receiver to expend not exceeding $27,500 in the purchase of necessary rolling stock for the Plattsburgh and Montreal railroad, upon a credit of not less than six months, provided the purchase should be approved by the plaintiffs or their attorney, and directed that the purchase money of the mortgaged premises directed to be sold by the interlocutory decree of February 28, 1857, should be applied by the referee,, first to the payment of his own costs and disbursements, and next to paying for the rolling stock which might be purchased by the receiver; and, further, that the "amount which the said receiver may so contract to pay for the rolling stock, with all interest that may accrue thereon, is hereby made a first lien on the said mortgaged premises, and all proceeds thereof which may come into this court, or are, or shall be subject to its disposition or authority. '
The order was granted upon the petition of the receiver, supported by the affidavit of the attorney for the plaintiffs in the action, which, among other things, represented that the rolling stock then in use had been hired by the receiver and was very scanty and inadequate to the proper working-of the road
The jurisdiction of a court of equity, having possession in a foreclosure action, through its receiver, of the property of a railroad company, to authorize the creation of debts for rolling stock and other purposes, when, in its opinion, it is necessary so to do to secure the continued and successful operation of the road, and to charge the debts so created as a first lien on the mortgaged property, has, of late years, been the subject of consideration by the courts, and the doctrine that this jurisdiction appertains to the power of the court to appoint receivers is now firmly established. Wallace v. Loomis, 97 U. S., 146; Union Trust Co. v. Illinois Midland R. R. Co., 117 id., 434; Woodruff v. Erie Railway Co., 93 N. Y., 609. The order of March 10, 1858, was, therefore, a lawful exercise of the power vested in the court, and was binding upon the parties to the action, even if it had been made without their consent. But it was procured on the application of the receiver who represented the company in making the application, and of the plaintiffs, the trustees in the mortgages sought to be foreclosed, who, with the individual co-plaintiff, represented the bondholders, and neither the company nor the bondholders can assail its validity.
But it is insisted, on behalf of the grantees of the purchaser on the foreclosure sale, that, inasmuch as the order of March 10, 1858, was made after the sale under the foreclosure judgment, the court could not create a lien on the property purchased without the consent of the purchasers, and that the purchasers, on completing their purchase, had the right to demand and receive a title subject only to such liens, if any, paramount to the mortgages foreclosed, as existed on the property at the time of the sale. The sale on the interlocutory judgment was made September 24, 1857, several months prior to the order in question. The property was bid off by a purchasing committee, representing nearly all the bondholders under the first mortgage, for the sum of $150,000, a sum much less than the amount of the mortgage. It does not appear with certainty that any payment was made at the time on account of the purchase. If any was made it did not exceed a few hundred dollars. In July, 1858, the referee made his report of sale, which was confirmed July 31, 1858, and this was followed August 20,1868, by a conveyance from the referee to the purchaser, which recites the sale of September 24, 1857, for the sum of $150,000. The consideration, however, was paid almost wholly by the surrender of bonds held by the purchasers. Meanwhile, from 1857 to 1868, a period of eleven years, the receiver remained in possession and operated the railroad without objection and apparently in the interest of the purchasers.
During this time the order of March 10, 1858, was made, and on August 27, 1858, the receiver entered into the contract with the plaintiff Vilas, which has given rise to this controversy. The rolling stock purchased of Vilas was used by the receiver in operating the road up to .the time of the conveyance to the purchasers on the foreclosure sale, and what remained was received by them and was used on the road down to the time of trial. The claim made that the purchasers on the foreclosure are not bound by the order of March 10, 1858, has no foundation in law or equity. When the order was made the title had not passed under the foreclosure sale. The sale of September 24, 1857, was afterwards vacated and the road was advertised for resale under the decree in 1865, but was not again sold, and tor some reason not disclosed, the order vacating the original sale was itself set aside, and a conveyance finally made pursuant thereto. The rolling stock authorized to be purchased by the order of March 10, 1858, w'ould on its purchase belong to the estate owned by the mortgagor, out of which the purchase-money was to be paid. The purchasers by their conduct and delay acquiesced in the operation and management of the road by the receiver in the usual way. The cburt was not divested of its power and duty of managing the property by reason of a sale which the purchasers delayed or neglected for many years to complete. If the court after a sale, and before completion, had made an inequitable or improvident order injurious to purchasers, it would present a ground on which to base an application by them to be released from the purchase. The purchasers in this case have no equity to be relieved from the just operation of the order in question.
There is another question raised by the appellants which it is proper to consider before considering the questions arising upon the agreement of August 27, 1858. It is claimed that the lien authorized by the order of March 10, 1858, was upon the proceeds of the sale of the mortgaged property only, or at least that upon the completion of the sale and conveyance of the property pursuant thereto, the lien was transferred to the proceeds and that the remedy, if any, to enforce the lien was against the proceeds only, and could not be presumed against the property which was the subject of the sale. There can be no doubt of the general principle that assets derived from the sale of mortgaged property on the mortgage, become, as regards creditors, the substitute for the things sold, and that the claims of creditors are transferred by the sale to the fund, and that the purchaser takes the land freed from the claims of general creditors. Railroad Company v. Howard, 7 Wall., 392. But this case is not within this principle.
It cannot be disputed that it was the intention of the. court, by the order of March 10, 1858, to authorize a lien to be created on the corpus of the property for the price of the rolling stock which should be purchased by the receiver. The language of the order permits no other construction. The words are that the purchase price "is hereby made a first lien on the said mortgaged premises." It is also true that it was made a lien, "on all proceeds which may come into this court, or are or shall be subject to its disposition or authority," and the order authorized the referee to pay the debt which might be contracted for rolling stock out of the purchase-money. When the order was made the property had been sold, but the purchase-money had not been paid and it was uncertain whether the sale would be completed. In fact tbs purchase-money was never paid beyond a trifling amount, except constructively by the purchasers canceling bonds secured by the mortgage. There were no proceeds of the sale received by the referee or which came into his possession or under the control of the court. If the purchasers on the sale, whether bondholders or third persons, had paid the purchase-money in cash or secured its payment, there would, we conceive, be no doubt that the hen would be transferred to the proceeds. There would then be a substitute for the'thing sold, upon which the lien would attach, relieving the land in the hands of the purchasers. But it could not have been the intention of the court to make a constructive payment on a purchase by the mortgagees, through a cancellation of the mortgage debt, equivalent to an actual payment, so as to relieve the property from the charge. Such a lien would be illusory merely, having no substantial quality. The purchasers have no equity to have the premises purchased discharged from the lien, and whether the present holders of the property stand in any better position wifi be considered hereafter.
The final objection to the order of March 10,1858, as constituting a basis for a lien, rests upon the conceded fact that it was never entered by the clerk in the records of the court until after the commencement of this action. It was duly made at special term and allowed by the court, and at the foot of the order was a direction that it should be entered, made by the judge by whom the order was granted. The order was duly filed in the proper clerk's office on the day of its date, and the clerk endorsed thereon the date of the filing. But, by mistake of the clerk, it was not at the time transcribed in the records. We are of opinion that the order became effective as an authority to the receiver upon its being filed with the clerk, and that the mistake of the clerk cannot, on the one hand, operate to the prejudice of parties dealing with the receiver in reliance upon the order, or, on the other, furnish a defense to other persons, which they would not have had if the order had been promptly recorded.
The principal question upon the agreement of August 27, 1858, arises upon the clause which provides ' that if it shall be finally determined in and by this or any other action or proceeding that the said property belongs absolutely and. beneficially to the said Vilas, he shall be paid for the foregoing release the sum of $18,000, with interest from the first day of May last." It is claimed, on the one hand, that the final adjudication in the court of appeals, in 1873, in the Vilas branch of the foreclosure action, that the mortgages were not at the time of the sale and purchase by Vilas, in April and May, 1854, of the rolling stock and other personal property of the Plattsburgh and Montreal Railroad Company, upon execution against the company, liens or incumbrances thereon as against the judgments and executions upon which it was sold; and "that the legal title to said rolling stock and personal property mentioned in the answer of the said defendant Vilas became vested in him on the purchase thereof, as mentioned in said answer," with the reservation " that this judgment be without prejudice to any equity of redemption which the plaintiffs had, if any, at the time of commencing the action," was an adjudication that the property belonged "absolutely and beneficially" to Vilas, within the true meaning of the contract. On the other hand, it is insisted by the defendants that the judgment itself recognized the possible existence of an outstanding equity in the plaintiffs in the foreclosure action to redeem from the sales on the executions, and that the conceded fact that Vilas, at the time of his purchase on the execution sales, was a director of the Plattsburgh and Montreal Railroad Company, the defendant in the executions, brings his title within the rule in equity that one occupying a fiduciary relation cannot purchase for his own use, and hold absolutely against the cestui que trust, the trust estate. There was, therefore, it is claimed upon the conceded facts an outstanding equity of redemption which could be enforced either by the company or its mortgagees; or at all events, the facts raised a question as to the character of Vilas' title, which has not been finally determined, and, therefore, the condition upon which the liability to pay $18,000, under the agreement of August 27, 1858, has never been fulfilled. Before coming to this main question, there is a preliminary question made by the appellants that the agreement was not authorized by the order of March 10, 1858. The order was that the purchase money of the rolling stock should be a lien upon the "mortgaged premises and all proceeds thereof." The contract provided that it should be a lien on the "mortgaged premises " sold by the referee, and that the purchasers should give a mortgage therefor. The point is that the order authorized a lien on the proceeds, while the contract provided for a len on the mortgaged property.
It is to be observed that the provision in the order for a Men was for the protection of persons who might be willing to sell rolMng stock to the receiver. The order authorized a lien both on the property and its proceeds, which, on the payment of the sum bid on the foreclosure, would be transferred to the proceeds of the sale in exoneration of the property. Before the order and contract were made the road had been sold on the foreclosure, but the purchasers had not paid their bid. If, in the litigation with Vilas, his title to the rolling stock should be defeated, or be held subordinate to the lien of the mortgagees, nothing would become due to him under the contract. It might happen, however, indeed it was probable, that before this Htigation was determined, the purchasers oil the foreclosure sale would be ready to complete their purchase. The contract, therefore, provided for a lien on the mortgaged property, and a reservation by the purchasers on the foreclosure, out of the purchase money of a sum sufficient to pay the amount 6 8 which may become due to Villas under and by virtue of this agreement," and that the purchasers should give him a mortgage therefor. This arrangement was, we think, within the scope of the authority conferred by the order of March 10, 1858. It charged both the property and the proceeds with the lien and secured the ultimate payment out of the proceeds, if a right thereto should be established.
Returning, therefore, to the question of the construction of the clause in the agreement of August 27, 1858, already quoted, with a view of ascertaining whether the judgment of the court of appeals in 1873 fulfilled the condition of the agreement and finally determined "that the said property belonged absolútely and beneficially to the 'said Vilas," it is important to consider the extrinsic circumstances which are often persuasive elements of interpretation. The agreement was entitled in the foreclosure action. The complaint in that action alleges that Vilas and other defendants had or claimed some interest in the mortgaged property, but which, as the plaintiff averred, was subordinate to the Men of the mortgages. Vilas, in his answer, set up his title as purchaser of rolling stock and personal property of the Plattsburgh and Montreal Railroad Company under the execution sale in 1854, and that the plaintiff's mortgages were not Mens on the rolling stock and property so purchased by him, and also that the mortgages, not having been filed as chattel mortgages, were void as against the creditors in the executions and the sale thereunder. The interlocutory judgment of February 28, 1857, expressly reserved from the sale to be made thereunder the property claimed by Vilas, and as to that, it directed that it be referred to the referee to "inquire and report as to the issues raised in this action between the plaintiffs and the defendant Samuel F. Vilas, and whether or not the locomotive engines, tenders, cars and any'other personal property in the answer of the said defendant Vilas mentioned, or any or what part or parts thereof are or is subject to the lien of the said two mortgages and either and which of the same."
The only issue raised by the pleadings in the Vilas branch of the litigation and the only issue which was referred, related exclusively to the questions, first, whether the mortgages covered the property in question; and, next, whether the omission to file them as chattel mortgages rendered them void as against creditors. Up to the time of the agreement of August 27, 1858, the question, as far as appears, had never been mooted by any one, neither by the company, the mortgagees, the bondholders, or the receiver, that the title of Vilas under his purchase was redeemable by reason of his relation as director of the company. The company had apparently acquiesced in the validity of his title by renting the property for the use of the road immediately after his purchase. Subsequently its lessee hired the rolling stock from Vilas, and the receiver, on his appointment, February 21, 1857, also leased from Vilas the portion then owned by him, and was using it on the road as lessee when the agreement of August 27, 1858, was made. It is material in determing the construction of the agreement to take into view the situation as between the mortgagees and Vilas created by the purchase by Vilas under the executions in 1854. Vilas, by his purchase, acquired the legal title to the property. This was decided by the commission of appeals in the foreclosure action. Hoyle v. P. and M. R. R. Co., 54 N. Y., 314. Whether his title was subject to or free from the lien of mortgages depended (as to all the property except four platform cars purchased by the company after the mortgages had been executed) upon the question whether they were subject to the provisions of the chattel mortgage act, requiring chattel mortgages to be filed in the town clerk's office to make them valid as against creditors. As between the company and the mortgagees, the mortgages were valid, although not filed. When the agreement of August 27, 1858, was made, the question whether the title of Vilas was "absolute and beneficial," in the sense that it was paramount to the mortgages, or was subject and subordinate to the mortgage lien, was a controverted, but, as yet, an undecided, question. The question was decided in 1873, adversely to the mortgagees, in. the case referred to.
The court below held that the language of the agreement had reference to this situation, and not to a possible right of redemption which, so far as appears, was not at the time in the minds of any of the parties. There are other considerations which confirm this construction of the agreement. The right of redemption, if it had existed, was valueless, provided the company or mortgagees in exercising it would be required to pay not only the purchase money paid by Vilas on the purchase of the property, but his debt against the company, for which he obtained judg ment a few days after the sale Vilas, in making the purchase openly acted in his own interest and refused to buy in for the benefit of the company, which, as the case shows, was then insolvent. The construction of the agreement claimed in behalf of the appellants, that the condition that the title shall be determined to be "absolutely and benefically" in Vilas, requires that it should be determined not only that his title was not subject to mortgages, which was substantially the only issue in the action, but also that it was not subject to redemption, if sustained, places Vilas in the position of abandoning all claims for compensation if it should be held that there was an outstanding equity to redeem from the sale, although, he might on redemption, except for this agreement, have been equitably entitled to the Eayment of his debt as a condition to the avoidance of is title. This is distinctly insisted upon in the brief of one of the counsel. He says; " There can be no question of terms of redemption; the terms are fixed by the contract, $18,000, if Vilas establishes his absolute and beneficial ownership; if not, nothing." It is difficult to suppose that this could have been the intention of the parties to the instrument. The meaning of the clause in question is further indicated by the provision in the contract, that if it should be fairly determined that Vilas is entitled "too part, but not to the whole of said property," a proportionate share of the purchase-price only should be paid. If the parties had in view the question of redemption, it is difficult to assign a reason for this provision, as either the whole or none of the property was redeemable. If the clause relating to the "absolute and beneficial" title referred to the title of Vilas as against the mortgages, the second clause referred to is significant, since it might be held that although the title of Vilas was subject to the mortgages, nevertheless that the mortgage hen did not cover the four platform cars purchased by the company after the mortgages were executed, which were included in Vilas' purchase and were transferred by the agreement to the receiver
The provision reversing the question of rents saved to the mortgagees and the receiver the right to claim the benefit of rents paid after the receiver took possession under the mortgages, to which the mortgagees would be entitled if the lien of the mortgages was paramount to the title of Vilas. The agreement of August 27, 1858, moreover, contemplated that the determination referred to might be had in the foreclosure action, the right of redemption could not be determined under the issue presented in that action. The subsequent words, "or any other action or proceeding," were probably inserted to provide against the contingency of a discontinuance of the foreclosure action.
The question of construction is by no means free from difficulty, but we are of opinion that reading the contract in the light of the circumstances, the clause in question referred to the determination of the issue raised in the foreclosure action, and that the judgment of the court of appeals, adjudging that Vilas acquired by his purchase the legal title to the rolling stock which was paramount to the lien of the mortgages, satisfied the condition of the contract and entitled him to payment of the stipulated price and a lien therefor on the mortgaged property.
But it is insisted that the equitable lien, if it existed before the conveyance of the property on the foreclosure sale, cannot be enforced against the present owners, for the reason that they and their grantors were purchasers in good faith for value, without notice, and are, therefore, entitled to protection under the general rule of law. The sale in the foreclosure action, made September 24, 1857, as has been stated, was not completed by a conveyance until August 20, 1868. On that day the referee, pursuant to the order of the court, conveyed the mortgaged property to the committee of bondholders, who were purchasers on the sale, for the expressed consideration of $150,000, in which conveyance the plaintiffs in the foreclosure action, the trustees under the mortgage, joined. On the same day (August 20, 1868,), the purchasing committee, the grantees in the referee's deed, conveyed the same property to the defendant, the Montreal and Plattsburgh Company, a new corporation organized to take the title of the property. Subsequently the defendant, the Delaware and Hudson Canal Company, purchased the stock of the Montreal and Plattsburgh Railroad Company. Still later, in 1873, the defendant, the New York and Canada Railroad Company, was organized by the consolidation of several continuous lines of road, under authority of the act, chapter 917 of the Laws of 1869, of which consolidated road the Delaware and Hudson Canal Company is lessee. Neither of the conveyances of August 20, 1868, purported to transfer the property embraced in the Vilas purchase, but, in terms, excluded, it therefrom; nor was either conveyance made subject to Ms claim.
The referee could not convey the Vilas property, because it was not embraced in the sale, and the purchasing committee could convey only what they had purchased. But on the 26th of September, 1868, the person who, on the 33th of September, 1867 (the date of the agreement with Page and others), owned nearly all the bonds of the Plattsburgh and Montreal Railroad Company secured by the first mortgage, together with the receiver, Platt and another person (whose interest in the transaction is not disclosed), executed a transfer in writing, under sea], to the Montreal and Plattsburgh Railroad Company, of all their right, title or interest in the locomotives and other- property purchased by Vilas at the execution sale in 1854, and this property, purchased by Vilas, embraced in the agreement of August 27, 1858, has followed the road through all transmutations of title, and has been used thereon by the several grantees and lessees thereof so long as it was capable of use. ^ In considering whether along this chain of title there has intervened a purchaser for value, whose title was freed from the equitable lien created by the contract of August 27, 1858, we may dismiss any claim to such exemption on the part of the defendants, the New York and Canada Railroad Company, and its lessee, the Delaware and Hudson Canal Company, by a reference to the act of 1869, which saves the rights of all creditors and bondholders of any company embraced in this consolidation authorized by that act. It was the evident purpose of the statute that the existing status of each separate company should, as respects creditors and bondholders, be made unimpaired and unaffected by the consolidation. Section 5. So, also, for reasons which have been indicated, the purchasers on the foreclosure do not occupy the position of purchasers for value without _ notice, and their title, under the referee's deed, was subject to the lien, not for the reason that it was so declared in the conveyance, for, as has been stated, there was no such declaration, but because the agreement of August 27, 1858, was made by their representatives, and of which they also had actual notice. The question is, therefore, narrowed to the consideration of the title of the Montreal and Plattburgh Railroad Company. That company was organized concurrently with the conveyance of August 20, 1868, for the purpose of taking the title to the property and franchises of its predecessor, the Plattsburgh and Montreal Railroad Company. It was organized pursuant to an agreement made September 13, 3867, between Timothy Hoyle, Michael J. Myers and Moss K. Platt, who were then, the owners of $179,200 of the first mortgage bonds of the Plattsburgh and Montreal Railroad Company, of the first part, and John B. Page and others, of the second part. Without going into detail, it is sufficient to state that in its-general scope it was a contract on the one side to sell to Page and his associates the bonds ofthe road held by them, upon the certain considerations therein expressed, with a view on the part of purchasers, through the ownership of the bonds, to acquire title to the property of the Plattsburgh and-Montreal Railroad Company, and to organize a new corporation, to whom the title should be conveyed.
This scheme was carried out, and Page and his associates: caused the property to be conveyed to the Montreal and Plattsburgh Railroad Company in exchange for its stock.. It was found by the learned trial judge that when the. agreement of September 13, 1867, was made, Page and his. associates had actual notice of the order of March 10, 1858,. and of the agreement of August 27, 1858, between the receiver and Vilas. It cannot be maintained, we think, that there is no direct evidence to support the finding. The circumstances also tend to support it. It will be remembered that when the contract of September 13, 1867, was made, Vilas had no claim except under the contract of August 27, 1858. He had released his title to the rolling stock whatever it was, to the receiver. The property, by the release, had become a part of the assets of the railroad company, and all that was left to Vilas was the contingent right under the agreement to be paid the sum of $18,000. Platt, one of the parties to the agreement of September 13, 1867, was the person who as receiver, had made the contract with Vilas, and with his co-contractors owned nearly all the first mortgage bonds of the Plattsburgh and Montreal Railroad. By the contract with Page and his associates, the sellers of the bonds agreed that the new corporation should acquire title to all the property of its predecessor, "subject to the claim of S. F. Vilas, hereinafter referred to, if any shall be finally adjudged." By a subsequent clause in the contract the sellers agreed to pay a certain sum to the second mortgage bondholders, and also "the amount due for land damages and claims, and any floating debts incurred by the receiver, which constitute any lien upon the railroad." They also agreed to pay the costs in the foreclosure, suit, except in the Vilas branch of that suit, and in that branch to pay the plaintiffs costs to date. The contract then continues, "the purchasers are to assume the condu.ct. and prosecution of that suit and to abide its result and judgment, and if there should be any recovery in said Vilas' favor, the purchasers agree to indemnify said parties of the-first part and said Platt, as receiver, against the same. The provision that the purchasers should take "subject to the claim" of vilas, was, in the actual situation, without meaning, unless it related to the claim which, as the result of the litigation in the Vilas branch of the foreclosure, would be establishad against the property under the agreement of August 27, 1858. Whatever title Vilas acquired under his purchase on the execution sales, has been released and extinguished by his voluntary act and he could never reclaim it. Page and his associates were by the agreement to be vested with the title to this as well as the other property of the railroad. They agreed to take subject to Vilas' claim and to abide the result of the foreclosure action. That result, whatever it might be, could not effect their title to the property agreed to be purchased, unless it operated to create a lien in favor of Vilas, under the agreement of August 27, 1858. We think there is reasonable ground to infer, as stated in the opinion at special term, that the parties to the contract of September 13, 1867, "had reference to an arrangement not disclosed in the pleadings (in the foreclosure action), dependent on the result and judgment in the suit which the purchasers, under the agreement, agreed to abide." Page and his associates were purchasers of the bonds, and, pro tanto, of the mortgage security, and took them subject to the equities of third parties.
The Montreal and Plattsburgh Railroad Company represented simply the purchasers of the bonds, and paid no value, and held the property subject to any equitable lien to which it was subject in the hands of its grantors. We are, therefore, of opinion that the purchase-price of the rolling stock, fixed by the agreement between Vilas and the receiver, is a valid lien upon mortgaged property.
The personal judgment awarded against Page and Ms associates, has, we think, no legal foundation. It proceeds on that clause in the agreement of September 13, 1867, by which Page and Ms associates agreed to "assume the conduct and prosecution of that suit (the Vilas branch), and to abide its result and judgment, and if there shall be any recovery in Vilas' favor, the purchasers agree to indemnify said parties of the first part, and said Platt, as receiver, against the same." There is no promise to pay Vilas the amount of his claim, nor was the promise to abide the result of the litigation, or to indemnify the vendors in the contract made for his benefit, within Lawrence v. Fox (20 N. Y., 268), and kindred cases. The agreement to abide by the result of the litigation was intended to protect the vendors against any claim by Page and his associates, in case the title of Vilas to the rolling stock, or his lien on the mortgaged property should be sustained. The latter part of the clause is a contract strictly of indemnity. The vend ors have not been damnified, nor is it easy to discover how they ever can be. The agreement of August 27, 1858, expressly exempts the receiver from personal liability for the purchase-price of the rolling stock, and the other vendors, m the agreement of September 13, 1858, have never, so far as appears, become liable to Vilas or assumed the payment of his debt. The indemnity clause may have been inserted to protect the vendees against a possible award of costs in the litigation of the Vilas claim. But whatever may have been in the contemplation of the parties, it clearly imposed no personal liability upon Page and his associates to Vilas.
It is not necessary to determine whether, independently of the agreement of September 13, 1867, any ground exists for charging the defendant, Page, with the payment of the lien debt. The complaint proceeds exclusively upon his obligation under that agreement.
We are also of opinion that the costs adjudged in favor of Vilas in the foreclosure action are not comprehended in his agreement with the receiver and cannot be charged as a hen upon property in the hands of the present defendant.
Our conclusion is that the personal judgment against the individual defendants should be reversed, with costs against the plaintiff, and that it be modified in respect to charging the costs in the foreclosure action as a lien, and by making the mortgaged property in the hands of the corporation defendant primarily liable; .and that, as so modified, the jddgment be affirmed, with costs against the corporations defendant.
All concur, except Peckham, J., not sitting.