Court Opinion

ID: 5202652
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:55:26.808622+00
Date Added: 2024-06-11T08:27:13.687453
License: Public Domain

Scott, J.
(dissenting):
The defendant appeals from á judgment for damages In an- . action for the conversion of certain bonds. .There is no dispute- as. - to the facts. '
On September 15, 1886, the Medina Gas- Light Company was. a domestic corporation, organized under the laws of this State. . One Robert A, Stranahan was the secretary and the owner of all, save two shares, of the capital stock. James Robertson was president, and the said Stranahan, Robertson and one Dayton were directors* each of the two latter holding otie share of stock which had been made over to them by Stranahan in order to qualify them to act as.directors. On said September 15,1886, the board of directors - adopted a resolution providing that the company should borrow “ for - the purpose of defraying the existing indebtedness, and. for its other lawful purposes,” the sum of $10,000, and for that purpose should issue' ten bonds of $1;000. eách, bearing six per cent' interest, with interest coupons attached* and payable; at the expiration of twenty years. These bonds were to be secured by a.mortgage to the defendant herein as trustee “ upon all and singular the lands, buildings, machinery, fixtures, tools,- appliances of every nature, pipes, connections and all other property of this Company,' *254whether the same be now acquired or to be hereafter acquired, and whether real or personal, and upon all and singular its franchises and privileges.” This resolution of the board of directors was recited at length in the trust mortgage which was accepted and executed by the defendant. There was also set' forth at length in . the mortgage the form of bond to be executed by the Medina Gao Light Company, together with a stipulation that there should be. indorsed" upon each bond issued a certificate of the defendant that said bond was one of the series of bonds intended to be secured by said mortgage, The mortgage was executed by the defendant trustee on September 20, 1886, -and on the same day the defendant ' signed the trustee’s certificate on the ten bonds which had been delivered to it for that purpose. Except to sign the certificate of authenticity it does not appear that defendant had any duty to '.perform with respect to said bonds. At this time Robert A. Stranahan was' already personally indebted to the defendant for a" loan, for which said defendant held as security stock of the Tonawanda Gas Company, and on September 21,1886, he arranged with said defendant for a further personal loan, and gave as security the ten bonds above referred to. The defendant knew the purposes for which the bonds were issued .and that Stranahan gave them as security for his own personal debt, and not for any purpose of the corporation, and in fact, as the defendant could have ascertained upon' inquiry, Stranahan had" no authority from the Medina Gas Light Company to pledge said bonds for his own personal indebtedness.
. On December 27,1890, in settlement of an action brought against Stranahan by the German-Amer'icau Bank of Buffalo, wherein these bonds and the Tonawanda Gas Company stock were attached, the said bank paid to the defendant the amount then due to defendant from Stranahan, and defendant delivered the said ten bonds to said German-American Bank. The legal effect of these transactions has already been considered by the Court of Appeals in an action brought by defendant for the foreclosure of the above-described mortgage. (Buffalo Loan, T. & S. D. Co. v. Medina Gas, etc., Co., 162 N. Y. 67.) It was therein held that the. pledge'of the bonds by Stranahan to defendant, was an 'unlawful diversion, but that under the circumstances they became valid obligations of the *255Medina Gas Light Company in the hands of the German-American Bank. After the transfer of .the bonds to said bank,' and at its request, the defendant trust company, as trustee of the mortgage, began an action for its foreclosure, default having been made in the payment of interest, and such proceedings were had. that a judgment of foreclosure and sale was entered, and on June 7, 190.0, the" property covered by the mortgage, was sold by the- sheriff to one Andrew L. Fennessy.- In the meantime the. Medina Gas Light Company and the Medina Electric Company were consolidated, and formed the present plaintiff, which succeeded to all the property of the Medina Gas Light Company, subject to the trust mortgage and to the liabilities and obligations of the said company. Subsequently to the foreclosure saló, and on July , 10,. 1900, Fennessy, the purchaser,, executed an. assignment to Henry Iioons of the alleged cause of action sought to be enforced in this action, and on February 18, 1902, Koons executed a release to defendant of all claims or demands arising out of the cause of action stated in-the complaint herein. Ho demand for the possession of. said bonds was made by this plaintiff, or,.by the Medina Gas Light Company upon-either this defendant or the German-American Bank until August 26,1895, after the commencement of the foreclosure action, when á demand was made on defendant by the plaintiff. The vital question in the case is whether or not the present cause of .action ivas covered by the mortgage from the Medina Gas Light Company to the defendant, and passed by the sale upon the foreclosure of that mortgage to the purchaser upon the foreclosure sale. If it did not so pass, it still remains in the plaintiff and .the judgment appealed froth is right. If it did so pass, the plaintiff cannot sustain its judgment. It is- strongly urged that in no event can the plaintiff recover because, as it is said, the conversion-.of the bonds by the defendant took place when the defendant accepted the bonds, as collateral security for the. personal indebtedness of Stranahan, and consequently that the Statute of Limitations had run before this action was commenced-. This view cannot, as we think, prevail for we do not find any evidence of conversion at tlie time indicated. The defendant came rightfully intq -possession of the bonds, for the. purpose of indorsing the certificate of authenticity upon them. The defendant’s possession then being lawful, a demand and refusal *256was. necessary to establish- conversion, or, in other words, to convert the rightful possession into a tortious one.(Goodwin v. Wertheimer, 99 N. Y. 149.) The- mere tact that defendant agreed, with Strana- - han to accept the bonds as security for liis past and future indebtedness does not amount to conversion, for it was unaccompanied by any act or ■ declaration of title in derogation of that of thé Medina Gas Light Company. Conversion involves something more than.a mere mental process, and it may well be that notwithstanding its agreement with Stranaliaft the defendant would have surrendered ■ the- bonds if a demand had- been made by the gas light company.. We are, therefore, of the-opinion that there was no conversion of the bonds by tlie defendant until the delivery of the bonds to* the German-Ainericau Bank on December 27, 1890: By this act. the . defendant Undoubtedly convertedthe bonds, and a cause of. action for damages-for that tortious act at once accrued in favor of the . Medina Gas Light Company. (Farnham v. Benedict, 107 N. Y. 159.) Id thus disposing of tire bonds tlie defendant asserted a title to them quite inconsistent with and in derogation of the gas-light company’s right to tlie possession of them, and completely put it out of its own power to return the bonds to the gas light company or to comply With- a demand for their return if such a demand had been made. Under the circumstances the con version.and the right of plaintiff to-recover damages, therefore, became Complete upon the ' delivery of the bonds to the German-American Bank, and- no demand upon defendant was necessary to perfeCt'tliis right of action-. , (Ganley v. Troy City Nat. Bank, 98 N. Y. 487; Briggs v. Jones, 8 Misc. Rep. 261; affd. on Opinion below, 149 N. Y. 577; Ranous v. Hughes, 19 Misc. Rep. 46.) The situation of affairs, on December 27, 1890, was that the bonds', in consequence of their delivery to- a bona fide holder for value and without notice, liad become a valid obligation of the Medina Gas Light Company (Buffalo Loan, T. & S. D. Co. v. Medina Gas, etc., Co., 162 N. Y. 67),. and therehad' accrued to the-gas light Company in place of said bonds, and ina - sense in- substitution therefor, a cause of. action against .the defend^ ant. It is that- cause- of action upon which the plaintiff now. sues, and Which it alleges passed to it on . April 8, 1891, Upon its creation Consequent Upon the consolidation of the Medina Gas Light Company and the Medina Electric Company. Did that cause-of *257action pass under thé mortgage to the purchaser upon the foreclosure sale? The description of the property intended, to be covered by the mortgage reads as. follows: “ And also all ■ and singular, the other real estate, lands, tenements and hereditaments of the said The Medina Gas Light Company, whether the same then were or should thereafter be acquired by the said The Medina Gas Light Company; and all and singular the scales, tools, machinery,fixtures, implements and appliances of every nafure and description ; and' all brands; stamps, trade marks and other articles of personal property which then were or should thereafter he acquired by the said The Medina Gas Light Company, and after default should be made in the conditions of said mortgage, 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 has been acquired or might thereafter be acquired by the said The Medina Gas Light Company, with all and singular its rights, privileges and franchises, and all and singular the estate, right, interest, property, possession, claims and,demands whatsoever as well in equity as.in law of the said The Medina Gas Light Company in or to the same and to every part and parcel thereof with the appurtenances.”
It was by this same description that the property was sold by the sheriff and by him conveyed to the purchaser. The language of the description is very comprehensive, and is broad enough to cover not only every speciés of property, but also every right capable of being enforced by action which the gas light company might have when default should be made and foreclosure become necessary.. It obviously was intended to cover all such property and property rights, and we can fin'd no room for supposing that it was within the intention of -the mortgagor to exclude from the lien and operation of the mortgage any valuable thing whatever in the nature-of property capable of passing by deed or assignment, which it might possess when the time came for the enforcement of the mortgage. Where the intention to include everything owned by a mortgagor or grantor is. so clear, there is no room for the application of the' rule noscitur a socáis. There is certainly as much reason for so construing the description in the mortgage as to cover the par tic u*258lar cause of action now under discussion as there is for holding that it passed -to the plaintiff under the consolidation agreement. That consolidation was effected Under chapter 367 of the Laws of 1884, which in its 5tli section provides for the vesting in the consolidated company of all the property of the constituent companies,, describing what is to pass as follows: “ Every species of ■ property, real, personal and mixed, and things in action thereunto belonging * * * and all rights of property, privileges, franchises- and interests.” It cannot be questioned, and. least of all by the.- plaintiff, that this description is broad enough to have; covered- the-, right of action which the Medina Gas Light Company had against this defendant at the time of - the consolidation, and if the statutory description .was broad enough to cover that cause of action we are quite unable to see why the description in the mortgage was not also broad enough to cover it. That the cause of action arose after the execution of the mortgage is of no consequence. The description of the property mortgaged expressly covered after-acquired property and things in action, and it must be deemed to be now well settled that a mortgage covering after-acquired property is valid, and that the lien thereof will attach to such property as is acquired, provided that, as in the present case, no rights of creditors intervene. (Central Trust Co. v. Kneeland, 138 U. S. 419; National Bank of Deposit v. Rogers, 166 N. Y. 390.) It is argued that it would be an anomaly and quite incongruous to hold that the holder of bonds, secured by a mortgage, should have as security for his bonds a cause of action for the conversion by his vendor of the very same bonds. Under the unusual circumstances of this case such a result is neither absurd nor incongruous. The security intended to be given for the bonds was all tlie property of the mortgagor, and it was contemplated that the proceeds of the bonds would be used for the enhancement and betterment of the property that was intended to be covered by- the mortgage, for it appears that the company then had no indebtedness,' so that'if the intention with which the bonds were authorized had been carried out, the value of the security would presumably have been proportionately increased. That this intention was not carried out was due to the‘defendant’s wrongful act, and thus the mortgagor found itself in possession, not of the proceeds of .the bonds, but of a substitute for such proceeds in the shape of a cause *259of action for damages, and it is quite as reasonable that' this cause of action should pass under the mortgage for the protection of the bondholder, as it would have been that the betterments, if the money-had been applied to betterments, or the money itself, if' it had remained in the treasury unexpended, should have fallen under the lien of the mortgage and been sold upon foreclosure.
We-are, therefore, of the opinion that the cause of action against the defendant was sold on the foreclosure sale and became the property of the purchaser. That being so, it is unnecessary to consider whether he effectually sold it to • Ebons,' or whether the latter effectually released the defendant. In any case the plaintiff has no title to the cause of action.
■ The judgment should be reversed and new trial granted, with costs to appellant to abide the event.