Court Opinion

ID: 6134535
Source: CourtListenerOpinion
Date Created: 2022-02-04 21:35:40.120232+00
Date Added: 2024-06-11T08:54:28.093731
License: Public Domain

Barnard, P. J.:
One of the principal points involved in this appeal has, since the argument, been decided by the Court of Appeals in the case of Metropolitan Trust Company v. Tonawanda Valley, etc., Railroad Company (103 N. Y., 245). In that case, as in this, the Special Term made an order that certain receiver’s certificates given for labor performed before the appointment of the receiver, should be preferred to a mortgage lien which existed upon the property. The Court of Appeals held that there was no principle upon which the claim of employees for labor performed before the receiver was appointed, could be so extended as to impair or postpone the lien of the mortgage. The Court of Appeals, in its opinion, calls this class of creditors “ rpere general creditors, with no special equities,” as against prior liens.
The present case differs only in this, that instead of an appeal being taken from the order authorizing the certificates, the question is first raised upon the reference as to the distribution of the sur*418plus moneys under tlie purchase-money mortgage. The appellant claims that the certificates awarded preference on claims “ with special equities.” The property was in danger from the passions of unpaid workmen, and these certificates were used to prevent its destruction. The Court of Appeals decision seems to have been made upon a different theory. In that case the claim was made that the property had been enhanced by the labor of the workmen which was included in the mortgage. The court says in reply to this, “ it is easy to see that under such a plea the lienor might be entirely defeated, and the foreclosure of his mortgage rendered inoperative and useless. Such a result, except upon his consent, the court have no power to sanction.
The next question is whether theuorder was consented to in such a way as to be a formal estoppel against the mortgage lien. The difficulty here principally arises from the fact that Soutter is at once stockholder and director in the company, and trustee for the bondholders. As one of the directors, he consented to the action to dissolve the corporation, to the appointment of a receiver, and he approved of the orders authorizing the certificates in question. This is fairly inferable, although he denies in his testimony that he knew of the proceedings, except from the publication of the proceedings from time to time in the newspapers. . No decree was entered, and as he was trustee there is no consent. When the certificates were authorized the trustee was not a party to the action. To hold, under this inconclusive proof, that the trustee, as trustee, consented to violate his duty to the bondholders under the mortgage, would not be warranted even if the trustees could represent the bondholders for such a purpose. After a careful examination of the case, we think that the weight of authority is not of an order which sets aside liens to the advantage of a general creditor. That it is only the income of the property which courts apply to the payment of current expenses before the mortgage debt is paid. That it is not right to entirely displace the lien. (Burnham v. Bowen, 111 U. S., 782.)
There were no earnings, and there are no receivers’ certificates which have a right of payment before the Soutter mortgage, including the Daily certificates.
The order confirming report should be reversed, and the report *419set aside, and order of reference vacated, costs to tbe trustee appellant out of the fund, and to the respondent on his appeal as to the Daily claim, out of the fund. •
Dykman, J., concurred.
Order confirming report reversed, and report set aside, and order of reference vacated; costs to the trustee appellant out of the fund, and to the respondent on his appeal as to the Daily claim, out of the fund.