Court Opinion

ID: 3608388
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:53:14.149409+00
Date Added: 2024-06-11T14:00:36.193987
License: Public Domain

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The legal conclusion that the defendant converted the bonds in suit is based upon findings of fact which are amply supported by the evidence. All of the learned justices of the Appellate Division who sat in the case agreed that there had been a conversion of the bonds, but differed as to the time when it was effected. Four of the justices were of the opinion that the conversion took place when the defendant transferred the bonds to the German-American Bank on December 27th, 1890, and one of them thought that the conversion was consummated when Stranahan pledged the bonds to the defendant on September 21st, 1886. Thus there is unanimity of opinion as to the fact of the conversion, but a difference of views as to the time when it took place, and the importance of this divergence lies in the fact that if the bonds were converted in September, 1886, the six years' Statute of Limitations had expired before this action was commenced in September, 1895; but if the conversion was not committed until December, *Page 101 
1890, the defense of the Statute of Limitations, interposed by the defendant, is of no avail. The plaintiff asserts that there was no conversion until the 26th day of August, 1895, when his predecessor in title made a demand upon the defendant for the return of the bonds or the payment of their value, and this is upon the theory that the defendant's original possession of the bonds was lawful, so that no cause of action for conversion could have arisen until after a demand by the plaintiff and a refusal by the defendant. We think the plaintiff's contention is not tenable. The rule that one who comes lawfully into possession of property cannot be charged with conversion thereof until after a demand and refusal is too well established to justify extended discussion. (Goodwin v. Werthemier, 99 N.Y. 149; Converse
v. Sickles, 146 N.Y. 200; Castle v. Corn Exchange Bank,148 N.Y. 122; Tompkins v. Fonda Glove Lining Co., 188 N.Y. 261.) But it has no application in a case where the lawful custodion of property commits an overt and positive act of conversion by an unlawful sale or disposition of the same. (Pease v. Smith,61 N.Y. 480.) So long as the defendant was in possession of the bonds, under circumstances which might have made that possession lawful or unlawful at its will, a demand and refusal were necessary to put it in the wrong, but when it assumed to transfer the bonds to the German-American Bank it committed an act which was in hostility to the right and title of the plaintiff. This was a distinct and unequivocal conversion. It was a wrongful taking, which at once created a cause of action in favor of the owner of the bonds. No demand was necessary. The sole object of a demand is to convert an otherwise lawful possession into an unlawful one. In such a case the refusal furnishes the only evidence of a conversion. We think that the majority of the justices of the Appellate Division were clearly right in holding that the defendant converted the bonds on the 27th day of December, 1890, and not on September 21st, 1886, as contended for by the defendant, or on the 26th day of August, 1895, as claimed by the plaintiff. *Page 102 
The defendant acquired lawful possession of the bonds in 1886 and retained such possession until it transferred them to the German-American Bank in December, 1890. The character of this possession was not affected by the wrongdoing of Stranahan in pledging the bonds to secure his personal indebtedness to the defendant, nor by the apparent participation of the latter in this unauthorized act, for it could still have elected to continue in custody thereof as trustee. Having once lawfully acquired the physical custody of the bonds, the defendant could not be guilty of a conversion of them until it did something to indicate that it proposed to ignore the owner's rights and assert its own claim in hostility thereto. Nothing of that kind transpired until December, 1890, when the defendant assumed to treat the bonds as its own by transferring them to the German-American Bank in consideration of the payment by the latter of Stranahan's indebtedness to the defendant. That was the time when the defendant first evinced its purpose to ignore its trust and repudiate its lawful custody of the bonds by claiming dominion over them in hostility to the rightful ownership of the plaintiff's predecessor in title. As this action was commenced within six years of defendant's conversion of the bonds, and within two years and seven months of the time when the plaintiff's predecessor in title discovered the fact, it is clear that the defense of the Statute of Limitations cannot be upheld.
The defendant also contends that the cause of action upon which the plaintiff has recovered in this suit was included in the description of the property covered by the mortgage of the Medina Gas Light Company to the defendant as trustee for the bondholders; that it was subject to the lien of the mortgage; and that it passed to the purchaser at the foreclosure sale and through him by assignment to Koons, who executed a release to the defendant. This contention is planted upon the clause in the mortgage quoted in the foregoing statement of facts by which the subsequently acquired real and personal property of the mortgagor is declared to be subject to the lien *Page 103 
of the mortgage. This clause, after enumerating various kinds of personal property which might be subsequently acquired, includes "bills receivable, debts, demands, dues, choses in action and accounts," but it is to be observed that these items are restricted to such as might be acquired after the execution of the mortgage "and after default shall be made herein."
Conceding then for the moment that the general designation "choses in action" is broad enough to include causes of action arising out of torts, the plaintiff's cause of action would not be embraced because it came into existence before any default had occurred in the obligations which the mortgagor had assumed.
A careful study of the context of the clause in the mortgage relied upon by the defendant to uphold its title to the cause of action in this suit clearly shows, however, that it could not have been within the contemplation of the parties to the instrument that the term "choses in action" should include a cause of action arising out of a tort committed in dealing with the bonds which the mortgage was given to secure. The "choses in action" referred to in that clause were obviously such as might come into existence and be acquired by the mortgagor through its contractual relations with others in the regular course of business. We find the expression associated with such items as "bills receivable, debts, demands, dues and accounts." These kindred terms define "choses in action" as property ejusdemgeneris, and not causes of action arising out of torts committed after the execution of the mortgage. The principle of noscitur asociis applies.
While these considerations are entirely sufficient to annihilate the defendant's contention that it has acquired the cause of action upon which the plaintiff has recovered herein, they are almost technical as compared with the higher and broader reasons for which the defendant's plea should be ignored. To speak plainly, it seems to us like trifling with the meaning of plain English, expressed in a solemn contract to argue that the term "choses in action" can possibly refer *Page 104 
to a cause of action arising out of a conversion of the very bonds which are the subject-matter of the mortgage in which that term is employed. To uphold the defendant's bold and novel contention in this behalf we should have to adopt the theory that the parties to the trust mortgage contemplated that the trustee would be derelict in its duty, and had deliberately decided in advance that any cause of action which might arise from the trustee's turpitude should subsequently be acquired by it to serve as a shield against those affected by its wrongful acts. This is so repugnant to good morals and so shocking to the sense of justice that we find it difficult to discuss the subject with any degree of judicial moderation. We leave it, therefore, with the additional suggestion that under no construction which can possibly be given to the term "choses in action" could the defendant be permitted to succeed upon this branch of the case. A mortgage may be so drawn as to embrace within its lien property that may be acquired by the mortgagor subsequent to the execution of the mortgage. This is one of the familiar innovations upon the common law which have been absorbed into our jurisprudence. But such a mortgage, as to chattels not in esse when it is executed, is merely an executory contract to give a lien which a court of equity may enforce, as between the parties, when the chattels come into existence, or which the mortgagee may, in some cases, make effective by taking actual possession of the after-acquired property. (National Bank of Deposit v. Rogers,166 N.Y. 380, 390; Zartman v. First Nat'l Bank of Waterloo,189 N.Y. 267; Rochester Distilling Co. v. Rasey, 142 N.Y. 570. ) While such a contract is enforceable, as suggested, between the parties thereto, it is hedged about by the limitation that it shall not affect the rights of other creditors of the mortgagor. It is said that here there are no such creditors. We think otherwise. In 1891 the mortgagor was consolidated with the Medina Electric Company under the name of the Medina Gas and Electric Light Company. The latter corporation, which succeeded to all the rights and obligations of the mortgagor, executed a second mortgage *Page 105 
to the Holland Trust Company for $75,000 to secure bonds to be issued to that amount. Of the bonds thus authorized $64,000 were in fact issued and are still outstanding. If these subsequent bondholders are not creditors of the first mortgagor, it is difficult to define their legal status. But even if we assume that they are not creditors within the rule which they invoke that does not help the defendant. Prior to the commencement of the foreclosure suit the defendant had done nothing to reduce to its possession any of the after-acquired property of the mortgagor. It had not filed or refiled its mortgage as a chattel mortgage although that was required by the law as it stood until 1897. (L. 1897, ch. 418, sec. 91.) The complaint, decree, sheriff's deed and other proceedings in the foreclosure action all emphasize the fact that the court was not asked to lend its equitable aid for the purpose of subjecting to the lien of the mortgage any chattels or choses in action that came into existence after the execution of the mortgage. The whole record in the foreclosure suit indicates that although after-acquired personal property was nominally included in the mortgage and was referred to in the decree, notice of sale and sheriff's deed, none was specified or identified so as to bring it to the attention of the court. It was, in short, the usual foreclosure of a corporate mortgage in which the recital as to after-acquired personal property was treated as an empty formality as to which the court's action was neither sought nor desired. Thus there is no aspect of the case in which the purchaser at the foreclosure sale can be said to have acquired the cause of action upon which the plaintiff has recovered herein, and it follows as a logical corollary that the assignees of the purchaser could not convey or release it to the defendant.
The argument on behalf of the defendant to the effect that Stranahan's ownership of practically all of the capital stock of the Medina Gas Light Company gave him the right to deal with the corporate bonds for his own personal benefit, was disposed of in the foreclosure action (162 N.Y. 76) and need not be further discussed now. *Page 106 
The defendant's contention that it was the legal error to grant the plaintiff an extra allowance of costs cannot be upheld. In a case where there is no power in the trial court to grant an extra allowance, the right to review that question extends to this court; but when the power exists and the question arises whether it was properly exercised, the Appellate Division is the court of last resort. In this case the power existed, and the amount to be granted rested in the discretion of the courts below, subject only to the limitations of the statute. (People v. Bootman,180 N.Y. 1.) The other questions presented on behalf of the defendant have been considered. We do not think it necessary to discuss them since they cannot affect the conclusion which we have reached.
The judgment of the Appellate Division should be affirmed, with costs.