Rogers Locomotive & Machine Works v. Kelly , 26 N.Y. Sup. Ct. 399 ( 1879 )

Ingalls, J.:

The facts which we deem essential in disposing of this case are substantially the following: The Mississippi Central Railroad Company, being a corporation, issued its mortgaged bonds with coupons attached. That corporation became consolidated with the New Orleans, Jackson and Great Northern Railroad Companies; and the new corporation was named the “New Orleans, St. Louis and Chicago Railroad Company.” The last named corporation assumed the payment of the bonds of the corporation first named. Certain of the coupons would become due on the 1st of May, 1875, and to provide for the payment thereof the New Orleans, St. Louis and Chicago Railroad Company, by and through its assistant treasurer, John M. C. Rodney, deposited with the defendants, Kelly & Alexander, $25,000, and the following instrument was executed, which specified the purpose of such deposit:

“ Received, New York, May 1st, 1875, from J. M. C. Rodney, twenty-five thousand ($25,000) dollars in trust, to apply the same to the payment of an equal amount of the coupons of the first xnortgage bonds and consolidated mortgage bonds of the Mississippi Railroad Company, in the order in which such coupons shall be presented to us for payment, after having been duly, identified for payment at our office by stamp impressed thereon, the said money not to be subject to the control of the said company, otherwise than for the payment of said coupons as above described.

“KELLY & ALEXANDER.”

Subsequently, an additional sum of $5,000 was placed by the same party in the hands of Kelly & Alexander for the same purpose, which deposit was accompanied by the following letter :

“ New York, May 1st, 1875.

“ Messrs. Kelly & Alexander :

“ Gentlemen — I herewith hand you my check for thirty thousand ($30,000) dollars, of which you will please place to my -credit $25,000, and which you will understand is placed with you to indemnify you and the New Orleans, St. Louis and Chicago Railroad Company, against a warrant of attachment served on. you by Orrin A. Bills, and which sum you will hold subject to any claim, against me' or said company, in favor of said Bills under said attachment, and the residue is handed to you in trust to be applied to the payment of coupons, in the same way as the sum of $25,000 handed to you this morning.

“ Yours, very respectfully,

“ J. M. C. RODNEY.”

Kelly & Alexander commenced paying the coupons, and when they had disbursed of such fund $11,851.94 they received notice of the attachment in favor of Orrin A. Bills, for a debt of $21,864, arising upon contract, against the New Orleans, St. Louis and Chicago Railroad Company.

We do not perceive that the last named company in any manner attempt to question or repudiate the deposit of the $20,000 above mentioned for the payment of the coupons, or complain of the manner Rodney accomplished the same. It appears that there are outstanding a large amount in unpaid coupons fairly within the contemplation of the trust. The evidence is too clear to admit of a doubt that McComb, the president of the railroad company, intended that the fund, created by the two deposits, should be devoted to the payment of such coupons, and there is no indication that he was particular in regard to the precise manner in which the fund reached its destination, but did desire that the money should create a fund to pay such coupons, instead of being subjected to seizure by Bills. McComb drew his checks in blank as to date and amount, thus showing clearly an intention to leave to Rodney, who was also an officer of the same corporation, the .arrangement of the details by which the fund should be placed in the hands of Kelly & Alexander for the defined purpose. All of the’ circumstances attending the transaction conspired to characterize such deposit as the creation of a trust for the benefit of the holders of the coupons. »

The receipt expressly declares that Kelly & Alexander : received the money in trust, and that the same should not be sub ject to the control of the company, otherwise than' for the payment of said coupons.

The letter which accompanied the additional $5,000 contained a declaration that such sum was delivered to Kelly & Alexander in trust, to be applied as they had been directed in regard to the $25,000. To allow the main purpose of such deposit to be defeated, and the holders of the coupons thereby deprived of the'money, because it is ascertained that there has been a slight departure-from the directions by which -the money was to be drawn and placed in the hands of Kelly & Alexander, and in regard to which the real parties interested in that transaction do not complain, would seem to sacrifice the substance to the shadow.

There is certainly no just reason shown why the holders of the coupons should not have the benefit of the fund, created, expressly for their benefit by the party which owed the.debt, instead of its being absorbed by general creditors. There seems to-be no pretence that the fund has been diverted by Kelly & Alexander from the purpose intended, or that it has been improperly managed in any way. We are satisfied that an irrevocable trust was created for the benefit of the holders of the coupons which the courts should see executed. The New Orleans, St. Louis and. Chicago Railroad Company, by the consolidation contract, assumed the payment of such bonds as a part of the arrangement, and the debt thereby became its own. The original corporation which executed the bonds became absorbed in the new corporation by reason of such consolidation, and through it properly endeavors to discharge its just obligations.

We are unable to-discover anything in the nature of the trust, or in the manner in which it has been thus far executed, which renders it illegal or inequitable. When' the money was received by Kelly & Alexander, it became sacredly dedicated to a clearly defined purpose, for the benefit of a class of persons specified, and who were entitled to the money. The parties to the transaction do not complain, and we perceive no sound reason why a general creditor should be allowed to intervene, seize the fund, and defeat the rights of the holders of such coupons. It is not a sufficient answer that some of the holders of the coupons had not presented their coupons in form, before the issuing of the attachment. The evidence shows that’ they were outstanding, uncanceled, and that payment is now sought from such fund.

If the view which we have taken of this case is coVrect, it becomes unnecessary for us to attempt to ascertain exactly what .was intended to be decided in Lawrence v. Fox (20 N. Y., 268)or how far the doctrine of that case has been defined or restricted ¡by subsequent adjudications. We have placed this case upon principles which had a clearly recognized existence long before the case of Lawrence v. Fox was decided. We conclude that the learned referee erred in the particular pointed out, and that consequently there must be a new trial, with costs to abide the event thereof before another referee, unless the parties shall stipulate to retry before the same referee. It is unnecessary to express ;any opinion in regard to the order appealed from in reference to the allowance, as that question will properly arise upon the next trial.

Davis, P. J., and Beady, J., concurred.

Judgment reversed, new trial ordered, costs to abide event.-