Parish v. . Wheeler

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The mortgage given by the company, dated the 7th of April, 1854, to secure its issue of bonds, was upon its real estate, railroad, bridges, ferries, c., locomotives, engines, cars, tenders, shops, tools and machinery, and "all other personal property whatsoever in any way belonging or appertaining to the said railroad of the said company." The inclination of my mind is, that the canal boats in question were not included in this description. The boats were used and run in connection with the road, forming that connection at the point where the road terminated. They were, in a general sense, accessory to the business of the road; but I very much doubt whether they belonged or appertained to it, according to any interpretation which we can place upon those terms.

Assuming this to be so, I think, nevertheless, that the trustees to whom the mortgage was given may be looked upon as representing the rights of the railroad company for any purpose material to this case. In October, 1855, the company was in default in respect to the interest due upon the bonds secured by the mortgage, and they executed to the trustees a deed of surrender of all the mortgaged property, whether real or personal. This deed certainly conveyed nothing which the mortgage did not embrace; but, under it, the trustees, or mortgagees, took possession of and controlled these boats, and this was done with the consent of the company through its president. After this arrangement, the boats were run by the agent, Church, under the direction of the trustees, and they were held and used in this manner at the time when it is alleged that the defendant refused to deliver them up to the plaintiff. These facts are mentioned, not for the purpose of showing a title in the trustees to this property under their mortgage, or under the deed of surrender; but to show that the defendant, as a trustee, had a lawful possession under the railroad company, so as to be irresponsible to the plaintiff, provided the corporation itself would be irresponsible, if it had been in possession at the time of the demand, and had refused to deliver up the property. It is not material to determine the precise relations between the company and the trustees; it being enough if the latter had the property in their hands by the consent and under an authority derived from the company. They may be regarded as bailees without title, and so accountable for the use of the boats; or we may call them mere agents. In any aspect, so far as mere possession, or the duty of giving up that possession to the plaintiff, are concerned, they stood in the shoes of the company. We must, therefore, inquire into the relations between the plaintiff and the company, for the purpose of ascertaining whether the plaintiff had any title or interest at the time of the alleged conversion. He must recover upon his title if he can recover at all, because he never had an actual possession, and because he only complains that the defendant refused to deliver the possession to him.

Proceeding then to that inquiry, the plaintiff had a security upon these boats in the nature of a mortgage. They were conveyed to him on the 30th August, 1854, by Church, on the procurement of the company, and pursuant to a previous agreement between the plaintiff and the company, dated the 4th of August, 1854, by which he agreed to reconvey to them or their appointee, on payment of the sums and liabilities which the agreement specified. It needs no argument to prove that this arrangement constituted a mere mortgage, and that the interest of the plaintiff would cease when his claims were satisfied. Much has been said on both sides about the supposed illegality of the original purchase of these boats by the company, through and in the name of its agent Church. It has been urged that the purchase was beyond the powers of the company; that the transaction was consequently illegal, and that the illegality is not cured by using the name of an individual in the purchase, or by the intention that he should hold the title; and it is also urged that as the corporation, for the reason suggested, could not possibly acquire the title, it could not convey or mortgage, or procure it to be conveyed or mortgaged, to the plaintiff. I take the view most favorable to the plaintiff on this question, and concede that the conveyance to him was effectual and is to be maintained according to the exact terms and conditions on which it was given. Nor have I the slightest doubt that this is the correct view. Much has been loosely and inconsiderately said about the incapacity of corporations to acquire property outside of the precise purposes specified in their charters. To all propositions of this nature the short answer is, that corporations sometimes do actually purchase and hold property under that condition. If a railroad company buys and pays for a horse or a boat, and the vendor delivers the chattel, the corporation will own it and can sell or mortgage it, although its charter cannot be pleaded in strict justification of the purchase. This is a conclusion of common sense and common honesty, which no legal subtlety or refinement can refute. It cannot be true that the vendor of a chattel, who sells and delivers it to a corporation and receives his pay for it, can allege that he has never sold it, on the mere ground that it was unlawful for the corporation to buy it. Nor can it be true that the title is lapsed or lost on any such ground. These boats, therefore, belonged either to the railroad company or to Church their agent, in whose name they were purchased; and it is not material to inquire which was the owner according to the forms of that transaction, because the transfer to the plaintiff was the act of both of them.

Assuming, then, that the plaintiff, in August, 1854, took a valid security upon the boats in the nature of a mortgage, the material inquiry is, whether his claims, secured by the transfer, were satisfied at the time of the alleged refusal to give up the property; or, if not satisfied, then whether the referee erred in awarding to the plaintiff damages in the sum of $8,400 — that being the value of the boats at the time of the alleged conversion.

In pursuing this inquiry, it becomes necessary to notice the history of the steamboat Boston, which the plaintiff also held as security for the same demand in the manner presently to be mentioned. It appears that, in or before March, 1852, one French, a British subject, and the agent of the company at Ogdensburgh, purchased the British vessel Boston for the use of the company. He paid part of the purchase money, and for the balance drew his four drafts on the company, payable at different times, which were accepted by the company and indorsed by one Horton. The vessel, upon this purchase, was transferred to French, and was registered in his name. It was designed, however, for the service of the company on the river St. Lawrence and Lake Ontario, and it was used accordingly. The said drafts would all mature prior to July, 1854, and the company was bound to pay them according to its acceptances. They had reimbursed to French the money which he paid down on the purchase. The boat was, in fact, bought wholly for the benefit of the company, and French executed a declaration of trust in its favor accordingly.

In the agreement of August 4, 1854, between the plaintiff and the company, which has been mentioned in connection with the canal boats, it was further stipulated that the company would procure from French a conveyance of the steamboat Boston to one Dickinson, of Canada, to be held by the latter also as a security for the same liabilities specified in that agreement, and to be reconveyed on the payment thereof. The vessel being a British bottom, the plaintiff could not take the transfer directly to himself. The agreement, therefore, appointed Dickinson to take such transfer, and it was made to him accordingly in September, 1854. He was, however, a mere trustee of the plaintiff, having no interest in the transaction, which, like that concerning the canal boats, was designed simply to create a security to the plaintiff for the claims and liabilities which the agreement enumerated. That security, it will now be seen, covered both the canal boats and the steamer Boston.

Looking now at the state of the accounts, for the purpose of ascertaining the extent of the plaintiff's demands, if he had any, at the time of the alleged conversion of the boats, there are only two items which I propose to notice. The defendant denies that the plaintiff should be credited with the sum of $5,396.86, advanced by him to pay the last of the drafts drawn for the original purchase money of the Boston, and which the company had accepted. This is one of the items specified in and intended to be secured by the said agreement of August 4, 1854, and the plaintiff made the advance on the faith of that agreement and of the transfer of the steamer and canal boats; and he made it at the time of the transfer in September following. In other words, it was a present advance secured by the mortgage. This item of indebtedness the defendant proposes to reject, on the ground that the purchase of the steamer by the corporation wasultra vires and illegal; and he insists that the plaintiff, knowing all the facts, made this advance in pursuance and consummation of that purchase. That the plaintiff knew all the facts is undeniable, and the referee has, in substance, so found. It should be further stated, that Horton, the indorser of the draft in question, had taken it up, and that the plaintiff paid the money to him. I am clearly of opinion that the position of the defendant, in respect to this item of the account, cannot be maintained. Conceding that the company, being simply a railroad corporation, ought not, according to its charter, to purchase and own a steamboat, it nevertheless did purchase one in the name of another person, and it took the possession and had the use of the property. Save and except such questions as might arise under the navigation laws, the company became the owner of the boat, and its title was never questioned. The vendor never repudiated the sale on any ground; and I think it would be very absurd to say that the corporation itself, or the defendant standing in its situation, can repudiate the transaction the benefit of which was received in the manner stated. In my judgment, when a sale of a chattel, made to a corporation, is executed and complete in all things, except the performance of its own promise to pay the price, a plea that it ought not to have made the purchase is not to be entertained, especially so long as it retains, and insists upon retaining, all the benefit of the contract. In this case, the chattel was not only delivered and used by the purchaser, but the vendor received all his pay for it, so that reclamation on his part, upon any ground, was out of his power. The draft now in question represented the unpaid balance of the purchase money. It was paid by Horton, who had indorsed it for the accommodation of the company. It would be strange if the company could not lawfully protect and reimburse their own indorser, and equally strange if, after requesting the plaintiff to make the payment for them, they can be allowed to deny that they are indebted to him on that account. If the purchase of the steamboat involved any breach of the public law, the corporation alone was guilty, because all the restraints of the statute or the common law, affecting the transaction, are imposed upon it alone. There is certainly no moral turpitude if a railroad corporation buys a steamboat or builds a church; nor is there any legal turpitude. It may be an excess of power, or a private breach of trust in respect to its stockholders. The latter may complain, or the State may interpose; but corporations themselves, like individuals, in dealing with other parties, must live up to the rules of common honesty. My opinion is, that the referee properly allowed the advance which has been here considered, although my reasons for this conclusion are not precisely those which appear to have influenced him.

The other item which I propose to consider belongs on the debtor side of the plaintiff's accounts. The claims and liabilities mentioned in the agreement of August 4, 1854, were all to be satisfied by the 1st day of June, 1855. The same agreement provided that, on the transfer of the steamboat to Dickinson and of the canal boats to the plaintiff, charter parties should be executed back to Lee, the president of the railroad company, to last until the said day of payment should arrive; and that, if the demands were paid according to the agreement, the steamboat was to be reconveyed by Dickinson and the canal boats by the plaintiff to such person or persons as the company should direct. In default of payment on the day specified, the property was authorized to be sold at public auction. The company made default, and the steamboat was sold at auction, pursuant to the power thus given, on the 23d of October, 1855, for the sum of $11,500. This sum, the plaintiff insists, is not to be allowed in payment or reduction of his claims under the security in question, assigning the alleged illegality of the agreement of August 4, 1854, as the only reason for this pretension. The learned referee appears to have sustained this position. In his opinion, which is before us, he assumes that the agreement was illegal; that the parties thereto, being the corporation and the plaintiff, were in pari delicto; and he then observes, that the law will aid neither party. In this branch of the case he considered that the defendant was the actor in seeking to enforce the application of the moneys raised at the sale, and that the plaintiff being in possession of the fund, the maxim, "potior est conditio defendentis," applied. I incline to think, with the Supreme Court, that this reasoning, if it has any just foundation, is fatal to the plaintiff's entire case. The supposed illegal agreement of August 4, 1854, and the transfers of the steamer and canal boats, made in pursuance thereof, are parts of one transaction, and, together, they constituted the mortgage which is the plaintiff's only title to the property in controversy. If the contract, therefore, was illegal, in such a sense that the plaintiff, having sold a part of the mortgaged property, is not accountable for the proceeds, the same illegality, I apprehend, will prevent the enforcement of the contract in his favor as to another part of the same property.

But I am constrained to reject all the arguments on both sides of this case founded on the alleged illegality of any of the transactions involved. Contracts with corporations, made in excess of their powers, which are purely executory on both sides, and where no wrong will be done if the parties are left in their previous situation, I am willing to agree, should not be enforced, because such contracts contemplate an unauthorized diversion of corporate funds, and, therefore, a breach of private trust. But the executed dealings of corporations must be allowed to stand for and against both the parties, when the plainest rules of good faith so require. On another occasion, I have said all that I desire to say on this general subject. (Bissel v. The Michigan Southern R.R. Co., 22 N.Y., 262.) The most unfavorable statement of the particular matter now in question is, that the railroad corporation, in excess of the powers conferred by its charter, purchased and paid for a steamboat and several canal boats; that, being in the possession and use of the property in connection with its regular business, it mortgaged the same property to its creditor the plaintiff, taking back charter parties for a limited period, and also a stipulation for a reconveyance if the debt should be paid at the time agreed on; that the plaintiff, taking the usual course in such cases, caused a part of the property to be sold after a default had occurred, and received the proceeds of that sale, which nearly or quite satisfied the debt. In all this I can see nothing unlawful except the want of legal power or right to buy the property. But it was actually bought, paid for and delivered, and, therefore, became a part of the estate and assets of the company. The company could sell or pledge it to a creditor, and could redeem the pledge by paying the debt. In acquiring the ownership of such property, the corporation may have usurped a right not granted by its charter. But the acquisition was, nevertheless, a fact which no legal refinement can deny. It was a fact, too, having all the legal relations and incidents of any other fact of ownership. I think it will not be questioned that an execution creditor of the company could levy on this property and sell it for the satisfaction of his debt, and having thus obtained a satisfaction, I do not think that he could deny that he was paid, upon any theory of excess of corporate power, and levy again on other property. So, if the creditor, instead of proceeding to judgment and execution for his debt, takes a pledge or mortgage, and, by the exercise of the power of sale, obtains the cash for his demand, I do not see how he can raise the inquiry whether the corporation debtor violated the trust or duty which it owed to its shareholders in the purchase of the chattels pledged or mortgaged. So long as no one else questions the title thus acquired, and the property is made productive in the satisfaction of the debt, it would be strange if the creditor can, upon such ground, claim that the debt still exists. And such is, in effect, this case. The security of the plaintiff, as I have said, was in the nature of a mortgage. The stipulation to reconvey on payment of his claims provided for nothing beyond the legal result of the transaction. The reconveyance, it is true, was to be made to the appointee of the corporation; but that clause, considered by itself, involved nothing illegal or even ultra vires. The plaintiff actually sold a part of the property for the payment of his debt, and he received the money. No one but himself questions, or can question, his right to make the security available in that manner. He does not pretend or suggest that he cannot hold the money thus obtained. On the contrary, he insists upon retaining it against all the world; but, at the same time, claims that his debt is neither paid nor reduced. Much has been said in the books (sometimes, I think, without reflection), about the powers of corporations and the consequences of exceeding those powers. But no authority can be found to justify the position of the plaintiff in respect to the matter here considered. I feel no hesitation in saying that the sum of $11,500, produced by the sale of the steamboat, pursuant to the power contained in the mortgage, must be applied toward the satisfaction of the plaintiff's demand.

It becomes unnecessary to examine further into the claims covered by the security. After charging the plaintiff with $11,500, the parties still differ upon the question whether those claims were satisfied at the time of the alleged conversion of the canal boats. It is conceded, however, that no such sum remained due as the referee awarded to the plaintiff, by way of damages for that conversion. The utmost that is claimed to be due, after allowing that sum, is a balance ranging from $1,000 to $3,000, and I incline to think, without a special examination, however, that the smallest of these sums is nearest to the truth. The plaintiff recovered $8,400, as the full value of the boats. This recovery, therefore, can only be sustained on the ground that if any sum, however small, was due, the legal measure of damages for the conversion of the property mortgaged was necessarily the full value of that property. From the case, and the opinion of the learned referee, I am not able to say whether he proceeded on this ground or on the ground that the debt still due, after rejecting the credit of $11,500, exceeded the value of the boats, or whether his conclusion rested on both of these grounds. Allowing, as we do, that credit, the last mentioned ground becomes untenable; and it remains, therefore, only to inquire whether the other can be maintained.

It has already been observed that the defendant and his co-trustees were in possession of the boats either as mortgagees, or, if they were not included in the mortgage to them, then as bailees or agents of the company. Their possession was, at all events, a lawful one, because it had the full sanction and authority of the company. It must follow, that any defence to this suit, whether legal or equitable, whether a full or a partial one, which the company might have if they had converted the property, is available to the defendant. Could, then, entire damages, or, in other words, the full value of the property, be recovered against the railroad company? I think this question must be answered in the negative.

In the common law action of trover, the measure of damages, it is true, was usually the value of the property converted. If the suit was against a mere stranger, and parties other than the plaintiff had legal or equitable interests in the property, the sum recovered would be held by him upon a trust corresponding with those interests. A mortgagee, having the right of possession before forfeiture, and the absolute legal title afterwards, could sue in trover for the conversion of the chattel mortgaged, and, without regard to the amount of his debt, could recover the full value against a stranger guilty of such conversion. But the mortgagor, even after forfeiture, had an equitable right to redeem on payment of the debt. If, therefore, the mortgagee should, in such a case, recover the entire value in this form of action, the fund, after satisfying the debt, would belong in equity to the mortgagor, and could be recovered by suit in equity, or in the equitable action for money had and received. And from this it necessarily results that, in trover by the mortgagee against the mortgagor, the damages should not exceed the amount of the debt. This is a conclusion which avoids a circuity of remedies. If, in the legal action of trover, the mortgagee recovers a sum, as the value of the property, beyond the amount due to him, on principles of equity he must refund to the mortgagor, if the equities of the latter have not been in any manner foreclosed or lost. But the law will attain the same result in a more direct manner, by adjusting the damages in the first instance according to the actual rights of the parties. This would be so if the law were administered according to the former system, under which the separation between legal and equitable rights and remedies was distinctly marked. It is more plainly so now, because, under the existing system of procedure, legal and equitable remedies are merged, and actions of the former class are subject to defences which belong to the latter. Thus, a mortgagee of chattels may, by action in the nature of trover, assert his legal right. But the mortgagor, or those claiming or holding under him, may also defensively assert their equitable rights.

Without examining other questions in this case, it results, from the facts and principles which have been stated, that the judgment entered upon the decision of the referee was erroneous, and that the Supreme Court were right in granting a new trial. This being our conclusion, the order must be affirmed, and judgment final must be rendered against the plaintiff, according to his stipulation, unless he elects to withdraw his appeal and pay the costs thereof.

DENIO, J., stated the following conclusions as the result of his examination of the case:

1. The canal boats were not embraced in the description of the property mortgaged to the defendant and the other trustees. The personal property mentioned was not all such as belonged to the company, but such as belonged or appertained to the railroad. The writer of the paper had enumerated locomotives, engines, tenders, cars, tools and machinery, and then, thinking apparently that there might be other property of a similar kind which would not be embraced in this language, added, "all other personal property" "in any way belonging or appertaining to the railroad of said company." The canal boats did not belong or appertain to the railroad, though they were considered as belonging to the company. Their use in a transportation line between Rouse's Point and New York might be beneficial to the income of the road, and so would anything else which should facilitate traffic upon it; but that was not the kind of relation called for by the words used in the mortgage.

2. I consider the boats to have been in the possession of the railroad company at the time of the execution of the instrument of August 4, 1854; and that the company owned them so far as it was possible for it to own personal property which it had purchased and paid for, but which it was not authorized, under its charter, to use in any business which it could legitimately carry on. The builders or former owners had no title, for they had sold the boats and had been fully paid for them. Church had no title; for he had paid nothing towards them, but had acted throughout, in the purchase, as the servant or agent of the corporation. Moreover, he had put the company in possession of the boats, by employing them in the transportation line which was actually operated by the company. I am of opinion that the company could pass a title to property thus situated by a sale or mortgage thereof to a third person, which title would be good against the company and against any person claiming under it. They would be, themselves, estopped from setting up the infirmity of their title; and the defendant, claiming under the company, would likewise be estopped.

The same principle will establish the validity of the mortgage of the steamer Boston. As to that part of the case, I am of the opinion that it was quite lawful for the plaintiff to lend the company money to take up its acceptance, though the paper was given for the purchase of property which it had no right to use. The plaintiff is accountable for the proceeds of the sale of the steamer, after deducting what he was obliged to pay in order to enable him to convey a good title.

3. It is made a question whether the mortgage to the plaintiff was not void, under the provisions of the statute. (1 R.S., p. 603, § 4.) The plaintiff was shown to be a stockholder; and if the company had refused the payment of any of its evidences of debt in specie or lawful money, within the meaning of the section referred to, it could not transfer to him any of its property for the payment of his debt. The mortgage of August 4, 1854, was such a transfer, though it was made as a security, and not in payment. The provision, in my opinion, embraces conditional transfers as well as absolute ones, where the object is to provide for the payment of the debt. But the mere suffering its acceptance to lie over, because it had not at the moment the means of payment, is not a suspension of specie payments within the meaning of the act. The words "refuse the payment of any of its notes," c., mean something more than a mere neglect to pay by the day. The company, so far as it appears, had never intended to avoid the payment of this acceptance in specie, or its equivalent. It is not shown that payment had been demanded of the company. The very transaction which is challenged as illegal was entered into in order to raise money to pay the acceptance, and it was effectual for that purpose.

4. Nor was the mortgage forbidden by the latter part of that provision, which prohibits preferential conveyances in contemplation of the insolvency of the company; for it was not executed in contemplation of insolvency, within the meaning of that provision. The evidence no doubt shows that the company was greatly embarrassed; but the mortgage in question appears to me to have been given in the course of an honest endeavor to struggle along, in the expectation that it would eventually get through with its difficulties. It was not made in contemplation of insolvency, but in the hope of preventing insolvency. (Curtis v. Leavitt, 15 N.Y., 9, 110-142.)

5. If I am right thus far, the plaintiff had the title to the boats as mortgagee, and the defendant, by refusing to yield to and recognize that title, was guilty of a conversion, unless the mortgage debt due the plaintiff had been otherwise paid before that time. To determine that question, it becomes necessary to look at the contested items of the account. The statement of the respondent's counsel, which I assume to be accurate, except in the instances to be presently mentioned, shows an over-payment by the company to the plaintiff of $79.03. The award of Parrott, which is put down to the debit of the company at $2,089.13, cannot be increased on account of the mistake which is shown to have been made. The plaintiff can only stand on his mortgage, which, in this respect, is limited to "the sum of or amount of the award of W.P. Parrott." But the plaintiff should not have been charged with the gross amount of the proceeds of the sale of the steamer Boston. He was obliged to pay $1,522.41, more or less, in obtaining possession of the steamer; and this was a charge upon the fund, and should be taken out of the amount for which the steamer was sold. This correction alone would leave nearly that amount due on the mortgage. The defendant was not entitled to charge the plaintiff the sum claimed for the use of the cars. By the terms of the mortgage agreement, claims of this nature were to be applied on the mortgage debt or not, at the option of the plaintiff.

6. The last question which I have thought it necessary to consider is, whether, assuming that the plaintiff was entitled to recover (as I think he was), he has not recovered too much. The rule of damages which the referee applied was the value of the boats; and he reported in favor of a recovery for $9,023.86. This was correct, if the defendant stood in the situation of a stranger; but if he held the possession under and by the authority of the railroad company, who were the plaintiff's mortgagors, then, inasmuch as the plaintiff would not be accountable over, in consequence of the conversion by the defendant, his recovery should have been limited to the amount of the unpaid balance of his mortgage debt. The latter was, I think, the fair result of the evidence. Mr. Lee was the president of the corporation, and he had the possession of the boats, nominally as a private individual, and under a charter party to himself. But this was a mere cover; as the boats, up to the time of the surrender to the trustees, were run for the benefit of the corporation, and by its agents and servants. When the road, engines, cars, c., came to be surrendered to the mortgage trustees, on the 6th October, 1854, they were also permitted to, and did, take the charge of the canal boats and run them, as they had theretofore been run, in connection with the road; they only engaging to indemnify Lee for any personal liabilities he had incurred by running them under the charter party. As to the road, the trustees were mortgagees in possession. The canal boats were not really embraced in the mortgage, but they had always been used in connection with the road; and the parties, namely, the officers of the corporation, on one side, and the trustees on the other, without making any question as to whether they were within the mortgage or not, consented that the trustees should take and use them. The trustees were, at least, the bailees of the corporation as to these boats, and they ought not to be made responsible to the plaintiff except for his actual damages. As to the remainder of the value of the boats, the trustees are accountable to the corporation or to its representative, and not to the plaintiff.

It follows that a new trial was properly ordered, on account of the erroneous rule of damages which was applied at the trial; and as the plaintiff has stipulated for judgment final against him if the order for a new trial should be affirmed, such judgment must be given, unless the plaintiff is permitted to withdraw his appeal and take a new trial. I am of opinion that he should be permitted to do this, upon the payment of all the respondent's costs of the appeal. Otherwise, there should be judgment final for the defendant.

I have not intended to make a precise statement of the account, but only to examine it so far as was necessary to determine that the balance was less than the recovery, but that it was so considerable that it would be unjust to hold the plaintiff to his stipulation.

It will be subject to adjustment on another trial.

SELDEN, J., expressed no opinion; all the other judges concurring,

Ordered accordingly.