Central Trust Co. v. Manhattan Trust Co.

Laughlin, J.: The plaintiff is the trustee under a mortgage executed by the West India Improvement Company to secure an issue of bonds of that company aggregating $1,000,000. The West . India Improvement Company was organized to promote the Jamaica railway and after executing the trust mortgage to the plaintiff it made an assignment to the appellant of 53,000 shares of stock of the Jamaica Railway Company and first mortgage bonds to the extent of $30,000 and second mortgage bonds to the extent of $100,000 to secure notes of the improvement company aggregating $1,000,000. The plaintiff, claiming that these shares óf stock and bonds are covered by its trust mortgage, brings this action to set aside their assignment to the appellant. When the mortgage was executed to the plaintiff the securities were not in the possession of the improvement company but were pledged as security for the performance of certain work by that company. When the securities came into possession of the improvement company, instead of delivering them to the plaintiff, it assigned them to the appellant. The issues were referred and tried and the decision of the referee was reviewed in this court and by the Court of Appeals where a new trial was granted. (Central Trust Co. v. West India Improvement Co., 48 App. Div. 147; 169 N. Y. 314.) The effect of the decision of the Court of Appeals is that as between the parties these securities were covered by the trust mortage held by the' plaintiff but that the appellant is entitled to hold them as security for the payment of such of the notes of the improvement company as were purchased in good faith and for value in reliance thereon after the delivery of the securities' [427] to the appellant. Upon the trial before the referee the purchasers or holders of some of these notes were made parties. Some of the notes are held by the administrator of the estate of Calvin S. Brice and others by the .¿Etna Powder Company. It does not appear whether or not they are tona fide holders for value and within the protection of the decision of the Court of Appeals. The plaintiff insists that they are not necessary parties. It is not clear that they are. If they purchased the notes for value on the faith of the assignment after the delivery of the securities to the appellant, then they would be proper parties and the appellant would be authorized to hold the securities for the payment of the notes held by them. The object of the action is to reach the securities which are in. the possession of the appellant as trustee. The trustee will be protected by giving notice to the holders of these notes of the commencement, object and pendency of the action. Then if the holders of the notes claim to have purchased relying upon this assignment as security they may present their evidence through their trustee or they may avail themselves of the benefit of the order made by the court which affords. them an opportunity of voluntarily becoming parties to this action. Whether they do or not, the adjudication then will protect the trustee. If it appeared that these parties were or claimed to be tona fide holders for value, having purchased upon the faith of the assignment after the delivery of the securities to the appellant, that would present quite a different question, but this is not shown.' We are, therefore, of opinion that at this stage of the litigation the court was justified in refusing to direct that the plaintiff bring in the holders of these notes as parties defendant, otherwise than by affording them an opportunity to come in as was done. It follows that the order should be affirmed, with ten dollars costs and disbursements. Patterson, O’Brien and McLaughlin, JJ.,. concurred ; Ingraham, J., dissented.