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Knickerbocker Trust Co. v. Condon

Supreme Court of New York, Appellate Division

December 29, 1911

THOMAS G. CONDON, Appellant.

APPEAL by the defendant, Thomas G. Condon, from a judgment of the Supreme Court, entered in the office of the clerk of the county of New York on the 9th day of March, 1911, pursuant to an order made at the New York Special Term and entered in said clerk's office on the 8th day of March, 1911, granting the plaintiff's motion for judgment on the pleadings, and also from the said order upon which the judgment was entered.


Edward J. Shumway, for the appellant.

Hedley V. Cooke, for the respondent.


The plaintiff alleges that on September 7, 1909, the sum of $8,000 with interest at six per cent from the date of the loan, which is not given, was due and owing to it by the Fireproofine Manufacturing Company, a domestic corporation, for moneys theretofore loaned; that on said day it agreed to extend the time of payment of the principal one month at the request of said company and of the defendant, and the original debtor gave its note for $8,000, payable on October 7, 1909, and the defendant guaranteed in writing the payment of the note; that part of the principal but no interest has been paid, and that a balance of $6,600 principal and interest on the amounts from time to time unpaid is due and unpaid, for which it demands judgment. The defendant served an answer, and on the plaintiff's

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motion it was declared insufficient, and leave was granted to amend. He then served an amended answer admitting the allegations of the complaint and setting up matter in three counts, as follows: The first as a separate and distinct defense; the second as a separate and distinct defense and by way of setoff, and the third as a separate, distinct and partial defense and by way of setoff. The plaintiff then moved for judgment on the pleadings. The motion was granted and defendant appeals.

In the first separate and distinct defense the defendant alleges that on or about September 1, 1902, the plaintiff, for a valuable consideration, entered into an agreement, which it was authorized to make, with the Fireproofine Manufacturing Company, a West Virginia corporation, which agreement was to continue until 1922, wherein and whereby it promised, covenanted and agreed with said company to become mortgagee or trustee under a certain mortgage or deed of trust of all the property of said company, which mortgage was given as security and collateral for an issue of one hundred bonds of said company of the par value of $1,000 each, and to act as mortgagee or trustee of said property for the security, benefit and protection of the bondholders, and entered upon the discharge of its duties as such mortgagee or trustee; that when the defendant executed the guaranty on which the action is based, eighty-seven of said bonds had been duly issued and were outstanding, and twelve of them were delivered to plaintiff--it is not alleged by whom--'as surety for the payment of said note,' with authority to sell the same on default by the company in paying the note; that the mortgaged property 'consisted of certain machinery processes of fireproofine, lease of certain premises' on One Hundred and Fifty-second street in the city of New York, owned by the William Astor Estate, to run for twenty years, and the buildings thereon and certain fixtures, tools, implements and equipment thereon, of the value of $42,000, and of the rental value of $1,000 per month; that in June, 1909, the company became insolvent and unable to pay its debts or the ground rent of said premises, for which it was in arrears and subject to eviction; that said movable fixtures were of the value of $16,000; that in March,

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1909, the defendant owned forty-four of said bonds, and with a view to preventing a forfeiture of said lease, he procured as a sub-tenant for said premises the American Mahogany Company, who entered with the consent and knowledge of the Fireproofine Manufacturing Company and said William Astor Estate, and who paid rent to the company for the use and occupancy of said premises until about the 1st of July, 1909; that at this time, the company being insolvent and in default for six months in payment of semi-annual interest due on the bonds, the plaintiff had a right to enter and take possession of the mortgaged property, and to foreclose the lien of the mortgage; that to avoid waste, loss and depreciation of the mortgaged property, and to prevent the forfeiture of the lease, the defendant, with the knowledge and consent of the William Astor Estate, and in behalf of the bondholders and the company, negotiated for a sale of the mortgaged property to said American Mahogany Company, which had offered therefor the sum of about $36,000, and in order to give it good title, free and clear of incumbrances, he requested the plaintiff to foreclose the mortgage and 'to take such other steps as were necessary to protect and secure the rights, property and interests' of the bondholders, 'and sell and dispose' of the property, and informed the plaintiff of said facts, and requested that it take action immediately; that the plaintiff commenced an action to foreclose, and on September 3, 1909, had a receiver appointed by the Supreme Court therein, who thereupon promptly entered upon and took possession of the mortgaged property and premises; that defendant had agreed to indemnify plaintiff in the sum of $1,500 for the expenses of the foreclosure, which plaintiff agreed should not exceed said sum; that defendant guaranteed payment of the note, 'believing' that plaintiff as mortgagee and trustee would 'duly and carefully protect the rights and interests of said mortgaged property' by taking, whenever necessary, 'all actions and proceedings requisite to safeguard and protect the rights and property of said bondholders,' as it was authorized, and was its duty under said mortgage, which gave it the exclusive right of action thereunder 'until its refusal to act and to decline to accept the duties of trustee for the said bondholders;

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' that when the receiver was appointed, the American Mahogany Company owed two months' rental for the use and occupation of the premises, which was of the reasonable value of $2,000, which by the terms and conditions of the mortgage had been assigned to the bondholders; that plaintiff failed to cause to be collected and paid to the receiver the rentals due, and those which accrued for use and occupation by said company from that time until March 1, 1910, during which time the receiver was in charge and said company used and occupied the property; that the monthly rental due the Astor Estate was about $700 and 'said rentals had been unpaid and in arrears; ' that at defendant's request the Astor Estate had given an extension of time for payment of the rentals in arrears, and plaintiff was so informed 'at and prior to the commencement of said foreclosure' action, and notified that the property would be wasted, forfeited and lost by any delay on its part; that the plaintiff 'wilfully and grossly neglected and refused to take the necessary steps and procedure to collect the outstanding rents, issues, profits and debts due the bondholders under the aforesaid deed of trust; refused to have the ground rents of said premises paid; wilfully and negligently refused to take any steps to compel the receiver to collect any of said rents, issues, profits or debts due the said bondholders or to pay the ground rent of said mortgaged premises, but did delay said proceedings for the sale of said premises until or about the 23rd day of February, 1910. That at which said time said mortgaged property was sold to the said Astor Estate for the sum of or about Five thousand dollars ($5,000) and certain releases to the said Fireproofine Manufacturing Company for debts due it, and which sum was subject to charges, fees and expenses of or about Four thousand dollars ($4,000), in breach of and in contravention to the said agreement with defendant that all charges thereto should not exceed Fifteen hundred dollars ($1,500); ' that said American Mahogany Company was solvent and able to pay said rentals, and that 'solely owing' to plaintiff's failure to collect the rentals and to pay the rentals due to the Astor Estate, the lease, with the buildings and fixtures, together worth $26,000, were forfeited by it for one dollar 'by and with the consent of said plaintiff,

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and also of a release to said Fireproofine Manufacturing Company of or about Sixteen thousand dollars ($16,000) for back and unpaid rentals, as and in part payment, using the bondholders' property to pay the debts of the Fireproofine Manufacturing Company and said plaintiff did, on information and belief, release and permit the discharge of the said receiver from any and all claims against him by the said plaintiff as trustee for said bondholders and from all and any claims due him from the said American Mahogany Company for rentals,' and that 'on information and belief, said plaintiff failed and neglected owing to its neglect to collect the sums due as rentals to compel said receiver to sell or offer for sale, separate and apart from said buildings and lease, the machinery, fixtures and other personal and portable property not forfeited to said Astor Estate, and to remove said machinery from said buildings and place them in marketable condition; ' that said twelve bonds were of or about the value of $7,000, and by reason of the premises they reduced or depreciated to $125, the amount realized and received as the pro rata share of said bonds on said foreclosure sale, after deducting expenses, and now in the hands of plaintiff and applicable in payment, in part, of said note, to defendant's damage 'in the sum of or about Six thousand eight hundred and seventy-five dollars ($6,875).' The second separate and distinct defense and setoff realleges all but two paragraphs of the first defense, which contained the allegations to the effect that defendant indorsed the note 'believing' that plaintiff would 'duly and carefully protect the rights and interests of said mortgaged property,' and that the value of the bonds so deposited as collateral security was depreciated, as alleged, by the neglect of the plaintiff, and further alleges that the said mortgaged property, which was worth $42,000, was ...

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