Summary
In Bank of Auburn v Roberts (44 N.Y. 192), the Court of Appeals construed a statute providing for State compensation necessitated by the State enlargement of the Erie Canal. The court found that mortgagees as well as owners were entitled to share in the State's compensation, but only after specifically finding that the "object and intent" of the enabling legislation "was to give compensation for such deterioration in value, and the damage resulting therefrom (the construction of the canal), and the parties sustaining it."
Summary of this case from Cohn v. Freshwater WetlandsOpinion
Argued September 27
Decided December 28, 1870
Charles Tracy, for the appellants.
James R. Cox, for the respondent.
It appears from the finding of facts, that the mortgagors acquired their title to the property covered by and included in the mortgage sought to be foreclosed, from the Bank of Auburn, the plaintiff, under and by virtue of a conveyance bearing date the 1st day of May, 1855, and that the said mortgage was executed at the same time to secure a part of the purchase money or consideration therefor. An abstract of that conveyance among the exhibits of the case shows that among the further and other rights referred to in the mortgage and covered thereby were the following: "All and singular the water rights, rights, privileges and easements in any and every way pertaining to said premises, and owned by the said parties of the first part, or to which they are in any way entitled or privileged in respect to the premises hereby granted, together with all and singular the hereditaments and appurtenances thereunto belonging or in any wise appertaining." At the time of the execution of the said conveyance and mortgage there was a statute of the State in force (ch. 329 of the Laws of 1854), relating to the enlargement of the Erie and other canals, the seventh section thereof (which directed that the work for such enlargement should be put under contract by the canal board and progress to completion so as to bring the said several improvements to use), contained this provision "but nothing in this section shall authorize the said board to abandon the present canal through cities or incorporated villages where an independent canal may be deemed advisable."
An act was subsequently passed (ch. 743 of the Laws of 1857), which, after confirming and establishing the location of certain sections of the enlarged Erie canal, and providing for the construction thereof on the north and independent line, and to bring the same into use in the spring of 1858, declared in the second section thereof, that all that portion of the old Erie canal lying east of the Owasco outlet in the village of Port Byron might on the fulfillment of the provisions of the third section of the act be abandoned and filled up by the canal board, and that it should not be subject to the restrictions of the said law of 1854, above set forth, and also that the remaining portion of the old canal lying west of the said Owasco outlet should be excavated to the depth of the enlarged canal, and be kept in navigable condition. The said third section authorized and required the canal appraisers to make an appraisal of the damage caused by the depreciation and destruction of the value of the property situated upon or adjoining the old canal, which was so to be abandoned by the said provisions of the second section of the act, and to make a fair and equitable award of the amount of said damages respectively to each of the said owners of the said property, including land and buildings which were then and had been used for building purposes; and provision was then made for the payment of such damage.
The act of 2d April, 1858, set forth in the statement of facts (ch. 87 of the Laws of 1858), authorizing the abandonment of the portion lying west of the Owasco outlet and east of lock No. 52 in the said village, and providing for the payment of the damages caused thereby was passed.
That act clearly recognizes a right or claim to compensation by Edward Bradfield and Henry Roberts, and by other owners for damages to property situated on the old canal arising from or caused by the abandonment thereof, and also the necessity of a release by the latter before the money awarded under the act should be paid to Bradfield Roberts. The third section of the act of 1857 (ch. 743), is based on the assumption that there will be a depreciation, and in some instances a destruction of the value of property situated upon and adjoining the old canal, resulting from or in consequence of its abandonment, and that the owners thereof are entitled to be compensated for the damages caused thereby, and both of those acts declare expressly that the abandonment may be made "on the fulfillment of the provisions" then made for the appraisal or settlement and payment of such damages. They appear to recognize and treat the restrictions of the Laws of 1854 referred to therein, which prohibit the abandonment of the old canal through cities and incorporated villages, as a provision in the nature of a legislative assurance to the owners of land situated thereon or adjoining thereto, that they would not be deprived of the use thereof and consequently, that a valuable " privilege" was thereby secured to them, and it may be reasonably and fairly assumed that the parties to the conveyance and mortgage of the mortgaged premises contemplated, and had reference to that as one of the "privileges" granted thereby as above stated. While, therefore, it may be true as the referee states, in his conclusions of law, that the Erie canal has never been made appurtenant to said premises by patent nor by grant, nor by prescription, nor by adverse possession, and that a change thereof did not take away any estate or property vested, or passed by the mortgage, it was, nevertheless, as he also finds in a limited sense, appurtenant to the mill property, and directly necessary to its full enjoyment, and such change injured and impaired its value.
The object and intent of the act of 1858 was to give compensation for such deterioration in value, and the damage resulting therefrom, and the parties sustaining it, not as a gratuity, but in satisfaction and discharge of a claim conceded to be "just and equitable." Although Edward Bradfield and Henry Roberts, the mortgagors and legal owners of the property subject to the lien of the mortgage were named in the act, they were so named for the purpose of designating the property for which the canal board was authorized and required to settle, and award the damages thereto caused by the abandonment. Those were the only damages to be settled upon by them under the provisions of that act, and such special and particular designation was, therefore, proper, but no greater or different rights were intended to be given by reason of specifically naming those persons than a general provision directing an appraisal and award of damages to all the owners of property depreciated in value, as was done under the act of 1857 (chap. 743), above referred to. An award in such case to "owners," would be construed to include mortgagees, and other incumbrancers and their rights would be protected, the object of the law being clearly to allow damages to the extent of the diminution in value of, and damage to the property itself, and such construction of the enactment as would give such owners the absolute right to the whole of the sum awarded, and exclude all persons having liens from all benefit therefrom, would be unreasonable, and cannot be properly given. Indeed, the provisions of the general law respecting the powers and duties of the canal board, and the commissioners of the canal fund (chap. 160 of the Laws of 1841, § 5) appeared to contemplate an award to owners, and provide for the protection of the incumbrancers and the distribution of the fund among the parties in interest. See also, Stowe v. Tifft (14 John. Rep., 463), and the comments of SELDEN, J., thereon in Hitchcock v. The North Western Insurance Company ( 26 N.Y., Rep., 68, etc.)
The views above expressed lead me to the conclusion, that the amount of the award in question must, in equity, be considered as an equivalent, and substitute for the deterioration in value of the property, and as a security for the mortgaged debt, and that the referee was right in declaring that the plaintiff had an equitable lien in the draft and its proceeds, and had a right to follow them to the hands of the appellants to the extent at least stated in his report, and in directing judgment to be entered by him. The only sum paid by the appellants, was the sum of $1,750 advanced by them to Daniel P. Wood, and one Woolson, which was allowed to them, and they gave credit for the balance on their books to the said mortgagor for an antecedent debt owing by them. They were not, therefore, bona fide holders of the draft beyond the amount so advanced. I see no ground for the reversal of the judgment appealed from. It must consequently be affirmed with costs.
The act of the legislature in 1858 authorized and required the canal board to settle upon the damages to the mill property. It is an acknowledgment of damages committed by the State to real property, by an unexpected alteration of the route of the Erie canal at that particular place. The construction of the canal had drawn to it the investment of money in manufactures and buildings, based upon its permanency and advantages. The owners are named in the act, and the award is directed to be made to them. These owners had previously mortgaged the mill property to the plaintiffs, to secure a large portion of the consideration money for its conveyance to them, and the change of the location of the canal has very considerably impaired the value of the security. The damage to the mill property, referred to in the said act, has affected the interests of the mortgagees, by impairing their security, and to that extent, whatever it may be, their rights are injured. The equitable interests of the plaintiff are prior to, and greater than the legal or equitable rights of the owners of the land, to the extent that their security has been impaired. The State, admitting a liability for damages done to the mill property, directs an award to compensate such damages. The sum awarded arises from, or grows out of the land, by reason of the injury which has diminished its value. In equity it is the land itself. It takes the place of the reduced value of the land. A mortgage of land carries with it, in equity, a right to the accruing rents, when there has been a default, and the security is inadequate and the debtor insolvent. (8 Paige, 565, and 10 Paige, 45.) The court will appoint a receiver in such a case to hold the rents till the event is ascertained. The mortgage is thus made to operate as an equitable assignment of the rents. The application of this principle does not divert the money from the owners of the land. It pays their debt, and benefits them to the same extent. In my opinion, the mortgage carries with it the prior right to the damages awarded for an injury done to the freehold, whereby the security has been impaired, and the debtors, as in this case, are insolvent. The mortgage should be regarded as an equitable assignment of so much of the damages awarded as will be required to satisfy a deficiency which may arise on a foreclosure sale. The sum awarded should be considered as the land. The appellants, having parted with nothing except the sum paid to discharge the liens of Wood and Woolson, are entitled to protection against the rights of the plaintiffs as mortgagees, only to that extent.
The judgment should be affirmed with costs.
Judgment affirmed with costs.