People v. E. Remington & Sons — 27 N.Y. St. Rep. 599

Majority

p. 599

The People v. E. Remington & Sons. In the Matter of the Proof of the Claim of the Oneida National Bank, App’lt.

(Supreme Court, General Term, Fourth Department,

Filed December 7, 1889.)

Headnote

Insolvency—Proof of claim.

Appellant held certain claims against the insolvent corporation as maker or endorser of notes, which it proved. It also held certain coupon notes which it had been agreed should be held as security for any indebtedness of the corporation or the other parties to said notes. Meld, that having proved its claims it could not al=o prove the coupon notes; that this would • in effect prove the same debt twice.

Appeal by the Oneida National Bank from an order of the Onondaga special term sustaining certain exceptions taken by the receivers of the defendant to the report of the referee appointed to take proof of claims.

The defendant “ E. Remington & Sons ” was a manufacturing corporation organized in 1861. On the 21st April, 1886, it was insolvent and at that date, in an action brought for its dissolution, temporary receivers of its property and effects were duly appointed and on the 5th June, 1886, judgment was entered in the action -dissolving the corporation and making the receivership permanent.

On the 21st April, 1886, the Oneida National Bank held obligations against the corporation amounting at their face to $43,077.50 that represented actual debts.

Of this sum there were drafts drawn by E. Remington & Sons upon its New York house and endorsed

by Philo Remington, amounting to............... $26,477.50

Note made by the “ Remington Agricultural Co.” and endorsed by E. Remington & Sons and by Philo

Remington.................................. $3,500 00

Note of Philo Remington endorsed by E. Remington &

Sons................. 7,500 00

Notes and checks of E. Remington & Sons upon which neither the Remington Agricultural Company nor Philo Remington were parties.................. 5,600 00

Total $43,077.50

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These claims the bank was allowed to prove before the referee without objection. The bank also held as collateral security coupon notes, so called, made by E. Remington & Sons, to the amount' of $45,600. These, the bank claimed also the right to prove, as debts against E. Remington & Sons.

The referee allowed the claim, but at special term it was disallowed.

On the 27th of January, 1880, the bank held, as collateral security for certain paper, coupon bonds of the corporation E. Remington & Sons to the amount of $45,600, which were secured by mortgage executed by E. Remington & Sons to trustees, and covering certain real estate and other property of the corporation. At that date, at the request of the bank, E. Remington & Sons executed and delivered to it an instrument in writing certifying “ that any collaterals you now have in your possession are considered by us as continuous security for any paper made by us or any drafts drawn by us upon our customers or any endorsements made by us on paper discounted by you. In other words it is intended that you hold all collaterals as a security, not only for the old loan, but any other loan you have made or may hereafter make to us.”

From the 27th January, 1880, to May 28th, 1883, the bank continued to hold these bonds as such collateral. The original amount of bonds under the mortgage was $900,000, but they were not all issued, and on the 28th of May, 1883, the amount outstanding was about $400,000. In November, 1882, the corporation finding itself embarrassed by the lien of the mortgage, proposed to the bondholders, including the bank, to cancel and retire the bonds and the mortgage, and to take and accept in lieu thereof notes of the corporation for a like amount, having interest coupons attached,, the notes to be dated November 1, 1882, and payable May 1,1890, with interest semi-annually.

This proposition was accepted, and the bonds and the mortgage-were cancelled, and coupon notes taken in lieu thereof.

The scheme also contemplated the funding, by two-thirds of the unsecured creditors, of their indebtedness, in said coupon notes, which was also done. The agreement which was signed by the-bondholders also provided that the stockholders of the corporation should assign $900,000 of the stock to certain persons in trust to hold as collateral security for the payment of the coupon notes, and with full power to vote at meetings of stockholders. The total stock of the corporation was $1,000,000. At the time-the bank signed the agreement, and surrendered its mortgage-bonds, E. Remington & Sons, The Remington Agricultural Company and Philo Remington executed and delivered to it an instrument in writing, dated May 28,1883, reciting that the Bank had, from time to time, discounted notes and other commercial paper of and for E. Remington & Sons, and The Remington Agricultural Company, more or less of the paper being indorsed by P. Remington, and that the bank then held and for some time had held, as collateral security for said notes or other evidences of debt, mortgage bonds of E. Remington & Sons, which the said parties desired to have the bank surrender for coupon interest

p. 601

notes of E. Remington & Sons for the same amount, and thereupon requesting the bank to deliver up the mortgage bonds, “ and held as unconditional collateral security for any and all indebtedness of whatsover character of E. Remington & Sons, or the Remington Agricultural Co. or Philo Remington, without regard to who the said paper has been discounted for, the above mentioned interest coupon notes in the place of and for the same purposes as you have heretofore held the above named mortgage bonds, and this shall be your voucher for the surrender of the said mortgage bonds.” Upon the delivery of this instrument, the bank surrendered its bonds and received coupon notes to the same amount, §45,600, which it has since held under said instrument, and they are all unpaid.

The Remington Agricultural Co. was a partnership, composed of Philo Remington, Samuel Remington and Eliphalet Remington, who also held stock of E. Remington & Sons to the amount of $900,000. All of the stockholders and trustees of E. Remington & Sons had knowledge of the proposed general exchange of the mortgage bonds for coupon notes, and of the proposed general object of such exchange, and the coupon notes were issued with their knowledge, consent and direction, and pursuant to resolution of the trustees to that effect dated November 22, 1882.

It appears that the bank, in the negotiations for the exchange, made it a condition that the coupon notes should be held by it as collateral security, not only for obligations of E. Remington & Sons, but also for obligations of the Remington Agricultural Co. and Philo Remington.

F. G. Finche, for the Oneida National Bank, app’lt; Thomas Richardson, for the receivers, resp’ts.

It will be observed that E. Remington & Sons are liable upon all the obligations representing the actual debts, making up the aggregate of $43,077.50, held by the bank and proved without objection. Such liability to the extent of $11,000 is as endorser, and on the balance as maker.

The Remington Agricultural Co. and P. Remington are neither of them liable on $5,600; they are liable one or the other on the-balance. The referee held that the coupon notes of the corporation did not constitute a valid security for the payment of its own indebtedness, and applies this rule to the $5,600. He also held that they did constitute a valid security for the liabilities of The Remington Agricultural Co. and P. Remington on the balance of the claims of the bank, and could be proved by the bank as such in addition to the amount of the claims themselves. The ruling as to the $5,600 was acquiesced in by the bank. The ruling as to the other was excepted to by the receivers, and this exception was sustained by the special term.

So that the question is, can the bank, by reason of its holding the coupon notes as collateral security for any obligations against The Remington Agricultural Co. or P. Remington, prove the amount of such notes in addition to the debts for which they are

p. 602

held as collateral ? This would, in effect, prove the actual debt twice. The coupon notes carried with them no lien on the property of the corporation.

There was an arrangement by which certain stock of the corporation was to be held as collateral, and which, perhaps, by the -opportunity which it gave to control the management of the corporate business, furnished a consideration or object for the exchange of mortgage bonds for coupon notes. Whatever benefit there was in this might be realized by the holder of such notes as collateral. He would, however, have no claim on the property •of the corporation beyond the amount of his actual debt. The coupon notes were only personal obligations. The bank had certain obligations against the insolvent corporation, partly as maker .and partly as endorser, which it has proved for the full amount of its debt It has another form of obligation against the same corporation for the same debt. This does not increase, as against other creditors, the amount of the indebtedness. Being once proved, the right of the claimant in that regard is exhausted. It is not a -question as to the adjustment of specific liens, but simply to .ascertain "the amount, in fact, of the debts of the corporation, preparatory to a “ just and fair distribution of the property of the corporation, and of the proceeds thereof, among its fair and honest creditors.” Code Civ. Pro., § 1793. As said in Third National Bank v. Eastern Railroad, 122 Mass., 242 , “ a debtor’s liability to his creditor, when other creditors are concerned, is not increased by increasing the number of his promises to pay the same debt, in whatever form he may make them. To hold otherwise, would be to enable the debtor to incumber his assets by a new method, greatly to the prejudice of all other creditors.”

We think that the appellant, having once proved its entire debt, including the obligations upon which the Remington Agricultural Company and P. Remington were liable, has no right to prove, in addition thereto, the coupon notes.

The receivers attack the right of the bank to prove the coupon notes on the further grounds (1) that the bank had no right, in the consummation of the exchange of the mortgage bonds for the •coupon notes, to stipulate that it might hold these notes as collateral for the debts of other parties, and thereby obtain an advantage to itself over and above what the others had under the agreement, and (2) that such agreement on the part of the defendant corporation was ultra vires, it not appearing that all the stockholders assented. In view of the conclusion upon the other .aspect of the case, it is not necessary to discuss those propositions.

It follows that the order appealed from should be affirmed.

Order affirmed, with ten dollars’ costs and disbursements.

Martin, P. J., and Parker, J., concur.