Gunther v. Mayer — 74 N.Y. Sup. Ct. 116

Majority

p. 116

GOTTLOB GUNTHER, Plaintiff, v. RUDOLPH MAYER and Others, Defendants, THE HOLLAND TRUST COMPANY and THE TWELFTH WARD BANK OF THE CITY OF NEW YORK, Appellants, and Others, Respondents.

Headnote

Mortgage by an insolvent corporation to secure bonds previously issued in accordance with an agreement made before insolvency — 1 R. 8 ., p. 603, sec. 4.

Where a domestic corporation, by the requisite vote of its stockholders, agreed to-issue bonds, to be held as collateral security by a bank for an existing debt and future advances, and to give a mortgage to a trust company to secure such bonds, and thereupon made and issued the bonds, and some months thereafter became insolvent, and the mortgage was not made until after the company became insolvent:

p. 117

12eld, that, by reason of the mortgage being given under an agreement to execute it, made long prior to the insolvency, and of the fact that money had been acquired by the corporation under such agreement, the mortgage was not obnoxious to the statute (1 K. S., p. 608, § 4), which forbids transfers by a corporation in contemplation of insolvency, and declares such transfers void.

That it was immaterial whether the money represented by the bonds was to be raised by selling the bonds by the bank and so paying the debt or not.

That the agreement to give a mortgage to a trust company, as a naked trustee, was an agreement in equity to give the mortgage for the security of the persons who held the debt.

The bonds referred to the mortgage security, and each bond stated that it would not become valid until authenticated by the signature of the trustee.

Reid, that the trustee’s signature was not vital under the circumstances; that the bonds having been delivered by the obligor as good bonds, the approval of the trustee could be indorsed upon them at any time thereafter.

Appeals by tbe Holland Trust Company and the Twelfth "Ward Bank of the City of New York, respectively, from an order of the Kings County Special Term, entered in the office of the clerk of Queens county on the 3d day of November, 1892, confirming the report of a referee in proceedings to acquire surplus money arising on the foreclosure of a mortgage.

The Revised Statutes (vol. 1, p. 603, § 4), provide that, “ whenever any incorporated company shall have refused the payment of any of its notes or other evidences of debt, in specie or lawful money of the United States, it shall not be lawful for such company, or any of its officers, to assign or transfer any of the property or choses in action of such company, to any officer or stockholder of such company, directly or indirectly, for the payment of any debt; and it shall not be lawful to make any transfer or assignment in contemplation of the insolvency of such company, to any person or persons whatever; and every such transfer and assignment to such officer, stockholder or other person, or in trust for them or their benefit, shall be utterly void.”

Each of the bonds referred to in the following opinion, stated that “ the payment of the said series of bonds, with the interest thereon, is equally and ratably secured by a Deed of Trust or Mortgage, made and delivered by the said, The Yertical Tube Boiler Company to Holland Trust Company, as trustee. * * * This bond shall not become valid until authenticated by the signature of ■ the Trustee aforesaid.”

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WilUam FT. Dyhnan, for tbe appellant, tbe Holland Trust Company.

Frederic J. Swift, for tbe appellant, tbe Twelfth "Ward Bank.

P. Q. FcJeerson, for tbe respondents.

Tbe Yertical Tube Boiler Company, a domestic corporation, executed a mortgage to tbe Holland Trust Company upon its lands in Queens county to secure $75,000. Tbis amount was represented by seventy-five bonds of $1,000 eacb. Tbe Holland Company was simply a trustee. Tbe mortgage is a first record ben on tbe surplus money in question, but it was given when tbe Tube Company was insolvent and in contemplation of insolvency and is, therefore, void. Tbe Trust Company and a creditor bolding some of tbe bonds seek to escape tbis result by proof that tbe mortgage was given under an agreement to execute tbe same at a time long prior to tbe insolvency; that money was acquired under tbe agreement and that thereupon tbe mortgage was not in contravention of tbe statue. (Paulding v. Chrome Steel Co., 94 N. Y., 334 .)

Tbe referee has found against the agreement and tbe only question is whether tbe finding is supported by tbe evidence. It appears that tbe Steel Company, in April, 1888, bad an account with tbe Twelfth "Ward Bank, in tbe city of New York. That then tbe Steel Company borrowed money of tbe bank. During the year 1888 notes were given and renewed, and in March or April, 1889, it was agreed by the president and treasurer of the Tube Company and tbe president of tbe bank that security must or should be given to secure the existing debt and all future advances, and that a meeting of tbe Tube Company should be called to consider the subject, which meeting met on April 5,1889. Tbe meeting resolved to give a mortgage for $75,000 to a trust company to secure bonds in that amount. Tbe bonds were soon thereafter drawn, but the drawing of tbe mortgage was delayed by the attorney until October, 1890, when tbe company was insolvent. Tbe bonds were not signed by tbe treasurer of tbe Steel Company until September or October, 1889. Tbe whole issues were delivered as collateral security to tbe Twelfth "Ward Bank. Forty-five thousand of these are still held

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by tbe bank and 30,000 by tbe Trust Company. No question can be made as to tbe authority of tbe parties wbo contracted for the security in tbe spring of 1889. Tbe president and secretary represented tbe Steel Company and tbe president, Steers, represented tbe bank. Tbe negotiations were initiatory only and the Steel Company voted tbe security, and tbe requisite number of stockholders approved the vote. Tbe bank received tbe bonds with the official approval of the Steel Company written thereon, and received them at once when printed, long before tbe mortgage was given. It is immaterial whether tbe money in them was to be raised by selling tbe bonds by tbe bank and paying their debt out of it or not. Tbe security was voted to pay the bank debt and the bond which recites tbe agreement was at once delivered to tbe bank, and an agreement to give a mortgage to a naked trustee was an agreement in equity to give tbe mortgage for tbe security of tbe persons wbo held tbe debt. The trustees’ signature was not at all vital under the circumstances presented by the case. The Steel Company delivered tbe bonds as good bonds and tbe approval of tbe trustee could cover at any time thereafter.

The order should be reversed and the motion to confirm referee’s report denied, and tbe surplus ordered to be paid to tbe Holland Trust Company, with costs to appellant out of fund.

Pbatt, J., concurred; DteMAN, L, not sitting.

Order reversed and surplus ordered to be paid tbe Holland Trust Company, with costs to appellant out of tbe fund.