Union Cattle Co. v. International Trust Co.

Field, J. We assume, without consideration, that if the cattle company were a Massachusetts corporation in insolvency, under our laws the trust company would not be permitted to prove its debt without surrendering the bonds which it held as collateral security at the time of the commencement of the proceedings in insolvency, as well as the bonds and notes which represented the actual amount of the indebtedness of the cattle company at that time, and that if the trust company, after the commencement of proceedings in insolvency, sold the bonds held as collateral, tire purchasers would be excluded from proving them, and the trust company would be excluded from proving even the remainder of its debt after deducting the proceeds of the bonds sold. See Third National Bank v. Eastern Railroad, 122 Mass. 240; Merchants’ National Bank v. Eastern Railroad, 124 Mass. 518; Ex parte Farnsworth, 1 Lowell, 497; In re Blakely Ordnance Co. L. R. 8 Eq. 244; In re Oriental Commercial Bank, L. R. 7 Ch. 99; Ex parte Macredie, L. R. 8 Ch. 535; Costelo v. Crowell, 134 Mass. 280. We infer from the agreed statement of facts, that the proceedings in equity which are pending are within the jurisdiction of the court of Wyoming, and that that court can dissolve the cor [499] poration, wind up its business, and distribute its property among its creditors. We do not know on wbat principles the distribution of the property under the control of that court is to be made, for we do not judicially know the law of the Territory of Wyoming. It may or may not be the law of that Territory, as administered by its courts, that the claims shall be made up as of a particular time; that the claimants shall be admitted as creditors only to the extent of the actual indebtedness of the corporation to them at that time; and that, if they then held unsecured obligations of the corporation as collateral security for the payment of its indebtedness, those obligations must be surrendered before they can be admitted as creditors to share in property in the custody of the court. As the trust company is a corporation established by the laws of Massachusetts, it is plainly beyond the power of the Territory of Wyoming to pass any law that will discharge the obligations held by the trust company; but it can prevent the trust company from sharing in any property of the cattle company which the courts of Wyoming have taken into their custody, except upon the condition that the trust company conform to the general laws which it has established for the distribution of the assets of its insolvent corporations. So far as the plaintiffs’ case rests upon the equity of creditors to-share equally in the property of the cattle company, which is being distributed by the court of Wyoming, it is for that court to determine what the rights of creditors are. It does not appear that the trust company intends to ask to be admitted to share in the property in the custody of the court in Wyoming, and if it does not, it is difficult to see how its rights are affected by the proceedings there. If it is considered inequitable by the court of Wyoming for the defendant at this time to sell the bonds held as collateral, it does not appear that that court has not the power to protect the property in its custody from any attempts that may hereafter be made to prove for their full amount all the obligations which are now held by the trust company, whether that attempt is made by the trust company, or by it and the persons who purchase the bonds held as collateral if they are sold. We do not see how the mutual rights of creditors to share in the property under the control of the court in Wyoming can be determined by this court. If, by the law of Wyoming, the trust [500] company precludes itself from sharing in that property if it now sells the bonds held as collateral, this is no reason why the company should be prevented from selling the bonds if it chooses to take the consequences. Whether the cattle company, in its own behalf, can maintain this bill to restrain the defendant from selling the bonds which it holds as collateral security, depends upon the contract between the parties. The receipt given by the trust company shows that these bonds, amounting to $55,000, par value, are “to be held as collateral security for any liability of said Union Cattle Company to said trust company.” The defendant holds bonds of the cattle company to the amount of $24,000, which it bought, and two promissory notes of the company for money lent, one for $25,000, dated September 27,1887, payable in four months from date to the order of the defendant, and one for $10,000, dated November 29,1887, payable in six months from date to the order of the defendant. On February 28,1888, the defendant gave to the receivers of the cattle company notice that, as that company had failed to pay the note for $25,000, which was then overdue, it would sell the bonds which it held as collateral at public auction and would apply the net proceeds to the satisfaction of the two notes, and of the bonds which it owns. The bonds it holds as collateral security are of the same tenor as those it owns. They are coupon bonds issued by the cattle company, of $1,000 each, payable to bearer on the first day of November, 1896, with interest payable semiannually upon surrender of the coupons. They are expressly made subject to the conditions of an agreement between the cattle company and the trust company, which is the trustee in the agreement under which the bonds were issued, “whereby it is provided,”' as expressed in each bond, “ that a sinking fund of not less than fifty thousand dollars nor more than one hundred thousand dollars in each year shall be applied to the purchase or drawing at par of said bonds, and that the whole issue may be drawn at par on November 1, 1891, or any coupon day thereafter.” We think that these bonds are negotiable by virtue of the Pub. Sts. c. 77, § 4, as well as by custom, notwithstanding the conditions referred to in them, and that on their face they appear to be bonds which were intended to be bought and sold in the market. [501] In Third National Bank v. Eastern Railroad, 122 Mass. 240, 243, it is said, citing Morris Canal & Banking Co. v. Fisher, 1 Stockt. 667, that “ great doubt is expressed whether a debtor’s own obligation has ever been held to be a pledge which can be sold in the market and applied as such.” If the parties agree that the debtor’s obligation shall be held as collateral security for the payment of a debt, and may be sold if the debt is not paid when it becomes payable, we see no reason why the agreement should not be carried into effect, so far as the parties to it are concerned. If there has been no express agreement to that effect, yet if such an agreement is implied in the contract which the parties have made, it may, we think, be enforced in the same manner as any other agreement which binds the parties. It is one of the ordinary incidents of a pledge of property to secure the payment of a debt, that it may be sold at public auction after giving notice to the pledgor of the proposed sale, if the debt for which it is security is not paid when it becomes due. The rule and the exceptions to it are stated in Merchants’ National Bank v. Thompson, 133 Mass. 482, 485. The coupon bonds of corporations for the payment of money, which have a long time to run, and are made payable to bearer that they may be bought and sold in the market, are property of such a nature that, when .pledged as security for the payment of promissory notes having a short time to run, the reasonable inference is that the parties intended that they should be sold as pledged property is usually sold if the notes are not paid when they fall due. Morris Canal & Banking Co. v. Lewis, 1 Beas. 323. See Jones on Pledges, §§ 71, 727. In the present case the bonds are payable in ten years from November 1,1886, with a right on the part of the obligor to purchase or redeem a part of the series issued each year, and to redeem the whole series on November 1, 1891, or on any coupon day thereafter. The notes, which represent either the whole or a part of the debt to secure the payment of which the bonds were •given, matured, one on- January 30, 1888, the other on June 1, 1888. It is not a reasonable construction of the contract of pledge in this case, that the parties intended that the trust company should be compelled to hold the bonds until they matured or were redeemed, if the notes were not paid at maturity. The [502] fact that the bonds are the obligations of the debtor is one circumstance to be considered; but it does not outweigh the fact that, to secure the benefit of the security at or near the time when the notes mature, it would be necessary to sell the bonds, and that the right to sell bonds of this character when held as security is one of the rights which a pledgee ordinarily has. We think that as between the parties the trust company has the right to sell at public auction the bonds held as collateral security, and to apply the proceeds to the payment of the notes. Whether it can apply the proceeds to the payment of the bonds it owns, need not be considered. Bill dismissed.