Union Trust Co. of Lancaster v. Berwick Consol. Gas Co.

WITMER, District Judge. The fund for dish ibution was realized on order of court'appointing S. C. Jayne and W'-lliam E. Barrett as master commissioners to foreclose a certain mortg¿ge dated November 21, 1903, given by the Berwick Consolidated Gas Company to the Union Trust Company of Lancaster, trustee for the ni&rtgage bondholders. The total bond issue outstanding was $90,000, of which, on July 1, 1905, $60,000 were owned by the Union Trust Company and the remaining $30,000 by parties other than the trust company. The coupons that matured on these bonds, January 1, 1905, were on July 5, 1905, in the possession of the trust company, by whom the same were delivered to A. V. Sickels, then president of the mortgage company, on payment of $2,250. The trust company at the time of such delivery knew that the mortgage company did not pay the coupons when it accepted the money from Sickels on delivery of the coupons. Their further understanding appears from a letter of the company’s treasurer transmitting the same, viz.: “These coupons are uncaneeled with the exception of twenty-five dollars ($25.00) being two coupons of twelve dollars and fifty cents ($12.50) each, which were canceled in error by this institution. "VYe have noted the same on the bach of the coupons, which will enable you to hold them as lien against the company and in case any question should arise in regard to cancellation this institution will stand back of them ready to make good that amount.” Since then these coupons have been legally vested by proper assignment in the Knickerbocker Trust Company of New York. The question is whether the coupons are a preference and entitled to payment before the principal of the outstanding bondfe. The mortgage provides the manner or order of distribution of the proceeds of sale of the mortgaged property: First, to payment of interest'due thereon; and, second, to the payment of the principal. The answer would readily follow, were it not argued that the passing of the coupons through the hands of the president of the mortgage company operated as a cancellation of the coupons and not as a mere assignment. While it is true, as between the coupon holder and claimants for the principal of the bonds, the latter are entitled to the benefit of the presumption that it was the mortgagor who furnished the funds and the coupons were paid and canceled and not purchased, nevertheless this presumption, like airy other, will yield to the agreement of the parties to the transaction, implied or otherwise. The case of Fidelity Insurance, Trust & Safe Deposit Co. v. West Penn & Shenango R. Co., 138 Pa. 494, 21 Atl. 21, 21 Am. St. Rep. 911, was cited as showing that a private arrangement between a third party and a mortgagor, concerning the payment- of mortgage bond coupons paid with money furnished by such third party, is not enforceable against the bondholders and that the transaction should be treated as a payment by the former. It will be noted also, upon a further examination of this case, that such arrangement is binding where the bondholders themselves are consulted and made parties. To the same effect is section 771, p. 2058, Cook on Corporations (5th Ed.) vol. 3. While being trustee, the Union Trust Company was also owner of $60,000 of bonds and in the possession, as well, of the coupons of the [513] remainder of the total issue. As such it must be regarded, in the transaction, as acting for itself and as agent for those whose coupons it delivered to Sickels whereby all the holders were bound by the action of the company in obtaining the money for their share of the coupons transferred. It may be assumed that the letter quoted refers to the two canceled bonds only, nevertheless the language employed implies assertion that the other bonds not canceled should also retain the lien given by the mortgagee, and this must be regarded as the agreement between the parties. The coupons are entitled to preference and pajunent before the principal of the outstanding bonds. It is therefore decreed that S. C. Jayne and William R. Barrett, the master commissioners, pay in manner to the Knickerbocker Trust Company, assignee of A. C. Sickels, or their solicitor, Henry C. Niles, Esq., the sum of $2,250, with interest thereon from January 1, 1905.