Gay Manuf'g Co. v. Gittings

SIMONTON, District Judge, (after stating these facts.) This is a case of novel impression. In the argument before us no case in point was quoted, and no authorities presented, bearing directly on the issues involved. The petitioners are holders of bonds of the Suffolk & Carolina Railroad Company, due, as to principal, in 1911, with semiannual coupons for interest. On each of these bonds is the guaranty of the Gay Manufacturing Company. They claim the right to prove their contract in the main cause, and to have a dividend declared thereon, the amount of which is to be retained by the court until it shall appear whether the guaranty go into effect or not; and they do this admitting that the railroad company is perfectly solvent, 47 with no t’ear of its insolvency in the near future. If the petitioners’ bondholders had this contract of guaranty secured by_ a lien, they could not ask or receive more than they now claim. It is contended, however, that these proceedings in the main cause are virtually tho destruetion of the corporation, and will end in the administration of its assets; that the assets of a corporation, under these circumstances, are impressed with a trust in favor of creditors, and that, as such creditors, they are entitled to come in and he protected. This brings ns to the vital issue in this appeal: Are the bondholders, holders of this guaranty, entitled to rank as creditors on the present assets of the Gay Manufacturing Company? The creditors before the court, pressing for a sale and distribution, are creditors holding a special lien by way of mortgage; creditors holding general liens by way of judgment and execution and mechanic’s lien; and, third, creditors holding demands past due, recognized and allowed by the court. It is clear thai, as against the rights of lien creditors, these petitioners cannot be heard. These liens must and will be enforced as of right. What are the equities of these petitioners as against the holders of demands past due, recognized by the court? The petition contemplates one of two courses: Either to postpone the distribution of the assets until the period shall arrive when the responsibility under the guaranty shall have been détermined, or to set apart now out of the assets the dividend to wiiich these bonds would be entitled were they present, creditors, and retain this in court to await the result of the guaranty. If this shows that the guaranty is not needed, then the money thus retained will he divided among the creditors. The first looks to the entire postponement of payment of the claims of past-due creditors; the second, to the postponement in part. The hare statement of the first proposition stamps it as one so inequitable that no court would entertain it. With regard to the second, ¡he creditors before the court have fulfilled all that the law requires. They made their contract on short time. When default occurred they took prompt steps to obtain payment, and have, by activity and vigilance, established them in court. The petitioners hold the bonds of a solvent railroad company, secured by a mortgage of all of its property, the coupons of which have been, are, and in all human probability will he, promptly met. On each of these bonds is the guaranty of the Gay Manufacturing Company, which may or not become an actual liability in 1911. The first difficulty in their way is, is this a provable claim at this stage of the main ca.se? When a court of equity calls upon creditors to come in and prove their claims before the master, it is a substitute for separate suits at law ou each of these claims; and if would seem as if the party proving must have not only a cause of action, but a right of action. Claims not yet due have no standing in court, unless special provision he made by statute for them. There is no such statute in the United States Statutes. Under the bankrupt law, (Rev. St. 50»>9,) “when the bankrupt is hound as drawer, * * * surety, or bail, or guarantor upon any * * * contract, * * * but his liability does not become absolute until after the adjudication of bankruptcy, the creditor may prove the 48 same after such liability becomes fixed, and before final dividend is declared.” Such a claim cannot be proved before tbe liability has become fixed. Until that time it is not regarded as a debt due and payable, or even as a debt existing, but not payable until a future day, so as to be provable. In re Loder, 4 Ben. 305. But it is said that tbe petitioners have an equity which this court will recognize and administer. Tbe practical difficulty is insurmountable. If this equity is recognized and protected, to what extent shall it be done? Will tbe courts declare a dividend proportionate to tbe whole principal of $150,000, and tbe coupons accruing between this date and 1911? Will it go into an estimate by balancing probabilities, and attempt now t.o fix a sum which will represent tbe present value of this guaranty? When tbe holders of these bonds accepted the simple guaranty of tbe Gay Manufacturing Company at tbe long-date, they did so knowing that it was subject to all tbe vicissitudes which may befall a trading corporation. They voluntarily suspended a right of action until a late period, knowing that the corporation would incur debts, and that these debts must be paid. Tbe petitioners at this stage of the cause can have no standing- in court. This case has been decided as between creditors and persons claiming to be creditors. It was stated at the bar that the property of the Gay Manufacturing Company may realize more than enough to pay the liens and the proved past-due debts. Should this be the result of the sale, there may arise a very different question with regard to this surplus, as between the petitioners and the stockholders. No opinion is expressed on this point. Deciding the case simply upon the equities between creditors and these petitioners, we affirm the circuit decree dismissing the petition, with costs. Let the case he remanded to the circuit court for such other proceedings as may he proper. As great delay has already occurred in enforcing the unquestionable rights of lienholders, let the mandate issue on the filing of this opinion.