Knickerbocker Trust Co. v. Davis

LANNING, District Judge (after stating the facts). The question presented in this case calls for a construction of the syndicate agreement set forth in the preceding statement. The defendant insists that no subscriber for bonds could become liable under the agreement, or upon any of the underwriting certificates, unless and until [590] 200 of the bonds should be subscribed for. The plaintiff, on the other hand, insists that each of the subscribers for the 63 bonds who did not at maturity pay the underwriting certificates signed by him became liable thereupon in an action at law. No other question is presented. It will be observed that in the underwriting certificate the promise is to pay on January 10, 1904 (or, at the signer’s option,, at any time before that date), to the Consolidated Industries Company, or to their order, $825 upon the receipt of one of the mortgage bonds for $1,000 and of capital stock of the par value of $300 issued by the Consolidated Gas & Electric Company. The five certificates signed by the defendant were indorsed over to the Knickerbocker Trust Company, on which, with other securities, the Knickerbocker Trust Company made its loan of $51,975. By' one of the recitals to the agreement the defendant had expressly declared to the Knickerbocker Trust Company, with whom the agreement was deposited pursuant to the provisions of the last clause in its sixth paragraph, that the Consolidated Industries Company had already organized an underwriting syndicate, and that for the purpose of better aiding in obtaining the funds sought for he had duly executed and signed and delivered to the syndicate managers certain underwriting certificates, in the denomination of $825 each, to the aggregate amount set opposite his signature. In the sixth paragraph of the agreement, he had individually. authorized the syndicate managers (for the agreement is a several one) to borrow from the Knickerbocker Trust Company “up to the aggregate amount of all of said underwriting certificates,” and to. pledge with the trust company the certificates and,the bonds and shares of stock therein mentioned, and that he thereby guarantied to the trust company the repayment of the loan it should make under the terms of the agreement to the extent of the par value of the underwriting certificates signed by him and so pledged. There is nothing in the agreement that justifies the restricted construction for which the defendant contends. The Knickerbocker Trust Company was not a party to the syndicate agreement. That agreement, in counterparts, showing subscriptions to the amount of $63,000, was deposited with the Knickerbocker Trust Company. It showed that-$63,000 of the bonds were subscribed for by different individuals. These individuals constituted the syndicate referred to in the agreement, and each of them by the terms of the agreement became an underwriter for the amount of each of the underwriting certificates signed by him. The case of Bray v. Farwell, 81 N. Y. 600, which is the only case cited by the counsel for the defendant on the argument or in their brief, is not at all applicable to the facts of the case before me. There the Court of Appeals of New York held 'that a subscriber to shares of a joint-stock association having a capital fixed at $3,000,000, divided into 30,000 shares, whose articles of association contained no provision for the commencement of its business before the whole of the capital stock was subscribed, could not enforce an assessment upon a holder of its shares when it appeared that all the shares had not been taken and that that holder had not attended any meetings of the shareholders [591] or assented to the commencement of business by the association. When the present case was before this court on a motion to strike out pleas, it was held by Judge Cross (see 139 Fed. 792) that the contract of guaranty was unconditional. I agree with the view thus expressed by my associate. The contract contains no condition that the underwriting certificates shall be unenforceable unless the subscriptions to the bonds should amount in the aggregate to the sum of $200,000. The rule to show cause must be discharged.