People v. E. Remington & Sons

Insolvency—Secured Creditors—Marshaling Assets. A creditor cannot prove as debts against an insolvent debtor’s estate notes executed by the insolvent as collateral security, but which give no lien on the insolvent’s property, in addition to the notes for which they are held as collateral, though others are also liable for the principal debts, either as principals or indorsers.

Appeal from special term, Onondaga county. The defendant E. Remington & Sons was a manufacturing corporation, organized in 1861. On the 21st April, 1886, it was insolvent, and at that date, in an action brought for its dissolution, temporary receivers of its property and •effects were duly appointed, andón the 5th June, 1886, judgment was entered in the action, dissolving the corporation, and making the receivership permanent. On the 21st April, 1886, the Oneida National Bank held obligations against the corporation amounting, at their face, to $43,077.50 that represented actual debts. Of this sum there were— Drafts drawn by E. Remington So Sons upon its New York house, and indorsed by Philo Remington, amounting to $26,477 50 Note made by the Remington Agricultural Company, and indorsed by E. Remington & Sons and by Philo Remington, 3,500 00 Note of Philo Remington, indorsed by E. Remington & Sons, 7,500 00 Notes and checks of E. Remington & Sons, upon which neither the Remington Agricultural Company nor Philo Remington were parties, - - . - - - 5,600 00 Total,...... - - $43,077 50 " These claims the bank was allowed to prove before the referee without objection. The bank also held as collateral security “coupon notes,” so-called; made by E. Remington & Sons, to the amount of $45,'600. These the bank claimed also the right to prove as debts against E. Remington So Sons. The referee allowed the claim, but at special term it was disallowed. On the 27th January, 1880, the bank held,, as collateral security for certain paper, coupon bonds of the corporation E. Remington & Sons to the amount of $45,600, which were secured by mortgage executed by E. Remington & Sons to trustees, and covering certain real estate and other property of the corporation. At that date, at the request of the bank, E. Remington & Sons executed and delivered to it an instrument in writing, certifying “that any collaterals you now have in your possession are considered by us as a continuous security for any paper made by us, or any drafts drawn by us upon our customers, or any indorsements made by us on paper discounted by you. In other words, itis intended that you hold all collaterals as a security, not only for the old loan, but any other loan you have made or may hereafter make to us.” From the 27th January, 1880, to May 28,1883, the bank continued to hold these bonds as such collateral. The original amount of bonds .under the mortgage was $900,000, but they were not all issued, and on the 28th May, 1883, the amount outstanding was about $400,000. In November, 1882, the corporation, finding itself embarrassed by the lien of the mortgage, proposed to the bondholders, including the bank, to cancel and retire the bonds and the mortgage, and to take and accept in lieu thereof notes of the corporation for a like aznount, having interest coupons attached, the notes to be dated November 1, 1882, and payable May 1, 1890, with interest semi-annually. This proposition was accepted, and the bonds and the mortgage were canceled, and coupon notes taken in lieu thereof. The scheme also contemplated, the funding, by two-tliirds of the unsecured creditors, of their indebtedness in said coupon notes, which was also done. The agreement, which wras signed by the bondholders, also provided that the stockholders of the corporations should assign $900,000 of the stock to certain persons in trust, to hold as collateral security for the payment of the coupon notes, and with full power to vote at meetings of stockholders. The total stock of the corporation was $1,000,000. At the time the bank signed the agreement and surrendered its mortgage bonds, E. Remington So Sons, the Remington Agricultural Company, and Philo Remington executed and delivered to it an instrument in writing, dated May 28,1883, reciting that the bank had, from time to time, discounted notes and other commercial paper of and for E. Remington & Sons and the Remington Agricultural Company, more or less of the paper being indorsed by P. Remington, and that the bank then held, and for some time had held, as collateral security for said notes or other evidences of debt, mortgage bonds of E. Remington So Sons, which the said parties desired to have the bank surrender for.eoupon interest notes of E. Remington & Sons for the same amount, and thereupon requesting the bank to deliver up the mortgage bonds, “and hold, as unconditional collateral security for any and all indebtedness of whatsoever character of E. Remington & Sons or the Remington Agricultural Co. or Philo Remington, without regard to who the said paper has been discounted for, the above-mentioned interest coupon notes in the place of and for the same purposes as you have heretofore held the above-named mortgage bonds, and this shall be your voucher for the surrender of the said mortgage bonds.” Upon the delivery of this instrument the bank surrendered its bonds and received coupon notes to the-same amount, $45,600, which it has since held under said instrument, and they are all unpaid. The Remington Agricultural Company was a partnership, composed of Philo Remington, Samuel Remington, and Eliphalet Remington, who also held stock of E. Remington & Sons to the amount of $900,-000. All of the stockholders and trustees of E. Remington & Sons had knowledge of the proposed general exchange of the mortgage bonds for coupon notes, and of the proposed general object of such exchange, and the coupon, notes were issued with their knowledge, consent, and direction, and pursuant, to resolution of the trustees to that effect, dated November 22, 1882. It appears that the bank, in the negotiations for the exchange, made it a condition that the coupon notes should be held by it as collateral security, not only for obligations of E. Remington & Sons, but also for obligations of the Remington Agricultural Company and Philo Remington. The bank appeals from an order sustaining certain exceptions, taken by the receivers of the defendant, to the report of the referee appointed to take proof of claims.