Court Opinion

ID: 8823394
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:40:00.870964+00
Date Added: 2024-06-11T17:04:42.325652
License: Public Domain

MAYER, Circuit Judge
(after stating the facts as above). Briefly stated, the question presented on the facts which have been somewhat fully set forth is whether the case falls within Noyes v. First National Bank, 180 App. Div. 162, 167 N. Y. Supp. 288, affirmed on opinion below 224 N. Y. 542, 120 N. E. 870, or within Rogers Locomotive Works v. Kelley, 88 N. Y. 234.
At the outset, it is apparent that the cases dealing with the legal status of dividends duly and properly declared are not applicable. Such a dividend, when declared out of net earnings, is no longer the property of the corporation, but of the stockholders. Jermain v. Lake Shore & Mich. So. Ry. Co., 91 N. Y. 483; In re Interborough Consolidated Corporation (D. C.) 267 Fed. 914, and cases cited.
In the Noyes Case, supra, the railroad company opened an account with a bank with a voucher reading:
“For deposit in coupon account of C., R. I. & P. R. R. Company to meet 6 mos. interest due Sept. 1, 1905, on $17,331,000 of its 5 per cent, bonds of 1913, $433,275.”
*255In the case at bar, the coupon, according to the terms of the mortgage, read:
“(Form of Interest Coupon.)
“No. $22.60
“On the first day of -, 19—, Interborougti-Metropolitan Company
will pay to bearer at its office or agency in the city of New York, N. Y., twenty-two dollars and fifty cents, United States gold coin, being six months interest then due on its collateral trust 4% per cent, gold bond No. -.
-, Treasurer.”
(Printed Mortgage, page 4.)
It will thus be noted that the theory of the mortgage (as is usual) was that the interest coupon holder was an ordinary creditor, in the sense that the mortgage, of course, did not, by its terms, set aside a specific fund, nor create machinery for that purpose, whereby the interest coupon holder could look to such a fund, as distinguished from his right to present his coupon when interest was due and receive his interest out of the general funds of the corporation. In other words, the ordinary relation of debtor and creditor was set up, and, if interest should not be paid when due, the remedy of the bond and coupon holders under the mortgage was to proceed as set forth in articles 5 and 7 of the mortgage.
It may be, and it will be assumed for the purposes of the argument, that the corporation could so act as to put a fund beyond its control out of which the interest should be paid (although, quiere, whether the corporation had such power); but such disposition must be clearly evidenced by acts or transactions which show, in effect, the creation of a trust fund over which the corporation has relinquished control. Nowhere can there be found anything, either in correspondence or in vouchers, which indicates that at any time, if the corporation so desired, it could not have withdrawn the deposit from the Empire Co. and deposited the funds elsewhere, or retained them and paid the coupon holders, if it pleased, with currency over its own counter.
The procedure by which first the corporation deposited with Windsor Trust Company and later with Empire Co. was one of convenience. The fact that Windsor Trust Company and later (because of merger) Empire Co. was the trustee under the mortgage is immaterial.
Under some circumstances, a deposit made with the trustee under a mortgage, qua trustee, might give rise to some debatable questions; but here the deposit was made, so far as may reasonably he inferred, for purposes of ordinary and well-accepted banking convenience.
The many cases cited by the learned counsel for petitioners have been examined and considered, and failure to discuss them at length is due to the fact that, in last analysis, the situation is in principle precisely like the Noyes Case and in accordance with similar principles long since laid down by Mr. Justice Story in his Commentaries on Equity Jurisprudence. 2 Story’s Jurisprudence, 1045, 1046.
The facts demonstrate that the Empire Co. did not undertake to do anything beyond honoring the Consolidated checks on the special account. It was under no obligation itself to pay coupon holders, nor to identify them or their right to payment. Its relations with Consoli*256dated were merely those of bank and depositor, with no instructions to pay coupon holders. If it had become insolvent, is there any doubt that the .coupon holders could, nevertheless, have recovered from Consolidated ?
There was no such situation or relation as that in the Rogers. Locomotive Works Case, where the defendant railroad deposited in the hands of brokers $25,000 to meet certain interest coupons, receiving a receipt which stated that the money was received—
“in trust to apply the same to an equal amount of the coupons * * * in the order in which said coupons shall be presented * * * the said money not to be subject to the control of said company otherwise than for the payment of said coupons.” (Italics mine.)
In short, the case keeps running around in a circle, always returning to the Noyes Case, and reference to that case would have been sufficient, but for the amount involved and the desire of the court to find some sound reason, if such there were, to assist those whose tardy presentation was due to delay occasioned by war.
The applications of petitioners are denied, and the trustee is directed to deal with the amount in question as general funds of the estate. If the order to be entered upon this opinion is to be reviewed, the trustee will keep the fund intact, pending review.