56 F.2d 980 | 5th Cir. | 1932
The property of the Pennsylvania Hotel Company in St. Petersburg, Fla., was subject to two bond mortgages, one dated January 15, 1925, securing $75,000 of bonds, and one dated May 15th, 1925, securing an issue of $225,000. Some of the bonds fell due on each anniversary of the respective mortgages, beginning in 1927, and the interest coupons fell due semiannually. All were payable at the First National Bank of St. Petersburg, which was trustee in the mortgages. Beginning November, 1927, the Pennsylvania Hotel Company obtained advances from First Securities Corporation, which was affiliated with the bank, to pay interest coupons as presented at the bank, and no default in interest occurred until November 15, 1929, and January 15, 1930. Five thousand dollars principal of the smaller series was paid off, but other maturing bonds of both series to the amount of $27,000 which fell due in 1927, 1928, and 1929 were not paid by the hotel company but were taken up by H. C. Case, who was the president of the company, by making loans from the bank on his notes secured by the bonds. Failures to pay taxes and paving assessments occurred in 1926, 1927, 1928, and 1929. Defaults in payment of interest, taxes, or assessments, or in performing any of the terms and conditions of the mortgages by express stipulation in each authorized, and on written request of holders of 51 per cent, of the bends required, acceleration of their maturity and foreclosure. After the failure of the bank, A. M. Anderson as its receiver, without request of the bondholders, sought foreclosure in equity in behalf of all bonds including those the bank held by way of collateral security as above stated. The hotel company contended these bonds were paid, but the master reported otherwise. Thereupon Charles Wilson, owning $5,000 of bonds of the'larger series, intervened in behalf of himself and other bondholders to contend that the bonds held by the bank should be at least subordinated to the claims of other bondholders because: (1) The bank was without authority to reissue bonds sent to it as trustee for retirement; (2) because it did not notify other bondholders that the bonds were not retired and thus misled them into thinking that their security was being improved by such retirement; and (3) by taking the bonds as collateral it had wrongfully assumed a position antagonistic to its trust. No testimony was taken under the intervention, but the court entered a decree subordinating the bonds held by the bank. The receiver appeals, assigning the subordination as the sole error.
Adverting first to the third objection of the bondholders, we see no impropriety in the trustee bank becoming a holder of bonds as collateral security or otherwise. No preference or priority is claimed for its bonds. Its interests as a bondholder are precisely those of other bondholders, and there is nothing to show that the trustee would be tempted to any breach of duty as against them. The hotel company might better complain, but in its last mortgage it expressly agreed that the trustee might “buy, sell, hold, own or deal in any of the bonds or coupons issued hereunder and secured by this mortgage.” This permission binds also the bondholders who claim under the mortgage, and the intervener is one of them.
The second objection that the bank as trustee has misled the bondholders by not notifying them that the matured bonds had not been paid is not .well taken. There is no provision in either mortgage making it the duty of the trustee to notify bondholders in case of default in payment. Its duty then is to consider whether it shall foreclose. While a default in payment of interest would be notified to each bondholder by the return of the coupons, when a principal bond is not paid it would hardly be possible to locate and notify all the bondholders for the time being. The duty to the particular bondholder who sends his matured bond in for payment to inform him whether it was paid or transferred is adverted to below. The intervener does not
The most serious contention is that as to other bondholders the contested bonds are paid. If the hotel company had directly or indirectly furnished its own funds to take up the matured bonds, they would stand paid, even though its intention had been otherwise. Cussen v. Brandt, 97 Va. 1, 32 S. E. 791, 75 Am. St. Rep. 762. The coupons taken up for it by First Securities Company are thus extinguished. But the bonds themselves were paid for by moneys borrowed by H. C. Case, and with the clear intention on his part and on the part of the bank which had them for collection that they should be not paid but purchased. They are payable to bearer and are negotiable instruments transferable by delivery. 3 R. C. L., Bills and Notes, § 20. Though taken after due and subject to defenses, good title to them is presumptively in the holder and the burden is on the objectors to show the contrary. 3 R. C. L., Bills and Notes, § 190. It is plain that each bond came to the bank, the place of payment, at its maturity and for payment. It does not appear who any holder was, whether he authorized or ratified the transfer by delivery of his 'bond, or whether he held any additional bonds. It does appear that each got his money and is not complaining. If, when the hotel company failed to pay and the bank transferred a bond to Case, it was under a duty in remitting to the owner to inform him of the facts, it ought to be presumed that this duty was performed rather than breached. A retention of the money by the owner after notice would ratify the transfer. Of a transfer by consent of the owner of the bond no other bondholder could complain. But if it be assumed that the owner neither authorized nor ratified the transfer, the fact remains that he got all he expected or was entitled to receive, and his consent should ordinarily be presumed. If the owner has no further interest in the security involved, the rule is that where a secured note is deposited for collection and a person who is not legally bound to pay it does, with an intention to continue its existence and not to cancel it, pay money for it to the collecting agent and the owner receives the amount due him, the transaction is sustained as a purchase. Dodge v. Freedman’s Savings & Trust Co., 93 U. S. 379, 23 L. Ed. 920; Sturgis v. Baker, 43 Or. 236, 72 P. 744. Sureties on the note are still bound. Capwell v. Machon, 21 R. I. 520, 45 A. 259. But where a sale as compared with a payment is prejudicial to the owner’s interest by continuing the burden of the debt sent for collection upon a security common to other debts held by him and thus lessening its value with reference to them, the intent on his part to sell should be more clearly proved. Ketchum v. Duncan, 96 U. S. 659, 662, 24 L. Ed. 868. In the cited case, coupons from bonds were involved and the bondholders of course would prefer payment to a sale of them; but under all the circumstances it was concluded that the delivery of the uncanceled coupons, even when not shown to have been expressly authorized by their owners, was a sale and not an extinguishment of them. In Wood v. Guarantee Trust Co., 128 U. S. 417, 9 S. Ct. 131, 32 L. Ed. 472, it was held that where a third party with his own money takes up maturing coupons of the bonds of a corporation without the knowledge of the hold
Modified and affirmed.