68 N.J. Eq. 476 | New York Court of Chancery | 1905
The questions presented for determination arise under the petition of certain bondholders appealing from the determination of the receiver of the defendant corporation disallowing certain claims presented by them against the estate of the insolvent defendant. The receiver conceives that the questions involved are sufficiently presented by the petition, affidavits,
Mr. Darmstadt acquired whatever title he has under the following circumstances: On January 21st, 1903, John B. Fitzgerald pledged and delivered to him two of these bonds as collateral security for the payment of a loan, previously made, maturing on that day, of $1,382, represented by two notes, one for $400 and the other for $982, which still remain unpaid, and, together with the bonds, are in the hands of the pledgee.
On June 28th, 1904, Fitzgerald induced Darmstadt to endorse his note for $1,000, securing him against loss by pledging, as-collateral security, two other such bonds. This note was subsequently reduced by payments to $800, which amount still remains due, and in July, 1904, Edward L. Fitzgerald borrowed from Darmstadt $50, and deposited with-him as collateral security for the payment of said loan two of such bonds. The bonds held by John Scholl & Brother were deposited- with them by John B. Fitzgerald January 8th, 1904, as security for a loan of $1,000, which loan is due and still remains unpaid. Darmstadt and Scholl presented their respective bonds to the receiver as
Some of the reasons filed bjr the receiver as a justification for his determination, and which are all that it is necessary now to consider, are as follows: That the bonds were never legally issued to the two Fitzgeralds, because they took them in exchange for stock of the company surrendered by them, and being directors of the corporation, knew that the bonds could not be issued to any stockholder for stock, nor for any purpose other than that for which the issue was authorized; that they, as directors, by the exchange of stock for bonds, were obtaining a jeosition in relation to the assets of the company better than that enjoyed by the other stockholders, which their duty as trustees forbid.; that the corporation was insolvent when the bonds were issued; that the issue was a transfer of property prohibited by the Corporation act, and that the present holders were not purchasers for value.
The authority of the corporation to issue these bonds is beyond question, and they were issued as the obligations of the company in due form, with the expectation that their payment was to be secured by a mortgage upon the property of the company. This •security was attempted to be provided, but through some informality in the preparation or recording of the mortgage, it became useless as a security and left tire bondholders in the position of general creditors without preference.
There was no proof presented to me from which I can find that the corporation was insolvent when the bonds were issued; on the contrary, the affidavits submitted show that the officers had not at the time any reason to suspect insolvency, nor that it was likely to occur, and it is certainly demonstrated beyond question that the present holders had no knowledge of any such insolvency, either present or threatened. What appears is that this company issued its negotiable obligations, which passed to third persons before maturity in due course of business,'without knowledge by them of any infirmity. Some were taken as security for debts matured and others as a consideration for loans then made or liability assumed. Without determining the question as to1 the bona fides of the directors in procuring these