255 F. 121 | D.N.J. | 1919
The American Paper Company, hereinafter called the Paper Company, Wilkinson Brothers & Co., hereinafter called the Wilkinson Company, George F. Hills Company, hereinafter called the Hills Company, and the Webb Fqlding Box Company, hereinafter called the Webb Company, did business with one another. All of said companies, with the exception of the Wilkinson Company, became bankrupt; the Paper Company on July 10, 1914, the Webb Company on July 27, 1914, in the district of New Jersey, and the George F. Hills Company on July 8, 1915, in the Southern district of New York. A claim was filed against the Paper Company by the Wilkinson Company, which after some modification was allowed on December 22, 1915, as follows:
(1) Merchandise, open account ...................................§ 2,171.36
(2) Six notes of American Paper Company....................... 13,780.15
(3) Three notes of American Paper Company, indorsed by George F. Hills Company ............................................. 3,014.12
(4) Pour Pey notes, indorsed by American Paper Company.......... 2,208.69
(5) Two Tucker notes, indorsed by American Paper Company...... 1,027.48
(6) Twenty-one notes of Webb Folding Box Company, indorsed by American Paper1 Company, and protest fees.................. 10,729.32
(7) Sixteen notes of George P. Hills Company, indorsed by American Paper Company............................................. 12,038.57
§44,989.69
At the time of filing the said claims the Wilkinson Company held as security for its debt first mortgage bonds of the' Paper Company amounting at par to $38,000. In January, 1916, it was agreed between the Wilkinson Company and the trustee of the Paper Company that the said bonds should be retained by the Wilkinson Company and applied as a general payment upon its claim against the Paper Company, and that the said claim be reduced thereby to $6,967.69. There was no agreement whatever between the trustee of the Paper Company and the Wilkinson Company as to how the said bonds should be applied in payment of the various items in said claim, and this contest really results from the manner in which they are sought to be applied. The Wilkinson Company filed a claim against the Webb Company, but the Paper Company did not. The Paper Company contends that its bonds as a fact have been applied to the payment of the Webb Company notes on which it was indorser, and that it has the common right of an indorser, upon taking up indorsed paper, to proceed against the principal, and therefore it should be subrogated to the rights of the Wilkinson Company in the claim filed. The referee made an order subrogating the trustee of the Paper Company to the
On June 25, 1915, the Wilkinson Company made a composition with the Hills Company and received 20 per cent, of its claim against that company, being Nos. (3) and (7) in the claim above mentioned. At the time of the settlement of the bonds in January, 1916, the Wilkinson Company did not disclose that it had made a composition with the Hills Company, or give credit for the 20 per cent, dividend, and thus, the trustee contends, treated these notes as unpaid, and if thife is so the Webb Company notes must have been satisfied out of the bonds of the Paper Company. It was the duty of the Wilkinson Company to disclose the composition of the Hills Company at the bond settlement in January, 1916, and it is difficult to reconcile its failure to do so with .an honest purpose; but it does not follow that its failure to do so establishes the satisfaction of the Webb notes out of the bonds, or that the Wilkinson Company so regarded it.
“A person secondarily liable on the instrument is discharged: 1. By any act which discharges the instrument. * * 9 3. By the discharge oí a prior party. 0 * * 5. By a release of the principal debtor, unless the holder’s right of recourse against the party secondarily liable is expressly reserved.” Consol. Laws, e. 38, § 201.
A release, therefore, through composition of the principal, discharges the liability of the surety, notwithstanding the provisions of section 16 of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 550 [Comp. St. § 9600]) that :
“The liability of a person who is a codebtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt”
—because the relief through composition, though as effectual as a “discharge,” is secured through “the co-operation of the creditors.” The same rule was applied in that case to a creditor voting for a composition in bankruptcy as to a person making a voluntary composition deed outside of bankruptcy. There is a difference, however. In the one case the discharge is by the voluntary act of the party; in the other by operation of law, not by the act of the creditor who assented
Items (1) and (2) in claim are obligations of the Paper Company alone. Items (3), (4), (6), and (7) are obligations of the Paper Company and another, either as maker or indorser. Items (1) and (2) should, in accordance with the above rule, be first paid out of the bond settlement, for they rest upon the liability of the Paper Company only, and are manifestly less secured than the other four. The security in items (3) and (7), other than the liability of the Paper Company, is as above stated, 20 per cent. Whether that security is more or less than that of the Fey notes in item (4), or the Webb Company notes in item (6), I am not informed, though counsel for the Wilkinson Company make the general statement that Fey is practically worthless. The security in all four items, (3), (4), (6), and (7), is precarious; but which is more and which is less precarious is,'so far as I am aware, unknown. Therefore, after items (1) and (2) are paid out of the $38,-000 bond settlement, the remainder should be'applied to items (3), (4), (6), and (7), in accordance with the priority of the obligations. When
The Wilkinson Company filed claim against the Webb Company for $10,729.32, the amount of the notes indorsed by the Paper Company, and is entitled to the dividends on that full claim until the same has been paid, if the dividends on the claim are sufficient to pay it. After that claim is thus i>aid in full, the trustee of the Paper Company is entitled to be subrogated to the rights of the Wilkinson Company as to the balance of the dividends, if any, on the claim filed against the Webb Company.
An order will be signed in accordance with these conclusions.