254 F. 5 | 1st Cir. | 1918
Lead Opinion
These are writs of error from judgments in favor of the defendants in the United States District Court for Massachusetts upon demurrers to declarations. Each action was brought against an underwriter to recover his individual subscription to an underwriting agreement which was pledged with the plaintiff, as trustee, to secure a certain loan or loans provided for in the underwriting agreement, as will hereafter more particularly appear.
The declarations in each action were the same, the only difference being in the amount of the individual underwriter’s subscription and the sums due thereon. In No. 1334 it was alleged: (1) That the plaintiff was a citizen of the state of New York; (2) that the defendant was a citizen of Massachusetts; (3) that on or about the 1st day of September, 1907, the defendant, desiring to provide for the purchase of certain shares of the capital stock of the Refugio Syndicate, a New Jersey corporation, made a contract, in writing, with George W. McElhiney and Ernest A. Wiltsee, called therein “syndicate managers,” whereby the defendant undertook to pay $9,200 to the said McElhiney and Wijtsee as such syndicate- managers, at the times and upon the terms and conditions therein set out (a copy of the contract, marked “Schedule A,” was annexed to the declaration and
The grounds of demurrer assigned by the defendant are: (1) The
We do not find it necessary to say more with reference to the third and fourth grounds of demurrer than that they are not well founded in fact. The declaration does not set forth, as the defendant states, that upon the same day upon which the plaintiff was appointed trustee the trust agreement, under which his appointment was effected, was canceled. Nor is it alleged in the declaration that the Guardian Trust Company of New York, which preceded the plaintiff as trustee, had sold the underwriting agreement to the Consolidated Company prior to plaintiff’s appointment. The sole question, therefore, is whether the declaration states a legal cause of action.
According to the allegations of the declaration, the managers, having entered into the foregoing contract, in pursuance thereof and for the purpose of carrying it into effect, subscribed and agreed to pay for 8,000 shares of the stock of Refugio Syndicate. Thereafter, on March 2, 1908, they made their promissory note for $800,000, payable to bearer March 1, 1909, and delivered the same to Refugio Syndicate for the purpose of paying for said stock in accordance with a plan and agreement between them and the company entered into be
We have heretofore pointed out that, by the underwriting agreement, each subscriber for himself, and not jointly, authorized the managers to borrow for him a sum not to exceed “in principal indebtedness” his subscription, and that it was within their discretion to determine whether the borrowing should be on a single note for $800,000 or on notes for different amounts in the aggregate not exceeding $800,000, and that in either event the liability of an individual underwriter therefor should not exceed in principal indebtedness his individual subscription, and that they were not confined to any particular method of borrowing. The declaration alleges that participation certificates in the $800,000 note were issued by the Guardian Trust Company to the Refugio Syndicate, under which borrowings were had, and that the suit was brought by the trustee for the benefit of the holders of the participations and the note. Such being the case, we are of the opinion that, so far as money was obtained on participation certificates by the Refugio Company under the arrangement above set forth,
But the defendant says that the managers were not authorized by the underwriting agreement, Schedule A, to pledge the underwriting subscriptions and the stock with the Guardian Trust Company as trustee in the manner and according to the terms provided in- the trust agreement, Schedule B; that the underwriting agreement only contemplated a pledge to the lender or lenders, and not the payment of expenses of a trustee for rendering services as provided for in the trust agreement, Schedule B. The underwriting agreement, however, authorized the managers to borrow on behalf of each underwriter “upon such terms as the syndicate managers may be able to arrange with the lenders,” and to pledge for “said loan or loans his subscription hereto duly assigned to the satisfaction of the lender or lenders,” and also the capital stock. As they, were authorized by each underwriter to borrow “a sum not to exceed in principal indebtedness his cash subscription” (in the aggregate $800,000), in such sums and from such number of lenders as they deemed best, and “upon such terms as they were able to arrange with the lenders,” and to pledge the securities in a manner “to the satisfaction of the lender or lenders,” it cannot be doubted but that the parties contemplated a trustee might be appointed with whom the securities might be pledged to secure the loan or loans, and that provision might be made for paying the trustee for his services.
It is alleged that on September 28, 1910, the Guardian Trust Company resigned as trustee and that the plaintiff was duly appointed in its place. Article 13 of toe trust agreement, Schedule B, provided for and authorized such action, and rightly, as we think, within the con-, templation of the underwriting agreement.
It is further alleged that on September 28, 1910, by agreement between the Guardian Trust Company, the Refugio Syndicate and the holders of the then outstanding participation certificates, the deposit agreement, Schedule C, was canceled, .and toe $800,000 note was turned over to the Refugio Syndicate, and that the Refugio Syndicate then issued, in exchange for participations then outstanding, its partid-
The defendant Sedgwick’s subscription was for $9,200, and the managers were authorized to borrow for him that amount, and, as by the terms of the underwriting agreement he bound himself to pay that sum, we think the plaintiff is entitled to recover the same, less the payments he had made; but, inasmuch as it is apparent that the borrowings had did not equal the sum of $800,000, the plaintiff would be bound to hold and pay over to the managers for the Refugio Syndicate such part of the sum recovered as exceeded the amount required to pay Sedgwick’s proportionate part of the borrowings actually made. We also think Sedgwick is bound to pay the interest on his proportionate part of the loan and his proportionate part of the reasonable expenses incurred by the trustee, the managers having been authorized to fix the terms of the borrowing and pledge.
It does not seem to us that the New Jersey statute prevents the
What we have said as to No. 1334 applies with equal force to No. 1335. The demurrers in each action must be overruled.
The judgments of the District Court are vacated, and the cases are remanded to that court for further proceedings not inconsistent with this opinion, with costs to the plaintiffs in error.
Rehearing
On Petition for Rehearing.
In our opinion handed down the 3d day of October, 1918, the questions intended to be decided were only such as were raised by the demurrer to the declaration. No question was presented, or could have' been presented, as the pleadings then stood, as to whether the defendant had a defense which he might set up to defeat the plaintiff’s right to recover any surplus due on Sedgwick’s underwriting agreement over and above the amount borrowed on -participation certificates for his benefit, and nothing in our opinion precludes him from making such defense. The declaration stated a pri-ma facie case entitling the plaintiff to recover the full amount of the subscription, holding the surplus, if any, for the benefit of the managers or the Refugio Syndicate, and this is all that was meant by the passages in our opiñion referred to in the defendant’s petition for rehearing.
The plaintiff’s declaration alleged that Sedgwick’s underwriting subscription was for $9,200, and that he had paid thereon tire sum of $2,300. It did not appear how many certificates of participation were outstanding or the amount held by Sedgwick, and we did not consider his right to set them up as a defense to the action.
What is.here said with reference to Sedgwick applies with equal force to McCallum.
The petition for rehearing is denied.