New York Security & Trust Co. v. Lombard Inv. Co. of Kansas

Citation73 F. 537
Decision Date10 March 1896
Docket Number1,923.
PartiesNEW YORK SECURITY & TRUST CO. et al. v. LOMBARD INV. CO. OF KANSAS et al.
CourtUnited States District Courts. 8th Circuit. Western District of Missouri

The Lombard Investment Company of Kansas was organized about the 1st of January, 1882, under the laws of the state of Kansas with a capital stock which was increased at various times until it amounted to $1,875,000, all fully paid up. The company was engaged in the business of loaning money on real estate and all other kinds of securities; buying, selling improving, and leasing real estate and all other kinds of property; issuing its own obligations of different kinds buying and selling bonds, mortgages, and securities; and generally, conducting any business incidental to or connected with the above-mentioned purposes, including a general trust and investment business. One of its main lines of business was dealing in farm property and city real estate in the South and West, loaning money on similar property negotiating bonds and mortgages given for such loans, with its own guaranty in some form annexed thereto, and in buying and selling various kinds of securities, including the sale of debenture bonds made by the company itself. In the course of this business, it became the owner and holder of large quantities of real estate in Western and Southern states and in the territories. The debenture bonds executed by the company itself were secured by a deposit of bonds, securities, and other property, as collateral, with trustees, under various trust agreements. This Kansas company continued in active business, in its own name and on its own behalf, meeting its obligations and fulfilling its guaranties, until about August 1, 1890, when it sold and conveyed its entire property and interests of all kinds to the defendant the Lombard Investment Company of Missouri. The latter company was organized under the laws of Missouri, with its chief place of business at Kansas City, and has a paid up capital stock of $4,000,000. It acquired and now owns and holds all the stock of the said Kansas company, and assumed all of its obligations of whatever kind, with the same force and effect as if it had originally, on its own behalf, entered into the said obligations. The Missouri corporation was formed for substantially the same purposes as the Kansas company, and continued the business of the latter. Under trust agreements of the same general character as those made by the Kansas company, the Missouri corporation issued its own debenture bonds in large sums, and deposited securities and properties with the trustees. It also loaned money upon notes secured by real-estate mortgages, and sold such notes with guaranties requiring it, under certain conditions, to pay principal and interest in case of default by the borrower. Its business of various kinds became of vast extent, and at the time of the filing of the bill herein, there were outstanding, in loans guarantied, either by the Missouri company or the Kansas company, about $34,000,000. The defendants the Valley Loan & Trust Company, the Alliance Trust Company, and the City Real Estate Company, were organized for the purpose of aiding in the business of the Lombard Investment Company of Missouri, which subscribed and paid up their stock in full. The defendant the Investor's Company was another auxiliary company, though not originally organized by the Missouri corporation. All of the defendant companies, except the Investor's Company, were insolvent at the time the bill was filed. In accordance with the prayer of the bill receivers were appointed as receivers for each and all of the defendant companies, and, under ancillary bills, were also appointed in the various judicial districts of the Eighth circuit. On May 18, 1895, a final decree was entered referring the cause to Edward H. Stiles, standing master in chancery, who, among other things, was directed, by the eighth paragraph of the decree, to examine the claims of all creditors and stockholders, and, as soon as practicable, 'make such a report as shall fully show the respective rights of the different claimants.'

The master accordingly made the following report, dated January 23, 1896:

Report of Edward H. Stiles, Master in Chancery, upon the Classifications of Claims.

The undersigned master in chancery, in the performance of the duties imposed upon him by the final decree herein, respectfully begs leave to submit to the court the following report upon the classification of the numerous claims, of various character, which have been presented to him for allowance:

The claims against the Lombard Company arise on direct obligations of the Lombard Investment Company in the shape of debenture bonds, and upon the guaranty of said company indorsed on bonds secured by real-estate mortgages, executed by borrowers to said company, and by the company subsequently sold and transferred to investors with the guaranty referred to. A portion of the bonds thus indorsed by the Lombard Company were executed by some one of the auxiliary companies named among the insolvent defendants, and then indorsed with guaranty, and sold by the Lombard Company. This was brought about by the title to certain properties sold under foreclosure proceedings of the Lombard Company being taken in the name of such auxiliary company, after which the auxiliary company would execute its bond, and mortgage securing it, to the Lombard Company, who would sell the same on the market to some investor. In these cases the holder of such obligation would have a claim against the assets of both companies, or, in case the claim for any reason was not a provable one against the Lombard Company, it would nevertheless constitute a good claim against the assets of the auxiliary company executing the bond, and provable as such. Of the entire obligations, aggregating some $40,000,000, there have been, up to the present time, presented to the master for allowance, claims aggregating about $20,000,000.

In accordance with the suggestions contained in the eighth paragraph of the master's report accompanying the first draft of the final decree, he has permitted everybody claiming to be a creditor, in the first instance, to present his claim and proofs, reserving the right to and with the purpose of subsequently classifying the claims and passing upon their validity and the respective rights of the different claimants. For this purpose, and as preliminary to the order of distribution and the final report of the master, showing the individual claims allowed, and the respective amounts allowed to each person, he has, as contemplated by the eighth paragraph of the final decree, prepared and now presents the following report showing the different kinds of claims, the classification thereof, and what in his opinion are, and what are not, claims entitled to distribution. In this way it can be definitely determined in advance, as is necessary to be done, as to how distribution shall be made, and upon what character of claims, according to the classification made. If the determination of the master upon any particular class is not satisfactory to any of the claimants embraced therein, they, or any one of them, may file with him exceptions to this report in respect thereto within 30 days from the date hereof, and afterwards renew the same in court according to the practice in that behalf. Should exceptions thus filed be sustained, the classification herein made will be amended accordingly, and, if overruled, that recommended herein would stand. So that, in either case, through this mode, a comparatively early determination of the validity of each class of claims can be had, without waiting until after all the claims are in, after which the respective claims allowed, and the amount thereof, and the persons entitled thereto, will be designated and reported, and distribution ordered accordingly.

As before suggested, the great bulk of the claims arise upon the guaranties hereinbefore mentioned. And these guaranties are so various in form as to give rise to variant questions respecting the liability of the Lombard Investment Company thereon, and as to whether certain claims arising thereunder are or are not entitled to allowance and distribution. Some of them are guaranties of collection, some of payment, some at maturity, and some within two years thereafter, some under extension agreements, some merely guarantying title,--that the mortgage securing the bond sold and assigned is a first lien; that the company will cause the property to be kept insured, and look after and see that the taxes are paid,-- some in one form, some in another. These guaranties are 10 in number and in the following form:

Guaranty No. 1, Beginning Nov. 24, 1882, Loan 01.

For value received, the Lombard Investment Company hereby guaranties-- First, the collection of the principal of the within note; second, the prompt payment of the coupons attached thereto. In witness whereof, the Lombard Investment Company has signed and delivered these presents by its . . . president this . . . day of . . ., 188-.

. . ., President.

Guaranty No. 2.

For value received, the Lombard Investment Company hereby assigns this bond to . . ., or order, and guaranties-- First, the prompt payment of the coupons attached hereto; second, the collection of the principal of the within bond. In witness whereof, the Lombard Investment Company has signed and delivered these presents by its . . . president this . . . day of . . ., 188-.

. . ., President.

Guaranty No. 3, from about Sept. 1, 1886, to March 7, 1889, Ending with Loans 032,336 and 025,866.

For value received, the Lombard Investment Company hereby assigns this bond or note to-- -, or order, and agrees-- First, to guaranty...

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