Bush v. Adams

• Decision Date: 12 December 1908
• Citation: 165 F. 802
• Parties: BUSH v. ADAMS.
• Court: U.S. District Court — Southern District of New York

165 F. 802

BUSH v. ADAMS.

United States Circuit Court, S.D. New York.

December 12, 1908

George S. Cooper, for complainant.

F. S Bangs, for defendant.

RAY District Judge.

At New York, April 1, 1907, the Western Maryland Railroad Company of which the complainant is now receiver, duly appointed, by its president, B. F. Bush, for value received, executed and delivered to Edward D. Adams 40 of its promissory notes, each reading as follows (aside from the number of the bonds pledged as collateral), viz:

'$75,000.

No . . 'New York, April 1, 1907.

'On April 1, 1908, fixed, for value received, the Western Maryland Railroad Company hereby promises to pay, to its own order, at the office of the Farmer's Loan and Trust Company in the city of New York, seventy-five thousand dollars with interest, payable on the first days of April, July, October and January, at the rate of six per cent per annum until paid, having deposited herewith, as collateral security for the payment of this note, $100,000 par value Western Maryland Railroad Company's first mortgage 4% bonds, of $1,000 each, bearing all coupons unmatured at this date, numbered from . . . to . . . both inclusive, and does hereby give full authority to the holder hereof to sell the whole or any part thereof, at any broker's board, or at public or private sale, at the option of the holder hereof, on the non-performance of this promise, or in case of the insolvency, bankruptcy or failure of the undersigned, and without notice of intention to sell, or of the time or place of sale and without demand of payment of this note; and in case of any sale or other disposition of any of the securities aforesaid, after deducting all expenses of collection and sale, to apply the residue of the proceeds to pay this note.

And in case of deficiency the undersigned agree to pay to the holder hereof the amount thereof forthwith after such sale with legal interest.

'It is also agreed and understood that upon any sale of any of said collaterals the holder hereof may become the purchaser of all or any part thereof, and hold the same thereafter in his, or its own right absolutely free from any claim of the undersigned Western Maryland Railroad Company,

'(Seal)

By B. F. Bush, President.

'Attest: L. F. Timmerman, Secretary.'

The bonds mentioned were duly put up as collateral. It is not alleged that there was any new modifying or qualifying agreement. The bill alleges that these notes were in renewal of a former set of notes, and that, as a part of the agreement for the renewal, it was agreed:

'That the Deutsche Bank should have the right to purchase any part of the $4,000,000, par value, of bonds securing said loan at any time before March 1, 1908, at the price of 80% of their par value; and that such bonds so purchased, and their coupons, should be stamped 'Payable in Berlin and Frankfort at the rate of marks 4.20 per dollar'; that the railroad company should apply for listing of said bonds so purchased on the New York Stock Exchange, and that, if the Deutsche Bank should desire to apply for quotation of such bonds upon any of the stock exchanges of Europe, the railroad company should pay the expenses connected with such application.'

In 1906 and 1907 the said railroad company committed itself to large expenditures for betterments, improvements, extensions, and equipment, but because of financial conditions in the money market it was unable to meet such expenditures by an issue and sale of bonds, and hence met them partly from temporary loans and partly from current revenues.

The defendant, Edward D. Adams, is the agent and representative of the Deutsche Bank, a foreign corporation, and in substance the complaint alleges that such bank was to furnish the money and renew the notes. From time to time in December, 1907, and January and February, 1908, representatives of the said railroad company had conferences with said Adams as to the notes and their approaching maturity, with a view to securing an extension thereof. Pending the negotiations, and on the 17th day of February, 1908, Adams wrote a letter to the board of directors of the railroad company stating, in substance, that the Deutsche Bank would not renew the notes, but would expect them to be paid at maturity. Thereupon, and on or about March 5, 190, proceedings were taken by the trustee of mortgage given to secure the bonds for the appointment of a receiver of the said railroad company, and the complainant was duly appointed.

Adams was informed of the proceedings and of a proposed plan to pay the interest on such bonds maturing April 1, 1908. March 7, 1908, a general notice was published of the formation of a committee to prevent a default under the mortgage, and that such committee would co-operate in all measures to preserve its integrity, including an application to the court for an order to pay the interest on said bonds maturing April 1, 1908. The bill alleges:

'That

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