Chattanooga Nat. Bank v. Rome Iron Co.

• Decision Date: 30 May 1900
• Docket Number: 1,086.
• Citation: 102 F. 755
• Parties: CHATTANOOGA NAT. BANK v. ROME IRON CO. et al.
• Court: U.S. District Court — Northern District of Georgia

102 F. 755

CHATTANOOGA NAT. BANK v. ROME IRON CO. et al.

No. 1,086.

United States Circuit Court, N.D. Georgia.

May 30, 1900

King &amp Spalding and Fouche & Fouche, for complainant.

C. P Goree, for defendant.

Dean &amp Dean, for trustee.

NEWMAN District Judge.

The Chattanooga National Bank, or Chattanooga, Tenn., brings its bill against the Rome Iron Company a georgia corporation, and Halstead Smith, as trustee in bankruptcy of the said Rome Iron Company. The facts stated in the bill are that on May 27, 1898, the iron company made and executed, for a valuable consideration, to the bank, its five promissory notes, each for the sum of $5,100 principal, dated at Chattanooga, Tenn with legal interest from date, and attorney's fees if collected by an attorney by suit or otherwise. To secure the same the iron company executed the following contract on the back of the notes:

'The within note is secured by the pledge and deposit of the following securities, to wit: Equity in iron in yard #48, Rome, Ga. And the Chattanooga National Bank or assigns may, after the maturity of this note, sell the same at public or private sale, for cash or on time, as it or they deem best, without notice to other party, and appropriate proceeds to payment of said note; and, in the event of the above-named securities being more than the amount of this note, the same shall be held to cover any other of our indebtedness to the bank, if the latter shall so elect; and, should suit be brought on this paper, we agree to pay a reasonable attorney's fee and all costs.

'(Signed) The Rome Iron Co.,

'L. S. Colyar, Pres.Treas.'

It is alleged in the bill that 'yard #48, Rome, Ga.,' referred to, was the yard of the American Pig-Iron Storage Warrant Company, and that the equity referred to was the equity of the Rome Iron Company, over and above the amount due on certain warrants issued by the American Pig-Iron Storage Warrant Company, and secured by said iron. The bill further alleges that the notes referred to were successively renewed as they fell due, each renewal being secured by the same pledge and deposit, until the 4th day of February, 1899, at which time the iron company gave to the bank, in renewal of its debt, five promissory notes, each for the sum of $5,100, each dated January 20, 1899, and due at 60 days, 90 days, 4, 5, and 6 months, from date, respectively, with legal interest and attorney's fees. These notes each had on them the same indorsement as to pledge of equity in iron in yard No. 48, Rome, Ga. It is then shown in the bill that on February 23, 1899, a petition in involuntary bankruptcy was filed in the district court for this district, by certain creditors, against the Rome Iron Company, seeking to have it adjudged a bankrupt, and that the proceedings usual in such cases were had, and on the 11th day of April, 1899, Halstead Smith, Esq., was duly appointed trustee in bankruptcy of the said Rome Iron Company, and, as trustee, has taken possession of all of its property, real, personal, and mixed, including the equity and credits of the said Rome Iron Company, and including the equity of the Rome Iron Company in the iron in yard No. 48, heretofore referred to. It is further shown that Smith, as trustee, has been and is disposing of the iron, and paying off the warrants, and has $30,000, or other like large sum, in his hands, arising as the proceeds of the equity in the iron. It is then averred that the contract or pledge on the back of the notes creates an equitable lien and charge in its favor upon the equity in the iron and the proceeds thereof in the hands of the trustee, and that it is entitled to have the same turned over to it, to be applied to the payment of its debt, principal and interest. It is then charged that Smith, as trustee, refuses to recognize the pledge and lien of the bank; and after alleging that it has not proven its debt in bankruptcy, and has done nothing to relinquish its pledge or equitable lien, it prays for a decree that the Rome Iron Company is indebted to it in the sum of $25,500 principal, with interest and attorney's fees, and that the bank be decreed to have a valid pledge of, and equitable lien upon, the said equity in the said iron of the Rome Iron Company in yard No. 48, securing its debt aforesaid, and that it be decreed that the said sum in the hands of the trustee, derived from said equity, be subject to its equitable lien and pledge, and be not distributed to the creditors of the Rome Iron Company who have proven their debts. It prays for an injunction against Smith to enjoin him from disposing of the fund in his hands, and that it be paid over to the bank. This case is now here on a demurrer to the bill. The demurrer raises the question whether or not the bank has an equitable lien on the equity in this iron. The grounds of demurrer will not be considered in the order in which they are stated in the demurrer as filed, but in inverse order.

It is claimed that the pledge was made or attempted within four months next preceding the filing of the petition in bankruptcy, and that it does not appear that the same was made or attempted to be made for a present consideration. This ground of demurrer is sufficiently answered by the allegations of the bill which show that the notes dated January 20, 1899, were in renewal of notes which were originally made in May, 1898, and renewed from time to time until the present notes were given. The question raised in this case as to the record of renewed mortgages under the statutes of Georgia will be noticed hereafter.

The next ground of demurrer is that the language of this pledge contains no sufficient description of the property pledged. The description is, 'Equity in iron in yard #48, Rome, Ga.' It is not necessary that the property should be fully described. All that is necessary is that the language used should be sufficient to identify it. In referring to it as 'equity in iron,' etc., the meaning intended, clearly, is that some one else has a prior right, and that the pledgor only has an equity after satisfying some paramount lien or right. 'Yard #48, Rome, Ga.,' clearly means a yard in Rome, Ga., in which iron was stored, and that its number is 48. This renders its identification easy and simple, and altogether the description of the property or of the right in property pledged seems to be quite sufficient.

The next point raised by the demurrer is that the language used in this pledge indicates that something had been previously done. It is contended that the language, 'The within note is secured by the pledge and deposit of the following securities, to wit,' etc., indicates that something making this pledge effective had been, prior to this entry on the note, placed in the hands of the bank, and, as this had not been done, it was an incomplete and inchoate transaction. It is just as reasonable to suppose, even judging the meaning of this indorsement by its own terms, that it was used in the present tense, as in the past, and that it should be construed as if it said 'The within note is hereby secured,' etc., as that it has the meaning claimed by defendant's counsel. But the case is now being heard on a demurrer to the bill, and the bill, in describing the notes, contains the following allegation:

'That to secure the same the said Rome Iron Company executed the following contract upon the back of said notes, in terms and figures as will be more fully set forth hereinafter, wherein and whereby it pledged and deposited as security for said notes all of its equity in the iron in yard No. 48,' etc.

Another allegation is,

'The said notes being secured each by the same pledge of said equity in said iron in yard No. 48, Rome, Georgia. * * * A copy of each one of said notes, and of the said contract of pledge and deposit upon the back thereof, is hereto attached, and marked Exhibits A, B, C, D, and E, respectively.'

Attached to the bill are copies of the notes, with the indorsement thereon which has been heretofore given in full. The bill clearly alleges, therefore, that this indorsement on the back of the notes is the pledge relied upon, and which complainant seeks to enforce.

The other two grounds of demurrer may be considered together. Each raises the question as to whether or not, there being no delivery of that which was sought to be pledged, and it being a mere equity, incapable of delivery, it could be the subject of a valid pledge. In 3 Pom.Eq.Jr. § 1235, the doctrine with reference to equitable liens is stated in this way:

'The doctrine may be

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