Hathaway v. Fall River National Bank

• Decision Date: 05 April 1881
• Citation: 131 Mass. 14
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: Guilford H. Hathaway & another, trustees, v. Fall River National Bank

131 Mass. 14

Guilford H. Hathaway & another, trustees, v. Fall River National Bank

Supreme Court of Massachusetts

April 5, 1881

Argued October 27, 1880

Bristol.

J. M Morton, Jr., for the plaintiffs.

E. H Bennett, (H. K. Braley with him,) for the defendant.

Soule J. Endicott & Field, JJ., absent.

OPINION

Soule, J.

The plaintiffs bring their bill to redeem certain shares of the capital stock of the Granite Mills, a corporation, which were pledged to the defendant by one Borden, who afterward assigned all his estate real and personal to the plaintiffs, as trustees, to convert it into money and distribute the net proceeds among his creditors. The defendant contends that it is entitled to hold the stock as collateral security, not only for the note with which it was pledged, but for the unpaid balance of other notes which it holds against Borden; or, to state the claim more exactly in the form which it assumed at the argument, the defendant contends that, by the deed of trust under which the plaintiffs assert title, the relations of the parties are the same as if the plaintiffs were the assignees in insolvency of Borden, and that, in the administration of the insolvent law, the taking of the note of Borden and the pledging of the stock by him would have made a case in which "mutual credit had been given by the debtor and" the defendant, and mutual debts had been created between them. Gen. Sts. c. 118, § 26.

It is clear, from an examination of the terms of the note with which the stock was pledged, that the pledge was a special one, as security for that note only, and not as security for any other obligations of Borden. Following the ordinary form of a promissory note is this language: "I having deposited with this obligation, as collateral security hereto, nine shares of the capital stock of the Granite Mills, with full authority to sell the same without notice, either at public or private sale or otherwise, at the option of the holder or holders thereof, on the non-performance of this promise, he or they giving me credit for any balance of the net proceeds of such sale or sales, after deducting the expenses thereof, and paying all sums then due from me to said holder or holders, or to his or their order."

Until the maker of the note or his representative had failed to pay it at maturity, the defendant had no power over the collateral security, except to hold it; and if the note had been paid at maturity, the maker, or those having his title to the security subject to the pledge, would thereupon have been entitled to receive the stock discharged from the lien created by the pledge, because such payment would have fulfilled the condition of the pledge. Jarvis v. Rogers, 15 Mass. 389.

The note was not in fact paid at maturity, but the plaintiffs, having previously acquired their rights under the trust deed, tendered to the defendant the amount due on the note and demanded the security; but the defendant refused to give it up, claiming the right to hold it to apply the excess of its value above the amount of the note to payment of the other obligations of Borden. After this tender, the plaintiffs were entitled to treat the stock as discharged from the lien, unless something in the provisions of the trust deed gave them less rights than the maker of the note would have had if that deed had not been given. Hancock v. Franklin Ins. Co. 114 Mass. 155.

If we assume that, by the terms of the trust deed, the defendant was to have the same rights as if the plaintiffs were assignees in insolvency of Borden, the defendant is...