In re Adair Realty & Trust Co.

• Decision Date: 09 November 1929
• Docket Number: No. 12643.,12643.
• Citation: 35 F.2d 531
• Parties: In re ADAIR REALTY & TRUST CO. Claims of NEUMAN et al.
• Court: U.S. District Court — Northern District of Georgia

35 F.2d 531 (1929)

In re ADAIR REALTY & TRUST CO. Claims of NEUMAN et al.

No. 12643.

District Court, N. D. Georgia.

November 9, 1929.

Spalding, MacDougald & Sibley, of Atlanta, Ga., for Globe Indemnity Company.

Howell, Heyman & Bolding, of Atlanta, Ga., for Minnie Neuman.

Branch & Howard, of Atlanta, Ga., for objector.

SIBLEY, District Judge.

The bankrupt, Adair Realty & Trust Company, is a trust company under the laws of Georgia, with powers fixed by Georgia Civ. Code 1910, § 2817, as enlarged by Acts Ga. 1917, p. 56. Among them is (subsection 11, § 2817, Civ. Code Ga. 1910), the power "to purchase, invest in, and sell stock, bills of exchange, bonds and mortgages, and other securities." In its business of selling bonds it executed a number of underwriting contracts whereby it engaged to sell entire bond issues amounting to millions of dollars upon buildings to be erected. Each contract roughly stated, provided that the bond issue should be delivered to the Adair Company, which should have 10 per cent. for selling them at par, together with any profit made above par, and binding the company, by a fixed date, to furnish for use in the building the whole 90 per cent. of the face of the issue whether the bonds had then been sold or not. In order to make the bonds salable, the company made an indorsement on each reading thus: "In consideration of the purchase of this bond Adair Realty & Trust Company does hereby guarantee the payment of the within bond, both principal and interest according to the tenor and effect thereof. (Signed) Adair Realty & Trust Company." The company also arranged with the Globe Indemnity Company to issue certificates of guarantee of many of the bonds in consideration of a premium paid direct to the Globe Company, and as a basis therefor made an indemnifying contract with the Globe Company agreeing to repay it any loss or expense it might sustain by reason of issuing such certificates. The Adair Realty & Trust Company was adjudged bankrupt April 15, 1927, on a petition filed March 30, 1927. Many claims have been filed for allowance based upon the indorsements by the bankrupt of the bonds, of which that of Minnie Neuman is typical. The Globe Indemnity Company has also filed a claim based upon its contract of indemnity. Allowances of these claims by the referee are for review.

1. The referee allowed the Neuman claim for the full principal and interest of the indorsed bonds over the objections that no default touching the bonds had been declared at the time of the bankruptcy; that no foreclosure upon the security had been had; that the bankrupt's liability was, when the petition was filed, contingent and uncertain, and not a provable debt; and that the indorsement by the bankrupt corporation was an act ultra vires and void.

It appears that none of the bonds involved in this claim had been declared in default by the trustees in the securing mortgages at the time of the bankruptcy, although the makers in all save one issue had failed to meet one or more interest payments. Some of these defaulted payments had been supplied by the Adair Company out of its own funds, in fulfillment of its indorsement, and some had not been paid at all. I think these differences in the status of the several bonds are not material. The indorsements of the bonds by the Adair Company are direct, unconditional promises by that company to pay the bonds, both principal and interest. There is no guarantee of the solvency of the makers of the bonds or of the sufficiency of the security, but of the payment by them of both principal and interest at the times the several payments are promised in the bond. Although the word "guarantee" usually imports a liability only after the principal debtor has been exhausted, the word is ambiguous. To guarantee payment according to the tenor of the bonds carries an obligation to pay principal and interest at the dates promised in the bonds. Such was the practical construction given the indorsement prior to the bankruptcy. The contract was made at the time of the sale of the bonds and for the same consideration, and was in effect one of suretyship. Fields v. Willis, 123 Ga. 272, 51 S. E. 280; 28 C. J. 892, note 60. In Hiscock v. Varick Bank, 206 U. S. 28, 27 S. Ct. 681, 51 L. Ed. 945, the indorsements signed by the bankrupts, quoted on page 30 were quite similar to those here involved, and were held provable whether due at the time of bankruptcy or later. Under the indorsements here involved, there is clearly "a fixed liability * * * absolutely owing at the time of the filing of the petition * * * whether then payable or not" as defined in class 1 of section 63a of the Bankruptcy Act, 11 US CA § 103(a)(1), touching provable debts. The referee correctly held the indorsed bonds to be provable debts against Adair Realty & Trust Company, unless the act of indorsement was ultra vires.

2. It is stipulated that the bankrupt corporation never complied with the conditions of Georgia Civ. Code 1910, § 2817, subsec. 13, as amended by Acts Ga. 1917, p. 56, to enable it to exercise the charter powers therein given "to engage in the business of guaranteeing the payment of bonds and notes secured by mortgage or deed to real estate within the State of Georgia," and that the bonds in question were secured by real estate without the state of Georgia. Had the company for a consideration merely guaranteed these bonds, having no other interest in or connection with them, as the Globe Indemnity Company did, there would be much weight in the contention of want of power under this charter. The power of a Georgia trust company to indorse or guarantee obligations of others was considered In re Bankers Trust Company (D. C.) 27 F.(2d) 912, and the power to make an accommodation indorsement denied. The circumstances are quite different here. Under Civ. Code Ga. 1910, § 2817, subsec. 11, the Adair Company had unconditional power to buy and sell bonds secured in any way, or wholly unsecured. They undertook to sell these bonds without buying them, for a fixed profit of 10...