In re Waterloo Organ Co.

• Decision Date: 20 December 1904
• Docket Number: 23.
• Citation: 134 F. 345
• Parties: In re WATERLOO ORGAN CO.
• Court: U.S. Court of Appeals — Second Circuit

134 F. 345

In re WATERLOO ORGAN CO.

No. 23.

United States Court of Appeals, Second Circuit.

December 20, 1904

George E. Zartman, for petitioners.

J. N Hammond, for respondent.

Petition by trustee and creditors of the Waterloo Organ Company bankrupt, to review an order affirming order of referee adjudging that the First National Bank of Waterloo is the owner and holder of 21 bonds, of $500 each, issued by the bankrupt, and allowing the claim of said bank as a valid obligation of the bankrupt.

Before LACOMBE, TOWNSEND, and COXE, Circuit Judges.

TOWNSEND Circuit Judge.

The Waterloo Organ Company, a full liability company, organized under the New York corporation law, was adjudicated an involuntary bankrupt on July 2, 1902.

'On or about September 21, 1900, pursuant to a resolution of the board of directors theretofore passed, the preamble to which was as follows:

''Whereas this company desires to obtain additional advances, loans, discounts, credits and other pecuniary accommodations of and from the First National Bank of Waterloo, N.Y., and

"Whereas, the said bank requires security for all such loans and discounts, and for any other indebtedness or liability of this company to it.'

-- The said company by an instrument signed by its president and secretary, executed under its corporate seal and duly acknowledged, transferred to the said the First National Bank of Waterloo twenty-one of the mortgage bonds, of $500 each, of said company, numbered sixty to eighty, both inclusive, as 'a general and continuing collateral security for the payment at maturity and according to the terms thereof of each and all of the notes, checks, drafts, bills of exchange and other obligations of every kind, made, drawn, signed, accepted or endorsed by said Waterloo Organ Company which the said bank now has or which it may at any time hereafter have, hold, purchase or obtain, including any and all claims either in law or in equity, held or acquired by said bank against said Waterloo Organ Company, to the end that the bonds so delivered may be held by the said bank as security and indemnity, for any indebtedness or liability of any kind whether past, present or future, owing by the said Waterloo Organ Company to the said bank from time to time.'

'Said instrument further provided that the company should have the privilege to sell any of said bonds to other parties at par, to deliver the proceeds thereof to the bank to be applied upon the indebtedness of the company to the bank, and that thereupon the bank should release and redeliver to the company the bonds so sold and paid for.'

At the time of said transfer the company was directly indebted to the bank upon its own notes in the sum of $6,415.45, and contingently liable as indorser on business paper of its customers, which had been discounted by the bank, in the further sum of about $33,000. Upon the delivery of the bonds the bank immediately increased its line of discounts to the company, and the indebtedness of the company to the bank was largely increased, and so continued down to the time of the adjudication, when the amount of paper on which the company was directly liable was about $11,000, or a sum in excess of the par value of the bonds. The bank presented before the referee its 21 bonds, of $500 each, for proof and allowance.

The sections of the corporation law of the state of New York (Laws 1892, pp. 1824, 1835, c. 688) pertinent to the issues herein are as follows:

'SEC. 2. That in addition to the powers conferred by the general corporation law every stock corporation shall have the power to borrow money and contract debts when necessary for the transaction of its business or for the exercise of its corporate rights, privileges and franchises, or for any other lawful purpose of its incorporation; and it may issue and dispose of its obligations for any amount so borrowed, and may mortgage its property and franchises to secure the payment of such obligations or of any debt contracted for said purposes.'

'SEC. 42. No corporation shall issue either stock or bonds except for money, labor or property actually received for the use and lawful purposes of such corporation. No such stock shall be issued for less than its par value. No such bonds shall

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