John Matthews, Inc. v. Knickerbocker Trust Co.

• Decision Date: 11 December 1911
• Docket Number: 72.
• Citation: 192 F. 557
• Parties: JOHN MATTHEWS, Inc., v. KNICKERBOCKER TRUST CO.
• Court: U.S. Court of Appeals — Second Circuit

192 F. 557

JOHN MATTHEWS, Inc., v. KNICKERBOCKER TRUST CO.

No. 72.

United States Court of Appeals, Second Circuit.

December 11, 1911

The following facts are practically undisputed:

The petitioner is the owner of a note of the bankrupt corporation dated September, 1910, and due December, 1910, for the sum of $16,693.20. This note was the last of a series of notes running back to 1907. As collateral to this note the petitioner holds 29 debenture bonds of the bankrupt corporation which were originally pledged to secure earlier notes in the series.

Herbert Barry, for petitioner.

Leo Oppenheimer, for respondent.

Out of said 29 bonds 23 had been, prior to their delivery as collateral, in the treasury of said corporation and were never otherwise issued than by such delivery. The remaining 6 bonds had likewise been in the treasury of the corporation prior to their delivery as collateral, but with respect to these bonds it appears that while in the custody of the petitioner they had been sold to certain individuals interested in the corporation and that coupons upon said bonds had been paid subsequent to such sale. It does not appear that the petitioner was informed of the sale. Since their original pledge the 6 bonds have always been in the custody of the petitioner and have been held as collateral. There is nothing in the record to show any fraud in the sale of these bonds; that a valuable consideration was not paid for them, or anything to negative an actual sale.

Before LACOMBE, COXE, and NOYES, Circuit Judges.

NOYES Circuit Judge (after stating the facts as above).

The debenture bonds of the bankrupt corporation which the petitioner holds as collateral do not purport to impose any lien or charge upon the property of the corporation and are nothing more than instruments importing an obligation to pay. So far as the 23 bonds are concerned, the bankrupt corporation never received any consideration for them. They were treasury bonds when pledged and no change in their status has taken place since. The real debt which the bankrupt corporation owed the petitioner was evidenced by the note and nothing was added to it by giving as collateral another promise to pay. Any rule which would permit the proof of two notes for one indebtedness would permit the proof of a dozen, and would substitute for pro rata distribution among real creditors, distribution in accordance with the ability of a bankrupt to make...