Rockville Nat. Bank v. Citizens' Gaslight Co.

• Decision Date: 13 February 1900
• Citation: 72 Conn. 676,45 A. 361
• Court: Connecticut Supreme Court
• Parties: ROCKVILLE NAT. BANK v. CITIZENS' GASLIGHT CO.

45 A. 361

72 Conn. 676

ROCKVILLE NAT. BANK

v. CITIZENS' GASLIGHT CO.

Supreme Court of Errors of Connecticut.

Feb. 13, 1900.

Appeal from superior court, Tolland county; Samuel O. Prentice, Judge.

Action by the Rockville National Bank against the Citizens' Gaslight Company to recover on certain of defendant's bonds, pledged to plaintiff as collateral security for an antecedent debt. From a judgment in favor of plaintiff, defendant appeals. Affirmed.

The complaint was in the usual form to recover on negotiable paper payable to bearer. There were proceedings in reference to the pleadings not now material. The answer denied the allegations of the complaint that the bonds in suit were the obligation of the defendant, and that the plaintiff was the actual and bona fide holder thereof, and further alleged that, prior to the possession of the bonds by the plaintiff, they had been paid, satisfied, and surrendered to the defendant, and had never been reissued, of which the plaintiff had notice; that the bonds were delivered to plaintiff by the defendant's treasurer, one Risley, unlawfully and fraudulently, of which fraud the plaintiff had knowledge. The court found the facts, and thereupon rendered judgment for the plaintiff. The facts found are substantially as follows: Under date of December 1, 1890, the defendant issued and placed upon the market $60,000 of its coupon bonds. Each bond was payable to bearer on December 1, 1900, at the First National Bank, Willimantic. The coupons were payable to bearer semiannually at the same bank. Each bond contained a provision that upon failure to pay any one of the interest coupons, and default continued for six months, the principal of all the bonds shall immediately become due and payable. The three bonds in suit are for $1,000 each, and formed a part of this issue. Said bonds were legally binding obligations on the defendant. To secure the payment of said bonds, the defendant conveyed its property in Willimantic to the Merchants' Loan & Trust Company, as trustee, in trust for the benefit of the bondholders. This deed was duly recorded. All of said $60,000 of bonds were placed on the market and sold for full value. On October 1, 1891, the defendant's stockholders, at a meeting duly held, unanimously voted to authorize a new issue of bonds, amounting to the sum of $120,000, and the execution of a trust mortgage of all the defendant's property to secure the payment thereof, the details to be determined by vote of the directors, and the use of the proceeds thereof to take up said first issue of $110,000, outstanding, but not then due, and the use of the balance of the proceeds of the new issue for the general purposes of the company, and to authorize a release of the trust mortgage securing the first issue "whenever the bonds secured thereby have been paid and canceled." In accordance with said vote, the defendant made such new issue, and one of its directors, acting in its behalf, exchanged $40,000 worth of said new issue with the holders of said first issue, and took the latter into his possession, and thereupon delivered the same to O. H. K. Risley, the defendant's treasurer, as the paid and satisfied obligations of the defendant. Among said bonds so received by Risley were the bonds in suit Said Risley then was, and for some time before had been, a stockholder and member of a board of directors of the defendant corporation, and also of the Merchants' Loan & Trust Company. He was also treasurer of both companies, and continued so to be to the date of his death, which occurred on April 12, 1895. The bonds issued by the defendant were signed by said Risley as its treasurer. After the surrender of the whole of said first issue of $60,000 had been secured, and the bonds delivered into the possession of Risley as aforesaid, said Merchants' Loan & Trust Company, under its corporate seal, acting by Risley, its treasurer, executed a release deed of said mortgage and trust deed given to secure said first issue of bonds, which release deed was duly recorded by the defendant. This deed recites the fact that the plaintiff had called in and paid the whole of said first issue, and had surrendered said bond, fully paid, to the releasor, and thereby the trust created by said mortgage had been fully discharged. The bonds of said first issue, before their delivery to said Risley as aforesaid, had been fully satisfied by said exchange, and were thereafter the property of the defendant. They were never reissued, and said Risley never acquired any interest therein or ownership thereof. The defendant did not at any time, otherwise than might be implied from said action of the stockholders, vote or authorize said Risley or any one to cancel any of said first issue of bonds after the same were taken up, and none of said bonds were ever in fact canceled previous to Risley's death. When the second issue of bonds was made, the defendant gave to the Merchants' Loan & Trust Company a trust deed of all its property to secure the payment of said second issue. On March 6, 1893, the plaintiff held said Risley's note, due April 1, 1893, for $8,500,—the same being secured by the pledge of shares of capital stock in several corporations, including four shares of the capital stock of the Kansas, Chicago & St. Louis Railroad Company. On said day the plaintiff wrote Risley that it desired he should substitute some other collateral in place of the railroad stock. On March 30th Risley replied, forwarding his four-months renewal note for $8,000, and a draft for $500, and took up his said note for $8,500, and requested the return of said railroad stock, which was sent him. On April 4, 1893, the plaintiff wrote Risley that it did not consider the collateral sufficient, and requested him to send additional security for the payment of his said note for $8,000. In response to this request said Risley on April 8th, wrongfully, and in breach of his duty as the defendant's treasurer, sent to the plaintiff, as additional security for his said $8,000 note, the three bonds in suit in consideration of said three bonds being given the plaintiff by said Risley as collateral security in addition to the other security which it already held, the plaintiff continued to discount said Risley's said note, and on August 1 and December 13, 1894, to renew the unpaid balance thereof, i. e. $3,000, in each instance by four-months renewal notes. Said note of December 13, 1894, was the last renewal note, payable four months from date. This last note the plaintiff now holds, and there is due on it the sum of $2,402.92, which sum is the balance unpaid of said original indebtedness of $8,500; and the same has been a continuous obligation since said March 6, 1893, and long before. The plaintiff sold a portion of its collateral at its fair market value, and applied the proceeds on said $3,000 note, leaving due at the time of trial said sum of $2,402.92. The remainder of the collateral held by the plaintiff, aside from the bonds in suit, had become...