Worth v. Marshall Field & Co.

• Decision Date: 06 February 1917
• Docket Number: 1478.,1477
• Citation: 240 F. 395
• Parties: WORTH et al. v. MARSHALL FIELD & CO. et al. SAME v. MARSHALL FIELD & CO. In re WORTH MFG. CO.
• Court: U.S. Court of Appeals — Fourth Circuit

240 F. 395

WORTH et al. v. MARSHALL FIELD & CO. et al.

SAME v. MARSHALL FIELD & CO.

In re WORTH MFG. CO.

Nos. 1477, 1478.

United States Court of Appeals, Fourth Circuit.

February 6, 1917

A. B Kimball, of Greensboro, N.C. (R. R. King, of Greensboro N.C., on the brief), for appellants and petitioners.

R. C Strudwick and William P. Bynum, both of Greensboro, N.C., for appellees and respondent.

Before KNAPP and WOODS, Circuit Judges, and ROSE, District Judge.

ROSE District Judge.

The bankrupt is a North Carolina corporation. In 1902 it mortgaged its property to secure $100,000 of 6 per cent. bonds, to which semiannual interest coupons were attached. It sold $26,000 of these bonds outright, and pledged, without selling, $52,000 more to secure various sums borrowed by it. The controversy at the bar involves the coupons from 1902 to 1913 on $15,000 of these pledged obligations. Shortly after the execution of the mortgage the bankrupt pledged these $15,000 of bonds to a New York firm, to which it owed precisely that sum. For 7 1/2 years, or until about June 1, 1910, these bonds remained in the hands of the firm mentioned, or of a New York corporation which in 1907 had taken over both the debt and the security for it. During all this time the bankrupt regularly and fully paid the interest on its indebtedness.

At or shortly before the date last mentioned, appellee became interested in the bankrupt, and apparently took control of it. At all events, thereafter, and until the adjudication, of the bankrupt's seven directors, four were employes of the appellee. On or about the same time the latter took over the $15,000 debt owing the New York corporation and the bonds by which that debt was secured. Thereupon the bankrupt gave appellee a new collateral note by the terms of which the bonds were made liable, not only for the $15,000, but for every other sum which the bankrupt might at any time owe appellee. This particular note matured 6 months later. It was then surrendered, and the bankrupt gave in its place an ordinary promissory note, which said nothing about collaterals, although the appellee continued to hold the bonds. Some months after the second note was given to appellee, it began making further advances to the bankrupt, and continued doing so until they aggregated $45,000, in addition to the original indebtedness of $15,000, or $60,000 in all. The interest on the entire sum was paid until January 1, 1913.

On October 4, 1913, a petition in bankruptcy was filed against the bankrupt, upon which adjudication followed ten days later. In the bankruptcy proceedings the property subject to the mortgage was sold free of liens. It realized just about enough, after defraying taxes and other preferred claims, and costs of the administration, to pay the principal of the outstanding bonds and a few months' interest thereon which at the time of the sale the creditors generally supposed was all that was owing. A few days or weeks later the appellee made claim to participate in the distribution of the proceeds as the holder, not only of the $15,000 of bonds, but also of $9,900 of coupons still attached to them, and representing interest on them from the original...