Landon, J.:
The firm of Moffett, Hodgkins & Clarke and others entered into an agreement August 21, 1889, with the said railroad company, to enable -it to complete its railroad, whereby they agreed to advance to the railroad company in installments $250,000, and the company agreed to pay such advances by issuing “ bonds secured by a first mortgage upon its railroad and all its property, to an amount equal at least to the sum of the amount hereby agreed to be advanced, and also to issue capital stock of its company for such an amount as its directors may order, but not greater than they may legally create. Such bonds, and not less than 80 per cent of the stock, shall be divided among the subscribers hereto each month as advances are made pro rata according to the amounts advanced.”
The agreement also provided “ that after the subscribers to the fund herein provided for shall receive the amounts they have each actually paid in, together with interest thereon, and after the payment of all debts and expenses incurred in the prosecution of the work, that the balance remaining shall be divided pro rata amongst all the subscribers to the fund.”
The subscribers to the agreement advanced to the railroad company $270,000, being the $250,000 subscribed, increased by a further call of eight per centum. Moffett, Hodgkins & Clarke advanced $144,500. For what sum the railroad company ■ should execute its mortgage was not stated in the agreement, but it afterwards did execute it for $375,000, and made its bonds for a like amount, with [214]*214interest coupons, annexed thereto. The railroad company placed all the bonds, in the hands of One Camp, as custodian, and for proper distribution. Camp, issued the bonds to each subscriber as called for, to an amount equal to the amount paid by him, up to $252,000 in the aggregate, the Moffett, Hodgkins & Clarke - Company receiving $1.44,500 in bond's. The rest of the bonds, except $15,500, were held for the unpaid subscribers or'used by the railroad company as collateral.; $15,500 were never issued to any one. When Camp delivered the bonds to each subscriber to the syndicate agreement, the Moffet, Hodgkins & Clarke Company among others, or to a creditor as collateral, he cut therefrom the past-due coupons and . -retained them. The coupons which Camp thus cut off and retained amounted to $26,325. The Moffett, Hodgkins & Clarke Company ■ pledged all of the bonds which it received to its creditors as,collateral, and of these it pledged to the respondent, .the American Exchange National Bank, $39,000 Of the bonds of the- railroad company^ with coupons thereafter to mature, and the bank surrendered the coupons of these bonds as they matured to> the- Moffett, Hodgkins' & Clarke-Company upon its request. Neither the railroad -company nor the Moffett, Hodgkins & Clarke Company or firm paid any Of the coupons, but the latter company asked for and received them of the bank, the company’s purpose being to protect the credit of the railroad- and the credit of the bonds as 'Collateral, and its own-credit as the owners of the bonds, from the injury which the default in payment of the coupons would cause. Clarke, through whom these, coupons were tints taken up, was president of the railroad company and member of the firm of Moffett, Hodgkins & Clarke, and of the corporation, successor of such firm, the Moffett, Hodgkins & Clarke Company, and also its treasurer. • \ ' .'' .'
' The case states that in like- manner the Moffett, Hodgkins & Clarke Company pledged other railroad bonds to its other creditors and took up the coupons, never paying anything upon them, except once, when the company paid1, the' creditor the maturing coupons held by him in the sum of $812 and .took them up.
The total coupons thus obtained by the Moffet, Hodgkins & Clarke ■ Company, and which "came to the hands of- its receivers, amount to $17,040, whereof $812 are the paid-up coupons.
The receivers claim':
[215]*2151. That the $17,040 of coupons should be admitted to participation in the distribution of the proceeds of the sale of the mortgaged property.
2. That, under the contract of August 2.1, 1889, they are entitled to have distributed to them a dividend upon their jiro rata share of the $15,500 of bonds which were never issued.
3. And in like manner upon the $26,805 of the past-due coupons which Camp, the custodian, cut from all the bonds before he issued them., .
It is a sufficient answer to the second and third claims that these bonds and coupons were never issued to anybody by the railroad company, and, therefore, never had an inception as obligations.
The railroad company, by the agreement of August 29, 1889, did not undertake to issue any more bonds than would be necessary to complete and equip its railroad and pay its debts. But it did undertake to issue stock and let the subscribers to the agreement have eighty per cent of it, in addition to an amount of bonds equal to their respective advances, and it is no doubt, with reference to the unissued twenty per cent of stock, that the provision in the contract respecting the division of the balance among the subscribers refers. Besides, it does not appear that the debts of the railroad company are paid; only the mortgagor, mortgagee and lienors are parties to this action. The railroad company was not a party to any agreement among the subscribers to divide this surplus of bonds among themselves. ,
As to the coupons to the amount of $812, the Moffett, Hodgkins & Clarke Company paid them to give further credit to the bonds; the company did not buy them,; they were canceled on their1 face. As to the party receiving the payment the coupons cannot be revived. As to every other bondholder the payment still exists, and the company has no equity against him to insist that it shall not continue. Its remedy is against the railroad company, and thus these coupons must be excluded from participation in the distribution. (Union Trust Co. v. The Monticello & P. J. Rway. Co., 63 N. Y. 311; Hollister v. Stewart, 111 id. 644, 663; Wood v. Guarantee Trust Co., 128 U. S. 416.)
As to the balance of these coupons, $16,228, they were surrendered to the Moffett, Hodgkins & Clarke Company by its several [216]*216pledgees. How many of them the American Exchange National Bank surrendered does not appear. But, whatever the amount, it would be inequitable that they should. now be ■ used to deplete' the amount distributable upon the bonds, from which they were taken; the Moffett, Hodgkins & Clarke Company retired them to protect and prolong the security afforded by such bonds ;, and for the pledgor who did so with that intent, to use- them to impair the security still remaining with the pledgee,, would be in violation of the contract implied by the transaction and the equities resulting from. it. It certainly never "entered the mind of the pledgee when it surrendered the coupons '•— and the pledgor did not intend that it should —- that in parting with the coupons he was creating a charge.against the principal of the bond. (Cases above cited ; Haven v. Grand Junction R. R. & D. Co., 109 Mass. 88; South Covington, etc., Rway. Co. v. Gest, 34 Fed. Rep. 628.)
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Landon, J.:
The firm of Moffett, Hodgkins & Clarke and others entered into an agreement August 21, 1889, with the said railroad company, to enable -it to complete its railroad, whereby they agreed to advance to the railroad company in installments $250,000, and the company agreed to pay such advances by issuing “ bonds secured by a first mortgage upon its railroad and all its property, to an amount equal at least to the sum of the amount hereby agreed to be advanced, and also to issue capital stock of its company for such an amount as its directors may order, but not greater than they may legally create. Such bonds, and not less than 80 per cent of the stock, shall be divided among the subscribers hereto each month as advances are made pro rata according to the amounts advanced.”
The agreement also provided “ that after the subscribers to the fund herein provided for shall receive the amounts they have each actually paid in, together with interest thereon, and after the payment of all debts and expenses incurred in the prosecution of the work, that the balance remaining shall be divided pro rata amongst all the subscribers to the fund.”
The subscribers to the agreement advanced to the railroad company $270,000, being the $250,000 subscribed, increased by a further call of eight per centum. Moffett, Hodgkins & Clarke advanced $144,500. For what sum the railroad company ■ should execute its mortgage was not stated in the agreement, but it afterwards did execute it for $375,000, and made its bonds for a like amount, with [214]*214interest coupons, annexed thereto. The railroad company placed all the bonds, in the hands of One Camp, as custodian, and for proper distribution. Camp, issued the bonds to each subscriber as called for, to an amount equal to the amount paid by him, up to $252,000 in the aggregate, the Moffett, Hodgkins & Clarke - Company receiving $1.44,500 in bond's. The rest of the bonds, except $15,500, were held for the unpaid subscribers or'used by the railroad company as collateral.; $15,500 were never issued to any one. When Camp delivered the bonds to each subscriber to the syndicate agreement, the Moffet, Hodgkins & Clarke Company among others, or to a creditor as collateral, he cut therefrom the past-due coupons and . -retained them. The coupons which Camp thus cut off and retained amounted to $26,325. The Moffett, Hodgkins & Clarke Company ■ pledged all of the bonds which it received to its creditors as,collateral, and of these it pledged to the respondent, .the American Exchange National Bank, $39,000 Of the bonds of the- railroad company^ with coupons thereafter to mature, and the bank surrendered the coupons of these bonds as they matured to> the- Moffett, Hodgkins' & Clarke-Company upon its request. Neither the railroad -company nor the Moffett, Hodgkins & Clarke Company or firm paid any Of the coupons, but the latter company asked for and received them of the bank, the company’s purpose being to protect the credit of the railroad- and the credit of the bonds as 'Collateral, and its own-credit as the owners of the bonds, from the injury which the default in payment of the coupons would cause. Clarke, through whom these, coupons were tints taken up, was president of the railroad company and member of the firm of Moffett, Hodgkins & Clarke, and of the corporation, successor of such firm, the Moffett, Hodgkins & Clarke Company, and also its treasurer. • \ ' .'' .'
' The case states that in like- manner the Moffett, Hodgkins & Clarke Company pledged other railroad bonds to its other creditors and took up the coupons, never paying anything upon them, except once, when the company paid1, the' creditor the maturing coupons held by him in the sum of $812 and .took them up.
The total coupons thus obtained by the Moffet, Hodgkins & Clarke ■ Company, and which "came to the hands of- its receivers, amount to $17,040, whereof $812 are the paid-up coupons.
The receivers claim':
[215]*2151. That the $17,040 of coupons should be admitted to participation in the distribution of the proceeds of the sale of the mortgaged property.
2. That, under the contract of August 2.1, 1889, they are entitled to have distributed to them a dividend upon their jiro rata share of the $15,500 of bonds which were never issued.
3. And in like manner upon the $26,805 of the past-due coupons which Camp, the custodian, cut from all the bonds before he issued them., .
It is a sufficient answer to the second and third claims that these bonds and coupons were never issued to anybody by the railroad company, and, therefore, never had an inception as obligations.
The railroad company, by the agreement of August 29, 1889, did not undertake to issue any more bonds than would be necessary to complete and equip its railroad and pay its debts. But it did undertake to issue stock and let the subscribers to the agreement have eighty per cent of it, in addition to an amount of bonds equal to their respective advances, and it is no doubt, with reference to the unissued twenty per cent of stock, that the provision in the contract respecting the division of the balance among the subscribers refers. Besides, it does not appear that the debts of the railroad company are paid; only the mortgagor, mortgagee and lienors are parties to this action. The railroad company was not a party to any agreement among the subscribers to divide this surplus of bonds among themselves. ,
As to the coupons to the amount of $812, the Moffett, Hodgkins & Clarke Company paid them to give further credit to the bonds; the company did not buy them,; they were canceled on their1 face. As to the party receiving the payment the coupons cannot be revived. As to every other bondholder the payment still exists, and the company has no equity against him to insist that it shall not continue. Its remedy is against the railroad company, and thus these coupons must be excluded from participation in the distribution. (Union Trust Co. v. The Monticello & P. J. Rway. Co., 63 N. Y. 311; Hollister v. Stewart, 111 id. 644, 663; Wood v. Guarantee Trust Co., 128 U. S. 416.)
As to the balance of these coupons, $16,228, they were surrendered to the Moffett, Hodgkins & Clarke Company by its several [216]*216pledgees. How many of them the American Exchange National Bank surrendered does not appear. But, whatever the amount, it would be inequitable that they should. now be ■ used to deplete' the amount distributable upon the bonds, from which they were taken; the Moffett, Hodgkins & Clarke Company retired them to protect and prolong the security afforded by such bonds ;, and for the pledgor who did so with that intent, to use- them to impair the security still remaining with the pledgee,, would be in violation of the contract implied by the transaction and the equities resulting from. it. It certainly never "entered the mind of the pledgee when it surrendered the coupons '•— and the pledgor did not intend that it should —- that in parting with the coupons he was creating a charge.against the principal of the bond. (Cases above cited ; Haven v. Grand Junction R. R. & D. Co., 109 Mass. 88; South Covington, etc., Rway. Co. v. Gest, 34 Fed. Rep. 628.)
But we do not see how this transaction.' between the pledgor and a single pledgee can inure -to the benefit of any other pledgee not a party to it or influenced by it. (Ketchum v. Duncan, 9.6 U. S. 671.) Nor. how the American Exchange National Bank cam take any benefit from the like transaction between the' Moffett, Hodgkins & Clarke Company and any other pledgee in the absence of evidence that the bank was influenced by it. '
, The coupons in the hands,of the receivers are still the' unpaid obligations of the railroad company, and they may insist upon their payment against every other holder of the railroad bonds than those who were led to take them from, the Moffett, Hodgkins & Clarke Company, or to extend time of payment, upon the company’s assurance, express or implied, that it had retired or would retire such coupons as they matured. And it does not appear that any creditor was influenced by any other transaction with the company than his own. It is conceivable that if any of the coupons had gone to protest all of the Moffett,. Hodgkins & Clarke Company’s pledgees would have taken alarm and' would • have refused to ■ extend further credit 'without further security. But this is toó conjectural to support-a finding of fact to such effect. As the' record' stands, we have no sufficient evidence upon which to extend to any other pledgee .of the Moffett, Hodgkins & Clarke-Company the-like relief extended to the American Exchange National Bank, As the appellants, the receiv[217]*217ers of the Moffett, Hodgkins & Clarke Company, are entitled to participate in the dividend with respect to $16,228 of their coupons, the bondholders should, in the new distribution, be permitted to add their past-due coupons to their bonds. We understand that this was not done in the distribution under review, because, all the coupons being excluded, the result would be about the same as if the" coupons had been added to the bonds.
The judgment and order should be modified by admitting the appellants’ coupons "to the amount of $16,228 to participation in the distribution, except as against the American Exchange National Bank in respect to the coupons surrendered by the bank to the Moffett, Hodgkins & Clarke Company, with costs, to the appellants out of the fund, and the case is sent back to the referee for a further report.
Method of computation:
As the bank is entitled to a certain rate per cent against the Moffett, Hodgkins & Clarke Company, and a smaller rate against the other distributees, first compute the amount due all the distributees as if all were equal, then compute the amount due the bank at the rate allowed the bank against the Moffett, Hodgkins & Clarke Company. Find the difference between the two dividends thus computed upon the bank’s claim. Take this difference from the Moffett, Hodgkins & Clarke Company’s dividend, thus reducing the Moffett, Hodgkins & Clarke Company’s dividend. by the'sum that the bank’s dividend is increased.
Thus, suppose the sum to be distributed is $100,000, and the total claims $484,000, then the rate per cent would be F&i per cent. Suppose the bank returned to the Moffett, Hodgkins & Clarke Company $4,000 of their $16,230 of coupons, then the bank’s rate against the Moffett, Hodgkins & Clarke Company would be HHnlHnr, or HHr Per cent.
Say the hank claims $40,000> then the bank’s actual dividend is HHr per cent thereof, or $8,333.33; and Fir per cent is $8,264.46; difference, $68.87, which take from the Moffett, Hodgkins & Clarke Company’s dividend computed at Fg* per cent.
All concurred.
[218]*218Judgment and order modified by admitting $16,228 coupons of appellants to participation in the distribution, except as against the American Exchange Rational Bank in respect to the coupons surrendered by said bank to the Moffett, Hodgkins & Clarke Company, with costs to appellants out.of the fund, and case sent back to referee to report as. to the distribution accordingly..