New York Security & Trust Co. v. Equitable Mortg. Co.

77 F. 64, 1896 U.S. App. LEXIS 2941

• Court: U.S. Circuit Court for the District of Southern New York
• Decided: October 15, 1896
• Status: Published

Opinion

LACOMBE, Circuit Judge.

If these particular coupons were included in the security which Post, Martin & Co. took as collateral for their advance, and which security the Equitable Mortgage Company subsequently purchased from the pledgee, the First National Bank of Candor has no title to them. If the Natchez Water Company did not pledge them, or if the pledgee subsequently released them from the pledge, and did not sell them to the mortgage company, then they became simply unissued promises to pay of the water company, which happened to be kept, not in their own office, but in the convenient custody of a third person. It would, in such case, have been quite competent for the water company to issue them to any one who chose to give value for them; and when so issued they might, perhaps, become valid obligations of such company, and property in the hands of the person to whom they were issued. But this was not done. The water company never issued them to the bank, nor to any one else. They remained continuously in the custody of the mortgage company. At no time subsequently to their release from the lien of the Post, Martin & Co. loan (assuming they were thus released) did they pass into the hands of any bona fide holder for value. The transaction between the water company and the bank certainly was not such an issuance of the coupons, even waiving any question as to what rights would pass to the purchaser from a corporation of its overdue obligations. The most that was done was to assign to the bank all the water company’s right, title, and interest in the unissued coupons. As to what such right, title, and interest was, the special master was entirely right in Ms finding that the Natchez Company, holding the coupons free from any pledge, would “not be entitled to share in the proceeds of sale under foreclosure, since it cannot * * be successfully maintained that a mortgage debtor, having become possessed of bonds or coupons secured by its mortgage, can enforce them against the proceeds of sale of the mortgaged property, where such proceeds are insufficient to pay in full the other outstanding bonds and coupons secured thereby. * * The coupons [in question] were not entitled to share in the proceeds of sale of the mortgaged property, as against the holders of the other bonds and coupons, who were not paid in full.”

There is nothing in the suggestion that the receivers of the mortgage company cannot be heard to make this objection to the claim of the bank or its assignee, by reason of the fact that, under decree of court in the foreclosure proceedings, these very coupons did share in the proceeds of the sale of the mortgaged property. It is apparent from the record before the special master that it is a disputed question of fact whether or not the coupons in question were originally taken by the mortgage company as collateral security, and thus eventually became its property. Presumably, the court which made the decrees in foreclosure reached that conclusion. It certainly cannot be assumed that it held coupons to be entitled to share in the proceeds, when sucn coupons had been returned to the debtor company free from any lien, and never reissued by it to any one. The exceptions are overruled.