[8]*8Per Curiam :
We have carefully examined the evidence in this appeal, the report of the referee, the opinion of the learned judge at Special Term, and the order made by the Special Term, and think the order should be affirmed on the opinion of the judge at Special Term.
Present — Mayham, P. J., Putnam and Herrick, JJ.
Judgment affirmed, with costs.
The opinion of the judge at Special Term referred to, was as follows:
Russell, J.:
The point to be decided arises out of the claim of different bondholders to the money arising upon the foreclosure of the mortgage upon which this action was brought. The method by which these proceeds were realized was practically a plan for marshaling of the remaining assets of the company for distribution to the proper persons. The administrators of S. F. Yilas, deceased, claim to hold the bonds secured by the mortgage, amounting with interest to the sum of $23,558.23. Mrs. Foote and others, opponents of the Yilas claim, concededly hold bonds secured by the mortgage, amounting with interest to $8,496.25. The proceeds of sale amount to $12,030.58, and the question to be decided is whether that sum shall be paid pro rata to all of the persons claiming to be bondholders, after deducting the trustee’s costs of a previous litigation and his commissions.
The Saranac Horse Nail Company was a corporation organized under the Full Liability Act (Chap. 611, Laws of 1875), by which it is provided that all the stockholders shall be severally individually liable to the creditors of the conqiany for all debts and liabilities, and may be joined as defendants in any action against the company, but no execution shall be issued against a stockholder individually until after execution against the company has been returned unsatisfied. (§ 34.) Section 25 also provides 'that no stockholder shall be liable personally for debts not to be paid within two years from the time they are contracted.
S. F. Yilas, deceased, and Andrew Williams, through whom the administrators of Yilas claim, were stockholders in the Saranac [9]*9Horse Nail Company, Williams being its ■ president. The othér bondholders were not stockholders in that company.
The bonds were authorized in the year 1883 upon a resolution of the company as follows: “ That the president and secretary are hereby authorized to execute a mortgage on the property of the company to Greorge W. Watson, as trustee, to secure the sum of thirty thousand dollars, in coupon bonds of the company, to be issued by them for the purpose of raising money to pay the floating debts of the company, etc. * * * That the Hon. Andrew Wil- • liams be authorized to negotiate the $30,000 bonds this day authorized to be issued, at a price not less than par and accrued, interest.”
The first of the bonds to mature was not payable until the year 1886, so that the stockholders were not liable upon the debt created by the issuing of these bonds, but were liable upon other outstanding obligations of the company, consisting of notes owing the two banks of which Yilas and Williams were presidents and the Keeseville Rank.
Mr. Williams sold of these bonds at once $6,500 to Mrs. Foote and the other claimants, and later to Mrs. Town $2,000, which last-mentioned bonds Mr. Yilas obtained from Mrs. Town; later still Williams sold $1,000 worth to William Farrell, which he afterwards took from Farrell and subsequently transferred to the administrators of Yilas upon the arrangement hereinafter referred to. Williams afterward sold to Stephen Mofiitt $1,000 of the bonds, which he also transferred to the administrators of Yilas upon the arrangement referred to, and a year later Williams sold Mrs. Ellis $3,000 worth, which the administrators of Yilas took from Mrs. Ellis upon the said arrangement.
The remaining bonds, instead of being sold by Williams, were pledged by him to various banks, including two banks of which Williams and Yilas were presidents, as security for past due or maturing notes of the company.
About the 18th of May, 1886, it having been discovered that the Saranac Company was insolvent, an agreement was made between Williams and the Yilas administrators which recognized the insolvency of the company, the liability of the stockholders and agreed to pay the debts of the company, one-third by Williams and the [10]*10other two-thirds by Tilas’ administrators, the parties taking assignments of all evidences of debt for the purpose of contribution from the other stockholders. And it was also agreed that a mortgage should be foreclosed and the proceeds, with all moneys realized from the personal property, applied to the satisfaction of the debts.
It will thus be seen that this agreement provided that the remaining property of the company should be applied to the payment of the debts of the company, and that those debts which were paid by Williams and Tilas’ administrators were to be held only for the purpose of contribution, so that impliedly Williams and Tilas’ administrators did not intend to hold the evidences of debts collected by them for any other purpose than that of contribution from the other stockholders. The provision that’ if Williams and Tilas’ administrators purchased the property, it was to be held by them in the proportion of one-third to Williams and two-thirds to the estate of Tilas, does not conflict with this presumption, for the agreement itself presupposes the entire debts of the company were to be paid, so that there would be no other claimants to that property except the two parties immediately interested.
But that agreement was not carried out in full. About $10,000 of the debts of the company, including the bonds to Mrs. Foote and others, were not paid owing to the insolvency of Williams and his inability to complete the agreement.
Under these circumstances who has the superior equity to the proceeds realized from the foreclosure of the mortgage given to secure the bonds ? Mrs. Foote and the other claimants who j)aid money on a direct and plain purchase, were, confessedly holders for value whose obligations would have been paid had the agreement between Williams and the administrators of Tilas been carried into effect.
This is the case also with the other bonds sold by Williams and not pledged to the banks had they remained in the hands of the original holders. With the exception, however, of the bonds of Mrs. Town purchased by Tilas in his lifetime, the remaining bonds came into the hands of Tilas’ administrators in carrying out the arrangements by which those bonds were to be retired, except as they might be held for the purpose of contribution by the other stockholders.
[11]*11A few of the bonds were paid by Williams, as he expresses it in his testimony, before the arrangement of May, 1886, because the holders wanted the money, and these bonds formed part of the number transferred to the Yilas administrators in execution of that arrangement of May, 1886.
I am inclined to believe that in executing the arrangement it was impracticable for the Yilas administrators to turn their payments of obligations into a purchase of an equity in the proceeds of funds realized by the foreclosure of the mortgage which was given to secure the bonds.
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[8]*8Per Curiam :
We have carefully examined the evidence in this appeal, the report of the referee, the opinion of the learned judge at Special Term, and the order made by the Special Term, and think the order should be affirmed on the opinion of the judge at Special Term.
Present — Mayham, P. J., Putnam and Herrick, JJ.
Judgment affirmed, with costs.
The opinion of the judge at Special Term referred to, was as follows:
Russell, J.:
The point to be decided arises out of the claim of different bondholders to the money arising upon the foreclosure of the mortgage upon which this action was brought. The method by which these proceeds were realized was practically a plan for marshaling of the remaining assets of the company for distribution to the proper persons. The administrators of S. F. Yilas, deceased, claim to hold the bonds secured by the mortgage, amounting with interest to the sum of $23,558.23. Mrs. Foote and others, opponents of the Yilas claim, concededly hold bonds secured by the mortgage, amounting with interest to $8,496.25. The proceeds of sale amount to $12,030.58, and the question to be decided is whether that sum shall be paid pro rata to all of the persons claiming to be bondholders, after deducting the trustee’s costs of a previous litigation and his commissions.
The Saranac Horse Nail Company was a corporation organized under the Full Liability Act (Chap. 611, Laws of 1875), by which it is provided that all the stockholders shall be severally individually liable to the creditors of the conqiany for all debts and liabilities, and may be joined as defendants in any action against the company, but no execution shall be issued against a stockholder individually until after execution against the company has been returned unsatisfied. (§ 34.) Section 25 also provides 'that no stockholder shall be liable personally for debts not to be paid within two years from the time they are contracted.
S. F. Yilas, deceased, and Andrew Williams, through whom the administrators of Yilas claim, were stockholders in the Saranac [9]*9Horse Nail Company, Williams being its ■ president. The othér bondholders were not stockholders in that company.
The bonds were authorized in the year 1883 upon a resolution of the company as follows: “ That the president and secretary are hereby authorized to execute a mortgage on the property of the company to Greorge W. Watson, as trustee, to secure the sum of thirty thousand dollars, in coupon bonds of the company, to be issued by them for the purpose of raising money to pay the floating debts of the company, etc. * * * That the Hon. Andrew Wil- • liams be authorized to negotiate the $30,000 bonds this day authorized to be issued, at a price not less than par and accrued, interest.”
The first of the bonds to mature was not payable until the year 1886, so that the stockholders were not liable upon the debt created by the issuing of these bonds, but were liable upon other outstanding obligations of the company, consisting of notes owing the two banks of which Yilas and Williams were presidents and the Keeseville Rank.
Mr. Williams sold of these bonds at once $6,500 to Mrs. Foote and the other claimants, and later to Mrs. Town $2,000, which last-mentioned bonds Mr. Yilas obtained from Mrs. Town; later still Williams sold $1,000 worth to William Farrell, which he afterwards took from Farrell and subsequently transferred to the administrators of Yilas upon the arrangement hereinafter referred to. Williams afterward sold to Stephen Mofiitt $1,000 of the bonds, which he also transferred to the administrators of Yilas upon the arrangement referred to, and a year later Williams sold Mrs. Ellis $3,000 worth, which the administrators of Yilas took from Mrs. Ellis upon the said arrangement.
The remaining bonds, instead of being sold by Williams, were pledged by him to various banks, including two banks of which Williams and Yilas were presidents, as security for past due or maturing notes of the company.
About the 18th of May, 1886, it having been discovered that the Saranac Company was insolvent, an agreement was made between Williams and the Yilas administrators which recognized the insolvency of the company, the liability of the stockholders and agreed to pay the debts of the company, one-third by Williams and the [10]*10other two-thirds by Tilas’ administrators, the parties taking assignments of all evidences of debt for the purpose of contribution from the other stockholders. And it was also agreed that a mortgage should be foreclosed and the proceeds, with all moneys realized from the personal property, applied to the satisfaction of the debts.
It will thus be seen that this agreement provided that the remaining property of the company should be applied to the payment of the debts of the company, and that those debts which were paid by Williams and Tilas’ administrators were to be held only for the purpose of contribution, so that impliedly Williams and Tilas’ administrators did not intend to hold the evidences of debts collected by them for any other purpose than that of contribution from the other stockholders. The provision that’ if Williams and Tilas’ administrators purchased the property, it was to be held by them in the proportion of one-third to Williams and two-thirds to the estate of Tilas, does not conflict with this presumption, for the agreement itself presupposes the entire debts of the company were to be paid, so that there would be no other claimants to that property except the two parties immediately interested.
But that agreement was not carried out in full. About $10,000 of the debts of the company, including the bonds to Mrs. Foote and others, were not paid owing to the insolvency of Williams and his inability to complete the agreement.
Under these circumstances who has the superior equity to the proceeds realized from the foreclosure of the mortgage given to secure the bonds ? Mrs. Foote and the other claimants who j)aid money on a direct and plain purchase, were, confessedly holders for value whose obligations would have been paid had the agreement between Williams and the administrators of Tilas been carried into effect.
This is the case also with the other bonds sold by Williams and not pledged to the banks had they remained in the hands of the original holders. With the exception, however, of the bonds of Mrs. Town purchased by Tilas in his lifetime, the remaining bonds came into the hands of Tilas’ administrators in carrying out the arrangements by which those bonds were to be retired, except as they might be held for the purpose of contribution by the other stockholders.
[11]*11A few of the bonds were paid by Williams, as he expresses it in his testimony, before the arrangement of May, 1886, because the holders wanted the money, and these bonds formed part of the number transferred to the Yilas administrators in execution of that arrangement of May, 1886.
I am inclined to believe that in executing the arrangement it was impracticable for the Yilas administrators to turn their payments of obligations into a purchase of an equity in the proceeds of funds realized by the foreclosure of the mortgage which was given to secure the bonds.
The interests received by the administrators of Yilas from the transfer by Williams to them to secure his obligation for the sum of $3,300 was also in pursuance of this arrangement, and at the time it appears to me it was not intended that these bonds should be held as live obligations coequal and coexisting with the bonds held by the outside narties.
Williams and Yilas’ administrators upon entering into the agreement of May 18, 1886, contemplated the entire payment of the $90,000 of obligations of the company, and with that view had no thought or intention of holding any .securities as against the bondholders who had purchased bonds in good faith for value. Assuming that the evidence justifies the conclusion that at that time Williams and Yilas’ administrators held some bonds which had been issued to Mrs. Town and others for value, the agreement of May, 1886, spoke with reference to those bonds as well as the others and operated in its force upon them as a portion of those bonds taken up or to be taken up by the two contracting parties.
There is another reason why the bonds not sold outright by Williams are not valid obligations in the hands of the Yilas administrators. The resolutions under which Williams acted were plainly for the purpose of raising money to pay the debts of the company, and his power to sell was limited to a sale at not less than par. The power conferred is to be judged by the intent of the resolution. The limit upon the price and the provision that the bonds are for the purpose of paying the debts of the company leave no room for argument. Hypothecation of bonds in such a case does not advance one step towards the payment of debts of the company and does, incur the risk of the purchase of them at a price far less than par,. [12]*12for a sale upon pledge would be to the highest bidder without regard to the limit of the resolution, provided the original pledge was. valid.
Of course it may be that, independently of any resolution empowering Williams to sell, the possession of apparently fully executed bonds by the president of a company would give the implied power to bona fide ■ purchasers for value to take them irrespective of the limitations upon that apparent power. But the banks parted with nothing of value, nor does it appear from the evidence, so far as I can discover, that the pledging of the bonds was simultaneous with the extension of credit.
However that may be, Williams and Vilas were arranging the placing of the bonds of the company in such a manner as to wholly or partly free themselves from the obligations upon which they were personally liable, and it was their duty to see that those bonds were not diverted from the plain purpose for which they were issued. 'They cannot nor can either of them claim to be bona fide holders of bonds, which claim they could not successfully maintain had the bonds been issued directly to them, they having taken up the securities for which they were to be pledged; nor can they acquire a good title, because the bonds were originally diverted from their purpose into the hands of an innocent holder by their own action and thereafter taking upon themselves the obligation for which those bonds were improperly pledged.
I am satisfied from the evidence and all of the inferences to be drawn from the acts of all the parties, that Williams and Vilas were familiar with the disposition of the bonds, the purpose for which they were, given, and that, therefore, they cannot as to those bonds by any series of circumstances stand as bona fide holders for value of that portion which was pledged for the payment of the antecedent debts on which Williams and Vilas were personally liable, even if the agreement of May, 1886, had not made them voluntarily obligated to pay the debts of the .company.
These views upon the effect of the stockholders’ liabilities, the ■agreement of May, 1886, and the effect of the resolution upon which the bonds were issued, lead to the subordination of the claims of the Vilas administrators to the proceeds as against Mrs. Foote and the other bona fide holders.
[13]*13I see no reason wby Mr. Yilas, although a stockholder of the company, could not lawfully purchase and hold the bonds of the-company if the purchase was uncomplicated with other modifying' circumstances.
The report will be modified by striking out the provisions for a fro rata disposition of the proceeds, and by inserting a direction that tire bonds of Mrs. Foote, Miss Parker, Ryan and Mrs. Purdy be first paid out of the proceeds. Otherwise the report is-confirmed.