BINGHAM, Circuit Judge.
This is the same case that was previously before this court (254 P. 5, 165 C. C. A. 415) on a writ of error from a judgment in favor of the defendant sustaining a demurrer to the plaintiff’s declaration.
"We then held that the arrangement under which the $800,000 note was deposited by the managers through the Refugio Syndicate with tho Guardian Trust Company for the issuance of participation certificates therein was an authorized method of borrowing within tho powers conferred upon the managers by the underwriting agreement (Old Record, Schedule A; Present Record, Exhibit 1) of September 1, 1907, and consequently the pledging of the underwriting agreement and all the stock wa,s authorized within the terms of that agreement, and that the underwriting agreement was not conditioned upon the subscribers receiving full paid stock legally issued; that the lenders, through the trustee, were bound only to turn over to the defendant, on payment of his subscription, his proportionate part of the stock pledged, whether that stock was full paid stock legally issued or not; and that, if borrowings were had on the $800,000 note pursuant to the deposit and pledge, as alleged in the declaration, the defendant having defaulted, the trustee would be entitled to recover from the defendant on the subscription agreement tho $9,200 which he had subscribed, less the payments be had made; but that, as it was apparent that the borrowings bad did not equal the sum of $800,-000, the plaintiff would bo bound to hold and pay over to the managers for the Refugio Syndicate such part of the sum recovered as exceeded the sum required to pay the defendant’s part of the borrowings actually made.
This decision having been rendered, the ease was remanded to the District Court for trial, where, after trial before the district judge, a jury having been waived, facts were found and rulings of law were made, to which tho plaintiff excepted, and, judgment for the defendant having been entered thereon, this writ of error was prosecuted.
This action is brought by the plaintiff, as trustee, on a syndicate underwriting agreement for 8,000 shares of stock, par value of $100 each, of the Refugio Syndicate, a New Jersey corporation, against the defendant as a subscriber thereto, wherein the defendant subscribed for and agreed to pay $9,200 for 92 shares of stock; the underwriting agreement, together with 2,000 shares of stock of the Refugio Syndicate previously purchased by the subscribers and paid for, having been pledged with the Guardian Trust Company as trustee to secure the note of $800,000 deposited with the trust company as depository, in which participations or borrowings were to be had to pay for the 8,000 shares.
The District Court has found that all the material faets alleged in the declaration are true except those alleged relating to ratification (paragraph 17 of the declaration), which, in view of further facts found, we regard as immaterial. As additional faets, it was found that, after the $800,000 nolo and collateral had been deposited with tho Guardian Trust Company, it borrowed on participation certificates $538,500, the net proceeds of which the Refugio Syndicate received in payment for the stock as and when the certificates were issued; that by the payment of subscriptions this amount of partic[178]*178ipations on September 28, 1910, had been reduced to $290,608; that on that date the $800,000 note was long overdue and the holders of participations were demanding payment; that to meet these demands the Refugio Syndicate entered into an arrangement to borrow from Consolidated Gold Fields of South Africa, Limited, $300,000 on its promissory note for that sum, dated September 28, 1910, which sum it turned over to the Guardian Trust Company; that the Guardian Trust'Company applied $275,144.-70 to cover the principal and interest on certain participation certificates then outstanding, amounting to $264,368, of the total outstanding certificates of $290,608; that nothing was paid on the balance of the outstanding certificates of $26,240;, that the remainder of the $300,000 was turned back to the Refugio Syndicate; that certificates representing the total outstanding borrowings of $290,608 were turned over to the trust company and canceled, as was the deposit agreement of March 2, 1908; that the $800,-000 note was delivered by the Guardian Trust Company to the Refugio Syndicate; that the •holders of the $26,240 of participation certificates received in lieu thereof participation certificates for that sum-in said note which were issued by the Refugio Syndicate; that on the same day and as a part of the same transaction the Refugio Syndicate delivered to Consolidated Gold Fields the note for $300,000 and as collateral security therefor the $800,000 note, subject to the $26,240 of outstanding participation certificates; that on the same date, September 28, 1910, the plaintiff was appointed trustee under the trust agreement of March 2, 1908, to succeed the Guardian Trust Company, which that day resigned; that, when the $300,000 note given to the Consolidated Gold Fields beeame due, it was not paid, and thereafter that company caused the $800,000 note held as collateral to be sold at public auction and bought in for its account.
Having found the material allegations of the declaration to have been, proved .and the additional facts as above stated, the District, Court made the following rulings: (1) That on the foregoing facts the plaintiff was not entitled to recover in this, action; (2) that the 8,000 shares of the capital stock of the Refugio Syndicate were never lawfully issued to the syndicate managers either on September 30,1907, or any subsequent date; (3) that the underwriting agreement did not authorize the syndicate’managers'to issue the $800,000 note for 8,000 shares of the capital stock of the Refugio Syndicate; (4) that neither the Refugio Syndicate as holder of the $800,000 note nor the plaintiff as trustee can hold the subscribers to the underwriting agreement liable- thereon; (5) that the loan of $300,000 by the Consolidated Gold Fields of South Africa, Limited, to the Refugio Syndicate upon the security of the $800,000 note of the syndicate managers as collateral did. not constitute a borrowing by the managers within the contemplation of the underwriting agreement (Plaintiff’s Exhibit 1), and sajd underwriting agreement is not enforceable as collateral to said loan ; (6) that the plaintiff is not entitled to recover upon defendant’s subscription agreement either for the benefit of Consolidated Gold Fields or for the holders of .any participation certificates issued by the Refugio Syndicate.
It is to these rulings that error is assigned.
In view of the conclusions reached in our former decision we regard the second ruling of law as immaterial, for we there held that it would not be a defense to an action brought by the trustee on the underwriting agreement for the benefit of lenders on participation certificates whether the shares of stock ’ of the Refugio Syndicate were full paid and lawfully issued or not. Neither do we regard the third ruling as material, for, if it be assumed that the underwriting agreement did not authorize the syndicate managers to give the $800,000 note in payment for the stock, it did authorize, as we previously held, the deposit of that note with the trust company, as depository, to represent borrowings that might be had to the amount of the note. Neither do we regard the fourth ruling as essential to a decision of this case, for this suit is not brought upon the $800,000 note by the Refugio Syndicate or by the plaintiff as trustee, but upon the underwriting agreement.
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BINGHAM, Circuit Judge.
This is the same case that was previously before this court (254 P. 5, 165 C. C. A. 415) on a writ of error from a judgment in favor of the defendant sustaining a demurrer to the plaintiff’s declaration.
"We then held that the arrangement under which the $800,000 note was deposited by the managers through the Refugio Syndicate with tho Guardian Trust Company for the issuance of participation certificates therein was an authorized method of borrowing within tho powers conferred upon the managers by the underwriting agreement (Old Record, Schedule A; Present Record, Exhibit 1) of September 1, 1907, and consequently the pledging of the underwriting agreement and all the stock wa,s authorized within the terms of that agreement, and that the underwriting agreement was not conditioned upon the subscribers receiving full paid stock legally issued; that the lenders, through the trustee, were bound only to turn over to the defendant, on payment of his subscription, his proportionate part of the stock pledged, whether that stock was full paid stock legally issued or not; and that, if borrowings were had on the $800,000 note pursuant to the deposit and pledge, as alleged in the declaration, the defendant having defaulted, the trustee would be entitled to recover from the defendant on the subscription agreement tho $9,200 which he had subscribed, less the payments be had made; but that, as it was apparent that the borrowings bad did not equal the sum of $800,-000, the plaintiff would bo bound to hold and pay over to the managers for the Refugio Syndicate such part of the sum recovered as exceeded the sum required to pay the defendant’s part of the borrowings actually made.
This decision having been rendered, the ease was remanded to the District Court for trial, where, after trial before the district judge, a jury having been waived, facts were found and rulings of law were made, to which tho plaintiff excepted, and, judgment for the defendant having been entered thereon, this writ of error was prosecuted.
This action is brought by the plaintiff, as trustee, on a syndicate underwriting agreement for 8,000 shares of stock, par value of $100 each, of the Refugio Syndicate, a New Jersey corporation, against the defendant as a subscriber thereto, wherein the defendant subscribed for and agreed to pay $9,200 for 92 shares of stock; the underwriting agreement, together with 2,000 shares of stock of the Refugio Syndicate previously purchased by the subscribers and paid for, having been pledged with the Guardian Trust Company as trustee to secure the note of $800,000 deposited with the trust company as depository, in which participations or borrowings were to be had to pay for the 8,000 shares.
The District Court has found that all the material faets alleged in the declaration are true except those alleged relating to ratification (paragraph 17 of the declaration), which, in view of further facts found, we regard as immaterial. As additional faets, it was found that, after the $800,000 nolo and collateral had been deposited with tho Guardian Trust Company, it borrowed on participation certificates $538,500, the net proceeds of which the Refugio Syndicate received in payment for the stock as and when the certificates were issued; that by the payment of subscriptions this amount of partic[178]*178ipations on September 28, 1910, had been reduced to $290,608; that on that date the $800,000 note was long overdue and the holders of participations were demanding payment; that to meet these demands the Refugio Syndicate entered into an arrangement to borrow from Consolidated Gold Fields of South Africa, Limited, $300,000 on its promissory note for that sum, dated September 28, 1910, which sum it turned over to the Guardian Trust Company; that the Guardian Trust'Company applied $275,144.-70 to cover the principal and interest on certain participation certificates then outstanding, amounting to $264,368, of the total outstanding certificates of $290,608; that nothing was paid on the balance of the outstanding certificates of $26,240;, that the remainder of the $300,000 was turned back to the Refugio Syndicate; that certificates representing the total outstanding borrowings of $290,608 were turned over to the trust company and canceled, as was the deposit agreement of March 2, 1908; that the $800,-000 note was delivered by the Guardian Trust Company to the Refugio Syndicate; that the •holders of the $26,240 of participation certificates received in lieu thereof participation certificates for that sum-in said note which were issued by the Refugio Syndicate; that on the same day and as a part of the same transaction the Refugio Syndicate delivered to Consolidated Gold Fields the note for $300,000 and as collateral security therefor the $800,000 note, subject to the $26,240 of outstanding participation certificates; that on the same date, September 28, 1910, the plaintiff was appointed trustee under the trust agreement of March 2, 1908, to succeed the Guardian Trust Company, which that day resigned; that, when the $300,000 note given to the Consolidated Gold Fields beeame due, it was not paid, and thereafter that company caused the $800,000 note held as collateral to be sold at public auction and bought in for its account.
Having found the material allegations of the declaration to have been, proved .and the additional facts as above stated, the District, Court made the following rulings: (1) That on the foregoing facts the plaintiff was not entitled to recover in this, action; (2) that the 8,000 shares of the capital stock of the Refugio Syndicate were never lawfully issued to the syndicate managers either on September 30,1907, or any subsequent date; (3) that the underwriting agreement did not authorize the syndicate’managers'to issue the $800,000 note for 8,000 shares of the capital stock of the Refugio Syndicate; (4) that neither the Refugio Syndicate as holder of the $800,000 note nor the plaintiff as trustee can hold the subscribers to the underwriting agreement liable- thereon; (5) that the loan of $300,000 by the Consolidated Gold Fields of South Africa, Limited, to the Refugio Syndicate upon the security of the $800,000 note of the syndicate managers as collateral did. not constitute a borrowing by the managers within the contemplation of the underwriting agreement (Plaintiff’s Exhibit 1), and sajd underwriting agreement is not enforceable as collateral to said loan ; (6) that the plaintiff is not entitled to recover upon defendant’s subscription agreement either for the benefit of Consolidated Gold Fields or for the holders of .any participation certificates issued by the Refugio Syndicate.
It is to these rulings that error is assigned.
In view of the conclusions reached in our former decision we regard the second ruling of law as immaterial, for we there held that it would not be a defense to an action brought by the trustee on the underwriting agreement for the benefit of lenders on participation certificates whether the shares of stock ’ of the Refugio Syndicate were full paid and lawfully issued or not. Neither do we regard the third ruling as material, for, if it be assumed that the underwriting agreement did not authorize the syndicate managers to give the $800,000 note in payment for the stock, it did authorize, as we previously held, the deposit of that note with the trust company, as depository, to represent borrowings that might be had to the amount of the note. Neither do we regard the fourth ruling as essential to a decision of this case, for this suit is not brought upon the $800,000 note by the Refugio Syndicate or by the plaintiff as trustee, but upon the underwriting agreement. The fifth ruling, in the view we take of the ease, is likewise inapplicable. It is undoubtedly true that the loan of $300,000 by the Consolidated Gold Fields to the Refugio Syndicate upon the security of the $800,000 note as collateral was not in itself a borrowing by the managers within the contemplation of the underwriting agreement, but this tells only a small part of the story, for it appears that, on September 28, 1910, there were outstanding participation certificates, representing borrowings on the note, amounting to $290,608, to secure which, the defendant’s subscription agreement was pledged, the proceeds of which borrowings, at the time they Trere obtained, had gone into the hands of the Refugio Syndicate towards payment of the stock and to the credit of the subscribers, including the defendant; and that, while the transaction of Sep [179]*179tember 28, 1910, was in form a cancellation of the outstanding participation certificates, it was in truth and in fact nothing more than an acquisition by the Refugio Syndicate of interests in the $800,000 note representing borrowings thereon amounting to $264,368 and a pledge thereof to the Consolidated Gold Melds as security for the $300,000 note. In this way the Refugio Syndicate became the equitable and probably the legal owner of the interests of a large majority of the holders of participations in the $800,000 note, which it assigned as collateral to the Consolidated Gold Fields, and which Consolidated Gold Fields later acquired by foreclosure. Then again the holders of the $26.240 worth of participation certificates, representing borrowings of that amount in the note, by surrendering those certificates and taking others representing like amounts of interest in the note, did not change their rights therein in any respect. That money had been loaned to the subscribers, and at their direction had, at the time it was received, gone to the payment of the stock The rights of these lenders were not extinguished by the formal cancellation of the old certificates, for it was clearly not their intention and could not have been to give up their interests in the $800,000 note amounting to $26,240, and discharge the subscribers from their obligation to pay the same, and what was done shows beyond question that they intended, and all the parties to the transaction intended, that they should retain their interests in the note to the extent that they had loaned their money to pay for the stock.
There was, then, at the time this suit was brought, as well as on September 28, 1910, outstanding interests or borrowings in the $800,000 note to which the defendant’s underwriting subscription was collateral, and, as the note was then overdue, and the defendant had defaulted in the payment of his subscription, the plaintiff, as trustee, was in a position to maintain this action, and out of the sum recovered pay to the owners of the borrowings amounting to $290,608 and interest such part of the sum recovered as would be required to pay defendant’s proportionate part of the borrowings, paying the balance to the Refugio Syndicate.
While the managers may not have been authorized by the underwriting agreement to give the $800,000 note to the Refugio Syndicate in payment for the stock, they were authorized thereby to make the note and cause it to be put into the hands of a depository to obtain borrowings thereon to pay for the stock, and, the borrowings having been had, the note continued to represent the sums borrowed until the subscribers or some one representing them extinguished them by payment. Here the loans have not been paid by the subscribers, whose obliga' tion it is to pay them, nor by any one in their behalf, and there has been no novation substituting a new debtor.
The District Court seems to have entertained the view that, “when the participation certificates, issued by the Guardian Trust Company, had been surrendered, and the agreement under which they had been issued canceled,” and “the note * * * redelivered to the Refugio Syndicate,” that transaction “put the Refugio Syndicate in the same position it would have been if no participation certificates had ever been issued.” This clearly is not so, for, in so far as borrowings were had on the $800,000 note to pay for the stock and the proceeds thereof came to the Refugio Syndicate, the stock which it issued was, to that extent at least, paid up and became the stock of the subscribers; and, this being so, the Refugio Syndicate, after the transaction of September 28,1910, could not have been in the position that it would have been had no borrowings been had.
When the ease was here before it did not appear in the allegations of the declaration that $275,144:70 of the sum borrowed by the Refugio Syndicate from the Consolidated Gold Fields went to take up outstanding participations in the note amounting, with interest, to that sum, and which had gone to pay for the stock, but we then expressed the opinion that the declaration stated a cause of action in so far as recovery was sought in behalf of the owners, legal or equitable, of participation certificates issued for sums loaned upon them to pay for the stock, which holding plainly covers the situation now developed by the evidence.
The judgment of the District Court is vacated and the ease is remanded to that court, with directions to enter a judgment for the plaintiff for $6,900 and interest, with costs.