American File v. Garrett Sayles/Opinion of the Court

We shall consider the questions raised by these appeals as presented by the record in the case of William F. Sayles and others v. Robert Garrett & Sons.

The first contention of the appellants is that the bonds of the American File Company issued in 1870 were taken by its stockholders in proportion substantially to the stock held by them respectively, on the agreement between themselves that the bonds should extinguish their individual liability, and the bondholders should look to the property mortgaged to secure the bonds and the other property of the company for payment, and that Garrett & Sons were bound by this agreement. If it be conceded, what in our opinion the record fails to show, that the bonds were issued on any such understanding, it would remain for the appellants to prove notice thereof to Garrett & Sons before the title of the latter to the bonds could be affected by it. The bill in this case having charged that when Garrett & Sons took the bonds they had actual notice of all the circumstances under which they were issued to the stockholders, and of all and singular the rights and equities subsisting between the stockholders of the company in relation thereto, and having called for the answer of defendants under oath, the defendants answered under oath, and alleged that they took the bonds in the course of business for value before maturity, and that at the time they acquired title thereto they were ignorant of the fact that Allan A. Chapman was a stockholder in the American File Company, and had no knowledge or notice of the manner or circumstances of the issue of said bonds. The testimony of each one of the defendants was taken by deposition, in which they reiterate the denial of knowledge or notice contained in their answers. The answers and depositions of the defendants on this point stand uncontradicted by any evidence, direct or circumstantial, in the record. The truth of their denial must therefore be taken as an established fact in in the case. If, therefore, Garrett & Sons, having acquired the bonds before maturity, paid value for them, they can hold them unaffected by any equities between Allan A. Chapman and the American File Company or its stockholders. The evidence in the record shows beyond controversy that Garrett & Sons took the bonds as collateral security for a valid debt for which they held no other security, and which the bonds fell far short of securing; that after applying these and other assests to the debts for which they were pledged, there remained due to them from Kirkland, Chase & Co. more than $200,000. They were therefore purchasers for value, and are entitled to all the rights of bona fide holders for value, among which is the right to enforce payment from the stockholders of the American File Company. Swift v. Tyson, 16 Pet. 1; Oates v. ''Nat. Bank, 100 U.S. 239; Railroad Co. v. Nat. Bank'', 102 U.S. 14.

But the appellants insist (and this is their second contention) that, conceding Garrett & Sons to be bona fide holders of the bonds for value without notice of any equities or defenses as against the first holders, they have nevertheless lost their right to enforce the individual liability of the stockholders by reason of the agreement between them and the assignees of Chapman, whereby they assumed the liability of stockholders, and made themselves liable through the assignees to contribute to the other stockholders the money which they might collect from them on the bonds of the company. It is clear that Garrett & Sons did not by this contract agree to become stockholders of the corporation or to indemnify Chapman against his individual liability as a stockholder. The agreement will bear no such interpretation. The contract was made for the benefit of the assignees, by which they took an indemnity for themselves and the bankrupt estate. If, therefore, the assignees themselves are not liable as stockholders, Garrett & Sons by this contract of indemnity assumed no liability, and they hold the bonds in question unfettered by any equities or conditions. It is well settled that under the circumstances of the case neither the assignees nor the assets in their hands are subject to the individual liability which attaches to stocks held by the bankrupt. The evidence does not show that the assignees acted in any way as stockholders; that they ever attended any meetings of the corporation; or that their names appeared upon its books; or that they treated the stock standing in Chapman's name as an asset of his estate. They merely had in their possession the certificates of stock, and yielded to Garrett & Sons any claim to the bonds of the American File Compnay belonging to Chapman or his firm, and took an indemnity against any supposed liability which might attach to them as holders of the stock belong to the estate of Chapman. In Gray v. Coffin, 9 Cush. 192, the supreme court of Massachusetts, having under consideration a law of that state almost identical with the Rhode Island statutes, held that the individual liability of 'stockholders did not attach when their assignee had attended and voted at meetings of the corporation and done other acts of unequivocal equivocal ownership.' The same result would follow under the bankrupt law. It has long been a recognized principle of the bankrupt laws that the assignees were not bound to accept property of an onerous or unprofitable character. South Staffordshire R. Co. v. Burnside, 5 Exch. 129; Furdoonjee's Case, 3 Ch. Div. 268; Ex parte Davis, Id. 463; Streeter v. Sumner, 31 N. H. 542; Amory v. Lawrence, 3 Cliff. 523; Rugely v. Robinson, 19 Ala. 404. As the assignees of Chapman never accepted the stock, and never consented to become stockholders in the American File Company, it follows that neither they nor the assets of Chapman in their hands are subject to the individual liability of stockholders for the debt of the corporation. The contract of indemnity did not, therefore, subject Garrett & Sons to any such liability. It follows that they took the bonds unaffected by any agreement in respect thereto between Chapman and his co-stockholders.

The result of these views is that the decree in both cases must be affirmed; and it is so ordered.