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Wood v. Guarantee Trust & Safe Deposit Co., 128 U.S. 416 (1888)

Wood v. Guarantee Trust and Safe Deposit Company

No. 21

Submitted April 25, 1888

Decided November 19, 1888

128 U.S. 416


A debt contracted for "construction" is not entitled to the priority of payment, in proceedings for the foreclosure of a mortgage of the property of a railroad corporation, which is recognized in Fosdick v. Schall, 96

Page 128 U. S. 417

U.S. 235, as the equitable right in some cases of a creditor for "operating expenses."

The doctrine in Fosdick v. Schall has never yet been applied in any case except that of a railroad, and whether it will be applied to any other case, quaere.

When a third party with his own money takes up maturing coupons on bonds of a corporation without knowledge of the holders, it is a question of fact, to be determined by the proof, whether it is intended to be a payment or a purchase which leaves the coupons outstanding.

The coupons in dispute in this case, having been dishonored before they came into the hands of the appellants, were subject in their hands to all defenses which existed against their assignor, and, it being evident that without the knowledge of the holders of the bonds to which those coupons were attached, he used his money to pay the coupons on bonds which had been sold solely in order to enable him to float the rest of the issue; held that it would be inequitable to allow him either a preference over those to whom he had sold the bonds or coequal rights with them.

The Court stated the case as follows:

This is an appeal by intervenors in the suit, one branch of which has been disposed of in the preceding case of Brown v. Guarantee Trust & Safe Deposit Company, ante, 128 U. S. 403. In addition to the facts set forth in that case and which need not be repeated here, it may be stated that on the 23d of May, 1883, an order of the court below was entered directing the holders of the bonds and coupons issued by the City of Joliet Waterworks Company, and secured by mortgage to the appellee in this case, to present them to the clerk of the court by a certain day for payment thereon out of the funds then in the hands of that officer.

Pursuant thereto, appellants in this case filed 473 of said coupons held by them, and with them a petition praying that said coupons be decreed to have, in the distribution of said funds, priority of payment as against any of the holders or owners of the said bonds or the subsequently maturing coupons.

The petition alleges in substance, that for material sold and delivered to Jesse W. Starr, which he used in the construction of his waterworks system, he was in debt to them $14,000, in part payment of which he transferred to them, in October, 1882, these 473 coupons, at par value, amounting to $7,095,

Page 128 U. S. 418

and interest from maturity; that the said coupons presented by appellants fell due before the completion of said waterworks; that upon many of them the amount due at maturity was advanced by Starr to the bondholders, who transferred the same to him; and that the said advance was made out of money which Starr ought to have applied to the payment of his indebtedness for the material so used, and which now constitutes a part of the system of the said waterworks.

The answer of the appellee contains substantially the statements of the cross-bill set forth in the preceding case. It denies that the coupons presented by appellants had any validity whatever as a lien upon said funds in the custody of the clerk; alleges that all of them were delivered after they were due and that of the 473 coupons held by appellants, 279 falling due January 1, 1881, and 77 of the 194 falling due July 1, 1881, were detached from the bonds by Starr before they were sold and before the coupons themselves became due, only 117 being sold with the bonds prior to their maturity. It further alleges that these last coupons were extinguished, cancelled, and paid; that the holders of the bonds, who, as requested, presented said coupons for payment at the office of Starr's broker, had no thought of selling them, and in fact did not sell them; that all these acts of Starr -- cutting off some and taking up others of paid coupons -- were withheld from the knowledge of said bondholders, were deceptive and fraudulent, were intended to conceal from appellee and the public the fact that the said waterworks company was insolvent, and in reality making default in payment of the interest coupons ; and that, as said coupons were delivered by Starr to appellants long after their maturity, they took them subject to all defenses which might have been urged against Starr himself.

On May 12th, 1884, the petition of appellants was dismissed at their costs, from which action they have brought this appeal.

Page 128 U. S. 420

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