Bills and Notes. Bankruptcy. Words, "Holder or holders." A note, payable to a bank or its order, stated that it was secured by the deposit of certain collateral securities named "with authority to sell the same, or any collaterals substituted for or added to the above, without notice, either at public or private sale, or otherwise, at the option of the said holder or holders hereof, on the non-performance of this promise, he or they applying the net proceeds to the payment of this note and accounting to us for the surplus, if any; and it is hereby agreed that such surplus, or any excess of collaterals upon this note, shall be applicable to any other note or claim against us held by said holder or holders." Before the maturity of the note the maker became insolvent and made a general assignment for the benefit of creditors. A few days later the bank holding the note and the collateral securities sold and transferred them to another bank, which held a note indorsed by the maker of the purchased note and bought the note and the collateral securities for the purpose of applying any surplus from the sale of the collateral to the payment of this other note. On the sale of the securities there was such a surplus which the purchasing bank so applied. Within four months from the date of the transfer, but more than seven months from the giving of the note and collateral, the maker of the note was adjudicated a bankrupt. His trustee in bankruptcy brought a suit in equity against the purchasing bank to compel it to account for the surplus after the payment of the first note. Held, that, whether the note was negotiable or not, the words "holder or holders" showed the intention of the parties that the right to enforce payment should pass upon the order of the payee, that the person thus designated became the holder with the power to sell the securities in accordance with the terms of the note, and that the defendant as such holder had the right given by the note to apply the surplus to the payment of any note held by it against the maker of the note in question. Held, also, no fraud being charged, that the transaction was not in violation of the bankruptcy act of 1898, the transfer to the defendant within four months of the filing of the petition in bankruptcy having been made, not by the bankrupt, but by a creditor who held the securities under a valid assignment.
HAMMOND, J.
Whether the note given to the County Savings Bank is negotiable we have not found it necessary to decide. See Mahoney v. Fitzpatrick, 133 Mass. 151; Richards v. Barlow, 140 Mass. 218; R.L.c. 73, §§ 19, 21. Upon its face it is made payable to the bank "or order," and, as said by Holmes, J. in construing a note in Richards v. Barlow, p. 221: "The form of the instrument plainly imports that it was drawn on the assumption that it would be negotiable, and, even if this assumption was erroneous, it must be taken into account none the less, if necessary, in interpreting the meaning of the power."
This note plainly shows the intention of the parties that the right to enforce the payment of it should pass to the order of the payee, and that the party thus designated would be the holder. If it was the intention of the parties that the only holder should be the payee, then there was no occasion for using the phrase "holder or holders." The phrase "said holder or holders" is broad enough to include any person holding the note under the order of the payee. There certainly would seem to be no reason why the power to sell the securities for the payment of this note should not pass with the note. We do not understand the plaintiff to contend to the contrary as to so much of the power. We see no sound reason for holding that "holder or holders" means one thing in one part of the note and another thing in another part. It seems clear that the holder who can exercise the power to sell the collateral and apply the proceeds to the payment of this note is the same holder who has the right to apply the surplus to any note held by him against the maker of the note. If it be said that this is a curious and unusual way of doing business, and that such intention on the part of the maker is not to be found except where clearly expressed, the answer is that in this case it is clearly expressed. The words are broad enough to show such intent, and any other interpretation fails to give due force to their meaning. Moreover, to hold otherwise is to give one meaning to the words "holder or holders" in one place, and another meaning in another. The case differs in material respects from Gillet v. Bank of North America, 47 N.Y. Supp. 558, and 160 N.Y. 549, cited by the plaintiff.
Nor is the transaction as thus interpreted in violation of the bankrupt act. In Thompson v. Fairbanks, 196 U.S. 516, 526, it is laid down that "Under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt, except in cases where there has been a conveyance or incumbrance of the property which is void as against the trustee by some positive provision of the act." The case is not one of fraud. While solvent, Brown, the maker of the note, assigned a portion of his assets to the County Savings Bank as security for all debts due to such of his creditors as came within a certain description, namely, any one who held the note in which the assignment is contained. This he had the right at common law to do, and the trustee takes the bankrupt's estate subject to this transfer unless this transfer is forbidden by some positive provision of the bankrupt act. The only provisions of that act which it can be contended render this transaction void are those found respectively in §§ 60 a and 60 b as to preferences, and § 67 e as to conveyances to hinder, delay and defraud. After Humphrey v. Tatman, 198 U.S. 91, this transaction cannot be held to be a legal proceeding under § 67 f.
There is no allegation in the bill that the assignment of the securities contained in the note to the County Savings Bank was in fact made with intent to hinder, delay or defraud. Hence it is not shown to be within § 67 e. The transaction, so far as respected the securities, was a conveyance in trust, and not the mere creation of an agency. What took place was an assignment, made more than four months before the filing of the petition by Brown then solvent, of a part of his assets for the benefit of whatever creditor should hold the note containing the assignment. Nothing was done by Brown within the four months. All that was done within the four months was done by a creditor for whose benefit the prior valid assignment had been made, acting not as a mere agent of Brown, but under a valid conveyance in trust. This was not an act by Brown within the four months and hence not within either § 60 a or § 60 b.
Bill dismissed with costs.