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1919.]

Opinion, per CRANE, J.

[225 N. Y.j

& Co. obtained from the Empire Trust Company a loan of $150,000 upon the strength of this subscription paper using it as collateral for the loan. The plaintiff knew nothing about this transaction until March of 1908, when demand was made upon him for payment which he refused. The facts so far as material regarding this loan may be briefly stated.

When on March 26th Mr. Jermyn was in New York consulting the Empire Trust Company about his $85,000 loan which had been called, one of the firm of Searing & Co. was in Scranton, Pennsylvania, seeking to borrow of the Dime Deposit and Discount Bank of that place $50,000 on this second subscription agreement. Learning of this fact upon his return home on the 27th, Jermyn immediately repudiated any right of Searing & Co. to borrow on this paper and wrote them a letter on the 28th canceling his subscription. On the 30th of the month Searing & Co. wrote a letter to Mr. Baldwin, president of the Empire Trust Company, in which they stated this proposition:

"For you to make us a loan of one hundred and fifty thousand dollars ($150,000) for three months with the privilege of renewing it for another three months, on our note to be secured by an underwriting agreement with Mr. J. J. Jermyn for two hundred thousand dollars ($200,000) par value of bonds of the Delaware and Eastern Railway Company Syndicate."

On April 2d the Empire Trust Company made the loan by paying to Searing & Co. as managers of the Delaware and Eastern Railway syndicate the sum of $150,000, taking as security their note as such managers, the subscription agreement signed by Jermyn and a few days later four calls upon Jermyn for payment of his subscription to be used only in case Searing & Co. failed to meet their note. The note thus given was for three months and was renewed from time to time until pay

[225 N. Y.]

Opinion, per CRANE, J.

[Feb.,

ment was demanded February 27th, 1908. Fifty thousand dollars ($50,000) of the amount loaned was immediately returned to the Empire Trust Company to take up a previous note of Searing & Co. given together with securities of the Delaware and Eastern Railroad Company for a loan obtained February 5th, 1907, over a month before the plaintiff became a subscriber to the bonds of the railway company.

Having these facts before us the point presented may be stated briefly as follows: as follows: The plaintiff signed a subscription agreement under which Searing & Co. claimed to have the right to borrow money of the Empire Trust Company. Did the paper contain such authority? The trial court has found that the subscription agreement was without consideration or mutuality, was void for fraud and also subject to a collateral agreement made between the plaintiff and Searing & Co. that the subscription should not be binding unless or until all the shares of the proposed syndicate or all the $6,000,000 bonds should be subscribed for. We take it, however, that none of these facts would be a good defense as against the Empire Trust Company acting in good faith without knowledge, if the subscription agreement authorized Searing & Co. to borrow and the Empire Trust Company to loan under the conditions and circumstances stated. The court found, and was justified in so finding, that the trust company acted in all these matters in absolute good faith. We must, therefore, examine this syndicate agreement to find the authority if it exists.

March 12th, 1907, is the date of the contract headed, "Delaware and Eastern Railway Co."-"Syndicate Agreement." The parties of the first part are Searing & Co. and the parties of the second part are the "subscribers hereto " called the "subscribers" and collectively the " syndicate." The recitals contain a statement that the parties of the first part have "acquired the rights

1919.]

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Opinion, per CRANE, J.

[225 N. Y.]

to the control of six million dollars ($6,000,000) 5% bonds of a company about to be formed to be known as the Delaware and Eastern Railway Co. or by some other name," and that the parties desire to form a syndicate" to purchase the said six million dollars of bonds of said company. Then follows the agreement said to be made between the parties of the first part "who are to be the managers of the syndicate and the syndicate." It will be noticed that the agreement is not between Searing & Co. and a "subscriber" individually, but between said firm, as managers and the 'syndicate" the "subscribers," the party of the second part. The purpose is to buy six million dollars of bonds of a company about to be formed. After specifying the number of shares of the company, the number the respective subscribers agree to take, a copy of the negotiable receipt to be given upon payment of the subscriptions, the right of the managers to reject or reduce any subscription there follows paragraph "seventh" in these words:

"It is understood that the bonds of the present underwriting are for the purpose of constructing a line from Hancock, N. Y., to Schenectady, N. Y., by acquiring all the stock and all the bonds of the Hancock and East Branch Railroad Company and the Schenectady and Margaretville Railroad Company authorized by the Board of Railroad Commissioners and all the rights, privileges and franchises now granted to these companies, and also to acquire, by lease or otherwise, the present Delaware and Eastern Railroad Company, already constructed and operated, amalgamating the three railroads into one system, to be known as the Delaware and Eastern Railway Company, or by some other appropriate name. And, the Subscribers' hereto do hereby consent and the Managers' are hereby empowered to do any and all acts, to purchase any other securities, and to

66

[225 N. Y.]

Opinion, per CRANE, J.

[Feb.,

apply the proceeds of the within underwriting in any manner which, in their judgment, they may deem fit in order to accomplish the above purpose, including the right to arrange for advances to be made from time to time to the Contractors or Construction Company that may hereafter be formed to build the said Railroad, by one or more Banks or Trust Companies, upon the security of this agreement, if necessary, together with the bonds and certificates subscribed for hereunder or that may be purchased by the Managers' with the proceeds of the within underwriting."

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Who gives to the managers the power to purchase and arrange with trust companies for advances? The "subscribers" the "party of the second part" also called "the syndicate." I find nothing in this agreement constituting one subscriber a "syndicate" or the "party of the second part." No authority is here conferred by an individual subscriber to borrow money on his name; it is the syndicate which empowers advances to be arranged for " upon the security of this agreement. The agreement mentioned is that to which Searing & Co. are one party and the syndicate or subscribers the other party. The fact that subscriptions may have been taken on separate sheets of paper cannot alter the legal effect. The contract consists of all such papers taken together. It is quite evident that there was to be no agreement, no power to bind the individual until the party of the second part came into being and the syndicate was formed. If the contrary was the intention it could have been so stated as in Knickerbocker Trust Co. v. Evans (188 Fed. Rep. 549); Knickerbocker Trust Co. v. Davis (143 Fed. Rep. 587).

When this paper was presented to the Empire Trust Company to obtain a loan of $150,000 what was to be seen and read? In the first place it bore simply the plaintiff's signature for $200,000 of the bonds. No one

1919.]

Opinion, per CRANE, J.

[225 N. Y.]

else had signed it and no statement was made that any other subscriptions had been procured. So far as the trust company knew this was the only subscription. It stated that the bonds subscribed for were for the purpose of constructing a line from Hancock to Schenectady in the following manner:

By acquiring the stocks, bonds and franchises of the Hancock and Eastern Branch Railroad Company and the Schenectady and Margaretville Railroad Company and to acquire by lease or otherwise the existing Delaware and Eastern Railroad Company. It stated without reservation, although such was not the fact, that this latter railroad was "already constructed and operating." The amalgamation was to be known as the Delaware and Eastern Railway Company. Then the subscribers gave to the managers certain powers and they were these:

1st. To purchase any other securities (this did not mean the securities above mentioned). 2nd, to apply the proceeds of the within underwriting in any manner they deemed fit.

Next came the authorization to borrow money, the right to arrange for advances from time to time from banks and trust companies. This was limited as follows:

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(a) The advances were to be to contractors. This could hardly have meant Searing & Co. as they had been referred to throughout the agreement as managers." Something other must have been meant than the managers, or this word would have been repeated. The "contractor" meant the person contracting to build the extensions to the road.

(b) The advances were to build the new railway. This did not mean to build the Delaware and Eastern Railroad, for it was stated in the preceding paragraph that such road was "already constructed and operating." This had reference to the two additional lines above

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