Company to be valid and subsisting obliga- [ may select from the collateral deposited for tions and securities constituting first liens on real estate in the states and territories of the United States of America."

the security of the series to which said bond belongs equal in amount, as counted at the time of deposit, to such surrendered bond, and thereupon said bond shall be canceled by said SeOmitting the parts immaterial to the pres-curity Company and returned to said Banking ent controversy the trust agreement provid- Company. * * * ed as follows:

"Fourth. The collateral deposited under this agreement may bear any legal rate of interest, or may bear no interest; but collateral bearUnder this agreement the Banking Coming no interest shall be estimated at 85 per pany issued its registered bonds, described as centum of its face value. Any collateral de- English or sterling debentures, payable in posited with said Security Company by said Banking Company under this agreement may at London, known as Series D, serially numany time be withdrawn by said Banking Com-bered and of differing amounts and dates of pany on its depositing with said Security Company other collateral in substitution for and equal in amount to the collateral withdrawn; and all the provisions of this agreement shall apply as well to such substituted collateral as to collateral originally deposited.

"Fifth. Whenever said Banking Company shall surrender to said Security Company any bond issued under this agreement, said Security Company shall deliver to said Banking Com

(108 A.)

ing Company then was, and ever since has agency of the Middlesex Banking Company, been, insolvent. The plaintiffs were ap- and the certificates of deposit thus delivered pointed receivers on January 18, 1915. Cer- to the defendant represented the proceeds of tain of said debentures amounting to £1,450, collection of matured loans which had been and in dollars and cents to $7,056.72, which held as collateral by the defendant. Said matured November 11, 1914, were paid be- certificates of deposit in each instance were tween November 11 and November 16, 1914, delivered to the defendant as aforesaid imwhen presented in London, by the Bankingmediately after their respective dates and Company through its correspondent banks. were cashed by the defendant in December These debentures so paid were forwarded 1915. from London to the Banking Company through the Hanover National Bank of New York and were delivered by said bank to the plaintiffs on April 14, 1915, and the plaintiffs thereupon across the signature on the face of said bonds stamped the words: "Canceled Apr. 14, 1915." The delay in delivering said bonds to the plaintiffs occurred through no fault of said Banking Company, or of the plaintiffs, and was the result of a wrongful claim on the part of said Hanover National Bank that said bank was entitled to retain possession of said bonds. The defendant first knew December 20, 1915, that these bonds amounting to £1,450 had been paid.

The finding further shows: On said November 30, 1914, the defendant held as collateral security for the outstanding unpaid bonds held in series D mortgage loans of the face amount of approximately $92,000 made originally to the Middlesex Banking Company and by it assigned to the defendant.

The defendant has proceeded to liquidate this collateral and has collected on all of the mortgage loans deposited with it which have become due, except three made by the Realty Investment Company and one by the Connecticut Investment Company, subsidiaries of the Banking Company, aggregating $24,400 principal or face value. When collected, the net proceeds of all the collateral deposited with the defendant and held on November 30, 1914, as security for the bonds of Series D will not be sufficient to pay in full the unpaid interest and principal of all the bonds outstanding and unpaid on said date of the face amount of £17,400.

In each instance where previous to November 11, 1914, the Banking Company had paid its debentures secured by collateral deposited with the defendant under the contract of June 2, 1897, said Banking Company had availed itself of its right to an amount of collateral equivalent to the amount of debentures so paid, either by withdrawal of said amount of collateral or by the issuance of new debentures in an amount equivalent to the collateral which said Banking Company was entitled to withdraw, and the defendant had uniformly recognized under said contract the right of the Banking Company to avail itself of collateral in the manner aforesaid. Prior to November 11, 1914, certificates of deposit were deposited and withdrawn from time to time as collateral under said contract of June 2, 1897.

The defendant refused on October 9, 1915, to comply with the demand of the plaintiffs as made by the said Dower in the manner above stated and to deliver to the plaintiffs said certificates of deposit specified in said letter, and has ever since refused so to do.

On September 28, 1916, the plaintiffs made demand of the defendant for the payment of dividends to the plaintiffs on the £1,450 of hereinbefore stated and held by the plaintiffs. debentures paid by the Banking Company as This demand was also refused.

Out of the net proceeds of its collections on collateral the defendant has made three ratable payments on account of the unpaid outstanding bonds in said series D aggregatting 65 per cent. of their face value but has paid no similar ratable payment upon the £1,450 of bonds paid by the Banking Company as aforesaid, and the defendant has refused to comply with the demand of the plaintiffs for dividends as made September 28, 1916, from said date to the present time.

On October 9, 1915, John L. Dower, one of the plaintiffs, offered to surrender to the defendant said bonds amounting to £1,450, and requested the defendant to surrender to him certain certificates of deposit and cash as Under date of October 4, 1915, the superior listed in a letter then presented, claiming court for Middlesex county, in the receiverthat said certificates of deposit were collat- ship proceedings of said Banking Company, eral within the meaning of said contract of in accordance with the decision and opinion June 2, 1897, which the plaintiffs were enti- of the Supreme Court of Errors rendered tled to have surrendered to them under the upon the application of these plaintiffs and fifth article of said contract of June 2, 1897. of this defendant and of the Middletown Said certificates of deposit were issued by Trust Company, trustee for other bondMiddletown, Hartford, and Springfield banks, holders (Brackett v. Middlesex Banking Co., respectively, after December 1, 1914, and 89 Conn. 645, 95 Atl. 12), passed an order were delivered to the defendant to secure the instructing the plaintiffs, as receivers, conrelease and delivery by the defendant of cerning the matter of the collection of the mortgage deeds and notes which had become collateral held by said trustees, wherein it due or soon would become due, and which was ordered, adjudged, and decreed in part had been or were being paid through the as follows:

"That said receivers shall account for and pay over to said Security Trust Company, as trustee, all moneys received by them and all moneys received by said Middlesex Banking Company after December 1, 1914, which came into the hands of the receivers on account of the collateral held by said Security Trust Company as trustee, including interest, whether such payments became due before, on, or after December 1, 1914, it being further provided that, if said parties cannot agree as to the amount which shall be paid to the trustee, and as to the amounts, if any, which shall be allowed to the

receivers on account of their services and ex

penses in connection therewith, application shall be made to the court for the consideration and approval of such account.

"If and when, in the future, moneys, checks, drafts, or orders in any form shall be received by the receivers for or on account of loans or other collateral held by either of said trustees, said receivers shall notify the trustee to whose collateral the same relates, and upon request shall turn the same over to said trustee, indorsing such instrument or order to the order of said trustee without recourse to the said receivers."

Upon these facts the case was reserved for the advice of this court upon the following questions:

(1) Whether or not, upon the pleadings and the agreed statement of facts, the plaintiffs, receivers, were entitled to receive from the defendant trustee upon the presentation of the bonds paid in London in November, 1914, and tendered to the defendant, the certificates of deposit and cash specified in Exhibit 1.

(2) Whether or not the plaintiffs, receivers, as holders of said bonds, were entitled to receive from the defendant trustee their pro rata share on account thereof of all moneys distributed by the defendant trustee to the holders of the outstanding bonds in payment of the unpaid interest and principal on said series of bonds.

(3) Whether or not the plaintiffs, receivers, were entitled to receive on account of the payment or presentation of said bonds any of the property held as security on November 30, 1914, by the defendant trustee for the payment of said series of bonds or any of the proceeds thereof before the holders of the outstanding unpaid bonds have been paid the full amount of unpaid interest and principal.

(4) Whether or not the plaintiffs, receivers, are entitled to receive from the defendant trustee any portion of the proceeds of the collateral except the surplus, if any, remaining after the unpaid interest and principal on the outstanding bonds shall have been paid in full.

(5) What judgment should be rendered upon the agreed statement of facts and of claims of the parties.

Francis W. Cole, of Hartford, for plaintiffs. Charles Welles Gross, of Hartford, for defendant.

(Conn.

GAGER, J. above). [1] This action is in the nature of (after stating the facts as an action to redeem. determined is whether the trustee may, as The question to be against the receivers, retain all of the securities deposited for a series of bonds for the benefit of the unpaid bondholders of this series in a case where the Banking Company paid part of the bonds in the regular course of business, but was unable to surrender the bonds so paid for cancellation before default as to the remaining bonds and appointment of receivers by reason of the fact that the bonds were in a foreign country when paid, and the bank through which they were forwarded from London to the Banking Company unlawfully retained possession of the bonds, thus delaying delivery of possession of the bonds until after the receivers were appointed. The answer depends upon the Construction of the trust agreement set out in the statement of facts, and particularly the construction of section 5.

The agreement itself is not a contract relating to any specific property or any specific debt. No security or property right of any kind is created by the execution and delivery of the instrument. It becomes effective as fixing the terms of a trust in the nature of a mortgage only when thereafter the Banking Company deposits securities and issues debentures or bonds based thereon in as many series and for such amounts as the Banking Company may determine, and these bonds and securities are brought under the terms of the trust agreement by a simple reference thereto contained in the bond. The one contract not in itself creating any security may be applied to any number of groups of securities and bonds based thereon by reference to the trust deed, and each such group of securities, when created, becomes a separate that may be issued under the agreement. A trust quite independent of any other series peculiarity of this trust agreement, appearing both in the bond and the agreement, arises from the fact that sterling bonds were proposed to be issued on American securities. It is specifically provided, both in the form of the bond and in the agreement itself, that for each pound sterling of bonds issued in any series the Banking Company should in gold coin of the United States equal in deposit with the trustee securities payable amount at the exchange rate of $4.867 to valued at the time of deposit. This was the a pound sterling of the bonds so issued, as only fixed unit of security, and the collateral furnishing such security might be changed ing Company, and also withdrawn on surby substitution, at the pleasure of the Bankrender and cancellation of any bond or bonds; the only requisite of the agreement being that the collateral, at original valuation, should be maintained at the contractual

(108 A.)

A further peculiarity of the agreement was that whenever any bonds of a series were surrendered by the Banking Company the company might withdraw, from the collateral deposited to secure the bonds of that series and out of the obligations imposed by the trust agreement, any collateral it chose on the basis of $4.867 to the pound sterling. Section 5, giving this right to the Banking Company, reads as follows:

"Whenever said Banking Company shall surrender to said Security Company any bonds issued under this agreement, said Security Company shall deliver up to said Banking Company such collateral as said Banking Company may select from the collateral deposited for the security of the series to which such bond belongs, equal in amount, as counted at the time of deposit to such surrendered bond, and thereupon said bond shall be canceled by said Security Company and returned to said Banking Company."

But

agreement is quite unlike the ordinary mort- [ 1914, paid in London bonds out of the series gage or deed of trust in the nature of a mort- in question amounting to £1,450 as then due, gage, in which the entire property or collat- the company at once had the privilege of eral is and will remain pledged for the pay- surrendering these bonds to the trustee, and ment of all and every part of the debt se- receiving from the trustee such collateral cured until final payment thereof. as the company might select equal in value to the £1,450 at the rate of $4.867 to the pound, as counted at the time of deposit. The liability attaching to the collateral in that series had been reduced from £18,850 to £17,400. Had the Banking Company been able at once to have taken these bonds to the trustee, the right of the Banking Company to receive and the duty of the trustee to deliver, under the terms of section 5, would have been clear and in conformity with the previous transactions between the parties under similar circumstances. the bonds were in fact paid in London and were forwarded through the Hanover National Bank of New York. This bank, on account of a wrongful claim, retained possession of these bonds until April 14, 1915, some three months after the appointment of the receivers. On November 30, 1914, the Banking Company suspended payment, thereby making default. Brackett v. Middlesex Banking Co., 89 Conn. 660, 95 Atl. 12. The plaintiffs were appointed receivers January 18th, and the plaintiffs, through no fault of their own, or of the Banking Company, did not receive the bonds until April 14, 1915. The trustee was informed of the payment December 20, 1914, and, for reasons not appearing and which therefore we must deem sufficient, it was not until October 9, 1915, that Mr. Dower, one of the receivers, offered to surrender these bonds to the trustee and demanded the return of specific collateral named by him under the provisions of section 5. On the same date the trustee refused compliance. And later, on September 28, 1916, the receivers further demanded, as an alternative claim, dividends on the £1,450 of bonds paid November 11, 1914, on the same basis as other holders of bonds of that series. This demand was also refused.

It therefore appears that all the securities the bondholders were entitled to and all the trustee could assert its right over consisted only of such American securities of the kind described in the agreement as were, when deposited, of the value of $4.867 gold coin for each pound sterling of bonds outstanding. Noninterest-bearing securities were valued at the arbitrary rate of 85 per cent. Therefore, by the express terms of the contract, the Banking Company could on withdrawal select such securities as it desired, figured on the deposit basis of valuation, and the remaining bonds still had all the security contracted for and the full amount of collateral originally pledged for their payment. The obvious purpose of this provision was that the collateral withdrawn could be at once used as the basis for a new series of bonds under the same or any other trust agreement, or put to any other use the Banking Company desired. The distinguishing feature of this trust agreement is that, so long as the trustee held collateral in the given series of the value when deposited of $4.867 for each pound sterling outstanding, the terms of the agreement were fully met, and it was as much the duty of the trustee to surrender the collateral on surrender of the bonds as to hold collateral to meet outstanding bonds. The ratio of values was definitely determined by the agreement. This arrangement, at the option of the Banking Company, automatically kept the collateral for any series down to the ratio of $4.867 to the pound sterling of bonds outstanding in that series. When, therefore, as appears from the finding, the Banking Company, on November 11,

The situation now is that the trustee holds collateral deposited under the trust agreement to secure £18,850 as security for £17,400 of bonds remaining outstanding, and refuses to surrender the proportionate collateral for the £1,450 of bonds paid by the Banking Company when a going concern which could not be in fact surrendered before the suspension owing to delay caused by distance and the wrongful acts of the New York bank. Refusing to receive the bonds, the trustee also necessarily refused to cancel them as provided for under the terms of section 5, and the trustee claims it should hold and apply the collateral which would have been released by the surrender and cancellation of £1,450 of bonds for the benefit of the holders of the £17,400, thereby increasing by so much the security of the holders of these

bonds above the security called for by the trust agreement, notwithstanding the fact that none of the £1,450 of bonds have been canceled by the trustee. This retention of securities by the trustee also necessarily operates to decrease by their value the assets in the hands of the receivers available for general creditors when at the time the bonds were paid by the Banking Company it could anticipate and apparently rely upon the making good the cash requisite for the payment of these bonds by the securities provided to be surrendered on the delivery of the paid bonds to the trustee, and was only prevented from surrendering these bonds by physical inability due to distance and wrongful conduct of the New York bank.

A closer, proposition advanced by the trustee is based upon a class of cases which hold that a mortgagor in a mortgage permitting a partial release upon partial payment of the debt is not entitled to exercise this privilege after a default has occurred, because of which the entire amount of the indebtedness has become due. Clark v. Cowan, 206 Mass. 252, 92 N. E. 474, 138 Am. St. Rep. 388, cited by the trustee, was a case where. after the whole debt became due an assignee of a second mortgage after foreclosure of his mortgage attempted to assert his claim under a provision in the first mortgage that the mortgagee would release and quitclaim any lot upon payment of a certain sum per lot. The court held that the privilege was personal to the mortgagor, and also that it could not be exercised after the debt became due under the terms of the contract. In Reed v. Jones, 133 Mass. 116, the attempted exercise of a similar privilege two years after the whole debt became due was denied. Chrisman v. Hay (C. C.) 43 Fed. 552, recognized the right as existing after default, but before foreclosure, but held that it ex

Fulton v. Jones, 167 App. Div. 765, 153 N. Y. Supp. 87, was a case where the provision was that the mortgagee would release one of two parcels of land on payment of one-half the debt. This was attempted to be done after default on the whole debt, and the court by a three to two opinion denied the claim because made after default. This view of the law is, however, by no means invariably accepted, and there is much authority for the proposition that such a privilege of partial release on partial payment, when clearly stated in the mortgage, can be enforced at any time before foreclosure.

We do not think this claim and the action of the trustee can be justified upon the facts, under any equitable construction of the contract. In effect, though not in name, section 5 is a clause providing for partial redemption, and, like the redemption clause in a mortgage, should not be given a literal construction which will cut off the right of redemption contrary to the manifest intent of the agreement. Under our well-settled law the re-pired upon the bringing of a foreclosure suit. ceivers here represent the creditors of the Banking Company, confessedly insolvent, so that the contest is not really one between the maker of the bonds and the trustee, but is between groups of creditors, the unsecured represented by the receivers, and the secured represented by the trustee. In paying these bonds the Banking Company depleted its assets £1,450, or, as agreed, $7,056.72, but it had as a consequence the privilege immediately to surrender these bonds and receive back collateral of the amount of $7,056.72. This privilege was a valuable asset and existed at the time of the suspension of payment and passed to the receivers for the benefit of the general creditors of the Banking Company. To refuse to permit the receivers to surrender these bonds and get back a proportionate amount of collateral violates the letter and spirit of the trust agreement, and operates to prefer the remaining debenture holders over general creditors by increasing the amount of collateral held for their benefit above that called for by the trust agreement, and to that extent diminishing the fund available for the general creditors. This could not be done before suspension of payment on November 30th, and there is nothing in the trust agreement which destroys the right of the Banking Company confessedly existing upon that date. The fundamental contention of the trustee is that the Banking Company, having made default November 30, 1914, no longer had any rights under the contract. This principle is frequently applied to certain executory contracts. But the cases cited in its support applicable to the facts of those cases

In Jones on Mortgages (7th Ed.) § 981, after citing Reed v. Jones and Chrisman v. Hay, supra, the text goes on:

"But, on the other hand, construing such agreements in connection with the other provisions of the mortgage, and in the light of the manifest purpose which it was designed to subserve, it may be necessary to hold that the right to a partial release upon the stipulated terms continues until the mortgagee has fully executed the power of sale, or has otherwise foreclosed the mortgage."

See, also, Clark v. Fontain, 135 Mass. 464; Id., 144 Mass. 287, 10 N. E. 831; Vawter v. Crafts, 41 Minn. 14, 42 N. W. 483; Am. Net & Twine Co. v. Githens, 57 N. J. Eq. 539, 41 Atl. 405; Commercial Bank v. Hiller, 106 Mich. 118, 63 N. W. 1012.

But, whatever might be the rule if the case were in fact one of default, we do not think it applies to the facts of this case; for the claim of the receivers is primarily based upon the act of the Banking Company in paying the bonds in question in London