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Bills And Notes - Bad Faith On Part Of Pledgee Taking Bonds

Michigan Law Review

Defendant, a Wisconsin firm, issued certain bearer bonds secured by a mortgage held by the T corporation, as trustee. A provision in the mortgage defining the duties of the trustee in the disposition of bonds delivered to it was incorporated into the bonds by reference. The trustee being insolvent, plaintiff bank, as pledgee of some of the bonds taken to secure personal loans to the trustee, petitioned the referee in bankruptcy for permission to sell them, claiming to be a bona fide pledgee for value. Held, since federal courts are bound to follow state decisions interpreting state statutes declaratory …