Atlantic Trust Co. v. Dana

• Decision Date: 21 December 1903
• Docket Number: 1,899.,1,896
• Parties: ATLANTIC TRUST CO. et al. v. DANA et al. DANA et al. v. ATLANTIC TRUST CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

128 F. 209

ATLANTIC TRUST CO. et al. v. DANA et al.

DANA et al. v. ATLANTIC TRUST CO. et al.

Nos. 1,896, 1,899.

United States Court of Appeals, Eighth Circuit.

December 21, 1903

Primarily these appeals present a controversy between a second mortgagee and two judgment creditors over the income of mortgaged property, a waterworks plant in Topeka, Kan. The Topeka Water Supply Company, through an ordinance of the city of Topeka, obtained the privilege of constructing and maintaining a waterworks plant in that city, upon condition that it would supply the city and its inhabitants with water upon terms prescribed in the ordinance. By the terms of the ordinance the city rented from the water supply company 150 hydrants at an annual rental of $7,000, and that company agreed to erect and maintain, when directed by the city additional hydrants for a stated additional rental. The ordinance contained this stipulation: 'Sec. 8. Should the said Topeka Water Supply Company, in the construction of its works, deem it expedient to issue the first mortgage bonds of said company, and said bonds to bear interest at a rate not exceeding seven per cent. per annum, then the said Topeka Water Supply Company agrees that the seven thousand dollars to become due from said city for the aforesaid hydrants' rental from year to year as aforesaid by said city to the fiscal agent of the state of Kansas, in the city of New York for the payment exclusively of the interest coupons of said bonds as the same may, from time to time, become due and payable, and to provide a sinking fund for the payment of said bonds. Deferred or delayed payments shall bear seven per cent. interest per annum from the time they become due.'

January 2, 1882, the water supply company, for the purposes of raising money to pay for the labor and material then being expended in constructing its water plant, issued a series of first mortgage bonds, bearing interest at 6 per cent. per annum. Both principal and interest were made payable at the fiscal agency of the state of Kansas in the city of New York. To secure the payment of these bonds, the water supply company executed to William B. Strong, as trustee for the holders of the bonds, a mortgage upon all its property and franchises then possessed or to be acquired, including 'all the privileges and franchises then possessed or to be acquired, including 'all the privileges and franchises heretofore or hereafter acquired by the said first party under and by virtue of the several ordinances of the city of Topeka, and the contracts between the said city and said first party. ' The mortgage stipulated that upon the occurrence, and continuance for a time stated, of default in the payment of interest, all the bonds could be declared at once due and payable, and the trustee could take possession of the mortgaged property and operate the same, and could institute proper judicial proceedings to foreclose the mortgage, but that until default the mortgagor would be permitted to possess, manage, and enjoy the mortgaged property.

In 1889 the Topeka Water Company, with the consent of the city of Topeka, purchased all the property, privileges, and franchises of the water supply company, and thereby became its successor. Both water companies were Kansas corporations.

February 1, 1890, to secure the payment of a series of bonds issued by it on that date, the Topeka Water Company executed to the Atlantic Trust Company, as trustee for the holders of such bonds, a mortgage upon all its property and franchises then possessed or to be acquired, specifically including 'all the income, rents, profits, emoluments, and moneys derived from said waterworks, and including any revenues from any other sources whatever. ' This mortgage stipulated that until default the mortgagor would be permitted to possess, manage, operate, use, and enjoy the mortgaged property, and that, in the event of the occurrence, and continuance for a stated time of a default in the payment of interest all the bonds could be declared at once due and payable, and the trustee, upon demand, could take and maintain possession of the mortgaged property, and receive all tolls, income, and revenues thereof, and could institute proper judicial proceedings to foreclose the mortgage. It contained a further provision that: 'Upon the filing of a bill of equity, or other commencement of judicial proceedings to enforce the rights of the trustee and of the bondholders under these presents, or to protect any of the property hereby conveyed from sale upon any execution or decree of any court within the state of Kansas for the payment of money, the said trustee shall be entitled to exercise the right of entry herein conveyed, or to the appointment by any court of competent jurisdiction of a receiver or receivers of the property hereby mortgaged, and of the earnings, income, revenue, rents, issues, and profits thereof, pending such proceedings with such powers as the court making such appointment shall confer.'

February 10, 1894, John O'Halloran, who had recovered a judgment at law against the water company for $3,900 and costs, filed in the court below a judgment creditor's bill against the water company as sole defendant, and obtained the appointment of Elias Summerfield as receiver of the company's entire property and income. The order appointing Summerfield as receiver directed him 'to defend any action * * * seeking to establish claims, liens, or demands against the said defendant, or its property,' and to 'prosecute any action necessary * * * for the collection of any sum due said defendant, or for the protection and preservation of said property. ' Summerfield qualified as receiver, took possession of the company's property, and operated its waterworks plant.

May 27, 1894, Strong filed in the court below an independent bill against both water companies, the Atlantic Trust Company, O'Halloran, and the city of Topeka to foreclose the mortgage given to him as trustee. In addition to otherwise stating a case for foreclosure, this bill made specific reference to the ordinance of the city granting the water supply company the privilege of constructing and maintaining the waterworks plant; set forth the contract contained in that ordinance respecting the renting of hydrants by the city and respecting the payment by the city of certain hydrants' rental to the fiscal agency of the state of Kansas in the city of New York for the exclusive benefit of the bondholders in the event of the issuance of first mortgage bonds of the company; set forth the issuance of such bonds as before stated, and alleged: '* * * Nor did the city of Topeka pay over semiannually said hydrants' rental to the fiscal agency of the state of Kansas in the city of New York for the payment exclusively of the interest coupons as the same might from time to time become due and payable, or to provide a sinking fund for the payment of said interest a-d bonds, as required by the ordinance and agreement therein contained between the Topeka Water Supply Company and the City of Topeka, which ordinance and agreement and rights and privileges therein contained are covered by the trust deed to your orator aforesaid. But to reserve the said net rental and to pay the same to the said fiscal agency of the state of Kansas in the city of New York, as required by said ordinance and agreement therein contained, the said Topeka Water Supply Company, its successors and assigns, and said City of Topeka Water Supply Company, its successors and assigns, and said City of Topeka have neglected and failed. ' In addition to a prayer for foreclosure and for general relief, this bill asked that the mortgage be declared a first lien upon all the property of the water company and upon the 'contracts described in said mortgage,' 'and that the said Topeka Water Supply Company, said Topeka Water Company, or some of the other defendants, and such of the defendants as may be liable therefor, may be decreed to pay unto your orator, in trust for the holders of said bonds and coupons, whatever may be found to be due. ' No receiver was appointed in this suit, nor was any effort made by Strong to impound the income of the mortgaged property for the benefit of his mortgage, through an intervention in the O'Halloran receivership suit.

In original and amended answers to this bill the city denied 'that it at any time assumed or agreed to pay the interest on the bonded debt, or the principal of the bonded debt, of the Topeka Water Supply Company, or of the Topeka Water Company,' and alleged that it was never notified of the mortgage to Strong, trustee; that it was never requested to pay any hydrants' rental to the fiscal agency of the state of Kansas in the city of New York for the purpose of paying the interest or principal of said bonds, and that it had from the beginning paid said rental to the original and succeeding water companies, with the consent of Strong, as trustee.

December 9, 1896, Summerfield, the receiver appointed in the O'Halloran suit, intervened in the Strong foreclosure suit, alleging that the city of Topeka was then indebted to the water company for specified hydrants' rental and interest, and on December 31st next would be indebted to the water company for further hydrants' rental, and prayed that the court order the city to pay this rental to him as receiver. The rental so sought by the receiver was for hydrants covered by the stipulated annual rental of $7,000 and for additional hydrants erected and maintained at the direction of the city, pursuant to the terms of the ordinance, and included all the rental subsequently awarded to Strong. This intervention in the Strong suit was long subsequent to the respective interventions in the O'Halloran suit of the...