Fidelity Bond & Mortg. Co. v. Grand Lodge, IOOF

• Decision Date: 11 June 1930
• Docket Number: No. 5521.,5521.
• Citation: 41 F.2d 326
• Parties: FIDELITY BOND & MORTG. CO. v. GRAND LODGE, I. O. O. F. OF TENN. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

41 F.2d 326 (1930)

FIDELITY BOND & MORTG. CO. v. GRAND LODGE, I. O. O. F. OF TENN. et al.

No. 5521.

Circuit Court of Appeals, Sixth Circuit.

June 11, 1930.

T. H. Malone, of Nashville, Tenn. (Lowell W. Taylor, of Memphis, Tenn., on the brief), for appellant.

J. R. Aust, of Nashville, Tenn. (Aust, Cornelius & Wade, of Nashville, Tenn., on the brief), for appellees.

Before DENISON and HICKENLOOPER, Circuit Judges, and WEST, District Judge.

WEST, District Judge.

This is an appeal by Fidelity Bond & Mortgage Co., a corporation of the state of Missouri, from a decree of the District Court, which dismissed for lack of jurisdiction so much of appellant's bill as sought the foreclosure of a trust deed.

The deed was executed by the Grand Lodge I. O. O. F. of Tennessee as grantor, to Nashville Trust Company as trustee, both these parties being Tennessee corporations, and the appellant also executed it as a party. By this trust deed or mortgage, the grantor conveyed to the trustee a parcel of land in the city of Nashville, Tenn., with all existing or future improvements thereon and the rents thereof, in trust and to secure ten bonds of the grantor, amounting to $450,000, due September 15, 1928, and annually thereafter in various amounts, with interest coupons attached; and also to secure advances which appellant might make of funds necessary to complete the erection and equipment of a contemplated office building upon the property, if the grantor should fail to complete the same within twelve months, as it covenanted to do; and advances by appellant or holders of not less than one-fourth the bonds outstanding, necessary to discharge taxes and keep the property in repair or insured, etc.

Each bond bore the guaranty of the appellant to repurchase same with interest coupons at their respective maturities for par.

Article VII of the trust deed provided that upon default by the grantor in the payment of principal or interest of any bonds or in the performance of any other covenant of the deed, and upon demand, possession of the mortgaged premises might be taken by the appellant, which was thereupon authorized to manage, use, and operate the same and receive and collect rents, pay operating expenses, including reasonable compensation to itself, taxes and charges prior to the lien of the mortgage, repairs and renewals, within the amount of income so derived, and apply the balance remaining upon overdue bonds and interest.

The deed contained covenants by the grantor to repay to appellant advances to complete the building, and that the same with interest "shall be deemed a charge on said premises to the same extent and in all respects as provided for bonds herein" (article III, § 2); and to pay to appellant all moneys advanced or expended to procure insurance or discharge taxes, protect the property, etc., with reasonable compensation for looking after these matters, "all of which sums shall be deemed a first lien on the premises and a charge on said premises prior to the bonds hereby secured, and are declared to be additional indebtedness secured by this indenture." Article VI.

The bill and amendment thereof filed in the district court by the appellant made the Grand Lodge, the trustee, and Bolling & Hinrichs, a partnership composed of citizens of Tennessee, defendants. It set up the trust deed and its covenants as the sole source of the rights which it sought to enforce, and asserted diversity of citizenship as the ground of federal jurisdiction. It alleged that appellant sold the bonds to the public, subject to its guarantee to repurchase, and had repurchased and was the owner of bond No. 1 for $15,000, past due and wholly unpaid, as well as certain interest coupons due and paid only in part, and that a considerable sum was overdue on a second bond; and that the grantor, having delayed construction of the building, appellant had, pursuant to article III, caused the same to be completed at a cost of $8,075.24, which amount, by the terms of the deed, was secured thereby and became a lien upon the premises. It also charged the grantor with failure to keep its agreement to maintain insurance on the trust property, and alleged that to protect the interest of the bondholders, appellant procured such insurance at a cost of $2,092.51, which was a lien upon the property; and that in taking over and operating the building, traveling expenses in the amount of $388.04 were incurred by it, which were also a lien.

By amendment it was alleged that the advances for insurance constituted a lien prior to the lien of the bonds, and that appellant asserted its liens for advances against the trustee and bondholders, as well as against the grantor; and that possession of the mortgaged premises had been taken pursuant to the provisions of article VII.

Bolling & Hinrichs were alleged to have instituted a suit for damages for breach of contract against the Grand Lodge in the chancery court of Davidson county, Tenn., and to be about to apply for a receiver to take charge of the premises. Asserting that its right to possession conferred by the trust deed was superior to that of any receiver who might be so appointed, appellant prayed for an order enjoining Bolling & Hinrichs from making such application; for a decree foreclosing the trust deed to the extent of bonds and coupons held by appellant, and of other items alleged to have been paid out by it, without prejudice to the rights of holders of unmatured bonds and coupons; and for judgment against the Grand Lodge for the amount of bonds, coupons, advances, and attorneys' fees. By amendment, appellant prayed that if it was not entitled to a partial foreclosure, as desired, its lien for the moneys advanced for the completion and operation of the building and for insurance be decreed and enforced.

The Grand Lodge and Nashville Trust Company filed a motion to dismiss the bill for lack of jurisdiction, and, to the extent that it sought foreclosure, the bill was dismissed.

Many of the usual duties of trustees of such mortgages are in this case to be performed by the Fidelity Bond & Mortgage Company; but certain of these duties are retained by the trustee, among which: It authenticates bonds if genuine; acts in the exchange of temporary for permanent certificates and in replacement of lost bonds (article I, §§ 1, 3, 4); in case of grantor's default, on request of appellant and on being indemnified, the trustee is required to take steps to protect the bondholders by action, suit, or otherwise, as advised by counsel (article VII, sec. 2); upon any default continuing for thirty days the trustee may and, upon request of the holders of one-third of the outstanding bonds, must...