96 F.2d 363 (7th Cir. 1938), 6472, Chase Nat. Bank of City of New York v. Citizens Gas Co. of Indianapolis

Docket Nº:6472.
Citation:96 F.2d 363
Party Name:CHASE NAT. BANK OF CITY OF NEW YORK v. CITIZENS GAS CO. OF INDIANAPOLIS et al.
Case Date:April 08, 1938
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 363

96 F.2d 363 (7th Cir. 1938)

CHASE NAT. BANK OF CITY OF NEW YORK

v.

CITIZENS GAS CO. OF INDIANAPOLIS et al.

No. 6472.

United States Court of Appeals, Seventh Circuit.

April 8, 1938

Rehearing Denied May 24, 1938.

TREANOR, Circuit Judge, dissenting.

Page 364

Howard F. Burns, of Cleveland, Ohio, and William L. Taylor, of Indianapolis, Ind. (Baker, Hostetler, Sidlo & Patterson, of Cleveland, Ohio, of counsel), for appellant.

William H. Thompson and Albert L. Rabb, both of Indianapolis, Ind. (Floyd J. Mattice, Corp. Counsel, and Michael B. Reddington, City Atty., both of Indianapolis, Ind., of counsel), for appellees.

Before EVANS, MAJOR, and TREANOR, Circuit Judges.

MAJOR, Circuit Judge.

Appellant is the trustee under a deed of trust executed by appellee, Indianapolis Gas Company, on October 1, 1902, to secure a total authorized issue of $7,500,000 of its first mortgage bonds due October 1, 1952, of which bonds aggregating $6,881,000 are outstanding. The deed of trust conveyed to the trustee all the properties of the Indianapolis Gas Company, including:

' * * * all corporate and other franchises, rights, easements, privileges and immunities, contracts and property, of whatever name or description, now belonging to or held, or which may hereafter be acquired or held by said Gas Company, together with the rents, issues, income, tolls and profits arising therefrom; * * *

'To Have and to Hold all and singular the above mentioned and described property, acquired, and to be hereafter acquired, * * * and the tolls, incomes, revenues, rents, issues and profits thereof * * * .'

On September 30, 1913, the Indianapolis Gas Company leased its property to appellee Citizens Gas Company of Indianapolis for a term of 99 years, including in the lease all the mortgaged property. The lessee, among other things, agreed to perform all the obligations of the lessor under its mortgage, except its obligation to pay the principal of the bonds, which included, first, the interest on the lessor's bonded indebtedness, and, second, the sum of $120,000 per year to be distributed by the lessee direct to the lessor's stockholders, as dividends upon their stock and the expenses of maintaining the lessor's corporate organization not to exceed $300 a year. The Indianapolis Gas Company withdrew from active business and the Citizens Gas Company assumed the active management of its business and the mortgaged property. The Citizens Gas Company was a quasi public corporation whose purposes and objects were controlled by a franchise and contract entered into on August 25, 1905, between the city of Indianapolis and three individual citizens who assigned the franchise and contract to the Citizens Company. The franchise and articles of corporation of the latter company provide that all the capital stock of the Citizens Company should be held by trustees with complete and irrevocable power to hold and vote the stock as fully as if they were the owners thereof and to select the members of the board of directors; that upon the performance of certain named conditions, and after the expiration of 25 years, it was provided that the trustees and directors should convey to the city all the property of the Citizens Company, subject to the legal obligations of that company, to be held by the city for the use and benefit of its inhabitants.

Page 365

In Todd v. Citizens' Gas Company of Indianapolis et al., 7 Cir., 46 F.2d 855, this court held the property of the Citizens Gas to be a public charitable trust and that the property might be conveyed to the city in continuance of the trust, the city being the successor to said Citizens Company as trustee.

For a period of 22 years after the execution of the aforesaid lease, the mortgaged property was operated by the Citizens Gas during which period it paid the interest on the bonds either direct to the trustee or to the bondholders themselves. During the same interval, Citizens Gas made extensive improvements on the mortgaged property and procured the issuance of some $2,000,000 additional bonds under the deed of trust of October 1, 1902, to provide for the payment thereof. On two occasions the validity of the lease was questioned and its binding effect upon the Citizens Company was sustained by the Supreme Court of Indiana. Fishback v. Public Service Commission of Indiana et al., 193 Ind. 282, 138 N.E. 346, 139 N.E. 449; Williams v. Citizens' Gas Company, 206 Ind. 448, 188 N.E. 212.

On September 9, 1935, in pursuance of a prior demand by the city, the Citizens Company conveyed all its property to the city of Indianapolis, as successor trustee, and executed and delivered to the city an instrument of transfer and assignment. This assignment was made subject to all legal obligations of the Citizens Company including its obligations under the lease. The Citizens Company also tendered to the city an assignment of the lease which the city refused to adopt or recognize as binding upon it. The city took...

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