Anderson v. Pennsylvania Hotel Co., 6447.

• Decision Date: 23 March 1932
• Docket Number: No. 6447.,6447.
• Citation: 56 F.2d 980
• Parties: ANDERSON v. PENNSYLVANIA HOTEL CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

56 F.2d 980 (1932)

ANDERSON v. PENNSYLVANIA HOTEL CO. et al.

No. 6447.

Circuit Court of Appeals, Fifth Circuit.

March 23, 1932.

D. C. McMullen, of Tampa, Fla., for appellant.

Austin L. Richardson and Wm. G. King, both of St. Petersburg, Fla., for appellees.

Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

The property of the Pennsylvania Hotel Company in St. Petersburg, Fla., was subject to two bond mortgages, one dated January 15, 1925, securing $75,000 of bonds, and one dated May 15th, 1925, securing an issue of $225,000. Some of the bonds fell due on each anniversary of the respective mortgages, beginning in 1927, and the interest coupons fell due semiannually. All were payable at the First National Bank of St. Petersburg, which was trustee in the mortgages. Beginning November, 1927, the Pennsylvania Hotel Company obtained advances from First Securities Corporation, which was affiliated with the bank, to pay interest coupons as presented at the bank, and no default in interest occurred until November 15, 1929, and January 15, 1930. Five thousand dollars principal of the smaller series was paid off, but other maturing bonds of both series to the amount of $27,000 which fell due in 1927, 1928, and 1929 were not paid by the hotel company but were taken up by H. C. Case, who was the president of the company, by making loans from the bank on his notes secured by the bonds. Failures to pay taxes and paving assessments occurred in 1926, 1927, 1928, and 1929. Defaults in payment of interest, taxes, or assessments, or in performing any of the terms and conditions of the mortgages by express stipulation in each authorized, and on written request of holders of 51 per cent. of the bonds required, acceleration of their maturity and foreclosure. After the failure of the bank, A. M. Anderson as its receiver, without request of the bondholders, sought foreclosure in equity in behalf of all bonds including those the bank held by way of collateral security as above stated. The hotel company contended these bonds were paid, but the master reported otherwise. Thereupon Charles Wilson, owning $5,000 of bonds of the larger series, intervened in behalf of himself and other bondholders to contend that the bonds held by the bank should be at least subordinated to the claims of other bondholders because: (1) The bank was without authority to reissue bonds sent to it as trustee for retirement; (2) because it did not notify other bondholders that the bonds were not retired and thus misled them into thinking that their security was being improved by such retirement; and (3) by taking the bonds as collateral it had wrongfully assumed a position antagonistic to its trust. No testimony was taken under the intervention, but the court entered a decree subordinating the bonds held by the bank. The receiver appeals, assigning the subordination as the sole error.

Adverting first to the third objection of the bondholders, we see no impropriety in the trustee bank becoming a holder of bonds as collateral security or otherwise. No preference or priority is claimed for its bonds. Its interests as a bondholder are precisely those of other bondholders, and there is nothing to show that the trustee would be tempted to any breach of duty as against them. The hotel company might better complain, but in its last mortgage it expressly agreed that the trustee might "buy, sell, hold, own or deal in any of the bonds or coupons issued hereunder and secured by this mortgage." This permission binds also the bondholders who claim under the mortgage, and the intervener is one of them.

The second objection that the bank as trustee has misled the bondholders by not notifying them that the matured bonds had not been paid is not well taken. There is no provision in either mortgage making it the duty of the trustee to notify bondholders in case of default in payment. Its duty then is to consider whether it shall foreclose. While a default in payment of interest would be notified to each bondholder by the return of the coupons, when a principal bond is not paid it would hardly be possible to locate and notify all the bondholders for the time being. The duty to the particular bondholder who sends his matured bond in for payment to inform him whether it was paid or transferred is adverted to below. The intervener does not assert that he or any of his associates had owned at maturity any of the bonds in question. If notified of the default they could not have obtained any preference. The defaulted bond would be equally good against them whether sent back to the owner or transferred to another. They could only have moved for a foreclosure. It is neither pleaded nor proven that they would have been benefited by an earlier foreclosure. The defaults in taxes and assessments existed since 1926, and were of public record and presumably known to them. The bondholders sought no foreclosure on account of them nor on account of the interest default, which must have been actually known to each of them. No fraudulent intent or even negligence on the part of the bank is alleged, and no benefit peculiar to it shown in the delay to foreclose; nor any such unfavorable change in position of the bondholders as to create an estoppel in pais. "An estoppel in pais does not operate in favor of everybody. It operates only in favor of a person who has been misled to his injury, and he only can set it up." Ketchum v. Duncan, 96 U. S. 659, 666, 24 L. Ed. 868. One bondholder, indeed, testified that in March, 1929, he bought two bonds of the larger series from a trust officer of the bank who told him there were two hundred and twenty odd thousand dollars of the bonds alive and the others had been redeemed and canceled as they matured. There were in fact no more bonds outstanding of that issue than the officer represented, but if the untruth of the latter part of the representation gives this bondholder any right of rescission or claim for damages against the bank, it is personal to him and not cause for preferring the bonds of all other bondholders nor for subordinating those then owned or those later acquired by H. C. Case.

The most serious contention is that as to other bondholders the contested bonds are paid. If the hotel company had directly or indirectly furnished its own funds to take up the matured bonds, they would stand paid, even though its intention had been otherwise. Cussen v. Brandt...