Bilton v. Lindell Tower Apartments

• Decision Date: 13 September 1948
• Docket Number: 40163
• Citation: 213 S.W.2d 952,358 Mo. 209
• Parties: Emily Bilton, Irving Bilton, Barnett Fink and Ethel Fink, (Plaintiffs) v. Lindell Tower Apartments, Inc., a Corporation, Lucius Teter, Frank W. Blair and Oscar E. Buder, Individually and as Officers, Directors and Stock Trustees of Lindell Tower Apartments, Inc., and Metropolitan Trust Company, a Corporation, and Forrest M. Hemker, as Trustees of Lindell Tower Apartments, Inc., Viola Fritsch, Eugenia Buder, Douglas Allen, Agnes Allen, Richard Boyle, Mrs. Richard Boyle, Florence Dooling and Mae M. Halligan, (Defendants) Respondents William G. Soldan (Intervenor), Appellants,
• Court: Missouri Supreme Court

213 S.W.2d 952

358 Mo. 209

Emily Bilton, Irving Bilton, Barnett Fink and Ethel Fink, (Plaintiffs)

William G. Soldan (Intervenor), Appellants, v. Lindell Tower Apartments, Inc., a Corporation, Lucius Teter, Frank W. Blair and Oscar E. Buder, Individually and as Officers, Directors and Stock Trustees of Lindell Tower Apartments, Inc., and Metropolitan Trust Company, a Corporation, and Forrest M. Hemker, as Trustees of Lindell Tower Apartments, Inc., Viola Fritsch, Eugenia Buder, Douglas Allen, Agnes Allen, Richard Boyle, Mrs. Richard Boyle, Florence Dooling and Mae M. Halligan, (Defendants) Respondents

No. 40163

Supreme Court of Missouri

September 13, 1948

Rehearing Denied October 11, 1948.

Appeal from the Circuit Court of the City of St. Louis; Hon Eugene J. Sartorius, Judge.

Reversed and remanded (with directions).

Franklin E. Reagan, Adolph K. Schwartz and Sievers & Reagan for appellants Emily Bilton, Irving Bilton, Barnett Fink and Ethel Fink, and Reardon & Lyng and Jerome Simon for intervenor appellant William G. Soldan.

(1) The court erred in refusing to enjoin the proposed extension of the bonds. Trustees and persons acting for widely scattered bondholders must act with loyalty, fidelity, and integrity toward the bondholders as a class. Monticello Building Corp. v. Monticello Inv. Co., 52 S.W.2d 552; Dudley v. Mealey, 147 F.2d 268. (2) There was a failure to disclose the material fact of Buder's conflicting interest. Rothschild v. Jefferson Hotel Co., 56 F.Supp. 315; Booth v. Greer Inv. Co., 52 F.2d 857; Brown v. McLanahan, 148 F.2d 703; Masterson v Wall, 365 Ill. 102. (3) There was a failure to disclose the identity of the promoters of the extension. Hodgman v. Atlantic Refining Co., 300 F. 590. (4) There was a failure to disclose the corporation's true financial condition. Rothschild v. Jefferson Hotel Co., supra. (5) There was a failure to disclose that Buder and his associates actually owned all the corporation stock, and that the proposed extension was designed for the purpose of preserving that stock equity. Olson v. Rossetter, 71 N.E.2d 556; Shapiro v. Chicago Title & Trust Co., 66 N.E.2d 731. (6) There was a failure to disclose that the Stock Trust Agreement would terminate January 31, 1945, and that the stock equity would become the property of the bondholders. Bray v. Jones, 209 N.W. 675. (7) The consents to an extension obtained are invalid because the bondholders were persuaded to waive the rights of themselves and other bondholders, without knowing all of the facts. Fox Realty Co. v. Montgomery Ward & Co., 124 F.2d 710; Jefferson Hotel Company Case, supra; Cushman v. Bonfield, 139 Ill. 219, 244; Hackettstown Natl. Bank v. D.G. Yuengling Brewing Co., 74 F. 110; Cohn v. Kramer, 124 F.2d 791. (8) A mortgage provision giving the owners of 75% of the bonds a right to extend the maturity date for ten years must be strictly construed. Noble v. European Mortgage & Inv. Corp., 165 A. 157; Bullowa v Thermoid Co., 176 A. 596; Pooge v. Co-operative Pub. Co., 66 P.2d 1119. (9) Failure to make a full disclosure of all material facts raises an inference of fraud. Hockenberry v. Cooper County State Bank, 88 S.W.2d 1031; United Milk Products Corp. v. Lowall, 75 F.2d 923; Jefferson Hotel Co. Case, supra; Case v. Los Angeles Lumber Products Co., 308 U.S. 106; Woaten v. Woaten, 151 F.2d 147; Blanstein v. Pan American Petroleum & Transport Co., 21 N.Y.S. 651; Dudley v. Mealey, 147 F.2d 268; Keenan v. Eshleman, 2 A.2d 904; Hellier v. Baush Mach. Tool Co., 21 F.2d 705; Scott on Trusts, Sec. 170; Farwell v. Pyle-Nat. Headlight Co., 289 Ill. 157; Masterton v. Wall, 365 Ill. 102; Monticello Building Corp. v. Monticello Investment Co., 52 S.W.2d 552; G. A. Buder v. Denver Natl. Bank, 151 F.2d 520. (10) The trustees owed the bondholders the duty of fully and fairly disclosing all the facts in the letters seeking consents. Shapiro v. Chicago Title and Trust Co., 66 N.E.2d 731; Olson v. Rossetter, 71 N.E.2d 556; Farwell v. Pyle National Electric Headlight Co., 289 Ill. 157, 124 N.E. 449, 10 A.L.R. 563; Gilman C. & S.R. Co. v. Kelly, 77 Ill. 426; People ex rel. Barrett v. Central Republic Trust Co., 20 N.E.2d 999; Rothschild v. Jefferson Hotel Co., supra. (11) Courts of equity do not permit trustees to become advocates and place themselves in a position where it is difficult to be honest and faithful to their trust. Galbraith v. Tracy, 38 N.E. 937; Central Elevator Co. v. People, 51 N.E. 254; Olson v. Rossetter, 71 N.E.2d 556. (12) The dissenting bondholders had a right to have their views sent to all the bondholders. Olson v. Rossetter, 71 N.E.2d 556; Central Elevator Co. v. People, 51 N.E. 254; Rothschild v. Jefferson Hotel Co., supra. (13) The concealment from the public bondholders that Buder, Blair and Teter were to be secretly paid by the Buder syndicate for services in getting the maturity of the bonds extended renders all consents received from the public bondholders invalid. In re Conrad, 105 S.W.2d 1; Dudley v. Mealey, 147 F.2d 268. (14) The court erred in refusing to enjoin the proposed extension of the bonds because Buder and his associates could not deal with trust property so as to gain an advantage for themselves. Koplar v. Rosset, 196 S.W.2d 800; Lingle v. The National Ins. Co., 45 Mo. 109; Hackettstown National Bank v. D.G. Yuengling Brewing Co., 74 F. 110; Italo-Petroleum Corp. of America v. Hannigan, 14 A.2d 401; Guth v. Lots, Inc., 5 A.2d 503. (15) The court erred in refusing to remove Buder, Blair and Teter as officers and directors of Lindell Tower Apartments, Inc. Atkins v. Hughes, 277 P. 862; Neall v. Hill, 16 Cal. 145. (16) The court erroneously refused to permit appellants to amend their petition so as to seek the removal of Blair and Teter along with Buder. New Civil Code of Procedure, Sec. 81.

Eugene H. Buder for respondent Oscar E. Buder, R. H. McRoberts, and Bryan, Cave, McPheeters & McRoberts for respondents Viola Fritsch, Eugenia Buder, Douglas Allen, Agnes Allen, Richard Boyle, Mrs. Richard Boyle, Florence Dooling, and Mae M. Halligan.

(1) The letter of July 1st adequately and fairly disclosed the relationship of Buder and his associates to the company and the bondholders, and included all relevant facts as to their interest in the proposed extension. If the Lindell Tower property had been sold at foreclosure at less than the value of the bonds, Buder and his associates would have been entitled to receive an equal pro rata distribution with all other bondholders. In re Balfe's Will, 245 A.D 22, 280 N.Y.S. 128; Morris v. The Broadview, Inc., 328 Ill.App. 267, 65 N.E.2d 605; Welch v. Welch, 235 Wis. 282, 290 N.W. 758; Newton v. Old-Merchants Nat. Bk. & Tr. Co., 299 Mich. 499, 300 N.W. 859; Tuttle v. Gilmore, 36 N.J.Eq. 617; Restatement of the Law of Trusts, Sec. 170 (s); Scott on Trusts, Sec. 170.9; Lingle v. The National Insurance Co., 45 Mo. 109; Kitchen v. St. Louis, K.C. & No. R. Co., 69 Mo. 224; Hackettstown Natl. Bank v. D.J. Yuengling Brewing Co., 74 F. 110. (2) The letter of July 1 fully and accurately advised the bondholders of all the alternatives with which they would be faced if their bonds were not extended. (3) The letter of July 1 fully and correctly disclosed the financial position of Lindell Tower Apartments, Inc., and its inability to pay the bonds when they matured. (4) The contention below that on January 31, 1945, the stock of the company would have become the property of the bondholders has been abandoned on this appeal. Johnson v. Underwood, 324 Mo. 578, 24 S.W.2d 133; Egg Co. v. Ice & Refrigerating Co., 259 Mo. 664, 168 S.W. 772; Laughlin v. Boatmen's National Bank, 189 S.W.2d 974; Missouri Digest -- Appeal and Error -- Secs. 1078, 1079; Missouri Lead Mining & Smelting Co. v. Reinhard, 114 Mo. 218, 21 S.W. 488; El Cajon Portland Cement Co. v. Robert F. Wuentz Co., 165 F. 619; Van Weel v. Winston, 115 U.S. 228, 6 S.C. 22, 29 L.Ed. 384. (5) The letter of August 3, 1944, in no way misled the bondholders. In re Embassy Co., 58 F.Supp. 1004. (6) The refusal of the stock trustees, the corporation, and the indenture trustees to send to the bondholders the Bilton letter of July 20, 1944, was proper. (7) Under the authorities cited by appellants the bond extension is valid and was lawfully effected. Hill v. Rich Hill Coal Mining Co., 119 Mo. 9, 24 S.W. 223; Hodgman v. Atlantic Refining Co., 300 F. 590; Shapiro v. Chicago Title & Trust Co., 328 Ill.App. 650, 66 N.E.2d 731; Hockenberry v. Cooper County State Bank, 338 Mo. 31, 88 S.W.2d 1031; Fox Realty Co. v. Montgomery Ward & Co., 124 F.2d 710; Rothschild v. Jefferson Hotel Co., 56 F.Supp. 315; Nemeth v. Becker Roofing Co., 151 S.W.2d 559. (8) It was not only the right, but the duty, of the stock trustees to advocate the extension if in their judgment they considered it to be to the best interests of the bondholders. Olson v. Rossetter, 330 Ill.App. 304, 71 N.E.2d 556. (9) Lindell Tower Apartments, Inc., could not have given Bilton a copy of the bondholders' list, because it had no such list and had no right to obtain one. Trust Deed and Chattel Mortgage (Plaintiffs' Exhibit G), Art. 1, Sec. 4, p. 15. (10) Even if the Metropolitan Trust Company had refused Bilton access to the bondholders' list, such refusal was fully justified by the restrictive provision in the trust indenture and the good faith in which the Metropolitan Trust Company dealt with Bilton. Trust Deed and Chattel Mortgage (Plaintiffs' Exhibit G), Art. I, Sec. 4, p. 15. (11) Such provision should be upheld because analogous "no-action" provisions have been invariably upheld. Muren v. Southern Coal & Mining Co., 177 Mo.App. 600, 160 S.W. 835; St. Louis-Carterville Coal Co. v. Southern Coal & Mining Co., 194 Mo.App. 598, 186 S.W. 1152; Reitz v. Pontiac Realty Co., 316 Mo. 1257, 293 S.W. 382; ...