Central National Bank of Philadelphia, a Corporation v. Bateman & Companies, Inc.

• Decision Date: 28 October 1925
• Citation: 15 Del.Ch. 31,131 A. 202
• Parties: THE CENTRAL NATIONAL BANK OF PHILADELPHIA, a corporation under the laws of the United States of America, v. BATEMAN & COMPANIES, INCORPORATED, a corporation of the State of Delaware. In the Matter of the Claim of the Equitable Trust Company of New York, Trustee under a mortgage given to secure bonds of Bateman & Companies, Incorporated
• Court: Court of Chancery of Delaware

131 A. 202

15 Del.Ch. 31

THE CENTRAL NATIONAL BANK OF PHILADELPHIA, a corporation under the laws of the United States of America, v. BATEMAN & COMPANIES, INCORPORATED, a corporation of the State of Delaware. In the Matter of the Claim of the Equitable Trust Company of New York, Trustee under a mortgage given to secure bonds of Bateman & Companies, Incorporated

Court of Chancery of Delaware, New Castle

October 28, 1925

STATEMENT OF THE CASE. The defendant company was adjudged by this court to be insolvent and receivers were appointed to administer its assets. These assets consisted of real and personal property located in several states. A portion of the real property located in the State of New Jersey was subject to the lien of an indenture of mortgage dated March 12, 1921 given by the defendant to the Equitable Trust Company of New York as trustee to secure the payment of the principal and interest of corporate bonds in the face amount outstanding of $ 647,700. Each of the bonds secured by the mortgage contains a promise to pay the face of the bond on March 18, 1926, and refers to the mortgage for the rights provided therein to accelerate the maturity of the principal in event of default. The bond also states that "reference is hereby made to the said indenture of mortgage for a description of the property conveyed thereby, the nature and extent of the security and the rights of the holders of said bonds therein and thereto."

The mortgage to which reference is thus made by the bonds provides in Section 4, Article III, that upon any event of default "the trustee may * * * forthwith institute such proceedings either at law or in equity as it may deem proper * * * for the protection of the rights and interests of the holders of the bonds," and further that "in case of a sale of the mortgaged premises and of the application of the proceeds of sale to the payment of the debt, * * * the trustee in its own name as trustee of an express trust shall be entitled to enforce the payment of and to receive all amounts then due and unpaid on any and all of the bonds and coupons outstanding for the benefit of the holders thereof and shall be entitled to recover judgment for any portion of said debt remaining unpaid with interest."

Section 5 of Article III of the indenture of mortgage provides also that in case of a default in the payment of principal or interest, or both, "then upon demand of the trustee, the company will pay to the trustee for the benefit of the holders of the bonds and coupons outstanding, the whole amount due or accrued and unpaid on such bonds for principal and interest with interest upon over due instalments of interest," and that if the company shall fail to make payment to the trustee upon such demand, "the trustee in its own name and as trustee of an express trust shall be entitled to recover judgment for the whole amount so due and unpaid." The next paragraph of this section provides in effect that the trustee shall be entitled to recover such judgment regardless of any other remedy for the enforcement of the lien or of the prosecution of any proceeding for the sale of the mortgaged property. The final paragraph of this section provides how the moneys thus collected by the trustee shall be distributed.

Default occurred under the mortgage and the trustee by due declaration thereupon accelerated the maturity of the principal amount due thereon ($ 647,700) and made the demand authorized by the mortgage that the mortgagor pay to the trustee for the benefit of the bondholders the bonds and coupons outstanding together with interest on the whole amount.

This demand was not complied with and foreclosure proceedings were instituted in the Court of Chancery of New Jersey by virtue of which the mortgaged premises were sold and the sum of $ 196,208.96 realized therefrom, which was distributed by the trustee to the bondholders on account of principal and interest due and unpaid. The distribution was of $ 302.93 on account of $ 1,235.87 found by the foreclosure decree to be due and unpaid upon each $ 1,000 bond as of July 1, 1924 leaving a deficiency of $ 932.94 still due on each $ 1,000 bond as of that date.

A sum of something over $ 300,000 is in the possession of the receivers of this court awaiting distribution. This fund is available for general creditors, unencumbered by any lien.

The trustee has proved a claim in behalf of all bondholders under the indenture of mortgage for the amount due on all the bonds, and seeks to have the amount available to them paid to it, to be of course in turn distributed by it as trustee. The receivers oppose the application, taking the view that distribution of the amount available to the bonds out of this general fund should be not in one sum to the trustee, but to the bondholders directly in the amounts respectively available to each.

In addition to the question raised by this contention, a further question arises as to whether the claim based on the bonds is entitled to have the unpaid coupons counted as a part of the principal, and whether interest is to be allowed to run after the date of the receivership.

Robert H. Richards, and with him William N. Evarts, of New York City, for the trustee under the mortgage.

Herbert H. Ward, of the firm of Ward Gray & Ward, and with him Percy C. Madeira, Jr., of Philadelphia, Pa., for the receivers.

OPINION

THE CHANCELLOR

There is no controversy between the trustee under the indenture of mortgage and the individual bondholders who through a committee representing...