Connell v. Kaukauna Gas, Elec. Light & Power Co.

• Decision Date: 14 November 1916
• Citation: 164 Wis. 471,159 N.W. 927
• Court: Wisconsin Supreme Court
• Parties: CONNELL v. KAUKAUNA GAS, ELECTRIC LIGHT & POWER CO. ET AL.

164 Wis. 471

159 N.W. 927

CONNELL

v.KAUKAUNA GAS, ELECTRIC LIGHT & POWER CO. ET AL.

Supreme Court of Wisconsin.

Nov. 14, 1916.

Appeal from Circuit Court, Fond du Lac County; Chester A. Fowler, Judge.

Suit by Samuel A. Connell, Trustee, etc., against the Kaukauna Gas, Electric Light & Power Company and others. From a judgment plaintiff appeals. Reversed and remanded.

The action is one to foreclose a trust mortgage, executed by the defendant Kaukauna Gas, Electric Light & Power Company (hereinafter designated the Kaukauna Company) and the defendant Citizens' Savings & Trust Company (hereinafter called the Trust Company). The facts in this case are practically undisputed, and are briefly and succinctly stated in the findings of the circuit court as follows:

“(1) That the Kaukauna Gas, Electric Light & Power Company, on April 10, 1906, being then duly organized as a Wisconsin corporation, duly executed the certain trust deed described and set forth in the complaint, and on said day duly executed and delivered to the trustee named therein the $75,000 first mortgage bonds described and in terms as set forth in the complaint, which trust deed was forthwith duly recorded in the register of deed's office of Outagamie county.

(2) That the trustee named in said deed was the Citizens' Trust Company, a trust company organized under the laws of Wisconsin, and in taking said bonds it credited the said Kaukauna Company with the full face value thereof, and charged the said company with the amount of $78,340.73, which was the amount theretofore owing to it by the Kaukauna Electric Light Company, which transferred the plant and property covered by said trust deed to said Kaukauna Gas, Electric Light & Power Company in consideration for $51,000 stock in the new company, the $75,000 first mortgage bonds in suit, and $30,000 second mortgage bonds of the said new company. And that there was no other consideration or payment for said $75,000 bonds than as aforesaid.

(3) That the said defendant Kaukauna Company never had sufficient revenue to pay its running expenses and the interest on said $75,000 mortgage bonds. That it turned over to the Citizens' Company, the trustee named in said deed, its entire revenues after paying current expenses. That the said Citizens' Company at interest-paying times charged the said Kaukauna Company upon its books with the full amount of the interest on said $75,000 bonds, and itself paid the interest coupons when presented by the holders, or credited the accounts and pass-books of its customers who held said bonds with the amount of the interest thereon.

(4) That the said Citizens' Company transferred said bonds in suit to various of its customers upon receiving from them money, with direction to invest the same for them in safe interest-bearing securities. That said customers were not informed by the Citizens' Company prior to, or at the time of the transfer of, the nature or name of the securities that would be, or were being, purchased with such money.

(5) That the property covered by said trust deed was at the time of the execution of said deed not worth to exceed $50,000, and that 75 per cent. of the face value of said $75,000 bonds was never paid to or received by said Kaukauna Company therefor.

(6) That the franchise to operate said plant in the city of Kaukauna as an electric light and power plant expired by its terms in 1904, and that at the time said bonds were issued the company had no franchise or right to operate said plant at Kaukauna except at the mere will or sufferance of the city of Kaukauna. That in 1908 the defendant Kaukauna Company duly took an indeterminate franchise under the public utilities law of the state. That the trustee named in said trust deed, or the holders of said bonds, never in express terms consented to the taking of said indeterminate franchise, but the said trustee at all times knew of the taking thereof.

(7) That on December 27, 1910, the defendant city of Kaukauna duly determined to purchase said plant under the said public utilities law, and took due proceedings to that end by duly notifying the Railroad Commission and said company of its said determination. That thereupon the said Commission, in accordance with the terms of said public utilities law, duly notified the defendant city and the defendant Kaukauna Company of the time and place of hearings, and proceeded in due course to determine the value of said plant. That no notice of its determination to purchase said plant was ever given by the city to the bondholders, and no formal notice was ever given by it to said trustee, but the said trustee in fact knew of said determination and of all proceedings had before said Railroad Commission and never made any objection thereto or intervened therein or sought hearing therein other than was given to said Kaukauna Company and said city. That said Railroad Commission never gave to said trustee or said bondholders, or any thereof, notice of said proceedings before it, or of any hearings therein. That said Railroad Commission in all things duly proceeded according to the terms of said public utilities law as the same at the time stood, to determine the value of said plant, and on December 29, 1911, determined the value thereof to be $50,000, and directed the payment of said sum by said city to said Kaukauna Company and the transfer of said plant by said company to said city.

(8) That on January 2, 1912, the said city took possession of said plant, and has ever since remained in possession and control thereof, and has received all the revenues therefrom, and has claimed to be the absolute owner thereof, free from the lien of the said trust deed, all to the knowledge of said trustee ever since the transfer.

(9) That on July 11, 1912, the defendant city paid to the defendant Kaukauna Company the said sum of $50,000, with interest thereon to date of payment and the value of supplies turned over to the city by said company, not included in said $50,000 award, less the sum of $6,500 retained by said city, pursuant to stipulation with said Kaukauna Company, to secure the defendant city against a claim of the Green Bay & Mississippi Canal Company in litigation claimed by said Canal Company to be superior to the lien of said trust deed, the total amount paid on said day to said Kaukauna Company being the sum of $45,294.40. That said city paid said money in the expectation and on the understanding that the Kaukauna Company would pay the same over to the trustee for the benefit of the holders of said $75,000 bonds; and that the said trustee would hold and pay the same to the said bondholders pro rata according to their holdings; and that the city entertained the opinion, in good faith, that the said trustee was managing, and for a long time had been managing, the said plant and applying its revenues for the benefit of the bondholders, and understood that it was in reality and in fact paying the same into the hands of the trustee.

(10) That said Kaukauna Company on said July 11th deposited said $45,294.40, paid to it as aforesaid, with said Citizens' Trust Company, the trustee under said trust deed, and said Citizens' Company held the same until the 19th day of July, upon and after which it applied and paid out the same as directed by said Kaukauna Company as follows: Some $20,000 to itself to repay itself for interest on bonds advanced to said Kaukauna Company; some $7,000 to itself to repay itself for so-called first-lien improvement bonds by it taken, issued to provide for betterments to the plant ordered by the Railroad Commission in service proceedings instituted by the city of Kaukauna; and some $15,500 to favored bondholders, the face and interest on bonds of said $75,000 issue held by them; and the remainder to diverse general creditors of said Kaukauna Company.

(11) That no action was taken in the course of said purchase proceeding to take the verdict of a jury as to the necessity of the taking of said plant by the city.

(12) That the Citizens' Company had full knowledge when it transferred said bonds to said bondholders that the same were issued for less than 75 per cent. of the face value thereof, but that the holders to whom it transferred the same had no knowledge or notice of such fact, and purchased the same for value before maturity.

(13) That the said bondholders received no interest on their said bonds on November 1, 1912, and then learned of the said purchase proceedings by the city. That the said purchase price had been paid, and that the city had been in possession of said property since the previous January under claim and belief in good faith that it had the absolute title thereto free from the lien of said trust deed, and that it had made considerable and was making and was about to make extensive and costly improvements in said plant. That the city made said improvements on the understanding and belief that the bondholders acquiesced, and were acquiescing, in its said claim, and that said bondholders did acquiesce therein until the 24th day of July, 1914, when the present trustee first notified the city that he claimed the lien of said trust deed was still in force, and that he had right to sell said property under foreclosure to satisfy the same. That the cost of the improvements thus made by the city approximated $30,000, and the greater part thereof were made between April 1, 1912, and July 24, 1914.

(14) That the present trustee was appointed to succeed said Citizens' Trust Company as trustee on May 12, 1914, and that on May 27th thereafter he formally and after deliberate consideration demanded of the defendant city that it pay to him for the bondholders the residue of said $6,500 held by it to protect itself against the lien which was adjudged prior to that of said trust deed, and that the city now has in its hands the sum of $2.084.85, the residue of said $6,500 retained as aforesaid.

(15) That the Kaukauna Company...