Equitable Trust Co. of New York v. Great Shoshone & Twin Falls Water Power Co.

• Decision Date: 17 November 1915
• Docket Number: 526.
• Citation: 228 F. 516
• Court: U.S. District Court — District of Idaho
• Parties: EQUITABLE TRUST CO. OF NEW YORK v. GREAT SHOSHONE & TWIN FALLS WATER POWER CO. et al.

228 F. 516

EQUITABLE TRUST CO. OF NEW YORK v. GREAT SHOSHONE & TWIN FALLS WATER POWER CO. et al.

No. 526.

United States District Court, D. Idaho, Southern Division.

November 17, 1915

[Copyrighted Material Omitted]

Murray Prentice & Howland, of New York City, and Sullivan & Sullivan and Richards & Haga, all of Boise, Idaho, for complainant.

P. B Carter, of Boise, Idaho, for defendant Great Shoshone & Twin Falls Water Power Co.

James H. Wise, of Twin Falls, Idaho, for defendant Hahn.

S. H. Hays, of Boise, Idaho, for receiver.

Karl Paine, of Boise, Idaho, for defendant Towle.

Martin & Cameron and Alfred A. Fraser, all of Boise, Idaho, for intervening creditors.

DIETRICH District Judge.

Two general questions are presented: (1) For what amount is the plaintiff entitled to foreclose? and (2) upon what property? That bonds of the face value of $2,230,000 were duly certified, and later issued for value, and are now outstanding, is admitted. It is further admitted that no part of the principal thereof has been paid, and no interest subsequent to the coupons maturing May 1, 1914. These facts constitute a prima facie showing of an indebtedness of $2,230,000, besides interest thereon at the rate of 5 per cent. from May 1, 1914. Upon the other hand, there is evidence tending to show, and sufficient, I am inclined to think, upon which to base a finding, that nearly all of the bonds were issued, not absolutely, but as collateral only. There being no competent evidence that the collateral character of the holding has changed to absolute ownership, the question presented is whether an unqualified decree should go for the full face value of the bonds. At the oral argument it was urged that it was the right and duty of a trustee to foreclose for the full amount of the bonds which it has certified, regardless of the question whether or not the debtor has put them into circulation. No authorities have been cited in support of this view, and being unable to appreciate the reasoning upon which it is based I must decline to accept it. A bond does not become an obligation of the debtor until it is issued, and it is issued when, and only when, a third party acquires some right or interest therein. True, there need not be an absolute sale; a bond is issued as well when it is put out as collateral. But to be issued there must be an alienation of some interest therein or the creation of some lien thereon. While the trustee is not bound to show to whom bonds have been issued, or by whom they are presently held, it must assume the burden of showing how many have been issued and are outstanding, for the aggregate of the outstanding bonds is the measure of its maximum recovery.

The real, and as it seems to me the only serious, question upon this branch of the case is whether the capacity in which outstanding bonds are held may be made an issue prior to decree and sale. The trustee says no, and directs my attention to certain cases, which, while tending to support its view, are seemingly far from being conclusive. It is to be noted that it is not a question merely of what presumptions may be indulged, or of the burden of proof, or the weight of evidence. If the trustee's contention is sound, it is incompetent for the debtor to raise such an issue at all, and evidence offered by it to show that bonds were issued only as collateral, and that the amount for which they are held is less than their face, is not receivable. Nor is it a question of the character or amount of the relief to which the collateral holder is entitled. Upon the one hand the trustee concedes that upon the distribution of the proceeds of sale the collateral holder cannot demand an amount in excess of the actual indebtedness due him; and upon the other hand it is doubtless true that up to the amount of such claim, and until it is fully discharged, he is entitled to share ratably with other bondholders upon the basis, not of the amount of his claim, but of the face value of the bonds. But if offered by the debtor can the issue touching the just amount of the collateral claim be ignored? There are logical and practical objections of the most serious character to the trustee's position. It here prays for a judicial determination of the amount of the indebtedness secured by the trust deed and for a sale of the property to pay the same. Admittedly the maximum of the debtor's obligation, where its bonds are held as collateral only, to secure notes which it has executed, is the face of the notes, and not of the bonds. How, then, can the court by its decree declare that the amount due is the full face of the bonds?

It is urged that the matter can be controlled upon the distribution of the proceeds of sale; but, aside from the illogical aspect of such procedure, suppose the debtor desires to avoid a sale, and is able to raise the amount of money it actually owes, but no more, within the period usually granted to it under the practice, before a sale can be made. Is it to be permitted to discharge its just obligation and thus save its property? And, if so, how, in the face of the decree, is the amount of the actual indebtedness to be ascertained? Are the conditions at such a time any more favorable for the determination of the issue than they were before the entry of a decree? The parties before the court are the same. The pertinency of these inquiries is emphasized by portions of complainant's prayer. Referring to the supplemental bill, where the relief sought is more comprehensively and particularly stated, we find that it prays:

'That the court find and adjudge that the principal of the said bonds issued and outstanding as alleged in the bill of complaint herein, in the amount of $2,230,000, is due and payable,' etc.

And again:

'That an account be had and taken of the bonds, interest coupons, and interest secured by said deed of trust and supplemental mortgages, and the amount due thereon, with the names of the lawful holders or owners thereof, be ascertained; that an account be taken of all property of every kind conveyed or pledged by said deed of trust and supplemental mortgages or intended so to be, whether acquired before or after the execution and delivery thereof.'

And again:

'That the defendant, Great Shoshone & Twin Falls Water Power Company, and William T. Wallace as receiver of its property, may be decreed to pay, within a short time to be fixed by the court, to the holders of the bonds and coupons secured by said deed of trust and supplemental mortgages, or to your orator as trustee for said holders, the principal amount of said bonds and the defaulted interest thereon,' etc.

Again, upon what basis is redemption from sale to be made if the property goes to sale? And is there to be a personal judgment over, for the entire difference between the face of the bonds and the proceeds of the sale, pursuant to the usual provision of a foreclosure decree? If so, manifestly the debtor will thus be adjudged to pay in excess of the amount of its actual debt.

While leaning toward the view that the issue may...