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

• Decision Date: 22 October 1917
• Docket Number: 2791.
• Parties: EQUITABLE TRUST CO. OF NEW YORK v. GREAT SHOSHONE & TWIN FALLS WATER POWER CO. et al. (PLUMER et al., Interveners). AMERICAN WATERWORKS & ELECTRIC CO. v. TOWLE et al.
• Court: U.S. Court of Appeals — Ninth Circuit

245 F. 697

EQUITABLE TRUST CO. OF NEW YORK v. GREAT SHOSHONE & TWIN FALLS WATER POWER CO. et al. (PLUMER et al., Interveners).

AMERICAN WATERWORKS & ELECTRIC CO. v. TOWLE et al.

No. 2791.

United States Court of Appeals, Ninth Circuit.

October 22, 1917

Murray Prentice & Howland, of New York City, and Richards & Haga and J. L. Eberle, all of Boise, Idaho, for appellant Equitable Trust Co. of New York.

Wyman &amp Wyman, of Boise, Idaho, for appellant American Waterworks &amp Electric Co.

Martin & Cameron, of Boise, Idaho, for appellees Plumer and Scull.

Alfred A. Fraser, of Boise, Idaho, for appellee Jake M. Shank.

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

The Great Shoshone & Twin Falls Water Company was a public service corporation of the state of Idaho, engaged in generating and supplying electricity to various persons and various places in the southern portion of that state, and having a large amount of both real and personal property. It subsequently became insolvent, with a number of general creditors, and one, at least, secured one. One of its general creditors, Guy I. Towle, commenced a suit, in his own behalf and in behalf of such of the other creditors as might join therein, against the company in the court below on the 2d day of November, 1914, alleging, among other things, its insolvency, and that he was a creditor of the corporation, and asking for the appointment of a receiver of its property. The defendant immediately appeared, and by answer admitted the allegations of the bill, and joined in the request for a receiver, with the result that the court on the same day appointed William T. Wallace such receiver, and enjoined every one from attaching or levying upon or seizing any of the property of the company. Among the creditors of the power company was a corporation styled the American Waterworks & Electric Company, its claim being $1,268,434.66, or thereabouts.

Carl J. Hahn, as administrator of the estate of Harry M. King, deceased, was a judgment creditor of the insolvent corporation, and the Equitable Trust Company of New York was sole trustee under a deed of trust made by it May 1, 1910, and under supplemental mortgages dated June 21, 1911, and April 7, 1913, respectively, covering all of the real and personal property of the power company; and on the 14th day of April, 1915, that trustee commenced in the court below a suit to foreclose the deed of trust and the supplemental mortgages, alleged to have been given to secure an issue of bonds aggregating $2,230,000, making defendants to the foreclosure suit the mortgagor power company, William T. Wallace, as receiver of its property, Towle, the complainant in the receivership suit, and the judgment creditor Carl J. Hahn, as administrator of the estate of Harry M. King, deceased. A supplemental bill was subsequently filed by the trustee, praying, among other things: '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; * * * 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; * * * that the defendant Great Shoshone & Twin Falls 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.'

To the bill for the foreclosure Hahn, as administrator, filed an answer setting up the judgment obtained against the power company, and subsequently L. M. Plumer and E. B. Scull, as executors of the estate of L. L. McClelland, deceased, having filed their claim for allowance in the general creditors' suit, and having obtained the allowance and approval thereof, intervened by leave of the court in the foreclosure suit, and by answer to the bill of complaint therein attacked the validity of the trust deed and mortgages.

Similar steps were taken by one Jake M. Shank and the defendant Towle, and they also were permitted to intervene in the foreclosure suit and to file an answer therein assailing the validity of the trust deed and mortgages; the ground of each of the said attacks being, in substance, that in so far as the personal property was concerned the deed of trust and mortgages were void as against those creditors because of certain provisions of the statute of the state of Idaho, including section 3408 of its Revised Codes, which declares that 'a mortgage of personal property is void as against creditors of the mortgagor * * * unless * * * it is accompanied by the affidavit of the mortgagor that it is made in good faith,' etc.

Subsequently the complainant in the foreclosure suit moved to vacate each of the orders allowing the interventions to be filed and to dismiss each of the answers filed by the interveners, which motions were by the court denied. Thereupon the allegations in the answers of the interveners were by agreement of counsel deemed denied, and the cause came on for trial, the receiver Wallace having, by direction of the court, also filed an answer which, in addition to various admissions, alleged and denied as follows: 'That at the time of the appointment of the receiver there was on hand a large and miscellaneous assortment of construction material such as poles, wire, cross-arms and insulators, transformers, and other material of like kind intended for construction purposes; that a portion of said material had been intended to be used for the construction of a line from Mountain Home to Boise, which line has been abandoned and the material therefor was on hand; that a portion of said material not needed by the defendant company or the receiver has been sold by said receiver to the Southern Idaho Water Power Company, and an accounting therefore has been made. That in addition to this, at the various offices of the company in Twin Falls, Oakley, Shoshone, Jerome, Glenns Ferry, Gooding, and Mountain Home, a stock of lamps, fans, small motors, heating devices, and other merchandise was kept on hand for the convenience of the customers of the company and to supply them with appliances which they needed, these appliances being in the nature of appliances ordinarily carried in electric stores. * * * That defendant has no knowledge, information, or belief sufficient to enable him to answer as to whether or not said bonds were lawfully or properly sold or whether the purchasers thereof obtained any title thereto, and defendant therefore denies the same.'

The prayer of the answer of the receiver was: 'That the court first ascertain the amount actually due upon the obligations of the Great Shoshone & Twin Falls Water Company, defendant herein, and that only so much of the property of said company be sold as is covered by the liens described in the bill of complaint herein, and that the defendant be given all proper relief.'

The record shows these further facts: That before the complainant closed its case an attorney of the court informed it that he had received a telegram from the president of the power company (who was also president of the American Waterworks & Electric Company), requesting him to file an answer in the case on behalf of the power company, admitting all of the allegations of the bill and supplemental bill, and that he had prepared such an answer which he asked leave to file, which application the court took under consideration, but subsequently denied. And, further, that the claims of Jak M. Shank in the sum of $4,390, Guy I. Towle in the sum of $13,963.01, and L. M. Plumer and E. B. Scull as executors in the sum of $15,625 had been allowed and approved as claims against the power company in the general creditors' suit, and that the deed of trust and supplemental mortgages were recorded in the mortgage records of the several counties as alleged in the bill of complaint, but were not recorded in the chattel mortgage records.

A certified copy of the unpaid judgment of Hahn, as administrator, against the power company was also introduced in evidence.

The trial court held and decreed that the lien created by the deed of trust and supplemental mortgages was subject and subordinate to the claims of the intervening creditors 'as to all such articles of personalty as do not form a constituent part of and are not presently necessary for the maintenance, repair, and operation of the hydroelectric, generating, transmitting, and distributing systems of the power company or reasonably necessary in conducting its business as a public service corporation, such personalty consisting of construction supplies and materials in excess of the present needs of the power company in conducting its business, and of bills and accounts receivable, stocks of merchandise which are intended for sale to the public in the ordinary course of retail business, the public ferry at Shoshone Falls, and stock owned by the power company in other corporations, which said claims have been approved and allowed in the respective amounts following, to wit:

Guy I. Towle . . . $13,963 01

Carl J. Hahn, as administrator of the estate of Harry M. King, deceased . . .6,225 15

L. M Plumer and E. B. Scull, executors of the estate of L. L. McClelland, deceased ....