Etna Coal & Iron Co. v. Marting Iron & Steel Co.

• Decision Date: 14 January 1904
• Docket Number: 1,160.
• Citation: 127 F. 32
• Parties: ETNA COAL & IRON CO. v. MARTING IRON & STEEL CO.
• Court: U.S. Court of Appeals — Sixth Circuit

127 F. 32

ETNA COAL & IRON CO. v. MARTING IRON & STEEL CO.

No. 1,160.

United States Court of Appeals, Sixth Circuit.

January 14, 1904

This is a bill to set aside a sale of certain furnace property, made by trustees under a mortgage, as having been made without authority of law and in fraud of the rights of the complainant as mortgagor. The facts, so far as deemed essential to be states at this point, are as follows: The property involved consists of two iron furnaces and some 26 acres of land in Ironton, Lawrence county, Ohio. This property, together with a body of about 13,000 acres of coal and ore land in the same county, was, prior to 1895, the property of the Ironton Coal Iron Company, a corporation of West Virginia, but not a party to this suit. In September 1895, the complainant company, the Etna Coal & Iron Company was organized under the laws of West Virginia, and became the purchaser of the furnaces and 26 acres of land mentioned from the said Ironton Coal & Iron Company. The price to be paid was $100,000, payable in installments evidenced by obligations called bonds and secured by a first mortgage upon the premises, executed to Joseph S. Clark and Julien Henry Lee. To further secure the deferred purchase money the said purchasers covenanted to immediately expend in improvements and repairs not less then $30,000, and, to protect this covenant, bound themselves to deposit in a named bank the sum of $10,000 to the credit of the vendor, to be forfeited in default of compliance with this agreement. At the date of this purchase the entire property of the Ironton Coal & Iron Company was under a mortgage to secure an issue of bonds aggregating $150,000. The trustees under this mortgage were Joseph S. Clark and Edwin G. McInnes. These trustees joined in the execution of the conveyance by the said Ironton Coal & Iron Company for the purpose of releasing the lien of their mortgage upon the premises conveyed, having agreed to accept the purchase-money bonds of the Etna Company as a substitute for the property thus released, all of which was authorized by the mortgage and requested by the Ironton Company. The Ironton Company's deed was absolute reciting that it was upon a consideration of $100,000, secured 'by a mortgage or deed of trust dated and delivered simultaneously. ' Simultaneously with the delivery of the deed, the Etna Coal & Iron Company made and delivered its mortgage upon the said premises to J. H. Lee and J. S. Clark, as trustees, to secure an issue of $100,000 in bonds, with interest coupons payable semiannually. This mortgage contained the usual clauses providing for the precipitation of the maturity of the principal upon a default in payment of interest for six months 'after notice in writing,' etc. It was also provided that upon default in payment of the principal as it should become payable the trustees should, upon 'written request of the holders of one-fourth in amount of the bonds secured hereby, and then outstanding, or upon their own discretion, and without such request, sell and dispose of all or any part of the premises, fixtures, and other property hereby mortgaged and conveyed, or intended so to be, by the Etna Coal & Iron Company, at public auction in such place or places within the state of Ohio as the trustees may designate, and at such time or times as the trustees may appoint, having first given notice of the time or times and place or places of such sale or sales by advertisement not less than once a week for eight weeks in a newspaper,' etc., 'and to adjourn such sale or sales from time to time at their discretion,' etc., 'and to make and deliver to the purchaser thereof good and sufficient deeds in the law for the conveyance of all the right and title of the iron company to the premises or any part thereof so sold; and before making any such sale or sales the trustees shall not be required to have the property to be sold appraised or valued in accordance with any present or future law of the state of Ohio, or any other state, the Etna Coal & Iron Company hereby waiving the benefit of all such laws now existing or hereafter passed; which sale or sales, made as aforesaid, shall be perpetual bar, both at law and in equity, against the Etna Coal & Iron Company, and all persons lawfully claiming or to claim the said premises or any part thereof by, from, through, or under it; and after deducting from the proceeds of such sale or sales, just allowances for all expenses of sale, including attorney's and counsel fees and all other expenses, advances, or liabilities which may have been made by them for taxes or assessments and for charges and liens on the said premises or any part thereof, prior to the lien of these presents, as well as reasonable compensation for their own services to apply the said proceeds to the payment of the principal of the said bonds and the interest due thereon, if said income and proceeds be sufficient, but if not, then pro rata without giving preference, priority, or distinction to one bond over another, or as between principal or interest; and if these shall remain any surplus after payment of all the said bonds hereby secured or intended so to be in full, both principal and interest, then to pay over and account for such surplus to the Etna Coal and Iron Company. ' Default having been made in the payment of interest, the trustees, in pursuance of the powers of the mortgage, did expose and publicly sell the premises on September 25, 1897. J. H. Lee and Joseph S. Clark, being the trustees making the sale, were the highest and best bidders at said sale, and the property was accordingly bid in by them at the price of $80,000. Subsequently Lee and Clark, as trustees, executed a conveyance to Lee and Clark as individuals in pursuance of their powers under the said mortgage. Under date of October 12, 1897, Lee and Clark, as individuals and as trustees under the said mortgage, joined Edwin G. McInnes and Joseph S. Clark as trustees under the mortgage of the Ironton Coal & Iron Company to them, in the execution of a quitclaim deed of the premises involved to the said Ironton Coal & Iron Company. This deed, among other things, recited that Lee and Clark, in bidding in the said property at their sale as trustees, were acting for Edwin G. McInnes and Joseph S. Clark, trustees under the mortgage or the Ironton Company, and as the beneficial mortgagees under the mortgage of the Etna Company, being holders of the bonds secured by said mortgage. Having become again invested with the title to the premises, and said Ironton Company made a supplemental mortgage to the said Lee and McInnes as trustees to secure their bonded indebtedness of $150,000 heretofore mentioned. Being thus restored to its ownership of the premises involved, the Ironton Company, under date of December 19, 1898, again sold and conveyed the said furnace and property to Henry A. Marting for the consideration of $90,000, partly in cash and partly in notes secured by mortgage. McInnes and Clark, as trustees under the mortgage of the Ironton Company, joined in this conveyance for the purpose of releasing the lien of the mortgage as to the premises, having agreed to accept the obligations of the said Marting in room and place of the security so released. Subsequently, the Marting Iron & Steel Company was organized under the laws of Ohio, and the property so purchased by Marting was conveyed to it. Upon a final hearing the court below held that the foreclosure sale of the premises under the mortgage made by the complainant company was valid and effective, and that complainant had not made any case entitling it to have said sale set aside for fraud or irregularity.

The bill was accordingly dismissed.

Hector M. Hitchings, for appellant.

A. R. Johnson and S. H. Tolles, for appellee.

Before LURTON and SEVERENS, Circuit Judges.

LURTON Circuit Judge, after making the foregoing statement of the case, .

1. The case must chiefly turn upon the validity of the power of sale contained in the mortgage made by the Etna Coal & Iron Company to Clark and Lee, as trustees, to secure the purchase-money notes made by the mortgagor company. Whether we call that instrument a mortgage, or a mortgage in the nature of a deed of trust, is of no vital importance. The parties to the instrument have undertaken to provide that, in case of default in the payments secured, there need not be a resort to judicial proceedings, but that the trustees should after advertising as provided, themselves sell the property and convey to the purchasers by deed 'all the right and title of the iron company to the premises,' and that a sale so made 'shall be a perpetual bar, both at law and in equity, against the Etna Coal & Iron Company and all persons claiming or to claim the said premises or any part thereof,' etc. They further undertook to provide that 'the trustees shall not be required to have the property to be sold appraised or valued in accordance with any present or future law of the state of Ohio or any other state. ' But it is said that this instrument contains a clause providing that, if the makers should well and truly make all the payments as provided, and do all other things required by the covenants of the obligation, it should become 'null and void and of no effect,' and that the effect of this defeasance clause is to nullify the agreement for a sale without appraisement by the trustees, and to require a proceeding in equity notwithstanding the agreement of the parties. We know of no principle of the common law which deprives the owners of property of the right to confer upon a trustee the power to sell the mortgaged premises upon default in the payment of a debt secured thereby. Neither is there any difference in principle between a power of...