Farmers' Loan & Trust Co. v. Penn Plate-Glass Co.

• Decision Date: 14 June 1900
• Docket Number: 33.
• Citation: 103 F. 132
• Parties: FARMERS' LOAN & TRUST CO. v. PENN PLATE-GLASS CO. et al.
• Court: U.S. Court of Appeals — Third Circuit

103 F. 132

FARMERS' LOAN & TRUST CO. v. PENN PLATE-GLASS CO. et al.

No. 33.

United States Court of Appeals, Third Circuit.

June 14, 1900

The following is the opinion of the court below (BUFFINGTON District judge):

As we view it, the decision of the original case depends on the answer to two questions: First, has the trustee shown a right under the mortgage to foreclose? And, secondly, if so, can W L. Kann or the Penn Plate-Glass Company, later successive purchasers of the mortgaged premises, question of property, a right to foreclose or sell the pledge arises, ex necessitate and without express grant of such power, upon default. 'Such right of mortgage foreclosure,' says Mr Justice Matthews in Railroad Co. v. Fosdick, 106 U.S. 47, 1 Sup.Ct. 10, 27 L.Ed. 47, 'follows from the nature of the security, and arises upon its face, unless restrained by its terms. ' When, then, the right of a mortgagee or pledgee to dispose of the pledge is denied, a limitation or exception abridging such right should be shown; and such limitation, being in derogation of an inherent, essential right, must be strictly construed. Guaranty Trust & Safe-Deposit Co. v. Green Cove Springs & M.R. Co., 139 U.S. 142, 11 Sup.Ct. 512, 35 L.Ed. 116; Farmers' Loan & Trust Co. v. Northern Pac. R. Co. (C.C.) 61 F. 546; Toler v. Railway Co. (C.C.) 67 F. 179. Moreover as the provision enabling a mortgagee to take possession of mortgaged premises is held to be cumulative (Morgan's L. & T. Railroad & Steamship Co. v. Texas Cent. Ry. Co., 137 U.S. 171, 11 Sup.Ct. 61, 34 L.Ed. 625; Mercantile Trust Co. v. Missouri, K. & T. Ry. Co. (C.C.) 36 F. 221; Farmers' Loan & Trust Co. v. Winona & S.W.R. Co. (C.C.) 59 F. 957; Dow v. Railroad Co. (C.C.) 20 F. 260; Credit Co. v. Arkansas Cent. R. Co. (C.C.) 15 F. 46; Alexander v. Railroad Co., 3 Dill, 487, Fed. Cas No. 166), it follows that limitation on the exercise of such specific cumulative power cannot restrict the general generic right of foreclosure incident to the mortgage.

The provision in the present mortgage relating to foreclosure by bill in equity is found in the last clause of article third. The clause therein found, 'That, in case default shall be made as aforesaid,' refers to the default specified in article second, relating to entry sub conditone by the trustee, and to the default specified in the first part of section third, relating to a public sale sub conditione by the trustee. The first provision relates, inter alia, to a default in payment of interest, and is as follows: 'In case default shall be made in the payment of any installment of interest on any of the aforesaid bonds according to the tenor of the said bonds, and of any of the coupons accompanying the same, or in the performance of any covenant, agreement, or stipulation herein contained, and hereby required to be kept and performed by the said party of the first part, and if such default should continue for the period of six months after demand made in writing by said trustee upon said party of the first part for the payment of the said moneys or the performance of the said covenants, it shall be lawful for the said trustee * * * to enter into or upon * * * the premises hereby conveyed. ' The second provision, found in the opening of the section third, embraces the default of interest specified above, and adds the default of principal. It is as follows: 'In case default shall be made as aforesaid, or in case default shall be made in payment of the principal of any of the said period of six months after demand made in writing by the said trustee for covenants, it shall be also lawful for the said trustee, and upon receiving a written requisition, signed by majority in value of the bonds secured hereby, then outstanding, with proper indemnification against costs, compensation, and expenses, it shall be the duty of the said trustee, or its successor or successors, after entry as aforesaid, or other entry, or without entry, personally or by its attorney or agent, to sell and dispose of all and singular the premises, franchises, and contracts hereby conveyed and assigned, or intended so to be, as an entirely, or such part or parts of the same as shall be necessary, from time to time, at public auction. ' The last clause of section third provides for judicial foreclosure, and is as follows: 'And in case default shall be made as aforesaid, and shall continue as aforesaid, it shall also be lawful, and it shall be the duty of the said trustee and its successor or successors in the said trust, upon receiving a written requisition, signed by the holders of one-third in value of the bonds hereby secured and then outstanding, after entry as aforesaid, or other entry, to commence and prosecute such actions, suits, or proceedings at law or in equity as shall be necessary to obtain the sale of the said premises by and under judicial authority, and to bar and foreclose the equity of redemption of the said party of the first part, its successors and assigns, and of all persons claiming under them or any of them and the said premises hereby conveyed or intended so to be, with the appurtenances, and every part and parcel thereof. ' Analysis of these three provisions shows that the first authorized an entry by the trustee in case interest was defaulted for six months, and retention and operation of the property until such interest was paid from the profits. Action under this provision was wholly at the will of the trustee. The bondholders had no voice or compelling power in its exercise. The second provision was for a public nonjudicial sale by the trustee. To the default of interest specified in the preceding section there was added default in payment of bond principal, and there was superadded a clause empowering a majority in value of the bondholders, on giving indemnity for costs, to compel the trustees to make such nonjudicial sale. The third provision, it will be noted, is for the same defaults, authorizing the entry of judicial procedure by the trustee. It is contended by the respondents that, by this last provision, the trustee could not resort to such judicial proceedings to foreclose unless upon the request of one-third of the bondholders. By the complainants it is contended that the language used was not a limitation upon the right of the trustee to resort to judicial proceedings, but conferred on the bondholders the power to compel the trustees to do that which the default made it lawful and discretionary for it to do without such request. After careful consideration, we are of opinion the contention of the complainant is right. It is the natural construction of the language used, and is in accord with the general scheme of the mortgage. The first provision defines what it shall be lawful for the trustee to do in the way of simple entry and taking temporary possession. This provision, within the scope of its operation, broadly empowers such trustee to act, but imposes no duty upon him to do so, and empowers the bondholders to impose none. In the broad, untrammeled enabling power thus vested in the trustee, we find the construction and scope of the term 'it shall be lawful,' as employed in this mortgage. In the second provision, relating to nonjudicial sales, we find the same thought in the words 'it shall also be lawful,' but find an added duty is cast on the trustee; that is, on request of a majority of the bondholders, the trustee is compelled to sell. That this is the proper construction of this clause there can be no question. Any other reading is a distortion of words. Now, the same general idea is found in the provision for judicial proceedings. The same words, 'it shall also be lawful,' are found, and serve to indicate untrammeled enabling power vested in the trustee, while introduced by the copulative 'and,' in conformity with the preceding provision, is the act which the bondholders can compel the trustee to perform. To read the terms, 'it shall also be lawful,' and, 'and it shall be the duty of the trustee,' as synonymous, and simply imposing a duty on the trustee at the request of the bondholders, is to deny the first phrase the meaning it unquestionably bears in the two preceding sections. Such construction would vest the trustee with the broadest discretion to make a nonjudicial sale, where he could easily abuse the power, and shear him of all personal discretion in seeking a remedy by a judicial sale, where the court could check any abuse of discretionary power. To warrant such construction, the language should be so explicit that no other was possible. After careful consideration, it is clear to us that the provision in reference to the bondholders was an enabling power, to be exercised at their option, and not a limitation or shearing of the right of the trustee to foreclose. We are therefore of opinion the trustee had a right to file the present bill without a prior request by one-third of the bondholders.

This brings us to the second question, namely, whether the Penn Plate-Glass Company or W. L. Kann, the subsequent purchasers of the mortgaged premises, can question the validity of the mortgage in suit. It will be noticed that the mortgagor is not contesting the right to foreclose or the validity of the mortgage. The mortgage is assailed by the successive purchasers, to wit, Kann and the Penn Plate-Glass Company. In examining the authorities cited, we must distinguish between those bearing on the question whether a purchaser has personally assumed payment of an existing incumbrance, and those which involve the question whether he takes subject to it. The question now before us is whether the purchasers took the land incontrovertibly subjected to the lien of the prior incumbrance, to wit, the mortgage in suit. This is a mixed question of fact...