Farmers Loan Trust Company v. Penn Plate Glass Company

• Decision Date: 02 June 1902
• Docket Number: No. 180,180
• Citation: 46 L.Ed. 1234,22 S.Ct. 842,186 U.S. 434
• Parties: FARMERS' LOAN & TRUST COMPANY, Trustee, Petitioner , v. PENN PLATE GLASS COMPANY et al
• Court: U.S. Supreme Court

186 U.S. 434

22 S.Ct. 842

46 L.Ed. 1234

FARMERS' LOAN & TRUST COMPANY, Trustee, Petitioner,

v PENN PLATE GLASS COMPANY et al.

No. 180.

Argued April 24, 25, 1902.

Decided June 2, 1902.

This is a suit in equity, brought by the petitioner in the United States circuit court for the western district of Pennsylvania, and the case comes here on certiorari to the circuit court of appeals for the third circuit. The suit was commenced to foreclose a mortgage given January 1, 1891, by the Pennsylvania Plate Glass Company (hereinafter called the mortgagor company upon its property in the county of Westmoreland and state of Pennsylvania, to complainant, the Farmers' Loan & Trust Company, a corporation of New York, to secure the payment of $250,000 of bonds then to be issued by the mortgagor company. A supplemental bill was filed, by leave of the court, which averred a loss by fire of a large portion of the premises mortgaged, and on the allegations contained in the supplemental bill the complainant asked that a decree should be entered granting to it a lien on the insurance moneys to the extent necessary to pay the bondholders the balance which might be due, after applying to their payment the proceeds of the sale of the property mortgaged. A decree was entered by direction of the circuit court, providing for the foreclosure and sale of the property and for the application of the insurance moneys as prayed for. Upon appeal to the circuit court of appeals the decree of the circuit court was reversed as to the insurance moneys, and the court below was directed to enter a decree that those moneys should be paid to the defendant, the Penn Plate Glass Company, Circuit Judge Acheson dissenting. The opinion of the judge of the circuit court, as well as those delivered in the circuit court of appeals, will be found reported in 43 C. C. A. 114, 103 Fed. 132.

The material facts in the case are as follows: The Farmers' Loan & Trust Company is a corporation of the state of New York. The defendant, the Pennsylvania Plate Glass Company (the mortgagor company), is a corporation of the state of Pennsylvania, organized for the purpose of constructing and operating plate-glass works in the city of Irwin in that state. The defendant, the Penn Plate Glass Company, is also a corporation of the state of Pennsylvania, and is also organized for the purpose of constructing and operating plate-glass works in the same city. The defendant William L. Kann is a citizen of the state of Pennsylvania. On January 1, 1891, the mortgagor company executed to the complainant trust company a mortgage on its property in Westmoreland county, Pennsylvania, to secure the payment of $250,000 of bonds as therein stated. Among other things, it was provided by article 1 of the mortgage that, until default should be made in the payment of the principal or interest of the bonds secured by the mortgage, or in the performance of some one or more of the covenants, stipulations, or agreements required by the mortgage to be kept, performed, or done by the mortgagor, it was to be permitted to possess and operate the premises and glass works with the appurtenances described in the mortgage.

By articles 2 and 3 it was provided that in case dafault should be made in the payment of any instalment of the interest on any of the bonds or of any of the coupons accompanying the same, or in the performance of any of the covenants, agreements, or stipulations contained in the mortgage and thereby required to be kept and performed by the mortgagor, and if such default continued for six months after demand made in writing, the mortgagee might take possession of the property, or foreclosure proceedings might be taken.

By article 4 the mortgagor is exempted from all personal liability for the mortgaged debt, and from the obligations of the other covenants contained in the mortgage, the article providing as follows:

'It being expressly understood and agreed by and between the parties hereto, and by and between the said party of the first part and the respective holders of the said several bonds, collectively, that no other suit or proceeding for the collection of any part of the principal or interest represented by the said bonds and coupons shall ever be commenced or prosecuted, either against the party of the first part, or any of its officers, directors, or shareholders, either by the said holders of the said bonds or coupons or any of them, or by any person or corporation to whom the same or any of them may be assigned or transferred, except such suits or proceedings as shall be necessary to recover the possession of the said premises thereby conveyed or to subject the same to the payment of the said debts and that the sale of the said mortgaged premises, whether under the power of sale hereby granted, or any other power of sale, or by or under any judicial proceedings whatsoever, shall operate as a full and complete satisfaction and discharge of the indebtedness of the said party of the first part upon the said bonds and the coupons accompanying the same, and of the obligation of the covenants herein contained, whether the said premises shall be bidden in for the whole amount of said indebted ness or for a less price, anything in the said bonds and coupons or therein contained, to the contrary thereof notwithstanding.'

It was provided by article 10, among other things, as follows:

'The right of action under this indenture is vested exclusively in the trustee, and under no circumstances shall any bondholder or bondholders have any right to institute an action or other proceeding on or under this indenture, for the purpose of enforcing any remedy herein and hereby provided, or of foreclosing this mortgage, except in case of refusal on the part of the trustee to perform any duty imposed on it by this agreement; and all actions and proceedings for the purpose of enforcing the provisions of this indenture shall be instituted and conducted by the trustee, according to its sound discretion; but the trustee shall be under no obligation to institute any such suit or to take any proceedings under this indenture, or to enter any appearances, or in any way defend in any suit in which it may be made defendant, or to do anything whatever as trustee until it shall be indemnified to its satisfaction from any and all costs and expenses, outlays and counsel fees, and other reasonable disbursements, and from all possible claims for damages, for which it may become liable or responsible on proceeding to carry out such request or demand. The trustee may, nevertheless, begin suit, or appear in and defend suit, or do anything else in its judgment proper to be done by it as such trustee, without such indemnity, and in such case it shall be compensated therefor from the trust fund.

'The trustee shall be under no obligation to recognize any person as holder or owner of any bonds secured hereby, or to do or refrain from doing any act pursuant to the request or de- mand of any person, until such supposed holder or owner shall produce said bonds and deposit the same with the trustee.

'It shall be no part of the duty of the party of the second part to file or record this indenture as a mortgage or conveyance of real estate, or as a chattel mortgage, or to renew such mortgage, or to procure any further, other, or additional instrument of further assurance, or to do any other act which may be suitable and proper to be done for the continuance of the lien hereof, or for giving notice of the existence of such lien, or for extending or supplementing the same; nor shall it be any part of its duty to effect insurance against fire or other damage on any portion of the mortgaged property, or to renew any policies of insurance, or to keep itself informed or advised as to the payment of any taxes or assessments, or to require such payment to be made; but the trustee may, in its discretion, do any or all of the matters and things in this paragraph set forth, or require the same to be done. It shall only be responsible for reasonable diligence in the performance of the trust, and shall not be answerable in any case for the act or default of any agent, attorney, or employee selected with reasonable discretion; it shall be entitled to be reimbursed for all proper outlays of every sort or nature by it incurred in the discharge of its trust, and to receive a reasonable and proper compensation for any services that it may at any time perform in the discharge of the same; and all such fees, commissions, compensations, and disbursements shall constitute a lien on the mortgaged property and premises.'

Many other provisions and conditions were contained in the mortgage, which are not material to be mentioned.

Most of the moneys arising from the issuing of these bonds were applied towards the construction of the plant of the mortgagor company at its place of business in the city of Irwin, Pennsylvania. The company soon got into financial difficulties, and about January, 1894, the defendant Kann became a stockholder therein and was elected its treasurer. By March 19, 1894, the company had become involved in litigation, and was very greatly embarrassed financially, and some of the other officers of the company had disagreements with Kann in regard to his advances of money, so that on the day last named a bill in equity was filed against the company, in the name of some of its creditors and directors, in the court of common pleas of Westmoreland county, Pennsylvania, praying, among other things, for the appointment of a receiver of the property of the company, and for a decree winding up its business. In that suit Joseph W. Stoner, the then secretary of the company, was appointed receiver, and such proceedings were had therein that on or about June 18, 1894, the court made an order for the sale of all the property of the mortgagor company, and the same was sold at public auction to defendant Kann for the sum of $37,500, he...