Fidelity Trust Co. v. Washington-Oregon Corp.

• Decision Date: 29 October 1914
• Docket Number: 15.
• Citation: 217 F. 588
• Parties: FIDELITY TRUST CO. v. WASHINGTON-OREGON CORPORATION et al. (KIERNAN et al., Interveners).
• Court: U.S. District Court — Western District of Washington

217 F. 588

FIDELITY TRUST CO. v. WASHINGTON-OREGON CORPORATION et al. (KIERNAN et al., Interveners).

No. 15.

United States District Court, W.D. Washington, Southern Division.

October 29, 1914

[Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Maurice A. Langhorne and F. D. Metzger, both of Tacoma, Wash., and Randolph W. Childs, of New York City, for complainant.

Charles H. Carey and James B. Kerr, both of Portland, Or., for interveners.

CUSHMAN District Judge.

This suit is one to foreclose a mortgage, and the matter is now before the court upon complainant's motion to dismiss the complaint in intervention of certain bondholders under the mortgage. In the alternative, motion is made to strike certain portions of the complaint in intervention. Objection is also made to the interrogatories filed by the interveners.

The defendant Washington-Oregon Corporation, mortgagor, is a Washington corporation owning and heretofore operating certain electric, gas, and water plants in Washington and Oregon. Complainant is a Pennsylvania corporation. The mortgage was given to secure $5,000,000, par value, of bonds, $1,700,000 of which have been certified by the trust company, to the Washington-Oregon Corporation, all of which have been negotiated, save $5,500, face value, and of those negotiated $131,000, face value, have been retired, leaving outstanding $1,563,500, face value.

Certain property has been acquired by the Washington-Oregon Corporation, since the execution of the mortgage, which is claimed to be covered by it, and certain other property has been sold by the mortgagor and released from the mortgage. The mortgagor defaulted in the payment of interest on the bonds secured by the mortgage April 1, 1914. A majority of the bondholders elected to consider the whole debt due, and requested complainant to begin foreclosure of the mortgage. Suit for that purpose was begun July 31, 1914, and a receiver appointed for the property.

The bill in intervention asks the removal of complainant, as trustee under the mortgage, alleging unfitness upon its part to further act as such, and sets forth grounds claimed to entitle the intervening bondholders to special relief against certain majority bondholders, at whose request the trustee began foreclosure proceedings.

The bill in intervention charges that the trustee is disqualified because it has failed to appoint an agent for the service of process, as required by chapter 354, Laws of Oregon for 1913. The mortgage herein sought to be foreclosed was executed in 1911. The Oregon act referred to provides:

'No foreign copartnership, firm, joint-stock company, association or corporation shall hold real or personal property in trust in this state, nor act in any trust or fiduciary capacity therein, unless it shall have complied with all the provisions of this act: Provided, that a corporation qualified to act as a trust company in the state of its domicile may act as trustee for an issue of bonds, debentures or notes issued under the terms of a mortgage or deed of trust duly recorded in some county in this state; and provided further, that such foreign trust company shall have appointed and shall maintain an agent or attorney in this state, upon whom or upon which legal notice or process may be served; and provided further, that this act shall not apply to any foreign copartnership, firm, joint stock company, association or corporation engaged in the business of loaning money on mortgage security, which does not accept deposits or receive from citizens or residents of the state of Oregon property or money in trust, or deposit, or for investment. In case any foreign copartnership, firm, joint stock company, association or corporation whose name contains the word 'trust,' or whose articles of incorporation empower it to do a trust business, desires to engage in the business of loaning money on mortgage security in this state, it shall file in addition to its articles of incorporation or association, a resolution of its governing board, duly attested by its president and secretary, expressly stating that it will not receive deposits in the state of Oregon, or accept from citizens or residents of the state of Oregon, property or money, in trust for investment. ' General Laws of Oregon, c. 354, Sec. 24, p. 730.

Nothing appears in the act to show an intention that it should be retroactive, and, in the absence of such a purpose clearly shown, it will be held prospective only. Chicago Title & Trust Co. v. Bashford, 120 Wis. 281, 97 N.W. 940; Richardson v. U.S. Mtg. & T. Co., 194 Ill. 259, 62 N.E. 606; Keystone Mtg. Co. v. Howe, 89 Minn. 256, 94 N.W. 723; Commonwealth v. Danville, 207 Pa. 302, 56 A. 873; 13 Am. & Eng. Encyc. Law, 881, Sec. 14. In the case of Farmers' Loan & Trust Co. v. Lake Street Elevated Railway Co., 173 Ill. 439, 51 N.E. 55, the trustee was held not eligible and subject to removal when, subsequent to the passage of an Illinois statute providing for the deposit of bonds to a certain amount to the state, it accepted a deed of trust to property in that state without complying with such act.

It is not alleged that the complainant has accepted deposits or received, from citizens or residents of the state of Oregon, property or money in trust, or deposit, or for investment, without which conditions the act, by its terms, would be inapplicable.

It is contended that the trustee is disqualified by reason of the fact that it has consented to act with certain bondholders, conceded to represent over $1,000,000, par value, of the outstanding bonds, in the foreclosure proceedings and contemplated reorganization of the mortgagor and its property. The bill alleges that a bondholders' committee has been selected by such majority, composed of four men, two of whom are trustees of the mortgagor and stockholders therein. The bondholders' agreement contains, among others, the following provisions:

'The company has made default in the payment of the interest on the bonds. The depositors are accordingly desirous of co-operating for mutual protection. This can most effectually be done by so depositing their bonds with the committee that the title thereto shall pass to the committee as trustees for the depositors, with the powers and subject to the restrictions hereinafter stated.

'The depositors, each for himself, but not for others, or any of them, agree with each other and with the committee as follows: * * *

'The committee may limit the time within which, and fix the conditions upon which, deposits may be made hereunder, and may extend the time so limited, and modify the conditions so fixed, and, either generally or in special instances, may, in its discretion and upon such conditions as it may prescribe, accept deposits after the time limited for the deposit of bonds has expired.

'For each such deposit there shall be issued by or on behalf of the depositary to each depositor a certificate of deposit representing the bonds and coupons so deposited. The form of said certificates shall be substantially as is set forth in Schedule A. The deposit of bonds and the acceptance of a certificate of deposit therefor shall have the same force and effect as though the depositor had in fact subscribed his name to this agreement. Pending the preparation of forms of certificates of deposit, temporary certificates of deposit may be issued in such form as the committee may approve. Every certificate of deposit shall show whether or not the coupon or coupons maturing April 1, 1914, were deposited with the bond or bonds for which it was issued. * * *

'Second. The committee, by virtue of the deposit of any bond under the terms hereof, shall be irrevocably invested as trustees with the legal title thereto. The powers of the committee as such trustees shall include all the powers of owners, subject to the restrictions herein expressed. An enumeration of specific powers is contained in a schedule hereto annexed, made a part of this agreement, and marked 'Schedule B.' Such enumeration of specific powers shall not be deemed to limit the generality of the powers hereinbefore granted.'

'The committee shall have authority to instruct the trustee or trustees under any mortgage under which any such bonds have been issued, from time to time, to sell, or refrain from selling, any of the property covered by any of such mortgages; * * * to give such directions to trustees or others, execute such papers, and do such acts, whether under the mortgage or any other instrument, or otherwise, as the committee may deem advisable in order most effectually to secure or promote the benefit of, or conserve the security for the payment of, the bonds, or to collect and enforce the payment of principal and interest of the deposited bonds. * * *

'The committee assumes no obligation, legal or equitable, expressed or implied, to any holder of bonds who shall not, within the periods limited by the committee, deposit his bonds hereunder, or to any other person whomsoever than the holders of certificates of deposit issued in accordance with the terms of this agreement.'

'The depositary shall be bound to exercise only reasonable care in the safekeeping of the deposited bonds or other securities or property deposited with it hereunder, and to deal therewith in accordance with the directions of the committee; and the directions of the committee shall be a complete justification of any action or omission to act of the depositary.'

The form of certificate agreed to contained the following provision:

'The holder hereof assents to and is bound by the provisions of said agreement by receiving this certificate, and is entitled to receive all the securities, benefits, and advantages...