First Nat. Bank of San Francisco v. Detroit Trust Co.

• Decision Date: 04 February 1918
• Docket Number: 2912.
• Citation: 248 F. 16
• Parties: FIRST NAT. BANK OF SAN FRANCISCO et al. v. DETROIT TRUST CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

248 F. 16

FIRST NAT. BANK OF SAN FRANCISCO et al. v. DETROIT TRUST CO. et al.

No. 2912.

United States Court of Appeals, Ninth Circuit.

February 4, 1918

John C Hogan, of Aberdeen, Wash., C. S. Cushing and Cushing &amp Cushing, all of San Francisco, Cal., and Hughes, McMicken Dovell & Ramsey, of Seattle, Wash., for appellants.

MacCormac Snow, of Portland, Or., for appellee Detroit Trust Co., and others.

Snow McCamant & Bronaugh, of Portland, Or., and J. B. Bridges and Theo. B. Bruener, both of Aberdeen, Wash., for other appellees.

On September 1, 1910, the S. E. Slade Lumber Company mortgaged a large tract of timber lands in Grays Harbor county, Wash., and a sawmill plant in the city of Aberdeen, Wash., to the Detroit Trust Company and Alexander McPherson, as trustees, to secure an indebtedness of $1,000,000. On March 1, 1915, the Lumber Company made a second mortgage to the Detroit Trust Company to secure an indebtedness of $69,000. On April 30, 1915, certain creditors of the Lumber Company, to wit, the American National Bank of San Francisco, Welch & Co., the United States National Bank of Portland, the Slade-Wells Logging Company, the Humptulips Logging Company, the First National Bank of San Francisco, the Coats-Fordney Logging Company, the Saginaw Timber Company, and the Sudden Estate Company, entered into an agreement for the purpose of securing their claims and providing for the advancement for a period of one year, and optionally for two years, of money sufficient to pay the interest on the first mortgage bonds, the interest on the second mortgage, and the taxes and insurance premiums on the property, on condition that the first mortgagee would for one year, and provisionally for two years, waive the collection of the principal of the maturing bonds secured by the first mortgage. Thereupon, to protect said unsecured creditors, the Lumber Company executed to the First Federal Trust Company and to Milton R. Clark, as trustees, a mortgage on the property covered by the first and second mortgages and on other property. Said creditors' agreement provided that the parties thereto should be represented by a committee consisting of Kennedy, representing the First National Bank of San Francisco, Bowles, representing the American National Bank of San Francisco, and Welch, representing Welch & Co., which committee was given power to act unanimously only, and not by a majority, and the third mortgage provided that the trustees therein should be under no obligation or duty to perform any act thereunder, unless requested in writing by the representatives so appointed, and that the trustees should have the exclusive right of action under the mortgage, and that none of the beneficiaries should be entitled to commence any action, unless the trustees should refuse or fail so to do when properly requested.

On August 3, 1916, the appellees herein commenced their suit to foreclose the first and second mortgages. Thereafter they filed a petition for the appointment of a receiver, with power to take possession of the mortgaged property and to manage and operate the same by logging contract or otherwise. To this petition the Humptulips Logging Company and Slade-Wells Logging Company assented, and Bowles and Welch, two of the three members representing the creditors, requested the appointment of a receiver as prayed for, as did also the American National Bank of San Francisco and Welch & Co. The receiver was appointed and, with the approval of the court, entered into a logging contract with the Humptulips Logging Company. Thereafter the appellants herein petitioned the court to vacate the order appointing the receiver with power to operate, alleging that the trustees of the third mortgage were under no obligation to perform any duty under that mortgage, unless requested so to do in writing, by the duly appointed representatives, and had not appeared in or taken any action in the premises; that the American National Bank of San Francisco and Welch & Co., which had joined in a request for the appointment of a receiver, had refused to join with the petitioners or to request the trustees to act in the premises. The trustees under the third mortgage made no appearance in the suit. They, however, brought an independent suit against all the beneficiaries under that mortgage for instructions as to their powers and duties, and after hearing the court decreed in that suit that, in the absence of unanimous instructions from Kennedy, Bowles, and Welch, the trustees were under no obligation to appear in the foreclosure suit, and the court by its order authorized all of the beneficiaries under the third mortgage to appear in the suit and take such action as they might deem proper. Thereupon the American National Bank of San Francisco, Welch & Co., United States National Bank of Portland, Slade-Wells Logging Company, and Humptulips Logging Company, being a majority in number and amount of the beneficiaries under the third mortgage, filed an answer in the foreclosure suit, alleging that, under the terms of the creditors' agreement and the third mortgage, the appellants had no right to appear and contest the appointment of a receiver with power to operate, and alleging that, if the beneficiaries under the third mortgage are proper parties defendant, then the order of the court appointing a receiver with power to operate and enter into a contract with the Humptulips Logging Company should be continued in force.

In support of the appointment of the receiver, with authority to enter into the logging contract, affidavits were presented the substance of which is as follows: That owing to the condition of the timber market the Lumber Company was unable to sell its timber lands or to pay its debts as they matured, and that if the Lumber Company's property were forced to sale it would...