Gasquet v. Fidelity Trust & Safety Vault Co.

• Decision Date: 27 June 1893
• Docket Number: 119.
• Citation: 57 F. 80
• Parties: GASQUET et al. v. FIDELITY TRUST & SAFETY VAULT CO.
• Court: U.S. Court of Appeals — Fifth Circuit

57 F. 80

GASQUET et al. v. FIDELITY TRUST & SAFETY VAULT CO.

No. 119.

United States Court of Appeals, Fifth Circuit.

June 27, 1893

Statement by LOCKE, District Judge:

This is an appeal from an order of the United States circuit court for the southern district of Alabama, setting aside service of notice and process (upon the intervention of the appellants) made on the appellee's solicitors and on the appellee, respectively. On August 15, 1887, the Mobile Street-Railway Company, an Alabama corporation, owned and operated certain street-railway property in the city of Mobile, and also owned 900 shares, of the par value of $90,000, of the capital stock of the Mobile & Springhill Railroad Company, another street-railroad corporation in the city of Mobile. On that date the Mobile Street-Railway Company, to secure an issue of its coupon bonds aggregating $500,000 par value, executed and delivered to the appellee the Fidelity Trust & Safety Vault Company, a Kentucky corporation, a deed of trust or mortgage upon its property including the said 900 shares of stock. The sixth article of the deed of trust provided that this stock should be transferred on the books of the Mobile & Springhill Railroad Company to the trust company, though the voting power and the right to dividends thereon should be retained by the Mobile Street-Railway Company until default in the payment of the said bonds and coupons. The seventh article of the deed of trust provided that, in case of default in the payment of interest on the said bonds continuing for three months, the principal of the bonds should forthwith become due and payable, and the trustee should thereupon have the right to enter into possession and foreclose, and, 'with or without the aid of proceedings in equity, as it may be advised, proceed to sell' the mortgaged property including the 900 shares of stock; the net proceeds of the property to be applied to the payment of the principal and interest due on the said bonds. The appellants duly purchased and became the owners of more than $400,000 par value of the said bonds, or nearly the entire issue. The Mobile Street-Railway Company failed to pay the interest due on July 1, 1891, and January 1, 1892. On January 20, 1892, the appellee filed its bill of complaint in the United States circuit court for the southern district of Alabama against the Mobile Street-Railway Company alone, setting up the issuance of said bonds, the execution of the deed of trust, and the default in the payment of taxes and of the said interest. The substance of the deed of trust is set out in the bill of complaint, and a copy of it is attached to and made a part thereof. The prayer of the bill of complaint is as follows, viz.: 'Wherefore, the premises considered, orator prays your honor to take jurisdiction of the subject-matter of this bill, and to decree that there is a default in said mortgage, and that said principal and accrued interest on said bonds are presently due and payable, and will ascertain the amount thereof, and will decree that on default of payment thereof within a reasonable time to be fixed by the honorable court, the said railroad property and franchises and other property described in said deed of trust, and the said hypothecated stock of the Mobile and Springhill Railroad Company, may be sold in such manner as may seem to be best for the interest of the trust represented by orator, and that the said railway company may be required to join in such conveyance of said property to the purchaser thereof, if deemed proper. Or that your honor may grant to your orator such other, further, or different relief in the premises as in equity and good conscience it ought to have.'

Upon the filing of the bill of complaint, a receiver was moved for and appointed and put in charge of the mortgaged property. A decree pro confesso was subsequently rendered against the railway company, and a decree rendered upon the pleadings, ascertaining and decreeing that default had been made in the payment of the interest upon the bonds; that the complainant was entitled to relief, and the foreclosure of the deed of trust, and a sale of the property described therein. A reference to a special master was ordered, to ascertain and report the amount of the bonds and coupons secured by the deed of trust; the amount of the debt and interest thereon; what property came into the hands of the receiver, and what property was covered by the description contained in the deed of trust; what allowances should be made to the trustee for compensation and disbursements; what allowances should be made to the receiver and his attorneys; what allowances should be made to the trustee's attorneys for services in this proceeding and as advisory counsel in the matters relating to the trust; the amount of costs and expenses accrued and likely to accrue in the cause; the names of the various bondholders, and the number of bonds held by each; and what amount of the purchase money should be paid in cash upon the sale of the property.

The master made his report upon these matters, and the court then ordered the sale of the property, including 900 shares of stock. Before the property was actually sold, and before the report of the master was confirmed, the appellants, on behalf of themselves and of all other holders of bonds secured by the deed of trust, presented to the court a petition to be allowed to intervene in the cause, and to file their petition in the nature of a cross bill against the trustee, seeking to require it to account to the bondholders for a diminution in the value of the trust property, caused by a willful breach of trust on the part of the trustee, in accepting and attempting to execute a subsequent and conflicting trust upon the property represented by the 900 shares of stock, by allowing a mortgage to be placed upon that property for the benefit of other persons, and by actually agreeing, as trustee thereunder, to enforce that mortgage, and thus to nullify the security afforded by the 900 shares of stock.

The petition alleges the execution of the deed of trust by the Mobile Street-Railway Company to the appellee, its...