Guaranty Trust Co v. Green Cove Springs Melrose Co

Decision Date09 March 1891
CourtU.S. Supreme Court

This was an appeal from a decree of the circuit court for the northern district of Florida dismissing a bill of foreclosure filed by the appellant to which the Green Cove Springs & Melrose Railroad Company, the Western Railway Company, the Green Cove Springs & Midland Railroad Company, and a number of other individual defendants were made art ies. The mortgage or deed of trust was made June 20, 1882, by the Green Cove Springs & Melrose Railroad Company to the plaintiff to secure its bonds, and the bill averred $25,000 of such bonds to be outstanding and unpaid, and also contained the usual allegations with regard to the non-payment of interest coupons. The bill further averred, in substance, that the company had lost possession of its road and other property, which was in the possession of and operated by other parties under a pretended sale made August 3, 1885, in pursuance of certain judicial proceedings in the circuit court of Clay county, Fla., but claimed that, notwithstanding such sale, its lien under the mortgage was not discharged or extinguished. These proceedings were instituted by certain persons composing the firm of Budington, Wilson & Co., who, on July 25, 1884, began a suit in equity in the circuit court for Clay county against such railroad company and one Canova, in which the plaintiff, the Trust & Safe-Deposit Company, was also mentioned in the stating part of such bill as defendant. It appeared that such suit was begun to enforce a statutory lien for work and labor; that there was no prayer for a foreclosure of plaintiff's deed of trust, nor other relief against the grantee in said deed; nor was any case stated in hostility to the deed or the lien thereunder. It was further alleged that an attempt was made to serve the grantee in the deed by a publication of a notice in accordance with the statute of Florida in the case of a non-resident defendant, but that such statute was not complied with; that no notice was ever served upon the plaintiff, either by publication or otherwise, and the court had no jurisdiction of the person of the plaintiff in such suit, and the sale thereunder was null and void; that at no time before or at the commencement of the publication of the order to appear, nor at any time during the publication of said order, did the state court take possession of said road, or of any of its property, by attachment, receiver, or other process made or issued in said suit; that on January 16, 1885, a decree pro confesso was entered for want of the appearance of plaintiffs therein; that on March 11, 1885, the firm of Budington & Wilson, a distinct and separate firm from Budington, Wilson & Co., and one Osias A. Budington, intervened in said suit by petition, and alleged a new and distinct cause of action against the defendant railroad company not stated in the original bill of complaint, namely, a statutory lien for labor performed for the sum of $1,700, and said Budington also averred that he had recovered a judgment against said company for the sum of $1,012.50, and they prayed for leave to prove their claims in said suit. But neither of the said intervenors prayed any relief against the grantee in the deed of trust, nor did either of them, nor did any person in their behalf, serve, or attempt to serve, any notice on said grantee of the filing of said petition, nor the claims therein asserted. It was further alleged that on the 12th of November, 1884, the several parties who had appeared in the said suit entered into an agreement for a sale of the road, which took place on August 3, 1885, the defendant Greely becoming the purchaser, as trustee for himself and all others who had filed claims or demands against said company, for the sum of $20,000; and that subsequently, and under an agreement of the various creditors of the road who had transferred their claims to Greely, consenting that he should organize a new company, he executed a lease of the road to a corporation known as the 'Western Railway Company,' by which it was agreed that such company should pay, by way of rent, 8 per cent. per annum upon a valuation of $30,000, for five years. The bill further charged that 'the feeble defense and supineness and indifference to the interests of the said bondholders on the part of the said Green Cove Springs & Melrose Railroad Company, its directors and officers, as shown by the said judicial proceedins i n said state court, if the same was intended to affect and destroy the lien of said deed of trust, was and is a fraud upon the rights of the said trustee and said bondholders;' that the sale and subsequent proceedings were fraudulent, and should be vacated and set aside; 'that said company, grantor in said deed of trust, in effect consented to a sale of said road to pay simple contract debts and demands, which were not a lien upon its property paramount to said lien created by said deed of trust, and many of which had not been reduced to judgment;' that every lien for work and labor performed was declared by the decree of the court in favor of persons who were not parties to the original bill of Budington, Wilson & Co., but who had come into said cause long subsequent to the decree pro confesso, and asserted their claims thereafter, of which said grantee and bondholders had no knowledge whatever; that the aggregate amount of the said statutory liens so found to exist was less than $700; that no time for redemption was allowed, but, on the contrary, 'a decree of sale was made before the indebtedness claimed to be due was ascertained, whereby no party in interest was given any time or opportunity to redeem or pay said indebtedness.' The bill prayed for a receiver and injunction against the transfer or incumbering of the road; a decree of foreclosure of the deed of trust; and for a decree declaring the sale under the judicial proceedings in the state court to be null and void, as against the plaintiff and the bona fide holders of any of its bonds.

Two answers were filed to the bill, which presented three distinct defenses: First, that the mortgage or deed of trust required that 60 per cent. in value of the outstanding bondholders should request the trustee in writing to initiate proceedings, and that no such request was alleged in the bill; second, that plaintiff herein, the Guaranty Trust & Safe-Deposit Company was a party defendant to the proceedings in the state court, was bound by the decree and sale in that court, and that such sale extinguished the lien of the mortgage sought to be enforced in this suit; third, that there were no bonds of the railroad company which executed the mortgage to the plaintiff legally outstanding, and consequently it had not sufficient interest or title to maintain its suit. A decree was entered in the circuit court dismissing the bill, but no opinion appeared to have been delivered or filed.

H. Bisbee, for appellant.

John C. Cooper, for appellee.

Mr. Justice BROWN, after stating the facts as above, delivered the opinion of the court.

1. The answer of Philip J. Canova raises an objection to the maintenance of this bill in the fact that 60 per cent. in value of the bondholders had not requested action upon the part of the trustee, as required by the trust-deed, which, in covenant numbered bered second, provides, in substance, that, in case of default after demand made, for a period exceeding twelve months, to pay the semi-annual interest upon the bonds, or for a period exceeding six months to pay the principal of such bonds, 'it shall be the duty of the said trustees for the time being, and they shall or will, upon written request of the holders of sixty per centum of the said bonds then outstanding, enter upon and take possession of the said railroad property and estate,' and operate the same, appropriating the net income to the best advantage, etc., 'or the said trustee shall and will, after or without entering upon or taking such possession, upon the written request of the holders of bonds of a like amount, proceed upon and under this indenture of mortgage to sell the railroad property and estate, * * * at public sale, in the city of Philadelphia, first giving at least four weeks' notice by publication,' etc., 'and grant and convey the same to the purchaser, freed from all and every trust hereby created,' etc.

As there is no averment in the bill that 60 per cent. of the oner § of the outstanding bonds had requested action on the part of the trustee, it is insisted that these proceedings were instituted without authority, and the case of Railroad Co. v. Fosdick, 106 U. S. 47, 77, 1 Sup. Ct. Rep. 10, is claimed to be decisive of this question. In that case, which was a bill for foreclosure, the proviso was that the trustee, upon the written request of the holders of a majority of the bonds then outstanding, should proceed to collect both principal and interest of all such bonds outstanding, by foreclosure and sale of said property, or otherwise, as therein provided. It was argued that the office of this clause was merely to make the obligation of the trustees imperative instead of optional, but the court held that the whole article must be taken together as a unit, and 'the nature of the provision and the character of its object must be taken into consideration as furnishing the rule of its interpretation.' It will be observed, however, that the proviso was directed against the very proceeding taken by the trustee in the suit, namely, a foreclosure and sale of the property; while in the present case it is directed only to a taking possession, or a sale under the deed of trust, without the institution of legal proceedings.

*A case nearer in point is that of Morgan's, etc., S. S. Co. v. Texas Cent. Ry. Co., 137 U. S. 171, ante, 61, (decided at the present term,) in which the condition was that on default...

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