Hotel Company v. Wade

• Decision Date: 01 October 1877
• Parties: HOTEL COMPANY v. WADE
• Court: U.S. Supreme Court

97 U.S. 13

24 L.Ed. 917

HOTEL COMPANY v. WADE.

October Term, 1877

APPEAL from the Circuit Court of the United States for the District of Nebraska.

This is a bill filed Sept. 24, 1873, by Jeptha H. Wade, a citizen of Ohio, and James W. Bosler, a citizen of Pennsylvania, against the Omaha Hotel Company, a corporation of Nebraska, Milton Rogers, Thomas Wardell, Edward Creighton, Augustus Kountze, Herman Kountze, Andrew J. Poppleton, Henry W. Yates, Edward D. Pratt, Charles W. Hamilton, and others, citizens of that State, to foreclose a mortgage of certain lands in Omaha, and the hotel and other buildings then or thereafter to be erected thereon, executed by that company Sept. 1, 1871, to said Rogers, as trustee, to secure one hundred coupon bonds for $1,000 each, issued by it, and payable in five years, with interest at twelve per cent per annum, payable September 1 and March 1 in each year. It was, among other things, covenanted that the company should keep the hotel insured for not less than $100,000, by good and responsible companies, and assign the policy for the benefit of the bondholders that it should pay all taxes and assessments, general or special, on the premises; and that the sum raised by the mortgage should, under the management, direction, and control of the company, be faithfully and honestly applied to the completion of the hotel. The condition was, that if the company 'shall well and truly pay the interest on said bonds, as it becomes due, and the principal at maturity, and perform each and every other covenant and agreement herein, then this conveyance shall be void; otherwise, to remain in full force and effect. And in case of a failure to pay the interest according to the tenor and effect of said bonds, or to perform any other covenant or agreement herein contained, then, in that case, not only the interest but the principal of said bonds shall become due and payable; and the said party of the second part or his successors shall have the right to take immediate possession of said property, foreclose this mortgage, and sell said mortgaged premises.' . . .

The bill alleges that the bonds were, immediately upon their execution, delivered to Creighton and other parties, who advanced the $100,000, which was duly expended by the company as required by the mortgage; and that on July 25, 1873, Wade, in the usual course of business, and without knowledge of any defences thereto, purchased in good faith from Creighton thirty-five of the bonds, and that on the 23d of that month, Bosler, in like manner, purchased from Augustus Kountze forty of them, both purchases having been made without any knowledge, suspicion, or reason to suspect that any overdue coupons theretofore attached to said bonds had not been paid, and that Wardell holds the remaining twenty-five bonds. It also alleges that, save that due March 1, 1872, no interest has been paid on the bonds, but that the past-due coupons are held by Creighton, Augustus Kountze, Herman Kountze, and Yates, who claim to be interested in the security of the mortgage; that the coupons held by the complainants, and due Sept. 1, 1873, were duly presented by them for payment, and payment having been refused, they were protested, and notice thereof given to the company; that default was made in the payment of State and county taxes due on the property in December, 1872, on which account it was sold, Sept. 8, 1873, Augustus Kountze becoming the purchaser, and that it was again, on the 18th of that month, sold for the non-payment of taxes to the city of Omaha; that since Sept. 5, 1873, the premises have been insured but for $40,000; and that the company has, by the foregoing and other breaches of its covenants, caused the principal as well as the interest of the bonds to become due and payable. It further alleges that the complainants applied to the said trustee to take possession of the premises, and bring an action to foreclose the mortgage, offering to indemnify and save him harmless from all costs and expenses, but that he refused so to do; and that they applied to Wardell, Creighton, Poppleton, Augustus Kountze, Herman Kountze, and Yates to join in such a suit, but that they and each of them declined. The bill prays for a receiver, an account, a sale of the mortgaged premises, and general relief.

Separate answers were filed by Pratt and Hamilton, by Caldwell and others, and by the Hotel Company. The answer of the latter, after insisting that the bill was defective for want of proper parties, and that therefore the court had no jurisdiction of the suit, sets up certain defences, which are stated in the opinion of the court.

There was a decree for the complainants; whereupon the Hotel Company, and certain other of the respondents, brought the case here.

Mr. Clinton Briggs for the appellants.

In order to sustain the jurisdiction of the court below, each and all of the bond and coupon holders were indispensable parties complainant. The practice of courts of general jurisdiction, where those who refuse to join as complainants may be impleaded as defendants, cannot obtain in the Circuit Court of the United States, where jurisdiction depends upon the citizenship of the parties. There the controversy must be between citizens of different States, not between those of the same State. The only difficulty is, to determine who are and who are not indispensable parties. Russell v. Clark's Executors, 7 Cranch, 69; Shields et al. v. Barrow, 17 How. 130; Coal Company v. Blatchford, 11 Wall. 172; Knapp v. Railroad Company, 20 id. 117; Case of the Sewing-Machine Companies 18 id. 553; Williams et al. v. Bankhead, 19 id. 563; Ober v. Gallagher, 93 U. S. 199.

The act of March 3, 1875, enlaring the jurisdiction of the Circuit Court, does not change the rule that each plaintiff must be competent to sue, and each defendant liable to be sued.

In a matter so vital as that of jurisdiction, the court will consider who are the real actors. McNutt v. Bland et al., 2 How. 9; Huff et al. v. Hutchinson, 14 id. 586.

The bonds and mortgage are invalid, by reason of the trust relation which the lenders of the money, who were a majority of the board of directors of the company, sustained to the stockholders. Michoud et al. v. Girod et al., 4 How. 503; Koehler v. Black River Falls Iron Co., 2 Black, 715; Drury v. Cross, 7 Wall. 299; Jackson v. Ludeling, 21 id. 616; Stephen v. Beall, 22 id. 329; Twin-Lick Oil Co. v. Marbury, 91 U. S. 587; Luxemburg Railroad Co. v. Macquay, 25 Beav. 586; Cumberland Coal Co. v. Sherman, 30 Barb. (N. Y.) 553; Railroad Company v. Poor, 59 Me. 277; San Diego v. Railroad Company, 44 Cal. 106; Goodwin v. Railroad & Canal Company, 18 Ohio St. 182.

The interest contracted for and received by the lenders of the money was usurious. Bank of the United States v. Owens et al., 2 Pet. 527; Brown v. Vanderburgh, 43 N. Y. 195; Creig v. Bliss, 26 Pa. 271; Feidler v. Darrin, 50 N. Y. 437.

Mr. J. M. Woolworth, contra.

MR. JUSTICE CLIFFORD delivered the opinion of the court.

Jurisdiction of the circuit courts, concurrent with the courts of the several States, under the existing act of Congress, is extended, where the matter in dispute exceeds the sum or value of $500, to all suits at common law or in equity in which there shall be a controversy between citizens of different States, without any exception or qualification, employing the very words contained in the Constitution. 18 Stat. 470; Const., art. 3, sect. 2.

Motives of a public character induced certain residents of the city of Omaha to become organized as a corporation, to facilitate their efforts to erect a hotel at that place. Expenditures to a large amount were incurred by the Hotel Company in purchasing the lot and in erecting and enclosing the building; and, being unable to complete the same without pecuniary aid from others, they decided to mortgage the premises to raise the necessary funds for the purpose.

Arrangements were first attempted, and partly perfected, to make a loan of $75,000; but it was soon after determined that it would require $25,000 more to accomplish the object. Negotiations of various kinds ensued, which resulted in a vote of the stockholders in favor of the proposition ultimately carried into effect, to borrow $100,000 to complete the hotel.

Action of a corresponding character was had by the board of directors; and they voted to accept the proposition made to the stockholders, and directed the president and secretary of the company to execute, acknowledge, and deliver to Milton Rogers, trustee, a mortgage or trust deed of the hotel lot and building, as more fully set forth in the record.

Bonds of the company executed to bearer, with interest coupons attached, to the number of one hundred, each for the sum of $1,000, with interest at the rate of twelve per cent, payable semi-annually, were issued, the principal payable in five years, with the privilege to the company of paying the same two years earlier. Payment of the bonds, principal and interest, was secured by the mortgage or trust deed executed by the president and secretary of the company, in pursuance of the aforesaid vote of the board of directors to carry into effect the proposition previously adopted by the stockholders at their meeting duly notified and held for the purpose.

Covenants alleged to have been broken are the following: 1. That the company shall keep the hotel building insured in good and responsible companies, to be agreed between the parties, in the sum of not less than $100,000, and that the company shall assign the policies to the trustee, for the benefit of the holders of the bonds. 2. That the company shall pay all taxes and assessments upon the mortgaged premises. 3. That the sum raised by the mortgage shall be applied to the construction and completion of the hotel building. 4. That the company shall well and truly pay the interest as it becomes due, and the principal at maturity; and the...