Monticello Building Corp. v. Investment Co.

• Decision Date: 05 August 1932
• Docket Number: No. 31770.,31770.
• Citation: 52 S.W.2d 545
• Parties: MONTICELLO BUILDING CORPORATION, a Corporation, JOHN T. CRAVEN, BERRY P. CRAVEN and EUGENE CRUTCHER v. MONTICELLO INVESTMENT COMPANY, a Corporation, STRAUS BROTHERS INVESTMENT COMPANY, a Corporation, HERMAN S. STRAUSS, Trustee, and MERCANTILE-COMMERCE & TRUST COMPANY, Co-trustee, and BARNETT L. ROSSETT ET AL., Members of Bondholders Protective Committee, HERMAN S. STRAUSS, Trustee, MERCANTILE-COMMERCE BANK & TRUST COMPANY, Co-trustee, and BARNETT L. ROSSETT ET AL., Members of Bondholders Protective Committee, Appellants.
• Court: Missouri Supreme Court

52 S.W.2d 545

MONTICELLO BUILDING CORPORATION, a Corporation, JOHN T. CRAVEN, BERRY P. CRAVEN and EUGENE CRUTCHER v. MONTICELLO INVESTMENT COMPANY, a Corporation, STRAUS BROTHERS INVESTMENT COMPANY, a Corporation, HERMAN S. STRAUSS, Trustee, and MERCANTILE-COMMERCE & TRUST COMPANY, Co-trustee, and BARNETT L. ROSSETT ET AL., Members of Bondholders Protective Committee, HERMAN S. STRAUSS, Trustee, MERCANTILE-COMMERCE BANK & TRUST COMPANY, Co-trustee, and BARNETT L. ROSSETT ET AL., Members of Bondholders Protective Committee, Appellants.

No. 31770.

Supreme Court of Missouri, Division 1.

August 5, 1932.

Appeal from the Circuit Court of City of St. Louis. — Hon. H.A. Hamilton, Judge.

REVERSED AND REMANDED (with directions).

Greensfelder & Grand, Clark, Boggs, Cave & Peterson, Taylor, Mayer & Shifrin and Taylor, Chasnoff & Willson for appellants.

(1) The amended bill states no facts entitling the plaintiffs to relief against the appellant, Herman S. Strauss. Fugel v. Becker, 2 S.W. (2d) 743. (2) The intervening petition of Eugene Crutcher states a cause of action in conflict with that alleged in the original bill and is not sufficient to support the appointment of a receiver. 21 C.J. 343, sec. 34; 21 C.J. 347, sec. 350; 23 C.J. 583, sec. 505; Mountain Grove Creamery & Poultry Co. v. Willow Springs Creamery Co., 202 S.W. 1054; Langford v. Faning, 7 S.W. (2d) 726; Guardian Trust Co. of New York v. Strauss, 115 N.Y.S. 247. (3) Under the terms of the first mortgage deed of trust and under the evidence in this case, intervener Eugene Crutcher, is not entitled to maintain a suit for the foreclosure of the first mortgage deed of trust or for the appointment of a receiver. Consolidated Water Co. v. City of San Diego, 92 Fed. 759; New York Security & Trust Co. v. St. Ry. Co., 74 Fed. 67. (4) The order of January 18, 1932, appointing a receiver should be set aside because appellant trustees, Herman S. Strauss and Mercantile-Commerce Bank and Trust Company were not given a hearing upon the question of whether a receiver was necessary. State ex rel. v. Mulloy, 42 S.W. (2d) 806. (5) The State court was without jurisdiction to appoint a receiver in this cause on the intervener's petition on the 18th day of January, 1932, because the case had been removed to the Federal Court for the Eastern Division of the Eastern District of Missouri. Sec. 71, U.S. Judicial Code; Smith v. Bell, 217 Fed. 243. (6) There is no evidence establishing the necessity for the appointment of a receiver and the order appointing such receiver should be set aside. State ex rel. v. Mulloy, 43 S.W. (2d) 806; American State & Trust Co. v. Rosenthal, 237 N.W. 534.

Hyman G. Stein and Foristel, Mudd, Blair & Habenicht for respondent.

Where, as in this case, trustees are acting fraudulently or not in good faith, or negligently or in violation of their duties, an individual bondholder will be permitted to intervene in any action affecting the trust or his interest therein, for his own protection, and this is equally true when a trustee refuses to act. Brown v. Denver Omnibus & Cab Co., 254 Fed. 560; Williams v. Morgan, 111 U.S. 684; Lowenthal v. Ga. Coast Ry. Co., 233 Fed. 1016; 3 Jones on Mortgages 1771; 7 Encyclopedia of Federal Practice, 3480; Foster's Federal Practice, sec. 201; Gasquet v. Federal Trust Co., 57 Fed. 80; Farmers Loan & Trust Co. v. Railroad Co., 66 Fed. 169; Toler v. Railway Co., 67 Fed. 172.

HYDE, C.

This case, as originally commenced, was a suit for an injunction. In 1925 the Monticello Building Corporation, one of the plaintiffs herein, negotiated a loan of $350,000 through Straus Brothers Company. There was evidence that this company was later reorganized as Straus Brothers Investment Company, which is one of the defendants herein. The purpose of securing this loan was to construct an apartment building, to be known as the Monticello apartments, in the city of St. Louis. To secure this loan the Monticello Building Corporation executed a deed of trust on the apartment building to Herman S. Strauss, trustee, and J.E. Lehman, co-trustee. The deed of trust provided for the appointment of a successor co-trustee upon application to a proper court. It also conveyed to these trustees the fittings and fixtures of the apartment building, provided for a chattel mortgage on furniture, and covered "all the rents, issues and profits of the above described land, property and estates, which are hereby specifically assigned." The loan of $350,000, secured by the deed of trust, was represented by 635 bonds of denominations of $100, $500 and $1,000. The first of these bonds became due July 1, 1927, and matured in increasing amounts each year thereafter until July 1, 1935, when all of the remainder became due. The mortgage provided that one-sixth of the amount of the semi-annual interest should be deposited with a selected depository each month and that one-twelfth of the annual principal payments should be likewise deposited. It further provided for the mortgagor to pay all taxes and the United States Government income tax on the bonds.

In case the mortgagor defaulted in any payments or failed to perform any condition of the deed of trust, it was provided that the mortgagor should, without any notice whatever, forthwith, upon demand of the trustees, surrender possession to them. The trustees were authorized in their discretion without action of any bondholder to take and maintain possession, hold, manage and operate the property and collect the rents therefrom and lease the same "for not exceeding one year in any one instance." The application to be made of revenue derived from so operating the property was specifically set out. The mortgage also authorized the trustees, before having the entire debt declared due and before entry of any decree for foreclosure, to restore the property to the mortgagor upon certain payments and conditions. The mortgage further provided when any default continued for more than "thirty days after written notice thereof to the mortgagor by the trustee or to the mortgagor and the trustees by the holders of not less than twenty per cent in amount of bonds, hereby secured and then outstanding, specifying wherein such default consists," the trustees might in their discretion without any action of the bondholders, and upon written request of the holders of twenty per cent of the outstanding bonds, should declare the principal of all outstanding bonds immediately due and payable. It also provided that in case of failure or refusal of the trustees to so act, within thirty days after such request of the holders of twenty per cent of the outstanding bonds, that such holders might declare the principal due. Either of such declarations operated to mature all bonds. The mortgage further provided that in case of such default for thirty days after written notice, the trustees might, without the action of any bondholder and without declaring the bonds due, and upon the written request of the holders of 20 per cent of the outstanding bonds, should institute suits in equity or at law deemed proper to enforce the rights of the bondholders and to foreclose. It further provided that in case any authorized legal proceedings be instituted either by the trustees or by the holders of twenty per cent of the outstanding bonds "the court, to which application is made or wherein the same is pending, shall on application of and nomination by the complainant, as a matter of strict right and without regard to the then value of the premises and without regard to the solvency of the mortgagor or the then owner of the premises, appoint a receiver of said mortgaged premises and the rents, issues and profits thereof." The mortgage (Article IX) further provided as follows:

"Section 6. Whenever under the provisions hereinabove contained it shall have become the duty of the trustee to institute legal proceedings upon the written request of the requisite number of bondholders, and upon the deposit or tender of deposit of the requisite number of bonds with the trustees, and upon tender of proper indemnity, and the trustees shall have wrongfully or unreasonably refused or failed to act within thirty (30) days after such request and tender of the requisite number of bonds and proper indemnity, then and in any such case, but under no other provisions hereof have the right to demand action by the trustees, may jointly institute such proceedings in law or in equity as it was the duty of the trustees to institute, but for the benefit of all holders of the bonds and coupons then outstanding. Every holder of any of the bonds hereby secured (including pledgees) accepts action, whether at law or in equity, upon or under this Indenture, is vested exclusively in the trustees, and under no circumstances shall the holder of any bond or coupon, or any number of combination of such holders, have any right to institute any action at law upon any bond or bonds or any coupon or coupons, or otherwise, or any suit proceeding in equity or otherwise, except in case of refusal on the part of the trustees to perform any duty imposed upon them by this Indenture after request in writing by the holder or holders of at least twenty per cent (20%) in amount of said bonds as aforesaid. No action at law or in equity shall be brought by, or in behalf of, the holder or holders of any bonds or coupons, whether or not the same be past due, except by the trustees or by the requisite number of bondholders acting in concert under the provisions of this section for the benefit of all bondholders. In the event that pursuant to the terms hereof twenty per cent (20%) or more of the bondholders shall have joined in exercising the right to act in lieu of the trustees, the remainder of the bondholders shall have no right to institute any legal proceedings of the same or a similar character for the same default of the Mortgagor."

Another provision of the mortgage was that in all actions "the trustees...