New Hampshire Sav. Bank v. Richey

• Decision Date: 17 March 1903
• Docket Number: 1,792
• Citation: 121 F. 956
• Parties: NEW HAMPSHIRE SAV. BANK et al. v. RICHEY et al.
• Court: U.S. Court of Appeals — Eighth Circuit

121 F. 956

NEW HAMPSHIRE SAV. BANK et al. v. RICHEY et al.

No. 1,792

United States Court of Appeals, Eighth Circuit.

March 17, 1903

William Baird (John C. Wharton, on the brief), for appellants.

Byron Clark (C. A. Rawls, on the brief), for appellee Richey.

A. J Beeson, Matthew Gering, and Jesse L. Root, for appellee city of Plattsmouth.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

THAYER Circuit Judge.

In this case it appears that Justus G. Richey, one of the appellees was joined as a defendant in a bill of complaint against the Plattsmouth Gas & Electric Light Comapny and the city of Plattsmouth, which was filed by the New Hampshire Savings Bank and the New Hampshire Banking Company, with a view of foreclosing a mortgage on a gas and electric light plant located in the city of Plattsmouth Neb. Richey demurred to the bill of complaint so far as relief was sought against himself. His demurrer was sustained, and a decree was entered directing a dismissal of the bill as to him, whereupon the complainants above named, the New Hampshire companies, prosecuted an appeal, assigning as error that the lower court erred in sustaining the demurrer. As the present appeal raises the single question whether the bill contains sufficient allegations to warrant the court in granting the complainants any relief as against Richey, a general statement of the facts disclosed by the bill is all that is deemed necessary.

The mortgage under which the complainants below derive all their rights and which they seek to have foreclosed, was executed by the Plattsmouth Gas & Electric Light Company, a corporation of Nebraska, on May 8 1890, to secure bonds to the amount of $30,000, bearing interest at the rate of 6 per cent. per annum, payable semiannually. These bonds were sold to the appellants (the New Hampshire companies) who now own the entire issue. A default occurred in the payment of the interest on these bonds on June 1, 1901, which led to the institution of the present suit to foreclose the mortgage and obtain other relief against the mortgagor company and the city of Plattsmouth, the details of which need not be stated at the present time.

It seems that subsequent to the execution of the aforesaid mortgage, and on October 23, 1896, the Plattsmouth Gas &amp Electric Light Company leased its entire plant for the manufacture of gas and the production of electricity to the city of Plattsmouth, where the plant was located; doing so in pursuance of the provisions of a city ordinance. The property was so leased for a period of 4 years and 15 days, the term to begin November 1, 1896, and to end on November 15, 1900, at an annual rental of $2,800, which was payable to the lessor company in monthly installments of $233.33 each. In addition to the sum aforesaid, the city agreed to pay the interest on the outstanding bonds of the lessor company, amounting to $1,800 per annum, until November 15, 1900, and also to pay all taxes which might thereafter be assessed against the property so leased to the city. The lease contained a further provision whereby the city was entitled to hold and operate the demised property from November 15, 1900, until June 1, 1910, if it desired to do so, on condition that it paid the interest on the outstanding bonds of the lessor company, amounting to $1,800 per annum, during that period. It was further agreed that the city might terminate the lease on 60 days' notice at any time after November 15, 1900, or buy the property at any time after that date for the sum of $1, by assuming and agreeing to pay the outstanding mortgage indebtedness of $30,000; and that it should have the option to buy the property on the terms last stated, or to continue said lease on the terms heretofore mentioned from November 15, 1900, to June 1, 1910.

The bill of complaint contained other allegations to the following effect: That the lease in question was intended by the lessor company as an out and out sale of all of its property, assets, rights, and franchises to the city; that the sum of $2,800 agreed to be paid yearly to the lessor company was not intended to be paid or received as rent; that the city, on the delivery of the lease, took possession of the demised property and all of the materials and supplies then on hand, and thereafter continued to operate and use the same as its own; that the sum of $11,333.33 had in fact been paid by the city to the lessor company in monthly installments of $233.33 each, in accordance with the provisions of the lease; that the city had failed to pay certain taxes, amounting to about $300, which were assessed against the demised property for the years 1897 and 1898; that by reason of the city's failure to keep the demised property in a good state of repair, and by reason of its failure to replenish tools, machinery, and materials as they were worn out or consumed, the demised property had become insufficient security for the bonded indebtedness, and that the mortgagor company had become insolvent, having no property whatever except such as was leased to the city and was in its possession.

The bill contained other allegations of the following character: that Justus G. Richey, C. D. Jones, and S. B. Hovey were officers and directors of the Plattsmouth Gas & Electric Light Company, and the sole owners of its capital stock; that Richey owned one-half of the stock of said company when the mortgage which the complainants seek to have foreclosed was executed; that he received from the Plattsmouth Gas & Electric Light Company one-half of the sum of $11,333.33, which was paid by the city to that company in pursuance of the provisions of the aforesaid lease; that the laws of the state of Nebraska made it the duty of the Plattsmouth Gas & Electric Light Company to give notice annually in some newspaper published in the county of Cass, in the state of Nebraska, of the amount of all of its existing debts, which notice should have been signed by the president of the company and a majority of its directors; that this notice was not published pursuant to law, and that by reason of its nonpublication the stockholders of the company under the laws of the state, became individually liable for the indebtedness due to the complainants in proportion to the amount of stock by them respectively held; and that the defendant Richey was likewise liable for one-half of the sum of $11,333.33, which he had received from the aforesaid company. In view of the premises the complainants prayed for a decree of foreclosure, and for certain other relief against the city of Plattsmouth, Neb., and, in addition thereto, they demanded a personal judgment against Richey to the full extent of his liability in both of the respects heretofore explained.

The complainants rely for a recovery against the defendant Richey mainly upon the allegation contained in their bill that he received from the Plattsmouth Gas & Electric Light Company one-half of the sum of $11,333.33, which was paid to that company by the city as rent for the demised property during the term beginning November 1, 1896, and ending November 15 1900. In support of this contention it is insisted that the rents received by the lessor company constituted a trust fund, which could only be applied lawfully to the payment of corporate debts; and that, inasmuch as the fund was distributed among stockholders in the form of a dividend, it may be followed into their hands, and recovered from them by the mortgage bondholders. The complainants do not assert that the lien of their mortgage extended to and embraced the rents which they seek to recover from the stockholders, nor would such a claim be tenable if it was made, since the mortgage under which they claim contained an express provision 'that until default should be made in payment of principal or interest of said bonds, and until default should continue for a period of sixty days, said Gas & Electric Light Company should be suffered and permitted to possess manage, operate and enjoy (the mortgaged property), * * * and take and use the income, rents, and profits thereof in the same manner and with the same effect as if said mortgage had not been made. ' All of the rents in question were received by the mortgagor company before there had been any default in the payment of interest on the mortgage indebtedness. It is obvious, therefore, that the lien of the mortgage did not extend to...