Sinclair Refining Co. v. Midland Oil Co.

• Citation: 55 F.2d 42
• Decision Date: 12 January 1932
• Docket Number: No. 3227.,3227.
• Parties: SINCLAIR REFINING CO. v. MIDLAND OIL CO.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

55 F.2d 42 (1932)

SINCLAIR REFINING CO. v. MIDLAND OIL CO.

No. 3227.

Circuit Court of Appeals, Fourth Circuit.

January 12, 1932.

H. P. Ragland, of Atlanta, Ga. and W. H. Childs, of Lincolnton, N. C. (C. E. Childs, of Lincolnton, N. C., on the brief), for appellant.

Charles R. Jonas, of Lincolnton, N. C. (Ryburn & Hoey, of Shelby, N. C., and Jonas & Jonas, of Lincolnton, N. C., on the brief), for appellee.

Before PARKER and SOPER, Circuit Judges, and CHESNUT, District Judge.

CHESNUT, District Judge.

This case presents an appeal from a preliminary injunction restraining the Sinclair Refining Company as the holder of certain bonds secured by deed of trust on the property of the Midland Oil Company, from taking steps to procure a foreclosure sale under the deed of trust. The contentions urged for a reversal of the order and dissolution of the injunction are (a) that the court was without jurisdiction to pass the order by reason of a defect of parties, in that the trustee was not a party to the case; and (b) that the bill of complaint did not state a case sufficient in equity for the relief prayed.

It appears that the Sinclair Refining Company is a Maine corporation engaged in the refining and wholesale marketing of gasoline and other petroleum products; and the Midland Oil Company is a North Carolina corporation engaged in the retail sale and distribution in the state of North Carolina in and adjacent to Lincolnton of the same products. On April 8, 1927, the parties made a sales contract effective for one year from July 1, 1927, covering the sale and delivery of maximum and minimum quantities of gasoline and kerosene. The contract was to continue from year to year until canceled by either party at the end of any year upon ninety days' prior notice. After the parties had been operating under the contract for about two years, the Sinclair Refining Company, according to the allegations of the bill of complaint, persuaded the Midland Oil Company, which operated numerous filling stations in North Carolina, to extend the volume of its business by making substantial additions to its equipment, and advanced to the Midland Oil Company for that purpose $28,159.86 the repayment of which was secured by a deed of trust dated June 4, 1929, from the Midland Oil Company to the two named trustees (W. H. Childs now being the sole substituted trustee), covering various parcels of lands and filling station equipment thereon in Lincoln and Catawba counties, N. C., as well as certain personal property described in the deed of trust, by the provisions of which the total indebtedness was to be repaid in 35 monthly installments of $800 each, and the balance in the succeeding month, with interest at 6 per cent. The payments under the sales contract and the monthly payments of sums due under the deed of trust were continued by the parties until shortly before the filing of the bill of complaint on July 2, 1931. At that time the balance remaining due under the deed of trust was $8,959.86, and it is alleged that most of this balance had been accelerated as to maturity by the action of the Sinclair Refining Company which was threatening foreclosure proceedings to collect the balance due.

We will first consider the objection to the preliminary injunction on the ground that the substituted trustee under the deed of trust was an indispensable party. The trustee was not named as a party in the caption or body of the bill but one of the prayers of the bill requested that a restraining order against the sale should be served upon the trustee, and the court, by a restraining order, did so order. But later, and before the issuance of the preliminary injunction, which was issued only after notice and appearance of counsel for the defendant, the restraining order as to the substituted trustee was rescinded on the ground that service of the order had never been made upon him and on the further ground that he was not a party to the case.

Reference to the terms of the deed of trust shows that it is in conventional form. Such instruments, as in this case, take the form of a conveyance from the debtor to the trustee covering the property which is to be security for the indebtedness, and the trustee, upon default in payment of the indebtedness as it matures, or in performance of other covenants of the instrument, is authorized to sell the property and apply the net proceeds of sale to the satisfaction of the indebtedness. In this particular instrument the provision as to sale is that upon default the trustee may proceed to sale. It was also provided that the Sinclair Refining Company, which was named as the creditor and the holder of the bonds evidencing the indebtedness, might from time to time appoint substituted trustees in the place of those originally named. It is well known that in practice the activities of the trustee under such instruments with respect to sales or other action to be taken thereunder are seldom, if ever, initiated by the trustee but usually begin only upon the request of the creditor. Although the bill alleges that the Sinclair Refining Company is threatening foreclosure, it does not appear that the trustee has in fact taken any steps to foreclose.

Under these conditions, in our opinion, the trustee is not an indispensable party. See Halpin v. Savannah R. Elec. Co., 41 F.(2d) 329 (C. C. A. 4th). He would, of course, have been a proper party but was doubtless not made a party by the complainant because, being a citizen of North Carolina, his presence in the case would have destroyed the necessary diversity of citizenship to confer jurisdiction upon the court. General Equity Rule No. 39 (28 USCA § 723) provides: "In all cases where it shall appear to the court that persons, who might otherwise be deemed proper parties to the suit, cannot be made parties by reason of their being out of the jurisdiction of the court, or incapable otherwise of being made parties, or because their joinder would oust the jurisdiction of the court as to the parties before the court, the court may, in its discretion, proceed in the cause without making such persons parties; and in such cases the decree shall be without prejudice to the rights of the absent parties."

As the trustee is not a party, and as the injunction in this case does not undertake to restrain his activities, it is, of course, entirely clear that he is not subject to the operative effect of the order and is at liberty to take action in this case on his own initiative for the sale of this property if he conceives it to be his duty to do so without the request of the Sinclair Refining Company. But we cannot say, because the complainant cannot secure full and certain protection against the activities of the trustee, that it is not entitled to what protection it can receive by restricting the initiative of the Sinclair Refining Company. If the complainant is satisfied to accept the limited relief permissible in this case, we see no good reason for denying that much aid to it. We are therefore of the opinion that the authorities cited by the appellant to the effect that it is the citizenship of the trustee and not of the cestui que trust that determines the diversity of citizenship, and that the foreclosure sale under a deed of trust will not be enjoined without making the trustee a party to the case, are inapplicable as authorities against the limited scope of this injunction order.

The other objection relied on by the complainant is of substantial rather than procedural importance. It is contended that the bill as a whole does not set up any equitable ground justifying restraining the Sinclair Refining Company from proceeding to foreclose. This requires a somewhat fuller analysis of the bill of complaint.

In addition to the facts already stated, the bill alleges that in the course of the performance of the sales contract the Sinclair Company, during the period from December, 1929, to the time of the filing of the bill of complaint, had made various "overcharges" to the Midland Oil Company for deliveries of gasoline and kerosene, which had been paid by the purchaser under protest, to the aggregate amount of $10,166.79; and also alleges that the Sinclair Refining Company had damaged the plaintiff's business to the amount of $10,000 by giving publicity to threats of foreclosure. The prayers of the bill were, first, for a judgment against the Sinclair Company in the amount of the "overcharges," and, second, for the recovery of the sum of $10,000 for damages to the complainant's business, and, third, for a restraining order against the foreclosure sale, "until a hearing of this cause." While the bill of complaint does not expressly pray for a set-off of the "overcharges" and damages against the indebtedness admitted to be due under the deed of trust, yet that was probably its intended purport. The bill also alleges that during negotiations between the parties for the purchase of the property of the Midland Oil Company covered by the deed of trust by the Sinclair Company which had taken an option thereon for $58,000, the Midland Company had allowed some of the payments currently accruing under the deed of trust to become overdue, and the Sinclair Company, in an effort to force the Midland Company to sell its property at less than a fair sum, had offered $50,000 for the property, and upon its refusal had arbitrarily and oppressively demanded full payment by the Midland Company of taxes due upon the property and all accrued installments of the debt, and was threatening, upon default, to sell the property under the deed of trust, which would result in a sale at a sacrifice price in a time of general economic depression. The injunction appealed from was granted by the District Judge on the basis of the allegations of the bill before answer.

In considering whether the granting of this preliminary injunction...