Sinclair Refining Co. v. Midland Oil Co., 3227.

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

55 F.2d 42 (1932)

SINCLAIR REFINING CO.
v.
MIDLAND OIL CO.

No. 3227.

Circuit Court of Appeals, Fourth Circuit.

January 12, 1932.

55 F.2d 43

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

55 F.2d 44

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...