Test v. City of Indianapolis
| Decision Date | 02 January 1945 |
| Docket Number | No. 8489.,8489. |
| Citation | 145 F.2d 775 |
| Parties | TEST v. CITY OF INDIANAPOLIS et al. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Arthur L. Gilliom, Karl J. Stipher, Gilliom & Gilliom, and Elbert R. Gilliom, all of Indianapolis, Ind., for appellant.
Wm. H. Thompson, Perry E. O'Neal, Patrick J. Smith, and Sidney S. Miller, all of Indianapolis, Ind. (Archie N. Bobbitt, City Atty., of Indianapolis, Ind., of counsel), for City of Indianapolis.
Paul Y. Davis, Frank C. Dailey, Harvey B. Hartsock, George S. Dailey, and Gustav H. Dongus, all of Indianapolis, Ind., for Citizens Gas Co. of Indianapolis.
Before EVANS, MAJOR, and MINTON, Circuit Judges.
This is an appeal from a judgment favorable to defendants in an action to recover upon certain mortgage bonds and attached interest coupons issued by the defendant Citizens Gas Company of Indianapolis, dated July 1, 1912, and to foreclose the mortgage executed to secure their payment. The mortgaged property constitutes the res of the public charitable trust which this court considered in Todd v. Citizens' Gas Company of Indianapolis, 1931, 46 F.2d 855, and of which the defendant Citizens Gas Company was initial trustee and the defendant City of Indianapolis successor trustee. This trust, created in 1905, together with its subsequent activities, has furnished the subject matter for much litigation.1 The facts relative thereto have thus been voluminously recorded, and we shall confine our statement of the instant dispute to those directly pertinent thereto.
All the facts were stipulated, and such stipulation was embodied in and made the court's findings of fact. Plaintiff asserts two claims for herself against each defendant and asserts, also, like claims on behalf of other bondholders similarly situated. One of plaintiff's claims is for personal money judgment against each defendant for the principal amount ($12,000) of her first mortgage bonds and for the amount of attached interest coupons ($4200), issued by defendant Citizens Gas, with interest since the respective due dates of the bonds and coupons. Her other claim is for the foreclosure of the mortgage executed to secure the payment of such bonds and coupons, and for a reasonable allowance as attorney fees. Plaintiff asserts that the others on whose behalf she sues hold bonds in the aggregate principal amount of $19,000, and attached interest coupons in the total amount of $6,650.
The bonds and mortgage were executed by defendant Citizens Gas while it was the initial trustee of the public charitable trust, of which the mortgaged gas utility plant and property constitute the trust res. They purported to be payable July 1, 1942, and the unpaid interest coupons were payable at six-month intervals from July 1, 1935 to July 1, 1942. The mortgaged trust property was conveyed to the defendant City of Indianapolis on September 9, 1935, subject to the legal obligations owed by defendant Citizens Gas. The redemption price of the bonds before maturity was 108% of the principal amount plus accrued interest. In August 1935 the defendant City notified the holders of the outstanding bonds issued under the mortgage that it would pay the principal and accrued interest to September 15, 1935, and that no interest coupons maturing after that date would be paid. The total principal amount of such outstanding bonds was at that time $2,745,000. The owners of all such bonds, except the plaintiff and those for whom she sues, accepted the City's proposal and surrendered their bonds. Plaintiff and those for whom she sues refused such proposal and demanded that defendants pay according to the tenor of the bonds, which each defendant refused to do. Thus the amount involved in this litigation is the total sum of the interest coupons which became due from September 15, 1935 to July 1, 1942, together with interest at 6% upon the amount of each interest coupon from the time it became due, together with interest at 6% per annum on the principal amount of the bonds as well as upon the total amount of interest coupons from July 1, 1942, the asserted date of maturity. There is a further claim for the use of plaintiff's attorneys in the event she is entitled to recover.
The main defense relied upon by the City is that Citizens Gas as the initial trustee was without power, either express or implied, to execute the mortgage, and that it is void. The City concedes that the proceeds of the mortgage bonds were used for the benefit of the trust and that an equitable lien was created for the principal amount thereof, but contends that it had a right to discharge this lien by paying the principal amount of the bonds and accrued interest at any time upon giving reasonable notice; and further, that the City relieved itself of all liability by depositing with its Controller after notice a sufficient sum to pay the principal amount of all mortgage bonds, with interest to September 15, 1935.
The main defense of Citizens Gas is that the bonds, because of a provision of the mortgage, matured and became payable on August 30, 1930, and that thereafter plaintiff and those for whom she sues were entitled only to the principal amount of such bonds plus interest to the date of payment, which the City offered to make September 15, 1935, as above related.
The court below, without opinion, stated three conclusions of law which in substance are: (1) The law is with the defendants and the plaintiff is not entitled to recover; (2) the mortgage sued upon is invalid and unenforceable because of the fact that the defendant Citizens Gas as initial trustee of the public charitable trust had no power or authority to execute the said mortgage; and (3) the defendants should recover their costs in the action. In conformity with these conclusions, judgment was entered in favor of the defendants.
In view of what we have stated, it is apparent that the controversy revolves largely around two issues: (1) Was the mortgage void? and (2) Was the maturity date of the bonds accelerated so as to preclude recovery of interest which became due subsequent to September 15, 1935, the date when payment was offered by the City? In this connection, it is pertinent to observe that the court neither found nor concluded that the bonds were invalid, and plaintiff contends that even though the mortgage be void she still is entitled to a judgment against Citizens Gas.
The basis for the trust was the franchise contract granted August 25, 1905, by the Board of Public Works to certain individuals and approved by the council. The grant was to become effective only on condition that a corporation be organized which by declaration in its charter should fix the rights of the stockholders and the City, and the rights to be acquired to carry out the purposes of the grant. It was required that all the stockholders by their voluntary act should declare in advance that the property acquired with the money contributed by them should be held under the obligation of the corporation to convey it to the City when the contributions with interest had been returned, and that, upon return of the contributions as provided, the rights of the stockholders should be extinguished.
The articles of incorporation provided that stock owners be issued certificates of beneficial interest for their shares. Certificate holders were entitled to dividends, and when they had received an amount equal to the par value with certain specified interest, the certificates were to be deemed fully paid and cancelled, and the trustees and directors were then to convey the property to the City to be held by it for the benefit of its inhabitants.
The controversy concerning the power of the trustee to execute the mortgage in question revolves around the following language in the original franchise ordinance and the articles of incorporation:
"If upon the expiration of the term and period of the franchise granted by said city of Indianapolis * * * *, the same shall terminate without the payment of said certificates, * * * then upon notice of such effect to be given said board of directors by the Board of Public Works of said city at least six months before the expiration of said franchise period, the said board of directors shall mortgage its gas plant and property for such sum as to enable it to pay its stock or certificate holders an amount which with what has already been paid will equal the full amount of such subscription with dividends * * *, and with the proceeds thereof, or with the mortgage notes so issued in proper amounts, pay off and discharge the amounts due such certificate-holders and convey said plant to said city subject to such obligations and other legal obligations against said company; Provided, however, That by the term of said mortgage such obligations shall bear interest not exceeding six per centum per annum and be payable on or before ten years from date of execution."
It is the City's contention that by this provision the trustee was given authority to mortgage the trust res for one definite and specific purpose, that is, to "pay off and discharge the amounts due such certificate-holders," and the property was then to be conveyed to the City as successor trustee, subject to the legal obligations of the initial trustee. It is argued that the power of the trustee was limited to that expressly conferred and that the grant of power for such specific purpose negatives the existence of power to mortgage for any other purpose. Furthermore, it is argued that under such circumstances, the grant of power is such as to negative any implied power to execute the mortgage in question.
Plaintiff takes issue with the construction to be placed upon the language last quoted, and in addition relies strongly upon the contention that the trustee had authority to execute the mortgage by reason of a provision of the Indiana statute which was in force at the time the trust was...
To continue reading
Request your trial