Thompson v. Hays

• Decision Date: 10 February 1926
• Docket Number: No. 6964.,6964.
• Parties: THOMPSON v. HAYS et al.
• Court: U.S. Court of Appeals — Eighth Circuit

11 F.2d 244 (1926)

THOMPSON v. HAYS et al.

No. 6964.

Circuit Court of Appeals, Eighth Circuit.

February 10, 1926.

William G. Holt, of Kansas City, Mo. (James M. Johnson and Donald W. Johnson, both of Kansas City, Mo., on the brief), for appellant.

F. C. Donnell, of St. Louis, Mo. (Seldon P. Spencer, of St. Louis, Mo., and H. L. McCune and R. B. Caldwell, both of Kansas City, Mo., on the brief), for appellees Hays and Wright.

Clifford Histed, of Kansas City, Mo. (William O. Thomas, of Kansas City, Mo., on the brief), for appellee Kemper Inv. Co.

Before KENYON, Circuit Judge, and YOUMANS, District Judge.

KENYON, Circuit Judge.

This action is one in equity brought by appellant Inez Thompson against appellees Frank P. Hays and H. P. Wright, as trustees, for an accounting and judgment, and against appellee Kemper Investment Company, for an injunction to prevent its selling or disposing of the property in controversy.

The trial court found in favor of all defendants (appellees here), sustaining at the close of plaintiff's (appellant's) evidence a motion to dismiss the bill on the ground that the evidence introduced was not sufficient to entitle this appellant to a decree.

In 1910 appellant purchased $8,000 worth of bonds of an issue of $110,000 of the Benton Building & Investment Company of Kansas City, Mo. (hereinafter designated the Benton Company), secured by a deed of trust to the Mississippi Valley Trust Company of St. Louis on a leasehold and a business building in Kansas City. On January, 1, 1914, there was a default in the payment of interest on all the bonds.

The trusteeship which appellant claims was violated was created May 1, 1914, by a written instrument, and related to the care, control, and sale of this property.

The specific charges of violations of the trust in the complaint are that Hays and Wright refused to lease the property to tenants who would pay adequate rent for the storerooms, but permitted it to stand empty, allowing taxes and ground rents to accumulate; that they refused to permit appellant to co-operate with her cobeneficiaries in redeeming the property from the debts against it; that without authority or adequate consideration they sold and transferred the property to the Interior Land Company; that they permitted one Frank Terry to mortgage the property to the Commerce Trust Company (a corporation) for $30,000, that they permitted the property to be sold to Kemper Investment Company (a corporation) for $47,000.

Appellant's theory is that the evidence shows breaches of duty both of nonfeasance and misfeasance on the part of the trustees of a serious and culpable nature, and that the Kemper Investment Company as purchaser of the property had full knowledge of the trust and of all the acts of the appellees.

As the case necessarily involves a review of the facts, we state them as briefly as possible.

The Benton Company was organized as a subsidiary of the Jones Store Company, which owned a large department store on Twelfth street in Kansas City, Mo. The purpose was to finance and construct a building to be used in connection with the Jones Store Company upon leaseholds on ground adjacent to the Jones Store which had been acquired by the Benton Company, and which ran for a period of 50 years. The Benton Company issued bonds in the sum of $110,000 for the purpose of erecting this building, secured by deed of trust with the Mississippi Valley Trust Company as trustee. The building was erected in 1910, and was leased to the Jones Store Company for a very substantial rental, but this company failed shortly thereafter, going into receivership, and the lease was repudiated by the receiver with the approval of the court, and thus ended. It was a four-story building, the entrance to the upper floors was through the Jones Store, and there was no general entrance to the first floor. There was no passenger elevator, nor were there water, toilets, or plumbing on the upper floors. The general condition of the building was known to the attorney for appellant at the time the $8,000 of bonds were purchased. The Benton Company was obligated to pay a ground rental of $8,250 per year up to 1915, and thereafter $12,500 per year.

On January 1, 1914, there was default in the interest on the bonds, as before stated. The charges for ground rent, taxes, etc., then amounted to about $8,000, and had been advanced by the Mississippi Valley Trust Company as trustee under the terms of the mortgage, and were a lien upon the property prior to the first mortgage bonds. This company refused to advance any more money. The Benton Company had transferred its title to the Kentucky Realty Company, which seemed to be giving little attention to this building. During all this period the upper floors of the building had been idle. The rents derived were not sufficient to pay the amount due under the ground leases. The H. P. Wright Investment Company, of which appellee Wright was president, owned a portion of the bonds, and appellee Wright, together with appellee Hays, who either owned or represented some of the bondholders, and both of whom had sold some of the bonds, devised a plan to try and save the situation by the formation of a protective committee. Counsel for appellant had full knowledge of the situation, and on May 1, 1914, a written agreement known as a protective agreement was entered into, under the terms of which nearly all of the bondholders, including appellant, deposited their bonds with the Mississippi Valley Trust Company as depositary. Appellees Hays and Wright were designated under this instrument as a committee having large powers, among which were the power to sell any part of the bonds for cash, to buy the mortgaged property, or to borrow money thereon. The paramount purpose of this arrangement was to bring about a sale of the property, and that apparently was the desire of all parties concerned.

In order to clear the title to the property, the trustees brought about a foreclosure by the Mississippi Valley Trust Company. It was duly advertised for sale. To meet this situation the committee made arrangements with the Commerce Trust Company of Kansas City, Mo., to borrow $13,500, the note for which they personally signed. The agreement with that company provided that the committee, Hays and Wright, were to use the $13,500 to buy the property at foreclosure and to take care of the current needs thereof, the property to be bought in the name of the Interior Land Company, a subsidiary of the Commerce Trust Company. There are many other provisions in the agreement of more or less importance, one of which is that the Commerce Trust Company was to have exclusive agency for the sale, rental, and placing of insurance upon the property while the title remained in the Interior Land Company. The property was sold at public auction, as contemplated, July 15, 1914, for $8,117.49, being the amount required to reimburse the Mississippi Valley Trust Company, and the trustees' deed was made to the Interior Land Company. The bondholders were fully advised of this proceeding in writing. Counsel for appellant received one of the explanatory notices. No objection was made by appellant. The committee kept on trying to sell the building, especially to the Jones interests, by negotiations with its representative, Judge New. It was also placed in the hands of many of the leading real estate agents in Kansas City for sale. Business conditions in the country were depressed, making a sale difficult. The trustees increased some of the rentals on the first floor, but succeeded in receiving only about $600 per month as rentals. The building outside of the first floor remained idle. It would have required the expenditure of considerable money to have placed a passenger elevator in the building, to have constructed a main entrance, a lobby, and to make some other changes necessary for the rental of the upper floors. These matters were all placed before the bondholders in letters by the committee. The only bona fide offer the committee received for the purchase of the property was $75,000 from F. P. Neal. This offer was refused. The indebtedness on the property continued to increase until by the end of the year 1915 it aggregated approximately $30,000. Wright and Hays had the property deeded to one Frank Terry by the Interior Land Company, who placed a mortgage thereon for $30,000 to the Commerce Trust Company, and on the same date deeded the property back to the Interior Land Company. The purpose of this is explained in the evidence. The committee reported this to the bondholders, and no objection seems to have been made by any of them. Matters ran along, and no sale of the building was made, nor was anything done to put it in condition for advantageous leasing. The notes to the Commerce Trust Company were renewed a number of times. On June 8, 1916, the indebtedness against the property amounted to about $40,000. The committee on January 6, 1916, and June 8, 1916, made full report of the situation to the bondholders in which a showing was made of the amount the committee had advanced personally. The Commerce Trust Company was threatening to foreclose, and a meeting of the bondholders was called to meet in St. Louis on June 16, 1916, for the purpose of working out some plan to prevent loss of the property. This was attended by a representative of appellant who had full knowledge of the situation, and knew of the demands of the Commerce Trust Company for its money. August 28, 1916, under its trust deed, the Commerce Trust Company advertised the property for sale. The protective committee, Hays and Wright, secured an extension of 60 days in order to formulate some plan to save the situation, and, if possible, dispose of the property, but were unable to accomplish anything. They prepared a syndicate agreement which was sent to all the bondholders which provided for raising a fund to be used in bidding on the property at the...