Walker v. Howell
| Citation | 209 Iowa 823,226 N.W. 85 |
| Decision Date | 21 November 1929 |
| Docket Number | No. 39432.,39432. |
| Parties | WALKER ET AL. v. HOWELL ET AL. |
| Court | United States State Supreme Court of Iowa |
OPINION TEXT STARTS HERE
Appeal from District Court, Polk County; Herman F. Zeuch, Judge.
This was an action by the plaintiffs to recover from the defendants $57,944.20, with interest, for the wrongful execution of the trust, the failure to perform contracts and official duties supplemental thereto, and the conversion of certain property thereunder. There was a trial to a jury, and, at the close of the plaintiffs' testimony, the district court sustained the defendants' motion for a directed verdict. From this ruling, the plaintiff appeals. Reversed.Howard L. Bump and Paul W. Walters, both of Des Moines, for appellants.
Sampson & Dillon, of Des Moines, for appellee Howell.
Victor Shultz, of Des Moines, for appellees Taylor and Loucks.
Guy A. Miller, of Des Moines, for appellee Loucks.
A preliminary question involved in this general controversy was previously considered and determined by this court. McPherson v. Commercial Building & Securities Co. et al., 218 N. W. 306. Many of the facts are recited in that opinion.
The Commercial Building & Securities Company was organized under the laws of Iowa in January, 1920. Authority was thereby given the corporation to conduct a real estate and personal property investment business, with power to purchase, exchange, lease, or otherwise acquire real estate, plat, subdivide, and improve the same, and for that purpose this business concern was granted the power to borrow money, evidence the debt therefor by notes or bonds, and secure the same through mortgages, trust deeds, or otherwise. After being thus chartered, the company issued capital stock in the par value of $328,000 under a total authorization of $500,000. H. R. Howell and H. S. Taylor, defendants-appellees, were the promoters. They, together with two others, were also incorporators. Succeeding the incorporation and organization thereunder, the appellees Howell and Taylor were made directors, and became the president and secretary, respectively, of the corporation. Furthermore, said president and secretary were appointed and authorized to be the institution's general managers, and therefore they were to, and did, receive one-half of the company's profits until February 1, 1922, when these men were appointed to that managerial position for three years, with compensation as follows: $11,000 for the first year; $12,000 for the second; and $13,000 for the third. In addition to that, the managers were to receive one-half of the earnings above 16 per cent.
Thus Howell and Taylor continued in the management of the concern until it went into receivership, during the month of July, 1925. Soon after its organization, the corporation, in July, 1920, by its board of directors, authorized the issuance of collateral trust bonds under a trust deed. Accordingly, eight series of such bonds, aggregating $500,000, were executed and sold in the commercial world. Under the trust indenture, therefore, the Central State Bank was designated trustee. See McPherson v. Commercial Building & Securities Co., supra. Said eight series are not directly, but only incidentally, concerned in this litigation.
Subsequently, in September, 1921, the corporation authorized a series of bonds known as gold debentures, designated as “DA.” Provision was made thereunder for a total bond issue of $100,000, bearing 6 per cent. interest, but only $61,500 of these instruments were actually sold. Those are the bonds involved in the present suit. Elmer Loucks, defendant and appellee, and Frank S. Cummins were the trustees named in said trust indenture. Security for the bonds contemplated by that trust deed was to be “collateral owned by said company in the form of real estate or real estate securities or bonds and notes of various kinds, in an amount (the italics are ours) equal to or greater than the amount (the italics are ours) of outstanding bonds so issued.”
Financial failure overtook the corporation, and, as before mentioned, a receiver was appointed for it in July, 1925. One year later appellants, E. Allen Walker, Mable Pitt, and Mark L. Johnson, as a bondholders' committee, appointed by the gold debenture bondholders, intervened in the receivership proceedings aforesaid, commenced a foreclosure action, and impleaded the appellee Elmer Loucks, trustee, his cotrustee, and the receiver. As a result, judgment in the sum of $57,944.20 was duly entered, foreclosure decreed, and the collateral in the hands of the appellee, trustee, and his cotrustee, was disposed of at public sale for $8,496. From this sum there was deducted the expenses and costs of sale; thus leaving a balance of $6,021.80 to be credited on the judgment. This suit was brought by appellants as such Bondholders' Committee against appellees Howell, Taylor, and Loucks, to recover the loss caused the gold debenture bondholders.
Four general propositions are urged by appellants: First, that the corporation, through the managers, Howell and Taylor, collected proceeds of the collateral security which was not returned to the trustees for the satisfaction of the gold debenture bonds; second, that the trustees under the gold bond indenture permitted and allowed unlimited and unlawful substitutions of collateral securities; third, that the trustees permitted the corporation, through its managing officers, to “take down” said collateral, and use it for the benefit of the “eight series--Collateral Trust Bonds,” first above mentioned and certain officials who loaned the corporation money; and, fourth, that the trustees substituted in lieu of the original in each instance, less valuable securities. That replacement, it is alleged, was made by the trustees with the aid and connivance of the managing officers, Howell and Taylor.
[1] I. At the outset, we are confronted with the duty of construing the trust deed for the gold debenture bonds, Does it permit the corporation to collect and retain the proceeds of the collateral placed with the trustees? Such is the problem.
Preliminary to a study of the terms embraced within that trust instrument, it is helpful to notice the general plan under which the company operated. It was buying lots and building houses thereon to sell on contract. Usually these purchase-money contracts were subject to a prior mortgage negotiated for the purpose of financing the betterments. In order to continue in business actively, sales and collections were essential. Without them, there would be stagnation and business inactivity. So, with the aim of making possible the procurement of ready money, the scheme was launched whereby the corporation gave its said securities in order to protect the gold debenture bonds. Turning now to the trust deed authorizing the same, there is to be found among its provisions the following:
“The company (The Commercial Building & Securities Company) shall collect and receive the payment of principal and interest as they become due upon the various forms of collateral pledged with said Trustees. * * *
The company shall be permitted to collect principal and interest upon the various collateral in the hands of the Trustees, only so long as it shall have paid the principal and interest upon the bonds as they respectively mature. In the event that the Company shall be in default for a period of sixty (60) days in its payments of principal and interest upon the said bonds, then the Trustees may, as long as said default continues, collect, receive and hold the payments of principal and interest due from time to time upon the collateral in their hands.”
What, then, did the language above quoted express, where the plain and unambiguous words are “the Company shall collect and receive the payment of principal and interest as they become due upon the various forms of collateral pledged * * * only so long as it (the corporation) shall have paid the principal and interest upon the bonds as they respectively mature.”
Obviously, the corporation desired to finance its operations in that way. There was extended in the language under consideration the power to collect the principal and interest on the collateral pledged as and when the same came due. Demand is not made in that deed for the payment of such collections to the trustees. But one requirement is made as a prerequisite for the corporation's unlimited and continuous collection, and that is that it in turn shall pay the principal and interest on the bonds “as they respectively mature.” Manifestly, under the mandates of the trust deed, the corporation may pay that principal and interest upon the bonds with any money in its possession; that is to say, it is not required that the identical interest or principal collected on the collateral, without change in form or substitution, be applied on the bonds. This must be true, for no provision is made in the trust deed that the collateral and the bonds shall mature at the same time.
Clearly, therefore, the corporation had a right to collect the collateral after it was placed with the trustee, and retain the proceeds thereof. Provision for this collection and retention is plainly and definitely made in the trust deed. Ambiguity or uncertainty nowhere appears in that document with regard to this.
Hence appellees are not liable for the corporation's acts in making those collections and retaining the money derived therefrom.
[2][3] II. Having thus concluded, it is next to be decided whether the gold debenture bond trust deed permits substitutions for, or replacement of, the collateral so collected. The deed itself must furnish the solution. Taylor et al. v. Oliver, 137 Ark. 515, 208 S. W. 595;Mullen v. Eastern Trust & Banking Co., 108 Me. 498, 81 A. 948;Rhinelander v. Farmers' Loan & Trust Co., 172 N. Y. 519, 65 N. E. 499;Colorado & S. Ry. Co. v. Blair et al., 214 N. Y. 497, 108 N. E. 840, Ann. Cas. 1916D, 1177;Bremer v....
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