Case Name: SPEERS SAND & CLAY WORKS, Inc., v. AMERICAN TRUST CO.
Court: United States Court of Appeals for the Fourth Circuit
Jurisdiction: United States
Decision Date: 1927-06-03
Citations: 20 F.2d 333
Docket Number: No. 2538
Parties: SPEERS SAND & CLAY WORKS, Inc., v. AMERICAN TRUST CO.
Judges: Before WADDILL and PARKER, Circuit Judges, and McCLINTIC, District Judge.
Reporter: Federal Reporter 2d Series
Volume: 20
Pages: 333–336

Head Matter:
SPEERS SAND & CLAY WORKS, Inc., v. AMERICAN TRUST CO.
Circuit Court of Appeals, Fourth Circuit.
June 3, 1927.
No. 2538.
See, also, 20 IP.(2d) 336.
David Ash, of Baltimore, Md., for appellant.
Halbert H. McCluer, of Kansas City, Mo. (Marcia Eisner Lewis, of Chicago, 111., on the brief), for certain bondholders of Speers Sand & Clay Works.
E. P. Keeeh, Jr., of Baltimore, Md., for appellee.
Before WADDILL and PARKER, Circuit Judges, and McCLINTIC, District Judge.

Opinion:
McCLINTIC, District Judge
(after stating the facts as above). The assignments of error are 15 in number and overlap each other in substance. In our opinion it is only necessary to consider first, those relating to the acts of the plaintiff in instituting this suit; second, whether it was proper to enter the decree of foreclosure and sale on the facts as they appear of record at this time; and, third, the assignments relating to the exclusion of certain testimony.
The plaintiff, like any trustee, owed to all parlies concerned the duty of aeting in good faith and of exercising all discretion vested in it by the mortgage in a proper and open manner. It will be presumed that it did so, unless the contrary is fairly shown. We hold that upon the facts herein it was justified in instituting this suit to foreclose. Under article 7 of the mortgage (supra) there was a technical default when payment of interest coupons on the Cottle and Carduner bonds was not made within six months after proper demand. The failure of the defendant to pay the charges fixed by law upon its charter in the state of its incorporation, and the apparent failure of the project for the development of the property, were strong additional circumstances to cause its discretion to be exercised in favor of the institution of the foreclosure suit. There was no duty incumbent upon the plaintiff to examine into the circumstances of the ownership of the Cottle and Carduner bonds.
It is alleged as error that the plaintiff did not require, prior to such act, the persons claiming to be owners of the bonds to file their affidavits, stating such ownership and the number of each bond. Section 17, supra. It is shown that the persons asking foreclosure had the physical possession of the bonds claimed by them, by the actual deposit of such bonds with the plaintiff, and so far as the record shows it had no knowledge of any doubt as to such ownership thereof, with the exception of a part of the Pratt bonds. The question of the ownership of the bonds was one for the court to decide upon the evidence.
This brings us to the second proposition. Was the decree of foreclosure and sale proper at the time of its entry? The amount of bonds legally issued, and the ownership thereof, were under the circumstances here very necessary to be known and settled before the entry of such decree. Bonds of the par value of $1,000,000 were provided for by the mortgage, and half thereof was delivered to Miss Speers. It does not appear that any other person had any interest in these, although the evidence showed that an unknown portion of them had been hypothecated. Who had them, and under what conditions, does not appear. It appears that, of the other half, $55,600 were sold to Pratt, and that he obtained possession of $368,400 more thereof; that Johnson received $25,-000; that Meigs received $25,000; that Marion Cottle received $4,000; that Mrs. Ealco received $3,000; and that $400 were delivered to persons not named. The total of these bonds is $481,400. The source of the bonds of the par value of $20,000 deposited by Earley does not appear.
It is denied by the defendants that the Pratt, Johnson, Meigs, and Cottle bonds, aggregating $478,000, are at this time legally outstanding, and that they are liens upon the property conveyed in the mortgage. The appointment of a receiver to take charge of the property of the defendant was necessary and proper, for the preservation and control of its only asset; but under all the facts of this particular ease the decree of sale seems to have been premature.
It is a general rule of equity that the decree of foreclosure of a mortgage, and the sale of the property thereby conveyed, need not await the report of a master, or the der cree of the. court fixing the liabilities upon the property conveyed therein. However, there are exceptions to all general rules, and in our opinion this case is one of them. The reason therefor lies in the distribution, possession, and claimed ownership of the bonds -secured by the mortgage. The plaintiff claims that it had possession of bonds of the par value of $496,500, and that' possession thereof was sufficient evidence of ownership, regardless of the claims of the defendant that there was no proof by proper affidavit under the provisions of the mortgage showing title and ownership- thereto.
The-defendant .denied that a large proportion of the bonds so in possession of the plaintiff, to wit^ bonds .of. the par value of $473,500, wére legally outstanding, or were in any manner liens upon the property of the defendant, and some doubt was east upon the title of, another part of these bonds, of the par value of $3,000, as to the manner in which the title thereto was derived. There is sufficient evidence in the record in our opinion to require a proper ascertainment of all the bonds--legally outstanding and their ownership before a decree of sale should have been entered. The value of the property' of the defendant at public sale is not likely to be-large, and'the owners of the 1Ó-' gaily outstanding Bonds' should be in position to hid thereon at such public sale thereof with full knowledge of their liens thereon. Carpenter v. Longan, 16 Wall. (83 U. S.) 271, 21 L. Ed. 313.
. Tf the -District- .-Court should find -the Pratt -holding of bonds, the Johnson- and Meigs'holding Of bonds, and the Cottle holding- of bonds, or any other of the bonds claimed to be secured by the mortgage, to be now not-légally held,-and that such bonds aré not liens--under the mortgage - on the land conveyed; the'-situation-of the legally outstanding bonds Tyquld .be -materially .changed. The defendant, and the-holders" of all bonds, the title of which is undisputed, have the right to: have such questions adjudicated, and the amounts and ownership of the bonds fixed , and--determined, before the sale of the mortgaged property is authorized by the court. This is especially true in the instant ease, where the validity and' title of such, a large quantity of the bonds is in dispute.
The exclusion of certain testimony constitutes the last three assignments of.error. The evidence whether Meigs and Johnson became legal owners of certain bonds will be pertinent when the liens upon the property are ascertained. Under the ease as it now stands, the. evidence as to an alleged contract between Miss Speers and Pratt, relative to the purchase of the land owned by the -defendants, and the evidence as to reports of the value thereof made by certain alleged experts, was properly excluded.
The decree filed herein on the 12th day of January, 1926, is hereby reversed, and this cause is remanded, with directions to properly ascertain what, bonds were legally issued and outstanding and are liens upon the property conveyed in the mortgage, and •that such further proceedings be had herein as are according to the rules and practice of a court of equity.
Reversed.