Court Opinion

ID: 6883033
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:20:41.990061+00
Date Added: 2024-06-11T16:05:38.257265
License: Public Domain

McCORD, Circuit Judge
(dissenting).
On November 1, 1939, Edward Ball filed suit against Hotel Markham, Inc., and the Bondholders Protective Committee which controlled and managed the property of the hotel, seeking to restrain the issuance of refunding debentures by the Committee; to terminate the control of the Committee over the hotel, its stock and debentures; and to compel the Committee to deliver to him the securities named in a certificate of deposit held by him. Bessie R. Henderson, W. G. Henderson, Julius F. Stone, A. B. Weddington, and Canal Bank & Trust Company, In Liquidation, intervened and joined in the prayer of the complaint. After an extended hearing the court below denied the relief sought and dismissed the complaint of Ball and the intervening plaintiffs. Ball and others have appealed.
It is more than difficult to pass upon the confused state of the record, and to find out just what evidence is in and what portion was ruled out by the trial judge. Findings of fact as required by Rule 52(a) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, were not entered by the court below. I have, however, carefully reviewed the record and found the important facts to be these: Gulfport Hotel Company, Inc., constructed the Hotel Markham in Gulfport, Mississippi, in the year 1926. On September 1, 1926, the corporation issued and sold $600,000 First Mortgage 6% Gold Bonds secured by a first mortgage on the hotel, and its furnishings and fixtures. Caught in the wake of the business collapse in 1930 the Gulfport Hotel Company was unable to pay interest on its bonds, and foundered and went down in the maelstrom of the depression. Shortly after Gulfport Hotel Company defaulted on its bonds, a Bondholders Protective Committee of three men was formed, and on July 1, 1930, a Bondholders Protective Agreement was executed, and under its terms and provisions bondholders deposited with the Committee bonds of the par value of $559,000.
After tke formation of the Bondholders Protective Committee and the execution of the Agreement of July 1, 1930, the Trustee foreclosed the Gulfport Mortgage on August 4, 1930, and the Bondholders. Protective Committee, acting pursuant to the authority conferred upon it by the Protective Agreement, purchased the property at the foreclosure sale and took title in its name. Thereafter, on August 7, 1930, it *758placed of record a Declaration of Trust certifying that it held the property for the benefit of the depositing bondholders. After having purchased the hotel property, the Committee obtained a charter for Hotel Markham, Inc., and all the stock of the corporation was subscribed for by the Committee, which had under the terms of the Protective Agreement increased its number from three to seven members. By deed the Committee conveyed the hotel property to Hotel Markham, Inc., and the corporation issued to the Committee 5,509 shares of no par value stock valued at $5 per share, and debentures of the face value of $598,960 secured by a mortgage on the property. The shares of stock and the debentures of Hotel Markham, Inc., were deposited in depository banks, and the Committee delivered to the original depositing bondholders certificates of deposit for their pro rata share of the stock and debentures, allocating ten shares of stock for each $1,000.00 of debentures. In order to obtain operating funds for the Hotel Markham, the Committee authorized the execution of a first mortgage superior in dignity to the one securing the new debentures, and $50,000 was borrowed in this manner. After these transactions were completed, the Committee operated the corporation as its sole stockholders, officers, and members of the board of directors. Its operation of the hotel properties was quite successful and in 1938 the Committee made final payment of the $50,000 mortgage which it had executed to obtain operating capital for the hotel. Moreover, through the years it paid the operating expenses of the hotel and paid $65,-885 interest on the debentures; $15,531.36 for furniture and fixtures; $12,541.36 for furniture, fixtures, repairs, and air conditioning of the coffee shop; $2,884.97 for swimming pool property; $21,089.49 for recreational property and a new well; and other substantial sums for maintenance. From the time Hotel Markham, Inc., was organized on November 1, 1930, until September, 1939, the Committee paid out from the operating profit of the hotel a total of $280,889.07.
Although such payments from operating profits were made and a part of the interest due on the debentures was paid, the Hotel was unable to pay all interest accruing on its debentures. On November 1, 1939, there was a balance of $257,520.80 accrued interest still owing, which sum added to the principal amount due made a total of $856,-512.80 due on the Hotel Markham debentures. The Committee thereupon resolved to execute a new mortgage and issue refunding debentures in the principal amount of $856,512.80, this sum being the aggregate amount of outstanding debentures plus interest accrued and remaining unpaid on November 1, 1939. By the issue of these refunding bonds the amount due bondholders by Hotel Markham, Inc., was not changed or increased, and the Committee retained the right under the Protective Agreement to sell and convey the new debentures as well as the physical property under its control. The Committee thus controlled not only the debentures but also the security for them.
Between 1930 and 1938 various certificates of deposit issued by the Committee to the original depositing bondholders were traded and sold by their owners at prices ranging from eleven cents on the dollar upward. In 1938 Edward Ball purchased a number of these certificates at fifty cents on the dollar, and at the time of the filing of this suit held Certificate of Deposit No. 220 of the face value of $243,370, and also had a contract with John F. Finke, Liquidator of the Canal Bank & Trust Company, for the purchase of certificates of the face value of $74,530 at 66%% of their face value, the contract conditioned upon his winning this suit.
The appellants contend that the District Court erred in its construction of the Bondholders Protective Agreement and the Declaration of Trust executed by the Committee; and “in not holding that the express trust therein involved had terminated by operation of law, a reasonable time for its performance having elapsed”; and further in not holding that at the time of the filing of the suit the condition existed “under which the Committee declared in the Declaration of Trust the beneficiaries would be entitled to a distribution” of the assets of the trust. There is no attack made upon any act of the Committee except its refusal to comply with Ball’s request to terminate the trust.
The Bondholders Protective Agreement of July 1, 1930, was 'adopted by the original bondholders of Gulfport Hotel Company in an attempt to salvage whatever they could from a failing enterprise. The agreement is without time limit, and in the broadest terms vests the Protective Committee with power and authority to take over and manage the properties as it should see fit. *759In the Sixth paragraph of the Protective Agreement it is provided:
“The Committee shall hold said bonds and coupons as trustees of an express trust, subject to no limitations except as in this agreement provided and except the duty of doing whatever in its uncontrolled opinion calculated to promote and protect the best interests of the depositors.
“The Committee may exercise all the rights and powers deemed by them in their sole discretion necessary or desirable to protect and promote the best interests of the depositors, and to carry out the purposes hereof, and may deal with the deposited bonds and coupons in any manner deemed by them in their discretion necessary or desirable for any such purposes,”
By paragraph Twelve of the Protective Agreement it is further provided: “The Committee may supply any defects or omissions which it may deem necessary to enable it to carry out the general purposes of this agreement, and it is authorized to construe this agreement, and its construction of the same shall be final.”
Thus by clear and unambiguous terms the Bondholders Protective Committee was vested with a wide discretion in matters a fleeting the property and interests of the depositing bondholders. It is furthermore plain that the depositing bondholders had implicit confidence in the integrity and ability of those men chosen to represent them and look after their interests. The Committee, which served without compensation, was at the time of its formation and is now composed of business men of ability and character who have lived up to the trust reposed in them in a substantial way. No objection was made to the manner in which the Committee conducted the affairs of Hotel Markham until the plaintiff Ball bought his way into the bond and debenture group in 1938 by securing certificates of deposit of tlie face value of $243,370, and securing an option on other certificates owned by the defunct Canal Bank & Trust Company. Having in sight enough stock to control the corporation, he sought to terminate the tenure of the Committee and failing in this he filed suit.
Not one word of complaint has been registered against the Committee in the handling of this property. Each and every bond and coupon holder has praised the management and operation of the property by tlie Committee. When the property was turned over to the Committee the bonds and coupons of the old corporation could not be sold at any price, and after a time certificates which at first sold as low as eleven cents on the dollar climbed in value until the plaintiff Ball paid fifty cents on the dollar for his holdings, and has secured an option under which, if he is successful in this suit, he is willing to pay 66% cents on the dollar. No objection was lodged by the Canal Bank & Trust Company to the taking over and operation of the defunct hotel properties, and each and every bond and coupon holder has sanctioned what was being done by the Committee, and no complaint was registered until the securities climbed back to life.
Plaintiff Ball bought his certificates of the new issue of bonds and proposes to buy more, and he is loud in his praise of the management and control of the Committee, and the record shows that already in one year he has realized dividends by way of interest on his debentures in tlie amount of $12,168.50, a return of 10% on his investment. The Canal Bank Liquidator, Finke, specifically points out the only complaint against the Committee. He contends that ten years is long enough to close up the trust and turn the property hack to the beneficial owners. He makes no other complaint. The Committee now proposes to issue a new lot of refunding debentures and the contention is that the trust should be terminated at this time.
While the Bondholders Protective Agreement gives almost unlimited powers to the Committee and is without time limit, 1 am of opinion, however, that it is not a contract in perpetuity. 12 Am.Jur., Contracts, § 299, p. 854. The Committee has the right, and it is its solemn duty, to see to it that the property brings to its owners the very best price which can be obtained by careful and prudent management. The Committee should he given a reasonable time in which to secure such price and wind up the business affairs of the corporation. The plaintiffs have signally failed to show that a reasonable time has elapsed in which to wind up and terminate the trust. If given a reasonable time, measuring the ability and future conduct of the Committee by its past handling of the property, I believe tlie Committee would be able to dispose of the property and effects of the corporation at a much higher price than would obtain if the trust was now terminated and certain owners were allowed to take over the management and control of the corporation and, in all probability, exploit it for their *760own use, and to the detriment of those owners who have stood with the Committee and turned an almost complete loss into an asset. It might not be amiss to point out here that liquidators of defunct banks are given much time in which to hold and liquidate properties of such banks; and courts have been slow in calling them in for a hurried and final liquidation, but extend to them time in which with the exercise of good business judgment they may be able to liquidate to the advantage of stockholders and depositors.
Ball and the interveners bought interests in the properties with full knowledge that the Bondholders Protective Agreement was in existence. The certificates which they purchased were charged with and bound by the original agreement. Every certificate and every document issued by the Committee has carried unmistakable language to the effect that everything that was being done was under and pursuant to the Bondholders Protective Agreement of July 1, 1930.
The Committee has not abused the discretion reposed in it, and has not acted arbitrarily, unreasonably, or oppressively, but has at all times acted for the best interests of the bondholders. The proposed issue of refunding debentures would in no way prevent the unencumbered sale of the hotel properties at such time as a sale might be found to be advantageous and advisable. I cannot subscribe to the majority opinion and I respectfully dissent.