Court Opinion

ID: 8750869
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:26:33.238082+00
Date Added: 2024-06-11T17:00:57.352416
License: Public Domain

BAKER, Circuit Judge,
after stating the case as above, delivered the opinion of the court.
*919The New York trustee objects to this court’s considering the mortgagor’s propositions above stated, because the mortgagor did not take an earlier appeal from the Circuit Court’s adverse opinion, because the questions were virtually determined in Farmers’ Loan & Trust Co. v. Lake Street Elevated Railroad Co., 177 U. S. 51, 20 Sup. Ct. 564, 44 L. Ed. 667, and because the Supreme Court (178 U. S. 614, 20 Sup. Ct. 1030, 44 L. Ed. 1216), while this cause was pending in the Circuit Court, denied the mortgagor’s petition for a writ of certiorari.
The Circuit Court’s opinions, which we find in the record, except that rendered in connection with the decree from which these appeals are taken, were stated with respect to proposed action on receivership and foreclosure which was never had. The only appealable order or decree in the cause is the one which is now attacked by both parties. Into the decree for fees and expenses certainly enter the questions of jurisdiction and of the right of the New York trustee to appear as complainant in foreclosing the trust deed. If the New York trustee was acting outside of its delegated powers, as lawfully determined by the settlor, most assuredly it could not recover against the settlor fees and expenses for doing so.
The case in 177 U. S. 51, 20 Sup. Ct. 564, 44 L. Ed. 667, came to the Supreme Court on writ of error to the Supreme Court of Illinois. Within an hour after the present foreclosure suit was started in the Circuit Court, the mortgagor filed a bill in the superior court of Cook county, Ill., against the New York trustee, to restrain it from acting as a trust company in Illinois, and from foreclosing this trust deed. The mortgagor was successful in the state courts. The Supreme Court held that the fact that an earlier suit was pending in the federal court, in which the rights of the New York trustee under the Illinois statutes and under the trust deed were involved, precluded the state courts from taking jurisdiction to pass upon those 'questions. But, as we understand the case, the Supreme Court did not decide that the New York trustee’s suit was maintainable in the federal court. The federal court, by the filing of the bill to foreclose, acquired jurisdiction in the broad sense to pass upon the rights of the complainant and to determine the question of its own jurisdiction in the narrow sense; that is, whether the requisite diversity of citizenship existed.
In denying the petition for a writ of certiorari in 178 U. S. 614, 20 Sup. Ct. 1030, 44 L. Ed. 1216, the Supreme Court delivered no opinion. It would seem that one very good reason for refusing the writ would be this: The foreclosure suit was pending in the Circuit Court, unheard and undetermined. No receiver had been appointed. No foreclosure or other final decree had been entered. It could not be known that errors, if any had been committed, would not be corrected in the Circuit Court, and cured by a final decree thereafter to be entered.
We conclude that the questions are open.
1. In taking up the first of the mortgagor’s propositions, we deem it necessary to consider (a) the terms of the trust deed, and (b) the facts established by the record respecting the attitude of the trustees.
*920_ (a) The deed was made to the trustees equally. From the provisions referred to in the statement, it is manifest that the trustees, under some circumstances, had obligatory duties to perform, and, under others, large discretionary powers to exercise, with respect to the interests both of the bondholders, as a whole, and of the mortgagor. The circumstances necessary to make it the duty of the trustees to declare the debt due, and to foreclose therefor, did not exist. The trustees were under no obligations to comply with the demand of the holders of one-tenth of the bonds to foreclose for overdue interest, or with the demand of the holders of nine-tenths of the bonds not to foreclose. Under these circumstances, the trustees had the discretionary power to foreclose for overdue interest, or not, as they honestly believed to be for the best interests of all concerned. Such was the interpretation given, to the trust deed by this court, and correctly, we think, in Lake Street Elevated Railroad Co. v. Ziegler, 39 C. C. A. 431, 99 Fed. 114, bottom page 120.
(b) The New York trustee was of the opinion that the discretionary power of the trustees should be exercised in the way demanded by the holders of one-tenth of the bonds, and there is nothing in the record from which we can find that its opinion was not an honest one. Thereupon the New York trustee filed its bill to foreclose for overdue interest. No charge was made in the original bill that the Chicago trustee had renounced or abandoned the trust, or that it had acquired interests in the trust estate which incapacitated it to form and hold an honest judgment with respect to the exercise of the discretionary power. If the averments of the amended bill could rightly be construed to charge (which we doubt) that the Chicago trustee had renounced or. abandoned the trust, or that its action was anything more than an expression of its honest opinion how the discretionary power of the trustees should be exercised, the charges are explicitly denied in the verified answer, and there is no proof to sustain them. The circular notice sent by the Chicago trustee to the bondholders, which is found in the amended bill and in the proofs, shows that the mortgagor had deposited with the Chicago trustee money which the Chicago trustee at first thought was applicable to the payment of interest coupons; but other parties notified the Chicago trustee that they had furnished the money to the mortgagor under an agreement that the money should be used, not .in payment, but in purchase, of coupons. When notified of this claim, the Chicago trustee acted under the circumstances as any prudent stakeholder would. There is nothing in the record from which we can find that the Chicago trustee’s opinion, any more than the New York trustee’s, was not an honest one. And if each was only engaged in forming and holding and acting on its real judgment with respect to the exercise of the discretionary- powers lodged in the trustees, then each, far from renouncing or abandoning the trust, was acting under it.
Now, considering that under the trust deed the foreclosure for overdue interest was a matter within the discretionary power of the trustees, and considering that the trustees honestly differed with regard to the manner in which that discretionary power should be *921exercised, what is the law? The mortgagor had the right to create a trust in which the discretionary power to foreclose or not foreclose for overdue interest, in the absence of a demand by the holders of a majority of the bonds, should be lodged in a trustee or trustees. The mortgagor had the right to create a trusteeship as an indivisible unit, whether that trusteeship was to be held by one trustee or by two or more trustees. The mortgagor had the right to require that no act, the performance or nonperformance of which was committed to' the judgment and discretion of the trustees, should be undertaken by one trustee without the concurrence of the other. Perry _ on Trusts, §411; Lewin on Trusts, p. 258; Delegation of Discretionary Powers by a Trustee, 12 Cent. Law J. 266, 290; Wilbur v. Almy, 12 How. 180, 191, 13 L. Ed. 944; McGeorge v. Bigstone Gap Co. (C. C.) 88 Fed. 599; Golder v. Bressler, 105 Ill. 419; Pennsylvania Co. v. Bauerle, 143 Ill. 459, 33 N. E. 166; Patterson v. Leavitt, 4 Conn. 50, 10 Am. Dec. 98; Shaw v. R. Co., 5 Gray, 162; Vandever’s Appeal, 8 Watts & S. 405, 42 Am. Dec. 305; Berger v. Duff, 4 Johns. Ch. 368; Green v. Miller, 6 Johns. 39, 5 Am. Dec. 184; Sinclair v. Jackson, 8 Cow. 543, 583; Wilder v. Ranney, 95 N. Y. 7. And in a private contract, if the settlor grants discretionary powers and names two or more trustees, the presumption of law is that the settlor intended to require the concurrence of all, even if he has not said so in terms. Sloo v. Law, 22 Fed. Cas. 354 (No. 12,957), and authorities supra. And if the trustees honestly disagree, that fact furnishes no ground to either for charging the other with a breach of the trust. Quackenboss v. Southwick, 41 N. Y. 117, 122.
This leads to the conclusion that the' decree is not sustainable. But the New York trustee contends that “where one trustee refuses to bring suit, and one is willing to sue, a bondholder cannot maintain the suit, as he must allege the refusal of the trustees,” and cites “Robinson v. Railroad Co., 46 Fed. 12.” We do not find the case cited, but assume that reference was intended to Robinson v. Alabama & Georgia Mfg. Co. (C. C.) 48 Fed. 12. There a suit by one trustee against the mortgagor and the other trustee was sustained on the facts that the defendant trustee had acquired an interest in the trust property inimical to the trust, and that it was doubtful whether the defendant trustee had ever been properly appointed. But neither that case, nor any other we have examined, supports the proposition that, if a joint discretion is lodged in two trustees, and if the beneficiary may sue upon the failure of the trustees to sue, the beneficiary may not sue in case one trustee is willing to sue, and the other is unwilling. On the basis that the trusteeship is a unit, no action can be taken in a discretionary matter without the concurrence of the two trustees; and nonconcurrence with respect to the bringing of a discretionary suit is a .failure of the trustees to sue, which warrants the beneficiaries in suing for themselves, if any one but the trustees jointly may sue.
2. If one trustee, in a joint trusteeship, by disagreeing with his co-trustee in a matter of discretion, may sue the settlor by making his co-trustee a party defendant (which we deny), we are of opinion that on the facts of the case the Circuit Court had no jurisdiction. *922Neither trustee had renounced or abandoned the trust. If the complainant trustee could require the court to substitute its discretion for that of the defendant trustee, nevertheless the parties should be arranged according to interest. The sole object of the suit was to obtain a receivership and foreclosure. With respect to that relief, the defendant trustee, its discretion being overborne by the court, had the same rights and interests as the complainant trustee. They held the legal title jointly. The debt was a unit. Ayres v. Wiswall, 112 U. S. 187, 191, 5 Sup. Ct. 90, 28 L. Ed. 693. They were both indispensable parties. Counting their interests as identical, the requisite diversity of citizenship does not exist. Shipp v. Williams, 22 U. S. App. 380, 10 C. C. A. 247, 62 Fed. 4, and cases therein cited.
But without pursuing this topic further, and without expressing any views upon other questions presented, we are content to rest our conclusion on the first proposition.
The appeal of the New York trustee is denied. On the, cross-appeal of the mortgagor, the decree is reversed, with the direction to dismiss the cause for want of equity.