Court Opinion

ID: 5578180
Source: CourtListenerOpinion
Date Created: 2022-01-11 01:30:50.53198+00
Date Added: 2024-06-11T08:36:00.352827
License: Public Domain

Evans, P. J.
(After stating the foregoing facts.)
1. The petition alleged the maturity of the bonds by default in the payment of interest for more than a year and the right of a bondholder under the terms of the trust deed to foreclose it, and also an emergent condition requiring the immediate interposition of a court of equity to prevent serious loss from an impending *239tax sale, and it can not be said that on its face it did not present a case for the appointment of an interlocutory receiver in aid of the relief sought.
2. On the hearing the plaintiffs submitted the correspondence between themselves and their attorneys, and the trustee and its attorneys, upon which they relied to establish their right to foreclose the mortgage under the terms of the trust deed. This correspondence began eighteen days before the' plaintiff filed his petition. The initial letter was from the plaintiff to the trustee, dated February 10, 1910, to the effect that the plaintiff was the holder of 33 bonds, and that interest was in default for more than a year; and requested the trustee to proceed to foreclose the mortgage, offering-such indemnity as the trustee might require under the terms of, the deed of trust. The receipt of this letter was acknowledged on the 16th of February by the secretary of the trustee, who stated therein that the trustee would be glad to do anything it should do under the mortgage, and had referred the matter to its counsel, and would communicate with the plaintiff as soon as advised; and that the trustee would require, in case it instituted proceedings, a deposit of such sum in money as might be agreed upon to indemnify against expenses. On February 24th the plaintiff telegraphed the trustee: “Property Etna Steel and Iron Company advertised, for taxes. Be sold March first. Authorize me to file bill in your name, or shall I proceed in my name for bondholders.” On the same day counsel for the trustee wrote to plaintiff that they would be glad to foreclose the mortgage, but they would like to have the plaintiff to do certain things; that the-trustee would require indemnity before instituting such proceedings, and he thought that this should be in the sum of at least $1,500, to cover possible costs and expenses, and would prefer that the indemnity be provided by deposit in cash, but, if this was not convenient, to inform him what other form of indemnity plaintiff would like to offer. He requested detailed information as to the non-payment of taxes and non-insurance of the property, and he referred to the provision in the mortgage permitting a bondholder to pay the taxes and insure the property, and offered to advise the trustee to attend to this if the plaintiff would furnish it with funds necessary for the purpose. Reference was made to the provision in the trust deed relative to the default in the payment of the interest for one year after due *240demand for payment, and full information was asked as to whether demand for payment of the coupons alleged to be overdue had been made. It was further stated: that the trustee, before beginning foreclosure proceedings, would require some proof as to the fact of the plaintiff’s ownership of the bonds, either by the deposit of the bonds or by some way satisfactory to it; that the mortgage provided that the trustee was under no duty or obligation to act thereunder unless requested by a majority of the holders of bonds outstanding, but the writer did not believe that this interfered with the trustee’s right to act upon the plaintiff’s request, although he suggested it would be better to have a larger number of bondholders making the request. On the next day counsel for the trustee wrote to counsel for the plaintiff a similar letter. The foregoing epitomizes the correspondence between the trustee and the plaintiff, prior to the institution of the suit. We do not think, under these circumstances, that the plaintiff brought himself within the terms of the mortgage, so as to give him the right of foreclosure under the contract because of a failure of the trustee to institute proceedings. The trust deed expressly stipulated that the exclusive right of action was vested in the trustee until refusal on its part to act, and no bondholder should be entitled to enforce performance of its covenants until after demand had been made on the trustee, accompanied by a tender of indemnity satisfactory to the trustee, and the refusal of the trustee to act in accordance with such demand. It appeared in the evidence that there was a prior mortgage of $100,-000 upon the property, and the trustee was apprehensive that the proceeds arising from the sale of the property would not exceed this sum. Prior to the filing of his petition the plaintiff did not intimate that the indemnity required by the trust company was exorbitant in amount, or in any wise oppressive. The plaintiff failed to offer the indemnity required, and there was no refusal on the part of the trustee to proceed to enforce the trust deed. Under the undisputed facts the plaintiff had no right as a bondholder to institute the suit in opposition to the right of the trustee.
But it is contended, that, inasmuch as the propertjr was about to be sold for taxes, the conditions were emergent and justified the plaintiff, for the protection of himself and other bondholders, to protect himself against serious loss resulting from a sale of the property. On the hearing it was made to appear that in 1908 an *241execution for taxes for the sum of $525 had been issued against the Etna Company, and that this tax fi. fa. had been transferred to the Commercial Bank; that in 1909 a special fi. fa. and a general fi. fa., aggregating $1,025, had been issued, and, at the instance of the county attorney, were placed in the hands of the sheriff for enforcement. The sheriff levied upon certain personal property, when a brother of the plaintiff, who was the manager of the Etna Company, suggested that the levy on the personalty be dismissed and that the land embracing the pumping station be levied upon. Accordingly the sheriff levied upon certain described realty and a pumping outfit located thereon. This land embraced the water supply, which furnished the chief value to the other mining property. Immediately after his appointment, the temporary receiver procured a bank to take up the executions upon an assignment of the fi. fas. to the bank. The Etna Company offered to pay these taxes, provided the receivership was dismissed; and this offer was declined. Under the terms of the trust deed the trustee was under no obligation to look after the payment of taxes. The Etna Company covenanted to pay the taxes; and its default, not that of the trustee, produced the emergent condition, to relieve which the bondholder filed his action. Where there is a duty on a trustee to act promptly to protect the mortgaged property, and he fails or neglects to perform this duty upon demand, a bondholder may institute a suit in his stead for the preservation of the property. 3 Cook on Corporations, § 830. But it does not follow that a right to file a proceeding to protect the property from an impending peril will justify a bondholder to institute proceedings to foreclose the mortgage contrary to its terms. The Etna Company pleaded that after the appointment of the temporary receiver, it had been ready, willing, and able to take up the tax executions and would have done so on the day of sale but for the appointment of a temporary receiver and the grant of an order restraining it from interfering with its property or rights, and in its answer it made an offer to take up such executions and asked the permission of the court to do so. The court should have allowed the taxes to be paid, for if they were paid there would be no longer any necessity for the receivership to preserve the property. It did not appear what particular property was insured and what was not insured, but the failure of the Etna Company’s covenant to insure would not be sufficient *242ground to deprive the trustee of his exclusive right, under the contract, to foreclose the mortgage.
The facts pleaded in the intervention do not affect the right of the trustee to bring the suit. The trustee has the right to foreclose the mortgage, and in that foreclosure suit the plaintiffs would have the right to intervene for the purpose of showing that any bonds presented to the trustee for payment had been -illegally issued, or were otherwise not entitled to share with the plaintiffs in the distribution of the proceeds of the sale of the property. 3 Cook on Corp. § 848 (5).
There is no dispute that the mortgage is ripe for foreclosure; the Etna Company admits its defaults; and the contest is between the trustee and minority bondholders as to the right to maintain a foreclosure suit. We do not undertake to pass upon the propriety of the trustee’s bringing a foreclosure suit in the United States court after the present suit by the bondholder was begun; that court is the proper tribunal to adjudicate its own jurisdiction; what we decide is that on the hearing the proof failed to support the plaintiff’s allegations entitling him to foreclose the mortgage, and that upon the Etna Company’s providing for the tax executions the receiver should be discharged and the property turned over to its owner.

Judgment reversed.

All the Justices concur, except Beck, J., absent, and Hill, J., not presiding.