Court Opinion

ID: 8814715
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:14:14.427003+00
Date Added: 2024-06-11T17:04:24.113554
License: Public Domain

STONE, Circuit Judge
(dissenting). I am unable to agree with the result reached by the majority of the court, because I think the trustee in this deed of trust had no authority or right to, procure a deficiency decree. As to this contention, the position of appellee is that the terms of the mortgage created an express trust, investing the trustee with the specific power and duty of recovering such a deficiency decree for the benefit of all of the bondholders. To this appellant opposes the suggestions that the contract cannot enlarge the equity powers and jurisdiction of the District Court; that such powers, respecting mortgage deficiency decrees, exist only by virtue of equity rule 10; that equity rule 10 expressly limits such decrees to amounts “found due to the plaintiff,” and that such language means amounts owing to plaintiff as a creditor of defendant.
The language of the mortgage intended is found in section 13, article 5, quoted in the majority opinion. The provision shows a clear intention and attempt to invest the trust company with full power to obtain a deficiency decree for all the bondholders; but it is evident that the jurisdiction of courts cannot be affected by contracts between private parties. It is true, however, that contracts may create legal relations between parties which place them within a jurisdiction which would not otherwise apply, and if the quoted portion of the deed of trust makes the trust company the trustee of the bonds for the bondholders, then it is a creditor of the mortgagor, and fully capable of enforcing payment, either through a deficiency decree or a separate suit. Therefore the questions here are: What is the jurisdiction of United States courts relating to deficiency decrees? and has the above provision of the deed of trust placed the trust company within that jurisdiction?
Prior to the adoption of old equity rule 92, now rule 10, there was no jurisdiction to enter a deficiency decree in a foreclosure suit. Noonnan v. Lee, 67 U. S. (2 Black) 499, 509, 17 L. Ed. 278; Orchard v. Hughes, 68 U. S. (1 Wall.) 73, 77, 17 L. Ed. 560. The existence and extent of such jurisdiction, therefore, depends upon the construction to be given that rule, which is as follows:
*928“In suits for the foreclosure of mortgages, or the enforcement of other liens, a decree may be rendered for any balance that may be found due to the plaintiff over and above the proceeds of the sale or sales, and execution may issue for the collection of the same, as is provided in rule 8 when the decrée is solely for the payment of money.”
This rule was adopted as a result of the two above decisions, and closely followed the latter, appearing in the same volume of the reports (page vii). Both of those cases were instances where the foreclosing mortgagee owned the entire debt secured by the mortgage. The language of that rule requires that the plaintiff, here the trustee, must be the one to whom the liability represented by the deficiency decree is “due.” This court has decided that such a trustee, not owning the bonds, is not the one to whom such amount is due. Mackay v. Coal Co., 178 Fed. 881, 102 C. C. A. 115; also see In re Ellis (D. C.) 242 Fed. 156. I think that decision controlling and correct, for the reasons given therein. But in addition to what is there said there are the following considerations, which seem to me worthy, of attention:
It must be assumed that in the carefully prepared rules of the Supreme Court every word was intended to have an effective meaning. The purpose of this rule was to permit recovery of deficiencies in foreclosure suits, and thus obviate the necessity of a separate action for that purpose. The court had in mind that the ordinary parties to such a foreclosure action would be the mortgagee or trustee and the mortgagor, and it had no intention of permitting persons, not parties to that suit, to obtain relief or to be bound by what was done therein. It therefore distinctly specified that deficiency decrees should go only for “any balance” found “due to the plaintiff.” If this is not the proper construction of the rule, then the court meant nothing by the words “to the plaintiff,” because those words can be t eliminated and still leave a right to recover “for any balance that may be found due.” The rule cannot be thus emasculated. Appellee recognizes that the balance must be due to “the plaintiff,” and seeks to in-terpi*et the deed of trust as creating the trust company a trustee of this balance.
The mere statement in the deed of trust that the trustee is made “trustee of an express trust” does not create a trust, unless the relation so established contains elements essential to a trust. • Was such a relation created by the language above quoted in the majority opinion from the deed of trust?
“A trust is where there are rights, titles, and interests in property distinct from the legal ownership.” Seymour v. Freer, 8 Wall. 202, 213 (19 L. Ed. 306); also see 39 Cyc. 18, and citations.
“A trustee is not an agent. An agent represents and acts for his principal, who may be either a natural or artificial person. A trustee may be defined generally as a person in whom some estate, interest, or power in or> affecting property is vested for the benefit of another.” Taylor v. Davis, 110 U. S. 330, 334, 4 Sup. Ct. 147, 150 (28 L. Ed. 163).
A trustee is “the person who takes and holds the legal title to the trust property for the benefit of another.” 39 Cyc. 19, also page 76, and numerous citations. It is thus evident that a trust cannot exist unless there are present three elements: A res, or subject to which *929the trust attaches; a trustee, who holds the legal title for the benefit of another; and a cestui que trust, for whose benefit the legal title is held. Does this claimed trust possess these elements? I think not. What was the res, and what title wras transferred to- the alleged trustee? Clearly the property covered by the deed of trust was not the res, because this section of the mortgage applies only after that property has been exhausted and an unpaid residue left. No title to the bonds or to the unpaid residue is transferred to the trustee; that title in the bondholders is left complete and undisturbed. The attempted grant was solely and only that of a power to receive payment or to enforce payment. That this is true is emphasized by the provision that no such recovery by the trustee “shall in any manner, or to any extent, affect or impair * * * any rights, powers, or remedies of the holders of the bonds hereby secured, but such lien, rights, powers, and remedies shall continue unaffected and unimpaired as before.” Again, there is no imperative obligation upon the trust company to seek enforcement beyond the realization upon the mortgaged property.
“The distinction between a power and a trust is marked and, obvious. Powers, as Chief Justice Wilmot observed, are never imperative; they leave the act to be done at the will of the party to whom they are given. Trusts are alwavs imperative, and are obligatory upon the conscience of the party intrusted.” Stanley v. Colt, 5 Wall. 119, 168 (18 L. Ed. 502). Also see 39 Cyc. 22, and citations.
All that was here granted was a power or permission to bring a suit for the benefit of the bondholders. This makes nothing “due” the trustee in any proper legal sense of the word as used in rule 10.