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GUARANTY TRUST AND SAFE DEPOSIT COMPANY v. GREEN COVE SPRINGS AND MELROSE RAILROAD COMPANY.

decided: March 2, 1891.

GUARANTY TRUST AND SAFE DEPOSIT COMPANY
v.
GREEN COVE SPRINGS AND MELROSE RAILROAD COMPANY.



APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF FLORIDA.

Author: Brown

[ 139 U.S. Page 140]

 MR. JUSTICE BROWN, after stating the case, delivered the opinion of the court.

1. The answer of Philip J. Canova raises an objection to the maintenance of this bill in the fact that sixty per cent in value of the bondholders had not requested action upon the part of the trustee, as required by the trust deed, which, in covenant numbered second, provides in substance that, in case of default

[ 139 U.S. Page 141]

     after demand made, for a period exceeding twelve months, to pay the semi-annual interest upon the bonds, or for a period exceeding six months to pay the principal of such bonds, "it shall be the duty of the said trustees for the time being, and they shall or will, upon written request of the holders of sixty per centum of the said bonds then outstanding, enter upon and take possession of the said railroad property and estate," and operate the same, appropriating the net income to the best advantage, etc., "or the said trustee shall and will, after or without entering upon or taking such possession, upon the written request of the holders of bonds of a like amount, proceed upon and under this indenture of mortgage to sell the railroad property and estate, . . . at public sale, in the city of Philadelphia, first giving at least four weeks' notice by publication, etc.," and grant and convey the same to the purchaser, freed from all and every trust hereby created, etc."

As there is no averment in the bill that sixty per cent of the owners of the outstanding bonds had requested action on the part of the trustee, it is insisted that these proceedings were instituted without authority, and the case of Chicago &c. Railroad Co. v. Fosdick, 106 U.S. 47, 77, is claimed to be decisive of this question. In that case, which was a bill for foreclosure, the proviso was that the trustee, upon the written request of the holders of a majority of the bonds then outstanding, should proceed to collect both principal and interest of all such bonds outstanding, by foreclosure and sale of said property, or otherwise, as therein provided. It was argued that the office of this clause was merely to make the obligation of the trustees imperative instead of optional, but the court held that the whole article must be taken together as a unit, and "the nature of the provision and the character of its object must be taken into consideration as furnishing the rule of its interpretation." It will be observed, however, that the proviso was directed against the very proceeding taken by the trustee in the suit, namely, a foreclosure and sale of the property; while in the present case it is directed only to a taking possession, or a sale under the deed of trust without the institution of legal proceedings.

[ 139 U.S. Page 142]

     A case nearer in point is that of Morgan's Steamship Co. v. Texas Central Railway, 137 U.S. 171, decided at the present term, in which the condition was that on default continuing for sixty days in the payment of interest or any part of principal, the principal of the bonds should become immediately due, and that upon request of seventy-five per cent of the holders of bonds, and written notice of the same, the trustee should take possession of the property, and operate it for the benefit of the bondholders, and that upon like request he should proceed to foreclose the mortgage and sell the property to the highest bidder for cash. It was also provided that nothing contained in the instrument should be construed to prevent or interfere with the foreclosure by any court of competent jurisdiction. It was held that the trustee could maintain a bill to foreclose the mortgage upon occurrence of a default, without averring or proving a request of seventy-five per cent of the bondholders, as such request was necessary only in case the trustee wished to proceed to foreclose or take possession ex mero motu without the intervention of a court.

We think that such limitations upon the power of the trustee to take legal proceedings to enforce payment of the amount secured, should be strictly construed. In this case, the condition only relates to the taking possession of the property under the deed of trust, or to a sale in the city of Philadelphia, under the power of sale contained therein, and we think it should not be held to apply to foreclosure proceedings begun in a court of competent jurisdiction to obtain a judicial sale of the property. This was the ruling in the Eighth Circuit, by Judge Dillon in Alexander v. Central Railroad of Iowa, 3 Dillon, 487; and by Judge Caldwell in Credit Co. v. Arkansas Central Railroad Company, 15 Fed. Rep. 46; and we think it is sound.

It is true there is a subsequent provision in the deed of trust to the effect that neither the whole nor any part of the premises mortgaged shall be sold, under proceedings either at law or equity, for the recovery of the principal or interest of the bonds, it being the intention and agreement of the parties that the mode of sale provided by the mortgage "shall be exclusive

[ 139 U.S. Page 143]

     of all others." This clause, however, is open to the objection of attempting to provide against a remedy in the ordinary course of judicial proceedings, and oust the jurisdiction of the courts, which, as is settled by the uniform current of authority, cannot be done. Hope v. International Society, 4 Ch. D. 327; Edwards v. Aberayron Ins. Society, 1 Q.B.D. 563; Horton v. Sayer, 4 H. & N. 643; Scott v. Avery, 8 Exch. 487; S.C. 5 H.L. Cas. 811; Thompson v. Charnock, 8 T.R. 139; Mitchell v. Harris, 2 Ves. Jun. 129; Tobey v. County of Bristol, 3 Story, 800; Noyes v. Marsh, 123 Mass. 286; King v. Howard, 27 Missouri, 21; Conner v. Drake, 1 Ohio St. 166; Trott v. City Ins. Co., 1 Cliff. 439; 2 Story Eq. ยง 1457.

Again; it is evident that this was a condition for the benefit of the grantor and its assigns, and that intervening lien holders, and those who have purchased the property under decrees in their favor, do not stand in a position to take advantage of this covenant. The sole object of the convenient was to protect the mortgagor against a seizure and sale of its property for non-payment of interest or principal at the mere caprice of the trustee, or without the consent of a majority of the bondholders, and it has no application to a case ...


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