68 F. 412 | U.S. Circuit Court for the Northern District of Illnois | 1895
The Farmers’ Loan & Trust Company, a corporation created by and under the laws of the state oí .New York, and authorized by the laws of that stai.e to accept the trust hereinafter stated, filed its bill to foreclose a mortgage executed by the Chicago & Northern Pacific Railroad Company to the Farmers’ Loan & Trust Company, as trustee. This mortgage is dated the 1st day of April, 1890, and covers all the lines of railway and property owned by the mortgagor company in the state of Illinois, and was given to secure an issue of bonds by said company, aggregating thirty millions of dollars. The mortgage provided, by article!), that the trustee should have the right to enter and operate the road in case of default; by article 10, that the trustee might enter and sell in case of default. This latter provision is, however, understood to be void under the laws of the state of Illinois. By article 11 the trustee, upon default, and upon requisition and indemnity by the bondholders, should proceed to execute the trusts set forth in the instrument; by article 13 the trustee, at any sale of the mortgaged property, upon request of the holder's of three-fourths in amount, of the outstanding bonds, may bid for and purchase fhe property in behalf of the bondholders. These are all the special provisions in the mortgage to which reference is deemed necessary. The mortgagor company, simultaneously with the execution of the mortgage, leased its railway property, corporate rights, and franchises to the Wisconsin Central Company and the Wisconsin Central Railroad Company for a period of 99 years, at a stipulated rental of *350,000 a. year, the lessees covenanting to pay such further sum or sums of money as might be necessary to pay the interest upon the mortgage bonds issued under the mortgage referred to. On fhe same day, the Wisconsin companies executed to the Northern Pacific Railroad Company a lease of all the properties described in their lease from the mortgagor company, and the Northern Pacific Company covenanted to keep and perform all the conditions and obligations of the lease executed by the Wisconsin companies, and, among other things, ro pay such sums as might be necessary to pay interest on the mortgage,bonds of fhe mortgagor company.
The Chicago & Northern Pacific Company and the Northern Pacific Company now file pleas to the effect that the complainant trustee has never deposited with the auditor of public accounts of fhe slate of Illinois, for the benefit of its creditors, the sum of *200,000 in securities, as provided by law, and has never procured from the auditor of public accounts a certificate of authority stating that the complainant has complied with the requirements of the law of the state of Illinois of 1887, entitled ‘An act to provide for and regulate the administration of trusts by trust companies and the act amenda-tory thereof,” and assert that the complainant is not now ami has never been authorized or empowered to hold in trust the property alleged to have been conveyed in the alleged trust deed or mortgage of April 1, 1890, or to accept, enforce, or execute (tie trust or trusts therein reposed, or to bring any suit or action for the enforcement thereof, or for the foreclosure of the mortgaged property; that
The statute of Illinois (section 26, c. 32, Rev. St.) provides that, “foreign corporations, and the officers and agents thereof doing-business in this state, shall be subject to all the liabilities, restrictions and duties that are or may be imposed upon corporations of like character organized under the general laws of this state, and shall have no other or greater power, and no foreign or domestic corporation established or maintained in any way for the pecuniary profit of its stockholders or members, shall purchase or hold real estate in this state except as provided for in this act.” The act ap
First. That a mortgage to secure a debt is not within the contemplation or the prohibition of the law.
Second. If the trust deed here involved can be considered to fall within the intendment of the law because of certain trusts therein contained which contemplate that in certain contingencies the trustee shall take possession of, operate, purchase, and acquire title to the. real estate covered by the mortgage in the interest and for the benefit of the bondholders, I am of opinion that then such trusts would be held incapable of being enforced by the trustee while in noncompliance with the lav^ of the state, but that the mortgage security of the bondholder would not be invalidated. Pennsylvania Co., etc., v. Bauerle, 143 Ill. 459, 33 N. E. 166; Hervey v. Railway Co., 28 Fed. 169, 175.
Third. The mortgagor company executed this trust deed to the complainant to secure certain bonds which it put forth upon the market as secured thereby. The Northern Pacific Company, in consideration of the lease, convenanted to pay the interest of these bonds. The mortgagor company is estopped, as against the bondholders, to assert that the trustee has not performed the acts necessary to entitle it to assume the trust. It asserted to the world the legal capacity of its appointee. It marketed its obligations upon the faith of that representation. It cannot be permitted now to assert to the contrary. It cannot be allowed to assert a violation of law by itself or by the trustee of its appointment as ground for the nonenforcement of its legal obligation.' It is not the conservator of the dignity of the state of Illinois. The Northern Pacific Company took the lease subject to the mortgage, conve-nanted to pay the interest on the bonds thereby secured, and is in no position to assert its invalidity. It also is estopped.
Fourth. The complainant brings this suit in behalf of the bondholders. They are the parties beneficially interested. The complainant in the prosecution of the suit acts as a mere naked trustee asking the court to enforce the security for the benefit of its cestui que trust. If the instrument can be held to fall within the purview of the acts of Illinois above referred to, since the supreme court of Illinois has held that the disability goes to the right of the trustee to execute the trust, but that the conveyance is not thereby invalidated, I perceive no good reason why the federal court should not open its doors in aid of the bondholders, although coming in the name of the trustee, for the enforcement of rights recognized as valid by the laws and decisions of the state.
It may be that certain trusts contained in the trust deed or mortgage cannot be enforced by the trustee while in contempt of, and until compliance with, the laws of the state of Illinois. I refer to those provisions of the instrument which authorize the trustee to
Willi respect to the second ground alleged in the petition of Louis Daenell, I am of opinion that:, whether there was a resolution of the stockholders for the issuance of this mortgage, and whether or hot it was recorded, is matter with which he is not concerned, and which he has no right to assert.
With regard to the petition of the attorney general of the state of Illinois, I have given to it that consideration which is due to the claim of a sovereign state, hut I am not able to apprehend the justice of its position or its right to intervene. It is to he observed that the state has no property interest in the subject-matter of this litigation. It seeks no relief save 1» enforce the supposed prohibition of the statute, and to prevent the complainant, in behalf of its cestuis que trustent, from invoking the aid of a federal court in enforcing the mortgage security, and this because the complainant accepted the trust without compliance with the law of the state. In plain language, the petition asks a court of equity to deny innocent bondholders, and to declare void, a mortgage securing f>30,'-000,000 of bonds, because the trustee, with whose selection the bondholders had nothing whatever to do, failed to deposit with the state certain securities to the amount of §200,000 for the protection of its creditors. The state asks a court of equity to declare that a provision of the law which was enacted in the interest of creditors, and as a weapon of defense, shall be turned into a weapon of destruction. It would be strange indeed if any chancellor could be impressed with the equity of the plea, or could bend his mind to such an injustice, unless thereto compelled by positive law. It is undoubtedly the duty of a federal court in every proper case to uphold and enforce the law of the state.
The supreme court of Illinois has, however, held, under the statute here invoked, that the security is not void. Upon the assumption that certain active trusts contained in the mortgage ought not