184 F. 689 | 2d Cir. | 1911
(after stating the facts as above). The reason why petitioner has not brought a foreclosure suit, but applies instead for leave to sell under the eleventh clause, is quite apparent from an examination of the two clauses above quoted. Under the thirteenth clause foreclosure can only be had for defaulted interest; the principal cannot be declared due upon any such default, however long continued; there can be no foreclosure which will protect the principal until it falls due in 1930. Under the eleventh clause, however,, if defaulted interest is not paid by the time of sale, the principal shall ipso facto become due and payable, and the proceeds of the sale be used to pay it.
The property being actually in the custody of the federal court, and the trustee therefore being powerless itself alone to make delivery to a purchaser, it made this application to the court. There seems to have been a general impression upon the hearing below that the application was in effect to turn the property back to the trustee to conduct the sale, marshal the proceeds, and dispose of them. The phraseology of the prayer of the petition is calculated to give such an impression, since it asks leave for the “petitioner to sell the property in accordance with provisions of said paragraph eleven”; and it would seem from respondent’s brief and their counsel’s .statements on the argument before us that petitioner’s counsel did nothing in the court below to dissipate this impression.
Here, however, we have a very different state of affairs. Appellants’ counsel conceded on the argument, and there is nothing in his brief inconsistent with the concession, that the federal court having custody of the property will retain such custody until the rights of all parties interested are determined and disposed of.
This concession disposes of a large part of respondent’s brief. There is no “request for permission to withdraw to the state court the controversy which had originated in the Circuit Court”; there is no suggestion of withdrawing from the latter court “all questions in reference to the disposition of the surplus.” All that is asked is that the sale be had forthwith in accordance with the terms of the mortgage and the provisions of statute relating to such a sale of real estate located within this state. Should there by any surplus left after paying the expenses of sale and the amount due under the mortgage, application for instructions as to its disposition will be made to the Circuit Court. It is necessary only to consider some further objections which have been raised to a present sale.
We have no doubt that the order is appealable. The “discretion” exercised, in the form expressed in the order, practically denied to the trustee for bondholders all opportunity to avail of the rights secured by the eleventh paragraph, including the right to have principal sum declared to be presently due, by confining the trustee to remedies under the thirteenth paragraph, which postponed any right of foreclosure for unpaid principal for a period of 20 years. The question whether such an order does or does not “invade the established rights of the petitioners contrary to law, in such a manner that they can have no relief except by an appeal,” is certainly presented upon the record; and for that reason the cause is within the principle laid down in Farmers’
In an affidavit of one of the solicitors for the* Knickerbocker Trust Company there is a suggestion that there may be a “question of the priority of the mortgage of the Hudson River Electric Power Company, Knickerbocker Trust Company as trustee (executed January 2, 1904), over the mortgage of the Empire State Power Company to the New York Trust Company as trustee.” A similar statement is made as to a mortgage of the Hudson River Power Transmission Company. Since it appears that the mortgage given by the Empire State Company was executed in 1900, and all the bonds now outstanding were issued and bought before that company had any connection with any of these other companies, this suggestion is too vague and shadowy for present consideration. But if there be any equity outstanding in any one, superior to this mortgage, that would be no reason for denying any right of sale secured to the mortgagee; the lien will either adhere to the property sold or will attach to the proceeds.
It is contended that the trustee should be denied the relief prayed for because a majority of the bondholders appeared by coúnsel and assented to the order allowing the trustee to file a cross-bill of foreclosure under paragraph 13. There is no force in this contention, the trustee represents minority bondholders as well as the majority, and we know no reason why bondholders who thought at first of availing of one remedy, secured to them by the mortgage, but have not in fact availed of it, may not change their mind and resort to what subsequently seems to them a more efficient remedy. Nor is there any merit in the suggestion that because the trustee has waited till after several defaults have occurred, in the hope that some reorganization would straighten everything, it is to be denied the relief accorded by the mortgage upon any theory of laches.
The fundamental ground of objection is that because these various allied companies have been operated together as a single system, and because there are many different classes of creditors, some secured by the property of one company, others by the property of another, others again by the properties of some or all of the companies and also various classes of unsecured creditors, and because the best chance of preserving the system as an operative whole apparently lies in holding it together without allowing any part of it to break off, the court will secure the greatest good of the greatest number by so doing. But, although a court of equity will be astute to protect all equitable interests, there is a limit beyond which it may not go. In the case of successive mortgages upon a single piece of real estate, it may often be a great hardship to the holder of a junior mortgage to have the property sold under foreclosure of the first mortgage at a time when general financial distress will preclude any hope of enough being realized to pay more than the amount secured under the first- mortgage, while, if all action could be suspended for two or three years, the property would sell for a price sufficient to pay both mortgages in full. But there is no power in a court of equity to abrogate the right of foreclosure and sale for which the first creditor stipulated, which is incorporated in the contract and on the strength of which
Nothing is disclosed in this record affecting the validity of this mortgage or controverting the right of the representative of bondholders to avail of its terms.
The order should be reversed, and cause remanded, with instructions to allow a sale of the property forthwith in accordance with the terms of the mortgage and in conformity to the statutes, with the provision that the surplus, if any, be held to await further instructions of the Circuit Court. Of course, if the defaulted interest and sinking fund payments are made by receivers to keep the property intact — and a clause in the opinion of the Circuit Court judge indicates that this will probably be done — the right of sale is lost, until a new default, continuing for six months, may revive it.
