Mercantile Trust Co. v. Chicago, P. & St. L. Ry. Co.

61 F. 372 | S.D. Ill. | 1893

WOODS, Circuit Judge

(orally, after stating the facts). The sharp question presented by the demurrer is whether the sixth clause of the mortgage is a limitation on the right of the trustee to foreclose for interest which, is not six months overdue. It is conceded that the mortgage is a security for that interest, and may be enforced by the beneficiaries of the trust, the bondholders; but it is insisted that the trustee has no right to sue until there has been a lapse of six months since the interest became due. That, I think, is the controlling question of the case. I do not think there is any right secured to the mortgagee which is not represented by the trustee. Whatever right a bondholder has under the mortgage, he has a right to have the trustee enforce for his benefit. It is for that purpose a trustee is chosen. It being conceded, therefore, that there is a right of foreclosure, my view is that the right is one which may be exercised by the trustee. This is therefore a good bill for foreclosure. A reference to particular provisions of the mortgage would fortify this conclusion, but it is unnecessary to go much into details. I have already, during the hearing, indicated the main thought. The second article of the mortgage, which "limits the right of the mortgagor to continue in possession until default in some of the conditions named, would be made meaningless by the construction proposed; and it will not do, as has been suggested, to say that the entire article was inserted carelessly, and should be regarded as having no force, unless, indeed, the other provisions of the instrument are such as to make it necessary to dis: regard this one. If there can be a reasonable interpretation put upon the whole mortgage which will give this clause significance, and otherwise it would be without meaning, that interpretation ought to be adopted. The language of the article is: “Until default shall be made,” and so forth, “the mortgagor shall be entitled to remain in possession;” and, if under that provision a bondholder may terminate that possession by foreclosing the mortgage, the trustee, as already stated, may do it for him. It is claimed, and I think correctly, that the trustee’s right to take possession under the third article is limited to cases where interest has been overdue for six months; and it is insisted that his right to foreclose and to procure a receiver to take possession under the order of the court is likewise limited. If that were so, then the possession of the mortgagor could not be disturbed for any default until after the lapse of six months, and the second article would be entirely nugatory; and, without the consent of the holders of two-thirds of the bonds, there could be no foreclosure,—a proposition by which the minority might nullify the rights of the majority.

Now, I have not examined the cases which have been cited critically enough to undertake to say with certainty what the line of discrimination is, but I have the impression it is about here. A mortgage is a security for a debt. A failure to pay the debt, in whole or in part, when it is due, is necessarily a breach. That is ah inherent or essential feature of a mortgage, and the right to enforce the security in court is not to be construed away, or regarded as limited, except by clear expression. In the case of Guaranty Trust, etc., Co. v. Green Cove, etc., R. Co., 139 U. S. 137, 11 Sup. Ct. 512, it is held that it cannot he absolutely abrogated. That is authoritatively settled; whether upon good reason need not be considered. The cases cited wherein the right of the trustee was declared to he restricted have reference to special powers to be exercised by the trustee without the aid or order of a court,—powers not necessarily inherent in or essential to the very definition of a mortgage. The right of a trustee to take possession is not essential. It may or may not exist, and when it is given in connection with clauses that limit the exercise of it, even though the terms used he permissive, they will be regarded as exclusive. And so, too, a right to sell at public auction without foreclosure, and like special powers, will he considered as controlled by such limitations as the mortgagor chooses to impose. Counsel has insisted upon the significance of the case of Railroad Co. v. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10, where the court says that if, as a matter of fact, the principal debt had been declared due, still the trustee would not have been entitled to sue for a foreclosure of that part of the debt without averring the request of the bondholders provided for in the clause of the mortgage then under consideration. Counsel asked: “How is that to be distinguished from a suit to foreclose for the interest which has become due?” If the trustee has it within his power to declare, and declares, the principal debt due, that is then as much due as the interest, and therefore the rule with reference to them must he the same. That is the argument, and it is certainly not without a good deal of force; hut in the same case we find the court saying that either the trustee or the bondholders might have a foreclosure for default in the payment of the interest; and the reason for the distinction is given at length in the opinion. I think this is a good bill for foreclosure of the mortgage. The averments of insolvency make it a good hill for the appointment of a receiver, and the demurrer will he overruled.