240 Pa. 500 | Pa. | 1913
Opinion by
The first question raised by this appeal is as to the right of a trustee in a mortgage to buy in the property for the benefit of the bondholders. From the facts as found by the court below it appears that on March 1, 1907, the Scranton Driving and Field Association, a corporation, executed and delivered to the Scranton Trust Company, a mortgage upon the real estate of the association in Lackawanna Township, Lackawanna County, comprising some thirty-two acres of land with the improvements thereon. The mortgage ivas given to secure an isssue of $25,000'of bonds. It was recorded on March 2,19.07, and on the same day three judgments were entered against the association by the Scranton Trust Company, trustee, on three judgment notes for $2,202.13 each. The beneficial owners of the judgments were the Nay Aug Lumber Company, one of the plaintiffs, and eight other creditors of the association, all of whom were also bondholders. It was agreed that the lien of the judgments should be subsequent to that of the mortgage, but it was provided in the mortgage that any money deposited with the trust company should first be applied in payment of the judgments. The trust company accepted the trust upon the express stipulation that it should be liable only “for such moneys and securities as shall come into its hands for the purpose of distribution hereunder and for its own wilful default or negligence.” In April 1908, execution was issued on the first of the judgments, and the real estate was sold at sheriff’s sale, and it was purchased for the beneficial owners of the judgments by the trust company, subject to the lien of the mortgage. Default having been made in the payment of interest upon the bonds, foreclosure proceedings were begun under the mortgage, and the properly was sold by the sheriff on June 17, 1910. Up to this time the relations between the bondholders had been apparently harmonious, but the court below finds as a fact that at this sale there appeared two discordant
In 3 Cook on Corporations (6th Ed.) par. 885, it is said: “It seems that a trustee has implied power at the foreclosure sale to bid for the property, in behalf of the bondholders, up to a figure equal to the principal and interest due upon the mortgage debt.” In Jones on Corporate Bonds and Mortgages (1907) par. 289, it is said: “It is the duty of a mortgage trustee to protect the security he has taken for the bondholders to the utmost of his ability.” And par. 290: “It is the duty of trustees intrusted with the sale of lands for the benefit of the bondholders to make the sales as available as possible for the extinction of the debt for the security of which they hold the land.” In Com. v. Susq. & Del. R. R. Co., 122 Pa. 306, Mr. Justice Williams said (p. 319): “When a default occurs, the duties of the trustee (in a corporation mortgage) become active and important. He represents all the bondholders, and is under obligation to protect them so far as the property in.his hands in trust for them will enable him to do so.” The trustee was bound, in the exercise of the discretion left to it, to use the same diligence and care in protecting the interests of the bondholders, that a prudent man would use in protecting his own interests. Certainly any prudent man would bid up to the amount of the debt and interest at a foreclosure sale under his control, provided the
Having purchased the property in the-proper exercise of discretion, there can be no doubt of the right of the trustee to make salé of it, to the best advantage. This principle is stated in Yerkes v. Richards, 170 Pa. 346, cited by the court below. Mr. Chief Justice Sterrett there said (p. 352) : “When the mortgaged premises were put to sale on foreclosure proceedings, he (the trustee) found it necessary, for the protection of the trust fund, to bid in the property, and he accordingly did so. He thus became clothed with the legal title to the land which for the time being represented part of the corpus of the trust. For the purpose of reinvesting as contemplated by the testator, it was necessary for him to sell, and accordingly he executed the option contract in suit. There cannot be any question, either as to his authority or his duty to do this. It was unnecessary for him to ask the court for authority to sell.” The power of an executor or trustee to sell property purchased by him in his representative capacity at sheriff’s sale was recognized in Barber’s Appeal, 125 Pa. 564, and Gumaer v. Barber, 182 Pa. 31. In the latter case Mr. Justice Dean said (p. 36): “If the executor bought the land at the sheriff’s sale in his representative capacity for the estate, the land still continued personalty for purposes of distribution under the will, and the purchaser took a good title at the executor’s sale. In other words, if he bought for himself as executor he was a trustee under the will, and he had the right to dispose of the farm.”
These authorities on principle clearly sustain the right of the trustee to sell in this case, and the evidence does not show that the power was to be inequitably or un
The assignments of error are all overruled, and the decree of the court below is affirmed.