280 Pa. 195 | Pa. | 1924
Opinion by
The bill, filed by bondholders against defendant as trustee under a corporate mortgage or deed of trust to secure a bond issue, avers the trustee was grossly negligent in discriminating in payment of interest coupons, certifying bonds after default made in payment of interest at a time it should have known bonds previously certified had been misappropriated, and otherwise failing to perform its duty as trustee. The bill asked for dis
The mortgage in question was executed to secure a bond issue of the Montgomery Transit Company to the extent of $600,000, of which bonds to the value of $225,-000 are held by plaintiffs. By its terms the trustee was required to certify the obligation and deliver them as indicated by its provisions and only such as bore the certificate of the trustee should have the benefit of being secured by the mortgage. Following certification the bonds were required to be delivered in designated lots at the written request of the transit company for specified purposes; such deliveries, however, to be made only when the trustee should “receive a copy of the resolution of the board of directors of the transit company, certified by its secretary under its corporate seal, calling for such delivery.” A further clause provided that “the trustee shall be under no responsibility to see to the application of any of the bonds delivered under the provisions of this section or to the application of the proceeds thereof or to verify the resolutions so to be delivered to it.” Also that the trustee “shall not be answerable for the default or misconduct of any agent or attorney appointed by it in pursuance hereof, if such agent or attorney shall have been selected with reasonable care, or for anything whatever in connection with this trust, except wilful misconduct or gross negligence.” Further, the trustee was not to be under obligation to take action toward the execution or enforcement of the trust which, in its opinion, would likely involve it in expense or liability, until furnished with reasonable indemnity, nor take notice of default unless notified in writing by the holders of ten per cent of the bonds, nor
The directors of the transit company entered into a contract which contemplated the building of extensions and improvements and furnishing the necessary equipment for such enlargements. Following this action the directors, by resolution in writing, authorized the trustee to certify and deliver to the treasurer of the transit company the latter’s bonds in the total amount of $425,000 and further directed the treasurer to turn over to the contractor, or his nominee, any or all such bonds as the same should be requested by the contractor. A number of these bonds subsequently came into the hands of plaintiffs as purchasers. The contractor failed to complete his contract and carry out the work and as a result of such failure the proceeds of the bonds were not used for the purpose intended. The negligence charged against the trustee consisted in certifying and delivering the bonds mentioned in the certificate of the board of directors, (1) Without discovering that the contractor was irresponsible, (2) Failure to take action against the traction company, and (3) Failure to protect the bondholders by applying to the proper court for appointment of a receiver for the company.
It is apparent from the provisions of the mortgage quoted above, and the averments in the bill, that the trustee cannot be held responsible for losses bondholders
The decree of the court below is affirmed at appellants’ costs.