Manor Coal Co. v. Beckman

Offutt, J., delivered the opinion of the Court: The Three Forks Coal & Coke Company of Garrett County, a Maryland corporation, on October 19th, 1906, conveyed to the Commercial Trust Company, of Philadelphia, a Pennsylvania corporation, certain coal lands in Garrett County, in trust to secure an issue of bonds aggregating in par value $80,000 and payable in fifteen years, hereinafter called “first mortgage bonds.” The equity of redemption in the property, by several mesne conveyances, became eventually vested in the Manor Coal Company, a corporation and one of the appellants, and that company conveyed it by two mortgage deeds of trust, dated respectively May 1st, 1920, and May 2nd, 1920, to the Franklin Trust 'Company of Philadelphia, also an appellant, to secure two issues of bonds, the first aggregating in amount $206,800 and the second, $89,200. When that was done holders of first mortgage bonds to the amount of $65,500 exchanged those bonds for bonds of the Manor Ooal Company, but the holders, of such bonds aggregating in par value $14,000, hereinafter for brevity referred to as the “minority bondholders,” failed or declined to make that exchange, and those bonds remain unpaid and unsatisfied. The property conveyed by the deed of trust to the Commercial Trust Company consisted of several tracts of unimproved coal land in Garrett County, separated from each other by other tracts of land which had been acquired by the Manor Coal Company prior to the execution of the deed to the Franklin Trust Company, and which the appellants contend were essential to the profitable and convenient use of the separated tracts conveyed to the Commercial Trust Company by the Three Forks Coal & Coke Company. Under the terms of the latter conveyance, as we have stated, the bonds secured thereby payable in 1921, and interest thereon at the rate of four per cent, was payable semi-annually in April and October.

It contained no pro ¹⁰⁵ vision, for a sinking' fund, but it did provide that, in case of default in the payment of the principal or interest due on the bonds, “all of said bonds intended to be secured hereby, shall at once become due and payable and these presents are hereby declared to be made in trust, and the said Commercial Trust Company, its successors and assigns, are hereby authorized and empowered at any time thereafter, upon the request of a majority of the bondholders, to sell the property hereby conveyed, or so much thereof as may be necessary, and to grant and convey the same to the purchaser or purchasers thereof, his, her or their heirs or assigns.” The bonds were not paid at maturity but, in the absence of any request by a majority of the bondholders to that effect, the Commercial Trust Company failed to take any steps to enforce their payment. Thereupon the minority bondholders, the appellees in this case, demanded that it sell the property under the power contained in the deed of trust for the satisfaction of their debt. The company refused to take that action and the minority bondholders then filed the bill of complaint in this case, in which they asked that the property described in the deed of trust to the Commercial Trust Company be sold, and the proceeds of sale applied to the payment of their bonds, on the theory that the Manor Coal Company, which had mortgaged to the Franklin Trust Company the property secured by the deed of trust to the Commercial Trust Company, had secured a majority of the first mortgage bonds, and that it was against its interest to have the Commercial Trust. Company mortgage enforced, because that would impair the security of the bonds of the Franklin Trust Company which it received in exchange for the first mortgage bonds.

The bill was filed against the two trust companies and the Manor Coal Company, but subsequently the Johnstown Coal & Coke Co., J. H. Beckman, and Gilmor S. Hamill, former owners of a majority of the Commercial Trust Company bonds, were permitted to intervene in the case as defendants and to* answer the bill. So far as the controlling questions involved in it are concerned, the case was in effect tried on bill and answer, ¹⁰⁶ supplemented, by defendants’ testimony and stipulations of counsel, and the facts upon which those questions depend are to he in the main ascertained from the pleadings. It is therefore necessary to' refer to SO' much of the pleadings as may he material to the issues in the case, but before doing that we will state the main questions presented by the appeal, which are these: Eirst, whether a majority of the first mortgage bonds are in-the hands of persons whose interests are opposed to a foreclosure of the mortgage from the Three Forks Coal and Coke Company to the Commercial Trust Company. Second, whether the minority bondholders, after default had been made in the payment of their bonds, demanded that the Commercial Trust Company enforce the mortgage by which they were secured.

Third, if it was refused, and if the interests of a majority of the bondholders were opposed to such a foreclosure, whether the court, upon the request of the minority bondholders, in the exercise of its general chancery jurisdiction, had the power to decree a sale of the mortgaged property to enforce the payment of the bonds secured by the mortgage to' the Commercial Trust Company. And fourth, whether the minority bondholders can be compelled to accept in satisfaction of their bonds anything less than the par value thereof, or the proceeds of a judicial sale of the property pledged to secure them. Under the terms of the deed of trust to the Commercial Trust Company, upon any default in the payment of the principal or interest thereby secured “all said bonds, intended to- be secured hereby shall at once become due and payable and these presents are hereby declared to be made in trust, and the said Commercial Trust Company, its successors and assigns, are hereby authorized and empowered at any time thereafter upon the request of a majority of the bondholders, to sell the property hereby conveyed, or so much thereof as may he necessary, and to grant and convey the same to the purchaser or purchasers thereof, his, her or their heirs or assigns.” ¹⁰⁷ The bill of complaint, after setting out in substance the facts to which we have referred, in the fifth paragraph thereof, referring to that power, went on to charge, “That after the time for the payment of said bonds and when they were past due and default had been made in the payment thereof, your orators demanded of the Commercial Trust Company of Philadelphia, Trustee, as. aforesaid, that it proceed to exercise the power of sale granted to it in said deed of trust securing said bonds and to cause the property described therein to he advertised and sold as provided in said deed of trust, for the satisfaction of themselves and all of the bondholders whose past due bonds, were secured thereby, but that said trustee refused so to do until requested by the holders of a majority of the bonds secured by said deed of trust, notwithstanding they were so informed and knew that the said the Manor Coal Company, the present owner of the property mortgaged to' secure said bonds, had bought up and was now the owner and possessor of more than fifty per cent, of said bond issue.” The Manor Coal Company, which is now in possession of the mortgaged property, the Commercial Trust Company, and the Franklin Trust Company, filed answers to the bill, in which they admitted the execution of the mortgage deed of trust to the Commercial Trust Company. The Manor Coal Company in its answer said in part: “We admit that the bonds secured by said deed of trust still remain due and unpaid and that the time provided for the payment thereof by the terms of the bonds and the conditions of the deed of trust has long since passed.

We deny that payment has been duly demanded by the plaintiffs from the Manor Coal Company of the bonds alleged to be owned by plaintiffs. We admit that the solicitors for the plaintiffs have communicated with the Manor Coal Company in regard to the payment of certain bonds, hut deny that any demand sufficient in law and according to the terms of the deed of trust has been made upon the Manor Trust Company. * * * We aver that no demand has been made by Commercial Trust Company, tras ¹⁰⁸ tee, upon the Manor Coal Company to pay the amount of the bonds secured by the deed of trust ‘Exhibit A,’ or any part of them. To the extent that the plaintiffs have intended to aver that the Manor Coal Company has bought up and is the owner and possessor of more than fifty per cent of said bond issue, we deny that the Manor Coal Company has bought up any of said bonds, and deny that we are now the owner or possessor of any of said bonds secured by the deed of trust ‘Exhibit A.’ We demand strict proof of the other matters alleged in paragraph 5 in so far as the same are material.” It further alleged that “the mine opening of Three Forks Coal & Coke Co. was on the area designated as ‘First,’ comprising lots 358 and 360, containing 50 acres each, and that all the coal of the lower Kittanning seam, under said tract called ‘First’ that could be mined from said opening was removed long before the conveyance to the Manor Coal Company on April 30th, 1920. In order to make available for mining the other coal covered by said deed of trust, ‘Exhibit A,’ it would be, and is, necessary to buy other intervening lands in many cases.” It also stated that the Three Forks Coal & Coke Company sold the mortgaged property to the Three Forks Mining Company, which became insolvent, and that the Franklin Trust Company bought it at foreclosure proceedings subject to the lien of the deed to the Commercial Trust Company; that no sinking fund was provided for in that deed of trust; that there was no personal property on the mortgaged land; and that of the total acreage of six hundred and sixty-eight, one hundred and twenty-five acres had been mined, and that a liberal estimate of the value of the property when the answer was filed was $50,000; that “the actions of the plaintiff in this matter have been and are unreasonable, inequitable and unjust and in bringing this action, plaintiffs have done so for the purpose of harassing respondent, the Manor Coal Company, and not in good faith for the purpose of selling the mortgage property in satisfaction of the mortgage, the plaintiffs well knowing that it is not worth the amount of the ¹⁰⁹ bond issue secured by said deed of trust; that it was, and is well known by those who owned the bonds of said Three Forks Coal & Coke Company that, by reason of the matters hereinbefore set forth, a foreclosure and sale of the property described in said deed of trust, ‘Exhibit A,’ would not enable them to realize the par value of the bonds, and foreclosure would be in vain, except to harass the Manor Coal Company” and it then “tendered judgment” to the plaintiffs “for their proportional share of the actual value of said property in the amount that $14,000 of said bonds bear to the whole $80,000 secured by said deed of trust.” The Commercial Trust Company, in its answer, after admitting’ the execution of the deed of trust to it, and of the several conveyances referred to in the bill, avers that “one hundred and sixty bonds of the Three Forks Coal & Coke Company, aggregating $80,000, being the total issue secured by the deed of trust, ‘Exhibit A,’ are outstanding, and deny that payment has been demanded from Commercial Trust Company, Trustee, by the plaintiffs, as averred in paragraph 4 of plaintiffs’ bill, or by any of the holders of outstanding bonds; * * * that Horace P. Whitworth of Westernport, Maryland, representing himself as acting for the holders of $13,000 of bonds of the Three Forks Coal & Coke Company, communicated with us in regard to default in payment of said bonds.

We admit that Commercial Trust Company, Trustee, declined to do as requested by said Horace P. Whit-worth, Esq. We deny that we have been informed or know that the Manor Coal Company has bought up and is now the owner and possessor of more than 50% of said bond issue, as averred in paragraph 5; * * * that the Commercial Trust Company is Trustee for all the bonds secured by the deed of trust, and is prepared and desires to proceed in accordance with the provisions of the said deed of trust, and to comply with all its terms. We further say that no moneys have been advanced or suggested, or any indemnity tendered to the Commercial Trust Company, Trustee, to cover costs and expenses incident to foreclosure as requested by Horace P. ¹¹⁰ Whitworth, Esq.; * * * that Commercial Trust Company, trustee, has not received any sufficient assurance that the alleged holders of the $13,000 of said bonds are bona, fide holders as to whom the Commercial Trust Company, trustee, owes any duty; * * * that the majority of the bond holders secured by said deed of trust have not instructed us to take proceedings as is provided in said deed of trust, and this respondent is not authorized to do so unless so instructed, and we, therefore, submit ourselves to the action of the court in this matter in so far as our position as trustee is concerned.” The Franklin Trust Company in its answer admitted the execution of the several deeds referred to in the bill of complaint, but denied knowledge of the other facts alleged therein, and called for strict proof thereof. Demurrers filed to these answers were overruled.

In addition to these answers, as has been stated, answers were also filed by certain persons who had at one time owned bonds secured by the Commercial Trust Company mortgage, but which had been exchanged for bonds secured by a mortgage to the Franklin Trust Company. Since they had no interest in the property or in the suit which was not represented by the Franklin Trust 'Company, it becomes unnecessary to.notice the averments of their answers, since they could bind no other party to the cause. As we have already said, the procedure in this case is un-.usual. The plaintiff, so far as the record shows, offered no testimony of any kind, but the defendant nevertheless did, ■■so that we must infer that the case came on for trial on the bill, the answers, their accompanying exhibits, and the testimony of the defendants.

Ordinarily, when a case is heard on bill and answer, it is assumed that the well pleaded averments of the answer are all trae, but that only so much of the bill is true as the answer admits. Miller's Equity, par. 255, etc. And where the plaintiff fails to support his bill by evidence, but submits to a hearing on the answer, it is in effect setting the case down on bill and answer. In such a case it is not apparent why the defendant should be permitted to offer testimony, since the truth of all well pleaded ¹¹¹ defenses set up in Ms answer