Orrick v. Fidelity & Deposit Co.

²⁴² Schmucker, J., delivered the opinion of the Court. The two appeals before us were taken from the same order and will be considered together. They bring the proceedings in which they were taken before us for the second time. The facts of the ease were fully stated in our opinion on the former appeal which will be reported in 112 Md. 50 , but in order to make clearer what we have now to say we again refer to some of the moi’e important of them.

On April 1st, 1904, the Consolidated Gas Company of Baltimore City (hereinafter called the Gas Company) being the owner of certain property and franchises subject to two existing mortgages, one made by that company and the other by its predecessor in title, to secure respective issues of 5 per cent, and 6 per cent, bonds, made an additional mortgage deed of trust thereon to the Fidelity and Deposit Company of Maryland (hereinafter called' the Fidelity Company). This last mortgage was made to secure 15,000 4% per cent, coupon bonds for $1,000 each, to be from time to time executed by the Gas Company and delivered to the Fidelity Company .•as trustee, to be by it certified, and then to be applied to the <extent of 2,515 bonds, to providing for immediate needs and (outstanding certificates of indebtedness of the Gas Oom-pany * * * to the extent of 6,985 bonds, to taking up and retiring the outstanding prior lien bonds secured by the two underlying mortgages and, to the extent of the remaining 5,500 bonds, to the payment of 80 per cent, of the cost of such further property as the Gas Company might desire to thereafter acquire. 'The mortgage contains among other things: 1. A provision that there should be no priority among the bonds to be issued under it but all of them should have the equal benefit of its security without.reference to the date or ■order of their issue. 2. A covenant on the part of the Gas Company to pay or purchase and retire the outstanding prior lien bonds at or before their maturity. ²⁴³ 3.

A provision requiring the trustee to certify and deliver, to the order of the Gas Company, bonds to be issued under the mortgage in exchange for equal amounts in par value of all prior lien bonds that the Gas Company should acquire and tender to it for that purpose, and to retain such prior lien bonds for cancellation. 4. A provision requiring the performance by officials of the Gas Company of certain conditions precedent to authorize the issue of bonds to be applied to the payment for after-acquired property. 5. A privilege to the holders of bond's to have them registered by the trustee as to the payment of principal. The mortgage also provides that the_ certification, in accordance with its terms, by the trastee of any bond should be conclusive evidence of the fact that such bond had been duly issued under the mortgage and that its holder was entitled to the benefit of the trusts created by that instrument.

It further provides that the bonds to be issued under and secured by it shall be substantially of the tenor and purport of the form set out in the body of the mortgage and shall be executed on behalf of the Gas Company by its president or vice-president and shall bear the seal of the company, and it contains no provision for their execution in any other manner or by other persons. The mortgage was duly executed by the. Gas Company and also by the Fidelity Company as trustee and placed upon record and the bonds were engraved and printed ready for execution. After the bonds for the immediate use of the Gas Company and those to take up its outstanding certificates of indebtedness had been executed and issued, but before any others of the bonds had been executed or issued the Gas Company entered into a consolidation, under the general laws of Maryland, with the corporation designated in the proceedings in this case as the Power Company forming the Consolidated Gas Electric Light and Power Company of ²⁴⁴ Baltimore City (hereinafter called' the Consolidated Company).

The agreement and' certificate of consolidation, -which are otherwise in the usual form, provide that upon the consolidation the property and franchises of the Gas Company, subject only to such liens thereon as existed prior to the consolidation shall pas's to and vest in the Continental Trust Company as trustee under the two mortgages, .made to it by the Power Company on February 14th and May the 15th, 1905, upon the terms and for the purposes of those instruments. The Consolidated Company, when formed executed two conveyances purporting to convey -the property and franchises which it had received in the process of consolidation from the Gas Company subject to the existing liens thereon, to the trustee under the Power Company’s mortgages for the uses and purposes thereof. In these conveyances as well as in the articles of consolidation the Consolidated Company asserted and attempted to retain to itself the right to thereafter issue the unissued bonds provided for by the Gas Company’s mortgage. The original proceedings in the present case were instituted by the filing by the Fidelity Company of an ex pa/rte petition in Circuit Court Ko. 2 of Baltimore City declaring that it entertained doubts as to its rights, duties and obligations as trustee under the Gas Company’s mortgage, especially in reference to the certification of further bonds to be issued thereunder and asking to be permitted to execute its trusts under the direction and supervision of the Court.

By an appropriate order the Court assumed jurisdiction of the trusts and their administration as prayed. By subsequent orders the Court directed the trustee to certify and deliver, as having been duly executed under the mortgage and entitled to the security thereof, certain bonds in the orders mentioned which had been executed by the Consolidated Company as successor of the Gas Company and had ²⁴⁵ been issued to pay for property acquired by the Consolidated Company for use in connection with its gas business. Another application for a similar order having been made in the case by the Consolidated Company, one Albert Diggs, being the holder of bonds which had been issued by the Gas Company under, its mortgage prior to the consolidation, intervened in the case by petition and objected to the authorization by the Court of the issue of any more bonds, under the Gas Company’s mortgage, by the Consolidated Company, upon the ground among others that it had no power as successor of the Gas Company or otherwise to issue such bonds. The Circuit Court passed an order on that application directing the bonds to be issued as prayed and from that order Diggs took the former appeal.

Upon that apppeal we reversed the order appealed from reviewing at length both the law and the facts of the case in oxir opinion. We there distinguished between the further issue of bonds under the Gas Company’s mortgage for refunding purposes and their issue for the future acquisition of property. We held that for the former purpose there was jurisdiction in a Court of Equity to require their issue in performance of the covenants of the mortgage, but that for the latter purpose no more bonds coiild be issued because, first, the mortgage .contained no agreement to purchase further property and, secondly, it prescribed express conditions precedent to the issue of bonds for that purpose which it no longer was possible to perform. We also held that the right to acquire prior lien bonds and have them exchanged, in the process of refunding, for those to be issued under the mortgage was one that might be exercised by a subsequent owner by consolidation or otherwise of the mortgaged property, and that such right might be regarded in equity as an incident of the ownership of the property so long as it remained subject to the mortgage.

We further held that there would he jurisdiction in a Court of Equity upon a proper application to it to enforce the performance of the agree ²⁴⁶ ment contained in the mortgage to issue the bonds in exchange, in the process of refunding, for outstading prior lien ones when presented for that purpose. We however held the enforcement of the terms of the mortgage not to be an incident of the Courts supervisory jurisdiction over the administration of trusts and therefore not ordinarily invokable in an ex parie proceeding such as the one then before us, but. in order to avoid a multiplicity .of suits we authorized the Circuit Court to entertain an application for the enforcement in the pending suit by such an amendment of the proceedings as to bring before the Court in person or by proper representation the holders of subsequent liens upon the property and afford them an opportunity to be heard. It was said by us in that connection that the Court below, in the event of directing the bonds to be issued, could either appoint a trustee to execute them or direct it to be done by the Consolidated Company. After the case went back to the Circuit Court Francis A. White, as holder of five of the 548 bonds executed and issued by the Consolidated Company after the consolidation for the acquisition of additional property, intervened in the case by leave of Court on behalf of himself and all other holders of similar bonds.

He asserted in his intervening petition that he, having acquired the bonds in good faith, for value and without notice of any infirmity in them, applied to the Fidelity Company the trastee under the Gas Company’s mortgage to have them registered as to the payment of the principal but that it refused his application assigning as a reason for its refusal that since the decision of this Court on the former appeal the validity of the bonds was doubtful, and he prayed that the trustee might be required to register the bonds. The Continental Trust Company the trustee under the Power Company’s mortgage, and certain holders of bonds thereby secured and also holders of some of both classes of the preferred stock of the Consolidated Company were ²⁴⁷ brought or voluntarily came into the case and were made parties thereto. Notice was also given by publication under the direction of the Court to all other persons who desired to be heard in reference to the application for the certification of the $5,000 of bond's for refunding purposes or the registration of the $5,000 of Mr. White’s" bonds, to appear in the case by a named day. No one appeared in response to the notice.

The necessary parties having thus been made to procure a decision of the above mentioned questions, the Consolidated Company renewed its application for an order requiring the Fidelity Company as trustee under the Gas Company’s mortgage to certify and deliver to the order of the Consolidated Company in exchange for five prior lien bonds for $1,000 each tendered to it, a like amount of bonds of the issue secured by the mortgage. There being at that