Opinion
10-21-1932
CONTINENTAL BANK & TRUST CO. OF NEW YORK v. FULTON REALTY CO. et al.
Harrison & Beinhardt, for complainant. Merritt Lane, of Newark, for defendants.
Suit by the Continental Bank & Trust Company of New York against the Fulton Realty Company and others. On motions to strike the bill and for the appointment of a receiver.
Motions denied.
The bill, filed September 6, 1932, is to foreclose a real estate and chattel mortgage given by the Fulton Realty Company to Walter S. Klee, as trustee, April 26, 1924, to secure an authorized issue of $750,000 coupon bonds, consecutively numbered from 1 to 1069, payable at various times between April 25, 1927, and April 25, 1934, with interest payable semiannually.
The mortgage contains, among other things, the following covenants, condition, or provisions:
"Article III.
"Section 2. The Company further covenants that it will pay or cause to be paid, all taxes and assessments, extraordinary as well as ordinary, water rates, municipal, governmental and other rates, charges and impositions which shall at any time be or have been assessed, levied or imposed upon the Company or upon or in respect of said premises and property or any part thereof or interest therein or upon or in respect of the principal of the debt secured hereby, and will make such payments respectively from time to time within sixty days after the same shall become respectively due and payable or become a lien on the mortgaged premises and property, and in due time to prevent any delinquency thereon or any forfeiture or sale thereof and will produce to the Trustee receipts therefor or other satisfactory evidence of each of such payments within ten days thereafter.
"Article VII.
"Section 1. In case default shall be made with respect to the payment of the principal of or interest on any of said bonds or in the due observance or performance of any covenant or condition whatsoever in this Indenture required to be kept or performed by the Company (except as to payment of principal to be made April 25, 1934) and such default shall continue for a period of thirty days after written notice thereof to the Company by the Trustee * * * then and in any such case the Trustee, in his discretion, and without any action on the part of any bondholder, may * * * declare the principal of all or any part of the bonds hereby secured and then outstanding to be due and payable immediately, and upon such declaration the said principal so declared to be due and payable, together with the interest accrued thereon, shall become and be due and payable immediately, at the place of payment aforesaid, anything in this Indenture or in said bonds to the contrary notwithstanding.
"Article X.
"Section 6. It is covenanted and agreed that in all actions, suits, or proceedings, or dealings or transactions in any way affecting or relating to this Indenture, or to the premises or to the property covered by the lien of this Indenture, or any part thereof, or to the title thereto, the Trustee shall be deemed the representative of the bondholders. In no case shall it be necessary to notify any bondholder or to make any bondholder a party to any action, suit or proceeding for the purpose of binding or concluding him.
"Article XII.
"Section 1. In the event of the sickness, death, resignation, refusal, disqualification or other inability or incapacity of the said Walter S. Klee, when and while his services shall be required under any provisions hereof, Nicholas Roberts, of Montclair, New Jersey, shall be and he is hereby appointed his successor in the trust hereby created; and in the event of the sickness, death, resignation, refusal, disqualification or other inability or incapacity of the said Nicholas Roberts, as successor in trust, when and while his services shall be required under any provision hereof, Nicholas R. Jones, of New York City, shall be and he is hereby appointed second successor in the trust hereby created.
"Section 2. The Trustee, or his successor in trust, or any other Trustee hereafter appointed, may resign and be discharged of the trust hereby created, by written notice of such resignation sent by registered mail to the Company; such resignation shall take effect sixty days after the mailing of such notice or forthwith if said notice is also recordedin the office where this Indenture is recorded.
"Section 4. Whenever in the sole judgment of. the Trustee it becomes necessary or desirable that a Co-Trustee be associated with him in the trust herein provided, the Trustee or his successor in trust, by an instrument in writing registered or recorded in the place or places where this Indenture is registered or recorded, may, without the necessity of obtaining the approval or consent of any of the holders of outstanding bonds, appoint any individual, corporation, bank or trust company as such Co-Trustee or as successor Co-Trustee, with such rights, title, powers and duties as may be set forth in said instrument of appointment."
On June 13, 1930, trustee Klee duly appointed the Straus National Bank & Trust Company of New York (now the complainant) cotrustee, which was consented to by the successor trustees, Roberts and Jones, and the appointment was duly recorded. On May 27, 1931, trustee Klee resigned (and also assigned his right, title, and interest as trustee to Nicholas Roberts and the Straus National Bank & Trust Company), and the resignation was duly recorded. It is alleged that "on June 30, 1931, said Nicholas Roberts and Nicholas R. Jones by instruments in writing renounced their appointment as successor trustees as provided in said mortgage." On September 15, 1931, the complainant succeeded to the interest of the Straus National Bank & Trust Company, by merger, and is now the owner and holder of the mortgage as trustee. Under foreclosure sale of a second mortgage the premises were sold to one Beck, who conveyed to the defendant the Fulton Towers Investment Company April 30, 1931.
After the execution of the mortgage, the $750,000 of coupon bonds were issued, and it is alleged "certain of said definitive bonds in the principal amount hereinafter set forth, are now outstanding in the hands of divers persons and corporations who are now the owners and holders thereof, for value, the identity and location of whom complainant is without complete information or knowledge; and that such definitive bonds so issued as aforesaid, and now outstanding, are in all respects valid and outstanding obligations and are entitled to the benefits and the security of the abovementioned mortgage or deed of trust, the foreclosure of which is prayed herein." ($172,000 have been redeemed.)
Payments of interest and amortization were to be made to S. W. Straus & Co., Inc., in advance monthly installments equal to the semiannual interest, and the periodic amortization to take up some of the bonds during the running of the mortgage, and the balance, $407,000, on April 25, 1934. There is also a requirement to deposit 4 per cent. of the amount of interest to reimburse the bondholders for income tax.
It is alleged that "on April 23, 1932, complainant, pursuant to the provisions of said mortgage, and by instrument in writing dated April 22, 1932, duly notified said The Fulton Realty Company, by registered mail, that default or defaults under said mortgage had occurred and were continuing by reason of the failure to pay the following items:
| 1. Taxes for the year 1931 | $21,131.00 |
| 2. Federal Income Taxed | 805.36 |
| 3. Insurance Premiums | 221.63 |
| 4. Trustees Fees | 500.00" |
Said notice further stated that, "if the above defaults should continue for a period of thirty days thereafter, complainant might, without further notice, declare the principal of all the bonds outstanding under said mortgage to be due and payable immediately."
It is charged that $16,131 of the taxes, $805.36 income tax, were not paid within the thirty days and remain unpaid. It is also alleged that $13,958.31 monthly installments of principal and $15,925 of interest and $9,525.08 taxes have accrued since the notice, and are unpaid, and that "complainant has elected that the whole principal sum with all unpaid interest shall be now due." So the bill reads.
"On motion.
"1. A nominated trustee may disclaim and upon disclaiming it is as though he had not been nominated; if he accepts he is responsible until discharged.
"2. Cestui que trust are necessary parties to a bill, but if their number be so great as to embarrass the litigation, if included, they may be dispensed with. Upon their application they may intervene.
"3. To accelerate the due day of a mortgage for a default in a condition upon which the credit was extended, where the right to premature is provisional, the provision must be strictly followed.
"4. Notice of default addressed and mailed to the mortgagor company, received by the successor in title company, is not notice of default to the latter."
Harrison & Beinhardt, for complainant.
Merritt Lane, of Newark, for defendants.
BACKES, Vice Chancellor (after stating the facts as above).
One motion is to strike the bill; the other for the appointment of a rent receiver.
On the motion to strike the bill we must confine our consideration to the allegation of the bill.
The first ground assigned is that it is not alleged that the notice of default was givento the Fulton Tower Investment Company, the present owner of the premises, "requisite before acceleration of the principal and foreclosure."
The answer to this is, the bill shows that, to create a default and to accelerate the due day of the mortgage, notice need be given only to the mortgagor, Fulton Realty Company (article VII, section 1). The Fulton Towers Investment Company took the title subject to that condition, so far as the bill discloses.
The next objection is that the cotrustee, Roberts, is a necessary party.
The bill alleges that Roberts, as well as Jones, renounced the trusteeship. The contention is that that is a conclusion of fact. We regard it as an allegation of fact.
It is the notion of defendants' counsel that the nominated trustees cannot quit their posts except by resignation as provided by article XII, section 2. That is true as to a trustee who assumed office, but not as to one who declined to act. It does not appear by the bill that either Roberts or Jones accepted the trust, and, only four days having elapsed between Klee's resignation and their renouncement, there is no presumption that they accepted; to the contrary, they renounced and "to renounce is to make an affirmative declaration of abandonment." Webster. Renouncing is the evidence of "refusing" to serve as provided by article XII, section 1, and refusing automatically eliminated Roberts as trustee. But neither Roberts nor Jones was obliged to undertake the trust, and, having renounced or disclaimed, it is as though they had not been appointed. Lewis on Trusts (1888) chapter XI; Leggett v. Hunter, 19 N. Y. 445. The trust resides in the complainant.
The "assignment" by Klee to the complainant and Roberts, accompanying his resignation, was abortive. His right, title, and interest ceased with his resignation. He had nothing to assign. The title to the trust estate had been in the two jointly; he dropped out, leaving the title in the complainant.
It is also objected that the bondholders are necessary parties. Cestui que trusts are, as a general rule, necessary parties to a bill by the trustee, but where, because of their number, their inclusion as parties would obstruct rather than facilitate the administration of justice, the rule is relaxed, and the trustee may sue without bringing them in. While the bill does not expressly allege that the bondholders are so numerous as to unduly burden the cause if they were made parties, the bill sufficiently informs us that the issue of over a thousand bonds was floated by a prominent banking house in New York, and it is to be assumed that the bonds are scattered far and wide among holders so great in number as to bring the case within the exception to the rule and to justify our following the practice laid down in Willink v. Morris Canal & Banking Co., 4 N. J. Eq. 377. Further, as in that case, the bondholders appointed the complainant as their representative to prosecute this suit—it is so stipulated in the trust mortgage—and, as the interests of the bondholders and trustee are as one in the effort to recover their money, we presently see no reason for disregarding the appointment, nor the necessity for putting the trustee to the hardship of incorporating the bondholders in the bill and summoning them to court. That they dispensed with, why should not the court? Their absence does not render the bill defective. The trustee, for its own protection, may give them notice of the pendency of the suit, and they may, on application, be allowed to intervene as parties defendants, as was suggested in Williamson v. N. J. Southern R. R. Co., 25 N. J. Eq. 13, or, on a motion in the cause by the defendant, the trustee may be directed to give notice.
The remaining objection, "That the bill is without equity," is too indefinite to be seriously considered. As an attack upon the bill as a whole, it is without merit.
The motion to strike the bill is denied.
On the motion for a receiver, the proofs attack the equities of the bill, and on this application stand as an answer to the bill. Without a maintainable cause of action, there can be no receiver.
On the motion to strike the bill, it was held that the thirty-day notice of default provided by article VII, section 1, need be given only to the Fulton Realty Company. That was because the bill disclosed only that article and section. Now it appears that the default notice should have been served upon the Fulton Towers' Investment Company, for by article XIII, section 9 (not set out in the bill), it is provided that: "Wherever in this Indenture reference is made to the Company (Fulton Realty Company * * * it shall be held to apply also to the successor, successors or assigns of the party referred to."
And by section 7 of the same article (not set out in the bill) it is provided that: "All the covenants, conditions and provisions hereof shall be held to be for the sole and exclusive benefit of the parties hereto and their successors or assigns and of the holders of said bonds and coupons."
And by article XIII, section 8 (not set out in the bill): "Any notice or communication which the Trustees or the bondholders shall desire to give or serve upon the company may be given or served by delivering a true copy thereof to any officer of the Company, or by sending a true copy by registered mail addressed to it at its principal office or place of business or at the mortgaged premises."
The petition for the appointment of a receiver docs not allege the covenant to pay taxes as in article III, section 2, nor the acceleration clause of article VII, section 1, nor that written notice of default was served; nor does the supporting affidavit. They may be amended. But supplemental proofs, offered at the hearing, tend to show that on April 23, 1932, a notice, in all respects in conformity with article VII, section 1, of the default in payment of the 1931 taxes of $21,131 and of the other items set out in the bill, addressed to "The Fulton Realty Company, Fulton Towers Apartments, East Orange, New Jersey," was, in a sealed envelope with the postage prepaid and registered, addressed to the "Fulton Realty Company, Fulton Towers Apartments, East Orange, New Jersey," placed in the United States post office in New York, and that a few days later the registry receipt was returned signed, "George S. Platoff, Fulton Towers Inv. Co."; date of delivery 4/25/32. The proof also shows, on information, that George S. Platoff is in charge of the affairs of the Fulton Towers Investment Company at the Fulton Towers Apartments, 106 Harrison street, East Orange. It is proved that shortly after the notice was mailed the attorney of the Fulton Towers investment Company called at the banking house of S. W. Straus & Co. of New York to negotiate an adjustment of the matter, and that he acknowledged the receipt by his client of the notice. We have not the least doubt that the Fulton Towers Investment Company received this notice. They do not deny it, and the failure to deny is not accidental. The proof of service of the notice is imperfect. The affiant who mailed the notice does not aver the manner of mailing, but says that the manner was averred in an affidavit indorsed on a copy of the notice. The copy is not before us; it may be produced. The proof that he made such an affidavit, of which a copy is incorporated in his proof of service, is not proof of service. The fact of service, however, exists; the proof may be supplied.
The meritorious objection is that the notice of default addressed to the Fulton Realty Company, and the envelope in which it was dispatched by mail, likewise addressed, which fell into the hands of the Fulton Towers Investment Company, was not a notice of default to the Fulton Towers Investment Company. We deem the point well taken. The Fulton Towers Investment Company, it is true, had knowledge of the notice of default addressed to the Fulton Realty Company, but that knowledge was not a written notice to the Fulton Towers Investment Company, the then owner of the property, of the default and of the consequence that might follow if the default continued for thirty days. Suppose, if the trust mortgage had called for a verbal notice, the trustee had spoken to an officer of the Fulton Realty Company of the default over the telephone, and had told him that, unless his company made good, foreclosure would follow, would that have been notice to the Fulton Towers Investment Company, had one of its officers overheard the conversation?
We hold that it was the Fulton.
Towers Investment Company's right to have a personal notice of default, served in the stipulated manner of service of notice (although we do not hold that method to be exclusive) as a condition precedent to the trustee's right to elect to mature the mortgage debt; that the written notice to the Fulton Realty Company of the default was not a compliance with the provisions of the trust mortgage and that the trustee is presently, in that respect, not entitled to maintain its action. The whole mortgage debt will not be due until 1934. To accelerate the due day of a mortgage for a default in a condition upon which the credit was extended, where the right to mature is provisional, the provision must be strictly followed. See McFadden v. May's Landing & Egg Harbor City R. R. Co., 49 N. J. Eq. 176, 22 A. 932.
The bill may be, with proper amendments, entertained to foreclose for the recovery of the accrued interest, taxes, etc., aggregating upwards of $50,000 (Pennsylvania Co. v. Broadway-Stevens Co., 105 N. J. Eq. 494, 148 A. 575), but that would not entitle the complainant to the appointment of a receiver. A receiver for rents will not be appointed, unless the complainant has the right to possession at law. The appointment of a receiver is an equitable substitute for entry ihto possession at law. By article VIII, section 1, of the trust mortgage, the trustee is entitled to possession only after notice of default as per article VII, section 1, and by article XIII, section 4, it is provided that the owner is entitled to retain possession and to take the rent issue and profits "until such default (payment of interest, taxes, etc.) shall have continued after notice."
Although the rents are specifically pledged by the trust mortgage, it is clear that the pledge was not to be exercised until after default and notice, and, notice of default not having been given, the defendant cannot be deprived of the rents, and a receiver cannot be appointed.