Opinion
July 5, 1939.
1. TRUSTS: Trustees: Agency. A trustee is one who holds the legal title to property for the benefit of another.
In a broad sense the term is sometimes applied to one standing in a fiduciary or confidential relation to another, such as agent, attorney, bailee, etc.
Agency is a matter of contract and a person, sui juris, has a right to select his own agent and determine for himself the qualifications and character of his agent.
2. TRUSTEES: Agency. Where a company issued participation certificates in securities, held in trust by a bank for the company issuing them, and entered into an extension agreement with the bank trustee whereby a committee should act for such holders of certificates as shall become parties, it was a contract of agency; the members of the committee became agents for the certificate holders who became parties to the contract.
A holder of certificates did not need to resort to a court of equity to free herself from the terms of the contract by which the participation certificates were issued, she could withdraw according to the method provided by the contract and if that method was inequitable a court of equity would afford her a remedy.
But at the request of one person, the court of equity could not revoke the agency for others nor appoint agents for them against their wishes.
3. TRUSTEES: Agency. Where a corporation had issued participation certificates in securities, held in trust by a bank for the company issuing them, and a committee acted as agents for holders of certificates, having no title nor physical possession of the certificates, an extension agreement between them and the corporation did not make them trustees so that a court of equity had no jurisdiction to remove them to enjoin them from acting as such agents.
PRELIMINARY RULE MADE ABSOLUTE.
Jacob M. Lashly for relators.
(1) A writ of prohibition is the proper remedy to restrain an inferior court and the judge thereof from acting without jurisdiction or from exceeding its jurisdiction. State ex rel. Judah v. Fort, 210 Mo. 512, 109 S.W. 737. Jurisdiction is the right to adjudicate concerning the subject matter in a given case. Reynolds v. Stockton, 140 U.S. 254; Robinson v. Levy, 217 Mo. 498, 117 S.W. 577. (2) In removing and keeping from office the committee members appointed by relators and other participation holders, respondent is acting without jurisdiction and should be prohibited. Habirshaw Elec. Cable Co. v. Habirshaw Elec. Cable Co., 296 F. 875, certiorari denied 265 U.S. 587, 68 L.Ed. 1193; Harrigan v. Pounds, 239 A.D. 1, 265 N.Y.S. 676. The correctness of this statement is shown by an analysis of the relation between relators and other participation holders and committee members. Miller v. Dodge, 28 Misc. 640, 59 N.Y.S. 1070; Plummer v. Knight, 156 Mo. App. 321, 137 S.W. 1019; Niedt v. Niedt, 95 S.W.2d 868; Restatement, Agency, sec. 15. (3) In enjoining the committee members appointed by relators and other participation holders from acting as members of such committee, respondent is acting without jurisdiction and should be prohibited. Intervening petitioner is not entitled to injunctive relief because she has not alleged that she lacks an adequate remedy at law. City of Mountain View v. Farmers' Tel. Exchange, 294 Mo. 623, 243 S.W. 153. Nor has she alleged nor has the court found that she has suffered any injury and respondent has no jurisdiction to issue an injunction in such a case. State ex rel. Kenamore v. Wood, 155 Mo. 425, 56 S.W. 474. (4) Respondent has no jurisdiction to appoint and keep in office substitute committee members. 53 C.J. 957. (5) Respondent in removing and keeping from office the committee members and in enjoining them from acting as such members and in appointing and keeping in office, substitute members, is taking the property of relators and other participation holders who are parties to the extension agreement without due process of law, contrary to the Fourteenth Amendment to the Constitution of the United States and Article II, Section 30 of the Constitution of Missouri. The writ of prohibition should issue to prohibit respondent from such actions. Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565; Ohlmann v. Clarkson, 222 Mo. 62, 120 S.W. 1155; State ex rel. v. Rutledge, 56 S.W.2d 28. (6) If intervening petitioner Lena J. Smith is not a party to the extension agreement, then she has no right to the relief which she has sought, and respondent should be prohibited from granting such relief. Willson v. Waltham Co., 293 F. 811; Vitt v. Owens, 42 Mo. 512; County Court v. Armstrong, 34 W. Va. 326, 12 S.E. 488; Chandler v. Railroad Commrs., 141 Mass. 208, 5 N.E. 509.
J. Porter Henry and Roberts P. Elam for respondent.
(1) The members of a bondholders' protective committee are trustees for those whom they represent, and are subject to removal for cause by a proceeding in equity, just as any other trustee, without thereby affecting or altering the substance of the trust instrument. The Circuit Court of the city of St. Louis, and respondent as judge thereof, were accordingly acting within their general equity jurisdiction in hearing and determining the matter of the removal and keeping from office of the former members of the committee. Parker v. New England Oil Co., 4 F.2d 392; Carter v. First Natl. Bank, 128 Md. 581, 98 A. 77; Monticello Bldg. Corp. v. Monticello Inv. Co., 330 Mo. 1128, 52 S.W.2d 545; White v. MacQueen, 360 Ill. 236, 195 N.E. 832; Mo. Const. Art. VI, Sec. 36; R.S. 1929, sec. 1938. (a) When a court is administering a trust in a proceeding pending in that court, as was being done by the Circuit Court of the City of St. Louis (under the terms of the decree of July 24, 1933, in the consolidated cause "class suit") with respect to the trust fund securing the participation certificates issued by the First National Company, the court has jurisdiction over the subject matter of, and in its discretion may entertain, a motion or application in that proceeding for the removal of trustees, including the persons acting as the members of the bondholders' protective committees. 1 Perry on Trusts Trustees (7 Ed.), pp. 500-501, sec. 282; 3 Bogert on Trusts Trustees, pp. 1659-1660, sec. 524; Watson v. Hardwick, 231 S.W. 964; Gould v. Gould, 178 N.Y.S. 48; Jones v. Jones, 30 N.Y.S. 177; Comegys v. State to use of Dykes, 100 Gill J. 183; 65 C.J., p. 630, sec. 472. (b) The circuit court had jurisdiction over all of the parties to the consolidated cause "class suit," including relators as well as all other participation certificate holders who had become parties to the extension agreement, by way of representation. The parties who actually appeared at the hearing and determination of the intervening petition of Lena J. Smith sufficiently represented the various classes of parties to give the circuit court jurisdiction over all, and to bind all parties, including relators and all other holders of participation certificates who had become parties to the extension agreement, by the circuit court's determination of said intervening petition. Powell v. Joplin, 335 Mo. 562, 73 S.W.2d 408; Kaufmann v. Annuity Realty Co., 301 Mo. 638; 256 S.W. 792; Aalco Laundry Cleaning Co. v. Laundry Linen Towel Chauffeurs', etc., Union, 115 S.W.2d 89; White v. MacQueen, 306 Ill. 236, 195 N.E. 832; Sanders v. Hall, 74 F.2d 405. (2) In enjoining the former committee members, who had been removed from office as such, from further acting as members thereof, the Circuit Court of the City of St. Louis, and respondent as judge thereof, were acting within their jurisdiction, because: (a) Even if the intervening petition had failed to properly or adequately state facts essential to entitle the intervening petitioner to relief, that would not show lack of jurisdiction, nor would it furnish ground for prohibition. State ex rel. Kaysing v. Ryan, 334 Mo. 743, 67 S.W.2d 983; State ex rel. McNamee v. Stobie, 194 Mo. 14, 92 S.W. 191. (b) Such relief was but an incident to the removal of such former members of the committee. (c) The intervening petitioner Lena J. Smith had no adequate remedy at law, the removal of trustees, such as were the members of this committee, being a proceeding solely within equity jurisdiction, and she having been enjoined and restrained from pursuing any course other than that which she followed. (3) The Circuit Court of the City of St. Louis, and respondent as judge thereof, had jurisdiction to appoint and keep in office substitute or successor members of the committee for those former members of the committee who had been removed, such power being but an incident to the removal of the former members in the light of the equitable maxim that "A trust will never be permitted to fail for want of a trustee." Gaston v. Hayden, 98 Mo. App. 693; Morrow v. Morrow, 113 Mo. App. 444, 87 S.W. 594; 65 C.J., p. 593, sec. 381. (4) Neither relators, nor any other participation certificate holder, were deprived of due process of law by the proceeding to remove the former members of the committee, their removal, or the appointment of their successors, because all participation certificate holders were present by representation at the hearing, which was concededly duly held, in the "class suit," and all parties to such "class suit" having been present at such hearing. Powell v. Joplin, 335 Mo. 562, 73 S.W.2d 408; Kaufmann v. Annuity Realty Co., 301 Mo. 638, 256 S.W. 792; Aalco Laundry Cleaning Co. v. Laundry Linen Towel Chauffeurs' etc., Union, 115 S.W.2d 89; White v. MacQueen, 306 Ill. 236, 195 N.E. 832; Sanders v. Hall, 74 F.2d 405.
This is an original proceeding in this court to prohibit respondent as a judge of the Circuit Court of the City of St. Louis from enforcing an order made by said court purporting: to remove the members of a so-called Participation Holders Supervisory Committee, to enjoin them from acting on such committee and to appoint other persons as their successors. The relators are holders of certificates of participation issued and sold by the First National Company and the order now sought to be prohibited was made by respondent during certain litigation in said court concerning said company. The facts with reference to such litigation are set forth in some detail in the case of State ex rel. Caulfield v. Sartorius, decided by this court and opinion handed down on the 5th day of July, 1939. So far as necessary to our determination of the issues in the present case, we summarize the facts as follows:
In 1922 the First National Company, an investment corporation, entered into an agreement with the First National Bank, of St. Louis, whereby the Bank was to act as trustee and hold securities, owned by the Company, in trust to secure participation certificates issued and to be issued and sold by the Company. These certificates were issued in various amounts and the Company agreed to pay interest on them and redeem them on maturity at the face amount. On May 1, 1933, the trust fund consisted of securities of the face value of $9,715,616.89 and there were outstanding certificates of the face amount of $9,577,503.97. On that date the Company defaulted in its obligations and mailed letters to all certificate holders advising them of the condition of the Company, and requesting that the due date of all outstanding certificates be extended to May 1, 1938. With the letters to each certificate holder was forwarded a proposed extension agreement, executed by the Company, as first party, by certain persons referred to as the Committee, as second parties, and providing that all certificate holders who consented thereto would become third parties.
This extension agreement is quite lengthy. We will attempt to state its substance, rather than set it out in full. After lengthy recitals as to the condition of the Company, it purports to be a contract between the Company and such certificate holders "as shall become parties;" provides for the manner in which any certificate holder may become a party to, or withdraw from, the contract; provides for extension of certificates and for gradual liquidation of the Company; that the Committee shall act for such holders as may become parties; that the Committee shall advise with the Company, institute or defend court actions, employ such agents and attorneys as they may deem necessary and fix their compensation, but the Committee to serve without pay other than actual expenses; the Committee is given the right to borrow money and to pledge the certificates of the "parties hereto" as security for such loans; the securities of the Company are to remain with the trustee, the Bank, but the Committee is authorized to consent to the sale or substitution of securities; and the Committee is given the right to extend the life of the committee and fill any vacancies in its membership.
At least seventy-eight per cent, in amount, of the certificate holders assented to the extension agreement in the manner provided therein.
Later a number of suits were filed, against the Bank, the Company and the Committee. In some of the suits it was charged that the Bank had, prior to May 1, 1933, mismanaged the trust and substituted inferior securities for sound ones. After answers were filed, these suits were consolidated and, so far as the record shows, are still pending.
In May, 1938, one Lena J. Smith filed an intervening petition alleging, among other things: that she was the owner of certificates of the face amount of $3,000; that the Committee had been secretly picked by the Company; that it had taken no action to compel the Bank to account for its alleged misconduct; that the Committee took no action to prevent the trustee from making a payment on a debt owed by the Company to the Reconstruction Finance Company (said debt not being due) instead of distributing the amount to the certificate holders; that the Committee undertook to procure a court decree extending the certificates and reducing the rate of interest through which the Bank and the Company would profit; that the life of the Committee was illegally extended; and the petition asked the court to decree that the life of the Committee had expired and to appoint a new committee; or, if the Court should not be of the opinion that the life of the Committee had expired, then to remove the Committee and appoint successors.
After a hearing, respondent, as judge of said circuit court, found: that the Committee had been named by the Company and was under the control of the Company and the Bank; that while they were not required to be holders of certificates, the original members of the Committee had falsely represented themselves to be such holders, and that rendered them unfit to serve; that the Committee was incompetent and negligent. Thereupon, the court entered a decree removing the members of the Committee, restraining them from further acting on the Committee and appointing five named persons as successors.
There is a controversy as to whether or not the said Lena J. Smith had withdrawn as a party to the extension agreement at the time she filed her petition, but we regard that matter as immaterial. The sole question here is: Did the respondent, presiding over said circuit court, have jurisdiction under the facts to remove the members of the Committee and appoint successors?
Respondent starts with the premise that the members of the Committee are trustees, and then briefs the question of the power of a circuit court to remove and appoint trustees. On his contention that the Committee members are trustees, respondent cites: Monticello Bldg. Corp. v. Monticello Inv. Co., 330 Mo. 1128, 52 S.W.2d 545; Parker v. New England Oil Co., 4 F.2d 392; Carter v. First National Bank, 128 Md. 581, 98 A. 77; White v. MacQueen, 360 Ill. 236, 195 N.E. 832. None of those cases touch the question of a court's power to remove members of a committee, of the kind we are here considering; nor do any of those cases hold that the members of such a committee are trustees. In the Monticello case, supra, at page 1142, we referred to a bondholders' committee as being in a class with trustees and said "they are subject to removal for cause;" but the committee in that case had possession of the bonds and claimed to hold the legal title to them (page 1136) while in the instant case there is no allegation or finding that the Committee held any title or interest in the certificates. Besides, the right of the court to remove the Committee was not involved or decided in the Monticello case. In Parker v. New England Oil Co., supra, it was held that when a note holders' committee undertook to promote and manage a plan for reorganization, they thereby "assumed fiduciary relation analogous to that of promoters or trustees" and must furnish complete information to the parties interested. Carter v. First National Bank, supra, was not a suit to remove a committee, but to restrain it from exceeding its contract powers. White v. MacQueen, supra, was a suit to remove a trustee named in a deed of trust.
In a strict sense, a "trustee" is one who holds the legal title to property for the benefit of another (65 C.J., p. 214, sec. 2; Taylor v. Davis, 110 U.S. l.c. 335); In a broad sense, the term is sometimes applied to any one standing in a fiduciary or confidential relation to another, such as agent, attorney, bailee, etc. Exact definitions are sometimes difficult (2 C.J., p. 425, sec. 2), but there are important distinctions between a "trustee" and an "agent." Agency is a matter of contract. A person, sui juris, has the right to select his own agent; and, so far as his own rights and interests are concerned, he may select an incompetent or negligent, or even dishonest, agent. At least, he has the right to determine for himself the qualifications and character of his agent. A trustee may be, and usually is, selected by some person other than the beneficiary. Of course, upon a proper showing, a court of equity will protect against the misconduct of any fiduciary by whatever name called. But, while courts have the power to construe, enforce, or rescind, contracts, no court has the power to make contracts for others. [2] In the instant case, the rights of the Committee must be determined by the terms of the extension agreement. We view that agreement as a contract of agency. By its terms the members of the Committee became agents for the certificate holders; not for all the certificate holders, but for only such as became and remained parties to the contract. The plaintiff in the court below did not need to resort to a court of equity to free herself from the contract. She could withdraw according to the method provided in the contract. If that method was inequitable and invalid, a court of equity would afford to her a remedy, but, at the request of one person, the court could not revoke the agency for others nor appoint agents for them against their wishes.
In these views we are sustained by the case of Harrigan v. Pounds, 265 N.Y.S. 676. That was a suit to remove the members of a bondholders' committee and appoint successors. At page 685 the opinion reads:
"By the terms of each of the fifteen deposit agreements to which some of the plaintiffs are parties, any party has the right to withdraw in the manner therein specified. None of these plaintiffs has expressed any desire to do so. If any plaintiff feels oppressed by the provisions governing withdrawal, he may sue to be relieved either of that provision or of the entire agreement. That, however, is not what the plaintiffs have done. They sue not only to be relieved personally of their obligations under the contracts, but to have them declared void as to the ten thousand or more other parties thereto, and to have the court depose the committeemen selected pursuant to the terms of the agreements, to impose new ones upon the parties thereto, and to appoint a receiver of their property. The appellants very naturally say: What is to be said of the rights of the thousand or more other parties to each of these agreements — have they no right to be heard? Are the committeemen with whom they have contracted, and for whom they have expressed no dissatisfaction, to be deposed, and others imposed upon them, without their having a day in court, simply because the plaintiffs are dissatisfied with those committeemen?"
Each case must be determined upon its own facts. In this case the extension agreement creates an agency which, in like cases, has been found helpful in securing unity of action by a large number of persons similarly situated. No title, not even the physical possession, has vested in the committee. The contract does not make them trustees; the proof does not show that they have become constructive trustees by their conduct.
In saying that persons may select incompetent or dishonest agents, we do not mean to intimate that there is anything in the record of this case to justify such a charge against the members of the Committee. The facts upon which respondent based his general findings of unworthiness are scantily set forth in his decree. It seems passing strange that, if the members of the Committee are so unworthy, seventy-eight per cent and more of the beneficial owners desire to retain them and only a fraction of one per cent are clamoring for their removal.
The learned chancellor acted without jurisdiction. Our preliminary rule was providently issued and is now made absolute. All concur, except Hays, J., absent.