Central Trust Co. v. Owsley

Mr. Justice Smith

delivered the opinion of the court.

The final decree of February 13, 1913, finds upon the bill and cross-bill that by reason of the order of November 25, 1911, and the contract of April 1, 1911, and the facts shown in the record, it was not the duty of the trustee to declare the principal of the bonds due; that the demand of the executor interfered with the order of November 25, 1911, and changed the status of the parties; that the executor appointed and treated the Trust Company as his agent to demand and receive payment for the disputed coupons; that the Trust Company had the right to receive payment therefor and surrender the disputed coupons, and that the Trust Company was not bound to comply with the demand of the executor.

Fifty errors are relied upon for a reversal of the decree. Plaintiff in error has presented a brief and argument under sixteen heads with numerous subdivisions in Support of the errors assigned. We shall not undertake to pass upon the numerous points and subdivisions specifically, although we have considered them. In the view" we take of the case, such a discussion would be unnecessary, for it would involve a discussion of many points which we deem immaterial.

The bill presented a clear case of a trustee confronted by doubt as to its duty in the premises and threatened with damage suits by both parties if it failed to comply with their respective demands. But, whatever equity the bill may have presented as originally filed, all questions as to the jurisdiction of the court in the premises were foreclosed by a stipulation in the case entered into between the parties. That stipulation contained a recital to the following effect: “Whereas, in order to avoid circuity of action and multiplicity of suits, it is desired by all the parties that the matters in controversy between the parties hereto shall be determined in this proceeding.” It was then agreed that the executor should answer the bill and that he should file a cross-bill, setting up his alleged claim for damages, and that “the issues raised by said original bill and by said cross-bill and the answers thereto, shall be heard and determined by this court in the above entitled cause, notwithstanding the sale of said bonds to Hinman and the agreement, Exhibit ‘A,’ hereto annexed, and the payment made in accordance with said agreement, and, independently of whether or not the court in this cause shall thereafter instruct the Central Trust Company of Illinois to declare or not declare the principal of the bonds due, as to which the court shall take such action as it may be advised (the defendant executor claiming that having sold said bonds, he is no longer interested in the question as to whether or not the principal of said bonds shall thereafter be declared due), said court shall, nevertheless, determine whether or not it was, on November 25,1911, or at any time subsequent thereto and prior to the date of the sale of said bonds to said Hinman, the duty of said Central Trust Company of Illinois to declare the principal of said bonds due, and shall also determine fully the issues raised by said cross-bill and the answer thereto.” There is a further provision in paragraph five that nothing in the stipulation shall preclude any defenses, with a recital to the effect that it is not intended to cut off defenses, “but simply to provide for the adjudication of such rights, claims, equities and defenses, in this proceeding.” We think it clear that under such stipulation the court should, in this proceeding, take the very course which the parties had agreed should be taken, namely, determine whether it was the duty of the Trust Company to declare the principal of the bonds due, the whole controversy revolving around that central fact. The stipulation was a clear and distinct waiver of any possible objection which could have been made originally, that there was an adequate remedy at law, and it is well settled that such a defense may be waived.

The contention that a similar proceeding was pending in the Probate Court is equally untenable. The petition which was filed in the Probate Court asked the instructions of that court as to whether the custodian should comply with the demand which the executor made upon it to tender back the money paid on the disputed coupons and demand a return of such coupons, and for such other instructions, if any, as the court might deem appropriate. The petition did not ask instructions of the Probate Court with respect to declaring the principal of the bonds due, but, if it had, the objection of a prior proceeding pending could only have been made by a plea in abatement in the Circuit Court. Not only was this plea not made, but the point was waived by the above stipulation.

We do not think it necessary to enter into a discussion of the construction of the clause in the mortgage with respect to declaring the principal of the bonds due. It may be conceded, for the purposes of this case, that under the clause in question in the mortgage, if default were made in the payment of interest and continued for the period specified therein, and this situation was not affected by any other circumstances, such as the agreements of the parties and the submission of the offer to the Probate Court, it would have been the duty of the Trust Company to have declared the principal of the bonds due. The trustee’s duty here, however, was controlled by other circumstances and agreements subsequently entered into.

The executor contends that it was the duty of the trustee to declare the principal of the bonds due immediately upon the receipt of the demand from the executor on November 25, 1911, and the trustee had no discretion in the matter.

The argument in support of this contention is based mainly upon the fifth clause of the mortgage, which provides that the trustee, in case of six months’ default, “may, and if thereunto requested in writing by the holders of a majority in amount of the said bonds then outstanding, shall, by written notice to the Trust Company, declare the principal of all the bonds hereby secured then outstanding to be, and the same shall thereupon become, immediately due and payable.”

This argument, however, ignores many undisputed facts in the record which, in our opinion, justified the Trust Company in taking time to consider its duties, not only in view of the provisions of the mortgage, but of the situation of the parties. The Hinman offer of March 14th, the contract of April 1st, and the deposit of $20,000 thereunder by Hinman, the petition filed in the Probate Court on June 8th, and the order of the court thereon of November 25, 1911, fixed a status of the bonds and coupons not provided for in the mortgage. The Probate Court having assumed and exercised jurisdiction over the subject-matter and directed a sale of the bonds and coupons as they stood, on the application of Owsley, the executor, there was no power or equitable right in the executor to change the status so fixed by demanding that the trustee declare the maturity of the bonds. If the Trust Company had complied with the demand of the executor and declared the bonds due, it would have created an entirely different status of affairs from that established by the Probate Court by its order nisi of November 25th. Hinman would have had the right to withdraw his offer and take up his deposit of $20,000, and the Probate Court would have been compelled to recognize the changed situation and allow the offer and the deposit to be withdrawn. At the time the demand was made upon the trustee, it was acting under the order of the Probate Court entered only a few minutes before, as well as under the prior order by which the bonds and coupons were placed in its custody, and the trustee had no right to change the status of the parties and the condition of the bonds without first submitting the matter to the court. The principles of common honesty and fair dealing with the court and the parties in interest required this. That the executor might have sold the bonds without applying to the Probate Court is immaterial. The executor did apply for an order of sale, and it was entered. After the court, upon the application of the executor, had taken cognizance of the subject-matter of the sale of the bonds, the executor had no right to step out of court and change the subject-matter of the sale without submitting the proposed change to the court. Quidnick Co. v. Chafee, 13 R. I. 367; Knott v. People, 83 Ill. 532; Ex Parte Kellogg (Cal.) 30 Pac. 1030; Merrimack River Sav. Bank v. City of Clay Center, 219 U. S. 527. We think the contention that it was the duty of the Trust Company to declare the bonds due on the demand of the executor made upon it a few minutes after the entry of the order of November 25, 1911, is untenable, when considered from the point of view of the rights and obligations of the parties arising out of the agreement of April 1, 1911, and the subsequent proceedings in the Probate Court.

A consideration of the situation which the trustee occupied under the mortgage, and the duties which it owed to the maker of the mortgage and the holder of the bonds secured thereby, in connection with the subsequent relations created by the parties above adverted to, leads us to the same conclusion. A trustee in a trust deed given to secure the payment of money is the agent of both parties thereto, and is bound to act fairly and justly towards the debtor as well as towards the creditor. If the instructions or demands of one party require him to do an illegal or immoral act, he may violate such instructions with impunity. Story on Agency, sec. 195; Ventres v. Cobb, 105 Ill. 33; Williamson v. Stone, 128 Ill. 129. Furthermore, the . written instruments and the evidence in the case establish beyond any reasonable doubt that the status quo was to be preserved by the parties until the Hinman offer was submitted to and passed upon by the Probate Court. Hinman offered to buy the bonds; the executor agreed to submit the offer to the Probate Court, and if the Probate Court approved the sale, Hinman should have the bonds, unless a better offer was made, and that the bonds in character and condition should remain unchanged until that matter was finally passed upon by the Probate Court; and to that end no attempt should be made to collect interest or rent or to declare the principal of the bonds due. This was the spirit of the agreements and actions of the parties up to the time the demand was made by the executor. The demand was in violation of the agreements, and was an act of bad faith on the part of the executor. On the other hand, when the demand was made to declare the bonds due, Hawes and Abbott of the Trust Company took the matter under advisement until the following Tuesday. Hinman and the Inter Ocean Company paid the coupons. We think that there is no real foundation in the evidence, considering’ the relations of the parties, for reflection upon the conduct of Dawes and Abbott in taking the matter of the demand under advisement, and the conduct and action of the Trust Company is not justly subject to censure or judicial criticism.

It is urged on behalf of plaintiff in error that the receipt by the Trust Company of $32,116.42 and the surrender of the disputed coupons was not a payment thereof and did not relieve the trustee of its duty under the mortgage to declare the principal of the bonds due.

We cannot assent to this proposition. The question as to the authority of the Central Trust Company to deliver the diputed coupons does not affect this question. If the payment was a good payment, it relieved the default, whether the coupons were delivered or not. Dwen v. Blake, 44 Ill. 135. The coupons were due and the Inter Ocean Company had a right to pay them when the payment was made. The executor was out of the State when the payment was made. The bonds and coupons in question were legally and actually in the possession of the Trust Company, placed there by Owsley, as executor, under the order of the Probate Court. If the executor had the right to collect the coupons, such right must necessarily be exercised through the Trust Company which held the physical possession of them, for the debtor, Inter Ocean Publishing Company, had the corresponding right to the possession of the coupons when it paid them. If then the executor had the right to demand or request the Trust Company to demand payment of the coupons for any legitimate purpose and exercised that right, such request and demand carried with it the authority from the executor to deliver the coupons if the debtor responded to the demand of the Trust Company and made payment before a forfeiture was declared for nonpayment. This demand and authority was never withdrawn. Hence, the executor cannot complain if the Trust Company received the money and delivered the coupons when they were paid by the Inter Ocean Publishing Company. The essence of the complaint of the executor, therefore, cannot be the receipt of the money or the delivery of the coupons when they were paid, but it is that the Trust Company failed to declare the bonds due for default in the prompt payment of the coupons after the demand for payment was made. Furthermore, the evidence shows that it had been the practice of Owsley, as executor, to collect such obligations as notes and maturing coupons through the Central Trust Company as his agent; and, as far as the Inter Ocean Company was concerned, the facts were that on the only occasion when formal demand Was made for the payment of the coupons,- such coupons were presented by the Central Trust Company, and that on the only occasion when the Inter Ocean Company was notified that a demand would be made, in June, 1909, .the request was that the coupons be presented by the Central Trust Company. From all the facts shown in the evidence, our conclusion is that the payment of the coupons to the Trust Company was a valid and legal payment. Southworth v. Smith, 7 Cush. (Mass.) 391; Hale v. Patton, 60 N. Y. 233; Ebert v. Arends, 190 Ill. 221; Zempel v. Hughes, 235 Ill. 424.

If the payment of the -money to the Central Trust Company, under the facts shown by the evidence, was not a legal payment of the coupons, it was a sufficient tender in equity to relieve against the forfeiture under the authorities cited above.

On January 18, 1912, no bids having been received for the bonds better than the Hinman offer, the Probate Court so found and ordered the bonds sold to Hinman, the bonds to be delivered without the disputed coupons, and the price to be reduced by the amount which had been previously paid to the Central Trust Company. In the meantime an agreement had been entered into between all parties covering the payment of $32,116.42 for the disputed coupons to the executor, and providing for the filing of a cross-bill in the case, and that the bill and cross-bill should be heard and considered together. The bonds were accordingly sold and delivered to Hinman, and the full purchase price thereof has been paid, and all conditions and provisions of the offer of March 14, 1911, the deposit agreement of April 1, 1911, the nisi order of November 25, 1911, and subsequent orders of the Probate Court with reference to the sale of the bonds, have been complied with. In substance, therefore, this litigation is reduced to a suit by the executor against the Central Trust Company, for $200,000 damages for not declaring the principal of the bonds due because of the failure of the Inter Ocean Company to pay the interest coupons after demand made. It follows from the conclusion we have reached, as stated above, that the Trust Company did not violate its duty in not declaring the principal of the bonds due, or in wrongfully parting with the coupons, when it received the payment of $32,116.42 therefor, and that the executor has no right of action for damages against the Trust Company. It is, therefore, unnecessary for us to consider and pass upon the competency of the proffered evidence on the question of damages.

We find no substantial error in the decree, and it is, therefore, affirmed.

Affirmed.