GASQUET et al. v. FIDELITY TRUST & SAFETY-VAULT CO., 75 F. 343

PARDEE, Circuit Judge (after stating the facts as above). The mortgage of the Mobile Street-Railway Company to the Fidelity Trust & Safety-Vault Company contained this provision; “There is hypothecated with the said trustee, as an additional security for the payment of the bonds herein mentioned, 900 of the 1,000 shares of the capital stock of the Mobile & Spring Hill Railroad Company, of the par value of ninety thousand dollars, which stock is to be held in trust and disposed of. by said trustee as hereinafter mentioned.

The said hypothecation is noted in the transfer books of said Mobile & Spring Hill Railroad Company, in accordance with law, for the protection of said trustee; but it is expressly understood that the legal title to said stock is not to be transferred to said trustee, except in case of default in the payment of said bonds and ..coupons hereinafter provided; and until such default the voting power of Said stock is to remain with those who appear upon the books of said Mobile and Spring Hill Railroad as the legal holders thereof; and said legal holder or holders shall till such default have the right to collect and apply to his or its or their own use all dividends declared on the stock.” At the time that the Mobile & Spring Hill Railroad Company executed a mortgage to the Fidelity Trust & Safety-Vault Company, there had been no default in the payment of bonds and coupons secured by the Mobile Street-Railway Company mortgage.

It follows that the Mobile Street-Railway Company had' the right to vote the stock held by it in the Mobile & Spring Hill Railroad Company in favor of the issuance of bonds secured by mortgage by the Mobile & Spring Hill Railroad Company to fund and pay off the indebtedness of that company. At the time the Mobile & Spring Hill Railroad Company issued- its bonds secured by mortgage, it had outstanding a prior mortgage to Levy & Ingate to secure the sum of about $8,000; and it was indebted to the Mobile Street-Railway Company in the sum of $69,352.36, besides having other floating indebtedness.

As, with the consent of a majority of its stockholders, and under a vote of its directors, the Mobile & Spring Hill Railroad Company granted a mortgage to secure an issue of bonds to provide for its bonded indebtedness, and to pay off and secure its floating indebtedness, and as the bonds issued were so applied, it seems clear that, in the absence of specific fraud, the issue of bonds as aforesaid could not be successfully attacked at the suit of any stockholder, nor of any creditor who is benefited by the transaction.

The fact that the directors of the Mobile Street-Railway Company were many, if not all, of them also managers and directors of the Mobile & Spring Hill Railroad Company, and participated in and directed the action of the last-named company in issuing the bonds aforesaid, does not of itself render the transaction void, or, in the absence of specific fraud, voidable.

The case shows that the Mobile Street-Railway Company owned nearly nine-tenths of the stock of the Mobile & Spring Hill Railroad Company, and was the direct beneficiary of the issue of the bonds aforesaid, because it received the proceeds of the bonds; and, as those proceeds were applied to the reduction of the floating debt of the Mobile Street-Railway Company, it seems to follow that the whole transaction resulted in direct benefit to the bondholders of the Mobile Street-Railway Company, as to that extent it relieved the property of the Mobile Street-Railway Company of obligations liable, if not actually entitled, to be given priority in payment over the claims of the said bondholders.

The main contention in this case, and upon which the appellants’ whole case is based, is that the acceptance by the Fidelity Trust & Safety-Vault Company, as trustee in the mortgage granted by the Mobile & Spring Hill Railroad Company, ipso facto was a breach of trust, entitling the bondholders secured by the mortgage of the Mobile Street-Railway Company to the Fidelity Trust & Safety-Vault Company to recover damages from their trustee, and depriving their said trustee of all right to compensation for the services rendered in execution of and in pursuance of the mortgage.

On the particular facts of this case, we agree with the judge of the circuit court that the contention is not well taken. It is difficult to see wherein and whereby the acceptance by the Fidelity Trust & Safety-Vault Company of the position of trustee under the mortgage of the Mobile & Spring Hill Railroad Company was at all detrimental to the appellants.

On the contrary, considering that the Mobile Street-Railway Company was the principal owner and actual operator of the Mobile & Spring Hill Railroad, the transaction was for the benefit of the Mobile Street-Railway Company, and, besides, was, so far as this record goes, valid and binding upon the Mobile Street-Railway Company and its stockholders, and indirectly inured to the benefit of the appellants. We are of opinion that the same trustee, under both mortgages, was beneficial rather than injurious to the bondholders secured by the mortgage of the Mobile Street-Railway Company.

At all events, as the appellants were not injured by the alleged inconsistent action of their trustee, the ruling of the circuit court dismissing their bill should be, and the same is hereby, affirmed.