FARMERS' LOAN & TRUST CO. v. NEW ENGLAND WATERWORKS CO. et al.; UNITED WATERWORKS CO., Limited, v. SAME, 137 F. 729

GROSSCUP, Circuit Judge. The foreclosure decree in the case of The New England Water Works Company, et al., vs. The Farmers’ Loan and Trust Company, Trustee, et al., reserved for further consideration, the question of what should be done with the twen- ' ty-seven hundred dollars of past due interest, held by. The C. H. Venner Company, under the Caldwell mortgage, and the thirteen-thousand nine hundred and eighty dollars of past' due coupons held'by'The C. H. Venner Company under the Farmers’ Loan and Trust Company mortgage.

The decree of the Circuit Court, now under review, takes up and decides this feature of the case. The petitioning bondholders claim that The C. H.

Venner Company was the fiscal agent of all -the water works companies involved in this controversy; that as such fiscal agent, it received the income of all the companies; that the income of the companies for the. years named—1898-1899-1900—were sufficient, after the payment of operating expenses, to meet and pay the interest in question; that but for the application of this income to coupons maturing on the subsequent mortgage made by the -Boston Company to the International Trust Company, and to the rents ostensibly accruing to the Boston Company under its contract with the New England Company, there would have been sufficient to pay these installments of interest and coupons as they matured; that the Farmers’ Loan and Trust Company mortgage, and the Caldwell mortgage, including this interest, was a lien upon the pumping station and mains, prior in equity to any claim of the Boston Company thereon for rentals, or any lien of the International Trust Company on account of its mortgage; wherefore, the use of these moneys to pay such rentals and interest was an unauthorized diversion of the moneys belonging to the New England Company, to the uses of The C.

H. Venner Company, who being the beneficiary of the rents and of the interest, thereby became the beneficiary of-the diversion. We have already held that the Farmers’ Loan and Trust Company mortgage, and the Caldwell mortgage, including the interest coupons, are liens, prior in equity to any title of the Boston Company upon the pumping station, with its connecting mains, or to any lien ;of the International Company growing out of the mort-. gage executed by the Boston Company. Connected with this, the evidence in this case satisfies.us that had The C. H.

Venner Company applied the income received by it, as the fiscal agent of.the. New England Company, to the payment of this interest as it matured, without diversion of any such income to payments that ought not to have been made until the interest was thus met and retired, no outstanding installments of interest or coupons would now be in existence. These two conclusions determine the question before us. The C. H. Venner Company cannot be permitted to apply the money, that ought to have gone to the payment of interest, to its own personal purposes.

It cannot, under these circumstances, hold the coupons or installments of interest as outstanding debts under the mortgage lien. Nothing more injurious to the bondholders could be conceived; for under the terms of the mortgage, the coupons and unpaid interest take priority, in the marshaling of assets, over the principal itself. And nothing could be more inequitable, for the transaction amounts to a direct diversion of income that under the rights of the parties ought to have been devoted, and under the duty resting on The C. H.

Venner Company, as fiscal agent, should have been applied by it, to the payment of the interest maturing on the bonds. The decree of the Circuit Court is reversed so far as it holds that The C. H. Venner Company is entitled to payment of the coupons and interest installments, represented in the claim presented held by it, with instructions to enter a decree finding that The C. H. Venner Company has no claim growing out of the interest and coupons involved in this suit, and to disallow such claim.