
    MERCANTILE TRUST CO. v. CHICAGO, P. & ST. L. RY. CO. et al.
    (Circuit Court, S. D. Illinois.
    December 4, 1893.)
    Right to Foreclose Trust Deed.
    .A railroad mortgage provided that, until default, tlie mortgagor should be permitted to remain in possession. It also provided that in case of default in the payment of interest, and such default should .continue for six months, it should be the duty of the trustee to take appropriate proceedings at law or in equity to enforce the rights of the holders of bonds upon a requisition of holders of at least one-third in amount of the bonds. Held that, whatever right a bondholder has, he has the right to have the trustee enforce for his benefit, and that therefore the trustee could file a bill to foreclose, upon default in the payment of interest, although such default had not continued for six months.
    This was a suit by the Mercantile Trust Company for foreclosure of a mortgage given by the defendant the Chicago, Peoria & St. Louis Hallway Company and others, upon default in the payment of interest..
    Defendant demurred.
    Article 2 of I,ho mortgage provided that “until default shall be made by said party of the first part, its successors or assigns, in the payment of interest or principal of said bonds, or in the due observance of 1 he covenants or agreements hereinafter contained on the part and behalf of the said party of the first part, the said party of Ihe first part, its successors and assigns, shall be suffered and permitted to remain in the actual possession of said railway and premises, and to exercise tho franchises and rights relating thereto, and to collect, receive, and use revenues and profits thereof in any manner which will not impair the lien created by ttiese presents.” Article 3 of the mortgage provided that in case default should be made in any semiannual installment of interest, when such interest should become due and be demanded, and such interest, or any part thereof, should remain unpaid and in arrears for the period of six mouths, or in case default should be made in the due observance and performance of 1he covenant of further assurance in said mortgage, or in the payment of any taxes, assessments, or other governmental charges, and either of said defaults should continue for the period of six months, or, in case default should be made in the payment of the principal of said bonds, or of any one of them, it should be lawful for the trustee to enter inio and upon the railway and premises thereby granted, and tho same, and all and singular the rights and franchises thereby granted, to have, hold, and enjoy, operating the same, making repairs, replacements, useful ill (.orations and improvements, and to collect and receive* the revenues and profits, and, after deducting expense's, to apply the revenues and preifits in payment of overdue interest. Artieile 5 of the meirtgage* provieleel that in case elefanlt slioulel be made in payme'nfc eif any semiannual installment of interest, and saiel inte*,rest slioulel remain unpaiel and in arrears for six months, the principal of all ihe bonds might he declareel, by the trustee* or by a majority in interest of the; holelers of the bonds outstanding and unpaid, to be, anel fhereupem the same slioulel become, eltie. Article 6 of said mortgage should be as follows: “Article 6. It is hereby expressly declareel and agreed that in case elefanlt shall be made in payment of interest upon any of the said bonels, when such interest shall become* due and be elemanded, and such elefanlt shall continue* fen* the spaces of six months, or in case de'fault shall be made in the payment of the principal eif any of tho said bonels whe*n tho same shall boe-ome due, then, and in either and every such case of default, it shall be the duty of the trustee for Hie times being, under these presents, to take appropriate proceedings at law or in equity to onfeirco the* rights of the holders of said bonds upon a requisition to that eiffect beiing made upon the saiel trustee, signed by holde*rs of at least eme'-third in amount of the said bonds then outstanding.” The bill alleged that on September 1, 1803, there became duo and payable the semiannual installment of interest, ameranting to the sum of ,837,.100; that default was made in payment thereof; that the coupons evidencing such interest were presented for payment at tho place; where the same we're payable, and payment thereof was demanded anel refused; that default was made in payment eif such interest; anel that such default and failure to pay the same still coutinue*s. The bill also alleged that the holders of a large amount in value of said bemds outstanding have in writing reejuestéel complainant to enforce the* re*me*dies provided in said mortgage; and that said railway company is insolvent!, and unable to pay its floating debt and current anel presently accruing inelebte'dness; that the mortgaged preipe*r1y is insufficient and inadequate seieurity feu* the payment of the outstanding bonds secured by the said mortgage; anel that there is danger that the; said property may be*, seild under judgments; and tha t the property .and line's of said company may be separated anei breiken up, and the* earning capacity destroycel or impaired, by the contests of crediteirs for conflicting claims, anel the mortgaged premises wasted anel depleted.
    C. B. Alexander and Peck, Miller & Starr, for complainant.
    O. M. Osborne and I. L. Morrison, for defendant Chicago, P. & St. L. Ry. Co.
    Bluford Wilson, for certain intervening petitioners.
    
      Before WOODS, Circuit Judge, and ALLEN, District Judge.
   WOODS, Circuit Judge

(orally, after stating the facts). The sharp question presented by the demurrer is whether the sixth clause of the mortgage is a limitation on the right of the trustee to foreclose for interest which, is not six months overdue. It is conceded that the mortgage is a security for that interest, and may be enforced by the beneficiaries of the trust, the bondholders; but it is insisted that the trustee has no right to sue until there has been a lapse of six months since the interest became due. That, I think, is the controlling question of the case. I do not think there is any right secured to the mortgagee which is not represented by the trustee. Whatever right a bondholder has under the mortgage, he has a right to have the trustee enforce for his benefit. It is for that purpose a trustee is chosen. It being conceded, therefore, that there is a right of foreclosure, my view is that the right is one which may be exercised by the trustee. This is therefore a good bill for foreclosure. A reference to particular provisions of the mortgage would fortify this conclusion, but it is unnecessary to go much into details. I have already, during the hearing, indicated the main thought. The second article of the mortgage, which "limits the right of the mortgagor to continue in possession until default in some of the conditions named, would be made meaningless by the construction proposed; and it will not do, as has been suggested, to say that the entire article was inserted carelessly, and should be regarded as having no force, unless, indeed, the other provisions of the instrument are such as to make it necessary to dis: regard this one. If there can be a reasonable interpretation put upon the whole mortgage which will give this clause significance, and otherwise it would be without meaning, that interpretation ought to be adopted. The language of the article is: “Until default shall be made,” and so forth, “the mortgagor shall be entitled to remain in possession;” and, if under that provision a bondholder may terminate that possession by foreclosing the mortgage, the trustee, as already stated, may do it for him. It is claimed, and I think correctly, that the trustee’s right to take possession under the third article is limited to cases where interest has been overdue for six months; and it is insisted that his right to foreclose and to procure a receiver to take possession under the order of the court is likewise limited. If that were so, then the possession of the mortgagor could not be disturbed for any default until after the lapse of six months, and the second article would be entirely nugatory; and, without the consent of the holders of two-thirds of the bonds, there could be no foreclosure,—a proposition by which the minority might nullify the rights of the majority.

Now, I have not examined the cases which have been cited critically enough to undertake to say with certainty what the line of discrimination is, but I have the impression it is about here. A mortgage is a security for a debt. A failure to pay the debt, in whole or in part, when it is due, is necessarily a breach. That is ah inherent or essential feature of a mortgage, and the right to enforce the security in court is not to be construed away, or regarded as limited, except by clear expression. In the case of Guaranty Trust, etc., Co. v. Green Cove, etc., R. Co., 139 U. S. 137, 11 Sup. Ct. 512, it is held that it cannot he absolutely abrogated. That is authoritatively settled; whether upon good reason need not be considered. The cases cited wherein the right of the trustee was declared to he restricted have reference to special powers to be exercised by the trustee without the aid or order of a court,—powers not necessarily inherent in or essential to the very definition of a mortgage. The right of a trustee to take possession is not essential. It may or may not exist, and when it is given in connection with clauses that limit the exercise of it, even though the terms used he permissive, they will be regarded as exclusive. And so, too, a right to sell at public auction without foreclosure, and like special powers, will he considered as controlled by such limitations as the mortgagor chooses to impose. Counsel has insisted upon the significance of the case of Railroad Co. v. Fosdick, 106 U. S. 47, 1 Sup. Ct. 10, where the court says that if, as a matter of fact, the principal debt had been declared due, still the trustee would not have been entitled to sue for a foreclosure of that part of the debt without averring the request of the bondholders provided for in the clause of the mortgage then under consideration. Counsel asked: “How is that to be distinguished from a suit to foreclose for the interest which has become due?” If the trustee has it within his power to declare, and declares, the principal debt due, that is then as much due as the interest, and therefore the rule with reference to them must he the same. That is the argument, and it is certainly not without a good deal of force; hut in the same case we find the court saying that either the trustee or the bondholders might have a foreclosure for default in the payment of the interest; and the reason for the distinction is given at length in the opinion. I think this is a good bill for foreclosure of the mortgage. The averments of insolvency make it a good hill for the appointment of a receiver, and the demurrer will he overruled.  