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proved June 15, 1887, as amended by the act approved June 1, 1889, provided as follows: "Any corporation which is or shall be incorporated under the general incorporation laws of this state, being an act entitled 'An act concerning corporations,' and all amendments thereof, for the purpose of accepting and executing trusts, and any corporation now or hereafter authorized by law to accept or execute trusts may be appointed agent or trustee by deed, and executor, guardian or trustee, by will, and such appointment shall be of like force as in case of appointment of a natural person.” The second count of the act authorized courts to appoint any such corporation as trustee, receiver, assignee, guardian, conservator, executor, or administrator. The third section provides that such corporations shall not be required to give bond or security in case of appointment, except as provided in the act, but shall be responsible for all investments made by it of funds intrusted to it for investment by the court, and that the amount of money which any such corporation shall have on deposit at any time shall not exceed 10 times the amount of its paidup capital and surplus, and that its outstanding loans shall not at any time exceed that amount. Section 4 provides that the company shall pay interest on all moneys held by it by virtue of the act, at such rate as may be agreed upon at the time of its acceptance of any appointment of the court, or as may be provided by the order of the court. Section 6 provides that any such company, before accepting such appointment or deposit, shall deposit with the auditor of public accounts, for the benefit of the creditors of such company, the sum of $200,000 in the class of securities mentioned, and that the company shall be entitled to receive from the auditor the interest or dividends upon the deposit so long as the company shall continue solvent. Section 8 provides that it shall not be lawful "for any such company to accept any trust or deposit as hereinbefore provided after the passage of this act, without first procuring from the auditor of public accounts a certificate of authority stating that such company has complied with the requirements of this act in respect to such deposit.” Section 9 provides for annual statements to be filed with the auditor, stating the matters specified in the act, being—First, the assets of the company; second, the liabilities of the company; third, a list of the trusts held by such company, the source of the appointment and the amount of real and personal estate held by virtue thereof, "excepting that mere mortgage trusts wherein no action lias been taken by such company shall not be included in such statements." The fifteenth section provides that any violation of the provisions of the act shall subject the offending party to a penalty of $500 for each offense, and an additional sum of $100 per day for each day that any such company shall fail to file its report after the last day of January of each year. Section 16 provides for the publication of the annual statement or proper abstract thereof by the auditor, in two newspapers of general circulation, the one printed in the city of Springfield, and the otber in the county seat of the county in which the principal office of the company is located.


I have very carefully considered the able arguments presented upon the hearing, and have examined the numerous authorities to which I was referred. I think it sufficient to state the conclusions to which I have come, without any elaboration of the reasons constraining me thereto. I am of opinion

First. That a mortgage to secure a debt is not within the contemplation or the prohibition of the law.

Second. If the trust deed here involved can be considered to fall within the intendment of the law because of certain trusts therein contained which contemplate that in certain contingencies the trustee shall take possession of, operate, purchase, and acquire title to the real estate covered by the mortgage in the interest and for the benefit of the bondholders, I am of opinion that then such trusts would be held incapable of being enforced by the trustee while in noncompliance with the law of the state, but that the mortgage security of the bondholder would not be invalidated. Pennsylvania Co., etc., v. Bauerle, 143 Ill. 459, 33 N. E. 166; Hervey v. Railway Co., 28 Fed. 169, 175.

Third. The mortgagor company executed this trust deed to the complainant to secure certain bonds which it put forth upon the market as secured thereby. The Northern Pacific Company, in consideration of the lease, convenanted to pay the interest of these bonds. The mortgagor company is estopped, as against the bondholders, to assert that the trustee has not performed the acts neces. sary to entitle it to assume the trust. It asserted to the world the legal capacity of its appointee. It marketed its obligations upon the faith of that representation. It cannot be permitted now to assert to the contrary. It cannot be allowed to assert a violation of law by itself or by the trustee of its appointment as ground for the nonenforcement of its legal obligation. It is not the conservator of the dignity of the state of Illinois. The Northern Pacific Company took the lease subject to the mortgage, conrenanted to pay the interest on the bonds thereby secured, and is in no position to assert its invalidity. It also is estopped.

Fourth. The complainant brings this suit in behalf of the bondholders. They are the parties beneficially interested. The complainant in the prosecution of the suit acts as a mere naked trustee asking the court to enforce the security for the benefit of its cestui

If the instrument can be held to fall within the purview of the acts of Illinois above referred to, since the supreme court of Illinois has held that the disability goes to the right of the trustee to execute the trust, but that the conveyance is not thereby invalidated, I perceive no good reason why the federal court should not open its doors in aid of the bondholders, although coming in the name of the trustee, for the enforcement of rights recognized as valid by the laws and decisions of the state.

It may be that certain trusts contained in the trust deed or mort. gage cannot be enforced by the trustee while in contempt of, and until compliance with, the laws of the state of Illinois. I refer to those provisions of the instrument which authorize the trustee to

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take possession of, acquire title to, and convey the property. It is not, however, necessary, nor by this bill is it sought, to execute those trusts. If they are void, their invalidity does not necessarily invalidate the instrument as a mortgage. The court will treat it as a mortgage merely, the trustee, as mortgagee, holding the naked legal title to the security, the bondholders being the beneficial own

The court will enforce the security by judicial sale, not permitting the execution of any trust that may be inoperative until compliance with the law of the state of Illinois. The statute has provided a penalty for the act of the trustee, if its assumption of duty is within the prohibition of the act. That penalty is the measure of punishment which the state saw fit to impose for violation of its laws. It has not undertaken to render void the trust deed or mortgage, or to deny to innocent parties the enforcement of it in protection of their rights. It may be that the courts of the state of Illinois would refuse to recognize the trustee standing in defiance of its laws. I do not think, however, that the duty is imposed upon a federal court to punish innocent parties in vindication of the authority of the state.

With respect to the second ground alleged in the petition of Louis Daenell, I am of opinion that, whether there was a resolution of the stockholders for the issuance of this mortgage, and whether or not it was recorded, is matter with which he is not concerned, and which he has no right to assert.

With regard to the petition of the attorney general of the state of Illinois, I have given to it that consideration which is due to the claim of a sovereign state, but I am not able to apprehend the justice of its position or its right to intervene. It is to be observed that the state has no property interest in the subject-matter of this litigation. It seeks no relief save to enforce the supposed prohibition of the statute, and to prevent the complainant, in behalf of its cestuis que trustent, from invoking the aid of a federal court in enforcing the mortgage security, and this because the complainant accepted the trust without compliance with the law of the state. In plain language, the petition asks a court of equity to deny innocent bondholders, and to declare void, a mortgage securing $30,000,000 of bonds, because the trustee, with whose selection the bondholders had nothing whatever to do, failed to deposit with the state certain securities to the amount of $200,000 for the protection of its creditors. The state asks a court of equity to declare that a provision of the law which was enacted in the interest of creditors, and as a weapon of defense, shall be turned into a weapon of destruction. It would be strange indeed if any chancellor could be impressed with the equity of the plea, or could bend his mind to such an injustice, unless thereto compelled by positive law. It is undoubtedly the duty of a federal court in every proper case to uphold and enforce the law of the state.

The supreme court of Illinois has, however, held, under the stat. ute here invoked, that the security is not void. Upon the assumption that certain active trusts contained in the mortgage ought not

v.68F.no. 3—27

to be allowed to be enforced by the complainant until compliance with the statute of the state, so far as this court has jurisdiction of the matter, and out of consideration for the supposed policy of the state, it will not lend its aid to their enforcement.

But I perceive no equity in refusing to the complainant the right to appear in a federal court to assert, not its own rights, but the rights of bondholders to foreclose the security and for sale of the mortgaged property, because it has rendered itself liable to the state of Illinois in a penalty for accepting a trust without first depositing security. I perceive no equity in visiting punishment upon the innocent to satisfy the violated dignity of the state. The bondholders have infracted no law of the state, and are not accountable for the sin of the Farmers' Loan & Trust Company, if it has violated the law. I do not believe in the doctrine of imputed sin in matters of property. The state of Illinois is able to punish offenders against its law in its own way, and in its own courts. It is not the duty of the federal courts to enforce the penal laws of the state. The difficulty with the position of the attorney general is that the state of Illinois has no property interest in the subject-matter of this litigation. The right of intervention is bottomed upon interest in the subject-matter of the controversy. Here the only interest of the state rests in desire to enforce the statute, and to secure obedience to its law, by preventing the enforcement of private contracts by one violating its law. That is not ground for intervention in equity. A decree will be entered overruling the pleas, and that the intervening petitions of Louis Daenell and of the attorney general of the state of Illinois be filed, docketed, and dismissed for want of equity.


(Circuit Court, N. D. Ohio, W. D. May 27, 1895.)

No. 1,168.


Bonds duly and lawfully issued by a municipal corporation cannot be rendered invalid in the hands of a bona fide holder by the fact that such corporation, though properly a city, has issued such bonds under the name of a village, it having previously been recognized as a village in an act of the legislature changing its name, and having levied and collected taxes, passed ordinances, and otherwise acted as a village.

This was an action by Cornell University against the village of Maumee, Ohio, upon coupons cut from bonds of the village. The case was tried by the court without a jury.

Harris & Thurston and Doyle, Scott & Lewis, for plaintiff.
J. E. Pilliad, L. M. Murphy, and W. H. A. Read, for defendant.

RICKS, District Judge. The village of Maumee, in Lucas county, Ohio, in the year 1888 issued $25,000 of refunding bonds under the provisions of section 2701 of the Revised Statutes of Ohio, which provides:

"The trustees or council of any municipal corporation, for the purpose of extending the time for the payment of any indebtedness, which, from its limits of taxation, such corporation is unable to pay at maturity, shall have power to issue bonds of such corporation, or borrow money, so as to change but not increase the indebtedness, in such amounts, and for such length of time, and at such rate of interest as the council may deem proper, not to exceed the rate of eight per centum per annum.'

Section 2703 provides that: “All bonds issued under authority of this chapter shall express upon their face the purpose for which they were issued, and under what ordinance."

Section 2706 provides that: "All bonds, notes or certificates of indebtedness issued by municipal corporations shall be signed by the mayor and by the auditor, comptroller or the clerk thereof, and be sealed with the seal of the corporation."

The bonds so issued passed to the plaintiff as a bona fide holder and innocent purchaser for value. The suit is brought upon the coupons, and in order to determine the validity of the bonds issued. The defense interposed is substantially that no such municipal corporation as the village of Maumee ever existed; that for years prior to this Maumee City was created a city, and continued to be such until the adoption of the new constitution, when, under the legislation as to municipal corporations, it was placed in the second grade of cities as a city of the second class. It appears from the several acts of the legislature, beginning with 1838, that the incorporation sued was known as Maumee City, in the county of Lucas, and subsequently known as the city of South Toledo. In 72 Ohio Laws, 252, the general assembly passed the following act:

"An act to change the name of Maumee City, Lucas county. Section 1. Be it enacted by the general assembly of the state of Ohio, that Maumee City, Lucas county, shall hereafter be designated and known by the name of South Toledo. Sec. 2. This act shall take effect and be in force from and after its passage.”

On March 4, 1887 (84 Ohio Laws, 309), the general assembly passed the following act:

"An act to change the name of the incorporated village of South Toledo. Section 1. Be it enacted by the general assembly of the state of Ohio, that the name of the incorporated village of South Toledo, Lucas county, Ohio, be and the same is hereby changed to Maumee, provided, that such change shall in no wise affect the rights or liabilities of such village. Sec. 2. This act shall take effect and be in force from and after its passage.”

Whatever may have been the facts concerning the name by which the territory was known as a corporation, the people within the territorial boundaries of that corporation remained the same. Section 1571a of the Revised Statutes of Ohio (Smith & B. Ed., p. 403) provides that:

"No error, irregularity or defect in any proceeding for the creation of a municipal corporation shall render it invalid if the territory sought to be incorporated has been recognized as such corporation and any tax levied upon it as such has been paid, or it has been subjected to the authority of the council without objection from its inhabitants."

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