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Giesecke v. Pittsburgh Hotels Inc.

December 7, 1945

GIESECKE
v.
PITTSBURGH HOTELS, INC., ET AL. FORT PITT HOTEL, INC., V. SAME. APPEAL OF GIESECKE.



Author: Maris

Before MARIS, GOODRICH, and McLAUGHLIN, Circuit Judges.

MARIS, Circuit Judge.

On and prior to May 1, 1940 Pittsburgh Hotels, Inc. owned three properties in Pittsburgh, the William Penn Hotel, the Fort Pitt Hotel and a service building. These properties were all subject to the lien of a first mortgage then held by The Union Trust Company of Pittsburgh and later assigned to the Mutual Life Insurance Company of New York and to the lien of a second mortgage indenture dated January 1, 1937 given to the Peoples-Pittsburgh Trust Company as trustee to secure an authorized issue of $5,949,000 principal amount of Five Per Cent. Mortgage Cumulative Income Bonds of Pittsburgh Hotels, Inc.

On May 2, 1940 Pittsburgh Hotels, Inc. entered into an agreement to sell the Fort Pitt Hotel free and clear of all liens and encumbrances to Fort Pitt Hotel, Inc. The price agreed upon was $675,000 for the land and building and $150,000 for the equipment, furniture and furnishings. Fort Pitt Hotel, Inc., was to go into immediate possession of the hotel property and receive a bailment lease of the equipment, furniture and furnishings, was to pay Pittsburgh Hotels, Inc. $250,000 in cash in installments from May 2, 1940, to March 1, 1944, was to pay the taxes and insurance premiums, and was to make specified expenditures for the rehabilitation of the premises. Upon payment of the last of the cash installments aggregating $250,000 on March 1, 1944, Pittsburgh Hotels, Inc. was to convey the land and building to Fort Pitt Hotel, Inc., in fee simple free and clear of liens and encumbrances and give it a bill of sale for the equipment, furniture and furnishings. Simultaneously Fort Pitt Hotel, Inc., was to deliver to Pittsburgh Hotels, Inc. a purchase money bond and mortgage for $575,000 to mature March 1, 1954, and bear interest at 5% per annum payable quarterly.

On May 1, 1940, Pittsburgh Hotels, Inc. had requested Peoples-Pittsburgh Trust Company as trustee under the second mortgage indenture securing the Mortgage Cumulative Income Bonds, to release the Fort Pitt Hotel property from the lien of that indenture, the release to be held in escrow until compliance with Article V of the mortgage indenture. The request had been accompanied by two appraisals, one dated April 26, 1940, fixing the value of the land and building at $550,000 and another dated April 22, 1940, fixing it at $667,000. Pursuant to this request the trustee on May 2, 1940, executed and delivered to an escrow agent a release of the lien of the mortgage indenture and authorized the escrow agent to deliver the release to Pittsburgh Hotels, Inc., on or before March 10, 1944, upon performance of the conditions stipulated in the escrow agreement.*fn1 Pittsburgh Hotels, Inc. also arranged to secure from the first mortgagee the necessary release of the lien of the first mortgage.

By letter dated May 15, 1940, Pittsburgh Hotels, Inc. gave notice of the sale to the holders of all the bonds secured by the second mortgage indenture, among whom was the plaintiff. On October 28, 1940, Pittsburgh Hotels, Inc. and Fort Pitt Hotel, Inc. entered into a supplemental agreement whereby Fort Pitt Hotel, Inc. was to pay to Pittsburgh Hotels, Inc., $50,000 of the $250,000 cash installments and was to pay $200,000 thereof to the trustee to be credited to the fund required to be paid for the release of the second mortgage lien under the indenture.*fn2

Fort Pitt Hotel, Inc. took possession on May 2, 1940. It paid each cash installment as it fell due. It spent in excess of $300,000 in rehabilitation of the hotel. It paid $115,000 in real estate taxes. On March 1, 1944, Fort Pitt Hotel, Inc. informed Pittsburgh Hotels, Inc., that it was ready to complete performance. On March 10, 1944 it tendered to Pittsburgh Hotels, Inc., the final installment of $10,000 and its purchase money bond and mortgage for $575,99 and demanded a conveyance of title free and clear of liens and encumbrances.

In the meantime on February 25, 1944, a suit had been instituted in the District Court for the Western District of Pennsylvania by the plaintiff who is the holder of $2,400 principal amount of the Mortgage Cumulative Income Bonds and of a voting trust certificate for 32 shares of the common stock of Pittsburgh Hotels, Inc. The suit was brought on his own behalf and on behalf of all other holders of the bonds and voting trust certificates. He named as defendants Pittsburgh Hotels, Inc., thirteen of its officers, directors and voting trustees and Peoples-Pittsburgh Trust Company, the trustee under the second mortgage indenture securing his bonds. Fort Pitt Hotel, Inc., was not named as a defendant and the plaintiff sought no relief as to it.

The plaintiff alleged that Pittsburgh Hotels, Inc., in agreeing to sell the hotel and personal property upon the terms embodied in the agreement of sale and supplement and the trustee in agreeing to give the release upon the terms of the agreement of sale and supplement and in depositing it in escrow acted in violation of the terms of the indenture of mortgage. He alleged that the holders of the Mortgage Cumulative Income Bonds of Pittsburgh Hotels, Inc., were thereby deprived of security to which they were entitled. He asked that pending the determination of his cause of action against the defendants the court restrain Pittsburgh Hotels, Inc., from conveying title and the trustee from granting the release.

Because of the prayer in the complaint that Pittsburgh Hotels, Inc., be enjoined during the pendency of the action from conveying title to the hotel, its equipment, furniture and furnishings, that corporation refused the tender of Fort Pitt Hotel, Inc. On March 20, 1944, Fort Pitt Hotel, Inc., with leave of court, intervened in the plaintiff's suit and filed an answer and cross complaint. In its cross complaint Fort Pitt Hotel, Inc., named Pittsburgh Hotels, Inc. and Peoples-Pittsburgh Trust Company, the trustee under the second mortgage indenture, as defendants and prayed for specific performance. Pittsburgh Hotels, Inc., filed an answer to the cross complaint of Fort Pitt Hotel, Inc., and expressed its willingness to perform. The trustee submitted itself to the court. The plaintiff filed no pleading in response to the cross complaint.

Fort Pitt Hotel, Inc., thereupon moved for summary judgment pursuant to Civil Procedure Rule 56, 28 U.S.C.A. following section 723c. On November 8, 1944, the court entered a summary judgment against Pittsburgh Hotels, Inc., the trustee and the plaintiff and in favor of Fort Pitt Hotel, Inc., by which it ordered the trustee to release the lien of the mortgage upon the payment by Pittsburgh Hotels, Inc., to it of $50,000 in cash in addition to the sum of $200,000 already paid or provided for, and ordered Pittsburgh Hotels, Inc., to convey title to Fort Pitt Hotel, Inc., free and clear of all liens and encumbrances, and adjudged that the said title was not clouded by the plaintiff's action or by any rights of the plaintiff or of any persons in whose behalf his action was alleged to have been brought. It reserved for later trial all issues as to the liability of the original defendants to the plaintiff.

In compliance with the judgment Fort Pitt Hotel, Inc., paid the final installment of $10,000 to Pittsburgh Hotels, Inc., which in turn paid it to the trustee; Pittsburgh Hotels, Inc., paid to the trustee the $50,000 which it had originally retained under the terms of the supplemental agreement, thus making the payments to the trustee aggregate $250,000, and delivered to Fort Pitt Hotel, Inc., the deed for the hotel premises and the bill of sale for the personal property; the escrow agent for the trustee delivered the release of the lien of the second mortgage indenture to Pittsburgh Hotels, Inc.; Fort Pitt Hotel, Inc. delivered to Pittsburgh Hotels, Inc., its purchase money bond and mortgage for $575,000 and Pittsburgh Hotels, Inc., assigned the same to the first mortgagee as collateral security and made a second assignment thereof to the trustee; and the first mortgagee released the hotel property from the lien of the first mortgage. Although the judgment had been entered on November 8, 1944, and all the steps just described in compliance with its terms were not completed until December 29, 1944, the plaintiff did not apply for a supersedeas and did not take the appeal now before us until February 5, 1945.

Upon this appeal we are concerned solely with the question as to whether under the provisions of the mortgage indenture Pittsburgh Hotels, Inc., had the right to obtain a release of the lien of the mortgage under the circumstances here disclosed and whether the trustee had power to give it. If this question is answered in the affirmative it follows that the district court properly directed specific performance of the agreement. We are not called upon to determine on this appeal whether Pittsburgh Hotels, Inc., or its officers, directors or voting trustees, were improvident in selling the Fort Pitt Hotel property upon the terms embobied in the agreement of sale. This is one of the issues which the district court reserved for later trial and we express no opinion on it. We turn, therefore, to an examination of the terms of the mortgage indenture to determine whether the trustee was empowered to release the lien of the mortgage upon the conditions upon which the district court directed it to do so.

The conditions precedent to the giving of a release by the trustee are set forth in Article V of the indenture. Section 2 of that ...


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