1. A covenant in bonds secured by deed of trust that, in case of
default, there shall be paid to the mortgage trustee, out of the
proceeds of the mortgaged subject matter, and before the payment of
the interest and principal of the bonds, a reasonable compensation
to the trustee and to counsel it may find necessary to employ means
that such payments shall be in addition to payment of the
bondholders. P.
275 U. S.
118.
2. A statute creating a special improvement district, ordering
an assessment of benefits and the laying of a tax to pay the cost
of the improvement not exceeding the benefits assessed, and
authorizing a board, in order to do the work, to borrow money on
negotiable bonds and to mortgage the assessments for their
repayment impliedly authorized the payment of reasonable fees to
the mortgage trustee and its attorney, in case of foreclosure, out
of the fund created by the assessments. So
held where the
fund sufficed to pay these costs and the bonds also. P.
275 U. S.
119.
12 F.2d 718 reversed.
Certiorari, 273 U.S. 676, to a decree of the circuit court of
appeals affirming the district court in its refusal to allow
payments for the services of a mortgage trustee and its counsel in
a suit to foreclose a deed of trust mortgage. The mortgage,
pursuant to a statute of Arkansas, covered the assessments on lands
to be benefited by a highway to be built with the proceeds of the
bonds.
Page 275 U. S. 118
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a petition by the Mercantile Trust Company to be allowed
$2,500 for its services in a foreclosure suit as trustee of the
mortgage foreclosed and $7,500 paid to its counsel in the cause.
The district court found that the charges were reasonable, but
disallowed them on the ground that they were not provided for in
the statute creating the Wilmot Road District, that made the
mortgage. The decree was affirmed by the circuit court of appeals.
12 F.2d 718. A writ of certiorari was granted by this Court. 273
U.S. 676.
The petitioner's reasoning convinces us that the charges should
be allowed as costs against the defendant. In the bonds secured,
the district expressly covenants that, in case of default, there
shall be paid to the trustee out of the proceeds of the assessments
pledged,
"and, before the payment of the interest and principal of said
bonds, a reasonable compensation to the trustee and to such counsel
as the trustee may find it necessary to employ."
This plainly means a payment out of the assessments over and
above the payment to the bondholders, if the words are to receive a
natural interpretation and are not required by the statute to be
read in a different sense.
The Act creating the road district, approved January 30, 1920,
after indicating the highway to be laid out, orders an assessment
of benefits, § 6, and the laying of a tax to pay the costs, not
exceeding the value of the benefits assessed, §§ 8-10, the
collector receiving a commission, § 9, and empowers the board of
commissioners of the district "to make all such contracts in the
prosecution of the work as may best subserve the public interest,"
§ 12. Then, by § 13, "in order to do the work," the board is
authorized to borrow money, to issue negotiable bonds for the sum,
and to "pledge and mortgage all assessments for the repayment
Page 275 U. S. 119
thereof." As said by the petitioner, a trustee obviously is
necessary for a mortgage to secure bonds that are expected to go
into many hands, and, if a foreclosure is required, a lawyer must
be employed. The statute must be taken to contemplate and authorize
these usual incidents of the mortgage that it invites. It cannot
have expected the services to be gratuitous, and there is no reason
why the cost should not be borne by those who made them requisite.
It is said that the assessment is a public fund not to be applied
except as its creation provides. A pretty ignoble immunity has been
secured at times on that argument, but it should not be allowed to
work more injustice than is inevitable. As we have said, the
implications of the statute are as the petitioner contends, and the
general rule of equity is stated with such force in
Dodge v.
Tulleys, 144 U. S. 451, as
to suggest a doubt whether a state could deprive the courts of the
United States of their power to impose these costs. We find nothing
in the decisions of the Supreme Court of Arkansas that leads us to
believe that that court would read the statute as attempting to
prevent the costs' being allowed.
See Arkansas Foundry Co. v.
Stanley, 150 Ark. 127.
It is to be observed that the fund got by the assessment was not
exhausted by the payment of the bonds, so that no question arises
on that score. Nor does it seem to us that the district can get
immunity from the words of § 20 forbidding the board to use any
money arising from the sale of the bonds for any purpose other than
therein specified and expressly directed. For, without stopping to
quibble over the fact that the money in question comes from the
assessment, rather than from the sale of the bonds, except to note
that the section has a different aim, it is enough that, if we are
right, the proposed use of the money is expressly authorized as a
necessary incident of the mortgage provided for in § 13. In other
places, the
Page 275 U. S. 120
statute contemplates payment for necessary services; we cannot
believe that it does not contemplate a similar payment here.
Decree reversed.
