Jurisdiction of the circuit courts, concurrent with the courts of the several States, under the existing act of Congress, is extended, where the matter in dispute exceeds the sum or value of $500, to all suits at common law or in equity in which there shall be a controversy between citizens of different States, without any exception or qualification, employing the very words contained in the Constitution. 18 Stat. 470; Const., art. 3, sect. 2.
Motives of a public character induced certain residents of the city of Omaha to become organized as a corporation, to facilitate their efforts to erect a hotel at that place. Expenditures to a large amount were incurred by the Hotel Company in purchasing the lot and in erecting and enclosing the building; and, being unable to complete the same without pecuniary aid from others, they decided to mortgage the premises to raise the necessary funds for the purpose.
Arrangements were first attempted, and partly perfected, to make a loan of $75,000; but it was soon after determined that it would require $25,000 more to accomplish the object. Negotiations of various kinds ensued, which resulted in a vote of the stockholders in favor of the proposition ultimately carried into effect, to borrow $100,000 to complete the hotel.
Action of a corresponding character was had by the board of directors; and they voted to accept the proposition made to the stockholders, and directed the president and secretary of the company to execute, acknowledge, and deliver to Milton Rogers, trustee, a mortgage or trust deed of the hotel lot and building, as more fully set forth in the record.
Bonds of the company executed to bearer, with interest coupons attached, to the number of one hundred, each for the sum of $1,000, with interest at the rate of twelve per cent, payable semi-annually, were issued, the principal payable in five years, with the privilege to the company of paying the same two years earlier. Payment of the bonds, principal and interest, was secured by the mortgage or trust deed executed by the president and secretary of the company, in pursuance of the aforesaid vote of the board of directors to carry into effect the proposition previously adopted by the stockholders at their meeting duly notified and held for the purpose.
Covenants alleged to have been broken are the following: 1. That the company shall keep the hotel building insured in good and responsible companies, to be agreed between the parties, in the sum of not less than $100,000, and that the company shall assign the policies to the trustee, for the benefit of the holders of the bonds. 2. That the company shall pay all taxes and assessments upon the mortgaged premises. 3. That the sum raised by the mortgage shall be applied to the construction and completion of the hotel building. 4. That the company shall well and truly pay the interest as it becomes due, and the principal at maturity; and the instrument provides that in case of failure to pay the interest or to perform any other of the covenants or agreements therein contained, then in that case not only the interest but the principal shall become due and payable, and the trustee shall have the right to take immediate possession of the property, foreclose the mortgage, and sell the mortgaged premises.
Specific breaches of the covenants of the instrument are alleged, and failures, neglects, and refusals of the company to perform the same, in consequence of which the complainants aver and charge that the principal as well as the interest of the mortgage debt has become due, and that they are entitled to a decree foreclosing the mortgage.
Service was made, when most of the respondents entered an appearance, and two of the respondents, to wit, E. D. Pratt and Charles W. Hamilton, filed an answer. Certain interlocutory proceedings followed, which it is not material to notice in this investigation. Six other respondents subsequently appeared and filed an answer, and at a still later period the Hotel Company appeared and filed their answer. Special reference need only be made to the answer of the Hotel Company, as the other two answers relate chiefly to the application for a receiver.
Four principal defences were set up by the company: 1. That the Circuit Court had no jurisdiction of the case. 2. That the bonds and mortgage were void because of the trust relation which the lenders of the money sustained to the stockholders. 3. Because the lenders of the money contracted for and received usurious interest. 4. That the complainants were not bona fide holders of the bonds, and that the bonds do not equitably bind the Hotel Company.