U.S. Supreme Court
Davis v. Mercantile Trust Co., 152 U.S. 590 (1894)
Davis v. Mercantile Trust Company
Argued March 22, 20, 1894
Decided April 9, 1894
152 U.S. 590
On an appeal from a decision of a circuit court, all parties to the record who appear to have an interest in the decision challenged must be given an opportunity to be heard.
The successful bidder at a foreclosure sale becomes thereby a party to the proceedings, and is entitled to be heard on questions subsequently arising affecting his bid not foreclosed by the terms of the decree of sale.
In a decree for the foreclosure of a mortgage, the two parties principally interested are the mortgagor and the mortgagee, and third parties should not be given an opportunity to disturb the decree without first giving the principal parties an opportunity to be heard.
On February 18, 1889, the Mercantile Trust Company of New York filed in the Circuit Court of the United States for the Southern District of Ohio its bill against the Kanawha and Ohio Railway Company. The bill alleged that on May 1, 1886, the defendant, the Kanawha and Ohio Railway Company, issued a series of bonds, and on the same day executed to the Mercantile Trust Company its mortgage or deed of chanroblesvirtualawlibrary
trust to secure the payment of the principal and interest of such bonds. It alleged a default in the payment of interest due on January 1, 1889, as well as the existence of a large floating debt, and prayed the appointment of a receiver and a decree of foreclosure and sale. On February 19, the defendant entered its appearance, and on the same day a receiver was appointed, who qualified and took possession of the mortgaged property. Subsequently, and on July 24, an amended bill was filed making additional parties defendant the Toledo and Ohio Central Railway Company and the Shawnee and Muskingum River Railway Company. On October 26, a decree pro confesso was entered against the latter company. On October 30, Erwin Davis, the present appellant, filed a petition alleging that he was the owner of more than $100,000 of the bonds secured by the mortgage or deed of trust sought to be foreclosed in this suit, and also the owner of more than $500,000, par value, of each class of stock of the defendant the Kanawha and Ohio Railway Company, to-wit, first and second preferred, and common, and asking for the removal of the receiver on the ground of his incompetency and the appointment of some capable and disinterested person as such receiver. On the same day a decree pro confesso was entered against the Kanawha and Ohio Railway Company. On November 13, the petition of Davis for the removal of the receiver and the appointment of another in his stead was denied, and at the same time this order was made:
"It is further ordered that said Erwin Davis be and is permitted to intervene herein, and that he have liberty to be heard upon any and all proceedings herein for the protection of his interests as bondholder and stockholder of the Kanawha and Ohio Railway Company."
On November 29, the Toledo and Ohio Central Railway Company filed its consent to the entry of a decree according to the prayer of the amended bill of complaint, and that the "cause proceed in like manner as if an order pro confesso had been duly entered against it more than thirty days prior" thereto. On December 5, Davis filed a second petition, reciting his interest as before, and in addition alleging the existence of certain prior mortgage liens upon the property described in the plaintiff's bill, or part of it; that in the bill there was claimed that the Kanawha and Ohio Railway company had a floating debt of about $330,000; that since the filing of the bill, that company had confessed judgment in favor of the Kanawha Improvement Company in a court of West Virginia for the sum of $285,232.20, and that as a bondholder and stockholder of Kanawha and Ohio Railway Company, on behalf of himself and all other stockholders and creditors, he had filed a bill in the Circuit Court of the United States for the District of West Virginia attacking such judgment so confessed on the ground of fraud, and praying that it be cancelled, set aside, and held for naught. He attached a copy of this bill, and closed the petition in these words: chanroblesvirtualawlibrary
"Your petitioner respectfully represents that he is advised that no decree of sale of the property included in said mortgage should be decreed until a reference is had to ascertain the liens which shall have been first ascertained thereon, the amounts thereof, and the order of their priorities; that a sale should not be decreed until the validity of the judgment referred to shall have been first adjudicated."
"Petitioner therefore prays that this his petition be read and considered at the hearing; that your honors will not at said hearing enter a decree of foreclosure, as prayed for in said bill, until the matters of this petition have been fully heard and a proper reference to a master be made to ascertain all liens upon said railroad, and the order of their priorities, and that petitioner have full relief in the premises; and, as in duty bound, he will ever pray,"
On the same day, to-wit, December 5, 1889, a decree of foreclosure and sale was entered. That decree found a default in the payment of interest and decreed a sale unless such interest should be paid within thirty days. At the close of the decree was this entry:
"Thereupon, came the intervening petitioner, Erwin Davis, and prayed the court for the allowance of an appeal, with supersedeas, from the foregoing decree, and the court thereupon refused the appeal."
Subsequently, an application was made to MR. JUSTICE HARLAN, of this Court, for an appeal, and on February 11, 1890, it was allowed. The only security given on this appeal was a cost bond, in the sum of $500, executed by Davis and his surety to the appellee, the Mercantile Trust Company, alone. This bond was approved February 27, 1890, and a citation was then signed by MR. JUSTICE HARLAN, the citation running to the Mercantile Trust Company, the Kanawha and Ohio Railway Company, the Toledo and Ohio Central Railway Company, and the Shawnee and Muskingum River Railway Company. This was served on the Mercantile Trust Company, the Toledo and Ohio Central Railway Company, and the Shawnee and Muskingum River Railroad Company, but not on the Kanawha and Ohio Railway Company, the mortgagor. No supersedeas bond having been executed, chanroblesvirtualawlibrary
a sale was had under the decree on March 4, 1890, and the property struck off to Nelson Robinson and William B. Post for the sum of $505,000. On April 7, 1890, this sale was confirmed and a deed ordered. From such order of confirmation Davis prayed an appeal, which was allowed. On such appeal also, a cost bond to the Mercantile Trust Company alone was given, and a citation issued running only to the Mercantile Trust Company.