Belknap Sav. Bank of Laconia v. Lamar Land & Canal Co.

• Citation: 28 Colo. 326,64 P. 212
• Parties: BELKNAP SAV. BANK OF LACONIA, N.H., v. LAMARLAND & CANAL CO. et al.
• Decision Date: 04 March 1901
• Court: Colorado Supreme Court

64 P. 212

28 Colo. 326

BELKNAP SAV. BANK OF LACONIA, N.H., v. LAMARLAND & CANAL CO. et al.

Supreme Court of Colorado

March 4, 1901

Error to district court, Prowers county.

Action by the Belknap Savings Bank of Laconia, N.H., against the Lamar Land & Canal Company and others. From the judgment rendered the plaintiff brings error, and defendants assign cross errors. Reversed and remanded.

Harkless, O'Grady & Crysler and Harrie M Humphreys, for plaintiff in error.

C. H Brierly, F. D. Fuller, and Scammon, Mead & Stubenrauch, for defendants in error.

CAMPBELL C.J.

In this action, when it was instituted, the sole plaintiff was the Belknap Savings Bank, and the defendants were the Lamar Land & Canal Company, the Prowers County Land & Irrigation Company, the Lamar Canal Company (corporations organized under the laws of Colorado, and hereafter referred to respectively, as the Land, Irrigation, and Canal Companies) the Kansas Loan & Trust Company, and the Trust Company of America, foreign corporations, the former incorporated under the laws of Kansas, the latter under the laws of Missouri. The object of the action was the foreclosure of a first trust deed or mortgage executed by the Land Company to the Kansas Loan & Trust Company, as trustee, covering 4,151 acres of land, and an irrigating ditch and appurtenant water rights, to secure the payment of the Land Company's issue of $100,000 in bonds. The trust deed contained minute provisions defining the circumstances in which, naming the instrumentality by which, and furnishing the method in accordance with which, it might be foreclosed. If there was a failure of the mortgagor to pay interest on the bonds within 30 days after the same became due, the entire principal, at the option of the trustee, or the holders of a majority in interest of the issue, might be declared due and payable; whereupon the trustee might take possession of the property covered by the mortgage, and, under the power of sale contained in that instrument, proceed to sell the same at public sale. This method was cumulative only to the ordinary foreclosure in court by the trustee upon default, in which event, at the discretion of the trustee, and at the written request of a majority of the holders in value of the bonds then unpaid, he might institute proceedings to foreclose the same in court. At the time this action was brought, the principal of the bonds was not due, but there was a default in the payment of interest. The plaintiff was the owner of $5,000 of the first mortgage bonds, only one-twentieth in amount of the entire issue. The majority bondholders made no request of the trustee to foreclose the mortgage before this suit was brought, and although the proof shows that plaintiff then knew that the Portsmouth Savings Bank (which became a defendant in the action long after its inception) was the owner of $25,000 of the bonds, and, if reasonable diligence had been used, the holders of the balance could have been found, no attempt was made to comply with the provisions of the mortgage relating to foreclosure. The ground assigned in the complaint as constituting the right of plaintiff to sue was that the Kansas Loan & Trust Company and the Trust Company of America, its successor, were antagonistic in interest to the bondholders.

The plaintiff, then, brought this action in its own behalf, and in behalf of such other bondholders as might thereafter join in the action and share its cost and expenses. The reason for making the Irrigation and the Canal Companies defendants was that after the execution of the first mortgage a subordinate mortgage was given by the Land Company to the Kansas Loan & Trust Company, as trustee, which was afterwards foreclosed, and the property included therein, the same as that covered by the first mortgage, was sold, and by divers conveyances came into the hands of the Irrigation Company, which company placed a mortgage thereon, running to the same trustee, to secure an issue of $300,000 of bonds, subject to the provisions of the first mortgage; and the Irrigation Company, after its mortgage, called in the record the 'second mortgage,' was given, deeded to the Canal Company the canal or irrigating ditch and its appurtenant water rights; and the Canal Company in turn executed to the same trustee, upon the property so acquired by it, another mortgage, which is called the 'third mortgage,' subject to the provisions and liens of the two former ones.

The same day the action was begun plaintiff filed its petition therein for the appointment of a receiver, notice of which was given only to the three Colorado corporations defendant. The court made the appointment, and 15 days thereafter authorized its receiver to issue not to exceed $25,000 in receiver's certificates, which, when issued and sold, were to constitute a lien upon the mortgaged property superior to that of the first mortgage. These certificates, together with another issue of $5,000 authorized in the following November upon like notice to the three defendants mentioned, and with like incidents, were sold by the receiver to the plaintiff bank at a discount of 12 1/2 cents on the dollar of the face value. More than five months after the first order for the issuance of certificates was entered, the first of the various other holders of first mortgage bonds (who are defendants in error upon this review) voluntarily appeared in the action, and about ten months thereafter other bondholders appeared and were made parties, and under orders of court filed answers and cross complaints, some of whom joined with plaintiff in requesting a foreclosure of the mortgage, and others of whom, while apparently objecting thereto, as we read the record, virtually asked the same relief, some of whom confessedly, and others of whom, as it is claimed, while consenting to the foreclosure, objected to the appointment of the receiver, and the making of the receiver's certificates a lien prior to their own. So far as we are advised, these bondholders had no knowledge of the action, or of the former proceedings in the suit, until about the time their respective appearances were entered.

The question as to the status of these certificates was reserved by the court by special order until final hearing, and, when this hearing was had, a decree was entered giving judgment against the defendants for the amount of the bonds and interest, and directing a sale of the mortgaged premises for the satisfaction of the mortgage debt, with the further provision that the amount of the receiver's certificates, less a certain portion which were held to be invalid, should be a concurrent and pro rata lien with the first mortgage bonds. There were various other provisions of the decree with which some of the present defendants in error were dissatisfied, to review which they have prosecuted a separate writ of error, under the title of Lamar Land & Canal Co. v. Belknap Sav. Bank, 64 P. 210. None of the parties to the action were satisfied with all the provisions of the decree, and the Belknap Savings Bank, the original plaintiff in the action, has brought the case here, as plaintiff in error, for a review of that part of the decree with which it is dissatisfied, and the defendants in error have assigned cross errors to those provisions unfavorable to them. Such additional facts as are necessary to a full understanding of the questions presented will be stated further on in the discussion.

Numerous errors are assigned by both parties to the rulings of the trial court, which, in the argument of counsel for plaintiff in error, are condensed into four subdivisions, all of which, however, are comprehended under the one general specification that, as to plaintiff in error, the court erred in not adjudging the receiver's certificates to be a prior lien to that of the first mortgage, while defendants in error contend that they are inferior thereto. This, in the double form just stated, is the principal question before us, though its determination necessarily involves consideration of various subordinate propositions on which its resolution depends.

Preliminary to the discussion, we observe that counsel for the respective parties concede that they radically differ in their statement of the facts embodied in the record, which difference, however, a close investigation shows consists in the inferences drawn from, or legal conclusion put upon, the facts by opposing counsel, rather than by substantial difference in a statement of the facts themselves. But we are constrained to say that, where counsel to differ in stating facts, we have found that counsel for defendants in error in the main are correct. We also remark that certain important questions of practice are raised, which, in the view we take of the main question, are not necessarily involved, but they are so interwoven with that question, and so fully argued, that we think it proper to settle them in the interests of litigants, especially as ignoring them might give rise to misconception. Other matters, supposed to estop the bondholders to attack the validity of the receivership proceedings, are pressed, which should likewise receive our attention.

(a) Much of the argument of counsel for plaintiff in error is devoted to the proposition, against which the trial court found, that notice of application for appointment of a receiver, as well as that for the issuance of receiver's certificates, was given to the parties entitled to receive notice. Certainly none of the bondholders got personal notice, for they were not at the time parties to the action and no pretense is made that any information of the proceedings was given them directly. But it is insisted that personal service of notice of these applications was had...