Cosmopolitan Hotel, Inc. v. Colorado Nat. Bank of Denver

• Decision Date: 17 December 1934
• Docket Number: 13589.
• Citation: 96 Colo. 62,40 P.2d 245
• Parties: COSMOPOLITAN HOTEL, Inc., et al. v. COLORADO NAT. BANK OF DENVER.
• Court: Colorado Supreme Court

40 P.2d 245

96 Colo. 62

COSMOPOLITAN HOTEL, Inc., et al. v. COLORADO NAT. BANK OF DENVER.

No. 13589.

Supreme Court of Colorado, En Banc.

December 17, 1934

Rehearing Denied Jan. 7, 1935.

Error to District Court, City and County of Denver; Frank McDonough, Sr., Judge.

Controversy between the Cosmopolitan Hotel, Inc., and others, and the Colorado National Bank of Denver, trustee. To review an adverse judgment, parties first named bring error.

Reversed.

CAMPBELL and BOUCK, JJ., dissenting.

Edward L. Wood, Charles Ginsberg, and Charles Rosenbaum, all of Denver, for plaintiffs in error.

Bartels Blood & Bancroft, of Denver, for defendant in error.

HILLIARD Justice.

This controversy grows out of the sale of a large hotel and theater property pursuant to foreclosure of a first deed of trust thereon, given to secure an issue of notes or bonds variously and numerously owned, some of them by plaintiffs in error. Over their protest the trial court authorized defendant in error, trustee in the deed of trust to bid at the sale, and in payment of its bid, if accepted to employ the judgment given in the foreclosure suit based on all outstanding bonds, which, of course, included those of plaintiffs in error, and to take title in its name as trustee. Plaintiffs in error contend that under the provisions of the deed of trust the foreclosure sale was required to be for cash, hence, as argued, the court was without authority, they not consenting, to strip them of their contract rights and involve them in joint ownership of property against their will.

Two provisions of the deed of trust operate, we think, to justify the nonconsenting bondholders in their assignments of error based upon this contention. The first goes to the equality of rights enjoyed by the bondholders, the clear intendment of which is that each holder shall be free from the domination of any other or of all the others. The deed of trust was 'for the common and equal use, benefit and security of all and singular the person or persons, corporate or natural or their assigns, who shall at present and from time to time hereafter be the holder of any of the bonds and coupons hereinBefore mentioned, without any preference, distinction or priority as to lien or otherwise, of one bond from any other, so that each bond shall have under this deed of trust the same right and lien.' What were those rights? Two may be mentioned. First to have payment, principal and interest, ratably with all holders. Second, default obtaining, to enjoy the benefits of foreclosure in accordance with the terms of the deed of trust. 'In case of default, * * *' the instrument recited, 'it shall and may be lawful for said trustee, * * * to sell and dispose of said premises and property herein described, * * * and all the right, title and interest of said grantor or his heirs or assigns therein, at public auction, * * * for the highest and best price the same will bring in cash.' It does not provide that the trustee may make the bid of which complaint is made, or any bid. The trustee's authority, specifically stated, was to sell, not to purchase, and to sell for cash. No doubt there was justification for the foreclosure, and apparently it was proper for the court in such a proceeding to enter judgment in the full amount of all unpaid bonds. When it came to ordering sale, however, the terms were necessarily to be fixed in accordance with the deed of trust, not in disregard thereof. The court could not be moved by a majority of the holders, or nearly all of them, or all save one, to a plan other than that stated in the deed of trust. By the deed of trust each holder was protected, and so long as he invoked the terms of that instrument the manner of his enjoyment could not be denied at the behest of like holders or at the instance of a court of equity. 'The rights of bondholders were measured by their bonds and the trust deed securing the same, and, absent any provision therein authorizing the trustee to bid for and on behalf of the bondholders, there was no power in the courts to confer such authority upon the trustee. We think there can be no doubt as to the correctness of this conclusion. Each bondholder has the absolute right to determine for himself, in case of default, whether he shall take his loss and quit, or continue to gamble; if the property is sold at public sale, he has a right to take his proportion of the best bid that can be secured in cash, and cannot be compelled to become an owner of an undivided interest in the property.' Judge McDermott, writing the opinion in Werner, Harris & Buck v. Equitable Trust Co. (C.C.A. 10) 35 F. (2d) 513, 514. 'A bondholder has a right to insist upon his contract, even if eventually he should fare worse by insisting upon his share of a sale for cash, together with the right to look to the responsibility of the mortgagor for a proportionate share in the deficiency. He is not bound to become an owner in common of a beneficial interest in a trust which may run on for many years and from which he may realize cash, stocks, bonds, or other securities that eventually may net him more or less than the amount he would have received had the property been sold for cash.' Detroit Trust Co. v. Stormfeltz-Loveley Co., 257 Mich. 655, 242 N.W. 227, 230, 88 A.L.R. 1263. The Michigan court took occasion to approve the holding in Werner, Harris & Buck v. Equitable Trust Co., supra, stating that the court there had announced the 'correct and reasonable rule,' and added: 'The bondholders are entitled to receive what their contract provided for, and cannot be compelled to take in lieu thereof a beneficial interest in a trust uncertain as to time and outcome, and not contemplated by the indenture.' In Beckman v. Emery-Thompson Mach. & Supply Co., 9 Ohio App. 275, Beckman, as trustee, bid as here and the sale was confirmed. Subsequently the trustee conveyed the property. After such conveyance some minority bondholders, not having joined the preponderating holders in the proceedings, sought to have the confirmation order set aside. The circumstances considered, the court denied the application, but said: 'The complaining bondholders * * * can, as they have done, disavow Mr. Beckman's right to buy on their behalf, and they can insist upon his duty to account to them for their full pro rata of the proceeds of the bid price, as though it had been received by him.'

In support of the judgment below, Nay Aug Lumber Co. v. Scranton Trust Co., 240 Pa. 500, 87 A. 843, Ann.Cas. 1915A, 235, is cited. The opinion there, if sound on its own facts, and it is especially disapproved in Werner, Harris & Buck v. Equitable Trust Co., supra, and Detroit Trust Co. v. Stormfeltz-Loveley Co., supra, should not be regarded as persuasive in a case of different or additional facts. It does not appear that the trust deed there provided that the sale should be for cash, nor that the rights of individual bondholders had been so carefully safeguarded as in the trust deed here. In short, we are dealing with a very definite contract, which does not appear to have been the case in the Pennsylvania inquiry. That the decision there, admittedly without precedent, or, as said in Ann.Cas. 1915A, 237, Note, 'one of first impression,' was unwise in any event, appears in Watson v. Scranton Trust Co., 240 Pa. 507, 87 A. 845, Ann.Cas. 1915A, 237, a proceeding by a bondholder in the same matter.

In addition to the Nay Aug Case our attention has been called to Hoffman v. First Bond & Mortgage Co., 116 Conn. 320, 164 A. 656, 657; First Nat. Bank v. Neil, 137 Kan. 436, 20 P.2d 528, 88 A.L.R. 1252; Central T. & S. Co. v. Chester Co. County Electric Co., 9 Del. Ch. 123, 77 A. 771; Sturges v. Knapp, 31 Vt. 1; Straus v. Chicago Title & Trust Co., 273 Ill.App. 63; Silver v. Wickfield Farms, 209 Iowa 856, 227 N.W. 97, 99; Kitchen Bros. Hotel Co. v. Omaha Safe Deposit Co., 126 Neb. 744, 254 N.W. 507, 509. A study of those cases reveals their distinguishing facts.

In the Connecticut case the court said: 'The mortgage specifically vested the right to enforce it exclusively in the trustee in case of default. Thereupon it 'may proceed to call said notes or to enforce the rights and lien of said note holders under this mortgage, either by foreclosure, or any other proper proceeding, in any proper court, by way of remedy, as said trustee shall deem most effectual to protect said note holders.'' There is no equivalent provision in the record we are reviewing.

In the Kansas case, as with all the cases thought to sustain the judgment of the trial court, nothing appears to indicate that the sale was required to be for cash. Even in the absence of that requirement the court remarked that a definite rule to fit all cases cannot be laid down.

Of the Delaware case the compilers of Ann.Cas. 1915A, 237, Note, properly say that 'It was attempted to set aside the sale on other grounds, no question being raised as to the right of the trustee to purchase for the bondholders.'

In the Vermont case the trustees purchased a railroad property pursuant to bond foreclosure, and thereafter leased it to another railroad company. Certain bondholders (a majority in this instance) sought to have the lease set aside, urging that as the result of the purchase the trustees held a 'naked, dry trust,' and that their only authority was to convey it to the cestuis que trust. The court held that the trustees were acting in accordance with the terms of the deed of trust. No question as to the power of the trustees to bid on foreclosure was presented.

In the Illinois Appeals case the trust deed provided: 'That in case of default the trustee may, without any action on the part of any bondholder, declare all bonds immediately due and payable, and may...