Kitchen Bros. Hotel Company v. Omaha Safe Deposit Company

• Decision Date: 14 April 1934
• Docket Number: 28865
• Citation: 254 N.W. 507,126 Neb. 744
• Parties: KITCHEN BROS. HOTEL COMPANY, APPELLEE, v. OMAHA SAFE DEPOSIT COMPANY, TRUSTEE, APPELLEE: CONTINENTAL LIFE INSURANCE COMPANY, INTERVENER, APPELLANT
• Court: Nebraska Supreme Court

254 N.W. 507

126 Neb. 744

KITCHEN BROS. HOTEL COMPANY, APPELLEE, v. OMAHA SAFE DEPOSIT COMPANY, TRUSTEE, APPELLEE: CONTINENTAL LIFE INSURANCE COMPANY, INTERVENER, APPELLANT

No. 28865

Supreme Court of Nebraska

April 14, 1934

APPEAL from the district court for Douglas county: FRANCIS M DINEEN, JUDGE. Affirmed.

AFFIRMED.

Syllabus by the Court.

1. Section 20-328, Comp. St. 1929, permitting intervention before trial as a matter of right, does not prevent a court of equity, in the exercise of its discretion and in the furtherance of justice, from allowing intervention after judgment to protect inherent rights in the foreclosure of a real estate mortgage.

2. A mortgage indenture which prohibits the holder of any bond or coupon from instituting any suit, action or proceeding in equity or law, or the execution of any trust thereunder, or for any other remedy, unless written notice is given the trustee or unless the holders of one-fourth of the bonds and coupons shall have made request of the trustee and given it reasonable opportunity to exercise its power thereunder, is not a limitation upon the inherent rights of such bondholders to protect their interests in the foreclosure of the mortgage indenture.

3. A mortgage indenture which provides that, upon foreclosure " the trustee, as such trustee, for the benefit of the holders of the bonds and coupons then outstanding and unpaid without any further authority or direction from such holders, may bid at such sale and become the purchaser of the property and take and hold the title thereto for the benefit of the holders of the outstanding bonds and coupons, and the trustee shall then have full power and authority to manage, operate and control such property and to resell the same at such price and on such terms as it deems for the best interest of the bondholders," is valid, inures equally to the benefit of all the bondholders, and is binding upon them.

4. A decree in foreclosure of such mortgage indenture permitting the trustee, as such, to bid for and buy the property at foreclosure sale for a sum sufficient to pay the full amount of the indebtedness, with interest and costs, or for any less amount for the pro rata benefit of all the bondholders, and that the trustee as such shall be entitled to receipt to the sheriff, which receipt shall be accepted by the sheriff for the full amount of its bid as trustee of the bondholders without liability for payment of cash on account of such bid and without liability to account for or to distribute cash to any bondholders on account of such bid and without the production of any bonds, is not in violation of the provisions of the mortgage indenture and is legal, equitable and enforceable, the court having retained jurisdiction for the giving of such further orders as may be necessary or proper for the benefit and protection of all the parties in interest.

5. If the property is purchased by the trustee, as such, at such foreclosure sale for the benefit of all the bondholders, any sale of the property thereafter must first be approved by the equity court, thereby protecting the bondholders.

Appeal from District Court, Douglas County; Dineen, Judge.

Suit by the Kitchen Bros. Hotel Company against the Omaha Safe Deposit Company, trustee, wherein the defendant filed a cross-petition and wherein the Continental Life Insurance Company intervened. From the judgment, the intervener appeals.

Affirmed.

Charles G. Revelle and Courtney S. Goodman, for appellant.

Fradenburg, Stalmaster & Beber, Charles Battelle and Kenneth S. Finlayson, contra.

Heard before GOOD, EBERLY and DAY, JJ., and CARTER and CHAPPELL, District Judges.

OPINION

CHAPPELL, District Judge.

A suit was commenced by the Kitchen Bros. Hotel Company against the Omaha Safe Deposit Company of Omaha, theretofore appointed by the district court for Douglas county, Nebraska, as successor trustee to the Fidelity Bank & Trust Company, insolvent and in the hands of a receiver, the object and prayer of which was to obtain a decree, inter alia, that certain payments which had been made upon a mortgage be declared legal payments and enjoining the successor trustee from declaring a default and foreclosing a mortgage. While this case was pending a default in subsequent payments upon the mortgage was made by the mortgagor, Kitchen Bros. Hotel Company. The defendant Omaha Safe Deposit Company of Omaha, as successor trustee under the mortgage, then filed its answer and cross-petition to foreclose the mortgage. On January 30, 1933, a final decree of foreclosure was entered by the court. On February 3, 1933, after the decree had been entered, the appellant, Continental Life Insurance Company, claiming to own some of the bonds secured by the mortgage, obtained an ex parte order permitting it to intervene and file instanter a motion to modify the decree. The motion was overruled upon hearing February 18, 1933, and this appeal perfected by the Continental Life Insurance Company.

The motion of appellant to modify the decree alleged that it was the owner of $ 118,000 of the first mortgage bonds of Kitchen Bros. Hotel Company, and that the decree of foreclosure, under date of January 30, 1933, was unlawful, invalid, and in direct violation of section 4, article V of the mortgage indenture, in that it provides: "(6) That the Omaha Safe Deposit Company as successor trustee herein may bid for and purchase said mortgaged property for a sum sufficient to pay the full amount of the said indebtedness hereinbefore found due it as trustee aforesaid, with interest thereon and costs of suit as aforesaid, or for any less amount, all for equal pro rata benefit of the holders and owners of the first mortgage series 'A' gold bonds and interest coupons and the series 'B' gold note subject to the respective priorities existing between the said first mortgage series 'A' gold bonds and the said series 'B' gold note. (7) That in the event that said cross-petitioner as successor trustee herein shall, under the power hereby conferred, bid for and purchase the said mortgaged property, it shall be entitled to receipt to the sheriff of Douglas county, Nebraska, for the full payment of its bid as trustee of the holders and owners of the first mortgage series 'A' gold bonds and interest coupons and series 'B' gold note secured by said mortgage indenture and chattel mortgage for each and all of them, without liability for payment of cash on account of such bid and without liability to account for or to distribute cash to any bondholders on account of such bid. (8) That in the event that the said Omaha Safe Deposit Company, as successor trustee, cross-petitioner herein, shall, under the power hereby conferred, bid for and purchase the said mortgaged property, that it may do so without the production of any of the first mortgage series 'A' gold bonds or interest coupons thereto attached and/or series 'B' gold note described in said mortgage indenture and chattel mortgage and the receipt of the trustee as hereinbefore set forth shall be accepted by the sheriff of Douglas county, Nebraska, as the equivalent of cash in the amount thereof."

Section 4, article V of the mortgage indenture in controversy, provides: "In event of sale of the mortgaged property under a decree of foreclosure, any bondholder, or bondholders or committee of bondholders or the trustee, may bid for and purchase such property and shall be entitled for the purposes of making settlement or payment of the bid to use and apply any bond and any matured and unpaid coupons or moneys due them under this mortgage by presenting such bonds and coupons in order that they may be credited thereon the sum apportionable and applicable thereto out of the net proceeds of such sale and thereupon such purchaser shall be credited on account of the purchase price payable by him with such sums apportionable and applicable out of the net proceeds to the payment of or as a credit on the bonds and coupons so presented. The trustee, as such trustee, for the benefit of the holders of the bonds and coupons then outstanding and unpaid without any further authority or direction from such holders, may bid at such sale and become the purchaser of the property and take and hold the title thereto for the benefit of the holders of the outstanding bonds and coupons, and the trustee shall then have full power and authority to manage, operate and control such property and to resell the same at such price and on such terms as it deems for the best interest of the bondholders. * * * The proceeds of such a sale shall be held by the trustee and distributed as provided in article VI of this indenture."

We meet the contention, made for the first time in this court, that parties cannot come into a case by intervention after judgment. Section 20-328, Comp. St. 1929, provides: "Any person who has or claims an interest in the matter in litigation, in the success of either of the parties to an action, or against both, in any action pending or to be brought in any of the courts of the state of Nebraska, may become a party to an action between any other persons or corporations, either by joining the plaintiff in claiming what is sought by the petition, or by uniting with the defendants in resisting the claim of the plaintiff, or by demanding anything adversely to both the plaintiff and defendant, either before or after issue has been joined in the action, and before the trial commences." We have passed directly upon this matter in several cases. "In the first place the contention of the appellee that a statutory petition in intervention must be filed before trial must be conceded. But there are two kinds of intervention--that provided by section 7609, Rev. St. 1913 (now section 20-328, Comp. St....