Sanders v. Hall

• Decision Date: 21 December 1934
• Docket Number: No. 1078.,1078.
• Citation: 74 F.2d 399
• Parties: SANDERS et al. v. HALL et al.
• Court: U.S. Court of Appeals — Tenth Circuit

74 F.2d 399 (1934)

SANDERS et al. v. HALL et al.

No. 1078.

Circuit Court of Appeals, Tenth Circuit.

December 21, 1934.

COPYRIGHT MATERIAL OMITTED

F. E. Riddle, of Tulsa, Okl., for appellants.

Willard Brooks, of Wichita, Kan. (H. L. Smith, of Tulsa, Okl., on the brief), for appellees.

Before LEWIS and PHILLIPS, Circuit Judges, and JOHNSON, District Judge.

PHILLIPS, Circuit Judge.

On September 1, 1928, the Knight Realty Company, an Oklahoma corporation, by a deed of trust conveyed to the Guarantee Title & Trust Company of Wichita, Kansas, as trustee, Lot 3, Block 5, Kirkwood Place Addition, City of Tulsa, Oklahoma, to secure a loan of $90,000 evidenced by 147 six and one-half per cent gold bonds, which were payable at the office of the Trust Company in Wichita.

On the same date the Realty Company by chattel mortgage transferred to the Trust Company as trustee, as additional security for such bonds, the furniture, fixtures, furnishings, and equipment located in the apartment building situated on such Lot 3.

The Trust Company advanced the amount of the loan and received the bonds evidencing it, and thereafter sold such bonds to its customers in and about Wichita and elsewhere.

The bonds in part provided:

"This bond is one of a series of One Hundred Forty-seven (147) First Mortgage Gold Bonds, Series No. 1050, numbered consecutively from One (1) to One Hundred Forty-seven (147), inclusive, in denominations of $100, $500, and $1,000, aggregating the sum of Ninety Thousand and no/100 Dollars ($90,000.00), all equally secured by and entitled to the benefits and subject to the provisions of an indenture of trust dated the 1st day of September, 1928, made by the Knight Realty Company, a corporation, to The Guarantee Title and Trust Company, a corporation, Trustee."

The trust deed in part provided:

"Tenth. In case default shall be made in the performance of any covenant, promise or condition herein, or in the said bonds or coupons, then and in each and every such case when such default shall continue for a period of ninety days, and after the Trustee shall have given written notice to the Grantor of such default, then the Trustee shall have the right to declare all of the bonds and all interest accrued thereon, whether the same shall by their terms have matured or not, to be immediately due and payable and may exercise any of the remedies herein given or provided by law for the enforcement of the provisions hereof and for foreclosure or the appointment of a receiver and may proceed to protect and enforce the rights of the Trustee and of the bondholders hereunder by suit or suits for the enforcement of any remedy which the Trustee, being advised by counsel, shall deem effectual or desirable to protect and enforce the rights aforesaid.

"Eleventh: Grantor covenants that in case default shall be made in the prompt payment of any sum of money secured hereby, to pay the Trustee upon demand, for the benefit of the holders of said bonds and coupons, the whole amount of such bonds and coupons then outstanding, with interest from the date of such default at the rate of ten per cent per annum, and in case Grantor fails to pay same upon demand, the Trustee in its own name as Trustee of an express trust shall be entitled to recover judgment for the whole amount thereof, and further if such default shall continue for a period of ninety days then the Trustee shall have the right to take possession of said mortgaged property and appurtenances thereunto belonging and collect the rents thereon and apply said rents towards the payment of said bonds and interest, and the expenses of operating said premises.

"Twelfth: In case the Trustee shall elect to institute foreclosure proceedings or in case it becomes the Trustee's duty to institute such proceedings, title to the choses in action evidenced by the bonds shall by such event pass to the Trustee, with power in the Trustee to take judgment as Trustee for the bondholders, to bid in the property for the benefit of the bondholders if the Trustee shall so deem advisable and for itself as the various interests appear, at any judicial or execution sale or sales, and in so doing to apply the amount of said judgment upon the purchase price to such extent as may be applicable or may be deemed applicable by the Trustee. * * *

"Nineteenth: The Trustee shall at all times keep and maintain at its office in the City of Wichita, Kansas, registry books for the purpose of registering the bonds secured hereby. * * *

"Twenty-second: The Trustee may proceed at any time upon default as herein provided in any manner authorized hereby without the authority or direction of the bondholders but shall also proceed upon the request in writing of the owners of a majority in amount of the bonds then outstanding, hereunder."

It contained no power of sale.

The Trust Company suspended business on August 5, 1930, and Chas. W. Johnson was appointed as its receiver by the Bank Commissioner of Kansas.

On March 18, 1931, Johnson, as such receiver, filed an application in the district court of Sedgwick County, Kansas, in which he alleged: That the Bank Commissioner would not permit the Trust Company to continue to act as trustee except in certain specified matters (not here material); that on November 24, 1930, the Trust Company in due compliance with the banking laws of Kansas made a deed and bill of sale of all of its assets, including the trust estate created by the trust deed and chattel mortgage and other trust estates, to the Guarantee Title & Investment Company.

That the Investment Company, being without specific trust powers, executed to Standish Hall as trustee a deed purporting to pass to Hall as trustee the trust estates herein involved, and other trust estates; that there was a question as to whether such transfers were effectual.

That it was impractical to obtain formal requests for the appointment of a successor trustee from the cestuis que trust because they numbered not less than 15,000; that the court could enter an order authorizing the Trust Company to resign and appoint a new trustee under Kan. R. S. 1923, 67 — 412, and that Hall was a suitable person to act as such trustee.

The application prayed that an order be made for publication of a proper notice to the cestuis que trust of a hearing on the application, and that the court after a hearing authorize the Trust Company's resignation and appoint Hall as successor trustee.

On March 18, 1931, the district court of Sedgwick County entered an order setting the hearing on the application for April 6, 1931, and directing that notice thereof addressed to the cestuis que trust be published in one issue of the Wichita Eagle not later than March 23. The notice was duly published.

On April 6, 1931, the district court of Sedgwick County entered an order authorizing the Trust Company to resign as such trustee. Thereupon the Trust Company resigned in open court, and the court appointed Hall as successor trustee, and directed the Trust Company to execute a deed and bill of sale transferring the trust estates herein involved to Hall as successor trustee. On April 7, 1931, the Trust Company by its receiver executed and delivered such deed and bill of sale to Hall.

The Trust Company and the Investment Company were both Kansas corporations.

On December 16, 1929, Adah C. Sanders and J. W. Sanders purchased the property covered by the deed of trust and chattel mortgage, known as the Cheyenne Arms Apartments.

On January 21, 1932, Hall and the Trust Company commenced a suit in the District Court of the United States for the Northern District of Oklahoma, numbered 708 on the docket of such court, against the Realty Company, the Sanderses, R. R. Park and Anna K. Park to foreclose the deed of trust and chattel mortgage.

The Parks had guaranteed payment of $15,000 of the bonds first maturing.

On June 1, 1932, the Sanderses filed an answer in No. 708 in which they alleged that the Trust Company became wholly insolvent in August, 1930, and was taken over by the Bank Commissioner of Kansas, and thereupon became incapacitated to act as trustee under the deed of trust and chattel mortgage; denied that Hall was trustee under the deed of trust; and alleged that the complainants in No. 708 were without authority to prosecute that suit.

On January 6, 1933, the complainants filed an amended bill in No. 708 making the Cheyenne Arms Apartments, Inc., a party defendant, and alleged that it claimed some interest in the mortgaged property, but that such interest was inferior to the deed of trust and chattel mortgage.

On January 26, 1933, the Apartments, Inc., filed an answer in No. 708 in which it denied the authority of complainants therein to file and prosecute that suit.

On February 17, 1933, the defendants in No. 708 obtained leave to withdraw their answers, and then filed a motion to dismiss on the ground that complainants were without authority to institute and prosecute that suit, and a motion for a continuance. Both motions were denied.

On September 30, 1932, the Apartments, Inc., commenced a suit in the United States District Court for the Northern District of Oklahoma, numbered 791 on the docket of such court, to remove Hall as trustee, and for the appointment of a successor trustee.

The suits were consolidated for trial and tried on February 17, 1933.

On May 22, 1933, the court entered a decree in No. 791 in which it removed Hall and appointed Collis P. Chandler of Tulsa as successor trustee, and directed that Chandler be substituted as sole party plaintiff in No. 708. The court expressly refused to pass on the validity of the proceedings in which Hall was appointed, and removed him on the ground that Hall's wife had purchased certain of the bonds.

On November 1, 1933, defendants filed a motion for leave to file an amended answer and counter-claim, and to bring in additional parties in No. 708. This motion was denied.

On November 2, 1933, the...