Thomas v. Central Hanover Bank & Trust Co.

• Decision Date: 24 September 1934
• Docket Number: No. 6011.,6011.
• Parties: THOMAS et al. v. CENTRAL HANOVER BANK & TRUST CO. et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

64 App. DC 96, 75 F.2d 227 (1934)

THOMAS et al. v. CENTRAL HANOVER BANK & TRUST CO. et al.^*

No. 6011.

United States Court of Appeals for the District of Columbia.

Argued January 16, 1934.

Decided September 24, 1934.

Rehearing Denied November 19, 1934.

W. Bissell Thomas, Wm. B. O'Connell, Joseph Low, and Leslie C. Garnett, all of Washington, D. C., for appellants.

Geo. E. Hamilton, John J. Hamilton, Geo. E. Hamilton, Jr., Henry R. Gower, and Paul E. Lesh, all of Washington, D. C., for appellees.

Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, HITZ, and GRONER, Associate Justices.

MARTIN, Chief Justice.

An appeal from a decree in a mortgage foreclosure case.

This case was begun in the lower court by the Central Hanover Bank & Trust Company, a corporation, and Frank Wolfe, trustees, as plaintiffs, against the Wardman Real Estate Properties, Inc., as defendant. The plaintiffs in their bill of complaint allege that on September 27, 1928, the defendant corporation issued certain mortgage bonds in the aggregate sum of $11,000,000, payable as follows: $4,000,000 in 1931, $3,000,000 in 1938, and $4,000,000 in 1948, together with interest at 6½ per cent. per annum, payable semiannually. In order to secure the payment of the bonds according to their tenor and effect, the defendant corporation at the same time executed and delivered to the Central Union Trust Company of New York (now the Central Hanover Bank & Trust Company, plaintiff herein) and Frank Wolfe, as trustees, a certain indenture of mortgage and deed of trust upon the following described properties situate in the city of Washington, D. C., to wit: Parcel 1, the Wardman Park Hotel and addition thereto; parcel 2, the Carlton Hotel; parcel 3, Chastleton Apartments; parcel 4, Cathedral Mansions, north; parcel 5, Cathedral Mansions, center; parcel 6, Connecticut Avenue and Davenport Apartments; parcel 7, Boulevard Apartments; parcel 8, Stoneleigh Court; parcel 9, Department of Justice Building; parcel 10, 2700 Connecticut Avenue Apartments. By supplemental mortgage the defendant likewise conveyed and mortgaged to the same trustees, subject to the same trusts, the following described property, to wit, the stock in trade of the drug store maintained and operated in Wardman Park Hotel, and the automobile and garage supplies located in the garage upon the premises of the Wardman Park Hotel. The latter items are hereinafter referred to as parcels 11 and 12 in the record. That all of the bonds aforesaid were duly authenticated by the defendant and the trust company, and were issued by defendant for a valid consideration in accordance with the provisions of the mortgage. That $10,963,000 of the bonds are now outstanding in the hands of divers persons, firms, or corporations, who are the owners and holders thereof for value, all of which bonds have been and now are the lawfully created, valid, and enforceable obligations of the defendant corporation, and are entitled to the security of the aforesaid mortgages. That article XII of the mortgage provides, among other things, that in case of default being made in the payment of the principal or interest of any of the bonds when due, and if such default shall continue for a period of 30 days after written notice thereof from plaintiffs or from the holders of 25 per cent. of the amount of the bonds then outstanding shall have been delivered to the company, or by a decree of a court of competent jurisdiction, then and in such case the corporate trustee may, and upon the request in writing of the holders of 25 per cent. in amount of the bonds outstanding shall, by written notice to the company, declare the principal of all the bonds, together with all accrued and unpaid interest thereon, due and payable, and the same shall thereupon become immediately due and payable. That in case of such default the trustees may, upon being requested in writing by the holders of at least 25 per cent. in amount of the bonds then outstanding, proceed by suit at law or in equity to enforce the payment of the bonds and the interest thereon, and to foreclose the mortgage and sell the mortgaged property upon the judgment or decree of any court of competent jurisdiction. That in case the trustees shall proceed by suit in equity after default as above provided they shall be entitled to have the mortgaged property sold by judicial sale under the order or decree of a court of competent jurisdiction for the satisfaction of the principal and interest due upon the outstanding bonds secured by the mortgage. That the company waived and relinquished the benefit of any and all valuation, stay, appraisement, or extension laws existing in the District of Columbia or the United States, and stipulated that at any sale of the mortgaged property the same may be sold in one parcel as an entirety, or in such parts as the corporate trustee shall determine, or as the holders of at least a majority in principal amount of the bonds then outstanding shall request by written instrument executed by such holders. That on March 1, 1931, a semiannual installment of interest became due and demand was duly made upon the defendant for its payment, but payment was refused and has never since been made. That the amount of interest in default is in the sum of $356,297.50, and default has continued for a period of more than 30 days. That on July 11, 1931, the corporate trustee declared the principal of the bonds, together with all accrued and unpaid interest thereon, immediately due and payable, and demand of payment was duly made as required by the terms of the mortgage, but no part thereof has been paid, and the default still continues. The principal of the bonds in respect of which default was made by defendant company as aforesaid is in the amount of $10,963,000. That the income and revenues of the defendant's properties are and will be insufficient to pay its indebtedness now due, and that the company has no resources with which to provide for the payment of such indebtedness. That the property of the company, unless conserved and maintained, is and will be inadequate to satisfy the bonds now outstanding, and the property will deteriorate, consisting as it does of improved real estate, furniture, and furnishings, and other property thereto appurtenant. That no proceedings have been had at law for the collection or enforcement of the mortgage debt, save only this suit, and the plaintiffs have no adequate relief at law, and the relief to which they are entitled can only be granted by a court of equity. Wherefore the plaintiffs as trustees pray that the rights of all the parties in interest may be ascertained and fully protected and that the mortgages be foreclosed by order of the court, and the premises be sold, the proceeds applied as in the indentures provided; that a receiver pendente lite may be appointed of the mortgaged properties, with power to take possession of, conserve, manage, operate, and control said properties, and to continue the operation of the business carried on in the premises subject to the order of the court.

On the same day the defendant Wardman Real Estate Properties, Inc., filed its answer in the suit admitting the averments of the bill to be true and consenting to the appointment of a receiver as therein prayed.

Afterwards on July 24, 1931, an amendment to the bill of complaint was filed setting out that the Riggs National Bank of Washington had or claimed a lien upon some of the property named in the mortgage and that the bank should be made a party, served with process, and required to answer the exigencies of the original bill of complaint. The bank, however, filed no pleading in the case.

On July 29, 1931, the appellant Alfred C. Torgeson, by leave of court, filed an intervening petition in the case in behalf of himself and other parties similarly interested. The petitioner alleged that he was the owner of $24,000 par value of the bonds set out in the plaintiffs' bill; that the defendant corporation had been organized and the mortgage bonds in question had been sold to the public by Halsey, Stuart & Co., Inc., and Hambleton & Co., Inc., bankers of the city of New York, when they well knew that the properties upon which the bonds were secured were wholly insufficient to secure the payment of the mortgage indebtedness. The petitioner recited in detail the alleged fraudulent methods pursued by Halsey, Stuart & Co., Inc., and Hambleton & Co., Inc., in the transaction, and prayed that they be made parties in the case and judgment be rendered against them for the losses of the bondholders; that an order theretofore made by the court appointing Thomas D. Carson, Julius I. Peyser, and Joseph P. Tumulty as receivers pendente lite be rescinded, and another receiver be appointed wholly independent of and disconnected with the bankers aforesaid; and that the trustees as plaintiffs be enjoined and restrained "from foreclosing under said indenture and deed of trust on said properties until the independent bondholders, freed from the domination of the bankers and the alleged bondholders' committee formed at the instance and for the protection of the said bankers, shall have had time to formulate and submit a feasible plan of reorganization in the interest of said bondholders."

On August 3, 1931, the appellees, Leonard L. Stanley, William Buchsbaum, Paul W. Fisher, William W. Greve, Frederick J. Leary, and Andrew J. Miller, appeared as a bondholders' protective committee, and by leave of court filed an intervening petition wherein they alleged that they composed the bondholders' committee representing holders of the mortgage bonds aforesaid; that they are all of the members of that committee; that there had been deposited with them as such committee bonds of these issues amounting to $8,104,000 principal value, representing approximately 74 per cent. of all of the bonds issued and outstanding; that these bonds have been deposited with them pursuant...