Davis v. Mercantile Trust Company

On February 18, 1889, the Mercantile Trust Company of New York filed in the circuit court of the United States for the southern district of Ohio its bill against the Kanawha & Ohio Railway Company. The bill alleged that on May 1, 1886, the defendant, the Kanawha & Ohio Railway Company, issued a series of bonds, and on the same day executed to the Mercantile Trust Company its mortgage or deed of trust to secure the payment of the principal and interest of such bonds. It alleged a default in the payment of interest due on January 1, 1889, as well as the existence of a large floating debt, and prayed the appointment of a receiver, and a decree of foreclosure and sale. On February 19th the defendant entered its appearance, and on the same day a receiver was appointed, who qualified, and took possession of the mortgaged property. Subsequently, and on July 24th, an amended bill was filed, making additional parties defendant the Toledo & Ohio Central Railway Company and the Shawnee & Muskingum River Railway Company. On October 26th a decree pro confesso was entered against the latter company. On October 30th, Erwin Davis, the present appellant, filed a petition alleging that he was the owner of more than $100,000 of the bonds secured by the mortgage or deed of trust sought to be foreclosed in this suit, and also the owner of more than $500,000, par value, of each class of stock of the defendant the Kanawha & Ohio Railway Company, to wit, first and second preferred, and common, and asking for the removal of the receiver on the ground of his incompetency, and the appointment of some capable and disinterested person as such receiver. On the same day a decree pro confesso was entered against the Kanawha & Ohio Railway Company. On November 13th the petition of Davis for the removal of the receiver, and the appointment of another in his stead, was denied, and at the same time this order was made: 'It is further ordered that said Erwin Davis be and is permitted to intervene herein, and that he have liberty to be heard upon any and all proceedings herein for the protection of his interests as bondholder and stockholder of the Kanawha & Ohio Railway Company.'

On November 29th the Toledo & Ohio Central Railway Company filed its consent to the entry of a decree according to the prayer of the amended bill of complaint, and that the 'cause proceed in like manner as if an order pro confesso had been duly entered against it more than thirty days prior' thereto. On December 5th Davis filed a second petition, reciting his interest as before, and in addition alleging the existence of certain prior mortgage liens upon the property described in the plaintiff's bill, or part of it; that in the bill there was claimed that the Kanawha & Ohio Railway company had a floating debt of about $330,000; that since the filing of the bill that company had confessed judgment in favor of the Kanawha Improvement Company in a court of West Virginia for the sum of $285,232.20; and that as a bondholder and stockholder of Kanawha & Ohio Railway Company, on behalf of himself and all other stockholders and creditors, he had filed a bill in the circuit court of the United States for the district of West Virginia, attacking such judgment so confessed, on the ground of fraud, and praying that it be canceled, set aside, and held for naught. He attached a copy of this bill, and closed the petition in these words: 'Your petitioner respectfully represents that he is advised that no decree of sale of the property included in said mortgage should be decreed until a reference is had to ascertain the liens which shall have been first ascertained thereon, the amounts thereof, and the order of their priorities; that a sale should not be decreed until the validity of the judgment referred to shall have been first adjudicated.

'Petitioner therefore prays that this his petition be read and considered at the hearing; that your honors will not at said hearing enter a decree of foreclosure, as prayed for in said bill, until the matters of this petition have been fully heard and a proper reference to a master be made to ascertain all liens upon said railroad, and the order of their priorities, and that petitioner have full relief in the premises; and, as in duty bound, he will ever pray,' etc.

On the same day, to wit, December 5, 1889, a decree of foreclosure and sale was entered. That decree found a default in the payment of interest, and decreed a sale unless such interest should be paid within 30 days. At the close of the decree was this entry: 'Thereupon, came the intervening petitioner, Erwin Davis, and prayed the court for the allowance of an appeal, with supersedeas, from the foregoing decree, and the court thereupon refused the appeal.'

Subsequently, an application was made to Mr. Justice Harlan, of this court, for an appeal; and on February 11, 1890, it was allowed. The only security given on this appeal was a cost bond, in the sum of $500, executed by Davis and his surety to the appellee, the Mercantile Trust Company, alone. This bond was approved February 27, 1890, and a citation was then signed by Mr. Justice Harlan; the citation running to the Mercantile Trust Company, the Kanawha & Ohio Railway Company, the Toledo & Ohio Central Railway Company, and the Shawnee & Muskingum River Railway Company. This was served on the Mercantile Trust Company, the Toledo & Ohio Central Railway Company, and the Shawnee & Muskingum River Railroad Company, but not on the Kanawha & Ohio Railway Company, the mortgagor. No supersedeas bond having been executed, a sale was had under the decree on March 4, 1890, and the property struck off to Nelson Robinson and William B. Post for the sum of $505,000. On April 7, 1890, this sale was confirmed, and a deed ordered. From such order of confirmation, Davis prayed an appeal, which was allowed. On such appeal, also, a cost bond to the Mercantile Trust Company, alone, was given, and a citation issued, running only to the Mercantile Trust Company.

Walter S. Logan and Chas. M. Demond, for appellant.

Thomas Thacher, for appellee.

Mr. Justice BREWER, after stating the facts in the foregoing language, delivered the opinion of the court.