Woodworth v. Northwestern Mutual Life Insurance Company/Opinion of the Court

The question propounded is to be considered in view of the following facts: The property affected by the sale under foreclosure was situated in the state of Nebraska, the bond in question was given in a judicial proceeding in a court of the United States, and-as stated by counsel for plaintiff in error in argument-upon the affirmance of the order of confirmation by the appellate court, a deed was issued to the purchaser at the sale under foreclosure, and demand was made by him for payment of the rents, issues, and profits sought to be recovered by the action at bar.

As said by this court in Nalle v. Young, 160 U.S. 624, 637, 40 L. ed. 560, 564, 16 Sup. Ct. Rep. 420, in an equity foreclosure in a circuit court of the United States, the requirements of the state law should be complied with and the forms of proceedings thereby prescribed pursued as nearly as practicable. This appears to have been done in the foreclosure proceedings under review, the decree of confirmation of the sale not purporting to vest title in the purchaser, but containing a direction for the execution and delivery of a deed. A reference to the statutes of Nebraska, regulating sales under foreclosure, and to the decisions of the courts of that state, will conduce to an ascertainment of the nature of the right or title, if any, vested in a purchaser under a sale thus confirmed.

By section 497a of the Code of Civil Procedure of Nebraska, it is provided that the owner of any real estate against which a decree of foreclosure has been rendered, or upon which an execution has been levied to satisfy a judgment or decree of any kind, may redeem the same from the lien of such decree or levy at any time before the sale of the same shall be finally confirmed. Section 498 provides for the examination and confirmation of such sale by the court. Section 499 provides that, upon the confirmation of a sale made of real estate sold on execution, the sheriff or other officer who made such sale shall make to the purchaser of such real estate as good and sufficient a deed of conveyance for the property or land sold as the person against whom such writ of execution was issued could have made of the same at the time the land became liable to the judgment, or at any time thereafter. And § 500 provides, among other things, that the deed so made shall vest in the purchaser as good and perfect an estate in the premises as was vested in the execution debtor at or after the time when the land became liable for the satisfaction of the judgment.

Construing these sections of the Code, the supreme court of Nebraska, in Yeazel v. White (1894) 40 Neb. 432, ''sub nom. Yeazel v. Einspahr'', 24 L. R. A. 449, 58 N. W. 1020, held that the owner of real estate sold on execution retains the legal title thereto, and is entitled, in his own right, to the possession, rents, profits, and usufruct of such real estate, until a final confirmation of the sale. In the course of the opinion the court said:

'In State Bank v. Green, 10 Neb. 130, 4 N. W. 942, Lake J., speaking for this court, said: 'Under our law governing sales of real property on execution, the title of the purchaser depends entirely upon the sale being finally confirmed, and until this is done the rights of the execution debtor are not certainly devested.' And in Lamb v. Sherman, 19 Neb. 681, 28 N. W. 319, Maxwell, Ch. J., speaking for this court, on that subject, said: 'A purchaser at execution sale of real estate upon the payment of the purchase money and confirmation of the sale becomes the equitable owner of the property, and in a proper case may compel the issuing of a sheriff's deed to himself."

In ''Clark & L. Invest. Co. v. Way'' (1897) 52 Neb. 204, 71 N. W. 1021, the following among other facts were presented for the consideration of the court: A junior mortgagee, one of the defendants in a foreclosure suit instituted by a prior mortgagee to foreclose such prior mortgage as respected unpaid interest and the amount of certain taxes which had been paid by the prior mortgagee, became the purchaser at the sale made under the decree of foreclosure. The sale was confirmed by the court. Thereupon the mortgagor defendants appealed from the order of confirmation of sale, but, after the case was pending in the appellate court for about a year, the appeal was voluntarily dismissed. Thereafter, upon the hearing of a motion to require the purchaser to complete his bid, it was held-and the decision in this particular was affirmed by the supreme court of Nebraska-that on the dismissal of the appeal from the order confirming the sale the 'title' of the purchaser related back, for all purposes, at least to the time of such confirmation, and the purchaser from that time was the owner of the property and liable for subsequent taxes and interest on the prior mortgage encumbrance. Further, it was said by the court: 'Undoubtedly the purchaser is entitled to an accounting for rents in such a case from the time of confirmation.'

The authorities just reviewed seem to be decisive of the proposition that by the local law of Nebraska, in a case like that at bar, where, upon confirmation of a sale under a decree of foreclosure, the sale is treated as perfected, credit is given to the purchaser mortgagee upon the mortgage indebtedness then due, and judgment passes for a deficiency, but the delivery of a deed is prevented by the prosecution of an unfounded appeal from the order confirming the sale, the affirmance by the appellate court of the order of confirmation of the sale and the deed subsequently executed vest in the purchaser, by relation, as of the time of the confirmation of the sale, as well the legal as the equitable title to the land, with the right to the rents, issues, and profits which accrued after the confirmation of the sale. The cases of Orr v. Broad, 52 Neb. 490, 72 N. W. 850; Clark v. Missouri, K. & T. Trust Co. 59 Neb. 53, 80 N. W. 257, and Huston v. Canfield, 57 Neb. 345, 77 N. W. 763, are, however, cited as sustaining a contrary doctrine to that just announced, but, on careful examination, they will be found not to do so. In each case the right of a mortgagor to the possession of the land and the rents and profits thereof was declared to continue until the confirmation of a sale on foreclosure. True, in the first two cases, the right of a purchaser at a sale under execution of a debtor's interest in land, encumbered by mortgage, to the possession of the land and the rents and profits, as against a mortgage, was in effect declared to be dependent upon the acquisition of the legal title, by the delivery to the purchaser of a deed of the premises, following the confirmation of the sale. In each of the cases, however, a deed had regularly issued, and there was no claim that the mortgagor or debtor had wrongfully interfered with the passing of the legal title. There was consequently no occasion for considering or applying the doctrine of relation.

It is, however, strenuously insisted that in ''Philadelphia Mortg. & T. Co. v. Gustus, 55 Neb. 436, 75 N. W. 1107, broad expressions were used in the opinion announced by the court which do not harmonize with the reasoning contained in the opinion in Clark & L. Invest. Co. v. Way''. But we do not need to pass on this contention. The point for decision in the Gustus Case was whether, under the statutes of Nebraska, the judgment debtor possessed the right to redeem from a foreclosure sale during the pendency of an appeal from the order of confirmation of the sale, and the Nebraska court, in holding that the right to redeem might be exercised during the pendency of the appeal, said:

'The appeal and bond, if they did not vacate the order of the district court, superseded, suspended, or rendered it inoperative. The purchaser acquired no rights, and the applicant was not devested of his title to and rights in the land. Tootle v. White, 4 Neb. 401; State Bank v. Green, 8 Neb. 297, 1 N. W. 210; State Bank v. Green, 10 Neb. 133, 4 N. W. 942. All things remained as before the sale and subsequent order of the district court, and will so remain and exist until a decision in and by this court of the matter appealed. The order of the district court, by the perfection of the appeal, became ineffectual as to all other purposes for which it was made, and it certainly does not seem unfair to say that it was not of force or effect as against the right to redeem, nor does it appear unwarranted to construe the section of the Code in its reference to time to have indicated the date when the order shall become forceful and of full operation, which it cannot until this court has so decreed.'

Nowhere, however, in the opinion was any allusion made to the prior decision in ''Clark & L. Invest. Co. v. Way'', which we are constrained to think would have been done if the grounds for the decision in the latter case and the reasoning of the opinion in that case were deemed to be destructive of the ruling made in the earlier case. The court in the Gustus Case was dealing with a judgment debtor who was seeking the benefit of a remedial statute. We entertain no doubt that if the supreme court of Nebraska was called upon the determine whether or not a judgment debtor who had taken an unfounded appeal might rightfully retain the rents and profits which he had collected while in possession of the property during the pendency of such appeal, it would, in order to prevent injustice, apply the doctrine of relation, as was done in ''Clark & L. Invest. Co. v. Way'', and hold that the affirmance of the order of confirmation of the sale related back and gave efficacy to the original order of confirmation, as of its date, and vested in the purchaser, from that time, at least, the equitable title to the land sold and an equitable right to the thereafter accruing rents and profits.

The claim in the case at bar is for the rents and profits of the land, which accrued and were collected by the mortgagor after the entry of the order of confirmation of the sale. Upon general principles, independent of the decisions of the courts of Nebraska, we would be constrained to hold that, under the circumstances present in the case at bar, as we have heretofore detailed, the purchaser acquired, as against the mortgagor, by relation, both the legal and equitable title to the land purchased,-at least as of the date of the order of confirmation of the sale. This being the case, we come to consider the question as to whether recovery may be had upon a supersedeas bond given in a judicial foreclosure proceeding pending in a court of the United States, of the rents and profits which accrued and were collected by the judgment debtor after the confirmation of the sale of the mortgaged property.

It has been strenuously urged that a negative answer to the question just stated is rendered necessary by the decision of this court in Kountze v. Omaha Hotel Co. 107 U.S. 378, 27 L. ed. 609, 2 Sup. Ct. Rep. 911. This contention is based upon the following grounds: (1) That no distinction can logically be made between an appeal from an order confirming a sale had under a decree in foreclosure, as in the case at bar, and an appeal from a decree ordering a sale, as in the Kountze Case; and, (2) that the mortgagor, after the sale of the land under a decree in foreclosure, is the owner of the rents and profits of such land until final approval by the court of the sale and the execution and delivery of a deed by the master. Of course, if the assumption existing in the second ground be correct, that is, that the mortgagor, despite the confirmation of the sale, is entitled in his own right to the rents and profits subsequently accruing, there would be plausibility in the claim that there was no logical distinction between an appeal from a decree of sale and an appeal from an order of confirmation of the sale. But the assumption in question, as we have shown, is not well founded, and this being the case, it results that there is a substantial distinction in the character of the two classes of decrees. In the one case, the title to the land, both legal and equitable, continues in the mortgagor; in the other, at least the equitable title to the land and its rents, issues, and profits vested in the purchaser by the sale under the decree at the time of the confirmation of such sale. In this aspect, following the reasoning in the Kountze Case, the appropriation by the mortgagor, during the pendency of a wrongful appeal by such mortgagor from the order confirming the sale, of the rents, issues, and profits of the land, which equitably belonged to the purchaser, was 'damage' within the meaning of the statute and the condition of the bond. True, in the Kountze Case the mortgagee purchaser was denied the right to recover the rents and profits which had been collected by the mortgagor intermediate the decree of sale and the actual sale of the property. But this was because the appeal was from a decree ordering a sale, and it was held the mortgagor was not devested of the right to collect and retain the rents and profits of the land before a final determination of a right to sell and a sale made accordingly. The taking by the mortgagor of that which belonged to him, and not to the mortgagee, it was decided did not constitute an injury to the latter. The court, however, in its reasoning, made plain the fact that where, as in the case at bar, the real owner of the rents and profits of real estate, in whom the legal as well as equitable title had become vested before action brought upon the bond, was the party for whose benefit the bond on appeal was given, and the effect of the giving of such bond was to enable the mortgagor, the principal in such bond, to appropriate rents, issues, and profits of the land during the pendency of the appeal, which equitably belonged to the purchaser, that appropriation constituted 'damage' to the obligee in the bond, within the meaning of the condition for payment of 'all damages and costs which it may incur by reason or on account of said appeal.'

The question certified must be answered in the affirmative.

And it is so ordered.

Mr. Justice Harlan and Mr. Justice Brewer took no part in the decision of this cause.