When a decree of foreclosure and sale of mortgaged property
grants to the purchaser a credit for part of the purchase money,
reserving a lien upon the property to enforce its payment, the
court may, if the purchaser make default, and no rights of innocent
third parties have intervened, order a resale of the property upon
a rule to the purchaser to show cause why it should not be
done.
The decree of foreclosure in this case conferred upon the
purchaser at the foreclosure sale no such right of acquiring the
securities of the lower classes to be paid from the fund realized
from the sale as would authorize him, as such purchaser, to
dispute, in a proceeding in the original suit for foreclosure to
compel payment of the amount remaining due of the purchase money,
the computations by the master, confirmed by the decree of the
court, of the amounts which the creditors of the higher classes
were to receive from the fund.
In marshalling the classes of debts entitled to be paid out of a
fund arising from a sale of mortgaged property under a decree of
foreclosure, it is immaterial whether the master calculates the
interest to a day prior to the date of the decree of sale, or up to
that day, for the purpose of determining the principal sum that is
to bear interest thereafter.
The decrees which are the subject of the present appeal were
rendered in a suit brought to enforce certain deeds of trust and
mortgage liens upon a tract of land in Greenbrier County, West
Virginia, known as the "White Sulphur Springs," in which it became
necessary to sell the property for the payment of debts and to
marshal the liens on the same in the order of their priority. The
bill was filed in March, 1868, by Charles S. Gay and his wife and
others, creditors and lienholders, suing as well for themselves as
for all other creditors having lines on the real estate, the title
to which, subject to the encumbrances, was then vested in the White
Sulphur Springs Company. A portion of the indebtedness was
represented by negotiable bonds, with coupons representing accruing
interest thereon, and some of these had been severed
Page 127 U. S. 519
from the principal obligation and bought for value by other
holders.
On April 23, 1868, the cause was referred to a master to report
the amount and priorities of all liens upon the property, whether
created by mortgage, deed of trust, judgment, or otherwise. On
April 21, 1876, the master filed a report giving a statement of the
liens, the name of each creditor, with the amount of the principal
debt due to each, the amount of interest accrued thereon, and
showing the total debt in each case, including principal and
interest. The indebtedness was classified according to the order of
priority of the liens. The first six classes of debts enumerated in
this report are the only ones material to be considered, as, in any
event, they absorb the whole amount for which the property was
subsequently sold. In the aggregate, they amounted to $299,857.88,
of which $185,133.27 is principal and $114,724.61 is interest. The
interest was calculated to and aggregated as of the same date,
October 15, 1875, as to all the debts except the debts in the first
class, known as the "singleton Trust Debt," upon which the unpaid
interest, amounting to $36,000, was calculated to July 1, 1868, the
master reporting that all interest accrued on this debt after that
date had been paid.
On April 28, 1876, the court by a decree confirmed this report,
no exception having been taken thereto, the decree having in fact
been entered by the consent of parties. That decree also contained
a clause declaring that the interest on the Singleton debt of
$36,000, which had remained unpaid from July 1, 1868, should
constitute a principal sum, bearing interest from the date of the
decree. There was no express declaration in the decree in respect
to the computation of interest on the other debts after October 15,
1875.
On May 5, 1877, a decree of sale was made in which there was no
finding of any specific amount due in default of the payment of
which the property should be sold, but a recital that it appeared
to the court
"that it is now for the interest of all the parties to this
suit, and of all others interested in the subject involved therein,
and there being now no objection, except on the part of the White
Sulphur Springs Company, that
Page 127 U. S. 520
there shall be a sale of the property known as the 'White
Sulphur Springs Property,' and an application of proceeds of said
sale among the parties entitled thereto, according to their legal
rights and priorities."
The decree appointed commissioners to make the sale, who were
required to receive from the purchaser the payment of ten percent
of the purchase money in cash at the time of the sale, and for the
residue giving a credit of one, two, three, four, and five years,
in equal installments, with interest thereon from the day of sale,
and requiring good personal security for the payment of the first
of said annual installments, and retaining the title as further
security for all of said installments, or, in lieu of such personal
security required of the purchaser for the first installment of
purchase money, the commissioners were authorized to receive from
the purchaser as collateral security therefor any evidences of debt
proved in the cause, and which it may appear to the commissioners
will certainly be paid from the proceeds of the sale, and which may
belong to the purchaser offering the same as collateral security,
the just and fair amount of which collateral shall be determined by
the commissioners.
On May 4, 1878, no sale having been made, the court entered a
decree reciting that the interest on three bonds known as "Erskine
Bonds," being those reported in class No. 6 by the master, and
being designated as Nos. 1, 2, and 3 of that class, for the year
ending October 15, 1868, and on the Beard bond, designated as "No.
4," in the same class, from October 15, 1868, to October 15, 1877,
except four percent for the two years ending October 15, 1875, and
October 15, 1877, had not been paid; that the property was ample to
pay these bonds, principal and interest, as well as all prior
liens, and that a sale of the property has been postponed in the
interest of subsequent liens, and adjudged that the said unpaid
interest on said bonds should stand on the same footing with the
interest on said bonds which is evidenced by coupons, and bear
interest from the dates at which said interest became due until
paid, and that the assignees and holders of the interest of said
bonds for said years, or any part thereof which had been assigned
and transferred by the holders of the bonds, should be entitled to
have
Page 127 U. S. 521
priority over said bonds, coupons, and other interest not
transferred, such interest, however, transferred as aforesaid, to
be entitled to priority according to the dates of its maturity.
On May 4, 1880, a decree was rendered confirming a sale of the
premises previously reported as having been made by the
commissioner for that purpose, to William A. Stuart, for $340,000,
wherein it was directed that the purchaser be at once put in
possession of the property, the title thereto being retained by the
court as security for the payment of the purchase money. The
commissioners were directed to proceed to collect from the
purchaser the cash payment of ten percent upon the aggregate of the
purchase money. The decree also contained a declaration that the
court
"will hereafter make such orders as may be proper for the
collection of the deferred installments of the purchase money, and
the distribution of the same among the parties to this suit,
according to their respective rights and interests."
The commissioners, in their report of the sale, stated that they
had taken from the purchaser his five bonds, each for the sum of
$61,290, payable, respectively at one, two, three, four, and five
years, bearing six percent interest from the day of sale, and on
the bond due one year after date that they had taken personal
security.
On March 1, 1882, a decree was made appointing a special
commissioner for that purpose and directing him to execute to
William Stuart a deed with a special warranty for all the property
purchased by him at the sale made on March 31, 1880, in pursuance
of the decree of sale previously rendered in the cause, and
directing that the deed reserve a lien upon its face for the unpaid
purchase money until the same is fully paid off and discharged. The
commissioner was further authorized and directed to settle with the
said Stuart at any time, upon his application, so far as the bonds
for the purchase money had already matured, or as the same should
thereafter mature,
"by crediting upon the said bonds the amounts to which the said
William A. Stuart is entitled to credit for the liens held by him,
as recognized by the previous decrees of this Court establishing
the order and priority of liens, and by receiving from him in cash
so much of the
Page 127 U. S. 522
amount of said bonds as may be going to other lienholders,"
and the commissioner
"is also authorized to cancel and deliver to said William A.
Stuart anyone or more of his said bonds, whether the same have
matured or not, on being satisfied that the said Stuart is then
holder and owner of all the claims payable out of the proceeds of
such bond or bonds."
The commissioner was also instructed to report to the court from
time to time his proceedings under the decree.
On January 5, 1884, a decree was made upon a report of the
commissioners of sale asking to be instructed as to the proper
manner of disbursing the fund. It was therein ordered and
decreed
"that the commissioners of sale, in disbursing and distributing
the proceeds of the sale of the White Sulphur Springs property
heretofore made by them under a decree of this court in this cause,
and in paying therewith the debts heretofore reported and decreed
to be paid shall calculate interest upon the aggregate amount of
the principal and interest thereof, aggregated as of October 15,
1875, the date to which the calculations are brought in the report
of Commissioner H. M. Mathews, heretofore made, filed, and
confirmed in this cause, are not upon the original principals
alone."
On May 12, 1885, the commissioners of sale reported that the
fourth and fifth bonds executed by Stuart, the purchaser, were past
due and unpaid, each of said bonds being for the sum of $61,290,
with interest from March 30, 1880, on which there was due at the
date of said report the sum of $160,212.06. An order was thereon
entered that a rule issue against the said William A. Stuart,
returnable on the 23d day of the same month, requiring him to
appear and show cause why the property sold as aforesaid by the
commissioners of sale in this cause to him should not be resold at
public auction for cash to pay the unsatisfied installments of
purchase money due by him as aforesaid, and why a decree should not
be made against him for so much of the unpaid purchase money as the
property upon a resale might not pay off and discharge, together
with the costs of the proceedings. This rule having been returned
served, Stuart, by leave of the court,
Page 127 U. S. 523
filed a petition praying that the decree of January 5, 1884, be
vacated, and that in lieu thereof the commissioners of sale be
directed, in distributing the proceeds of the sale of said real
estate and paying the five first liens thereon, to calculate the
interest on the original principal of each of said liens, and not
upon the principal and interest thereof aggregated and compounded
as directed by the decree of January 5, 1884. In that petition he
sets forth that by computing interest on the principal sums, as set
out in the master's report of April 21, 1876, included in the first
six classes, there would be due in the aggregate about the sum of
$330,000 on the day of sale, and that according to that calculation
the net proceeds of the sale, after deducting the costs of suit,
would pay off in full the five first liens and about $130,000 on
the sixth, but a very much less amount, computing interest on the
principal and interest aggregated of said liens from October 15,
1875. The petition further alleges that before the sale of the real
estate to himself, he became the purchaser of a large number of the
debts reported as liens in the sixth class, and thus became
entitled to all of the proceeds of the sale applicable to that
class, with certain exceptions therein stated. The petition
thereupon states that by the order of January 5, 1884, made long
after the sale, and after the petitioner had become entitled to the
proceeds thereof applicable to the larger part of the sixth class
of debts, the interest-bearing fund of said six first liens was
changed from $185,133.27, the original principal of said liens, to
the sum of $299,857.88, the principal and interest of said liens
aggregated as of October 15, 1875, and the sum of $114,724.61,
interest on said six first liens, is thus made to bear interest for
almost four and one-half years before sale is made, and also after
sale, until reached in their proper order of priority, as the
purchase money of said real estate fell due under the said sale,
and that in this way a sum over $30,000 of the proceeds of said
sale is applied to the payment of interest upon the interest of
said liens, the principal part of which will, under said order of
January 5, 1884, be applicable to the interest computed on the said
sixth lien, and the entire amount of which will be deducted from
the
Page 127 U. S. 524
principal of the debts in the said sixth lien, all of which
principal is owned and controlled by the petitioner except $907.67.
On May 25, 1885, this petition was considered, its prayer for
relief denied, and the decree of January 5, 1884, confirmed. Stuart
then moved the court to quash and discharge the rule awarded
against him on a previous day of the term, which motion the court
overruled, and thereupon, by leave of the court, he filed an answer
to the rule, when a decree was rendered finding due from Stuart, on
account of the purchase money for the said sale, the sum of
$160,212.06, with interest thereon from May 12, 1885, for the
payment of which a decree was rendered against him, and that unless
within thirty days from that date he should pay the amount decreed
against him, the commissioners should proceed, upon proper notice,
to resell the property heretofore sold in the cause, and bought by
him at public auction, to the highest bidder for cash. From this
decree Stuart prayed an appeal, which the court refused to
allow,
"because the decrees in this cause fixing the rights of the
parties, determining the amounts, dignities, and priorities of the
debts, and directing sale of the property, were all entered more
than five years ago, and the decree of January 5, 1884, was simply
explanatory of a former decree."
Subsequently, on July 2, 1885, a petition for an appeal was
presented by Stuart to MR. JUSTICE HARLAN, of this Court, praying
an appeal, which was allowed, from the decree of January 5, 1884,
compounding the interest on the debts theretofore reported in said
cause against the company as of October 15, 1875, and directing the
commissioners, in distributing the proceeds of the sale of the
company's property, to pay interest upon the interest on the said
debts as of the date last aforesaid, and from the decree rendered
May 25, 1885, rejecting the petition for relief from the decree of
January 5, 1884, and directing a resale of the property. The errors
assigned are nine in number, but may be reduced to two:
First. That the decree of January 5, 1884, is erroneous in
aggregating all the principal and interest of all the debts
reported against the White Sulphur Springs Company as of the 15th
day of October, 1875, as stated in said Commissioner
Page 127 U. S. 525
Mathews' report, and making said aggregate an interest-bearing
fund as of that date. And in reference to this it is stated
that
"the court, by its decrees of April 28, 1875, and of May 4,
1878, had adjudicated just how much of the interest on these debts
should bear interest, and from what time,
viz., $36,000 of
the Singleton debt from April 28, 1876; one year's interest on the
Erskine debt from October 15, 1868, and the interest on the S. C.
Beard debt of $907.67 for the years ending October 15, 1868, to
October 15, 1877, subject to certain credits, and gave special
reasons therefor, and it was error in the court to reverse or
modify the adjudication so made, especially after your petitioner
had become the owner of liens affected by said adjudication, and
the purchaser of the property, with the right to use said liens in
payment therefor, relying upon the adjudication aforesaid, and as
the same had been adjudicated"
in accordance with the decree of March 1, 1882.
Second. The decree of May 25, 1885, is erroneous in overruling
the motion to quash and discharge the rule for a resale, and in
decreeing a resale of the property upon rule after the court had
parted with the title thereto, and had conveyed the property to the
appellant, retaining a vendor's lien in the deed for the unpaid
purchase money.
Page 127 U. S. 526
MR. JUSTICE MATTHEWS, after stating the facts as above,
delivered the opinion of the Court.
The appellant cannot justly complain of the decree for a resale
on the ground that it was rendered upon a rule to show cause. It
does not appear that he was or could have been prejudiced by the
summary nature of the procedure. He had full opportunity to answer,
and was heard upon all the matters of defense, both in his answer
to the rule and his petition for a rehearing of the decree of
January 5, 1884. All the equities to which the appellant conceived
himself entitled were fairly and fully before the court. No rights
of innocent strangers had intervened, although the appellant had
conveyed his title to the White Sulphur Springs Company. That
company acquired its interest
pendente lite, and with full
notice from the record that the purchase money was in part unpaid
and that there was a subsisting lien reserved as security for its
payment. The action of the court was simply to enforce its own
decree against a purchaser from itself to compel compliance on his
part with his contract. The cause was open and pending, awaiting a
final decree distributing the proceeds of the sale, in which no
further step could be taken until those proceeds were paid into
court in compliance with its orders. For that purpose, the court
had control of the title to the real estate sold by virtue of the
decree for sale, and the reservation of a lien for the unpaid
purchase money expressed in the deed.
Page 127 U. S. 527
There was no reason for a resort to an original bill; the most
suitable and convenient practice was to enforce the obligation of
the purchaser in the same cause by a supplemental proceeding, and
it was within the discretion of the court to adopt as the proper
method in this case the form of a rule to show cause.
Such is the clear implication from what was said by this Court
in
Koontz v. Northern
Bank, 16 Wall. 196,
83 U. S.
202:
"If . . . the court was deceived by the report of the receiver
or master, and the purchaser participated in creating the
deception, it could undoubtedly at any time before the rights of
innocent purchasers had intervened, have set the whole proceedings,
including the deed, aside. But after the rights of such third
parties had intervened, its authority in that respect could only be
exercised consistently with protection to those rights."
The rule is thus laid down in 2 Daniell's Chancery Practice
1282, c. 29, � 1:
"According, however, to the present practice, a more complete
remedy is afforded against the purchaser refusing without cause to
fulfill his contract, for the plaintiff may obtain an order for the
estate to be resold, and for the purchaser to pay, as well the
expenses arising from the noncompletion of the purchase, the
application, and the resale, as also any deficiency in price
arising upon the second sale. This order was made by Lord Cottenham
in
Harding v. Harding, 4 Mylne & Cr. 514, after
consultation with the other judges of the court, and although in
that case the purchaser was a defendant in the cause, it does not
seem that that fact was considered as necessary in order to enable
such an order to be made."
In
Campbell v. Gardner, 11 N.J.Eq. 424, 425, it was
held that after a sale upon an execution out of a court of chancery
and a delivery of the deed, the court may, upon a proper cause
made, open a sale upon a petition, and it is not a valid objection
to this course that the deed has become a matter of record. If a
resale is ordered, the court may require the first purchaser to
release to the purchaser on the resale all the title he may have
acquired, so that the title may stand upon the record wholly
disembarrassed.
See Conover v. Walling, 15 N.J.Eq.
173.
Page 127 U. S. 528
As the court below committed no error to the prejudice of the
appellant in the mode of the procedure, we have to consider whether
it disallowed any substantial equity to which he was entitled. The
equity of the appellant, then asserted and here renewed, arises
upon his construction of the orders and decrees of the court. The
decree of March 1, 1882, upon the authority of which the deed was
executed and delivered to the purchaser and which directed that a
lien should be reserved therein for the unpaid purchase money until
the same is fully paid off and discharged, also directed the
commissioners to settle with the purchaser upon his application, so
far as the bonds for the purchase money had already matured, or as
the same should thereafter mature,
"by crediting upon the said bonds the amounts to which the said
William A. Stuart is entitled to credit for the liens held by him,
as recognized by the previous decrees of this court establishing
the order and priority of liens, and by receiving from him in cash
so much of the amount of said bonds as may be going to other
lienholders."
And the commissioners were
"also authorized to cancel and deliver to said William A. Stuart
anyone or more of his said bonds, whether the same have matured or
not, on being satisfied that the said Stuart is then holder and
owner of all the claims payable out on the proceeds of such bond or
bonds."
It appears that in pursuance of this authority, the
commissioners of sale, on October 20, 1883, received from Stuart
certain securities designated by reference to the list and
classification contained in the master's report of April 21, 1876,
specifying the amount of the principal sum represented by each, but
without any calculation of interest, or any statement of the
aggregate amount which on account thereof was to be credited on the
bonds of the purchaser given for the purchase money. The language
of the receipt given by the commissioners is:
"Received of W. A. Stuart the above securities, which are
applied first to the discharge of the three purchase money bonds of
said Stuart first falling due, given for the Greenbrier White
Sulphur Springs property sold by the United States District Court
at Charleston, the said bonds
Page 127 U. S. 529
being for $61,290 each, and bearing interest from March 31,
1880, and which are this day delivered to said Stuart. The amount
covered by this list of securities, after discharging the three
bonds aforesaid, is to be by us credited on the fourth bond of said
Stuart of like amount with each of the other three, and bearing
interest from same time."
The specific claim made by the appellant is that he is entitled
to have these securities credited on his purchase money bonds at an
amount in the aggregate ascertained by a calculation of simple
interest, upon the face of the principal sum, from the time when
interest began to accrue and became in default until the date of
their application to the payment of the purchase money bonds, with
the exception of the instances where, by previous decrees, interest
upon interest had been expressly allowed, whereas the rule adopted
by the court by the order of January 5, 1884, required the
commissioners of sale, in distributing the proceeds of sale and in
paying therewith the debts reported and decreed to be paid, to
calculate interest upon the aggregate amount of principal and
interest thereof aggregated as of October 15, 1875, the date to
which the calculations are brought in the report of the master
filed April 21, 1876.
It is complained of this decree that it was made after the
rights of the parties had become fixed by what had already been
done under the previous orders of the court, and that the situation
of the appellant was thereby altered greatly to his disadvantage.
In reliance upon his construction of the previous orders of the
court, the appellant had become the purchaser of almost all the
obligations enumerated in the sixth class of the master's report in
the expectation that, upon a calculation of the amount due to those
entitled to priority, the obligations thus acquired by him would be
satisfied, or nearly so, out of the proceeds of the sale. The
transactions by which he acquired the ownership of these claims
took place, respectively, on April 23, 1875, March 15, 1876, and
March 31, 1880, the last being the date of the sale.
It is evident in the first place that the cause of complaint
asserted by the appellant does not belong to him legitimately
Page 127 U. S. 530
in his capacity as purchaser. The decree for sale rendered May
15, 1877, did not contemplate payment of the purchase money
otherwise than in money. It gave a credit running through a period
of five years in equal annual installments, with interest on each.
There was nothing in the decree which authorized the purchaser to
assume that he would not be called upon to pay each installment as
it fell due in cash. As a purchaser therefore bound for the payment
of specific sums at given dates, and who cannot be compelled to pay
more, and has no right to expect to pay less, it must be a matter
of indifference how the proceeds of that sale shall be distributed
among the creditors entitled thereto. The different modes of
computing interest on the debts to be paid may affect relatively
the creditors themselves, giving to one class more and to the other
less, but it can make no difference in the amount of the fund to be
distributed arising from the proceeds of the sale. The complaint of
the appellant, therefore, if he has any, must be put forward in his
capacity as a creditor in respect to his rights upon distribution;
but upon the view most favorable to him, the distribution of the
proceeds of the sale, and all questions arising thereon as between
creditors, were before the court and undecided, except in the
instances, already referred to, where express declarations were
made in respect to the mode of computing interest upon interest in
individual cases. The appellant was bound to know, and ought to
have acted upon the assumption, that all possible matters of
question to arise upon the distribution of the proceeds of the sale
were still open for the final decision of the court. If he chose to
act upon his individual judgment of what that decision would be, he
acted at his peril. The decree of January 5, 1884, was such a
decision, directing the mode of calculating interest upon the debt
in distributing the proceeds of sale, and there is nothing in it
inconsistent with any prior decision or decree of the court upon
the same subject. Neither the decree of sale of May 5, 1887, nor
the decree of March 1, 1882, directing the execution of the deed
and reserving a lien for the unpaid purchase money, contained any
direction as to the mode of computing interest upon the debts to
be
Page 127 U. S. 531
paid. It cannot, therefore, be now held that the appellant has
been misled to his disadvantage in having acted upon the faith of
any of the previous decrees of the court in the cause.
The question, however, still recurs whether the rule for
computing interest on the debts as the basis of distribution
adopted by the court in its decree of January 5, 1884, is correct
as matter of law. On this point there is no reason for doubt. The
decree of sale, as we have already stated, contained no finding of
the amount of the indebtedness, nor of the persons to whom it was
owing, and no order for its payment as a condition of redeeming the
property from the necessity of sale. But the report of the master
of April 21, 1876, contained a full and carefully prepared detail
of all the items constituting the indebtedness, with a list of the
creditors, a classification according to the order of priority in
the matter of lien, and a calculation of interest to October 15,
1875, upon all debts except those embraced in class No. 1, in
respect to which special provision was subsequently made showing
the total amount then due to each creditor. It is not stated
anywhere in the record why the date of October 15, 1875, was
selected by the master as a place of rest in the calculation of
interest, but it must have been taken as the most convenient day
for calculations in reference to closing the report, which
evidently required considerable time for its preparation. If the
calculation had been made as of the date of the decree for sale,
with a view to the insertion therein of the amounts due to the
several creditors, on payment of which the sale might be averted,
the interest would have been brought down most properly to that
date and added to the principal, to constitute the whole sum then
payable. If not paid at that time, the aggregate of principal and
interest thus combined would have constituted the new principal,
which, according to the uniform practice of the court, would bear
interest from that date. In that case, there could have been no
complaint made against compounding interest. We think a similar
effect must be given to the decree of the court confirming the
master's report made April 28, 1876. It substantially declared the
amount due October 15, 1875, as consisting of the principal
Page 127 U. S. 532
sums and interest to that date, added for the purposes of the
sale and distribution, and the decree of January 5, 1884, directing
the calculation of interest, for purposes of distribution, upon the
aggregate amount of the principal and interest as of October 15,
1875, was only a proper explanation of the decree of April 28,
1876, confirming the master's report. The date of the confirmation
of that report was a suitable period in the progress of the cause,
where the creditors were so numerous, and the calculations so
complicated, for the court to fix, for the information and guidance
of all concerned, the amount severally due to each creditor, with
the order of priority in which he was entitled to be paid. The
amounts to be found due necessarily embraced the principal sum,
with the accrued interest up to a fixed date, and from that period
the aggregate became the sum of the debt, the whole of which
thenceforth properly carried interest. No exception was taken to
the report, it was confirmed by the court, and in our opinion it
cannot reasonably bear any other construction than that which the
court subsequently placed upon it.
Upon the whole case, no injustice has been done the appellant,
and the decree of the District Court of West Virginia is
Affirmed.