Elmira Mechanics' Soc. of New York v. Stanchfield

• Decision Date: 18 March 1908
• Docket Number: 2,636.
• Citation: 160 F. 811
• Parties: ELMIRA MECHANICS' SOCIETY OF NEW YORK v. STANCHFIELD et al.
• Court: U.S. Court of Appeals — Eighth Circuit

160 F. 811

ELMIRA MECHANICS' SOCIETY OF NEW YORK v. STANCHFIELD et al.

No. 2,636.

United States Court of Appeals, Eighth Circuit.

March 18, 1908

In January, 1901, Edward E. Stanchfield, of Denver, Colo borrowed $7,500 from the appellant, Elmira Mechanics' Society of New York (hereinafter called the complainant), for which he and his wife executed a note due January 15, 1906 with 6 per cent. interest, payable semiannually. To secure this debt, they executed to the complainant a mortgage on various lots of ground in the city of Denver, and in Arapahoe county, Colo. Three of the lots were subject to a prior mortgage of $8,500, which would mature about the 1st of April, 1906, other lots were subject to a prior mortgage of $2,050, and one of the lots was subject to a prior mortgage of $1,000. Some of the lots embraced in the complainant's mortgage were unincumbered, but of comparatively small value. On April 15, 1903, the complainant, at Stanchfield's request, released its mortgages on the lots in East Denver (which will hereinafter be called 'the Flint-Lomax Lots'), on which, at that time, was a matured prior mortgage of $8,500.

This was done to permit Stanchfield, through the Brooklyn Realty &amp Investment Company, organized by him, to place a new first mortgage for said sum on the lots; the complainant then taking a second mortgage from said Brooklyn Realty & Investment Company for its said debt of $7,500. In and by this arrangement the complainant released one S. S. Kennedy, who had assumed the $7,500 mortgage, and by that release it placed the Flint-Lomax five-year lease on the property ahead of the complainant's mortgage. After Stanchfield had thus obtained said money from the complainant and induced it to postpone its mortgages to others on his assurance of the amplitude of the security, he evidently became much embarrassed financially, and became the active promoter and organizer of various corporations, to wit, the Highland Foundry Company, the Pittsburg Foundry Company, the Brooklyn Realty & Investment Company, the Quaker City Investment Company, and the Highland Park, Inn & Sanitarium Company. The legal title of Stanchfield in the property in question was conveyed to the first of these corporations and by each of the corporations successively to the subsequent organization. The Brooklyn Realty & Investment Company, as a part consideration of the conveyance to it, assumed to pay the antecedent mortgages thereon, and in the deed from the Quaker City Investment Company to the Highland Park, Inn & Sanitarium Company, the latter assumed the payment of said indebtedness. Neither Stanchfield, nor said grantee corporations kept the taxes on the property paid, but suffered them to become delinquent, and part of it sold for taxes. To protect the complainant's junior mortgage, it had to redeem from said taxes. After Stanchfield fell behind in the payment of the accruing interest on his debt to the complainant, and failed to keep the taxes paid, he was urged and pressed by the complainant to make payment of these arrears and protect the property against the overlying mortgages. By deceitful arts and persuasion, he lulled the complainant into indulgence and inactivity by assurances that he was about to effect arrangements by which he could discharge the debt. Failing in this, he dismantled part of the buildings on some of the property of fixtures and appurtenances to the amount of over $1,300, which he sold and pocketed the proceeds. In order to render whatever apparent interest the grantee corporation had in said property available, he negotiated with one William B. Felker, defendant herein, for the purchase of an automobile at the price of $1,650, in the name of the last grantee company, and executed to Felker its note therefor; and to secure the same, on the . . . day of December, 1905, the company executed to him a deed of assignment of the rentals of said Flint-Lomax lots until said note should be paid. In January, 1906, the complainant instituted this suit to foreclose its mortgage, alleging the facts aforesaid, charging that said Stanchfield and companies were insolvent; that the property was an inadequate security for the debts; that the same was being wasted, etc.; and prayed for a receiver to take charge of the property and administer it under the court for the protection of the interests of the parties concerned. A receiver was appointed, took charge of the property, collected the rents therefrom, and applied the same toward the payment of insurance and taxes through the year 1906. There was a decree of foreclosure and sale, at which the complainant became the purchaser, and afterward obtained a deficiency judgment against said Stanchfield for something over $1,200. The order of sale was confirmed December 5, 1906. The deficiency judgment was rendered March 27, 1907. On the 26th day of March, 1907, the complainant presented its petition to the court for rule on the receiver to pay the taxes, insurance, and to make certain repairs on the building. It was also, by this application, represented and shown to the court that, by reason of an excavation being made on the lots adjoining the Flint-Lomax property, for the purpose of erecting a building thereon, the foundation and building on the Flint-Lomax property was seriously endangered, and, unless protected, the building would be exposed to destruction, etc. Notice had been given to the receiver pursuant to the provisions of an ordinance of the city to make said repairs forthwith. The prayer was that the receiver be required to pay therefor the sum of $500, the reasonable cost of the work. This application showed that there was then in the hands of the receiver the sum of $900. A few days after this application was made, to wit, April 15, 1907, the receiver presented his report, with his resignation, which report was approved, and the receiver was discharged. But the court continued the receivership as to the other property by appointing another receiver therefor. It covered into the registry of the court the unexpended amount of rentals collected by the first receiver; and in its final decree directed the payment of the balance of said rentals to said Felker. From this action of the court, the complainant appealed.

Thomas H. Hood, for appellant.

William L. Dayton, for appellee.

Before HOOK and ADAMS, Circuit Judges, and PHILIPS, District Judge.

PHILIPS District Judge (after stating the facts as above).

Two questions are presented for decision on this appeal: (1) Whether the complainant, the mortgagee, under its deficiency judgment against the insolvent mortgagor, under the facts of this case, is entitled to have the rentals of the property in question applied to the payment of the taxes assessed against it and to the payment of the deficiency judgment until possession of the property is obtained by the complainant under the deed of foreclosure; and (2) whether sufficient of the income from the rental of the property under the receivership should have been applied by the court to making the necessary repair on the property to prevent it from destruction or injury.

The statute of Colorado (Mills' Ann. Code Colo. Sec. 261) declares that:

'A mortgage on real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without foreclosure and sale.'

The statute also accords to the mortgagor the right of redemption for a period of nine months after foreclosure sale. The recent decision of the Supreme Court of Colorado in Moncrieff v. Hare, reported in 38 Colo. 221, 87 P. 1082, 7 L.R.A. (N.S.) 1001, settles, so far as this court is concerned, the right of the complainant to have a receiver appointed in said foreclosure suit. While conceding, under the said provision of the Colorado statute, that notwithstanding the general grant of the rents and profits in the mortgage deed to the complainant, the mortgagor was entitled to remain in possession of the rents and profits of the premises until foreclosure sale and expiration of the redemption period, yet the court held that said statute would not be so construed as to suspend the better established rule in equity jurisprudence under such a mortgage as this, where the mortgagor has become insolvent, defaulted in making payments of interest and taxes, the security becomes inadequate, and the property exposed to waste and deterioration, on a bill of foreclosure alleging such facts, praying for the appointment of a receiver, for a court of equity to place the property in the custody of a receiver to collect the rents, pay the taxes and insurance, and keep the property properly repaired. The court followed the ruling in such equity procedure, recognized by the Supreme Court of the United States. Teal v. Walker, 111 U.S. 242, 4 Sup.Ct. 420, 28 L.Ed. 415; Kountze v. Omaha Hotel Company, 107 U.S. 378, 2 Sup.Ct. 911, 27 L.Ed. 609; Grant v. Phoenix Life Insurance Co., 121 U.S. 105, 116, 7 Sup.Ct. 841, 30 L.Ed. 905; U.S. Trust Co. v. Wabash Railway Company, 150 U.S. 287, 14 Sup.Ct. 86, 37 L.Ed. 1085; McGahan v. National Bank of Rondout, 156 U.S. 218, 15 Sup.Ct. 347, 39 L.Ed. 403.

In the course of its opinion, the...