Chase Manhattan Bank v. Brown & East Ridge Partners

• Decision Date: 29 April 1998
• Citation: 243 A.D.2d 81,672 N.Y.S.2d 206
• Court: New York Supreme Court — Appellate Division
• Parties: , 1998 N.Y. Slip Op. 4027 CHASE MANHATTAN BANK, Successor by Merger to Chase Lincoln First Bank, N.A., Respondent, v. BROWN & EAST RIDGE PARTNERS, et al., Defendants, and Simon Braitman, Appellant. Widewaters Group, Inc., Receiver-Respondent.

Page 206

672 N.Y.S.2d 206

243 A.D.2d 81, 1998 N.Y. Slip Op. 4027

CHASE MANHATTAN BANK, Successor by Merger to Chase Lincoln First Bank, N.A., Respondent, v. BROWN & EAST RIDGE PARTNERS, et al., Defendants and Simon Braitman, Appellant Widewaters Group, Inc., Receiver-Respondent.

Supreme Court, Appellate Division Fourth Department.

April 29, 1998.

Woods, Oviatt, Gilman, Sturman by Kelly Nagle, Rochester, for Defendant-Appellant-Braitman.

Boylan, Brown, Code, Fowler, Vigdor & Wilson, L.L.P. by Mark Costello, Rochester, for Plaintiff-Respondent.

Menter, Rudin & Trivelpiece, P.C. by Mitchell Katz, Syracuse, for Receiver-Respondent.

Before GREEN, J.P., and WISNER, PIGOTT, BALIO and FALLON, JJ.

GREEN, Justice Presiding.

This appeal concerns the respective rights of the mortgagor and the receiver appointed in this mortgage foreclosure action to the proceeds of a judgment for rent entered in favor of the mortgagor but remaining unpaid at the time of the receiver's appointment. We conclude that the receiver is entitled to collect the proceeds of that judgment.

Defendant Brown & East Ridge Partners (partnership) borrowed $5.95 million from plaintiff to purchase a shopping center in the Town of Irondequoit. The loan was secured by two mortgages. In January 1996 the partnership defaulted under the mortgages. At the time of the default, an action for unpaid rent brought by the partnership against Fay's Inc. (Fay's) was pending. In an order and judgment entered April 5, 1996, the partnership was granted judgment against Fay's in the amount of $207,000. The order and judgment was affirmed on appeal on December 30, 1996 (Brown & East Ridge Partners v. Fay's Inc., 234 A.D.2d 1021, 652 N.Y.S.2d 461).

On September 26, 1996, during the pendency of that appeal, plaintiff commenced the instant foreclosure action. Supreme Court appointed the receiver on October 28, 1996. The order of appointment authorizes and directs the receiver to demand, collect and receive all rents for the mortgaged premises "now due and unpaid or hereafter to become due". The order further enjoins the tenants of the mortgaged premises from paying any rent to the partnership and directs them to attorn to the receiver all rents "now due and unpaid, or that may hereafter become due".

On November 1, 1996, the receiver served Fay's with a notice to attorn, instructing Fay's to pay to the receiver rents then due and unpaid or becoming due during the pendency of the foreclosure action. Defendant Simon Braitman, a partner in the partnership, moved for a judicial determination of the respective rights of the receiver and the partnership to the proceeds of the unpaid judgment against Fay's. Specifically, Braitman sought judgment declaring that the judgment against Fay's does not constitute rent but a debt owed to the partnership; the receiver has no interest in any sums paid in satisfaction of that judgment; and the proceeds of the judgment are the property of the partnership. The receiver cross-moved for an order directing payment of the proceeds of the judgment against Fay's to the receiver. The court denied Braitman's motion, granted the cross motion and directed Fay's to pay the proceeds of the judgment to the receiver.

The only New York authority to consider the right of a receiver to collect a judgment for rent entered prior to the commencement of a foreclosure action but unpaid at the time of the receiver's appointment is Board of Natl. Missions of Presbyt. Church v. Borough Asphalt Co., 177 Misc. 260, 30 N.Y.S.2d 311. In National Missions the trustee in bankruptcy of the mortgagor obtained a judgment for past due rent two months prior to the appointment of the receiver in the mortgage foreclosure action. As in the instant case, the judgment remained unpaid at the time of that appointment. The court declined to apply the general rule that a receiver is entitled to unpaid rents accruing prior to his or her appointment (Board of Natl. Missions of Presbyt. Church v. Borough Asphalt Co., supra, at 262, 30 N.Y.S.2d 311). The rule is inapplicable, the court concluded, because the cause of action for rent merged in the judgment entered against the lessee. "After the entry of said judgment in which the cause of action for the * * * rent was merged, the judgment itself became a debt which the judgment debtor was under obligation to pay" (Board of Natl. Missions of Presbyt. Church v. Borough Asphalt Co., supra, at 262, 30 N.Y.S.2d 311).

The holding in National Missions rests upon the union of two established legal rules. The first, specifically applicable to mortgage foreclosure actions, is that a receiver has no right to accrued rent that has been collected by or on behalf of the owner prior to the receiver's appointment (see, Ebling Co. v. Trinity Estates, 266 N.Y. 175, 194 N.E. 76; New York Life Ins. Co. v. Fulton Dev. Corp., 265 N.Y. 348, 352, 193 N.E. 169; Federal Deposit Ins. Corp. v. 7 Bros. Constr. Corp., 237 A.D.2d 167, 654 N.Y.S.2d 761, lv. dismissed 91 N.Y.2d 849, 667 N.Y.S.2d 684, 690 N.E.2d 493; Chemical Bank v. Evans & Hughes Realty, 205 A.D.2d 573, 575, 613 N.Y.S.2d 239). The second, based upon more general res judicata principles, is that "[a] cause of action is merged in a judgment rendered upon it" (Hellstern v. Hellstern, 279 N.Y. 327, 333, 18 N.E.2d 296; see, Parker v. Hoefer, 2 N.Y.2d 612, 617, 162 N.Y.S.2d 13, 142 N.E.2d 194, cert. denied 355 U.S. 833, 78 S.Ct. 51, 2 L.Ed.2d 45; Williamsburgh Sav. Bank v. Bernstein, 277 N.Y. 11, 15, 12 N.E.2d 551). InNational Missions the combination of those rules yielded the conclusion that the owner's recovery of a judgment for rent prior to receivership is equivalent to the owner's collection of rent prior to receivership (see, 79 N.Y. Jur.2d, Mortgages and Deeds of Trust, § 826; 15 Carmody-Wait 2d, N.Y. Prac. § 92:486, at 456). Thus, it was not rent that remained unpaid at the time of the receiver's appointment in National Missions, but "a debt which the judgment debtor was under obligation to pay" to its judgment creditor (the trustee) and over which the receiver had no right or authority (Board of Natl. Missions of Presbyt. Church v. Borough Asphalt Co., supra, at 262, 30 N.Y.S.2d 311; see, 79 N.Y. Jur.2d, op. cit.; 15 Carmody-Wait 2d, op. cit.).

We decline to follow National Missions because, in our view, it rests upon an inappropriate application of the merger by judgment rule. "The theory of merger of a judgment and its underlying cause of action, while it has...