First Savings Bank & Trust Co. v. Stuppi

• Decision Date: 05 November 1924
• Docket Number: No. 6579.,6579.
• Citation: 2 F.2d 822
• Parties: FIRST SAVINGS BANK & TRUST CO. OF ALBUQUERQUE, N. M., v. STUPPI. In re GARCIA.
• Court: U.S. Court of Appeals — Eighth Circuit

2 F.2d 822 (1924)

FIRST SAVINGS BANK & TRUST CO. OF ALBUQUERQUE, N. M., v. STUPPI.

In re GARCIA.

No. 6579.

Circuit Court of Appeals, Eighth Circuit.

November 5, 1924.

A. B. McMillen, of Albuquerque, N. M., for appellant.

Herman Mohr, of Albuquerque, N. M., and J. O. Seth, of Santa Fé, N. M., for appellee.

Before STONE, Circuit Judge, and MUNGER and MILLER, District Judges.

STONE, Circuit Judge.

This is an appeal from a decree in the bankruptcy matter of Jose Garcia y Ortega. It is the second appearance of this litigation in this court. The bankrupt had executed a mortgage, securing the payment of a note to appellant. A balance being overdue thereon, appellant began foreclosure in the state court. In pursuance of a clause in the mortgage, it applied to that court for the appointment of a receiver to take charge of the property pending foreclosure and to pay over to it the net income therefrom. The application for a receiver in the state court was made the day after the bankrupt had filed his voluntary petition in bankruptcy. The receiver was appointed by the state court, took possession and proceeded to administer the property. The trustee in bankruptcy brought an action to restrain this proceeding in the state court and to compel the delivery of the property and proceeds (collected while in receivership) to him. That action was successful, being affirmed in this court. First Savings Bank & Trust Co. v. Butler, 282 F. 866. In consequence of the above decision, the receiver in the state court turned over the property and $2,188.49, which represented the net income therefrom while in his hands. For almost a year longer the property was administered in the bankruptcy court with the result that, including the amount received from the state receiver and deducting the expenses of litigation above noticed, there was a net balance of $3,479.20 from such income. Shortly after the decision in the previous appeal, appellant filed, in the bankruptcy proceeding, this proof of claim which included not only the balance due, principal and interest, but 10 per cent. thereof as attorney's fees and the court costs expended in the foreclosure suit, and prayed that it be allowed a valid first lien therefor upon the property and upon such part of the rents and profits thereof coming to the hands of the receiver in the state court, and for a sale of the property and an application of its proceeds to the above claim. The referee reported, recommending the allowance of the principal and interest prayed, the foreclosure suit costs, and $750 as attorney's fees. Further, he recommended a declaration that the lien of the mortgage protected the above sums and, also, a declaration that, if necessary to make up a deficiency in the payment of the above, the rents and profits from such property since the initiation of the foreclosure proceedings were within the lien of the mortgage. The amount allowed for attorney's fees was something under half of 10 per cent. of the indebtedness due under the mortgage. The court, in part, affirmed and, in part, overruled the referee. It overruled the referee in so far as he had allowed interest from the filing of the petition in bankruptcy and in so far as he had found the above rents and income to be subject to the mortgage. In other respects, the report of the referee was approved and the property ordered sold. The sale price proved insufficient to care for the unpaid principal of the indebtedness. It is from portions of the above order that this appeal is brought.

Appellant complains of two matters: First, it contends that the attorney's fees should have been allowed upon the basis of 10 per cent. of the accrued indebtedness; second, it insists that the rents and profits from the property since the initiation of the foreclosure proceedings in the state court were subject to the lien of the mortgage and should be applied to the deficiency from the sale price of the property.

I.

Appellant's contention, concerning the amount of attorney's fees, is based upon a clause of the mortgage which provides that the principal sum shall be "payable three years after date, with interest at the rate of eight per cent. per annum from date until paid, payable quarterly, with ten per cent. additional on the amount unpaid if placed for collection in the hands of an attorney. * * *" The court found that the reasonable value of the services of counsel in the foreclosure proceedings in the state court up to the day when the petition in bankruptcy was filed was $750, and denied allowance for any services thereafter, those services being furnished in connection with this claim in the bankruptcy court.

Appellant contends that the above stipulation in the mortgage determines the amount of the fees "and especially since there is nothing to show that the stipulated amount was unreasonable"; and, second, that if the court is to determine the amount of the fees on the basis of reasonable fees within the amount stipulated in the mortgage, then appellant is entitled to have the services of counsel relative to its claim in bankruptcy considered in fixing such amount. We need not examine whether the determination of the first contention is one depending upon state law or not, as both the Supreme Court of New Mexico (Exchange Bank v. Tuttle, 5 N. M. 427, 23 P. 241, 7 L. R. A. 445) and this court (Mechanics' American National Bank v. Coleman, 204 F. 24, 122 C. C. A. 338) have determined that such a provision means that the fee shall be reasonable in value not exceeding the amount stipulated. Also see British & American Mortgage Co. v. Stuart, 210 F. 425, 427, 127 C. C. A. 157 (5th C. C. A.); McCabe v. Patton, 174 F. 217, 98 C. C. A. 225 (3d C. C. A.). Furthermore, it may be observed that other stipulations in the mortgage concerning this subject strongly lead to the view that a reasonable fee was the expressed intention of the mortgage when all of its parts are read together. The other provisions in the mortgage and above intended are as follows: that in case of default, the mortgagee might sell the premises and that from the proceeds thereof, among other things, there should be first paid "the reasonable expenses of said party of the second part or its successors or assigns, and all other expenses, including attorney's fees, counsel fees for advice, and professional services"; and in case of foreclosure by judicial proceedings or in case of any suit at law or in equity or in any probate or administrative proceeding, wherein the mortgagee should become a party by reason of being interested in the premises, there should be charged as a part of the judgment against the premises "all reasonable costs, charges, attorney's and solicitor's fees in any such suit or proceedings. * * *" Therefore, it seems clear that the court was right in determining that the reasonable value of the services was the measure to be applied.

It is argued that the court should have taken the stipulation of the parties as representing the reasonable value of the services in the absence of evidence that such stipulated amount was unreasonable. While the evidence upon this point is not in the record, the record does disclose, among the items of legal services in the bankruptcy proceedings for which payment is asked, one for "one-half day consumed in taking depositions upon the question of attorney's fees." We may, from this, fairly assume that there was before the referee and court testimony of this character. Absent such, it would be competent for the court, familiar with the value of legal services in his jurisdiction and having before him the character of proceedings in which such services were rendered, to pass upon the question of the reasonableness of such services without further testimony thereon.

Whether the court, in estimating the value of such services should consider legal services in connection with the collection of the indebtedness in the bankruptcy proceedings depends upon two matters: First, whether the parties contracted for the payment of such services; and, second, whether the Bankruptcy Act prohibits allowance for such services.

As to the first of these propositions: There are several provisions in the mortgage which might be considered in this connection. They are that the services should be paid for if the matter should be "placed for collection in the hands of an attorney." This provision would not of itself be sufficient to show an intent to include such services in the bankruptcy matter. Mechanics' American National Bank v. Coleman, 204 F. 24, 122 C. C. A. 338 (this court). However, there is another provision as follows:

"In case this instrument be foreclosed by judicial proceedings, and in case of any suit at law or in equity, or in any probate or administrative proceeding wherein said party of the second part or its successors or assigns shall become a party by reason of being interested in the premises, there shall accrue hereunder and be paid all reasonable costs, charges, attorney's and solicitor's fees in any such suit or proceedings by the said parties of the first part, and the same shall be a further charge and lien on said premises and be included in the amount of any judgment or decree rendered and be paid out of the proceeds of the sale of said premises, with interest at the rate of one per cent. per month if not otherwise paid by the said parties of the first part."

Also, there are other provisions in the mortgage, not quite so directly in point as the last quotation above, which provide for the payment of attorney's fees where there is a sale of the property by the mortgagee without judicial proceedings. We think these provisions, taken together, show a clear intention by the parties that the mortgagor shall pay and the mortgaged property shall be under lien for any legal services necessary to the protection or enforcement of the mortgagee's rights under the instrument. This would be broad enough to include...