Tower Grove Bank & Trust Co. v. Weinstein

• Decision Date: 26 April 1941
• Docket Number: No. 11866.,11866.
• Citation: 119 F.2d 120
• Parties: TOWER GROVE BANK & TRUST CO. v. WEINSTEIN et al. In re HALLENBERG-WAGNER MOTOR CO.
• Court: U.S. Court of Appeals — Eighth Circuit

119 F.2d 120 (1941)

TOWER GROVE BANK & TRUST CO. v. WEINSTEIN et al. In re HALLENBERG-WAGNER MOTOR CO.

No. 11866.

Circuit Court of Appeals, Eighth Circuit.

April 26, 1941.

J. Terrell Vaughan, of St. Louis, Mo. (W. Donald Dubail and Dubail, Judge & Winter, all of St. Louis, Mo., on the brief), for appellant.

Charles P. Williams, of St. Louis, Mo., for appellees George C. Hitchcock et al.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

This is an appeal by the Tower Grove Bank and Trust Company from an order of the district court confirming an order of the referee in bankruptcy in the matter of Hallenberg-Wagner Motor Company, bankrupt.

The Hallenberg-Wagner Motor Company was adjudicated bankrupt in a voluntary proceeding January 20, 1937. On that date the bankrupt owned a parcel of real estate in St. Louis, Missouri, on which the Trustees of the Missouri Botanical Garden held a first mortgage in the form of a trust deed securing a note for $21,000 due September 25, 1936, and in default as to principal and interest after that date. At the same time taxes on the mortgaged property were in arrears for the years 1935 and 1936.

At the time of the adjudication the same real estate was also encumbered by a second mortgage in the form of a trust deed securing a note for $15,000, which note and trust deed were held by appellant as collateral to a note of the bankrupt for $3,400 due January 14, 1937. The collateral note was past due.

The mortgaged real estate at that time was unoccupied and the trustee took possession of it.

On April 5, 1937, the appellant filed a petition with the referee for leave to sell at public sale the collateral note and mortgage. This petition was amended on June 1, 1937.

On June 24, 1937, the holder of the first mortgage applied for an order authorizing it to foreclose and sell under its trust deed.

On October 22, 1937, the referee denied the right of appellant to sell its collateral but established in lieu thereof an equitable lien upon the mortgaged property in favor of appellant for $3,464.47, the amount then due on its note, subject to general and special taxes due and to the first deed of trust, and decreed that appellant was the owner of the second deed of trust. There was no appeal from this order and it became final. 5 Remington, on Bankruptcy, §§ 2313, 2314.

On November 5, 1937, appellant applied for leave to foreclose its second deed of trust.

While the applications of the holders of both the first and second deeds of trust for leave to foreclose were pending the trustee, on November 17, 1937, filed an application for leave to enter into a lease of the mortgaged property. The application was granted and a two-year lease was entered into with one Haupt at an annual rental of $4,200. The tenant occupied the premises only until about June 1, 1938, and paid to the trustee as rental during that period the sum of $2,958.53. This sum less the trustee's expenses incident to its administration is the fund in controversy.

On February 1, 1938, the referee denied without prejudice the petition of the holder of the first mortgage to foreclose; and on May 22, 1938, the holder of the first mortgage filed a second petition for leave to foreclose, which was granted on June 17, 1938, and the property was sold at foreclosure on August 20, 1938, and purchased by the first mortgagee for $20,000, leaving a deficiency of $4,299.57. On October 6, 1938, appellant withdrew its petition for leave to foreclose its second deed of trust. On November 30, 1938, the purchaser at foreclosure paid the 1937 taxes on the mortgaged premises in the sum of $1,168.93.

On October 14, 1938, appellant filed a petition with the referee praying for an order directing the trustee to pay to it the net rentals derived from the lease on the mortgaged property to be applied in satisfaction of its lien and second deed of trust. On October 27, 1938, the holder of the first deed of trust filed a similar petition praying that the trustee be required to surrender the rentals to it. The trustee resisted both petitions and claimed the rentals for the estate.

After a hearing upon both petitions the referee found that neither petitioner had taken any steps to foreclose its trust deed prior to the adjudication in bankruptcy; that no demand had been made upon the trustee prior to foreclosure sale by either mortgagee for the rents and profits of the mortgaged property, and no application was made to the court for an order segregating or impounding the rents or directing their payment on the mortgage debts; and that the rents collected by the trustee prior to the foreclosure are assets of the bankrupt estate and that the holders of the mortgages are not entitled to the rents so collected.

The deeds of trust are not set out in the record; but the referee found that the first mortgage conveyed the property "with all improvements, rents, issues, profits, leases and appurtenances thereto belonging or appertaining", whereas the second mortgage "did not cover the rents and profits of the mortgaged premises."

The referee held that the taxes payable in 1937 while the property was leased by the trustee were properly payable out of the rents, and that the holder of the first deed of trust was entitled to reimbursement for the sum of $1,168.93 paid on account of such taxes.

The order denied both petitions and ordered the trustee to pay to the holder of the first trust deed the sum of $1,168.93, the amount of the taxes for 1937. The holder of the first mortgage acquiesced in the order and did not petition for review.

The appellant petitioned the court for review of the order of the referee. The petition was denied, and this appeal followed.

To secure a reversal of the orders appellant contends (1) that rents collected after adjudication in bankruptcy and before foreclosure belong to the mortgagee rather than to general creditors, and (2) that the court erred in reimbursing the holder of the first mortgage for the 1937 taxes paid after the foreclosure sale. Appellant is not prejudiced by the payment of the 1937 taxes out of the rents, unless it prevails upon its first...