A. & R. REALTY CO. v. Northwestern Mut. Life Ins. Co.
| Citation | 95 F.2d 703 |
| Decision Date | 09 April 1938 |
| Docket Number | No. 10986.,10986. |
| Parties | A. & R. REALTY CO. et al. v. NORTHWESTERN MUT. LIFE INS. CO. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
Charles P. Woodbury, of Kansas City, Mo. (Paul S. Kelly, of Kansas City, Mo., on the brief), for appellant A. & R. Realty Co.
Sam B. Sebree, of Kansas City, Mo. (Frank P. Sebree, of Kansas City, Mo., on the brief), for appellant Charles Owens.
George J. Winger and Maurice H. Winger, both of Kansas City, Mo. (Winger, Reeder & Barker, of Kansas City, Mo., on the brief), for appellee.
Before GARDNER, SANBORN, and THOMAS, Circuit Judges.
This is a suit in equity brought by the Northwestern Mutual Life Insurance Company against A. & R. Realty Company and Charles Owens to foreclose a deed of trust executed by the realty company to Wilbur E. Hoag, as trustee for the insurance company, covering lot 3, block 17, of Ashburn's addition to the city of Kansas, now Kansas City, and the leasehold interest of the realty company in lot 2, block 17, of said Ashburn's addition. The deed of trust was given to secure a $250,000 loan made by the plaintiff to the realty company evidenced by a promissory note for that amount dated February 1, 1926, and payable $15,000 at the end of five years, $15,000 at the end of seven years, and the remaining $220,000 at the end of ten years, with interest at 5 per cent. per annum, payable semiannually. From a decree of foreclosure and from an order appointing a receiver pendente lite, the defendants have appealed. The facts are, in substance, as follows:
The lots affected by the deed of trust constitute the site of a ten-story office building in Kansas City, Mo., which was owned and operated by the realty company. On September 11, 1925, the realty company applied to the plaintiff for a $250,000 loan, offering as security therefor this building and the lots on which it stands. In its application the realty company represented that it was acquiring the fee title to the lots and that the record title thereto was perfect in it. An examination of the title disclosed that lot 3 was in fact owned by Charles Owens, and that the realty company had only a leasehold interest in it under a 96-year lease from Owens to Bagby & Co., and that the realty company had a leasehold interest in the adjoining lot 2 under a 99-year lease. On December 12, 1925, Owens conveyed lot 3 to the realty company by warranty deed, subject to the 96-year lease to Bagby & Co. Thereafter, on January 21, 1926, Owens executed a quitclaim deed to the realty company disclaiming any interest in the lease to Bagby & Co. This deed recited that "the entire interest in and to said lease belongs to and is vested in said A. & R. Realty Company absolutely," and that the deed was "made for the sole purpose of correcting the title to said lease and vesting the same wholly in the said A. & R. Realty Company." By these deeds Owens conveyed to the realty company his fee title to lot 3 and his interest as lessor in the lease thereon.
The realty company did not acquire the fee of lot 2. In lieu of a lien upon the fee title to that lot, it agreed to give the plaintiff a lien upon its leasehold interest and a surety bond to insure that it would pay the ground rent under the 99-year lease.
On February 1, 1926, the realty company executed the $250,000 note and deed of trust. The deed of trust provides that upon default in the payment of any portion of the indebtedness secured thereby, the entire indebtedness shall become due at the option of the plaintiff; that the realty company will pay when due all taxes and assessments which may become liens upon the real estate, and that if they are not promptly paid, the plaintiff may pay them and the realty company will repay the moneys advanced therefor with interest at 8 per cent. per annum; that if any suit is brought to foreclose the deed of trust, the realty company consents that "a receiver pendente lite of said real estate and of the rents therefrom may be appointed by the court"; and that the court may allow, in addition to the expenses of prosecuting the suit, a reasonable attorney's fee.
Concurrently with the execution of the deed of trust and as additional security for the loan, the realty company executed an assignment to the plaintiff of a 30-year lease between it and the Pioneer Trust Company, the tenant of a portion of the building covered by the deed of trust. The realty company at the same time assigned to the plaintiff the 99-year lease covering lot 2.
On January 25, 1933, the Pioneer Trust Company failed and was placed in the hands of the commissioner of finance of the state of Missouri for liquidation.
On February 1, 1933, $15,000 of principal and $5,875 of interest became due upon the note secured by the deed of trust. These amounts were not paid when due, and the realty company has in fact made no payments upon the note since August 1, 1932.
As a result of negotiations initiated by the realty company prior to February 1, 1933, it procured from the plaintiff a forbearance agreement. The realty company had made claims against the insolvent estate of the Pioneer Trust Company for rents and damages on account of the breach of the 30-year lease, and it was expected that there might be an early adjustment of these claims. The forbearance agreement entered into on June 15, 1934, was for no definite time, but it recited that plaintiff "has agreed to defer foreclosure of said deed of trust pending definite settlement of claims filed by the A. & R. Realty Company with the Commissioner of Finance for the State of Missouri." By the terms of this forbearance agreement, the realty company was obligated to pay to the plaintiff the proceeds of these claims when and as collected; to furnish monthly operating statements of the building; and to pay monthly to plaintiff "all net income from the building." The agreement contained an assignment to the plaintiff of all rentals of the building as additional security for its loan, with the reservation that the realty company was to collect the rents as long as the forbearance agreement was strictly carried out. The plaintiff agreed to apply all moneys received under the terms of the forbearance agreement upon the indebtedness secured by the deed of trust.
On April 5, 1935, the plaintiff declared the loan due, and on September 19, 1935, it commenced this suit to foreclose. In its complaint it alleged the giving of the deed of trust and other security, the insolvency of the realty company, and the inadequacy of the security for the loan. It also alleged that the realty company had not carried out the terms of the forbearance agreement; that the deed of trust was in default; and that the entire indebtedness was due. It asserted that Owens claimed some interest in lot 3, but that whatever interest he might have was subordinate to the lien of the deed of trust. It prayed for the appointment of a receiver pendente lite and for the foreclosure of the deed of trust.
The answer of the realty company admitted the giving of the note, the deed of trust, and other security; denied that it was insolvent or that the security was inadequate; set up the forbearance agreement, and asserted its compliance therewith.
The defendant Owens in his answer asserted that Hoag, as trustee, was an indispensable party plaintiff; that the court was without jurisdiction for the reason that, Hoag being a citizen of Missouri, there was no diversity of citizenship. Owens also alleged that lot 3 had belonged to him in fee; that prior to the execution of the deed of trust he had conveyed it to the realty company to enable that company to obtain the $250,000 loan from the plaintiff; that his conveyance was made pursuant to an agreement with the realty company that the lot would be reconveyed to him subject to the lien of the deed of trust; that, by conveying it to be used as security for the debt of the realty company to the plaintiff, he became as to that debt a surety to the extent of his interest in the lot; that it was reconveyed to him by the realty company after the deed of trust was given; that the plaintiff knew of this arrangement and knew that Owen's conveyance of his lot to the realty company was for the purpose of making him such a surety for the loan; and that, with such knowledge and without his consent, the plaintiff entered into the forbearance agreement with the realty company and thereby released his lot from the lien of the deed of trust.
The plaintiff applied for the appointment of a receiver. At the hearing upon its application it developed that there was then due upon the deed of trust a total of $290,239.85, of which $15,968.74 represented taxes advanced by the plaintiff between September 13, 1934, and September 28, 1935. There was evidence introduced by the plaintiff indicating that the realty company had diverted rentals received from the building to the payment of expenses other than those of operation, and had therefore not complied with the terms of the forbearance agreement. The evidence introduced by the realty company upon this hearing tended to show that it had not diverted rentals or that such diversions as had been made were inconsequential in amount. The theory of the realty company seems to have been that, because the mortgaged property constituted everything it owned, all disbursements made by it should be regarded as expenses of operating the property.
Upon the verified complaint and the evidence adduced at the hearing, the court found that the realty company had not complied with the forbearance agreement, and that the plaintiff was entitled to the appointment of a receiver. The court appointed as receiver the then manager of the building, and appointed as attorneys for the receiver one of the counsel representing the realty company and one of the attorneys for the plaintiff. The receiver was allowed a commission of 5 per cent. upon collections, and the attorneys were to...
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