City Lumber Co. of Bridgeport, Inc. v. Murphy

• Decision Date: 07 May 1935
• Citation: 120 Conn. 16,179 A. 339
• Court: Connecticut Supreme Court
• Parties: CITY LUMBER CO. OF BRIDGEPORT, Inc. v. MURPHY et al.

179 A. 339

120 Conn. 16

CITY LUMBER CO. OF BRIDGEPORT, Inc. v. MURPHY et al.

Supreme Court of Errors of Connecticut.

May 7, 1935

Appeal from Court of Common Pleas, Fairfield County; Edward J Quinlan and Samuel C. Shaw, Judges.

Action by the City Lumber Company of Bridgeport, Incorporated against James Murphy, trustee, the Investors' Mortgage &amp Guaranty Company, and others to foreclose a mechanic's lien, in which two defendants filed a cross-complaint to foreclose their mechanics' liens. From a judgment for plaintiff after trial to the court and an order awarding plaintiff and cross-complainants a fund in the hands of a receiver of rents, defendant guaranty company appeals.

Error order set aside, and case remanded.

Ogden T. Marsh, of Bridgeport, for appellant.

Herbert L. Cohen, of Bridgeport, for appellee.

Argued before MALTBIE, C.J., and HAINES, HINMAN, BANKS, and AVERY, JJ.

HINMAN, Judge.

The named plaintiff, by complaint dated January 25, 1934, and two other mechanics' lienors made defendants, by cross-complaint, claimed foreclosure of their liens on premises in Bridgeport, a receiver of rents, and deficiency judgments. A receiver was appointed February 23, 1934, and collected the rents until the passage of the last day for redemption, November 11, 1934. The judgment, which was entered June 29, 1934, contained a provision that the defendants owner and lessee deliver to the plaintiffs (by which title the original plaintiff and defendants filing cross-complaints are hereinafter referred to), or to the redeeming incumbrancer, possession of the premises, and that upon failure to redeem, title shall be in the plaintiffs in proportion to the amounts found due them respectively. The debts to the plaintiffs are adjudged to amount to a total of $2,739.92. The incumbrances prior to their liens are found to amount to $9,876.64, and the value of the property to be $15,500, on the date of the judgment. The appellant Investors' Mortgage & Guaranty Company holds a mortgage subsequent in priority to plaintiffs' liens. The receiver had in his hands $614.69 from rents collected, during his receivership, from a tenant, lessee of defendant Johnston owner of the equity, and on his motion for advice the court (Shaw, J.) ordered that the fund be distributed to the plaintiffs. This order, only, is appealed from.

It appears from the finding that on November 19, 1934, the City Savings Bank and the Bridgeport Savings Banks, first mortgagees, obtained a judgment of foreclosure in which the plaintiffs herein, made parties defendant in that case, were given March 11, 1935, as law day to redeem. The plaintiffs have not taken possession of the premises or in any way exercised dominion over them, and the possession of Johnston and his lessee has not been interrupted so far as the plaintiffs are concerned.

The appellant asserts that the plaintiffs have no claim upon the rents collected by the receiver accruing prior to the vesting of title and right to possession in them under the foreclosure decree, on the ground that title and right to possession are essential prerequisites to such a claim. In this state the legal title to mortgaged real state, as between mortgagor and mortgagee, is in the mortgagee, and in the absence of an agreement or other circumstances debarring him from so doing, he is entitled to possession. If the mortgagor remains in possession, he is entitled to the rents and profits without any obligation to account to the mortgagee for them. Savage v. Dooley, 28 Conn. 411, 413, 73 Am. Dec. 680: Desiderio v. ladonisi, 115 Conn. 652, 654, 163 A. 254, 88 A. L. R. 1349. A decree of foreclosure of a mortgage upon its becoming absolute by failure to redeem, aside from such provision as may be made in it to put the mortgagee into possession of the property, merely cuts off the right of the mortgagor and others to redeem, Cion v. Schupack, 103 Conn. 644, 648, 129 A. 854. A mechanics' lienor, by perfecting his lien, acquires no present title and no right of possession, and obtains it only through and upon the becoming absolute of a decree of foreclosure of the lien. In all essential respects the attributes of foreclosure of mortgages apply to mechanics' liens. General Statutes, § 5105. Under our practice a receiver of rents is an officer of the court who, irrespective of at whose instance he was appointed, acts on behalf of all who may establish an interest in the property and the funds which come into his hands are disbursed, under orders of the court, to those who may establish their right to them, in the order of their respective claims. Bergin v. Robbins, 109 Conn. 329, 335, 146 A. 724; Silver v. Kingston Realty Corporation, 114 Conn. 349, 158 A. 889.

Possession of the premises here involved continued in Johnston, as owner, and his lessee up to the law days fixed by the plaintiffs' foreclosure decree. Primarily, therefore, the rents belonged to Johnston, and but for the intervention of the receiver would have been collected by him. Therefore, the fact that the plaintiffs had no title to the property until their judgment became operative, through failure of the owner and subsequent incumbrancers to redeem, would not, of itself, disentitle them to be awarded the proceeds of these rents toward payment of unsatisfied debts of Johnston to them if they established the necessary priority over other claimants. The rents being in the possession of the court, through the receiver, " that court has the power by its orders to make such application of them as justice and equity require, and it may order their disposition in such a way as to aid in discharging the obligations" of the liens. Desiderio v. Iadonisi, supra, 115 Conn. 652, page 655, 163 A. 254, 255, 88 A. L. R. 1349. Unless the debts to the plaintiffs are extinguished by and through appropriation by them of the foreclosed property, their claims remain unpaid, are prior in order of preference to the claim of the appellant bank, and distribution of the funds in the receiver's hands ratably among the three plaintiffs would be proper.

The appellant claims further, however, that even if this be so, the obtaining by the plaintiffs of the judgment of foreclosure constituted an appropriation of the property, without the taking of physical possession or steps to enforce their right thereto.

Prior to 1833 the foreclosure of a mortgage operated to bar any subsequent recovery upon the mortgage debt, but since then, by successive statutes, a mortgagee has been accorded a right to recover the deficiency when the value of the property acquired on foreclosure and appropriated to payment of the debt proves insufficient to satisfy it in full; provided, since 1878, the persons liable for the deficiency are made parties to the foreclosure suit. Wilcox v. Bliss. 116 Conn. 329, 331, 164 A. 659. " The debt is paid [only] when the mortgagee has appropriated to it the property mortgaged, and the value of that property exceeds the mortgage debt." Desiderio v. Iadonisi, supra, 115 Conn. 652, page 655, 163 A. 254, 255, 88 A. L. R. 1349. In Derby Bank v. Landon (1819) 3 Conn. 62, it was stated that " In this State it has long been considered as established law that a foreclosure and consequent possession is in the nature of satisfaction of a debt secured by mortgage. It is deemed an appropriation of the thing pledged in payment of the demand for which it was security." In the opinion in Swift v. Edson (1825) 5 Conn. 531, page 535, Chief Justice Hosmer, who had written the opinion in Derby Bank v. Landon, observed that the earlier case, " as the plaintiff had taken possession, demanded no further, extension of the principle; but no doubt existed in my mind, nor, as I presume, in the minds of any of the Court, that the appropriation resulted from the decree, and not from any act in pais. *** In short, the decree of foreclosure obtained deliberately and voluntarily, by the mortgagee, is, from its nature, the highest evidence of an appropriation of the pledge; and to its force nothing is added, by the comparatively feeble act of taking possession."

In Loomis v. Knox (1891) 60 Conn. 343, page 351, 22 A. 771 where the holder of a judgment lien on real estate had foreclosed, it was held that the taking of possession, under the foreclosure, of land of greater value than the amount of the debt constituted payment of it. In that case, however, as in Derby Bank v. Landon, the plaintiff had taken possession, and the same was true in Desiderio v. Iadonisi, supra. In Brooks v. Benham (1879) 70 Conn. 92, page 98, 38 A. 908, 910, 39 A. 1112, 66 Am. St. Rep. 87, although the case did not involve a judicial foreclosure, but concerned the effect of a conveyance of the equity of redemption in part of the security, it was recognized that under the common law of this state " when a strict foreclosure became absolute, this appropriation of the land extinguished the obligation of the mortgagor," and that a similar result may follow under the statute unless a deficiency judgment is sought and the persons liable for the...