Grafeman Dairy Co. v. Mercantile Club

• Decision Date: 22 May 1922
• Docket Number: No. 22375.,22375.
• Citation: 241 S.W. 923
• Parties: GRAFEMAM DAlRY C. et al. v. MERCANTILE CLUB et al.
• Court: Missouri Supreme Court

241 S.W. 923

GRAFEMAM DAlRY C. et al. v. MERCANTILE CLUB et al.

No. 22375.

Supreme Court of Missouri, in Banc.

May 22, 1922.

Appeal from St. Louis Circuit Court; George H. Shields, Judge.

Action by the Grafeman Dairy Company and others against the Mercantile Club, in which C. W. S. Cobb was appointed receiver, for the defendant, and in which the Morton Real Estate Investment Company and others intervened. From the judgment rendered, the named intervener appeals. Affirmed.

Nathan Frank, Wilfiey, Williams, McIntyre, Hensley & Nelson and Wendell Berry, all of St. Louis, for appellant.

Lee W. Grant and W. L. Sturdevant, both of St. Louis, for respondent.

E. T. & C. B. Allen, of St. Louis, for F. W. Drosten Jewelry Co.

RAGLAND, C.

This is a controversy between the receiver, representing general creditors, of the Mercantile Club of St. Louis and its third mortgage bondholders on the one side and the purchaser at a foreclosure sale under the second mortgage on the other, with respect to rents that bad accrued between the default and the sale.

On or about the 17th day of February, 1891, the Mercantile Club obtained from the trustees of the Missouri Botanical Garden a lease for a term of 100 years of a lot of ground at the southwest corner of Seventh and Locust streets in the city of St. Louis, under which it obligated itself to pay an annual ground rent of $10,000, in quarterly installments in advance, and, as when due, all taxes, general and special, that might be assessed against the leased premises. It erected a seven-story building on the ground, the first floor and basement of which it sublet to various tenants, occupying the remainder of the building itself for club purposes. The Mercantile Club executed three deeds of trust or mortgages on the property, one, dated September 11, 1901, to secure the payment of $250,000 of first mortgage bonds; another of the same date to secure $100,000 of second mortgage bonds; and a third on November 1, 1915, for $100,000. The property transferred and conveyed to the trustee under the second deed of trust was the lease-hold interest of the Mercantile Club under its 100-year lease from the trustees of the Missouri Botanical Garden—

"and, also, all buildings, machinery and fixtures which have been, or may hereafter be, placed upon said leasehold property, and as well the income, immunities, rents and profits of said leasehold interest and the improvements thereon which may hereafter accrue to said party of the first part from said leasehold property."

It was provided, however, that until default the Mercantile Club or its assigns should remain in the peaceable and lawful possession of said property, and should enjoy the income, rents, issues, and profits thereof.

By the terms of the second deed of trust the Mercantile Club covenanted that it would cause to be paid, as and when due, the stipulated ground rent and the taxes as provided in its lease, and the interest on the first mortgage bonds, and that in the event it failed to do so the holders of one-fourth or more in value of second mortgage bonds might pay the same, and the amount so paid should become a debt of the Mercantile Club and be secured by the second deed of trust.

The deed of trust seems to have conferred upon the trustee the usual power of sale upon default. It provided that in the event of the failure of the Mercantile Club for a period of 90 days to perform any of its covenants, the trustee, on the request in writing of the holders of one-half of the aggregate amount of the bonds, might, by a notice in writing to the Mercantile Club, declare the principal of said bonds to be at once due and payable, and might proceed to sell the property and distribute the proceeds in accordance with the terms of the trust.

The third deed of trust is described as a rental income mortgage. It provided, among other things, for the creation of a board of trustees who should collect all the rentals accruing from the property of the Mercantile Club and hold them as a trust fund to be applied by it to the payment of: First, the ground rent; second, the taxes on the mortgaged premises; third, insurance on the building and contents; fourth, the interest on the first mortgage bonds; and, fifth, the interest on the second mortgage bonds.

The main suit, in which the present proceeding is an intervention, was commenced November 6, 1918, by the Grafeman Dairy Company and others filing their petition, in the nature of a general creditors' bill, in the circuit court for the city of St. Louis against the Mercantile Club, a corporation, in which they prayed, among other things, the appointment of a receiver. On the same day, the defendant having entered its voluntary appearance, C. W. S. Cobb was appointer receiver and entered upon the discharge of his duties as such. On February 13, 1919, by supplemental petition, the owners of the fee of the leasehold, the trustees under the first and second deeds of trust, respectively, and the members of the board of trustees under the third deed of trust were made parties defendant. The Mercantile Club being in default with respect to the payments it had obligated itself to make under the terms of the second deed of trust, the trustee thereunder had advertised the mortgaged property for sale, on February 15, 1919. On February 13, 1919, the receiver obtained a temporary restraining order restraining the sale. On February 20th, the order was dissolved, and the trustee given permission to sell in accordance with the provisions of the deed of trust, the advertisement of sale to begin March 8, 1919. The sale occurred April 12, 1919, and appellant, Morton Real Estate Investment Company, became the purchaser thereat of all property described in the deed of trust for the sum of $240,000. This amount was sufficient to pay all the indebtedness secured by the second deed of trust and leave a balance of $95,343.75, which was paid into court by the trustee.

The board of trustees under the third deed of trust continued to collect the rents after the appointment of the receiver, but retained them in their own hands, instead of paying them out according to the terms of the trust. And on March 25, 1919, the trustee under the second deed of trust, for and on behalf of the second mortgage bondholders, filed a motion, alleging, among other things, that the Mercantile Club was in default as to the payment of ground rent and taxes on the leasehold and interest on the second mortgage bonds, and as to repayments to the second mortgage bondholders sums advanced by them for their own protection in the payment of ground rent, taxes, and interest on first mortgage bonds, and praying for an order requiring the board of trustees under the third deed of trust to apply the rents in their hands, constituting a trust fund, according to the provisions of said deed of trust. In response to this the board of trustees on April 30, 1919, filed an answer and intervening petition, in which they alleged that they had in their hands $10,398.83, $9,348.83 of which represented rents that had accrued prior to April 12, 1919, and the remainder, $1,050, rents for the period from April 12, 1919, to May 1, 1919, paid in advance; that the entire fund was claimed by each of the following parties: The receiver, the third mortgage bondholders, and the purchaser at the sale under the second deed of trust—and that they were unable to determine the rightful owners. They prayed that they be permitted to pay the fund into court and thereupon be discharged. The order was made as prayed, and on the next day the money was paid into the registry of the court.

On May 6, 1919, appellant filed its answer and interplea, claiming the fund. This pleading alleges: The execution by the Mercantile Club of the three mortgages and, in general terms, the provisions of each, as heretofore set out; the numerous defaults of the Mercantile Club as mortgagor under the second deed of trust in the payments of ground rents, taxes, and interest on the first and second mortgage bonds, occurring during the year 1918 and up to April 1, 1919; the advances of money by the second mortgage bondholders for the payments of ground rents, taxes, and interest on the first mortgage bonds, on various dates between January 1 and April 12, 1919, approximating in the aggregate $39,000; the sale on April 12, 1919, by the trustee under the second deed of trust, pursuant to the terms thereof, of all the property pledged thereunder; and the purchase thereof by interpleader. It further alleged:

"That said Mercantile Club occupied the six upper floors of said building, and operated a club in said premises until the 6th day of November, 1918, when C. W. S. Cobb was appointed receiver for said Mercantile Club by the circuit court of the city of St. Louis, Mo., and took possession of said property and remained in possession of same until April 12, 1919, when said property was sold under foreclosure. * * *

"That prior to the aforesaid sale on the 12th day of April, 1919, the Mississippi Valley Trust Company, as agent for said board of trustees, had collected, and then held rents from said Mercantile Club property; that the sums so held by it and paid in to the clerk of this court (expenses deducted) was $10,398.83; that said sum was collected and held by said Mississippi Valley Trust company after default had been made by the Mercantile Club under the second mortgage.

"That prior to the said sale of said property on the 12th day of April, 1919, and subsequent to the default of the Mercantile Club under said second mortgage in payment of taxes, ground rent, insurance, and interest on the first and second mortgage bonds, the American Trust Company as successor trustee under said mortgage of the Mercantile Club applied to this court for an order directing the Mississippi Valley Trust Company and said board of trustees to apply the proceeds of the rents so collected by it from the Mercantile...