Investors Syndicate v. Smith

Decision Date12 July 1939
Docket NumberNo. 8881.,8881.
Citation105 F.2d 611
PartiesINVESTORS SYNDICATE et al. v. SMITH et al.
CourtU.S. Court of Appeals — Ninth Circuit

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COPYRIGHT MATERIAL OMITTED

Verne Dusenbery and Herbert L. Swett, both of Portland, Or., Stephen H. Boyles, of Minneapolis, Minn., and Chas. W. Redding, of Portland, Or., for appellants.

S. J. Bischoff and Ralph A. Coan, both of Portland, Or., for appellees intervening creditors and trustee.

McCamant, Thompson, King & Wood, of Portland, Or., for appellee trustee.

Before WILBUR, MATHEWS, and HANEY, Circuit Judges.

HANEY, Circuit Judge.

The controversy here presents, broadly, the question as to whether the trustee of a debtor's estate is entitled to rents accruing on property owned by the debtor, or whether the mortgagees are entitled to such rents after default by the debtor where the mortgages cover the rents after default as well as the real property in Oregon.

The apartment house properties herein were all owned and mortgaged by persons or corporations prior to the date when either the debtor, or its wholly owned subsidiary acquired them. The following is a list of the mortgaged property, with the names of the holders and the dates of the mortgages:

                    Property       Date of Mortgage     Mortgagee
                  Nordell          March 10, 1926      Syndicate1
                  Resthaven        May 16, 1926            "
                  Chapman Court    November 10, 1926       "
                  Duplex (1)       March 7, 1927           "
                  Duplex (2)       March 22, 1927          "
                  Adele Manor      March 30, 1928      Bank2
                  Charmaine        July 17, 1928         "
                  Maravilla Court  September 17, 1929  Metropolitan3
                

The mortgages held by the Syndicate each contained a provision permitting the Syndicate to take possession of the mortgaged property, on default, collect the rents and apply them on the amounts due from the mortgagor, and on foreclosure, to have a receiver appointed to collect the rents, to be applied on any amounts due the mortgagee. Separate assignments were executed by the mortgagors of the Nordell, Resthaven and Chapman Court apartments, dated June 30, 1926, June 29, 1926, and November 20, 1926, respectively. By these assignments, the mortgagors assigned to the mortgagees, the rents and income from those particular apartments "to become operative upon any default" by the mortgagors.

The mortgages held by the Bank each contained a provision, assigning the rents to the Bank "from and after default", to apply the same on any amounts due it, and upon foreclosure, to have a receiver appointed to collect the rents to be applied on any amounts due the mortgagee.

The mortgage held by the Metropolitan contained a provision giving the mortgagee the right to take possession of the mortgaged property, collect the rents, and apply the same upon any indebtedness due the mortgagee, and also provided that the mortgagee "shall have the right to the appointment of a receiver to collect the rents".

On August 2, 1933, the Bank instituted separate suits to foreclose its mortgages in a state court and sought appointment of a receiver to collect the rents. On August 10, 1933, the state court denied the applications, but entered an order in each suit requiring the debtor, during the pendency of the suit to render a verified monthly account and report "showing all rentals and other income received from said apartment house and all disbursements made on account thereof during said accounting period" and to pay into court monthly the net income.

On January 29, 1934, in the court below, an involuntary petition in bankruptcy was filed against the debtor, and on January 31, 1934, the lower court stayed all suits then pending against the debtor, until entry of an order of adjudication. On motion of the debtor, filed April 25, 1934, the court below, on that day, entered an order permitting the accounting and payment required by the state court order, and permitting prosecution of the foreclosure suits, with leave to the debtor to renew its application for a stay thereof.

The debtor paid the net rentals received into the registry of the state court until the month of June, 1934, when it filed a petition in the bankruptcy court seeking reorganization under § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, which was superseded on July 11, 1934, by a supplemental answer to the same effect, to the involuntary petition filed. The court below, on July 11, 1934, made an order that the supplemental answer was filed in good faith, and referred the proceedings to a special master. In a hearing before the latter, appellants' attorneys appeared and announced that they intended "to appear specially" for appellants, objected to the continuance of the debtor in possession of the properties, and to the plan of reorganization.

Upon recommendations of the special master, the bankruptcy court on August 13, 1934, appointed a trustee of the debtor's estate. The trustee named did not qualify, and on September 10, 1934, a new trustee was appointed. The trustee was ordered to "keep separate accounts of all moneys coming into his possession from each of the several properties of the debtor or its said affiliate, and that the trustee's accounts shall be kept so that all income and revenues received and expense incurred in the operation of each of such properties can at all times be ascertained and segregated."

On October 22, 1934, the Syndicate filed a petition praying for leave to institute suits to foreclose the mortgages held by it, and for an order directing the trustee to pay it the net rentals, received from the properties upon which it held mortgages, as well as those which would be received. On October 24, 1934, Metropolitan filed a similar petition with respect to the mortgage held by it. On February 5, 1935, the Bank filed a petition for an order directing payment of the net rentals, received and to be received, to the state court. These petitions were referred to a special master who rendered a report on April 23, 1935, recommending that the petitions be granted. It is not clear, in the record, what action the court took with respect to this report.

On May 21, 1935, Metropolitan filed a motion for leave to institute foreclosure proceedings. The Syndicate filed a similar motion on June 3, 1935. The Bank filed a motion on June 5, 1935, for leave to proceed with its foreclosure suits. The first two motions were granted by orders dated June 13, 1935, and June 11, 1935, respectively. The record does not disclose what action, if any, was taken on the Bank's motion. Since the permission it sought had already been granted, action on the motion was probably deemed unnecessary.

On October 9, 1935, the bankruptcy court entered an order that reorganization could not be effected, and appointed a trustee to liquidate the debtor's estate, and ordered the trustee to "keep accounts of all moneys coming into his possession from each of the several properties of the debtors, and that the Trustee's accounts shall be so kept that all income and revenues received and expenses incurred in the operation of all of said properties can at all times be ascertained and segregated". On November 20, 1935, the bankruptcy court referred to a special master the hearing and determination of the claims to rent of appellants. On that date all the foreclosure suits above mentioned were still pending.

On November 14, 1936, the special master submitted his report, from which it appears that most of the indebtedness against and value of the apartments is:

                  Property            Value    Indebtedness4
                  Nordell          $27,500.00    $24,807.05
                  Resthaven         27,500.00     27,102.94
                  Chapman Court     47,000.00     50,553.00
                  Duplex (1)         5,000.00      5,120.78
                  Duplex (2)         5,000.00      5,123.44
                  Adele Manor      no finding     48,500.005
                  Charmaine        no finding     47,000.005
                  Maravilla Court  no finding     28,153.29
                

With respect to the Nordell Apartment, the special master found: "During recent years, maintenance of the building has been neglected and the interior walls are in a bad state of repair". Regarding the Resthaven Apartment he found: "Maintenance of the building has been neglected and it is in a bad state of repair". Regarding the Chapman Court Apartment he found: "Composition shingles on the roof are curled and not water tight, and the building generally is in a bad state of repair". Regarding Duplex (1) he found: "For want of repainting, the exterior walls have worn down to the wood siding, and the building is in need of repairs"; and regarding Duplex (2) he found: "Maintenance of this building, and particularly the painting of it, has been neglected". The condition of the remaining apartments was not mentioned by the special master, and he did not find whether or not waste had been committed. The parties have stipulated here there was uncontradicted evidence received by the special master that "no repairs were made except those necessary to make the rooms habitable".

The special master considered 1 Or. Code, 1930, § 5-112, which is: "A mortgage of real property shall not be deemed a conveyance so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale according to law; provided, that nothing in this act contained shall be construed as any limitation upon the right of the owner of real property to mortgage or pledge the rents and profits thereof, nor as prohibiting the mortgagee or pledgee of such rents and profits, or any trustee under a mortgage or trust deed from entering into possession of any real property, other than farm lands or the homestead of the mortgagor or his successor in interest, for the purpose of operating the same and collecting the rents and profits thereof for application in accordance with the provisions of the mortgage or trust deed or other instrument creating the lien, nor as any limitation upon the power of a court of equity to...

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