Mortgage Loan Co. v. Livingston, 10207.

• Decision Date: 28 June 1935
• Docket Number: No. 10207.,10207.
• Citation: 78 F.2d 517
• Parties: MORTGAGE LOAN CO. et al. v. LIVINGSTON.
• Court: U.S. Court of Appeals — Eighth Circuit

78 F.2d 517 (1935)

MORTGAGE LOAN CO. et al. v. LIVINGSTON.^*

No. 10207.

Circuit Court of Appeals, Eighth Circuit.

June 1, 1935.

Rehearing Denied June 28, 1935.

Paul Bakewell, Jr., of St. Louis, Mo., for appellants.

Harry A. Frank, of St. Louis, Mo., for appellee.

Before GARDNER, WOODROUGH, and VAN VALKENBURGH, Circuit Judges.

VAN VALKENBURGH, Circuit Judge.

Appellant Mortgage Loan Company held a second mortgage upon property of the Buckingham Realty Company, which operated the Buckingham Hotel in St. Louis, Mo. Appellant Goodson was trustee in this mortgage. The first mortgage was owned by the Real Estate Mortgage Trust Company. By reason of defaults under the terms of the second mortgage, trustee Goodson advertised the property for sale on June 29, 1927. Two days before the date of the proposed sale an involuntary petition in bankruptcy was filed against the Buckingham Realty Company, a receiver was appointed to take charge of its assets, including the mortgaged property, and the foreclosure was enjoined. Trustee Goodson at once advised the receiver of the terms of the mortgage, and asked that the revenues from the Buckingham Hotel be carefully segregated and held for application to the discharge of the obligations of the mortgagor under that mortgage. The receiver promptly answered that the segregation requested was approved, and that he would proceed accordingly. September 15, 1927, the mortgagee filed petition for leave to foreclose. The application was denied October 1, 1927. October 24, 1927, petition was filed requesting application of the rentals from the hotel in accordance with the provisions of the mortgage. No action upon this motion was taken at that time. December 3, 1927, the mortgagee filed motion to dissolve the restraining order and for leave to foreclose. This motion was denied December 5, 1927, but, when renewed December 17, 1927, it was granted, and foreclosure sale was made January 16, 1928.

When the receiver in bankruptcy surrendered possession of the property he had on hand the net sum of $27,132.51, derived from operating the Buckingham Hotel during his possession of approximately six months. He had paid neither taxes nor interest on the mortgage during this period. A petition for an order on the receiver to apply the rents received by him in accordance with the provisions of the mortgage was denied, the District Court holding that the mortgagee under the second mortgage was not entitled to the rents and profits accruing from the mortgaged property because it had not asked for a receiver, nor taken possession prior to the sale on January 16, 1928, and all rents and profits had accrued prior to that date. The receiver was ordered to pay the petitioners $5,711.47 on account of taxes and insurance on the property for the period from June 29, 1927, to January 16, 1928. From this ruling of the District Court the mortgagee appealed and the decision of this court is found under the title Mortgage Loan Co. v. Livingston, 45 F.(2d) 28. The opinion dealt exhaustively with the issues presented, held that the mortgagee was entitled to the rents and issues accruing after the appointment of the receiver, subject to allowances to the receiver and his counsel for services, and directed that the cause be remanded for further proceedings not inconsistent therewith.

In the District Court, upon remand, a controversy arose over the amount claimed to be in the hands of the receiver as rents and issues from the hotel property. A master was appointed and the trustee in bankruptcy sought thereby to relitigate this issue theretofore determined by this court. The ruling of the District Court was unsatisfactory to both parties, and a second appeal by the mortgage company and a cross-appeal by the trustee in bankruptcy followed. (C. C. A.) 66 F.(2d) 636. This court held to its original conclusion, and it resulted, after all allowances to the receiver, that the mortgage company received from the receiver in bankruptcy $18,696.50, in accordance with the mandate of this court on the second appeal. The original claim against the estate, after foreclosure, was filed by appellant Goodson, trustee in the mortgage. Objection was made that, with foreclosure, all the powers, authority, and duties of said trustee ceased, and that the real party in interest was the Mortgage Loan Company. The referee, while sustaining this objection, held that the claim might be amended by adding the owner of the mortgage bonds as the claimant. By amended proof of claim the Mortgage Loan Company was made a coclaimant. The amended claim as filed consisted of two parts, which we arrange and designate as follows:

                                          "Part I
                  Amount of loan made July 27, 1925 ...............  $88,000.00
                  Interest on same from 7/27/25-7/1/26 @ 6% .......    4,898.69
                  Interest on $63,000.00 from 7/1/26-6/29/27
                   (date of bankruptcy) ...........................    3,698.81
                                                                     __________
                                                                     $96,597.50
                  Credit amounts paid
                  Interest received from 7/27/25-7/1/26  $ 5,545.60
                  Credit principal amount received
                   July 1, 1926 .......................   25,000.00
                  Credit interest received on January
                   1, 1927, covering period
                   from 7/1/26-1/1/27 .................    2,250.00   32,795.60
                                                         __________  __________
                  Balance due as of June 29, 1927, (date of
                   bankruptcy) ....................................  $63,801.90
                  Credit amount for which property was
                   sold at foreclosure sale on January 16
                   1928 ...........................................   50,000.00
                                                                     __________
                  Amount due as of June 29, 1927, after
                   crediting amount received from sale of
                   property at foreclosure ........................  $13,801.90"
                                          "Part II
                  To amounts Necessary to Preserve the
                   Estate Subsequent to the Filing of the
                   Petition in Bankruptcy; Said Amounts
                   Having Been paid by the Mortgagee, or
                   Having Accrued to the Mortgagee After
                   the Petition Was Filed, By Reason of
                   the Injunction Issued By the Court
                   Which Restrained the Foreclosure of
                   the Mortgage and Which Retained Possession
                   of the Property
                  To taxes paid by the Mortgage Loan
                   Company on Dec. 30, 1927, being taxes
                   assessed against the property covered
                   by the mortgage ................................  $18,926.51
                  Insurance premiums paid by the mortgagee
                   on September 27, 1927 ..........................      639.59
                  Cost of advertising notice of foreclosure,
                   which foreclosure was to be held in
                   June, 1927, but which foreclosure was
                   enjoined and restrained by the order of
                   the District Court, entered on June 29,
                   1927 ...........................................      257.54
                  Interest on the mortgage debt during the
                   time the Receiver was in possession of
                   the property — June 29, 1927 to January
                   16, 1928 .......................................    2,097.42
                                                                     __________
                                                                     $21,921.06
                  Credit, amount received from Isaac T.
                   Cook, as Receiver of the Buckingham
                   Realty Company, in accordance with
                   mandate of the United States Circuit
                   Court of Appeals ...............................   18,696.50
                                                                     __________
                    Balance .......................................  $ 3,224.56
                

"Claimants pray that the above amount be paid to them as the actual and necessary costs of preserving the estate subsequent to the filing of the petition."

The referee allowed part I as a general claim against the bankrupt estate and disallowed part II. His order was approved and confirmed on review. The question presented on this appeal is whether the advertising cost of $257.54 and the taxes, insurance, and interest which accrued "while possession of the property was preserved to the estate by the bankruptcy court through its receiver," as set out in part II, should be allowed with full priority in class 1, section 64b of the Bankruptcy Act (11 USCA § 104(b), as insisted by appellants. These items originally aggregated $21,921.06, upon which is credited the amount of $18,696.50 received in accordance with the mandate of this court, leaving a balance in dispute of $3,224.56, corrected to accord with the calculation made by the referee.

The contention of appellants is thus best stated in the language of their counsel: "It is our simple contention that when the general creditors obtained the injunction against foreclosure, and by virtue of that injunction, retained such possession as against the mortgagees, they did so in the interest of the general estate; that they took such possession cum onere, i. e., burdened with the obligations specified in the mortgage. The act of retaining possession carried with it the liability for compliance with all of those obligations, which accrued during the period that such possession was retained, because compliance with those obligations was a condition precedent to retention of possession."

Emphasis is laid upon the statement of this court that "the receiver took the property subject to the liens thereon and the obligations of the mortgagor with reference thereto." 45 F.(2d) 28, 30. From this it is inferred that this court has recognized the principle that, under such circumstances, the receiver and court have assumed the legal duty of discharging all the obligations of the mortgagor while possession is retained and foreclosure deferred, and that, if this duty is not discharged, the general estate becomes liable to the extent of such defaults in priority to the claims of general creditors. The language of this court in its opinion must be confined to the issues presented for determination. In 45 F.(2d) 28, on page 34 Judge Gardner, speaking for this court,...