Mortgage Loan Co. v. Livingston

• Decision Date: 20 November 1930
• Docket Number: No. 8942.,8942.
• Citation: 45 F.2d 28
• Parties: MORTGAGE LOAN CO. et al. v. LIVINGSTON et al. In re BUCKINGHAM REALTY CO.
• Court: U.S. Court of Appeals — Eighth Circuit

45 F.2d 28 (1930)

MORTGAGE LOAN CO. et al. v. LIVINGSTON et al. In re BUCKINGHAM REALTY CO.

No. 8942.

Circuit Court of Appeals, Eighth Circuit.

November 20, 1930.

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

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

Before KENYON, BOOTH, and GARDNER, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal by the mortgagees and the trustee under a second mortgage covering property referred to in the record as the Buckingham Hotel, situate in St. Louis, Mo. The matters in controversy are the rents and issues of this property from June 29, 1927, to January 16, 1928, during which time the property was operated by a receiver appointed in bankruptcy proceedings brought against the mortgagor, Buckingham Realty Company. This second mortgage was in default prior to June 29, 1927, and proceedings in foreclosure by advertisement had been initiated, and the sale was to have been held on June 29, 1927. On June 27th, however, a petition in bankruptcy was filed against the Buckingham Realty Company, and on that date the court appointed a receiver and entered an order enjoining the foreclosure sale. The receiver so appointed remained in possession of the property until January 16, 1928, when, by leave of court, the property was sold at foreclosure under the second mortgage.

At the time of the foreclosure there was due for the principal loan and simple interest, the sum of $65,443.88, besides the sum of $20,422.46, advanced by the mortgagees for taxes and insurance on the property for the years 1926 and 1927. At the foreclosure sale the property was bought in for the mortgagees for $50,000, the purchaser being an employee of the second mortgagee and one of the appellants herein. During the receivership no taxes were paid on the property, and no interest was paid, either on the second mortgage or the underlying first mortgage. The mortgage, which is in the form of a trust deed, describes certain real estate, "together with all buildings, improvements, furniture, fittings, furnishings, fixtures, equipment and machinery erected or to be erected thereon, and the appurtenances, hereditaments, rents, issues and profits thereto belonging," and provides that, in case of default, the trustee therein named shall be entitled to immediate possession of the property, either directly or through a receiver, and shall have the right to control, manage, and operate the same "and collect the revenue therefrom, and after the deduction of expenses incidental thereto, shall apply the revenue therefrom to the payment of that portion of the debt then in default or for the purpose of securing the performance of the obligations then in default," etc. It is also provided in the mortgage that the mortgagees might make advances of money for the purpose of making payments or performing or securing the performance of any other obligation by the mortgage undertaken to be made or performed by the mortgagor, and these obligations included the payment of taxes and insurance.

Immediately upon the appointment of a receiver and the entry of the order restraining the foreclosure, counsel for the second mortgagees advised the receiver by letter, of the defaults existing and of certain provisions of the mortgage, and requested the separation of the accounts of the Buckingham Hotel from the accounts of the Annex Hotel, and the application of the revenues from the Buckingham Hotel to the payment of the debt secured by the mortgage. This letter, among other things, contains the following:

"Under the terms of both of these mortgages, the delinquency in the payment of taxes constitutes a default, which default gives to the trustee under the mortgage the rights as specified therein.

"One of these rights is specified in Section XVII, Subdivision B of the mortgage, which therein provides that, in case of a default —

"`The trustee shall be entitled to immediate possession of the property * * * and shall have the right to control, manage and operate the same and collect the revenues therefrom, and after the deduction of expenses incidental thereto, shall apply the revenue therefrom to the payment of that portion of the debt then in default, or for the purpose of securing the performance of the obligations then in default.'

"Under this provision, as well as under the ordinary rules of equity, the revenues of this hotel should be applied in making good the existing defaults under the mortgages and to the payment of the principal and interest of the mortgage debts.

"I do not know definitely, but I understand that in the past, revenues of this hotel proper have been used for other purposes in connection with the affairs of the Buckingham Realty Company, and that the accounts of the Buckingham Hotel and the Buckingham Annex have been intermingled, with the result that, frequently the earnings from the Buckingham Hotel, which is subject to the mortgages above described, have been used to pay the operating expenses and carrying charges of the Buckingham Annex.

"In view of the existing defaults under the mortgages, such a procedure violates the contract rights of the mortgagees.

"To insure the protection of those rights, I therefore, request that, in your conduct of the affairs of the Buckingham Realty Company as its receiver, you segregate the revenue from the Buckingham Hotel and the revenue from the Annex, or any other properties, and apply all such revenues to the curing of the existing defaults and to the payment of the principal and interest of these mortgage debts, as they accrue.

"Will you advise me that such procedure will be followed by you as Receiver, or, if you have any doubt about the propriety of it, please let me know, and I will file with the court a petition for the directions of the court to the receiver in this matter."

The receiver promptly answered this communication, advising that the request that the accounts of the Buckingham Hotel main building and the annex be kept separately met with his approval and that he would proceed accordingly.

On September 15, 1927, the mortgagees filed petition for leave to foreclose their mortgage, which on October 1st was denied without prejudice. On October 24, 1927, petition was filed, requesting the application of the rentals in accordance with the provisions of the mortgage, which motion does not seem to have been passed upon. On December 3, 1927, a motion was filed to vacate the restraining order and for leave to foreclose, and this motion on December 5, 1927, was again denied. On December 17, 1927, a petition was filed for leave to foreclose, which motion was on that date granted.

When the receiver surrendered possession of the property, he then had cash on hand in the sum of $27,480.56, derived from operating the Buckingham Hotel during the preceding six months, but he had not paid either the taxes on the property nor the interest on the mortgages, although he carried these items as liabilities. The cash balance of the Buckingham Realty Company at the time of the appointment of the receiver was $348.05, leaving a net balance of $27,132.51, and it is this fund which is the subject of this controversy, the appellants contending that the receiver would not have received these funds had their foreclosure not been restrained, and that the issuance of the restraining order and the appointment of the receiver carried with it the obligation on the part of the court and its receiver to apply the rents and issues, in accordance with the provisions of the mortgage, to the mortgage debt; in other words, that the receiver took the property subject to the liens thereon and the obligations of the mortgagor with reference thereto. On March 26, 1928, appellants filed their petition for an order directing the receiver to pay them this $27,480.56, after deducting therefrom whatever allowance might be made by the court to the receiver for his services, and to turn over to them the accounts receivable described in their petition, in the sum of $5,496.56, so that the same might be applied to their reimbursement on account of their mortgage debt and the interest accruing thereon and on account of advances made by them for taxes accrued and paid while the property was in the possession of the receiver. This petition was heard May 5, 1928, at which time the petitioners, in support of their petition, put in evidence their mortgage; the notice of their foreclosure sale advertised for June 29, 1927; the order restraining the foreclosure; the order appointing a receiver; letter from the attorney for the petitioners to the receiver, dated June 29, 1927, hereinbefore referred to, and the receiver's reply thereto; petition for leave to foreclose, filed September 15, 1927, and order denying same; motion filed December 3, 1927, for leave to foreclose, and order denying same; petition for order on the receiver to apply the rents in accordance with the provisions of the mortgage, filed October 24, 1927; statement of receipts and disbursements, filed by the receiver, with final report of the receiver and statements thereto attached; application for leave to foreclose, filed December 17, 1927, with order granting same, and proof of foreclosure sale held January 16, 1928. In addition to this documentary evidence, proof was submitted showing that the total amount due at the time of the foreclosure was $85,806.34, which amount included, among other items, taxes and interest paid by the mortgagees, and that on the sale the property was purchased on behalf of the mortgagees for $50,000, leaving a deficit in the sum of $35,000. The attorney for the petitioners testified that on three occasions prior to June 29, 1927, he made demand on the mortgagor for possession of the property on behalf of the second mortgage holders. The court, by an order entered January 19, 1929, nearly eight months subsequent to the hearing, denied the petition, but ordered the receiver to pay the petitioners...