New York Life Ins. Co. v. Fulton Dev. Corp.

• Citation: 265 N.Y. 348,193 N.E. 169
• Parties: NEW YORK LIFE INS. CO. v. FULTON DEVELOPMENT CORPORATION et al.
• Decision Date: 20 November 1934
• Court: New York Court of Appeals

265 N.Y. 348

193 N.E. 169

NEW YORK LIFE INS. CO.

v.FULTON DEVELOPMENT CORPORATION et al.

Court of Appeals of New York.

Nov. 20, 1934.

Action to foreclose a first mortgage by the New York Life Insurance Company against the Fulton Development Corporation and others, impleaded with the Klee Corporation, in which a receiver was appointed. An order of the Special Term denying a motion to modify the receivership order in an action to foreclose a mortgage on real property so as to turn over to the Klee Corporation all moneys representing rents of the mortgaged premises which had accrued prior to such receiver's appointment and entry into possession was reversed by the Appellate Division (241 App. Div. 103, 271 N. Y. S. 563), and the motion granted and plaintiff appeals.

Order of Appellate Division reversed, and order of Special Term affirmed.

The following question was certified:

‘Is a junior mortgagee, who is in actual physical possession of the mortgaged premises under his junior mortgage and under a possession agreement executed between him and the owner of the mortgaged premises subsequently to the execution of the junior mortgage and contemporaneously with the surrender of possession of the premises, entitled to the rents from said premises which accrued, but were not collected, during his actual physical possession thereof and prior to the appointment of a receiver of rents in an action to foreclose the first mortgage on said premises as against such receiver?’Appeal from Supreme Court, Appellate Division, First department.

William F. Columbus and Harry H. Bottome, both of New York City, for appellant.

Francis D. Higson, of New York City, for respondent.

CRANE, Judge.

The plaintiff, appellant, is the owner and holder of a duly recorded first mortgage, and the defendant, respondent, is the owner and holder of a second mortgage on premises located at 1950 Andrews avenue, the Bronx, New York City, owned by the defendant Fulton Development Corporation. The balance unpaid upon the first mortgage is $951,500. The mortgage contained the usual clause assigning the rents of the mortgaged premises to the mortgagee as further security in the event of any default. Prior to January 13, 1932, the respondent had instituted an action to foreclose its second mortgage, and had obtained the appointment of a receiver of the rents and profits. On the same day the owner and respondent entered into a written agreement whereby the respondent agreed to forthwith dismiss the foreclosure action then pending on its second mortgage, obtain the discharge of the receiver, waive all its rights to the receivership fund, and disburse it as rents collected under the agreement, and enter into possession of the property and manage and operate it under the terms of the said possession agreement.

On the date of the execution of said agreement, the owner was in default to the appellant under its first mortgage, and the respondent had notice and knowledge thereof. On July 27, 1933, the following defaults existed under the first mortgage: Installments of principal in the sum of $9,500 each which became due and payable April 1, 1932, October 1, 1932, and April 1, 1933, respectively; balance of installment of interest in the sum of $20,166.25 which became due and payable April 1, 1933; balance of taxes for year 1932 and the first half of taxes for the year 1933.

On that day in July an order was made and entered in this action of foreclosure appointing a receiver of the rents for the benefit of the plaintiff, appellant, and the receiver qualified thereunder. The order appointing the receiver provided, among other things, that ‘said receiver be and he hereby is directed to demand, collect and receive from the tenant or tenants in possession of said premises * * * all the rents thereof now due and unpaid or hereafter to become due.’ There remained arrears of rent amounting to $4,915.95, which were due and unpaid at the time of the appointment of this receiver; that is, they were previously due, but had not been collected or reduced to possession by the second mortgagee in possession. Who is entitled to this sum of money-the receiver under the first mortgage appointed July 27, 1933, or the second mortgagee in possession under agreement dated January 13, 1932? This is the question in substance and meaning certified to us by the Appellate Division.

There are certain fundamental principles which are well recognized regarding the rights and privileges of mortgagees in foreclosure proceedings. An owner of property is entitled to the rents until there is a default under the mortgage; then the mortgagee has an equitable claim to the rents that are unpaid. Lofsky v. Maujer, 3 Sandf. Ch. 69;Rider v. Bagley, 84 N. Y. 461, 465. When a receiver of the rents has been appointed in the foreclosure proceeding because of a default in the payment of principal or interest, he has a right, not only to the rents that become due after his appointment, but also to those that have accrued prior thereto and which have not been paid. Lofsky v. Maujer, 3 Sandf. Ch. 69;Wyckoff v. Scofield, 98 N. Y. 475, 478. In the latter case this court said: ‘The lien of the mortgagee thereon dates only from the appointment of the receiver, and his right to collect rents extends only to such as are unpaid at the time of his appointment.’ See, also, Donlon & Miller Mfg. Co. v. Cannella, 89 Hun, 21, 34 N. Y. S. 1065.

Do these rights and privileges come in conflict with similar rights and privileges possessed by a receiver first appointed...