Prudential Ins. Co. v. Liberdar Holding Corporation, 54

• Decision Date: 03 December 1934
• Docket Number: No. 54,55.,54
• Citation: 74 F.2d 50
• Parties: PRUDENTIAL INS. CO. OF AMERICA v. LIBERDAR HOLDING CORPORATION. In re THEODORE A. CRANE'S SONS CO. (two cases). THEODORE A. CRANE'S SONS CO. v. WILLIAMS et al.
• Court: U.S. Court of Appeals — Second Circuit

74 F.2d 50 (1934)

PRUDENTIAL INS. CO. OF AMERICA v. LIBERDAR HOLDING CORPORATION.

In re THEODORE A. CRANE'S SONS CO. (two cases).

THEODORE A. CRANE'S SONS CO. v. WILLIAMS et al.

Nos. 54, 55.

Circuit Court of Appeals, Second Circuit.

December 3, 1934.

McKenzie, Peper & McKenzie, of Brooklyn, N. Y. (Alfred C. McKenzie, of Brooklyn, N. Y., of counsel), for petitioner-appellant, Theodore A. Crane's Sons Co., holder of a mortgage on 258 Seigel street and a mortgage on 1155-1157 Seventieth street, Brooklyn, N. Y.

Greenbaum, Wolff & Ernst and Stephen Callaghan, all of New York City (Stephen Callaghan, of New York City, and Thomas A. Gaffney, of Brooklyn, N. Y., of counsel), for respondents-appellees, Herbert L. Williams, Edward McLoughlin, and Alphonso M. Dreyer, as ancillary receivers of Liberdar Holding Corporation.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

On September 6, 1933, ancillary receivers of the Liberdar Holding Corporation were appointed by the United States District Court in a suit to conserve its property and business for the benefit of creditors. Prior to that date, the company had collected rents from the real estate covered by two mortgages belonging to Theodore A. Crane's Sons Company and there had been a default in payment of taxes for November, 1932, and May, 1933, as well as a default in payment of interest under each mortgage. After the appointment of the receivers they collected rents from each of the mortgaged premises.

In December, 1933, the owner of the mortgages petitioned the District Court for leave to institute foreclosure suits in the New York Supreme Court, which was granted. The petitioner also prayed that the receivers be directed to apply rents which had passed to them from Liberdar Holding Corporation as well as rents which they had collected since their appointment, or might thereafter collect toward liquidation of the unpaid taxes on the mortgaged properties and accrued interest, and also that they be directed to deliver possession of the mortgaged premises to the petitioners. The court ordered the receivers to segregate all rents collected subsequent to the filing of the petitions on December 15, 1933, after allowance of expenses of administration therefrom, but otherwise denied these applications.

In our opinion the rentals collected by Liberdar Holding Corporation prior to the equity receivership, whether or not identifiable as such, became general assets in the hands of the receivers upon which the owner of the mortgages acquired no lien. The same thing we believe to be true of rentals collected after the receivers were appointed but prior to the filing of the petitions on December 15, 1933. But these rentals, while general assets, were subject to payment of taxes that accrued during the interval between September 6, 1933, and December 15, 1933, as expenses of the receivership. Only the subsequent net rentals are applicable to the mortgages.

We recently said in Matter of McCrory Stores Corporation, 73 F.(2d) 270 that "an assignee of future rents who has done nothing to perfect his rights will not prevail over an execution creditor or trustee in bankruptcy. Sullivan v. Rosson, 223 N. Y. 217, 119 N. E. 405, 4 A. L. R. 1400; In re Brose (C. C. A.) 254 F. 664; In re Berdick (D. C.) 56 F.(2d) 288." We think this is true of any assignment of future rents that is less than a transfer to the assignee of outright ownership rather than of the rights of a mere security holder. Sullivan v. Rosson, 223 N. Y. 217, 119 N. E. 405, 4 A. L. R. 1400; Harris v. Taylor, 35 App. Div. 462, 54 N. Y. S. 864. In the case at bar nothing was done by the creditor to appropriate or even to make claim to any interest in the rents until it filed its petition on December 15, 1933.

It seems unlikely that mere words of assignment of future rents can entitle a mortgagee to claim rentals which have been collected by a mortgagor and mingled with its other property. Sound policy as well as every probable intention should prevent a mortgagee from interfering with the mortgagor's possession until the mortgagee takes steps to get the rentals within his control. To hold otherwise would be to impose unworkable restrictions upon industry in cases where mortgagors have been led to suppose that they might rightfully apply the rentals to their own business. The failure of the mortgagee here to claim rents prior to the time when it filed its petitions on December 15, 1933, and its practical acquiescence in their retention by the mortgagor and its receivers prevent the mortgagee from acquiring any rights in them.

It is argued that as soon as a default occurred the covenants in the mortgages entitled the mortgagee to the remainder of the rents accruing prior to December 15 after payment of the taxes due November 1, 1933, as well as to all future rents. This is supposed to result from clause 9 of the mortgages which reads as follows:

"That after any default hereunder, the mortgagee may enter and take possession of the mortgaged premises, and let the premises, and receive all the rents, issues, and profits thereof, which are overdue, due, or to become due, and apply the same, after payment of all necessary charges and expenses, on account of the amount hereby secured, and said rents and profits are in the event of any such default hereby assigned to the mortgagee. In that event, the mortgagor, for itself, and for any subsequent owner of said premises hereby agrees to pay in advance to the mortgagee a reasonable rent for the premises occupied by it, and in default of so doing, hereby agrees that it may be dispossessed by the usual summary proceedings, and further that any tenant defaulting in the payment to the mortgagee of any rent may be likewise dispossessed. This covenant shall become effective immediately after the happening of any such default, regardless of whether or not an action has been brought to foreclose this mortgage, or whether or not possession has been taken of the mortgaged premises by the mortgagee, or whether or not a receiver has been appointed."

We find no indication in the New York decisions that an assignment of rents upon a default in a mortgage entitles the mortgagee to the rents and profits without taking some further steps to assert his rights. That he is not entitled to them in such an event by virtue of a mere assignment of future rents as security was held in Sullivan v. Rosson, 223 N. Y. 217, 119 N. E. 405, 4 A. L. R. 1400. See, also, Freedman's Savings & Trust Co. v. Shepherd, 127...