Stewart v. Fairchild-Baldwin Co.

• Decision Date: 17 November 1919
• Docket Number: No. 38.,38.
• Citation: 108 A. 301
• Parties: STEWART et al. v. FAIRCHILD-BALDWIN CO. et al.
• Court: New Jersey Supreme Court

108 A. 301

STEWART et al.

v. FAIRCHILD-BALDWIN CO. et al.

No. 38.

Court of Errors and Appeals of New Jersey.

Nov. 17, 1919.

(Syllabus by the Court.)

(Additional Syllabus by Editorial Staff.)

Appeal from Court of Chancery.

Bill for foreclosure by John A. Stewart and others, trustees, etc., under a first mortgage, against the Fairchild-Baldwin Company and others, in which, on application of the Chester Realty Company, a second mortgagee, a receiver was appointed to take charge of the mortgaged property. From orders of the Court of Chancery (106 Atl. 406) directing the receiver to collect rents, the American Real Estate Company, owner, appeals. Reversed, and record remitted to Court of Chancery for modification of orders.

Samuel F. Leber, of Newark, for appellant American Real Estate Co.

Pitney, Hardin & Skinner, of Newark, for respondent Chester Realty Co.

McCarter & English, of Newark, for respondent. John A. Stewart and others.

TRENCHARD, J. This is an appeal from orders directing a receiver in a foreclosure proceeding to collect rents that had accrued prior to the time of his appointment. The facts are these: The American Real Estate Company is the owner of land, with an office building erected thereon and occupied by numerous tenants, in the city of Newark. John A. Stewart and others, trustees of the Liverpool & London & Globe Insurance Company, Limited, hold a first mortgage on the property securing the principal sum of $350,000. The Chester Realty Company holds a second mortgage for $90,000. Hyman Rosensohn, trustee, holds a third mortgage for $15,000. There were unpaid taxes and assessments of about $36,000.

The bill of complaint was filed by the first mortgagee to foreclose their mortgage for default in the payment of interest, taxes, and assessments, and the second and third mortgagees, as well as the tenants, were brought into court. The bill was filed January 7, 1919. On January 18, 1919, on the application of the second mortgagee, the Chester Realty Company, a receiver was appointed and was ordered "to take charge of the mortgaged premises and manage the same, with power to sue for and collect the rents, issues, and profits thereof," and it was further ordered:

"That the tenants in possession of the said premises be and they are hereby ordered and directed to pay the rents now in arrears, if any, and the rents due and to grow due, to the said receiver until the further order of the court."

In that order the owner and tenants were directed to show cause on January 28, 1919. "why the appointment of said receiver should not be continued, and why the directions as to the disposal and application of the proceeds should not be confirmed and proper directions given as to their disposal." On the return day of the rule the appointment of the receiver was confirmed and continued, and the directions as to the disposal of the proceeds were confirmed and continued until the further order of the court. Later, on March 11, 1919, the Vice Chancellor ordered, among other things:

"That the receiver herein proceed to collect the rents accrued and unpaid at the time of his appointment, that he keep the same in a separate fund and apply them to the payment of taxes and municipal liens which have accrued and remain unpaid, and, second, to the payment of interest on the first mortgage, and that he hold the balance, if any remains after so doing, until the further order of the court."

On this appeal of the owner, the only question raised is the legality of such parts of the orders as direct the receiver to collect rents that had accrued prior to his appointment.

We are of the opinion that the appeal is well taken.

It is important, in the first place, to clearly bear in mind the relationship between mortgagor and mortgagee, and the rights of a mortgagee in this state.

The common-law rule that a mortgage created an immediate estate in the mortgagee, and vested in him immediately, upon the execution and delivery of the mortgage, an actual estate with a right of immediate possession, subject only to be defeated by the payment of the mortgage money, has not been adopted by our courts. Woodside v. Adams, 40 N. J. Law, 417; Shields v. Lozear, 34 N. J. Law, 496, 3 Am. St. Rep. 256; Sanderson v. Price, 21 N. J. Law, 637.

However, upon breach of condition, the mortgagee's estate has all the incidents of a common-law title, and he has the right to the possession of the mortgaged premises. Woodside v. Adams, 40 N. J. Law, 417; Shields v. Lozear, 34 N. J. Law, 496, 3 Am. St. Rep. 256.

The mortgagee, after breach of condition, having a title in the mortgaged premises possessing ail the incidents of a common-law title, and only subject to be divested by the equitable proceeding to redeem, and having the right to possess the property, has the right, from the date of taking such possession, to the profits arising from the estate. At common law, he could not be compelled to account to the mortgagor for the value of the profits taken by him. This was a hardship upon the mortgagor, and so a court of equity will compel the mortgagee to credit to the debt the profits received by him. This was done upon the theory, always obtaining in the Court of Chancery, that, until the mortgagor has been foreclosed by decree of and from the right to redeem, the mortgage, even after default, was a security.

Since after default the mortgagee can take possession or obtain possession by ejectment of the mortgaged premises, it follows as a matter of course that not until the mortgagee has obtained possession by either one of the above methods can he...