United States v. Ivy Hall Apartments, Inc.

• Decision Date: 19 November 1962
• Docket Number: No. 13820.,13820.
• Citation: 310 F.2d 5
• Parties: UNITED STATES of America v. IVY HALL APARTMENTS, INC. and Leon Sidell, Claimant, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

310 F.2d 5 (1962)

UNITED STATES of America v. IVY HALL APARTMENTS, INC. and Leon Sidell, Claimant, Appellant.

No. 13820.

United States Court of Appeals Third Circuit.

Argued October 1, 1962.

Filed November 19, 1962.

Paul Brandeis, Philadelphia, Pa., for appellant.

Sullivan Cistone, Asst. U. S. Atty., Philadelphia, Pa. (Drew J. T. O'Keefe, U. S. Atty., Philadelphia, Pa., on the brief), for appellee.

Before STALEY and FORMAN, Circuit Judges, and LANE, District Judge.

FORMAN, Circuit Judge.

On June 13, 1957 appellant, Leon Sidell, purchased the stock of Flamingo Apartments, Inc.¹ (Flamingo) from H. S. R. Realty Corporation, Inc. (H. S. R.). At the time of said sale the sole stockholder appears to have been the late Nelson Hause.² The main asset of Flamingo was a fifteen story apartment house in Philadelphia, encumbered by a mortgage to secure a bond for $2,533,000 given to the Irving Trust Company in 1950 which had been reduced in principal but little. The mortgage was insured by the Federal Housing Administration. Upon default in principal and interest the Federal Housing Administration was called upon to take over the mortgage.

On December 22, 1958, the United States, on behalf of the Federal Housing Commissioner, filed a complaint for a judgment on the bond, and for the foreclosure of the mortgage, in the United States District Court for the Eastern District of Pennsylvania. That court appointed forthwith receivers, pursuant to the terms of the mortgage, to take charge of the property and collect the rents for the benefit of the mortgagee pending the litigation. On August 5, 1959 default resulted in judgment on the bond for $2,489,508.79 and on January 29, 1960 an order was entered for a judicial public sale of the mortgaged property on March 1, 1960.

Meanwhile Mr. Sidell had asserted three claims to the receivers as follows: (1) That certain furniture contained in 48 of the 300 apartments constituted his personal property and was not covered by the mortgage; (2) that rental for such furniture was due him from October 1, 1957 through September of 1960; and (3) that he should be reimbursed for cash advances he had made to Ivy Hall Apartments, Inc.³ (Ivy Hall) prior to the appointment of the receivers. Negotiations for the settlement of the claims were in progress with the United States Attorney for the Eastern District of Pennsylvania, as counsel for the Federal Housing Administration, as the time approached for the public sale. It was deemed by all the parties in interest that it would be of advantage to sell the items of furniture along with the real estate with the understanding that Mr. Sidell's claims, if sustained, would attach to the funds in the hands of the receivers resulting from their rent collections. It was so stipulated and the property, real and personal, was exposed for sale. The only bidder was the Federal Housing Commissioner and the price was in excess of $500,000 less than the principal and interest due under the mortgage.

The receivers petitioned the District Court for leave to pay, among others, Mr. Sidell's claim for cash advances made by him to Ivy Hall prior to the receivership

                  of                                     $16,785.73
                  They also proposed to pay
                  him for the value of the
                  furniture claimed by him                15,225.00
                  and for furniture rental
                  from October 1, 1957 to December
                  21, 1958                                 9,358.98
                  and for furniture rental
                  from December 22, 1958
                  the date of their appointment
                  to September 30
                  1960, the date of their discharge       11,174.67
                                                         ___________
                  or a total of                          $52,544.38.
                

The United States Attorney thereupon filed objections to the claims of Mr. Sidell. The issues raised by the objections were heard by the District Court without a jury. It entered an order disallowing all of Mr. Sidell's claims for reasons stated in an opinion reported in United States v. Ivy Hall Apartments, Inc., D.C., 197 F.Supp. 678 (1961). This appeal is taken from that order.

Mr. Sidell contended that the venture was ill starred from the beginning; that prior owners of the apartment house had been unable to meet payments of mortgage principal and interest; and that the corporate career of Ivy Hall was beset by the same vicissitudes. He testified that in the eighteen months that the property was in its hands it was necessary for him to advance funds during each month to meet current obligations of the corporation. However, neither this nor any other reason he advanced gave him a status other than that of an unsecured general creditor of Ivy Hall. See United States v. Pine Hill Apartments, 261 F.2d 667 (5 Cir., 1958).

As aptly put by the District Judge:

"* * * This proceeding is one in which the corporate mortgagee, conformably to the terms of the mortgage, took possession as mortgagee, through receivers appointed by the Court, during the foreclosure proceeding. Sidell had no lien against the mortgaged premises * * *. This fund which accrued from rentals collected by the mortgagee in possession was insufficient to pay the costs of operation and the interest and principal installments in default and so left nothing available for the corporation. Sidell\'s claim for reimbursement in the sum of $16,785.73 will therefore be disallowed." United States v. Ivy Hall Apartments, Inc., supra, 197 F.Supp. at 680.

The same ruling is justified against the claim for rental of furniture up to the time of the receivership because, at best, that too, could give Mr. Sidell only the status of an unsecured general creditor of the corporation which apparently was without funds to meet such indebtedness at the time the receivers took possession of the mortgage.

This leaves for consideration Mr. Sidell's claims for the value of the furniture and for its rental during the tenure of the receivers.

Mr. Sidell sought to support his claim for the value of the furniture by his testimony that at the time he bought the stock of Flamingo from H. S. R. for $60,000 he arranged to purchase the furniture from Mr. Hause, its alleged owner, for $18,700. This he says he satisfied by assigning to Mr. Hause eighteen mortgages having a total value of $75,867.49, as shown in a copy of the assignment, dated June 14, 1957. In it neither shares of stock of Flamingo nor furniture owned by Mr. Hause are identified as consideration therefor. The only consideration mentioned is nominal "good and valuable". The copy of the assignment falls far short of proof that it was for furniture of Mr. Hause.

He also submitted a "Memorandum of Agreement" under the same date, June 14, 1957, between himself and Flamingo whereby Flamingo rented furniture from him "located in various apartments of the premises of Flamingo Apartments" for a monthly rental to be determined by the sums charged tenants for the use of the furniture which was to be paid to Mr. Sidell or deposited at his direction. No further identification of the amount or value of the furniture is given and no listing thereof is annexed to this document.

As proof of the purchase of some of the furniture from Mr. Hause he offered a conditional contract of sale made by Harry C. Steigman Equipment Co., Inc., New York, dated December 3, 1955, to Flamingo in the sum of $13,407 for furniture and finance charges of $1,792.05 upon which it was noted that a down payment of cash in the sum of $1,470 had been received from Flamingo. An affidavit of Mrs. Marjorie Hause, widow of Mr. Nelson Hause, was submitted in which she deposed, among other things, that she was the secretary of Flamingo, of which her husband had been president; that he purchased the furniture under the said conditional contract of sale which was "entered into by Flamingo Apartments, Inc. in form but was immediately thereafter and at all times thereafter treated as an asset of H. S. R. Realty Co., Inc." and that all of the purchase price was paid by H. S. R. Realty Co. Inc. She then deposed that at the time of the transfer of the interest of Mr. Hause to Mr. Sidell there was a balance due...