United States v. View Crest Garden Apts., Inc.

• Citation: 268 F.2d 380
• Decision Date: 22 June 1959
• Docket Number: No. 16229.,16229.
• Parties: UNITED STATES of America, Appellant, v. VIEW CREST GARDEN APTS., INC., a Corporation, et al., Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

268 F.2d 380 (1959)

UNITED STATES of America, Appellant, v. VIEW CREST GARDEN APTS., INC., a Corporation, et al., Appellees.

No. 16229.

United States Court of Appeals Ninth Circuit.

June 22, 1959.

George Cochran Doub, Asst. Atty. Gen., Seymour Farber, Alan S. Rosenthal, William E. Mullin, Jr., Samuel D. Slade, Attorneys, Department of Justice, Washington, D. C., Charles P. Moriarty, U. S. Atty., Richard F. Broz, Asst. U. S. Atty., Seattle, Wash., for appellant.

Lycette, Diamond & Sylvester, Josef Diamond and Lyle S. Iversen, Seattle, Wash., for appellees.

Before POPE, ORR, and HAMLEY, Circuit Judges.

ORR, Circuit Judge.

Appellee, View Crest Garden Apts., Inc., borrowed money from the National Bank of Commerce of Seattle, hereafter Bank. A mortgage was executed by appellee as mortgagor to the Bank as Mortgagee. Mortgage insurance was agreed to by the Federal Housing Insurance Authority, hereafter FHA, pursuant to its duly constituted authority. The mortgage form used was a printed one formulated by the FHA and contained a provision to the effect that in the event of foreclosure a receiver was to be appointed in order to collect rents which were to be applied as additional payment on the debt. A number of notes, also on printed forms furnished by the FHA, were executed to secure each installment to be paid.

A default occurred, but was cured by a modification of the agreement between appellee and the FHA, the bank having previously assigned the mortgage to the Federal National Mortgage Association who in turn assigned it to FHA.

A second default occurred on March 15, 1958, whereupon the United States instituted this foreclosure action and in its complaint for foreclosure prayed for the appointment of a receiver to take over the assets and collect the rents.

A hearing was had on the application for the appointment of a receiver. The court denied the application on the ground that inasmuch as the state law of the State of Washington applied, no sufficient showing had been made under the law of said state to warrant such an appointment.

No contention is made by the government that in the event Washington State law applies the trial court was in error in refusing the appointment. The contention is that it erred in applying state law rather than federal law as controlling. We take the view that the government is correct in its contention. In reaching our conclusion we have found that in this case as in others with which we have struggled the solution is not without difficulty. But we do find it to be clear that the source of the law governing the relations between the United States and the parties to the mortgage here involved is federal. Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S. Ct. 573, 87 L.Ed. 838; United States v. Allegheny County, 322 U.S. 174, 64 S.Ct. 908, 88 L.Ed. 1209; United States v. Matthews, 9 Cir., 1957, 244 F.2d 626; McKnight v. United States, 9 Cir., 1958, 259 F.2d 540. Cf. Bank of America Nat. Trust & Sav. Ass'n v. Parnell, 352 U.S. 29, 77 S.Ct. 119, 1 L.Ed.2d 93. It is therefore equally clear that if the law of the State of Washington is to have any application in the foreclosure proceeding it is not because it applies of its own force, but because either the Congress, the FHA, or the Federal Court adopts the local rule to further federal policy. As it is made certain in the cases just cited, this action arises under federal law, and not as an action between persons of diverse citizenship, hence the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 is inapplicable. Nevertheless state law is sometimes adopted to fulfil the federal policies involved. As the Supreme Court of the United States stated in Clearfield Trust, supra, "in our choice of the applicable federal rule we have occasionally selected state law." But not when "the desirability of a uniform federal rule is plain." 318 U.S. at page 367, 63 S.Ct. at page 575.

Appellee argues that the Congress has adopted state law as to the appointment of receivers by its reference to state law in defining mortgages. Section 1707 of 12 U.S.C.A. reads in part: "The term `mortgage' means * * * and the term `first mortgage' means such classes of first liens as are commonly given * * * under the laws of the State, in which the real estate is located * * *" The argument is that in adopting the state definition of "first mortgage," Congress intended to adopt all the incidents of the mortgage relation under state law including remedies on default and the appointment of receivers. That this is not the case is clear from reading section 1713 of the same Act which defines certain acts as being in default (part g) and sets out certain remedies that the FHA can pursue such as institution of foreclosure (part k) proceedings without reference to whether or not there is such a remedy for the default described in the State where the property is located. Moreover, there is no apparent reason for assuming that Congress in incorporating by reference certain duties under state law also meant to restrict the United States to the state remedies for breach of those duties — as will be discussed in connection with appellees' contention that because FHA...