White v. Wear

Bakewell, J., delivered the opinion of the court. The plaintiffs sued Wear & Co. for the rents of a building on the corner of Fifth and Washington Avenue, St. Louis. The sum claimed is $1,735, being rent for June, and up to July 9, 1876. The defendants Wear & Co. admitted that the amount claimed was due by them for rent for the period named, but said that it was claimed by Eleazer J. Beard, as holder of a deed of trust upon the property. Wear & Co. were permitted to pay the money into court, and Beard was directed to interplead. The question at issue is whether this rent belongs to White & Hermann, as assignees of the lessor, or to Beard, as mortgagee after condition broken. There was a decree below in favor of plaintiffs; and the interpleader appeals. It appears from the evidence that one White owned a lot. of ground on the south-west corner of Fifth Street and Washington Avenue, in St. Louis, which he demised to Reilly, Fletcher, and Seitz, for a term of forty years, at an annual ground-rent of $4,000 a year, the taxes to be paid by the lessees, the rent payable quarterly, any failure to pay the rent or taxes to give a right of forfeiture to the lessor. On September 16, 1874, the lessees, Reilly, Fletcher, and Seitz, having meanwhile erected a valuable building on the lot, conveyed their leasehold interest to the Guardian — 343 — Building Company, wbicb, on the same day, borrowed from the Boatmen’s Savings-Bank $2,600, and secured the same by deed of trust on the property in question. This deed of trust was made to one Leavy, as trustee, and contained a covenant that any failure to pay the notes, or to pay ground-rent, taxes, liens, or insurance, should entitle the trustee to take immediate possession, and, after default, the mortgagee should be entitled to immediate possession, and the mortgageor should hold the premises only as tenant of the trustee in the deed of trust. Afterwards Reilly became the owner of all the stock of the Guardian Building Company, and, although he had not the legal title to the premises in question, or to the leasehold interest mortgaged, he, ■on January 2, 1875, gave a written lease of the main portion of the building to Wear & Co. for five years, at a rent ■of $1,375 a month. On January 5, 1875, Reilly, who was practically the Guardian Building Company, as he owned all its stock, in the name of the company borrowed .$18,000 of the Guardian Savings-Bank, giving a note in the name of the Guardian Building Company, secured by a second deed of trust on the same premises. The trustee was the same, and the conditions as to possession in case of non-pa3fment of notes, taxes, etc., were the same as in the first deed of trust. On November 15, 1875, Reilly was adjudi-oated a bankrupt. The Guardian Savings-Bank had also become insolvent. On December 18, 1875, proceedings were commenced in the Circuit Court to obtain a decree confirming the deeds of trust which Reilly had executed, as president of the Guardian Building Company, on the leasehold. Reilly made opposition, and seemed disposed to give as much trouble as he could. A receiver was appointed by the Circuit Court to collect the rents, and pay ground-rent and taxes to prevent forfeiture of the lease, and to keep down interest on the mortgage debt. Meanwhile Reilly was ■endeavoring to make a compromise with his creditors, and made an assignment of various assets to plaintiffs as trustees — 344 — for various persons who advanced him money to enable him to effect this compromise. This assignment embraced, among other things, the equity of redemption in the leasehold. On April 3, 1876, Reilly withdrew his opposition to a decree confirming the deed of trust; not, however, until he had got the Boatmen’s Savings Institution, whose note was overdue, to stipulate that it would not foreclose until the expiration of seventy days from the date of the decree, which would defer foreclosure until June 10th. The receiver was discharged when the decree was entered. It is claimed by plaintiffs that before the money was-obtained which enabled Reilly to compromise with his creditors they had an interview with the president of the Boatmen’s Savings Institution, in which he disclaimed any intention oil the part of his bank of claiming any rents from the mortgaged premises. They say that on the faith of this statement they concluded their transaction ■ with Reilly. Reilly also swears that he had a positive promise that no claim would be made for the rents, both from the president of the Boatmen’s Savings Institution and from its attorney. As to this there is a conflict of testimony, and Reilly is flatly contradicted by the president of the bank in this particular. On April 3d, Leavy, the trustee in the two deeds of trust, died, and the sheriff was substituted as trustee in the first deed of trust, and one Cummiskey in the other. On April 10th the Boatmen’s Savings-Bank paid $3,800 on account of ground-rent on the mortgaged premises. On June 6th, White & Hermann, the plaintiffs, as assignees of Reilly, notified Wear & Co., the tenants of the property in question, to pay rent to no one but themselves, and that they claimed the rent as representatives of Reilly. On July 8th the property was sold under the second deed of trust, and bought in by the Guardian Savings-Bank. On July 15th plaintiffs commenced the present suit against Wear & Co. for the rent from June 1st to July 8th, th’e day of the sal© — 345 — to the Guardian Savings-Bank. On July 28th, Beard purchased of the Boatmen’s Savings Institution the note which it held, secured by deed of trust on this property, and, for value, received an assignment of the note, the deed of trust* and all amounts paid by the bank for ground-rent and insurance ; and, on August 24th, Beard served formal notice on Wear & Co. that he demanded the rents, as assignee of the mortgagee and holder and owner of'the mortgage ; and he subsequently was permitted to interplead and claim these rents in the present proceeding. The amount of the indebtedness to Beard on account of principal, interest, taxes, and Insurance was about $40,000 at the time of the trial. After the discharge of the receiver, ground-rent and taxes to the amount of $7,500 and one year’s interest were paid by the holder of the note, and further ground-rent and taxes for another year were due. Reilly swears that the building erected on the property was worth, when he gave his evidence, $60,000. He also swears that the leasehold estate was then worth $100,000, and cheap at $80,000. He admits that he tried in vain to borrow on it $50,000. He did, he says, negotiate a loan upon it of $35,000, which fell through owing to the failure of a bank. This, we believe, is an accurate statement of the facts as they appear in evidence. We see no sufficient reason for disturbing the decree rendered in this case by the Circuit Court. At the time that Reilly executed the lease to Wear & Co. he owned the entire beneficial interest in the premises. The legal title to the leasehold was in the Guardian Building Company, but. Reilly owned all the stock, and the matter concerned no one but himself. The validity of the lease has always been recognized by the Boatmen’s Savings-Bank, and the inter-pleader claims as the assignee of the Boatmen’s Savings-Bank. We do not think that the interpleader should be heard in this proceeding to deny the validity of the lease from Reilly to Wear & Co. The Boatmen’s Savings Insti — 346 — tution seems to have made no claim to this rent. The receiver, who was collecting it, was discharged with its consent, and no notice whatever was served upon the tenant that the mortgagee claimed the rent until nearly five months after the receiver was discharged, and one month after the Boatmen’s Savings Institution had assigned its mortgage to Bearcl. The rule is that, until the mortgagee enters for breach of condition, the mortgageor owns the estate ; and he has a right to lease and to collect the rents, as owner, so long as he is allowed to remain in possession. From the time of the maturity of the note, in September, 1873, until the appointment of a receiver, in December, 1875, more than two years elapsed; from the discharge of the receiver until the commencement of this suit there was a period of three months and a half, but no claim for rent seems to have been made by the mortgagee ; and this suit was already pending when the interpleader purchased the mortgage. The purchaser had actual notice that the mortgagee was suffering the mortgageor to collect and appropriate the rents, and was not only passively, but actively, acquiescing in this state of affairs, having consented to the discharge of the receiver. And enquiry of the tenant must at once have developed the fact, if the purchaser of the mortgage did not already know it, that the rents were being paid to the representatives of those who had advanced money on the faith of an impression that no claim for rents would be made by the first encumbrancer up to the time of foreclosure. The deed of trust securing the claim which the inter-pleader purchased provides that in case of default the trustee “ shall be entitled to immediate possession of said property; and the party of the first part, and its heirs and assigns, after the time of such default, shall hold such premises as a tenant only, from month to month, from and under said party of the second part, at the monthly rent of $-- per month.” No demand was made for possession, either — 347 — by the trustee, or, in default of a trustee, by the cestui que ■trust, or by the new trustee appointed to take the place of the original trustee after his death. However much the mortgagee may have been entitled to possession, he did not take possession, nor demand possession, nor take any steps to enforce or assert any claim to these rents. It has been repeatedly held in cases of this kind, where the mortgagee was authorized to take possession on default and receive the income, and no claim to possession had been made, or notice given to the tenant, that the rent, up to the time of foreclosure, could not be applied to the payment of the mortgage debt; that possession, being in the mortgageor, draws after it the right to receive and recover the income ; and that, until after a regular demand was made, those who received the rents were not bound to account for them. Galveston R. Co. v. Cowdry, 11 Wall. 482; Gilman v. Telegraph Co., 91 U. S. 603; Douglas v. Cline, Ct. App. Ky., Cent. L. J., Oct. 14, 1876. The judgment of the Circuit Court is affirmed. All the judges concur.