Summary
In Irving Trust Co. v. Spruce Apartments, Inc., 44 F.2d 218, it was held that a pledge of furniture in a real estate mortgage was enforceable as between the mortgagor and mortgagees, citing Klaus v. Majestic Apartment House Co., 250 Pa. 194, 95 A. 451.
Summary of this case from Heitman Trust Co. v. ParleeOpinion
No. 5857.
October 27, 1930.
Arthur Littleton, of Morgan, Lewis Bockius, of Philadelphia, Pa., Cardozo Nathan, of New York City, and Francis H. Bohlen, Jr. (of Saul, Ewing, Remick Saul), of Philadelphia, Pa., for complainants.
Joseph H. Sundheim and Sigmund H. Steinberg, both of Philadelphia, Pa., for Perpetual Building Loan Ass'n.
Herman Moskowitz, of Philadelphia, Pa., for Morris J. Moskovitz Building Loan Ass'n.
In Equity. Foreclosure suit by the Irving Trust Company and another against the Spruce Apartments, Inc. On petition of the Perpetual Building Loan Association and of the Morris J. Moskovitz Building Loan Association and rules to show cause.
Petitions dismissed, and rules discharged.
Sur Petitions of Morris J. Moskovitz Building Loan Association, and Rules to Show Cause.
On March 17, 1930, Irving Trust Company, as corporate trustee, and Charles C. Moore, as individual trustee, under a trust mortgage dated June 16, 1924, made by Spruce Apartments, Inc., filed a bill in equity for foreclosure against the latter corporation and against the Handel Haydn Building Loan Association and Perpetual Building Loan Association, subsequent mortgagees. On March 19, 1930, the Real Estate Land Title Trust Company was appointed receiver in aid of foreclosure, and, as authorized in the decree, it took possession of the real estate covered by the mortgage, known as the Spruce Apartments, and of all the furniture, furnishings, and equipment therein, and continued to conduct and carry on the business of an apartment house and to collect the rentals, both those which accrued after the receivership and those which had accrued before the receivership and were then uncollected.
The Spruce Apartments, Inc., had, on August 3, 1925, executed and given to the Morris J. Moskovitz Building Loan Association its bond for $25,000 with warrant of attorney to confess judgment and a mortgage upon real estate of the Spruce Apartments, Inc., not covered by the Irving Trust Company's mortgage, to secure the payment of $17,000.
On April 16, 1930, the petitioner caused judgment to be entered upon the bond in the court of common pleas No. 4 of Philadelphia county, whereupon damages were assessed by the prothonotary in the sum of $17,850. On the same day the petitioner caused a writ of attachment sur judgment to issue directed to the receiver as garnishee. On May 2, 1930, a decree of foreclosure was entered and a special master appointed with authority and direction to sell the property, both real and personal, at public sale in one lot and as an entirety.
On May 21, 1930, the appraisers appointed by the court appraised the furniture and furnishings in the apartment house and in the possession of the receiver as of a value of $6,807.65, based upon "what reasonably could be secured for the contents at a public auction sale."
The petitioner on June 5, 1930, asked leave of this court to prosecute a writ of attachment execution out of the court of common pleas against a fund of $2,094.45 in the hands of the receivers, being the amount of rents accrued before the receivership. It also asked leave to issue a writ of fieri facias directing the sheriff of Philadelphia county to levy upon the furniture and equipments contained in the apartment house. Upon these petitions, rules were allowed, and upon the petitions, rules, and answers the rules were discharged on June 26, 1930, without prejudice to the petitioner's assertion of its rights against the fund it had sought to attach, and the furniture and furnishings upon which it had sought to levy. Under the order of sale, the real estate, together with all the furniture, furnishings, and equipment, was sold by the master in one lot and as an entirety on August 1, 1930, for the sum of $50,000.
On August 22, 1930, the Morris J. Moskovitz Building Loan Association filed two separate petitions, in one of which it recites the order of court of June 26, 1930, discharging its rule to show cause why it should not be permitted to issue a writ of fieri facias against the furniture and equipment, and also recites the sale of the property by the special master for $50,000. It asserts that its rights in the furniture and equipment are paramount to the rights of the complainants and defendant in the bill, and claims so much of the fund realized from the sale as equals the appraised value of the furniture and equipment, to wit, $6,807.65.
In its other petition setting forth the facts of the execution of the bond of the Spruce Apartments, Inc., for $25,000 with warrant of attorney, secured by mortgage upon real estate not covered by the Irving Trust Company's mortgage, it recites its judgment in the court of common pleas, assessment of damages in the sum of $17,850, and its attachment sur judgment directed to the receiver as garnishee. It further sets out interrogatories and answers in the attachment proceeding, showing that the sum of $2,094.45 is held by the receiver as garnishee, consisting of rents which had accrued prior to the appointment of the receiver. It claims the right to the sum of $2,094.45 as subject to attachment execution. It claims that the right of the petitioner to the fund is paramount to the right of complainants and defendants in the bill of foreclosure. Upon each of these petitions a rule to show cause was allowed.
Answers were filed to both of these petitions and rules.
The separate answer of Charles C. Moore, individual trustee, sets out that, at the time of the creation of the trust mortgage and the issuance of the bonds secured thereby, the Spruce Apartments, Inc., agreed to furnish to the trustees such title to the goods and chattels, which were to be placed on the mortgaged premises upon completion of the building, as should be satisfactory in form to the American Bond Mortgage Company, Inc., the purchaser of the bonds, and to its counsel, in order that the trustees and the bondholders should be properly secured by a good and substantial title to, or lien against, such goods and chattels; that, pursuant to such agreement, upon completion of the hotel building on or about July 24, 1925, the Spruce Apartments, Inc., delivered to Moore a bill of sale conveying and transferring to him its right, title, and interest in and to all the beds, chairs, rugs, furniture, and furnishings generally in the hotel; that on July 25, 1925, Moore leased the furniture to Spruce Apartments, Inc. A copy of the lease is attached. It contains an option to terminate the lease. On March 21, 1930, after the appointment of the receiver, he exercised his option on behalf of the trustees, and the receiver has since held possession of the furniture and used it in the operation of the mortgaged premises by and with the authority of Moore. In accepting the bill of sale, Moore accepted it in trust for Irving Trust Company, corporate trustee under the mortgage, and in trust for the bondholders.
The description of the mortgaged property contained in the trust mortgage includes not only a description of the real estate, but also "all fixtures and articles used or to be used in the operation of said premises or any part thereof and of every other article, chattel, or thing used or to be placed in said building, whether herein enumerated or not, and constituting a part of the plant thereof and/or used in its operation as a hotel building." As between the mortgagor and the mortgagees, the mortgage or pledge of the furniture was good and enforceable. Klaus v. Majestic Apartment House Co., 250 Pa. 194, 95 A. 451.
While the furniture is not in hæc verba included in the mortgage, the general description of personal property above set forth, when accompanied by the specific pledge of the furniture and furnishings by Moore to the trustees, shows a clear intention on the part of the mortgagor to pledge all of the furniture and equipment contained in the building constituting a part of its plant and used in its operation as a hotel building.
Assuming, however, that a creditor, having a judgment entered prior to entry of the decree of the court putting the receiver in possession with authority to conduct the business of the mortgagor and to collect its rents, might, with leave of court, obtain a lien upon personal property so pledged through a writ of execution, or might proceed against the rents and issues of the property by attachment, it does not follow that, by virtue of a judgment entered after the property was in the possession of this court through its receiver, the creditor obtained any advantage whatever over other creditors. There is ample evidence to show that the petitioner had notice of the proceedings. Otherwise, it would not have summoned the court's receiver, as such, as garnishee in its endeavor to attach the rents in its hands. When the receiver was put in possession of the hotel as a going concern, the evident purpose was to enable it to be sold as such in order that the mortgagee and other creditors might realize an advantageous price at the sale. At the hearings upon the applications of the Perpetual Building Loan Association for leave to sell the furniture under an execution upon its judgment, it was distinctly ruled that any claims against the proceeds of the furniture would be upon its appraised basis. While that is all that the petitioner is asking, it has no rights against any of the funds derived from the furniture or from the rents over those of any other creditor.
That conclusion is reached because the property, both real and personal, was in the custody of the receiver as the right arm of the court of equity before the petitioner's judgment was obtained and before it attempted, by virtue of its judgment, to attach moneys in the hands of the receiver. While it is questionable whether the rents accruing prior to receivership are subject to the lien of the mortgage, they were properly collected by the receiver as collateral to his duty in the custody and conservation of the mortgaged property. But the petitioner attempted to seize them through proceedings in another court, and now claims the right also to the proceeds of the furniture upon the ground that it had its judgment in the other court.
The rule is well settled that, if a person has actual knowledge of the existence or an order or decree of court, he is liable to the consequences of violating it, even if he has not been formally served with it. Even if a party holding a judgment, which is a prior lien upon the property, is desirous of enforcing it against the estate after it has been taken into the care and custody of the court to abide the final determination of the litigation, pending that litigation, he must first obtain leave of the court, and this is true, not only where the purpose is to obtain a lien by execution upon chattels, but also where the purpose is that of obtaining the rents and profits accruing, which are held as fund in court to abide the result of litigation. Wiswall v. Sampson, 14 How. (55 U.S.) 52, 14 L. Ed. 322; Davis v. Gray, 16 Wall. (83 U.S.) 203, 21 L. Ed. 447.
A receiver is appointed for the benefit of all concerned. Every kind of property of such a nature that, if legal, it might be taken in execution, may be put into his possession. He is virtually a representative of the court and of all the parties in interest in the litigation where he is appointed. He is required to take possession of property as he is directed, because it is deemed more for the interest of justice that he should do so than that the property should be in the possession of either of the parties to the litigation. Money and property in his hands is in custodia legis. He has only such power and authority as are given him by the court, and must not exceed the prescribed limits. The court will not allow him to be sued, touching the property in his charge, without its consent. In such cases the court will vindicate its authority, and, if need be, will punish the offender for contempt. Cases cited supra.
The apparent contention of the petitioner is that, if it had obtained a judgment prior to the receivership, and had applied to the court and obtained leave to issue execution or attach thereafter, it would, by virtue of its execution or attachment, have obtained rights prior to the trustees under the mortgage or to other creditors. But it did not obtain its judgment nor attempt proceedings to collect it until after the receiver was appointed. It is therefore in no position now to do more than assert its claim against the fund upon final distribution, when all claimants will have an opportunity to be heard.
The petitions are dismissed, and the rules discharged.
Sur Petition of Perpetual Building Loan Association, and Rule to Show Cause.
Upon petition of Perpetual Building Loan Association filed October 14, 1930, a rule was granted upon the Irving Trust Company and Charles C. Moore, as trustees, complainants in foreclosure, upon Handel Haydn Building Loan Association, defendant in foreclosure, and upon Real Estate Land Title Trust Company, receiver of Spruce Apartments, Inc., to show cause why an order should not be entered directing the payment to the petitioner of $40,000, stated in the petition to be the value of furniture and other personal property contained in the Spruce Hotel, and to show cause why the said sum of $40,000 derived from the proceeds of the sale and foreclosure should not be retained by the special master or other proper person and not paid out until the rights of the Perpetual Building Loan Association shall have been finally determined.
An answer to the petition and rule was filed by the Irving Trust Company and Charles C. Moore, as trustees. The facts concerning the foreclosure proceedings, the appointment of receiver, its possession of the furniture and personal property, and the appraisement thereof, are set out in the opinion handed down this day in re the petitions of the Morris J. Moskovitz Building Loan Association and rules to show cause, and, in so far as those facts are pertinent to the instant petition and rule, they are referred to with the same force and effect as if set out herein.
As appears by the petition and answer, the Spruce Apartments, Inc., on December 14, 1928, in consideration of $75,000, made and delivered to the petitioner a bond and warrant in the penal sum of $150,000 secured by mortgage in the principal sum of $75,000 upon the Spruce Hotel, being the same premises covered by the prior trust mortgage under which the bill of foreclosure was filed and a receiver in aid of foreclosure appointed. Upon default of the mortgagor, the petitioner on April 17, 1930, by its attorney, Joseph H. Sundheim, Esq., caused judgment to be entered, upon the bond and warrant, against Spruce Apartments, Inc., in the court of common pleas No. 1 of Philadelphia county. Damages were assessed at $83,573.88.
On April 22, 1930, the petitioner caused execution to be issued upon its judgment, and on the same day the sheriff of Philadelphia county levied upon all the furniture and other personal property of Spruce Apartments, Inc., located in the Spruce Hotel, consisting of beds, chiffoniers, chairs, tables, lamps, carpets, rugs, towels, bed linen, fire extinguishers, desks, couches, chifforobes, etc., and other personal property not affixed to the real estate. At that time the personal property levied upon was in the possession of the receiver who had been appointed under the decree entered herein on March 19, 1930.
On April 25, 1930, upon petition of the receiver, a rule was entered upon the sheriff of Philadelphia county and the petitioner to show cause why the levy should not be set aside. Hearing was had upon said rule on April 29, 1930, and on April 30, 1930, a decree was entered restraining the petitioner from proceeding further with its levy.
No copy of the decree appointing the receiver was served upon the petitioner, its counsel, or attorneys, or any of its officers prior to the hearing on April 29, 1930. It now avers that it had no notice of the appointment of the receiver.
The facts as to notice are as follows:
Joseph H. Sundheim, Esq., counsel for the petitioner, was present in chambers before the writer on March 17, 1930, at a meeting of counsel when and where the appointment of a receiver was discussed. It was agreed by Mr. Sundheim and the respective counsel for the trustees under the first mortgage and for the defendant, Spruce Apartments, Inc., that a receivership was immediately necessary, the only question being whether the Real Estate Land Title Trust Company should alone be appointed or whether a co-receiver, representing the defendant, should also be appointed. On March 19, 1930, Mr. Sundheim was served with a copy of the petition for appointment of a receiver. The decree of appointment was made and entered the same day.
It appears, by indorsement upon the subpœna commanding the Spruce Apartments, Inc., the Handel Haydn Building Loan Association, and Perpetual Building Loan Association to appear and answer the bill of complaint that on March 24, 1930, service of the writ was accepted by Mr. Sundheim's firm, Bernheimer Sundheim, as attorneys for the Handel Haydn and the Perpetual Building Loan Associations, and the clerk was directed to enter their appearance for those defendants. Since that time the petitioner has been represented by Sigmund H. Steinberg, Esq., as counsel.
At the hearings upon the petition and rule upon the sheriff of Philadelphia County and the petitioner to show cause why the petitioner's levy should not be set aside, full opportunity was allowed Mr. Steinberg to prove the value of the furniture upon which the petitioner claimed a lien by virtue of its levy, and he was then informed that, in default of showing other value, the furniture and personal property would be deemed by the court to be of the value shown by the appraisement. No proceedings have been taken on the part of the petitioner to set aside the appraisal or to otherwise prove any other value of the furniture and personal property than that of the appraisement.
The special master appointed by the court to make the sale, and with authority to recommend the payment of costs, fees, and other charges pursuant to the foreclosure proceedings, has filed his report recommending such payment in the sum of $29,767.77. At the hearings before the master prior to sale, the petitioner was represented by Mr. Steinberg, and he made no objection to the claims there presented, nor has he made any objections or taken any exceptions to their allowance out of the purchase money.
The attorney for the petitioner did except to the decree confirming the sale upon three grounds: First, that the personal property consisting of furniture, fixtures, and equipment was not covered by the first mortgage; second, that the price realized from the sale of the personal property is inadequate and far less than its value, for the reason that the special master did not ask for any bids for the personal property separate and apart from the real estate; and, third, that by offering the personal property for sale as an entirety, together with the real estate, the rights of the petitioner were injured and interfered with.
The answer to the petition and rule to show cause sets out the same facts as set out in the separate answer of Charles C. Moore, individual trustee, to the petition of the Morris J. Moskovitz Building Loan Association, the purport of which appears in the opinion above mentioned, and need not be restated here.
The plea that the petitioner, when it issued execution and attempted to levy upon the furniture and personal property, had no notice of the appointment of a receiver, is without merit. The record not only shows that Mr. Sundheim had notice that foreclosure proceedings were to be instituted, and that application would be made for the appointment of a receiver, but that he was served with a copy of the petition for the appointment of a receiver. It also appears that his firm entered their appearance for the petitioner. It thereupon became a party defendant to the suit. A party thus properly brought into court is charged with notice of all subsequent steps taken in the cause down to and including judgment. 29 Cyc. 1116. That is hornbook law.
The petitioner had constructive notice, such as is in the nature of evidence of notice, the presumptions of which are so violent that they cannot be controverted. It is that notice which the law imputes to a person without regard to whether he has actual notice or not. In other words, when inquiry becomes a duty, the means of knowledge which it affords is regarded as the legal equivalent of actual notice. Hottenstein v. Lerch, 104 Pa. 454; Rowe v. Ream, 105 Pa. 543.
Having had notice, the petitioner's acts in levying upon the furniture and personal property while in the hands of the court's receiver were in contempt of court, and it cannot obtain an advantage over other creditors by seizing the property in the hands of this court's receiver through proceedings in another court.
The petitioner is in no position to claim that the value of the furniture and personal property is in excess of the amount fixed by the appraisers. It had ample opportunity to prove other value, and has not done so. Neither has it put itself in the position of claiming such an amount. The costs, fees, and preferred claims were fixed by the special master without objection on its behalf. There are not sufficient funds available over and above the allowances. It is unnecessary to reiterate the conclusions reached in the Morris J. Moskovitz Building Loan Association opinion that, as between the mortgagor and mortgagee, the furniture and personal property were held under a valid pledge in favor of the trustees under the first mortgage.
The petitioner's mortgage contains the following reservation to the grant:
"Under and subject, nevertheless, to the lien and payment of a certain mortgage debt or sum of Five Hundred and Twenty-five Thousand Dollars ($525,000.00) reduced to Four Hundred and Seventy-five Thousand Dollars ($475,000.00) with interest thereon."
And the habendum clause of the petitioner's mortgage contains the following reservation:
"Under and subject, nevertheless, as respects premises first above described (being known as 1233-35-37 Spruce Street) to the payment of a certain mortgage debt or sum of $525,000.00 reduced to $475,000.00, with interest thereon."
The petitioner's mortgage, therefore, was in express terms made subject to the lien of the first mortgage, which covered not only the real estate, but also "all buildings, improvements, fixtures and articles used or to be used in the operation of said premises," and also "every other article, chattel or thing used or placed or to be placed in said building whether herein enumerated or not and constituting a part of the plant thereof and/or used in its operation as a hotel building." That language is broad enough to cover the furniture and furnishing as ruled in the Moskovitz opinion.
The case, therefore, comes squarely within the ruling of the Supreme Court of Pennsylvania in the case of Klaus v. Majestic Apartment House Co., 250 Pa. 194, 95 A. 451, 459. The plea that the levy was made under a confession of judgment upon the bond accompanying the mortgage is of no avail. The court, in holding in that case that the pledge was good as against the second mortgage bondholders who took expressly subject to the first mortgage, said:
"The fund for distribution is the proceeds of personal property, which was included in both mortgages, but on which neither was a lien as against execution creditors. The pledges were good and enforceable between the mortgagor and mortgagees. When the second mortgage was taken, the mortgagee had notice that the property had been pledged by a first mortgage, and expressly agreed that the latter should have priority over the second mortgage. The manifest intention of the mortgagor and the mortgagee in the second mortgage, therefore, was that the first mortgage bonds should first be paid out of the real as well as the personal property included in the mortgage, a part of which was personalty, and its proceeds are now being distributed. The second mortgage bondholders knew that the property had already been pledged to secure an indebtedness of the mortgagor, and accepted the property as a pledge for the debt subject to the prior indebtedness. The court cannot confer on those bondholders rights which they expressly waived. In the language of Williams, J., in Fidelity Ins., Trust Safe Deposit Co. v. West Penn. Shenango Connecting Railroad Co., 138 Pa. 494, 505, 21 A. 21, 22, 21 Am. St. Rep. 911: `The decree of the court below left them in no worse position than that which they voluntarily assumed, and they have no right to ask us to place them in a better one.'
"Our conclusion is sustained by numerous authorities, among which are Selden's Appeal, 74 Pa. 323; Fidelity Ins. Trust Safe Deposit Co. v. West Penn. Shenango Connecting Railroad Co., 138 Pa. 494, 21 A. 21, 21 Am. St. Rep. 911; 17 Cyc. of Law Proc. 1168, and cases cited in the notes."
The petition is dismissed and the rule discharged.