604 N.E.2d 808 | Ohio Ct. App. | 1992
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *342 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *343 In this foreclosure action, defendant-appellant, Dayton Properties Limited Partnership ("DPLP"), appeals from the order of the Montgomery County Court of Common Pleas granting the motion of Raymond C. Frye, as court-appointed receiver of the mortgaged property, for leave to file a proof of claim against DPLP in its Chapter 11 bankruptcy proceedings and to commence a lawsuit against the general partners of DPLP to recover tenant security deposits received by Castlebrook prior to the appointment of the receiver.
DPLP contends that: (1) the trial court exceeded its authority in authorizing Frye to undertake these actions because tenants' security deposits are not *344 part of the property in this receivership and were not the subject of the mortgage; and (2) Frye cannot pursue the general partners of DPLP until: (a) all DPLP assets are exhausted, and (b) the claims for the return of the security deposits are ripe. Because we conclude that the trial court erred as a matter of law in authorizing the receiver to take action that was not respecting the property that was the subject of the foreclosure action and, therefore, from which no creditor of that property could benefit, we reverse the order of the trial court.
Castlebrook, pursuant to paragraph 10 of the mortgage, moved for the appointment of a receiver to collect the rents and manage the property, and the court granted the motion. The receivership was vacated and reinstated twice, once pursuant to agreement between Castlebrook and DPLP, and once after a general partner of DPLP filed an involuntary Chapter 11 bankruptcy petition against the partnership in the United States District Court for the District of Massachusetts. Castlebrook obtained relief from stay from the bankruptcy court "for all purposes with respect to Castlebrook's interests in the property of the estate of debtor Dayton Properties Limited Partnership, including the property known as Castlebrook Apartments, in Madison Township, Montgomery County, Ohio." (Emphasis added.)
Frye subsequently discovered a deficiency of approximately $50,000 in DPLP's tenant security deposit account and moved for authority to pursue the partnership and the partners to recover the deficiency. In his motion, he alleged that these tenant security deposits were assets of the estate and should have been held in trust for the payment of damages caused by tenants or to refund to the tenants when they vacated the premises.
The trial court granted the motion, and the same day entered judgment against DPLP on the foreclosure claim but left open cross-claims by other *345 defendants against DPLP.1 DPLP appeals from the order authorizing Frye to proceed against DPLP and its general partners.
The order appointing the receiver and authorizing him to take certain action is "an order that affects a substantial right made in a special proceeding or upon a summary application in an action after judgment" for purposes of R.C.
"The trial court erred in sustaining the receiver's motion seeking an order for leave to file a proof of claim, bring a lawsuit and employ counsel."
In addition to this assignment of error, DPLP also assigns three sub-assignments of error as follows:
"The trial court erred and acted without authority when it authorized the receiver to assert claims against DPLP and its general partners for the return of the security deposits collected prior to the receiver's appointment since these security deposits were not part of the real property and were not subject to the Castlebrook mortgage.
"The trial court erred when it permitted the receiver to assert claims against the DPLP general partners because the receiver did not plead that there were insufficient partnership assets to satisfy the claims.
"The trial court erred in allowing the receiver to assert claims against the DPLP general partners because these claims were not ripe."
DPLP argues that the receiver in a foreclosure action is a special, limited receiver who may act only with respect to the real property or other assets that are the subject of the mortgage that is being foreclosed. DPLP argues *346 further that the tenants' security deposits are not part of the mortgage and do not run with the land; therefore, they argue, it is either an error of law or an abuse of discretion for the court to authorize the receiver to pursue those funds against either the partnership or its general partners, since that action is not authorized by law.
Frye argues that because the court had authority to appoint a receiver it was not an abuse of discretion to authorize him to attempt to collect the security deposits, and that this is not the appropriate forum to determine whether he would prevail on his claims.
However, where a trial court's order is based on an erroneous standard or a misconstruction of the law, it is not appropriate for a reviewing court to use an abuse of discretion standard. In determining a pure question of law, an appellate court may properly substitute its judgment for that of the trial court, since an important function of appellate courts is to resolve disputed propositions of law.
Confusion has been engendered by an unfortunate choice of words when courts have said on occasion that an abuse of discretion connotes "more than an error of law." It would be more accurate to say that an abuse of discretion is "different from an error of law." A trial court's purely legal determination will not be given the deference that is properly accorded to the trial court with regard to those determinations that are within its discretion.
In the case before us, a threshold issue of law is whether a trial court may authorize a receiver to take the action that this receiver has been authorized to take. If the answer to that question is in the negative, then there would be no discretion for the trial court properly to exercise, and the purported *347 authorization of the receiver would be erroneous as a matter of law. If, on the other hand, the answer to the threshold question is in the affirmative, then the issue would become whether the trial court, under the circumstances in which it did so, was within its discretion in authorizing the receiver to take the action, or whether it was an abuse of discretion to do so. Under the circumstances of this case, the issue would become whether there is a sufficiently reasonable chance that the receiver would be successful in taking the authorized action in the bankruptcy or against the general partners. If so, then the authority vested in the receiver would be reasonable, and not an abuse of discretion. If not, then the authority vested in the receiver would be unreasonable, as a waste of scarce resources, and it would constitute an abuse of discretion.
"A receiver may be appointed by * * * the court of common pleas or a judge thereof * * * in the following cases:
"* * *
"(B) In an action by a mortgagee, for the foreclosure of his mortgage and sale of the mortgaged property, when it appears that the mortgaged property is in danger of being lost, removed, or materially injured, or that the condition of the mortgage has not been performed, and the property is probably insufficient to discharge the mortgage debt[.]"
Further, the receiver has been given certain powers by statute:
"Under the control of the court which appointed him, as provided in section
The authority granted to the receiver by the legislature to take actions authorized by the court is limited to "such acts respecting the property" that is the subject of the receivership. The question then becomes whether the security deposits that the receiver wants to seek to recover in the case before us are "respecting the property."
The receiver in a mortgage foreclosure action does not have the all-encompassing powers of a general receiver of all property of the debtor, but is *348 instead limited to taking those actions "with respect to" the property covered by the mortgage that is being foreclosed. Castlebrook in its motion for appointment of receiver requested a "[r]eceiver of certain real property * * * [the mortgaged property] commonly known as Castlebrook, * * * to take possession of said real property and collect all rents, issues, and profits thereof." The order appointing receiver authorized Frye to "take and have complete and exclusive control, possession and custody of the Property commonly known as The Castlebrook Apartments, located at 5900 MacDuff Drive, Dayton, Ohio," and authorized him to "manage, operate, control, protect, and preserve the Property * * *."
This order is consistent with the statutory authorization for the receiver to take actions "respecting the property" in that it limits the authority of the receiver to act only with regard to the real property.
An obligation of a landlord to a tenant to return a security deposit does not run with the land. Covenants that will run with the land must be so connected with, attached to, and inherent in the land that the assignee of the reversion would have the right to take advantage of it or be obligated to perform it. Masury v.Southworth (1859),
The law of Ohio with respect to security deposits is that they are in the nature of pledges and the liability for the return of them does not run with the land but is a personal contractual obligation. Tuteur, supra. While that contractual obligation can be voluntarily assumed by a subsequent owner, the property is not subject to the obligation.
The essential principle that we distill from Tuteur andMasury, supra, is that the respective interests of pledgor and pledgee to a tenant's security deposit are purely personal to them and do not follow the ownership interest in the real property that is the subject of the lease. Thus, in the absence of any express assignment to the mortgagee by either the tenant or the original landlord who accepted the security deposit, the mortgagee would have no legally cognizable interest in the security deposit. The disposition of the security deposit would remain a matter for the concern exclusively of the tenant who furnished the deposit and the landlord who originally accepted it.
Castlebrook has contended that it has an interest in the security deposits as: (i) securing the payment of rents accruing after foreclosure, and (ii) securing damage to the property that is the fault of the tenant. Because interests in security deposits do not run with the land, we conclude that they may not be used to protect a succeeding owner of the property who was neither a party to the pledge represented by the security deposit, nor an assignee of such a party.
Because Castlebrook can assert no interest in the security deposits, and because interests in the security deposits do not run with the property securing Castlebrook's mortgage, the receiver could not be authorized to pursue a claim for the recovery of the security deposits.
The Landlord-Tenant Act does not affect that result. R.C.
"(A) Any security deposit in excess of fifty dollars or one month's periodic rent, whichever is greater, shall bear interest on the excess at the rate of five per cent per annum if the tenant remains in possession of the premises for six months or more, and shall be computed and paid annually by the landlord to the tenant.
"(B) Upon termination of the rental agreement any property or money held by the landlord as a security deposit may be applied to the payment of past due rent and to the payment of the amount of damages that the landlord has suffered by reason of the tenant's noncompliance with section
A "landlord" is defined in R.C.
"`Landlord' means the owner, lessor, or sublessor of residential premises, his agent, or any person authorized byhim to manage the premises." (Emphasis added.)
A receiver is authorized by the court, not the owner, to manage the premises. A receiver is acting, not on behalf of the owner, but on behalf of the owner's creditors. The receiver, if he actually had possession of the tenants' security deposits, would be obligated to return them to the tenants or to reach new contractual agreements with the tenants with respect to the deposits; but absent a new agreement with the tenants, the receiver has no right to the money, because a security deposit arrangement is a personal arrangement between the landlord and the tenant.
It would be unfair to the receiver and the creditors he represents to impose an obligation on him to refund money that he does not have when the refund does not benefit the creditors that he represents. To impose on him such an obligation would be to place tenants in a superior position to the first mortgagee of the property, and this we will not do.
In this case, there is no potential benefit to the estate or the property being foreclosed. The receiver is not representing the tenants in this case; the tenants are not creditors of the property in this receivership.
Similarly, the receiver is not a creditor of the bankruptcy estate. Only a creditor may file a claim against a bankruptcy estate. Section 501(a), Title 11, U.S. Code provides that "[a] creditor * * * may file a proof of claim." A creditor is defined as an "entity that has a claim against the debtor that arose at the time of or before the order for relief2 concerning the debtor." (Emphasis added.) Section 101(9), Title 11, U.S.Code. A claim is defined as "a right to payment." Section 101(4), Title 11, U.S.Code. While the receiver might possibly be allowed a claim in the bankruptcy proceeding for damages to the property that DPLP caused, he cannot make a claim against the bankruptcy estate for damages that a tenant caused; such a claim would be against the tenant, not against the landlord. Likewise, the tenant is entitled to make a claim in the bankruptcy proceeding for the return of a security deposit, but does not have a claim against the receiver.
Similarly, the receiver has no claim against the general partners of DPLP for the return of the security deposits, for the same reasons that he has no claim against the bankruptcy estate. The general partners have no liability to the property for the security deposits, and therefore have no liability to the receiver. Further, the partners and the partnership have no individual liability to Castlebrook because the mortgage was a non-recourse mortgage.
DPLP cites R.C.
"Subject to section
"(A) Jointly and severally for everything chargeable to the partnership under sections
"(B) Jointly for all other debts and obligations of the partnership, but any partner may enter into a separate obligation to perform a partnership contact."
R.C.
"Where loss or injury is caused to any person not a partner in the partnership or any penalty is incurred, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his partners, the partnership is liable therefor to the same extent as the partner so acting or omitting to act." R.C.
"The partnership is bound to make good the loss:
"(A) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it;
"(B) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership." R.C.
Thus, in a situation where it is alleged and proven that the partnership wrongfully dissipated funds that belong to the tenants, the partners would be jointly and severally liable to the tenants. R.C.
DPLP's sole assignment of error is sustained. *353
Judgment reversedand order vacated.
WOLFF, J., concurs.
WILSON, J., dissents.