Eastern Trust & Banking Co. v. American Ice Co.

14 App. D.C. 304 | D.C. Cir. | 1899

Mr. Chief Justice Alvey

delivered the opinion of the Court:

1. The first question is, Whether a receiver ought to have been appointed? We entirely agree with the court below that the facts of this case did not warrant the appointment of a receiver. As stated in the decree, it is shown that all the improvements on the realty had been destroyed by fire, and that there was no rent or income receivable from the property. There was nothing, therefore, to create a necessity for the office of a receiver. But apart from this, the mortgage itself had provided a summary mode of taking possession and disposing of the property, in default of payment by the mortgagor. There is no charge of wilful waste of the property, and the power given by the mortgage to the trustee,“to enter upon the premises or property granted, and to take possession of the whole or any part thereof, and to sell and dispose of all and singular the premises,” etc., would seem to render it entirely unnecessary that a receiver should be interposed. After the lapse of ninety days from the time of default made, this summary and speedy remedy was open and available to the complainant. It is a well settled principle that a receiver will not be appointed when the mortgagee, or' a trustee representing mortgage bondholders, has a complete and adequate remedy at law in respect to the possession and of the matters on account of which the appointment of a receiver is sought. Therefore, if the mortgage authorizes the trustee upon a default to take possession and to collect all tolls, rents and profits of the mortgaged premises, a receiver will not be appointed for the mere purpose of obtaining possession pending a foreclosure suit, when it is not shown that the trustee has attempted to obtain possession of the property by entry or by suit at law. Jones Corp. Bonds and Mortgages, Sec. 436. In this case, it is shown that after default there was an attempt to obtain the possession by the Trust Company, but by process and in a manner not authorized by law. Willis v. Eastern Trust and Banking Co., 169 U. S. 295. That attempt, therefore, was entirely abortive, because not within the power given by the mortgage.

It is the settled doctrine, therefore, resulting from the principles just stated, as very clearly enunciated by Mr. High, in his work on Receivers, Sec. 555, that “the aid of an injunction and a receiver will not be granted in a contest' concerning the possession of real property, when adequate redress may be had at law in the usual forms of action appropriate to such end; and in all such cases, equity will leave the parties to pursue their legal remedy.” The whole question as to the state of facts that will or will not justify the appointment of a receiver in respect to the contested possession of real property, is thoroughly discussed, upon full review of the decisions, by Mr. High, in his valuable work on Receivers, in Chap. XIV; and especially in cases of the character of the present, in Sections 555 to 567.

But independently of the grounds just stated for the refusal to appoint a receiver, there is still another ground, and that is, that before the bill in this case was filed, the case instituted by the United States, under a special Act of Congress, against Morris and others, known as the Potomac Flats Case, in which the title to the property here in controversy is involved, was pending in the Supreme Court of this District; and before this case was decided by the court below, the Potomac Flats Case had been decided, and the title to the particular property here in question had been adjudged to be in the United States. An appeal from that decree had been taken to the Supreme Court of the United States, and that appeal has been recently' argued, but the case has hot yet been decided, and, consequently, the decree appealed from still remains in full force. While that decree remained unreversed, it could hardly have been expected that the court below would have appointed a receiver to claim possession of the premises in hostility to the title adjudged to be in the Government of the United States. This of itself would have been sufficient ground upon, which to refuse the appointment of a receiver.

2. The next question presented is that in regard to the rents received by the assignee Johnson from the tenant of the property here in Washington City, before the improvements on the property were destroyed by fire; the complainant claiming to be entitled to those rents from the expiration of the ninety days’ notice given and demand made for the surrender of the premises, under the Landlord and Tenants’ Act of this District, that is to say, ninety days after the 30th of July, 1894, to the time of filing the bill. That proceeding, however, was ultimately held by the Supreme Court to be wholly without warrant of law. Willis v. Trust and Banking Company, supra. That demand, therefore; was not a legal demand for the surrender of the premises, within the power given by the mortgage of entry and possession, in order to make sale under the power. And not being entitled to the possession under the proceeding taken, the complainant as mortgagee was not entitled to the rents of 'the property; for until the mortgagor, or its assignee, had been laivfully dispossessed, it was entitled to receive the rents and profits of thé .mortgaged premises. This is the established doctrine. Wilder v. Houghton, 1 Pick. 87; Mayo v. Fletcher, 14 Pick. 525; Russell v. Allen, 2 Allen, 42; Watts v. Coffin, 11 John. 495; Chinnery v. Blackman, 3 Douglass, 391; Hughes v. Edwards, 9 Wheat. 500.

In the case of Teal v. Walker, 111 U. S. 242, the Supreme Court of the United States, in considering this question, say: “We believe that"the rule is, without exception, that the mortagee is not entitled to demand of the owner of the equity of redemption the rents and profits of the mortgaged premises, until he takes actual possession. In the case of Moss v. Gallimore, 1 Doug. 279, Lord Mansfield held that a mortgagee, after giving notice of his mortgage to a tenant in possession holding under a lease older than the mortgage, is entitled to the rent in arrear at the time of the notice, as well as to that which accrues afterwards. This ruling has been justified on the ground that the mortgagor, having conveyed his estate to the mortgagee, the tenants of the former became the tenants of the latter, which enabled him, by giving notice to them of his mortgage, to place himself to every intent in the same situation towards them as the mortgagor previously occupied. Rawson v. Eicke, 7 Ad. & El. 451; Burrows v. Gradin, 1 Dowl. & L. 213.

“ Where, however, the lease is subsequent to the mortgage, the rule is well settled in this country, that, as no reversion vests in the mortgagee and no privity of estate or contract is created between him and the lessee, he can not "proceed, either by distress or action, for the recovery of the rent. Mayo v. Shattuck, 14 Pick. 533; Watts v. Coffin, 11 John. 495; McKircher v. Hawley, 16 Id. 289; Sanderson v. Price, 1 Zabr. 637; Price v. Smith, 1 Green’s Ch. 516.” The same principle is laid down in Bacon’s Abridgement, Tit. Mortgage C., and in 4 Kent Com. 157.

And in the case of Willis v. Eastern Trust and Banking Company, 169 U. S. 295, the case involving the right of the present complainant to proceed under the Landlord and Tenants’ Act to recover the possession of the mortgaged premises, the Supreme Court say :

“ Until the mortgagee takes actual possession the mortgagor is not liable, without an express covenant to that effect, to pay rent, and is entitled to take the rents and profits to his own use. Citing Teal v. Walker, supra, and Freedman’s Sav. Co. v. Shepherd, 127 U. S. 494, 502.

“ The result is that the plaintiff is not entitled to maintain this process, but must be left, so far as the aid of a court of justice is requisite to secure the rights conferred by the mortgage, to the appropriate remedy of a writ of ejectment, or a bill of foreclosure. Comp. Stat. D. C., Ch. 48, Sec. 1; Ch. 55, Sec. 10; Hogan v. Kurtz, 94 U. S. 773; Hughes v. Edwards, 9 Wheat. 489.”

The complainant never having received the actual possession of the property, it has no claim to the rents and profits that have been received by Johnson, as assignee of the Ice Company, and therefore the court below was quite right in decreeing that the complainant was not entitled to any accounting for and in respect to such rents.

3. The next question is as to the liability of Johnson as assignee of the Ice Company to account for and pay over, for the benefit of the bondholders, the insurance money received by him as assignee of policies obtained by him on the mortgaged property, with assets derived from the Ice Company, the mortgagor. Johnson claims and contends that this insurance was not obtained in execution of the covenant contained in the mortgage, for the benefit of and as additional security to the bondholders, but was obtained by him as assignee for the benefit of the creditors generally of the Ice Company, including, of course, the bondholders, as part of such creditors. But the complainant contends that whatever may have been the intention or understanding of Johnson as assignee, in obtaining the policies and paying the premiums for the risks out of the assets of the Ice Company, he was only doing what his principal or assignor was bound to do by the covenant in the mortgage, and that the insurance money, in contemplation of both law and equity, inures, by way of priority, to the bondholders, under the covenant. It is certainly true that Johnson does not occupy the position of a bona fide purchaser without notice. He is in the shoes of the Ice Company, and can occupy no better position than the assignor itself, with respect to the property assigned. His relation to the assignor is of a representative nature. By taking the assignment for the benefit of all the creditors, he did not extinguish or modify the covenant to insure, nor did he relieve the property of the charge to sustain, at all times, the insurance on the property for the protection and as an additional security of the bonds held under the mortgage. The insurance was a part, and a very important part, of the scheme of security for the redemption of the bonds; and as such it should not be impaired or avoided by placing the property in the hands of an assignee. The property itself was charged with the obligation of maintaining the insurance, and Johnson taking the property in his representative capacity, and placing himself in the position of his assignor, took the property cum onere. Having assets of his assignor sufficient to pay the premiums for the insurance required by the covenant, a court of equity would compel him to effect and maintain the insurance as required by «the covenant. This principle is well illustrated by the case of Holmes v. Buckley, Equity Cases, Abridged, 26. In that case an assignee in fee was compelled by a court of equity to fulfill the covenant made by his' assignor, to keep open and in repair a water course, granted by the latter out of the land. And when a covenant is capable of running with, the land, its burden will, of course, pass to the assignee of the legal estate, although merely a trustee; but equity in this, as in other cases, considers him as a mere instrument, and holds the parties really benefited as the parties answerable. Berry v. McMullen, 17 Sergt. & R. 84.

But it is contended on the part of the defendants, Johnson and the Ice Company, that a covenant to insure and keep insured improvements on real estate, is a mere personal covenant, and does not attach to and run with the land. This, as a general proposition, may be conceded. But whether a covenant to insure and keep insured buildings on real estate runs with the land or not, depends upon the special object and terms of the covenant. There is no doubt that it is entirely competent to the parties, by apt and express terms, to charge such covenant upon the land, and to make it run with the land and to create a burden thereon in the hands of grantees or assignees; and if it can be done by express terms, there is no reason for saying that it can not be done, upon fair and reasonable implication, to accomplish the objects and purposes of the parties. The object of the covenant in this case is plain enough, and so the terms in which it is expressed. The American Ice Company expressly covenants to keep the property at all times insured, in such amounts as shall reasonably protect all the insurable property, payable, in case of loss, to the trustee, as its interest should appear ; and in case of loss the insurance money might be applied by the trustee toward the renewal of, or addition '• to, the property destroyed or injured, or it might be, at the option of the trustee, placed in a sinking fund for the redemption of the bonds.

It is very clear, that, by the terms of the covenant, it had relation to the land, and its principal object was to keep and maintain the buildings on the property in condition for carrying on the ice business. 'This was the great object of the insurance required, as means of security to the bondholders. Without this, the property, by fire, might be rendered of little value, aud the bondholders be left without security. By means of the insurance it was intended that the property should be maintained as security; and hence it was provided, primarily, that the insurance money might be expended in renewal of or adding to the buildings. In such cases it has been repeatedly held, that the covenant does run with the land, at least in an equitable sense; and where an insurance has been obtained, though by an assignee, and a fire has occurred, and the insurance money has been received, a court of equity has held that the insurance money should be applied for the benefit of those for whose protection the original covenant was made.

In the case of Vernon v. Smith, 5 Barn. & Ald. 1, 7, an action at law, it was held that a covenant to insure against fire of the premises situated within the weekly bills of mortality, as prescribed by the statute, was a covenant that ran with the land, — the insurance money being required to be expended in restoring or repairing the building. In that case, Lord Chief Justice Abbott said: “A covenant to lay out a given sum .of money in rebuilding or repairing the premises, in case of damage by fire, would clearly be a covenant running with the land, that is such a covenant as would be binding on the assignee of the lessee, and which the assignee of the lessor might enforce. Here the defendant does not covenant expressly in those words, but only that he will provide the means of having 800Z. ready to be laid out in rebuilding the premises in case of fire. But connecting that covenant with the act of Parliament, the landlord has a right to say that the money, when recovered, shall be so laid out. It is, therefore, as compulsory on the tenant to have the money laid out in rebuilding, and as beneficial for the landlord, as if the tenant had expressly covenanted that he would lay out the money he received in respect of the policy upon the premises. For these reasons, I think that this is a covenant running with the land,” etc. And the other judges of the King’s Bench concurred in that opinion.

In the well known case of Thomas v. Vonkapff, 6 Gill & John. 372, the principle is applied to a state of facts somewhat different but analogous to the facts of the present case; but the principle would seem to be fully applicable to the Tacts here presented. There the mortgagor covenanted that he would at all times during the existence of the mortgage lien, at his own proper cost and charge, cause and procure the insurance on the premises against loss by fire, already effected, to be kept up and renewed; and that, in case of loss by fire, the sum insured to be immediately applied to rebuilding, replacing, and putting the said property in good order and condition, so that the mortgagee, his heirs, etc., shall, in case of loss by fire, be benefited by such insurance, or participate in the benefit thereof, to the extent of his aforesaid lien. On that state of case, it was held that the covenant to insure or keep insured did run with the land; and that the design of the covenant was, by the insurance, always to have a fund for re-establishing the premises, so that the security should not be in any manner diminished. That the insurance was one for the benefit of the mortgagee, to the extent of his lien; and that as the mortgaged property was clothed with a trust in reference to this fund, the legal representatives of the mortgagor must also take it subject to the trust. And the court in its opinion said: “ When the mortgagor received the insurance money, a court of equity would have considered him in the light of a trustee of the fund, and would have caused the whole of it, or such parts thereof as might be necessary to restore the premises to their former situation, to be expended in rebuilding. The mortgagee had undoubted rights in the fund thus arising, which could not be overreached by Thomas or his creditors, and if the property was thus clothed with a trust, his legal representatives must also take it subject to the same trust.” And in concluding their opinion the court say: “We have said that although a lien existed, it gave no right to the possession of the fund, as against Thomas; the design being to apply it for the purpose of reinstating the premises. But the facts show that the lien can not in the terms of the contract be specifically enforced, owing to the sale of the mortgaged premises. A court of equity, however, is not on this account powerless. It must administer relief in the only manner in which it can now be done. As tbe leading object in effecting the insurance was exclusively a beneficial one to the mortgagee, its great spirit and object will be effectuated by decreeing him the fund. The mode only, of giving relief, will be changed, and that has become inevitable.”

In the present case, unlike the case just referred to, the covenant requires the money, in case of loss by fire, to be paid over to the trustee, to be by it applied in the manner v prescribed.

In the. case of Wheeler v. Insurance Co., 101 U. S. 439, it was held by the Supreme Court to be a well settled principle, by many decisions in this country, that if the mortgagor is bound by covenant or otherwise to insure the mortgaged premises, for the better security of the mortgagee, the latter will have an equitable lien upon the money due on a policy taken by the mortgagor to the extent of the mortgagee’s interest in the property destroyed; and the court cites with approval, and in support of the proposition stated, the case of Thomas’ Admr. v. Vonkapff’s Exr., 6 Gill & John. 372.

The case of In re Sands Ale Brewing Co., 3 Biss Rep. 175, is quite in point with the present case. There the brewing company had borrowed money and gave a mortgage of its property to secure payment. The mortgage contained a covenant requiring a'n insurance to be made, and the policy to be assigned to the mortgagee; and that in the event that the premises should be injured or destroyed by fire, the mortgagee should have the right to collect the insur•anee money and apply it, in his discretion, either in the discharge of the mortgage debt, or in repairing or rebuilding the buildings injured or destroyed. The insurance was made and assigned as required by the terms of the covenant. And when the policy expired, a new policy was taken out, but not assigned to the mortgagee. The mortgagor had become bankrupt, and the buildings were destroyed by fire, and the assignee in bankruptcy had collected a part of the insurance money, and denied the right of the mortgagee to receive it. Whereupon the trustee under the mortgage or deed of trust filed a petition, asking that the insurance money, so collected and held by the assignee in bankruptcy, should be required to he paid over to the trustee to be applied in satisfaction of the mortgage debt. That application was granted, the court holding that the mortgagee was entitled to the fund. And in the course of its opinion, the court said: “ The assignee in this case can hold nothing that the grantor in the trust deed could not have held, if bankruptcy had not intervened. His relation is purely representative. Greditors who have trusted the bankrupt must be held to have done so with full notice of the covenant to insure, and of the legal and equitable effect of the covenant. The covenant to insure runs with the land as much as a covenant to repair and rebuild, or for another term.”

The same principle, though predicated of facts somewhat different, is announced in the cases of Miller v. Aldrich, 31 Mich. 411; Ellis v. Crutzinger, 27 Mo. 311; Nichols v. Baxter, 5 R. I. 491; Masury v. Southworth, 9 Ohio St. 348.

The fact that the insurance was taken out by the assignee for the benefit of all the creditors of the assignor, qnd not by the assignor itself, can, as is shown by some of the cases referred to, make no manner of difference. If the insurance had been obtained by the Ice Company, instead of its assignee with the assets of the former, there could be no question of the right of the bondholders to have the money applied, as required by the covenant, as against the general creditors of the mortgagor. If the covenant runs with the land, as the authorities would seem to make clear, and the assignee took the property subject to that charge, though he may have taken out the policies for the professed benefit of all the creditors, including the bondholders, yet, by force of the covenant, the bondholders are entitled to priority in the application of the fund. We are of opinion, therefore, that the court below was in error in denying the right of the bondholders to this insurance fund. '

4. With respect to the question made as to the validity of the proceedings of the trustee in selling or attempting to sell the property situate in Maine, and the application of the proceeds of that sale, we shall not go into any extended examination. There is no fraud charged, and no such irregularities shown, as furnish the foundation for impeaching the fairness and good faith of the sale that was ultimately made. The deed of trust was made in Maine, and the sale of the property, situated in that State, was xpade there; and we must suppose, in the absence of any affirmative evidence to the contrary, that the sale was legally and fairly made. Both the law of the contract, and of the situs of the property sold, was that of Maine; and it does not appear that the sale has ever been questioned in that jurisdiction. We must therefore assume that the sale was validly made, according to the law and practice of that State.

But the question of the distribution and application of the proceeds of sale may affect, under the terms of the deed of trust, the American Ice Company and its general creditors, claiming under the general assignment to Johnson. Hence they have a right to a strict account of the proceeds of sale of the property in Maine. As to what allowances for disbursements, expenses, commissions, etc., are proper, will be for the court here to decide, in order to make proper distribution of the proceeds of sale of the property in this jurisdiction. That such exhibits should be made, and a proper account stated as preliminary to the decree of sale of the property here, we think is proper and necessary. Until this account is stated it can not be determined with certainty for what amount the decree for foreclosure and sale should be passed, or what amount of indebtedness is still due.

The sale of the property, however, under any decree that may be passed, should not be allowed to be made until after the case of Morris and others v. United States, known as the Potomac Flats Case, now pending in the Supreme Court of the United States, shall have been decided; for otherwise the sale of the property made subject to the final decision of that case, could not be other than a mere speculation, and would most likely result in obtaining nothing more than a mere nominal sum;

Upon review of the whole case, we are of opinion that the decree of the court below must be reversed on both appeals, and the cause be remanded for further proceedings; and that the costs of said appeals be equally divided between the parties appellants, and that they pay accordingly; and it is so ordered.

Decree reversed and cause remanded.

Case Details

Case Name: Eastern Trust & Banking Co. v. American Ice Co.

Court Name: Court of Appeals for the D.C. Circuit

Date Published: Feb 28, 1899

Citation: 14 App. D.C. 304

Docket Number: Nos. 800 and 801

Court Abbreviation: D.C. Cir.