Court Opinion

ID: 3629313
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:09:08.986046+00
Date Added: 2024-06-11T07:45:36.019711
License: Public Domain

The receivership clause in question, being the statutory form, must be construed as meaning that "the mortgagee * * * shall be entitled * * * to the appointment of a receiver of the rents and profits of the premises covered by the mortgage; and the rents and profits in the event of any default * * * are assigned to the holder of the mortgage as further security for the payment of the indebtedness." (Real Prop. Law; Cons. Laws, ch. 50, § 254, subd. 10.)
The pledge of rents and profits becomes operative when a receiver is appointed; and the extent of the receiver's authority rests in the discretion of the court. (Sullivan v. Rosson,223 N.Y. 217, 224.) He is appointed, as the majority opinion here says, "to take possession of the premises, collect the rents and apply them to the payment of the carrying charges on the property and the reduction of the mortgage debt." If the premises are vacant in whole or in part, the court may authorize the receiver to let the vacant space. Although he takes no title, he is in possession of the premises substantially as the mortgagor *Page 157 
was. (U.S. Trust Co. v. New York, W.S.  B. Ry. Co., 101 N.Y. 478,483.) Broadly speaking, what the mortgagor could have done, the receiver when so authorized can do. What the mortgagor could not have done, the receiver cannot do; and in that category is included the act which was attempted by the receiver in thePrudence Company case. As long as the mortgagor is in possession, he may make a valid lease. That lease is subject to the provisions of the mortgage and, therefore, subject to the right of the receiver when appointed to take possession and to impound the rents reserved; but it is a valid contract and can be cut off only by the sale.
It is said, however, that where the mortgagor is in actual occupancy of the premises, his pledge of the rents and profits means nothing. Unquestionably, the mortgagor, in the absence of equitable considerations, is entitled to possession until the lien is cut off by sale. But it is equally without question that a court of chancery may take possession to itself when equity demands it. The actual basis of the decision in the PrudenceCompany case, as it seems to me, was not the stern logic of the doctrine of possession, but rather the equitable consideration that the asserted right of the receiver to get occupational rent, when that was higher than the reserved rent, was not paralleled by a reciprocal right in the tenant to pay only occupational rent when that was lower than the reserved rent. (Cf. Markantonis v.Madlan Realty Corp., 262 N.Y. 354.)
We are dealing here with a contract between the mortgagor and mortgagee. No third party rights are involved. In the end the question is merely as to the intent of the parties, for if that intent was in effect to pledge not only the actual reserved rents, if any, but also the rentable value, if no leases were in existence, then equity may give effect to that intent through a receivership. A mortgagor personally occupying the premises is by virtue *Page 158 
of that occupancy in receipt of a benefit in all respects equivalent to rent and profits. In effect, the mortgagor-occupant charges himself with the value of the space occupied as rent and credits himself with this amount as income. With the appointment of a receiver, the income credit — like the income from any other tenant — goes to the receiver. He continues to charge himself with rent, but he pays it to the receiver instead of to himself. He loses nothing since the rent goes to the receiver's fund to carry the property (a duty resting on him), and thereafter to meet a deficiency, if there be one, otherwise to himself. (Cf. 3 Brooklyn Law Review, p. 104.) In the language of the PrudenceCompany Case (p. 212), the owner (mortgagor) is not "deprived of any rights or the mortgagee accorded rights beyond the stipulations of the mortgage." To hold otherwise pushes the doctrine of possession to a logical extreme and disregards the immemorial power and practice of chancery. Neither law nor common morality permits a mortgagor by personal occupancy to frustrate the clear purpose of his grant.
The order appealed from should be affirmed.
POUND, Ch. J., LEHMAN, KELLOGG and O'BRIEN, JJ., concur with HUBBS, J.; CROUCH, J., dissents in opinion, in which CRANE, J., concurs.
Ordered accordingly. *Page 159