Barron v. Whiteside

Pearce, J., delivered the opinion of the Court. This is an appeal from an order of Circuit Court No. 2, of Baltimore City, overruling exceptions to an auditor’s account and report, and finally ratifying the account. Two questions of law are presented : 1st. Where a trustee, under an assignment for the benefit of creditors, takes possession of mortgaged leasehold property, and collects rents .therefrom, the mortgage being overdue at the date of the assignment — taxes, ground-rent, and interest being in arrear, and the mortgage security being insufficient, is he bound, on demand made, to apply rents so collected, to such taxes, ground-rent, and interest? 2nd.

Where the mortgagee in such a case makes de•mand upon the trustee for possession of the property, and upon refusal thereof gives notice to the tenants not to pay rent to the trustee, is he entitled, upon application to the Court administering the trust, to the rents collected by the trustee — after the mortgagee’s demand for possession ? Both these questions were by the Circuit Court determined in the negative. The assignment was made by Wm. B. Whiteside to his brother, Geo.

W. Whiteside, January 1st, 1898. Under it he took possession of three houses on Edmonson avenue, on each of which Mrs. Barron held an overdue mortgage for $1,000. There was also due on each of these houses taxes for 1896 and 1897, amounting to . . . $108 51 Semi-annual ground-rent due Mch. 1st, ’98 . . 37 75 Water-rent for 1897.......... 7 18 Total on each, house.........$153 44 Aggregating on the three houses.....$460 32 ⁴⁵⁷ Mrs. Barron’s demand for possession of the property was made February 21st, 1898, and between that date and June 30th, 1898, the trustee, as shown by his report, collected rents from these three houses amounting to $207.30. On refusal of possession, Mrs. Barron filed a petition in Circuit Court No. 2 in said trust estate, for a receiver to take possession of said houses, and collect the rents for her benefit as mortgagee, which application was refused without prejudice.

The record does not disclose the ground of this refusal, but we presume the Court treated the trustee as a receiver, holding for the benefit of whomsoever in the end it should be found to concern, and liable to account accordingly. Mrs. Barron’s notice to the tenants not to pay their rent to the trustee was given April 23th, 1898. On February 23rd, 1898, she filed petitions under the consent-clause in her mortgages, and under decrees thus obtained, the three houses were sold June 3rd, 1898, the auditor’s account showing a deficiency on each house of $417.64. On May 9th, 1898, she filed a petition in the trust estate, setting forth all the facts up to that date, and asking that the trustee be required to account to her for all rents collected from these three houses after her demand for possession, and to pay over to her the amount thereof (less a proper commission thereon) to be applied on said taxes, ground-rent and interest.

The trustee answered this petition May 21st, 1898, not denying any of its averments, but setting up a negotiation between Mrs. Barron and himself for the conveyance to her of these three houses in settlement of her mortgages, which Mrs. Barron finally decided not to consummate, and also alleging that by reason of her delay in selling said houses under her decree, he was hindered and delayed in the execution of his trust, to the prejudice and loss of the general creditors ; alleging that these three houses were worth as an investment to Mrs. Barron $1,400 each, and denying her right to demand possession of the property, or receipt of the rents thereof, except after foreclosure. The Court thereupon referred the ⁴⁵⁸ matter to the auditor to state an account, and to award, or apply the rents as he deemed proper, subject to exception to his report. The auditor reported, without stating his reasons, that Mrs. Barron was not entitled as mortgagee to the rents, and he distributed the whole fund in the hands of the trustee, including the $207.30 collected as rents from these three houses, to the costs and commissions of the trustee, to interest on mortgages on two other houses on Fremont avenue, which he took as assignee, and to taxes, water-rent and ground-rent due thereon ; to a judgment against Wm. B. Whiteside, and to a fee of $75.00 to the trustee’s counsel for contesting Mrs. Barron’s claim to these rents. .

To this account of the auditor Mrs. Barron excepted, and the Court overruled the exceptions, and ratified the account; but as no opinion was filed we are not advised of the reasons which controlled the Court. As to the first question: In each of Mrs. Barron’s mortgages there was a provision that until default was made, the mortgagor might hold and possess the premises, and receive the rents and profits thereof, upon paying in the meantime, the ground-rent and all taxes on the premises ; and there was an express covenant' by the mortgagor, for himself and his assigns, to pay the same when legally demandable. This covenant runs with the land, and binds the appellee. Mayhew v. Hardesty, 8 Md. 495 ; Worthington v. Cooke, 52 Md. 309 .

At the time the appellee took possession of these houses, .the taxes for 1896 and 1897 upon each house were legally due and deman dable, amounting together to $325.53, or more than the $207.30 collected as rents. In addition to this, the ground-rent of $37. 50 upon each house fell due March 1st, 1898, while the trustee was in possession and was collecting these rents. An assignee for the benefit of creditors succeeds only to the rights of his assignor, and takes the property subject to all existing liens and equities. As expressed in Wright v. Wigton, 84 Pa.

St. 163 : “The as ⁴⁵⁹ signee is the mere representative of the debtor, enjoying his rights only, and bound where he should be bound. Nor are the creditors, for whom he holds the property in trust, purchasers for value. They have no title to the property assigned. They acquire only the right to have enforced the duty undertaken by the assignees.” In Burrill on Assignments, p. 489, it is laid down that “ Real estate in the hands of an assignee is not exempt from the payment of taxes, whether assessed thereon before or after the assignment was made.” See also Amer. and Eng.

Ency. of Law, vol. 3, 2nd ed., p. 116, and cases there cited. In Wolff’s Appeal, 106 Pa. St. 545, where land had been assigned for the benefit of creditors subject to incumbrances, it was said “ the mere rent of the land in the hands of the assignee, solely the product of the land itself, should be applied on those prior liens which would be entitled to the proceeds of the land if sold.” In the present case, if the tax-collector and the owner of the ground-rent had filed petitions in the case asking that the trustee be required to apply the rent in his hands to keep down the taxes and ground-rent, we cannot doubt he should have been required to do so. It appears from the record that the trustee sold the two Fremont avenue houses, which he held, for $415 above the mortgages thereon, and that he paid out of the total assets in his hands, for taxes, ground-rent, water-rent, and interest on the mortgages on these two Fremont avenue houses, $628.92, or $213.92 more than he received from their sale.

In other words, he applied the $207.30, which he collected as rents from the three Edmonson avenue houses, to aid in paying the charges above-mentioned on the Fremont avenue houses, while paying no taxes, ground-rent, water-rent, or interest on mortgages on the Edmonson avenue houses. Mrs. Barron having been forced to pay these charges out of the proceeds of their sale by her, notwithstanding it resulted in a large deficiency on her mortgages, she was entitled to be subrogated to the rights of ⁴⁶⁰ the State and city, and the owner of the ground-rent, against the trustee, as was decided in Orem v. Wrightson, 51 Md. 34 , in the case of the sureties of a tax-collector who had paid the amount due the State by the collector, and in the present case the auditor’s account should have recognized and enforced this right of subrogation. We think the Court was in error also in denying the mortgagee’s rights to the rents claimed by her, and though not necessary to the' decision of the case, since the taxes and ground-rent which we have said should be allowed, exceed the rents of the'houses, we regard the matter as of sufficient future importance to warrant its determination now. It 'is the settled law of this State that upon default the mortgagee is entitled to possession.

It was so held in Jamieson v. Bruce, 6 G. & J. 72 , and in the recent case of Richardson v. Balt, and Del. Bay R. R., ante, p. 126, it was observed that this Court and its predecessors have followed more strictly the common law doctrine as to the rights of mortagor and mortagee, than most of the Courts of the country, though it was there held there was no reason why the right to possession cannot be continued in the mortgagor, even after default, ¿y/ agreement of the parties. In State v. Brown, 73 Md. 512 , the Court said: “ By such default the mortgagees have the right to foreclose, to ask for the appointment of receivers, and to enter and take possession of the mortgaged property. These are remedies, to which, in the absence of covenants to the contrary, the mortgagee is entitled upon the default of the mortgagor.” He may pursue all his remedies at once, and Acts of Assembly providing for sales under decrees or powers, are cumulative and concurrent remedies, and do not abrogate any pre-existing