Stephen v. Reibling

Me. Justice Harker,

The only question to be determined on this appeal is whether appellants, or Edward C. Hagar as receiver, are entitled to the rents due from the Joliet Strowbridge Company, which accrued between Hovember 15,3 887, and November 25, 1889, amounting to the sum of §192. The rents accrued by virtue of a verbal lease of a water wheel located on premises already mortgaged by the lessor to a third party. Pending proceedings in chancery to foreclose the mortgage (deed of trust) Hagar was appointed receives, qualified as such, and notified the lessee, the Joliet Strowbridge Company, not to pay rent any longer to the lessor. The rents are for no period of time anterior to his appointment as receiver. Reibling, the lessor, is insolvent, and the mortgaged property was sold by the master in chancery under the foreclosure decree for about $8,000 less than an amount sufficient to satisfy the decree. Hagar claims that by virtue of his appointment as receiver he obtained an equitable lien upon the rents, and is entitled thereto to the extent of any deficiency in the security. On the other hand appellants, who hold judgments obtained before a justice of the peace against Reibling, and are unable to obtain satisfaction of them by the statutory process of garnishment, for the reason that the rent debt of the Joliet Strowbridge Company exceeds the jurisdiction of a justice of the peace, claim that they are entitled to satisfaction of their judgment of such rents, upon the ground that they are equitable assets or choses in action belonging to their judgment debtor, which none of his creditors have subjected to their claims. Their bill, which they term a creditor’s bill, is in the nature of garnishment in equity, and because of obtaining service of process upon the Joliet Strowbridge Company before any other creditors, they claim priority as a reward for their superior diligence. It is a novel proceeding, but we make no doubt they are entitled to the relief sought unless it be determined that the receiver has a prior lien. It is contended that inasmuch as Hagar had. not taken possession of the water wheel, as the Joliet Strowbridge Company had never attorned to him nor recognized him as its landlord, as lie "had never secured an order compelling it to attorn to Mm, and had its officers punished for failing to do so, and as he had never taken steps to dispossess it, he had no lien upon the rents.

So far as the relative rights of a mortgagor and mortgagee are concerned, there can be no question on the proposition that while the mortgagor is in possession he may take the rents and profits to his own use, and is not accountable for them even after condition broken. He is not accountable to the mortgagee for rents after an action has been commenced to foreclose until there is a judgment or decree entitling the mortgagee to possession. Having no specific lien upon the rents and profits of the mortgaged premises the mortgagee can not ordinarily recover rent from a tenant of the mortgagor. Before he can do so there must be an actual entry by him or an attornment by the tenant. The foundation of this rule is that there is no priority of contract or estate between the mortgagee and tenant. Belying upon that proposition of law counsel for appellants argue that the receiver, under the facts in this case, is not entitled to the rents in question from the Joliet Strowbridge Company. Their theory is based upon the idea that a receiver stands upon the same footing as a mortgagee, asserting a claim to the rents and profits of the mortgaged premises, and they seek to apply to that officer principles applicable to a mortgagee after condition broken. The chancellor in a suit in equity to foreclose a mortgage is authorized to appoint a receiver because the debt is insufficiently secured. The receiver thereby obtains an equitable lien upon the unpaid rents, and will be entitled thereto to the extent of any deficiency in the security. High on Beceivers, 644. He is the representative of all parties in interest, the mortgagee, the mortgagor, and all holding under them. His possession is the possession of the court, and without its authority no one can interfere with the property. Jones on Mortgages, Vol. 11,1535 and 1536; Jackson v. Lahee, 114 Ill. 287. When the court ascertains that the circumstances warrant the appointment of a receiver, and one is appointed and qualified, then the premises pass into the custody of the court. Hence, the receiver is not in the position of a mortgagee after condition broken, whether such mortgagee is in posses sion or not. Counsel for appellants concede that after a receiver is appointed and qualifies, tenants in possession may be compelled to attorn to him or be ejected. Upon what ground has the receiver such right, except upon the ground that the court has taken control of the property and placed him in supervision of it. By virtue of Hagar’s appointment he became entitled to collect the rents, and for the mortgagee he acquired an equitable lien thereon. High on Receivers, Sec. 631. By the notice he gave to the Joliet Strowbridge Company it became apprised of his rights as receiver, and recognized them by refusing to pay longer to Reibling. The claim of appellants is based upon the theory that the rent in question is an equitable asset or chose in action belonging to Reibling; that none of the creditors had subjected it to their claims, and that appellants by filing their bill and obtaining service upon the Strowbridge Company acquired an equitable lien thereon. Their claim upon the fund is certainly not superior to that of. creditors standing in a position to invoke the aid of statutory garnishment in proceedings at law. Had their judgments been in the Circuít Court their bill would not have been entertained, because they could have proceeded by statutory garnishment. Had they been in that position and undertaken to reach the fund by that process, and the Joliet Strowbridge Company, as garnishees, answered that upon the lease of the water wheel there was $492 rents due, but that the premises were mortgaged before the lease was given; that proceedings to foreclose had been commenced; that llagar had been appointed receiver to take charge of the property and collect the rents; that the receiver had notified it of his appointment, and that it must discontinue paying rent to Reibling; that since such notice it had not paid to Reibling; that all the rent due had accrued since the appointment of thó receiver— the Circuit Court would not have entered judgment against the garnishees.

We are clearly of-the opinion that the beneficiaries under a trust deed acquire an equitable lien upon the rents by virtue of the appointment of a receiver, and that in this case the right which Eeibling had to collect rent from the Joliet Strowbridge Company under the lease passed to llagar as soon as he was appointed and qualified, and notified the Joliet Strowbridge Company.

The Circuit Court properly dismissed appellants’ bill. The decree will be affirmed.

Decree affirmed.