Summary
In Greenebaum Sons Bank Trust Co. v. Kingsbury, 248 Ill. App. 321, the crucial question was whether a mortgagor who had conveyed the rents as security could by making a lease of the premises prior to his default abridge the rights of the mortgagee or the receiver in possession after default by the act of making the lease.
Summary of this case from Frank v. SiegelOpinion
Gen. No. 32,066.
Opinion filed April 3, 1928. Rehearing denied April 17, 1928.
1. MORTGAGES — application of rents to payment of debt. The rents and profits of land can be conveyed by mortgage and, when so conveyed, they constitute a primary fund equally with the land for the payment of the debt.
2. MORTGAGES — liability of tenant to pay rent to receiver which has been paid in advance. A tenant in possession under the mortgagor, who having notice of the mortgage pays rent in advance to the mortgagor, does so at his peril, and, if a receiver is appointed during the period for which the rental has been paid in advance, such tenant may be required to pay the same again to the receiver for the period following the latter's appointment.
3. MORTGAGES — liability of lessee in co-operative apartment building to pay rent to receiver. Where the rents and profits of an apartment building are conveyed by mortgage as well as the land and building, and a lessee of an apartment, a co-operative owner, accepts a lease subject to the lien of the mortgage, it was proper to order the lessee to pay to the receiver appointed in foreclosure the fair cash or commercial rental value of the apartment, the rental in excess of a nominal sum required under the co-operative plan to be segregated until a sale is had, and the question of distribution of the sum being reserved.
4. MORTGAGES — right of mortgagor to make a lease in derogation of rights of mortgagee or receiver. A mortgagor, who has conveyed the rents and profits of the premises as security for his debt, cannot, by making a lease prior to default, abridge the rights of the mortgagee or the receiver in possession, after default, by the act of making the lease.
5. MARSHALLING OF ASSETS — right of tenant of mortgagor to require mortgagee first to exhaust remedy against mortgagor. A tenant in a co-operative apartment building, having acquired subject to the provisions of a trust deed covering rents a lease of an apartment for 99 years from the mortgagor for a nominal annual rental, and although not having expressly assumed to pay any part of the indebtedness secured by the trust deed, cannot properly require the trustee in foreclosure to exhaust its remedy against the mortgagor and the corpus of the remaining property before resorting to the tenant for the commercial rental value of the apartment, upon the doctrine of marshalling of assets.
Appeal by defendants from the Superior Court of Cook County; the Hon. WALTER P. STEFFEN, Judge, presiding. Heard in the second division of this court for the first district at the October term, 1927. Affirmed. Opinion filed April 3, 1928. Rehearing denied April 17, 1928.
Statement by the Court. On the petition of Lloyd J. Smith, receiver, filed in a pending foreclosure suit, the superior court, upon recommendations of the master after evidence taken before him, entered an order, June 30, 1927, requiring Walter R. Ceperly and Annetta S. Ceperly, his wife, to "pay or cause to be paid to the receiver the fair cash or commercial rental value" of apartment B-2, occupied by them, in an apartment building at 1327-1339 Lunt avenue, Chicago, viz, "$110 per month * * * from and after October 18, 1926." And in the order the court directs the receiver "to segregate all rentals" received from the Ceperlys "in excess of one dollar per year, * * * until a sale is had under any decree of sale entered in this cause," and "reserves the question of distribution of such segregated rentals for future determination," and "retains jurisdiction of the various respondents herein for the purpose of compelling compliance with this decree." From this order the Ceperlys appealed.
The bill of complainants, Greenebaum Sons Bank Trust Company (hereinafter referred to as the Bank), as trustee, and Greenebaum Sons Investment Company (hereinafter referred to as the Investment Co.), was filed July 10, 1926, for the appointment of a receiver and the partial foreclosure of a trust deed, dated November 28, 1923, and recorded December 31, 1923, from John W. Kingsbury and wife to the Bank, as trustee. The deed was given to secure the payment of a series of bonds of different maturities, some for $500 and some for $1,000, aggregating $225,000, all bearing interest at 6 1/2 per cent per annum as evidenced by attached coupons, all payable to bearer (or to the registered holder, if registered), and all signed and delivered by Kingsbury. It conveyed certain Chicago real estate, and all buildings and improvements then or thereafter upon the premises, "together with all the rents, issues and profits which shall hereafter accrue from said premises." It provided inter alia that, upon or after the filing of a bill to foreclose, the court, upon motion of complainants, and without notice to Kingsbury or to any party claiming under him, and "without regard to the solvency or insolvency at such time of the person or persons liable for the payment of the indebtedness," and "without regard to the then value of the premises," might appoint a receiver for the benefit of the legal holder or holders of the indebtedness, "with power to lease the premises and to collect the rents, issues and profits thereof, such appointment to be made and all powers to be exercised (1) during the pendency of such suit to foreclose, and (2) until the entire indebtedness secured by said deed of trust as determined by any decree of sale entered in such foreclosure suit and all indebtedness incurred by such receiver shall be fully paid and satisfied, notwithstanding redemption should be made from any sale had pursuant to such decree, or until a master's deed of the property shall have been executed and delivered pursuant to the proceedings in such foreclosure suit."
The bill alleged that default had been made in the payment of certain of the bonds due on January 1, 1926, of the face value of $5,500, and of certain interest coupons of the face value of $933.75; that the Investment Co. is the owner of them and that said default has continued for more than 90 days from their respective maturities; that the bonds had been subordinated to the lien of the other outstanding bonds; that there is a junior trust deed on the premises for $100,000, dated June 11, 1925, given by the Glen-Lunt Building Corporation (hereinafter referred to as the Glen-Lunt Co.), and that a bill to foreclose said junior deed had been filed; that a stockholders' suit for an accounting had also been filed in which Lloyd J. Smith had been appointed receiver of said Glen-Lunt Co.; and that there was also pending a bill to foreclose a mechanic's lien on the premises for $3,440, and a suit to subject the premises to the lien of two judgments against Kingsbury, aggregating about $4,300.
On August 14, 1926, the Ceperlys and two other defendants, tenants in the building upon the premises, filed an answer to the bill, admitting the execution and delivery of the bonds and the first trust deed sought to be foreclosed herein, the execution and delivery of said junior trust deed, the pendency of said various suits, and alleged as an affirmative defense to the granting of the relief as prayed for in the bill certain facts, as hereinafter are more particularly set forth in their answer to a certain rule.
On October 6, 1926, on petition of complainants and after a hearing, Lloyd J. Smith, then acting as receiver of the Glen-Lunt Co. under prior appointment in said stockholders' suit, was appointed receiver of the entire premises under complainants' bill, and he qualified and entered upon his duties. No appeal was taken from the order appointing him. On October 18, 1926, he, as such receiver, filed a petition alleging that he had taken possession of the premises, which are improved with a building, consisting of 36 residential apartments and owned by the Glen-Lunt Co., subject to the trust deed sought to be foreclosed and other incumbrances; that certain of the apartments are occupied by stockholders of the Glen-Lunt Co., who are tenants of the company under leases, paying assessments during the terms thereof under a plan based upon 85 cents per share per month upon each certificate of stock owned by the respective tenants. The names of about 12 tenants, including the Ceperlys, are set forth in a schedule, showing the particular apartments claimed and the amount of the assessment paid by each. It appeared from the schedule that the Ceperlys, occupying apartment B-2, had not paid to the receiver any sum, either as an assessment or as rent. The prayer of the petition was that, unless objections be filed within a short day to be fixed, all such stockholders and tenants be ordered to pay to the receiver "the fair cash market value or commercial value for the respective apartment or apartments occupied by them." On the same day the court entered a rule upon all such stockholders and tenants to answer the receiver's petition.
On October 25, 1926, the Ceperlys filed a lengthy answer to the rule. They admitted the execution and recording of the trust deed sought to be foreclosed; that the apartment building is owned by the Glen-Lunt Co.; that certain portions thereof are in possession of certain stockholders of the company, who are paying rents or assessments according to their respective agreements or leases; that the Ceperlys are in possession of apartment B-2; that the trust deed conveyed the premises "together with all the rents, issues and profits which should accrue therefrom"; and that the Ceperlys' right to the apartment "is subject to the lien of the said mortgage on said premises." But they denied that they were liable either to the receiver or to complainants for the full cash rental value of the apartment. They alleged in substance that on October 31, 1923, they owned part of the land on which the building stands, and sold that part to Kingsbury for $25,000, under an agreement which provided for the payment by him of $1,000 in cash, and $9,000 at the time the deal was closed, and the delivery at that time of Kingsbury's note for $15,000, to be secured by a junior purchase-money mortgage, subject to the lien of a proposed building mortgage on the entire premises in a sum not to exceed $275,000; that on the same day they entered into another written agreement with Kingsbury, wherein it is recited that Kingsbury and others proposed to erect an apartment building on the premises and that the Ceperlys are desirous of "purchasing" one of the apartments, and wherein it was agreed that, in case the building shall be erected and in case apartments therein shall be sold on the "co-operative agreement plan," the Ceperlys shall have an option to purchase an apartment, described as "1335 Lunt Avenue, Chicago, west wing, second floor south," for the sum of $10,000, payable in cash or in said junior mortgage notes, provided that they shall give written notice of their intention to exercise the option "on or before the date of the completion of said building, as determined by the payment by Greenebaum Sons Investment Co. of the final proceeds of the building loan to be placed upon said property for the erection of said building"; that on May 10, 1924, they exercised their option (having given due notice) and paid $10,000 in said second mortgage notes; that on the same day they entered into another written agreement with Kingsbury, with the approval of one James L. Roach, wherein Kingsbury, acting for himself and Roach, agreed to organize the Glen-Lunt Co., to cause it to issue 2,394 shares of its capital stock of no par value and to convey to them (the Ceperlys) 189 shares of the stock, "representing the ownership of said apartment in said building," and to further cause it to execute a lease to them of the apartment "for a period of 99 years at a nominal rental of $1 per year"; that at the time of the making of said agreement, Kingsbury and Roach verbally represented, promised and agreed to and with them that the Glen-Lunt Co. would sell only 11 other apartments in the building to co-operative tenants, that the remaining 24 apartments would be retained by it for the purpose of renting them for income purposes, and said 24 apartments would become in effect the property of the 12 leasehold stockholders or "tenant-owners," that the income from the 24 apartments, rented at their commercial rental value, would be more than sufficient to cover the expenses for maintenance and operation of the building, interest on encumbrances and payment of the serial bonds as they matured, that thereby the Ceperlys and the other "tenant-owners" would save the commercial rental value of their respective apartments, that the Glen-Lunt Co. would have the fee-simple title to the premises, subject only to said first mortgage of $225,000, and said junior mortgage of $100,000, that the total equity in the premises amounted to $239,400, which would be conveyed to the company, subject to said two mortgages, but free and clear from all other encumbrances, liens or claims, in full payment and satisfaction of the total capital stock of the company, viz, 2394 shares, and that they (the Ceperlys) would receive 189 shares of said stock; that on June 8, 1924, the Glen-Lunt Co. was duly organized as an Illinois corporation with capital stock of 2394 shares of no par value; that subsequently it accepted a deed (recorded August 22, 1924) to it from Kingsbury and wife of said premises, which stated that the conveyance was subject to said two mortgages; that the company took the conveyance with notice of the Ceperlys' rights, and "became charged with the duty of carrying out the provisions of said contract, and delivering to them certificates representing 189 shares of its stock, and a proprietor's or owner's lease of said apartment, with all appurtenances belonging, including heat, refrigeration and janitor service, for 99 years from September 1, 1924, at a nominal rental of $1 per year, and to retain 24 other apartments in the building for rental and income producing purposes"; that on September 1, 1924, the Ceperlys took possession of their apartment and have ever since occupied it, but that neither Kingsbury nor the Glen-Lunt Co. have ever delivered to them certificates representing 189 shares of said stock or any number of shares, or have ever delivered to them any lease; that, when the agreements of May 10, 1924, were made, Kingsbury and Roach were in complete possession and control of the premises and of the building being constructed thereon, and that the agreements were made "with the knowledge, consent and co-operation of complainants (the Bank and the Investment Co.) for the purpose of carrying out a joint and co-operative enterprise and undertaking"; that for a short time after September 16, 1924, when the legal title to the premises was accepted by the Glen-Lunt Co., Kingsbury and Roach, as officers of the company, continued to control and manage the premises and building, and that thereafter the company, through its then officers and "with the knowledge, consent and co-operation of complainants," sold and conveyed other apartments in the building to purchasers, issuing to them stockholders' leases therefor; that, by reason of the foregoing facts, the making of said loan of $225,000, "which constituted what is generally known as a building loan," the issuance of the bonds in that amount and the securing of them by said first trust deed, the erection of the apartment building, and the sale of said apartment to the Ceperlys and other apartments to other purchasers, etc., amounted to "a joint and co-operative undertaking and enterprise" on the part of the Bank, the Investment Co., Kingsbury and Roach; that, as part of the joint enterprise, the apartment building was constructed by Kingsbury and Roach, "with the full knowledge and co-operation of complainants," for the purpose of "selling" to the Ceperlys and other tenants "separate apartments therein for the life of the building for a cash consideration, with or without a small rental or assessment, monthly, yearly or otherwise, and also for the purpose of operating and controlling said building by and through a corporation on the co-operative or quasi co-operative plan"; and that the Ceperlys have heretofore paid the Glen-Lunt Co. the stipulated rental of $1 per year "for more than two centuries in advance, but are ready and willing and hereby offer to pay to the receiver said stipulated annual rental beginning September 1, 1926."
On November 8, 1926, the issues raised by the receiver's petition and the Ceperlys' answer to the rule were referred to a master in chancery to take testimony and report the same, together with his conclusions of law and fact. On the hearing the receiver was a witness in his own behalf and another witness testified for him. Both of the Ceperlys testified, and the deeds, contracts, etc., mentioned, as well as other writings, were introduced in evidence. The master's report was filed on April 28, 1927, in which, after making many findings, he recommended that the respective respondents be ordered to pay to the receiver the fair cash or commercial rental value for the apartments occupied by them from the date of the order to show cause (October 18, 1926); that the receiver be directed to segregate all rentals received by him from the Ceperlys in excess of $1 per year, and from the other respondents in excess of the so-called assessments paid by them, until the end of the period of redemption in case the premises are sold, or until a settlement of this cause if settlement is made, and that thereafter the court direct the distribution of such segregated rentals as right and justice shall require. After a hearing upon exceptions to the report, the court overruled them, confirmed the report and entered the order appealed from.
ELMER D. BROTHERS, for appellants; WILLIAM A. ADAMS and LESTER C. CHILDS, of counsel.
NEWMAN, POPPENHUSEN, STERN JOHNSTON and GUSTAV E. BEERLY, for appellees; HENRY L. STERN and and JAMES W. HYDE, of counsel.
The trust deed sought to be foreclosed conveyed not only the premises in question but also the "rents, issues and profits" thereof, as security for the debt, and provided for the appointment of a receiver upon the filing of a bill to foreclose, without regard to the solvency or insolvency of the person or persons liable for the debt and without regard to the value of the premises. It is well settled by Illinois decisions that the rents and profits of land can be conveyed by mortgage, and that, when so conveyed, they constitute a primary fund equally with the land for the payment of the debt. (Ortengren v. Rice, 104 Ill. App. 428, 432; McLester v. Rose, 104 Ill. App. 433, 436; First Nat. Bank of Joliet v. Illinois Steel Co., 174 Ill. 140, 148; Bagley v. Illinois Trust Savings Bank, 199 Ill. 76, 78.) In the Ortengren case it is said: "Where the rents and profits, together with the land, are pledged for the payment of the debt, the case is wholly different. Then, upon default in payment and foreclosure, the rents and profits are, as is the land, primarily liable for the debt. It is therefore a matter of indifference that the real estate is ample security, and that the debtor is solvent. The contract of the parties governs. Such a contract does not interfere with the equity of redemption. It is lawful, and the courts will enforce it as it is made, i.e., give the rents and profits, as well as the real estate, to the mortgagee as a fund to be applied to the extinguishment of his debt." In 1 Jones on Mortgages (6th Ed.), sec. 27, p. 22, referring to the law in Illinois, it is said: "Upon breach of the condition the mortgagee has the legal title, and may bring his action without giving the party in possession any notice to quit. The condition is broken when one or more installments are due and unpaid, * * *. The mortgagee may pursue all his remedies at the same time, * * *. Except as against the mortgagee, the mortgagor is regarded for all beneficial purposes as the owner of the land. Moreover, the mortgagor or a purchaser from him is the legal owner of the mortgaged estate as against all persons, except the mortgagee or his assigns, who are the legal owners for one purpose only, namely, the enforcement of the debt secured." In the same textbook, section 776, page 818, the author says: "Upon a breach of the condition the mortgagee may enter, and treat the lessee as a trespasser, and without notice bring ejectment. If the mortgagee after entry accepts rent from such lessee, the relation of landlord and tenant is thereby created, but this tenancy will be deemed one from year to year, and not for the term of the original lease. * * * Whether the tenant has actual notice of the mortgage or not makes no difference if the mortgage be recorded; it is then constructive notice, and affects one who becomes the tenant of the mortgagor as much as it affects a purchaser. The mortgagor has no implied power to bind the mortgagee by lease." In 16 R.C.L. 598, § 77, it is said: "Where the common law theory prevails that a mortgage in fee carries the legal estate, a mortgagor though he remains in possession after the execution of the mortgage cannot give a lease to a third person which will have any effect as against the mortgagee, and such a lease does not itself create the relation of landlord and tenant between the lessee and the mortgagee; there is in such a case no privity of estate or contract between the mortgagee and the lessee of the mortgagor. And the mortgagee may on entry for condition broken * * * treat the lessee as a trespasser and bring ejectment without any notice to quit." The author cites in support of his statements, among other cases, the case of Gartside v. Outley, 58 Ill. 210, an action in ejectment, wherein it is said (pp. 213-214): "The lease granted to Twiss was for no definite period, but was to run so long as there was coal to mine. * * * It is not doubted that the lease, being subsequent to the mortgage, could have no force as against the rights of the mortgagees." And it is also said (p. 215): "The rule of the common law is well established, that the mortgagor can not, without the consent of the mortgagee, execute a lease that will prevail against the rights of the mortgagee, and it has been uniformly held that the entry of the mortgagee puts an end to the lease." And in the ejectment case of Taylor v. Adams, 115 Ill. 570, 575, it is said: "A mortgagor, or his grantee, can not make a lease of mortgaged premises which will give greater right than he possesses, and that will interfere with the right of the mortgagee to enter for condition broken." In Gaynor v. Blewett, 82 Wis. 313, 316, it is decided that, "so far as the possession of the premises is concerned, the appointment of the receiver had the effect of an equitable ejectment." (See, also, Ortengren v. Rice, 104 Ill. App. 428, 431.) In the foreclosure suit of Niccolls v. Peninsular Stove Co., 48 Ill. App. 317, 321, where the rents and profits of the premises were pledged by the mortgage, it is said: "The right of appellant to the rents in question secured to him by the mortgage and the action of the court in appointing the receiver could not be contracted away by the mortgagor." In Mutual Life Ins. Co. v. Spicer, 12 Hun (N.Y.) 117, a pending foreclosure suit, it is held that where a person, having knowledge of the mortgage, has obtained possession of the mortgaged premises under an agreement with the mortgagor, he may be required to surrender such possession, or pay a reasonable rent therefor to the receiver appointed by the court to collect the rents and profits of the premises for the benefit of the mortgagee. In the foreclosure suit of Harris v. Foster, 97 Cal. 292, 295, it is stated as a well-established rule "that a subsequent grant or lease of mortgaged premises is subject to the prior mortgage, if the purchaser or lessee had either actual or constructive notice of such mortgage"; and that "if the law were otherwise, it would be in the power of the mortgagor to materially diminish the value of the mortgaged property, as security for the debt for which the mortgage was given, by simply leasing it for a long period and collecting the rent in advance, or by leasing it for such period for a nominal rent." And it has frequently been decided that a tenant in possession under the mortgagor, who, having notice of the mortgage, pays rent in advance to the mortgagor does so at his peril, and that, if a receiver is appointed during the period for which the rental has been paid in advance, such tenant may be required to pay the same again to the receiver for the period following the latter's appointment. (41 C.J. 634, § 611; Gaynor v. Blewett, 82 Wis. 313, 315; Henshaw, Ward Co. v. Wells, 28 Tenn. 567, 582; Fletcher v. McKeon, 71 App. Div. 278, 75 N.Y. Supp. 817, 819.)
In the light of these authorities, and in view of the pleadings in the present case, the provisions of the trust deed sought to be foreclosed, the evidence, and the findings of the master sustained by the evidence, we are of the opinion that the court did not err in entering the order appealed from. The trust deed was given to secure a building loan of $225,000, to be used in the erection of the apartment building which was afterwards erected upon the premises. By its terms, as security for the debt, not only were the land and the building to be erected thereon conveyed, but also, as a primary fund, the rents and profits of the premises. It is a well-known fact that one of the considerations that actuate a lender of money in making a building loan on apartment building property is its probable productivity in fair, market rentals, and it is quite probable that, if Kingsbury had not agreed that the rents and profits be conveyed as security, as well as the land and building, the loan in the present case would not have been made. The trust deed was recorded on December 31, 1923, and the Ceperlys had constructive notice of its terms long before they made their written contract with Kingsbury of May 10, 1924. Furthermore, it appears from the evidence, and as found by the master, that, on September 16, 1924, the board of directors of the Glen-Lunt Co. (of which company Walter R. Ceperly afterwards became president) adopted by-laws; that in them is contained the form of lease to be given to all lessees, or to the so-called "co-operative owners" of apartments in the building; that in one of the paragraphs of said form it is provided that "the lessee accepts this lease subject to the lien of the mortgages on said premises"; and that at another meeting of the directors of the company, held October 1, 1924, a resolution was adopted stating that Ceperly was entitled to a stockholder's lease of apartment B-2. The evidence further disclosed, and the master found, that on September 1, 1924, the Ceperlys received the keys and went into possession of said apartment and have remained in possession ever since; that, although often requested by the receiver, they have not paid any rent to him therefor, and that the reasonable fair rental or commercial value of the apartment, which consists of five rooms, is $110 per month.
The master further found that on the hearing before him the Ceperlys, and other stockholders of the Glen-Lunt Co. holding leases of and occupying other apartments in the building, took the position that "complainants had entered into a partnership arrangement of some kind or character" with Kingsbury, and that "complainants were advised of and acquiesced in his actions in making the various tenant leases, and that they should be estopped in this proceeding from demanding the payment by the stockholders, holding tenant leases, of a fair and commercial rental value of the apartments occupied by them," but the master further found, as to said contention, that "no proof of any kind sufficient to charge complainants with notice of and acquiescence in the actions of said Kingsbury or the Glen-Lunt Building Corporation has been offered, and no reason has been shown why complainants should be estopped from claiming the rentals conveyed under the trust deed." As to all respondents, including the Ceperlys, the master further found that they were in "similar unfortunate positions," in that each had purchased stock of the Glen-Lunt Co. with the knowledge that the premises were subject to the lien of the trust deed, which conveyed not only the premises but the rents and profits thereof as security for the debt therein mentioned, and in that "in the lease accepted by each (except the Ceperlys who by their answer demand the issuance of stock and a lease to them in accordance with their contract) it is provided: `Whereas the capital stock of the lessor consists of 2394 shares of stock of no par value, and the lessee is the owner of (blank) shares of said stock, by reason of which ownership this lease is granted, pursuant to resolution of the board of directors of the lessor (Glen-Lunt Co.) under the authority of the bylaws of the lessor.'" And the master further found that the payment of the various sums of money by respondents, including the Ceperlys, "practically amounts to the payment by them of that much rent in advance." And the master further found that the questions of the solvency or insolvency of Kingsbury, whether the premises are adequate or inadequate security for the indebtedness secured by the trust deed, whether the foreclosure is for the purpose of collecting the whole or only a part of said indebtedness, whether the contract amount paid by the Ceperlys or the assessments paid by the other stockholders of the Glen-Lunt Co. are adequate or inadequate, and whether a sale of the premises will result in a deficiency, "do not enter into this proceeding"; that the complainant trustee is entitled to have the receiver collect the fair cash or commercial rental value of each apartment in the building during the pendency of the foreclosure proceeding; but that neither the maker of the bonds nor the Glen-Lunt Co. should be allowed to profit by respondents being compelled to pay more than the amount contracted for, as in the case of the Ceperlys, or more than the monthly assessments as passed by the stockholders, as in the case of the other respondents. We think that all of these findings of the master, confirmed by the court, are sustained by the evidence or the law or both.
Counsel for the Ceperlys contend in substance that, in view of the written agreement of the Ceperlys with Kingsbury of May 10, 1924, and their taking possession by virtue thereof of apartment B-2 on September 1, 1924, they are entitled as lessees to the possession of the apartment "at the nominal rental of $1 per year" until a foreclosure decree be entered and until the period of redemption shall have expired, and in addition to have heat, refrigeration and janitor service furnished to them free of charge, and that, notwithstanding the provisions of the prior trust deed of which they had notice, wherein the rents and profits of the premises were conveyed as security for the building loan, the receiver can only collect rent from them at the rate of $1 per year for use and occupation of the apartment. On principle and reason, sustained by the authorities above mentioned, we do not think there is any merit in the contention. Under the trust deed, wherein the rents and profits were conveyed, if Kingsbury, the mortgagor, had been in possession of the apartment, after default and proper appointment of a receiver under the bill to foreclose, he could either have been compelled to pay a reasonable, commercial rental therefor or to turn over possession to the receiver, whose duty it would have been to rent the apartment at a fair rental value so long as he remained in possession. Kingsbury, by his agreement with the Ceperlys, could not give them any greater rights, as against the mortgagee, than he himself had. To hold otherwise would be tantamount to holding that a mortgagor, who had conveyed the rents and profits of the premises as security for his debt, could, by making a lease prior to default, abridge the rights of the mortgagee or the receiver to possession, after default, by the simple act of making such a lease. If counsels' contention be sound, Kingsbury would have the right to make 35 other similar agreements as to the 35 other apartments with other persons, and, had this been done, the result would be that the receiver upon taking possession of the premises under the bill to foreclose, could not obtain legal possession of any of the apartments for the benefit of the mortgagee, would have total annual rental receipts of $36, and have liabilities in a large sum for taxes, upkeep, heat, refrigeration, janitor service, etc. Such a result would be without reason or law to sustain it.
Counsel further contend in substance that the Ceperlys, having acquired subject to the provisions of the trust deed a lease of the apartment for 99 years from Kingsbury for a nominal annual rental, and not having expressly assumed to pay any part of the indebtedness secured by the trust deed, may properly require the complainant trustee "to exhaust its remedy against the mortgagor (Kingsbury) and the corpus of the remaining property before resorting to them for the commercial rent," upon the doctrine of marshalling of assets. It is said in Metzger v. Emmel, 289 Ill. 52, 62: "That doctrine is, that where a creditor has a lien upon two securities with which to make his debt and another party has an interest in one of the securities, that party has a right to compel the creditor first to exhaust the security in which the other party has no interest." We fail to see how this doctrine is applicable to the present case, or how the doctrine of "sale in the inverse order of alienation" is applicable, as is also contended. Counsel argue that the Ceperlys should not be required to pay any rentals until after the premises are sold under a foreclosure decree and it has been determined that there is a deficiency. But the order appealed from does not purport to dispose of the rentals to be collected by the receiver, but only directs that they be collected and conserved, so that they may be under the control of the court when it is finally determined to whom they shall be paid.
For the reasons indicated the order appealed from is affirmed.
Affirmed.
BARNES, P.J., and SCANLAN, J., concur.