Opinion
February 9, 1950 —
March 7, 1950.
APPEAL from an order of the circuit court for Milwaukee county: OTTO H. BREIDENBACH, Circuit Judge. Reversed.
Erwin Esser Nemmers of Milwaukee, for the appellant.
For the respondent the cause was submitted on the brief of Frank K. Levin, attorney, and Kenney Hays of counsel, all of Milwaukee.
This is an appeal from an order, dated October 6, 1949, authorizing and directing the receiver, Paul L. Moskowitz, for the Karr Machine Corporation, to pay to Max Resnick, landlord of the premises occupied by the Karr Machine Corporation, or his attorney, the sum of $300 as and for accrued rental for the premises while in the possession of the receiver.
The action was commenced by service on May 4, 1949, of order to show cause, summons, and complaint in circuit court praying appointment of a receiver following return of execution unsatisfied on judgment for $72.18 obtained by plaintiff, Wilson-Hurd Manufacturing Company, against defendant, Karr Machine Corporation, in civil court of Milwaukee county.
On May 11, 1949, Paul L. Moskowitz was appointed receiver. The order provided in part "that all proceedings by action or otherwise on the part of creditors against said defendant be and hereby are enjoined and restrained" and set August 6, 1949, as the date for filing claims.
On June 22, 1949, by order to show cause the landlord, Max Resnick, sought payment of rent or eviction for nonpayment of rent for period beginning May 1, 1949.
On July 29, 1949, Rural Transformer Equipment Company, claimant-appellant herein, holder of chattel mortgages, filed proof of claim on assets of defendant, Karr Machine Corporation, in amount of $2,516.15, plus interest from October 1, 1948.
By order of July 1, 1949, the court established rent at $100 per month from May 6, 1949, "to be regarded as a preferred claim in the receivership" and permitted the landlord to adjourn consideration of eviction to July 29, 1949.
Sale of the assets of defendant was held August 10, 1949, and confirmed by the court on August 17, 1949. The court transferred the chattel-mortgage lien to the sale proceeds which amounted to $2,000.
On September 30, 1949, the landlord renewed his motion for payment of rent, and on October 6, 1949, it was ordered that the receiver be authorized and directed to pay the rental. Stay of execution pending appeal was signed October 17, 1949. The bill of exceptions signed November 3, 1949, establishes that no testimony or evidence was presented by either the landlord or receiver for the order of October 6, 1949.
This is a proceeding under ch. 128, Stats., and appeal is taken pursuant to sec. 128.15. See Industrial Comm. v. Sanitary Baking Co. (1943), 242 Wis. 115, 7 N.W.2d 603. The question involved is whether the landlord of a debtor which has gone into receivership has priority over the mortgagee of such debtor as to proceeds of sale of the mortgaged property for rent accrued after the date of receivership.
It was stated in Thomsen v. Cullen (1928), 196 Wis. 581, 588, 219 N.W. 439:
"It is only in a very limited class of cases that property subject to a prior lien can properly be subjected to the expenses of a receivership conducted principally in the interest of subsequent creditors and stockholders. The principal exception to the rule is that of a receiver operating the property of a public utility which is charged with the duty of furnishing services to the public. . . . If the contentions of the receiver in this case are to be upheld, then a lienholder upon a manufacturing plant becomes in virtual effect a stockholder in the plant, subject to all the hazards of operation of the business by the court. Here the receivership proceedings were begun primarily in the interest of subsequent creditors and stockholders. . . . It is conceivable at least that an operating receivership might be conducted for the benefit of a mortgagee as well as of subsequent claimants, in which event an entirely different situation would arise."
The rights of the mortgagee in this case are in no respect dependent upon the receivership. The defendant while a going concern had pledged certain of its assets to secure the payment of a stipulated amount. The rights of the mortgagee are referable to the mortgages under which it claims. The only benefit to the mortgagee in this proceeding has been the carrying out of the chattel-mortgage foreclosure, and the only priority over its claim is a reasonable attorney's fee in connection therewith. See Speiser v. Merchants' Exchange Bank (1901), 110 Wis. 506, 513, 86 N.W. 243.
The record clearly discloses that the priority of rent was in issue and that the proceeds of the sale of the mortgaged property was the fund from which such payment for rent was contemplated. The order of October 6, 1949, authorized and directed the receiver to pay to Max Resnick or his attorney the sum of $300 as and for accrued rental for the premises while in the possession of the receiver. This order substantially affected the mortgagee's claim of $2,516.15, against the sale proceeds of $2,000, which is entitled to priority, because the payment of rent would have to be paid out of the said proceeds. An appeal was the only remedy that could preserve mortgagee's lien.
By the Court. — Order reversed, and cause remanded with directions to withhold payment of rent accruing subsequent to appointment of receiver, until mortgage has been paid in accordance with this opinion, without prejudice to any defenses of said receiver to the validity or extent of the said mortgage, or the debt thereby secured.