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Abrahams v. Berkowitz

Supreme Court of New York, Appellate Division

October 13, 1911

JACOB ABRAHAMS, Respondent,
v.
DAVIS BERKOWITZ and Others, Respondents. In the Matter of the Application of BUILDERS' MORTGAGE COMPANY, Appellant, for an Order Directing the Receiver to Pay over the Rents of the Mortgaged Premises.

APPEAL by the petitioner, the Builders' Mortgage Company, from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of Kings on the 16th day of January, 1911, denying the petitioner's motion to compel Francis E. Carberry, receiver of the rents and profits of the mortgaged premises, to pay over to the petitioner moneys collected by him as such receiver.

COUNSEL

Henry Escher, Jr. [ Lyttleton Fox with him on the brief], for the appellant.

Page 564

Franklin Taylor, for the plaintiff, respondent.

Herman M. Schaap, for the judgment creditor, Michae Cohen & Co.

Charles J. Belfer, for the judgment creditor, Gustave Rader.

HIRSCHBERG, J.:

The question presented by this appeal is whether the holder of a first mortgage upon real estate may compel a receiver, appointed in an action brought to foreclose a subsequent mortgage, to pay over rents collected by him under such appointment to the first mortgagee. The action is brought for the foreclosure of the subsequent mortgage, and the petitioner, the first mortgagee, is not a party to the suit. Its bond and mortgage were executed on June 29, 1907, and the mortgage recorded July 1, 1907. The plaintiff's, the second, bond and mortgage were executed July 17, 1907, and the mortgage was recorded that day. On February 24, 1908, suit was brought to foreclose the first mortgage, and on March 24, 1909, while such suit was pending, the present action was brought for the foreclosure of the second mortgage. In this action Francis E. Carberry was duly appointed receiver of the rents, issues and profits of the mortgaged premises, he having been previously appointed receiver of certain judgment creditors of the mortgagor. The receiver having collected certain rents, the appellant, as first mortgagee, applied for an order compelling him to pay over to the appellant the amount of the rents so collected; and the appeal is from an order denying the motion.

The sole question considered by the court at Special Term (70 Misc. 319), and the only question which will be considered on this appeal, is as to the right of the appellant to the relief sought, the respective claims of the judgment creditors and of the second mortgagee being reserved at the Special Term for future consideration.

It seems to me quite clear that the order should be affirmed. It has been the settled law in this State that the appointment of a receiver at the instance and for the benefit of the junior incumbrancer operates to create a specific lien upon the rents and to give him to that extent a preference over the first general

Page 565

incumbrancer. In Howell v. Ripley (10 Paige, 43) it was held that where a junior mortgagee files his bill for the foreclosure of his mortgage subject to the lien of a prior mortgage, and obtains the appointment of a receiver of the rents and profits of the premises, and the prior mortgagee afterwards files his bill of foreclosure and obtains an order appointing the same person as receiver in his suit, the latter was entitled only to the rents and profits due at the time of the appointment of the receiver in his suit and to such as accrued thereafter, the junior mortgagee being entitled to all rents received prior to the appointment of the receiver in the suit of the prior mortgagee.

In Post v. Dorr (4 Edw. Ch. 412) it was held that a mortgagee obtains a specific lien upon the rents by diligently obtaining the appointment of a receiver, and a second or third mortgagee may thus get an advantage of the first mortgagee as to rents collected. In Washington Life Ins. Co. v. Fleischauer (10 Hun, 117) it was held that where, in an action brought to foreclose a mortgage, a subsequent incumbrancer, who is made a party defendant thereto, obtains in his own behalf the appointment of a receiver of the rents and profits of the mortgaged premises, he is entitled to retain the amount collected by the receiver as against the claim of the mortgagee plaintiff, notwithstanding a sale of the property has proved insufficient to satisfy such claim. (See to the same effect Ranney v. Peyser, 83 N.Y. 1.) In that case the plaintiff, the holder of a subsequent mortgage, was held to have a right to retain rents collected by a receiver appointed at his instance, notwithstanding the existence of a prior mortgage claim. The court said (p. 7): 'The plaintiff, by his superior diligence, acquired a specific lien upon the rents in question, superior to any equities of the first mortgagee, and we think he is entitled to retain them to apply upon his mortgage.'

The mortgage of the petitioner contains the following clause, namely: 'That if default shall be made in the payment of the principal sum mentioned in the condition of the said bond, or of the interest which shall accrue thereon, or of any part of either, at the respective times therein specified for the payment thereof, the said ...


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