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Home Life Ins. Co. v. O'Sullivan

Supreme Court of New York, Appellate Division

June 14, 1912

MINNIE E. O'SULLIVAN and Others, Defendants. MINNIE R. KALLMAN, Receiver, Appellant; MADALENA SISIA, Respondent.

APPEAL by Minnie R. Kallman, as receiver, from an order of the County Court of Kings county, entered in the office of the clerk of said county on the 16th day of February, 1912, denying an application for an order to compel one Madalena Sisia to turn over the sum of $180, being the rent of certain premises.


Henry Hetkin, for the appellant.

Leroy W. Ross, for the respondent.


This action was brought to foreclose a mortgage made by Mary A. McKenna and others to the plaintiff for the sum of $2,500 on the 18th day of December, 1896, and duly recorded in Kings county on the 19th day of December of the same year.

Page 536

On the 3d day of March, 1909, Madalena Sisia entered into a lease with Mary A. McKenna, individually and as life tenant under the last will and testament of James McKenna, deceased, for a period of two years, at a yearly rental of $2,160, payable in monthly installments of $180, and upon the execution of said lease she claims to have deposited with the landlord the sum of $180, under a provision of the lease which acknowledges the receipt of that sum, 'deposited by the Tenant as security for the faithful performance by the Tenant of the covenants and conditions herein, and the Landlord agrees to apply the said sum in payment of the rent for the last month of the tenancy provided the Tenant shall faithfully perform the covenants and conditions on her part to be performed.' Subsequently Mary A. McKenna died, and the lease was renewed and ratified by her heirs at law under the same terms and conditions, and Madalena Sisia was in possession down to the 1st day of March, 1912, as a holdover tenant.

On the 5th of January, 1912, the plaintiff moved for the appointment of a receiver of the rents of the mortgaged premises, and the appellant Minnie R. Kallman was appointed and duly qualified. On taking possession appellant found Madalena Sisia in possession under the above-mentioned lease. The tenant was notified of the appointment of the appellant as receiver, and the latter demanded the rent collected by Sisia for the month of January. This was refused, whereupon the appellant secured an order to show cause why Sisia should not pay over the rent to her as receiver, and upon the return day Sisia appeared by counsel and opposed the motion, but was ordered to pay over the same. No appeal was taken from this order. When the appellant demanded the February rents she was met by a like refusal, and upon the return of an order to show cause the learned County Court refused to compel the payment. The objections raised in behalf of Sisia were: (1) That she was not made a party defendant in this foreclosure action; (2) that she was relieved from paying said rent by reason of the provision of the lease above mentioned, it being contended that February was the last month of her leasehold possession, and that the sum had already been paid.

The lease under consideration provided that it was 'understood

Page 537

and agreed that the rights of the lessee under this lease are subject and subordinate to all existing mortgages and to an additional mortgage to be hereafter executed in a sum not to exceed three thousand dollars,' and we are unable to discover any reason why Sisia should have been made a party to the foreclosure proceeding, so long as it was not the purpose of the foreclosure action to dispossess her. Failure to make her a party to the foreclosure merely operated to ratify the lease under which she was in possession, but it in no wise relieved her of the obligation of paying the rent to the person legally entitled to the same, and no question is here presented as to the regularity of the appointment of the appellant. The foreclosure did not affect any right of Sisia; it was of no importance to her whether she paid rent to the appellant or to the landlord, so long as its payment operated to discharge the obligation of her lease contract.

This mortgage, made, executed and delivered in 1896, gave the mortgagee the equitable right in a proper case to a receiver of the rents and profits upon the commencement of the foreclosure action ( Hollenbeck v. Donnell, 94 N.Y. 342; Rutherfurd Realty Co. v. Cook, 198 id. 29, 34), and the lease to Sisia, being made subject to the existing mortgages, was of course subject to the right of the mortgagee to demand the rent for the term, and the question of whether Sisia had performed all of the covenants on her part to be performed could not be determined at the first of February, for the term did not end until the first day of March, at which time she was to deliver the premises in as good condition as when she came into possession, subject only to the action of the elements. But passing over the point that it could not be determined whether the covenants had been fully performed, it is enough that a receiver appointed at the instance of a mortgagee, under a mortgage executed and recorded prior to a lease, stands in a very different position to the tenant from that held by the landlord. A tenant under a subsequent lease takes with notice of all the rights which the mortgagee has under the mortgage. (Derby v. Brandt, 99 A.D. 257.) He is bound to know that if the security is deemed inadequate and the mortgagee seeks equitable relief he is entitled to a receivership. Therefore,

Page 538

whatever may be the relations between Sisia and her landlord, as between herself and the receiver, she is, as the occupier of real property, subject to a mortgage under foreclosure in an action wherein a receiver has been appointed, bound to answer to such receiver for rent which may be due or which may accrue after such receiver's appointment. In making her advance payment, as recited in the lease, she took the chances of a foreclosure and of the appointment of a receiver of the rents and profits, and she has no right to attempt to withhold from the plaintiff the full measure of his security. The plaintiff is enforcing a legal and equitable right which belonged to him long prior to the lease in question, 'and as part of his remedy, where the security is inadequate and the terms of the mortgage permit it, he is entitled during the pendency of the action to receive either the rent or the occupation value of the premises upon which his mortgage is a lien; and the rights which the tenant under his lease may have against the landlord are necessarily subordinate to the right and remedies which the plaintiff has under his mortgage.' ( Derby v. Brandt, supra.) There is here no question of dispossessing the tenant. The question is as to the rights of a mortgagee upon the foreclosure of his mortgage, made and recorded prior to the lease, ...

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