Summary
affirming common pleas court's holding that former mortgagee in possession was bound after purchasing property at judicial sale by pre-sale written agreement to lease the property for an increased rental
Summary of this case from Reilly v. Firestone Tire and Rubber Co.Opinion
September 24, 1945.
November 26, 1945.
Mortgages — Possession — Leases — Foreclosure — Rights of purchaser or assignee of mortgagee.
1. A purchaser or assignee of a mortgagee who has foreclosed and bid in the property secured by the mortgage takes the property subject to a written lease entered into by the mortgagee while in possession of the premises. [257-61]
2. A prospective purchaser of real property is required to make inquiry of those in possession and, failing to do so, is affected with constructive notice of all that such inquiry would disclose. [260]
Before MAXEY, C. J., DREW, LINN, STERN, PATTERSON, STEARNE and JONES, JJ.
Appeal, No. 167, Jan. T., 1945, from judgment of C. P. No. 4, Phila. Co., Dec. T., 1944, No. 1428, in case of The Most Excellent Assembly of the Artisans Order of Mutual Protection v. Superb Realty Company. Judgment affirmed; reargument refused January 14, 1946.
Proceeding upon petition for possession of real property.
The facts are stated in the opinion by FINLETTER, P. J., of the court below, in part as follows:
These are proceedings under the Act of 1905 to secure possession of certain real estate.
Jury trial was waived by agreement and the case left to the decision of the Trial Court.
After the filing of petition and answer the petitioner took a rule for judgment in its favor on the whole record. After argument before the Court in banc petitioner's rule was discharged.
It appeared in the course of the argument of the rule that there was no dispute about the pertinent facts, and that their legal effect alone was involved.
The trial has not changed the situation. There is still no dispute about the facts, the legal effects alone being questioned.
The Trial Judge has considered the case again and is of opinion that the petitioner has not established its right to present possession of the property for the reasons given in the opinion of the Court delivered in connection with petitioner's rule for judgment on the whole record.
The petitioner is assignee of a mortgagee who had foreclosed and bid in the property. The respondent is a tenant of the property who claims to hold under a new lease made by the mortgagee while in possession of the property under the mortgage.
The petitioner has taken a rule for judgment of possession against the respondent on the whole record. The case is before us on the petitioner's rule.
The facts are as follows: On April 10, 1929, a mortgage was given by Superb Realty Company to the Artisans Order of Mutual Protection. On December 31, 1937, Superb Realty Company leased the property to Bender Bros., Inc., for five years from January 1, 1938, for $350 a month.
In 1942 there was a default on the mortgage and the mortgagee entered into possession. Subsequently the mortgagee and the tenant entered into several agreements modifying the original lease. These culminated in the mortgagee, while still in possession under the mortgage, giving the tenant a new lease for a term extending from the present time until December 31, 1946.
The mortgagee then proceeded to foreclose. At the sheriff's sale the mortgagee was the highest bidder. It (the mortgagee) then assigned its bid to the petitioner to whom the property was then deeded by the sheriff. The assignee brought proceedings under the Act of 1905 to secure possession.
The pertinent facts may be summarized as follows: The mortgage antedated the original lease. The mortgagee took possession of the property, and while in possession entered into an agreement the effect of which was to lease the property for a term ending December 31, 1946, the tenant agreeing to pay an increased rental. This contract was in fact a new lease for an extended term and at a higher rental. It was executed by the mortgagee and, if the latter had a right to enter into such a lease, was binding upon it.
The question involved is what were the rights of the mortgagee, while he was in possession of the property under the mortgage?
It is clear from the decisions that it possessed, at least, a lien upon the property. It had the right to take all reasonable action to protect its lien: Miles v. Kolsky, 13 Pa. D. C. 579; Bulger v. Wilderman and Pleet, 101 Pa. Super. 168, 180; Randal v. Jersey Mortgage Investment Co., 306 Pa. 1.
There is no doubt about the mortgagee's right to collect the rents of the property as fixed by the original lease. Being in possession he alone had the right to collect them. Where there is an existing lease he may not be criticized for accepting rental in the sum set by the lease. But if the rental is too low, has he not the right and indeed the duty of collecting for the benefit of the property owner, the full rental value of the property?
Take for example an extreme case. If when the mortgagee takes possession he finds the property tenantless and empty, may he do nothing and thus in effect waste the mortgagor's property? Or is he not bound to lease the property for the fair rental value for his own and the mortgagor's benefit? To say he must accept less than a proper rental is to injure both himself and the mortgagor. In the instant case it is evident that the mortgagee thought the $350 a month was inadequate, and he was right. The tenant was willing and agreed to pay $400 for the ensuing years up to December 31, 1946.
See the cases cited above, as authority for the right of the mortgagee in possession to take all steps necessary to enforce his lien, which includes in our opinion the right to lease the property at its full value.
The cases cited by petitioner, Girard Trust Co. v. Dempsey, 129 Pa. Super. 471, and Brown v. Aiken, 329 Pa. 566, do not support the proposition that written agreements for the possession of the mortgaged property entered into by the mortgagee while in possession can be destroyed by foreclosure.
In the first of these cases the plaintiff in a foreclosure case bought the property at the foreclosure sale, and brought the proceedings under the Act of 1905 to secure possession. The tenant came into possession under a lease from the mortgagor entered into after the making and recording of the mortgage. The tenant asserted that the plaintiff as mortgagee in possession had made demand upon the tenant for paying of rent under the lease which had been paid and accepted by the mortgagee, and that this constituted an affirmance of the lease, and that therefore the mortgagee, purchaser at the sheriff's sale, was not entitled to possession. President Judge KELLER said "Acceptance by the mortgagee in possession did not create new lease." This distinguishes that from the instant case, where a new lease had been created. And it might be added that the acceptance of rental by a mortgagee in possession was within the mortgagee's right to protect his lien as we have pointed out above. The clear indication is that if a new lease had been created, the mortgagee would have had no right to terminate it by foreclosure or otherwise.
Brown v. Aiken, 329 Pa. 566, was a proceeding under the Act of 1905, brought by an assignee of the mortgagee who had foreclosed and bought at the sheriff's sale. Without reciting all the details of the case it is plain that the case turned on the Statute of Frauds. All of the controlling facts and agreements were oral. The inference we draw from it is that a mortgagee is bound by his written commitments as mortgagee in possession, and that valid contracts cannot be evaded by merely foreclosing. The Chief Justice did not decide that the alleged oral agreement between the tenant and the mortgagee was terminated by the sheriff's sale but held that it was barred by the Statute of Frauds.
To this we may add the following: The assignment by the mortgagee of his right as the highest bidder to the petitioner was in effect an assignment of his equitable interest in the property. The sheriff recognized this by deeding the property to the petitioner. Petitioner was in fact the purchaser of the property. As prospective purchaser it was required to make inquiry of those in possession and, failing to do so, is effected with constructive notice of all that such inquiry would have disclosed.
"The actual visible possession of a tenant is constructive notice both of his interest and that of the landlord." Stonecipher v. Keane, 268 Pa. 540; Kinch et al v. Fluke, 311 Pa. 405, 408; Stewart v. Reed, 91 Pa. 287.
A visit to the property would have disclosed that it was in possession of a tenant who had a valid lease (Bender Bros., respondents) which would not expire until December 31, 1946.
For these reasons we are of opinion that the petition should be dismissed and that it should be adjudged that the respondents are entitled to present possession of the property. And we do so adjudge.
Earl Jay Gratz, for appellant. Charles E. Kenworthey, with him Louis F. Floge and Schnader, Kenworthey, Segal Lewis, for appellee.
Argued September 24, 1945.
The judgment is affirmed on the opinion of President Judge FINLETTER of the court below.