People Ex Rel. Balbrook Realty Corp. v. Mills , 295 N.Y. 190 ( 1946 )

On January 22, 1934, one Cohn executed and delivered to 166 Broadway Corporation a purchase money bond and mortgage payable in installments until its maturity date upon the premises here in question, known as 170 Broadway in New York City. Thereafter on January 26, 1934, that bond and mortgage was assigned to City Bank Farmers Trust Company (hereinafter referred to as City Bank). There were two other mortgages upon the property. The second mortgage was held by one Schlang and a third mortgage by Brown, Wheelock, Harris Co., Inc. (hereinafter referred to as Brown, Wheelock). Immediately after the execution of the bond and mortgage, Cohn conveyed the premises in question to Balbrook Realty Corporation (hereinafter referred to as Balbrook). On the same day, January 22, 1934, Balbrook as "Principal" executed a "management contract" with Brown, Wheelock as "Agent" under which the latter agreed to manage the premises, collect the rents and, after the satisfaction of all operating expenses and the making of certain other payments, then to set aside each month one twelfth of the annual taxes against the premises and then one twelfth of the annual interest and amortization requirements on the first mortgage. If there remained any balance of rents, amortization payments due and unpaid on the second mortgage were to be made and if there still remained a balance, the Agent was empowered to retain it on account of principal and interest upon its third mortgage at a rate fixed in the management contract.

To indicate clearly that, while Brown, Wheelock was required to set aside moneys for taxes, interest and payments on principal on the first and subordinate mortgages, it was not intended that the management agreement should enure to the benefit of anyone other than Balbrook and Brown, Wheelock, the following provisions were inserted:

"It is expressly understood and agreed that this agreement shall not be deemed to be made for the benefit of any third party, including the respective owners and holders of the firstand second mortgage and in no event shall the Agent be liable to the owners and holders of said first and second mortgage respectively for any matter or thing done or omitted to be done by the Agent in connection with this agreement, the management of said premises or any payment for taxes, interest, amortization payments or otherwise under this agreement. (Emphasis supplied.)

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"Nothing herein contained shall constitute the Agent a mortgagee in possession."

Simultaneously with the execution of the management agreement, there was executed and delivered by Cohn, Balbrook and Brown, Wheelock to 166 Broadway Corporation a letter or instrument which recited that in consideration of the conveyance from 166 Broadway Corporation to Cohn neither Balbrook nor Brown, Wheelock would cancel or materially modify the management agreement without the consent of 166 Broadway Corporation, and Brown, Wheelock agreed to use due diligence to avoid any act or omission which would justify termination of the management agreement by Balbrook. Again, however, in order that no equities in favor of 166 Broadway Corporation, Balbrook or Brown, Wheelock would arise, it was provided in that letter as follows: "Each of the undersigned parties, for itself agrees asto such management agreement and respecting its interest in the said premises, that neither the existence of the same nor yourknowledge of its contents, nor the carrying out of the arrangements as to the payments from income collectedcontemplated therein, nor the receipt of this letter, nor anything contained therein, shall in any way waive or modify any term, covenant or condition of said purchase money mortgage, and on a default therein, despite any provision of said managementagreement, you, or any subsequent holder of said mortgage, shall be entitled to exercise and employ all and any rights, options and remedies allowed or given by the terms of such mortgage to the holder thereof in the event of default, and to make anyapplications to court or bring any proceedings given by law to enforce any such rights and remedies. You are not to be considered a mortgagee in possession by reason hereof." (Emphasis supplied.)

The instant proceeding was brought to review the tax assessment of the City of New York against the premises in question for the tax year 1943-44. After trial at Special Term in 1944, the assessment was found to be erroneous by reason of overvaluation and a refund of the overpayment was directed. Thereafter, in 1945 the City Bank and a receiver in a foreclosure action commenced by it, brought on a motion for leave to intervene and for a direction that the City of New York make such refund to them. The Appellate Division affirmed the order denying the motion. We granted leave to appeal.

The general rule is that, as between the owner and a mortgagee, the former is entitled to the rents and hence to any refund of taxes paid until there is a default and the mortgagee has had a receiver appointed by the court or has obtained an assignment of rents. (Sullivan v. Rosson, 223 N.Y. 217; N.Y. Life Ins.Co. v. Fulton Development Corp., 265 N.Y. 348, 352.) Certainly the management agreement here may not be construed as an assignment of rents to the first mortgagee. That mortgagee was not a party to it and Balbrook and Brown, Wheelock expressly provided that it was not to be for its benefit. Even if it could be assumed that it was an agreement made with the first mortgagee under which the owner was to make payments of taxes out of a specific fund, it would not constitute an assignment of rents. (Thomas v. N.Y. G.L.R. Co.,139 N.Y. 163, 179; James v. Alderton Dock Yards, 256 N.Y. 298,303.) In the latter case, it was said: "It is settled law in this State that an agreement either by parol or in writing to pay a debt out of a designated fund does not give an equitable lien upon the fund nor operate as an equitable assignment thereof."

There is here no contention that there ever was any agreement other than the management agreement of January 22, 1934, and the supplemental letter of the same date. The taxes were not paid by City Bank as assignee out of its own funds. They were not paid by City Bank out of funds paid to it or its agent by the owner for the purpose of paying the taxes. (See People ex rel. 342 East57th Street Corp. v. Miller, 262 App. Div. 132, affd. 287 N.Y. 682. ) They were not paid out of rents collected under an assignment of rents or through the appointment of a receiver. Subsequent to the alleged defaults, there was neither an assignment of rents nor a taking of possession by the mortgagee nor any other agreement, oral or written, whereby the rents were pledged, assigned, or trusteed to the mortgagee. This is not a case where the mortgagee has recovered a judgment, nor where a special statute governs after a sale has been had and a deficiency established. (See People ex rel. N.Y. Title Mortgage Co. v. Miller, 262 App. Div. 175, affd. 287 N.Y. 685. ) This is not a case where subsequent to the claimed defaults, the owner has committed any acts amounting to an estoppel. There was here no forbearance as in Monica RealtyCorp. v. 122 Fifth Ave. Corp. (264 N.Y. 52.) On the contrary, in the letter which we have quoted (supra) Balbrook agreed that there should be no forbearance. Equity could help the appellants if there were any equities existent. Here, the assignor of City Bank, Balbrook and Brown, Wheelock carefully contracted for their own purposes that there should be no equities. Counsel urges that there is inconsistency between the management agreement and the letter because the letter provided that the agreement between Brown, Wheelock and Balbrook should be neither canceled nor materially modified without the written consent of the appellants' assignor. No doubt the assignor of City Bank wished the benefit of the management of a responsible agent which had just been appointed. That would not lead to a finding of inconsistency. Moreover, any claim of inconsistency has been resolved against the appellants. More likely it seems that no one ever contemplated an overpayment and consequent refund of taxes back in 1934 when the instruments were drawn.

The order should be affirmed, with costs.