When a mortgage contains no provision for the payment of rents
and profits to the mortgagee while the mortgagor remains in
possession, the mortgagee is not entitled, as against the owner of
the equity of redemption, to the rents and profits of the mortgaged
premises until he takes actual possession or until possession is
taken in his behalf, even though the income may be expressly
pledged as security for the mortgage debt, with the right in the
mortgagee to take possession upon failure by the mortgagor to
perform the conditions of the mortgage.
Section 3737 of the Revised Statutes respecting the transfer of
contracts with the United States does not embrace a lease of real
estate, to be used for public purposes, under which the lessor is
not required to perform any service for the government and has
nothing to do in respect of the lease but to receive from time to
time the rent agreed to be paid.
When the government, as lessee of real estate occupied by it,
recognizes through its proper officers a transfer of the property
and an assignment of the lease, and an assignment of rent under it,
and pays the rent, there is nothing in § 3477 Rev.Stat. respecting
transfers and assignments of claims against the United States which
invalidates that transaction for the benefit of a third party.
The Court stated the case as follows:
These consolidated causes involve the conflicting claims of the
parties first to the proceeds of two drafts, one for $1,800, and
the other for $3,475, issued by the United States Treasury in
payment of the rent of lot four, square three hundred and
seventy-seven, with the improvements thereon, in the City of
Page 127 U. S. 495
Washington and made payable to the order of A. C. Bradley, to
the use of Alexander R. Shepherd, to the use of George Taylor,
Peter F. Bacon, and Samuel Cross, trustees; second, to a balance of
$787.50 in the hands of A. C. Bradley, who was appointed, in the
first of the above named causes, receiver of said premises with
authority to collect the rents due and to become due for use and
occupation of the same by the United States.
The final decree awarded the proceeds of the two drafts to
Thompson, appellee in each of the causes, and the money in the
hands of the receiver to the trustees of Shepherd. Of that decree
both the Freedman's Savings and Trust Company and Shepherd
complain.
This controversy has been greatly tangled by an unusual number
of pleadings, affidavits, motions, rules and orders. But the facts,
so far as it is necessary to state them, are as follows:
The Freedman's Savings and Trust Company (to be hereafter called
the Trust Company) sold and conveyed this property to A. C.
Bradley, and for the unpaid purchase money the latter executed his
five several notes for $2,400, $2,650, $2,900, $3,150, and $5,900,
payable in one, two, three, four and five years from June 9, 1873,
with interest at eight percentum per annum, payable
semiannually.
For the purpose of securing the payment of those notes, Bradley,
by deed of trust in the nature of a mortgage, duly recorded on the
18th of June, 1873, conveyed the property to John W. Alvord and
George W. Stickney, together with "all the improvements, ways,
easements, rights, privileges, appurtenances, and hereditaments"
appertaining to the same, and "all the estate, right, title,
interest, and claim whatsoever, either at law or in equity" of the
grantor in the premises in trust to permit Bradley, his heirs or
assigns, to use and occupy the premises and take the rents, issues,
and profits thereof to their sole use and benefit
"until default be made in the payment of said notes or any of
them, or any installment of interest due thereon, or any proper
cost, charges, commission, half commission, or expense in and about
the same,"
and
Page 127 U. S. 496
upon the further trust, such default having occurred, to sell
the property at public auction, after at least twenty days' notice
of the time, place, and terms of sale, and convey the same in fee
simple to the purchaser.
Prior to the execution of this deed, Bradley, by a formal
instrument of writing to which the Postmaster General was a party,
had leased the premises to the United States at an annual rent of
$4,200 for the term of three years from June 5, 1873, with the
privilege to the government of extending the term for two
additional years. On the 27th of August, 1874, he conveyed to
Alexander R. Shepherd, and on the 21st of November of the same year
gave written notice to the Postmaster General of Shepherd's
purchase. He also assigned and transferred the lease to the latter
with authority to collect the rent.
It should be stated in this connection that in his purchase,
Bradley really represented Shepherd, the latter verbally assuming
to pay the notes given to the Trust Company.
On the 15th of November, 1876, Shepherd made a conveyance to
George Taylor, Henry A. Willard (who was succeeded by Peter F.
Bacon), and Samuel Cross of a large amount of property,
including the premises in controversy, in trust to secure
his three notes of $100,000 each. That conveyance contained a
covenant upon the part of Shepherd that all the rents, profits,
issues, and proceeds of the trust property coming to his hands
should be applied by him solely to the benefit and advantage of the
creditors whose debts were secured by the deed.
The rent reserved for the year ending June 30, 1876, not having
been paid, Shepherd caused suit to be brought in the Court of
Claims in the name of Bradley against the United States, to the use
of Taylor, Bacon, and Cross, trustees. In that suit, judgment was
rendered against the government for only $1,800, and was affirmed
by this Court at its October term, 1878.
Bradley v. United
States, 98 U. S. 104.
Pending the appeal in that case, a second suit was brought for the
rent reserved for the years ending June 30, 1877, and June 30,
1878. But the decision in the first suit rendered the further
prosecution of the second suit unnecessary.
Page 127 U. S. 497
In consideration of the indebtedness described in a deed
executed by Shepherd, March 10, 1873, to William Thompson as
trustee, Bradley and Shepherd, by writing, dated June 21, 1877,
pledged the demand against the United States for use and occupation
of these premises, as security for the payment of said
indebtedness, with interest thereon at the rate of eight percent
per annum until paid, and, in the same instrument,
"covenanted and agreed that any draft or check issued in payment
or part payment of said claim shall be endorsed and delivered to
the trustee named in said trust, and the proceeds thereof, less all
proper costs and charges, be applied to the payment of the said
indebtedness, with interest as aforesaid, or to so much thereof as
the sum or sums of money so received is or are sufficient to
pay."
To this pledge and agreement the trustees named in Shepherd's
deed of the 15th of November, 1876, gave their written assent.
The premises having been advertised to be sold on the 3d of
August, 1877, under the deed of trust of June 18, 1873, because of
default in the payment of interest and principal, Shepherd and the
trustees in the deed of November 15, 1876, instituted, August 2,
1877, a suit of equity, being the first named of the above causes,
to enjoin the sale. The ground alleged for the injunction was the
pendency of a suit brought by Mrs. McGhan and Edward Clark, her
trustee (
Clark v. Trust Company, 100 U.
S. 149), which involved the title of the Trust Company
to the property conveyed to Bradley, and by the latter to Shepherd.
A temporary injunction of the character asked was granted. The
Trust Company answered the original bill. It also filed, October
25, 1887, its cross-bill against the plaintiffs, in which, after
alleging the insolvency of Shepherd and Bradley, its fear that the
property would not sell for enough to pay the debts secured by the
mortgage and the taxes on it, and asserting the right of its
creditors to have the rents thereof applied to its claims in
preference to the debts held by other creditors of Shepherd, it
prayed that Shepherd, Taylor, Cross, and Bacon be perpetually
restrained from applying for or receiving any rents or sums of
money due from the United States on account of the use and
occupation
Page 127 U. S. 498
of the premises until the final determination of this cause and
of the equity suit brought by Mrs. McGhan and Clark, and that a
receiver be appointed to collect the rents due from the United
States on account of the use and occupation of the premises.
On the 18th of March, 1878, the case was heard on the motion of
the Trust Company for a receiver and an injunction, and an order
was made enjoining the complainants
"from collecting or receiving any moneys or other thing of value
from the United States on account of the lease made between the
United States and A. C. Bradley, and bearing date June 6, 1873, for
the premises involved in this cause."
On the 12th of March, 1879, the Trust Company, by petition,
asked the appointment of a receiver to take charge of the property
and to collect the rents during and after its occupancy by the
government, and that Shepherd and his co-complainants be enjoined
from receiving from the United States any of said rents.
On the 10th of May, 1879, the cause was heard upon the matters
embraced in that petition, and on motion of the Trust Company, and
with the consent of the other parties, Bradley was appointed
receiver in the cause. He was directed to take charge of the
property and collect the rents therefor,
"excepting, however, the rents accrued and to accrue from the
6th day of June, 1878, to the 1st day of July, 1879, which have
been or are to be collected and received by the said Alexander R.
Shepherd or his assigns."
It was further ordered that the parties be enjoined from
applying for or receiving any moneys due or to become due on
account of the use and occupation of the premises, save and except
the rents for the period just named.
Subsequently, upon the petition of Bradley as receiver,
Nathaniel Wilson was made a party to the cause, he having, in his
capacity as an attorney, received the proceeds of the draft for
$1,800 issued by the United States in discharge of the judgment for
the rent of the premises for the year ending June 30, 1876, and a
draft for the rent accruing after that date and up to June 6, 1878.
Wilson appeared and answered,
Page 127 U. S. 499
stating that he held the proceeds of the draft for $1,800, less
certain sums deducted therefrom, and also the draft for $3,475,
subject to the order of the court.
John W. Thompson filed a petition praying leave to intervene for
the protection of his interests. This petition was afterwards
withdrawn, and he instituted an original suit -- the second of the
above named causes -- against Bradley, Shepherd, the Trust Company,
the trustees in Shepherd's deed of November 15, 1876, William
Thompson, the trustee in the deed of March 10, 1873, and Nathaniel
Wilson. From the pleadings and evidence in that suit, it appears
that Thompson holds Shepherd's two notes of $7,000 and $8,000, on
which at the time he sued there was due a balance of $11,677.28,
with interest at the rate of 8 percent per annum on $8,000 thereof
from March 10, 1875, and on $3,677.28 from June 22, 1875. These
notes constituted the indebtedness referred to in the deed of trust
to William Thompson, to secure the payment of which Bradley and
Shepherd, with the consent of the tatter's trustees, executed the
writing of June 21, 1877. Thompson's suit was consolidated with the
one brought by Shepherd.
On the 18th of January, 1880, the restraining order made August
2, 1877, in Shepherd's suit was set aside and, on the 28th of
February, 1880, the property having in the meantime been sold under
Bradley's deed and purchased the Commissioners of the Trust Company
-- leaving due on Bradley's notes more than $11,000 -- the receiver
was directed to deliver possession to the Commissioners, who were
authorized to apply for, collect, and receive the rents, issues and
profits of the property thereafter falling due.
The amount of rent collected by the receiver, less his
commission, was $787.50. The amount in the hands of Wilson,
including the draft for $3,475, was $4,675.
The final decree was of the character indicated in the beginning
of the opinion. In respect to the draft for $3,475, the decree
required Bradley, Shepherd, Taylor, Bacon and Cross to endorse the
same, and directed its collection by Wilson, and the payment by him
to Thompson of the proceeds, together
Page 127 U. S. 500
with the balance in his hands of the $1,800 draft. It was
further ordered that the $787.50 in the hands of the receiver be
paid to the trustees of Shepherd.
MR. JUSTICE HARLAN, after stating the case, delivered the
opinion of the Court.
What rights did the trust company acquire under Bradley's deed
in respect to the income or rents of the mortgaged property
accruing after the execution of that instrument? This is the
principal question presented for our consideration, and will be
first examined.
In
Gilman v. Ill. & Miss. Tel. Co., 91 U. S.
603,
91 U. S. 616,
the question was as to the disposition of certain earnings of a
railroad, accruing after a decree of foreclosure and sale and
before the purchaser at the sale was let into possession. The first
in point of time of the mortgages conveying the property to secure
the company's bonds provided, among other things, that it might
remain in possession, and operate the road, enjoying the revenues
thereof, until default occurred in paying the interest or the
principal of its bonds at maturity, and if such default continued
six months, or if the company failed to set apart, deposit, and
apply certain moneys as required by the mortgage, then the trustees
might, and it should be their duty, to enter upon and take
possession of, and, by agents, operate the mortgaged property. The
second mortgage contained substantially the same provisions. After
the decree of foreclosure and sale was passed, a judgment creditor
of the company, proceeding under the local law, garnished, in the
hands of the company's agents at its various stations, moneys
received by them from the operation of the road, the company
Page 127 U. S. 501
having been permitted to remain in possession up to the time of
the sale under the decree. The trustees in the mortgage claimed
that these moneys should be applied in payment of the balance
remaining unpaid on their mortgage bonds. This claim was denied.
The Court, following the previous case of
Railroad
Co. v. Cowdrey, 11 Wall. 459, said:
"It would have been competent for the court
in limine,
upon a proper showing, to appoint a receiver, and clothe him with
the duty of taking charge of the road, and receiving its earnings,
within such limit of time as it might see fit to prescribe. It
might have done the same thing subsequently, during the progress of
the suit. When the final decree was made, a receiver might have
been appointed and required to receive all the income and earnings
until the sale was made and confirmed and possession delivered over
to the vendee. Nothing of this kind was done. There was simply a
decree of sale. The decree was wholly silent as to the possession
and earnings in the meantime. It follows that neither during that
period was in any wise affected by the action of the court."
Again:
"It is clearly implied in these mortgages that the railroad
company should hold possession and receive the earnings until the
mortgagees should take possession, or the proper judicial authority
should interpose. Possession draws after it the right to receive
and apply the income. Without this, the road could not be operated
and no profit could be made. . . . If the mortgagees were not
satisfied, they had the remedy in their own hands, and could at any
moment invoke the aid of the law or interpose themselves without
it. They did neither."
In
American Bridge Co. v. Heidelbach, 94 U. S.
798,
94 U. S. 800,
the mortgage included the rents, issues, and profits of the
mortgaged property so far as it was necessary to keep it in repair,
and pledged such rents, issues, and profits to the payment of the
interest on the mortgage bonds as it matured, and to the creation
of a sinking fund for the redemption and payment of the principal.
In the event of a continuous default for six months in meeting the
interest, the trustees, upon the written request of the holders of
one-half of the outstanding bonds, were authorized to take
possession of the mortgaged
Page 127 U. S. 502
premises and receive all rents and claims due and to become due
to the company. In a contest between the trustees and a judgment
creditor, as to which was entitled to certain moneys in the hands
of the mortgagor, the decision was in favor of the creditor, the
Court saying:
"In this case, upon the default which occurred, the mortgagees
had the option to take personal possession of the mortgaged
premises, or to file a bill, have a receiver appointed, and
possession delivered to him. In either case, the income would
thereafter have been theirs. Until one or the other was done, the
mortgagor, as Lord Mansfield said in
Chinnery v. Black, 3
Doug. 390, was 'owner to all the world, and entitled to all the
profit made.'"
In
Kountze v. Omaha Hotel Co., 107 U.
S. 378,
107 U. S. 392,
it was held that a bond given on appeal with supersedeas from a
final decree of foreclosure and sale did not cover rents and
profits or the use and detention of the property pending the
appeal. The Court said that
"in the case of a mortgage, the land is in the nature of a
pledge, and it is only the land itself -- the specific thing --
which is pledged. The rents and profits are not pledged; they
belong to the tenant in possession, whether the mortgagor or a
third person claiming under him. . . . The taking of the rents and
profits prior to the sale does not injure the mortgagee for the
simple reason that they do not belong to him. . . . But perception
of rents and profits is the mortgagor's right until a final
determination of the right to sell, and a sale made
accordingly."
It is of course competent for the parties to provide in the
mortgage for the payment of rents and profits to the mortgagee even
while the mortgagor remains in possession. But when the mortgage
contains no such provision, and even where the income is expressly
pledged as security for the mortgage debt, with the right in the
mortgagee to take possession upon failure of the mortgagor to
perform the conditions of the mortgage, the general rule is that
the mortgagee is not entitled to the rents and profits of the
mortgaged premises until he takes actual possession or until
possession is taken in his behalf by a receiver,
Teal v.
Walker, 111 U. S. 242;
Grant v. Phoenix Life Ins. Co., 121
U. S. 117, or until, in proper
Page 127 U. S. 503
form, he demands and is refused possession.
Dow v. Memphis
Railroad Co., 124 U. S. 652,
124 U. S. 654.
See also Sage v. Memphis & Little Rock Railroad Co.,
125 U. S. 361.
The principles announced in these cases are decisive against the
claim of the trust company to the rents of the property represented
by the two drafts delivered by the United States to Wilson.
Bradley's deed pledged the property, not the rents accruing
therefrom, as security for the payment of his notes. It is true it
provides generally that the mortgagor may remain in possession, and
receive rents and profits until there is default upon his part. But
the only effect of that provision was to open the way to compel him
to submit to a sale and thereby lose possession. The deed did not
give the mortgagee or the trustees the right immediately upon such
default to take possession and appropriate the rents of the
property. It only gave the trustees authority when such default
occurred to sell upon short notice, and in that way oust the
mortgagor and suspend his right to further appropriate the income
of the property. Even if the deed had expressly pledged the income
as security for the debts named, the mortgagor, according to the
doctrines of the cases cited, would have been entitled to the
income until at least possession was demanded under the deed, or
until his possession was disturbed by a sale under the deed of
trust, or, in advance of a sale, by having a receiver appointed for
the benefit of the mortgagee. As was said in
Kountze v. Omaha
Hotel Co., 107 U. S.
395:
"Courts of equity always have the power where the debtor is
insolvent, and the mortgaged property is an insufficient security
for the debt, and there is good cause to believe that it will be
wasted or deteriorated in the hands of the mortgagor, as by cutting
of timber, suffering dilapidation, etc., to take charge of the
property by means of a receiver and preserve not only the corpus
but the rents and profits for the satisfaction of the debt. When
justice requires this course to be pursued and it is resorted to by
the mortgagee, it will give him ample protection."
In the present case it appears that prior to the time fixed for
the sale under Bradley's deed of trust and before the trust company
filed its cross-bill asking, among other things, for a
Page 127 U. S. 504
receiver of the rents of the mortgaged property, Bradley and
Shepherd, with the consent of Shepherd's trustees, had pledged the
rents of the property as security for Thompson's debts. As
Bradley's deed of trust did not pledge the rents as security for
his notes to the trust company, the pledge of such rents by himself
and Shepherd, his assignee, for Thompson's benefit, did not violate
any right secured to it, for, as we have shown, until a sale was
had pursuant to the deed of trust and possession taken under such
sale, it had no right, by the terms of the deed, to take the income
of the trust property. So that if a receiver had been appointed
immediately upon the filing, October 25, 1877, of the cross-bill of
the trust company, and if all the rents represented by the two
drafts of $1,800 and $3,475 had been collected by the receiver,
they would still, in virtue of the assignment of June 21, 1877, by
Bradley and Shepherd, have belonged to Thompson, as between him and
the trust company, unless, as contended, the transfer by Bradley to
Shepherd of the lease to the United States, and their assignment
for the benefit of Thompson, are absolutely void for every purpose,
and as to everybody, under the provisions of the statutes relating
to the transfer and assignment of contracts with, or claims
against, the United States.
It is insisted by the trust company that the transfer by Bradley
to Shepherd of the lease of June 6, 1873, was void under § 3737 of
the Revised Statutes, which provides:
"No contract or order, or any interest therein, shall be
transferred by the party to whom such contract or order is given to
any other party, and any such transfer shall cause the annulment of
the contract or order transferred so far as the United States are
concerned. All rights of action, however, for any breach of such
contract by the contracting parties are reserved to the United
States."
This provision was brought forward from an Act of Congress
approved July 17, 1862, entitled "An act to define the pay and
emoluments of certain officers of the army, and for other
purposes." 12 Stat. 596. In the original act, it immediately
followed a section providing
"That all contracts made for, or orders given for, the purchase
of goods or
Page 127 U. S. 505
supplies by any department of the government shall be promptly
reported to Congress by the proper head of such department if
Congress shall at the time be in session, and if not in session,
said reports shall be made at the commencement of the next ensuing
session."
We are of opinion that whatever may be the scope and effect of §
3737, it does not embrace a lease of real estate to be used for
public purposes, under which the lessor is not required to perform
any service for the government and has nothing to do, in respect to
the lease, except to receive from time to time the rent agreed to
be paid. The assignment of such a lease is not within the mischief
which Congress intended to prevent. Although a lease such as
Bradley made is a "contract" in the broadest sense of that word, we
are not prepared to hold that it is of the class of contracts the
transfer of which, or of any interest therein, is prohibited by §
3737.
It is also contended that the assignment made on June 21, 1877,
by Bradley and Shepherd is void under § 3477 of the Revised
Statutes, which provides that
"All transfers and assignments made of any claim upon the United
States, or of any part of it, or share thereof, or interest
therein, whether absolute or conditional, and whatever may be the
consideration therefor, and all powers of attorney, orders, or
other authorities for receiving payment of any such claim or any
part or share thereof, shall be absolutely null and void unless
they are freely made and executed in the presence of at least two
attesting witnesses after the allowance of such a claim, the
ascertainment of the amount due, and the issuing of a warrant for
the payment thereof."
This Court has frequently had occasion to construe this section.
United States v. Gillis, 95 U. S. 407;
Erwin v. United States, 97 U. S. 392;
Spofford v. Kirk, 97 U. S. 484;
Goodman v. Niblack, 102 U. S. 556;
Bailey v. United States, 109 U. S. 432;
St. Paul &c. Railroad v. United States, 112 U.
S. 733;
Hobbs v. McLean, 117 U.
S. 567. Undoubtedly the lease made by Bradley to the
United States created in his favor what in some sense was a "claim
upon the United States" for each year's rent as it fell due. And if
the statute
Page 127 U. S. 506
embraces a claim of such a character, there could not have been
any valid transfer or assignment of it in advance of its allowance
which could have been made the basis of a suit by the assignee
against the United States or which would compel the government to
recognize the transfer or assignment. It is perhaps also true that
under some circumstances, the assignor, before the allowance of the
claim and the issuing of the warrant, may disregard such an
assignment altogether.
But when the government ascertained the amount of rent due under
Bradley's lease, and with his consent allowed the same to him for
the use of Shepherd for the use of Taylor, Bacon, and Cross,
trustees, we perceive nothing in the words or the policy of the
statute preventing Thompson from asserting his rights either
against the parties or any of them, named in the warrants issued by
the government, or against the trust company, the mortgagee of the
premises. The object of the statute, as was said in
Bailey v.
United States, 109 U. S. 432, was
to protect the government, and not the claimant, and to prevent
frauds upon the Treasury, and that
"an effectual means to that end was to authorize the officers of
the government to disregard any assignment or transfer of the
claim, or any power of attorney to collect it unless made or
executed after the allowance of the claim, the ascertainment of the
amount due thereon, and the issuing of the warrant for the payment
thereof."
Here the officers of the government chose to recognize the
assignment, and of their action neither Bradley nor Shepherd nor
Shepherd's trustees can rightfully complain. The government is
acquitted of any liability in respect to the claim for rent, for
its officers have acted in conformity with the directions not only
of the original claimant, but of his assignee, Shepherd, and of
Shepherd's trustees. The simple question is whether the money
received from the government shall be diverted from the purpose to
which Bradley, Shepherd, and Shepherd's trustees agreed in writing
that it should be devoted -- namely to the payment of the debts
Thompson holds against Shepherd. This question must be answered in
the negative, and in so adjudging we do not contravene the letter
or the spirit to the statute relating to the assignment of claims
upon the United States.
Page 127 U. S. 507
It only remains to say a word in reference to that part of the
decree giving to Shepherd's trustees the rent which Bradley, as
receiver, collected. We have already shown that Bradley, not having
pledged the income of the property to the trust company, could
pledge it as security for debts held against him by other
creditors. After executing the deed of 1873, he conveyed the
premises to Shepherd and also assigned to him the benefit of the
lease made to the government. Shepherd included the premises in his
deed to Taylor and others of November 15, 1876, and expressly
agreed that the rents, issues, and profits therefrom should be
applied in payment of the debts named in that deed. The right of
those trustees to the rents, issues, and profits which accrued
before any sale under Bradley's deed to the trust company and prior
to actual possession's being taken under such sale, was
consequently superior to any that company had. That right could not
be defeated by anything the company did, whether by means of a
receiver or otherwise. Whether the money in the hands of the
receiver belonged to Thompson rather than to Shepherd's trustees is
a question not before us, since Thompson has not appealed from the
decree,
Upon the whole case, we are of opinion that there is no error in
the decree to the prejudice of either of the appellants, and it is
in all respects
Affirmed.