Corrigan v. Trenton Delaware Falls Co.

7 N.J. Eq. 489

• Court: New Jersey Court of Chancery
• Decided: June 15, 1849
• Status: Published

Opinion

The Chancellor.

The rent accruing subsequently to the-sale by the receivers belongs to the purchaser.

The statute and the appointment of receivers under it is a conveyance or transfer of all the property of the insolvent company to the receivers, for the benefit of the creditors of the company, to be distributed in the mode pointed out by the statute y that is, proportionally to the amount of their respective claims,, except mortgage and judgment creditors, who have preference.

What is called the assignment of léases by the Falls Company, the lessors, to the Trenton Bank, was a mere authority or power of Attorney from the Company to the Bank to receive rent. It ceased on the appointment of receivers. It created no incumbrance on the property of the Falls Company in the hands of the receivers.

The rents accruing due after the appointment of the receivers belonged to the receivers, for the benefit of the creditors.

The Bank mortgages and judgment were liens for both principal and interest, and the property sold for more than sufficient to pay the mortgages and judgment, principal and interest.

The ground not covered by the foregoing propositions is this : At the time of the appointment of the receivers five quarters rent had become payable on these leases.

So far as the rents had become due before the appointment of the receivers, they may be considered as appropriated to the purposes for which the Falls Company had authorized the Bank to receive them, though they remained unpaid.

The question arises, to what extent should the purposes for which the Bank were authorized to receive the rents require the application of the rents which had become payable before the appointment of the receivers I

If the Bank were authorized to apply these rents towards the payment of the principal of the two notes, then the whole amount of the five quarters rent which had become payable before the appointment of the receivers is absorbed by application to such payment.

If those rents are applicable only to the payment of the interest on those two notes, and the interest on those two notes had been paid up to Jan’y 1,1842, then, only so much of those rents would be payable to the Bank as would pay the interest on those two notes from Jan’y 1, 1842, to the time of the appointment of the receivers, which, I think, was in May, 1843.

This would raise the question, whether the rents on those leases were, by the agreement between the Falls Company and the Bank when the leases were assigned to the Bank, applicable to the payment of the principal as well as of the interest of these notes.

But, passing this question for the present? another view presents itself. The note of $2,084 was given by the Falls Company to the Bank for interest accrued due to the Bank on their mortgages and judgment. Was the amount of that note credited by the Bank on their mortgages and judgment1? and did the Bank, receive from the receivers, in payment of their mortgages and judgment, only the amount thereof less the amount of this note of $>2,084'? If the amount of this note for $2,084 was deducted from the amount due the Bank on their mortgages and judgment, and if, as I suppose, the interest due and in arrear on their mortgages and judgment was more than the amount of that note, then, the question will be, did the Bank taking this note for the interest on their mortgage and judgment and giving credit for the amount thereof on the mortgages and judgment pay that interest in such way that if the note was not paid the security which the mortgages and judgment afforded for that interest was lost 1

As a general rule, the taking of a note from a mortgagor or. judgment debtor for interest due on a mortgage or judgment is not a payment of the interest if the note be not paid. The note, in this instance, not being paid, if the Bank received from the receivers only the amount of their mortgages and judgment after deducting therefrom the amount of this note, then, the Bank have not received the amount of interest which had become payable on their mortgages and judgment, but $2,084 short of it; and the note for this sum remaining unpaid, the Bank should still receive the full amount of the interest upon their mortgages and judgment, unless there is something in the shape which the Bank gave to the transaction in reference to this note for interest which should deprive them of the right they would otherwise have had. The shape the transaction took was this : The Bank took a note for the interest; and instead of crediting, or saying by way of credit on their mortgages and judgment, that they had received a note for the interest, they entered the note on their Bank books as discounted, and gave credit to the Falls Company on their Bank books for the proceeds of the note, and, I presume, charged the Falls Company with the amount of interest due on their mortgages and judgment. Whether any credit was entered on the mortgages and judgment of interest received, and how that credit was made, does not, I think, appear from the papers before me. Should the fact that this shape was given to the transaction put the Bank in any worse condition than if they had simply taken a note for the interest, and held it, without passing it through their Bank books in the form of a discount 1 If it should not, then the Bank may still be entitled to the amount of rents on those leases which were due and unpaid at the time of the appointment of the receivers, on account of the interest due on their mortgages and judgment at the time they took the note of $2,084; and if they are, it will absorb the whole amount of such rents.

I desire to be informed whether, in the settlement between the Bank and the receivers as to the amount due the Bank on theirmortgagcs and judgment the Bank, credited this note of $2,084, or the amount thereof, as paid on their mortgages and judgment, and received, in full, so much less.

It is said that Redmond or The Water Power Company paid these notes; and that therefore the rents pledged were released. I do not see it in this light. The Falls Company did not pay them. The Bank could assign them, and with them whatever security they had for their payment.

For the present it will be ordered, that so much of the rents on these leases as accrued between the time of the appointment of the receivers and the time of the sale by the receivers be paid to the receivers.

If the Bank received from the receivers the whole amount of their mortgages and judgment, principal and interest, giving no credit for the $2,084 note, then, this note has been paid; for it was given for interest on the mortgages and judgment; and the question will be, whether the rents due at the time of tho appointment of the receivers are applicable to the payment of the principal and interest of the note for $3,590, or only the interest of that note.