
    In the Matter of the Voluntary Dissolution of the Busch Brewing Company. Charles D. Bigelow, as Temporary Receiver of the Busch Brewing Company, Appellant; Niagara River Brewing Company, Respondent.
    
      Mortgage foreclosure ■— a receiver of a corporation appointed in insolvency proceedings may be required to retain a sum equal to the interest on the mortgage — such order does not create a lien within section 48 of the Stock Corporation Law.
    
    Where the court, after the commencement of an action for the foreclosure of a mortgage executed hy a brewing company, upon the petition of the directors of the corporation showing its insolvency, grants an order appointing a temporary receiver of the property of the corporation, and restraining the further prosecution of the foreclosure action, it may, in its discretion, upon affidavits showing that the mortgaged property is inadequate for the payment of the mortgage, and that the mortgagor is insolvent, adjudge that the mortgagee is entitled to -receive the rents, issues and profits of the real estate covered by the mortgage, and may issue an order permitting the foreclosure action to proceed, ana requiring the temporary receiver, who has been authorized to continue the business of the corporation, to retain in his hands, until the further order of the court, out of the net proceeds arising from the operation o:: the brewery, a sum sufficient to pay the interest on the mortgage during the time he continues to operate the brewery.
    Such action on the part of the court does not constitute the creation of a lien, within the prohibition of section 48 of the Stock Corporation Law.-
    
      Appeal by Charles D. Bigelow, as temporary receiver of the Busch Brewing Company, from an order of the Supreme Court, made at the Erie Special Term and entered in the office of the clerk of the county of Erie on the 26th day of July, 1898, permitting the Niagara River Brewing Company to proceed witli an action brought by it against the Busch Brewing Company for the foreclosure of a mortgage executed by the latter company, “ and from so much of said order as overrules the preliminary objection of the receiver to the granting thereof, and directs said receiver to retain certain moneys in his hands subject to the further order of the court.”
    The notice of appeal is dated August 4, 1898.
    On the 21st day of June, 1898, the Niagara River Brewing Company commenced an action for the foreclosure of its mortgage against the Busch Brewing Company, and a notice of lis pendens was filed. On the same premises covered by its mortgage was a prior mortgage of $10,000 held by the Buffalo Loan, Trust and Safe Deposit Company, upon which there was unpaid $10,000. The mortgage to the Niagara River Brewing Company was dated the 17th of June, 1893, and executed by the Busch Brewing Company, and there was due upon it the sum of $45,000, with interest from the 17th day of June, 1897, all of which was due and payable on that day. No person other than the mortgagor was liable for the mortgage debt. The mortgagor was shown by the affidavits to be “ entirely irresponsible and insolvent.” Taxes and assessments amounting to $3,000 upon the property were overdue, making $58,000 due upon the prior mortgage and the mortgage given to the Niagara River Brewing Company and for the taxes aforesaid. The affidavits clearly show that the property was not worth to exceed $40,000.
    On the 27th of June, 1898, a petition of several directors, stating the insolvency of the Busch Brewing Company and its inability to pay its just debts, was presented to a Special Term, and Charles D. Bigelow was appointed temporary - receiver, and in the order so appointing him the creditors were restrained and forbidden from commencing an action against the Busch Brewing Company and from taking any further proceedings in any action commenced before the entry of said order. That order was entered June 27, 1898.
    
      In the action to foreclose the mortgage on the twenty-first of June motion papers were served upon the Busch Brewing Company of an application to be made July 1, 1898, for the appointment of a receiver of the rents and profits of the mortgaged property affected by the foreclosure action.
    The affidavit of the receiver states that a large portion of the assets of the corporation consists of beer in the process of* manufacturing, “ and that to complete the manufacture of said beer requires a period of three months from the time the process is commenced before the same is fitted for sale.” His affidavit states that on the twenty-ninth of June an order was made directing him “ to continue the business of the said brewery for the purpose of finishing and .selling the unfinished stock on hand and permitting ” him to incur ■expenses, and that in pursuance of said order he had taken possession of the plant of the brewing company, and was engaged in the manufacture and sale of such stock as was on hand, and that he was in occupation of the whole of the real estate covered by the mortgage.
    
      Francis E. Wood, for the appellant.
    
      Forman D. Fish, for the respondent.
   Hardin, P. J.:

Manifestly, the Special Term, upon the affidavits before it, found, as it was warranted in doing, that the property covered by the mortgage in the process of foreclosure was an inadequate security for the payment of the indebtedness secured thereby, and that the mortgagor was insolvent. Having reached that conclusion, the Special Term was warranted in holding that the mortgagee was entitled to the rents, issues and profits of the real estate covered by the mortgage.

In Smith v. Tiffany (13 Hun, 671) it appeared that the premises mortgaged were an inadequate security for the money due on the mortgage, and that the mortgagor was insolvent, and that the mortgage debt was all due, and it was said in the course of the opinion of Taloott, P. J., viz.: “ In such cases it is an equitable right of the mortgagee to have a receiver of the rents and profits of the mortgaged premises, even after a decree.” (Citing Astor v. Turner, 11 Paige, 436.)

In Hollenbeck v. Donell (29 Hun, 94) it was held that, under section 713 of the Code of Civil Procedure, the court has power to appoint a receiver of the rents and profits of the mortgaged premises, when it appears that the premises are an inadequate security for the amount due, and are deteriorating in value, and that the mortgagor is insolvent.

That case was reviewed in the Court of Appeals (94 N. Y. 342), and it was held that: “ The power (of the court) to appoint a receiver of the rents and profits of mortgaged premises accruing pending a foreclosure was inherent in the Court of Chancery "before the adoption "of the Code of Procedure; it w'as continued by that Code (Subd. 5, § 244), and is not abrogated by the provision of the Code of Civil Procedure (§ 713) defining cases in which receivers may be appointed; but on the contrary is reaffirmed by the general provision of said Code (§ 4) declaring that each of the courts therein named ‘shall continue to exercise the jurisdiction and powers now vested in it, * * * except as otherwise prescribed.’ ”

It was held, however, that the plaintiff was not entitled to a receivership for the protection of that portion of the debt not yet due, or of that portion of the premises as to which his rights to sell had not accrued.”

In Hamilton v. Austin (36 Hun, 139) it was held, viz.: “ After an action of foreclosure has been commenced, the plaintiff may, if the security is in jeopardy, intercept, through the aid of a receiver, the rents or emblements, or both.”

In Rider v. Bagley (84 N. Y. 461) it was held that whether a receiver should be appointed in a mortgage foreclosure case rested in the discretion of the Supreme Court; and it was further held in that case that, until the receiver was appointed, the owner of the equity of redemption had the right to receive, the rents, and could not be compelled to account for them.”

We are of the opinion that a proper case was made at the Special Term for the appointment of a receiver in the mortgage foreclosure action, and that the court properly exercised its discretion by commanding the receiver who had been appointed of the mortgagor’s property to retain in his hands, subject to the further order of the court, out of the net proceeds arising from the operation of said brewery, sufficient to pay the interest on the mortgage of said Niagara River Brewing Company during the time that he continues to operate the same.” When such further order shall be made, it may become necessary to determine what portion of the proceeds arising from the operation of the brewery were properly derived from the use of the real estate upon which the mortgage of the . Niagara River Brewing Company was a lien. To that extent we see nothing in the papers before us to prevent the mortgagee from receiving such rents and profits as properly arise from the allowance of the possession of the temporary receiver appointed in the insolvency proceedings.

The order which is appealed from properly allowed the action to foreclose the mortgage to proceed and removed the restraint that had theretofore been placed upon the foreclosure proceedings. (Matter of Binghamton General Electric Co., 143 N. Y. 264; Matter of Hamilton Park Company, 1 App. Div. 375.)

We are of the opinion that the order requiring the rents and profits of the premises to be held for the further direction of the court, does not “.constitute the creation of a lien within the prohibition of the 48th section of the Stock Corporation Law.” (Laws of 1890, chap. 564).

The equitable right to the rents and profits of the real estate was given to the mortgagee at the time of the execution of the mortgage in 1893, and in the foreclosure action there is an assertion of its lien upon the realty and of its lien in equity upon the rents and profits of the real estate so covered by the mortgage.

We think this case differs from Throop v. H. L. Co. (125 N. Y. 530). In that case an action was brought by one of the trustees against a corporation, and an attempt was made to obtain a lien upon its property through the instrumentality of an attachment. In the course of the opinion it was said: “ The plaintiff, by the attachment and seizure thereunder, secured a preference over other creditors of the corporation. The title to the property levied upon was not changed by the seizure. The attachment was a step in a proceeding which had for its ultimate object the transfer of the title through a sale on an execution upon the judgment which might be obtained in the action, and to enable the plaintiff thereby to realize the payment of his debt.”

That case differs from the one in hand. Here the plaintiff in the mortgage foreclosure case is asserting a lien given in virtue of the terms of the mortgage upon the rents, issues and profits issuing out of the real estate covered by it, and the mortgagee’s right grows out of the equitable considerations incident to the mortgage and the debt secured thereby. (Donlon & Miller Mfg. Co. v. Cannella, 89 Hun, 23.)

We see no equities presented in the motion papers in favor of the insolvent mortgagor or of its creditors represented by the temporary receiver which should enable him to arrest the equitable rights of the mortgagee.

In New York Security & Trust Co. v. Saratoga Gas & El. L. Co. (30 App. Div. 93) it was said: “ Assignees in bankruptcy take the property of the bankrupt subject to all equities against it in his hands. * * * This rule is applicable to receivers of corporations.”

The only effect of the order made is to require the temporary receiver to hold, until the further order of the court, funds that may be deemed adequate to pay the reasonable rent of the premises of which he is in possession.

In Mutual Life Ins. Co. v. Spicer (12 Hun, 117) it was held : “ Where a person, knowing of the mortgage and that the mortgagor could not pay the mortgage, has obtained possession of mortgaged premises under the authority of the mortgagor, the owner of the equity of redemption, he may be required to surrender up such possession, or pay a reasonable rent therefor, to the receiver appointed to collect the rents and profits of the property for the benefit of the mortgagee.”

The temporary receiver has taken possession of the property, and it is only just and equitable that he should pay, or retain in his hands, a sum that will liquidate a reasonable rent for the premises. It was not necessary to appoint another person receiver in the mortgage case. (The Farmers' Loan & Trust Company v. The Hotel Brunswick Company, 12 App. Div. 626.)

In Astor v. Turner (2 Barb. 444) it was held : “ Where a bill is filed to foreclose a mortgage on leasehold premises, which are a scanty security for the debt, and the mortgagor is insolvent, and his assignee in possession, a receiver will be appointed, and the owner of the equity of redemption he directed to pay an occupation rent.”

It does not follow from the language of the order that the court . will ultimately direct the payment for the rents, issues and profits, by the receiver, of a sum equal to the interest on the mortgage debt.

We think there was no abuse of discretion at the Special Term, and that the order, so far as it is appealed from, should be affirmed.

All concurred; Follett, J., not sitting.

Order affirmed, with ten dollars costs and disbursements.  