On appeal from the Superior Court of New Jersey, Chancery Division, Somerset County.
Before Judges Havey (by telephone), A. M. Stein and A. A. Rodriguez.
The opinion of the court was delivered by
We granted leave to appeal from the chancery Judge's order appointing a rent receiver for defendant mortgagor's property.
We disagree with the trial Judge's Conclusion that plaintiff mortgagee is entitled to a rent receiver as a matter of contractual right and without prior judicial approval as to the necessity of the appointment. We conclude that notwithstanding an express contractual provision for such appointment in the loan documents, an application for the appointment of a rent receiver is subject to the careful review and exercise of sound discretion by the chancery Judge.
We nevertheless affirm the order of appointment because we conclude that the mortgagor's failure to pay real estate taxes and insurance has created a real danger of impairment of the mortgagee's security.
To secure part of its obligations under a credit agreement between the parties, defendant Davidson Avenue Associates, Ltd., executed a mortgage to plaintiff Barclay's Bank, P.L.C., in the amount of $1,250,000 on its properties located at 230 and 240 Davidson Road, Franklin Township. There are two buildings located at 230 Davidson Road: a two-story office building occupied by two tenants, and a one-story building containing a day care center. The total area of the buildings is 19,000 square feet. Two industrial buildings are located at 240 Davidson Road, with a total area of 49,000 square feet. Both buildings, formerly occupied by a single tenant, have been vacant since 1993.
The mortgage contains a number of conditions setting forth the buyer's obligations, including the usual provisions requiring timely payment of monthly mortgage installments, taxes and insurance. Paragraph 16(b) of the mortgage permits plaintiff to have a receiver appointed
after the happening of any Event of Default and during its continuance . . . the Mortgagee shall be entitled, as a matter of right, if it shall so elect . . . forthwith to the appointment of a receiver or receivers of the Property or any part thereof and of all the earnings, revenues, rents, issues, profits and income thereof.
Davidson also executed an assignment of rents and leases in Barclay's favor, providing that plaintiff has the right, without regard to the adequacy of the collateral, to take possession of the property and collect and receive all rents and profits.
Barclay's has filed a foreclosure suit against Davidson alleging several incidents of default, including: failure to pay interest due under the underlying obligation, plus fees; failure to pay real estate taxes; failure to provide financial statements; and failure to pay insurance. The complaint and order to show cause sought the appointment of a rent receiver. Davidson claimed that it was not in default, alleging among other things that Barclay's had miscalculated the amount of interest and fees due, and that the parties had negotiated a different payment schedule. When we asked at oral argument ...