193 Wis. 503 | Wis. | 1927
Lead Opinion
The following opinion was filed April 5, 1927:
The question presented is whether the firm of Nick Brothers, having paid the rent in advance for a period of approximately two years from May 1, 1925, must pay it again to the receiver appointed in the foreclosure proceedings. The mortgage involved in this action did not pledge the rents and profits arising from the premises covered by the mortgage. It pledged only the premises as security. In this jurisdiction the mortgagor of real estate retains not only the legal title to the premises mortgaged but the right to the possession thereof. The mortgagor is at liberty to sell, rent, or to further incumber the premises, and such interest in the premises as he may grant to others is subject only to the mortgage. In the instant case the firm of Nick Brothers was charged with knowledge of the existence of plaintiff’s mortgage, but it knew that that mortgage pledged only the real estate as security and did not pledge the rents and profits thereof. It knew that any interest which it might acquire in the premises was subject to the mortgage and
There is some confusion in the authorities concerning the circumstances under which a receiver may be so appointed. This is especially true in jurisdictions where the title to the property remains in the mortgagor, as in this state. At common law the title to mortgaged premises passed to the mortgagee, but as a second mortgagee was not entitled to the possession as against the first mortgagee, the practice grew up of appointing a receiver to impound the rents and profits of mortgaged property for the benefit of the second mortgagee. In 19 Ruling Case Law, p. 560, § 369, it is said:
“Originally, the practice of appointing a receiver to impound the rents and profits of mortgaged property seems to have grown out of the lack of a remedy at law on the part of persons having only equitable or second mortgages, who, in consequence, since they did not have the legal title, were not in a position to recover the possession of the mortgaged*508 premises in an action at law. But, as equity would give effect to a mortgage only so far as to afford protection to the mortgagee, he could not enforce his right to the rents and profits in equity, unless he could show that the property itself was inadequate security. Out of this enforcement, on equitable grounds, of a right incident to the mortgage itself and out of the hybrid theory prevalent in some jurisdictions that the mortgagee is to be regarded as owner so far as is necessary to keep him secure seems to have sprung the doctrine of so-called equitable lien on the rents and profits of mortgaged property, which courts of equity enforce by impounding them for the benefit of the owner of the mortgage when it appears that the property itself is inadequate to pay the debt and the mortgagor is insolvent. It is sometimes provided by statute that a receiver may be -appointed to take charge of the mortgaged property where the security is inadequate. But irrespective of statute, it seems that the prevailing rule is that inadequacy of security and insolvency of the mortgagor are not in themselves regarded as sufficient grounds to justify the appointment of a receiver in foreclosure proceedings. There must be shown some additional, distinct, equitable ground, such as danger of loss, waste, destruction, or serious impairment of the property, to warrant the appointment.”
Clearly upon principle and, we believe, upon the weight of authority in jurisdictions where the legal title to the mortgaged premises remains in the mortgagor (note, 7 L. R. A. n. s. 1001), there is no warrant or authority for the appointment of a receiver in foreclosure proceedings merely because the security is inadequate or the mortgagor irresponsible. The mortgagee has seen fit to loan money upon the security of the premises.. The statutes relating to- the foreclosure of mortgages provide the manner in which he may realize^from the security upon which he was content to rely. There is no principle which in morals justifies a court in adding to the security which the mortgagee accepted at the time of making the loan. The mortgagee is, however, entitled to have that security preserved, and protected from waste and dissipation. Where the premises become
But the appointment of the receiver in the first instance can be justified only for the purpose of preventing waste in the exercise of the well established jurisdiction of courts of equity for that purpose. It may be that this requirement is occasionally overlooked by the courts and may be misunderstood by the bar. But a review of the cases in this court fails to reveal any case where a receiver has been appointed in foreclosure proceedings in the absence of circumstances amounting to waste. In this connection it should be noted that delinquent taxes and unpaid interest depreciate the value of the security and amount to waste. Finch v. Houghton, 19 Wis. 149; Schreiber v. Carey, 48 Wis. 208, 4 N. W. 124; Morris v. Branchaud, 52 Wis. 187, 8 N. W. 883; Sales v. Lusk, 60 Wis. 490, 19 N. W. 362; Winkler v. Magdeburg, 100 Wis. 421, 76 N. W. 332.
This discussion leads to the conclusion that one may deal with a mortgagor, pay for and acquire any interest in the mortgaged premises, and that interest so acquired will be subject only to the lien of the mortgage. If the mortgage covers only the premises and does not pledge rents and profits, the mortgagee has no interest whatever in the proceeds
Respondents rely upon the case of Gaynor v. Blewett, 82 Wis. 313, 52 N. W. 313. In that case rent was paid a year in advance, but it was not paid until after the foreclosure proceedings had been commenced and a lis pendens filed. It was held that the tenant stood in the position of a purchaser or lessee pendente lite and that^he took subject to whatever order or decree the court might lawfully make affecting either the title or possession. The decision in that case is carefully grounded upon that fact. “The doctrine of lis pendens as to persons and property within its operation is that the court having jurisdiction of the suit or action is entitled to proceed to the final exercise of that jurisdiction, and that it is beyond the power of any of the parties to the action to prevent its doing so by any transfer or other act made or done after the service of the writ or the happening of such other act as may be necessary to the commencement of lis pendens17 Ruling Case Law, 1009. The Blewett Case is no authority for the order here under consideration, and we can discover no principle or moral consideration which justifies the extension of the doctrine of the Blewett Case to the facts here involved. It follows that the order must be reversed.
By the Court. — So ordered.
The following order was filed July 22, 1927:
A rehearing having been granted in the above entitled cause upon questions to be stated, and the court desiring that the following questions shall be briefed
It is ordered that the following questions be briefed and argued:
1. What was the effect at common law of a mortgage pledging the rents and profits arising from lands mortgaged ?
2. Is the rule’ in such respect at common law affected by the rule obtaining in this state that the mortgagor retains the title and right of possession of the land mortgaged?
3. Is such rule affected by the various statutes of this state regulating the rights of mortgagors and mortgagees providing for a period of redemption, etc,?
The following opinion was filed October 11, 1927:
Rehearing
(on rehearing). This case was decided on the assumption that the mortgage contained no clause pledging rents and profits. Upon motion for rehearing our attention was called to the fact that the mortgage did pledge “all of the rents, issues and profits which may arise or to be had therefrom.” Our erroneous assumption arose from a misunderstanding that the absence of such clause was conceded upon the oral argument. It being apparent that what was said in the opinion was not in response to the true facts, a rehearing was granted, and counsel were requested to thoroughly brief the question of the effect of a clause pledging rents and profits in an ordinary real-estate mortgage. Our labors have been greatly facilitated by the able briefs presented on rehearing.
It seems to be universally recognized that the right to rents and profits follows the legal title and the right of possession. At common law, and in some jurisdictions in this country, a mortgage operates to convey the legal title to the mortgagee with the right of possession upon breach of the covenants of the mortgage. Originally this right of possession on the part of the mortgagee was enforced by eject
In jurisdictions where the mortgagor retains the legal title and right of possession, as here, it follows that- the right to collect rents and profits remains in the mortgagor until he is deprived of’possession in the manner provided by law, and this notwithstanding the fact that the. mortgage may pledge the rents and profits. This must be true unless the clause pledging rents and profits should be construed as sufficient to pass the legal title and right of possession to the mortgagee. This has never been held in any jurisdiction,' and should not be, as it would afford an easy way of evading the policy of our statutes which makes a mortgage a mere lien upon land, leaving the legal title and right of possession in the mortgagor. It is plain in this jurisdiction that under a mortgage pledging rents and profits the benefit of such rents and profits does not inure to the mortgagee until possession has passed from the mortgagor. Under'the principles established here, the mortgagor may not be deprived of possession except under circumstances discussed in the former opinion. In order to accomplish such dispossession the mortgagee must invoke the aid of a court of equity. Upon the application of the mortgagee the court may appoint a receiver to take possession of the premises to prevent waste and to collect rents and profits.
In view of the fact that the mortgagee must invoke the aid of a court of equity to enforce his right to rents and profits, it seems manifest that a controversy arising between a tenant who has paid his rent in advance to the mortgagor
“Without the material and labor and money furnished by the firm of Nick Brothers in payment for rent on lease of the bakery, the building could not have been finished and made to yield, the very considerable income the receiver has collected from tenants of the flats. The building would have stood incomplete, damaged by frost, untenantable, and without income, during all the period until after foreclosure sale, had it not been for the advance of rent by the Nick Brothers, who are appellants here.”
The mortgagee now claiming the rent has already had the benefit thereof. It added to his security. By reason of this advancement the entire building has been placed in a tenant-able condition, and the receiver is now collecting rents and profits from other portions of the building which are being applied' to the plaintiff’s mortgage. In the attempt to recollect the rent from Nick Brothers so advanced by them, the mortgagee is seeking to enjoy the benefit of .the rent again. This is not justice. It is not equity. It is oppression. If the rent had been paid, as it was in Gaynor v. Blewett, 82 Wis. 313, 52 N. W. 313, to enable the mortgagor to circumvent the provisions of the mortgage and to appropriate it to his own use, a different situation would confront us. But where the mortgagee enjoys the full benefit of the advanced payment, and it was made in good faith
Lead Opinion
This case was decided on the assumption that the mortgage contained no clause pledging rents and profits. Upon motion for rehearing, our attention was called to the fact that the mortgage did pledge "all of the rents, issues, and profits which may arise or to be had therefrom." Our erroneous assumption arose from a misunderstanding that the absence of such clause was conceded upon the oral argument. It being apparent that what was said in the opinion was not in response to the true facts, a rehearing was granted, and counsel were requested to thoroughly brief the question of the effect of a clause pledging rents and profits in an ordinary real estate mortgage. Our labors have been greatly facilitated by the able briefs presented on rehearing.
[1][2] It seems to be universally recognized that the right to rents and profits follows the legal title and the right of possession. At common law, and in some jurisdictions in this country, a mortgage operates to convey the legal title to the mortgagee with the right of possession upon breach of the covenants of the mortgage. Originally this right of possession on the part of the mortgagee was enforced by ejectment, but this rule was changed by statute in England so that a mortgagee *572 might have a receiver appointed whenever a condition of the mortgage was breached for some definite period of time. Schreiber v. Carey,
[3][4][5][6] In jurisdictions where the mortgagor retains the legal title and right of possession, as here, it follows that the right to collect rents and profits remains in the mortgagor until he is deprived of possession in the manner provided by law, and this notwithstanding the fact that the mortgage may pledge the rents and profits. This must be true, unless the clause pledging rents and profits should be construed as sufficient to pass the legal title and right of possession to the mortgagee. This has never been held in any jurisdiction, and should not be, as it would afford an *2 easy way of evading the policy of our Statutes which makes a mortgage a mere lien upon land, leaving the legal title and right of possession in the mortgagor. It is plain in this jurisdiction that, under a mortgage pledging rents and profits, the benefit of such rents and profits does not inure to the mortgagee until possession has passed from the mortgagor. Under the principles established here, the mortgagor may not be deprived of possession except under circumstances discussed in the former opinion. In order to accomplish such dispossession the mortgagee must invoke the aid of a court of equity. Upon the application of the mortgagee, the court may appoint a receiver to take possession of the premises to prevent waste and to collect rents and profits.
It is generally stated in the cases that the receiver may be empowered to collect such rents and profits as accrue after his appointment. Notwithstanding the fact that it must frequently happen that the receiver is appointed during a term for which rent has been paid, there are few cases dealing with a controversy between the tenant and the receiver as to whether the tenant must pay rent again to the receiver for the unexpired portion of the term for which he has paid it to the mortgagor. Two such cases are to be found in the Supreme Court of New York, arising under a mortgage pledging rents and profits. In those cases the tenants were required to pay the rent again to the receiver. Derby v. Brandt,
[7][8][9][10] In view of the fact that the mortgagee must invoke the aid of a court of equity to enforce his right to rents and profits, it seems manifest that a controversy arising between a tenant, who has paid his rent in advance to the mortgagor, and a receiver, who is demanding a repayment of the rent for the unexpired portion of the term for which it has already been paid to the mortgagor, should be determined by the application of equitable principles. One of these principles is that the plaintiff should come into court with clean hands. Another is that a court of equity seeks to do justice, and not injustice. It is not disputed in this case that the mortgagor arranged with Nick Bros., a partnership of which he was a member, to advance moneys to be credited upon the rent of the partnership for the purpose of completing the building, making it tenantable, and to preserve it from the ravages of frost. As said in the brief for appellant:
"Without the material and labor and money furnished by the firm of Nick Bros. in payment for rent on lease of the bakery, the building could not have been finished and made to yield the very considerable income the receiver has collected from tenants of the flats. The building would have stood incomplete, damaged by frost, untenantable, and without income, during all the period until after foreclosure sale, had it not been for the advance of rent by the Nick Bros., who are appellants here."
The mortgagee now claiming the rent has already had the benefit thereof. It added to his security. By reason of this advancement the entire building has been placed in a tenantable condition, and the receiver is now collecting rents and profits from other portions of the building which are being applied to the plaintiffs mortgage. In the attempt to re-collect the rent from Nick Bros. so advanced by them, the mortgagee is seeking to enjoy the benefit of the rent again. This is not justice. It is not equity. It is oppression. If the rent had been paid, as it was in *573 Gaynor v. Blewett,
