Land Title & Trust Co. v. Kellogg, 73 N.J. Eq. 524

Land Title & Trust Co. v. Kellogg

73 N.J. Eq. 524 | New York Court of Chancery | 1907

Teaming, Y. C.

The validity of the order appointing the receiver is now questioned by defendant on the ground that such appointment can only be justified where it is shown that the mortgage security has become uncertain or precarious because of something done or omitted to be done by the mortgagor of a nature to cause a diminished value of the mortgaged premises. The receiver was appointed after due notice to defendant and the evidence then before the court will not be now reviewed; but as the power of appointment is questioned an examination of the cases supporting its exercise may be of interest.

The early practice of this court appears to have been to refuse the appointment of a receiver at the instance of a first mortgagee unless some special grounds for the appointment appeared other than inadequacy in value of the mortgaged premises coupled with the insolvency of the mortgagor. Cortleyou. v. Hathaway, 11 N. J. Eq. (3 Stock.) 39; Best v. Schermier, 6 N. J. Eq. (2 Halst.) 154 Frisbie v. Bateman, 24 N. J. Eq. (9 C. E. Gr.) 28. *526I am satisfied, however, that a consistent application of equitable IDi’inciples should extend to a first mortgagee the right to the appointment of a receiver to collect the rents and profits of the mortgaged premises for his benefit in all eases where it appears that his security is uncertain or precarious and that the mortgagor cannot be made to respond to any deficiency which may arise at the foreclosure sale. This view is, I think, fully supported by the more modern practice in this state. Mahon v. Crothers, 28 N. J. Eq. (1 Stew.) 567; Leeds v. Gifford, 41 N. J. Eq. (14 Stew.) 464; New Jersey Title Guarantee and Trust Co. v. Cone, 64 N. J. Eq. (19 Dick.) 45; see, also, Warwick v. Hammell, 32 N. J. Eq. (5 Stew.) 427; Conover v. Grover, 31 N. J. Eq. (4 Stew.) 539; Brasted v. Sutton, 30 N. J. Eq. (3 Stew.) 462. Under the modern conception of mortgages and the practicable means for their enforcement no reason can exist for the application of a different rule between mortgagor and his first mortgagee and a mortgagor and his subsequent mortgagee. As it is the inadequacy of the security and legal remedy which affords the equitable ground of relief, it is also necessarily immaterial whether such inadequacy has been caused by wrongful acts of the mortgagor. In the present case, the fact that the property sold for less than one-third of the amount of the mortgage debt appears to sufficiently vindicate the action of the court in making the appointment. As there was no personal liability of the mortgagor the question of his solvency was not involved.

It is further claimed that by reason of the restrictive stipulation contained in the mortgage the debt was extinguished by the sale and that it is now too late to appropriate the rents to the mortgage debt. I am unable to accept this view. The right of a mortgagee to sequester the rents of the mortgaged property, through the medium of a receiver emanates primarily from the inadequacy of the security. It is a privilege extended to the mortgagee by reason of the inequity of permitting the mortgagor to receive the rents accruing during the pendency of the foreclosure proceedings. Mahon v. Crothers, supra. The want of personal liability of the mortgagor for the payment of the mortgage debt contributes to the necessity for equitable relief. The *527rents are collected by the receiver for the use of the mortgagee and can only be applied to his use in ease the mortgaged premises fail to realize the amount of the mortgage debt. The right to thus collect the rents necessarily includes the right of their application in case of deficiency. See, also, 2 Jones Mort. § ISM.

.1 will advise an order directing the receiver to pay the complainant the rents collected by him.