Norwood Savings Bank v. Romer, No 4051

No 4051 | Ohio Ct. App. | Mar 28, 1932

The original action was brought by the Norwood Savings Bank against Alfred Romer and others. The suit was on a promissory note for the sum of $5,000, with interest, and for the foreclosure of a mortgage on real estate, described in the petition, given to secure the payment of the note.

At the time of the filing of the petition, application was made for the appointment of a receiver, which application the court granted, and a receiver was appointed who took charge of the real estate and collected all subsequent rents.

In the foreclosure proceeding the real estate was sold and was purchased by the bank for the sum of $5,000. The bank later took a deficiency judgment against Romer in the sum of $886.27, with interest.

The plaintiff bank filed a second amended and supplemental petition, in which, among others, Morris Strauss and the Washington Mortgage Company were made defendants. In the second amended petition it is alleged that the Washington Mortgage Company became the owner of mortgages executed subsequently to the plaintiff's mortgage, and it is further alleged that between the time of the execution of the plaintiff's mortgage and the filing of the suit in foreclosure the real estate was rented at a substantial figure; that plaintiff's mortgage included a pledge of the rents and profits to the mortgagee bank as security for its loan; that beginning January 1, 1927, the Washington Mortgage Company and Strauss collected the rents; that Morris Strauss was the vice president of the Washington Mortgage Company; and that he either retained the rents or applied same to the junior mortgage of the Washington Mortgage Company, in which company he was largely interested as a stockholder.

Among other things, the bank asked for an accounting of the rents and profits collected by the defendants John F. Dermody, the Washington Mortgage Company, and Morris Strauss, and for a judgment against the defendants for any amount that may be found to be due the plaintiff by reason of the accounting for the rents and profits so collected by the defendants, to be applied to its deficiency judgment.

The defendants Morris Strauss and the Washington Mortgage Company demurred to the part of the second amended petition concerning the accounting for the rents, as not stating a cause of action against them. The trial court sustained these demurrers, and, the plaintiff bank not desiring to plead further as to the accounting, judgment was entered in favor of the defendants. From that judgment the plaintiff bank prosecutes error in this court.

The question for decision is: Does a pledge in a real estate mortgage, pledging rents and profits, reach the rents and profits accruing before condition broken?

It is settled law that a mortgage is a mere security in the hands of the mortgagee and does not convey any interest in the land itself. After mortgage conditions have been broken, the mortgagee may bring an action for possession, or an action in foreclosure, resulting in judicial sale. There is no question that, after condition broken, the mortgagee, upon bringing an action for foreclosure and making a showing to the court of the condition broken, has a right to have a receiver appointed for the property, and the receiver, by virtue of his possession as receiver, is entitled to the rents and profits that may issue by reason of such possession for the benefit of the mortgagee. Kerr v. Lydecker, Admr., 51 Ohio St. 240, 37 N.E. 267, 23 L.R.A., 842.

It has been stated that, even after condition broken, the mortgagor is entitled to the rents and profits so long as he retains possession. Fidelity Mortgage Co. v. Mahon, 31 Ohio App. 151" court="Ohio Ct. App." date_filed="1929-02-11" href="https://app.midpage.ai/document/fidelity-mortgage-co-v-mahon-3693706?utm_source=webapp" opinion_id="3693706">31 Ohio App. 151, 166 N.E. 207" court="Ohio Ct. App." date_filed="1929-02-11" href="https://app.midpage.ai/document/fidelity-mortgage-co-v-mahon-3693706?utm_source=webapp" opinion_id="3693706">166 N.E. 207.

Rents and profits are chattels. At the time of the execution of the mortgage of the plaintiff bank, the rents and profits were pledged as further security for the debt. It must therefore be considered in the class of cases where a mortgage lien on after-acquired chattel property is claimed.

On the question of a mortgage lien on subsequently acquired chattels, the Supreme Court, in the case of Francisco v. Ryan,54 Ohio St. 307, at pages 315 and 316, 43 N.E. 1045, 1048, 56 Am. St. Rep., 711, states: "Courts have differed in regard to the effect of mortgages intended to create a lien on goods which the mortgagor did not own at the time of its execution, but which it was contemplated he would thereafter acquire. This difference has arisen chiefly from the nature of the jurisdiction exercised by the courts. Those of equitable cognizance applying the maxim that equity regards that as done which ought to be done, hold that under such a mortgage a lien attaches to the property as soon as it comes to the mortgagor's ownership; while at law, it has been held that it creates no present lien, nor one as the property is acquired, but as between the parties it operates only as a contract for a lien, which may be made effectual for the benefit of the mortgagee by possession lawfully obtained of the property * * *. In the case of Chapman v. Weimer, 4 Ohio St. 481, the court followed the rule at law, holding that: `A chattel mortgage, purporting to create a lien on the stock in a grocery, and also on such as should be subsequently acquired by the mortgagor, creates no lien on the subsequently acquired property;' * * *."

It is conceded by counsel for plaintiff in error bank that there are no cases directly in point. We are therefore content to follow the rule laid down in the Franciscocase, supra, concerning subsequently acquired chattel property. The principle would seem to be applicable, and consequently, in the case under consideration, the plaintiff bank would not have a lien on the rents and profits acquired subsequent to the execution of its mortgage until the filing of the foreclosure proceeding and the taking possession of the property by the receiver.

If the plaintiff's contention was correct, in all cases of a real estate mortgage which pledged rents and profits — and this pledge is in the usual form of such mortgages — it would require the mortgagor to impound the rents until it should be ascertained whether the conditions of the mortgage would be broken. The mortgagor would be in the position that he pledged his real estate for part of its value; and, although in possession, nevertheless the mortgagee, without ownership in the realty could follow the rents and profits received and disbursed by the mortgagor in possession into the hands of any innocent person receiving such rents and profits in discharge of legal obligations.

In this case the mortgagor or some one for him collected the rents and paid the same on debts that he owed. The contention of the plaintiff bank would lead to the situation that, had the mortgagor used the rentals for purchases from the merchant, the grocer, or the butcher, the mortgagee might trace the funds and acquire an accounting from such persons receiving the same in payment of their just debts. It may be stated that this would bereductio ad absurdum, but it illustrates the extent to which the proposition might lead.

Our conclusion is that the plaintiff bank has no lien or claim against the defendants Morris Strauss and the Washington Mortgage Company for rents paid to them on their debt prior to the taking possession of the property by the receiver in the foreclosure proceeding. The second amended petition alleges no cause of action against the defendants Morris Strauss and the Washington Mortgage Company for an accounting, and the judgment of the court of common pleas of Hamilton county will be affirmed.

Judgment affirmed.

ROSS, P.J., and CUSHING, J., concur.