90 N.J. Eq. 139 | New York Court of Chancery | 1919
The question for determination is whether a receiver appointed in a foreclosure case is entitled to the rents accrued, but unpaid,
I will first consider the cases cited to support the text. First National Bank v. Illinois Steel Co. (Sup. Ct. of Ill.), 51 N. E. Rep. 200, is not at all in point. Conover v. Grover, 31 N. J. Eq. 539, as will hereafter be pointed out, is an authority contrary to the statement of the text. In Gaynor v. Blewett (Supreme Court of Wisconsin), 52 N. W. Rep. 313, the court in a case in which, after an action to foreclose had been instituted and a Us pendens filed, the mortgagor made a lease to a tenant for a term of years and received rent in advance, held that the receiver was entitled to recover from the tenant for the use of the premises after the date of the appointment. The court, Pinney, Judge, obiter, says: “The appointment of a receiver is equivalent to a sequestration of the rents and profits accruing after the date of the order, and as to all which have previously accrued, and which remain unpaid,” citing, among others, New York cases which will be hereafter noted. The cases of Ortengren v. Rice, 104 Ill. App. 428, and Stephen v. Reibling, 45 Ill. App. 40, are not in point. In the latter case the court said: “The rents are for no period of time anterior to his appointment as receiver.” The rule in New York referred to by the Wisconsin court in Gaynor v. Blewett seems to be in some confusion. The assistant vice-chancellor in Lofsky v. Maujer (1845), 3 Sand. Ch. 71, said that it was well settled that a court of chancery would appoint ' a receiver of the lands mortgaged, and would restrain the mortgagor or his grantee from collecting the accrued rents, unpaid l),v the tenant, as well as the future rents and that this was clearly the effect of what the chancellor had held in the case of Howell v. Ripley, 10 Paige 43. A reference to Howell v. Bipley will disclose that the question was not- argued before -the chancellor although he had observed tha-t “all the right that the complainant in such suit (a foreclosure suit on a first mortgage) could have claimed, in behalf of such receiver (a receiver appointed in such suit) would have been that the receiver in the former suit (a suit to foreclose a second mortgage) should de
In view of the unquestioned rule that a mortgagor, until default and proceedings taken thereunder by the mortgagee, is entitled to the rents, issues and profits, in the absence of express stipulation, it is hard to- conceive of a. theory upon which can be based the right of a receiver to collect rents accrued but unpaid, at the tiine of his appointment or at the most, at the time of the filing of the bill, for -some cases have held the right of the mortgagee may relate back to the filing of the bill. The only theory that I can think of may be that' the rents, although accrued, yet so long as they remain unpaid, are a part of the real estate. That ibis is not true, however, is indicated by the holding that a purchaser at judicial sale, under foreclosure or otherwise, obtains s .no right to rents which have accrued prior at least to the date of sale. 16 Rul. Cas. L. tit. “Judicial Sales ” § 106. Cropper v. Broun. 76 N. J. Eq. 406, in which case Vice-Chancellor Garrison said (at p. 419) : “The legal title.does not vest in the purchaser until the delivery of the deed, but in the meantime it is held in trust for him. Since he has stipulated that he is not to receive possession until a future date, namely, the time when the deed is to l)o delivered to him, he is not entitled to the fruits of possession, which are the current avails of the land.”
The precise question before me has been referred to in several eases in this state. Vice-Chancellor Van Fleet, in Northrup v. Roe (1887), 10 N. J. L. J. 334, held, in a case where the land was occupied By a tenant who in lieu of a money rent, was to deliver a share of the produce of the land, that the receiver would not be permitted to take all of the mortgagor’s share of the produce but that the value of the produce which the rnort
I conclude, therefore, that in an ordinary case a receiver of mortgaged premises cannot be directed to collect rents which have accrued prior to his appointment although unpaid. The rule in England seems to- have been the converse. Codrington v. Johnstone (1838), 48 Eng. Rep. 1042, Lord Langdale, master of the rolls.
It is urged on behalf of the second mortgagee, at whose instance the receiver was appointed, that the mortgagor or those holding under .him have permitted taxes and other municipal liens, and interest on the first mortgage, to accrue and remain unpaid, with the resrilt that liens have been created paramount to the lien of the second mortgage, and that in equity the receiver ought to Ido permitted to collect rents accrued, which have not been paid to the mortgagor or those holding under him, to be applied to the reduction of these paramount liens. I can find no’ case in which this precise question has been considered^ The seeqnd mortgage contains a covenant obligating the mortgagor to pay taxes, assessinonts and other municipal liens. It was a purchase-money mortgage. Subsequent to its execution, and in 1914, the premises were conveyed by the mortgagor to the present owner. The
The duty of a mortgagor to keep down encumbrances was recognized by the chancellor (Runyon) in Mahon v. Crothers, 28 N. J. Eq. 567. He there said that a mortgagee who has no personal security is entitled to a. receiver where it appeared that the mortgagor’s premises was an insufficient security; that the mortgagor who is in receipt of the rents and profits not only has not kept down the' interest, but has not paid the annual taxes, whereby a lien on the premises therefor, paramount to that of the mortgagee and bearing a' high rate of interest, has been created and still exists — a lien which, unless the property be redeemed therefrom, will extinguish the mortgage. This statement was clearly based upon the idea of a breach of duty on the part of the mortgagor to properly apply the rents. .The duty of a mortgagor to apply rents and profits and to keep' down encumbrances was also recognized in Corlleyou v. Hathaway, 11 N. J. Eq. 39. The chancellor (Williamson), after stating that the • rule in New York with respect to the appointment of a receiver of mortgaged premises had not been recognized in this state, and that the court had acted upon the ground that where a man takes a mortgage security for his debt and permits the mortgagee to remain in possession, if there is a default in payment, the mortgagee must appropriate the property in the usual way for the payment of his debt, said: “Where there is any act on the part of the mortgagor or such tenant which shows fraud on his part, or makes him chargeable with bad faith in misappropriating [italics mine] the rents and profits for other purposes than that of keeping down the interest on the encumbrances, in such cases the court may voiy properly appoint a receiver.” This is a clear recognition of a duty on the part of the mortgagor to apply rents to keeping down of encumbrances. The chancellor also «vid that where the receiver was appointed at the instance of a .second mortgagee he would be directed to keep down interest on prior mortgages.
It may be well argued that a mortgagee taking land as security for his debt does it with his eyes open, but he also docs it with the understanding that liens prior to his shall remain at the
The receiver will be directed to collect the rents accrued but unpaid at the time of his appointment and apply them as herein indicated.
No costs to either party.