Carolina Portland Cement Co. v. Baumgartner

• Citation: 99 Fla. 987,128 So. 241
• Parties: CAROLINA PORTLAND CEMENT CO. v. BAUMGARTNER et al.
• Decision Date: 05 May 1930
• Court: United States State Supreme Court of Florida

128 So. 241

99 Fla. 987

CAROLINA PORTLAND CEMENT CO. v. BAUMGARTNER et al.

Florida Supreme Court, Division A.

May 5, 1930

Suit to foreclose mortgage by the Carolina Portland Cement Company and another against Carl J. Baumgartner and others. From an order denying their application for appointment of a receiver, complainants appeal.

Affirmed with directions.

COUNSEL

Martin H. Long, of Jacksonville, for appellants.

James Royall, Milam, McIlvaine & Milam and Stockton, Ulmer &amp Murchison, all of Jacksonville, for appellees.

OPINION

BROWN J.

This is an appeal by the complainant in the court below from an order of the chancellor denying the application of complainant for the appointment of a receiver in foreclosure proceedings. The bill for foreclosure, which was sworn to, was filed in October, 1928. It alleged that the defendants Baumgartner and wife, on the 25th day of November, A. D 1927, executed and delivered to the Hearn Construction Company their note for $25,250. To secure its payment they also contemporaneously executed and delivered their mortgage incumbering the lands described in the bill of complaint. The note and mortgage were first assigned to the Atlantic National Bank, but the bill alleged that they are now held and owned by the complainants.

The bill furthermore alleged that on the property described in the mortgage there was a large apartment house from which the principal defendant, Baumgartner, was collecting the rents. The property was subject to a first mortgage of $42,500. Baumgartner failed to pay the interest due thereon in July, 1928, and to prevent foreclosure, the complainant Carolina Portland Cement Company paid it. He likewise failed to pay the interest due August 25, 1928, on this, the second mortgage, when it matured.

The bill alleged that the second mortgage, foreclosure of which was thereby sought, contained an express pledge of the rents, etc.; the following language being used:

'Together with all and singular the tenements, hereditaments and appurtenances thereunto belonging or in anywise appertaining, and the rents, issues and profits thereof, and also the estate, right, title interest, homestead, dower and right of dower, separate estate, property, possession, and all claim and demand whatsoever, as well in law as in equity, of the said party of the first part, of, in and to the same, and every part thereof, with the appurtenances.' (Italics supplied.)

There was also a provision for the appointment of a receiver, as follows:

'That in case any default is made by the party of the first part, as mentioned in the preceding paragraph, and a suit in equity is instituted by the party of the second part to enforce his rights, the party of the second part shall be entitled to apply to the Court having jurisdiction of such suit for the appointment of a receiver of all and singular said property, and the rents, issues and profits thereof. And it is further covenanted and agreed that thereupon such court shall forthwith, as a strict matter of right in the party of the second part, appoint a receiver of all such property with the usual powers and duties including the power to rent said property and to collect the rental thereof and therefrom; the revenue derived from said property to be applied by such receiver as required by law and under the direction of said court.' (Italics supplied.)

Relying on the foregoing clauses and the facts above stated, the complainants applied to the lower court for the appointment of a receiver. Several days after the date noticed for the hearing of such application, but two days prior to the making of the order, defendant Baumgartner filed his sworn answer. The application for appointment of a receiver was denied, and this appeal is from the order of denial.

The bill contained no allegation that the defendant mortgagor was insolvent or that the security afforded by the property mortgaged was inadequate.

The briefs and argument of counsel for both appellants and appellees assume that the only question in the case is whether or not the complainants, without making any showing as to the insolvency of the mortgagor or the inadequacy of the security, were entitled to the appointment of a receiver, by virtue of those clauses in the mortgage sought to be foreclosed which expressly pledged the rents, issues, and profits of the mortgaged premises as security for the debt, and providing for the appointment of a receiver.

The chancellor rendered his order without opinion, but it is assumed by counsel that the above question, and the decision reached thereon, was the sole determinative consideration upon which the order appealed from was based. This assumption may be correct, and we would hardly be warranted in adjudicating this appeal without some consideration of the above-stated question, which has been ably and earnestly argued by counsel for both sides, though, for reasons hereinafter stated, the chancellor may have been influenced in reaching his decision to deny the receiver by certain allegations in the defendant's verified answer.

Appellant contends that where two persons are sui juris, they have the right to make any contract which is not in violation of law or of rule of court, and that the courts should approve and enforce any such contract and not destroy it. That this contract was either good, or it was void; if good, the court erred in not enforcing it; if void, the sooner investors find it out, the better. That even though the provision as to the appointment of a receiver should not be held to be absolutely controlling on the courts, the courts should accord it considerable weight, and no objections from a party who has thus consented to such appointment should be heard. That if ever a case demanded a receivership, this is that case. That the mortgagors are collecting nearly a thousand dollars a month in gross rentals, which rents are by the contract expressly made a part of the security, yet they refuse to pay the interest on either the first or second mortgages, knowing that the second mortgagees cannot afford to let the first mortgage be foreclosed and that the holders of the second mortgage must pay all interest coupons as they become due, thereby increasing their burden. That in such a case the court should have respected the contract provisions and appointed a receiver to collect the rents pending the foreclosure proceedings, which action could have harmed no one; that this should have been done, although there was no allegation or evidence of insolvency, which was not necessary under the contract. That under such circumstances, the burden of showing insolvency and inadequacy of security should not be placed upon the complainant. That with mortgages aggregating $67,750 and several thousand dollars of interest, the building being insured, according to the bill, for $60,000, the value of such an equity is purely problematical, and the contract saying nothing about insolvency or inadequacy of security, the court below erred in refusing to appoint a receiver under the facts alleged.

Appellees contend that the provision as to the appointment of a receiver is practically nullified by the decision of this court in Armour Fertilizer Works v. First National Bank, 87 Fla. 436, 100 So. 362, 365, wherein it was held that consent of parties 'cannot confer power or authority on a court to appoint a receiver in a case where the pleadings do not state a cause for such appointment,' and hence that insolvency of the mortgagor and inadequacy of security must in all cases be shown. That the appointment of a receiver in foreclosure proceedings is discretionary with the courts. That the clause pledging the rents, issues, and profits has no weight, because it provides nothing further than that which the law reads into every mortgage.

We will first consider whether a mortgagor may lawfully pledge the rents and profits of real estate in a mortgage thereof, and, if so, whether such a provision possesses any significance or efficacy.

Clauses of this character are so frequently embraced in mortgages these days, that the question becomes an important one. It is also obvious that such a clause, upon default in payments due under the mortgage, cannot generally be enforced except through the medium of a receiver. Land cannot run away, and buildings may be kept insured. Hence there is generally good reason for denying a receiver of mere real estate unless waste is being committed, or there be insolvency of the mortgagor and inadequacy of the property as security. But the mortgagors, even after default, can collect the rents, and dissipate them, and the mortgagees are powerless to prevent it, although the mortgage expressly pledges the rents as part of the security, unless a receiver be appointed to impound the rents pending the foreclosure proceedings and hold them subject to the orders of the court.

It is generally held that, in the absence of a statute or agreement to the contrary, a lessee may mortgage or incumber the leasehold estate. Jones on Mortgages (8th Ed.) § 990. And the owner of property can as a general rule assign the rents and profits or appropriate them to any desired purpose.

It has also been held in a number of states that the mortgagor, when there is no prohibitory statute, may pledge the rents and profits of real estate in a mortgage thereof. Indeed this appears to be in harmony with the weight of authority, though there are some cases to the contrary. See valuable note in 4 A. L. R. 1405 et seq., and Jones on Mortgages (8th Ed.) § 1930. Among the states so holding are New York and Illinois. Such also is the holding by the United States Supreme Court. See Gisborn v. Charter Oak Life Insurance Co., 142 U.S. 326, 12 S.Ct. 277, 35 L....