Farm Mortg. Loan Co. v. Pettet

• Decision Date: 08 September 1924
• Citation: 200 N.W. 497,51 N.D. 491
• Parties: FARM MORTGAGE LOAN CO. v. PETTET et ux.
• Court: North Dakota Supreme Court

51 N.D. 491

200 N.W. 497

FARM MORTGAGE LOAN CO.

v.PETTET et ux.

Supreme Court of North Dakota.

Sept. 8, 1924.

Syllabus by the Court.

Since the enactment of chapter 132, S. L. 1919, the mortgagor is entitled to the rents, use and benefit of the mortgaged property until the expiration of the period of redemption and a court of equity has no power to deprive the mortgagor of such rents, use and benefit by appointing a receiver of the crops, pursuant to section 7588, C. L. 1913, authorizing the appointment of receivers in certain cases.

Under the facts in the record, failure to pay interest and taxes does not constitute such waste as to authorize the appointment of a receiver of the crops or the rents and profits during the period of redemption, and in connection with foreclosure proceedings at the instance of the mortgagor.

Bronson, C. J., dissenting.

Appeal from District Court, Stutsman County; Coffey, Judge.

Action by the Farm Mortgage Loan Company against Ed Pettet and wife. From a portion of the judgment for plaintiff, imposing an equitable lien on crops to extent of rental value of land per annum, to secure payment of interest on prior mortgage, for unpaid taxes, and for appointment of receiver to enforce such lien, defendants appeal. Affirmed.M. C. Freerks, of Jamestown, for appellants.

Aylmer & Aylmer, of Jamestown, for respondent.

JOHNSON, J.

This is an action by second mortgagee to foreclose a mortgage on defendants' homestead, and for the appointment of a receiver. Defendants appeal from a part of the judgment only. Defendant owned a quarter section of land in Stutsman county. In 1920 he made a first mortgage upon the land for $3,500, and to plaintiff a second mortgage for $3,768. In 1922 defendant went through bankruptcy. He has continuously remained in possession of the land. Defendant did not pay certain interest upon the first mortgage nor the taxes for the years 1920, 1921, and 1922. Plaintiff paid such interest amounting to $285 on September 29, 1922. This action was instituted in March, 1923. Defendant, with his wife joining, interposed a general denial coupled with a specific denial of personal liability. Trial was had to the court in June, 1923. The trial court, in addition to the above facts, found that there was due, on the first mortgage, over $3,675; on the second mortgage, over $4,617; for taxes, $813-all of which aggregated over $9,105 against the land; that the land was worth not to exceed $6,400, thus leaving $2,705 as an excess of incumbrance above land value; that the rental value of the land per farming season was $500. The trial court concluded as a matter of law that defendants were guilty of committing waste concerning the premises and thereby depreciating plaintiff's security by their failure to pay the interest and taxes above mentioned; that the annual rental value of the land constituted a special fund for the liquidation of such sums constituting waste committed; that the crops growing and harvested and the grain raised upon the land were adjudged a special fund out of which should be paid the amount of waste so committed to the extent of $500 per farming season, and until the expiration of the period of redemption; and that plaintiff was entitled to an equitable lien upon the crops for such amount. The court ordered a foreclosure and sale of the premises, appointed a receiver of the crops grown on the premises during the period of redemption, fixed his bond, and directed such receiver to take possession of the crops and hold them as a special fund out of which to pay past-due taxes and interest on prior incumbrances, the taxes having been paid by the mortgagee. Judgment was entered accordingly, August 14, 1923, decreeing that plaintiff had an equitable lien for such purpose, on the crops of 1923, whether severed or not, and of those to be grown during the period of redemption. Defendant has appealed from the part of the judgment which concerns the particular conclusions of law, as to the appointment and powers of a receiver, above stated.

That part of the judgment of the trial court that decrees a foreclosure is not challenged on this appeal. It is only the judgment that the plaintiff is entitled to the appointment of a receiver of the crops, or rents and profits during the period of redemption and also of the crops harvested in 1923, whether severed or not on the date of the decree, that the appellants complain. We shall dispose of these propositions in the order stated.

The authorities principally relied on by the respondent in support of the order of the trial court appointing a receiver of the crops, during the period of redemption, proceed, in part, on the theory that historically a court of equity has always had the power to appoint a receiver thereof in certain circumstances, and that there is such waste in failing to pay taxes and interest upon prior incumbrances as will justify a court of equity in appointing a receiver of the rents and profits.

[1][2] There are two main reasons why the order of the trial court must be reversed. In the first place, even if, under some circumstances, a receiver of the rents and profits may be appointed in this state-a question that need not be answered now-and such rents and profits applied to the prevention of waste in the sense in which that term has been used by our Legislature, nevertheless the case presented is not one in which it is in the power of a court of equity to appoint such a receiver, with direction to take the crops from the mortgagor and his family and apply the proceeds thereof in payment of taxes or past due interest that may or do constitute a prior lien or burden on the property covered by the mortgage. Lastly, we believe that the Legislature, in unequivocal language, established as a fundamental right in the mortgagor that he be entitled to the possession and beneficial use of the premises and of the rents and profits thereof during the period of redemption. We believe that the action of the trial court in turning the crops over to the purchaser at the sale is in direct violation of the letter and the purpose of chapter 132, S. L. 1919.

By statute in North Dakota, section 6740, C. L. 1913, it is expressly provided that the mortgagee is not entitled to the possession of the property unless expressly authorized by the terms of the mortgage or, if, after the execution thereof, the mortgagor agrees that the mortgagee may take possession. This statute appears without change in the codifications and revisions since 1877, where it is found as section 1733 of the Civil Code of Dakota Territory. Under section 6726, C. L. 1913, the mortgage is declared to be a lien only. This staute also appears in its present form in the Civil Code of Dakota Territory of 1877 as section 1723. At the first session of the territorial Legislature, in 1862, the lien theory was adopted by necessary implication. See chapter 31, S. L. 1862. It has, therefore, been the legislative policy of this jurisdiction at all times to recognize the lien theory, but the right of the mortgagor to possession of the property until foreclosure is perfected, and the period of redemption has expired, has not always been recognized, as will be later shown. From the right of possession and the unqualified adoption of the lien theory under the statutes, follows, as a logical consequence, the right to the rents and profits, unless a legislative purpose to the contrary appear. In Whithed v. St. Anthony, etc., 9 N. D. 224, 83 N. W. 238, 50 L. R. A, 254, 51 Am. St. Rep. 562, this court held that the effect of section 7762, C. L. 1913 (section 353, Code Civ. Proc. 1877), was to give the purchaser at the foreclosure sale the right to the rents and profits during the period of redemption. See, also, Clifford v. Henry, 40 N. D. 604, 169 N. W. 508. In 1877, the territorial Legislature seems to have made a sort of a compromise between the mortgagor and the purchaser at the sale; the right to possession was given to the mortgagor, but the right to the rents and profits, usually following the right of possession and beneficial use, was expressly given to the purchaser. That was the law until 1919.

In McClory v. Ricks, 11 N. D. 38, 88 N. W. 1043, this court held that the mortgagee could, neither before nor after condition broken, maintain his possession of the premises though peaceably acquired, as against the mortgagor, unless the mortgagee had possession under an express provision in the mortgage or pursuant to an agreement with the mortgagor, made subsequent to its execution. The court followed the literal import of section 6740, supra, and refused to adopt the conclusions reached by the courts of New York (Phyfe v. Riley, 15 (N. Y.) Wend. 248, 30 Am. Dec. 55), and of Wisconsin (Gillett v. Eaton, 6 Wis. 30), wherein it had been held, under statutes which abolished the common-law right of the mortgagee to maintain ejectment against the mortgagor before or after condition broken, that the mortgagee could maintain his possession, when lawfully acquired, against the mortgagor. In Phyfe v. Riley, supra, the New York court in effect held that the Legislature, in taking from the mortgagee the right to maintain ejectment, intended merely to take away one of numerous remedies the mortgagee had: that prior to the statute the law was settled that in equity the mortgagee who had possession could maintain it by force of the mortgage (Jackson v. Minkler, 10 Johns. 480); and that the statute abolishing the remedy of ejectment had made no change as far as the application of this equitable rule was concerned. It seems that these courts, notwithstanding the radical departure from the common-law theory of the mortgage that inhered in the adoption of the lien theory of equity, were, to some extent, influenced by the old notion that the mortgagee had the right of possession, but that the Legislature had merely taken away the remedy to enforce it. It was then concluded that...