King v. Good

• Decision Date: 08 May 1928
• Citation: 219 N.W. 517,205 Iowa 1203
• Parties: Frank J. King Et Al., Appellants, v. Walter J. Good Et Al., Appellees.
• Court: Iowa Supreme Court

219 N.W. 517

205 Iowa 1203

Frank J. King Et Al., Appellants, v. Walter J. Good Et Al., Appellees.

Supreme Court of Iowa

May 8, 1928

SYLLABUS BY THE COURT

FRAUD Evidence — Sufficiency. Fraud must be affirmatively 1 established. REFORMATION OF INSTRUMENTS: Evidence — Sufficiency. Reformation 2 of an instrument can only be decreed on testimony which is clear, satisfactory, and convincing. TRIAL: Proper Calendar — Equity Issues. A foreclosure proceeding 3 wherein an intervener is asking for an accounting by a receiver, and wherein an adverse party is praying for the reformation of an instrument, is manifestly properly kept on the equity side of the calendar. MORTGAGES Pledge of Rents — Prior Assignment — Effect. Even 4 though a real estate mortgage pledges the rents of the mortgaged premises, nevertheless the rights of a good-faith assignee of said rents for value, prior to the institution of foreclosure proceedings, are superior to said pledge. (See Book of Anno., Vols. I, II, Sec. 12713; also, Sec. 12372 Vol. II.) LANDLORD AND TENANT: Leases — Assignment — Recording — Effect. 5 A lease of real estate and the assignment thereof are recordable for the purpose of conveying constructive notice to a mortgagee and his subsequently appointed receiver under a mortgage which contains a pledge of the rents, even though said parties are not entitled, as a matter of right, to such notice. RECEIVERS: Liability — Improper Disposal of Rents. A receiver 6 under mortgage foreclosure who collects rents which he actually and constructively knows are claimed by an assignee thereof, and who pays out said funds under an order which he obtains without notice to the court of such claim and without notice to said assignee, must account to such assignee for such funds when such assignee promptly intervenes in the receivership proceeding prior to its termination and legally establishes his prior claim to said funds. (See Book of Anno., Vols. I, II, Sec. 12713.) Headnote 1: 27 C.J. p. 44. Headnote 2: 34 Cyc. p. 984. Headnote 3: 38 Cyc. p. 1292. Headnote 4: 41 C.J. p. 629. Headnote 5: 35 C.J. p. 1218. Headnote 2: 23 R.C.L. 368. Headnote 6: 23 R.C.L. 80.

Appeal from Harrison District Court. — EARL PETERS, Judge. The original action was to foreclose a real estate mortgage, but this particular controversy involves a petition of intervention on the part of Ethel C. Storie, to obtain rent proceeds paid to a receiver appointed under and by virtue of the above-mentioned security contract. — Affirmed.

Robertson & Havens, for appellants.

J.J. Freidman, D.E. Stuart, and Ambrose V. Burke, for Ethel C. Storie, appellee.

The opinion of the court was delivered by: Kindig, J.

There is involved in this suit the question concerning the prior right to the 1924 rent from certain land in Harrison County. On the one hand, the superiority of the claim is founded upon a clause in a real estate mortgage, while, on the other, it is asserted through the landlord's assignment of the lease.

As an aid to clearness, the positions of the various parties in the court below are here given: Frank J. King, appellant, was plaintiff, and Albert Heistand, Jessie A. Heistand, and Mrs Amanda Heistand, appellants, were defendants, as were also Walter J. Good and Mrs. Walter J. Good, his wife, appellees. In addition thereto, J.O. Silsby, appellant, was receiver, and Ethel C. Storie, appellee, was intervener.

Chronologically, these are the events: Albert Heistand, appellant, owned this farm April 1, 1924, on which day he and his wife, Jessie A. Heistand, deeded it to the appellee Walter J. Good. At that time, the acreage was incumbered by a first mortgage of $12,000 held by the plaintiff and appellant, Frank J. King, and, too, there was then a second mortgage incumbrance of $8,000 upon the premises. This latter security was owned by Mrs. Amanda Heistand, appellant, who was the mother of the appellant Albert Heistand.

Immediately after obtaining possession of the real property, Walter J. Good, appellee, on the same April first, leased it to Albert Heistand, appellant, for the term of eleven months, expiring February 28, 1925. The rental agreed upon was $1,100, evidenced by a promissory note which Albert and Jessie A. Heistand, appellants, both executed. That negotiable instrument was made payable to Walter J. Good, appellee, on or before February 15, 1925, with 8 per cent interest after maturity. Thereafter, on April 11, 1924, Walter J. Good, appellee, indorsed and transferred said "note" to Ethel C. Storie, intervener, and at the same time assigned to her the written lease above mentioned, for the purpose of securing an indebtedness arising out of a loan from the assignee to the assignor. Then, on the following day, the intervener duly recorded the lease, together with the assignment thereof.

Thus matters rested until August 14, 1924, when Frank J. King, appellant, as plaintiff, commenced this proceeding to foreclose the first mortgage of $12,000. Under that action, a default was entered, November 20th, resulting in a decree of foreclosure, wherein J.O. Silsby, appellant, was designated receiver, "to take immediate possession of said premises and to collect the rent * * *" (and) "to rent" (the same) "upon the best terms and conditions * * *" and "to hold said rents, issues, and profits * * * subject to the further orders of the (district) court." Qualification was duly made by this official agent, and he thus entered upon the performance of his duties.

When testifying at the trial, the "receiver" explained his operations as follows:

"After I was appointed receiver, I went out to the farm where Albert Heistand lived, which is the land described in the foreclosure action. I talked to Mr. Heistand, and told him he was to pay me the rent, and I rented it to him for the same he had rented it from Mr. Good, — that was, for $1,100 rent. This was in the fall of 1924. I showed him the letters of my appointment as receiver, which had been issued to me by the clerk of this court. Albert Heistand paid me $1,100 rent for said premises

for 1924. He paid it to me in February, 1925. He paid that rent to me five or six days before I saw the intervener at that public sale in February, 1925."

To the same effect is the testimony of Albert Heistand, appellant, who declared:

"He [the receiver] said I would have to pay the rent over to him, and he was to take care of the place from then on. I would have to re-rent it of him. That Mr. Good [appellee] had nothing more to do with it after the receiver was appointed. That did away with Mr. Good.

"Q. What did he say as to the amount of the rent he would let you have the place for? A. For the same amount that Mr. Good had promised to let me have it for, — $1,100. Q. What did you say to him, if anything, about paying him the rent? A. I told him I would pay him the rent."

Three or four days later, on February 17, 1925, Ethel C. Storie, the intervener and appellee, demanded this "rent" of Albert Heistand, appellant, at which time he told her that the money had already been paid to the receiver; whereupon, this intervener interviewed the receiver with reference to the matter, and requested that he pay her the "rent" collected from Heistand. Replying to that demand, this officer of the court stated: "Well, I cannot pay anything, only through order of court." Accordingly, on March third thereafter, J.O. Silsby, as receiver, filed with the clerk of the trial court his first report, setting forth the collection of the $1,100 in "rent," and then recommending the payment thereof to Frank J. King, appellant, to cover: First, a deficiency still due after the foreclosure sale; second, certain real estate taxes not included in the previous judgment; and third, attorneys' and receivership fees. No mention was made in this account and application concerning the demand of the intervener, and the court's action in approving the receiver's statement and allowing him to make the desired distribution was in total ignorance of intervener's rights. Moreover, such judicial action was entirely ex-parte, because no notice of any kind was served upon the intervener, and she had no opportunity to protect her rights.

Consequently, Ethel C. Storie, on April 30th following, filed her petition of intervention, asking that the receiver account to her for the proceeds of the "rent," because: First, the pretended payment thereof by that official agent to King was through a conspiracy formulated on the part of those men, with the avowed purpose and intent of defeating the rights of the intervener in the premises; second, the appellant King, at the time he instituted his suit for the foreclosure and asked for the appointment of the receiver, had at least constructive notice of intervener's rights, because she had timely and properly recorded the lease and assignment; and third, the receiver also had such notice when he took possession of the controverted money, as well as the actual knowledge of intervener's interests, before paying it over.

By way of answer to this petition of intervention, appellants interposed: First, a general denial; second, the defense of fraud perpetrated by Walter J. Good in procuring deed to the real estate from Albert Heistand, so that the latter was entitled to offset, against the intervener, claims and demands held by him against Good; third, the demand that the original mortgage be reformed so that there be eliminated therefrom the words "subject to," and substituted in their place the word "assumed," in relation to the incumbrances above mentioned; fourth, the inconsistent prayer that the cause be transferred from equity to law; and fifth, lack of good faith in making and receiving the assignment.

Upon those issues, evidence was introduced before the...