Nielsen v. Heald

• Decision Date: 20 January 1922
• Docket Number: No. 22482.,22482.
• Court: Minnesota Supreme Court
• Parties: NIELSEN v. HEALD et al.

151 Minn. 181

186 N.W. 299

NIELSEN

v.HEALD et al.

No. 22482.

Supreme Court of Minnesota.

Jan. 20, 1922.

Appeal from District Court, Hennepin County; W. C. Leary, Judge.

Action by Christain Nielsen against Mary J. Heald, George Forsythe, and others, to foreclose a mortgage, and for the appointment of a receiver. From an order appointing a receiver, defendant Forsythe appeals. Affirmed.

Hallam and Dibell, JJ., dissenting.

Syllabus by the Court

Ordinarily the mortgagor is entitled to the possession of the mortgaged property and to the rents and profits therefrom until the expiration of the period of redemption.

If he permits waste and the security is inadequate and the debtor insolvent, the court may take control of the property through a receiver and apply the rents and profits in protecting and preserving it. But rents and profits are no part of the security and the mortgagee has no right to have them applied for his benefit except in so far as may be necessary to preserve to him the security which he acquired when he took his mortgage.

Failure to pay claims which were not liens on the property when the mortgage was taken but which, if not paid, will become liens thereon superior to the mortgage is deemed waste. Failure to pay taxes or interest on prior mortgages is waste within this rule.

Failure to pay claims which were liens on the property when the mortgage was taken does not constitute waste. And mechanics' liens which are prior and superior to the mortgage must be deemed to have been existing liens when it was taken, at least, in the absence of evidence that they accrued thereafter.

To obtain the appointment of a receiver the mortgagee must prove by clear and convincing evidence that his debtor is insolvent and his security inadequate, and also that the security is becoming impaired by waste caused or permitted by the mortgagor. But an order appointing a receiver is, in effect, a finding that all the facts necessary to authorize the appointment have been proven.

The evidence is sufficient to sustain the order appointing a receiver. Einar Hoidale, of Minneapolis, for appellant.

John N. Berg, of Minneapolis, for respondent.

TAYLOR, C.

Plaintiff brought this action to foreclose a second mortgage on an apartment building in the city of Minneapolis, and procured the appointment of a receiver to collect the rents and profits during the pendency of the action. Defendant Forsythe appeals from the order appointing the receiver. So far as the record discloses the other defendants have not appeared or taken any part in the proceedings.

The title to the property was held by defendant Mary Heald until conveyed to defendant Forsythe as hereinafter stated. Defendant Anderson, a contractor and builder, constructed the apartment building and completed it in July, 1920. On February 5, 1920, the Healds executed a mortgage on the property to David P. Jones & Co. for $27,500, payable in installments, and bearing interest at the rate of 6 per centum per annum payable semiannually on the 5th day of January and July of each year. On April 15, 1920, the Healds executed a second mortgage on the property to defendant Anderson for $17,000, payable in monthly installments of $250 each, and bearing interest at the rate of 6 per centum per annum. On June 15, 1920, Anderson sold and transferred this second mortgage to plaintiff for the sum of $14,000. On August 12, 1920, the Healds sold the property to defendant Forsythe and conveyed it to him by warranty deed subject to the two mortgages which he assumed and agreed to pay as a part of the purchase price. For the remainder of the purchase price, he conveyed to the Healds a farm in Renville county of the value of $28,800, subject to a mortgage of $4,000, which farm the Healds sold and conveyed to third parties shortly thereafter. When Forsythe, who was a retired farmer living in Renville county, made his purchase, the Healds and Anderson stated and represented to him that all claims incurred in the construction of the building had been paid and satisfied and that no lienable claims of any kind were outstanding, and he relied thereon in making the purchase. These representations were not true, however, and between September 22 and December 29, 1920, liens were filed against the property amounting in the aggregate to the sum of $28,225. If valid they are prior and superior to plaintiff's mortgage. Their validity is not admitted by Forsythe and has not yet been determined in proceedings to enforce them, but plaintiff asserts that they are valid in the amount of, at least, $20,000. The value of the property is placed at $55,000, several thousand dollars less than the aggregate amount of the two mortgages and the liens. Both Anderson and the Healds are insolvent. Forsythe took possession of the property under his deed and thereafter maintained and operated it, and collected the rentals of $855 per month. He paid plaintiff seven installments of the second mortgage and $660 as interest, making a total of $2,410. He also paid the first installment of interest on the first mortgage. In January, 1921, $500 of principal and $825 of interest became due on the first mortgage, and $250 of principal and $76.25 of interest became due on the second mortgage, and these amounts still remain unpaid. Plaintiff's application for the appointment of a receiver is dated February 8, 1921. Plaintiff's mortgage contains a provision authorizing him to declare the entire amount due in case of default in any payment and he has declared the entire amount to be due, and asks judgment therefor, and that the property be sold to satisfy the same, and that he have a personal judgment against defendants for any deficiency in the amount realized from such sale.

[1][2] The question before this court is whether the trial court overstepped the bounds of its judicial discretion in appointing a receiver to collect the rents and profits and care for the property during the pendency of the action. Ordinarily, under our law, the mortgagor or his successor in interest is entitled to the possession of the property and to the rents and profits therefrom during foreclosure proceedings and until the expiration of the period of redemption (Marshall & Ilsley Bank v. Cady, 76 Minn. 112, 78 N. W. 978); but, if he permits waste of a character to impair the security, and the security is inadequate and those personally liable for the debt are insolvent, a receiver may be appointed to take charge of the property and to apply the rents and profits, or so much thereof as may be necessary for that purpose, in protecting it from preventable waste. 19 R. C. L. 560, 563; Lowell v. Doe, 44 Minn. 144, 46 N. W. 297;Haugan v. Netland, 51 Minn. 552, 53 N. W. 873;Marshall & Ilsley Bank v. Cady, 76 Minn. 112, 78 N. W. 978;Donnelly v. Butts, 137 Minn. 1, 162 N. W. 674;Justus v. Fagerstrom, 141 Minn. 323, 170 N. W. 201.

[3] Speaking in general terms it may be said that a mortgagor is chargeable with waste within the meaning of the rule whenever, through the fault of the mortgagor, the mortgagee loses some part of the security which he had when he took his mortgage. Failure to pay claims or charges which were not liens on the property when the mortgage was taken but which, if not paid, will become liens thereon superior to the mortgage is deemed waste within the rule. Failure to pay interest on prior mortgages or to pay taxes falls within this species of waste. Lowell v. Doe, 44 Minn. 144, 46 N. W. 297;Haugen v. Netland, 51 Minn. 552, 53 N. W....