Nielsen v. Heald

• Decision Date: 20 January 1922
• Docket Number: No. 22,482.,22,482.
• Citation: 151 Minn. 181
• Parties: CHRISTIAN NIELSEN v. MARY J. HEALD AND OTHERS. GEORGE FORSYTHE, APPELLANT.<SMALL><SUP>1</SUP></SMALL>
• Court: Minnesota Supreme Court

151 Minn. 181

CHRISTIAN NIELSEN v. MARY J. HEALD AND OTHERS. GEORGE FORSYTHE, APPELLANT.¹

No. 22,482.

Supreme Court of Minnesota.

January 20, 1922.

Action in the district court for Hennepin county to foreclose a second mortgage upon an apartment building for $15,250; to declare the amount due to be a specific lien upon the premises; and to appoint a receiver to collect rents and profits during the pendency of the action. From an order, Leary, J., granting plaintiff's motion for the appointing of a receiver, defendant appealed. Affirmed.

Einar Hoidale, for appellant.

John N. Berg, 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 & Company for $27,500, payable in instalments, and bearing interest at the rate of 6 per centum per annum, payable semi-annually on the fifth 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 instalments 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 instalments of the second mortgage and $660 as interest, making a total of $2,410. He also paid the first instalment 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.

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 & I. Bank v. Cady, supra; Donnelly v. Butts, 137 Minn. 1, 162 N. W. 674; Justus v. Fagerstrom, 141 Minn. 323, 170 N. W. 201.

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; Haugan v. Netland, 51 Minn. 552, 53 N. W. 873; Cullen v. Minnesota L. & T. Co. 60 Minn. 6, 61 N. W. 818; Farmers Nat. Bank v. Backus, 64 Minn. 43, 66 N. W. 5; Marshall & Ilsley Bank v. Cady 75 Minn. 241, 77 N. W. 831; Donnelly v. Butts, 137 Minn. 1, 162 N. W. 674.

Plaintiff, having applied for the appointment of a receiver, had the burden of proving, by clear and convincing evidence, that his security had become impaired by waste caused or permitted by the defendants. Northland Pine Co. v. Melin Bros. Inc. 136 Minn. 236, 161 N. W. 407, 1 A. L. R. 1463. But the order appointing the receiver was, in effect, a finding that all the facts necessary to authorize such appointment had been established. The finding that plaintiff's security was inadequate must stand, for the court could find that plaintiff's mortgage together with the valid prior encumbrances exceeded the value of the property by a substantial amount. It is conceded that Anderson and the...