Nusbaum v. Shapero

• Decision Date: 24 January 1930
• Docket Number: No. 75.,75.
• Citation: 228 N.W. 785,249 Mich. 252
• Parties: NUSBAUM v. SHAPERO et al.
• Court: Michigan Supreme Court

249 Mich. 252

228 N.W. 785

NUSBAUM

v.SHAPERO et al.

No. 75.

Supreme Court of Michigan.

Jan. 24, 1930.

Appeal from Circuit Court, Wayne County, in Chancery; Orien S. Cross, Judge.

Suit by Otis D. Nusbaum, trustee, against Bune M. Shapero and others. Decree for plaintiff, and defendants appeal. Decree modified, and remanded with instructions.

Argued before the Entire Bench.Wm. Henry Gallagher, of Detroit, for appellants Bune M. Shapero and Harold M. Shapero.

Harold M. Shapero, of Detroit, for appellant Samuel Shapero.

George E. Brand, of Detroit, for appellee.

BUTZEL, J.

In March, 1922, the owners of the property at Fourteenth and Blaine avenues, Detroit, Mich., executed a mortgage to Otis D. Nusbaum, trustee, plaintiff herein, for the purpose of securing $70,000 of first mortgage bonds. A contract was entered into with Straus Brothers Company, a large investment company, to sell the bonds after they had been duly validated by the Securities Commission. Plaintiff, as far as the record shows, had no interest in the bonds except as trustee, nor were any funds left with him with which to protect the security.

The trust mortgage was given for the purpose of erecting a 25-apartment building on the premises. It not only covered the property and improvements thereon, but also all rents, profits, and issues thereor. It contained provisions that the indenture would remain a first lien upon the estate and premises covered by the indenture. The mortgagors agreed to defend the trustee in the peaceful and quiet possession of the premises and to execute all further instruments to carry into effect the covenants of the mortgage. They agreed to maintain insurance and pay taxes as they became due, and in this behalf they authorized the trustee to act as their agent in the event of their failure to procure or renew the insurance, repair the building, pay taxes or assessments, remove mechanics' liens, carry on the prosecution of any suit affecting the security of the bonds. All moneys advanced for these purposes by the trustee were made a lien under the indenture. The mortgage contained an acceleration clause in the event of a default, and a right to waive it after the default was cured. It provided for a receiver in the event court proceedings were begun. It contained the usual clause giving the mortgagors the right to remain in possession of the premises, etc., while not in default. The covenants in the mortgage were made binding on all persons who might subsequently hold title to the property.

Article VIII of the mortgage empowered the trustee to enter and take possession of the premises in the event of any default for which the mortgage authorized him to declare the amount due and payable immediately. The mortgagors agreed to surrender the premises to him upon demand, and empowered him, in his discretion, with or without force and with or without process of law, and without declaring the principal of the bonds due and without any action on the part of any bondholder, to enter upon, take, and maintain possession of the premises, together with all records, documents, books, papers, and accounts, and to hold, manage, and operate the premises and collect the rents thereof, enter into leases, etc. Out of the proceeds of the rent the trustee was authorized to pay all arrearages of every kind, including 5 per cent. of all amounts collected for his compensation, and after all such arrearages had been paid, together with a sufficient amount to pay the next accruing installment of interest, he was to return the property to the mortgagors. This right of entry, etc., might be exercised as often as it might be necessary.

Through a number of mesne conveyances, including foreclosure proceedings on a second mortgage, and after some litigation with owners in the chain of title, the defendants, Bune M. Shapero, Harold M. Shapero, and Samuel Shapero, or some of them, became the owners of the equity of redemption. Bune M. Shapero occupied one of the apartments in the building. It is not clear as to who the real owners of the equity of redemption are, as there seems to be considerable confusion arising through the statements of some of the defendants and the title record as appears in the register of deeds' office, and the further fact that defendants had given to one another unacknowledged deeds which were kept in the family safe. Defendants had failed to make payments of principal, interest, taxes, and insurance premiums, in accordance with the terms of the mortgage, for several years prior to the beginning of this suit. Thereupon the trustee made written demand for the immediate possession of the land and buildings and for the rents, issues, and profits thereof, in accordance with the indenture. Plaintiff further served notice on the various tenants in the building demanding that the rent be paid to him under the assignment of rents clause in the mortgage. Defendants then sought to counteract the effect of this notice by notifying the tenants not to pay any attention to plaintiff's notice. Without instituting foreclosure proceedings, plaintiff has brought this suit in order to obtain the rents and profits from the building and the right of possession thereto. He asks for specific performance of article VIII and the other clauses in the indenture by virtue of which plaintiff claims he is entitled to possession of the premises and the rents and income thereof. He further asks for an injunction restraining any interference by defendants in obtaining said rents and profits and possession of the property. He also asks for general relief.

Defendants deny that the court has any jurisdiction, and that plaintiff has any right to the relief sought until the title to the property shall have become absolute upon a foreclosure of the mortgage. Defendants in a cross-bill ask for affirmative relief so as to remove any claims plaintiff may have on account of the notice to tenants to pay the rent to plaintiff instead of to defendants. Subsequently, an order was entered permitting them to withdraw their cross-bill without prejudice. The circuit judge entered a decree of specific performance in favor of plaintiff, and defendants have appealed to this court.

The questions involved are presented by helpful briefs of respective counsel. The first question raised is whether article WIII and the other provisions of the mortgage can be enforced in view of section 13221, C. L. 1915, which provides as follows: ‘No action of ejectment shall hereafter be maintained by a mortgagee, or his assigns or representatives, for the recovery of the mortgaged premises, until the title thereto shall have become absolute upon a foreclosure of the mortgage.’

The law is well settled in this state that as a rule a mortgagee may not divest the mortgagor of possession of mortgaged premises until the title thereto shall have become absolute upon foreclosure of the mortgage.

Section 13221, C. L. 1915, was preceded by the statute of 1843, which was of like tenor and effect, except for a slight difference in the wording. Prior to the statute of 1843, the old common-law concept of a mortgage prevailed. The mortgagee took legal title to the property and at any time after default could bring ejectment proceedings against the mortgagor. In Stevens v. Brown, Walk. Ch. page 42, the mortgagee, defendant in the cause, had taken possession of the property by virtue of an irregular foreclosure, and the mortgagor brought proceedings to restrain defendant from further acts of ownership. The court said: ‘The legal title to lands mortgaged is in the mortgagee, who may at any time after a default in the payment of the mortgage money or any part thereof, if not before, where the mortgage does not provide for the mortgagor's retaining possession until that time, put the mortgagor out of possession by ejectment. 4 Kent's Com. 155, and cases there cited. At law, the defendant has a right to the possession of the mortgaged premises, and equity will not take from him that right.’

The right of a mortgagee to possession of the premises prior to foreclosure has been construed by this court very frequently since the enactment of the 1843 statute. We have consistently held that as a rule a mortgagor may not be deprived of possession until after the expiration of the equity of redemption through foreclosure proceedings.

In the case of Hazeltine v. Granger, 44 Mich. 503, 7 N. W. 74, the question of the right of possession arose after the default in a mortgage which granted to the mortgagee not only the premises, but also all rents, income, and profits. The mortgage provided for the appointment of a receiver during the process of foreclosure. Justice Campbell stated, at page 505 of 44 Mich.,7 N. W. 75:

‘Even this was regarded as contrary to public policy by our legislature, and in 1843 the old law was changed so as to secure the mortgagor in his possession until a foreclosure had become absolute. The effect of this as we have several times decided was to prevent the mortgagee from obtaining under his mortgage any interest beyond that of a security, to be enforced only by sale on foreclosure, and to debar him from any right of possession. * * *

‘The statute does not say that no ejectment shall lie unless there is an agreement to that effect, but that it shall not lie at all. Every mortgage made in common-law form contains words whereby, if applied as they read, possession would belong to the mortgagee and his title would become absolute by default. The whole aim of equity was to arrest this forfeiture and not to allow the language of a mortgage to have any force against the equity of redemption. The statute is a further step in the same direction for the protection of mortgagors against agreements which as literally drawn and as theretofore expounded, were deemed dangerous, and against public policy. The language of this mortgage expressly granting rents and profits on default is no stronger than the...