Opinion
10-21-1907
LAND TITLE & TRUST CO. et al. v. KELLOGG et al.
Thompson & Cole, for complainants. U. G. Styron, for defendant, Kellogg. W. M. Clevenger, receiver, pro se.
Suit by the Land Title & Trust Company and another against Norman Kellogg and another. Application of the receiver appointed pending foreclosure for an order distributing funds. Order directing receiver to pay complainants the rents collected.
Pending the foreclosure of a mortgage held by complainant against defendant, a receiver was appointed by this court to collect the rents and profits of the mortgaged premises. The receiver now applies for an order directing the distribution of the rents collected by him.
The mortgage foreclosed was a first mortgage and was the only lien against the mortgaged premises. It contained the usual clause, after the description of the mortgaged premises:
"Together with all and singular the buildings, improvements, woods, ways, rights, liberties, privileges, hereditaments and appurtenances whatsoever to the same belonging, or in any wise appertaining, and the reversion and reversions, remainder and remainders, rents, issues and profits thereof."
It also contained a clause restricting the recovery of the principal and interest of the mortgage to the lands and premises described and exempting the mortgagor from personal liability. The amount of the decree was something over $400,000, and at the sale the property was purchased by complainant for $125,000.
The claim is now made upon the part of mortgagor that the rents collected by the receiver cannot be properly applied to the payment of the mortgage debt.
Thompson & Cole, for complainants. U. G. Styron, for defendant, Kellogg. W. M. Clevenger, receiver, pro se.
LEAMING, V. C. (after stating the facts as above). The validity of the order appointing the receiver is now questioned by defendant on the ground that such appointment can only be justified where it is shown that the mortgage security has become uncertain or precarious because of something done or omitted to be done by the mortgagor of a nature to cause a diminished value of the mortgaged premises. The receiver was appointed after due notice to defendant, and the evidence then before the court will not be now reviewed; but, as the power of appointment is questioned, an examination of the cases supporting its exercise may be of interest.
The early practice of this court appears to have been to refuse the appointment of a receiver at the instance of a first mortgagee, unless some special grounds for the appointment appeared other than inadequacy in value of the mortgaged premises coupled with the insolvency of the mortgagor. Cortelyou v. Hathaway, 11 N. J. Eq. 39, 64 Am. Dec. 478; Best v. Schermier, 6 N. J. Eq. 154;. Frisbie v. Bateman, 24 N. J. Eq. 28. I am satisfied, however, that a consistent application of equitable principles should extend to a first mortgagee the right to the appointment of a receiver to collect the rents and profits of the mortgaged premises for his benefit in all cases where it appears that his security is uncertain or precarious, and that the mortgagor cannot be made to respond toany deficiency which may arise at the foreclosure sale. This view is, I think, fully supported by the more modern practice in this state. Mahon v. Crothers, 28 N. J. Eq. 567; Leeds v. Gifford, 41 N. J. Eq. 464, 5 Atl. 795; N. J. Title Guarantee & Trust Co., v. Cone, 64 N. J. Eq. 45, 53 Atl. 97. See, also, Warwick v. Hammell, 32 N. J. Eq. 427; Conover v. Grover, 31 N. J. Eq. 539; Brasted v. Sytton, 30 N. J. Eq. 462. Under the modern conception of mortgages and the practicable means for their enforcement, no reason can exist for the application of a different rule between mortgagor and his first mortgagee and a mortgagor and his subsequent mortgagee. As it is the inadequacy of the security and legal remedy which affords the equitable ground of relief, it is also necessarily immaterial whether such inadequacy has been caused by wrongful acts of the mortgagor. In the present case, the fact that the property sold for less than one-third of the amount of the mortgage debt appears to sufficiently vindicate the action of the court in making the appointment. As there was no personal liability of the mortgagor, the question of his solvency was not involved.
It is further claimed that by reason of the restrictive stipulation contained in the mortgage the debt was extinguished by the sale, and that it is now too late to appropriate the rents to the mortgage debt. I am unable to accept this view. The right of a mortgagee to sequester the rents of the mortgaged property through the medium of a receiver emanates primarily from the inadequacy of the security. It is a privilege extended to the mortgagee by reason of the inequity of permitting the mortgagor to receive the rents accruing during the pendency of the foreclosure proceedings. Mahon v. Crothers, supra. The want of personal liability of the mortgagor for the payment of the mortgage debt contributes to the necessity for equitable relief. The rents are collected by the receiver for the use of the mortgagee, and can only be applied to his use in case the mortgaged premises fail to realize the amount of the mortgage debt. The right to thus collect the rents necessarily includes the right of their application in case of deficiency. See, also, 2 Jones on Mortgages, § 1536.
I will advise an order directing the receiver to pay the complainant the rents collected by him.