Federal Land Bank of Louisville v. Schleeter , 208 Ind. 9 ( 1934 )

ON PETITION FOR REHEARING. In support of appellant's petition for rehearing, appellant and numerous amici curiae have filed briefs in which it is vigorously and ably contended that the original opinion herein should be set aside and the cause reversed. We have had no briefs supporting the opposite view.

It is suggested that section 56-701, Burns 1933, § 984, Baldwin's 1934, bears directly upon the point decided, 4, 5. and was not referred to in the original opinion. The statute reads as follows:

"56-701. Possession of premises. Unless a mortgage specially provides that the mortgagee shall have possession of the mortgaged premises, he shall not be entitled to the same."

The statute was intended to and did change the common-law rule that, upon the execution of a mortgage, the mortgagee was entitled to hold the premises from the time the mortgage went into effect until payment. But there is no provision in the mortgage here that the mortgagee shall have possession of the property during the term of the mortgage. It is provided that, upon default, the mortgagee shall "be entitled to enter into the possession of the said mortgaged premises and to collect the rents, issues and profits thereof and apply the same on the debt hereby secured." This provision merely provides a remedy in case of default, which is enforced by foreclosure proceedings. The right to have the land sold is inconsistent with the right to possess it, and in case of sale, the rents, issues, and profits go with the land. In case of sale on foreclosure the possession of the land in the purchaser, whether the mortgagee or a stranger, must be postponed for one year under the redemption statute.

It is further contended that the provision in the mortgage by which the "rents, issues and profits" are mortgaged, takes the case out of the general rule in which the land only is 6-8. mortgaged to secure the debt. But we do not think so. A mortgage on the land carries with it every beneficial interest, which would include the rents, issues, and profits; but if it were not so, and the rents, issues, and profits were considered as mortgaged, in addition to the land, so that upon foreclosure not only the land, but the rents, issues, and profits must be sold, the right of redemption applies to the latter. In cases where the rents and profits of land for seven years were sold on execution, it was held by this court that the right to receive the rents, issues, and profits does not accrue to the purchaser until the expiration of the year of redemption.Jewett v. Tomlinson (1894), 137 Ind. 326, 36 N.E. 1106;Ragsdale v. Mathes (1876), 52 Ind. 495.

It is further contended that the agreement in the mortgage that a receiver may be appointed to take possession and control of the premises, and to collect the rents and profits in the event 9. of foreclosure proceedings, is controlling. But a court of equity will not appoint a receiver upon a mere agreement or request of parties, in the absence of a showing of some statutory or equitable ground for the appointment. Pressley v. Harrison (1885), 102 Ind. 14, 1 N.E. 188.

It is also contended that the provision of the statute concerning the appointment of receivers, which provides for the appointment of receivers to preserve during the time of 10. redemption any real estate or interest herein sold on execution or order of sale, and to secure to persons entitled thereto the rents and profits thereof, and which provides that a receiver may be appointed in actions by a mortgagee before foreclosure when it appears that the property is in danger of being lost or materially injured, or when such property is not sufficient to discharge the mortgage debt, and to secure the application of the rents and profits accruing before sale can be had, authorizes the appointment of a receiver notwithstanding the statutory provision that the owner shall be entitled to possession for one year from the date of sale. But we cannot concur in this view. The provision that the owner shall be entitled to possession for one year from the date of sale was enacted in 1881. Prior to that time the right to the rents and profits pending the year of redemption depended upon whether the property was redeemed. The statutes concerning the appointment of receivers were re-enacted in 1881 in substantially the same form in which they were originally passed in 1851. The provisions of those statutes above referred to were applicable to the situation concerning rents and profits during the year of redemption existing prior to 1881, and in some respects are still applicable to a situation which justifies the appointment of a receiver before foreclosure, and even before maturity of a mortgage. But to give those statutes the same force and effect that they had prior to 1881, in respect to such a situation as we have under consideration here, is to entirely ignore and to give no effect to the new enactment of 1881. For a full history of the effect of these statutes, see both opinions in Merritt v. Gibson (1891), 129 Ind. 155, 27 N.E. 136.

Certain language in the case of Russell v. Bruce (1902),159 Ind. 553, 65 N.E. 585, cited in the original opinion, is relied upon. That was a case in which a receiver was appointed to take charge of the rents and profits of mortgaged property in the possession of a tenant during the year of redemption. In the course of the opinion, the court said (p. 556):

"A mortgage creating a lien on specific property for the payment of a particular debt or the performance of a particular duty is a matter of free contract. The law neither prohibits nor promotes; it authorizes. The contract of the mortgagor is to pay the debt on the terms specified, or surrender to the mortgagee the particular property, not reserving to himself any right therein, except to redeem within the period fixed by law. And when the mortgagor has made default, and the court has decreed a forfeiture of the pledge, such a decree carries with it, by virtue of the contract, a forfeiture by the mortgagor of the entire estate and all rights and incidents connected therewith except the right to redeem by making full payment of the secured debt within the statutory limit. The lien of the mortgage is not merged in the decree, nor discharged by the sale (Merritt v. Gibson, supra), but continues to operate upon the rents and profits for any unpaid balance until actual possession has been bestowed upon the mortgagee purchaser."

The above language must be deemed to apply only in case of property occupied by a tenant. It was decided upon the authority of Merritt v. Gibson, supra. That case was decided by 11. a divided court, and it seems to have been conceded by the majority that the rule laid down did not apply where the mortgaged property was occupied by the mortgagor. The rights of the mortgagor and mortgagee, however, are not a matter of free contract. Statutory regulations and public policy are controlling. It was said in Turpie v. Lowe (1888),114 Ind. 37, 51, 15 N.E. 834:

"There is no principle in equity better settled, than that every contract for the security of a debt, by the conveyance of real estate, is a mortgage; and all agreements of the parties, tending to alter, in any subsequent event, the original nature of the mortgage, and prevent the equity of redemption, is void. If the conveyance, or assignment, was a mortgage in the beginning, the right of redemption is an inseparable incident, and cannot be restrained or clogged by agreement." Wilson v. Carpenter (1878), 62 Ind. 495.

An instrument which is, in fact, a mortgage on real property to secure the payment of a debt, even though it be in form a deed absolute with the right in the mortgagee to sell or 12, 13. take immediate possession upon default, will not in any case enable the owner of the mortgage to take or recover possession of the real property without a foreclosure and sale according to law. If the mortgagor voluntarily delivers possession to the mortgagee, he may hold it; but a court will only put the mortgagee in possession, and will only deliver to him the use and benefits of the property, at the time provided by statute. Jewett v. Tomlinson, supra.

It is suggested that our holding "that the clause in the mortgage providing for the right of possession is condemned by the same public policy which forbids the defeat by 14, 15. contract of the debtor's rights under the exemption statutes . . . must have been interposed without the court having its attention directed to said Section 56-701,supra." But, as we have pointed out, the section referred to affects only the right to possession during the period of the operation of the mortgage before default. There was no provision in this mortgage that the mortgagee should have possession during that period, and therefore the right to possession was in the mortgagors. We interpret the statutes to require that upon default and foreclosure they shall continue as before default for a period of one year.

Appellant says that, from an exhaustive examination of the decisions of this court and the Appellate Court, it has been able to locate only two decisions which could be said to be contrary to the decision in this case.

The first case suggested is Hursh v. Hursh (1885),99 Ind. 500. An examination of the case discloses that after the judgment of foreclosure a receiver was appointed upon a showing that the mortgagor was insolvent and was committing irreparable injury and waste to the property. A receiver was appointed to take possession of the property, excepting the house and buildings and ten acres surrounding the buildings. The statute of 1881, providing that the mortgagor shall have possession for one year, is not mentioned in the opinion, but reference is made to the general statute providing for the appointment of receivers. This court said that, under the sweeping provisions of the statute authorizing the appointment of receivers, the court possessed ample power to appoint for the purpose stated in the order. One of the purposes stated was to prevent waste or destruction of the premises, and there had been a showing that they were being wasted and destroyed. Such a showing will authorize the appointment of a receiver before default.

The other case is Hawkins v. First National Bank (1929),201 Ind. 228, 165 N.E. 547, decided by a divided court; two of the judges dissenting. The appeal seems to have been by an administrator and another. The opinion only discusses the right to appoint as against the administrator. It is apparent from the opinion that the mortgage was insufficient to secure the debt. The mortgagor had died, his administrator had procured an order to sell the property for the purpose of paying debts, and upon such a sale by the administrator under the statute, title would vest in the purchaser immediately without any right of redemption or to possession for a year in the heirs of the mortgagor. It was alleged that the administrator with the will annexed had not proceeded with diligence in the sale of the real estate as is contemplated by the statute. It was found that all of the material allegations in the petition were true, and a receiver was appointed to collect rents and profits, not during the year of redemption, but until the further order of the court. The creditors of the estate, including the holders of the mortgage, had a right to have the property sold immediately by the administrator, divested of all right of redemption or possession for a year, in addition to the separate remedy of foreclosure. It was held that the assumption of jurisdiction to foreclose the mortgage did not divest the administrator of power to sell; that the power still existed until the sheriff had executed his deed upon the foreclosure sale; that the appointment of a receiver to collect the rents and profits of the real estate did not take possession from the administrator, as he did not have possession. It is not apparent that the heirs objected to the appointment of the receiver upon the ground that they were entitled to possession for a year. The case cannot be construed as sustaining appellant's contention.

Rehearing denied.