Gilbert v. Berry

Evans, J.

— I. The case involves tbe foreclosure of a mortgage upon a homestead. The mortgage provided for the appointment of a receiver to collect rents and profits of the mortgaged property, in the. event of foreclosure. The one question presented to us is whether, upon the record before us, we can say that the trial court erred in denying the prayer of the appellant, as cross-petitioner, for the appointment of a receiver. Before proceeding to- a discussion of that question, it is important that attention be first directed to the very state of the record. The appellant’s foreclosure petition contained no allegation as a basis for the appointment of a receiver. The petition did contain a copy of the mortgage, and the prayer of the petition included a prayer for such appointment. Such prayer was not predicated upon any claim of. insolvency, or waste or inadequacy of the security.

The answer of the mortgagors did plead the homestead right, and did aver the adequacy of the security, and denied the right of the mortgagee to a receiver.

Upon trial had, the district court entered a decree foreclosing the mortgage and awarding a special execution, but denying the appointment of a receiver. It is from this part of the decree that the cross-petitioner has appealed.

It does not appear from appellant’s abstract that any of the evidence was preserved. Indeed, the fair implication of the abstract is that it was not preserved. The abstract does not purport to set out any of the evidence. It sets out only the pleadings and the decree and the notice of appeal. We must, therefore, assume a state of the evidence most favorable to the appellee. It should undoubtedly be deemed true, also, that the appellant adduced no evidence of the inadequacy of the security or the insolvency of his debtor. We agree that the case is not controlled by Section 3822 of the Code of 1897. If this section *353were deemed controlling, it would be quite conclusive in favor of appellee. We agree, also, that this case must be considered in tbe light of the contractual stipulation of the parties. The general contention for appellant is that it contracted, by its mortgage, for the right to the appointment of a receiver; that the mortgagors were under no disability to make such contract; and that its provisions were, therefore, binding upon the court.

The general contention for the appellee is that, inasmuch as the contractual provision herein considered involved the right of occupancy of a homestead, its enforcement could not be had, except as a last resort, in case other remedies were shown to be inadequate. The exact question thus presented has never been directly passed upon by us heretofore. We have come close to the question in a number of our previous cases, and the trend of opinion of the court is quite manifest therefrom.

It is very clear that, if this were not a case involving a homestead, and if the rights of the mortgagee to a receiver rested upon Section 3822 alone, without any contract provision in the mortgage to that end, it would then be incumbent upon the applicant for a receiver to show appropriate grounds for the .appointment. These grounds would include insolvency of the debtor and inadequacy of the security, and perhaps waste in some form. Are such requirements dispensed with by the contract provision, and is the mortgagee entitled, as a matter of legal right, to the appointment of a receiver by sheer force of the contract provision, and regardless of the application of any rule of equity? The question thus put may as well be narrowed to a case involving homestead, because such is the case before us, and because there is a statutory call upon the court to protect the homestead right, and to withhold it as the last asset to be subjected to the rights of a creditor. For the reasons hereinafter stated, we reach the conclusion that it was at least incumbent upon the cross-petitioner to show the insolvency of the debtor or the inadequacy of its security, in order to justify the court in terminating the right of occupancy, and in dispossessing the family from its homestead during the year of redemption. Nor do we mean to imply by this statement that, if such showing had been made, it would have justified such dis*354possession. That question we have no occasion now to deal with.

Under Section 2972 of the Code, the “homestead of every family * * * is exempt from judicial sale, where there is no special declaration of statute to the contrary.”

Code Section 2976 provides:

“It [the homestead] may also be sold for debts created by written contract, executed by the persons having the power to convey, and expressly stipulating that it is liable therefor, but then only for a deficiency remaining after exhausting all other property pledged by the same contract for the payment of the debt. ’ ’

The validity of the cross-petitioner’s mortgage on this homestead is dependent upon Section 2976, as here quoted. Without this affirmative statutory permission, the mortgage would be ineffective to overcome the exemption provided in Section 2972. It will be noted that the permission or power to mortgage, conferred by Section 2976, is a qualified one. It forbids a judicial sale of the homestead except as a last resort, under the contract. The nonexempt property must first be subjected to the payment of the debt, before there can be a seizure of the homestead. If, in the case before us, the mortgage had included other property than the homestead, it would doubtless not be claimed that resort could be first had to the homestead. Suppose, in such a case, that the mortgagee should ask the appointment of a receiver to take possession of the homestead, could it be claimed that the contract proviso would override the statute, and sub-, ject the right of occupancy of the homestead instanter to the power of a receiver? If so, it would logically follow that such a right, of possession by the receiver could be made to continue indefinitely, whereby the debt might be wholly collected through the possession of the homestead, without any resort to other property. This is so because, if the contract is mandatory, as appellant contends, then it is mandatory, and is beyond the operation of the rule of equity which obtains in the absence of a contract. We use this illustration only to show that the right of a husband and wife to pledge the homestead of their family as security for a debt is a qualified one, in that it is subject to the statutory limitation. It is the well-settled duty of a court of equity to protect the homestead right even when pledged *355as security, in so far as it can protect the same consistently with the ultimate right of the creditor to collect his debt. If we are to say now herein that a court of equity must instanter, in obedience to the mandate of a mortgage, oust a family from its homestead and put the receiver in possession thereof, without any inquiry whether such procedure is necessary to the protection of the ultimate rights of the mortgagee, how can a court hereafter deny the advance appointment of a receiver for a homestead in any other case, even though the mortgage include abundant other security ? If the mandate of the mortgage is peremptory in this case, it must be deemed such in all cases.

We hold, therefore, that the mandate of the mortgage is qualified by the statute, Section 2976, so far as a homestead is concerned, and that an application to appoint a receiver to take possession of a homestead is not to be granted as a matter of course, in mere obedience to the mandate of the mortgage, but is to be granted or denied according to the rules of equity, and with appropriate regard for the provisions of the contract. It necessarily follows that, in the absence of a showing by the mortgagee in support of such application, it should not be granted.

In considering this kind of a case, it is to be borne in mind that the mortgagee’s contract is essentially a contract for security, and for nothing more. He acquires no legal right to the property as such, nor is he injured by breach of any covenant of the mortgage, if his security still be abundant. This is a sufficient reason for saying that the mandate of the mortgage is not peremptory. Where security includes a homestead, interference with the homestead right is to be the last resort, and not the first. Occupancy is of the essence of the homestead right. To terminate such occupancy by putting a receiver in possession before the termination of the year of redemption, and, indeed, before the sale under execution, without finding the necessity for such a course as a means of security, is to ignore the limitation of Section 2976. For aught that appears in this case, the mortgaged property had abundant value to fully secure the mortgagee by the ordinary process of execution sale, subject to redemption and to right of possession during the year of redemption. Assuming such a state of facts, as we must, upon *356this record, it seems clear that we have no warrant for a reversal of the lower court.

As already indicated, the precise question herein involved has not heretofore been directly decided by us. But our decisions in cases bearing considerable similarity are sufficient to indicate the consistent trend of judicial opinion. Paine v. McElroy, 73 Iowa 81; Swan v. Mitchell, 82 Iowa 307; Callanan v. Shaw, 19 Iowa 183. For convenience of reference, we set forth in the next following division hereof excerpts from the above-cited cases.

II. In Paine v. McElroy, 73 Iowa 81, the mortgage contained the following:

“It is agreed that, in case of default in any respect, so that this mortgage can be foreclosed, the rents and profits of said premises, as well before as after the sale on execution, are pledged to the payment of the moneys secured thereby, and that, on the commencement of an action to foreclose this mortgage, the plaintiff shall be entitled to the appointment of a receiver, with the usual powers, to take and hold the rents and profits for the benefit of the plaintiff, and subject to the order of the court.”

The lower court refused to appoint a receiver, and its action was sustained here. The real ground of the decision here was that the mortgage provided for the appointment of a receiver only at the time of the commencement of the suit, and did not provide for an appointment at the time of judgment. We quote from the opinion the following:

“We shall not stop to determine whether, under the statutes of this state providing that a morgtagor is entitled to redemption, there can be a receiver appointed during that period. See, however, Myton v. Davenport, 51 Iowa 583; White v. Griggs, 54 Iowa 650. In the latter ease, it is said a party can ‘have a receiver only of property on which he has a lien, and then only when there is danger of its being lost, or materially injured or impaired.’ The Code so provides. (Section 2903.) Conceding, then, that the mortgage creates a lien on the rents and profits, it does not appear that they are being wasted, or that it can reasonably be apprehended that they will be. It does not appear that the mortgagor is insolvent, or that the mortgaged *357property is not sufficient to fairly pay all the incumbrances thereon. Under such circumstances, we do not think a receiver could be appointed. (2 Jones on Mortgages, Section 1532.) It will be conceded that the sale for nonpayment of taxes, and the danger that a superior title may be obtained, is entitled to consideration, and there are some adjudged cases in which this fact seems to have been controlling, or, if not, influenced the court greatly. But we do not think it should be so regarded in this case, because the amount of the taxes does not appear. Such amount may be inconsiderable. Such presumption should be indulged under the presumption that error must affirmatively appear.”

In Swan v. Mitchell, 82 Iowa 307, the mortgage contained the following proviso:

“And it is also expressly stipulated and agreed between the parties hereto that, in the event of any failure to pay said sums of money, or any part thereof, or the interest thereon, when due and payable, or to perform any of the covenants as above provided, then the said second party shall be, and is hereby, authorized by himself or agent, at his option, to take immediate possession of said property, and remove all persons therefrom without process of law, or, upon giving said first parties five days’ notice of such intention, said second party may commence an action of forcible entry or detainer, to recover the possession of said premises, and to rent or to cultivate the same, as he may deem best for the interest of all parties concerned, and shall be held liable to account to the first party only for the net profit thereof. It is also agreed that the taking possession thereof, as above provided, shall in no manner prevent or retard the second party in the collection of said sums by foreclosure or otherwise.”

The lower court appointed a receiver* to take possession of the property, and such order was reversed here. We quote therefrom:

“The question to be determined is, Was the plaintiff entitled to the appointment of a receiver, and to the rents and profits of the land during the redemption period? The appointment of a receiver is one of the extraordinary remedies which may, in a proper case, be resorted to by a creditor as an *358aid to the collection of a debt. It operates as a summary method of seizing and holding property, and is usually attended with great expense and loss to the parties. A party seeking the remedy should make such a showing as to fairly entitle him thereto. We have set out certain parts of the mortgage, that it may be seen that it is not contemplated thereby that a receiver should be appointed after a foreclosure. The mortgage expressly provides that the plaintiff may take possession by action of forcible detainer, if necessary, but that possession ‘shall in no manner prevent or retard the second party (the plaintiff) in the collection of said sums by foreclosure or otherwise.’ There is no express provision for the appointment of a receiver at any time. The fact that the ‘tenements, hereditaments, and appurtenances, and the rents, issues and profits, ’ were conveyed to the' mortgagee must be construed with the defeasance of the instrument; and, where so construed, the instrument plainly provides that the rents and profits are only pledged in case possession is taken by the mortgagee. But the mortgagee did not take possession. His suit was an ordinary proceeding in equity for the foreclosure of the mortgage, and he did not ask for a receiver to take possession until after the remedy by foreclosure and sale should be exhausted. The mortgagors did not bargain away their right of redemption, unless the plaintiff should take possession before foreclosure, and hold it until the defendant was paid. It is a right which the law givés to an embarrassed debtor to save his property if he can. It is in the nature of a stay law, and courts ought to require a very clear showing that it has been bargained away, before depriving the debtor of the right to retain possession of the property until the redemption has expired. The defendant Woolley is the lessee of the mortgagors, and, as against the plaintiff, he has the same rights which the mortgagors could have asserted. Moreover, the plaintiff did not show that the mortgagors were -insolvent. That issue was directly tendered, and the burden was on him to show good grounds for the appointment of a receiver. ’ ’

From Callanan & Ingham v. Shaw, 19 Iowa 183, we quote the following:

‘ ‘ Heavy doubts (to say no more) are entertained by at least one member of the court, whether,.in any case, a receiver should *359be appointed to take possession and charge of a mortgagor’s homestead, pending proceedings to foreclose a mortgage. The argument, in brief, is that, until the amount of the incumbrance is settled and adjudicated by the court, the validity thereof recognized, and a sale made, the family cannot be disturbed in their possession; that, though it may be mortgaged and the premises alone may be finally liable to meet the debt, still the rents, the use, the enjoyment, cannot be thus appropriated against the will of the mortgagors. The question is an interesting and important one, not free from difficulty; .and, as this case must be decided by three members of the court, we defer its decision until we can have the benefit of a full conference, and in a case when its decision becomes necessary. If a receiver would be appointed in a case where the indebtedness was indisputably equal, if not greater than the mortgaged premises, we unite in the opinion that such an application may be properly refused, as to the homestead, where this matter is left in the doubt and uncertainty found in this record. The parties differ some $3,000 as to the amount of the indebtedness, and $4,000 in the value of the security.' If defendants are right in either estimate, then it is perfectly clear that they should not, upon any theory, be disturbed in their possession. If plaintiffs are right, the necessity is by no means clearly manifest. The principle derived from the cases, which, by analogy, is applicable here, is this: Formerly the mortgagee held the legal title, and was entitled to possession. Under our law, this rule is changed, and the mortgagor has or is entitled to both; and this is emphatically so as to the homestead. Now the rule has been, from an early date, at common law, as between the mortgagor and mortgagee, that, if the mortgagee says by his answer (in a bill to redeem) that anything is due him, the court will not disturb the possession; will not, upon the application for the appointment of a receiver, settle and ascertain the accounts between them. (Quarrell v. Beckford, 13 Ves. 377; Codrington v. Parker, 16 Ves. 469; Berney v. Sewell, 1 J. & W. 647; Rowe v. Wood, 2 J. & W. 553.) And, says Mr. Edwards (Receivers, 44), where anything is due to a mortgagor in possession he will not be deprived of such possession by an appointment of a receiver. In this state, the mortgagor being in possession, this possession, *360under the legal estate, should not be disturbed by the appointment of a receiver, unless, indeed, in cases of fraud clearly proved, or of danger to a mortgagee (having a strong claim), if the intermediate estate or possession should not be brought under the care of the court. In any case, the receiver is appointed against the holder of the legal title with reluctance. Lloyd v. Parringham, 19 Ves. 59; Smith v. Smith, 2 Y. & C. 351 ; Knight v. Duplessis, 2 Ves. 360; Toldervy v. Colt, 1 Y. & C. 621. We do not say, by any means, that the court will not appoint as against a mortgagor under an ordinary mortgage, where the whole mortgaged premises are not of sufficient value to pay the debt. We only say that it will not be done unless it clearly appears that the court should take charge of the estate, to protect the rights of a party having a clear, strong claim against it. Such a case is not now before us. ’ ’

III. It is an interesting query whether Code Section 2976 confers power at all upon a mortgagor to pledge as security for a debt the right of occupancy of a homestead during the year of redemption. This section of the Code does permit a sale. This means a statutory judicial sale, which is subject to the right of redemption and to the right of occupancy during the year of redemption. We have no occasion to pass upon this question pro or con in this case, and are not to be deemed to be doing so. For the reasons indicated in the preceding divisions hereof, the decree of the district court will be — Affirmed.

Weaver, C. J., Ladd, Preston, Stevens, and Arthur, JJ., concur.