Caro v. Wollenberg

163 P. 94, 83 Or. 311, 1917 Ore. LEXIS 35

• Court: Oregon Supreme Court
• Decided: February 20, 1917
• Status: Published

Opinion

Mr. Justice Burnett

delivered the opinion of the court.

1. The testimony on the accounting was taken November 27,1914, and seems to have covered the controversy to December 1st of that year. In this court the plaintiffs challenge the amount demanded by the defendant for his personal services in the management of the property while in his possession; the charge made for vaults erected in the building; the rate of interest allowed by the court in its computations; and some items for plumbing bills. While the mortgagee is in possession of mortgaged realty his attentions to the matter are in his own interest, and he cannot collect pay for services rendered for himself: Turner v. Johnson, 95 Mo. 431 (7 S. W. 570, 6 Am. St. Rep. 62); Barnard v. Paterson, 137 Mich. 633 (100 N. W. 893); Clark v. Smith, 1 N. J. Eq. 121.

2 — 4. On the subject of interest, the allegation of the amended complaint concludes the plaintiffs as to the rate. They say that they surrendered and the defendant took possession of the realty to apply the rents upon a mortgage indebtedness owing by plaintiffs to the defendant, The record discloses that an incident of this liability was interest thereon at the rate of 8 per cent per annum and, although nothing was said about a rate at the time the possession changed, yet it follows the original debt which remained the same. Therefore in our calculations the interest must be computed at 8 per cent. The Circuit Court decided that the demand for an accounting which was refused by the defendant on January 1, 1910, tolled the interest so that after that date the defendant was not entitled to that increase upon his debt. In view of' the fact that he has not appealed from that ruling it is the law of the case and must control us in our allowances on that point, for it is settled in this state that when a litigant does not appeal from a decree of the trial court, there can be no modification of the same in his favor in this court: Shook v. Coholan, 12 Or. 239 (6 Pac. 503); Shirley v. Burch, 16 Or. 83 (18 Pac. 351, 8 Am. St. Rep. 273); Thornton v. Krimbel, 28 Or. 271 (42 Pac. 995); Cooper v. Thomason, 30 Or. 162 (45 Pac. 296); Board of Regents v. Hutchinson, 46 Or. 57 (78 Pac. 1028); McCoy v. Crossfield, 54 Or. 591 (104 Pac. 423); Bank of Commerce v. Bertrum, 55 Or. 349 (104 Pac. 963, 106 Pac. 444); Flinn v. Vaughn, 55 Or. 372 (106 Pac. 642). The principal of the debt in the beginning was $16,500. At the time the plaintiffs yielded possession, there was a month’s interest dne amounting to $110. The defendant is not entitled to interest upon the interest and hence computations must be based upon the principal sum of $16,500.

The most important item contested is the charge of $1,835 for vaults erected in the building. The testimony shows that involved in the transaction in controversy there was a dwelling-house as well as some business property which was occupied by a building devoted to stores on the ground floor. The upper part was used for a time for a Masonic hall. After that order left the premises the second floor was idle for a time and, the principal storeroom becoming vacant, the defendant leased it to an abstract company which required a fireproof vault. The defendant accordingly built one on the ground floor at an expense of $660. Later he secured the United States Land Office as a tenant for the upper story and for the convenience of that institution he tore out the first vault and used it with additional material to erect a two-story vault reaching from the basement through the first story to the room above. The testimony shows that there was no material increase in the net rental after the installation of these vaults. .They were permanently built into the building and the plaintiffs contend that they will substantially interfere with the use of the store for general merchandise purposes because they are practically in the middle of the rooms instead of at one side.

5. The authorities are practically unanimous that as a general rule, where the mortgagee takes possession of realty without a foreclosure he cannot charge for more than keeping the property in repair and is not entitled to any reimbursement for permanent improvements which he installs. The governing principle is that although the mortgagee has taken possession, yet the title has not passed and he is occupying another man’s land. He is in duty bound to keep the property in as good condition as it was when he took it, but beyond this he cannot go without the consent of the real owner of the premises. The mortgagee has no more right to dictate permanent improvements to the owner after taking possession than he had before. If he desires to close up the transaction and realize upon his loan, he may foreclose his mortgage and sell the property. A contrary holding under such circumstances would mean that at his discretion a mortgagee can put improvements upon real estate to such an extent as to render it impossible for the mortgagor' to redeem. His additions might vastly enlarge the value of the land, but prevent redemption by the mortgagor for want of funds to meet the increase though he might be able to pay the original debt. It would practically destroy the debtor’s right of redemption but leave intact the creditor’s right to foreclose. The interests of the mortgagee and mortgagor in the holdings are in a sense correlative. If, while he is yet in possession, the mortgagor adds permanent improvements to the realty they become subject to the mortgage by operation of law and he can have no allowance therefor in reduction of his indebtedness. The same rule works both ways so that if without the consent of the mortgagor the mortgagee in possession adds to the land permanent improvements as distinguished from mere repairs, he does so at his peril, and they follow the course of the title: Raynor v. Drew, 72 Cal. 307 (13 Pac. 866); Moore v. Cable, 1 Johns. Ch. (N. Y.) 385; Clark v. Smith, 1 N. J. Eq. 121; Lynch v. Ryan, 137 Wis. 13 (118 N. W. 174, 129 Am. St. Rep. 1040, 1043, and note); Malone v. Roy, 107 Cal. 518 (40 Pac. 1040); Bradley v. Merrill, 88 Me. 319 (34 Atl. 160); Miller v. Curry, 124 Ind. 48 (24 N. E. 219, 374); White v. Atlas Lbr. Co., 49 Neb. 82 (68 N. W. 359); Catterlin v. Armstrong, 101 Ind. 258; Horn v. Indianapolis Nat. Bank, 125 Ind. 381 (25 N. E. 558, 21 Am. St. Rep. 231, 9 L. R. A. 676); McAbee v. Harrison, 50 S. C. 39 (27 S. E. 539); Sposedo v. Merriman, 111 Me. 530 (90 Atl. 387); Froelich v. Swafford, 33 S. D. 142 (144 N. W. 925). The situation is thus portrayed in Kinkead v. Peet, 153 Iowa, 199 (132 N. W. 1095), speaking of the mortgagee in possession:

“He was at liberty, of course, to wager the cost of the improvements upon his judgment of the outcome, but he could not impose upon plaintiff any obligation to make him whole in case he should lose.”

There are many cases where there was a voidable-foreclosure under which the mortgagee bought and took possession of the property. In such instances, if he has acted in good faith and has a right to believe that he is in very truth the actual owner of the fee-simple title, he may be entitled to his reasonable charges for permanent improvements which increase the value of the property. Instances of such cases are these: Bacon v. Cottrell, 13 Minn. 194 (Gil. 183); Liskey v. Snyder, 66 W. Va. 149 (66 S. E. 702); Gresham v. Ware, 79 Ala. 192; Whetstone v. McQueen, 137 Ala. 301 (34 South. 229); Howard v. Clark, 72 Vt. 429 (48 Atl. 656).

6. In the instant case these latter authorities do not apply. The defendant had no right to suppose that he was the owner of the property in fee or that he was otherwise than a mortgagee in possession. His own answer in the original case routs him from that position for there he said in speaking of the matter in controversy :

“That, for the purpose of avoiding the additional expense and trouble of a foreclosure, it was mutually agreed by and between them the defendant and the said Caro Bros, that, in consideration of the said Caro Bros, executing and delivering unto defendant a good and sufficient warranty deed to the aforesaid premises, thereby saving the costs, and expenses of a foreclosure suit, defendant would extend the time for redemption on said mortgaged premises for a period of four years from said 22d day of July, 1895, and it was mutually agreed by and between the parties that if the plaintiff and said Isadore Caro, partners as Caro Bros., would pay to the defendant the full sum of $16,610, with interest thereon at the rate of 8 per cent together with all taxes assessed against said premises, within four years from said 22d day of July, 1895, then'this defendant would reconvey said premises to said Caro Bros., and that said Caro Bros, might occupy said premises during said extension period and collect the rents from the subtenants, but if said Caro Bros, failed to pay the interest as aforesaid annually, or pay the entire sum of principal, interest, and taxes within four years, then they should surrender the possession thereof to defendant, and said contract should be null and void.”

The defendant must have known that the instrument under which he took possession was a mortgage “for he himself hath said it.”

Without variation from Thompson v. Marshall, 21 Or. 171 (27 Pac. 957), to the present time, the courts of this state have held that such an instrument is a mortgage whatever the parties themselves may have styled it. Wherever a conveyance is fettered with a condition allowing the grantor to redeem the premises, the stamp of “mortgage” is indelibly placed upon the transaction. It is said in Section 422, L. O. L.:

“A lien upon the real or personal property, other than that of a judgment or decree, whether created by mortgage or otherwise, shall be foreclosed, and the property adjudged to be sold to satisfy the debt secured thereby by a suit. In such suit, in addition to the decree of foreclosure and sale, if it appear that a promissory note or other personal obligation for the payment of the debt has been given by the mortgagor or other lien debtor, or by any other person as principal or otherwise, the court shall also decree a recovery of the amount of such debt against such person or persons, as the case may be, as in the case of an ordinary decree for the recovery of money.”

See, also, Section 335, L. 0. L., declaring that:

“A mortgage of real property shall not be deemed a conveyance so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale according to law.”

7. This section is an emphasis of the principle that a mortgage does not convey title. The defendant cannot say that he was ignorant of the thoroughly established law of the state laid down in the original opinion in this suit and followed by the uniform line of decisions. The law imputes to him a knowledge that without foreclosure he could not acquire the title of the mortgagor. Indeed, the statute expressly requires foreclosure.

8, 9. It is true that it is competent for a mortgagor to convey his interest in the mortgaged realty to any one absolutely, and none the less to the mortgagee; but it must be by a deed executed with the statutory formalities and without any condition whatever permitting redemption. No such showing has been made in this case on behalf of the defendant in any respect whatever. By the consensus of authority, therefore, he was not a purchaser in good faith, but purely and simply a mortgagee in possession and, if he would acquire the title must either get an absolute conveyance from the mortgagor or proceed to foreclose his mortgage lien. We conclude, therefore, that the defendant is not entitled to recover anything for the permanent improvements -mentioned.

The plumbing contested by the plaintiffs was said to have been done by one W. H. Carroll, who died before the trial. It appears in evidence that the defendant has about twenty buildings of different kinds in Roseburg, all of which required more or less plumbing from time to time. He testified that he kept no separate account for the buildings involved in this suit. He says he caused plumbing to be installed in those structures but he does not pretend to be able to give of his own knowledge its amount or value. The only attempt at proof on this point was the offer of a statement made from the decedent’s books by his father who did not regularly keep them and only made an entry therein now and then at long intervals. The books themselves were not offered in evidence and are not before us. They were not authenticated by any one who kept them or had knowledge of their correctness. Under such circumstances even they would not be admissible in evidence in any event. Beyond that, it is said in Section 790, L. O. L.:

“The entries or other 'writings of a like character of a person deceased or without the state, made at or near the time of the transaction, and in a position to know the facts stated therein, may be read as primary evidence of the facts stated therein, in the following cases: (1) When the entry was made against the interest of the person making it; or (2) when it was made in a professional capacity, and in the ordinary course of professional conduct; or (3) when it was made in the performance of a duty specially enjoined by law.”

10,11. It is plain that the first instance is the only one possibly applicable in the present juncture, but in order to be admissible the entry must be made against the interest of the person making it. The charges made by Carroll, however, against Wollenberg would not be against the interest of the person making them, but rather in his favor; and hence the entries themselves would not be competent evidence under the statute. Much less would a mere unverified transcript of his books be admissible: Harmon v. Decker, 41 Or. 587 (68 Pac. 11, 1111, 93 Am. St. Rep. 748); Manchester Assur. Co. v. Oregon Railroad Co., 46 Or. 162 (79 Pac. 60, 114 Am. St. Rep. 863, 69 L. R. A. 475); Lintner v. Wiles, 70 Or. 350 (141 Pac. 871); Hoover v. Gehr, 62 Pa. 136; Robinson v. Dibble, 17 Fla. 457.

12-14. In some instances there appear in the record what purport to be receipted bills from Carroll for some expenditures, but it is well settled that receipts of third parties constitute hearsay and are not to be received in evidence: Ellison v. Albright, 41 Neb. 93 (59 N. W. 703, 29 L. R. A. 737). The doctrine governing that matter is that the receipt of one not occupying any official relation to the transaction is, in the first place, a declaration not under the sanction of an oath, and second, that the person making it is not presented for cross-examination by tbe adverse party. Receipts required by law, as for public taxes and the like, constitute a manifest exception to the rule. Under these principles, therefore, the defendant failed to prove his charges for plumbing performed by the deceased Carroll. There were other items of the same nature for work performed by another man, but his statement of the same was admitted without objection on the part of the plaintiffs and hence they must stand.

15. There is but little dispute about the receipts from the property and we find from a careful examination of the testimony and correction of mistakes in addition that the total income received from the mortgaged realty from August 1,1899, to December 1,1914, amounts to $34,952. The total disbursements allowed for the same period are $12,323.63. Under the principles of law which we believe are sustained by a great weight of authority and the evidence, we have rejected $2,636.21 of the defendant’s claim for expenditures. Under the procedure approved in Lynch v. Ryan, 137 Wis. 13 (118 N. W. 174, 129 Am. St. Rep. 1040, 1043, and note), and other authorities we have computed the interest at 8 per cent per annum with yearly rests, applying, as partial payments, the net income of the property for each year, closing the calculation of interest at January 1, 1910, as that is the law of the case on account of the defendant not having appealed. The result is that the amount due January 1, 1910, was $14,810.52. From this we deduct the net returns accruing between that date and December 1, 1914, amounting to $7,586.35, leaving a balance then due in the sum of $7,224.17. This closes the account as of that date and owing to the length of time since then elapsing, amounting to more than two years it is necessary that the case be returned to the Circuit Court with a decree as thus modified for a supplemental account bringing the transaction down to the date of the hearing. It was error in any event to render a personal decree against the heirs of Isadore Caro, deceased, for they never promised to pay anything. In the amended pleadings no mention is made of any promissory note or other personal obligation for the payment of the debt as described in Section 422, L. O. L.; and hence so far as the issues are concerned in their present form there is no data upon which a personal decree could be rendered against Simon Caro. Hence, on the principle that amended pleadings supersede and take the place of originals we must decline to order a personal decree against any of the plaintiffs. Owing to the probable wide margin of the value of the property over the amount required to redeem or for which a foreclosure may be ordered, this point is not of great importance but is decided according to the strict construction of the pleadings. The details of the calculation are not of general interest to the legal profession or to the public, and therefore cannot be inserted at length in the opinion.

Following the precedent of Bickel v. Wessinger, 58 Or. 98 (113 Pac. 34), the cause will be remanded to the Circuit Court for the supplemental accounting for receipts and expenditures accruing since December 1, 1914, and the settlement of the resulting balance. The court should then enter a decree to the effect that within a certain reasonable time to be fixed by it the plaintiffs may pay into court the balance thus ascertained with interest thereon at 8 per cent per annum from the date of the decree until paid; that within a certain further reasonable time appointed by the court, the defendant shall, by a good and sufficient deed executed as required by law, convey the property in question to the plaintiffs and, finally, that in default of full payment by plaintiffs as thus permitted the property shall be sold as in ordinary foreclosure suits and the proceeds applied first to the expense of sale* next to the payment of what is found due to the defendant with interest as aforesaid and that the remainder be paid to the plaintiffs.

The decree of the Circuit Court will be modified as indicated, but otherwise affirmed, with costs and disbursements in favor of the plaintiffs.

Modified. Rehearing Denied.

Mr. Chief Justice McBride, Mr. Justice Benson and Mr. Justice Moore concur.