Rochester v. Bennett

240 P. 384, 74 Mont. 293, 1925 Mont. LEXIS 158

• Court: Montana Supreme Court
• Decided: October 8, 1925
• Docket: No. 5,742.
• Status: Published

Opinion

MR. JUSTICE' STARK

delivered the opinion of the court.

This is an action to foreclose a mortgage. The complaint alleges that on October 26, 1918, Willard Bennett and Elizabeth, his wife, Milton S. Bennett and Izolia, his wife, executed and delivered to the South Side State Bank, a corporation, two promissory notes, each for $6,000, due five years after date, and to secure payment thereof executed and delivered to said bank a mortgage covering all of lot 1 in block 10 of the Noyes and Upton’s Railroad addition to the city of Butte, Montana, that the interest on said notes has been paid down to March 26, 1924, but no further payments have been made thereon. It is set out that Willard Bennett was deceased and that the defendant, Elizabeth Bennett, had been appointed executrix of his will, qualified as such, entered upon the discharge of her duties, and still continued to perform the same, and that on October 1, 1923, the South Side State Bank sold, assigned and transferred said notes and mortgage to the plaintiff, who has been the owner and holder thereof at all times since.

It is further stated that the plaintiff’s claim on said notes and mortgage had not been presented to the executrix of the estate of Willard Bennett, deceased, for allowance or rejection, but the complaint recites that the plaintiff “waives all re course against all other property of said estate of Willard Bennett, deceased, except the property in said mortgage described.”

It is also alleged that there is a building upon the mortgaged premises which is not in itself a complete structure, a part of it being located on the mortgaged premises and a part upon the adjoining lot 2; that said building consists of a hotel with the lobby and three storerooms on the street floor; that the premises are rented to different occupants, four in number; and that the property covered by the mortgage “is probably insufficient to discharge the mortgage debt, due and owing from the defendants to the plaintiff.”

The prayer of the complaint is for the foreclosure of the mortgage and for judgment in the sum of $12,000, with interest, attorney’s fees and costs, and that a receiver be appointed for the preservation of the mortgaged property and of the rents, issues and profits thereof during the pendency of the suit and during the period of redemption.

Elizabeth Bennett, widow of Willard Bennett, deceased, Milton S. Bennett, and Izolia Bennett, filed a joint answer, in which the execution of the notes and mortgage is admitted, but the assignment thereof to the plaintiff is denied; and for a separate defense alleged that the notes were executed by each of them without consideration, and consequently are null and void.

Elizabeth Bennett, as executrix, filed a separate answer, in which she sets forth, as a separate and additional defense to that embraced in the other answer, that the estate of Willard Bennett, deceased, is the owner of an undivided one-half interest in lot 1 covered by the mortgage; that as such executrix she has paid the taxes, insurance and other expenses for the maintenance of the property, and has kept the same in tenant-able condition; that she has at all times been in the exclusive possession of the property as executrix and as the agent of Milton S. Bennett, the owner of the other undivided half interest of said property. She also alleges, with reference to the building located on lots 1 and 2, that “the construction arrangement and nature thereof is such that it is physically and practically impossible for one person to have exclusive possession of said lot No. 1 and another person to have exclusive possession of lot 2.” She also alleges that, since her qualification as executrix, she has collected the rentals from the property, both lots 1 and 2, and has at all times accounted for the same to the district court of Lewis and Clark county, as required by law, and that as such executrix she is entitled to the exclusive possession of the undivided half interest in the property described in the plaintiff’s complaint, as well as lot 2, without interference from the plaintiff until such time as the title to said lot No. 1 shall be vested in the purchaser at foreclosure sale, if such sale be had. By reply issue was joined on the affirmative allegations of the answers.

The complaint was filed on August 5, 1924. On August 28 the plaintiff filed an affidavit reciting that the building located on the mortgaged premises was occupied by tenants who were paying rent to the defendants, and asked for an order restraining them from doing so and for the appointment of a receiver pendente lite to collect the rentals from said property. Upon the filing of this affidavit an order to show cause was issued requiring the defendants, as well as the tenants in occupancy, to appear and show cause why the plaintiff should not be granted the relief prayed for in his affidavit, but before there was a hearing thereon the parties entered into a stipulation which recited, in effect, that the rentals on that portion of the building located on lot 1, amounting to $205 per month, and the rentals of a vacant storeroom located in that portion of the building, if it should be thereafter rented, should be paid to the Metals Bank & Trust Company of Butte, subject to the order of the court pending the final decree to be entered in the action which deposit should be made without prejudice to the rights of either the plaintiff or defendants, and “especially without prejudice to the rights of the defendant Elizabeth Bennett to make claim to the entire rentals of the property in her possession as such executrix.” Thereupon the plaintiff’s application for the appointment of a receiver was dismissed. It appears that an order of the court was made on October 21, 1924, pursuant to and in accordance with the terms of this stipulation. The cause came on for hearing on January 3, 1925. At the opening of the trial the defendants requested that a jury be called to try the issues of fact, which request was denied.

After hearing the testimony, the court entered a judgment in favor of the plaintiff which determined the amount due on the notes, directed a sale of the mortgaged premises to satisfy the same, with attorney’s fees and costs of suit, and provided that, if the proceeds of the sale were not sufficient to satisfy the same upon the coming in of the sheriff’s return, a judgment should be docketed for the balance against the defendants Elizabeth Bennett, Milton S. Bennett and Izolia Bennett, and that execution might issue thereon.

Amongst other things, the judgment further provided: (1) That the plaintiff should have judgment for the amount of the notes, interest and costs against the defendant Elizabeth Bennett, as executrix of the last will and testament of Willard Bennett, deceased; (2) that the Metals Bank & Trust Company be appointed receiver of the mortgaged property and of the rents, issues and profits thereof from the date of the judgment until the purchaser should be put into possession of the premises under the sheriff’s certificate of sale, at which time it was ordered that the receiver should turn over all sums received by it to the purchaser at said sale.

The defendant Elizabeth Bennett, individually and as executrix of the estate of Willard Bennett, deceased, made a motion for a new trial, which was denied, and in both capacities she has appealed from the judgment.

The first matter presented for consideration is whether the court erred in refusing to grant the defendants’ request for a jury trial.

It will be noted from tbe statement of tbe ease that tbe only-issues of fact raised by tbe pleadings were whether any consideration passed by the makers of the notes other than "Willard Bennett, deceased; whether the notes and mortgages belonged to the plaintiff; the amount due thereon; and whether the plaintiff was entitled to have a receiver appointed.

An action to foreclose a mortgage is in equity, but appellant claims that, because plaintiff in the action sought a personal judgment against the defendants who were alleged to have executed the notes, and because the answers raised issues of fact concerning the notes and their assignment to the plaintiff, these issues should have been tried before a jury. These issues, however, were only incidental to the principal relief sought by the plaintiff, which was the foreclosure of the mortgage.

It is well established that, since an action to foreclose a mortgage is a suit in equity, the same cannot be transformed into an action at law by merely raising an issue of law as a defense in the answer. (Gresens v. Martin, 27 N. D. 231, 145 N. W. 823, and cases cited therein.)

While it has been held in some jurisdictions that, where a suit is brought to recover judgment for the mortgage debt and the foreclosure of the mortgage securing it, the action is primarily for the recovery of a money judgment, and that a jury trial may be demanded, unless the pleadings admit the right to recover on the debt, and the only issue is as to the right to foreclose, which is "purely equitable (see. 35 C. J. 166, and eases cited in the notes); this rule is not applicable under our statute, which provides that there is but one action for the recovery of a debt or the enforcement of rights secured by a mortgage, in which action the court is authorized to direct a sale of the encumbered property, the application of the proceeds to the payment of the amount due to the plaintiff, with costs, and, in the event the amount received from the sale is not sufficient to pay the plaintiff’s claim, judgment may be docketed against the defendants liable therefor as in other cases in which execution may issue. (See. 9467, Rev. Codes 1921.)

As stated ip. 3 Jones on Mortgages, seventh edition, section 1443, page 2: “One result of the equitable character of the statutory process for enforcing mortgages is that the parties have no right, as a matter of course, to have the issues tried by a jury even when judgment is asked for any deficiency and the execution of the note is denied.”

A situation similar to the one presented here arose in the case of Downing v. Le Du, 82 Cal. 471, 23 Pac. 202. In disposing of it the court said: “This precise question was before the court of appeals of New York in a late case, in which the defendants pleaded part payment of the amount due. It was held in that case that the party was not entitled to a jury, the court saying: ‘This is an action for the foreclosure of two mortgages on real estate, and was triable by the court. The defendant was not entitled as a matter of right to a trial by jury. Although a sale of the mortgaged premises might result in a deficiency for which a money judgment could be docketed against the defendant liable for such deficiency, such a judgment was not the sole object of the action, but was an incident of the equitable relief sought. It might not even become necessary, as the mortgaged premises might bring a sufficient sum to pay the mortgage debt, and the circumstance that in the contingency of the premises proving insufficient, a judgment for the deficiency might result, did not entitle the defendant to a jury trial.’ (Carroll v. [Deimel] Daniel, 95 N. Y. 254.) We are of the same opinion, and hold that a jury trial was properly denied.” (See, also, Van Valkenburgh v. Oldham, 12 Cal. App. 572, 108 Pac. 42; J. I. Case T. M. Co. v. Copren Bros., 45 Cal. App. 159, 187 Pac. 772.)

Under our statute and upon authority of the above cases we are of the .opinion that the court did not err in denying the request of the defendants for a jury trial.

The next matter for determination is whether the court erred in appointing a receiver. Counsel for appellants have argued with much force that the complaint does not state facts sufficient to justify such appointment. This matter need not be determined. 1 The objections made to the introduction of testimony which was offered in support of the allegations of the complaint with reference to the appointment of a receiver were not sufficiently specific to reach the point that the property covered by the mortgage was probably insufficient to discharge the mortgage debt. If the proof had been sufficient to warrant the court in arriving at that conclusion, the complaint would have been deemed amended to conform thereto. (Ellinghouse v. Ajax Livestock Co., 51 Mont. 275, L. R. A. 1916D, 836, 152 Pac. 481; Galland v. Galland, 70 Mont. 513, 226 Pac. 511.)

It appeared from the testimony introduced in this connec tion that the building located on the mortgaged property also extended on to lot 2, not covered by the mortgage; that the building was so constructed that, if it should be subdivided so as to operate the portion located on lot 1 as a separate unit, a new stairway would have to be built into the portion located on lot 1, a new heating plant installed therein, and other changes made, all of which would cost about $3,400; but it was not shown that it would be impracticable or impossible to continue to operate the building located on the two lots as a unit without making these improvements.

Two qualified witnesses said that, taking into consideration the amount of the plaintiff’s mortgage claim with the expenses of foreclosure, together with the interest to accrue after a sale and during the period of redemption and the amount which would have to be expended in making the alterations in the building located on the mortgaged premises, they eon sidered it questionable whether the plaintiff could realize dollar for dollar the amount of his mortgage ..claim. In addition to this, one of these witnesses testified that, taking the physical condition of the property into consideration, he could not recommend it as good security for a loan of $14,000.

This testimony fell far short of presenting facts to the court from which it could reach a conclusion that the mortgaged property was probably' insufficient to discharge the mortgage debt so as to authorize the appointment of a receiver. None of the witnesses gave an estimate of the probable value of the property at the time of 'the trial. In stating that it was questionable whether the plaintiff could realize dollar for dollar the amount of his loan, the witnesses, in addition to the amount due on the mortgage indebtedness, took into consideration a speculative investment of $3,400 for alterations and repairs, but did not take into consideration the fact that from the time of the sale under foreclosure the purchaser would be entitled to the rents of the property during the period of redemption, amounting to the sum of $205 per month, with a possibility of augmenting this amount by th& rental of the vacant storeroom included in the mortgaged premises.

The power to appoint a receiver should be exercised spar- ingly. A strong showing of necessity therefor should be made, and even then the power should be exercised with, caution. (Hartnett v. St. Louis M. & M. Co., 51 Mont. 395, 153 Pac. 437; Brown v. Erb-Harper-Rigney Co., 48 Mont. 17, 133 Pac. 691.) The facts developed by the above testimony -were wholly insufficient to warrant the appointment of a receiver in this case, and the court erred in doing so.

The portion of the decree which awards the plaintiff a - personal judgment against the defendant Elizabeth Bennett, as executrix of the estate of Willard Bennett, deceased, is plainly erroneous; but this can be corrected when the case goes back to the district court without affecting any sub stantial rights of the parties. (Gauss v. Trump, 48 Mont. 92, 135 Pac. 910.)

For the reasons above indicated, it is apparent that the judgment as entered by the court cannot stand. This fact, however, does not require its reversal, since this court is authorized by section 8805, Revised Codes of 1921, to modify any judgment or order appealed from and direct the proper judgment or order to be entered.

It is apparent from the record that (1) the plaintiff is entitled to have his mortgage foreclosed, the mortgaged property sold to satisfy the amount due on the secured indebtedness, and, if the proceeds of the sale should not be sufficient to discharge it, then he is entitled to have a deficiency judgment docketed against the defendants Elizabeth Bennett, Milton S. Bennett and Izolia Bennett, the defendants who are personally liable therefor, but that he is not entitled to any other relief; (2) that so much of the decree as purports to give the plaintiff a personal judgment against the defendant Elizabeth Bennett, as executrix of the last will of Willard Bennett, deceased, is not justified and should be stricken therefrom; (3) that the defendant Elizabeth Bennett, as executrix, is entitled to have turned over to her (less such amounts as have been paid therefrom by order of the court for taxes on the mortgaged premises in accordance with the stipulation of the parties above referred to) all funds which have been collected by the Metals Bank & Trust Company as rentals of the building located on the mortgaged premises under the order of October 21, 1924, or as receiver since the date of the decree, and the bank should be directed to pay the same over to her.

The cause is remanded to the district court, with directions to modify the judgment in the respects above pointed out, and, when so modified, it will stand affirmed.

Rehearing denied, October 22, 1925.

It is ordered that the defendant Elizabeth Bennett, as executrix of the will of Willard Bennett, deceased, recover from the plaintiff one-half of her costs on this appeal.

Modified.

Mr. Chief Justice Callaway and Associate Justices Holloway and Matthews concur. Mr. Justice Galen, being disqualified, did not hear the argument and takes no part in the foregoing decision.