Myers v. Estell

Simrall, J.: This appeal brings into review the order of the chancery court appointing a receiver. Estell filed his bill to have the execution of a deed of trust, given to secure the purchase money for lands and other property sold and conveyed by him to the appellant, Wm. Gr. Myers, and also to enforce the vendor’s lien, claimed as extending to one-third of the lands not embraced in the deed of trust. The trust security embraces two-thirds of the land conveyed to Myers; the vendor’s equity is asserted to the other third. It was held in Wolfe v. Dowell, 13 S. & M. 108, and repeated in Carpenter, Ex’r v. Bowen, 42 Miss. 50, that deeds in trust are of the same sort of security as a mortgage, subject to the application of the same principles. Both are pledges as indemnity for the debt. The distinguishing difference is, that one communicates a power of sale, while the other ordinarily does not. At the first argument, the decree was questioned — 401 — upon two grounds: 1. That the rents and profits not being pledged, the creditor had no right to them, through a receiver, unless the lands are insufficient to pay the debt, and the debtor is also insolvent; 2. The right to such appointment, if it exists at all, extends to two-thirds of the lands conveyed by the deed, Estell not having a vendor’s lien to the other third. 1. If the mortgagee or beneficiary in the trust deed do not stipulate for the rents and profits of the estate, ordinarily they are not entitled to them. It is well settled that they have no claim upon them until the mortgagee has taken possession. The purpose of the appointment of a receiver may be two-fold: First, to preserve the estate from waste, spoilation or decay; or, secondly, that the rents may be got in and applied to the debt. Upon what principles may a receiver be appointed pending a foreclosure suit ? Unless there be a stipulation in the contract that the mortgagee shall have the rents, he has no claim merely on the ground that the debt is due and the title has become absolute. He may enter after default made, or he may recover possession at law, and out of the rents and profits satisfy the debt; that is one of his remedies more commonly employed in Great Britain than in this country. But if he proceeds to foreclose, he elects to raise the money by a sale of the property. Receivership is one of those remedial agencies devised orginally in order to preserve the fund or thing from removal beyond the jurisdiction, or from spoilation, waste or deterioration pending the litigation. This was the original purpose: a preservation of the thing, so that it might be appropriated as the final decree shall appoint. Injunctions rest a good deal upon the same reason, by restraining from the doing of a wrongful" act, which might altogether defeat the complainant’s right or — 402 — produce such, injury as could not well be compensated in damages. The mortgagee or trust creditor, if he has no lien upon the rents, must rest his claim to them on the ground that the property is insufficient to pay the debt, and that without this redress he will lose the residue of it; or he must go upon the predicate that it is necessary to interfere with the mortgagor’s possession in order to prevent the removal of the property beyond the reach of the court, or to save it from wasture and deterioration. In these latter circumstances, the debtor perpetrates a positive wrong, which either endangers altogether a realization of the fruits of the suit, or diminishes the value of the security. The election of the chancery forum is to prefer to convert the property into money and pay the debt, rather than the legal remedy to get payment out of the rents and profits. In this case, the application is to be maintained, if at all, upon the allegation of the insufficiency of the property to pay the debt. If the only means or source of payment was out of the property, the creditor would present a very urgent reason why the property should be made to produce the utmost farthing pending the litigation. But suppose the debtor is abundantly able to pay the deficit, upon sale of the mortgage premises, and there is therefore no apparent danger that the creditor will lose any part of his debt, must a receiver be appointed ? The bill does not in terms allege that Myers is personally insolvent, or that he is unable to pay an expected deficiency on foreclosure sale. Some of the American courts have gone further than the English chancellors on this subject. The British rule is to deny to the mortgagee a receiver merely to get in the rents, for the reason, as expressed by Lord Eldon, in Berney v. Sewell, 1 Jac. & Walk. 627, he has — 403 — a remedy at law. His language is, the “ mortgagee who has the legal estate cannot have a receiver.” “ An equitable mortgagee may.” # # 2 Dan. Ch. Pr’. 1492, title, Receiver. The English rule prevails in New Jersey, where, as a general practice, a receiver will be denied to the legal mortgagee having a legal right to the rents and profits ; if he desires their permanency, he must enter or recover the premises in ejectment. Cortelyeu v. Hathaway, 3 Stock. 41; Best v. Schermer, 2 Halst. Ch. 154 ; Brown v. Chase, Walk. 43; Payne v. Atterby, Harth. 414. Such an application on the part of the junior mortgagee, who has but an equitable estate, stands upon much more favorable ground. He has no remedy at law, and has a deep interest that the rents shall be so directed as to reduce prior incumbrances (Bryan v. Cormick, 1 Cox Eq. 6 a, 422; Dalmer v. Dashwood, 2 ib. 378); but if the first mortgagee is in possession he will not be disturbed. Mere inadequacy of value will not, ordinarily, without other special circumstances, entitle the mortgagee to a receiver. 3 Halst. 41. Regarding the mortgage as more especially a security for the debt, we think the better rule to be that which will grant the receiver or not, as it may or may not be an essential means to pay the debt. There can be no necessity for this auxiliary remedy if the mortgagor is solvent and able to pay any deficiency. In such cases, the creditor ought to be left to his legal remedy to get at the rents. The courts of New York and some other states act upon that principle. Thus, in the Lea Insurance Company v. Stebbins, 8 Paige, Ch. 565, the question was, what averments were necessary to be made in the petition for such appointment in the foreclosure suit; it was held, it must show, first, a deficiency in the value of the mortgaged property; and, secondly, “ that the mortgagee, or other person personally liable for the debt, is irresponsible, or is unable to pay the expected deficiency.” — 404 — In Warner v. Gouverneur, Ex’r, 1 Barb. 38, tbe rule is said to be, to appoint a receiver “ where the premises are an inadequate security, and the mortgagor or other person in possession who is personally liable, is not of sufficient ability to answer for the deficiency.” The mortgagee cannot call upon the mortgagor to pay rents, or account for them. The extent of his right, if the security be inadequate and the mortgagor not solvent or able to pay the anticipated deficit, is to obtain the rents pending the foreclosure suit through a receiver. Aster v. Turner, 11 Paige Ch. 327. But few cases have arisen in this court on this subject. The cases of Whitehead v. Wooten, 43 Miss. 526, and Ross et al. v. Woods, Ex’r (MSS.), were adjudged on the insufficiency of the notice of the motion, although there is some reference to the general principles which should govern the court. In Hill v. Robertson, 24 Miss. 373, it does not appear from the report whether the mortgagor was insolvent or not; the property, however, was inadequate. In the Bank of Ogdensburg v. Arnold, 5 Paige, 40, the chancellor apparently puts his judgment on the ground that the debt was due, and the mortgaged premises insufficient in value; but a careful examination will show that the mortgagor, who had deceased, was insolvent, and the case harmonizes with the subsequent decisions referred to. The authorities are uniform, that the appointment of a receiver lies very much in discretion, and therefore the circumstances of each case must be looked to. Whilst this may be so, many principles have been well settled, and where the facts come within their operation discretion ceases and the rule applies. But whilst the mortgage and deed in trust are alike in many respects, there may be a radical difference in others. The mortgagee and trustee both take the legal title; the latter, however, for the purpose of — 405 — performing the trusts with which the estate is burdened. The trustee is a middle man between the grantor and cestui que trust, ordinarily indifferent between them, and without interest. The title is communicated to him, so that he may fully discharge the duties imposed, and protect the interests of the cestui que trust. It becomes necessary to look to the terms and stipulations of his deed. Upon default made in the payment of the debt, and after the expiration of eighteen months from the maturity of the last installment, the condition was that the trustee should advertise and sell. Such security does not contemplate a right or duty in the trustee to take possession, or recover it at law for the purpose, like the mortgagee, of paying his debt out of the rents and profits, and, when that is done, restore the property to the mortgagor. In this deed the title is conveyed to Wilson, in trust, and, upon the condition of default made, that he may sell and convey, and apply the proceeds to the debt. The effect is to give the trustee the legal title, for the single purpose to sell and convey, and pay the money to the creditor. In this particular, this, an ordinary deed in trust, differs from the mortgage; the latter conveys a defeasible title, which becomes absolute on condition broken. And thereupon, the mortgagee, under his absolute right at law, may enter; but he holds as mortgagee, subject to an account for the income to the mortgagor, who may redeem. The trust which Wilson engaged to perform “was to advertise and sell, and pay over the proceeds.” It is not within the scope of his engagement to enter, and receive the income, and apply that until the debt is satisfied. The law would not impose upon him larger duties and responsibilities than he has assumed by the contract. Nor is it necessary that Wilson should recover possession, in order to execute the trust. He is invested — 406 — with the legal title, with a power to communicate that title to the purchaser, to raise the money value of the property, and not for the purpose of using it to obtain possession in order to realize the rents and profits. It seems to us, therefore, to be very plain that this deed, so far from devoting the rents and income to the debt, in its scheme and terms does no more than pledge the property to a sale for its payment. Although the trustee takes the title, it is not at all for the purpose that he may enter upon the land and appropriate its profits and revenues. In dealing with this deed in trust, a court of equity, regarding it as a security made by the debtor for his creditor, will give that creditor the substantial benefit of it. It is to be deduced from the scheme of the sale and purchase, that Myers might reasonably be able,, from the products of the property, and perhaps some other resources, to pay the entire debt within the three years, the limit of the credit; but out of abundant caution he stipulated in the deed that a sale under it should not be made until eighteen months after the maturity of the last note; thus, in effect, so far as the security was concerned; insuring a credit of four years and six months. When nothing was paid during this intended credit, it might well be supposed that the creditor would insist, after its expiration, upon a rigid enforcement of his remedies. Hence we find that he causes suit upon the notes, an ejectment for the possession to be brought, and the trust property to be advertised for sale. We attach no importance to the ejectment suit, except as it evinces a peremptory determination to insist upon the enforcement of his debt. In this posture of things, overtures and persuasions were employed successfully by Myers to induce Wilson to dismiss the ejectment and withdraw the advertisement of the sale. Wilson so far yielded as to abandon the trust and to decline — 407 — altogether to proceed with its execution. The reasons assigned are, that the course pursued by Estell was harsh and oppressive. But Wilson had voluntarily assumed to carry out the conditions of the deed by a sale when the contingency happened; he engaged to act as trustee for both parties; something rested upon him to be done for both. If he abandoned the position of neutrality, and declined to perform what he was under a contract to do at the instigation of Myers, and his forbearance to act was for the benefit of Myers and to the prejudice of Estell; if this combination of the debtor and trustee deprived the creditor of the benefit of his security, according to its tenor and terms; caused a postponement of the realization of his debt, and weakened his security, entailing, because of it, upon the creditor, expensive and disadvantageous litigation, then there has been such misbehavior ahd misconduct by the trustee and debtor as operates a fraud upon the creditor. It was the right of Estell to have had a sale of the property ; it was the privilege of Myers to have stopped the sale by injunction, if he had cause sufficient, upon the terms of executing a proper bond. The conduct of these parties has postponed a sale until the end of a protracted litigation, leaving Myers, in the mean time, in the possession and enjoyment of the income, and without any additional security; whereas, if both debtor and creditor had stood upon their rights under the contract, Estell would have had a sale, or, if hindered in that, a bond indemnifying for the interruption. The principles of a court of equity are founded upon morality, and are applied in the administration of justice under the guidance of enlightened reason and conscience. In view of the fact that the property isa precarious security for the debt, and the further fact that the obligations of tenants for rent, amounting to several thousand dollars, have been assigned to a nonresident, in part to create a fund subject to Myers’ con — 408 — trol out of the state; of the fact that he has conveyed one-third of the plantation in trust for his children; that he has combined with the trustee and deprived the complainant of the enforcement of the trust security according to its tenor, and, notwithstanding the forbearance of the creditor for four years, has made no payment on the debt, ought he to be suffered to reap the advantages which he has thus obtained? We think not. In no other mode, productive of such little injury to either party, can this be done, as by intrusting the property to a receiver, whose control of it will not be adverse or hostile to either, but who will hold it and its income so as to answer the ends of justice when the final decree shall be rendered. If, as stated in the answer, the sale was advertised to have been made in Washington county, (instead of Bolivar, or if the suit had been brought prematurely, it would have been the duty of the trustee to' have called in the advertisement, and to have dismissed the suit, so that there might have been a rectification of the mistakes and errors. But he abandoned the trust altogether. The non-payment of taxes, or suffering the title to be embarrassed by a tax sale (Wall Street Ins. Co. v. Loud, 20 How. Pr. 96), or the unfairness of the covenant of the mortgagor, will justify the appointment of a receiver. Finch, Adm’r v. Houghton, 19 Wis. 158; Callahan v. Shaw, 19 Iowa, 183. We think that the combined influence of the circumstances of this case authorized the chancéllor to appoint the receiver. The remaining question is, how much of the estate shall the receiver take in charge ? The complainant insists that it shall extend to the entire plantation, including the one-third not embraced in the deed in trust. The answer to that depends upon the question whether he has a charge or lien upon it for his debt. Is there, then, an equitable lien on that portion of the land not embraced in the deed in trust ? — 409 — There is some confusion and uncertainty in our books as to the effect of taking collateral security, whether in the personal obligation of a third person, as surety on the note for the consideration money, or his separate engagement, or a mortgage of the same, or other property. In Patterson v. Edwards, 29 Miss. 71, a covenant or agreement to take up the debt of the" vendor to a third person was esteemed a waiver of the lien. Such an obligation is instead of the lien, and a security for the purchase money. In Johnson v. Union Bank of Tennessee, 37 Miss. 533, it is declared in general terms, “ that it is too well settled to admit of controversy, that where a distinct and independent security is taken the lien is discharged.” In the prior case of Johnson v. Sugg, S. & M. 347, it is said, “ that the authorities establish and command assent, that the note with personal security deprives the vendor of his lien.” The still later case of Fonda v. Jones, 42 Miss. 795, whilst inclining to the rule that the taking of personal security on the note is only prima facie evidence of waiver, and may be rebutted by satisfactory evidence that it was intended that the vendor should retain his lien, the court say, however, that the most cogent and irresistible circumstances must be shown in order to overcome the presumption of waiver. It was laid down in an early case (Bond v. Kent, 2 Vern. 281), and recognized as sound in Clover v. Rawlings, 9 S. & M. 128, that where a party had carved out his own security the law will not create another in aid. In Gilman v. Brown, 1 Mason, 212, Judge Story, after a careful examination, states, “that he found no case where the taking of collateral security was not considered a waiver; and was inclined to consider that as the better rule.” The experienced equity judge, in Cole v. Scott, 3 Wash. C. C., thought that the lien was lost quite as effectually by taking a — 410 — security as by a sale without notice to the sub-vendee. The debt must be for a “fixed amount.” 29 Miss. 71. The lien is implied from the presumed intention of the parties. Judge Story says: “It is manifestly founded on the supposed conformity to the intention upon which the law raises the implied contract, and therefore it is not inflexible that it shall be inferred, but ceases to act when the circumstances of the case do not justify such conclusion. 1 Mason, supra; Gilman v. Brown, 4 Wheat. 272; Servis v. Beaty, 32 Miss. 80; Fonda v. Jones, 42 ib. Testing the transaction between these parties by the principle so reasonable and just: “ That the equity is founded on a supposed conformity to the intention of the parties; that it is an implication of law, which arises or not according to the circumstances,” what are the rights of the vendor ? Upon a sale of the property, including some personal property on the premises, $31,000 are paid down, and the balance, $40,000, is deferred in installments. What amount was estimated for the personal effects does not appear. To secure the credit installments, a deed of trust covering two-thirds of the land is executed, with the provision that a sale should not be made under it until eighteen months after the last installment was due. The creditor has selected his security. The circumstance that it does not reach to all the property, suggests, that in view of the large cash payment, but $9,000 less than half the price of the entire estate, it was supposed to be ample, although the land itself was all that could be looked to. But, in addition, the vendor had the personal engagements of the vendee falling due from year to year. The fair inference is, that Estell was content to rely upon the limited security on the land, and the personal security of the notes; and therefore the equitable lien was within the intendment of the parties. The recitation in the — 411 — deed that the creditor was desirous of giving “ additional security,” therefore the land is conveyed in trust, follows the recital of the notes; and the additional security evidently meant the trust deed in “ addition ” to the personal obligation of the notes, and not the vendor’s lien. But, within the scope of many of the authorities, the taking of the deed of trust is absolutely a waiver of the lien. Those which hold that it is not an absolute abandonment, declare that it raises the strongest presumption of abandonment which can only be overcome by the clearest and most satisfactory proof. This is so, unless the position of counsel for appellee be tenable, that the rule does not apply because this security was taken on the property sold, and only on part of it. It is difficult to form a distinct idea of the vendor’s equity. In defining what it is, jurists have been driven to the negative mode of declaring what it is not. Thus, in 1 Mason, 221, supra, Story, J., says: “ It is not of so high and stringent a nature as that of the judgment creditor. It is not an equitable estate in the land itself, although that appellation has been loosely applied to it.” So in this court, in Trotter v. Evans, 27 Miss. 778, it is described as having some of the incidents of a mortgage, though of a very distinct nature. The mortgage is a conveyance of the legal estate upon which the mortgagee may recover the possession. In its form it is separate and distinct from the debt, and an additional and more solemn acknowledgment of and security for the debt, whereas the vendor’s lien consists solely in the debt, and has no form apart from it.” Judge Story says: “ It is a right which has no existence until it is established by the decree of the court in the particular case.” Myers so framed his specific security as that he should not be molested in his possession until eighteen months afte^ the last installment was due. This indicates that the — 412 — revenues of the estate were looked to as a large means of payment, and is inconsistent with the idea that he might be deprived of possession of one-third of the property by the enforcement of the vendor’s lien for non-payment of the first installment. The early case of Bond v. Kent, 2 Vern. 280, gives no support to the position taken for the appellee. There Kent purchased lands of Bond, and re-mortgaged them for securing part of the purchase money, and for the other part, £200, a note was given. The question was, whether the £200 shall be looked on in equity as a charge upon the land held, or not. In Brown v. Gillman, 4 Wheat. 490, Chief Justice Marshall, considering the effect of retaining a lien to a limited extent, remarked: “ The express contract that the lien shall be retained to a specified extent, is equivalent to a waiver of that lien to any greater extent.” In both of these cases the express liens were upon the lands which had been purchased. In Phillips v. Saunderson, 1 S. & M. Ch. 465, the principle received an application. The deed in trust on the property purchased only protected a part of the debt. The chancellor put his judgment on what he understood to be the settled rule, that where there is an express lien on part of the estate for the purchase money, it excludes the idea of an implied lien for the residue, for expressio uniam facit cessari taciturn. See also, McCure v. Harris, 12 B. Mon. 265. The bill avers that the lien was retained, the answer denies it. We have therefore considered the question as it presents itself on the face of the transaction. There are other questions which we forbear to consider. We think there is no lien. We are of opinion, therefore, that the complainant ought to have a receiver on the undivided two-thirds of the property embraced in the deed in trust; not, however, to interfere with any leases made to tenants or to disturb their possession. — 413 — The decree will be modified and reversed, and cause remanded for further proceedings in accordance with this opinion.