Northwestern Mutual Life Insurance v. Gross ( 1933 )

[1] On the 14th day of June, 1920, Elmer A. Gross was the owner of 160 acres of land involved herein. On that date he and his wife executed to the plaintiff a note for $16,000, and secured the same by a mortgage on the aforesaid land situated in Kossuth county, Iowa. This mortgage was duly filed of record on the 22d day of June, 1920, and on November 30, 1925, was duly extended for five years. The mortgage provided for a receiver in case of breach of any of its terms, to take possession thereof and collect rents, issues, and profits during the pendency of foreclosure.

This action was brought on December 8, 1930, for the foreclosure of this mortgage, and praying the appointment of a receiver. Decree was entered January 27, 1931, the question of receivership being reserved. Special execution was issued and the property sold on February 28, 1931, leaving a deficiency judgment in the sum of $1,000.

In March, 1931, the receivership question was tried out and on the 31st of that month, the court entered an order denying the right of receivership to the plaintiff.

L.A. Andrew, superintendent of banking, appeared and contested plaintiff's right to a receivership. Andrew was receiver for the County Savings Bank of Algona, but, prior to his appointment as such receiver, the County Savings Bank held a second mortgage on this property. After his appointment, this second mortgage came into his hands from said bank, he foreclosed the same as receiver, and on the 13th day of May, 1929, received a sheriff's deed for said property. As such receiver, he claims the rents and profits from said land. He held title at all times during the pendency of the present proceedings.

It is apparent, therefore, that, at the time this proceeding was commenced, Andrew, as receiver, was the fee title holder of said property, subject to the mortgage of the plaintiff, and it is his claim that as such receiver he is entitled to hold such rents and profits for the benefit of the estate which he represents, and it was on this theory that the lower court refused plaintiff a receiver.

The tenant on this land, E.J. Kain, was a party to the proceedings.

Just what was the status of Andrew, receiver, at the time he took this sheriff's deed? Of course, it contained no warranties, and he took under his deed the rights of Gross and no more. He can, therefore, claim no higher rights in said property than Gross had. In other words, he "stepped into Gross' shoes" as they then existed. We therefore turn to a determination of what rights Gross had at the time plaintiff commenced foreclosure as against this plaintiff on this receivership question.

It is conceded that Gross was insolvent at the time, and the plaintiff has made such showing as would warrant the court in granting him a receiver as against Gross, and, so long as the receiver stepped into the place of Gross and obtained no higher rights than Gross had, we are unable to see where Andrew, as receiver, was entitled to defeat plaintiff's receivership.

We are not aided in this case by a brief and argument by the appellee, hence are unable to determine what his contention was.

To state it in another way, Andrew, as receiver of this bank, was the fee title holder to this property subject to the provisions of the outstanding mortgage of the plaintiff. Plaintiff started foreclosure, and under the provisions of his mortgage, asked for a receiver. Andrew combated the appointment of a receiver on the ground that the property is in the custody of the court, through him as receiver, and the plaintiff is attempting to interfere with the administration of said trust and with the defendant as an officer of the court in discharge of his duties as such officer, and claims that his rights are superior to those of the plaintiff. This seems to be the real nub of the controversy. Of course, if Andrew's contentions are true and if his rights are superior to those of the plaintiff, the plaintiff would not be entitled to the appointment of a receiver. This seems to have been the idea of the lower court in refusing plaintiff's application for a receiver.

It has been suggested in cases similar to this that the plaintiff is not entitled to a receiver because he can file his claim with Andrew, as receiver, and have his rights determined in that receivership. This is an equity case, and all parties interested are present, and we see no reason why this question of priority between plaintiff and Andrew may not be determined in this case. It would be useless to turn plaintiff out of court in this case and then have him come into court by another door for a determination of the same proposition. In addition to what we have heretofore said, when Andrew obtained title to this property by means of a sheriff's deed, he took it subject to first mortgage and all its terms, and, among others, was the agreement set out in this mortgage entitling the plaintiff, under certain conditions, to the appointment of a receiver to collect rents, income, and profits, and he, therefore, took the property subject to this pledge of the rents, income, and profits and provisions for a receivership. In his foreclosure case, Andrew alleges that this mortgage in favor of the plaintiff was outstanding and superior to his mortgage. It is our conclusion that the plaintiff made the necessary showing entitling it to the appointment of a receiver, and further that the plaintiff is entitled to the rents, income, and profits accruing or arising after he filed his petition for a receiver, and during the period of redemption under its foreclosure.

[2] There is no necessity for appointing a receiver for the plaintiff under these circumstances, as Andrew, the receiver, is a party to this action and bound by this finding, and the expense of another receivership would be useless under the circumstances.

We are aware that the pronouncement we make in this case is squarely contrary to the rule laid down in Schlesselman v. Martin, 207 Iowa 907, 223 N.W. 762, and some other cases in which that case is followed, but, after a reconsideration of the questions involved herein and in the Schlesselman case, we reach the conclusion that the Schlesselman case was wrongly decided, and the same is hereby overruled.

With this modification of the decree of the district court, the case is remanded to the district court to make an order in accordance with this opinion. — Modified and remanded.

All Justices concur except Justice EVANS, who dissents.