Yudelson v. Northwestern Mutual Life Insurance

1. The permanent improvements in this case having been made by the tenant of the holder of the void deed, as a part of the terms of a rental contract which was ratified and adopted by the plaintiff, the holder of such void deed is not entitled to receive credit for the value of such permanent improvements placed upon the premises by such tenant, in an accounting for such rents and profits.

2. Under the facts of this case the court did not err, in an accounting for rents and profits, in declining to allow plaintiff in error credit for income taxes paid by him upon rentals received from said property held by him under a void deed.

No. 13897. FEBRUARY 16, 1942. The Northwestern Mutual Life Insurance Company, having attempted to foreclose a loan deed without service on non-resident defendants, was sued for the property as mortgagee in possession, and the plaintiff in error, Sol. I. Yudelson, was made a codefendant by reason of the fact that he had bought the property from the insurance company. General demurrers of both defendants were sustained in the trial court, but that ruling was reversed in this court. Powers v.Northwestern Mutual Life Insurance Co., 191 Ga. 535 (13 S.E.2d 171). After that decision there was an accounting for the rents and profits of the property, and the issues were submitted to a jury. At the conclusion of the evidence the attorneys for Mrs. Powers moved for a directed verdict, stating that the amount of net rentals received by Yudelson at the time he was in possession of the property was not in dispute, neither was there any controversy as to the net rentals received by the insurance company during the time it was in possession; that the only controversy was whether or not certain offsets claimed by Yudelson against the net rentals received by him should not be allowed, but that the amount of these claimed offsets was not in dispute.

The case as it is presented to this court involves but two questions: (1) Is the plaintiff in error entitled to offset, against the net rentals, improvements made by his tenant at the tenant's expense and as a part of the rent for the premises occupied by the tenant? (2) Is he entitled to offset against the net rentals the income tax paid by him on the net rentals to the Federal Government and the State of Georgia? The court declined to allow Yudelson credit in the accounting for the two foregoing items. Counsel for both parties stated, in arguments before this court, that the foregoing were the only questions submitted for decision. The uncontroverted evidence in this case, as shown by the record, is to the effect that the improvements made upon the property, for which the plaintiff in error makes claim in the way of credit in the accounting, were not made by the plaintiff in error, Yudelson, but were made by his tenant, and at the entire expense of the tenant, as a part of the consideration of the lease contract, and therefore a part of the rent.

There seems to be a clear distinction under the law, in a case of this character, between the repairs and permanent improvements. The general rule is that a mortgagee in possession is under a duty to keep the premises in a reasonable state of repair, and therefore is entitled to take credit therefor in a general accounting to the mortgagor. This, however, is not the rule with respect to permanent improvements. As to permanent improvements, a mortgagee in possession is not authorized, without the consent of the mortgagor, to make such improvements and thereby increase the burden on the mortgagor upon a redemption of the premises. This rule is stated in 19 R. C. L. 333, § 107, and is sustained by Robertson v. Read, 52 Ark. 381 (14 S.W. 387); Horne v. Indianapolis National Bank, 125 Ind. 381 (25 N.E. 558, 9 L.R.A. 676, 21 Am. St. R. 231); Miller v. Ward, 111 Me. 134 (88 A. 400); Gillis v. Martin, 17 N.C. 470 (25 Am. D. 729); Whiting v. Adams, 66 Vt. 679 (30 A. 32, 25 L.R.A. 598, 44 Am. St. R. 875); Lynch v. Ryan, 137 Wis. 13 (118 N.W. 174, 129 Am. St. R. 1040). In McCarron v. Cassidy, 18 Ark. 34, the court held: "A mortgagee in possession, without special authority, will only be allowed for such improvements as are absolutely necessary for the support of the property and to keep it from waste and damage."

The right of the plaintiff in error to set off the improvements placed upon the property is not controlled by the act of 1897 (Code, § 33-107), because "this is not an action for the recovery of land." It is an equity case for an accounting by a trustee. However, the equity rule does not differ essentially from the statutory rule. The statute allows the set-off for improvements only if placed thereon by himself or other bona fide claimants under whom he claims. The equity rule as laid down in 19 Am. Jur., under the topic "Equity," § 4-64, provides: "That the plaintiff will be compelled to reimburse the occupant for his expenditures." Either of these rules would require a disbursement by the party to be reimbursed; and as the rule was applied by the Supreme Court of Alabama in Sacred Heart v. Manson, 203 Ala. 250 (82 So. 489) "There could be no reimbursement for the German Bank [Yudelson] until the German Bank [Yudelson] had paid something to be refunded, restored to it." Yudelson had paid out nothing, and there was nothing to refund or to restore to him with reference to the permanent improvements placed upon the property in question.

The position of the plaintiff in error as to the improvements placed upon the property is untenable. He made no expenditure of money in connection with these improvements, and therefore he does not suffer a financial loss by the ruling of the court. Neither does the tenant or lessee, because the court has adjudged that the lease he entered into with Yudelson is valid and binding not only upon Mrs. Powers, the owner of the property, but also upon her successor in title. It is reasonable to assume that the tenant or lessee will enjoy the benefits from the improvements in question for the life of his lease.

With reference to the item of income taxes. If the plaintiff in error has any right to recover these payments, it seems that the right exists against the Federal and State Governments to whom the payments were made. The right to recover the payments, if it exists at all, is under the doctrine of unjust enrichment, which is an equitable doctrine and will never be enforced against one not enriched at all in connection with the payment, as is the case here. The plaintiff in error cites no authority to sustain his position as to either contention.

Finding no error in the record of which the plaintiff in error has any right to complain, the judgment of the lower court must be

Affirmed. All the Justices and Judges concur.