Gerber v. Heath

Mount, J.

In November, 1912, The Frank A. Sweeney Company, a corporation, executed to one Leonard its promissory note for $10,000. The payment of this note was secured by a second mortgage upon real property located in Seattle. As further security for the payment of this note, the Sweeney company executed a chattel mortgage upon the furnishings and fixtures of a hotel which was being conducted upon the real estate. At the time this second mortgage was given, Joseph E. Thomas & Company, Incorporated, was the holder of a first mortgage upon the real estate. After the execution of these mortgages, the defendants Heath and wife, by mesne conveyances, became the owners of the property, both real and personal, subject to all the mortgages above mentioned. Maurice Gerber, by assignments, became the owner and holder of the note and mortgages executed by the Sweeney company to Leonard. Thereafter, in July, 1914, when the Leonard note was past due, the holder thereof, Maurice Gerber, brought an action to foreclose the second mortgage upon the real estate and the first mortgage upon the chattels. Thomas & Company was not made a party to that action. An application was made for the appointment of a receiver upon the ground that taxes were due and delinquent, and no effort was being made to pay the taxes or interest; that Heath and wife were in possession and, if permitted to collect the rents during the pendency of the action, that the property would be utterly lost unless a receiver were appointed.

Thereafter, on July 29, 1914, by consent, an order was made appointing a receiver. This order recited that the receiver was authorized “to take immediate possession of said mortgaged premises and personal property, and to rent the same and keep the same rented, and receive the rents, issues and profits thereof, and to hold the same subject to the order or decree of this court, and with all the powers, duties, and responsibilities of receivers in like cases.”

At the time this order appointing the receiver was made, Thomas & Company, the holder of the first mortgage upon the real estate, intervened in the action. Thereafter a decree was entered foreclosing the mortgages of the plaintiff, Gerber, and of the intervener, Thomas & Company; but no personal judgment was taken against Heath and wife. Afterwards the property was sold under a decree of foreclosure, Thomas & Company purchasing the real property for the full amount due on the first mortgage, including the amounts due for taxes. The plaintiff, Gerber, purchased the personal property for $500, leaving a balance of more than $10,000 due upon the second mortgage. After the sale which had been had under the decree had been confirmed, the trial court, upon application, directed the receiver to pay $142.67, being the net proceeds of rents and profits which he had collected pending the litigation, to the plaintiff, Maurice Gerber. From this order, the defendants Heath have appealed.

The only question presented upon this appeal is whether the rents and profits collected by the receiver pending the litigation should be paid to the mortgagee, or whether they should be paid to the successor in interest of the mortgagor.

In Dane v. Daniel, 23 Wash. 379, 63 Pac. 268, in considering the interest which the mortgagee takes in mortgaged property, we said at page 387:

“Under the statutes of this state a mortgage of real property does not convey to the mortgagee the title to the mortgaged premises, either before or after condition broken. A mortgage is a lien simply, a mere security for the payment of money, and is satisfied and extinguished by the payment of the money for which it is given as security at any time before the sale of the mortgaged premises under a judgment or decree of foreclosure. After condition broken, the statutes confer on the mortgagee the right to have the amount due him by reason of the broken condition determined by a judgment or decree of a court, the mortgage foreclosed, and the mortgaged property sold at public auction, and the proceeds of the sale applied in satisfaction of the amount found due.”

And in Thornely v. Andrews, 40 Wash. 580, 82 Pac. 899, 111 Am. St. 983, 1 L. R. A. (N. S.) 1036, we said:

“But in this state a mortgage conveys no title to real estate. The property mortgaged is held merely as security for the payment of the debt.”

To the same effect see, Jump v. North, British etc. Ins. Co., 44 Wash. 596, 87 Pac. 928.

It is plain, therefore, that the property, and not its income, is the security for the mortgage debt. The mortgagor is under no obligation to apply the income of the property ■to either the principal or the interest of the mortgage debt. Should the mortgagor, or his successor in interest, fail to keep up the current charges against the property, and permit the same to depreciate or become lost, the mortgagee may elect to foreclose his mortgage, especially if this contingency is provided for in the mortgage. A receiver is sometimes appointed to collect the income of property and apply the same to necessary charges pending the foreclosure proceedings in order to protect the property. But there is no law in this state to justify the application of the income of property to any other purpose than keeping up the current expenses, and the profits thereof not needed for that purpose clearly belong to the holder of the legal title.

In this case the original mortgagor sold the legal title; and by mesne conveyances, at the time these foreclosure proceedings were brought, it rested in Heath and wife. They were not obligated to pay the mortgage debts. They simply held the property subject to the payment of the mortgages. It seems clear to us that the net revenues from the property pending the foreclosure and up to the time of sale were the property of the holder of the legal title.

We are satisfied, for these reasons, that the trial court erred in awarding this money to the mortgagee. It should have been paid to Heath and wife, the holders of the legal title. All net profits received in rents from the property up to the time of the sale under the foreclosure were clearly the property of Heath and wife.

The judgment of the trial court is therefore reversed, and the cause remanded with instructions to the trial court to direct the receiver to pay this money to the appellants, Heath.

Morris, C. J., Fullerton, Ellis, and Chadwick, JJ., concur.