Demick v. Cuddihy

The Court. For the reasons given in the opinion of Department One (filed December 7, 1886), the judgment and order are reversed, and cause remanded for a new trial, and with leave to the parties to apply to the court below for leave to amend their pleadings if they shall be so advised.

The following is the opinion of Department One, •above referred to:—

McKinstry, J. The demurrer of plaintiff to “the second separate cause of defense ” was not well taken. The answer alleges: —

“ 1. That at the time of the execution of the mortgage in the complaint set forth, the mortgagor thereof was indebted to this defendant for goods, wares, merchandise, and money, aside from the consideration of said mortgage, had and received; 2. That from time to time since the execution of said mortgage, and prior to the deed from George H. Crumpton to the plaintiff herein, in the complaint set forth, the said Crumpton has incurred sundry items of indebtedness to this defendant; 3. That it was mutually understood and agreed, by and between said George H. Crumpton and this defendant, that any rents collected under and by virtue of said mortgage in excess of the interest on the principal sum thereof should be applied to the liquidation of the debts existing at the time of the execution of said mortgage, and those thereafter to be incurred, and such excess was and has been so applied.”

Counsel for appellant say: “ Our theory is, that in an action to redeem a mortgage, where the mortgagee is in possession of the premises, he is accountable for the [113]rents and profits; and the same, as they are received by him, should be applied to the extinguishment of the-mortgage debt. In support of this view, we cite Story’s, Eq.Jur., 12th ed.,sec. 1016 a; Gibson v. Crehore, 5 Pick. 158;; Jones on Mortgages, secs. 671, 772; Morse v. Merritt, 110 Mass. 460, where the court say: ‘ So long as any portion! of the mortgage debt remained due, the mortgagee would! take the rents recovered, in trust, to account for and apply towards its payment.’ ”

But we know of no equitable principle which will prohibit a binding contract between mortgagor and: mortgagee in possession, or mortgagee who has been, authorized to collect the rents, by which it is stipulated that the excess of rents beyond interest of the-mortgage debt shall be applied to other indebtedness due from the mortgagor, or to become due up to an assignment of the equity of redemption. The equity imposed upon the mortgagee receiving rents to apply them to the interest and then to the principal of the mortgage-debt, etc. (in the absence of specific agreement), may be overcome and supplanted by a specific agreement between mortgagor and mortgagee for the disposition of the rents.