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-pledgee as mortgagee.

for a debt which was by the decree of the circuit court herein shown to be more than the amount of the mortgage. So far as the right to enforce the mortgage by foreclosure is concerned, plaintiff in error was the mortgagee in that mortgage and had full right to foreclose. Anderson v. Olin, 145 Ill. 168, 34 N. E. 55; Loewenthal v. McCormick, 101 Ill. 143; Hosmer v. Campbell, 98 Ill. 572. It is therefore incongruous to say that a mortgagee in possession under the first mortgage had received this large amount of rents which should be applied on his mortgage, when, as a matter of fact, the mortgagor under that mortgage received the rents and the mortgagee received no benefit whatever of the collection of such rents.

We are of the opinion, therefore, that it cannot be said that George J. Williams was in possession as a mortgagee. He was not mortgagee of the prior lien. The junior lien had been discharged and Williams was in possession, first, by sufferance of the receiver and owner of the equity of redemption; second, by agreement with the owner of the equity of redemption; and third, by the quitclaim deed of such owner. In no one of these three capacities did his possession impose upon him the duty to account to any one for the rents other than was specified in the agreement of December 13, 1920. Certainly, possession of Williams

and the collection of rents by him could not by any -effect of mortprocess of reason- gagor's possesing, equitable or sion on rights of pledgee. otherwise, be said

to warrant an order of court requiring plaintiff in error to rebate his mortgage to the extent of such rents, which were not collected or received by him. The Appellate Court therefore erred in reversing the decree of the circuit court.

Defendant in error has assigned cross-errors complaining of the refusal of the Appellate Court to reverse the order of the circuit court concerning the appointment of the Chicago Title & Trust Company as receiver without bond. There was no error in the action of the Appellate and Circuit Courts in this matter. The statute was complied with in the appointment Receivers— of the Chicago Title absence of bond & Trust Company

-validity.

as such receiver without bond. Defendant in error was not entitled to have the receiver discharged and the property turned over to him. The Chicago Title & Trust Company was appointed in the place of a receiver previously duly appointed, owing to the request of defendant in error for the appointment of a different receiver.

The judgment of the Appellate Court is reversed for errors assigned, and the decree of the Circuit Court is affirmed.

Petition for rehearing denied June 2, 1926.

ANNOTATION.

Duty of mortgagee to account for rents and profits or for use and occupation for benefit of owner of equity of redemption or junior lienor. [Mortgage, §§ 21, 29.]

I. General rule, 139.

II. Nature of mortgagee's possession:

a. In general, 141.

b. Under absolute deed given as security, 142.

c. Under invalid foreclosure, 143.

d. Under claim independent of mortgage, 144.

III. Extent of liability:

a. In general, 146.

III.-continued.

b. Failure to make or collect rents or profits, 147. c. Liability for use and occupation, 152. IV. To whom accountable, 154.

1. General rule.

This annotation, in discussing the accountability of a mortgagee in possession for rents and profits, takes no account of the varying rules existing in different jurisdictions and at different periods of time as to the right of a mortgagee to possession and as to the extent of the right of redemption. It assumes the taking of possession and the existence of a right of redemption from the mortgage or from a foreclosure sale thereunder, and from that situation considers the duty of the mortgagee to account.

For nearly three centuries it has been the rule, recognized without dissent in England and in all American jurisdictions which have passed on the question, that a mortgagee in possession of the mortgaged premises must, in the event of a redemption, account to the redemptioner for the rents and profits accruing during his occupancy. This rule finds support in every case cited in the course of this annotation, and is so thoroughly established that no effort has been made herein to collate the cases which merely announce it in passing without attempt to apply it.

The reason underlying the rule is that the mortgage does not entitle the mortgagee to possession, and the profits of the possession are consequently received by him as trustee for the mortgagor. Anglo-California Bank v. Field (1908) 154 Cal. 513, 98 Pac. 267. And see the reported case (WILLIAMS v. MARMOR, ante, 132).

The rule "rests upon the reasonable ' doctrine that while the mortgagee is the holder of the legal title to the mortgaged premises, he holds such title, nevertheless, subject to the equitable right of the mortgagor to pay the debt and thus destroy or put an end to his legal title; and that the mortgagee is entitled to no more than his debt which the mortgage was intended to secure. Hence it is that, when the mortgagor desires to redeem from a

mortgagee who has been in the possession of the mortgaged premises under his mortgage, he has the right, in a court of equity, to call upon the mortgagee to account for the amount received by way of rents and profits, for the purpose of determining how much, if anything, is required in order to discharge the mortgage debt." Gaskell v. Viquesney (1889) 122 Ind. 244, 17 Am. St. Rep. 364, 23 N. E. 791.

"No doubt can exist touching the obligation of a mortgagee in possession to allow a credit on his mortgage for rents and profits received by him, or, in the absence of rents or profits, to allow a credit for a fair amount as occupation value. The assertion of the duty of the mortgagee to allow that credit, whether the claim be made by a subsequent mortgagee or by the mortgagor, cannot be regarded, in strictness, as either an independent set-off or recoupment. The duty to allow the credit flows from a status of a mortgagee in possession, and is of the same nature as a payment on the mortgage; the claim of right to a credit is merely a matter of ascertainment of the amount due on the mortgage. When a mortgagee is or has been in possession as mortgagee, the ascertainment of the amount of the credit flowing from that possession, though unliquidated, becomes a necessary part of the foreclosure suit; an action at law to establish the claim is not necessary." Doyle v. Di Medio (1926) N. J. Eq. —, 132 Atl. 854.

The rents and profits attach de jure to the ownership of the equity of redemption. Gordon v. Lewis (1835) 2 Sumn. 143, Fed. Cas. No. 5,613.

And the mortgagee's right is merely to see that they are applied to the debt. Childs v. Hurd (1889) 32 W. Va. 66, 9 S. E. 362.

In Denby v. Mellgrew (1877) 58 Ala. 147, it was said, as a basis of the rule, that when the mortgagee comes into equity to foreclose he must account for rents and profits as a doing

of equity. So, a bill for a foreclosure must tender an accounting. Williams v. Noland (1920) 205 Ala. 63, 87 So. 818.

In another case in the same jurisdiction it was said: "Profits for themselves, from the possession of premises, they cannot be allowed to derive, so long as the relation of mortgagor and mortgagee continues. Therefore, whenever there is a redemption by any party entitled to redeem, a mortgagee in possession must apply the rents and profits in reduction of his mortgage debt, subject to an allowance for all proper expenditures which, as tenant in possession, he may have made. The principle upon which the mortgagee, in possession as mortgagee, is made accountable for rents and profits, and compelled to apply them in reduction of the mortgage debt, for the ease of the owner of the equity of redemption, is, that he stands in the relation of a trustee, and they form a trust fund, primarily applicable in payment of the mortgage debt. A court of equity makes that application of them so soon as they are received." Downs v. Hopkins (1880) 65 Ala. 508.

Where the reason of the rule fails the rule fails also. Madison Ave. Baptist Church v. Baptist Church (1878) 73 N. Y. 82, wherein the court refused to apply the rule to a mortgagee of a church building, who during its occupancy used it for church purposes, saying: "The ordinary rule when a mortgagee is in possession, and the mortgagor seeks to redeem, is to make the former account for the rents and profits of the mortgaged premises. Generally the application of this rule will do justice between the parties. It should generally be applied when the premises are such as are kept for pecuniary profits, or have a rentable value, or can be made to yield a pecuniary income. The mortgagee should not make a profit by the possession, and the mortgagor should not suffer a loss by being deprived of the possession. The mortgagee should make to the mortgagor a just and equitable compensation for the possession. But the general rule cannot

properly be applied in all cases. In some cases it will fail to do justice, and in others will do justice. In a court of equity no general rule for compensation is inflexible. It may mold its relief and give redress according to the circumstances of each case. When ordinary rules will not apply in the administration of equitable relief, or will work injustice, it must be guided by reason and justice. Worrall v. Munn (1868) 38 N. Y. 137; Morrison v. Robinson (1858) 31 Pa. 456. Now in this case, the defendant made no profit out of the possession of plaintiff's church. It was a species of property not intended to be used for pecuniary gain, and which is generally burdensome rather than profitable. . . . Is it just and equitable, under such circumstances, that the defendant should be charged with all the pew rents, and allowed nothing for maintaining the services? It will not do to say that the defendant was conducting its own business in the church, and should, therefore, be allowed nothing for conducting it. It was doing the plaintiff's business as well. It was devoting the property to the precise purpose to which the plaintiff was bound to devote it. It maintained services for the benefit, not of its own corporations only, but for the benefit of the plaintiff's corporators, and all others who chose to attend."

The redemptioner's right to an accounting is, however, purely equitable and enforceable only in equity, where the distinction between legal and equitable procedure obtains. Thomas v. Livingston (1906) 147 Ala. 200, 40 So. 504; Harris v. Jones (1914) 188 Ala. 633, 65 So. 956; Green v. Thornton (1908) 8 Cal. App. 160, 96 Pac. 382; Wilcox v. Cheviott (1898) 92 Me. 239, 42 Atl. 403; Hubbell v. Moulson, (1873) 53 N. Y. 225, 13 Am. Rep. 519..

While the mortgagee may, by the terms of the mortgage, be relieved from the duty to account, if the mortgage is silent on that point such a provision cannot be added by parol. Davis v. Lassiter (1852) 20 Ala. 561.

A mortgagee taking possession before the law day of the mortgage is not a "person holding possession un

der color of title in good faith," within a statute limiting the liability of such a person for rents and profits. Keith v. McLaughlin (1897) 114 Ala. 60, 21 So. 483.

Where the mortgage covers several separate parcels of land, and the mortgagee forecloses as to a part only and the mortgagor seeks to redeem but a part, rents and profits on land not covered by the redemption must be accounted for. Roulhac v. Jones (1884) 78 Ala. 398, wherein the court said: "The debt which the mortgage is given to secure is one debt. The unity of the debt constitutes the mortgage a unit. The lien extends equally to each separate parcel of land. There is, also, unity in the equity of redemption. Having been cut off as to part of the mortgage property by a partial foreclosure, it is restricted to the property as to which there has been no foreclosure, but remains the same equity of redemption, differing only in degree. The mortgagor, has the right to redeem the undisturbed property by paying the amount due on the mortgage debt, estimated by equitable principles. His right is to have the debt credited with the sum of any equitable set-off he may have. The rents received before foreclosure by the mortgagee, in possession of a part only of the lands, will be applied in reduction of the debt secured by a pledge of all the lands, and not for the relief of the particular land from which derived, from the encumbrance of the mortgage. When some of the mortgage lands were sold under the mortgage, it was the right of the mortgagor to have the debt reduced by the sum of the proceeds of the sales, and also, as an incident to his equity of redemption, by the rents received before foreclosure, after deducting necessary and proper expenditures."

II. Nature of mortgagee's possession.

a. In general.

To render a mortgagee accountable for rents and profits, he must be in possession either in person or by tenant, and must divert the rents and profits from the holder of the equity

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of redemption. Myers's Appeal (1862) 42 Pa. 518; White v. Maynard (1882) 54 Vt. 575. See also Bourgeois v. Gapen (1899) 58 Neb. 364, 78 N. W. 639.

A mortgagee having merely constructive possession of vacant and unimproved lots is not to be charged for use and occupation. Peugh v. Davis (1885) 113 U. S. 542, 28 L. ed. 1127, 5 Sup. Ct. Rep. 622.

However, compelling the tenant to attorn is a taking of possession. Still v. Buzzell (1888) 60 Vt. 478, 12 Atl. 209.

Where the mortgagee lives with the mortgagor on the premises, he is not in possession, and is not accountable for the rental value of the property. Baker v. Grand Island Bkg. Co. (1903) 4 Neb. (Unof.) 100, 93 N. W. 428.

So, where the mortgagee has taken possession of but a part of the premises, he is not chargeable with the rents and profits of that which is left in the hands of the mortgagor. parte Hooman (1870) L. R. 10 Eq. (Eng.) 63.

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A mortgagee who permits the mortgagor to take the rents and profits is ordinarily not chargeable therewith. Cilley v. Huse (1860) 40 N. H. 358, wherein the court said: "We have a case, then, where the mortgagee is called upon to account for the rents and profits of the estate, though they were actually received by the mortgagors; and there may be cases where such accounting would be decreed, as where the prior mortgagee refused to allow the subsequent mortgagee to enter and take the profits, but entered himself, and yet allowed the mortgagor to take the profits. In such case, where the security was inadequate, the first mortgagee might well be held to account for the rents and profits, as between him and the second mortgagee, whom he had held out; but it would be difficult to discover any solid reason for holding that he should account to the mortgagors for the profits they had themselves received. In the case before us, the plaintiff represents one of the mortgagors, now deceased, who died, as appears by the bill, June 27, 1858. So far as respects

the rents and profits prior to that time, there can be no question; since that time the rents and profits have been received by the surviving mortgagor, and, if the property was actually held by them as tenants in common, and not as partners, so that upon the death of Wilson an undivided half of the estate was vested in his representatives, and subject to no lien in the hands of Cheney, then such representatives would be entitled to enter and take one half of the rents and profits, as against the other tenant in common. Had he attempted to make such entry, and been kept out by the mortgagee, who, nevertheless, permitted the other tenant to take the whole profits, he might have just cause to claim that the mortgagee should account for one half of such profits. But no such attempt to enter having been shown, and the possession of Cheney being in accordance with the arrangement made with both mortgagors, during the lifetime of Wilson, we see no ground for charging the mortgagee with such rents and profits."

Where the mortgagor and the mortgagee occupy the premises jointly and farm them on joint account the mortgagee is not accountable for his share of the rents and profits. Brainard v. Hudson (1881) 103 Ill. 218.

So, the mortgagee is not to be held to account for rents and profits, unless he enters as mortgagee, for the reason, it was said in Parkinson v. Hanbury (1867) L. R. 2 H. L. 1, 18 Eng. Rul. Cas. 411, that to render him accountable he must enter in such a capacity that he shall know that he will be held liable to account and can govern himself accordingly.

Whether he enters as mortgagee or in some other capacity is to be determined as of the date of his entry. See the reported case (WILLIAMS v. MARMOR, ante, 132).

Where a mortgagee entered under an agreement with the mortgagor to apply the rents on a certain building contract, and the mortgagor thereafter took advantage of the insolvency law, whereby all rights with respect to the contract were transferred to his assignee, the subsequent pos

session of the mortgagee was held to be in his capacity as mortgagee, and he was required to account as such. Hilliard V. Allen (1849) 4 Cush. (Mass.) 532.

An assignee of a mortgage, on taking possession thereunder, is in the position of a mortgagee. Holabird v. Burr (1846) 17 Conn. 556; Chamberlain v. Connecticut C. R. Co. (1887) 54 Conn. 472, 9 Atl. 244.

Where a purchaser enters under the title of both the mortgagor and the mortgagee, he is regarded, with respect to a widow having the right to redeem, as a mortgagee in possession, and must account for the proportion of the rents which the amount of the mortgage bears to the price paid. McArthur v. Franklin (1865) 16 Ohio St. 193.

A person in possession under an unforeclosed lien decreed by a court of equity is to be treated as a mortgagee in possession. Scruggs v. Memphis & C. R. Co. (Matthews v. Memphis & C. R. Co.) (1883) 108 U. S. 368, 27 L. ed. 756, 2 Sup. Ct. Rep. 780.

A tenant who purchases an outstanding mortgage and holds possession after his term is considered a mortgagee in possession, and not a tenant holding over. Anderson v. Lanterman (1875) 27 Ohio St. 104.

A mortgagee occupying as tenant of the mortgagor is not in possession as mortgagee so as to be accountable to a junior mortgagee for the rental value. Armistead v. Bishop (1913) 110 Ark. 172, 161 S. W. 182.

b. Under absolute deed given as security.

A grantee under an absolute deed given as security is regarded as a mortgagee, and must account as such.

United States.-Russell v. Southard (1815) 12 How. 139, 13 L. ed. 927; Engleman Transp. Co. v. Longwell (1880; C. C.) 48 Fed. 129; Jewett v. Cunard (1847) 3 Woodb. & M. 277, Fed. Cas. No. 7,310.

Alabama.-Richter v. Noll (1900) 128 Ala. 198, 30 So. 740. Arkansas. Banks V. Walters (1910) 95 Ark. 501, 130 S. W. 519; Dicken v. Simpson (1915) 117 Ark. 304, 174 S. W. 1154.

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