Opinion ID: 884321
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Heading: Does Montana recognize a claim for impairment of security?

Text: Over 100 years ago, this Court first recognized a mortgagee's right to sue a mortgagor for impairment to a security interest in Dutro v. Kennedy (1889), 9 Mont. 101, 22 P. 763. Kennedy, a mortgagor, attached fixtures and caused improvements to be made to the subject property after execution of the mortgage. After the mortgage had been foreclosed and the property sold at a sheriff's sale, the mortgagor attempted to remove the fixtures and improvements. Dutro, 22 P. at 763-64. The mortgagee, Branch, instituted suit against the mortgagors. During the pendency of the litigation, Branch transferred his interests in the suit to Dutro who successfully prosecuted the suit to a final judgment. The Dutro Court held: Whenever the mortgagor endeavors to remove the fixtures or improvements upon mortgaged property, he may be enjoined, or the credit or may have his choice of an action for damages, or one of claim and delivery, after he has become the purchaser of the property at sheriff's sale, as in the present instance. Dutro, 22 P. at 764. In a similar vein, we have held that, on redemption, a mortgagee is accountable to the mortgagor for waste committed by him on the premises while in his possession, including the permanent depreciation in the property caused by failure to make necessary repairs or depreciation resulting from reckless or improvident management of the property. Toole v. Weirick (1909), 39 Mont. 359, 364, 102 P. 590, 593. Although the Dutro and Weirick decisions do not explicitly draw a distinction between damage to the property as opposed to damage to the security interest, we conclude that these decisions are consistent with the rule that a mortgagee can, before a foreclosure sale, or afterwards if the debt has not been satisfied, bring suit alleging that his security (as distinct from the property itself) has been diminished through the actions(or inactions) of the mortgagor. As the Supreme Court of California recognized in Cornelison v. Kornbluth (1975), 15 Cal.3d 590, 125 Cal.Rptr. 557, 562, 542 P.2d 981, 986, the cause of action for waste evolved in the common law so as to afford protection to concurrent holders of interests in land who were out of possession, e.g. mortgagees, from harm committed by persons who were in possession, e.g. mortgagors. The California court cited the New York decision of Van Pelt v. McGraw (1850), 4 N.Y. 110, 112, for the proposition that a holder of a mortgage on lands has a cause of action on the case against the mortgagor for acts of waste committed by the latter with knowledge that the value of the security would thereby be injured. Van Pelt set forth the measure of damages: Now this action is not based upon the assumption that the plaintiff's [mortgagee's] land has been injured, but that his mortgage as security has been impaired. His damages, therefore, would be limited to the amount of injury to the mortgage, however great the injury to the land might be. Van Pelt, 4 N.Y. at 112. In W. & R. Inv. Co. v. Edwards Supply Co. (1939), 304 Mass. 650, 24 N.E.2d 518, 519, the Massachusetts court held that a mortgagee of real estate, at least before foreclosure, has a right of action against the mortgagor or any other person who, without license, removes any part of the mortgaged property. Whether the mortgagee is in possession of the mortgaged premises or not, or whether his right to possession begins only with the breach of condition and there has been no breach, nevertheless he has such an interest in the property and its preservation as enables him to maintain an action in his own name for injury to it. Such right of action is founded not upon the right to present possession, but on title to the estate. He may maintain such an action,. . . although the security remains ample for his protection. He has a right to his security unimpaired. W. & R. Inv., 24 N.E.2d at 519 ( quoting Delano v. Smith (1910), 206 Mass. 365, 92 N.E. 500, 501). The Massachusetts court held that this right of action is not personal to the mortgagee,but arises out of and pertains to the estate, and whatever may be recovered is to be applied in payment, pro tanto, of the mortgage debt and thus is ultimately for the benefit of the mortgagor, if he redeems. W. & R. Inv., 24 N.E.2d at 520. We agree that a mortgagee may state a cause of action against a mortgagor for actions or inactions which damage the collateral and thereby impair the mortgagee's ability to satisfy the secured debt.