Louis v. Hansen

Plaintiff's mortgage was executed in 1925, and covered the certain real estate owned by the defendants Hansen. Foreclosure thereof was begun by plaintiff on January 26, 1927. A receiver was prayed for, as provided in the mortgage. The 1. MORTGAGES: chattel mortgage of the defendants Doonan was pledge of executed in November, 1926, and purported to rents: cover all the crops to be grown by the mortgagor chattel Hansen upon the land in question during the year mortgage 1927. Decree of foreclosure was entered in on rents: March, 1927, and an execution sale was had, priority. which resulted in a deficiency judgment of $750. The decree appointed a receiver, who took possession of the land. The chattel mortgage being prior in date, the question presented is whether such priority of date was effective to establish a superiority of right in the chattel mortgagee, as against the plaintiff under his receivership clause.

The case carries us into a somewhat difficult field, where lines of demarcation are not easily drawn. The cases which have been presented to us have, in the main, involved controversies between a foreclosing plaintiff, under his receivership clause, and three classes of persons: (1) a tenant in occupancy in good faith for the ensuing year of the foreclosure; (2) an assignee in good faith of a lease and of the rents to accrue thereunder; (3) a chattel mortgagee. We have held definitely that a receivership clause becomes effective only after the commencement of the foreclosure action, and as an incident thereto. The general scope of the receivership clause is to entitle the mortgagee to take possession of the land and to utilize it during the year of redemption. The right to the growing crops is incidental to the right of possession, and is in the nature of usufruct. In this field, a tenant occupying in good faith has been deemed to have stronger equities than the plaintiff, under his receivership clause, and his tenancy has accordingly been protected against the operation thereof. Smith v. Cushatt, 199 Iowa 690. For reasons somewhat analogous, a good-faith assignee of the rents to accrue from the tenant has been likewise protected. Hatcher v.Forbes, 202 Iowa 64; Whiteside v. Morris, 197 Iowa 211; KeokukTr. Co. v. Campbell, 205 Iowa 414. See, also, Hakes v. North,199 Iowa 995. On the other hand, we have held that even a tenant is not entitled to superiority over the receivership clause of a real estate mortgage, if he becomes such tenant under a lease executed pending foreclosure proceedings. Sheakley v. Mechler,199 Iowa 1390.

The reasons which underlie the rights of a tenant in occupancy are not necessarily applicable to a chattel mortgagee. A contract of lease carries the right of possession to the lessee for the purpose of the tenancy. To such right of possession we award superiority over the right of possession provided for in the receivership clause of a real estate mortgage. This legal right is strongly supported by practical and equitable considerations which tend to the utilization of the land and to the avoidance of waste. If land is to be utilized at all during the cropping season, arrangement and preparation therefor must ordinarily be made months in advance of the season. Without such preparation, the utilization of the land becomes impracticable, and it must lie waste for the season. No litigant can gain any benefit from such result. It is to the common interest of all that utilization be had. A tenant is often the only means of such utilization. His right to the renter's share of the crops is supported by strong equitable principles. He gives quid pro quo. He takes nothing which he does not himself produce out of the land. Without his service, there would be no subject-matter for the litigation.

Analogous and somewhat incidental to the proper protection of the tenant is the protection of the assignee of the rent due from him. The tenant is liable for such rent, as upon a promise to pay.

But the question now before us is whether, for like or analogous reasons, a mere mortgagee is to be put in the same category as the tenant. The question goes to the very nature of the lien or right which accrues to the mortgagee under such mortgage. A chattel mortgage upon future crops carries ab initio an inherent infirmity which, of itself, may wholly frustrate the purposes of the mortgage. The chattel mortgage under consideration purported to cover future crops to be grown on the particular land during the year 1927 by the mortgagor. Such a form of mortgage has long been held valid; not, however, in the present tense, but as a future potentiality. Its effectiveness is not guaranteed by its legal validity. This case case turns upon the question of its effectiveness, and not upon that of itsvalidity. No present lien could attach when the mortgage was made. No future lien could attach until the property described therein should come into being. The mortgage purported to cover only such crops as should be raised on this land by thismortgagor. For want of a better term, the lien of such a mortgage, pending the creation of the subject-matter, has been denominated a potential lien. Whatever the nature or extent of the lien, it could attach to chattels only. It was in no sense a lien upon the real estate. It carried no right of possession of the real estate. It imposed no impediment to the sale or lease of the real estate by the mortgagor. For the same reason, it could not be an impediment to any existing right of a mortgagee of the real estate to take possession thereof pending foreclosure proceeding. If, for any reason, the mortgagor had failed to raise or plant a crop for the year 1927, but had leased the ground to another, this, of itself, would defeat the effectiveness of the chattel mortgage, and would leave nothing upon which it could become a lien. This would be so, regardless of the receivership proviso in the real estate mortgage, and, indeed, regardless of any or all provisions of such real estate mortgage. The chattel mortgagee would fail, not simply because the rights of the plaintiff under his receivership proviso were superior to his rights, but because he himself had no rights, the subject-matter of his mortgage having failed to come into being. In this case, the decree of March, 1927, appointed a receiver. Pursuant thereto, the receiver took possession of the land, and in legal effect farmed it for that season. The appointment of the receiver and the taking possession of the land by him did not violate any legal right of the chattel mortgagee's. The result was that the mortgagor raised no crop upon his land for the year 1927. The subject-matter of the chattel mortgagee's potential lien, therefore, never came into being. Such was our holding many years ago in McMaster v. Emerson, 109 Iowa 284. In that case, the mortgagor of the chattel mortgage on crops to be grown in the future, afterwards leased his land to a tenant, who raised a crop thereon. We held that the chattel mortgage was not a lien on the crop thus raised. We said:

"Before the mortgage attaches, the crops in one case, and the goods in the other, must come into existence and be acquired by the mortgagor. Unless so acquired, the mortgage never becomes a lien, since there is no interest of the mortgagor which he might have conveyed. As said by Mitchell, J., in a similar case,Simmons v. Anderson, 44 Minn. 487 (47 N.W. Rep. 52) * * * The chattel mortgage executed by the Newmans, not being a lien on their land, did not interfere with its sale or prevent them from leasing it. They did lease it to Emerson, receiving full payment, and he to Stacy. Under the circumstances, no one will say that the Newmans retained any interest whatever in the crops raised by Stacy. They never acquired, then, the property which they had previously mortgaged, and for this reason the mortgage never attached."

In that case we also quoted with approval from a Minnesota case, as follows:

"When a person takes a mortgage on property in being, he acquires only the interest which the mortgagor has in it; and if he, as in this case, takes a mortgage on the property not then in being, or owned by the mortgagor, it can attach only to such property as the mortgagor thereafter acquires. A chattel mortgage on crops to be thereafter grown gives the mortgagee no interest in, or lien upon, the land. It attaches as a lien only on the interest which the mortgagor may have in the crops when they come into being."

To the same effect, see Dilenbeck v. Security Sav. Bank,186 Iowa 308.

The appellants cite Hakes v. North, 199 Iowa 995, in support of their contention. In that case, the foreclosure suit of the real estate mortgage was not brought until November, 1923. The plaintiff claimed the rents for 1923. The crops raised in 1923 were no longer a part of the land. We awarded them to the assignee of the rents. In this connection, attention should be directed to an inaccurate remark made arguendo in Hakes v.North (page 998). In referring to the case of First Nat. Bank v.Security Tr. Sav. Bank, 191 Iowa 842, we purported to state the holding therein, and failed to do so accurately. In that case, there had been no foreclosure of the real estate mortgage containing the receivership clause. The holder thereof was asserting a lien upon matured crops, under the receivership provisions of his real estate mortgage, notwithstanding that he had not begun a foreclosure suit. His claim to a lien was rejected. Browne v. Willis, 199 Iowa 453, is also cited by the appellants. We find nothing in this case that supports any contention of the appellants'. The question here under consideration was not involved in that case, except historically. That was an independent action brought by Browne, as assignee of a lease, against Willis, as tenant thereunder, to recover rent. He impleaded, as a defendant, Stewart, who was a receiver appointed in another action. One of the defends pleaded was a prior adjudication in such former action. Such other action was a foreclosure suit, brought upon a real estate mortgage containing the receivership proviso. In such prior foreclosure suit, Willis and his landlord, Haltom, had been made parties defendant, and a decree had been entered therein, which worked an eviction of both. No appeal was taken from such decree, and it became a finality. This was the prior adjudication pleaded in the case of Browne v. Willis. We held it good as an adjudication, and conclusive on Browne, as well as upon Willis. In no other sense was the receivership question involved in that action.

The appellants urge upon our attention Section 10032, Code of 1924, which provides for an indexing in the chattel mortgage index of a real estate mortgage which contains chattel mortgage provisions. The argument is that such statute 2. MORTGAGES: was mandatory upon the foreclosing plaintiff, record: real and that he failed to comply therewith; and estate that, therefore, the receivership provisions of mortgage his mortgage were not available to him. We have with chattel no occasion to consider this contention. If it provision: were considered good as a legal contention, it failure to would not avail to restore vitality to the index: appellants' chattel mortgage. They fail, not effect. simply because their lien is inferior to that of the appellee, but because they have no lien at all upon the subject-matter of the controversy. The potentiality of their contemplated lien never materialized. It died in embryo, by the failure of the mortgagor to raise a crop.

We reach the conclusion that the district court acted within the power of its discretion in appointing the receiver under the provisions of the mortgage and in permitting him to take possession of the real estate, and that such order invaded no legal right of the appellants' under their chattel mortgage. The decree is, accordingly, — Affirmed.

STEVENS, C.J., and FAVILLE, De GRAFF, and ALBERT, JJ., concur.

MORLING, KINDIG, and WAGNER, JJ., specially concur.