Long v. W. P. Devereux Co.

There is only one question to determine in this action and that is: Is an express agreement in the mortgage pledging crops and rentals as additional security valid as between the parties? If such a contract is valid as between the parties, then this action does not lie, for this court must hold such provision void in order to uphold the judgment of the trial court. "A provision in the mortgage that upon default the mortgagee may collect the rents and profits is valid as between the parties." (Wells-Dickey Co. v. Embody, 82 Mont. 150, 266 P. 869; sec. 8252, Rev. Codes 1921; Morton v. Union Central Life Ins. Co.,80 Mont. 593, 261 P. 278; Downard v. Groff, 40 Iowa, 597;Gilman v. Wills, 66 Me. 273; 41 C.J. 415, 625.)

It is true this provision in the mortgage was not a lien, but only a right to create or impose a lien, but when appellant took possession of the crops and rentals and proceeds thereof by virtue of such provision, the lien was perfected and appellant could apply the proceeds on the indebtedness. (Morton v. UnionCentral Life Ins. Co., supra.) "It is competent for the parties to agree that the rents shall be collected by the mortgagee, in which case they become, equally with the land, a primary security." (41 C.J. 628, 629.)

The cases upon which respondent relies hold only that a real estate mortgagee cannot recover crops from a bona fide chattel mortgagee, but only when the real estate mortgagee has obtained possession of the crops and thus perfected its lien thereon. Neither of these facts appears here. The person who contracted away her right to the crops is the plaintiff, which eliminates the first requisite above mentioned. Again, in this action the real estate mortgagee has obtained possession of the crops and proceeds thereof, and applied them upon the indebtedness of the mortgage, which eliminates the second condition.

Even under the cases relied upon by respondent, and under the decisions of this court, if appellant had not obtained possession of the crops, equity would give it a right thereto for "that which ought to have been done, is to be regarded as done, in favor of him to whom and against him from whom performance is due." (Sec. 8758, Rev. Codes 1921.) Appellant secured actual possession of the crops, for the tenant acknowledged appellant as his landlord, and deposited the wheat in the elevator to appellant's credit, and appellant obtained the wheat and sold it. Appellant also secured the possession of the land through the tenant, Hansen, by attornment. (35 C.J. 966, 967.)

We have searched the authorities in vain for a decision holding that where the real estate mortgage pledges the crops as additional security, and the mortgagee obtains possession after default under such provision, and the crops and rentals fail to pay the indebtedness that the mortgagor can take the crops away from the mortgagee, or can recover from the person who delivers such crop to the mortgagee under the terms of such mortgage. Such a holding would absolutely nullify the provisions of the mortgage pertaining to rentals. In Stamp v. Eckhardt, 204 Iowa, 541, 215 N.W. 609-611, in considering mortgage providing that rents and profits were to accrue to mortgagee on default, the Iowa court said: "It is the uniform holding and well-settled rule of this jurisdiction that the mortgagee acquires no lien by virtue of his mortgage upon the rents and profits until foreclosure proceedings are commenced and the appointment of a receiver is prayed." (Cooper v. Marsh,201 Iowa, 1262, 207 N.W. 403; First Nat. Bank v. SecurityTrust Savings Bank, 191 Iowa, 842, 181 N.W. 402; Lynch v. Donahoe, 205 Iowa, 537,215 N.W. 736, 218 N.W. 144; Smith v. Cushatt, 199 Iowa, 690,202 N.W. 548; Hatcher v. Forbes, 202 Iowa, 64, 209 N.W. 305;Young v. Stewart, 201 Iowa, 301, 207 N.W. 401, 402;Freedman's Savings Co. v. Shepherd, 127 U.S. 494,32 L. Ed. 163, 8 Sup. Ct. Rep. 1250; Grether v. Nick, 193 Wis. 503, 55 A.L.R. 525, 213 N.W. 304, 215 N.W. 571; Flanagan v. Fuller,79 Mont. 590, 257 P. 475; Morton v. Union Central Life Ins.Co., 80 Mont. 593, 261 P. 278; Sharp Bros., Inc., v.Bartlett, 76 Mont. 415, 248 P. 199; Kester v. Amon,81 Mont. 1, 261 P. 288; Wells-Dickey Co. v. Embody, 82 Mont. 150,266 P. 869; Conrad Mercantile Co. v. Siler, 75 Mont. 36,241 P. 617; Power Mercantile Co. v. Moore MercantileCo., 55 Mont. 401, 177 P. 406.)

"The true test of the conclusiveness of a former judgment in respect to particular matters is identity of issue * * * and in order that this rule should be applied, it must clearly and positively appear, either from the record itself or by the aid of competent extrinsic evidence, that the precise question in issue in the second suit was involved and decided in the first." (34 C.J. 915-920, sec. 1325; In re Pomeroy, 51 Mont. 119,151 P. 333; Phoenix Mut. Life Ins. Co. v. Brainard, 82 Mont. 39,265 P. 10; Russell v. Place, 94 U.S. 606, 24 L. Ed. 214; Cox v. Colbert, 135 Okla. 218, 275 P. 317-322; Murphree v.Anderson, 92 Kan. 370, 140 P. 880; Brinkerhoff v. HomeTrust Savings Bank, 111 Kan. 1, 205 P. 779; Kelly v.O'Brien, (Sup.) 196 N.Y. Supp. 705; Campbell v. Consalus,25 N.Y. 613; Freeman v. Campbell, 109 Cal. 360, 42 P. 35.)

The pleadings in the case, judgment in which appellants rely on as res judicata, involved mortgage indebtedness against real estate, ownership of mortgage and amount due, and seeking decree of foreclosure. Different proof would be and was required in each case. Evidence offered in the foreclosure case was not pertinent nor admissible in the case now being considered. The facts in the foreclosure case are not identical with those in the present case. The record before the court clearly shows that causes of action were and are not identical. "The estoppel of a judgment extends only to the facts and conditions as they were at the time the judgment was rendered, and to the legal rights and relations of the parties as fixed by the facts so determined. * * *" (34 C.J. 808, sec. 1228.) This is an action in conversion to recover as damages the reasonable value of certain wheat. The cause was tried to the court without a jury, resulting in judgment in favor of plaintiff, from which defendants and intervener, Edgar State Bank, appealed.

The record discloses that the wheat in controversy was grown in the year 1927 upon lands belonging to plaintiff but which she had mortgaged in May, 1922, to the intervener, and represents a portion of the landlord's share of the rental for that year. The mortgage contained this clause: "It is agreed that if the mortgagor or maker or makers of this obligation secured by this indenture shall fail to pay the principal or any interest as the same becomes due, or any taxes or assessments or insurance as required, or otherwise fail to comply with any or all of the conditions of the mortgage, then all of said debt secured hereby shall become due and collectible, and all rents and profits of said property shall then immediately accrue to the benefit of the said mortgagee; and this mortgage may be foreclosed for the full amount. * * *."

In December, 1925, action was commenced to foreclose the mortgage. During the year 1927 the land was occupied by John Hansen as a tenant of plaintiff under a lease executed on July 15, 1926. The lease was similar to the one before this court inWells-Dickey Co. v. Embody, 82 Mont. 150, 266 P. 869, and stipulated that title to the crop was to remain in plaintiff and upon fulfillment of the contract Hansen was entitled to three-fourths of the crop and the plaintiff to one-fourth. The lease was prepared by the cashier of the intervener bank, who testified that he informed plaintiff at the time it was made that the bank claimed the crop for the year 1927, but this was denied by plaintiff. On September 12, 1927, the Edgar State Bank served notice on Hansen of the commencement of the foreclosure action and that it claimed all the rents and profits from the land for the year 1927. Hansen harvested the crop in August and delivered the landlord's share to the defendant elevator company at Edgar pursuant to the provisions of the lease. Defendant Markuson, who operated the elevator, refused to pay plaintiff for the wheat, claiming the Edgar State Bank had attached it. No writ of attachment had in fact been issued. The Edgar State Bank, upon furnishing the elevator company with an indemnity bond, sold the wheat and applied the proceeds upon the mortgage indebtedness. After the crop was harvested, and on October 25, 1927, decree of foreclosure was entered in which it was ordered that the land be sold and that the purchaser at the foreclosure sale be let into possession of the mortgaged premises, "together with all rent thereon." The land was sold and the proceeds applied on the mortgage indebtedness, leaving a portion of the indebtedness still unsatisfied.

On February 19, 1924, plaintiff had filed her petition in bankruptcy in the district court of the United States for the district of Montana, and was on that date adjudged a bankrupt. The mortgage indebtedness owing to the Edgar State Bank was listed in the schedules in bankruptcy. The trustee in bankruptcy disclaimed all right, title and claim to the mortgaged property and remitted the Edgar State Bank to its remedies under the mortgage. On June 30, 1925, plaintiff was, by order of the United States district court in the bankruptcy proceedings, discharged from all her indebtedness "excepting such debts as are by law excepted from the operation of a discharge in bankruptcy."

Defendants and intervener assert that intervener was and is the owner of the wheat by virtue of the clause in its real estate mortgage which, they contend, pledges as additional security the rents and profits of the land. Plaintiff contends that she is the owner of the wheat by reason of her ownership of the land on which it was grown and by reason of the renunciation of any claim thereto on the part of the trustee in bankruptcy.

Whenever the trustee in bankruptcy elects not to take property[1] of the bankrupt, such property remains in the bankrupt. (Loveland on Bankruptcy, 774; Sparhawk v. Yerkes, 142 U.S. 1,35 L. Ed. 915, 12 Sup Ct. Rep. 104; Collier on Bankruptcy, 13th ed., 1738, 1739.) The trustee in bankruptcy having elected not to claim any interest in the property in controversy here, the bankrupt is entitled to it unless the facts warrant a finding that it belongs to intervener.

The mortgage in question here did not create a lien on the[2] rents and profits, but simply conferred a right upon the mortgagee to impose a lien as additional security for the payment of the mortgage debt. (Morton v. Union Central Life Ins. Co.,80 Mont. 593, 261 P. 278; Wells-Dickey Co. v. Embody, supra.)

In this state a mortgage does not entitle the mortgagee to the[3, 4] possession of the mortgaged property unless expressly so stipulated in the mortgage. (sec. 8252, Rev. Codes 1921;Sharp Bros., Inc., v. Bartlett, 76 Mont. 415, 248 P. 199.) The mortgage in question here did not authorize the mortgagee, either before or after default on the part of the mortgagor, to take possession of the land except by and through foreclosure proceedings. Intervener was not entitled to possession of the land covered by the mortgage until the property was sold to it in the foreclosure proceedings. This was not done until June, 1928. A mortgagee has no greater right to the rents than to the land. (Freeman v. Campbell, 109 Cal. 360, 42 P. 35; PacificFruit Exchange v. Schropfer, 99 Cal. App. 692, 279 P. 170.)

In Sharp Bros., Inc., v. Bartlett, supra, the mortgage contained a clause very similar to the one involved here, and the mortgagee in that case not only served notice on the tenant that it claimed the rentals, but also undertook to make a new lease with the tenant. This court held that the attempted lease was a nullity, since the mortgagee had no right to the possession of the premises, the foreclosure proceedings not having been completed until after the attempted lease was executed. Here there was no lease made by the mortgagee with the tenant Hansen, and none could have been made by it, since it did not have the right of possession of the lands. Notice was given by it to the tenant of its claim to the rents. The notice was ineffectual as a means of acquiring an interest in the crop. (Kester v. Amon,81 Mont. 1, 261 P. 288.) In this state a tenant may not attorn to a stranger except with the consent of the landlord or in consequence of a judgment of a court of competent jurisdiction. (Sec. 7748, Rev. Codes 1921.)

The prevailing rule is that if a mortgagee desires to avail himself of the right to rents and profits pledged by a mortgage upon real estate without the right of immediate possession of the land, he must claim them by invoking the aid of a court of equity for the appointment of a receiver to take possession of the rents and profits. This right is conferred by section 9301, Revised Codes of 1921. Thus, in Grether v. Nick, 193 Wis. 503, 55 A.L.R. 525, 215 N.W. 571, the court said: "In jurisdictions where the mortgagor retains the legal title and right of possession, as here, it follows that the right to collect rents and profits remains in the mortgagor until he is deprived of possession in the manner provided by law, and this notwithstanding the fact that the mortgage may pledge the rents and profits. This must be true, unless the clause pledging rents and profits should be construed as sufficient to pass the legal title and right of possession to the mortgagee. This has never been held in any jurisdiction, and should not be, as it would afford an easy way of evading the policy of our statutes which makes a mortgage a mere lien upon land, leaving the legal title and right of possession in the mortgagor. It is plain in this jurisdiction that, under a mortgage pledging rents and profits, the benefit of such rents and profits does not inure to the mortgagee until possession has passed from the mortgagor. Under the principles established here, the mortgagor may not be deprived of possession except under circumstances discussed in the former opinion. In order to accomplish such dispossession the mortgagee must invoke the aid of a court of equity." To the same effect are the following: Stamp v. Eckhardt, 204 Iowa, 541, 215 N.W. 609;Davenport v. Thompson, 206 Iowa, 746, 221 N.W. 347; FirstTrust etc. Co. v. Beall, (Iowa) 225 N.W. 943; Freedman's Sav.Co. v. Shepherd, 127 U.S. 494, 32 L. Ed. 163,8 Sup. Ct. Rep. 1250; Freeman v. Campbell, supra; Cowdery v. London SanFrancisco Bank, 139 Cal. 298, 96 Am. St. Rep. 115, 73 P. 196;In re Clark Realty Co., 234 Fed. 576, 48 C.C.A. 342; In reIsraelson, 230 Fed. 1000; Sullivan v. Rosson, 223 N.Y. 217, 4 A.L.R. 1400, 119 N.E. 405; Rhinelander v. Richards,184 A.D. 67, 171 N.Y. Supp. 436.

And where the mortgage does not give to the mortgagee the right of possession of the mortgaged property upon default of the mortgagor and where a receiver is not appointed by the court in the foreclosure proceedings to collect the rents, the decided weight of authority holds that the assignee in bankruptcy (or, if he disclaims any interest as here, the mortgagor), and not the mortgagee, is entitled to the rents, issues, and profits before foreclosure of the mortgage, even though they are expressly covered by the mortgage. (Flanagan v. Fuller, 79 Mont. 590,257 P. 475; Sharp Bros., Inc., v. Bartlett, supra; In reFoster, 9 Fed. Cas. 523, No. 4963; Foster v. Rhodes, 9 Fed. Cas. 572, No. 4981; In re Dole, 110 Fed. 926; In re Banner, 149 Fed. 936; In re Clark Realty Co., supra; In re Brose, 254 Fed. 664, 166 C.C.A. 162.)

The reason why this conclusion should follow, under the facts here shown, is that the mortgagee, by foreclosing the real estate mortgage without having a receiver appointed to collect the rents and thus perfected and foreclosed the lien thereon, waived the right to the rents. The rule is that a mortgagee may not foreclose his mortgage by piecemeal. (Mascarel v. Raffour,51 Cal. 242; Tacoma etc. Co. v. Safety Ins. Co., 123 Wash. 481,212 P. 726; Hall v. Arnott, 80 Cal. 348, 22 P. 200;Commercial Bank v. Kershner, 120 Cal. 495, 52 P. 848;Stockton etc. Co. v. Harrold, 127 Cal. 612, 60 P. 165.) The rule is crystallized into statutory form by section 9467, Revised Codes 1921, which commands that there is but one action for the recovery of debt or the enforcement of any rights secured by mortgage upon real or personal property. The case of Craig v.Burns, 65 Mont. 550, 212 P. 856, has not been overlooked, but there, unlike the case here, the mortgage did not cover the wheat.

Intervener also contends that the judgment in the foreclosure[5, 6] action is a bar to the maintenance of this action. The foreclosure action was commenced in December, 1925; the second amended complaint was filed February 28, 1927. A copy of the mortgage containing the clause above mentioned was attached to and made a part of the second amended complaint. No further reference was made in the complaint to the rents. The cashier of intervener bank, as above noted, prepared the lease between plaintiff and Hansen while the foreclosure proceedings were pending, reserving title to the crop in plaintiff, and an implied finding by the court is warranted, on conflicting evidence, that plaintiff did not know that the bank was making any claim to the crop at that time. Decree was entered in the foreclosure action on October 25, 1927. It directed a sale of the real estate only, but contained a clause ordering that the purchaser be let into possession of the property, "together with all rent thereon." Subsequently the trial court struck out the words "together with all rent thereon," and this was held error by this court in Edgar State Bank v. Long, 85 Mont. 225,278 P. 108. This clause in the decree has no application, however, to any rents except those on the property at the time of the entry of the decree and those subsequently accruing. The crop in question here had been removed from the land long prior to the decree in foreclosure.

The sheriff's sale under the decree in foreclosure which took place June 23, 1928, had to do with the real estate only and not with any rental. Under the circumstances here shown, it was not incumbent upon plaintiff to plead her right to the crop in the foreclosure action, since the proceedings therein did not seek to divest her of her interest in the rents accruing prior to the decree in foreclosure.

The judgment is affirmed.

MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES MATTHEWS, GALEN and FORD concur.

Rehearing denied April 14, 1930.