First Nat. Bank of Columbus v. Coit

257 P. 469, 79 Mont. 468, 1927 Mont. LEXIS 120

• Court: Montana Supreme Court
• Decided: June 22, 1927
• Docket: No. 6,109.
• Status: Published

Opinion

MR. JUSTICE MATTHEWS

delivered the opinion of the court.

The First National Bank of Columbus, asserting its right thereto by virtue of a chattel mortgage executed to it by a tenant on certain lands in Sweet Grass county, brought action to recover from Harvey Coit the value of one-half of a hay crop harvested from the lands and sold by him. Issue being joined, the cause came on for trial before the court and jury, and, at the close of all of the evidence, plaintiff moved for a directed verdict in its favor. This motion was denied and thereupon the court, on motion of the defendant, directed the jury to return a verdict in favor of the defendant. The verdict was returned accordingly and judgment entered thereon. Plaintiff has appealed from the judgment and has made ten assignments of error, which, however, raise but the questions hereinafter discussed.

The faets disclosed by the evidence, briefly stated, are as follows: The Briggs Ellis Company, a New Jersey corporation, authorized to do business in Montana, is and was at all times mentioned the holder of the record title to the lands on which the crops in question were raised, and, defendant was its agent in Montana, with authority to lease lands, collect rents, and generally conduct its affairs. In 1916 the Briggs & Ellis Company entered into a contract with the Sweet Grass Abstract & Audit Company, and it in turn contracted with one George W. Moore for the sale and purchase of these lands. Later, by some adjustment not disclosed, the Abstract Company was eliminated and Moore held possession of the lands directly from the Briggs & Ellis Company. At some time, not disclosed, Moore, being in default under his contract, surrendered it, and it was canceled, but the Briggs & Ellis Company entered into an agreement with him that, on condition he should make certain payments — evidently provided for, although the testimony leaves this to conjecture— it would give him a new five-year contract for the purchase of the lands. The payments were not made and the new contract was never executed.

In April or May of the year 1923, Moore, then in possession, leased the premises to one John Grauman on a crop-rental basis. Grauman evidently borrowed money from the plaintiff and secured its repayment by a chattel mortgage which included the crops. He had a partial settlement with the bank on November 27, 1923, and at that time executed a renewal note for the sum of $1,400 and a new chattel mortgage on his personal property, including one-half of the 1924 crop. This chattel mortgage was filed on December 4, 1923, in the office of the clerk and recorder of Sweet Grass county.

At some time between December 1 and 17, 1923, Moore, being in default and unable to make the payments required, surrendered his agreement or contract for a five-year contract for purchase, and, with the consent of Moore and Coit, the latter acting for the Briggs & Ellis Company, it was can celed and destroyed and the premises “turned back” to the Briggs & Ellis Company. At the same time, in settlement of all of the rights and claims of the parties, Moore executed and delivered to the Briggs & Ellis Company his promissory note for $629.16 which was “back dated” December 1, 1923, and thereafter Moore neither asserted nor claimed any interest in the property. Moore testified that at that time he knew nothing of the chattel mortgage from Grauman to the bank.

On December 17, 1923, after the cancellation of the Moore agreement, Grauman called upon Coit, and advised him that he (Grauman) had been working on the ranch for Moore, but that he could no longer remain on the ranch, as he was without money and the bank had taken all of his 1923 crop, and that he would have to get a job somewhere. Coit then employed him to build a fence and make other improvements on the ranch, and on March 8, 1924, Coit entered into a written lease of the premises, letting the ranch to Grauman for one year on a crop-rental basis, and Grauman occupied the premises, under the lease, up to July 3, 1924, when he notified Coit that he was without money to put up the hay and could not secure money from the banks and would have to quit. The first crop of alfalfa was then ready to cut and would suffer if not cut at once. With this situation confronting him, and his tenant refusing to continue under the lease, the manager suggested hiring Grauman to do the work. Terms were discussed and the discussion resulted in the cancellation of the lease and the execution on July 5, 1924, of an agreement whereby Grauman was employed to put up the hay for the Briggs & Ellis Company in consideration of which the company was to pay to him, on a sale of the hay, an amount equal to one-half of the proceeds, “less all money advanced or paid” to Grauman in the meantime. These were the terms usually made by Coit in hiring hay put up on the company’s ranches.

Coit advanced the necessary expense money and Grauman put up the hay; it was sold by Coit in September, 1924, and Coit paid to Grauman the sum of $888.75; Grauman left the premises. Coit had no actual knowledge of the existence of the chattel mortgage or of any claim made by the plaintiff until the spring of 1925, when demand was made upon him by counsel for the plaintiff. Neither the complaint nor the testimony contains a suggestion of fraud or collusion between defendant, or his principal, and Grauman, in thus canceling the lease and entering into and executing a new agreement.

On these facts plaintiff grounds its charge that defendant was guilty of conversion of the amount so paid to Grauman.

1. In an action such as this, i. e., an action in conversion, in order to prevail, the plaintiff must show that the chattels were wrongfully taken by the defendant and that, at the time of such 'taking, the plaintiff had a general or special property interest in them and the right to the immediate possession thereof. (Wetzel v. Power, 5 Mont. 214, 2 Pac. 338; Reardon v. Patterson, 19 Mont. 231, 47 Pac. 956; Glass v. Basin & Bay State Min. Co., 31 Mont. 21, 77 Pac. 1047; Shipler v. Potomac Copper Co., 69 Mont. 86, 220 Pac. 302; Wray v. Great Falls Paper Co., 72 Mont. 461, 234 Pac. 486.)

2. The acts of dominion over the chattel in dispute are the taking of possession and cutting the hay in July and the sale of the hay in September, 1924, and if on those dates the plaintiff was entitled to the immediate possession of the hay under the chattel mortgage, which was then a valid and existing lien against the hay, those acts constituted conversion. (Harringon v. Stromberg-Mullins Co., 29 Mont. 157, 74 Pac. 413; Moore v. Crittenden, 62 Mont. 309, 204 Pac. 1035; First Nat. Bank v. Montana Emporium Co., 59 Mont. 584, 197 Pac. 994.)

3. Plaintiff makes the contention that it is not clear from the record that Grauman’s lease from Moore did not cover the season of 1924; but it is immaterial whether it did or not, as that lease had either expired in the spring of 1924, or was surrendered when Grauman accepted a lease from the Briggs & Ellis Company on March 8, 1924 (2 Tiffany on Landlord and Tenant, 1323; Otis v. McMillan, 70 Ala. 46; Welcome v. Hess, 90 Cal. 507, 25 Am. St. Rep. 145, 27 Pac. 369; Coe v. Hobby, 72 N. Y. 141, 28 Am. Rep. 120), and the rights of the plaintiff must be determined with respect to the rights of Grauman under this latter lease.

4. Grauman, therefore, mortgaged to plaintiff property not yet in existence, to be produced upon the lands after he had acquired the right to produce crops therefrom. The mortgage was merely an executory contract which would become binding only in the event he thereafter brought such crops into existence and subject to be defeated, if he failed to do so; but as the crop was shown to have been in existence on July 3, 1924, the lien attached at some time after the filing of the mortgage on December 4, 1923, and before July 3, 1924. (Sec. 8275, Rev. Codes 1921; Isbell v. Slette, 52 Mont. 156, 155 Pac. 503; Hackney v. Birely, 67 Mont. 155, 215 Pac. 642.)

5. This being the situation in July, 1924, the lessee being then in default and having full knowledge that he had mortgaged his right to a share of the crop, and the landlord having no knowledge or notice thereof, unless the filing of the mortgage gave him constructive notice, the landlord was in a position to declare a forfeiture of the lease, or the parties might mutually agree to a surrender of the lease, unless the rights of the plaintiff were such as to prevent this action.

6. As between the parties to the lease, it is immaterial whether the action taken constituted the enforcement of a forfeiture or a surrender. In either event all of the rights and all of the interest of the tenant are transferred to the landlord and merged in his interest in the premises on the landlord’s entry into possession and exercise of dominion over the premises (2 Tiffany on Landlord and Tenant, 1348; Wel come v. Hess, 90 Cal. 507, 25 Am. St. Rep. 145, 27 Pac. 369; Rauer’s Law Co. v. Third Street I. Co., 21 Cal. App. 183, 131 Pac. 77; Bernard v. Renard, 175 Cal. 230, 3 A. L. R. 1076, 165 Pac. 694), and, in the absence of an agreement by the landlord to pay for the crop, the tenant cannot thereafter assert any interest in or claim to it (Silva v. Bair, 141 Cal. 599, 75 Pac. 162).

7. Where, however, third parties have acquired an interest in the leasehold estate, through the tenant, a different rule prevails as to forfeiture and surrender; when a forfeiture is enforced either by appropriate action in court or under the terms of the lease, the rights of third parties fall with those of the tenant (2 Tiffany on Landlord and Tenant, sec. 194h), while there can be no strictly voluntary surrender of a lease in which third parties have acquired such an interest (2 Tiffany on Landlord and Tenant, sec. 191b, p. 1349; 18 Am. &. Eng. Ency. of Law, 2d ed., 366; Cuschner v. Westlake, 43 Wash. 690, 86 Pac. 948; Eten v. Luyster, 60 N. Y. 252; Gaskill v. Trainer, 3 Cal. 334).

8. The Briggs &. Ellis lease to Grauman provides that, in the event the tenant fails to perform the conditions subsequent therein contained, the landlord may, at its option, terminate the lease and enter into possession of the premises and of all growing crops, upon giving to the lessee ten days’ notice of its intention to do so, during which period the lessee may cure the default. This provision as to notice is clearly for the benefit of the lessee — to guard against forfeiture without giving the lessee an opportunity to make good his default — and may therefore be waived by the tenant (35 C. J. 1050), and, as between the landlord and tenant, the notice is waived by the abandonment of the premises and the giving of notice thereof to the landlord (Munson v. Baldwin, 88 Wash. 379, 153 Pac. 338).

To have given the ten days’ notice in writing to a tenant present in person, repudiating the lease and declaring that he could not go on with it, would have been an idle act not required by law. (Sec. 8761, Rev. Codes 1921.) The act of the parties in July, 1924, therefore, partook of the elements of a forfeiture declared under the express terms of the lease (2 Tiffany on Landlord and Tenant, sec. 194), as well as the elements of a surrender of the lease. However, as some authorities hold that such a waiver of one of the requirements of a forfeiture reduces it to a surrender (Gaskill v. Trainer, above), and, as both parties hereto have treated the action of the parties to the lease as a surrender, we will so consider it.

9. A careful examination of the authorities cited by plaintiff and by the text-writers, as well as those disclosed by independent investigation, discloses that the rule that a surrender cannot affect the rights of third persons concerns only those persons who have acquired an interest in the “demised premises,” such as sublessees, mortgagees of the leasehold estate and mechanics who have constructed improvements thereon, with the knowledge of the landlord, and have duly filed mechanics’ liens thereon; and in all of the eases the element of actual notice to, or knowledge by, the landlord, of the encumbrance, appears, while in no case to which our attention has been directed has the question of the effect of constructive notice been considered.

The case most nearly approaching analogy to the instant case to which our attention has been directed is that of Crosby v. Woleben, 149 App. Div. 337, 134 N. Y. Supp. 328, wherein it appears that defendant leased a grape farm to one Stebbins on condition that he pick the grapes, pack them in containers furnished by the parties jointly, and market them, and that each party should receive one-half of the proceeds. After the grapes were developed, but still on the vines, Stebbins assigned the contract, either in satisfaction of, or as security for, a pre-existing debt, and notified defendant of what he had done. He later entered into a written agreement surrendering the lease, whereupon defendant caused the grapes to be picked, packed and marketed, and refused to divide with plaintiff, and action in conversion followed. Three out of five justices joined in an opinion, wherein it is held that the agreement between the landlord and tenant constituted them tenants in common of the grapes, and that the interest of one could not be defeated by a surrender of the contract after one tenant in common had assigned his interest The presiding justice and one other dissented, declaring that the assignment did not vest the plaintiff with any interest in the lease, and that the lessee, having defaulted under the terms of the lease, and the plaintiff having made no attempt to perform on the part of the lessee, should not recover; that the conclusion reached by the trial court and sustained by the majority opinion “is repugnant to our ordinary sense of justice, and that it cannot be supported by any principle of law.”

The case differs from that before us in two important particulars: (1) It was shown that the landlord had actual notice of the assignment, and therefore might have been required to give notice to the assignee of the lessee’s default, or be chargeable with collusion, and (2) the decision is based upon the holding that, under the particular wording of the lease, the landlord and tenant became tenants in common of the grapes — the crops to be produced. This constituted the tenant what we have termed a “cropper,” in the case of Cook-Reynolds Co. v. Wilson, 67 Mont. 147, 214 Pac. 1104, wherein it is pointed out that a “cropper” is but a servant having no interest in the land, while a tenant has an estate in the land for the term of his lease and a right of property in the crop; he dividing the crop, if a share thereof constitutes the rent. Therefore, when a “cropper” assigns his right, he assigns all that he has under his contract; while a tenant, assigning or mortgaging his interest in the crop, does not vest the assignee or mortgagee with any interest in the “demised premises,” but merely in the fruits of his contract.

We therefore hold that the rule that the surrender of a lease does not affect the rights of third parties who have acquired an interest in the demised premises does not include the mortgagee of the crops to be harvested from leased premises when the mortgage does not attempt to vest in the mortgagee an interest in the lease itself, in the absence of knowledge on the part of the landlord or notice to him of the existence of the mortgage. (See Freeman v. Ogden, 40 N. Y. 105.)

10. If, on the other hand, the landlord has notice of the existence of the mortgage, and thereafter accepts a surrender and cancels the lease in secret, and without giving the mortgagee a chance to protect himself, we would say there was collusion or fraud shown, and the conclusion reached in Crosby v. Woleben, above, holding the landlord liable to the third party, is sound.

11. Counsel for plaintiff seem to concede that knowledge of the existence of the mortgage must be brought home to the defendant in order to prevail, but insist that he had constructive notice thereof by the filing of the mortgage as provided for in section 8279, Kevised Codes of 1921, which declares that: “every mortgage of personal property, made, acknowledged, and filed, as provided by the laws of this state, is thereupon, if made in good faith, good and valid as against the creditors of the mortgagor, or subsequent purchaser, or encumbrancers, from the time it is so filed, and for the period of two years and sixty days thereafter,” etc. In construing this section this court has said: “As between mortgagor and mortgagee, the mortgage is just as valid and binding whether it be filed or whether it conform to any of the requirements of the statute. (Reynolds v. Fitzpatrick, 23 Mont. 52, 57 Pac. 452.) The same rule prevails as between the mortgagor or mortgagee and a stranger. Indeed, the unfiled informal chattel mortgage is perfectly valid as against everyone except (1) creditors of the mortgagee [mortgagor] who seek to enforce their claims against the mortgaged property, or (2) subsequent purchasers or encumbrancers of the property in good faith for value (6 Cyc. 1056-1066) and since the purpose of filing a chattel mortgage is to protect only bona fide creditors, and subsequent purchasers or encumbrancers, the filing imparts notice only to such” (Isbell v. Slette, above).

It is evident that a clerical error crept into the above statement designated (1), as the class referred to clearly refers to creditors of the mortgagor and not those of the “mortgagee.” It is likewise apparent from the whole text of the opinion that the declaration that an untiled chattel mortgage is both valid and binding upon strangers to it who do not come within the two classes mentioned in the statute quoted is too broad and goes beyond the express holding of the court. It is true that such a mortgage is “valid” as against all persons except the classes mentioned, but it is “binding” only upon the parties thereto and such other persons, not within the classes mentioned, as have actual notice of its existence, and, as the filing does not impart notice to such others, the filing does not change the situation. Thus the closing paragraph of the opinion declares that: “T. L. Isbell, as lessee of this father’s homestead, did not fall within either of the groups mentioned in our statute. He was not a creditor seeking to enforce his claims against the mortgaged property, and he was not a purchaser or encumbrancer of the property. As against him, the chattel mortgage would have been just as valid if it had not been filed at all, and, by filing it, his situation was not altered in the least. The mortgage, though filed, did not impart con structive notice to him, and, since it is not contended that he had actual notice of its existence, he cannot be bound by it in any sense.”

So here, as the defendant did not fall within either of the groups mentioned in the statute, the filing of the mortgage did not impart constructive notice of its existence to him, and, in the absence of actual notice thereof and of fraud or collusion, he is neither bound by the mortgage nor liable in this action.

12. From the foregoing it is apparent that no error was committed in admitting testimony as to the surrender and contract of hiring and of the fact that defendant had no actual notice or knowledge of the existence of the chattel mortgage; nor was error committed in directing verdict in favor of the defendant. The plaintiff could have protected itself by giving notice to the lessor and should have done so. Defendant, acting for his principal, did no more than he was entitled to do under the terms of the lease and secured nothing more than he would have secured, had the conditions of the lease been complied with either by the lessee or the mortgagee. The judgment must be affirmed.

13. On the entry of judgment defendant filed his memorandum of costs, which contains the following item:

“Frederick P. Coit, 2 days at $3 per day, $6, and 428 miles from state line and return at 10 cents per mile, $85.60.”

Plaintiff thereupon, by motion to tax costs, demanded that the mileage item be stricken as neither a proper item of cost nor a necessary disbursement. At the hearing on the motion it was shown that this witness was a son of defendant twenty-one years of age and in attendance at the University of Washington, and at the time of the trial the school year was completed; that he received a subpoena through the mail and attended the trial in obedience to the subpoena. He testified that at the time he left Seattle there was nothing to require his continued residence there or his immediate return. Plaintiff then inquired whether it had not been his practice in past years to return to the parental roof for the summer vacation, to which question the court sustained an objection. The plaintiff then offered to prove by the witness that such had been his practice in past years, to which offer the court sustained an objection. Plaintiff predicates error upon these rulings and upon the court’s refusal to strike the mileage from the bill of costs.

The question in dispute was as to whether the witness necessarily traveled the distance named in attendance upon the court, and that question could not be determined by showing what he had done in the past. No error was therefore committed in excluding the evidence. On cross-examination the witness testified that his intention in the summer of 1926 was to remain in Seattle and secure a vacation position; that he was seeking such a position at the time he received the subpoena; and that, the trial being then over, he had written to Seattle, seeking employment, and intended to return there in a short time. On this showing the court struck from the memorandum the return mileage of the witness and thus allowed defendant the amount charged as mileage one way only. There is nothing in the record to warrant our disturbing the finding made by the court from the above testimony (Spaulding v. Maillet, 57 Mont. 318, 188 Pac. 377; Chilcott v. Rea, 52 Mont. 134, 155 Pac. 1114), so far as it affects the plaintiff, and the defendant is not complaining.

Rehearing denied July 7, 1927.

Judgment affirmed.

'Affirmed.

Mr. Chief Justice Callaway and Associate Justices Myers, Stark and Galen concur.