Morton v. Union Central Life Insurance

261 P. 278, 80 Mont. 593, 1927 Mont. LEXIS 72

• Court: Montana Supreme Court
• Decided: October 1, 1927
• Docket: No. 6,025.
• Status: Published

Opinions

MR. JUSTICE STARK

delivered the opinion of the court.

On September 24, 1918, Lottie M. Conyngham borrowed $9,200 from the Union Central Life Insurance Company, and, as evidence of the indebtedness thus created, gave the insurance company twenty-one promissory notes in different amounts, the first of which matured on February 1, 1919, and one of the remaining twenty matured on the same date in each of the succeeding twenty years, and, to secure the payment thereof, executed and delivered to the insurance company a mortgage upon a tract of land then owned by her, situated in Fergus county, which mortgage was thereafter, on October 7, 1918, duly filed and recorded in the proper office of that county. Among other things this mortgage provided: “That if any of said notes * * * be not paid at maturity, * * the entire debt secured hereby, shall at the option of the said second party [mortgagee], at once become due and payable without notice, and thereupon the said second party * ° * shall, be entitled to immediate possession of said premises and to receive rents, issues and profits thereof, and the occupants, if any, of said real estate, shall pay rent to the said second party.”

Subsequent to the date of the mortgage, Frederick W. Kidd succeeded to the title of Conyngham. Some time in 1924, Skarda came into possession of the mortgaged land as the tenant of Kidd. The exact time when this relation was created does not appear, but since appellant assumes in its argument that Skarda so held possession from about February 1 of that year and so continued in possession down to August 12, we shall accept this as a fact. As such tenant Skarda put in a crop of spring wheat upon the land, which was standing thereon unharvested on August 12, 1924.

On June 10, 1923, to secure payment of a promissory note for $1,000 of that date, but due on September 1, 1924, Kidd executed and delivered to plaintiff, G-. C. Morton, a chattel mortgage covering a one-third interest in all the grain growing upon the land for the season of '1924. This mortgage was filed in the proper office on August 12, 1924.

One of the promissory notes secured by the mortgage from Conyngham to the insurance company matured on February 1, 1924, and was not paid. In the month of August of that year the insurance company, pursuant to the provisions of the agreement therefor which was incorporated in its mortgage and which is above quoted, elected to declare the entire debt secured by the mortgage to be immediately due and payable and to exercise its right to the immediate possession of the premises covered by the mortgage, and thereupon commenced an action against Skarda to recover such possession. At the time of the commencement of this action the plaintiff therein, the insurance company, filed in the office of the clerk and recorder of Fergus county a notice of Us pendens, setting forth the names of the parties to the property affected by it and the purpose of the action, and on or about August 12, 1924, served a duplicate thereof upon Skarda, the Farmers’ Co-operative Elevator Company, and Lottie M. Conyngham, the agent and attorney-in-fact of the defendant Kidd, and at the same time “advised” these parties that it was then the owner and entitled to the immediate possession of the crop of wheat then growing upon the land. What disposition was eventually made of this action is not shown, but it does appear that Skarda remained in the actual possession of the mortgaged land until at least the tenth day of September, 1924, and that subsequent to the twelfth day of August he cut, harvested, and threshed therefrom 1,097 bushels and forty pounds of spring wheat which he delivered to the elevator company.

On April 3, 192J, Morton commenced an action against Kidd and the elevator company for the foreclosure of the chattel mortgage given to him by Kidd on June 10, 1923, alleging that the note secured thereby was wholly unpaid; that the 1,097 bushels and forty pounds of spring wheat grown on the lands in question were covered by his mortgage; that when it was delivered to the elevator company the latter had both constructive and actual notice of that fact; that he had demanded possession of it from the elevator company, which demand had been refused, and that the elevator company had converted the same to its own use; and prayed judgment against Kidd for the amount of the note, with interest, costs and attorney’s fees, and against the elevator company for the value of the wheat at the date of its alleged conversion.

To this complaint the elevator company filed a cross-complaint, setting forth that it had received from Kidd 1,097 bushels and forty pounds of wheat and that its value was $1,185; that the Union Central Life Insurance Company and Morton had each asserted, and were asserting, claims thereto and had each brought an action against it to recover said wheat or the value thereof, which actions were pending and undetermined; that it had no knowledge or information as to which of said parties was lawfully entitled to the grain or the value thereof; that it was ready, able and willing to pay to the one entitled thereto the value of said grain and had been at all times since the same was delivered to it; that it therewith paid the sum of $1,185 into court and prayed that Morton and the Life Insurance Company might be required to litigate their claims thereto; and that it should be discharged from liability to either of them.

To this cross-complaint Morton filed an answer asserting his right and claim to the grain in controversy or the value thereof, as alleged in the complaint. The Life Insurance Company also answered, and, as a separate affirmative defense, counterclaim and cross-complaint, set forth the execution of the notes and mortgage from Conyngham .to itself, the record of the mortgage, the default therein of February 1, 1924, its election, in August, 1924, to declare the whole amount of the mortgage immediately due, the institution of its proceedings to recover possession of the land from Skarda, the tenant of Kidd, and the filing and service of copies of the notice of lis pendens, and its claim to be the owner of the crop of wheat growing upon the land, as hereinbefore recited; also that at the date of the commencement of this action against Skarda for recovery of the possession of the premises there was planted and growing thereon a certain crop of wheat, and that subsequent to the service of said notice of lis pendens Skarda wrongfully and unlawfully remained in possession of the premises contrary to the demand for the possession thereof, and did wrongfully and unlawfully sever, harvest and thresh said wheat, and on or about'the tenth day of September, 1924, did wrongfully and unlawfully deliver the same to the defendant elevator company, which wrongfully and unlawfully received the same, said wheat being the same wheat mentioned in the cross-complaint of the elevator company; that ever since the commencement of said action to recover possession of the premises from Skarda it had been, and then was, the owner and entitled to the possession of said wheat, and that the elevator company was wrongfully and unlawfully withholding the same from it. It further alleged that Skarda claimed said wheat as tenant of the defendant Kidd; that Kidd claimed the same as the landlord’s share of the 1924 crop raised on the mortgaged premises; that Morton claimed the same under the chattel mortgage executed and delivered to him by Kidd; and that all of said claims are subject, subordinate and inferior to its right, title and interest in the wheat and its right to the immediate possession thereof; and prayed that it be adjudged and decreed to be the owner of and entitled to the wheat in preference to the claim of Morton, the elevator company, Kidd and Skarda, and that it have judgment for the return thereof, or, in case delivery could not be had, that the court order and decree the $1,185 turned into court by the elevator company be delivered over to it.

To this separate affirmative defense, counterclaim and cross-complaint Morton and the elevator company each filed separate general demurrers, which were sustained by the court. The insurance company having failed to amend its separate defense, counterclaim and cross-complaint within the time allowed, judgment was rendered and entered in the action adjudging that the insurance company had no claim against the money deposited in court by the elevator company as the value of the wheat so delivered to it, but that Morton was entitled to the same. Shorn this judgment the insurance company has appealed.

While Skarda, the tenant in possession, is referred to in the insurance company’s cross-complaint as a defendant, the record does not disclose that he was ever made such, and he did not appear in this action, so that whatever rights, if any, he may have had are not in any way involved in this proceeding.

Stated concretely, the question before us for determination is this: Does the insurance company’s cross-complaint show that under any evidence which properly might be admitted to sustain its allegations it would be entitled to recover the money deposited with the clerk of the court as the proceeds ■ of one-third of the crop of spring wheat harvested from the mortgaged land in the year 1924, as against the plaintiff, Morton, who, according to such cross-complaint, claims the same as the mortgagee of the share of the landlord, Kidd?

The insurance company’s mortgage did not vest it with title to the real estate. (Sec. 9495, Rev. Codes 1921.) It did not assume to cover either the crops growing or thereafter to be grown upon the mortgaged premises, or the rents, issues or profits thereof, except as mentioned in the paragraph thereof heretofore set out.

Annual crops such as wheat, oats and the like “are usually regarded and treated as chattels personal, subject to sale or mortgage and levy of execution as other chattels are, even while still annexed to the soil,” and “are not included within the definition of real property” declared by sections 6666-6671, Revised Codes of 1921. (Power Merc. Co. v. Moore Merc. Co., 55 Mont. 401, 177 Pac. 406, and authorities therein cited.) Such crops may be mortgaged as personal property within the limits prescribed in section 8290, Id., and this method of mortgaging such crops is exclusive. (Simpson v. Ferguson, 112 Cal. 180, 53 Am. St. Rep. 201, 44 Pac. 484; Modesto Bank v. Owens, 121 Cal. 223, 53 Pac. 552; Jones on Chattel Mortgages, sec. 122.)

It is not pleaded that the insurance company’s mortgage was filed as a chattel mortgage. The record thereof as a real estate mortgage imparted no constructive notice to a chattel mortgagee of the crops subsequently grown upon the mortgaged premises. (Trulock v. Donahue, 76 Iowa, 758, 40 N. W. 696; Whiteside v. Morris, 197 Iowa, 211, 197 N. W. 56.)

The mortgage did not vest the insurance company with the right to the crops grown intermediately of the giving of the mortgage and the time when the mortgagor or her successors in interest were properly deprived of possession of the mortgaged property. Until the happening of that event the mortgagor and her successors were entitled to such crops and to do with them as though the mortgage had not existed, and it appears that the mortgagor’s successor in interest did execute the chattel mortgage upon the one-third interest of the crop in question to the plaintiff, Morton, claiming the same as the landlord’s share from the tenant, Skarda, who was in actual possession of the land. This chattel mortgage, as appears, was duly filed on August 12, 1924.

It was competent for Conyngham and the insurance company to insert in the real estate mortgage the provision grant ing to the mortgagee the right, upon default of the mortgagor, to enter upon and take possession of the mortgaged premises and to receive the rents, issues and profits thereof. (Sec. 8252, Rev. Codes 1921.)

In an extended note appended to the case of Sullivan v. Rosson, 4 A. L. R., at page 1405, treating upon the validity, construction and effect of the provision in real estate mortgages as to the rents and profits covering the provisions authorizing the mortgagee to take possession of the rents and profits in case of default (similar to the ones contained in the mortgage under consideration), the writer summarizes the holdings of the various courts in these words: “The great weight of authority as regards all these various forms of pledges is to the effect that the mortgagee does not thereby acquire a lien on the rents and profits, which prevents a subsequent lien from acquiring priority in the absence of some action on his part to reduce the rents and profits to his possession."

Counsel for the insurance company do not contend that the paragraph of the mortgage above quoted created or imposed a lien upon the crops growing or to be grown upon the mortgaged land, but only claim that it conferred a right for the creation in the future of an equitable lien thereon, which equitable lien would come into existence when, and only when, it should, upon default in the conditions of the mortgage, exercise its right to create and impose such lien. In one of their briefs they state their position as follows: “That right to create and impose a lien accrued to appellant as soon as it elected, under its option, to consider the.entire debt to be due. But the election did not create or impose a lien; the election did nothing more than bring into being the right to create and impose the equitable lien — which right for lack of better definition, may be inaccurately called an inchoate, potential, possible, or incipient lien; but there was really no lien at all. The right to create or impose the equitable lien was a privilege only, and vastly different from the lien itself. That right, unless in some appropriate way exerted or exercised, would have remained a right or privilege only, which could never give rise to a lien.”

The insurance company’s cross-complaint alleges that the mortgagor defaulted in payment of one of the mortgage notes, which became due on February 1, 1924; that in the month of August, 1924, it elected to declare the entire debt secured by the mortgage to be immediately due and payable and to take possession of the mortgaged premises in accordance with the terms of the mortgage, and in said month commenced an action against Skarda, the tenant in possession, to recover the premises from him, and at the time of the commencement of said action, filed in the proper office a notice of Us pendens, setting forth the names of the parties, the property affected by, and the purpose of, said action, and “subsequently, and on or about the twelfth day of August, 1924,” served a duplicate of said Us pendens upon Skarda and the Farmers’ Co-operative Elevator Company, and advised them that it was then the owner and entitled to the immediate possession of the crop of wheat growing on the land.

As indicated by what has heretofore been said, the plaintiff, Morton, had a lien upon the landlord’s share of the crop of wheat growing upon the mortgaged premises. This mortgage was valid and binding upon every one except creditors of the mortgagor, Kidd, and the subsequent purchasers or encumbrancers, whether the same was filed or not. (Isbell v. Slette, 52 Mont. 156, 155 Pac. 503.)

Assuming that the rule laid down in Union Central Life Ins. Co. v. Jensen, 74 Mont. 70, 237 Pac. 518, could be held to apply to the facts in this ease, which two members of the court do not concede, the insurance company, by virtue of the contract contained in its mortgage, had a right to impose or create a lien upon the same property as additional security for the payment of its mortgage debt. The actual and continued possession thereof by the insurance company was essential to the creation and maintenance of such lien as against the lien of plaintiff’s chattel mortgage. Counsel for the insur anee company insist that, under the maxim, “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), when it commenced its possessory action against and made its demands upon Skarda, equity would regard the possession of the mortgaged premises as having been surrendered to it by him under the terms of the contract contained in its mortgage. Skarda is not a party to this action. We are not called upon to, and do not herein, determine anything in reference to the rights or liabilities which might exist between him and the insurance company. The maxim quoted could not in any event be held to affect the situation between the insurance company and Morton.

In 1 Pomeroy’s Equity Jurisprudence, section 365, treating of the application of the above maxim, it is said: “Nor does the principle operate in favor of every person, no matter what may be his situation or relations, but only in favor of him who holds the equitable right to have the act performed, as against the one upon whom the duty of such performance has devolved.” No duty devolved upon Morton which the insurance company had an equitable right to have performed, and no duty devolved upon Skarda or the insurance company which Morton had a right to have performed.

If it should be granted that, by the acts of the insurance company in commencing its suit against Skarda, and the service of copies of the notice of Us pendens and other notices as above recited, it gained possession of the mortgaged premises and the landlord’s share of the crop of wheat growing thereon, it was only a constructive possession.

Counsel for the insurance company undertake to sustain the contention that.it maintained such possession as it obtained under the above-mentioned proceedings on the theory that by the provisions of sections 7886 and 7887, Revised Codes of 1921, Skarda became an involuntary or constructive trustee for it, and that his possession after such proceedings was the possession of the insurance company.

In Largey v. Leggat, 30 Mont. 148, 75 Pac. 950, Eisenberg v. Goldsmith, 42 Mont. 563, 113 Pac. 1127, MacGinniss Realty Co. v. Hinderager, 63 Mont. 172, 206 Pac. 436, Word v. Moore, 66 Mont. 550, 214 Pac. 79, and Meagher v. Harrington, 78 Mont. 457, 254 Pac. 432, this court has held that the basis of a constructive trust is fraud, either actual or constructive. The acts which constitute actual and constructive fraud are set out in sections 7480 and 7481, Revised Codes of 1921; but the acts of Skarda set out in the cross-complaint do not come within the provisions of either section, and the insurance company’s contention that the possession of Skarda was its possession cannot be sustained.

The cross-complaint not showing that the insurance company had obtained the actual possession of the landlord’s share of the wheat crop, so as to create a lien thereon in its favor against the chattel mortgage of the plaintiff, Morton, it fails to show' that it is entitled to the proceeds of the sale thereof in preference to him, and the court did not err in sustaining the demurrer thereto.

The judgment is affirmed. The opinion rendered on October 1, 1927, is withdrawn, and the present one substituted in its place. Remittitur will issue forthwith.

Affirmed.

Mr. Chief Justice Callaway and Associate Justice Matthews concur.