McDonald v. Rankin

Frauenthal, J., (after stating the facts). The matters that are now involved in this case, and which are presented to us on this appeal for our determination, relate to the respective rights of the parties to a recovery for improvements and taxes upon the one side, and the rents and profits of the land on the other. The determination of these matters depend principally, if not entirely, upon whether or not the betterment act applies to this case. It has been decided that the appellee is, and has been ever since the death of her father, the true owner of all said lands. According to the common law, the true owner of the land had a right to the land, and that included the right to enter on it when the possession was withheld, and to have and own the improvements placed thereon 'by any one, which were considered to be but a part of the land itself; and the true owner had also a right to all the rents and profits issuing from the land. No distinction was made between a bona Me and mala Me possessor. As to the true owner, the possession of the occupying claimant was wrongful, and he could acquire no rights in another’s property by his wrongful acts. But it soon became apparent that this rule was harsh and unjust when lasting and permanent improvements, which actually increased tlie value of the lands, were placed thereon by an innocent and bona Me holder and offset the value of the rents and profits. To cure this harsh rule, the courts of equity adopted the doctrine of requiring the value of the permanent improvements in such cases to be offset against the rents and profits whenever the owner of the lands applied to such court of equity for an accounting by the possessor of the rents and profits. This doctrine was applied in pursuance of the great equitable principle that “he who seeks equity must do equity.” The rights thus recognized by the courts of equity were founded upon the principle that the occupant who thus went into possession of the land in ignorance of the invalidity of his title, although technically a possessor in bad faith because he might have discovered such defect, yet was not to be placed in the position of one who fraudulently takes possession without any title and keeps the true and known owner out of possession. But these rights accorded to such an occupant were only of an equitable nature, and his remedies could only be enforced in a court of equity. The reason and justice of recognizing such rights re-suited in the enactment of statutes which granted them as substantive rights, which could be enforced in the very courts that determined the title to the land, and also gave to the occupant a recovery for the amount of the value of the improvements in excess of the value of the mesne profits. Green v. Biddle, 8 Wheat. 1; 3 Pomeroy, Eq. Jur. (3d Ed.) § 1241; 2 Story, Eq. Jur. § 799a, 799b; Warvelle on Ejectment, § § 546, 557; Jones v. Great Southern Fire Proof Hotel Co., 30 C. C. A. 108; New Orleans v. Gaines, 131 U. S. 191; Byers v. Fowler, 12 Ark. 292; Cunningham v. Ashley, 16 Ark. 182; McCloy v. Arnett, 47 Ark. 458. The Legislature of the State of Arkansas in 1883 enacted the statute commonly known as the “Betterment Act,” which is embraced in sections 2754-2757, Kirby’s Dig. That statute defines (1) the qualifications of the occupant who is entitled to its benefits; (2) it fixes the value of the improvements and taxes which it grants to such occupant; (3) and the amount of the mesne profits which are recoverable by the owner. 1. It is contended by the counsel for appellee that L. B. McDonald, and the appellants claiming under him, are not such occupants as are described in the betterment act; and they base their contention upon the ground that said McDonald purchased the land during the pendency of this suit under a decree which was declared to be void by this court. The question which is thus presented for determination is, What is the character of the occupancy which the possessor must have in order to fall within the provisions of this statute? The statute describes such occupant to be “any person, believing himself to be the owner, either in law or equity, under color of title, (who) has peaceably improved, or shall peaceably improve, any land which upon judicial investigation shall be decided to belong to another.” It thus appears that the person must occupy the land under color of title and with the honest belief that he has title to the land. In the case of Fee v. Cowdry, 45 Ark. 410, the court described such occupant as being “one who not only supposes himself to be the true proprietor of the land, but who is ignorant that his title is questioned by some one claiming better right to it.” In Beard v. Dansby, 48 Ark. 183, in describing the requirements which such occupant should possess, this court said: “Good faith, in its moral sense, as contradistinguished from bad faith, and not in the technical sense in which it is applied to conveyances of title, as when we speak of a bona fide purchaser, meaning thereby a purchaser without notice, actual or constructive, is implied in the requirement that he must believe himself to be the true proprietor. It must be an honest belief and an ignorance that any other person claims a better right to the land.” It was held in Shepherd v. Jernigan, 51 Ark. 275, that where a party improved lands in good faith, and under the belief that he was the true owner, he is entitled to the benefits of this betterment act, and that such notice as might be gained from the registry of the deed is not sufficient to preclude him from those benefits. This court, in the case of Bloom v. Strauss, 70 Ark. 483, held that a bona ñde occupant who held under a last will which was defective upon its face could claim the benefit of this statute. In the case of Brown v. Nelms, 86 Ark. 368, this court held that one who had purchased under a probate sale which was declared void was such an occupant as could claim the benefits of this statute. In that case the purchaser at the judicial sale had been the appraiser of the land that was sold, and upon that account it was held that such sale was fraudulent in law, and on account of such fraud it was void. But the court found that the purchaser acted in good faith and in the honest belief that he would obtain a good title to the land, although he knew the facts which constituted the legal fraud and made the sale invalid. That was a judicial sale, under which a purchase was made, and the parties in interest had a right to'appeal therefrom or to institute proceedings to avoid said sale, which they did; so that in that case the occupant was a purchaser during the pendency of the proceedings, under a sale which was afterwards declared void; and this court held that the provisions of the betterment act applied in that case. Cowling v. Nelson, 76 Ark. 146. From all these cases it will be seen that the cardinal requisite 'that the occupant should possess is good faith, and an honest belief in the title under which he occupies the land, and an ignorance of his title being questioned by another who claims a better right, in order for him to be entitled to the benefits of the statute. He may know the facts which prove the invalidity of his title, yet if, through mistake of-the law, he still believes that title good, he can hold in good faith, within the meaning of the betterment act. The doctrine of Us pendens applies to purchasers or others acquiring title from a party to the action, and generally it does not apply to strangers to the suit. But where the decree under which the sale is made is wholly void by reason of some jurisdictional defect, it can confer no title. The purchaser in such instance, although a stranger to the suit, cannot in law be an innocent purchaser so as to acquire the title. But whether this doctrine is founded upon notice, or upon public policy, it only applies to the title itself which is thus acquired, and does not apply to the rights and benefits which are given to the party under the betterment act. The occupant holding under a tax deed which, on account of some jurisdictional defect, is declared void, or holding under a sale made under a decree in some tax proceeding which is declared void, although he knows, or has means of knowing, of these jurisdictional defects in his title, has yet been held to come within the terms of this statute. The constructive notice of the invalidity of the title which will deprive the purchaser at such sale from acquiring the title as an innocent purchaser does not affect the rights of such a purchaser under the betterment act if he obtained the title in good faith and held possession without actual notice that his title was assailed by one claiming a better title. Ordinarily, there is greater confidence placed in a purchase at a judicial sale than at any other sale', on account of the great confidence reposed by the people in the proceedings of our courts. But if the doctrine of lis pendens shall apply to defeat such purchasers of the benefits of the betterment act, they are placed at a greater disadvantage than a purchaser at any other sale. The doctrine of lis pendens, it is said, results not so much from notice, but is largely founded upon public policy. And so likewise the provisions of the betterment act, which grant to the bona ñde possessor of the land a recovery for the value of the improvements made thereon by him, have resulted from public policy. The policy thus advanced by this statute should prevail; and the public policy thus announced by the legislative will would not be subserved by applying the doctrine of lis pendens to those occupying claimants of land who otherwise would be entitled to the benefits of this act. In this case it is conceded that the purchaser, McDonald, went into possession of the land under color of title, and that title was held to be valid by this court in the first hearing of the cause involving that question. The evidence tends-to show that the purchaser believed in the strength of that title; and, until these supplemental preceedings were instituted, and the summons served on them, he and the appellants had no knowledge of any one questioning that title or asserting a better title to the land. The special chancellor found that these occupants held the lands under color of title in good faith and in the honest belief that they had a perfect title to the land, and these findings appear to be well sustained by the evidence. We are of the opinion, therefore, that the facts of this case bring it within the terms of the betterment act. The appellants are therefore entitled to the value of all improvements made prior to January 8, 1903, the time that the summons was served herein on them, and to all taxes paid by them and those under whom they claim; and the appellee is entitled to recover all mesne profits that shall have accrued within three years next before the commencement of this supplementary suit. II. Before the passage of the betterment act, the courts adopted various measures for estimating the value of the improvements that should be allowed to the occupant and the mesne profits that should be allowed to the true owner; some allowed the first cost of the improvements, with interest; others fixed their value at the time of the notice received by the occupant of the title of the true owner; while others fixed their value at the time of the recovery. So, likewise, they differed in the amount of the mesne profits that should be recovered by the owner; some allowing the rents only on the lands without the improvements, and others on the lands as they were improved. Haskins v. Spiller, 3 Dana, 573; Barnett v. Higgins, 4 Dana, 565; Evetts v. Tendick, 44 Tex. 570. The betterment act conferred upon the occupant certain substantive rights, and for the true owner it fixed the definite mesne profits which he -could recover. As is said in the case of Brown v. Nelms, 86 Ark. 368, the betterment act is “one to adjust equities between the owners of the lands and persons who have occupied the same under color of title, believing themselves to be the owners — bona fide occupants. * * * In other words, when the occupant holds in good faith under color of title the owner can recover the land and mesne profits for three years, and the occupant can recover the value of his improvements and amount of taxes.” These are the rights of the parties as fixed by this statute. The statute says that the owner shall be allowed the rents of the lands that shall have accrued within three years next before the commencement of the suit. It deprives the true owner of all the mesne profits that accrued prior to that time, but it gives to him the rents on the lands in the exact condition in which they are for the period subsequent to three years next before the commencement of the suit. It is urged by the appellants that they should not be charged with the rents and profits arising from the improvements made by them, but only for the rents on the lands in the condition in which they were when McDonald took possession. To sustain their contention, counsel for appellants especially rely upon the case of State v. Baxter, 50 Ark. 447. But that case is but a continuation of the case of State use of Garland County v. Baxter, 38 Ark. 462, which was a suit instituted in 1881, long prior to the passage of the betterment act. The principles applied in that case were based upon an accounting which allowed rents without restriction. It was an action to set aside a lease obtained by the occupant for a long term, and under which he had made improvements on the land, which lease was subsequently set aside for fraud. It had no application to the terms of the betterment act. The various rules that have been formulated by courts of equity in attempting to make equitable adjustments of the rights of the occupant, on the one hand, to the value of the improvements and the taxes paid, and, on the other hand, of the owner to the rents and profits, were based upon such principles of equity as in the opinion of those courts were right. In the uncertainty of these decisions, the betterment act was enacted to definitely fix these respective rights, and it fixed as a -substantive right for the owner of the land the rents of the lands for the period therein named, with the improvements which the lands then possessed. The general rule adopted by the courts for the measure of damages in cases for the recovery of mesne profits is the fair rental value of the lands during the period of the withholding. Analogous to that .ruling, the measure of rents and profits which are recovered under the betterment act is the fair rental value of the lands in their improved condition during the period named in the betterment act. This means the net rents — that is to say, the amounts expended for necessary repairs and for such necessary expenses as under the custom of the country have been paid for management and collection of the rents should be deducted from the gross rental value. This is on the theory that the owner would have had to have done this. Warvelle on Ejectment, § 543; Wallace v. Berdell, 101 N. Y. 13; Hodgkins v. Price, 141 Mass. 162. It is urged by appellants that Cora and Jesse McDonald should not be charged with the rents for the years of 1900 and 1901, because the rents for those years were .actually not collected or received by them but by W. D. McDonald, who has since died, and whose estate is not brought into this restitution suit. But these appellants became entitled to the value of the improvements, for which they are allowed a recovery, which were placed upon the lands, not by them, but by him under whom' they claim, and he would be chargeable with these rents. To the extent of the fund so received by them for such improvements, it is but equitable that they should be charged with said rents; and, inasmuch as the value of the improvements exceeds the amount of the rents for those years, they should be charged with the entire rents of those years. The rents of the .lands that accrued prior to December 20, 1899, cannot be recovered by the appellee, by virtue of the betterment act; but upon equitable principles these rents should be set off without restriction against the claim of appellants for reimbursement of the purchase money received by the appellee.’ The appellants are entitled in equity to recover such portion of the purchase money paid under said invalid sale for said land which was actually received by the appellee, for the reason that appellee now recovers the land, which was the sole consideration for t'he money so paid, and it is but equitable that reimbursement should be made therefor. But during the years prior to 1900 those paying the purchase money received the rents and profits from these lands, and therefore, upon equitable principles, those mesne profits for the full period, and without restriction, should be applied on such claim for reimbursement of the purchase money. It is urged by t'he appellants that for the years prior 'to 1900 they should not be .charged with the mesne profits from improvements made by them, but only with the profits of the lands in the condition that they were when McDonald took possession. But it is unnecessary to pass upon this contention, for the reason that, according to the value of the rents as found by the master, and which finding is approved, the rents of the lands with only said original improvements would exceed the largest amount of said purchase'money that can be claimed to have been received by the appellee; and this is true when the purchase money and the rents are apportioned to the respective tracts occupied by the respective appellants. Upon the tract of land occupied- by appellant Bond a house was burned and rebuilt by the occupant. This house had been insured by the occupant for a number of years for $1,050, and the insurance money was collected by the occupant. This sum was by the master charged to the appellant Bond as a part of the rents, but was disallowed by the special chancellor. The contract of insurance was a personal contract of appellant Bond, and the consideration was paid solely by her. The insurance money, therefore, did not in law arise from the property, but was payable to the appellant Bond by reason of her personal contract with the insurance company. She was therefore not chargeable therewith. Roesch v. Johnson, 69 Ark. 30; Langford v. Searcy College, 73 Ark. 211. The appellee is entitled to recover interest on all rents from the time they were received by appellants and those under whom they claim. 15 Cyc. 208; Nunn v. Lynch 89 Ark. 41. Likewise the appellants are entitled to recover all taxes and the interest on all taxes paid by them and those under- whom they hold the land from the time such taxes were paid. III. Under the evidence in this case, all the improvements were made prior to the service of the summons in this supplemental proceeding, and therefore the occupying claimants must be paid the value of those improvements. The value of the. improvements are determined at the time of the recovery, for that is the time they are turned over to, and go into the usable possession of, the holder of the title. In Summers v. Howard, 33 Ark. 490, this court, in speaking of the time when the value of the improvements should be estimated, said: “Such allowances (for improvements) are made upon the ground that the improvements do in fact pass into the hands of the plaintiff as a new acquisition ; and they can only be a new acquisition to him to the extent of their value at the time he recovers or obtains possession of them; and therefore their value at that time is to be allowed, and nothing more.” Warvelle on Ejectment, § 558; 15 Cyc. 222; Greer v. Fontaine, 71 Ark. 605. The value thereof is based upon the enhanced value which these improvements at the time of the recovery impart to the land. But such enhanced value of the land should arise solely by reason of the improvements themselves, and should be determined only by the ordinary considerations that would apply to lands that are similarly situated. The condition of the improvements at the time of the recovery should be taken into consideration. The difference between the value of the land without the improvements and the value of the land with the improvements in their then condition would be a just sum to allow therefor. In any event no value that the land might impart to the improvements should be considered in estimating the value of such improvements. The reasonable cost in making the improvements, their deterioration, if any, or the reasonable cost of making them at the time of the recovery in their then condition, may well be taken into consideration in arriving at the value of such improvements. In determining the value of these improvements, the master found the amount of the cost thereof at the time of the recovery, and then added fifty per cent, thereof to such cost, on the theory that, under the testimony, the value of the land was thus enhanced by these improvements in excess of their cost. This estimate of the value of the improvements was approved by the special chancellor. This is an arbitrary mode of fixing such valuation, rather than one based on the actual value of the betterment and amelioration of these improvements to the land. The value of the improvements should hot exceed the cost of making them or replacing them at the time of the recovery and in the condition in which they are at that time. New Orleans v. Gaines, 15 Wallace, 624. The special chancellor properly refused to grant to Sallie Spott Rankin the immediate possession of the land at the time of her application. The betterment act is applicable to this case, and that statute provides that “no writ shall issue for the possession of the land in favor of the successful party until payment has been made to such occupant of the balance due him for such improvements and the taxes paid.” Kirby’s Dig. § 2755. Until thé accounting of these matters was had and a final determination thereof made, the possession of the lands should not have been given to her. Such an order was also on this account not such a final order from which an appeal would lie. Ex parte Crittenden, 10 Ark. 33; Fitzpatrick v. Phillips, 41 Ark. 85; Davie v. Davie, 52 Ark. 224; Cohn v. Huffman, 52 Ark. 436; Hargus v. Hayes, 83 Ark. 186; Brown v. Norvell, 88 Ark. 590. In the final decree of the Woodruff Chancery Court, it was ordered and decreed that the appellee recover all the lands; that a writ of restitution issue to her for immediate possession of the lands which were claimed by appellants Cora and Jesse McDonald; and that a writ of restitution should be issued to her for the lands claimed by appellant Antoinette Bond after the payment of said sum, which was the amount of the balance of the value of the improvements made on said lands and found by the court as still due to said appellant. Under the findings of the chancellor this portion of the decree relative to the possession of the lands was correct. But, as hereinafter directed, a restatement of the accounts of the matters upon which the findings of the court were based will be ordered by this court. And if, as a result of such an accounting, it shall be found that nothing is due to either of the appellants upon the improvements and taxes upon the respective tracts, then immediate writs of restitution will issue to the appellee for such tract or tracts. The findings of the special chancellor and the decree rendered by him are, in the main, in accord with this opinion; but in some particulars they do not conform with it. The degree will therefore be reversed. But we are of the opinion that the findings of the special master of the Woodruff Chancery Court are amply sustained by the evidence as to the values and the amounts of taxes, rents, interest and all other matters submitted to him and set out in his report, except as to the improvements; and as to the improvements we are of opinion that his findings of the actual cost thereof at the time of the recovery will give the true value thereof, with which amounts the appellants should be credited, and that the only error committed in that regard was in adding to such cost the additional sum of fifty per cent, of such cost. We are of the opinion that a restatement of the account as to all matters involved herein and submitted to said special master can be made from the evidence taken by the special master, so that it will conform with this opinion and without taking any additional testimony. , For this reason we do not think it necessary to remand this cause in order to make such a restatement of these accounts; but we deem it advisable that a special master be appointed by this court for the purpose of making a restatement of said accounts from the evidence as appears in the report of the special master (and whidi is a part of the record of the case) which will conform with this opinion. . To that end therefore a special master will be appointed by this court. Said special master will be directed to take the evidence contained in the report of John G. Haralson, the special master of the Woodruff Chancery Court, and which is a part of the record herein; and from said evidence to make and state an account of the improvements, taxes and mesne profits of the lands, together with interest on the taxes and mesne profits between the respective parties to this suit, and in accordance with this opinion. In making and stating said accounts, he will make and state separate accounts of all the above matters relative to the lands that were in the possession of the appellant Antoinette Bond, and which are called in said special master’s report the “Bond” place, and relative to the-lands that were in the possession of the appellants Cora and Jesse McDonald, and which are called in said report the “McDonald” place. And this cause will be continued for further orders of this court after said report of the special master of this court shall be taken, made and filed in this court. And thereupon this cause will be remanded to the Woodruff Chancery Court with directions to enter a decree in accordance with the opinion of this court. Opinion delivered October 25, 1909. Battle, J., and Hart, J., dissent from so much of this opinion as allows to appellee rents of lands with improvements made by appellants and those under whom they claim.