National Bank of Wheaton v. Elkins

GATES, J. This is an action- for the conversion! of grain brought by the assigned of a chattel mortgage. In August, 1911, one Brooks leased from one Erench two- quarter sections of land in -Codington county for the year ending October 1, 1912, viz., the S. E. of section 1 and the S. E. -of section 2, 118, 55. The lease provided- for an -equal division of- the crops, reserving -title and the possession thereof in lessor until' full performance of •the terms of -the lease by the lessee and- settlement between' them. In October, 1911, lessee mortgaged to the defendant Farmers’ State Bank his -undivided half of 40 acres -of -rye to- be- grown in 1912011 the S. E. % of said section 1. I.n, November, 1911, -lessee mortgaged to the State Bank of Florence- (among other things) his undivided half of all of the crops- to be grown in 1912 on the S. E. %. of said section 2 to secure the payment of a note for $212.15, dated November 27, 1911, and due October 1, 1912. Appellant contends that this note- was, for value and before maturity, sold and transferred to- p-laintiff. Both, mortgages- were promptly filed in the register of deeds office. Lessee raised no rye on the S. E. % -of said section 1, but -did raise between 120 and 125 acres of rye on- the S. E. %. -of said section 2. On September 1, 2, and 3, 1912, Brooks haul-ed the rye to- -the elevator of the defendant Elevator Company, and mémorandum slips or tickets were delivered therefor by -the Elevator Company. On the afternoon of September 3, Brooks and his landlord, French, met at the elevator f-o-r the purpose of dividing the -rye -and1 making settlement. This had been accomplished, and the grain buyer had written- a check to French for his share and a check for $443 payable jointly to Brooks and the defendant Farmers’ State Bank, and had delivered it to Brooks. The defendant sheriff then appeared and -levied upon Brooks’ share of the rye under execution issued on a judgment in favor of defendant Monks against Brooks. The manager of the elevator then took back the check from Brooks. — 483 — On 'September 17, 1912, another levy was made under said execution upon Brooks’ share of the grain and the proceeds thereof, and notice was served on the manager. The check was then delivered to the sheriff, who cashed it at the bank of defendant Farmers’ State Bank, which retained $133 thereof and applied the same on its mortgage. From the remaining proceeds of the check the sheriff paid $253.12 to1 the defendant Monks. Proper demand was made on the several defendants before the beginning of this action. Upon the theory that the .lien of plaintiff’s mortgage never attached to the grain, the trial court, following the North Dakota decisions, directed a verdict in favor of defendants. From the judgment and order denying a new .trial, plaintiff appeals. The record discloses the reasons which caused the trial court to grant the motion for a directed verdict, viz.: “In my view of this situation I think that the legal effect is that the second levy and die proceedings under it are abandoned. The first levy made by the sheriff and the judgment creditor might have been levied upon this grain in the ele val or, provided it had not been sold; that would not determine whether or not the mortgage attached to the grain. I think the undisputed evidence as it now stands is that on the 3d day of September, 1912, Brooks, the mortgagor, and French, ihe lessor, had in the elevator about 1,800 bushels of stored grain or rye that had not been divided; that on the 3d day of September, 19x2, they met and settled their business between themselves; that this, grain at that time was stored grain, and the only right that Brooks or French, either,one of them, had was to -receive grain of like kind and quality, but not the identical grain; that they both parted beyond their power to receive back the identical grain, and therefore that when the settlement was made between them the title and right of possession still remained in French, and a lien of this mortgage never did attach. I think - that is the record at this time.” [1, 2] It is the settled rule of this jurisdiction that the interest of the tenant in .crops to be grown under this kind of farm lease or contract is the subject of mortgage. Section 2024, C. C.; Lyon v. Phillips, 20 S. D. 607, 108 N. W. 554; Iverson v. Soo Elevator Co., 22 S. D. 638, 119 N. W. 1006. That being so, it is difficult to' follow reasoning which recognizes- -that upon — 484 — settlement and division of the crops ownership did accrue in the tenant for the purpose of a levy under execution, but did not accrue for the purposes of plaintiff’s mortgage. [3] Plaintiff’s ' mortgage was of -record, and was constructive notice that the tenant’s equitable interest in -the grain was incumbered, and was constructive notice as to- what the mortgagee’s legal rights would be when settlement was had between landlord and tenant. While at all times after the crop came into -existence die mortgage attached to' the equitable interest of ■the tenant, it seems to us that, the instant settlement was had and -division of the crops was made, the tenant’s interest became a legal interest, as well as an -equitable interest, and the lien of plaintiff’s mortgage then attached; -to the legal interest, regardless of wiho was then in the actual possession of the crop, and regardless of -the fact that the tenant c-ould only require a return of 1-ike kind, quality, and amount from the Elevator Company. Counsel for respondent rely upon -the decision of this -court in Savings Bank of Larchwood v. Canfield, 12 S. D. 330, 81 N. W. 630. It is apparent that in ifche treatment of that case the court was considering the legal title of the tenant, and not the equitable title, when it s-aid: “Our conclusion is that Hultm-an never acquired an interest mortgageable either to appellant -or George W. Snook.” If the contrary be tli-ought, then that decision was overruled in the -later decisions of this court hereinbefore -cited, so- far as the mortgageabil-ity o-f an equitable- interest i-s concerned. The moment -division was made the lien of plaintiff’s mortgage did alttach to- -the tenant’s -legal title to his share of the grain ahead of any -possible levy of execution, and -the Elevator Company then held the -tenant’s -share subject to- plaintiff’s mortgage. When thereafter it issued a check which did1 not recognize plaintiff’s lien, it did so at its peril. Jones- on Chattel Mortgages (5th Ed.) § 69; Potts v. Newell, 22 Minn. 561; Denison v. Sawyer, 95 Minn. 417, 104 N. W. 305; Riddle v. Dow, 98 Iowa, 7, 66 N. W. 1066, 32 L. R. A. 811. We -have given careful attention to- the N-or-th- Dakota decisions on this subject, particularly to Herrmann v. Minnekota Elevator Co., 27 N. D. 235, 145 N. W. 821; but we cannot adopt the views of that court as laid -down in that case. In the first — 485 — place, that decision is in conflict with the settled law of this state as announced in Lyon v. Phillip's and Iverson v. Soo Elevator Co., supra. In the second place, the logic of the Herrmann decision would lead to the unconscionable result that prior to settlement and division, the entire crop in the present case would have been subject to a levy of execution, against the landlord, to the exclusion of any right or interest on the part of the tenant therein. The logic of the North Dakota decisions would also1 lead to the result that the tenant’s rights in the crop' might be entirely lost through the act of the landlord, though, the former has strictly complied with the terms of his lease. Suppose the landlord had taken the grain to the elevator and had received the warehouse receipts, and the landlord and tenant had met at the elevator and effected a settlement of their matters. Then suppose the landlord should say to the tenant: It is true that you have failthfully performed your contract, and on this settlement you are entitled to half of the grain; but inasmuch as the title was in me when it was taken to the elevator, and inasmuch as I have no night to a return of the specific grain, but only a right to a return of like amount, kind, and quality; you have no interest in the grain, and I am going to keep the proceeds. Has the tenant no recourse, except in an action against the landlord for damages ? ' [4] Whatever may be- the precise relationship between the landlord and tenant under this kind of farm lease (Tiffany on Landlord & Tenant, § 253), it surely does not contemplate the vesting of absolute title to the -crops in (the landlord, so as to make the whole crop subject to the debts of the landlord. The title and possession reserved by the lease -may be said to be a kind of theoretical title and possession for the protection of the landlord, but not for the purpose of enabling- him to' violate the rights- of the tenant, or the rights- of creditors of the tenant. That the parties to the lease did not contemplate that such reservation of the title and possession was -absolute is apparent by the further -paragraph in the -lease, viiz.: “It is also -agreed that in case said party of -the first part [tenant] neglects or fails to perform any of the conditions and terms of this contract on his part to- be done and performed, then said party of the second part [landlord] is hereby authorized — 486 — and. empowered to enter upon said premises and take full and absolute possession of the s-am-e, and he may do and perform' all things agreed to be done by the party of the first part remaining undone, and to retain or sell sufficient of the crops raised on said premises that would otherwise belong to' said first party if he had performed the conditions hereof, to pay and satisfy all costs and expenses of every kind incurred in performing- said contract, with interest at-per cent, per annum, and the residue remaining, if any, of said crops, shall belong to said party of the first part, after all conditions are fulfilled.” It is clear, therefore, that until a breach by the tenant the actual possession of the crops remained in him, notwithstanding the prior reservation of title and possession in the landlord. [5] It is undoubtedly true that under the provisions of the warehouse law (Pol. Code, § 488), where warehouse receipts are given for stored grain, the holder of the receipts may not require the restoration of the identical grain, but only grain of the same-amount, kind, and quality; but how can this affect the lien of the mortgage? With all deference to the decisions of our sister state,, we feel that it is unimportant in the solution of this question whether Brooks or the mortgagee bad or had not the right to demand the return of the specific grain. The rights of a mortgagee cannot thus be dissipated into- thin air by the acts of the landlord or tenant. [6] Complaint is made that -the trial court allowed the lease to be introduced in evidence. The lease was clearly competent under the issues, and its -exclusion would -have been, error. [7] Complaint is also made because the trial court allowed evidence of certain statements, tending to show a waiver of plaintiffs lien, made by the cashier of the bank to- which the mortgage was given, and which then actually had the note in its possession for collection. In view of the fact that there was some dispute as to whether plaintiff or the original payee was the owner of the note and mortgage, we do not think it was error to admit such testimony; but, if verdict had not -been directed, the jury should have been instructed to- disregard such testimony, if it found that plaintiff was the owner of the note and mortgage at the time those statements were made. If the plaintiff was the owner of the note and mortgage at that -time, it was not — 487 — within the scope of the authority of its agent for collection to waive the lien of the mortgage. [8] It is further '.contended, on. the part of respondent that the assignment of. the. mortgage from the ^tate, Bank'of Florence to the plaintiff was not filed in the office of -the register of deeds, as required ¡by chapter 188, Laws 1907, and therefore that the lien of the mortgage' was waived by the acts of the cashier of the original mortgagee. A reference to that chapter' discloses .that it amended section 2095 of .the. Civil ‘Code of • 1903 “to' read as follows.” In section 2095 as thus amended there was- a requirement that an assignment of a chattel mortgage be filed in the office of the register o'f deeds. By the amendment the new matter became a part of section 2095. Thereafter the old, section 2095 ceased to exist, and the new section 2095 w:as substituted for it. Black, Interp. of Laws, § 130.. In 1909 the Legislature, by chapter 153, declared “that section 2095 of the Revised Civil Code of 1903 be and if is hereby amended to read as follows.” In that act the' requirement that an assignment of the chattel mortgage be filed in. the register of deeds’ office was omitted1. While the orderly way to have prepared the bill which was last enacted would have' been to have provided that section 2095' of the Revised Civil Code of 1903, as amended by chapter 188,' Laws 1907, be “amended to read as follows,” we do not think such omission was fatal. 36 Cyc. 1055. By a contrary holding it would of necessity follow that the act of 1909 was a nullity, because, if repo-ndent’s theory is correct, after the amendment of 1907 there was no longer any section 2095 of the Revised Civil Code of 1903, and the act of 1909 purported to amend something that was not in existence. We are of the opinion that chapter 153, Laws 1909, repealed the provisions of -chapter 188, Laws 1907. The judgment and1 order appealed from are -reversed, and a new trial granted.