Case Title: Skinner v. American State Bank

Citation: 189 N.W.2d 665

Docket Number: 

State: north-dakota

Court: North Dakota Supreme Court

Date: 1971-09-01T00:00:00Z

Document:
189 N.W.2d 665 (1971) Catherine Gustafson SKINNER, and L. R. Gajewski, Plaintiffs and Respondents, v. AMERICAN STATE BANK and K. M. McConnell, Defendants and Appellants. Civ. No. 8711. Supreme Court of North Dakota. September 1, 1971. *666 Bjella & Jestrab, Williston, for defendants and appellants. L. R. Gajewski and Catherine Gustafson Skinner, pro se. ERICKSTAD, Judge (on reassignment). The defendants, American State Bank and K. M. McConnell, appeal from the amended order of the district court of the County of McKenzie, dated February 1, 1971, which directs that the clerk of the district court pay to Mr. L. R. Gajewski cash rental monies deposited with the clerk. We shall hereinafter refer to the plaintiffs in the singular as Mr. Gajewski, unless there is some reason for differentiating between the plaintiffs, and shall refer to the defendants as the Bank, unless there is some reason for differentiating between the defendants. The American State Bank is a North Dakota banking corporation with its principal place of business located in Williston, North Dakota. Mr. K. M. McConnell is the Executive Vice President of the Bank. On April 1, 1969, the plaintiff Catherine Gustafson Skinner and her husband, N. David Skinner, executed and delivered to the defendant, American State Bank, a real estate mortgage and an assignment of rents. The mortgage was filed in the office of the register of deeds, McKenzie County, North Dakota, on April 10, 1969, at 1:00 p. m., and recorded in Book 144 of Mortgages, beginning at page 325. The assignments of rents was filed by the Bank in the office of the register of deeds, McKenzie County, North Dakota, on April 10, 1969, at 1:10 p. m., and recorded in Book 144 of Mortgages, beginning at page 325. Under the terms of the mortgage and the note it was given to secure, the Skinners were to pay to the defendant, American State Bank, on or before April 1, 1970, the sum of $175,000 together with interest. This sum was not paid and the mortgage is in default. On July 25, 1969, the Skinners leased the premises to Floyd G. Kindel and Delores Kindel, husband and wife. On November 3, 1969, the Skinners executed and delivered to Mr. L. R. Gajewski a warranty deed covering the same premises mortgaged to the Bank. On December 7, 1970, the Bank notified the lessees in writing of the default in the real estate mortgage and of the assignment of rents and demanded payment to it of the rental due under the lease. On January 5, 1971, Mr. Gajewski entered into a lease of the same premises with Floyd G. and Delores Kindel. The Kindels thereafter deposited the rental money with the clerk of the district court of McKenzie County pursuant to Section 32-11-02, N.D. C.C. The real estate mortgage has not been foreclosed, but according to the affidavit filed by the Kindels with the clerk of the district court in connection with the voluntary deposit, Mrs. Skinner and Mr. Gajewski have brought an action against the American State Bank of Williston and K. M. McConnell, apparently to determine the legality of the mortgage and the assignment of rents. In an attempt to secure payment from the clerk of the district court of the rentals placed there by the Kindels, Mrs. Skinner and Mr. Gajewski moved, by instrument dated the 20th of January, 1971, that the district court of McKenzie County order the clerk of McKenzie County district court to release and pay over to Mr. Gajewski the rental monies therein deposited by the Kindels in the sum of $4500. It is from the order of the district court granting that motion that the Bank and Mr. McConnell appeal. *667 The motion was made on the ground that Mr. Gajewski is entitled as a matter of law to the rents and profits flowing from the real property described in the deed which he received from the Skinners until such time as the mortgage to the Bank has been foreclosed and thereafter until the statutory one-year period of redemption shall have expired. Although no memorandum opinion was filed by the court and the order contains no explanation of the court's conclusion that the monies should be paid to Mr. Gajewski, we assume that the court granted the order on the ground stated by Mr. Gajewski. The substantive law issue in this case is whether an assignment of rents of real property can be enforced prior to the foreclosure of the real estate mortgage and the expiration of the one-year period of redemption. The parties in this lawsuit rely basically upon two opinions of this court to sustain them. Mr. Gajewski relies on the opinion of Smith v. Grilk, 64 N.D. 163, 250 N.W. 787, a 1933 decision of this court, written by Judge Birdzell and concurred in by Judges Nuessle, Burr, and Burke, with Judge Christianson dissenting. The decision relied on by the Bank is Fargo Building & Loan Association v. Rice, 66 N.D. 100, 262 N.W. 345 (1935), written by Judge Burke and concurred in by Judges Burr, Nuessle, Morris, and Christianson. The issue involved in Smith is set forth by the Court in the first paragraph of the opinion, as follows: In that case, concurrently with the execution of the mortgage and by separate instrument, Mr. Grilk assigned to the mortgagee the rents, issues, and profits of the property. By way of legislative history and in discussion of the issue, the court said: In discussing the change in policy brought about by the enactment of Chapter 132 of the Session Laws of 1919, the Court quoted from one of its earlier opinions, Farm Mortgage Loan Company v. Pettet, 51 N.D. 491, 504, 200 N.W. 497, 502 (1924), as follows: *669 After the quotation from Farm Mortgage Loan Company, the Court in Smith said: To further support its opinion, the Court, relying on 2 Jones on Mortgages, 8th ed. § 826, said: Section 28-24-11, N.D.C.C., is the successor of Chapter 132, Section 1, of the Session Laws of 1919. It reads: Subsections 6 and 7 of Section 35-03-01.2, N.D.C.C., are the successors to Section 6740 of the Compiled Laws of 1913. Said subsections read as follows: Two years after Smith, this Court rendered the Fargo Building & Loan Association decision relied on by the Bank to support its contention that the rights provided for in Section 28-24-11, N.D.C.C., accrue only after foreclosure and during the period of redemption. In Fargo Building, in discussing the effect of Chapter 132 of the 1919 Session Laws, after discussing the holding in Clifford & Co. v. Henry, 40 N.D. 604, 169 N.W. 508 (1918), construing Section 7762 as it existed prior to the enactment of Chapter 132 of the Session Laws of 1919, the Court said: In the next paragraph of that decision, the Court, in discussing the effect of Smith v. Grilk, said: Were it not for such strong language, it might be possible to distinguish the two cases on the basis of fact, inasmuch as in Fargo Building the plaintiff was a mortgagee in possession of the mortgaged property with the consent of the mortgagor, whereas in the instant case, a lessee of the mortgagor is in actual possession of the property and, consequently, the mortgagee is not in actual possession of it. Notwithstanding the strong language restricting the mortgagor's rights to the rents and profits of the real property to the period of redemption, our State Legislature has not acted to substantially change the statute. Our Court in Lapland v. Stearns, 79 N.D. 62, 54 N.W.2d 748 (1952), set forth in the syllabus two rules of construction applicable in such cases as follows: In a more recent decision concerning the construction of a statute, we said: Fargo Building is subsequent in time to Smith and thus if inconsistent in any way with Smith must be considered to overrule the pronouncements to the contrary in Smith. Considering that the amendments made to the statutes since Fargo Building appear only to affect the form of the statutes rather than their meaning, we conclude that the Legislature has agreed with the construction placed upon the statutes by the latter decision. As no extraordinary facts or circumstances have been brought out in this case justifying a reversal of the latter decision, we apply it in this case and, accordingly, conclude that the Bank is entitled here to the rents and profits of the real estate under the assignment. Before we may conclude this opinion, we must determine a jurisdictional question raised by Mr. Gajewski, and that is *671 whether the appeal is proper in light of the fact that the Bank took its appeal before the order appealed from had been filed in the office of the clerk of the district court. The amended order directing the clerk of the court to pay over cash rental monies to Mr. Gajewski is dated the 1st of February, 1971, and was filed with the clerk of the district court on February 11, 1971. The notice of appeal by the Bank is dated the 10th of February, 1971, and was filed with the clerk of court on February 11, 1971. The notice of the entry of the amended order prepared by the attorney for the Bank, dated February 10, 1971, was filed with the clerk of court on February 11, 1971. The affidavit of service by mailing of the notice of appeal and the supersedeas bond is dated the 10th of February, 1971, as is the bond. The basic question is whether any of these factors make the appeal premature. We think not. The pertinent statute on appeal follows: In 1930 this Court stated in Citizens' National Bank of Northwood v. Larson, 59 N.D. 427, 230 N.W. 292, 293, that, "The finality of such an order for purposes of appeal is not affected by the date of filing." The Court went on to cite Lake Grocery Co. v. Chiostri, in which the respondent contended that the appeal was void because it was premature. The Court said: We conclude, accordingly, that an appealing party may waive the service of a written notice of the entry of a district court order and may appeal from such an order before the order is filed with the clerk of the district court. Accordingly, the appeal was not defective or premature in this case. For reasons stated in this opinion, the order of the trial court is reversed. STRUTZ, C. J., and PAULSON, J., concur. TEIGEN, Judge (dissenting). I dissent. I would agree with the result in the majority opinion were it not for the fact that the land was transferred by the mortgagors to the plaintiff Gajewski subsequent to the time the mortgage and the assignment of future rents were given to American State Bank by the former owners, Mr. and Mrs. Skinner. It is established, as stated in the majority opinion, that no foreclosure of the mortgage has been commenced. The assignment of future rents is made operative only in case of default in the covenants, terms and conditions of the note and mortgage. There apparently was no default of mortgage payments at the time the land was conveyed by the Skinners to Gajewski, and the rights given the American State Bank under the terms of the assignment of future rents were not being exercised. There is no evidence that Gajewski had knowledge of the existence of the assignment of rents when he acquired the land by conveyance from the Skinners. An examination of the warranty deed by which the lands were conveyed to Mr. Gajewski discloses that said deed purports to convey this land free from all encumbrances except the mortgage. No reference is made to the assignment of rents therein. The *672 warranty clause of the deed warrants the land conveyed "together with all the hereditaments and appurtenances thereunto belonging or in anywise appertaining to" Gajewski, his heirs and assigns forever. The grantors covenant that they are well seized in fee of the lands and have the right to sell and convey the same free of all encumbrances, except the mortgage. The deed recites, however, that the mortgage is void because of a latent defect in that at the time the mortgagors signed the mortgage the land description was not contained therein and was inserted afterwards. No question is raised in this proceeding of the effect of this statement nor is the validity of the mortgage in issue. The assignment of future rents describes the property described in the mortgage and assigns, sets over, attorns and delivers to American State Bank, the mortgagee, all of the Skinners' "right, title, interest and demand in and to the rents, issues and profits" of the land. It also constitutes American State Bank as agent or attorney for the purpose of collecting said rents, and as attorney in fact for the Skinners to renew any and all leases and also to make new leases in regard to the premises. The assignment provides, however, that it shall not become operative and effective unless default shall be made in the covenants, terms and conditions of the note and mortgage. The assignment of future rents is dated the same day as the mortgage and was filed for record in the office of the register of deeds and there recorded on the same date as the mortgage. The record made in this proceeding is completely devoid of any evidence or proof to establish that Gajewski had any knowledge whatsoever of the assignment of rents until the demand was made. As stated by the majority, the trial court did not state its reasons for its decision. Further, Gajewski appeared pro se at the hearing and has taken the appeal pro se. He is not a lawyer. There is no evidence that Gajewski has assigned future rents nor that he, in any way, has acquiesced in or agreed to the terms of the assignment of rents given by the Skinners. American State Bank gave notice to Gajewski, to the Skinners, and to the tenant that the mortgage was in default and that it was exercising its rights and prerogatives under the assignment of rents, and demanded that the tenant pay the future rents to American State Bank of Williston. This demand was made December 7, 1970, more than eleven months after the land had been conveyed to Mr. Gajewski. The evidence does not establish that Gajewski had previous actual knowledge of the assignment of rents. I shall now consider whether he had constructive notice thereof. Our statute provides that the depositing with the proper officer for record of any instrument shall be constructive notice of the execution of such instrument to all purchasers and encumbrancers subsequent to such depositing if the instrument is subsequently recorded. Section 47-19-45, N.D. C.C. Section 47-19-01, N.D.C.C., provides: Section 47-19-19, N.D.C.C., provides: The question arises: Does an assignment of future rents affect "the title to or possession of real property," as required by Section 47-19-01, N.D.C.C., to entitle it to be recorded? If it was not entitled to be recorded, then certainly the deposit and recording of the same in the office of the register of deeds does not constitute constructive notice to a subsequent purchaser of the land. My research has failed to disclose a special statute which entitles an assignment of rents to be recorded in the office of the register of deeds. The lease in this case is a cash payment farm lease. Under its terms the tenant agrees to pay the sum of $6,500 per year for a term of three years. The payment becomes due on January 1 of each year the lease is in effect. The determination of the question as to whether an assignment of rents to accrue from the leasing of real property comes within the operation of the recording laws depends upon the view taken as to the nature of an assignment of future rents. 75 A.L.R.Anno.Recording LawsAssignment of Rent, at 270. According to 45 Am.Jur. Records and Recording Laws, Section 47, an assignment of rents to accrue from a lease of realty is an incorporeal hereditament and comes within the operation of the recording laws "provided the term covered by the assignment is sufficiently long to bring it within such laws." The holding in the case cited was based on a statute requiring that leases of more than three years' duration were required to be recorded. This section provides, however, that a contrary conclusion has been reached where it is held that such a transaction is merely the transfer of a *674 chose in action. In some cases the assignment of rent to accrue from the lease of real estate has been construed as a tenement or as a chattel real, and also has been classified as an incorporeal hereditament. 49 Am.Jur.2d Landlord and Tenant, Section 515. A chose in action is defined as personal property. 42 Am.Jur. Property, Section 26. A chattel real is also classified as personal property unless modified by statute. 42 Am.Jur. Property, Section 25. A tenement is usually denominated as real property. 42 Am.Jur. Property, Section 16. Under our statutes, income of property includes the rents and profits of both personal and real property. Section 47-03-01, N.D.C.C. The disposition of the income of property to accrue and to be received at any time subsequent to the execution of the instrument creating such disposition is governed by the rules prescribed by the chapter on future interests. Section 47-03-02, N.D.C.C. A future interest is defined by statute to mean "that the owner is entitled to the possession of the property only at a future period." Section 47-02-11, N.D.C.C. It is either vested or contingent. It is contingent if the event upon which it is limited to take effect remains uncertain. Section 47-02-15, N.D.C.C. A future interest passes by succession, will or transfer in the same manner as present interests. Section 47-02-18, N.D.C.C. The statute limits the recognition of future interests to those provided by law. Section 47-02-21, N.D.C.C. The right to exercise the assignment of rents in this case is dependent upon the event of default in the making of the mortgage payments. It is a general assignment of rents, having reference to no specific lease of the real estate in question and is to continue in effect until the note and mortgage described therein have been fully paid and satisfied. It provides that a release of the mortgage constitutes a release of the assignment of rents. The lease was not of record at the time the land was conveyed to Gajewski and, as I have pointed out earlier, the warranty deed conveying the land to him makes no reference to the lease. The assignment of rents to accrue in the future, contingent upon default of the mortgage, does not purport to constitute an assignment of the lease in existence at the time the transfer was made to Gajewski. It is my opinion that the assignment of rents, in this instance, did not create an estate, or interest, or title, or the right of possession in the land. The future interest created under the assignment of rents was contingent because the event upon which it was limited to take effect remained uncertain and did not affect "the title to or possession of real property" as required by our recordation statute. Section 47-19-01, N.D.C.C. The recordation of the assignment, not being contemplated by the statute, constituted no notice to Gajewski of the assignment by the Skinners of future rents to the Bank. It is merely an assignment of the right to collect moneys which may become due in the future and, as such, does not affect or concern the real property. In my opinion it constitutes an assignment of a contingent chose in action, which is personal property, and does not come within our recording laws. For these reasons, the recording of the assignment of rents did not constitute constructive notice to Gajewski and the trial court's order should be affirmed. For cases arriving at a similar result see: Phelps v. Kroll, 211 Iowa 1097, 235 N.W. 67 (1931); Conley v. Fine, 181 App.Div. 675, 169 N.Y.S. 162 (1918); Washoe County Bank v. Campbell, 41 Nev. 153, 167 P. 643 (1917); Harris v. Taylor, 35 App.Div. 462, 54 N.Y.S. 864, appeal dismissed, 159 N.Y. 533, 53 N.E. 1126 (1899). KNUDSON, J., concurs in the above dissent.