Case Name: FLANAGAN, Trustee in Bankruptcy, Respondent, v. FULLER et al., Appellants
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 1927-06-15
Citations: 79 Mont. 590
Docket Number: No. 6,122
Parties: FLANAGAN, Trustee in Bankruptcy, Respondent, v. FULLER et al., Appellants.
Judges: Mr. Chief Justice Callaway and Associate Justices Stark, Matthews and Galen concur.
Reporter: Montana Reports
Volume: 79
Pages: 590–605

Head Matter:
FLANAGAN, Trustee in Bankruptcy, Respondent, v. FULLER et al., Appellants.
(No. 6,122.)
(Submitted June 4, 1927.
Decided June 15, 1927.)
[257 Pac. 475.]
Messrs. Freeman, Thelen & Frary, for Appellants, submitted a brief; Mr. James W. Freeman argued the cause orally.
Messrs. Miller & Wiley, for Respondent, submitted a brief; Mr. C. W. Wiley argued the cause orally.

Opinion:
MR. JUSTICE MYERS
delivered the opinion of the court.
This is an action in conversion. Plaintiff sued for the value of 480 bushels of wheat.
The complaint alleges that plaintiff is and was at, all times mentioned trustee in bankruptcy of the estate of one Berry Mackey, a bankrupt; that Frary & Burlingame, defendants^ are partners; that, during 1924, defendant Fuller cultivated land belonging to said estate and threshed and harvested, on said land, and delivered to an elevator 480 bushels of wheat, of the value of $624, belonging to plaintiff; that on November 19, 1924, defendants wrongfully took and carried away the wheat, then owned by plaintiff and he being entitled to the possession thereof, and converted.it to their own use, to plaintiff's damage in the sum of $624; that plaintiff made demand of defendants for the storage tickets for the wheat or the value thereof and defendants failed to comply. Judgment for the value is asked.
The answer admits the allegations as to the character of the litigation. It then admits that Fuller cultivated the land, threshed and harvested the wheat and delivered it to 'an elevator; admits the value; admits the demand of plaintiff and the failure of defendants to comply; denies all other allegations of the complaint.
Further pleading, for an affirmative defense, the answer alleges that Frary & Burlingame, partners and defendants, are agents of the Phoenix Mutual Life Insurance Company, a corporation, and, as such, have charge of its mortgage loans in Montana; that, on August 2, 1919, Berry Mackey and Emma M. Mackey, his wife, executed and delivered to that corporation their promissory note for the sum of $6,000 and, to secure it, executed and delivered to the corporation, a mortgage of the land on which the wheat was harvested; that the mortgage was recorded; that, on October 31, 1921, Berry Mackey was adjudged a bankrupt and, on December 9, 1921, F. A. Flanagan, plaintiff, was appointed trustee in bankruptcy of his estate and qualified and has been since and is such trustee; that thereafter Berry Mackey died and, on October 22, 1923, Emma M. Mackey was appointed executrix; that the mortgagors failed to pay the interest due on the mortgage on December 1, 1923, amounting to $360, and that, thereupon, under the terms of the mortgage, the principal became due and on October 13, 1923, the Phoenix Mutual Life Insurance Company commenced an action to foreclose the mortgage; that because of the failure of the mortgagors to pay, December 1, 1923, interest or principal, due that day, the insurance company, on September 12, 1924, demanded of Defendant Fuller, tenant in possession of the mortgaged land, the rents and profits of the land for 1924 and he agreed to deliver to it such rents and profits and Emma M. Mackey consented thereto; that thereafter Defendant Fuller did deliver to Defendants Frary & Burlingame, as agents, such rents and profits, being 480 bushels of wheat, of the value of $624, which they accepted as such rents and profits.
A copy of the mortgage was attached to and made a part of the answer. It contains a default provision, providing that in the event of the failure of the mortgagors to pay principal or interest, when due, or any taxes, assessments or insurance, as required, or to comply with any of the requirements of the mortgage then all of the debt secured should become due and collectible and the mortgagee could pay all such taxes and the like and the mortgage could be foreclosed for the full amount, with disbursements; and all rents and profits of the property should then immediately accrue to the benefit of the mortgagee and a receiver might be appointed to collect 1he rents, issues and profits pending the foreclosure suit and until the expiration of the time for redemption. There is in the mortgage no provision, such as often found, for immediate entry upon and possession of the premises, by the mortgagee, upon any default of the mortgagors; nor is there any provision, as is common, for summary sale of the premises, without foreclosure, in the event of a default.
The ease was tried to the court, without a jury. Judgment for plaintiff was rendered. Defendants appealed and assign as specifications of error that the judgment is contrary to the law and the evidence is insufficient to justify the judgment.
The issue is wholly one of law. The facts are few. There is substantially no conflict in what little evidence there is.
Mackey and wife executed their note and mortgage to the insurance company, August 2, 1919. The mortgage was recorded. October 31, 1921, Mackey was adjudged a bankrupt. December 9, 1921, Flanagan, plaintiff, was appointed trustee in bankruptcy of his estate and qualified and took charge. Thereafter (not shown when) Mackey died. October 22, 1923, the widow was appointed executrix but we do not see that that is any factor in the case. December 1, 1923, interest, in the sum of $360, on the note became due. It was not paid then nor thereafter but remained unpaid. In 1924, Fuller, a defendant, was on the land, as he had been theretofore. Flanagan, as trustee, leased the land to Fuller, to farm, for the year 1924. The terms of the lease provided that Fuller should receive two-thirds of the crop, the remaining one-third to be hauled to an elevator at Loma and the tickets representing such third to be delivered to Flanagan, as trustee. Fuller raised a crop of wheat in 1924. He harvested and threshed it, in August, of that year, and the grain was put in the granary on the premises. One-third of it amounted to 480 bushels, of the value of $624. September 12, 1924, Frary & Burlingame, defendants and agents, demanded - of Fuller the landlord's share of the crop. At that time he did not act on the demand. Later, he hanled the landlord's one-third to the elevator and there stored it, as required by the lease given Mm by plaintiff, and took storage tickets therefor. Demand was made of him, by plaintiff's counsel, for the storage tickets but the demand was not complied with. October 13, 1924, the insurance company instituted an action to foreclose its mortgage. About November 19, 1924, Fuller delivered to Frary & Burlingame the storage tickets for the one-third of the grain claimed by both them and plaintiff and Frary & Burlingame got the value thereof. Hence, this action.
We deem the decision of this court in the case of Sharp Bros., Inc., v. Bartlett, 76 Mont. 415, 248 Pac. 199, decisive of this case. The two are quite analogous. That case was in claim and delivery and this case is in conversion but on principle we see no difference. In the Sharp-Bartlett Case, the mortgage contained, verbatim, the same default provision as is contained in the mortgage in this case. In neither case did the mortgage give the mortgagee the right to enter and take possession of the mortgaged premises. In that respect, both cases differ from the case of Union Central Life Ins. Co. v. Jensen, 74 Mont. 70, 237 Pac. 518.
True, as counsel for defendants say, the decision of the Sharp-Bartlett Case is predicated in part upon the rule, stated in the opinion, that in claim and delivery the defendant can defeat the plaintiff's right of recovery by showing that the right to the possession of the property is in a third party, with the qualification that the rule has no application unless the third party's right of possession is absolute and that the mere fact that property is mortgaged to another does not, of itself, defeat the plaintiff's right of action, and the opinion cites Conrad Merc. Co. v. Siler, 75 Mont. 36, 241 Pac. 617. However, the decision in the Sharp-Bartlett Case goes further than that. The opinion says: "Seemingly, the court accepted Olson's version that he had not agreed to turn over to Frary, for the mortgagee, the crop rentals of the land for 1924, to apply on the mortgage, and, therefore, he had not divested himself of the right of possession in the same." Thus, in that ease, this court held that the right of possession of the landlord's share of the crop was in Olson, the landlord. Under similar conditions, in this case, it was in plaintiff. If the mortgage provision as to rents and profits, in that case, in the event of default, did not divest Olson of the right to the possession of the landlord's share of the crop, it did not in this case.
Clearly, at the time of the alleged conversion, plaintiff, as trustee in bankruptcy, standing in the shoes of the mortgagors and being in fact the landlord, was the owner of the wheat in the elevator and which, it is claimed, was converted and he was entitled to the possession thereof. He had a proprietary interest in the crop while it was grow ng and he became entitled to one-third of it, immediately upon the harvesting and threshing of the crop. Power Merc. Co. v. Moore Merc. Co., 55 Mont. 401, 177 Pac. 406, is authority for that assertion. Let it be remembered, too, that Frary & Burlingame did not make a demand on Fuller for the landlord's share until after the crop had b§en harvested and threshed.
This case is a stronger case, in favor of the plaintiff, than was the Sharp-Bartlett Case. In that case, the landlord's share was seized immediately upon the threshing of it, while in possession of the tenant and before it had been delivered to the landlord; while in this case the wheat had been not only harvested and threshed but it had been segregated and the landlord's share had been stored, delivered, in an elevator, as provided by the terms of the lease, before defendants, through Fuller's action, obtained possession thereof. When the landlord's share was stored in the elevator, it was plaintiff's property and it was Fuller's duty to give plaintiff the storage tickets but he did not do it and, instead, he and the other defendants converted the property.
This view is supported not only by the Montana cases we have cited but by Freeman v. Campbell, 109 Cal. 360, 42 Pac. 35; Moncrieff v. Hare, 38 Colo. 221, 87 Pac. 1082; Mc Gahan v. First Nat. Bank, 156 U. S. 218, 39 L. Ed. 403, 15 Sup. Ct. Rep. 347 [see, also, Rose's U. S. Notes]; Jones on Mortgages, 5th. ed., sec. 670; and other authorities..
Fuller, in his testimony, made some reference to a dispute of Mrs. Mackey's as to who was entitled to the rental and, also, to a verbal understanding with Mrs. Mackey but he testified to nothing that would relieve him of his duty to put in the elevator, for plaintiff, one-third of the wheat. He operated under a written lease from plaintiff, which required him to put the third in the elevator, for plaintiff. He had solicited the written lease; he obtained and accepted it and proceeded under it; he was bound by it. The estate being in bankruptcy and in charge of plaintiff, as trustee in bankruptcy, there is nothing in the record to show that Mrs. Mackey had any authority in the premises. There is nothing in the record to justify Fuller in turning over to Frary & Burlingame the landlord's share of the crop.
To the doctrine declared by the supreme court of the United States in Freedman's Savings & Trust Co. v. Shepherd, 127 U. S. 494, 32 L. Ed. 163, 8 Sup. Ct. Rep. 1250, cited by counsel for defendants, to the effect that it is competent for the parties to provide in the mortgage for the payment of the rents and profits to the mortgagee, while the mortgagor remains in possession, we assent but that agreement is not found in the mortgage in this case. Stripped of parenthetical words and clauses, not necessary to the point in question, the default provision in the Mackey mortgage says: "It is agreed that if the mortgagor or the maker or makers of the obligation secured in this indenture shall fail to pay the principal or any interest as the same becomes due, then all of the debt secured hereby shall become due and collectible and this mortgage may be foreclosed for the full amount and all rents and profits of said property shall then immediately accrue to the benefit of the said mortgagee; and that a receiver may be appointed to collect the rents, issues and profits pending the foreclosure suit and until the time for redemption expires."
We hold that, under a plain construction of that language, .taken at its ordinary meaning, it means that, upon default in payment of principal or interest, when due, foreclosure proceedings may be instituted and then the rents and profits shall accrue to the mortgagee and a receiver may be appointed to collect the rents, issues and profits pending the foreclosure suit. Pending the foreclosure suit undoubtedly means while the suit is pending; after its institution. Taken together, undoubtedly the words of the default provision mean that the rents and profits shall accrue to the mortgagee only after suit is brought and the mortgagee may have appointed a receiver to collect the same while the suit is pending and during the further period of redemption. The word "issues," injected into the latter part of the provision, means nothing more than is denoted by "rents and profits." To our minds, it is intended that a receiver must be appointed, to collect the rents and profits, if the mortgagee shall claim them. That was not done. This conversion took place November 19. Foreclosure suit was started October 13. When a decree was obtained, if at all, is not shown. There is nothing to show it was obtained before November 19 and we may not assume it was.
Counsel for defendants cite a number of authorities in support of their contentions. We have examined all of them and we do not consider any of them applicable. One of the chief cases upon which counsel rely is that of In re Jarmulowsky, 224 Fed. 141. The mortgage in that case was not the same as in this case. In that case, the mortgage provided that, upon default in payment of principal or interest, the mortgagee would have the right to enter upon and take possession of the premises and to let the same and to receive the rents, issues and profits thereof, "hereby assigned to the mortgagee." No such sweeping provision is in the Mackey mortgage; no provision for entering or taking possession of the premises or letting the same; no assignment of the rents, issues and profits. In re Israelson, 230 Fed. 1000, cited by .counsel, is a case in which the mortgage contained the same provisions as did that in the case last mentioned. Other cases cited by counsel we deem equally inapplicable.
"We hold that the trial court did not err in rendering its judgment. The judgment is affirmed.
Affirmed.
Mr. Chief Justice Callaway and Associate Justices Stark, Matthews and Galen concur.