Gillespie v. Bartlett Byers , 211 Ala. 560 ( 1924 )

The claimant, Gillespie, was in the status of a mortgagee in possession of the mortgaged premises after the law day and default in payment. He was entitled to the rents (not specifically pledged) for the year in which the possession was taken. The relations of claimant, Gillespie, and Ross arose out of the sale of land and mortgage for the purchase price due in the fall of 1920, which was defaulted, and thereafter the agreement of tenancy entered into on January 1, 1921.

When the mortgagor is allowed to remain in possession after the law day, he is entitled to take the rents and profits, unless (1) they are specifically pledged, or (2) unless the mortgagee claims or intercepts them by exercising his legal or equitable remedies — (A) by notice to the tenant to pay the rents to him as they accrue, (B) by entry on the land, as by recovering the possession by action at law, or (C) by foreclosure in equity, with or without the appointment of receiver. Coker v. Pearsall, 6 Ala. 542; Scott v. Ware, 65 Ala. 174; Comer v. Sheehan, 74 Ala. 452; Falkner v. Campbell,74 Ala. 359; Roulhac v. Jones, 78 Ala. 398; Strauss v. Harrison,79 Ala. 324; Perkerson v. Snodgrass, 85 Ala. 137, 4 So. 752; Mortgage Co. v Turner, 95 Ala. 272, 11 So. 211; Ala. Nat. Bk. v. Mary Lee C. Ry. Co., 108 Ala. 288, 19 So. 404. The same rule applies to a trust deed declared to be a mortgage. Lyon v. Powell, 78 Ala. 351; 4 Encyc. Dig. p. 144, § 1174.

In Draper v. Walker, 98 Ala. 310, 13 So. 595, it is declared that an action for trover or case cannot be maintained by a second mortgagee or his privy against a person who is in possession of personal property by purchase from a first mortgagee; that after default the legal title passes to the mortgagee, and nothing remains in the mortgagor but the equity of redemption, and the outstanding legal title is in the first mortgagee, superior to that of plaintiff holding under the second mortgagee. The reason for such rule is that the second mortgagee takes no greater title than the mortgagor has — a mere equity. Foster v. Carlisle, 148 Ala. 259, 42 So. 441.

The rights and liabilities as between different mortgagees have been the subject of discussion by this court. A first mortgagee having taken possession of the mortgaged property without objection or by consent of the mortgagor, his right to rents accruing during that possession before the filing of a bill by the second mortgagee was the subject of Falkner v. Campbell, supra. There is analogy to this case in the holding that, the first mortgage being declared void, there was a liability to the second mortgagee for rents. It is there said:

"The principle is too well settled in this state, either for controversy or discussion, that the mortgagor is the owner of the mortgaged premises, as against all the world except the mortgagee. He is therefore entitled to the rents, incomes, and profits of the mortgaged property, so long as the mortgagee fails to disturb his possession or right by the interposition of a legal claim to them. This claim may be made, as is well settled, by filing a bill for foreclosure, accompanied with the appointment of a receiver, by taking possession, or by otherwise giving notice in the nature of a demand. Johnston Stewart v. Riddle, 70 Ala. 219; Scott v. Ware, 65 Ala. 174."

The cases of Scott v Ware, supra, and Johnston Stewart v. Riddle, 70 Ala. 219, were mortgages on real and personal property. In Cook, Adm'r, etc., v. Parham Blunt, 63 Ala. 456, it was held:

"When the mortgagor dies in possession of the mortgaged premises, his widow is entitled to remain in possession, taking the rents and profits, until her dower is assigned, or until the mortgage is foreclosed; and she will not be charged with rents and profits, as a mortgagee in possession, at the suit of another mortgagee, because she took an assignment of the mortgage after her husband's death."

When the mortgagor and mortgagee changed their relation as to the lands (as they had the right to do after the law day of the mortgage) to that of landlord and tenant, the latter rightfully delivered the accruing rent to the former. This he may do despite the chattel mortgage given on the crops to be grown on the mortgaged premises. It will be noted that the chattel mortgage was given on July 23, 1923, after the law day of the first mortgage and default was made in payment of that mortgage.

Thus we are brought to a consideration of five decisions by this court: Waite, LaFils Co. v. Corbin, 109 Ala. 154. 19 So. 505; British American Mortg. Co. v. Cody, 135 Ala. 622,33 So. 832; Mecklin v. Deming, 111 Ala. 159, 20 So. 507; Hughes Tidwell Supply Co. v. Carr, 203 Ala. 469,83 So. 472; Shows v. Brantley (1899), 127 Ala. 352, 28 So. 716.

In Waite, LaFils Co. v Corbin, supra (1895), the theory of the defense was that a mortgagee who takes a mortgage upon a crop to be planted or growing, without any notice that the mortgagor in occupancy of the land is or may become a tenant as to the crops by reason of the contract under which he obtains possession of the land and the right to plant the crop, is an innocent purchaser in the sense that his mortgage lien is superior to that of the landlord. It was held that the plea did not present a defense to the complaint; that the fact that the mortgagee may have believed that the mortgagor-tenant was the owner of the land, and that the chattel mortgage was taken in good faith, cannot avail him against the right of the landlord, when his action was not affected in any way by the landlord. The court said:

"The fact that the tenant declared that he owned the land, or the mortgagee may have believed that he was the owner, and took his mortgage in good faith, his belief and action not having been superinduced by the landlord, cannot avail against the right of the landlord."

The relation of the parties on which this decision is predicated was that of a contract of sale of lands, with deferred payment, and which contained a condition for re-entry on default. There was default, after the giving of the mortgage by said vendee, and the title to said rents was held to be in the landlord as against that of such mortgagee.

The next case in the order cited is British American Mortg. Co. v. Cody (1902) 135 Ala. 622, 33 So. 832, where was applied the rule of the Waite-Corbin Case, supra, upon a similar sales contract, which provided that upon default the relation of landlord and tenant should immediately arise between the parties for one year, to begin from the specific date stipulated.

The two cases should be distinguished from that in which a deed is given and subsequently the land is deeded back to the first grantor, and a tenancy created at the time of such reconveyance by agreement of that date. In the latter case a chattel mortgage, on the crop grown on the land, given before default, and such agreement of tenancy and reconveyance of the land, was held to take precedence (Mecklin v. Deming, 111 Ala. 159,20 So. 507); that is to say, the title to the crop having passed from the "tenant" or grantor in the mortgage into said mortgagee before the "landlord" acquired the land by its reconveyance, and before the relation of landlord and tenant was created, therefore, before the inception of the rent lien, there was nothing for the lien to fasten upon save the tenant's equity. This is in effect opposed to the result the court now announces. It was shown that said chattel mortgage in Mecklin v. Deming, supra, had been recorded prior to the reconveyance, and therefore the landlord had notice thereof when the premises were reconveyed. He was held to have taken the reconveyance or purchased the land subject to the incumbrance of the chattel mortgage on the growing crop, or subject to the right of the mortgagee in respect of any crop which might be grown on the land by the tenant that year. Such was the rule applied to the purchase of property where the purchaser had notice of the mortgage. Shows v. Brantley (1899) 127 Ala. 352, 28 So. 716; First Nat. Bk. v. Howell, 165 Ala. 383, 51 So. 762.

In the instant case the purchase money was secured by mortgage, and deed was made to the vendee and duly recorded. The mortgage was due in the fall of 1920, and there was default, and the promise to give time that fall for further effort for payment. Failing in that behalf, in December, 1920, or the 1st of January, 1921, the parties agreed on resurrender of the possession, and their relation became that of landlord and tenant. This is shown by Ross' testimony as follows:

"That he had a conversation with Dr. Gillespie about this defaulted payment along the latter part of 1920 or the first part of 1921. That he told Gillespie in that conversation that, if he failed to get the money, the only thing he could do would be to deed the land back to him and rent it, that he wanted to stay there that year, and Gillespie told him just to stay ahead, and, if I failed to get the money, we would have to make some other arrangements. I then told him that if I failed to get the money that I would pay him rent on this land for the year 1921, and he told me that he would give me a chance on it, to try it. This was in the fall of 1920, either just before or just after Christmas. Mr. John Pullen was present and heard this conversation between us. I did not get the money and fell down on this payment. I paid him rent on this land for the year 1921. I did not pay him any rent for the year 1920. After our conversation, I stayed on this place for the year 1921 and paid him rent for that year. I paid him rent in the fall of 1921."

Dr. Gillespie testified:

"He [Ross] came to my office again the latter part of December or first of January, 1921, and said that he had failed to pay me and would rent the place and give me a deed back to it. I told him that I agreed to that. This was in January, 1921. The last conversation I had with him about it was in February, 1921, at Gadsden. He told me there that he would sign the deed whenever I fixed it. I told him I would fix the deed right away, but I did not do it then."

The witness to the conversation, Mr. Pullen, testified:

"That this was about January 1, 1921, and that there were present upon this occasion Ross, Gillespie, and the witness only That Ross was talking about what he owed Gillespie, and Gillespie told Ross it looked like the shape that he was in he couldn't carry it on, that he would have to have a little money and Ross said that he thought he could get some money, and that, if he didn't all he could do would be to deed the place back to Gillespie. Ross further told Gillespie in that conversation that he wanted to stay on the place, that he had got to stay somewhere, and that he would just rent the place from Gillespie."

The fact that the chattel mortgagee believed that his mortgagor (Ross) owned the land cannot avail him against the right of Dr. Gillespie, shown by the foregoing evidence to have been the landlord since January, 1921. The relation of the parties was not affected in any way by the landlord, but by the default of Ross in payment of his mortgage — the failure of his title. The holding of the majority has limited the right of the mortgagee in possession after default (the landlord), and its effect is to make superior thereto a mortgage taken without actual notice of the defect of mortgagor's title. This defect he is held in law to have known. It cannot with reason be said that the mere record of the chattel mortgage, taken and recorded after default had been made on the prior mortgage and possession surrendered, gained ascendency over the true owner of the land, merely because the parties thereto assumed the relation of landlord and tenant in accord with their prior relations, of which plaintiff is held to have had notice or knowledge.

The case, in principle, is not to be differentiated from Hughes Tidwell Supply Co. v. Carr, 203 Ala. 469, 83 So. 472. The instant agreement did not postpone the relation — of mortgagee and mortgagor in default and possession surrendered — and make it conditional upon a future contingency or default in the payment of the purchase price during the year 1921. The time given was for 1920. That default existed, and all the rights and liabilities and defects of title of the respective parties existed and were affected by that default, when plaintiff's mortgage was taken in July, 1921.

The failure to pay the purchase price installments makes the mortgagee's right of possession absolute. (1) This right existed before plaintiff's mortgage was executed and of which the latter had notice; (2) the agreement of the parties to the first mortgage related to their deed of reconveyance — this was the legal effect of the default and taking possession by mortgagee; (3) it was the default of which plaintiff is held to have had knowledge, or the means of knowing by virtue of the title and possession, that created in the common mortgagor a tenancy at will for 1920; (4) this relation of all the parties should be given the just result of allowing the loss to fall on him who sought security from a mortgagor who had only been a tenant at will during the fall of 1920. Hughes Tidwell Supply Co. v Carr, 203 Ala. 469, 83 So. 472; Avant v. Adams,16 Ala. App. 122, 75 So. 714. This intervention is under the statute; yet it is in nature an equitable action, and should determine the respective rights of the parties.

I cannot agree with my Brothers.