Federal Land Bank v. McCloud

This is an action to recover possession of certain clover and alfalfa seed, or for its value if possession cannot be had, and the right to maintain it depends upon ownership of the seed. The following pertinent facts, in addition to those quoted from the contract in the foregoing opinion, also appear therein: The land consists of 320 acres; the agreed purchase price was $18,488.48, which was to bear interest at five and one-half per cent per annum. The contract contains the following further provisions:

"If at the end of the fourth year from date of this contract, the principal has not been reduced through sale of crops to $9,000.00, the purchasers then agree to pay the difference between the balance due and $9,000.00, in two equal annual payments, the first instalment to be due and payable on the 15th day of October, 1931, and the second instalment on the 15th day of October, 1932, such amounts to be secured by a crop mortgage on all crops to be grown on said land during said years, such crop mortgage to be duly executed and delivered to the party of the first part on its demand. Upon the payment of said instalments and all interest then accrued on said purchase price, the purchasers shall be given title to the said property and shall at the same time execute a first amortization mortgage on said land and execute a note for $9,000.00, payable to the party of the first part, to cover the balance of said purchase price."

. . . . . . . . . . . . .

"It is further covenanted and agreed that should default be made in the delivery of said several payments of grain and other crops to be grown on said land, or any of them, or any part thereof, or in any of the covenants herein to be kept or performed by the parties of the second part, then this agreement is to be void at the election of the party of the first part, time being the essence of this agreement, and in such case all the right and interest of the parties of the second part hereby created or then existing shall utterly cease and determine, and the property shall revert to and revest in the party of the first part without any declaration of forfeiture or act of re-entry, and said parties of the second part shall have no right of reclamation or compensation for money paid or improvements made, as absolutely, fully and perfectly as if this agreement had never been made, and in such event such payments shall be retained by the party of the first part as compensation for the use and occupancy of said property by the parties of the second part and as rental therefor and as liquidated damage."

The distinction between a contract such as we have here under consideration and a lease, where the rent is payable with a portion of the crop, must not be lost sight of. Where the land is leased for part of the crop to be raised on it, the contract, when the lessor has placed the lessee in possession, has been executed by the former, and his right to his portion of the crop is due and will be payable when it is ready for delivery. In the meantime he and the tenant hold the crop as co-owners, or cotenants.

In a case, such as this, of the sale of land upon contract containing an agreement that a portion of the crops to be raised thereon shall be delivered to the vendor to be sold, the proceeds to be applied toward the payment of the purchase price and the amount of the payment to be determined and applied when the crops are disposed of, the contract does not vest in the vendor of the land title to the crops, or any portion thereof. (First Nat. Bank v. Andreas, 92 Cal. App. 62, 267 P. 937;Lynch v. Sprague Roller Mills, 51 Wash. 535, 99 P. 578; Moenv. Lillestal, 5 N.D. 327, 65 N.W. 694.) Such a contract is wholly executory, and the vendor and purchaser of the land do not hold the crops as co-owners, or cotenants, they are the property of the purchaser.

In First Nat. Bank v. Andreas, above cited, the court said:

"From the beginning, the courts have held that the position of a vendor where the purchaser is in possession under the contract is 'analogous to that of a mortgage.' "

The court further said:

"In its general effect, the rule is that until foreclosure, the mortgage creates no estate in the mortgagee and the mortgagor is entitled to such an absolute right and dominion over the crops that a crop mortgage executed by him to a third party takes precedence over any terms in the original mortgage seeking to give a prior security on the crops to the mortgagee. 'A purchaser let into possession has, it is said, the same general rights with respect to crops raised by him as a mortgagor would have, and so long as there has been no default on his part or he is permitted to remain in the possession, the crops raised and harvested belong to him.' "

In a case such as this the ownership of the land, by its purchaser, is dependent upon his delivery of the crops to the vendor to be sold in order that the proceeds may be applied according to the terms of the contract. The vendor never acquires ownership in the crops, but only a right to possession thereof in order that they may be sold and the proceeds so applied.

One who carefully reads this contract will observe that it does not vest title in appellant to the alfalfa and clover seed to be raised, but does expressly provide that:

"The proceeds from the sale of the grain and other crops so turned over to the party of the first part shall be applied, first, to the payment of interest; and second, to the payment of the principal."

Title to the seed may be determined by ascertaining to whose use and benefit the proceeds of the sale thereof is to be applied. If the money arising from the sale had been made applicable to the payment of a debt of appellant, it might well be determined that it owned the seed. Since this money was, under the contract, applicable to the payment of McCloud's obligation, being the purchase price of the land he had contracted to acquire, the seed was his property which he had contracted should be sold to the end that the money arising therefrom be paid to appellant upon the purchase price of the land.

In construing this contract it is important to ascertain what construction the parties themselves have placed upon it. (13 C. J. 546, sec. 517.) The undisputed facts, as disclosed by the record, are that the crops in 1927, 1928 and 1929 were harvested and, with the exeception of one load of alfalfa seed, were sold by McCloud. In those years he applied upon the contract the portion of the proceeds which it is provided therein should be so applied, and some money in addition thereto. With respect to one load of seed, the witness Cady, an agent of appellant, testified that in March, 1930, he went to the place of business in Buhl of respondents, Shields and Gannon, and found that for the year 1929 McCloud had stored one load of alfalfa seed in the name of the Federal Land Bank. The only credit given on the contract in 1929 is for $1,169.27, and is dated December 2d of that year. Since the load of alfalfa seed was still in the warehouse in March, 1930, it is apparent McCloud never got credit for it, and that every payment appellant received and credited on the contract was made in money and not by a division and delivery of crops, and there is no evidence that it ever objected to, or protested because of, this method of carrying out the contract.

Under date September 15, 1930, R.E. Shepherd, chairman of the board of directors of appellant corporation, wrote a letter to McCloud, a copy of which was introduced in evidence as plaintiff's Exhibit "D." It appears from the letter that McCloud had applied for permission to sell three 80-acre tracts of the land he had contracted to purchase from the bank, and with the proceeds thereof to pay off his entire indebtedness to the bank and thereby retain one 80-acre tract clear. Reference is made in Exhibit "D" to the fact that it had become necessary for appellant to borrow money and had turned over to a commission all its real estate, including that which it had contracted to sell to McCloud, to secure the repayment thereof and that one Newcomb had been placed in charge of it. Mr. Shepherd stated in his letter:

"The best I could get Mr. Newcomb to agree to was that if the proceeds from one-half of this year's crop are paid over to the commission according to the terms of the contract, and if the money advanced for maintenance is repaid, and the unpaid taxes are squared up to date, he would then be willing that such part of the land be sold by you at prices and upon terms to be approved by him, and the proceeds of the sale turned over to him as received; he would hold these sale papers as collateral to your contract, and when paid out the remainder of the land would be conveyed to you. In other words, if three of the eighties can be sold as we have thought they might be, for sufficient to pay off the debt, then you would have the eighty across the road from your house clear."

Mr. Shepherd's statement that "if the proceeds from one-half of this year's crop are paid over to the commission according to the terms of the contract" undoubtedly refers to the contract between McCloud and appellant, and his letter clearly expresses his understanding as to who had title to, and right to sell, the crops and as to whether it was crops or money, the proceeds thereof, which was to be applied toward payment for the land.

Under date October 26, 1930, the Federal Land Bank wrote a letter to McCloud, a copy of which was introduced in evidence as plaintiff's Exhibit "C." In that letter it is stated:

"Under the terms of your contract it is now in order for us to apply the receipts for one-half of the 1930 crop as sold and divide the remaining sum due, above $9000.00, into two notes to be covered by crop mortgages due October 15, 1931 and 1932 respectively.

"Kindly examine your contract and see if this is not right."

That letter also refers to the contract between McCloud and appellant and clearly shows the bank's understanding of what was to be applied upon the purchase price of the land, and that it was money derived from the sale of a portion of the crops and not a portion of the crops themselves. Up to that time no objection had been made to the crops being sold by McCloud, the trouble started when he refused to apply the proceeds toward the payment of the purchase price of the land, but instead of doing so applied it toward the payment of his debts to others, incurred in operating the land.

The record also shows, and there is no dispute about it, that the grain (wheat and corn) produced in 1930 on the land described in the contract was sold by McCloud and the money derived from it was turned over to appellant, and appellant accepted it without complaint or contention that the contract had been violated by failure to deliver the grain.

The contract itself stated, clearly, that it was the proceeds of the sale of crops, and not the crops themselves, which were to be applied toward the purchase price of the land. It was therein recited:

"The proceeds from the sale of the grain and other crops so turned over to the party of the first part shall be applied, first, to the payment of interest; and second, to the payment of the principal."

It is true the contract provided that a portion of the crops which, at the time it was entered into, was not in existence should be turned over by McCloud to appellant, but it is also true that this was only for the purpose of having the proceeds thereof applied, not to the use and benefit of appellant, nor as appellant might elect to do with its own property, but toward the payment of the purchase price of the land which it had contracted to sell to him and which he had contracted to purchase. These circumstances make it clear that the contract was wholly executory, and that the rule which this court quoted with approval from 23 Rawle C. L., p. 1251, and followed inBertleson v. Van Deusen Brothers Co., 37 Idaho 199,217 P. 983, 984, is controlling. It is as follows:

"When the sale is executory, if the seller refuses to deliver at the appointed time it is very clear the buyer can maintain neither trespass nor trover for the property contracted to be delivered, though the seller may then have it in his possession, and afterward sell it to someone else. Not having actual possession nor any legal title conferring right of immediate possession, he can maintain neither of these actions. His remedy is by an action on the contract itself, for a breach in refusing to deliver according to its terms."

The majority of this court is unable to distinguish between a lease where the rental is payable by a share of the crops and the contract here under consideration so far as it affects the ownership of the crops, and appears to have been confused, to some extent, by the following fragment of an opinion which it has quoted from the supreme court of Washington in Lynch v. Sprague Roller Mills, above cited, namely:

". . . . the construction which courts have uniformly placed on contracts between landlord and tenant is a safe rule to follow in construing similar contracts between vendor and purchaser."

The author of the majority opinion could not have quoted more than he did from that case without pointing the way to a correct decision of this one. The following is what the supreme court of Washington said on the subject:

"It is an elementary rule of law that the occupier of land is the owner of all crops harvested during the term of his occupancy, whether the occupant be a purchaser in possession, a tenant in possession, or a mere trespasser in possession holding adversely. (Citing authorities.) It follows, therefore, that any claim or interest the respondents may have had in the crop in controversy arose out of the contract of sale, the material parts of which we have already set forth. That contract simply provided that the principal and interest to become due on the purchase price of the land should be paid out of the proceeds of the sale of the crops, and that the respondents and the purchasers of the land should jointly designate the warehouse or station where the wheat should be stored, and the time when the wheat should be sold. These provisions in our opinion fall far short of vesting in the respondents any right or title in the crops. There may be no direct analogy between the relation of landlord and vendor, but, independent of statute, the rights of either in crops grown on the land which is the subject of the sale or lease are dependent on contract, and the construction which courts have uniformly placed on contracts between landlord and tenant is a safe rule to follow in construing similar contracts between vendor and purchaser. The general rule on this subject as between landlord and tenant is thus stated: 'The title to the crops raised by one man on another man's farm depends largely, if not entirely, upon the contract between the two men. If the contract amounts to a lease or demise of the land by the owner to the occupier, then clearly the crops belong to the occupier whether he pay rent in money, or in kind by a share of the crops. The occupier in such case becomes the owner pro hacvice, and has title to the products of the farm until division.' (Citing authorities.) See, also, Moen v. Lillestal,5 N.D. 327, 65 N.W. 694, where a very similar contract was construed, and held not to confer any right in the crops upon the vendor. But cases might be multiplied holding that contracts far more favorable to the contention of the landowner than is the contract in suit were insufficient to vest in such landowner any title or interest in crops garnered by another."

Whereupon, the supreme court of Washington reversed the trial court because it had decided the question the same as the majority of this court has done.

Appellant contends that, in any event, it is entitled to judgment against McCloud for damages in the amount of the value of the crops he failed to deliver pursuant to the contract, under the provisions of our statute, sec. 7-704, to the effect that the court may grant a plaintiff any relief consistent with the case made by the complaint embraced within the issues.

Appellant is not entitled to judgment against McCloud for damages in the amount of the value of the crops he failed to deliver, because delivery of the crops was due only as a payment upon the contract to purchase the land, and they were to be sold and the proceeds applied to the purchase price of the land. The crops were not delivered and no interest in the land, because of them, was neither acquired by McCloud nor lost by appellant.

There is no evidence in the record to show what damage, if any, appellant has suffered by reason of McCloud's breach of the contract.

The judgment should be affirmed.