Equitable Life Ins. Co. of Iowa v. Brown

• Decision Date: 17 July 1935
• Docket Number: 42855.
• Citation: 262 N.W. 124,220 Iowa 585
• Parties: EQUITABLE LIFE INS. CO. OF IOWA v. BROWN et al. (HENDERSON, Intervener).
• Court: Iowa Supreme Court

262 N.W. 124

220 Iowa 585

EQUITABLE LIFE INS. CO. OF IOWA v. BROWN et al. (HENDERSON, Intervener).

No. 42855.

Supreme Court of Iowa.

July 17, 1935

Appeal from District Court, Linn County; Atherton B. Clark, Judge.

This is an action for the foreclosure of a real estate mortgage containing a chattel mortgage clause, and for the appointment of a receiver. From a decree in favor of the plaintiff certain defendants have appealed. The opinion states the facts.

Affirmed.

John D. Randall and Dean Stauffacher, both of Cedar Rapids, for appellants Nathaniel Brown and Farmers Savings Bank of Martelle, Iowa.

Carl M. Adams, of Des Moines, and Frank C. Byers, of Cedar Rapids for appellee.

HAMILTON, Justice.

The defendant, Clayton N. Brown and his wife, Alice Noble Brown, on May 18, 1928, executed two promissory notes in the total principal sum of $14,250, being the notes in suit, and to secure the same simultaneously therewith executed and delivered to plaintiff a mortgage which is in the usual form of real estate mortgages, containing a chattel mortgage clause, the granting clause of which is in the following language:

" Does hereby sell and convey unto the said second party, its successors and assigns forever (certain real estate, describing it) * * * and also all the rents, issues, uses, profits and income therefrom and the crops raised thereon from the date of this instrument until the debt secured hereby shall be paid in full.

To have and to hold the premises above described with all the appurtenances thereunto belonging, and all estate, title, dower, right of homestead and claims whatsoever of said first party unto the said second party, its successors and assigns forever."

In the defeasance clause provision is made for the appointment of a receiver to take possession of said property, both real and personal, pending foreclosure sale and redemption, and to collect the rents, etc. The mortgage was duly filed for record and recorded in the regular real estate mortgage records of the county, and was also indexed in the chattel mortgage index records on May 21, 1928.

This suit was started by the filing of a petition in the district court of Linn county, Iowa, on March 20, 1934. Prior to the filing of the petition, to wit, on October 16, 1933, the defendant Clayton N. Brown, who was the owner of said real estate and the mortgagor, entered into a written lease with the intervener, J. M. Henderson, for the year beginning March 1, 1934, the rental stipulated being $900, evidenced by two promissory notes, one for $400 and one for $500, due respectively on December 1, 1934, and February 1, 1935. On November 27, 1933, this lease was assigned in writing by said Clayton N. Brown, for a valid consideration, to his father, the defendant, Nathaniel Brown. On February 17, 1934, another written lease was entered into between the defendant Clayton N. Brown, and the intervener, J. M. Henderson, leasing said premises to Henderson for the term of one year beginning March 1, 1935, the rental stipulated being $900, evidenced by two promissory notes, one for $400 due December 1, 1935, and one for $500 due February 1, 1936. On March 18, 1934, this lease was likewise assigned in writing by said Brown for a valid consideration to the defendant Farmers Savings Bank of Martelle, Iowa. The rent notes in each instance were likewise transferred to the assignee at the time of the making of the assignment of said respective leases.

The petition is in the usual form and prays for judgment against the mortgagors and against the real estate, and that the judgment be decreed to be a lien upon the mortgaged premises from the date of said mortgage, and upon the rents, issues, profits, and crops, and that said mortgage be foreclosed, both as a chattel mortgage, and as a real estate mortgage, and for the appointment of a receiver and for general equitable relief.

The lessee, J. M. Henderson, intervened, setting up the fact of the execution of said leases prior to the commencement of said foreclosure suit, and the subsequent assignment of said leases to the appellants, and alleging he had subleased said premises to the defendants Henry Coligan and wife, and the occupancy of same by said sublessees, and asking and praying that his rights under said leases be decreed to be paramount to any lien of plaintiff, and further, that the court find and determine who is entitled to receive the rent under said leases, and for general equitable relief.

Separate answers were filed by the defendants Clayton N. Brown and Alice Noble Brown, makers of the notes and mortgage sued upon, setting up practically the same allegations with reference to the leasing of said premises, denying the security is inadequate and plaintiff's right to the rents and to a receiver, the wife also averring she is not personally bound, having signed as wife for the sole purpose of releasing her dower interest.

The issues as to the right to rents and profits were raised by separate answer of each of the appellants. By way of amendment to the original petition and by reply, the plaintiff averred that by virtue of the terms and provisions of its mortgage it acquired a first and prior lien on the leases and notes aforesaid, immediately upon their execution, and that said lien was prior to any rights whatsoever of the defendants or said intervener.

The case was tried on a stipulation of facts and a decree was rendered in favor of the plaintiff for the full amount of the indebtedness found to be due, the decree providing: " Judgment is hereby rendered and entered against the defendants, Clayton N. Brown and Alice Noble Brown and the real estate hereinafter described and also against the rents, issues, uses and profits from the said real estate * * * and said judgment is hereby decreed to be a first and prior lien on and against the mortgaged premises, to-wit: (Here follows a description of the real estate) from the date of the mortgage declared on, to-wit: May 18, 1928. * * * That a special execution issue against the above described mortgaged premises to make and satisfy said total sum and judgment and costs and accrued costs, and that the premises above described or so much thereof as is necessary to be sold at special execution sale. * * * That the plaintiff, by virtue of the terms and provisions of its mortgage and the commencement of this action, acquired and has a first and prior lien against all of the rents, issues, uses, profits and crops from the real estate hereinbefore described and that the said lien is prior and superior to any interest, lien, right or title which the defendants or any of them, or the intervener, may have or claim." The decree further provides for the appointment of a receiver and for the issuance of an injunction restraining the disposition of the leases or rent notes involved in this litigation. From this decree the defendants Nathaniel Brown and Farmers Savings Bank of Martelle, Iowa, have appealed to this court.

The specific grounds pointed out and argued by the appellants and relied upon for reversal are: (1) The so-called " chattel mortgage clause" in real estate mortgages is effective only as to crops and is a chattel mortgage only by virtue of the use of the word " crops," and if the decree of the court is to be construed as giving the plaintiff a first lien on the rents, issues, and profits by virtue of the so-called " chattel mortgage clause," the court erred in so holding. (2) Rents, issues, uses profits, and income of real estate are incorporeal rights, and are therefore not such personal property as is subject to a chattel mortgage, and the so-called " chattel mortgage clause" would not be effective to give a lien on these incidents to title from the time of the execution and filing and/or indexing of the mortgage, and the court therefore erred in holding that the indexing of the mortgage gave to the plaintiff, by virtue of its so-called " chattel mortgage clause," any rights superior to the rights secured by the plaintiff by virtue of the defeasance clause in its mortgage. (3) Because the mortgagor did not raise the crop, the chattel mortgage on the crop was not effective, as a crop was not raised by the individual who executed the mortgage. (4) The attempt to cover the rents, issues, uses, and profits by the so-called " chattel mortgage clause" being ineffective, the lien of the mortgage as to the rents and profits would not become effective until the filing of the petition. (5) The assignment of the leases for valuable consideration before the commencement of the foreclosure action gives to the assignees of said leases the right to the rents during the period of redemption, and the court erred in holding that the plaintiff secured any rights to the rents, issues, profits, and income until the filing of the foreclosure petition and in holding that the plaintiff has any right superior to the rights of the assignees. (6) The court, in its judgment, provided for the sale of the real estate and appointed a receiver to collect the rents. That under the theory of the decision of the court, the rents, issues, uses, profits, and income of the real estate were only secondary security, the real estate being the primary security. That said decision was under and by virtue of the defeasance clause and not the granting clause, and any...