Pollack v. Sampsell

• Decision Date: 03 May 1949
• Docket Number: No. 11977.,11977.
• Citation: 174 F.2d 415
• Parties: POLLACK v. SAMPSELL et al.
• Court: U.S. Court of Appeals — Ninth Circuit

174 F.2d 415 (1949)

POLLACK v. SAMPSELL et al.

No. 11977.

United States Court of Appeals Ninth Circuit.

May 3, 1949.

Peter T. Rice, of Los Angeles, Cal., for appellant.

Craig & Weller and A. R. Early, Jr., all of Los Angeles, Cal. (Thomas S. Tobin, of Los Angeles, Cal., of counsel), for appellee.

Before STEPHENS, HEALY, and POPE, Circuit Judges.

POPE, Circuit Judge.

Appellant here asserts his right, as beneficiary under trust deeds of orchard lands, to the proceeds of a crop of oranges harvested by the trustee in bankruptcy while appellant was prevented by order of the bankruptcy court from completing a sale of the lands under powers of sale contained in the trust deeds. The district court confirmed the referee's determination that appellant had no interest in the crop.

Judd Bradley and wife owned the land upon which the crop was grown. They had given trust deeds to appellant's predecessor to secure the payment of notes. The instruments, executed and recorded as deeds of trust of real property, but not conforming to the requirements of California Civil Code, Section 2956, relating to mortgages of crops, provided that the holder of the trust deeds had the right "as additional security to collect the rents, issues and profits" of the real property, which was situated in Tulare County, California.

On July 1, 1947, there had occurred defaults in the payment of two installments due under the notes and trust deeds, and on July 10, 1947, the appellant filed for record in the office of the county recorder a notice of default pursuant to California Civil Code Section 2924. Thereafter the appellant gave notice of sale of the real property, the sale to be held on October 31, 1947.

From the time of the recording of the notice of default and until after the 31st day of October, 1947, a crop of oranges was growing upon the land. In the meantime the Bradleys gave to Raymond M. Anderson and wife a mortgage upon the crop, to secure a preexisting indebtedness. This was recorded September 13, 1947.

On October 9, 1947, 22 days prior to the date of the scheduled sale, each of the Bradleys filed in the court below a petition for an arrangement under Chapter XI of the Bankruptcy Act. On the same day the petition was referred to a referee in bankruptcy and also on the same day the referee, upon the petition of the debtors, issued an order to show cause and restraining order requiring the appellant to show cause why he should not be enjoined and restrained from enforcing his lien or liens upon the Bradley lands, and restraining him from doing any act to that end during the pendency of the hearing on the order to show cause.

The record does not disclose when this order was served upon the appellant, but appellant appeared on October 16 and objected to the granting of the injunction order prayed for. The stay of foreclosure proceedings thus ordered appears to have remained effective until December 24, 1947, and in the meantime the appellee had been appointed a receiver and had initiated proceedings before the referee and against the appellant to procure an adjudication that the appellant had no right in or to the crops growing upon the real property. In those proceedings the referee issued an order directed to the appellant requiring him to appear on November 10, 1947, to show cause why an order adjudging that he had no interest in the crops should not be made.

On the date required appellant appeared and filed his objections to the order to show cause, claiming that the crops were part of the real property, setting forth the steps taken to foreclose the trust deed, asserting that the land was of insufficient value to pay the secured indebtedness and asserting that to deprive the holder of the trust deed of the crops would permit an unfair advantage to be taken on behalf of the unsecured creditors and deprive the appellant of his security and lien, without just compensation.

Before the referee had acted upon the matter thus at issue before him, the crop had matured and it was harvested and sold by the receiver through an arrangement approved by the referee, and the net proceeds of the sale of the crop were impounded awaiting determination of these proceedings.

The proposed arrangement was never effectuated and adjudication in bankruptcy was made December 18, 1947, and the appellee appointed trustee. On December 24, 1947, the order restraining foreclosure proceedings was vacated and appellant granted permission to proceed to foreclose. Sale was had under the trust deeds on January 7, 1948, but after the crop had been harvested and disposed of in the manner indicated.

It is conceded that the sale of the land resulted in a deficiency in excess of the amount for which the crop had been sold. On February 9, 1948, the referee made findings of fact and conclusions of law and an order to the effect that the appellant was adjudged to have no right, title or interest in the crop of oranges or the proceeds of sale thereof. At the same time the referee adjudged the Anderson's crop mortgage void as against the receiver, as an unlawful preference, but directed that it be "preserved for the benefit of this estate."

Upon petition by the appellant for a review of the referee's findings and order, the district court confirmed the order of the referee and this appeal is taken from that order.

The rights asserted by the appellant are predicated upon his claim that had he been permitted to proceed with the scheduled sale on October 31, 1947, the purchaser at the sale would have acquired title to the land, and with it title to the then unharvested crop of oranges, and this notwithstanding the existence of the crop mortgage to the Andersons. He relies upon the case of Penryn Co. v. Sherman-Worrell Fruit Co., 142 Cal. 643, 76 P. 484, 100 Am.St.Rep. 150.

The contention of the appellant is that since he had initiated proceedings which in regular course would have resulted in his securing the benefit of the crop of oranges, the intervention of the proceedings in bankruptcy ought not to take the benefit from him. He does not question the power of the referee to restrain his scheduled foreclosure sale, but asserts that it was the duty of the bankruptcy court to preserve all existing equities as of the date of the petition and that therefore he should be entitled to the net proceeds of the sale of the crop which was made under the direction of the receiver-trustee.

What causes difficulty in cases of this character is that the mortgagee is never finally sure of the crop until he has in some way reduced the real property to his possession, either through foreclosure, or by agreement with the mortgagor or grantor, or through the appointment of a receiver. If this be not accomplished before the crop has ripened and been harvested, the mortgagor or those claiming under him independently of the mortgage or trust deed will acquire good title to the crop. Jones on Mortgages, 8th Ed., Sec. 860.

On the other hand, under the decision in Penryn Co. v. Sherman-Worrell Fruit Co., cited above, if the beneficiary under the deed of trust completes the sale authorized by the trust deed while the crop is yet unharvested, the purchaser at the sale acquires the crop both as against the grantor under the trust deed and as against his grantees under a crop mortgage executed after the date of the trust deed. In that case the Supreme Court of California said 142 Cal. 643 at page 645, 76 P. 484 at page 485: "Under such deeds of trust there is no redemption after sale pursuant to its provisions. A deed at once passes to the purchaser, as was the fact here, and he becomes entitled to immediate possession, which in this case was at once taken. The crop in question was then growing on the trees, and was part of the realty, and the purchaser's title by relation took the date of the trust deed. The purchaser was at least in as good a position as and had rights equal to those of a purchaser at foreclosure sale holding a deed, and having possession after the period of redemption had expired. Treating the sale here as a foreclosure where there is no right of redemption, and in view of the entry into possession under the sale by the purchaser, it is quite clear that neither the mortgagor — the grantor in the trust deed — nor his grantees under a crop mortgage executed subsequently to the trust deed would have the right to crops not severed at the time of the purchaser's deed and entry."

When a petition in bankruptcy is filed by or against the grantor in such a trust deed, the question as to what the bankruptcy court should do with the claim of the holder of the trust deed to growing crops or to other rents, issues or profits of the real property cannot be answered by simply saying that it is the duty of the bankruptcy court to preserve all liens then existing. The difficulty arises out of the fact that it is not always apparent that the holder of the trust deed would have secured the crop or other income from the property even though no bankruptcy had intervened. Thus if there be no default until after the crop is harvested, the holder of the trust deed will have no way to take it; or even if there be default he may choose to take no steps to foreclose or otherwise obtain possession of the land until harvesting has occurred. If it may be said that he has a lien upon the crop, clearly the lien is subject to these and other contingencies. Such is generally the character of the mortgagee's right not merely to crops, but to all rents, issues and profits of the mortgaged land, in whatever form they may be when claimed. Jones on Mortgages, 8th Ed., Sec. 976.

Nevertheless, the courts of appeals in some circuits, in dealing with asserted rights to rents, issues or profits of real property, have held it the duty of the bankruptcy court to protect the holder of the trust deed or the mortgagee notwithstanding the contingent character of his lien. In re Wakey, 7 Cir., 50 F.2d 869, 75...