EBERHARDT v. BASS

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District Court of Appeal, Third District, California.

EBERHARDT et al. v. BASS et al.

Civ. 7916.

Decided: May 17, 1951

Rutherford, Jacobs, Cavalero & Dietrich, Stockton, for appellant. Mazzera, Snyder & DeMartini, Stockton, Price, Macdonald & Knox, Oakland, for respondent.

During the year 1945 plaintiffs and appellants acquired as co-owners 557 acres of land in San Joaquin County. Substantially all of it had been planted to asparagus. This was done by one MacLean in 1943 and 1944. MacLean had a 10-year lease on the property running from 1943 to 1953, with an option for an additional year, and if that were exercised, an option for still another year. In 1944 he assigned this lease to defendant Bass who was in possession as tenant when appellants acquired the property. Bass was indebted to Richmond-Chase Company, cannery operators. The debt was secured by a crop mortgage on three-fourths of the crops. Bass was obligated to deliver the remaining one-fourth to appellants as rental. Bass was also indebted to a bank and this debt was secured by chattel mortgage on his farming equipment. In March of 1947, Bass, being still indebted to Richmond-Chase Company and the bank, began negotiations for refinancing with Stokely Foods, Inc., respondent herein, which also operated a cannery. Respondent was interested and on March 20th its counsel wrote to appellants relative to a proposed refinancing plan. The letter stated that respondent would refinance Bass only if it could purchase from him and from appellants all of the canning asparagus, and if it obtained proper documents for its security. Enclosed with this letter were a subordination agreement, to be executed by appellants, and contracts, to be executed by appellants and Bass, for the sale of all the asparagus growing or to be grown on the property during the years 1947 to 1955, inclusive. Thereafter appellants and Bass executed the contracts for sale of the crops and appellants executed the subordination agreement. Respondent then took over Bass' indebtedness to Richmond-Chase Company, receiving assignments of the note and crop mortgage securing the same and also took over Bass' indebtedness to the bank, receiving by assignment his note to the bank and the chattel mortgage securing its payment. Respondent also took a new note and chattel mortgage from Bass covering his total indebtedness to it. The mortgage was in form both a crop mortgage upon his share of the crops and a chattel mortgage covering his equipment. As further security respondent also received an assignment of Bass' lease, to which assignment appellants consented.

Bass continued to farm the property through 1947, 1948 and 1949. However, his operations were not profitable and his lessors, the appellants, claimed that he had breached his lease by failing to live up to his obligations as to the way in which his farming operations should be conducted. On June 1, 1949, they served him with notice of these defaults, serving a similar notice of respondent, pursuant to a provision in the subordination agreement requiring such notice to be given if the lessee, Bass, should default in any lease obligation. Neither Bass nor respondent took any steps to cure the claimed defaults. Bass left the premises during June and on June 30th appellants gave to Bass and also to respondent notice of termination of Bass' lease. They thereupon took possession of the property and filed the present action to quiet their title to the land and to the asparagus crops as against any claim of interest therein or lien thereon by Bass or respondent.

The complaint is in the usual form consisting of two counts, the first praying that their title to the land be quieted, and the second that their title to the crops growing and to be grown thereon be likewise quieted. Defendant Bass did not appear in the action and his default was entered. Respondent answered, setting up its claims, which may be summarized as follows: It claimed to be the owner, by virtue of the crop contracts, of all crops of asparagus growing and to be grown upon the property during the seasons 1947 to 1955, inclusive, and that appellants' ownership of the land was subject to a lien in its favor until the indebtedness of Bass still owing to it should have been paid and until the crop contracts had been performed by the sellers thereunder, including the appellants. By the trial court's decree the following matters were adjudged: That respondent is the owner and entitled to the possession of all the crops of asparagus growing and to be grown through the 1955 season on the real property described in the complaint; that the crop contracts were in full force and effect; that appellants were the owners of the real property, but that their title was subject to an equitable lien in favor of respondent until the Bass debt be paid and subject to respondent's ownership of the crops; that Bass was indebted at the time of the decree to respondent in the sum of approximately $48,000 for loans and advances made for the production of, and moneys spent in connection with, said asparagus growing on said real property; that respondent has a lien, imposed by the decree, on three-fourths of the proceeds of all asparagus growing and to be grown on the real property to and including the 1955 asparagus season as security for the payment of Bass' debt with the proviso that all payments made on that debt by Bass, and the net amount that might be realized by respondent on foreclosure sale of his equipment mortgaged to respondent, should be applied in reduction of his debt and in reduction of the decreed lien; that until the rights of respondent under the crop contracts and under the subordination agreement have terminated any new lease and any conveyance or mortgage or deed of trust of the real property must contain a provision expressly recognizing the agreements provided for in the crop contracts and the subordination agreement and subordinating thereto the rights of such new lessee or transferee, and that to that extent a further equitable lien be imposed upon the real property in favor of respondent; that appellants' title to the real property be quieted against Bass and against respondent and any persons claiming through them, subject, however, to the said rights and equitable liens of respondent. The practical effect of the judgment is that under the crop contracts appellants must now proceed—all Bass' interest in the crops and his estate under the lease having been terminated—to farm the land to asparagus, produce the annual crops thereof at their expense, and deliver the crops to respondent. They will receive from respondent payment for one-fourth of such crops. Respondent may then apply the purchase price of the remaining three-fourths of crops delivered, to the payment of Bass' indebtedness to it until the same shall have been discharged. After that point has been reached, appellants will be paid the full purchase price of all the crops to the appellants. From this judgment appellants have appealed.

A statement of the contents of the subordination agreement and of the crop contracts is necessary to a discussion of appellants' contentions. The subordination agreement contains eight paragraphs. By the first, appellants represent that they own the land; that they own the lessor's interest in the rental to become due under the lease and that the lease is in effect and not in default. By the second paragraph respondent recites it is willing to loan money to Bass in connection with financing asparagus growing on the land in consideration of the agreement. By the third paragraph it is recited that in consideration of respondent making loans to Bass (further loans to be at respondent's option) appellants agree that all their claims against Bass, except for rental as provided in the lease, and all their interest in or claims against the crops except for such rental shall be subordinate to the claims of respondent against Bass and against the crops under the crop contracts and under any crop mortgage which Bass may execute and deliver to respondent covering the asparagus, and subordinate to the claims of respondent as assignee of the assigned mortgage from Bass to Richmond-Chase Company. Paragraph 4 provides that if ‘Bass should breach or abandon said lease or do or cause anything to be done whereby he might or would lose possession of said land’ then respondent might exercise all rights which it had under any crop contract and/or any crop mortgage as if Bass had not breached the lease or had remained in possession, and further that respondent could then take possession of the crops and dispose of them as provided in the crop contracts or any crop mortgage, provided that while in possession of the land respondent should perform the lessee's agreements as set forth in the lease. Paragraph 5 provided that if the real property should be relet, sublet, sold or encumbered before respondent's rights under the crop contracts or the crop mortgages should terminate, then any new lease or any conveyance or mortgaging of the real property should contain a provision recognizing respondent's rights and should subordinate the rights of the lessee or transferee to them. Paragraph 6 refers to a lease provision whereunder appellants as lessors were entitled to receive one-fourth of the asparagus crops produced during the term of the lease as rental, and to the crop contracts whereby the appellants ‘had this day sold their share of canning asparagus' to respondent, and appellants agreed that, although the lease provided that they might dispose of their share of the crops through the lessee they would not, after execution of the subordination agreement, permit him to so dispose of it. By paragraph 7 appellants consented to the security assignment to respondent of the Bass lease and to the sale to respondent by Bass of his interest in the asparagus crops. Paragraph 8 obligated appellants in the event of lessee's defaults to notify respondent of such defaults before exercising any rights under their lease and to give respondent ten days in which to cure such defaults before terminating the lease. The crop contracts described Bass and each of the appellants as ‘sellers' and thereby Bass and the appellants ‘sold’ all asparagus growing or to be grown upon the land for the seasons of 1947 to 1955, both inclusive. It was expressly agreed that title thereby passed. There were two of these contracts, one covering all green aspearagus produced and the other all white asparagus produced. Otherwise they are the same. They were on printed forms and contained a series of identical provisions on the reverse side of each form. It is not necessary to state the provisions of these contracts in detail, except as regards paragraph 7 of the printed stipulations. The substance of that paragraph provided that during the life of the contract the sellers should till, fertilize and cultivate the asparagus beds in the manner best adapted to asparagus production and should harvest and pack the crops produced and deliver them to respondent. Further, with respect to the documents summarized, all of which were executed at the same time, this may be said: Nowhere therein do appellants expressly agree to the hypothecation of any property owned by them or to be acquired by them to the payment of the Bass debt to respondent. The result arrived at by the court as reflected in its decree rests upon the court's interpretation of these instruments.

Appellants first contend that the operation of the subordination agreement depended entirely upon the existence of the Bass lease and that when that lease was terminated on June 30, 1949, the rights and obligations under the subordination agreement were likewise ended. They contend that, with respect to crops to be grown, neither the mortgages nor the crop contracts were intended to be or were in any way operative as to appellants beyond the time when the Bass lease should terminate. We will first examine this contention with respect to the crop mortgages.

When a tenant gives a crop mortgage upon crops to be grown by him during the existence of his estate in tenancy the mortgage ends, as to crops not growing, when the lease ends, whether by expiration of the stipulated time his estate is to last or sooner termination for breach of condition. First National Bank of Oakdale v. Brashear, 200 Cal. 389, 253 P. 143, 144. In the cited case the Supreme Court declared: ‘* * * while it is true that a crop mortgage may be made to cover the crops thereafter to be sown and grown upon leased land, as was held by this court in the case of Arques v. Wasson, 51 Cal. 620, 21 Am.Rep. 718, and while it is true, as stated in that case, that such a mortgage has a potential existence during the period prior to the actual planting of the seed in said land upon which the crops to be subjected to said mortgage are to be grown, our attention has been called to no case, either in this or in any other jurisdiction, which goes so far as to hold that such a crop mortgage shall pass the point of such potential existence at any time prior to the actual planting with seed of said land. The rule applicable to this class of securities may seem to be an arbitrary one, but it has nevertheless been given universal application and has never, so far as we have been advised by the appellant or have investigated the authorities upon our own account, been extended to a case wherein the land, although plowed or summer fallowed by the tenant, has passed, through his surrender of his lease, back to his landlord or into the possession and control of others who have thereafter undertaken to plant and grow the crops thereon.’

Growing crops are personal property and this is true whether they are produced by annual planting or from perennial root stock or from trees and vines. Said the Supreme Court in Congdon v. G. M. H. Wagner & Sons, 207 Cal. 373, 377, 278 P. 863, 865: ‘* * * It has, however, been held consistently by this court that growing crops are personal property * * *, and that crop mortgages made, executed, and recorded under the provisions of section 2955 et seq. of the Civil Code do not affect in any degree the title to the land upon which the crops covered by said crop mortgage are being grown and that the same do not constitute a lien or charge upon the land. * * * It was also early decided by this court that a growing crop of fruit occupied the same relation to the land as a growing crop of grain, and as fructus industriales was personal property which might properly be subjected to a chattel mortgage.’ See, also, Twin Falls Bank & Trust Co. v. Weinberg, 44 Idaho 332, 257 P. 31, 54 A.L.R. 1527; Campbell v. Sutton, 62 Cal.App.2d 621, 624–625, 145 P.2d 91.

We are not at this moment concerned with the right of the crop mortgagee after his mortgage in respect of a growing crop has passed ‘the point of potential existence’ to subject the same to his security demands. We are now concerned with the status of the crop mortgages here with respect to crops to be grown after the admitted termination of Bass' estate as a tenant and we conclude, in view of the authorities referred to, that his crop mortgages would create no right or interest in his mortgagees in respect of any crops to be grown after his estate had terminated.

Relying upon the rule that the Bass crop mortgages could not go beyond the end of his tenant's estate, appellants say that there was nothing in the subordination agreement which would change the effect of the rule. Respondent, however, says there was and points to paragraph 4 of that agreement dealing with the situation that would arise if Bass breached his lease. The agreement provides that if Bass should breach or abandon the lease or do anything whereby he might lose possession of the land, then appellants undertake ‘to permit [respondent] to exercise all rights which it has under any crop mortgage as if lessee had not breached said lease or had remained in possession’; further that respondent would be permitted to take possession of said crops and dispose of them as provided in any crop mortgage. Respondent says that these provisions would, in effect, extend the crop mortgages through the years after Bass, the mortgagor, had suffered termination of his estate, from the time of such occurrence to the end of the 1955 crop season. In effect, respondent says that by this language in the subordination agreement appellants themselves mortgaged their tenant's share of the crops to secure the payment of his debt to respondent if Bass' mortgages should become a nullity through the ending of his estate in tenancy. This contention of respondent claims a great deal. Appellants did not owe any debt to respondent. And they had no control over, nor was any limitation placed upon, the amount of indebtedness from Bass to respondent that might come to be secured by crop mortgages executed by him, for the subordination agreement expressly provided that further loans than those then being made might at respondent's option be made to Bass.

Concerning mortgages of personal property, the Civil Code, by Section 2955, declares that mortgages may be made upon all growing crops and all kinds of personal property. With respect to growing crops, we have seen that they are personal property, but it is only crops which have attained the status of growing crops that may be the subject of a chattel mortgage. Consequently, when a mortgagor purports to mortgage crops to be grown in the future, the mortgage will take effect only when the growing crops become such in the course of nature. Up to that point the mortgage has no more than a potential existence and is not, in fact, a mortgage for want of existence of personal property to which it may attach. When Bass' estate in tenancy with respect to the real property here involved ended, then with respect to crops that were not growing crops at that time, that is, with respect to crops to be grown, there was no mortgage. Appellants by the subordination agreement undertook, in the event of breach by Bass, that respondent could exercise all rights which it had under any crop mortgage, the same as if the breach had not occurred, but that language does not create rights. It preserves them only and it preserves the rights which respondent had by reason of the Bass mortgages. As to future crops not at the time of breach having attained the status of growing crops, the respondent had no rights. The obligation of appellants in the event of breach by Bass was only that, notwithstanding such breach, respondent could exercise its rights as mortgagee of any growing crop then existing, so that it might, as its mortgage provided, protect its interest by way of lien in such growing crop. By the mortgage and as to such growing crop it had been agreed between Bass and respondent that if Bass should fail to keep his engagements concerning his mortgage obligations, including care, production and handling of the mortgaged crop, respondent might take possession of the property and ‘do such acts as mortgagee may deem necessary to protect its security interest in said property.’ These acts would include the right to go upon the land, complete the production and harvesting of the growing crop, the right to sell the crop and to apply the net proceeds to Bass' indebtedness to respondent. These were the rights which were preserved to respondent by the subordination agreement and to which the language herein under discussion applied.

What we have said is not affected by those provisions of the agreement giving respondent the right, on breach of the lease by Bass, to go upon the land and cure the breach. Respondent, when tendered the opportunity, elected not to do so.

We will next discuss the contention of appellants that the contracts to sell the crops to respondent likewise terminated when the Bass lease was ended. These two contracts—one covering the green asparagus to be produced and the other the white asparagus—were entered into by appellants along with Bass as sellers and purported to presently sell all of the asparagus to be grown during the seasons of 1947 to 1955, inclusive. They contained provisions whereby the sellers should till, cultivate, fertilize and irrigate the asparagus beds, harvest and pack the crops and deliver the total thereof to respondent as buyer. They contained an express declaration that it was intended and understood by the parties that upon their execution title to the asparagus sold passed immediately to respondent.

Notwithstanding the fact that the contracts purported to effect a present sale of the asparagus to be grown and therefore to pass present title to all future asparagus throughout the years 1947 to 1955, nevertheless as to crops to be grown the law does not permit that result to be reached. Such crops constitute goods to be acquired by the seller after the making of the contract of sale. Civil Code, Sec. 1796. They are by the code called future goods, and Section 1725, subd. (3), of the Civil Code provides that where parties purport to effect a present sale of future goods the agreement operates only as a contract to sell the goods. Title does not pass until (and, of course, unless) the seller acquires the goods.

Therefore, notwithstanding the expressed declaration to the contrary contained in the documents, the respondent did not acquire title to asparagus to be grown upon the execution of the crop contracts. In so far, then, as the contract of Bass to sell the crops be concerned, his contract would cease to give any rights to respondent as to crops grown after his tenancy estate ended. Since he himself would have no interest in such crops after that time his contract to sell them could give no rights to respondent with respect to the crops grown by others. This is, of course, not to say that he would not be responsible in damages for breach of his contract to sell, but we are not here concerned with such matter. We are concerned only with title to the property involved.

Appellants, however, by the contracts purported themselves to undertake, along with Bass, to sell the crops to be grown, and a further consideration of the agreements executed, including the subordination agreement and the documents referred to in those agreements, is necessary to a determination of the rights respondent may have against them by virtue of these crop contracts. When these contracts were executed, the Bass lease was in effect and by its terms appellants were to receive as rental one-fourth of the crops produced. Under such a lease and as crops are produced the tenant has the whole title thereto unless title to part or all is reserved by the lease. No such reservation was expressed in the lease between Bass and the appellants. Silveira v. Ohm, 33 Cal.2d 272, at page 275, 201 P.2d 387. But appellants were, under the lease, entitled to receive from Bass one-fourth of the crops produced during the tenancy and they agreed to sell such portion. With these matters the parties were all conversant and the lease was a factor in all their negotiations. Indeed, respondents sought and with consent of appellants received a security assignment of the Bass lease. The subordination agreement itself refers to these same crop contracts and in addition to other references contains the following: ‘In said lease it is provided that lessors shall be entitled to receive 25% of all of the crops of asparagus produced on said land during the term of said lease as rental and that lessor may elect to dispose of its said percentage through lessee. The undersigned hereby agree that they have this day sold their share of said crops of canning asparagus to Stokely Foods, Inc., and that they will not elect to permit lessee to dispose of said canning asparagus.’ When the executed documents, the lease therein referred to and the situation of the parties are all considered, we think it clear that appellants were contracting solely with respect to their rental portion of asparagus to be grown on the leased premises which they would receive if the terms of the Bass lease were kept and while the tenancy estate thereby created should endure. By the quoted portion of the subordination agreement the subject of the crop contracts, in so far as appellants were concerned, is clearly defined. Their expected portion of crops to be grown is stated and the source therof, to-wit, rental to be paid under the Bass lease, is identified. Following this, a description of what they have sold by virtue of the crop contracts is expressly and clearly stated. It must be concluded, therefore, that they sold to respondent that portion of the crops to be grown on the rented land which would be deliverable to them as rental under the lease. It follows that no more can be demanded of them and that when the Bass lease ended there could be nothing thereafter that would become the subject of their crop contract.

As to the provisions of the crop contracts which obligated the ‘seller’ to work the crops and deliver them to respondent, it is obvious that these were the obligations of Bass alone. He alone had the right of possession, and he alone, while his lease endured, could perform. If he failed the parties had agreed that respondent could enter, care for, and take any growing crop. When we look at the situation and interest of appellants in this respect they were, as was clearly declared, agreeing to sell what they received from Bass. We think it plain that, though they signed with Bass, it was never intended they should be bound beyond their obligation to sell.

The trial court in construing these same crop contracts relied upon the provisions of Section 1659 of the Civil Code that ‘Where all the parties who unite in a promise receive some benefit from the consideration, whether past or present, their promise is presumed to be joint and several’, and therefore considered that by joining with Bass in the execution of the crop contracts appellants became bound equally with their tenant and that they thereby with Bass jointly and severally promised to sell to respondent all crops the would be grown upon the premises from 1947 to 1955, inclusive. The code section is a rule of construction and cannot prevail where, as here, the contracts executed clearly show several undertakings only.

What we have heretofore said as to the provisions of paragraph four of the subordination agreement with respect to the crop mortgages is applicable to the crop contracts as we have construed them. That paragraph permitted respondent to exercise its rights under the crop contracts. The crop that might be growing when the lease ended would go under the crop contracts just as under the mortgages. But crops to be grown could not.

Respondent, in support of the judgment, relies upon the rule that where a trial court has construed a contract and such construction appears to be consistent with the true intent of the parties, a reviewing court will not substitute another interpretation which seems equally tenable. But we think this rule has no application here, for we think that the trial court's construction is not tenable and does violence to the clear intent of the parties when their situation and all of the documents simultaneously executed by them, and the documents therein referred to, are considered. Respondent proposed to lend money to Bass. There was never any suggestion anywhere in the contractual record that appellants should guarantee the payment of that loan or should mortgage their land or any other property they owned or might acquire as security for the repayment thereof. This is a fact of great significance. Surely, if the parties had contemplated such a thing, they would have found it easy to give clear expression to such intent. Yet by the construction placed upon the contractual instruments by the trial court appellants did guarantee the repayment to respondent of the loan to Bass and did hypothecate as security therefor all crops that might be grown upon their land for a period of nine years to the extent of three-fourths thereof, agreeing that they would during that period of time at their own expense use their land for the production of asparagus crops, and each season pack and deliver the same to respondent in order that it might by the sale thereof, so far as necessary, obtain repayment to itself, not only of the $48,000 being loaned to Bass at the time these contracts were made, but also for the repayment to itself of any additional or other loan for whatsoever purpose made that it might at its option make to Bass. We think the construction of the trial court is not tenable and that on the contrary the construction herein given to the contractual documents involved is what the parties intended to agree to.

The judgment is reversed, with instructions to the trial court to enter judgment for appellants as prayed for in their complaint.

VAN DYKE, Justice.

DEIRUP, Justice pro tem., and ADAMS, P. J., concur.

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