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District Court of Appeal, Fourth District, California.

James IRIART, Plaintiff, Appellant and Respondent, v. SOUTHWEST FERTILIZER AND CHEMICAL COMPANY, a copartnership, et al., Defendants, Respondents and Appellants.

B. F. KNAPP and Cora B. Knapp, Plaintiffs in Intervention and Appellants, v. James IRIART, Southwest Fertillizer and Chemical Company, a copartnership, et al., Defendants in Intervention, Respondents and Appellants.*

Civ. 5808.

Decided: July 02, 1958

Dickenson, Sattinger & McKee, El Centro, for appellant Iriart. Horton, Knox & Carter, El Centro, for appellant Southwest Fertilizer and Chemical Company. Whitelaw & Whitelaw, El Centro, for appellants Knapp.

Plaintiff, appellant and respondent James Iriart, hereinafter referred to as plaintiff or owner, owned about 300 acres of land in Imperial Valley. By written lease (unrecorded) dated March 17, 1953, he leased, for one year, said acreage to one H. M. Hillhouse (lessee) for the purpose of growing cotton thereon. Lessee agreed to pay all charges of growing, harvesting and ginning and immediately upon harvesting said cotton to divide it with lessor at the gin. A 25 per cent portion thereof was to be set apart to the grower as his property as and for the yearly rental. Upon the owner's request lessee was to haul his 25 per cent to the gin, free of cost. The lease also contained a provision that the owner argeed to execute a waiver so the cotton crop could be financed by lessee up to the sum of $30,000. It appears that Hillhouse executed a crop mortgage thereon in favor of Imperial Valley Ginning Company (hereinafter referred to as Gin) to cover advances from Gin for the growing of the cotton, and that Gin reimbursed itself for said advances as each and every bale of ginned cotton was sold, up until such time as Gin was repaid all monies advanced. Iriart consented to the execution of the crop mortgage and to this agreement, and apparently waived any claim of such proceeds to this extent. As the crops matured Iriart ordered lessee to haul his one-fourth of the cotton to the gin for him, in accordance with the leasehold agreement. The last load was hauled on February 22, 1954. Iriart also authorized the sale of his onefourth of the cotton to be sold with the cotton belonging to lessee and that it be sold in the lessee's name and that Gin credit the returns in lessee's name on the books of Gin. After deducting Gin's advances from the gross sale price of $61,250.52, it held $15,412.46, and said sum stood on the books of Gin under the account of Hillhouse. It further appears that Hillhouse became and was indebted to a bank at Madera in the sum of $12,579.50 by a note due January 15, 1954, and also $5,500 on another note secured by a trust deed due April 3, 1954. Plaintiffs in intervention and appellants B. F. Knapp and wife Cora B. Knapp endorsed said notes as guarantors so Hillhouse could obtain the money on them. In accordance therewith he executed another crop mortgage on this cotton crop dated April 3, 1953, and recorded May 4, 1953, as security, or additional security to the Knapps, as endorsers. The trust deed for $5,500 was foreclosed and that note was paid from that source. It likewise appears that the Knapps, about January 14, 1954, contacted Hillhouse as to the payment of the $12,579.50 to the bank when it became due, and left with Gin a copy of their crop mortgage. The bank made demand on the Knapps for payment as guarantors about March 26, 1954.

Hillhouse was indebted to plaintiff, crossappellant and respondent Southwest Fertilizer and Chemical Company (hereinafter referred to as Southwest) for the sum of $12,713.04, plus interest, etc., and on February 18, 1954, Southwest filed an action against him to recover it. A writ of attachment was then issued and levied upon Gin, claiming the entire sum due Hillhouse on the books of Gin. Gin filed a return stating it was holding $13,800 pursuant to said writ, but it had no knowledge as to whether said funds belonged to Hillhouse or Iriart. Southwest took judgment and on May 20, 1955, levied an execution on said funds in the hands of Gin. On March 29, 1954, Iriart filed his complaint against Southwest to quiet title to said funds. On July 13, 1954, Knapps filed a complaint in intervention against Iriart, Southwest, Hillhouse and Gin. Iriart and Southwest filed an answer thereto and Gin filed a disclaimer. Hillhouse made no formal appearance and default was taken against him.

Generally, the issues are the relative priority of rights existing between Iriart, the landlord, the Knapps, as crop mortgagees, and Southwest, as attaching creditor, concerning the sum of $15,412.46 held by Gin, and the rights flowing therefrom. After trial by the court it issued a memorandum opinion and signed findings and judgment.

Generally, the court found that Iriart, as owner and landlord, was entitled to one-fourth of that sum or $3,853.12; that Southwest, attaching creditor, was entitled to $11,559.34; that the Knapps were not entitled to recover, mainly because they had lost their crop mortgage lien on account of the removal of the cotton from the leased property with their consent and approval; and that they accepted the obligation of Hillhouse in the place and stead of the security of the crop mortgage. Judgment was entered accordingly. Iriart appeals from the judgment in favor of Southwest. Knapps appeal from the judgment in favor of Southwest and Iriart. Southwest cross-appeals from the portion of the judgment in favor of Iriart.

Iriart's Appeal

Iriart contends that he, as lessor, obtained title to his one-fourth of the crop of cotton when it was delivered to him or his agent, the ginning company, at the gin, and that he was entitled to the full value thereof (citing such authority as Clarke and Cain v. Cobb, 121 Cal. 595, 597, 54 P. 74; Imperial Valley Land Co. v. Globe Grain & Milling Co., 187 Cal. 352, 202 P. 129; and Silveira v. Ohm, 33 Cal.2d 272, 275, 201 P.2d 387); that accordingly he held title to one-fourth of the cotton delivered to Gin by Hillhouse without deduction by Gin; that under no theory was Southwest entitled to the proceeds of Iriart's cotton on the basis of the claim against Hillhouse; that an attaching creditor, seeking to subject the property of a debtor to the payment of his debt, obtains a lien only upon the title or interest which the debtor has, and where no actual interest is shown, the attaching creditor gets nothing by his levy; and that the attachment here was an attempted levy on the property of Iriart, citing Kinnison v. Guaranty Liquidating Corp., 18 Cal.2d 256, 259, 115 P.2d 450.

The court found in this respect that the relationship between Iriart and Hillhouse was that of landlord and tenant and his one-fourth cotton was delivered to Gin for his benefit but that the landlord agreed that Gin could sell his cotton which was subject to Gin's crop mortgage, and the landlord waived his interest in the proceeds derived therefrom to the extent necessary to permit Gin to recover its loans and advances made to or for the account of Hillhouse for financing said crop. The evidence fully supports this finding. Accordingly the award of one-fourth interest in the remainder of the profits was authorized, and the remaining credit due him was not subject to the attaching creditors of Hillhouse.

Southwest's Appeal

Southwest argues that even though title to the cotton did pass to the landlord at the gin, as between the tenant and landlord, such transfer was void as to his attaching creditors under section 3440 of the Civil Code, citing such authority as McKee Stair Building Co. v. Martin, 126 Cal. 557, 559, 58 P. 1044; Southern California Collection Co. v. Napkie, 106 Cal.App.2d 565, 570, 235 P.2d 434; and Callender v. McLeod, 74 Cal. 376, 16 P. 194. This claimed defense was not pleaded and not argued at the trial. It is raised for the first time on appeal, which is ordinarily not authorized. Imperial Valley Land Co. v. Globe Grain & Milling Co., 187 Cal. 352, 202 P. 129. However, the evidence shows the agreement which did exist between the parties, including Gin. The delivery of the cotton was immediate, actual, visible and apparent, and made in good faith. The facts found, and the evidence produced, do not affirmatively show an inference of fraudulent transfer under section 3440 of the Civil Code.

Knapp's Appeal

It is, by them, contended that they did not lose their mortgage lien by removal of the crops under the circumstances related and accordingly the lien of Southwest and the claim of Iriart, being but a creditor, would not be superior to their rights. Section 2972 of the Civil Code provides:

‘The lien of a mortgage on a growing crop continues on the crop after severance, whether remaining in its original state or converted into another product, so long as the same remains on the land of mortgagor.’ (Italics ours.)

Under this section it has been held that where the mortgagee consents to removal of the crop from the land by authorizing the mortgagor to deliver the crop to a ginning company and leaves the hauling and handling with the mortgagor, and the removal is not tortious, the crop and its proceeds are freed from the lien of the crop mortgage; that such broad authorization on the part of the mortgagee, in a practical effect, amounts to a substitution of the personal obligation of the mortgagor for the security of the mortgage. 14 Cal.Jur.2d 595, sec. 28; Valley Bank v. Hillside Packing Co., 91 Cal.App. 738, 267 P. 746; I. S. Chapman & Co. v. Ulery, 15 Cal.App.2d 452, 455, 59 P.2d 602; Consolidated Produce Co. v. Takahashi, 52 Cal.App.2d 753, 759, 127 P.2d 281; Bastanchury v. Times-Mirror Co., 68 Cal.App.2d 217, 233, 156 P.2d 488; Gates v. Tom Quong, 3 Cal.App. 443, 446, 85 P. 662.

Exception to this rule is noted where the mortgagor is to deliver the crop to be ginned, marketed and sold in the name of the mortgagee. Crosby v. Fresno Fruit Growers' Co., 30 Cal.App. 308, 158 P. 1070; 14 Cal.Jur.2d 594, sec. 27. In his opinion the trial judge pointed out this distinction in the evidence here presented and particularly noted that all cotton harvested from the leased property was harvested and removed by Hillhouse with the consent, express or implied, of the Knapps; that it was transported to the gin in his name, was so credited on the account of Gin, and was marketed and sold by Gin in Hillhouse's name. He then stated that by Knapp's conduct they accepted the personal obligation of Hillhouse in the place and stead of the security of the crop mortgage. The evidence supports this finding.

It is next argued that notwithstanding this conclusion the evidence establishes an equitable assignment by Hillhouse to the Knapps of this account before the attachment of Southwest was levied, citing such authority as Van Orden v. Anderson, 122 Cal.App. 132, 142, 9 P.2d 572. The crop mortgage in question was given as additional security, as indicated. Apparently other security was sold and applied to the total indebtedness. There was no evidence that Knapps knew of the lease between the landlord and Hillhouse, or its terms, or that Iriart or Gin ever knew of Knapps' crop mortgage until a great portion of the cotton was sold.

Knapp testified that about January 14, 1954, he visited Hillhouse in El Centro; that at that time he first discussed with him the question of the sale of the cotton; that Hillhouse told him he still had about 180 acres to harvest and he authorized Hillhouse to go ahead and do the picking and deliver the cotton to Gin, sell it and apply the proceeds to Knapps' account on the mortgage at the bank or to give Knapp the money; that he returned in March and the harvesting was finished, the cotton delivered, and he told Hillhouse the proceeds were to be credited against his mortgage which he had delivered to Gin at the time of the previous trip to put them on notice. The bank did not call upon Knapp for payment of the note until after March 26, 1954.

Hillhouse testified Knapp did talk to him about January 14th and there was about 180 acres left to pick then; that Knapp said he was not familiar with cotton sales and did not know any buyers, and for Hillhouse to sell it as he had been doing; that he told him the cotton gin had not been repaid for their advances and that Gin would be first paid; and that Knapp said he was going to request Gin to hold the money for his account to be applied on the mortgage debt.

The manager for Gin testified that ginning companies generally adopted the procedure adopted by that company; that the owner or grower of the cotton brings it to be ginned; that the company gins, bales, and puts it out in the yard; that the ginning company carries the insurance on it; that if the owner desires the ginning company to sell it for him the company finds a buyer and informs the owner of the price, and if the owner authorizes the sale, the money received by the ginning company is placed in its general fund and the owner is paid from that fund, less certain authorized expenses; that this was what was done in the instant case; that the ginning company usually follows the owner's instructions as to the disposition of the cotton; that there was no surplus in the owner's account until February, 1954; that Knapp presented his crop mortgage to the company in January, 1954; that Iriart instructed Gin to sell his cotton with Hillhouse's cotton and to account to him for such sale; that he had no authority from Hillhouse or Iriart to make any other disposition of the proceeds in the payment of Knapps' claimed crop mortgage. There never was an account set up for Knapps on the books of the Gin company. When the attachment was levied the Gin company merely held the proceeds for determination by court action.

Knapp testified his only contact with Gin was to bring the crop mortgage to it and inform it he was the mortgagee claiming under the crop mortgage. This was about all of the evidence pertaining to the claimed equitable assignment of the account to the Knapps by Hillhouse. The trial court properly held it was not sufficiently established. The burden of proving such an assignment falls on the party asserting rights thereunder. Read v. Buffum, 79 Cal. 77, 21 P. 555; Gustafson v. Stockton & Tuolumne County R. Co., 132 Cal. 619, 64 P. 995; Secs. 3019–3029, Civ.Code.

Judgment affirmed.

GRIFFIN, Acting Presiding Justice.

MUSSELL, J., and McCABE, J. pro tem., concur.

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