author: J. Fred Jones, Justice.

text:
    Lafayette County Industrial Development Corporation v. First National Bank of Magnolia
    5-4785
    436 S.W. 2d 814
    Opinion Delivered February 10, 1969

      Rose, Meek, House, Barron, Nash & Williamson for appellant.

      Gaughan, Laney, Barnes & Roberts and Keith, Clegg & Eckert for appellee.
   J. Fred Jones, Justice.

Lafayette County Industrial Development Corporation filed suit in the Columbia County Chancery Court against the First National Bank of Magnolia seeking' restitution of funds deposited in the bank to the account of Magnolia Steel Corporation, and for a declaration of a constructive trust upon the funds so deposited. The bank challenged the sufficiency of the evidence by motion, amounting to a demurrer, under Ark. Stat. Ann. § 27-1729 (Repl. 1962). The chancellor granted the motion and the Development Corporation has appealed relying upon a single point for reversal, designated as follows:

‘ ‘ The ' Chancellor erred in dismissing the complaint of the appellant for the reason that as a matter of law the appellant’s proof entitled it to the relief, prayed. ’ ’

The primary factual background for this litigation appears as follows: Mr. W. H. Hoster was a resident of Oklahoma and was engaged in the steel mill business in Oklahoma City under the corporate or trade name of Oklahoma Steel Company. Hoster was interested in an Arkansas location for the establishment of a small rolling mill for processing scrap steel. Mr. W. O. Blewster was the president of the First National Bank of Magnolia in Columbia County, Arkansas, and was an active member of the Magnolia Chamber of Commerce. Mr. Blewster was interested in obtaining new industry for the Magnolia area, so he, and other members of the Magnolia Chamber of Commerce prevailed upon Mr. Hosier to locate and build a rolling mill near Magnolia in Columbia County. As a first step in regard to the Magnolia program, on February 28, 1963, Mr. Hosier formed an Arkansas corporation named “Columbia Steel Corporation,” and with the exception of two qualifying shares, he was the sole owner of the stock issued.

Lafayette County had been designated by the Area Redevelopment Administration (A.R.A.) as an area of substantial unemployment and eligible for financial assistance under federal laws; and Mr. Blewster owned an interest in an organization which has procured leases on iron ore deposits in Lafayette and Nevada Counties.

Some leading citizens of Lafayette County were invited by Mr. Blewster to attend a Chamber of Commerce meeting in Magnolia where Mí1. Hoster was introduced and his plans for the rolling mill at Magnolia were explained. The citizens of Lafayette County were urged to attempt the procurement of a steel mill in their area under the A.R.A. program. The Lafayette County citizens proceeded to organize the appellant corporation for the purpose of sponsoring a steel mill and blast furnace project near Stamps under the A.R.A. program. On December 10, 1962, Mr. Hoster formed a domestic corporation named “Magnolia Steel Corporation” for the purpose of erecting a steel mill at Stamps for the processing of the iron ore in Lafayette and Nevada Counties. With the exception of two qualifying shares, Hoster was the owner of all the stock issued in this corporation. On April 5, 1963, Magnolia Steel applied for an A.R.A. loan and on August 9, 1963, a government loan was authorized for the project at Stamps in the amount of $977,763.00. The loan was to be secured by a mortgage subordinate only to the security for a loan to be made by the appellant bank and its correspondent banks in tlie amount of not more than $300,850.00. The appellant was required under the authorization to make available to Magnolia Steel not less than $150,425.00 in the form of equity capital or as a loan covered by a standby agreement. Under the terms of the authorization it was necessary for Magnolia Steel to have available, from sources other than the A.B.A. loan, not less than $375,212.00 in the form of equity capital. No less than $75,212.00 of this amount was to be spent solely on account of the cost of the project and no less than $300,000.00 was to be made available for working capital.

As a part of the procedure in procuring the government loan, on November 20, 1963, the appellant agreed to loan to Magnolia Steel $150,425.00 to be secured by a third mortgage lien subordinate to a first mortgage lien securing a ¡oroposed loan by the appellee bank, and the lien of a second mortgage to be given to A.B.A. The appellant agreed to make the proceeds of its loan available to Magnolia Steel on or about December 20, 1963. This agreed loan was to be evidenced by a note temporarily secured by a mortgage on land to be acquired for the project.

In carrying out its agreement, the appellant caused to be issued and sold, Lafayette County Industrial Development bonds in the amount of $150,425.00, and the appellee, First National Bank of Magnolia, was made paying agent. These bonds were sold to citizens of Lafayette County and by December 23, 1963, the appellant had raised the net amount of $146,425.00.

In the meantime, Columbia Steel was engaged in financing its own operation in connection with the construction and operation of its plant in Columbia County near Magnolia. In February and March, 1963, the appellee bank made two loans totaling its loan limit of $110,000.00 to Columbia Steel. The appellee made various loans to Mr. Hoster and on November 26, 1963, made loans, apparently carried on the books as cash items, in the amount of $75,000.00 to Hoster and $50,-000.00 to Oklahoma Steel. On the same date, November 26, 1963, the appellee made an unsecured loan of $100,000.00 to Magnolia Steel. No part of this loan was ever deposited to the account of Magnolia Steel, but on November 27, 1963, the day following the loans to Hoster, Oklahoma Steel and Magnolia Steel, the sum of $225,000.00 was deposited to the account of Columbia Steel. There were several withdrawals from the Columbia Steel account, including $75,000.00 in repayment of the loan to Hoster, and $50,000.00 in repayment of the loan to Oklahoma Steel..

. The appellant knew nothing of the appellee’s loan of $100,000.00 to Magnolia Steel, when on December 23, 1963, the appellant delivered its check to Magnolia Steel in the amount of $146,425.00.- The check was endorsed by Hoster who then handed it to Blewster, and on the following day, December 24, 1963, the check was deposited in the appellee bank to the account of Magnolia Steel. On December 27, the next banking day following Christmas, $100,000.00 was withdrawn from the account of Magnolia Steel and used to purchase a cashier’s cheek made payable in the amount of $100,000.00 to the appellee bank as security for the $100,000.00 loan made on November 26 to Magnolia Steel and deposited to the account of Columbia Steel.

Subsequent to the above transactions, Mr. Blewster resigned as president of the Magnolia bank; the cashier’s check was cashed and the proceeds applied in satisfaction of the bank loan to Magnolia Steel; Magnolia Steel canceled its loan application with A.R.A. and Magnolia Steel was merged with Columbia Steel. The appellee bank purchased the assets of Columbia Steel in Columbia County under mortgage foreclosure and appellant purchased at foreclosure the only assets of Magnolia Steel, consisting of eighty acres of land for plant site in Lafayette County, which had been purchased for $24,000.00 and paid for, at appellant’s insistence, out of the proceeds of the bond sale deposited to the account of Magnolia Steel.

We now come to the point of law on which this case turns. The appellee challenged the sufficiency of the evidence by motion filed under authority of Ark. Stat. Ann. § 27-1729 (Repl. 1963), which provides that in any chancery case the defendant may, at the close of plaintiff’s case, file a written motion challenging the sufficiency of the evidence to warrant the relief prayed. If the trial court grants the motion and we reverse his action on appeal, we are required by the statute to remand the cause for the development of the defendant’s proof. In arguing the insufficiency of appellant’s evidence, the appellee says:

“ [I] t offers no evidence that the First National Bank or any of its officers knew, or had reason to know, that W. H. Hoster was not spending these funds on behalf of Appellant.
Proof from Appellant’s own officers shows that they, like the Bank president, all understood and believed that W. H. Hoster was using funds to plan for, purchase, and construct equipment for the Magnolia Steel Corporation.” (Emphasis supplied.)

Appellee concludes its argument with this statement:

“The Chancellor heard the testimony; he observed and heard the evasiveness of Appellant’s officers much of which is obscured in the abstract of testimony. The Chancellor knew the quantum of proof required, and Ms duty to dismiss upon motion properly presented.”

We agree witli the appellant that this case is controlled by our decision in Werbe v. Holt, 217 Ark. 198, 229 S.W. 2d 225, and although the trial court mentioned “ prepon derance of the evidence” in the Werbe case and the chancellor did not do so in the. case at bar, we are of the opinion that in hearing the testimony and observing the evasivenesss of appellant’s officers, as argued by the appellee, the chancellor also considered what he observed and heard, and that he weighed the evidence in arriving at his conclusion to grant appellee’s motion in this case. In so doing we conclude, that the chancellor erred.

Werbe v. Holt, supra, was a case of first impression under Ark. Stat. Ann. § 27-1729, supra, and as to the questions raised by the statute and answered in Werbe, we said:

“When the defendant in an equity or probate case asks for judgment at the close of the plaintiff’s testimony, should the trial judge view the evidence in the light most favorable to the plaintiff to determine whether a prima facie case has been made, or should he weigh the testimony to decide whether the plaintiff has proved his case by a preponderance of the evidence? In short, does a motion filed under Act 470 present an issue of law or of fact?
# # *
After a painstaking study of this matter we are unanimously of the opinion that the motion presents a question of law and not of fact. The General Assembly evidently chose its language with care, and what the motion challenges is ‘ the sufficiency of the evidence’ to warrant the relief prayed. The quoted phrase has a familiar legal meaning — a meaning that does not involve the weighing of evideuce. For instance, it is often said that the defendant’s motion for a directed verdict in suits at law challenges ‘the sufficiency of the evidency’ to take the case to the jury. Here the legislature has used a phrase of well known legal signification, and it is presumed to have used the language in that sense. Fernwood Mining Co. v. Pinna, 138 Ark. 459, 213 S.W. 397.
* * *
The question may arise either in equity cases, where the chancellor is the arbiter of the facts, or in cases tried at law without a jury where also the trial judge decides all issues of fact. By the overwhelming weight of authority it is the trial court’s duty, in passing upon either a demurrer to the evidence or a motion for judgment in law cases tried without a jury, to give the evidence its strongest probative force in favor of the plaintiff and to rule against the plaintiff only if his evidence when so considered fails to make a prima facie case.”

In Neely v. Jones, 232 Ark. 411, 337 S.W. 2d 872, the correctness of sustaining a demurrer to evidence was again raised, and in that ease we said:

“The only question is whether the demurrer to the evidence was properly sustained. This depends, under our holding in Werbe v. Holt, 217 Ark. 198, 229 S.W. 2d 225, upon whether the proof, viewed in its most favorable light, would have presented a question of fact for the jury if the case had been tried at law.”

In reversing the chancellor’s decree sustaining the demurrer in Neely v. Jones, this court said:

“Here the trial court’s action in sustaining a demurrer to the evidence can he affirmed only if the plaintiffs offered no substantial testimony upon the controlling question of fact. We are unable to say tliat their proof falls completely short of establishing a prima facie case.”

What the chancellor did in the case at bar was tantamount to directing a verdict for the defendant at the close of the plaintiff’s evidence in a law case. In Hawkins v. Missouri Pacific Railroad Co., Thompson Trustee, 217 Ark. 42, 228 S.W. 2d 642, this court said:

“A directed verdict for the defendant is proper only when there is no substantial evidence from which the jurors as reasonable men could possibly find the issues for the plaintiff. In such circumstances the trial judge must give to the plaintiff’s evidence its highest probative value, taking into account all reasonable inferences that may sensibly be deduced from it, and may grant the motion only if the evidence viewed in that light would be so insubstantial as to require him to set aside a verdict for the plaintiff should such a verdict be returned by the jury.”

And again in St. Louis, I.M. & S. Ry. Co. v. Fuqua, 114 Ark. 112, 169 S.W. 786, we said:

“The rule is that where fair-minded men might honestly differ as to the conclusion to be drawn from facts, whether controverted or uncontroverted, the question at issue should go to the jury.”

We conclude that the appellant offered some substantial evidence in support of its allegations in this case and that the chancellor erred in granting appellee’s motion before the appellee offered additional evidence or rested its case.

The decree of the chancellor is reversed and this cause remanded for a complete trial on the merits.

^Reversed and remanded.


source: Caselaw Access Project

author: Conley Byrd, Justice.

license: Public Domain

text:
    Commercial Credit Corporation v. Associates Discount Corporation, et al
    5-4791
    436 S.W. 2d 809
    Opinion Delivered February 10, 1969

      Patten & Brown for appellant.

      Martin, Dodds, Kidd, Hendricks & Ryan for appellees.
   Conley Byrd, Justice.

The issue on this appeal is whether a ‘ ‘ buyer in the ordinary course of business ’ ’ of an automobile from a dealer takes title superior to that of tlie repossessin lien creditor who had stored the automobile with the dealer.

The record shows that:

1. Cox Brothers Co. Inc., an automobile dealer, on June 21, 1965, sold a 1965 Pontiac to William White.

2. 'William White, through Cox Brothers, financed the automobile with appellant Commercial Credit Corp., with Cox Brothers being an indorser with recourse. The certificate of title issued by the Motor Vehicle Division of the Revenue Department of the State of Arkansas was issued on July 12, 1965. The certificate of title, properly showing Commei’cial’s lien, was forwarded by the Motor Vehicle Division to Commercial where it has remained until trial of this suit.

3. In March of 1966, "William White traded the Pontiac to Cox Brothers in exchange for another automobile. Thereafter Cox Brothers transferred the caito Bobby Reagan, who with Commercial’s acquiescence, assumed White’s obligation to Commercial.

4. October 14, 1966, Commercial, through its Memphis office and for reasons not shown by the record, took possession of the car from Reagan.

5. Under date of October 16, 1966, the certificate of title in possession of Commercial was endorsed by someone in the Memphis office to show that Commercial’s lien on the car had been released.

6. October 20, 1966, Commercial stored the Pontiac with Cox Brothers and returned its file to its Little Rock office. Cox Brothers upon receipt of the automobile executed a storage agreement acknowledging that it had no authority to sell the automobile.

7. From October 10, 1966 to February 28, 1967, Commercial, from an unknown source, received five monthly payments on the financing agreement held by it.

8. On December 5, 1966 someone forged the names of "William White and John Bailey, one of Commercial’s agents, to an application to the Motor Vehicle Division for a duplicate title. The Motor Vehicle Division issued the duplicate title, as authorized by Ark. Stat. Ann. § 75-145 (Repl. 1957), and forwarded the same to Cox Brothers in accordance with the directions contained on the application.

9. Under date of December 7, 1966, Commercial’s lien, on the duplicate title, was shown as being released through the forgery of the name of John Bailey as an agent of Commercial.

10. During December 1966, Appellee, Associates Discount Corporation came into possession of the duplicate title, in its forged condition, through a floor plan financing arrangement with Cox Brothers.

11. February 16, 1967, Don Chaney and his wife Joy purchased the Pontiac from Cox Brothers by giving a $400 post dated check and financing $2,000 with Associates Discount. The post dated check was picked up March 5, 1967.

12. March 7, 1967, Associates Discount and Commercial discovered that they held duplicate liens on the Pontiac and other vehicles.

13. Associates Discount filed its lien with the Revenue Department on March 29, 1967.

14. Commercial brought this action on May 8, 1967.

15. Mr. George Fell, Jr., Commercial’s district manager, assumed that Cox Brothers kept a number of repossessed automobiles on its premises and stated that Commercial checked vehicles stored by it with Cox at least every 30 days. Commercial’s policy was that it preferred that the cars oil which Cox was an endorser, be paid for when delivered, but if Cox didn’t pay off when the car was delivered, a signed storage agreement was accepted. His testimony with reference to Commercial’s practice was as follows:

Q. Air. Fell, your company actually had physical possession of this ear before turning it over to Cox, didn’t you?
A. That’s right.
Q. Now regardless of what that storage agreement says, you do admit, do you not, that if Cox sold his automobile and gave you this money you would have accepted it, and the only thing you are griping about is the fact that he did not give you the money?
A. As I stated, if Cox had brought the money to pay the account off, I would have accepted it, but I still have the certificate of title.
Q. You wouldn’t have turned over the certificate of title until you got the money, but you wouldn’t stand in the way of his selling the car?
A. Normally, a man has to check with our office first, but if a man has already sold it, I would have accepted it.
Q. As a matter of fact, wouldn’t there be a chance the only way he could get the money, the dealer, is to sell that automobile if he was otherwise broke ?
A. He couldn’t pay me.
Q. Unless lie sold it?
A. Yes Sir.

16. Mr. Chaney testified that Cox Brothers bought the license for him — that he left the registration of the car up to Cox Brothers. He had never received title to any ear that he purchased and financed until it was paid off. He understood that Cox Brothers was going to take care of the title details, —that he was relying on them to do so.

17. John L. Bowen, a new and used car salesman with seven years experience, testified that it 'was common practice for a dealer to make the filings of title with the Revenue Department as a customer service. Yaughan-Hicks, his employer, employed two women just to handle the certificates. He also stated that there was nothing unusual about a dealer selling a used automobile prior to receiving the certificate of title.

The trial court found that “Don Chaney and Joy Chaney purchased said automobile from an authorized dealer and were bona fide purchasers for value,” and awarded possession of the automobile to Associates. For reversal Commercial relies upon the following points:

I. That the court erred in finding Don Chaney et ux were purchasers in good faith.

II. The court erred in finding that Associates was a holder through a purchaser in good faith; and

III. That Associates is estopped to claim a prior lien by its owm neglect and by its failure to perfect its lien prior to acquiring actual knowledge of Commercial’s lien. For affirmance Associates takes the position that Commercial was an “ENTRUSTER” within the meaning of the Uniform Commercial Code, Ark. Stat. Ann. § 85-2-403 (2) and (3) (Add. 1961), and that since it entrusted the repossessed automobile with Cox Brothers, a recognized dealer, the Chaneys are protected as buyers in the ordinary course of business.

Commercial’s basic arguments are premised upon the theory that it is a lien holder pursuant to Ark. Stat. Ann. § 75-161 (Repl. 1956); that Cox Brothers was Channeys’ agent in securing the title; and that subsections (2) and (3) of Ark. Stat. Ann. § 85-2-403 (Add. 1961) are not applicable to the transactions here involved.

The registration of motor vehicles and issuance of certification of titles thereto are governed by Acts 1949, No. 142 (Ark. Stat. Ann. §§ 75-101 thru 75-191 [Repl. 1957 and Supp. 1967]) as amended. Section 75-149 requires a purchaser or transferee, before operating a vehicle, to obtain the registration within five days and requires the transferee to obtain a new certificate of title. Section 75-150 requires the dealer to execute and acknowledge the assignment of title upon the certificate and to deliver it to the purchaser. Section 75-151 recognizes that the owner’s title or interest may pass without a voluntary transfer by operation of law, as in the case of a repossessing lien holder, and recognizes the transfer of a vehicle without the certificates of title upon “...such instruments or documents of authority or certified copies thereof as may be sufficient or required by law to evidence or effect a transfer of title or interest in or to chattels in such case .. . .”

Section 75-360 in part provides:

“No conditional sale contract, or title retention instrument upon a registered vehicle, other than a lien dependent upon possession, is valid as against the creditors of an owner acquiring a lien by levy or attachment or subsequent purchasers or encumbrances with or without notice until the requirements of this article [§ 75-160, 75-161] have been complied with.
Section 75-161 provides:
(A) Such filing and issuance of a new certificate of title as provided in this article (75-160, 161) shall constitute constructive notice of liens and encumbrances against the vehicle described therein to creditors of the owner, to subsequent purchasers and encumbrancers, except such liens as may be authorized by law dependent upon possession. In the event the documents referred to in Section 62 (75-162) are received and filed in the Central Office of the department within 10 days after the date said documents were executed, the constructive notice shall date from the time of the execution of said documents. Otherwise constructive notice shall date from the time of receipt and filing of such documents by the department as shoiun by its endorsement thereon. (Emphasis supplied.)
(B) The method provided in this article of giving constructive notice of a lien or encumbrance upon a registered vehicle shall be exclusive except as to liens dependent upon possession and any said lien or encumbrance or title retention instrument filed as herein provided and any documents evidencing the same are hereby exempted from the provisions of the law which otherwise require or relate to the recording or filing of instruments creating or evidencing title retention or other liens or encumbrances upon vehicles of a type subject to registration hereunder.

In House v. Hodges, 227 Ark. 458, 299 S.W. 2d 201 (1957), we held that a certificate of title is not title itself but only evidence of title. In so doing we pointed out that the motor vehicle act only makes it a misdemeanor for a purchaser not to promptly obtain a title —i.e., the failure to obtain a new certificate of title does not affect a transfer between parties.

Commercial’s repossession of the vehicle here in question, of course, was authorized by the Uniform Commercial Code, Ark. Stat. Ann. § 85-9-503 (Add. 1961) and furthermore Commercial was authorized and expected to sell the same at either public or private sale by terms of Ark. Stat. Ann. § 85-9-504 (Add 1961). Thus the trial court could find that, under the state of this record, Commercial was lawfully in possession of the automobile, Ark. Stat. Ann. § 85-9-503, with right to sell the same at private sale, Ark. Stat. Ann. § 85-9-504, without the necessity of a certificate of title, upon “...such instruments or documents of authority or certified copies thereof as may be sufficient or required by law to evidence or effect a transfer of title or interest in or to chattels in such case .... ”

The Uniform Commercial Code, Ark. Stat. Ann. § 85-2-403 provides in part as follows:

“(2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business.
“(3) ‘Entrusting’ includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless oí whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law.
“(4) The rights of other purchasers of goods and of lien creditors are governed by the Articles on Secured Transactions (Article 9, [§§ 85-9-101-85-9-507]) ....”

Section 85-9-307 provides:

“(3) A buyer in ordinary course of business ... takes free of a security interest (created by his seller) even though the security interest is perfected and even though tire buyer knows of its existence.”

Section 85-1-203. (9) provides:

“ ‘Buyer in ordinary course of business’ means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind....”

Commercial contends that the terms “¡entrustment” and “entruster” apply only to inventory financing, and that its rights here as a “lien creditor” were specifically removed from subsections (2) and (3) of § 85-2-403 by subsection (4) which in turn places lien creditors under § 85-9-307. Commercial then contends that the Chaneys cannot take free of its lien under § 85-9-307 (1) because its lien was not created by the Chaneys’ seller.

We do not agree with Commercial’s theory that its rights as a lien creditor with respect to repossessed property have been removed from subsection (2) and (3) of § 85-2-403. It clearly had possession with the right to transfer title without a certificate of title, and as pointed out by the committee comment, has no right to complain, whether it be considered as a consignor or a lender with a. security interest, for the very purpose of placing goods in inventory is to turn them into cash by sale. Therefore, we think that the entrustment of possession is most applicable to a repossessing lien holder with right of sale.

Commercial also contends that the Chaneys made Cox Brothers their agent for purpose of acquiring title and tliai the Chaneys are therefore charged with the knowledge that Cox had of the forgeries. The record does not support Commercial's premise on this assertion.

~\Yhi]p, as pointed out above, Act 142 of 1949 originally contemplated that the purchaser would be responsible for securing the certificate, it has become apparent in practical application that dealers who assign conditional sales contracts with recourse have a financial interest in seeing that the conditional sales contract is promptly filed and noted on the certificate of title — for instance, In re Shiflet, 240 F. Supp. 183 (Ark. 1965), whore the conditional sales contract lien was lost because the purchaser neglected to apply for his title before becoming bankrupt. Therefore when the dealer’s interest in prompt filing is considered in connection with the evidence of Cox’s conduct in obtaining the registration and certificate of title, we are unable to say that there was no substantial evidence to sustain the frial court’s finding on the issue.

'Under point two Commercial argues that Cox’s knowledge of the defective title should be imputed to Associates since the latter was furnishing Cox the necessary forms, advice, relying upon Cox to acquire credit information and was actually making Cox’s sales possible by financing sales. This contention is not supported by the record. The only thing shown by the record is that- the Chaneys’ financial arrangements with Associates was made on a form furnished by Associates.

Commercial next contends that since Associates did not perfect its lien within ten days after its execution nor before it had actual knowledge of Commercial’s claim, Associates is not now in a position to contend that its lien has priority. The record shows that Associates’ lien was perfected before suit was filed and under such circumstances its priority must staud or fall upon the validity of the Chaney’s purchase. Since we have found that the purchase by Chaneys is protected under the law, we find this contention to be without merit.

It has been suggested that the entrustment doctrine should not be applied to used automobiles because a buyer in the ordinary course of business should know that a certificate of title is outstanding. This was suggested, by way of dictum in Sterling Acceptance Co. v. Grimes, 168 A. 2d 600 (Penn. 1961). However, we need not decide the issue at this time because here Commercial fits into one of the few categories under our law where a transfer is authorized without a certificate of title.

Affirmed.


author: Frank Holt, Justice. Carlbton Harris, Chief Justice.

text:
    Royal Crown Bottling Co., Inc. v. James A. Terry, III
    5-4774
    437 S.W. 2d 474
    Opinion Delivered February 10, 1969
    [Rehearing denied March 17, 1969.]

      Wright, Lindsey & Jennings for appellant.

      McMath, Leatherman, Woods & Youngdahl for appellee.
   Frank Holt, Justice.

This is an exploding bottle case. The appellee suffered injury to an eye which resulted in its removal. The injury occurred while appellee, an employee of a grocery store, was handling a six-pack carton of Royal Crown Cola bottles.

Appellee filed a complaint alleging specific acts of negligence and, alternately, negligence on the theory of res ipsa loquitur. In a separate complaint appellee alleged breach of warranty. Appellant’s answers raised the defenses of contributory negligence and assumption of risk and specified that it had been notified of the subrogation rights of an insurance carrier as provided by the workmen’s compensation laws where compensation is paid to an injured employee.

Upon trial the two complaints wore consolidated by agreement of the parties. Appellant struck from its answers the defenses of contributory negligence and assumption of risk. Appellant introduced no testimony. The court denied appellant’s motion for a directed verdict on each complaint. The jury returned a verdict favorable to the appellee and this appeal comes from the judgment on that verdict.

Appellant argues that appellee’s allegations of specific acts of negligence and, alternately, negligence on the theory of res ipsa loquitur are inconsistent and, therefore, impermissible. However, in a recent opinion this court said that allegations of specific acts of •negligence and res ipsa loquitur are compatible and may be relied upon in the same proceeding. Moon Distributors, Inc. v. White, 245 Ark. 627, 434 S.W. 2d 56 (1968).

Appellant contends that the court erred in denying its motion for a directed verdict on each complaint. Appellee ably states that crucial to appellant’s cause is its-contention that res ipsa loquitur does not apply. We are of the view that res ipsa is not applicable in the case at bar.

The basic components of the doctrine of res ipsa loquitur are found in AMI 610 which was the instruction given in this case. They are: (1) exclusive control; (2) no opportunity for condition of bottle to have changed; and (3) in normal course of events, no injury would have occurred if the bottler had used ordinary care while the bottle was under its exclusive control.

The element of exclusive control is flexible and has not been applied literally in exploding bottle cases. Coca-Cola Bottling Co. of Ft. Smith v. Hicks, 215 Ark. 803, 223 S.W. 2d 762 (1949); Coca-Cola Bottling Co. of Helena v. Mattice, 219 Ark. 428, 243 S.W. 2d 15 (1951); Coca-Cola Bottling Co. v. Jones, 226 Ark. 953, 295 S.W. 2d 321 (1956); Dr. Pepper Bottling Co. of Newport v. Whidden, 227 Ark. 13, 296 S.W. 2d 432 (1956).

In the Hicks case we said that the requirement of exclusive control is satisfied when the plaintiff shows that there was practically “no opportunity for the content or character of the charged bottle to have been changed from the time it left defendant’s hands unti' it exploded.”

In the above cited cases we adopted the view that the doctrine of res ipsa loquitur was applicable to the facts in each case, even though at the time of the alleged injury tlie bottle was not strictly under the exclusive control of the defendant bottler. There was evidence presented in these cases that, after delivery by the defendant bottler and while in the retailer’s possession, no one had disturbed or mishandled the offending bottle.

In the case at bar, the appellee, while attempting to dust some cans on the top shelf of a soft drink self-service display counter, owned and serviced by the appellant and other bottlers, removed a six-pack of Royal Crown Cola from the bottom shelf and placed it on the floor. He accidentally tipped it over on the floor on its side as he stepped upon the shelf. No bottle fell from the carton. After cleaning the upper shelf, appellee attempted to raise the carton to an upright position by grasping the top of one of the bottles in the carton and pulling up on it. At that instant the bottle exploded, injuring appellee’s eye. The bottle fragments were reassembled later and introduced in evidence as proof that the explosion resulted from a crack in the neck of the bottle caused by a blow from a hard, round object. The bottle in question was transported from Little Rock to Bryant on an open truck stocked with cartons or cases of soft drinks. The offending bottle was on the premises for at least three full business days before the accident, and possibly longer since deliveries were made each week. Customers would serve themselves and handle soft drinks individually and in cartons. Sometimes six-bottle cartons would contain a mixture or variety of soft drinks. The carton in question contained only Royal Crown Cola bottles. Appellant and other soft drink companies restocked the shelves of the display counter as needed.

Appellee testified that before his injury he had at no time handled the bottle nor worked in the soft drink section. He had started to work there a few days previously. His employer, who was the store owner, and his -wife ’were present when the incident occurred. They testified that from the time of the delivery until the accident they had done nothing to disturb or damage the bottle in any manner.

An expert in analysis of bottle failures testified that lie found three factors which contributed to the explosion. First, there was an initial blow by a hard, round object, causing a partial cracking through the neck of the bottle. The object could have been another bottle, but could not have been the metal base of a grocery cart nor the base of a can. The examination revealed that the hardness of the object which struck the bottle would have to be equivalent to the hardness of glass. The impact could not have occurred when appellee upset the bottles. Second, there was internal pressure due to agitation of the contents, and third, there was the stress of the leverage which was applied when appellee attempted to set the carton upright. This was “the straw that broke the camel’s back.”

Appellant points to the fact that there was ample opportunity for the character of the bottle to have been changed after leaving the appellant’s possession, especially since customers were allowed to handle and mix soft drinks as desired. However, in the case at bar there was evidence of more than the mere possibility of customer mishandling and abuse. There was undisputed evidence that bottles were abused by the customers. The store owner’s wife (appellee’s witness), on cross-examination, testified:

“Q. Was that the first noise you heard, the thump and the glass?
A. Yes, sir.
Q. When you heard that, did you'know what had happened?
A. Yes.
Q. From the sound of it?
A. From the sound of it. You get used to those things in the grocery store.
Q. That had happened on previous occasions, people knocking drinks off shelves?
A. I have heard them explode before. Some has been dropped. Some has been dropped off the bottom of the shopping carts.”

In view of this uncontradicted evidence, we cannot say that in the case at bar the doctrine of res ipsa loquitur is applicable.

Appellant relies upon Weggeman v. Seven-Up Bottling Co. of Watertown, 5 Wis, 2d 503, 93 N.W. 2d 467 (1958); Ferrell v. Royal Crown Bottling Co. of Charleston, 144 W. Va. 465, 109 S.E. 2d 489 (1959); and Escola v. Coca-Cola Bottling Co. of Fresno, 24 Cal. 2d 453, 150 P. 2d 436 (1944), where the possibility of “customer mishandling” was satisfactorily answered.

In Weggeman the court said:

“ * * * It is not essential that the possibility of other causes of the accident be altogether eliminated, but only that their likelihood be so reduced that the greater probability lies at defendant’s door. The evidence must afford a rational basis for concluding that the cause of the accident was probably such that the defendant would be responsible for any negligence connected with it.”

In Escola the court said:

“ * * * It is not necessary, of course, that plaintiff eliminate every remote possibility of injury to the bottle after defendant lost control, and the requirement is satisfied if there is evidence permitting a reasonable inference that it was not accessible to extraneous harmful forces and that it was carefully handled by plaintiff or any third person who may have moved or touched it.”

Also, see Prosser, Law of Torts (2d ed. p. 205), where he states:

* * Again, however, the evidence need not ■ be conclusive, and only enough is required to permit a finding as to the greater probability.”

In the case at bar there is undisputed evidence of customer abuse. Therefore, in view of this, we cannot say that the possibilities of the cause of this accident are so reduced that the greater probability of the cause lies at the defendant’s door.

Further, we are of the view that the appellee’s evidence is insufficient to establish a submissible issue based upon the allegation of warranty.

Appellee urges that we also consider that he should prevail on the issue of strict liability. This issue was first raised on appeal and, therefore, we do not reach it in this case.

Reversed and dismissed.

Harris, C.J. and Jones, J., dissent.

Carlbton Harris, Chief Justice.

In the case of Moon Distributors, Inc. v. White, 245 Ark. 627, 434 S.W. 2d 56, I dissented because of the fact that I considered the presentation of a case based on specific acts of negligence, and also negligence on the theory of res ipsa loquitur, to be inconsistent, and, to some extent, confusing to a jury. However, the court held to the contrary, and I am, of course, bound by that opinion. Here, a similar situation exists, i.e., specific evidence is offered relative to tlio cause of tlie explosion — but res ipsa loquitur is also relied upon.

L know of no type of case wherein the doctrine of res ipsa can more properly be applied than in an exploding bottle incident, and I consider it noteworthy that the requirement of exclusive control is rather flexible in this type of case, and has not been literally applied. This is obvious from reading our own cases, which are cited in the majority opinion, the majority itself conceding this particular fact. Time does not permit a detailed discussion of all of these cases, but I should like to point out some language, which, to me, is entirely applicable to the facts in the instant case. In Dr. Pepper Bottling Company of Newport v. Whidden, 227 Ark. 13, 296 S.W. 2d 4-32, in discussing res ipsa loquitur, this court stated:

“Appellant says: ‘The evidence is insufficient to establish an explosion for application of res ipsa loquitur doctrine.’ What we have said in disposing of appellant’s first point applies here also. It must be borne in mind that there was evidence (1) that there had been no moving or handling of the bottles or crates from the time and place where Dr. Pepper’s delivery man placed them a few days earlier; and (2) that the bottle was still in the same case when it exploded and injured the plaintiff. The evidence offered by the plaintiff placed the burden on the defendant of proving itself free from negligence under the. res ipsa loquitur doctrine

In the case before us, there is not one iota of evidence that there had been any moving or handling, by any person, of the carton containing the bottle that caused the injury; in fact, the evidence is to the contrary. Some other cartons were filled with different drinks, but this particular carton consisted entirely of bottles of Royal Crown Cola, which certainly was a definite indication that this carton had not been handled by the public. I fail to attach any significance to the evidence cited by the majority in support of the finding that the evidence showed that bottles were abused by the customers. I have no doubt that that happens at times, but in my view, the dropping of bottles by an individual, or cartons falling from the bottom of the shopping carts, is not pertinent to the claim before us, there being no .evidence that this had happened to the bottle in question. If bottles exploded simply because they were dropped, this in itself, to me, is evidence of negligence, for a bottling company knows that this majr well happen, and it should take this probability into consideration when filling the bottles with the carbonated water.

Of course, it was not possible to round up every person who had been in the store shopping in order to ascertain whether they had mishandled the bottles. My feelings on this point are expressed in the Wisconsin case of Weggeman v. Seven-Up Bottling Company, 93 N.W. 2d 467. There, the Supreme Court said:

“* * * Defendant argues that plaintiffs failed to make a case for res ipsa loquitur and that a verdict should have been directed for defendant; but we are satisfied that a sufficient foundation for res ipsa was established. To be sure plaintiffs dicl not prove conclusively that the condition of the bottle had not changed after it left the defendant’s possession. or that Gregory handled it carefully or that the injury was not due to any voluntary act on plaintiffs’ part. Absolute or even clear proof of sibch matters is not necessary to warrant submission of res ipsa loquitur. It is not essential that the possibility, of other causes of the accident be
altogether eliminated only that their likelihood to be so reduced that the greatest probability lies at defendant’s door. The evidence must afford a rational basis for concluding that the cause of the accident was probably such that the defendant would be responsible for any negligence connected with it. [Citing authority.]
“In the instant case we think the evidence afforded sufficient basis for a reasonable inference that after its delivery by defendant the bottle encountered only such usage as is normal in the course of retail distribution and consumer handling, and that much the greater probability was that it was defective when it left defendant’s possession. The bottler may be held to knowledge that exposure to hazards of damage from jolting, jarring and rou,gh handling by retailers, customers and consumers is usual for his product and that nicks and abrasions thereby sustained may make it dangerou,s; and if he negligently fails to put out a product that will stand up under treatment which if not normal is not unusual, he must assume the risk of resulting injuries.4C

My principal complaint of the reversal in this case is that the court is holding that no jury question was made by appellee’s proof, and that the bottling company was entitled to a directed verdict. If appellant had offered evidence that the bottling process, including inspection of the bottles, had been carried out by the company without negligence; that the cartons had been delivered to the store by the company driver without any mishap or unusual circumstance, or offered other proof, pertinent to a defense of no negligence, I would certainly find nothing objectionable to affirming a jury verdict for the company. However, the company did not choose to offer one line of evidence, which seems a little odd to me.

I strongly feel that sufficient evidence was offered by appellee to require appellant to go forward with its own proof, and, of course, that is the holding where the doctrine of res ipsa loquitur is considered applicable. Dr. Pepper Bottling Company of Newport v. Whidden, supra; Coca-Cola Bottling Company of Southeast Arkansas v. Jones, 226 Ark. 953, 295 S.W. 2d 321; Coca-Cola Bottling Company of Helena, v. Mattice, 219 Ark. 428, 243 S.W. 2d 15. But, the majority says that res ipsa loquitur is not applicable, and this holding can only relate back to the fact that customers had had the opportunity to mishandle the drinks, and the further fact that appellee endeavored to show specifically the defect in the exploding bottle. I have already commented on the customer angle, and, despite the holding in Moon, it appears to me that appellee is being penalized for endeavoring to show that there was a definite defect in the bottle.

I would affirm the judgment.

Jones, J., joins in this dissent.

      Emphasis supplied.

      Of course, the carton was kicked over by appellee, but the expert testified that this would not have caused the crack in the bottle.

      There is a distinct difference between a bottle’s exploding, and breaking because of contact with a hard surface.

      'Italicized language denotes my emphasis.

       & 4C Italicized language denotes my emphasis.


author: Car letón Harris, Chief Justice.

text:
    Milford Fuller v. State of Arkansas
    5-5382
    437 S.W. 2d 780
    Opinion Delivered February 17, 1969

      Moore & Brockman for appellant.

      Joe Purcell, Atty. Gen. and Don Langston, Asst. Atty Gen. for appellee.
   Car letón Harris, Chief Justice.

Milford Fuller was convicted in Boone Circuit Court of the crime of receiving stolen property. A jury found appellant guilty, and the court entered judgment, assessing punishment of not less than 16, nor more than 48, months in the Arkansas Department of Corrections. Prom the judgment so entered, comes this appeal. Six points are raised in urging a reversal, and we proceed to discuss these contentions.

On September 7, 1967, Mickey Owen, Sheriff of Greene County, Missouri, together with several deputies, went to the office of,the Municipal Judge at Harrison, and Owen executed an affidavit for a search warrant, based solely on information obtained from an unnamed confidential informant. A warrant was issued to search a certain dwelling house and outbuildings located on a farm northwest of Harrison. These officers, accompanied by Arkansas officers, went to that location, made a search, and seized a quantity of clothing allegedly stolen from a men’s apparel store in Springfield, Missouri. The officers then returned to the Municipal Judge, reported the results of the first search, and, based up this and the same information used in obtaining the first warrant, executed another affidavit, and obtained another search warrant to search a warehouse owned by the Golden Rich Distributing Company, located in Harrison. There, too, a quantity of merchandise consisting of television sets, tires, and other merchandise was seized; the president of the company, Leo Walton, who resided in an apartment in the upper story of the building, mentioned that Fuller had some connection with the merchandise, and appellant was asked to come to the warehouse. Fuller and Walton later requested to go to the office of the Prosecuting Attorney for the purpose of making statements concerning the alleged stolen property. Walton gave a statement on September 7, and Fuller made a statement on the morning of September 8, 1967. Thereafter, a number of charges were filed against Walton and appellant, both for receiving, and for possessing, stolen property. In Walton and Fuller v. State, 245 Ark. 84, 431 S.W. 2d 462, this court reversed a conviction of both men on a charge of possessing a Zenith color television set and a Zenith stereo record player, alleged to have been stolen from Chuck Carter, proprietor of an appliance company of Seymour, Missouri. The present charge against Fuller relates to suits of clothing that were allegedly stolen from a clothing store in Springfield.

The first point for reversal is the same that was raised in Walton and Fuller v. State, Supra, i.e., that the affidavit for the search warrant was defective, and the warrant issued thereon was therefore invalid. This point controlled our decision in that case.

The alleged stolen goods which Fuller is accused of knowingly receiving, were found following the issuance of the first search warrant, while the principal warrant discussed in Walton and Fuller was the second warrant: however, we there held both search warrants invalid. We did hold that the television set and record player (the property involved in the earlier appeal) could be offered in evidence, and testimony taken relative thereto, because these items were voluntarily mentioned by Walton, and were not included in the property discovered under the authority of the search warrants.

The state argues that Fuller had no standing to object to the search of the farmhouse, because he had no proprietary interest, and since that property was owned by Golden Rich, Walton, and one Ed Willis, Fuller could make no complaint that the search was invalid. This is an (erroneous argument. The record reflects that Fuller had permission to be on the premises, had bird hunted there frequently, had brought bones and food to feed Willis’ dog on several occasions, and had been there frequently with permission, when Willis was not there. Willis arrived on an occasion when clothes were being stored, and the witness said that the clothes were brought there by two men that he did not know; that Fuller arrived as these men were leaving. He did not see Fuller converse with the two, and he said that the only reference Fuller made to the clothes was telling Willis that the men would get them out in a few days. The witness said that he was “raised” with the Fuller family, and had been told that he was Fuller’s godfather. Under Jones v. United States, 362 U.S. 257, Fuller had a sufficient interest in the property to move to suppress the evidence. In Jones, the United States Supreme Court held that the testimony reflected a sufficient interest in the premises to establish that appellant was a person aggrieved by the search. Quoting from the opinion:

“That testimony established that at the time of the search petitioner was present in the apartment with the permission of Evans, whose apartment it was. The Government asserts that such an interest is insufficient to give standing. The Government does not contend that only ownership of the premises may confer standing. It would draw distinctions among various classes of possessors, deeming some, such as ‘guests’ and ‘invitees’ with only the ‘use’ of the premises, to have too ‘tenuous’ an interest although concededly having ‘some measure of control’ through their ‘temporary presence,’ while conceding that others, who in a ‘realistic sense, have dominion of the apartment’ or who are ‘domiciled’ there, have standing. Petitioner, it is insisted, by his own testimony falls in the former class.”

The court then said:

“Distinctions such as those between ‘Lessee/ ‘Licensee/ ‘invitee’ and ‘guest/ often only of gossamer strength, ought not to be determinative in fashioning procedures ultimately referable to constitutional safeguards.
‘ ‘ * * * A fortiori we ought not to bow to them in the fair administration of the criminal law. To do so would not comport with our justly proud claim of the procedural protections accorded to those charged with crime. No just interest of the Gfovernment in the effective and rigorous enforcement of the criminal law will be hampered by recognizing that anyone legitimately on premises where a search occurs may challenge its legality by way of a motion to suppress, when its fruits are proposed to be used against him. This would of course not avail those who, by virtue of their wrongful presence, cannot invoke the privacy of the premises searched. As petitioner’s testimony established Evans’ consent to his presence in the apartment, he was entitled to have the merits of his motion to suppress adjudicated.”
See also Simmons v. United States, 390 U. S. 377.

The state attempts to make a distinction between the crimes of “possessing” stolen merchandise, and “receiving” stolen merchandise. We find no merit in this argument. One of the essential elements of the crime here charged is the “receiving,” i.e., a defendant must have possession or control over the alleged stolen goods, of which he has knowingly taken charge. As stated in 76 C.J.S. Receiving Stolen Goods, § 6(b), physical possession is not necessary, but constructive possession or control is sufficient. In charging Fuller with the offense, the state was certainly charging that he had control or dominion over the stolen goods. The position of tlie state, as pointed ont in appellant’s reply brief, is a little inconsistent. Appellant states:

“ * * * Thus it can be readily seen that the Appellee is both ‘trying to have its cake and eat it too’ in that it is attempting to establish a vital element of the crime of receiving stolen goods by showing the possession and control of the appellant of the goods at the farmhouse, the scene of the first search and seizure, and at the same time attempting to deny the Appellant having any possession or control of the same in an attempt to establish a lack of standing to object to the illegal search and seizure.”

AVe hold that appellant was entitled to move to suppress the evidence obtained by the first search warrant, and since we have already held in Walton and Fuller v. State, supra, that that search warrant was invalid, it follows that error was committed in permitting testimony to be offered concerning the merchandise found at the farm house. In Walton and Fuller this court commented :

“However, neither the items discovered as a result of the two searches (except for those items not the object of the search, about which Walton voluntai’ily informed the officers) nor testimony relating thereto was admissible in evidence. Thus, identification of property which was inadmissible should have been excluded by the trial court as ‘fruit of the poisonous tree,’ even though it was offered only for the purpose of showing intent and a course of conduct.”

It follows that the conviction must be reversed.

It is next asserted that the court erred in admitting Fuller’s statement of February 8, 1967. In Walton and Fuller we found that the evidence supported the trial judge’s finding that the warnings required by Miranda v. Arizona, 384 U.S. 436, 16 L. Ed. 2d 694, had been given, and that statements by Fuller and Walton were voluntary and made under waiver of the rights enumerated in Miranda. However, that holding (statements were voluntary) does not permit the introduction of the statement in the case before us, for we said:

“* * * Furthermore, statements of both Walton and Fuller made in the prosecuting attorney’s office, except for those portions relating particularly to property not listed in the second search warrant about which Walton volunteered information, were inadmissible as ‘fruit of the poisonous tree.’ ”

The charge in the older case related to property located without the use of a search warrant — but here, the property which Fuller is accused of receiving, with knowledge that it had been stolen and with the intent to deprive the true owner thereof, is property which was recovered by the use of the invalid search warrant.

It follows, therefore, that the statement, as it relates to the suits of clothes, cannot be used in a trial of this appellant.

Appellant asserts that error was committed in denying his motion for production of the name of the informant, but since we are holding that any testimony relative to goods found under the search, or any statements made by appellant with regard to the property found during the search, cannot be used, there is no necessity to discuss this contention.

It is asserted that error was committed in permitting three men’s suits to be introduced into evidence, and since these suits were found during the illegal search, the point is well taken.

A color television set, alleged to have been stolen, and received by Fuller, was exhibited to the jury by the state, the purpose being to show that appellant was receiving' other stolen property from the same people, and it is asserted that this was error. Of course, appellant being charged in this case only with receiving stolen clothing, it was not proper to introduce other allegedly stolen items. However, the court subsequently held this inadmissible, and so advised the jury.

Complaint is made that the Prosecuting Attorney commented during his closing argument on the fact that appellant did not take the witness stand, and it is alleged that this comment constituted prejudicial error. It is no longer necessary to discuss this assertion at length, because of the other errors, but we hold that the contention is without merit. Hammond and Evans v. State, 244 Ark. 1113, 428 S.W. 2d 639.

Because of the .errors, heretofore set out, the judgment is reversed.

It is so ordered.


author: Carretón Harris, Chief Justice.

text:
    H. W. Rohrscheib v. Barton-Lexa Water Ass'n. et al
    5-4916
    437 S.W. 2d 230
    Opinion Delivered February 17, 1969

      Ralph C. Murray for appellant.

      W. G. Binning, Jr. and James P. Baker Jr. and Rose, Meek, House, Barron, Nash & Williamson for appellees.
   Carretón Harris, Chief Justice.

Appellee, BartonLexa Water Association, is a non-profit corporation, incorporated under the provisions of Ark. Stat. Ann. § 64-1901 — 1919 (Repl. 1966). Section 64-1904 sets out the purposes for which these corporations may be created. Section 64-1905 prescribes the procedure to be followed by any “association of persons” desiring to be incorporated under the act. Appellee association was formed for the purpose of constructing a water distribution system to serve a particular rural area in Phillips County. Under the articles of incorporation, appellee’s objective is to associate its members together for their mutual benefit, to construct, maintain, and operate a private water system for the supplying of water to members, and to engage in any activity related to this purpose. Under the by-laws, the corporation will admit as members water users who are in need of water supplied from the water system maintained and operated by Barton-Lexa; however, the association is not required to admit members if the capacity of the water system is already exhausted by the needs of the present membership. The proposed user is required to have reasonable access to the source of the water, and such water may be obtained for domestic, commercial, industrial, or agricultural purposes. Section 3 of the by-laws provides, Inter alia, that words importing persons shall include partnerships, associations, and corporations organized or authorized to do business in this state.

Appellee, C. C. Warfield is a resident of Phillips County who is engaged in the ginning business under the name of Lexa Gin Company. Appellee, A. T. & G. Company, Inc., is a Michigan corporation authorized to do business in this state. Both Whrfield and A. T. & G. are members of the association. H. W. Rohrscheib, appellant herein, is likewise a member of the association, and on December 31, 1968, he instituted suit in the Phillips County Chancery Court against appellees, asserting that the association proposed to construct a water distribution system for the purpose of providing water to members of the association, and had already received a commitment from the Farmers Home Administration, United States Department of Agriculture, to receive a loan sufficient to construct this system. Further, it was alleged that Barton-Lexa proposed to sell water to Warfield and A. T. & G. for their use in commercial and industrial enterprises, which appellant alleged was not authorized by law. It was asserted that only natural persons may be members of non-profit corporations of the type herein involved, and it was alleged that the Chancellor erred in holding that business corporations, and persons engaged in commercial ventures, might be members of a non-profit corporation. After the filing of an answer, the case was submitted to the court on the pleadings and an agreed stipulation of facts. From a decree dismissing appellant’s complaint comes this appeal.

We do not agree with appellant that only natural persons can become members of the non-profit corporations provided for in this statute. Ark. Stat. Ann. § 1-202 (Repl. 1956), which has been a part of our law since 1837, provides:

“'When any subject-matter, party or person is described or referred to by words importing the singular number or the masculine gender, several matters and persons and females as well as males, and bodies corporate as well as individuals, [our emphasis] shall be deemed to be included.”

In State ex rel Attorney General v. Gus Blass Company, 193 Ark. 1159, 105 S.W. 2d 853, we pointed out that in a statute using the word “person,” the statutory rule is that it includes corporations as well as individuals. As stated by appellee, if the General Assembly liad intended that only natural persons be permitted to become members of non-profit corporations, it could easily have inserted this language. That the Legislature was aware of this normal statutory meaning of the word “persons” is made clear in § 64-1907. There, in setting out the powers of non-profit corporations, Subsection (g) provides that each corporation shall have power to clo any and all things necessary or incidental to the attainment of its purposes as fully and to the same extent as natural persons lawfully might do consistent with the provisions of the act. We agree with the Chancellor’s finding that membership in the BartonLexa Water Association is not restricted to natural persons.

Appellant also contends that business corporations and persons engaged in commercial ventures cannot become members of a non-profit corporation. This argument is contrary to the language of the statute (64-1904) which provides that these non-profit corporations may 1)0 organized under the act for any lawful purpose or purposes. We would expect agricultural or horticultural associations (authorized by the statute) to be composed of individuals or business corporations engaged in a particular line of activity and having as a motive a business profit. The italicized language is controlling and there is certainly nothing' illegal about the formation of a private corporation to construct a water system. The system will provide benefits to its members only, these members being composed of farm families and business enterprises located in the area to be served. To say that benefits are unavailable to those members engaged in profit making ventures would defeat the purpose of the act itself. In fact, this is not the first instance where the General Assembly has used non-profit corporations as an instrument for assistance to industrial and commercial development. A very good example is Act 404 of 1955 (Ark. Stat. Ann. § 9-504—540 (Repl. 1956), which provides for the organization of local corporations, having for their purpose the rendering of assistance to businesses locating in the area.

IVe agree with the trial court that corporations or individuals engaging in commercial or industrial ventures for profit are not precluded from membership in these non-profit corporations.

Affirmed.

      In Boone County v. Keck, 31 Ark. 387, it was held that, though the word “person” includes corporations as well as natural persons, this is only true of such provisions as will allow signification to be given without violating the evident sense and meaning. The court said that when such a construction would render the code, which must be taken as a whole, ineffective, a departure must be made from the letter to give effect to the manifest intention of the Legislature.


author: George Rose Smith, Justice.

text:
    Alma Jean Doty, Justice of the Peace v. Charles Goodwin
    5-4840
    437 S.W. 2d 233
    Opinion Delivered February 17, 1969

      Joe Purcell, Atty. Gen. and Bon Langston, Asst. Atty. Gen. for appellant.

      Camp & IAngle for appellee.
   George Rose Smith, Justice.

On June 7, 1968, a state police officer issued a traffic ticket to the appellee Goodwin, charging him with reckless driving and directing him to appear in a justice of the peace court for trial. In the justice court Goodwin moved for a dismissal of the charge, on the ground that in misdemeanor cases a justice of the peace receives his fees and costs only when the accused is convicted. Such a provision of law is a denial of due process. Tumey v. Ohio, 273 U. S. 510 (1927). The justice denied the motion to dismiss, but on certiorari the circuit court sustained Goodwin’s contention and prohibited the justice from proceeding further. The State, at the prosecuting Attorney’s request, has taken an appeal to set the question at rest. Ark. Stat. Ann. § 43-2720 (Repl. 1964).

The circuit court was right. Under the Tumey case the presiding judge in a criminal case must not have a pecuniary interest in convicting the accused. There the court set aside a conviction in a mayor’s court, because the mayor was entitled to recover costs only if the trial resulted in a conviction. The opinion pointed out that the practice existed in several states, including' Arkansas.

We still have on the statute books a remnant of the condemned procedure. A justice of the peace receives certain fees and costs in criminal cases. Ark. Stal. Ann. § 12-1731 (Repl. 1956). The fees must be paid by the defendant if he is convicted. Ark. Stat. Ann. § 43-2405. The statute is silent as to the defendant’s liability when he is acquitted, which is construed to mean that he is not liable in that eventuality. Land v. Jolley, 175 Ga. 788, 166 S.E. 217 (1932); Childers v. Commonwealth, 171 Va. 456, 198 S.E. 487 (1938); State v. Faulkner, 75 Wyo. 104, 292 P. 2d 1045 (1956). In misdemean-or cases —and reckless driving is a misdemeanor; Ark. Stat. Ann. § 75-1003 and 1004 (Repl. 1957)—the county is not liable for the justice’s fees. Section 43-2405. Thus the situation falls within the ban of the Tumey case.

The State argues that the justice of the peace can recover fees and costs in any event, because the statutes require the prosecutor in misdemeanor cases to give bond for the payment of all costs. Section 44-301. We have held, however, that the bond requirement does not apply wheu the prosecutor is a law enforcement officer acting in the performance of his duties. Coger v. City of Fayetteville, 239 Ark. 688, 393 S.W. 2d 622 (1965); Thebo v. State, 161 Ark. 619, 256 S.W. 381 (1923). We adhere to that view, because obviously a police officer ought not to be required to give a bond for costs as a result of having issued a traffic ticket. Hence the cost-bond statute does not render inapplicable the principle of the Tumey case.

Of course the fact that a justice of the peace would have a pecuniary interest in a judgment of conviction, under § 43-2405, does not prevent him from exercising the jurisdiction in misdemeanor cases given to him by § 43-1405 if he elects to serve without compensation either upon a conviction or upon an acquittal. It is appropriate for us to point out that additional legislation on the subject seems to be needed.

Affirmed.


author: Lyle Brown, Justice.

text:
    Marion Power Shovel Co. v. Harold Huntsman
    5-4749
    437 S.W. 2d 784
    Opinion Delivered February 17, 1969
    [Rehearing denied March 24, 1969.]

      Bennett & Purtle for appellant.

      Lightle & Tedder for appellee.
   Lyle Brown, Justice.

Marion Power Shovel Co. was the plaintiff in the trial court. Harold Huntsman, appellee and cross-appellant, was the defendant and counterclaimant below. Marion sued for parts supplied to Huntsman which were used to repair a power shovel with a dragline attachment. Huntsman countered with a complaint for breach of warranty concerning the original construction equipment, it having been manufactured by Marion. Huntsman obtained judgment (the trial court sitting as a jury) under his counterclaim and Marion appeals. Huntsman cross-appeals, alleging insufficiency of damages. The numerous points on appeal will subsequently he enumerated and discussed.

Harold Huntsman, a large-scale farmer in the Bald Knob area, was interested in purchasing a machine and attachments to be used in ditching and draining 1000 acres of lowland preparatory to cultivation. The land had previously been cleared by the use of a cutting blade attached to a tractor, by means of which trees ■were cut level with the ground. Huntsman contacted T. F. Shamel, who operated Standard Equipment and Sup-ply Co. in North Little Rock. Shamel handled Marion Power Shovel products. According to Huntsman, Shamel subsequently brought to Bald Knob the district representative of Marion Power Shovel Co., one R. A. Strickland; Huntsman and Strickland made a complete tour of the acreage to be developed; details of the proposed improvements were explained to Strickland ; and Strickland compiled the specifications for the type of equipment needed to put the land in shape.

There are three written instruments in the record pertaining to the sale. The first is a purchase order from Standard Equipment to Marion Power Shovel Co., itemizing the components of the machine and directing shipment to Huntsman. Marion then sent to Standard Equipment an invoice sheet. A few days later, Standard invoiced Huntsman and Huntsman paid Marion in full for the equipment. It is noted that none of those three instruments made any mention of warranty. The equipment arrived in April and Marion sent a man to perform the assembling necessary to compose an operating machine. Along with the machine there was a booklet entitled Operation and Maintenance Manual. Seven subjects are treated on page one of section 1, among which is this statement of warranty:

STANDARD WARRANTY. Marion Power Shovel Company guarantees the parts manufaetured by it to be free from defects in material and workmanship under normal use and service, its obligation under this warranty being limited to making good at its factory any part or parts thereof manufactured by it which shall, within six (6) months after delivery of said machine to the original purchaser, be returned to it with transportation charges prepaid, and which its examination shall disclose to its satisfaction to have been thus defective; this warranty being expressly in lieu of all other warranties expressed or implied, and of all other obligations or liabilities on Marion Power Shovel Company’s part.

Huntsman further testified that he put the machines to work immediately in order to plant a soybean crop in that year. He claimed that breakdowns immediately set in; that the swing clutches would become hot and erystalize; then the ground drive chains began breaking ; that next came trouble with the transmission which in two months caused the breakage of four drive shafts; and that fifteen working days were lost because the machine’s rotating shaft broke. Those breakdowns, asserted Huntsman, made it impossible to plant a crop that year, and resulted in consequential damages of $25,-000. That figure was based on an estimated land rental value of $25 per acre. Huntsman also sought to recover the difference between the cost of the machine and its actual market value, that difference being in his estimation in the neighborhood of $40,000.

Marion Power Shovel produced two principal witnesses. E. A. Strickland denied having gone to the Huntsman farm prior to the sale. Conversely, he contended he met Huntsman at the office of Standard Equipment in North Little Rock, that they inspected specification sheets for various machines; that Strickland was not informed of the details of the proposed operation, other .than the fact that Huntsman wanted to drain some land and build some levees; and that Huntsman, decided for himself on the final specifications. Huntsman ordered an eighty-foot boom when, according to Strickland, the standard would have been a boom of forty feet for the particular machine. Strickland conceded that the machine was not designed to operate on an eighty-foot boom with a dragline carrying a bucket of one and one-half yards capacity. Another witness was an engineer from the factory. He had inspected the broken parts which were returned to the factory and he had watched the machine operate on the ground. He concluded that the breakdowns were due to overloading and otherwise abusing the machine in operation and maintenance.

"We have not attempted to relate all the voluminous evidence in the case. Much of it is not pertinent to our decision. Other evidence which requires comment will be treated in the discussion of the points for reversal.

1. There Is No Privity of Contract Between Marion Potver Shovel and Harold Hv/ntsman. That is Marion’s first point for reversal.

It is appellant’s theory that Huntsman purchased the equipment from Standard Equipment & Supply Company and not from Marion Power Shovel. Marion further asserts Huntsman cannot claim the benefit of Ark. Stat. Ann. § 85-2-318.1 (Supp. 1967) because Marion’s suit was filed prior to the effective date of that Act. Section 85-2-318.1 eliminates the defense of lack of privity under certain conditions. In examining the overall negotiations, we agree with the trial court’s conclusion that the transaction was actually between Huntsman and Marion Power Shovel. In view of that conclusion, § 85-2-318.1 is not controlling.

Standard Equipment played a minimal part in the entire proceedings. Huntsman did first contact Standard and told their Mr. Shamel of his interest in purchasing equipment for draining his property. According to Huntsman, Shamel thereafter brought Marion’s Mr. Strickland to Bald Knob. Shamel had business elsewhere in the area, according to Huntsman, and left Huntsman and Strickland alone to work out the project. Strickland concedes that he made out the specifications which were transposed on Standard’s order blank. Huntsman testified that Strickland authored the specifications on the latter’s judgment after a tour of the farm. The check for $40,000, being the balance of the purchase price after trade-in, was apparently made to Marion Power Shovel. The equipment was shipped direct from the factory in Marion, Ohio, to Huntsman in Bald Knob. Marion Power Shovel sent to Bald Knob a Mr. Revis to oversee the assembly of the machine.

It has been held that in the case of a suit between the manufacturer and the consumer the question of whether there is privity of contract is a question of fact. See Hewitt-Robins v. Lea County, 371 P. 2d 795 (N.M. 1962), where the court held such under a similar fact situation. U.S. Pipe v. City of Waco, 108 S.W. 2d 432 (Tex. 1937), says that the court will look through the form to the substance of such a situation. In the Waco case, the manufacturer made certain representations as to the quality of certain pipe, inducing the city to specify such pipe in a contract with a general contractor. “By indirection it [the manufacturer] thus secured for itself a sale as certainly, and presumably as profitably, as if a direct contract of sale had been made with the city. Having secured the benefits, it may not now avoid the burdens of the transaction.” See also Ruberoid v. Briscoe, 293 F. 2d 712 (Tex. 1961).

The trial court made no specific written finding as to privity or non-privity; however, it is clear that it did find privity because the court gave as its only reason for not allowing damages based on the market values, before and after, of the machine, the lack of proof as to difference in value. Privity necessarily had to be determined to exist before the court reached that question of value.

2. The Standard Warranty Covered the Agreement Between the Parties; the Express Warranty Was in Lien\ of all Others; it States the Exchosive Measure of Damages. The warranty before us, which is really in the nature of a disclaimer, violates the UCC in at least two respects. It does not mention merchantability nor can it be considered conspicuous, both of which, are required by Ark. Stat. Ann. § 85-2-316 (Add. 1961). Whether it was conspicuous is for decision by the court. Ark. Stat. Ann. § 85-1-201(10) (Add. 1961). All the documents concerned with the transaction are before us and we are in a position equal to that of the trial judge to determine the question. Hunt v. Perkins Machinery Co., 226 N.E. 2d 228 (Mass. 1967). None of the three written instruments executed to initiate and consummate the sale, including' an invoice executed by Marion Power Shovel, contained mention of warranty. As we have previously mentioned, the warranty first appeared on the inside of an operation and maintenance manual. That document was not supplied Huntsman until delivery of the machine, for which Marion had already received the purchase price. The location of the warranty was considered significant in Hunt, supra. Also, see Dailey v Holiday Distributing Corp., 151 N.W. 2d 477 (Iowa 1967). We conclude that the written warranty was defective.

3. All Questions of Warranty Aside the Court Awarded an Improper Measure of Damages. The sole damages awarded by the trial court were “$9,000 as consequential damages for loss of crops.”

Consequential damages are treated in Ark. Stat. Ann. § 85-2-715 (Add. 1961). They may be allowable if the contractor, at the time of the sale, had reason to know of a general or particular requirement of the buyer, and if the failure of the merchandise to produce those requirements could not reasonably be prevented by cover or otherwise. Applying that law to the recovery here, Marion would have had to have reason to know that Huntsman was depending on this machine to shape his land for production of a 1965 soybean crop and that a substitute machine was not available in case of breakdown. Huntsman’s evidence on both these requirements is entirely lacking. Furthermore, the machine was not delivered and assembled until around May 1, 3965. At that time Huntsman had not yet procured an operator. Under those facts it is not reasonable to believe that Marion Power Shovel intended to assure Huntsman at that late date of a 1965 soybean crop. We therefore hold the court erred in allowing consequential damages.

4. The Testimony Affirmatively Shows Harold Huntsman Caused the Damages He Incurred, if any, Through Abuse of the Machine. We do not treat the point because we are remanding the case and the question will bo again before the court de novo.

Huntsman contends on cross-appeal that the court erred in not awarding damages for the difference in the value of the machine as provided in Ark. Stat. Ann. § 85-2-714(2) (Add. 1961). 'The court held the evidence “is insuffeient to award damages by such breach of warranty based upon the difference in the price paid for said machine and its market value, if any, in the condition in which the same ivas delivered.” We cannot say the court erred in that respect. Huntsman hedged considerably about giving an opinion of the value of the machine in its delivered condition. He finally said: “Oh, about $20,000.” It is not unreasonable to believe that the evidence could be supplied on retinal.

One additional comment should be made for the guidance of the trial court and counsel in the event the case is again tried. Pluntsman gave considerable testimony about the loss of several hundred hours of working time due to breakdowns. He then multiplied those hours by what lie alleged to be the fair rental value of the machine and asked for considerable damages for ‘ ‘ down-time. ’ ’ The trial court made no award for those claims and the validity of the charges is not briefed on appeal. Statutory damages for breach of warranty are treated in Ark. Stat. Ann. §§ 85-2-714 and 715.

The reason for remand is that law oases generally are remanded unless it is clear that the case has been fully developed. Another reason here for remand is that we perceive the trial court gave credence to the written warranty which is more in the nature of a disclaimer. That warranty should have been voided for the reasons we have stated and the case tried under the doctrine of implied warranty.

Beversed and remanded.


author: John A. Fogleman, Justice.

text:
      J. R. Shepherd v. State of Arkansas
    5-5392
    439 S.W. 2d 627
    Opinion Delivered February 17, 1969
    [Substituted Opinion on denial of Rehearing April 21, 1969, p. 744.]

      Harry G. Robinson and Harold L. Hall for appellant.

      Joe Purcell, Atty. Gen. and Bon Langston, Asst. Atty. Gen. for appellant.
   John A. Fogleman, Justice.

Appellant was convicted of selling an unregistered security in violation of Ark. Stat. Ann. <§> 67-1241 (Repl. 1966) and of operating as a broker-dealer without being registered in violation of Ark. Stat. Ann. § 67-1237 (Repl. 1966). Appellant challenges the sufficiency of the evidence to support the judgment of conviction entered by the circuit judge, who sat without a jury, by agreement.

Specifically, Shepherd was charged with having-sold a security to one IT. S. Hedden. The instrument evidencing the transaction was introduced into evidence and was entitled “Assignment of Oil and Gas Lease.” By it an undivided one sixty-fourth interest of the right, title and interest of H. W. McMillan, trustee, the original lessee in a certain oil lease, was conveyed to Hedden together with all personal property used or obtained in connection therewith and not retained in said lease. The instrument recites that J. R. Shepherd, trustee, was the owner of the lease and all rights thereunder.

It was not shown that Shepherd had engaged in any other such transaction at any time. It is not denied that the sale was made without registration of the lease, or any interest therein, and without Shepherd having previously registered as a broker-dealer.

The word “security” as used in the Arkansas Securities Act includes a certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such title or lease. This statute is penal in nature and must be strictly construed. Under such construction, nothing will be taken as intended which is not clearly expressed and all doubts must be resolved in favor of the defendant. Stuart v. State, 222 Ark. 102, 257 S.W. 2d 372.

This instrument does not constitute a security as defined in this statute. An oil and gas lease conveys an interest in land. Osborn v. Arkansas Ter. Oil & Gas Co., 103 Ark. 175, 146 S.W. 122; Watts v. England, 168 Ark. 213, 269 S.W. 585; Shreveport-El Dorado Pipe Line Co. v. Bennett, 172 Ark. 804, 290 S.W. 929. When a strict construction is given the act and the nature of the property is considered, the sale or assignment of oil, gas or mining leases, or interests therein, is not included in the term “certificate of interest or participation in an oil, gas or mining title or lease.” See State v. Allen, 216 N. C. 621, 5 S.E. 2d 844. This language under a strict construction must be taken to mean a certificate of interest or participation in the oil or gas produced and severed from the land or in payments out of production thereof or a certificate representing an interest or participation in a lease held in the name of another. As the North Carolina court pointed out, whether the definition of securities should be amended to include a transaction such as this is a matter for the lawmaking body and not for the court.

The judgment is reversed and the cause dismissed.


author: J. Fred J ones, J ustice.

text:
    Delmar F. Courtney, Administrator v. Murphy Duane Birdsong and Southern Farm Bureau Casualty Insurance Company
    5-4796
    437 S.W. 2d 238
    Opinion Delivered February 17, 1969

      Tiner & Henry for appellant.

      Hodges, Hodges & Hodges for appellee.
   J. Fred J ones, J ustice.

Farm Bureau Casualty Insurance Company advanced medical expenses to James Franklin Courtney during the pendency of a suit for personal injuries Courtney filed in the Poinsett County Circuit Court. Courtney settled his suit by compromise and Farm Bureau sought reimbursement, out of the proceeds of the settlement, for the full amount it had advanced under a subrogation agreement it entered into with Courtney. Courtney contended that Farm Bureau was not entitled to full reimbursement for the amount it bad advanced, but was liable to Courtney in half that amount as its proportionate share of Courtney’s attorney’s fee. The trial court awarded Farm Bureau the full amount of its advancement and Courtney has appealed.

James Franklin Courtney is now deceased and this appeal is prosecuted in the name of his personal representative. For the sake of clarity, as well as brevity, the word “appellant,” and the name “Courtney,” as used herein, refer to James Franklin Courtney who was plaintiff in the trial court. Since the facts of this case are so germane to the problem on appeal, we set them out in some detail.

Courtney sustained personal injuries while riding as a guest in a pickup truck owned and driven by his brother-in-law, Duane Birdsong. Courtney employed an attorney to represent him in a suit for damages for personal injuries, including medical expenses, against Birdsong and agreed to pay his attorney fifty per cent of the amount recovered. The attorney filed suit for Courtney in the Poinsett County Circuit Court on September 39, 1967. Courtney had incurred medical expenses in the amount of $1,797.90 as a result of his injuries and he was covered for medical expenses under an insurance policy issued to his father by Southern Farm Bureau Casualty Insurance Company. On October 30, 1967, Courtney obtained payment of the medical expenses from Southern Farm aud signed a “loan receipt” agreeing to pay, or reimburse, Southern Farm the sum of $3,797.90 out of the net amount he would recover from Birdsong. Courtney further agreed, that he would not settle his claim against Birdsong without Southern Farm’s knowledge and approval. Courtney’s attorney knew that Courtney had obtained payment for medical expenses from Southern Farm but did not know of the agreement he had signed.

On or about November 28, 1967, Courtney’s attorney settled the lawsuit by telephone with the attorney for Birdsong’s insurance carrier, for the sum of $5,000.00. During the course of the telephone conversation, Courtney’s attorney was advised that Southern Farm claimed a subrogation interest in the recovery against Birdsong to the extent of the $1,797.90. Upon receipt of this information, Courtney’s attorney requested that the $5,-000.00 be paid in two separate drafts; one payable to Courtney, his attorney and Southern Farm in the amount of $1,797.90, and the other payable to Courtney and his attorney for the remainder of the $5,000.00 settlement. The two drafts, drawn as directed, were received by Courtney’s attorney and on November 30, 1967, by an approved order of the circuit court, the suit against Birdsong was dismissed with prejudice.

Upon receipt of the drafts, Courtney’s attorney advised Southern Farm of the receipt of the draft for $1,-797.90 and sought to secure a proper endorsement in order that the draft could be cashed and the proceeds divided. Shortly thereafter, Courtney’s attorney was contacted by an attorney representing Southern Farm, who demanded that Courtney and his attorney endorse the draft and deliver it to Southern Farm’s attorney. Courtney and his attorney refused to comply with this request and on December 7, 1967, Southern Farm filed a motion to set aside the order of dismissal with prejudice and to permit it to intervene. This motion was taken up by the court on March 6, 1968, at which time the original motion to set aside the order of dismissal ivas abandoned and the hearing proceeded on the disposition to be made of the $1,797.90 which had been paid into the registry of the court by agreement. Southern Farm contended that it was entitled to all of the $1,-797.90 and Courtney contended that one-half of this amount should be applied to his attorney’s fee under the fifty per cent contingent fee contract he had with his attorney. The trial court awarded the entire sum of $1,797.90 to Southern Farm and Courtney has designated the following point he relies on for reversal:

“Tlie trial court erred in refusing to allow an attorney’s fee for the collection of appellee’s (intervenor’s) subrogation claim.”

We do not quite agree with the appellant as to the point at issue on this appeal. The appellant says:

“The only point at issue in this appeal is whether or not the trial court erred in refusing to allow decedent an attorney’s fee for collecting the full amount appellee had expended for medical expenses under its insurance policy.”

The actual point at issue, as we see it, does not involve the allowance of appellant’s attorney’s fee, but does involve who is to pay appellant’s attorney’s fee. The point at issue involves the question of whether the appellant is required to pay all of his attorney’s fee or whether he can require the appellee to pay a part of it under the facts and circumstances of this case.

The appellant relies heavily on our decision in the case of Washington Fire and Marine Ins. Co. v. Hammett, 237 Ark. 954, 377 S.W. 2d 811. In the Hammett case the insurance company issued a $50.00 deductible policy of collision insurance to Hammett. Hammett was involved in a collision with Purcell. The insurance company paid Hammett his property damage and took subrogation in Hammett’s cause of action against Purcell. After notifying Purcell of its claim and rights under its subrogation agreement, the insurance company threatened suit against Purcell but did nothing more. Hammett, through his own attorney, sued Purcell for the full amount of the damages and upon compromise, the insurance company was required to contribute its proportionate share of Hammett’s attorney’s fee as a part of the cost of collection under equitable principles of subrogation, citing Webster v. Horton, 188 Ark. 610, 67 S.W. 2d 200.

In 50 Am. Jur., Subrogation, §3, page 679, is found the following:

‘ ‘ There are known to the law two kinds of subrogation, one of which is termed ‘conventional,’ and the other, in contradistinction, ‘legal,’ or, by reason of its origin and basis, ‘equitable.’ Some authorities have regarded assignments as a third type. Ordinarily, when the term is used without qualification legal subrogation is meant... Legal subrogation is a creature of equity not depending upon contract, but upon the equities of the parties. In its most usual aspect, it arises by operation of law where one having a liability or a right or a fiduciary relation in the premises pays a debt owing by another under such circumstances that he is in equity entitled to the security or obligation held by the creditor whom he has paid. Conventional subrogation, as the term implies, is founded upon some understanding or agreement, express or implied, and without which there is no ‘convention.’ It occurs where one having no interest or any relation to the matter pays the debt of another, and by agreement is entitled to the rights and securities of the creditor so paid. The contract right of subrogation is somewhat broader than legal subrogation, for the right is granted irrespective of whether the payment was necessary for the protection of the person seeking subrogation.”

In the case at bar the appellant entered into two separate contracts, first with his attorney and secondly with the appellee. His contract with the appellee amounted to more than a mere legal subrogation right to be enforced on equitable principles. He agreed to pay the appellee $1,797.90 out of the net amount he would recover in a lawsuit he had already filed. The appellant, in effect, now seeks to charge the appellee with a part of appellant’s attorney’s fee incurred in collecting the amount he agreed to pay the appellee. While this agreement, signed by the decedent, conflicted to some extent with the agreement he made with his attorney in that it purported to give the appellee power of attorney with “irrevocable power, to collect any such claim or claims, and to begin, prosecute, compromise or withdraw in ... its . .. name ... any and all legal proceedings ... this agreement was entitled “Loan Receipt” and provided as follows:

“Received From the SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY (hereinafter referred to as ‘Company’) THE SUM OF Seventeen Hundred Ninety Seven & 19/100 [sic] Dollars ($1797.90) as a loan, without interest repayable only in the event and to the extent of any net recovery tiie undersigned may make from any person, persons, corporation or corporations, or other parties, causing or liable for injury to James F. Courtney and as security for such repayment the undersigned hereby pledges to the said ‘Company’ all his, its or their claim or claims against said person, persons, corporation or corporations or other parties, and any recovery thereon, in the above amount.
The undersigned covenants that no settlement has been made by the undersigned with any person, persons, corporation or corporations, or other parties against whom a claim may lie, and no release has been given to anyone responsible for such loss and that no such settlement will be made, nor release given without the written consent of the said company; and the undersigned covenants and agrees to cooperate fully with the said company, to promptly present claim and, if necessary, to commence, enter and prosecute suit against such person or persons, corporation or corporations, or other parties, through whose negligence or other fault the aforesaid loss was caused, or who may otherwise be responsible therefor, with all due diligence, ir. Ms, its or their own name.”

The appellant had already filed his lawsuit before the agreement was entered into with the appellee. The appellant’s attorney was entitled to his fee and the appellee was entitled to repayment, to the extent of appellant’s net recovery against Birdsong, the full amount of $1,797.90 the appellee had advanced to the appellant. The appellant’s attorney knew of the advancement but did not know of the contents of the agreement his client had entered into with appellee until the suit against Birdsong was compromised by telephone with Birdsong’s insurance carrier. Upon being advised of appellee’s claim, the appellant’s attorney directed that the $1,797.90 claimed by the appellee be paid by separate draft drawn payable to his client, himself and the appellee in that amount. This was done and the suit against Birdsong was dismissed with prejudice.

The appellant, in ¡effect, argues that the $1,797.90 represents a part of the gross recovery and only half of this amount would represent the net recovery out of which he agreed to repay appellee. The appellee argues, in effect, that the $1,797.90 is a part of the net recovery and that if the appellant did not pay his attorney out of the remaining $3,202.10 of the gross settlement, that his failure to do so was not the fault of the appellee, and that in no event should appellee be now required to pay any part of appellant’s attorney’s fee. The trial court agreed with the appellee and we agree with the trial court.

The appellant made two separate agreements in this case. He agreed to pay his attorney fifty per cent of the amount collected in the suit against Birdsong. The appellee paid appellant’s medical expenses under a policy it had issued to appellant’s father, and the appellant agreed to repay this amount to the appellee out of such net amount he might recover from Birdsong. In the agreement between the appellant and the appellee, the appellant did not require appellee to pay or to contribute to the payment of appellant’s attorney’s fee and appellee did not agree to do so.

There is no evidence in the record as to what the appellant did with the other draft, presumably in the amount of $3,202.10. The only reference to its disposition is contained in the “Response of Plaintiff to Motion to Set Aside and to Intervene,” as follows:

“After receiving the two checks as alleged above, plaintiff paid his attorney all sums which he owed him except his fee of fifty per cent (50%) for the collection of the sum represented by the draft for ONE THOUSAND SEVEN HUNDRED NINETY SEVEN AND 90/100 DOLLARS ($1,-797.90). Accordingly, plaintiff’s attorney advised Southern Farm Bureau Casualty Company that Franklin Courtney had indorsed said draft; that plaintiff’s attorney was in possession of said draft; that he had indorsed said draft; that he was entitled to fifty per cent (50%) of the amount of such draft; that he stood ready, willing and able to pay Southern Farm Bureau Casualty Company said sum after deducting his fee ...
Plaintiff’s attorney has made demands upon the plaintiff for fifty per cent (50%) of the amount of said draft payable upon his contract of employment with the plaintiff. Plaintiff says that he is legally obligated to pay his attorney fifty per cent (50%) of the amount of said draft in accordance with the terms of his contract by which he employed said attorney.”

The appellant’s attorney is not a party to this lawsuit. If the appellant still owes his attorney any amount on his fee, he should pay it and there is nothing in this case that would prevent him from doing so. The appellant agreed to pay to the appellee $1,797.90 out of the amount he collected from Birdsong, but the appellee did not agree to pay any part of appellant’s attorney fee and we find no equitable reason why it should be required to do so now.

When appellant’s attorney learned of appellant’s agreement with the appellee, he simply directed that a separate draft be drawn for the amount covered by that agreement and the trial court correctly held that this amount should be paid over to the appellee and that the appellant is not entitled to contribution from this amount to apply on appellant’s attorney’s fee.

Judgement affirmed.