author: Carleton Harris, Chief Justice. John A. Fogleman, Justice,

text:
    THE FIRST NATIONAL BANK OF CONWAY, ARKANSAS v. CONWAY SHEET METAL CO., INC.
    5-4504
    428 S. W. 2d 293
    Opinion delivered May 27, 1968

      Robert W. Henry and J. Ted Blagg, for appellant.

      Clark, Clark & Clark, for appellee.
   Carleton Harris, Chief Justice.

T. & C. Construction Company was the owner of Lot 8, Heritage Subdivision, in Conway. This lot, along with others, was subject to a mortgage held by Capitol Savings and Loan Association, such instrument providing that any lot which was subject to the mortgage would be released by payment of $2,000.00 toward retirement of the debt. Lot 8 was sold by T. & C. Construction Company on January 31, 1966, to John W. Fent and wife, the consideration being $2,900.00. First National Bank of Conway, appellant herein, loaned the amount of the purchase price to the Fents, this indebtedness being evidenced by a note for that amount, signed by Fent and his wife, and by the president of T. & C., George Shaw, Jr. Two thousand dollars of this loan was paid at that time to release the lot from the Capitol Savings and Loan Association mortgage, and the $900.00 was paid to T. & C. by deposit to its account. The bank officer who handled the transaction knew the specific purpose for which the $2,900.00 would be used.

On February 2, 1966, the Fents executed a mortgage to the bank on Lot 8, which recited an obligation on the bank’s part to lend $12,900.00 to be used solely in the construction of a residence on this lot, funds to be advanced from time to time as the work progressed. The bank recorded the mortgage, and did, over a period of time, advance $10,000.00, which the Fents used to pay the general contractor. Thereafter, the Fents encountered financial difficulties, and Conway Sheet Metal Company, Inc., appellee herein, and other sub-contractors, filed suits to foreclose materialmen’s and laborers’ liens, and the bank sought to foreclose its mortgage. On trial, the court found the bank’s mortgage to be a valid construction mortgage upon the property in question, prior and superior to all asserted liens. A few months later, following our decision in the case of Planters Lumber Company, Inc. v. The Wilson Company, Inc., 241 Ark. 1005, 413 S. W. 2d 55, appellee filed a motion to vacate the judgment, and on March 24, 1967, still within term time, the Chancery Court set aside and vacated the order of distribution which it had earlier entered, insofar as it pertained to the relative priority of appellee’s claim. The cause was thereafter submitted upon the stipulation of the parties, and the court, on May 19, entered a new decree in which it held, as follows:

First, that all costs should be paid; second, that First National Bank should be paid the sum of $13,-666.98,'representing the $10,000.00 actually advanced for construction purposes, the $2,000.00 advanced in discharging Lot' 8 from the mortgage in favor of Capitol Savings and Loan, and $1,666.98, representing interest, costs, and attorney fees provided for in the note and mortgage held by the hank. Third, the court held that appellee should be paid the sum of $1,133.49, it having established its right to a lien upon the property in the amount of $1,472.06.

“* * * Said lien claimant is entitled to share pro rata in any sums remaining in the hands of said commissioner after payment of the two aforementioned prior claims upon said funds, pro rata and to the same extent as if all other lien claimants remained parties to this action, in which event Conway Sheet Metal Company, Inc., would be entitled to receive a total of 77 % of its aggregate lien claim of $1,472.06.”

Finally, the decree directed that, since other lien claimants had not moved to set aside the original decree, any balance of funds remaining would be paid to the bank to apply on the indebtedness owed it by the Fents and George Shaw, Jr. From the decree so entered, the bank brings this appeal. Appellee cross-appeals from that part of the decree which awards the bank a first lien upon the property involved for any amount above the $10,000.00 actually advanced for construction purposes, plus interest, costs, and attorney fees therein.

The priority given the bank on the $10,000.00 advanced by the bank for construction is not questioned, the mortgage having been recorded before construction was begun, the bank being obligated to advance that amount, and admittedly having done so. Therefore, the only items involved in this litigation are the $2,000.00 advanced for release of the lot, and the $900.00 which was used to pay the balance due the seller of the lot. Appellant asserts that it is entitled to the entire $2,-900.00, and appellee asserts that it is entitled not only to priority over the $900.00, but also to priority over the $2,000.00.

The question then is, “Can a construction money mortgagee, who is obligated under the mortgage to ad-vanee a certain sum of money solely for construction purposes, divert a part of the funds to some other purpose, and still claim (as to the funds diverted) the protection that would he afforded had the entire amount been used for construction? Appellant relies in large measure, upon Ashdown Hardware Company v. Hughes, 223 Ark. 541, 267 S. W. 2d 294, and argues that the controlling circumstance is the purpose for which the money was borrowed.

Hughes is easily distinguishable from the case at hand in that there, the portion of the money which was to be used to retire an already existing mortgage was given particular mention in the new mortgage, same providing that the grantors were justly indebted to the lender of the-money in the amount of $4,500.00; the instrument further recited, “And this mortgage likewise secures an additional advance to be made by the mortgagee in the total sum of Five Thousand, Five Hundred dollars * * * .” This last amount was to be used for the construction of tourist cabins. In the instant case, according to the mortgage given, the entire $12,900.00 is “to be used solely for and in the construction of a residence upon the lands hereinabove described, and Grantee has agreed to make said loan for such purposes, and Grantors are justly indebted to Grantee for advances made or to be made hereafter by Grantee to Grantors from time to time for such purposes, aggregating the principal sum aforesaid* * *. Grantee agrees that the acceptance and recordation of this mortgage binds Grantee, its successors and assigns, absolutely and unconditionally to make said loan in advances. Such advances will be made as requested by Grantors as such work progresses.”

The distinction is at once apparent, for in Hughes, materialmen and laborers could quickly ascertain that, though the entire amount loaned by the mortgagee was $10,000.00, only $5,500.00 was to be used for construction.

In Planters Lumber Company, Inc. v. The Wilson Company, Inc., supra, we held that where a lender withheld certain sums from the amount of construction funds stated in the mortgage, inter alia, the cost of the lots, he could not claim priority in those amounts withheld. Appellant endeavors to distinguish the ease before us from Wilson by pointing out that there, The "Wilson Company owned the lots, and did not advance any money for the payment of same, nonetheless holding out the price of the lots, while here, the bank actually did advance the $2,900.00, which was used for the purchase of Lot 8. It may be, from the standpoint of equity, that appellant, in the present case, is in a better position than Wilson— but the principle which is controlling is exactly the same. Actually, Wilson, to some extent, modified earlier holdings in that the following principle is announced: Where a construction money mortgage recites that a certain amount of money will be advanced for construction — it must be used for that explicit purpose if the mortgagee is to have priority over lien holders. Certainly, this is only fair. A materialman or laborer, who plans to furnish materials, or labor, on a particular job is entitled to know how much money the lender is bound absolutely and unconditionally to advance as work progresses. As stated in Wilson:

“With this information gleaned from the record, an alert materialman might desire to make another financial check as the work progresses; namely, to check with the disbursing agent to get the total expended for construction. ’ ’

It might also be mentioned that the purpose clauses in Wilson and the present case are practically identical. Appellant asserts that a decision adverse to their side of the case “cannot help but result in great harm to the building industry and the well-being of the state, as the impact of this decision will be felt for many years to come. That is the primary reason for this appeal.” We are unable to agree with this statement, for there is more than one way that the hank can give itself absolute protection. One has already been mentioned in this opinion, in referring to the Hughes case. We see no great difficulty in having the mortgage recite that a portion of the money (giving the amount) has, or will he, used to pay off an existing indebtedness. Complete protection for the full amount (advance for retirement of indebtedness and construction advances) is thus afforded.

In accordance with what has been said, it follows that the court erred in giving the bank priority on any amounts advanced in excess of the $10,000.00 used for construction. The decree is therefore affirmed on direct appeal (involving the $900.00), and is reversed on cross-appeal (as to the $2,000.00), and the cause is remanded with directions to enter a decree not inconsistent with this opinion. It is so ordered.

FoglemaN, J., dissents.

John A. Fogleman, Justice,

dissenting. I cannot distinguish this case from Sebastian Bmlding & Loam Association v. Minten, 181 Ark. 700, 27 S. W. 2d 1011. There the borrower agreed to buy a lot for $1,000.00. He then obtained a loan for construction purposes from the savings and loan association. On February 14th, the borrower signed the mortgage with the “construction purpose clause.” The lender gave the seller a check for $1,000.00 of this loan and the deed to the borrower was then delivered. The deed and mortgage were recorded simultaneously. Counsel for the lien claimant contended that the lien of the mortgagee was not preferred oyer that of the lien claimant where the loan was made upon the representation that it is borrowed for the purpose of improving the mortgaged property, unless it is in fact expended for that purpose and that it is incumbent upon the mortgagee to establish this fact. This court then specifically held that the purpose for which the mortgage was given determined its superiority over subsequent mechanic’s liens. While the trial court had held that the mechanics and materialmen had a lien on a parity with the lender’s lien to the extent of $1,000.00 but superior to the lender’s lien for the balance of the loan, this court held that the lender’s lien was the prior lien. One of the authorities cited for this decision was Shaw v. Rackensack Apartment Corporation, 174 Ark. 492, 295 S. W. 966, where it was clearly held that a mortgage given to obtain money to erect a building given prior to commencement of the work was superior for its full amount to a lien for work and materials going into the construction, notwithstanding the fact that a portion of the loan proceeds was used for clearing the title to the land. I submit that neither case has been overruled or limited in respect to this question by any subsequent decision. The Minten case was cited as authority and followed in Clark v. General Electric Co., 243 Ark. 399, 420 S. W. 2d 830.

In my opinion, the decision in Planters Lumber Company v. Wilson Co., 241 Ark. 1005, 413 S. W. 2d 55, did not overrule, limit or modify the rule in the Minten case or the Shaw case, both of which are mentioned in that opinion without any suggestion that they were not correct. They simply were held inapplicable to the facts. In the Wilson Company case the decision turns entirely upon the fact that the lender owned the property and delivered to the borrower a deed reciting that the purchase price was paid, without mention of any encumbrance. The lender then caused this deed to be recorded. Thereafter, the borrower executed the construction money mortgages. After the mortgage was executed, the lender withheld the purchase price of the lot in spite of its previous representation that the purchase price had been paid.

The distinction pointed out in the Clark case applies here. Prior to the making of this loan, appellant never at any time or in any way represented that the purchase price of the lots had been paid prior to the loan, nor did it receive or retain any part of the parchase price.

I submit that we are dealing with rules of property which should not be lightly regarded or overturned.

While the deed in this case was dated January 31, 1966, it was not delivered until February 2, 1966, the date of the construction money mortgage and the date of the advance of $2,900.00. Two thousand dollars of this was by check for the purpose of paying off a first lien on the property held by Capitol Savings & Loan Association. The balance of the purchase money due T. & C. Construction was paid by depositing $900.00 to its account. This advance of $2,900.00 was evidenced by a note dated-February 2, 1966. The advance thus came after the loan was made.

It must be remembered that the statutes we are considering are designed to protect a lien of mechanics or materialmen and that the purpose is not to assure them of a source of funds for payment.

If appellant had not advanced the money to pay for the lot, the liens of the materialmen and mechanics would have been subject to these prior liens of $2,900.00 insofar as the land is concerned. Ark. Stat. Ann. § 51-605 (1947) only gives priority over existing encumbrances on the building erected. By the court’s decision, the position of these lienors has been improved at the expense of appellant. Their liens are now upon both land and building, subject only to the lien for $10,000.00 advanced for construction. If the bank had advanced the entire $12,900.00 to the borrower without the purchase price having been paid, the mechanics’ and ma-terialmen’s liens would be subject to the $12,900.00 plus the original debt on the property insofar as the lot is concerned and to $12,900.00 on the building. Or if the bank had advanced the $12,900.00 to the borrower and he had paid for the lots without the bank’s knowing he intended to do so, the mechanics’ and materialmen’s liens would still have been subject to the $12,900.00 on the lot and building. The bank was not acting for its own benefit by withholding funds as was the case in Planters Lumber Company v. Wilson, supra.

There is a distinction in the Hughes case not noted in the majority opinion. The $4,500.00 was advanced at the time the loan was made, but the balance was not to be advanced until the various cabins to be built were completed. The court there relied on the Minien case to declare priority in favor of the mortgagee for the entire debt, and followed the rationale of that case and the Hackensack case in giving priority for that part^ advanced to pay off the mortgage on the land.

I cannot follow the suggestion that there is any real difference in the Minten case and the Hughes case insofar as the point raised here is involved. Nor can I follow the reasoning by which the bank lost when it advanced the full amount of the loan and acted as much for the benefit of appellee as anyone.

I would reverse on direct appeal and affirm on cross-appeal.


source: Caselaw Access Project

author: Carleton Harris, Chief Jnstice. John A. Fogleman, Justice,

license: Public Domain

text:
    Carl W. WIDMER v. FORT SMITH VEHICLE & MACHINERY CORPORATION
    5-4568
    429 S. W. 2d 63
    Opinion delivered May 27, 1968
    [Rehearing denied July 15, 1968.]

      Carl W. Widmer, pro se.

      Hardin, Barton, Hardin & Jesson, for appellee.
   Carleton Harris, Chief Jnstice.

This is an appeal from a decree of the Sebastian County Chancery Court dismissing appellant’s complaint with prejudice after the latter failed to offer any proof, or go forward with the evidence on the day set for trial. In November, 1965, appellant, Carl W. Widmer, instituted suit in the Sebastian Circuit Court against the Fort Smith Vehicle and Machinery Corporation, appellee herein, alleging that appellee had, through their employees and agents, entered illegally upon his farm, and removed a certain John Deere disk harrow, which belonged to him, having been purchased by appellant on June 12, 1962. According to the complaint, this purchase had been financed in part with an equipment note of that date, which was later marked, ‘‘Paid,” by the First National Bank of Fort Smith on March 12, 1963. It was alleged that the value of the disk harrow at the time of the wrongful taking was $980.00, and that the yearly rental value of same was $300.00; further, that after obtaining possession of this machinery, appellee had unlawfully converted and disposed of the same, and appellant had sustained actual damage in the amount of $1,702.00. Punitive damages were also sought in the sum of $2,500.00.

Appellee answered, denying that Widmer owned the harrow or that it had been wrongfully taken; it was asserted that on June 12, 1962 the company sold the disk harrow to appellant, and also a grain drill, but that on March 12, 1963, Widmer purchased a John Deere drill with fertilizer attachment, agreeing to pay the sum of $7,700.00; that there was still a balance of $757.11 on the June note, and the drill purchased on the June date was traded in on the new drill; further, that as a matter of accommodation, the disk harrow was placed in a new contract, and combined with the purchase made in March, 1963, a new note being executed for the balance then due in the total amount of $1,602.10. Thereafter, according to the answer, the company proceeded to cancel the note of June 12, 1962. It was further stated that on December 8, 1963, appellee proceeded to take possession of the equipment under a provision of the March 12 contract which permitted it to do so if there was default in the payment of any installment due on the note, or if the company deemed itself insecure. According to the answer, there was a default, and the company acted in accordance with the agreement. A counterclaim was filed, stating that the drill and disk, after being repossessed, were sold, but the company sustained a loss in the amount of $750.00 for which it was entitled to judgment.

Widmer responded to this answer, and counterclaim, by alleging that appellee had fraudulently and materially altered the contract and note after their execution without his knowledge and consent by adding the John Deere disk harrow to these later instruments; that appellee held no valid agreement or note as to the disk harrow, the indebtedness for that particular machinery having been paid under the note of June 12, 1962. Appellant filed requests for admissions, all of which were answered, and either admitted or denied. Thereafter, interrogatories were served on appellee on July 5, in effect asking for the reasons for the denial of a number of the requests for admissions. Another set of interrogatories was filed on July 8, asking for additional information, and still again, interrogatories were filed on July 15. Appellee filed a motion to quash these interrogatories, asserting that they had been propounded simply for the purpose of annoyance, expense, embarrassment, and oppression.

The court granted this motion as to the interrogatories of July 5 and July 8, and also as to those of July 15, except as to interrogatories No. 3 and 4, which .the court directed appellee to answer not later than September 8. This was done, and appellee also took a non-suit as to its counterclaim. Widmer then filed a motion for summary judgment, and appellee filed a motion to transfer the cause to equity, alleging there was a need for reformation of the contract. The court entered its order, finding that there appeared to be discrepancies in the written instruments as to the description of the property purchased and the due dates for payments; that the terms of the contract needed to be more clearly defined, and the case ivas transferred to the Chancery Court.

There, appellant moved for a summary judgment, and filed an affidavit in support of same. Appellee responded, stating that a mutual mistake had been made as to due dates in the contract, but that irrespective of this fact, appellee had been given the right under the contract and note to repossess the property, should appellant be in default. It was prayed that the motion for summary judgment be denied, and that the instruments be reformed to reflect the true intentions and transactions of the parties. On August 16, the Chancellor denied the motion for summary judgment, holding that there were genuine and material issues of fact raised by the pleadings, and by the statement of the parties, and that the matter could only be resolved by a trial. On September 11, the case was called for trial, at which time Mr. Widmer stated that he did not choose to call any witnesses or testify in his own behalf but would instead stand on his motion for summary judgment, with affidavit attached. Counsel for appellee, when asked if he desired to place a witness on the stand, replied that, since the motion for summary judgment had been previously overruled by the court, the appellant had the burden of establishing a prima facie case based on evidence, and this not being done, appellee was entitled to judgment. When appellant again stated that he would stand on his motion, the court granted defendant’s motion, and subsequently signed a decree dismissing appellant’s complaint. From that decree, appellant brings this appeal.

For reversal, it is first argued that the trial court erred in not deeming all requested admissions of fact contained in request for admission of facts dated February 25,1966, as admitted. Appellant points, out that no sworn statement denying the requested admissions was ever served on appellant. Admittedly, the original was signed and sworn to, but the signing of the copy was apparently overlooked — we say overlooked, because there would have been no reason to sign the original and purposely fail to sign the copy. The offer was made by appellee to sign and verify the answers before the case was disposed of. We find no merit in appellant’s assertion. In Kingrey v. Wilson, 227 Ark. 690, 301 S. W. 2d 23, the appellant submitted a request for admissions which appellee answered within the time designated, but not under oath. The trial court however, allowed appel-lee to verify her answers to the questions at the beginning of the trial, and this court refused to declare eripr, stating, “In so doing, the court was clearly acting within its discretion.”

It is nest asserted that the trial court erred in not requiring all interrogatories which were presented to appellee to be answered. We do not agree. Part of these interrogatories were apparently for the purpose of having appellee enlarge upon its answers to the requests for admissions, and the court, on the third group of interrogatories, did require appellee to answer two of them, but granted appellee’s motion to quash the rest. Ark. Stat. Ann. § 28-355 (Repl. 1962) gives the court, on motion of the party interrogated, the authority to enter whatever protective order justice may require, i. e., an order may be entered ‘ ‘ to protect the party from annoyance, expense, embarrassment, or .oppression.” In Widmer v. Fort Smith Vehicle mid Machinery Corporation, 244 Ark. 626 (April 15, 1968), we said:

“The purpose of discovery procedure is to simplify the issues at the actual trial and is not intended to take the place of the actual trial, nor is it intended to relieve the plaintiff of the burden of proving the allegations of his complaint in a civil case.”

In Widmer v. Modern Ford Tractor Sales, 244 Ark. 696 (April 22, 1968), we held that the trial court vdid not abuse its discretion in quashing appellant’s interrogatories, and we are unable to say, in the present instance, that there was any abuse.

Finally, it is urged that the trial court erred in not granting appellant’s motion for summary judgment. Mr. Widmer points out that, though he filed an affidavit, no counter-affidavit was filed by appellee.

We cannot pass on the question of whether the summary judgment should have been granted, for this is not an appealable order. In the Kentucky case of Bell v. Harmon, 284 S. W. 2d 812, the court rendered a comprehensive discussion on this subject, as follows:

“The Federal courts seem to assume that an order denying a motion for summary judgment is not reviewable because not appealable. [Citing authorities.] Clearly such an order, being interlocutory, is not appealable. See Clay OR 56.03, Comment 7. However, though not independently appealable, certain interlocutory orders are reviewable in conjunction with a final judgment; e. g., an order overruling a motion for a directed verdict ; an order granting a new trial. Thus the determination that an order denying summary judgment is not ap-pealable does not necessarily resolve the question of whether such an order may be reviewed when properly presented.
“However, we think sound reasoning supports the conclusion that an order denying summary judgment should not be reviewed on appeal. (In passing it may be noted that an order granting such judgment is a final order and is of course forthwith appealable.)
“Summary judgment procedure is not a substitute for a trial. It is a time saving device, and the motion should only be sustained if the court is fully satisfied that there is an absence of genuine and material factual issues, and all doubts are to be resolved in favor of the party opposing the motion. * * *
# # #
“Our refusal to review an order denying a summary judgment can in no sense prejudice the substantive rights of the party making the motion since he still has the right to establish the merits of his motion upon the trial of the cause. If the contrary were held, one who had sustained his position after a fair hearing of the whole case might nevertheless lose, because he had failed to prove his ease fully on an interlocutory motion.
“We therefore decline to consider the possible error in the denial of defendant’s motion for summary judgment. * * *”

In our own case of Douglas v. Citizens Bank, 244 Ark. 168, 424 S. W. 2d 532 (February, 1968), we stated that an order denying a motion for summary judgment is merely interlocutory, and is not appealable.

In connection with his argument relative to the trial court’s failure to grant the summary judgment, appellant says that since appellee asked for a reformation of the contract, the burden shifted to appellee to go forward with the proof, and the court was in error in directing that Widmer go forward with his evidence. This argument is erroneous. In the first place, appellee has denied the allegations in plaintiff’s complaint, i. ev that Widmer was the owner of the disk harrow, that it illegally entered or trespassed upon Widmer’s lands, or that it wrongfully and unlawfully converted same to its own use. Since these allegations were denied — and since the court refused to grant the motion for summary judgment — it became incumbent upon appellant to present the evidence upon which he relied for recovery. Following this, the burden would have shifted to the appellee to go forward with his evidence relative to reformation of the contract. There is also another reason why the point is without substance. No objection was made to the trial court’s directive to Widmer to proceed with his proof. Nor did appellant point out to the court that, in his (appellant’s) view, the burden was on the appel-lee to go forward, but rather twice stated that he would stand on his motion (for summary judgment). In other words, the issue of who should first proceed with the proof was not raised before the Chancery Court. We have said many times that an issue cannot properly be raised for the first time on appeal. Banks v. Jones, 239 Ark. 396, 390 S. W. 2d 108, and cases cited therein. If appellant desired a review of the merits of the case, he should have proceeded to offer evidence instead of standing on his motion for summary judgment. As stated in Widmer v. Modern Ford Tractor Sales, supra:

“* * * Knowledge of how to prepare and file the various instruments permissible under our civil code is, of course, an elementary necessity in the practice of law, but a thorough knowledge of the office of the instrument, and when and why it should be used, is indispensable in the proper preparation and trial of a lawsuit. A knowledge of how to proceed in the trial of a lawsuit after a motion has been granted or denied, or after requests for admissions have been complied with, refused, or ignored, is more important in resolving differences by a fair and impartial trial in a court of law than is the knowledge of how to prepare and file such motions or requests. ’ ’

Affirmed.

John A. Fogleman, Justice,

dissenting. I respectfully dissent as I think the rule indicated with reference to reviewability of an order denying a motion for summary judgment is wrong. I agree that no appeal lies from an order denying a summary judgment, as such order is interlocutory. Douglas v. Citizens Bank, 244 Ark. 168, 424 S. W. 2d 532.

I also agree that a motion for summary judgment should not be reviewed on appeal after a trial on the merits. See Bell v. Harmon, 284 S. W. 2d 812 (C. A. Ky. 1955); Safeway, Inc. v. Johnson, 311 F. 2d 387 (5th Cir. 1962); The Home Indemnity Company v. Reynolds & Company, 38 Ill. App. 2d 358 (1962). A motion for summary judgment is somewhat like a motion for a directed verdict. The theory underlying both is substantially the same, i. e., that there is no genuine issue of fact to be resolved and that the movant is entitled to judgment on the applicable law. Russell v. City of Rogers, 236 Ark. 713, 368 S. W. 2d 89; 6 Moore’s Federal Practice, § 56.04[2] p. 2066. In testing the propriety of granting a summary judgment, we have applied the rules by which we test the propriety of directed verdicts. Russell v. City of Rogers, supra. By the same analogy, we should deny review after a trial on the merits, just as we deny review of a motion for directed verdict made at the conclusion of a plaintiff’s proof, because deficiencies in the evidence may be supplied by the subsequent proceedings. Fort Smith Cotton Oil Co. v. Swift & Company, 197 Ark. 594, 124 S. W. 2d 1; Granite Mountain Rest Home, Inc. v. Schwarz, 236 Ark. 46, 364 S. W. 2d 306; Campbell v. Bastian, 236 Ark. 205, 365 S. W. 2d 249; Lytal v. Crank, 240 Ark. 433, 399 S. W. 2d 670. Following the analogy and for the same reasons, we should review the denial of a motion for summary judgment where a movant elects to stand thereon and let final judgment go against him. This is the same procedure we follow when a defendant elects to stand on an overruled demurrer to a complaint and have judgment rendered against him, or when he fails to offer evidence after denial of a motion for directed verdict. Nunez v. O. K. Processors, Inc., 238 Ark. 346, 381 S. W. 2d 754; Portis v. Board of Public Utilities, 212 Ark. 822, 208 S. W. 2d 772, 213 Ark. 201, 209 S. W. 2d 864; Hall v. Waters, 118 Ark. 427, 176 S. W. 699.

The United States 5th Circuit Court of Appeals, in denying review of a motion for summary judgment after a trial on the merits, emphasized this analogy by pointing out that error in overruling a demurrer to the evidence or a motion for directed verdict might be cured by further proceedings or admission of additional evidence. Safeway, Inc. v. Johnson, 311 F. 2d 387 (5th Cir. 1962).

The finality of an order denying summary judgment where the movant elected not to avail himself of an opportunity to offer testimony in support of his case was recognized in W. J. Dillner Transfer Company v. United States, 101 F. Supp. 506 (W. D. Pa. 1951).

I can perceive no sound reason why one may not stand on his right to a summary judgment just as he can stand on his right to a directed verdict or to have a demurrer sustained. There is no question raised here as to the insufficiency of the affidavit or the credibility of the affiant or to his lack of personal knowledge of the content of the affidavit.

The injustice of any other procedure was sharply pointed up by the Appellate Court of Illinois in The Home Indemnity, Company v. Reynolds, supra, in arriving at its holding that the result of denial of a motion for summary judgment was not appealable because it becairie merged in the subsequent trial on the merits. There it was said :

" An incorrect, ruling.deprived the moving party of a judgment it should have had. It could not immediately appeal frqm the orders denying its motions because the orders were not final and appealable. * * * If it cannot appeal after judgment, if it does not come under the rule that an Appellate Court may review interlocutory orders (where a separate appeal did not lie from such orders, 2 I. L. P. Appeal and Error § 651), what remedy does it have? To deny a review seems to be unjust.”

The reason for denying review of an interlocutory order is obviously because it is not final and does not conclude the action or determine the rights of the parties. The objective in all instances is to avoid piecemeal appeals and the hazard of delays that would unduly postpone a final judgment. When a judgment becomes final, however, the unsuccessful party who has elected to stand on the interlocutory determination should be entitled to a review thereof;

On the basis of the summary judgment act as the record now appears, appellant was entitled to a summary judgment.

Appellee in this case was confronted with an affidavit which completely set up a state of facts entitling appellant to relief, when considered along with the admissions of fact and answers to interrogatories hy ap-pellee. On a motion thus supported, appellee could not rest upon the allegations or denials of his pleadings. Ark. Stat. Ann. § 29-211,(6) (Supp. 1967). Its response must have been by counter-affidavits, depositions or answers to interrogatories setting forth specific- facts showing that there was a genuine issue of fact or hy affidavits showing reasons why it could not present by affidavits facts essential to justify its opposition. Ark. Stat. Ann. $ 29-211 (e); § 29-211 (f) (Repl. 1962); Mid-South Ins. Co. v. First Nat’l Bank of Fort Smith, 241 Ark. 935. 410 S. W. 2d 873; Douglas v. Citizens Bank, 244 Ark. 168, 424 S. W. 2d 532; Scarboro v. Universal CIT Credit Corp., 364 F. 2d 10 (5th Cir. 1966). Appellee only filed an unverified response which did not set out any specific fact entitling it to the reformation of the note necessary to its counterclaim and defense. An unverified pleading does not meet the requirements of summary judgment procedure. Mid-South Ins. Co. v. First Nat’l Bank of Fort Smith, supra. If the movant makes a case for summary judgment, the opposition is required to remove the shielding cloak of formal allegations and demonstrate a genuine issue as to a material fact. Deam v. Puryear & Sons, Inc., 244 Ark. 18, 423 S. W. 2d 554. What we said in Mid-South Ins. Co. v. First Nat’l Bank of Fort Smith, supra, is applicable here:

“* * * Mid-South would force the case to trial by merely contending that an issue exists, without any showing of evidence. This would defeat the whole purpose of summary judgment procedure.”

I would reverse and enter judgment for appellant.

I am authorized to state that George Rose Smith, J., joins in this dissent.

       The full proceedings of September 11, 1967, are as follows:
      “The Court: Let the record show that the parties are present and represented by counsel, with Mr. Carl W. Widmer appearing in person on behalf of himself as his own attorney. Upon announcing ready for trial the plaintiff states that he does not choose to call any witnesses or to testify in his own behalf but does desire to stand on his Motion for Summary Judgment, with Affidavit attached or in support thereof and the matters set out in his Motion. In other words, the Plaintiff desires to stand on the pleadings which he has filed in this case. Is there anything further that you wish to offer, Mr. Widmer?
      Mr. Widmer: Nothing at this time.
      The Court: Mr. Thompson, in behalf of the defendant, Fort Smith Vehicle and Machinery Corporation, do you choose to call a witness at this time or put on any testimony?
      Mr. Thompson: Your Honor, it is our understanding that plaintiff’s Motion for Summary Judgment has been overruled previously by this Court and further, that plaintiff, in a situation such, as this, has the burden of establishing a prima facie case based on the evidence. Having chosen to do neither of these, we would at this point ask the Court to grant the defendant a verdict as to plaintiff’s Complaint.
      The Court: Mr. Widmer, do you wish to respond to counsel’s statement?
      Mr. Widmer: No. We will stand on our Motion.
      The Court: All right. Both of you gentlemen are aware that we have had a pre-trial conference in this matter since it was transferred to the Chancery Court from the Circuit Court on Motion of the defendant, which was acquiesced in by the plaintiff. Subsequently, on August 11, 1967, this Court, after the pre-trial conference and full discussion and review of the pleadings with you gentlemen, the Court rendered a pre-trial memorandum which each of you were furnished a copy of, and you do have a copy of it?
      Mr. Widmer: Yes, sir.
      Mr. Thompson: Yes.
      The Court: The Court again set forth the chronological filing of the pleadings and brought the matter up to the day of the conference. You will note in this Opinion or this pre-trial memorandum that it was the Court’s opinion, based on the review of the file, the plaintiff’s Motion for Summary Judgment which the Court has under consideration, considered all matters in the case and the Court was of the opinion that this Motion for Summary Judgment of the plaintiff’s should be denied and overruled, the Court feeling- that there were general and material issues of fact raised in this case by the statement of counsel or parties for themselves in this instance, and in view of this, this Motion should be denied. This was done and has been done. In view of this statement of counsel for defendant’s position in this case, do you have anything further that you might want to offer at this time, Mr. Wid-mer?
      Mr. Widmer: No, I believe we will just stand.
      The Court: All right then, the defendant’s Motion for a Verdict in this case will be granted. The defendant may draw a Precedent accordingly.


author: George Rose Smith, Justice.

text:
    GENERAL ELECTRIC CREDIT CORP. v. BANKERS COMMERCIAL CORP. et al
    5-4560
    429 S. W. 2d 60
    Opinion delivered May 27, 1968
    [Rehearing denied July 15, 1968.]

      Wootton, Land & Matthews, for appellant.

      Mike J. Etoch Jr. and Anderson & Anderson, for appellee.
   George Rose Smith, Justice.

This is primarily a dispute between two finance companies about their security intérests in a dragline that was sold on credit by Southland Tractors, Inc., to the appellee J. T. Arnold, III. Both security agreements held by the rival finance companies are defective, that of Bankers Commercial Corporation not having met the filing requirements of the Uniform Commercial Code and that of General Electric Credit Corporation being a forgery. This is an appeal by GECC from a judgment holding that Bankers alone has a valid security interest in the dragline. Arnold, the debtor, cross appeals upon another issue.

On April 13, 1966, Southland sold the dragline to Arnold for $33,850.04. The contract of sale was in the form of a three-year lease which recited that Arnold had paid $5,000 as advance rental and would pay the remainder in 36 equal monthly installments. Arnold was given the option of purchasing the dragline at any time during the term of the lease by paying the $33,850.04, less the total amount of rents already paid. Under the Code teuch a lease is treated as a security agreement. Ark. Stat. Ann. § 85-1-201 (37) (Add. 1961).

On the same day Southland (a) duly filed a financing statement showing itself as the creditor and Arnold as the debtor and (b) assigned the lease contract .to Bankers for a cash consideration of more than $24,000.00. Bankers did not file anything to show its security interest; so Southland continued as the creditor of record.

About three months later Southland informed Arnold that it had arranged to refinance the debt with General Electric Credit Corporation. The identity of the creditor made no difference to Arnold, who readily signed another financing statement showing GE'CC' as the creditor. Southland then forged Arnold’s signature to a three-year lease, similar to the one held by Bankers, and assigned it to GECC. In that transaction GECC, whose manager realized that Southland was having financial troubles, paid Southland $4,107.06 in cash and credited delinquent Southland accounts with $20,091.94. GECC’s manager had talked with Arnold by telephone to be sure that he had the dragline and that he understood the gross amount due and the size of the monthly payments. Neither Southland nor Arnold mentioned the outstanding contract with Bankers; so GECC’s manager (who had checked the financing statement of record) did not realize that Bankers had a security interest in the dragline. At GEGC’s request Southland terminated the earlier financing statement, as authorized by the Code. Section 85-9-404. Southland soon went into bankruptcy.

Arnold assumed that the debt had been refinanced, but he soon received demands for payment from both Bankers and GECC. Since that time Arnold has consistently taken the position that he will make his payments when he learns, which creditor is entitled to the money.

This action to replevy the dragline was brought by GECC against Arnold. Bankers intervened to assert its claim. The trial court, sitting* without a jury, upheld Bankers’s security interest, permitted it to accelerate the maturity of its entire claim, and ordered the property sold as in a foreclosure suit. The order of sale was superseded by GEC'C pending the appeal.

Upon the main dispute the trial court’s decision was right. Bankers holds a valid security agreement, admittedly signed by Arnold. Bankers’s failure to file any notice of its creditorship might have allowed later valid claims to take priority, but as between the two of them Bankers has an enforceable cause of action against Arnold.

By contrast, the only genuine instrument held by GECC is its financing statement. A financing statement, standing alone, does not create a security interest in the debtor’s property. It merely serves notice that the named creditor may have a security interest... Section .85-9-402, Comment 2; Meek, “Secured Transactions Under the Uniform Commercial Code," 18 Ark. L. Rev. 30, 40 (1964). Of course the forged lease assigned by South-land to GECC had no effect upon Arnold’s interest in the dragline. Hall v. Mitchell, 175 Ark. 641, 1 S. W. 2d 59 (1927).

Counsel for GECC insist that Bankers and Arnold have estopped themselves from contesting the GECC claim: Bankers by its failure to perfect its security interest and Arnold by his failure to mention the Bankers contract during his conversation with GEC'C’s manager. We need not speculate whether such an estoppel would run counter to the Code requirement that security agreements be in writing. Section 85-9-203. If Bankers was at fault in failing to file notice, GECC was also at fault in accepting the lease from, an assignor of doubtful solvency without verifying Arnold’s signature. Arnold’s good faith was attested by his own testimony. The issues of estoppel narrow down to disputed questions of fact, upon Avhieh there is ample substantial evidence to support the circuit court’s judgment.

On cross appeal Arnold is entitled to relief. Both GECC and Bankers sought to accelerate the maturity of their total claims, but their failure to reserve that power-in the contracts precluded them from exercising it. Farnsworth v. Hoover, 66 Ark. 367, 50 S. W. 865 (1899). At best Bankers may be entitled to damages resulting from Arnold’s failure to make his payments when due —the measure of such damages presumably being interest at the legal rate and certainly not being the rents to accrue during the remaining life of the lease.

Affirmed on direct appeal; reversed on cross appeal and remanded for further proceedings.


text:
    ARKANSAS STATE HIGHWAY COMMISSION v. CONWAY DEVELOPMENT CORPORATION
    5-4567
    428 S. W. 2d 291
    Opinion delivered May 27, 1968

      Thomas B. Keys, Philip Gomen and Virginia Tack-ett, for appellant.

      Guy H. Jones and Clark, Clark & Clark, for appel-lee.
   George Rose Smith, Justice.

The appellee is a nonprofit corporation organized to attract industry to Faulkner county. It owns two adjoining tracts of land, Tract A containing 178 acres and Tract B 140 acres. This suit was brought by the Highway Commission to condemn 15.81 acres in Tract B as a right-of-way for Interstate Highway 40. The jury fixed the value of the land at $20,000. The principal issue here is whether the court correctly allowed the jury to treat the land as two separate tracts in determining the benefits and damages resulting from the proposed impro.vement.

Tract A, roughly in the shape of a square, is bounded on the west by U. S. Highway 65. Tract B is an L-shaped tract lying immediately northeast of Tract A. Tract B abuts Tract A on the north for about three fourths of Tract A’s northern boundary and on the east for about one half of Tract A’s eastern boundary. Interstate 40, running north and south, will cross the eastern side of Tract B, the right-of-way being the strip involved in this case. Continuing southward, Interstate 40 will pass to the east of Tract A. The Brumley interchange will lie just east of Tract A and just south of Tract B. That interchange will provide a connection with U. S. Highway 65 to the west by means of State Highway 286, which will cross the southern part of Tract A.

The remaining essential background facts are best stated in chronological sequence.

February, 1962. Tract A purchased by C'onway Development Corporation.
January 31, 1963. CDC sent a letter to the Highway Department, (A) asking that the proposed Brumley interchange be relocated at a point just east of Tract A and (B) offering to facilitate that relocation by providing without cost to the Highway Department a right-of-way across the southern part of Tract A for Highway 286.
February 14, 1963. The Highway Department informed CDC by letter that it was recommending to the Federal Bureau of Public Roads that the suggested relocation of the interchange be put into effect. (That recommendation was eventually approved and the interchange relocated.)
June 19, 1963. CDC took an option to buy Tract B from its owner for $800 an acre.
December, 1963. CDC dedicated and platted Tract A as Conway Industrial Park.
April 3, 1965. CDC conveyed to the Highway Department 11.33 acres of the Industrial Park as a right-of-way for Highway 286, as previously suggested.
June 19, 1965. CDC exercised its option, to buy Tract B for $800 an acre.
July 15, 1966. This suit to condemn a right-of-way across Tract B was filed by the Highway Commission.

At the trial counsel for the Highway Commission insisted that Tract A and Tract B should be treated as a unit, so that the benefits accruing to Tract A from the construction of Interstate 40 could be offset by the jury against the compensation to be paid by the Commission for the right-of-way across Tract B. That contention is renewed in this court.

Upon the particular facts of this case the court was right in allowing the jury to consider the two tracts as separate parcels. It will be remembered that before CDC even had an option to buy Tract B it offered ta provide the Highway Department with a free right-of-way across Tract A for Highway 286 in return for the Department’s relocation of the Brumley interchange at a point where it -would benefit industries eventually occupying Tract A. That offer was accepted. Thus the parties in effect made an agreement by which CDC received the benefit of convenient access to Interstate 40, a controlled access facility, in retürn for the conveyance of 11.33 acres of Tract A for use as a right-of-way for Highway 286. The jury were certainly entitled to treat that exchange of benefits as a closed transaction by which CDC had paid the Highway Department in full for whatever enhancement in value might accrue to Tract A as a result of the construction of Interstate 40 and its Brumley interchange.

There are controlling differences between the situation in this case and that considered in Arkansas State Highway Commn. v. Dean, 244 Ark. 405, 425 S. W. 2d 306 (1968). In the Beam case the owners of a tract of land, at a time when they knew with reasonable certainty where the proposed highway would be located, bought an adjoining tract and then contended that the two parcels should be treated as a unit for the purpose of increasing their severance damages. We rejected that contention.

There is no parallel between that case and this one. Here the benefits accruing to Tract A from the construction of the highway would have been received by CDC whether or not it owned Tract B. Likewise the Highway Department would be required to pay exactly the same amount for the right-of-way across Tract B whether it was owned by 'CDC or by CDC’s predecessor in title. Thus to sustain the Highway Department’s present contention would unjustly enrich the Department by making CDC pay twice for the benefits accruing to Tract A — once by the conveyance of the Highway 286 right-of-way and a second time by the offset of those benefits against the compensation for the right-of-way being taken in Tract B. (The appellant is not in a position to argue that the jury may just possibly have awarded damages for the severance of the eastern edge of Tract B from Tract A, because the appellant made no objection to the only instruction that could be construed to submit such an issue to the jury.)

On the day of trial counsel for the Department filed motions to quash the jury panel and to disqualify Judge Roberts on the ground that he had a direct pecuniary interest in this case for the reason that there was pending in the same court a suit by the Highway Department to condemn land owned by Judge Roberts. A similar contention was rejected, for want of proof, in the D&cm case, supra, and in Arkansas State Highway Commn. v. Lewis, 243 Ark. 943, 422 S. W. 2d 866 (1968).

Here again the proof is deficient. In fact, counsel for the condemnor declined to offer proof in support of their motions. The burden was on the movant to establish the facts indicating Judge Roberts’s disqualification. Bass v. Minich, 194 Ark. 589, 109 S. W. 2d 139 (1937). There are no such facts in the record. Indeed, we are at a loss to see how the mere pendency of a condemnation action against Judge Roberts could give him a “direct pecuniary interest” in the case at bar. Of course the judge would be disqualified in his own case, but we have not been shown how that disqualification extends to other cases. To set aside the present verdict and judgment, upon some speculative assumption wholly unsupported by proof, would be a gross injustice to the ap-pellee.

Affirmed.


author: Paul Ward, Justice. John Fogleman, Justice,

text:
    Carl W. WIDMER v. FORT SMITH VEHICLE AND MACHINERY CORPORATION
    5-4569
    429 S. W. 2d 993
    Opinion delivered May 27, 1968
    [Rehearing denied July 15, 1968.]

      Carl W. Widmer, pro se.

      Hardin, Barton, Hardin & Jesson, for appellee.
   Paul Ward, Justice.

This is an appeal by Carl W. Widmer (appellant herein) from a chancery decree which denied appellant’s motion for summary judgment, and also directed a verdict in favor of Fort Smith Vehicle and Machinery Corporation (appellee herein).

A brief summary of the background facts and court proceedings is sufficient for an understanding of the issues here involved.

On November 29, 1965 appellant filed a complaint in circuit court alleging appellee had illegally entered upon his farm and carried away a grain drill which he purchased March 12, 1963 on a “conditional sales contract”. He asked for the value of the drill, and also for punitive damages. Appellee answered on December 9, 1965, denying all material allegations. From that date until September 20, 1966 appellant filed numerous pleadings —including interrogatories, Motions for Admission of Facts, and Motions for Summary Judgment. To all of these motions appellee replied by motion or answer.

On file last mentioned date appellee filed a Counterclaim, and a Motion to Transfer to a court of Equity, alleging a need to reform portions of the conditional sales contract in accord with the intention of both parties. Six days later the circuit judge entered an Order transferring the cause to the chancery docket. This was done without opposition on the part of appellant.

On August 7, 1967, approximately eleven months after the case had been transferred to the Chancery Court, appellant filed a “Motion for Summary Judgment” supported by his own affidavit, Appellee responded to the above Motion, stating “there are genuine issues as to material facts in this case ’ ’ — pointing out the issues in detail. On August 14, 1967 the Chancery Judge delivered to both parties a “Pre-Trial Memorandum and Order” in which he stated: the Motion for' Summary Judgment is denied; there are genuine material issues of facts to be decided; it was agreed at a pretrial conference that both sides would present testimony, and; the case is now ready for trial.

When the case was called for a hearing both sides announced ready. Upon being asked to proceed, appellant declined to put on any witness but stated that he was standing on his Motion for a Summary Judgment. Then on appellee’s Motion, the trial court found:

‘ ‘ That the plaintiff, having the burden of proof and the burden of going forward with the evidence as to these issues, has failed to go forward with the evidence, or otherwise establish a prima facie case against the defendant, and .judgment should be given, therefore, for the defendant as to plaintiff’s complaint. ’ ’

Accordingly, the court dismissed appellant’s complaint with prejudice — hence this appeal.

It is our conclusion that the decree of the trial court must be affirmed because, the Order of the trial court, denying appellant’s Motion for a Summary Judgment, is not on appealable order. See: Carl W. Widmer v. Fort Smith Vehicle & Machinery Corporation (No. 4568)—opinion delivered this date.

Affirmed.

Smith and Foglemah, JJ., dissent.

John Fogleman, Justice,

dissenting. I dissent for the reasons stated in my dissenting opinion in Widmer v. Fort Smith Vehicle & Machinery Corporation, § 5-4568, 244 Ark. 971,42 9 S. W. 2d 63; I would reverse and enter summary judgment in favor of appellant.

I am authorized to state that George Rose Smith, J., joins in this dissent.


author: Paul Ward, Justice. Conley Byrd, Justice,

text:
    James A. COUDRET v. Carew W. SANDERS Jr.
    5-4582
    428 S. W. 2d 243
    Opinion delivered May 27, 1968

      Thomas B. Tinnon, for appellant.

      Pointer and Huckaba, for appellee.
   Paul Ward, Justice.

On September 27,1966 an automobile owned by Carew W. Sanders, Jr. (appellee), driven by Ms son, collided with an automobile owned and driven by James A. Coudret (appellant) at a street crossing in Mountain Home, Arkansas. The damage done to appellee’s car amounted to $117.50 — as later stipulated.

On March 30, 1967 appellee notified appellant that if he did not pay the above mentioned amount within sixty days he would file suit for double the amount plus attorney fees and costs — pursuant to the provisions of Ark. Stat. Ann. § 75-918 (Repl. 1957) which reads:

“In all cases wherein loss or damage occurs to property resulting from motor vehicle collision amounting to two hundred ($200.00) dollars or less, and the defendant liable therefor shall, without meritorious defense, fail to pay the same within sixty days after written notice of the claim has been received, such defendant shall be liable to pay the person entitled thereto, double the amount of such logs or damage, together with a reasonable attorney’s fee which shall not be less than fifty dollars ($50.00) and court costs. This liability, which is limited to damage to property, attaches when liability is denied and suit is filed.”

When appellant failed to pay appellee filed a complaint on August 1, 1967, alleging the collision wás caused by appellant’s negligence. Appellant denied the allegation of negligence, and stated: (a) he had a meritorious-defense and (b) said statute is unconstitutional.

The trial resulted in a jury verdict in favor of ap-pellee, fixing the damages at $117.50. Based on the verdict, the trial judge ordered appellant to pay appellee the suip of $235, being double the amount of the verdict, together -with all costs of this action, plus attorney fees in the amqunt of $200. Appellant here seeks a reversal on the two points presently discussed.

One. The trial court erred in giving appellee’s requested Instruction No. 7, which reads:

“When vehicles are approaching an intersection from different streets the driver of a motor vehicle must yield the right of way to another driver who in the exercise of ordinary care has already entered the intersection.
“If vehicles are approaching an intersection from different streets at such relative speeds and distances from the intersection that both vehicles will enter the intersection at the same time, then the law requires the driver of the vehicle on the left to yield the right of way to the vehicle on the right.
“A violation of these rules governing the approach to an intersection although not necessarily negligence, is evidence of negligence to be considered by you along with all of the other facts and circumstances in this case.”

We are unable to agree with appellant’s contention. "When Instruction No. 7 was offered by appellee the only objection made by appellant was that “there is no evidence before the jury from which they could find that the defendant (appellant) was approaching the intersection, but was in fact in the intersection before a reasonable and prudent person would have realized the danger existed”. The record does not support appellant’s evaluation of the evidence.

Dean Sanders (the son of appellee) was driving ap-pellee’s car in an easterly direction along 13th Street, and appellant was driving his own car in a southerly direction along Maple Street which intersected 13th street. Dean testified, in effect, that when he was about thirty feet west of the intersection he saw appellant’s car (to the left) about twenty feet north of the intersection. The testimony further shows Dean was traveling about twenty five miles per hour and appellant was traveling from twelve to fifteen miles per hour. This testimony, we think, justified the court in giving the instruction.

Two. Appellant here contends the court erred in refusing his requested Instruction No. 1. We deem it unnecessary to copy in full the instruction which covers three pages in appellant’s brief. Set out below is a summary of what we consider to be the essence of the offered instruction:

You are instructed that appellant had a “meritorious defense” if he believed in good faith, acting as a reasonable prudent person and based on the surrounding facts, that he was in fact free of negligence.

Put another way — appellant is contending it should be left to the jury to say whether or not he believed he was free from negligence.

The answer to appellant’s contention is found in Ford v. Markham, 235 Ark. 1025, 363 S. W. 2d 926. There, in construing the same statute here involved, this Court said:

“Thus the want of a meritorious defense relates not to the issue of ultimate liability but to the failure to pay the claim within 60 days after notice. Apparently the phrase was inserted in the statute to provide for instances when the defendant had a valid reason for not making payment within 60 days, such as the failure of his liability insurance carrier to process the claim within that time or the occurrence of some unavoidable casualty that prevented the defendant from meeting the 60-day deadline.”

The Markham opinion is, we think, sonnd and in harmony with onr holding in Missouri State Life Insurance Co. v. Fodrea, 185 Ark. 155 (p. 157), 46 S. W. 2d 638. The Court there was considering § 615 C. & M. Digest, which authorized assessment of 12% damages and attorney’s fee. Appellant contended “no damages and attorney’s fee should he assessed where defense is made in good faith and refusal to pay is based upon an honest and fairly debatable difference of opinion as to the law involved”. In answer to the above contention the Court said: “We do not agree with appellant in this regard, and we think the Supreme Court of the United States has decided the question adversely to appellant’s contention”. — citing cases.

The judgment of the trial court is affirmed, and appellee is awarded $250 attorney’s fee.

Affirmed.

Browk, FoglemaN and Byrd, JJ., concur.

Conley Byrd, Justice,

concurring. I concur in the result reached here because appellant’s proffered instruction did not correctly state the law. But I do not agree that the term “meritorious defense” is limited to those situations involving unavoidable casualty or other inability to pay damages within sixty days.

To me the statute, Ark. Stat. Ann. § 75-918 (Repl. 1957), allows a recovery of double damages only when the amount of the loss or damages to property is $200 or less. In Rouse v. Weston, 243 Ark. 396, 420 S. W. 2d 83 (1967), we held that the claimant could not bring himself within the statutory limit by making claim for less than the damages sustained. I can make no distinction for purposes of double recovery under the statute between a voluntary reduction of a loss and that reduction of a loss that occurs by operation of law as a result of our comparative negligence statute, Ark. Stat. Ann. § 27-1730.2 (Repl. 1962).

Therefore, I consider that the term “meritorious defense” includes not only the defense that the claimed amount of the loss is excessive but also the defense of comparative negligence. I concede, however, that these, issues should be submitted to the jury in terms of damages and comparative negligence rather than “meritorious defense.” In this manner the “meritorious defense,” which would avoid the penalty, is established any time a verdict is returned for less than the amount of the loss to the property or for less than the amount claimed.

BkowN and Foglemaw, JJ., join in this concurrence.


author: Lyle Brown, Justice.

text:
    Theron S. McGHEE et al v. W. A. GLENN, County Judge
    5-4502
    428 S. W. 2d 258
    Opinion delivered May 27, 1968

      Thorp Thomas, for appellants.

      Jack L. Lessenberry, for appellee.
   Lyle Brown, Justice.

Theron McGhee and other taxpayers of Perry County brought this suit in 1966 to enjoin County Judge W. A. Glenn from using county labor and equipment on private property. They also sought a money judgment against Judge Glenn to reimburse the county. A permanent injunction was granted hut compensation was denied. From the disallowance of a money judgment the taxpayers appeal.

At the time of the trial in 1967, Judge Glenn was in his eleventh year as presiding judge of the county court. During his tenure numerous private property owners had been the recipients of work projects performed with county labor and equipment, including work on three farms owned by the judge himself. There was no direct payment to the county. Among other powers the county court has exclusive original jurisdiction over all matters relating to county roads and bridges; it has control and management of all county property, which of course includes varied types of road machinery. Ark. Stat. Ann. § 22-601 (Repl. 1962). It is the county court, not the county judge, in which these responsibilities and powers are vested. Needham v. Garner, 233 Ark. 1006, 350 S. W. 2d 194 (1961). It is not clear whether any or all the projects were performed (1) solely at the direction of the county judge, (2) under orders duly entered by the county court, or (3) possibly by virtue' of an order entered by the quorum court. More will be said about this deficiency, which we consider significant.

The taxpayers asserted that the county was entitled to be compensated for six projects. For the purpose of this opinion they fall into four categories:

Project One. This project concerned work performed on property owned by Joe Majors and Yirgil Pearson. In response to a motion by Judge Glenn to make more definite and certain the taxpayers listed thirteen projects which they considered illegal. The Majors-Pearson project was not listed. The trial judge, and properly so, restricted the taxpayers to those nroj-ects enumerated.

Projects Four and Five. These ventures involved work performed on lands belonging to Bossy Glenn ^uid on Judge Glenn’s farm east of Adona. If the claim to compensation were otherwise Valid, they would be barred by the statute of limitations. The best evidence is to the effect that the work was performed in, 1958, 1959, and 1960. The claim, would be govérned by our three-year statute of limitations. Ark. Stat. Ann. ,§ 37-206 (Repl. 1962).

Project Two. Work was performed on town lots owned by O. O. Oates and his son. There was substantial evidence to show that over the years Mr. Oates had given to the county several hundred, loads of gravel and shale from his farm. The material was used on the county roads. Judge Glenn considered the work performed for the Oateses to be small pay for the large quantities of raw materials Mr. Oates had furnished gratis to the county. The chancellor’s finding that Judge Glenn had acted in good faith cannot he said to he against the preponderance of the evidence. Of course this is not to say that the correct procedure was followed.

Projects Three cmd Six. Project Three involved improvements made on the county judge’s farm at Perry. Project Six consisted of work done on his farm west of Adona. Our discussion to follow will be in relation to those two projects. For the improvements there constructed, Judge Glenn may be liable, depending on certain elements of proof which should be developed on remand.

On one of the vital points in this case our law is very clear. A county judge, as distinguished from the county court, has no authority to use county machinery on private property for private use. Needham v. Garner, supra. Further, Ark. Stat. Ann. § 22-612.1 (Repl. 1962) makes it unlawful for any county judge to be interested, directly or indirectly, in any transaction made on behalf of the county, or to receive anything of value for his benefit on account of any transaction made for the county. It constitutes a violation of that statute >if a county judge is interested in an improvement where the county contributes to the improvement with its labor and machinery just as much as if the county had paid out cash. State v. Anderson, 200 Ark. 588, 139 S. W. 2d 682 (1940). It was unquestionably established that county machinery and labor were utilized on Projects Three and Six.

In face of the recited law and the established facts, a determinative element could possibly be the existence of a court order authorizing the projects. See Hutson v. State, 171 Ark. 1132, 287 S. W. 398 (1926). On this point the record is far from satisfactory. The taxpayers’ attorney was questioning Judge Glenn concerning work performed with county labor and equipment on his brother’s farm:

“Q. Do you know to your personal knowledge when this work up at Bossy Glenn’s place took place ?
“A. Yes, sir.
“Q. When was it?
“A. 1961.
“THE COURT:
Before you terminate this let me ask a question of Judge Glenn; I notice this suit is against the County Judge and you in your representative capacity; Judge Glenn, have each of these occasions where work has been done have you been acting in your capacity as County Judge and exercising your judgment to the best of your ability in a judicial capacity?
“A. Judge Williams, I sure have.
“MR. THOMAS:
Did the Quorum Court ever enter an order. authorizing you to do that?
“A. Yes, they did.”

We are unable to determine with certainty whether Judge Glenn purported to testify that the quorum court authorized all the projects to which the court’s question was directed, or whether he was asserting that the quorum court authorized the work on Bossy Glenn’s farm. The latter was the subject matter of Attorney Thomas’ questioning before the chancellor interjected his question. Additional confusion arises from the fact that the term “quorum court” is used rather than “county court.” The principal duties of the quorum court are tó levy county taxes and make appropriations for public purposes. It is difficult to believe the quorum court would authorize numerous specific work projects on private property. The matters for which it makes appropriations are specified under eight headings and none of those items even remotely touch on private projects. Ark. Stat. Ann. § 17-409 (Repl. 1956).

This court was faced with an analogous situation in Ward v. Farrell, 221 Ark. 363, 253 S. W. 2d 353 (1952). There the county judge was sued for the recovery of moneys drawn in his capacity as Road Commissioner. The record was incoherent on a vital point. Judge Farrell had expended his own money and subsequently drew funds to reimburse himself. The record was not clear whether Greene 'County received full benefit for the claimed expenses. In that situation this court remanded the case for further development of that point in order to give Judge Farrell an opportunity to show to what extent he actually incurred necessary expenses.

In the case at bar, it can be forcefully argued that the burden was on the taxpayers to establish the absence of judicial authority for these two projects on Judge Glenn’s farms. On the other hand, it can be logically reasoned (1) that there is no statutory authority to be found under any circumstances for the projects to have been performed; (2) the law is clear that a county judge, as distinguished from the county court, is strictly prohibited from authorizing the projects; and (3) it was not disputed that the work was in fact performed. In view of tlie law and undisputed facts it can be reasoned that a court order authorizing the work would be in the nature of an affirmative defense to be produced by Judge Glenn. However, we do not find it necessary to fix the responsibility for presenting the proof. We try the case de novo and we find the record so confused on this particular point that no court can do equity to either of the litigants. In that situation we feel justified in following the procedure in Ward v. Farrell, supra.

The taxpayers offered testimony relating to the cost of Projects Three and Six. They employed a registered professional engineer who inspected the projects for the purpose of testifying. That inspection was very brief, and long after completion; in his own words he was “at the mercy of my source of information which tells me that certain things took a certain amount of time”; whether all of the levees and flood gates as to Project Three are on private property is not clear; and the exact source of the materials there used — tile and flood gates — is not clear. On retrial, if the court reaches the question of compensation, the subject should be more satisfactorily developed. The measure of recovery would be the price the landowner would have had to pay for machinery, labor, and materials on the competitive market at the time of construction.

We do not disturb the order of the chancellor permanently enjoining the county judge from the illegal use of county equipment on private property for private benefit. In fact there is no appeal on that point. We remand for further proceedings with; respect only to those projects we have designated as numbers three and six.

Affirmed in part, reversed in part.

       Judge Glenn also stated — only as a conclusion — that the work on his Perry farm reduced flooding of adjacent highways. Quantum,

        meruit has been held to be a valid defense in certain situations. See Dowell v. School District No. 1, Boone County, 220 Ark. 828, 250 S. W. 2d 127 (1952); and Ward v. Farrell, 221 Ark. 363, 253 S. W. 2d 353 (1952).


text:
    Leon EISEN Jr. v. BLACK & WHITE CAB CO. et al
    5-4580
    428 S. W. 2d 56
    Opinion delivered May 27, 1968

      Hardin, Barton, Hardin & Jesson and H. Clay Robinson, for appellant.

      Warner, Warner, Ragon & Smith, for appellees.
   Lyle Brown, Justice.

The Workmen’s Compensation Commission denied appellant Eisen’s claim for benefits and on appeal to the circuit court the Commission was affirmed. The claim was rejected on the grounds that ,(,1) Eisen was not an employee of appellee Black & White Cab Company, and (2), assuming the employer-employee relationship existed, Eisen was not within the scope of employment at the time of his injury.

On the night of October 11, 1965, Eisen was operating a taxicab. After discharging his passenger at a motel he was flagged by a motorist whose car was stalled because of battery trouble. Eisen had a set of “jumper* cables” in the cab. While Eisen was in the process of connecting the cables from his battery to the faulty battery a third car came on the scene and struck the disabled vehicle. The impact caused severe injuries to Eisen’s left leg. That leg was eventually amputated because of gangrene.

Only two witnesses testified as to the recited issues. Leon Eisen, Jr. testified in his own behalf. Bob Staton, a managing executive and one of the owners of Black & White, testified for the respondents, Black & White and the insurance carrier. The activity of Eisen at the time of his injury is not disputed. As to the employer-employee relationship, Eisen testified that he was employed by the owners of Black & White; that he was operating a company car; that they directed him in his work; that on one occasion they suspended him because of a misunderstanding over money; and that Mr. Staton-promulgated rules concerning the operation of the cabs. Staton’s testimony was very substantially in conflict with that of Eisen. The Compensation Commission accepted the testimony of Staton as establishing the true relationship between the parties.

Commission’s Findings Summarised. There are twenty-three Black & White cabs operating in Fort Smith. None are actually owned by respondent. Property rights to the cabs fall in three classifications: first, those owned outright by individual operators; second, those purchased by an operator under a conditional sales contract financed through Black & White; and third, those purchased under a conditional sales contract and financed by a finance company of the cab operator’s choice. Black & White has an arrangement with the various cab owners whereby legal title to all the vehicles is registered in the name of Black & White irrespective of the equity of the individual cab owner. Such registration makes it possible for Black & White to obtain the required liability insurance on all cabs, for which, the Company pays the premiums;

Claimant Eisen owned no equity in the cab. he was driving. , That vehicle was actually owned by Frank Braswéll, who operated it on the day shift. Braswell was .buying the car under a conditional sales contract. Eisen operated it at night. For tbe purposes already described, the legal title was in Black & White. Claimant’s arrangement to drive the car was made with Frank Braswell. Black & White advertises for drivers and when an applicant reports he is referred to a particular owner who needs a relief driver;

Black & White furnishes services to the drivers. The cabs are equipped with two-way radios. When a call is received by the radio dispatcher he contacts the cab nearest the point where a cab is desired. It is optional with each driver whether he accepts or rejects a call; if he rejects it the dispatcher calls another cab. Work periods are not prescribed by the 'Company. The actual owner is free to use his vehicle for family and other personal uses. Black & White maintains a mechanical department but the cab owners are not required to utilize those services. Gas, oil, and repairs are the responsibility of the owner-operators;

At the end of his shift Eisen would leave $9.50 at the Company’s office. Of that amount one-half would be retained by the Company as its charge and the balance would be credited to Braswell. The Company did not withhold any type of tax. On his income tax return Eisen represented he was self-employed;

No accounting of fares is made to the Company by the owner of the vehicle or his relief driver. Neither does the relief driver so account to the owner for whom he drives.

So much for the Commission’s findings. It was further of the opinion that Eisen’s activities at the time of his injury were outside the scope of his cab operations. We do not reach that point because we sustain the Commission on its finding that an employer-employee relationship did not exist between claimant and Black & White.

Appellant concedes the facts in this case are substantially similar to the facts in Rose v. Black & While Cab Co., 222 Ark. 210, 258 S. W. 2d 50 (1953). Both cases involve the same company and the plan under which they operated in 1953 .is remarkably similar to their present operation. However, appellant here contends there is an important distinction in the fact situations in one respect. It is asserted that in Rose the legal title to the involved vehicle was not vested in Black & White, whereas the opposite is true in the case at bar. The fact that Black & White held the legal title to the vehicle was of course a proper element for consideration. On the other hand, the Commission found the Company’s explanation for its holding the legal title to be plausible. Black & White was doing business under a franchise from the city; the law requires that all cabs be covered by liability insurance; and the franchise could have been jeopardized by a failure to so comply. Further, in the event of an accident, liability could possibly be fixed against Black & White. The surest way for the Company to know that the insurance was in force at all times was for Black & White to carry' it.

Certainly there was evidence here, as in Rose, “from which the inference might be drawn that the cab company was in fact an employer.” It was a disputed question of fact. The finding of the Commission was to the contrary and we cannot say there was no substantial evidence to support that conclusion. It carries the same weight as a jury finding on a controverted issue.

Affirmed.


text:
    COMBINED INSURANCE COMPANY OF AMERICA v. Laverne C. DREYFUS
    5-4589
    428 S. W. 2d 239
    Opinion delivered May 27, 1968

      N. M. Norton, for appellant.

      Fletcher Long, for appellee.
   Lyle Brown, Justice.

This action originated in the municipal court of Forrest City. Appellee, Mrs. Laverne C. Dreyfus, brought suit against appellant, Combined Insurance Company of America, to recover $243.33, two statutory penalties, and attorney’s fees. The suit was based on a hospitalization policy issued by appellant to appellee. In municipal court appellee recovered a judgment exceeding the $300 jurisdictional limit, of the municipal court. On appeal to circuit court the judgment likewise exceeded the jurisdictional limit of the municipal court.

Mrs. Dreyfus applied for hospital insurance and was issued a policy by the Company in January 1964. An issue not here pertinent although argued caused the Insurance Company to controvert the claim. The contract for insurance specifically excluded any sickness that arose prior to a 30-day waiting period. It was the Insurance Company’s position that the sickness (diabetes) was known to Mrs. Dreyfus at the time of the application for insurance. The judge sitting as a jury found in favor of Mrs. Dreyfus.

On appeal the Insurance Company challenges the jurisdiction of the municipal court to award statutory penalties and attorney’s fees as provided by Ark. Stat. Ann. § 66-3238 (Repl. 1966). In the alternative, the appellant argues that even if the municipal court had jurisdiction as to the subject matter, it contends the amount claimed under the policy, the statutory penalties, and the attorney’s fees must be added together to determine the amount in controversy. It is clear in the case at bar that if the penalties and fees are to be included in the calculation of the amount in controversy, the cause of action exceeded the $300 jurisdictional limit.

In order to determine whether the municipal court had jurisdiction we must look to the grant of powers. The Arkansas Constitution of 1874, Art. 7, Sec. 40, defines the specific areas of jurisdiction. The powers are very limited. In matters of contract it has exclusive jurisdiction up to $100 and concurrent with circuit court in controversies up to $300. It has no jurisdiction on matters exceeding $300,’ not including interest. Other grants of jurisdiction are not here pertinent.

The problem in this case is not unlike that raised in American Liberty Mutual Ins. Co. v. Washington, 183 Ark. 497, 36 S. W. 2d 963 (1931). In that case a claim for.statutory penalty and attorney’s fee was prayed for in addition to the amount owing under the insurance policy. The suit was in a justice court. A statutory penalty and attorney’s fee were demanded under the same statute as in the ease at bar. (It should be here noted that a municipal court has the same jurisdiction authority as a justice court.) We there held that the statute authorizing penalty and attorney’s fees “becomes a part of the contract of insurance.”

Appellant cites Baltimore & Ohio Telegraph Co. v. Lovejoy, 48 Ark. 301, 38 S. W. 183 (1886), contending that the municipal court could not exercise jurisdiction on a penalty. In that case the penalty resulted from the breach of duty by the defendant by failing to send a telegram. The statutory penalty was held to be based, not on a contract to transmit-, but on a neglect of duty which sounded in tort. Jurisdiction of a penalty per se is not vested in municipal courts. The jurisdiction of a municipal court in a given case must come within the express language of the constitution or within the incidental or necessarily implied authority of the express grants of jurisdiction. Temple et al v. Lawson, 19 Ark. 148 (1857).

Support for the argument that the penalty is to be considered a part of the “amount in controversy” (Ark. Stat. Ann. § 22-709 [Repl. 1962]) can be found in decisions under the federal removal statute. Under the Arkansas decisions on computing the “amount in controversy” for federal removal of cases, this court has on numerous occasions stated that the statutory penalty was to be considered part of the amount in controversy.

Appellee contends that the attorney’s fees by statute are to be considered part of the costs and not included in the calculation of the amount in controversy. Specifically, Ark. Stat. Ann. § 66-3238 provides that attorney’s fees are to be “taxed up as other costs are, or may be by law collected . . . .” Appellant on the other hand contends that the mere label by the legislature cannot expand the monetary limits of the court.

There is a wide divergence of views on this matter throughout the country. Our court at one time held in a federal removal case that, attorney’s fees are not part of the amount in controversy. Missouri State Life Ins. Co. v. Johnson, 186 Ark. 519, 54 S. W. 2d 407 (1932). On appeal to the Supreme Court that decision was reversed. Missouri State Life Ins. Co. et al v. Jones, Admr., 290 U. S. 199 (1933). Our court in the next statement on the subject said, “In accordance with the opinion of the Supreme Court of the United States, we must now hold that, when a reasonable attorney’s fee is a matter of controversy, and when such fee, added to the specific sum in controversy, aggregates a sum in excess of $3,-000, and all other requisites are present, such cause of action is removable from State to the Federal courts.” Pacific Mutual Life Ins. Co. v. Bierman, 188 Ark. 703, 67 S. W. 2d 577 (1934). Although that decision is not here controlling, it would promote consistency in reasoning and definition of terms to here apply the same rule.

Kansas has a similar penalty statute as ours and their statute was interpreted in Gants v. National Fire Ins. Co. et al, 273 P. 406, 127 Kan. 251 (1929). That court said:

“In the consideration of this question in 2 R.C.L. 30, attorney fees, when taxed as costs, were called extraordinary costs, and in a number of jurisdictions they are distinguished from the usual and ordinary costs as not being subject to the discretion of the court, and are therefore appealable matters. The allowance of such fees requires a judicial determination in two respects — first, whether the particular case under consideration is one in which it was contemplated such a fee should be allowed; and, .second, the amount of the fee that would be reasonable under all the circumstances of the case. These-determinations are purely and strictly judicial, and subject to review for errors in the conclusions reached, and bear no relation to costs in the case except as the statute provides that thev are to he recovered and collected as part of the costs.”

See also People of Sioux County, Nebraska v. National Surety Co., 276 U. S. 238 (1928).

We hold that a municipal court does have jurisdiction under Ark. Stat. Ann. § 66-3238 for the amount claimed under the policy of insurance, the statutory penalty, and the statutory attorney’s fees, when the sum total amount in controversy does not exceed $300.

The municipal court never had jurisdiction because the amount of recovery sought patently exceeded the jurisdictional limit. It follows that the circuit court never had jurisdiction in this action because its jurisdiction is dependent on that of the municipal court. Whitesides v. Kershaw & Driggs, 44 Ark. 377 (1884); Markham v. Evans, 239 Ark. 1154, 397 S. W. 2d 365 (1965).

Reversed and dismissed without prejudice.