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

text:
    Dan T. TUCKER et al v. PULASKI FEDERAL SAVINGS & LOAN Association
    5-5841
    481 S.W. 2d 725
    Opinion delivered June 19, 1972

      Cooper Jacoway and Christopher C. Mercer, Jr., for appellants.

      Edward L. Wright, Jr., for appellee.
   Carleton Harris, Chief Justice.

This litigation concerns the validity of a certain clause contained in a mortgage which provieds, inter alia, that the maturity of the indebtedness secured may be accelerated “If the mortgagor sells or conveys (or contracts to sell or convey) all or any part of the Mortgaged Premises without the written oonsent of the holder of said note”. Dan Tucker, a white resident of Little Rock, purchased in late December of 1965, property located at 2010 West 17th Street in Little Rock. Tucker testified that the property was a three unit apartment, and he lived in one unit and rented two. According to the evidence, at that time, this property was located in an all white neighborhood. The neighborhood gradually became black and Tucker testified that he had trouble keeping renters. A rental agency was able to obtain but one renter, who stayed a few months and moved off, the property remaining vacant for a year. Consideration for the purchase was $25,000, $2,000 being paid down and a note being executed by Tucker and his father for $23,000 with Pulaski Federal Savings and Loan Association, hereinafter called Pulaski. Tucker also executed a mortgage on the purchased property to secure payment. Tucker endeavored to sell his interest in the property and eventually, through a realtor, found purchasers, Mr. and Mrs. Vassie Belcher, a black couple. Pulaski would not approve a transfer to the Belchers, but nontheless, Tucker sold his interest for $1,500 and executed a deed to them subject to the mortgage. Thereafter, on April 14, 1970, Pulaski instituted suit against Tucker and his father and Belcher and wife, wherein the aforementioned clause was set out, Pulaski stating that because of the violation of this provision of the mortgage, the entire unpaid principal balance of the secured note was declared due and payable and it was prayed that the company have judgment in the sum of $20,243.18 with 10% interest, judgment for costs and attorney’s fees, foreclosure of the mortgage and sale of the property, possession of the lands, and the extinguishment of the interest of the Belchers in the property. The Tuckers answered, asserting that the acceleration was capricious, oppressive, arbitrary, and an unconscionable restraint on the right of Tucker to freely convey the equity of redemption in the mortgaged property; that said provision was invalid and void. A counterclaim was also filed as a class action on behalf of similarly situated borrowers from Pulaski wherein it was asserted that Pulaski had attempted to assert a regulation by which it would charge the Belchers a sum of $100.00 as a transfer fee; that such charge is against public policy and was an inequitable effort to interfere with the power of an owner to sell his property freely and for adequate consideration. It was asserted that appellee should be enjoined from levying such charge. Also, as a part of the counterclaim, it was alleged that Pulaski requires a borrower pay to it, as escrow agent, a sum of money each month, in addition to the payments on the note and mortgage, for the purpose of taking care of payments of taxes and insurance premiums; that said monies so paid are trust funds and cannot be used for the profit and personal benefit of the association; that the escrow money is invested with the company which makes a profit from it, but retains the profit for itself, a practice that is in violation of its fiduciary relationaship. The Belchers adopted the answer and counterclaim of the Tuckers and prayed for appropriate relief. On trial, and after the taking of testimony, the court made the following findings which are pertinent to the issues on appeal in this litigation:

“1. The provision in the mortgage set forth in paragraph 7 of the findings of fact above, which gives plaintiff the right to accelerate the payment of the mortgage secured debt upon a sale or transfer of the mortgaged property without plaintiff’s consent, is valid, enforceable andi is not against public policy.
2. Plaintiff validly exercised the right to declare the entire mortgage debt to be due and payable at once.
3. Plaintiff has no obligation to justify its refusal to consent to the sale of the mortgaged property to the Belchers.
4. Notwithstanding the absence of any such obligation, plaintiff had valid business reasons for withholding its consent to the sale of the mortgaged property to the Belchers.
5. The Tuckers are indebted to Plaintiff in the sum of $20,327.44 plus interest at the rate of 6% per annum from February 1, 1970, until April 24, 1970, and plus interest at the rate of 10% per annum from April 24, 1970.
6. The Tuckers are also indebted to Plaintiff for an attorney’s fee of $2,000.00 and costs.
7. Plaintiff is entitled to foreclosure of its mortgage and judicial sale of the said lands.
8. The counterclaim of defendants for monetary and injunctive relief as to earnings made by plaintiff on escrow accounts and transfer fees is not a valid class action.
9. The earnings, if any, made by plaintiff on escrow accounts are not payable to defendants either individually or as members of a class.”

In accordance with these findings, judgment was rendered and the property ordered sold if said judgment was not paid within 10 days, and the Tuckers were given judgment against the Belchers for any portion of plaintiff’s judgment against the Tuckers remaining unpaid after crediting the Pulaski judgment with amounts received from the sale of the property. From the decree so entered the Tuckers and Belchers bring this appeal. For reversal four points are relied upon, viz:

"I
The Chancellor erred in permitting the Savings & Loan Association to accelerate the mortgage debt and to forclose the mortgage, because the acceleration provision is against public policy and void.
II
The escrow funds are held by the Savings & Loan Association as a fiduciary, and the Chancellor erred in permitting the Association to retain for its own the profits realized from investing the fiduciary funds.
III.
The amount of the transfer fee is not related to costs or services performed by the Association, and the Chancellor erred in permitting the Association to charge it.
IV
The Chancellor erred in rejecting the testimony that the loan closing agent, while acting within the apparent scope of his authority, at the closing of the Association’s loan to Dan Tucker assured the Tuckers that the property would stand for the loan.”

I

In passing upon this litigation, we very quickly state that we agree with appellants that appellee cannot, simply on the basis of the quoted clause, accelerate the note, declare the indebtedness due and payable, and foreclose upon the property. This procedure cannot be countenanced in a court of equity. There is no Arkansas decision governing the circumstances at issue, but we have said that equity will grant relief against an attempted acceleration for inequitable conduct. See Crone v. Johnson, 240 Ark. 1029, 403 S.W. 2d 738. We like the reasoning of the Court of Appeals of Arizona, District 1, Department A, in the case of Baltimore Life Insurance Company v. Hugh L. Harn et al, 486 P. 2d 190. This case was decided on June 30, 1971, amended July 8, 1971, and rehearing denied September 10, 1971. There, the Harns borrowed money and executed a note and mortgage, the note containing the following provision:

“All sums due and payable under this note and the mortgage or mortgages securing the same, *** shall become due and payable without notice forthwith upon the conveyance of title to all or any portion of the mortgaged premises or property, or the vesting thereof in any other manner in, one other than to Mortgagor named therein.

The mortgage contained this language:

“This mortgage and all sums hereby secured,*** shall become due and payable at the option of Mortgagee and without notice to Mortgagor forthwith upon the conveyance of Mortgagor’s title to all or any portion of said mortgaged property and premises, or upon the vesting of such titles in any manner in persons or entities other than, or with, Mortgagor.”

Subsequently the Hams conveyed the mortgaged property to other persons. The appellant asserted that these conveyances were in direct violation of the contractual agreement, and thus gave appellant the right to accelerate and foreclose. The trial court held contrary to this view and on appeal, the appellant urged that the violation of the quoted clause entitled it to acceleration and foreclosure. In holding adversely to appellant, the court said:

“The underlying reason for an acceleration clause of the type before us is to insure that a responsible party is in possession, thus protecting the mortgagee from unanticipated risks.
[3] The acceleration clause in this case is clearly a restraint on the mortgagors’ ability to dispose of their property. We believe that so long as an acceleration clause does not purport to restrict absolutely the mortgagor’s ability to dispose of their property there is not the type of restraint on alienation that would render the clause void. It follows that the invocation of the clause must be based on grounds that are reasonable on their face.
[4] An action to accelerate and foreclose a mortgage being an equitable proceeding, [citing cases], it is not enough to allege merely that the acceleration clause has been violated. Absent an allegation that the purpose of the clause is in some respect being circumvented or that the mortgagee’s security is jeopardized, a plaintiff cannot be entitled to equitable relief. Otherwise the equitable powers of the trial court^ would be invoked to impose an extreme penalty on a mortgagor with no showing that he has violated the substance of the agreement, that is, that he would not make a conveyance that would impair the security.
We note that the complaint contained no allegation that there had been default in payments as they became due and at oral argument counsel for the plaintiffs, responding to a question directed to this point, affirmed that there had been no missed payments. At no place in the pleading does an allegation appear that the plaintiffs security is in any way jeopardized. [our emphasis]”

Of course, we can certainly see why a mortgagee would object to some transfers; a mortgagor, if permitted, could sell his equity in property and transfer the indebtedness to a person who had been convicted of operating a bawdy house, operating a gambling house, or illegally selling whiskey or drugs, and naturally a mortgagee would not desire to accept such a person, realizing that the property could be used by that person for a similar purpose. The same might be true of an individual who persistently had failed to pay his obligations, who was without a job, or who had a record of permitting property to deteriorate.

On the other hand, and this frequently happens, a mortgagor could be transferred from his job to another location and, if persons to whom he desired to sell the property could be arbitrarily disapproved by the loan company, he could be in the position of being forced to sell to someone at great sacrifice. This could well be true even though a loan might be three-fourths paid. The validity of such a requirement would leave a mortgagor much at the mercy of the ■ mortgagee. Accordingly, we are in full agreement with the court that decided the case dted that there must be legitimate grounds for refusal to accept a transfer to a particular individual or concern.

This premise being established, let us examine the facts in the litigation before us to determine whether appellee company had reasonable grounds to reject the Belchers. A pertinent fact is that the record reflects that Vassie Belcher and wife Esther, in the latter part of 1966, purchased a home, financing the purchase through Pulaski, in the amount of $8,211.09. This loan was to be repaid commencing on February 1, 1966, with monthly payments of $65.00 per month for a little over sixteen years. In the testimony at the trial, various officers of the company testified. W. P. Gullev, Tr.. President of Pulaski, testified that in disapproving the Belchers for the transfer, the loan committee considered the Belchers’ payment record on the already existing loan, and a credit report obtained on the Belchers. It does not appear that he ever positively stated that the Belchers’ loan payment record was considered before the loan was disapproved. One other officer testified that the Belcher loan was referred to in the meeting of the loan committee. Two other company officers, Guy Maris, III, and Howard E. Boddy, stated that the payment record of the Belchers on the loan was not considered by them prior to the original disapproval, and that the loan had already been turned down before this matter was checked. Mr. Boddy stated that he did not even know that the Belchers had a loan with Pulaski at the time of rejection, and Maris stated that the assumption had been rejected before he examined the loan record. Of course, this is not to say that the company was not entitled to consider all information obtained in determining the fitness of the Belchers to assume the loan, but it does somewhat appear that the disapproval may not have been predicated on the payment record by the Belchers. This seems entirely logical since the Belchers had never been delinquent, i.e., they had never been as much as thirty days late in making a monthly payment. The record reflects that the Belchers had paid on their loan for 42 months and that during that period, they had paid before the due date nine months, one month the payment was exactly on the due date, and for 32 months they had paid after the due date, averaging 12 days late (from the due date). The other stated reason for disapproving the Belchers was a credit report. We do not think any consideration should be given to 8 of the items, although all of these were paid (late) except one, which was an automobile repossession. These items all occurred before Pulaski ever approved the original loan to the Belchers, so apparently these late payments could not have caused much concern._

Six items are listed from September 1966 through 1968 including the repossession of an automobile. The record reflects that the other 5 items were paid; however, 2 items were past due before being paid. As to the repossession, Belcher stated that he had great difficulty with the automobile; that it would never perform satisfactorily; that he did not succeed in getting the company to fix it, and he finally turned it back in.

It might be mentioned that the company never did inspect or investigate the occupancy of the Belchers on the property under mortgage, and accordingly could not have known whether the property was being properly taken care of. The record reflects that Belcher is current in his payments to Pulaski on his original loan, payments being $65.00 per month, and undisputedly, he has tendered the sum of $198.41 each month as payments on the property purchased fromTucker, but these payments have not been accepted. Belcher offered during the trial to make all monthly payments due in open court.

Let it be remembered that Dan Tucker is still liable on the note, irrespective of the transfer. Of course, Tucker could leave the state, which would make enforcement more difficult, though there is nothing in the record to indicate that this appellant has any thought of leaving. However, Tucker’s father is also liable on the note. There is yet additional security; Tucker purchased the property from two Little Rock residents, Mrs. Dessie Patrick Keck and Mrs. Doris Marie Koon, mother and daughter. In financing the purchase, Tucker applied to Pulaski for a $23,000 loan. Mrs. Keck and Mrs. Koon, as a matter of inducing Pulaski to make the loan, entered into an agreement to put up as additional security (for performance of the obligations assumed by Tucker) a savings account held with Pulaski in the amount of $5,500. The agreement provides for a release of a portion of the $5,500 deposit for each $1,000 reduction of the principal of the loan. Mr. Gulley testified that $1,000 had been released, the company being obligated to release $500 for each $1,000 reduction on the principal. The agreement even provides that, in case of a foreclosure which results in a deficiency, the indemnitors agree that they are indebted to Pulaski up to the amount of their pledge in taking care of any deficiency judgment. All in all, it would appear that Pulaski is adequately secured.

In filing suit for judgment on the note and foreclosure, Pulaski sets out only one ground, viz, that Tucker, without the consent of Pulaski, sold and conveyed the mortgaged lands to the Belchers; that appellee then declared the entire unpaid principal balance due and payable.

We think it would be extremely unfair to hold that the Belchers are a bad risk when they are not only current in the original loan, but have likewise tendered the monthly payments each month on the property purchased from Tucker.

Accordingly, we hold that the chancellor erred, first, in holding that plaintiff had no obligation to justify its refusal to consent to the sale of the mortgaged property to the Belchers, and further erred in holding that Pulaski had valid business reasons for withholding its consent.

II

We do not agree with appellants on this point. At the outset, it might be stated that filing a class action as a counterclaim seems to be entirely beyond the scope of the counterclaim statute. Ark. Stat. Ann. § 27-1121 (Repl. 1962) Paragraph 3, provides that the defendant’s pleadings shall contain, “A statement of any new matter constituting a defense, counterclaim or set-off, in ordinary and concise language, without repetition.” This very definitely appears to be a personal statute. There is no evidence in this record that appellee coerces its borrowers to establish escrow accounts; in fact, the Belchers, on their present loan, do not pay any monies into an escrow account. Actually, the escrow account results in a service to the borrower, for it absolves him of the responsibility and trouble of paying the taxes and insurance. A mortgagee is entitled to be in a position where he knows the taxes and insurance will be paid, for otherwise, his security would be very much in jeopardy. Of course, taking care of these items requires quite a bit of time of the clerical employees. The record also reflects that in loans guaranteed by the Federal Housing Authority or the Veteran’s Administration, there is a requirement that an escrow account must be maintained for those loans which exceed 80% of the value of the appraised property. All in all, we are unable to see any merit in this contention.

Ill

Here again, this contention was advanced by a counterclaim for the benefit of a class, and what was said in Point II relative to this phase, is equally applicable here. Pulaski charges a transfer fee of $100.00. Of course, Belchers have never paid a transfer fee because they were not approved for the transfer, although they did tender the $100.00. Since the Belchers are prevailing in this litigation, the question will undoubtedly legitimately arise. There was testimony that one other building and loan company in Pulaski County charges $100.00, and testimony that one bank charges $50.00. There was no evidence as to charges made by other building and loan associations, or other lending institutions. This is all the proof in the record. While Mr. Gulley detailed to some extent the work involved in making the transfer, there is nothing in the record which reflects the relationship between the work involved and the amount charged; in other words, there is no “time analysis”. As stated, the question is not, because of the nature of the pleading involved, before us at this time.

IV

Troy Tucker, father of Dan Tucker, who also signed the note, testified that he went to the Beach Abstract & Guaranty Company, the closing agent, and asked questions of the loan closing officer. Testimony was offered that the officer told the Tuckers that the property would stand for itself and there would be no deficiency judgment in case of foreclosure. The court refused to accept this testimony, and we think correctly so since there was no evidence to show that the officer of Beach Abstract had any authority to do anything other than to close the loan. Certainly, Beach Abstract had no authority, real or apparent, to bind Pulaski by oral statements in contradiction of the written instruments.

In accordance with what has been said, the decree as to Point I is reversed (including findings one through seven) and we hold that Pulaski Federal Savings & Loan Association was not justified in refusing consent to the sale of the mortgaged property from the Tuckers to the Belchers, and accordingly must accept the transfer; as to the other three points, the decree is affirmed, and the cause is remanded to the Pulaski County Chancery Court (Second Division) for the entry of a decree not inconsistent with this opinion.

It is so ordered.

Fogleman, J., dissents.

John A. Fogleman, Justice,

dissenting. I would affirm the decree of the chancery court in every respect. I agree with all of the majority opinion except the treatment of the factual situation with reference to the acceleration in this case. The chancellor made specific findings that appellee validly exercised the right to declare the entire mortgage debt due and payable and that it had valid business reasons for withholding its consent to the sale of the mortgaged property to the Belchers. While I agree with appellants that they had the burden of showing that appellee’s refusal to accept the Belchers as purchasers was unreasonable, capricious and inequitable, I submit that they failed to meet this burden. I also agree that they stated the proper test rather than the majority’s retrospective determination of reasonableness. I believe, however, that the UCC rule stated in Ark. Stat. Ann. § 85-1-208 (Add. 1961) was intended to and does govern. Whether it does or not, or however the test may be stated, that section is a clear, concise statement of the test that should be applied. In other words, the courts should direct their inquiry toward a determination whether the option to accelerate was exercised in the good faith belief that the prospect of payment or performance was impaired and the burden of establishing lack of good faith on the party against whom the power has been exercised.

Appellants’ argument addressed to this point consist mainly of these assertions in their brief: that the association paid no attention to the security involved, to the care given other property by the Belchers or to their income; that foreclosure was brought as punishment to the seller and the purchasers and as an object lesson to others because Tucker sold to the Belchers with the association’s approval, that the association has not established objective standards for granting or withholding its consent, which can be ascertained by a mortgagor; that appellee’s fears are remote; that the Belchers’ payment record was not bad; that the association’s record at the time the application for transfer was made was incomplete, because it did not reflect the divorce of Vassie Belcher from his former wife, his remarriage or the present financial stability of the Belchers, both of whom are employed.

I submit that the evidence does not lend any support to some of these assertations, and that it does not clearly preponderate against the chancellor’s finding in any event. I further submit that many of these assertions are not appropriate to the subject under inquiry. I shall direct my attention only to die question that is most pertinent, in view of the majority opinion, i.e., were the chancellor’s findings as to the validity of appellee’s exercise of its right to accelerate and the validity of appellee’s withholding its consent to the sale clearly against the preponderance of the evidence?

In reviewing the evidence, equity requires that, while looking over the shoulder of the officers of appellee, we try to gain their perspective, not as the caretakers of their own money, but as guardians of the savings of many people, some of whom are widows and orphans. The responsibilities of these officers are great and they are called upon to exercise their best judgment gained from many years of experience in the lending of other people’s money in a manner that will insure the best possible return to appellee’s investors. It is also imperative that we remember that Tucker’s right to sell his property to whomever he chose, at his own risk, is not questioned here. The only question is whether appellee is required to accept any purchaser he chose as its primary obligor, and, as appellants put it, whether in its refusal to consent and the resulting acceleration, appellee acted capriciously or whimsically.

First, I should like to note that the record is totally devoid of any evidence that appellee’s officers acted punitively. Only one seeking to reach that result could find any inference from the testimony on which to base such a finding. Even if such a strained inference could be drawn there is certainly no preponderance of evidence to support such a finding, and there is even a greater certainty that the chancellor’s contrary findings are not clearly against the preponderance of the evidence. In reviewing the evidence it must be remembered that two separate occasions for the exercise of judgment and discretion by appellee’s officers arose. The first was whether to consent to the transfer. The second was whether to accelerate. In order to evaluate the matter from the point of view of a sincere, conscientious officer of a savings and loan association, a review of the background pertaining to this loan at the time of the first decision is imperative.

The property, a three-unit apartment at 2010 West 17th Street in Little Rock, was sold to Tucker on December 22, 1965, by Mrs. Patricia Keck and her daughter Mrs. Doris Marie Koon for $25,000. The appraisal for a loan by appellee indicated a property value of $23,500 to $24,000. Appellee usually restricted its loans to 70% or 75% of appraised value. It was unwilling to make a loan with the property as the only security, and with the 24-year-old Dan Tucker, unmarried, as the only person liable on the note. The loan of $23,000 was made on December 22, 1965, the date of the conveyance to the borrower, after Troy Tucker, father of Dan Tucker, signed the note as a comaker, and the sellers pledged $5,500, which was in the form of a savings account with appellee, as additional security, or indemnity, to induce appellee to make the loan. It seems obvious to me that this was a marginal loan from the very beginning.

Tucker testified that: When he bought the property, it was in an “all white” neighborhood; he lived in one apartment and rented the others for a rental adequate to pay the loan installments and enable him to live “rent-free”; the neighborhood gradually changed to “colored” and the difficulty in obtaining and keeping renters eventually resulted in the property remaining vacant for a full year; efforts of a real estate agent to sell the property were unsuccessful for several months, after which a real estate agent found the Belchers, who made the only offer Tucker received; he sold his equity to them for $1,500, even though he had thought it to be worth $4,000 to $5,000.

The indemnity deposit by Tucker’s grantors had shrunk to $4,500, pursuant to the agreement which permitted the indemnitors to withdraw $500 for each $1000 paid on the loan principal. At the time the application was made for appellee’s approval of the transfer, only $2,000 of the principal had been paid. Thus, because of the trend, Tucker received only $1,500 for his $2,000 cash payment and his $2,000 loan principal payment. This meant that the value of the security to appellee had already diminished by $3,500, i.e., $2,500 reduction in property value and $1,000 reduction of the indemnity. The property, on the basis of this sale had a value of only $21,000 to $21,500, and the loan became virtually 100% of the property value.

The association officers had observed serious problems in connection with some of their loans. At the time of the decisions made in this case, they were having an average of 10 transfers per month. They had found, however, that the rate of delinquency on assumed loans was alarmingly high, posing a problem which was becoming progressively more serious, and causing appellee’s concern about it to intensify. This rate reached the point where it was approximately 50% higher than those on which the title remained in the original borrower. Little Rock savings and loan associations have historically been among the most liberal in permitting transfers of property on which they have mortgages. As the money market has become more competitive, these associations have attempted to analyze their businesses more carefully. While appellee formerly had no requirements relating to transfers, and made no investigation of purchasers, as the delinquency rate on assumed loans increased, its officers began to give attention to its approach to the matter. The cost of servicing delinquent accounts is a significant cause for concern, and makes such a loan expensive to the lender, because a great deal of time must be devoted by someone in bringing such accounts up to date, and appellee has found that the process must usually be repeated again and again.

Around July 1, 1969, appellee started procedures to give more attention to property sales where an existing loan was to be assumed. Since that time appellee has investigated all purchasers in such cases. Appellee adopted a policy of separately evaluating each case involving a loan assumption and accepting as purchasers those who were satisfactory credit risks. The examination of applications to transfer was made by a loan committee, on which several officers of the association served. Among the members of the committee were W. P. Gulley, president and chief executive officer for 11 years and previously assistant secretary, vice president and director, John D. Greenway, head of the loan department, who is now executive vice president and previously a vice president for more than eight years, Howard Boddy, an assistant vice president, who is now a branch manager, but was a loan officer at all times pertinent to this controversy, and who had been employed by the association for 7 1/2 years, Guy Maris III, a five-year employee who was an assistant vice president and loan officer in 1969 and 1970, and was in charge of delinquent accounts. A Mr. Giddings and Mr. Byrd, who are not further identified, are also members of this committee. No minutes were kept of these meetings and attendance was not recorded. The approval of at least four of the members was required before a loan could be made.

The procedure required an application by the proposed purchaser. The applicant was required to meet with a loan officer and give personal information and references and information as to the transaction. In addition to past personal credit performance, the association considers the applicant’s income in relation to the cost of the house, the amount of the monthly payments to be assumed, estimated cost of utilities and maintenance, the proposed occupancy and the applicant’s manner of occupancy and maintenance, the relationship of applicant’s living expenses to his income, the length of time employed in his current job, the amount and type of applicant’s income, and, to a lesser extent, the applicant’s net worth. The major items are past credit performance and stability of earnings. After the application is made, the loan officer to whom it is made obtains a credit report from the Retail Credit Bureau, which usually reports by telephone. Since the inauguration of these procedures, the association has only withheld approval of one proposed purchaser other than the Belchers, but the seller in that case withdrew from the transaction. This is the first case in which the sale was carried out without the consent of the association.

The Belchers made their application containing a financial statement and other personal information to Howard Boddy on December 3, 1969, who promptly obtained a credit report. It is clear that the loan committee decided to reject the application upon the basis of Belcher’s past credit performance, and never reached other factors it might have weighed had it found this one satisfactory. Discrepancies in the testimony of the officers as to whether Belcher’s past record with the association was considered along with the credit report, and as to the identity of the loan committee members acting are attributable largely to the fact that Boddy apparently arrived at a dedsion as soon as he saw the credit report and the fact that actually two decisions were made, i.e., whether to approve the transfer, and whether to accelerate. It is clear that the decision not to approve the transfer was unanimous among the members who participated, regardless of the makeup of the group.

Boddy took the application, loan file and credit report to the loan committee meeting. He said that no final action was taken at the first meeting and that the ultimate decision was eventually left to him, Greenway and Gulley, all of whom agreed that the Belchers should not be approved because the credit report was unsatisfactory under the association standards. Boddy said that the association occasionally overlooked such things as an account 30 days overdue or a $5 or $10 collection, if everything else appeared favorable. His recollection was that, in the case of Belcher, there were numerous bad items— probably 10 or more. He was the first to raise the question whether the transfer should be approved. He did not recall having any knowledge of Belcher’s performance on the previous loan at the time of the disapproval of the assumption of the loan by Belcher, and his decision was not based on anything except the credit report.

Greenway stated that the association made no record of all of the members of the loan committee passing on an application, but did keep a record as to two of them. Greenway felt that the committee did refer to Belcher’s previous payment record on a loan made to him by the association and that the rejection was based upon this and the credit report, but admitted that the loan record might possibly have been brought to his attention on the following day. He said that the credit report reflected 15 unfavorable items, seven of which were turned over to another agency for collection, two of which were repossessions, two of which appeared to have been paid after being turned over to someone for collection and two of which were paid after becoming delinquent. Greenway said that the committee’s action was actually a recommendation and that the final decision was up to Gulley.

Gulley reached his decision upon the basis of the credit report and the previously unsatisfactory account of Belcher with the association. He classified as “bad items” any charge account or balance that had been referred to an attorney or collection agency for collection, any suit to collect a debt, or any delinquent payment on an existing debt. He testified that appellee’s officers had learned from bitter experience that when one has been delinquent in the past, he is frequently delinquent in the future. Gulley said that these decisions were actually made by the loan committee, and in this case by Greenway, and reported to him for his concurrence or confirmation. Gulley said he considered the record on Belcher’s existing loan, or one that had been assumed by him. According to Gulley, the loan assumption by Belcher was disapproved on January 12, 1970, or within a day or two thereafter. The names recorded on the disapproval of the assumption were those of Greenway and Boddy. Gulley considered several items on the credit report unsatisfactory, among which were items on which two and three payments, respectively, were past due, and a repossession. He said that small items, when numerous, were not to be ignored as indicative of attitude toward prompt payment.

After the transfer was disapproved, Mr. Belcher and his attorney presented Tucker’s deed to Belcher, dated February 18, 1970, to Guy Maris III, who informed them that the transfer had been disapproved. Maris was familiar with Belcher’s past record on a loan by appellee because of activities in collecting delinquent payments. He was unable to recall whether he had communicated that information to other members of the loan committee before the deed was presented to him. Because of this record and the past credit record, Maris concurred in the subsequent decision to accelerate the debt. He apparently did not consider the Belcher loan payment record in determining his fitness to assume the loan.

Maris and Gulley stated the particulars relating to Belcher’s delinquencies on the previous loan. Maris thought he first called Belcher about a delinquency in 1966. Accounts were turned over to him as delinquent after nonpayment for either 15 or 30 days, depending upon the persistency of the delinquency. Gulley testified that the previous Belcher loan had been on the association’s books for 42 months, during which monthly payments were made on or before the due date on only 10 occasions, but payments averaged 12 days later overall and late payments averaged 15 days late. A check for a payment was returned twice in September 1969. He said that at the end of the year the association had to pay the taxes on the property. Maris found records of 27 “first and second” notices of delinquency to the Belchers. He found five instances where payments were more than 30 days late. The association considered this experience unsatisfactory, but did not feel that foreclosure was warranted, even though it considered a loan in default when a payment was more than 30 days overdue.

There is no doubt that this record was known to those who participated in the decision to accelerate. This was the first such decision the association had been called upon to make after adoption of its new procedures, as this was the first time a transfer had been made without association consent. This decision must have been arrived at after deliberation, as several weeks intervened between the date the deed was presented to Maris and the institution of foreclosure. Maris advised Gulley, with whom the final decision rested, of the deed. Gulley testified that he acted upon the recommendation of Greenway and Boddy, the information supplied by the Belchers and that disclosed by association records. Greenway says that he recommended acceleration.' Gulley did not act, however, until he discussed the matter with Greenway, with Katherine Williamson, and Mackey Faulkner, treasurer and assistant treasurer of the association, and with directors Edward L. Wright, Joseph B. Hurst and Joshua Shepherd. Gulley stated that a marginal borrower’s account is expensive to handle, even if there is never a foreclosure.

The association was confronted with a decision whether to accept a 58-year-old man with a questionable credit record and an unsatisfactory performance on a previous loan as primary obligor on a loan that was always marginal and promises to continue to be. Further, while Belcher held two jobs, he had been recently unemployed, had held his principal employment only 11 months, and had been divorced and remarried. While such a person might be carried as a borrower without foreclosure on one small loan, it is easy to see why he might not be an acceptable risk on two. There was evidence that the association followed FHA guidelines that payments should not exceed 20% of the borrower’s monthly income, and the price of a dwelling should not exceed 2 1/2 times the borrower’s annual income. There was also testimony that FHA and VA prohibit future loans when one person would have in effect more than one assumed loan at a time.

Clearly, the decision arrived at was not arbitrary, capricious or whimsical. It is not for us or any judicial tribunal to pass on the business judgment of those whose experience gives them insight into such matters, so long as there are factors that require a choice between alternatives which are dependent upon the exercise of that judgment and there are any reasons that would support the choice made. This was clearly recognized by the chancellor, and I do not see how it is possible to say that the evidence clearly preponderated against his findings.

It is no answer to say that the Tuckers are still liable and that there is no evidence that either anticipates leaving the state. In the first place, the current mobility of our society and the high percentage of our population who do change residences every year are matters of common knowledge that every businessman should take into account. Despite present intentions, collection from the Tuckers could become a serious problem during the life of the loan in spite of any lack of bad faith on their part. In the next place, it may well be questionable that either Belcher or the elder Tucker will survive the loan.

I think the decree should be affirmed as not against the preponderance of the evidence because I do not think that the collective judgment of this court should supersede that of the association officers.

      Appellants emphasize, and we agree, that there are no racial overtones in this case.

      It might be mentioned that this transaction may well be covered by a provision of the Uniform Commercial Code codified as Ark. Stat. Ann. § 85-1-208 (Add. 1964), but the case was not briefed on that basis by either side.

      The note in the case before us has no provision for accelerating the indebtedness because of a sale of the property, but only provides that the holder of the note may declare the unpaid balance due and payable upon a thirty day default in making any payments.

       Tucker testified that he did not know the questioned provision was in the contract.

       This testimony by deposition.

      A copy of a letter for appellees counsel to Tucker is made an exhibit to the complaint, this letter stating that Pulaski declined assumption because of the “extremely bad credit report” and "the extremely bad pay record of Vassie and Esther Belcher on an existing mortgage with our client”.

      From Gulley’s testimony: “I have explained, I think, earlier in some detail the procedure we go through as far as investigating the person’s credit and I believe I alluded to the calls that generally a loan officer must handle that comes in to us incident to a conveyance of property. This has continued to increase, plus we make I believe something like 25 to 30 clerical changes in operations such as changing the heading on the ledger sheet, changing our computer cards over, getting them a new mailing card, changing the tire insurance policy, changing a tax payment card. We maintain an insurance expiration card file. The policy must not only be changed, the insurance expiration card must be changed. There is quite often a change in insurance.”


source: Caselaw Access Project

author: Carlton Harris, Chief Justice.

license: Public Domain

text:
    James W. NOWLIN v. STATE of Arkansas
    5713
    481 S.W. 2d 320
    Opinion delivered June 19, 1972

      Harold L. Hall, for appellant

      Ray Thornton, Atty. Gen., by: John D. Bridgforth, Asst. Atty. Gen., for appellee.
   Carlton Harris, Chief Justice.

James W. Nowlin, appellant herein, was convicted of first degree rape and his punishment fixed by the jury at 35 years imprisonment. From the judgment entered in accordance with such verdict, appellant brings this appeal. For reversal, three points are asserted, which we proceed to discuss in the order listed.

The record reflects that appellant, on July 6, 1971, entered a plea of not guilty, and the case was set for a jury trial on September 2, 1971. Appellant filed a motion through counsel (not the same counsel as on appeal) setting out that he was under the impression that the case would not be tried until September 21. It was also asserted that the case had been set down for September 21 along with another charge pending against appellant, and the state was to give appellant adequate notice as to which case it elected to try on September 21; that said notice was not given until August 27. As stated, the allegations in this motion are not in accord with the record, which only reflects that the case was set for September 2. It would appear that ample notice had been given of the date of trial. Of course, motions for continuance are addressed to the sound discretion of the trial court, and this court will not reverse unless the court has abused its discretion. Nash v. State., 248 Ark. 323, 451 S.W. 2d 869. Under the record herein, we certainly cannot say that that the court abused its discretion in refusing to grant a continuance.

It is next asserted that the evidence was not sufficient to sustain the conviction. We do not agree. While it is true that the evidence was not the strongest that is sometimes introduced in this type of case, and while there were some conflicts between the testimony of the prosecuting witness, Gail Huffman, and her principal corroborating witness, Pamela Archer, these girls did offer evidence sufficient in law and fact to sustain the conviction, if believed by the jury. The testimony on the part of the state revealed that Miss Huffman, age 15, and Miss Archer, age 14, went to the Nowlin home with Roger Middlebrook and Gary Nowlin, the son of the appellant. Both girls testified that they were raped by Middlebrook and appellant, James W. Nowlin, who had come into the house. Miss Huffman described the attack on her by appellant, stating that she was crying, struggling, and trying to stop Nowlin, but unsuccessful in preventing the rape. This testimony was corroborated by Miss Archer. Of course, the testimony of Miss Huffman, standing alone, was sufficient to sustain the conviction. McDonald v. State, 225 Ark. 38, 279 S.W. 2d 44, and cases cited therein. As previously stated, there were some inconsistencies in the testimony of the two girls, but these inconsistencies were a matter for the jury to resolve, as well as to pass on other circumstances presented by witnesses.

Finally, it is argued that the court erred in permitting the witness, Pamela Archer, to testify that she had been threatened. Miss Archer had originally told police officers that she knew “nothing about it” (the rape of Miss Huffman), and when asked why she said that, replied “because Roger Middlebrook threatened me”. An objection was sustained by the court, which subsequently held that she could say whether she had been threatened, but should not mention names ^'unless it was Nowlin who threatened her”. Appellant argues that the above testimony violated the rule on hearsay evidence, but we do not agree. The statement was made for the purpose merely of establishing that it was made, and was not offered as a matter of proving the truth of the matter asserted. It was only offered to explain why the witness had first told the police that she knew nothing about the rape of Gail Huffman, but later offered the testimony given at the trial. In Liberto & Mothershed v. State, 248 Ark. 350, 451 S.W. 2d 464, this court pointed out “that a statement made out of court is not hearsay if it is given in evidence for the purpose of proving that the statement was made, providing that the purpose is otherwise relevant in the case at trial”. The admission of this testimony was not error.

On the whole case, finding no reversible error, the judgment is affirmed.

It is so ordered.


author: George Rose Smith, Justice.

text:
    MISSOURI PACIFIC RAILROAD COMPANY v. George ORSBURN
    5-5940
    481 S.W. 2d 356
    Opinion delivered June 19, 1972

      W./. Smith and J.D. Watson, for appellant.

      Mathis and Sanders, for appellee.
   George Rose Smith, Justice.

The principal question upon this appeal relates to the circuit court’s power to set aside its own judgment in a nonjury case, during the same term of court at which the judgment was entered.

The appellee Orsburn recovered a $255 judgment for the value of a cow killed by one of the appellant’s trains, plus a $25 penalty under Ark. Stat. Ann. § 73-624 (Repl. 1957). The railroad company filed a notice of appeal. The plaintiff then filed a motion for a new trial, although no reason for a new trial was stated. Within the term of court the trial judge entered an order (a) treating the notice of appeal as a motion for a new trial, (b) setting aside the judgment, and (c) granting the prayer “of both parties” for a new trial. The railroad company filed a second notice of appeal and now contends that both the original judgment and the order setting it aside should be reversed.

We have frequently said that a court has inherent power to set aside its judgments during the same term, without stating any reason for its action. Many such cases were dted in Security Bank of Branson, Mo. v. Speer, 203 Ark. 562, 157 S.W. 2d 775 (1942). The appellant, however, argues that in the first place we have decisions denying the trial court’s unlimited power over its judgments during the term and that in the second place the former rule is outmoded and should be abandoned.

In making its first argument the appellant overlooks the fact that the cases which it cites were exceptions rather than contradictions to the basic rule. Citizens Bank of La vaca v. Barr, 123 Ark. 443, 185 S.W. 773 (1916), involved a default judgment. We followed the statute in holding that a meritorious defense must be shown before such a judgment can be set aside. Three of the cases cited had to do with the confirmation of judicial sales, with respect to which abuses of discretion have never been condoned. Security Bank of Branson, Mo. v. Speer, supra: Summars v. Wilson, 205 Ark. 923, 171 S.W. 2d 944 (1943); Robbins v. Guy, 244 Ark. 590, 426 S.W. 2d 393 (1968). The remaining case, Big Rock Stone & Material Co. v. Hoffman, 233 Ark. 342, 344 S.W. 2d 585 (1961), involved a judgment based upon a jury verdict. We construed the controlling statutes to mean that the trial court’s broad power over its judgments during the term is not applicable to judgments entered upon jury verdicts. That holding was reaffirmed in Henderson v. Skerczak, 247 Ark. 446, 446 S.W. 2d 243 (1969). In the case at bar the trial was before the circuit judge sitting without a jury.

We do not agree with the appellant’s insistence that the traditional common-law rule, upholding a court’s control over its judgments during the term, is so nearly obsolete that it should be abandoned. Long long ago we observed that the power in question is based upon substantial principles of right and wrong and is to be exercised for the prevention of error and in furtherance of justice. Ashley v. Hyde, 6 Ark. 92, 42 Am. Dec. 683 (1845).

We adhere to that view. As a practical matter it often happens that a circuit judge or chancellor enters a judgment, order, or decree that contains some imperfection or leaves out some provision that should have been included. It is manifestly desirable that such errors be readily subject to prompt correction, without cumbersome procedures such as a showing of unavoidable casualty or an appeal to a higher court. The rule now in question supplies a simple but satisfactory solution to the problem. We recognize the inconvenience that may arise in rare instances when, as in the case at hand, the trial court utilizes the rule as a means of granting a completely new trial. Far more frequently the additional hearing is only a partial new trial, involving some particular issue that needs to be more fully developed. On balance the advantages of the rule decidedly outweigh its disadvantages; so it should be retained.

Inasmuch as a new trial is to be held, the errors which assertedly occured at the original hearing are not before us for review.

Affirmed.

Brown, }., not participating.


author: Lyle Brown Justice.

text:
    Ida VAUGHN v. Austin VAUGHN
    5-5942
    481 S.W. 2d 318
    Opinion delivered June 19, 1972

      Phil Stratton and Clark, Clark, & Clark for appellant.

      George F. Hartje for appellee.
   Lyle Brown Justice.

Ida Vaughn instituted this suit for divorce and the disposition of forty acres of land allegedly held as tenants by the entirety. The trial court denied the divorce, holding that Ida was barred by laches and estoppel from denying the validity of a divorce granted between the parties in 1946. As to the forty acres the court held that a deed in 1957 from Ida and Austin (appellee) to a third party and then back to Austin was void for lack of consideration and declared that although Ida and Austin were divorced when the deed was first taken, Ida owned a one-half interest as a tenant in common. The court dismissed the prayer for dissolution of divorce and Ida appeals; Austin cross-appeals from that part of the decree declaring Ida to own an interest in the forty acres.

The principal actors in this case are Ida Vaughn, Austin Vaughn, and Bertha Vaughn. For clarity and brevity they will be referred to by their first names. The background facts, which will shortly be recited, are hardly disputed.

In 1922, Austin and Bertha were married in New York. In 1944 the couple moved to Cleburne County, Arkansas. Austin shortly became acquainted with Ida and she became pregnant by him. In November 1945 Austin obtained a divorce from Bertha. Then in December, Austin married Ida and the following February Ida gave birth to the child. In March 1946 a divorce suit was filed and divorce granted in the Faulkner Chancery Court with Austin as plaintiff. (Ida professes that she knew nothing about the divorce being granted until 1970.) At or about the time the divorce was granted, Austin left for California and took up residence with Bertha, the first wife. From 1946 until 1948 Austin made trips back to Arkansas to visit Ida and the daughter. Then in July 1948 a second child, admittedly fathered by Austin, was born to Ida.

In early 1950 Austin, in order to provide better accommodations for Ida and the two daughters, purchased a forty acre farm in Faulkner County, Arkansas. The deed was made to Austin and Ida, as husband and wife. (Austin says the deed was executed after he left Arkansas and that it was Ida who had her name placed on the deed.) Austin and Bertha, working for the same employer in California as chauffeur and housekeeper respectively, married again in 1950. It should be said, and to Austin’s credit, that through all the years and until the last daughter was married, he sent money regularly to help support Ida and the two daughters.

In September 1957 Austin procured >a deed to the forty acres from Ida. The property was deeded to a third party and then back to Austin (Ida said this deed was obtained by Austin representing that it was for tax purposes). In 1970 Austin asked Ida to surrender possession of the forty acres. Ida says she then became suspicious and consulted an attorney. They checked the records and learned for the first time, so she says, of the divorce of 1946. Thereupon this suit was filed to set aside the 1946 divorce, to grant a divorce to Ida, and to obtain a division of the forty acres. The chancellor held that Ida had knowledge of the 1946 divorce proceedings long before 1970 (when she filed her suit); the chancellor further held that the deed of 1957 to the forty acres was without consideration and that Ida and Austin were tenants in common, and ordered the acreage sold.

With respect to the 1946 divorce proceedings we are unable to say the findings of the chancellor were against the preponderance of the evidence. There was a waiver of service bearing the name of Ida Vaughn and she conceded that it appeared to be her signature. When the divorce was granted an article appeared in a local newspaper which recited the divorce and the date and place of marriage of the couple; Ida was living in the community. For a number of years monthly checks were sent from California drawn on the joint bank account of Bertha and Austin; sometimes those checks were signed only by Bertha. Ida’s two daughters learned of the divorce in their early teens and Ida made no investigation. In 1962 Ida wrote to Austin:

I am going to buy me an acre. . . .could never be content living in your and B [Bertha’s] house. . .she [Darlene,. the younger daughter] might find out she don’t have a legal name. . . .1 will never try to cause any trouble, and any time you all want this house just let me know. . . .The man [leasing agent] told me your and her deed not recorded. . . .

Then two months later Ida wrote to Austin:

Things can never be again as they once were. I will stay here if you want me to until the girls are grown and on their own, then I want to go away. . . .You don’t even like me any more. It is hard to live here on your place. . . .1 think that will be better for everyone.

In Maples v. Maples, 187 Ark. 127, 58 S.W. 2d 930 (1933) a divorce was obtained by the husband in 1917 through fraud. The wife, with knowledge of the divorce, waited until 1931 to attack it. This court held that “we feel constrained to hold that she waited too long.” The general rule requiring prompt action in attacking judgments for fraud, duress, accident, mistake, or surprise, was said in Maples to be equally applicable to decrees for divorce.

This brings us to a consideration of the point on cross-appeal, namely that the court erred in declaring Ida’s conveyance of her interest in the forty acres to fail for want of consideration. The chancellor found that ’’The evidence shows no consideration. The chancellor found that “the evidence shows no consideration for the conveyance divesting her of her half interest”. In that respect we find error. In Ferguson v. Haynes, 224 Ark. 342, 273 S.W. 2d 23 (1954) we said this: “Since a deed is a present grant rather than a promise to be performed in the future, no consideration is required.” To the same effect see Cannon v. Owens, 224 Ark. 614, 275 S.W. 2d 445 (1955).

Affirmed on appeal, reversed on cross-appeal.


author: John A. Fogleman, Justice.

text:
    Frank LOCKHART v. GENERAL MOTORS ACCEPTANCE CORPORATION
    5-5922
    481 S.W. 2d 350
    Opinion delivered June 19, 1972

      Lloyd R. Haynes, for appellant.

      Barber, Henry, Thurman, McCaskill ir Amsler, for appellee.
   John A. Fogleman, Justice.

Appellant contends that the court erred in holding that his installment sales contract with appellee was not void for usury. We find no error.

Appellant Lockhart purchased an automobile from Bale Chevrolet Company and executed his installment note and contract payable to GMAC. He obligated himself therein to pay the principal balance of the purchase price, $127 for property damage insurance coverage and finance charges equivalent to a full 10% per annum interest. The contract provided that in case the insurance on the vehicle was refused, GMAC could use the insurance premiums and purchase single interest insurance coverage, or could purchase such insurance at appellant’s expense, with interest. Appellant’s insurance was obtained but canceled about one month later, and he requested the return of the premium, after he was notified of the cancellation. His request was denied, and GMAC purchased single interest coverage, protecting itself only, and notified appellant that his payments were increased to cover the additional cost of the insurance. Lockhart then brought this suit to cancel the contract.

It was stipulated that appellee purchased the insurance only after it had made requests that Lockhart purchase other insurance. The cost of the new insurance was slightly in excess of the premium refund.

Appellant contends that the new insurance inured to the benefit of appellee only and that the agreement of appellant to pay for such insurance was the seed of usury which germinated when appellee used appellant’s funds for its own purposes. There is nothing to indicate that appellee had any security for the payment of the balance due it other than the automobile. Destruction of, or serious damage to, the vehicle would have deprived appellee of security for the debt. Not every charge made to the borrower which benefits the lender will render a transaction usurious simply because the interest rate is a full 10%, particularly if the charge is reasonable, is made in good faith and is reimbursement for a payment to a third person for something appropriate to establishing or protecting of the lender’s security. For instance, we have recognized the propriety of such charges as property inspection fees, expense of an abstract of title, title examination fees, insurance premiums paid a third party, recording fees, expense of obtaining a release of a prior lien, and title insurance premiums. Winston v. Personal Fianace Company of Pine Bluff, Inc., 220 Ark. 580, 249 S.W. 2d 315; Ragge v. Bryan, Receiver, 249 Ark. 164, 458 S.W. 2d 403; Harris v. Guaranty Financial Corporation, 244 Ark. 218, 424 S.W. 2d 355; United-Bilt Homes v. Teague, 245 Ark. 132, 432 S.W. 2d 1.

Of course, a different problem would be presented if there were any indication that the lender received anything of value over and above the actual expense of the particular item and the transaction was a cloak or a device for evasion of the usury statute. Since there is no such indication, the decree will be affirmed.


text:
    A. B. HERVEY Jr., Commissioner v. THE FARMS, Inc.
    5-5938
    481 S.W. 2d 348
    Opinion delivered June 19, 1972

      R. David Lewis, for appellant.
    No brief for appellee.
   John A. Fogleman, Justice.

Appellant says that the Grcuit Court of Baxter County erred in vacating a default judgment entered March 18, 1971, upon a garnishment purported to have been issued out of that court in a proceeding instituted by the filing of allegations and interrogatories only. The order vacating the judgment was entered on August 10, 1971, which was during the same term the judgment was entered. We find nothing in the record to indicate that any action was ever commenced in the Baxter Circuit Court. There is no record of any summons or writ of garnishment in the transcript or any statement or endorsement of the clerk that either was ever issued. The only evidence that any service of anything was had was the testimony of a deputy sheriff that he had served the complaint on Richard Morton as an officer of The Farms, Inc. One of the grounds of the motion of appellant to set aside the judgment was that there was no summons or return in the court file. Even if it were proper to conduct a garnishment proceeding as an independent action, there does not appear to have been any action pending in the Baxter Circuit Court. Ark. Stat. Ann. § 27-301 (Repl. 1962); Walters v. Burnett, 228 Ark. 1064, 312 S.W. 2d 344; Goodyear Tire & Rubber Co. v. Meyer, 209 Ark. 383, 191 S.W. 2d 826.

The issuance and service of a writ of garnishment summoning a garnishee to answer is a statutory requirement in any garnishment proceeding. Ark. Stat. Ann. §§ 31-501, 504 (Repl. 1962). Strict compliance with garnishment statutes and judicial process is essential to the validity of garnishment proceedings. Roach v. Henry, 186 Ark. 884, 56 S.W. 2d 577; Missouri Pac. R. Co. v. McLendon, 185 Ark. 204, 46 S.W. 2d 626; Schiele v. Dillard, 94 Ark. 277, 126 S.W. 835.

Appellant argues, however, that since appellee did not allege or prove any meritorious defense to the action the judgment could not be vacated. This might well be so in an action in which the court had jurisdiction of the subject matter. A garnishee cannot be held upon a garnishment when the court from which it is issued has no jurisdiction of the subject matter of the principal cause of action. S. A. Robertson & Co. v. Lewis Rich Const. Co., 151 Ark. 557, 237 S.W. 95. In this case, appellant states that the judgment on which the garnishment was based had been obtained in Garland County. In the absence of a statute providing otherwise, only the court in which the judgment was rendered has authority to issue a garnishment thereon. The McGehee Bank of McGehee v. Charles W. Greeson & Sons, 223 Ark. 18, 263 S.W. 2d 901. Arkansas Statutes Annotated § 31-513 (Repl. 1962) authorizes the issuance of a garnishment by the circuit court of one county to another county. We are not aware of any statute authorizing any other court to issue a garnishment after judgment. The question of jurisdiction of the subject matter is always open, cannot be waived and may be raised for the first time on appeal, even by this court. Catlett v. The Republican Party of Arkansas, 242 Ark. 283, 413 S.W. 2d 651; Risor, Admx. v. Brown, 244 Ark. 663, 426 S.W. 2d 810. See also, Arkansas Savings & Loan Assn. Bd. v. Corning Savings & Loan Assn., 252 Ark. 264, 478 S.W. 2d 431.

The judgment vacating the default judgment against appellee is affirmed.


author: J. Fred Jones, Justice.

text:
    Mary Alice MOORE v. ANTHONY-JONES LUMBER COMPANY
    5-5939
    481 S.W. 2d 707
    Opinion delivered June 19, 1972 .
    [Rehearing denied July 24, 1972.]

      Clifton Bond, for appellant.

      Dickey, Dickey if Drake, for appellee.
   J. Fred Jones, Justice.

This is an appeal by Mary Alice Moore from an adverse decree of the Calhoun County Chancery Court denying her petition to quiet title against Anthony-Jones Lumber Company to 20 acres of Calhoun County land.

Mrs. Moore originally held title to the land through a deed obtained from her father in 1921. In 1931 she mortgaged the land to the Calhoun County Bank to secure a loan in the principal amount of $193. Upon default in the payment of the loan, the bank foreclosed the mortgage on the 20 acre tract and purchased it at a foreclosure sale for the amount of the indebtedness then against it in the total amount of $196. A commissioner’s deed dated May 21, 19S4, was made to the bank and recorded in the deed records of Calhoun County. On October 14, 1941, the bank sold the land to the appellee, Anthony-Jones Lumber Company, and transferred title to the company by warranty deed which was recorded.

Mrs. Moore, after setting out the above facts in her petition to quiet title, alleged that 10 acres of the land involved is enclosed in fence and has been in cultivation by her for more than seven years, and that the other 10 acres is unenclosed timberland from which she has cut and removed saw logs and pulpwood and over which she has exercised all the rights of possession and control for more than seven years. By amendment to her petition Mrs. Moore alleged that she had cultivated the 10 acres under fence each and every year after she acquired it in 1921 until 1965, and that she had cut pulpwood from the land in 1932, 1941 and 1956.

The chancellor held that Mrs. Moore had failed to prove title by adverse possession and on her appeal to this court Mrs. Moore relies on the following point for reversal:

“A mortgagor who retains possession of a parcel of land for a period of more than seven years after a formal mortgage foreclosure proceeding by a mortgage and is not ejected from actual physical possession of the land by the mortgagee can maintain a suit to quiet title by reason of adverse possession against a mortgagee or its vendee.”

Mrs. Moore’s right to maintain a suit to quiet title by reason of adverse possession is not questioned. The question is whether she sustained her burden of proving such adverse possession as would entitle her to a favorable decree, and we agree with the chancellor that she did not. Mrs. Moore testified at the trial that after the foreclosure and sale to the bank in 1934, she continued to farm the land enclosed by fence until 1963 when somebody “stole the fence.” She testified that there were 63 acres in her entire farm under fence and that about 10 acres of the mortgaged land was inside the fence enclosing the 63 acres. She testified that she and her husband and sons cut timber from the land involved to build fences, and for posts and firewood. She testified that her husband, Clayton Moore, died in 1964, and that prior to his death someone would cut the wire fence and pull it down as fast as Mr. Moore would put up new wire. She said she last saw a fence on the property in 1964, and did not know who moved the fence. She testified that she paid taxes on the land until it was sold under the foreclosure decree but has paid no taxes on the property since then. She denied any knowledge of the Anthony-Jones Lumber Company cutting timber from the land in 1969, but she admits that she saw red paint on the trees when she lived on the land but does not know who put the paint on the trees.

Chester Wood, a second cousin of Mrs. Moore, testified that Mrs. Moore continued to farm the 20 acres and that Mr. Moore cut timber from the land before his death, but does not know what he did with the timber. He testified that some of the old fence posts are still standing and that part of the fence has been pulled down but he does not know who pulled it down or how long it has been down. This witness also testified to the red paint on trees as well as white paint marking boundary lines. He said, however, he did not know who put the paint on the trees or how long it had been there.

William Wood, another cousin of Mrs. Moore, also testified that he was familiar with the 20 acres involved; that a portion of the 20 acres was farmland and a portion was woodland, but he does not know how much was farmland and how much was woodland. He also testified that some of the land was farmed by the Moores until 1963 and that they also cut some timber from the land. He testified that he was on the land about a month ago; that the fence is now down and the land is grown up in trees and brush. He said that he had also seen red paint on trees but had never noticed the paint marks until about a month before he testified.

Mr. I. W. Guthrie, the county surveyor of adjoining Drew County, testified that he surveyed the 20 acres involved at the request of Mrs. Moore; that 11.86 acres of the land involved lies north of the old fence and 8.14 acres lies south of it. He testified that the land south of the fence is timberland and the land north of the fence had a stand of young pine but had formerly been farmland. He testified that the young timber he observed was probably 10 or 12 years old.

Mr. Cecil Nutt, a land surveyor and timber cruiser for the Bearden Lumber Co., testified for the appellee, Anthony-Jones Lumber Company, that he is familiar with the 20 acres involved and that in 1944 he “spotted” some of the timber on the involved land to be cut by the lumber company. He said that the involved land had been under the company’s selective cutting improvement program; that he ran the land lines in 1955 and marked the lines with paint. He testified that the company cut piling umber from the land in 1959, and that in spotting the umber to be cut they used red paint in 1955 and 1969. He testified that he had been on the land a number of times and had never seen anyone on the land or anything growing on it except grass, trees and brush. He testified that from 194B to 1971 the company kept the land torn up pretty well all the time in their logging operations, and that he did not see Mary Alice Moore on the land He testified that there were young pine trees on the previously cultivated land and that the trees were 12 to 15 years old. He testified that in 1946 someone, other than the company, did cut timber from the land and that upon his inquiry of Mrs. Moore, she denied knowing anything about timber being cut and denied that her husband cut timber from the land. He said that Mrs. Moore never did indicate to him that she claimed any interest in the land. This witness testified that he paid the taxes on the land for Anthony-Jones Lumber Company from 1947 to 1965, and that Mr. Ed Anthony and Bearden Lumber. Co. paid the taxes after 1965. He testified that he had never seen a house on the property involved.

Mr. Neal Buzbee, a block forester who spots timber and scales logs for Anthony-Jones Lumber Company, testified that he first saw the land involved in 1947 when he helped in surveying the boundary lines. He said he helped cut timber from the land in 1966, and that in 1969 the company cut 92,000 feet of pine and 7,000 feet of hardwood from a 60 acre tract it owned which included the 20 acres involved in this case. He testified that he had never seen anyone cutting timber from the land except Anthony-Jones Lumber Company. He testified that he had never seen Mrs. Moore on the property and that no one had ever made claim of ownership to him adverse to the lumber company. He testified that most of the fence on the property was down in 1947. He testified that the company had cut no timber from the land since 1969, but had done so prior to 1969. He testified positively that none of the land was farmed after 1947 but that he does not know what it was used for before that. This witness also testified that he had never seen a house of any kind on the property.

We agree with appellant as to the interpretation and applicability of the statutory and case law cited in her brief, but we agree with the appellee that when the law is applied to the evidence in this case, the chancellor’s decree is not against the preponderance of the evidence. The law is well settled in this state that in order for adverse possession to ripen into ownership, possession for seven years must be actual, open, notorious, continuous, hostile, exclusive, and it must be accompanied with an intent to hold against the true owner. Stricker v. Britt, 203 Ark. 197, 157 S.W. 2d 18. To constitute such adverse possession there must be such continuous visible and notorious acts of ownership exercised over the premises for the time limited by the statute, that the owner of the paper title would have knowledge of the fact, or his knowledge may be presumed as a fact. Possession which is so open, visible and notorious as to give the owner constructive notice of an adverse claim need not be manifested in any particular manner, but there must be such physical evidence thereof as would reasonably indicate to the owner, if he visits the premises and is a man of ordinary prudence, that a claim of ownership adverse to his is being asserted. Wallace v. Ayres, Excx., 228 Ark. 1007, 311 S.W. 2d 758.

We agree with Mrs. Moore’s contention that:

“A mortgagor who retains possession of a parcel of land for a period of more than seven years after a formal mortgage foreclosure proceeding by a mortgagee and is not ejected from actual physical possession of the land by the mortgagee can maintain a suit to quiet title by reason of adverse possession against a mortgagee or its vendee.”

But even so, such original owner who retains possession still has the burden of proving continuous possession and the adverse nature thereof in a suit to quiet title by reason of adverse possession. Mrs. Moore cites no Arkansas case on this particular point, but in 38 A.L.R. 2d, [a], p. 349, is found the following:

“In the majority of the cases in which the question has arisen it had been recognized that the mere sale of property upon foreclosure of a mortgage does not in itself so affect the possession of the mortgagor or his successor in interest as to render it adverse to the purchaser or his grantee.”

See also Bradshaw v. Darby, 201 Ark. 670, 146 S.W. 2d 547, and the 1953 Kentucky case of Justice v. Graham, 246 S.W. 2d 135.

We conclude that the chancellor’s finding was not against the preponderance of the evidence in this case and that the chancellor’s decree must be affirmed.

Affirmed.


text:
    Juanita L. BLACK v. DeWitt T. JOHNSON
    5-5951
    481 S.W. 2d 701
    Opinion delivered June 19, 1972

      Haskins & Larrison, for appellant.

      Moses, McClellan, Arnold, Owen ¿r McDermott, for appellee.
   J. Fred Jones, Justice.

This is an appeal by Juanita L. Black from a judgment of the Pulaski County Circuit Court based on a jury verdict in favor of DeWitt T. Johnson in a personal injury suit brought by Mrs. Black against Mr. Johnson growing out of an automobile collision.

On her appeal to this court Mrs. Black relies on the following points for reversal:

“The verdict of the jury was not supported by substantial evidence.
The Court erred in failing to grant the plaintiff’s motion for new trial on the grounds of newly discovered evidence.
The court erred in failing to grant the plaintiff’s motion for new trial on the grounds of surprise at the tíme of trial.”

The record reveals the following facts: On September 12, 1968, Mrs. Black was driving her automobile east on 25th Street in the City of Little Rock, and a westbound dty bus had stopped on the north side of 25th Street at the Lewis Street intersection. As Mrs. Black drove her automobile across Lewis Street and past the bus, Mr. Johnson was driving his automobile into 25th Street from a private driveway on the north side of 25th Street approximately 75 or 80 feet east of the curb line of Lewis Street, and his automobile collided with the one driven by Mrs. Black.

Mrs. Black alleged in her complaint that Mr. Johnson was negligent in failing to yield the right-of-way, in failing to keep a proper lookout, in failing to keep his vehicle under proper control and as a result of such negligence she sustained injuries to her cervical, dorsal and lumbar spine, as well as an aggravation and acceleration of degenerative disc disease, to her damage in the amount of $38,000, and sustained damage to her automobile in the amount of $200. Mr. Johnson answered with a general denial and alleged that any damage sustained by Mrs. Black was occasioned by her own negligence in failure to yield the right-of-way, failure to keep her vehicle under control, failure to keep a proper lookout and failure to operate her vehicle at the proper rate of speed under the circumstances.

Under Mrs. Black’s first point she apparently recognizes the well established rule that if there is any substantial evidence to sustain the jury verdict, we must affirm the judgment rendered thereon. Mr. T. A. Owen testified that at the time of the collision he investigated the accident. He testified that 25th Street was 26 feet wide and that he determined, from the debris on the street, that the point of impact between the two vehicles was 19 feet south of the north curb of 25 th Street, and approximately 79 feet east of the east curb of Lewis Street. He said that Mr. Johnson stated to him that he was traveling between five and eight miles an hour coming out of the driveway into the street when the collision occurred; that Mrs. Black’s automobile had traveled some distance up the street from where he determined the point of impact had occurred, and that he does not remember where Mr. Johnson’s automobile was following the accident. He testified that Mrs. Black stated she was going 20 miles per hour and he found no skid marks behind either automobile. He testified that Mr. Johnson’s automobile was damaged on the right front and that the debris he noticed consisted of a piece of chrome from an automobile and dirt covering an area approximately two feet wide and six feet long.

Mrs. Black testified that she was going east on 25th Street and then testified in part as follows:

“A. * * * There was a bus stopped on Lewis there and I didn’t know whether they were loading or unloading school children because it was about Seven Thirty in the morning, and I had slowed up and I got almost passed the bus and I glanced and saw Mr. Johnson coming out of his driveway, headed north and I tried to speed up a little bit, but I didn’t make it and he hit the left side of my Rambler on the back door and dented it to where I had to have it repaired, tore the chrome off.
Q. Mrs. Black, did you have an opportunity to do anything to avoid this accident?
A. Nothing only I tried to speed up a little bit and I didn’t make it. I wasn’t going very fast.”

Mrs. Black testified that it cost $146 to have her automobile repaired; that by the time she got her automobile stopped she was very nervous but didn’t feel any pain at that time. She said she went to Dr. Lohstoeter four days after the collision and at that time was having pain in her low back and was having terrible headaches. She testified that she continued to return to Dr. Lohstoeter at intervals for almost a year and although the collision occurred almost three years ago, she still has difficulty which is growing worse as far as her nerves, legs and back are concerned; that she still has pain in her neck and still has headaches.

On direct examiniation Mrs. Black testified as to medical bills she had been out since the injuries and also testified as to an estimate made of her automobile damage in the amount of $146.60 which she paid for the repair of her automobile.

On cross-examination Mrs. Black testified that prior to the accident she had been going to Dr. Ogden for treatment since 1962 and had been receiving shots for her spine from Dr. Ogden from about 1967. She said that these shots given her by Dr. Ogden were for relaxing her muscles and that she had been going to see him immediately prior to the accident.

“Q. But you didn’t go to see him after this accident?
A. No, because it was an orthopedic job, he’s no orthopedic, he’s just an M.D. and surgeon.
Q. Okay. But he had been treating you for the back problem?
A. He gave me shots in my spine to relax the muscles.
Q. Since 1967?
A. I’m not taking them now.
Q. Okay, but from 1967, up until the time of the accident?
A. Along in there, in ‘67 for about six months, he gave me shots in my spine to relax the muscles. I hadn’t been to him since. Is that clear, is that what you wanted to know.”

On cross-examination Mrs. Black testified that she gave a check for repairs; that she did not have the canceled check with her and did not sign a ticket. She testified that the automobile was repaired about three days after the accident. She then identified her signature on a ticket from Twin City Rambler, Inc. dated September 13, 1968, in the amount of $30.02 representing labor in the amount of $21 for painting left rear door and quarter panel. She testified, however, that this ticket, although dated the day following the accident, was not for repair of the damage occasioned in the collision, and that she does not know where that ticket came from. She testified that she had surgery on her back consisting of a laminectomy in 1940 or 1942 and had a myelogram in the Missouri Pacific Hospital in 1962. She said that she had been in Missouri Pacific Hospital two or three times for pain in both legs since 1962 and had continued taking spinal injections from Dr. Ogden from 1962 up until the time of the collision.

Mrs. Black testified on cross-examination that she did not know how fast Mr. Johnson’s automobile was moving at the time of the collision, she then testified on cross-examination as follows:

“Q. You didn’t leave any skid marks in the street??
A. I didn’t skid any.
Q. You didn’t even put on your brakes?
A. Yes, I did.
Q. Before the accident?
A No, sir, I tried to get out of the way of him.
Q. You stepped on the gas?
A. I did.
Q. You didn’t try to stop.
A. I did stop as soon as he hit me.

Mr. Doyle Blackburn testified that he was the owner and manager of the Twin City Rambler, Inc. He testified that he had searched the records concerning repairs to Mrs. Black’s automobile for the month of September, 1968, and found only the one bill which was the bill already referred to and offered in evidence as defendant’s exhibit No. 1. The record on this point shows as follows:

“MR. BAKER: Your Honor, offer Defendant’s Exhibit 1.
MR. LARRISON: No objection.
THE COURT: Received.
MR. BAKER: That’s all I have.”

On cross-examination Mr. Blackburn testified that in many instances an estimate of damage to an automobile is made in one amount and, all the repairs may. not be made and paid for at the same time. According to Mr. Blackburn the estimate of damage and cost of repairs were made on September 12, 1968, in the amount of $146. The repair bill was dated the following day in the amount of $30.02 and the bill was paid four days later on September 17, 1968.

Dr. John Lohstoeter testified as to a change in the normal curvature of Mrs. Black’s cervical spine which he attributed to the accident, and also concluded that Mrs. Black had some aggravation in the lumbar spine where she had previously had a laminectomy.

Mr. Johnson testified that on the day of the accident he had gone to Mrs. Atchley’s house to pick her up to baby-sit for his wife. He said that he backed his automobile into the Atchley driveway on the north side of 25th Street and as he started to leave he stopped his automobile with its front end in 25th Street and waited for a pickup truck to pass on 25th Street. He testified that he was still stopped with the rear portion of his automobile still in the Atchley driveway when Mrs. Black drove her automobile into his automobile. He said he does no believe his automobile extended to Mrs. Black’s proper side of the street at all when Mrs. Black struck his automobile. He testified that the damage was very light to both automobiles. Mr. Johnson testified on cross-examination that his automobile was completely stopped when the collision occurred and that he did not tell the police officer otherwise. He testified that his automobile was completely in his westbound lane of 25th Street when the accident occurred He said there is no center line marked on 25th Street and that he does not believe any part of his automobile was across the center of the street. Mr. Johnson testified that the bus was stopped in the westbound lane of 25 th Street at the intersection of 25th and Lewis Streets. He said he did not know exactly how far the bus was from his automobile at the time of the collision, but he estimated that it was about two or three car lengths from the Atchley driveway.

Mrs. Myrtle Atchley, the passenger in Mr. Johnson’s automobile, corroborated Mr. Johnson’s testimony that the Johnson automobile was stopped when the accident occurred She also testified that Mr. Johnson’s automobile had not crossed the center of the street when the collision occurred. She testified that she was still drinking some coffee she brought from her house when the collision occurred and that the collision impact was not severe enough to cause her to spill the coffee from the cup.

We are of the opinion that there is substantial evidence in the form of Mrs. Black’s own testimony from which the jury could have found that when Mrs. Black observed the Johnson automobile coming out into the street from the private driveway, and instead of slowing down, stopping, or yielding the right-of-way to the Johnson vehicle, she negligently accelerated her speed in an effort to pass in front of Mr. Johnson before he temporarily blocked her passage, and that she thereby collided with the Johnson automobile. From the testimony of Mr. Johnson and Mrs. Atchley the jury could have found that the Johnson vehicle was completely stopped on its side of the street and that Mrs. Black negligently ran into it.

As to Mrs. Black’s second and third points, in support of her motion for a new trial she presented the affidavit of Mr. John Lanier, the bodyshop foreman for Twin City Rambler, Inc., who stated that Mr. Black brought his automobile to Twin City Rambler, Inc. for repairs on September 12, and that he prepared the estimate for Mr. Black which was offered in evidence as plaintiff’s exhibit A. He stated that Mr. Black needed the automobile repaired as soon as possible and that he took the automobile to his home and repaired it over the weekend of September 14 and had the damaged area painted at Twin City Rambler, Inc. He stated in his affidavit that the painting and one body side molding were all that were billed through Twin City Rambler, Inc. since the work was performed on the automobile in his off time. He stated that Mr. Black paid him by check in the amount of $146.61 which was the amount stated in the original estimate, and that of this amount approximately $30 was paid to Twin City Rambler, Inc. for the work performed at Twin City Rambler, Inc.

Mrs. Black contends that the court erred in not granting a new trial on this newly discovered evidence. Ark. Stat. Ann. § 27-1901 (Repl. 1962) provides as follows:

“A new trial is a re-examination in the same court of an issue of fact after a verdict by a jury or a decision by the court. The former verdict or decision may be vacated and a new trial granted, on the application of the party aggrieved, for any of the following causes, affecting materially the substantial rights of such party:
# # #
Third. Accident or surprise which ordinary prudence could not have guarded against.
* * *
Seventh. Newly discovered evidence, material for the party applying, which he could not, with reasonable diligence, have discovered and produced at the trial.”

In Sellers v. Harvey, 220 Ark. 541, 249 S.W. 2d 120 (1952) we said:

“This court has consistently applied the following rules in considering an application for a new trial on the ground of newly discovered evidence under the seventh sub-division of Ark. Stats., § 27-1901: First, the testimony must have been discovered since the trial; second, it must appear that the new testimony could not have been obtained with reasonable diligence on the former trial; third, it must be material to the issue; fourth, it must go to the merits of the case, and not to impeach the character of a former witness; fifth, it must not be cumulative. John Robins v. Absalom Fowler, 2 Ark. 133; Mo. Pac. Transportation Co. v. Simon, 200 Ark. 430, 140 S.W. 2d 129.
Another settled rule is that the motion is addressed to the sound discretion of the court and this court will not reverse for failure to grant it unless an abuse of such discretion is shown. Forsgren v. Massey, 185 Ark. 90, 46 S.W. 2d 20.”

We are of the opinion, therefore, that the trial court did not abuse its discretion in refusing to grant a new trial. A full explanation of the repair bills was available to Mrs. Black at the time of the trial. On direct examination Mrs. Black placed in evidence the repair estimate in the amount of $146.61 and testified that she paid this amount by check. She was not in a position to claim surprise when she was cross-examined on this item and rebuttal evidence was offered without objections. Furthermore, it is clear from Mr. Blackburn’s testimony that a part of the repair bill could have been paid at one time and a part at another. Mrs. Black testified that she drove the damaged automobile down to the garage following the collision and then went to her attorney’s office. She testified:

“A. I put my car in the garage, yes, sir.
Q. At the Twin City American Rambler?
A Yes, sir, at Fourth and Cross.
Q. Did they repair it that day?
A. No, sir.
Q. The next day?
A. It was about three days later.
Q. Three days before you got it back?
A Yes, sir.
Q. Was all the damage that was done repaired?
A Yes, sir.
Q. Do you remember signing a ticket out there?
A Out where?
Q. Out at the Twin City American where you car was repaired?
Q. When I gave them the check, I didn’t sign no ticket.
Q. You gave them a check?
A Yes, sir.
Q. Do you have that with you here today?
A No, I do not.”

It should not be overlooked that Mr. Black also testified immediately following the testimony of Mrs. Black and although the affidavit of Mr. Lanier indicates that the entire transaction concerning repair to the automobile was had with Mr. Fred B. Black, Mr. Black made no effort to clear up any discrepancy in Mrs. Black’s testimony concerning the repair of the automobile.

We conclude, therefore, that the appellant’s second and third points are without merit.

The judgment is affirmed.


author: Frank Holt, Justice.

text:
    ARKANSAS WESTERN GAS CO. v. Paul F. KELLER and Nelwyn KELLER
    5-5929
    481 S.W. 2d 358
    Opinion delivered June 19, 1972

      Ben C. Henley, for appellant

      Fitton, Meadows & Adams, for appellees
   Frank Holt, Justice.

The appellant, as lessee, sought to cancel a lease. The trial court, sitting as a jury, found that the lease was automatically extended for an additional year. For reversal, appellant contends that the court’s findings are contrary to the law; that the court erred in its findings that the agreement automatically extended itself upon failure of appellant to give written notice; and that appellant was entitled to mitigation of damages. Appellant consolidates its contentions for argument.

On February 6, 1959, appellant and appellees’ predecessor in title entered into a written agreement whereby appellant was granted the right to introduce natural gas for storage purposes into the geological strata underlying the lessor’s land. The lease provided for successive one-year extensions. These were exercised until 1971 when appellant failed to pay on the due date (February 6) the agreed annual rental of $540. On February 17, 1971, appellant made a written demand for payment. February 26, 1971, appellant wrote appellees that it was releasing the property and cancelling the lease.

The lease in pertinent part provides:

“TO HAVE AND TO HOLD the same unto Company, its successors and assigns, with the right and option, for the payment herein referred to, to extend said term of one year for additional successive periods of one year, each thereafter subject, however, to the following covenants and provisions:
(1) Unless Company shall notify Owner in writing on or before the expiration of the original term or any additional extended one year period thereafter, that it does not elect to extend this Agreement, this agreement including all its terms, provisions and covenants shall be automatically extended for an additional period of one year, for which one year extension Company shall pay Five Hundred Forty Dollars ($540.00) to Owner. Such payment shall be made prior to the beginning of any one year term for which this agreement may be extended; provided however, that should Company fail to make such payment for such extension when it is payable as aforesaid and in the event Company has not notified Owner in writing of its desire not to extend the agreement, this agreement will nevertheless be automatically extended for one year period unless Owner has notified Company in writing that Owner has not received said payment and Company shall have failed to make such payment to Owner within 30 days after receipt of such notice. Where payment for a year’s extension of this agreement is not made when first payable as aforesaid and Company fails for any reason to make payment within 30 days of receipt of written notice of such failure, Owner shall, at its election, have the right to cancel this agreement and re-enter into full possession of the premises herein described.”

Appellant asserts that since the lease is a year-to-year tenancy it provides a privilege in appellant to extend the lease for successive annual periods; and that to exercise the privilege appellant had to (1) pay the rent and (2) keep possession of the property. We do not agree. The explicit language of the lease agreement provides for an automatic extension unless the lessee notifies the lessor in writing of its desire to terminate the lease “on or before the expiration of the original term or any additional extended one year” term. Therefore, appellant’s failure to give termination notice on or before February 6, 1971, is tantamount to a proposal by the lessee to continue the lease for an additional year. See 50 Am. Jur. 2d, Landlord and Tenant, §.1181, and 172 A.L.R. 1205 and 1239.

We find no merit in appellant’s assertion that appellees’ exclusive remedy was to give notice and retake possession of the property. The terms of the lease agreement granted the appellees the option to cancel the lease and re-enter into full possession of the property. Appellees’ election not to cancel and take possession but to continue the lease in accordance with its terms and conditions entitles the appellees to the full payment of the year’s rent.

Affirmed.