text:
    Leonard v. State ex rel. Attorney General.
    4-2668
    Opinion delivered June 6, 1932.

      Arthur G. Frankel, for appellant.

      Carl E. Bailey, Hal L. Norwood, Attorney General, and Walter L. Pope, Assistant, for appelleé.

      Rose, Hemingway, Cantrell'S Loughborough, Charles B. Thweatt and Robinson, House S Moses, amici curiae.

   McHaney, J.

The State of Arkansas, on the relation of her Attorney General, Hal L. Norwood, brought this action against appellants, Boy Leonard, State Treasurer, and Oscar Humphrey, State Auditor, to enjoin the Auditor from issuing State warrants on certain vouchers of the State Highway Commission, and the Treasurer from paying such warrants, on a complaint as follows: ‘ ‘ That during the years 1930, 1931 and 1932 the Arkansas State Highway Commission entered into purported agreements with certain contractors to build and repair certain State highways in the State of Arkansas; that said purported agreements consisted of propositions made by contractors to the chief engineer, or the chairman of the Arkansas State Highway Commission, in which the contractor proposed to do certain work and furnish certain material at unit prices set up and described in said propositions. That said propositions were accepted by a notation at the foot thereof in these words, ‘Accepted, Arkansas State Highway Commission, by Dwight H. Blackwood’, the said Dwight H. Blackwood being the chairman of the Arkansas State Highway Commission. Said propositions were duly filed in the office of the State Highway Commission and are now on file in the office of said Commission. A copy of said purported agreement is filed herewith, marked Exhibit A and made a part of this complaint.

“Plaintiff further states that during said years of 1930, 1931 and 1932, the said Arkansas State Highway Commission entered into other purported agreements whereby certain contractors were engaged to build and repair certain State highways in the State of Arkansas, and in which propositions said contractors agreed to furnish .on a rental basis certain equipment for unloading and storing materials, manufacturing and transporting, laying and rolling paving mixture together with the required materials, labor, fuel, lubricants, repairs, hand tools, barricades, and lights and other necessary materials and equipment, and in which propositions said contractors offered said equipment to the Arkansas State Highway Commission upon a rental basis of a certain amount per calendar day. In such propositions said contractors also agreed to furnish necessary labor and materials at actual cost to the contractor plus fifteen per cent. Said purported agreements, or contracts, provided further that the cost of paving mixture laid on the road would not exceed a certain amount per ton. Such propositions were accepted by the following notation at the foot thereof, ‘Accepted, Arkansas State Highway Commission, by D. H. Blackwood, Chairman. ’ Said propositions were duly filed in the office of the State Highway Commission and are now on file in said Commission, a copy of this proposition is filed herewith and marked Exhibit B and made a part of this complaint.

“Plaintiff states that the defendants, Roy Leonard, as State Treasurer, and Oscar Humphrey, as State Auditor, are charged with notice that the said purported contracts have been entered into by the Arkansas State Highway Commission and all of the contractors who have been working under such agreements.

‘ ‘ Plaintiff further states that neither of said propositions was advertised as required by law, or at all, and neither of said purported contracts was let on competitive bidding, and each proposition called for payment by the State of more than one thousand dollars.

“That each of said purported contracts requires the payment by the Arkansas State Highway Commission out of funds belonging to the State of Arkansas of labor and material and rental that are in excess of the actual cost and value thereof.

“Plaintiff further states that the Arkansas State Highway Commission has issued vouchers to said contractors for payment of amounts alleged to be due upon the basis of unit prices, rental prices and cost plus prices mentioned in said propositions; that said vouchers, issued in payment of amounts for alleged unit prices as set out in said contracts, of which Exhibit A is an example, are in excess of the actual cost and value of labor, equipment and materials used, and that said vouchers, issued in payment of amounts for rental of equipment though issued for the designated rental in said contracts, are in excess of the actual rental value of such equipment, and that said vouchers issued in payment of amounts claimed to be due the contractors under the form of contract represented by Exhibit B, are fifteen per cent, in excess of the cost of labor and materials, and, although said vouchers do not exceed in amount the maximum guarantee mentioned in said proportions, they do exceed the actual cost of material, rental, labor, repairs, fuel and freights and superintendence of work.

“Plaintiff states that said purported agreements entered into between said contractors and said State Highway Commission are null and void, and that the vouchers issued to said contractors are null and void.

‘ ‘ That said vouchers will be presented to the Auditor of State and demands made upon him for the issuance of warrants upon the State Treasury, and that, unless restrained, the State Auditor will issue warrants upon the State Treasury for the amounts mentioned, and, unless restrained, the State Treasurer will pay the money of the State of Arkansas to the holders of said warrants, and the State of Arkansas will have to suffer great and irreparable damages.

“Wherefore plaintiff prays that the defendants be restrained from issuing and paying warrants that have been, or may be in the future, issued by the State Highway Commission upon the kind of contracts herein set out, and that plaintiff have any and all other proper and equitable relief.”

Exhibit A mentioned in the complaint consists of a form of proposal made by contractors to the State Highway Commission, hereinafter referred to as the Commission, and, omitting formalities, is as follows: “We will remove dust and dirt from existing road surface, true up old base with additional gravel where needed (State Highway Commission to furnish said gravel on the road); then furnish and apply a prime coat of cut-back asphalt át the rate of one-half gallon per square yard, then blade, shape and roll the surface. When the surface is bonded and set, we will furnish and apply an application of hot asphalt averaging one-half gallon per square yard, furnish and apply and roll a covering of pea gravel. The gravel to be furnished and applied by us at the rate of thirty-five pounds per square yard.

“For the above work and materials furnished, we shall be paid the sum of twenty-seven cents per square yard.

“When additional gravel is added to bring up this base, the one-half gallon application of cut-back prime coat will not be sufficient to bond and incorporate the loose gravel with the old base, and where the additional amount of cut-back asphalt is needed and required, we will furnish and apply same as directed by your representatives.

“For all cut-back asphalt furnished and applied in excess of one-half gallon per square yard, we shall receive nine cents per gallon.” Such proposals were accepted as follows: “Accepted; Arkansas Highway Commission, by Dwight H. Blackwood.” Such contracts were those referred to as having been made on a unit basis.

Exhibit B, mentioned in the complaint, being the form of proposal made by contractors on the rental and the cost plus basis, follows: “We beg to submit, for your consideration, the following proposition for furnishing on a rental basis the necessary equipment, completely installed at our expense, for unloading and storing materials, manufacturing and transporting, laying and rolling the paving mixture, together with the required materials, labor, fuel, lubricants, repairs, hand tools, barricades and lights.

“We will furnish the following equipment completely installed on the job in first class working condition:

“One asphalt mixing plant, complete with power, having a capacity of not less than 150 tons paving mixture per ten-hour day.

‘ ‘ One 10-ton 3-wheeled roller, steam powered;

“One 8- or 10-ton tandem roller, steam powered;

“One 2-car capacity asphalt storage tank, equipped with steam coils for heating;

‘ ‘ One 1-car capacity fuel oil storage tank;

“One asphalt pump with all necessary connections;

“One fuel oil pump, with all necessary connections;

“One- clam shell outfit for unloading and handling materials.

“All necessary hand tools for operating asphalt plant and laying asphalt surface on the road.

“All necessary forms and steel pins for laying asphalt surface on road.

“All necessary trucks, equipped with steel bodies and hydraulic hoists for transporting paving mixture from the asphalt plant to the line of work.

“All necessary trucks for moving forms, transporting labor, fuel, water, etc., to all points along line of work.

“All necessary automobiles to transport superintendent and foreman over the line of work.

“All necessary barricades, light and danger signs, necessary to protect the public and employees while the work is in progress.

“We will also furnish all necessary fuel, lubricants, oils, gasoline and tires, necessary for the satisfactory operation of all equipment and trucks.

“We will also make promptly and pay for all necessary repairs on all equipment and tools furnished.

“For the above the Arkansas Highway Commission shall pay us as a rental the sum of $500 per calendar day, rental to start when above equipment arrives on the job.

‘ ‘ The Commission may reserve and have the right at its option to take over said equipment, or any other equipment furnished for the work, at a price represented by the difference in its agreed value, plus six per cent, interest for the period used, less the amount of rental paid to the date of exercising said option.

“In case the Commission desires us to furnish additional equipment on the work, we will do so at an agreed rental, or the commission may furnish such additional equipment as it may desire.

“We agree to furnish the Commission a list of all equipment furnished with the type, capacity and condition set out with an agreed appraisal of value set out for each unit furnished.

“We further agree to furnish all necessary labor and materials to manufacture, transport and lay the asphalt paving mixture at actual cost to us, plus fifteen per cent.

“Original invoices, freight bills and payroll sheets shall determine the labor and material costs.

“Figuring on the above basis, we guarantee the cost of Amiesite paving mixture per ton laid on the road will not exceed $11.94.

“Should the work be delayed by bad weather, or other conditions, and if, in the opinion of the Commission or its chief engineer, the rental set out, together with the cost of materials and labor, will exceed our estimate of $11.94 per ton for paving mixture in place, they can pay said rental, including labor, materials, repairs, fuel and freights, in an amount equal to $11.94 per ton for the asphalt paving mixture actually laid as full compensation to us.

“For any labor, or materials, or work that the Commission may desire or require in addition to the unloading of materials, manufacture, transport and laying the asphalt paving mixture, we will furnish same for actual cost, plus fifteen per cent.

“Payment for equipment rental, labor and materials furnished shall be due and payable on or about March 1, 1931, and monthly or semi-monthly thereafter.”

A like acceptance was made to this form of contract.

To this complaint appellants interposed a general demurrer, which was overruled by the court. They declined to plead further, and a decree was entered enjoining them from issuing and paying warrants on vouchers issued by the commission pursuant to such contracts which were not advertised as required by law and which involved the payment by the State of more than $1,000, and which were not let on competitive bidding, or were based on a unit price or on a cost plus basis. This appeal followed.

The complaint alleges, and the demurrer admits, that during the years 1930, 1931 and 1932 the Commission entered into purported contracts with various persons not named to build and repair certain State highways on a basis of cost to the State at unit prices, and also entered into purported contracts with various persons not named for the same purpose on a rental and a cost plus basis, in which the cost of laying the paving mixture should not exceed a certain amount per ton; that said purported contracts were not signed or executed by the Commission as required by law, but in its name by its chairman only; that neither of said proposals or purported contracts was advertised as required by law, or at all, and that neither was let on competitive bidding, and that each called for payment by the State of more than $1,000. It was further alleged that vouchers had been issued by the Commission to such contractors in payment of amounts alleged to be due thereunder which are in excess of the cost of the material, labor and rental value of equipment.

Appellants seek to reverse the judgment on the ground that the Commission has and had the power and authority to enter into the contracts referred to in the complaint, such power and authority being expressly conferred or necessarily implied. On the other hand, the State, by her Attorney General, contends that such contracts are null and void, not merely voidable, for these reasons: 1st, that they were not advertised as required by law; 2d, that they were not let on competitive bids to the lowest responsible bidder; 3d, that they were not signed and executed as required by law by three members of the Commission and attested by the secretary ; and, 4th, that the vouchers issued on such contracts are in excess of cost of labor and material and of rental value of equipment. Three excellent and persuasive briefs have been filed by counsel, amici curiae, who seek a reversal and dismissal of the judgment principally on the ground that there is a defect of necessary parties defendant — the holders of vouchers issued by the Commission, of more than 3,000 in number of vouchers, it is stated — and on the further ground that the Commission had the power it assumed to exercise and properly exercised it, and that, even though the contracts mentioned be held void, the contractors should not be precluded from setting up whatever rights they may have based on quantum meruit.

The only question presented by this appeal, the only one urged by appellants, and the only one we do decide, is the validity of the contracts mentioned in the bill of complaint. We now proceed to a determination of that question.

The latest act of the Legislature prescribing the general duties and limiting the powers of the Commission is act 65, Acts 1929, p. 264, entitled “An Act to Amend and Codify the Laws Relating to State Highways.” Section 18 thereof makes it the duty of the Commission to begin as soon as practicable and continue the maintenance of State highways, and so far as practicable do so according to what is known as the “Patrol System,” and to employ such laborers and use such equipment and materials as may be necessary. “The Commission may make all necessary contracts, purchase all necessary equipments, supplies and materials and employ all necessary labor, and is hereby given all other necessary powers to provide for maintenance, and shall pay for same out of the State Highway Fund. Provided, however, that all contracts so let in excess of $1,000, so made by said Commission, shall be let on a competitive basis, and to the lowest responsible bidder; provided, the Commission may reject all bids, and provided further that-all bids shall be sealed bids and shall be filed with the Commission in open session and opened and tabulated during the said session of the Commission. No such contract shall be valid unless signed by at least three members of the Commission and attested by the secretary.” This section refers to maintenance of State Highways.

Section 21 of said act relates to new construction and is as follows: “All new construction work shall be done by contract, and all contracts for such work shall be let to the lowest responsible bidder. The Commission shall have the right to reject any or all bids. No contract in excess of $1,000 shall be let without advertising for bids. Successful bidders shall be required to furnish a surety bond by a surety company to be approved by the Commission, in a penal sum of at least one-fourth of the amount of the contract price, conditioned as the Commission may require. The Commission may, however, accept personal bonds, but in every case in which a personal bond is accepted the contractor shall be required to deposit United States Government bonds or notes or valid bonds of any road improvement district referred to in § 19 of this act, in an amount equal to twenty-five per cent, of the amount of the contract, to be held in escrow as collateral security for the performance of the contract.

“The Commission may let contracts for the construction of necessary bridges on the State highways, to be paid for out of the State Highway Fund. It may make contributions to other bridges which it deems necessary on the State highway that may be constructed by bridge districts.

“Provided that where the Commission is of the unanimous opinion that any particular piece of work may be done more economically with State forces, the Commission may proceed to do said particular construction work with State forces.”

Other sections, notably 53, of said act confer broad powers on the Commission, but none of them change, limit, modify or alter the provisions of §§ 18 and 21 relative to the limitations on the powers of the Commission to contract in the matter of construction, reconstruction and maintenance of State roads. Analyzing these sections, 18 and 21, we find the following limitations on the powers of the Commission: § 18, relating to contracts for maintenance of State roads, plainly provides first, that any contract made for maintenance in excess of $1,000 “shall be let on a competitive basis, and to the lowest responsible bidder,” in the manner therein provided; and, second, that “no such contract shall be valid unless signed by at least three members of the Commission and attested by the secretary.” Section 21, relating to new construction, plainly provides, first, that: “All new construction work shall be done by contract,” and, second, that: “all contracts for such work shall be let to the lowest responsible bidder,” and, third, that “no contract in excess of $1,000 shall be let without advertising for bids.” At the end of that section it is provided “that where the 'Commission is of the unanimous opinion that any particular piece of work may be done more economically with State forces, the Commission may proceed to do that particular piece of work with State forces.” Whether this proviso relates to the paragraph of said section immediately preceding it authorizing the Commission to let contracts for the construction of necessary bridges on State highways, or whether it relates to all new construction work mentioned in the first line of said section, we think it unnecessary to decide, as we are of the opinion that the contracts mentioned in the complaint cannot, with any reasonable stretch of the imagination, be said to have been performed with “State forces.” We think doing the work by “State forces” means the use of labor in the employ of the State, under supervisors and engineers of the State, with State equipment and materials. It cannot reasonably be said that when a contractor is doing the work with his own men, equipment and materials, whether in maintenance or new construction, and either upon a unit price basis, a cost plus basis, or a rental basis with a maximum unit cost, the work is being done with ‘ ‘ State forces.”

The limitations on the power of the Commission to contract above set out in §§ 18 and 21 are too plain to admit of construction. The same power that created the Commission and gave it such broad and comprehensive powers, including the power to spend millions of dollars, thought it wise to provide these safeguards. They are plain, unambiguous and mandatory, not directory merely, and were not complied with. 44 C. J. 324, 25 R. C. L. 394. As said by this court in Woodruff v. Berry, 40 Ark. 251: ‘ ‘ The entire authority of the board to let such contract is conferred by statute, and the statute prescribes how only they can contract. Any other contract is unauthorized, in excess of the powers vested in the board and voidable at the election of the State. ’ ’

The Constitution provides that “any citizen of any county, city or town mav institute suit in behalf of himself and all others interested, to protect the inhabitants thereof against the inf or cement of any illegal exactions whatever.” Article 16, § 13, Constitution 1874. We perceive no valid reason why the Attorney General may not maintain this action against the Auditor and Treasurer to prevent them from issuing and paying warrants on illegal exactions made against the State, without the necessity of joining the beneficiaries of such exactions. As suggested by counsel as amici curiae, the holders of such vouchers are numerous. It would be difficult if not impossible to locate them all in this State, and many suits of a similar nature have been sustained by this court without joining the beneficiaries of the illegal exaction. Belote v. Coffman, 117 Ark. 352, 175 S. W. 37, is a fair sample of such cases. There a taxpayer brought suit to enjoin the issuance of warrants upon an appropriation made by the General Assembly to pay the expense incurred by numerous persons in exhibiting resources of the State at the Panama Pacific Exposition in San Francisco in 1915. The injunction was denied by the chancery court which was reversed by this court and remanded with directions to grant the writ. Another case in point is Farrell v. Oliver, 146 Ark. 599, 226 S. W. 529. This was another taxpayer’s suit to enjoin the Auditor from issuing warrants to pay for the maintenance of the Boys’ and Girls’ Industrial School. The injunction was denied by the chancery court, but was reversed by this court and remanded with directions to grant the writ. Many other cases might be cited to the same effect that neither the holders of the vouchers, the contractors, nor the Commission were necessary parties in determining whether appellants should be enjoined from the payment of illegal exactions.

It is argued that there may be contractors who, by reason of having furnished labor and materials to the Commission in the construction and repair of roads under these contracts, who have certain special defenses or rights to recover, even though the contracts may be void. We are not undertaking to adjudicate any such rights in this opinion. We have, however, reached the conclusion that the contracts set out in the complaint are void, and that the vouchers issued by the Commission pursuant thereto constitute illegal exactions, for the reason that such contracts were not made in compliance with the statutes heretofore mentioned.

The judgment of the chancery court in so holding is correct, and must be affirmed. It is so ordered.


source: Caselaw Access Project

author: Smith, J.

license: Public Domain

text:
    State National Bank v. Temple Cotton Oil Company.
    4-2601
    Opinion delivered June 13, 1932.

      James D. Head, for appellant.

      Jones >(& Jones, for appellee.
   Smith, J.

This suit was begun in June, 1931, by the Temple Cotton Oil Company, hereinafter referred to as the oil company, to foreclose a deed of trust executed to it by Sanderson & Orton on January 22, 1923. The State National Bank, hereinafter referred to as the bank, held a deed of trust on the property described in the oil company’s deed of trust, and for that reason was made a party defendant. It was alleged that the oil company’s deed of trust secured four notes as follows: One dated January 22, 1923, for $4,903.96, due December 1, 1925; one dated June 1, 1926, for $1,844.35, due November 1, 1926; one dated July 31, 1927, for $1,568.44, due ninety days aftep date; and one dated April 1,1930, for $1,178.8-2 due November 1, 1930. The court decreed that the note first described was barred both as to Sanderson & Orton, and as to the bank also,'but that the other three notes were secured by the deed of trust to the oil company, and that this deed of trust was prior to that of the bank, and decreed its foreclosure as a prior lien. From that portion of the decree holding that said three notes were secured by the oil company’s deed of trust and constituted a lien superior to that of the bank, the bank has appealed. Sanderson & Orton have not appealed. The oil company has' cross-appealed from that part of the decree holding that the note for $4,903.96 was barred.

Sanderson & Orton were large cotton planters, and operated two gins, ginning for themselves and for the public, and, in connection with their ginning business, they bought cotton seed, which they sold to the oil company. They entered into a written contract with the oil company on October 10, 1922, whereby they agreed to sell the oil company all cotton seed owned or controlled by them up to the close of the season of 1923-1924, at a price $5 per ton in excess of the prevailing street prices. The contract provided that the oil company might apply this $5 bonus to any indebtedness then owing to the oil company or which might thereafter be incurred, and that the contract might be extended by mutual agreement in writing to cover subsequent ginning seasons. The parties extended this agreement orally, but not in writing, from season to season thereafter, and continued to operate under the oral extension until the close of the ginning season of 1930-1931.

Prior to the execution of this seed purchase contract, Orton owed the predecessor of the oil company $5,500, and he and Sanderson were indebted to the G-ullett Grin Company in the sum of about $9,000. To refinance these debts, Sanderson & Orton, on January 22, 1923, executed two notes for $5,000 each and a third for $4,903.96, due, respectively, December 1, 1923, 1924 and 1925, and, as security therefor, executed the deed of trust here sought to be foreclosed. The note for $4,903.96 matured on the date last named.

Beginning in 1925, Sanderson & Orton borrowed money from the bank for use in their farming operations, and executed deeds of trust each year to secure these advances. These deeds of trust included the gin properties described in the oil company’s deed of trust and other property, both real and personal, in addition, and each of these deeds of trust executed previously to 1931 to the bank by Sanderson & Orton recited the priority of the oil company’s deed of trust as to the gin properties therein described.

In February, 1931, representation was made to the bank by Sanderson & Orton that the gin properties were no longer subject to the oil company’s deed of trust, and a new deed of trust was then taken by the bank from Sanderson & Orton which contained no reference to the oil company’s deed of trust. This deed of trust was given to secure a large balance then due the bank, and an additional advance of $2,000, which the bank agreed to make and which was later made; in fact, the subsequent advances by the bank to Sanderson & Orton largely exceeded that amount. This deed of trust, executed in February, 1931, embraced not only the gin properties but a large amount of other property, both real and personal, owned by Sanderson & Orton.

In the meantime, Sanderson & Orton were buying and selling seed to the oil company under their seed contract. Pursuant to this contract the oil company made large advances of money, which were not fully repaid by seed delivered under that contract, and the notes above referred to, dated June 1, 1926, due November 1, 1926; July 31, 1927, due ninety days after date; and April 1, 1930, due November 1, 1930, were executed to cover deficiencies arising out of the purchase of seed. The two notes for $5,000 each, specifically described in the deed of trust to the oil company, due, respectively, December 1,1923 and 1924, were paid, but the note due December 1, 1925, for $4,903.96, was not paid. However,- on November 18, 1930, the oil company indorsed on that note a credit of $89.62 which it contends it was authorized to do, as having on that date that balance on hand to the credit of Sanderson & Orton. The oil company also contends that the $4,903.96 note had been kept alive by the repeated acknowledgments of its validity by Sanderson & Orton and by their repeated promises to pay it, in consideration for which promises the date of payment had been extended.

We have therefore for decision the following questions: Was the $4,903.96 note barred? Were the advances made subsequent to the execution of the seed contract secured by that contract alone, or were they secured also by the deed of trust from Sanderson & Orton to the oil company? Did the oil company’s deed of trust secure advances made after December 1, 1925? Conceding that the oil company’s deed of trust was intended to secure," and did secure, the three notes of Sanderson & Orton executed in 1926, 1927 and 1930, was the right of foreclosure not barred as to the bank?

Other facts will be stated in the discussion of these questions. Separate answers were filed by both the bank and Sanderson & Orton, but they present a common defense.

The agreement referred to as the seed contract contemplated the advancement of large sums of money by the oil company to Sanderson & Orton, which were made during each of the years it continued in effect, and all parties agree that it was extended orálly and was in effect until the termination of the relations out of which this litigation arose. The said contract was dated October 10,1922. Tbe deed of trust was dated January 22, 1923. The deed of trust specifically described the two $5,000 notes above referred to and the note for $4,903.96, due December 1, 1925.

The deed of trust further recited that “This deed of trust shall also be a security for any other indebtedness that the first parties may now or may hereafter owe to the third party; and shall also be security for any notes, drafts, accounts or debts of whatsoever kind that the said third party may hold against the first parties herein, by purchase as an assignee thereof, or otherwise, and for all future advances during the life of this trust.”

The deed of trust further provided that: “If the said parties of the first part * * * shall pay all sums of money due thereon, as aforesaid, when the same shall become due and payable, together with all other indebtedness as aforesaid that may be due by the parties of the first part to the party of the third part, * * *, then this deed of trust shall be null and void, and shall be released at the expense of the parties of the first part; but if default be made in the payment of said note or notes, or either of them, or the interest thereon, * * * when the same shall become due and payable, or in the payment of any other indebtedness that the parties of the first part may be due the party of the third part, when the same shall become due and payable, as aforesaid, then all of the said indebtedness shall become due and payable at once.” The deed of trust contained the usual provisions in regard to sale in the event of default.

The two notes for $5,000 each described in the deed of trust were paid, but the note for $4,903.96 was not paid. Sanderson & Orton did not repay all the advances made in their operations for the 1925 season, and that balance was covered by the note dated June 1, 1926, for $1,844.35, due November 1, 1926. The advances for the 1926 season were not all paid, and the balance due on the operations for that season were covered by the note dated July 31, 1927, for $1,568.44, due ninety days after date. The advances for the 1929 season were not all paid, and that balance was covered by the note dated April 1,1930, for $1,178.82, dne November 1, 1930. It is alleged that ■the deed of trust secured these three notes, as well as the note for $4,903.96, and the foreclosure of the deed of trust was prayed to enforce their payment.

As we have said, the court found that the note for $4,903.96 was barred, and the cross-appeal questions the correctness of this finding.

Unless the payment of $89.6'2 indorsed upon.the note was authorized and was made, that note was barred when the suit was brought. It was contended by the oil company that this note had been kept alive by the promises of Sanderson & Orton made from time to time to pay it, in consideration of which promises the time for its payment had been extended. It is also contended that the credit was authorized, and was made by applying the balance then in the hands of the oil company as a credit on the note. Sanderson & Orton denied there was such a credit, and denied also that they had made promises to pay the note, in consideration of which promises the note had been extended. The chancellor found, upon conflicting evidence, which we do not recite, that the note had not been extended, and, as this finding does not appear to be contrary to the preponderance of the evidence, that finding must be affirmed, and it is so ordered.

The principal and controlling question in the case is whether the deed of trust secured the three notes above described, executed since the date of the deed of trust.

In the excellent briefs of opposing counsel, there have been collected and cited most, if not all, of our recent cases dealing with the question of future advances under mortgages and deeds of trust. These oases have clearly defined the law of that subject, and we shall not review them. In some of those cases such advances were held to be secured; in others, not; the distinction depending upon the provisions of the various instruments under review. One of the latest of these cases is that of American Bank & Trust Company v. First National Bank of Paris, 184 Ark. 689, 43 S. W. (2d) 248, where a number of the earlier eases are reviewed, and their holdings are summarized in that opinion by the following statements of the law:

One may execute a valid mortgage to secure a debt to be contracted in the future, but, in order to do so, there must be an unequivocal agreement in the instrument itself that it is given for debts to be incurred in the future.

That a mortgage or deed of trust given to secure future advances is valid, but, if such purpose is intended to be accomplished, that fact must clearly appear from the instrument, and such purpose will not be presumed where the instrument does not contain a general description of the indebtedness secured so as to put one who examines it on notice that this was its purpose, in order that such person may pursue the inquiry which such knowledge would suggest.

And further, that the circumstances attendant upon the execution of the instrument and the nature of the transaction subsequent thereto are to be taken into account in determining the effect of the instrument, and each case therefore calls for a construction of the language employed in the instrument to determine whether it secures future advances or not.

We there also said that, for future advances to be secured by an instrument, that purpose must be unequivocally stated, and, unless the nature of such advances are otherwise clearly defined, they must bear some relation to the subject-matter for which the primary debt is incurred and which the mortgage is given to secure.

Under these tests we have concluded that the notes in question (except the one for $4,903.96) are secured by the deed of trust here sought to be foreclosed.

The seed contract was the one under which the parties began to operate. At the time of the execution of the deed of trust, it was contemplated that these operations would be enlarged, and that large future advances would be made, and the purpose of the deed of trust was to secure them. We think the language of that instrument, quoted above, manifests that purpose. Tbe purpose of both the seed contract and tbe deed of trust was to secure tbe payment of tbe large advances contemplated by tbe parties, and wbicb were later made. There was no inconsistency in taking tbe additional security wbicb tbe deed of trust afforded. Under tbe seed contract only seed delivered could be applied to tbe advances. Under tbe deed of trust tbe gin properties were offered as additional security. All these transactions bore tbe most intimate relation to each other; indeed, it is very difficult to separate them. Tbe oil company not only advanced money to buy seed, but also advanced money to buy large quantities of bagging and ties, and no separate accounts were kept distinguishing these advances. They were all a part of tbe contemplated operations of tbe parties under both tbe seed contract and tbe deed of trust. Tbe bank was advised of tbe fact that tbe oil company was relying upon tbe security of its deed of trust for the payment of all these advances, and in all of tbe deeds of trust wbicb tbe bank took to secure its own advances to Sanderson & Orton except tbe last, that dated February 11, 1931, it was expressly recited that those instruments were subject to tbe deed of trust to tbe oil company. The bank’s last deed of trust did not contain this recital.

Tbe notes to tbe oil company covering, advances, as herein stated, were all taken before tbe $4,903.96 note, specifically described in tbe deed of trust, was barred. The trust created by that instrument bad not therefore been discharged when tbe notes here involved were taken, and they were therefore advances made within tbe life of tbe trust.

Tbe views here expressed render it unnecessary to consider other interesting questions discussed in tbe briefs except tbe effect of tbe accelerating clause set out above. It is argued that the effect of this clause reading that “when tbe same shall become due and payable, as aforesaid, then all of tbe said indebtedness shall become due and payable at once,” was to limit the security of the deed of trust to such advances as had been made on or before the date of the maturity of the $4,903.96 note. We do not agree, however, that this was the purpose or effect of the clause quoted. The three notes here involved were all executed subsequent to the maturity of the note for $4,903.96, but before that note was barred and within the lifetime of the trust.

The case is distinguishable from the case of Patterson v. Ogles, 152 Ark. 395, 238 S. W. 598. In that case it was held (to quote a headnote) that: “Under a mortgage to secure a certain note and ‘any and all other and further indebtedness which the grantors or either of them may contract to pay to the grantee for future loans, advances or acceptances, made during the existence of this mortgage, and any renewal or renewals of note or notes for said present or future indebtedness; this mortgage to mature and be enforceable at the maturity of said note or subsequent notes, or renewal note or notes’; held that the mortgage limits the secured debt to advances made up to the maturity of the note or any renewal thereof.”

In the instant case the language quoted (which appears in the defeasance clause) does not provide that the deed of trust shall mature and be enforceable at the maturity of the notes. On the contrary, we construe the deed of trust to mean, when all of its provisions are read together, that it shall be security for the payment of any other liability or indebtedness of the grantor already or thereafter contracted until the right to foreclose the deed of trust was barred. Price v. Williams, 179 Ark. 13, 13 S. W. (2d) 822. It may be conceded that the deed of trust was barred when the debt was barred, but the note for $4,903.96 was not barred until five years after the date of the maturity, which date was December 1, 1925. But before that note was barred, and while the lien of the deed of trust was in effect, the notes here involved were executed, and they, too, were secured by the deed of trust, because that instrument so expresslv provides.

Learned counsel for appellant quotes from § 139 of the chapter on Limitation of Actions, 17 B. C. L., page 771, as follows: “If a contract provides that on default in the payment of one of several notes the remaining unpaid notes shall become due, according to the weight of authority, the stipulation has the effect of fixing a contingency upon the happening of which the debt is to mature at a time earlier than the dates given in the notes for their maturity, and the statute of limitations begins to run against the entire debt upon such default. And the creditor cannot by his act alone change that effect, but the parties may by mutual agreement change the effect of the default and treat the contract as if no default had been made. ’ ’

Here the evidence shows that the parties, by mutual agreement, changed the effect of the default and treated the contract as if no default had been made by executing other notes within the life of the trust. We think this conclusion is fairly inferable from the conduct of the parties to this instrument. There was no attempt or threat of foreclosure, which would, no doubt, have been had if either party had taken the position that the trust had been closed by the maturity and nonpayment of the $4,903.96 note. If only this note was secured, there has been such delay as would have barred the foreclosure of the deed of trust. On the contrary, the parties continued to operate under the faith of the security afforded by the deed of trust, and advances were made and received pursuant thereto, the balances due thereon being evidenced by the notes here sued on.

The ba,nk took six mortgages from Sanders on & Or-ton securing its advances, and the latest of these, dated February 11, 1931, was the only mortgage which did not recite the priority of the oil company’s deed of trust. The last mortgage previously executed, and which, like those antedating it, recognized the priority of the oil company’s deed of trust, was dated February 10,1930, and only one of the three notes here involved was executed on a later date. But all three of the notes here involved were executed prior to the date of the bank’s last mortgage, the one which did not expressly recognize the priority of the oil company’s deed of trust. As all three of the notes were executed during the life of the trust created by the oil company’s deed of trust, we hold that this lien securing their payment is prior to the lien of the bank.

In the case of Hollan v. American Bank of Commerce & Trust Company, 168 Ark. 939, 272 S. W. 654, a mortgage had been given to secure two notes, there specifically described, and upon the foreclosure of that instrument it was sought to include other indebtedness, but it was insisted that the language of the mortgage should be interpreted to refer only to indebtedness incurred up to the date of the maturity of the two notes described in the mortgage. It was there said: ‘ ‘ Placing that interpretation on the language of the mortgage does not help appellant’s cause, for, according to the undisputed evidence, there was an agreement extending the date of the maturity of the notes to a date beyond the time that the additional indebtedness was incurred. But we are of the opinion that the construction contended for by counsel for appellants is not the correct one. In the case of Fort v. Black, 50 Ark. 256, 7 S. W. 131, there was involved the interpretation of a mortgage to secure a promissory note and to secure ‘supplies furnished and to be furnished,’ and this court held that the mortgage covered only advances made up to the date of the maturity of the note. In later cases involving mortgages, using broader language, we have held that the mortgage covered any indebtedness up to the time of the foreclosure. Each instrument, of course, must be interpreted according to its particular language, and, in order to interpret the present mortgage in accordance with the contention of counsel for appellants, it would be necessary to wholly reject the language in the mortgage which has an unmistakable meaning. Howell v. Walker, 111 Ark. 362, 164 S. W. 746; Word v. Cole, 122 Ark. 457, 183 S. W. 757. We must interpret the language of this mortgage to mean just what it says — that it secures any indebtedness incurred up to the time of. the foreclosure. It is a matter of contract between the parties, as there is no limitation upon the right to contract with reference to the extent of the debt secured by a mortgage, and the province of the court is merely to interpret the language and declare the rights of the parties in accordance with their intention as expressed in the language used.”

Here we have an instrument which secures “all future advances during the life of this trust,” and, as the advances were made during the life of the trust, they were secured by it.

The decision of the court below conformed to this view, and, as we think this-is the correct construction of the deed of trust, that decree must be affirmed, and it is so ordered.


author: Humphreys, J.

text:
    McHaney v. Lafayette South Side Bank & Trust Co.
    4-2596
    Opinion delivered June 13, 1932.

      Partloio ■& Rhine and W. W. Bandy, for appellant.

      Cecil Shane, for appellee.
   Humphreys, J.

Appellee, successor to the Lafayette South Side Bank of St. Louis, both foreign corporations, brought this suit in the circuit court of Greene County to recover from appellants, on a guaranty contract executed November 1, 1927, to the Lafayette South Side Bank of St. Louis, a balance of $9,219.76 due upon two renewal notes dated, respectively, on August 16th and 20,1930, from the Paragould Wholesale Grocer Company.

Appellants filed an answer, admitting the execution of the notes and guaranty contract, but denying liability on the guaranty contract because neither appellee nor its predecessor, foreign corporations, had complied with §§ 1826-32 of Crawford & Moses’ Digest in order to-do an intrastate business in Arkansas, which failure rendered the contract invalid and nonenforceable in the courts of this State, according to said statutes.

The cause was submitted to the court sitting as a jury upon the pleadings and testimony, which resulted in a judgment against appellants in the amount sued for, from which is this appeal.

The record, reflects the following facts: Appellee and its predecessor were Missouri corporations organized to extend credit and lend money to other corporations in or out of the State of Missouri upon notes to be executed by them, and to be guaranteed by their officials or directors under written guaranty contracts. The guaranty contracts undertook to pay any indebtedness incurred by the corporation obtaining the line of -credit absolutely in the event said corporation should fail to pay same. The Paragould Wholesale Grocer Company solicited and obtained in the office of appellee’s predecessor, in St. Louis, Missouri, a continuing line of credit from it of $100,000, in the year 1925, under agreement that it would execute notes for the amounts borrowed from time to time, to be dated as of St. Louis, and to be delivered there and payable there, and guaranteed by its officers or directors in the form of a written guaranty contract. Pursuant to the agreement, two written guaranty contracts, identical in form, were signed by the officers of the Paragould Wholesale Grocer Company, and delivered to appellee’s predecessor in St. Louis, each being signed by different officials. It does not appear why the contracts were executed in two identical parts. Pursuant also to the agreement, large amounts were borrowed from time to time, and notes were executed to cover same. Some of the notes were paid by the Paragould Wholesale Grocer Company, and others were renewed. On November 1, 1927, at the request of appellee’s predecessor, a renewal guaranty contract, in identical form of the first two, was signed by all the officers except two, who signed the original guaranty contracts. It was the custom of appellee to have all guaranty contracts taken by it to guarantee the payment of running loans within the line of credit extended so as to avoid such possibilities as the statute of limitations getting in the way, and, in accordance with that custom, the renewal guaranty contract was requested and obtained. The renewal guaranty contract closed with this language: ‘ ‘ Executed at Paragould, Arkansas, this 1st day of November, 1927.” The representative of appellee, who was in the employ of appellee’s predecessor, a Mr. Jones, testified, in respoiise to a question by the court, that he was certain the renewal guaranty contract was executed at Paragould. No money was advanced after the execution of the renewal guaranty contract, but the old notes were renewed from time to time and interest and a part of the principal were paid, until the indebtedness was reduced to the amount sued for. The original guaranty contracts, as well as the renewal guaranty contract, provided for the renewal of notes evidencing the line of credit granted in 1925, and also for the assignment of the guaranty contracts, as well as notes executed in the line of credit. The Paragould Wholesale Grocer Company went into bankruptcy the latter part of 1930. After its failure, several of the appellants wrote letters requesting time for the payment of the notes, and subsequently made payments thereon. Neither appellee nor its predecessor, complied with the law of Arkansas in order to do intrastate business here.

Over the objection of appellants, the court admitted in evidence the two original guaranty contracts, which had never been surrendered, and the letters written by appellants requesting time in which to pay the notes.

The main contention for a reversal of the judgment is that the execution of the last guaranty contract, made the basis of the action, constituted a doing of business within the State by foreign corporations, in violation of §§ 1826-32 of Crawford & Moses’ Digest, and is a void obligation and nonenforceable in the courts of this State.

Appellants’ interpretation of the evidence is that, because the last guaranty contract was executed and delivered to appellee or its predecessor in Paragould, it amounted to doing business in this State within the meaning of, .and contrary to, said statutes. It does not follow that, because the renewal guaranty contract was signed and delivered in Arkansas, it was an independent, original undertaking or obligation. According to the testimony, its sole purpose was to continue in full force and effect the original contract for a line of credit with guaranty of payment by the officers of the Paragould Wholesale Grocer Company. The execution thereof in this State was a mere incident to the original contract for the extension of a line of credit made and to be performed in Missouri. It was clearly collateral to and not independent of the indebtedness incurred in the line of credit. Transactions merely incidental or collateral to contracts made and to be performed outside the State do not constitute a doing of business within the meaning of statutes imposing conditions, restrictions, or regulations of the right of foreign corporations to do business. 14A C. J., § 3982. This general declaration of law was approved by this court in the case of Equitable Credit Company v. Rogers, 175 Ark. 205, 299 S. W. 747. The failure of two of the original guarantors to sign the renewal guaranty contract in no way affects the incidental character of the latter obligation, since the purpose of the execution of the last agreement was to continue in full force and effect the original agreement, which was clearly a Missouri contract.

Appellants also contend for a reversal of the judgment because the court ‘admitted the original guaranty contracts and letters written by the guarantors requesting extensions because they were not made the basis of the suit. It is true the suit was not founded upon them, but they were admissible to show whether the contract sued upon was incidental to the main contract executed and to be performed in Missouri; in other words, to show whether the notes and guaranty were Missouri or Arkansas contracts. That was the issue involved, and all facts are admissible in evidence which afford reasonable inference or throw any light upon the issues joined. Coca-Cola Bottling Company v. Shipp, 174 Ark. 130, 297 S. W. 856; Heard v. Farmers’ Bank of Hardy, 174 Ark. 194, 295 S. W. 38.

No error appearing, the judgment is affirmed.

Mr. Justice McHaney disqualified and not participating.


author: McHaney, J.

text:
    Home Ice Company v. Union Trust Company.
    4-2582
    Opinion delivered June 13, 1932.

      G. E. Garner, for appellant.

      Rose, Hemingivay, Cantrell <c& Loughborough, for appellee.
   McHaney, J.

In May, 1931, the Arkansas Cold Storage Company, being largely indebted to the Union Trust Company, executed and delivered to it an instrument in writing called an “assignment” of “all of its book accounts and bills receivable due it from customers, and also all such accounts and bills receivable that may accrue or become due hereafter, until said indebtedness hereby secured is paid in full, the said book accounts and bills receivable being set out in a certain "list hereto attached, made a part of this agreement and marked Exhibit No. 1.”

Included in said book accounts so assigned was an account against appellant in the sum of $785.33. This account remaining unpaid, and the Arkansas Cold Storage Company having been found to be insolvent, the Union Trust Company, as assignee, brought this suit against appellant, to recover the amount due on said account. The case was tried before the court sitting as a jury, and resulted in a finding and judgment against appellant in the sum sued for.

For a reversal of the judgment, it is first argued that the appellee had no right to maintain this action for the reason that an open account is not assignable, so as to authorize the assignee to maintain an action in his own name. In other words, it is contended that the Arkansas Cold Storage Company should have been a party plaintiff in order to maintain the suit. This was a defect, if a defect at all, that should have been raised by demurrer or answer; Crawford & Moses’ Digest, § 1189, and § 1192. So it was decided in Jordan v. Muse, 88 Ark. 587, 115 S. W. 162, that: “A defect of parties defendant in a complaint was waived by defendant failing to plead it specifically in the trial court, either by demurrer or answer.” This case and a number of others were cited in Tomlin son Chair Mfg. Co. v. Joppa Mattress Co., 122 Ark. 569, 184 S. W. 32, where the court held that the appellant waived the provision of the statutes above mentioned by failing to raise the objection of the defect of parties. So in this case appellant failed to raise the question, either by demurrer or answer, and must be held to have waived same.

It is nest argued that there was no contractual relation or agreement of purchase and sale between Arkansas Cold Storage Company and appellant. The facts are these: Mr. Rose, acting for the Arkansas Cold Storage Company, in which S. R. Morgan was also interested, sold to the Home Ice Company, through S. R. Morgan, a large quantity of ice a-i $1.50 per ton. The Home Ice Company was a distributing company, handling the product of three companies in North Little Rock, one of which was Morgan’s. Morgan represented to Rose that he was the owner of a two-thirds interest in the Home Ice Company. At any rate, he bought the ice from Rose, caused the Home Ice Company trucks to call at the plant of the Arkansas Cold Storage Company for the ice, and its employees received and receipted for the ice in the name of the Home Ice Company. Tickets were made out to the Home Ice Company and bills rendered to it for same without any objection from the officers of the Home Ice Company. Finally, the Morgan Utilities Company went into bankruptcy, and, at the suggestion of Morgan, Rose filed a claim for his company with the trustee in bankruptcy of the Morgan Utilities Company. Rose did not know the Morgan Utilities Company in the sale, but was willing to receive payment from any source. Of course, there could be only one satisfaction, and the claim was filed for the protection of the appellant, as it had paid Morgan Utilities Company for the ice at a price of $3 per ton. By filing the claim in bankruptcy, neither the cold storage company nor its assignee was precluded from pursuing the party primarily liable. We think the facts already related constitute substantial evidence sufficient to support the findings of the court sitting as a jury, that the Home Ice Company was the purchaser of the ice, and that it was sold to it by the cold storage company.

Affirmed.


author: Butler, J.

text:
    Hill v. Brittian.
    4-2585
    Opinion delivered June 13, 1932.

      Dean, Moore & Brasil and J. W. Jolmston, for appellant.

      John George and R. W. Robins, for appellee.
   Butler, J.

F. O. Stobaugh, in his lifetime, became indebted to Dr. A. J. 'Brittian, the appellee, and executed certain notes to evidence the indebtedness. It is not disputed that Stobaugh owed the appellee, and that the amount represented by the notes was the true sum of the debt due. Stobaugh died intestate and R. E. Hill was appointed administrator of his estate. The appellee’s claim was duly probated and became a lien on all the lands belonging to the estate and on the proceeds arising therefrom. Other debts had been probated prior to the probate of the claim of the appellee, and at the instance of the administrator a sale was ordered by the probate court of the lands of the intestate, which sale was duly had, the purchaser executing a bond for the payment of the purchase price. Payment falling due and not having been made, the administrator brought suit in the chancery court asking judgment against the purchaser, and that a lien be fixed on the lands sold to satisfy the judgment. A decree was entered ordering the land sold as prayed by the administrator, and at the sale said administrator became the purchaser bidding the amount of the judgment. The land was struck off to him by the commissioner, and the sale was duly- reported to the court with the deed which was approved by the court.

The administrator caused to be inserted in the granting clause of the deed a clause conveying the lands to “R. E. Hill, Administrator, for the use and benefit of the heirs of F. O. Stobaugh, deceased. ’ ’ All of the heirs of F. O. Stobaugh were adults, and, shortly after the aforesaid deed to Hill, he conveyed parts of these lands to some of the heirs.

This case was instituted by the appellee against the administrator and the heirs-at-law of F. O. Stobaugh, charging that the administrator fraudulently procured the deed from the commissioner of the court to himself as “administrator for the use and benefit of the heirs of F. O. Stobaugh, deceased”; that he had conveyed these lands, or a part of them, to certain of the heirs, and that his procurement of the deed and his conveyance to the heirs was with the fraudulent purpose of attempting to defeat the creditors of F. O. Stobaugh and especially the appellee. It was further alleged that these deeds constituted a cloud upon the title to the lands to the injury of the appellee and other' creditors having judgment liens thereon. The prayer of the complaint was that the above-mentioned deed executed by the commissioner to R. E. Hill, administrator, and the order of the court approving and confirming the same, be corrected so as to omit the words “for the use and benefit of the heirs of F. 0, Stobaugh, deceased,” and that the deeds made by Hill to the heirs be canceled, and the lands subjected to the payment of all probated claims. To this complaint an answer was filed and evidence was heard on the issues joined. The court, on the 10th day of September, 1931, rendered a decree finding the facts to be as alleged in the complaint and granting the prayer thereof.

Proceedings in the instant case are the sequel to protracted litigation between the parties, branches of which have been before this court on two previous occasions. The facts disclosed in these lawsuits make interesting reading, but they are unimportant, and a statement of them is unnecessary.

The order of the court approving the sale and deed to the appellant as administrator, etc., was made in 1928, and the decree to correct it was made in 1931 in a suit filed in that year. On appeal counsel for the appellant contends that the court was without jurisdiction to render the decree in the instant case because the order sought to be reformed was made at a term of court which had lapsed, and the court was therefore without power to correct the order made at a subsequent term.

It is next contended that the court, on November 2, 1931, without any proof made an order appointing a receiver to take charge of the assets of the estate and directing the administrator to deliver the same to the receiver.

On the first contention, it is sufficient to say that it is apparent that the decree in the instant case was in its nature a proceeding for an order nunc pro tunc to make the record of the order entered at the previous term of the court correctly reflect what was actually done, the court finding that the sale was in reality made to Hill as the administrator of the estate of P. O. Stobaugh and for the benefit of said estate. The court further found that neither Hill not the heirs paid anything to the commissioner, but that the said administrator fraudulently caused to be inserted into the deed the clause “for the use and benefit of the heirs of P. O. Stobaugh, deceased,” and that this was for the purpose of attempting to defeat the creditors of the estate in the collection of their claims against it.

The decree recites that evidence was introduced at the hearing, and the parties stipulate that the case was heard on the exhibits and depositions of S. E. Mciteynolds. This deposition is not abstracted, and a search we have made of the transcript fails to disclose it therein. We must therefore assume that the finding of the chancellor was in accord with the evidence introduced and supported by it.

The appellant invoked the aid of the chancery court for a judgment against the purchaser at the sale made under the order of the probate court and to affix a lien on the lands sold for the payment of the purchase price bid by him. The chancery court therefore had jurisdiction to correct this record in a subsequent proceeding and to proceed to administer complete relief. DuVall v. Marshall, 30 Ark. 230; Rhinehart v. Gartrell, 33 Ark. 727; Sorrels v. Trantham, 48 Ark. 386, 3 S. W. 198, 4 S. W. 281.

Counsel for appellant allege error of the court in the appointment of a receiver to take charge of the assets of the estate. We are unable to understand this assignment of error, as we cannot find where any receivership was prayed for or ordered in the instant ease. But, if any such order had been made, .we think the record before us and the history of the other proceedings of which we have knowledge and with which the chancellor was familiar justified the proceeding. DuVall v. Marshall, supra.

It is stated by counsel for the appellees that Glenna Cain intervened in the court below, and that she acquired an interest in the lands of decedent by a deed, regular on its face, purporting that the conveyance to her was for a valuable consideration. The decree recites that Glenna Cain appeared by her solicitor, and proceeds to quiet title in the estate of Stobaugh, declares the probated claims a lien, orders a sale to satisfy the same, and retains jurisdiction for further orders. We are unable to find where Glenna Cain has appealed from the order and decree of the chancery court, although counsel insist that she has done so.

The record before us presents no reversible error. The judgment of the trial court therefore is correct, and it is affirmed.


text:
    Dunkin v. Taylor.
    4-2651
    Opinion delivered June 13, 1932.

      Jack Molt, for appellant.

      M. A. Mathcoat, for appellee.
   Butler, J.

The Citizens’ Bank & Trust Company of Harrison, Arkansas, was taken over as an insolvent bank for purposes of liquidation by the Bank Commissioner on December 17, 1930. The officers and depositors, being anxious to reopen the bank, agreed that it might be opened by issuing to each depositor, in lieu of the payment of cash deposits, three certificates representing in the aggregate the amount of each deposit, payable in three installments, one on December 24, 1931, and the other two on the same date in the years 1932 and 1933. The certificates were to draw interest at the rate of three per cent, per annum. This agreement was ratifiecl by the Bank Commissioner, who applied to the Boone Chancery Court for an order authorizing the bank to reopen for business on that basis. The order was made, and the bank reopened for business on February 16,1931, issuing to each of its depositors the three certificates as aforesaid. The bank continued to do business until September 1, 1931, when it again closed its doors, and was taken over by the Bank Commissioner and is now in process of liquidation.

Owing to the great financial depression prevalent and to the deflation of all values, the liquidating agent has experienced much difficulty in making collections, and many of the securities and other assets of the bank have shrunk in value. Consequently the appellees, the Bank Commissioner and the special deputy in charge of the liquidation of the bank, applied for, and obtained, an order in the Boone Chancery Court by which they were empowered to sell the assets of the bank, real, personal and mixed, piecemeal at private sale, and to compound such of the debts due said bank as might be found bad or doubtful.

This suit was instituted by a number of the depositors of the insolvent bank for themselves and the other depositors seeking to restrain the Commissioner from proceeding under the order of the Boone Chancery Court last mentioned above. The complaint, after reciting the history of the first closing of the bank and its reopening and final closing on September 1, 1931, and the order of the chancery court aforesaid, alleged that many of the notes held by the liquidating agent of the insolvent bank are fully secured by real estate mortgages, that others have good personal security, while many, though unsecured, are made by those who are willing and able to pay in full as soon as they can convert some of their property into cash. It was further alleged that the appellees were offering to accept deposits in payment of these notes and attempting to trade said notes and other assets for property instead of money; that this action on the part of the appellees was arbitrary and in violation of the rights of the creditors and depositors of said bank and would amount to a dissipation of the assets by the appellees if they should accept for the notes less than the full face value in cash and would operate as a preference to creditors whose deposits in said bank were accepted in payment of these notes. They prayed for an order enjoining the appellees from proceeding further in their attempt to settle and compound the notes, etc., in their possession.

Answer was made admitting the allegations of the complaint except in denying that the action was arbitrary, contrary to law or in violation of the rights of the creditors and depositors of the bank, and alleging that the proposed action would expedite the liquidation of the bank and very greatly reduce the expenses thereof, and was and is for the best interests of the creditors and depositors of said bank and in conformity with the provisions of the law and the orders of the chancery court.

The case was submitted to the court on stipulation of attorneys which recited the facts as above set out, and also that there were outstanding certificates of deposit issued under the reorganization plan in the sum of $69,625.57 in the' hands of various depositors to whom they were issued and purchasers of said certificates, some of which sales were made prior, and some subsequent, to the final closing of the bank. It was further stipulated that appellee Watkins, Special Deputy Bank Commissioner, had given notice of his intention to accept said certificates of deposit and other deposits in the bank “on such basis and such conditions as he deems right, fair and equitable, and as in his judgment will conserve the best interest of all concerned in the assets of said bank in payment and satisfaction of any notes held by said bank, both secured or unsecured, which he considers slow, bad or doubtful, whether said certificates are set-offs which he would be required to accept, or not; that he is offering to trade other assets of said bank, such as real estate, furniture and fixtures, for deposits in said bank, and other property besides cash, when in Ms judgment it is to the best interest of all those interested in the assets of said bank.”

It was further agreed that many of the notes are secured by mortgages on real estate, which real estate is of equal value to the amount of the notes, but that no loans could be procured on these from any source with which to discharge the indebtedness, and that, if the mortgages are foreclosed, it is doubtful whether any cash could be realized from said sales, and “highly probable that it would be necessary for the Bank Commissioner to buy said lands in,” with the result that no cash could be realized and no progress made toward the final liquidation of the bank; that, since the bank had been taken over for liquidation, only $20,696.09 had been collected in cash on the notes held and only $30,730.70 on stock assessments and realized from other assets; that the average monthly expense of liquidation approximated the sum of $920.95. It was also agreed that the course proposed by the Special Deputy Bank Commissioner would greatly expedite the liquidation and materially reduce the necessary expenses thereof; that there were, and are, approximately $11,663.07 in prior claims filed, and that these, with other prior claims, may not be paid in full; that general claims had been filed and allowed in the sum of $390,270.08, and that there are claims due for deposits not yet filed in the sum of $62,881.36, and claims due 'to banks which have not been filed in the amount of $168,507.44, and that the total assets of the bank as shown by inventory at the close of business just prior to closing the doors of the bank in September,. 1931, was $1,282,335.57. Other facts were agreed upon which were not material to the decision of the case.

The case was submitted on the pleadings, the exhibits and the agreed statement of facts. The court entered a decree dismissing the complaint, from which is this appeal.

It is the contention of the appellants that the appellees have no authority under the law or the orders of the chancery court to accept notes held as assets of said bank for certificates of deposit therein, and that the contemplated action of the appellees exceeds the authorization made by the order of the court and is in violation of the provisions of the statute. The statute upon which the petition of the appellees and the order of the court' granting the prayer for authority to dispose of the assets and the compound debts due the bank is act No. 113 of the Acts of 1913, as amended by § 6 of Act 131 of 1917, and § 4 of Act 496 of 1921, and is as follows:

“Upon taking possession of the property and business of any bank, the Commissioner is authorized to collect money due, and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof, as hereinafter provided. The Commissioner shall collect all debts due and claims belonging to it, and for such purposes is authorized to institute, maintain and defend suits and other proceedings in this State and elsewhere, and, upon the order of the chancery court of the county in which it is doing business, may sell or compound all bad or doubtful debts and on like order may sell all its real estate and personal property on such terms and at public or private sale, as the court shall direct.”

The order of the court under which the appellees were proceeding to act is as follows: “It is by the court considered, ordered and adjudged and decreed that the said Bank Commissioner in charge of the said bank be, and he is hereby authorized, impowered and directed from time to time to sell the assets of said bank, real, personal or mixed, piecemeal and at private sale, and also from time to time to compound such of the debts due said bank as the said Bank Commissioner may find to be bad or doubtful, all such sales and compositions to be upon such terms and considerations as in each instance the said Bank Commissioner may consider to the best interest of the estate herein, all sales so made by the said Bank Commissioner of any of the -assets of the said bank consisting of its real estate to be reported by the Bank Commissioner to the court for confirmation.”

The appellants call attention to the cases of Sloss v. Taylor, 182 Ark. 1031, 34 S. W. (2d) 231; Krumpen v. Taylor, 183 Ark. 1046, 40 S. W. (2d) 775, and Tyler v. Citizens’ Bank, 184 Ark. 332, 42 S. W. (2d) 385, as authority for the position taken that the contemplated action of the appellees is in excess of their power. We do not think the cases are in point. In the Sloss case a debtor of an insolvent bank, after it had closed its doors, purchased certificates of deposit to the amount of his debt and attempted to set off his debt with these certificates. There was an attempt to pay the debt with a certificate of deposit at its face value regardless of what, in fact, such certificate might be worth, and we held that this would tend to secure a preference in favor of the debtor and would be in violation of the policy of our statute.

In Krumpen v. Taylor, stockholders in the bank organized to take over an insolvent bank attempted to pay for their certificates of stock by checks on their deposits in the insolvent bank. The payment of the certificates of deposit was not as contemplated by § 8, article 12, of the Constitution, in that it was not made in money or property actually received and was held to be invalid.

In Tyler v. Citizens’ Bank, the question decided was similar to that in the Krumpen case. The insolvent bank could not pay its depositors dollar for dollar, and the Bank Commissioner, with full knowledge of this, permitted certain subscribers to stock in the new bank to pay for the same by checks accepted at their face value drawn on deposits in the insolvent bank.

In addition to deciding that that case came within the principles of law announced in the Krumpen case, it was held that the action of the Bank Commissioner was tantamount to allowing a preference. However, none of the principles announced in the cases cited apply to the instant case. The statute, the order of the chancery court, and the contemplated action of the appellees go no further than to accept the certificates of deposit on such terms and consideration as shall be fair and equitable - and to the interest of all parties concerned, the appellees being authorized to exercise their judgment as to what would be the best interest of all parties. It is our opinion that the order of the chancery court does not go further than the statute, and nothing appears to indicate that the appellees are not endeavoring to carry out the letter and spirit of the order. To be sure, the appellees must act in good faith, and any act upon their part creating a preference in favor of a debtor or a creditor would be in fraud of the rights of the other parties interested and would be an invalid act, but no such state of facts is presented by the record before us.

The decree of the trial court dismissing the appellants’ complaint is correct, and it is therefore affirmed.