author: McHaNey, J.

text:
    Bird v. Swearingen.
    Opinion delivered April 15, 1929.

      E. D. Chastain, for appellant.

      C. M. Wofford, for appellee.
   McHaNey, J.

By this appeal we are called upon to construe the second paragraph of the will of Samuel Kimbler, late of Crawford County, Arkansas, which is as follows:

“2. I bequeath all my property, personal and real, to my wife, Elizabeth, for her support and maintenance, during her life, and at her death I desire that my sons, Andrew and William, shall have all my real estate jointly, share and share, during their natural lives, and at their deaths to descend absolutely to their heirs. I make this bequest to my sons, Andrew and William, for the reason that they have remained with me and assisted me in purchasing my real estate and keeping it in repair. ’ ’

The testator’s wife, Elizabeth, predeceased him, which caused the legacy in her behalf, consisting of a life estate in his property, to lapse. At the death of the testator, October 12,1885, the will was probated, and the two sons, Andrew and William, entered into possession of the real estate owned by the testator, and held same under claim of ownership of the fee until their deaths — that of William occurring on October 21, 1900, and that of Andrew on May 11, 1925.

The question for our determination is, did the will, by paragraph 2 thereof above quoted, convey to Andrew and William a fee simple title to the land, or only a life estate? If a fee simple title was conveyed, then the ap-pellee is rightfully in possession of the small portion of said land in controversy, and the complaint, to which a demurrer was interposed and sustained, did not state a cause of action.

We think the court correctly held that the fee was conveyed, and that the complaint failed to state a cause of action. This case is ruled by the recent case of Shields v. Shields, ante, p. 167, and the eases therein cited.

We find no error, and the judgment is affirmed.


source: Caselaw Access Project

author: Hart, C. J.,

license: Public Domain

text:
    Haney v. Holt.
    Opinion delivered April 22, 1929.

      Claude B. Brinton, for appellant.

      Joe C. Barrett, for appellee.
   Hart, C. J.,

(after stating the facts). The record shows that the mortgage given by S. H. Haney to H. H. Holt was never recorded or filed for record. The mortgage from S. H. Haney to W. H. Haney was properly acknowledged and filed for record. Hence it is first contended that the Haney mortgage was a superior lien to the Holt mortgage. In making this contention, counsel for appellant (defendant below) rely upon our mortgage statute to the effect that the filing or recording of a chattel mortgage is essential to its .validity as against third persons, even though the subsequent mortgagee has actual notice of the execution of the first mortgage. In other words, they rely upon the rule laid down in Thornton v. Findley, 97 Ark. 432, 134 S. W. 627, 33 L. R. A. (N. S.) 491, and numerous other decisions of this court, to the effect that, as between conflicting mortgages, the one first filed for record will have priority.

We do not think that rule has any application under the facts in the present case. In 11 C. J., § 393, page 650, it is said that a recital in a mortgage that it was made subject to another will postpone it thereto, without regard to questions affecting priority of record. Numerous cases are cited in support of the. text, and among them is Ghio v. Byrne, 59 Ark. 280, 27 S. W. 243. In that ease the court expressly held that a recital in a bill of sale to the effect that the sale is made subject to a certain mortgage is 'Constructive notice of the mortgage, although it is unrecorded, and the vendee takes subject to the mortgage. Tbe court said that the recital was a condition upon which the sale was made, and that the buyer accepted the property on that condition. Hence he ought not to hold on to the fruits of his purchase and yet be unwilling to observe the condition.

In Young v. Evans-Snider-Buel Commission Co., 158 Mo. 395, 59 S. W. 113, the Supreme Court of the State of Missouri held that the acceptance of a chattel mortgage subject to specific liens of prior mortgages, valid between the parties thereto, precludes the mortgagee from claiming priority, though the prior mortgages were not recorded, or were acknowledged so as to invalidate the record thereof and render them void, even as against subsequent lienholders with notice. In that case a resident ot' the Indian Territory, which at the time was governed by the Arkansas statute with relation to the registration of mortgages, executed two chattel mortgages of the same date to different persons. The first mortgage was not subject to the recording acts, because it had never been acknowledged. The second mortgage recited that the chattels embraced in it were subject to a lien under the first mortgage. Referring to this agreement, the court said:

“This agreement of plaintiffs, substantially recited in their mortgage, to take their security subject to the defendant’s prior mortgages, which were an equitable lien upon the cattle, valid between the parties thereto, obviously takes the defendant’s ease, upon this issue, out of the principle of the Arkansas case aforesaid, upon which plaintiffs rely, and brings it within the well-settled doctrine recognized and enforced in that State, as well as in the other States of the Union, that 'one who takes a conveyance, absolute or conditional, which recites that it is second or subordinate to some other lien or incum-brance, can in no proper sense claim that he is a purchaser of the entire thing. He purchases only the surplus or residuum after satisfying the other incumbrance; ’ and ‘a mortgage expressly providing that it shall be subject to a prior mortgage is subject to it, independently of the fact that the prior mortgage is not of record; nor will it alter matters to record the subsequent mortgage first.’ Jones, Chat. Mortg., § 494 ; 5 Am. & Eng. Enc. Law (2d ed.), 1015; 2 Oobbey, Chat. Mortg., § 1039; Clapp v. Holliday, 48 Ark. 258, 2 S. W. 853. The plaintiffs, by accepting their subsequent mortgage under the circumstances aforesaid, ceased to be strangers to the defendant’s prior mortgages, and were thereby brought into contractual relations with said mortgages, and they imposed limitations upon the interest acquired by them in the property, to the extent of defendant’s equitable lien under said prior mortgages, subject to which they agreed to take. There is nothing in the statutes of Arkansas, or in the rulings of the Supreme Court of that State thereupon, prohibiting the making or impugning the validity of such a contract. ’ ’

In Nation v. Planters’ & Mechanics’ Bank, 29 Okla. 819, 119 Pac. 977, the Supreme Court of Oklahoma held that one who takes a conveyance, absolute or conditional, which recites that it is second or subordinate to some other mortgage or lien, is not the purchaser of the entire thing conveyed thereby. He purchases only the surplus or residuum after satisfying the other incumbrances, and is estopped to deny the existence of the prior mortgage or the validity of the lien, although it be not acknowledged, recorded, or filed, as required by the statutes.

In Eaton v. Tuson, 145 Mass. 218, 13 N. E. 488, where a person executed two mortgages of personal property in which the last mortgage recited that it was subject to an earlier unrecorded mortgage to a named person, the Supreme Court of Massachusetts held that the latter mortgage was subject to the unrecorded mortgage. The court said that the last mortgage only conveyed the mortgagor’s right of redemption from the unrecorded mortgage. It is argued, however, that this rule should not apply, because the effect of the recital in the mortgage to W. H. Haney is that it was second to a previously recorded mortgage, meaning that it should only ¡be second to that mortgage if it was recorded. We do not think so. The agreed statement of facts shows that the parties understood, at the time of the execution of the W. H. Haney mortgage, that the Holt mortgage was of record. Hence the language used was but a part of the means of identifying the first mortgage as the Holt mortgage. It was the only mortgage on the property at the time the mortgage to W. H. Haney was executed, and it was evidently intended by the parties to agree that the mortgage of S. H. Haney to W. H. Haney was to be subordinate to the Holt mortgage, and not that it was to be subordinate to that mortgage if the Holt mortgage had been recorded. If the Holt mortgage had been recorded or filed for record, the 'Haney mortgage would have been second or subordinate to it without any agreement thereto, and such would be the common understanding of nearly everyone. Therefore we think that the court correctly held that the Holt mortgage was a superior lien on the property to the Haney mortgage.

Again, it is insisted that the judgment in favor of Holt against W. H. Haney should ¡be reversed because the account was barred by the statute of limitations; but the chancellor correctly held that the stipulation in the case took away from the defendant the right to plead the statute of limitations. The stipulation expressly recites that W. H. Haney was indebted to H. H. Holt in the sum of $349.85. It is true that the defendant made a motion to set aside the stipulation in this respect, but no cause was shown why the motion should be granted. Hence there was no abuse of discretion in the chancery court failing to set aside the stipulation. It was deliberately entered into between the respective attorneys of the parties, and was binding upon their clients. There is no contention that at the time the stipulation was made the attorney for W. H. Haney did not have the right to enter into the stipulation. Webster v. Goolsby, 130 Ark. 141, 197 S. W. 286.

The -decree o-f the chancery court was correct, and will therefore be affirmed.


author: Kirby, J.,

text:
    Donahue v. Arkadelphia Milling Company.
    Opinion delivered April 22, 1929.

      Ben F. Reinbergér and J. A. Tellier, for appellant.

      Barber <& Henry, Troy W. Lewis and Clayton Freeman, for appellee.
   Kirby, J.,

(after stating the facts). Appellants insist that the court erred in not directing a verdict in their favor, and in directing a verdict against them, and the contention must he sustained. The bond and the obligation sued on is such a one as the statute (§§ 8287 and 8288, C. & M. Digest) applies to, and from liability upon which the sureties or guarantors may be exonerated upon compliance with its terms. Thompson v. Treller, 82 Ark. 247, 101 S. W. 174; Shores-Mueller Co. v. Palmer, 141 Ark. 64, 216 S. W. 295.

The sureties or guarantors had the right, under the statute, which is part of every such contract, to demand, any time after the action accrued on the bond and before the trial of suit brought thereon against them, that suit be brought against the principal and proceeded with to judgment, etc. Barnett v. Alexander, 150 Ark. 478, 234 S. W. 938.

It can make no difference that the principal was made a party to the same action in which they were sued, since the summons had been returned non est against him, and the suit could not be proceeded with, before the notice was given, and the fact that they did not plead the notice and demand for exoneration from liability in the suit brought at the first trial constituted no waiver of the right to do so, since 30 days had not elapsed between the giving of the notice and the time of the trial. Certainly the plea could properly have been made by amendment on the trial of the cause anew after it had been remanded to the circuit court. Suit could have been brought against the nonresident principal, after the notice had been given, by an attachment upon his property in the State and constructive service had by the publication of a warning order, but this was not attempted to be done. C. & M. Digest, §§ 1159-60; Boynton v. Chicago Mill & Lbr. Co., 84 Ark. 203, 105 S. W. 77; Frank v. Frank, 175 Ark. 285, 298 S. W. 1026.

The undisputed testimony shows' that the principal in the bond was a nonresident of the State, having property in the State that could be attached at the timé the notice was given by appellant’s demanding that he be sued, and no such suit having been 'brought, as was required should be done under the terms of the statute and notice given, the sureties, appellants here, were exonerated from liability upon the bond, and the court erred in not so directing the jury.

The judgment is accordingly reversed, and- judgment in their favor will be entered here It is so ordered.


author: McHaney, J.

text:
    National Life & Accident Insurance Company v. Jackson.
    Opinion delivered April 22, 1929.

      J. F. Summers, for appellant.

      W. J. Dung cm, for appellee.
   McHaney, J.

On February 14, 1927, appellant issued a policy of life insurance in the sum of $280 on the life of Lula Jackson, in which the appellee, Will Jackson, was named as beneficiary. Will Jackson was the insured’s stepson, and Lena Jackson is his wife. The policy was issued upon an application therefor by Lula Jackson, whose name was signed thereto by Lena Jackson because Lula was unable to write. The insured and the appellees are all colored.

Only three persons testified regarding the payment of the first premium thereon, the appellees, both of whom testified that they did not pay for it, and the agent who took the application testified that he was not sure who paid the first premium. We therefore think it fair to assume, and that the jury must have found; that the insured paid it. On March 1, after the date of issue, the beneficiary in the policy was changed, by consent of all parties, from Will Jackson to Lena Jackson, and thereafter, on April 27, the insured died. Proof of loss was furnished, demand for payment made, which was refused, and this suit followed. There was a verdict and judgment for ap-pellees for the amount of the policy.

The only ground relied upon for a reversal of the judgment is that neither of the appellees had any insurable interest in the life of Lula Jaokson, and that the contract of insurance was a wagering contract, which is against public policy, and void, under the rule in this State. Conceding that neither of the appellees had an insurable interest in the life of the insured, it does not necessarily follow that the policy is void. It is well established that every person has an insurable interest in his own life, and that he may take out a policy on his own life, naming any person he desires as his beneficiary. McRae v. Warmack, 98 Ark. 52, 135 S. W. 807; 33 L. R. A. (N. S.) 949; Langford v. National Life & Accident Ins. Co., 116 Ark 527, 173 S. W. 414, Ann. Cas. 1917A, 1081. In the latter case this conrt quoted from Cooley’s Briefs on the Law of Insurance, vol. 1, p. 252, as follows:

“That one has an insurable interest in his own life is an elementary principle, as to the existence of which the cases are unanimous It follows therefore that one may take out a policy of insurance on his own life and make it payable to whom he will. It is not necessary that the person for whose benefit it is taken should have an insurable interest.”

We think this case is ruled by that of Langford v. National Life & Accident Ins. Co., supra. It was held in that case that if a policy of life insurance is valid at its inception it does not thereafter become invalid for the reason that the beneficiary, who has no insurable interest, after the insured quit paying the premiums paid same to the death of the insured. It was there said: “The beneficiary being without fraud in procuring the issuance of the policy, and the contract being valid, no ground of public policy Avould prevent her keeping the contract alive for her own benefit.” Citing Matlock v. Bledsoe, 77 Ark. 60, 90 S. W. 848.

So here the policy was valid at its inception, at the time it was issued, in which Will Jackson was named as the beneficiary. There is no proof that there was any agreement between Will Jackson and the insured that he should pay the premiums on the policy, and the fact is that he did not pay the first premium thereon. The fact that he thereafter paid the premiums, and that the policy was transferred to Lena Jackson as beneficiary, did not have the effect of voiding it, as there was no previous agreement between the insured and them that they should do so.

We have examined all the instructions in the case, and find them to 'be in harmony with the law as herein announced applicable to wagering contracts. They were perhaps more favorable to the appellant than the facts justified, but, if an error was committed in this regard, appellant is in no position to complain.

Judgment affirmed.


text:
    Saxon v. McGill.
    Opinion delivered April 29, 1929.

      Barber & Henry, Troy W. Lewis and Clayton Freeman, for appellant.

      Osborne W. Garvin and Charles Q. Kelley, for appellee.
   Hart, C. J.,

(after stating- the facts). The court erred in directing- a verdict for the defendants. Under the facts stated, before the enactment of our Negotiable Instruments Act, the plaintiff, as payee, could be a bona fide holder for value without notice, and was entitled to recover.

In White-Wilson-Drew Co. v. Eglehoff, 96 Ark. 105, 131 S. W. 208, it was held that one who signs as surety a note, blank as to tbe amount, under an agreement with the maker that it should he filled in for an amount not to exceed a specified sum, and the maker filled in the blank in an amount greatly in excess of the agreed sum, was liable to a payee who took without notice of the violation of the agreement as to the amount. The court said that in such cases the payee was a bona fide holder, even though he knew that the note was signed in blank. The reasoning of the court was that the signing in blank authorized the filling of the blank by the person to whom the signers delivered it, although the specific directions might not have been followed. The court said that the signatures of the sureties operated as a general letter of credit, which authorized the party to whom it was delivered to fill it up in any manner not inc.onsisteni with the character of the paper; and an agreement between the signers and the person to whom the paper was delivered that it was to be filled up- for a certain amount or in a particular way did not affect one who takes the paper without notice of the agreement. Under such circumstances, if the payee receives it for value, without knowledge of the fact that the agent had exceeded his authority, he is protected from any infirmities in the paper.'

This brings us to a consideration as to whether the rule has been changed by the Negotiable Instruments Act. Section 7780 of Crawford & Moses’ Digest reads as follows:

“Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority td complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature, in order that the paper may be converted into a negotiable instrument, operates as a prima facie authority to fill up for any amount. In order, however, that any such instrument, when completed, may be enforced against any person who becomes a party thereto prior to its -completion, it must be filled Rip strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. ’ ’

Section 7817 provides that the holder of a negotiable instrument may sue thereon in his own name, and payment to him in due course discharges the instrument.

Section 7818 defines holder in due course. He is one who takes the instrument under the following conditions: (1) that it is complete and regular on its face; (2) that he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was a fact; (3) that he took it in good faith and for value; (4) that, at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Keeping in mind the provisions of these sections of the Negotiable Instruments Act, we conclude that the rule of the law merchant has not been changed, and that where a party signs, his name to a blank note and delivers it to another he thereby makes the holder his agent, with authority to fill up the note in any manner not inconsistent with the character of the paper, and private agreements between the parties will not affect one who takes it without notice of the agreement. Liberty Trust Co. v. Tilton, 217 Mass. 462, 105 N. E. 605, L. R. A. 1915B, p. 144; and Ex parte Goldberg, 191 Ala. 356, 67 So. 839, L. R. A. 1915F, p. 1157.

Under such circumstances the signers are bound, if the party received the note for value, before maturity, without knowledge of the fact that the agent had exceeded his authority. It would seem that the reason for inserting the word “maturity” in the printed form of notes prepared by banks is that it is the custom of banks to take out the interest before delivering tbe money to the makers of the note. In any event the mere fact that the word “date” was substituted for the word “maturity,” as it appeared on the printed form of the note, would not give the payee of the note any notice that the substitution or alteration had been made without the knowledge of the persons.who signed the note as sureties. He would have a right to assume that the substitution or alteration was made before they, signed the note, or that it was done with their consent by the person to whom they intrusted the note for negotiation.

The addition of the words “I, we, or either of us” did not in any manner affect the liability of the parties. The legal effect of the note sued on was in no way changed.

Neither was the legal effect of the note changed by striking out the words “ Central Bank” as they appeared in the printed form of note as payee. Any one would think that a printed form of note of this bank had been used by the parties, and that the words “Central Bank” had been struck out when the makers and sureties of the note desired to procure the money from another person. The record shows that Saxon was so advised by an attorney whom he consulted, and the mere fact that he consulted an attorney in this regard did not put him upon notice that Beavers, the holder of the note, had substituted the word-“date” for “maturity” after McGill and Mason had signed it and before it had been presented to Saxon.

The result of our views is that the court erred in directing a verdict for the defendants, and should have directed a verdict for the plaintiff. Inasmuch as the case seems to have been fully developed, the judgment will be reversed, and judgment will be entered here for the full amount of the note, together with the accrued interest. It is so ordered.


author: Wood, J.

text:
    Rowland v. Griffin.
    Opinion delivered April 29, 1929.

      Robert A. Kitchen, for appellant.

      Joe Joiner, for appellee.
   Wood, J.

On September 5,1919, John Alderson and wife executed to James A. Rowland an oil and gas lease on eighty acres of land in Union County, Arkansas, for a period of ten years and as long thereafter as oil and gas, or either of them, were produced from the land under the terms of the lease. This was before oil and gas were discovered in Union County. On October 2, 1920, Alderson and wife executed a deed of trust to Finn Craig, as trustee, in favor of J. A. Rowland, on the tract of land above mentioned. This deed of trust was to secure an indebtedness to Rowland in the sum of $648.68, bearing interest at the rate of ten per cent, per annum, evidenced by note of that date. On April 28, 1920, Rowland sold the lease above mentioned, and same passed by mesne assignments to the Sun Company. On February 4, 1921, Alderson and wife executed a deed of conveyance to A. G. Griffin, conveying to him “an •undivided one-eighth of, and an interest in and to, all the oil, gas and other minerals in, under, and upon” the lands above mentioned, subject to the lease executed on the land to Rowland on September 5, 1919. The deed gave to Griffin the right to collect “such undivided one-eighth part and interest due us [Alderson and wife] or that may become due, as royalties under the aforesaid lease, should oil, gas or other minerals be produced thereunder. ’ ’ The deed warranted the title to the lands and sneh part of oil, gas and other minerals and royalties therein conveyed, and g'ave to Griffin the right to enter upon the lands for the purpose of producing, saving and removing oil, gas, and other minerals, and for collecting and receiving the royalties under the terms of the lease. This deed to Griffin was filed for record in Union County on December '23, 1921. On December 10, 1923, Rowland and Craig foreclosed the mortgage on the lands above mentioned against John Alderson and wife. Rowland became the purchaser thereof at the foreclosure sale, and received the commissioner’s deed on February 9, 1924. In the foreclosure proceedings mentioned Griffin was not made a party. The makers of the deed of trust did not redeem.

In August, 1926, this action was instituted by A. G. Griffin against Rowland and W. M. Coates, to whom Rowland had executed a deed conveying an undivided one-half interest in the oil, gas, and other minerals in and under the lands covered by the deed of trust. The trustee, Craig, and also Alderson and wife, makers of the deed of trust, were made parties. In his complaint Griffin alleged, in substance, that he was the owner of one-eighth interest in the oil, gas, and other minerals in, under, and upon the lands described in his complaint, and he asked to be allowed to redeem from Rowland the title he acquired by the foreclosure of the deed of trust mentioned. He alleged that Rowland refused to permit plaintiff to redeem, and refused to accept the mortgage indebtedness with interest. Plaintiff offered to pay into court the amount of the mortgage indebtedness with interest, and any other amounts the court might find necessary to enable plaintiff to redeem. Plaintiff also asked that the mineral deed from Rowland to Coates be canceled; and in an amendment to his complaint he asked for an accounting 'by Rowland for rents received by him and the $1,200 paid- him by Coates as the consideration for the deed from Rowland to him. Griffin in bis pleadings contended that bis deed from Alderson and wife gave bim tbe right to redeem tbe entire property sold, and to be subrogated to the rights of Rowland, tbe mortgagee. He asserted that, before be obtained bis deed from Alderson, be required Alderson to secure a written statement from Rowland authorizing Alderson to convey to Griffin all the minerals then owned by Alderson. He prayed to be permitted to redeem as set forth, and that bis title to tbe undivided one-eighth interest in all the oil, gas, and other minerals in the lands mentioned be quieted in bim, and for all other legal and equitable relief.

The pleadings on the part of the defendants admitted tbe facts as alleged in the complaint with reference to tbe instruments referred to therein and made exhibits thereto, but set up that, under the facts stated and as shown by the several conveyances, the plaintiff, Griffin, did not have the right to redeem from Rowland the entire interest, as claimed by Griffin. They admitted the right of plaintiff in the minerals to the extent of a one-sixty-fourth interest, but denied the right of the plaintiff to redeem the entire property covered by the deed of trust. They conceded that he had a right to redeem a one-sixty-fourth interest in the minerals, and asked the court to determine the amount to be paid in order to redeem said interest. Defendants denied the right of plaintiff to an accounting from J. A. Rowland of the sum collected from the sale of mineral interest to Coates, and denied that the plaintiff had the right to have title quieted to a one-eighth interest in the oil, gas, and other minerals in, under and upon said tract of land, and denied the right of plaintiff to have the mineral deed to Coates canceled. Defendant Rowland denied that he had signed a written statement authorizing Alderson to sell to Griffin all the minerals owned by Alderson, as alleged-by Griffin.

The plaintiff ‘demurred to the answer and cross-complaint, and the demurrer was overruled.

The trial court found, among other things, that, a short time after the tenth day of January, 1921, J. A. Rowland leased said land to the Sun Company for the sum of $1,200; “that the lease taken upon the said land by the defendant J. A. Rowland from John Alderson and wife, on the 5th day of September, 1919, was, on the execution of the deed of trust to the defendant J. A. Rowland by John Alderson and wife, merged into the estate created by the deed of trust; that, when the defendant leased the land to the Sun Company for the sum of $1,200', the debt due and owing to J. A. Rowland by John Alderson and wife, evidenced by the deed of trust, was settled, and the one-eighth interest in the land owned by A. G. Griffin became freed of the lien of said deed of trust.”

The court further found: “That, when the defend.ant Rowland sold and executed the deed to W. M. Coates to one-half interest in the minerals in and under said land, one-eighth interest in and to said minerals was in the plaintiff, A. G. Griffin.” The court thereupon entered a decree canceling the commissioner’s deed to J. A. Rowland, which was executed pursuant to the foreclosure of the deed of trust, in so far as it affected the title of Griffin, and also canceling the deed from Rowland to Coates in so far as same affected the title to Griffin. The court further decreed that all the right, title and interest in and to an undivided one-eighth part and interest in and to all the oil, gas and other minerals in and under the lands described in the complaint be confirmed and forever quieted in A. G. Griffin, so far as the defendant Rowland is- concerned. On the question of damages in favor of the plaintiff Griffin against the defendant Rowland, on account of the latter’s interference with the one-eighth royalty interest of the plaintiff in the land, the court found the facts had not been sufficiently developed, and retained jurisdiction of that question for further consideration. From the decree of the court is this appeal.

The pleadings are lengthy and the testimony voluminous, but the above statement is sufficient to show the issues. Such other facts from the record as are necessary will be stated as we proceed to consider the questions presented by counsel in the order set forth in their briefs.

1. The court’s decree was predicated upon its finding and conclusion of fact that the lease of Alderson and wife to Rowland was merged in the deed of trust. The court erred in its finding and holding that there was a merger. It is alleged by the appellee, and not denied by the appellants, that Rowland and wife assigned the lease to J. Edgar Pugh on April 28, 1920, and that Pugh assigned the same to the Sun Company on May 27, 1921. It is alleged by the appellee, and admitted by the appellants, that the deed of trust mentioned was executed on the second day of October, 1920. Counsel for appel-lee in his brief admits that the appellee alleged in his answer to appellants’ cross-complaint that the lease was assigned by Rowland and "wife to Pugh on April 28, 1920, and transferred by Pugh to the Sun Company, as alleged, but he >says there was no proof of such allegations. Since the allegations were not denied, it was not necessary to prove them, and there was no issue joined on such allegations and no attempt to prove or disprove them. Kenney v. Streeter, 88 Ark. 406, 114 S. W. 923. True, Rowland testified, when being questioned concerning the value of the lease at the time it was sold to the Sun Company, that he sold the same about 1920 or 1921, and,' upon further questioning, he stated as follows: “The gasser Avhich was spraying oil was brought in in T920. My recollection is I sold this lease to the Sun Company after the gasser or the first well which was 'spraying oil.’’’ But this testimony does not tend to controvert the undenied allegation of the appellee that the lease was sold in April, 1920. Therefore it is conclusively established that the lease to Rowland was transferred by him to another, and that the title to such lease was not in Rowland at the time the deed of trust was executed to him on October 2, 1920.

Jones, in Ms work on Mortgages, vol. 2, page 508, § 1080 (848), says:

“A. merger takes place when a greater estate and a less meet in one and the same person, in one and the same right, without any intermediate estate, the lesser estate being thereby merged in the greater; but merger is not a necessary result of the union of the two estates in the same person. * * * Where a mortgage incumbrancer becomes the owner of the legal title, or of the equity of redemption, a merger will not he held to take place if it he apparent that it was not the intention of the owner, or if, in the absence of any intention, the merger would he- against his manifest interest. ’ ’
“It is the general rule that, when the legal title becomes united with the equitable title, so that the owner has the whole title, the mortgage is merged by the unity of possession. But if the owner has an interest in keeping these titles distinct, or if there be an intervening right between the mortgage and the equity, there is no merger. * * * To effect a merger at law, the right previously held and the right subsequently acquired must coalesce in the same person and in the same right, without any other right intervening.” 5 Thompson on Real Property, § 4680.

Chief Justice Bellows, in Stantons v. Thompson, 49 New Hampshire, 272, at page 279, says:

“In fact, the doctrine of merger springs from the fact that, when the entire equitable and legal estates are united in the same person, there can be no occasion to keep them distinct, for ordinarily it could he of no use to the owner to keep up a charge upon an estate of which he was seized in fee simple; but if there is an outstanding, intervening title, the foundation for’ the merger does not exist, and as matter of law it is so declared.” See also McGuire v. Cook, 98 Ark. 118, 123, 135 S. W. 840, Ann. Cas. 1912B, 776.

Applying the above general doctrine to the undisputed facts of this record, there was no merg’er, and the court erred in so holding and making suoh holding the basis of its decree.

2. The next question is, "what interest did the appellant Rowland acquire by virtue of the deed of trust? The answer is, all the title and interest owned by the makers of the deed of trust at the time same was foreclosed, because they have not availed themselves of the right to redeem the same-from foreclosure sale within the time prescribed by law. See § 7411, Crawford & Moses’ Digest. At the time of the foreclosure sale, Alderson and wife, makers of the deed of trust, owned the fee in the land in controversy, burdened, however, with the outstanding lease in the Sun Company' and the interest which the appellee had acquired by virtue of his mineral deed from Alderson and wife.

3. This brings us to the question of whether or not the appellee had the right to redeem. It is conceded by the appellants that the appellee was not made a party to the suit for foreclosure, and that he would therefore have the right to redeem to the extent only of his interest, unless he is barred by laches. The appellants contend that the appellee is barred by laches because, at the time he acquired his mineral deed, February 4, 1921, he knew of the- existence of the mortgage. The mortgage was foreclosed on December 10, 1923, and appellant did not offer to redeem "from the foreclosure sale until the summer of 1926; but, in explanation of this delay to offer to redeem, Griffin testified “that he had his deed recorded in December, 1921. He was not made a party to the foreclosure suit in 1923, and did not know anything about it. He made an offer to redeem as soon as he found out that the mortgage had been foreclosed. He thought Alderson had already paid off the mortgage. Alderson was still in possession of the land.” Griffin stated that the first notice he had of the foreclosure was when he discovered it by examining the record. He went immediately to Rowland and offered to redeem, but Rowland refused, and would not talk about it.

There is no testimony on behalf of the appellants to the effect that the appellee Griffin, after he had knowledge that the mortgage had been foreclosed by Rowland, stood by and permitted Rowland to expend money on the land without protesting or disclosing to Rowland his interest, and offering to redeem same. Under these circumstances, it cannot be held that the appellee was barred by laches from his right to redeem. Appellee’s mineral deed was of record long before the suit was instituted to foreclose appellants’ mortgage, and it was the duty of the appellants, if they intended to foreclose appellee’s right of redemption, to have made him a party to their suit to foreclose. It occurs to us, under the circumstances thus disclosed by the record, that the appellee Griffin did not wait an unreasonable time before offering to redeem, and that he is not barred by laches of his right of redemption.

4. The next question for determination is that propounded by the appellants: “Has the purchaser of a part of mortgaged property, who was not made a party to the foreclosure proceedings, the right to redeem the entire equity of redemption after the period to redeem has run against the owners of the other part, or can he redeem only the interest he owns therein?” It is conceded in the above question — and, indeed, in the pleadings of the appellants — that the appellee by his mineral deed acquired an interest in the land itself, that is, to the oil, gas and other minerals in place in the land, and not merely to a royalty or rental interest in the gas, oil and other minerals after the same had been severed from the soil. The granting clause of the deed under which appellee claimed is as follows: “Do hereby grant, bargain, sell and convey unto the said A. G. Griffin and unto his heirs and assigns forever an undivided one-eighth' part of and interest in and to all the oil, gas, and other minerals in, under, and upon the following described lands, ’ ’ etc. Appellee’s deed also granted to him the right to collect and receive ‘ ‘ an undivided one-eighth part and interest dne ns or that may become due ns as royalties under the aforesaid lease on oil and gas, or oil, gas or other minerals produced thereunder under the terms and conditions hereof.” And the habendum clause has this language: “-To have and to hold said undivided part and interest in and to said oil, gas, and other minerals, and such undivided part of all said royalties becoming due under and accruing from the aforesaid lease.” But, while conceding that the appel-lee, under his mineral deed, acquired an interest in the land itself which would entitle him to the right of redemption of such interest as he acquired in the land, counsel for appellants nevertheless contend that the ap-pellee acquired only a one-sixty-fourth interest therein. We cannot concur in this contention of counsel. The language of the granting and habendum clauses above set forth are unequivocal. They show that the appellee was granted an undivided one-eighth part of an interest in and to all the oil, gas and other minerals in, under, and upon the lands” described. There is a stipulation in the record which indicates that the recorder, in transcribing the original deed upon the record, copied same, making the granting clause to read “an undivided one-eighth part of and interest in and to royalty ail the oil, gas, and other minerals,” etc., thus inserting the word “royalty” as if it appeared in the original deed filed for record in his office, when, in fact, the word “royalty” was not contained in the granting clause of the original deed. Under our registration statute, the parties are affected with notice of the original instruments as they are filed for record in the office of the recorder of the proper county. Section 1536, C. & M. Digest. The interest of the appellee Gliffin granted (by the original deed is.the interest of which all parties must take notice under the registration act, supra, from the time the deed was filed; and the erroneous copying thereof by the recorder could not affect his rights. Oates v. Walls, 28 Ark. 244; Turman v. Bell, 54 Ark. 273, 15 S. W. 886, 26 Am. St. Rep. 35; Ward v. Stark, 91 Ark. 263, 121 S. W. 382.

We are convinced therefore that the appellee, nnder his mineral deed, acquired an undivided one-eighth part of and interest in and to all the oil, gas and other minerals in the eighty acres, and not simply an undivided one-sixty-fourth interest in the land,-as appellants contend. True, the mineral deed of Alderson and wife to the appellee, conveying to, him an undivided one-eighth of the minerals in the land, recites that it is subject to a certain mineral lease executed -by the grantors to Rowland on September 5, 1919. But the appellants concede by their pleadings that the appellee, under the provisions of his deed and the lease, would have at least an undivided one-sixty-fourth' interest in the gas, oil, and other minerals in the eighty acres of land. Appellants do not contend, as we have already said, that the appellee, under his deed, did not acquire any interest in the land at all; they do not contend that appellee acquired only an undivided interest in the rentals or royalties after severance of the oil, gas, or other minerals from the land. As to the interest acquired by the lessee in a lease for the development of oil and gas, see Osborn v. Arkansas Ter. Oil & Gas Co., 103 Ark. 175, at page 180, 146 S. W. 122.

In this connection we observe that the testimony of Alderson and wife and of Griffin was to the effect that Griffin purchased from them, and they intended to convey to him, an undivided one-eighth part or interest in the gas, oil, or other minerals in the land. In other words, the testimony aliunde is in conformity with the deed itself.

5. The last question is, did the appellee’s undivided one-eighth interest in the land give him the right to redeem from the foreclosure sale the entire property sold and purchased by the appellant Rowland? “The decree foreclosing a mortgage is not void for failure to make a subsequent purchaser from the mortgagor a party, as bis only right in the property was an equity of redemption, which is not cut oif.” Livingston v. N. E. Mort. Security Co., 77 Ark. 379, 91 S. W. 752. Appellee contends that his undivided one-eighth interest in the land gives him the right to redeem the entire eighty acres from the foreclosure sale. To sustain his contention, the ap-pellee relies upon the case of Norris v. Scroggin, 175 Ark. 50, 297 S. W. 1022. In that case there was a foreclosure under the power contained in a deed of trust, and the beneficiary or mortgagee purchased at the foreclosure sale, and entered into the possession of the land under his purchase. The widow and heirs of the maker of the deed of trust instituted an action to set aside the trustee’s deed to the mortgagee. Some of the heirs were adults and others were minors at the time of the trustee’s sale, and also one of them was a minor at the time of the institution of the action. The plaintiff alleged that the trustee’s deed to the mortgagee, and the purchaser at the trustee’s sale under the power, was void, for various reasons which they set up in their complaint. The minor plaintiffs asked to be allowed to redeem the property for themselves and their cotenants. The defendant, the purchaser at the trustee’s sale, denied all the allegations of the complaint, set up title under trustee’s deed, and pleaded title by limitation, and also pleaded laches and estoppel against the plaintiffs. We held in that case that the trustee’s deed was void, and that the purchaser acquired no title thereby, because the trustee did not pursue the power contained in the deed of trust, and that the mortgage relation still continued between the mortgagee, purchaser at the void sale by the trustee, and the owners of the equity of redemption; that, although the widow and adult heirs of the maker of the deed of trust may have estopped themselves by their conduct from maintaining the action, this did not affect the right of the plaintiffs, who were minors, to maintain the action to set aside the trustee’s deed and to allow them to redeem the property for themselves and their co-tenants and to hold the defendant to an accounting as a mortgagee in possession.

An examination of the issues and the facts developed by the testimony in that case discloses that it has no application whatever to the question now to fee decided. Such an issue was not raised nor considered. The foreclosure in that case was wholly void, while in the case at bar there was a valid foreclosure, which cut off the right of the equity of redemption of the makers of the deed of trust after the statutory period for redemption had expired. In the case of Norris v. Scroggin, supra, the purchaser at the foreclosure sale by the trustee acquired no title whatever, while, in the court foreclosure in the present case, the purchaser at the commissioner’s sale, after, the statutory period for redemption expired, acquired an indefeasible title to all the interest that the makers of the deed of trust had in the land, namely, an undivided seven-eighths interest therein. But the title acquired by the commissioner’s deed under the foreclosure did not give the appellant Rowland an indefeasible title to the undivided part of the minerals in the land owned by the ap-pellee, for, as we have seen, he was not affected by the foreclosure.

Appellants contend that appellee’s undivided interest (which they assert was one-sixty-fourth) gave the appellee the right to redeem only to the extent of such interest, and not the entire eighty acres. To sustain their contention they rely upon the case of Railway Company v. James, 54 Ark. 81, 15 S. W. 15, in which the facts are substantially as follows: James sold to one Neel a block of land containing four separate lots, and reserved a vendor’s lien for the unpaid purchase money on all four lots. The vendee, Neel, before paying the purchase money, sold the railway company a strip or parcel of land forty feet wide off the north side of lots 1 and 2. James died, and his administrator instituted an action to foreclose the vendor’s lien upon the lots on which he had reserved the lien, including that which Neel had conveyed to the railway company. The railway company was not made a party to the foreclosure suit. Sale was had under the foreclosure, and the administrator of James was the purchaser. There still being a balance due, the administrator instituted an action ag’ainst the railway company to foreclose the vendor’s lien upon the forty feet which it had purchased of Neel. The railway company answered this suit, and filed a cross-complaint, in which it alleged that it had not been made a party to the suit to foreclose the vendor’s lien, and asked that it be allowed to redeem all of the lots upon which the vendor’s lien had been reserved by paying’ the entire lien debt. The court denied the prayer of the cross-bill, and entered a decree in favor of the administrator for the balance due the estate of James, and directed that the land upon which the vendor’s lien had 'been reserved be sold. In affirming the decree of the lower court, Chief Justice Cockrill, speaking- for the court, among other things said:

“It is argued that the railway company, which was the owner of the equity of redemption in a separate parcel of the premises upon which James’ vendor’s lien existed, had the right, prior to the sale under James’ decree of foreclosure, to redeem the entire premises ¡by paying the entire lien debt; and that the decree has not cut off that right, inasmuch as the company was not a party to the suit to foreclose. The rights of the parties, so far as those questions are concerned, are exactly analogous to those of a mortgagee and a subsequent vendee of the mortgagor of a part of the incumbered premises. A consideration of the equitable rules which govern those relations makes it clear that such a purchaser has not the unconditional right to redeem the whole mortgaged premises.
“The rule in such cases is sometimes stated to be that a part owner, or owner of a parcel, of the mortgaged premises may redeem the whole by paying the entire mortgage debt. But that is a generalization, and not an accurate statement of the rights of the respective parties. The reason of the rule rests solely upon the mortgagee’s right to hold his security intact and to receive his debt entire. The purchaser of a part of the premises from the mortgagor acquires no inherent right to he subrogated to the mortgagee’s advantageous hold upon the other parts. He succeeds only to the mortgagor^ rights in the parcel purchased. * * He has no other rights as against the mortgagee. If the latter is willing to apportion his security and receive the due proportion of his debt for the release of the alienated parcel, the vendee thereof can demand no more; if the mortgagee is unwilling to do that, he will be compelled to submit to equitable terms, which, by the established rule, are that he shall be made whole by the payment of the entire mortgage debt. * * * The doctrine deducible from the principles which govern the rights of the parties in cases like this may be stated as follows: A purchaser of the equity of redemption of a part of the mortgaged premises may force a redemption of the entire premises, and be subrogated to the rights of the mortgagee, only when the latter has failed to resort first to the other parts of the premises for the satisfaction of the mortgage debt, and neglects or refuses to apportion his debt and security upon equitable principles so as to permit the release of the alienated parcel.
“In the case in hand the mortgagee has resorted by equitable foreclosure to the premises not conveyed by the mortgagor before proceeding against the parcel conveyed by him to the railway. The'railway’s right to redeem its parcel remains untouched. It has no right, as we have seen, to redeem the other parts.”

Learned counsel for the appellee contends that the case of Railway Co. v. James, 54 Ark. 81, 15 S. W. 15, has no application, for the reason that in that case it was sought to redeem the entire property foreclosed under the vendor’s lien by a subsequent purchaser of a separate piece of the property covered by such lien. It will be observed that neither of the cases cited by counsel to sustain their respective contentions is precisely in point, because of the difference of the facts in those cases from the facts of the ease at bar. It occurs to us, however, that the doctrine announced in the James case is equally applicable to the facts of this record. The fact, in the James ease, that the party seeking to redeem was the owner of a separate parcel or tract covered by the vendor’s lien, while in the case at bar the party seeking* to redeem was the owner of an undivided portion of the land covered by the mortgage, is not such an essential difference in the facts of that case from the instant case as to call for the application of a different rule than that announced in Railway Company v. James, supra.

There was no request or demand on the part of the appellee to have the appellants apportion their security and to receive the due proportion of their debt for the release of appellee’s undivided one-eighth interest, and no indication that the appellants would have been unwilling to apportion their debt had such proposal been made. The appellee was seeking, by the payment of the appellant’s debt, to acquire title to the entire eighty-acre tract. This the appellee could not do, in the absence of a refusal on the part of the appellants to apportion their debt.

In Shearer v. Field, 6 Misc. Rep. 189, 195, 27 N. Y. Sup. 29, at page 33, it is said:

“But the rule which requires the owner of the equity of redemption of a part of the mortgaged premises to pay the whole amount of the mortgage and redeem the entire premises is one which was established for the benefit of the mortgagee, and it will not be enforced where the equities of the mortgagee are such that injustice will be done to him if he be compelled to convey the whole premises upon the receipt only of the mortgage debt.” Boquet v. Coburn, 27 Barb. 230-33.

In 2 Jones on Mortgages, § 1375 (1074), it is said: “And so redemption pray be made of a part where the mortgage has been foreclosed without making all of the several owners of the land parties to the suit, and the mortgagee has purchased at the sale, because he has by such proceeding and purchase voluntarily severed his right, and obtained an indefeasible title to part of the land and only a defeasible title to another part. The owner not made a party may redeem the portion owned by him on paying a part of the mortgage debt bearing such a proportion to the whole as the value of his land bears to that of the whole mortgaged premises. * * * In some cases the general rule in regard to redeeming the entire interest is so far adhered to that the mortgagee is allowed to elect whether the part owner seeking to redeem shall pay the entire amount due under the mortgage, and so redeem all the property sold, or shall pay a proportional part of that amount and redeem merely the piece of which he was the owner.” Robinson v. Fife, 3 Ohio St. 551.

As we have already stated, the decree of the trial court was bottomed upon the theory that the lease of Alderson and wife to Rowland was merged in the deed of trust also executed by Alderson and wife to Rowland. The court erred in thus departing from the issues made by the pleadings and proof in the case, and for this error the decree will be reversed, with directions to permit the parties, if they so elect, to plead further and to take further proof, and to allow the appellee Griffin to redeem under the rules of law above announced, and for such other and further proceedings as may be necessary and not inconsistent with this opinion.


author: Smith, J.

text:
    Elm Springs State Bank v. Bradley.
    Opinion delivered April 29, 1929.

      Pearson <$> Pearson, for appellant.

      W. A. Dichson and Price Dichson, for appellee.
   Smith, J.

The appellant hank sued the appellee Bradley upon a note executed to its order by Nannie and Claude Cowan, and in its amended complaint alleged the following facts as constituting its cause of action: The note sued on was a renewal note, and in making the original loan appellee “verbally stated that ‘Nannie Cowan is my sister-in-law, and if the bank will make this loan I will personally guarantee the repayment of same. ’ ” It was further alleged: ‘ That said hank, relying upon said statement of personal guaranty so made by the said W. J. Bradley, did make said loan to the said Nannie Cowan and Claude Cowan, in the sum of $437.50, on the 11th day of May, 1920, and would not have made said loan except for the personal guaranty aforesaid so made by the said W. J. Bradley.”

After alleging several renewals of the note, upon some of which appellee paid the interest, it was further alleged: ‘ ‘ That at and prior to each and every renewal of said note the said W. J. Bradley solicited the renewal of the same, and each time stated that, if the same should be renewed, he would remain bound upon his original guaranty, and guarantee the repayment of the same.”

A demurrer to this amended complaint was filed, and overruled, whereupon appellee, reserving the demurrer, filed an answer, in which he denied that he had guaranteed the payment of the note, and set up the defense of the statute of frauds.

At the trial of the cause Mustain testified that he was and for twelve years had been the cashier of the bank, and that during this time appellee, who was the largest stockholder, had been a director and vice president. Appellee, who was vice president at the time the original loan was made, wanted the loan made Nannie and Claude Cowan to pay.a note for $437.50 which they owed on a truck. Witness declined to make the loan until the board of directors of the bank had approved it, and, when the board met, Bradley put in an application for a loan to Mrs. Cowan, who, Bradley said, was his sister-in-law, and was reliable and responsible. Neither- witness nor the president of the bank knew the Cowans, and the president stated that, as he did not know the Cowans, and they were not depositors of the bank, “he would absolutely refuse to make the loan, unless Mr. Bradley himself would guarantee the loan; so Mr. Bradley said he would absolutely guarantee the loan if the bank would let Mrs. Cowan have the money. The loan was made upon the credit of Mr. Bradley absolutely. It was not made upon the credit of Mr. or Mrs. Cowan, and would not have been made except for Mr. Bradley’s promise to pay it or see that it was paid.” The note was renewed several times at the request of Mr. Bradley, who more than once paid the interest upon the renewal.

The cashier further testified that Bradley was present at' the board meeting when it was decided to make the loan, and the minutes of this meeting were offered in evidence, it being therein recited: “Application secured from W. J. Bradley for a loan to Nannie Cowan for $437.50. W. J. Bradley agrees to guarantee payment of said loan.” The minutes were signed by the president and secretary.

The testimony of the president of the bank is substantially the same as that of the cashier.

The testimony of appellee is in irreconcilable conflict with that of the cashier and president of the bank, his testiihony being to the effect that he presented an application for this loan, and recommended that it be made, but that he did not guarantee it. He called attention to the fact that he did not sign the minutes of the bank meeting, and stated that he did not know such minutes had been written up.

There was no question about the amount due on the note, this being, with the interest thereon, something over $500, yet the .jury returned a verdict in favor of the bank for only $200. Judgment was rendered upon this verdict, and both parties prayed and were granted an appeal.

Appellant insists that judgment should have been rendered in its favor notwithstanding the verdict for the full amount of the note; whereas appellee insists that the judgment rendered should be reversed, and the cause remanded with directions to sustain his demurrer to the complaint.

Appellee’s abstract of Ms motion for a new trial refers only to Ms demnrrer, and we consider no other question, as it is not likely, if the complaint should he amended to conform to the requirements of this opinion, that another inconsistent verdict will be returned by the jury. If so, the case of Fulbright v. Phipps, 176 Ark. 356, 3 S. W. (2d) 40, defines the practice which the trial court should follow.

It has been several times held that the defense that an action sued on was barred by the statute of limitations cannot be raised by demurrer in an action at law, unless the complaint shows on its face that it is barred and also the non-existence' of any ground of avoidance of the statute. Central Clay Drainage Dist. v. Hunter, 174 Ark. 293, 295 S. W. 19; McCollum v. Neimeyer, 142 Ark. 471, 219 S. W. 746; Flanagan v. Ray, 149 Ark. 411, 232 S. W. 600; Brown v. Ark. Central Power Co., 174 Ark. 177, 294 S. W. 709.

The same rule — and for the same reason — applies to a demurrer raising the defense that the statute of frauds bars a recovery, as it has been held that a complaint which declares upon a contract which the statute requires to be in writing will be presumed to have been made in writing, or as required by the statute, and proof of a written contract will be necessary to sustain the allegations of the complaint. Hurlburt v. W. & W. Mfg. Co., 38 Ark. 594; Gale v. Harp, 64 Ark. 462, 43 S. W. 144. If the defendant denies the existence of a contract, which, to be enforceable, must be in writing, but does not plead the statute of frauds, the plaintiff, to prove the existence of a valid contract, must prove one in writing. Chicago Mill & Lbr. Co. v. Matthews, 163 Ark. 571, 260 S. W. 963; McCorkle v. H. K. Cochran Co., 144 Ark. 269, 222 S. W. 34; Cook v. Cave, 163 Ark. 407, 260 S. W. 49; O’Bryan v. Zuber, 168 Ark. 613, 271 S. W. 347; Stooksberry v. Pigg, 172 Ark. 765, 290 S. W. 355; Allen v. Bank of Eureka Springs, ante, p. 334.

Here the complaint alleges that the defendant agreed “if the bank will make this loan, I will personally guarantee the repayment of same, ’ ’ which is clearly an action to'charge the defendant upon a “special promise to answer for the debt, default or miscarriage of another,” within the meaning of the second paragraph of § 4862, C. & M. Digest, and the statute-expressly provides that no such action shall be brought unless such promise, or some memorandum or note thereof, shall be made in writing, and signed by the party to be charged therewith, or signed by some other person by him thereunto properly authorized. Nor can there be any presumption here, under the cases above cited, that the contract, which,- to be enforceable, must have been in writing, was in writing, for the complaint alleges that the promise was a verbal one. The demurrer should therefore have been sustained, as the complaint shows on its face that the action is barred by the statute of frauds, and shows also the nonexistence of any ground to avoid the application of the statute.

It is true the complaint does allege that the bank “would not have made said loan except -for the personal guaranty aforesaid so made by the said W. J. Bradley,” but the truth of this allegation, which the demurrer admits, does not prevent the statute of frauds ' from applying.

' In 27 C. J., chapter “Frauds, Statute of,” page 143, it is said:

“There is some authority for the view that the promise is original and not within the statute, although the third person who received the benefit is also concurrently liable therefor, provided the 'credit was given solely to the promisor, and the promisee did not rely upon the liability of the third person. But the great weight of authority rejects this view, and holds that, if the third person is liable at all, the promise is collateral and must be in writing, unless there is a new consideration beneficial to the promisor, received under such circumstances that he thereby comes under an independent duty to pay without regard to the liability of any other person.”

Among the many cases cited to support the majority view quoted is our own case of Kurts v. Adams, 12 Ark. 174, which, since its rendition, has been cited and followed many times by this court. In reaffirming the Kurtz case in the case of Chapline v. Atkinson, 45 Ark. 67, 55 Am. Rep. 531, Mr. Justice Eakin said: “However that may be, it has been the doctrine of this court for more than two-score years, without question or dissent. It is not res nova.”

In the case of Grady v. Dierks Lumber & Coal Co., 154 Ark. 255, 242 S. W. 548, it was said: “If the undertaking was, in fact, a collateral one, the (to) answer for the default of the parties who purchased the goods, the fact that the promise was the ‘sole and inducing cause’ did not transform the contract into an original undertaking.” See also Mankin v. Jones, 63 W. Va. 373, 15 L. R. A. (N. S.) 214; Grady v. Dierks, 149 Ark. 310, 232 S. W. 23; Millsaps v. Nixon, 102 Ark. 435, 144 S. W. 915; Swobnda v. Throgmorton, 88 Ark. 592, 115 S. W. 380; Goldsmith v. First Natl. Bank, 169 Ark. 1162, 278 S. W. 22.

For the reasons stated the complaint was demur-rable; and we are also of the opinion that there was no testimony changing the character of the action alleged in the complaint, according to which testimony the complaint could be treated as being amended to conform thereto. The cause of action alleged, and that proved by the plaintiff’s testimony, was the breach of a verbal contract of guaranty to pay another’s debt, and that it was the debt of another — the Cowans — is shown by the fact that they signed the original note and each renewal thereof, and theirs were the only names appearing on the note.

The subsequent promise of appellee to pay the note if renewed was a mere renewal of the original promise, and was not made upon any consideration to him moving, and was as much within the statute as the original promise. Ackley v. Parmenter, 98 N. Y. 425, 50 Am. Dec. 693; Patton v. Robbs, 175 Ark. 784, 300 S. W. 388; Zimmerman v. Hall, 102 Ark. 407, 144 S. W. 222.

The minutes of the meeting of the hoard of directors of the bank were not a sufficient writing to comply with the statute of frauds, for the reason that they were neither written nor signed by appellee, the party sought to he charged. Trustees of the Free Schools in the South Parish of Andover v. Flint, 13 Metcalf (Mass.) 539; Flint v. Pierce, 99 Mass. 68, 96 Am. Dec. 691.

In the case of Chicago Mill & Lbr. Co. v. Matthews, supra, it Avas held that the party to toe charged is the party to be charged in an action, and in the instant case that party is appellee, who neither wrote nor signed the minutes.

In the recent case of Central Clay Drainage Dist. v. Hunter, supra, it was held that the minute-book of the board of directors of an improvement district was a sufficient memorandum signed by the party to be charged to satisfy the statute of frauds; but there the record had been made by the party sought to be charged, which is not the case here.

The judgment of the court below will therefore be reversed, and the cause remanded with directions to sustain the demurrer to the complaint.


author: Humphreys, J.

text:
    Chicago, Rock Island & Pacific Railway Company v. McCrary.
    Opinion delivered April 29, 1929.

      Busbee, Pugh & Harrison, for appellant.

      Marvin B. Norfleet, for appellee.
   Humphreys, J.

Appellee 'brought this suit against appellant in the circuit court of St. Francis County, to recover damages in the sum of. $1,50.0 for injuries alleged to have been received on the 30th day of November, 1927, while a passenger on its train No. 42, through its alleged negligence in maintaining the foot-rest attached to the seat in front of the seat in which he sat, in an un-repaired and defective condition, in that same was jammed or locked in .an upward position instead of being in a downward position, and working up and down, as it should, on a pivot.

Appellant filed an answer, denying the material allegations of appellee’s complaint, and pleading, by way of an additional defense, contributory negligence on the part of appellee.

The cause was heard upon the pleadings, testimony and instructions of the court, which resulted in a verdict and consequent judgment in favor of appellee for $350, from which is this appeal.

At the conclusion of the testimony, appellant requested an instructed verdict, upon the theory that no liability was shown under the testimony, which instruction was refused by the court, over appellant’s objection and exception; and the only contention made for a reversal of the judgment on this appeal was the refusal of the court to peremptorily instruct a verdict for appellant. We now proceed to a determination of that contention.

The testimony, viewed in the most favorable light to appellee, reflects that he entered the day coach of appellant at Forrest City as a passenger to Memphis, and took a seat, without noticing- the condition of the foot-rest attached to the seat in front of where he sat; that the foot-rest was turned upward, jammed and locked, instead of being turned downward and working upon a pivot, as it should have done; that he extended his feet along the floor, and immediately went to sleep; that in so extending his feet they passed under instead of over the footrest, on account of its being turned up instead of down; that when he reached his destination in the station at Memphis he arose from his slumbers for the purpose of debarldng, and in withdrawing his feet he cut his shin on the foot-rest, on account of it being up and stationary in stead of being down and working on a pivot. The injury received caused a running sore, which did not disappear until the following July, and which resulted in extra expense, loss of time from business, and much pain and suffering.

The testimony introduced by appellant tended to show that the foot-rest was not out of repair.

Appellant’s insistence is that, conceding the foot-rest was turned up instead of down, jammed and locked so that it would not work up and down on its pivot, yet it was not in such a defective and unrepaired condition that appellant, in the exercise of the highest degree of care, should have anticipated would probably he dangerous to some passenger.

The rule invoked as applicable herein is the rule announced 'by this court in the case of St. L. & S. F. R. Co. v. Dyer, 115 Ark. 262, 170 S. W. 1013, to the effect that: “ A railroad company is required to guard against only those things which, in the exercise of the hig-hest degree of care, it should anticipate would probably be dangerous to some passenger.” In the case cited the injury occurred in the vestibule at the rear end of the train, where passengers were not entering or leaving the train. The trap was left up in order that the porter might flag the train out of the station until it backed down to the main line, which led to Port Smith, and that, after having done so, he (the porter) could enter the train without having it wait until he went to the front end of it and was admitted, and that thereafter both the trap and the door would be kept closed. Appellee in that case, as well as the other passengers, were admitted at other entrances, and they knew that the places they entered were the places of exit. Under the facts in that case the court found as a matter of law that the railroad company was not making a negiigent use of the rear vestibule, trap and door, and that it was under no duty to anticipate that the injured passenger would open the back door of the end coach, enter the vestibule, and be injured in the manner he was injured. The facts in the case cited are entirely different from the facts in the instant case. In the instant case the foot-rest was out of repair to such an extent that it protruded upward instead of downward, and was so jammed or locked that its position was stationary instead of working up and down, as it should, on a pivot. Had it not been defective, its position would have been close to the floor, so that no one could put his feet under it without raising it, but in its defective position one could extend his feet under it without raising it. The defective foot-rest was in front of the seat provided for the use of passengers, and where they were expected to be. There was no rule against passengers sleeping in their seats, and it is quite natural and a common thing for them to fall asleep while riding on a moving- train. In doing so it would be perfectly natural for a passenger to extend his feet so as to make himself comfortable while in a reclining position. We think it entirely reasonable that the railroad company should have anticipated that a passenger might so extend his feet and limbs and in withdrawing same might be injured' on a foot-rest that was out of order and stationary on that account.

The general rule of law is that it is the duty of railroad companies to exercise the highest degree of care' to see that every appliance connected with its train is kept in repair and in a safe condition for the protection of passengers. Under the facts in the instant case we think it was a question for the jury to say whether the foot rest was out of order to such an extent that the carrier should have anticipated that it would probably be dangerous to some passenger. The duty rested upon the railroad company to inspect and detect the defect in the appliance, and no such duty rested upon the passenger. The defense that appellee contributed to his injury has no place under the facts in this case, as the undisputed evidence’ revealed that he did not detect the condition of the foot-rest until he received the injury. No duty rested upon him to inspect the appliances furnished him, and unless it had been shown that he discovered the condition of the foot-rest before he extended his feet under same, it cannot be said, as a matter of law, that he was guilty of contributory negligence.

No error appearing, the judgment is affirmed.


author: Mehaffy, J. Hart, C. J.,

text:
    Sternberg v. Blaine.
    Opinion delivered April 29, 1929.

      James G. Costón and J. T. Goston, for appellant.

      Emil Rosenberger and Little & Buck, for appellee.
   Mehaffy, J.

This action was instituted in the Mississippi Chancery Court by appellants, who were creditors of the Bank of Blytheville, against J. C. Blaine and others, directors of said hank, to recover on account of the alleged negligence of the directors. Suit was also brought by the Grassy Lake & Tyronza Drainage District No. 9 and Eva Johnson, administratrix, against the directors. The suits were consolidated, and actions were discontinued as to all defendants except Blaine.

The Bank of Blytheville was organized some time about 1900, and it was closed by the Bank Commissioner on March 10, 1920. J. G. Sudbury was president of the bank prior to the time that Blaine 'became a director. Sudbury died in November, 1918, and on January 13, 1919, J. C. Blaine was. elected director. Blaine was a nonresident of the State, his home being at Wellsville, Missouri. Blaine was a man 70 years of age; had business interests in Blytheville, and owned property there, and his business there took him to Blytheville regularly once a month, and sometimes twice a month.

J. G. Sudbury, who had formerly been president and manager of the bank, was a man of unquestioned integrity, and had active charge of the affairs of the bank prior to the time Blaine became a director. All of the directors and persons in charge of the bank at the time Blaine became a director were men of good reputation, regarded as honest and competent.

The Bank of Blytheville was regularly examined bv examiners from the Banking Department, and no irregularities were eyer discovered, and..theJaank was._ap.pñr-erdly in g'ood condition and prosperous at the time Blaine became a director. On the 10th of March, when the Bank Commissioner took charge of the bank, it was not only insolvent, but the audit made under the direction of the bank examiner disclosed the fact that the cashier and assistant cashier had, during the last three years, stolen approximately $800,000. They had ner-mitted overdrafts for large sums of money, and these overdrafts were, not shown on the records of the hank, bnt were deposited in a 'box in the vault. There was nothing in the bank records anywhere to indicate that these overdrafts existed, or that the cashier or assistant cashier had stolen any tnoney. In some instances, when they had stolen money, they would charge the amount stolen to some depositor, indicating on the records that the depositor had drawn a check and that the money had been paid to him. If the depositor thereafter called for a statement of his account or asked that his book be balanced, this erroneous charge would not show on his statement or on his book, but his statement would show a correct balance. This system had been going on for at least three years, and had never been discovered by the bank examiner or any one else. The cashier and assistant cashier did not keep their records up, but kept them two or three days behind, but, if the bank examiner came, they would bring the books up to date, and they were so prepared as to show no irregularities, no thefts, and no overdrafts, except what would be usual in a bank of this kind.

Blaine and the other directors met monthly, and would pass on the notes and collateral and make such examinations as are usually made by directors of banks of this kind, and there was nothing shown on the books of the bank to indicate any mismanagement or any thefts.

Blaine attended all the meetings of the directors after his election, except four or five. At the time those meetings were held he was absent either because of sickness of himself or his wife.

The case of Creamery Package Co. v. Wilhite, 149 Ark. 576, 233 S. W. 710, was a suit involving the negligence and carelessness of Blaine and other directors of the Bank of Blytheville, but the court held in that case that the appellants failed to show any right on their part to maintain the suit, and that, for that reason, a demurrer was properly sustained. The complaint in that case, however, sets out the acts which it is alleged constituted the negligence.

The law applicable to the instant case is well settled by the decisions of this court. This court has said:

‘ ‘ The court then adopted the rule announced by Mr. Justice Harlan in the case of Briggs v. Spaulding, 141 U. S. 132 (11 S. Ct. 924), as follows: ‘Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going' on around them. It is their duty to use ordinary diligence in ascertaining the condition of its busi-. ness, and to exercise reasonable control and supervision over its officers. They have something more to do than, from time to time, to elect officers of the bank, and to make declarations of dividends. That which, they ought, by proper diligence, to have known as to the general course of business in the bank, they, may be presumed to have known, in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business. * * * A rule no less stringent should be applied as between a banking association and directors representing the interests of stockholders and depositors.’ The substance therefore of the test laid down in that case, of the responsibility of directors to stockholders as well as to creditors, is good faith and diligence. The mere exercise of poor judgment is not sufficient to form a basis of liability, for, when directors are selected by the stockholders, the latter assume the risk of losses occurring' on account of mere defects in judgment, and in acceptance of the office by the director he merely assumes the obligation to manage the affairs of the institution with diligence and good faith. ’ ’ Muller v. Planters’ Bank & Trust Co., 169 Ark. 480, 275 S. W. 750. See also Bank of Commerce v. Goolsby, 129 Ark. 416, 196 S. W. 803.

There are numerous Arkansas oases cited by the court in the opinion of the above case, showing that the rule is well established in this State that the directors are liable for failure to use diligence-and good faifh.

The rule was again announced by this court in Ford v. Taylor, 176 Ark. 843, 4 S. W. (2d) 938. It may therefore be stated as the settled rule in this State that any failure of a director to exercise diligence or good faith which results in loss to a stockholder or creditor, entitles such stockholder or creditor to require the directors whose negligence have caused the loss to pay. In other words, the_direstorJwh-ose negligence causes loss is liable for s'uich loss_to stockholders and creditors.

It was, however, said in the last case cited that the directors of a bank are not liable for any losses sustained by transactions occurring before the examination by the bank examiner, because, prior to that time, the directors were not aware of the precarious condition of the bank; they had onet regularly and kept their records properly, and had a discount committee which had functioned, and the directors had made an audit of the bank’s affairs in 1924.

Keeping in mind the rules above announced, the question of the liability of Blaine must be determined by the evidence in the case. If the preponderance of the evidence shows that Blaine was guilty of negligence which caused a loss or resulted in a loss, he would be liable for the amount of the loss due to his negligence or his failure to exercise ordinary diligence with reference to the management of the bank.

It is not contended that Blaine was dishonest, or that he had any intention of doing wrong, hut it is earnestly contended by learned counsel that he was guilty of negligence in failing to discover that the cashier and assistant cashier were stealing money from the bank. It is said that, if Blaine did not know the condition of the bank, he could have known it by the exercise of ordinary care, and that the exercise of ordinary care would at least have disclosed conditions that would have aroused his suspicion and caused him to make further inquiry, whereby he would have discovered the shortage.

Ordinary care means such care as a man of ordinary prudence would' exercise under similar circumstances. When Blaine became a director of the bank, all of the other directors had 'been managing the bank for a long while, and were regarded as men of honesty and integrity, and there was no suspicion about the dishonesty of any of them. They lived at Blytheville, and Blaine lived in Missouri, and the evidence does not show that anything had occurred or had been brought to Blaine’s attention to arouse the suspicion of any one. It is urged that, when Wilhite and Anthony, the cashier and assistant cashier, were speculating and making deals, they required large sums of money, and that these facts should have aroused the suspicion of Blaine and caused him to make investigation. These transactions, however, begun two or three years before Blaine had any connection with the bank, and there is no evidence that Blaine had any knowledge of these transactions .or ever heard of them. Besides, the evidence shows that they were supposed to have made large sums of money; 'but, whether they made money or lost money by these transactions, there is no evidence that Blaine, who lived in Missouri, ever heard of them. Moreover, these transactions were alleged to have taken place at the time when Mr. Sudbury was president of the bank and Judge Taylor was a director, and it is conceded that 'both these men were men of character and ability and that there was never any suspicion of wrongdoing on the part of either of them. They weré at the time managing the bank.

It is also urged that the overdrafts of Anthony and Wilhite should have been discovered by Blaine, and, if discovered, would have aroused his suspicion and caused an investigation to be made that would have disclosed the thefts by these parties. Most of these drafts were kept in a box in the. vault, and there was nothing on .the. record to show anything about.these overdrafts. One of the drafts for $179,736.32 was an overdraft or shortage of Jim’Reese. It appears from the testimony of Mr. Moore that this Reese draft was not disclosed ¡by the record; that it was found in the box in the vault, and that there was no record of any of the checks being entered on the bank books. There was then no possible way that the examination usually made by directors would have discovered the Reese shortage.

The evidence also shows that the cashier and assistant cashier would take money of the bank and then charge to the account of depositors enough money to make 'their books balance, and that, instead of showing any irregularity or misconduct on their part, the books would show that the money which they had stolen had been drawn out by depositors. If a depositor, whose account had been charged with money that he did not get and had not drawn a check for, called for his statement, or for his book to be balanced, his book would be balanced, showing a correct balance, and this charge which was made to cover up their theft would not appear on his statement. No ordinary examination usually made by directors of a country bank, however careful, would have discovered these things. And the auditor, Mr. Moore, states that these things could have been discovered if there had been no dishonesty, but admits that the dishonesty and false records would have prevented a discovery of the theft by an ordinary examination, and, in order to discover them, that an audit would be necessary.

It is also urged that the discrepancies between the cashbooks should have been discovered, and caused an investigation or an' audit of the books. This would be j true if the shortage was indicated by the books, but, when ¡ the books were examined by the directors and examined/ by the bank examiner, there was no shortage shown. This bank had been regularly examined by the bank examiner, and the different bank examiners had failed to discover the theft, or any irregularities, or any suspicious circumstances that would cause them to require a further examination or an audit of the books.

It is argued by learned counsel that the method of examination by the bank examiners was a sham, and that the evidence does not show that they failed to discover, but simply shows they failed to report it. There is no evidence that there was any dishonesty or carelessness on the part of the bank examiners; but, even if there was, certainly there is no evidence tending to show that Blaine knew anything about this. And, while a failure of the bank' examiner to perform his duty did not excuse the directors from the performance of their duties, yet the fact that it was examined regularly by the bank examiners is a circumstance tending to show that the directors were not negligent in the performance of their duties.

The testimony is quite lengthy, and, while Moore and one or two other witnesses testify that the discrepancies should have been discovered by the exercise of ordinary care, still they admit that, if the money was stolen and covered up in the manner in which the bank examiner testified that it was covered up, it would have required an audit of the books, and that it could not have been discovered by an examination of the books.

It would serve no useful purpose to discuss each question separately. There is no dispute about any principles of law. As we have already said, the law applicable to this case has been settled by repeated decisions of this court to the effect that bank directors must exercise diligence and good faith. That means such diligence and such good faith as would characterize the conduct of a man of ordinary prudence.

In the absence of any reason to suspect the honesty of the cashier, there is no duty upon the directors to do more than is ordinarily done by directors of a bank of this kind. A bank director is not required to be an expert nor a competent bookkeeper, nor to do more in the general management of the bank, with reference to its cashier and bookkeeper, than to see that the statements made to the board correspond to the books, unless there is some reason for doubting the fidelity of the trust confided to the cashier or bookkeeper. Knowledge of all the affairs of the bank cannot be imputed to a director for tbe purpose of cbarging him with liability, unless there is something about the conduct of the cashier or bookkeeper or abou1> the affairs of the bank that would arouse the suspicion; of a man of ordinary prudence.

We do not think that the overdrafts that showed on the books of the bank, nor the borrowing of money, under the circumstances, would have been any notice that there was anything wrong with the management of the bank’s affairs or that would have required anything more than the examination usually made by directors.

Applying these principles of law, does the evidence show that Blaine was negligent in the performance of his duty as a director? Sudbury, Taylor and others who managed the bank were men of integrity and of good business, judgment. They were interested largely in the bank as stockholders. No one doubts their honesty or business ability. They had failed to discover anything wrong or irregular in the bank’s affairs. The State Bank Examiner had examined the bank frequently, and found nothing wrong. The books of the bank showed that it was in a prosperous condition. What was there, then, to arouse the suspicion of anybody who had a knowledge of all these facts?

It is urged that the bank examiner who went there on March 10 did discover the ’shortage of approximately $27,000. That is true; but, if he had permitted the cashier or assistant cashier to bring the books up to date, instead of doing it himself, he would not have discovered the shortage probably, and it was usual to let the officers of the bank bring the books up to date. Again, they had probably continued their thefts about as long as it was possible for them to do, or at least Anthony thought they had, and he had concluded to disclose the truth to the bank examiner.

As we have said, the decision of the case depends upon the evidence, and, while chancery cases are tried de novo here, yet .it is a well-established rule of this court that the findings of the chancellor, unless against the preponderance of the evidence, will he sustained.

The findings of the chancellor in this case are not against the preponderance of the evidence, and the decree is therefore' affirmed.

Hart, C. J.,

(dissenting). In a case-note to 2 A. L. R., page 871, it is said that the directors of a commercial bank are liable for defalcations of its executive officers or employees, due to their want of reasonable care. Among the cases cited is Campbell v. Watson, 62 N. J. Eq. 396, 50 Atl. 120, where the rule itself and the reasons for it are stated in a clear and comprehensive opinion, containing a review of the authorities by Pitney, V. C., who after-wards became a justice of the Supreme Court of the United States and was recognized as one of its most valued members. The case of Fletcher v. Eagle, 74 Ark. 585, 86 S. W. 810, 109 Am. St. Rep. 100, was also cited, where it was held that the directors are not justified in committing the entire control of the bank to the president, however honest and faithful they believe him to be.

The opinion of the majority recognizes the rule, and our dissent is based upon its application to the facts of the° case. In the application of the rule, the directors-ar.e charged with knowledge when, by the exercise of ordinary care, they might have knowledge that the cashier was taking the money of the bank and using it in his own business ventures. They cannot escape liability on the ground that they were ignorant of the wrongdoing of the cashier, where their ignorance was the result of their failure to exercise reasonable or ordinary care in their supervision of the affairs of the bank. They cannot go to sleep and justify their action on the ground that the cashier had borne a good record previously for honesty and that he would continue to justify their good opinion. Bank directors must not merely be honest themselves, but they must exercise ordinary care and diligence to see that the cashier and his assistants are honest and continue to be so. This is not a case where the shortage of the cashier resulted from single or disconnected acts of peculation on the part of the cashier and his assistant, but the shortage resulted from a continuous and connected course of fraudulent practices and dishonest acts on the part of the cashier and his assistant. The cashier and his assistant engaged in speculative ventures in real estate in Mississippi County, Arkansas, and in oil leases in the State of Louisiana, which required the use of hundreds of thousands of dollars. An account of these various enterprises was published in the local newspaper in the city where the bank was doing business. The directors knew that the cashier and his assistant did not have any money of their own, and they were charged with knowledge that they might be using the money of the bank. Their speculations extended over a period of three years without any effort on the part of the directors to find out if they were using the funds of the bank.

The record shows that there was a shortage of $607,526.55, which resulted from the act of Wilhite, the cashier, and Anthony, his assistant, in using* the funds of the bank during the past three years. Of this amount, $117,019.51 represented overdrafts in the account of Wil-hite and Anthony which had been running for three years. An additional $179,736.32 represented overdrafts in the account of James Reese, which had been running for three years. This account was a fictitious one and was not carried on the books of the bank. It represented money which had been taken by the cashier and used in his various speculations. It is insisted that these matters were covered up by spreading the various amounts of the overdrafts among the accounts of different customers. This was only done when it was expected that the bank examiner would come and examine the books of the bank, which only occurred once, or at most, twice a year. The bank examiner usually examined another bank in the city first, and Wilhite and Anthony had time to pad the accounts of the bank before the examiner came to examine their bank. Tha.reeord.-slrow-s-th-a-t the- directors met monthly_and signed the statement prepared by the cashier without any effort to ascertain whether it was true or untrue.

Blaine seeks to escape liability on the ground that he was absent from two of these monthly meeting’s of the directors. This was no excuse. An examination or comparison of any monthly statement prepared by the cashier showing the reported cash on hand, cash items and daily balances, with the actual cash on hand and the overdrafts which were in the hands of the bank and carried as cash items, would have disclosed a shortage.

It is true that it might have been necessary to have a bookkeeper to examine the accounts of the bank to have disclosed the actual amount of the shortage- and the nature of it, but no particular experience as a bookkeeper and no extended examination of the bank’s books was necessary to show that an actual shortage existed. As we have already seen, the bank directors were put on notice that Wilhite and Anthony were using the funds of the bank by their actual knowledge that they were engaging- in various enterprises requiring large sums of money and by their knowledge of the fact that they did not have any money of their own. A prudent man would have at least asked them where they got the money with which they were speculating, and would have counted the cash actually on hand when the monthly statements were made, and have compared the cash on hand -with the daily balances showing a report of the cash on hand. This would have, of necessity, disclosed the existence of the overdrafts which were carried as cash items. An examination of the cash items would have led to the fact that Wilhite and Anthony had a large account in their own names with the bank, which showed that they were 'using the funds of the bank in their own speculations and were always overdrawn to a large amount. An examinaT tion of the cash items too would have led to a discovery of the account of James Reese and that this was a fictitious account resulting from large overdrafts, and that the money had been used by Wilhite and Anthony.

Then, too, the directors of the bank should have had their suspicions aroused during the month of August, when the cashier recommended that the bank should 'borrow over $300,000 with which to carry on its business. At this time the monthly statement showed a large cash balance and small overdrafts. Thus it will be seen that any sort of an examination or counting of the cash would have disclosed the shortage. If the bank had a large amount of cash on hand and a small amount of overdrafts, it would not be necessary to borrow a large amount of money with which to carry on the business of the bank. Hence no skill in bookkeeping nor any extended examination of the books of the bank was necessary to discover that a shortage existed.

Directors, by approving the monthly statements, gave assurance to the stockholders and depositors that the bank was being safely and honestly managed, without doing what prudent men of business would recognize in their own affairs as essential to make such an assurance of value. In this connection we call especial attention to the dissenting opinion of Mr. Justice Harlan in Briggs v. Spaulding, 141 U. S. 132, 11 S. Ct. 924, the trend of which has been substantially adopted and approved by this court in Bank of Commerce v. Goolsby, 129 Ark. 416, 196 S. W. 803.

Mr. Justice Humphreys and Mr. Justice Kirby concur in this dissent.


text:
    Lankford v. Cain.
    Opinion delivered April 29, 1929.

      J. R. Long and W. D. Sivaim, for appellant.

      A. T. Davies, for appellee.
   McHaney, J.

Appellant, a white woman, brought this action to recover from appellees, negro pawnbrokers, the value of one diamond which she alleged they took from her by substitution, a trick amounting to theft. There was a trial to a jury, which resulted in a verdict and judgment for appellees.

Complaint is made of the admission and refusal of certain testimony over appellant’s objections and exceptions. No sufficient abstract is made of the testimony for us to pass upon these questions intelligently. No abstract is made of the motion for a new trial, and we cannot tell, without exploring the record, whether these alleged errors were assigned therein.

Complaint is also made of the use of the word “ring” instead of “diamond” by the court in its instructions to the jury. This is the only error argued regarding the instructions, and it was such an error, if an error at all, as should have been met by a specific objection. True, this suit was for the value of a diamond stone, and not a “ring,” and if specific objection had been made, no doubt the court would have corrected his reference to the subject-matter. No such objection was made, and we do not think the jury could have been misled thereby. No objections or exceptions were made to the instructions, and no instructions were asked and refused.

As no error appears, the judgment must be affirmed. It is so ordered.