Baker-Matthews Lumber Company v. Bank of Lepanto
| Decision Date | 03 May 1926 |
| Docket Number | 340 |
| Citation | 282 S.W. 995,170 Ark. 1146 |
| Parties | BAKER-MATTHEWS LUMBER COMPANY v. BANK OF LEPANTO |
| Court | Arkansas Supreme Court |
Appeal from Poinsett Chancery Court; J. M. Futrell, Chancellor affirmed.
STATEMENT BY THE COURT.
This was a bill to foreclose a mortgage on timber executed by W J. Rowe & Sons, a partnership, to the Bank of Lepanto, on the 10th day of September, 1919, to secure an indebtedness of $ 10,000. A renewal mortgage on the same property to secure the same indebtedness was executed on July 20, 1922, and duly filed for record.
A receiver was asked on the ground that the mortgagors had cut and sold timber to an amount which impaired the mortgage security, and the Baker-Matthews Lumber Company, a corporation, was made a defendant on the ground that it had purchased the timber from the mortgagors and converted it to its own use. It was also alleged that the mortgagors were insolvent.
The Baker-Matthews Lumber Company defended the suit on the ground that the mortgage was invalid as to third parties, and on the further ground that the mortgagee gave permission to the mortgagors to cut the timber; or at least that it was estopped by its conduct from claiming the proceeds from the sale of the timber. The mortgage sought to be foreclosed was executed on the 20th day of July, 1922, and was duly filed for record.
The description of the property is "all the timber now standing and growing, or having been recently cut down," on certain lands "which are described according to the United States Government surveys." The mortgage recites that it is executed for the purpose of renewing an instrument between the same parties executed on the 10th day of September, 1919, and for the purpose of renewing the indebtedness created at that time. The indebtedness recited is the sum of $ 10,000, evidenced by a promissory note for that amount payable to the Bank of Lepanto on demand, with interest at 10 per cent. per annum until paid.
The record shows that the original mortgage was executed on the 10th day of September, 1919, and that it was duly filed for record. The description of the property in it is also "all of the timber now standing and growing, or having been recently cut down," on certain lands, which are described according to the United States Government surveys. The indebtedness is recited to be $ 10,000, evidenced by two promissory notes for the sum of $ 5,000 each, bearing interest at the rate of 10 per cent. per annum from date until paid. One of the notes is due four months after date and the other eight months after date. The evidence shows that none of the mortgage indebtedness has been paid.
Other facts relating to the issues raised by the appeal will be stated and discussed under appropriate headings in the opinion.
The chancellor found the issues in favor of the plaintiff, and made a particular finding that W. J. Rowe & Sons were insolvent, and that it was necessary for the protection of the mortgage indebtedness that the plaintiff should recover the stumpage value of the timber cut and removed, which was included in the mortgage.
It was decreed that the plaintiff should recover $ 9,468.16, with 6 per cent. interest from December 15, 1924, from the Baker-Matthews Lumber Company. To reverse that decree, the Baker-Matthews Lumber Company has duly prosecuted an appeal to this court.
Decree affirmed.
H. R Boyd and Charles D. Frierson, for appellant.
John W Scobey and Hawthorne, Hawthorne & Wheatley, for appellee.
OPINIONHART, J., (after stating the facts).
It is first contended by counsel for appellant that the decree should be reversed on the ground that the mortgage in question is constructively fraudulent and void, as far as the rights of appellant are concerned. They invoke the settled doctrine of this court that a mortgage on a stock of merchandise, which on its face expressly or by necessary implication authorizes the mortgagor to dispose of the property as his own, is, as a matter of law, without reference to the actual intent of the parties, fraudulent and void as to the rights of third parties. Lund v. Fletcher, 39 Ark. 325; Gauss Sons v. Doyle & Co., 46 Ark. 122; and Stix v. Chaytor, 55 Ark. 116, 17 S.W. 707.
They urge that there is no distinction, in the application of this principle, between a mortgage that conveys a stock of merchandise in a store and one that conveys lumber and other material, which may be by the mortgagor, in the due course of business, manufactured into furniture for the market and disposed of for the mortgagor's use and benefit. Albes v. Keith, Simmons & Co. (Ala.), 44 So. 693, and cases cited.
The reason for the rule in the case of chattels is that the conduct of the parties dealing with the mortgaged property in such cases shows that the mortgage was executed with a fraudulent intent. Where the mortgage contemplates that the mortgagor shall continue in possession, making sales from day to day as owner, and dealing with the goods and proceeds as his own, with the mortgagee's knowledge and consent, it is difficult to resist the conclusion that this course of conduct on the part of the mortgagor was intended by the parties when the mortgage was made. Hence in such cases it is held as a matter of law that a chattel mortgage is void as against creditors and other persons acquiring interests adverse to the rights of the mortgagee.
This rule has no application, however, under the facts in the case at bar. The mortgage was given on standing timber which constituted a part of the realty. It is well settled in this State that growing trees constitute a part of the realty, and their conveyance by the owner to a purchaser is a conveyance of an interest in the land itself. Chicago Land & Timber Co. v. Dorris, 139 Ark. 333, 213 S.W. 759; Henry Quellmalz Lbr. & Mfg. Co. v. Roche, 145 Ark. 38, 223 S.W. 376; Graysonia-Nashville Lumber Co. v. Saline Development Co., 118 Ark. 192, 176 S.W. 129, and cases cited.
It is true that the description of the property in the mortgage is, "all of the timber now standing and growing or having recently been cut down on all the following described lands." But the record shows that the mortgage on the standing timber constituted the greater part of it, and that the timber recently cut down was a mere incident, and that the mortgage on it was not the real security. It will be remembered that the mortgage executed in 1922 was but a renewal of the original mortgage executed in September, 1919. Under these circumstances it cannot be said that the mortgage is fraudulent without regard to the actual intent of the parties to defraud.
It is conceded that the general rule is that a purchaser of mortgaged property takes it subject to the mortgage, where the mortgage is recorded as in the present case. The undisputed facts show that no express agreement was entered into between the mortgagors and the mortgagee to allow the former to sell the mortgaged property and subject the proceeds to its own use. The mortgagors, however, were placed in possession of the timber embraced in the mortgage, and it is claimed that they had the implied authority to cut and carry away the mortgaged timber.
The president of the Bank of Lepanto testified in positive terms that he did not give the mortgagors nor any one else authority to cut the timber embraced in the...
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