Bank of Oak Grove v. Wilmot State Bank, 83-21

• Decision Date: 18 April 1983
• Docket Number: No. 83-21,83-21
• Citation: 648 S.W.2d 802,279 Ark. 107
• Parties: BANK OF OAK GROVE, Appellant, v. WILMOT STATE BANK, Appellee.
• Court: Arkansas Supreme Court

Page 802

648 S.W.2d 802

279 Ark. 107

BANK OF OAK GROVE, Appellant, v. WILMOT STATE BANK, Appellee.

No. 83-21.

Supreme Court of Arkansas.

April 18, 1983.

Griffin, Rainwater & Draper, Crossett, for appellant.

Arnold, Hamilton & Streetman, Crossett, for appellee.

HAYS, Justice.

This dispute arises from the foreclosure of land subject to three mortgages. It is agreed the property is subject to a first mortgage to First Federal Savings and Loan Association of Pine Bluff (now First South), but the Bank of Oak Grove (appellant) and the Wilmot State Bank (appellee) each claim to have a second mortgage. The Chancellor ruled in favor of the State Bank of Wilmot and the Bank of Oak Grove has appealed. We affirm the Chancellor.

The facts are not in dispute: George and Carolyn Bailey own two residential lots in Wilmot, Arkansas, subject to a first mortgage to First South dated March 19, 1979. On September 14, 1979, the Wilmot State Bank recorded its mortgage from the Baileys securing an indebtedness of $21,249.90. The margin of the record shows this mortgage to have been satisfied in full on January 28, 1980, but a later marginal entry on August 28, 1980, states that the release was entered by mistake and the indebtedness remains outstanding.

A few days after the mortgage to the Wilmot State Bank was mistakenly satisfied, the Baileys sought a loan from the Bank of Oak Grove, Louisiana. After satisfying itself that it would have a second mortgage, the bank agreed to make the loan and used a method familiar to lenders in Louisiana, i.e. taking a note from the Baileys payable to bearer and a mortgage identifying the mortgagee only as "any future holder." Appellant explains that under Louisiana practice this financing device, known as a collateral mortgage, allows the free negotiability of the debt; that the term "any future holder" is not intended to name a specific individual but only whoever may be a future bearer of the note. Appellant submits the Supreme Court of Louisiana has expressly recognized the use of nominal or "straw" mortgagees and, hence, mortgages to "any future holder" are valid in Louisiana. Commercial Germania Trust and Savings Bank v. White, 81 So. 753, 145 La. 54 (1919).

When the Baileys defaulted in their payments the Wilmot State Bank commenced foreclosure proceedings. Wilmot State Bank concedes First South's status as first mortgagee, but claims to have a prior lien as against "any future holder", which it attempted to serve by warning order. The Bank of Oak Grove intervened and, after a hearing, the Chancellor held that the mortgage to the Oak Grove Bank was void as to the Wilmot State Bank because "any future holder" was not a legal entity capable of holding title to land.

Appellant concedes title to real property is governed by the law of its situs and that Arkansas law requires that in conveyances of real property the grantee must be a legal entity, so that title can vest in either an individual, a partnership or a corporation. This was our holding in Lael v. Crook, 192 Ark. 1115, 97 S.W.2d 436 (1936), and in North Little Rock Hunting Club v. Toon, 259 Ark. 784, 536 S.W.2d 709 (1976), on which the Chancellor relied. In Lael v. Crook, we held that a deed to "Camp Wiley Crook, Sons of Confederate Veterans, and Chapter J. Mart Meroney, Daughters of Confederacy" was invalid, as there was no legal capacity by the grantees to take or hold title to real property. We recently applied the same reasoning to a lease of hunting rights to an unincorporated association of individuals. See North Little Rock Hunting Club v. Toon, supra. In Toon, we were asked to distinguish Lael v. Crook because that case involved an attempt to convey title in fee, whereas in the Toon case only a...