Farmers State Bank of Cameron v. Garrison

• Decision Date: 06 February 1961
• Docket Number: No. 23248,23248
• Parties: FARMERS STATE BANK OF CAMERON, Missouri, a corporation, Respondent, v. Eugene GARRISON, Margie Garrison, J. L. Garrison and Gladys Garrison, d/b/a Cameron Wood Products Company, Defendants (Not appealing), A. K. Gibbon Lumber Company, Inc., a corporation and Allen K. Gibbon, Appellants.
• Court: Missouri Court of Appeals

Page 323

344 S.W.2d 323

FARMERS STATE BANK OF CAMERON, Missouri, a corporation, Respondent, v. Eugene GARRISON, Margie Garrison, J. L. Garrison and Gladys

Garrison, d/b/a Cameron Wood Products Company, Defendants

(Not appealing), A. K. Gibbon Lumber Company, Inc., a

corporation and Allen K. Gibbon, Appellants.

No. 23248.

Kansas City Court of Appeals, Missouri.

Feb. 6, 1961.

Southall & Southall, by R. J. Southall, Kansas City, for appellants.

J. B. Beavers, Cameron, for respondent.

HUNTER, Presiding Judge.

This is an appeal by defendants-appellants, A. K. Gibbon Lumber Company, Inc., a corporation and its president, Allen K. Gibbon, from a judgment of the circuit court in the sum of $549.74 resulting from a court tried case.

The evidence was conflicting in some respects and involves questions of credibility of the witnesses. As a result of our own review of it, keeping in mind that the trial court observed the witnesses as they testified and had a more advantageous position from which to resolve those questions of fact involving credibility of the witnesses, we are persuaded to accept the trial court's finding of facts on the disputed questions as the facts of the case. We proceed to set these facts out with such minor changes or additions as may assist in an understanding of the issues presented.

In the fall of 1957, appellants were endeavoring to establish a supply source for certain cottonwood lumber to be used in the manufacture of box frames. Mr. Gibbon, president of the A. K. Gibbon Lumber Co., Inc., on behalf of himself and his company was the real promoter of this project. He contacted defendants, Eugene and J. L. Garrison, who under the name of Cameron Wood Products Company operated a small lumber and sawing business in Cameron, Missouri. In order to supply cottonwood lumber in the quantity desired by appellants, Cameron Wood Products Company needed to increase its capacity by the purchase of additional equipment and additional inventory of logs. Cameron Civic Committees offered to make ground and buildings available for the plant expansion.

Appellants realizing that the Garrisons needed capital both for machinery and logs, after some negotiations with respondent bank, entered into an agreement with it that both corporations would lend money to the Garrisons, the bank up to 80% of the value of the current inventory and the Gibbon Company up to 20% of the current inventory, with a maximum investment by the Gibbon Company to be $1,600.

In order for the Garrisons to have money for new equipment the bank agreed to lend them $8,000 to be secured by a note for $10,272.52, which included an outstanding earlier loan of $2,272.52, and a chattel mortgage covering equipment. Appellants knew all about this, and at the request of the bank appellant Gibbon Company cosigned the note, and received a copy of it and the chattel mortgage. Appellants and the bank knew this initial money was to be used for the purchase of equipment; that additional capital was needed by the Garrisons to obtain a necessary inventory of logs, and that additional financing of the Garrisons for that purpose by the bank appeared likely.

It was the bank's testimony, accepted as true by the trial court, and by us on review, that its president, Mr. Hiner, informed both Mr. Gibbon, president, and Mr. DeLaurier, treasurer of appellant Gibbon Company, that as additional loans might be made to the Garrisons the bank intended to take a chattel mortgage on all logs and lumber of the Garrisons, including that purchased with the bank's money and with the Gibbon Company's money. From time to time advancements based upon regular inventory reports furnished by the Garrisons to appellants and the bank were made both by the bank and by appellant company beginning in January, 1958, and extending into April, 1958. Altogether appellant Gibbon Company advanced the Garrisons a total of $2,320 and the bank advanced the Garrisons a total of $27,300.

On May 31, 1958, to secure the aggregate debt to it from the Garrisons for money loaned them up to that time for the mentioned purposes and unpaid, the bank took from the Garrisons a note in the sum of $21,000 secured by a chattel mortgage on logs and lumber owned by the Garrisons. This chattel mortgage was promptly recorded. On conflicting evidence, the trial court found that appellants had actual knowledge of this note and chattel mortgage, having been shown a copy of them in July, 1958.

From the very beginning, including both before and after the taking of the May 31, 1958, note and chattel mortgage, the same method of operation was used by the bank in that the Garrisons were permitted to retain possession and control of the inventory of logs and lumber and to sell at will to whomever submitted orders for the lumber. The bank had an agreement with the Garrisons that any proceeds received from such sales were to be paid over to the bank in partial payment of the Garrison's indebtedness to the bank. This was known to appellants.

Hiner testified that Gibbon, who aided the Garrisons in increasing their business by finding buyers for and arranging sales of lumber for the Garrisons and who admittedly was the broker or agent of them in such transactions, as a result of talks with the bank and with the Garrisons, was to charge the Garrisons a commission of approximately 7% on sales he arranged for them and with the bank's permission was entitled to withhold this commission and also a sum up to 20% of the amount of any such sale to apply on the Garrisons' indebtedness to appellant Gibbon Lumber Company, Inc., and the balance was to be turned over either to the Garrisons to give to the bank or turned over to the bank directly. According to Hiner, it was all right 'for him (Gibbon's) to retain his 20% as long as (the bank) got (its) 80%', and 'from the beginning that is the way each transaction was managed' by Mr. Gibbon.

On September 10, 1958, the bank took another note and chattel mortgage on logs and lumber and recorded the chattel mortgage on September 13, 1958. Appellants disclaim actual knowledge of this particular instrument or of its recording.

On October 2, 1958, appellants obtained and sent an order to the Garrisons for $732 worth of lumber to be shipped to York Town Manufacturing Company. When received by appellant Gibbon, the net proceeds were applied to the outstanding indebtedness of the Garrisons to appellant Gibbon Company.

On October 23, 1958, Mr. Hiner called Mr. Gibbon and demanded payment of the net proceeds ($687.17) of this sale, advising Gibbon of the existence of the September 10, 1958, chattel mortgage purporting to cover the lumber sold. Appellants refused to pay over the net proceeds, and suit resulted.

Appellants contend the trial court erred in finding that the chattel mortgage of September 10, 1958, constituted a valid and binding lien on the lumber sold by the Garrisons to York Town Manufacturing Company on October 2, 1958, for the alleged reason it did not sufficiently describe that lumber and provided for coverage for after-acquired property never taken into possession by the mortgagor bank.

The chattel mortgage in its descriptive portion specified:

'128,573 Linear Feet of Logs described as follows:

31,000 Linear Feet of Maple Logs.

97,573 Linear Feet of Cottonwood and other Logs.

144,543 Board Feet of Lumber described as follows:

6,270 Board Feet of Maple Lumber.

138,273 Board Feet of Cottonwood and other Lumber.

'belonging to * * * us * * * and located at (the plant location) being all of the property of the above description located at said place, or which is to be purchased with the proceeds of this loan and moved to said place. * * * It is agreed that this chattel shall cover all logs and lumber purchased after this date.'

According to the evidence the September 10, 1958, mortgage was based upon the currently provided inventory of the Garrisons, as were the earlier chattel mortgages. This practice of securing each new loan by a chattel mortgage on the then current inventory of the Garrisons was well known to appellant Gibbon Company, and it also referred to such inventories preliminarily to making its own loans to the Garrisons. It was the practice of the Garrisons to provide such inventories on a weekly basis to both the appellants and to respondent.

It is the general rule that to create a lien by chattel mortgage the property mortgaged must be identified at the time of the execution of the instrument. In general, the description should be so certain that the property mortgaged can be segregated from other similar articles. A less degree of certainty is required as between the mortgagor and mortgagee or one who stands in the same position as the mortgagor than when the rights of innocent third parties are involved. 10 Am.Jur., Chattel Mortgages, Sec. 53, p. 751, and Sec. 56, p. 753; 14 C.J.S. Chattel Mortgages § 57(2), p. 659.

We believe it to be a fair conclusion that since the chattel mortgage in describing the lumber and logs aided that description by giving their location and stating that they consisted of all the logs and lumber at that location, these appellants with the aid of the mentioned inventory would have no real difficulty in knowing what property was intended to be covered by the mortgage. See 14 C.J.S. Chattel Mortgages § 57(2), p. 659, and (3), p. 663; Ibid, § 57(c), p. 664. We need not be concerned about the rights of uninformed third parties or bona fide purchasers for value, for appellants were the originators of the plan of the bank lending to the Garrisons for expansion purposes, and as mentioned, had personal knowledge of the general loan plan being pursued by the bank in lending money to the Garrisons and the taking a chattel mortgage on the Garrisons' then current inventory of lumber and logs. They were...