Franklin Sav. Bank v. Garot

• Decision Date: 27 February 1934
• Docket Number: No. 9779.,9779.
• Citation: 69 F.2d 487
• Parties: FRANKLIN SAV. BANK OF FRANKLIN, N. H. v. GAROT.
• Court: U.S. Court of Appeals — Eighth Circuit

69 F.2d 487 (1934)

FRANKLIN SAV. BANK OF FRANKLIN, N. H. v. GAROT.

No. 9779.

Circuit Court of Appeals, Eighth Circuit.

February 27, 1934.

John L. Ingram and T. J. Moher, both of Stuttgart, Ark., for appellant.

C. W. Gray, of Little Rock, Ark., George E. Pike, of Dewitt, Ark., and J. Merrick Moore, of Little Rock, Ark., for appellee.

Before GARDNER, WOODROUGH, and BOOTH, Circuit Judges.

WOODROUGH, Circuit Judge.

In January, 1926, Fairbanks, Morse & Co. sold an eighty-horse power oil engine to one J. F. Girerd of Almyra, Ark., for $5,702 on the customary installment plan, the down payment being $1,450 and $450 allowed for an old engine then in use, the balance of $3,802 evidenced by three notes due December 15, 1926, '27 and '28 respectively. The written contract of sale contained, among many provisions, the following:

"The deferred payments represented by notes shall be secured by first chattel mortgage on machinery herein specified."

"That the title and ownership of the machinery and (or) materials herein specified shall remain in the Company until final payment therefor has been made in full as provided above. * * * Or in the event that any judgment is taken on account of all or any part of the said sums the title to the machinery or the materials shall not pass until such notes so given * * * or such judgment taken, are fully paid in money and satisfied. The company shall have the right to * * * transfer any of said notes, and the title or right of possession in and to said machinery or materials shall pass thereby to the legal holder of such notes."

"The said machinery * * * shall be and remain strictly personal property and retain its character as such, no matter whether on permanent foundation or in what manner affixed or attached to any building or structure, or what may be the consequences of its being disturbed on such foundation, building or structure, or for what purpose the machinery * * * may be used."

The engine was installed upon Mr. Girerd's rice farm in Arkansas county, Ark., to furnish power for operation of the pump necessary to irrigate the rice land. At the time of the installation the farm was, and for several years had been, subject to a real estate mortgage owned by appellant, Franklin Savings Bank of Franklin, N. H. Mr. Girerd died in November, 1926, and at that time the real estate mortgage was unpaid, as well as two installments on the purchase price of the engine. After the death of Mr. Girerd, Fair-banks, Morse & Co. filed its claim with the administrator of the estate, which was allowed and reported by the administrator to the probate court. Afterwards, in February of 1927 Fairbanks, Morse & Co. sold the contract and the installment note due December 15, 1928, to one Mrs. Augusta Garot, and she is now the owner of the same and successor to whatever interest Fairbanks, Morse & Co. had in the engine.

Before the mortgage on the land fell due, the appellant mortgagee commenced this action in the United States District Court of Arkansas, E. D., to enjoin the removal of the engine from the freehold covered by the mortgage, claiming that the same was a fixture appurtenant to the land and subject to the first lien of the mortgage. Thereafter the real estate mortgage became due and was unpaid, and by amendment the case proceeded as a suit to foreclose the mortgage on the land and appurtenances, including the engine. Mrs. Garot was made party defendant, and by answer set up her purchase of the installment note and contract from Fairbanks, Morse & Co., and answered in the alternative that, if the above-mentioned contract of purchase be construed as a conditional sales contract, her title and right in and to the engine should be decreed paramount and superior to the lien of the real estate mortgage, but, if it be construed as an equitable mortgage or chattel mortgage, she should be adjudged to have a first lien to the extent of her note and interest, and she prayed that the engine be sold in foreclosure and payment be made to her from the proceeds and for equitable relief.

The trial court decreed that Mrs. Garot have a first lien on the engine and that it be sold separately from the land to satisfy her first lien, and, if there was any sum remaining thereafter, the surplus be applied upon the claim and mortgage of the savings bank. From this decree the Franklin Savings Bank appeals on the grounds that the trial court erred in decreeing a lien in favor of Mrs. Garot on the engine in controversy — a lien prior to the plaintiff's lien — and that the court erred in entering decree of foreclosure as to said engine.

It is contended for appellant that the Fairbanks, Morse & Co. contract must be classified either as a chattel mortgage or as a conditional sales contract; that it is void against the real estate mortgage as a chattel mortgage because it was not recorded and the mortgagee is to be regarded as a third party under the laws of Arkansas, against whom an unrecorded chattel mortgage is void; that, if it was a conditional sales contract, any right to pursue and reclaim the engine was lost by the filing and allowance of the claim in the probate court; and that such filing and allowance of claim was equivalent to suing and obtaining personal judgment and constituted an election to treat the conditional sale as an absolute one, and hence a waiver of the retention of title.

It will be noted that in the instant case the Fairbanks, Morse & Co. contract contains the express provision that: "In the event that any judgment is taken on account of all or any part of the said sums the title to the machinery shall not pass until such judgment taken is fully paid in money and satisfied."

It is not pointed out that this express agreement between the parties violated any law of Arkansas or that it was contrary to the public policy of the state, or that there is any valid reason why full effect should not be given to it. Apparently it affords complete answer to the contention that the filing of claim with the administrator operated to waive the rights preserved by the contract. 24 Ruling Case Law, 484. But the matter, not having been argued by counsel, is passed.

It is clear that the contract contains all the necessary elements of a conditional sales contract, reserving the title to the engine in Fairbanks, Morse & Co. until full payment was made. So considered, there is no question that under the recent decisions of the Supreme Court of Arkansas the contract while in effect and unpaid fully preserved the rights of Fairbanks, Morse & Co. and its successor, Mrs. Garot, against any claim of the owner of the real estate mortgage. In Evans v. Argenta Bldg. & Loan Ass'n, 180 Ark. 654, 22 S.W.(2d) 377; and Catlin v. C. E. Rosenbaum Co., 180 Ark. 739, 22 S.W.(2d) 906, decided by the Supreme Court of Arkansas at the April term, 1930, that court clearly settled that chattels sold on conditional sales contracts, though attached as fixtures to mortgaged real property, may be reclaimed by the conditional vendor against the mortgagee wherever the removal of the fixtures will not materially injure the premises, and the injury in mind is physical damage, defacement, or tearing down as of walls or structures; not merely the deprivation of things that may be useful or advantageous in carrying on enterprises upon the land. In the case last cited, Catlin v. C. E. Rosenbaum Co., 180 Ark. 739, 22 S.W.(2d) 906, the particular chattel involved was an eighty-horse power Muncie oil engine installed upon a rice farm in the same manner and for the identical uses as was the engine in this case. The mere extraction of fastening bolts from the moving of the engine in this case could cause no injury to the freehold within the intention of the Arkansas decisions.

The appellant, however, contends that, when Fairbanks, Morse & Co. filed its claim with the administrator of the estate of Mr. Girerd and the same was allowed and reported by the administrator to the probate court, the company thereby lost its right to retake the engine under the conditional sales contract. The argument is that the filing of the claim constituted an election to treat the sale as an absolute one, and should be deemed to be a waiver of the...