National Bank of Eastern Arkansas v. Blankenship

• Decision Date: 25 September 1959
• Docket Number: Civ. No. 641.
• Parties: NATIONAL BANK OF EASTERN ARKANSAS et al., Plaintiffs, v. Noah BLANKENSHIP et al., Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

177 F. Supp. 667

NATIONAL BANK OF EASTERN ARKANSAS et al., Plaintiffs, v. Noah BLANKENSHIP et al., Defendants.

Civ. No. 641.

United States District Court E. D. Arkansas, E. D.

September 25, 1959.

E. J. Butler, Forrest City, Ark., for plaintiffs.

Nathan M. Norton, Forrest City, Ark., Ralph M. Sloan, Asst. U. S. Atty., A. E. Townsend, Jr., and Luke Arnett, Atty. for Arkansas State Labor Department, Little Rock, Ark., for defendants.

HENLEY, Chief Judge.

This cause, which was commenced in the Chancery Court of St. Francis County, Arkansas, and removed to this court by the defendant United States of America, has been submitted to the Court upon the pleadings and exhibits thereto, an agreed statement of facts with exhibits attached, certain testimony taken ore tenus, and written briefs. The Court, being well and sufficiently advised, files this memorandum opinion, incorporating herein its findings of fact and conclusions of law.

The plaintiffs, National Bank of Eastern Arkansas, E. J. Butler, trustee for said bank, and Fred Swan, brought this action to foreclose deeds of trust on three parcels of land in St. Francis County, Arkansas, the property of the defendant, Noah Blankenship.¹ In addition, the plaintiff bank seeks to have the liens of the three deeds of trust held by it declared superior to liens held by the defendants, United States, General Mills, Inc., and Cameron Feed Mills, Inc., and to a tax lien held by the defendant, C. R. Thornborough, who is Commissioner of Labor of the State of Arkansas.²

The three tracts of land involved in this case will be referred to, respectively, as Parcel No. 1, Parcel No. 2, and Parcel No. 3. Parcel No. 1 consists of a lot in Forrest City, Arkansas, upon which prior to his bankruptcy Blankenship operated a store. Parcel No. 2 is a 44-acre farm in St. Francis County owned by Blankenship. And Parcel No. 3 is another city lot in Forrest City which constitutes Blankenship's homestead. After the institution of this action a receiver was appointed to take over these properties, and the same are now in his hands.

The Bank holds deeds of trust covering each of these tracts of land, and there is no question that the lien of each of those deeds of trust is a first and paramount lien on the parcel of land covered thereby to the extent of the primary obligation described in said instrument. The Bank contends, however, that by virtue of "dragnet clauses" appearing in its security instruments it has a prior lien on all of Blankenship's properties securing all three primary obligations described in the respective deeds of trust, and further securing certain alleged future advances which it claims to have made to Blankenship on the strength of said instruments. The other lien holders that have been mentioned, and who are defendants herein, deny the validity of the Bank's broad claim to priority and also contend that the Bank made an improper application of the proceeds of the bankruptcy sale of certain chattels of Blankenship on which it held chattel mortgages. There is also an issue with respect to the Bank's claim for the allowance of an attorney's fee. In resolving these disputes the Court is governed by the law of Arkansas.

The lien history of each of the three parcels of land above described is as follows:

Parcel No. 1—The Store.

On April 14, 1951, Blankenship and his wife borrowed $2,750 from N. P. Dean, and gave him their note for that amount, which note bore 6% interest, and on which there is now due the sum of $1,841.57, plus interest. This note was secured by a deed of trust covering the parcel of land now under consideration.

On June 16, 1956, Blankenship and his wife borrowed $2,600 from the plaintiff Bank, giving their note therefor, on which note, as of July 30, 1957, there was due the sum of $2,300 principal, plus interest amounting to $161.39. That note was secured by a deed of trust on the store property, which instrument contained the stipulation that it stood as security not only for the $2,600 primary obligation but also for "any further sums which the (Bank) * * * may advance to take care of taxes, insurance or prior encumbrances on the above described real estate, or any part thereof." And the instrument further provided that: "* * * this trust deed shall also secure any and all further advances, now or hereafter owing by (the Blankenships) to (the Bank) whether evidenced by note endorsement, book account or otherwise until final satisfaction of the Trust Deed of record."

While the Bank's deed of trust on this tract was more than five years junior to the note and deed of trust executed in favor of N. P. Dean, the record discloses that on the same day that the Bank obtained its trust deed the plaintiff, Fred Swan, who had in the meantime purchased the Dean note, agreed that the deed of trust securing the note last mentioned should be subordinated to the lien of the Bank.

By the summer of 1956, Blankenship was heavily indebted to General Mills and to Cameron on account of purchases of merchandise, principally chicken feed. To secure his account with General Mills Blankenship on July 6, 1956, executed a deed of trust covering all three of the parcels here involved, and in October of that year he gave a mortgage on all three tracts to Cameron to secure the account owed by him to that creditor. There is now due General Mills the sum of $8,100 plus 6% interest from December 6, 1956; and there is due Cameron the sum of $25,678, plus interest.

Parcel No. 2—The Farm.

This parcel is encumbered by a deed of trust in favor of the Bank, dated December 5, 1953, and now securing an indebtedness of $2,975.79, plus interest, evidenced by a renewal note, dated November 13, 1956, which superseded an original note in the sum of $3,294.32, which was of even date with the deed of trust.

This tract is also subject to two mortgages in favor of the Guardian Company, which were given to secure F.H.A. loans, and which have been assigned to the Government. The first mortgage given to the Guardian Company was dated December 28, 1953, and there is now due on the note secured by it the sum of $155.05 as principal, plus a small amount of interest. The second mortgage to Guardian was executed on December 24, 1955, and there is now due on the note secured by it the sum of $832.97. These two mortgages taken together constitute a second lien on this parcel.

As indicated, this piece of land is also subject to General Mills' deed of trust and to Cameron's mortgage.

The deed of trust in favor of the Bank provided that in addition to the primary obligation the instrument should also secure "any and all other indebtedness now or hereafter owing by Noah Blankenship * * * to the party of the third part, whether evidenced by note, account, endorsement or otherwise until final satisfaction of this trust deed of record."

Parcel No. 3—The Home.

The first lien on this tract is a deed of trust in favor of the Bank, dated September 8, 1951, securing a loan of $1,600, plus 6% interest, on which loan there was due as of July 30, 1957, a balance of $1,295.72 principal and $62.21 interest. That instrument recited that it was agreed and understood "that this note and trust deed is to secure the third party for any other indebtedness we, or either of us, now or may hereafter owe it, either as principal, endorser or otherwise and until paid in full and St. Francis County records are satisfied."

The General Mills deed of trust is a second lien on this tract of land; and the Cameron mortgage constitutes a third lien.

All of the deeds of trust and mortgages above mentioned were duly filed for record and recorded.

Ignoring for the present all questions of future advances and of the operation and effect of the "dragnet clauses" in the Bank's deeds of trust, it appears from what has been said that the lien status of each of these parcels of land, as far as the primary obligations secured by the respective security instruments are concerned, is as follows:

Parcel No. 1: The Bank has a first lien securing its primary obligation of $2,300, plus interest. Fred Swan has a second lien securing a balance of $1,841.57, plus interest. General Mills has a third lien securing a debt of $8,100, plus interest. And Cameron has a fourth lien for $25,678, plus interest.

Parcel No. 2: The Bank has a first lien securing a primary obligation of $2,975.79, plus interest. The Government holds security amounting to a second lien securing balances totaling $988.02, plus interest. General Mills and Cameron hold third and fourth liens as aforesaid.

Parcel No. 3: The Bank has a first lien securing a primary obligation of $1,600, plus interest. The second and third liens are held by General Mills and Cameron, respectively.

The parties have stipulated that in addition to the primary obligations specifically described in its deeds of trust the Bank "made new loans, advances, renewals and extensions to Noah Blankenship and Beulah Blankenship evidenced by notes and obligations executed by them to the bank * * *" The agreed statement of facts then lists twelve notes executed by the Blankenships, the earliest being dated December 22, 1955, and the last bearing date of April 11, 1957. It further appears from the agreed statement that in October, 1957, the Bank received $1,491.32 as proceeds from the bankruptcy sale of certain mortgaged chattels, and applied that sum so as to retire completely three of the twelve notes and to reduce a fourth.³ The total amount of the unpaid principal of the nine remaining notes is $1,164.50.

The agreed statement of facts, to which reference has been made, was filed on January 15 of the current year. In preparation for the trial of the case the Court examined the pleadings, exhibits, and the agreed statement, and it occurred to the Court that there were certain matters that might be relevant and which were not fully covered by the agreed statement or disclosed by the exhibits. Subsequently, a...