National Bank of Eastern Ark. v. General Mills, Inc.

• Decision Date: 08 November 1960
• Docket Number: No. 16458.,16458.
• Citation: 283 F.2d 574
• Parties: NATIONAL BANK OF EASTERN ARKANSAS, Appellant, v. GENERAL MILLS, INC., et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

283 F.2d 574 (1960)

NATIONAL BANK OF EASTERN ARKANSAS, Appellant, v. GENERAL MILLS, INC., et al., Appellees.

No. 16458.

United States Court of Appeals Eighth Circuit.

November 8, 1960.

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

N. M. Norton, Forrest City, Ark., for appellees; Osro Cobb, U. S. Atty., and Ralph M. Sloan, Asst. U. S. Atty., Little Rock, Ark., and Norton & Norton, Forrest City, Ark., on the brief, for appellees.

Before VAN OOSTERHOUT and BLACKMUN, Circuit Judges, and REGISTER, District Judge.

VAN OOSTERHOUT, Circuit Judge.

The appellant National Bank of Eastern Arkansas, hereinafter sometimes referred to as the Bank, a plaintiff below, appeals from the portion of the final judgment that determines that the trust deeds the Bank was seeking to foreclose did not secure certain antecedent and subsequent debts owing to it by the mortgagor. The trial court in its opinion reported at 177 F.Supp. 667,¹ gives a fair and complete description of the trust deeds and the notes involved in this litigation and sets out the pertinent facts.

The basic facts are that Noah Blankenship gave the Bank three separate trust deeds, one given on June 16, 1956, covering a store, one given on December 5, 1953, covering a farm, and one given on September 8, 1951, covering the mortgagor's home. Each of the trust deeds, after providing that it secured a specific note, contains a broad provision to the effect that it secures antecedent debts and subsequent advances. Such provisions contained no description of the antecedent debts nor did they expressly limit the nature of the subsequent advances. The trust deed on the home provided "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 provisions in the other trust deeds varied somewhat but were of the same general effect.²

At the time this action was commenced, the Bank owned nine notes for advances it made to Blankenship between December 22, 1955, and April 11, 1957. All of these advances were made subsequent to the first two trust deeds and seven of the nine notes were subsequent to the last trust deed.³ The unpaid principal of such notes aggregated $1,164.50.

Plaintiff Swan owned a mortgage, not in controversy on this appeal, on the home prior in point of time to the Bank's trust deed, but the lien of such mortgage was subordinated to the Bank's lien.

In July 1956 Blankenship gave defendant General Mills, Inc., a deed of trust covering the three parcels here involved as security for an antecedent debt and in October 1956 Blankenship gave Cameron Feed Mills, Inc., a mortgage on the three parcels to secure an antecedent indebtedness owing it. The Commissioner of Labor of the State of Arkansas holds a junior lien upon the mortgaged property. These defendants by appropriate pleadings asserted their liens to be prior to those of the Bank.

The United States of America is the owner of two mortgages on the farm originally given to the Guardian Company to secure F. H. A. loans and later assigned to the government. The unpaid balance on these loans is $832.97. These mortgages were subsequent in time to the Bank's trust deed covering the farm. The government answered and cross-claimed for the foreclosure of its liens, asserting priority.

This action was originally commenced in the Arkansas State Court and was transferred to this court upon petition of the United States of America, pursuant to 28 U.S.C.A. § 1444. The government asserts jurisdiction on its cross-claim under 28 U.S.C.A. § 1345. The court acquired jurisdiction of this action pursuant to the foregoing statutes.

It is noted at this point that jurisdiction is not based upon diversity of citizenship. Diversity of citizenship has not been established. Consequently, the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 does not apply. United States v. Standard Oil Co., 332 U.S. 301, 307, 67 S.Ct. 1604, 91 L.Ed. 2067; United States v. McCabe Co., 8 Cir., 261 F.2d 539, 543.

The parties and the trial court all took the position that Arkansas law controls on the issues presented by this appeal. No one contended, either in the trial court or here, that Arkansas law does not control the present situation. The government acquired its lien by assignment from the original lien holder, a private corporation. Under these circumstances we see no reason why the law of Arkansas should not be applied. Accordingly, we proceed on the basis that Arkansas law controls.

The trial court held that the Bank under its trust deeds had a first lien upon the respective tracts covered by each of its trust deeds to the extent of the balance remaining due on the indebtedness specifically described in each of such deeds, and granted foreclosure and priority to such extent. The court rejected the Bank's contention that by reason of the dragnet and future advances provisions of its trust deeds it had prior liens upon each of the three parcels of real estate, to secure all of Blankenship's indebtedness to the Bank. The court's holding is based on its determination of Arkansas law, stated by the court as follows:

"The `other indebtedness\' secured by a mortgage may be either antecedent or subsequent. Where it is antecedent, it must be identified in clear terms, and where it is subsequent, it must be of the same class as the primary obligation secured by the instrument and so related to it that the consent of the debtor to its inclusion may be inferred." D.C., 177 F.Supp. 667, 673.

The basic issue raised by this appeal is whether the court reached a permissible conclusion in making the foregoing determination of the applicable Arkansas law. We have frequently called attention to the fact that the power to interpret state laws rests with the supreme court of the state. We have no power to make authoritative decisions on questions of state policy or state law. Our duty in such cases is to attempt to determine what a state court would do if the case were before it. We have repeatedly held that we will not attempt to outpredict or outguess the trial court on a doubtful question with respect to the law of its state. Homolla v. Gluck, 8 Cir., 248 F.2d 731, and cases cited. In the case just cited, we quoted with approval from National Bellas Hess, Inc. v. Kalis, 8 Cir., 191 F.2d 739, 741, as follows:

"`We have repeatedly said that, in reviewing doubtful questions of local law, we would not adopt views contrary to those of the trial judge unless convinced of error, and that all that this Court reasonably can be expected to do in such cases is to see that the determination of the trial court is not induced by a clear misconception or misapplication of the local law. Russell v. Turner, 8 Cir., 148 F.2d 562, 564; Buder v. Becker, 8 Cir., 185 F.2d 311, 315, and cases cited. If a federal district judge has reached a permissible conclusion upon a question of local law, we will not reverse, even though we may think the law should be otherwise.\'"

We now examine the trial court's determination of the Arkansas law, applying the foregoing standards. A careful reading of the trial court's opinion satisfies us that the court gave careful and full consideration to the pertinent decisions of the Arkansas Supreme Court. The trial court cites and discusses many Arkansas cases bearing on the problem confronting it. The court concedes that under Arkansas law the parties to a trust deed or mortgage may contract to extend the lien created by such instruments to obligations other than those specifically described, provided they express their intent so to do with sufficient definiteness, and that absent ambiguity, courts must interpret the trust deed in accordance with the intention of the parties as expressed by the language appearing in such instrument.

The court then states that provisions to the effect that security is afforded for indebtedness other than that specifically described are not favored by equity and will be construed rather strictly. In support of such statement, the court sets out pertinent quotations from Berger v. Fuller, 180 Ark. 372, 377, 21 S.W.2d 419, 421, and Hendrickson v. Farmers' Bank & Trust Co., 189 Ark. 423, 73 S.W.2d 725, 729, the latter case quoting supporting language from American Bank & Trust Co. v. First National Bank of Paris, 184 Ark. 689, 43 S.W.2d 248.

The trial court's conclusion as to the applicable Arkansas law heretofore set out is in substance identical with statements of the Arkansas court found in the Hendrickson case, supra, and in Bank of Searcy v. Kroh, 195 Ark. 785, 114 S.W.2d 26. Additional support for the trial court's conclusion is found in Martin v. Holbrooks, 55 Ark. 569, 18 S.W. 1046; Page v. American Bank of Commerce & Trust Co., 167 Ark. 607, 269 S.W. 561; Detroit Fire & Marine Ins. Co. v. Helms, 184 Ark. 308, 42 S.W.2d 394.

The Bank, in support of its position relies on Hollan v. American Bank of Commerce & Trust Co., 168 Ark. 939, 272 S.W. 654. This case tends to support the Bank's contention and emphasizes that the contract must be interpreted in accordance with the intention of the parties as expressed in the words used in the contract. The Hollan case distinguishes the Page case, supra, on the basis of difference in language and observes that each case of this type must be decided upon its own peculiar facts. The court does state that no opinion is expressed as to what the effect of the language used would be if the rights of subsequent mortgages were involved. Such reserved issue confronts us here.

Moreover, in the subsequent case of Berger v. Fuller, supra, the court states that the Hollan case did not hold that an indebtedness secured by another and different mortgage was secured by the mortgage in suit, explaining that the quotation relied upon "was merely illustrative in...