Agri Bank FCB v. Maxfield

Robert L. Brown, Justice. This case concerns the construction of a warranty deed and whether the language of the deed evidenced on its face the retention of a vendor’s lien in the amount of $95,000 so as to give appellee Jordan Maxfield, Successor Trustee, a priority lien. The chancellor ruled that a vendor’s lien was sufficiently created and further ruled that the lien took priority over a mortgage in favor of appellant Agri Bank FCB. We hold that a vendor’s lien for $95,000 was not evidenced by the deed, and we reverse and remand. J.R. Maxfield, Jr. owned land in Carroll County known as the 5M Ranch. In 1979, he became ill and decided to sell this property. His sons, Jordan Maxfield and Morgan Maxfield, agreed to buy it. On February 4, 1980, Maxfield and his wife, Kathryn Maxfield, executed and delivered a deed to the 5M Ranch to Morgan Maxfield. The warranty deed read: WARRANTY DEED WITH ASSUMPTION OF DEBT With Relinquishment of Dower KNOW ALL MEN BY THESE PRESENTS: THAT, we J.R. MAXFIELD, JR. and wife, KATHRYN J. MAXFIELD, hereinafter called Grantors, for and in consideration of the sum of Ten Dollars ($10) and other good and valuable considerations, to us in hand paid by MORGAN MAXFIELD, hereinafter called Grantee, the receipt of which is hereby acknowledged, do hereby grant, bargain, sell and convey unto Morgan Maxfield of Clay County, Missouri and unto his successors and assigns forever, all of the Grantors interest in certain real estate briefly described as 1,500 acres more or less, in Township 20 North Range 27 West, in Carroll County, Arkansas, known as the 5M Ranch, which property is more particularly described on Exhibit “A” and incorporated herein by reference. TO HAVE AND TO HOLD the same unto the said Grantee and unto his successors and assigns forever, with all appurtenances thereunto belonging. AND we hereby covenant with said Grantee that we will forever warrant and defend the title to the said lands against all claims whatsoever, said conveyance being subject to all recorded easements and encumbrances. AND I KATHRYN J. MAXFIELD, wife of said J.R. MAXFIELD, JR., for and in consideration of the sum of money, do hereby release and relinquish unto the said Grantee all my right of dower and homestead in and to said lands. SAID Grantee hereby assumes the payment of certain notes totaling $240,000.00 in conjunction with this transfer of the above described 1,500 acres, more or less, in Carroll County, Arkansas. WITNESS our hands and seals on this 4th day of February, 1980. /s/ J.R. Maxfield, Jr. J.R. MAXFIELD, JR. Is/ Kathryn J. Maxfield KATHRYN J. MAXFIELD /s/ Morgan Maxfield MORGAN MAXFIELD On February 4, 1980, Morgan Maxfield also executed and delivered to his father a promissory note in the amount of $95,000, payable on April 3, 1983. Jordan Maxfield, who was present, later testified that a Deed of Trust was executed by Morgan Max-field at the same time, but no Deed of Trust was recorded or introduced into evidence at the hearing. There was no reference in the promissory note to a vendor’s lien. No payment was made on the $95,000 promissory note. The warranty deed was recorded on April 4, 1980. On April 8, 1980, Morgan Maxfield executed a promissory note in the amount of $313,000 payable to Federal Land Bank of St. Louis (subsequently Farm Credit Bank of St. Louis and now Agri Bank FCB) and further executed a mortgage to secure the note. That mortgage was recorded on May 12, 1980. Morgan Maxfield died in a plane crash on September 4, 1981, and his will was admitted to probate in Missouri. A petition for ancillary administration was filed in Carroll County, and several claims against the estate followed, including two claims by his father, J.R. Maxfield, Jr. One of those claims was for $95,000 predicated on the February 4, 1980 promissory note. The executor of the Estate objected to the claim. On October 17, 1990, the 5M Ranch which secured the debt of the Agri Bank and allegedly the vendor’s lien of J.R. Maxfield, Jr. was sold to Dam Site Better for $338,918.84 pursuant to an order of the probate court. On January 13, 1992, appellee Jordan Max-field, Successor Trustee of the Maxfield Trust and the interest of J.R. Maxfield, Jr., filed an amended petition for declaratory judgment in chancery court asking that the $95,000 debt be declared to be a vendor’s lien with first priority. Farm Credit Bank as predecessor to Agri Bank responded that its mortgage was in fact superior and that no vendor’s lien for the $95,000 debt had been retained by the Maxfields. It counterclaimed for an unpaid debt of $255,761.72 on its note plus interest, late charges, and attorneys fees, and prayed for foreclosure of its mortgage. On June 4, 1993, the chancellor entered an order and found as follows on the vendor’s lien question: A vendor’s lien is created when the grantor of the real property retains in the document transferring title a lien securing the purchase price of the property. . . . The warranty deed clearly recites an existing indebtedness at the time the deed was executed. Even though the Deed provides for an assumption of the debt, that doesn’t mean that it wasn’t for a part of the purchase price of the property. In fact, there wasn’t any testimony indicating the $240,000.00 debt mentioned in the deed was ever paid. The document creating the vendor’s lien is clear and unambiguous and [the] Court does not need to go beyond it. The Court finds that a vendor’s lien was retained by J.R. Max-field in the property. The chancellor then granted Jordan Maxfield, Successor Trustee, a vendor’s lien securing the $95,000 promissory note and decreed it to be a first lien against the net sale proceeds of $338,918.84 derived from the sale of the 5M Ranch. Agri Bánk contends that the chancellor erred as a matter of law in finding that the warranty deed evidenced a vendor’s lien on its face. We agree that this was error and reverse on this point. The warranty deed in question was styled “Warranty Deed With Assumption of Debt With Relinquishment of Dower” and stated, “grantee hereby assumes the payment of certain notes totaling $240,000.00 in conjunction with this transfer of the above described 1,500 acres . . . .” There was no mention of the new $95,000 promissory note in the deed. Jordan Maxfield, Successor Trustee, urges that the express reference to the assumed payment “of certain notes” and the fact that part of the purchase price remained unpaid are enough to evidence a vendor’s lien for the $95,000 note. We do not agree. A vendor’s lien must either be stated in the deed or appear from the face of the deed. Beard v. Bank of Osceola, 126 Ark. 420, 190 S.W. 849 (1916). Here, neither circumstance occurred with respect to the new debt of $95,000. There is a practical problem here, which we alluded to in a case dealing with a priority between mechanics liens and construction money mortgages, and which we believe to be relevant. See Jack Collier East Co. v. Barton, 228 Ark. 300, 307 S.W.2d 863 (1957). In Barton, we said: Practical considerations also sustain the view we have adopted, we think. It would place a great burden on materialmen and, in particular, laborers not to be able to rely on public records for protection. Otherwise they would have to rely on hear-say (sic) and oral agreements, and would have to make extensive investigations for which they are ill equipped. We have examined the authorities on which appellant, East, relies to show that actual notice is sufficient but fail to find in (sic) any merit in them as they pertain to a different situation. 228 Ark. at 305-306, 307 S.W.2d at 866. The same holds true for Agri Bank in the case before us. The warranty deed at issue was recorded on April 4, 1980, and its mortgage from Morgan Maxfield signed four days later was recorded on May 12, 1980. Examination of the deed records would not have alerted a prudent researcher that a vendor’s lien for a new promissory note in the amount of $95,000 had been retained. Partial payment by promissory note and. by assumed debt are simply different means of satisfying the purchase price. The one does not necessarily follow the other. We conclude that the assumed debt language by itself did not put third parties, including Agri Bank, on notice that a vendor’s lien in the amount of $95,000 for the new promissory note had been retained. We reverse and remand for an order in accordance with this opinion. Reversed and remanded. Holt, C.J., and Newbern, J., dissent. Corbin, J., not participating.